DCP Midstream Plans to Change Searsport, But Who Are They?
Who's your new neighbor?
by Christine Parrish Feature Writer
DCP Midstream filed the application for their final state permit this week with the Maine Fuel Board. The permitting process should be done within 60 days, according to the lawyer representing the company. At that point, DCP Midstream will submit a full application to build the 22.7-million-gallon propane tank at Mack Point to the Searsport Planning Board for review.
The company chose Searsport in order to take advantage of the marine cargo port at Sprague Energy and for the existing rail connection, which they plan to utilize in the future. Rail and ship deliveries would allow them access to domestic, Canadian and overseas sources of fuel.
DCP: Who Are They?
The relationships between the parent and offspring companies related to DCP Midstream quickly become convoluted, but it takes little untangling to see that the company is a major player in the U.S. natural gas and propane markets, has deep global ties and is in a strategically driven growth mode.
Raw natural gas, when it comes out of the substrate, produces more than one product; in general, it is refined into LNG (liquefied natural gas) and a group of other fuels called NGLs (natural gas liquids) which are byproducts.
About half the propane, also known as LPG, used in the world comes from natural gas refining and half from refining crude oil, according to the U.S. Energy Information Administration.
When discussing NGLs, it's worth remembering that they do not include natural gas, only the byproducts of natural gas. DCP Midstream, LLC has the largest NGL market in North America, with propane at the top of the list. The company focuses on the middle of the supply stream: the section that includes extraction, processing and bulk sales. It does not include energy exploration and development or, generally, retail sales of NGLs.
In a word, DCP Midstream, LLC is huge and it has powerful parents with global clout: Spectra Energy and Phillips 66 each own 50 percent of the company.
Searsport is a very small piece of the DCP puzzle, but this is where it comes in: one of the biggest propane market chunks is in the Northeastern United States where natural gas is not readily available because gas pipelines are still rare and populations are scattered.
The Parent Companies and the Offspring
Spectra Energy, which is based in Houston, runs raw natural gas from Western Canada, processes it, and owns and operates one of the largest long-haul natural gas pipeline networks in North America, delivering natural gas west to British Columbia and across and down to the southeastern U.S.
Phillips 66 (Conoco Phillips) is active in 15 countries; it is one of the largest oil and gas refiners in the world. It uses pipelines that dominate the south-central U.S. and the plains states in the middle of the country.
The money purse for DCP is DCP Midstream Partners, the publicly traded entity of DCP Midstream, LLC. Together they are referred to as "The Enterprise" by the various parent companies, partners, and offspring companies.
This is only important when looking at the 2011 annual report of DCP Midstream Partners, which analyzes opportunities to make money for its investors and how to redirect profits back into the company for expansion.
Notably, DCP Midstream Partners, or The Partnership, operates in 18 states and has ownership or control over 62,000 miles of pipeline for natural gas and NGLs.
The DCP Enterprise: Growing, Stable, Professional
The Enterprise is growing and making money. Since DCP Midstream Partners went public in 2005, they report a 247-percent return to their investors. This year has proven much more volatile for DCP, with their returns not breaking the S&P 500 returns, but the DCP Enterprise continues to expand through partnerships. One of their latest projects is a joint venture to build a 435-mile NGL pipeline from Colorado to the Texas Gulf, according to Reuters.
DCP Enterprise has embarked on a "multi-faceted growth strategy" that includes acquiring processing plants, expanding pipelines and acquiring large propane storage tanks.
On the propane side of the business, DCP Enterprise owns or operates six wholesale terminals, including a 120,000-gallon storage facility in Auburn and a 60,000-gallon storage facility in Bangor, both under the NGL Services name.
They also operate two marine terminals and a pipeline terminal. In their company analysis, they declare a competitive advantage and the available capital to go after new opportunities. Their business strategy is explicit; they want to expand, particularly in New England and particularly in areas that have existing infrastructure - like marine cargo ports. They also have an eye towards the likelihood of increasing regulations on natural gas extraction in the U.S., according to the DCP Midstream Partners annual report, and are positioning themselves for access to fuel from domestic and overseas sources.
The Mack Point facility fits the DCP Enterprise strategy; the existing infrastructure in the form of a deep-water marine terminal is already in place and the proposed storage tank would allow the company to expand the propane market deeper into rural New England while providing a reliable volume of fuel. Mack Point has some other pluses for The Enterprise: it is already zoned for commercial industrial use and DCP does not have to get into a fight over land acquisition as they have in other parts of the country.
A review of annual reports, credit ratings status, and county and federal court records indicate that DCP Midstream, LLC has the ability and professional expertise to complete large-scale projects, the determination to push through a project they want and deep enough pockets to make it happen - mostly due to adroit financial management that has kept the company stable even while prices for propane and other natural gas liquids have been volatile and trending radically downward, according to Fitch Ratings, one of the top three national credit ratings organizations.
Notably, the New York Times reported on July 26, 2012, that "natural gas prices plummeted by more than 50 percent since last year," thus creating a riskier environment for natural gas exploration and development. Propane, as a byproduct, has also had soft prices. That is good for consumers, but generally bad for capital investments.
In short, DCP Midstream, LLC has the capacity to borrow for their capital projects, for now. Still, the Fitch Ratings put DCP Midstream, LLC in the Lower Mid-grade Rating (BBB). It's an investment grade rating: stable, but not without risk. According to Fitch, "BBB ratings indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate but adverse business or economic conditions are more likely to impair this capacity."
DCP Proves Willing to Go to the Mat
For now, DCP Midstream, LLC appears eager to push forward with capital projects and to do so with minimum delay.
In Searsport, DCP Midstream embarked on a public relations campaign, paying canvassers to go door-to-door in Searsport to talk to people about the benefits of the propane storage tank.
Talking to neighbors is one company tactic. Suing them or settling out of court are others.
A search of the Federal Register, EPA, OSHA, and recent and pending court cases in county district courts, particularly in the Midwest and specifically in Oklahoma, indicates that DCP Midstream, LLC appears ready to go to court, pay fines as necessary, or settle for significant sums, when it appears to be in their business interests and to meet their strategic goals.
For example, DCP Midstream settled with the New Mexico Environment Department for $60.8 million in 2008 for longstanding violations of air pollution laws at three natural gas facilities in the state. The settlement amount, which is among the largest the department has negotiated, were related to gas flares that cause air pollution, according to state government documents.
But DCP Midstream, LLC has also voluntarily signed on with the EPA to aggressively find and close methane leaks. Methane, in addition to being highly explosive, is 23 times more potent in releasing harmful greenhouse gases than CO2. Within four years, the company had reduced its methane emissions by half, according to the EPA.
DCP Midstream, LLC is also not shy of litigation or of seeking county intervention in acquiring access to property through eminent domain, successfully arguing that the private company provides a vital public service.
Searches through county court and municipal records revealed that a Colorado county signed off on a request by DCP Midstream to use eminent domain to acquire access to put a pipeline across private land, since DCP could not come to agreements with landowners over access or price. Oklahoma counties are poised to do the same. Court records reveal DCP Midstream has sued and been counter-sued by those whose land they are seeking to cross and has sued county assessors by name across several Oklahoma counties for various reasons: protesting assessments and taxes are common causes listed in the court records.
The court record search also revealed a federal case against DCP Midstream operations in Maine: a federal court found DCP in violation of the 1964 Civil Rights Act in 2009 for discriminating against an employee by firing him after he complained about a hostile work environment that included racial slurs.
DCP Midstream was ordered to pay legal fees and damages to the former employee and to retrain all of its workers in the Northeastern division, including the human resources staff, on equal employment laws.
DCP Midstream complied, but did not admit fault.