Phillips 66 and Spectra Energy, 50/50 joint venture owners in DCP Midstream LLC, have entered into a nonbinding letter of intent for contributing assets to strengthen DCP Midstream.
This transaction is expected to provide DCP Midstream with a stronger balance sheet and increased financial flexibility, and positions DCP to grow through commodity price cycles. Spectra Energy has agreed to contribute its ownership interest in both the Sand Hills and Southern Hills NGL pipelines. Phillips 66 has agreed to contribute $1.5 billion in cash, which is expected to be used to pay down a portion of the DCP Midstream revolving credit facility.
“DCP Midstream is a valuable portion of our NGL value chain and part of our plans to grow,” said Greg Garland, chairman and CEO of Phillips 66. “This infusion of cash and operating assets by the joint venture owners will enhance the credit profile of DCP Midstream, provide stability to the existing business and allow pursuit of growth opportunities.”
The transaction, anticipated to close in the fourth quarter of this year, is subject to the parties entering into a definitive agreement and customary consents, including approval by Spectra Energy Partners’ board of directors and regulatory approvals.
The proposed transaction complements efforts at DCP Midstream to reduce operating costs, sell certain non-core assets, and convert certain contracts from commodity price sensitive to fee-based.
“The contribution of the one-third interests in Sand Hills and Southern Hills will diversify DCP Midstream by enhancing the balance of fee-based assets while building on the re-contracting work already underway,” said Greg Ebel, chairman and CEO of Spectra Energy. “In addition, the infusion of cash to pay down debt will result in DCP Midstream bank credit metrics that will be much stronger, allowing DCP to continue providing excellent service to customers and retain its number one position in gas processing and NGL production. This deal also retains the upside for owners as commodities improve.”
Following this transaction, Phillips 66 and Spectra Energy will remain 50/50 joint venture owners of DCP Midstream. Headquartered in Denver, DCP Midstream LLC has strategically located assets in liquids-rich developments and is the largest natural gas processor and the largest natural gas liquids producer in the U.S. In addition, DCP Midstream LLC has a midstream master limited partnership, DCP Midstream Partners LP. The partnership is engaged in all stages of the midstream business.Tags: DCP Midstream, Phillips 66, Spectra Energy