OG&E 2011 Annual Report Download - page 66

Download and view the complete annual report

Please find page 66 of the 2011 OG&E annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 96

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96

The Company designates as cash flow hedges derivatives used
to manage commodity price risk exposure for Enogex’s NGLs volumes
and corresponding keep-whole natural gas resulting from its natural gas
processing contracts (processing hedges) and natural gas positions
resulting from its natural gas gathering and processing, pipeline and
storage operations (operational gas hedges). The Company also desig-
nates as cash flow hedges certain derivatives used to manage natural
gas commodity exposure for certain natural gas storage inventory
positions. Enogex’s cash flow hedges at December 31, 2011 mature
by the end of the first quarter of 2012.
Fair Value Hedges
For derivative instruments that are designated and qualify as a fair value
hedge, the gain or loss on the derivative as well as the offsetting loss or
gain on the hedged item attributable to the hedge risk are recognized
currently in earnings. The Company includes the gain or loss on the
hedged items in Operating Revenues as the offsetting loss or gain on
the related hedging derivative.
At December 31, 2011 and 2010, the Company had no derivative
instruments that were designated as fair value hedges.
Derivatives Not Designated As Hedging Instruments
Derivative instruments not designated as hedging instruments are
utilized in OER’s asset management, marketing and trading activities.
For derivative instruments not designated as hedging instruments, the
gain or loss on the derivative is recognized currently in earnings.
Quantitative Disclosures Related to Derivative Instruments
At December 31, 2011, the Company had the following derivative
instruments that were designated as cash flow hedges.
(In millions) 2011
Gross Notional Volume (A)
Enogex marketing hedges
Natural gas sales 3.2
(A) Natural gas in MMBtu’s.
At December 31, 2011, the Company had the following derivative
instruments that were not designated as hedging instruments.
(In millions) Purchases Sales
Gross Notional Volume(A)
Natural gas(B)
Physical(C)(D) 14.3 51.8
Fixed Swaps/Futures 57.9 58.2
Options 17.6 12.8
Basis Swaps 8.2 7.5
(A) Natural gas in MMBtu’s.
(B) 88.0 percent of the natural gas contracts have durations of one year or less, 5.5 percent have
durations of more than one year and less than two years and 6.5 percent have durations of
more than two years.
(C) Of the natural gas physical purchases and sales volumes not designated as hedges, the majority
are priced based on a monthly or daily index and the fair value is subject to little or no market
price risk.
(D) Natural gas physical sales volumes exceed natural gas physical purchase volumes due to the
marketing of natural gas volumes purchased via Enogex’s processing contracts, which are not
derivative instruments and are excluded from the table above.
Balance Sheet Presentation Related to Derivative Instruments
The fair value of the derivative instruments that are presented in the
Company’s Consolidated Balance Sheet at December 31, 2011 are
as follows:
Fair Value
Balance Sheet
(In millions) Instrument Location Assets Liabilities
Derivatives designated
as hedging instruments
Natural gas
Financial futures/swaps Other Current Assets $÷5.2 $÷0.3
Total $÷5.2 $÷0.3
Derivatives not designated
as hedging instruments
Natural gas
Financial futures/swaps Current PRM $÷0.4 $÷÷«–
Other Current Assets 49.9 49.9
Physical purchases/sales Current PRM 3.1 0.4
Non-Current PRM 0.3 0.1
Financial options Other Current Assets 2.4 2.8
Total $56.1 $53.2
Total gross derivatives(A) $61.3 $53.5
(A) See Note 6 for a reconciliation of the Company’s total derivatives fair value to the Company’s
Consolidated Balance Sheet at December 31, 2011.
The fair value of the derivative instruments that are presented in
the Company’s Consolidated Balance Sheet at December 31, 2010
are as follows:
Fair Value
Balance Sheet
(In millions) Instrument Location Assets Liabilities
Derivatives designated
as hedging instruments
NGLs
Financial options Current PRM $13.3 $÷÷«–
Natural gas
Financial futures/swaps Current PRM – 28.8
Other Current Assets 0.6 0.3
Total $13.9 $29.1
Derivatives not designated
as hedging instruments
Natural gas
Financial futures/swaps Current PRM $÷÷«– $÷0.1
Other Current Assets 20.0 19.8
Physical purchases/sales Current PRM 1.4 1.2
Non-Current PRM 0.8 –
Financial options Other Current Assets 0.5 0.7
Total $22.7 $21.8
Total gross derivatives(A) $36.6 $50.9
(A) See Note 6 for a reconciliation of the Company’s total derivatives fair value to the Company’s
Consolidated Balance Sheet at December 31, 2010.
64 OGE Energy Corp.