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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549




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FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

|                                     |  |                               
|------------------------------------ |  | ------------------------------
|For Quarter Ended September 30, 2002 |  | Commission File Number 0-31095

DUKE ENERGY FIELD SERVICES, LLC

(Exact name of registrant as specified in its charter)


|                                                        |  |                                             
|------------------------------------------------------- |  | --------------------------------------------
|Delaware
(State or other jurisdiction of incorporation) |  | 76-0632293
(IRS Employer Identification No.)

370 17th Street, Suite 900
Denver, Colorado 80202
(Address of principal executive offices)
(Zip Code)

303-595-3331
(Registrants telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes x No o



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|                                                   |                                                                                               |                                                        |  |  |  |  |  | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------ |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                     
|                                                   | Item 1. Financial Statements                                                                 
|                                                   |                                                                                               | CONSOLIDATED STATEMENTS OF OPERATIONS                 
|                                                   |                                                                                               | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|                                                   |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS                 
|                                                   |                                                                                               | CONSOLIDATED BALANCE SHEETS                           
|                                                   |                                                                                               | CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  
|                                                   | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                   | Item 3. Quantitative and Qualitative Disclosure about Market Risks                           
|                                                   | Item 4. Controls and Procedures                                                              
|PART II. OTHER INFORMATION                        
|                                                   | Item 1. Legal Proceedings                                                                    
|                                                   | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                        
|CERTIFICATIONS                                    
|EXHIBIT INDEX                                     
|EX-99.1 Certification Pursuant to 18 USC Sect 1350
|EX-99.2 Certification Pursuant to 18 USC Sect 1350



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DUKE ENERGY FIELD SERVICES, LLC
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2002

INDEX

|                                                                                         |                |                                                                                                                        |    |    |   |  | 
|---------------------------------------------------------------------------------------- | -------------- | ---------------------------------------------------------------------------------------------------------------------- | -- | -- | - |  | 
|Item                                                                                     |                | Page                                                                                                                  
|                                                                                         |                |                                                                                                                       
|PART I. FINANCIAL INFORMATION (UNAUDITED)                                               
|1. Financial Statements                                                                  |                |                                                                                                                        | 1  |   
|                                                                                         |                | Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2002
and 2001                  |    |    | 1 | 
|                                                                                         |                | Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months
Ended September 30, 2002 and 2001 |    |    | 2 | 
|                                                                                         |                | Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001                            |    |    | 3 | 
|                                                                                         |                | Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001                                             |    |    | 4 | 
|                                                                                         |                | Condensed Notes to Consolidated Financial Statements                                                                   |    |    | 5 | 
|2. Managements Discussion and Analysis of Financial Condition and Results of Operations |                |                                                                                                                        | 14 |   
|3. Quantitative and Qualitative Disclosure about Market Risks                            |                |                                                                                                                        | 21 |   
|4.
Controls and Procedures                                                               |                |                                                                                                                        | 26 |   
|PART II. OTHER INFORMATION                                                              
|1. Legal Proceedings                                                                     |                |                                                                                                                        | 27 |   
|6. Exhibits and Reports on Form 8-K                                                      |                |                                                                                                                        | 27 |   
|                                                                                         | Signatures     |                                                                                                                        |    | 28 |  
|                                                                                         | Certifications |                                                                                                                        |    | 29 |  

CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

Our reports, filings and other public announcements may from time to time
contain statements that do not directly or exclusively relate to historical
facts. Such statements are forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. You can typically
identify forward-looking statements by the use of forward-looking words, such
as may, could, project, believe, anticipate, expect, estimate,
potential, plan, forecast and other similar words.

All of such statements other than statements of historical facts,
including statements regarding our future financial position, business
strategy, budgets, projected costs and plans and objectives of management for
future operations, are forward-looking statements.

These forward-looking statements reflect our intentions, plans,
expectations, assumptions and beliefs about future events and are subject to
risks, uncertainties and other factors, many of which are outside our control.
Important factors that could cause actual results to differ materially from the
expectations expressed or implied in the forward-looking statements include
known and unknown risks. Known risks include, but are not limited to, the
following:



| |  |  | our ability to access the debt and equity markets, which will
depend on general market conditions and our credit ratings for our
debt obligations;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our use of derivative financial instruments to hedge commodity and interest rate risks;                                                           
|
| |  |  | the level of creditworthiness of counterparties to transactions;                                                                                  

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| |  |  | changes in laws and regulations, particularly with regard to taxes, safety and protection of the environment or the
increased regulation of the gathering and processing industry;                                                                                                                                                                                                                                             
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the timing and extent of changes in commodity prices, interest rates and demand for our services;                                                                                                                                                                                                                                                                                                                              
|
| |  |  | weather and other natural phenomena;                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  |  | industry changes, including the impact of consolidations, and changes in competition;                                                                                                                                                                                                                                                                                                                                          
|
| |  |  | our ability to obtain required approvals for construction or modernization of gathering and processing facilities, and the
timing of production from such facilities, which are dependent on the issuance by federal, state and municipal governments,
or agencies thereof, of building, environmental and other permits, the availability of specialized contractors and work
force and prices of and demand for products; and
|
| |  |  | the effect of accounting policies issued periodically by accounting standard-setting bodies.                                                                                                                                                                                                                                                                                                                                   

In light of these risks, uncertainties and assumptions, the events
described in the forward-looking statements might not occur or might occur to a
different extent or at a different time than we have described.

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PART I. FINANCIAL INFORMATION




Item 1. Financial Statements




DUKE ENERGY FIELD SERVICES, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands)

|                                                                             |                                                            |                          |        |                     |           |                    |         |         |           |      |         |           |           |   |         |           |           | 
|---------------------------------------------------------------------------- | ---------------------------------------------------------- | ------------------------ | ------ | ------------------- | --------- | ------------------ | ------- | ------- | --------- | ---- | ------- | --------- | --------- | - | ------- | --------- | --------- | 
|                                                                             |                                                            |                          |        | Three Months Ended, |           | Nine Months Ended,
|                                                                             |                                                            |                          |        | September 30,       |           | September 30,     
|                                                                             |                                                            |                          |        |                     |           |                   
|                                                                             |                                                            |                          |        | 2002                |           | 2001               |         | 2002    |           | 2001
|                                                                             |                                                            |                          |        |                     |           |                    |         |         |           |     
|OPERATING REVENUES:                                                          |                                                            |                          |        |                     |           |                    |         |         |           |      |         |           |           |   |         |          
|                                                                             | Sales of natural gas and petroleum products                |                          | $      | 692,243             |           |                    | $       | 726,874 |           |      | $       | 2,054,205 |           |   | $       | 3,982,655 |          
|                                                                             | Sales of natural gas and petroleum productsaffiliates     |                          |        | 282,309             |           |                    |         | 604,648 |           |      |         | 979,063   |           |   |         | 2,127,402 |          
|                                                                             | Transportation, storage and processing                     |                          |        | 71,338              |           |                    |         | 82,709  |           |      |         | 218,945   |           |   |         | 202,233   |          
|                                                                             | Trading and marketing net margin                           |                          |        | 7,643               |           |                    |         | 8,907   |           |      |         | 18,471    |           |   |         | 31,785    |          
|                                                                             |                                                            |                          |        |                     |           |                    |         |         |           |      |         |           |           |   |         |          
|                                                                             |                                                            | Total operating revenues |        |                     | 1,053,533 |                    |         |         | 1,423,138 |      |         |           | 3,270,684 |   |         |           | 6,344,075 | 
|                                                                             |                                                            |                          |        |                     |           |                    |         |         |           |      |         |           |           |   |         |          
|COSTS AND EXPENSES:                                                          |                                                            |                          |        |                     |           |                    |         |         |           |      |         |           |           |   |         |          
|                                                                             | Purchases of natural gas and petroleum products            |                          |        | 624,482             |           |                    |         | 950,658 |           |      |         | 2,137,581 |           |   |         | 4,673,918 |          
|                                                                             | Purchases of natural gas and petroleum
productsaffiliates |                          |        | 159,367             |           |                    |         | 154,613 |           |      |         | 376,369   |           |   |         | 648,497   |          
|                                                                             | Operating and maintenance                                  |                          |        | 114,350             |           |                    |         | 97,253  |           |      |         | 332,022   |           |   |         | 276,789   |          
|                                                                             | Depreciation and amortization                              |                          |        | 73,334              |           |                    |         | 72,597  |           |      |         | 218,379   |           |   |         | 207,314   |          
|                                                                             | General and administrative                                 |                          |        | 42,122              |           |                    |         | 31,183  |           |      |         | 111,899   |           |   |         | 89,768    |          
|                                                                             | General and administrativeaffiliates                      |                          |        | 3,194               |           |                    |         | 2,097   |           |      |         | 11,687    |           |   |         | 8,959     |          
|                                                                             | Other                                                      |                          |        | (1,500              | )         |                    |         | 65      |           |      |         | 5,595     |           |   |         | (923      | )        
|                                                                             |                                                            |                          |        |                     |           |                    |         |         |           |      |         |           |           |   |         |          
|                                                                             |                                                            | Total costs and expenses |        |                     | 1,015,349 |                    |         |         | 1,308,466 |      |         |           | 3,193,532 |   |         |           | 5,904,322 | 
|                                                                             |                                                            |                          |        |                     |           |                    |         |         |           |      |         |           |           |   |         |          
|OPERATING INCOME                                                             |                                                            |                          | 38,184 |                     |           |                    | 114,672 |         |           |      | 77,152  |           |           |   | 439,753 |          
|EQUITY IN EARNINGS OF
UNCONSOLIDATED AFFILIATES                              |                                                            |                          | 12,566 |                     |           |                    | 6,544   |         |           |      | 26,472  |           |           |   | 22,624  |          
|INTEREST EXPENSE                                                             |                                                            |                          | 37,649 |                     |           |                    | 42,455  |         |           |      | 123,253 |           |           |   | 124,847 |          
|                                                                             |                                                            |                          |        |                     |           |                    |         |         |           |      |         |           |           |   |         |          
|INCOME (LOSS) BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE |                                                            |                          | 13,101 |                     |           |                    | 78,761  |         |           |      | (19,629 | )         |           |   | 337,530 |          
|INCOME TAX EXPENSE (BENEFIT)                                                 |                                                            |                          | 1,061  |                     |           |                    | (75     | )       |           |      | 6,675   |           |           |   | 263     |          
|                                                                             |                                                            |                          |        |                     |           |                    |         |         |           |      |         |           |           |   |         |          
|INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE                  |                                                            |                          | 12,040 |                     |           |                    | 78,836  |         |           |      | (26,304 | )         |           |   | 337,267 |          
|CUMULATIVE EFFECTIVE OF ACCOUNTING CHANGE                                    |                                                            |                          |       |                     |           |                    |        |         |           |      |        |           |           |   | 411     |          
|                                                                             |                                                            |                          |        |                     |           |                    |         |         |           |      |         |           |           |   |         |          
|NET INCOME (LOSS)                                                            |                                                            |                          | 12,040 |                     |           |                    | 78,836  |         |           |      | (26,304 | )         |           |   | 336,856 |          
|DIVIDENDS ON PREFERRED MEMBERS INTEREST                                     |                                                            |                          | 6,703  |                     |           |                    | 7,125   |         |           |      | 20,953  |           |           |   | 21,375  |          
|                                                                             |                                                            |                          |        |                     |           |                    |         |         |           |      |         |           |           |   |         |          
|EARNINGS (DEFICIT) AVAILABLE
FOR MEMBERS INTEREST                           |                                                            | $                        | 5,337  |                     |           | $                  | 71,711  |         |           | $    | (47,257 | )         |           | $ | 315,481 |          
|                                                                             |                                                            |                          |        |                     |           |                    |         |         |           |      |         |           |           |   |         |          

See Condensed Notes to Consolidated Financial Statements.

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DUKE ENERGY FIELD SERVICES, LLC

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In Thousands)

|                                    |                                                     |                                         |         |                     |         |                    |        |        |       |      |          |          |          |   |         |        |        | 
|----------------------------------- | --------------------------------------------------- | --------------------------------------- | ------- | ------------------- | ------- | ------------------ | ------ | ------ | ----- | ---- | -------- | -------- | -------- | - | ------- | ------ | ------ | 
|                                    |                                                     |                                         |         | Three Months Ended, |         | Nine Months Ended,
|                                    |                                                     |                                         |         | September 30,       |         | September 30,     
|                                    |                                                     |                                         |         |                     |         |                   
|                                    |                                                     |                                         |         | 2002                |         | 2001               |        | 2002   |       | 2001
|                                    |                                                     |                                         |         |                     |         |                    |        |        |       |     
|NET INCOME (LOSS)                   |                                                     | $                                       | 12,040  |                     |         | $                  | 78,836 |        |       | $    | (26,304  | )        |          | $ | 336,856 |       
|OTHER COMPREHENSIVE (LOSS) INCOME : |                                                     |                                         |         |                     |         |                    |        |        |       |      |          |          |          |   |         |       
|                                    | Cumulative effect of change in accounting principle |                                         |         |                    |         |                    |        |       |       |      |          |         |          |   |         | 6,626  |       
|                                    | Foreign currency translation adjustment             |                                         |         | (17,641             | )       |                    |        | (4,804 | )     |      |          | (6,534   | )        |   |         | (2,657 | )     
|                                    | Net unrealized (losses) gains on cash flow hedges   |                                         |         | (41,640             | )       |                    |        | 14,955 |       |      |          | (103,079 | )        |   |         | 3,619  |       
|                                    | Reclassification into earnings                      |                                         |         | 9,017               |         |                    |        | (5,860 | )     |      |          | (6,975   | )        |   |         | 9,081  |       
|                                    |                                                     |                                         |         |                     |         |                    |        |        |       |      |          |          |          |   |         |       
|                                    |                                                     | Total other comprehensive (loss) income |         |                     | (50,264 | )                  |        |        | 4,291 |      |          |          | (116,588 | ) |         |        | 16,669 | 
|                                    |                                                     |                                         |         |                     |         |                    |        |        |       |      |          |          |          |   |         |       
|TOTAL COMPREHENSIVE (LOSS) INCOME   |                                                     | $                                       | (38,224 | )                   |         | $                  | 83,127 |        |       | $    | (142,892 | )        |          | $ | 353,525 |       
|                                    |                                                     |                                         |         |                     |         |                    |        |        |       |      |          |          |          |   |         |       

See Condensed Notes to Consolidated Financial Statements.

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DUKE ENERGY FIELD SERVICES, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)

|                                                                          |                                                                                                         |                                                        |                                                     |          |                    |          |         |          |          |          |  
|------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- | ------------------------------------------------------ | --------------------------------------------------- | -------- | ------------------ | -------- | ------- | -------- | -------- | -------- | -
|                                                                          |                                                                                                         |                                                        |                                                     |          | Nine Months Ended,
|                                                                          |                                                                                                         |                                                        |                                                     |          | September 30,     
|                                                                          |                                                                                                         |                                                        |                                                     |          |                   
|                                                                          |                                                                                                         |                                                        |                                                     |          | 2002               |          | 2001   
|                                                                          |                                                                                                         |                                                        |                                                     |          |                    |          |        
|CASH FLOWS FROM OPERATING ACTIVITIES:                                     |                                                                                                         |                                                        |                                                     |          |                    |          |         |         
|                                                                          | Net (loss) income                                                                                       |                                                        | $                                                   | (26,304  | )                  |          | $       | 336,856  |         
|                                                                          | Adjustments to reconcile net (loss) income to net cash provided by
operating activities:                |                                                        |                                                     |          |                    |          |         |          |         
|                                                                          |                                                                                                         | Depreciation and amortization                          |                                                     |          | 218,379            |          |         |          | 207,314  |         
|                                                                          |                                                                                                         | Equity in earnings of unconsolidated affiliates        |                                                     |          | (26,472            | )        |         |          | (22,624  | )       
|                                                                          |                                                                                                         | Other                                                  |                                                     |          | 1,261              |          |         |          | (923     | )       
|                                                                          | Change in operating assets and liabilities (net of effects of acquisitions)
which provided (used) cash: |                                                        |                                                     |          |                    |          |         |          |         
|                                                                          |                                                                                                         | Accounts receivable                                    |                                                     |          | (62,824            | )        |         |          | 45,789   |         
|                                                                          |                                                                                                         | Accounts receivableaffiliates                         |                                                     |          | 145,375            |          |         |          | 77,767   |         
|                                                                          |                                                                                                         | Inventories                                            |                                                     |          | (12,962            | )        |         |          | 48,843   |         
|                                                                          |                                                                                                         | Net unrealized mark-to-market and hedging transactions |                                                     |          | 59,479             |          |         |          | (34,484  | )       
|                                                                          |                                                                                                         | Other current assets                                   |                                                     |          | 4,456              |          |         |          | (1,273   | )       
|                                                                          |                                                                                                         | Other noncurrent assets                                |                                                     |          | (4,486             | )        |         |          | (21,499  | )       
|                                                                          |                                                                                                         | Accounts payable                                       |                                                     |          | (26,865            | )        |         |          | (184,577 | )       
|                                                                          |                                                                                                         | Accounts payableaffiliates                            |                                                     |          | (10,992            | )        |         |          | (47,532  | )       
|                                                                          |                                                                                                         | Accrued interest payable                               |                                                     |          | (32,984            | )        |         |          | (31,375  | )       
|                                                                          |                                                                                                         | Other current liabilities                              |                                                     |          | 31,055             |          |         |          | (11,826  | )       
|                                                                          |                                                                                                         | Other long term liabilities                            |                                                     |          | 11,264             |          |         |          | (22,065  | )       
|                                                                          |                                                                                                         |                                                        |                                                     |          |                    |          |         |         
|                                                                          |                                                                                                         |                                                        | Net cash provided by operating activities           |          |                    | 267,380  |         |          |          | 338,391  |  
|                                                                          |                                                                                                         |                                                        |                                                     |          |                    |          |         |         
|CASH FLOWS FROM INVESTING ACTIVITIES:                                     |                                                                                                         |                                                        |                                                     |          |                    |          |         |         
|                                                                          | Expenditures for acquisitions                                                                           |                                                        |                                                     |         |                    |          |         | (229,116 | )       
|                                                                          | Other capital expenditures                                                                              |                                                        |                                                     | (238,378 | )                  |          |         | (218,927 | )       
|                                                                          | Investment expenditures, net of cash acquired                                                           |                                                        |                                                     | 2,646    |                    |          |         | (1,114   | )       
|                                                                          | Investment distributions                                                                                |                                                        |                                                     | 38,328   |                    |          |         | 31,609   |         
|                                                                          | Proceeds from sales of assets                                                                           |                                                        |                                                     | 12,420   |                    |          |         | 20,931   |         
|                                                                          |                                                                                                         |                                                        |                                                     |          |                    |          |         |         
|                                                                          |                                                                                                         |                                                        | Net cash used in investing activities               |          |                    | (184,984 | )       |          |          | (396,617 | )
|                                                                          |                                                                                                         |                                                        |                                                     |          |                    |          |         |         
|CASH FLOWS FROM FINANCING ACTIVITIES:                                     |                                                                                                         |                                                        |                                                     |          |                    |          |         |         
|                                                                          | Distributions to members                                                                                |                                                        |                                                     | (63,164  | )                  |          |         | (220,659 | )       
|                                                                          | Redemption of preferred members interest                                                               |                                                        |                                                     | (100,000 | )                  |          |         |         |         
|                                                                          | Proceeds from issuing debt                                                                              |                                                        |                                                     |         |                    |          |         | 248,358  |         
|                                                                          | Payment of debt                                                                                         |                                                        |                                                     | (448     | )                  |          |         | (49,281  | )       
|                                                                          | Payment of dividends                                                                                    |                                                        |                                                     | (14,250  | )                  |          |         | (14,250  | )       
|                                                                          | Debt issuance costs                                                                                     |                                                        |                                                     | (1,209   | )                  |          |         | (1,518   | )       
|                                                                          | Short term debtnet                                                                                     |                                                        |                                                     | 103,023  |                    |          |         | 100,663  |         
|                                                                          |                                                                                                         |                                                        |                                                     |          |                    |          |         |         
|                                                                          |                                                                                                         |                                                        | Net cash (used in) provided by financing activities |          |                    | (76,048  | )       |          |          | 63,313   |  
|                                                                          |                                                                                                         |                                                        |                                                     |          |                    |          |         |         
|EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH                           |                                                                                                         |                                                        | (6,534                                              | )        |                    |          | (2,657  | )       
|                                                                          |                                                                                                         |                                                        |                                                     |          |                    |          |         |         
|NET (DECREASE) INCREASE IN CASH                                           |                                                                                                         |                                                        | (186                                                | )        |                    |          | 2,430   |         
|CASH, BEGINNING OF PERIOD                                                 |                                                                                                         |                                                        | 4,906                                               |          |                    |          | 1,553   |         
|                                                                          |                                                                                                         |                                                        |                                                     |          |                    |          |         |         
|CASH, END OF PERIOD                                                       |                                                                                                         | $                                                      | 4,720                                               |          |                    | $        | 3,983   |         
|                                                                          |                                                                                                         |                                                        |                                                     |          |                    |          |         |         
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION  Cash paid for interest |                                                                                                         | $                                                      | 156,999                                             |          |                    | $        | 153,212 |         

See Condensed Notes to Consolidated Financial Statements.

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DUKE ENERGY FIELD SERVICES, LLC
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands)

|                                                      |                                                        |                |                           |           |         |               |           |              |         |           |  | 
|----------------------------------------------------- | ------------------------------------------------------ | -------------- | ------------------------- | --------- | ------- | ------------- | --------- | ------------ | ------- | --------- |  | 
|                                                      |                                                        |                |                           |           |         | September 30, |           | December 31,
|                                                      |                                                        |                |                           |           |         | 2002          |           | 2001        
|                                                      |                                                        |                |                           |           |         |               |           |             
|ASSETS                                               
|CURRENT ASSETS:                                       |                                                        |                |                           |           |         |               |           |             
|                                                      | Cash                                                   |                | $                         | 4,720     |         |               | $         | 4,906        |        
|                                                      | Accounts receivable:                                   |                |                           |           |         |               |           |              |        
|                                                      |                                                        | Customers, net |                           |           | 635,470 |               |           |              | 520,118 |          
|                                                      |                                                        | Affiliates     |                           |           | 85,922  |               |           |              | 230,521 |          
|                                                      |                                                        | Other          |                           |           | 77,857  |               |           |              | 136,810 |          
|                                                      | Inventories                                            |                |                           | 95,897    |         |               |           | 82,935       |        
|                                                      | Unrealized gains on trading and hedging transactions   |                |                           | 136,134   |         |               |           | 180,809      |        
|                                                      | Other                                                  |                |                           | 4,608     |         |               |           | 9,060        |        
|                                                      |                                                        |                |                           |           |         |               |           |             
|                                                      |                                                        |                | Total current assets      |           |         | 1,040,608     |           |              |         | 1,165,159 | 
|                                                      |                                                        |                |                           |           |         |               |           |             
|PROPERTY, PLANT AND EQUIPMENT, NET                    |                                                        |                | 4,710,016                 |           |         |               | 4,711,960 |             
|INVESTMENT IN AFFILIATES                              |                                                        |                | 180,520                   |           |         |               | 132,252   |             
|INTANGIBLE ASSETS:                                    |                                                        |                |                           |           |         |               |           |             
|                                                      | Natural gas liquids sales and purchases contracts, net |                |                           | 87,195    |         |               |           | 94,019       |        
|                                                      | Goodwill, net                                          |                |                           | 434,782   |         |               |           | 421,176      |        
|                                                      |                                                        |                |                           |           |         |               |           |             
|                                                      |                                                        |                | Total intangible assets   |           |         | 521,977       |           |              |         | 515,195   | 
|                                                      |                                                        |                |                           |           |         |               |           |             
|UNREALIZED GAINS ON TRADING AND HEDGING TRANSACTIONS  |                                                        |                | 22,751                    |           |         |               | 19,095    |             
|OTHER NONCURRENT ASSETS                               |                                                        |                | 88,923                    |           |         |               | 86,548    |             
|                                                      |                                                        |                |                           |           |         |               |           |             
|                                                      |                                                        |                | TOTAL ASSETS              |           | $       | 6,564,795     |           |              | $       | 6,630,209 | 
|                                                      |                                                        |                |                           |           |         |               |           |             
|LIABILITIES AND MEMBERS EQUITY                      
|CURRENT LIABILITIES:                                  |                                                        |                |                           |           |         |               |           |             
|                                                      | Accounts payable:                                      |                |                           |           |         |               |           |              |        
|                                                      |                                                        | Trade          |                           | $         | 612,911 |               |           | $            | 620,094 |          
|                                                      |                                                        | Affiliates     |                           |           | 14,013  |               |           |              | 25,620  |          
|                                                      |                                                        | Other          |                           |           | 59,689  |               |           |              | 76,914  |          
|                                                      | Short term debt                                        |                |                           | 315,978   |         |               |           | 212,955      |        
|                                                      | Unrealized losses on trading and hedging transactions  |                |                           | 192,769   |         |               |           | 84,811       |        
|                                                      | Accrued interest payable                               |                |                           | 24,453    |         |               |           | 57,417       |        
|                                                      | Accrued taxes other than income                        |                |                           | 23,272    |         |               |           | 24,646       |        
|                                                      | Distributions payable to members                       |                |                           |          |         |               |           | 45,672       |        
|                                                      | Other                                                  |                |                           | 139,448   |         |               |           | 102,694      |        
|                                                      |                                                        |                |                           |           |         |               |           |             
|                                                      |                                                        |                | Total current liabilities |           |         | 1,382,533     |           |              |         | 1,250,823 | 
|                                                      |                                                        |                |                           |           |         |               |           |             
|DEFERRED INCOME TAXES                                 |                                                        |                | 11,342                    |           |         |               | 14,362    |             
|LONG TERM DEBT                                        |                                                        |                | 2,252,888                 |           |         |               | 2,235,034 |             
|UNREALIZED LOSSES ON TRADING AND HEDGING TRANSACTIONS |                                                        |                | 29,115                    |           |         |               | 25,188    |             
|OTHER LONG TERM LIABILITIES                           |                                                        |                | 89,478                    |           |         |               | 15,845    |             
|MINORITY INTERESTS                                    |                                                        |                | 127,735                   |           |         |               | 135,915   |             
|PREFERRED MEMBERS INTEREST                           |                                                        |                | 200,000                   |           |         |               | 300,000   |             
|COMMITMENTS
AND CONTINGENT LIABILITIES                |                                                        |                |                           |           |         |               |           |             
|MEMBERS EQUITY:                                      |                                                        |                |                           |           |         |               |           |             
|                                                      | Members interest                                      |                |                           | 1,709,290 |         |               |           | 1,709,290    |        
|                                                      | Retained earnings                                      |                |                           | 830,957   |         |               |           | 895,707      |        
|                                                      | Accumulated other comprehensive (loss) income          |                |                           | (68,543   | )       |               |           | 48,045       |        
|                                                      |                                                        |                |                           |           |         |               |           |             
|                                                      |                                                        |                | Total members equity     |           |         | 2,471,704     |           |              |         | 2,653,042 | 
|                                                      |                                                        |                |                           |           |         |               |           |             
|TOTAL LIABILITIES AND MEMBERS EQUITY                 |                                                        | $              | 6,564,795                 |           |         | $             | 6,630,209 |             
|                                                      |                                                        |                |                           |           |         |               |           |             

See Condensed Notes to Consolidated Financial Statements.

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DUKE ENERGY FIELD SERVICES, LLC
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. General

Duke Energy Field Services, LLC (with its consolidated subsidiaries, the
Company or Field Services LLC) operates in the two principal segments of the
midstream natural gas industry of (1) natural gas gathering, processing,
transportation, marketing and storage; and (2) natural gas liquids (NGLs)
fractionation, transportation, marketing and trading. Duke Energy Corporation
(Duke Energy) owns 69.7% of the Companys outstanding member interests and
ConocoPhillips (Conoco Phillips) owns the remaining 30.3%.

2. Accounting Policies

Consolidation The Consolidated Financial Statements include the
accounts of the Company and all majority-owned subsidiaries, after eliminating
significant intercompany transactions and balances. Investments in 20% to 50%
owned affiliates are accounted for using the equity method. Investments greater
than 50% are consolidated unless the Company does not operate these investments
and, as a result, does not have the ability to exercise control. These
Consolidated Financial Statements reflect all normal recurring adjustments that
are, in the opinion of management, necessary to present fairly the financial
position and results of operations for the respective periods.

Use of Estimates Conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
notes. Although these estimates are based on managements best available
knowledge of current and expected future events, actual results could be
different from those estimates.

Accounting for Hedges and Commodity Trading Activities All derivatives
are recorded in the Consolidated Balance Sheets at their fair value as
Unrealized Gains or Unrealized Losses on Trading and Hedging Transactions. On
the date that derivative contracts are entered into, the Company designates the
derivative as either held for trading (trading instruments); as a hedge of a
recognized asset, liability or firm commitment (fair value hedges); as a hedge
of a forecasted transaction or future cash flows (cash flow hedges); or leaves
the derivative undesignated and marks it to market.

For hedge contracts, the Company formally assesses, both at the hedge
contracts inception and on an ongoing basis, whether the hedge contract is
highly effective in offsetting changes in fair values or cash flows of hedged
items. The Company excludes time value of the options when assessing hedge
effectiveness.

When available, quoted market prices or prices obtained through external
sources are used to verify a contracts fair value. For contracts with a
delivery location or duration for which quoted market prices are not available,
fair value is determined based on pricing models developed primarily from
historical and expected correlations with quoted market prices.

Values are adjusted to reflect the potential impact of liquidating the
positions held in an orderly manner over a reasonable time period under current
conditions. Changes in market price and management estimates directly affect
the estimated fair value of these contracts. Accordingly, it is reasonably
possible that such estimates may change in the near term.

Commodity Trading  A favorable or unfavorable price movement of any
derivative contract held for trading purposes is reported as Trading and
Marketing Net Margin in the Consolidated Statements of Operations. An
offsetting amount is recorded in the Consolidated Balance Sheets as Unrealized
Gains or Unrealized Losses on Trading and Hedging Transactions. When a contract
is settled, the realized gain or loss is reclassified to a receivable or
payable account. For income statement purposes, settlement has no revenue presentation
effect on the Consolidated Statements of Operations.

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See the New Accounting Standards section below for
a discussion of the implications of the Financial Accounting
Standards Boards (FASB) Emerging Issues Task Force (EITF) Issue
02-03, Issues Involved in Accounting for Derivative Contracts
Held for Trading Purposes and Contracts Involved in Energy Trading
and Risk Management Activities, on the accounting for trading
activities prospectively.

Commodity Cash Flow Hedges  The effective portion of the change in fair
value of a derivative designated and qualified as a cash flow hedge are
included in the Consolidated Statements of Comprehensive Income (Loss) as Other
Comprehensive Income (Loss) (OCI) until earnings are affected by the hedged
item. Settlement amounts of cash flow hedges are removed from OCI and recorded
in the Consolidated Statements of Operations in the same accounts as the item
being hedged. The Company discontinues hedge accounting prospectively when it
is determined that the derivative no longer qualifies as an effective hedge, or
when it is no longer probable that the hedged transaction will occur. When
hedge accounting is discontinued because the derivative no longer qualifies as
an effective hedge, the derivative continues to be carried on the Consolidated
Balance Sheets at its fair value, with subsequent changes in its fair value
recognized in current-period earnings. Gains and losses related to discontinued
hedges that were previously accumulated in OCI will remain in OCI until
earnings are affected by the hedged item, unless it is no longer probable that
the hedged transaction will occur, in which case, the gains and losses that
were accumulated in OCI will be immediately recognized in current-period
earnings.

Commodity Fair Value Hedges  Changes in the fair value of a derivative
that is designated and qualifies as a fair value hedge are included in the
Consolidated Statements of Operations as Sales of Natural Gas and Petroleum
Products and Purchases of Natural Gas and Petroleum Products, as appropriate.
Changes in the fair value of the physical portion of a fair value hedge (i.e.,
the hedged item) are recorded in the Consolidated Statements of Operations in
the same accounts as the changes in the fair value of the derivative, with
offsetting amounts in the Consolidated Balance Sheets as Other Current Assets,
Other Noncurrent Assets, Other Current Liabilities, or Other Long Term
Liabilities, as appropriate.

Interest Rate Fair Value Hedges  The Company enters into interest rate
swaps to convert some of its fixed-rate long term debt to floating-rate long
term debt. Hedged items in fair value hedges are marked to market with the
respective derivative instruments. Accordingly, the Companys hedged fixed-rate
debt is carried at fair value. The terms of the outstanding swap match those of
the associated debt which permits the assumption of no ineffectiveness, as
defined by Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities. As such, for
the life of the swap no ineffectiveness will be recognized.

Income Taxes The Company is required to make quarterly distributions to
its members, Duke Energy and Phillips, based on allocated taxable income. The
distributions are based on the highest taxable income allocated to either
member, with the other member receiving a proportionate amount to maintain the
ownership capital accounts at 69.7% for Duke Energy and 30.3% for Phillips.

New Accounting Standards The Company adopted SFAS No. 142, Goodwill and
Other Intangible Assets, on January 1, 2002. SFAS No. 142 requires that
goodwill no longer be amortized over an estimated useful life, as previously
required. Instead, goodwill amounts are subject to a fair-value-based annual
impairment assessment. The Company did not recognize any impairments due to the
implementation of SFAS No. 142. The standard also requires certain identifiable
intangible assets to be recognized separately and amortized as appropriate. No
adjustments to intangibles were identified by the Company at transition.

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The following table shows what net income (loss) would have been if amortization
related to goodwill that is no longer being amortized had been excluded from
prior periods.

|                           |                            |   |                |        |               |   |        |        |      |   |         |         |   |   |         |         | 
|-------------------------- | -------------------------- | - | -------------- | ------ | ------------- | - | ------ | ------ | ---- | - | ------- | ------- | - | - | ------- | ------- | 
|                           |                            |   | For the Three  |        | For the Nine 
|                           |                            |   | Months Ended   |        | Months Ended 
|                           |                            |   | September 30,  |        | September 30,
|                           |                            |   |                |        |              
|                           |                            |   | 2002           |        | 2001          |   | 2002   |        | 2001
|                           |                            |   |                |        |               |   |        |        |     
|                           |                            |   | (In Thousands)
|Reported net income (loss) |                            | $ | 12,040         |        |               | $ | 78,836 |        |      | $ | (26,304 | )       |   | $ | 336,856 |        
|Add: Goodwill amortization |                            |   |               |        |               |   | 5,624  |        |      |   |        |         |   |   | 16,258  |        
|                           |                            |   |                |        |               |   |        |        |      |   |         |         |   |   |         |        
|                           | Adjusted net income (loss) |   | $              | 12,040 |               |   | $      | 84,460 |      |   | $       | (26,304 | ) |   | $       | 353,114 | 
|                           |                            |   |                |        |               |   |        |        |      |   |         |         |   |   |         |        

The changes in the carrying amount of goodwill for the nine months ended
September 30, 2002 and September 30, 2001 are as follows:

Goodwill (In Thousands)

|                                                                         |                    |   |                   |         |          |   |       |   |                    |   |         |        |  |   |         |         | 
|------------------------------------------------------------------------ | ------------------ | - | ----------------- | ------- | -------- | - | ----- | - | ------------------ | - | ------- | ------ |  | - | ------- | ------- | 
|                                                                         |                    |   | Balance           |         | Acquired |   |       |   |                    |   | Balance
|                                                                         |                    |   | December 31, 2001 |         | Goodwill |   | Other |   | September 30, 2002
|                                                                         |                    |   |                   |         |          |   |       |   |                   
|Natural gas gathering, processing,
transportation, marketing and storage |                    | $ | 394,054           |         |          | $ |      |   |                    | $ | 188     |        |  | $ | 394,242 |        
|NGL fractionation, transportation,
marketing and trading                 |                    |   | 27,122            |         |          |   |      |   |                    |   | 13,418  |        |  |   | 40,540  |        
|                                                                         |                    |   |                   |         |          |   |       |   |                    |   |         |        |  |   |         |        
|                                                                         | Total consolidated |   | $                 | 421,176 |          |   | $     |  |                    |   | $       | 13,606 |  |   | $       | 434,782 | 
|                                                                         |                    |   |                   |         |          |   |       |   |                    |   |         |        |  |   |         |        

|                                                                         |                    |   |                   |         |          |   |        |        |                    |   |         |         |   |   |         |         | 
|------------------------------------------------------------------------ | ------------------ | - | ----------------- | ------- | -------- | - | ------ | ------ | ------------------ | - | ------- | ------- | - | - | ------- | ------- | 
|                                                                         |                    |   | Balance           |         | Acquired |   |        |        |                    |   | Balance
|                                                                         |                    |   | December 31, 2000 |         | Goodwill |   | Other  |        | September 30, 2001
|                                                                         |                    |   |                   |         |          |   |        |        |                   
|Natural gas gathering, processing,
transportation, marketing and storage |                    | $ | 376,195           |         |          | $ | 138    |        |                    | $ | (15,953 | )       |   | $ | 360,380 |        
|NGL fractionation, transportation,
marketing and trading                 |                    |   |                  |         |          |   | 18,836 |        |                    |   | (305    | )       |   |   | 18,531  |        
|                                                                         |                    |   |                   |         |          |   |        |        |                    |   |         |         |   |   |         |        
|                                                                         | Total consolidated |   | $                 | 376,195 |          |   | $      | 18,974 |                    |   | $       | (16,258 | ) |   | $       | 378,911 | 
|                                                                         |                    |   |                   |         |          |   |        |        |                    |   |         |         |   |   |         |        

The Company adopted SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, on January 1, 2002. The new rules supersede
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. The new rules retain many of the
fundamental recognition and measurement provisions of SFAS No. 121, but
significantly change the criteria for classifying an asset as held-for-sale.
Adoption of the new standard had no material effect on the Companys
consolidated results of operations or financial position.

In June 2002, the FASBs
EITF reached a partial consensus on Issue No. 02-03, Issues Involved in Accounting for
Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading
and Risk Management Activities. The EITF concluded that, effective for periods ending after July 15, 2002, mark-to-market gains
and losses on energy trading contracts (including those to be physically settled) must be shown
on a net basis in the Consolidated Statements of Income. The Company
had previously chosen to report certain of its energy trading contracts on a gross
basis, as sales in operating revenues and the associated costs recorded in operating expenses, in accordance with prevailing industry practice. The amounts
in the comparative interim Consolidated Statements of Operations have been reclassified to conform to the 2002 presentation. For the nine months ended September 30, 2002 and
2001, application of the new consensus reclassified operating revenues and cost of sales by $1.778 million and $1.253 million, respectively, with no impact on net income.

In October 2002, the EITF,
as part of their further deliberations on Issue No. 02-03, rescinded the consensus reached in Issue No. 98-10. As a result, all energy trading contracts that do not meet the definition of a derivative under SFAS No. 133 will be recorded at their
historical cost and reported on an accrual basis resulting in the
recognition of earnings or losses at the time of contract settlement
or termination. New non-derivative energy trading contracts entered
into after October 25, 2002 will be accounted
for under the accrual accounting basis. Non-derivative energy trading contracts on the Consolidated Balance Sheet as of January 1, 2003 that existed at October 25, 2002 will be removed with a cumulative effect adjustment.

In connection with the decision to rescind Issue No. 98-10, the EITF also
reached a consensus that, effective for periods beginning after December 15, 2002, all gains and losses on all derivative instruments held for trading purposes should be shown net in the income
statement as Trading and Marketing Net Margin (Loss). Gains and losses on non-derivative energy trading contracts should similarly be presented on a gross or net basis
in connection with the guidance in Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent.

The Company is currently assessing the provisions of Issue No. 02-03 and the rescission of Issue No. 98-10 but has not yet determined the impact
on the results of operations or financial position.

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In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 143, Accounting for Asset Retirement Obligations, which addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. The standard applies to legal obligations associated with the retirement
of long-lived assets that result from the acquisition, construction,
development and (or) normal use of the asset.

SFAS No. 143 requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred, if a
reasonable estimate of fair value can be made. The fair value of the liability
is added to the carrying amount of the associated asset. This additional
carrying amount is then depreciated over the life of the asset. The liability
is increased due to the passage of time based on the time value of money until
the obligation is settled.

We are required and plan to adopt the provisions of SFAS No. 143 as of
January 1, 2003. To accomplish this, the Company must identify any legal
obligations for asset retirement obligations, and determine the fair value of
these obligations on the date of adoption. The determination of fair value is
complex and requires gathering market information and developing cash flow
models. Additionally, the Company will be required to develop processes to
track and monitor these obligations. Because of the effort needed to comply
with the adoption of SFAS No. 143, the Company is currently assessing the new
standard but has not yet determined the impact on its consolidated results of
operations, cash flows or financial position.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which addresses accounting for
restructuring and similar costs. SFAS No. 146 supersedes previous accounting
guidance, principally EITF No. 94-3. The Company will adopt the provisions of
SFAS No. 146 for restructuring activities initiated after December 31, 2002.
SFAS No. 146 requires that the liability for costs associated with an exit or
disposal activity be recognized when the liability is incurred. Under EITF No.
94-3, a liability for an exit cost was recognized at the date of the Companys
commitment to an exit plan. SFAS No. 146 also establishes that the liability
should initially be measured and recorded at fair value. Accordingly, SFAS No.
146 may affect the timing of recognizing future restructuring costs as well as
the amounts recognized.

Reclassifications Certain prior period amounts have been reclassified
in the Consolidated Financial Statements to conform to the current
presentation.

3. Derivative Instruments, Hedging Activities and Credit Risk

Commodity price
risk The Companys principal operations of gathering,
processing, transportation and storage of natural gas, and the accompanying
operations of fractionation, transportation, trading and marketing of NGLs
create commodity price risk exposure due to market fluctuations in commodity
prices, primarily with respect to the prices of NGLs and natural gas. As an
owner and operator of natural gas processing and other midstream assets, the
Company has an inherent exposure to market variables and commodity price risk.
The amount and type of price risk is dependent on the underlying natural gas
contracts entered into purchase and process natural gas feedstock. Risk is also
dependent on the types and mechanisms for sales of natural gas and natural gas
liquid products produced, processed, transported or stored.

Energy trading
(market) risk Certain of the Companys subsidiaries are
engaged in the business of trading energy related products and services
including managing purchase and sales portfolios, storage contracts and
facilities, and transportation commitments for products. These energy trading
operations are exposed to market variables and commodity price risk with
respect to these products and services, and may enter into physical contracts

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and financial instruments with the objective of realizing a positive
margin from the purchase and sale of commodity-based instruments.

Corporate economic
risks The Company enters into debt arrangements that
are exposed to market risks related to changes in interest rates. The Company
periodically uses interest rate lock agreements and interest rate swaps to
hedge interest rate risk associated with new debt issuances. The Companys
primary goals include (1) maintaining an appropriate ratio of fixed-rate debt
to total debt for the Companys debt rating; (2) reducing volatility of
earnings resulting from interest rate fluctuations; and (3) locking in
attractive interest rates based on historical rates.

Counterparty risks The Company sells various commodities (i.e. natural
gas, NGLs and crude oil) to a variety of customers. The natural gas customers
include local utilities, industrial consumers, independent power producers and
merchant energy trading organizations. The NGL customers range from large,
multi-national petrochemical and refining companies to small regional retail
propane distributors. Substantially all of the Companys NGL sales are made at
market-based prices, including approximately 40% of NGL production that is
committed to Phillips and Chevron Phillips Chemical LLC, under a contract with
a primary term that expires on January 1, 2015. This concentration of credit
risk may affect the Companys overall credit risk in that these customers may
be similarly affected by changes in economic, regulatory or other factors. On
all transactions where the Company is exposed to credit risk, the Company
analyzes the counterparties financial condition prior to entering into an
agreement, establishes credit limits and monitors the appropriateness of these
limits on an ongoing basis. The corporate credit policy prescribes the use of
master collateral agreements to mitigate credit exposure. The collateral
agreements provide for a counterparty to post cash or letters of credit for
exposure in excess of the established threshold. The threshold amount
represents an open credit limit, determined in accordance with the corporate
credit policy. The collateral agreements also provide that the inability to
post collateral is sufficient cause to terminate a contract and liquidate all
positions.

Physical forward contracts and financial derivatives are generally cash
settled at the expiration of the contract term. However, financial derivatives
are generally subject to margin agreements with the majority of our
counterparties.

Commodity cash flow hedges The Company uses cash flow hedges, as
specifically defined by SFAS No. 133, to reduce the potential negative impact
that commodity price changes could have on the Companys earnings, and its
ability to adequately plan for cash needed for debt service, dividends, capital
expenditures and tax distributions. The Companys primary corporate hedging
goals include (1) maintaining minimum cash flows to fund debt service,
dividends, production replacement, maintenance capital projects and tax
distributions; (2) avoiding disruption of the Companys growth capital and
value creation process; and (3) retaining a high percentage of potential upside
relating to price increases of NGLs.

The Company uses natural gas, crude oil and NGL swaps and options to hedge
the impact of market fluctuations in the price of NGLs, natural gas and other
energy-related products. For the nine months ended September 30, 2002, the
Company recognized a net loss of $5.9 million, of which a $10.6 million loss
represented the total ineffectiveness of all cash flow hedges and an $7.0
million gain represented the total derivative settlements. The time value of
options, a recognized $2.3 million loss for the nine months ended September 30,
2002, was excluded in the assessment of hedge effectiveness. The time value of
options is included in Sales of Natural Gas and Petroleum Products in the
Consolidated Statements of Operations. No derivative gains or losses were
reclassified from OCI to current period earnings as a result of the
discontinuance of cash flow hedges related to certain forecasted transactions
that are not probable of occurring.

Gains and losses on derivative contracts that are reclassified from
accumulated OCI to current period earnings are included in the line item in
which the hedged item is recorded. As of September 30, 2002, $45.8 million of
deferred net losses on derivative instruments accumulated in OCI are expected
to be reclassified into earnings during the next 12 months as the hedge
transactions occur; however, due to the volatility of the commodities markets,
the corresponding value in OCI is subject to change prior to its
reclassification into earnings. The maximum term over which the Company is
hedging its exposure to the variability of future cash flows is three years.

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Commodity fair
value hedges The Company uses fair value hedges to hedge
exposure to changes in the fair value of an asset or a liability (or an
identified portion thereof) that is attributable to price risk. The Company may
hedge producer price locks (fixed price gas purchases) and market locks (fixed
price gas sales) to reduce the Companys exposure to fixed price risk via
swapping out the fixed price risk for a floating price position (New York
Mercantile Exchange or index based).

For the nine months ended September 30, 2002, the gains or losses
representing the ineffective portion of the Companys fair value hedges were
not material. All components of each derivatives gain or loss are included in
the assessment of hedge effectiveness, unless otherwise noted. The Company did
not have any firm commitments that no longer qualified as fair value hedge
items and therefore, did not recognize an associated gain or loss.

Interest rate fair
value hedge In October 2001, the Company entered into
an interest rate swap to convert the fixed interest rate of $250.0 million of
debt securities that were issued in August 2000 to floating rate debt. The
interest rate fair value hedge is at a floating rate based on a six-month
London Interbank Offered Rate (LIBOR), which is re-priced semiannually
through 2005. The swap meets conditions which permit the assumption of no
ineffectiveness, as defined by SFAS 133. As such, for the life of the swap no
ineffectiveness will be recognized. As of September 30, 2002, the fair value of
the interest rate swap of $12.0 million gain was included in the Consolidated
Balance Sheets as Unrealized Gains or Losses on Trading and Hedging
Transactions with an offset to the underlying debt included in Long Term Debt.

Commodity
Derivatives  Trading The trading of energy related products
and services exposes the Company to the fluctuations in the market values of
traded instruments. The Company manages its traded instrument portfolio with
strict policies which limit exposure to market risk and require daily reporting
to management of potential financial exposure. These policies include
statistical risk tolerance limits using historical price movements to calculate
a daily earnings at risk measurement.

4. Financing

Credit Facility with Financial Institutions On March 29, 2002, the
Company entered into a new credit facility which was recently amended (the New Facility). The New
Facility replaces the credit facility that matured on March 29, 2002. The New
Facility is used to support the Companys commercial paper program and for
working capital and other general corporate purposes. The New Facility matures
on March 28, 2003, however, any outstanding loans under the New Facility at
maturity may, at the Companys option, be converted to a one-year term loan.
The New Facility is a $650.0 million revolving credit facility, of which $150.0
million can be used for letters of credit. The New Facility, as
amended, requires the
Company to maintain at all times a debt to total capitalization ratio of less
than or equal to 53%. The Company entered into an amendment to the
New Facility on November 13, 2002. The New Facility bears interest at a rate equal to, at
the Companys option and based on the Companys current debt rating, either (1)
LIBOR plus 1.25% per year (as recently increased) or (2) the higher of (a) the Bank of America prime
rate and (b) the Federal Funds rate plus 0.50% per year. At September 30, 2002,
there were no borrowings against the New Facility.

On September 9, 2002 the Company redeemed $100.0 million of its preferred
members interest by paying cash to each member (Duke Energy and
Conoco Phillips) in
proportion to their ownership interests.

At September 30, 2002 the Company had a $30.0 million outstanding
Irrevocable Standby Letter of Credit expiring March 31, 2003.

At September 30, 2002 the Company was the guarantor of approximately
$103.8 million of debt associated with unconsolidated subsidiaries. Assets of
the unconsolidated subsidiaries are pledged as collateral for the debt.

5. Commitments and Contingent Liabilities

Litigation The midstream natural gas industry has seen a number of
lawsuits involving royalty disputes, mismeasurement, pricing and mispayment
allegations. Although the industry has seen these types of cases before, they
were typically brought by a single plaintiff or small group of plaintiffs. Some
of these cases are now being

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brought as class actions. The Company and its subsidiaries are currently
named as defendants in a number of these types of cases, including the
referenced class actions and other similar types of cases impacting the
midstream natural gas industry. Management believes the Company and its
subsidiaries have meritorious defenses to these cases, and therefore will
continue to defend them vigorously. However, these class actions can be costly
and time consuming to defend.

Management believes that the final disposition of these proceedings will
not have a material adverse effect on the consolidated results of operations or
financial position of the Company.

Environmental The Company received a Consolidated Compliance Order and
Notice of Potential Penalty from the Louisiana Department of Environmental
Quality (LDEQ) in the spring of 2001 enabling the Company to discharge
certain wastewater streams from its Minden Gas Processing Plant until the LDEQ
issued a new discharge permit. The Compliance Order authorized certain
discharges, and otherwise addressed various historic and recent deviations from
Clean Water Act regulatory requirements, including the lapse of the facilitys
discharge permit. The LDEQ issued a new discharge permit in the spring of 2002
and the Company completed operational improvements in the fall of 2002 that
resulted in the cessation of remaining point source discharges. In August 2002,
a penalty assessment was issued by the LDEQ in the amount of $155,383. The
Company paid the penalty and has notified the LDEQ that all items in the
Compliance Order have been completed.

6. Business Segments

The Company operates in two principal business segments as follows: (1)
natural gas gathering, processing, transportation, marketing and storage, and
(2) NGL fractionation, transportation, marketing and trading. These segments
are monitored separately by management for performance against its internal
forecast and are consistent with the Companys internal financial reporting.
These segments have been identified based on the differing products and
services, regulatory environment and the expertise required for these
operations. Margin, earnings before interest, taxes, depreciation and
amortization (EBITDA) and earnings before interest and taxes (EBIT) are the
performance measures used by management to monitor the business of each
segment. The accounting policies for the segments are the same as those
described in Note 2. Foreign operations are not material and are therefore not
separately identified.

The following table sets forth the Companys segment information.

|                    |                                                         |                          |   |                |           |               |   |           |           |      |   |           |           |  |   |           |           | 
|------------------- | ------------------------------------------------------- | ------------------------ | - | -------------- | --------- | ------------- | - | --------- | --------- | ---- | - | --------- | --------- |  | - | --------- | --------- | 
|                    |                                                         |                          |   | For the Three  |           | For the Nine 
|                    |                                                         |                          |   | Months Ended   |           | Months Ended 
|                    |                                                         |                          |   | September 30,  |           | September 30,
|                    |                                                         |                          |   |                |           |              
|                    |                                                         |                          |   | 2002           |           | 2001          |   | 2002      |           | 2001
|                    |                                                         |                          |   |                |           |               |   |           |           |     
|                    |                                                         |                          |   | (In Thousands)
|Operating revenues: |                                                         |                          |   |                |           |               |   |           |           |      |   |           |           |  |   |          
|                    | Natural gas, including trading and marketing net margin |                          | $ | 904,103        |           |               | $ | 1,436,211 |           |      | $ | 2,778,605 |           |  | $ | 5,580,958 |          
|                    | NGLs, including trading and marketing net margin        |                          |   | 326,454        |           |               |   | 388,153   |           |      |   | 985,014   |           |  |   | 1,714,629 |          
|                    | Intersegment (a)                                        |                          |   | (177,024       | )         |               |   | (401,226  | )         |      |   | (492,935  | )         |  |   | (951,512  | )        
|                    |                                                         |                          |   |                |           |               |   |           |           |      |   |           |           |  |   |          
|                    |                                                         | Total operating revenues |   | $              | 1,053,533 |               |   | $         | 1,423,138 |      |   | $         | 3,270,684 |  |   | $         | 6,344,075 | 
|                    |                                                         |                          |   |                |           |               |   |           |           |      |   |           |           |  |   |          
|Margin:             |                                                         |                          |   |                |           |               |   |           |           |      |   |           |           |  |   |          
|                    | Natural gas, including trading and marketing net margin |                          | $ | 253,695        |           |               | $ | 305,107   |           |      | $ | 714,076   |           |  | $ | 980,214   |          
|                    | NGLs, including trading and marketing net margin        |                          |   | 15,989         |           |               |   | 12,760    |           |      |   | 42,658    |           |  |   | 41,446    |          
|                    |                                                         |                          |   |                |           |               |   |           |           |      |   |           |           |  |   |          
|                    |                                                         | Total margin             |   | $              | 269,684   |               |   | $         | 317,867   |      |   | $         | 756,734   |  |   | $         | 1,021,660 | 
|                    |                                                         |                          |   |                |           |               |   |           |           |      |   |           |           |  |   |          

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|                                                 |             |                                                       |        |                |         |               |        |         |         |      |         |          |         |   |         |          |         | 
|------------------------------------------------ | ----------- | ----------------------------------------------------- | ------ | -------------- | ------- | ------------- | ------ | ------- | ------- | ---- | ------- | -------- | ------- | - | ------- | -------- | ------- | 
|                                                 |             |                                                       |        | For the Three  |         | For the Nine 
|                                                 |             |                                                       |        | Months Ended   |         | Months Ended 
|                                                 |             |                                                       |        | September 30,  |         | September 30,
|                                                 |             |                                                       |        |                |         |              
|                                                 |             |                                                       |        | 2002           |         | 2001          |        | 2002    |         | 2001
|                                                 |             |                                                       |        |                |         |               |        |         |         |     
|                                                 |             |                                                       |        | (In Thousands)
|Other operating costs:                           |             |                                                       |        |                |         |               |        |         |         |      |         |          |         |   |         |         
|                                                 | Natural gas |                                                       | $      | 109,905        |         |               | $      | 94,064  |         |      | $       | 329,890  |         |   | $       | 270,365  |        
|                                                 | NGLs        |                                                       |        | 2,945          |         |               |        | 2,464   |         |      |         | 7,727    |         |   |         | 4,711    |        
|                                                 | Corporate   |                                                       |        | 45,316         |         |               |        | 34,070  |         |      |         | 123,586  |         |   |         | 99,517   |        
|                                                 |             |                                                       |        |                |         |               |        |         |         |      |         |          |         |   |         |         
|                                                 |             | Total other operating costs                           |        | $              | 158,166 |               |        | $       | 130,598 |      |         | $        | 461,203 |   |         | $        | 374,593 | 
|                                                 |             |                                                       |        |                |         |               |        |         |         |      |         |          |         |   |         |         
|Equity in earnings of unconsolidated affiliates: |             |                                                       |        |                |         |               |        |         |         |      |         |          |         |   |         |         
|                                                 | Natural Gas |                                                       | $      | 12,004         |         |               | $      | 5,765   |         |      | $       | 24,523   |         |   | $       | 21,887   |        
|                                                 | NGLs        |                                                       |        | 562            |         |               |        | 779     |         |      |         | 1,949    |         |   |         | 737      |        
|                                                 |             |                                                       |        |                |         |               |        |         |         |      |         |          |         |   |         |         
|                                                 |             | Total equity in earnings of unconsolidated affiliates |        | $              | 12,566  |               |        | $       | 6,544   |      |         | $        | 26,472  |   |         | $        | 22,624  | 
|                                                 |             |                                                       |        |                |         |               |        |         |         |      |         |          |         |   |         |         
|EBITDA (b):                                      |             |                                                       |        |                |         |               |        |         |         |      |         |          |         |   |         |         
|                                                 | Natural gas |                                                       | $      | 155,794        |         |               | $      | 216,808 |         |      | $       | 408,709  |         |   | $       | 731,736  |        
|                                                 | NGLs        |                                                       |        | 13,606         |         |               |        | 11,075  |         |      |         | 36,880   |         |   |         | 37,472   |        
|                                                 | Corporate   |                                                       |        | (45,316        | )       |               |        | (34,070 | )       |      |         | (123,586 | )       |   |         | (99,517  | )      
|                                                 |             |                                                       |        |                |         |               |        |         |         |      |         |          |         |   |         |         
|                                                 |             | Total EBITDA                                          |        | $              | 124,084 |               |        | $       | 193,813 |      |         | $        | 322,003 |   |         | $        | 669,691 | 
|                                                 |             |                                                       |        |                |         |               |        |         |         |      |         |          |         |   |         |         
|Depreciation and amortization:                   |             |                                                       |        |                |         |               |        |         |         |      |         |          |         |   |         |         
|                                                 | Natural gas |                                                       | $      | 70,436         |         |               | $      | 69,056  |         |      | $       | 208,010  |         |   | $       | 197,265  |        
|                                                 | NGLs        |                                                       |        | 1,923          |         |               |        | 2,402   |         |      |         | 7,546    |         |   |         | 6,780    |        
|                                                 | Corporate   |                                                       |        | 975            |         |               |        | 1,139   |         |      |         | 2,823    |         |   |         | 3,269    |        
|                                                 |             |                                                       |        |                |         |               |        |         |         |      |         |          |         |   |         |         
|                                                 |             | Total depreciation and amortization                   |        | $              | 73,334  |               |        | $       | 72,597  |      |         | $        | 218,379 |   |         | $        | 207,314 | 
|                                                 |             |                                                       |        |                |         |               |        |         |         |      |         |          |         |   |         |         
|EBIT (b):                                        |             |                                                       |        |                |         |               |        |         |         |      |         |          |         |   |         |         
|                                                 | Natural gas |                                                       | $      | 85,358         |         |               | $      | 147,752 |         |      | $       | 200,699  |         |   | $       | 534,471  |        
|                                                 | NGLs        |                                                       |        | 11,683         |         |               |        | 8,673   |         |      |         | 29,334   |         |   |         | 30,692   |        
|                                                 | Corporate   |                                                       |        | (46,291        | )       |               |        | (35,209 | )       |      |         | (126,409 | )       |   |         | (102,786 | )      
|                                                 |             |                                                       |        |                |         |               |        |         |         |      |         |          |         |   |         |         
|                                                 |             | Total EBIT                                            |        | $              | 50,750  |               |        | $       | 121,216 |      |         | $        | 103,624 |   |         | $        | 462,377 | 
|                                                 |             |                                                       |        |                |         |               |        |         |         |      |         |          |         |   |         |         
|Corporate interest expense                       |             | $                                                     | 37,649 |                |         | $             | 42,455 |         |         | $    | 123,253 |          |         | $ | 124,847 |         
|                                                 |             |                                                       |        |                |         |               |        |         |         |      |         |          |         |   |         |         
|Income before income taxes:                      |             |                                                       |        |                |         |               |        |         |         |      |         |          |         |   |         |         
|                                                 | Natural gas |                                                       | $      | 85,358         |         |               | $      | 147,752 |         |      | $       | 200,699  |         |   | $       | 534,471  |        
|                                                 | NGLs        |                                                       |        | 11,683         |         |               |        | 8,673   |         |      |         | 29,334   |         |   |         | 30,692   |        
|                                                 | Corporate   |                                                       |        | (83,940        | )       |               |        | (77,664 | )       |      |         | (249,662 | )       |   |         | (227,633 | )      
|                                                 |             |                                                       |        |                |         |               |        |         |         |      |         |          |         |   |         |         
|                                                 |             | Total income before income taxes                      |        | $              | 13,101  |               |        | $       | 78,761  |      |         | $        | (19,629 | ) |         | $        | 337,530 | 
|                                                 |             |                                                       |        |                |         |               |        |         |         |      |         |          |         |   |         |         
|Capital expenditures:                            |             |                                                       |        |                |         |               |        |         |         |      |         |          |         |   |         |         
|                                                 | Natural gas |                                                       | $      | 67,997         |         |               | $      | 133,991 |         |      | $       | 218,613  |         |   | $       | 423,844  |        
|                                                 | NGLs        |                                                       |        | 1,271          |         |               |        |        |         |      |         | 8,167    |         |   |         | 7,584    |        
|                                                 | Corporate   |                                                       |        | 2,717          |         |               |        | 5,357   |         |      |         | 11,598   |         |   |         | 16,615   |        
|                                                 |             |                                                       |        |                |         |               |        |         |         |      |         |          |         |   |         |         
|                                                 |             | Total acquisitions and other capital expenditures     |        | $              | 71,985  |               |        | $       | 139,348 |      |         | $        | 238,378 |   |         | $        | 448,043 | 
|                                                 |             |                                                       |        |                |         |               |        |         |         |      |         |          |         |   |         |         

|              |               |              |   |                |           |              |   |           |           | 
|------------- | ------------- | ------------ | - | -------------- | --------- | ------------ | - | --------- | --------- | 
|              |               |              |   | As of         
|              |               |              |   |               
|              |               |              |   | September 30,  |           | December 31,
|              |               |              |   | 2002           |           | 2001        
|              |               |              |   |                |           |             
|              |               |              |   | (In Thousands)
|Total assets: |               |              |   |                |           |              |   |          
|              | Natural gas   |              | $ | 5,279,247      |           |              | $ | 5,326,889 |          
|              | NGLs          |              |   | 309,964        |           |              |   | 258,177   |          
|              | Corporate (c) |              |   | 975,584        |           |              |   | 1,045,143 |          
|              |               |              |   |                |           |              |   |          
|              |               | Total assets |   | $              | 6,564,795 |              |   | $         | 6,630,209 | 
|              |               |              |   |                |           |              |   |          

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|(a) |  | Intersegment sales represent sales of NGLs from the natural gas segment
to the NGLs segment at either index prices or weighted average prices of
NGLs. Both measures of intersegment sales are effectively based on current
economic market conditions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | EBITDA consists of income from continuing operations before interest
expense, income tax expense, and depreciation and amortization expense.
EBIT is EBITDA less depreciation and amortization. These measures are not
a measurement presented in accordance with generally accepted accounting
principles and should not be considered in isolation from or as a
substitute for net income or cash flow measures prepared in accordance
with generally accepted accounting principles or as a measure of the
Companys profitability or liquidity. The measures are included as a
supplemental disclosure because it may provide useful information
regarding the Companys ability to service debt and to fund capital
expenditures. However, not all EBITDA or EBIT may be available to service
debt.
|   
|(c) |  | Includes items such as unallocated working capital, affiliate related
accounts and other assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

7. Acquisition

On May 31, 2002, the Company acquired 33.33% of the outstanding membership
interests in Discovery Producer Services, LLC (DPS). The base purchase price
of $71.0 million was adjusted for working capital and certain capital
expenditures. This adjusted purchase price was then reduced by approximately
$84.6 million of DPS debt guaranteed by the Company, resulting in the Company
receiving cash of approximately $11.5 million on the closing date of the
transaction. This acquisition is accounted for under the equity method of
accounting. The pro forma impact of the acquisition on the Companys results of
operations was not material.

8. Accounting Adjustments

We have substantially completed a comprehensive account reconciliation
project to review and analyze our balance sheet accounts. This account
reconciliation project identified the following five categories where account
adjustments were necessary: operating expense accruals; gas inventory
adjustments; gas imbalances; joint venture and investment account
reconciliation; and other balance sheet accounts. As a result of this account
reconciliation project, the Company has recorded numerous adjustments in the
current year as discussed above under "Results of Operations". Total charges
recorded were approximately $65 million for the nine months ended September 30,
2002, of which management believes $44 million may be related to corrections of
accounting errors in prior periods. However, management has determined that the
charges related to error corrections are immaterial both individually and in the
aggregate on both a quantitative and qualitative basis and to the trends in the
financial statements for the periods presented, the prior periods affected and
are a fair presentation of the Company's financial statements. In addition,
approximately $16 million of the $44 million relates to numerous items
identified in the account reconciliation project resulting from system
conversions and otherwise unsupportable balance sheet amounts. Due to the nature
of these account reconciliation adjustments, it would be impractical to
determine what periods these adjustments relate to. Accordingly, the corrections
have been made in the current year's financial statements. Please also see Item
4. Controls and Procedures.

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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

The following discussion details the material factors that affected our
historical financial condition and results of operations during the three
months and nine months ended September 30, 2002 and 2001. This discussion
should be read in conjunction with the Consolidated Financial Statements and
related notes included elsewhere in this report.

Overview

We operate in the two principal business segments of the midstream natural
gas industry:



| |  |  | natural gas gathering, processing, transportation, marketing and
storage, from which we generate revenues primarily by providing
services such as compression, treating and gathering, processing,
local fractionation, transportation of residue gas, marketing and
storage;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | natural gas liquids (NGLs) fractionation, transportation, marketing
and trading, from which we generate revenues from transportation fees,
market center fractionation and the marketing and trading of NGLs.                                                              

Our limited liability company agreement limits the scope of our business
to the midstream natural gas industry in the United States and Canada, the
marketing of NGLs in Mexico and the transportation, marketing and storage of
other petroleum products, unless otherwise approved by our board of directors.
This limitation in scope is not currently expected to materially impact the
results of our operations.

Effects of Commodity Prices

The Company is exposed to commodity prices as a result of being paid for
certain services in the form of commodities rather than cash. For gathering
services, the Company receives fees from producers to bring natural gas from
the well head to the processing plant. For processing services, the Company
either receives fees or physical commodities as payment for these services,
depending on the type of contract. Under a percentage-of-proceeds contract
type, the Company is paid for its services by retaining a percentage of both
the NGLs produced and the residue gas resulting from processing the natural
gas. Under a keep-whole contract, the Company keeps all or a portion of the
NGLs produced, but returns the equivalent British thermal unit (Btu) content
of the gas back to the producer. Based on the Companys current contract mix,
the Company has a net long NGL position and is sensitive to changes in NGL
prices. The Company also has a net short residue gas position, however the
short residue gas position is less significant than the long NGL position.

During 2001 and the first three quarters of 2002, approximately 75% of our
gross margin was generated by commodity sensitive arrangements and
approximately 25% of our gross margin was generated by fee-based arrangements.
The commodity exposure is actively managed by the Company as discussed below.

The midstream natural gas industry has been cyclical, with the operating
results of companies in the industry significantly affected by the prevailing
price of NGLs, which in turn has been generally correlated to the price of
crude oil. Although the prevailing price of natural gas has less short term
significance to our operating results than the price of NGLs, in the long term
the growth of our business depends on natural gas prices being at levels
sufficient to provide incentives and capital for producers to increase natural
gas exploration and production. In the past, the prices of NGLs and natural gas
have been extremely volatile.

We generally expect NGL prices to follow changes in crude oil prices over
the long term, which we believe will in large part be determined by the level
of production from major crude oil exporting countries and the demand generated
by growth in the world economy. However, during the last two quarters of 2001
and first three quarters of

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2002, the relationship or correlation between crude oil value and NGL
prices declined significantly. During the second and third quarters of 2002,
NGL prices strengthened while the relationship between NGL prices and crude
remained weak.

We believe that future natural gas prices will be influenced by supply
deliverability, the severity of winter weather and the level of United States
economic growth. We believe that weather will be the strongest determinant of
near term natural gas prices. The price increases in crude oil, NGLs and
natural gas experienced during 2000 and the first two quarters of 2001 spurred
increased natural gas drilling activity. For example, the average number of
active drilling rigs in North America increased by approximately 19% from 1,263
in 2000 to 1,497 in 2001. The decline in commodity prices over the final two
quarters of 2001 and first quarter of 2002 negatively affected drilling activity
as the average number of active rigs in North America declined to 1,048 during
the second quarter of 2002. Active rigs increased to 1,110 as of September 30,
2002, as a result of higher pricing experienced in the third quarter. We expect
that pressure from lower commodity prices and market uncertainty on drilling
could negatively impact North American drilling activity in the short term. We
expect lower drilling levels over a sustained period will have a negative
effect on natural gas volumes gathered and processed.

To better address the risks associated with volatile commodity prices, the
Company employs a comprehensive commodity price risk management program. We
closely monitor the risks associated with these commodity price changes on our
future operations and, where appropriate, use various commodity instruments
such as natural gas, crude oil and NGL contracts to hedge the value of our
assets and operations from such price risks. See Item 3. Quantitative and
Qualitative Disclosures About Market Risk. Our third quarter 2002 and 2001
results of operations include hedging losses of $5.0 million and gains of $14.1
million, respectively. During the first nine months of 2002 and 2001 our
hedging activities resulted in losses of $5.9 million and $1.7 million,
respectively. The hedging losses incurred in the third quarter of 2002 relate
to hedges placed during periods of lower prices.

Results of Operations

|                                                                        |                                                 |                          |         |                     |           |                    |         |                |           |      |         |           |           |   |           |           |           | 
|----------------------------------------------------------------------- | ----------------------------------------------- | ------------------------ | ------- | ------------------- | --------- | ------------------ | ------- | -------------- | --------- | ---- | ------- | --------- | --------- | - | --------- | --------- | --------- | 
|                                                                        |                                                 |                          |         | Three Months Ended, |           | Nine Months Ended,
|                                                                        |                                                 |                          |         | September 30,       |           | September 30,     
|                                                                        |                                                 |                          |         |                     |           |                   
|                                                                        |                                                 |                          |         | 2002                |           | 2001               |         | 2002           |           | 2001
|                                                                        |                                                 |                          |         |                     |           |                    |         |                |           |     
|                                                                        |                                                 |                          |         |                     |           |                    |         | (In Thousands) |           |      |         |          
|Operating revenues:                                                     |                                                 |                          |         |                     |           |                    |         |                |           |      |         |           |           |   |           |          
|                                                                        | Sales of natural gas and petroleum products     |                          | $       | 974,552             |           |                    | $       | 1,331,522      |           |      | $       | 3,033,268 |           |   | $         | 6,110,057 |          
|                                                                        | Transportation, storage and processing          |                          |         | 71,338              |           |                    |         | 82,709         |           |      |         | 218,945   |           |   |           | 202,233   |          
|                                                                        | Trading and marketing net margin                |                          |         | 7,643               |           |                    |         | 8,907          |           |      |         | 18,471    |           |   |           | 31,785    |          
|                                                                        |                                                 |                          |         |                     |           |                    |         |                |           |      |         |           |           |   |           |          
|                                                                        |                                                 | Total operating revenues |         |                     | 1,053,533 |                    |         |                | 1,423,138 |      |         |           | 3,270,684 |   |           |           | 6,344,075 | 
|                                                                        | Purchases of natural gas and petroleum
products |                          |         | 783,849             |           |                    |         | 1,105,271      |           |      |         | 2,513,950 |           |   |           | 5,322,415 |          
|                                                                        |                                                 |                          |         |                     |           |                    |         |                |           |      |         |           |           |   |           |          
|Gross margin                                                            |                                                 |                          | 269,684 |                     |           |                    | 317,867 |                |           |      | 756,734 |           |           |   | 1,021,660 |          
|Equity earnings of unconsolidated affiliates                            |                                                 |                          | 12,566  |                     |           |                    | 6,544   |                |           |      | 26,472  |           |           |   | 22,624    |          
|                                                                        |                                                 |                          |         |                     |           |                    |         |                |           |      |         |           |           |   |           |          
|Total gross margin and equity earnings of
unconsolidated affiliates (1) |                                                 | $                        | 282,250 |                     |           | $                  | 324,411 |                |           | $    | 783,206 |           |           | $ | 1,044,284 |          
|                                                                        |                                                 |                          |         |                     |           |                    |         |                |           |      |         |           |           |   |           |          



---

|(1) |  | Gross margin and equity in earnings (Gross Margin) consists of income
from continuing operations before operating and general and administrative
expense, interest expense, income tax expense, and depreciation and
amortization expense plus equity earnings of unconsolidated affiliates.
Gross Margin as defined is not a measurement presented in accordance with
generally accepted accounting principles. You should not consider this
measure in isolation from or as a substitute for net income or cash flow
measures prepared in accordance with generally accepted accounting
principles or as an isolated measure of our profitability or liquidity.
Gross margin is included as a supplemental disclosure because it may
provide useful information regarding the impact of key drivers such as
commodity prices and supply contract mix on the Companys earnings.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Three months ended September 30, 2002 compared with three months ended September 30, 2001

Gross Margin.Total gross margin plus equity earnings of unconsolidated
affiliates (Total Gross Margin) decreased $42.1 million,
or 13% from $324.4 million in the third quarter of 2001 to $282.3 million in
the comparable period of 2002. This decrease was partly the result of hedging
losses of $5.0 million in the third quarter of 2002 compared to gains of $14.1
million in the same period 2001. Slightly higher natural gas prices also
contributed negatively by approximately $4.0 million due to a $.30 per million
British thermal unit (Btu) increase. Average prices for the three months
ended September 30, 2002 were $.39 per gallon for NGLs and $3.18 per million
Btus for natural gas, respectively, as compared with $.39 per gallon and $2.88
per million Btus during the same period 2001. Partially offsetting these
decreases were increases in NGL marketing activities of approximately $3.5
million and increases of $4.0 million from business growth associated with our
ownership of the General Partnership interest in TEPPCO Partners,
L.P. (TEPPCO).

Gross Margin was negatively impacted further in the third quarter by a
$13.0 million increase to the Companys gas imbalance reserve. This charge is
the result of the Companys completion of its analysis of gas imbalances with
suppliers and customers dating back to 1999 and was recorded to reflect
managements current best estimate of necessary reserves for uncollectible
imbalances, under- and unrecorded liabilities related to imbalances and
incorrectly valued imbalances. Of this amount, management believes that
approximately $11.0 million may relate to correction of accounting errors in prior
periods, however, because management determined that such amount is not
material to the Companys financial statements for the periods presented or
prior periods affected, the charge was taken in the current period.

Gross Margin was further reduced by $4 million of charges recorded in the
current period related to substantial completion of the Companys account reconciliations
described below under Item 4. Controls and Procedures. The $4 million net
adjustment relates to numerous items from prior periods identified in the
account reconciliations and resulted from system conversions or is related to
otherwise unsupportable balance sheet amounts. Due to the nature of these
account reconciliation adjustments, it would be impractical to determine what
periods these adjustments relate to. Moreover, because management determined that such
adjustments are not material to the Companys financial statements for the
periods presented or the prior periods affected, the charge was
recorded in the
current period.

Gross Margin associated with the natural gas gathering, processing,
transportation and storage segment decreased $45.2 million, or 15%, from $310.9
million in the third quarter of 2001 to $265.7 million for the same period in
2002. This decrease was mainly the result of hedging losses of $5.0 million in
the third quarter of 2002 compared to gains of $14.1 million during the same
period 2001. Commodity sensitive processing arrangements accounted for
approximately $4.0 million of the decrease due mainly to the $.30 per million
Btu increase in natural gas prices. This reduction was the result of the
interaction of commodity prices and our gas supply arrangements. Gross Margin
associated with this segment was also negatively affected by charges related to
substantial the additional reserves for gas imbalances with suppliers and customers, and
charges related to substantial completion of the Companys account
reconciliation project,
as noted above, partially offset by increases resulting from acquisition
activity and TEPPCO growth.

Gross Margin associated with the natural gas liquids fractionation,
transportation, marketing and trading segment increased $3.1 million, or 23%,
from $13.5 million in the third quarter of 2001 to $16.6 million in the third
quarter of 2002. This increase was primarily the result of higher margin from
NGL trading.

NGL production during the third quarter of 2002 decreased 17,700 barrels
per day, or 4%, from 412,800 barrels per day in the third quarter of 2001 to
395,100 barrels per day, and natural gas transported and/or processed in the
third quarter of 2002 decreased .4 trillion Btus per day, or 5%, from 8.8
trillion Btus per day in the third quarter of 2001 to 8.4 trillion Btus per
day. The primary cause of the decrease in NGL production and natural gas
transported and/or processed was the combination of decreased keep-whole
processing recoveries due to tightened processing margins in the third quarter
of 2002 and reduced volumes associated with reduced North American drilling
activity.

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Costs and Expenses.Operating and maintenance expenses increased $17.1
million, or 18%, from $97.3 million in the third quarter of 2001 to $114.4
million in the same period of 2002. This increase is primarily the result of
acquisitions of $5.2 million, $3.3 million for increases in our estimate for
unrecorded liabilities, and increased maintenance, equipment overhauls, cost of
labor and outside service, and pipeline integrity projects. General and
administrative expenses increased $12.0 million, or 36%, from $33.3 million in
the third quarter of 2001 to $45.3 million in the same period of 2002. The
primary cause of these increases were $3.9 million of costs for core
business process improvements, allocated costs from Duke Energy due to
increased service levels and expanded business activity resulting from
acquisitions, and outside services for legal, accounting, and information
technology projects.

Depreciation and amortization increased $6.3 million (excluding $5.6
million of goodwill amortization in 2001), or 9%, from $67.0 million in the
third quarter of 2001 to $73.3 million in the same period of 2002. This
increase was due primarily to acquisitions, ongoing capital expenditures for
well connections and facility maintenance and enhancements.

Other costs and expenses resulted in a gain of $1.5 million due mainly to
gains recognized on the sale of a West Texas pipeline system and an East Texas
joint venture.

Interest.Interest expense decreased $4.9 million, or 12%, from $42.5
million in the third quarter of 2001 to $37.6 million in the same period of
2002. This decrease was primarily the result of higher capitalized interest and
lower interest rates.

Income Taxes.The Company is structured as a limited liability company,
which is a pass-through entity for income tax purposes. Third quarter 2002
income tax expense of $1.1 million is mainly the result of other miscellaneous
taxes associated with tax-paying subsidiaries.

Net Income.Net income decreased $66.8 million from $78.8 million in the
third quarter of 2001 to $12.0 million in the third quarter of 2002. This was
partly the result of a $5.0 million hedging loss compared to a $14.1 million
gain during the same period of 2001, increases in operating and maintenance
expenses, and general and administrative expenses, partially offset by
acquisition activity, NGL trading and increased earnings from our ownership of
the General Partnership interest in TEPPCO. Net income was also negatively
affected by charges related to increased reserves for gas imbalances and
charges related to completion of the Companys account
reconciliation project
as noted above.

Nine months ended September 30, 2002 compared with nine months ended September 30, 2001

Total Gross Margin.Total Gross Margin decreased $261.1 million, or 25%,
from $1,044.3 million for the nine months ended September 30, 2001 to $783.2
million in the comparable period of 2002. This decrease was primarily the
result of lower NGL prices of approximately $255.0 million (net of hedging) due
to a $.13 per gallon decrease in average NGL prices, and approximately $9.0
million due to a $2.35 per barrel decrease in crude oil prices and volume
declines. These decreases were partially offset by approximately $57.0 million
due to a $1.91 per million Btu decrease in natural gas prices. Average prices
for the nine months ended September 30, 2002 were $.36 per gallon for NGLs and
$2.97 per million Btus for natural gas, respectively, as compared with $.49 per
gallon and $4.88 per million Btus during the same period in 2001. NGL trading
contributed another $4.8 million to the Gross Margin decrease.

Gross Margin was also negatively impacted in the nine months ended
September 30, 2002 by a $25 million provision recorded as a the result of the
Companys completion of its analysis of gas imbalances with suppliers and
customers dating back to 1999. This charge was recorded to reflect
managements current best estimate of necessary reserves for uncollectible
imbalances, under- and unrecorded liabilities related to imbalances and
incorrectly valued imbalances. Of this amount, management believes that
approximately $12 million may relate to corrections of accounting errors in prior
periods. Gross Margin was further reduced by the $16 million of charges
recorded in 2002

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related to substantial completion of the Companys account reconciliations described
below under Item 4. Controls and Procedures. The $16 million net adjustment
relates to numerous items identified in the account reconciliation project
resulting from system conversions and unsupportable balance sheet amounts. Due
to the nature of these account reconciliation adjustments, it would be
impractical to determine what periods these adjustments relate to. Because management has
determined that such amounts, in the aggregate, are not material to the
Companys financial statements for the periods presented or the prior periods
affected, the charges were recorded in the current period.

Partially offsetting these decreases were increases of $22.0 million
attributable to the combination of our acquisitions of Canadian Midstream,
northeast propane terminal and marketing assets, and additional interests in
three Offshore Gulf of Mexico partnerships.

Gross Margin associated with the natural gas gathering, processing,
transportation and storage segment decreased $263.5 million, or 26%, from
$1,002.1 million for the nine months ended September 30, 2001 to $738.6 million
for the same period in 2002, partly as the result of lower NGL prices.
Commodity sensitive processing arrangements accounted for approximately $207.0
million (net of hedging) of this decrease due mainly to the $.13 per gallon
decrease in average NGL prices, partially offset by a $1.91 per million Btu
decrease in natural gas prices. This reduction was the result of the
interaction of commodity prices and our gas supply arrangements. Gross Margin
associated with this segment was also negatively affected by charges related to
reserves for gas imbalances with suppliers and customers, the writedown of
storage inventory and charges related to completion of the Companys account
reconciliation clean up as noted above.

Gross Margin associated with the natural gas liquids fractionation,
transportation, marketing and trading segment increased $2.4 million, or 6%,
from $42.2 million in the nine months ended September 30, 2001 to $44.6 million in the same
period of 2002. The increase is mainly the result of increases due to the
acquisition of northeast propane terminal and marketing assets in 2001, offset
by lower NGL trading margins.

NGL production during the nine months ended September 30, 2002 decreased
4,900 barrels per day, or 1%, from 396,900 barrels per day in the same period
of 2001 to 392,000 barrels per day. Natural gas transported and/or
processed in the nine months ended September 30, 2002 decreased .1
trillion Btus per day for the same period in 2001 or 1%, from 8.5 trillion Btus per day to 8.4 trillion Btus per day. The primary cause of the decline
in NGL production was periodic reduction in keep-whole processing activity
during the second and third quarters of 2002 due to marginally economic
processing margins and reduced drilling activity, partially offset by
acquisitions and very poor processing and keep-whole margins in the first
quarter of 2001.

Costs and Expenses.Operating and maintenance expenses increased $55.2
million, or 20%, from $276.8 million for the nine months ended September 30,
2001 to $332.0 million in the same period of 2002. This increase is primarily
the result of acquisitions of $19.9 million, accrual increases of $13.3
million, and increased maintenance, equipment overhauls, cost of labor and
pipeline integrity projects. Included in the accrual increases of $13.3 million
is $10 million of corrections of accounting errors in prior periods, however,
because management determined that such amount is not material to the
Companys financial statements for the periods presented or the prior periods
affected, the charges were recorded in the current period. General and
administrative expenses increased $24.9 million, or 25%, from $98.7 million for
the nine months ended September 30, 2001 to $123.6 million in the same period
of 2002. The primary cause of these increases are $6.2 million of costs
for core business process improvements, allocated costs from Duke Energy due to
increased service levels, expanded business activity resulting from
acquisitions and outside services for legal, accounting and information
technology projects.

Depreciation and amortization increased $27.4 million (excluding $16.3
million of goodwill amortization in 2001), or 14%, from $191.0 million for the
nine months ended September 30, 2001 to $218.4 million in the same period of
2002. This increase was due primarily to acquisitions, ongoing capital
expenditures for well connections and facility maintenance and enhancements.

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Other costs and expenses increased $6.5 million from income of $.9 million
for the nine months ended September 30, 2001, to expense of $5.6 million in the same period in 2002. This
increase is mainly due to impairment of the Brigham partnership investment in
the first quarter of 2002. Of this amount, $5 million relates to correction of
accounting errors in prior periods, however, because management has determined
that such amounts are not material to the Companys financial statements for
the periods presented or the prior periods affected, the charges were taken in
the current period.

Interest.Interest expense decreased $1.5 million, or 1%, from $124.8
million for the nine months ended September 30, 2001 to $123.3 million in the
same period of 2002. This decrease was primarily the result of lower interest
rates and capitalized interest adjustments, partially offset by higher
outstanding debt levels.

Income Taxes.The Company is structured as a limited liability company,
which is a pass-through entity for income tax purposes. Income tax expense for
the nine months ended September 30, 2002 of $6.7 million is mainly the result
of other miscellaneous taxes associated with tax-paying subsidiaries.

Net Income (Loss).Net income (loss) decreased $363.2 million from $336.9
million for the nine months ended September 30, 2001 to a loss of $26.3 million
in the same period of 2002. This decrease was partly the result of decreased
NGL prices and increases in operating and maintenance, and general and
administrative expenses, slightly offset by lower natural gas prices and
acquisition activity. Net income was also negatively affected by charges
related to reserves for gas imbalances, storage inventory write-offs,
impairment of partnership investments, charges related to completion of the
Companys account reconciliation clean up and increases to our estimate of
unrecorded liabilities.

Liquidity and Capital Resources

Operating Cash Flows

During the first nine months of 2002, funds of $267.4 million were
provided by operating activities, a decrease of $71.0 million from the same
period of 2001. The decrease is due primarily to a $363.2 million decrease in
net income partially offset by changes in working capital balances and
unrealized mark-to-market and hedging activity. The decrease in net income is
due largely to lower NGL prices and increased operating and general and
administrative expenses.

Price volatility in crude oil, NGLs and natural gas prices have a direct
impact on our generation of cash from operations.

Investing Cash Flows

Our capital expenditures consist of expenditures for acquisitions and
construction of additional gathering systems, processing plants, fractionators
and other facilities and infrastructure in addition to well connections and
upgrades to our existing facilities. For the nine months ended September 30,
2002, we spent approximately $238.4 million on capital expenditures. These
capital expenditures were primarily for plant expansions, well connections and
plant upgrades.

Our level of capital expenditures for acquisitions and construction
depends on many factors, including industry conditions, the availability of
attractive acquisition opportunities and construction projects, the level of
commodity prices and competition. We expect to finance our capital expenditures
with our cash on hand, cash flow from operations and borrowings available under
our commercial paper program, our credit facilities or other available sources
of financing.

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Financing Cash Flows

In March 2002, we
entered into a $650.0 million credit facility which was recently
amended (the
Facility), of which $150.0 million can be used for letters of credit. The Facility is used to support our
commercial paper program and for working capital and other general corporate
purposes. The Facility matures on March 28, 2003, however, any outstanding
loans under the Facility at maturity may, at our option, be converted to a
one-year term loan. The Facility requires us to maintain at all times a debt to
total capitalization ratio of less than or equal to 53%.
The Company entered into an amendment to the Facility on November 13, 2002.
The Facility, as amended, bears interest at a rate equal to, at our option, either (1) the London Interbank
Offered Rate (LIBOR) 1.25% per year (as recently
increased) or (2) the higher of (a) the Bank of
America prime rate and (b) the Federal Funds rate plus 0.50% per year. At
September 30, 2002, there were no borrowings against the Facility.

On September 9, 2002 the Company redeemed $100.0 million of its preferred
members interest by paying cash to each member (Duke Energy and Phillips) in
proportion to their ownership interests.

At September 30, 2002 we had a $30.0 million outstanding Irrevocable
Standby Letter of Credit expiring March 31, 2003.

At September 30, 2002 we had $316.0 million in outstanding commercial
paper, with maturities ranging from one day to 51 days and annual interest
rates ranging from 2.03% to 2.20%. At no time did the amount of our outstanding
commercial paper exceed the available amount under the Facility. In the future,
our debt levels will vary depending on our liquidity needs, capital
expenditures and cash flow.

In April 2002 we filed a shelf registration statement increasing our
ability to issue securities to $500.0 million. The shelf registration statement
provides for the issuance of senior notes, subordinated notes and trust
preferred securities.

Based on current and anticipated levels of operations, we believe that our
cash on hand and cash flow from operations, combined with borrowings available
under the commercial paper program and the Facility, will be sufficient to
enable us to meet our current and anticipated cash operating requirements and
working capital needs for the next year. Actual capital requirements, however,
may change, particularly as a result of any acquisitions that we may make. Our
ability to meet current and anticipated operating requirements will depend on
our future performance.

Contractual Obligations and Commercial Commitments

As part of our normal business, we are a party to various financial
guarantees and other contractual commitments to extend guarantees of credit and
other assistance to various subsidiaries, investees and other third parties. To
varying degrees, these guarantees involve elements of performance and credit
risk, which are not included on the Consolidated Balance Sheets. The
possibility of us having to honor our contingencies is largely dependent upon
future operations of various subsidiaries, investees and other third parties,
or the occurrence of certain future events.

At September 30, 2002 we were the guarantors of approximately $103.8
million of debt associated with unconsolidated subsidiaries. Assets of the
unconsolidated subsidiaries are pledged as collateral for the debt.

Accounting Pronouncements

In June 2002, the FASB's EITF reached a partial consensus on Issue No. 02-03, "Issues Involved in
Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy
Trading and Risk Management Activities." The EITF concluded that, effective for periods ending after July 15, 2002, mark-to-market gains
and losses on energy trading contracts (including those to be physically settled) must be shown on a net basis in
the Consolidated Statements of Operations. The Company had previously chosen to report certain of its energy trading contracts
on a gross basis, as sales in operating revenues and the associated costs recorded in operating expenses,
in accordance with prevailing industry practice. The amounts in the comparative interim Consolidated Statements
of Operations have been reclassified to conform to the 2002 presentation. For the nine months ended
September 30, 2002 and 2001, application of the new consensus reclassified operating revenues and cost of
sales by $1,778 million and $1,253 million, respectively,
with no impact on net income.

In October 2002, the EITF, as part of their further deliberations on Issue No. 02-03,
rescinded the consensus reached in Issue No. 98-10. As a result,
all energy trading contracts that do not meet the definition of derivative under SFAS No. 133 will be
recorded at their historical cost and reported on an
accrual basis resulting in the recognition of earnings or losses at the time of contract settlement or termination.
New non-derivative energy trading contracts into after October 25, 2002 will be accounted for under the accrual accounting basis.
Non-derivative energy trading contracts on the Consolidated Balance Sheet as of January 1, 2003
that existed at October 25, 2002 will be removed with
a cumulative effect adjustment.

In connection with the decision to rescind Issue No. 98-10, the EITF also reached a consensus that,
effective for periods beginning after December 15, 2002, all  gains and
losses on all derivative instruments held for trading purposes should be shown net in the income statement as Trading and Marketing Net Margin (Loss). Gains
and losses on non-derivative energy trading contracts should similarly be presented on a gross or net basis in connection with the guidance in Issue No. 99-19. "Reporting Revenue
Gross as a Principal versus Net as an Agent."

The Company is currently assessing the provisions of Issue No. 02-03 and the rescission of Issue No. 98-10 but has not yet determined the impact on the results
of operations or financial position.

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In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 143, Accounting for Asset Retirement Obligations, which addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. The standard applies to legal obligations associated with the retirement
of long-lived assets that result from the acquisition, construction,
development and (or) normal use of the asset.

SFAS No. 143 requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in which it is incurred, if a
reasonable estimate of fair value can be made. The fair value of the liability
is added to the carrying amount of the associated asset. This additional
carrying amount is then depreciated over the life of the asset. The liability
is increased due to the passage of time based on the time value of money until
the obligation is settled.

We are required and plan to adopt the provisions of SFAS No. 143 as of
January 1, 2003. To accomplish this, we must identify any legal obligations for
asset retirement obligations, and determine the fair value of these obligations
on the date of adoption. The determination of fair value is complex and
requires gathering market information and developing cash flow models.
Additionally, we will be required to develop processes to track and monitor
these obligations. Because of the effort needed to comply with the adoption of
SFAS No. 143, we are currently assessing the new standard but have not yet
determined the impact on our consolidated results of operations, cash flows or
financial position.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which addresses accounting for
restructuring and similar costs. SFAS No. 146 supersedes previous accounting
guidance, principally EITF No. 94-3. The Company will adopt the provisions of
SFAS No. 146 for restructuring activities initiated after December 31, 2002.
SFAS No. 146 requires that the liability for costs associated with an exit or
disposal activity be recognized when the liability is incurred. Under EITF No.
94-3, a liability for an exit cost was recognized at the date of the Companys
commitment to an exit plan. SFAS No. 146 also establishes that the liability
should initially be measured and recorded at fair value. Accordingly, SFAS No.
146 may affect the timing of recognizing future restructuring costs as well as
the amounts recognized.




Item 3. Quantitative and Qualitative Disclosure about Market Risks

Risk and Accounting Policies

We are exposed to market risks associated with commodity prices, credit
exposure, interest rates and foreign currency exchange rates. Management has
established comprehensive risk management policies to monitor and manage these
market risks. Our Risk Management Committee (RMC) oversees risk exposure
including fluctuations in commodity prices. The RMC ensures that proper
policies and procedures are in place to adequately manage our commodity price
risks and is responsible for the overall management of commodity price and
other risk exposures.

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Mark-to-Market
Accounting (MTM accounting) Under the MTM accounting
method, an asset or liability is recognized at fair value and the change in the
fair value of that asset or liability is recognized in earnings during the
current period. This accounting method has been used by other industries for
many years, and in 1998 the Financial Accounting Standards Boards (FASB)
Emerging Issues Task Force (EITF) issued guidance 98-10 that required MTM
accounting for energy trading contracts. MTM accounting reports contracts at
their fair value, (the value a willing third party would pay for the
particular contract at the time a valuation is made). (See Note 2 to the
Consolidated Financial Statements for additional information.)

When available, quoted market prices are used to record a contracts fair
value. However, market values for energy trading contracts may not be readily
determinable because the duration of the contracts exceeds the liquid activity
in a particular market. If no active trading market exists for a commodity or
for a contracts duration, holders of these contracts must calculate fair value
using pricing models or matrix pricing based on contracts with similar terms
and risks. This is validated by an internal group independent of the Companys
trading area. Holders of thinly traded securities or investments (mutual funds,
for example) use similar techniques to price such holdings. Correlation and
volatility are two significant factors used in the computation of fair values.
We validate our internally developed fair values by comparing
locations/durations that are highly correlated, using forecasted market
intelligence and mathematical extrapolation techniques. While we use industry
best practices to develop our pricing models, changes in our pricing
methodologies or the underlying assumptions could result in significantly
different fair values, income recognition and realization in future periods.

Hedge Accounting Hedging typically refers to the mechanism that the
Company uses to mitigate the impact of volatility associated with price
fluctuations. Hedge accounting treatment is used when we contract to buy or
sell a commodity such as natural gas at a fixed price for future delivery
corresponding with the anticipated physical sale or purchase of natural gas
(cash flow hedge). In addition, hedge accounting treatment is used when the
Company holds firm commitments or asset positions, and enters into transactions
that hedge the risk that the price of natural gas may change between the
contracts inception and the physical delivery date of the commodity ultimately
affecting the underlying value of the firm commitment or position (fair value
hedge). While the majority of our hedging transactions are used to protect the
value of future cash flows related to our physical assets, to the extent the
hedge is effective, we recognize in earnings the value of the contract when the
commodity is purchased or sold, or the hedged transaction occurs or settles.

Commodity Price Risk

We are exposed to the impact of market fluctuations primarily in the price
of NGLs and natural gas that we own as a result of our processing activities.
We employ established policies and procedures to manage our risks associated
with these market fluctuations using various commodity derivatives, including
forward contracts, swaps and options for non-trading activity (primarily hedge
strategies). (See Notes 2 and 3 to the Consolidated Financial Statements.)

Commodity
Derivatives  Trading The risk in the commodity trading
portfolio is measured and monitored on a daily basis utilizing a Value-at-Risk
model to determine the potential one-day favorable or unfavorable Daily
Earnings at Risk (DER) as described below. DER is monitored daily in
comparison to established thresholds. Other measures are also used to limit and
monitor the risk in the commodity trading portfolio (which includes all trading
contracts not designated as hedge positions) on a monthly and annual basis.
These measures include limits on the nominal size of positions and periodic
loss limits.

DER computations are based on a historical simulation, which uses price
movements over a specified period (generally ranging from seven to 14 days) to
simulate forward price curves in the energy markets to estimate the potential
favorable or unfavorable impact of one days price movement on the existing
portfolio. The historical simulation emphasizes the most recent market
activity, which is considered the most relevant predictor of immediate future
market movements for crude oil, NGLs, gas and other energy-related products.
DER computations utilize

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several key assumptions, including 95% confidence level for the resultant
price movement and the holding period specified for the calculation. The
Companys DER amounts for commodity derivatives instruments held for trading
purposes are shown in the following table

Daily Earnings at Risk

|               |  |                    |     |                    |  |                    |     |                    |  |   |     |  |  |   |     | 
|-------------- |  | ------------------ | --- | ------------------ |  | ------------------ | --- | ------------------ |  | - | --- |  |  | - | --- | 
|               |  | Estimated Average  |     | Estimated Average  |  | High One-Day       |     | Low One-Day       
|               |  | One-Day Impact     |     | One-Day Impact     |  | Impact on EBIT     |     | Impact on EBIT    
|               |  | on EBIT for the    |     | on EBIT for the    |  | for the nine       |     | for the nine      
|               |  | nine months ended  |     | nine months ended  |  | months ended       |     | months ended      
|               |  | September 30, 2002 |     | September 30, 2001 |  | September 30, 2002 |     | September 30, 2002
|               |  |                    |     |                    |  |                    |     |                   
|               |  | (In millions)     
|Calculated DER |  | $                  | 2.3 |                    |  | $                  | 1.7 |                    |  | $ | 4.8 |  |  | $ | 1.1 | 

|               |  |                    |     |                    |  |                    |     |                    |  |   |     |  |  |   |     | 
|-------------- |  | ------------------ | --- | ------------------ |  | ------------------ | --- | ------------------ |  | - | --- |  |  | - | --- | 
|               |  | Estimated Average  |     | Estimated Average  |  | High One-Day       |     | Low One-Day       
|               |  | One-Day Impact     |     | One-Day Impact     |  | Impact on EBIT     |     | Impact on EBIT    
|               |  | on EBIT for the    |     | on EBIT for the    |  | for the three      |     | for the three     
|               |  | three months ended |     | three months ended |  | months ended       |     | months ended      
|               |  | September 30, 2002 |     | September 30, 2001 |  | September 30, 2002 |     | September 30, 2002
|               |  |                    |     |                    |  |                    |     |                   
|               |  | (In millions)     
|Calculated DER |  | $                  | 2.1 |                    |  | $                  | 2.3 |                    |  | $ | 3.4 |  |  | $ | 1.1 | 

DER is an estimate based on historical price volatility. Actual volatility
can exceed assumed results. DER also assumes a normal distribution of price
changes; thus, if the actual distribution is not normal, the DER may understate
or overstate actual results. DER is used to estimate the risk of the entire
portfolio, and for locations that do not have daily trading activity, it may
not accurately estimate risk due to limited price information. Stress tests may
be employed in addition to DER to measure risk where market data information is
limited. In the current DER methodology, options are modeled in a manner
equivalent to forward contracts which may understate the risk.

Our exposure to commodity price risk is influenced by a number of factors,
including contract size, length, market liquidity, location and unique or
specific contract terms. The following table illustrates the movements in the
fair value of our trading instruments during the nine months ending September
30, 2002.

Changes in Fair Value of Trading Contracts

|                                                                   |  |               |       |  
|------------------------------------------------------------------ |  | ------------- | ----- | -
|                                                                   |  | (In millions)
|Fair value of contracts outstanding at the beginning of the period |  | $             | 37.4  |  
|Contracts realized or otherwise settled during the period          |  |               | (64.7 | )
|Net mark-to-market changes in fair values                          |  |               | 18.3  |  
|                                                                   |  |               |       |  
|Fair value of contracts outstanding at the end of the period       |  | $             | (9.0  | )
|                                                                   |  |               |       |  

For the nine months ended September 30, 2002, the unrealized net loss
recognized in operating income was $46.4 million as compared to an unrealized
$32.7 million net gain for the same period in 2001. The fair value of these
contracts is expected to be realized in future periods, as detailed in the
following table. The amount of cash ultimately realized for these contracts
will differ from the amounts shown in the following table due to factors such
as market volatility, counterparty default and other unforeseen events that
could impact the amount and/or realization of these values.

When available, we use observable market prices for valuing our trading
instruments. When quoted market prices are not available, we use established
guidelines for the valuation of these contracts. We may use a variety of
reasonable methods to assist in determining the valuation of a trading
instrument, including analogy to reliable quotations of similar trading
instruments, pricing models, matrix pricing and other formula-based pricing
methods. These methodologies incorporate factors for which published market
data may be available. All valuation methods employed by us are approved by an
internal corporate risk management committee and are applied on a consistent basis.

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The following table shows the fair value of our trading portfolio as of
September 30, 2002.

|                                                                    |       |      |                                                  |      |             |      |             |            |          |                  |      |     |  |   |             |   |  |   |      |      |  
|------------------------------------------------------------------- | ----- | ---- | ------------------------------------------------ | ---- | ----------- | ---- | ----------- | ---------- | -------- | ---------------- | ---- | --- |  | - | ----------- | - |  | - | ---- | ---- | -
|                                                                    |       |      | Fair Value of Contracts as of September 30, 2002
|                                                                    |       |      |                                                 
|                                                                    |       |      |                                                  |      |             |      |             |            |          |                  |      |     |  |   | Maturity in |   |  |   |     
|                                                                    |       |      | Maturity in                                      |      | Maturity in |      | Maturity in |            | 2005 and |                  |      |     | 
|Sources of Fair Value                                               |       | 2002 |                                                  | 2003 |             | 2004 |             | Thereafter |          | Total Fair Value
|                                                                    |       |      |                                                  |      |             |      |             |            |          |                 
|                                                                    |       |      | (In millions)                                   
|Prices supported by quoted market prices
and other external sources |       | $    | 2.9                                              |      |             | $    | (7.0        | )          |          | $                | 1.3  |     |  | $ | 0.3         |   |  | $ | (2.5 | )   
|Prices based on models and other valuation
methods                  |       |      | (1.3                                             | )    |             |      | (4.3        | )          |          |                  | (0.6 | )   |  |   | (0.3        | ) |  |   | (6.5 | )   
|                                                                    |       |      |                                                  |      |             |      |             |            |          |                  |      |     |  |   |             |   |  |   |      |     
|                                                                    | Total |      | $                                                | 1.6  |             |      | $           | (11.3      | )        |                  | $    | 0.7 |  |   | $           |  |  |   | $    | (9.0 | )
|                                                                    |       |      |                                                  |      |             |      |             |            |          |                  |      |     |  |   |             |   |  |   |      |     

The prices supported by quoted market prices and other external sources
category includes Duke Energy Field Services New York Mercantile Exchange
(NYMEX) swap positions in natural gas and crude oil. The NYMEX has currently
quoted prices for the next 32 months. In addition, this category includes our
forward positions and options in natural gas and natural gas basis swaps at
points for which over-the-counter (OTC) broker quotes are available. On
average, OTC quotes for natural gas forwards and swaps extend 22 and 32 months
into the future, respectively. OTC quotes for natural gas options extend 12
months into the future, on average. We value these positions against internally
developed forward market price curves that are validated and recalibrated
against OTC broker quotes. This category also includes strip transactions
whose prices are obtained from external sources and then modeled to daily or
monthly prices as appropriate.

The prices based on models and other valuation methods category includes
(i) the value of options not quoted by an exchange or OTC broker, (ii) the
value of transactions for which an internally developed price curve was
constructed as a result of the long dated nature of the transaction or the
illiquidity of the market point, and (iii) the value of structured
transactions. It is important to understand that in certain instances
structured transactions can be decomposed and modeled by us as simple forwards
and options based on prices actively quoted. Although the valuation of the
simple structures might not be different from the valuation of contracts in
other categories, the effective model price for any given period is a
combination of prices from two or more different instruments and therefore have
been included in this category due to the complex nature of these transactions.

Hedging Strategies We are exposed to market fluctuations in the prices
of energy commodities related to natural gas gathering, processing and
marketing activities. We closely monitor the risks associated with these
commodity price changes on our future operations and, where appropriate, use
various commodity instruments such as natural gas, crude oil and NGL contracts
to hedge the value of our assets and operations from such price risks. In
accordance with SFAS No. 133, our primary use of commodity derivatives is to
hedge the output and production of assets we physically own. Contract terms are
up to three years, however, since these contracts are designated and qualify as
effective hedge positions of future cash flows, or fair values of assets owned
by us, to the extent that the hedge relationships are effective, their market
value change impacts are not recognized in current earnings. The unrealized
gains or losses on these contracts are deferred in OCI or included in Other
Current or Noncurrent Assets or Liabilities on the Consolidated Balance Sheets
for fair value hedges of firm commitments, in accordance with SFAS No. 133.
Amounts deferred in OCI are realized in earnings concurrently with the
transaction being hedged. However, in instances where the hedging contract no
longer qualifies for hedge accounting, amounts included in OCI through the date
of de-designation remain in OCI until the underlying transaction actually
occurs. The derivative contract (if continued as an open position) will be
marked to market currently through earnings. Several factors influence the
effectiveness of a hedge contract, including counterparty credit risk and using
contracts with different commodities or unmatched terms. Hedge effectiveness is
monitored regularly and measured each month.

The following table shows when gains and losses deferred on the
Consolidated Balance Sheets for derivative instruments qualifying as effective
hedges of firm commitments or anticipated future transactions will be
recognized into earnings. Contracts with terms extending several years are
generally valued using models and assumptions developed internally or by
industry standards. However, as mentioned previously, the effective portion

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of the gains and losses for these contracts are not recognized in earnings
until settlement at their then market price. Therefore, assumptions and
valuation techniques for these contracts have no impact on reported earnings
prior to settlement for the effective portion of these hedges.

The fair value of our qualifying hedge positions at a point in time is not
necessarily indicative of the value realized when such contracts settle.

|                                                     |       |      |                                         |       |             |      |             |            |          |       |            |     |  |   |             |     |  |   |       |       |  
|---------------------------------------------------- | ----- | ---- | --------------------------------------- | ----- | ----------- | ---- | ----------- | ---------- | -------- | ----- | ---------- | --- |  | - | ----------- | --- |  | - | ----- | ----- | -
|                                                     |       |      | Contract Value as of September 30, 2002
|                                                     |       |      |                                        
|                                                     |       |      |                                         |       |             |      |             |            |          |       |            |     |  |   | Maturity in |     |  |   |      
|                                                     |       |      | Maturity in                             |       | Maturity in |      | Maturity in |            | 2005 and |       | Total Fair
|Sources of Fair Value                                |       | 2002 |                                         | 2003  |             | 2004 |             | Thereafter |          | Value
|                                                     |       |      |                                         |       |             |      |             |            |          |      
|                                                     |       |      | (In millions)                          
|Quoted market prices                                 |       | $    | (21.2                                   | )     |             | $    | (28.9       | )          |          | $     | 2.2        |     |  | $ | 1.6         |     |  | $ | (46.3 | )    
|Prices based on models or other valuation techniques |       |      | (7.6                                    | )     |             |      |            |            |          |       |           |     |  |   |            |     |  |   | (7.6  | )    
|                                                     |       |      |                                         |       |             |      |             |            |          |       |            |     |  |   |             |     |  |   |       |      
|                                                     | Total |      | $                                       | (28.8 | )           |      | $           | (28.9      | )        |       | $          | 2.2 |  |   | $           | 1.6 |  |   | $     | (53.9 | )
|                                                     |       |      |                                         |       |             |      |             |            |          |       |            |     |  |   |             |     |  |   |       |      

Based upon our portfolio of supply contracts, without giving effect to
hedging activities that would reduce the impact of commodity price decreases, a
decrease of $.01 per gallon in the price of NGLs and $.10 per million Btus in
the average price of natural gas would result in changes in annual pre-tax net
income of approximately ($24.0) million and $4.0 million, respectively.

Credit Risk

We sell various commodities (i.e. natural gas, NGLs and crude oil) to a
variety of customers. Our natural gas customers include local utilities,
industrial consumers, independent power producers and merchant energy trading
organizations. Our NGL customers range from large, multi-national petrochemical
and refining companies to small regional retail propane distributors.
Substantially all of our NGL sales are made at market-based prices, including
approximately 40% of NGL production that is committed to Phillips and Chevron
Phillips Chemical LLC, under a contract with a primary term that expires on
January 1, 2015. This concentration of credit risk may affect our overall
credit risk in that these customers may be similarly affected by changes in
economic, regulatory or other factors. On all transactions where we are exposed
to credit risk, we analyze the counterparties financial condition prior to
entering into an agreement, establish credit limits and monitor the
appropriateness of these limits on an ongoing basis. The corporate credit
policy prescribes the use of master collateral agreements to mitigate credit
exposure. The collateral agreements provide for a counterparty to post cash or
letters of credit for exposure in excess of the established threshold. The
threshold amount represents an open credit limit, determined in accordance with
the corporate credit policy. The collateral agreements also provide that the
inability to post collateral is sufficient cause to terminate a contract and
liquidate all positions.

At September 30 2002, we held cash or letters of credit of $29.0 million
to secure future performance, and had no amounts deposited with counterparties.
Collateral amounts held or posted vary depending on the value of the underlying
contracts and cover trading and hedging contracts outstanding. We may be
required to return held collateral and post additional collateral should price
movements adversely impact the value of open contracts or positions.

Physical forward contracts and financial derivatives are generally cash
settled at the expiration of the contract term. However, financial derivatives
are generally subject to margin agreements with the majority of our
counterparties.

Interest Rate Risk

We enter into debt arrangements that are exposed to market risks related
to changes in interest rates. We periodically utilize interest rate lock
agreements and interest rate swaps to hedge interest rate risk associated with
new debt issuances. Our primary goals include (1) maintaining an appropriate
ratio of fixed-rate debt to total debt for the Companys debt rating; (2)
reducing volatility of earnings resulting from interest rate fluctuations; and
(3) locking in attractive interest rates based on historical averages. As of
September 30, 2002, the fair value of our interest rate swap was an asset of $12.0 million.

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As of September 30, 2002, we had approximately $316.0 million outstanding
under a commercial paper program. As a result, we are exposed to market risks
related to changes in interest rates. In the future, we intend to manage our
interest rate exposure using a mix of fixed and floating interest rate debt. An
increase of .5% in interest rates would result in an increase in annual
interest expense of approximately $2.8 million.

Foreign Currency Risk

Our primary foreign currency exchange rate exposure at September 30, 2002
was the Canadian dollar. Foreign currency risk associated with this exposure
was not material.




Item 4. Controls and Procedures

Within the 90 days prior to the date of this report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Financial Officer and
Chief Executive Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to Rule 13a-14 of the
Securities Exchange Act of 1934. Based upon that evaluation, the Chief Financial
Officer and Chief Executive Officer concluded that the Company's disclosure
controls and procedures are effective in timely alerting them to material
information relating to the Company required to be included in the Company's
periodic SEC reports.

As part of the audit for 2001, our external auditors identified certain
deficiencies in the design and operation of our internal control procedures that
were "reportable conditions" as defined by the AICPA. These conditions were
related to balance sheet reconciliation, supervisory review of such
reconciliation, analysis of balance sheet accounts, imbalances, joint venture
accounting, employee benefit accruals and revenue related functions.
Accordingly, the Company significantly improved its controls related to account
reconciliations, including supervisory review of such account reconciliations.
In addition, the Company developed and implemented an accounting policy related
to gas imbalances, and improved the process for monthly review and tracking of
gas imbalances. Many other control enhancements were made in 2002 related to
joint venture accounting, revenue accounting, NGL accounting, middle office
procedure and other areas.

We have also substantially completed a comprehensive account
reconciliation project to review and analyze our balance sheet accounts. The
account reconciliation project identified the following five categories where
account adjustments were necessary: operating expense accruals; gas inventory
adjustments: gas imbalances; joint venture and investment account
reconciliation; and other balance sheet accounts. As a result of this account
reconciliation project, the Company has recorded certain charges in the current
year as discussed above under "Results of Operations". Total charges recorded
were approximately $65 million for the nine months ended September 30, 2002, of
which management believes $44 million may be related to corrections of
accounting errors in prior periods. However, management has determined that the
charges related to error corrections are immaterial both individually and in the
aggregate on both a quantitative and qualitative basis and to the trends in the
financial statements for the periods presented, the prior periods affected and
are a fair presentation of the Company's financial statements. In addition,
approximately $16 million of the $44 million relates to numerous items
identified in the account reconciliation project resulting from system
conversions and otherwise unsupportable balance sheet amounts. Due to the nature
of these account reconciliation adjustments, it would be impractical to
determine what periods these adjustments relate to. Accordingly, the corrections
have been recorded in the current year's financial statements.

The Company believes it has strengthened its internal controls to
ensure the integrity of its financial statements. Internal control enhancements
will continue over the next several months, however, appropriate detective
controls are in place to prevent material misstatements of financial results and
financial position.

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PART II. OTHER INFORMATION




Item 1. Legal Proceedings

For information concerning litigation and other contingencies, see Part I.
Item 1, Note 5 to the Consolidated Financial Statements, Commitments and
Contingent Liabilities, of this report and Item 3, Legal Proceedings,
included in our Form 10-K for December 31, 2001, which are incorporated herein
by reference.

Management believes that the resolution of the matters referred to above
will not have a material adverse effect on the consolidated results of
operations or financial position of the Company.




Item 6. Exhibits and Reports on Form 8-K



|(a) |  | Exhibits                                                                                                                             
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Exhibit 99.1: Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|   
|    |  | Exhibit 99.2: Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|   
|(b) |  | Reports on Form 8-K                                                                                                                  
|   
|    |  | None.                                                                                                                                

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                  |  |  |  |  |  |                                                                                                                                                              
|----------------- |  |  |  |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|                  |  |  |  |  |  | DUKE ENERGY FIELD SERVICES, LLC                                                                                                                              
|                 
|November 14, 2002 |  |  |  |  |  |                                                                                                                                                              
|                 
|                  |  |  |  |  |  | /s/ Rose M. RobesonRose M. Robeson
Vice President and Chief Financial Officer
(On Behalf of the Registrant and as
Principal Financial and Accounting Officer)

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CERTIFICATIONS

I, Rose M. Robeson certify that:

1. I have reviewed this quarterly report on Form 10-Q of Duke Energy Field Services, LLC;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6. The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                        |  |  |  |                                                                              
|----------------------- |  |  |  | -----------------------------------------------------------------------------
|Date: November 14, 2002 |  |  |  |                                                                              
|                       
|                        |  |  |  | /s/ Rose M. RobesonRose M. Robeson
Vice President and Chief Financial Officer

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CERTIFICATIONS

I, Jim W. Mogg certify that:

1. I have reviewed this quarterly report on Form 10-Q of Duke Energy Field
Services, LLC;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4. The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and

c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;

5. The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrants ability to record, process,
summarize and report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6. The registrants other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                        |  |  |  |                                                                                        
|----------------------- |  |  |  | ---------------------------------------------------------------------------------------
|Date: November 14, 2002 |  |  |  |                                                                                        
|                       
|                        |  |  |  | /s/ Jim W. MoggJim W. Mogg
Chairman of the Board, President and
Chief Executive Officer

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EXHIBIT INDEX

|              |  |                                                                                                                         |  |  |  | 
|------------- |  | ----------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|EXHIBIT       |  |                                                                                                                         |  |  |  | 
|INDEX         |  | DESCRIPTION                                                                                                             |  |  |  | 
|              |  |                                                                                                                         |  |  |  | 
|Exhibit 99.1: |  | Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|              |  |                                                                                                                        
|Exhibit 99.2: |  | Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.