4. COMMITMENTS AND CONTINGENCIES

Claims and Legal Proceedings

In the ordinary course of business, we are involved in various claims and legal proceedings, some of which are covered by insurance. We are generally unable to predict the timing or outcome of these claims and proceedings. Based upon our evaluation of existing claims and proceedings and the probability of losses relating to such contingencies, we have accrued certain amounts relating to such claims and proceedings, none of which are considered material.

Environmental Contingencies

We recorded operating expenses, net of recoveries, of $14.0 million, $8.5 million, and $10.6 million during the years ended December 31, 2011, 2010, and 2009, respectively, related to environmental expenditures unrelated to claims and legal proceedings. As of December 31, 2011 and 2010, we recorded environmental liabilities of $58.4 million and $30.8 million, respectively (see Notes 11 and 13). Costs incurred may be in excess of our estimate, which may have a material impact our financial condition, results of operations or cash flows.

Ammonia Contract Contingencies

On November 30, 2005, BDL purchased an ammonia pipeline and other assets from El Paso Merchant Energy-Petroleum Company (“EPME”), a subsidiary of El Paso Corporation (“El Paso”). As part of the transaction, BDL assumed the obligations of EPME under several contracts involving monthly purchases and sales of ammonia. EPME and BDL agreed, however, that EPME would retain the economic risks and benefits associated with those contracts until their expiration at the end of 2012. To effectuate this agreement, BDL passes through to EPME both the cost of purchasing ammonia under a supply contract and the proceeds from selling ammonia under three sales contracts. For the vast majority of monthly periods since the closing of the pipeline acquisition, the pricing terms of the ammonia contracts have resulted in ammonia supply costs exceeding ammonia sales proceeds. The amount of the shortfall generally increases as the market price of ammonia increases.

EPME has informed BDL that, notwithstanding the parties’ agreement, it will not continue to pay BDL for shortfalls created by the pass-through of ammonia costs in excess of ammonia revenues. EPME encouraged BDL to seek payment by invoking a $40.0 million guaranty made by El Paso, which guaranteed EPME’s obligations to BDL. If EPME fails to reimburse BDL for these shortfalls, then such unreimbursed shortfalls could exceed the $40.0 million cap on El Paso’s guaranty. To the extent the unreimbursed shortfalls significantly exceed the $40.0 million cap, the resulting costs incurred by BDL could adversely affect our financial position, results of operations and cash flows. To date, BDL has continued to receive payment for ammonia costs under the contracts at issue. BDL has not called on El Paso’s guaranty and believes only BDL may invoke the guaranty. EPME, however, contends that El Paso’s guaranty is the source of payment for the shortfalls, but has not clarified the extent to which it believes the guaranty has been exhausted. We, in cooperation with EPME, have terminated one of the ammonia

sales contracts. Given the uncertainty of future ammonia prices and EPME’s future actions, we continue to believe we may have risk of loss in connection with the two remaining ammonia sales contracts and an ammonia supply contract and, at this time, are unable to estimate the amount of any such losses we might incur in the future. We are assessing our options in the event EPME ceases paying for ammonia costs under the contracts at issue, including commencing litigation or pursuing other recourse against EPME and El Paso, with respect to this matter.

Leases –Where We are Lessee

We lease certain property, plant and equipment under noncancelable and cancelable operating leases. Rental expense is charged to operating expenses on a straight-line basis over the period of expected benefit. Contingent rental payments are expensed as incurred. Total rental expense for the years ended December 31, 2011, 2010, and 2009 was $30.1 million, $21.3 million, and $21.2 million, respectively. The following table presents minimum lease payment obligations under our operating leases with terms in excess of one year for the years ending December 31 (in thousands):


	Office Space and Other		Equipment (1)		Land Leases (2)		Total
2012	$	2,443	$	3,487	$	5,672	$	11,602
2013		2,589		3,608		5,799		11,996
2014		2,690		2,093		5,882		10,665
2015		2,768		—		6,006		8,774
2016		2,869		—		6,149		9,018
Thereafter		14,247		—		384,949		399,196

Total	$	27,606	$	9,188	$	414,457	$	451,251

(1)	Includes BORCO facility leases for tugboats and a barge in our International Operations segment.

(2)

Includes leases the for inland dock and seabed in connection with our operations in the International Operations segment and subsurface underground gas storage rights and surface rights in connection with our operations in the Natural Gas Storage segment. We may cancel these leases if the storage reservoir is not used for underground storage of natural gas or the removal or injection thereof for a continuous period of two consecutive years. Rental expense associated with these leases, which is being recognized on a straight-line basis over 44 years, was approximately $7.1 million, $7.1 million and $7.4 million for the years ended December 31, 2011, 2010 and 2009, respectively. At December 31, 2011 and 2010, the balance of our Natural Gas Storage segment deferred lease liability increased by $4.1 million and $4.2 million, respectively, to $17.5 million and $13.3 million, respectively in the years ended December 31, 2011 and 2010. We estimate that the deferred lease liability will continue to increase through 2032, at which time our deferred lease liability is estimated to be approximately $64.7 million. Our deferred lease liability will then be reduced over the remaining 19 years of the lease, since the expected annual lease payments will exceed the amount of lease expense.

Additionally, our Right-of-way payments were approximately $6.6 million for the year ended December 31, 2011 and are subject to an annual escalation for the remaining life of all pipelines and terminals.

Leases – Where We are Lessor

We have entered into capacity leases with remaining terms from 1 to 15 years that are accounted for as operating leases. All of the agreements provide for negotiated extensions. Future minimum lease payments to be received under such operating leasing arrangements are as follows (in thousands):


	Years Ending December 31,
2012	$	136,877
2013		82,507
2014		17,371
2015		16,782
2016		16,309
Thereafter		72,855

Total	$	342,701