Platinum Offers Initial Implementation of Oil Hedging Strategy

Platinum Energy Resources, Inc. has initiated implementation of its oil hedging strategy through the purchase of long-dated put options on the price of crude oil.

The company has purchased put options on the New York Mercantile Exchange (NYMEX) on a total of 410,000 barrels of crude oil in 2010 and 2011 at an average price of $80 / barrel. This is in addition to a $71 swap on 120,000 barrels in 2009 and a ceiling price of $67 on 150,000 barrels in 2008 which were previously executed.

By purchasing monthly put options for an average price of $7.40 / barrel, Platinum keeps all upside from prices exceeding the put option strike prices averaging $80 / barrel, while receiving payment for each month that has a lower settlement. The options are carried as an asset on the books of Platinum, and will accrue additional value if the price of oil falls, while losing value if the market rises.

Commenting on the benefits of the company's hedging and financing strategy, Tim Culp, Chairman, said, "We will seek to have a line of credit in place in the first quarter that will facilitate the continued expansion of our drilling and development program. We believe the use of put options will enable us to negotiate favorable credit terms while reducing our exposure to a potential earnings hit from derivative losses in the event of price spikes."

Barry Kostiner, CEO, further added, "This is a departure from our original strategy of selling oil forward at a fixed price. Buying puts gives the company flexibility to put on hedges beyond the typical volume constraints established by our banking partners. We expect to enter into additional fixed price sales and put option purchases in the future. Our strategy is to use energy price hedging to lock in profits for our shareholders, while preserving the upside from increasing production."

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