DCP Midstream Partners Benefits from Dropdowns in 2013, Expects More in 2014, Including Eagle Ford Properties

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Researched by Industrial Info Resources (Sugar Land)--DCP Midstream Partners LP (NYSE:DPM) (Denver, Colorado), a midstream master limited partnership in the natural gas and natural gas liquids (NGL) gathering, transportation and storage markets, reported solid production increases in fourth-quarter and full-year 2013 as natural gas volumes improved. In addition, the Partners completed more than $1 billion in dropdowns from DCP Midstream LLC, and recently announced another $1.15 billion in dropdowns, including significant interests in the Eagle Ford Shale. Net income was reported to be $28 million for the quarter, compared with $70 million in fourth-quarter 2012, and $181 million for full-year 2013, an 8.59% decrease from 2012.

Sales of natural gas, propane, NGLs and condensate totaled $743 million for the quarter, a 33.39% increase from the same period in 2012, and $2.7 billion for the full year, a 9.6% increase from 2012. DCP's Natural Gas Services segment saw stronger volumes in its Eagle Ford and East Texas systems, and at the O'Connor plant, a deep-cut cryogenic plant in the Niobrara Shale. Annual earnings also improved in the NGL Logistics segment, which saw higher throughput in key pipelines and stronger margins at the storage facility in Marysville, Michigan, and the Wholesale Propane Logistics segment, where unit margins increased. Also boosting the latter segment was the export of propane from the terminal in Chesapeake, Virginia, which began in January 2013.

Executives at DCP Midstream Partners announced a $1.15 billion dropdown from DCP Midstream LLC, the owner of DCP Midstream Partners' general partnership. It is the largest dropdown in the company's history.

Among the key components of the dropdown are the remaining 20% interest in the Eagle Ford system, which brings the Partners' ownership interest to 100% (it picked up 47% in 2013) for a total processing capacity of 1.2 billion cubic feet per day; a one-third interest in the 720-mile, 200,000-barrel-per-day (BBL/d) Sand Hills NGL pipeline, which could ramp up to 350,000 BBL/d following the completion of planned pump stations; and a one-third interest in the 800-mile Southern Hills NGL pipeline, which is expected to have a capacity of 175,000 BBL/d following the completion of planned pump stations.

Industrial Info is tracking $1.44 billion in active projects involving DCP Midstream, including a $200 million addition to a helium and NGL production plant in Liberal, Kansas. The project involves constructing Unit 2 and installing supporting equipment, with an inlet capacity of 650 million standard cubic feet per day of NGL and about 150,000 standard cubic feet per day of helium. Azota Limited (Houston, Texas) is serving as the engineering, procurement and construction contractor. The project is expected to be completed in the second quarter.

"We're really pleased to have acquired Sand Hills and Southern Hills in the Partnership," said Bill Waldheim, the president of DCP Midstream Partners, in a conference call. "These pipelines are quality, fee-based assets, with a strong growth profile, both of which ramp up into 2016. To that point, Sand Hills accesses the Eagle Ford Shale, and is further diversifying DCP Midstream Partners' footprint in the rapidly expanding Permian Basin. Our customers now have reliable takeaway and access to the Gulf Coast and the Mont Belvieu markets. "We're also encouraged by our volume ramp-up on Southern Hills, which extends our footprint into the Granite Wash and SCOOP areas of the Mid-Continent, connecting into Mont Belvieu. And business development across both pipelines is incomplete; we're continuing to add laterals and extensions to tie into new supply sources, further ramping up volumes on these pipelines. We've identified more than $200 million of opportunity to connect DCP Midstream and other third-party plants into these pipelines, which are not part of the base case."

As part of the announced dropdown, DCP Midstream Partners will acquire Lucerne 1, a 35 million-cubic-foot-per-day cryogenic natural gas processing plant in the DJ Basin. In addition, the Partners recently began construction on the Lucerne 2 plant, which is slated for 200 million cubic feet per day and is expected to go into service in mid-2015. The two plants will be connected to the Mont Belvieu market by the Front Range Pipeline.

"We are accelerating our dropdowns to DCP Midstream Partners through 2014 above our original $1 billion guidance," Waldheim said. "We are now targeting approximately $1.5 billion in dropdowns from DCP Midstream [LLC]. We are also forecasting about $500 million in organic growth projects to be executed on during the year, for a total drop and growth forecast for about $2 billion." Waldheim said that from 2014 through 2016, DCP Midstream Partners is expected to receive between $3 billion and $5 billion in dropdowns.

For more information, visit Industrial Info's North American Oil and Gas Transmission Project Database.

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