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): October 23, 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 October 23, 2008, Duncan Energy
Partners L.P. (“Duncan Energy Partners”) issued a press release announcing its
financial and operating results for the three and nine months ended September
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 “Enterprise Products GP” refer to
Enterprise Products GP, LLC, which is the general partner of Enterprise Products
Partners and is wholly owned by Enterprise GP Holdings.
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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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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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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Storage
well measurement gains and losses are retained by EPO rather than being
allocated to Mont Belvieu Caverns.
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A
special allocation of operational measurement gains and losses to EPO from
Mont Belvieu Caverns, 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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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 from asset sales and related transactions; 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 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
and related transactions;
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the
addition of cash proceeds from the sale of assets and related
transactions;
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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;
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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 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. Such expenditures serve to maintain
existing operations but do not generate additional revenues.
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.
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 October 23,
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:
October 23, 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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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 October 23,
2008.
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Exhibit
99.1
P.O. Box
4324
Houston,
TX 77210
(713)
381-6500
Duncan
Energy Partners Reports Third Quarter 2008 Results
Houston,
Texas (October 23, 2008) - Duncan Energy Partners L.P. (NYSE: DEP) today
announced its financial results for the three and nine months ended September
30, 2008. The partnership reported net income of $3.8 million for the
third quarter of 2008, or $0.18 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 third quarter of 2007. Net income for the
third quarter of 2008 was negatively impacted by $1.8 million, or $0.09 per unit
on a fully diluted basis, from property damage repair expenses and estimated
lost business as a result of Hurricanes Gustav and Ike.
The
partnership generated distributable cash flow of $7.6 million in the third
quarter of 2008 compared to $8.7 million in the third quarter of
2007. Distributable cash flow for the third quarter of 2008 was
reduced by approximately $1.2 million from lost business due to the
hurricanes. On October 15, 2008, the Board of Directors of DEP’s
general partner declared a quarterly distribution to its limited partners with
respect to the third quarter of 2008 of $0.42 per common unit, or $1.68 per unit
on an annualized basis, representing a 2.4 percent increase over the $0.41 per
unit quarterly distribution that was paid with respect to the third quarter of
2007. Distributable cash flow for the third quarter of 2008 provided
0.9 times coverage of the cash distribution to be paid to limited
partners. For the nine months ended September 30, 2008, distributable
cash flow provided 1.1 times coverage of the distributions paid and to be paid
to 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 U.S.
generally accepted accounting principle (“GAAP”) financial measure, net cash
flows provided by operating activities.
Revenue
increased 46 percent to $321.4 million for the third quarter of 2008 from $220.6
million for the third quarter of 2007. Gross operating margin
increased 9 percent to $20.9 million for the quarter compared to $19.1 million
for the third quarter of 2007. Earnings before interest, taxes,
depreciation, amortization and accretion (“EBITDA”) was $12.4 million for the
third quarter of 2008 versus $12.6 million for the same period in
2007. 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.
“Despite
the impact on our operations from Hurricanes Gustav and Ike, we reported solid
results for the third quarter of 2008, as reflected by our increased revenues
and gross operating margin,” said Richard H. Bachmann, president and chief
executive officer of the general partner of DEP. “Increased natural gas sales
margins from the Acadian Gas Pipeline system during the quarter helped to offset
overall lower gas transportation volumes on the pipeline and lower propylene
volumes transported on the Lou-Tex Propylene Pipeline. Through nine
months of this year, we have generated higher gross operating margin and
distributable cash flow compared to the same period in 2007 with our commercial
businesses consistently delivering strong results. We expect these
businesses to continue to perform well for the remainder of this year and the
foreseeable future.”
Review of Segment Quarterly
Performance
The
results reported below reflect operations of DEP for the three months ended
September 30, 2008, compared to operations for the comparable three month period
in 2007.
1
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 on our financial statements 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 third quarter of 2008 increased
to $9.2 million from $7.7 million in the third quarter of 2007. The
increase was due primarily to an operational measurement gain of $1.1 million in
the third quarter of 2008 compared to a $0.9 million operational measurement
loss in the third 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 $8.1 million for the third quarter of 2008 compared to $8.6
million for the third quarter of 2007. Storage revenues increased
quarter-to-quarter primarily as a result of higher excess throughput storage
fees and volumes. Higher operating expenses in the third quarter of
this year, which includes approximately $0.6 million of property damage repair
expenses resulting from Hurricane Ike, offset the increase in
revenues. Gross operating margin for the third quarter of 2008 was
also impacted by an estimated $0.9 million of lost business due to lower volume
as a result of Hurricane Ike.
Onshore Natural Gas Pipelines &
Services – Gross operating margin for the third quarter of 2008 increased
37 percent to $4.5 million from $3.3 million in the third quarter of 2007,
primarily due to improved natural gas sales margins on the Acadian gas pipeline
system. Included in operating expenses this quarter was approximately
$0.3 million of repair expenses due to damages incurred from Hurricanes Gustav
and Ike. Total natural gas volumes, which include both transportation
and sales volumes, were 693 billion British thermal units per day (“BBtus/d”)
compared to 761 BBtus/d in the third quarter of 2007.
Petrochemical Pipeline
Services – Gross operating margin for the third quarter
of 2008 was $2.5 million compared to $3.0 million for the third quarter of 2007,
primarily due to lower transportation volumes on the Lou-Tex propylene
pipeline. The Lou-Tex propylene pipeline was impacted by
approximately $0.9 million from a loss in volumes due to downtime as a result of
Hurricanes Gustav and Ike during the third quarter of 2008. Total
petrochemical transportation volumes averaged 33,000 barrels per day (“BPD”) for
the third quarter of 2008, down from 39,000 BPD for the third quarter last
year.
NGL Pipeline Services
– This segment generated gross operating margin of $4.7 million
during the third quarter of 2008, down slightly from $5.1 million in the third
quarter of 2007 primarily due to higher ad valorem and repair and maintenance
expenses in the third quarter of 2008. Dedicated natural gas liquid
volumes averaged 73,000 BPD in the third quarter of both 2008 and
2007.
Capitalization
Total
debt outstanding at September 30, 2008 was $212 million. DEP had
total liquidity of approximately $100 million from unrestricted cash and
availability under the partnership's $300 million credit
facility.
Management
for DEP will discuss third quarter results during the Enterprise Products
Partners L.P. earnings conference call with analysts and investors scheduled for
9:00 a.m. CT 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.
2
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 nine months ended September 30, 2008 with the combined historical operating
results of the partnership and Duncan Energy Partners Predecessor for the nine
months ended September 30, 2007. These agreements and other items
include:
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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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Storage
well measurement gains and losses are retained by EPO rather than being
allocated to Mont Belvieu
Caverns.
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A
special allocation of operational measurement gains and losses to EPO from
Mont Belvieu Caverns, 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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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 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 by 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 from
asset sales and related transactions; 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
3
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 from asset sales and related transactions; (v)
cash proceeds from asset sales, the return of investment from unconsolidated
affiliates or related transactions; (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," "believe,"
"may," 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;
|
|
§
|
a
reduction in demand for its products by the petrochemical, refining or
heating
industries;
|
|
§
|
a
decline in the volumes of NGLs delivered by its
facilities;
|
|
§
|
the
failure of its credit risk management efforts to adequately protect it
against customer
non-payment;
|
|
§
|
terrorist
attacks aimed at its facilities;
and,
|
|
§
|
the
failure to successfully integrate our operations with companies, if any,
that we may acquire in the
future.
|
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.
|
|
Contacts:
|
Randy Burkhalter, Investor
Relations, (713) 381-6812, www.deplp.com
|
|
|
Rick
Rainey, Media Relations, (713)
381-3635
|
###
5
Exhibit
A
Duncan
Energy Partners L.P.
Statements
of Consolidated Operations – UNAUDITED
For
the Three Months Ended September 30, 2008 and 2007; Nine Months Ended September
30, 2008;
Eight
Months Ended September 30, 2007; and One Month Ended January 31,
2007
(Dollars
in thousands, except per unit amounts)
|
Duncan
Energy
|
||||||||||||||||||||
|
Partners
|
||||||||||||||||||||
|
Duncan
Energy Partners
|
Predecessor
|
|||||||||||||||||||
|
For
the Three
|
For
the Nine
|
For
the Eight
|
For
the One
|
|||||||||||||||||
|
Months
Ended September 30,
|
Months
Ended September 30,
|
Month
Ended
|
||||||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
January
31, 2007
|
||||||||||||||||
|
Revenue
|
$ | 321,365 | $ | 220,572 | $ | 943,539 | $ | 591,342 | $ | 66,674 | ||||||||||
|
Costs
and expenses:
|
||||||||||||||||||||
|
Operating
costs and expenses
|
309,153 | 208,657 | 905,103 | 555,799 | 61,187 | |||||||||||||||
|
General
and administrative costs
|
1,614 | 1,146 | 5,333 | 2,529 | 477 | |||||||||||||||
|
Total
costs and expenses
|
310,767 | 209,803 | 910,436 | 558,328 | 61,664 | |||||||||||||||
|
Equity in
income (loss)
of
Evangeline
|
311 | (5 | ) | 697 | 155 | 25 | ||||||||||||||
|
Operating
income
|
10,909 | 10,764 | 33,800 | 33,169 | 5,035 | |||||||||||||||
|
Other income
(expense):
|
||||||||||||||||||||
|
Interest
expense
|
(2,887 | ) | (3,180 | ) | (8,355 | ) | (6,721 | ) | -- | |||||||||||
|
Interest
income
|
168 | 130 | 426 | 503 | -- | |||||||||||||||
|
Total
other expense
|
(2,719 | ) | (3,050 | ) | (7,929 | ) | (6,218 | ) | -- | |||||||||||
|
Income
before provision for income taxes and parent
|
||||||||||||||||||||
|
interest
in income of subsidiaries
|
8,190 | 7,714 | 25,871 | 26,951 | 5,035 | |||||||||||||||
|
Provision
for income taxes
|
(39 | ) | (32 | ) | (67 | ) | (146 | ) | -- | |||||||||||
|
Income
before parent interest in income of subsidiaries
|
8,151 | 7,682 | 25,804 | 26,805 | 5,035 | |||||||||||||||
|
Parent
interest in income of subsidiaries (see Exhibit
E)
|
(4,348 | ) | (3,188 | ) | (9,365 | ) | (13,840 | ) | -- | |||||||||||
|
Net
income
|
$ | 3,803 | $ | 4,494 | $ | 16,439 | $ | 12,965 | $ | 5,035 | ||||||||||
|
Allocation
of net income to:
|
||||||||||||||||||||
|
Limited
partners
|
$ | 3,727 | $ | 4,404 | $ | 16,110 | $ | 12,706 | n/a | |||||||||||
|
General
partner
|
$ | 76 | $ | 90 | $ | 329 | $ | 259 | n/a | |||||||||||
|
Per
unit data (fully diluted):
|
||||||||||||||||||||
|
Net
income per unit
|
$ | 0.18 | $ | 0.22 | $ | 0.79 | $ | 0.63 | 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
|
$ | 10,974 | $ | 22,086 | $ | 21,897 | $ | 86,981 | $ | (3,535 | ) | |||||||||
|
Net
cash used in investing activities
|
$ | 17,883 | $ | 45,865 | $ | 117,955 | $ | 128,553 | $ | 4,999 | ||||||||||
|
Net
cash provided by financing activities
|
$ | 6,405 | $ | 21,576 | $ | 106,705 | $ | 45,362 | $ | 8,534 | ||||||||||
|
Distributable
cash flow
|
$ | 7,566 | $ | 8,666 | $ | 27,244 | $ | 20,828 | n/a | |||||||||||
|
EBITDA
|
$ | 12,432 | $ | 12,552 | $ | 41,677 | $ | 32,432 | n/a | |||||||||||
|
Depreciation,
amortization and accretion (100% basis)
|
$ | 8,628 | $ | 7,353 | $ | 25,476 | $ | 19,184 | $ | 2,209 | ||||||||||
|
Total
debt principal outstanding at end of period
|
$ | 212,000 | $ | 215,000 | $ | 212,000 | $ | 215,000 | n/a | |||||||||||
|
Capital
spending (100% basis):
|
||||||||||||||||||||
|
Capital
expenditures, net of contributions in aid of
|
||||||||||||||||||||
|
construction
costs, for property, plant and equipment
|
$ | 17,936 | $ | 48,799 | $ | 118,052 | $ | 131,425 | $ | 4,999 | ||||||||||
|
Investments
in and advances to Evangeline
|
-- | 320 | 301 | 384 | -- | |||||||||||||||
|
Total
|
$ | 17,936 | $ | 49,119 | $ | 118,353 | $ | 131,809 | $ | 4,999 | ||||||||||
6
Exhibit
B
Duncan
Energy Partners L.P.
Selected
Financial and Operating Data
For
the Three Months Ended September 30, 2008 and 2007; Nine Months Ended September
30, 2008;
Eight
Months Ended September 30, 2007; and One Month Ended January 31,
2007
(Dollars
in thousands, operating data as noted)
|
Duncan
Energy
|
||||||||||||||||||||
|
Partners
|
||||||||||||||||||||
|
Duncan
Energy Partners
|
Predecessor
|
|||||||||||||||||||
|
For
the Three
|
For
the Nine
|
For
the Eight
|
For
the One
|
|||||||||||||||||
|
Months
Ended September 30,
|
Months
Ended September 30,
|
Month
Ended
|
||||||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
January
31, 2007
|
||||||||||||||||
|
Gross
operating margin by segment:
|
||||||||||||||||||||
|
NGL
and Petrochemical Storage Services
|
$ | 9,238 | $ | 7,652 | $ | 22,887 | $ | 25,073 | $ | 1,770 | ||||||||||
|
Onshore
Natural Gas Pipelines & Services
|
4,543 | 3,308 | 17,515 | 7,364 | 1,605 | |||||||||||||||
|
Petrochemical
Pipeline Services
|
2,497 | 3,047 | 8,802 | 8,551 | 2,700 | |||||||||||||||
|
NGL
Pipelines & Services
|
4,650 | 5,135 | 14,641 | 13,658 | 1,646 | |||||||||||||||
|
Total
non-GAAP gross operating margin
|
$ | 20,928 | $ | 19,142 | $ | 63,845 | $ | 54,646 | $ | 7,721 | ||||||||||
|
Adjustments
to reconcile non-GAAP gross operating
|
||||||||||||||||||||
|
margin
to GAAP operating income:
|
||||||||||||||||||||
|
Depreciation,
amortization and accretion in operating
|
||||||||||||||||||||
|
costs
and expenses
|
(8,469 | ) | (7,249 | ) | (25,114 | ) | (18,967 | ) | (2,209 | ) | ||||||||||
|
Gain
from asset sales and related transactions
|
64 | 17 | 402 | 19 | -- | |||||||||||||||
|
General
and administrative costs
|
(1,614 | ) | (1,146 | ) | (5,333 | ) | (2,529 | ) | (477 | ) | ||||||||||
|
Operating
income per GAAP
|
$ | 10,909 | $ | 10,764 | $ | 33,800 | $ | 33,169 | $ | 5,035 | ||||||||||
|
Selected
operating data:
|
||||||||||||||||||||
|
Onshore
Natural Gas Pipelines & Services, net:
|
||||||||||||||||||||
|
Natural
gas throughput volumes (BBtus/d)
|
693 | 761 | 711 | 721 | 701 | |||||||||||||||
|
Petrochemical
Pipeline Services:
|
||||||||||||||||||||
|
Petrochemical
transportation volumes (MBPD)
|
33 | 39 | 38 | 37 | 37 | |||||||||||||||
|
NGL
Pipelines & Services:
|
||||||||||||||||||||
|
Dedicated
transportation volumes (MBPD)
|
73 | 73 | 73 | 72 | 67 | |||||||||||||||
7
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 September 30, 2008 and 2007; Nine Months Ended September
30, 2008; and
Eight
Months Ended September 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 Nine
|
For
the Eight
|
||||||||||||||
|
Months
Ended September 30,
|
Months
Ended September 30,
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Net
income
|
$ | 3,803 | $ | 4,494 | $ | 16,439 | $ | 12,965 | ||||||||
|
Adjustments
to derive distributable cash flow
|
||||||||||||||||
|
(add
or subtract as indicated by sign of number):
|
||||||||||||||||
|
Amortization
in interest expense
|
32 | 32 | 97 | 85 | ||||||||||||
|
Depreciation,
amortization and accretion in costs and expenses
|
8,596 | 7,321 | 25,379 | 19,099 | ||||||||||||
|
Deferred
income tax expense
|
(10 | ) | 2 | (28 | ) | 64 | ||||||||||
|
Equity
in (income) loss of Evangeline
|
(311 | ) | 5 | (697 | ) | (155 | ) | |||||||||
|
Gain
from asset sales and related transactions
|
(64 | ) | (17 | ) | (402 | ) | (19 | ) | ||||||||
|
Proceeds
from asset sales and related transactions
|
53 | 3,254 | 398 | 3,256 | ||||||||||||
|
Sustaining
capital expenditures
|
(3,332 | ) | (4,434 | ) | (9,122 | ) | (10,574 | ) | ||||||||
|
Changes
in fair market value of financial instruments
|
(140 | ) | 158 | (131 | ) | 157 | ||||||||||
|
Accrued
repair costs related to Hurricanes Ike and Gustav
|
877 | -- | 877 | -- | ||||||||||||
|
Parent
34% interest in adjustments to determine distributable cash
flow
|
(1,938 | ) | (2,149 | ) | (5,566 | ) | (4,050 | ) | ||||||||
|
Distributable
cash flow
|
$ | 7,566 | $ | 8,666 | $ | 27,244 | $ | 20,828 | ||||||||
|
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 asset sales and related transactions
|
(53 | ) | (3,254 | ) | (398 | ) | (3,256 | ) | ||||||||
|
Sustaining
capital expenditures
|
3,332 | 4,434 | 9,122 | 10,574 | ||||||||||||
|
Parent
interest in income of subsidiaries
|
4,348 | 3,188 | 9,365 | 13,840 | ||||||||||||
|
Accrued
repair costs related to Hurricanes Ike and Gustav
|
(877 | ) | -- | (877 | ) | -- | ||||||||||
|
Parent
34% interest in adjustments to derive distributable cash flow (see
above)
|
1,938 | 2,149 | 5,566 | 4,050 | ||||||||||||
|
Net
effect of changes in operating accounts
|
(5,280 | ) | 6,903 | (28,125 | ) | 40,945 | ||||||||||
|
Net
cash flows provided by operating activities
|
$ | 10,974 | $ | 22,086 | $ | 21,897 | $ | 86,981 | ||||||||
8
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 September 30, 2008 and 2007; Nine Months Ended September
30, 2008; and
Eight
Months Ended September 30, 2007
(Dollars
in thousands)
The following table 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 Nine
|
For
the Eight
|
||||||||||||||
|
Months
Ended September 30,
|
Months
Ended September 30,
|
|||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||||||
|
Net
income
|
$ | 3,803 | $ | 4,494 | $ | 16,439 | $ | 12,965 | ||||||||
|
Additions
to net income (net of Parent Interest in subsidiary
amounts)
|
||||||||||||||||
|
to
derive EBITDA:
|
||||||||||||||||
|
Interest
expense (including related amortization), net
|
2,887 | 3,180 | 8,353 | 6,721 | ||||||||||||
|
Provision
for income taxes, net
|
25 | 22 | 44 | 96 | ||||||||||||
|
Depreciation,
amortization and accretion in costs and expenses, net
|
5,717 | 4,856 | 16,841 | 12,650 | ||||||||||||
|
EBITDA
|
$ | 12,432 | $ | 12,552 | $ | 41,677 | $ | 32,432 | ||||||||
|
Adjustments
to EBITDA to derive net cash flows provided by operating
|
||||||||||||||||
|
activities
(add or subtract as indicated by sign of number):
|
||||||||||||||||
|
Interest
expense, net
|
(2,887 | ) | (3,180 | ) | (8,353 | ) | (6,721 | ) | ||||||||
|
Provision
for income taxes, net
|
(25 | ) | (22 | ) | (44 | ) | (96 | ) | ||||||||
|
Depreciation,
amortization and accretion in costs and expenses not
|
||||||||||||||||
|
reflected
in EBITDA, net
|
2,879 | 2,465 | 8,538 | 6,449 | ||||||||||||
|
Equity
in (income) loss of Evangeline
|
(311 | ) | 5 | (697 | ) | (155 | ) | |||||||||
|
Amortization
in interest expense
|
32 | 32 | 97 | 85 | ||||||||||||
|
Deferred
income tax expense
|
(10 | ) | 2 | (28 | ) | 64 | ||||||||||
|
Parent
interest in income of subsidiaries
|
4,348 | 3,188 | 9,365 | 13,840 | ||||||||||||
|
Gain
from asset sales and related transactions
|
(64 | ) | (17 | ) | (402 | ) | (19 | ) | ||||||||
|
Changes
in fair market value of financial instruments
|
(140 | ) | 158 | (131 | ) | 157 | ||||||||||
|
Net
effect of changes in operating accounts
|
(5,280 | ) | 6,903 | (28,125 | ) | 40,945 | ||||||||||
|
Net
cash flows provided by operating activities
|
$ | 10,974 | $ | 22,086 | $ | 21,897 | $ | 86,981 | ||||||||
9
Exhibit
E
Duncan
Energy Partners L.P.
Parent
Interest Calculations
For
the Three Months Ended September 30, 2008 and 2007; Nine Months Ended September
30, 2008; and
Eight
Months Ended September 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 September 30, 2008 and
2007:
|
For
The Three
|
For
the Three
|
|||||||||||||||
|
Months
Ended
|
Months
Ended
|
|||||||||||||||
|
September
30,
|
September
30,
|
|||||||||||||||
|
2008
|
2007
|
|||||||||||||||
|
Net
income amounts:
|
||||||||||||||||
|
Mont
Belvieu Caverns’ net income (before special allocation of
operational
|
||||||||||||||||
|
measurement
gains and losses)
|
$ | 3,814 | $ | 3,824 | ||||||||||||
|
Add
(Deduct) operational measurement losses(gains) allocated to
Parent
|
(1,129 | ) | $ | 1,129 | 936 | $ | (936 | ) | ||||||||
|
Remaining
Mont Belvieu Caverns’ net income to allocate to partners
|
2,685 | 4,760 | ||||||||||||||
|
Multiplied
by Parent 34% interest in remaining net income
|
x 34 | % | x 34 | % | ||||||||||||
|
Mont
Belvieu Caverns’ net income allocated to Parent
|
$ | 913 | 913 | $ | 1,618 | 1,618 | ||||||||||
|
Acadian
Gas net income multiplied by Parent 34% interest
|
733 | 364 | ||||||||||||||
|
Lou-Tex
Propylene net income multiplied by Parent 34% interest
|
390 | 660 | ||||||||||||||
|
Sabine
Propylene net income multiplied by Parent 34% interest
|
96 | 89 | ||||||||||||||
|
South
Texas NGL net income multiplied by Parent 34% interest
|
1,087 | 1,393 | ||||||||||||||
|
Parent
interest in income of subsidiaries
|
$ | 4,348 | $ | 3,188 | ||||||||||||
The following table presents our
calculation of the Parent’s interest in the income of our subsidiaries for the
nine and eight months ended September 30, 2008 and 2007,
respectively:
|
For
The Nine
|
For
the Eight
|
|||||||||||||||
|
Months
Ended
|
Months
Ended
|
|||||||||||||||
|
September
30,
|
September
30,
|
|||||||||||||||
|
2008
|
2007
|
|||||||||||||||
|
Net
income amounts:
|
||||||||||||||||
|
Mont
Belvieu Caverns’ net income (before special allocation of
operational
|
||||||||||||||||
|
measurement
gains and losses)
|
$ | 7,832 2 | $ | 15,376 | ||||||||||||
|
Add
(Deduct) operational measurement losses(gains) allocated to
Parent
|
3,788 | $ | (3,788 | ) | (3,209 | ) | $ | 3,209 | ||||||||
|
Remaining
Mont Belvieu Caverns’ net income to allocate to partners
|
11,620 | 12,167 | ||||||||||||||
|
Multiplied
by Parent 34% interest in remaining net income
|
x 34 | % | x 34 | % | ||||||||||||
|
Mont
Belvieu Caverns’ net income allocated to Parent
|
$ | 3,951 | 3,951 | $ | 4,137 | 4,137 | ||||||||||
|
Acadian
Gas net income multiplied by Parent 34% interest
|
3,620 | 610 | ||||||||||||||
|
Lou-Tex
Propylene net income multiplied by Parent 34% interest
|
1,776 | 1,922 | ||||||||||||||
|
Sabine
Propylene net income multiplied by Parent 34% interest
|
287 | 238 | ||||||||||||||
|
South
Texas NGL net income multiplied by Parent 34% interest
|
3,519 | 3,724 | ||||||||||||||
|
Parent
interest in income of subsidiaries
|
$ | 9,365 | $ | 13,840 | ||||||||||||
10