Enterprise Products Partners L.P.

SEC Filings

10-Q
GULFTERRA ENERGY PARTNERS L P filed this Form 10-Q on 08/09/2004
Entire Document
 
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     A majority of our commodity purchases and sales, which relate to sales of
oil and natural gas associated with our production operations, purchases and
sales of natural gas associated with pipeline operations, sales of natural gas
liquids and purchases or sales of gas associated with our processing plants and
our gathering activities, are at spot market or forward market prices. We use
futures, forward contracts, and swaps to limit our exposure to fluctuations in
the commodity markets and allow for a fixed cash flow stream from these
activities.
 
     We estimate the entire $11.2 million of unrealized losses included in
accumulated other comprehensive income at June 30, 2004, will be reclassified
from accumulated other comprehensive income as a reduction to earnings over the
next six months. When our derivative financial instruments are settled, the
related amount in accumulated other comprehensive income is recorded in the
income statement in operating revenues, cost of natural gas and other products,
or interest and debt expense, depending on the item being hedged. The effect of
reclassifying these amounts to the income statement line items is recording our
earnings for the period related to the hedged items at the "hedged price" under
the derivative financial instruments.
 
     In February and August 2003, we entered into derivative financial
instruments to continue to hedge our exposure during 2004 to changes in natural
gas prices relating to gathering activities in the San Juan Basin. The
derivatives are financial swaps on 30,000 MMBtu per day whereby we receive an
average fixed price of $4.23 per MMBtu and pay a floating price based on the San
Juan index. As of June 30, 2004 and December 31, 2003, the fair value of these
cash flow hedges was a liability of $7.3 million and $5.8 million, as the market
price at those dates was higher than the hedge price. For the quarter and six
months ended June 30, 2004, we reclassified approximately $2.3 million and $4.0
million of unrealized accumulated loss related to these derivatives from
accumulated other comprehensive income as a decrease in revenue. These
reclassifications are included in our natural gas pipelines and plants segment.
No ineffectiveness exists in this hedging relationship because all purchase and
sale prices are based on the same index and volumes as the hedge transaction.
 
     During 2003, we entered into additional derivative financial instruments to
hedge a portion of our business' exposure to changes in NGL prices during 2004.
We entered into financial swaps for 6,000 barrels per day for the period from
August 2003 to September 2004. The average fixed price received is $0.47 per
gallon for 2004 while we pay a monthly average floating price based on the OPIS
average price for each month. As of June 30, 2004 and December 31, 2003, the
fair value of these cash flow hedges was a liability of $3.9 million and $3.3
million. For the quarter and six months ended June 30, 2004, we reclassified
approximately $2.4 million and $4.6 million of unrealized accumulated loss
related to these derivatives from accumulated other comprehensive income to
earnings. These reclassifications are included in our natural gas pipelines and
plants segment. No ineffectiveness exists in this hedging relationship because
all purchase and sales prices are based on the same index and volumes as the
hedge transaction.
 
     In connection with our GulfTerra Intrastate Alabama operations, we had
fixed price contracts with specific customers for the sale of predetermined
volumes of natural gas for delivery over established periods of time. We entered
into cash flow hedges in 2003 to offset the risk of increasing natural gas
prices. For January and February 2004, we contracted to purchase 20,000 MMBtu
and for March 2004, we contracted to purchase 15,000 MMBtu. The average fixed
price paid during 2004 was $5.28 per MMBtu while we received a floating price
based on the SONAT-Louisiana index. In March 2004, these cash flow hedges
expired and we reclassified a gain of approximately $45 thousand from
accumulated other comprehensive income to earnings. This reclassification is
included in our natural gas pipelines and plants segment. No ineffectiveness
existed in this hedging relationship because all purchase and sale prices are
based on the same index and volumes as the hedge transaction.
 
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