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Fair Value (Tables)
 3 Months Ended
Mar. 31, 2013
Fair Value  
Schedule of derivative instruments carried at fair value

The following table presents the derivative instruments carried at fair value as of March 31, 2013 and December 31, 2012 (in thousands):

 

As of March 31, 2013

 

Assets

 

Liabilities

 

Significant other observable inputs (Level 2)

 

 

 

 

 

Commodity contracts

 

$

5,548

 

$

(13,147

)

Significant unobservable inputs (Level 3)

 

 

 

 

 

Commodity contracts

 

14,969

 

(2,492

)

Embedded derivatives in commodity contracts

 

6,478

 

(31,359

)

Total carrying value in Condensed Consolidated Balance Sheet

 

$

26,995

 

$

(46,998

)

 

As of December 31, 2012

 

Assets

 

Liabilities

 

Significant other observable inputs (Level 2)

 

 

 

 

 

Commodity contracts

 

$

8,441

 

$

(15,970

)

Significant unobservable inputs (Level 3)

 

 

 

 

 

Commodity contracts

 

15,795

 

(3,346

)

Embedded derivatives in commodity contracts

 

6,146

 

(40,103

)

Total carrying value in Condensed Consolidated Balance Sheet

 

$

30,382

 

$

(59,419

)
Schedule of information about significant unobservable inputs used in the valuation of Level 3 instruments

The following table provides additional information about the significant unobservable inputs used in the valuation of Level 3 instruments as of March 31, 2013. The market approach is used for valuation of all instruments.

 

Level 3 Instrument

 

Balance Sheet
Classification

 

Unobservable
Inputs

 

Value Range

 

Time Period

 

Commodity contracts

 

Assets

 

Forward propane prices (per gallon)

 

$

0.93

 

—

 

$

0.99

 

Oct. 2013 - Dec. 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward isobutane prices (per gallon)

 

$

1.49

 

—

 

$

1.54

 

Apr. 2013 - Dec. 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward normal butane prices (per gallon)

 

$

1.30

 

—

 

$

1.46

 

Apr. 2013 - Dec. 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward natural gasoline prices (per gallon)

 

$

1.90

 

—

 

$

2.15

 

Apr. 2013 - Dec. 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crude option volatilities (%)

 

12.11

%

—

 

20.78

%

Apr. 2013 - Dec. 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

Forward propane prices (per gallon)

 

$

0.95

 

—

 

$

0.99

 

Apr. 2013 - Dec. 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward natural gasoline prices (per gallon)

 

$

2.04

 

—

 

$

2.15

 

Apr. 2013 - Dec. 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Propane option volatilities

 

10.56

%

—

 

22.69

%

Apr. 2013 - Dec. 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crude option volatilities (%)

 

10.24

%

—

 

22.34

%

Apr. 2013 - Jan. 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Embedded derivatives in commodity contracts

 

Asset

 

ERCOT Pricing (per MegaWatt Hour) (1)

 

$

31.33

 

—

 

$

72.19

 

Apr. 2013 - Dec. 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability

 

Forward propane prices (per gallon)

 

$

0.92

 

—

 

$

0.99

 

Apr. 2013 - Dec. 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward isobutane prices (per gallon)

 

$

1.39

 

—

 

$

1.54

 

Apr. 2013 - Dec. 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward normal butane prices (per gallon)

 

$

1.28

 

—

 

$

1.46

 

Apr. 2013 - Dec. 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward natural gasoline prices (per gallon)

 

$

1.71

 

—

 

$

2.15

 

Apr. 2013 - Dec. 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward natural gas prices (per mmbtu)

 

$

4.04

 

—

 

$

5.87

 

Apr. 2013 - Dec. 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Probability of renewal (2)

 

 

 

0%

 

 

 

 

 

 

(1)         The forward ERCOT prices utilized in the valuations are generally flat at the low end of the range with a seasonal spike in pricing in the summer months.

 

(2)         The producer counterparty to the embedded derivative has the option to renew the gas purchase agreement and the related keep-whole processing agreement for two successive five year terms after 2022. The embedded gas purchase agreement cannot be renewed without the renewal of the related keep-whole processing agreement. Due to the significant number of years until the renewal options are exercisable and the high level of uncertainty regarding the counterparty’s future business strategy, the future commodity price environment, and the future competitive environment for midstream services in the Appalachia area, management determined that a 0% probability of renewal is an appropriate assumption.
Schedule of changes in Level 3 fair value measurements

The table below includes a rollforward of the balance sheet amounts for the three months ended March 31, 2013 and 2012 for assets and liabilities classified by the Partnership within Level 3 of the valuation hierarchy (in thousands):

 

 

 

Three months ended March 31, 2013

 

 

 

Commodity
Derivative
Contracts (net)

 

Embedded
Derivatives in
Commodity
Contracts (net)

 

Fair value at beginning of period

 

$

12,449

 

$

(33,957

)

Total gain (realized and unrealized) included in earnings (1)

 

3,324

 

6,532

 

Settlements

 

(3,296

)

2,544

 

Fair value at end of period

 

$

12,477

 

$

(24,881

)

 

 

 

 

 

 

The amount of total net gains for the period included in earnings attributable to the change in unrealized gains or losses relating to contracts still held at end of period (1)

 

$

3,431

 

$

6,675

 

 

 

 

Three months ended March 31, 2012

 

 

 

Commodity
Derivative
Contracts (net)

 

Embedded
Derivatives in
Commodity
Contracts (net)

 

Fair value at beginning of period

 

$

(2,965

)

$

(53,904

)

Total loss (realized and unrealized) included in earnings (1)

 

(12,076

)

(10,438

)

Settlements

 

(2,409

)

3,538

 

Fair value at end of period

 

$

(17,450

)

$

(60,804

)

 

 

 

 

 

 

The amount of total net losses for the period included in earnings attributable to the change in unrealized gains or losses relating to contracts still held at end of period (1)

 

$

(14,050

)

$

(10,620

)

 

(1)                                Gains and losses on Commodity Derivative Contracts classified as Level 3 are recorded in Revenue: Derivative (loss) gain. Gains and losses on Embedded Derivatives in Commodity Contracts are recorded in Purchased product costs, Derivative loss (gain) related to purchased product costs, Facility expenses, and Derivative loss (gain) related to facility expenses.