Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion analyzes our financial condition and results of operations. You should read the
following discussion of our financial condition and results of operations in conjunction with our consolidated
financial statements and notes included elsewhere in this annual report.
Overview
We are a Delaware limited partnership formed by DCP Midstream, LLC to own, operate, acquire and
develop a diversified portfolio of complementary midstream energy assets. Our operations are organized into
three business segments: Natural Gas Services, NGL Logistics and Wholesale Propane Logistics.
Crude oil and natural gas liquids prices continue to be volatile, but have generally remained at favorable
levels, while natural gas prices have declined substantially. Natural gas drilling activity levels vary by
geographic area, but in general, drilling remains robust in areas with liquids rich gas. Drilling remains
depressed in certain areas with dry gas where low natural gas prices currently do not support the economics of
drilling. However, advances in technology, such as horizontal drilling and fractionation in shale plays, have led
to certain geographic areas becoming increasingly accessible. Our long-term view is that commodity prices will
be at levels that we believe will support sustained or increasing levels of domestic natural gas production.
The global economic outlook, particularly the European debt crisis, has become a cause for concern for US
financial markets as businesses and investors alike struggle to determine the impact these troubled nations will
have domestically. A slowdown in economic growth or a potential liquidity crunch may lead to further declines
in commodity prices. Until an outcome in Europe is reached, this uncertainty may contribute to continuing
volatility in financial and commodity markets.
Despite a somewhat tepid economy, increased activity levels in liquids rich gas basins combined with
access to capital markets at relatively low historical cost have enabled us to continue executing our multi-
faceted growth strategy, with an emphasis on co-investment with DCP Midstream, LLC. Co-investment
opportunities announced to date are approximately $700.0 million.
On January 1, 2011, we acquired a 33.33% interest in Southeast Texas from DCP Midstream, LLC for
$150.0 million. The Southeast Texas system is a fully integrated midstream business which includes 675 miles
of natural gas pipelines, three natural gas processing plants totaling 400 MMcf/d of processing capacity, natural
gas storage assets with 9 Bcf of existing storage capacity, and NGL market deliveries direct to Exxon Mobil
and to Mont Belvieu via our Black Lake NGL pipeline.
On March 24, 2011, we acquired two NGL fractionation facilities, or DJ Basin NGL Fractionators, for
$30.0 million. The DJ Basin NGL Fractionators, which provide fee-based margins under a long-term contract,
are co-located with and operated by DCP Midstream, LLC.
The Wattenberg NGL pipeline capital expansion project, which provides fee-based margins and is part of a
larger strategic investment for DCP Midstream, LLC in the DJ Basin, was completed during the second quarter.
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, or the Eagle Plant, in the Eagle Ford shale. The Eagle Plant, which
represents an investment of approximately $120.0 million, will enhance DCP Midstream, LLC’s existing South
Texas system comprised of 5 natural gas processing plants totaling approximately 800 MMcf/d of capacity. The
Eagle Plant will be the enterprise’s most efficient plant in the Eagle Ford shale. DCP Midstream, LLC will
provide upstream and downstream interconnects to the plant. 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 Eagle Plant is expected to be online by the fourth quarter of 2012.
On November 4, 2011, we entered into agreements with DCP Midstream, LLC, to acquire the remaining
49.9% interest in East Texas for $165.0 million. This acquisition closed on January 3, 2012.
On February 27, 2012, we announced the signing of an agreement with DCP Midstream, LLC, to acquire
the remaining 66.67% interest in the Southeast Texas joint venture for $240.0 million. The transaction is
expected to close by the second quarter of 2012.
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