NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017
(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 Gathering and Processing and Logistics and Marketing segments. For additional information regarding these segments, see Note
16
- 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, 2018
, DCP Midstream, LLC owned approximately
38.1%
of us, including limited partner and general 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 accounting principles generally accepted in the United States of America, or 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 knowledge of current and expected future events, actual results could differ from those estimates. All intercompany balances and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("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 three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending
December 31, 2018
. 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
2017
audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2017.
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
2. New Accounting Pronouncements
Financial Accounting Standards Board, or FASB, Accounting Standards Update, or ASU, 2016-15 “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” or ASU 2016-15
- In August 2016, the FASB issued ASU 2016-15, which amends certain cash flow statement classification guidance. We adopted the ASU on January 1, 2018 and it has not had any impact on our condensed consolidated results of operations, cash flows and financial position.
FASB ASU, 2016-02 “Leases (Topic 842),” or ASU 2016-02
- In February 2016, the FASB issued ASU 2016-02, which requires lessees to recognize a lease liability on a discounted basis and the right of use of a specified asset at the commencement date for all leases. This ASU is effective for interim and annual reporting periods beginning after December 15, 2018, with the option to early adopt for financial statements that have not been issued.
We will adopt Topic 842 on January 1, 2019, and intend to elect the land easement practical expedient. In addition, we intend to elect the package of practical expedients permitted under the transition guidance within the new standard. We are currently in the process of gathering a complete population of our lease arrangements, implementing a software solution, and evaluating the impact of the new standard on our consolidated financial statements. Based on our evaluation to-date and from the perspective as the lessee, our leasing activity primarily consists of transportation agreements, office space, vehicles and equipment. Though the evaluation process is still in progress, we currently anticipate that this new lease guidance will result in changes to the way we recognize, present and disclose our operating leases in our consolidated financial statements, including the recognition of a lease liability and an offsetting right-of-use asset in our consolidated balance sheets for our operating leases (with the exception of short-term leases excluded by practical expedient).
FASB ASU 2014-09 “Revenue from Contracts with Customers (Topic 606),” or ASU 2014-09 and related interpretations and amendments
-
In May 2014, the FASB issued ASU 2014-09, which supersedes the revenue recognition requirements of Accounting Standards Codification Topic 605 “Revenue Recognition.” We adopted this ASU on January 1, 2018 using the modified retrospective method for contracts that were not completed as of the date of adoption. Under this method, the comparative information has not been restated and continues to be reported under the accounting standards in effect for those prior periods. Under the new standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. We recognized the initial cumulative effect of applying this ASU as an adjustment to the opening balance of total partners’ equity.
In accordance with the new revenue standard requirements, the impact of adoption on our consolidated statement of operations was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018
|
|
Nine Months Ended September 30, 2018
|
|
|
As Reported
|
|
Effect of Change
|
|
Presentation Without Adoption of ASC 606
|
|
As Reported
|
|
Effect of Change
|
|
Presentation Without Adoption of ASC 606
|
|
|
(millions)
|
Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of natural gas, NGLs and condensate
|
|
$
|
2,191
|
|
|
$
|
41
|
|
|
$
|
2,232
|
|
|
$
|
5,784
|
|
|
$
|
116
|
|
|
$
|
5,900
|
|
Transportation, processing and other
|
|
$
|
133
|
|
|
$
|
43
|
|
|
$
|
176
|
|
|
$
|
371
|
|
|
$
|
122
|
|
|
$
|
493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases and related costs
|
|
$
|
2,074
|
|
|
$
|
84
|
|
|
$
|
2,158
|
|
|
$
|
5,381
|
|
|
$
|
238
|
|
|
$
|
5,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
82
|
|
|
$
|
—
|
|
|
$
|
82
|
|
|
$
|
207
|
|
|
$
|
—
|
|
|
$
|
207
|
|
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
3. Revenue Recognition
Our operating revenues are primarily derived from the following activities:
|
|
•
|
sales of natural gas, NGLs, and condensate;
|
|
|
•
|
services related to gathering, compressing, treating and processing NGLs and natural gas; and
|
|
|
•
|
services related to transportation and storage of natural gas and NGLs.
|
Sales of natural gas, NGLs and condensate
- We sell our commodities to a variety of customers ranging from large, multi-national petrochemical and refining companies to regional retail propane distributors. We recognize revenue from commodity sales at the point in time when the product is delivered to the customer. Generally, the transaction price is determined at the time of each delivery as the uncertainty of commodity pricing is resolved. Customers usually pay monthly based on the products purchased that month.
Sales of natural gas, NGLs and condensate include physical sales contracts which qualify as financial derivative instruments, and buy-sell and exchange transactions which involve purchases and sales of inventory with the same counterparty that are legally contingent or in contemplation of one another as a single transaction on a combined net basis. Neither of these types of arrangements are contracts with customers within the scope of Topic 606.
Gathering, compressing, treating and processing natural gas
- For natural gas gathering and processing activities, we receive either fees and/or a percentage of proceeds from commodity sales as payment for these services, depending on the type of contract. For gathering and processing agreements within the scope of Topic 606, we recognize the revenue associated with our services when the gas is gathered, treated or processed at our facilities. Under fee-based contracts, we receive a fee for our services based on throughput volumes. Under percent-of-proceeds contracts, we receive either an agreed upon percentage of the actual proceeds received from our sale of the residue natural gas and NGLs or an agreed upon percentage based on index related prices for the natural gas and NGLs. Our percent-of-proceeds contracts may also include a fee-based component.
Transportation and storage -
Revenue from transportation and storage agreements is recognized based on contracted volumes transported and stored in the period the services are provided.
Our service contracts generally have terms that extend beyond one year, and are recognized over time. The performance obligation for most of our service contracts encompasses a series of distinct services performed on discrete daily quantities of natural gas or NGLs for purposes of allocating variable consideration and recognizing revenue while the customer simultaneously receives and consumes the benefits of the services provided. Revenue is recognized over time consistent with the transfer of good or service over time to the customer based on daily volumes delivered. Consideration is generally variable, and the transaction price cannot be determined at the inception of the contract, because the volume of natural gas or NGLs for which the service is provided is only specified on a daily or monthly basis. The transaction price is determined at the time the service is provided and the uncertainty is resolved. Customers usually pay monthly based on the services performed that month.
Purchase arrangements
- Under purchase arrangements, we purchase natural gas at either the wellhead or the tailgate of a plant. These purchase arrangements represent an arrangement with a supplier and are recorded in “Purchases and related costs”. Often, we earn fees for services performed prior to taking control of the product in these arrangements and service revenue is recorded for these fees. Revenue generated from the sale of product obtained in these purchase arrangements are reported as “Sales of natural gas, NGLs and condensate” on the consolidated statements of operations and are recognized on a gross basis as we purchase and take control of the product prior to sale and are the principal in the transaction.
Practical expedients
- We apply the practical expedients in Topic 606 and do not disclose information about transaction prices allocated to remaining performance obligations that have original expected durations of one year or less, nor do we disclose information about transaction prices allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation.
We disaggregate our revenue from contracts with customers by type 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:
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
Revenue by type was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018
|
|
|
Gathering and Processing
|
|
Logistics and Marketing
|
|
Eliminations
|
|
Total
|
|
|
(millions)
|
Sales of natural gas
|
|
$
|
469
|
|
|
$
|
530
|
|
|
$
|
(410
|
)
|
|
$
|
589
|
|
Sales of NGLs and condensate (a)
|
|
1,053
|
|
|
2,040
|
|
|
(1,000
|
)
|
|
2,093
|
|
Transportation, processing and other
|
|
118
|
|
|
15
|
|
|
—
|
|
|
133
|
|
Trading and marketing losses, net (c)
|
|
(61
|
)
|
|
5
|
|
|
—
|
|
|
(56
|
)
|
Total operating revenues
|
|
$
|
1,579
|
|
|
$
|
2,590
|
|
|
$
|
(1,410
|
)
|
|
$
|
2,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018
|
|
|
Gathering and Processing
|
|
Logistics and Marketing
|
|
Eliminations
|
|
Total
|
|
|
(millions)
|
Sales of natural gas
|
|
$
|
1,313
|
|
|
$
|
1,546
|
|
|
$
|
(1,182
|
)
|
|
$
|
1,677
|
|
Sales of NGLs and condensate (b)
|
|
2,663
|
|
|
5,210
|
|
|
(2,542
|
)
|
|
5,331
|
|
Transportation, processing and other
|
|
327
|
|
|
45
|
|
|
(1
|
)
|
|
371
|
|
Trading and marketing losses, net (c)
|
|
(124
|
)
|
|
(40
|
)
|
|
—
|
|
|
(164
|
)
|
Total operating revenues
|
|
$
|
4,179
|
|
|
$
|
6,761
|
|
|
$
|
(3,725
|
)
|
|
$
|
7,215
|
|
(a) Includes
$1,379 million
of revenues from physical sales contracts and buy-sell exchange transactions in our logistics and marketing segment, which are not within the scope of Topic 606.
(b) Includes $
3,280 million
of revenues from physical sales contracts and buy-sell exchange transactions in our logistics and marketing segment, which are not within the scope of Topic 606.
(c) Not within the scope of Topic 606.
4. Contract Liabilities
We have contracts with customers whereby the customer reimburses us for costs to construct certain connections to our operating assets. These agreements are typically entered into in contemplation with gathering and processing agreements and transportation agreements with customers, and are part of the consideration of the contract. Prior to the adoption of Topic 606, we accounted for these arrangements as a reduction to the cost basis of our long-lived assets which were amortized as a reduction to depreciation expense over the estimated useful life of the related assets. Under Topic 606, we record these payments as deferred revenue which will be amortized into revenue over the expected contract term. The noncurrent portion of deferred revenue is included in other long-term liabilities on our condensed consolidated balance sheet.
The following table summarizes changes in contract liabilities included in our condensed consolidated balance sheet:
|
|
|
|
|
|
|
|
September 30,
|
|
|
2018
|
|
|
(millions)
|
Balance, beginning of period
|
|
$
|
—
|
|
Cumulative effect of implementation of Topic 606
|
|
36
|
|
Revenue recognized (a)
|
|
(2
|
)
|
Balance, end of period
|
|
$
|
34
|
|
Current contract liabilities
|
|
—
|
|
Long-term contract liabilities
|
|
$
|
34
|
|
(a) Deferred revenue recognized is included in transportation, processing and other on the condensed consolidated statement of operations.
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
The contract liabilities disclosed in the table above will be recognized as revenue as the obligations are satisfied over the next
35
years as of
September 30, 2018
.
5. Agreements and Transactions with Affiliates
DCP Midstream, LLC
Services Agreement and Other General and Administrative Charges
Under the Services and Employee Secondment Agreement (the “Services Agreement”), we are required to reimburse DCP Midstream, LLC for costs, expenses, and expenditures incurred or payments made on our behalf for general and administrative functions including, but not limited to, legal, accounting, compliance, treasury, insurance administration and claims processing, risk management, health, safety and environmental, information technology, human resources, benefit plan maintenance and administration, credit, payroll, internal audit, taxes and engineering, as well as salaries and benefits of seconded employees, insurance coverage and claims, capital expenditures, maintenance and repair costs and taxes. There is no limit on the reimbursements we make to DCP Midstream, LLC under the Services Agreement for costs, expenses and expenditures incurred or payments made on our behalf. The following table summarizes employee related costs that were charged by DCP Midstream, LLC to the Partnership that are included in the condensed consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
(millions)
|
Employee related costs charged by DCP Midstream, LLC
|
|
|
|
|
|
|
|
|
Operating and maintenance expense
|
|
$
|
54
|
|
|
$
|
50
|
|
|
$
|
156
|
|
|
$
|
149
|
|
General and administrative expense
|
|
$
|
51
|
|
|
$
|
46
|
|
|
$
|
136
|
|
|
$
|
116
|
|
Phillips 66 and its Affiliates
We sell a portion of our residue gas and NGLs to Phillips 66 and Chevron Phillips Chemical LLC, or CPChem. CPChem is owned
50%
by Phillips 66, and is considered a related party
. Approximately
18%
of our NGL production was committed to Phillips 66 and CPChem as of
September 30, 2018
. The primary production commitment on certain contracts began a ratable wind down period in December 2014 which expires in January 2019. We ant
icipate continuing to purchase and sell commodities with Phillips 66 and CPChem in the ordinary course of business.
Enbridge and its Affiliates
We sell NGLs to and purchase NGLs from Enbridge and its affiliates.
We anticipate continuing to sell commodities to and purchase commodities from Enbridge and its affiliates in the ordinary course of business.
Unconsolidated Affiliates
We sell a portion of our residue gas and NGLs to, purchase natural gas and other NGL products from, and provide gathering and transportation services to other unconsolidated affiliates. We anticipate continuing to purchase and sell commodities and provide services to unconsolidated affiliates in the ordinary course of business.
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
Summary of Transactions with Affiliates
The following table summarizes our transactions with affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
(millions)
|
Phillips 66 (including its affiliates):
|
|
|
|
|
|
|
|
|
Sales of natural gas, NGLs and condensate to affiliates
|
|
$
|
483
|
|
|
$
|
289
|
|
|
$
|
1,166
|
|
|
$
|
814
|
|
Purchases and related costs from affiliates
|
|
$
|
57
|
|
|
$
|
7
|
|
|
$
|
95
|
|
|
$
|
22
|
|
Operating and maintenance and general administrative expenses
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
10
|
|
|
$
|
1
|
|
Enbridge (including its affiliates):
|
|
|
|
|
|
|
|
|
Sales of natural gas, NGLs and condensate to affiliates
|
|
$
|
(13
|
)
|
|
$
|
14
|
|
|
$
|
12
|
|
|
$
|
34
|
|
Purchases and related costs from affiliates
|
|
$
|
(2
|
)
|
|
$
|
12
|
|
|
$
|
26
|
|
|
$
|
31
|
|
Operating and maintenance and general administrative expenses
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
2
|
|
Unconsolidated affiliates:
|
|
|
|
|
|
|
|
|
Sales of natural gas, NGLs and condensate to affiliates
|
|
$
|
21
|
|
|
$
|
15
|
|
|
$
|
46
|
|
|
$
|
37
|
|
Transportation, processing, and other to affiliates
|
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
5
|
|
|
$
|
4
|
|
Purchases and related costs from affiliates
|
|
$
|
198
|
|
|
$
|
126
|
|
|
$
|
522
|
|
|
$
|
358
|
|
We had balances with affiliates as follows:
|
|
|
|
|
|
|
|
|
|
September 30,
2018
|
|
December 31,
2017
|
|
(millions)
|
Phillips 66 (including its affiliates):
|
|
|
|
Accounts receivable
|
$
|
198
|
|
|
$
|
156
|
|
Accounts payable
|
$
|
25
|
|
|
$
|
6
|
|
Other assets
|
$
|
1
|
|
|
$
|
—
|
|
Enbridge (including its affiliates):
|
|
|
|
Accounts receivable
|
$
|
1
|
|
|
$
|
11
|
|
Accounts payable
|
$
|
5
|
|
|
$
|
9
|
|
Unconsolidated affiliates:
|
|
|
|
Accounts receivable
|
$
|
28
|
|
|
$
|
24
|
|
Accounts payable
|
$
|
76
|
|
|
$
|
53
|
|
Other assets
|
$
|
1
|
|
|
$
|
4
|
|
6. Inventories
Inventories were as follows:
|
|
|
|
|
|
|
|
|
|
September 30,
2018
|
|
December 31,
2017
|
|
(millions)
|
Natural gas
|
$
|
16
|
|
|
$
|
30
|
|
NGLs
|
61
|
|
|
38
|
|
Total inventories
|
$
|
77
|
|
|
$
|
68
|
|
We recognize lower of cost or market adjustments when the carrying value of our inventories exceeds their estimated market value. These non-cash charges are a component of purchases and related costs in the condensed consolidated statements of operations.
We recognized no lower of cost or net realizable value adjustments
during the
three and
nine months ended
September 30, 2018
and
September 30, 2017
, respectively.
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
7. Property, Plant and Equipment
A summary of property, plant and equipment by classification is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciable
Life
|
|
September 30,
2018
|
|
December 31,
2017
|
|
|
|
(millions)
|
Gathering and transmission systems
|
20 — 50 Years
|
|
$
|
8,737
|
|
|
$
|
8,473
|
|
Processing, storage and terminal facilities
|
35 — 60 Years
|
|
5,317
|
|
|
5,128
|
|
Other
|
3 — 30 Years
|
|
564
|
|
|
557
|
|
Construction work in progress
|
|
|
382
|
|
|
374
|
|
Property, plant and equipment
|
|
|
15,000
|
|
|
14,532
|
|
Accumulated depreciation
|
|
|
(5,837
|
)
|
|
(5,549
|
)
|
Property, plant and equipment, net
|
|
|
$
|
9,163
|
|
|
$
|
8,983
|
|
Interest capitalized on construction projects was
$4 million
and
$2 million
for the
three months ended September 30, 2018
and
2017
, respectively, and
$15 million
and
$4 million
for the
nine months ended
September 30, 2018
and
2017
, respectively.
Depreciation expense was
$95 million
and
$90 million
for the
three months ended September 30, 2018
and
2017
, respectively, and
$281 million
and
$272 million
for the
nine months ended
September 30, 2018
and
2017
, respectively.
8. Goodwill
We performed our annual goodwill assessment during the third quarter of 2018 at the reporting unit level, which is conducted by assessing whether (i) the components of our operating segments constitute businesses for which discrete financial information is available, (ii) segment management regularly reviews the operating results of those components and (iii) whether the economic and regulatory characteristics are similar. As a result of our assessment, we concluded that the fair value of goodwill substantially exceeded its carrying value in our North reporting unit, the only reporting unit allocated goodwill included within our Gathering and Processing reportable segment, and in our Marysville reporting unit included within our Logistics and Marketing reportable segment. For our Wholesale Propane reporting unit, which is included in our Logistics and Marketing reportable segment, the fair value exceeded the carrying value (including approximately
$37 million
of allocated goodwill) by approximately
10%
. We concluded that the entire amount of goodwill disclosed on the condensed consolidated balance sheet is recoverable.
We primarily used a discounted cash flow analysis, supplemented by a market approach analysis, to perform our goodwill assessment. Key assumptions in the analysis include the use of an appropriate discount rate, terminal year multiples, and estimated future cash flows, including an estimate of operating and general and administrative costs. In estimating cash flows, we incorporate current market information (including forecasted volumes and commodity prices), as well as historical and other factors. If actual results are not consistent with our assumptions and estimates, or our assumptions and estimates change due to new information, we may be exposed to goodwill impairment charges, which would be recognized in the period in which the carrying value exceeds fair value.
We expect that the fair value of our Wholesale Propane reporting unit will continue to exceed its carrying value so long as our estimate of future cash flows and the market valuation remain consistent with current levels. A continued period of volatile propane prices could result in further deterioration of market multiples, comparable sales transactions prices, weighted average costs of capital, and our cash flow estimates. Changes to any one or combination of these factors, would result in changes to the reporting unit fair values discussed above which could lead to future impairment charges. Such potential impairment could have a material effect on our results of operations.
During the
three and nine months ended September 30, 2018
, we had no additions to or dispositions from the carrying amount of goodwill in each of our reportable segments. The carrying amount of goodwill in each of our reportable segments was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
(millions)
|
|
Gathering and Processing
|
|
Logistics and Marketing
|
|
Total
|
Balance, end of period
|
$
|
159
|
|
|
$
|
72
|
|
|
$
|
231
|
|
9
. Investments in Unconsolidated Affiliates
The following table summarizes our investments in unconsolidated affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value as of
|
|
Percentage
Ownership
|
|
September 30,
2018
|
|
December 31,
2017
|
|
|
|
(millions)
|
DCP Sand Hills Pipeline, LLC
|
66.67%
|
|
$
|
1,774
|
|
|
$
|
1,633
|
|
DCP Southern Hills Pipeline, LLC
|
66.67%
|
|
733
|
|
|
739
|
|
Discovery Producer Services LLC
|
40.00%
|
|
350
|
|
|
362
|
|
Front Range Pipeline LLC
|
33.33%
|
|
175
|
|
|
165
|
|
Texas Express Pipeline LLC
|
10.00%
|
|
92
|
|
|
90
|
|
Gulf Coast Express Pipeline LLC
|
25.00%
|
|
89
|
|
|
—
|
|
Mont Belvieu Enterprise Fractionator
|
12.50%
|
|
27
|
|
|
23
|
|
Panola Pipeline Company, LLC
|
15.00%
|
|
23
|
|
|
24
|
|
Mont Belvieu 1 Fractionator
|
20.00%
|
|
10
|
|
|
10
|
|
Other
|
Various
|
|
4
|
|
|
4
|
|
Total investments in unconsolidated affiliates
|
|
|
$
|
3,277
|
|
|
$
|
3,050
|
|
Earnings from investments in unconsolidated affiliates were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(millions)
|
DCP Sand Hills Pipeline, LLC
|
$
|
64
|
|
|
$
|
37
|
|
|
$
|
170
|
|
|
$
|
105
|
|
DCP Southern Hills Pipeline, LLC
|
21
|
|
|
10
|
|
|
50
|
|
|
34
|
|
Discovery Producer Services LLC
|
1
|
|
|
14
|
|
|
4
|
|
|
59
|
|
Front Range Pipeline LLC
|
6
|
|
|
5
|
|
|
16
|
|
|
12
|
|
Texas Express Pipeline LLC
|
4
|
|
|
4
|
|
|
14
|
|
|
7
|
|
Mont Belvieu Enterprise Fractionator
|
3
|
|
|
3
|
|
|
10
|
|
|
10
|
|
Mont Belvieu 1 Fractionator
|
4
|
|
|
2
|
|
|
12
|
|
|
6
|
|
Other
|
1
|
|
|
(1
|
)
|
|
2
|
|
|
1
|
|
Total earnings from unconsolidated affiliates
|
$
|
104
|
|
|
$
|
74
|
|
|
$
|
278
|
|
|
$
|
234
|
|
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
The following tables summarize the combined financial information of our investments in unconsolidated affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(millions)
|
Statements of operations:
|
|
|
|
|
|
|
|
Operating revenue
|
$
|
407
|
|
|
$
|
358
|
|
|
$
|
1,149
|
|
|
$
|
1,063
|
|
Operating expenses
|
$
|
157
|
|
|
$
|
164
|
|
|
$
|
443
|
|
|
$
|
464
|
|
Net income
|
$
|
250
|
|
|
$
|
194
|
|
|
$
|
704
|
|
|
$
|
598
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2018
|
|
December 31,
2017
|
|
(millions)
|
Balance sheets:
|
|
|
|
Current assets
|
$
|
557
|
|
|
$
|
244
|
|
Long-term assets
|
5,937
|
|
|
5,319
|
|
Current liabilities
|
(412
|
)
|
|
(196
|
)
|
Long-term liabilities
|
(237
|
)
|
|
(200
|
)
|
Net assets
|
$
|
5,845
|
|
|
$
|
5,167
|
|
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
10
. Fair Value Measurement
Determination of Fair Value
Below is a general description of our valuation methodologies for derivative financial assets and liabilities which are measured at fair value. Fair values are generally based upon quoted market prices or prices obtained through external sources, where available. If listed market prices or quotes are not available, we determine fair value based upon a market quote, adjusted by other market-based or independently sourced market data such as historical commodity volatilities, crude oil future yield curves, and/or counterparty specific considerations. These adjustments result in a fair value for each asset or liability under an “exit price” methodology, in line with how we believe a marketplace participant would value that asset or liability. Fair values are adjusted to reflect the credit risk inherent in the transaction as well as the potential impact of liquidating open positions in an orderly manner over a reasonable time period under current conditions. These adjustments may include amounts to reflect counterparty credit quality, the effect of our own creditworthiness, and/or the liquidity of the market.
|
|
•
|
Counterparty credit valuation adjustments are necessary when the market price of an instrument is not indicative of the fair value as a result of the credit quality of the counterparty. Generally, market quotes assume that all counterparties have near zero, or low, default rates and have equal credit quality. Therefore, an adjustment may be necessary to reflect the credit quality of a specific counterparty to determine the fair value of the instrument. We record counterparty credit valuation adjustments on all derivatives that are in a net asset position as of the measurement date in accordance with our established counterparty credit policy, which takes into account any collateral margin that a counterparty may have posted with us as well as any letters of credit that they have provided.
|
|
|
•
|
Entity valuation adjustments are necessary to reflect the effect of our own credit quality on the fair value of our net liability positions with each counterparty. This adjustment takes into account any credit enhancements, such as collateral margin we may have posted with a counterparty, as well as any letters of credit that we have provided. The methodology to determine this adjustment is consistent with how we evaluate counterparty credit risk, taking into account our own credit rating, current credit spreads, as well as any change in such spreads since the last measurement date.
|
|
|
•
|
Liquidity valuation adjustments are necessary when we are not able to observe a recent market price for financial instruments that trade in less active markets for the fair value to reflect the cost of exiting the position. Exchange traded contracts are valued at market value without making any additional valuation adjustments and, therefore, no liquidity reserve is applied. For contracts other than exchange traded instruments, we mark our positions to the midpoint of the bid/ask spread, and record a liquidity reserve based upon our total net position. We believe that such practice results in the most reliable fair value measurement as viewed by a market participant.
|
We manage our derivative instruments on a portfolio basis and the valuation adjustments described above are calculated on this basis. We believe that the portfolio level approach represents the highest and best use for these assets as there are benefits inherent in naturally offsetting positions within the portfolio at any given time, and this approach is consistent with how a market participant would view and value the assets and liabilities. Although we take a portfolio approach to managing these assets/liabilities, in order to reflect the fair value of any one individual contract within the portfolio, we allocate all valuation adjustments down to the contract level, to the extent deemed necessary, based upon either the notional contract volume, or the contract value, whichever is more applicable.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While we believe that our valuation methods are appropriate and consistent with other market participants, we recognize that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. We review our fair value policies on a regular basis taking into consideration changes in the marketplace and, if necessary, will adjust our policies accordingly. See Note
12
- Risk Management and Hedging Activities.
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
Valuation Hierarchy
Our fair value measurements are grouped into a three-level valuation hierarchy and are categorized in their entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows.
|
|
•
|
Level 1 — inputs are unadjusted quoted prices for
identical
assets or liabilities in active markets.
|
|
|
•
|
Level 2 — inputs include quoted prices for
similar
assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
|
•
|
Level 3 — inputs are unobservable and considered significant to the fair value measurement.
|
A financial instrument’s categorization within the hierarchy is based upon the level of judgment involved in the most significant input in the determination of the instrument’s fair value. Following is a description of the valuation methodologies used as well as the general classification of such instruments pursuant to the hierarchy.
Commodity Derivative Assets and Liabilities
We enter into a variety of derivative financial instruments, which may include exchange traded instruments (such as New York Mercantile Exchange, or NYMEX, crude oil or natural gas futures) or over-the-counter, or OTC, instruments (such as natural gas contracts, crude oil or NGL swaps). The exchange traded instruments are generally executed with a highly rated broker dealer serving as the clearinghouse for individual transactions.
Our activities expose us to varying degrees of commodity price risk. To mitigate a portion of this risk and to manage commodity price risk related primarily to owned natural gas storage and pipeline assets, we engage in natural gas asset based trading and marketing, and we may enter into natural gas and crude oil derivatives to lock in a specific margin when market conditions are favorable. A portion of this may be accomplished through the use of exchange traded derivative contracts. Such instruments are generally classified as Level 1 since the value is equal to the quoted market price of the exchange traded instrument as of our balance sheet date, and no adjustments are required. Depending upon market conditions and our strategy we may enter into exchange traded derivative positions with a significant time horizon to maturity. Although such instruments are exchange traded, market prices may only be readily observable for a portion of the duration of the instrument. In order to calculate the fair value of these instruments, readily observable market information is utilized to the extent it is available; however, in the event that readily observable market data is not available, we may interpolate or extrapolate based upon observable data. In instances where we utilize an interpolated or extrapolated value, and it is considered significant to the valuation of the contract as a whole, we would classify the instrument within Level 3.
We also engage in the business of trading energy related products and services, which exposes us to market variables and commodity price risk. We may enter into physical contracts or financial instruments with the objective of realizing a positive margin from the purchase and sale of these commodity-based instruments. We may enter into derivative instruments for NGLs or other energy related products, primarily using the OTC derivative instrument markets, which are not as active and liquid as exchange traded instruments. Market quotes for such contracts may only be available for short dated positions (up to six months), and an active market itself may not exist beyond such time horizon. Contracts entered into with a relatively short time horizon for which prices are readily observable in the OTC market are generally classified within Level 2. Contracts with a longer time horizon, for which we internally generate a forward curve to value such instruments, are generally classified within Level 3. The internally generated curve may utilize a variety of assumptions including, but not limited to, data obtained from third-party pricing services, historical and future expected relationship of NGL prices to crude oil prices, the knowledge of expected supply sources coming online, expected weather trends within certain regions of the United States, and the future expected demand for NGLs.
Each instrument is assigned to a level within the hierarchy at the end of each financial quarter depending upon the extent to which the valuation inputs are observable. Generally, an instrument will move toward a level within the hierarchy that requires a lower degree of judgment as the time to maturity approaches, and as the markets in which the asset trades will likely become more liquid and prices more readily available in the market, thus reducing the need to rely upon our internally developed assumptions. However, the level of a given instrument may change, in either direction, depending upon market conditions and the availability of market observable data.
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
Nonfinancial Assets and Liabilities
We utilize fair value to perform impairment tests as required on our property, plant and equipment, goodwill, equity investments, and other long-lived intangible assets. Assets and liabilities acquired in third party business combinations are recorded at their fair value as of the date of acquisition. The inputs used to determine such fair value are primarily based upon internally developed cash flow models and would generally be classified within Level 3 in the event that we were required to measure and record such assets at fair value within our condensed consolidated financial statements. Additionally, we use fair value to determine the inception value of our asset retirement obligations. The inputs used to determine such fair value are primarily based upon costs
incurred historically for similar work, as well as estimates from independent third parties for costs that would be incurred to restore leased property to the contractually stipulated condition, and would generally be classified within Level 3.
During the
nine months ended September 30, 2018
, we recognized no impairments of property, plant and equipment, intangible assets and investment in unconsolidated affiliates. During the
nine months ended September 30, 2017
, we recognized impairments of property, plant and equipment, intangible assets and investment in unconsolidated affiliates of
$48 million
in our condensed consolidated statement of operations as summarized in the table below. Our impairment determinations involved significant assumptions and judgments. Differing assumptions regarding any of these inputs could have a significant effect on the various valuations. As such, the fair value measurements utilized within these models are classified as non-recurring Level 3 measurements in the fair value hierarchy because they are not observable from objective sources.
The following tables present the carrying value of assets measured at fair value on a non-recurring basis, by condensed consolidated balance sheet caption and by valuation hierarchy, as of and for the
nine months ended September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Carrying
Value
|
|
Fair Value Measurements Using
|
|
Asset
Impairments
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
(millions)
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
$
|
14
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
14
|
|
|
$
|
26
|
|
Intangible assets
|
11
|
|
|
—
|
|
|
—
|
|
|
11
|
|
|
21
|
|
Investment in unconsolidated affiliates
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
Total impairments
|
$
|
26
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
26
|
|
|
$
|
48
|
|
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
The following table presents the financial instruments carried at fair value as of
September 30, 2018
and
December 31,
2017
, by condensed consolidated balance sheet caption and by valuation hierarchy, as described above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
Carrying
Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
Carrying
Value
|
|
(millions)
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives (a)
|
$
|
44
|
|
|
$
|
9
|
|
|
$
|
4
|
|
|
$
|
57
|
|
|
$
|
10
|
|
|
$
|
17
|
|
|
$
|
3
|
|
|
$
|
30
|
|
Short-term investments (b)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
156
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
156
|
|
Long-term assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives (c)
|
$
|
15
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
19
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
3
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives (d)
|
$
|
(82
|
)
|
|
$
|
(57
|
)
|
|
$
|
(18
|
)
|
|
$
|
(157
|
)
|
|
$
|
(29
|
)
|
|
$
|
(34
|
)
|
|
$
|
(13
|
)
|
|
$
|
(76
|
)
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives (e)
|
$
|
(25
|
)
|
|
$
|
(7
|
)
|
|
$
|
(5
|
)
|
|
$
|
(37
|
)
|
|
$
|
(3
|
)
|
|
$
|
(11
|
)
|
|
$
|
(1
|
)
|
|
$
|
(15
|
)
|
|
|
(a)
|
Included in current unrealized gains on derivative instruments in our condensed consolidated balance sheets.
|
|
|
(b)
|
Includes short-term money market securities included in cash and cash equivalents in our condensed consolidated balance sheets.
|
|
|
(c)
|
Included in long-term unrealized gains on derivative instruments in our condensed consolidated balance sheets.
|
|
|
(d)
|
Included in current unrealized losses on derivative instruments in our condensed consolidated balance sheets.
|
|
|
(e)
|
Included in long-term unrealized losses on derivative instruments in our condensed consolidated balance sheets.
|
Changes in Levels 1 and 2 Fair Value Measurements
The determination to classify a financial instrument within Level 1 or Level 2 is based upon the availability of quoted prices for identical or similar assets and liabilities in active markets. Depending upon the information readily observable in the market, and/or the use of identical or similar quoted prices, which are significant to the overall valuation, the classification of any individual financial instrument may differ from one measurement date to the next. To qualify as a transfer, the asset or liability must have existed in the previous reporting period and moved into a different level during the current period. In the event that there is a movement between the classification of an instrument as Level 1 or 2, the transfer would be reflected in a table as “Transfers into or out of Level 1 and Level 2”. During the
nine months ended
September 30, 2018
and
2017
, there were no transfers between Level 1 and Level 2 of the fair value hierarchy.
Changes in Level 3 Fair Value Measurements
The tables below illustrate a rollforward of the amounts included in our condensed consolidated balance sheets for derivative financial instruments that we have classified within Level 3. Since financial instruments classified as Level 3 typically include a combination of observable components (that is, components that are actively quoted and can be validated to external sources) and unobservable components, the gains and losses in the table below may include changes in fair value due in part to observable market factors, or changes to our assumptions on the unobservable components. Depending upon the information readily observable in the market, and/or the use of unobservable inputs, which are significant to the overall valuation, the classification of any individual financial instrument may differ from one measurement date to the next. The significant unobservable inputs used in determining fair value include adjustments by other market-based or independently sourced market data such as historical commodity volatilities, crude oil future yield curves, and/or counterparty specific considerations. In the event that there is a movement to/from the classification of an instrument as Level 3, we would reflect such items in the table below within the “Transfers into/out of Level 3” captions.
We manage our overall risk at the portfolio level and in the execution of our strategy, we may use a combination of financial instruments, which may be classified within any level. Since Level 1 and Level 2 risk management instruments are not included in the rollforward below, the gains or losses in the table do not reflect the effect of our total risk management activities.
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
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|
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|
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Commodity Derivative Instruments
|
|
Current
Assets
|
|
Long-Term
Assets
|
|
Current
Liabilities
|
|
Long-Term
Liabilities
|
|
(millions)
|
Three months ended September 30, 2018 (a):
|
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|
|
|
|
|
Beginning balance
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
(10
|
)
|
|
$
|
(7
|
)
|
Net unrealized gains (losses) included in earnings (b)
|
4
|
|
|
1
|
|
|
(20
|
)
|
|
2
|
|
Transfers out of Level 3 (c)
|
(1
|
)
|
|
—
|
|
|
5
|
|
|
—
|
|
Settlements
|
—
|
|
|
—
|
|
|
7
|
|
|
—
|
|
Ending balance
|
$
|
4
|
|
|
$
|
2
|
|
|
$
|
(18
|
)
|
|
$
|
(5
|
)
|
Net unrealized gains (losses) on derivatives still held included in earnings (b)
|
$
|
3
|
|
|
$
|
1
|
|
|
$
|
(15
|
)
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|
$
|
2
|
|
Three months ended September 30, 2017 (a):
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|
|
|
|
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Beginning balance
|
$
|
7
|
|
|
$
|
2
|
|
|
$
|
(2
|
)
|
|
$
|
(3
|
)
|
Net unrealized gains (losses) included in earnings (b)
|
—
|
|
|
2
|
|
|
(26
|
)
|
|
—
|
|
Transfers out of Level 3 (c)
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
Settlements
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
CME Rule 814 adjustment
|
(5
|
)
|
|
(3
|
)
|
|
16
|
|
|
1
|
|
Ending balance
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
(8
|
)
|
|
$
|
(2
|
)
|
Net unrealized gains on derivatives still held included in earnings (b)
|
$
|
3
|
|
|
$
|
2
|
|
|
$
|
(22
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity Derivative Instruments
|
|
Current
Assets
|
|
Long-Term
Assets
|
|
Current
Liabilities
|
|
Long-Term
Liabilities
|
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(millions)
|
Nine months ended September 30, 2018 (a):
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|
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Beginning balance
|
$
|
3
|
|
|
$
|
1
|
|
|
$
|
(13
|
)
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|
$
|
(1
|
)
|
Net unrealized gains (losses) included in earnings (b)
|
2
|
|
|
1
|
|
|
(28
|
)
|
|
(4
|
)
|
Transfers out of Level 3 (c)
|
(1
|
)
|
|
—
|
|
|
10
|
|
|
—
|
|
Settlements
|
—
|
|
|
—
|
|
|
13
|
|
|
—
|
|
Ending balance
|
$
|
4
|
|
|
$
|
2
|
|
|
$
|
(18
|
)
|
|
$
|
(5
|
)
|
Net unrealized gains (losses) on derivatives still held included in earnings (b)
|
$
|
4
|
|
|
$
|
1
|
|
|
$
|
(17
|
)
|
|
$
|
(4
|
)
|
Nine months ended September 30, 2017 (a):
|
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|
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|
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Beginning balance
|
$
|
9
|
|
|
$
|
5
|
|
|
$
|
(23
|
)
|
|
$
|
—
|
|
Net unrealized gains (losses) included in earnings (b)
|
4
|
|
|
(1
|
)
|
|
(20
|
)
|
|
(3
|
)
|
Transfers out of Level 3 (c)
|
(4
|
)
|
|
—
|
|
|
12
|
|
|
—
|
|
Settlements
|
(2
|
)
|
|
—
|
|
|
7
|
|
|
—
|
|
CME Rule 814 adjustment
|
$
|
(5
|
)
|
|
$
|
(3
|
)
|
|
$
|
16
|
|
|
$
|
1
|
|
Ending balance
|
$
|
2
|
|
|
$
|
1
|
|
|
$
|
(8
|
)
|
|
$
|
(2
|
)
|
Net unrealized gains (losses) on derivatives still held included in earnings (b)
|
$
|
7
|
|
|
$
|
(1
|
)
|
|
$
|
(21
|
)
|
|
$
|
(2
|
)
|
|
|
(a)
|
There were no purchases, issuances or sales of derivatives or transfers into Level 3 for the
three and
nine months ended
September 30, 2018
and
2017
.
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(b)
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Represents the amount of unrealized gains or losses for the period, included in trading and marketing gains (losses), net.
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(c)
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Amounts transferred out of Level 3 are reflected at fair value at the end of the period.
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DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
Quantitative Information and Fair Value Sensitivities Related to Level 3 Unobservable Inputs
We utilize the market approach to measure the fair value of our commodity contracts. The significant unobservable inputs used in this approach to fair value are longer dated price quotes. Our sensitivity to these longer dated forward curve prices are presented in the table below. Significant changes in any of those inputs in isolation would result in significantly different fair value measurements, depending on our short or long position in contracts.
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September 30, 2018
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Product Group
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Fair Value
|
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Forward
Curve Range
|
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(millions)
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Assets
|
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NGLs
|
$
|
4
|
|
|
$0.38-$1.29
|
|
Per gallon
|
Natural gas
|
$
|
2
|
|
|
$1.87-$2.43
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|
Per MMBtu
|
Liabilities
|
|
|
|
|
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NGLs
|
$
|
(22
|
)
|
|
$0.15-$1.29
|
|
Per gallon
|
Natural gas
|
$
|
(1
|
)
|
|
$2.37-$2.80
|
|
Per MMBtu
|
Estimated Fair Value of Financial Instruments
Valuation of a contract’s fair value is validated by an internal group independent of the marketing group. While common industry practices are used to develop valuation techniques, changes in pricing methodologies or the underlying assumptions could result in significantly different fair values and income recognition. When available, quoted market prices or prices obtained through external sources are used to determine a contract’s fair value. For contracts with a delivery location or duration for which quoted market prices are not available, fair value is determined based on pricing models developed primarily from historical and expected relationships with quoted market prices.
Values are adjusted to reflect the credit risk inherent in the transaction as well as the potential impact of liquidating open positions in an orderly manner over a reasonable time period under current conditions. Changes in market prices and management estimates directly affect the estimated fair value of these contracts. Accordingly, it is reasonably possible that such estimates may change in the near term.
The fair value of our interest rate swaps, if any, and commodity non-trading derivatives is based on prices supported by quoted market prices and other external sources and prices based on models and other valuation methods. The “prices supported by quoted market prices and other external sources” category includes our interest rate swaps, if any, our NGL and crude oil swaps and our NYMEX positions in natural gas. In addition, this category includes our forward positions in natural gas for which our forward price curves are obtained from a third party pricing service and then validated through an internal process which includes the use of independent broker quotes. This category also includes our forward positions in NGLs at points for which OTC broker quotes for similar assets or liabilities are available for the full term of the instrument. This category also includes “strip” transactions whose pricing inputs are directly or indirectly observable from external sources and then modeled to daily or monthly prices as appropriate. The “prices based on models and other valuation methods” category includes the value of transactions for which inputs to the fair value of the instrument are unobservable in the marketplace and are considered significant to the overall fair value of the instrument. The fair value of these instruments may be based upon an internally developed price curve, which was constructed as a result of the long dated nature of the transaction or the illiquidity of the specific market point.
We have determined fair value amounts using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that we could realize in a current market exchange. The use of different market assumptions and/or estimation methods may have a material effect on the estimated fair value amounts.
The fair value of accounts receivable and accounts payable are not materially different from their carrying amounts because of the short-term nature of these instruments or the stated rates approximating market rates. Derivative instruments are carried at fair value.
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
We determine the fair value of our fixed-rate senior notes and junior subordinated notes based on quotes obtained from bond dealers. The fair value of borrowings under the Credit Agreement and our Accounts Receivable Securitization Facility (the "Securitization Facility") are based on carrying value, which approximates fair value as their interest rates are based on prevailing market interest rates. We classify the fair values of our outstanding debt balances within Level 2 of the valuation hierarchy. As of
September 30, 2018
and
December 31, 2017
, the carrying value and fair value of our total debt, including current maturities, were as follows:
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|
|
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|
|
September 30, 2018
|
|
December 31, 2017
|
|
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Carrying Value (a)
|
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Fair Value
|
|
Carrying Value (a)
|
|
Fair Value
|
|
(millions)
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
5,131
|
|
|
$
|
5,199
|
|
|
$
|
4,736
|
|
|
$
|
4,885
|
|
(a)
Excludes unamortized issuance costs.
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
11
. Debt
|
|
|
|
|
|
|
|
|
|
September 30,
2018
|
|
December 31,
2017
|
|
(millions)
|
Senior notes:
|
|
|
|
Issued February 2009, interest at 9.750% payable semiannually, due March 2019
|
$
|
—
|
|
|
$
|
450
|
|
Issued March 2014, interest at 2.700% payable semi-annually, due April 2019
|
325
|
|
|
325
|
|
Issued March 2010, interest at 5.350% payable semiannually, due March 2020 (a)
|
600
|
|
|
600
|
|
Issued September 2011, interest at 4.750% payable semiannually, due September 2021
|
500
|
|
|
500
|
|
Issued March 2012, interest at 4.950% payable semi-annually, due April 2022
|
350
|
|
|
350
|
|
Issued March 2013, interest at 3.875% payable semi-annually, due March 2023
|
500
|
|
|
500
|
|
Issued July 2018, interest at 5.375% payable semi-annually, due July 2025
|
500
|
|
|
—
|
|
Issued August 2000, interest at 8.125% payable semi-annually, due August 2030 (a)
|
300
|
|
|
300
|
|
Issued October 2006, interest at 6.450% payable semi-annually, due November 2036
|
300
|
|
|
300
|
|
Issued September 2007, interest at 6.750% payable semi-annually, due September 2037
|
450
|
|
|
450
|
|
Issued March 2014, interest at 5.600% payable semi-annually, due April 2044
|
400
|
|
|
400
|
|
Junior subordinated notes:
|
|
|
|
Issued May 2013, interest at 5.850% payable semi-annually, due May 2043
|
550
|
|
|
550
|
|
Credit agreement:
|
|
|
|
Revolving credit facility, weighted-average variable interest rate of 3.650%, as of September 30, 2018, due December 2022
|
145
|
|
|
—
|
|
Accounts Receivable Securitization Facility:
|
|
|
|
Accounts receivable securitization facility, weighted-average variable interest rate of 3.061% as of September 30, 2018, due August 2019
|
200
|
|
|
—
|
|
Fair value adjustments related to interest rate swap fair value hedges (a)
|
21
|
|
|
23
|
|
Unamortized issuance costs
|
(31
|
)
|
|
(29
|
)
|
Unamortized discount
|
(10
|
)
|
|
(12
|
)
|
Total debt
|
5,100
|
|
|
4,707
|
|
Current debt
|
525
|
|
|
—
|
|
Total long-term debt
|
$
|
4,575
|
|
|
$
|
4,707
|
|
(a) The swaps associated with this debt were previously terminated. The remaining long-term fair value of approximately
$21 million
related to the swaps is being amortized as a reduction to interest expense through 2020 and 2030, the original maturity dates of the debt.
Accounts Receivable Securitization Facility
In August 2018, we entered into our Securitization Facility that provides up to
$200
million of borrowing capacity through August 2019 at LIBOR market index rates plus a margin. Under this Securitization Facility, certain of the Partnership’s wholly owned subsidiaries sell or contribute receivables to another of the Partnership’s consolidated subsidiaries, DCP Receivables LLC (“DCP Receivables”), a bankruptcy-remote special purpose entity created for the sole purpose of this Securitization Facility.
DCP Receivables’ sole activity consists of purchasing receivables from the Partnership’s wholly owned subsidiaries that participate in the Securitization Facility and providing these receivables as collateral for DCP Receivables’ borrowings under the Securitization Facility. DCP Receivables is a separate legal entity and the accounts receivable of DCP Receivables, up to the amount of the outstanding debt under the Securitization Facility, are not available to satisfy the claims of creditors of the Partnership, its subsidiaries selling receivables under the Securitization Facility, or their affiliates. Any excess receivables are eligible to satisfy the claims of creditors of the Partnership, its subsidiaries selling receivables under the Securitization Facility, or their affiliates. The amount available for borrowing is based on the availability of eligible receivables and other customary factors and conditions. As of September 30, 2018, DCP Receivables had
$838 million
of our accounts receivable under its
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
Securitization Facility. Borrowings under the Securitization Facility are included in “Current debt” on the condensed consolidated balance sheet.
Senior Notes Redemption
In August 2018, we redeemed our outstanding
$450 million
9.750%
Senior Notes due March 2019, totaling
$468 million
in aggregate principal and make-whole payments, at a price of
104.008%
plus accrued interest through the redemption date. The redemption resulted in a
$19 million
loss, which is reflected as loss from financing activities on the condensed consolidated statements of operations.
Senior Notes Issuance
On
July 17, 2018
, we issued
$500 million
of
5.375%
Senior Notes due
July 2025
, unless redeemed prior to maturity. We received proceeds of
$495 million
, net of underwriters’ fees, related expenses and unamortized discounts which we used to redeem our
$450 million
9.750%
Senior Notes due March 2019. Interest on the notes will be paid semi-annually in arrears on January 15 and July 15 of each year, commencing
January 15, 2019
.
Credit Agreement
We are a party to a $
1.4 billion
unsecured revolving Credit Agreement (the "Credit Agreement") which matures on
December 6, 2022
. The Credit Agreement also grants us the option to increase the revolving loan commitment by an aggregate principal amount of up to
$500 million
, subject to requisite lender approval. The Credit Agreement may be extended for up to two additional one-year periods subject to requisite lender approval. Loans under the Credit Agreement may be used for working capital and other general partnership purposes including acquisitions.
The Credit Agreement allows for unrestricted cash and cash equivalents to be netted against consolidated indebtedness for purposes of calculating the Partnership’s Consolidated Leverage Ratio (as defined in the Credit Agreement). Additionally, under the Credit Agreement, the Consolidated Leverage Ratio of the Partnership as of the end of any fiscal quarter shall not exceed
5.00
to
1.0
for each fiscal quarter ending after September 30, 2018; provided that, if there is a Qualified Acquisition (as defined in the Credit Agreement) during any fiscal quarter ending September 30, 2018 or thereafter, the maximum Consolidated Leverage Ratio shall not exceed
5.50
to
1.0
at the end of the three consecutive fiscal quarters, including the fiscal quarter in which the Qualified Acquisition occurs.
Our cost of borrowing under the Credit Agreement is determined by a ratings-based pricing grid. Indebtedness under the Credit Agreement bears interest at either: (1) LIBOR, plus an applicable margin of
1.45%
based on our current credit rating; or (2) (a) the base rate which shall be the higher of the prime rate, the Federal Funds rate plus
0.50%
or the LIBOR Market Index rate plus
1%
, plus (b) an applicable margin of
0.45%
based on our current credit rating. The Credit Agreement incurs an annual facility fee of
0.30%
based on our current credit rating. This fee is paid on drawn and undrawn portions of the
$1.4 billion
revolving credit facility.
As of
September 30, 2018
, we had unused borrowing capacity of
$1,242 million
, net of
$13 million
of letters of credit, under the Credit Agreement. Our borrowing capacity may be limited by financial covenants set forth in the Credit Agreement. The financial covenants set forth in the Credit Agreement limit the Partnership's ability to incur incremental debt by the unused borrowing capacity of
$1,242 million
as of
September 30, 2018
. Except in the case of a default, amounts borrowed under our Credit Agreement will not become due prior to the
December 6, 2022
maturity date.
Senior Notes and Junior Subordinated Notes
Our senior notes and junior subordinated notes, collectively referred to as our debt securities, mature and become payable on their respective due dates, and are not subject to any sinking fund or mandatory redemption provisions. The senior notes are senior unsecured obligations that are guaranteed by the Partnership and rank equally in a right of payment with our other senior unsecured indebtedness, including indebtedness under our Credit Agreement, and the junior subordinated notes are unsecured and rank subordinate in right of payment to all of our existing and future senior indebtedness. The debt securities include an optional redemption whereby we may elect to redeem the notes, in whole or in part from time-to-time for a premium. Additionally, we may defer the payment of all or part of the interest on the junior subordinated notes for one or more periods up
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
to
five
consecutive years. The underwriters’ fees and related expenses are recorded in our condensed consolidated balance sheets within the carrying amount of long-term debt and will be amortized over the term of the notes.
The maturities of our debt as of
September 30, 2018
are as follows:
|
|
|
|
|
|
Debt
Maturities
|
|
(millions)
|
2018
|
$
|
—
|
|
2019
|
525
|
|
2020
|
600
|
|
2021
|
500
|
|
2022
|
495
|
|
Thereafter
|
3,000
|
|
Total debt
|
$
|
5,120
|
|
12
. Risk Management and Hedging Activities
Our operations expose us to a variety of risks including but not limited to changes in the prices of commodities that we buy or sell, changes in interest rates, and the creditworthiness of each of our counterparties. We manage certain of these exposures with either physical or financial transactions. We have established a comprehensive risk management policy and a risk management committee, or the Risk Management Committee, to monitor and manage market risks associated with commodity prices and counterparty credit. The Risk Management Committee is composed of senior executives who receive regular briefings on positions and exposures, credit exposures and overall risk management in the context of market activities. The Risk Management Committee is responsible for the overall management of credit risk and commodity price risk, including monitoring exposure limits. The following describes each of the risks that we manage.
Commodity Price Risk
Our portfolio of commodity derivative activity is primarily accounted for using the mark-to-market method of accounting; however, depending upon our risk profile and objectives, in certain limited cases, we may execute transactions that qualify for the hedge method of accounting. The risks, strategies and instruments used to mitigate such risks, as well as the method of accounting are discussed and summarized below.
Natural Gas Asset Based Trading and Marketing
Our natural gas storage and pipeline assets are exposed to certain risks including changes in commodity prices. We manage commodity price risk related to our natural gas storage and pipeline assets through our commodity derivative program. The commercial activities related to our natural gas storage and pipeline assets primarily consist of the purchase and sale of gas and associated time spreads and basis spreads.
A time spread transaction is executed by establishing a long gas position at one point in time and establishing an equal short gas position at a different point in time. Time spread transactions allow us to lock in a margin supported by the injection, withdrawal, and storage capacity of our natural gas storage assets. We may execute basis spread transactions to mitigate the risk of sale and purchase price differentials across our system. A basis spread transaction allows us to lock in a margin on our physical purchases and sales of gas, including injections and withdrawals from storage. We typically use swaps to execute these transactions, which are not designated as hedging instruments and are recorded at fair value with changes in fair value recorded in the current period condensed consolidated statements of operations. While gas held in our storage locations is recorded at the lower of average cost or market, the derivative instruments that are used to manage our storage facilities are recorded at fair value and any changes in fair value are currently recorded in our condensed consolidated statements of operations. Even though we may have economically hedged our exposure and locked in a future margin, the use of lower-of-cost-or-market accounting for our physical inventory and the use of mark-to-market accounting for our derivative instruments may subject our earnings to market volatility.
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
Commodity Cash Flow Hedges
In order for our natural gas storage facility to remain operational, a minimum level of base gas must be maintained in each storage cavern, which is capitalized on our condensed consolidated balance sheets as a component of property, plant and equipment, net. During construction or expansion of our storage caverns, we may execute a series of derivative financial instruments to mitigate a portion of the risk associated with the forecasted purchase of natural gas when we bring the storage caverns into operation. These derivative financial instruments may be designated as cash flow hedges. While the cash paid upon settlement of these hedges economically fixes the cash required to purchase base gas, the deferred losses or gains would remain in accumulated other comprehensive income, or AOCI, until the cavern is emptied and the base gas is sold. The balance in AOCI of our previously settled base gas cash flow hedges was in a loss position of
$6 million
as of
September 30, 2018
.
Commodity Cash Flow Protection Activities
We are exposed to the impact of market fluctuations in the prices of natural gas, NGLs and condensate as a result of our gathering, processing, sales and storage activities. For gathering, processing and storage services, we may receive cash or commodities as payment for these services, depending on the contract type. We may enter into derivative financial instruments to mitigate a portion of the risk of weakening natural gas, NGL and condensate prices associated with our gathering, processing and sales activities, thereby stabilizing our cash flows. As of September 30, 2018 our derivative financial instruments used to mitigate a portion of the risk of weakening natural gas, NGL and condensate prices extend through the first quarter of 2020. The commodity derivative instruments used for our hedging programs are a combination of direct NGL product, crude oil and natural gas hedges. Crude oil and NGL transactions are primarily accomplished through the use of forward contracts that effectively exchange floating price risk for a fixed price. The type of instrument used to mitigate a portion of the risk may vary depending on our risk management objectives. These transactions are not designated as hedging instruments for accounting purposes and the change in fair value is reflected in the current period within our condensed consolidated statements of operations as trading and marketing gains and (losses), net.
NGL Proprietary Trading
Our NGL proprietary trading activity includes trading energy related products and services. We undertake these activities through the use of fixed forward sales and purchases, basis and spread trades, storage opportunities, put/call options, term contracts and spot market trading. These energy trading operations are exposed to market variables and commodity price risk with respect to these products and services, and these operations may enter into physical contracts and financial instruments with the objective of realizing a positive margin from the purchase and sale of commodity-based instruments. These physical and financial instruments are not designated as hedging instruments and are recorded at fair value with changes in fair value recorded in the current period condensed consolidated statements of operations.
We employ established risk limits, policies and procedures to manage risks associated with our natural gas asset based trading and marketing and NGL proprietary trading.
Credit Risk
Our principal customers range from large, natural gas marketers to industrial end-users for our natural gas products and services, as well as large multi-national petrochemical and refining companies, to small regional propane distributors for our NGL products and services. Substantially all of our natural gas and NGL sales are made at market-based prices. Approximately
18%
of our NGL production was committed to Phillips 66 and CPChem as of
September 30, 2018
. This concentration of credit risk may affect our overall credit risk, in that these customers may be similarly affected by changes in economic, regulatory or other factors. Where exposed to credit risk, we analyze the counterparties’ financial condition prior to entering into an agreement, establish credit limits and monitor the appropriateness of these limits on an ongoing basis. We may use various master agreements that include language giving us the right to request collateral to mitigate credit exposure. The collateral language provides for a counterparty to po
st cash or letters of credit for exposure in excess of the established threshold. The threshold amount represents an open
credit limit, determined in accordance with o
ur credit policy.
The collateral language also provides that the inability to post collateral is sufficient cause to terminate a contract and liquidate all positions. In addition, our master agreements and our standard gas and NGL sales contracts contain adequate assurance provisions, which allow us to suspend deliveries and cancel agreements, or continue deliveries to the buyer after the buyer provides acceptable security for payment
.
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
Contingent Credit Features
Each of the above risks is managed through the execution of individual contracts with a variety of counterparties. Certain of our derivative contracts may contain credit-risk related contingent provisions that may require us to take certain actions in certain circumstances.
We have International Swaps and Derivatives Association, or ISDA, contracts which are standardized master legal arrangements that establish key terms and conditions which govern certain derivative transactions. These ISDA contracts contain standard credit-risk related contingent provisions. Some of the provisions we are subject to are outlined below.
|
|
•
|
If we were to have an effective event of default under our Credit Agreement that occurs and is continuing, our ISDA counterparties may have the right to request early termination and net settlement of any outstanding derivative liability positions.
|
|
|
•
|
Our ISDA counterparties generally have collateral thresholds of zero, requiring us to fully collateralize any commodity contracts in a net liability position, when our credit rating is below investment grade.
|
|
|
•
|
Additionally, in some cases, our ISDA contracts contain cross-default provisions that could constitute a credit-risk related contingent feature. These provisions apply if we default in making timely payments under other credit arrangements and the amount of the default is above certain predefined thresholds, which are significantly high and are generally consistent with the terms of our Credit Agreement. As of
September 30, 2018
, we were not a party to any agreements that would trigger the cross-default provisions.
|
Our commodity derivative contracts that are not governed by ISDA contracts do not have any credit-risk related contingent features. Depending upon the movement of commodity prices and interest rates, each of our individual contracts with counterparties to our commodity derivative instruments or interest rate swap instruments are in either a net asset or net liability position. As of September 30, 2018, we had less than
$1 million
of individual commodity derivative contracts that contain credit-risk related contingent features that were in a net liability position. If we were required to net settle our position with an individual counterparty, due to a credit-risk related event, our ISDA contracts may permit us to net all outstanding contracts with that counterparty, whether in a net asset or net liability position, as well as any cash collateral already posted. As of September 30, 2018, we have not been required to post additional collateral.
Collateral
As of
September 30, 2018
, we had cash deposits of
$140 million
, included in collateral cash deposits in our condensed consolidated balance sheets.
Additionally, as of
September 30, 2018
, we held cash of
$3 million
, included in other current liabilities in our condensed consolidated balance sheet, related to cash postings by third parties and letters of credit of
$73 million
from counterparties to secure their future performance under financial or physical contracts. Collateral amounts held or posted may be fixed or may vary, depending on the value of the underlying contracts, and could cover normal purchases and sales, services, trading and hedging contracts. In many cases, we and our counterparties have publicly disclosed credit ratings, which may impact the amounts of collateral requirements.
Physical forward contracts and financial derivatives are generally cash settled at the expiration of the contract term. These transactions are generally subject to specific credit provisions within the contracts that would allow the seller, at its discretion, to suspend deliveries, cancel agreements or continue deliveries to the buyer after the buyer provides security for payment satisfactory to the seller
.
Offsetting
Certain of our derivative instruments are subject to a master netting or similar arrangement, whereby we may elect to settle multiple positions with an individual counterparty through a single net payment. Each of our individual derivative instruments are presented on a gross basis on the condensed consolidated balance sheets, regardless of our ability to net settle our positions. Instruments that are governed by agreements that include net settle provisions allow final settlement, when presented with a termination event, of outstanding amounts by extinguishing the mutual debts owed between the parties in exchange for a net amount due. We have trade receivables and payables associated with derivative instruments, subject to master netting or similar agreements, which are not included in the table below. The following summarizes the gross and net amounts of our derivative instruments:
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
December 31, 2017
|
|
Gross Amounts
of Assets and
(Liabilities)
Presented in the
Balance Sheet
|
|
Amounts Not
Offset in the
Balance Sheet -
Financial
Instruments
|
|
Net
Amount
|
|
Gross Amounts
of Assets and
(Liabilities)
Presented in the
Balance Sheet
|
|
Amounts Not
Offset in the
Balance Sheet -
Financial
Instruments
|
|
Net
Amount
|
|
(millions)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
$
|
76
|
|
|
$
|
—
|
|
|
$
|
76
|
|
|
$
|
33
|
|
|
$
|
—
|
|
|
$
|
33
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives
|
$
|
(194
|
)
|
|
$
|
—
|
|
|
$
|
(194
|
)
|
|
$
|
(91
|
)
|
|
$
|
—
|
|
|
$
|
(91
|
)
|
Summarized Derivative Information
The fair value of our derivative instruments that are marked-to-market each period, as well as the location of each within our condensed consolidated balance sheets, by major category, is summarized below. We have no derivative instruments that are designated as hedging instruments for accounting purposes as of
September 30, 2018
and
December 31, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Line Item
|
September 30,
2018
|
|
December 31,
2017
|
|
Balance Sheet Line Item
|
|
September 30,
2018
|
|
December 31,
2017
|
|
(millions)
|
|
|
|
(millions)
|
Derivative Assets Not Designated as Hedging Instruments:
|
|
Derivative Liabilities Not Designated as Hedging Instruments:
|
Commodity derivatives:
|
|
|
|
|
Commodity derivatives:
|
|
|
|
|
Unrealized gains on derivative instruments — current
|
$
|
57
|
|
|
$
|
30
|
|
|
Unrealized losses on derivative instruments — current
|
|
$
|
(157
|
)
|
|
$
|
(76
|
)
|
Unrealized gains on derivative instruments — long-term
|
19
|
|
|
3
|
|
|
Unrealized losses on derivative instruments — long-term
|
|
(37
|
)
|
|
(15
|
)
|
Total
|
$
|
76
|
|
|
$
|
33
|
|
|
Total
|
|
$
|
(194
|
)
|
|
$
|
(91
|
)
|
The following summarizes the balance and activity within AOCI relative to our interest rate, commodity and foreign currency cash flow hedges as of and for the
three months ended September 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Cash
Flow
Hedges
|
|
Commodity
Cash Flow
Hedges
|
|
Foreign
Currency
Cash Flow
Hedges (a)
|
|
Total
|
|
(millions)
|
Net deferred (losses) gains in AOCI (beginning balance)
|
$
|
(3
|
)
|
|
$
|
(6
|
)
|
|
$
|
1
|
|
|
$
|
(8
|
)
|
Losses reclassified from AOCI to earnings — effective portion
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net deferred (losses) gains in AOCI (ending balance)
|
$
|
(3
|
)
|
|
$
|
(6
|
)
|
|
$
|
1
|
|
|
$
|
(8
|
)
|
Deferred losses in AOCI expected to be reclassified into earnings over the next 12 months
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
The following summarizes the balance and activity within AOCI relative to our interest rate, commodity and foreign currency cash flow hedges as of and for the
nine months ended September 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Cash
Flow
Hedges
|
|
Commodity
Cash Flow
Hedges
|
|
Foreign
Currency
Cash Flow
Hedges (a)
|
|
Total
|
|
(millions)
|
Net deferred (losses) gains in AOCI (beginning balance)
|
$
|
(4
|
)
|
|
$
|
(6
|
)
|
|
$
|
1
|
|
|
$
|
(9
|
)
|
Losses reclassified from AOCI to earnings — effective portion
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Net deferred (losses) gains in AOCI (ending balance)
|
$
|
(3
|
)
|
|
$
|
(6
|
)
|
|
$
|
1
|
|
|
$
|
(8
|
)
|
Deferred losses in AOCI expected to be reclassified into earnings over the next 12 months
|
$
|
(1
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
(a)
Relates to Discovery Producer Services LLC ("Discovery"), an unconsolidated affiliate.
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
The following summarizes the balance and activity within AOCI relative to our interest rate, commodity and foreign currency cash flow hedges as of and for the
three months ended September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Cash
Flow
Hedges
|
|
Commodity
Cash Flow
Hedges
|
|
Foreign
Currency
Cash Flow
Hedges (a)
|
|
Total
|
|
(millions)
|
Net deferred (losses) gains in AOCI (beginning balance)
|
$
|
(4
|
)
|
|
$
|
(6
|
)
|
|
$
|
1
|
|
|
$
|
(9
|
)
|
Net deferred (losses) gains in AOCI (ending balance)
|
$
|
(4
|
)
|
|
$
|
(6
|
)
|
|
$
|
1
|
|
|
$
|
(9
|
)
|
The following summarizes the balance and activity within AOCI relative to our interest rate, commodity and foreign currency cash flow hedges as of and for the
nine months ended
September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Cash
Flow
Hedges
|
|
Commodity
Cash Flow
Hedges
|
|
Foreign
Currency
Cash Flow
Hedges (a)
|
|
Total
|
|
(millions)
|
Net deferred (losses) gains in AOCI (beginning balance)
|
$
|
(3
|
)
|
|
$
|
(6
|
)
|
|
$
|
1
|
|
|
$
|
(8
|
)
|
Losses reclassified from AOCI to earnings — effective portion
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Deficit purchase price under carrying value
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
Net deferred (losses) gains in AOCI (ending balance)
|
$
|
(4
|
)
|
|
$
|
(6
|
)
|
|
$
|
1
|
|
|
$
|
(9
|
)
|
|
|
(a)
|
Relates to Discovery, an unconsolidated affiliate.
|
For the
three and
nine months ended
September 30, 2018
and
2017
,
no
derivative losses attributable to the ineffective portion or to amounts excluded from effectiveness testing were recognized in trading and marketing gains or losses, net or interest expense in our condensed consolidated statements of operations. For the
three and
nine months ended
September 30, 2018
and
2017
,
no
derivative losses were reclassified from AOCI to trading and marketing gains or losses, net or interest expense as a result of the discontinuance of cash flow hedges related to certain forecasted transactions that are not probable of occurring.
Changes in the value of derivative instruments, for which the hedge method of accounting has not been elected from one period to the next, are recorded in the condensed consolidated statements of operations. The following summarizes these amounts and the location within the condensed consolidated statements of operations that such amounts are reflected:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity Derivatives: Statements of Operations Line Item
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
|
(millions)
|
Realized (losses) gains
|
|
$
|
(43
|
)
|
|
$
|
16
|
|
|
$
|
(85
|
)
|
|
$
|
9
|
|
Unrealized (losses) gains
|
|
(13
|
)
|
|
(59
|
)
|
|
(79
|
)
|
|
1
|
|
Trading and marketing (losses) gains, net
|
|
$
|
(56
|
)
|
|
$
|
(43
|
)
|
|
$
|
(164
|
)
|
|
$
|
10
|
|
We do not have any derivative financial instruments that qualify as a hedge of a net investment.
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
The following tables represent, by commodity type, our net long or short positions that are expected to partially or entirely settle in each respective year. To the extent that we have long dated derivative positions that span multiple calendar years, the contract will appear in more than one line item in the tables below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
Crude Oil
|
|
Natural Gas
|
|
Natural Gas
Liquids
|
|
Natural Gas
Basis Swaps
|
Year of Expiration
|
Net Short
Position
(Bbls)
|
|
Net Short Position
(MMBtu)
|
|
Net Short
Position
(Bbls)
|
|
Net (Short) Long
Position
(MMBtu)
|
2018
|
(721,000
|
)
|
|
(9,938,000
|
)
|
|
(13,436,719
|
)
|
|
(1,652,500
|
)
|
2019
|
(1,994,000
|
)
|
|
(16,508,750
|
)
|
|
(21,595,027
|
)
|
|
(4,532,500
|
)
|
2020
|
(189,000
|
)
|
|
—
|
|
|
(13,601,378
|
)
|
|
3,660,000
|
|
2021
|
—
|
|
|
—
|
|
|
(5,754,322
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
Crude Oil
|
|
Natural Gas
|
|
Natural Gas
Liquids
|
|
Natural Gas
Basis Swaps
|
Year of Expiration
|
Net Short
Position
(Bbls)
|
|
Net Short Position
(MMBtu)
|
|
Net (Short) Long
Position
(Bbls)
|
|
Net Long
Position
(MMBtu)
|
2017
|
(81,000
|
)
|
|
(20,888,000
|
)
|
|
(9,288,558
|
)
|
|
2,680,000
|
|
2018
|
(1,803,000
|
)
|
|
(29,277,400
|
)
|
|
(13,417,484
|
)
|
|
9,190,000
|
|
2019
|
(367,000
|
)
|
|
—
|
|
|
(2,353,300
|
)
|
|
9,317,500
|
|
2020
|
(50,000
|
)
|
|
—
|
|
|
238,548
|
|
|
3,660,000
|
|
13
. Partnership Equity and Distributions
Common Units
—
During the
nine months ended
September 30, 2018
and
2017
, we issued
no
common units pursuant to our at-the-market program. As of September 30, 2018, $
750 million
of common units remained available for sale pursuant to our at-the-market program.
Distributions
— The following table presents our cash distributions paid in
2018
and
2017
:
|
|
|
|
|
|
|
|
|
Payment Date
|
Per Unit
Distribution
|
|
Total Cash
Distribution
|
|
|
|
|
(millions)
|
Distributions to common unitholders
|
|
|
|
August 14, 2018
|
$
|
0.7800
|
|
|
$
|
154
|
|
May 15, 2018
|
$
|
0.7800
|
|
|
$
|
155
|
|
February 14, 2018
|
$
|
0.7800
|
|
|
$
|
194
|
|
November 14, 2017
|
$
|
0.7800
|
|
|
$
|
155
|
|
August 14, 2017
|
$
|
0.7800
|
|
|
$
|
134
|
|
May 15, 2017
|
$
|
0.7800
|
|
|
$
|
135
|
|
February 14, 2017
|
$
|
0.7800
|
|
|
$
|
121
|
|
|
|
|
|
Distributions to Series A Preferred unitholders
|
|
|
|
June 15, 2018
|
$
|
41.9965
|
|
|
$
|
21
|
|
|
|
|
|
Distributions to Series B Preferred unitholders
|
|
|
|
September 17, 2018
|
$
|
0.6781
|
|
|
$
|
4
|
|
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
14. Net Income or Loss per Limited Partner Unit
Basic and diluted net income or loss per Limited Partner Unit ("LPU") is calculated by dividing net income or loss allocable to limited partners, by the weighted-average number of LPUs outstanding during the period. Diluted net income or loss per LPU is computed based on the weighted average number of units plus the effect of potential dilutive units outstanding during the period using the two-class method.
15
. Commitments and Contingent Liabilities
Litigation
— We are not a party to any significant legal proceedings, but are a party to various administrative and regulatory proceedings and commercial disputes that have arisen in the ordinary course of our business. Management currently believes that the ultimate resolution of the foregoing matters, taken as a whole, and after consideration of amounts accrued, insurance coverage or other indemnification arrangements, will not have a material adverse effect on our results of operations, financial position, or cash flow.
Insurance
— Our insurance coverage is carried with third-party insurers and with an affiliate of Phillips 66. Our insurance coverage includes: (i) general liability insurance covering third-party exposures; (ii) statutory workers’ compensation insurance; (iii) automobile liability insurance for all owned, non-owned and hired vehicles; (iv) excess liability insurance above the established primary limits for general liability and automobile liability insurance; (v) property insurance, which covers the replacement value of real and personal property and includes business interruption; and (vi) insurance covering our directors and officers for acts related to our business activities. All coverage is subject to certain limits and deductibles, the terms and conditions of which are common for companies with similar types of operations.
Environmental
— The operation of pipelines, plants and other facilities for gathering, transporting, processing, treating, fractionating, or storing natural gas, NGLs and other products is subject to stringent and complex laws and regulations pertaining to health, safety and the environment. As an owner or operator of these facilities, we must comply with laws and regulations at the federal, state and, in some cases, local levels that relate to worker safety, air and water quality, solid and hazardous waste management and disposal, and other environmental matters. The cost of planning, designing, constructing and operating pipelines, plants, and other facilities incorporates compliance with environmental laws and regulations, worker safety standards, and safety standards applicable to our various facilities. In addition, there is increasing focus from (i) city, state and federal regulatory officials and through litigation, on hydraulic fracturing and the real or perceived environmental impacts of this technique, which indirectly presents some risk to our available supply of natural gas and the resulting supply of NGLs, (ii) federal regulatory agencies regarding pipeline system safety which could impose additional regulatory burdens and increase the cost of our operations, (iii) state and federal regulatory officials regarding the emission of greenhouse gases, which could impose regulatory burdens and increase the cost of our operations, and (iv) regulatory bodies and communities that could prevent or delay the development of fossil fuel energy infrastructure such as pipelines, plants, and other facilities used in our business. Failure to comply with these various health, safety and environmental laws and regulations may trigger a variety of administrative, civil and potentially criminal enforcement measures, including citizen suits, which can include the assessment of monetary penalties, the imposition of remedial requirements, and the issuance of injunctions or restrictions on operation. Management believes that, based on currently known information, compliance with these existing laws and regulations will not have a material adverse effect on our results of operations, financial position or cash flows.
In June 2017, we were issued a Compliance Advisory by the Colorado Department of Public Health and Environment (CDPHE) regarding alleged noncompliance with various terms and requirements of the air permit for our Lucerne 2 natural gas processing plant. Following information exchanges and discussions with CDPHE, on November 1, 2018, we entered into a Compliance Order on Consent to resolve the alleged noncompliance. The Compliance Order provides for our payment of a
$46,200
administrative penalty and to fund Supplemental Environmental Projects in the amount of
$184,800
to offset administrative penalties.
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
16
. Business Segments
Our operations are organized into
two
reportable segments: (i) Gathering and Processing and (ii) Logistics and Marketing. These segments are monitored separately by management for performance against our internal forecast and are consistent with internal financial reporting. These segments have been identified based on the differing products and services, regulatory environment and the expertise required for these operations. Our Gathering and Processing reportable segment includes operating segments that have been aggregated based on the nature of the products and services provided. Gross margin is a performance measure utilized by management to monitor the operations of each segment. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies included in Note 2 of the Notes to Consolidated Financial Statements in “Financial Statements and Supplementary Data” included as Item 8 in our Annual Report on Form 10-K for the year ended December 31, 2017.
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
Our Gathering and Processing segment consists of gathering, compressing, treating, processing natural gas, producing and fractionating NGLs, and recovering condensate. Our Logistics and Marketing segment includes transporting, trading, marketing, and storing natural gas and NGLs, fractionating NGLs, and wholesale propane logistics. The remainder of our business operations is presented as “Other,” and consists of unallocated corporate costs. Elimination of inter-segment transactions are reflected in the eliminations column.
The following tables set forth our segment information:
Three Months Ended September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gathering and Processing
|
|
Logistics and Marketing
|
|
Other
|
|
Eliminations
|
|
Total
|
|
(millions)
|
Total operating revenue
|
$
|
1,579
|
|
|
$
|
2,590
|
|
|
$
|
—
|
|
|
$
|
(1,410
|
)
|
|
$
|
2,759
|
|
Gross margin (a)
|
$
|
364
|
|
|
$
|
68
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
432
|
|
Operating and maintenance expense
|
(175
|
)
|
|
(14
|
)
|
|
(7
|
)
|
|
—
|
|
|
(196
|
)
|
Depreciation and amortization expense
|
(87
|
)
|
|
(5
|
)
|
|
(6
|
)
|
|
—
|
|
|
(98
|
)
|
General and administrative expense
|
(6
|
)
|
|
(3
|
)
|
|
(61
|
)
|
|
—
|
|
|
(70
|
)
|
Other expense
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(2
|
)
|
Loss from financing activities
|
—
|
|
|
—
|
|
|
(19
|
)
|
|
—
|
|
|
(19
|
)
|
Earnings from unconsolidated affiliates
|
2
|
|
|
102
|
|
|
—
|
|
|
—
|
|
|
104
|
|
Interest expense
|
—
|
|
|
—
|
|
|
(69
|
)
|
|
—
|
|
|
(69
|
)
|
Net income (loss)
|
$
|
97
|
|
|
$
|
148
|
|
|
$
|
(163
|
)
|
|
$
|
—
|
|
|
$
|
82
|
|
Net income attributable to noncontrolling interests
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
Net income (loss) attributable to partners
|
$
|
96
|
|
|
$
|
148
|
|
|
$
|
(163
|
)
|
|
$
|
—
|
|
|
$
|
81
|
|
Non-cash derivative mark-to-market (b)
|
$
|
(21
|
)
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(13
|
)
|
Capital expenditures
|
$
|
152
|
|
|
$
|
3
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
160
|
|
Investments in unconsolidated affiliates, net
|
$
|
3
|
|
|
$
|
136
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
139
|
|
Three Months Ended September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gathering and Processing
|
|
Logistics and Marketing
|
|
Other
|
|
Eliminations
|
|
Total
|
|
(millions)
|
Total operating revenue
|
$
|
1,337
|
|
|
$
|
1,913
|
|
|
$
|
—
|
|
|
$
|
(1,195
|
)
|
|
$
|
2,055
|
|
Gross margin (a)
|
$
|
303
|
|
|
$
|
57
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
360
|
|
Operating and maintenance expense
|
(154
|
)
|
|
(9
|
)
|
|
(5
|
)
|
|
—
|
|
|
(168
|
)
|
Depreciation and amortization expense
|
(85
|
)
|
|
(4
|
)
|
|
(5
|
)
|
|
—
|
|
|
(94
|
)
|
General and administrative expense
|
(2
|
)
|
|
(3
|
)
|
|
(64
|
)
|
|
—
|
|
|
(69
|
)
|
Asset impairment
|
(48
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(48
|
)
|
Other (expense) income
|
—
|
|
|
(1
|
)
|
|
1
|
|
|
—
|
|
|
—
|
|
Earnings from unconsolidated affiliates
|
15
|
|
|
59
|
|
|
—
|
|
|
—
|
|
|
74
|
|
Interest expense
|
—
|
|
|
—
|
|
|
(73
|
)
|
|
—
|
|
|
(73
|
)
|
Income tax expense
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
Net income (loss)
|
$
|
29
|
|
|
$
|
99
|
|
|
$
|
(148
|
)
|
|
$
|
—
|
|
|
$
|
(20
|
)
|
Net income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net income (loss) attributable to partners
|
$
|
29
|
|
|
$
|
99
|
|
|
$
|
(148
|
)
|
|
$
|
—
|
|
|
$
|
(20
|
)
|
Non-cash derivative mark-to-market (b)
|
$
|
(51
|
)
|
|
$
|
(8
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(59
|
)
|
Capital expenditures
|
$
|
91
|
|
|
$
|
1
|
|
|
$
|
7
|
|
|
$
|
—
|
|
|
$
|
99
|
|
Investments in unconsolidated affiliates, net
|
$
|
1
|
|
|
$
|
28
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
29
|
|
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
Nine Months Ended September 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gathering and Processing
|
|
Logistics and Marketing
|
|
Other
|
|
Eliminations
|
|
Total
|
|
(millions)
|
Total operating revenue
|
$
|
4,179
|
|
|
$
|
6,761
|
|
|
$
|
—
|
|
|
$
|
(3,725
|
)
|
|
$
|
7,215
|
|
Gross margin (a)
|
$
|
1,049
|
|
|
$
|
142
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,191
|
|
Operating and maintenance expense
|
(492
|
)
|
|
(36
|
)
|
|
(15
|
)
|
|
—
|
|
|
(543
|
)
|
Depreciation and amortization expense
|
(258
|
)
|
|
(11
|
)
|
|
(20
|
)
|
|
—
|
|
|
(289
|
)
|
General and administrative expense
|
(12
|
)
|
|
(9
|
)
|
|
(178
|
)
|
|
—
|
|
|
(199
|
)
|
Other expense, net
|
(4
|
)
|
|
(2
|
)
|
|
(1
|
)
|
|
—
|
|
|
(7
|
)
|
Loss from financing activities
|
—
|
|
|
—
|
|
|
(19
|
)
|
|
—
|
|
|
(19
|
)
|
Earnings from unconsolidated affiliates
|
5
|
|
|
273
|
|
|
—
|
|
|
—
|
|
|
278
|
|
Interest expense
|
—
|
|
|
—
|
|
|
(203
|
)
|
|
—
|
|
|
(203
|
)
|
Income tax expense
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
Net income (loss)
|
$
|
288
|
|
|
$
|
357
|
|
|
$
|
(438
|
)
|
|
$
|
—
|
|
|
$
|
207
|
|
Net income attributable to noncontrolling interests
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
Net income (loss) attributable to partners
|
$
|
285
|
|
|
$
|
357
|
|
|
$
|
(438
|
)
|
|
$
|
—
|
|
|
$
|
204
|
|
Non-cash derivative mark-to-market (b)
|
$
|
(49
|
)
|
|
$
|
(30
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(79
|
)
|
Capital expenditures
|
$
|
412
|
|
|
$
|
4
|
|
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
428
|
|
Investments in unconsolidated affiliates, net
|
$
|
4
|
|
|
$
|
261
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
265
|
|
Nine Months Ended September 30, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gathering and Processing
|
|
Logistics and Marketing
|
|
Other
|
|
Eliminations
|
|
Total
|
|
(millions)
|
Total operating revenue
|
$
|
3,965
|
|
|
$
|
5,596
|
|
|
$
|
—
|
|
|
$
|
(3,436
|
)
|
|
$
|
6,125
|
|
Gross margin (a)
|
$
|
1,021
|
|
|
$
|
165
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,186
|
|
Operating and maintenance expense
|
(469
|
)
|
|
(31
|
)
|
|
(13
|
)
|
|
—
|
|
|
(513
|
)
|
Depreciation and amortization expense
|
(256
|
)
|
|
(11
|
)
|
|
(15
|
)
|
|
—
|
|
|
(282
|
)
|
General and administrative expense
|
(15
|
)
|
|
(8
|
)
|
|
(179
|
)
|
|
—
|
|
|
(202
|
)
|
Asset impairment
|
(48
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(48
|
)
|
Other expense
|
(3
|
)
|
|
(12
|
)
|
|
—
|
|
|
—
|
|
|
(15
|
)
|
Gain on sale of assets, net
|
34
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
34
|
|
Earnings from unconsolidated affiliates
|
59
|
|
|
175
|
|
|
—
|
|
|
—
|
|
|
234
|
|
Interest expense
|
—
|
|
|
—
|
|
|
(219
|
)
|
|
—
|
|
|
(219
|
)
|
Income tax expense
|
—
|
|
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
(5
|
)
|
Net income (loss)
|
$
|
323
|
|
|
$
|
278
|
|
|
$
|
(431
|
)
|
|
$
|
—
|
|
|
$
|
170
|
|
Net income attributable to noncontrolling interests
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
Net income (loss) attributable to partners
|
$
|
322
|
|
|
$
|
278
|
|
|
$
|
(431
|
)
|
|
$
|
—
|
|
|
$
|
169
|
|
Non-cash derivative mark-to-market (b)
|
$
|
(4
|
)
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Capital expenditures
|
$
|
237
|
|
|
$
|
2
|
|
|
$
|
19
|
|
|
$
|
—
|
|
|
$
|
258
|
|
Investments in unconsolidated affiliates, net
|
$
|
1
|
|
|
$
|
69
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
70
|
|
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
2018
|
|
2017
|
|
(millions)
|
Segment long-term assets:
|
|
|
|
Gathering and Processing
|
$
|
9,098
|
|
|
$
|
8,943
|
|
Logistics and Marketing
|
3,584
|
|
|
3,348
|
|
Other (c)
|
277
|
|
|
265
|
|
Total long-term assets
|
12,959
|
|
|
12,556
|
|
Current assets
|
1,526
|
|
|
1,322
|
|
Total assets
|
$
|
14,485
|
|
|
$
|
13,878
|
|
|
|
(a)
|
Gross margin consists of total operating revenues, including commodity derivative activity, less purchases and related costs. Gross margin is viewed as a non-GAAP financial measure under the rules of the SEC, but is included as a supplemental disclosure because it is a primary performance measure used by management as it represents the results of product sales versus product purchases. As an indicator of our operating performance, gross margin should not be considered an alternative to, or more meaningful than, net income or net cash provided by operating activities as determined in accordance with GAAP. Our gross margin may not be comparable to a similarly titled measure of another company because other entities may not calculate gross margin in the same manner.
|
|
|
(b)
|
Non-cash commodity derivative mark-to-market is included in gross margin, along with cash settlements for our commodity derivative contracts.
|
|
|
(c)
|
Other long-term assets not allocable to segments consist of corporate leasehold improvements and other long-term assets.
|
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
17. Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2018
|
|
2017
|
|
(millions)
|
Cash paid for interest:
|
|
|
|
Cash paid for interest, net of amounts capitalized
|
$
|
192
|
|
|
$
|
218
|
|
Cash paid for income taxes, net of income tax refunds
|
$
|
3
|
|
|
$
|
2
|
|
Non-cash investing and financing activities:
|
|
|
|
Property, plant and equipment acquired with accounts payable and accrued liabilities
|
$
|
58
|
|
|
$
|
27
|
|
Other non-cash changes in property, plant and equipment
|
$
|
—
|
|
|
$
|
(1
|
)
|
Issuance of common and general partner units
|
$
|
—
|
|
|
$
|
1,125
|
|
Deficit purchase price
|
$
|
—
|
|
|
$
|
3,094
|
|
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
18. Supplementary Information - Condensed Consolidating Financial Information
The following condensed consolidating financial information presents the results of operations, financial position and cash flows of DCP Midstream, LP, or parent guarantor, DCP Midstream Operating LP, or subsidiary issuer, which is a
100%
owned subsidiary, and non-guarantor subsidiaries, as well as the consolidating adjustments necessary to present DCP Midstream, LP’s results on a consolidated basis. The parent guarantor has agreed to fully and unconditionally guarantee debt securities of the subsidiary issuer. For the purpose of the following financial information, investments in subsidiaries are reflected in accordance with the equity method of accounting. The financial information may not necessarily be indicative of results of operations, cash flows, or financial position had the subsidiaries operated as independent entities.
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheets
|
|
September 30, 2018
|
|
Parent
Guarantor
|
|
Subsidiary
Issuer
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
|
(millions)
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Accounts receivable, net
|
—
|
|
|
—
|
|
|
1,234
|
|
|
—
|
|
|
1,234
|
|
Inventories
|
—
|
|
|
—
|
|
|
77
|
|
|
—
|
|
|
77
|
|
Other
|
—
|
|
|
—
|
|
|
214
|
|
|
—
|
|
|
214
|
|
Total current assets
|
—
|
|
|
—
|
|
|
1,526
|
|
|
—
|
|
|
1,526
|
|
Property, plant and equipment, net
|
—
|
|
|
—
|
|
|
9,163
|
|
|
—
|
|
|
9,163
|
|
Goodwill and intangible assets, net
|
—
|
|
|
—
|
|
|
330
|
|
|
—
|
|
|
330
|
|
Advances receivable — consolidated subsidiaries
|
2,522
|
|
|
1,739
|
|
|
—
|
|
|
(4,261
|
)
|
|
—
|
|
Investments in consolidated subsidiaries
|
4,724
|
|
|
7,953
|
|
|
—
|
|
|
(12,677
|
)
|
|
—
|
|
Investments in unconsolidated affiliates
|
—
|
|
|
—
|
|
|
3,277
|
|
|
—
|
|
|
3,277
|
|
Other long-term assets
|
—
|
|
|
—
|
|
|
189
|
|
|
—
|
|
|
189
|
|
Total assets
|
$
|
7,246
|
|
|
$
|
9,692
|
|
|
$
|
14,485
|
|
|
$
|
(16,938
|
)
|
|
$
|
14,485
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
Accounts payable and other current liabilities
|
$
|
—
|
|
|
$
|
68
|
|
|
$
|
1,740
|
|
|
$
|
—
|
|
|
$
|
1,808
|
|
Current maturities of long-term debt
|
—
|
|
|
325
|
|
|
200
|
|
|
—
|
|
|
525
|
|
Advances payable — consolidated subsidiaries
|
—
|
|
|
—
|
|
|
4,261
|
|
|
(4,261
|
)
|
|
—
|
|
Long-term debt
|
—
|
|
|
4,575
|
|
|
—
|
|
|
—
|
|
|
4,575
|
|
Other long-term liabilities
|
—
|
|
|
—
|
|
|
301
|
|
|
—
|
|
|
301
|
|
Total liabilities
|
—
|
|
|
4,968
|
|
|
6,502
|
|
|
(4,261
|
)
|
|
7,209
|
|
Commitments and contingent liabilities
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
Partners’ equity:
|
|
|
|
|
|
|
|
|
|
Net equity
|
7,246
|
|
|
4,727
|
|
|
7,958
|
|
|
(12,677
|
)
|
|
7,254
|
|
Accumulated other comprehensive loss
|
—
|
|
|
(3
|
)
|
|
(5
|
)
|
|
—
|
|
|
(8
|
)
|
Total partners’ equity
|
7,246
|
|
|
4,724
|
|
|
7,953
|
|
|
(12,677
|
)
|
|
7,246
|
|
Noncontrolling interests
|
—
|
|
|
—
|
|
|
30
|
|
|
—
|
|
|
30
|
|
Total equity
|
7,246
|
|
|
4,724
|
|
|
7,983
|
|
|
(12,677
|
)
|
|
7,276
|
|
Total liabilities and equity
|
$
|
7,246
|
|
|
$
|
9,692
|
|
|
$
|
14,485
|
|
|
$
|
(16,938
|
)
|
|
$
|
14,485
|
|
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheets
|
|
December 31, 2017
|
|
Parent
Guarantor
|
|
Subsidiary
Issuer
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
|
(millions)
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
—
|
|
|
$
|
155
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
156
|
|
Accounts receivable, net
|
—
|
|
|
—
|
|
|
981
|
|
|
—
|
|
|
981
|
|
Inventories
|
—
|
|
|
—
|
|
|
68
|
|
|
—
|
|
|
68
|
|
Other
|
—
|
|
|
—
|
|
|
117
|
|
|
—
|
|
|
117
|
|
Total current assets
|
—
|
|
|
155
|
|
|
1,167
|
|
|
—
|
|
|
1,322
|
|
Property, plant and equipment, net
|
—
|
|
|
—
|
|
|
8,983
|
|
|
—
|
|
|
8,983
|
|
Goodwill and intangible assets, net
|
—
|
|
|
—
|
|
|
337
|
|
|
—
|
|
|
337
|
|
Advances receivable — consolidated subsidiaries
|
2,895
|
|
|
1,614
|
|
|
—
|
|
|
(4,509
|
)
|
|
—
|
|
Investments in consolidated subsidiaries
|
4,513
|
|
|
7,522
|
|
|
—
|
|
|
(12,035
|
)
|
|
—
|
|
Investments in unconsolidated affiliates
|
—
|
|
|
—
|
|
|
3,050
|
|
|
—
|
|
|
3,050
|
|
Other long-term assets
|
—
|
|
|
—
|
|
|
186
|
|
|
—
|
|
|
186
|
|
Total assets
|
$
|
7,408
|
|
|
$
|
9,291
|
|
|
$
|
13,723
|
|
|
$
|
(16,544
|
)
|
|
$
|
13,878
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
|
Accounts payable and other current liabilities
|
$
|
—
|
|
|
$
|
71
|
|
|
$
|
1,417
|
|
|
$
|
—
|
|
|
$
|
1,488
|
|
Advances payable — consolidated subsidiaries
|
—
|
|
|
—
|
|
|
4,509
|
|
|
(4,509
|
)
|
|
—
|
|
Long-term debt
|
—
|
|
|
4,707
|
|
|
—
|
|
|
—
|
|
|
4,707
|
|
Other long-term liabilities
|
—
|
|
|
—
|
|
|
245
|
|
|
—
|
|
|
245
|
|
Total liabilities
|
—
|
|
|
4,778
|
|
|
6,171
|
|
|
(4,509
|
)
|
|
6,440
|
|
Commitments and contingent liabilities
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
Partners’ equity:
|
|
|
|
|
|
|
|
|
|
Net equity
|
7,408
|
|
|
4,517
|
|
|
7,527
|
|
|
(12,035
|
)
|
|
7,417
|
|
Accumulated other comprehensive loss
|
—
|
|
|
(4
|
)
|
|
(5
|
)
|
|
—
|
|
|
(9
|
)
|
Total partners’ equity
|
7,408
|
|
|
4,513
|
|
|
7,522
|
|
|
(12,035
|
)
|
|
7,408
|
|
Noncontrolling interests
|
—
|
|
|
—
|
|
|
30
|
|
|
—
|
|
|
30
|
|
Total equity
|
7,408
|
|
|
4,513
|
|
|
7,552
|
|
|
(12,035
|
)
|
|
7,438
|
|
Total liabilities and equity
|
$
|
7,408
|
|
|
$
|
9,291
|
|
|
$
|
13,723
|
|
|
$
|
(16,544
|
)
|
|
$
|
13,878
|
|
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations
|
|
Three Months Ended September 30, 2018
|
|
Parent
Guarantor
|
|
Subsidiary
Issuer
|
|
Non-
Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
|
(millions)
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
Sales of natural gas, NGLs and condensate
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,682
|
|
|
$
|
—
|
|
|
$
|
2,682
|
|
Transportation, processing and other
|
—
|
|
|
—
|
|
|
133
|
|
|
—
|
|
|
133
|
|
Trading and marketing losses, net
|
—
|
|
|
—
|
|
|
(56
|
)
|
|
—
|
|
|
(56
|
)
|
Total operating revenues
|
—
|
|
|
—
|
|
|
2,759
|
|
|
—
|
|
|
2,759
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
Purchases and related costs
|
—
|
|
|
—
|
|
|
2,327
|
|
|
—
|
|
|
2,327
|
|
Operating and maintenance expense
|
—
|
|
|
—
|
|
|
196
|
|
|
—
|
|
|
196
|
|
Depreciation and amortization expense
|
—
|
|
|
—
|
|
|
98
|
|
|
—
|
|
|
98
|
|
General and administrative expense
|
—
|
|
|
—
|
|
|
70
|
|
|
—
|
|
|
70
|
|
Other expense, net
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
2
|
|
Total operating costs and expenses
|
—
|
|
|
—
|
|
|
2,693
|
|
|
—
|
|
|
2,693
|
|
Operating income
|
—
|
|
|
—
|
|
|
66
|
|
|
—
|
|
|
66
|
|
Loss from financing activities
|
—
|
|
|
(19
|
)
|
|
—
|
|
|
—
|
|
|
(19
|
)
|
Interest expense, net
|
—
|
|
|
(68
|
)
|
|
(1
|
)
|
|
—
|
|
|
(69
|
)
|
Income from consolidated subsidiaries
|
81
|
|
|
168
|
|
|
—
|
|
|
(249
|
)
|
|
—
|
|
Earnings from unconsolidated affiliates
|
—
|
|
|
—
|
|
|
104
|
|
|
—
|
|
|
104
|
|
Income before income taxes
|
81
|
|
|
81
|
|
|
169
|
|
|
(249
|
)
|
|
82
|
|
Income tax expense
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net income
|
81
|
|
|
81
|
|
|
169
|
|
|
(249
|
)
|
|
82
|
|
Net income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
Net income attributable to partners
|
$
|
81
|
|
|
$
|
81
|
|
|
$
|
168
|
|
|
$
|
(249
|
)
|
|
$
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Comprehensive Income
|
|
Three Months Ended September 30, 2018
|
|
Parent
Guarantor
|
|
Subsidiary
Issuer
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
|
(millions)
|
Net income
|
$
|
81
|
|
|
$
|
81
|
|
|
$
|
169
|
|
|
$
|
(249
|
)
|
|
$
|
82
|
|
Total other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total comprehensive income
|
81
|
|
|
81
|
|
|
169
|
|
|
(249
|
)
|
|
82
|
|
Total comprehensive income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
Total comprehensive income attributable to partners
|
$
|
81
|
|
|
$
|
81
|
|
|
$
|
168
|
|
|
$
|
(249
|
)
|
|
$
|
81
|
|
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations
|
|
Three Months Ended September 30, 2017
|
|
Parent
Guarantor
|
|
Subsidiary
Issuer
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
|
(millions)
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
Sales of natural gas, NGLs and condensate
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,936
|
|
|
$
|
—
|
|
|
$
|
1,936
|
|
Transportation, processing and other
|
—
|
|
|
—
|
|
|
162
|
|
|
—
|
|
|
162
|
|
Trading and marketing losses, net
|
—
|
|
|
—
|
|
|
(43
|
)
|
|
—
|
|
|
(43
|
)
|
Total operating revenues
|
—
|
|
|
—
|
|
|
2,055
|
|
|
—
|
|
|
2,055
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
Purchases of natural gas and NGLs
|
—
|
|
|
—
|
|
|
1,695
|
|
|
—
|
|
|
1,695
|
|
Operating and maintenance expense
|
—
|
|
|
—
|
|
|
168
|
|
|
—
|
|
|
168
|
|
Depreciation and amortization expense
|
—
|
|
|
—
|
|
|
94
|
|
|
—
|
|
|
94
|
|
General and administrative expense
|
—
|
|
|
—
|
|
|
69
|
|
|
—
|
|
|
69
|
|
Asset impairment
|
—
|
|
|
—
|
|
|
48
|
|
|
—
|
|
|
48
|
|
Total operating costs and expenses
|
—
|
|
|
—
|
|
|
2,074
|
|
|
—
|
|
|
2,074
|
|
Operating loss
|
—
|
|
|
—
|
|
|
(19
|
)
|
|
—
|
|
|
(19
|
)
|
Interest expense, net
|
—
|
|
|
(73
|
)
|
|
—
|
|
|
—
|
|
|
(73
|
)
|
(Loss) income from consolidated subsidiaries
|
(20
|
)
|
|
53
|
|
|
—
|
|
|
(33
|
)
|
|
—
|
|
Earnings from unconsolidated affiliates
|
—
|
|
|
—
|
|
|
74
|
|
|
—
|
|
|
74
|
|
(Loss) income before income taxes
|
(20
|
)
|
|
(20
|
)
|
|
55
|
|
|
(33
|
)
|
|
(18
|
)
|
Income tax expense
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
Net (loss) income
|
(20
|
)
|
|
(20
|
)
|
|
53
|
|
|
(33
|
)
|
|
(20
|
)
|
Net income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net (loss) income attributable to partners
|
$
|
(20
|
)
|
|
$
|
(20
|
)
|
|
$
|
53
|
|
|
$
|
(33
|
)
|
|
$
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Comprehensive Income
|
|
Three Months Ended September 30, 2017
|
|
Parent
Guarantor
|
|
Subsidiary
Issuer
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
|
(millions)
|
Net (loss) income
|
$
|
(20
|
)
|
|
$
|
(20
|
)
|
|
$
|
53
|
|
|
$
|
(33
|
)
|
|
$
|
(20
|
)
|
Total other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total comprehensive (loss) income
|
(20
|
)
|
|
(20
|
)
|
|
53
|
|
|
(33
|
)
|
|
(20
|
)
|
Total comprehensive income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total comprehensive (loss) income attributable to partners
|
$
|
(20
|
)
|
|
$
|
(20
|
)
|
|
$
|
53
|
|
|
$
|
(33
|
)
|
|
$
|
(20
|
)
|
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations
|
|
Nine Months Ended September 30, 2018
|
|
Parent
Guarantor
|
|
Subsidiary
Issuer
|
|
Non-
Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
|
(millions)
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
Sales of natural gas, NGLs and condensate
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,008
|
|
|
$
|
—
|
|
|
$
|
7,008
|
|
Transportation, processing and other
|
—
|
|
|
—
|
|
|
371
|
|
|
—
|
|
|
371
|
|
Trading and marketing losses, net
|
—
|
|
|
—
|
|
|
(164
|
)
|
|
—
|
|
|
(164
|
)
|
Total operating revenues
|
—
|
|
|
—
|
|
|
7,215
|
|
|
—
|
|
|
7,215
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
Purchases and related costs
|
—
|
|
|
—
|
|
|
6,024
|
|
|
—
|
|
|
6,024
|
|
Operating and maintenance expense
|
—
|
|
|
—
|
|
|
543
|
|
|
—
|
|
|
543
|
|
Depreciation and amortization expense
|
—
|
|
|
—
|
|
|
289
|
|
|
—
|
|
|
289
|
|
General and administrative expense
|
—
|
|
|
—
|
|
|
199
|
|
|
—
|
|
|
199
|
|
Other expense, net
|
—
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
7
|
|
Total operating costs and expenses
|
—
|
|
|
—
|
|
|
7,062
|
|
|
—
|
|
|
7,062
|
|
Operating income
|
—
|
|
|
—
|
|
|
153
|
|
|
—
|
|
|
153
|
|
Loss from financing activities
|
—
|
|
|
(19
|
)
|
|
—
|
|
|
—
|
|
|
(19
|
)
|
Interest expense, net
|
—
|
|
|
(202
|
)
|
|
(1
|
)
|
|
—
|
|
|
(203
|
)
|
Income from consolidated subsidiaries
|
204
|
|
|
425
|
|
|
—
|
|
|
(629
|
)
|
|
—
|
|
Earnings from unconsolidated affiliates
|
—
|
|
|
—
|
|
|
278
|
|
|
—
|
|
|
278
|
|
Income before income taxes
|
204
|
|
|
204
|
|
|
430
|
|
|
(629
|
)
|
|
209
|
|
Income tax expense
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
Net income
|
204
|
|
|
204
|
|
|
428
|
|
|
(629
|
)
|
|
207
|
|
Net income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
(3
|
)
|
Net income attributable to partners
|
$
|
204
|
|
|
$
|
204
|
|
|
$
|
425
|
|
|
$
|
(629
|
)
|
|
$
|
204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Comprehensive Income
|
|
Nine Months Ended September 30, 2018
|
|
Parent
Guarantor
|
|
Subsidiary
Issuer
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
|
(millions)
|
Net income
|
$
|
204
|
|
|
$
|
204
|
|
|
$
|
428
|
|
|
$
|
(629
|
)
|
|
$
|
207
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
Reclassification of cash flow hedge losses into earnings
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Other comprehensive income from consolidated subsidiaries
|
1
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
Total other comprehensive income
|
1
|
|
|
1
|
|
|
—
|
|
|
(1
|
)
|
|
1
|
|
Total comprehensive income
|
205
|
|
|
205
|
|
|
428
|
|
|
(630
|
)
|
|
208
|
|
Total comprehensive income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
(3
|
)
|
Total comprehensive income attributable to partners
|
$
|
205
|
|
|
$
|
205
|
|
|
$
|
425
|
|
|
$
|
(630
|
)
|
|
$
|
205
|
|
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Operations
|
|
Nine Months Ended September 30, 2017
|
|
Parent
Guarantor
|
|
Subsidiary
Issuer
|
|
Non-
Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
|
(millions)
|
Operating revenues:
|
|
|
|
|
|
|
|
|
|
Sales of natural gas, NGLs and condensate
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,641
|
|
|
$
|
—
|
|
|
$
|
5,641
|
|
Transportation, processing and other
|
—
|
|
|
—
|
|
|
474
|
|
|
—
|
|
|
474
|
|
Trading and marketing gains, net
|
—
|
|
|
—
|
|
|
10
|
|
|
—
|
|
|
10
|
|
Total operating revenues
|
—
|
|
|
—
|
|
|
6,125
|
|
|
—
|
|
|
6,125
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
|
Purchases and related costs
|
—
|
|
|
—
|
|
|
4,939
|
|
|
—
|
|
|
4,939
|
|
Operating and maintenance expense
|
—
|
|
|
—
|
|
|
513
|
|
|
—
|
|
|
513
|
|
Depreciation and amortization expense
|
—
|
|
|
—
|
|
|
282
|
|
|
—
|
|
|
282
|
|
General and administrative expense
|
—
|
|
|
—
|
|
|
202
|
|
|
—
|
|
|
202
|
|
Asset impairment
|
—
|
|
|
—
|
|
|
48
|
|
|
—
|
|
|
48
|
|
Gain on sale of assets, net
|
—
|
|
|
—
|
|
|
(34
|
)
|
|
—
|
|
|
(34
|
)
|
Other expense, net
|
—
|
|
|
—
|
|
|
15
|
|
|
—
|
|
|
15
|
|
Total operating costs and expenses
|
—
|
|
|
—
|
|
|
5,965
|
|
|
—
|
|
|
5,965
|
|
Operating income
|
—
|
|
|
—
|
|
|
160
|
|
|
—
|
|
|
160
|
|
Interest expense, net
|
—
|
|
|
(219
|
)
|
|
—
|
|
|
—
|
|
|
(219
|
)
|
Income from consolidated subsidiaries
|
169
|
|
|
388
|
|
|
—
|
|
|
(557
|
)
|
|
—
|
|
Earnings from unconsolidated affiliates
|
—
|
|
|
—
|
|
|
234
|
|
|
—
|
|
|
234
|
|
Income before income taxes
|
169
|
|
|
169
|
|
|
394
|
|
|
(557
|
)
|
|
175
|
|
Income tax expense
|
—
|
|
|
—
|
|
|
(5
|
)
|
|
—
|
|
|
(5
|
)
|
Net income
|
169
|
|
|
169
|
|
|
389
|
|
|
(557
|
)
|
|
170
|
|
Net income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
Net income attributable to partners
|
$
|
169
|
|
|
$
|
169
|
|
|
$
|
388
|
|
|
$
|
(557
|
)
|
|
$
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Comprehensive Income
|
|
Nine Months Ended September 30, 2017
|
|
Parent
Guarantor
|
|
Subsidiary
Issuer
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
|
(millions)
|
Net income
|
$
|
169
|
|
|
$
|
169
|
|
|
$
|
389
|
|
|
$
|
(557
|
)
|
|
$
|
170
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
Reclassification of cash flow hedge losses into earnings
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Other comprehensive income from consolidated subsidiaries
|
1
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
Total other comprehensive income
|
1
|
|
|
1
|
|
|
—
|
|
|
(1
|
)
|
|
1
|
|
Total comprehensive income
|
170
|
|
|
170
|
|
|
389
|
|
|
(558
|
)
|
|
171
|
|
Total comprehensive income attributable to noncontrolling interests
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
Total comprehensive income attributable to partners
|
$
|
170
|
|
|
$
|
170
|
|
|
$
|
388
|
|
|
$
|
(558
|
)
|
|
$
|
170
|
|
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Cash Flows
|
|
Nine Months Ended September 30, 2018
|
|
Parent
Guarantor
|
|
Subsidiary
Issuer
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
|
(millions)
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
$
|
—
|
|
|
$
|
(201
|
)
|
|
$
|
742
|
|
|
$
|
—
|
|
|
$
|
541
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Intercompany transfers
|
373
|
|
|
(125
|
)
|
|
—
|
|
|
(248
|
)
|
|
—
|
|
Capital expenditures
|
—
|
|
|
—
|
|
|
(428
|
)
|
|
—
|
|
|
(428
|
)
|
Investments in unconsolidated affiliates, net
|
—
|
|
|
—
|
|
|
(265
|
)
|
|
—
|
|
|
(265
|
)
|
Proceeds from sale of assets
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
Net cash provided by (used in) investing activities
|
373
|
|
|
(125
|
)
|
|
(690
|
)
|
|
(248
|
)
|
|
(690
|
)
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Intercompany transfers
|
—
|
|
|
—
|
|
|
(248
|
)
|
|
248
|
|
|
—
|
|
Proceeds from debt
|
—
|
|
|
3,420
|
|
|
200
|
|
|
—
|
|
|
3,620
|
|
Payments of debt
|
—
|
|
|
(3,225
|
)
|
|
—
|
|
|
—
|
|
|
(3,225
|
)
|
Costs incurred to redeem senior notes
|
—
|
|
|
(18
|
)
|
|
—
|
|
|
—
|
|
|
(18
|
)
|
Proceeds from issuance of preferred limited partner units, net of offering costs
|
155
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
155
|
|
Distributions to preferred limited partners
|
(25
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(25
|
)
|
Distributions to limited partners and general partner
|
(503
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(503
|
)
|
Distributions to noncontrolling interests
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
(3
|
)
|
Other
|
—
|
|
|
(6
|
)
|
|
(1
|
)
|
|
—
|
|
|
(7
|
)
|
Net cash (used in) provided by financing activities
|
(373
|
)
|
|
171
|
|
|
(52
|
)
|
|
248
|
|
|
(6
|
)
|
Net change in cash and cash equivalents
|
—
|
|
|
(155
|
)
|
|
—
|
|
|
—
|
|
|
(155
|
)
|
Cash and cash equivalents, beginning of period
|
—
|
|
|
155
|
|
|
1
|
|
|
—
|
|
|
156
|
|
Cash and cash equivalents, end of period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statements of Cash Flows
|
|
Nine Months Ended September 30, 2017
|
|
Parent
Guarantor
|
|
Subsidiary
Issuer
|
|
Non-Guarantor
Subsidiaries
|
|
Consolidating
Adjustments
|
|
Consolidated
|
|
(millions)
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
$
|
—
|
|
|
$
|
(217
|
)
|
|
$
|
901
|
|
|
$
|
—
|
|
|
$
|
684
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Intercompany transfers
|
390
|
|
|
724
|
|
|
—
|
|
|
(1,114
|
)
|
|
—
|
|
Capital expenditures
|
—
|
|
|
—
|
|
|
(258
|
)
|
|
—
|
|
|
(258
|
)
|
Investments in unconsolidated affiliates, net
|
—
|
|
|
—
|
|
|
(70
|
)
|
|
—
|
|
|
(70
|
)
|
Proceeds from sale of assets
|
—
|
|
|
—
|
|
|
130
|
|
|
—
|
|
|
130
|
|
Net cash provided by (used in) investing activities
|
390
|
|
|
724
|
|
|
(198
|
)
|
|
(1,114
|
)
|
|
(198
|
)
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Intercompany transfers
|
—
|
|
|
—
|
|
|
(1,114
|
)
|
|
1,114
|
|
|
—
|
|
Payments of debt
|
—
|
|
|
(195
|
)
|
|
—
|
|
|
—
|
|
|
(195
|
)
|
Net change in advances to predecessor from DCP Midstream, LLC
|
—
|
|
|
—
|
|
|
418
|
|
|
—
|
|
|
418
|
|
Distributions to limited partners and general partner
|
(390
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(390
|
)
|
Distributions to noncontrolling interests
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
—
|
|
|
(6
|
)
|
Other
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
Net cash used in financing activities
|
(390
|
)
|
|
(197
|
)
|
|
(702
|
)
|
|
1,114
|
|
|
(175
|
)
|
Net change in cash and cash equivalents
|
—
|
|
|
310
|
|
|
1
|
|
|
—
|
|
|
311
|
|
Cash and cash equivalents, beginning of period
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Cash and cash equivalents, end of period
|
$
|
—
|
|
|
$
|
310
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
312
|
|
19. Subsequent Events
On
October 4, 2018
, we issued
4,000,000
of our Series C Preferred Units representing limited partnership interests at a price of
$25
per unit. On
October 19, 2018
, we issued an additiona
l
400,000
Series C Preferred Units which represented the partial exercise of the underwriters’ option to purchase additional Series C Preferred Units. We used the net proceeds of $
106 million
from the issuance of the Series C Preferred Units for general partnership purposes including funding capital expenditures and the repayment of outstanding indebtedness under the Credit Agreement.
Distributions of the Series C Preferred Units are payable out of available cash, accrue and are cumulative from the date of original issuance of the Series C Preferred Units and are payable quarterly in arrears on January 15th, April 15th, July 15th and October 15th of each year to holders of record as of the close of business on the first business day of the month in which the distribution will be made. The initial distribution rate will be
7.95%
per year of the
$25
liquidation preference per unit (equal to
$1.9875
per unit). On and after October 15, 2023, distributions will accumulate at a percentage of the
$25
liquidation preference equal to an annual floating rate of the three-month LIBOR plus a spread of
4.882%
. The Series C Preferred Units rank senior to our common units with respect to distribution rights and rights upon liquidation.
On
October 23, 2018
, we announced that the board of directors of the General Partner declared a quarterly distribution on our common units of
$0.78
per common unit. The distribution will be paid on
November 14, 2018
to unitholders of record on
November 2, 2018
.
DCP MIDSTREAM, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Three and Nine Months Ended September 30, 2018 and 2017 - (Continued)
(Unaudited)
On the same date, we announced that the board of directors of the General Partner declared a semi-annual and quarterly distribution on our Series A Preferred Units and B Preferred Units of
$36.8750
and
$0.4922
per unit, respectively. The distributions will be paid on
December 17, 2018
to unitholders of record on
December 3, 2018
.
On the same date, we announced that the board of directors of the General Partner declared an initial quarterly distribution on our Series C Preferred Units of
$0.5576
per Series C Preferred Unit, which includes the distribution attributable to the partial-period from and including the original issue date of
October 4, 2018
. The distribution will be paid on
January 15, 2019
to unitholders of record on
January 2, 2019
.