|ENTERPRISE PRODUCTS PARTNERS L P filed this Form 10-K on 02/28/2018|
ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In the normal course of our business operations, we are exposed to certain risks, including changes in interest rates and commodity prices. In order to manage risks associated with assets, liabilities and certain anticipated future transactions, we use derivative instruments such as futures, forward contracts, swaps, options and other instruments with similar characteristics. Substantially all of our derivatives are used for non-trading activities.
Interest Rate Hedging Activities
We may utilize interest rate swaps, forward starting swaps and similar derivative instruments to manage our exposure to changes in interest rates charged on borrowings under certain consolidated debt agreements. This strategy may be used in controlling our overall cost of capital associated with such borrowings.
The following table summarizes our portfolio of interest rate swaps at December 31, 2017:
At December 31, 2017, our portfolio of forward starting swaps was as follows:
As a result of market conditions in January 2018, we elected to terminate $100 million notional amount of the forward starting swaps that were outstanding at December 31, 2017, which resulted in cash gains totaling $1.5 million for the first quarter of 2018.
As a result of market conditions in August 2017, we elected to terminate forward starting swaps that were scheduled to settle in May 2018, which resulted in cash gains totaling $30.6 million. As cash flow hedges, gains on these derivative instruments will be reflected as a component of accumulated other comprehensive income and be amortized to earnings (as a decrease in interest expense) over the life of the associated future debt obligations beginning in May 2018.
As a result of market conditions in October 2016, we elected to terminate forward starting swaps that were scheduled to settle in September 2017, which resulted in cash gains totaling $6.1 million. As cash flow hedges, gains on these derivative instruments will be reflected as a component of accumulated other comprehensive income and be amortized to earnings (as a decrease in interest expense) over the life of the associated future debt obligations beginning in September 2017.
Commodity Hedging Activities
The prices of natural gas, NGLs, crude oil, petrochemicals and refined products are subject to fluctuations in response to changes in supply and demand, market conditions and a variety of additional factors that are beyond our control. In order to manage such price risks, we enter into commodity derivative instruments such as physical forward contracts, futures contracts, fixed-for-float swaps and basis swaps.
At December 31, 2017, our predominant commodity hedging strategies consisted of (i) hedging anticipated future purchases and sales of commodity products associated with transportation, storage and blending activities, (ii) hedging natural gas processing margins and (iii) hedging the fair value of commodity products held in inventory.