Partnership Operations, Organization and Basis of Presentation

6 Months Ended

Jun. 30, 2011

Partnership Operations, Organization and Basis of Presentation [Abstract]

Partnership Operations, Organization and Basis of Presentation

Note 1. Partnership Operations, Organization and Basis of Presentation

General

We are a publicly traded Delaware limited partnership, the common units of which are listed on the NYSE under the ticker symbol “DEP.” We were formed in September 2006 and did not own any assets prior to February 5, 2007, which was the date we completed our initial public offering and acquired controlling interests in the DEP I Midstream Businesses from EPO. Our business purpose is to acquire, own and operate a diversified portfolio of midstream energy assets and to support the growth objectives of EPO and other affiliates of EPCO that are under common control. We are engaged in the business of (i) NGL transportation, fractionation and marketing; (ii) storage of NGL, petrochemical and refined products; (iii) transportation of petrochemical products; and (iv) the gathering, transportation, marketing and storage of natural gas. Our assets, located primarily in Texas and Louisiana, include: 11,201 miles of natural gas, NGL and petrochemical pipelines; two NGL fractionation facilities; approximately 17.3 million barrels (“MMBbls”) of leased NGL storage capacity; 8.1 billion cubic feet (“Bcf”) of leased natural gas storage capacity; and 34 underground salt dome caverns with approximately 100 MMBbls of NGL and related product storage capacity. Our assets are integral to EPO's midstream energy operations and are located near significant natural gas production basins such as the Eagle Ford Shale, Barnett Shale and Haynesville Shale.

We have three reportable business segments: (i) Natural Gas Pipelines & Services; (ii) NGL Pipelines & Services; and (iii) Petrochemical Services. Our business segments reflect the manner in which these businesses are managed and reviewed by the CEO of our general partner. See Note 12 for additional information regarding our business segments.

At June 30, 2011, we are owned 99.3% by our limited partners and 0.7% by our general partner, DEP GP. EPO beneficially owned approximately 58.5% of our limited partner interests and 100% of DEP GP. On April 28, 2011, we and our general partner entered into a definitive merger agreement with Enterprise, Enterprise GP and certain of their subsidiaries. See Note 13 for information regarding the proposed merger with Enterprise.

We, DEP GP, EPO, Enterprise, Enterprise GP, EPCO and Dan Duncan LLC are affiliates and under the collective common control of the DD LLC Trustees and EPCO Trustees. We have no employees. All of our operating functions and general and administrative support services are provided by employees of EPCO pursuant to an administrative services agreement (the “ASA”) or by other service providers. See Note 13 for information regarding the ASA and related party matters.

We acquired controlling ownership interests in our consolidated subsidiaries through two drop down transactions, the DEP I and DEP II drop downs, which were sponsored by EPO. The following information summarizes the businesses acquired in connection with the DEP I and DEP II drop down transactions.

DEP I Drop Down

Effective February 1, 2007, EPO contributed to us a 66% controlling equity interest in each of the DEP I Midstream Businesses in a drop down transaction. EPO retained the remaining 34% noncontrolling equity interest in each of these businesses.

The following is a brief description of the assets and operations of the DEP I Midstream Businesses:

§	Mont Belvieu Caverns owns 34 underground salt dome storage caverns located in Mont Belvieu, Texas, having an NGL and related product storage capacity of approximately 100 MMBbls, and a brine system with approximately 20 MMBbls of above ground storage capacity and related brine production wells.

See Note 16 for information regarding a February 2011 NGL release and fire at the West Storage location of our Mont Belvieu, Texas underground storage facility.

Acadian Gas is engaged in the gathering, transportation, storage and marketing of natural gas in south Louisiana, utilizing over 1,000 miles of pipelines having an aggregate throughput capacity of approximately 1.1 billion cubic feet per day (“Bcf/d”). Acadian Gas also owns a 49.51% equity interest in Evangeline, which owns a 27-mile natural gas pipeline located in southeast Louisiana.

In October 2009, we and EPO announced plans for our jointly owned Acadian Gas system to extend its Louisiana intrastate natural gas pipeline system into northwest Louisiana to provide producers in the Haynesville Shale production area with access to additional markets in central and southern Louisiana and connections to nine third-party major interstate natural gas pipelines. This expansion capital project is referred to as the “Haynesville Extension” of the Acadian Gas System. As currently designed, the Haynesville Extension will have the potential capacity to transport up to 1.8 Bcf/d of natural gas from the Haynesville area through a 270-mile pipeline that will connect with our existing Acadian Gas System. The Haynesville Extension is expected to be completed in September 2011.

The total budgeted cost of the Haynesville Extension is approximately $1.50 billion (including capitalized interest). In June 2010, we agreed to fund 66% of the Haynesville Extension project costs and EPO agreed to fund the remaining 34% of such expenditures; therefore, we estimate that our share of such costs will approximate $990 million. In order to fund our capital spending requirements under the Haynesville Extension project, we entered into long-term senior unsecured credit facilities having an aggregate borrowing capacity of $1.25 billion in October 2010. For information regarding our $1.25 billion credit facilities, see Note 9.

§	Lou-Tex Propylene owns a 267-mile pipeline used to transport chemical-grade propylene from Sorrento, Louisiana to Mont Belvieu, Texas.

§	Sabine Propylene owns a 21-mile pipeline used to transport polymer-grade propylene from Port Arthur, Texas to a pipeline interconnect in Cameron Parish, Louisiana.

§	South Texas NGL owns a 297-mile pipeline system used to transport NGLs from our Shoup and Armstrong NGL fractionation facilities in South Texas to Mont Belvieu, Texas.

DEP II Drop Down

On December 8, 2008, EPO contributed to us the following controlling equity interests in a second drop down transaction: (i) a 66% voting general partner interest in Enterprise GC, (ii) a 51% voting general partner interest in Enterprise Intrastate and (iii) a 51% voting membership interest in Enterprise Texas. The following is a brief description of the assets and operations of the DEP II Midstream Businesses:

Enterprise GC operates and owns: (i) two NGL fractionation facilities, the Shoup and Armstrong facilities, located in South Texas; (ii) a 1,185-mile NGL pipeline system located in South Texas; and (iii) 1,096 miles of natural gas gathering pipelines located in South and West Texas. Enterprise GC's natural gas gathering pipelines include: (i) the 262-mile Big Thicket Gathering System located in southeast Texas; (ii) the 660-mile Waha system located in the Permian Basin of West Texas; and (iii) the 174-mile TPC Offshore gathering system located in South Texas.

§	Enterprise Intrastate operates and owns an undivided 50% interest in the assets comprising the 641-mile Channel natural gas pipeline, which extends from the Agua Dulce Hub in South Texas to Sabine, Texas located on the Texas/Louisiana border.

Enterprise Texas owns the 6,653-mile Enterprise Texas natural gas pipeline system, which includes the Sherman Extension and Trinity River Lateral pipelines, and leases the Wilson natural gas storage facility. The Enterprise Texas pipeline system and the Wilson storage facility, along with the Waha, TPC Offshore and Channel pipeline systems, comprise our Texas Intrastate System.

In July 2010, we completed and placed into service the final segment of our Trinity River Lateral natural gas pipeline. In total, the Trinity River Lateral pipeline extends approximately 40 miles from the Trinity River Basin north of Arlington, Texas to an interconnect near Justin, Texas with our Sherman Extension pipeline. The Trinity River Lateral provides producers in Tarrant and Denton Counties in North Texas with up to 1 Bcf/d of production takeaway capacity.

Our Texas Intrastate System is strategically located to benefit from increasing natural gas production from the Eagle Ford Shale supply basin located in South Texas. We are in the process of expanding this system's natural gas gathering and transportation capabilities as well as increasing our natural gas storage capacity to handle the expected increase in production volumes. EPO is funding 100% of the growth capital spending associated with these expansion projects.

See “DEP II Midstream Businesses – Parent” under Note 11 and “Relationship with EPO – Company and Limited Partnership Agreements – DEP II Midstream Businesses” under Note 13 for additional information regarding the DEP II Midstream Businesses.

To the extent that the DEP II Midstream Businesses collectively generate cash sufficient to pay distributions to EPO and us, such cash will be distributed first to us (the “Tier I distribution,” based on our $730.0 million aggregate investment) and then to EPO (the “Tier II distribution”), in amounts sufficient to generate an annualized return to both owners based on their respective investments. Distributions in excess of these amounts (the “Tier III distributions”) will be allocated 98% to EPO and 2% to us.

The initial annualized return rate from December 8, 2008 through December 31, 2009 was 11.85%, which was based on our estimated weighted-average cost of capital at December 8, 2008 plus 1.0%. The annualized return rate increases by 2.0% on January 1 of each year. As a result, the annualized return rate for 2010 was 12.087% and for 2011 is 12.329%.

Net income (or loss) of the DEP II Midstream Businesses is first allocated to us and EPO based on each entity's percentage interest of 22.6% and 77.4%, respectively, and then in a manner that in part follows the cash distributions paid by (or contributions made to) each DEP II Midstream Business. The 22.6% and 77.4% amounts are referred to as the “Percentage Interests,” and represent each owner's initial relative economic investment in the DEP II Midstream Businesses at December 8, 2008.

See Note 11 for detailed information regarding EPO's noncontrolling interest in the DEP I and DEP II Midstream Businesses.

- Definition

The entire disclosure for organization, consolidation and basis of presentation of financial statements disclosure.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 720
-SubTopic 15
-URI http://asc.fasb.org/subtopic&trid=2122524

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 810
-SubTopic 10
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=6921930&loc=d3e5614-111684

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 810
-SubTopic 10
-Section 50
-Paragraph 8
-URI http://asc.fasb.org/extlink&oid=6970148&loc=SL6228881-111685

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Name Statement of Position (SOP)
-Publisher AICPA
-Number 94-6
-Paragraph 10
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 272
-SubTopic 10
-Section 50
-Paragraph 3
-URI http://asc.fasb.org/extlink&oid=6373374&loc=d3e70478-108055

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 205
-SubTopic 10
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=6359566&loc=d3e326-107755

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name FASB Staff Position (FSP)
-Number FAS140-4/FIN46(R)-8
-Paragraph 8, C1, C7
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Name FASB Interpretation (FIN)
-Publisher FASB
-Number 46R
-Paragraph 4, 14, 15
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 852
-SubTopic 10
-URI http://asc.fasb.org/subtopic&trid=2209116

Reference 10: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 275
-SubTopic 10
-URI http://asc.fasb.org/subtopic&trid=2134480

Reference 11: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Accounting Research Bulletin (ARB)
-Number 51
-Paragraph 2-6
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 12: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 915
-SubTopic 235
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=6472506&loc=d3e38932-110933

Reference 13: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 205
-SubTopic 10
-URI http://asc.fasb.org/subtopic&trid=2122150

Reference 14: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 205
-SubTopic 10
-Section 45
-Paragraph 3
-URI http://asc.fasb.org/extlink&oid=6359553&loc=d3e288-107754

Reference 15: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 235
-SubTopic 10
-Section 50
-Paragraph 3
-URI http://asc.fasb.org/extlink&oid=6367646&loc=d3e18780-107790

Reference 16: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 810
-SubTopic 10
-URI http://asc.fasb.org/subtopic&trid=2197480

+ Details

Duncan Energy Partners L.P. 10-Q