QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
−Removed: Our exposure to market risk discussed below includes forward-looking statements and represents an estimate of possible changes in future earnings that could occur assuming hypothetical future movements in interest rates or commodity prices.
+Added: Our exposure to market risk discussed below includes forward-looking statements and represents an estimate of possible changes in future earnings that could occur assuming hypothetical future movements in interest rates or commodity prices within our derivative portfolio.
Our views on market risk are not necessarily indicative of actual results that may occur and do not represent the maximum possible gains and losses that may occur since actual gains and losses will differ from those estimated based on actual fluctuations in interest rates or commodity prices and the timing of transactions.
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We may use financial instruments, including forward sales, swaps, options and futures, to manage the risks of certain identifiable or anticipated transactions and achieve more predictable cash flows.
−Removed: Our risk-management function follows policies and procedures established by our Risk Oversight and Strategy Committee to monitor our natural gas, condensate and NGL marketing activities and interest rates to ensure our hedging activities mitigate market risks and comply with approved thresholds or limits.
+Added: Our risk-management function follows policies and procedures established by our Risk Oversight and Strategy Committee to monitor our natural gas, NGL, Refined Products, condensate and crude oil marketing activities and interest rates to ensure our hedging activities mitigate market risks and comply with approved thresholds or limits.
We do not use financial instruments for trading purposes.
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Because we enter into these derivative instruments for the purpose of mitigating the risks that accompany certain of our business activities, as described below, the change in the market value of our derivative portfolio would typically be offset largely by a corresponding gain or loss on the hedged item.
−Removed: See Note A of the Notes to Consolidated Financial Statements in this Annual Report for discussion on our accounting policies for our derivative instruments and the impact on our Consolidated Financial Statements.
+Added: See Note A of the Notes to Consolidated Financial Statements in this Annual Report for a discussion on our accounting policies for our derivative instruments and the impact on our Consolidated Financial Statements.
COMMODITY PRICE RISK
−Removed: As part of our hedging strategy, we use commodity derivative financial instruments and physical-forward contracts described in Note D of the Notes to Consolidated Financial Statements in this Annual Report to reduce the impact of near-term price fluctuations of natural gas, NGLs and condensate.
−Removed: Although our businesses are primarily fee-based, in our Natural Gas Gathering and Processing segment, we are exposed to commodity price risk as a result of retaining a portion of the commodity sales proceeds associated with our fee with POP contracts.
−Removed: Under certain fee with POP contracts, our contractual fees and POP percentage may increase or decrease if production volumes, delivery pressures or commodity prices change relative to specified thresholds.
−Removed: We are exposed to basis risk between the various production and market locations where we buy and sell commodities.
+Added: As part of our hedging strategy, we use commodity derivative financial instruments and physical-forward contracts described in Note E of the Notes to Consolidated Financial Statements in this Annual Report to reduce the impact of near-term price fluctuations of natural gas, NGLs, Refined Products, condensate and crude oil.
The following table presents the effect a hypothetical 10% change in the underlying commodity prices would have on the estimated fair value of our commodity derivative instruments as of the dates indicated:
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( Millions of dollars )
−Removed: Crude oil and NGLs $ 34.6 $ 40.6
+Added: Refined Products, crude oil and NGLs $ 67 $ 35
Natural gas 5 18
Total change in estimated fair value of commodity contracts $ 72 $ 53
−Removed: Our sensitivity analysis represents an estimate of the reasonably possible gains and losses that would be recognized on our commodity derivative contracts assuming hypothetical movements in future market prices and is not necessarily indicative of
−Removed: actual results that may occur.
+Added: Our sensitivity analysis represents an estimate of the reasonably possible gains and losses that would be recognized on our commodity derivative contracts assuming hypothetical movements in future market prices and is not necessarily indicative of actual results that may occur.
Actual gains and losses may differ from estimates due to actual fluctuations in market prices, as well as changes in our commodity derivative portfolio during the year.
−Removed: The following tables set forth hedging information for our Natural Gas Gathering and Processing segment’s forecasted equity volumes for the period indicated:
−Removed: Year Ending December 31, 2023
−Removed: Hedged Average Price Percentage
−Removed: NGLs - excluding ethane ( MBbl/d ) - Conway/Mont Belvieu
−Removed: 10.7 $ 1.23 / gallon 67%
−Removed: Condensate ( MBbl/d ) - WTI-NYMEX
−Removed: 1.7 $ 85.48 / Bbl 67%
−Removed: Natural gas ( BBtu/d ) - NYMEX and basis
−Removed: 99.2 $ 3.50 / MMBtu 75%
−Removed: Year Ending December 31, 2024
−Removed: Hedged Average Price Percentage
−Removed: Natural gas ( BBtu/d ) - NYMEX and basis
−Removed: 16.2 $ 7.18 / MMBtu 11%
−Removed: Our Natural Gas Gathering and Processing segment’s commodity price sensitivity is estimated as a hypothetical change in the price of NGLs, crude oil and natural gas at December 31, 2022.
−Removed: Condensate sales are typically based on the price of crude oil.
−Removed: Assuming normal operating conditions, we estimate the following for our forecasted equity volumes:
−Removed: • a $0.01 per gallon change in the composite price of NGLs, excluding ethane, would change adjusted EBITDA for the years ending December 31, 2023 and 2024, by $2.5 million and $2.6 million, respectively;
−Removed: • a $1.00 per barrel change in the price of crude oil would change adjusted EBITDA for the years ending December 31, 2023 and 2024, by $0.9 million and $1.0 million, respectively;
−Removed: • a $0.10 per MMBtu change in the price of residue natural gas would change adjusted EBITDA for the years ending December 31, 2023 and 2024, by $4.8 million and $5.2 million, respectively.
−Removed: These estimates do not include any effects of hedging or effects on demand for our services or natural gas processing plant operations that might be caused by, or arise in conjunction with, commodity price fluctuations.
−Removed: For example, a change in the gross processing spread may cause a change in the amount of ethane extracted from the natural gas stream, impacting gathering and processing financial results for certain contracts.
INTEREST-RATE RISK
−Removed: We are exposed to interest-rate risk through borrowings under our $2.5 Billion Credit Agreement, commercial paper program and long-term debt issuances.
+Added: We are exposed to interest-rate risk through borrowings under our $2.5 Billion Credit Agreement, commercial paper program, term loan agreements and long-term debt issuances.
Future increases in commercial paper rates or bond rates could expose us to increased interest costs on future borrowings.
−Removed: We may manage interest-rate risk through the use of fixed-rate debt, floating-rate debt and interest-rate swaps.
+Added: We may manage interest-rate risk through the use of fixed-rate debt, floating-rate debt, Treasury locks and interest-rate swaps.
+Added: T able of Contents
+Added: Treasury locks are agreements to pay the difference between the benchmark Treasury rate and the rate that is designated in the terms of the agreement.
+Added: In the second quarter of 2023, we entered into $1.1 billion of Treasury locks to hedge the variability of interest payments on a portion of our forecasted debt issuances.
+Added: In the third quarter of 2023, we settled all of our Treasury locks related to our underwritten public offering of $5.25 billion senior unsecured notes associated with the Magellan Acquisition.
+Added: At both December 31, 2023, and December 31, 2022, we had no outstanding Treasury lock agreements.
Interest-rate swaps are agreements to exchange interest payments at some future point based on specified notional amounts.
−Removed: In 2022, we settled $750 million of our forward-starting interest-rate swaps related to our underwritten public offering of $750 million senior unsecured notes, resulting in a gain of $28.1 million, which is included in accumulated other comprehensive loss and amortized into interest expense over the term of the related debt.
−Removed: In December 2022, we terminated the remaining $375 million of our forward-starting interest swaps that had mandatory termination dates of December 31, 2022.
−Removed: We simultaneously entered into forward-starting interest-rate swaps with the same notional amounts at current market rates to hedge the variability of interest payments on a portion of our forecasted debt issuances that may result from changes in the benchmark interest rate before the debt is issued.
−Removed: At December 31, 2022, and December 31, 2021, we had forward-starting interest-rate swaps with notional amounts totaling $0.4 billion and $1.1 billion, respectively, to hedge the variability of interest payments on a portion of our forecasted debt issuances.
−Removed: All of our interest-rate swaps are designated as cash flow hedges.
−Removed: At December 31, 2022 and 2021, we had derivative assets of $10.9 million and derivative liabilities of $145.5 million, respectively, related to these interest-rate swaps.
−Removed: The following table presents the effect of a 10% hypothetical change in interest rates on the estimated fair value of our interest-rate derivative instruments as of the dates indicated:
−Removed: 2022 December 31,
−Removed: ( Millions of dollars )
−Removed: Forward-starting interest-rate swaps $ 13.0 $ 19.6
−Removed: Our sensitivity analysis represents an estimate of the reasonably possible gains and losses that would be recognized on our interest-rate derivative contracts assuming hypothetical movements in future interest rates and is not necessarily indicative of actual results that may occur.
−Removed: Actual gains and losses may differ from estimates due to actual fluctuations in interest rates, as well as changes in our interest-rate derivative portfolio during the year.
−Removed: See Note D of the Notes to Consolidated Financial Statements in this Annual Report for more information on our hedging activities.
+Added: At December 31, 2022, we had forward-starting interest-rate swaps with notional amounts totaling $0.4 billion to hedge the variability of interest payments on a portion of our forecasted debt issuances.
+Added: In the third quarter of 2023, we settled all of our $0.4 billion forward-starting interest-rate swaps related to our underwritten public offerings of $5.25 billion senior unsecured notes associated with the Magellan Acquisition.
+Added: At December 31, 2023, we had no outstanding forward-starting interest-rate swaps.
+Added: See Note E of the Notes to Consolidated Financial Statements in this Annual Report for more information on our hedging activities.
COUNTERPARTY CREDIT RISK
−Removed: We assess the creditworthiness of our counterparties on an ongoing basis and require security, including prepayments and other forms of collateral, when appropriate.
+Added: We assess the creditworthiness of our counterparties on an ongoing basis and require security, including prepayments, letters of credit, liens and other forms of collateral, when appropriate.
Certain of our counterparties may be impacted by a relatively low commodity price environment and could experience financial problems, which could result in nonpayment and/or nonperformance, which could impact adversely our results of operations.
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We also earn sales revenue on the downstream sales of Purity NGLs.
−Removed: In 2022 and 2021, approximately 85% and 70%, respectively, of this segment’s commodity sales were made to customers rated investment-grade by S&P, approved through comparable internal counterparty analysis, or were secured by letters of credit or other collateral.
+Added: In 2023 and 2022, approximately 85% of this segment’s commodity sales were made to customers rated investment-grade by S&P, approved through comparable internal counterparty analysis or were secured by letters of credit or other collateral.
In addition, the majority of our Natural Gas Liquids segment’s pipeline tariffs provide us the ability to require security from shippers.
Natural Gas Pipelines - Our Natural Gas Pipelines segment’s customers are primarily local natural gas distribution companies, electric-generation facilities, large industrial companies, municipalities, producers, processors and marketing companies.
−Removed: In 2022 and 2021, approximately 90% and 85%, respectively, of our revenues in this segment were from customers rated investment-grade by S&P, approved through comparable internal counterparty analysis, or were secured by letters of credit or other collateral.
+Added: In 2023 and 2022, approximately 90% of our revenues in this segment were from customers rated investment-grade by S&P, approved through comparable internal counterparty analysis or were secured by letters of credit or other collateral.
In addition, the majority of our Natural Gas Pipelines segment’s pipeline tariffs provide us the ability to require security from shippers.
+Added: Refined Products and Crude - Our Refined Products and Crude segment’s customers include refiners, wholesalers, retailers, traders, railroads, airlines and regional farm cooperatives.
+Added: In the fourth quarter of 2023, approximately 70% of our revenues in this segment were from customers rated investment grade by S&P, approved through comparable internal counterparty analysis or were secured by letters of credit, liens, or other collateral.
+Added: T able of Contents
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.