DCP Midstream, LP Reports Second Quarter 2017 Results
SUMMARY
- Net income attributable to partners was
$88 million and$189 million for the three and six months ended June 30, 2017, or$0.33 and$0.74 per basic and diluted limited partner unit, respectively. - The Partnership reaffirmed its 2017 forecasted adjusted EBITDA and forecasted distributable cash flow guidance and tightened its outlook to between the low and midpoint of the guidance ranges to reflect the current commodity outlook for the second half of the year.
- Strong July performance, with record volumes in the
DJ Basin , volume growth in the Eagle Ford and NGL pipelines and continued improvement in the Permian, setting the pace for improved second half of 2017. - The Partnership is executing its 2017 and 2018 Sand Hills expansions from 280 thousand barrels per day (MBpd) to 450 MBpd, adding 60 plus percent capacity to Sand Hills by the third quarter 2018.
- The Partnership approved its eleventh plant in the
DJ Basin , the 200 million cubic feet per day (MMcf/d) O'Connor 2 plant, and together with the 200 MMcf/d Mewbourn 3 plant that is under construction, will add 400 MMcf/d of processing capacity, up 45 plus percent, to approximately 1.2 billion cubic feet per day (Bcf/d). - In
June 2017 , the Partnership sold its non-core Douglas system for approximately$129 million and recorded a gain of approximately$34 million . The assets were sold for a double-digit EBITDA multiple and the proceeds will be used to fund the Partnership's strategic lower multiple organic growth projects in its key basins.
SECOND QUARTER 2017 SUMMARY FINANCIAL RESULTS
Three Months Ended | Six Months Ended |
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June 30, | June 30, |
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2017 | 2016 (2) |
2017 |
2016 (2) |
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(Unaudited) | ||||||||||||||
(Millions, except per unit amounts) | ||||||||||||||
Net income (loss) attributable to partners | $ | 88 | $ | (22 | ) | $ | 189 | $ | 43 | |||||
Net income per limited partner unit - basic and diluted | $ | 0.33 | $ | 0.12 | $ | 0.74 | $ | 0.48 | ||||||
Adjusted EBITDA(1) | $ | 216 | $ | 226 | $ | 461 | $ | 533 | ||||||
Distributable cash flow(1) | $ | 119 | $ | ** | $ | 280 | $ | ** |
(1) | This press release includes the following financial measures not presented in accordance with U.S. generally accepted accounting principles, or GAAP: adjusted EBITDA, distributable cash flow, adjusted segment EBITDA, forecasted adjusted EBITDA and forecasted distributable cash flow. Each such non-GAAP financial measure is defined below under “Non-GAAP Financial Information”, and each is reconciled to its most directly comparable GAAP financial measures under “Reconciliation of Non-GAAP Financial Measures” in schedules at the end of this press release. |
(2) | Includes the DCP Midstream Business, which the Partnership acquired in January 2017 (the "Transaction"), retrospectively adjusted. Transfers of net assets between entities under common control are accounted for as if the transactions had occurred at the beginning of the period, and prior years are retrospectively adjusted to furnish comparative information similar to the pooling method. |
** | Distributable cash flow has not been calculated under the pooling method. |
FINANCIAL HIGHLIGHTS
- Adjusted EBITDA was
$216 million and$461 million for the three and six months ended June 30, 2017, respectively. - Distributable cash flow was
$119 million and$280 million for the three and six months ended June 30, 2017, respectively. - Distribution coverage ratio was 0.89 times and 1.04 times for the three and six months ended June 30, 2017, respectively, as adjusted for lower declared incentive distribution (IDR) rights payments to the Partnership's general partner of
$20 million during each of the first and second quarters of 2017. See Distributions and IDR Giveback section for additional details.
CEO'S PERSPECTIVE
“The lower second quarter results were in line with our expectations and we are reaffirming our 2017 guidance. With strong July performance, we are off to an excellent start to the second half of the year," said
ADVANCING THE PARTNERSHIP'S DISCIPLINED GROWTH STRATEGY IN ITS STRONGEST BASINS
Permian Growth Projects
Sand Hills
The following 2017 and 2018 Sand Hills expansions are expected to increase current capacity by 60+ percent to meet growing market demand.
- The 2017 Sand Hills natural gas liquids (NGL) pipeline capacity expansion to 365 MBpd to meet growth in the
Permian Basin is underway and expected to be in service in the fourth quarter of 2017, for an estimated cost of$70 million , net to the Partnership's two-thirds interest. - The 2018 Sand Hills expansion announced in
May 2017 is progressing and is expected to further increase capacity by 85 MBpd to approximately 450 MBpd via partial looping of the pipeline and the addition of new pump stations. This expansion is expected to be in service in the third quarter of 2018, for an estimated cost of $300 million, net to the Partnership's two-thirds interest.
Gulf Coast Express
- The non-binding open season for the proposed
Gulf Coast Express Pipeline Project closed onApril 20, 2017 , with bids exceeding the capacity offered.Kinder Morgan (KMI) and the Partnership continue to work with prospective shippers to obtain firm commitments. The proposed mostly 42-inch pipeline would transport over 1.8 Bcf/d of natural gas approximately 430 miles from the Waha area toAgua Dulce, Texas , providing an outlet for increased natural gas production from thePermian Basin to growing markets along theTexas Gulf Coast . The pipeline is expected to be in service in the second half of 2019, pending final shipper commitments.
DJ Basin Growth Projects
Increasing processing and bypass capacity in the
- The Partnership approved the 200 MMcf/d O'Connor 2 plant, its eleventh plant in the
DJ Basin . The O'Connor 2 plant and associated gathering infrastructure is expected to be in service in 2019 for an estimated cost of$350 million to $400 million . - The Partnership has started construction of the 200 MMcf/d Mewbourn 3 plant and additional compression and gathering infrastructure. The plant and gathering infrastructure are expected to be in service in the fourth quarter of 2018 for an estimated cost of
$395 million . - The Partnership increased capacity in the
DJ Basin by up to 40 MMcf/d in the second quarter of 2017 by placing additional field compression and plant bypass infrastructure in service.
2017 OUTLOOK
The Partnership reaffirmed its 2017 forecasted adjusted EBITDA and distributable cash flow guidance of
DISTRIBUTIONS AND IDR GIVEBACK
On July 24, 2017, the Partnership announced a quarterly distribution of
The Partnership generated distributable cash flow of
As part of the Transaction, Phillips 66 and
Under the terms of the Partnership's amended partnership agreement, the amount of incentive distributions paid to the general partner will be evaluated by the general partner on both a quarterly and annual basis and may be reduced each quarter by an amount determined by the general partner (the "IDR giveback"). If no determination is made by the general partner, the quarterly IDR giveback will be
SECOND QUARTER 2017 OPERATING RESULTS BY BUSINESS SEGMENT
Gathering and Processing
Gathering and Processing Segment net income attributable to partners for the three months ended
Adjusted segment EBITDA decreased to
Earnings from the Partnership's Discovery investment included an
Logistics and Marketing
Logistics and Marketing Segment net income attributable to partners for the three months ended
Adjusted segment EBITDA decreased to
Other
Corporate operating and maintenance and general and administrative expenses for the three months ended
CAPITALIZATION, LIQUIDITY AND FINANCING
At June 30, 2017, the Partnership had
The Partnership has an approximately
During the second quarter of 2017, the Partnership did not issue any equity to the public.
CAPITAL EXPENDITURES AND INVESTMENTS
During the three and six months ended June 30, 2017, the Partnership had expansion capital expenditures and equity investments totaling
COMMODITY DERIVATIVE ACTIVITY
For the three and six months ended June 30, 2017, commodity derivative activity and total revenues included non-cash unrealized gains of
The objective of the Partnership's commodity risk management program is to protect downside risk in its distributable cash flow. The Partnership also manages commodity price risk related to its natural gas storage and pipeline assets through its commodity derivative program. The commercial activities related to the Partnership's natural gas storage and pipeline assets primarily consist of locking in spreads associated with the purchase and sale of gas. 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.
EARNINGS CALL
The Partnership will host a conference call webcast today,
NON-GAAP FINANCIAL INFORMATION
This press release and the accompanying financial schedules include the following non-GAAP financial measures: adjusted EBITDA, distributable cash flow, adjusted segment EBITDA, forecasted adjusted EBITDA and forecasted distributable cash flow. The accompanying schedules provide reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures. The Partnership's non-GAAP financial measures should not be considered in isolation or as an alternative to its financial measures presented in accordance with GAAP, including operating revenues, net income or loss attributable to partners, net cash provided by or used in operating activities or any other measure of liquidity or financial performance presented in accordance with GAAP as a measure of operating performance, liquidity or ability to service debt obligations and make cash distributions to unitholders. The non-GAAP financial measures presented by the Partnership may not be comparable to similarly titled measures of other companies because they may not calculate their measures in the same manner.
The Partnership defines adjusted EBITDA as net income or loss attributable to partners adjusted for (i) distributions from unconsolidated affiliates, net of earnings (ii) depreciation and amortization expense, (iii) net interest expense, (iv) noncontrolling interest in depreciation and income tax expense, (v) unrealized gains and losses from commodity derivatives, (vi) income tax expense or benefit, (vii) impairment expense and (viii) certain other non-cash items. Adjusted EBITDA further excludes items of income or loss that we characterize as unrepresentative of the Partnership's ongoing operations. Management believes these measures provide investors meaningful insight into results from ongoing operations.
The commodity derivative non-cash losses and gains result from the marking to market of certain financial derivatives used by us for risk management purposes that we do not account for under the hedge method of accounting. These non-cash losses or gains may or may not be realized in future periods when the derivative contracts are settled, due to fluctuating commodity prices.
Adjusted EBITDA is used as a supplemental liquidity and performance measure and adjusted segment EBITDA is used as a supplemental performance measure by the Partnership's management and by external users of its financial statements, such as investors, commercial banks, research analysts and others to assess:
- financial performance of the Partnership's assets without regard to financing methods, capital structure or historical cost basis;
- the Partnership's operating performance and return on capital as compared to those of other companies in the midstream energy industry, without regard to financing methods or capital structure;
- viability and performance of acquisitions and capital expenditure projects and the overall rates of return on investment opportunities;
- performance of the Partnership's business excluding non-cash commodity derivative gains or losses; and
- in the case of Adjusted EBITDA, the ability of the Partnership's assets to generate cash sufficient to pay interest costs, support its indebtedness, make cash distributions to its unitholders and general partner, and pay maintenance capital expenditures.
The Partnership defines adjusted segment EBITDA for each segment as segment net income or loss attributable to partners adjusted for (i) distributions from unconsolidated affiliates, net of earnings (ii) depreciation and amortization expense, (iii) noncontrolling interest in depreciation and income tax expense, (iv) unrealized gains and losses from commodity derivatives, (v) impairment expense and (vi) certain other non-cash items for that segment.
The Partnership defines distributable cash flow as adjusted EBITDA less maintenance capital expenditures, interest expense, the impact of minimum volume receipt for throughput commitments and certain other items.
Maintenance capital expenditures are cash expenditures made to maintain the Partnership's cash flows, operating capacity or earnings capacity. These expenditures add on to or improve capital assets owned, including certain system integrity, compliance and safety improvements. Maintenance capital expenditures also include certain well connects, and may include the acquisition or construction of new capital assets. Non-cash mark-to-market of derivative instruments is considered to be non-cash for the purpose of computing distributable cash flow because settlement will not occur until future periods, and will be impacted by future changes in commodity prices and interest rates. The Partnership compares the distributable cash flow it generates to the cash distributions it expects to pay and have paid to its partners. Using this metric, the Partnership computes its distribution coverage ratio. Distributable cash flow is used as a supplemental liquidity and performance measure by the Partnership's management and by external users of its financial statements, such as investors, commercial banks, research analysts and others, to assess the Partnership's ability to make cash distributions to its unitholders and its general partner.
ABOUT
CAUTIONARY STATEMENTS
This press release may contain or incorporate by reference forward-looking statements as defined under the federal securities laws regarding
The key risk factors that may have a direct bearing on the Partnership's results of operations and financial condition are described in detail in the "Risk Factors" section of the Partnership's most recently filed annual report and subsequently filed quarterly reports with the
Investors or Analysts:
DCP MIDSTREAM, LP FINANCIAL RESULTS AND SUMMARY BALANCE SHEET DATA (Unaudited) |
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Three Months Ended | Six Months Ended | ||||||||||||||
June 30, | June 30, | ||||||||||||||
2017 | 2016 (1) |
2017 | 2016 (1) | ||||||||||||
(Millions, except per unit amounts) | |||||||||||||||
Sales of natural gas, NGLs and condensate | $ | 1,772 | $ | 1,491 | $ | 3,705 | $ | 2,785 | |||||||
Transportation, processing and other | 155 | 155 | 312 | 307 | |||||||||||
Trading and marketing gains (losses), net | 22 | (23 | ) | 53 | (5 | ) | |||||||||
Total operating revenues | 1,949 | 1,623 | 4,070 | 3,087 | |||||||||||
Purchases of natural gas and NGLs | (1,557 | ) | (1,294 | ) | (3,244 | ) | (2,429 | ) | |||||||
Operating and maintenance expense | (178 | ) | (166 | ) | (345 | ) | (345 | ) | |||||||
Depreciation and amortization expense | (94 | ) | (95 | ) | (188 | ) | (190 | ) | |||||||
General and administrative expense | (71 | ) | (61 | ) | (133 | ) | (123 | ) | |||||||
Gain (loss) on sale of assets, net | 34 | (6 | ) | 34 | (6 | ) | |||||||||
Restructuring costs | — | (8 | ) | — | (8 | ) | |||||||||
Other (expense) income | (5 | ) | (5 | ) | (15 | ) | 82 | ||||||||
Total operating costs and expenses | (1,871 | ) | (1,635 | ) | (3,891 | ) | (3,019 | ) | |||||||
Operating income (loss) | 78 | (12 | ) | 179 | 68 | ||||||||||
Interest expense, net | (73 | ) | (79 | ) | (146 | ) | (158 | ) | |||||||
Earnings from unconsolidated affiliates | 86 | 73 | 160 | 139 | |||||||||||
Income tax expense | (2 | ) | (3 | ) | (3 | ) | (5 | ) | |||||||
Net income attributable to noncontrolling interests | (1 | ) | (1 | ) | (1 | ) | (1 | ) | |||||||
Net income (loss) attributable to partners | 88 | (22 | ) | 189 | 43 | ||||||||||
Net loss attributable to predecessor operations | — | 67 | — | 74 | |||||||||||
General partner's interest in net income | (41 | ) | (31 | ) | (83 | ) | (62 | ) | |||||||
Net income allocable to limited partners | $ | 47 | $ | 14 | $ | 106 | $ | 55 | |||||||
Net income per limited partner unit — basic and diluted | $ | 0.33 | $ | 0.12 | $ | 0.74 | $ | 0.48 | |||||||
Weighted-average limited partner units outstanding — basic and diluted | 143.3 | 114.7 | 143.3 | 114.7 |
June 30, | December 31, | ||||||
2017 | 2016 (1) | ||||||
(Millions) | |||||||
Cash and cash equivalents | $ | 251 | $ | 1 | |||
Other current assets | 814 | 993 | |||||
Property, plant and equipment, net | 8,950 | 9,069 | |||||
Other long-term assets | 3,555 | 3,548 | |||||
Total assets | $ | 13,570 | $ | 13,611 | |||
Current liabilities | $ | 935 | $ | 1,123 | |||
Current portion of long-term debt | 500 | 500 | |||||
Long-term debt | 4,710 | 4,907 | |||||
Other long-term liabilities | 226 | 228 | |||||
Partners' equity | 7,170 | 6,821 | |||||
Noncontrolling interests | 29 | 32 | |||||
Total liabilities and equity | $ | 13,570 | $ | 13,611 |
(1) | Includes the DCP Midstream Business, which the Partnership acquired in January 2017, retrospectively adjusted. Transfers of net assets between entities under common control are accounted for as if the transactions had occurred at the beginning of the period, and prior years are retrospectively adjusted to furnish comparative information similar to the pooling method. |
DCP MIDSTREAM, LP RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Unaudited) |
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Three Months Ended | Six Months Ended |
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June 30, | June 30, |
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2017 | 2016 (1) | 2017 |
2016 (1) | |||||||||||
(Millions) | ||||||||||||||
Reconciliation of Non-GAAP Financial Measures: | ||||||||||||||
Net income (loss) attributable to partners | $ | 88 | $ | (22 | ) | $ | 189 | $ | 43 | |||||
Interest expense | 73 | 79 | 146 | 158 | ||||||||||
Depreciation, amortization and income tax expense, net of noncontrolling interests | 96 | 98 | 191 | 195 | ||||||||||
Distributions from unconsolidated affiliates, net of earnings | 15 | 16 | 17 | 37 | ||||||||||
Other non-cash charges | 2 | 5 | 12 | 5 | ||||||||||
(Gain) loss on sale of assets | (34 | ) | 6 | (34 | ) | 6 | ||||||||
Non-cash commodity derivative mark-to-market | (24 | ) | 44 | (60 | ) | 89 | ||||||||
Adjusted EBITDA | 216 | $ | 226 | 461 | $ | 533 | ||||||||
Interest expense | (73 | ) | (146 | ) | ||||||||||
Maintenance capital expenditures, net of noncontrolling interest portion and reimbursable projects | (29 | ) | (44 | ) | ||||||||||
Other, net | 5 | 9 | ||||||||||||
Distributable cash flow | $ | 119 | ** | $ | 280 | ** | ||||||||
Net cash provided by operating activities | $ | 216 | $ | 153 | $ | 360 | $ | 304 | ||||||
Interest expense | 73 | 79 | 146 | 158 | ||||||||||
Net changes in operating assets and liabilities | (44 | ) | (50 | ) | 22 | (14 | ) | |||||||
Non-cash commodity derivative mark-to-market | (24 | ) | 44 | (60 | ) | 89 | ||||||||
Other, net | (5 | ) | — | (7 | ) | (4 | ) | |||||||
Adjusted EBITDA | 216 | $ | 226 | 461 | $ | 533 | ||||||||
Interest expense | (73 | ) | (146 | ) | ||||||||||
Maintenance capital expenditures, net of noncontrolling interest portion and reimbursable projects | (29 | ) | (44 | ) | ||||||||||
Other, net | 5 | 9 | ||||||||||||
Distributable cash flow | $ | 119 | ** | $ | 280 | ** |
(1) | Includes the DCP Midstream Business, which the Partnership acquired in January 2017, retrospectively adjusted. Transfers of net assets between entities under common control are accounted for as if the transactions had occurred at the beginning of the period, and prior years are retrospectively adjusted to furnish comparative information similar to the pooling method. |
** | Distributable cash flow has not been calculated under the pooling method. |
DCP MIDSTREAM, LP RECONCILIATION OF NON-GAAP FINANCIAL MEASURES SEGMENT FINANCIAL RESULTS AND OPERATING DATA (Unaudited) |
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Three Months Ended | Six Months Ended |
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June 30, | June 30, |
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2017 | 2016 (1) | 2017 |
2016 (1) |
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(Millions, except as indicated) | (Millions, except as indicated) |
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Gathering and Processing Segment: | |||||||||||||||
Financial results: | |||||||||||||||
Segment net income attributable to partners | $ | 141 | $ | 56 | $ | 293 | $ | 176 | |||||||
Non-cash commodity derivative mark-to-market | (16 | ) | 29 | (47 | ) | 68 | |||||||||
Depreciation and amortization expense, net of noncontrolling interest | 86 | 87 | 171 | 173 | |||||||||||
(Gain) loss on sale of assets, net | (34 | ) | 6 | (34 | ) | 6 | |||||||||
Distributions from unconsolidated affiliates, net of earnings | (1 | ) | 5 | 4 | 13 | ||||||||||
Other charges | 3 | — | 3 | — | |||||||||||
Adjusted segment EBITDA | $ | 179 | $ | 183 | $ | 390 | $ | 436 | |||||||
Operating and financial data: | |||||||||||||||
Natural gas wellhead (MMcf/d) | 4,483 | 5,255 | 4,532 | 5,343 | |||||||||||
NGL gross production (MBpd) | 366 | 415 | 359 | 405 | |||||||||||
Operating and maintenance expense | $ | 162 | $ | 151 | $ | 315 | $ | 312 | |||||||
Logistics and Marketing Segment: | |||||||||||||||
Financial results: | |||||||||||||||
Segment net income attributable to partners | $ | 92 | $ | 76 | $ | 179 | $ | 170 | |||||||
Depreciation and amortization expense | 3 | 4 | 7 | 8 | |||||||||||
Distributions from unconsolidated affiliates, net of earnings | 16 | 11 | 13 | 24 | |||||||||||
Other charges | — | — | 9 | — | |||||||||||
Non-cash commodity derivative mark-to-market | (8 | ) | 15 | (13 | ) | 21 | |||||||||
Adjusted segment EBITDA | $ | 103 | $ | 106 | $ | 195 | $ | 223 | |||||||
Operating and financial data: | |||||||||||||||
NGL pipelines throughput (MBpd) | 451 | 430 | 439 | 415 | |||||||||||
Operating and maintenance expense | $ | 13 | $ | 10 | $ | 22 | $ | 20 |
(1) | Includes the DCP Midstream Business, which the Partnership acquired in January 2017, retrospectively adjusted. Transfers of net assets between entities under common control are accounted for as if the transactions had occurred at the beginning of the period, and prior years are retrospectively adjusted to furnish comparative information similar to the pooling method. |
DCP MIDSTREAM, LP RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Unaudited) |
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Three Months Ended | Six Months Ended |
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June 30, | June 30, |
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2017 | 2017 |
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(Millions, except as indicated) | |||||||||
Reconciliation of Non-GAAP Financial Measures: | |||||||||
Distributable cash flow | $ | 119 | $ | 280 | |||||
Distributions declared ** | $ | 134 | $ | 269 | |||||
Distribution coverage ratio - declared | 0.89 | x | 1.04 | x | |||||
Distributable cash flow | $ | 119 | $ | 280 | |||||
Distributions paid *** | $ | 135 | $ | 256 | |||||
Distribution coverage ratio - paid | 0.88 | x | 1.09 | x |
** | Distributions declared reflect $20 million and $40 million of IDR givebacks for the three and six months ended June 30, 2017, respectively. |
*** | Distributions paid reflect $20 million of IDR givebacks for the three months ended June 30, 2017. |
DCP MIDSTREAM, LP RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Unaudited) |
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Twelve Months Ended | |||||||||||
December 31, 2017 | |||||||||||
Low | High | ||||||||||
Forecast | Forecast | ||||||||||
(Millions) | |||||||||||
Reconciliation of Non-GAAP Measures: | |||||||||||
Forecasted net income attributable to partners | $ | 165 | $ | 324 | |||||||
Distributions from unconsolidated affiliates, net of earnings | 75 | 85 | |||||||||
Interest expense, net of interest income | 288 | 288 | |||||||||
Income taxes | 7 | 7 | |||||||||
Depreciation and amortization, net of noncontrolling interests | 398 | 398 | |||||||||
Non-cash commodity derivative mark-to-market | 7 | 8 | |||||||||
Forecasted adjusted EBITDA | 940 | 1,110 | |||||||||
Interest expense, net of interest income | (288 | ) | (288 | ) | |||||||
Maintenance capital expenditures, net of reimbursable projects | (100 | ) | (145 | ) | |||||||
Income taxes and other | (7 | ) | (7 | ) | |||||||
Forecasted distributable cash flow | $ | 545 | $ | 670 |