(13)	DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Partnership's results of operations are materially impacted by changes in crude oil, natural gas and NGL prices and interest rates. In an effort to manage its exposure to these risks, the Partnership periodically enters into various derivative instruments, including commodity and interest rate hedges. The Partnership is required to recognize all derivative instruments as either assets or liabilities at fair value on the Partnership's Consolidated Balance Sheets and to recognize certain changes in the fair value of derivative instruments on the Partnership's Consolidated Statements of Operations.

The Partnership performs, at least quarterly, a retrospective assessment of the effectiveness of its hedge contracts, including assessing the possibility of counterparty default. If the Partnership determines that a derivative is no longer expected to be highly effective, the Partnership discontinues hedge accounting prospectively and recognizes subsequent changes in the fair value of the hedge in earnings. As a result of its effectiveness assessment at December 31, 2011, the Partnership believes certain hedge contracts will continue to be effective in offsetting changes in cash flow or fair value attributable to the hedged risk.

All derivatives and hedging instruments are included on the balance sheet as an asset or a liability measured at fair value, and changes in fair value are recognized currently in earnings unless specific hedge accounting criteria are met. If a derivative qualifies for hedge accounting, changes in the fair value can be offset against the change in the fair value of the hedged item through earnings or recognized in accumulated other comprehensive income (“AOCI”) until such time as the hedged item is recognized in earnings. The Partnership is exposed to the risk that periodic changes in the fair value of derivatives qualifying for hedge accounting will not be effective, as defined, or that derivatives will no longer qualify for hedge accounting. To the extent that the periodic changes in the fair value of the derivatives are not effective, that ineffectiveness is recorded to earnings. Likewise, if a hedge ceases to qualify for hedge accounting, any change in the fair value of derivative instruments since the last period is recorded to earnings; however, any amounts previously recorded to AOCI would remain there until such time as the original forecasted transaction occurs and then would be reclassified to earnings, or if it is determined that continued reporting of losses in AOCI would lead to recognizing a net loss on the combination of the hedging instrument and the hedge transaction in future periods, then the losses would be immediately reclassified to earnings.

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of AOCI and reclassified into earnings in the same period during which the hedged transaction affects earnings. The effective portion of the derivative represents the change in fair value of the hedge that offsets the change in fair value of the hedged item. To the extent the change in the fair value of the hedge does not perfectly offset the change in the fair value of the hedged item; the ineffective portion of the hedge is immediately recognized in earnings.

Commodity Derivative Instruments

The Partnership is exposed to market risks associated with commodity prices and uses derivatives to manage the risk of commodity price fluctuation. The Partnership has established a hedging policy and monitors and manages the commodity market risk associated with its commodity risk exposure. The Partnership has entered into hedging transactions through 2012 to protect a portion of its commodity exposure. These hedging arrangements are in the form of swaps for crude oil, natural gas and natural gasoline. In addition, the Partnership is focused on utilizing counterparties for these transactions whose financial condition is appropriate for the credit risk involved in each specific transaction.

Due to the volatility in commodity markets, the Partnership is unable to predict the amount of ineffectiveness each period, including the loss of hedge accounting, which is determined on a derivative by derivative basis. This may result, and has resulted, in increased volatility in the Partnership's financial results. Factors that have and may continue to lead to ineffectiveness and unrealized gains and losses on derivative contracts include: a substantial fluctuation in energy prices, the number of derivatives the Partnership holds and significant weather events that have affected energy production. The number of instances in which the Partnership has discontinued hedge accounting for specific hedges is primarily due to those reasons. However, even though these derivatives may not qualify for hedge accounting, the Partnership continues to hold the instruments as it believes they continue to afford the Partnership opportunities to manage commodity risk exposure.

As of December 31, 2011 and 2010, the Partnership has both derivative instruments qualifying for hedge accounting with fair value changes being recorded in AOCI as a component of partners' capital and derivative instruments not designated as hedges being marked to market with all market value adjustments being recorded in earnings.

Set forth below is the summarized notional amount and terms of all instruments held for price risk management purposes at December 31, 2011 (all gas quantities are expressed in British Thermal Units, crude oil and natural gas liquids are expressed in barrels). As of December 31, 2011, the remaining term of the contracts extend no later than December 2012, with no single contract longer than one year. For the years ended December 31, 2011 and 2010, changes in the fair value of the Partnership's derivative contracts were recorded in both earnings and in AOCI as a component of partners' capital.

Transaction Type	Total Volume Per Month	Pricing Terms	Remaining Terms of Contracts	Fair Value

Mark to Market Derivatives::
Natural Gasoline Swap	1,000 BBL	Fixed price of $90.20/bbl settled against WTI NYMEX average monthly closings	January 2012 to December 2012	$	(104	)
Natural Gasoline Swap	1,000 BBL	Fixed price of $2.34/gal settled against Mont Belvieu Non-TET OPIS Average	January 2012 to December 2012		(13	)
Total commodity swaps not designated as hedging instruments				$	(117	)
Cash Flow Hedges:
Natural Gas Swap	10,000 Mmbtu	Fixed price of $4.87/Mmbtu settled against IF_ANR_LA first of the month posting	January 2012 to December 2012		200
Natural Gas Swap	20,000 Mmbtu	Fixed price of $4.96/Mmbtu settled against IF_ANR_LA first of the month posting	January 2012 to December 2012		422
Crude Oil Swap	2,000 BBL	Fixed price of $88.63/bbl settled against WTI NYMEX average monthly closings	January 2012 to December 2012		(245	)
Total commodity swaps designated as hedging instruments				$	377
Total net fair value of commodity derivatives				$	260

Based on estimated volumes, as of December 31, 2011, the Partnership had hedged approximately 49% and 34% of its commodity risk by volume for 2011 and 2012, respectively. The Partnership anticipates entering into additional commodity derivatives on an ongoing basis to manage its risks associated with these market fluctuations, and will consider using various commodity derivatives, including forward contracts, swaps, collars, futures and options, although there is no assurance that the Partnership will be able to do so or that the terms thereof will be similar to the Partnership's existing hedging arrangements.

The Partnership's credit exposure related to commodity cash flow hedges is represented by the positive fair value of contracts to the Partnership at December 31, 2011. These outstanding contracts expose the Partnership to credit loss in the event of nonperformance by the counterparties to the agreements. The Partnership has incurred no losses associated with counterparty nonperformance on derivative contracts.

On all transactions where the Partnership is exposed to counterparty risk, the Partnership analyzes the counterparty's financial condition prior to entering into an agreement, establishes a maximum credit limit threshold pursuant to its hedging policy, and monitors the appropriateness of these limits on an ongoing basis. The Partnership has agreements with two counterparties containing collateral provisions. Based on those current agreements, cash deposits are required to be posted whenever the net fair value of derivatives associated with the individual counterparty exceed a specific threshold. If this threshold is exceeded, cash is posted by the Partnership if the value of derivatives is a liability to the Partnership. As of December 31, 2011 the Partnership has no cash collateral deposits posted with counterparties.

The Partnership's principal customers with respect to Prism Gas' natural gas gathering and processing are large, natural gas marketing services, oil and gas producers and industrial end-users. In addition, substantially all of the Partnership's natural gas and NGL sales are made at market-based prices. The Partnership's standard gas and NGL sales contracts contain adequate assurance provisions, which allow for the suspension of deliveries, cancellation of agreements or discontinuance of deliveries to the buyer unless the buyer provides security for payment in a form satisfactory to the Partnership.

Impact of Commodity Cash Flow Hedges

Crude Oil

For the years ended December 31, 2011, 2010 and 2009, net gains and losses on swap hedge contracts increased crude revenue by $775 and $27, and decreased crude revenue by $854, respectively. As of December 31, 2011, an unrealized derivative fair value loss of $245 related to cash flow hedges of crude oil price risk was recorded in AOCI. A fair value loss of $245 is expected to be reclassified into earnings in 2012. The actual reclassification to earnings will be based on mark-to-market prices at the contract settlement date, along with the realization of the gain or loss on the related physical volume, which is not reflected above.

Natural Gas

For the years ended December 31, 2011, 2010 and 2009, net gains and losses on swap hedge contracts increased gas revenue by $332, $601, and $1,824, respectively. As of December 31, 2011, an unrealized derivative fair value gain of $611 related to cash flow hedges of natural gas was recorded in AOCI. A fair value gain of $611 is expected to be reclassified into earnings in 2012. The actual reclassification to earnings will be based on mark-to-market prices at the contract settlement date, along with the realization of the gain or loss on the related physical volume, which is not reflected above.

Natural Gas Liquids

For the years ended December 31, 2011, 2010 and 2009, net gains and losses on swap hedge contracts increased liquids revenue by $254 and $207, and decreased liquids revenue by $186, respectively. As of December 31, 2011, an unrealized derivative fair value gain of $260 related to cash flow hedges of natural gas liquids price risk was recorded in AOCI. A fair value gain of $260 is expected to be reclassified into earnings in 2012. The actual reclassification to earnings for contracts remaining in effect will be based on mark-to-market prices at the contract settlement date, along with the realization of the gain or loss on the related physical volume, which is not reflected above.

For information regarding fair value amounts and gains and losses on commodity derivative instruments and related hedged items, see “Tabular Presentation of Fair Value Amounts, and Gains and Losses on Derivative Instruments and Related Hedged Items” within this Note.

Impact of Interest Rate Derivative Instruments

The Partnership is exposed to market risks associated with interest rates. The Partnership enters into interest rate swaps to manage interest rate risk associated with the Partnership's variable rate debt and term loan credit facilities. All derivatives and hedging instruments are included on the balance sheet as an asset or a liability measured at fair value and changes in fair value are recognized currently in earnings unless specific hedge accounting criteria are met. If a derivative qualifies for hedge accounting, changes in the fair value can be offset against the change in the fair value of the hedged item through earnings or recognized in AOCI until such time as the hedged item is recognized in earnings.

In August 2011, the Partnership terminated all of its existing interest swap agreements with an aggregate notional amount of $100,000, which it had entered to hedge its exposure to changes in the fair value of Senior Notes as described in Note 10. These interest rate swap contracts were not designated as fair value hedges and therefore, did not receive hedge accounting but were marked to market through earnings. A termination benefit of $2,800 was received on the early extinguishment of the interest rate swap agreements in August 2011.

In March 2010, in connection with a pay down of the Partnership's revolving credit facility, the Partnership terminated all of its existing cash flow hedge agreements with an aggregate notional amount of $140,000, which it had entered to hedge its exposure to increases in the benchmark interest rate underlying its variable rate revolving and term loan credit facilities. Termination fees of $3,850 were paid on the early extinguishment of all interest rate swap agreements in March 2010. The amounts remaining in AOCI were reclassified into interest expense over the original term of the terminated interest rate derivatives.

The Partnership recognized increases in interest expense of $5,779, $6,327 and $7,892 for the years ended December 31, 2011, 2010 and 2009, respectively, related to the difference between the fixed rate and the floating rate of interest on the interest rate swap and net cash settlement of interest rate swaps and hedges.

For information regarding fair value amounts and gains and losses on interest rate derivative instruments and related hedged items, see “Tabular Presentation of Fair Value Amounts, and Gains and Losses on Derivative Instruments and Related Hedged Items” below.

Tabular Presentation of Fair Value Amounts, and Gains and Losses on Derivative Instruments and Related Hedged Items

The following table summarizes the fair values and classification of our derivative instruments in our Consolidated Balance Sheet:

	Fair Values of Derivative Instruments in the Consolidated Balance Sheet
	Derivative Assets					Derivative Liabilities
		Fair Values					Fair Values
		December 31,					December 31,
	Balance Sheet Location	2011		2010		Balance Sheet Location	2011		2010
Derivatives designated as hedging instruments:	Current Assets:					Current Liabilities:
Interest rate contracts	Fair value of derivatives	$	-	$	-	Fair value of derivatives	$	-	$	-
Commodity contracts	Fair value of derivatives		622		201	Fair value of derivatives		245		230
			622		201			245		230
	Non-current Assets:					Non-current Liabilities:
Interest rate contracts	Fair value of derivatives		-		-	Fair value of derivatives		-		-
Commodity contracts	Fair value of derivatives		-		-	Fair value of derivatives		-		171
			-		-			-		171

Total derivatives designated as hedging instruments		$	622	$	201		$	245	$	401

Derivatives not designated as hedging instruments:	Current Assets:					Current Liabilities:
Interest rate contracts	Fair value of derivatives	$	-	$	1,941	Fair value of derivatives	$	-	$	-
Commodity contracts	Fair value of derivatives		-		-	Fair value of derivatives		117		51
			-		1,941			117		51
	Non-current Assets:					Non-current Liabilities:
Interest rate contracts	Fair value of derivatives		-		-	Fair value of derivatives		-		3,930
Commodity contracts	Fair value of derivatives		-		-	Fair value of derivatives		-		-
			-		-			-		3,930
Total derivatives not designated as hedging instruments		$	-	$	2,142		$	117	$	3,981

Effect of Derivative Instruments on the Consolidated Statement of Operations For the Years Ended December 31, 2011, 2010 and 2009
									Effective Portion											Ineffective Portion and Amount Excluded from Effectiveness Testing
	Amount of Gain or (Loss) Recognized in OCI on Derivatives								Location of Gain or (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income									Location of Gain or (Loss) Recognized in Income on Derivatives	Amount of Gain or (Loss) Recognized in Income on Derivatives
	2011		2010			2009				2011			2010			2009				2011		2010		2009
Derivatives designated as hedging instruments:
Interest rate contracts	$	-		(241	)	$	(1,854	)	Interest Expense	$	(18	)	$	(4,210	)	$	(7,345	)	Interest Expense	$	-	$	-	$	-
Commodity contracts		1,011		143			14		Natural Gas Services Revenues		1,785			547			2,667		Natural Gas Services Revenues		37		70		(21	)

Total derivatives designated as hedging instruments	$	1,011	$	(98	)	$	(1,840	)		$	1,767		$	(3,663	)	$	(4,678	)		$	37	$	70	$	(21	)

Amounts expected to be reclassified into earnings for the subsequent twelve month period are losses of $0 for interest rate cash flow hedges and gains of $626 for commodity cash flow hedges.