With a throughput capacity of 2.4 billion cubic feet per day, ConocoPhillips’ Empress plant in Alberta, Canada, is one of the largest natural gas processing facilities in North America. The plant’s ability to separate individual natural gas liquids gives the company a strong position in the regional propane market.

The addition of the Conoco midstream operations was more than offset by a decline in DEFS’ net income as a result of a drop in DEFS’ natural gas liquids prices and higher operating expenses.

Midstream
Working to Get More From
Midstream Assets

ConocoPhillips’ Midstream assets include the company’s 30.3 percent interest in Duke Energy Field Services, LLC (DEFS), one of the largest natural gas and gas liquids gathering, processing and marketing companies in the United States, as well as other midstream assets held by ConocoPhillips. Midstream gathers natural gas, processes it to extract natural gas liquids, and markets the remaining residue gas to electrical utilities, industrial users and gas marketing companies.

In 2002, DEFS had throughput of 7.4 billion cubic feet per day (BCFD) of raw natural gas and extracted 392,000 barrels per day (BPD) of natural gas liquids (NGL). ConocoPhillips’ share of raw gas throughput was 2.2 BCFD, while its portion of NGL extracted was 119,000 BPD.

DEFS is focused on optimizing its large, strategically located asset base in the face of weak economic conditions throughout the midstream energy business.

“With market conditions extremely challenging, including average NGL prices about 15 percent below the previous year, DEFS is working to make the most of its existing assets,” explains Jim Mogg, chairman, president and chief executive officer of DEFS. Optimization efforts in 2002 included reducing capacity restraints at some plants, upgrading compressor stations and generally improving the efficiency of gathering systems.

Says Mogg, “Our gathering and processing systems, which grew rapidly through acquisitions and expansions from 1999 to 2001, have propelled DEFS to become a major player in virtually every area where we operate with the exception of Canada, where we plan to grow. Our focus is from Alberta, Canada, to Mobile Bay, Alabama.”

DEFS significantly increased its presence in the eastern Gulf of Mexico in 2002 with the acquisition of a one-third interest in Discovery Producer Services. Discovery serves both shallow and deepwater producers with gathering lines, processing facilities and a large interstate pipeline extending from near New Orleans, La., to the outer continental shelf. Discovery also operates a fixed-leg platform and gathering lines to serve productive deepwater Gulf of Mexico areas including Green Canyon, Mississippi Canyon, Ewing Bank and Atwater Valley.

As part of its program to optimize and rationalize assets, DEFS exchanged selected gathering and processing interests with a Williams subsidiary. In exchange for its interest in a processing plant and related gathering system near Wamsutter, Wyo., DEFS obtained a gathering system and three gas processing plants located in areas of Oklahoma and Texas where DEFS already has a strong presence.

The growth of DEFS is aided by its position as general partner of TEPPCO Partners, L.P., a master limited partnership. The partnership is involved in petroleum transportation, storage and marketing, petrochemical and natural gas liquids transportation and in natural gas gathering. In addition to receiving TEPPCO distributions, which rose significantly in 2002, DEFS is paid to operate and commercially manage TEPPCO’s gas gathering systems.

During the year, TEPPCO acquired the 800-mile Chaparral NGL pipeline, which extends from West Texas and New Mexico to Mont Belvieu, Texas, and the 170-mile Quanah system, a West Texas NGL gathering system. The partnership also purchased the Val Verde system in New Mexico, which gathers and treats coal seam gas from the prolific San Juan Basin. In addition, TEPPCO undertook a major capacity expansion of its Jonah system, which collects gas from the Green River Basin of southwestern Wyoming.

Outside of its interest in DEFS, ConocoPhillips owns and operates other assets in the Midstream business. These assets include gas-gathering systems, processing plants, fractionators and storage facilities in the United States, Canada, Trinidad and the Middle East.

Ten owned and operated gas processing plants in the United States and Canada have a combined net inlet capacity of 2.97 BCFD of raw natural gas. Most of the processed liquids are fractionated into components such as ethane, butane and propane to be marketed as chemical feedstock, fuel or blend stock. The company has interests in seven fractionation facilities in the United States and Canada, with a net capacity of 249,000 BPD. Natural gas and NGL storage caverns are located in Louisiana, Texas and Canada. ConocoPhillips also owns a small equity interest in two additional processing plants in the United States, as well as midstream assets in Trinidad through a 39 percent equity interest in Phoenix Park Gas Processors Limited.

In the Middle East region, the Des Gas plant in Syria is complete, and ConocoPhillips is under contract to operate the facility.