DCP SOUTHEAST TEXAS HOLDINGS, GP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Years Ended December 31, 2011, 2010 and 2009
proceeds received and the amount remitted back to the producer related to NGLs and condensate.
Certain of these arrangements may also result in our returning all or a portion of the producer’s share of
residue natural gas and/or the NGLs to the producer, in lieu of returning sales proceeds. Additionally,
these arrangements may include fee-based components. Our revenues under percent-of-proceeds
arrangements relate directly with the price of natural gas, NGLs and condensate. Our revenues under
percent-of-liquids arrangements relate directly with the price of NGLs and condensate.
Our trading and marketing of natural gas consists of physical purchases and sales, as well as derivative
instruments.
We recognize revenues for sales and services under the four revenue recognition criteria, as follows:
•
Persuasive evidence of an arrangement exists
— Our customary practice is to enter into a written
contract.
•
Delivery
— Delivery is deemed to have occurred at the time custody is transferred, or in the case of
fee-based arrangements, when the services are rendered. To the extent we retain product as inventory,
delivery occurs when the inventory is subsequently sold and custody is transferred to the third party
purchaser.
•
The fee is fixed or determinable
— We negotiate the fee for our services at the outset of our fee-based
arrangements. In these arrangements, the fees are nonrefundable. For other arrangements, the amount of
revenue, based on contractual terms, is determinable when the sale of the applicable product has been
completed upon delivery and transfer of custody.
•
Collectability is reasonably assured
— Collectability is evaluated on a customer-by-customer basis.
New and existing customers are subject to a credit review process, which evaluates the customers’
financial position (for example, credit metrics, liquidity and credit rating) and their ability to pay. If
collectability is not considered reasonably assured at the outset of an arrangement in accordance with
our credit review process, revenue is not recognized until the cash is collected.
We generally report revenues gross in the consolidated statements of operations, as we typically act as the
principal in these transactions, take custody of the product, and incur the risks and rewards of ownership. New
or amended contracts for certain sales and purchases of inventory with the same counterparty, when entered
into in contemplation of one another, are reported net as one transaction. We recognize revenues for
non-trading commodity derivative activity net in the consolidated statements of operations as gains and losses
from commodity derivative activity
.
These activities include mark-to-market gains and losses on energy trading
contracts and the settlement of financial or physical energy trading contracts.
Quantities of natural gas or NGLs over-delivered or under-delivered related to imbalance agreements with
customers, producers or pipelines are recorded monthly as accounts receivable or accounts payable using
current market prices or the weighted-average prices of natural gas or NGLs at the plant or system. These
balances are settled with deliveries of natural gas or NGLs, or with cash.
Environmental Expenditures
— Environmental expenditures are expensed or capitalized as appropriate,
depending upon the future economic benefit. Expenditures that relate to an existing condition caused by past
operations and that do not generate current or future revenue are expensed. Liabilities for these expenditures are
recorded on an undiscounted basis when environmental assessments and/or clean-ups are probable and the costs
can be reasonably estimated.
Allowance for Doubtful Accounts
— Management estimates the amount of required allowances for the
potential non-collectability of accounts receivable generally based upon the number of days past due, past
collection experience and consideration of other relevant factors. However, past experience may not be
indicative of future collections and therefore additional charges could be incurred in the future to reflect
differences between estimated and actual collections.
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