Description
Judgments and Uncertainties
Effect if Actual Results Differ
from Assumptions
Accounting for Risk Management Activities and Financial Instruments
Each derivative not qualifying for
the normal purchases and normal
sales exception is recorded on a
gross basis in the consolidated
balance sheets at its fair value as
unrealized gains or unrealized losses
on derivative instruments. Derivative
assets and liabilities remain
classified in our consolidated
balance sheets as unrealized gains or
unrealized losses on derivative
instruments at fair value until the
contractual settlement period
impacts earnings. Values are
adjusted to reflect the credit risk
inherent in the transaction as well as
the potential impact of liquidating
open positions in an orderly manner
over a reasonable time period under
current conditions.
When available, quoted market
prices or prices obtained through
external sources are used to
determine a contract’s fair value.
For contracts with a delivery
location or duration for which
quoted market prices are not
available, fair value is determined
based on pricing models
developed primarily from
historical and the expected
relationship with quoted market
prices.
If our estimates of fair value are
inaccurate, we may be exposed to
losses or gains that could be
material. A 10% difference in our
estimated fair value of derivatives
at December 31, 2011 would have
affected net income by
approximately $4.0 million for the
year ended December 31, 2011.
Accounting for Equity-Based Compensation
Our long-term incentive plan permits
for the grant of restricted units,
phantom units, unit options and
substitute awards. Equity-based
compensation expense is recognized
over the vesting period or service
period of the related awards. We
estimate the fair value of each award,
and the number of awards that will
ultimately vest, at the end of each
period.
Estimating the fair value of each
award, the number of awards that
will ultimately vest, and the
forfeiture rate requires
management to apply judgment to
estimate the tenure of our
employees and the achievement of
certain performance targets over
the performance period.
If actual results are not consistent
with our assumptions and
judgments or our assumptions and
estimates change due to new
information, we may experience
material changes in compensation
expense.
Accounting for Asset Retirement Obligations
Asset retirement obligations
associated with tangible long-lived
assets are recorded at fair value in
the period in which they are
incurred, if a reasonable estimate of
fair value can be made, and added to
the carrying amount of the associated
asset. This additional carrying
amount is then depreciated over the
life of the asset. The liability is
determined using a credit adjusted
risk free interest rate, and increases
due to the passage of time based on
the time value of money until the
obligation is settled.
Estimating the fair value of asset
retirement obligations requires
management to apply judgment to
evaluate the necessary retirement
activities, estimate the costs to
perform those activities, including
the timing and duration of
potential future retirement
activities, and estimate the risk
free interest rate. When making
these assumptions, we consider a
number of factors, including
historical retirement costs, the
location and complexity of the
asset and general economic
conditions.
If actual results are not consistent
with our assumptions and
judgments or our assumptions and
estimates change due to new
information, we may experience
material changes in our asset
retirement obligations.
Establishing an asset retirement
obligation has no initial impact on
net income. A 10% change in
depreciation and accretion
expense associated with our asset
retirement obligations during the
year ended December 31, 2011
would impact our net income by
approximately $0.1 million.
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