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DCP Midstream Partners, LP Earnings: Fees Are the Key

By Matthew DiLallo - May 6, 2015 at 8:25PM

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DCP Midstream Partners, LP’s strong fee-based revenue drives solid growth in distributable cash flow.

Volatile oil and gas prices during the quarter had a deep impact on most energy-related companies. However, there is a group of energy-related companies that have been largely spared the impact of weak commodity prices. These are companies that generate a good portion of their revenue from fee-based assets. One such company is DCP Midstream Partners, LP (DCP 2.41%), which enjoyed a pretty solid first quarter thanks to its fee-based assets.

A look at the numbers
DCP Midstream reported distributable cash flow of $140 million for the first-quarter. That was up from the $122 million in distributable cash flow it produced in last year's first quarter. Driving this growth was the addition of several fee-based assets that the company placed into service over the past year, which more than offset the impact from commodity price volatility.

This growth in distributable cash flow was by fueled by adjusted segment EBITDA growth in two of the company's three segments.


Adjusted Segment EBITDA


Q1 2015

Q1 2014

Natural Gas Services



NGL Logistics



Wholesale Propane Logistics



Source: Data from DCP Midstream Press Release. Note: In millions of dollars.

However, it is worth noting that while the chart shows a year-over-year decrease in adjusted segment EBITDA from DCP Midstream's Natural Gas Services segment that's a bit misleading, as it received a one-time $11 million settlement from a producer in the first quarter of last year. Still, that segment's results were affected by lower commodity prices in the quarter that were partially offset by commodity price hedges and higher volumes and growth from its fee-based plants.

Instead, the bulk of the growth came from DCP's NGL Logistics segment, which was fueled by the contribution of the Sand Hills and Southern Hills Pipelines that were acquired in dropdown transactions from its general partner early last year. The NGL Logistics segment also benefited from increased volumes on the Front Range pipeline.

Finally, the Wholesale Propane Logistics segment also enjoyed strong year-over-year growth, thanks to higher margins and the conversion of one of its terminals to a butane export facility.

Collecting more fees
DCP Midstream's fee-based assets provide the company a very solid foundation, which enabled it to grow its cash flow despite weaker commodity prices. That fee-based asset portfolio continues to grow, and during the quarter the company placed its Discovery joint venture into service. Discovery, which is 60% owned and operated by Williams Companies (WMB -1.18%) and 40% owned by DCP Midstream, is a deepwater gas gathering pipeline system in the Gulf of Mexico. The asset is primarily fee-based and is supported by long-term agreements from producers, which means it will be supplying steady income for DCP Midstream for years to come.

In addition, the company moved forward with two additional fee-based projects that will boost its income over the next year. The first is the Grand Parkway gathering project, which is a 100% fee-based project in the DJ Basin that is expected to be in service by the end of this year. DCP Midstream also entered into the Panola Pipeline Company joint venture with three other partners. The joint venture partners will fund the construction to expand the existing Panola Pipeline and it is expected to be in service and generating fee-based income early next year.

Investor takeaway
DCP Midstream delivered a very solid quarter as it grew its distributable cash flow thanks to its strong portfolio of fee-based assets. That side of its asset portfolio is expected to grow over the next year, as the company is working on the construction of two more fee-based projects. These fee-generating assets are keeping the company on pace to continue to deliver solid distributable cash flow growth, which will lead to additional growth in distributions.

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Stocks Mentioned

The Williams Companies, Inc. Stock Quote
The Williams Companies, Inc.
$30.05 (-1.18%) $0.36
DCP Midstream, LP Stock Quote
DCP Midstream, LP
$28.52 (2.41%) $0.67

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