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Executives

Mike Richards – VP and General Counsel

Mark Borer – President and CEO

Angela Minas – VP and CFO

Analysts

Gabe Moreen – Bank of America, Merrill Lynch

Michael Blum – Wells Fargo

Yves Siegel – Credit Suisse

Selman Akyol – Stifel Nicolaus

Chet Barriok – George Weiss Associates

DCP Midstream Partners, LP (DPM) Q3 2010 Earnings Conference Call November 5, 2010 9:00 AM ET

Operator

Good morning and welcome to the DCP Midstream Partners third quarter 2010 earnings conference call. All participants will be in a listen-only-mode. (Operator Instructions) After today’s presentation there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded. I would now like to turn the call over to Mike Richards, Vice President and General Counsel. Please go ahead.

Mike Richards

Thank you, Amy. Good morning and welcome to the DCP Midstream Partners third quarter 2010 earnings release conference call. As always, we want to thank you for your interest in the partnership. Today, you will hear from Mark Borer, President and Chief Executive Officer and Angela Minas, Vice President and Chief Financial Officer.

Before turning it over to Mark, I will mention a couple of items. First, all of the slides we will be talking from today are available on our website at www.dcppartners.com in PDF format. You may access them by clicking on the investor page and then the website icon.

Next, I would like to remind you that our discussion today may contain forward-looking statements. Actual results may differ due to certain risk factors that affect our business. Please review the second slide in the deck that describes our use of forward-looking statements and lists some of the risk factors that may affect actual results. For a complete listing of the risk factors that may impact our business results, please review our form 10-K for the year-ended September 31, 2009 as filed with the SEC on March 11, 2010 and updated through subsequent SEC filings.

In addition, during our discussion we will use various non-GAAP measures, including distributable cash flow, adjusted EBITDA and adjusted segment EBITDA. These measures are reconciled to the nearest GAAP measure and schedules provided on our website. We ask that you review that information as well. And now, I will turn it over to Mark Borer.

Mark Borer

Thanks Mike. Morning everyone and thanks for joining us today for the discussion of our third quarter results. As you saw in our press release last evening, we reported third quarter results, which were in line with our 2010 DCF forecast. In addition to meeting our financial goals, we have continued to diligently execute on our growth strategy including the drop down from our sponsor, which we announced our earnings release last evening.

On Slide 3, you’ll see our agenda for this morning. I will begin some highlights of the quarter including an overview of the dropdown transaction followed by an operational update.

Angela will follow-up with a financial overview of the quarter. We will close with our outlook and summary. We are pleased with the progress we have made thus far this year. We are optimistic about the future and believe we are favorably positioned to continue executing our growth strategy.

Turning to Slide 4, lets discuss some highlights for the quarter. Third quarter financial results are on track to achieve our 2010 DCF forecast. We generated a distributable cash flow of $24 million for the quarter and 80.6 million year-to-date providing a distribution coverage of 1.14 times over the trailing four quarters.

Our integration efforts related to our numerous (inaudible)acquisitions are progressing according to plan. For the November 2009 Michigan gathering and treating system acquisition, January 2010 Wattenberg NGL pipeline acquisition and our most recent acquisitions during the third quarter of the Chesapeake propane terminal and the remaining 55% interest in our Black Lake NGL pipeline. Wattenberg Capital expansion project, which we expect to complete in early 2011 is also progressing on plan.

We successfully accessed the term debt market through our Inaugural Investment grade debt offering. We believe our financial positioning is a key element of our growth strategy. Angela will provide additional color on this in a few moments.

Finally, last evening we announced the $150 million acquisition of a one-third interest in the Southeast Texas joint venture from our general partner, DCP Midstream. This transaction compliments the third-party acquisitions in organic growth we have executed thus far this year and demonstrates our multifaceted growth strategy. In summary we are progressing well in terms of delivering on our 2010 business planned commitments.

Turning to Slide 5, I will provide some additional color on the dropdown transaction. The DCP Southeast Texas joint venture is a fully integrated midstream business that sits well with the MLP business model. The assets in the joint venture include 675 miles of natural gas pipelines, three natural gas processing plants totaling 350 MMcf per day of processing capacity, natural gas storage assets with 9-Bcf of high deliverability salt dome storage capacity, favorable access to interstate and intrastate gas markets, NGL market deliveries direct to Exxon Mobil and to Mont Belvieu via our Black Lake NGL pipeline.

This transaction’s a prime example of how we are co-investing and effectively partnering with our clients. In line with our strategy of utilizing the MLP as a growth vehicle for the DCP Enterprise, DCP Midstream will re-apploy the proceeds to ongoing capital projects.

Our numerous contributes to this transaction as outlined in Slide 6. This collection of assets provides additional diversification to our asset portfolio, geography and resource exposure. The Spindletop natural gas storage business provides us with a new business line with stable cash flows that are not sensitive to either commodity prices or volumes.

More specifically, we have structured the joint venture to asset the natural gas storage revenues we realized are 100% fee-based and tied to a storage capacity under a seven-year contract.

The gathering and processing business does have commodity exposure however, we expect to enter into the hedges for our equity volumes consistent with our overall hedging philosophy. In the near term we would expect that 80% plus of our margins for this transaction would be either fee based or supported by commodity hedges.

The joint venture is also well positioned for future growth. Drilling in the area remains active given the liquids rich nature of production and it's proximity to strong NGL and gas markets. The Raywood plant, which was acquired by DCP Midstream earlier this year and is connected to our Black Lake Pipeline is running near full capacity. Given robust, producer-drilling plans, JV has an ongoing organic expansion project to increase processing capacity by 50 million cubic feet per day in 2011.

The JV also has plans underway to expand the Spindletop storage facility by 2013 in conjunction with an agreement with Midstream to fully contract for the additional capacity. Importantly this joint venture also provides a mechanism for future drop down opportunities. This transaction, which will be immediately attributed to distributable cash flow is expected to close in January.

With that, exciting new addition to our natural gas services segment let me now turn to a broader view of the segment and an operational update on Slide 7.

As is the case again this quarter we feel our diverse geographic footprint is a strong positive as it provides us with access to multiple resources, contract types and customers. Gas throughput volumes have remained rather resilient in the aggregate with volumes virtually flat on a sequential quarter basis and down a modest 2%, 3% for the fourth quarter of 2009.

NGL production was up 5% since the third quarter of 2009. Integration efforts related to our Bolton acquisition of fee-based assets in Michigan are proceeding according to plan, on time and on budget. We continue to see growth opportunities in this segment. We believe the emerging shale plays will continue to provide infrastructure development opportunities.

On last quarters call we indicated that in conjunction with our general partner DCP Midstream we have signed a non-binding letter of intent with EQT Corporation to create a natural gas processing and related NGL infrastructure joint venture to serve the EQT and third-party producers in the Marcellus and here-on shale areas of the Appalachian Basin. Since that time, natural gas prices have continued to decline, thereby changing the priorities and needs of EQT. In this regard, DCP and EQT have been evaluating a number of alternative structures in addition to the originally proposed joint venture structure to address EQTs processing needs. We continue to have discussions with EQT and other third parties such as Magnum Hunter around strategic entry points into the Marcellus.

Now moving to Slide 8 for our wholesale propane segment. We continue to see favorable demand from the residential service providers for the upcoming Winter heating season at our various New England and mid-Atlantic terminals..

The integration and footprint expansion of our recently acquired Chesapeake, Virginia terminal is proceeding on plan. We are pleased with the expansion opportunity into the mid-Atlantic that this access provides.

During the second and third quarters, we had a planned outage related to the Providence terminal inspection, which is required once ever 20 years. The completion of the inspection and resumption of service has extended beyond the planned timing due to operational delays. Providence is scheduled to resume distribution of propane later this month.

As the past several years have shown, this business model with the sea like nature and diversity supply has provided attractive growth. We continue to target opportunities to expand it's new markets either through acquisition or organic expansion projects.

Moving to Slide 9 for our NGL Logistics segment. This segment generates 100% fee-based margins that's complimentary to our gathering of processing business providing broader exposure to the NGL value chain. It has been another area in which we're pleased to have recently been able to execute on targeted expansion opportunities. Just to refresh we are executing a project to spend approximately $18 million of expansion capital to connect and integrate the Wattenberg pipeline we acquired earlier this year with DCP Midstream Processing facilities.

DCP Midstream, the largest gatherer and processor in the DJ Basin is investing capital to construct the new natural gas processing plant. It is expected to be completed by early 2011 at which time we also expect to begin receiving cash flow contributions from our investment. Our integration efforts and capital expansion project are progressing on plan with a drilling focus on the liquids rich plays we continue to have a favorable outlook on volumes for this expansion.

As I mentioned earlier, we also acquired the remaining 55% ownership interest in our Black Lake pipeline bring our ownership interest to 100%. Effective November 1, we recently transitioned the operatorship of the pipeline from Marcellus to DCP.

With that brief, operational update, I will now turn it over to Angela to review the financial results.

Angela Minas – VP and CFO

Good morning and thank you for joining us. On Slide 10, we begin with the consolidated financial results. Results are adjusted to remove the impact of non-cash mark-to-market activities of our commodity hedges, which are outlined in the appendix as well as the non-controlling interest in our joint ventures. Adjusted EBITDA was 37.9 million for the quarter compared to 30.2 million for the prior year.

Year-to-date results of 104.2 million for 2010 compared to 102.8 million in 2009. Distributable cash flow for the quarter increased from 21.2 million in '09 to 24 million in 2010. Distributable cash flow for the quarter resulted in the distribution coverage ratio of approximately 0.9 times slightly below that for the same period last year.

As a reminder given the seasonality of our wholesale propane business, the majority of the earnings coming during the first and fourth quarters, we would expect a lighter third quarter. As such, it is appropriate to look at distribution coverage on an annual basis.

For the last four quarters, our distribution coverage ratio was 1.14 times. When adjusting for the timing of actual cash distribution paid, our cash coverage ratio would be approximately 1 times for the quarter and 1.2 times for the trailing four quarters.

For more details on our results lets move to the segments.

Starting on Slide 11 with national gas services. Adjusted EBITDA, 33.8 million was relatively flat compared to the last quarter and prior year results. Compared to the prior year, results for the quarter were positively impacted by the addition of our Michigan acquisition and organic growth at our Piceance Basin asset offset by differences in gas quality and lower gas group volumes at certain of our natural gas factories.

Year-to-date adjusted EBITDA increased from 93 million in 2009 to 100.2 million in 2010. Results for 2009 include the impact of operational down time at our discovery, Southeast Texas and Wyoming (inaudible).

Slide 12 indicates the results of our wholesale propane segment. Historically, this business has typically generated it's cash flows in the fourth and first quarters with the second and third quarter providing breakeven or nominal cash flow. As such, this quarters results are somewhat lower than last year but still in line with historical trends.

2010 results were impacted by the planned outage related to the Providence terminal inspection and lower unit margins resulting from the associated shifting in logistics of inventory and sales volumes through our other terminals. 2009 results reflected late Winter weather and increased product sales opportunities driven by a very favorable marketing environment.

As a reminder, due to the timing of Winter and propane demand, quarterly results often do not provide a meaningful comparison. As such, we view the results of this business on a fiscal year or heating season basis, so April 1 to March 31 with the upcoming two quarters being the most relevant.

On Slide 13, our NGL Logistics EBITDA for the quarter of 11.9 million, includes a 9.1 million non-cash equity interest re-measurement gain, which reflects the accounting treatments that’s required to adjust the historical caring value of our initial 50% interest in Black Lake. Adjusting for this non-cash item, EBITDA for the quarter would have 2.8 million as compared to 2 million in 2009. Our EBITDA for the quarter and year-to-date reflects higher per unit margins as well as increased throughput volumes associated with our Wattenberg and Black Lake acquisitions.

Slide 14 reflects our 2010 DCF forecast which we provided on our year-end earnings call. Third quarter and year-to-date results were in line with our forecast. If you take into account the commodity prices year-to-date and general market views of prices for the balance of 2010, the highlighted section of the table would indicate 2010 DCF between 105 and 115 million, providing a distribution coverage of 1.0 to one times at our current approximately 105 million-distribution level. This forecast excluded the impact of future potential acquisitions or any unannounced organic expansion projects.

The Chesapeake and Black Lake acquisitions would add an estimated 50 million to 2010 DCF. Note, the distribution coverage is lighter than our ongoing run rate would imply as the units issued last August in the November 2009 acquisition and the Wattenberg project were issued in advance of realizing the full cash flows from those transactions.

In 2011, we would forecast additional cash flow contribution as the Wattenberg integration and expansion is completed in early 2011 and as we complete the integration of the Michigan acquisition and more fully realize the energy benefits.. Similarly we would have a full year of cash flow benefits from the Chesapeake, Black Lake and Southeast Texas acquisitions.

Moving on now to our financial positioning objective on Slide 15. We're committed to a financing strategy that maintains a strong capital structure, a competitive cost of capital and significant liquidity to enable us to execute on our growth strategy. With respect to long-term financing of growth and debt under our existing credit facility we will continue to take a strategic and disciplined approach. We are very pleased to have successfully executed our inaugural investment grade public debt offering to the issuance of 250 million of 3.25% five-year notes, making that the lowest coupon ever for an MLP debt issuance.

The execution of our accelerated investment grade plan through an achievement of investment grade savings from (inaudible)has served us well translating into significant benefits with this offering and also positioning us well for existing low cost debts at various competitive rates.

The terming of debt has also provided us with substantial liquidity. We believe that our sources of capital are more than adequate to support our future growth plan. The successful execution of our 93 million August equity offering demonstrates again our ability to access the equity market and our investment grade rating has proven execution of our recent debt offering positions us well to access the public debt market at a competitive cost of capital.

Turning to Slide 16 for the numbers behind our balance sheet and credit metric. In addition to our recent debt offering, we have an excellent 850 million-credit facility that extends through June 2012. At the end of the third quarter we had drawn 363 million resulting in unused capacity of 487 million. Our cost to debt is highly competitive with the interest rate on our revolver at libel plus 44 basis points.

Similar to the quarter to revenue on commodity risk management, we utilized interest rate hedges to prove cash flow stability. Virtually all of our debt on our revolvers are currently hedged with an effective interest rate on our overall debt position of 4.3%. At the end of the quarter our leverage ratio was 4.8 times and our long-term debt to capital ratio was 48%.

In summary, we've ended the quarter with solid capitalization, substantial dry powder on the revolver to support the execution of future growth opportunities and credit metrics in line with our target. We've maintained liquidity and credit metrics consistent with our investment grade rating and plan to continue doing so in the future.

And now I will turn it back over to Mark.

Mark Borer

Thanks, Angela. Please turn to Slide 17. As you can see from the assets that we've acquired over the course of the past year, the Wattenberg pipeline expansion project and the newly announced dropout of the interest in Southeast Texas joint venture was executed on a variety of attractive opportunities.

Not only are we pleased with each of the opportunities individually but we are also very pleased with the strategic and disciplined execution of our overall growth plan. On our year-end earnings call I provided you some insights to how we are thinking about future growth opportunities. Although a very broad potential opportunity set. we have made subsequent progress with each of our business segments. This growth will result in an increase in percentage of fee-based margins. In particular, the addition of the Natural gas storage business in the Southeast Texas joint venture with this demand charge nature is not sensitive to either commodity prices or volumes.

In summary, our growth opportunities have continued to enhance the versatility of our asset portfolio, geographic footprint and resource exposure.

Moving to the next slide I would like to close this morning with our outlook and a few summary points. First, our results to date position us well. We are on track to achieve our 2010 business plan commitment in DCF forecast. Our target continues to be top core (inaudible)to the shareholder return and we believe that that is achievable given the breadth of the DCP Enterprise..

We believe this translates into a 5 to 7% long-term distribution growth target. We view 2010 as a transition year. Resuming distribution growth was an important 2010 objective, however our clear goal is to return to a model of consistent distribution growth. The growth opportunities that we have captured thus far this year offset potential opportunities in the pipeline will contribute to distributable cash flows of 2011.

Our recently acquired investment grade ratings have proven execution of our nautical debt offering have improved our relative positioning on cost capital which in turn supports the execution of the DCP Enterprise strategy to utilize the MLP as a key growth vehicle. Just as we have demonstrated this year with the investments in the DJ Basin and Southeast Texas we believe there will be numerous opportunities for us to co-invest with our sponsors. Having the strong sponsorship and DCP Midstream, spectra energy and Conoco Phillips is a significant benefit to us and our shareholders.

That is the conclusion of our prepared remarks. As I turn it back over to Amy, our operator for your questions, I just want to express my appreciation for your interest in the partnership and joining the call today.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Gabe Moreen at Bank of America, Merrill Lynch.

Gabe Moreen – Bank of America, Merrill Lynch

Good morning, everyone.

Mark Borer

Good morning.

Angela Minas

Good morning.

Gabe Moreen - Bank of America, Merrill Lynch

Questions on the wholesale propane that have been heading into the Winter. Given press reports of some BP type propane supply in New England although it looks like it's getting a little bit better. Just wondering I guess how you feel your assets are positioned in light of that tight supply and also whether the fact that propane prices have been running up here in the last couple of weeks presumably having build I guess lower cost supply from your terminals whether that may have an impact on those margins as well?

Mark Borer

Okay, thanks Gabe. We have a diversity of supply arrangements for our terminals that provides us a lot of flexibly and meet the needs of the customers, whether its in a high volume Winter, in the high volume winter months so we think we're very well positioned with these supply arrangements. We have a very good reputation of being able to manage the supply. There have been some outages. I know that it's been well publicized that Pepco is doing some repairs for Enterprise. The technical line has been under repair since early September and I know it has reduced some deliveries. We have been working diligently to secure additional spot opening supplies to supplement supplies to the markets and have been successful in doing so and so we fully expect to meet the markets needs along with other suppliers. As far as the pricing of product, we run a very matched book from the viewpoint of how we manage inventory. There can be some additional gains as you fill inventory but generally it's pretty matched given the fee like nature, the way we manage the business.

Gabe Moreen - Bank of America, Merrill Lynch

Thank you.

Mark Borer

Thanks.

Gabe Moreen - Bank of America, Merrill Lynch

Thanks Mark but if I could follow-up there, in the Providence terminal outage? Is that something for the fourth quarter you expect to be able to make up what you might lose there shifting barrels around given your other group supply resources?

Mark Borer

We think that we can for the most part make up the impact from the outage. It did last a couple of weeks longer than anticipated and to do the inspection work and as a result, we did have some delay in scheduling our ship. We now expect the ship will come in later this month but really because of the network terminals we have and the variety of supply we think we can pretty much make this a moderate impact as far as the outage.

Gabe Moreen - Bank of America, Merrill Lynch

Okay and just a quick one. I don't know if I caught. Did you talk at all about the CapEx required on the assets in Southeast Texas drop down assets? How much the expansions are going to cost?

Mark Borer

Angela?

Angela Minas

The expansion capitals are over the next two years is about 10 million for the year in terms of expansion and then on a maintenance capital about 1.5 to 2 million annual.

Gabe Moreen - Bank of America, Merrill Lynch

And that's for your share of the assets?

Angela Minas

That's for our share. Correct.

Gabe Moreen - Bank of America, Merrill Lynch

Okay, great. Thanks Angela. Thanks Mark.

Mark Borer

Thank you.

Operator

The next question comes from Michael Blum at Wells Fargo.

Michael Blum - Wells Fargo

Good morning, everyone.

Mark Borer

Good morning Michael.

Michael Blum - Wells Fargo

A couple of questions on the acquisition. One, can you talk about what type of contracts you have there on the processing side?

Mark Borer

Sure. Michael, this is Mark. We have a mix of percent of liquids and fee contracts so we will end up along the natural gas liquids barrel. We also will see some (inaudible) and then we also have fees in that business as well. The storage side of course is demand charged nature of fees type of business.

Michael Blum - Wells Fargo

Okay and then in terms of the gas that you're accessing, is that dry gas or mostly wet gas and what basins are you seeing in over there?

Mark Borer

The gas that we access is the very rich gas from a natural gas liquids viewpoint. The [indiscernible], the [indiscernible], formation in Southeast Texas. It's actually yielded a number of very high rate wells with very good gas stream. The producers there have been very successful. We've actually had some of the larger initial production rates for these wells in recent history in the U.S.

Michael Blum - Lynch

Okay, great and then I apologize if I missed this in the opening remarks but did you say what EBITDA you're expecting or what multiple you paid for that acquisition?

Angela Minas

No, we did not. It's a market multiple. We will be filing, both the historical and the Performa financials over the next few days. What you'll see there, there will be a difference in respect to how we would operate the joint venture going forward versus the historicals, in that as we talked about the storage side of it, that's basically a fixed demand in charge which we'll see on the historical financial will be the storage margins moving with respect to different rates and bonds.

Michael Blum - Wells Fargo

Okay, so has DCP Midstream historically they've held that cash for their own account? Is that what you're saying?

Angela Minas

Right and they'll continue to do that the way we have it structured we would as part of our fees from the joint venture we would take a 60 storage based on capacity.

Michael Blum - Wells Fargo

Okay, got it. Thank you.

Operator

Our next question comes from Yves Siegel of Credit Suisse.

Yves Siegel - Credit Suisse

Thanks. Hi Mark and Angela.

Mark Borer

Morning.

Angela Minas

Morning.

Yves Siegel - Credit Suisse

When you just look at the assets that you just acquired. Could you say how fully utilized the assets are right now? You have 350 million cubic feet of processing capacity over those three plants. Can you describe the asset utilization there?

Mark Borer

We have very good asset utilization Yves. It's running in the 80 to 90% range presently or over the last couple of years. We also have a ongoing capacity expansion that will be completed in 2011 to add some additional processing capacity. High utilization rates and very good overall activity in those programs.

Yves Siegel - Credit Suisse

And then you when you think about Black Lake NGL pipeline, could you just remind me of the capacity there on that pipeline and what the current sort of volume is going through there and would you expect that to increase given what's happening in Southeast Texas?

Mark Borer

The capacity of that pipeline is about 40,000 barrels a day and I think on current volumes somewhere. I'd need to pull that number. It's about, probably about a 50% utilization right now Yves so we do have nice, additional capacity there that can readily handle expansion sides.

Yves Siegel - Credit Suisse

Is it your thought that would grow fairly quickly or how do you think about the potential for that to grow over the next couple of years?

Mark Borer

I think it will ramp up with the additional buys that we expand from our process and capacity performance so I think it will be a reasonable, moderate to reasonable expansion.

Yves Siegel - Credit Suisse

And then if I could ask you if the, the last question? Could you just talk about your approach to the drop down. You say you bought a third of this asset. Why not buy 50%? Why not buy 75%? Is it just that you like that 150 million number?

Mark Borer

Well, we think that's a reasonably sized transaction that can have impact given our size. Clearly having the Joint Venture us flexibility for future drop down opportunities so we'll still have some nice potential, some nice ongoing opportunities and some potentially nice ongoing other growth projects so we feel comfortable with the size. We can, it was just a choice on how we looked at it overall.

Yves Siegel - Credit Suisse

Okay and my very last question is, as you look to 2011 and as you look at the goals that you set for the partnership do you think 2011 is a normalized year for you in terms of, do you think you'll be at the point where you could resume 5 to 7% type of distribution growth?

Mark Borer

Yves, that's definitely our target as you think about, consistent growth is a current ongoing objective. If you think about some of the things we've done this year in a number of cases we refinanced a number of projects this year that will provide significant cash flow contribution in 2011 and beyond. We think about that in the context of Michigan and Wattenberg are definitely in that category plus we will ramp up activity at Chesapeake on the propane side. We'll realize the full year on Black Lake and we’ll realize the benefits of the dropdown in January 1 so we think with those opportunities as well as other opportunities to co-invest in support of Midstream growth that we're well positioned to transition into achieving that type of success.

Yves Siegel - Credit Suisse

Okay. Thank you.

Mark Borer

Thank you.

Operator

The next question comes from Selman Akyol of Stifel Nicolaus.

Selman Akyol - Stifel Nicolaus

Thank you. Good morning.

Mark Borer

Morning.

Angela Minas

Morning.

Selman Akyol - Stifel Nicolaus

Congratulations on the joint venture. A couple of quick questions if I may. First of all you talk about closing in January, so what remains to be done there?

Mark Borer

We'll need, we’ve signed the purchase and sale agreement. We'll need to file for HSR. We don't expect there to be any issues there and so we just targeted a January 1 closing So things are pretty straightforward.

Selman Akyol - Stifel Nicolaus

All right. In terms of the gas storage, 9-Bcf, in terms of thinking of expansion. How large can that go?

Mark Borer

We have the first project here will be an expansion. We have 9-Bcf existing. The first project is about six to seven Bcf expansion. We do think that we have the potential also for a couple additional cabins beyond that which could, would probably be in the five to six Bcf size each so that we're not committed to those additional extensions. We're just committed to the initial one here for six Bcf that we think we've got nice expansion potential going forward.

Selman Akyol - Stifel Nicolaus

Great and then as we think about stepping being secured by the contract. Is that with multiple parties?

Mark Borer

The contract is secured for our arrangement with DCP Midstream.

Selman Akyol - Stifel Nicolaus

Okay and then last question. In terms of the growth in distribution, how should we think about coverage ratio or how do you think about it in terms of having a goal?

Mark Borer

We have, as we have articulated in the past, we have targeted a coverage ratio in the 1.1 to 1.2 times. We obviously look at this each quarter as well as on our annual planning process. It's very important for us to be a sustainable point relative to distribution funds we're also looking at where we think we're at in the business cycle and the opportunities centered around our assets as well as the potential to growth but we intend to manage it in the 1.1 to 1.2 range. We have historically averaged at the high end of that range from our past results.

Selman Akyol - Stifel Nicolaus

Thank you very much.

Mark Borer

Thank you.

Operator

The next question comes from Chet Barriok at George Weiss Associates.

Chet Barriok - George Weiss Associates

Hey guys. Chesapeake spoke about a play yesterday that they said would garner worldwide interest and a lot of people thinking it's Hollywood and Shale? I'm just wondering how you view your Michigan assets as being an addition to capitalized interest? And are you seeing any account of activity out there that would indicate that there’s something to that play?

Mark Borer

For clearly the activity that the recent (inaudible)and I think they also had a sale in the past a couple of weeks there seems to be a lot of interest in the play. We expect that its probably a more liquids rich play than the conventional production that we have there today but we do think that we are well positioned to meet the needs of the producers in that play. We've talked to a number of them and at this point I think it's pretty early as far as from an activity level we’ve had, there’s only been a few wells that drilled at this point. The people have been pretty tight holed as part of the results. Having said that clearly the release activity seems to be pretty high so we're optimistic about the future potential.

Chet Barriok - George Weiss Associates

Okay. Great. Thank you guys.

Mark Borer

Thank you.

Operator

(Operator Instructions) And our next question comes from Yves Siegel at Credit Suisse.

Yves Siegel - Credit Suisse

Thanks, just a quick follow-up on the potential for the expansion of the storage. Do you have any sense of what the incremental cost might be on a per Bcf basis?

Mark Borer

When we look at our additional expansion here Yves, it's probably, it's in about the probably 8 billion per Bcf. That excludes 14-gas (inaudible) gas, excuse me so we look at probably about in that range.

Yves Siegel - Credit Suisse

All right and I guess the thought process would be that the expansion you would have a fee based contract and DCP Midstream’s, it would basically be take on at the risk of their loaner account or walking it to elsewhere?

Mark Borer

That’s a fair assessment. Yes.

Yves Siegel - Credit Suisse

Right. Thanks again.

Mark Borer

Thank you.

Operator

(Operator Instructions) This concludes our question-and-answer session. I would like to turn the conference back over to Mark Borer for any closing remarks.

Mark Borer

In closing I would just like to thank you for joining us today and your interest in the partnership. If you have any follow-up questions over the coming days please feel free to contact Angela Minas. Angela and I can make ourselves available to visit so we appreciate your interest and have a good day.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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