DCP Midstream, LP Reports Strong Fourth Quarter and Full Year 2017 Results and Announces 2018 Guidance

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DENVER, Feb. 13, 2018 (GLOBE NEWSWIRE) -- DCP Midstream, LP (NYSE:DCP), or DCP, today reported its financial results for the fourth quarter and year ended December 31, 2017 and announced its 2018 guidance.

(1) This press release includes the following financial measures not presented in accordance with U.S. generally accepted accounting principles, or GAAP: adjusted EBITDA, distributable cash flow, adjusted segment EBITDA, forecasted adjusted EBITDA and forecasted distributable cash flow. Each such non-GAAP financial measure is defined below under “Non-GAAP Financial Information”, and each is reconciled to its most directly comparable GAAP financial measure under “Reconciliation of Non-GAAP Financial Measures” in schedules at the end of this press release.

(2) Includes the DCP Midstream Business, which DCP acquired in January 2017 (the "Transaction"), retrospectively adjusted. Transfers of net assets between entities under common control are accounted for as if the transactions had occurred at the beginning of the period, and prior years are retrospectively adjusted to furnish comparative information similar to the pooling method.

** Distributable cash flow for prior periods has not been calculated under the pooling method.

“I’m pleased that we delivered strong 2017 results, including achieving the best safety performance in DCP’s history, driving continued cost efficiencies and excellent reliability, growing our distribution coverage, and reducing our bank leverage by almost a full turn to 3.7 times,” said Wouter van Kempen, chairman, CEO and president. “The team continues to make great progress in executing our growth program via extending our integrated value chain with the expansion of Sand Hills and advancement of the Gulf Coast Express residue gas pipeline in the Permian. We have also accelerated construction of our Mewbourn 3 plant in the DJ Basin to meet producer demand for increased capacity."

(1) This press release includes the following financial measures not presented in accordance with U.S. generally accepted accounting principles, or GAAP: adjusted EBITDA, distributable cash flow, adjusted segment EBITDA, forecasted adjusted EBITDA and forecasted distributable cash flow. Each such non-GAAP financial measure is defined below under “Non-GAAP Financial Information”, and each is reconciled to its most directly comparable GAAP financial measure under “Reconciliation of Non-GAAP Financial Measures” in schedules at the end of this press release.

DCP estimates the following 2018 annualized commodity sensitivities, including the effects of hedging:

DCP's 2018 guidance expectations include the following assumptions:

DCP's full year 2018 earnings and distributions from our Discovery joint venture are forecasted to be lower than 2017 by approximately $60 million to $70 million. Approximately $30 million to $40 million of this decrease is associated with significant volume declines from two offshore wells and additional $30 million is associated with a contractual dispute with certain producers regarding demand charges, which is being challenged by Discovery.

On January 23, 2018, DCP announced a quarterly distribution of $0.78 per limited partner unit. This distribution remains unchanged from the previous quarter.

Phillips 66 and Enbridge, Inc. (Owners) have agreed, if required, to provide a reduction to incentive distributions payable to DCP's general partner under the partnership agreement (the "IDR giveback") of up to $100 million annually through 2019 to target an approximate 1.0 times annual distribution coverage ratio, which provides downside protection for limited partners.

DCP generated distributable cash flow of $176 million in the fourth quarter of 2017 and $643 million for the year ended December 31, 2017. In accordance with the amended partnership agreement, distributions declared were $194 million in the fourth quarter of 2017, which includes the distribution of $40 million of IDR givebacks previously withheld, and $618 million for the year ended December 31, 2017. The distribution coverage ratio was 1.04 times for the year ended December 31, 2017 and for the fourth quarter 2017, the distribution coverage ratio was 0.91 times, including the distribution of $40 million IDR givebacks previously withheld, and 1.14 times, excluding the $40 million.

Under the terms of DCP's amended partnership agreement, the amount of incentive distributions paid to the general partner will be evaluated by the general partner on both a quarterly and annual basis and may be reduced each quarter by an amount determined by the general partner. If no determination is made by the general partner, the quarterly IDR giveback will be $20 million. The IDR giveback of up to $100 million annually will be subject to a true-up at the end of the year by taking the total distributable cash flow (as adjusted under the amended partnership agreement), less the total annual distribution payable to unitholders, adjusted to target an approximate 1.0 times distribution coverage ratio.

Gathering and Processing Segment net income attributable to partners for the three months ended December 31, 2017 and 2016 was $132 million and $107 million, respectively.

Adjusted segment EBITDA increased to $252 million for the three months ended December 31, 2017, from $242 million for the three months ended December 31, 2016, reflecting lower costs from operational efficiencies associated with investment in DCP's 2.0 digital transformation and other cost savings initiatives, higher volumes in the Midcontinent and the Eagle Ford in DCP's South region, higher commodity prices, net of hedges, and stronger performance in the North region from DCP's DJ Basin system which benefited from higher margins and NGL recoveries. These increases were partially offset by lower volumes in certain areas of the South, including significantly lower production volumes from two offshore wells from DCP's Discovery equity method investment which drove lower distributions, and lower volumes in the Permian region.

Logistics and Marketing Segment net income attributable to partners for the three months ended December 31, 2017 and 2016 was $88 million and $85 million, respectively.

Adjusted segment EBITDA increased to $114 million for the three months ended December 31, 2017, from $112 million for the three months ended December 31, 2016, reflecting higher equity earnings and distributions from Sand Hills primarily due to continued volume ramp associated with NGL production growth from the Permian basin and ongoing capacity expansions of Sand Hills. These increases were partially offset by lower realized gas and NGL marketing cash settlements received in 2017 compared to 2016 related to DCP's commodity derivative program, and lower margins in our wholesale propane business.

Corporate general and administrative expense for the three months ended December 31, 2017 was substantially lower compared to the same period in 2016 primarily as a result of nonrecurring costs incurred during the fourth quarter of 2016 driven by the closing of the Transaction.

At December 31, 2017, DCP had $4,725 million of total principal long-term debt outstanding. The total debt outstanding includes $550 million of junior subordinated notes which are excluded from debt under DCP's credit facility leverage ratio calculation.

DCP has a $1.4 billion senior unsecured revolving credit agreement that matures on December 6, 2022, or the Credit Agreement. The Credit Agreement is used for working capital requirements and other general partnership purposes including growth and acquisitions. As of December 31, 2017, total available capacity under the Credit Agreement was $1,375 million net of $25 million of letters of credit. The financial covenants set forth in the Credit Agreement limit DCP's ability to incur incremental debt by $1,375 million as of December 31, 2017. DCP's leverage ratio pursuant to its Credit Agreement for the quarter ended December 31, 2017, was approximately 3.7 times. The effective interest rate on DCP's overall debt position, as of December 31, 2017, was 5.8% percent. As of December 31, 2017, DCP had cash of $156 million.

In November 2017, DCP issued 500,000 of 7.375% Series A Preferred Units representing limited partner interests at a price of $1,000 per unit. DCP used the net proceeds of $487 million from this issuance to partially repay the $500 million 2.50% Senior Notes which were due on December 1, 2017.

During the three months ended December 31, 2017, DCP had expansion capital expenditures and equity investments totaling $166 million and maintenance capital expenditures totaling $26 million.  During the year ended December 31, 2017, DCP had expansion capital expenditures and equity investments totaling $427 million, and maintenance capital expenditures totaling $90 million.

For the three months and year ended December 31, 2017, commodity derivative activity and total revenues included non-cash unrealized losses of $29 million and $28 million, respectively, and non-cash unrealized losses of $59 million and $139 million for the three months and year ended December 31, 2016, respectively. Net hedge cash settlements for the three months and year ended December 31, 2017 were payments of $21 million and $12 million, respectively. Net hedge cash settlements for the three months and year ended December 31, 2016 were receipts of $26 million and $116 million, respectively.

The objective of DCP's commodity risk management program is to protect downside risk in its distributable cash flow. DCP also manages commodity price risk related to its natural gas storage and pipeline assets through its commodity derivative program. The commercial activities related to DCP's natural gas storage and pipeline assets primarily consist of locking in spreads associated with the purchase and sale of gas. DCP utilizes mark-to-market accounting treatment for its commodity derivative instruments. Mark-to-market accounting rules require companies to record currently in earnings the difference between their contracted future derivative settlement prices and the forward prices of the underlying commodities at the end of the accounting period. Revaluing DCP's commodity derivative instruments based on futures pricing at the end of the period creates assets or liabilities and associated non-cash gains or losses. Realized gains or losses from cash settlement of the derivative contracts occur monthly as DCP's physical commodity sales are realized or when DCP rebalances its portfolio. Non-cash gains or losses associated with the mark-to-market accounting treatment of DCP's commodity derivative instruments do not affect its distributable cash flow.

The fourth quarter 2017 DCP earnings presentation is currently available through the Investors section of DCP's website at www.dcpmidstream.com. DCP will host a conference call webcast tomorrow, February 14, at 11:00 a.m. ET, to discuss its fourth quarter 2017 results. The live audio webcast of the conference call can be accessed through the Investors section on the DCP website at www.dcpmidstream.com and the conference call can be accessed by dialing (844) 233-0113 in the United States or (574) 990-1008 outside the United States. The conference confirmation number is 99325280. A replay of the audio webcast will also be available by accessing the Investors section on the DCP website at www.dcpmidstream.com.

This press release and the accompanying financial schedules include the following non-GAAP financial measures: adjusted EBITDA, distributable cash flow, adjusted segment EBITDA, forecasted adjusted EBITDA and forecasted distributable cash flow. The accompanying schedules provide reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures. DCP's non-GAAP financial measures should not be considered in isolation or as an alternative to its financial measures presented in accordance with GAAP, including operating revenues, net income or loss attributable to partners, net cash provided by or used in operating activities or any other measure of liquidity or financial performance presented in accordance with GAAP as a measure of operating performance, liquidity or ability to service debt obligations and make cash distributions to unitholders. The non-GAAP financial measures presented by DCP may not be comparable to similarly titled measures of other companies because they may not calculate their measures in the same manner.

DCP defines adjusted EBITDA as net income or loss attributable to partners adjusted for (i) distributions from unconsolidated affiliates, net of earnings (ii) depreciation and amortization expense, (iii) net interest expense, (iv) noncontrolling interest in depreciation and income tax expense, (v) unrealized gains and losses from commodity derivatives, (vi) income tax expense or benefit, (vii) impairment expense and (viii) certain other non-cash items. Adjusted EBITDA further excludes items of income or loss that we characterize as unrepresentative of DCP's ongoing operations. Management believes these measures provide investors meaningful insight into results from ongoing operations.

The commodity derivative non-cash losses and gains result from the marking to market of certain financial derivatives used by us for risk management purposes that we do not account for under the hedge method of accounting. These non-cash losses or gains may or may not be realized in future periods when the derivative contracts are settled, due to fluctuating commodity prices.

Adjusted EBITDA is used as a supplemental liquidity and performance measure and adjusted segment EBITDA is used as a supplemental performance measure by DCP's management and by external users of its financial statements, such as investors, commercial banks, research analysts and others to assess:

DCP defines adjusted segment EBITDA for each segment as segment net income or loss attributable to partners adjusted for (i) distributions from unconsolidated affiliates, net of earnings (ii) depreciation and amortization expense, (iii) net interest expense, (iv) noncontrolling interest in depreciation and income tax expense, (v) unrealized gains and losses from commodity derivatives (vi) income tax expense or benefit, (vii) impairment expense and (viii) certain other non-cash items. Adjusted EBITDA further excludes items of income or loss that we characterize as unrepresentative of our ongoing operations for that segment.

DCP defines distributable cash flow as adjusted EBITDA less maintenance capital expenditures, net of reimbursable projects, interest expense, cumulative cash distributions earned by the Series A Preferred Units and certain other items.

Maintenance capital expenditures are cash expenditures made to maintain DCP's cash flows, operating capacity or earnings capacity. These expenditures add on to or improve capital assets owned, including certain system integrity, compliance and safety improvements. Maintenance capital expenditures also include certain well connects, and may include the acquisition or construction of new capital assets. Income attributable to preferred units represent cash distributions earned by the Series A Preferred Units.  Cash distributions to be paid to the holders of the Series A Preferred units, assuming a distribution is declared by DCP's board of directors, are not available to common unit holders. Non-cash mark-to-market of derivative instruments is considered to be non-cash for the purpose of computing distributable cash flow because settlement will not occur until future periods, and will be impacted by future changes in commodity prices and interest rates. DCP compares the distributable cash flow it generates to the cash distributions it expects to pay to its partners. Using this metric, DCP computes its distribution coverage ratio. Distributable cash flow is used as a supplemental liquidity and performance measure by DCP's management and by external users of its financial statements, such as investors, commercial banks, research analysts and others, to assess DCP's ability to make cash distributions to its unitholders and its general partner.

DCP Midstream, LP (NYSE:DCP) is a midstream master limited partnership, with a diversified portfolio of assets, engaged in the business of gathering, compressing, treating, processing, transporting, storing and selling natural gas; producing, fractionating, transporting, storing and selling NGLs and recovering and selling condensate. DCP owns and operates more than 60 plants and approximately 63,000 miles of natural gas and natural gas liquids pipelines, with operations in 17 states across major producing regions and leads the midstream segment as one of the largest natural gas liquids producers and marketers and one of the largest natural gas processors in the U.S. Denver, Colorado based DCP is managed by its general partner, DCP Midstream GP, LP, which is managed by its general partner, DCP Midstream GP, LLC, which is 100% owned by DCP Midstream, LLC. DCP Midstream, LLC is a joint venture between Enbridge Inc. and Phillips 66. For more information, visit the DCP Midstream, LP website at www.dcpmidstream.com.

Investors or Analysts:

Irene Lofland, 303-605-1822

(1) Includes the DCP Midstream Business, which DCP acquired in January 2017, retrospectively adjusted. Transfers of net assets between entities under common control are accounted for as if the transactions had occurred at the beginning of the period, and prior years are retrospectively adjusted to furnish comparative information similar to the pooling method.

(1) Includes the DCP Midstream Business, which DCP acquired in January 2017, retrospectively adjusted. Transfers of net assets between entities under common control are accounted for as if the transactions had occurred at the beginning of the period, and prior years are retrospectively adjusted to furnish comparative information similar to the pooling method.

** Distributable cash flow for prior periods has not been calculated under the pooling method.

*** Represents cumulative cash distributions earned by the Series A Preferred Units, assuming distributions are declared by DCP's board of directors.

(1) Includes the DCP Midstream Business, which DCP acquired in January 2017, retrospectively adjusted. Transfers of net assets between entities under common control are accounted for as if the transactions had occurred at the beginning of the period, and prior years are retrospectively adjusted to furnish comparative information similar to the pooling method.

** Distributions declared for the three months ended December 31, 2017 reflect $40 million of IDR givebacks previously withheld, to be paid February 14, 2018. There were no IDR givebacks reflected in distributions declared for the year ended December 31, 2017.

*** Distributions paid reflect no IDR givebacks for the three months ended December 31, 2017, and $40 million of IDR givebacks for the year ended December 31, 2017.

*** Represents cumulative cash distributions earned by the Series A Preferred Units, assuming distributions are declared by DCP's board of directors.

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Globe Newswire: 21:15 GMT Tuesday 13th February 2018

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