DCP Midstream, LP Reports Strong First Quarter Results and Extensive Multi-Year Growth Portfolio
HIGHLIGHTS
- Reported net income attributable to partners of
$62 million for the first quarter of 2018, or$0.08 per basic and diluted limited partner unit. - Generated distributable cash flow of
$171 million for the first quarter of 2018, resulting in a distribution coverage ratio of 1.10 times. - Reported adjusted EBITDA of
$268 million for the first quarter of 2018. - Continued record
DJ Basin wellhead volumes in the first quarter of 2018. - Increasing processing and bypass capacity in the
DJ Basin by 1.5 Bcf/d with the addition of Plant 12, and the acceleration of Mewbourn 3 and expansion of O'Connor 2. - Adding up to 220 thousand barrels per day (MBbls/d) of NGL takeaway in the
DJ Basin through the Southern Hills extension via the White Cliffs pipeline, and theFront Range and Texas Express expansions. - Record Sand Hills throughput volumes ramping quickly with the completion of the Sand Hills expansion to 400 MBbls/d by the end of the first quarter of 2018, 35 MBbls/d higher than previously expected. The additional 85 MBbls/d expansion to 485 MBbls/d is scheduled to be in service by the end of 2018.
FIRST QUARTER 2018 SUMMARY FINANCIAL RESULTS
Three Months Ended |
||||||
March 31, |
||||||
2018 | 2017 | |||||
(Unaudited) |
||||||
(Millions, except per unit amounts) |
||||||
Net income attributable to partners | $ | 62 | $ | 101 | ||
Net income per limited partner unit - basic and diluted | $ | 0.08 | $ | 0.41 | ||
Adjusted EBITDA(1) | $ | 268 | $ | 245 | ||
Distributable cash flow(1) | $ | 171 | $ | 161 |
(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 measure under “Reconciliation of Non-GAAP Financial Measures” in schedules at the end of this press release.
CEO'S PERSPECTIVE
“Our strong Q1 results demonstrate the success of our diverse portfolio and our team’s dedicated focus on innovation, cost savings, and growth,” said
GROWTH UPDATE
DJ Basin Growth Projects
- Adding up to 1.5 Bcf/d capacity, with 500 MMcf/d coming online over the next twelve months.
-- Announcing further acceleration of the 200 MMcf/d Mewbourn 3 plant to August 2018.
-- Announcing acceleration of the O'Connor 2 plant to the second quarter of 2019 and the 50 percent capacity expansion to 300 MMcf/d with up to 100 MMcf/d of bypass.
-- Announcing Plant 12 adding up to 1.0 Bcf/d including bypass. The plant is expected to be placed into service in phases with the initial in-service in 2020. - Extending the Southern Hills pipeline into the
DJ Basin via 10-year agreements for up to 50 MBbls/d transport on the White Cliffs NGL pipeline. The initial capacity out of theDJ Basin is expected to be 90 MBbls/d, expandable to 120 MBbls/d with an anticipated fourth quarter of 2019 completion. - Expanding Front Range 100 MBbls/d and Texas Express 90 MBbls/d, adding NGL takeaway from the
DJ Basin . Both expansions are expected to go into service in the second quarter of 2019. DCP owns 33% ofFront Range and 10% of Texas Express.
Permian Growth Projects
Sand Hills
- Completed the Sand Hills NGL pipeline expansion to 365 MBbls/d in the first quarter of 2018. Capacity was further increased to approximately 400 MBbls/d by the end of the first quarter of 2018 through innovation and operational optimization with no additional capital. Capacity is expected to increase 25 MBbls/d to 425 MBbls/d by the end of the third quarter of 2018 and then ramp up to 485 MBbls/d by the end of 2018.
Gulf Coast Express
- The approximately 2.0 Bcf/d Gulf Coast Express (GCX) pipeline is close to fully subscribed and is expected to be placed in-service in the fourth quarter of 2019. We hold a 25% interest in the GCX natural gas takeaway pipeline.
DISTRIBUTIONS AND IDR GIVEBACK
On April 24, 2018, DCP announced a quarterly common unit distribution of
Also on
DCP generated distributable cash flow of
Phillips 66 and
Under the terms of DCP'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. If no determination is made by the general partner, the quarterly IDR giveback will be
FIRST QUARTER 2018 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
Logistics and Marketing
Logistics and Marketing Segment net income attributable to partners for the three months ended
Adjusted segment EBITDA increased to
Other
Corporate general and administrative expense for the three months ended
CAPITALIZATION, LIQUIDITY AND FINANCING
Debt
As of March 31, 2018, DCP had
Credit Agreement
DCP has a
CAPITAL EXPENDITURES AND INVESTMENTS
During the three months ended March 31, 2018, DCP had expansion capital expenditures and equity investments totaling
COMMODITY DERIVATIVE ACTIVITY
For the three months ended March 31, 2018 and 2017, commodity derivative activity and total revenues included non-cash unrealized losses of
The objective of DCP's commodity risk management program is to protect downside risk in its distributable cash flow. DCP also manages commodity price risk related to its natural gas storage and pipeline assets through its commodity derivative program. The commercial activities related to DCP's natural gas storage and pipeline assets primarily consist of locking in spreads associated with the purchase and sale of gas. DCP 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 DCP'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 DCP's physical commodity sales are realized or when DCP rebalances its portfolio. Non-cash gains or losses associated with the mark-to-market accounting treatment of DCP's commodity derivative instruments do not affect its distributable cash flow.
EARNINGS CALL
The first quarter 2018 DCP earnings presentation is currently available through the Investors section of DCP's website at www.dcpmidstream.com. DCP will host a conference call webcast on
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. DCP'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 DCP may not be comparable to similarly titled measures of other companies because they may not calculate their measures in the same manner.
DCP 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 DCP'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 DCP's management and by external users of its financial statements, such as investors, commercial banks, research analysts and others to assess:
- financial performance of DCP's assets without regard to financing methods, capital structure or historical cost basis;
- DCP'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 DCP's business excluding non-cash commodity derivative gains or losses; and
- in the case of Adjusted EBITDA, the ability of DCP'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.
DCP 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) 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 our ongoing operations for that segment.
DCP defines distributable cash flow as adjusted EBITDA less maintenance capital expenditures, net of reimbursable projects, interest expense, cumulative cash distributions earned by the Series A Preferred Units and certain other items.
Maintenance capital expenditures are cash expenditures made to maintain DCP'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. Income attributable to preferred units represent cash distributions earned by the Series A Preferred Units. Cash distributions to be paid to the holders of the Series A Preferred units, assuming a distribution is declared by DCP's board of directors, are not available to common unit holders. 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. DCP compares the distributable cash flow it generates to the cash distributions it expects to pay to its partners. Using this metric, DCP computes its distribution coverage ratio. Distributable cash flow is used as a supplemental liquidity and performance measure by DCP's management and by external users of its financial statements, such as investors, commercial banks, research analysts and others, to assess DCP'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 DCP's results of operations and financial condition are described in detail in the "Risk Factors" section of DCP's most recently filed annual report and subsequently filed quarterly reports with the
Investors or Analysts:
DCP MIDSTREAM, LP FINANCIAL RESULTS AND SUMMARY FINANCIAL DATA (Unaudited) |
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Three Months Ended | ||||||||
March 31, | ||||||||
2018 | 2017 | |||||||
(Millions, except per unit amounts) | ||||||||
Sales of natural gas, NGLs and condensate | $ | 2,069 | $ | 1,933 | ||||
Transportation, processing and other | 111 | 157 | ||||||
Trading and marketing (losses) gains, net | (41 | ) | 31 | |||||
Total operating revenues | 2,139 | 2,121 | ||||||
Purchases and related costs | (1,769 | ) | (1,687 | ) | ||||
Operating and maintenance expense | (162 | ) | (167 | ) | ||||
Depreciation and amortization expense | (94 | ) | (94 | ) | ||||
General and administrative expense | (59 | ) | (62 | ) | ||||
Other expense | (2 | ) | (10 | ) | ||||
Total operating costs and expenses | (2,086 | ) | (2,020 | ) | ||||
Operating income | 53 | 101 | ||||||
Interest expense, net | (67 | ) | (73 | ) | ||||
Earnings from unconsolidated affiliates | 78 | 74 | ||||||
Income tax expense | (1 | ) | (1 | ) | ||||
Net income attributable to noncontrolling interests | (1 | ) | — | |||||
Net income attributable to partners | 62 | 101 | ||||||
General partner's interest in net income | (41 | ) | (42 | ) | ||||
Series A preferred partner's interest in net income | (9 | ) | — | |||||
Net income allocable to limited partners | $ | 12 | $ | 59 | ||||
Net income per limited partner unit — basic and diluted | $ | 0.08 | $ | 0.41 | ||||
Weighted-average limited partner units outstanding — basic and diluted | 143.3 | 143.3 | ||||||
March 31, | December 31, | |||||
2018 | 2017 | |||||
(Millions) | ||||||
Cash and cash equivalents | $ | 2 | $ | 156 | ||
Other current assets | 1,018 | 1,166 | ||||
Property, plant and equipment, net | 9,040 | 8,983 | ||||
Other long-term assets | 3,618 | 3,573 | ||||
Total assets | $ | 13,678 | $ | 13,878 | ||
Current liabilities | $ | 1,273 | $ | 1,488 | ||
Current portion of long-term debt | 450 | — | ||||
Long-term debt | 4,358 | 4,707 | ||||
Other long-term liabilities | 285 | 245 | ||||
Partners' equity | 7,282 | 7,408 | ||||
Noncontrolling interests | 30 | 30 | ||||
Total liabilities and equity | $ | 13,678 | $ | 13,878 | ||
DCP MIDSTREAM, LP RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Unaudited) |
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Three Months Ended | |||||||
March 31, | |||||||
2018 | 2017 | ||||||
(Millions) | |||||||
Reconciliation of Non-GAAP Financial Measures: | |||||||
Net income attributable to partners | $ | 62 | $ | 101 | |||
Interest expense | 67 | 73 | |||||
Depreciation, amortization and income tax expense, net of noncontrolling interests | 95 | 95 | |||||
Distributions from unconsolidated affiliates, net of earnings | 13 | 2 | |||||
Other non-cash charges | 2 | 10 | |||||
Non-cash commodity derivative mark-to-market | 29 | (36 | ) | ||||
Adjusted EBITDA | $ | 268 | $ | 245 | |||
Interest expense | (67 | ) | (73 | ) | |||
Maintenance capital expenditures, net of noncontrolling interest portion and reimbursable projects | (23 | ) | (15 | ) | |||
Preferred unit distributions *** | (9 | ) | — | ||||
Other, net | 2 | 4 | |||||
Distributable cash flow | $ | 171 | $ | 161 | |||
Net cash provided by operating activities | $ | 122 | $ | 144 | |||
Interest expense | 67 | 73 | |||||
Net changes in operating assets and liabilities | 54 | 66 | |||||
Non-cash commodity derivative mark-to-market | 29 | (36 | ) | ||||
Other, net | (4 | ) | (2 | ) | |||
Adjusted EBITDA | 268 | $ | 245 | ||||
Interest expense | (67 | ) | (73 | ) | |||
Maintenance capital expenditures, net of noncontrolling interest portion and reimbursable projects | (23 | ) | (15 | ) | |||
Preferred unit distributions *** |
(9 | ) | — | ||||
Other, net | 2 | 4 | |||||
Distributable cash flow | $ | 171 | $ | 161 | |||
*** Represents cumulative cash distributions earned by the Series A Preferred Units, assuming distributions are declared by DCP's board of directors.
DCP MIDSTREAM, LP RECONCILIATION OF NON-GAAP FINANCIAL MEASURES SEGMENT FINANCIAL RESULTS AND OPERATING DATA (Unaudited) |
|||||||
Three Months Ended | |||||||
March 31, | |||||||
2018 | 2017 | ||||||
(Millions, except as indicated) | |||||||
Gathering and Processing Segment: | |||||||
Financial results: | |||||||
Segment net income attributable to partners | $ | 113 | $ | 152 | |||
Non-cash commodity derivative mark-to-market | (14 | ) | (31 | ) | |||
Depreciation and amortization expense, net of noncontrolling interest | 84 | 85 | |||||
Distributions from unconsolidated affiliates, net of earnings | 8 | 5 | |||||
Other charges | 3 | — | |||||
Adjusted segment EBITDA | $ | 194 | $ | 211 | |||
Operating and financial data: | |||||||
Natural gas wellhead (MMcf/d) | 4,467 | 4,580 | |||||
NGL gross production (MBpd) | 384 | 352 | |||||
Operating and maintenance expense | $ | 148 | $ | 153 | |||
Logistics and Marketing Segment: | |||||||
Financial results: | |||||||
Segment net income attributable to partners | $ | 79 | $ | 87 | |||
Non-cash commodity derivative mark-to-market | 43 | (5 | ) | ||||
Depreciation and amortization expense | 3 | 4 | |||||
Distributions from unconsolidated affiliates, net of earnings | 5 | (3 | ) | ||||
Other charges | (1 | ) | 9 | ||||
Adjusted segment EBITDA | $ | 129 | $ | 92 | |||
Operating and financial data: | |||||||
NGL pipelines throughput (MBpd) | 519 | 427 | |||||
NGL fractionator throughput (MBbls/d) | 62 | 50 | |||||
Operating and maintenance expense | $ | 11 | $ | 9 |
DCP MIDSTREAM, LP RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Unaudited) |
||||||||
Three Months Ended | ||||||||
March 31, | ||||||||
2018 | 2017 | |||||||
(Millions, except as indicated) | ||||||||
Reconciliation of Non-GAAP Financial Measures: | ||||||||
Distributable cash flow | $ | 171 | $ | 161 | ||||
Distributions declared ** | $ | 155 | $ | 135 | ||||
Distribution coverage ratio - declared | 1.10 | x | 1.19 | x | ||||
Distributable cash flow | $ | 171 | $ | 161 | ||||
Distributions declared without IDR giveback | $ | 155 | $ | 155 | ||||
Distribution coverage ratio - declared without IDR giveback | 1.10 | x | 1.04 | x | ||||
Distributable cash flow | $ | 171 | $ | 161 | ||||
Distributions paid *** | $ | 194 | $ | 121 | ||||
Distribution coverage ratio - paid | 0.88 | x | 1.33 | x | ||||
Quarter Ended June 30, 2017 |
Quarter Ended September 30, 2017 |
Quarter Ended December 31, 2017 |
Quarter Ended March 31, 2018 |
Twelve Months Ended March 31, 2018 |
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(Millions, except as indicated) | |||||||||||||||
Distributable cash flow | $ | 119 | $ | 187 | $ | 176 | $ | 171 | $ | 653 | |||||
Distributions declared ** | $ | 134 | $ | 155 | $ | 194 | $ | 155 | $ | 638 | |||||
Distribution coverage ratio - declared | 0.89x | 1.21x | 0.91x | 1.10x | 1.02x | ||||||||||
Distributable cash flow | $ | 119 | $ | 187 | $ | 176 | $ | 171 | $ | 653 | |||||
Distributions declared without IDR giveback | $ | 154 | $ | 155 | $ | 154 | $ | 155 | $ | 618 | |||||
Distribution coverage ratio - declared without IDR giveback | 0.77x | 1.21x | 1.14x | 1.10x | 1.06x | ||||||||||
Distributable cash flow | $ | 119 | $ | 187 | $ | 176 | $ | 171 | $ | 653 | |||||
Distributions paid *** | $ | 135 | $ | 134 | $ | 155 | $ | 194 | $ | 618 | |||||
Distribution coverage ratio - paid | 0.88x | 1.40x | 1.14x | 0.88x | 1.06x | ||||||||||
** There were no IDR givebacks reflected in distributions declared for the year ended
*** Distributions paid reflect the payment of
DCP MIDSTREAM, LP RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Unaudited) |
|||||||||
Twelve Months Ended | |||||||||
December 31, 2018 | |||||||||
Low | High | ||||||||
Forecast | Forecast | ||||||||
(Millions) | |||||||||
Reconciliation of Non-GAAP Measures: | |||||||||
Forecasted net income attributable to partners | $ | 310 | $ | 390 | |||||
Distributions from unconsolidated affiliates, net of earnings | 60 | 70 | |||||||
Interest expense, net of interest income | 300 | 300 | |||||||
Income taxes | 5 | 5 | |||||||
Depreciation and amortization, net of noncontrolling interests | 390 | 390 | |||||||
Non-cash commodity derivative mark-to-market | (20 | ) | (20 | ) | |||||
Forecasted adjusted EBITDA | 1,045 | 1,135 | |||||||
Interest expense, net of interest income | (300 | ) | (300 | ) | |||||
Maintenance capital expenditures, net of reimbursable projects | (100 | ) | (120 | ) | |||||
Preferred unit distributions *** | (37 | ) | (37 | ) | |||||
Other, net | (8 | ) | (8 | ) | |||||
Forecasted distributable cash flow | $ | 600 | $ | 670 | |||||
*** Represents cumulative cash distributions earned by the Series A Preferred Units, assuming distributions are declared by DCP's board of directors.