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DCP Midstream Focuses on Shale

Zacks Equity Research

Natural gas gatherer and processor, DCP Midstream LLC, the general partner of DCP Midstream Partners, LP (DPM), announced that it would continue to focus on expanding its presence in the southern and mid-continental shale formations. Accordingly, the company would spend approximately $7 billion during the 2011–15 period to boost its natural gas and natural gas liquids (NGL) production. Of the allotted sum, DCP Midstream has invested a little more than $4 billion to date, leaving almost $3 billion for the remaining period till 2015-end.

DCP Midstream LLC leads the midstream segment as the second-largest natural gas gatherer and processor, the largest natural gas liquids producer and one of the largest marketers in North America. The company, which operates in 18 states across the major producing regions, is an equally owned joint venture between Phillips 66 (PSX) and Spectra Energy (SE).

DCP Midstream Partners operates through three business segments: Natural Gas Services, NGL Logistics and Wholesale Propane Logistics. During 2012, the partnership expanded its Natural Gas Services and NGL Logistics segments through approximately $1 billion in dropdowns from DCP Midstream; a third party acquisition; and organic expansion opportunities.

However 2012 was a challenging year for the partnership from a commodity price perspective. This was partially mitigated through a multi-year hedging program, as well as volumes of throughput and sales of natural gas and NGLs.

Going forward, the Zacks Consensus Estimates for the first quarter and full year 2013 for the partnership are pegged at 63 cents per unit and $2.12 per unit, respectively.

DCP Midstream Partners units currently retain a Zacks Rank #3, which is equivalent to a short-term Hold rating. In the near term, other pipeline companies like SemGroup Corporation (SEMG) with a Zacks Rank #1 (Strong Buy) offer value and are worth buying now.

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