OG&E 2011 Annual Report Download - page 28

26 OGE Energy Corp.
2010 Compared to 2009
Enogex’s operating income increased $45.6 million, or 32.9 percent, in
2010 as compared to 2009. This increase was primarily due to higher
processing spreads, higher NGLs prices, higher natural gas prices,
increased volumes and higher gallons per million cubic foot of natural
gas associated with expansion projects. Additionally, the fourth quarter
2009 addition of the higher efficiency Clinton processing plant enabled
Enogex to optimize recoveries across all processing plants. In the
normal course of Enogex’s business, the operation of its gathering,
processing and transportation assets results in the creation of physical
natural gas long/short positions. These physical positions can result
from gas imbalances, actual versus contractual settlement differences,
fuel tracker obligations and natural gas received in-kind for compensation
or reimbursements. Enogex actively manages its monthly net position
through either selling excess gas or purchasing additional gas needs
from third parties through OER.
Other operation and maintenance expense increased $12.7 million,
or 9.6 percent, primarily due to salary increases in 2010, increased costs
related to pipeline integrity assessments and other non-capital projects
and the 2009 reversal of a reserve related to the dismissal of a previously
reported natural gas measurement case partially offset by decreased
costs associated with the 2010 settlement of the November 2008 pipeline
rupture and the recognition of a related insurance reimbursement.
Depreciation and amortization expense increased $5.2 million, or
7.7 percent, primarily due to additional assets placed in service through-
out 2009 and 2010.
Taxes other than income increased $1.5 million, or 7.9 percent,
primarily due to an increase in ad valorem tax expense as a result of
assets placed in service in 2009.
Transportation and Storage
The transportation and storage business contributed $157.2 million of
Enogex’s consolidated gross margin in 2010 as compared to $161.1 million
in 2009, a decrease of $3.9 million, or 2.4 percent. The transportation oper-
ations contributed $124.3 million of Enogex’s consolidated gross margin
in 2010 as compared to $130.3 million in 2009. The storage operations
contributed $32.9 million of Enogex’s consolidated gross margin in 2010
as compared to $30.8 million in 2009. The transportation and storage
gross margin decreased primarily due to:
•Lower revenues resulting from refunds associated with lease services
under the MEP and Gulf Crossing capacity leases and the firm 311 serv-
ices due to pipeline integrity work, which decreased the gross margin by
$9.2 million;
•Lower crosshaul volumes as fewer customers moved natural gas to
eastern markets in 2010 as there were smaller differences in natural gas
prices at various U.S. market locations partially offset by customers uti-
lizing crosshaul services due to pipeline integrity work on an Enogex
pipeline, which decreased the gross margin by $5.7 million;
•Lower realized margins on operational storage hedges as the result of
lower transacted volumes in 2010 as compared to 2009, which
decreased the gross margin by $2.3 million;
•Lower storage fees due to a reduction in the market value of storage
capacity, which decreased the gross margin by $2.0 million; and
•Decreased interruptible transportation revenues due to gathering cus-
tomers shipping production through the firm capacity leases and firm
311 East side service, which decreased the gross margin by $1.6 million.
These decreases in the transportation and storage gross margin were
partially offset by:
•Lease services under the MEP and Gulf Crossing capacity leases and
firm 311 services due to these services being available beginning in the
second quarter 2009, which increased the gross margin by $9.0 million;
•No adjustment of natural gas storage inventory in 2010 as compared to
$5.8 million lower of cost or market adjustment to the natural gas storage
inventory in 2009 due to lower natural gas prices;
•A decrease in the imbalance liability, net of fuel recoveries and natural gas
length positions, which increased the gross margin by $1.2 million; and
•Higher transportation demand fees due to new contracts which began in
2010, which increased the gross margin by $1.1 million.
Other operation and maintenance expense for the transportation and
storage business was $8.0 million, or 19.6 percent, higher in 2010 as
compared to 2009 primarily due to salary increases in 2010, increased
costs of $3.9 million related to pipeline integrity assessments and other
non-capital projects and the 2009 reversal of a $1.5 million reserve related
to the dismissal of a previously reported natural gas measurement case.
Gathering and Processing
The gathering and processing business contributed $272.3 million of
Enogex’s consolidated gross margin in 2010 as compared to $198.7 mil-
lion in 2009, an increase of $73.6 million, or 37.0 percent. The gathering
operations contributed $117.6 million of Enogex’s consolidated gross
margin in 2010 as compared to $114.0 million in 2009. The processing
operations contributed $154.7 million of Enogex’s consolidated gross
margin in 2010 as compared to $84.7 million in 2009.
In 2010, Enogex realized a higher gross margin in its gathering and
processing operations primarily as the result of continued growth in
gathered volumes, higher processing spreads, higher NGLs prices and
higher natural gas prices, net of Enogex’s continued effort to convert
customers from keep-whole to fixed-fee processing arrangements.
Enogex’s processing plants saw a 17.0 percent increase in inlet volumes,
an increase in NGLs production as recent expansion projects, primarily
in the Granite Wash play and Cana/Woodford Shale play have added
richer natural gas to Enogex’s system and the fourth quarter 2009 com-
pletion of the new higher efficiency Clinton processing plant allowed
Enogex to optimize recoveries across all processing plants. In December