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

 

FORM 10-Q

 

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

For the quarterly period ended September 30, 2015
 
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 1-36175

 

MIDCOAST ENERGY PARTNERS, L.P.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware		61-1714064
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1100 Louisiana Street,
Suite 3300
Houston, Texas 77002

(Address of Principal Executive Offices) (Zip Code)
(713) 821-2000

(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 x 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 x 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. (Check one):

Large Accelerated Filer o		Accelerated Filer                     x
Non-Accelerated Filer   o (Do not check if a smaller reporting company)		Smaller reporting company     o

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

The registrant had 22,610,056 Class A common units outstanding as of October 30, 2015.

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MIDCOAST ENERGY PARTNERS, L.P.
 
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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income for the three and nine months ended September 30, 2015 and 2014			1
Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2015 and 2014			2
Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014			3
Consolidated Statements of Financial Position as of September 30, 2015 and December 31, 2014			4
Notes to the Consolidated Financial Statements			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			35
Item 3. Quantitative and Qualitative Disclosures About Market Risk			49
Item 4. Controls and Procedures			52
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			52
Item 1A. Risk Factors			52
Item 5. Other Information			52
Item 6. Exhibits			52
Signatures			53
Exhibits			54

In this report, unless the context otherwise requires, references to “Midcoast Energy Partners,” “the Partnership,” “MEP,” “we,” “our,” “us,” or like terms refer to Midcoast Energy Partners, L.P. and its subsidiaries. We refer to our general partner, Midcoast Holdings, L.L.C., as our “General Partner” and to Enbridge Energy Partners, L.P. and its subsidiaries, other than us, as “Enbridge Energy Partners,” or “EEP.” References to “Enbridge” refer collectively to Enbridge Inc. and its subsidiaries other than us, our subsidiaries, our General Partner, EEP, its subsidiaries and its general partner. References to “Enbridge Management” refer to Enbridge Energy Management, L.L.C., the delegate of EEP’s general partner that manages EEP’s business and affairs. References to “Midcoast Operating” refer to Midcoast Operating, L.P. and its subsidiaries. As of September 30, 2015, we owned a 51.6% controlling interest in Midcoast Operating, and EEP owned a 48.4% noncontrolling interest in Midcoast Operating. Unless otherwise specifically noted, financial results and operating data are shown on a 100% basis and are not adjusted to reflect EEP’s 48.4% noncontrolling interest in Midcoast Operating as of September 30, 2015.

This Quarterly Report on Form 10-Q includes forward-looking statements, which are statements that frequently use words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “position,” “projection,” “should,” “strategy,” “target,” “will” and similar words. Although we believe that such forward-looking statements are reasonable based on currently available information, such statements involve risks, uncertainties and assumptions and are not guarantees of performance. Future actions, conditions or events and future results of operations may differ materially from those expressed in these forward-looking statements. Any forward-looking statement made by us in this Quarterly Report on Form 10-Q speaks only as of the date on which it is made, and we undertake no obligation to publicly update any forward-looking statement. Many of the factors that will determine these results are beyond our ability to control or predict. Specific factors that could cause actual results to differ from those in the forward-looking statements include: (1) changes in the demand for, the supply of, forecast data for, and price trends related to natural gas, natural gas liquids, or NGLs, and crude oil, and the response by natural gas and crude oil producers to changes in any of these factors; (2) our ability to successfully complete and finance expansion projects; (3) the effects of competition, in particular, by other pipeline and gathering systems, as well as other processing and treating plants; (4) shut-downs or cutbacks at our facilities or refineries, petrochemical plants, utilities or other businesses for which we transport products or to whom we sell

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products; (5) hazards and operating risks that may not be covered fully by insurance; (6) changes in or challenges to our rates; and (7) changes in laws or regulations to which we are subject, including compliance with environmental and operational safety regulations that may increase costs of system integrity testing and maintenance; and (8) cost overruns and delays on construction projects resulting from numerous factors.

For additional factors that may affect results, see “Item 1A. Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, which is available to the public over the Internet at the United States Securities and Exchange Commission’s, or the SEC’s, website (www.sec.gov) and at our website (www.midcoastpartners.com).

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

MIDCOAST ENERGY PARTNERS, L.P.
 
CONSOLIDATED STATEMENTS OF INCOME

		For the three months ended September 30,								For the nine months ended September 30,
		2015				2014				2015				2014
		(unaudited; in millions, except per unit amounts)
Operating revenues:
Operating revenue (Note 14)		$	649.0			$	1,348.8			$	2,252.3			$	4,268.4
Operating revenue – affiliate (Notes 12 and 14)			12.0				50.6				62.3				174.7
			661.0				1,399.4				2,314.6				4,443.1
Operating expenses:
Cost of natural gas and natural gas liquids (Notes 6 and 14)			503.3				1,208.5				1,912.0				3,888.4
Cost of natural gas and natural gas liquids – affiliate (Notes 12 and 14)			19.4				29.7				60.4				98.3
Operating and maintenance (Notes 7 and 13)			48.8				54.3				131.7				165.5
Operating and maintenance – affiliate (Note 12)			25.2				26.3				75.2				81.0
General and administrative			1.6				2.5				4.6				6.0
General and administrative – affiliate (Note 12)			19.6				23.4				56.5				68.7
Goodwill impairment (Note 8)			—				—				226.5				—
Asset impairment (Note 7)			—				—				12.3				—
Depreciation and amortization (Note 7)			39.2				39.5				118.3				113.3
			657.1				1,384.2				2,597.5				4,421.2
Operating income (loss)			3.9				15.2				(282.9	)			21.9
Interest expense, net (Notes 10 and 12)			(7.6	)			(3.6	)			(21.5	)			(9.7	)
Equity in earnings of joint ventures (Note 9)			8.9				6.1				20.5				7.1
Other loss			(0.4	)			(0.8	)			(0.2	)			(0.7	)
Income (loss) before income tax expense			4.8				16.9				(284.1	)			18.6
Income tax expense (Note 15)			(3.7	)			(0.9	)			(1.4	)			(2.7	)
Net income (loss)			1.1				16.0				(285.5	)			15.9
Less: Net income (loss) attributable to noncontrolling interest			4.7				9.7				(125.4	)			13.8
Net income (loss) attributable to general and limited partner ownership interest in Midcoast Energy Partners, L.P.		$	(3.6	)		$	6.3			$	(160.1	)		$	2.1
Net income (loss) attributable to limited partner ownership interest		$	(3.5	)		$	6.2			$	(156.8	)		$	2.1
Net income (loss) per limited partner unit (basic and diluted) (Note 2)		$	(0.08	)		$	0.14			$	(3.47	)		$	0.05
Weighted-average limited partner units outstanding			45.2				45.2				45.2				45.2

 
 
The accompanying notes are an integral part of these consolidated financial statements.

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MIDCOAST ENERGY PARTNERS, L.P.
 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

		For the three months ended September 30,								For the nine months ended September 30,
		2015				2014				2015				2014
		(unaudited; in millions)
Net income (loss)		$	1.1			$	16.0			$	(285.5	)		$	15.9
Other comprehensive income (loss), net of tax (Note 14)			(5.2	)			10.2				(16.1	)			8.6
Comprehensive income (loss)			(4.1	)			26.2				(301.6	)			24.5
Less:
Net income (loss) attributable to noncontrolling interest			4.7				9.7				(125.4	)			13.8
Other comprehensive income (loss) attributed to noncontrolling interest (Note 12)			(2.5	)			6.3				(7.8	)			5.3
Comprehensive income (loss) attributable to general and limited partner (Note 12) ownership interests in Midcoast Energy Partners, L.P.		$	(6.3	)		$	10.2			$	(168.4	)		$	5.4

 
 
The accompanying notes are an integral part of these consolidated financial statements.

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MIDCOAST ENERGY PARTNERS, L.P.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS

		For the nine months ended September 30,
		2015				2014
		(unaudited; in millions)
Cash provided by operating activities:
Net income (loss)		$	(285.5	)		$	15.9
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization (Note 7)			118.3				113.3
Goodwill impairment (Note 8)			226.5				—
Derivative fair value net (gains) losses (Note 14)			53.5				(11.5	)
Inventory market price adjustments (Note 6)			5.4				4.8
Asset impairment (Note 7)			12.3				—
Distributions from investment in joint ventures			20.5				6.1
Equity earnings from investment in joint ventures (Note 9)			(20.5	)			(7.1	)
Deferred income taxes (Note 15)			0.2				1.4
Loss on sales of assets			3.2				—
Other			2.4				0.6
Changes in operating assets and liabilities, net of acquisitions:
Receivables, trade and other			13.9				11.5
Due from General Partner and affiliates			38.7				641.7
Accrued receivables			200.6				28.0
Inventory (Note 6)			(9.8	)			(129.1	)
Current and long-term other assets (Note 14)			1.8				(11.5	)
Due to General Partner and affiliates			13.3				(487.4	)
Accounts payable and other (Notes 5 and 14)			(20.6	)			(50.6	)
Environmental liabilities (Note 13)			—				0.2
Accrued purchases			(177.2	)			(21.3	)
Interest payable			(3.8	)			0.4
Property and other taxes payable			5.4				6.6
Net cash provided by operating activities			198.6				112.0
Cash used in investing activities:
Additions to property, plant and equipment (Notes 7 and 17)			(155.4	)			(166.6	)
Changes in restricted cash (Note 12)			32.1				55.6
Acquisitions (Note 3)			(43.9	)			—
Proceeds from sales of assets			2.1				—
Investment in joint ventures (Note 9)			(3.0	)			(35.4	)
Distributions from investment in joint ventures in excess of cumulative earnings			9.5				27.0
Other			(1.6	)			(0.8	)
Net cash used in investing activities			(160.2	)			(120.2	)
Cash (used in) provided by financing activities:
Proceeds from long-term debt, net of discounts (Note 10)			—				398.1
Net borrowings under credit facility (Note 10)			60.0				30.0
Distributions to partners (Note 11)			(48.1	)			(37.1	)
Acquisition of noncontrolling interest in subsidiary (Note 11)			—				(350.0	)
Contributions from noncontrolling interest (Note 11)			37.3				111.8
Distributions to noncontrolling interest (Note 11)			(72.0	)			(83.3	)
Net cash (used in) provided by financing activities			(22.8	)			69.5
Net increase in cash and cash equivalents			15.6				61.3
Cash and cash equivalents at beginning of year			—				4.9
Cash and cash equivalents at end of period		$	15.6			$	66.2

 
 
The accompanying notes are an integral part of these consolidated financial statements.

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MIDCOAST ENERGY PARTNERS, L.P.
 
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

		September 30, 2015				December 31, 2014
		(unaudited; in millions)
ASSETS
Current assets:
Cash and cash equivalents (Note 5)		$	15.6			$	—
Restricted cash (Notes 3, 12 and 14)			25.7				42.8
Receivables, trade and other, net of allowance for doubtful accounts of $1.6 million and $1.8 million, respectively, at September 30, 2015 and December 31, 2014			1.5				15.6
Due from General Partner and affiliates (Note 12)			17.9				49.7
Accrued receivables			29.0				229.6
Inventory (Note 6)			85.9				81.5
Other current assets (Notes 7 and 14)			136.9				178.1
			312.5				597.3
Property, plant and equipment, net (Note 7)			4,222.7				4,159.7
Goodwill (Note 8)			—				226.5
Intangible assets, net			277.2				247.7
Equity investment in joint ventures (Note 9)			373.7				380.6
Other assets, net (Note 14)			106.7				142.3
Total assets		$	5,292.8			$	5,754.1
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Due to General Partner and affiliates (Note 12)		$	35.6			$	41.1
Accounts payable and other (Notes 5, 13 and 14)			89.8				113.8
Accrued purchases			198.0				375.2
Property and other taxes payable (Note 15)			26.3				20.9
Interest payable			1.2				5.0
			350.9				556.0
Long-term debt (Note 10)			820.0				760.0
Other long-term liabilities (Notes 13 and 15)			49.8				41.5
Total liabilities			1,220.7				1,357.5
Commitments and contingencies (Note 13)
Partners’ capital (Note 11):
Class A common units (22,610,056 authorized and issued at September 30, 2015 and December 31, 2014)			532.2				634.2
Subordinated units (22,610,056 authorized and issued at September 30, 2015 and December 31, 2014)			1,072.0				1,174.0
General Partner units (922,859 authorized and issued at September 30, 2015 and December 31, 2014)			43.6				47.8
Accumulated other comprehensive income (Note 14)			3.3				11.6
Total Midcoast Energy Partners, L.P. partners’ capital			1,651.1				1,867.6
Noncontrolling interest			2,421.0				2,529.0
Total partners’ capital			4,072.1				4,396.6
		$	5,292.8			$	5,754.1

 
 
The accompanying notes are an integral part of these consolidated financial statements.

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MIDCOAST ENERGY PARTNERS, L.P.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. ORGANIZATION AND NATURE OF OPERATIONS

Midcoast Energy Partners, L.P. is a publicly-traded Delaware limited partnership formed by Enbridge Energy Partners, L.P., or EEP, to serve as EEP’s primary vehicle for owning and growing its natural gas and natural gas liquids midstream business in the United States. Midcoast Energy Partners, L.P., together with its consolidated subsidiaries, are referred to in this report as “we,” “us,” “our,” “MEP” and the “Partnership.” For the first six months of 2014, we owned a 39% controlling interest in Midcoast Operating, L.P., or Midcoast Operating. EEP owned the remaining 61% interest in Midcoast Operating. On July 1, 2014, we purchased an additional 12.6% interest in Midcoast Operating from EEP. We own and operate, through our current 51.6% controlling interest in Midcoast Operating, a portfolio of assets engaged in the business of gathering, processing and treating natural gas, as well as the transportation of natural gas, natural gas liquids, or NGLs, crude oil and condensate. In addition, we also provide marketing services of natural gas and NGLs to wholesale customers. Our portfolio of natural gas and NGL pipelines, plants and related facilities are geographically concentrated in the Gulf Coast and Mid-Continent regions of the United States, primarily in Texas and Oklahoma. EEP owns a 48.4% noncontrolling interest in Midcoast Operating. EEP also has a significant interest in us through its ownership of our General Partner, which owns all of our General Partner units and all of our incentive distribution rights, or IDRs, as well as an approximate 52% limited partner interest in us. Our Class A common units trade on the New York Stock Exchange, or NYSE, under the ticker symbol MEP.

Basis of Presentation

We have prepared the accompanying unaudited interim consolidated financial statements in accordance with generally accepted accounting principles in the United States of America, or GAAP, for interim consolidated financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the unaudited interim consolidated financial statements do not include all the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, they contain all adjustments, consisting only of normal recurring adjustments, which management considers necessary to present fairly our financial position as of September 30, 2015, our results of operations for the three and nine months ended September 30, 2015 and 2014, and our cash flows for the nine months ended September 30, 2015 and 2014. We derived our consolidated statement of financial position as of December 31, 2014, from the audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014. Our results of operations for the three and nine months ended September 30, 2015 and 2014, should not be taken as indicative of the results to be expected for the full year due to seasonal fluctuations in the supply of and demand for natural gas, NGLs and crude oil, timing and completion of our construction projects, maintenance activities, the impact of forward commodity prices and differentials on derivative financial instruments that are accounted for at fair value. Our unaudited interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto presented in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

2. NET INCOME PER LIMITED PARTNER AND GENERAL PARTNER INTEREST

We allocate our net income among our General Partner and limited partners using the two-class method. Under the two-class method, we allocate our net income to our limited partners, our General Partner and the holders of our IDRs in accordance with the terms of our partnership agreement. We also allocate any earnings in excess of distributions to our limited partners, our General Partner and the holders of the IDRs in accordance with the terms of our partnership agreement. We allocate any distributions in excess of earnings for the period to our General Partner and our limited partners based on their respective proportionate ownership interests in us, after taking into account distributions to be paid with respect to the IDRs, as set forth in our partnership agreement.

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MIDCOAST ENERGY PARTNERS, L.P.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

2. NET INCOME PER LIMITED PARTNER AND GENERAL PARTNER INTEREST  – (continued)

Distribution Targets		Portion of Quarterly Distribution Per Unit				Percentage Distributed to Limited Partners				Percentage Distributed to General Partner
Minimum Quarterly Distribution			Up to $0.3125				98	%			2	%
First Target Distribution			> $0.3125 to $0.359375				98	%			2	%
Second Target Distribution			> $0.359375 to $0.390625				85	%			15	%
Third Target Distribution			> $0.390625 to $0.468750				75	%			25	%
Over Third Target Distribution			In excess of $0.468750				50	%			50	%

We determined basic and diluted net income (loss) per limited partner unit as follows:

		For the three months ended September 30,								For the nine months ended September 30,
		2015				2014				2015				2014
		(in millions, except per unit amounts)
Net income (loss)		$	1.1			$	16.0			$	(285.5	)		$	15.9
Less: Net income (loss) attributable to noncontrolling interest			4.7				9.7				(125.4	)			13.8
Net income (loss) attributable to general and limited partner interests in Midcoast Energy Partners, L.P.			(3.6	)			6.3				(160.1	)			2.1
Less distributions:
Total distributed earnings to our General Partner			(0.3	)			(0.3	)			(0.9	)			(0.9	)
Total distributed earnings to our limited partners			(16.2	)			(15.3	)			(47.9	)			(44.1	)
Total distributed earnings			(16.5	)			(15.6	)			(48.8	)			(45.0	)
Overdistributed earnings		$	(20.1	)		$	(9.3	)		$	(208.9	)		$	(42.9	)
Weighted-average limited partner units outstanding			45.2				45.2				45.2				45.2
Basic and diluted earnings per unit:
Distributed earnings per limited partner unit(1)		$	0.36			$	0.34			$	1.06			$	0.98
Overdistributed earnings per limited partner unit(2)			(0.44	)			(0.20	)			(4.53	)			(0.93	)
Net income (loss) per limited partner unit (basic and diluted)		$	(0.08	)		$	0.14			$	(3.47	)		$	0.05

3. ACQUISITIONS AND DISPOSITIONS

Acquisitions

We account for acquisitions using the acquisition method and record the identifiable assets acquired and liabilities assumed at their acquisition-date fair values. We have included the results of operations in our operating results from the acquisition date.

On February 27, 2015, we acquired the midstream business of New Gulf Resources, LLC, or NGR, in Leon, Madison and Grimes counties, Texas. The acquisition consisted of a natural gas gathering system that is in operation. This acquisition strengthened our position into the Eaglebine play, and will continue to allow us to offer gathering and processing services while leveraging assets on our existing footprint.

We acquired the midstream business of NGR for $85.0 million in cash and a contingent future payment of up to $17.0 million. Of the $85.0 million purchase price, $20.0 million was placed into escrow, pending the resolution of a legal matter and NGR’s completion of additional wells connecting to our system. Since the acquisition date, we have released $5.0 million from escrow and paid it to NGR. The remaining $15.0 million in escrow has been classified as “Restricted cash” in our consolidated statements of financial position as of September 30, 2015.

If NGR is able to deliver volumes into the system at certain tiered volume levels over a five-year period, we will be obligated to make future tiered payments up to $17.0 million. This could result in a maximum total purchase

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MIDCOAST ENERGY PARTNERS, L.P.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

3. ACQUISITIONS AND DISPOSITIONS  – (continued)

price of $102.0 million. The potential payment is considered contingent consideration. At the acquisition date, the fair value of this contingent consideration, using a probability-weighted discounted cash flow model was $2.3 million. The contingent consideration is remeasured on a fair value basis each quarter until the performance bonus is paid or expires. At September 30, 2015, contingent consideration of $2.5 million, which includes $0.2 million in accretion, is included in “Other long-term liabilities” in our consolidated statement of financial position.

Funding was provided by us and EEP, based on our proportionate ownership percentages in Midcoast Operating, at the time of acquisition, which was 51.6% and 48.4%, respectively. EEP paid its portion of the funding directly to NGR. Our consolidated statements of cash flows do not reflect the amount paid directly to NGR by EEP.

As of September 30, 2015, the consideration paid and the purchase price allocation related to the NGR acquisition, as adjusted to date, are as follows:

		September 30, 2015
		(in millions)
Consideration:
Cash consideration		$	85.0
Contingent consideration			2.3
		$	87.3
Identifiable assets acquired in business combination:
Property, plant and equipment		$	55.1
Intangible assets			32.2
		$	87.3

The weighted-average amortization period of intangible assets related to the NGR acquisition is 15 years. Our consolidated operating revenue and net income included from NGR, $0.6 million and $0.1 million, respectively, for the three months ended September 30, 2015, and $1.2 million and $0.2 million, respectively, for the nine months ended September 30, 2015.

Since the effective date of the NGR midstream business acquisition was February 27, 2015, our consolidated statements of income do not include earnings from this business prior to that date. The following table presents selected unaudited pro forma earnings information for the three and nine months ended September 30, 2015 and 2014, as if the acquisition had been completed on January 1, 2014. This pro forma information was prepared using historical financial data for the NGR midstream business and reflects certain estimates and assumptions made by our management based on currently available information. Our unaudited pro forma financial information is not necessarily indicative of what our consolidated financial results would have been for the three and nine months ended September 30, 2015 and 2014, had we acquired the NGR midstream business on January 1, 2014.

		For the three months ended September 30,								For the nine months ended September 30,
		2015				2014				2015				2014
		(unaudited; in millions, except per unit amounts)
Pro forma earnings data:
Operating revenue		$	661.0			$	1,399.6			$	2,314.7			$	4,443.8
Operating expenses		$	657.1			$	1,384.4			$	2,597.9			$	4,422.5
Operating income (loss)		$	3.9			$	15.2			$	(283.2	)		$	21.3
Net income (loss)		$	1.1			$	16.0			$	(285.8	)		$	15.3
Net income (loss) attributable to noncontrolling interest		$	4.7			$	9.7			$	(125.5	)		$	13.5
Net income (loss) attributable to limited partner ownership interest		$	(3.6	)		$	6.3			$	(160.3	)		$	1.8
Basic and diluted earnings per unit:
As reported net income (loss) per limited partner unit (basic and diluted)		$	(0.08	)		$	0.14			$	(3.47	)		$	0.05
Pro forma net income (loss) per limited partner unit (basic and diluted)		$	(0.08	)		$	0.14			$	(3.46	)		$	0.04

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MIDCOAST ENERGY PARTNERS, L.P.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

3. ACQUISITIONS AND DISPOSITIONS  – (continued)

Dispositions

On September 1, 2015, two wholly-owned subsidiaries of Midcoast Operating in the Logistics and Marketing segment sold certain natural gas inventories and assigned certain storage agreements, transportation contracts and other arrangements to a third-party buyer. Midcoast Operating subsidiaries will now sell their natural gas products directly to third parties, instead of through the Logistics and Marketing segment.

We received net proceeds of $4.3 million and recognized a loss of $9.3 million included in our “Segment gross margin,” which includes losses to transfer certain fixed-demand storage and transportation obligations to the buyer. The proceeds included a prepayment of $4.2 million, which represents compensation for us to deliver natural gas to the buyer over the next 14 months. This amount has been deferred in “Accounts payable and other” on our consolidated statement of financial position, and will be recognized in operating revenue over the term of the contract. In addition, we recognized $1.3 million in severance costs associated with the transaction, which is included in “Operating and maintenance” expense on our consolidated statement of income.

4. EQUITY-BASED COMPENSATION

In November 2013, our General Partner adopted the 2013 Midcoast Energy Partners, L.P. Long-Term Incentive Plan, or the LTIP. The LTIP provides for the grant of, from time to time at the discretion of the board of directors of our General Partner or any delegate thereof, subject to applicable law, unit awards, restricted units, phantom units, unit options, unit appreciation rights, distribution equivalent rights and other unit-based awards, provided that while we are an affiliate of Enbridge, awards will only be granted following a recommendation of the board of directors or compensation committee of Enbridge to the board of our General Partner. The purpose of awards under the LTIP is to provide additional incentive compensation to individuals providing services to us, and to align the economic interests of such individuals with the interests of our unitholders.

On February 17, 2015, the board of our General Partner approved the first grant of Performance Stock Units, or PSUs, effective January 1, 2015, under the LTIP. These PSUs were granted to employees of affiliates of our General Partner performing services on our behalf and provide for cash awards to be paid at the end of the three-year term, at which time the PSUs will vest 100%. Awards are calculated by multiplying the number of PSUs outstanding at the end of the performance period by the weighted-average price of our Class A common units for the 20-trading days prior to the maturity of the PSUs and by a performance multiplier. Any cash distributions paid will be notionally reinvested during the term of the PSUs.

The performance multiplier ranges from zero, if our performance fails to meet threshold performance levels, to a maximum of two if we perform within the highest range of its performance targets. The 2015 PSUs derive the performance multiplier through a calculation of our distributable cash flow per unit relative to targets established at the time of grant and yield relative to a specified peer group of companies.

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MIDCOAST ENERGY PARTNERS, L.P.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

4. EQUITY-BASED COMPENSATION  – (continued)

The following table presents PSU activity for the period indicated:

		Performance Stock Units				Weighted Average Remaining Term (years)				Average Intrinsic Value (in millions)
January 1, 2015			—
Units granted			323,880
Units matured			—
Units forfeited			(1,948	)
Distribution reinvested			27,384
September 30, 2015			349,316				2.3			$	3.6

The PSUs are paid in cash and therefore classified as a liability award. The liability is re-measured at fair value on each reporting date until the award is settled, with the offset for the change in fair value being recorded as compensation expense based on the percentage of the requisite service that has been rendered at the reporting date. During the vesting term, compensation expense is determined based on the number of PSUs outstanding, the current market price of our Class A common units, dividends reinvested, and performance multipliers. The LTIP agreement and the individual award agreements are between our General Partner and the participants in the LTIP agreement. The associated compensation costs and liability are recorded in our consolidated financial statements based on the approved allocation methodology as some of the recipients of our PSUs provide shared services to us, EEP and other Enbridge entities. Similar to other employee compensation costs, Enbridge Employee Services Incorporated, or EESI, will make the PSU payments to the LTIP participants on behalf of us, EEP and other Enbridge entities who will then reimburse EESI, for their respective obligation, via an affiliate payable for the disbursements made to the participants.

To calculate the compensation expense for the three and nine months ended September 30, 2015, a performance multiplier of one, based on estimates as of September 30, 2015, was used for the 2015 PSUs. For the three and nine months ended September 30, 2015, compensation expense recorded for the PSUs was $0.3 million and $0.9 million, respectively, of which our allocated share of the cost is currently estimated to be $0.1 million and $0.3 million, respectively. As of September 30, 2015, the unrecognized compensation expense related to non-vested units granted was $3.8 million and is expected to be fully recognized over a weighted-average period of approximately two years.

5. CASH AND CASH EQUIVALENTS

We extinguish liabilities when a creditor has relieved us of our obligation, which occurs when our financial institution honors a check that the creditor has presented for payment. Accordingly, obligations for which we have made payments that have not yet been presented to the financial institution, totaling approximately $4.7 million at September 30, 2015, and $6.6 million at December 31, 2014, are included in “Accounts payable and other” on our consolidated statements of financial position.

6. INVENTORY

Our inventory is comprised of the following:

		September 30, 2015				December 31, 2014
		(in millions)
Materials and supplies		$	0.6			$	0.7
Crude oil inventory			—				2.0
Natural gas and NGL inventory			85.3				78.8
		$	85.9			$	81.5

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MIDCOAST ENERGY PARTNERS, L.P.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

6. INVENTORY  – (continued)

The “Cost of natural gas and natural gas liquids” on our consolidated statements of income includes charges totaling $0.1 million and $1.5 million for the three months ended September 30, 2015, and 2014 respectively, and $5.4 million and $4.8 million for the nine months ended September 30, 2015, and 2014 respectively, that we recorded to reduce the cost basis of our inventory of natural gas and NGLs, to reflect the current market value.

7. PROPERTY, PLANT AND EQUIPMENT

Our property, plant and equipment is comprised of the following:

		September 30, 2015				December 31, 2014
		(in millions)
Land		$	14.2			$	11.1
Rights-of-way			436.2				405.0
Pipelines			1,848.3				1,785.7
Pumping equipment, buildings and tanks			88.4				82.1
Compressors, meters and other operating equipment			2,145.6				2,074.8
Vehicles, office furniture and equipment			137.5				163.8
Processing and treating plants			632.8				516.0
Construction in progress			74.4				218.7
Total property, plant and equipment			5,377.4				5,257.2
Accumulated depreciation			(1,154.7	)			(1,097.5	)
Property, plant and equipment, net		$	4,222.7			$	4,159.7

On July 31, 2015, we sold our non-core Tinsley crude oil pipeline, storage facilities, and docks in our Logistics and Marketing segment and our non-core Louisiana propylene pipeline in our Gathering, Processing and Transportation segment. The sale price was $1.3 million, and the assets had a combined carrying amount of $4.5 million. The loss on disposal of $3.2 million for the three and nine months ended September 30, 2015, is included in “Operating and maintenance” expense on our consolidated statement of income. The carrying amount of these assets was classified as assets held for sale in “Other current assets” on our consolidated statements of financial position before the sale. During the second quarter of 2015, we recorded $12.3 million in non-cash impairment charges on these assets, which are included in “Asset impairment” on our consolidated statements of income.

8. GOODWILL

Goodwill represents the excess of the purchase price of an entity over the estimated fair value of the assets acquired and liabilities assumed. Our goodwill originated from acquisitions by EEP that are fully associated with our gathering, processing and transportation and logistics and marketing businesses. As of December 31, 2014, the carrying amount of goodwill was $226.5 million, consisting of $206.1 million and $20.4 million related to our gathering, processing and transportation and marketing reporting units, respectively.

We test goodwill for impairment annually or more frequently if events or changes in circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value. During May 2015, due to adverse market conditions facing our business, we learned from producers that reductions in drilling will be sustained and prolonged due to continued low prices for natural gas and NGLs. As a result, we determined that the impact on our forecasted operating profits and cash flows for both the gathering, processing and transportation and marketing reporting units for the next five years would be significantly reduced from our prior forecasts.

During the second quarter of 2015, we performed the first step of our goodwill impairment analysis and determined that the carrying value of the gathering, processing and transportation and marketing reporting units exceeded fair value. We completed the second step of the goodwill impairment analysis comparing the implied fair value of the reporting units to the carrying amounts of that goodwill and determined that goodwill was completely impaired, including $206.1 million for the Gathering, Processing and Transportation segment and $20.4 million for

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MIDCOAST ENERGY PARTNERS, L.P.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

8. GOODWILL  – (continued)

the Logistics and Marketing segment. The total impairment charge of $226.5 million is presented as “Goodwill impairment” on our consolidated statement of income for the nine months ended September 30, 2015.

We measure the fair value of our reporting units primarily by using a discounted cash flow analysis. In addition, we also consider overall market capitalization of our business, cash flow measurement data and other factors. Our estimate of fair value required us to use significant unobservable inputs representative of a Level 3 fair value measurement, including assumptions related to the future performance of our gathering, processing and transportation and marketing reporting units.

9. EQUITY INVESTMENTS IN JOINT VENTURES

We have a 35% aggregate interest in the Texas Express NGL system, which is comprised of two joint ventures with third parties. The Texas Express NGL system consists of a 593-mile NGL intrastate transportation pipeline and a related NGL gathering system. Our investment in the Texas Express NGL system is presented in “Equity investment in joint ventures” on our consolidated statements of financial position. “Equity in earnings of joint ventures” on our consolidated statements of income represents our earnings related to these joint ventures. The following table presents unaudited income statement information for the Texas Express NGL system on a combined, 100% basis for the periods presented:

		For the three months ended September 30,								For the nine months ended September 30,
		2015				2014				2015				2014
		(in millions)
Operating revenues		$	36.5			$	27.3			$	93.9			$	51.7
Operating expenses		$	11.1			$	9.7			$	33.8			$	30.0
Net income		$	25.4			$	17.5			$	59.9			$	21.6

10. DEBT

The following table presents the carrying amounts, net of related unamortized discounts, of our consolidated debt obligations.

		Interest Rate				September 30, 2015				December 31, 2014
						(in millions)
Credit Agreement due 2016 – 2018			2.672	%		$	420.0			$	360.0
Series A Senior Notes due September 2019			3.560	%			75.0				75.0
Series B Senior Notes due September 2021			4.040	%			175.0				175.0
Series C Senior Notes due September 2024			4.420	%			150.0				150.0
Total						$	820.0			$	760.0

Our interest cost for the three and nine months ended September 30, 2015, and 2014, is comprised of the following:

		For the three months ended September 30,								For the nine months ended September 30,
		2015				2014				2015				2014
		(in millions)
Interest cost incurred		$	7.8			$	4.0			$	23.0			$	10.3
Less: Interest capitalized			0.2				0.4				1.5				0.6
Interest expense, net		$	7.6			$	3.6			$	21.5			$	9.7

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MIDCOAST ENERGY PARTNERS, L.P.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

10. DEBT  – (continued)

Debt Arrangements

Credit Agreement

We, Midcoast Operating, and our material domestic subsidiaries are parties to the Credit Agreement, which previously permitted aggregate borrowings of up to, at any one time outstanding, $850.0 million. On September 3, 2015 we amended our Credit Agreement and decreased the aggregate commitments to $810.0 million. The original term of the Credit Agreement was three years, with an initial maturity date of November 13, 2016, subject to four one-year requests for extensions. On September 3, 2015, we further amended our Credit Agreement to extend the maturity date from September 30, 2017 to September 30, 2018; however, $140.0 million of commitments will expire on the initial maturity date of November 13, 2016 and an additional $25.0 million of commitments will expire on September 30, 2017.

At September 30, 2015, we had $420.0 million in outstanding borrowings under the Credit Agreement at a weighted-average interest rate of 2.67%. Under the Credit Agreement, we had net borrowings of approximately $60.0 million during the nine months ended September 30, 2015, which includes gross borrowings of $4,160.0 million and gross repayments of $4,100.0 million. At September 30, 2015, we were in compliance with the terms of our financial covenants in the Credit Agreement.

Senior Notes

Our senior notes in the aggregate amount of $400.0 million were issued in a private placement on September 30, 2014 and consist of three tranches: $75.0 million of 3.56% Series A Senior Notes due in 2019; $175.0 million of 4.04% Series B Senior Notes due in 2021; and $150.0 million of 4.42% Series C Senior Notes due in 2024, collectively the Notes. All of the Notes pay interest semi-annually on March 31 and September 30, which commenced on March 31, 2015. At September 30, 2015, we were in compliance with the terms of our financial covenants under the note purchase agreement.

Financial Support Agreement

Midcoast Operating is party to a Financial Support Agreement with EEP, pursuant to which EEP provides letters of credit and guarantees, not to exceed $700.0 million in the aggregate at any time outstanding, in support of financial obligations of Midcoast Operating and its wholly-owned subsidiaries under derivative agreements and natural gas and NGL purchase agreements to which Midcoast Operating, or one or more of its wholly-owned subsidiaries, is a party.

The annual costs that Midcoast Operating incurs under the Financial Support Agreement are based on the cumulative average amount of letters of credit and guarantees that EEP provides on behalf of Midcoast Operating and its wholly-owned subsidiaries, multiplied by a 2.5% annual fee. Midcoast Operating incurred $0.1 million and $0.4 million of these costs for the three and nine months ended September 30, 2015, respectively, which is included in “Operating and maintenance-affiliate” on our consolidated statements of income.

Available Credit

At September 30, 2015, we had approximately $390.0 million of unutilized commitments under the terms of our Credit Agreement, determined as follows:

		(in millions)
Total credit limit under Credit Agreement		$	810.0
Amounts outstanding under Credit Agreement			(420.0	)
Total amount available at September 30, 2015		$	390.0

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MIDCOAST ENERGY PARTNERS, L.P.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

10. DEBT  – (continued)

Fair Value of Debt Obligations

The carrying amount of our outstanding borrowings under the Credit Agreement approximates the fair value at September 30, 2015 and December 31, 2014, respectively, due to the short-term nature and frequent repricing of the amounts outstanding under these obligations. The outstanding borrowings under the Credit Agreement are included with our long-term debt obligations since we have the ability and the intent to refinance the amounts outstanding on a long-term basis.

The approximate fair values of our fixed-rate debt obligations were $393.0 million at September 30, 2015. We determined the approximate fair values using a standard methodology that incorporates pricing points that are obtained from independent, third-party investment dealers who actively make markets in our debt securities. We use these pricing points to calculate the present value of the principal obligation to be repaid at maturity and all future interest payment obligations for any debt outstanding. The fair value of our long-term debt obligations is categorized as Level 2 within the fair value hierarchy.

11. PARTNERS’ CAPITAL

Distribution to Partners

The following table sets forth our distributions, as approved by the board of directors of our General Partner, during the nine months ended September 30, 2015.

Distribution                       Declaration Date		Record Date				Distribution Payment Date				Distribution per Unit				Cash Distributed
										(in millions, except per unit amounts)
July 29, 2015			August 7, 2015				August 14, 2015			$	0.35250			$	16.3
April 29, 2015			May 8, 2015				May 15, 2015			$	0.34750			$	16.0
January 28, 2015			February 6, 2015				February 13, 2015			$	0.34250			$	15.8

We paid cash distributions to EEP for its ownership interest in us totaling $8.8 million and $8.1 million for the three months ended September 30, 2015 and 2014, respectively, and $25.9 million and $20.0 million for the nine months ended September 30, 2015 and 2014, respectively. These amounts are reflected in “Distributions to partners,” on our consolidated statements of cash flows.

Distributions to Noncontrolling Interests

Midcoast Operating paid cash distributions to EEP for its ownership interest in Midcoast Operating totaling $26.2 million and $22.1 million for the three months ended September 30, 2015 and 2014, respectively, and $72.0 million and $83.3 million for the nine months ended September 30, 2015 and 2014, respectively. These amounts are reflected in “Distributions to noncontrolling interest” in our consolidated statements of cash flows.

On July 29, 2015, the partners of Midcoast Operating approved an amendment to Midcoast Operating’s limited partnership agreement that would potentially enhance our distributable cash flow, demonstrating EEP’s further support of our ongoing cash distribution strategy and growth outlook. The amendment will provide a mechanism for us to receive increased quarterly distributions from Midcoast Operating and for EEP to receive reduced quarterly distributions if our declared distribution exceeds our distributable cash, as that term is defined in Midcoast Operating’s limited partnership agreement. Midcoast Operating’s adjustment of EEP’s distribution will be limited by EEP’s pro rata share of the Midcoast Operating quarterly cash distribution and a maximum of $0.005 per unit quarterly distribution increase by us. There is no requirement for us to compensate EEP for these adjusted distributions, except for settling our capital accounts with Midcoast Operating in a liquidation scenario. The amendment to the limited partnership agreement and the support it provides to our cash distribution is effective with the quarter ended June 30, 2015, and continues through and including the distribution made for the quarter ending December 31, 2017. In 2015, we have not received an increased allocation of cash distributions from Midcoast Operating as distributable cash flow we generated exceeded the cash distribution amount we declared for payout.

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MIDCOAST ENERGY PARTNERS, L.P.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

11. PARTNERS’ CAPITAL  – (continued)

Changes in Partners’ Capital

The following table presents significant changes in partners’ capital accounts attributable to our General Partner and limited partners as well as the noncontrolling interest in our consolidated subsidiary during the nine months ended September 30, 2015 and 2014.

		For the nine months ended September 30,
		2015				2014
		(in millions)
Class A common units:
Beginning balance		$	634.2			$	495.3
Net income (loss)			(78.4	)			1.0
Acquisition of noncontrolling interest in subsidiary			—				133.3
Distributions			(23.6	)			(18.2	)
Ending balance		$	532.2			$	611.4
Subordinated units:
Beginning balance		$	1,174.0			$	1,035.1
Net income (loss)			(78.4	)			1.1
Acquisition of noncontrolling interest in subsidiary			—				133.3
Distributions			(23.6	)			(18.2	)
Ending balance		$	1,072.0			$	1,151.3
General Partner units:
Beginning balance		$	47.8			$	42.2
Net loss			(3.3	)			—
Acquisition of noncontrolling interest in subsidiary			—				5.4
Distributions			(0.9	)			(0.7	)
Ending balance		$	43.6			$	46.9
Accumulated other comprehensive income (loss)
Beginning balance		$	11.6			$	(3.1	)
Changes in fair value of derivative financial instruments reclassified to earnings			(12.5	)			5.1
Changes in fair value of derivative financial instruments recognized in other comprehensive income (loss)			4.2				(1.8	)
Ending balance		$	3.3			$	0.2
Noncontrolling interest
Beginning balance		$	2,529.0			$	2,983.2
Capital contributions			97.2				130.5
Acquisition of noncontrolling interest in subsidiary			—				(622.0	)
Comprehensive income:
Net income (loss)			(125.4	)			13.8
Other comprehensive income (loss), net of tax			(7.8	)			5.3
Distributions to noncontrolling interest			(72.0	)			(83.3	)
Ending balance		$	2,421.0			$	2,427.5
Total partners’ capital at end of period		$	4,072.1			$	4,237.3

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MIDCOAST ENERGY PARTNERS, L.P.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

11. PARTNERS’ CAPITAL  – (continued)

Securities Authorized for Issuance under LTIP

In connection with our LTIP, we filed a registration statement on Form S-8 with the SEC registering the issuance of 3,750,000 Class A common units that are issuable pursuant to awards that may be granted under the LTIP. As of September 30, 2015, we have not granted any awards for Class A common units under our LTIP.

Shelf-Registration Statement

From time to time, we may seek to satisfy liquidity needs through the offer and sale of debt or equity securities in public offerings. In December 2014, we filed a shelf-registration statement on Form S-3 with the SEC, which became effective on February 5, 2015, with a proposed aggregate offering price for all securities registered of $1.5 billion.

12. RELATED PARTY TRANSACTIONS

Intercorporate Services Agreement

We do not directly employ any of the individuals responsible for managing or operating our business nor do we have any directors. We have an Intercorporate Services Agreement with EEP, pursuant to which EEP and its affiliates provides us with services as set forth in the agreement, which include such functions as management, accounting, operational and administrative personnel, among other such functions.

Under the Intercorporate Services Agreement, we reimburse EEP and its affiliates for the costs and expenses incurred in providing us with such services. The amounts incurred by us through EEP for services received pursuant to the Intercorporate Services Agreement are reflected in “Operating and maintenance — affiliate” and “General and administrative — affiliate” on our consolidated statements of income. EEP has agreed to reduce the amounts payable for general and administrative expenses that otherwise would have been allocable to Midcoast Operating by $25.0 million annually. As a result, for the three and nine months ended September 30, 2015, we recognized $6.3 million and $18.8 million, respectively, as a reduction to “Due to General Partner and affiliates” with the offset recorded as a contribution to “Noncontrolling interest” in our consolidated statements of financial position.

Enbridge and Enbridge Management and their respective affiliates allocated direct workforce costs to us for our construction projects of $2.2 million and $5.8 million as of September 30, 2015 and December 31, 2014, respectively, which we recorded as additions to “Property, plant and equipment, net” on our consolidated statements of financial position.

Affiliate Revenues and Purchases

We sell natural gas, NGLs and crude oil at market prices on the date of sale to Enbridge and its affiliates. The sales to Enbridge and its affiliates are presented in “Operating revenue — affiliate” on our consolidated statements of income. We also purchase natural gas, NGLs and crude oil at market prices on the date of purchase from Enbridge and its affiliates for sale to third parties. The purchases of natural gas, NGLs and crude oil from Enbridge and its affiliates are presented in “Cost of natural gas and natural gas liquids — affiliate” on our consolidated statements of income.

Also, included in “Cost of natural gas and natural gas liquids — affiliate,” are $5.1 million and $5.4 million for the three months ended September 30, 2015 and 2014, respectively, and $13.4 million and $16.8 million for the nine months ended September 30, 2015 and 2014, respectively, of pipeline transportation and demand fees from Texas Express NGL system. Our logistics and marketing business has made commitments to transport up to 120,000 barrels per day, or Bpd, of NGLs on the Texas Express NGL system from 2015 to 2022. The current commitment level is 29,000 Bpd.

Routine purchases and sales with affiliates are settled monthly through MEP’s centralized treasury function at terms that are consistent with third-party transactions for the three and nine months ended September 30, 2015 and 2014. Routine purchases and sales with affiliates that have not yet been settled are included in “Due from General Partner and affiliates” and “Due to General Partner and affiliates” on our consolidated statements of financial position.

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MIDCOAST ENERGY PARTNERS, L.P.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

12. RELATED PARTY TRANSACTIONS  – (continued)

Sale of Accounts Receivable

We sold and derecognized receivables to an indirect wholly-owned subsidiary of Enbridge for $509.8 million and $845.7 million for the three months ended September 30, 2015 and 2014, respectively, and $1,752.4 million and $2,702.2 million for the nine months ended September 30, 2015 and 2014, respectively. We received cash proceeds of $509.7 million and $845.5 million for the three months ended September 30, 2015 and 2014, respectively, and $1,751.9 million and $2,701.5 million for the nine months ended September 30, 2015 and 2014, respectively. As of September 30, 2015 and December 31, 2014, $221.0 million and $272.7 million, respectively, of the receivables were outstanding and had not been collected on behalf of the Enbridge subsidiary.

Consideration for the receivables sold is equivalent to the carrying value of the receivables less a discount for credit risk. The difference between the carrying value of the receivables sold and the cash proceeds received is recognized in “General and administrative — affiliate” expense in our consolidated statements of income. The expense stemming from the discount on the receivables sold was $0.1 million and $0.2 million for the three months ended September 30, 2015 and 2014, respectively, and $0.5 million and $0.7 million for the nine months ended September 30, 2015 and 2014, respectively.

As of September 30, 2015 and December 31, 2014, we had $6.7 million and $17.7 million, respectively, in “Restricted cash” on our consolidated statements of financial position, consisting of cash collections related to the receivables sold that have yet to be remitted to the Enbridge subsidiary.

13. COMMITMENTS AND CONTINGENCIES

Environmental Liabilities

We are subject to federal and state laws and regulations relating to the protection of the environment. Environmental risk is inherent to the operating activities of our gathering, processing and transportation and logistics and marketing businesses, and we are, at times, subject to environmental cleanup and enforcement actions. We manage this environmental risk through appropriate environmental policies and practices to minimize any impact our operations may have on the environment. To the extent that we are unable to recover payment for environmental liabilities from insurance or otherwise, we will be responsible for payment of liabilities arising from environmental incidents associated with the operating activities of our gathering, processing and transportation and logistics and marketing businesses. We continue to voluntarily monitor past leak sites on our systems for the purpose of assessing whether any remediation is required in light of current regulations. As of September 30, 2015, we did not have any remaining material accrued environmental liabilities. As of December 31, 2014, we had $0.2 million of accrued environmental liabilities included in “Other long-term liabilities” on our consolidated statements of financial position.

Legal and Regulatory Proceedings

We are a participant in a number of legal proceedings arising in the ordinary course of business. Some of these proceedings are covered, in whole or in part, by insurance. While the ultimate outcome and impact to us cannot be predicted with certainty, we believe the outcome of all these proceedings will not, individually or in the aggregate, have a material adverse effect on our financial position, results of operations or cash flows. In addition, we are not aware of any significant legal or governmental proceedings against us, or contemplated to be brought against us, under the various environmental protection statutes to which we are subject.

14. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

Our net income and cash flows are subject to volatility stemming from fluctuations in commodity prices of natural gas, NGLs, condensate and fractionation margins. Fractionation margins represent the relative difference between the price we receive from NGL and condensate sales and the corresponding cost of natural gas we purchase for processing. Our exposure to commodity price risk exists within both of our segments. We use derivative financial instruments (i.e., futures, forwards, swaps, options, and other financial instruments with similar characteristics) to manage the risks associated with market fluctuations in commodity prices, as well as to reduce the volatility in our cash flows. Based on our risk management policies, all of our derivative financial instruments

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MIDCOAST ENERGY PARTNERS, L.P.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

14. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES  – (continued)

are employed in connection with an underlying asset, liability and/or forecasted transaction and are not entered into with the objective of speculating on commodity prices. We have hedged a portion of our exposure to the variability in future cash flows associated with commodity price risks in future periods in accordance with our risk management policies. Our derivative instruments that are designated for hedge accounting under authoritative guidance are classified as cash flow hedges.

Derivative Positions

Our derivative financial instruments are included at their fair values in the consolidated statements of financial position as follows:

		September 30, 2015				December 31, 2014
		(in millions)
Other current assets		$	127.6			$	164.7
Other assets, net			54.3				91.5
Accounts payable and other(1)			(58.2	)			(74.4	)
Other long-term liabilities			(21.8	)			(22.5	)
Due from General Partner and affiliates			—				0.3
		$	101.9			$	159.6

The changes in the assets and liabilities associated with our derivatives are primarily attributable to the effects of new derivative transactions we have entered at prevailing market prices, settlement of maturing derivatives and the change in forward market prices of our remaining hedges. Our portfolio of derivative financial instruments is largely comprised of natural gas, NGL and crude oil sales and purchase contracts.

The table below summarizes our derivative balances by counterparty credit quality (negative amounts represent our net obligations to pay the counterparty).

		September 30, 2015				December 31, 2014
		(in millions)
Counterparty Credit Quality(1)
AAA		$	0.2			$	0.1
AA(2)			67.7				74.4
A			29.6				67.1
Lower than A			4.4				18.0
		$	101.9			$	159.6

As the net value of our derivative financial instruments has decreased in response to changes in forward commodity prices, our outstanding financial exposure to third parties has also decreased. When credit thresholds are met pursuant to the terms of our International Swaps and Derivatives Association, Inc., or ISDA®, financial contracts, we have the right to require collateral from our counterparties. We include any cash collateral received in the balances listed above. As of September 30, 2015, and December 31, 2014, our short-term liabilities included $16.2 million and $28.4 million, respectively, relating to cash collateral on our asset exposures. At September 30, 2015, our restricted cash included $4.0 million of the $16.2 million in cash collateral with the remaining $12.2 million of cash collateral held by EEP. Cash collateral is classified as “Restricted cash” in our consolidated statements of financial position. When we are in a position of posting collateral to cover our counterparties’ exposure to our non-performance, the collateral is provided through letters of credit, which are not reflected above.

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MIDCOAST ENERGY PARTNERS, L.P.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

14. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES  – (continued)

The ISDA® agreements and associated credit support, which govern our financial derivative transactions, contain no credit rating downgrade triggers that would accelerate the maturity dates of our outstanding transactions. A change in ratings is not an event of default under these instruments, and the maintenance of a specific minimum credit rating is not a condition to transacting under the ISDA® agreements. In the event of a credit downgrade, additional collateral may be required to be posted under the agreement if we are in a liability position to our counterparty, but the agreement will not automatically terminate and require immediate settlement of all future amounts due.

The ISDA® agreements, in combination with our master netting agreements, and credit arrangements governing our commodity swaps require that collateral be posted per tiered contractual thresholds based on the credit rating of each counterparty. We generally provide letters of credit to satisfy such collateral requirements under our ISDA® agreements. These agreements will require additional collateral postings of up to 100% on net liability positions in the event of a credit downgrade below investment grade. Automatic termination clauses which exist are related only to non-performance activities, such as the refusal to post collateral when contractually required to do so. When we are holding an asset position, our counterparties are likewise required to post collateral on their liability (our asset) exposures, also determined by tiered contractual collateral thresholds. Counterparty collateral may consist of cash or letters of credit, both of which must be fulfilled with immediately available funds.

In the event that our credit ratings were to decline below the lowest level of investment grade, as determined by Standard & Poor’s and Moody’s, we would be required to provide additional amounts under our existing letters of credit to meet the requirements of our ISDA® agreements. For example, if our credit ratings had been below the lowest level of investment grade at September 30, 2015, we would have been required to provide additional letters of credit in the amount of $12.2 million.

At September 30, 2015, and December 31, 2014, we had credit concentrations in the following industry sectors, as presented below:

		September 30, 2015				December 31, 2014
		(in millions)
United States financial institutions and investment banking entities(1)		$	81.4			$	88.5
Non-United States financial institutions			(6.5	)			30.7
Integrated oil companies			2.0				1.7
Other			25.0				38.7
		$	101.9			$	159.6

Gross derivative balances are presented below before the effects of collateral received or posted and without the effects of master netting arrangements. Both our assets and liabilities are adjusted for non-performance risk, which is statistically derived. This credit valuation adjustment model considers existing derivative asset and liability balances in conjunction with contractual netting and collateral arrangements, current market data such as credit default swap rates and bond spreads and probability of default assumptions to quantify an adjustment to fair value. For credit modeling purposes, collateral received is included in the calculation of our assets, while any collateral posted is excluded from the calculation of the credit adjustment. Our credit exposure for these over-the-counter, or OTC, derivatives is directly with our counterparty and continues until the maturity or termination of the contracts.

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MIDCOAST ENERGY PARTNERS, L.P.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

14. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES  – (continued)

Effect of Derivative Instruments on the Consolidated Statements of Financial Position

						Asset Derivatives								Liability Derivatives
						Fair Value at								Fair Value at
		Financial Position Location				September 30, 2015				December 31, 2014				September 30, 2015				December 31, 2014
						(in millions)
Derivatives designated as cash flow hedging instruments:(1)
Commodity contracts			Other current assets			$	7.4			$	26.1			$	—			$	—
Commodity contracts			Other assets				—				2.1				—				—
							7.4				28.2				—				—
Derivatives not designated as hedging instruments:
Commodity contracts			Other current assets				120.2				138.6				—				—
Commodity contracts			Other assets				54.3				89.4				—				—
Commodity contracts			Accounts payable and other(2)				—				—				(42.0	)			(46.0	)
Commodity contracts			Other long-term liabilities				—				—				(21.8	)			(22.5	)
Commodity contracts			Due from general partner and affiliates				—				0.3				—				—
							174.5				228.3				(63.8	)			(68.5	)
Total derivative instruments						$	181.9			$	256.5			$	(63.8	)		$	(68.5	)

Accumulated Other Comprehensive Income

We record the change in fair value of our highly effective cash flow hedges in AOCI until the derivative financial instruments are settled, at which time they are reclassified to earnings. As of September 30, 2015 and December 31, 2014, we included in AOCI unrecognized gains of approximately $0.4 million and unrecognized losses of approximately $0.1 million, respectively, associated with derivative financial instruments that qualified for and were classified as cash flow hedges of forecasted transactions that were subsequently de-designated, settled, or terminated. These gains are reclassified to earnings over the periods during which the originally hedged forecasted transactions affect earnings.

During the nine months ended September 30, 2015 and 2014, unrealized commodity hedge gains of $1.5 million and losses of $0.2 million, respectively, were de-designated as a result of the hedges no longer meeting hedge accounting criteria. We estimate that approximately $8.3 million, representing unrealized net gains from our cash flow hedging activities based on pricing and positions at September 30, 2015, will be reclassified from AOCI to earnings during the next 12 months.

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MIDCOAST ENERGY PARTNERS, L.P.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

14. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES  – (continued)

Effect of Derivative Instruments on the Consolidated Statements of Income and Accumulated Other Comprehensive Income

Derivatives in Cash Flow       Hedging Relationships		Amount of Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)				Location of Gain (Loss) Reclassified from AOCI to Earnings (Effective Portion)				Amount of Gain (Loss) Reclassified from AOCI to Earnings (Effective Portion)				Location of Gain (Loss) Recognized in Earnings on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)(1)				Amount of Gain (Loss) Recognized in Earnings on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)(1)
						(in millions)
For the three months ended September 30, 2015
Commodity contracts		$	(5.5	)			Cost of natural gas and natural gas liquids			$	8.5				Cost of natural gas and natural gas liquids			$	(0.1	)
For the three months ended September 30, 2014
Commodity contracts		$	11.2				Cost of natural gas and natural gas liquids			$	(2.1	)			Cost of natural gas and natural gas liquids			$	0.9
For the nine months ended September 30, 2015
Commodity contracts		$	(16.8	)			Cost of natural gas and natural gas liquids			$	24.0				Cost of natural gas and natural gas liquids			$	(4.1	)
For the nine months ended September 30, 2014
Commodity contracts		$	7.9				Cost of natural gas and natural gas liquids			$	(12.4	)			Cost of natural gas and natural gas liquids			$	1.5

Components of Accumulated Other Comprehensive Income/(Loss)

		Cash Flow Hedges
		2015				2014
		(in millions)
Balance at January 1		$	11.6			$	(3.1	)
Other comprehensive income (loss) before reclassifications(1)(2)			4.1				(1.8	)
Amounts reclassified from AOCI(3)(4)			(12.5	)			5.1
Tax benefit			0.1				—
Net other comprehensive income (loss)		$	(8.3	)		$	3.3
Balance at September 30		$	3.3			$	0.2

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MIDCOAST ENERGY PARTNERS, L.P.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

14. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES  – (continued)

Reclassifications from Accumulated Other Comprehensive Income

		For the three months ended September 30,								For the nine months ended September 30,
		2015				2014				2015				2014
		(in millions)
Losses (gains) on cash flow hedges:
Commodity Contracts(1)(2)(3)		$	(4.5	)		$	1.1			$	(12.5	)		$	5.1
Total Reclassifications from AOCI		$	(4.5	)		$	1.1			$	(12.5	)		$	5.1

Effect of Derivative Instruments on Consolidated Statements of Income

						For the three months ended September 30,								For the nine months ended September 30,
						2015				2014				2015				2014
Derivatives Not                             Designated as                     Hedging Instruments		Location of Gain or (Loss) Recognized in Earnings				Amount of Gain or (Loss) Recognized in Earnings(1)(2)								Amount of Gain or (Loss) Recognized in Earnings(1)(2)
						(in millions)
Commodity contracts			Operating revenue			$	(7.2	)		$	7.7			$	(22.4	)		$	10.8
Commodity contracts			Operating revenue – affiliate				—				(0.1	)			(0.3	)			0.4
Commodity contracts			Cost of natural gas and natural gas liquids(3)				40.7				9.5				44.3				(9.9	)
Total						$	33.5			$	17.1			$	21.6			$	1.3

We record the fair market value of our derivative financial and physical instruments in the consolidated statements of financial position as current and long-term assets or liabilities on a gross basis. However, the terms of the ISDA®, which govern our financial contracts and our other master netting agreements, allow the parties to elect, in respect of all transactions under the agreement, in the event of a default and upon notice to the defaulting party, for the non-defaulting party to set-off all settlement payments, collateral held and any other obligations (whether or not then due), which the non-defaulting party owes to the defaulting party. The effect of the rights of set-off are outlined below.

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MIDCOAST ENERGY PARTNERS, L.P.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

14. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES  – (continued)

Offsetting of Financial Assets and Derivative Assets

		As of September 30, 2015
		Gross Amount of Recognized Assets				Gross Amount Offset in the Statement of Financial Position				Net Amount of Assets Presented in the Statement of Financial Position				Gross Amount Not Offset in the Statement of Financial Position(1)				Net Amount
		(in millions)
Description:
Derivatives		$	181.9			$	—			$	181.9			$	(59.9	)		$	122.0

		As of December 31, 2014
		Gross Amount of Recognized Assets				Gross Amount Offset in the Statement of Financial Position				Net Amount of Assets Presented in the Statement of Financial Position				Gross Amount Not Offset in the Statement of Financial Position(1)				Net Amount
		(in millions)
Description:
Derivatives		$	256.5			$	—			$	256.5			$	(91.8	)		$	164.7

Offsetting of Financial Liabilities and Derivative Liabilities

		As of September 30, 2015
		Gross Amount of Recognized Liabilities(1)				Gross Amount Offset in the Statement of Financial Position				Net Amount of Liabilities Presented in the Statement of Financial Position				Gross Amount Not Offset in the Statement of Financial Position(1)				Net Amount
		(in millions)
Description:
Derivatives		$	(80.0	)		$	—			$	(80.0	)		$	59.9			$	(20.1	)

		As of December 31, 2014
		Gross Amount of Recognized Liabilities(1)				Gross Amount Offset in the Statement of Financial Position				Net Amount of Liabilities Presented in the Statement of Financial Position				Gross Amount Not Offset in the Statement of Financial Position(1)				Net Amount
		(in millions)
Description:
Derivatives		$	(96.9	)		$	—			$	(96.9	)		$	91.8			$	(5.1	)

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MIDCOAST ENERGY PARTNERS, L.P.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

14. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES  – (continued)

Inputs to Fair Value Derivative Instruments

The following table sets forth by level within the fair value hierarchy our net financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2015, and December 31, 2014. We classify financial assets and liabilities in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect our valuation of the financial assets and liabilities and their placement within the fair value hierarchy.

		September 30, 2015																December 31, 2014
		Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3				Total
		(in millions)
Commodity contracts:
Financial		$	—			$	6.1			$	14.3			$	20.4			$	—			$	19.1			$	42.7			$	61.8
Physical			—				—				4.6				4.6				—				—				19.5				19.5
Commodity options			—				—				93.1				93.1				—				—				106.7				106.7
		$	—			$	6.1			$	112.0			$	118.1			$	—			$	19.1			$	168.9			$	188.0
Cash Collateral															(16.2	)															(28.4	)
Total														$	101.9															$	159.6

Qualitative Information about Level 2 Fair Value Measurements

We categorize, as Level 2, the fair value of assets and liabilities that we measure with either directly or indirectly observable inputs as of the measurement date, where pricing inputs are other than quoted prices in active markets for the identical instrument. This category includes both OTC transactions valued using exchange traded pricing information in addition to assets and liabilities that we value using either models or other valuation methodologies derived from observable market data. These models are primarily industry-standard models that consider various inputs including: (1) quoted prices for assets and liabilities; (2) time value; and (3) current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these inputs are observable in the marketplace throughout the full term of the assets and liabilities, can be derived from observable data, or are supported by observable levels at which transactions are executed in the marketplace.

Qualitative Information about Level 3 Fair Value Measurements

Data from pricing services and published indices are used to value our Level 3 derivative instruments, which are fair-valued on a recurring basis. We may also use these inputs with internally developed methodologies that result in our best estimate of fair value. The inputs listed in the table below would have a direct impact on the fair values of the listed instruments. The significant unobservable inputs used in the fair value measurement of the commodity derivatives (natural gas, NGLs, and crude oil) are forward commodity prices. The significant unobservable inputs used in determining the fair value measurement of options are price and volatility. Increases/(decreases) in the forward commodity price in isolation would result in higher/(lower) fair values for long positions, with offsetting impacts to short positions. Increases/(decreases) in volatility would increase/(decrease) the value for the holder of the option. Generally, a change in the estimate of forward commodity prices is unrelated to a change in the estimate of volatility of prices. A change to the credit valuation adjustment would change the fair value of the positions in opposite directions.

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MIDCOAST ENERGY PARTNERS, L.P.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

14. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES  – (continued)

Quantitative Information About Level 3 Fair Value Measurements

Contract Type		Fair Value at September 30, 2015(2)				Valuation Technique				Unobservable Input				Range(1)												Units
														Lowest				Highest				Weighted Average
		(in millions)
Commodity Contracts – Financial
Natural Gas		$	0.3				Market Approach				Forward Gas Price				2.41				3.16				2.84				MMBtu
NGLs			14.0				Market Approach				Forward NGL Price				0.20				0.99				0.51				Gal
Commodity Contracts – Physical
Natural Gas			(3.9	)			Market Approach				Forward Gas Price				2.33				3.53				2.61				MMBtu
Crude Oil			(0.4	)			Market Approach				Forward Crude Oil Price				31.17				47.93				44.35				Bbl
NGLs			8.9				Market Approach				Forward NGL Price				0.20				1.39				0.43				Gal
Commodity Options
Natural Gas, Crude and NGLs			93.1				Option Model				Option Volatility				10	%			62	%			35	%
Total Fair Value		$	112.0

Contract Type		Fair Value at December 31, 2014(2)				Valuation Technique				Unobservable Input				Range(1)												Units
														Lowest				Highest				Weighted Average
		(in millions)
Commodity Contracts – Financial
Natural Gas		$	0.6				Market Approach				Forward Gas Price				2.55				3.72				3.04				MMBtu
NGLs			42.1				Market Approach				Forward NGL Price				0.48				1.14				0.64				Gal
Commodity Contracts – Physical
Natural Gas			1.5				Market Approach				Forward Gas Price				1.55				4.08				3.08				MMBtu
Crude Oil			(0.9	)			Market Approach				Forward Crude Oil Price				49.57				55.60				53.51				Bbl
NGLs			18.9				Market Approach				Forward NGL Price				0.06				1.21				0.54				Gal
Commodity Options
Natural Gas, Crude and NGLs			106.7				Option Model				Option Volatility				19	%			94	%			36	%
Total Fair Value		$	168.9

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MIDCOAST ENERGY PARTNERS, L.P.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

14. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES  – (continued)

Level 3 Fair Value Reconciliation

The table below provides a reconciliation of changes in the fair value of our Level 3 financial assets and liabilities measured on a recurring basis from January 1, 2015 to September 30, 2015. No transfers of assets between any of the Levels occurred during the period.

		Commodity Financial Contracts				Commodity Physical Contracts				Commodity Options				Total
		(in millions)
Beginning balance as of January 1, 2015		$	42.7			$	19.5			$	106.7			$	168.9
Transfer out of Level 3(1)			—				—				—				—
Gains or losses included in earnings:
Reported in Operating revenue			—				(3.2	)			—				(3.2	)
Reported in Cost of natural gas and natural gas liquids			(1.1	)			18.8				30.2				47.9
Gains or losses included in other comprehensive income:
Reported in Other comprehensive income (loss), net of tax			0.4				—				—				0.4
Purchases, issuances, sales and settlements:
Purchases			—				—				—				—
Sales			—				—				2.0				2.0
Settlements(2)			(27.7	)			(30.5	)			(45.8	)			(104.0	)
Ending balance as of September 30, 2015		$	14.3			$	4.6			$	93.1			$	112.0
Amounts reported in Operating revenue		$	—			$	(22.7	)		$	—			$	(22.7	)
Amount of changes in net assets attributable to the change in unrealized gains or losses related to assets and liabilities still held at the reporting date:
Reported in Operating revenue		$	—			$	(1.4	)		$	—			$	(1.4	)
Reported in Cost of natural gas and natural gas liquids		$	(2.0	)		$	5.3			$	30.6			$	33.9

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MIDCOAST ENERGY PARTNERS, L.P.
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

14. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES  – (continued)

Fair Value Measurements of Commodity Derivatives

The following table provides summarized information about the fair values of expected cash flows of our outstanding commodity based swaps and physical contracts at September 30, 2015 and December 31, 2014.

		At September 30, 2015																								At December 31, 2014
										Wtd. Average Price(2)								Fair Value(3)								Fair Value(3)
		Commodity				Notional(1)				Receive				Pay				Asset				Liability				Asset				Liability
																		(in millions)
Portion of contracts maturing in 2015
Swaps
Receive variable/pay fixed			NGL				964,000			$	22.66			$	25.42			$	0.7			$	(3.3	)		$	—			$	(6.8	)
			Crude Oil				350,000			$	45.54			$	72.70			$	—			$	(9.5	)		$	—			$	(27.4	)
Receive fixed/pay variable			NGL				1,913,800			$	29.66			$	24.25			$	11.3			$	(1.0	)		$	39.2			$	—
			Crude Oil				398,720			$	81.28			$	45.63			$	14.2			$	—			$	42.4			$	—
Receive variable/pay variable			Natural Gas				828,000			$	2.45			$	2.52			$	—			$	(0.1	)		$	1.5			$	(1.7	)
Physical Contracts
Receive variable/pay fixed			NGL				50,000			$	31.63			$	33.02			$	—			$	(0.1	)		$	—			$	(3.6	)
			Crude Oil				8,600			$	45.26			$	45.12			$	—			$	—			$	—			$	—
Receive fixed/pay variable			NGL				3,048,988			$	18.83			$	17.16			$	6.4			$	(1.3	)		$	19.8			$	—
			Crude Oil				54,500			$	42.69			$	45.80			$	—			$	(0.2	)		$	0.5			$	—
Receive variable/pay variable			Natural Gas				54,524,000			$	2.48			$	2.49			$	—			$	(0.8	)		$	2.2			$	(1.0	)
			NGL				5,150,479			$	20.54			$	20.07			$	5.3			$	(2.9	)		$	3.7			$	(1.0	)
			Crude Oil				742,342			$	43.59			$	43.90			$	1.3			$	(1.5	)		$	0.3			$	(1.7	)
Portion of contracts maturing in 2016
Swaps
Receive variable/pay fixed			Natural Gas				16,287			$	2.72			$	3.48			$	—			$	—			$	—			$	(0.1	)
			NGL				833,500			$	23.81			$	30.54			$	—			$	(5.6	)		$	—			$	—
			Crude Oil				415,950			$	49.02			$	82.69			$	—			$	(14.0	)		$	—			$	(8.1	)
Receive fixed/pay variable			NGL				1,428,500			$	31.34			$	22.26			$	13.3			$	(0.3	)		$	9.3			$	—
			Crude Oil				425,950			$	84.17			$	48.95			$	14.9			$	—			$	9.1			$	—
Receive variable/pay variable			Natural Gas				5,124,000			$	2.79			$	2.76			$	0.2			$	—			$	0.5			$	(0.3	)
Physical Contracts
Receive fixed/pay variable			NGL				233,952			$	20.02			$	19.25			$	0.2			$	(0.1	)		$	—			$	—
Receive variable/pay variable			Natural Gas				177,875,634			$	2.62			$	2.64			$	—			$	(3.4	)		$	0.7			$	(0.4	)
			NGL				9,640,509			$	17.02			$	16.88			$	1.6			$	(0.2	)		$	—			$	—
Portion of contracts maturing in 2017
Swaps
Receive variable/pay fixed			Natural Gas				76,530			$	2.62			$	2.97			$	—			$	—			$	—			$	—
			NGL				547,500			$	19.97			$	25.86			$	—			$	(3.2	)		$	—			$	—
			Crude Oil				547,500			$	52.74			$	66.72			$	—			$	(7.6	)		$	—			$	—
Receive fixed/pay variable			NGL				547,500			$	23.59			$	19.97			$	2.0			$	—			$	0.7			$	—
			Crude Oil				547,500			$	66.78			$	52.74			$	7.6			$	—			$	0.8			$	—
Receive variable/pay variable			Natural Gas				8,050,000			$	2.82			$	2.77			$	0.4			$	—			$	—			$	—
Physical Contracts
Receive variable/pay variable			Natural Gas				2,187,810			$	3.03			$	3.01			$	0.1			$	—			$	0.2			$	(0.1	)
Portion of contracts maturing in 2018
Physical Contracts
Receive variable/pay variable			Natural Gas				2,187,810			$	3.16			$	3.14			$	0.1			$	—			$	—			$	—
Portion of contracts maturing in 2019
Physical Contracts
Receive variable/pay variable			Natural Gas				2,187,810			$	3.25			$	3.22			$	0.1			$	—			$	—			$	—
Portion of contracts maturing in 2020
Physical Contracts
Receive variable/pay variable			Natural Gas				359,640			$	3.55			$	3.52			$	—			$	—			$	—			$	—