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. These guidelines currently restrict risk management contracts to a maximum of 55 percent of production guidance over the next two years and 25 percent of production guidance beyond two years and up to five years where a specific commodity (crude oil or natural gas) cannot exceed a maximum of 70 per cent. 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)