Refer to the sensitivity analysis of Suncor Energy Inc. reproduced in Table 7.2. The analysis discloses the potential effects of changes in prices and production of oil and natural gas, and of changes in the Can./U.S. dollar exchange rate, on 2006 cash flows and earnings.

Required

a. Evaluate the relevance and reliability of this method of disclosing risk information.

b. The analysis indicates that the sensitivity of earnings to its oil and natural gas activities is net of hedging. As an investor, would you find sensitivity information net of hedging, or before hedging, more useful? Explain.

c. Suncor's price risks arise from changes in the market prices of crude oil and natural gas, with associated foreign exchange risk because market prices are largely based on the U.S. dollar. Suncor reports elsewhere in its MD&A (not reproduced) that its board of directors has approved hedging of up to 30% of its 2007 and 2008 crude oil production against price risks. Why would Suncor’s board impose this limitation on management's ability to manage risk? Give reasons based on corporate governance, cost, and investor diversification considerations.