SEC Filing | DCP Midstream, LP

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dpm-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


ý			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


¨			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-32678

DCP MIDSTREAM, LP

(Exact name of registrant as specified in its charter)


Delaware						03-0567133
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

6900 E. Layton Ave, Suite 900 Denver, Colorado						80237
(Address of principal executive offices)						(Zip Code)

(303) 595-3331

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

7.95% Series C Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units

DCP PRC

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Emerging growth company

Non-accelerated filer

Smaller reporting company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

As of July 28, 2023, there were 208,677,458 common units representing limited partnership interests outstanding.

DCP MIDSTREAM, LP

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2023

TABLE OF CONTENTS



Item		Page
	PART I. FINANCIAL INFORMATION
1.	Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022	2
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023 and 2022	3
	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2023 and 2022	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022	5
	Condensed Consolidated Statement of Changes in Equity for the Six Months Ended June 30, 2023	6
	Condensed Consolidated Statement of Changes in Equity for the Six Months Ended June 30, 2022	7
	Notes to the Condensed Consolidated Financial Statements	8
2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27
3.	Quantitative and Qualitative Disclosures about Market Risk	47
4.	Controls and Procedures	49
	PART II. OTHER INFORMATION
1.	Legal Proceedings	50
1A	Risk Factors	50

5.	Other Information	50
6.	Exhibits	50
	Signatures	52

GLOSSARY OF TERMS

The following is a list of terms used in the industry and throughout this report:



ASU						accounting standards update
Bbl						barrel
Bbls/d						barrels per day


Btu						British thermal unit, a measurement of energy

Credit Agreement						Credit Agreement governing our Credit Facility
Credit Facility						Our $1.4 billion unsecured revolving credit facility, maturing March 18, 2027

DCP Receivables						DCP Receivables LLC
Fractionation						the process by which natural gas liquids are separated into individual components
GAAP						generally accepted accounting principles in the United States of America


Intercompany Credit Agreement						Intercompany Credit Agreement with Phillips 66

MBbls						thousand barrels
MBbls/d						thousand barrels per day

MMBtu						million Btus
MMBtu/d						million Btus per day
MMcf						million cubic feet
MMcf/d						million cubic feet per day
NGLs						natural gas liquids




SEC						U.S. Securities and Exchange Commission
Securitization Facility						$350 million Accounts Receivable Securitization Facility, maturing August 12, 2024
SOFR						Secured Overnight Financing Rate
TBtu/d						trillion Btus per day
Throughput						the volume of product transported or passing through a pipeline or other facility

CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

Our reports, filings and other public announcements may from time to time contain statements that do not directly or exclusively relate to historical facts. Such statements are “forward-looking statements” and can be identified by the use of forward-looking words, such as “may,” “could,” “should,” “intend,” “assume,” “project,” “believe,” “anticipate,” “expect,” “estimate,” “potential,” “plan,” “forecast” and other similar words.

All statements that are not statements of historical facts, including, but not limited to, statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements.

These forward-looking statements reflect our current intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors, many of which are outside our control. Important factors that could cause actual results to differ materially from the expectations expressed or implied in these forward-looking statements include known and unknown risks. Known risks and uncertainties include, but are not limited to, the risks set forth in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, including the following risks and uncertainties:

•conflicts of interest may exist between our individual Series C preferred unitholders and Phillips 66, which has the authority to conduct, direct and manage the activities of DCP Midstream, LLC associated with the Partnership and our general partner;

•risks related to the disruption of economies around the world including the oil, gas and NGL industry in which we operate and the resulting adverse impact on our business, liquidity, commodity prices, workforce, third-party and counterparty effects and resulting federal, state and local actions;

•the extent of changes in commodity prices and the demand for our products and services, our ability to effectively limit a portion of the adverse impact of potential changes in commodity prices through derivative financial instruments, and the potential impact of price, and of producers’ access to capital on natural gas drilling, demand for our services, and the volume of NGLs and condensate extracted;

•the demand for crude oil, residue gas and NGL products;

•the level and success of drilling and quality of production volumes around our assets and our ability to connect supplies to our gathering and processing systems, as well as our residue gas and NGL infrastructure;

•new, additions to, and changes in, laws and regulations, particularly with regard to taxes, safety, regulatory and protection of the environment, including, but not limited to, climate change legislation, regulation of over-the-counter derivatives markets and entities, and hydraulic fracturing regulations, or the increased regulation of our industry, including additional local control over such activities, and their impact on producers and customers served by our systems;

•other factors beyond our control including the increased cost of labor, contractors, services, supplies and materials due to persistent inflation;

•general economic, market and business conditions;

•the amount of natural gas we gather, compress, treat, process, transport, store and sell, or the NGLs we produce, fractionate, transport, store and sell, may be reduced if the pipelines, storage and fractionation facilities to which we deliver the natural gas or NGLs are capacity constrained and cannot, or will not, accept the natural gas or NGLs or we may be required to find alternative markets and arrangements for our natural gas and NGLs;

•our ability to continue the safe and reliable operation of our assets;

•our ability to grow through organic growth projects, or acquisitions, and the successful integration and future performance of such assets;

•our cost of capital, which will depend on general market conditions, our financial and operating results, inflation rates, interest rates, our ability to comply with the covenants in our Credit Agreement or other credit facilities, and the indentures governing our notes, as well as our ability to maintain our credit ratings;

•the creditworthiness of our customers and the counterparties to our transactions, including the impact of bankruptcies;

•industry changes, including consolidations, alternative energy sources, technological advances, infrastructure constraints and changes in competition;

iii

•our ability to construct and start up facilities on budget and in a timely fashion, which is partially dependent on obtaining required construction, environmental and other permits issued by federal, state and municipal governments, or agencies thereof, the availability of specialized contractors and laborers, and the price of and demand for materials;

•our ability to hire, train, and retain qualified personnel to execute our business strategy;

•the success of our ongoing integration with Phillips 66;

•weather, weather-related conditions and other natural phenomena, including, but not limited to, their potential impact on demand for the commodities we sell and the operation of company-owned and third party-owned infrastructure;

•security threats such as terrorist attacks, and cybersecurity attacks and breaches, against, or otherwise impacting, our facilities and systems; and

•our ability to obtain insurance on commercially reasonable terms, if at all, as well as the adequacy of insurance to cover our losses.

In light of these risks, uncertainties and assumptions, the events described in our forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. The forward-looking statements in this report speak as of the filing date of this report. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws.

PART I

Item 1. Financial Statements

DCP MIDSTREAM, LP

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)


	June 30, 2023		December 31, 2022
ASSETS	(millions)
Current assets:
Cash and cash equivalents	$	5	$	1


Accounts receivable:
Trade, net of allowance for credit losses of $3 and $2 million, respectively	438		995
Affiliates	425		360
Other	2		3
Inventories	41		83
Unrealized gains on derivative instruments	60		140

Collateral cash deposits	3		93
Other	28		27
Total current assets	1,002		1,702
Property, plant and equipment, net	7,733		7,763

Intangible assets, net	32		34
Investments in unconsolidated affiliates	3,416		3,475
Unrealized gains on derivative instruments	17		26
Operating lease assets	109		112
Other long-term assets	183		222
Total assets	$	12,492	$	13,334
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable:
Trade	$	517	$	1,199
Affiliates	253		255
Other	30		29

Current debt	7		506
Unrealized losses on derivative instruments	36		148
Accrued interest	71		78
Accrued taxes	51		58
Accrued wages and benefits	32		72
Capital spending accrual	8		22

Other	139		137
Total current liabilities	1,144		2,504
Long-term debt	4,901		4,357
Long-term debt - related party	100		—
Unrealized losses on derivative instruments	13		35
Deferred income taxes	33		33
Operating lease liabilities	97		95
Other long-term liabilities	221		274
Total liabilities	6,509		7,298
Commitments and contingent liabilities (see note 13)
Equity:

Series B preferred limited partners (0 and 6,450,000 preferred units authorized, issued and outstanding, respectively)	—		156
Series C preferred limited partners (4,400,000 preferred units authorized, issued and outstanding, respectively)	106		106

Limited partners (208,677,458 and 208,396,558 common units authorized, issued and outstanding, respectively)	5,859		5,755
Accumulated other comprehensive loss	(6)		(6)
Total partners’ equity	5,959		6,011
Noncontrolling interests	24		25
Total equity	5,983		6,036
Total liabilities and equity	$	12,492	$	13,334

See accompanying notes to condensed consolidated financial statements.

DCP MIDSTREAM, LP

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(millions, except per unit amounts)
Operating revenues:
Sales of natural gas, NGLs and condensate	$	762	$	2,880	$	2,505	$	5,208
Sales of natural gas, NGLs and condensate to affiliates	911		1,219		1,644		2,346
Transportation, processing and other	148		184		311		339
Trading and marketing gains (losses), net	20		(14)		107		(249)

Total operating revenues	1,841		4,269		4,567		7,644
Operating costs and expenses:
Purchases and related costs	1,112		3,269		2,964		5,988
Purchases and related costs from affiliates	12		100		109		199
Transportation and related costs from affiliates	288		275		567		532
Operating and maintenance expense	229		189		426		341
Depreciation and amortization expense	91		90		181		180
General and administrative expense	68		65		148		120

Asset impairments	—		1		—		1
Other income, net	—		(8)		—		(8)
Loss (gain) on sale of assets, net	3		—		3		(7)
Restructuring costs	16		—		26		—
Total operating costs and expenses	1,819		3,981		4,424		7,346
Operating income	22		288		143		298

Earnings from unconsolidated affiliates	148		168		308		311
Interest expense, net	(75)		(70)		(143)		(141)
Income before income taxes	95		386		308		468
Income tax expense	—		(2)		(1)		(3)
Net income	95		384		307		465
Net income attributable to noncontrolling interests	(1)		(1)		(2)		(2)
Net income attributable to partners	94		383		305		463

Series A preferred limited partners' interest in net income	—		(9)		—		(18)
Series B preferred limited partners' interest in net income	(3)		(3)		(6)		(6)
Series C preferred limited partners' interest in net income	(2)		(3)		(4)		(5)

Redemption of Series B preferred limited partners' units	(5)		—		(5)		—

Net income allocable to limited partners	$	84	$	368	$	290	$	434
Net income per limited partner unit — basic and diluted	$	0.40	$	1.77	$	1.39	$	2.08

Weighted-average limited partner units outstanding — basic	208.7		208.4		208.6		208.4
Weighted-average limited partner units outstanding — diluted	208.7		208.5		208.6		208.6

See accompanying notes to condensed consolidated financial statements.

DCP MIDSTREAM, LP

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(millions)
Net income	$	95	$	384	$	307	$	465
Other comprehensive income:


Total other comprehensive income	—		—		—		—
Total comprehensive income	95		384		307		465
Total comprehensive income attributable to noncontrolling interests	(1)		(1)		(2)		(2)
Total comprehensive income attributable to partners	$	94	$	383	$	305	$	463

See accompanying notes to condensed consolidated financial statements.

DCP MIDSTREAM, LP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Six Months Ended June 30,
	2023		2022
	(millions)
OPERATING ACTIVITIES:
Net income	$	307	$	465
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization expense	181		180
Earnings from unconsolidated affiliates	(308)		(311)
Distributions from unconsolidated affiliates	360		369
Net unrealized (gains) losses on derivative instruments	(47)		75

Asset impairments	—		1
Loss (gain) on sale of assets, net	3		(7)

Other, net	39		14
Change in operating assets and liabilities, which (used) provided cash:
Accounts receivable	492		(624)
Inventories	20		(31)
Accounts payable	(693)		606



Other assets and liabilities	15		(163)
Net cash provided by operating activities	369		574
INVESTING ACTIVITIES:
Capital expenditures	(163)		(60)

Acquisition	—		(16)
Investments in unconsolidated affiliates	(1)		(1)
Distribution from unconsolidated affiliate	9		—
Proceeds from sale of assets	4		16

Net cash used in investing activities	(151)		(61)
FINANCING ACTIVITIES:
Proceeds from debt	2,576		2,690
Payments of debt	(2,441)		(2,998)






Distributions to preferred limited partners	(10)		(29)

Distributions to limited partners and general partner	(179)		(163)
Distributions to noncontrolling interests	(3)		(2)
Redemption of preferred shares	(161)		—
Debt issuance costs	—		(4)



Net cash used in financing activities	(218)		(506)
Net change in cash, cash equivalents and restricted cash	—		7
Cash, cash equivalents and restricted cash, beginning of period	5		1
Cash, cash equivalents and restricted cash, end of period	$	5	$	8

See accompanying notes to condensed consolidated financial statements.

DCP MIDSTREAM, LP

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(unaudited)


	Partner's Equity
	Series B Preferred Limited Partners		Series C Preferred Limited Partners		Limited Partners		Accumulated Other Comprehensive Loss		Noncontrolling Interests		Total Equity
	(millions)
Balance, January 1, 2023	$	156	$	106	$	5,755	$	(6)	$	25	$	6,036
Net income	3		2		206		—		1		212
Distributions to unitholders	(3)		(2)		(90)		—		—		(95)
Distributions to noncontrolling interests	—		—		—		—		(2)		(2)
Equity based compensation	—		—		(3)		—		—		(3)

Balance, March 31, 2023	$	156	$	106	$	5,868	$	(6)	$	24	$	6,148
Net income	3		2		89		—		1		95

Redemption of Series B preferred limited partners' units	(156)		—		(5)		—		—		(161)
Distributions to unitholders	(3)		(2)		(89)		—		—		(94)
Distributions to noncontrolling interests	—		—		—		—		(1)		(1)
Equity based compensation	—		—		(4)		—		—		(4)
Balance, June 30, 2023	$	—	$	106	$	5,859	$	(6)	$	24	$	5,983

See accompanying notes to condensed consolidated financial statements.

DCP MIDSTREAM, LP

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(unaudited)


	Partner's Equity
	Series A Preferred Limited Partners		Series B Preferred Limited Partners		Series C Preferred Limited Partners		Limited Partners		Accumulated Other Comprehensive Loss		Noncontrolling Interests		Total Equity
	(millions)
Balance, January 1, 2022	$	489	$	156	$	106	$	5,106	$	(6)	$	25	$	5,876
Net income	9		3		2		66		—		1		81
Distributions to unitholders	—		(3)		(2)		(81)		—		—		(86)
Distributions to noncontrolling interests	—		—		—		—		—		(1)		(1)
Equity based compensation	—		—		—		1		—		—		1
Balance, March 31, 2022	$	498	$	156	$	106	$	5,092	$	(6)	$	25	$	5,871
Net income	9		3		3		368		—		1		384


Distributions to unitholders	(18)		(3)		(3)		(82)		—		—		(106)
Distributions to noncontrolling interests	—		—		—		—		—		(1)		(1)
Equity based compensation	—		—		—		2		—		—		2
Balance, June 30, 2022	$	489	$	156	$	106	$	5,380	$	(6)	$	25	$	6,150

See accompanying notes to condensed consolidated financial statements.

DCP MIDSTREAM, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three and Six Months Ended June 30, 2023 and 2022

(unaudited)

1. Description of Business and Basis of Presentation

DCP Midstream, LP, with its consolidated subsidiaries, or “us,” “we,” “our” or the “Partnership” is a Delaware limited partnership formed in 2005 by DCP Midstream, LLC to own, operate, acquire and develop a diversified portfolio of complementary midstream energy assets.

Our Partnership includes our Logistics and Marketing and Gathering and Processing segments. For additional information regarding these segments, see Note 15 "Business Segments" in the Notes to the Condensed Consolidated Financial Statements in Item 1. "Financial Statements".

Our operations and activities are managed by our general partner, DCP Midstream GP, LP (“GP LP”), which in turn is managed by its general partner, DCP Midstream GP, LLC, which we refer to as the General Partner, and which is 100% owned by DCP Midstream, LLC. Phillips 66 has the authority to conduct, direct and manage the activities of DCP Midstream, LLC associated with the Partnership and our general partner, and, therefore, effectively controls our business and affairs.

On January 5, 2023, the Partnership, GP LP, the General Partner, Phillips 66, Phillips 66 Project Development Inc., a Delaware corporation and indirect wholly owned subsidiary of Phillips 66 (“PDI”), and Dynamo Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of PDI (“Merger Sub”), entered into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which Merger Sub merged with and into the Partnership, with the Partnership surviving as a Delaware limited partnership (the “Merger”). The Merger was completed on June 15, 2023 in accordance with the terms of the Merger Agreement.

Under the terms of the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each common unit representing a limited partner interest in the Partnership (each, a “Common Unit”) issued and outstanding as of immediately prior to the Effective Time (other than the Sponsor Owned Units, as defined below) (each, a “Public Common Unit”) was converted into the right to receive $41.75 per Public Common Unit in cash, without any interest thereon (the “Merger Consideration”). The Common Units owned by DCP Midstream, LLC and the General Partner (collectively, the “Sponsor Owned Units”) were unaffected by the Merger and remained outstanding immediately following the Merger as Common Units of the Partnership. Following the Merger, the Common Units were delisted from the New York Stock Exchange (“NYSE”) and a Form 15 has been filed to deregister the Common Units under the Securities Exchange Act of 1934, as amended.

As a result of the Merger, Phillips 66’s economic interest in the Partnership increased from 43.3% to approximately 86.8%. Enbridge's economic interest in the Partnership was unchanged, and remains at approximately 13.2%.

The condensed consolidated financial statements include the accounts of the Partnership and all majority-owned subsidiaries where we have the ability to exercise control. Investments in greater than 20% owned affiliates that are not variable interest entities and where we do not have the ability to exercise control, and investments in less than 20% owned affiliates where we have the ability to exercise significant influence, are accounted for using the equity method.

The condensed consolidated financial statements have been prepared in accordance with GAAP. All intercompany balances and transactions have been eliminated in consolidation.

2. Revenue Recognition

We disaggregate our revenue from contracts with customers by type of contract for each of our reportable segments, as we believe it best depicts the nature, timing and uncertainty of our revenue and cash flows. The following tables set forth our revenue by those categories:


	Three Months Ended June 30, 2023
	Logistics and Marketing		Gathering and Processing		Eliminations		Total
	(millions)
Sales of natural gas	$	418	$	343	$	(321)	$	440
Sales of NGLs and condensate (a)	1,106		778		(651)		1,233
Transportation, processing and other	18		130		—		148
Trading and marketing gains (losses), net (b)	19		1		—		20
Total operating revenues	$	1,561	$	1,252	$	(972)	$	1,841

DCP MIDSTREAM, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three and Six Months Ended June 30, 2023 and 2022


	Six Months Ended June 30, 2023
	Logistics and Marketing		Gathering and Processing		Eliminations		Total
	(millions)
Sales of natural gas	$	1,220	$	1,023	$	(990)	$	1,253
Sales of NGLs and condensate (a)	2,634		1,676		(1,414)		2,896
Transportation, processing and other	37		274		—		311
Trading and marketing gains, net (b)	62		45		—		107
Total operating revenues	$	3,953	$	3,018	$	(2,404)	$	4,567

(a) Includes $444 million and $923 million for the three and six months ended June 30, 2023, respectively, of revenues from physical sales contracts and buy-sell exchange transactions in our Logistics and Marketing segment. For the three and six months ended June 30, 2023, these revenues are net of $868 million and $1,593 million, respectively, of buy-sell purchases related to buy-sell revenues of $954 million and $1,751 million, respectively, which are not within the scope of Topic 606.

(b) Not within the scope of Topic 606.


	Three Months Ended June 30, 2022
	Logistics and Marketing		Gathering and Processing		Eliminations		Total
	(millions)
Sales of natural gas	$	1,436	$	1,238	$	(1,169)	$	1,505
Sales of NGLs and condensate (a)	2,333		1,579		(1,318)		2,594
Transportation, processing and other	18		166		—		184
Trading and marketing gains (losses), net (b)	2		(16)		—		(14)
Total operating revenues	$	3,789	$	2,967	$	(2,487)	$	4,269


	Six Months Ended June 30, 2022
	Logistics and Marketing		Gathering and Processing		Eliminations		Total
	(millions)
Sales of natural gas	$	2,499	$	2,120	$	(1,990)	$	2,629
Sales of NGLs and condensate (a)	4,455		2,861		(2,391)		4,925
Transportation, processing and other	37		302		—		339
Trading and marketing losses, net (b)	(39)		(210)		—		(249)
Total operating revenues	$	6,952	$	5,073	$	(4,381)	$	7,644

(a) Includes $708 million and $1,384 million for the three and six months ended June 30, 2022, respectively, of revenues from physical sales contracts and buy-sell exchange transactions in our Logistics and Marketing segment. For the three and six months ended June 30, 2022, these revenues are net of $1,005 million and $1,761 million, respectively, of buy-sell purchases related to buy-sell revenues of $1,089 million and $1,940 million, respectively, which are not within the scope of Topic 606.

(b) Not within the scope of Topic 606.

The revenue expected to be recognized in the future related to performance obligations that are not satisfied is approximately $349 million as of June 30, 2023. Our remaining performance obligations primarily consist of minimum volume commitment fee arrangements and are expected to be recognized through 2031 with a weighted average remaining life of three years as of June 30, 2023. As a practical expedient permitted by Topic 606, this amount excludes variable consideration as well as remaining performance obligations that have original expected durations of one year or less, as applicable. Our remaining performance obligations also exclude estimates of variable rate escalation clauses in our contracts with customers.

DCP MIDSTREAM, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three and Six Months Ended June 30, 2023 and 2022

3. Agreements and Transactions with Affiliates

Phillips 66 Intercompany Credit Agreement

We entered into an Intercompany Credit Agreement with Phillips 66 on June 15, 2023. For more information regarding the terms and conditions of the Intercompany Credit Agreement, see Note 8 "Debt" in the Notes to the Condensed Consolidated Financial Statements in Item 1. "Financial Statements".

DCP Midstream, LLC

Services Agreement and Other General and Administrative Charges

The following table summarizes employee related costs that were charged by DCP Midstream, LLC to the Partnership that are included in the condensed consolidated statements of operations:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(millions)
Employee related costs charged by DCP Midstream, LLC
Operating and maintenance expense	$	46	$	42	$	89	$	82
General and administrative expense	$	29	$	42	$	87	$	75
Restructuring costs	$	16	$	—	$	26	$	—

DCP MIDSTREAM, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three and Six Months Ended June 30, 2023 and 2022

Summary of Transactions with Affiliates

The following table summarizes our transactions with affiliates:


	Three Months Ended June 30,					Six Months Ended June 30,
	2023		2022			2023		2022
	(millions)
Phillips 66 (including its affiliates):
Sales of natural gas, NGLs and condensate to affiliates	$	896	$	1,197	1197	$	1,600	$	2,292
Purchases and related costs from affiliates	$	2	$	65		$	77	$	127
Transportation and related costs from affiliates	$	46	$	47		$	87	$	90
Operating and maintenance and general administrative expenses	$	6	$	4		$	10	$	7
Enbridge (including its affiliates):
Sales of natural gas, NGLs and condensate to affiliates	$	1	$	(2)		$	2	$	(2)
Purchases and related costs from affiliates	$	—	$	—		$	—	$	13
Transportation and related costs from affiliates	$	1	$	1		$	1	$	1
Operating and maintenance and general administrative expenses	$	1	$	—		$	1	$	—
Unconsolidated affiliates:
Sales of natural gas, NGLs and condensate to affiliates	$	14	$	24		$	42	$	56
Transportation, processing, and other to affiliates	$	4	$	3		$	8	$	7
Purchases and related costs from affiliates	$	10	$	35		$	32	$	59
Transportation and related costs from affiliates	$	241	$	227		$	479	$	441

We had balances with affiliates as follows:


	June 30, 2023		December 31, 2022
	(millions)
Phillips 66 (including its affiliates):
Accounts receivable	$	398	$	343
Other assets	$	7	$	1
Accounts payable	$	163	$	167
Accrued wages and benefits	$	32	$	—
Other liabilities	$	28	$	—
Long-term debt	$	100	$	—
Enbridge (including its affiliates):
Accounts receivable	$	—	$	1
Accounts payable	$	—	$	1


Unconsolidated affiliates:
Accounts receivable	$	27	$	16
Accounts payable	$	90	$	87

4. Inventories

Inventories were as follows:


	June 30, 2023		December 31, 2022
	(millions)
Natural gas	$	20	$	47
NGLs	21		36
Total inventories	$	41	$	83

DCP MIDSTREAM, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three and Six Months Ended June 30, 2023 and 2022

We recognize the lower of cost or net realizable value adjustments when the carrying value of our inventories exceeds their net realizable value. These non-cash charges are a component of purchases and related costs in the condensed consolidated statements of operations. We recognized zero and $22 million lower of cost or net realizable value adjustments for the three and six months ended June 30, 2023, respectively. We recognized no lower of cost or net realizable value adjustments for the three and six months ended June 30, 2022.

5. Property, Plant and Equipment

A summary of property, plant and equipment by classification is as follows:


	Depreciable Life	June 30, 2023		December 31, 2022
		(millions)
Gathering and transmission systems	20 — 50 Years	$	7,955	$	7,865
Processing, storage and terminal facilities	35 — 60 Years	5,175		5,138
Other	3 — 30 Years	545		563
Finance lease assets	5 — 35 Years	32		32
Construction work in progress		196		183
Property, plant and equipment		13,903		13,781
Accumulated depreciation		(6,170)		(6,018)
Property, plant and equipment, net		$	7,733	$	7,763

Construction projects with capitalized interest were immaterial during the six months ended June 30, 2023 and 2022.

Depreciation expense was $90 million and $88 million for the three months ended June 30, 2023 and 2022, respectively, and $179 million and $177 million for the six months ended June 30, 2023 and 2022, respectively.

6. Investments in Unconsolidated Affiliates

The following table summarizes our investments in unconsolidated affiliates:


		Carrying Value as of
	Percentage Ownership	June 30, 2023		December 31, 2022
		(millions)
DCP Sand Hills Pipeline, LLC	66.67%	$	1,637	$	1,653
DCP Southern Hills Pipeline, LLC	66.67%	705		713
Gulf Coast Express LLC	25.00%	392		408
Front Range Pipeline LLC	33.33%	187		191
Texas Express Pipeline LLC	10.00%	88		91
Mont Belvieu 1 Fractionator	20.00%	9		7
Discovery Producer Services LLC	40.00%	208		219
Cheyenne Connector, LLC	50.00%	141		143
Mont Belvieu Enterprise Fractionator	12.50%	28		28


Other	Various	21		22
Total investments in unconsolidated affiliates		$	3,416	$	3,475

DCP MIDSTREAM, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three and Six Months Ended June 30, 2023 and 2022

Earnings from investments in unconsolidated affiliates were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(millions)
DCP Sand Hills Pipeline, LLC	$	78	$	104	$	165	$	175
DCP Southern Hills Pipeline, LLC	27		21		52		45
Gulf Coast Express LLC	18		16		35		32
Front Range Pipeline LLC	11		11		22		21
Texas Express Pipeline LLC	5		5		10		10
Mont Belvieu 1 Fractionator	4		3		8		7
Discovery Producer Services LLC	1		3		7		9
Cheyenne Connector, LLC	3		3		6		7
Mont Belvieu Enterprise Fractionator	1		2		2		4

Other	—		—		1		1
Total earnings from unconsolidated affiliates	$	148	$	168	$	308	$	311

The following tables summarize the combined financial information of our investments in unconsolidated affiliates:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(millions)				(millions)
Statements of operations:
Operating revenue	$	541	$	626	$	1,136	$	1,189
Operating expenses	$	214	$	246	$	436	$	463
Net income	$	328	$	380	$	707	$	724

7. Fair Value Measurement

Valuation Hierarchy

Our fair value measurements are grouped into a three-level valuation hierarchy and are categorized in their entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows.

•Level 1 — inputs are unadjusted quoted prices for identical assets or liabilities in active markets.

•Level 2 — inputs include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

•Level 3 — inputs are unobservable and considered significant to the fair value measurement.

A financial instrument’s categorization within the hierarchy is based upon the level of judgment involved in the most significant input in the determination of the instrument’s fair value. Following is a description of the valuation methodologies used as well as the general classification of such instruments pursuant to the hierarchy.

Commodity Derivative Assets and Liabilities

We enter into a variety of derivative financial instruments, which may include exchange traded instruments (such as New York Mercantile Exchange, or NYMEX, crude oil or natural gas futures) or over-the-counter, or OTC, instruments (such as natural gas contracts, crude oil or NGL swaps). The exchange traded instruments are generally executed with a highly rated broker dealer serving as the clearinghouse for individual transactions.

DCP MIDSTREAM, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three and Six Months Ended June 30, 2023 and 2022

Our activities expose us to varying degrees of commodity price risk. To mitigate a portion of this risk and to manage commodity price risk related primarily to owned natural gas storage and pipeline assets, we engage in natural gas asset based trading and marketing, and we may enter into natural gas and crude oil derivatives to lock in a specific margin when market conditions are favorable. A portion of this may be accomplished through the use of exchange traded derivative contracts. Such instruments are generally classified as Level 1 since the value is equal to the quoted market price of the exchange traded instrument as of our balance sheet date, and no adjustments are required. Depending upon market conditions and our strategy we may enter into exchange traded derivative positions with a significant time horizon to maturity. Although such instruments are exchange traded, market prices may only be readily observable for a portion of the duration of the instrument. In order to calculate the fair value of these instruments, readily observable market information is utilized to the extent it is available; however, in the event that readily observable market data is not available, we may interpolate or extrapolate based upon observable data. In instances where we utilize an interpolated or extrapolated value, and it is considered significant to the valuation of the contract as a whole, we would classify the instrument within Level 3.

We also engage in the business of trading energy related products and services, which exposes us to market variables and commodity price risk. We may enter into physical contracts or financial instruments with the objective of realizing a positive margin from the purchase and sale of these commodity-based instruments. We may enter into derivative instruments for NGLs or other energy related products, primarily using the OTC derivative instrument markets, which are not as active and liquid as exchange traded instruments. Market quotes for such contracts may only be available for short dated positions (up to six months), and an active market itself may not exist beyond such time horizon. Contracts entered into with a relatively short time horizon for which prices are readily observable in the OTC market are generally classified within Level 2. Contracts with a longer time horizon, for which we internally generate a forward curve to value such instruments, are generally classified within Level 3. The internally generated curve may utilize a variety of assumptions including, but not limited to, data obtained from third-party pricing services, historical and future expected relationship of NGL prices to crude oil prices, the knowledge of expected supply sources coming online, expected weather trends within certain regions of the United States, and the future expected demand for NGLs.

Each instrument is assigned to a level within the hierarchy at the end of each financial quarter depending upon the extent to which the valuation inputs are observable. Generally, an instrument will move toward a level within the hierarchy that requires a lower degree of judgment as the time to maturity approaches, and as the markets in which the asset trades will likely become more liquid and prices more readily available in the market, thus reducing the need to rely upon our internally developed assumptions. However, the level of a given instrument may change, in either direction, depending upon market conditions and the availability of market observable data.

The following table presents the financial instruments carried at fair value on a recurring basis as of June 30, 2023 and December 31, 2022, by condensed consolidated balance sheet caption and by valuation hierarchy, as described above:


	June 30, 2023								December 31, 2022
	Level 1		Level 2		Level 3		Total Carrying Value		Level 1		Level 2		Level 3		Total Carrying Value
	(millions)
Current assets:
Commodity derivatives	$	1	$	49	$	10	$	60	$	2	$	121	$	17	$	140
Short-term investments (a)	$	—	$	—	$	—	$	—	$	—	$	1	$	—	$	1

Long-term assets:
Commodity derivatives	$	—	$	16	$	1	$	17	$	—	$	23	$	3	$	26
Investments in marketable securities (a)	$	—	$	—	$	—	$	—	$