Phillips 66 and Spectra Energy, 50/50 joint venture owners in DCP Midstream, have entered into a nonbinding letter of intent for contributing assets to strengthen DCP Midstream. The 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 will contribute $1.5 billion in cash, which is expected to be used to pay down a portion of the DCP Midstream revolving credit facility. The transaction, expected 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.
“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.”
Following the transaction, Phillips 66 and Spectra Energy will remain 50/50 joint venture owners of DCP Midstream. Headquartered in Denver, DCP Midstream has 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
has a midstream master limited partnership, DCP Midstream Partners.