Energy Transfer 2015 Annual Report Download - page 48

Table of Contents
When we process the gas for a fee under processing fee agreements, we may guarantee recoveries to the producer. If recoveries are less than those guaranteed
to the producer, we may suffer a loss by having to supply liquids or its cash equivalent to keep the producer whole.
We also receive fees and retain gas in kind from our natural gas transportation and storage customers. Our fuel retention fees and the value of gas that we
retain in kind are directly affected by changes in natural gas prices. Decreases in natural gas prices tend to decrease our fuel retention fees and the value of
retained gas.
In addition, we receive revenue from our off-gas processing and fractionating system in south Louisiana primarily through customer agreements that are a
combination of keep-whole and percent-of-proceeds arrangements, as well as from transportation and fractionation fees. Consequently, a large portion of our
off-gas processing and fractionation revenue is exposed to risks due to fluctuations in commodity prices. In addition, a decline in NGL prices could cause a
decrease in demand for our off-gas processing and fractionation services and could have an adverse effect on our results of operations.
The use of derivative financial instruments could result in material financial losses by us.
From time to time, we have sought to reduce our exposure to fluctuations in commodity prices and interest rates by using derivative financial instruments and
other risk management mechanisms and by our trading, marketing and/or system optimization activities. To the extent that we hedge our commodity price
and interest rate exposures, we forgo the benefits we would otherwise experience if commodity prices or interest rates were to change in our favor.
The accounting standards regarding hedge accounting are very complex, and even when we engage in hedging transactions that are effective economically
(whether to mitigate our exposure to fluctuations in commodity prices, or to balance our exposure to fixed and variable interest rates), these transactions may
not be considered effective for accounting purposes. Accordingly, our consolidated financial statements may reflect some volatility due to these hedges, even
when there is no underlying economic impact at that point. It is also not always possible for us to engage in a hedging transaction that completely mitigates
our exposure to commodity prices. Our consolidated financial statements may reflect a gain or loss arising from an exposure to commodity prices for which
we are unable to enter into a completely effective hedge.
In addition, even though monitored by management, our derivatives activities can result in losses. Such losses could occur under various circumstances,
including if a counterparty does not perform its obligations under the derivative arrangement, the hedge is imperfect, commodity prices move unfavorably
related to our physical or financial positions or hedging policies and procedures are not followed.
Our natural gas and NGL revenues depend on our customers’ ability to use our pipelines and third-party pipelines over which we have no control.
Our natural gas transportation, storage and NGL businesses depend, in part, on our customers’ ability to obtain access to pipelines to deliver gas to us and
receive gas from us. Many of these pipelines are owned by parties not affiliated with us. Any interruption of service on our pipelines or third party pipelines
due to testing, line repair, reduced operating pressures, or other causes or adverse change in terms and conditions of service could have a material adverse
effect on our ability, and the ability of our customers, to transport natural gas to and from our pipelines and facilities and a corresponding material adverse
effect on our transportation and storage revenues. In addition, the rates charged by interconnected pipelines for transportation to and from our facilities affect
the utilization and value of our storage services. Significant changes in the rates charged by those pipelines or the rates charged by other pipelines with
which the interconnected pipelines compete could also have a material adverse effect on our storage revenues.
Shippers using our oil pipelines and terminals are also dependent upon our pipelines and connections to third-party pipelines to receive and deliver crude oil
and products. Any interruptions or reduction in the capabilities of these pipelines due to testing, line repair, reduced operating pressures, or other causes
could result in reduced volumes transported in our pipelines or through our terminals. Similarly, if additional shippers begin transporting volume over
interconnecting oil pipelines, the allocations of pipeline capacity to our existing shippers on these interconnecting pipelines could be reduced, which also
could reduce volumes transported in its pipelines or through our terminals. Allocation reductions of this nature are not infrequent and are beyond our control.
Any such interruptions or allocation reductions that, individually or in the aggregate, are material or continue for a sustained period of time could have a
material adverse effect on our results of operations, financial position, or cash flows.
The inability to continue to access lands owned by third parties could adversely affect our ability to operate and our financial results.
Our ability to operate our pipeline systems on certain lands owned by third parties, will depend on our success in maintaining existing rights-of-way and
obtaining new rights-of-way on those lands. We are parties to rights-of-way agreements, permits and licenses authorizing land use with numerous parties,
including, private land owners, governmental entities, Native American tribes,
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