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Duke Energy Field Services
A Year of Record Returns

Duke Energy Field Services (DEFS) captured enormous value from strong natural gas liquids (NGL) prices and gas processing margins in 2004. We also improved operating and commercial performance, and benefited from increased production and a strategic acquisition. The combination of these factors resulted in record earnings for the DEFS joint venture.

Major accomplishments:

• We were able to handle higher natural gas volumes in many areas in 2004, due to increased drilling by our customers, with little or no additional investment. For example, we successfully processed and delivered almost 10 percent more gas on our Oklahoma “supersystem” by redistributing the flow of natural gas among the system’s four plants.
• We delivered strong marketing results and continued to renegotiate natural gas supply contracts in order to better align our interests with those of producers, reduce earnings volatility and improve profitability.
• DEFS acquired natural gas gathering, processing and transmission assets in southeast New Mexico from ConocoPhillips for $74 million. The acquisition included three processing plants and more than 1,000 miles of gathering pipeline. In addition to adding new customers and volumes, these assets, in combination with our existing facilities, improve market access and reliability for our customers.

The Platteville facility is one of DEFS’ newest gathering and processing plants, built to process increased natural gas production in the Denver-Julesburg Basin area of Colorado.

• The number and severity of employee and contractor injuries declined at DEFS in 2004, as evidenced by a 40 percent reduction in safety-related lost workdays and more than a 50 percent reduction in contractor injuries versus 2003. Tragically, an employee of our former TEPPCO affiliate lost his life in a work-related accident, underscoring the importance of maintaining safety as our top priority.
• We successfully consolidated our computer operations into Duke Energy’s computing center in Charlotte, eliminating our Denver data center and generating significant efficiency and cost improvements.

DEFS is poised to deliver another exceptional year of earnings in 2005. We expect commodity prices to remain above traditional levels, though perhaps somewhat lower than 2004.

In this, my second year at the helm at DEFS, we are working to further improve our underlying operational and commercial performance through continued application of best practices, by capturing efficiencies inherent in our large operating scale and scope, and by continually improving our processes and information systems.

Two 2005 transactions will allow us to focus on further strengthening our competitive position in the United States. As part of the pending restructuring of DEFS into a 50/50 joint venture with ConocoPhillips, we expect to receive additional U.S. midstream assets and our Canadian operations will move to DEGT. In addition, with the February 2005 sale of TEPPCO, our affiliated master limited partnership, we exited the business of transporting refined products and crude oil, as well as selected natural gas and NGL activities. Going forward, we will invest to improve the capability of our existing assets and pursue selective growth opportunities. Given today’s competitive landscape, we will also evaluate the merits of establishing another master limited partnership.

— Bill Easter, Chairman, President and Chief Executive Officer, Duke Energy Field Services

Profile: The largest producer of natural gas liquids in North America and one of the largest marketers, Duke Energy Field Services gathers, processes, transports, markets and stores natural gas and produces, transports and markets NGLs. DEFS is a joint venture of Duke Energy and ConocoPhillips.

Operating Data

	2004		2003		2002		2001		2000
Field Services
Natural gas gathered and processed/transported, TBtu/day	7.3		7.4		7.9		8.0		7.0
Natural gas liquids production, thousand barrels per day	363		353		379		384		343
Average natural gas price per million Btu	$ 6.14		$ 5.39		$ 3.22		$ 4.27		$ 3.89
Average natural gas liquids price per gallon	$ 0.68		$ 0.53		$ 0.38		$ 0.45		$ 0.53