DCP Midstream Partners, LP (DPM +0.00%) reported second-quarter results after the closing bell on Wednesday. The MLP generated strong growth in distributable cash flow along with a solid distribution coverage ratio after bringing several new growth projects online over the past year. This helped the company more than overcome weaknesses from lower commodity prices.
A look at the numbers
DCP Midstream Partners generated $141 million in distributable cash flow during the quarter, which is up a very robust 52% over the second quarter of last year. That was more than enough to cover the $121 million in distributions the company has declared, leaving it with a solid coverage ratio of 1.17, a vast improvement over the 0.88 in the second quarter of last year. That level was well below the danger zone of 1, meaning the company had been paying out more cash to investors that it was bringing in.
Driving much of this improvement is the company's natural gas services segment. Adjusted segment EBITDA increased to $124 million in the quarter, which is a significant improvement from the $96 million it reported in the second quarter of last year. Fueling this improvement was the completion of the Keathley Canyon project at Discovery, as well as commodity price hedges, which helped to mitigate some of the impact from weaker commodity prices during the quarter.
DCP Midstream Partners also delivered solid growth in its NGL logistics segment, as adjusted segment EBITDA increased by $11 million year over year to $43 million. Driving this growth are increasing volumes on the company's Sand Hills and Front Range NGL pipelines.
Finally, the company's wholesale propane logistics segment reversed a year-ago $2 million loss and delivered an adjusted EBITDA of $4 million in the second quarter. This improvement was largely the result of higher unit margins.
A look at the outlook
DCP Midstream Partners has invested heavily over the past year in growth projects, which are driving incremental growth in the company's distributable cash flow. More growth is on the way, as the company placed its 200 MMcf/d Lucerne 2 plant into service in June. However, under the terms of the fee-based processing agreement, the company didn't start collecting those fees until late July, meaning this growth won't drive results until the third quarter.
The company still has some additional growth in the pipeline, setting a $300 million growth capital budget for 2015. While the company has already invested $225 million through the first half of the year, it still intends to spend the $75 million left on its budget during the second half even though the energy market remains weak. But there's not a lot more visible growth left in the tank beyond what little is planned for the balance of 2015.
Investor takeaway
DCP Midstream Partners turned in a solid second quarter. The company's growth projects drove a significant improvement in the company's cash flow, which really firmed up its distribution. Still, the company doesn't have a whole lot of visible growth left in its pipeline, and second-half sending is much lower than what it was in the first half. Going forward, this is something investors should keep an eye on, because the only way to grow the distribution is to build, or buy, additional assets.
