UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

TARGA RESOURCES PARTNERS LP

(Exact name of registrant as specified in its charter)

Delaware		001-33303		65-1295427
(State or other jurisdiction		(Commission		(IRS Employer
of incorporation or organization)		File Number)		Identification No.)

(Address of principal executive office and Zip Code)

(Registrants’ telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o		Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o		Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o		Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o		Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Item 8.01. Other Events.

     We are filing the consolidated balance sheet of Targa Resources GP LLC as of September 30, 2008, which is included as Exhibit 99.1 to this Current Report on Form 8-K. Targa Resources GP LLC is the general partner of Targa Resources Partners LP.

Item 9.01. Financial Statements and Exhibits

(d) Exhibits

Exhibit
Number		Description
Exhibit 99.1		Consolidated Balance Sheet of Targa Resources GP LLC as of September 30, 2008

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 hereunto duly authorized.

		TARGA RESOURCES PARTNERS LP
		By:		Targa Resources GP LLC, its general partner
Dated: November 21, 2008		By:		/s/ John Robert Sparger   John Robert Sparger Senior Vice President and Chief Accounting Officer (Authorized signatory and Principal Accounting Officer)

EXHIBIT INDEX

Exhibit
Number		Description
Exhibit 99.1		Consolidated Balance Sheet of Targa Resources GP LLC as of September 30, 2008

Exhibit 99.1

TARGA RESOURCES GP LLC
CONSOLIDATED BALANCE SHEET

		September 30,
		2008
		(Unaudited)
		(In thousands)
ASSETS
Current assets:
Cash and cash equivalents		$	34,319
Receivables from third parties			63,692
Receivables from affiliated companies			43,683
Inventory			2,033
Assets from risk management activities			35,799
Other current assets			367
Total current assets			179,893
Property, plant and equipment, at cost			1,466,901
Accumulated depreciation			(229,429	)
Property, plant and equipment, net			1,237,472
Debt issue costs			12,172
Long-term assets from risk management activities			22,091
Other assets			2,277
Total assets		$	1,453,905
LIABILITIES AND MEMBER’S EQUITY
Current liabilities:
Accounts payable		$	9,599
Accrued liabilities			126,797
Liabilities from risk management activities			12,888
Total current liabilities			149,284
Long-term debt			640,000
Long term liabilities from risk management activities			27,780
Deferred income taxes			3,885
Other long-term liabilities			3,522
Commitments and contingencies (Note 9)
Limited partners of Targa Resources Partners LP, including Parent			626,394
Member’s equity:
Member interest			4,265
Accumulated other comprehensive loss			(1,225	)
Total member’s equity			3,040
Total liabilities and member’s equity		$	1,453,905

See notes to consolidated balance sheet

Targa Resources GP LLC
Notes to Consolidated Balance Sheet

Note 1—Organization and Operations

     Targa Resources GP LLC is a Delaware single-member limited liability company, formed in October 2006 to own a 2% general partner interest in Targa Resources Partners LP (“Partnership”). Our primary business purpose is to manage the affairs and operations of the Partnership. We are an indirect wholly-owned subsidiary of Targa Resources, Inc. (“Targa”, or “Parent”). In this report, unless the context requires otherwise, references to “we,” “us,” “our,” or “the Company” are intended to mean the business and operations of Targa Resources GP LLC and its consolidated subsidiaries, which include the Partnership and its consolidated subsidiaries. References to “TR GP” are intended to mean and include Targa Resources GP LLC, individually as the general partner of the Partnership, and not on a consolidated basis.

     The Partnership is engaged in the business of gathering, compressing, treating, processing and selling natural gas and natural gas liquids (“NGLs”) and fractionating and selling NGL products. The Partnership currently operates in the Fort Worth Basin/Bend Arch in North Texas, the Permian Basin in West Texas (the “SAOU system”) and in Southwest Louisiana.

Note 2—Basis of Presentation

     The unaudited consolidated balance sheet has been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, it does not include all of the information and footnotes required by GAAP for complete financial statements. The unaudited consolidated balance sheet as of September 30, 2008 includes all adjustments, both normal and recurring, which are, in the opinion of management, necessary for a fair statement of our financial position as of September 30, 2008. 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 balance sheet as transactions between affiliates (see Note 6). The unaudited consolidated balance sheet should be read in conjunction with our audited consolidated balance sheet and notes thereto as of December 31, 2007.

     We consolidate the accounts of the Partnership and its subsidiaries in accordance with Emerging Issues Task Force (“EITF”) Issue No. 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights.” We have no independent operations and no material assets outside those of the Partnership. Notwithstanding our consolidation of the Partnership and its subsidiaries into our Consolidated Balance Sheet pursuant to EITF No. 04-5, we are not liable for, and our assets are not available to satisfy, the obligations of the Partnership and/or its subsidiaries.

     The caption “Limited partners of Targa Resources Partners LP, including Parent” on our September 30, 2008 consolidated balance sheet represents third-party and Targa ownership interests in the Partnership. The following table presents the components of this line item as of September 30, 2008 (in thousands):

Non-affiliate public unitholders		$	726,122
Targa			(99,728	)
		$	626,394

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, additional disclosure is required.

     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.

     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 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 derivatives		$	57,663			$	—			$	18,086			$	39,577
Assets from interest rate derivatives			227				—				227				—
Total assets		$	57,890			$	—			$	18,313			$	39,577
Liabilities from commodity derivatives		$	38,718			$	—			$	13,999			$	24,719
Liabilities from interest rate derivatives			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
		Derivatives
		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			(571	)
Included in Limited partners of Targa Resources Partners LP, including Parent			(27,982	)
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 position.

Accounting Pronouncements Recently Issued

     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 entity’s 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.

Note 4 — Partnership Equity and Distributions

     General. The partnership agreement requires that, within 45 days after the end of each quarter, the Partnership distribute all of its Available Cash to unitholders of record on the applicable record date, as determined by us.

     The following table shows the distributions we declared subsequent to December 31, 2007 and that the Partnership has made to unitholders during the nine months ended September 30, 2008:

				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

Note 5 — Member’s Equity

     At September 30, 2008, member’s equity consisted of the capital account of Targa GP Inc., an indirect wholly owned subsidiary of Targa and Targa GP Inc.’s proportionate share of the accumulated other comprehensive loss of the Partnership.

Note 6 — Related-Party Transactions

     Targa Resources, Inc.

     The Partnership is a party to various agreements with Targa, TR GP and others that address (i) the reimbursement to Targa for costs incurred on the Partnership’s behalf and indemnification matters, (ii) sales of certain NGLs and NGL products to Targa; and (iii) sales of natural gas to Targa. The net receivable from Targa as of September 30, 2008 was approximately $43.7 million.

     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 us. The Partnership has entered into various commodity swap derivative transactions with Merrill Lynch Commodities Inc. (“MLCI”), an affiliate of Merrill Lynch.

     The following table shows the Partnership’s open positions with MLCI as of September 30, 2008:

Period

Commodity

Daily Volumes

Average Price

Index

Oct 2008 — Dec 2008

Natural gas

3,847

MMBtu

$

8.76

per MMBtu

IF-Waha

Oct 2008 — Dec 2008

Natural gas

879

MMBtu

7.50

per MMBtu

NY-HH

Jan 2009 — Dec 2009

Natural gas

3,556

MMBtu

8.07

per MMBtu

IF-Waha

Jan 2010 — Dec 2010

Natural gas

3,289

MMBtu

7.39

per MMBtu

IF-Waha

Apr 2010 — Jun 2010

Natural gas

330

MMBtu

8.25

per MMBtu

NY-HH

Oct 2008 — Dec 2008

NGL

3,175

Bbl

1.26

per gallon

OPIS-MB

Jan 2009 — Dec 2009

NGL

3,000

Bbl

1.18

per gallon

OPIS-MB

Oct 2008 — Dec 2008

Condensate

264

Bbl

72.66

per barrel

NY-WTI

Jan 2009 — Dec 2009

Condensate

202

Bbl

70.60

per barrel

NY-WTI

Jan 2010 — Dec 2010

Condensate

181

Bbl

69.28

per barrel

NY-WTI

     As of September 30, 2008, the fair value of these open positions was a liability of $1.9 million.

Note 7 — Long-Term Debt

     The Partnership’s outstanding borrowings, issued letters of credit and availability under its credit facility as of September 30, 2008 were:

		September 30,
		2008
		(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
Total long-term debt		$	640,000
Letters of credit issued		$	34,700
Available borrowings under credit facility(1)		$	425,300

81/4% Senior Notes due 2016

     On June 18, 2008, the Partnership 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 the Partnership’s senior secured credit facility.

     The Notes:

	•		are the Partnership’s unsecured senior obligations;
	•		rank pari passu in right of payment with the Partnership’s existing and future senior indebtedness, including indebtedness under the Partnership’s senior secured credit facility;
	•		are senior in right of payment to any of the Partnership’s future subordinated indebtedness; and
	•		are unconditionally guaranteed by the Partnership.

     The Notes are effectively subordinated to all secured indebtedness under the Partnership’s senior secured credit agreement, which is secured by substantially all of the Partnership’s 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, the Partnership 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 the Partnership; 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 the Partnership) 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, the Partnership 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, the Partnership 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, the Partnership is 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 the Partnership fails 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, the Partnership has 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.

Senior Secured Credit Facility

     Concurrent with the closing of the private placement of the Notes, the Partnership increased the commitments under its senior secured credit facility by $100 million, bringing the total commitments under its senior secured credit facility to $850 million. The Partnership may request additional commitments under its senior secured credit facility of up to $150 million, which would increase the total commitments under the senior secured credit facility to $1 billion. On October 16, 2008, the Partnership requested a $100 million funding under its senior secured credit facility. Lehman Bank, a lender under the Partnership’s 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 the Partnership as cash deposits. As a result of the default, we believe the availability under the Partnership’s senior secured credit facility has been effectively reduced by $9.5 million.

Note 8 — Derivative Instruments and Hedging Activities

     Our OCI balance consists of our proportionate share of the OCI of the Partnership. OCI attributable to the limited partners of the Partnership is included in the caption “Limited partners of Targa Resources Partners LP, including Parent”. As of September 30, 2008, our OCI comprised $1.2 million of unrealized net losses on commodity hedges and a $34,000 net unrealized loss on interest rate hedges.

     In May 2008 the Partnership entered into certain NGL derivative contracts with Lehman Brothers Commodity Services Inc., a subsidiary of Lehman Brothers Holdings Inc. (“Lehman”). Due to Lehman’s bankruptcy filing, it is unlikely that the Partnership will receive full or partial payment of any amounts that may become owed to the Partnership under these contracts. Accordingly, the Partnership discontinued hedge accounting treatment for these contracts as of July 1, 2008. On October 22, 2008, the Partnership terminated the Lehman derivative contracts.

     During July 2008, the Partnership 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, “Derivative Instruments and

Hedging Activities.” The Partnership 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.

     As of September 30, 2008, the Partnership 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

Instrument						Avg. Price				MMBtu per day
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

NGLs

Instrument						Avg. Price				Barrels per day
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

Instrument						Avg. Price				Barrels per day
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. The Partnership’s hedging arrangements provide 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 the Partnership has hedged, it will receive less revenue on the hedged volumes than it would receive in the absence of hedges

Customer Hedges

     As of September 30, 2008, the Partnership had the following commodity derivative contracts directly related to short-term fixed price arrangements elected by certain of its customers in various natural gas purchase and sale agreements:

Instrument

Period

Commodity

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, the Partnership had $390 million outstanding under its 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 the Partnership has 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	)

     The Partnership has 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 9 — Commitments and Contingencies

Environmental

     For environmental matters, we record liabilities when remedial efforts are probable and the costs can be 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 management’s 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. This liability was transferred as part of the assets contributed to the Partnership at the time of its initial public offering.

     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 Targa’s 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 WTG’s claims. WTG’s 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 appellant’s brief with the 14th Court of Appeals in Houston, Texas. Targa filed its appellee’s brief on June 26, 2008 and WTG filed a reply on August 13, 2008. Targa is contesting the appeal, but can give no assurances regarding the outcome of the proceeding. Targa has agreed to indemnify the Partnership for any claim or liability arising out of the WTG suit.

Note 10 — Share-Based Compensation

     TR GP has adopted a long-term incentive plan (“the Plan”) for its employees, consultants and directors and affiliates who perform services for us. 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, TR GP 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 Partnership’s 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.