DCP Midstream, LLC historically is also the largest shipper on the Black Lake pipeline, primarily due to
the NGLs delivered to it from certain of our processing plants. Please read Note 5 of the Notes to Consolidated
Financial Statements in Item 8. “Financial Statements and Supplementary Data.”
Derivative Arrangements
We have entered into commodity contracts whereby we receive a fixed price and we pay a floating price.
DCP Midstream, LLC has issued parental guarantees in favor of certain counterparties to our commodity
derivative instruments to mitigate a portion of our collateral requirements with those counterparties. We pay
DCP Midstream, LLC interest of 0.5% per annum on these outstanding guarantees. We have also entered into a
short term NGL swap contracts with DCP Midstream, LLC whereby we receive a fixed price for NGLs and we
pay a floating price. For more information regarding our derivative activities and credit support provided by
DCP Midstream, LLC, please read “Management’s Discussion and Analysis of Financial Condition and Results
of Operations — Quantitative and Qualitative Disclosures about Market Risk — Commodity Price Risk —
Commodity Cash Flow Protection Activities” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Liquidity and Capital Resources.”
Other Agreements and Transactions with DCP Midstream, LLC
On August 1, 2011, we reached an agreement with DCP Midstream, LLC for us to construct a 200 MMcf/d
cryogenic natural gas processing plant, in the Eagle Ford shale which represents an investment of approximately
$120.0 million. In support of our construction of the Eagle Plant, we entered into a 15 year fee-based processing
agreement with an affiliate of DCP Midstream, LLC, which provides us with a fixed demand charge for 150
MMcf/d along with a throughput fee on all volumes processed. The processing agreement commences with
commercial operations of the new plant, which is expected to be online by the fourth quarter of 2012. In
conjunction with the agreement, we also entered into a purchase and sale agreement with DCP Midstream, LLC to
purchase certain tangible assets and land located in the Eagle Ford Shale for $23.4 million.
On November 4, 2011, we entered into agreements with DCP Midstream, LLC, to acquire the remaining
49.9% interest in East Texas for aggregate consideration of $165.0 million, subject to certain working capital
and other customary purchase price adjustments. Prior to the contribution of the additional interest in East
Texas, we owned a 50.1% interest which we account for as a consolidated subsidiary. The contribution of the
remaining 49.9% interest in East Texas represents a transaction between entities under common control, but
does not represent a change in reporting entity. Accordingly, we will include the results of the remaining 49.9%
interest in East Texas prospectively from the date of acquisition. This acquisition closed on January 3, 2012.
During the year ended December 31, 2011, East Texas received $7.8 million in business interruption
recoveries related to the first quarter 2009 fire that was caused by a third party underground pipeline rupture
outside of our property, or the East Texas recovery settlement. We have allocated the recoveries based upon
relative ownership percentages at the time the losses were incurred, factoring in amounts previously reimbursed
to us by DCP Midstream, LLC. For the year ended December 31, 2011, we recorded $6.6 million to our
consolidated statement of operations in “sales of natural gas, propane, NGLs and condensate”, with $4.6 million
representing DCP Midstream, LLC’s portion in “net income attributable to noncontrolling interests.”
In conjunction with our acquisition of a 33.33% interest in Southeast Texas from DCP Midstream, LLC
for $150.0 million in our Natural Gas Services segment, we entered into a joint venture agreement. The terms of
the joint venture agreement provide that distributions and earnings to us for the first seven years related to
storage and transportation gross margin will be pursuant to a fee-based arrangement, based on storage capacity
and tailgate volumes. Distributions and earnings related to the gathering and processing business, along with
reductions for all expenditures, will be pursuant to our and DCP Midstream, LLC’s respective ownership
interests in Southeast Texas. This transaction closed on January 1, 2011. On February 27, 2012, we entered into
agreements with DCP Midstream, LLC, to acquire the remaining 66.67% interest in Southeast Texas for
aggregate consideration of $240.0 million. This acquisition is expected to close by the second quarter of 2012.
In conjunction with our acquisition of a 50.1% limited liability company interest in East Texas (25.0% of
which was acquired in July 2007, and 25.1% in April 2009), which is part of our Natural Gas Services segment,
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