CenterPoint Energy 2014 Annual Report Download - page 33

which could adversely affect Enable’
s results of operations and its ability to make cash distributions. In addition, the construction of additions to
existing gathering and transportation assets may require new rights-of-way prior to construction. Those rights-of-
way to connect new natural gas
supplies to existing gathering lines may be unavailable and Enable may not be able to capitalize on attractive expansion opportunities.
Additionally, it may become more expensive to obtain new rights-of-way or to renew existing rights-of-
way. If the cost of renewing or obtaining
new rights-of-way increases, Enable’s results of operations and its ability to make cash distributions could be adversely affected.
Natural gas, NGL and crude oil prices are volatile, and changes in these prices could adversely affect Enable’
s results of operations and its
ability to make cash distributions.
Enable’
s results of operations and its ability to make cash distributions could be negatively affected by adverse movements in the prices of
natural gas, NGLs and crude oil depending on factors that are beyond its control. These factors include demand for these commodities, which
fluctuates with changes in market and economic conditions and other factors, including the impact of seasonality and weather, general economic
conditions, the level of domestic and offshore natural gas production and consumption, the availability of imported natural gas, LNG, NGLs and
crude oil, actions taken by foreign natural gas and oil producing nations, the availability of local, intrastate and interstate transportation systems,
the availability and marketing of competitive fuels, the impact of energy conservation efforts, technological advances affecting energy
consumption and the extent of governmental regulation and taxation.
Enable’s keep-
whole natural gas processing arrangements, which accounted for 7% of its natural gas processed volumes in 2014, expose it
to fluctuations in the pricing spreads between NGL prices and natural gas prices. Under these arrangements, the processor processes raw natural
gas to extract NGLs and pays to the producer the natural gas equivalent Btu value of raw natural gas received from the producer in the form of
either processed natural gas or its cash equivalent. The processor is generally entitled to retain the processed NGLs and to sell them for its own
account. Accordingly, the processor’
s margin is a function of the difference between the value of the NGLs produced and the cost of the
processed natural gas used to replace the natural gas equivalent Btu value of those NGLs. Therefore, if natural gas prices increase and NGL
prices do not increase by a corresponding amount, the processor has to replace the Btu of natural gas at higher prices and processing margins are
negatively affected.
Enable’s percent-of-proceeds and percent-of-
liquids natural gas processing agreements accounted for 44% of its natural gas processed
volumes in 2014. Under these arrangements, the processor generally gathers raw natural gas from producers at the wellhead, transports the
natural gas through its gathering system, processes the natural gas and sells the processed natural gas and/or NGLs at prices based on published
index prices. The price paid to producers is based on an agreed percentage of the actual proceeds of the sale of processed natural gas, NGLs or
both, or the expected proceeds based on an index price. Enable refers to contracts in which the processor shares in specified percentages of the
proceeds from the sale of natural gas and NGLs as “percent-of-proceeds”
arrangements, and contracts in which the processor receives proceeds
from the sale of a percentage of the NGLs or the NGLs themselves as compensation for processing services as “percent-of-liquids”
arrangements. These arrangements expose Enable to risks associated with the price of natural gas and NGLs.
At any given time, Enable’s overall portfolio of processing contracts may reflect a net short position in
natural gas (meaning that it is a net
buyer of natural gas) and a net long position in NGLs (meaning that it is a net seller of NGLs). As a result, Enable’
s gross margin could be
adversely impacted to the extent the price of NGLs decreases in relation to the price of natural gas.
Enable has limited experience in the crude oil gathering business.
In November 2013, Enable commenced operations on its initial crude oil gathering pipeline system, located in Dunn and McKenzie
Counties in North Dakota within the Bakken Shale formation. Additionally in February 2014, Enable executed a crude oil gathering agreement
to gather crude oil production through a new system in Williams and Mountrail Counties in North Dakota that is expected to commence
operations in the first quarter of 2015. These facilities, with a combined capacity of 49,500 barrels per day, are the first crude oil gathering
systems that Enable has built and operated. Other operators of gathering systems in the Bakken Shale formation may have more experience in
the construction, operation and maintenance of crude oil gathering systems than Enable. This relative lack of experience may hinder Enable’
s
ability to fully implement its business plan in a timely and cost efficient manner, which, in turn, may adversely affect its results of operations and
its ability to make cash distributions to unitholders.
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