Our Operations
We manage our business and analyze and report our results of operations on a segment basis. Our
operations are divided into our Natural Gas Services segment, our NGL Logistics segment and our Wholesale
Propane Logistics segment.
Natural Gas Services Segment
Results of operations from our Natural Gas Services segment are determined primarily by the volumes of
natural gas gathered, compressed, treated, processed, transported, stored and sold through our gathering,
processing and pipeline systems; the volumes of NGLs and condensate sold; and the level of our realized
natural gas, NGL and condensate prices. We generate our revenues and our gross margin for our Natural Gas
Services segment principally from contracts that contain a combination of the following arrangements:
•
Fee-based arrangements —
Under fee-based arrangements, we receive a fee or fees for one or more of
the following services: gathering, compressing, treating, processing, transporting or storing natural gas.
Our fee-based arrangements include natural gas purchase arrangements pursuant to which we purchase
natural gas at the wellhead or other receipt points, at an index related price at the delivery point less a
specified amount, generally the same as the transportation fees we would otherwise charge for
transportation of natural gas from the wellhead location to the delivery point. The revenues we earn are
directly related to the volume of natural gas or NGLs that flows through our systems and are not directly
dependent on commodity prices. However, to the extent a sustained decline in commodity prices results
in a decline in volumes, our revenues from these arrangements would be reduced.
•
Percent-of-proceeds/liquids arrangements
— Under percent-of-proceeds arrangements, we generally
purchase natural gas from producers at the wellhead, or other receipt points, gather the wellhead natural
gas through our gathering system, treat and process the natural gas, and then sell the resulting residue
natural gas, NGLs and condensate based on index prices from published index market prices. We remit
to the producers either an agreed-upon percentage of the actual proceeds that we receive from our sales
of the residue natural gas, NGLs and condensate, or an agreed-upon percentage of the proceeds based on
index related prices for the natural gas, NGLs and condensate, regardless of the actual amount of the
sales proceeds we receive. We keep the difference between the proceeds received and the amount
remitted back to the producer. Under percent-of-liquids arrangements, we do not keep any amounts
related to residue natural gas proceeds and only keep amounts related to the difference between the
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 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
In addition to the above contract types, we have keep-whole arrangements, which are estimated to generate
less than 4% of our gross margin. Our equity method investment in Discovery, also has keep-whole
arrangements. Under the terms of a keep-whole processing contract, natural gas is gathered from the producer
for processing, the NGLs and condensate are sold and the residue natural gas is returned to the producer with a
Btu content equivalent to the Btu content of the natural gas gathered. This arrangement keeps the producer
whole to the thermal value of the natural gas received. Under this type of contract, we are exposed to the frac
spread. The frac spread is the difference between the value of the NGLs and condensate extracted from
processing and the value of the Btu equivalent of the residue natural gas. We benefit in periods when NGL and
condensate prices are higher relative to natural gas prices when that frac spread exceeds our operating costs.
Fluctuations in commodity prices are expected to continue to impact the operating costs of these entities.
The natural gas supply for our gathering pipelines and processing plants is derived primarily from natural
gas wells located in Colorado, Louisiana, Michigan, Oklahoma, Texas, Wyoming and the Gulf of Mexico. The
Pelico system also receives natural gas produced in Texas through its interconnect with other pipelines that
transport natural gas from Texas into western Louisiana. These areas have historically experienced significant
levels of drilling activity, providing us with opportunities to access newly developed natural gas supplies. We
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