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DCP Midstream’s Natural Gas Service Segment Is Facing Headwinds

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DCP Midstream’s segments

DCP Midstream Partners (DPM) operates through its Natural Gas Services, NGL Logistics, and Wholesale Propane Logistics segments. In this article, we’ll analyze DPM’s recent segment-wise operating performance.

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Natural Gas Services

DPM’s Natural Gas Services segment mainly provides natural gas gathering, processing, compression, and transportation services. The segment is DPM’s largest business segment. It alone accounted for 63.8% of DPM’s 2Q16 adjusted EBITDA. The segment’s adjusted EBITDA fell by 15.4% YoY in 2Q16 due to lower Eagle Ford and East Texas throughput volumes and expiration of direct commodity hedges. We’ll look at DPM’s current commodity hedges in a later article. Crestwood Equity Partners (CEQP), Western Gas Partners (WES), and Boardwalk Pipeline Partners (BWP) are among the midstream MLPs that are negatively impacted by declines in Eagle Ford production.

The partnership decided to idle ~320 Mcf/d (million cubic feet per day) of processing capacity in the Eagle Ford and East Texas systems due to underutilized capacity resulting from throughput volume decline. Excluding the idled capacity, average plant utilizations in the Eagle Ford and East Texas systems were ~85% and ~65% in 2Q16, respectively, while the Discovery and the DJ Basin systems were at ~90% and over 100%, respectively.

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NGLs Logistics

DPM’s NGLs Logistics segment provides NGLs (natural gas liquids) transportation and fractionation services. The segment saw a 23.3% YoY increase in adjusted EBITDA in 2Q16 driven by higher fractionation volumes, new processing plants placed into service, and “higher throughput volumes on Panola beginning in February 2016,” according to DPM’s 2Q16 earnings press release.

Wholesale Propane Logistics

DPM’s Wholesale Propane Logistics segment is involved in Propane Marketing. The segment’s adjusted EBITDA increased to $5 million in 2Q16 from $4 million in 2Q15 driven by lower operating expenses. This was partially offset by lower propane sales volumes.

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