Midstream - Pipelines | Quarterly / Earnings Reports | Third Quarter (3Q) Update

DCP Midstream Panola Pipeline Expansion In Service

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   |    Wednesday,November 02,2016

[Summary :  DCP Midstream provided the following update on its Panola pipline. The Panola pipeline expansion was placed into service during the third quarter of 2016.

The Partnership closed the sale of its non-strategic North Louisiana system for $160 million on July 1, 2016. The sale is expected to be neutral to distributable cash flow for 2016. ]

PRESS RELEASE......................

DCP Midstream Partners, LP (NYSE:DPM), or the Partnership, today reported financial results for the three and nine months ended September 30, 2016.

RECENT HIGHLIGHTS

• Net income attributable to partners was $120 million in the third quarter of 2016, or $0.78 per basic and diluted limited partner unit compared to net income attributable to partners of $71 million in the third quarter of 2015, or $0.35 per basic and diluted limited partner unit.
• Distributable cash flow was $124 million in the third quarter of 2016 resulting in a distribution coverage ratio of 1.02 times in the third quarter of 2016 and 1.16 times for the trailing 12 months.
• Adjusted EBITDA was $132 million in the third quarter of 2016 compared to $167 million in the third quarter of 2015.
• The Partnership closed the sale of its non-strategic North Louisiana system for $160 million on July 1, 2016. The sale is expected to be neutral to distributable cash flow for 2016.
• The Panola pipeline expansion was placed into service during the third quarter of 2016.
• Increasing distributable cash flow target range to between $515 million and $525 million and revising forecasted 2016 adjusted EBITDA target range to between $575 million and $585 million.

“This quarter, the partnership delivered significant operating cost savings and growth in fee based assets, which more than offset anticipated volume declines. Our unwavering DCP 2020 strategy execution and operational excellence focus are substantiated by our strong safety and reliability results, lower costs, and increased fee based earnings. Looking forward to 2017, we will continue to have a steadfast focus on creating value for our unitholders, customers and employees, " said Wouter van Kempen, chairman, CEO and president of the Partnership, and of DCP Midstream, the owner of the Partnership's general partner.

DISTRIBUTION AND DISTRIBUTABLE CASH FLOW

On October 27, 2016, the Partnership announced a quarterly distribution of $0.78 per limited partner unit. This distribution remains unchanged from the previous quarter.

The Partnership's distributable cash flow of $124 million for the three months ended September 30, 2016, provided a 1.02 times distribution coverage ratio adjusted for the timing of actual distributions paid during the quarter. The distribution coverage ratio adjusted for the timing of actual distributions paid during the trailing 12 months was 1.16 times.

OPERATING RESULTS BY BUSINESS SEGMENT

Natural Gas Services

Natural Gas Services Segment net income attributable to Partners for the three months ended September 30, 2016 and 2015 was $116 million and $66 million, respectively.

Adjusted segment EBITDA decreased to $100 million for the three months ended September 30, 2016, from $134 million for the three months ended September 30, 2015, reflecting the expiration of certain direct commodity hedges at the end of the first quarter, lower volumes primarily related to our Eagle Ford and East Texas systems and the disposition of our North Louisiana System. These decreases were partially offset by growth on our DJ Basin system related to the ramp up of both the Lucerne 2 plant which commenced operations in June 2015 and Grand Parkway which commenced operations at the beginning of 2016, commercial activities at our natural gas storage asset in Southeast Texas and lower operating costs due to continued cost savings initiatives.

NGL Logistics

NGL Logistics Segment net income attributable to Partners for the three months ended September 30, 2016 and 2015 was $48 million and $46 million, respectively.

Adjusted segment EBITDA increased to $50 million for the three months ended September 30, 2016, from $48 million for the three months ended September 30, 2015, reflecting higher pipeline throughput volumes on Southern Hills and Sand Hills due to growth and increased NGL production from new plants placed into service in 2015 and earnings from Panola pipeline beginning in February 2016, partially offset by higher operating expenses due to maintenance at our NGL storage facility and timing of expenditures.

Wholesale Propane Logistics

Wholesale Propane Logistics Segment net income attributable to Partners was $1 million and $5 million for the three months ended September 30, 2016 and 2015.

Adjusted segment EBITDA decreased to $2 million for the three months ended September 30, 2016, from $6 million for the three months ended September 30, 2015, reflecting decreased unit margins and lower propane sales volumes associated with seasonality and commodity derivative activity.

Corporate and Other

Interest expense for the three months ended September 30, 2016 decreased slightly due to lower borrowings under the Partnership's revolving credit facility. General and administrative expenses for the three months ended September 30, 2016 remained flat per the annual fee under the Partnership's services agreement.

CAPITALIZATION, LIQUIDITY AND FINANCING

At September 30, 2016, the Partnership had $2,254 million of total principal long-term debt outstanding composed of senior notes and $179 million of borrowings outstanding under its $1,250 million revolving credit facility. Total available revolver capacity was $1,070 million, all of which was available for working capital and other general partnership purposes. The Partnership's leverage ratio pursuant to its credit facility for the quarter ended September 30, 2016, was approximately 3.3 times. The effective interest rate on the Partnership's overall debt position, as of September 30, 2016, was 3.7 percent. During the third quarter of 2016, the Partnership did not issue any equity to the public.

CAPITAL EXPENDITURES AND INVESTMENTS

The Partnership is revising its 2016 forecasted maintenance capital expenditure range to between $10 million and $15 million.

During the three months ended September 30, 2016, the Partnership had total expansion capital expenditures and equity investments totaling approximately $15 million and total maintenance capital expenditures totaling $3 million. During the nine months ended September 30, 2016, the Partnership had total expansion capital expenditures and equity investments totaling approximately $45 million and total maintenance capital expenditures totaling $6 million.

COMMODITY DERIVATIVE ACTIVITY

The objective of the Partnership's commodity risk management program is to protect downside risk in its distributable cash flow. The Partnership utilizes mark-to-market accounting treatment for its commodity derivative instruments. Mark-to-market accounting rules require companies to record currently in earnings the difference between their contracted future derivative settlement prices and the forward prices of the underlying commodities at the end of the accounting period. Revaluing the Partnership's commodity derivative instruments based on futures pricing at the end of the period creates assets or liabilities and associated non-cash gains or losses. Realized gains or losses from cash settlement of the derivative contracts occur monthly as the Partnership's physical commodity sales are realized or when the Partnership rebalances its portfolio. Non-cash gains or losses associated with the mark-to-market accounting treatment of the Partnership's commodity derivative instruments do not affect its distributable cash flow.