Natural Gas Services segment
In this series, we’re taking a close look at DCP Midstream Partners (DPM) – its business, its operations, and its finances. In the last part, we saw that DCP Midstream has three operating segments. DCP Midstream’s Natural Gas Services segment provides natural gas gathering, compressing, treating, processing, transporting, and storing services. In addition, it offers natural gas liquids (or NGLs) fractionating services.
DCP Midstream’s Natural Gas Services segment is spread over a number of fast-growing unconventional resource plays across seven US states. Its operations encompass Eagle Ford system, East Texas, Southeast Texas, Michigan, Northern Louisiana, Southern Oklahoma, Wyoming, Piceance, and the DJ Basin in Colorado.
Some of the large energy producers operating in these regions include CONSOL Energy (CNX), Apache Corporation (APA), Devon Energy (DVN), and Pioneer Natural Resources (PXD). Devon Energy and Apache Corporation together account for 3.4% of the Energy Select Sector SPDR ETF (XLE).
In the chart below, you can see a brief overview of the segment’s natural gas pipeline assets.
Natural Gas and NGL Markets
Many of the systems in the above chart have natural gas residue outlets, including interstate and intrastate pipelines. These systems deliver NGLs to petrochemical markets such as the Gulf Coast, to fractionators at the East Texas facility, and to the company’s NGL pipelines.
Type of contracts
DCP Midstream (DPM) has percent-of-proceeds and percent-of-liquids contracts with energy producers. These contracts are sensitive to energy commodity prices. However, some of its natural gas and NGL pipeline systems also have fee-based contracts with customers.
Fee-based contracts are independent of energy price movements and result in stable cash flows for DPM. Read more on the implications of contracts under Market Realist’s Natural gas processing contracts.
In addition, Discovery Gas Transmission, which owns a mainline, generates revenues through a tariff. This tariff is regulated by the Federal Energy Regulatory Commission (or FERC).
In the following section, we’ll look at the primary factors that can affect DCP Midstream’s Natural Gas Services segment.