Commodity Price Risk

Our major market risk exposure is in the pricing applicable to our oil, gas and NGL production. Realized pricing is primarily driven by the prevailing worldwide price for crude oil and spot market prices applicable to our U.S. and Canadian natural gas and NGL production. Pricing for oil, gas and NGL production has been volatile and unpredictable for several years.

We periodically enter into financial hedging activities with respect to a portion of our oil and gas production through various financial transactions that hedge the future prices received. These transactions include financial price swaps whereby we will receive a fixed price for our production and pay a variable market price to the contract counterparty, and costless price collars that set a floor and ceiling price for the hedged production. If the applicable monthly price indices are outside of the ranges set by the floor and ceiling prices in the various collars, we will settle the difference with the counterparty to the collars. These financial hedging activities are intended to support oil and gas prices at targeted levels and to manage our exposure to oil and gas price fluctuations. We do not hold or issue derivative instruments for speculative trading purposes.

Based on natural gas contracts in place as of February 15, 2008 we have approximately 1.6 Bcf per day of gas production in 2008 that is subject to either price swaps or collars or fixed-price contracts. This amount represents approximately 64% of our estimated 2008 gas production, or 40% of our total Boe production. All of these price swap and collar contracts expire December 31, 2008. As of February 15, 2008, we do not have any gas price swaps or collars extending beyond 2008. However, our fixed-price physical delivery contracts extend through 2011. These physical delivery contracts relate to our Canadian natural gas production and range from six Bcf to 14 Bcf per year. These physical delivery contracts are not expected to have a material effect on our realized gas prices from 2009 through 2011.

The key terms of our 2008 gas financial collar and price swap contracts are presented in the following table.

  Gas Financial Contracts  
  Price Collar Contracts    Price Swap Contracts
    Floor Price   Ceiling Price    
Period

Volume
(MMBtu/d)

Floor
Price
($/MMBtu)

Ceiling
Range
($/MMBtu)
Weighted
Average
Ceiling Price
($/MMBtu)


Volume
(MMBtu/d)
Weighted
Average
Price
($/MMBtu)
First Quarter 634,011 $7.50 $9.00 - 10.25 $9.43 364,670 $8.23
Second Quarter 1,080,000 $7.50 $9.00 - 10.25 $9.43 620,000 $8.24
Third Quarter 1,080,000 $7.50 $9.00 - 10.25 $9.43 620,000 $8.24
Fourth Quarter 1,080,000 $7.50 $9.00 - 10.25 $9.43 620,000 $8.24
2008 Average 969,112 $7.50 $9.00 - 10.25 $9.43 556,516 $8.24

Based on oil contracts in place as of February 15, 2008 we have approximately 22,000 Bbls per day of oil production in 2008 that is subject to price collars. This amount represents approximately 12% of our estimated 2008 oil production, or 3% of our total Boe production. All of these price collar contracts expire December 31, 2008. As of February 15, 2008, we do not have any oil price swaps or collars extending beyond 2008.

The key terms of our 2008 oil financial collar contracts are presented in the following table.

Oil Financial Contracts
  Price Collar Contracts
      Floor Price   Ceiling Price
Period

Volume
(Bbls/d)

Floor
Price
($/Bbl)

Ceiling
Range
($/Bbl)
Weighted
Average
Ceiling Price
($/Bbl)
First Quarter 21,011 $70.00 $132.50 - 148.00 $140.31
Second Quarter 22,000 $70.00 $132.50 - 148.00 $140.20
Third Quarter 22,000 $70.00 $132.50 - 148.00 $140.20
Fourth Quarter 22,000 $70.00 $132.50 - 148.00 $140.20
2008 Average 21,754 $70.00 $132.50 - 148.00 $140.23