ARC conducts an active hedging program as part of its ongoing risk management activities. Hedging involves the use of financial contracts or derivatives to mitigate the exposure to an underlying asset. By hedging a portion of production, ARC is able to limit the exposure to commodity price volatility, which in turn provides a greater level of assurance and predictability over revenues, cash flows and dividend payments. The hedging program enables ARC to carry out its business plans, including the execution of capital programs, by providing a higher level of assurance over cash flows to fund the programs and rates of return on the capital projects.
ARC’s hedging program is conducted by an experienced Hedging Committee, and is governed by guidelines from the Risk Committee of the Board. The guidelines limit the amount of forecast total production that can be hedged to a maximum of 55 per cent of expected total production over the next two years and a maximum of 25 per cent of expected natural gas production beyond two years up to a maximum period of five years. In addition to hedging a portion of production, ARC also hedges foreign exchange rates, interest rates and power prices. ARC applies a portfolio approach to its risk management program by entering into a number of small positions that build upon each other; these may include a combination of swaps, collars and put options. This approach allows ARC to participate in commodity upturns to the greatest extent possible, while limiting exposure to price downturns.
For a detailed summary of ARC's latest hedged position please click here. (PDF)