delivery, we are generally able to provide our retail propane distribution customers with reliable supplies of
propane during peak demand periods of tight supply, usually in the winter months when their retail customers
consume the most propane for home heating.
Factors That May Significantly Affect Our Results
Transfers of net assets between entities under common control that represent a change in reporting entity
are accounted for as if the transfer occurred at the beginning of the period, and prior years are retrospectively
adjusted to furnish comparative information similar to the pooling method. Accordingly, our consolidated
financial statements have been adjusted to include the historical results of our 33.33% interest in Southeast
Texas for all periods presented. We refer to our interest in Southeast Texas prior to our acquisition from DCP
Midstream, LLC as our “predecessor.” The financial statements of our predecessor have been prepared from the
separate records maintained by DCP Midstream, LLC and may not necessarily be indicative of the conditions
that would have existed or the results of operations if our predecessor had been operated as an unaffiliated
entity. Specifically, the terms of the Southeast Texas 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. These terms of the agreement are not
reflected in the historical financial statements.
Natural Gas Services Segment
Our results of operations for our Natural Gas Services segment are impacted by (1) increases and
decreases in the volume and quality of natural gas that we gather and transport through our systems, which we
refer to as throughput, (2) the associated Btu content of our system throughput and our related processing
volumes, (3) the prices of and relationship between commodities such as NGLs, crude oil and natural gas,
(4) the operating efficiency and reliability of our processing facilities, (5) potential limitations on throughput
volumes arising from downstream and infrastructure capacity constraints, and (6) the terms of our processing
contract arrangements with producers.
Throughput and operating efficiency generally are driven by wellhead production, plant recoveries,
operating availability of our facilities, physical integrity and our competitive position on a regional basis, and
more broadly by demand for natural gas, NGLs and condensate. Historical and current trends in the price
changes of commodities may not be indicative of future trends. Throughput and prices are also driven by
demand and take-away capacity for residue natural gas and NGLs.
Our processing contract arrangements can have a significant impact on our profitability and cash flow. Our
actual contract terms are based upon a variety of factors, including natural gas quality, geographic location, the
commodity pricing environment at the time the contract is executed, customer requirements and competition
from other midstream service providers. Our gathering and processing contract mix and, accordingly, our
exposure to natural gas, NGL and condensate prices, may change as a result of producer preferences, impacting
our expansion in regions where certain types of contracts are more common as well as other market factors.
The capacity on certain downstream NGL and natural gas infrastructure has tightened in recent periods and
can be further constrained seasonally or when there is severe weather. Constrained market outlets may restrict
us from operating our facilities optimally.
Our Natural Gas Services segment operating results are impacted by market conditions causing variability
in natural gas, crude oil and NGL prices. The midstream natural gas industry is cyclical, with the operating
results of companies in the industry significantly affected by the prevailing price of NGLs. Although the
prevailing price of residue natural gas has less short-term significance to our operating results than the price of
NGLs, in the long-term, the growth and sustainability of our business depends on commodity prices being at
levels sufficient to provide incentives and capital for producers to explore and produce natural gas.
The prices of NGLs, crude oil and natural gas can be extremely volatile for periods of time, and may not
always have a close relationship. Due to our hedging program, changes in the relationship of the price of NGLs
and crude oil may cause our commodity price exposure to vary, which we have attempted to capture in our
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