Managing Risk

Hedging & Marketing

The primary goal of Pengrowth’s marketing program is to optimize the commodity price we realize on our products. Historically, we have used a combination of the following mechanisms to accomplish this:

  1. Apportionment protected physical contracts to guarantee that the oil we sell is delivered to market and isn’t turned back to us;
  2. Fixed differential physical contracts that fix the price we receive for our oil relative to the West Texas Intermediate (“WTI”) Crude Oil benchmark; and
  3. Financial hedges on commodity prices to establish a floor on pricing.

The first two mechanisms are sales contracts and not financial instruments. As such they directly impact the realized price of Lindbergh’s heavy oil, and show up as revenue in our income statement.

The last mechanism, financial hedges, result in a check being cut either for us or the counter party depending on whether the hedges are in the money or not, and show up on the income statement under commodity risk management gains (losses).

2019 Apportionment Protected Fixed Differential Contracts

The combined result of the first two mechanisms described above (apportionment protection and fixed differential physical contracts) result in a large portion of our production being protected from volatility in the differential between WTI and our realized price.

Pengrowth has continued to secure market access through physical delivery contracts with key customers. As at December 31, 2018, Pengrowth had a combination of physical and financial contracts in place that ensure market access for 17,500 bbl/d of dilbit at an average price of WTI minus US$18.68 for 2019.

Average WCS Price Differential to WTIUS $ / BBLBBL / DEstimated Coverage
2019 (1)($18.68)17,50072%
(1) Inclusive of 5000 BBL/D of dilbit apportionment protected at WCS index plus a US$2.00/BBL apportionment protection fee and financial contracts covering this volume that fix the pricing relative to WTI. The financial contracts will be recognized as commodity risk management gains (losses) in the income statement.

2019 WTI

Hedge Positions

As the Company pursues greater cash flow certainty, for the third quarter of 2019 Pengrowth entered into WTI swaps and costless collars totaling 5,000 bbl/d for an average realized price of US$57.77/bbl using the following instruments: