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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     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 natural gas liquids
(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 Oil Pricing Information Service (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 (Southern Natural Pipeline index as published
by the periodical "Inside FERC"). 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 were based on the same
index and volumes as the hedge transaction.
 
     In July 2003, to achieve a more balanced mix of fixed rate debt and
variable rate debt, we entered into an eight-year interest rate swap agreement
to provide for a floating interest rate on $250 million of our 8 1/2% senior
subordinated notes due 2011. With this swap agreement, we paid the counterparty
a LIBOR based interest rate plus a spread of 4.20% and received a fixed rate of
8 1/2%. We accounted for this derivative as a fair value hedge under SFAS No.
133. In March 2004, we terminated our fixed to floating interest rate swap with
our counterparty. The value of the transaction at termination was zero and as
such neither we, nor our counterparty, were required to make any payments. Also,
neither we, nor our counterparty, have any future obligations under this
transaction.
 
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