Derivatives

12 Months Ended

Dec. 31, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives

(12) Derivatives

Interest Rate Swaps

In April 2019, we entered into $850.0 million of interest rate swaps to manage the interest rate risk associated with our floating-rate, LIBOR-based borrowings. Under this arrangement, we paid a fixed interest rate of 2.28% in exchange for LIBOR-based variable interest through December 2021. These interest rate swaps expired on December 10, 2021. There was no ineffectiveness related to this hedge.

During 2021 and 2020, we terminated the interest rate swaps in several increments in connection with repayments of the Term Loan, which was one of our floating-rate, LIBOR-based borrowings. The following table presents the interest rate swaps terminations and the associated cash payments during 2021 and 2020 (in millions):

	Interest Rate Swaps Terminations		Cash Payments Associated with Interest Rate Swaps Terminations
December 2021	$	150.0	$	—
September 2021	100.0		0.5
May 2021	100.0		1.3
December 2020	500.0		10.9
Total termination of interest rate swaps	$	850.0	$	12.7

The components of the unrealized gain (loss) on designated cash flow hedge related to changes in the fair value of our interest rate swaps were as follows (in millions):

	Year Ended December 31,
	2021		2020		2019
Change in fair value of interest rate swaps	$	18.2	$	(5.6)	$	(12.4)
Tax benefit (expense)	(4.3)		1.3		3.4
Unrealized gain (loss) on designated cash flow hedge	$	13.9	$	(4.3)	$	(9.0)

The interest expense, recognized from accumulated other comprehensive loss from the monthly settlement of our interest rate swaps and amortization of the termination payments, included in our consolidated statements of operations were as follows (in millions):

	Year Ended December 31,
	2021		2020		2019
Interest expense	$	18.3	$	14.5	$	0.4

We expect to recognize an additional $0.1 million of interest expense out of accumulated other comprehensive loss over the next twelve months.

The fair value of our interest rate swaps included in our consolidated balance sheets were as follows (in millions):

	December 31, 2021		December 31, 2020
Fair value of derivative liabilities—current	$	—	$	(7.6)

Commodity Swaps

We manage our exposure to changes in commodity prices by hedging the impact of market fluctuations. Commodity swaps are used both to manage and hedge price and location risk related to these market exposures and to manage margins on offsetting fixed-price purchase or sale commitments for physical quantities of crude, condensate, natural gas, and NGLs. We do not designate commodity swaps as cash flow or fair value hedges for hedge accounting treatment under ASC 815. Therefore, changes in the fair value of our derivatives are recorded in revenue in the period incurred. In addition, our commodity risk management policy does not allow us to take speculative positions with our derivative contracts.

We commonly enter into index (float-for-float) or fixed-for-float swaps in order to mitigate our cash flow exposure to fluctuations in the future prices of natural gas, NGLs, and crude oil. For natural gas, index swaps are used to protect against the price exposure of daily priced gas versus first-of-month priced gas. For condensate, crude oil, and natural gas, index swaps are also used to hedge the basis location price risk resulting from supply and markets being priced on different indices. For natural gas, NGLs, condensate, and crude oil, fixed-for-float swaps are used to protect cash flows against price fluctuations: (1) where we receive a percentage of liquids as a fee for processing third-party gas or where we receive a portion of the proceeds of the sales of natural gas and liquids as a fee, (2) in the natural gas processing and fractionation components of our business and (3) where we are mitigating the price risk for product held in inventory or storage.

Assets and liabilities related to our derivative contracts are included in the fair value of derivative assets and liabilities, and the change in fair value of these contracts is recorded net as a gain (loss) on derivative activity on the consolidated statements of operations. We estimate the fair value of all of our derivative contracts based upon actively-quoted prices of the underlying commodities.

The components of gain (loss) on derivative activity in the consolidated statements of operations related to commodity swaps are (in millions):

	Year Ended December 31,
	2021		2020		2019
Change in fair value of derivatives	$	(12.4)	$	(10.5)	$	(0.1)
Realized gain (loss) on derivatives	(146.7)		(11.5)		14.5
Gain (loss) on derivative activity	$	(159.1)	$	(22.0)	$	14.4

The fair value of derivative assets and liabilities related to commodity swaps are as follows (in millions):

	December 31, 2021		December 31, 2020
Fair value of derivative assets—current	$	22.4	$	25.0
Fair value of derivative assets—long-term	0.2		4.9
Fair value of derivative liabilities—current	(34.9)		(29.5)
Fair value of derivative liabilities—long-term	(2.2)		(2.5)
Net fair value of commodity swaps	$	(14.5)	$	(2.1)

Set forth below are the summarized notional volumes and fair values of all instruments related to commodity swaps that we held for price risk management purposes and the related physical offsets at December 31, 2021 (in millions). The remaining term of the contracts extend no later than January 2023.

		December 31, 2021
Commodity	Instruments	Unit	Volume	Net Fair Value
NGL (short contracts)	Swaps	Gals	(63.0)	$	(10.6)
NGL (long contracts)	Swaps	Gals	—	—
Natural gas (short contracts)	Swaps	MMbtu	(7.5)	2.7
Natural gas (long contracts)	Swaps	MMbtu	13.2	(7.8)
Crude and condensate (short contracts)	Swaps	MMbbls	(3.9)	(4.4)
Crude and condensate (long contracts)	Swaps	MMbbls	3.9	5.6
Total fair value of commodity swaps				$	(14.5)

On all transactions where we are exposed to counterparty risk, we analyze the counterparty’s financial condition prior to entering into an agreement, establish limits, and monitor the appropriateness of these limits on an ongoing basis. We primarily deal with financial institutions when entering into financial derivatives on commodities. We have entered into Master ISDAs that allow for netting of swap contract receivables and payables in the event of default by either party. If our counterparties failed to perform under existing commodity swap contracts, the maximum loss on our gross receivable position of $22.6 million as of December 31, 2021 would be reduced to $0.8 million due to the offsetting of gross fair value payables against gross fair value receivables as allowed by the ISDAs.