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Derivatives
3 Months Ended
Mar. 31, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives
(13) Derivatives
Commodity Swaps
The Partnership manages its exposure to fluctuation in commodity prices by hedging the impact of market fluctuations. Swaps are used to manage and hedge price and location risk related to these market exposures. Swaps are also used to manage margins on offsetting fixed-price purchase or sale commitments for physical quantities of natural gas and NGLs. The Partnership does not designate transactions as cash flow or fair value hedges for hedge accounting treatment under FASB ASC 815. Therefore, changes in the fair value of the Partnership's derivatives are recorded in revenue in the period incurred. In addition, the Partnership's risk management policy does not allow the Partnership to take speculative positions with its derivative contracts.
The Partnership commonly enters into index (float-for-float) or fixed-for-float swaps in order to mitigate its cash flow exposure to fluctuations in the future prices of natural gas, NGLs and crude oil. For natural gas, index swaps are used to protect against the price exposure of daily priced gas versus first-of-month priced gas. They are also used to hedge the basis location price risk resulting from supply and markets being priced on different indices. For natural gas, NGLs, condensate and crude, fixed-for-float swaps are used to protect cash flows against price fluctuations: (1) where the Partnership receives a percentage of liquids as a fee for processing third-party gas or where the Partnership receives a portion of the proceeds of the sales of natural gas and liquids as a fee, (2) in the natural gas processing and fractionation components of its business and (3) where the Partnership is mitigating the price risk for product held in inventory or storage.
The components of gain (loss) on derivative activity in the Condensed Consolidated Statements of Operations relating to commodity swaps are (in millions):
 
Three Months Ended  
 March 31,
 
2016
 
2015
Change in fair value of derivatives
$
(6.0
)
 
$
(3.7
)
Realized gain on derivatives
5.6

 
3.9

    Gain (loss) on derivative activity
$
(0.4
)
 
$
0.2


The fair value of derivative assets and liabilities relating to commodity swaps are as follows (in millions):
 
March 31,
2016
 
December 31,
2015
Fair value of derivative assets — current
$
10.5

 
$
16.8

Fair value of derivative liabilities — current
(3.2
)
 
(2.9
)
Fair value of derivative liabilities — long term

 
(0.1
)
    Net fair value of derivatives
$
7.3

 
$
13.8


The total estimated fair value of derivative contracts of $7.3 million as of March 31, 2016 has a maturity date of less than one year.
Set forth below is the summarized notional volumes and fair value of all instruments held for price risk management purposes and related physical offsets at March 31, 2016. The remaining term of the contracts extend no later than March 2017.
 
 
 
 
 
 
March 31, 2016
Commodity
 
Instruments
 
Unit
 
Volume
 
Fair Value
 
 
 
 
 
 
(In millions)
NGL (short contracts)
 
Swaps
 
Gallons
 
(42.9
)
 
$
8.8

NGL (long contracts)
 
Swaps
 
Gallons
 
17.1

 
(1.8
)
Natural Gas (short contracts)
 
Swaps
 
MMBtu
 
(6.7
)
 
0.8

Natural Gas (long contracts)
 
Swaps
 
MMBtu
 
2.2

 
(0.3
)
Condensate (short contracts)
 
Swaps
 
MMBbls
 
(0.1
)
 
(0.2
)
Total fair value of derivatives
 
 
 
 
 
 
 
$
7.3


On all transactions where the Partnership is exposed to counterparty risk, the Partnership analyzes the counterparty's financial condition prior to entering into an agreement, establishes limits and monitors the appropriateness of these limits on an ongoing basis. The Partnership primarily deals with two types of counterparties, financial institutions and other energy companies, when entering into financial derivatives on commodities. The Partnership has entered into Master International Swaps and Derivatives Association Agreements (“ISDAs”) that allow for netting of swap contract receivables and payables in the event of default by either party. If the Partnership's counterparties failed to perform under existing swap contracts, the Partnership's maximum loss as of March 31, 2016 of $10.5 million would be reduced to $7.3 million due to the offsetting of gross fair value payables against gross fair value receivables as allowed by the ISDAs.