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
Date
of Report (Date of earliest event reported): March 31, 2009
TARGA
RESOURCES PARTNERS LP
(Exact
name of registrant as specified in its charter)
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Delaware
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001-33303
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65-1295427
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(State
or other jurisdiction
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(Commission
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(IRS
Employer
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of
incorporation or organization)
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File
Number)
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Identification
No.)
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1000
Louisiana, Suite 4300
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||
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Houston,
TX 77002
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||
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(Address
of principal executive office and Zip Code)
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||
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(713)
584-1000
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||
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(Registrants’
telephone number, including area code)
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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))
We are
filing the consolidated balance sheet of Targa Resources GP LLC as of March 31,
2009, 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
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Exhibit
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Number
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Description
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Exhibit 99.1
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Consolidated
Balance Sheet of Targa Resources GP LLC as of March 31,
2009
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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.
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TARGA
RESOURCES PARTNERS LP
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By:
Targa Resources GP LLC,
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its
general partner
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Dated:
June 1, 2009
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By:
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/s/ John Robert
Sparger
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John
Robert Sparger
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|||
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Senior
Vice President and Chief Accounting Officer
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(Authorized
signatory and Principal Accounting
Officer)
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EXHIBIT
INDEX
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Exhibit
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Number
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Description
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Exhibit 99.1
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Consolidated
Balance Sheet of Targa Resources GP LLC as of March 31,
2009
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Exhibit
99.1
As
generally used in the energy industry and in this report, the identified terms
have the following meanings:
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Bbl
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Barrels
(equal to 42 gallons)
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|
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Btu
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British
thermal units, a measure of heating value
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|
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Gal
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Gallons
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MMBtu
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Million
British thermal units
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NGL(s)
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Natural
gas liquid(s)
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Price Index Definitions
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||
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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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New
York Mercantile Exchange (“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 (“OPIS”), Mont Belvieu,
Texas
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TARGA
RESOURCES GP LLC
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||||
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CONSOLIDATED
BALANCE SHEET
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||||
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March 31, 2009
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||||
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(Unaudited)
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||||
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(In
thousands)
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||||
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ASSETS
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||||
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Current
assets:
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||||
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Cash
and cash equivalents
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$ | 62,310 | ||
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Receivables
from third parties
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37,551 | |||
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Receivables
from affiliated companies
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37,289 | |||
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Other
current assets
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884 | |||
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Total
current assets
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228,830 | |||
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Property,
plant and equipment, at cost
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1,500,457 | |||
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Accumulated
depreciation
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(267,236 | ) | ||
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Property,
plant and equipment, net
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1,233,221 | |||
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Other
assets
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13,196 | |||
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Total
assets
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$ | 1,538,586 | ||
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LIABILITIES
AND EQUITY
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||||
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Current
liabilities:
|
||||
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Accounts
payable
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$ | 5,869 | ||
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Accrued
liabilities
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61,061 | |||
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Liabilities
from risk management activities
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12,259 | |||
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Total
current liabilities
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79,189 | |||
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Long-term
debt
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696,845 | |||
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Long
term liabilities from risk management activities
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16,250 | |||
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Deferred
income taxes
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2,259 | |||
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Other
long-term liabilities
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3,649 | |||
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Commitments
and contingencies (Note 9)
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||||
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Equity:
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||||
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Member's
interest
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4,991 | |||
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Accumulated
other comprehensive income
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1,570 | |||
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Total
member's equity
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6,561 | |||
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Noncontrolling
interest
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733,833 | |||
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Total
equity
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740,394 | |||
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Total
liabilities and equity
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$ | 1,538,586 | ||
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See
notes to consolidated balance sheet
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||||
TARGA
RESOURCES GP LLC
NOTES
TO CONSOLIDATED BALANCE SHEET
(Unaudited)
Note
1—Organization and Operations
Targa
Resources GP LLC is a Delaware limited liability company formed in October 2006
to become the general partner of Targa Resources Partners LP. Our sole member is
Targa GP Inc., an indirect wholly-owned subsidiary of Targa Resources, Inc.
(“Targa”, or “Parent”). Our primary business purpose is to manage the affairs
and operations of Targa Resources Partners LP.
Unless
the context requires otherwise, references to “we,” “us,” or “our” are intended
to mean and include the business and operations of Targa Resources GP LLC, as
well as its consolidated subsidiaries, which include Targa Resources Partners
LP and its consolidated subsidiaries.
References
to “the Partnership” mean the business and operations of Targa Resources Partners
LP and its consolidated subsidiaries. The Partnership is
a publicly traded Delaware limited partnership, the registered common units of
which are listed on The NASDAQ Stock Market LLC under the ticker symbol “NGLS.”
References to “TRGP” mean Targa Resources GP LLC, individually as the general
partner of the Partnership, and not on a consolidated basis. TRGP has no
independent operations and no material assets outside of its interest in the
Partnership.
We
consolidate the accounts of the Partnership and its subsidiaries into our
consolidated balance sheet. Notwithstanding this consolidation, we are not
liable for, and our assets are not available to satisfy, the obligations of the
Partnership and/or its subsidiaries.
The Partnership is
engaged in the business of gathering, compressing, treating, processing and
selling natural gas and fractionating and selling natural gas liquids and NGL
products. The Partnership currently operates in the Fort Worth Basin/Bend Arch
in North Texas, the Permian Basin of West Texas and in Southwest
Louisiana.
Note
2—Accounting Pronouncements
Accounting Standards
Codification. It is expected that the “Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification” (the “Codification”) will be
effective on July 1, 2009, officially becoming the single source of
authoritative nongovernmental accounting principles generally accepted in the
United States of America (“GAAP”), superseding existing FASB, American Institute
of Certified Public Accountants, Emerging Issues Task Force, and related
accounting literature. After that date, only one level of authoritative GAAP
will exist. All other accounting literature will be considered
non-authoritative. The Codification reorganizes the thousands of GAAP
pronouncements into roughly 90 accounting topics and displays them using a
consistent structure. Also included in the Codification is relevant Securities
and Exchange Commission (“SEC”) guidance organized using the same topical
structure in separate sections within the Codification. This will have an impact
on our consolidated balance sheet since all future references to authoritative
accounting literature will be references in accordance with the
Codification.
Accounting
Pronouncements Recently Adopted
In
September 2006, FASB issued Statement of Financial Accounting Standards (“SFAS”)
157, “Fair Value
Measurements.” SFAS 157 defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value measurements. SFAS
157 applies to other accounting pronouncements that require or permit fair value
measurements and, accordingly, does not require any new fair value measurements.
SFAS 157 was initially effective as of January 1, 2008, but in February 2008,
FASB delayed the effective date for applying this standard to nonfinancial
assets and nonfinancial liabilities that are recognized or disclosed at fair
value in the financial statements on a nonrecurring basis until periods
beginning after November 15, 2008. We adopted SFAS 157 as of January 1, 2008 for
assets and liabilities within its scope and the impact was not material to our
consolidated balance sheet. As of January 1, 2009, nonfinancial assets and
nonfinancial liabilities were also required to be measured at fair value. The
adoption of these additional provisions did not have a material impact on our
consolidated balance sheet. See Note 7.
On
October 10, 2008, FASB issued FASB Staff Position (“FSP”) FAS 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset is Not Active.” FSP FAS
157-3 clarifies the application of SFAS 157 in a market that is not active and
provides factors to take into consideration when determining the fair value of
an asset in an inactive market. FSP FAS 157-3 was effective upon issuance,
including prior periods for which financial statements have not been issued. FSP
FAS 157-3 did not have a material impact on our consolidated balance
sheet.
In
December 2007, FASB issued SFAS 141R, “Business Combinations.” SFAS
141R requires the acquiring entity in a business combination to recognize all
assets acquired and liabilities assumed in the transaction, establishes the
acquisition-date fair value as the measurement objective for all assets acquired
and liabilities assumed, and requires the acquirer to disclose certain
information related to the nature and financial effect of the business
combination. SFAS 141R also establishes principles and requirements for how an
acquirer recognizes any noncontrolling interest in the acquiree and the goodwill
acquired in a business combination. SFAS 141R was effective on a prospective
basis for business combinations for which the acquisition date is on or after
January 1, 2009. For any business combination that takes place subsequent to
January 1, 2009, SFAS 141R may have a material impact on our consolidated
balance sheet. The nature and extent of any such impact will depend upon the
terms and conditions of the transaction.
On April
1, 2009 FASB issued FSP FAS 141R-1, “Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination that Arise from
Contingencies.” FSP FAS 141R-1 amends and clarifies SFAS 141R to address
application issues on initial recognition and measurement, subsequent
measurement and accounting, and disclosure of assets and liabilities arising
from contingencies in a business combination. This FSP is effective for assets
and liabilities arising from contingencies in business combinations for which
the acquisition date is on or after January 1, 2009. We do not expect any
material impact to our consolidated balance sheet relating to the adoption of
this FSP.
In
December 2007, FASB issued SFAS 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of Accounting Research Bulletin
No. 51.” SFAS 160 requires all entities to report noncontrolling
interests in subsidiaries as a separate component of equity in the consolidated
statement of financial position, to clearly identify consolidated net income
attributable to the parent and to the noncontrolling interest on the face of the
consolidated statement of income, and to provide sufficient disclosure that
clearly identifies and distinguishes between the interest of the parent and the
interests of noncontrolling owners. SFAS 160 also establishes accounting and
reporting standards for changes in a parent’s ownership interest and the
valuation of retained noncontrolling equity investments when a subsidiary is
deconsolidated. We adopted SFAS 160 as of January 1, 2009.
We
adopted FASB Emerging Issues Task Force 07-4 (“EITF 07-4”), “Application of the Two - Class
Method under FASB Statement No. 128, Earnings per Share, to Master Limited
Partnership” on January 1, 2009. Our adoption
of
EITF 07-4
did not have a material effect on our consolidated balance sheet.
We
adopted FSP No. EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payments Transactions are Participating Securities
(“FSP EITF 03-6-1”) on January 1, 2009. Upon adoption, we were required
to retrospectively adjust our earnings per unit data to conform to the
provisions of FSP EITF 03-6-1. The adoption of FSP EITF 03-6-1 did not have a
material effect on our consolidated balance sheet.
Accounting
Pronouncements Recently Issued
On April
9, 2009, FASB issued FSP FAS 157-4, “Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly.” FSP FAS
157-4 relates to determining fair values when there is no active market or where
the price inputs being used represent distressed sales. Specifically, it
reaffirms the need to use judgment to ascertain if a formerly active market has
become inactive and in determining fair values when markets have become
inactive. FSP FAS 157-4 is effective for interim and annual periods ending after
June 15, 2009 and should be applied prospectively. We do not expect any material
consolidated balance sheet implications relating to our adoption of FSP FAS
157-4.
On April
9, 2009, FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value
of Financial Instruments.” This FSP requires disclosures of fair value
for any financial instruments not currently reflected at fair value on the
balance sheet for all interim periods. This FSP is effective for interim and
annual periods ending after June 15, 2009 and should be applied prospectively.
We do not expect any material consolidated balance sheet implications relating
to the adoption of this FSP.
Note 3—Debt Obligations
Our
consolidated debt obligations and issued letters of credit were as follows as of
March 31, 2009 (in thousands):
|
March
31,
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||||
|
2009
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||||
|
Senior
unsecured notes, 8¼% fixed rate, due July 1, 2016
|
$ | 209,080 | ||
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Senior
secured credit facility, variable rate, due February 14,
2012
|
487,765 | |||
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Total
long-term debt
|
$ | 696,845 | ||
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Letters
of credit issued
|
$ | 14,985 | ||
Note
4—Equity
As of
March 31, 2009, member’s equity consisted of the capital account of Targa GP
Inc. and its proportionate share of the OCI of the Partnership.
Noncontrolling
interest represents third-party and Targa ownership interests in the
Partnership. As of March 31, 2009, the components of noncontrolling interest
were (in thousands):
|
Non-affiliate
public unitholders
|
$ | 749,054 | ||
|
Targa
Resources, Inc.
|
(92,153 | ) | ||
|
Accumulated
other comprehensive income
|
76,932 | |||
|
Noncontrolling
interest
|
$ | 733,833 |
Note
5—Unit-Based Compensation
We have
adopted a long-term incentive plan (“the Plan”) for employees, consultants and
directors of us and our affiliates who perform services for the Partnership. In
general, restricted unit 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. The following table
summarizes information regarding our restricted unit awards for the three months
ended March 31, 2009:
|
Outstanding
at beginning of period
|
26,664 | |||
|
Granted
|
32,000 | |||
|
Vested
|
(10,672 | ) | ||
|
Forfeited
|
- | |||
|
Outstanding
at end of period
|
47,992 | |||
|
Weighted
average grant date fair value per share
|
$ | 12.88 |
Our
principal market risks are our exposure to changes in commodity prices,
particularly to the prices of natural gas and NGLs, changes in interest rates,
as well as nonperformance by our counterparties.
Commodity Price Risk. A
majority of our revenues are 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 market
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 commodity derivative transactions designed to mitigate the impact of
commodity price fluctuations on our business. Cash flows from a derivative
instrument designated as hedges are classified in the same category as the cash
flows from the item being hedged.
The
primary purpose of our commodity risk management activities is to hedge our
exposure to commodity price risk and reduce fluctuations in our operating cash
flow despite fluctuations in commodity prices. In an effort to reduce the
variability of our cash flows, as of March 31, 2009, we have hedged the
commodity price associated with a significant portion of our
expected
natural gas, NGL and condensate equity volumes for the years 2009 through 2013
by entering into derivative financial instruments including swaps and purchased
puts (or floors). The percentages of our expected equity volumes that are hedged
decrease over time. With swaps, we typically receive an agreed upon fixed price
for a specified notional quantity of natural gas or NGL and we pay the hedge
counterparty a floating price for that same quantity based upon published index
prices. Since we receive from our customers substantially the same floating
index price from the sale of the underlying physical commodity, these
transactions are designed to effectively lock-in the agreed fixed price in
advance for the volumes hedged. In order to avoid having a greater volume hedged
than our actual equity volumes, we typically limit our use of swaps to hedge the
prices of less than our expected natural gas and NGL equity volumes. We utilize
purchased puts (or floors) to hedge additional expected equity commodity volumes
without creating volumetric risk. Our commodity hedges may expose us to the risk
of financial loss in certain circumstances. Our hedging arrangements provide us
protection on the hedged volumes if market prices decline below the prices at
which these hedges are set. If market 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.
We have
tailored our hedges to generally match the NGL product composition and the NGL
and natural gas delivery points to those of our physical equity volumes. Our NGL
hedges cover baskets of ethane, propane, normal butane, iso-butane and natural
gasoline based upon our expected equity NGL composition. We believe this
strategy avoids uncorrelated risks resulting from employing hedges on crude oil
or other petroleum products as “proxy” hedges of NGL prices. Additionally, our
NGL hedges are based on published index prices for delivery at Mont Belvieu and
our natural gas hedges are based on published index prices for delivery at Waha,
Houston Ship channel and Mid-Continent, which closely approximate our actual NGL
and natural gas delivery points. We hedge a portion of our condensate sales
using crude oil hedges that are based on the NYMEX futures contracts for West
Texas Intermediate light, sweet crude.
Interest Rate Risk. We are
exposed to changes in interest rates, primarily as a result of our variable rate
debt under our credit facility. To the extent that interest rates increase, our
interest expense for our revolving debt will also increase. As of March 31,
2009, we had borrowings of approximately $487.8 million outstanding under our
revolving credit facility. In an effort to reduce the variability of our cash
flows, we have entered into several interest rate swap and interest rate basis
swap agreements. Under these agreements, which are accounted for as cash flow
hedges, the base interest rate on the specified notional amount of our variable
rate debt is effectively fixed for the term of each agreement and
ineffectiveness is required to be measured each reporting period. The
fair values of the interest rate swap agreements, which are adjusted regularly,
have been aggregated by counterparty for classification in our consolidated
balance sheets. Accordingly, unrealized gains and losses relating to the
interest rate swaps are recorded in accumulated other comprehensive income
(“OCI”) until the interest expense on the related debt is recognized in
earnings.
Credit Risk. Our credit
exposure related to commodity derivative instruments is represented by the fair
value of contracts with a net positive fair value to us at the reporting
date. At such times, these outstanding instruments expose us to
credit loss in the event of nonperformance by the counterparties to the
agreements. Should the creditworthiness of one or more of our counterparties
decline, our ability to mitigate nonperformance risk is limited to a
counterparty agreeing to either a voluntary termination and subsequent cash
settlement or a novation of the derivative contract to a third party. In the
event of a counterparty default, we may sustain a loss and our cash receipts
could be negatively impacted.
As of
March 31, 2009, affiliates of Goldman Sachs, Merrill Lynch and Barclays Bank
accounted for 68%, 17% and 15% of our counterparty credit exposure related to
commodity derivative instruments. Goldman Sachs, Merrill Lynch and Barclays Bank
are major financial institutions, each possessing investment grade credit
ratings based upon minimum credit ratings assigned by Standard & Poor’s
Ratings Services, a division of the McGraw-Hill Companies, Inc.
The
following summarizes the fair values of derivative instruments in our
consolidated balance sheet (in thousands):
|
Asset Derivatives
|
Liability Derivatives
|
|||||||||
|
|
Fair
Value
|
Fair
Value
|
||||||||
|
Balance
|
as
of
|
Balance
|
as
of
|
|||||||
|
Sheet
|
March
31,
|
Sheet
|
March
31,
|
|||||||
|
Location
|
2009
|
Location
|
2009
|
|||||||
|
Derivatives
designated as
|
||||||||||
|
hedging
instruments under
|
||||||||||
|
SFAS
133
|
||||||||||
|
Commodity
contracts
|
Current
assets
|
$ | 86,296 |
Current
liabilities
|
$ | 8 | ||||
|
Other
assets
|
63,198 |
Other
liabiliites
|
3,940 | |||||||
|
Interest
rate contracts
|
Current
assets
|
- |
Current
liabilities
|
7,686 | ||||||
|
Other
assets
|
- |
Other
liabiliites
|
12,165 | |||||||
|
Total
|
149,494 | 23,799 | ||||||||
|
Derivatives
not designated as
|
||||||||||
|
hedging
instruments under
|
||||||||||
|
SFAS
133
|
||||||||||
|
Commodity
contracts
|
Current
assets
|
4,500 |
Current
liabilities
|
4,565 | ||||||
|
Other
assets
|
141 |
Other
liabiliites
|
145 | |||||||
|
Total
|
4,641 | 4,710 | ||||||||
|
Total
derivatives
|
$ | 154,135 | $ | 28,509 | ||||||
As of
March 31, 2009, we had the following commodity hedge arrangements which
will settle during the years ending December 31, 2009 through 2013 (except
as indicated otherwise, the 2009 volumes reflect daily volumes for the period
from April 1, 2009 through December 31, 2009):
Natural
Gas
|
Instrument
|
Avg.
Price
|
MMBtu per day
|
|||||||||||||||||||||||||||
|
Type
|
Index
|
$/MMBtu
|
2009
|
2010
|
2011
|
2012
|
2013
|
Fair Value
|
|||||||||||||||||||||
|
(In
thousands)
|
|||||||||||||||||||||||||||||
|
Sales
|
|||||||||||||||||||||||||||||
|
Swap
|
IF-HSC
|
7.39 | 1,966 | - | - | - | - | $ | 1,743 | ||||||||||||||||||||
| 1,966 | - | - | - | - | |||||||||||||||||||||||||
|
Swap
|
IF-NGPL
MC
|
9.18 | 6,256 | - | - | - | - | 9,410 | |||||||||||||||||||||
|
Swap
|
IF-NGPL
MC
|
8.86 | - | 5,685 | - | - | - | 7,089 | |||||||||||||||||||||
|
Swap
|
IF-NGPL
MC
|
7.34 | - | - | 2,750 | - | - | 1,286 | |||||||||||||||||||||
|
Swap
|
IF-NGPL
MC
|
7.18 | - | - | - | 2,750 | - | 789 | |||||||||||||||||||||
| 6,256 | 5,685 | 2,750 | 2,750 | - | |||||||||||||||||||||||||
|
Swap
|
IF-Waha
|
7.79 | 9,936 | - | - | - | - | 10,910 | |||||||||||||||||||||
|
Swap
|
IF-Waha
|
6.53 | - | 11,709 | - | - | - | 4,715 | |||||||||||||||||||||
|
Swap
|
IF-Waha
|
6.10 | - | - | 11,250 | - | - | 145 | |||||||||||||||||||||
|
Swap
|
IF-Waha
|
6.30 | - | - | - | 7,250 | - | (326 | ) | ||||||||||||||||||||
|
Swap
|
IF-Waha
|
5.59 | - | - | - | - | 4,000 | (1,478 | ) | ||||||||||||||||||||
| 9,936 | 11,709 | 11,250 | 7,250 | 4,000 | |||||||||||||||||||||||||
|
Total
Swaps
|
18,158 | 17,394 | 14,000 | 10,000 | 4,000 | ||||||||||||||||||||||||
|
Floor
|
IF-NGPL
MC
|
6.55 | 850 | - | - | - | - | 710 | |||||||||||||||||||||
| 850 | - | - | - | - | |||||||||||||||||||||||||
|
Floor
|
IF-Waha
|
6.55 | 565 | - | - | - | - | 459 | |||||||||||||||||||||
| 565 | - | - | - | - | |||||||||||||||||||||||||
|
Total
Floors
|
1,415 | - | - | - | - | ||||||||||||||||||||||||
|
Total
Sales
|
19,573 | 17,394 | 14,000 | 10,000 | 4,000 | ||||||||||||||||||||||||
| $ | 35,452 | ||||||||||||||||||||||||||||
NGLs
|
Instrument
|
Avg.
Price
|
Barrels per day
|
|||||||||||||||||||||||||||
|
Type
|
Index
|
$/gal
|
2009
|
2010
|
2011
|
2012
|
2013
|
Fair Value
|
|||||||||||||||||||||
|
(In
thousands)
|
|||||||||||||||||||||||||||||
|
Sales
|
|||||||||||||||||||||||||||||
|
Swap
|
OPIS-MB
|
1.32 | 6,248 | - | - | - | - | $ | 48,006 | ||||||||||||||||||||
|
Swap
|
OPIS-MB
|
1.27 | - | 4,809 | - | - | - | 40,659 | |||||||||||||||||||||
|
Swap
|
OPIS-MB
|
0.92 | - | - | 3,400 | - | - | 9,420 | |||||||||||||||||||||
|
Swap
|
OPIS-MB
|
0.92 | - | - | - | 2,700 | - | 6,197 | |||||||||||||||||||||
|
Total
Swaps
|
6,248 | 4,809 | 3,400 | 2,700 | - | ||||||||||||||||||||||||
|
Floor
|
OPIS-MB
|
1.44 | - | - | 199 | - | - | 1,935 | |||||||||||||||||||||
|
Floor
|
OPIS-MB
|
1.43 | - | - | - | 231 | - | 2,089 | |||||||||||||||||||||
|
Total
Floors
|
- | - | 199 | 231 | - | ||||||||||||||||||||||||
|
Total
Sales
|
6,248 | 4,809 | 3,599 | 2,931 | - | ||||||||||||||||||||||||
| $ | 108,306 | ||||||||||||||||||||||||||||
Condensate
|
Instrument
|
Avg.
Price
|
Barrels per day
|
|||||||||||||||||||||||||||
|
Type
|
Index
|
$/Bbl
|
2009
|
2010
|
2011
|
2012
|
2013
|
Fair Value
|
|||||||||||||||||||||
|
(In
thousands)
|
|||||||||||||||||||||||||||||
|
Sales
|
|||||||||||||||||||||||||||||
|
Swap
|
NY-WTI
|
69.00 | 322 | - | - | - | - | $ | 1,153 | ||||||||||||||||||||
|
Swap
|
NY-WTI
|
68.10 | - | 301 | - | - | - | 518 | |||||||||||||||||||||
|
Total
Swaps
|
322 | 301 | - | - | - | ||||||||||||||||||||||||
|
Floor
|
NY-WTI
|
60.00 | 50 | - | - | - | - | 117 | |||||||||||||||||||||
|
Total
Floors
|
50 | - | - | - | - | ||||||||||||||||||||||||
|
Total
Sales
|
372 | 301 | - | - | - | ||||||||||||||||||||||||
| $ | 1,788 | ||||||||||||||||||||||||||||
As of
March 31, 2009, we had the following commodity derivative contracts directly
related to 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
|
|||||||||||||||||
|
Apr
2009 - Dec 2009
|
Natural
gas
|
Swap
|
5,891 |
MMBtu
|
$ | 6.71 |
per
MMBtu
|
NY-HH
|
$ | (4,436 | ) | ||||||
|
Jan
2010 - Jun 2010
|
Natural
gas
|
Swap
|
663 |
MMBtu
|
8.03 |
per
MMBtu
|
NY-HH
|
(273 | ) | ||||||||
|
Sales
|
|
||||||||||||||||
|
Apr
2009 - Dec 2009
|
Natural
gas
|
Fixed
price sale
|
5,891 |
MMBtu
|
6.71 |
per
MMBtu
|
NY-HH
|
4,373 | |||||||||
|
Jan
2010 - Jun 2010
|
Natural
gas
|
Fixed
price sale
|
663 |
MMBtu
|
8.03 |
per
MMBtu
|
NY-HH
|
267 | |||||||||
| $ | (69 | ) | |||||||||||||||
Interest Rate
Hedges
Our
consolidated variable rate indebtedness accrues interest at a base rate plus an
applicable margin. Our interest rate hedges effectively fix the base rate on the
indicated notional amount of borrowings for the indicated periods:
|
Period
|
Fixed Rate
|
Notional Amount
|
Fair Value
|
||||||||||
|
(In
thousands)
|
|||||||||||||
|
Remainder
of 2009
|
3.68 | % | $ | 300 |
million
|
$ | (5,896 | ) | |||||
|
2010
|
3.67 | % | 300 |
million
|
(6,712 | ) | |||||||
|
2011
|
3.48 | % | 300 |
million
|
(4,211 | ) | |||||||
|
2012
|
3.40 | % | 300 |
million
|
(1,969 | ) | |||||||
|
2013
|
3.39 | % | 300 |
million
|
(962 | ) | |||||||
|
Jan.
1 - Apr. 24, 2014
|
3.39 | % | 300 |
million
|
(101 | ) | |||||||
| $ | (19,851 | ) | |||||||||||
See also
Note 7 and Note 8 for additional disclosures related to our derivative
instruments.
Note
7—Fair Value Measurements
We
classify our assets and liabilities measured at fair value on a recurring and
nonrecurring basis using 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 us to develop our own
assumptions.
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 March 31, 2009. 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
|
$ | 154,135 | $ | - | $ | 45,829 | $ | 108,306 | ||||||||
|
Assets
from interest rate derivatives
|
- | - | - | - | ||||||||||||
|
Total
assets
|
$ | 154,135 | $ | - | $ | 45,829 | $ | 108,306 | ||||||||
|
Liabilities
from commodity derivatives
|
$ | 8,658 | $ | - | $ | 8,658 | $ | - | ||||||||
|
Liabilities
from interest rate derivatives
|
19,851 | - | 19,851 | - | ||||||||||||
|
Total
liabilities
|
$ | 28,509 | $ | - | $ | 28,509 | $ | - | ||||||||
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, 2008
|
$ | 123,304 | ||
|
Unrealized
losses included in OCI
|
(31,710 | ) | ||
|
Settlements
|
16,712 | |||
|
Balance,
March 31, 2009
|
$ | 108,306 | ||
No
unrealized gains or losses were reported relating to assets and liabilities
still held as of March 31, 2009.
Note
8—Related-Party Transactions
Relationships
with Targa
We are a
party to various agreements with Targa and others that address (i) the
reimbursement of costs incurred on the Partnership’s behalf by TRGP,
(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.
Relationship
with Bank of America/Merrill Lynch
Bank of
America Corp. (“BofA”) acquired Merrill Lynch & Co. (“Merrill Lynch”) on
January 1, 2009. An affiliate of Merrill Lynch is an equity investor in
Targa Resources Investments Inc., which indirectly owns TRGP.
Financial Services. BofA is a
lender and an administrative agent under our senior secured credit
facility.
Commodity
Derivatives. 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 March 31, 2009:
|
Period
|
Commodity
|
Daily Volumes
|
Average Price
|
Index
|
||||||||
|
Apr
2009 - Dec 2009
|
Natural
gas
|
3,556 |
MMBtu
|
$ | 8.07 |
per
MMBtu
|
IF-Waha
|
|||||
|
Apr
2009 - Dec 2009
|
Natural
gas
|
545 |
MMBtu
|
7.98 |
per
MMBtu
|
NY-HH
|
||||||
|
Jan
2010 - Dec 2010
|
Natural
gas
|
3,289 |
MMBtu
|
7.39 |
per
MMBtu
|
IF-Waha
|
||||||
|
Jan
2010 - Jun 2010
|
Natural
gas
|
497 |
MMBtu
|
8.17 |
per
MMBtu
|
NY-HH
|
||||||
|
|
||||||||||||
|
Apr
2009 - Dec 2009
|
NGL
|
3,000 |
Bbl
|
1.18 |
per
gallon
|
OPIS-MB
|
||||||
|
|
||||||||||||
|
Apr
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
March 31, 2009, the aggregate fair value of these open positions was
$25.1 million.
Interest Rate Derivatives.
Prior to BofA’s acquisition of Merrill Lynch, we entered into several
interest rate derivative transactions with BofA. Open positions as of March 31,
2009 consisted of interest rate swaps and interest rate basis swaps expiring on
January 24, 2012. As of March 31, 2009, the aggregate fair value of these
positions was a liability of $2.9 million.
Relationship
with Warburg Pincus LLC
Two
of the directors of Targa are Managing Directors of Warburg Pincus LLC and are
also directors of Broad Oak Energy, Inc. (“Broad Oak”) from whom we buy natural
gas and NGL products. Affiliates of Warburg Pincus LLC own a controlling
interest in Broad Oak. As of March 31, 2009, our payable balance with Broad Oak
was $0.5 million.
Environmental
For
environmental matters, we record liabilities when remedial efforts are probable
and the costs are reasonably estimable. Environmental reserves
do not reflect management’s assessment of the insurance coverage that may be
applicable to 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.
Our
environmental liability, which stems primarily from ground water assessment and
remediation, was less than $0.1 million as of March 31,
2009.
Legal
Proceeding
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
LLC, along with ConocoPhillips Company (“ConocoPhillips”) and Morgan Stanley,
tortiously interfered with (i) a contract WTG claims to have had to purchase our
Permian Basin assets 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. On February 3, 2009, the parties presented oral arguments and the appeal
is pending before the 14th Court of Appeals in Houston, Texas. The
defendants are contesting WTG’s 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.