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All Assets in Service, DCP Midstream Slashes Losses

August 17, 2009
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With all of its previously disrupted assets in service and the expansion of its East Texas gathering system completed, DCP Midstream Partners was able to slash quarterly losses, reporting a net loss of $42.1 million (minus $1.41/share) in 2Q2009, compared with a net loss of $153.1 million (minus $5.67) in 2Q2008.

DCP Midstream's Discovery offshore gathering system in the Gulf of Mexico (GOM) and Wyoming gas gathering systems were both returned to full service by the end March. The GOM system was damaged last year during Hurricane Ike when an 18-inch diameter lateral was severed from its connection to the 30-inch diameter mainline in 250 feet of water. The mainline was repaired and returned to service in January (see NGI, Jan. 26). Volumes on the Douglas gathering system in Wyoming had been curtailed in 2Q2008 following pipeline integrity testing.

North Louisiana volumes were down slightly from the first quarter, while volumes from the new Tahiti production facility served by Discovery increased, CEO Mark Borer said during a conference call with analysts. "Discovery's offshore volumes are back to pre-hurricane levels and have experienced a ramp up with the addition of Tahiti gas, which is currently flowing at approximately 60 MMcf/d," he said.

Work on the Collbran expansion in the Piceance Basin in Colorado continues, with construction of a 24-inch diameter pipeline completed and compression currently being set, Borer said. "While the current gas price environment is resulting in reduced drilling activity, we believe the ready inventory of wells in the area and the completion of our expansion will allow volumes to respond quickly once market conditions improve."

DCP Midstream Partners began the second quarter by completing the acquisition of an additional 25.1% ownership interest in DCP East Texas Holdings LLC from the owner of its general partner, DCP Midstream (see NGI, April 6). Through the transaction -- which was financed through the issuance of partnership units to DCP Midstream -- the partnership now owns 50.1% of the East Texas joint venture, with DCP Midstream owning the remaining interest.

The East Texas joint venture includes a 780 MMcf/d processing complex, approximately 900 miles of gathering pipelines, 25,000 hp of compression and the Carthage Hub, an exchange point for the purchase and sale of residue gas with aggregate delivery capacity of 1.5 Bcf/d.

By the end of the second quarter, DCP Midstream Partners had fully completed its East Texas gathering system expansion, which is now flowing about 30 MMcf/d, Borer said. "These new volumes help offset declines elsewhere in our East Texas footprint...we see opportunities to offset the decline in conventional drilling in East Texas with the Haynesville drilling near our assets."

In May, DCP Midstream LLC announced the startup of new facilities servicing the Anadarko-Woodford Shale resource play development in Oklahoma's Blaine and Canadian counties (see NGI, June 1). The installation of a high-pressure booster with associated gathering and discharge pipelines was the first phase of DCP Midstream's development in central Oklahoma.

The Natural Gas Services segment reported earnings before interest, taxes, depreciation and amortization of $34.5 million in 2Q2009, compared with $38.5 million in 2Q2008, driven primarily by lower commodity prices and lower processing margins and gas throughput volumes at the company's East Texas and North Louisiana assets.

DCP Midstream Partners is managed by DCP Midstream GP, which is wholly owned by DCP Midstream LLC, a joint venture between Spectra Energy and ConocoPhillips.

Last month commodity price exposure dinged the rating on DCP Midstream LLC debt as Fitch Ratings downgraded the company's senior unsecured debt and issuer default rating to "BBB" from "BBB+" (see NGI, July 6). However, the ratings outlook was revised to "stable" from "negative." Last week, Wells Fargo downgraded DCP Midstream Partners from "Outperform" to "Market Perform."

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