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EXCEL - IDEA: XBRL DOCUMENT - Targa Resources Partners LPFinancial_Report.xls

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 001-33303
 
 
TARGA RESOURCES PARTNERS LP
(Exact name of registrant as specified in its charter)

Delaware
 
65-1295427
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
1000 Louisiana St, Suite 4300, Houston, Texas
 
77002
(Address of principal executive offices)
 
(Zip Code)

(713) 584-1000
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes R No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer þ
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ.

As of October 24, 2014, there were 115,774,096 common units representing limited partner interest and 2,362,738 general partner units outstanding.
 



PART I—FINANCIAL INFORMATION

4
   
4
   
5
   
6
   
7
   
8
   
9
   
28
   
50
   
53
   
PART II—OTHER INFORMATION
   
53
   
53
   
56
   
56
   
56
   
56
   
57
   
SIGNATURES
   
59
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

Targa Resources Partners LP’s (together with its subsidiaries, “we,” “us,” “our,” or “the Partnership”) reports, filings and other public announcements may from time to time contain statements that do not directly or exclusively relate to historical facts. Such statements are “forward-looking statements.” You can typically identify forward-looking by the use of forward-looking statements, such as “may,” “could,” “project,” “believe,” “anticipate,” “expect,” “estimate,” “potential,” “plan,” “forecast” and other similar words.

All statements that are not statements of historical facts, including statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements.

These forward-looking statements reflect our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors, many of which are outside our control. Important factors that could cause actual results to differ materially from the expectations expressed or implied in the forward-looking statements include known and unknown risks. Known risks and uncertainties include, but are not limited to, the risks set forth in “Part II – Other Information, Item 1A. Risk Factors.” in this Quarterly Report on Form 10-Q (“Quarterly Report”) as well as the following risks and uncertainties:

· our ability to access the debt and equity markets, which will depend on general market conditions and the credit ratings for our debt obligations;

· the amount of collateral required to be posted from time to time in our transactions;

· our success in risk management activities, including the use of derivative instruments to hedge commodity risks;

· the level of creditworthiness of counterparties to various transactions;

· changes in laws and regulations, particularly with regard to taxes, safety and protection of the environment;

· the timing and extent of changes in natural gas, natural gas liquids (“NGL”), crude oil and other commodity prices, interest rates and demand for our services;

· weather and other natural phenomena;

· industry changes, including the impact of consolidations and changes in competition;

· our ability to obtain necessary licenses, permits and other approvals;

· the level and success of crude oil and natural gas drilling around our assets, our success in connecting natural gas supplies to our gathering and processing systems, oil supplies to our gathering systems and NGL supplies to our logistics and marketing facilities and our success in connecting our facilities to transportation and markets;

· our ability to grow through acquisitions or internal growth projects and the successful integration and future performance of such assets;

· our ability to complete the proposed merger (the “APL Merger”) with Atlas Pipeline Partners, L.P., a Delaware limited partnership (“APL”), and the ability of Targa (as defined below) to complete the proposed merger (the “ATLS Merger” and, together with the APL Merger, the “Atlas Mergers”) with Atlas Energy, L.P., a Delaware limited partnership (“ATLS,” and, together with APL, “Atlas”), upon which the closing of the APL Merger is conditioned, on the anticipated terms and time frame;
 
· our and Targa’s ability to obtain requisite regulatory approval, to obtain the approval of Targa’s stock issuance in connection with the ATLS Merger by the stockholders of Targa and the approval of the Atlas Mergers by the unitholders of ATLS and APL, as applicable, and to satisfy the other conditions to the consummation of the Atlas Mergers;
· the potential impact of the announcement or consummation of the Atlas Mergers on relationships, including with employees, suppliers, customers, competitors and credit rating agencies;

· our ability to integrate with APL successfully after consummation of the APL Merger and to achieve anticipated benefits from the proposed transaction;

· risks relating to any unforeseen liabilities of APL;

· general economic, market and business conditions; and

· the risks described elsewhere in “Part II – Other Information, Item 1A. Risk Factors.” in this Quarterly Report, our Annual Report on Form 10-K for the year ended December 31, 2013 (“Annual Report”) and our reports and registration statements filed from time to time with the United States Securities and Exchange Commission (“SEC”).

Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of the assumptions could be inaccurate, and, therefore, we cannot assure you that the forward-looking statements included in this Quarterly Report will prove to be accurate. Some of these and other risks and uncertainties that could cause actual results to differ materially from such forward-looking statements are more fully described in “Part II – Other Information, Item 1A. Risk Factors.” in this Quarterly Report and in our Annual Report. Except as may be required by applicable law, we undertake no obligation to publicly update or advise of any change in any forward-looking statement, whether as a result of new information, future events or otherwise.

As generally used in the energy industry and in this Quarterly Report, the identified terms have the following meanings:

Bbl
Barrels (equal to 42 U.S. gallons)
Bcf
Billion cubic feet
Btu
British thermal units, a measure of heating value
BBtu
Billion British thermal units
/d
Per day
/hr
Per hour
gal
U.S. gallons
GPM
Liquid volume equivalent expressed as gallons per 1000 cu. ft. of natural gas
LPG
Liquefied petroleum gas
MBbl
Thousand barrels
Mgal
U.S. million gallons
MMBbl
Million barrels
MMBtu
Million British thermal units
MMcf
Million cubic feet
NGL(s)
Natural gas liquid(s)
NYMEX
New York Mercantile Exchange
GAAP
Accounting principles generally accepted in the United States of America
LIBOR
London Interbank Offer Rate
NYSE
New York Stock Exchange
 
Price Index Definitions
 
IF-NGPL MC
Inside FERC Gas Market Report, Natural Gas Pipeline, Mid-Continent
IF-PB
Inside FERC Gas Market Report, Permian Basin
IF-WAHA
Inside FERC Gas Market Report, West Texas WAHA
NY-WTI
NYMEX, West Texas Intermediate Crude Oil
OPIS-MB
Oil Price Information Service, Mont Belvieu, Texas

PART I – FINANCIAL INFORMATION
 
Item 1.
Financial Statements.
 
TARGA RESOURCES PARTNERS LP
CONSOLIDATED BALANCE SHEETS

   
September 30,
   
December 31,
 
   
2014
   
2013
 
         
   
(Unaudited)
 
   
(In millions)
 
ASSETS
 
Current assets:
       
Cash and cash equivalents
 
$
72.4
   
$
57.5
 
Trade receivables, net of allowances of $0.9 million and $0.9 million
   
697.9
     
658.6
 
Inventories
   
251.2
     
150.7
 
Assets from risk management activities
   
5.0
     
2.0
 
Other current assets
   
7.4
     
7.1
 
Total current assets
   
1,033.9
     
875.9
 
Property, plant and equipment
   
6,300.9
     
5,751.6
 
Accumulated depreciation
   
(1,611.5
)
   
(1,406.2
)
Property, plant and equipment, net
   
4,689.4
     
4,345.4
 
Intangible assets, net
   
607.3
     
653.4
 
Long-term assets from risk management activities
   
1.7
     
3.1
 
Investment in unconsolidated affiliate
   
51.7
     
55.9
 
Other long-term assets
   
33.2
     
37.7
 
Total assets
 
$
6,417.2
   
$
5,971.4
 
                 
LIABILITIES AND OWNERS' EQUITY
 
Current liabilities:
               
Accounts payable and accrued liabilities
 
$
750.1
   
$
721.2
 
Accounts payable to Targa Resources Corp.
   
55.3
     
52.4
 
Liabilities from risk management activities
   
3.6
     
8.0
 
Total current liabilities
   
809.0
     
781.6
 
Long-term debt
   
3,045.2
     
2,905.3
 
Long-term liabilities from risk management activities
   
1.2
     
1.4
 
Deferred income taxes
   
13.2
     
12.1
 
Other long-term liabilities
   
57.2
     
52.6
 
                 
Commitments and contingencies (see Note 15)
               
                 
Owners' equity:
               
Limited partners (115,840,838 and 111,263,207 common units issued and 115,774,096 and 111,263,207 common units outstanding as of September 30, 2014 and December 31, 2013)
   
2,254.8
     
2,001.9
 
General partner (2,362,738 and 2,270,680 units issued and outstanding as of September 30, 2014 and December 31, 2013)
   
73.7
     
62.0
 
Receivables from unit issuances
   
(0.4
)
   
-
 
Accumulated other comprehensive income (loss)
   
3.4
     
(6.1
)
Treasury units at cost (66,742 units as of September 30, 2014, and 0 as of December 31, 2013)
   
(4.8
)
   
-
 
     
2,326.7
     
2,057.8
 
Noncontrolling interests in subsidiaries
   
164.7
     
160.6
 
Total owners' equity
   
2,491.4
     
2,218.4
 
Total liabilities and owners' equity
 
$
6,417.2
   
$
5,971.4
 

See notes to consolidated financial statements.
TARGA RESOURCES PARTNERS LP
CONSOLIDATED STATEMENTS OF OPERATIONS

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2014
   
2013
   
2014
   
2013
 
 
   
(Unaudited)
 
   
(In millions, except per unit amounts)
 
                 
Revenues
 
$
2,288.3
   
$
1,466.1
   
$
6,583.7
   
$
4,210.5
 
Costs and expenses:
                               
Product purchases
   
1,880.5
     
1,169.0
     
5,412.2
     
3,387.9
 
Operating expenses
   
112.8
     
97.6
     
323.6
     
279.7
 
Depreciation and amortization expenses
   
87.5
     
68.9
     
252.8
     
198.5
 
General and administrative expenses
   
40.4
     
35.4
     
115.3
     
105.7
 
Other operating (income) expense
   
(4.3
)
   
4.2
     
(5.3
)
   
8.3
 
Income from operations
   
171.4
     
91.0
     
485.1
     
230.4
 
Other income (expense):
                               
Interest expense, net
   
(36.0
)
   
(32.6
)
   
(104.1
)
   
(95.6
)
Equity earnings
   
4.7
     
5.6
     
13.8
     
10.1
 
Gain (loss) on debt redemptions and amendments
   
-
     
(7.4
)
   
-
     
(14.7
)
Other
   
(0.6
)
   
9.1
     
(0.6
)
   
15.3
 
Income before income taxes
   
139.5
     
65.7
     
394.2
     
145.5
 
Income tax (expense) benefit:
                               
Current
   
(0.9
)
   
(0.7
)
   
(2.6
)
   
(1.7
)
Deferred
   
(0.4
)
   
-
     
(1.1
)
   
(0.8
)
     
(1.3
)
   
(0.7
)
   
(3.7
)
   
(2.5
)
Net income
   
138.2
     
65.0
     
390.5
     
143.0
 
Less: Net income attributable to noncontrolling interests
   
9.9
     
5.3
     
30.9
     
18.1
 
Net income attributable to Targa Resources Partners LP
 
$
128.3
   
$
59.7
   
$
359.6
   
$
124.9
 
                                 
Net income attributable to general partner
 
$
38.6
   
$
28.1
   
$
108.2
   
$
76.1
 
Net income attributable to limited partners
   
89.7
     
31.6
     
251.4
     
48.8
 
Net income attributable to Targa Resources Partners LP
 
$
128.3
   
$
59.7
   
$
359.6
   
$
124.9
 
                                 
Net income per limited partner unit - basic
 
$
0.78
   
$
0.30
   
$
2.21
   
$
0.47
 
Net income per limited partner unit - diluted
 
$
0.78
   
$
0.30
   
$
2.20
   
$
0.47
 
Weighted average limited partner units outstanding - basic
   
115.1
     
106.7
     
113.9
     
104.2
 
Weighted average limited partner units outstanding - diluted
   
115.7
     
107.0
     
114.5
     
104.4
 

See notes to consolidated financial statements.
TARGA RESOURCES PARTNERS LP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2014
   
2013
   
2014
   
2013
 
 
 
(Unaudited)
 
   
 
(In millions)
 
           
Net income
 
$
138.2
   
$
65.0
   
$
390.5
   
$
143.0
 
Other comprehensive income (loss):
                               
Commodity hedging contracts:
                               
Change in fair value
   
14.2
     
(11.4
)
   
(4.5
)
   
2.3
 
Settlements reclassified to revenues
   
0.8
     
(4.5
)
   
11.6
     
(17.1
)
Interest rate swaps:
                               
Settlements reclassified to interest expense, net
   
-
     
1.5
     
2.4
     
4.7
 
Other comprehensive income (loss)
   
15.0
     
(14.4
)
   
9.5
     
(10.1
)
Comprehensive income (loss)
   
153.2
     
50.6
     
400.0
     
132.9
 
Less: Comprehensive income attributable to noncontrolling interests
   
9.9
     
5.3
     
30.9
     
18.1
 
Comprehensive income attributable to Targa Resources Partners LP
 
$
143.3
   
$
45.3
   
$
369.1
   
$
114.8
 

See notes to consolidated financial statements.
TARGA RESOURCES PARTNERS LP
CONSOLIDATED STATEMENTS OF CHANGES IN OWNERS' EQUITY

                       
Accumulated
                 
   
Limited
   
General
   
Receivables
   
Other
   
Treasury
   
Non-
     
   
Partner
   
Partner
   
From Unit
   
Comprehensive
   
Units
   
controlling
     
   
Common
   
Amount
   
Units
   
Amount
   
Issuances
   
Income (Loss)
   
Units
   
Amount
   
Interests
   
Total
 
 
   
(Unaudited)
 
   
(In millions, except units in thousands)
 
                                         
                                         
Balance December 31, 2013
   
111,263
   
$
2,001.9
     
2,271
   
$
62.0
   
$
-
   
$
(6.1
)
   
-
   
$
-
   
$
160.6
   
$
2,218.4
 
Compensation on equity grants
   
-
     
7.0
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
7.0
 
Accrual of distribution equivalent rights
   
-
     
(2.0
)
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(2.0
)
Issuance of common units under compensation program
   
214.0
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Units tendered for tax withholding obligations
   
(67.0
)
   
-
     
-
     
-
     
-
     
-
     
67.0
     
(4.8
)
   
-
     
(4.8
)
 
Equity offerings
   
4,364
     
257.2
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
257.2
 
Contributions from Targa Resources Corp.
   
-
     
-
     
92
     
5.6
     
(0.4
)
   
-
     
-
     
-
     
-
     
5.2
 
Distributions to noncontrolling interests
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(26.8
)
   
(26.8
)
Other comprehensive income (loss)
   
-
     
-
     
-
     
-
     
-
     
9.5
     
-
     
-
     
-
     
9.5
 
Net income
   
-
     
251.4
     
-
     
108.2
     
-
     
-
     
-
     
-
     
30.9
     
390.5
 
Distributions
   
-
     
(260.7
)
   
-
     
(102.1
)
   
-
     
-
     
-
     
-
     
-
     
(362.8
)
Balance September 30, 2014
   
115,774
   
$
2,254.8
     
2,363
   
$
73.7
   
$
(0.4
)
 
$
3.4
     
67.0
   
$
(4.8
)  
$
164.7
   
$
2,491.4
 
                                                                                 
Balance December 31, 2012
   
100,096
   
$
1,649.5
     
2,043
   
$
45.3
   
$
-
   
$
14.8
     
-
   
$
-
   
$
150.5
   
$
1,860.1
 
Compensation on equity grants
   
13
     
4.4
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
4.4
 
Accrual of distribution equivalent rights
   
-
     
(1.1
)
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(1.1
)
 
Equity offerings
   
8,349
     
377.4
     
-
     
-
     
(3.3
)
   
-
     
-
     
-
     
-
     
374.1
 
Contributions from Targa Resources Corp.
                   
170
     
7.9
     
(1.8
)
   
-
     
-
     
-
     
-
     
6.1
 
Distributions to noncontrolling interests
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
(9.9
)
   
(9.9
)
Contributions from noncontrolling interests
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
4.2
     
4.2
 
Other comprehensive income (loss)
   
-
     
-
     
-
     
-
     
-
     
(10.1
)
   
-
     
-
     
-
     
(10.1
)
Net income
   
-
     
48.8
     
-
     
76.1
     
-
     
-
     
-
     
-
     
18.1
     
143.0
 
Distributions
   
-
     
(216.3
)
   
-
     
(72.5
)
   
-
     
-
     
-
     
-
     
-
     
(288.8
)
Balance September 30, 2013
   
108,458
   
$
1,862.7
     
2,213
   
$
56.8
   
$
(5.1
)
 
$
4.7
     
-
   
$
-
   
$
162.9
   
$
2,082.0
 

See notes to consolidated financial statements.
TARGA RESOURCES PARTNERS LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   
Nine Months Ended September 30,
 
   
2014
   
2013
 
         
   
(Unaudited)
 
   
(In millions)
 
Cash flows from operating activities
       
Net income
 
$
390.5
   
$
143.0
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Amortization in interest expense
   
8.8
     
11.8
 
Compensation on equity grants
   
7.0
     
4.4
 
Depreciation and amortization expense
   
252.8
     
198.5
 
Accretion of asset retirement obligations
   
3.3
     
3.0
 
Deferred income tax expense (benefit)
   
1.1
     
0.8
 
Equity earnings of unconsolidated  affiliate
   
(13.8
)
   
(10.1
)
Distributions of unconsolidated affiliate
   
13.8
     
10.1
 
Risk management activities
   
0.9
     
(0.2
)
(Gain) loss on sale or disposition of assets
   
(5.6
)
   
3.1
 
(Gain) loss on debt redemptions and amendments
   
-
     
14.7
 
Changes in operating assets and liabilities:
               
Receivables and other assets
   
(40.4
)
   
16.9
 
Inventory
   
(115.5
)
   
(110.3
)
Accounts payable and other liabilities
   
68.9
     
9.5
 
Net cash provided by operating activities
   
571.8
     
295.2
 
Cash flows from investing activities
               
Outlays for property, plant and equipment
   
(571.7
)
   
(727.1
)
Return of capital from unconsolidated affiliate
   
4.2
     
1.9
 
Other, net
   
6.3
     
(31.3
)
Net cash used in investing activities
   
(561.2
)
   
(756.5
)
Cash flows from financing activities
               
Proceeds from borrowings under credit facility
   
1,295.0
     
1,118.0
 
Repayments of credit facility
   
(1,115.0
)
   
(1,338.0
)
Issuance of senior notes
   
-
     
625.0
 
Borrowings from accounts receivable securitization facility
   
88.9
     
261.6
 
Repayments of accounts receivable securitization facility
   
(131.0
)
   
(93.6
)
Redemption of senior notes
   
-
     
(183.2
)
Costs incurred in connection with financing arrangements
   
(2.7
)
   
(13.6
)
Proceeds from equity offerings and general partner contributions
   
265.1
     
385.7
 
Repurchase of common units under compensation plans
   
(4.8
)
   
-
 
Distributions
   
(364.4
)
   
(288.8
)
Contributions from noncontrolling interests
   
-
     
4.2
 
Distributions to noncontrolling interests
   
(26.8
)
   
(9.9
)
Net cash provided by (used in) financing activities
   
4.3
     
467.4
 
Net change in cash and cash equivalents
   
14.9
     
6.1
 
Cash and cash equivalents, beginning of period
   
57.5
     
68.0
 
Cash and cash equivalents, end of period
 
$
72.4
   
$
74.1
 

See notes to consolidated financial statements.
TARGA RESOURCES PARTNERS LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. Except as noted within the context of each footnote disclosure, the dollar amounts presented in the tabular data within these footnote disclosures are stated in millions of dollars.

Note 1 — Organization and Operations

Our Organization

Targa Resources Partners LP is a publicly traded Delaware limited partnership formed in October 2006 by Targa Resources Corp. (“Targa” or “Parent”). Our common units, which represent limited partner interests in us, are listed on the New York Stock Exchange under the symbol “NGLS.” In this Quarterly Report, unless the context requires otherwise, references to “we,” “us,” “our” or the “Partnership” are intended to mean the business and operations of Targa Resources Partners LP and its consolidated subsidiaries.

Targa Resources GP LLC is a Delaware limited liability company formed by Targa in October 2006 to own a 2% general partner interest in us. Its primary business purpose is to manage our affairs and operations. Targa Resources GP LLC is an indirect wholly owned subsidiary of Targa. As of September 30, 2014, Targa owned a 13.0% interest in us in the form of 2,362,738 general partner units and 12,945,659 common units. In addition, Targa Resources GP LLC also owns incentive distribution rights (“IDRs”), which entitle it to receive increasing cash distributions up to 48% of distributable cash for a quarter.

Allocation of costs

The employees supporting our operations are employed by Targa Resources LLC, a Delaware limited liability company and an indirect wholly owned subsidiary of Targa. Our financial statements include the direct costs of Targa employees deployed to our operating segments, as well as an allocation of costs associated with our usage of Targa centralized general and administrative services.

Our Operations

We are engaged in the business of gathering, compressing, treating, processing and selling natural gas; storing, fractionating, treating, transporting and selling NGLs and NGL products; gathering, storing and terminaling crude oil; and storing, terminaling and selling refined petroleum products. See Note 17 for certain financial information for our business segments.

Note 2 — Basis of Presentation

We have prepared these unaudited consolidated financial statements in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. While we derived the year-end balance sheet data from audited financial statements, this interim report does not include all disclosures required by GAAP for annual periods. These unaudited consolidated financial statements and other information included in this Quarterly Report should be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report.

The unaudited consolidated financial statements for the three and nine months ended September 30, 2014 and 2013 include all adjustments, which we believe are necessary, for a fair presentation of the results for interim periods. All significant intercompany balances and transactions have been eliminated in consolidation. Certain amounts in prior periods may have been reclassified to conform to the current year presentation.

Our financial results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the full year.

Reclassifications Affecting Statement of Cash Flows
 
In conjunction with the integration of Badlands into our financial reporting environment during 2013, we obtained further information about the acquisition date balance sheet, including the nature of the items comprising assumed Accounts payable and accrued liabilities. We determined that certain assumed liabilities related to purchases that, under our accounting policies, are considered capital in nature. Consequently, we made certain refinements to better reflect Badlands cash flow activity on a basis similar to that used for our other operations. As a result of these refinements, certain cash flow activity was presented in our 2013 Form 10-K on a basis different than that utilized for previous quarterly reporting during 2013. In preparing this quarterly report we have made certain reclassifications in the comparative Statement of Cash Flows for the nine months ended September 30, 2013 to conform to the presentation of our Form 10-K, reclassifying $18.9 million related to capital expenditures previously included in Accounts payable and other liabilities of operating activities to Outlays for property, plant and equipment in investing activities, as shown below.
 
   
Nine Months Ended September 30, 2013
 
Revised line items Consolidated Statement of Cash Flows
 
As Reported
   
Reclassification
   
As Revised
 
Cash flows from operating activities
           
Changes in operating assets and liabilities:
           
Accounts payable and other liabilities
 
$
(9.4
)
 
$
18.9
   
$
9.5
 
Net cash provided by operating activities
   
276.3
     
18.9
     
295.2
 
                         
Cash flows from investing activities:
                       
Changes in investing assets and liabilities:
                       
Outlays for property, plant and equipment
   
(708.2
)
   
(18.9
)
   
(727.1
)
Net cash used in investing activities
   
(737.6
)
   
(18.9
)
   
(756.5
)

Revision of Previously Reported Revenues and Product Purchases

During the third quarter of 2014, we concluded that certain prior period buy-sell transactions related to the marketing of NGL products were incorrectly reported on a gross basis as Revenues and Product Purchases in previous Consolidated Statements of Operations. GAAP requires that such transactions that involve purchases and sales of inventory with the same counterparty that are legally contingent or in contemplation of one another be reported as a single transaction on a combined net basis.

We concluded that these misclassifications were not material to any of the periods affected. However, we have revised previously reported revenues and product purchases to correctly report NGL buy-sell transactions on a net basis. Accordingly, Revenues and Product Purchases reported in our Form 10-K filed on February 14, 2014 and in previous quarterly reports on Form 10-Q for 2014 and 2013 will be reduced by equal amounts as presented in the following tables. There is no impact on previously reported net income, cash flows, financial position or other profitability measures.
   
Year Ended December 31,
 
   
2013
   
2012
   
2011
 
As Reported:
           
Revenues
 
$
6,556.2
   
$
5,883.6
   
$
6,987.1
 
Product Purchases
   
5,378.5
     
4,878.9
     
6,039.0
 
                         
Effect of Revisions:
                       
Revenues
   
(241.3
)
   
(206.7
)
   
(151.3
)
Product Purchases
   
(241.3
)
   
(206.7
)
   
(151.3
)
                         
As Revised:
                       
Revenues
   
6,314.9
     
5,676.9
     
6,835.8
 
Product Purchases
   
5,137.2
     
4,672.2
     
5,887.7
 

   
Three Months Ended
   
Nine Months
Ended
   
Six Months Ended
 
   
September 30,
   
June 30,
   
March 31,
   
September 30,
   
June 30,
 
   
2013
   
2014
   
2013
   
2014
   
2013
   
2013
   
2014
   
2013
 
As Reported:
                               
Revenues
 
$
1,556.9
   
$
2,061.9
   
$
1,441.6
   
$
2,352.9
   
$
1,397.8
   
$
4,396.4
   
4,414.8
   
$
2,839.5
 
Product Purchases
   
1,259.8
     
1,677.9
     
1,176.4
     
1,973.3
     
1,137.5
     
3,573.8
     
3,651.2
     
2,313.9
 
                                                                 
Effect of Revisions:
                                                               
Revenues
   
(90.8
)
   
(61.3
)
   
(71.1
)
   
(58.2
)
   
(24.0
)
   
(185.9
)
   
(119.5
)
   
(95.1
)
Product Purchases
   
(90.8
)
   
(61.3
)
   
(71.1
)
   
(58.2
)
   
(24.0
)
   
(185.9
)
   
(119.5
)
   
(95.1
)
                                                                 
As Revised:
                                                               
Revenues
   
1,466.1
     
2,000.6
     
1,370.5
     
2,294.7
     
1,373.8
     
4,210.5
     
4,295.3
     
2,744.4
 
Product Purchases
   
1,169.0
     
1,616.6
     
1,105.3
     
1,915.1
     
1,113.5
     
3,387.9
     
3,531.7
     
2,218.8
 

Note 3 — Significant Accounting Policies

Accounting Policy Updates/Revisions

The accounting policies that we follow are set forth in Note 3 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2013. There were no significant updates or revisions to these policies during the nine months ended September 30, 2014.

Recent Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360), Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendment, required to be applied prospectively for reporting periods beginning after December 15, 2014, limits discontinued operations reporting to disposals of components of an entity that represent strategic shifts that have, or will have, a major effect on operations and financial results.  The amendment requires expanded disclosures for discontinued operations and also requires additional disclosures regarding disposals of individually significant components that do not qualify as discontinued operations. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. This amendment has no impact on our current disclosures, but will in the future if we dispose of any individually significant components.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. The update also creates a new Subtopic 340-40, Other Assets and Deferred Costs – Contracts with Customers, which provides guidance for the incremental costs of obtaining a contract with a customer and those costs incurred in fulfilling a contract with a customer that are not in the scope of another topic. The new revenue standard requires that entities should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entities expect to be entitled in exchange for those goods or services. To achieve that core principle, the standard requires a five-step process of identifying the contracts with customers, identifying the performance obligations in the contracts, determining the transaction price, allocating the transaction price to the performance obligations and recognizing revenue when, or as, the performance obligations are satisfied. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

The revenue recognition standard will be effective for us starting in the first quarter of 2017. Early adoption is not permitted. We must retroactively apply the new revenue recognition standard to transactions in all prior periods presented, but will have a choice between either (1) restating each prior period presented or (2) presenting a cumulative effect adjustment in our first quarter report in 2017. We have commenced our analysis of the new standard and its impact on our revenue recognition practices.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The amendment is effective for the annual period beginning after December 15, 2016, and for annual and interim periods thereafter, with early adoption permitted. The amendment requires an entity’s management to evaluate for each annual and interim reporting period whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued or available to be issued.  If substantial doubt is raised, further analysis and disclosures are required, including management’s plans to mitigate the adverse conditions or events. This amendment has no impact on our current disclosures, but would if our management identified future conditions or events that, in the aggregate, raise substantial doubt about our ability to continue as a going concern.

Note 4 — Inventories

The components of inventories consisted of the following:

   
September 30, 2014
   
December 31, 2013
 
Commodities
 
$
236.6
   
$
136.4
 
Materials and supplies
   
14.6
     
14.3
 
   
$
251.2
   
$
150.7
 

Note 5 — Property, Plant and Equipment and Intangible Assets

           
Estimated useful life
 
   
September 30, 2014
   
December 31, 2013
   
(In years)
 
Gathering systems
 
$
2,438.6
   
$
2,230.1
   
5 to 20
 
Processing and fractionation facilities
   
1,866.9
     
1,598.0
   
5 to 25
 
Terminaling and storage facilities
   
1,004.1
     
715.2
   
5 to 25
 
Transportation assets
   
358.3
     
294.7
   
10 to 25
 
Other property, plant and equipment
   
138.1
     
121.3
   
3 to 25
 
Land
   
90.9
     
89.5
   
-
 
Construction in progress
   
404.0
     
702.8
   
-
 
Property, plant and equipment
   
6,300.9
     
5,751.6
       
Accumulated depreciation
   
(1,611.5
)
   
(1,406.2
)
     
Property, plant and equipment, net
 
$
4,689.4
   
$
4,345.4
       
                       
Intangible assets
 
$
681.8
   
$
681.8
   
20
 
Accumulated amortization
   
(74.5
)
   
(28.4
)
     
Intangible assets, net
 
$
607.3
   
$
653.4
       

Intangible assets consist of customer contracts and customer relationships acquired in our Badlands business acquisitions. The fair value of these acquired intangible assets was determined at the date of acquisition based on the present value of estimated future cash flows. Key valuation assumptions include probability of contracts under negotiation, renewals of existing contracts, economic incentives to retain customers, past and future volumes, current and future capacity of the gathering system, pricing volatility and the discount rate.

Amortization expense attributable to these intangible assets is recorded using a method that closely reflects the cash flow pattern underlying the intangible asset valuation. The estimated annual amortization expense for these intangible assets is approximately $61.4 million, $80.1 million, $88.3 million, $81.5 million and $67.8 million for each of years 2014 through 2018.

Note 6 — Asset Retirement Obligations

Our asset retirement obligations (“ARO”) primarily relate to certain gas gathering pipelines and processing facilities, and are included in our Consolidated Balance Sheets as a component of other long-term liabilities. The changes in our aggregate asset retirement obligations are as follows:

   
Nine Months Ended
September 30, 2014
 
Beginning of period
 
$
50.5
 
Change in cash flow estimate
   
2.1
 
Accretion expense
   
3.3
 
End of period
 
$
55.9
 

Note 7 — Investment in Unconsolidated Affiliate

At September 30, 2014 our unconsolidated investment consisted of a 38.8% ownership interest in Gulf Coast Fractionators LP (“GCF”).

The following table shows the activity related to our investment in GCF:

   
Nine Months Ended
 
   
September 30, 2014
 
Beginning of period
 
$
55.9
 
Equity earnings
   
13.8
 
Cash distributions (1)
   
(18.0
)
End of period
 
$
51.7
 
 

(1) Includes $4.2 million distributions received in excess of our share of cumulative earnings that are considered a return of capital and disclosed in cash flows from investing activities in the Consolidated Statements of Cash Flows.

Note 8 Accounts Payable and Accrued Liabilities

The components of accounts payable and accrued liabilities consisted of the following:

   
September 30, 2014
   
December 31, 2013
 
Commodities
 
$
573.6
   
$
520.8
 
Other goods and services
   
102.9
     
145.1
 
Interest
   
42.8
     
35.8
 
Compensation and benefits
   
1.5
     
1.3
 
Income and other taxes
   
27.3
     
11.1
 
Other
   
2.0
     
7.1
 
   
$
750.1
   
$
721.2
 

Note 9 — Debt Obligations

   
September 30, 2014
   
December 31, 2013
 
Senior secured revolving credit facility, variable rate, due October 2017 (1)
 
$
575.0
   
$
395.0
 
Senior unsecured notes, 7⅞% fixed rate, due October 2018
   
250.0
     
250.0
 
Senior unsecured notes, 6% fixed rate, due February 2021
   
483.6
     
483.6
 
Unamortized discount
   
(26.0
)
   
(28.0
)
Senior unsecured notes, 6% fixed rate, due August 2022
   
300.0
     
300.0
 
Senior unsecured notes, 5¼% fixed rate, due May 2023
   
600.0
     
600.0
 
Senior unsecured notes, 4¼% fixed rate, due November 2023
   
625.0
     
625.0
 
Accounts receivable securitization facility, due December 2014 (2)
   
237.6
     
279.7
 
Total long-term debt
 
$
3,045.2
   
$
2,905.3
 
                 
Letters of credit outstanding (1)
 
$
42.0
   
$
86.8
 
 

(1) As of September 30, 2014, availability under our $1.2 billion senior secured revolving credit facility (“TRP Revolver”) was $583.0 million.
(2) All amounts outstanding under the Accounts Receivable Securitization Facility (”Securitization Facility”) are reflected as long-term debt in our Consolidated Balance Sheet because we have the ability and intent to fund the Securitization Facility’s borrowings on a long-term basis. We intend to fund the Securitization Facility’s borrowings either by further extending the termination date of the Securitization Facility or by utilizing the availability under our senior secured revolving credit facility.

The following table shows the range of interest rates and weighted average interest rate incurred on our variable-rate debt obligations during the nine months ended September 30, 2014:
 
   
Range of Interest
Rates Incurred
   
Weighted Average
Interest Rate Incurred
 
Senior secured revolving credit facility
   
1.9% - 4.5
%
   
2.0
%
Accounts receivable securitization facility
   
0.9
%
   
0.9
%

Compliance with Debt Covenants

As of September 30, 2014, we were in compliance with the covenants contained in our various debt agreements.

Note 10 — Partnership Units and Related Matters

Public Offerings of Common Units

During the nine months ended September 30, 2014, we issued 3,119,454 common units under an equity distribution agreement entered into in August 2013 (the “August 2013 EDA”), receiving proceeds of $169.5 million (net of commissions up to 1% of gross proceeds to our sales agent). Targa contributed $3.5 million to us to maintain its 2% general partner interest.

In May 2014, we entered into an additional equity distribution agreement under our July 2013 Shelf (the “May 2014 EDA”), with Barclays Capital Inc., Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Jefferies LLC, Morgan Stanley & Co. LLC, Raymond James & Associates, Inc., RBC Capital Markets, LLC, UBS Securities LLC and Wells Fargo Securities, LLC, as our sales agents, pursuant to which we may sell, at our option, up to an aggregate of $400 million of our common units.
 
During the nine months ended September 30, 2014, we issued 1,243,682 common units under the May 2014 EDA, receiving proceeds of $87.7 million (net of commissions up to 1% of gross proceeds to our sales agent). Targa contributed $1.8 million to us to maintain its 2% general partner interest, of which $0.4 million was received in October. As of October 24, 2014, approximately $311.3 million of the aggregate offering amount remained available for sale pursuant to the May 2014 EDA.

Distributions

In accordance with the Partnership Agreement, we must distribute all of our available cash, as determined by the general partner, to unitholders of record within 45 days after the end of each quarter. The following table details the distributions declared and/or paid by us for the nine months ended September 30, 2014.
 
     
Distributions
     
Three Months Ended
Date Paid or to be Paid
 
Limited Partners
   
General Partner
       
Distributions per Limited Partner Unit
 
 
Common
   
Incentive
    2%  
Total
 
                           
     
(In millions, except per unit amounts)
 
                           
September 30, 2014
November 14, 2014
 
$
92.3
   
$
36.0
   
$
2.6
   
$
130.9
   
$
0.7975
 
June 30, 2014
August 14, 2014
   
89.5
     
33.7
     
2.5
     
125.7
     
0.7800
 
March 31, 2014
May 15, 2014
   
87.2
     
31.7
     
2.4
     
121.3
     
0.7625
 
December 31, 2013
February 14, 2014
   
84.0
     
29.5
     
2.3
     
115.8
     
0.7475
 

Note 11 — Earnings per Limited Partner Unit

The following table sets forth a reconciliation of net income and weighted average shares outstanding used in computing basic and diluted net income per limited partner unit:

   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2014
   
2013
   
2014
   
2013
 
Net income
 
$
138.2
   
$
65.0
   
$
390.5
   
$
143.0
 
Less: Net income attributable to noncontrolling interests
   
9.9
     
5.3
     
30.9
     
18.1
 
Net income attributable to Targa Resources Partners LP
 
$
128.3
   
$
59.7
   
$
359.6
   
$
124.9
 
                                 
Net income attributable to general partner
 
$
38.6
   
$
28.1
   
$
108.2
   
$
76.1
 
Net income attributable to limited partners
   
89.7
     
31.6
     
251.4
     
48.8
 
Net income attributable to Targa Resources Partners LP
 
$
128.3
   
$
59.7
   
$
359.6
   
$
124.9
 
                                 
Weighted average units outstanding - basic
   
115.1
     
106.7
     
113.9
     
104.2
 
                                 
Net income available per limited partner unit - basic
 
$
0.78
   
$
0.30
   
$
2.21
   
$
0.47
 
                                 
Weighted average units outstanding
   
115.1
     
106.7
     
113.9
     
104.2
 
Dilutive effect of unvested stock awards
   
0.6
     
0.3
     
0.6
     
0.2
 
Weighted average units outstanding - diluted
   
115.7
     
107.0
     
114.5
     
104.4
 
                                 
Net income available per limited partner unit - diluted
 
$
0.78
   
$
0.30
   
$
2.20
   
$
0.47
 

Note 12 — Derivative Instruments and Hedging Activities

Commodity Hedges

The primary purpose of our commodity risk management activities is to manage our exposure to commodity price risk and reduce volatility in our operating cash flow due to fluctuations in commodity prices. We have hedged the commodity prices associated with a portion of our expected (i) natural gas equity volumes in our Field Gathering and Processing segment and (ii) NGL and condensate equity volumes predominately in our Field Gathering and Processing segment and the LOU business unit in our Coastal Gathering and Processing segment that result from its percent-of-proceeds processing arrangements. These hedge positions will move favorably in periods of falling commodity prices and unfavorably in periods of rising commodity prices. We have designated these derivative contracts as cash flow hedges for accounting purposes.

The hedges generally match the NGL product composition and the NGL and natural gas delivery points to those of our physical equity volumes. The NGL hedges may be transacted as specific NGL hedges or as baskets of ethane, propane, normal butane, isobutane and natural gasoline based upon our expected equity NGL composition. We believe this approach avoids uncorrelated risks resulting from employing hedges on crude oil or other petroleum products as “proxy” hedges of NGL prices. Our natural gas and NGL hedges are settled using published index prices for delivery at various locations, which closely approximate our actual natural gas and NGL delivery points.

We hedge a portion of our condensate equity volumes using crude oil hedges that are based on the New York Mercantile Exchange (“NYMEX”) futures contracts for West Texas Intermediate light, sweet crude, which approximates the prices received for condensate. This necessarily exposes us to a market differential risk if the NYMEX futures do not move in exact parity with the sales price of our underlying condensate equity volumes. Hedge ineffectiveness was immaterial for all periods presented.

At September 30, 2014, the notional volumes of our commodity hedges for equity volumes were:

Commodity
Instrument
Unit
 
2014
   
2015
   
2016
 
Natural Gas
Swaps
MMBtu/d
   
66,050
     
50,551
     
25,500
 
NGL
Swaps
Bbl/d
   
2,683
     
1,210
     
-
 
Condensate
Swaps
Bbl/d
   
2,450
     
-
     
-
 

We also enter into derivative instruments to help manage other short-term commodity-related business risks. We have not designated these derivatives as hedges, and we record changes in fair value and cash settlements to revenues.

Our derivative contracts are subject to netting arrangements that allow net cash settlement of offsetting asset and liability positions with the same counterparty. We record derivative assets and liabilities on our Consolidated Balance Sheets on a gross basis, without considering the effect of master netting arrangements. The following schedules reflect the fair values of our derivative instruments and their location in our Consolidated Balance Sheets as well as pro forma reporting assuming that we reported derivatives subject to master netting agreements on a net basis:

 
    
Fair Value as of September 30, 2014
   
Fair Value as of December 31, 2013
 
 
Balance Sheet
 
Derivative
   
Derivative
   
Derivative
   
Derivative
 
Location
 
Assets
   
Liabilities
   
Assets
   
Liabilities
 
Derivatives designated as hedging instruments
                 
Commodity contracts
Current
 
$
4.7
   
$
2.0
   
$
2.0
   
$
7.7
 
Long-term
   
1.7
     
1.2
     
3.1
     
1.4
 
Total derivatives designated as hedging instruments
   
$
6.4
   
$
3.2
   
$
5.1
   
$
9.1
 
                                   
Derivatives not designated as hedging instruments
                                 
Commodity contracts
Current
 
$
0.3
   
$
1.6
   
$
-
   
$
0.3
 
Total derivatives not designated as hedging instruments
   
$
0.3
   
$
1.6
   
$
-
   
$
0.3
 
                                   
Total current position
   
$
5.0
   
$
3.6
   
$
2.0
   
$
8.0
 
Total long-term position
     
1.7
     
1.2
     
3.1
     
1.4
 
Total derivatives
   
$
6.7
   
$
4.8
   
$
5.1
   
$
9.4
 

The pro forma impact of reporting derivatives in the Consolidated Balance Sheets on a net basis is as follows:

   
Gross Presentation
   
Pro forma Net Presentation
 
   
Asset
   
Liability
   
Asset
   
Liability
 
September 30, 2014
 
Position
   
Position
   
Position
   
Position
 
Current position
               
Counterparties with offsetting position
 
$
4.5
   
$
3.0
   
$
1.5
   
$
-
 
Counterparties without offsetting position - assets
   
0.5
     
-
     
0.5
     
-
 
Counterparties without offsetting position - liabilities
   
-
     
0.6
     
-
     
0.6
 
     
5.0
     
3.6
     
2.0
     
0.6
 
Long-term position
                               
Counterparties with offsetting position
   
1.2
     
0.6
     
0.6
     
-
 
Counterparties without offsetting position - assets
   
0.5
     
-
     
0.5
     
-
 
Counterparties without offsetting position - liabilities
   
-
     
0.6
     
-
     
0.6
 
     
1.7
     
1.2
     
1.1
     
0.6
 
Total derivatives
                               
Counterparties with offsetting position
   
5.7
     
3.6
     
2.1
     
-
 
Counterparties without offsetting position - assets
   
1.0
     
-
     
1.0
     
-
 
Counterparties without offsetting position - liabilities
   
-
     
1.2
     
-
     
1.2
 
   
$
6.7
   
$
4.8
   
$
3.1
   
$
1.2
 
December 31, 2013
               
Current position
               
Counterparties with offsetting position
 
$
1.9
   
$
4.4
   
$
-
   
$
2.5
 
Counterparties without offsetting position - assets
   
0.1
     
-
     
0.1
     
-
 
Counterparties without offsetting position - liabilities
   
-
     
3.6
     
-
     
3.6
 
     
2.0
     
8.0
     
0.1
     
6.1
 
Long-term position
                               
Counterparties with offsetting position
   
0.7
     
1.2
     
-
     
0.5
 
Counterparties without offsetting position - assets
   
2.4
     
-
     
2.4
     
-
 
Counterparties without offsetting position - liabilities
   
-
     
0.2
     
-
     
0.2
 
     
3.1
     
1.4
     
2.4
     
0.7
 
Total derivatives
                               
Counterparties with offsetting position
   
2.6
     
5.6
     
-
     
3.0
 
Counterparties without offsetting position - assets
   
2.5
     
-
     
2.5
     
-
 
Counterparties without offsetting position - liabilities
   
-
     
3.8
     
-
     
3.8
 
   
$
5.1
   
$
9.4
   
$
2.5
   
$
6.8
 

The fair value of our derivative instruments, depending on the type of instrument, was determined by the use of present value methods or standard option valuation models with assumptions about commodity prices based on those observed in underlying markets.

The estimated fair value of our derivative instruments was a net asset of $1.9 million as of September 30, 2014. The estimated fair value is net of an adjustment for credit risk based on the default probabilities by year as indicated by market quotes for the counterparties’ credit default swap rates. The credit risk adjustment was immaterial for all periods presented.

Our payment obligations in connection with substantially all of these hedging transactions are secured by a first priority lien in the collateral securing our senior secured indebtedness that ranks equal in right of payment with liens granted in favor of our senior secured lenders.

The following tables reflect amounts recorded in other comprehensive income (“OCI”) and amounts reclassified from OCI to revenue and expense for the periods indicated:
 
   
Gain (Loss) Recognized in OCI on Derivatives
(Effective Portion)
 
Derivatives in Cash Flow Hedging Relationships
 
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
 
2014
   
2013
   
2014
   
2013
 
Commodity contracts
 
$
14.2
   
$
(11.4
)
 
$
(4.5
)
 
$
2.3
 

   
Gain (Loss) Reclassified from OCI into Income
(Effective Portion)
 
Location of Gain (Loss)
 
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2014
   
2013
   
2014
   
2013
 
Interest expense, net
 
$
-
   
$
(1.5
)
 
$
(2.4
)
 
$
(4.7
)
Revenues
   
(0.8
)
   
4.5
     
(11.6
)
   
17.1
 
   
$
(0.8
)
 
$
3.0
   
$
(14.0
)
 
$
12.4
 

Our consolidated earnings are also affected by our use of the mark-to-market method of accounting for derivative instruments that do not qualify for hedge accounting or that have not been designated as hedges. The changes in fair value of these instruments are recorded on the balance sheet and through earnings (i.e., using the “mark-to-market” method) rather than being deferred until the anticipated transaction settles. The use of mark-to-market accounting for financial instruments can cause non-cash earnings volatility due to changes in the underlying commodity price indices. Gain (loss) recognized on commodity derivatives not designated as hedging instruments was immaterial for all periods presented.

The following table shows the deferred gains (losses) included in accumulated OCI that will be reclassified into earnings through the end of 2016:
 
   
September 30, 2014
   
December 31, 2013
 
Commodity hedges (1)
 
$
3.4
   
$
(3.7
)
Interest rate hedges
   
-
     
(2.4
)
 

(1) Includes net losses of $2.8 million related to contracts that will be settled and reclassified to revenue over the next 12 months.

See Note 13 for additional disclosures related to derivative instruments and hedging activities.

Note 13 — Fair Value Measurements

Under GAAP, our Consolidated Balance Sheets reflect a mixture of measurement methods for financial assets and liabilities (“financial instruments”). Derivative financial instruments are reported at fair value in our Consolidated Balance Sheets. Other financial instruments are reported at historical cost or amortized cost in our Consolidated Balance Sheets, with fair value measurements for these instruments provided as supplemental information.

The following are additional qualitative and quantitative disclosures regarding fair value measurements of financial instruments.

Fair Value of Derivative Financial Instruments

Our derivative instruments consist of financially settled commodity swaps and option contracts and fixed-price commodity contracts with certain counterparties. We determine the fair value of our derivative contracts using a discounted cash flow model for swaps and a standard option-pricing model for options, based on inputs that are readily available in public markets. We have consistently applied these valuation techniques in all periods presented and believe we have obtained the most accurate information available for the types of derivative contracts we hold.

The fair values of our derivative instruments are sensitive to changes in forward pricing on natural gas, NGLs and crude oil. This financial position reflects the present value of the amount we expect to receive or pay in the future on our derivative contracts. If forward pricing on natural gas, NGLs and crude oil were to increase by 10%, the result would be a fair value reflecting a net liability of $13.7 million, ignoring an adjustment for counterparty credit risk. If forward pricing on natural gas, NGLs and crude oil were to decrease by 10%, the result would be a fair value reflecting a net asset of $17.5 million, ignoring an adjustment for counterparty credit risk.

Fair Value of Other Financial Instruments

Due to their cash or near-cash nature, the carrying value of other financial instruments included in working capital (i.e., cash and cash equivalents, accounts receivable, accounts payable) approximates their fair value. Long-term debt is primarily the other financial instrument for which carrying value could vary significantly from fair value. We determined the supplemental fair value disclosures for our long-term debt as follows:

· The TRP Revolver and Securitization Facility are based on carrying value, which approximates fair value as its interest rate is based on prevailing market rates; and

· Senior unsecured notes are based on quoted market prices derived from trades of the debt.

Fair Value Hierarchy

We categorize the inputs to the fair value measurements of financial assets and liabilities using a three-tier fair value hierarchy that prioritizes the significant inputs used in measuring fair value:

· Level 1 - observable inputs such as quoted prices in active markets;

· Level 2 - inputs other than quoted prices in active markets that we can directly or indirectly observe to the extent that the markets are liquid for the relevant settlement periods; and
· Level 3 - unobservable inputs in which little or no market data exists, therefore we must develop our own assumptions.

The following table shows a breakdown by fair value hierarchy category for (1) financial instruments measurements included in our Consolidated Balance Sheets at fair value and (2) supplemental fair value disclosures for other financial instruments:

   
September 30, 2014
 
   
Carrying Value
   
Fair Value
 
   
Total
   
Level 1
   
Level 2
   
Level 3
 
Financial Instruments Recorded on Our Consolidated Balance Sheets at Fair Value:
                   
Assets from commodity derivative contracts (1)
 
$
6.7
   
$
6.7
   
$
-
   
$
6.3
   
$
0.4
 
Liabilities from commodity derivative contracts (1)
   
4.8
     
4.8
     
-
     
4.5
     
0.3
 
Financial Instruments Recorded on Our Consolidated Balance Sheets at Carrying Value:
                                       
Cash and cash equivalents
   
72.4
     
72.4
     
-
     
-
     
-
 
Senior secured revolving credit facility
   
575.0
     
575.0
     
-
     
575.0
     
-
 
Senior unsecured notes
   
2,232.6
     
2,310.2
     
-
     
2,310.2
     
-