SEC Filing | DCP Midstream, LP

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dpm-20210630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


ý			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021


¨			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-32678

DCP MIDSTREAM, LP

(Exact name of registrant as specified in its charter)


Delaware						03-0567133
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

370 17th Street, Suite 2500 Denver, Colorado						80202
(Address of principal executive offices)						(Zip Code)

(303) 595-3331

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common units representing limited partnership interests

DCP

New York Stock Exchange

7.875% Series B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units

DCP PRB

New York Stock Exchange

7.95% Series C Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units

DCP PRC

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Emerging growth company

Non-accelerated filer

Smaller reporting company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý

As of July 30, 2021, there were 208,362,572 common units representing limited partnership interests outstanding.

DCP MIDSTREAM, LP

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2021

TABLE OF CONTENTS



Item		Page
	PART I. FINANCIAL INFORMATION
1	Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020	2
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020	3
	Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three and Six Months Ended June 30, 2021 and 2020	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020	5
	Condensed Consolidated Statement of Changes in Equity for the Six Months Ended June 30, 2021	6
	Condensed Consolidated Statement of Changes in Equity for the Six Months Ended June 30, 2020	7
	Notes to the Condensed Consolidated Financial Statements	8
2	Management's Discussion and Analysis of Financial Condition and Results of Operations	34
3	Quantitative and Qualitative Disclosures about Market Risk	55
4	Controls and Procedures	57
	PART II. OTHER INFORMATION
1	Legal Proceedings	58
1A.	Risk Factors	58

6	Exhibits	59
	Signatures	60

GLOSSARY OF TERMS

The following is a list of terms used in the industry and throughout this report:



ASU						accounting standards update
Bbl						barrel
Bbls/d						barrels per day
Bcf						billion cubic feet
Bcf/d						billion cubic feet per day
Btu						British thermal unit, a measurement of energy
Credit Agreement						Credit Agreement governing our $1.4 billion unsecured revolving credit facility, maturing December 9, 2024
Fractionation						the process by which natural gas liquids are separated into individual components
GAAP						generally accepted accounting principles in the United States of America
MBbls						thousand barrels
MBbls/d						thousand barrels per day
MMBtu						million Btus
MMBtu/d						million Btus per day
MMcf						million cubic feet
MMcf/d						million cubic feet per day
NGLs						natural gas liquids
OPEC						Organization of the Petroleum Exporting Countries
OPEC+						OPEC members plus ten other oil producing countries
Railroad Commission						the Railroad Commission of Texas
SEC						U.S. Securities and Exchange Commission
Securitization Facility						$350 million Accounts Receivable Securitization Facility, maturing August 12, 2024
TBtu/d						trillion Btus per day
Throughput						the volume of product transported or passing through a pipeline or other facility

CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

Our reports, filings and other public announcements may from time to time contain statements that do not directly or exclusively relate to historical facts. Such statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You can typically identify forward-looking statements by the use of forward-looking words, such as “may,” “could,” “should,” “intend,” “assume,” “project,” “believe,” “anticipate,” “expect,” “estimate,” “potential,” “plan,” “forecast” and other similar words.

All statements that are not statements of historical facts, including, but not limited to, statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements.

These forward-looking statements reflect our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors, many of which are outside our control. Important factors that could cause actual results to differ materially from the expectations expressed or implied in the forward-looking statements include known and unknown risks. Known risks and uncertainties include, but are not limited to, the risks set forth in Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, and in our Annual Report on Form 10-K for the year ended December 31, 2020, including the following risks and uncertainties:

•the impact resulting from the COVID-19 pandemic and disruption to economies around the world including the oil, gas and NGL industry in which we operate and the resulting adverse impact on our business, liquidity, commodity prices, workforce, third-party and counterparty effects and resulting federal, state and local actions;

•the extent of changes in commodity prices and the demand for our products and services, our ability to effectively limit a portion of the adverse impact of potential changes in commodity prices through derivative financial instruments, and the potential impact of price, and of producers’ access to capital on natural gas drilling, demand for our services, and the volume of NGLs and condensate extracted;

•the demand for crude oil, residue gas and NGL products;

•the level and success of drilling and quality of production volumes around our assets and our ability to connect supplies to our gathering and processing systems, as well as our residue gas and NGL infrastructure;

•new, additions to, and changes in, laws and regulations, particularly with regard to taxes, safety, regulatory and protection of the environment, including, but not limited to, climate change legislation, regulation of over-the-counter derivatives markets and entities, and hydraulic fracturing regulations, or the increased regulation of our industry, including additional local control over such activities, and their impact on producers and customers served by our systems;

•volatility in the price of our common units and preferred units;

•general economic, market and business conditions;

•the amount of natural gas we gather, compress, treat, process, transport, store and sell, or the NGLs we produce, fractionate, transport, store and sell, may be reduced if the pipelines, storage and fractionation facilities to which we deliver the natural gas or NGLs are capacity constrained and cannot, or will not, accept the natural gas or NGLs or we may be required to find alternative markets and arrangements for our natural gas and NGLs;

•our ability to continue the safe and reliable operation of our assets;

•our ability to grow through organic growth projects, or acquisitions, and the successful integration and future performance of such assets;

•our ability to access the debt and equity markets and the resulting cost of capital, which will depend on general market conditions, our financial and operating results, inflation rates, interest rates, our ability to comply with the covenants in our Credit Agreement or other credit facilities, and the indentures governing our notes, as well as our ability to maintain our credit ratings;

•the creditworthiness of our customers and the counterparties to our transactions, including the impact of bankruptcies;

•the amount of collateral we may be required to post from time to time in our transactions;

•industry changes, including consolidations, alternative energy sources, technological advances, infrastructure constraints and changes in competition;

•our ability to construct and start up facilities on budget and in a timely fashion, which is partially dependent on obtaining required construction, environmental and other permits issued by federal, state and municipal governments, or agencies thereof, the availability of specialized contractors and laborers, and the price of and demand for materials;

•our ability to hire, train, and retain qualified personnel and key management to execute our business strategy;

•weather, weather-related conditions and other natural phenomena, including, but not limited to, their potential impact on demand for the commodities we sell and the operation of company-owned and third party-owned infrastructure;

•security threats such as terrorist attacks, and cybersecurity attacks and breaches, against, or otherwise impacting, our facilities and systems; and

•our ability to obtain insurance on commercially reasonable terms, if at all, as well as the adequacy of insurance to cover our losses.

In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. The forward-looking statements in this report speak as of the filing date of this report. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws.

iii

PART I

Item 1. Financial Statements

DCP MIDSTREAM, LP

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)


	June 30, 2021		December 31, 2020
ASSETS	(millions)
Current assets:
Cash and cash equivalents	$	5	$	52


Accounts receivable:
Trade, net of allowance for credit losses of $2 and $2 million, respectively	780		572
Affiliates	385		238
Other	18		10
Inventories	52		38
Unrealized gains on derivative instruments	104		63

Collateral cash deposits	152		14
Other	26		21
Total current assets	1,522		1,008
Property, plant and equipment, net	7,837		7,993

Intangible assets, net	42		44
Investments in unconsolidated affiliates	3,601		3,641
Unrealized gains on derivative instruments	10		16
Operating lease assets	88		85
Other long-term assets	200		170
Total assets	$	13,300	$	12,957
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable:
Trade	$	757	$	536
Affiliates	207		161
Other	15		23

Current debt	354		505
Unrealized losses on derivative instruments	194		56
Accrued interest	78		85
Accrued taxes	60		59
Accrued wages and benefits	32		70
Capital spending accrual	4		4

Other	107		122
Total current liabilities	1,808		1,621
Long-term debt	5,388		5,119
Unrealized losses on derivative instruments	40		7
Deferred income taxes	30		30
Operating lease liabilities	78		76
Other long-term liabilities	259		243
Total liabilities	7,603		7,096
Commitments and contingent liabilities (see note 14)
Equity:
Series A preferred limited partners (500,000 preferred units authorized, issued and outstanding, respectively)	490		489
Series B preferred limited partners (6,450,000 preferred units authorized, issued and outstanding, respectively)	156		156
Series C preferred limited partners (4,400,000 preferred units authorized, issued and outstanding, respectively)	106		106

Limited partners (208,362,572 and 208,351,528 common units authorized, issued and outstanding, respectively)	4,925		5,090
Accumulated other comprehensive loss	(7)		(7)
Total partners’ equity	5,670		5,834
Noncontrolling interests	27		27
Total equity	5,697		5,861
Total liabilities and equity	$	13,300	$	12,957

See accompanying notes to condensed consolidated financial statements.

DCP MIDSTREAM, LP

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(millions, except per unit amounts)
Operating revenues:
Sales of natural gas, NGLs and condensate	$	1,446	$	1,003	$	3,460	$	2,174
Sales of natural gas, NGLs and condensate to affiliates	667		169		1,222		391
Transportation, processing and other	125		109		243		221
Trading and marketing (losses) gains, net	(153)		(7)		(522)		145

Total operating revenues	2,085		1,274		4,403		2,931
Operating costs and expenses:
Purchases and related costs	1,540		723		3,303		1,595
Purchases and related costs from affiliates	47		21		102		57
Transportation and related costs from affiliates	252		230		471		468
Operating and maintenance expense	165		148		314		301
Depreciation and amortization expense	93		93		184		192
General and administrative expense	57		51		95		107

Asset impairments	20		—		20		746
Other (income) expense	(6)		5		(6)		8
Loss on sale of assets, net	1		—		1		—
Restructuring costs	—		9		—		9
Total operating costs and expenses	2,169		1,280		4,484		3,483
Operating loss	(84)		(6)		(81)		(552)

Earnings from unconsolidated affiliates	131		125		259		201
Interest expense, net	(77)		(71)		(154)		(149)
(Loss) income before income taxes	(30)		48		24		(500)
Income tax expense	—		—		—		(1)
Net (loss) income	(30)		48		24		(501)
Net income attributable to noncontrolling interests	(1)		(1)		(2)		(2)
Net (loss) income attributable to partners	(31)		47		22		(503)

Series A preferred limited partners' interest in net income	(10)		(10)		(19)		(19)
Series B preferred limited partners' interest in net income	(3)		(3)		(6)		(6)
Series C preferred limited partners' interest in net income	(2)		(2)		(4)		(4)

Net (loss) income allocable to limited partners	$	(46)	$	32	$	(7)	$	(532)
Net (loss) income per limited partner unit — basic and diluted	$	(0.22)	$	0.15	$	(0.03)	$	(2.55)

Weighted-average limited partner units outstanding — basic	208.4		208.3		208.4		208.3
Weighted-average limited partner units outstanding — diluted	208.4		208.7		208.4		208.3

See accompanying notes to condensed consolidated financial statements.

DCP MIDSTREAM, LP

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(millions)
Net (loss) income	$	(30)	$	48	$	24	$	(501)
Other comprehensive income:


Total other comprehensive income	—		—		—		—
Total comprehensive (loss) income	(30)		48		24		(501)
Total comprehensive income attributable to noncontrolling interests	(1)		(1)		(2)		(2)
Total comprehensive (loss) income attributable to partners	$	(31)	$	47	$	22	$	(503)

See accompanying notes to condensed consolidated financial statements.

DCP MIDSTREAM, LP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Six Months Ended June 30,
	2021		2020
	(millions)
OPERATING ACTIVITIES:
Net income (loss)	$	24	$	(501)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization expense	184		192
Earnings from unconsolidated affiliates	(259)		(201)
Distributions from unconsolidated affiliates	299		320
Net unrealized losses (gains) on derivative instruments	189		(77)
Loss on sale of assets, net	1		—
Asset impairments	20		746


Other, net	4		24
Change in operating assets and liabilities, which (used) provided cash:
Accounts receivable	(363)		262
Inventories	(14)		13
Accounts payable	259		(287)



Other assets and liabilities	(276)		32
Net cash provided by operating activities	68		523
INVESTING ACTIVITIES:
Capital expenditures	(41)		(102)


Investments in unconsolidated affiliates	—		(95)
Distributions from unconsolidated affiliates	—		5


Net cash used in investing activities	(41)		(192)
FINANCING ACTIVITIES:
Proceeds from debt	2,608		3,403
Payments of debt	(2,492)		(3,424)






Distributions to preferred limited partners	(28)		(28)

Distributions to limited partners and general partner	(163)		(243)
Distributions to noncontrolling interests	(2)		(2)
Debt issuance costs	—		(6)


Other	—		(5)
Net cash used in financing activities	(77)		(305)
Net change in cash, cash equivalents and restricted cash	(50)		26
Cash, cash equivalents and restricted cash, beginning of period	56		1
Cash, cash equivalents and restricted cash, end of period	$	6	$	27

Reconciliation of cash, cash equivalents, and restricted cash:	June 30, 2021		June 30, 2020
Cash and cash equivalents	$	5	$	12
Restricted cash included in other current assets	1		6
Restricted cash included in other long-term assets	—		9
Total cash, cash equivalents, and restricted cash	$	6	$	27

See accompanying notes to condensed consolidated financial statements.

DCP MIDSTREAM, LP

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(unaudited)


	Partners' Equity
		Series A Preferred Limited Partners		Series B Preferred Limited Partners		Series C Preferred Limited Partners		Limited Partners		Accumulated Other Comprehensive Loss		Noncontrolling Interests		Total Equity
	(millions)
Balance, January 1, 2021		$	489	$	156	$	106	$	5,090	$	(7)	$	27	$	5,861
Net income		9		3		2		39		—		1		54






Distributions to unitholders		—		(3)		(2)		(81)		—		—		(86)
Distributions to noncontrolling interests		—		—		—		—		—		(1)		(1)
Equity based compensation		—		—		—		4		—		—		4

Balance, March 31, 2021		$	498	$	156	$	106	$	5,052	$	(7)	$	27	$	5,832
Net income (loss)		10		3		2		(46)		—		1		(30)

Distributions to unitholders		(18)		(3)		(2)		(82)		—		—		(105)
Distributions to noncontrolling interests		—		—		—		—		—		(1)		(1)
Equity based compensation		—		—		—		1		—		—		1
Balance, June 30, 2021		$	490	$	156	$	106	$	4,925	$	(7)	$	27	$	5,697

See accompanying notes to condensed consolidated financial statements.

DCP MIDSTREAM, LP

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(unaudited)


	Partner's Equity
	Series A Preferred Limited Partners		Series B Preferred Limited Partners		Series C Preferred Limited Partners		Limited Partners		Accumulated Other Comprehensive Loss		Noncontrolling Interests		Total Equity
	(millions)
Balance, January 1, 2020	$	489	$	156	$	106	$	5,861	$	(7)	$	28	$	6,633
Net income (loss)	9		3		2		(564)		—		1		(549)

Distributions to unitholders	—		(3)		(2)		(162)		—		—		(167)


Distributions to noncontrolling interests	—		—		—		—		—		(1)		(1)
Balance, March 31, 2020	$	498	$	156	$	106	$	5,135	$	(7)	$	28	$	5,916
Net income	10		3		2		32		—		1		48


Distributions to unitholders	(18)		(3)		(2)		(81)		—		—		(104)
Distributions to noncontrolling interests	—		—		—		—		—		(1)		(1)
Balance, June 30, 2020	$	490	$	156	$	106	$	5,086	$	(7)	$	28	$	5,859

See accompanying notes to condensed consolidated financial statements.

DCP MIDSTREAM, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2020, 2019 and 2018

1. Description of Business and Basis of Presentation

DCP Midstream, LP, with its consolidated subsidiaries, or “us,” “we,” “our” or the “Partnership” is a Delaware limited partnership formed in 2005 by DCP Midstream, LLC to own, operate, acquire and develop a diversified portfolio of complementary midstream energy assets.

Our Partnership includes our Logistics and Marketing and Gathering and Processing segments. For additional information regarding these segments, see Note 15 - Business Segments.

Our operations and activities are managed by our general partner, DCP Midstream GP, LP, which in turn is managed by its general partner, DCP Midstream GP, LLC, which we refer to as the General Partner, and which is 100% owned by DCP Midstream, LLC. DCP Midstream, LLC and its subsidiaries and affiliates, collectively referred to as DCP Midstream, LLC, is owned 50% by Phillips 66 and 50% by Enbridge Inc. and its affiliates, or Enbridge. DCP Midstream, LLC directs our business operations through its ownership and control of the General Partner. As of June 30, 2021, DCP Midstream, LLC, together with our general partner, owned approximately 57% of us through limited partner interests.

The condensed consolidated financial statements include the accounts of the Partnership and all majority-owned subsidiaries where we have the ability to exercise control. Investments in greater than 20% owned affiliates that are not variable interest entities and where we do not have the ability to exercise control, and investments in less than 20% owned affiliates where we have the ability to exercise significant influence, are accounted for using the equity method.

The condensed consolidated financial statements have been prepared in accordance with GAAP. Conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and notes. Although these estimates are based on management's best available knowledge of current and expected future events, actual results could differ from these estimates, which may be significantly impacted by various factors, including those outside of our control, such as the impact of a sustained deterioration in commodity prices and volumes, which would negatively impact our results of operations, financial condition and cash flows. All intercompany balances and transactions have been eliminated in consolidation.

These unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q have been prepared pursuant to the rules and regulations of the SEC. Accordingly, these condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, that are, in the opinion of management, necessary to present fairly the financial position and results of operations for the respective interim periods. Certain information and note disclosures normally included in our annual financial statements prepared in accordance with GAAP have been condensed or omitted from these interim financial statements pursuant to such rules and regulations, although we believe that the disclosures made are adequate to make the information presented not misleading. Results of operations for the six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. These unaudited condensed consolidated financial statements and other information included in this Quarterly Report on Form 10-Q should be read in conjunction with the 2020 audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020.

2. Revenue Recognition

We disaggregate our revenue from contracts with customers by type of contract for each of our reportable segments, as we believe it best depicts the nature, timing and uncertainty of our revenue and cash flows. The following tables set forth our revenue by those categories:


	Three Months Ended June 30, 2021
	Logistics and Marketing		Gathering and Processing		Eliminations		Total
	(millions)
Sales of natural gas	$	610	$	489	$	(470)	$	629
Sales of NGLs and condensate (a)	1,323		837		(676)		1,484
Transportation, processing and other	13		112		—		125
Trading and marketing gains (losses), net (b)	(29)		(124)		—		(153)
Total operating revenues	$	1,917	$	1,314	$	(1,146)	$	2,085

DCP MIDSTREAM, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three and Six Months Ended June 30, 2021 and 2020

(unaudited)


	Six Months Ended June 30, 2021
	Logistics and Marketing		Gathering and Processing		Eliminations		Total
	(millions)
Sales of natural gas	$	1,730	$	1,117	$	(978)	$	1,869
Sales of NGLs and condensate (a)	2,528		1,547		(1,262)		2,813
Transportation, processing and other	27		216		—		243
Trading and marketing losses, net (b)	(270)		(252)		—		(522)
Total operating revenues	$	4,015	$	2,628	$	(2,240)	$	4,403

(a) Includes $470 million and $884 million for the three and six months ended June 30, 2021, respectively, of revenues from physical sales contracts and buy-sell exchange transactions in our Logistics and Marketing segment. For the three and six months ended June 30, 2021, these revenues are net of $561 million and $951 million, respectively, of buy-sell purchases related to buy-sell revenues of $636 million and $1,080 million, respectively, which are not within the scope of FASB ASU 2014-09 "Revenue from Contractors with Customer" ("Topic 606").

(b) Not within the scope of Topic 606.


	Three Months Ended June 30, 2020
	Logistics and Marketing		Gathering and Processing		Eliminations		Total
	(millions)
Sales of natural gas	$	355	$	271	$	(244)	$	382
Sales of NGLs and condensate (a)	758		282		(250)		790
Transportation, processing and other	11		98		—		109
Trading and marketing gains (losses), net (b)	26		(33)