We have a 40% limited liability company interest in Discovery Producer Services LLC, or Discovery, with
the remaining 60% owned by Williams Partners, L.P. The Discovery system includes a natural gas gathering
and transportation pipeline system located primarily off the coast of Louisiana in the Gulf of Mexico, with six
delivery points connected to major interstate and intrastate pipeline systems; a cryogenic natural gas processing
plant in Larose, Louisiana; a fractionator in Paradis, Louisiana; and an NGL pipeline connecting the gas
processing plant to the fractionator. The Discovery system, operated by the Williams Companies, offers a full
range of wellhead-to-market services to both onshore and offshore natural gas producers. The assets are
primarily located in the eastern Gulf of Mexico and Lafourche Parish, Louisiana. The Discovery system is able
to reject the majority of the ethane when justified by market economics. In January 2012, we, along with
Williams Partners L.P., announced a planned expansion of the Discovery natural gas gathering pipeline system
in the deepwater Gulf of Mexico. Discovery intends to construct the Keathley Canyon Connector, a 20-inch
diameter, 215-mile subsea natural gas gathering pipeline for production from the Keathley Canyon, Walker
Ridge and Green Canyon areas in the central deepwater Gulf of Mexico.
Discovery is managed by a two-member management committee, consisting of one representative from
each owner. The members of the management committee have voting power corresponding to their respective
ownership interests in Discovery. All actions and decisions relating to Discovery require the unanimous
approval of the owners except for a few limited situations. Discovery must make quarterly distributions of
available cash (generally, cash from operations less required and discretionary reserves) to its owners. The
management committee, by majority approval based on the ownership percentage represented, will determine
the amount of the distributions. In addition, the owners are required to offer to Discovery all opportunities to
construct pipeline laterals within an “area of interest.”
We have a 33.33% interest in DCP Southeast Texas Holdings, GP, or Southeast Texas, which we acquired
from DCP Midstream, LLC in January 2011. Two wholly-owned subsidiaries of DCP Midstream, LLC own the
remaining 66.67% interest. The Southeast Texas system is a fully integrated midstream business which includes
675 miles of natural gas pipelines, three natural gas processing plants in Liberty and Jefferson Counties with
recently increased processing capacity totaling 400 MMcf/d, and natural gas storage assets in Beaumont with 9
Bcf of existing storage capacity. On February 27, 2012, we entered into agreements with DCP Midstream, LLC, to
acquire the remaining 66.67% interest in Southeast Texas, and natural gas commodity derivatives associated with
the storage business, for aggregate consideration of $240.0 million, subject to certain working capital and other
customary purchase price adjustments. This acquisition is expected to close by the second quarter of 2012.
Southeast Texas is managed by a three-member management committee, consisting of one representative
appointed by us and two representatives from DCP Midstream, LLC. The members of the management
committee have voting power corresponding to their respective ownership interests in Southeast Texas.
Southeast Texas must make quarterly distributions of available cash (generally, cash from operations less
required and discretionary reserves) to its owners. The terms of the joint venture agreement provide that
distributions to us for the first seven years related to natural gas storage and transportation gross margin will be
pursuant to a fee-based arrangement, based on storage capacity and tailgate volumes. Distributions 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. In the event Southeast Texas has
insufficient available cash for a quarterly distribution, DCP Midstream, LLC will assign its distribution rights
(including pursuant to our fee-based arrangement), or contribute any distribution deficiency to Southeast Texas,
the sole use of which shall be to pay the distribution deficiency owing to us related to our fee-based
arrangement on natural gas storage and transportation gross margin, based on storage capacity and tailgate
volumes. The allocation of earnings to each owner is made on the same basis as the above cash distributions.
The management committee, by majority approval, will determine the amount of the distributions.
Our Eagle plant is under construction and will have a planned processing capacity of 200 MMcf/d, will
process DCP Midstream, LLC’s natural gas volumes and enhance DCP Midstream, LLC’s existing South Texas
system comprised of five natural gas processing plants totaling approximately 800 MMcf/d of capacity. The
processing agreement commences with commercial operations of the new plant, which is expected to be online
by the fourth quarter of 2012. The Eagle plant will be connected to the Trunkline Gas pipeline system and
liquids rich gas will be received from various DCP Midstream, LLC gathering systems by Trunkline for
delivery into the Eagle plant.
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