DCP Midstream Slashes Spending Amid Market Woes, Delays Projects in Niobrara, Permian, Eagle Ford

Researched by Industrial Info Resources (Sugar Land, Texas)--DCP Midstream (NYSE:DPM) (Houston, Texas), a 50:50 joint venture between Spectra Energy Corporation (NYSE:SE) (Houston, Texas) and Phillips 66 (NYSE:PSX) (Bartlesville, Oklahoma), has been reducing capacity and selling off non-strategic assets as natural gas prices have remained low and the energy market has been stuck in neutral. The frustrating environment is reflected in delays of high-priced projects; the company's growth capital expenditures totaled roughly $30 million for the first two quarters of 2016, compared with $225 million for the same period in 2015. Industrial Info's project database is tracking about $1.13 billion in active projects involving DCP, most of them focused on the Niobrara Shale in the Rocky Mountains region, or the Eagle Ford Shale and Permian Basin in Texas.

"Consistent with our track record of not being a 'build it and they will come' company, it's essential that we and our producers see sustained higher commodity prices before we expect to pivot towards growth," said Sean O'Brien, chief financial officer, in a quarterly earnings conference call.

Four of the highest-valued DCP projects involve plans for cryogenic natural gas-processing plants in Texas: a $200 million plant in Cotulla; a $120 million plant in Stanton; an $80 million train addition at a plant in Goliad; and an $80 million expansion of a plant in Edna. The Cotulla and Stanton projects are in the early market-analysis phase, and would source gas from the Permian Basin; the Goliad and Edna projects are seeking necessary permits and would source gas from the Eagle Ford Shale. But each of these projects has seen its construction start date pushed back, which is consistent with trends in the industry; in particular, the Stanton project has seen its kickoff date moved back by more than four years.

For more information, see Industrial Info's project reports on the Cotulla, Stanton, Goliad and Edna projects.

DCP's Eagle Ford and East Texas systems reported steep volume declines in the second quarter, both sequentially and quarter-over-quarter, reflecting steeper production cuts and an overall reduction in drilling.

"In our Eagle Ford and East Texas systems, two areas where we have seen volume declines, we acted to optimize and improve our overall plant utilization by idling approximately 320 million-a-day of underutilized plant capacity, also resulting in significant operating and maintenance cost savings," said Wouter van Kempen, the chairman, president, chief executive officer of DCP, in the earnings call.

O'Brien later added: "Historically, we have invested a lot of maintenance capital in the Eagle Ford and East Texas systems. So with our targeted asset rationalization program, the idling of plants in these areas has also contributed to lower maintenance spending."

Similar problems are facing the $450 million Mountain View Cryogenic Natural Gas Processing Plant near La Salle, Colorado. Since the project was announced, the construction kickoff date has been pushed back by roughly three years; the plant would have processed 200 million standard cubic feet per day from the Niobrara Shale. For more information on the project, which remains in the permitting phase, see Industrial Info's project report.

Industrial Info's project database also is tracking $161 million in active maintenance and overhauling projects for DCP.

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