5. Financial and derivative instruments (continued)
The fair value of natural gas derivative instruments is determined using a market approach. The Corporation obtains quoted market prices from sources such as the New York Mercantile Exchange and the Natural Gas Exchange, independent price publications and over-the-counter broker quotes. The fair value of long-term debt is determined for disclosure purposes only using an income approach. Fair values are estimated using the present value of future cash flows discounted at the market rate of interest for the equivalent Province of Saskatchewan debt instruments.
c. Level 3
Level 3 inputs are unobservable for the particular assets and liabilities as at the reporting date.
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. 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 September 30, 2018 natural gas derivative instruments had the following fair values, notional values, and maturities:
(millions)
2019
2020
2021
2022
2023
Total
Fair value
$
3
$
5
$
3
$
(1)
$
-
$
10
Notional value
(13)
(14)
(9)
-
(1)
(37)
Fair value - increase (decrease) in net income Notional value - estimated undiscounted net cash inflow (outflow)
6. Assets held for sale
As at September 30, 2018, two non-current assets were classified as held for sale within the condensed consolidated statement of financial position. During September 2018, the Corporation announced a definitive agreement was reached to sell its two natural gas liquid extraction plants. The transaction has received all required approvals and remains subject to customary closing conditions. The transaction is effective October 1, 2018.
Assets held for sale are measured at their carrying amount, which is also equal to their fair value less costs to sell. The carrying amount of the two natural gas liquid extraction plants was $31 million as at September 30, 2018.
7. Long-term debt
During the first six months of 2018-19, the Corporation issued $150 million in long-term debt in two increments. Of this, $100 million was issued at a premium of $1 million with an effective interest rate of 3.2% and $50 million was issued at a discount of $2 million with an effective interest rate of 3.1%.
8. Commitments and contingencies
a. Commitments
At period end, the Corporation had $141 million of outstanding contractual commitments for the procurement of goods and services in the future.
The Corporation has entered into commodity contracts for the physical purchase of natural gas that qualify as own- use contracts. As at September 30, 2018 own-use natural gas derivative instruments had the following notional values and maturities for the next five years:
(millions)
2019
2020
2021
2022
2023
Total
Own-use physical natural gas contracts
Notional value
$
(30)
$
(69)
$
(74)
$
(73)
$
(71)
$
(317)
Notional value - estimated undiscounted net cash outflow
24
2018-19 SECOND QUARTER REPORT
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