Financial risk management is a fundamental part of Provident’s business model. Provident’s cash flow is affected by fluctuations in commodity prices for both crude oil and natural gas, quality differentials for both heavy and medium grade crude oil, NGL margins, the Canadian/U.S. dollar exchange rate, and credit exposure.

At its inception, Provident implemented a Commodity Price Risk Management Program that involves a systematic and disciplined hedging strategy to help minimize price risk associated with the volatility of commodity prices and to stabilize distribution levels within a narrow range. The Program serves to reduce the economic exposure of Provident to adverse market movements thus providing more stability of cash flow.

Provident manages its foreign exchange and counterparty risks, through similarly disciplined approaches. Opportunities to hedge foreign exchange through financial and physical transactions are continuously accessed as party of the Trust’s commodity hedging program. Counterparties with which Provident transacts must meet strict credit criteria and the Trust continuously monitors counterparty credit to ensure exposure limits are not exceeded.

Commodity Pricing Risk Management Summary