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Fair Value (Tables)
 6 Months Ended
Jun. 30, 2013
Fair Value  
Schedule of derivative instruments carried at fair value

The following table presents the derivative instruments carried at fair value as of June 30, 2013 and December 31, 2012 (in thousands):

 

As of June 30, 2013

 

Assets

 

Liabilities

 

Significant other observable inputs (Level 2)

 

 

 

 

 

Commodity contracts

 

$

4,662

 

$

(11,354

)

Significant unobservable inputs (Level 3)

 

 

 

 

 

Commodity contracts

 

26,825

 

(447

)

Embedded derivatives in commodity contracts

 

5,677

 

(8,080

)

Total carrying value in Condensed Consolidated Balance Sheet

 

$

37,164

 

$

(19,881

)

 

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 June 30, 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) (1)

 

$0.82

-

$0.88

 

Jul. 2013 - Dec. 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward isobutane prices (per gallon) (1)

 

$1.19

-

$1.24

 

Jul. 2013 - Dec. 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward normal butane prices (per gallon) (1)

 

$1.08

-

$1.20

 

Jul. 2013 - Dec. 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward natural gasoline prices (per gallon) (1)

 

$1.84

-

$1.98

 

Jul. 2013 - Dec. 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Propane option volatilities (%)

 

13.33%

-

22.49%

 

Jul. 2013 - Dec. 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crude option volatilities (%)

 

12.49%

-

24.48%

 

Jul. 2013 - Dec. 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

Forward propane prices (per gallon) (1)

 

$0.82

-

$0.85

 

Apr. 2014 - Dec. 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward isobutane prices (per gallon) (1)

 

$1.19

-

$1.22

 

Apr. 2014 - Sep. 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward normal butane prices (per gallon) (1)

 

$1.08

-

$1.20

 

Jan. 2014 - Sep. 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward natural gasoline prices (per gallon) (1)

 

$1.93

-

$1.98

 

Jul. 2013 - Mar. 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crude option volatilities (%)

 

11.75%

-

24.92%

 

Jul. 2013 - Dec. 2013

 

 

 

 

 

 

 

 

 

 

 

Embedded derivatives in commodity contracts

 

Asset

 

ERCOT Pricing (per MegaWatt Hour) (2)

 

$ 28.09

-

$ 67.91

 

Jul. 2013 - Dec. 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability

 

Forward propane prices (per gallon) (1)

 

$ 0.78

-

$ 0.88

 

Jul. 2013 - Dec. 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward isobutane prices (per gallon) (1)

 

$ 1.13

-

$ 1.24

 

Jul. 2013 - Dec. 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward normal butane prices (per gallon) (1)

 

$ 1.03

-

$ 1.20

 

Jul. 2013 - Dec. 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward natural gasoline prices (per gallon) (1)

 

$ 1.66

-

$ 1.98

 

Jul. 2013 - Dec. 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forward natural gas prices (per MMBtu) (3)

 

$ 3.38

-

$ 6.42

 

Jul. 2013 - Dec. 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Probability of renewal(4)

 

0%

 

 

 

 

(1)         NGL prices used in the valuations are generally at the higher end of the range in the early periods and decrease over time with seasonal increases in the winter months.

 

(2)         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.

 

(3)     Natural gas prices used in the valuations are generally at the lower end of the range in the early years and increase over time.

 

(4)         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 June 30, 2013 and 2012 for net assets and liabilities classified by the Partnership within Level 3 of the valuation hierarchy (in thousands):

 

 

 

Three months ended June 30, 2013

 

 

 

Commodity Derivative
Contracts (net)

 

Embedded Derivatives
in Commodity
Contracts (net)

 

Fair value at beginning of period

 

$

12,477

 

$

(24,881

)

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

 

16,896

 

20,459

 

Settlements

 

(2,995

)

2,019

 

Fair value at end of period

 

$

26,378

 

$

(2,403

)

 

 

 

 

 

 

The amount of total 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)

 

$

14,755

 

$

20,766

 

 

 

 

Three months ended June 30, 2012

 

 

 

Commodity Derivative
Contracts (net)

 

Embedded Derivatives
in Commodity
Contracts (net)

 

Fair value at beginning of period

 

$

(17,450

)

$

(60,804

)

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

 

46,290

 

48,109

 

Settlements

 

716

 

2,300

 

Fair value at end of period

 

$

29,556

 

$

(10,395

)

 

 

 

 

 

 

The amount of total 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)

 

$

43,894

 

$

47,300

 

 

 

 

Six months ended June 30, 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)

 

20,220

 

26,991

 

Settlements

 

(6,291

)

4,563

 

Fair value at end of period

 

$

26,378

 

$

(2,403

)

 

 

 

 

 

 

The amount of total 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)

 

$

17,854

 

$

27,229

 

 

 

 

Six months ended June 30, 2012

 

 

 

Commodity Derivative
Contracts (net)

 

Embedded Derivatives in
Commodity Contracts
(net)

 

Fair value at beginning of period

 

$

(2,965

)

$

(53,904

)

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

 

34,214

 

37,671

 

Settlements

 

(1,693

)

5,838

 

Fair value at end of period

 

$

29,556

 

$

(10,395

)

 

 

 

 

 

 

The amount of total 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)

 

$

30,304

 

$

36,698

 

 

 

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