Q3 2020 Crestwood Equity Partners LP Earnings Call
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Good morning, and welcome to today's conference call as Crestwood equity partners provide third quarter 2020 financial and operating results.
Before we begin the call listeners are reminded that the company may make certain forward looking statements. That's fine and the Securities Exchange Act of 1934 that are based on assumptions and information currently available at the time of today's call. Please refer to the company's latest filings with the FCC first list of risk factors that may cause actual risk.
What's the difference.
Additionally, certain non-GAAP financial measures such as EBITDA, adjusted EBITDA and distributable distributable cash flow will be discussed reconciliations to the most comparable GAAP measures are included in the news release issued this morning joining.
Joining us today with prepared remarks are chairman, President and Chief Executive Officer, Bob Phillips, and Executive Vice President and Chief Financial Officer, Robert Halpin additional members of the senior management team will be available for the question and answer session with Crestwoods current analysts following prepared remarks as a reminder, all participants are in a.
Listen only mode. A brief question answer session will follow the formal presentation anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad at this time I would like to turn the call over to Bob Phillips.
Thanks, operator, good morning to everybody and thanks again.
All of you for joining us.
Want to start every meeting as we typically do hoping that everybody on the call your loved ones your family.
Our healthy and safe as we continue to navigate the pandemic and.
All of the issues at the country spacing right now.
I want to most importantly complement all the Crestwood employees that have continued to show dedication and resolve during the third quarter and during the pandemic. This has not been easy on any body, whether you work in the offices in Houston, Kansas City are out in the field.
Crossed the 38 states, where we operate.
Our folks are doing a tremendous job for crestwood and for our investors and I really appreciate that ill health and safety is always.
Our top priority at Crestwood, we want to protect our employees or contractors, our business partners. The people in our local communities. That's always been our number one priority and will continue to be.
Even during the pandemic now, let's turn to the quarter.
Another really strong quarter for Crestwood, we continue to knock them out quarter after quarter notwithstanding the challenges we face in the market. Most important milestone that we achieved in the third quarter is generating positive free cash flow after capital investments and distributions to both our.
Preferred in our common unitholders I.
I think the portfolio performed very well during the quarter exactly as it should.
Robert is going to give you more color around it but we built this portfolio to be diversified and to not only mitigate against the risk of commodity volatility, which we can't control, but also in many cases to take advantage of the opportunities that commodity volatility creates enormous.
Market. So Robert is going to give you more color around that.
We delivered adjusted EBITDA of $136 million this.
Distributable cash flow of 87 million a leverage ratio I'm really proud of 4.1 times and a coverage ratio I'm also proud of 1.9 times.
We kept the distribution flat because of that these results were up 5% over last year again, we'd beat consensus.
And we are well positioned to exceed the midpoint of our revised 2020 guidance range of 520 million to $570 million.
And that midpoint implies 3% to 6% annual growth over 2019.
When I think about that I'm really pleased with where the company is that we could actually grow the business. During the pandemic, we're all going to look back on this.
In the future and be proud of that all in all we think thats very good results from the Crestwood portfolio. Despite some obviously very large obstacles this year for the industry and the country.
Our year to date results I think also again demonstrate the diversity in the resilience of our asset base.
In the third quarter, we had significantly lower shut ins than we originally thought most.
Most importantly, we had new well activity in the Bakken in the Delaware.
And that speaks to the quality of the acreage and the quality of the producers that are dedicated to the crestwood portfolio.
We had record gas volumes on the arrow system gathering and processing volumes for natural gas hit a record level very very important.
Gives us a really strong outlook for the future up there on the arrow system.
And with strict pricing for natural gas at $3, an mcf in above we are beginning to actually see active drilling in the Barnett.
We've got a very positive outlook for the powder River basin.
As Chesapeake starts to bring production back on in the fourth quarter as they are now receiving higher gas prices.
And you know that they have been continuing through a bankruptcy process. So we're very pleased to see that that positive step in for Q4 2021, and we also experienced record transportation volumes across our stagecoach pipelines located up in the Marcellus sets the dry gas region in.
Northeast, Pennsylvania, we're really pleased with the job that the guys have done their producers continue.
Continue to view the Marcellus is very economic at higher gas prices and so we're seeing record volumes up there and I guess finally, our MSL team continues to capture margins in their business well in excess of our underwriting forecast for the newly acquired NGL assets that we bought from planes back in April of this year.
Importantly, we're also beginning to see a trend, which I've been waiting for for years seeing more demand around our 76 Bcf of gas storage in our 10 million barrels of NGL storage, and we think thats, leading to a long awaited margin improvement for storage as a business. All these things taken together.
Shows tremendous balance and stable cash flows.
For the Crestwood portfolio.
Now lets look forward.
When I look at the portfolio I see that 60% of our volumes are natural gas with about 20% Ngls and 20% crude so were obviously very well leverage to higher gas prices in 2021 and beyond our.
Our commercial teams are very active in all three downstream markets gas Ngls and crude they use our integrated system flows are very efficient plant recoveries, because our plants are all brand new to our market area storage. They combine it with our truck or rail in our pipe transportation in our extensive terms.
Well business and optimize and market around all of our assets benefiting from demand pull we know thats become a hot button topic with analyst.
And investors, we're seeing improving overall margins and higher throughput because of the job that our marketing teams in storage and transportation and marketing storage and logistics are doing around our assets. We're not just relying on producer drilling plans and our for field GMP services to drive our cash flow.
So thats another point that I think Robert is going to provide some color on.
On that front as you remember we spent a lot of expansion capital in 2017 through 2019 to build out excess capacity for our growth GNP assets.
To ensure that we can handle full inventory developed.
Our main producers at the price levels that we saw over 17, 18 and 19, obviously the market has changed a little bit.
But in our analysis at $40, a barrel enough and above we feel very comfortable with our current volume profile.
Over the next couple of years, we think that will continue to support Crestwoods free cash flow, our strong distribution coverage and our continued debt reduction.
And at $50 a barrel, it's just math really we can accelerate debt pay down and strengthen our balance sheet further create more financial flexibility.
Robert and will in the financing Corp, Dev team could use to take advantage of opportunities in the market.
Now speaking to GMP, while the pandemic has clearly pushed back the timing of some of that expected GNP growth I actually see a silver lining.
In that the good news is it extends our inventory runway pretty extensively.
And obviously, we don't have to spend much additional capital to generate the cash flow that we originally underwrote when we built those gathering systems and processing plants, and that's allowing our investors to benefit from stable distributions and lower debt and again more financial flexibility, we think that our portfolio.
Leo right now gives crestwood a lot of financial flexibility going into 2021, clearly there has been a consolidation phase in the upstream sector, we think thats coming in the midstream sector. We think our unit price will reflect over time the.
The ability to to generate more free cash flow pay down debt have financial flexibility to invest in other opportunities as we see them.
So now in our press release, we did provide a preliminary view to 2021, Robert is going to lay out a little bit more detail before I hand over the call to him I want to importantly address the current operating environment for our sector and where I think we see the industry headed.
Energy is clearly in a transition.
Notwithstanding how the election goes.
The industry could probably will continue to see continued pressure on social sentiment regulations permitted in cost.
And while those might have long term effects on our industry. It won't change the way we do business today the businesses that were in the value of our assets or the domestic oil and gas industries importance in bridging the United States to a low cost energy supply to meet the needs.
Of our consumers I.
I don't care, what politicians say or how much the regulatory environment changes this.
This is still a vital essential critical industry and we're proud to be a part of it.
Now undoubtedly investment in renewables will increase overtime, but they may still forecast that natural gas and crude oil will comprise over 50% of domestic energy demand through 2040 that gives us a long runway of about 20 years to continue to make money for our investors.
One of those changes are going to take place overnight.
And Crestwood does not shy away from the business, we're in or the value of services that we provide to our customers.
For the importance of the industry to the country.
Instead, the industry as the industry transitions to cleaner energy and a lower growth model for fossil fuels, we believe natural gas will play a prominent role.
In the midstream sector will continue to improve our sustainability initiatives can be an important part of the energy supply chain.
Since we became the first MLP in one of the first midstream companies to publish a sustainability report back in 2018, we've made a lot of progress and I'm pleased to say that we're working closely with the energy Infrastructural Council.
And industry leaders like Williams and other FC member companies to create a standardized reporting template.
For ESG for the midstream sector, we're not following DSG trends, we're actually setting them.
Yes woods right at the forefront of that move.
So in 2021, let me just close by saying, we will be starting our second decade as a company.
In the first 10 years, we've built an impressive portfolio of midstream assets, we built a strong operating platform Weve got some of the best people in the business some of the best young people in the business on the only got old guys still left in the company.
And we built importantly, we built essential credibility with our customers and our investors we are going to benefit from all that in our second decade, but more importantly, we want to be a leader in the industry any ESG, we want to lead the midstream and reduced emissions in the field, we want to be a leader in environmental stewardship.
And safety, we want to lead in promoting diversity and inclusion in the oil and gas industry.
And of course, we want to be a leader in financial and capital discipline.
All those things are our goals and objectives for the second decade of Crestwood equity partners, we're committed to be being a leading MLP.
And a best in class Midstream company, and we're going to do that through prudent management and a strong balance sheet, which will position us we hope to be a leader in sector consolidation.
Give us a chance to enhance our corporate governance model.
Allow our investors have Gregor voice and create more value for our unit holders and hopefully if we do that successfully through the industry leadership position, we will help attract much needed capital back to the sector to the midstream sector.
So I know Thats a lot, but we got a lot going on in the industry in the country right now and I hope our employees and our customers and our investors benefit from a little bit of forward thinking about the way, we think about things here at Crestwood and with that I'm happy to turn it over to Robert to discuss the third quarter results.
Thank you Bob.
During the third quarter, our diversified assets continued to perform in line with expectations generating adjusted EBITDA of $136 million and distributable cash flow of $87 million up 5% year over year.
As market conditions stabilized during the third quarter lower shut ins drove volumes higher and producers in the Bakken and Delaware Basin resumed new well completion activity.
Our financial and operational results for the quarter drove a leverage ratio of 4.1 times and a coverage ratio of approximately 1.9 times.
Based on these third quarter results, we announced a flat distribution quarter over quarter of 62, and a half cents per unit or $2.50 on an annualized basis, which is payable on November the 13th to all unit holders of record as of Friday November the sixth.
Now moving to our operating segments in our gathering and processing segment EBITDA totaled $108 million in the third quarter of 2020, an increase of 9% year over year.
In the Bakken, we had one rig in one completion crew operating on crestwoods footprint throughout the quarter and with that level of activity. We connected 15, new wells to the arrow system and drove new natural gas gathering and processing records across our asset.
We expect an additional 20, new wells to be completed to the arrow system during the fourth quarter.
Which when paired with the approximately 35 to 43 product and 20% to 25 water only drilled but uncompleted wells or ducs expected on the acreage at the end of the year, we will see incremental volumes heading into 2021.
In the Permian there are currently five rigs running on acreage dedicated to Crestwood and we expect an additional 15 to 20 wells to be connected in the fourth quarter and we're now forecasting new well activity in the Barnett shale in early 2021, driving a year over year cash flow growth on that asset.
Our storage and transportation segment EBITDA totaled $15 million for the third quarter of 2020 on average volumes of 2.2 billion cubic feet per day.
As natural gas prices have remained strong throughout 2020, we have seen producers shift capital investment back to the northeast, resulting an increased demand for storage and transportation assets in the area from the Marcellus producers as well as the northeast utilities.
Along the Gulf Coast, Crestwoods 32 Bcf of natural gas storage capacity is optimally located to support Gulf Coast LNG market power generation and the and the Mexican export markets.
In the Bakken the colt hub saw increased volumes over the second quarter of this year as a result of producers, bringing shut in production back online completion activity resuming in the basin and producers increasing utilization of crude by rail assets given the regulatory uncertainty around.
Around the Dakota access pipeline.
As we monitor the dapple legal process, the colt hub as a natural hedge and offers our aero customers flow assurance and our commercial team continues to identify new pipeline connections for alternative takeaway capacity.
Finally in the marketing supply and logistics segment EBITDA totaled $12 million in the third quarter of 2020 benefiting from the successful integration and continued optimization of the recently acquired NGL assets.
The new assets increased crestwoods market share by expanding its geographical footprint and providing incremental access to the Conway and Mont Belvieu market further diversifying the NGL marketing logistics platform.
As we move into the fourth quarter, Crestwood expects Dms and L. segment to benefit from our from strong seasonal spreads increased downstream market opportunities and further integration of these recently acquired assets.
Now moving to the balance sheet as of September Thirtyth, Crestwood had approximately $2.6 billion of long term debt outstanding, including just under $1.8 billion of fixed rate senior notes and $780 million of outstanding borrowings on our revolving credit facility.
At the end of the quarter, we had approximately $450 million of liquidity on a revolving credit facility and we have no debt maturities until 2023.
Based on current forecast, we now expect our year end 2020 leverage to be below 4.25 times, which was the lower end of our revised guidance range that we provided back in may of this year.
During the third quarter, we invested $11 million in growth capital and as a result of the significantly reduced capital investment during the quarter Crestwood generated meaningful free cash flow after distributions and including the proceeds from the sale of our Fayetteville gathering system in Arkansas Crestwood generated in excess.
The $50 million of available cash to continue to continue accelerating our debt reduction initiatives.
The divestiture of our Fayetteville asset furthered our strategy of divesting non core assets to strengthen our balance sheet and to enhance our liquidity.
During the quarter Crestwood used a portion of its free cash flow to opportunistically repurchase a portion of our outstanding 2023 senior notes at a discount to par.
Our number one priority will continue to be on strengthening our balance sheet and driving leverage at or below our 4.0 times target over the next 12 to 18 months, we remain focused on liquidity and continuously evaluate opportunities to optimize our capital structure.
Before moving onto the queue in a section I wanted to provide some preliminary color on what we expect heading into 2021.
Based on current conversations with customers, we expect our 2021 guidance range to be similar to 2020 as a result of ongoing activity in the Bakken and Delaware basins incremental well connects and year over year cash flow growth in the Barnett shale and strong demand for our natural gas crude oil.
And NGL storage asset base.
Benefiting from our previous three years of capital investment and based on current customer activity forecast, we expect growth capital will be less than $40 million and maintenance capital to be $20 million or less than 2021.
With the resiliency in our portfolio driving relatively flat year over year cash flow and the significant reduction in year over year capital expenditures, we expect to generate meaningful free cash flow after distributions in 2021, which we will continue to allocate towards accelerating Deborah just debt reduction to achieve our long term target.
We will continue to work closely with our producers in the coming months to finalize our 2021 planned and will provide our full outlook and guidance for 2021 during our fourth quarter call in February.
I'm very pleased with the work the Crestwood has done so far through the challenges presented in 2020.
The resiliency of our portfolio has allowed us to achieve a key milestone of generating positive free cash flow. After distributions this quarter and we expect full year 2020 results to exceed the midpoint of the revised guidance that we provided earlier this year.
Yes words diversified diversified portfolio has been an advantage during this year of volatility and we continue to take steps to strengthen the balance sheet.
While our sector is in the midst of a transition we continue to see signs of improving fundamentals across the industry and our business, specifically, which will position us to continue executing on our strategy to build further strength across the company heading into 2021.
At this time, operator, we're ready to open the lineup for questions.
Thank you we will now be conducting a question and answer session. He would like to ask a question. Please press star one on your telephone keypad.
The confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question for next year for participants using speaker equipment and may be necessary to pick up your handset before pressing the star teams. One moment. Please while we poll for your questions.
Our first question comes from the line of shiny Erika Shomi with US. Please proceed with your questions.
Hi, good morning, everyone. Good to see that everyone is well.
Maybe we can start off on the production side, a little bit here I was wondering if you can expand on the strong backing volumes.
What's driving it is it higher geos bars or is it really just returned shut ins and it covered hadn't happened this way because the results that you would be seeing and maybe as part of that question. If you can talk about the recent loaders and it will also will that impact cross fluid is there a risk to loss activity on your acreage is resolved.
Or potentially more.
That's a.
Thats double barrel question there.
But I got an expert on producer relations too.
Handles all of our gathering and processing business and.
And and knows a lot of people in lot of these companies. So he gets the benefit of knowing how producers are improving their drilling and completion techniques how producers have.
Work their way through shut ins, bringing wells back on the challenges faced with downhole pumps with the cost of of reworking wells and Hal producers.
From the Bakken to the Delaware are looking at the world going forward with the inventory position they have and how they're moving towards economical development of these plays and as I mentioned earlier in my opening comments, we're very lucky and always have been.
Acreage dedicated to our core assets.
Bakken powder, and Delaware is L. Primo acreage right in the heart or the core of the play.
And is acreage that works at low breakeven points.
Lets you know we've kind of always misuse that breakeven economics term in our industry. That's the point at which you could drill if you wanted to were well above that in the areas that we operate so delco of Deca is our senior vice president of gathering and processing and he runs are really good program. He's got great team.
As in all these basins, we are well connected with our producers we talk to them.
On a daily weekly basis, we've come a long way from the old days, where you didnt get good.
Visibility into the producers drilling programs until the end of the year and they had to go to the board and they changed their mind five times and then the price changed at the end of the year and then you got to recalculate. All your volumes. We have an impressive team that manages all of our type curve analysis, we understand geo or in W.R.
In every basin that we operate in so the Opco why don't you just give them a sense for the Bakken in the Delaware primarily.
What our producers are thinking obviously weve had too big.
Combinations in both basins with WPS go into Devin that's really important to us we love that deal because we have strong relationships with both of the senior management teams, we know them well and so thats a great combination makes our best producer even stronger financially and then in the in the Delaware.
Concho in Conoco again, two companies, we have great relationships with we got big dedications from both of them and so we see that as a win win as well once you talk about the Bakken in the Delaware from an economic standpoint from a producibility and how we're seeing impressive improvements in productivity.
Downhole, not just in drilling and completion, but in in production performance as well. Thank you Bob I appreciate that handoff personal Bakken running things, we didn't highlight despite not being a daily record for water our water volumes quarter over all quarters that we've had in the past have increased by over 20%. So we broke quarterly records on water.
By 20% and that along with the gas records that we broke our attributable to our capital program that we put in place years ago, working with our customers extremely closely.
Yes, she is a big big ticket item for our customers as it is a big ticket item for ourselves. So we work hand in hand to ensure that we capture as much of the product as we can into the pipeline.
And some of the things that they're doing that absolutely impressed that the cluster spacing is right on the money that enhancing you art enhance productivity.
ASP utilization and just keeping.
Amazing announced production coming out of these wells from IP perspective, they are just absolutely.
Doug.
Tough first quarter up well across the basin and that's extremely impressive and they're getting the cost down to.
Completions from Frac stage perspective, they're doing five more stages and what they did prior decoded prior to the end.
And thats sort of incremental improvement from a learning curve perspective, we don't see very often.
Their costs are going down.
They're doing things such as three mile laterals, we're seeing that in the Bakken, we're saying that become a standard in the Permian again that drive our costs down even further and increasing the productivity of their wells.
Well quite impressed with our producers doing coming down to the Permian.
The combination of Concho and Conoco as outstanding both of them are very good customers of ours.
We've got great relationships with both of those companies.
Conoco as you know is also in the Bakken.
So there are things that we're trying to deal with those guys to extend our relationship. So that's a combination that were excited to see it just makes a stronger customer portfolio for us moving forward and again productivity in the Permian well results are outstanding there, they're able to better understand a delineation of the acreage we've got over 50 ducs in the Permian.
No we didnt mention that in our earnings script.
You've got a lot of inventory that is cheap and will come on line in 2021 and beyond conditions activity ongoing out there. So we.
We look at both the faces very positively not just now but also in 2021.
Some line as it doesn't take as many wells to hold volumes flat to up that's right. It's just math.
Okay.
Yeah, I know that that that definitely definitely worked especially the last comments as well since you enjoy double barreled questions on another one for you.
Your your costs are down the circa eight 9% when I sort of look at Q3. This year versus Q3 last year are there any opportunities to take it down a little bit further I want to take away from the fact that they've been very small so far but is there anything else that you're looking at and then secondly, just a housekeeping question.
If you could walk us through the add backs in calculating our leverage ratio.
Yes, I'll hit the cost side, and then let let Steven Daugherty, our Chief Accounting Officer helpless.
Some of the cost commentary as well as the leverage profile. So I think when you look at our costs year over year on year as we've talked about EMEA, we've executed on a number of initiatives to reduce costs costs across the company and I think that the primary focus was obviously centered around driving a fixed cost base that was appropriate and sustainable in the revised.
Outlook that we have for our business going forward and I think we're proud to say we've captured the vast majority of that and don't see any material opportunities going forward, nor do we see any.
Need for escalation going forward as our business continues to rebound an improving commodity price environment. So I think we feel good about what we've executed on the fixed cost side, obviously variable operating expenses will fluctuate with volume metric output across our asset, but we think what we've achieved quarter over quarter and year over year from the cost perspective is it's.
At a baseline of where we see the business heading going forward.
Steven you want to talk through kind of some of the the leverage add backs and accounting standpoint, yes. So.
Leverage ratios relatively simple you take the adjusted EBITDA that we report are you actually have to take it down at the fee MLP level, which is actually which we show in the earnings release and.
And then you add back some adjustments associated with the Jackup acquisition in second quarter 2019, along with.
The.
The acquisition of our NGL assets from planes here in early 2020 are you also need to add back the deferred revenue adjustment that we have in the distributable cash flow rate associated with it as well you add those back and that should get you pretty close to the 4.1 times ratio that we disclosed.
And so the improved leverage this year versus.
Versus next year is that a function just of free cash flow generation, just because like you are kind of in a flattish EBITDA range year on year. That's that's right I think it's a simple clear as cash flow stays relatively flat from an EBITDA basis year over year and capital steps down by over $100 million year over year, if that all goes straight to break.
Cash flow and 100% of that allocated to debt reduction.
Okay Alright. Thank you very much guys great to hear from you all that everyone sales.
Thanks Schneur.
Thank you. Our next question is come from the line of Elvira our virus cabin with RBC capital markets. Please proceed with your question.
Hey, good morning, everyone.
To provide a little more detail around your Fayetteville asset sales what was the Genesis and the buyer continue and then as a follow.
Follow on there you mentioned the potential for additional non core asset sales.
Where are you in that process and then given whats happening with natural gas prices keep considered barnett core or non core.
Good morning Elvira.
Two great questions.
It makes me remember the the beginning of the company I bought Barnett burst.
In October of 2010, so we're celebrating our 10 year anniversary this month and I bought Fayetteville second and early spring of 2011, when the price of natural gas was $5.50 an mcf. So it was a totally different market those were both gas plays.
The Barnett has been incredibly resilient it was drilled largely in OWS 789, so it had to hit its hyperbolic curve.
Earlier, Fayetteville came a little bit lighter the Barnett, we still consider to be a core asset because it was the beginning of the company. It's a large AG.
Asset it's a it's a critical asset to the producers up there. We think we do a great job of operating our people do a great job of operating efficiently at very low cost and as we mentioned in the call.
Due to higher gas prices $3 plus on the forward strip, we're starting to see.
Starting to see some new well activity and I want to let go of acre talk about that in a second on the Fayetteville that was an easy decision.
That was the second asset that I bought back in 11, yet had continued to.
To decline year over year, no new drilling.
Frankly, the producers had not invested as much to keep the production up when gas prices got hit earlier in the year due to the pandemic. We had a lot of shut ins maybe the wells didn't come back quite as much as we thought they would and then on top of that.
There was a change in the downstream markets that was going to require us as the gas gatherer to build a pretty expensive additional interconnect to a new downstream pipeline market and we just did not feel like spending that capital on that asset given the decline profile in a PD.
The top environment, we sold it back to the producer he made US a fair offer was very very of grimly deal and I.
I think in any situation, we didnt really consider it to be non core. It's just we didn't want to spend the capital to tied into it to a new market. So that was a fairly easy when it didnt have any real growth potential left was on maybe a decline that surprised us a little bit after the shut ins. So we felt like.
That was a good economic deal for the company Bianca lets talk about the the Barnett and why that's an important asset to US yes. Thank you Bob in the Barnett has been recent publications that were just recently published.
So I like our linked bonds in area breaking even in a low too.
So thats.
All of our assets have significant spare capacity due to historical production levels and easy runway at low capital cost.
Setting up a meter run.
To bring on additional volumes and production and one of our private equity producers has great inventory over there and.
Already contracted for floater rigs buggery 50, none of them are first and we should see wells come online early in 2021.
It's a great asset for us and we're really excited a lot activity actually going on right now with all our producers on Workovers for for the old older Wells that.
In a low price environment and see that laws are going to see it right. Now we reported 2020 ones that can capture higher prices, our gas prices thats driving a lot of activity Mark Mitchell you manage the northeast PA force in the dry gas play and you saw record volumes across stagecoach assets give us a sense for what the producers are doing up there.
Yes.
We have continually commented earlier.
Northeast, Pennsylvania is the premier dry gas basin in North America.
And just given the current environment, we've seen with commodity prices associated gas.
In Q3, we saw record volumes come into our system up in northeast PA as volumes have increased year on year in northeast PA. So we get a fair share of those volumes our system runs north south right across the core the northeast Marcellus and so we've been benefiting from that and we are seeing our producers now.
Man and reaffirmed their commitments and actually increased their commitments to the system, which bodes well for that asset continuing to be just a steady consistent contributor to Crestwood, yes.
Great.
Okay Elvira.
Great and just as a follow up on that.
Marcellus region in stage Cogen plant, I think Crestwood and talk about.
Moieties to being a growth area for Crestwood ladies.
Thanks for telling us as a growth area.
Yes.
The environment have been nor in the northeast.
Infrastructure development has been challenged.
But we do see the.
The business continuing to to be stable and there are prospects for growth and a tighter gas market, which we do see coming.
Here for the upcoming winter and and in 2021. So we think they're ours. So there is some good potential for growth of that business going forward.
Thanks, and then just my last question.
You mentioned the flexibility that strong balance sheet.
Bye.
That it can helping take advantage of potential opportunities had.
How do you see midstream and in all playing now or in the next couple of years, and where well crestwoods fit in that trend.
Yes, I think Elvira I think we as a company and management team believe that what we're seeing in the upstream side now from a consolidation standpoint.
It does make sense in the midstream sector over time going forward.
You look at the asset bases that are out there. The company is in positions that are out there.
Do you think the industry gets healthier through consolidation and through Rightsizing capital structures and cost structures.
Over a longer prolonged period of consolidation I think from Crestwoods perspective, our focus is on building the strongest balance sheet. We can most flexible company from a financial positioning standpoint, and we believe that plays well into a consolidating market really on both sides of the trade and I think thats.
Our general objective through our free cash flow generation and prioritization is debt pay down is to build in that incremental flexibility to take advantage of of that market set of opportunities that may or may not materialize over the coming years.
Thank you very much.
Thank you. Our next question is coming from the line of Tristan Richardson with true at Securities. Please proceed with your questions.
Hi, Good morning, Thank you for all the commentary, especially on from 2021, we appreciate build up in spite of all that.
Certainty.
Bobby mentioned in his prepared comments crest.
Crestwood plans to enhance governance model to remain a leader in DSG and in the midstream space and allow investors a greater voice.
Can you talk about what sort of actions you are contemplating to achieve this.
I can and a new one I put that comment in there that would probably draw a question actually expected generic to give me that question as opposed to you, but I am happy that that at least one of you.
We are a traditional MLP and we're proud of it.
You guys have heard me.
Say this.
Over the years.
At Crestwood.
Ran an MLP at enterprise rent, an MLP at El Paso, I'm very comfortable in the MLP model, it's not for everybody and not every business fits the MLP model very well, we all know that we're in a transition period in energy in general and.
And.
In the life of of.
Corporations in publicly traded partnerships and we're all going to be held to a higher standard going forward.
And that standard is going to be based on transparency and trust.
We hired a young Lady three years ago to come in and build our SG program from scratch Joann Howard is considered to be a leader in the industry.
NSG and she has built an impressive SG platform for us.
And one of the essential components of that is good governance and good governance requires transparency.
I would say that we are one of if not the most transparent management teams out there in the midstream business, we give more information probably than we should more than we have to but.
But we're happy to do it because our investors appreciate it.
We still have a traditional GP.
Ownership structure. My partner is first reserve they have been since the beginning and they've been a great partner for the last 10 years.
Everybody knows how the traditional MLP structure works.
We continue to look for opportunities as both the management team and.
Anna as a controlling sponsor.
To continue to build value and Crestwood the MLP.
We know that one of our long term objectives is more transparency and we know that the way to do that is to continue to transition ownership control and sponsorship too.
To a more public more transparent model and so we continue to work on that I don't have anything in mind I'm not working on anything with my partner and he would tell you. If he was sitting here that he's been a 100% supportive of press with the company for 10 years and will be for the next 10 years, but.
We both recognized.
The transition that's going on in the industry the importance of MSG and the importance of transparent governance, which ultimately too.
Continued to be an MLP and have totally transparent governance, you need a publicly elected board of directors.
And so there's no mystery about that there is no other way to do it we've had a couple of good precedence for that in the industry.
We continue to look at those precedence and how they work and whether or not investors benefit from that and have a greater voice in way the company's run.
On the strategies the companies employing.
And so we will continue to work in that direction interest in you are smart enough to know that if we can.
Overtime continue to transition to a more open transparent ownership model.
Then we're going to do that because that's what creates value for our investors.
Appreciate it Bob that's all I had thank you.
Thank you. Our next question comes from the line of Jeremy Tonet with JP Morgan. Please proceed with your question.
Hi, guys good.
Good morning guidance.
For example.
Jeff just wanted to quickly follow up on day 2021, I think our guidance.
Yes.
Thanks for all the details on the van connect you guys mentioned in the past delays and bag of the ball off the.
Telecom follow me of what life safety late June.
And in our discussions with the purchase of one point based on his right connect AG and also if you could give any comments on that.
Guidance of 20 printing mailing assayed between front end guidance to the low fytwenty for Fyseventeen already hit the upper half of the site. Thanks.
Yeah I appreciate the question and maybe your first point on kind of the oil price assumptions are commodity price assumptions that we have baked into our plan I would say that our internal forecast that factor into our commentary around our 2021 outlook are not all that inconsistent with kind of where the forward strip is positioned right now across.
Gas gas liquids and crude on the crude oil side, specifically I think we've got kind of 40 to 42 and a half dollars per barrel for the first half at 21, and then Nick increasing 10, roughly $45 per barrel for the back half of 21 that's.
That's generally consistent with the way our producer operators think about it in the 21 timeframe and when we commented in our press release. The primary driver of the completion activity year over year is driven by the drilled but uncompleted inventory that we have remaining at the end of this year plus the incremental rigs that are running or that the rigs that are at.
Actively running today in the current commodity price environment. So we.
We don't have any any expectation for an increase in price driving an acceleration of activity. It's really based upon what we're currently seeing into basin you as it relates to the specifics of the range. Obviously as we mentioned once we have greater and full clarity into all the contributors to the 21 plan, we will provide that in February.
Earlier this year.
I think our commentary today is based on our initial budgeting process and all the conversations we have had with our customers. We would expect it to be generally in line with the current 2020 range, which is 520 to 570.
Okay. Thanks, and then just looking taking out buying out of Bakken volumes for September.
Could you make mention anything by long haul does have a lower items bag level in Q audit looking to negative how that that angolans audible pickles.
Thank you see activity.
In the Bakken, we were near record level on all three commodities at this current point in time and we've had a massive continued completion program of additional wells in the early part of the fourth quarter. So we should see a very strong fourth quarter.
The Bakken asset we should be records on every commodity, yes, and maybe to expand on that a little bit because it kind of dovetail.
Sales on a comment or a question that engineer asked earlier on.
What drove the three key production in Fourq you production.
But but as we disclosed in the press release, we had 15 wells completed on the Bakken system in the third quarter. The production. We saw from those wells drove a large amount of the uptick both quarter over quarter and relative to first quarter of 2020, and certainly third quarter of 2019, we.
We expect to have an additional 20 wells completed on the Bakken system through the first month and a half of the fourth quarter. So I think that all plays into what the Opco just mentioned as we.
See current record volumes across the system on all three products and expect that to continue through the fourth quarter and heading into 21.
Got it thanks, Thanks, guys.
One last one if I could squeeze in here.
Well, because I did mention at Caf funds until they dance on it that I.
Then if you have mobile eliminating Bob I mean in.
Same thing as a wedding and moving the needle much in the U.S.
On the next slide onto adding lungs debt default.
If I look on how the board on the modeling thing about AG, let anything that you're making thoughtful about that having the city center.
[music].
Yes, I think that.
If I understand all that question, it's really focused on kind of our leverage profile and I think as we stated we've we've had a long term objective of having leverage below 4.0 times prior to the downturn driven by the pandemic, we expected to achieve that in 2020, obviously as as development plans had been pushed out a little bit.
And then Weve navigated through this year, that's been Delevering deleveraging profile has also been pushed out a bit we still are a 100% committed towards capital allocation strategies that drive a realization of our leverage targets over the next 12 to 18 months.
What factors into that in terms of achieving that objective. Obviously first is getting to a point of positive free cash flow after distribution in a sizable way. We now have turned that corner beginning in the third quarter of this year and as we commented with 2021 cash flow relatively flat.
And our capital down tremendously, we will see a significant amount of incremental free cash flow generation next year, which will go towards deleveraging. In addition to that we executed on a small noncore asset divestiture in the federal this quarter.
We continue to evaluate other assets in our portfolio for similar Sarah similar strategies and if if we were able to get something done there and something interesting popped up we would certainly execute on that as a means to accelerate and then the last one you mentioned on distribution.
We feel pretty good about where we're positioned right now financially but.
But obviously as the market continues to evolve we evaluate that every single quarter.
And we will continue to evaluate it every single quarter and what alternative uses of that cash there maybe that could prove to be a better used if the business outlook change. So those are the levers we have we remain 100% committed towards our balance sheet objectives.
Over the next 12 to 18 month timeframe and we feel pretty good about how we're positioned now to execute on that.
Got it thanks guys.
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Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next questions come from the line of barrels of Wells Fargo. Please proceed with your question.
Hey, good morning, Thanks for taking the questions. A two part question relating to Chesapeake number one is the company current and on always payables to Crestwood and secondly.
I think Crestwood recently filed objections with respect to the level of disclosure is provided by Chesapeake in the bankruptcy process and also with respect to its ability to dispute contract beyond the 365 day period, which typically is allowed in bankruptcy proceedings to the extent you can comment could you provide.
Additional details as to what triggered the filing of this objection.
It's.
Yes net.
Net ill speak to it first of all as to your first question. Yes. We are current on all payments and continue to be closely working with Chesapeake on everything Dave.
Paid us timely in accordance with the contract on all services provided across the company on the second point is I would say it was more of an administrative point as we work with other operators and on hand with Chesapeake closely around navigation through their bankruptcy process I don't think theres really anything to read into that we continue to have good active dialogue.
In our two contractual relationships with them both in the northeast as well as the powder River basin.
No significant modifications contemplated around the contract I believe those contracts are not projectable and very well positioned and would expect that as Chesapeake ultimately works their way out of bankruptcy over the balance of the next couple of months that we would continue business as usual and provide service for him going forward.
That's great. Thanks for this and then another question could you maybe talk about the volume sensitivity around the stagecoach assets, specifically, how meaningful is the impact to cash flows from the record pipeline volumes given that.
These assets are pretty much contracted close to capacity.
Yes, I think it's really it's less of a driver of significant cash flow change because as you mentioned the bulk of our capacity is under firm contracts out there and so very very stable revenue streams as it relates to that I think what it speaks more to is just the industry and kind of the macro outlook for the basin and what our crude.
Juices are seeing from an economic standpoint, and as Mark Mitchell alluded to that increase in production driving tightness in the market up there creates incremental opportunity for us to continue servicing our customer on this our customers on the storage and transportation side and continues to highlight the need for incremental outlet points from the basin.
Going forward I think that all of that bodes well for the value of pipeline in the ground today.
And we will continue to position, our stagecoach assets as irreplaceable premier infrastructure assets up their servicing that growing production.
Now, let me just add a little bit more color to that you know I've been in storage business long time going all the way back to the.
To the late Eightys would rather would storage is always been a cyclical business and sometimes the cycles are short when you have cold winters, which we haven't had an allowance sometimes they are long and this has been a long down cycle for storage as business that we've experienced over the last five to seven years and the reason for that.
Is the big increase in production and markets just typically.
Trade off production for paying up for big storage contracts. There are certain utilities that have to have operational storage storage and so they've been very consistent customers of ours, but most market players that use storage.
View it as an alternative to just buying gas in the open market for gas liquids in the open market, we're going through a tightening of both markets gas and gas liquids from a supply standpoint, which is inevitable due to the pandemic and as a result, we're beginning.
To see and I commented on this and in my in my notes, we are beginning to see a little bit tighter storage market, which we think over time, we will play out and slightly higher margins for the storage service and Mark Mitchell and his team, which run traceable our shows here on the Gulf Coast, which is an ABS.
Absolutely critical storage facility for the LNG business and stagecoach up in the northeast, which is an absolutely critical storage facility for the northeast utility and power power generation market, we're beginning to see a slight.
Slight tightening a little bit more increased demand customers coming to us a little quicker.
Customers willing to talk about blend and extends on term and as you know.
Even though these are largely FERC regulated assets and under long term contracts long term doesn't mean 20 years in that business anymore like it used to in the old days and so we have about 20% to 30% of our contracts that come up or our capacity that come up for renewal from year to year and so as we look into.
21, I see that as a positive that we see firming demand for storage as a service Mark you want to comment on the ground where are you seeing in the northeast and around.
Trace plot shows which serves the LNG business, Yes couple of a couple of comments that they kind of broad brush.
Across the us we've seen.
Over the last six to eight years.
45% growth in production across.
Across the us.
Similar increase in demand and as Bob commented, we're getting into a tighter market.
Storage during that time period, we have the roughly the same amount of capacity. So you have a smaller quantum of capacity to balance a larger market.
I mean, generally we think that bodes well kind of across the group for storage specifically as it relates to trace blaseos.
Stagecoach location is key and for.
For example, trade philosophy doses in the South Texas on the Gulf Coast and great location to serve the LNG markets.
Power generation in Mexico and with.
LNG feed gas, becoming a larger part of the equation for demand in the.
The circumstances, we've seen over the last few months with cargo Cancelations and Hurricanes and now we're getting back up to full utilization.
We've just had a stronger call on storage from the operators in South, Texas and those are customers at Tres Palacios.
And up in the northeast around Stagecoach with production starting to increase.
And as Bob mentioned, we are in a tighter market and we Havent had a good winter in a while but we're very well positioned up at stagecoach and were seeing commitments from customers to step up and reaffirm and we have more demand for that capacity and we have capacity to serve customers.
And I think the bottom line that is our assets have always stayed full at both locations. We're starting to see spreads widen out a little bit and thats good for us.
Whether it's from service Interruptible Service Park and loan service any kind of hub service as spreads widen that's a good thing for our assets because they are well located and they're irreplaceable in the market you could not get those permitted and replaced today.
So they are both sitting on top of big market demands LNG, along the Gulf coast in northeast.
Gas fired generation in utility service in winter time, So we're we're pretty pump for the first time in a few years that stagecoach actually has a little bit of negotiating leverage with its customers. We don't have a lot of.
We're not asking for a lot, but it's definitely a trend that is turned in last year or so and it has exactly to do with the fact that supplies are going to be lower.
Does that help.
Yes that is great color. Thanks for this thats all I have today.
Okay. Thanks, Nick I appreciate you're waiting so long I know, we're about operator, I think we're about out of time.
Yes, let me just close real quick thanking everyone again for hanging on the call again hope that everyone stay safe and healthy through the pandemic.
We have a lot of things going on the us here.
Here at Crestwood, we're keeping our eye on the ball and we're staying focused on what we do which is help producers in the field and help markets get their supplies.
Get delivered on time and efficiently we're doing it safely.
And we're making tremendous progress on the ESG side of the business really looking forward to what we're going to be able to do in 2021 on that front. So with that thank you all for joining the call look forward to talking to you in February with our fourth quarter 2020 results and hopefully a much better look at what 2020 one's going to look like for.
Crestwood Thank you.
That does conclude todays call you may disconnect. Your lines at this time. Thank you for your participation and have a great day.