OG&E 2012 Annual Report Download - page 25

OGE Energy Corp. 23
Natural Gas Gathering and Processing
The natural gas gathering and processing business contributed
$296.4 million of Enogex’s consolidated gross margin in 2011 as compared
to $272.3 million in 2010, an increase of $24.1 million, or 8.9 percent.
The gathering operations contributed $125.2 million of Enogex’s consol-
idated gross margin in 2011 as compared to $117.6 million in 2010. The
processing operations contributed $171.2 million of Enogex’s consolidated
gross margin in 2011 as compared to $154.7 million in 2010.
In 2011, Enogex realized a higher gross margin in its natural gas
gathering and processing operations primarily as the result of continued
growth in gathered volumes from ongoing expansion projects, primarily in
the Granite Wash play and Cana/Woodford Shale play, which has added
richer natural gas to Enogex’s system and higher NGLs prices. Although
gathered volumes increased over 2010, gathering and processing volumes
grew at a slower pace during the fourth quarter of 2011 than Enogex had
anticipated. The increased gathering volumes were partially offset by the
contract conversion of one of Enogex’s five largest customer’s Oklahoma
production volumes to fixed fee effective July 1, 2011, a slight decrease
in inlet processing volumes related to the 120 MMcf/d Cox City natural
gas processing plant being out of service due to the fire from December
2010 until September 2011, the sale of the Harrah processing plant and
the associated Wellston and Davenport gathering assets in April 2011
and lower average natural gas prices.
The above factors contributed to the increase in the natural gas
gathering and processing gross margin as follows:
•An increase in condensate revenues associated with higher condensate
prices and volumes, which increased the gross margin by $11.1 million;
•An increase in gathering fees associated with ongoing expansion projects,
which increased the gross margin by $10.7 million;
•An increased gross margin on keep-whole processing of $4.8 million;
•An increased gross margin on percent-of-liquids and percent-of-proceeds
contracts of $2.6 million; and
•An increased gross margin on fixed-fee contract of $1.3 million.
These increases in the natural gas gathering and processing gross margin
were partially offset by:
•An increase in the utilization of third-party processing as a result of
the reduced capacity related to the Cox City processing plant being out
of service until September 2011 and the Atoka processing plant being
taken out of service in August 2011, which decreased the gross margin
by $3.4 million; and
•Lower volumes and realized margin on sales of physical natural gas
long positions associated with gathering operations, which decreased
the gross margin in 2011 by $2.7 million, net of imbalance and fuel
tracker obligations.
Other operation and maintenance expense for the natural gas gathering
and processing business was $20.3 million, or 22.2 percent, higher in
2011 as compared to 2010 primarily due to:
•Increased payroll and benefits costs due to increased headcount to
support business growth;
•Increased contract technical and professional services expense and
materials and supplies expense due to an increase in non-capital
projects in 2011;
•Increased rental expense due to growing demand for compression
as Enogex’s business expands; and
•Increased costs due to soil remediation projects.
Enogex Consolidated Information
Other Income. Enogex’s consolidated other income was $3.9 million in
2011 as compared to $0.2 million in 2010, an increase of $3.7 million,
primarily due to the recognition of a gain related to the sale of the Harrah
processing plant and the associated Wellston and Davenport gathering
assets in April 2011.
Interest Expense. Enogex’s consolidated interest expense was
$22.9 million in 2011 as compared to $30.4 million in 2010, a decrease
of $7.5 million, or 24.7 percent, primarily due to:
•An increase of $6.1 million in capitalized interest related to increased
construction activity in 2011; and
•A decrease of $1.0 million in interest expense in 2011 due to the
retirement of long-term debt in January 2010.
Income Tax Expense. Enogex’s consolidated income tax expense was
$51.7 million in 2011 as compared to $57.7 million in 2010, a decrease
of $6.0 million, or 10.4 percent, primarily due to:
•Lower pre-tax income in 2011 as compared to 2010; and
•The one-time, non-cash charge in 2010 for the elimination of the tax
deduction for the Medicare Part D subsidy.
Noncontrolling Interest. Enogex’s net income attributable to noncontrolling
interest was $20.8 million in 2011 as compared to $5.1 million in 2010, an
increase of $15.7 million, due to the equity sale of a membership interest
in Enogex Holdings to the ArcLight group partially offset by an impairment
recorded in August 2011 related to the Atoka processing plant.
Non-Recurring Item. During 2011, Enogex had an increase in net income
of $2.3 million relating to the sale of the Harrah processing plant and the
associated Wellston and Davenport gathering assets in April 2011, which
Enogex does not consider to be reflective of its ongoing performance.
Timing Item. Enogex’s net income in 2011 was $82.2 million, which
included a loss of $2.6 million resulting from recording Enogex’s natural
gas storage inventory at the lower of cost or market value. The offsetting
gains from the sale of withdrawals from inventory were realized during
the first quarter of 2012.