DCP Midstream Partners' CEO Discusses Q2 2012 Results - Earnings Call Transcript

DCP Midstream Partners, LP (DPM)

Q2 2012 Earnings Conference Call

August 8, 2012 9:00 am ET

Executives

Jonni Anwar – Director of Investor Relations

Mark A. Borer – President, Chief Executive Officer and Director

Rose M. Robeson – Chief Financial Officer and Senior Vice President

Analysts

Gabriel Moreen – Bank of America/Merrill Lynch

Elvira Scotto – RBC Capital Markets

Brett Reilly – Credit Suisse

Michael Blum – Wells Fargo Securities, Llc

Stanley Ross Payne – Wells Fargo Securities, Llc

Becca Followill – U.S. Capital Advisors LLC

Bernard Colson – Global Hunter

Presentation

Operator

Good morning and welcome to the DCP Midstream Partners Second Quarter 2012 Earnings Call and Webcast. All participants will be in listen-only-mode. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Mr. Jonni Anwar of Investor Relations. Please go ahead.

Jonni Anwar

Thank you, Denise. Good morning and welcome to the DCP Midstream Partners second quarter 2012 earnings release conference call. As always, we want to thank you for your interest in the Partnership. Today, you will hear from Mark Borer, President and CEO; and Rose Robeson, Senior Vice President and CFO. This call is being webcast and the slides used for today's call are available on our website at www.dcppartners.com.

As a reminder, our discussions today may contain forward-looking statements. Actual results may differ due to certain risk factors that affect our business. Please review the second slide in the deck that describes our use of forward-looking statements and lists some of the risk factors that may affect actual results. For a complete listing of those risk factors, please review our most recent Form 10-Ks and Form 10-Qs, as filed with the SEC.

During our discussion, we'll use various non-GAAP measures, which are reconciled to the nearest GAAP measures in schedules provided on our website. We ask that you review that information as well.

Also with the closing in March 2012, the acquisition of the remaining two-thirds interest in DCP Southeast Texas Holdings GP or Southeast Texas from DCP Midstream LLC and in accordance with accounting treatment for entities under current control, our results include the historical results of Southeast Texas for all periods presented. For comparison purposes, we have also included our 2011 historical results as reported in 2011 prior to the transaction, which will be the emphasis of our discussion today.

And now, I will turn it over to Mark Borer. Mark?

Mark A. Borer

Thanks, Jonni. Good morning everyone and thanks for joining us today for a discussion of our second quarter results. As you saw in our press release last evening, we reported second quarter results which were in line with our 2012 DCF guidance, excluding a non-cash lower cost or market inventory adjustment in our wholesale propane business.

We raised our distribution again this quarter, representing a 1.5% sequential quarterly increase, in line with our forecast of 6% to 8% distribution growth in 2012. This distribution increase reflects our confidence in the future cash flows from our visible growth despite the recent weakness in the NGL market. Our distribution coverage ratio for the trailing 12 months is approximately 1.0 times adjusted for the timing of the actual distributions paid. Although this coverage is a little lower than our target range of 1.1 to 1.2, this ratio includes the non-cash lower cost or market inventory adjustment and reflects the financing lead time impact of ongoing organic growth projects, such as Eagle Plant and Keathley Canyon.

We continue to execute on our growth objectives with an eye toward increasing our asset and business diversity as well as our fee-based margins. To this end, we completed a previously announced dropdown by our general partner of the interest in the Mont Belvieu fractionators as well as a smaller but strategic acquisition of the Crossroads system in East Texas from Penn Virginia, which I'll discuss a little later.

Both transactions are predominantly fee-based and immediately accretive. We are well-positioned to continue to grow distributable cash flow based on our previously announced organic growth projects as well as our targeted dropdown of Sand Hills and Southern Hills in the 2013 and 2014 timeframe. In summary, we had a solid quarter and we continue to execute on our growth strategy with emphasis on co-investing with our general partners.

Let me now turn to Slide 4 to provide a brief operational and key growth project updates. Our Natural Gas Services segment generates margin from a mix of fee and commodity-based businesses with our commodity positions substantially hedged. Despite recent weakness in NGL prices, we have continued to see strong drilling in the liquids-rich areas.

As a reminder, our dry gas exposure is relatively limited and while we are in dry gas basin, we generally have contract structure that mitigates volume exposure such as the substantial ship-or-pay commitments in the Piceance Basin.

This segment continues to experience substantial growth with our late first quarter dropdown of the remaining two-third interest in our Southeast Texas business, the ongoing construction of our Eagle Ford processing plants targeted to go in service later this year and our July Crossroads system acquisition in East Texas. And finally our Keathley Canyon organic growth project at Discovery is well underway with the target in-service date in mid-2014.

Our NGL Logistics segment provides broad exposure to the NGL value chain with assets that are well-positioned in strong growing markets such as the Eagle Ford and DJ Basin. We are pleased with the significant growth and scale and scope of this predominately fee-based business over a short period of time including our recently announced 10% interest in Texas Express and the July $200 million dropdown of the Mont Belvieu fractionators.

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