Colorado ballot count tops 2 million at 2:33 p.m. on election day

Prop 112 is Not Going to Pass: DCP Midstream CEO van Kempen - Oil & Gas 360

Graphic: Colo. Sec. of State

DCP Midstream (ticker: DCP) is one of the one of the largest producers of natural gas liquids and one of the largest natural gas processing companies in the U.S. DCP has significant gathering and processing operations in the DJ Basin in Colorado. The company has midstream operations in the Permian Basin and the STACK/SCOOP areas of the Midcontinent.

DCP is at an interesting Colorado crossroads: its footprint of assets in Colorado are critical to the success of the E&Ps for whom it has built out its Colorado network. The Colorado E&Ps are the people who will be cut off from drilling new oil and natural gas wells in the event Proposition 112 does pass, leaving DCP and other midstream providers with the prospect of falling volumes to process and transport as decline curves overtake new production.

But DCP Midstream Chairman, President and CEO Wouter van Kempen is nothing if not super-confident that Proposition 112 will not pass when votes are counted tonight. He offered his company’s view about Proposition 112 on his company’s Q3 earnings call today, even providing a comparison of outcomes if 112 passes and if it fails.

Prop 112 is Not Going to Pass: DCP Midstream CEO van Kempen - Oil & Gas 360

Source: DCP Midstream

DCP Midstream CEO Wouter van Kempen looks at 112 outcomes

If 112 fails

DCP CEO Wouter van Kempen: So let’s look at the potential outcomes of today’s vote should Proposition 112 fail: DCP maintains a strong outlook in the DJ Basin underpinned by strong customer relationships and a deep bench of tremendous growth projects like O’Connor 2 and Bighorn as well as multiple residue gas and NGL pipeline expansions.

I firmly believe that some of the best natural resources in this country are under our feet here in Colorado and DJ Basin has an incredibly bright future.

But I want to be clear, we will not breathe a sigh of relief and assume business as usual should the voters defeat this proposition. We are committed to working with all policymaker’s, regulators, communities and our stakeholders to develop a sustainable solution that allows for responsible energy development while ensuring our neighbors are confident in our safety and environmental processes.

Prop 112 is Not Going to Pass: DCP Midstream CEO van Kempen - Oil & Gas 360

Prop 112 is Not Going to Pass: DCP Midstream CEO Wooter van Kempen.

If 112 passes

On the other hand as a company, we can successfully manage through the passage of Proposition 112. Our strategy to evolve from a company almost exclusively focused on G&P to a well-diversified full service midstream provider across a wide geographic footprint

has served us well in many ways. And today’s vote is no exception.

It is important to note that while the DJ basins are very successful component of our G&P portfolio, the vast majority of our business will remain unaffected by the potential impacts of Proposition 112. Additionally should it pass, we anticipate our system in the DJ basin will continue to be at full capacity for multiple years ahead, due to the existing inventory of permitted and drilled and uncompleted wells.

Lastly as part of our comprehensive strategy should Proposition 112 pass, we will re-evaluate and likely deferred the investment position for the Bighorn facility and refocus on the portfolio of growth opportunities in all our basins.

In either case, two things are apparent. First, we are well-diversified and exceptionally positioned to successfully operate a portfolio of assets in a country’s top tier basins for decades to come, no matter the outcome of this election.

Very confident in the fact that Proposition 112 will not pass

I am very confident in the fact that proposition 112 will not pass and we dedicated a pretty significant portion of this goal in my prepared remarks giving you scenario planning around what is happening if 112 passes or if fails.

And I think from that point of view we probably have provided all the information that we can give to you at this very stage. It’s an interesting day. It’s an exciting day. Election day is always an exciting day.

I said earlier I’m very confident that 112 will be defeated by Coloradans at the ballot box. But obviously we’re going to be excited started watching the news at 7 o’clock tonight when the polls close.

Q: Just a quick question on the Colorado aspect here or the DJ aspect, and I realize you covered a lot in the slides and the call that you’ve given. Just one extra data point I was wondering if you could share, what is your thought of the decline rate in the basin if there’s no further drilling activity, let’s say, three years down the line once all the permits have been exhausted?

DCP CEO Wouter van Kempen: It’s way too early to start speculating what would happen in three years.

Q: Wouter, I wonder you’ve said a number of times how you feel quite confident about how the vote will proceed today. I wonder if you might just expand on that just a little bit about what you come to that conclusion, the polls. You know depending on which one you see are seemingly a bit inconclusive, but clearly you have a quite strong view and I think it would be worth hearing some of the details behind that?

DCP CEO Wouter van Kempen: I would say industry broadly here in the state of Colorado spent a lot of efforts to make sure that we get to an outcome that is a positive outcome for the state of Colorado. Assume that we spend a lot of time thinking through you know and polling ourselves doing different things ourselves, we’ve been pretty quiet around that. We’ve seen a number of different polls and people doing that. We spend a lot of time polling as an industry broadly not just the oil and gas industry, but as an industry broadly and given all the things that we’re seeing we’re confident in the outcome of the results tonight.

Q: Okay. And then just a follow up, you did talk about in your slide that even if it doesn’t pass you do anticipate sort of I guess adjusting perhaps how you operate in the state. And I guess there’s this concept of the social license that you may want to sort of avoid the same kind of thing two years from now. What kind of things might you’d be thinking about there more specifically?

DCP Midstream CEO Wouter van Kempen: So we’re already doing a lot of that. So Dennis to think about what we’re doing on Bighorn, we are — we bought a square mile and we’re going to set this plant far away from any homes from any people in a square mile. So if there is no noise there’s no intrusion to people living nearby. And we’re going to spend a bunch extra money to do that, but we think that it’s the right thing to do. Is the right thing to deal with your neighbors. You will never see us build a gas processing plant near residential areas. We don’t think that makes sense. We’re different than many other operators from that point of view. We’re in this for the long run.

Prop 112 is Not Going to Pass: DCP Midstream CEO van Kempen - Oil & Gas 360

Source: DCP Midstream

We came here to do this for another 10, 20, 30 years and that’s why we’re spending money today to kind of put facilities and potential new facilities in places that are away from people. So that is one thing how we’re doing this. Secondly I think as an industry we’re very committed to getting to a place where industry and the citizens of the state of Colorado live side by side. We operate safely we operate in a way that you know all of us can coexist and we think we’ll probably have to come to some type of agreements with our regulators to see how we do it. And I think that is what the next two years is going to be.

Q: Okay, thanks. And then just thinking about the 4Q 2018 CapEx again in the wide delta is $75 million swing there, is any portion of that delta depending on what 112 passing or failing? And what I mean is could you potentially further accelerate things like O’Connor 2 if 112 does pass or other projects like that. Is there any swing around the vote today?

DCP Midstream CFO Sean O’Brien: So two things, there’s no swing around O’Connor 2. We feel really good about that volume ramp up. It’s not really tied to 112. We’ve got great contracts behind O’Connor 1, 2. If there was a swing, it would be the Bighorn plant, but there is really we had very little capital just some early permitting and things of that nature that we’ve spent some money on. So once weather passes or not one, Bighorn and 112 we’re not going to change the outlook that I gave on the capital.

Q: Thank you. Couple quick ones for me. I know you said in terms of 112 that if it were defeated it wouldn’t be business as usual you’d be looking for sort of a more sustainable solution longer term. So my question relates to Bighorn and FID. So if it gets defeated should we expect that to go FID pretty quickly or would you be looking for more direction more out come on what that sustainable solution is before proceeding with Bighorn?

DCP CEO Wouter van Kempen: I think we are doing everything from our side to make sure that we can be Bighorn that we can FID Bighorn. But you know we’re going to kind of look through the election see what happens and decide after that. So I don’t think you’re going to see us FID things in the next couple of weeks or so it may take longer. But what I can tell you to behind the scenes we will continue to do anything and everything in our power to make sure that we can get to the timeline as we recently laid out which is the first half of 2020. - Oil & Gas 360

DCP Midstream Senior Director of Communicatons and Public Affairs Sarah Sandberg with puppy ‘Gumbo’ at a pro-oil and gas industry rally in Denver this summer. Estimates of the crowd at the Colorado Capitol in support of Colorado’s oil and gas industry topped 3,500.

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