Quantitative and Qualitative Disclosures About Market Risk
−Removed: We are exposed to various market risks, including (i) commodity price risk, (ii) interest rate risk and (iii) currency exchange rate risk.
+Added: We are exposed to various market risks, including commodity price risk and interest rate risk.
We use various derivative instruments to manage such risks and, in certain circumstances, to realize incremental margin during volatile market conditions.
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We use derivative instruments to hedge price risk associated with the following commodities:
−Removed: We utilize crude oil derivatives to hedge commodity price risk inherent in our pipeline and merchant activities.
+Added: We utilize crude oil derivatives to hedge commodity price risk inherent in our pipeline, terminalling and merchant activities.
Our objectives for these derivatives include hedging anticipated purchases and sales, stored inventory and basis differentials.
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• Natural gas
−Removed: We utilize natural gas derivatives to hedge commodity price risk inherent in our merchant activities.
−Removed: Our objectives for these derivatives include hedging anticipated purchases of natural gas.
+Added: We utilize natural gas derivatives to hedge commodity price risk inherent in our natural gas processing assets (natural gas purchase component of the frac spread).
+Added: Additionally, we utilize natural gas derivatives to hedge anticipated operational fuel gas requirements related to our natural gas processing and NGL fractionation plants.
We manage these exposures with various instruments including futures, swaps and options.
• NGL and other
−Removed: We utilize NGL derivatives, primarily propane and butane derivatives, to hedge commodity price risk inherent in our merchant activities.
+Added: We utilize NGL derivatives, primarily propane and butane derivatives, to hedge commodity price risk inherent in our commercial activities, including the sale of the individual specification products extracted in our natural gas processing assets (sale of specification NGL products component of the frac spread), as well as other net sales of NGL inventory, held mainly at our owned NGL storage terminals.
Our objectives for these derivatives include hedging anticipated purchases and sales and stored inventory.
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See Note 13 to our Consolidated Financial Statements for further discussion regarding our hedging strategies and objectives.
+Added: Index to Financial Statements
The fair value of our commodity derivatives and the change in fair value as of December 31, 2022 that would be expected from a 10% price increase or decrease is shown in the table below (in millions):
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In the event of an actual 10% change in near-term commodity prices, the fair value of our derivative portfolio would typically change less than that shown in the table as changes in near-term prices are not typically mirrored in delivery months further out.
−Removed: Index to Financial Statements
Interest Rate Risk
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The Preferred Distribution Rate Reset Option of PAA’s Series A preferred units is an embedded derivative that must be bifurcated from the related host contract, PAA’s partnership agreement, and recorded at fair value in our Consolidated Balance Sheets.
−Removed: The valuation model utilized for this embedded derivative contains inputs including PAA’s common unit price, ten-year United States treasury rates, default probabilities and timing estimates to ultimately calculate the fair value of PAA’s Series A preferred units with and without the Preferred Distribution Rate Reset Option.
−Removed: The fair value of this embedded derivative was less than $1 million as of December 31, 2021.
−Removed: A 10% increase or decrease in the fair value would have an impact of less than $1 million.
+Added: The valuation model utilized for this embedded derivative contains multiple inputs, including PAA’s common unit price, ten-year United States treasury rates, default probabilities and timing estimates to ultimately calculate the fair value of PAA’s Series A preferred units with and without the Preferred Distribution Rate Reset Option.
+Added: The fair value of this embedded derivative was a liability of $189 million as of December 31, 2022.
+Added: The ten-year U.S.
+Added: Treasury rate as of December 31, 2022 was 3.88%.
+Added: An increase in the ten-year U.S.
+Added: Treasury rate curve of 10%, holding other inputs constant, would result in an increase in both expense and our liability of $33 million.
+Added: A decrease in the ten-year U.S.
+Added: Treasury rate curve of 10%, holding other inputs constant, would result in a decrease in both expense and our liability of $39 million.
See Note 13 to our Consolidated Financial Statements for a discussion of embedded derivatives.
+Added: In January 2023, we received notice that the Series A preferred unitholders elected the Preferred Distribution Rate Reset Option, which will be effective for the distribution paid in May 2023.
+Added: See Note 12 to our Consolidated Financial Statements for additional information.
Financial Statements and Supplementary Data
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Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
+Added: Index to Financial Statements
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.