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Inventory, Linefill, Base Gas and Long-term Inventory | 12 Months Ended
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Dec. 31, 2012
Inventory, Linefill, Base Gas and Long-term Inventory |
Inventory, Linefill, Base Gas and Long-term Inventory | Note 5—Inventory, Linefill, Base Gas and Long-term Inventory Inventory primarily consists of crude oil, NGL and natural gas in pipelines, storage facilities and railcars that are valued at the lower of cost or market, with cost determined using an average cost method within specific inventory pools. At the end of each reporting period, we assess the carrying value of our inventory and make any adjustments necessary to reduce the carrying value to the applicable net realizable value. During 2012, we recorded non-cash charges of approximately $128 million related to the writedown of our crude oil and NGL inventory due to declines in prices during the period. As of December 31, 2012, a majority of the inventory subject to writedown has been liquidated and the applicable derivative instruments have been settled. The recognition of this adjustment, which is a component of “Purchases and related costs” in our accompanying Consolidated Statement of Operations, was substantially offset by the recognition of unrealized gains on derivative instruments being utilized to hedge the future sales of our crude oil and NGL inventory. Substantially all of such unrealized gains were recorded to “Supply and Logistics segment revenues” in our Consolidated Statement of Operations. See Note 11 for discussion of our derivative and risk management activities. We did not recognize material writedowns of inventory during 2011 and 2010. Linefill, base gas and minimum working inventory requirements in assets we own are recorded at historical cost and consist of crude oil, NGL and natural gas. We classify as linefill or base gas (i) our proportionate share of barrels used to fill a pipeline that we own such that when an incremental barrel is pumped into or enters a pipeline it forces product out at another location, (ii) barrels that represent the minimum working requirements in tanks that we own and (iii) natural gas required to maintain the minimum operating pressure of natural gas storage facilities we own. During 2012, 2011 and 2010, we recorded gains of approximately $19 million, $21 million and $21 million, respectively, on the sale of pipeline linefill for proceeds of approximately $65 million, $56 million and $72 million, respectively. Minimum working inventory requirements in third-party assets and other working inventory in our assets that is needed for our commercial operations are included within specific inventory pools in inventory (a current asset) in determining the average cost of operating inventory. At the end of each period, we reclassify the inventory not expected to be liquidated within the succeeding twelve months out of inventory, at the average cost of the applicable inventory pools, and into long-term inventory, which is reflected as a separate line item in “Other assets” on our Consolidated Balance Sheet. Inventory, linefill, base gas and long-term inventory consisted of the following (barrels in thousands, natural gas volumes in thousands and carrying value in millions):
|  | December 31, 2012 |  | December 31, 2011 |
|  | Volumes |  | Unit of Measure |  | Carrying Value |  | Price/ Unit (1) |  | Volumes |  | Unit of Measure |  | Carrying Value |  | Price/ Unit (1) |
Inventory |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Crude oil |  | 9,492 |  | barrels |  | $ | 737 |  | $ | 77.64 |  | 5,361 |  | barrels |  | $ | 483 |  | $ | 90.10 |
NGL |  | 9,472 |  | barrels |  | 388 |  | $ | 40.96 |  | 6,885 |  | barrels |  | 438 |  | $ | 63.62 |
Natural gas (2) |  | 20,374 |  | Mcf |  | 60 |  | $ | 2.94 |  | 16,170 |  | Mcf |  | 51 |  | $ | 3.15 |
Other |  | N/A |  |  |  | 24 |  | N/A |  | N/A |  |  |  | 6 |  | N/A |
Inventory subtotal |  |  |  |  |  | 1,209 |  |  |  |  |  |  |  | 978 |  |  |
Linefill and base gas |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Crude oil |  | 9,919 |  | barrels |  | 583 |  | $ | 58.78 |  | 9,366 |  | barrels |  | 514 |  | $ | 54.88 |
NGL |  | 1,400 |  | barrels |  | 70 |  | $ | 50.00 |  | 31 |  | barrels |  | 2 |  | $ | 64.52 |
Natural gas (2) |  | 15,755 |  | Mcf |  | 54 |  | $ | 3.43 |  | 14,105 |  | Mcf |  | 48 |  | $ | 3.40 |
Linefill and base gas subtotal |  |  |  |  |  | 707 |  |  |  |  |  |  |  | 564 |  |  |
Long-term inventory |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Crude oil |  | 1,962 |  | barrels |  | 149 |  | $ | 75.94 |  | 1,714 |  | barrels |  | 127 |  | $ | 74.10 |
NGL |  | 3,238 |  | barrels |  | 125 |  | $ | 38.60 |  | 150 |  | barrels |  | 8 |  | $ | 53.33 |
Long-term inventory subtotal |  |  |  |  |  | 274 |  |  |  |  |  |  |  | 135 |  |  |
Total |  |  |  |  |  | $ | 2,190 |  |  |  |  |  |  |  | $ | 1,677 |  |  |
(1) Price per unit of measure represents a weighted average associated with various grades, qualities and locations. Accordingly, these prices may not coincide with any published benchmarks for such products. (2) The volumetric ratio of Mcf of natural gas to crude Btu equivalent is 6:1; thus, natural gas volumes can be approximately converted to barrels by dividing by 6.

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- Definition The complete disclosure related to inventory, linefill and base gas and long-term inventory. This may include, but is not limited to, the basis of stating inventory, linefill, and base gas and long-term inventory, the method of determining inventory, linefill and base gas and long-term inventory cost, the major classes of inventory, linefill and base gas and long-term inventory, and the nature of the cost elements included in inventory, linefill and base gas and long-term inventory. If inventory, linefill and base gas and long-term inventory is stated above cost, accrued net losses on firm purchase commitments for inventory, linefill and base gas and long-term inventory and losses resulting from valuing inventory, linefill and base gas and long-term inventory at the lower-of-cost-or-market may also be included. + References No definition available. + Details
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