Derivative Instruments

6 Months Ended

Jun. 30, 2012

Derivative Instruments [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Derivative Instruments

Policies. The Partnership established comprehensive risk management policies and procedures to monitor and manage the market risks associated with commodity prices, counterparty credit and interest rates. The General Partner is responsible for delegation of transaction authority levels, and the Audit and Risk Committee of the General Partner is responsible for the oversight of these risks, including monitoring exposure limits. The Audit and Risk Committee receives regular briefings on exposures and overall risk management in the context of market activities.

Commodity Price Risk. The Partnership is a net seller of NGLs, condensate and natural gas as a result of its gathering and processing operations. The prices of these commodities are impacted by changes in the supply and demand as well as market forces. Both the Partnership's profitability and cash flow are affected by the inherent volatility of these commodities which could adversely affect its ability to make distributions to its unitholders. The Partnership manages this commodity price exposure through an integrated strategy that includes management of its contract portfolio, matching sales prices of commodities with purchases, optimization of its portfolio by monitoring basis and other price differentials in operating areas, and the use of derivative contracts. In some cases, the Partnership may not be able to match pricing terms or cover its risk to price exposure with financial hedges, and it may be exposed to commodity price risk. Speculative positions with derivative contracts are prohibited under the Partnership's policies.

The Partnership has swap contracts settled against NGLs (ethane, propane, butane, and natural gasoline), condensate and natural gas market prices. The Partnership also has put options to protect against falling ethane prices.

On January 1, 2012, the Partnership de-designated its swap contracts and began accounting for these contracts using the mark-to-market method of accounting. As of June 30, 2012, the Partnership has $1.1 million in net hedging gains in accumulated other comprehensive income which will be amortized to earnings over the next 1.75 years. Over the next 12 months, the Partnership will amortize $0.8 million in net hedging losses to income.

Interest Rate Risk. The Partnership is exposed to variable interest rate risk as a result of borrowings under its revolving credit facility. The Partnership's $250 million interest rate swaps expired in April 2012.

Credit Risk. The Partnership's resale of NGLs, condensate and natural gas exposes it to credit risk, as the margin on any sale is generally a very small percentage of the total sales price. Therefore, a credit loss can be very large relative to overall profitability on these transactions. The Partnership attempts to ensure that it issues credit only to credit-worthy counterparties and that in appropriate circumstances any such extension of credit is backed by adequate collateral, such as a letter of credit or parental guarantee from a parent company.

The Partnership is exposed to credit risk from its derivative counterparties. The Partnership does not require collateral from these counterparties. The Partnership deals primarily with financial institutions when entering into financial derivatives, and utilizes master netting agreements that allow for netting of swap contract receivables and payables in the event of default by either party. If the Partnership's counterparties fail to perform under existing swap contracts, the Partnership's maximum loss as of June 30, 2012 would be $16.2 million. The Partnership has elected to present assets and liabilities under master netting agreements gross on the condensed consolidated balance sheets.

Embedded Derivatives. The Series A Preferred Units contain embedded derivatives which are required to be bifurcated and accounted for separately, such as the holders' conversion option and the Partnership's call option. These embedded derivatives are accounted for using mark-to-market accounting. The Partnership does not expect the embedded derivatives to affect its cash flows.

The Partnership’s derivative assets and liabilities, including credit risk adjustments, as of June 30, 2012 and December 31, 2011 are detailed below:

	Assets				Liabilities
	June 30, 2012		December 31, 2011		June 30, 2012		December 31, 2011
Derivatives designated as cash flow hedges:
Current amounts
Commodity contracts	$	—	$	4,065	$	—	$	10,065
Long-term amounts
Commodity contracts	—		474		—		63
Total cash flow hedging instruments	—		4,539		—		10,128
Derivatives not designated as cash flow hedges:
Current amounts
Commodity contracts	12,838		—		113		—
Ethane put options	1,523		309		—		—
Interest rate swap contracts	—		—		—		470
Long-term amounts
Commodity contracts	1,872		—		—		—
Embedded derivatives in Series A Preferred Units	—		—		30,644		39,049
Total derivatives not designated as cash flow hedges	16,233		309		30,757		39,519
Total derivatives	$	16,233	$	4,848	$	30,757	$	49,647

The Partnership’s statements of operations and comprehensive income for the three and six months endedJune 30, 2012 and 2011 were impacted by derivative instruments activities as follows:

		Three Months Ended June 30,
		2012			2011
Derivatives in cash flow hedging relationships:		Change in Value Recognized in AOCI on Derivatives (Effective Portion)
Commodity derivatives		$	—		$	1,530
Derivatives in cash flow hedging relationships:	Location of Gain/(Loss) Recognized in Income	Amount of Gain/(Loss) Reclassified from AOCI into Income (Effective Portion)
Commodity derivatives	Revenues	$	—		$	(7,133	)
Derivatives in cash flow hedging relationships:	Location of Gain/(Loss) Recognized in Income	Amount of Gain/(Loss) Recognized in Income on Ineffective Portion
Commodity derivatives	Revenues	$	—		$	(362	)
Derivatives not designated in a hedging relationship:	Location of Gain/(Loss) Recognized in Income	Amount of Gain/(Loss) from Dedesignation Amortized from AOCI into Income
Commodity derivatives	Revenues	$	(2,159	)	$	—
Derivatives not designated in a hedging relationship:	Location of Gain/(Loss) Recognized in Income	Amount of Gain/(Loss) Recognized in Income on Derivatives
Commodity derivatives	Revenues	$	17,146		$	(47	)
Interest rate swap contracts	Interest expense, net	—			(228		)
Embedded derivatives in Series A Preferred Units	Other income &  deductions, net	7,909			2,950
		$	25,055		$	2,675

		Six Months Ended June 30,
		2012			2011
Derivatives in cash flow hedging relationships:		Change in Value Recognized in AOCI on Derivatives (Effective Portion)
Commodity derivatives		$	—		$	(15,466	)
Derivatives in cash flow hedging relationships:	Location of Gain/(Loss) Recognized in Income	Amount of Gain/(Loss) Reclassified from AOCI into Income (Effective Portion)
Commodity derivatives	Revenues	$	—		$	(8,994	)
Derivatives in cash flow hedging relationships:	Location of Gain/(Loss) Recognized in Income	Amount of Gain/(Loss) Recognized in Income on Ineffective Portion
Commodity derivatives	Revenues	$	—		$	(274	)
Derivatives not designated in a hedging relationship:	Location of Gain/(Loss) Recognized in Income	Amount of Gain/(Loss) from Dedesignation Amortized from AOCI into Income
Commodity derivatives	Revenues	$	(5,824	)	$	—
Derivatives not designated in a hedging relationship:	Location of Gain/(Loss) Recognized in Income	Amount of Gain/(Loss) Recognized in Income on Derivatives
Commodity derivatives	Revenues	$	19,627		$	12
Interest rate swap contracts	Interest expense, net	(12		)	(487		)
Embedded derivatives in Series A Preferred Units	Other income &  deductions, net	8,405			5,525
		$	28,020		$	5,050