SEC Filing | DCP Midstream, LP

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dpm-20210930

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 September 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 October 29, 2021, there were 208,373,672 common units representing limited partnership interests outstanding.

DCP MIDSTREAM, LP

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

TABLE OF CONTENTS



Item		Page
	PART I. FINANCIAL INFORMATION
1	Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020	2
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020	3
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2021 and 2020	4
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020	5
	Condensed Consolidated Statement of Changes in Equity for the Nine Months Ended September 30, 2021	6
	Condensed Consolidated Statement of Changes in Equity for the Nine Months Ended September 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	54
4	Controls and Procedures	57
	PART II. OTHER INFORMATION
1	Legal Proceedings	57
1A	Risk Factors	57
5	Other Information	57
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
LIBOR						London Interbank Offered Rate
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
OPIS						Oil Price Information Service
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 September 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)


	September 30, 2021		December 31, 2020
ASSETS	(millions)
Current assets:
Cash and cash equivalents	$	3	$	52


Accounts receivable:
Trade, net of allowance for credit losses of $2 and $2 million, respectively	1,045		572
Affiliates	484		238
Other	17		10
Inventories	58		38
Unrealized gains on derivative instruments	141		63

Collateral cash deposits	231		14
Other	22		21
Total current assets	2,001		1,008
Property, plant and equipment, net	7,775		7,993

Intangible assets, net	41		44
Investments in unconsolidated affiliates	3,577		3,641
Unrealized gains on derivative instruments	13		16
Operating lease assets	93		85
Other long-term assets	196		170
Total assets	$	13,696	$	12,957
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable:
Trade	$	1,037	$	536
Affiliates	246		161
Other	13		23

Current debt	355		505
Unrealized losses on derivative instruments	321		56
Accrued interest	72		85
Accrued taxes	71		59
Accrued wages and benefits	50		70
Capital spending accrual	3		4

Other	118		122
Total current liabilities	2,286		1,621
Long-term debt	5,325		5,119
Unrealized losses on derivative instruments	48		7
Deferred income taxes	30		30
Operating lease liabilities	81		76
Other long-term liabilities	260		243
Total liabilities	8,030		7,096
Commitments and contingent liabilities (see note 14)
Equity:
Series A preferred limited partners (500,000 preferred units authorized, issued and outstanding, respectively)	499		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 (208,373,672 and 208,351,528 common units authorized, issued and outstanding, respectively)	4,885		5,090
Accumulated other comprehensive loss	(6)		(7)
Total partners’ equity	5,640		5,834
Noncontrolling interests	26		27
Total equity	5,666		5,861
Total liabilities and equity	$	13,696	$	12,957

See accompanying notes to condensed consolidated financial statements.

DCP MIDSTREAM, LP

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(millions, except per unit amounts)
Operating revenues:
Sales of natural gas, NGLs and condensate	$	1,935	$	1,204	$	5,395	$	3,378
Sales of natural gas, NGLs and condensate to affiliates	921		262		2,143		653
Transportation, processing and other	144		109		387		330
Trading and marketing (losses) gains, net	(173)		11		(695)		156

Total operating revenues	2,827		1,586		7,230		4,517
Operating costs and expenses:
Purchases and related costs	2,181		944		5,484		2,539
Purchases and related costs from affiliates	81		32		183		89
Transportation and related costs from affiliates	249		242		720		710
Operating and maintenance expense	168		146		482		447
Depreciation and amortization expense	89		92		273		284
General and administrative expense	63		66		158		173

Asset impairments	—		—		20		746
Other expense (income), net	2		4		(4)		12
Loss on sale of assets, net	—		—		1		—
Restructuring costs	—		—		—		9
Total operating costs and expenses	2,833		1,526		7,317		5,009
Operating (loss) income	(6)		60		(87)		(492)

Earnings from unconsolidated affiliates	134		130		393		331
Interest expense, net	(73)		(77)		(227)		(226)
Income (loss) before income taxes	55		113		79		(387)
Income tax expense	—		(1)		—		(2)
Net income (loss)	55		112		79		(389)
Net income attributable to noncontrolling interests	(1)		(1)		(3)		(3)
Net income (loss) attributable to partners	54		111		76		(392)

Series A preferred limited partners' interest in net income	(9)		(9)		(28)		(28)
Series B preferred limited partners' interest in net income	(4)		(3)		(10)		(9)
Series C preferred limited partners' interest in net income	(3)		(3)		(7)		(7)

Net income (loss) allocable to limited partners	$	38	$	96	$	31	$	(436)
Net income (loss) per limited partner unit — basic and diluted	$	0.18	$	0.46	$	0.15	$	(2.09)

Weighted-average limited partner units outstanding — basic	208.4		208.3		208.4		208.3
Weighted-average limited partner units outstanding — diluted	208.7		208.7		208.6		208.3

See accompanying notes to condensed consolidated financial statements.

DCP MIDSTREAM, LP

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(millions)
Net income (loss)	$	55	$	112	$	79	$	(389)
Other comprehensive income:


Total other comprehensive income	1		—		1		—
Total comprehensive income (loss)	56		112		80		(389)
Total comprehensive income attributable to noncontrolling interests	(1)		(1)		(3)		(3)
Total comprehensive income (loss) attributable to partners	$	55	$	111	$	77	$	(392)

See accompanying notes to condensed consolidated financial statements.

DCP MIDSTREAM, LP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Nine Months Ended September 30,
	2021		2020
	(millions)
OPERATING ACTIVITIES:
Net income (loss)	$	79	$	(389)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization expense	273		284
Earnings from unconsolidated affiliates	(393)		(331)
Distributions from unconsolidated affiliates	462		489
Net unrealized losses (gains) on derivative instruments	296		(66)

Asset impairments	20		746


Other, net	13		27
Change in operating assets and liabilities, which (used) provided cash:
Accounts receivable	(726)		185
Inventories	(20)		13
Accounts payable	576		(230)



Other assets and liabilities	(325)		63
Net cash provided by operating activities	255		791
INVESTING ACTIVITIES:
Capital expenditures	(69)		(125)


Investments in unconsolidated affiliates	(4)		(107)
Distributions from unconsolidated affiliates	—		5
Proceeds from sale of assets	—		2

Net cash used in investing activities	(73)		(225)
FINANCING ACTIVITIES:
Proceeds from debt	3,380		3,958
Payments of debt	(3,332)		(4,137)






Distributions to preferred limited partners	(35)		(34)

Distributions to limited partners and general partner	(244)		(325)
Distributions to noncontrolling interests	(4)		(3)
Debt issuance costs	—		(8)


Other	—		(1)
Net cash used in financing activities	(235)		(550)
Net change in cash, cash equivalents and restricted cash	(53)		16
Cash, cash equivalents and restricted cash, beginning of period	56		1
Cash, cash equivalents and restricted cash, end of period	$	3	$	17

Reconciliation of cash, cash equivalents, and restricted cash:	September 30, 2021		September 30, 2020
Cash and cash equivalents	$	3	$	14
Restricted cash included in other current assets	—		3

Total cash, cash equivalents, and restricted cash	$	3	$	17

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
Net income		9		4		3		38		—		1		55
Other comprehensive income		—		—		—		—		1		—		1
Distributions to unitholders		—		(4)		(3)		(81)		—		—		(88)
Distributions to noncontrolling interests		—		—		—		—		—		(2)		(2)
Equity based compensation		—		—		—		3		—		—		3
Balance, September 30, 2021		$	499	$	156	$	106	$	4,885	$	(6)	$	26	$	5,666

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
Net income	9		3		3		96		—		1		112

Distributions to unitholders	—		(3)		(3)		(82)		—		—		(88)
Distributions to noncontrolling interests	—		—		—		—		—		(1)		(1)
Balance, September 30, 2020	$	499	$	156	$	106	$	5,100	$	(7)	$	28	$	5,882

See accompanying notes to condensed consolidated financial statements.

DCP MIDSTREAM, LP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three and Nine Months Ended September 30, 2021 and 2020

(unaudited)

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 September 30, 2021, DCP Midstream, LLC, together with our general partner, owned approximately 57% of us through limited partner interests.