UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d)
of the
Security Exchange Act of 1934
Date of
report (Date of earliest event reported): July 24, 2008
DUNCAN
ENERGY PARTNERS L.P.
(Exact
Name of Registrant as Specified in Its Charter)
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Delaware
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1-33266
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20-5639997
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(State
or Other Jurisdiction of
Incorporation
or Organization)
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(Commission
File
Number)
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(I.R.S.
Employer
Identification
No.)
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1100
Louisiana, 10th
Floor
Houston,
Texas 77002
(Address
of Principal Executive Offices, including Zip Code)
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(713)
381-6500
(Registrant’s
Telephone Number, including Area
Code)
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Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
¨ Written communications
pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material
pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
¨ Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item
2.02. Results of Operations and Financial Condition.
On July 24, 2008, Duncan Energy
Partners L.P. (“Duncan Energy Partners”) issued a press release announcing its
financial and operating results for the three and six months ended June 30, 2008
and 2007 and held a joint webcast conference call with Enterprise Products
Partners L.P. discussing those results. A copy of the earnings press
release is furnished as Exhibit 99.1 to this Current Report, which is hereby
incorporated by reference into this Item 2.02. The webcast conference
call will be archived and available for replay on Duncan Energy Partners’
website at www.deplp.com for 90
days.
Significant
Relationships Referenced in this Current Report on Form 8-K
Duncan Energy Partners did not own any
assets prior to February 5, 2007, which was the date it completed its initial
public offering of common units. The historical business and
operations of Duncan Energy Partners prior to February 5, 2007 (effective
February 1, 2007 for financial accounting and reporting purposes) are referred
to as “Duncan Energy Partners Predecessor” or the “Predecessor.” Unless the
context requires otherwise, references to “we,” “us,” “our,” “the Partnership”
or “Duncan Energy Partners” are intended to mean the business and operations of
Duncan Energy Partners L.P. and its consolidated subsidiaries since February 5,
2007.
References to “DEP GP” mean DEP
Holdings, LLC, which is our general partner. References to “DEP Operating
Partnership” mean DEP Operating Partnership, L.P., which is a wholly owned
subsidiary of Duncan Energy Partners that conducts substantially all of its
business.
References to “Enterprise Products
Partners” mean Enterprise Products Partners L.P., which owns Enterprise Products
Operating LLC (“EPO”). Enterprise Products Partners is a publicly
traded partnership, the limited partner interests of which are listed on the New
York Stock Exchange (“NYSE”) under the ticker symbol “EPD.” EPO,
which is our Parent company, owns our general partner and is a significant owner
of our common units.
References to “TEPPCO” mean TEPPCO
Partners, L.P., a publicly traded affiliate, the limited partner interests of
which are listed on the NYSE under the ticker symbol
“TPP.” References to “TEPPCO GP” refer to Texas Eastern Products
Pipeline Company, LLC, which is the general partner of TEPPCO and is wholly
owned by Enterprise GP Holdings.
References to “Enterprise GP Holdings”
mean Enterprise GP Holdings L.P., which owns Enterprise Products GP and TEPPCO
GP and limited partner interests in Enterprise Products Partners and
TEPPCO. References to “EPE Holdings” mean EPE Holdings, LLC, which is
the general partner of Enterprise GP Holdings.
References to “EPCO” mean EPCO, Inc.,
which is a related party affiliate to all of the foregoing named
entities. All of the aforementioned entities are affiliates and under
common control of Dan L. Duncan, the Chairman and controlling shareholder of
EPCO.
Basis
of Financial Statement Presentation
Except per unit amounts, dollar amounts
presented in the tabular data within this Current Report are stated in thousands
of dollars.
The financial and operating data and
related discussion included in the press release and this Current
Report that pertain to periods prior to our initial public offering
reflect the assets, liabilities and operations contributed to us by EPO at
the closing of our initial public offering on February 5, 2007. We have
elected February 1, 2007 as the effective closing date for financial accounting
and reporting purposes with respect to Duncan Energy Partners
Predecessor. The financial information of Duncan Energy Partners
Predecessor reflects EPO’s historical ownership of these assets,
liabilities and operations. The principal business entities included
in the historical combined financial statements of Duncan Energy Partners
Predecessor are (on a 100% basis):
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Mont
Belvieu Caverns, LLC (“Mont Belvieu
Caverns”);
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1
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Acadian
Gas, LLC (“Acadian
Gas”);
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Enterprise
Lou-Tex Propylene Pipeline L.P. (“Lou-Tex Propylene”), including its
general partner;
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Sabine
Propylene Pipeline L.P. (“Sabine
Propylene”), including its general partner;
and
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South
Texas NGL Pipelines, LLC (“South Texas
NGL”).
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EPO contributed a 66% equity interest
in each of these five entities to us on February 5, 2007. EPO
retained the remaining 34% equity interests in each of these
subsidiaries.
We present our results of operations
separately from those of Duncan Energy Partners Predecessor. We
acquired substantially all of the assets and operations of the Predecessor that
are included in our consolidated financial statements. There were a
number of agreements and other items that went into effect at the time of our
initial public offering that affect the comparability of our operating results
with those of Duncan Energy Partners Predecessor. These agreements
and other items include:
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§
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The
fees Mont Belvieu Caverns charges EPO for underground storage services
increased to market rates as a result of new
agreements.
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§
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Storage
well measurement gains and losses are retained by EPO rather than being
allocated to Mont Belvieu Caverns.
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Mont
Belvieu Caverns makes a special allocation of its operational measurement
gains and losses to EPO, which results in such gains and losses not
impacting the net income or loss of Mont Belvieu
Caverns. However, operational measurement gains and losses
continue to be a component of gross operating
margin.
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§
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Transportation
revenues recorded by Lou-Tex Propylene and Sabine Propylene decreased due
to the assignment of certain exchange agreements to us by
EPO.
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Use
of Non-GAAP financial measures
The press release and related
conference call discussion include the non-generally accepted accounting
principle (“non-GAAP”) financial measures of gross operating margin,
distributable cash flow and EBITDA. The press release provides
reconciliations of these non-GAAP financial measures to their most directly
comparable financial measure calculated and presented in accordance with U.S.
generally accepted accounting principles (“GAAP”). Our non-GAAP
financial measures should not be considered as alternatives to GAAP measures
such as net income, operating income, cash flow from operating activities or any
other GAAP measure of liquidity or financial performance.
Gross
operating margin. We evaluate segment performance based on the
non-GAAP financial measure of gross operating margin. Gross operating margin
(either in total or by individual segment) is an important performance measure
of the core profitability of our operations. This measure forms the
basis of our internal financial reporting and is used by senior management in
deciding how to allocate capital resources among business
segments. We believe that investors benefit from having access to the
same financial measures that our management uses in evaluating segment
results. The GAAP financial measure most directly comparable to total
segment gross operating margin is operating income.
We define
total segment gross operating margin as consolidated operating income before
(i) depreciation, amortization and accretion expense; (ii) gains and
losses on the sale of assets; and (iii) general and administrative
expenses. Gross operating margin is exclusive of other income and
expense transactions, provision for income taxes, extraordinary charges, Parent
interest in income of subsidiaries and the cumulative effect of changes in
accounting principles. Gross operating margin by segment is
calculated by subtracting segment operating costs and expenses (net of the
adjustments noted above) from segment revenues, with both segment totals before
the elimination
of any intersegment and intrasegment transactions. In accordance with
GAAP, intercompany accounts and transactions are eliminated in
consolidation.
2
We
include equity earnings from Evangeline in our measurement of segment gross
operating margin and operating income. Our equity investment in
Evangeline is a vital component of our business strategy and important to the
operations of Acadian Gas. This method of operation enables us to
achieve favorable economies of scale relative to the level of investment and
business risk assumed versus what we could accomplish on a stand-alone
basis. Evangeline’s operations compliment those of Acadian
Gas.
Distributable
cash flow. We define distributable cash flow, which we view as
a non-GAAP measure of liquidity, as net income or loss adjusted
for:
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the
addition of depreciation, amortization and accretion
expense;
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the
addition of cash distributions received from Evangeline, if any, less
equity in the earnings of
Evangeline;
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the
subtraction of sustaining capital expenditures and cash payments to settle
asset retirement obligations;
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the
addition of losses or subtraction of gains relating to the sale of
assets;
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the
addition of cash proceeds from the sale of
assets;
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the
addition of losses or subtraction of gains on the monetization of
financial instruments recorded in accumulated other comprehensive income,
if any, less related amortization of such amounts to earnings;
and
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the
addition or subtraction of other miscellaneous non-cash amounts (as
applicable) that affect net income or loss for the period;
and
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the
subtraction of Parent company interest in the foregoing
adjustments.
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Sustaining capital expenditures are
capital expenditures (as defined by GAAP) resulting from improvements to and
major renewals of existing assets.
Senior management compares the
distributable cash flow we generate to the cash distributions we expect to pay
our partners. Using this data, management computes our
distribution coverage ratio. Distributable cash flow is also a
quantitative standard used by the investment community with respect to publicly
traded partnerships because the value of a partnership unit is in part measured
by its yield, which in turn is based on the amount of cash distributions a
partnership pays to a unitholder. The GAAP measure most directly
comparable to distributable cash flow is cash flows from operating
activities.
EBITDA. We
define EBITDA as net income or loss before interest expense, provision for
income taxes and depreciation, accretion and amortization expense, with all such
adjustments to net income or loss determined net of the Parent company’s
interest. EBITDA is commonly used as a supplemental financial measure
by management and external users of our financial statements, such as investors,
commercial banks, research analysts and rating agencies, to assess:
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the
financial performance of our assets without regard to financing methods,
capital structures or historical cost
basis;
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the
ability of our assets to generate sufficient cash to meet debt service
requirements; and
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the
viability of projects and the overall rates of return on alternative
investment opportunities.
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Since EBITDA excludes
some, but not all, items that affect net income or loss and because these
measures may vary among other companies, the EBITDA data presented in our press
release may not be comparable to similarly titled measures of other
companies. The GAAP measure most directly comparable to EBITDA
is cash flow from operating activities.
3
Item
9.01. Financial
Statements and Exhibits.
(d) Exhibits.
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Exhibit
Number
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Exhibit
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99.1
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Duncan
Energy Partners L.P. press release dated July 24,
2008.
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SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this Report to
be signed on its behalf by the undersigned hereunto duly
authorized.
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DUNCAN
ENERGY PARTNERS L.P.
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By:
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DEP
Holdings, LLC, as general partner
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Date:
July 24, 2008
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By:
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/s/ Michael J. Knesek | ||
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Name:
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Michael
J. Knesek
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Title:
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Senior
Vice President, Controller
and
Principal Accounting
Officer
of
DEP Holdings, LLC
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4
Exhibit
Index
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Exhibit
No.
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Description
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99.1
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Duncan
Energy Partners L.P. press release dated July 24,
2008.
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5
Exhibit
99.1
P.O. Box
4324
Houston,
TX 77210
(713)
381-6500
Duncan
Energy Partners Reports Increased Results
For
Second Quarter 2008
Houston,
Texas (July 24, 2008) - Duncan Energy Partners L.P. (NYSE: “DEP”) today
announced its financial and operating results for the three and six months ended
June 30, 2008 and 2007. The partnership reported a 45 percent
increase in net income to $6.6 million for the second quarter of 2008, or
$0.32 per common unit on a fully diluted basis, compared to net income of
$4.5 million, or $0.22 per common unit on a fully diluted basis, for the second
quarter of 2007.
Distributable
cash flow increased 65 percent to $10.8 million in the second quarter of 2008
from $6.6 million in the second quarter of 2007. On July 16, 2008,
the board of directors of DEP’s general partner approved an increase in the
partnership’s quarterly cash distribution rate paid to partners in respect of
the second quarter of 2008 to $0.42 per common unit, or $1.68 per unit on an
annualized basis. This represents a five percent increase over the
$0.40 per unit quarterly distribution that was paid with respect to the second
quarter of 2007. Distributable cash flow for the second quarter of
2008 provided 1.2 times coverage of the quarterly cash distribution to be paid
to the partnership’s limited partners. Distributable cash flow is a
non-generally accepted accounting principle (or “non-GAAP”) financial measure
that is defined and reconciled later in this press release to its most directly
comparable GAAP financial measure, net cash flows provided by operating
activities.
“We’re
pleased to report another quarter of solid operating results and strong cash
flow for the partnership, enabling us to increase our quarterly cash
distribution to our partners by five percent over the second quarter of last
year,” said Richard H. Bachmann, president and chief executive officer of the
general partner of DEP. “In fact this quarter the partnership
recorded its highest net income and distributable cash flow since its IPO,
supported by increases in distributable cash flow from our Acadian natural gas
pipeline system and NGL storage business as well as lower sustaining capital
expenditures.”
Revenue
increased 52 percent to $360.4 million for the second quarter of 2008 from
$236.9 million for the second quarter of 2007. Gross operating margin
for the second quarter of 2008 decreased to $18.7 million from $21.5 million
reported in the second quarter of 2007. Earnings before interest,
taxes, depreciation, amortization and accretion (“EBITDA”) was $15.3 million for
the second quarter of this year, a 30 percent increase over $11.7 million for
the second quarter of last year. Gross operating margin and EBITDA
are non-GAAP financial measures that are defined and reconciled later in this
press release to their most directly comparable GAAP financial
measure.
Review of Segment Quarterly
Performance
DEP owns
a 66 percent equity interest in the assets described below, and Enterprise
Products Operating LLC (“EPO”) owns the remaining 34 percent equity
interest. EPO is a wholly-owned subsidiary of Enterprise Products
Partners L.P. and owns the general partner of DEP. EPO’s interest in
DEP’s subsidiaries is accounted for as “Parent Interest” in a manner similar to
minority interest. However, from a gross operating margin standpoint,
the amounts shown are on a 100 percent basis before the deduction for Parent
Interest.
NGL & Petrochemical Storage
Services – Gross operating margin for the second quarter of 2008
decreased to $3.5 million from $10.7 million in the second quarter of
2007. This decrease was due primarily to an operational measurement
loss of $5.7 million in the second quarter of 2008 compared to a $2.8 million
operational measurement gain recorded in the second quarter of
2007. In the partnership agreement for Mont Belvieu
Caverns,
LLC,
operational measurement gains and losses are allocated to EPO through its Parent
Interest. As such, EPO is required to contribute cash to Mont Belvieu
Caverns for operational measurement losses and is entitled to receive
distributions for operational measurement gains. Net of measurement
gains and losses allocated to EPO, gross operating margin was $9.2 million for
the second quarter of 2008 compared to $7.9 million for the second quarter of
2007. Storage revenues increased quarter-to-quarter as a result of
higher storage fees and volumes. The increase in revenues was
partially offset by higher operating expenses.
Onshore Natural Gas Pipelines &
Services – Gross operating margin for the second quarter of 2008
increased 211 percent to $6.8 million from $2.2 million in the second quarter of
2007. This increase was primarily due to improved natural gas sales
margins and higher sales volumes on the Acadian gas
system. Total natural gas volumes, which include both sales and
transportation volumes, were 731 billion British thermal units per day
(“BBtus/d”) this quarter compared to 746 BBtus/d in the second quarter of
2007.
Petrochemical Pipeline
Services – This segment generated gross operating margin
of $3.4 million in the second quarter of 2008 compared to $3.3 million in the
second quarter of 2007. Higher transportation volumes on the Lou-Tex
propylene pipeline were the primary reason for the increase in gross operating
margin. Total petrochemical transportation volumes increased 11
percent to an average 41,000 barrels per day (“BPD”) for the second quarter of
2008, from an average of 37,000 BPD for the second quarter last
year.
NGL Pipeline Services
– Gross operating margin for the second quarter of 2008 was
$5.0 million compared to $5.3 million in the second quarter of
2007. Dedicated natural gas liquid (“NGL”) volumes averaged 73,000
BPD in the second quarter of 2008 compared to 74,000 BPD in the second quarter
last year.
Capitalization
Total
debt outstanding at June 30, 2008 was $208.0 million. DEP had total liquidity of
approximately $104 million from unrestricted cash and availability under the
partnership's $300 million credit facility.
Management
for DEP will discuss second quarter results during the Enterprise Products
Partners L.P. earnings conference call with analysts and investors scheduled for
9:00 a.m. CDT today. The call will be broadcast live over the Internet and may
be accessed by visiting the partnership's website at www.deplp.com.
Basis of Presentation of
Financial Information
The partnership’s results of operations
for 2007 are reported separately from those of its predecessor, Duncan
Energy Partners Predecessor, following completion of the partnership’s initial
public offering (“IPO”) on February 5, 2007 (effective February 1, 2007 for
financial accounting and reporting purposes). We acquired substantially all of
the assets and operations of Duncan Energy Partners Predecessor that are
included in our consolidated financial statements.
There were a number of agreements and
other items that went into effect at the time of our IPO that affect the
comparability of the partnership’s operating results for the six months ended
June 30, 2008 with the combined historical operating results of the partnership
and Duncan Energy Partners Predecessor for the six months ended June 30, 2007.
These agreements and other items include:
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·
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The
fees Mont Belvieu Caverns, LLC ("Mont Belvieu Caverns") charges EPO for
underground storage services increased to market rates as a result of new
agreements.
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·
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Storage
well measurement gains and losses are retained by EPO rather than being
allocated to Mont Belvieu Caverns.
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·
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Mont
Belvieu Caverns makes a special allocation of operational measurement
gains and losses to EPO, which results in such gains and losses not
impacting the net income or loss of Mont Belvieu
Caverns. However, operational measurement gains and losses
continue to be a component of gross operating
margin.
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·
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Transportation
revenues recorded by Enterprise Lou-Tex Propylene Pipeline L.P. and Sabine
Propylene Pipeline L.P. decreased due to the assignment of certain
exchange agreements to us by EPO.
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Use of Non-GAAP Financial Measures
This
press release and accompanying schedules include non-GAAP financial measures of
gross operating margin, distributable cash flow, and EBITDA. The press release
provides reconciliations of these non-GAAP financial measures to their most
directly comparable financial measure calculated and presented in accordance
with accounting principles generally accepted in the United States of America
("GAAP"). Our non-GAAP financial measures should not be considered as
alternatives to GAAP measures such as net income, operating income, net cash
flows provided from operating activities or any other GAAP measure of liquidity
or financial performance.
Gross operating margin - We
evaluate segment performance based on the non-GAAP financial measure of gross
operating margin. Gross operating margin (either in total or by individual
segment) is an important performance measure of the core profitability of our
operations. This measure forms the basis of our internal financial reporting and
is used by senior management in deciding how to allocate capital resources among
business segments. We believe that investors benefit from having access to the
same financial measures that our management uses in evaluating segment results.
The GAAP measure most directly comparable to total segment gross operating
margin is operating income. Our non-GAAP financial measure of total segment
gross operating margin should not be considered as an alternative to GAAP
operating income.
We define
total (or combined) segment gross operating margin as operating income before:
(i) depreciation, amortization and accretion expense; (ii) gains and losses on
the sale of assets; and (iii) general and administrative expenses. Gross
operating margin is exclusive of other income and expense transactions,
provision for income taxes, extraordinary charges, Parent interest in income of
subsidiaries and the cumulative effect of changes in accounting principles.
Gross operating margin by segment is calculated by subtracting segment operating
costs and expenses (net of the adjustments noted above) from segment revenues,
with both segment totals before the elimination of any intersegment and
intrasegment transactions. In accordance with GAAP, intercompany accounts and
transactions are eliminated in consolidation.
We
include equity earnings from Evangeline Gas Pipeline Company L.P. and Evangeline
Gas Corp. (collectively, "Evangeline") in our measurement of segment gross
operating margin and operating income. Our equity investment in Evangeline is a
vital component of our business strategy and important to the operations of our
Acadian natural gas system. This method of operation enables us to achieve
favorable economies of scale relative to the level of investment and business
risk assumed versus what we could accomplish on a stand-alone basis. Evangeline
performs complementary roles to the other business operations of Acadian Gas,
LLC ("Acadian Gas"). As circumstances dictate, we may increase our ownership
interest in Evangeline or make other equity method investments.
Distributable cash flow - We
define distributable cash flow for Duncan Energy Partners as net income or loss
adjusted for: (i) the addition of depreciation, amortization and accretion
expense; (ii) the addition of cash distributions received from Evangeline, if
any, less equity in the earnings of Evangeline; (iii) the subtraction of
sustaining capital expenditures; (iv) the addition of losses or subtraction of
gains relating to the sale of assets; (v) the addition of cash proceeds from the
sale of assets; (vi) the addition of losses or subtraction of gains on the
monetization of financial instruments recorded in accumulated other
comprehensive income, if any, less related amortization of such amounts to
earnings; (vii) the addition or subtraction of other miscellaneous non-cash
amounts (as applicable) that affect net income or loss for the period; and
(viii) the subtraction of Parent interest in the foregoing
adjustments. Sustaining capital expenditures are capital expenditures
(as defined by GAAP) resulting from improvements to and major renewals of
existing assets. Senior management compares the distributable cash flow we
generate to the cash distributions we expect to pay our partners. Using this
data, management computes our distribution coverage ratio.
Distributable
cash flow is also an important non-GAAP financial measure for our limited
partners since it serves as an indicator of our success in providing a cash
return on investment. Specifically, this financial measure indicates to
investors whether or not we are generating cash flows at a level that can
sustain or support an increase in our quarterly cash distribution. Distributable
cash flow is also a quantitative standard used by the investment community with
respect to publicly traded partnerships because the value of a partnership unit
is in part measured by its yield (which in turn is based on the amount of cash
distributions a partnership pays to a unitholder). The GAAP measure most
directly comparable to distributable cash flow is net cash flows provided by
operating activities.
EBITDA - We define EBITDA as
net income or loss plus interest expense, provision for income taxes and
depreciation, accretion and amortization expense, with all such adjustments to
net income or loss determined net of the Parent Interest in subsidiary amounts.
EBITDA is commonly used as a supplemental financial measure by management and by
external users of our financial statements, such as investors, commercial banks,
research analysts and rating agencies, to assess: (i) the financial performance
of our assets without regard to financing methods, capital structures or
historical cost basis; (ii) the ability of our assets to generate cash
sufficient to pay interest cost and support our indebtedness; and (iii) the
viability of projects and the overall rates of return on alternative investment
opportunities. Since EBITDA excludes some, but not all, items that affect net
income or loss and because these measures may vary among other companies, the
EBITDA data presented in the press release may not be comparable to similarly
titled measures of other companies. The GAAP measure most directly comparable to
EBITDA is net cash flows provided by operating activities.
Company Information and Use
of Forward Looking Statements
Duncan
Energy Partners is a publicly traded partnership that provides midstream energy
services, including gathering, transportation, marketing and storage of natural
gas, in addition to transportation and storage of NGLs and petrochemicals.
Duncan Energy Partners' assets, located primarily in the Gulf Coast region of
Texas and Louisiana, include interests in more than 1,000 miles of natural gas
pipelines with a transportation capacity of approximately 1 Bcf per day; nearly
600 miles of NGL and petrochemical pipelines featuring access to the world's
largest fractionation complex at Mont Belvieu, Texas; and 33 underground salt
dome caverns with about 100 MMBbls of NGL storage capacity.
This
press release contains various forward-looking statements and information that
are based on Duncan Energy Partners' beliefs and those of its general partner,
as well as assumptions made by and information currently available to Duncan
Energy Partners. When used in this press release, words such as "anticipate,"
"project," "expect," "plan," "goal," "forecast," "intend," "could," “should,”
“will,” "believe," "may," “potential” and similar expressions and statements
regarding the plans and objectives of Duncan Energy Partners for future
operations, are intended to identify forward-looking statements. Although Duncan
Energy Partners and its general partner believe that such expectations reflected
in such forward-looking statements are reasonable, neither Duncan Energy
Partners nor its general partner can give assurances that such expectations will
prove to be correct. Such statements are subject to a variety of risks,
uncertainties and assumptions. If one or more of these risks or uncertainties
materialize, or if underlying assumptions prove incorrect, Duncan Energy
Partners' actual results may vary materially from those it anticipated,
estimated, projected or expected. Among the key risk factors that may have a
direct bearing on Duncan Energy Partners' results of operations and financial
condition are:
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fluctuations
in oil, natural gas and NGL prices and production due to weather and other
natural and economic forces;
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the
effects of the combined company's debt level on its future financial and
operating flexibility;
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a
reduction in demand for its products by the petrochemical, refining or
heating industries;
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a
decline in the volumes of NGLs delivered by its
facilities;
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the
failure of its credit risk management efforts to adequately protect it
against customer non-payment;
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terrorist
attacks aimed at its facilities;
and,
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the
failure to successfully integrate our operations with companies, if any
that we may acquire in the future.
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Duncan
Energy Partners has no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise.
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Contacts:
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Randy Burkhalter, Investor
Relations, (713) 381-6812, www.deplp.com
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Rick
Rainey, Media Relations, (713)
381-3635
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###
Exhibit
A
Duncan
Energy Partners L.P.
Statements
of Consolidated Operations – UNAUDITED
For
the Three Months Ended June 30, 2008 and 2007; Six Months Ended June 30,
2008;
Five
Months Ended June 30, 2007; and One Month Ended January 31, 2007
(Dollars
in thousands, except per unit amounts)
|
Duncan
Energy
|
||||||||||||||||||||
|
Duncan
Energy Partners
|
Partners
Predecessor
|
|||||||||||||||||||
|
For
the Three
|
For
the Six
|
For
the Five
|
For
the One
|
|||||||||||||||||
|
Months
Ended June 30,
|
Months
Ended June 30,
|
Month
Ended
|
||||||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
January
31, 2007
|
||||||||||||||||
|
Revenue
|
$ | 360,385 | $ | 236,896 | $ | 622,174 | $ | 370,770 | $ | 66,674 | ||||||||||
|
Costs and
expenses:
|
||||||||||||||||||||
|
Operating
costs and expenses
|
350,456 | 222,711 | 595,950 | 347,142 | 61,187 | |||||||||||||||
|
General
and administrative
|
1,594 | 1,026 | 3,719 | 1,383 | 477 | |||||||||||||||
|
Total
costs and expenses
|
352,050 | 223,737 | 599,669 | 348,525 | 61,664 | |||||||||||||||
|
Equity
in income of Evangeline
|
228 | 114 | 386 | 160 | 25 | |||||||||||||||
|
Operating
income
|
8,563 | 13,273 | 22,891 | 22,405 | 5,035 | |||||||||||||||
|
Other income
(expense):
|
||||||||||||||||||||
|
Interest
expense
|
(2,700 | ) | (2,410 | ) | (5,468 | ) | (3,541 | ) | -- | |||||||||||
|
Interest
income
|
158 | 229 | 258 | 373 | -- | |||||||||||||||
|
Total
other expense
|
(2,542 | ) | (2,181 | ) | (5,210 | ) | (3,168 | ) | -- | |||||||||||
|
Income
before provision for income taxes and parent
|
||||||||||||||||||||
|
interest in income of
subsidiaries
|
6,021 | 11,092 | 17,681 | 19,237 | 5,035 | |||||||||||||||
|
Provision
for income taxes
|
(16 | ) | 59 | (28 | ) | (114 | ) | -- | ||||||||||||
|
Income before parent
interest in income of subsidiaries
|
6,005 | 11,151 | 17,653 | 19,123 | 5,035 | |||||||||||||||
|
Parent
interest in income of subsidiaries (see Exhibit
E)
|
599 | (6,603 | ) | (5,017 | ) | (10,652 | ) | -- | ||||||||||||
|
Net
income
|
$ | 6,604 | $ | 4,548 | $ | 12,636 | $ | 8,471 | $ | 5,035 | ||||||||||
|
Allocation of net
income to:
|
||||||||||||||||||||
|
Limited
partners
|
$ | 6,472 | $ | 4,457 | $ | 12,383 | $ | 8,302 | n/a | |||||||||||
|
General
partner
|
$ | 132 | $ | 91 | $ | 253 | $ | 169 | n/a | |||||||||||
|
Per unit data (fully
diluted):
|
||||||||||||||||||||
|
Net
income per unit
|
$ | 0.32 | $ | 0.22 | $ | 0.61 | $ | 0.41 | n/a | |||||||||||
|
Average
LP units outstanding (in 000s)
|
20,302 | 20,302 | 20,302 | 20,302 | n/a | |||||||||||||||
|
Other financial
data:
|
||||||||||||||||||||
|
Net
cash flows provided by (used in) operating activities
|
$ | (10,881 | ) | $ | 16,199 | $ | 10,954 | $ | 64,895 | $ | (3,535 | ) | ||||||||
|
Net
cash used in investing activities
|
$ | 57,895 | $ | 34,313 | $ | 100,072 | $ | 82,688 | $ | 4,999 | ||||||||||
|
Net
cash provided by financing activities
|
$ | 68,049 | $ | 20,013 | $ | 100,269 | $ | 23,786 | $ | 8,534 | ||||||||||
|
Distributable
cash flow
|
$ | 10,788 | $ | 6,558 | $ | 19,678 | $ | 12,162 | n/a | |||||||||||
|
EBITDA
|
$ | 15,256 | $ | 11,734 | $ | 29,245 | $ | 19,882 | n/a | |||||||||||
|
Depreciation,
amortization and accretion (100% basis)
|
$ | 8,997 | $ | 7,295 | $ | 16,848 | $ | 11,831 | $ | 2,209 | ||||||||||
|
Total
debt principal outstanding at end of period
|
$ | 208,000 | $ | 190,000 | $ | 208,000 | $ | 190,000 | n/a | |||||||||||
|
Capital
spending (100% basis):
|
||||||||||||||||||||
|
Capital expenditures, net of contributions in aid of
|
||||||||||||||||||||
|
construction
costs, for property, plant and equipment
|
$ | 58,207 | $ | 34,300 | $ | 100,116 | $ | 82,626 | $ | 4,999 | ||||||||||
|
Investments
in and advances to Evangeline
|
33 | 13 | 301 | 64 | -- | |||||||||||||||
|
Total
|
$ | 58,240 | $ | 34,313 | $ | 100,417 | $ | 82,690 | $ | 4,999 | ||||||||||
Exhibit
B
Duncan
Energy Partners L.P.
Selected
Financial and Operating Data
For
the Three Months Ended June 30, 2008 and 2007; Six Months Ended June 30,
2008;
Five
Months Ended June 30, 2007; and One Month Ended January 31, 2007
(Dollars
in thousands, operating data as noted)
|
Duncan
Energy
|
||||||||||||||||||||
|
Duncan
Energy Partners
|
Partners
Predecessor
|
|||||||||||||||||||
|
For
the Three
|
For
the Six
|
For
the Five
|
For
the One
|
|||||||||||||||||
|
Months
Ended June 30,
|
Months
Ended June 30,
|
Month
Ended
|
||||||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
January
31, 2007
|
||||||||||||||||
|
Gross operating margin
by segment:
|
||||||||||||||||||||
|
NGL
and Petrochemical Storage Services
|
$ | 3,482 | $ | 10,741 | $ | 13,649 | $ | 17,421 | $ | 1,770 | ||||||||||
|
Onshore
Natural Gas Pipelines & Services
|
6,786 | 2,179 | 12,972 | 4,056 | 1,605 | |||||||||||||||
|
Petrochemical
Pipeline Services
|
3,392 | 3,288 | 6,305 | 5,504 | 2,700 | |||||||||||||||
|
NGL
Pipelines & Services
|
5,049 | 5,294 | 9,991 | 8,523 | 1,646 | |||||||||||||||
|
Total
non-GAAP gross operating margin
|
18,709 | 21,502 | 42,917 | 35,504 | 7,721 | |||||||||||||||
|
Adjustments
to reconcile non-GAAP gross operating
|
||||||||||||||||||||
|
margin
to GAAP operating income:
|
||||||||||||||||||||
|
Depreciation,
amortization and accretion in operating
|
||||||||||||||||||||
|
costs
and expenses
|
(8,890 | ) | (7,203 | ) | (16,645 | ) | (11,718 | ) | (2,209 | ) | ||||||||||
|
Gain
on sale of assets in operating costs and expenses
|
338 | -- | 338 | 2 | -- | |||||||||||||||
|
General
and administrative costs
|
(1,594 | ) | (1,026 | ) | (3,719 | ) | (1,383 | ) | (477 | ) | ||||||||||
|
Operating
income per GAAP
|
$ | 8,563 | $ | 13,273 | $ | 22,891 | $ | 22,405 | $ | 5,035 | ||||||||||
|
Selected operating
data:
|
||||||||||||||||||||
|
Onshore
Natural Gas Pipelines & Services, net:
|
||||||||||||||||||||
|
Natural
gas throughput volumes (BBtus/d)
|
731 | 746 | 720 | 696 | 701 | |||||||||||||||
|
Petrochemical
Pipeline Services:
|
||||||||||||||||||||
|
Petrochemical
transportation volumes (MBPD)
|
41 | 37 | 40 | 36 | 37 | |||||||||||||||
|
NGL
Pipelines & Services:
|
||||||||||||||||||||
|
Dedicated
transportation volumes (MBPD)
|
73 | 74 | 73 | 72 | 67 | |||||||||||||||
Exhibit
C
Duncan
Energy Partners L.P.
Reconciliations
of Unaudited Non-GAAP Financial Measures to Our GAAP Financial
Measures
Distributable
Cash Flow
For
the Three Months Ended June 30, 2008 and 2007; Six Months Ended June 30, 2008;
and
Five
Months Ended June 30, 2007
(Dollars
in thousands)
The following table presents our
calculation of distributable cash flow for the periods indicated and reconciles
these amounts to net cash flows provided by operating activities for the same
periods.
|
For
the Three
|
For
the Six
|
For
the Five
|
||||||||||||||
|
Months
Ended June 30,
|
Months
Ended June 30,
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Net
income
|
$ | 6,604 | $ | 4,548 | $ | 12,636 | $ | 8,471 | ||||||||
|
Adjustments
to derive distributable cash flow
|
||||||||||||||||
|
(add
or subtract as indicated by sign of number):
|
||||||||||||||||
|
Amortization
in interest expense
|
33 | 32 | 65 | 53 | ||||||||||||
|
Depreciation,
amortization and accretion in costs and expenses
|
8,964 | 7,263 | 16,783 | 11,778 | ||||||||||||
|
Deferred
income tax expense
|
3 | 83 | (18 | ) | 62 | |||||||||||
|
Equity
in income of Evangeline
|
(228 | ) | (114 | ) | (386 | ) | (160 | ) | ||||||||
|
Gain
on sale of assets
|
(338 | ) | -- | (338 | ) | (2 | ) | |||||||||
|
Proceeds
from sale of assets
|
345 | -- | 345 | 2 | ||||||||||||
|
Sustaining
capital expenditures
|
(2,439 | ) | (4,219 | ) | (5,790 | ) | (6,140 | ) | ||||||||
|
Changes
in fair market value of financial instruments
|
(1 | ) | 1 | 9 | (1 | ) | ||||||||||
|
Parent
34% interest in adjustments to determine distributable cash
flow
|
(2,155 | ) | (1,036 | ) | (3,628 | ) | (1,901 | ) | ||||||||
|
Distributable
cash flow
|
10,788 | 6,558 | 19,678 | 12,162 | ||||||||||||
|
Adjustments
to distributable cash flow to derive net cash flows provided
by
|
||||||||||||||||
|
operating
activities (add or subtract as indicated by sign of
number):
|
||||||||||||||||
|
Proceeds
from sale of assets
|
(345 | ) | -- | (345 | ) | (2 | ) | |||||||||
|
Sustaining
capital expenditures
|
2,439 | 4,219 | 5,790 | 6,140 | ||||||||||||
|
Parent
interest in income of subsidiaries
|
(599 | ) | 6,603 | 5,017 | 10,652 | |||||||||||
|
Parent
34% interest in adjustments to derive distributable cash flow (see
above)
|
2,155 | 1,036 | 3,628 | 1,901 | ||||||||||||
|
Net
effect of changes in operating accounts
|
(25,319 | ) | (2,217 | ) | (22,814 | ) | 34,042 | |||||||||
|
Net
cash flows provided by operating activities
|
$ | (10,881 | ) | $ | 16,199 | $ | 10,954 | $ | 64,895 | |||||||
Exhibit
D
Duncan
Energy Partners L.P.
Reconciliations
of Unaudited Non-GAAP Financial Measures to Our GAAP Financial
Measures
EBITDA
For
the Three Months Ended June 30, 2008 and 2007; Six Months Ended June 30, 2008;
and
Five
Months Ended June 30, 2007
(Dollars
in thousands)
The following tables presents our
calculation of EBITDA for the periods indicated and reconciles these amounts to
net cash flows provided by operating activities for the same
periods.
|
For
the Three
|
For
the Six
|
For
the Five
|
||||||||||||||
|
Months
Ended June 30,
|
Months
Ended June 30,
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Net
income
|
$ | 6,604 | $ | 4,548 | $ | 12,636 | $ | 8,471 | ||||||||
|
Additions
to net income (net of Parent Interest in subsidiary
amounts)
|
||||||||||||||||
|
to
derive EBITDA:
|
||||||||||||||||
|
Interest
expense (including related amortization), net
|
2,699 | 2,411 | 5,466 | 3,542 | ||||||||||||
|
Provision
for income taxes, net
|
11 | (39 | ) | 19 | 76 | |||||||||||
|
Depreciation,
amortization and accretion in costs and expenses, net
|
5,942 | 4,814 | 11,124 | 7,793 | ||||||||||||
|
EBITDA
|
15,256 | 11,734 | 29,245 | 19,882 | ||||||||||||
|
Adjustments
to EBITDA to derive net cash flows provided by operating
|
||||||||||||||||
|
activities
(add or subtract as indicated by sign of number):
|
||||||||||||||||
|
Interest
expense, net
|
(2,699 | ) | (2,411 | ) | (5,466 | ) | (3,542 | ) | ||||||||
|
Provision
for income taxes, net
|
(11 | ) | 39 | (19 | ) | (76 | ) | |||||||||
|
Depreciation,
amortization and accretion in costs and expenses not
|
||||||||||||||||
|
reflected
in EBITDA, net
|
3,022 | 2,449 | 5,659 | 3,985 | ||||||||||||
|
Equity
in income of Evangeline
|
(228 | ) | (114 | ) | (386 | ) | (160 | ) | ||||||||
|
Amortization
in interest expense
|
33 | 32 | 65 | 53 | ||||||||||||
|
Deferred
income tax expense
|
3 | 83 | (18 | ) | 62 | |||||||||||
|
Parent
interest in income of subsidiaries
|
(599 | ) | 6,603 | 5,017 | 10,652 | |||||||||||
|
Gain
on sale of assets
|
(338 | ) | -- | (338 | ) | (2 | ) | |||||||||
|
Changes
in fair market value of financial instruments
|
(1 | ) | 1 | 9 | (1 | ) | ||||||||||
|
Net
effect of changes in operating accounts
|
(25,319 | ) | (2,217 | ) | (22,814 | ) | 34,042 | |||||||||
|
Net
cash flows provided by operating activities
|
$ | (10,881 | ) | $ | 16,199 | $ | 10,954 | $ | 64,895 | |||||||
Exhibit
E
Duncan
Energy Partners L.P.
Parent
Interest Calculations
For
the Three Months Ended June 30, 2008 and 2007; Six Months Ended June 30, 2008;
and
Five
Months Ended June 30, 2007
(Dollars
in thousands)
In connection with our initial
public offering in February 2007, Enterprise Products Operating LLC (“EPO”)
contributed a 66% equity interest in Mont Belvieu Caverns, Acadian Gas, Lou-Tex
Propylene, Sabine Propylene and South Texas NGL to us. EPO
retained the remaining 34% equity interest in each of these
entities. We account for EPO’s share of our subsidiaries’ net assets
and income as Parent interest in a manner similar to minority interest. The
following table presents our calculation of the Parent’s interest in the income
of our subsidiaries for the three months ended June 30, 2008 and
2007:
|
For
The Three
|
For
the Three
|
|||||||||||||||
|
Months
Ended
|
Months
Ended
|
|||||||||||||||
|
June
30, 2008
|
June
30, 2007
|
|||||||||||||||
|
Net
income amounts:
|
||||||||||||||||
|
Mont
Belvieu Caverns’ net income (before special allocation of
operational
|
||||||||||||||||
|
measurement
gains and losses)
|
$ | (1,528 | ) | $ | 6,998 | |||||||||||
|
Add
(Deduct) operational measurement losses(gains) allocated to
Parent
|
5,741 | $ | (5,741 | ) | (2,818 | ) | $ | 2,818 | ||||||||
|
Remaining
Mont Belvieu Caverns’ net income to allocate to partners
|
4,213 | 4,180 | ||||||||||||||
|
Multiplied
by Parent 34% interest in remaining net income
|
x 34 | % | x 34 | % | ||||||||||||
|
Mont
Belvieu Caverns’ net income allocated to Parent
|
$ | 1,432 | 1,432 | $ | 1,421 | 1,421 | ||||||||||
|
Acadian
Gas net income multiplied by Parent 34% interest
|
1,674 | 30 | ||||||||||||||
|
Lou-Tex
Propylene net income multiplied by Parent 34% interest
|
768 | 756 | ||||||||||||||
|
Sabine
Propylene net income multiplied by Parent 34% interest
|
100 | 95 | ||||||||||||||
|
South
Texas NGL net income multiplied by Parent 34% interest
|
1,168 | 1,483 | ||||||||||||||
|
Parent
interest in income of subsidiaries
|
$ | (599 | ) | $ | 6,603 | |||||||||||
The following table presents our
calculation of the Parent’s interest in the income of our subsidiaries for the
six and five months ended June 30, 2008 and 2007, respectively:
|
For
The Six
|
For
the Five
|
|||||||||||||||
|
Months
Ended
|
Months
Ended
|
|||||||||||||||
|
June
30, 2008
|
June
30, 2007
|
|||||||||||||||
|
Net
income amounts:
|
||||||||||||||||
|
Mont
Belvieu Caverns’ net income (before special allocation of
operational
|
||||||||||||||||
|
measurement
gains and losses)
|
$ | 4,019 | $ | 11,552 | ||||||||||||
|
Add
(Deduct) operational measurement losses(gains) allocated to
Parent
|
4,917 | $ | (4,917 | ) | (4,146 | ) | $ | 4,146 | ||||||||
|
Remaining
Mont Belvieu Caverns’ net income to allocate to partners
|
8,936 | 7,406 | ||||||||||||||
|
Multiplied
by Parent 34% interest in remaining net income
|
x 34 | % | x 34 | % | ||||||||||||
|
Mont
Belvieu Caverns’ net income allocated to Parent
|
$ | 3,038 | 3,038 | $ | 2,518 | 2,518 | ||||||||||
|
Acadian
Gas net income multiplied by Parent 34% interest
|
2,887 | 246 | ||||||||||||||
|
Lou-Tex
Propylene net income multiplied by Parent 34% interest
|
1,386 | 1,262 | ||||||||||||||
|
Sabine
Propylene net income multiplied by Parent 34% interest
|
190 | 149 | ||||||||||||||
|
South
Texas NGL net income multiplied by Parent 34% interest
|
2,433 | 2,331 | ||||||||||||||
|
Parent
interest in income of subsidiaries
|
$ | 5,017 | $ | 10,652 | ||||||||||||