How This Refiner Is Seeking Stable Income Through Midstream Assetshttp://www.fool.com/investing/general/2014/06/25/how-this-refiner-is-seeking-stable-income-through.aspx Callum Turcan
June 25, 2014
The rise of fracking is what's on every energy investor's mind, and one refiner is seeking to rake in an extra billion dollars a year off of it by expanding into a different oil and gas segment. Phillips 66 (NYSE: PSX) is guiding to generate ~$1.5 billion a year in EBITDA from its midstream operations by 2017, which would be three times the amount it made in 2013, excluding income from its DCP Midstream operations. Through several growth initiatives, Phillips 66 hopes to reach that lofty goal in just four years.
A partnership with tons of potential
The 50/50 JV is owned by Phillips 66 and Spectra Energy, and has $13 billion worth of assets under its belt. $5.4 billion of those assets are owned by DCP Midstream Partners, which is owned by the JV (22.7%) and public unitholders (77.3%). This ownership structure can be confusing, just know that for all intents and purposes Phillips 66 and Spectra Energy have a sizable stake in DCP Midstream and DCP Midstream Partners' operations.
From 2010 to 2016, DCP Midstream and DCP Midstream Partners seeks to reward all parties involved through an $8 billion capex program that is already under way. By spending $8 billion, DCP Midstream and DCP Midstream Partners will grow its combined processing volume from 5.9 trillion Btu/d to 7.2 trillion Btu/d, NGL production will grow from 369,000 bpd to 525,000 bpd, and the length of its NGL pipeline system will more than double to 3,000 miles from 1,400 miles.
So far DCP Midstream and DCP Midstream Partners have grown their respective asset bases substantially from $8.2 billion and $1.7 billion in 2010, which points toward the efficacy of the growth program.
Since 2010, DCP Midstream Partners' distribution has grown from $109 million to $296 million last year, with management calling for it to grow even further this year to $400 million-$420 million. While the dropdown of $1.15 billion of assets from DCP Midstream to DCP Midstream Partners will aid in its distribution growth, that doesn't translate into more cash flow generating projects for Phillips 66 and Spectra Energy. To keep up the organic growth trajectory, DCP Midstream Partners has two major projects planned over the next two years.
Dominating the DJ Basin
Deep beneath the water
Exporting the end result