Note 19. Significant Risks and Uncertainties

Nature of Operations in Midstream Energy Industry

Our operations are within the midstream energy industry, which includes gathering, transporting, processing, fractionating and storing natural gas, NGLs, crude oil, refined products and certain petrochemicals. We also market natural gas, NGLs, crude oil and other hydrocarbon products. A reduction in demand for natural gas, NGLs, crude oil, refined products, petrochemicals and other hydrocarbon products by the petrochemical, refining or heating industries, whether because of general economic conditions; reduced demand by customers; increased competition from other products due to pricing differences; adverse weather conditions; government regulations affecting energy commodity prices, production levels of hydrocarbons or the content of motor gasoline; or other reasons, could adversely affect our financial position, results of operations and cash flows.

In April 2010, in an event unrelated to Enterprise's operations, the Deepwater Horizon drilling rig caught fire and sank in the Gulf of Mexico, resulting in an oil spill. As a result, in May 2010, a federal offshore drilling moratorium went into effect which halted drilling of uncompleted and new oil and gas wells (in water deeper than 500 feet) in the Gulf of Mexico with certain limited exceptions and halted consideration of drilling permits for deepwater wells. The moratorium was lifted in October 2010; however, it is uncertain at this time how and to what extent oil and natural gas supplies from the Gulf of Mexico and other offshore drilling areas will be affected. A continued decline in oil and natural gas production volumes and/or a failure to achieve anticipated future production due to limitations instituted by governmental authorities (e.g., the federal offshore drilling moratorium) could have a material adverse effect on our financial position, results of operations or cash flows.

Credit Risk Due to Industry Concentrations

A substantial portion of our revenues are derived from companies in the domestic natural gas, NGL and petrochemical industries. This concentration could affect our overall exposure to credit risk since these customers may be affected by similar economic or other conditions. We generally do not require collateral for our accounts receivable; however, we do attempt to negotiate offset, prepayment, or automatic debit agreements with customers that are deemed to be credit risks in order to minimize our potential exposure to any defaults. See Note 14 for information regarding our largest customer.

Counterparty Risk with Respect to Derivative Instruments

In those situations where we are exposed to credit risk in our derivative instrument transactions, we analyze the counterparty's financial condition prior to entering into an agreement, establish credit and/or margin limits and monitor the appropriateness of these limits on an ongoing basis. Generally, we do not require collateral nor do we anticipate nonperformance by our counterparties.

Insurance-Related Risks

We participate as a named insured in EPCO's insurance program, which provides us with property damage, business interruption and other insurance coverage, the scope and amounts of which we believe are customary and prudent for the nature and extent of our operations. While we believe EPCO maintains adequate insurance coverage on our behalf, insurance may not fully cover every type of damage, interruption or other loss that might occur. If we were to incur a significant loss for which we were not fully insured, it could have a material impact on our financial position, results of operations and cash flows. In addition, there may be a timing difference between amounts we recognize as expense and are required to pay in connection with a loss and the amounts we subsequently receive from insurance as reimbursement. Any event that materially interrupts the revenues generated by our consolidated operations, or other losses that require us to make material expenditures not reimbursed by insurance, could reduce our ability to pay distributions to our unitholders and, accordingly, adversely affect the market price of our common units.

Involuntary conversions result from the loss of an asset because of some uncontrollable event (e.g., destruction because of fire, government condemnation, and expropriation). Some of these events are insurable, thus resulting in a property damage insurance recovery. Amounts we receive from insurance are net of any deductibles related to the covered event. Currently, EPCO's deductibles range from $5.0 million to $75.0 million depending on the nature of the loss (windstorm or non-windstorm) and the assets involved (onshore or offshore). We recognize an insurance receivable when realization of the claim for recovery of a loss recognized in the financial statements (e.g., an impairment charge related to destroyed assets) is deemed probable. To the extent that any of our claims are later judged not probable of recovery due to new information, such amounts are expensed. If no recovery is received, or the recovery is less than the net book value of the asset, a loss results. We recognize gains on involuntary conversions when the receipt of an insurance recovery is in excess of the net book value of the retired asset. In addition, we do not recognize gains related to insurance recoveries until all contingencies related to such proceeds have been resolved, that is, a non-refundable cash payment is received from the insurance carrier or we have a binding settlement agreement with the carrier that clearly states that a non-refundable payment will be made. To the extent that an asset is rebuilt, the associated expenditures are capitalized, as appropriate, on our Consolidated Balance Sheets and presented as capital expenditures on our Statements of Consolidated Cash Flows.

With respect to business interruption insurance claims, we recognize income only when we receive non-refundable cash proceeds from insurers, which are presented on the Statements of Consolidated Operations as a component of “Revenues.” The following table summarizes gains we recognized in connection with business interruption proceeds by segment during the years indicated:

	For Year Ended December 31,
	2011		2010		2009
NGL Pipelines & Services	$	4.3	$	--	$	4.3
Offshore Pipelines & Services (1)		--		1.1		28.9
Total gains recognized	$	4.3	$	1.1	$	33.2

(1) Gains recognized within this segment pertain to business interruption proceeds from hurricane claims in 2005 and 2008.

We received $64.8 million of insurance recoveries in 2010 related to the disposal of a segment of an offshore natural gas pipeline and certain components of an offshore platform. The $64.8 million of cash proceeds represents the negotiated insurance value of the covered assets and is a component of proceeds from asset sales and related transactions as presented on our Statements of Consolidated Cash Flows for the year ended December 31, 2010. Operating income for the year ended December 31, 2010 includes $56.6 million of net gains related to the disposition of these offshore assets.

In February 2011, we experienced an NGL release and fire at the West Storage location of our Mont Belvieu, Texas underground storage facility. West Storage consists of ten underground salt dome storage caverns with a storage capacity of approximately 15 MMBbls. Through the reconfiguration of product receipt and delivery capabilities and other measures, we readily returned our Mont Belvieu plants and related assets to close to the same capabilities as we had prior to the incident; however, our West Storage location and associated underground storage wells remain partially inoperative at this time. Remaining repairs to this location are underway and are expected to be completed in stages by mid-2012. We remain in negotiation with our insurance carriers regarding the overall claim, which is currently projected to be at least $150 million. As non-refundable insurance proceeds are received, we expect to record gains related to this incident.

In December 2011, we experienced a fire at our Falcon compressor station on the Jonah Gathering System. Following the incident, we rerouted natural gas production from the Pinedale Field, which had been compressed at the Falcon station, to other compressor stations on the Jonah system. As a result of piping modifications since the incident, we have restored the Jonah system to its full capabilities. As of December 31, 2011, we have recorded $5.3 million of losses related to this involuntary conversion event based on the difference between the net book value of the affected assets and our insurance claim receivable of approximately $15 million.

Operating income and gross operating margin for the years ended December 31, 2010 and 2009 include $26.4 million and $12.4 million of gains related to insurance recoveries due to property damage claims related to hurricane damages incurred in 2008 and 2005.

Regulatory Risks Involving Climate Change

Responding to scientific studies suggesting that emissions of gases, commonly referred to as “greenhouse gases,” including gases associated with oil and gas production such as carbon dioxide, methane and nitrous oxide among others, may be contributing to a warming of the earth's atmosphere and other adverse environmental effects, the U.S. Congress has considered legislation to reduce emissions of greenhouse gases. The U.S. Environmental Protection Agency (“EPA”) has also taken action under the Federal Clean Air Act to regulate greenhouse gas emissions. In addition, some states, including states in which our facilities or operations are located, have taken or proposed legal measures to reduce emissions of greenhouse gases. There is considerable debate over global warming and the environmental effects of greenhouse gas emissions and associated consequences affecting global climate, oceans and ecosystems. As a commercial enterprise, we are not in a position to validate or repudiate the existence of global warming or various aspects of the scientific debate.

In the 111th Congress, numerous legislative measures were introduced that would have imposed restrictions or costs on greenhouse gas emissions, including from the oil and gas industry. Conversely, the 112th Congress, which convened in January 2011, slowed the federal efforts to implement greenhouse gas regulations, which resulted in certain states and regional partnerships taking the initiative. While the state efforts seem less burdensome, any such legislation may have the potential to affect our business, customers or the energy sector generally.

On an international level, the U.S. has been involved in negotiations regarding greenhouse gas reductions under the United Nations Framework Convention on Climate Change (“UNFCCC”). Other nations have already agreed to regulate emissions of greenhouse gases, pursuant to the UNFCCC and a subsidiary agreement known as the “Kyoto Protocol,” an international treaty pursuant to which participating countries have agreed to reduce their emissions of greenhouse gases to below 1990 levels by 2012. The U.S. is a party to the UNFCCC but did not ratify the Kyoto Protocol. Such negotiations have not thus far resulted in substantive changes that would affect domestic industrial sources in the U.S. and it is uncertain whether an international agreement will be reached or what the terms of any such agreement would be.

These federal, regional and state measures generally apply to industrial sources, including facilities in the oil and gas sector, and could increase the operating and compliance costs of our pipelines, natural gas processing plants, fractionation plants and other facilities. These regulations could also adversely affect market demand or pricing for our products or products served by our midstream infrastructure, by affecting the price of, or reducing the demand for, fossil fuels or providing competitive advantages to competing fuels and energy sources. The potential increase in the costs of our operations could include costs to operate and maintain our facilities, install new emission controls on our facilities, acquire allowances to authorize our greenhouse gas emissions, pay any taxes related to our greenhouse gas emissions, or administer and manage a greenhouse gas emissions program. While we may be able to include some or all of such increased costs in the rates charged by our pipelines or other facilities, such recovery of costs is uncertain and may depend on events beyond our control, including the provisions of any final regulations. In addition, changes in regulatory policies that result in a reduction in the demand for hydrocarbon products that are deemed to contribute to greenhouse gases, or restrictions on their use, may reduce volumes available to us for processing, transportation, marketing and storage.

Any of these climate change legislative or judicial initiatives or developments could have a material impact on our financial statements; however, we are unable to provide a range of estimated future costs due to the extreme uncertainty of such matters.