e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
September 30, 2008
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number
001-33303
TARGA RESOURCES PARTNERS
LP
(Exact name of registrant as
specified in its charter)
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Delaware
(State or other jurisdiction
of
incorporation or organization)
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65-1295427
(I.R.S. Employer
Identification No.)
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1000 Louisiana, Suite 4300, Houston, Texas
(Address of principal
executive offices)
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77002
(Zip
Code)
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Registrants telephone number, including area code:
(713) 584-1000
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller reporting
company o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act) Yes
o No þ
There were 34,652,000 Common Units, 11,528,231 Subordinated
Units and 942,455 General Partner Units outstanding as of
November 1, 2008.
As generally used in the energy industry and in this Quarterly
Report on
Form 10-Q,
the identified terms have the following meanings:
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Bbl
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Barrels
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BBtu
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Billion British thermal units, a measure of heating value
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/d
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Per day
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Gal
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Gallons
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MBbl
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Thousand barrels
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MMBtu
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Million British thermal units
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MMcf
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Million cubic feet
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NGL(s)
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Natural gas liquid(s)
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Price Index
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Definitions
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IF-HSC
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Inside FERC Gas Market Report, Houston Ship Channel/Beaumont,
Texas
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IF-NGPL MC
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Inside FERC Gas Market Report, Natural Gas Pipeline,
Mid-Continent
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IF-Waha
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Inside FERC Gas Market Report, West Texas Waha
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NY-HH
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NYMEX, Henry Hub Natural Gas
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NY-WTI
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NYMEX, West Texas Intermediate Crude Oil
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OPIS-MB
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Oil Price Information Service, Mont Belvieu, Texas
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As used in this Quarterly Report, unless the context
otherwise requires, we, us,
our, the Partnership and similar terms
refer to Targa Resources Partners LP, together with its
consolidated subsidiaries.
Cautionary
Statement About Forward-Looking Statements
This Quarterly Report contains forward-looking
statements as defined in Section 21E of the
Securities Exchange Act of 1934, as amended. All statements,
other than statements of historical fact, included in this
Quarterly Report are forward-looking statements. Forward-looking
statements include, without limitation, statements regarding our
future financial position, business strategy, future capital and
other expenditures, plans and objectives of management for
future operations. You can typically identify forward-looking
statements by the use of forward-looking words such as
may, potential, project,
plan, believe, expect,
anticipate, intend, estimate
or similar expressions or variations on such expressions. Each
forward-looking statement reflects our current view of future
events and is subject to risks, uncertainties and other factors,
known and unknown, which could cause our actual results to
differ materially from any results expressed or implied by our
forward-looking statements. These risks and uncertainties, many
of which are beyond our control, include, but are not limited to:
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our ability to access the debt and equity markets, which will
depend on general market conditions and the credit ratings for
our debt obligations;
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the amount of collateral required to be posted from time to time
in our transactions;
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our success in risk management activities, including the use of
derivative financial instruments to hedge commodity and interest
rate risks;
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the level of creditworthiness of counterparties to transactions;
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changes in laws and regulations, particularly with regard to
taxes, safety and protection of the environment or the gathering
and processing industry;
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the timing and extent of changes in natural gas, NGL and
commodity prices, interest rates and demand for our services;
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weather and other natural phenomena;
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2
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industry changes, including the impact of consolidations and
changes in competition;
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our ability to obtain necessary licenses, permits and other
approvals;
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the level and success of crude oil and natural gas drilling
around our assets, and our success in connecting natural gas
supplies to our gathering and processing systems;
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our ability to grow through acquisitions or internal growth
projects, and the successful integration and future performance
of such assets;
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general economic, market and business conditions; and
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the risks described in this Quarterly Report and our Annual
Report on
Form 10-K
for the year ended December 31, 2007.
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Although we believe that the assumptions underlying our
forward-looking statements are reasonable, any of the
assumptions could be inaccurate, and, therefore, we cannot
assure you that the forward-looking statements included in this
Quarterly Report will prove to be accurate. Some of these and
other risks and uncertainties that could cause actual results to
differ materially from such forward-looking statements are more
fully described in this Quarterly Report and under
Item 1A. Risk Factors in our Annual Report on
Form 10-K
for the year ended December 31, 2007. Except as may be
required by applicable law, we undertake no obligation to
publicly update or advise of any change in any forward-looking
statement, whether as a result of new information, future events
or otherwise.
Forward-looking statements contained in this Quarterly Report
and all subsequent written and oral forward-looking statements
attributable to us or persons acting on our behalf are expressly
qualified in their entirety by this cautionary statement.
3
PART I
FINANCIAL INFORMATION
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Item 1.
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Financial
Statements
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TARGA
RESOURCES PARTNERS LP
CONSOLIDATED
BALANCE SHEETS
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September 30,
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December 31,
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2008
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2007
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(Unaudited)
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(In thousands)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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34,319
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$
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50,994
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Receivables from third parties
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63,692
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59,346
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Receivables from affiliated companies
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43,683
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87,547
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Inventory
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2,033
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1,624
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Assets from risk management activities
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35,799
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8,695
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Other current assets
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367
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269
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Total current assets
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179,893
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208,475
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Property, plant and equipment, at cost
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1,466,901
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1,433,955
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Accumulated depreciation
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(229,429
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)
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(174,361
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)
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Property, plant and equipment, net
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1,237,472
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1,259,594
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Debt issue costs
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12,172
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6,588
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Long-term assets from risk management activities
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22,091
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3,040
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Other assets
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2,277
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2,275
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Total assets
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$
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1,453,905
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$
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1,479,972
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LIABILITIES AND PARTNERS CAPITAL
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Current liabilities:
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Accounts payable
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$
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9,599
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$
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5,693
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Accrued liabilities
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126,797
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142,836
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Liabilities from risk management activities
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12,888
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44,003
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Total current liabilities
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149,284
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192,532
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Long-term debt
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640,000
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626,300
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Long term liabilities from risk management activities
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27,780
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43,109
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Deferred income taxes
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1,659
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559
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Other long-term liabilities
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3,522
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3,266
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Commitments and contingencies (Note 8)
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Partners capital:
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Common unitholders (34,652,000 and 34,636,000 units issued
and outstanding at September 30, 2008 and December 31,
2007, respectively)
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771,163
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770,207
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Subordinated unitholders (11,528,231 units issued and
outstanding at September 30, 2008 and December 31,
2007)
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(84,744
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)
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(84,999
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)
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General partner (942,455 and 942,128 units issued and
outstanding at September 30, 2008 and December 31,
2007, respectively)
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6,491
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4,234
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Accumulated other comprehensive loss
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(61,250
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)
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(75,236
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)
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Total partners capital
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631,660
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614,206
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Total liabilities and partners capital
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$
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1,453,905
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$
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1,479,972
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See notes to consolidated financial statements
4
TARGA
RESOURCES PARTNERS LP
CONSOLIDATED
STATEMENTS OF OPERATIONS
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Three Months
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Nine Months
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Ended
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Ended
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September 30,
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September 30,
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2008
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2007
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2008
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2007
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(Unaudited)
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(In thousands, except per unit amounts)
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Revenues from third parties
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$
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224,535
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$
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148,987
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$
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662,745
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$
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464,326
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Revenues from affiliates
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354,212
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256,051
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1,058,591
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723,108
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Total operating revenues
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578,747
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405,038
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1,721,336
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1,187,434
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Costs and expenses:
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Product purchases from third parties
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412,664
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299,492
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1,267,179
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864,111
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Product purchases from affiliates
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99,779
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38,270
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242,573
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|
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139,850
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Operating expenses
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15,402
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12,736
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42,673
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36,683
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Depreciation and amortization expense
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|
18,566
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|
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17,984
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55,235
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53,641
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General and administrative expense
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5,367
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6,574
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16,283
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14,560
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Casualty loss
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167
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167
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(Gain) loss on sale of assets
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(13
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)
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17
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(88
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)
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(298
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)
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|
|
|
|
|
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551,932
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375,073
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1,624,022
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1,108,547
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Income from operations
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26,815
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29,965
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|
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97,314
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78,887
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Other income (expense):
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|
|
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|
|
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Interest expense, net
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(10,749
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)
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(5,059
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)
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(27,443
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)
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(12,918
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)
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Interest expense allocated from Parent
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(2,806
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)
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(18,981
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)
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Loss on mark-to-market derivative instruments
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(991
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)
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(7,367
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)
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(991
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)
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(28,369
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)
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Other
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|
17
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12
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|
53
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17
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Income before income taxes
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15,092
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14,745
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68,933
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18,636
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Deferred income tax expense
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|
|
(400
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)
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|
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(353
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)
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|
(1,100
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)
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(1,060
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)
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Net income
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14,692
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14,392
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67,833
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17,576
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Less: Net income allocable to predecessor operations
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10,523
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|
|
|
|
|
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7,514
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Net income allocable to partners
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14,692
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|
|
|
3,869
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|
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67,833
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|
10,062
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Net income attributable to general partner interests
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|
|
294
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|
|
|
77
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|
|
|
5,524
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|
|
201
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|
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Net income available to common and subordinated unitholders
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$
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14,398
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$
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3,792
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|
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$
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62,309
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|
|
$
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9,861
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|
|
|
|
|
|
|
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Basic net income per common and subordinated unit
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$
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0.31
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|
|
$
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0.12
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|
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$
|
1.35
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|
|
$
|
0.32
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|
|
|
|
|
|
|
|
|
|
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|
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|
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Diluted net income per common and subordinated unit
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|
$
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0.31
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|
|
$
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0.12
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|
|
$
|
1.35
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|
|
$
|
0.32
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic average number of common and subordinated units outstanding
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|
|
46,154
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|
|
|
30,848
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|
|
|
46,153
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|
|
|
30,848
|
|
Diluted average number of common and subordinated units
outstanding
|
|
|
46,164
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|
|
|
30,857
|
|
|
|
46,161
|
|
|
|
30,855
|
|
See notes to consolidated financial statements
5
TARGA
RESOURCES PARTNERS LP
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
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|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
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Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
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(In thousands)
|
|
|
Net income
|
|
$
|
14,692
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|
|
$
|
14,392
|
|
|
$
|
67,833
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|
|
$
|
17,576
|
|
Other comprehensive income (loss):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Commodity hedges:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of commodity hedges
|
|
|
185,017
|
|
|
|
(1,083
|
)
|
|
|
(35,219
|
)
|
|
|
(34,418
|
)
|
Reclassification adjustment for settled periods
|
|
|
19,985
|
|
|
|
(1,070
|
)
|
|
|
49,696
|
|
|
|
(6,070
|
)
|
Related income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
311
|
|
Interest rate hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of interest rate hedges
|
|
|
(1,705
|
)
|
|
|
(102
|
)
|
|
|
(1,975
|
)
|
|
|
(633
|
)
|
Reclassification adjustment for settled periods
|
|
|
869
|
|
|
|
228
|
|
|
|
1,484
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
204,166
|
|
|
|
(2,027
|
)
|
|
|
13,986
|
|
|
|
(40,670
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
218,858
|
|
|
$
|
12,365
|
|
|
$
|
81,819
|
|
|
$
|
(23,094
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
6
TARGA
RESOURCES PARTNERS LP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Partners Capital
|
|
|
|
|
|
|
Comprehensive
|
|
|
Limited Partners
|
|
|
General
|
|
|
|
|
|
|
Loss
|
|
|
Common
|
|
|
Subordinated
|
|
|
Partner
|
|
|
Total
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Balance as of December 31, 2007
|
|
$
|
(75,236
|
)
|
|
$
|
770,207
|
|
|
$
|
(84,999
|
)
|
|
$
|
4,234
|
|
|
$
|
614,206
|
|
Contributions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
8
|
|
Amortization of equity awards
|
|
|
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
200
|
|
Other comprehensive income
|
|
|
13,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,986
|
|
Net income
|
|
|
|
|
|
|
46,751
|
|
|
|
15,558
|
|
|
|
5,524
|
|
|
|
67,833
|
|
Distributions
|
|
|
|
|
|
|
(45,995
|
)
|
|
|
(15,303
|
)
|
|
|
(3,275
|
)
|
|
|
(64,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2008
|
|
$
|
(61,250
|
)
|
|
$
|
771,163
|
|
|
$
|
(84,744
|
)
|
|
$
|
6,491
|
|
|
$
|
631,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
7
TARGA
RESOURCES PARTNERS LP
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
67,833
|
|
|
$
|
17,576
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Amortization in interest expense
|
|
|
1,495
|
|
|
|
1,375
|
|
Amortization in general and administrative expense
|
|
|
200
|
|
|
|
128
|
|
Other depreciation and amortization expense
|
|
|
55,235
|
|
|
|
53,641
|
|
Accretion of asset retirement obligations included in operating
expenses
|
|
|
198
|
|
|
|
257
|
|
Deferred income tax expense
|
|
|
1,100
|
|
|
|
1,060
|
|
Risk management activities
|
|
|
(75,747
|
)
|
|
|
28,567
|
|
Gain on sale of assets
|
|
|
(88
|
)
|
|
|
(298
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
39,518
|
|
|
|
20,040
|
|
Inventory
|
|
|
(409
|
)
|
|
|
(1,292
|
)
|
Other
|
|
|
(3,193
|
)
|
|
|
(4,086
|
)
|
Accounts payable
|
|
|
3,906
|
|
|
|
3,210
|
|
Accrued liabilities
|
|
|
(16,039
|
)
|
|
|
13,575
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
74,009
|
|
|
|
133,753
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(28,563
|
)
|
|
|
(34,240
|
)
|
Other
|
|
|
(4,088
|
)
|
|
|
372
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(32,651
|
)
|
|
|
(33,868
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from borrowings under credit facility
|
|
|
87,500
|
|
|
|
342,500
|
|
Repayments on credit facility
|
|
|
(323,800
|
)
|
|
|
(48,000
|
)
|
Proceeds from issuance of senior notes
|
|
|
250,000
|
|
|
|
|
|
Repayment of affiliated indebtedness
|
|
|
|
|
|
|
(665,692
|
)
|
Proceeds from equity offerings
|
|
|
|
|
|
|
380,768
|
|
Distributions
|
|
|
(64,573
|
)
|
|
|
(15,943
|
)
|
General partner contributions
|
|
|
8
|
|
|
|
|
|
Costs incurred in connection with public offerings
|
|
|
(89
|
)
|
|
|
(3,313
|
)
|
Costs incurred in connection with financing arrangements
|
|
|
(7,079
|
)
|
|
|
(4,565
|
)
|
Deemed Parent distributions
|
|
|
|
|
|
|
(57,199
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(58,033
|
)
|
|
|
(71,444
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(16,675
|
)
|
|
|
28,441
|
|
Cash and cash equivalents, beginning of period
|
|
|
50,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
34,319
|
|
|
$
|
28,441
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Net settlement of allocated indebtedness and debt issue costs
|
|
$
|
|
|
|
$
|
249,446
|
|
Net contribution of affiliated receivables
|
|
|
|
|
|
|
38,856
|
|
See notes to consolidated financial statements
8
Targa
Resources Partners LP
Notes to
Consolidated Financial Statements
(Unaudited)
|
|
Note 1
|
Organization
and Operations
|
Targa Resources Partners LP (we, us,
our or the Partnership) is a publicly
traded Delaware limited partnership. Our common units are listed
on The NASDAQ Stock Market LLC under the symbol
NGLS. We were formed on October 26, 2006 by
Targa Resources, Inc. (Targa or Parent),
a leading provider of midstream natural gas and NGL services in
the United States, to own, operate, acquire and develop a
diversified portfolio of complementary midstream energy assets.
We are engaged in the business of gathering, compressing,
treating, processing and selling natural gas and fractionating
and selling natural gas liquids (NGLs) and NGL
products. We currently operate in the Fort Worth Basin/Bend
Arch in North Texas (the North Texas system), the
Permian Basin in West Texas (the SAOU system) and in
Southwest Louisiana (the LOU system).
|
|
Note 2
|
Basis of
Presentation
|
These unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America (GAAP) for
interim financial information and with the instructions to
Form 10-Q
and Article 10 of
Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements.
The year-end balance sheet data was derived from audited
financial statements, but does not include all disclosures
required by GAAP. The unaudited consolidated financial
statements for the three and nine months ended
September 30, 2008 and 2007 include all adjustments, both
normal and recurring, which are, in the opinion of management,
necessary for a fair statement of the results for the interim
periods. All significant intercompany balances and transactions
have been eliminated in consolidation. Transactions between us
and other Targa operations have been identified in the unaudited
consolidated financial statements as transactions between
affiliates (see Note 5). Our results of operations for the
three and nine months ended September 30, 2007 were
adjusted to reflect the consideration of common control
accounting and change in predecessor entities as discussed in
Notes 4 and 15 in our Annual Report on
Form 10-K
for the year ended December 31, 2007. Our financial results
for the three and nine months ended September 30, 2008 are
not necessarily indicative of the results that may be expected
for the full year ending December 31, 2008. These unaudited
consolidated financial statements and other information included
in this Quarterly Report on
Form 10-Q
should be read in conjunction with our consolidated financial
statements and notes thereto included in our Annual Report on
Form 10-K
for the year ended December 31, 2007.
|
|
Note 3
|
Accounting
Pronouncements
|
Accounting
Pronouncements Recently Adopted.
In September 2006, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) 157, Fair Value
Measurements. SFAS 157 establishes a framework
for measuring fair value and expands disclosures about fair
value measurements. The FASB partially deferred the effective
date of SFAS 157 for nonfinancial assets and liabilities
that are recognized or disclosed at fair value in the financial
statements on a nonrecurring basis. We adopted SFAS 157
with respect to financial assets and liabilities that are
recognized on a recurring basis on January 1, 2008.
Although the adoption of SFAS 157 did not materially impact
our financial condition, results of operations, or cash flows,
we are now required to provide additional disclosures as part of
our financial statements.
SFAS 157 establishes a three-tier fair value hierarchy,
which prioritizes the inputs used in measuring fair value. These
tiers include: Level 1, defined as observable inputs such
as quoted prices in active markets; Level 2, defined as
inputs other than quoted prices in active markets that are
either directly or indirectly observable; and Level 3,
defined as unobservable inputs in which little or no market data
exists, therefore requiring an entity to develop its own
assumptions.
9
Targa
Resources Partners LP
Notes to Consolidated Financial Statements
(Continued)
Our derivative instruments consist of financially settled
commodity and interest rate swap and option contracts and fixed
price commodity contracts with certain customers. We determine
the value of our derivative contracts utilizing a discounted
cash flow model for swaps and a standard option pricing model
for options, based on inputs that are either readily available
in public markets or are quoted by counterparties to these
contracts. In situations where we obtain inputs via quotes from
our counterparties, we verify the reasonableness of these quotes
via similar quotes from another source for each date for which
financial statements are presented. We have consistently applied
these valuation techniques in all periods presented and believe
we have obtained the most accurate information available for the
types of derivative contracts we hold. We have categorized the
inputs for these contracts as Level 2 or Level 3. The
price quotes for the Level 3 inputs are provided by a
counterparty with whom we regularly transact business.
The following table sets forth, by level within the fair value
hierarchy, our financial assets and liabilities measured at fair
value on a recurring basis as of September 30, 2008. These
financial assets and liabilities are classified in their
entirety based on the lowest level of input that is significant
to the fair value measurement. Our assessment of the
significance of a particular input to the fair value measurement
requires judgment, and may affect the valuation of the fair
value assets and liabilities and their placement within the fair
value hierarchy levels.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(In thousands)
|
|
|
Assets from commodity derivative contracts
|
|
$
|
57,663
|
|
|
$
|
|
|
|
$
|
18,086
|
|
|
$
|
39,577
|
|
Assets from interest rate derivative
|
|
|
227
|
|
|
|
|
|
|
|
227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
57,890
|
|
|
$
|
|
|
|
$
|
18,313
|
|
|
$
|
39,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities from commodity derivative contracts
|
|
$
|
38,718
|
|
|
$
|
|
|
|
$
|
13,999
|
|
|
$
|
24,719
|
|
Liabilities from interest rate derivative
|
|
|
1,950
|
|
|
|
|
|
|
|
1,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
40,668
|
|
|
$
|
|
|
|
$
|
15,949
|
|
|
$
|
24,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth a reconciliation of the changes
in the fair value of our financial instruments classified as
Level 3 in the fair value hierarchy:
|
|
|
|
|
|
|
Commodity
|
|
|
|
Derivative
|
|
|
|
Contracts
|
|
|
|
(In thousands)
|
|
|
Balance, December 31, 2007
|
|
$
|
(71,370
|
)
|
Total gains or losses (realized/unrealized)
Included in loss on mark-to-market derivatives
|
|
|
(991
|
)
|
Included in OCI
|
|
|
(28,553
|
)
|
Purchases
|
|
|
2,866
|
|
Terminations
|
|
|
77,792
|
|
Settlements
|
|
|
35,114
|
|
|
|
|
|
|
Balance, September 30, 2008
|
|
$
|
14,858
|
|
|
|
|
|
|
No unrealized gains or losses were reported relating to assets
and liabilities still held as of September 30, 2008.
In February 2007, the FASB issued SFAS 159, The
Fair Value Option for Financial Assets and Financial
Liabilities, including an amendment of FASB Statement
No. 115. SFAS 159 expands opportunities to
use fair value measurements in financial reporting and permits
entities to choose to measure many financial instruments and
certain other items at fair value. Our adoption of SFAS 159
on January 1, 2008 did not have a material impact on our
consolidated financial statements.
10
Targa
Resources Partners LP
Notes to Consolidated Financial Statements
(Continued)
Accounting
Pronouncements Recently Issued
In March 2008, the FASBs Emerging Issues Task Force
(EITF) reached a consensus on
EITF 07-4,
Application of the Two - Class Method under
FASB Statement No. 128, Earnings per Share, to Master
Limited Partnerships.
EITF 07-4
improves the comparability of earnings per unit calculations for
master limited partnerships (MLPs) with incentive
distribution rights (IDRs) in accordance with
Statement 128 and its related interpretations. Under
EITF 07-4,
when an MLPs current-period earnings are in excess of cash
distributions and the IDRs are a separate limited partner
interest, undistributed earnings should be allocated to the
general partner, limited partners and IDR holder utilizing the
contractual terms of the partnership agreement. The distribution
formula for available cash specified in the partnership
agreement contractually mandates the way in which earnings are
distributed.
Additionally,
EITF 07-4
requires an MLP to reflect its contractual obligation to make
distributions as of the end of the current reporting period.
Therefore, an MLP would reduce (increase) income (loss) from
continuing operations (or net income or loss) for the current
reporting period by the amount of available cash that has been
or will be distributed to the general partner, limited partners,
and IDR holder for that current reporting period. If
distributions to the IDR holder are contractually limited to
available cash as defined in the partnership agreement, then the
specified threshold for the current reporting period would be
the holders share of available cash that has been or will
be distributed to the IDR holder for that current reporting
period.
EITF 07-4
is effective for financial statements issued for fiscal years
beginning after December 15, 2008, and interim periods
within those fiscal years. Earlier application is not permitted.
Our adoption of
EITF 07-4
will not impact our consolidated financial position, results of
operations, cash flows or our computation of earnings per common
and subordinated unit.
In March 2008, the FASB issued SFAS 161,
Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB Statement
No. 133. SFAS 161 changes the disclosure
requirements for derivative instruments and hedging activities.
Entities are required to provide enhanced disclosures about
(a) how and why an entity uses derivative instruments,
(b) how derivative instruments and related hedged items are
accounted for under SFAS 133, Derivative
Instruments and Hedging Activities and its related
interpretations, and (c) how derivative instruments and
related hedged items affect an entitys financial position,
financial performance, and cash flows. SFAS 161 is
effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. Early
adoption is encouraged. Our adoption of SFAS 161 will not
impact our consolidated financial position, results of
operations or cash flows.
|
|
Note 4
|
Net
Income per Limited Partner Unit and Distributions
|
Our net income is allocated to the general partner and the
limited partners, including the holders of the subordinated
units, in accordance with their respective ownership
percentages, after giving effect to incentive distributions paid
to the general partner.
Securities that meet the definition of a participating security
are required to be considered for inclusion in the computation
of basic earnings per unit using the two-class method. Under the
two-class method, earnings per unit is calculated as if all of
the earnings for the period were distributed under the terms of
the partnership agreement, regardless of whether the general
partner has discretion over the amount of distributions to be
made in any particular period, whether those earnings would
actually be distributed during a particular period from an
economic or practical perspective, or whether the general
partner has other legal or contractual limitations on its
ability to pay distributions that would prevent it from
distributing all of the earnings for a particular period.
These required disclosures do not impact our overall net income
or other financial results; however, in periods in which
aggregate net income exceeds the first target distribution
level, it will have the impact of reducing net income per
limited partner unit. This result occurs as a larger portion of
our aggregate earnings is
11
Targa
Resources Partners LP
Notes to Consolidated Financial Statements
(Continued)
allocated to the incentive distribution rights held by the
general partner as if distributed, even though we make
distributions on the basis of available cash and not earnings.
In periods in which our aggregate net income does not exceed the
first target distribution level, there is no impact on our
calculation of earnings per limited partner unit. For the nine
months ended September 30, 2008, our aggregate net income
per limited partner unit was greater than the first target
distribution level and, as a result, we allocated
$4.2 million in additional earnings to the general partner.
For the three and nine months ended September 30, 2007, our
aggregate net income per limited partner unit was less than the
first target distribution level, and as a result, there was no
impact on our calculation of earnings per limited partner unit.
Basic and diluted net income per limited partner unit is
calculated by dividing limited partners interest in net
income, less pro forma general partner incentive distributions
as described above, by the weighted-average number of
outstanding limited partner units during the period.
The following table shows the distributions we declared
subsequent to the third quarter of 2008 and distributions
declared and paid in the nine months ended September 30,
2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions Paid/To Be Paid
|
|
Distributions
|
|
|
|
|
|
|
Common
|
|
Subordinated
|
|
General Partner
|
|
|
|
per Limited
|
|
|
Date Declared
|
|
Date Paid or To Be Paid
|
|
Units
|
|
Units
|
|
Incentive
|
|
2%
|
|
Total
|
|
Partner Unit
|
|
|
|
|
|
|
(In thousands, except per unit amounts)
|
|
|
|
October 24, 2008
|
|
November 14,
2008(1)
|
|
$
|
17,932
|
|
|
$
|
5,966
|
|
|
$
|
1,932
|
|
|
$
|
527
|
|
|
$
|
26,357
|
|
|
$
|
0.51750
|
|
|
|
|
|
July 23, 2008
|
|
August 14, 2008
|
|
|
17,759
|
|
|
|
5,908
|
|
|
|
1,711
|
|
|
|
518
|
|
|
|
25,896
|
|
|
|
0.51250
|
|
|
|
|
|
April 23, 2008
|
|
May 15, 2008
|
|
|
14,467
|
|
|
|
4,813
|
|
|
|
208
|
|
|
|
398
|
|
|
|
19,886
|
|
|
|
0.41750
|
|
|
|
|
|
January 23, 2008
|
|
February 14, 2008
|
|
|
13,768
|
|
|
|
4,582
|
|
|
|
66
|
|
|
|
376
|
|
|
|
18,792
|
|
|
|
0.39750
|
|
|
|
|
|
October 24, 2007
|
|
November 14, 2007
|
|
|
11,082
|
|
|
|
3,891
|
|
|
|
|
|
|
|
305
|
|
|
|
15,278
|
|
|
|
0.33750
|
|
|
|
|
|
July 24, 2007
|
|
August 14, 2007
|
|
|
6,526
|
|
|
|
3,890
|
|
|
|
|
|
|
|
212
|
|
|
|
10,628
|
|
|
|
0.33750
|
|
|
|
|
|
April 23, 2007
|
|
May 15, 2007
|
|
|
3,263
|
|
|
|
1,945
|
|
|
|
|
|
|
|
107
|
|
|
|
5,315
|
|
|
|
0.16875
|
|
|
|
|
|
|
|
|
(1) |
|
Payable to unitholders of record on November 4, 2008, for
the period from July 1, 2008 to September 30, 2008. |
The following table illustrates our calculation of net income
per common and subordinated unit for the three and nine months
ended September 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
Net income
|
|
$
|
14,692
|
|
|
$
|
14,392
|
|
|
$
|
67,833
|
|
|
$
|
17,576
|
|
Less: Net income attributable to predecessor operations
|
|
|
|
|
|
|
10,523
|
|
|
|
|
|
|
|
7,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income allocable to partners
|
|
|
14,692
|
|
|
|
3,869
|
|
|
|
67,833
|
|
|
|
10,062
|
|
Net income attributable to general partner interests
|
|
|
294
|
|
|
|
77
|
|
|
|
5,524
|
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common and subordinated unitholders
|
|
$
|
14,398
|
|
|
$
|
3,792
|
|
|
$
|
62,309
|
|
|
$
|
9,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common and subordinated unit
|
|
$
|
0.31
|
|
|
$
|
0.12
|
|
|
$
|
1.35
|
|
|
$
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per common and subordinated unit
|
|
$
|
0.31
|
|
|
$
|
0.12
|
|
|
$
|
1.35
|
|
|
$
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic average number of common and subordinated units outstanding
|
|
|
46,154
|
|
|
|
30,848
|
|
|
|
46,153
|
|
|
|
30,848
|
|
Restrictive equivalents
|
|
|
10
|
|
|
|
9
|
|
|
|
8
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted average number of common and subordinated units
outstanding
|
|
|
46,164
|
|
|
|
30,857
|
|
|
|
46,161
|
|
|
|
30,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
Targa
Resources Partners LP
Notes to Consolidated Financial Statements
(Continued)
|
|
Note 5
|
Related
Party Transactions
|
Targa
Resources, Inc.
We are a party to various agreements with Targa, our general
partner and others that address (i) the reimbursement of
costs incurred on our behalf by our general partner,
(ii) our sales of certain NGLs and NGL products to, and
purchases from, Targa; and (iii) our sales of our natural
gas to, and purchases from, Targa.
The following table summarizes the sales to and purchases from
affiliates of Targa, payments made or received by Targa on
behalf of the Partnership and allocations of costs from Targa.
Prior to the Partnerships ownership of the North Texas,
SAOU and LOU systems, these transactions were settled through
adjustments to partners capital. Management believes these
transactions are executed on terms that are fair and reasonable.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Sales to affiliates
|
|
$
|
354,212
|
|
|
$
|
256,051
|
|
|
$
|
1,058,591
|
|
|
$
|
723,108
|
|
Purchases from affiliates
|
|
|
99,779
|
|
|
|
38,270
|
|
|
|
242,573
|
|
|
|
139,850
|
|
Allocations of general & administrative
expenses pre IPO
|
|
|
|
|
|
|
3,795
|
|
|
|
|
|
|
|
8,952
|
|
Allocations of general & administrative expenses under
Omnibus Agreement
|
|
|
4,105
|
|
|
|
2,779
|
|
|
|
12,203
|
|
|
|
5,608
|
|
Allocated interest
|
|
|
|
|
|
|
2,806
|
|
|
|
|
|
|
|
18,992
|
|
Receipts made by Parent on our behalf
|
|
|
|
|
|
|
226,091
|
|
|
|
|
|
|
|
460,070
|
|
Net change in affiliate receivable
|
|
|
(63,684
|
)
|
|
|
(18,264
|
)
|
|
|
(43,864
|
)
|
|
|
32,437
|
|
Centralized
Cash Management
Prior to the contribution of the North Texas, SAOU and LOU
systems to us, the excess cash from these subsidiaries was held
in separate bank accounts and swept to a centralized account
under Targa. Beginning with the contribution of these systems to
the Partnership, their bank accounts have been maintained under
the Partnerships separate centralized cash management
system.
For the North Texas system, prior to February 14, 2007,
cash distributions are deemed to have occurred through
partners capital and are reflected as an adjustment to
partners capital. For the period from January 1, 2007
through February 13, 2007, deemed net capital distributions
from the Partnership were $0.5 million.
For the SAOU and LOU systems, for the period from
January 1, 2007 though September 30, 2007, deemed net
capital distributions from the Partnership were
$56.7 million.
13
Targa
Resources Partners LP
Notes to Consolidated Financial Statements
(Continued)
Other
Commodity hedges. An affiliate of Merrill
Lynch, Pierce, Fenner & Smith Incorporated
(Merrill Lynch) is an equity investor in the holding
company that indirectly owns our general partner. We have
entered into various commodity derivative transactions with
Merrill Lynch Commodities Inc. (MLCI), an affiliate
of Merrill Lynch. The following table shows our open commodity
derivatives with MLCI as of September 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Commodity
|
|
Instrument Type
|
|
Daily Volumes
|
|
Average Price
|
|
Index
|
|
Oct 2008 Dec 2008
|
|
Natural gas
|
|
|
Swap
|
|
|
|
3,847
|
|
|
MMBtu
|
|
$
|
8.76
|
|
|
per MMBtu
|
|
|
IF-Waha
|
|
Oct 2008 Dec 2008
|
|
Natural gas
|
|
|
Swap
|
|
|
|
879
|
|
|
MMBtu
|
|
|
7.50
|
|
|
per MMBtu
|
|
|
NY-HH
|
|
Jan 2009 Dec 2009
|
|
Natural gas
|
|
|
Swap
|
|
|
|
3,556
|
|
|
MMBtu
|
|
|
8.07
|
|
|
per MMBtu
|
|
|
IF-Waha
|
|
Jan 2010 Dec 2010
|
|
Natural gas
|
|
|
Swap
|
|
|
|
3,289
|
|
|
MMBtu
|
|
|
7.39
|
|
|
per MMBtu
|
|
|
IF-Waha
|
|
Apr 2010 Jun 2010
|
|
Natural gas
|
|
|
Swap
|
|
|
|
330
|
|
|
MMBtu
|
|
|
8.25
|
|
|
per MMBtu
|
|
|
NY-HH
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oct 2008 Dec 2008
|
|
NGL
|
|
|
Swap
|
|
|
|
3,175
|
|
|
Bbl
|
|
|
1.26
|
|
|
per gallon
|
|
|
OPIS-MB
|
|
Jan 2009 Dec 2009
|
|
NGL
|
|
|
Swap
|
|
|
|
3,000
|
|
|
Bbl
|
|
|
1.18
|
|
|
per gallon
|
|
|
OPIS-MB
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oct 2008 Dec 2008
|
|
Condensate
|
|
|
Swap
|
|
|
|
264
|
|
|
Bbl
|
|
|
72.66
|
|
|
per barrel
|
|
|
NY-WTI
|
|
Jan 2009 Dec 2009
|
|
Condensate
|
|
|
Swap
|
|
|
|
202
|
|
|
Bbl
|
|
|
70.60
|
|
|
per barrel
|
|
|
NY-WTI
|
|
Jan 2010 Dec 2010
|
|
Condensate
|
|
|
Swap
|
|
|
|
181
|
|
|
Bbl
|
|
|
69.28
|
|
|
per barrel
|
|
|
NY-WTI
|
|
As of September 30, 2008, the fair value of these open
positions is a liability of $1.9 million. For the three and
nine months ended September 30, 2008, we paid MLCI
$6.6 million and $18.3 million to settle payments due
under hedge transactions. For the three and nine months ended
September 30, 2007, we paid MLCI $1.0 million and
$2.8 million to settle commodity derivative transactions.
Our outstanding debt, including outstanding borrowings, issued
letters of credit and available borrowings under our senior
secured credit facility as of the dates shown below was:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Senior notes,
81/4%
fixed rate, due July 1, 2016
|
|
$
|
250,000
|
|
|
$
|
|
|
Senior secured credit facility, variable rate, due
February 14,
2012(1)
|
|
|
390,000
|
|
|
|
626,300
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
640,000
|
|
|
$
|
626,300
|
|
|
|
|
|
|
|
|
|
|
Letters of credit issued
|
|
$
|
34,700
|
|
|
$
|
25,900
|
|
|
|
|
|
|
|
|
|
|
Available borrowings under credit
facility(1)
|
|
$
|
425,300
|
|
|
$
|
97,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In October 2008, Lehman Brothers Commercial Bank (Lehman
Bank) a lender under our senior secured credit facility,
defaulted on a borrowing request. As a result, we believe the
availability under the senior secured credit facility has been
effectively reduced by $9.5 million. |
81/4% Senior
Notes due 2016
On June 18, 2008, we completed the private placement under
Rule 144A and Regulation S of the Securities Act of
1933 (Rule 144A) of $250 million in
aggregate principal amount of
81/4% senior
notes due 2016 (the Notes). Proceeds from the Notes
were used to repay borrowings under our senior secured credit
facility.
14
Targa
Resources Partners LP
Notes to Consolidated Financial Statements
(Continued)
The Notes:
|
|
|
|
|
are our unsecured senior obligations;
|
|
|
|
rank pari passu in right of payment with our existing and
future senior indebtedness, including indebtedness under our
senior secured credit facility;
|
|
|
|
are senior in right of payment to any of our future subordinated
indebtedness; and
|
|
|
|
are unconditionally guaranteed by us.
|
The Notes are effectively subordinated to all secured
indebtedness under our senior secured credit agreement, which is
secured by substantially all of our assets, to the extent of the
value of the collateral securing that indebtedness.
Interest on the Notes accrues at the rate of
81/4%
per annum and is payable semi-annually in arrears on January 1
and July 1, commencing on January 1, 2009. Interest is
computed on the basis of a
360-day year
comprising twelve
30-day
months.
At any time prior to July 1, 2011, we may on any one or
more occasions redeem up to 35% of the aggregate principal
amount of the Notes with the net cash proceeds of one or more
equity offerings by us; at a redemption price of 108.25% of the
principal amount, plus accrued and unpaid interest and
liquidated damages, if any, to the redemption date provided that:
(1) at least 65% of the aggregate principal amount of the
Notes (excluding Notes held by us) remains outstanding
immediately after the occurrence of such redemption; and
(2) the redemption occurs within 90 days of the date
of the closing of such equity offering.
At any time prior to July 1, 2012, we may also redeem all
or a part of the Notes at a redemption price equal to 100% of
the principal amount of the Notes redeemed plus the applicable
premium as defined in the indenture agreement as of, and accrued
and unpaid interest and liquidated damages, if any, to the date
of redemption.
On or after July 1, 2012, we may redeem all or a part of
the Notes at the redemption prices set forth below (expressed as
percentages of principal amount) plus accrued and unpaid
interest and liquidated damages, if any, on the Notes redeemed,
if redeemed during the twelve-month period beginning on July 1
of each year indicated below:
|
|
|
|
|
Year
|
|
Percentage
|
|
|
2012
|
|
|
104.125
|
%
|
2013
|
|
|
102.063
|
%
|
2014 and thereafter
|
|
|
100.000
|
%
|
The Notes are subject to a registration rights agreement dated
as of June 18, 2008. Under the registration rights
agreement, we are required to file by June 19, 2009 a
registration statement with respect to any Notes that are not
freely transferable without volume restrictions by holders of
the Notes that are not affiliates of the Partnership. If we fail
to do so, additional interest will accrue on the principal
amount of the Notes. Under
EITF 00-19-2,
Accounting for Registration Payment Arrangements,
we have determined that the payment of additional interest
is not probable, as that term is defined in SFAS 5,
Accounting for Contingencies. As a result, we
have not recorded a liability for any contingent obligation. Any
subsequent accruals of a liability or payments made under this
registration rights agreement will be charged to earnings as
interest expense in the period they are recognized or paid.
15
Targa
Resources Partners LP
Notes to Consolidated Financial Statements
(Continued)
Senior
Secured Credit Facility
Concurrent with the closing of the private placement of the
Notes, we increased the commitments under our senior secured
credit facility by $100 million, bringing the total
commitments under our senior secured credit facility to
$850 million. We may request additional commitments under
our senior secured credit facility of up to $150 million,
which would increase the total commitments under our senior
secured credit facility to $1 billion. On October 16,
2008, we requested a $100 million funding under our senior
secured credit facility. Lehman Bank, a lender under our senior
secured credit facility, defaulted on its portion of the
borrowing request resulting in an actual funding of
$97.8 million. The proceeds from this borrowing are
currently available to us as cash deposits. As a result of the
default, we believe the availability under the senior secured
credit facility has been effectively reduced by
$9.5 million.
Our weighted average interest rate on outstanding borrowings
under our senior secured credit facility for the nine months
ended September 30, 2008 was 4.7%.
|
|
Note 7
|
Derivative
Instruments and Hedging Activities
|
As of December 31, 2007, accumulated other comprehensive
income (loss) (OCI) consisted of $74.0 million
of unrealized net losses on commodity hedges and
$1.2 million of unrealized net losses on interest rate
hedges.
In May 2008 we entered into certain NGL derivative contracts
with Lehman Brothers Commodity Services Inc., a subsidiary of
Lehman Brothers Holdings Inc. (Lehman). Due to
Lehmans bankruptcy filing, it is unlikely that we will
receive full or partial payment of any amounts that may become
owed to us under these contracts. Accordingly, we discontinued
hedge accounting treatment for these contracts as of
July 1, 2008. Deferred losses of $0.1 million and
$0.3 million will be reclassified from OCI to revenues
during 2011 and 2012 when the forecasted transactions related to
these contracts are expected to occur. During the three months
ended September 30, 2008, we recognized a non-cash loss on
mark-to-market derivatives of $1.0 million to adjust the
fair value of the Lehman derivative contracts to zero. On
October 22, 2008, we terminated the Lehman derivative
contracts.
During July 2008, we paid $87.4 million to terminate
certain out-of-the-money natural gas and NGL commodity swaps.
Prior to the terminations, these swaps were designated as hedges
in accordance with SFAS 133. Deferred losses of
approximately $20.8 million, $38.2 million, and
$27.9 million will be reclassified from OCI as a non-cash
reduction of revenue during 2008, 2009 and 2010, when the hedged
forecasted sales transactions are expected to occur. During the
three months ended September 30, 2008, deferred losses of
$9.3 million were reclassified from OCI as a non-cash
reduction to revenue. We also entered into new natural gas and
NGL commodity swaps at then current market prices that match the
production volumes of the terminated swaps through 2010.
For the three and nine months ended September 30, 2008,
deferred net losses on commodity hedges of $20.0 million
and $49.7 million were reclassified from OCI to revenues,
and deferred losses on interest rate hedges of $0.9 million
and $1.5 million were reclassified from OCI to interest
expense. For the three and nine months ended September 30,
2007, deferred net gains on commodity hedges of
$1.1 million and $6.1 million were reclassified from
OCI to revenues, and deferred losses on interest rate hedges of
$0.2 million and $0.1 million were reclassified from
OCI to interest expense. There were no adjustments for hedge
ineffectiveness.
As of September 30, 2008, OCI consisted of
$59.6 million of deferred net losses on commodity hedges
and $1.7 million of deferred net losses on interest rate
hedges. Deferred net losses of $25.7 million on commodity
hedges and $0.3 million on interest rate hedges recorded in
OCI are expected to be reclassified to revenues from third
parties and interest expense during the next twelve months.
16
Targa
Resources Partners LP
Notes to Consolidated Financial Statements
(Continued)
As of September 30, 2008, we had the following hedge
arrangements which will settle during the years ending
December 31, 2008 through 2012 (except as indicated
otherwise, the 2008 volumes reflect daily volumes for the period
from October 1, 2008 through December 31, 2008):
Natural
Gas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avg. Price
|
|
|
MMBtu per Day
|
|
|
|
|
Instrument Type
|
|
Index
|
|
$/MMBtu
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Natural Gas Purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap
|
|
NY-HH
|
|
|
8.69
|
|
|
|
1,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Purchases
|
|
|
|
|
|
|
|
|
1,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap
|
|
IF-HSC
|
|
|
8.09
|
|
|
|
2,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
206
|
|
Swap
|
|
IF-HSC
|
|
|
7.39
|
|
|
|
|
|
|
|
1,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(262
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,328
|
|
|
|
1,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap
|
|
IF-NGPL MC
|
|
|
8.86
|
|
|
|
6,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,613
|
|
Swap
|
|
IF-NGPL MC
|
|
|
9.18
|
|
|
|
|
|
|
|
6,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,515
|
|
Swap
|
|
IF-NGPL MC
|
|
|
8.86
|
|
|
|
|
|
|
|
|
|
|
|
5,685
|
|
|
|
|
|
|
|
|
|
|
|
2,061
|
|
Swap
|
|
IF-NGPL MC
|
|
|
7.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,750
|
|
|
|
|
|
|
|
(485
|
)
|
Swap
|
|
IF-NGPL MC
|
|
|
7.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,750
|
|
|
|
(539
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,964
|
|
|
|
6,256
|
|
|
|
5,685
|
|
|
|
2,750
|
|
|
|
2,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap
|
|
IF-Waha
|
|
|
8.91
|
|
|
|
7,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,330
|
|
Swap
|
|
IF-Waha
|
|
|
8.73
|
|
|
|
|
|
|
|
6,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,482
|
|
Swap
|
|
IF-Waha
|
|
|
7.52
|
|
|
|
|
|
|
|
|
|
|
|
5,709
|
|
|
|
|
|
|
|
|
|
|
|
(631
|
)
|
Swap
|
|
IF-Waha
|
|
|
7.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,250
|
|
|
|
|
|
|
|
(520
|
)
|
Swap
|
|
IF-Waha
|
|
|
7.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,250
|
|
|
|
(615
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,389
|
|
|
|
6,936
|
|
|
|
5,709
|
|
|
|
3,250
|
|
|
|
3,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Swaps
|
|
|
|
|
|
|
|
|
16,681
|
|
|
|
15,158
|
|
|
|
11,394
|
|
|
|
6,000
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor
|
|
IF-NGPL MC
|
|
|
6.55
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172
|
|
Floor
|
|
IF-NGPL MC
|
|
|
6.55
|
|
|
|
|
|
|
|
850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor
|
|
IF-Waha
|
|
|
6.85
|
|
|
|
670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92
|
|
Floor
|
|
IF-Waha
|
|
|
6.55
|
|
|
|
|
|
|
|
565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
670
|
|
|
|
565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Floors
|
|
|
|
|
|
|
|
|
1,670
|
|
|
|
1,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales
|
|
|
|
|
|
|
|
|
18,351
|
|
|
|
16,573
|
|
|
|
11,394
|
|
|
|
6,000
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
Targa
Resources Partners LP
Notes to Consolidated Financial Statements
(Continued)
NGLs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avg. Price
|
|
|
Barrels per Day
|
|
|
|
|
Instrument Type
|
|
Index
|
|
|
$/gal
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
NGL Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap
|
|
|
OPIS-MB
|
|
|
|
1.44
|
|
|
|
7,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,282
|
|
Swap
|
|
|
OPIS-MB
|
|
|
|
1.32
|
|
|
|
|
|
|
|
6,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,733
|
|
Swap
|
|
|
OPIS-MB
|
|
|
|
1.27
|
|
|
|
|
|
|
|
|
|
|
|
4,809
|
|
|
|
|
|
|
|
|
|
|
|
8,603
|
|
Swap
|
|
|
OPIS-MB
|
|
|
|
0.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,400
|
|
|
|
|
|
|
|
(8,470
|
)
|
Swap
|
|
|
OPIS-MB
|
|
|
|
0.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,700
|
|
|
|
(5,515
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Swaps
|
|
|
|
|
|
|
|
|
|
|
7,080
|
|
|
|
6,248
|
|
|
|
4,809
|
|
|
|
3,400
|
|
|
|
2,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor
|
|
|
OPIS-MB
|
|
|
|
1.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199
|
|
|
|
|
|
|
|
978
|
|
Floor
|
|
|
OPIS-MB
|
|
|
|
1.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
231
|
|
|
|
1,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Floors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199
|
|
|
|
231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales
|
|
|
|
|
|
|
|
|
|
|
7,080
|
|
|
|
6,248
|
|
|
|
4,809
|
|
|
|
3,599
|
|
|
|
2,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avg. Price
|
|
|
Barrels per Day
|
|
|
|
|
Instrument Type
|
|
Index
|
|
|
$/Bbl
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Condensate Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap
|
|
|
NY-WTI
|
|
|
|
70.68
|
|
|
|
384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,054
|
)
|
Swap
|
|
|
NY-WTI
|
|
|
|
69.00
|
|
|
|
|
|
|
|
322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,823
|
)
|
Swap
|
|
|
NY-WTI
|
|
|
|
68.10
|
|
|
|
|
|
|
|
|
|
|
|
301
|
|
|
|
|
|
|
|
|
|
|
|
(3,643
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Swaps
|
|
|
|
|
|
|
|
|
|
|
384
|
|
|
|
322
|
|
|
|
301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor
|
|
|
NY-WTI
|
|
|
|
60.50
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Floor
|
|
|
NY-WTI
|
|
|
|
60.00
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Floors
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales
|
|
|
|
|
|
|
|
|
|
|
439
|
|
|
|
372
|
|
|
|
301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(8,495
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These contracts may expose us to the risk of financial loss in
certain circumstances. Our hedging arrangements provide us
protection on the hedged volumes if prices decline below the
prices at which these hedges are set. If prices rise above the
prices at which we have hedged, we will receive less revenue on
the hedged volumes than we would receive in the absence of
hedges.
18
Targa
Resources Partners LP
Notes to Consolidated Financial Statements
(Continued)
Customer
Hedges
As of September 30, 2008, we had the following commodity
derivative contracts directly related to short-term fixed price
arrangements elected by certain customers in various natural gas
purchase and sale agreements, which have been marked to market
through earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Commodity
|
|
Instrument Type
|
|
Daily Volume
|
|
|
Average Price
|
|
|
Index
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oct 2008 Dec 2008
|
|
Natural gas
|
|
Swap
|
|
|
14,630 MMBtu
|
|
|
$
|
8.07 per MMBtu
|
|
|
|
NY-HH
|
|
|
$
|
(788)
|
|
Jan 2009 Dec 2009
|
|
Natural gas
|
|
Swap
|
|
|
1,890 MMBtu
|
|
|
|
9.94 per MMBtu
|
|
|
|
NY-HH
|
|
|
|
(1,238)
|
|
Apr 2010 Jun 2010
|
|
Natural gas
|
|
Swap
|
|
|
326 MMBtu
|
|
|
|
8.25 per MMBtu
|
|
|
|
NY-HH
|
|
|
|
(3)
|
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oct 2008 Dec 2008
|
|
Natural gas
|
|
Fixed price sale
|
|
|
14,630 MMBtu
|
|
|
|
8.07 per MMBtu
|
|
|
|
NY-HH
|
|
|
|
788
|
|
Jan 2009 Dec 2009
|
|
Natural gas
|
|
Fixed price sale
|
|
|
1,890 MMBtu
|
|
|
|
9.94 per MMBtu
|
|
|
|
NY-HH
|
|
|
|
1,238
|
|
Apr 2010 Jun 2010
|
|
Natural gas
|
|
Fixed price sale
|
|
|
326 MMBtu
|
|
|
|
8.25 per MMBtu
|
|
|
|
NY-HH
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of derivative instruments, depending on the type
of instrument, was determined by the use of present value
methods or standard option valuation models with assumptions
about commodity prices based on those observed in underlying
markets.
Interest
Rate Swaps
As of September 30, 2008, we had $390 million
outstanding under our senior secured credit facility, with
interest accruing at a base rate plus an applicable margin. In
order to mitigate the risk of changes in cash flows attributable
to changes in market interest rates we have entered into
interest rate swaps and interest rate basis swaps that
effectively fix the base rate on $300 million in borrowings
as shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
|
|
Expiration Date
|
|
Fixed Rate
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
01/24/2011
|
|
|
3.91
|
%
|
|
$
|
100 million
|
|
|
$
|
(1,334
|
)
|
01/24/2012
|
|
|
3.75
|
%
|
|
|
200 million
|
|
|
|
(389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,723
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have designated all interest rate swaps and interest rate
basis swaps as cash flow hedges. Accordingly, unrealized gains
and losses relating to the swaps are deferred in OCI until
interest expense on the related debt is recognized in earnings.
|
|
Note 8
|
Commitments
and Contingencies
|
Environmental
For environmental matters, we record liabilities when remedial
efforts are probable and the costs are reasonably estimated in
accordance with the American Institute of Certified Public
Accountants Statement of Position
96-1,
Environmental Remediation Liabilities.
Environmental reserves do not reflect managements
assessment of the insurance coverage that may be applicable to
the matters at issue. Management has assessed each of the
matters based on current information and made a judgment
concerning its potential outcome, considering the nature of the
claim, the amount and nature of damages sought and the
probability of success.
19
Targa
Resources Partners LP
Notes to Consolidated Financial Statements
(Continued)
This liability was transferred as part of the assets contributed
to us at the time of our Initial Public Offering of common units
(IPO).
Our environmental liability, primarily for ground water
assessment and remediation, was less than $0.1 million as
of September 30, 2008.
Litigation
On December 8, 2005, WTG Gas Processing (WTG)
filed suit in the 333rd District Court of Harris County,
Texas against several defendants, including Targa Resources,
Inc., and three other Targa entities and private equity funds
affiliated with Warburg Pincus LLC, seeking damages from the
defendants. The suit alleges that Targa and private equity funds
affiliated with Warburg Pincus, along with ConocoPhillips
Company (ConocoPhillips) and Morgan Stanley,
tortiously interfered with (i) a contract WTG claims to
have had to purchase the SAOU system from ConocoPhillips, and
(ii) prospective business relations of WTG. WTG claims
the alleged interference resulted from Targas competition
to purchase the ConocoPhillips assets and its successful
acquisition of those assets in 2004. On October 2, 2007,
the District Court granted defendants motions for summary
judgment on all of WTGs claims. WTGs motion to
reconsider and for a new trial was overruled. On January 2,
2008, WTG filed a notice of appeal, and on May 6, 2008
filed its appellants brief with the 14th Court of
Appeals in Houston, Texas. Targa filed its appellees brief
on June 26, 2008 and WTG filed a reply on
August 13, 2008. We are contesting the appeal, but can give
no assurances regarding the outcome of the proceeding. Targa has
agreed to indemnify us for any claim or liability arising out of
the WTG suit.
|
|
Note 9
|
Share-Based
Compensation
|
Our general partner has adopted a long-term incentive plan
(the Plan) for employees, consultants and directors
of the general partner and its affiliates. We account for awards
under the Plan utilizing the fair value recognition provisions
of SFAS 123R, Share-Based Payment.
Non-Employee
Director Grants
On March 25, 2008, our general partner made equity-based
awards of 16,000 restricted common units of the Partnership
(2,000 restricted common units in the Partnership to each of the
Partnerships non-management directors and to each of Targa
Resources Investments Inc.s independent directors) under
the Plan. The awards will settle with the delivery of common
units and are subject to three-year vesting, without a
performance condition, and will vest ratably on each anniversary
of the grant date.
Compensation expense on the restricted common units is
recognized on a straight-line basis over the vesting period. The
fair value of an award of restricted common units is measured on
the grant date using the market price of a common unit on such
date. For the three and nine months ended September 30,
2008, we recognized compensation expense of approximately
$80,000 and $199,000 related to equity-based awards. For the
three months ended September 30, 2007 and for the period of
commencement of Partnership operations (February 14,
2007) through September 30, 2007, we recognized
compensation expense of approximately $52,000 and $129,000
related to equity-based awards. We estimate that the remaining
fair value of $320,000 will be recognized in expense over a
weighted average period of approximately two years.
20
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion analyzes our financial condition and
results of operations. You should read the following discussion
of our financial condition and results of operations in
conjunction with our consolidated financial statements and notes
included elsewhere in this Quarterly Report on
Form 10-Q
and in our consolidated financial statements and notes thereto
included in our Annual Report on
Form 10-K
for the year ended December 31, 2007.
Overview
We are a Delaware limited partnership formed by Targa to own,
operate, acquire and develop a diversified portfolio of
complementary midstream energy assets. We are engaged in the
business of gathering, compressing, treating, processing and
selling natural gas and fractionating and selling NGLs and NGL
products. We currently operate in the Fort Worth Basin/Bend
Arch in North Texas, the Permian Basin in West Texas and in
Southwest Louisiana.
We are owned 98% by our limited partners and 2% by our general
partner, Targa Resources GP LLC, an indirect, wholly-owned
subsidiary of Targa. Our limited partner common units are
publicly traded on The NASDAQ Stock Market LLC under the symbol
NGLS.
Our
Operations
We sell the majority of our processed natural gas, NGLs and
high-pressure condensate to Targa at market-based rates pursuant
to natural gas, NGL and condensate purchase agreements.
Low-pressure condensate is sold to third parties. For a more
complete description of these arrangements, please see
Item 13. Certain Relationships and Related
Transactions, and Director Independence and
Item 1. Business Market Access in
our Annual Report on
Form 10-K
for the year ended December 31, 2007.
Critical
Accounting Policies and Estimates
There have been no significant changes to our critical
accounting policies and estimates since December 31, 2007.
For a more complete description of our critical accounting
polices and estimates, please see Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations Critical Accounting
Policies and Estimates in our Annual Report on
Form 10-K
for the year ended December 31, 2007.
Recent
Accounting Pronouncements
On January 1, 2008, we adopted the provisions of
SFAS 157. SFAS 157 defines fair value as the price
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
at a specified measurement date. See Note 3 of the Notes to
Consolidated Financial Statements included in Item 1 of
this Quarterly Report for information regarding fair value
disclosures pertaining to our financial assets and liabilities.
The accounting standard-setting bodies have recently issued the
following accounting guidelines that will or may affect our
future financial statements:
|
|
|
|
|
EITF 07-4,
Application of the Two-Class Method under FASB
Statement No. 128, Earnings per Share, to Master Limited
Partnerships.
|
|
|
|
SFAS 161, Disclosures about Derivative Instruments
and Hedging Activities an amendment of FASB
Statement No. 133.
|
For additional information regarding these recent accounting
developments and others that may affect our future financial
statements, see Note 3 of the Notes to Consolidated
Financial Statements included in Item 1 of this Quarterly
Report.
21
Results
of Operations
The following table and discussion relate to the three and nine
months ended September 30, 2008 and 2007 and is a summary
of our results of operations for the periods then ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions, except operating and price data)
|
|
|
Revenues
|
|
$
|
578.7
|
|
|
$
|
405.0
|
|
|
$
|
1,721.3
|
|
|
$
|
1,187.4
|
|
Product purchases
|
|
|
512.4
|
|
|
|
337.8
|
|
|
|
1,509.8
|
|
|
|
1,004.0
|
|
Operating expense, excluding DD&A
|
|
|
15.4
|
|
|
|
12.7
|
|
|
|
42.7
|
|
|
|
36.7
|
|
Depreciation and amortization expense
|
|
|
18.6
|
|
|
|
18.0
|
|
|
|
55.2
|
|
|
|
53.6
|
|
General and administrative expense
|
|
|
5.3
|
|
|
|
6.5
|
|
|
|
16.2
|
|
|
|
14.5
|
|
Casualty loss
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
Gain on sale of assets
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
26.8
|
|
|
|
30.0
|
|
|
|
97.3
|
|
|
|
78.9
|
|
Interest expense, net
|
|
|
(10.7
|
)
|
|
|
(5.1
|
)
|
|
|
(27.4
|
)
|
|
|
(12.9
|
)
|
Interest expense, allocated from Parent
|
|
|
|
|
|
|
(2.8
|
)
|
|
|
|
|
|
|
(19.0
|
)
|
Loss on mark-to-market derivative instruments
|
|
|
(1.0
|
)
|
|
|
(7.4
|
)
|
|
|
(1.0
|
)
|
|
|
(28.4
|
)
|
Deferred income tax expense
|
|
|
(0.4
|
)
|
|
|
(0.3
|
)
|
|
|
(1.1
|
)
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
14.7
|
|
|
$
|
14.4
|
|
|
$
|
67.8
|
|
|
$
|
17.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin(1)
|
|
$
|
50.9
|
|
|
$
|
54.5
|
|
|
$
|
168.8
|
|
|
$
|
146.7
|
|
Adjusted EBITDA(2)
|
|
|
55.0
|
|
|
|
48.2
|
|
|
|
163.1
|
|
|
|
132.7
|
|
Distributable cash flow(3)
|
|
|
37.7
|
|
|
|
35.8
|
|
|
|
118.2
|
|
|
|
87.3
|
|
Operating data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gathering throughput,
MMcf/d(4)
|
|
|
438.3
|
|
|
|
464.3
|
|
|
|
455.0
|
|
|
|
447.7
|
|
Plant natural gas inlet,
MMcf/d(5)(6)
|
|
|
415.9
|
|
|
|
445.1
|
|
|
|
430.8
|
|
|
|
423.5
|
|
Gross NGL production, MBbl/d
|
|
|
41.3
|
|
|
|
43.9
|
|
|
|
43.2
|
|
|
|
42.1
|
|
Natural gas sales, BBtu/d(6)
|
|
|
404.4
|
|
|
|
414.8
|
|
|
|
410.9
|
|
|
|
403.3
|
|
NGL sales, MBbl/d
|
|
|
37.4
|
|
|
|
37.5
|
|
|
|
38.2
|
|
|
|
35.7
|
|
Condensate sales, MBbl/d
|
|
|
3.3
|
|
|
|
3.7
|
|
|
|
3.6
|
|
|
|
3.6
|
|
Average realized prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas, $/MMBtu
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average realized sales price
|
|
|
9.47
|
|
|
|
5.87
|
|
|
|
9.31
|
|
|
|
6.61
|
|
Impact of hedging
|
|
|
(0.05
|
)
|
|
|
0.09
|
|
|
|
(0.02
|
)
|
|
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average realized price
|
|
|
9.42
|
|
|
|
5.96
|
|
|
|
9.29
|
|
|
|
6.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL, $/gal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average realized sales price
|
|
|
1.47
|
|
|
|
1.06
|
|
|
|
1.41
|
|
|
|
0.95
|
|
Impact of hedging
|
|
|
(0.11
|
)
|
|
|
(0.02
|
)
|
|
|
(0.10
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average realized price
|
|
|
1.36
|
|
|
|
1.04
|
|
|
|
1.31
|
|
|
|
0.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensate, $/ Bbl
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average realized sales price
|
|
|
103.38
|
|
|
|
69.05
|
|
|
|
98.86
|
|
|
|
60.09
|
|
Impact of hedging
|
|
|
(5.59
|
)
|
|
|
(0.31
|
)
|
|
|
(4.12
|
)
|
|
|
0.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average realized price
|
|
|
97.79
|
|
|
|
68.74
|
|
|
|
94.74
|
|
|
|
60.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Operating margin is revenues less product purchases and
operating expense. See Non-GAAP Financial
Measures. |
|
(2) |
|
Adjusted EBITDA is net income before interest, income taxes,
depreciation and amortization and non-cash gain or loss related
to derivative instruments. See Non-GAAP Financial
Measures. |
22
|
|
|
(3) |
|
Distributable Cash Flow is net income plus depreciation and
amortization and deferred taxes, adjusted for losses on
mark-to-market derivative contracts, less maintenance capital
expenditures. See Non-GAAP Financial Measures. |
|
(4) |
|
Gathering throughput represents the volume of natural gas
gathered and passed through natural gas gathering pipelines from
connections to producing wells and central delivery points. |
|
(5) |
|
Plant natural gas inlet represents the volume of natural gas
passing through the meter located at the inlet of a natural gas
processing plant. |
|
(6) |
|
Plant inlet volumes include producer
take-in-kind,
while natural gas sales exclude producer
take-in-kind
volumes. |
Three
Months Ended September 30, 2008 Compared to Three Months
Ended September 30, 2007
Our operating margin decreased by $3.6 million, or 7%, to
$50.9 million for the three months ended September 30,
2008 compared to $54.5 million for the three months ended
September 30, 2007. Our operating margin for the three
months ended September 30, 2008 was reduced by
$2.2 million for estimated lost business as a result of
Hurricanes Gustav and Ike.
Our revenues increased by $173.7 million, or 43%, to
$578.7 million for the three months ended
September 30, 2008 compared to $405.0 million for the
three months ended September 30, 2007. The increase is
primarily due to:
|
|
|
|
|
An increase attributable to commodity prices of
$182.8 million, comprising increases in natural gas, NGL
and condensate revenues of $129.0 million,
$45.0 million and $8.8 million;
|
|
|
|
A decrease attributable to commodity sales volume of
$8.8 million comprising decreases in natural gas, NGL and
condensate revenues of $5.7 million, $0.3 million and
$2.8 million;
|
|
|
|
A decrease in other revenues of $0.3 million, primarily
from miscellaneous processing activities.
|
Our average realized prices for natural gas increased by $3.46
per MMBtu (net of a $0.14 decrease related to hedge
settlements), or 58%, to $9.42 per MMBtu for the three months
ended September 30, 2008 compared to $5.96 per MMBtu for
the three months ended September 30, 2007. Our average
realized price for NGLs increased by $0.32 per gallon (net of a
$0.09 decrease related to hedge settlements), or 31%, to $1.36
per gallon for the three months ended September 30, 2008
compared to $1.04 per gallon for the three months ended
September 30, 2007. Our average realized price for
condensate increased by $29.05 per barrel (net of a $5.28
decrease related to hedge settlements), or 42%, to $97.79 per
barrel for the three months ended September 30, 2008
compared to $68.74 per barrel for the three months ended
September 30, 2007.
Our natural gas sales volumes decreased by 10.4 BBtu/d, or 3%,
to 404.4 BBtu/d for the three months ended September 30,
2008 compared to 414.8 BBtu/d for the three months ended
September 30, 2007. Our natural gas sales for the three
months ended September 30, 2008 decreased by 7.1 BBtu/d as
a result of reductions in demand in the Lake Charles industrial
market caused by Hurricanes Gustav and Ike. In addition, our
inability to transport NGLs to market due to hurricane-related
curtailments on third-party owned pipelines forced us to
temporarily shutdown some of our West Texas natural gas
processing plants, resulting in a 1.8 BBtu/d reduction in
natural gas sales volumes for the three months ended
September 30, 2008.
Our NGL sales volumes decreased by 0.1 MBbl/d, or less than
1.0%, to 37.4 MBbl/d for the three months ended
September 30, 2008 compared to 37.5 MBbl/d for the
three months ended September 30, 2007. In October 2007 our
Gillis fractionation facility in Louisiana began fractionating
and selling purchased third-party raw NGLs, which increased NGL
sales by 2.2 MBbl/d for the three months ended
September 30, 2008. Offsetting this increase was a
1.7 MBbl/d decrease due to the aforementioned
hurricane-related curtailments on third-party owned pipelines.
Our product purchases increased by $174.6 million, or 52%,
to $512.4 million for the three months ended
September 30, 2008 compared to $337.8 million for the
three months ended September 30, 2007. The increase in
product purchase cost was due primarily to higher commodity
prices in the three months ended
23
September 30, 2008 versus the three months ended
September 30, 2007, partially offset by a volume decrease
in gas purchases.
Our operating expenses increased by $2.7 million, or 21%,
to $15.4 million for the three months ended
September 30, 2008 compared to $12.7 million for the
three months ended September 30, 2007. The increase in
operating expenses was primarily the result of increases of
$0.7 million in compensation related expenses,
$0.8 million in gathering system maintenance,
$0.5 million in lube oils and chemical expenses,
$0.2 million in utilities and $0.5 million in other
operating expenses.
Our general and administrative expenses decreased by
$1.2 million, or 18%, to $5.3 million for the three
months ended September 30, 2008 compared to
$6.5 million for the three months ended September 30,
2007. The decrease consisted of a $0.5 million decrease in
professional service fees and a $0.7 million decrease in
the allocation of corporate level expenses. For additional
information regarding our allocation of general and
administrative costs, see Item 13. Certain
Relationships and Related Transactions, and Director
Independence Omnibus Agreement in our Annual
Report on
Form 10-K
for the year ended December 31, 2007.
Nine
Months Ended September 30, 2008 Compared to Nine Months
Ended September 30, 2007
Our operating margin increased by $22.1 million, or 15%, to
$168.8 million for the nine months ended September 30,
2008 compared to $146.7 million for the nine months ended
September 30, 2007. Our operating margin for the nine
months ended September 30, 2008 was reduced by
approximately $2.2 million for estimated lost business as a
result of Hurricanes Gustav and Ike.
Our revenues increased $533.9 million, or 45%, to
$1,721.3 million for the nine months ended
September 30, 2008 compared to $1,187.4 million for
the nine months ended September 30, 2007. The increase is
primarily due to:
|
|
|
|
|
An increase attributable to commodity prices of
$485.4 million, comprising increases in natural gas, NGL
and condensate revenues of $293.0 million,
$159.2 million and $33.2 million:
|
|
|
|
An increase attributable to commodity sales volume of
$44.3 million comprising increases in natural gas and NGL
revenues of $16.6 million and $28.5 million, partially
offset by a decrease in condensate revenues of $0.8 million.
|
|
|
|
An increase in other revenue of $4.2 million, primarily
from miscellaneous processing activities.
|
Our average realized prices for natural gas increased by $2.60
per MMBtu (net of a $0.10 decrease related to hedge
settlements), or 39%, to $9.29 per MMBtu for the nine months
ended September 30, 2008 compared to $6.69 per MMBtu for
the nine months ended September 30, 2007. The average
realized price for NGLs increased by $0.37 per gallon (net of a
$0.09 decrease related to hedge settlements), or 39%, to $1.31
per gallon for the nine months ended September 30, 2008
compared to $0.94 per gallon for the nine months ended
September 30, 2007. The average realized price for
condensate increased by $33.87 per barrel (net of a $4.90
decrease related to hedge settlements), or 56%, to $94.74 per
barrel for the nine months ended September 30, 2008
compared to $60.87 per barrel for the nine months ended
September 30, 2007.
Our natural gas sales volumes increased by 7.6 BBtu/d, or 2%, to
410.9 BBtu/d for the nine months ended September 30, 2008
compared to 403.3 BBtu/d for the nine months ended
September 30, 2007.
Our NGL sales volumes increased by 2.5 MBbl/d, or 7%, to
38.2 MBbl/d for the nine months ended September 30,
2008 compared to 35.7 MBbl/d for the nine months ended
September 30, 2007. The increase was primarily due to
processing and sales of third party raw NGL volumes.
Our product purchases increased by $505.8 million, or 50%,
to $1,509.8 million for the nine months ended
September 30, 2008 compared to $1,004.0 million for
the nine months ended September 30, 2007. The increase in
product purchases was due primarily to higher commodity prices,
increased spot price purchases for industrial sales customers
and changing contract mix in North Texas.
Our operating expenses increased by $6.0 million, or 16%,
to $42.7 million for the nine months ended
September 30, 2008 compared to $36.7 million for the
nine months ended September 30, 2007. The increase
24
in operating expenses was primarily the result of increases of
$2.0 million in compensation related expenses,
$1.5 million in general maintenance and supplies,
$0.9 million in lube oil, environmental, and automotive
expenses, $0.7 million in utilities, $0.5 million in
ad valorem taxes and $0.4 million in other operating
expenses.
Our general and administrative and other expenses increased by
$1.7 million, or 12%, to $16.2 million for the nine
months ended September 30, 2008 compared to
$14.5 million for the nine months ended September 30,
2007. The increase comprised $0.2 million in professional
service fees, $0.3 million in insurance expenses,
$1.0 million in allocated corporate level expenses and
$0.2 million in other general and administrative expenses.
For additional information regarding our allocation of general
and administrative costs, see Item 13. Certain
Relationships and Related Transactions, and Director
Independence Omnibus Agreement in our Annual
Report on
Form 10-K
for the year ended December 31, 2007.
Liquidity
and Capital Resources
Our ability to finance our operations, including to fund capital
expenditures and acquisitions, to meet our indebtedness
obligations, to refinance our indebtedness or to meet our
collateral requirements depends on our ability to generate cash
in the future. Our ability to generate cash is subject to a
number of factors, some of which are beyond our control,
including weather, commodity prices, particularly for natural
gas and NGLs, and our ongoing efforts to manage operating costs
and maintenance capital expenditures as well as general
economic, financial, competitive, legislative, regulatory and
other factors.
Our main sources of liquidity and capital resources are
internally generated cash flow from operations, a senior secured
credit facility with both uncommitted and committed availability
and access to both the debt and equity capital markets. The
credit markets are undergoing significant volatility. Many
financial institutions have liquidity concerns, prompting
government intervention to mitigate pressure on the credit
markets. Our exposure to the current credit crisis includes our
revolving credit facility, cash investments and counterparty
performance risks. Continued volatility in the capital markets
may increase costs associated with issuing debt instruments due
to increased spreads over relevant interest rate benchmarks and
affect our ability to access those markets. In order to increase
our cash position in the face of the credit and capital market
disruptions, on October 16, 2008, we requested a
$100 million funding under our senior secured credit
facility. Lehman Bank, a lender under our senior secured credit
facility, defaulted on its portion of this borrowing request
resulting in actual funding of $97.8 million. The proceeds
from this borrowing request are currently available to us as
cash deposits. As a result of the default, we believe the
availability under our senior secured credit facility has been
effectively reduced by $9.5 million.
Current market conditions also elevate the concern over
counterparty risks related to our commodity derivative contracts
and trade credit. We have all of our commodity derivatives with
major financial institutions. Should any of these financial
counterparties not perform, we may not realize the benefit of
some of our hedges under lower commodity prices. We sell a
significant portion of our natural gas and condensate to a
variety of purchasers. Non-performance by a trade creditor could
result in losses.
Crude oil and natural gas prices are also volatile and have
declined significantly during the quarter, continuing downward
since the end of the quarter. In a continuing effort to reduce
the volatility of our cash flows, we have periodically entered
into commodity contracts for a portion of our estimated equity
volumes through 2012 (see Note 7 Derivative
Instruments and Hedging Activities). The current market
conditions may also impact our availability to enter into future
commodity derivative contracts. In the event of a global
recession commodity prices may stay depressed or reduce further
thereby causing a prolonged downturn, which could reduce our
operating margins and cash flow from operations.
At this point, we do not believe our liquidity has been
materially affected by the current credit crisis and we do not
expect our liquidity to be materially impacted in the near
future. We will continue to monitor our liquidity and the
capital markets. Additionally, we will continue to monitor
events and circumstances surrounding each of the other twenty
three lenders under our senior secured credit facility. To date,
other than the Lehman Bank default, we have experienced no
disruptions in our ability to access funds committed under our
senior secured credit facility. However, we cannot predict with
any certainty the impact to us of any
25
further disruptions in the credit environment. See
Item 1A. Risk Factors in this Quarterly Report
and Item 1A. Risk Factors in our Annual Report
on
Form 10-K
for the year ended December 31, 2007.
Historically, our cash generated from operations has been
sufficient to finance our operating expenditures and fund most
of our maintenance and expansion capital expenditures, with
remaining amounts being distributed to Targa during its period
of ownership and to our unitholders since Targas
contribution of assets to us and our acquisition of assets from
Targa.
We believe that cash generated from these sources will be
sufficient to meet our short-term working capital requirements,
much of our long-term capital expenditure requirements and our
minimum quarterly cash distributions for at least the next year.
We intend to make cash distributions to our unitholders and our
general partner at least at the minimum quarterly distribution
rate of $0.3375 per common unit per quarter ($1.35 per common
unit on an annualized basis). Due to our cash distribution
policy, we expect that we will distribute to our unitholders
most of the cash generated by our operations. As a result, we
expect that we will rely upon external financing sources,
including other debt and common unit issuances, to fund our
acquisition and expansion capital expenditures. See Note 4
of the Notes to Consolidated Financial Statements included in
Item 1 of this Quarterly Report.
Working Capital. Working capital is the amount
by which current assets exceed current liabilities. Our working
capital requirements are primarily driven by changes in accounts
receivable and accounts payable. These changes are impacted by
changes in the prices of commodities that we buy and sell. In
general, our working capital requirements increase in periods of
rising commodity prices and decrease in periods of declining
commodity prices. However, our working capital needs do not
necessarily change at the same rate as commodity prices because
both accounts receivable and accounts payable are impacted by
the same commodity prices. In addition, the timing of payments
received from our customers or paid to our suppliers can also
cause fluctuations in working capital because we settle with
most of our larger suppliers and customers on a monthly basis
and often near the end of the month. We expect that our future
working capital requirements will be impacted by these same
factors.
As of September 30, 2008, we had working capital of
$30.6 million, including a net short-term asset for
commodity and interest rate derivatives of $22.9 million.
In accordance with SFAS 133 Accounting for
Derivative Instruments and Hedging Activities, we
record the fair value of all derivative instruments on the
balance sheet. Our hedge agreements provide for monthly
settlement (quarterly for interest rate swaps) based on the
differential between the agreement price and published commodity
price and interest rate indexes. Cash received from physical
sales of commodities and cash paid for interest will be based on
actual market prices and interest rates and will generally
offset any gains or losses realized on the derivative
instruments. Our derivative contracts do not have margin
requirements or collateral provisions that could require funding
prior to the scheduled cash settlement date. Excluding
derivatives our working capital surplus was $7.7 million as
of September 30, 2008. See Item 3. Quantitative
and Qualitative Disclosures about Market Risk in this
Quarterly Report and in our Annual Report on
Form 10-K
for the year ended December 31, 2007.
Contractual Obligations. In June 2008, we
issued $250 million aggregate principal amount of
81/4% Senior
Notes due 2016 (the Notes). The proceeds from the
offering were used to reduce outstanding indebtedness under our
senior secured credit facility. The interest rate on the Notes
is fixed at 8.25% with interest to be paid on January 1 and July
1 of each year and the Notes mature on July 1, 2016.
Available Credit. As of September 30,
2008, we had approximately $415.8 million in capacity
available under our senior secured credit facility, after giving
effect to outstanding borrowings of $390 million, the
issuance of $34.7 million of letters of credit, and the
default by Lehman Bank. Our senior secured credit facility
allows us to request increases in the commitments under the
facility by up to $150 million.
Capital Requirements. The midstream energy
business can be capital intensive, requiring significant
investment to maintain and upgrade existing operations. A
portion of the cost of constructing new gathering lines to
connect to our gathering system is paid for by the natural gas
producer. However, we expect to continue to incur significant
expenditures through the remainder of 2008 related to the
expansion of our natural gas gathering and processing
infrastructure.
26
We categorize our capital expenditures as either:
(i) maintenance expenditures or (ii) expansion
expenditures. Maintenance expenditures are those expenditures
that are necessary to maintain the service capability of our
existing assets including the replacement of system components
and equipment which is worn, obsolete or completing its useful
life, the addition of new sources of natural gas supply to our
systems to replace natural gas production declines and
expenditures to remain in compliance with environmental laws and
regulations. Expansion expenditures improve the service
capability from existing levels, expand systems to new areas of
supply or market, reduce costs or enhance revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expansion
|
|
$
|
3.5
|
|
|
$
|
4.5
|
|
|
$
|
9.6
|
|
|
$
|
17.8
|
|
Maintenance
|
|
|
7.2
|
|
|
|
4.9
|
|
|
|
19.0
|
|
|
|
14.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10.7
|
|
|
$
|
9.4
|
|
|
$
|
28.6
|
|
|
$
|
32.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We estimate that our total capital expenditures for 2008 will be
approximately $55 million. Given our objective of growth
through acquisitions, expansions of existing assets and other
internal growth projects, we anticipate that we will invest
significant amounts of capital to grow and acquire assets.
Expansion capital expenditures may vary significantly based on
investment opportunities.
We expect to fund future capital expenditures with funds
generated from our operations, borrowings under our senior
secured credit facility, the issuance of additional partnership
units and debt offerings.
Cash Flow. Net cash provided by or used in
operating activities, investing activities and financing
activities for the nine months ended September 30, 2008 and
2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Net cash provided by operating activities
|
|
$
|
74.0
|
|
|
$
|
133.8
|
|
Net cash used in investing activities
|
|
|
(32.7
|
)
|
|
|
(33.9
|
)
|
Net cash used in financing activities
|
|
|
(58.0
|
)
|
|
|
(71.4
|
)
|
Operating Activities. Net cash provided by
operating activities decreased by $59.8 million, or 45%,
for the nine months ended September 30, 2008 compared to
the nine months ended September 30, 2007. This decrease is
primarily attributable to our payment of $87.4 million in
July 2008 to terminate certain out-of-the-money natural gas and
commodity swaps offset by an increase in our net income,
adjusted for other non-cash charges, as presented in the
combined statements of cash flows.
Investing Activities. Net cash used in
investing activities for the nine months ended
September 30, 2008 decreased $1.2 million, or 4%,
compared to the nine months ended September 30, 2007.
Purchases of property, plant and equipment during the nine
months ended September 30, 2008 decreased by
$5.7 million versus the nine months ended
September 30, 2007. This decrease was due to the timing of
expansion capital projects. Other investing activities for the
nine months ended September 30, 2008 included
$4.3 million for our share of contractually obligated line
fill on a third-party owned pipeline.
Financing Activities. Net cash used in
financing activities decreased $13.4 million, or 19%, for
the nine months ended September 30, 2008 compared to the
nine months ended September 30, 2007. Net cash used in
financing activities for the nine months ended
September 30, 2008 is primarily associated with
distributions to unitholders of $64.6 million and the
repayment of $323.8 million on our senior secured credit
facility, which was offset by the net proceeds of
$250 million from our issuance of the Notes and additional
borrowings on our senior secured credit facility of
$87.5 million. The net cash used in financing activities
for the nine months ended September 30, 2007 is primarily
associated with the completion of our IPO, the establishment of
our
27
senior secured credit facility, deemed parent contribution prior
to the IPO and subsequent drop down of assets to us and the
contribution of the North Texas System to us, which were offset
by payments of debt, offering costs and debt issuance costs
related to our senior secured credit facility.
Non-GAAP Financial
Measures
For a complete discussion of the measures that management uses
to evaluate our operations, see Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations How We Evaluate our
Operations in our Annual Report on
Form 10-K
for the year ended December 31, 2007. The following tables
reconcile the non-GAAP financial measures used by management to
their most directly comparable GAAP measures for the three and
nine months ended September 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Reconciliation of net cash provided by (used in) operating
activities to Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
(25.4
|
)
|
|
$
|
64.9
|
|
|
$
|
74.0
|
|
|
$
|
133.8
|
|
Allocated interest expense from parent(1)
|
|
|
|
|
|
|
2.4
|
|
|
|
|
|
|
|
17.6
|
|
Interest expense, net(1)
|
|
|
10.1
|
|
|
|
5.1
|
|
|
|
25.9
|
|
|
|
12.9
|
|
Changes in operating working capital which used (provided) cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable and other
|
|
|
2.3
|
|
|
|
(22.5
|
)
|
|
|
51.1
|
|
|
|
(14.8
|
)
|
Accounts payable
|
|
|
(4.0
|
)
|
|
|
(0.6
|
)
|
|
|
(3.9
|
)
|
|
|
(3.2
|
)
|
Accrued liabilities
|
|
|
72.0
|
|
|
|
(1.1
|
)
|
|
|
16.0
|
|
|
|
(13.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
55.0
|
|
|
$
|
48.2
|
|
|
$
|
163.1
|
|
|
$
|
132.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of net income to Adjusted
EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
14.7
|
|
|
$
|
14.4
|
|
|
$
|
67.8
|
|
|
$
|
17.6
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated interest expense, net
|
|
|
|
|
|
|
2.8
|
|
|
|
|
|
|
|
19.0
|
|
Interest expense, net
|
|
|
10.7
|
|
|
|
5.1
|
|
|
|
27.4
|
|
|
|
12.9
|
|
Deferred income tax expense
|
|
|
0.4
|
|
|
|
0.3
|
|
|
|
1.1
|
|
|
|
1.0
|
|
Depreciation and amortization expense
|
|
|
18.6
|
|
|
|
18.0
|
|
|
|
55.2
|
|
|
|
53.6
|
|
Non-cash loss related to derivative instruments
|
|
|
10.6
|
|
|
|
7.6
|
|
|
|
11.6
|
|
|
|
28.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
55.0
|
|
|
$
|
48.2
|
|
|
$
|
163.1
|
|
|
$
|
132.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of net income to operating
margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
14.7
|
|
|
$
|
14.4
|
|
|
$
|
67.8
|
|
|
$
|
17.6
|
|
Add:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
18.6
|
|
|
|
18.0
|
|
|
|
55.2
|
|
|
|
53.6
|
|
Deferred income tax expense
|
|
|
0.4
|
|
|
|
0.3
|
|
|
|
1.1
|
|
|
|
1.0
|
|
Allocated interest expense, net
|
|
|
|
|
|
|
2.8
|
|
|
|
|
|
|
|
19.0
|
|
Interest expense, net
|
|
|
10.7
|
|
|
|
5.1
|
|
|
|
27.4
|
|
|
|
12.9
|
|
Loss on mark-to-market derivative instruments
|
|
|
1.0
|
|
|
|
7.4
|
|
|
|
1.0
|
|
|
|
28.4
|
|
General and administrative and other expense
|
|
|
5.5
|
|
|
|
6.5
|
|
|
|
16.3
|
|
|
|
14.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin(2)
|
|
$
|
50.9
|
|
|
$
|
54.5
|
|
|
$
|
168.8
|
|
|
$
|
146.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net of amortization of debt issue costs of $0.6 million and
$1.5 million for the three and nine months ended
September 30, 2008 and $0.4 million and
$1.4 million for the three and nine months ended
September 30, 2007. |
28
|
|
|
(2) |
|
Includes non-cash charges related to commodity hedges of
$9.6 million and $10.6 million for the three and nine
months ended September 30, 2008; and $0.1 million for
each of the three and nine months ended September 30, 2007. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007(1)
|
|
|
2008
|
|
|
2007(1)
|
|
|
|
(In millions)
|
|
|
Reconciliation of Distributable cash flow to net
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
14.7
|
|
|
$
|
14.4
|
|
|
$
|
67.8
|
|
|
$
|
17.6
|
|
Depreciation and amortization expense
|
|
|
18.6
|
|
|
|
18.0
|
|
|
|
55.2
|
|
|
|
53.6
|
|
Deferred income tax expense
|
|
|
0.4
|
|
|
|
0.3
|
|
|
|
1.1
|
|
|
|
1.0
|
|
Amortization of debt issue costs
|
|
|
0.6
|
|
|
|
0.4
|
|
|
|
1.5
|
|
|
|
1.4
|
|
Non-cash loss related to derivative instruments
|
|
|
10.6
|
|
|
|
7.6
|
|
|
|
11.6
|
|
|
|
28.6
|
|
Maintenance capital expenditures
|
|
|
(7.2
|
)
|
|
|
(4.9
|
)
|
|
|
(19.0
|
)
|
|
|
(14.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributable cash flow
|
|
$
|
37.7
|
|
|
$
|
35.8
|
|
|
$
|
118.2
|
|
|
$
|
87.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Distributable cash flow for the three and nine months ended
September 30, 2007 reflects allocated interest from Parent
of $2.8 million and $19.0 million. |
Below is a reconciliation of net income (loss) as reported and
distributable cash flow which excludes the results of operations
of the North Texas System and the SAOU and LOU Systems prior to
their ownership by the Partnership.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, 2007
|
|
|
|
|
|
|
Pre-Acquisition
|
|
|
Post Acquisition
|
|
|
|
|
|
|
SAOU-LOU
|
|
|
North Texas
|
|
|
|
|
|
|
|
|
|
Jan 1, 2007 to
|
|
|
Jan 1, 2007 to
|
|
|
|
|
|
|
TRP LP
|
|
|
Sep 30, 2007
|
|
|
Feb 13, 2007
|
|
|
TRP LP
|
|
|
|
(In millions)
|
|
|
Net income (loss)
|
|
$
|
17.6
|
|
|
$
|
14.4
|
|
|
$
|
(6.9
|
)
|
|
$
|
10.1
|
|
Depreciation and amortization expense
|
|
|
53.6
|
|
|
|
10.8
|
|
|
|
6.9
|
|
|
|
35.9
|
|
Deferred income tax expense
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
Amortization of debt issue costs
|
|
|
1.4
|
|
|
|
0.9
|
|
|
|
|
|
|
|
0.5
|
|
Loss on mark-to-market derivative instruments
|
|
|
28.6
|
|
|
|
28.6
|
|
|
|
|
|
|
|
|
|
Maintenance capital expenditures
|
|
|
(14.9
|
)
|
|
|
(5.6
|
)
|
|
|
(1.5
|
)
|
|
|
(7.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributable Cash Flow
|
|
$
|
87.3
|
|
|
$
|
49.1
|
|
|
$
|
(1.5
|
)
|
|
$
|
39.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
For an in-depth discussion of market risks, see
Item 7A. Quantitative and Qualitative Disclosures
about Market Risk in our Annual Report on
Form 10-K
for the year ended December 31, 2007.
Our principal market risks are our exposure to changes in
commodity prices, particularly to the prices of natural gas and
NGLs, (including the impact of reduced commodity prices on oil
and gas drilling levels), changes in interest rates, as well as
nonperformance by our customers. We do not use risk sensitive
instruments for trading purposes.
Commodity Price Risk. A significant portion of
our revenues is derived from percent-of-proceeds contracts under
which we receive a portion of the natural gas
and/or NGLs,
or equity volumes, as payment for services. The prices of
natural gas and NGLs are subject to fluctuations in response to
changes in supply, demand, market uncertainty and a variety of
additional factors beyond our control. We monitor these risks
and enter into hedging transactions designed to mitigate the
impact of commodity price fluctuations on our business. Cash
flows from a derivative instrument designated as a hedge are
classified in the same category as
29
the cash flows from the item being hedged. For an in-depth
discussion of our hedging strategies, see Item 7A.
Quantitative and Qualitative Disclosures about Market
Risk Commodity Price Risk in our Annual Report
on
Form 10-K
for the year ended December 31, 2007.
Our payment obligations in connection with substantially all of
these hedging transactions, and any additional credit exposure
due to a rise in natural gas and NGL prices relative to the
fixed prices set forth in the hedges, are secured by a first
priority lien in the collateral securing our senior secured
credit facility that ranks equal in right of payment with liens
granted in favor of our senior secured lenders. As long as this
first priority lien is in effect, we expect to have no
obligation to post cash, letters of credit, or other additional
collateral to secure these hedges at any time even if our
counterpartys exposure to our credit increases over the
term of the hedge as a result of higher commodity prices or
because there has been a change in our creditworthiness. A
purchased put (or floor) transaction does not create credit
exposure to us for our counterparties.
30
For the nine months ended September 30, 2008, our operating
revenues were decreased by net hedge settlements of
$49.7 million. During 2006 through 2008, we entered into
hedging arrangements for a portion of our forecasted equity
volumes. Floor volumes and floor pricing are based solely on
purchased puts (or floors). As of September 30, 2008, we
had the following open commodity derivative positions (except as
indicated otherwise, the 2008 volumes reflect daily volumes for
the period from October 1, 2008 through December 31,
2008):
Natural
Gas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avg. Price
|
|
|
MMBtu per day
|
|
|
|
|
Instrument Type
|
|
Index
|
|
|
$/MMBtu
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Natural Gas Purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap
|
|
|
NY-HH
|
|
|
|
8.69
|
|
|
|
1,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Purchases
|
|
|
|
|
|
|
|
|
|
|
1,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural Gas Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap
|
|
|
IF-HSC
|
|
|
|
8.09
|
|
|
|
2,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
206
|
|
Swap
|
|
|
IF-HSC
|
|
|
|
7.39
|
|
|
|
|
|
|
|
1,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(262
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,328
|
|
|
|
1,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap
|
|
|
IF-NGPL MC
|
|
|
|
8.86
|
|
|
|
6,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,613
|
|
Swap
|
|
|
IF-NGPL MC
|
|
|
|
9.18
|
|
|
|
|
|
|
|
6,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,515
|
|
Swap
|
|
|
IF-NGPL MC
|
|
|
|
8.86
|
|
|
|
|
|
|
|
|
|
|
|
5,685
|
|
|
|
|
|
|
|
|
|
|
|
2,061
|
|
Swap
|
|
|
IF-NGPL MC
|
|
|
|
7.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,750
|
|
|
|
|
|
|
|
(485
|
)
|
Swap
|
|
|
IF-NGPL MC
|
|
|
|
7.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,750
|
|
|
|
(539
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,964
|
|
|
|
6,256
|
|
|
|
5,685
|
|
|
|
2,750
|
|
|
|
2,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap
|
|
|
IF-Waha
|
|
|
|
8.91
|
|
|
|
7,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,330
|
|
Swap
|
|
|
IF-Waha
|
|
|
|
8.73
|
|
|
|
|
|
|
|
6,936
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,482
|
|
Swap
|
|
|
IF-Waha
|
|
|
|
7.52
|
|
|
|
|
|
|
|
|
|
|
|
5,709
|
|
|
|
|
|
|
|
|
|
|
|
(631
|
)
|
Swap
|
|
|
IF-Waha
|
|
|
|
7.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,250
|
|
|
|
|
|
|
|
(520
|
)
|
Swap
|
|
|
IF-Waha
|
|
|
|
7.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,250
|
|
|
|
(615
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,389
|
|
|
|
6,936
|
|
|
|
5,709
|
|
|
|
3,250
|
|
|
|
3,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Swaps
|
|
|
|
|
|
|
|
|
|
|
16,681
|
|
|
|
15,158
|
|
|
|
11,394
|
|
|
|
6,000
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor
|
|
|
IF-NGPL MC
|
|
|
|
6.55
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
172
|
|
Floor
|
|
|
IF-NGPL MC
|
|
|
|
6.55
|
|
|
|
|
|
|
|
850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor
|
|
|
IF-Waha
|
|
|
|
6.85
|
|
|
|
670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92
|
|
Floor
|
|
|
IF-Waha
|
|
|
|
6.55
|
|
|
|
|
|
|
|
565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
670
|
|
|
|
565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Floors
|
|
|
|
|
|
|
|
|
|
|
1,670
|
|
|
|
1,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales
|
|
|
|
|
|
|
|
|
|
|
18,351
|
|
|
|
16,573
|
|
|
|
11,394
|
|
|
|
6,000
|
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
NGLs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avg. Price
|
|
|
Barrels per day
|
|
|
|
|
Instrument Type
|
|
Index
|
|
|
$/gal
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
NGL Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap
|
|
|
OPIS-MB
|
|
|
|
1.44
|
|
|
|
7,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,282
|
|
Swap
|
|
|
OPIS-MB
|
|
|
|
1.32
|
|
|
|
|
|
|
|
6,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,733
|
|
Swap
|
|
|
OPIS-MB
|
|
|
|
1.27
|
|
|
|
|
|
|
|
|
|
|
|
4,809
|
|
|
|
|
|
|
|
|
|
|
|
8,603
|
|
Swap
|
|
|
OPIS-MB
|
|
|
|
0.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,400
|
|
|
|
|
|
|
|
(8,470
|
)
|
Swap
|
|
|
OPIS-MB
|
|
|
|
0.92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,700
|
|
|
|
(5,515
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Swaps
|
|
|
|
|
|
|
|
|
|
|
7,080
|
|
|
|
6,248
|
|
|
|
4,809
|
|
|
|
3,400
|
|
|
|
2,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor
|
|
|
OPIS-MB
|
|
|
|
1.44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199
|
|
|
|
|
|
|
|
978
|
|
Floor
|
|
|
OPIS-MB
|
|
|
|
1.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
231
|
|
|
|
1,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Floors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
199
|
|
|
|
231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales
|
|
|
|
|
|
|
|
|
|
|
7,080
|
|
|
|
6,248
|
|
|
|
4,809
|
|
|
|
3,599
|
|
|
|
2,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avg. Price
|
|
|
Barrels per day
|
|
|
|
|
Instrument Type
|
|
Index
|
|
|
$/Bbl
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Condensate Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap
|
|
|
NY-WTI
|
|
|
|
70.68
|
|
|
|
384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,054
|
)
|
Swap
|
|
|
NY-WTI
|
|
|
|
69.00
|
|
|
|
|
|
|
|
322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,823
|
)
|
Swap
|
|
|
NY-WTI
|
|
|
|
68.10
|
|
|
|
|
|
|
|
|
|
|
|
301
|
|
|
|
|
|
|
|
|
|
|
|
(3,643
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Swaps
|
|
|
|
|
|
|
|
|
|
|
384
|
|
|
|
322
|
|
|
|
301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floor
|
|
|
NY-WTI
|
|
|
|
60.50
|
|
|
|
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Floor
|
|
|
NY-WTI
|
|
|
|
60.00
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Floors
|
|
|
|
|
|
|
|
|
|
|
55
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Sales
|
|
|
|
|
|
|
|
|
|
|
439
|
|
|
|
372
|
|
|
|
301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(8,495
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Commodity
|
|
|
Instrument Type
|
|
|
Daily Volume
|
|
|
Average Price
|
|
|
Index
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oct 2008 Dec 2008
|
|
|
Natural gas
|
|
|
|
Swap
|
|
|
|
14,630 MMBtu
|
|
|
$
|
8.07 per MMBtu
|
|
|
|
NY-HH
|
|
|
$
|
(788
|
)
|
Jan 2009 Dec 2009
|
|
|
Natural gas
|
|
|
|
Swap
|
|
|
|
1,890 MMBtu
|
|
|
|
9.94 per MMBtu
|
|
|
|
NY-HH
|
|
|
|
(1,238
|
)
|
Apr 2010 Jun 2010
|
|
|
Natural gas
|
|
|
|
Swap
|
|
|
|
326 MMBtu
|
|
|
|
8.25 per MMBtu
|
|
|
|
NY-HH
|
|
|
|
(3
|
)
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oct 2008 Dec 2008
|
|
|
Natural gas
|
|
|
|
Fixed price sale
|
|
|
|
14,630 MMBtu
|
|
|
|
8.07 per MMBtu
|
|
|
|
NY-HH
|
|
|
|
788
|
|
Jan 2009 Dec 2009
|
|
|
Natural gas
|
|
|
|
Fixed price sale
|
|
|
|
1,890 MMBtu
|
|
|
|
9.94 per MMBtu
|
|
|
|
NY-HH
|
|
|
|
1,238
|
|
Apr 2010 Jun 2010
|
|
|
Natural gas
|
|
|
|
Fixed price sale
|
|
|
|
326 MMBtu
|
|
|
|
8.25 per MMBtu
|
|
|
|
NY-HH
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
These contracts may expose us to the risk of financial loss in
certain circumstances. Our hedging arrangements provide us
protection on the hedged volumes if prices decline below the
prices at which these hedges are set. If prices rise above the
prices at which we have hedged, we will receive less revenue on
the hedged volumes than we would receive in the absence of
hedges.
Interest
Rate Risk
As of September 30, 2008, we had $390 million
outstanding under our senior secured credit facility, with
interest accruing at a base rate plus an applicable margin. In
order to mitigate the risk of changes in cash flows attributable
to changes in market interest rates we have entered into
interest rate swaps and basis swaps that effectively fix the
base rate on $300 million in borrowings as shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
|
|
Expiration Date
|
|
Fixed Rate
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
01/24/2011
|
|
|
3.91
|
%
|
|
$
|
100 million
|
|
|
$
|
(1,334
|
)
|
01/24/2012
|
|
|
3.75
|
%
|
|
|
200 million
|
|
|
|
(389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,723
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We have designated all interest rate swaps and interest rate
basis swaps as cash flow hedges. Accordingly, unrealized gains
and losses relating to the swaps are deferred in OCI until
interest expense on the related debt is recognized in earnings.
A hypothetical increase of 100 basis points in the
underlying interest rate, after taking into account our interest
rate swaps and interest rate basis swaps, would increase our
annual interest expense by $0.9 million.
Credit
Risk
We are subject to risk of losses resulting from nonpayment or
nonperformance by our customers. We operate under the Targa
credit policy and closely monitor the creditworthiness of
customers to whom we grant credit and establish credit limits in
accordance with this credit policy. In addition to third party
contracts, we have entered into several agreements with Targa.
For example, we are party to natural gas, NGL and condensate
purchase agreements pursuant to which Targa purchases the
majority of our natural gas, NGLs and high-pressure condensate.
In addition, we are also a party to an omnibus agreement with
Targa which addresses, among other things, the provision of
general and administrative and operating services to us. Any
material nonperformance under the omnibus and purchase
agreements by Targa could materially and adversely impact our
ability to operate and make distributions to our unitholders.
|
|
Item 4T.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
Our management, under the supervision of and with the
participation of our Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of our disclosure
controls and procedures, as such term is defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended (the
Exchange Act) as of the end of the period covered by
this report. Based on such evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that, as of
the end of such period, our disclosure controls and procedures
were effective at a reasonable assurance level to provide
reasonable assurance that all material information relating to
us required to be included in our reports filed or submitted
under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the rules and
forms of the Securities and Exchange Commission.
There has been no change in our internal control over financial
reporting during the three months ended September 30, 2008
that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
33
PART II
OTHER INFORMATION
|
|
Item 1.
|
Legal
Proceedings
|
The information required for this item is provided in
Note 8, Commitments and Contingencies, under the heading
Litigation included in the Notes to Consolidated
Financial Statements included under Part I, Item 1,
which is incorporated by reference into this item.
For an in-depth discussion of our risk factors, see
Item 1A. Risk Factors in our Annual Report on
Form 10-K
for the year ended December 31, 2007. These risks and
uncertainties are not the only ones facing us and there may be
additional matters that we are unaware of or that we currently
consider immaterial. All of these risks and uncertainties could
adversely affect our business, financial condition
and/or
results of operations, as could the following:
We may
not be able to obtain funding or obtain funding on acceptable
terms because of the deterioration of the credit and capital
markets. This may hinder or prevent us from meeting our future
capital needs.
Global financial markets and economic conditions have been, and
continue to be, disrupted and volatile. The debt and equity
capital markets have been exceedingly distressed. These issues,
along with significant write-offs in the financial services
sector, the re-pricing of credit risk and the current weak
economic conditions have made, and will likely continue to make,
it difficult to obtain funding.
In particular, the cost of raising money in the debt and equity
capital markets has increased substantially while the
availability of funds from those markets generally has
diminished significantly. Also, as a result of concerns about
the stability of financial markets generally and the solvency of
counterparties specifically, the cost of obtaining money from
the credit markets generally has increased as many lenders and
institutional investors have increased interest rates, enacted
tighter lending standards, refused to refinance existing debt at
maturity at all or on terms similar to our current debt and
reduced and, in some cases, ceased to provide funding to
borrowers.
In addition, Lehman Bank recently defaulted on a borrowing
request under our senior secured credit facility which
effectively reduced our total commitments under this facility by
$9.5 million. As a result, we can provide no assurance that
other lending counterparties will be willing or able to meet
their existing funding obligations under our senior secured
credit facility.
Due to these factors, we cannot be certain that funding will be
available if needed and to the extent required, on acceptable
terms. If funding is not available when needed, or is available
only on unfavorable terms, we may be unable to grow our existing
business, complete acquisitions or otherwise take advantage of
business opportunities or respond to competitive pressures any
of which could have a material adverse effect on our revenues
and results of operations.
Our
substantial amount of indebtedness could adversely affect our
financial position.
We currently have a substantial amount of indebtedness. As of
September 30, 2008 we had approximately $640 million
of total indebtedness outstanding, approximately
$34.7 million of letters of credit outstanding and
approximately $425.3 million of additional borrowing
capacity under our senior secured credit facility. In October
2008, one of the lenders under our senior secured credit
facility, Lehman Bank, defaulted on a borrowing request. As a
result, the total commitments under the facility have been
effectively reduced by $9.5 million. Our senior secured
credit facility allows us to request increases in the
commitments under the facility of up to $150 million. We
may also incur additional indebtedness in the future.
34
Our substantial indebtedness may:
|
|
|
|
|
make it difficult for us to satisfy our financial obligations,
including making scheduled principal and interest payments on
our indebtedness;
|
|
|
|
limit our ability to borrow additional funds for working
capital, capital expenditures, acquisitions or other general
business purposes;
|
|
|
|
limit our ability to use our cash flow or obtain additional
financing for future working capital, capital expenditures,
acquisitions or other general business purposes;
|
|
|
|
require us to use a substantial portion of our cash flow from
operations to make debt service payments;
|
|
|
|
limit our flexibility to plan for, or react to, changes in our
business and industry;
|
|
|
|
place us at a competitive disadvantage compared to our less
leveraged competitors; and
|
|
|
|
increase our vulnerability to the impact of adverse economic and
industry conditions.
|
We
require a significant amount of cash to service our
indebtedness. Our ability to generate cash depends on many
factors beyond our control.
Our ability to make payments on and to refinance our
indebtedness and to fund planned capital expenditures depends on
our ability to generate cash in the future. This, to a certain
extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our
control. We cannot assure you that we will generate sufficient
cash flow from operations or that future borrowings will be
available to us under our credit agreement or otherwise in an
amount sufficient to enable us to pay our indebtedness or to
fund our other liquidity needs. We may need to refinance all or
a portion of our indebtedness at or before maturity. We cannot
assure you that we will be able to refinance any of our
indebtedness on commercially reasonable terms or at all.
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
Not applicable.
|
|
Item 3.
|
Defaults
Upon Senior Securities
|
Not applicable.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
Not applicable.
|
|
Item 5.
|
Other
Information
|
Not applicable.
35
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.1
|
|
Certificate of Limited Partnership of Targa Resources Partners
LP (incorporated by reference to Exhibit 3.2 to Targa
Resources Partners LPs Registration Statement on
Form S-1
filed November 16, 2006 (File
No. 333-138747)).
|
|
3
|
.2
|
|
Certificate of Formation of Targa Resources GP LLC (incorporated
by reference to Exhibit 3.3 to Targa Resources Partners
LPs Registration Statement on
Form S-1/A
filed January 19, 2007 (File
No. 333-138747)).
|
|
3
|
.3
|
|
Agreement of Limited Partnership of Targa Resources Partners LP
(incorporated by reference to Exhibit 3.3 to Targa
Resources Partners LPs Annual Report on
Form 10-K
filed April 2, 2007 (File
No. 001-33303)).
|
|
3
|
.4
|
|
First Amended and Restated Agreement of Limited Partnership of
Targa Resources Partners LP (incorporated by reference to
Exhibit 3.1 to Targa Resources Partners LPs current
report on
Form 8-K
filed February 16, 2007 (File
No. 001-33303)).
|
|
3
|
.5
|
|
Amendment No. 1, dated May 13, 2008, to the First
Amended and Restated Agreement of Limited Partnership of Targa
Resources Partners LP (incorporated by reference to
Exhibit 3.5 to Targa Resources Partners LPs Quarterly
Report on
Form 10-Q
filed May 14, 2008 (File
No. 001-33303)).
|
|
3
|
.6
|
|
Limited Liability Company Agreement of Targa Resources GP LLC
(incorporated by reference to Exhibit 3.4 to Targa
Resources Partners LPs Registration Statement on
Form S-1/A
filed January 19, 2007 (File
No. 333-138747)).
|
|
31
|
.1*
|
|
Certification of the Chief Executive Officer pursuant to
Rule 13a-14(a)/15d-14(a)
of the Securities Exchange Act of 1934.
|
|
31
|
.2*
|
|
Certification of the Chief Financial Officer pursuant to
Rule 13a-14(a)/15d-14(a)
of the Securities Exchange Act of 1934.
|
|
32
|
.1*
|
|
Certification of the Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.2*
|
|
Certification of the Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Targa Resources Partners LP
(Registrant)
By: Targa Resources GP LLC,
its general partner
|
|
|
|
By:
|
/s/ John
Robert Sparger
|
John Robert Sparger
Senior Vice President and Chief Accounting Officer
(Authorized signatory and Principal Accounting Officer)
Date: November 12, 2008
37
Exhibit Index
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.1
|
|
Certificate of Limited Partnership of Targa Resources Partners
LP (incorporated by reference to Exhibit 3.2 to Targa
Resources Partners LPs Registration Statement on
Form S-1
filed November 16, 2006 (File
No. 333-138747)).
|
|
3
|
.2
|
|
Certificate of Formation of Targa Resources GP LLC (incorporated
by reference to Exhibit 3.3 to Targa Resources Partners
LPs Registration Statement on
Form S-1/A
filed January 19, 2007 (File
No. 333-138747)).
|
|
3
|
.3
|
|
Agreement of Limited Partnership of Targa Resources Partners LP
(incorporated by reference to Exhibit 3.3 to Targa
Resources Partners LPs Annual Report on
Form 10-K
filed April 2, 2007 (File
No. 001-33303)).
|
|
3
|
.4
|
|
First Amended and Restated Agreement of Limited Partnership of
Targa Resources Partners LP (incorporated by reference to
Exhibit 3.1 to Targa Resources Partners LPs current
report on
Form 8-K
filed February 16, 2007 (File
No. 001-33303)).
|
|
3
|
.5
|
|
Amendment No. 1, dated May 13, 2008, to the First
Amended and Restated Agreement of Limited Partnership of Targa
Resources Partners LP (incorporated by reference to
Exhibit 3.5 to Targa Resources Partners LPs Quarterly
Report on
Form 10-Q
filed May 14, 2008 (File
No. 001-33303)).
|
|
3
|
.6
|
|
Limited Liability Company Agreement of Targa Resources GP LLC
(incorporated by reference to Exhibit 3.4 to Targa
Resources Partners LPs Registration Statement on
Form S-1/A
filed January 19, 2007 (File
No. 333-138747)).
|
|
31
|
.1*
|
|
Certification of the Chief Executive Officer pursuant to
Rule 13a-14(a)/15d-14(a)
of the Securities Exchange Act of 1934.
|
|
31
|
.2*
|
|
Certification of the Chief Financial Officer pursuant to
Rule 13a-14(a)/15d-14(a)
of the Securities Exchange Act of 1934.
|
|
32
|
.1*
|
|
Certification of the Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.2*
|
|
Certification of the Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
exv31w1
Exhibit 31.1
Certification
Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Rene R. Joyce, certify that:
1. I have reviewed this Quarterly Report on
Form 10-Q
for the period ended September 30, 2008 of Targa Resources
Partners LP;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and
other financial information included in this report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in
Exchange Act
Rules 13a-15(f)
and
15d-(f))for
the registrant and have:
(a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial
reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrants
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the
registrants internal control over financial reporting that
occurred during the registrants most recent fiscal quarter
that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over
financial reporting; and
5. The registrants other certifying officer and I
have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of the registrants board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal control over financial reporting.
Name: Rene R. Joyce
|
|
|
|
Title:
|
Chief Executive Officer of Targa Resources GP LLC,
|
the general partner of Targa Resources Partners LP
(Principal Executive Officer)
Date: November 12, 2008
exv31w2
Exhibit 31.2
Certification
Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Jeffrey J. McParland, certify that:
1. I have reviewed this Quarterly Report on
Form 10-Q
for the period ended September 30, 2008 of Targa Resources
Partners LP;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and
other financial information included in this report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrants other certifying officer and I are
responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in
Exchange Act
Rules 13a-15(f)
and
15d-(f))for
the registrant and have:
(a) Designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial
reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrants
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
(d) Disclosed in this report any change in the
registrants internal control over financial reporting that
occurred during the registrants most recent fiscal quarter
that has materially affected, or is reasonably likely to
materially affect, the registrants internal control over
financial reporting; and
5. The registrants other certifying officer and I
have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of the registrants board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal control over financial reporting.
|
|
|
|
By:
|
/s/ Jeffrey
J. McParland
|
Name: Jeffrey J. McParland
|
|
|
|
Title:
|
Executive Vice President and Chief Financial Officer
|
of Targa Resources GP LLC,
the general partner of Targa Resources Partners LP
(Principal Financial Officer)
Date: November 12, 2008
exv32w1
Exhibit 32.1
CERTIFICATION
OF CEO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on
Form 10-Q
for the period ended September 30, 2008 of Targa Resources
Partners LP (the Partnership) as filed with the
Securities and Exchange Commission on the date hereof (the
Report), Rene R. Joyce, as Chief Executive Officer
of Targa Resources GP LLC, hereby certifies, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that, to his
knowledge:
(1) The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly
presents, in all material respects, the financial condition and
results of operations of the Partnership.
Name: Rene R. Joyce
|
|
|
|
Title:
|
Chief Executive Officer of Targa Resources GP LLC,
|
the general partner of Targa Resources Partners LP
(Principal Executive Officer)
Date: November 12, 2008
A signed original of this written statement required by
Section 906, or other document authenticating,
acknowledging, or otherwise adopting the signature that appears
in typed form within the electronic version of this written
statement required by Section 906, has been provided to the
Partnership and will be retained by the Partnership and
furnished to the Securities and Exchange Commission or its staff
upon request.
exv32w2
Exhibit 32.2
CERTIFICATION
OF CFO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on
Form 10-Q
for the period ended September 30, 2008 of Targa Resources
Partners LP (the Partnership) as filed with the
Securities and Exchange Commission on the date hereof (the
Report), Jeffrey J. McParland, as Chief Financial
Officer of Targa Resources GP LLC, hereby certifies, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that, to his
knowledge:
(1) The Report fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) The information contained in the Report fairly
presents, in all material respects, the financial condition and
results of operations of the Partnership.
|
|
|
|
By:
|
/s/ Jeffrey
J. McParland
|
Name: Jeffrey J. McParland
|
|
|
|
Title:
|
Executive Vice President and Chief Financial Officer
|
of Targa Resources GP LLC,
the general partner of Targa Resources Partners LP
(Principal Financial Officer)
Date: November 12, 2008
A signed original of this written statement required by
Section 906, or other document authenticating,
acknowledging, or otherwise adopting the signature that appears
in typed form within the electronic version of this written
statement required by Section 906, has been provided to the
Partnership and will be retained by the Partnership and
furnished to the Securities and Exchange Commission or its staff
upon request.