Perpetual's risk management strategy is focused on using derivatives to mitigate the effect of commodity price volatility on funds flow, to lock in economics on capital programs and acquisitions and to take advantage of perceived anomalies in commodity markets. The Corporation uses both financial arrangements and physical forward sales to economically hedge up to a maximum of 60 percent of the trailing quarter's production including gas over bitumen deemed volumes as limited by the Corporation's revolving credit facility ("Credit Facility"). Further, oil or condensate-based hedge volumes for a given term are limited to 80 percent of the average forecast future oil and condensate production volume after royalties and gas-based hedge volumes for a given term are limited to 80 percent of the average forecast future natural gas production volume after royalties plus 40 percent of the forecast future gas over bitumen deemed production value as outlined in the Corporation's Hedging and Risk Management Policy. For the purposes of these limitations, basis and differential volumes are counted at 25 percent and unexercised call or put options are counted at 50 percent of the contract volumes.

Perpetual will also enter into foreign exchange swaps and physical or financial swaps related to the differential between natural gas prices at the AECO and NYMEX trading hubs in order to mitigate the effects of fluctuations in foreign exchange rates and basis differentials on the Corporation's realized gas price. The term "derivatives" includes all financial and physical risk management contracts. Although Perpetual considers the majority of these risk management contracts to be effective economic hedges against potential gas price volatility, the Corporation does not follow hedge accounting for its derivatives.

Perpetual's risk management activities are conducted by an internal Risk Management Committee under guidelines approved by the Corporation's Board of Directors. Perpetual's risk management strategy, though designed primarily to protect funds flow, is opportunistic in nature. Depending on management's perceived position in commodity price cycles, the Corporation may elect to reduce or increase its risk management position within the approved guidelines. The Corporation mitigates credit risk by entering into risk management contracts with financially sound, credit-worthy counterparties.

Financial forward sales contracts as of December 31, 2012 are disclosed in note 17 to the Corporation's annual consolidated financial statements. Financial forward sales arrangements (net of related financial fixed-price natural gas purchase contracts) at the AECO trading hub as at March 11, 2013 are as follows:

⁽¹⁾ Average price calculated using weighted average price for net open sell contracts.
⁽²⁾ Calculated using estimated 2013 gas production of 87,354 GJ/d including gas over bitumen deemed production.
⁽³⁾ Futures market price incorporates settled AECO Monthly Index prices for January to March 2013 and forward AECO prices as of March 11, 2013.

Perpetual also has in place the following costless collar oil sales arrangements, to reduce exposure to fluctuations in the WTI index:

⁽¹⁾ Average price calculated using weighted average price for net open contracts.
⁽²⁾ Calculated using estimated 2013 oil and NGL production of 4,100 bbl/d.
⁽³⁾ Futures market price incorporates settled and forward WTI oil prices as of March 11, 2013.
⁽⁴⁾ In this collar arrangement Perpetual received a ceiling price above the market price for such collars, and in exchange should the WTI index settle above $US118.15 per bbl in any month during the contract period Perpetual will receive a price of $US100.00 per bbl.
⁽⁵⁾ In this collar arrangement, if the WTI index settles at or above $US82.00 per bbl in any month Perpetual will receive $US90.25 per bbl, and if the index settles below $US82.00 per bbl Perpetual will receive $US82.00 per bbl.

The Corporation has also entered into financial oil sales arrangements to fix the basis differential between the WTI and WCS trading hubs as follows. The price at which this contract settles is equal to the WTI index less a fixed basis amount.

The Corporation has sold oil call options exercisable and expiring as follows.

⁽¹⁾ Futures market price incorporates forward WTI oil prices as of March 11, 2013.

Perpetual has entered into the following U.S. dollar forward sales arrangements to limit the Corporation's exposure to the effects of strength in the Canadian dollar on natural gas prices.

⁽¹⁾ In this arrangement, Perpetual receives $1,000 for each day during the month that the daily $CAD/$USD exchange rate is between $0.9750 and $1.0700. If the average monthly $CAD/$USD exchange rate is greater than $1.0700 Perpetual pays USD$1,000,000 multiplied by the difference between the average monthly $CAD/$USD exchange rate and $1.0700. No settlement occurs between Perpetual and the counterparty if the average monthly $CAD/$USD exchange rate settles below $0.9750.
⁽²⁾ At December 31, 2013, the counterparty has the right to extend the arrangements for the following 12 months.