OG&E 2011 Annual Report Download - page 29

OGE Energy Corp. 27
2010, a fire occurred at Enogex’s Cox City natural gas processing plant,
and gas volumes normally processed at the Cox City plant were diverted
to other facilities by the end of December. Overall, the above factors
resulted in the following:
•Increased gross margin on keep-whole processing of $35.8 million;
•Increased fixed processing fees of $13.8 million; and
•Increased gross margin on NGLs retained under percent-of-liquids
contracts of $11.4 million.
Other factors that contributed to the increase in the gathering and
processing gross margin were:
•An increase in condensate revenues associated with the gathering and
processing operations as a result of increased volumes associated with
new expansion projects with a higher gallons per million cubic foot of
natural gas and higher condensate prices, which increased the gross
margin by $11.6 million; and
•Increased gathered volumes associated with expansion projects, which
increased the gross margin by $4.3 million.
These increases in the gathering and processing gross margin were
partially offset by:
•Lower volumes and realized margin on sales of physical natural gas long/
short positions associated with gathering operations, which decreased
the gross margin by $1.3 million, net of imbalance and fuel tracker
obligations; and
•Increased processing fees associated with the increased utilization of
a third-party processing plant for processing natural gas associated
with Atoka, which decreased the gross margin by $1.2 million.
Other operation and maintenance expense for the gathering and processing
business was $4.3 million, or 4.9 percent, higher in 2010 as compared
to 2009 primarily due to an increase of $2.1 million in non-capital project
costs partially offset by decreased costs associated with the 2010 settle-
ment of the November 2008 pipeline rupture and the recognition of a
related insurance reimbursement.
Marketing
The marketing business recognized a loss of $6.2 million as part of
Enogex’s consolidated gross margin in 2010 as compared to a gain of
$2.2 million in 2009, a decrease of $8.4 million. The marketing gross
margin decreased primarily due to:
•Smaller differences in natural gas prices at various U.S. market locations
which resulted in a reduced spread that OER was able to realize from
delivering gas under its transportation contracts, which decreased the
gross margin by $5.5 million;
•Timing of the withdrawal and sale of natural gas inventory from OER’s
storage contracts, which decreased the gross margin by $1.9 million; and
•Selective deal execution to limit credit and commodity price risks in the
current market environment, as well as lack of spreads and volatility in
the natural gas commodity markets, resulted in limited opportunities for
OER in its customer-focused risk management services and natural gas
marketing activities, which decreased the gross margin by $1.0 million.
Enogex Consolidated Information
Interest Expense. Enogex’s consolidated interest expense was
$30.4 million in 2010 as compared to $36.5 million in 2009, a decrease
of $6.1 million, or 16.7 percent, primarily due to:
•A decrease of $7.0 million in interest expense in 2010 as compared
to 2009 due to a lower interest rate on long-term debt issued in 2009
as compared to the interest rate on long-term debt that was retired in
January 2010; and
•A $2.8 million tender payment on the tender offer Enogex completed
in July 2009 related to the retirement of $110.8 million of senior notes.
These decreases in interest expense were partially offset by a decrease
of $3.8 million in capitalized interest related to lower capital expenditures
and fewer projects qualifying for capitalized interest in 2010 as
compared to 2009.
Income Tax Expense. Enogex’s consolidated income tax expense was
$57.7 million in 2010 as compared to $37.8 million in 2009, an increase
of $19.9 million, or 52.6 percent, primarily due to higher pre-tax income
in 2010 as compared to 2009 and an adjustment for the elimination of
the tax deduction for the Medicare Part D subsidy.
Noncontrolling Interest. Enogex’s net income attributable to noncontrolling
interest was $5.1 million in 2010 as compared to $2.8 million in 2009,
an increase of $2.3 million, or 82.1 percent, due to the equity investment
by the ArcLight group in November 2010 in exchange for a 9.9 percent
membership interest in Enogex Holdings.
Non-recurring Items. Enogex had net income of $91.1 million in 2010,
which did not include any items that Enogex does not consider to be
reflective of its ongoing operations. Enogex had net income of $61.3 mil-
lion in 2009, which includes a net loss of $0.8 million for items Enogex
did not consider to be reflective of its ongoing operations. This decrease
in Enogex’s consolidated net income included a tender payment on the
tender offer Enogex completed in July 2009 of $1.7 million after-tax for
the purchase of $110.8 million of Enogex’s $400 million 8.125% senior
notes that matured on January 15, 2010, which was partially offset by
the reversal of a reserve of $0.9 million after-tax in 2009 related to the
dismissal of a previously reported natural gas measurement case.