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Derivative Instruments and Hedging Activities
 3 Months Ended
Mar. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities Derivative Instruments and Hedging Activities
 
The primary risks managed using derivative instruments are commodity price and interest rate risks.

 Derivatives Not Designated as Hedging Instruments
 
Derivative instruments not designated as hedging instruments for accounting purposes are utilized to manage the Partnership’s exposure to commodity price risk. For derivative instruments not designated as hedging instruments, the gain or loss on the derivative is recognized currently in earnings.

Quantitative Disclosures Related to Derivative Instruments Not Designated as Hedging Instruments
 
The following table presents the Partnership’s derivative instruments that were not designated as hedging instruments for accounting purposes.

 
March 31, 2020
 
December 31, 2019
  
Gross Notional Volume
 
Purchases
 
Sales
 
Purchases
 
Sales
Natural gas— TBtu (1)
 
 
 
 
 
 
 
Financial fixed futures/swaps
7

 
20

 
10

 
19

Financial basis futures/swaps
7

 
30

 
11

 
30

Financial swaptions (2)
—

 
7

 
—

 
2

Physical purchases/sales
—

 
4

 
—

 
6

Crude oil (for condensate)— MBbl (3)
 
 
 
 
 
 
 
Financial futures/swaps
—

 
630

 
—

 
990

Financial swaptions (2)
—

 
165

 
—

 
225

Natural gas liquids— MBbl (4)
 
 
 
 
 
 
 
Financial futures/swaps
2,205

 
2,085

 
2,490

 
2,415

Financial options
—

 
90

 
—

 
—

____________________
(1)
As of March 31, 2020, 87.9% of the natural gas contracts had durations of one year or less and 12.1% had durations of more than one year and less than two years. As of December 31, 2019, 86.6% of the natural gas contracts had durations of one year or less and 13.4% had durations of more than one year and less than two years.
(2)
The notional volume contains a combined derivative instrument consisting of a fixed price swap and a sold option, which gives the counterparties the right, but not the obligation, to increase the notional volume hedged under the fixed price swap until the option expiration date. The notional volume represents the volume prior to option exercise.
(3)
As of March 31, 2020, 77.4% of the crude oil (for condensate) contracts had durations of one year or less and 22.6% had durations of more than one year and less than two years. As of December 31, 2019, 72.8% of the crude oil (for condensate) contracts had durations of one year or less and 27.2% had durations of more than one year and less than two years.
(4)
As of March 31, 2020, 82.5% of the natural gas liquids contracts had durations of one year or less and 17.5% had durations of more than one year and less than two years. As of December 31, 2019, 72.2% of the natural gas liquid contracts had durations of one year or less and 27.8% had durations of more than one year and less than two years.

Derivatives Designated as Hedging Instruments

Derivative instruments designated as hedging instruments for accounting purposes are utilized in managing the Partnership’s interest rate risk exposures.

Quantitative Disclosures Related to Derivative Instruments Designated as Hedging Instruments

The following table presents the Partnership’s derivative instruments that were designated as hedging instruments for accounting purposes.

 
March 31, 2020
December 31, 2019
  
Gross Notional Value
 
(In millions)
Interest rate swaps
$
300

 
$
300




Balance Sheet Presentation Related to Derivative Instruments

The following table presents the fair value of the derivative instruments that are included in the Partnership’s Condensed Consolidated Balance Sheets that were not designated as hedging instruments for accounting purposes.

 
 
 
March 31, 2020
 
December 31, 2019
 
 
 
Fair Value
Instrument
Balance Sheet Location
 
Assets
 
Liabilities
 
Assets
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Natural gas
 
 
 
 
 
 
 
Financial futures/swaps
Other Current
 
$
7

 
$
6

 
$
7

 
$
5

Financial swaptions
Other Current
 
2

 
1

 
—

 
—

Financial futures/swaps
Other
 
—

 
—

 
—

 
1

Physical purchases/sales
Other Current
 
4

 
—

 
5

 
—

Crude oil (for condensate)
 
 
 
 
 
 
 
 
 
Financial futures/swaps
Other Current
 
6

 
8

 
1

 
19

Financial swaptions
Other Current
 
4

 
—

 
—

 
—

Financial futures/swaps
Other
 
1

 
5

 
—

 
8

Natural gas liquids
 
 
 
 
 
 
 
 
 
Financial futures/swaps
Other Current
 
16

 
5

 
25

 
3

Financial swaptions
Other Current
 
1

 
—

 
—

 
—

Financial futures/swaps
Other
 
6

 
1

 
11

 
2

Total gross commodity derivatives (1)
 
 
$
47

 
$
26

 
$
49

 
$
38

_____________________
(1)
See Note 11 for a reconciliation of the Partnership’s commodity derivatives fair value to the Partnership’s Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019.

The following table presents the fair value of the derivative instruments that are included in the Partnership’s Condensed Consolidated Balance Sheets that were designated as hedging instruments for accounting purposes.

 
 
 
March 31, 2020
 
December 31, 2019
 
 
 
Fair Value
Instrument
Balance Sheet Location
 
Assets
 
Liabilities
 
Assets
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
(In millions)
Interest rate swaps
Other Current
 
$
—

 
$
5

 
$
—

 
$
1

Interest rate swaps
Other
 
—

 
4

 
—

 
2

Total gross interest rate derivatives (1)
 
 
$
—

 
$
9

 
$
—

 
$
3

_____________________
(1)
All interest rate derivative instruments that were designated as cash flow hedges are considered Level 2 as of March 31, 2020 and December 31, 2019.

Income Statement Presentation Related to Derivative Instruments
 
The following table presents the effect of derivative instruments on the Partnership’s Condensed Consolidated Statements of Income.

 
Amounts Recognized in Income
 
Three Months Ended March 31,
 
2020
 
2019
 
 
 
 
 
(In millions)
Natural gas
 
 
 
Financial futures/swaps gains (losses)
$
4

 
$
(1
)
Financial swaptions (losses)
(1
)
 
—

Physical purchases/sales gains (losses)
1

 
(1
)
Crude oil (for condensate)
 
 
 
Financial futures/swaps gains (losses)
19

 
(11
)
Financial swaptions gains
4

 
—

Natural gas liquids
 
 
 
Financial futures/swaps (losses) gains
(7
)
 
3

Total
$
20

 
$
(10
)


For derivatives not designated as hedges in the tables above, amounts recognized in income for the periods ended March 31, 2020 and 2019, if any, are reported in Product sales.
    
The following table presents the components of gain (loss) on derivative activity in the Partnership’s Condensed Consolidated Statements of Income.

 
Three Months Ended March 31,
 
2020
 
2019
 
 
 
 
 
(In millions)
Change in fair value of commodity derivatives
$
10

 
$
(12
)
Realized gain on commodity derivatives
10

 
2

Gain (loss) on commodity derivative activity
$
20

 
$
(10
)


Credit-Risk Related Contingent Features in Derivative Instruments
 
In the event Moody’s or S&P were to lower the Partnership’s senior unsecured debt rating to a below investment grade rating, the Partnership could be required to provide additional credit assurances to third parties, which could include letters of credit or cash collateral to satisfy its obligation under its financial and physical contracts relating to derivative instruments that are in a net liability position. As of March 31, 2020, under these obligations, the Partnership has posted no cash collateral related to natural gas swaps and swaptions, crude oil swaps and swaptions and NGL swaps and no additional collateral would be required to be posted by the Partnership in the event of a credit ratings downgrade to a below investment grade rating. In certain situations where the Partnership’s credit rating is lowered by Moody’s or S&P, the Partnership could be subject to an early termination event related to certain derivative instruments, which could result in a cash settlement of the instruments at market values on the date of such early termination.