Context is important when reviewing a company's quarterly results, because it can put results into their proper perspective. Outside factors, such as a volatile operating environment, and inside factors, such as a one-time gain, can really cloud the underlying story. That's the framework investors need to keep in mind when reviewing DCP Midstream Partners (DCP) third-quarter results, which were released after the market closed on Wednesday. Without proper context investors would miss the fact that the company's results were actually rather solid.
DCP Midstream Partners results: The raw numbers
|
Metric |
Q3 2015 Actuals |
Q3 2014 Actuals |
Growth (YOY) |
|---|---|---|---|
|
Adjusted EBITDA |
$167 million |
$149 million |
12.1% |
|
Distributable Cash Flow |
$146 million |
$144 million |
1.4% |
|
Distribution Coverage Ratio |
1.21X |
1.30X |
N/A |
Data source: DCP Midstream Partners, LP.
What happened with DCP Midstream Partners this quarter?
NGL's fueled DCP Midstream Partners growth:
- On the surface it would appear that DCP Midstream grew its Adjusted EBITDA strongly, but that didn't translate into higher distributable cash flow, which is important to MLP investors. That's simply not the case because distributable cash flow in last year's third quarter was inflated by a one-time distribution and proceeds from asset sales. After adjusting for this, distributable cash flow would actually be up 11% year over year.
- One of the drivers of this increase was the company's natural gas services segment, which grew its Adjusted segment EBITDA by 5.5% to $134 million. Fueling this result was growth at its Lucerne 2 plant and the Keathley Canyon project, commodity hedges, and higher Eagle Ford shale volumes.
- The NGL Logistics segment was also strong, delivering 26.3% year over year growth in Adjusted segment EBITDA to $48 million. Driving this growth was the expansion and ramp-up of Sand Hills and Front Range systems.
- The wholesale propane logistics segment also delivered robust growth. Its Adjusted EBITDA surged from $1 million to $6 million after converting its Chesapeake propane terminal to a butane export facility.
- Also of note, the company's General Partner closed an agreement with Phillips 66 (PSX 0.91%) and Spectra Energy (SE). Phillips 66 contributed $1.5 billion in cash and Spectra Energy contributed all of its interests in the Sand Hills and Southern Hills NGL pipelines.
What management had to say
CEO Wouter van Kempen, commenting on that transaction, said:
The transaction DCP Midstream just closed with Phillips 66 and Spectra Energy demonstrates strong owner support, solidifies the DCP enterprise's industry leading position for 2016 and beyond, and reinforces the strength of the Partnership and its General Partner...The Partnership continues to deliver strong results which benefited from the start-up and ramp-up of new fee-based organic projects and the overall diversity of our asset portfolio. We will remain focused on executing our DCP 2020 strategy of proactively managing risk, running reliably and controlling costs.
The downturn in oil and gas prices has had an impact on companies that have direct exposure to those prices, which made it tougher for some to access capital. That's not a problem for DCP or its General Partner because it has two very supportive parents. They showed their support during these tough times by providing cash and cash flowing assets. This puts DCP firmly on solid ground to navigate through the downturn and pursue its strategy.
Looking forward
Even with the volatility of commodity prices, DCP Midstream remains on track to achieve both its adjusted EBITDA and distributable cash flow targets. Further, with the solidification of its general partner, the combined company has the cash and a growing fee-based asset base to weather the current storm.
