Enterprise Products Partners L.P.

SEC Filings

10-K
ENTERPRISE PRODUCTS PARTNERS L P filed this Form 10-K on 02/28/2018
Entire Document
 

ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 14.  Derivative Instruments, Hedging Activities and Fair Value Measurements

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:

Hedged Transaction
Number and Type
of Derivatives
Outstanding
 
Notional
Amount
 
Period of
Hedge
Rate
Swap
Accounting
Treatment
Senior Notes OO
10 fixed-to-floating swaps
 
$
750.0
 
5/2015 to 5/2018
1.65% to 1.87%
Fair value hedge

At December 31, 2017, our portfolio of forward starting swaps was as follows:

Hedged Transaction
Number and Type
of Derivatives
Outstanding
 
Notional
Amount
 
Expected
Settlement
Date
Average Rate
Locked
Accounting
Treatment
Future long-term debt offering
3 forward starting swaps
 
$
275.0
  2/2019 2.57%
Cash flow hedge

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.  

The objective of our anticipated future commodity purchases and sales hedging program is to hedge the margins of certain transportation, storage, blending and operational activities by locking in purchase and sale prices through the use of derivative instruments and related contracts.
F-53