5. Financial and derivative instruments (continued)
Notional values are an approximation of future undiscounted net cash flows. For physical natural gas contracts, the notional value is based on the contract price. For natural gas price swaps, the notional value is the difference between the contract price and the market price. Where contract prices are referenced to an index price that has not yet been fixed, the market price is used to estimate the contract price. As at June 30, 2017 natural gas derivative instruments had the following fair values, notional values, and maturities:
(millions)
2018
2019
2020
2021
2022
Total
Physical natural gas contracts Fair value
$
(17) (47)
$
(8)
$
-
$
- -
$
- -
$
(25) (69)
Notional value
(24)
2
Natural gas price swaps Fair value
(4) (4)
- -
- -
- -
- -
(4) (4)
Notional value
Total Fair value
$
(21)
$
(8)
$
-
$
-
$
-
$
(29)
Notional value
$
(51)
$
(24)
$
2
$
-
$
-
$
(73)
Fair value - increase (decrease) in net income Notional value - estimated undiscounted net cash inflow (outflow)
6. Property, plant and equipment
The Corporation has three cash generating units that are adversely impacted by market conditions, its non-core gas storage operations and a gas processing plant. At June 30, 2017, as a result of a decline in natural gas prices, the Corporation has recorded a cumulative impairment on its storage and gathering, treatment and compression assets of $41 million. The impairments were recognized as the carrying value of the assets exceeded the recoverable amounts of $18 million for its gas storage operations and $8 million for its gas processing plant. The recoverable amounts were the value in use determined using cash flows attributed to probable production, discounted at 6.9% for gas storage operations and 6.8% for its gas processing plant, and adjusted for future market prices. The impairment losses have been recognized within other losses, with $9 million recognized in the current period and $32 million recognized in prior periods. Future natural gas prices are the main source of estimation uncertainty in determining the recoverable amount of the Corporation's assets. As at June 30, 2017, a five per cent increase in future natural gas and natural gas liquid prices would have increased the recoverable amount and reduced the impairment loss by $4 million. In future periods, any increases to future natural gas prices will result in the reversal of previously incurred impairment losses, up to the carrying value of the associated assets.
7. Long-term debt
During 2017-18, the Corporation issued $119 million in long-term debt, in increments of $100 million and $19 million with effective interest rates of 3.2% and 2.9%, respectively. The long-term debt issuance of $100 million was issued at a premium of $2 million.
During the period, the Corporation also repaid $19 million in long-term debt with an effective interest rate of 4.7%.
8. Commitments and contingencies
a. Commitments
At period end, the Corporation had $71 million of outstanding contractual commitments for the procurement of goods and services in the future.
21
2017-18 FIRST QUARTER REPORT
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