DCP MIDSTREAM, LP The following discussion analyzes our financial condition and results of operations. You should read the following discussion of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and notes included elsewhere in this Quarterly Report on Form 10-Q and the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 .
Overview
We are aDelaware limited partnership formed byDCP Midstream, LLC to own, operate, acquire and develop a diversified portfolio of complementary midstream energy assets. Our operations are organized into two reportable segments: (i) Logistics and Marketing and (ii) Gathering and Processing. Our Logistics and Marketing segment includes transporting, trading, marketing and storing natural gas and NGLs, and fractionating NGLs. Our Gathering and Processing segment consists of gathering, compressing, treating, and processing natural gas, producing and fractionating NGLs, and recovering condensate.
General Trends and Outlook
We anticipate our business will continue to be affected by the following key trends. Our expectations are based on assumptions made by us and information currently available to us. To the extent our underlying assumptions about, or interpretations of, available information prove to be incorrect, our actual results may vary materially from our expected results.
Our business is impacted by commodity prices and volumes. We mitigate a significant portion of commodity price risk on an overall Partnership basis through our fee-based assets and by executing on our hedging program. Various factors impact both commodity prices and volumes, and as indicated in Item
3 . "Quantitative and Qualitative Disclosures about Market Risk," we have sensitivities to certain cash and non-cash changes in commodity prices. Commodity prices have been volatile during 2022 and are subject to global energy supply and demand fundamentals as well as geopolitical disruptions. Drilling activity levels vary by geographic area and we will continue to target our strategy in geographic areas where we expect producer drilling activity. However, domestic exploration, development and production remain limited, and are growing slower than demand and our natural gas throughput and NGL volumes continue to be impacted as a result. Our long-term view is that commodity prices will be at levels that we believe will support sustained or increasing levels of domestic production. Our business is predominantly fee-based and we have a diversified portfolio to balance the upside of our earnings potential while reducing our commodity exposure. In addition, we use our strategic hedging program to further mitigate commodity price exposure. We expect future commodity prices will be influenced by tariffs and other global economic conditions, the level of North American production and drilling activity by exploration and production companies, the balance of trade between imports and exports of liquid natural gas, NGLs and crude oil, and the severity of winter and summer weather. We intend to be a proactive participant in the transition to a lower carbon energy future. InAugust 2021 , we announced two goals for companywide greenhouse gas (GHG) emission reductions. By 2030, our goal is to reduce our total Scope 1 and Scope 2 greenhouse gas emissions by 30% from our 2018 baseline. Additionally, by 2050, our goal is to achieve net zero greenhouse gas emissions. We plan to achieve these targets through increased efficiency and modernization of existing operations and reducing greenhouse gas emissions within the base business. We are continuously working to improve operational and energy efficiency through resource and energy conservation throughout our operations and made progress towards our goals by reducing Scope 1 and Scope 2 GHG emissions across our operations by approximately 23% from the 2018 baseline through the end of 2021.We also plan to leverage our existing infrastructure to establish adjacent lines of business that capture growing market opportunities and capitalize on green energy growth. To measure and report progress against these targets, we utilize an emission calculation protocol intended to align with theEnergy Infrastructure Council (EIC) Midstream ESG Reporting Template, which is based upon the principles noted in theWorld Resources Institute (WRI) Corporate Accounting and Reporting Standard & Scope 2 Protocols. While we believe these goals align with our long-term growth strategy and financial and operational priorities, they are aspirational and may change, and there is no guarantee that they will be met. Our business is primarily driven by the level of production of natural gas by producers and of NGLs from processing plants connected to our pipelines and fractionators. These volumes can be impacted negatively by, among other things, reduced drilling activity, depressed commodity prices, severe weather disruptions, operational outages and ethane rejection. Upstream producers reduced capital expenditures during 2021 and their response to changes in commodity prices and demand remain uncertain. 27 -------------------------------------------------------------------------------- We hedge commodity prices associated with a portion of our expected natural gas, NGL and condensate equity volumes in our Gathering and Processing segment. Drilling activity levels vary by geographic area, and we will continue to target our strategy in geographic areas where we expect producer drilling activity. We believe our contract structure with our producers provides us with significant protection from credit risk since we generally hold the product, sell it and withhold our fees prior to remittance of payments to the producer. Currently, our top 20 producers account for a majority of the total natural gas that we gather and process and of these top 20 producers, 5 have investment grade credit ratings. DuringFebruary 2021 , Winter Storm Uri resulted in lower volumes and abnormally high gas prices in certain regions. Certain counterparty billings during this time remain under dispute and are taking longer to collect than normal.
The global economic outlook continues to be a cause for concern for
We believe we are positioned to withstand future commodity price volatility as a result of the following:
•Our fee-based business represents a significant portion of our margins. •We have positive operating cash flow from our well-positioned and diversified assets. •We have a well-defined and targeted multi-year hedging program. •We manage our disciplined capital growth program with a significant focus on fee-based agreements and projects with long-term volume outlooks. •We believe we have a solid capital structure and balance sheet. •We believe we have access to sufficient capital to fund our growth including excess distribution coverage and divestitures. During 2022, our strategic objectives are to generate Excess Free Cash Flows (a non-GAAP measure defined in "Reconciliation of Non-GAAP Measures - Excess Free Cash Flows") and reduce leverage. We believe the key elements to generating Excess Free Cash Flows are the diversity of our asset portfolio, our fee-based business which represents a significant portion of our estimated margins, plus our hedged commodity position, the objective of which is to protect against downside risk in our Excess Free Cash Flows. We will continue to pursue incremental revenue, cost efficiencies and operating improvements of our assets through process and technology improvements.
We incur capital expenditures for our consolidated entities and our
unconsolidated affiliates. Our 2022 plan includes sustaining capital
expenditures of between
Recent Events
Acquisition
OnAugust 1, 2022 , we completed the acquisition of 100 percent of the membership interests in the legal entities holding gathering and processing assets in thePermian Basin ("JamesLake System ") fromWoodland Midstream II .The James Lake System consists of complementary midstream infrastructure gas gathering and processing assets inWest Texas and associated contracts that will be integrated into our Permian region. The total consideration paid was$160 million funded with cash and borrowings on our Credit Facility, subject to customary post-closing adjustments for net working capital and debt. Due to the recent closing of this acquisition, the initial purchase price accounting for the transaction was not yet complete at the time of filing. We plan to provide these disclosures in our Quarterly Report on Form 10-Q for the period endedSeptember 30, 2022 to be filed with theSEC . OnJuly 29, 2022 , we amended our Securitization Facility to, among other things, conform the sustainability adjustment provisions to the corresponding sustainability adjustment provisions in our Credit Facility, update the interest rate provisions to reflect an adjusted SOFR, and to include an uncommitted option to increase the total commitments under the Securitization Facility by up to an additional$400 million .
Common and Preferred Distributions
On
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On the same date, the board of directors of the General Partner declared a
quarterly distribution on our Series B and Series C Preferred Units of $0.4922
and $0.4969 per unit, respectively. The Series B distributions will be paid on
September 15, 2022 to unitholders of record on September 1, 2022 . The Series C
distribution will be paid on October 17, 2022 to unitholders of record on
October 3, 2022 .
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--------------------------------------------------------------------------------Results of Operations
Consolidated Overview
The following table and discussion provides a summary of our consolidated results of operations for the three and six months endedJune 30, 2022 and 2021. The results of operations by segment are discussed in further detail following this consolidated overview discussion. Variance Three Months Variance Six Months Three Months Ended June 30, Six Months Ended June 30, 2022 vs. 2021 2022 vs. 2021 Increase Increase 2022 2021 2022 2021 (Decrease) Percent (Decrease) Percent (millions, except operating data)
Operating revenues (a): Logistics and Marketing$ 3,789 $ 1,917 $ 6,952 $ 4,015 $ 1,872 98 %$ 2,937 73 % Gathering and Processing 2,967 1,314 5,073 2,628 1,653 * 2,445 93 % Inter-segment eliminations (2,487) (1,146) (4,381) (2,240) 1,341 * 2,141 96 % Total operating revenues 4,269 2,085 7,644 4,403 2,184 * 3,241 74 % Purchases and related costs Logistics and Marketing (3,749) (1,910) (6,896) (3,972) 1,839 96 % 2,924 74 % Gathering and Processing (2,382) (1,075) (4,204) (2,144) 1,307 * 2,060 96 % Inter-segment eliminations 2,487 1,146 4,381 2,240 1,341 * 2,141 96 % Total purchases (3,644) (1,839) (6,719) (3,876) 1,805 98 % 2,843 73 % Operating and maintenance expense (189) (165) (341) (314) 24 15 % 27 9 % Depreciation and amortization expense (90) (93) (180) (184) (3) (3) % (4) (2 %) General and administrative expense (65) (57) (120) (95) 8 14 % 25 26 % Asset impairments (1) (20) (1) (20) (19) (95) % (19) (95 %) Other income, net 8 6 8 6 2 33 % 2 33 % (Loss) gain on sale of assets, net - (1) 7 (1) (1) * 8 * Earnings from unconsolidated affiliates (b) 168 131 311 259 37 28 % 52 20 % Interest expense (70) (77) (141) (154) (7) (9 %) (13) (8 %) Income tax expense (2) - (3) - 2 * 3 * Net income attributable to noncontrolling interests (1) (1) (2) (2) - - % - - % Net income (loss) attributable to * * partners$ 383 $ (31) $ 463$ 22 $ 414 $ 441 Other data: Adjusted gross margin (c): Logistics and Marketing$ 40 $ 7 $ 56$ 43 $ 33 *$ 13 30 % Gathering and Processing 585 239 869 484 346 * 385 80 % Total adjusted gross margin$ 625 $ 246 $ 925$ 527 $ 379 *$ 398 76 % Non-cash commodity derivative mark-to-market$ 101 $ (136) $ (75)$ (189) $ 237 *$ 114 60 % NGL pipelines throughput (MBbls/d) (d) 720 671 701 625 49 7 % 76 12 % Gas pipelines throughput (TBtu/d) (d) 1.1 1.0 1.1 1.0 0.1 10 % 0.1 10 % Natural gas wellhead (MMcf/d) (d) 4,383 4,338 4,246 4,206 45 1 % 40 1 % NGL gross production (MBbls/d) (d) 427 409 414 385 18 4 % 29 8 % * Percentage change is not meaningful. (a) Operating revenues include the impact of trading and marketing gains (losses), net. (b) Earnings for certain unconsolidated affiliates include the amortization of the net difference between the carrying amount of the investments and the underlying equity of the entities. (c) Adjusted gross margin consists of total operating revenues less purchases and related costs. Segment adjusted gross margin for each segment consists of total operating revenues for that segment, less purchases and related costs for that segment. Please read "Reconciliation of Non-GAAP Measures". 30 --------------------------------------------------------------------------------
(d) For entities not wholly-owned by us, includes our share, based on our ownership percentage, of the wellhead and throughput volumes and NGL production.
Three Months Ended
Total Operating Revenues - Total operating revenues increased
•$1,872 million increase for our Logistics and Marketing segment, primarily due to higher commodity prices, favorable commodity derivative activity, and an increase in transportation, processing and other; and
•$1,653 million increase for our Gathering and Processing segment, primarily due to higher commodity prices, favorable commodity derivative activity, higher volumes in theDJ Basin , Permian, and Midcontinent regions, and an increase in transportation, processing and other, partially offset by lower volumes in the South.
These increases were partially offset by:
•$1,341 million change in inter-segment eliminations, which relate to sales of gas and NGL volumes from our Gathering and Processing segment to our Logistics and Marketing segment, primarily due to higher commodity prices.
Total Purchases - Total purchases increased
•$1,839 million increase for our Logistics and Marketing segment for the reasons discussed above; and
•$1,307 million increase for our Gathering and Processing segment for the reasons discussed above.
These increases were partially offset by:
•$1,341 million change in inter-segment eliminations, for the reasons discussed above.
Operating and Maintenance Expense - Operating and maintenance expense increased in 2022 compared to 2021 primarily due to higher base costs and reliability spend primarily in the Permian and North.
General and Administrative Expense - General and administrative expense increased in 2022 compared to 2021, primarily due to higher employee costs and benefits.
Asset Impairments - Asset impairments in 2021 relate to long-lived assets in the Midcontinent region and the Logistics and Marketing segment.
Earnings from Unconsolidated Affiliates - Earnings from unconsolidated
affiliates increased in 2022 compared to 2021 primarily as a result of a
contract amendment with a third party customer that modified performance
obligations and conditions, resulting in higher non-recurring earnings on the
Net Income Attributable to Partners - Net income attributable to partners increased in 2022 compared to 2021 for the reasons discussed above.
Gross Margin - Gross margin increased
•$346 million increase for our Gathering and Processing segment primarily as a result of higher commodity prices, commodity derivative activity as discussed above, higher gathering and processing margins and higher volumes in the Permian andDJ Basin , and higher margins in the Midcontinent, partially offset by lower volumes in the South; and •$33 million increase for our Logistics and Marketing segment primarily as a result of commodity derivative activity and increased gas marketing and storage margins, partially offset by a contract settlement and unfavorable NGL marketing activity in 2022. NGL Pipelines Throughput - NGL pipelines throughput increased in 2022 compared to 2021 due to increased volumes on theFront Range ,Sand Hills , andSouthern Hills pipelines.
NGL Gross Production - NGL gross production increased in 2022 compared to 2021
due to increased volumes in the
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Six Months Ended
Total Operating Revenues - Total operating revenues increased
•$2,937 million increase for our Logistics and Marketing segment, primarily due to higher commodity prices, higher gas and NGL volumes, favorable commodity derivative activity, and an increase in transportation, processing and other; and •$2,445 million increase for our Gathering and Processing segment, primarily due to higher commodity prices, higher volumes in the Permian,DJ Basin , and Midcontinent regions, an increase in transportation, processing and other, and favorable commodity derivative activity, partially offset by lower volumes in the South.
These increases were partially offset by:
•$2,141 million change in inter-segment eliminations, which relate to sales of gas and NGL volumes from our Gathering and Processing segment to our Logistics and Marketing segment, primarily due to higher commodity prices.
Total Purchases - Total purchases increased
•$2,924 million increase for our Logistics and Marketing segment for the commodity price and volume changes discussed above; and
•$2,060 million increase for our Gathering and Processing segment for the commodity price and volume changes discussed above.
These increases were partially offset by:
•$2,141 million change in inter-segment eliminations, for the reasons discussed above.
General and Administrative Expense - General and administrative expense increased in 2022 compared to 2021, primarily due to higher employee costs and benefits.
Asset Impairments - Asset impairments in 2021 relate to long-lived assets in the Midcontinent and the Logistics and Marketing segment.
Earnings from Unconsolidated Affiliates - Earnings from unconsolidated
affiliates increased in 2022 compared to 2021 primarily as a result of a
contract amendment with a third party customer that modified performance
obligations and conditions, resulting in higher non-recurring earnings on the
Net Income Attributable to Partners - Net income attributable to partners increased in 2022 compared to 2021 for all of the reasons discussed above.
Adjusted Gross Margin - Adjusted gross margin increased
•$385 million increase for our Gathering and Processing segment, primarily as a result of higher commodity prices, higher gathering and processing margins, and the negative impact of Winter Storm Uri resulting in producer shut-ins in the first quarter of 2021, partially offset by unfavorable commodity derivative activity attributable to our corporate equity hedge program; and •$13 million increase for our Logistics and Marketing segment, primarily as a result of an increase in gas pipeline and storage marketing margins due to more favorable commodity spreads in 2022, the negative impact of Winter Storm Uri in the first quarter of 2021, and an increase in NGL pipeline margins, partially offset by a contract settlement and unfavorable NGL marketing activity. NGL Pipelines Throughput - NGL pipelines throughput increased in 2022 compared to 2021 due to increased volumes on theSand Hills ,Front Range , andSouthern Hills pipelines.
NGL Gross Production - NGL gross production increased in 2022 compared to 2021
due to increased volumes in the Permian region and
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--------------------------------------------------------------------------------Supplemental Information on Unconsolidated Affiliates
The following tables present financial information related to unconsolidated
affiliates during the three and six months ended
Earnings from investments in unconsolidated affiliates were as follows:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(millions)
DCP Sand Hills Pipeline, LLC $ 104
21 22 45 46
Gulf Coast Express LLC 16 15 32 30
Front Range Pipeline LLC 11 9 21 18
Texas Express Pipeline LLC 5 5 10 9
Mont Belvieu 1 Fractionator 3 4 7 6
Discovery Producer Services LLC 3 3 9 11
Cheyenne Connector, LLC 3 1 7 4
Mont Belvieu Enterprise Fractionator 2 (2) 4 (1)
Other - 2 1 2
Total earnings from unconsolidated affiliates $ 168 Distributions received from unconsolidated affiliates were as follows:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(millions)
DCP Sand Hills Pipeline, LLC $ 117
28 30 56 55
Gulf Coast Express LLC 20 20 40 39
Front Range Pipeline LLC 12 10 24 22
Texas Express Pipeline LLC 6 6 12 11
Mont Belvieu 1 Fractionator 2 4 6 6
Discovery Producer Services LLC 7 9 15 17
Cheyenne Connector, LLC 5 4 10 8
Mont Belvieu Enterprise Fractionator 3 (1) 4 -
Other 1 1 2 2
Total distributions from unconsolidated affiliates $ 201
$ 170 $ 369$ 299 33
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Results of Operations - Logistics and Marketing Segment
Operating Data
Three Months Ended June 30, 2022 Six Months Ended June 30, 2022
Approximate Approximate Gas
Approximate Throughput Capacity Throughput Capacity PipelineThroughput Pipeline Throughput Pipeline Throughput Pipeline Throughput System System Length (Miles) Fractionators (MBbls/d) (a) (TBtus/d) (a) (MBbls/d) (a) (TBtus/d) (a) (MBbls/d) (a) (TBtus/d) (a)
Sand Hills pipeline 1,400 - 333 - 304 - 296 - Southern Hills pipeline 950 - 128 - 122 - 120 -Front Range pipeline 450 - 87 - 78 - 75 - Texas Express pipeline 600 - 37 - 23 - 22 - Other NGL pipelines (a) 1,100 - 310 - 193 - 188 - Gulf Coast Express pipeline 500 - - 0.50 - 0.49 - 0.49 Guadalupe pipeline 600 - - 0.25 - 0.29 - 0.29 Cheyenne Connector 70 - - 0.30 - 0.30 - 0.31Mont Belvieu fractionators - 2 - - - - - - Pipelines total 5,670 2 895 1.05 720 1.08 701 1.09
(a) Represents total capacity or total volumes allocated to our proportionate ownership share.
The results of operations for our Logistics and Marketing segment are as
follows:
Variance Three Months Variance Six Months
Three Months Ended June 30, Six Months Ended June 30, 2022 vs. 2021 2022 vs. 2021
Increase Increase
2022 2021 2022 2021 (Decrease) Percent (Decrease) Percent
(millions, except operating data)
Operating revenues:
Sales of natural gas, NGLs and
$ 1,836 95 %$ 2,696 63 %
condensate
Transportation, processing and other 18 13 37 27 5 38 % 10 37 % Trading and marketing gains (losses), 2 (29) (39) (270) 31 * 231 86 %
net
Total operating revenues 3,789 1,917 6,952 4,015 1,872 98 % 2,937 73 % Purchases and related costs (3,749) (1,910) (6,896) (3,972) 1,839 96 % 2,924 74 % Operating and maintenance expense (9) (12) (17) (18) (3) (25 %) (1) (6 %) Depreciation and amortization expense (3) (3) (6) (6) - - % - - % General and administrative expense (2) (2) (3) (3) - - % - - % Asset impairments - (13) - (13) (13) * (13) * Other income, net 10 5 10 5 5 * 5 * Earnings from unconsolidated affiliates 165 127 302 247 38 30 % 55 22 %
(a)
Segment net income attributable to
$ 92 84 %$ 87 34 %
partners
Other data:
Segment adjusted gross margin (b)
$ 33 *$ 13 30 % Non-cash commodity derivative$ 26 $ (35) $ (19)$ (40) $ 61 *$ 21 53 %
mark-to-market
NGL pipelines throughput (MBbls/d) (c) 720 671 701 625 49 7 % 76 12 %
Gas pipelines throughput (TBtu/d) (c) 1.1 1.0 1.1 1.0 0.1 10 % 0.1 10 %
* Percentage change is not meaningful.
(a) Earnings for certain unconsolidated affiliates include the amortization of
the net difference between the carrying amount of the investments and the
underlying equity of the entities.
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(b) Adjusted gross margin consists of total operating revenues less purchases
and related costs. Segment adjusted gross margin for each segment consists of
total operating revenues for that segment less purchases and related costs for
that segment. Please read "Reconciliation of Non-GAAP Measures".
(c) For entities not wholly-owned by us, includes our share, based on our
ownership percentage, of the throughput volumes.
Three Months Ended
Total Operating Revenues - Total operating revenues increased
•$1,848 million increase as a result of higher commodity prices before the impact of derivative activity; and
•$31 million increase as a result of commodity derivative activity attributable to a$61 million increase in unrealized commodity derivative gains partially offset by an increase in realized cash settlement losses of$30 million due to movements in forward prices of commodities in 2022; and.
•$5 million increase in transportation, processing and other.
These increases were partially offset by:
•$12 million decrease attributable to lower gas volumes partially offset by higher NGL volumes.
Purchases and Related Costs - Purchases and related costs increased
Asset Impairments - Asset impairments in 2021 relate to an asset inSouth Texas where we determined a triggering event occurred due to a negative outlook for long-term volume forecasts.
Other Income - Other income in 2022 and 2021 was primarily a result of contractual settlements.
Earnings from Unconsolidated Affiliates - Earnings from unconsolidated
affiliates increased in 2022 compared to 2021 primarily as a result of a
contract amendment with a third party customer that modified performance
obligations and conditions, resulting in higher non-recurring earnings on the
Segment Gross Margin - Segment gross margin increased
•$31 million increase as a result of commodity derivative activity discussed above; and
•$23 million increase as a result of gas marketing and storage margins.
These increases were partially offset by:
•$16 million contract settlement; and
•$5 million decrease as a result of unfavorable NGL marketing activity.
NGL Pipelines Throughput - NGL pipelines throughput increased in 2022 compared to 2021 due to increased volumes on theFront Range ,Sand Hills , and Southern Hills pipelines.
Six Months Ended
Total Operating Revenues - Total operating revenues increased
•$2,392 million increase as a result of higher commodity prices before the impact of derivative activity; and
•$304 million increase attributable to higher gas and NGL volumes; and
•$231 million increase as a result of commodity derivative activity attributable to a decrease in realized cash settlement losses of$210 million and a decrease in unrealized commodity derivative losses of$21 million due to movements in forward prices of commodities; and 35 --------------------------------------------------------------------------------
•$10 million increase in transportation, processing and other.
Purchases and Related Costs - Purchases and related costs increased
Asset Impairments - Asset impairments in 2021 relate to an asset inSouth Texas where we determined a triggering event occurred due to a negative outlook for long-term volume forecasts.
Other Income - Other income in 2022 and 2021 was primarily a result of contractual settlements.
Earnings from Unconsolidated Affiliates - Earnings from unconsolidated
affiliates increased in 2022 compared to 2021 primarily as a result of a
contract amendment with a third party customer that modified performance
obligations and conditions, resulting in higher non-recurring earnings on the
Segment Adjusted Gross Margin - Segment adjusted gross margin increased
•$27 million increase as a result of increased gas pipeline and storage marketing margins due to more favorable commodity spreads in 2022; and
•$5 million increase as a result of the negative impacts of Winter Storm Uri in the first quarter 2021; and
•$4 million increase as a result of NGL pipeline margins.
These increases were partially offset by:
•$16 million contract settlement; and
•$7 million decrease as a result of unfavorable NGL marketing activity in 2022.
NGL Pipelines Throughput - NGL pipelines throughput increased in 2022 compared to 2021 due to increased volumes on theSand Hills ,Front Range , and Southern Hills pipelines. 36 --------------------------------------------------------------------------------
Results of Operations - Gathering and Processing Segment
Operating Data
Three Months Ended June 30, 2022 Six Months Ended June 30, 2022
Approximate Approximate
Gathering Net Nameplate Plant Natural Gas
NGL Natural Gas NGL
and Transmission Capacity Wellhead Volume Production Wellhead Volume Production
Regions Plants Systems (Miles) (MMcf/d) (a) (MMcf/d) (a) (MBbls/d) (a) (MMcf/d) (a) (MBbls/d) (a)
North 13 3,500 1,580 1,578 157 1,572 153
Midcontinent 6 23,500 1,110 838 75 818 72
Permian 9 15,000 1,100 982 122 974 119
South 7 7,000 1,630 985 73 882 70
Total 35 49,000 5,420 4,383 427 4,246 414
(a) Represents total capacity or total volumes allocated to our proportionate ownership share.
The results of operations for our Gathering and Processing segment are as follows:
Variance Three Months 2022 vs. Variance Six Months
Three Months Ended June 30, Six Months Ended June 30, 2021 2022 vs. 2021
Increase Increase
2022 2021 2022 2021 (Decrease) Percent (Decrease) Percent
(millions, except operating data)
Operating revenues:
Sales of natural gas, NGLs and *
condensate $ 2,817 $ 1,326 $ 4,981 $ 2,664 $ 1,491 $ 2,317 87 %
Transportation, processing and other 166 112 302 216 54 48 % 86 40 %
Trading and marketing losses, net (16) (124) (210) (252) 108 87 % 42 17 %
Total operating revenues 2,967 1,314 5,073 2,628 1,653 * 2,445 93 %
Purchases and related costs (2,382) (1,075) (4,204) (2,144) 1,307 * 2,060 96 %
Operating and maintenance expense (175) (146) (315) (286) 29 20 % 29 10 %
Depreciation and amortization expense (82) (82) (163) (163) - - % - - %
General and administrative expense (5) (4) (9) (8) 1 25 % 1 13 %
Asset impairments (1) (7) (1) (7) (6) (86 %) (6) (86 %)
Other (expense) income, net (2) 1 (2) 1 3 * 3 *
(Loss) gain on sale of assets, net - (1) 7 (1) (1) * (8) *
Earnings from unconsolidated affiliates
(a) 3 4 9 12 (1) (25 %) (3) (25 %)
Segment net income 323 4 395 32 319 * 363 *
Segment net income attributable to
noncontrolling interests (1) (1) (2) (2) - - % - - %
Segment net income attributable to * *
partners $ 322 $ 3 $ 393 $ 30 $ 319 $ 363
Other data:
Segment adjusted gross margin (b) $ 585 $ 239 $ 869 $ 484 $ 346 * $ 385 80 %
Non-cash commodity derivative *
mark-to-market $ 75 $ (101) $ (56) $ (149) 176 $ 93 62 %
Natural gas wellhead (MMcf/d) (c) 4,383 4,338 4,246 4,206 45 1 % 40 1 %
NGL gross production (MBbls/d) (c) 427 409 414 385 18 4 % 29 8 %
* Percentage change is not meaningful.
(a) Earnings for certain unconsolidated affiliates include the amortization of
the net difference between the carrying amount of the investments and the
underlying equity of the entities.
(b) Segment adjusted gross margin for each segment consists of total operating
revenues for that segment less purchases and related costs for that segment.
Please read "Reconciliation of Non-GAAP Measures".
(c) For entities not wholly-owned by us, includes our share, based on our
ownership percentage, of the wellhead and NGL production
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Three Months Ended
Total Operating Revenues - Total operating revenues increased
•$1,401 million increase attributable to higher commodity prices, before the impact of derivative activity; and
•$108 million increase as a result of commodity derivative activity attributable to a$176 million increase in unrealized commodity derivative gains partially offset by an increase in realized cash settlement losses of$68 million due to movements in forward prices of commodities in 2022; and •$90 million increase as a result of higher volumes in theDJ Basin , Permian, and Midcontinent regions, partially offset by lower volumes in the South region; and
•$54 million increase in transportation, processing and other.
Purchases and Related Costs - Purchases and related costs decreased
Operating and Maintenance Expense - Operating and maintenance expense increased in 2022 compared to 2021 primarily due to higher base costs and reliability spend primarily in the Permian and North.
Asset Impairments - Asset impairments in 2021 relate to certain long-lived assets in the Midcontinent region.
Segment Gross Margin - Segment gross margin increased
•$180 million increase as a result of higher commodity prices;
•$108 million increase as a result of commodity derivative activity as discussed above; and
•$58 million increase due to higher gathering and processing margins and higher volumes in the Permian andDJ Basin , and higher margins in the Midcontinent, partially offset by lower volumes in the South.
NGL Gross Production - NGL gross production increased in 2022 compared to 2021
due to increased volumes in the Permian and
Six Months Ended
Total Operating Revenues - Total operating revenues increased
•$2,035 million increase attributable to higher commodity prices, before the impact of derivative activity; and
•$282 million increase as a result of higher volumes in the Permian,DJ Basin , and Midcontinent regions, partially offset by lower volumes in the South region; and
•$86 million increase in transportation, processing and other.
•$42 million increase as a result of commodity derivative activity attributable to a$93 million decrease in unrealized commodity derivative losses partially offset by an increase in realized cash settlement losses of$51 million due to movements in forward prices of commodities in 2022.
Purchases and Related Costs - Purchases and related costs increased
Operating and Maintenance Expense - Operating and maintenance expense increased in 2022 compared to 2021 primarily due to higher base costs and reliability spend primarily in the Permian and North.
Asset Impairments - Asset impairments in 2021 relate to certain long-lived assets in the Midcontinent region.
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--------------------------------------------------------------------------------Gain on Sale of Assets, net - The net gain on sale of assets in 2022 represents the sale of a gathering system in the Permian region.
Segment Adjusted Gross Margin - Segment adjusted gross margin increased
•$307 million increase as a result of higher commodity prices; and
•$69 million increase due to higher gathering and processing margins and higher
volumes in the Permian and
•$35 million increase as a result of the negative impact of Winter Storm Uri in the first quarter 2021 which reflected reduced volumes due to producer shut-ins, commodity derivative activity associated with swaps, and the net impact of producer payments and marketing activity.
These increases were partially offset by:
•$26 million decrease as a result of unfavorable commodity derivative activity attributable to our corporate equity hedge program.
NGL Gross Production - NGL gross production increased in 2022 compared to 2021
due to increased volumes in the Permian region and
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--------------------------------------------------------------------------------Liquidity and Capital Resources
We expect our sources of liquidity to include:
•cash generated from operations;
•cash distributions from our unconsolidated affiliates;
•borrowings under our Credit Agreement and Securitization Facility;
•proceeds from asset rationalization;
•debt offerings;
•borrowings under term loans, or other credit facilities; and
•issuances of additional common units, preferred units or other securities.
We anticipate our more significant uses of resources to include:
•quarterly distributions to our common unitholders and distributions to our preferred unitholders;
•payments to service our debt;
•capital expenditures;
•contributions to our unconsolidated affiliates to finance our share of their capital expenditures;
•business and asset acquisitions; and
•collateral with counterparties to our swap contracts to secure potential exposure under these contracts, which may, at times, be significant depending on commodity price movements.
We believe that cash generated from these sources will be sufficient to meet our short-term working capital requirements, long-term capital expenditures and quarterly cash distributions for at least the next twelve months.
We routinely evaluate opportunities for strategic investments or acquisitions. Future material investments or acquisitions may require that we obtain additional capital, assume third party debt or incur other long-term obligations. We have the option to utilize both equity and debt instruments as vehicles for the long-term financing of our investment activities or acquisitions. Based on current and anticipated levels of operations, we believe we have adequate committed financial resources to conduct our ongoing business, although deterioration in our operating environment could limit our borrowing capacity, impact our credit ratings, raise our financing costs, as well as impact our compliance with the financial covenants contained in the Credit Agreement and other debt instruments. Senior Notes - OnJanuary 3, 2022 , we repaid, at par, prior to maturity all$350 million of aggregate principal amount outstanding of our 4.95% Senior Notes dueApril 1, 2022 , using borrowings under our Credit Facility and Securitization Facility. Credit Agreement -OnMarch 18, 2022 , we amended the Credit Agreement. The amendment extended the term of the Credit Agreement fromDecember 9, 2024 toMarch 18, 2027 . The amendment also includes sustainability linked key performance indicators that increase or decrease the applicable margin and facility fee payable thereunder based on our safety performance relative to our peers and year-over-year change in our greenhouse gas emissions intensity rate. The Credit Agreement provides up to$1.4 billion of borrowing capacity and bears interest at either the term SOFR rate or the base rate plus, in each case, an applicable margin based on our credit rating. As ofJune 30, 2022 , we had unused borrowing capacity of$1,380 million , net of$20 million letters of credit, under the Credit Agreement, of which$1,380 million would have been available to borrow for working capital and other general partnership purposes based on the financial covenants set forth in the Credit Agreement. Except in the case of a default, amounts borrowed under our Credit Agreement will not become due prior to theMarch 18, 2027 maturity date. As ofJuly 29, 2022 , we had unused borrowing capacity of$1,380 million , net of$20 million of letters of credit, under the Credit Agreement. Our cost of borrowing under the Credit Agreement is determined by a ratings-based pricing grid. 40 --------------------------------------------------------------------------------
Accounts Receivable Securitization Facility - As of
Issuance of Securities - InOctober 2020 , we filed a shelf registration statement with theSEC that became effective upon filing and allows us to issue an indeterminate number of common units, preferred units, debt securities, and guarantees of debt securities. InOctober 2020 , we also filed a shelf registration statement with theSEC , which allows us to issue up to$750 million in common units pursuant to our at-the-market program. During the six months endedJune 30, 2022 , we did not issue any common units pursuant to this registration statement, and$750 million remained available for future sales. Guarantee ofRegistered Debt Securities - The condensed consolidated financial statements ofDCP Midstream, LP , or "parent guarantor", include the accounts ofDCP Midstream Operating LP , or "subsidiary issuer", which is a 100% owned subsidiary, and all other subsidiaries which are all non-guarantor subsidiaries. The parent guarantor has agreed to fully and unconditionally guarantee the senior notes. The entirety of the Company's operating assets and liabilities, operating revenues, expenses and other comprehensive income exist at its non-guarantor subsidiaries, and the parent guarantor and subsidiary issuer have no assets, liabilities or operations independent of their respective financing activities and investments in non-guarantor subsidiaries. All covenants in the indentures governing the notes limit the activities of subsidiary issuer, including limitations on the ability to pay dividends, incur additional indebtedness, make restricted payments, create liens, sell assets or make loans to parent guarantor. The Company qualifies for alternative disclosure under Rule 13-01 of Regulation S-X, because the combined financial information of the subsidiary issuer and parent guarantor, excluding investments in subsidiaries that are not issuers or guarantors, reflect no material assets, liabilities or results of operations apart from their respective financing activities and investments in non-guarantor subsidiaries. Summarized financial information is presented as follows. The only assets, liabilities and results of operations of the subsidiary issuer and parent guarantor on a combined basis, independent of their respective investments in non-guarantor subsidiaries are: •Accounts payable and other current liabilities of$84 million and$81 million as ofJune 30, 2022 andDecember 31, 2021 , respectively; •Balances related to debt of$4.822 billion and$5.174 billion as ofJune 30, 2022 andDecember 31, 2021 , respectively; and •Interest expense, net of$69 million and$76 million for the three months endedJune 30, 2022 and 2021, respectively, and$138 million and$152 million for the six months endedJune 30, 2022 and 2021, respectively. Commodity Swaps and Collateral - Changes in natural gas, NGL and condensate prices and the terms of our processing arrangements have a direct impact on our generation and use of cash from operations due to their impact on net income, along with the resulting changes in working capital. For additional information regarding our derivative activities, please read Item 3. "Quantitative and Qualitative Disclosures about Market Risk" contained herein. When we enter into commodity swap contracts, we may be required to provide collateral to the counterparties in the event that our potential payment exposure exceeds a predetermined collateral threshold. Collateral thresholds are set by us and each counterparty, as applicable, in the master contract that governs our financial transactions based on our and the counterparty's assessment of creditworthiness. The assessment of our position with respect to the collateral thresholds are determined on a counterparty by counterparty basis, and are impacted by the representative forward price curves and notional quantities under our swap contracts. Due to the interrelation between the representative crude oil and natural gas forward price curves, it is not practical to determine a pricing point at which our swap contracts will meet the collateral thresholds as we may transact multiple commodities with the same counterparty. Depending on daily commodity prices, the amount of collateral posted can go up or down on a daily basis. Working Capital - Working capital is the amount by which current assets exceed current liabilities. Current assets are reduced in part by our quarterly distributions, which are required under the terms of our Partnership Agreement based on Available Cash, as defined in the Partnership Agreement. In general, our working capital is impacted by changes in the prices of commodities that we buy and sell, inventory levels, and other business factors that affect our net income and cash flows. Our working capital is also impacted by the timing of operating cash receipts and disbursements, cash collateral we may be required to post with counterparties to our commodity derivative instruments, borrowings of and payments on debt and the Securitization Facility, capital expenditures, and increases or decreases in other long-term assets. We expect that our future working capital 41 -------------------------------------------------------------------------------- requirements will be impacted by these same recurring factors. DuringFebruary 2021 , Winter Storm Uri resulted in lower regional volumes and abnormally high gas prices for a period of days. A majority of our receivables associated with Winter Storm Uri have been collected. Certain counterparty billings during this time are under dispute and are taking longer to collect than normal, which continues to impact our working capital atJune 30, 2022 . We believe the amounts due to us are owed and are vigorously pursuing legal avenues to collect these receivables. We had working capital deficits of$267 million and$261 million as ofJune 30, 2022 andDecember 31, 2021 , respectively, driven by current maturities of long term debt of$505 million and$355 million , respectively. We had net derivative working capital deficits of$125 million and$59 million as ofJune 30, 2022 andDecember 31, 2021 , respectively.
Cash Flow - Operating, investing and financing activities were as follows:
Six Months Ended June 30,
2022 2021
(millions)
Net cash provided by operating activities $ 574 $ 68
Net cash used in investing activities $ (61) $ (41)
Net cash used in financing activities $ (506) $ (77) Six Months Ended
Operating Activities - Net cash provided by operating activities increased$506 million in 2022 compared to the same period in 2021. The changes in net cash provided by operating activities are attributable to our net income adjusted for non-cash charges and changes in working capital as presented in the condensed consolidated statements of cash flows. For additional information regarding fluctuations in our earnings and distributions from unconsolidated affiliates, please read "Supplemental Information on Unconsolidated Affiliates" under "Results of Operations".
Investing Activities - Net cash used in investing activities increased
Financing Activities - Net cash used in financing activities increased
Contractual Obligations - Material contractual obligations arising in the normal course of business primarily consist of purchase obligations, long-term debt and related interest payments, leases, and other long-term liabilities. See Note
8 to the Condensed Consolidated Financial Statements included in Item 1
"Financial Statements" for amounts outstanding on
Purchase Obligations are contractual obligations and include various non-cancelable commitments to purchase physical quantities of commodities in future periods and other items, including gas supply, fractionation and transportation agreements in the ordinary course of business.
Management believes that our cash and investment position and operating cash
flows as well as capacity under existing and available credit agreements will be
sufficient to meet our liquidity and capital requirements for the foreseeable
future. We believe that our current and projected asset position is sufficient
to meet our liquidity requirements.
Capital Requirements - The midstream energy business can be capital intensive,
requiring significant investment to maintain and upgrade existing operations. In
the ordinary course of our business, we purchase physical commodities and enter
into arrangements related to other items, including long-term fractionation and
transportation agreements, in future periods. We establish a margin for these
purchases by entering into physical and financial sale and exchange transactions
to maintain a balanced position between purchases and sales and future delivery
obligations. We expect to fund the obligations with the corresponding sales to
entities that we deem creditworthy or who have provided credit support we
consider adequate. We may enter into purchase order and non-cancelable
construction agreements for capital expenditures. Our capital requirements have
consisted primarily of, and we anticipate will continue to consist of the
following:
42
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•Sustaining capital expenditures, which are cash expenditures to maintain our
cash flows, operating or earnings capacity. These expenditures add on to or
improve capital assets owned, including certain system integrity, compliance and
safety improvements. Sustaining capital expenditures also include certain well
connects, and may include the acquisition or construction of new capital assets;
and
•Expansion capital expenditures, which are cash expenditures to increase our
cash flows, or operating or earnings capacity. Expansion capital expenditures
include acquisitions or capital improvements (where we add on to or improve the
capital assets owned, or acquire or construct new gathering lines and well
connects, treating facilities, processing plants, fractionation facilities,
pipelines, terminals, docks, truck racks, tankage and other storage,
distribution or transportation facilities and related or similar midstream
assets).
We incur capital expenditures for our consolidated entities and our
unconsolidated affiliates. Our 2022 plan includes sustaining capital
expenditures of between
We expect to fund future acquisitions and capital expenditures with funds generated from our operations, borrowings under our Credit Agreement, Securitization Facility and the issuance of additional debt and equity securities. We funded our acquisition of theJames Lake system with with cash and borrowings on our Credit Facility. Future material investments or acquisitions may require that we obtain additional capital, assume third party debt or incur other long-term obligations. We have the option to utilize both equity and debt instruments as vehicles for the long-term financing of our investment activities and acquisitions. Cash Distributions to Unitholders - Our Partnership Agreement requires that, within 45 days after the end of each quarter, we distribute all Available Cash, as defined in the Partnership Agreement. We made cash distributions to our common unitholders and general partner of$163 million during the six months endedJune 30, 2022 and 2021.
On
On the same date, the board of directors of the General Partner declared a quarterly distribution on our Series B and Series C Preferred Units of$0.4922 and$0.4969 per unit, respectively. The Series B distributions will be paid onSeptember 15, 2022 to unitholders of record onSeptember 1, 2022 . The Series C distribution will be paid onOctober 17, 2022 to unitholders of record onOctober 3, 2022 .
We expect to continue to use cash provided by operating activities for the payment of distributions to our unitholders. See Note 10 . "Partnership Equity and Distributions" in the Notes to the Condensed Consolidated Financial Statements in Item 1. "Financial Statements."
43
--------------------------------------------------------------------------------Reconciliation of Non-GAAP Measures
Adjusted Gross Margin and Segment Adjusted Gross Margin - In addition to net income, we view our adjusted gross margin as an important performance measure of the core profitability of our operations. We review our adjusted gross margin monthly for consistency and trend analysis. We define adjusted gross margin as total operating revenues, less purchases and related costs, and we define segment adjusted gross margin for each segment as total operating revenues for that segment less purchases and related costs for that segment. Our adjusted gross margin equals the sum of our segment adjusted gross margins. Adjusted gross margin and segment adjusted gross margin are primary performance measures used by management, as these measures represent the results of product sales and purchases, a key component of our operations. As an indicator of our operating performance, adjusted gross margin and segment adjusted gross margin should not be considered an alternative to, or more meaningful than, operating revenues, gross margin, segment gross margin, net income or loss, net income or loss attributable to partners, operating income, net cash provided by operating activities or any other measure of financial performance presented in accordance with GAAP. We believe adjusted gross margin provides useful information to our investors because our management views our adjusted gross margin and segment adjusted gross margin as important performance measures that represent the results of product sales and purchases, a key component of our operations. We review our adjusted gross margin and segment adjusted gross margin monthly for consistency and trend analysis. We believe that investors benefit from having access to the same financial measures that management uses in evaluating our operating results. Adjusted EBITDA - We define 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 our ongoing operations. Management believes these measures provide investors meaningful insight into results from ongoing operations. Adjusted EBITDA should not be considered an alternative to, or more meaningful than, net income or loss, net income or loss attributable to partners, operating income, net cash provided by operating activities or any other measure of financial performance presented in accordance with GAAP as measures of operating performance, liquidity or ability to service debt obligations. Adjusted EBITDA is used as a supplemental liquidity and performance measure and adjusted segment EBITDA is used as a supplemental performance measure by our management and by external users of our financial statements, such as investors, commercial banks, research analysts and others to assess:
•financial performance of our assets without regard to financing methods, capital structure or historical cost basis;
•our operating performance and return on capital as compared to those of other companies in the midstream energy industry, without regard to financing methods or capital structure;
•viability and performance of acquisitions and capital expenditure projects and the overall rates of return on investment opportunities; and
•in the case of Adjusted EBITDA, the ability of our assets to generate cash sufficient to pay interest costs, support our indebtedness, make cash distributions to our unitholders and pay capital expenditures.
Adjusted Segment EBITDA - We define 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 segment EBITDA further excludes items of income or loss that we characterize as unrepresentative of our ongoing operations for that segment. Our adjusted segment EBITDA may not be comparable to similarly titled measures of other companies because they may not calculate adjusted segment EBITDA in the same manner.
Adjusted segment EBITDA should not be considered in isolation or as an alternative to our financial measures presented in accordance with GAAP, including operating revenues, net income or loss attributable to partners, or any other measure of performance presented in accordance with GAAP.
Our adjusted gross margin, segment adjusted gross margin, adjusted EBITDA and
adjusted segment EBITDA may not be comparable to a similarly titled measure of
another company because other entities may not calculate these measures in the
44
--------------------------------------------------------------------------------same manner. The accompanying schedules provide reconciliations of adjusted gross margin, segment adjusted gross margin and adjusted segment EBITDA to their most directly comparable GAAP financial measures.
Distributable Cash Flow - We define Distributable Cash Flow as adjusted EBITDA,
as defined above, less sustaining capital expenditures, net of reimbursable
projects, less interest expense, less income attributable to preferred units,
and certain other items. Sustaining capital expenditures are cash expenditures
made to maintain our cash flows, operating or earnings capacity. These
expenditures add on to or improve capital assets owned, including certain system
integrity, compliance and safety improvements. Sustaining 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 preferred units. Cash distributions
to be paid to the holders of the preferred units assuming a distribution is
declared by our 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. Distributable Cash Flow is used as a supplemental
liquidity and performance measure by our management and by external users of our
financial statements, such as investors, commercial banks, research analysts and
others, to assess our ability to make cash distributions to our unitholders and
our general partner.
Our Distributable Cash Flow may not be comparable to a similarly titled measure
of another company because other entities may not calculate Distributable Cash
Flow in the same manner.
Excess Free Cash Flow - We define Excess Free Cash Flow as Distributable Cash
Flow, as defined above, less distributions to limited partners, less expansion
capital expenditures, net of reimbursable projects, and contributions to equity
method investments and certain other items. Expansion capital expenditures are
cash expenditures to increase our cash flows, or operating or earnings capacity.
Expansion capital expenditures include acquisitions or capital improvements
(where we add on to or improve the capital assets owned, or acquire or construct
new gathering lines and well connects, treating facilities, processing plants,
fractionation facilities, pipelines, terminals, docks, truck racks, tankage and
other storage, distribution or transportation facilities and related or similar
midstream assets).
Excess Free Cash Flow is used as a supplemental liquidity and performance
measure by our management and by external users of our financial statements,
such as investors, commercial banks, research analysts and others, and is useful
to investors and management as a measure of our ability to generate cash. Once
business needs and obligations are met, including cash reserves to provide funds
for distribution payments on our units and the proper conduct of our business,
which includes cash reserves for future capital expenditures and anticipated
credit needs, this cash can be used to reduce debt, reinvest in the company for
future growth, or return to unitholders.
Our definition of Excess Free Cash Flow is limited in that it does not represent
residual cash flows available for discretionary expenditures. Therefore, we
believe the use of Excess Free Cash Flow for the limited purposes described
above and in this report is not a substitute for net cash flows provided by
operating activities, which is the most comparable GAAP measure. Excess Free
Cash Flow may not be comparable to a similarly titled measure of another company
because other entities may not calculate Excess Free Cash Flow in the same
manner.
45
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The following table sets forth our reconciliation of certain non-GAAP measures:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Reconciliation of Non-GAAP Measures (millions)
Reconciliation of gross margin to adjusted gross
margin:
Operating revenues $ 4,269 $ 2,085 $ 7,644 $ 4,403
Cost of revenues
Purchases and related costs 3,269 1,540 5,988 3,303
Purchases and related costs from affiliates 100 47 199 102
Transportation and related costs from affiliates 275 252 532 471
Depreciation and amortization expense 90 93 180 184
Gross margin 535 153 745 343
Depreciation and amortization expense 90 93 180 184
Adjusted gross margin $ 625 Reconciliation of segment gross margin to segment adjusted gross margin: Logistics and Marketing segment: Operating revenues$ 3,789 $ 1,917 $ 6,952 $ 4,015 Cost of revenues Purchases and related costs 3,749 1,910 6,896 3,972 Depreciation and amortization expense 3 3 6 6 Segment gross margin 37 4 50 37 Depreciation and amortization expense 3 3 6 6 Segment adjusted gross margin $ 40
Gathering and Processing segment: Operating revenues$ 2,967 $ 1,314 $ 5,073 $ 2,628 Cost of revenues Purchases and related costs 2,382 1,075 4,204 2,144 Depreciation and amortization expense 82 82 163 163 Segment gross margin 503 157 706 321 Depreciation and amortization expense 82 82 163 163 Segment adjusted gross margin $ 585
46
--------------------------------------------------------------------------------
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(millions)
Reconciliation of net income attributable to
partners to adjusted segment EBITDA:
Logistics and Marketing segment:
Segment net income attributable to partners (a) $ 201
(26) 35 19 40
Depreciation and amortization expense, net of
noncontrolling interest 3 3 6 6
Distributions from unconsolidated affiliates, net
of earnings 29 34 52 35
Asset impairments - 13 - 13
Other income (2) - (2) -
Adjusted segment EBITDA $ 205 $ 194 $ 417 $ 349
Gathering and Processing segment:
Segment net income attributable to partners $ 322
(75) 101 56 149
Depreciation and amortization expense, net of
noncontrolling interest 81 80 162 161
Distributions from unconsolidated affiliates, net
of earnings 4 5 6 5
Asset impairments 1 7 1 7
Gain on sale of assets - - (7) -
Other expense 2 1 2 1
Adjusted segment EBITDA $ 335 $ 197 $ 613 $ 353 (a) We recognized no lower of cost or net realizable value adjustment for the
three and six months ended
47
--------------------------------------------------------------------------------Critical Accounting Policies and Estimates
Our critical accounting policies and estimates are described in "Critical Accounting Estimates" within Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 and Note 2 of the Notes to Consolidated Financial Statements in "Financial Statements and Supplementary Data" included as Item 8 in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . The accounting policies and estimates used in preparing our interim condensed consolidated financial statements for the three and six months endedJune 30, 2022 are the same as those described in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . Certain information and note disclosures normally included in our annual financial statements prepared in accordance with GAAP have been condensed or omitted from the interim financial statements included in this Quarterly Report on Form 10-Q pursuant to the rules and regulations of theSEC , although we believe that the disclosures made are adequate to make the information not misleading. The unaudited condensed consolidated financial statements and other information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto in our Annual Report on Form 10-K for the year endedDecember 31, 2021 .
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