Crescent Point’s use of financial derivatives, including swaps, costless collars and put options, reduces the volatility of the selling price of its crude oil and natural gas production. This provides a measure of stability to the Corporation's cash flows and dividends over time.

The Corporation's derivatives portfolio extends out 3½ years from the current quarter.

The CICA Handbook IFRS 9 “Financial Instruments”, gives guidelines for accounting for financial derivatives.  Financial derivatives that have not settled during the current quarter are fair valued each quarter. The change in fair value from the previous quarter represents a gain or loss that is recorded on the income statement as Unrealized Derivative Gains (Losses). As such, if benchmark oil and natural gas prices rise during the quarter, the Corporation records an Unrealized Derivative Loss based on the change in price multiplied by the volume of oil and natural gas hedged. If prices fall during the quarter, the Corporation records an Unrealized Derivative Gain.  The prices used to record the actual gain or loss are subject to an adjustment for volatility, then the resulting gain (asset) or loss (liability) is discounted to a present value using a risk-free rate.

The chart below shows historical quarterly Net Income Before Tax for the Corporation ⁽¹⁾ and Unrealized Derivative Gains (Losses). This is a graphical representation of the impact on Net Income BeforeTax due to the accounting treatment of the Corporation's hedge portfolio.

Quarterly Before Tax Income and Unrealized Derivative Gain (Loss) ⁽²⁾ Comparison

(1) Net Income Before Tax prior to 2010 is adjusted to deduct the Saskatchewan Corporation Capital Tax Resource Surcharge. 2010 Net Income Before Tax has been restated to comply with International Reporting Standards ("IFRS").

(2) Derivatives include the fair value adjustment on our Cross Currency Interest Rate swaps.

The Corporation's underlying physical reserves are not fair valued each quarter, hence no gain or loss associated with price changes is recorded; the Corporation realizes the benefit/detriment of any price increase/decrease in the period which the physical sales occur.

The Corporation ’s financial results should be viewed with the understanding that the future gain or loss on financial derivatives is recorded in the current period’s results, while the future value of the underlying physical sales is not. 

The chart below shows the Corporation ’s historical Net Income Before Tax ⁽¹⁾ excluding the impacts of Unrealized Derivative Gains (Losses).

Quarterly Before Tax Income Excluding Unrealized Derivative Gains (Losses) ⁽²⁾

(1) Net Income Before Tax prior to 2010 is adjusted to deduct the Saskatchewan Corporation Capital Tax Resource Surcharge. 2010 Net Income Before Tax has been restated to comply with IFRS.

(2) Derivatives include the fair value adjustment on our Cross Currency Interest Rate swaps.