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DCP Midstream Partners to Buy Assets of Philips-Spectra Joint Venture

DCP Midstream Partners, January 4, 2017

DCP Midstream, LLC (Midstream), a 50/50 joint venture between Phillips 66 and Spectra Energy (Owners), and DCP Midstream Partners, LP (DPM) have announced that they have signed and closed a transaction combining all of the assets and debt of Midstream with DMP (Transaction), simplifying the corporate structure and creating the largest natural gas liquids (NGL) producer and gas processor in the United States. On January 23, 2017, the combined company will be renamed DCP Midstream, LP and the New York Stock Exchange stock ticker symbol will be changed to “DCP”.

Under terms of the Transaction, Midstream has contributed subsidiaries owning all of its assets to DMP, plus $424 million of cash, in exchange for approximately 31.1 million DMP units ($1.125 billion) and DMP assuming $3.15 billion of Midstream debt, for an estimated transaction multiple of approximately eight times based on current commodity strip prices. The cash proceeds of $424 million contributed to DMP will be used to repay its revolver, fund its growth projects, or prefund repayment of DMP debt maturing in December 2017. The Owners have retained their 50/50 joint ownership of DCP Midstream, LLC, which owns the incentive distribution rights (IDRs) and 38 percent of the outstanding DMP general and limited partner units. The terms of the Transaction were unanimously approved by the Board of Directors of DCP Midstream and DCP Midstream Partners based on the unanimous approval and recommendation of the Conflicts Committee, which is comprised of independent directors.

This transformational transaction provides a platform of premier assets with strong growth opportunities in the key U.S. producing basins at a multiple that paves the way towards future distribution growth,” said Wouter van Kempen, chairman, president and CEO of both DCP Midstream and DCP Midstream Partners. "The transaction benefits both our unitholders and our Owners with a simplified structure and is the logical progression following our successful DCP 2020 strategy execution to date. We’ve added fee-based margins, sold non-core assets, strengthened Midstream’s balance sheet and reset the overall cost structure of the DCP enterprise to make the assets more MLP-friendly."

"Our combined diversified portfolio provides highly accretive bolt-on expansion opportunities starting with the DJ Basin, where we will build a new 200 million-cubic-feet-per-day (MMcf/d) processing plant that is expected to come online in late 2018 with an additional 200 MMcf/d plant in 2019, resulting in a 50 percent increase in DJ Basin capacity. Additionally, we are expanding our Sand Hills NGL pipeline to its full 365 thousand barrels per day (BPD) of capacity by the end of 2017, an increase of 30 percent," added van Kempen. “Our teams have done great work with key producers to create accretive organic growth projects in the DJ and Delaware Basins.

 

Compelling Value Propositions of the Deal

  • Creates largest NGL producer and gas processor in the U.S. The combination creates the largest gathering and processing Master Limited Partnership in the United States with a pro-forma enterprise value of approximately $11 billion.
  • Win-win combination is immediately accretive and provides strong alignment between GP and LP unitholdersThe Transaction is projected to be distributable cash flow (DCF) accretive to DPM unitholders at current strip prices. Expected strong returns from organic growth projects, combined with a sustained improvement in the industry environment, will provide DPM with a path to future distribution growth for both the Owners and LP unitholders.
  • Strong growth platform. The combination of legacy integrated footprints brings together DPM’s existing assets with Midstream’s premier assets in the Delaware and Permian Basins, the DJ Basin and the Midcontinent, as well as an additional one-third interest in both Sand Hills and Southern Hills NGL pipelines. As the largest NGL producer and gas processor, the newly combined DPM has a footprint that creates a strong, long-term platform for organic growth opportunities in the premier basins in the U.S., starting with expansion projects in the DJ Basin and on Sand Hills Pipeline.
  • Strong Owner alignment and support. The Transaction increases Phillips 66 and Spectra Energy’s ownership in DPM to 38 percent allowing owners greater participation in increased earnings from future growth opportunities at the MLP. To support a minimum 1.0 times distribution coverage ratio, the Owners have agreed, if required, to provide IDR givebacks up to $100 million annually through 2019 which provides downside protection for LP unitholders.
  • Enhanced upside potential coupled with fee-based cash flows. The DCP 2020 strategy has reset the combined company with cost reductions, improved asset reliability and increased fee-based earnings. In 2017, 70 percent of the pro-forma margin is either fee-based or hedged, providing downside protection while preserving upside potential in an improving commodity environment.

DPM also announced on Wednesday it would build a new 200 million cubic feet per day (mmcf/d) cryogenic natural gas processing plant to increase its capacity in Colorado's Denver-Julesburg basin by 50 percent to 1.2 billion cubic feet per day to support growing processing needs of producers. The plant is expected to come online in late 2018. The company also plans to expand its natural gas liquids capacity on Sand Hills pipeline by 30 percent to 365,000 barrels per day. The pipeline moves natural gas liquids from the Permian basin and Eagle Ford to Mont Belvieu, Texas.

 

Click here to read the full article from DCP Midstream Partners.


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