Investment in Unconsolidated Affiliates

9 Months Ended

Sep. 30, 2011

Investment in Unconsolidated Affiliates [Abstract]


Note 4 —	Investments in Unconsolidated Affiliates

Our investments in unconsolidated affiliates consisted of the following at September 30, 2011:


		Ownership
Equity Method Investment	Structure	Percentage			Segment

Webb/Duval Gatherers (“Webb Duval”)	Texas general partnership		62.50	%	Texas
Eagle Ford Gathering LLC (“Eagle Ford Gathering”)	Delaware limited liability company		50.00	%	Texas
Liberty Pipeline Group, LLC (“Liberty Pipeline Group”)	Delaware limited liability company		50.00	%	Texas
Southern Dome, LLC (“Southern Dome”)	Delaware limited liability company		69.50	%⁽¹⁾	Oklahoma
Bighorn Gas Gathering, L.L.C. (“Bighorn”)	Delaware limited liability company		51.00	%	Rocky Mountains
Fort Union Gas Gathering, L.L.C. (“Fort Union”)	Delaware limited liability company		37.04	%	Rocky Mountains


(1)		Represents Copano’s right to distributions from Southern Dome

None of these entities’ respective partnership or operating agreements restrict their ability to pay distributions to their respective partners or members after consideration of current and anticipated cash needs, including debt service obligations. However, Fort Union’s credit agreement provides that it can distribute cash to its members only if its ratio of net operating cash flow to debt service is not less than 1.25 to 1.00 and it is not otherwise in default under its credit agreement. If Fort Union fails to comply with this covenant or otherwise defaults under its credit agreement, it would be prohibited from distributing cash. As of September 30, 2011, Fort Union is in compliance with this financial covenant.

Eagle Ford Gathering. Our investment in Eagle Ford Gathering totaled $108,195,000 as of September 30, 2011. The summarized financial information for our investment in Eagle Ford Gathering, which is accounted for using the equity method, is as follows:


	As of and for the
	Nine Months Ended September 30,
	2011			2010
	(In thousands)

Operating revenue	$	10,494		$	—
Operating expenses		(5,609	)		(41	)
Depreciation and amortization		(1,064	)		—

Net income (loss)		3,821			(41	)
Ownership %		50	%		50	%

		1,911			(21	)
Copano’s share of management fees charged		74			20
Amortization of difference between the carried investment and the underlying equity in net assets		(7	)		—

Equity in earnings (loss) from unconsolidated affiliates	$	1,978		$	(1	)

Distributions	$	775		$	—

Contributions	$	73,514		$	9,492

Current assets	$	21,464		$	11,667
Noncurrent assets		211,859			22,763
Current liabilities		(23,886	)		(15,486	)
Noncurrent liabilities		(272	)		—

Net assets	$	209,165		$	18,944

Bighorn and Fort Union. Our investments in Bighorn and Fort Union totaled $214,030,000 and $169,169,000, respectively, as of September 30, 2011.

We evaluate the carrying value of our investments in unconsolidated affiliates when circumstances indicate that our investment may not be fully recoverable. During the three months ended September 30, 2011, we recorded a $120.0 million non-cash impairment charge relating to our investment in Bighorn and a $45.0 million non-cash impairment charge relating to our investment in Fort Union. We determined that these charges were necessary primarily based on a downward shift in the Colorado Interstate Gas forward price curve and our expectations of a continued weak outlook for Rocky Mountains natural gas prices and, as producers focus more on rich-gas and shale plays, a continued lack of drilling activity in Wyoming’s Powder River Basin. We determined the fair value of our investments in Bighorn and Fort Union (see ASC 820 “Fair Value Measurement” and ASC 815 “Derivatives and Hedging” in Note 11) using a probability-weighted discounted cash flow model with a discount rate reflective of our cost of capital and estimated contract rates, volumes, operating and maintenance costs and capital expenditures.

The summarized financial information for our investments in Bighorn and Fort Union, which are accounted for using the equity method, is as follows :


	As of and for the Nine Months Ended September 30,
	2011						2010
	Bighorn			Fort Union			Bighorn			Fort Union
	(In thousands)

Operating revenue	$	20,436		$	41,011		$	23,793		$	42,852
Operating expenses		(7,089	)		(5,175	)		(8,904	)		(5,362	)
Depreciation and amortization		(3,874	)		(5,994	)		(3,887	)		(5,628	)
Interest income (expense) and other		62			(1,705	)		77			(3,520	)

Net income		9,535			28,137			11,079			28,342
Ownership %		51	%		37.04	%		51	%		37.04	%

		4,863			10,422			5,650			10,498
Priority allocation of earnings and other		460			—			379			—
Copano’s share of management fees charged		147			68			213			66
Amortization of difference between the carried investment and the underlying equity in net assets and impairment		(128,445	)		(49,817	)		(33,899	)		(4,817	)

Equity in (loss) earnings from unconsolidated affiliates	$	(122,975	)	$	(39,327	)	$	(27,657	)	$	5,747

Distributions	$	7,415		$	9,927		$	8,423		$	8,704

Contributions	$	530		$	—		$	810		$	774

Current assets	$	5,304		$	12,447		$	6,188		$	14,424
Noncurrent assets		86,587			198,227			89,750			206,580
Current liabilities		(1,852	)		(20,285	)		(1,206	)		(19,949	)
Noncurrent liabilities		(289	)		(63,046	)		(257	)		(78,190	)

Net assets	$	89,750		$	127,343		$	94,475		$	122,865

Other. The summarized financial information for our investments in other unconsolidated affiliates (Webb Duval, Liberty Pipeline Group and Southern Dome) is presented below in aggregate:


	As of and for the
	Nine Months Ended September 30,
	2011			2010
	(In thousands)

Operating revenue	$	21,283		$	24,112
Operating expenses		(17,887	)		(20,132	)
Depreciation and amortization		(1,394	)		(1,137	)
Other income, net		—			3

Net income	$	2,002		$	2,846

Equity in earnings from unconsolidated affiliates	$	1,743		$	2,123

Distributions	$	2,212		$	2,427

Contributions⁽¹⁾	$	27,391		$	—

Current assets	$	5,306		$	4,278
Noncurrent assets		71,471			20,847
Current liabilities		(6,876	)		(5,594	)
Noncurrent liabilities		(170	)		(61	)

Net assets	$	69,731		$	19,470


(1)		Contributions for the nine months ended September 30, 2011 were primarily made to Liberty Pipeline Group for the construction of its NGL pipeline.

- Definition

The entire disclosure for equity investment, or group of investments, for which combined disclosure is appropriate, including: (a) the name of each investee and percentage of ownership of common stock, (b) accounting policies for investments in common stock, (c) difference between the amount at which the investment is carried and the amount of underlying equity in net assets and the accounting treatment of the difference, (d) the total fair value of each identified investment for which a market value is available, (e) summarized information as to assets, liabilities, and results of operations of the investees (for investments in unconsolidated subsidiaries, common stock of joint ventures, or other investments using the equity method), and (f) material effects of possible conversions, exercises, or contingent issuances of the investee. Other disclosures include (a) the names of any investee in which the investor owns 20 percent or more of the voting stock and investment is not accounted for using the equity method, and the reasons why not, and (b) the names of any investee in which the investor owns less than 20 percent of the voting stock and the investment is accounted for using the equity method, and the reasons why it is.

+ References+ Details