Derivative instruments and commodity hedging
Tullow continues to undertake hedging activities as part of the ongoing management of its business risk and to protect against volatility and to ensure the availability of cash flow for reinvestment in capital programmes that are driving business growth.
At 31 December 2011, the Group's derivative instruments had a net negative fair value of $47 million (2010: negative $82 million), inclusive of deferred premium. While all of the Group's commodity derivative instruments currently qualify for hedge accounting, a pre tax credit of $27 million (2010: charge of $28 million) has been recognised in the income statement for 2011. The credit is in relation to the increase in time value of the Group's commodity derivative instruments; mainly caused by the Group's oil hedging activity at relatively higher commodity prices throughout the year, compared with the forward curve on 31 December 2011.
At 9 March 2012 the Group's commodity hedge position to the end of 2014 was as follows:
|Current price hedge ($/bbl)||117.4||111.9||104.6|
|Current price hedge (p/therm)||60.2||68.3||75.9|