Q4 2020 Crestwood Equity Partners LP Earnings Call
2021 outlook before we begin the call listeners are reminded that the company may make certain forward looking statements as defined in the Securities and Exchange Act and 1934 that are based on us and information available at the time on today's call. Please refer to the company's latest filings with the SEC for a list of risk factors that may cause.
Cause results to differ Additionally, certain non-GAAP financial measures such as EBITDA.
But EBITDA and distributable cash flow will be discussed reconciliations to the most comparable GAAP measures are included in the news release issued this morning, 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 manager.
And team will be available for the question and answer session with Crestwood current and analysis following the prepared remarks.
Okay.
At this time all participants are in a listen only mode. A question per session follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn the conference over to your host Bob.
Phillips.
Thanks, Maria and good morning to everybody and thanks for joining us on the call Maria you were cutting out just a little bit and the intro so with.
My comments youre cutting out as well somebody please give us a message and we'll see what we can do about that.
Again, good morning to everyone. Thanks for joining us we're really excited about.
Announcing our fourth quarter, and 2020 earnings and giving you an update on the business given everything that's been going on and I want to first say that we hope that everyone is still safe and healthy as we continue to navigate around the group.
COVID-19 epidemic.
And as we move into 2021, clearly the events of the last week or so this recent winter storm has been uppermost on everybody's mind. So we hope everyone is safe and doing well and and the recovery mode. Crestwood continues to take these type situations very seriously the health and safety of our employees our cause.
On tractors.
Their families remains our top priority here at Crestwood, we do continue to monitor the state of the pandemic and our two corporate headquarters Houston, and Kansas City as well as in all of our field locations across the United States and we're continuing to monitor and operate according to local and state guide.
Line so.
And Jim It is not going away anytime soon and Crestwood continues to be focused on how and operate efficiently. During this process.
Even with all the challenges that we faced in 2020, our employees and our assets showed incredible resiliency and I think that position the company to have the best year and its 10 year history, we generated $580 million of adjusted EBITDA and $360 million of distress.
<unk> cash flow both of those were records and they grew by more than 10% over 2019, they were well above the top end of our revised guidance range above consensus across the board and EBIT above our internal budgets.
And with our number one asset the arrow system up in the Bakken in North Dakota being shut in for 40% over a two month period, and the second quarter and jackalope.
Our asset in the powder River basin, and eastern Wyoming being shut in for 50% for about six months out of the year I think the results are even more compelling.
It was good timing that in April of last year, we acquired additional NGL logistics assets.
To expand our NGL platform and that provided an immediate step up and cash flow from those assets, which fit seamlessly with our existing NGL logistics platform and as you know we talked about over the course of the last several quarters. It added significant storage capacity to our portfolio which are.
Our team used very well during the pandemic.
Crestwood diversified and integrated asset base performed very very well in the face of last year's price volatility and when combined with our strong balance sheet and enabled the partnership to maintain a full distribution throughout the year, while delivering very very high coverage ratio of two times.
And a year and leverage ratio of four times both of those metrics are best in class across our G&P peers. Most importantly, though in 2020, we finally achieved our goal of generating positive free cash flow and we expect to continue to grow that Fcs throughout 2021.
Now, let's quickly take a deeper look at the results starting with the arrow system up and the Bakken It continues to be our primary driver.
Here at Crestwood and had an incredible fourth quarter outperformance.
By achieving record volumes across all three products and that gathering system due to accelerated well connects many of which were originally scheduled for 2021, but were brought forward by our customers into November and December and addition to that the wells continued to improve with IP rates that were.
And the 5000 barrel equivalent per day range and some were even as high as 10000 barrels a day equivalent.
And also the wells have gotten bigger as producers continue to optimize our drilling and completion cost up there.
And play remains extremely economic and as we look into 2021 and a.
$55 to $60 crude price environment, we anticipate a lot more activity.
In 2021, we expect 45 free product wells to be connected to arrow.
25% to 30 of those are ducks and all of that new production is expected to drive growth and natural gas and produced water volumes year over year. So we're looking for arrow to have a really good year and 2021 three issues that I want to touch on which impact the Bakken first you might have noticed that.
And we've had a lot of recent producer M&A activity and.
Round, our system and throughout the basin and that has put our customers many of our customers and very strong financial position to continue to drill and develop their acreage on the Fort Berthold Indian reservation, and we think it also highlights and if you look at some of those announcements and highlights the great economics.
Our producers enjoy up there in the Bakken with the lower and lower drilling and development cost the D&C costs coming down on a per foot basis, and the well performance.
<unk> to improve each year, and secondly, I want to talk about the buy and the administration's ban on federal lands permitting as you know the department of interior has excluded travel lands from those executive actions and the VA continues to issue new permits new leases and right of ways around the edge.
Arrow system, so want to make sure that youre very clear about the impact of that executive order.
On the non impacted that executive order on our Arrow system and third I guess, we should talk about dapple. That's been an issue for about a year now we continue to monitor the legal developments around Apple.
Over the past six months, our customers have worked collaboratively with us and other pipelines to ensure that we have very attractive takeaway options on the arrow system in the event and the disruption in the future.
The Arrow system has current Interconnects with Tesoro High Plains pipeline Kinder Morgan's Highland pipeline. In addition to dapple and I am pleased to announce to date and our commercial team up there recently added a new interconnect with the true companies.
And to the Bridger forebears pipeline system, and when combined with high Plains and Heartland provides III pipeline outlets with capacity exceeding 120000 barrels a day for our arrow producers.
As you know and addition to that Crestwood is integrated Bakken footprint provides our arrow producers with access to trucking alternatives and they can easily get over to our colt hub, which has seen a big increase and new contracting and demand over the last few months, we think as a result of the uncertainty around that.
<unk> just a reminder, colt offers 160000 barrels a day of rail capacity, one 2 million barrels a day of crude storage and connections to additional pipelines out of the basin.
So while we expect the uncertainty around Bakken full takeaway picture to continue until the dapple situation is resolved Crestwood does not anticipate any impact on our operations and we remain well position to continue to provide our customers with attractive access to markets at very good net backs.
So I hope we've dealt with some of those issues and giving you that update moving down to the powder River basin and eastern Wyoming as you know Chesapeake energy successfully exited bankruptcy to beginning of the month, they've got a new capital structure and lower operating cost sufficient liquidity to operate their business as you know they've got rid of a ton of debt.
We think there are bigger better stronger company, and that's going to work well for Crestwood.
And the future.
During the fourth quarter.
Our commercial team proactively signed a new agreement with Chesapeake.
Which puts the company and very strong position to develop and produce its acreage and the powder River basin with reduced fees and the short term debt mitigate shut in risk.
And given all the price volatility we have out there, but incentivize rates that leverage new capacity additions to support new development over the next few years.
Ultimately, 60% of Chesapeake mineral acreage is located on private or state lands and the company does have a significant number of approved federal permits in hand to continue to drill and develop over the next few years and and the current price environment. Our commercial teams are starting to have discussions with other producer.
There's in the basin for incremental activity, which we think will drive additional volumes through the jackalope system and the bucking horse processing plant and so we're pretty optimistic about the future of the powder River basin, particularly now that we're out of the Chesapeake bankruptcy, we have a really good contract and we continue to have a good relationship with them and from.
Great services to them.
Moving down to the Delaware Permian, we had a lot of activity in 2020, we connected 47 wells to our GAAP gathering systems, and we expect to connect 50% more than that in 2021. Our systems are supported by strong Counterparties as you know shale Concho recently merged.
And with Conoco Neubert, and one of the top independents out there in the basin.
And we have seen a lot of activity and expect more activity and 2021. Our system is fortunately located on largely on private lands.
But even so our producers have proactively applied for and received numerous permits on federal lands and ensuring that the executive action line should have limited impact on our Delaware Permian system over the next few years.
In addition to our gas gathering and processing business out there we continue to develop our produced water infrastructure business, which we.
<unk> built and got up and service in 2020, and we expect that system to continue to grow in 2021 with an anchor producer out there are major that development program, we expect material growth year over year for that so that'll be a good contributor to that joint venture with first reserve.
In 2021, we like the Delaware, we like the acreage that we have dedicated to us we like the financial strength of our customers.
And the long term runway that they have and developing the inventory and as you know the economics are better and the Delaware than they are and any other shale play and the U S.
So just to recap and maybe for those that haven't followed the company for a long time, we've had to pivot Crestwood multiple times during the 10 year.
Our history of the company, which we started back in 2000, 22010, and a very high gas price environment and remember natural gas was trading for about $5 50, and Mcf back and when we purchased the Barnett and Fayetteville gathering assets and 10 and 11.
And when gas prices drop we had to pivot to rich gas plays we acquired the southwest Marcellus system from Antero and 2012 and then in 2013.
And we pivoted to crude oil basins, where the acquisition of the jackalope gathering system and the powder River basin, and the Arrow gathering system and the Bakken.
We have continued to pivot when we needed to strategically to fulfill our mission. We did that again in 2017, and when we started expanding our gas processing business and the Delaware and the powder and in the Bakken and we spent more than $1 billion to build out gathering and <unk>.
<unk> capacity and.
And those three basins and we really benefited from that.
In 2020 with all of that capacity, we didn't have to spend near as much capital and we're going to benefit from that even more and 2021 since our major expansion projects are now complete and.
And when we do spend capital it'll be expansions of our gathering systems to existing ore production thats being drilled under existing contracts and existing rates. We've got a lot of excess capacity out there and it's aligned with our producer forecast.
So as we pivot again to a lower capital spend model, we're going to be focused entirely on free cash flow generation. This year, we expect our capital investment to be 72% less than last year at the midpoint and most importantly, and I highlighted that in my opening comments, our free cash flow is expected to.
To be between 90 and $160 million and.
After capital expenditures and distributions and the finance team is going to use that to continue to delever and enhance our liquidity. So that we can continue to be on a growth mode. Here at Crestwood couple of final notes importantly on ESG and sustainability, we had a great year in 2020 advancing our commitment.
On to sustainability throughout the organization and we were a leader and the midstream sector, our ESG initiatives will be crucial to crestwood and other midstream companies during the energy transition as it evolves and Crestwood continues to encourage enhanced transparency and disclosure.
And the midstream sector.
And I'm proud to have worked with.
With colleagues on the first ever midstream ESG reporting template.
Which we put forward through the energy infrastructure Council and the GPA and other industry trade associations and leaders and Crestwood was one of the first companies to publish our performance using the new EIC ESG reporting template and we did that and December so that was quite an achievement for <unk>.
Our team and our and our industry at Crestwood, we continue to focus on diversity and inclusion initiatives.
And we've recently been recognized.
At Crestwood and and become one of only three midstream companies, which were included in the inaugural Bloomberg gender Equality Index. In addition, we've recently welcomed Misbrand VA Ho to our board of Directors. This month brand joined Us in February.
A experienced.
The experience better and to the industry spent years at Conoco and finance Treasury and strategic planning and she brings a lot to our board.
We continue to seek ways to improve.
And the delivery of energy safely and sustainability across our footprint. We also know this has to be and industry initiative. Therefore, we joined <unk> future, which is a coalition of 37 energy companies, which voluntarily worked together to reduce methane emissions to 1% or less by 2000.
25.
And to further showcase our commitment to methane emissions reductions and 2021, we're going to be tying a portion of our employee compensation to our methane emissions intensity reduction goal. We think this will help drive innovation and help us measure the impact of our footprint at Crestwood. So we can continue.
And to reduce emissions over time.
And finally, while we still see volatility and the sector in 2021.
We're increasingly optimistic about.
About a year and we see a lot of potential for increased activity.
We're looking at a $55 to $60 a barrel crude price for the year, we're beginning to hear more and more positive outlooks from producer customers and we anticipate a pickup of activity and our crude basins driving incremental volumes. We're also seeing very high gas prices and we've seen elevated natural gas.
Activity over the past six months and expect that to continue as well.
When we combine that with our stable cash flow contributions not only from our G&P business, but our vital storage and transportation business and our NGL marketing supply and logistics assets our outlook for 'twenty. One is increasingly bright think youll see that in our guidance.
Very pleased to have Robert review, the 2020 financial results and give you some details around our 'twenty one guidance and we have the entire team here available to answer questions. If you all have any so.
And I'm very optimistic about 'twenty, one and.
And Robert I'll turn it over to you.
Thank you Bob.
As Bob highlighted in his prepared comments I could not be more proud of the Crestwood organization and the financial results that the company delivered in 2020.
Year that certainly brought its fair share of challenges on a number of fronts on.
Our diversified asset base generated record full year 2020, adjusted EBITDA of $580 million that up 10% year over year, and distributable cash flow of $361 million that up 18% year over year.
<unk> above the high end of our revised guidance range is.
These exceptional financial results position Crestwood to maintain its distribution at $2 50 per unit for the full year, resulting in a full year coverage ratio of approximately two times and our leverage ratio of four times.
As we completed our major growth projects and the middle of 2020. The company also reached an inflection point of beginning to generate positive free cash flow and the third quarter and into the fourth quarter.
Now moving to the quarterly operating segment results and the gathering and processing segment fourth quarter, EBITDA totaled $128 million and increase of 13% over $113 million and the fourth quarter of 2019.
These results were driven primarily by the aerospace them and the Bakken as producers accelerated 2021, well connections into the fourth quarter at the same time enhanced well completions continued to drive higher IP rates, resulting in record gathering volumes and the fourth quarter for all three products crude oil natural gas and <unk>.
<unk> water.
During the fourth quarter, Crestwood had producer rig activity and the Bakken and the Delaware, Permian and and the Barnett shale, which will drive incremental volumes and momentum heading into 2021.
And our storage and transportation segment fourth quarter, EBITDA was $15 million compared to $17 million and the fourth quarter of 2019.
At this stage coach joint venture with consolidated Edison increased producer development driven by stronger dry gas economics resulted in record transportation volumes at the colt hub rail loading volumes increased 4% over the third quarter of 2020 as production from the base and continued to increase from the <unk>.
Trough, which we experienced back in the second quarter.
And finally at Tres Palacios Crestwood has continued to see increased demand for Gulf coast storage assets and recently completed a connection to the Permian Highway pipeline that has already driven incremental producer interest.
Finally, and the marketing supply and logistics segment fourth quarter, EBITDA totaled $28 million compared to $19 million and the fourth quarter of 2019.
For full year 2020, the EMS and <unk> segment benefited from nine months of contribution from the NGL assets. The Crestwood acquired from Plains, All American back in April of 2020, and that drove full year EBITDA of $89 million.
Now looking to 2021, Crestwood expects the NGL logistics business to continue to benefit from the integration of the plains assets and additional opportunities to capture incremental market share.
In 2020, Crestwood invested $144 million and growth capital that at the low end of our revised guidance range of $140 million to $160 million and our 2020 growth capital was front and loaded which allowed crestwood to expand our GNP system capacity to meet long term producer develop.
<unk> activity and minimizing all future capital investments to well connects and minor gathering system expansion that is needed around our systems.
Now moving to the balance sheet at year, and Crestwood had approximately $2 5 billion.
Long term debt outstanding, including just under $1 8 billion of fixed rate senior notes and $719 million of outstanding borrowings on our revolving credit facility, resulting in a leverage ratio of four times as of December 31 2020.
In January of this year, we Opportunistically took advantage of a favorable high yield market by successfully issuing $700 million of new 6% senior unsecured notes due 2029 and in connection with the transaction Crestwood tendered approximately $400 million or just under 60%.
<unk> of our outstanding six and one quarter percent 2023 nodes after closing of these transactions.
<unk> had approximately $2 1 billion of senior notes outstanding and $430 million drawn on its revolving credit facility, but we will plan to repay the remaining of 2023 notes still outstanding and April of 2021, when those notes become callable at par.
This transaction allowed us to push our next nearest term senior note maturity out to 2025 and reduced our annual interest expense by around $2 million per year.
Now looking forward to 2021, we expect producers to remain disciplined and theyre spending and focused on measured growth debt supports balance sheet strength and free cash flow generation.
Based on current producer forecasts and our forward outlook for commodity prices, we expect our assets to generate adjusted EBITDA and the range of $550 million to $610 million for 2021, driving distributable cash flow and the range of $320 million to $380 million.
And between $90 million and $160 million and free cash flow generation after total capital expenditures and our current distribution.
As discussed on our press release this morning, our guidance range generally factors and our estimates for cash flows under various sensitivity cases of commodity prices ranging from $45 to $50 per barrel on the oil side at the low end of our range up to approximately $60 per barrel on the high end of our range.
Current crude oil prices of approximately $55 to $60 per barrel average for the year, we anticipate that our producer customers will connect approximately a 140 wells across our gathering assets driven by the completion of DUC inventories and incremental rig activity and the Bakken ongoing rig activity and the Delaware Permian as well.
The current rig activity that we're seeing in the Barnett.
And the S&P segment, our stagecoach assets are almost fully contracted for the year and the colt hub continues to benefit from increasing demand for rail loading services as customers plan around the potential event of a short term to Apple shutdown.
And the EMS and <unk> segment, the NGL logistics team continues to optimize our expanded asset base and which we acquired in 2020 and maximize opportunities to further gain market share here in 2021.
In 2021, Crestwood will continue to focus on maintaining our strong financial position and estimates the full year distribution coverage ratio at the current distribution level of one seven times to two times based on our guidance range and a leverage ratio of 375 times to four to five 4%.
Five times, which is nearing our long term objective of three five to four times as we have consistently communicated over the past several quarters and years.
Our total capital investment for 2021 is expected to include $35 million to $45 million and growth capital and $20 million to $25 million and maintenance capital at the midpoint. This represents a 72% reduction and growth capital year over year and includes the optimization and enhancement projects at Arrow.
And well connect capital and the powder River basin, and the Delaware Permian Crestwood intends to finance the entirety of its 2021 capital budget through retained operating cash flow.
So despite the many challenges in 2020 Crestwood had one of its most successful year to date and we certainly intend to build on that momentum and 2021 with the improvements we've seen and commodity prices here. The first star this year and the very positive momentum from our producers we continue to get increasingly optimistic around the range of cash flow that we've put out and.
To deliver a very solid years, our dedicated employees and our diversified asset base and our strengthening balance sheet continue to company to continue to execute on its plan to deliver strong results year over year and drive continued increasing value to our unit holders.
This time, operator, we are ready to open the lineup for questions.
At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate that your line is and the question can you May press star two if you would like to remove your question from the queue.
For participants using speaker equipment and may be necessary.
Handset before pressing the star keys, one moment, please while we pull for questions.
Our first question is with Tristan Richardson from <unk> Securities. Please proceed with your question.
Hey, good morning, guys really appreciate all the comments on debt on.
On the Bakken and your assumptions there.
Just had a quick question on on your well connect assumptions. There you may have mentioned this with respect to docs, but just on the well connects and 2021 do we need to see directional improvement and customer rig activity to hit that type of completion run rate and you talked about at the low end.
Or given the DUC count you can see that without any change to our base.
No that's correct, Chris and at the low end of the guidance range, roughly 31, well connects and 2021 on the aerospace and the vast majority of that almost all of that is covered with current activity Index 27 Ducks currently on the system to complete those.
Helpful. Thank you and then just thinking about the aggregate alternative takeaway options you guys talked about can you divide that up for us in terms of either pipeline versus rail and <unk>.
Destination point.
Yes.
Tristan.
<unk> runs that business force, he's been instrumental and not only mitigating our CDP delivery point activities, but working with our producer customers and let me just remind everybody that.
We gather the oil production and we deliver it where our customers want to they are the ones that are largely responsible for.
Making sure that they've got adequate contractual takeaway capacity and that they nominate to those points and they earn capacity when there is and allocation on those downstream pipeline. So we've had six maybe nine months now that we've been working on this with them we've moved a ton of <unk>.
Crude off of dapple and on to the other pipelines when we talk about capacities and arrangements, we're talking about the physical interconnects that we have made.
Both invested the capital to make the hot tap and the meter runs.
<unk> interconnects tie it to our system get the pressures right pumps when necessary.
And in addition to that we've made sure that all of these facilities are up and running operable, we'd move production through them, we tested dose and all of our customers have worked with us to actually nominate volumes to those various points. This is not a theoretical exercise with the exception with the brand.
New point, we've talked about with true so the Aqua Zika has run this business Jaco why don't you walk through pipeline by pipeline and how we think about takeaway capacity. So that they can add it up and I think ultimately get to a couple of hundred thousand barrels a day and capacity, yes, and thank you Bob Let me take it over from here. So if you look at the Ara.
Our system is located and Johnson corner, which is the most liquid point and the Bakken from our pipeline takeaway perspective.
The three additional takeaway is that we have beyond capital on the pipeline side.
<unk> High Plains about 60000 barrels a day Kinder Highland at 30000 barrels a day and then shrink company is currently at 30000 barrels a day and we're looking to expand that so you add those three up at the 120000 barrels per day and that doesn't include our central Arrow CDP truck away capacity of 25000 barrels a day.
But we can run up the colt and new barrels vehicles, not just by pipeline, but the truck right.
Does that help.
Absolutely. Thank you guys very much and then just one last one from me if I could.
Rob.
Talked about the progress on some liability management activity.
Do you see more opportunities for that and this year, maybe thinking specifically with respect and our corporate preferred.
Yes, Chris and it's a great question I think as we've communicated over the years.
Our primary focal point was to continue increasing utilization and cash flow generation from our asset base, particularly as we concluded our capital program.
Back in the mid point of 2020.
We guided with $90 million to $160 million of free cash flow generation. After all capital requirements and after all distribution payments that gives us tremendous amount of incremental flexibility to further optimize and drive lower cost of capital and enhanced capital structure. So I think as we've communicated we're still pretty laser focused on real.
<unk>, absolutely our long term leverage objectives of three five to four times the first priority as guided and today, we expect to be within that range by the end of the year pretty comfortably.
We tend to like the lower side of that versus the higher side of that but certainly as the cash flow ramp takes place. We will continue to look at incremental optimization opportunities across the structure and ways to drive greater return on capital and realized greatest amount of financial flexibility for the long term.
Thank you guys very much.
Our next question is the name.
<unk> from Jpmorgan. Please proceed with your question.
Hi, good morning.
Thank you everyone on their quick follow up on.
Okay and.
On day one.
And the hit on the commentary on line.
Good day.
But just trying to combat it.
Why maintain that and cash flow guidance.
Right.
And the gasoline from.
And Michael <unk>.
And especially with what's going on and departmental level.
And let's say something debt, okay and implementing.
And back.
Correct.
Thanks.
Yes, sorry, I was kind of breaking up a little bit there on that but I think that the.
The general question, but just trying to kind of bridge from from activity levels and on the G&P segment kind of where we were in 2000, and where we exited 2000, and then kind of trajectory heading into 'twenty, one and I think obviously the G&P segment had an exceptional fourth quarter that really driven by as we talked about that acceleration of completion activity and the Bakken with 'twenty one.
Well connects and November and December with the performance of those wells, we saw record production throughput on.
On the aerospace them and as a result tremendous contribution from that asset and the quarter.
And it's typically the case when you think about cadence of well completion activity and 21 oftentimes our producers, particularly in Wyoming and North Dakota, you got the wintertime to contend with in the January February and even March timeframe, and so we usually see a little bit of slower activity and those mines in the play.
<unk> and then continue to ramp heading into the spring time, summertime and and the fourth quarter third and fourth quarter of next year. So based on kind of current outlook and the guidance range that we provided with the roughly 140 well connects across the system and I would posit that we are growing increasingly optimistic around that number and potentially enhancements to that number as crude price.
And has continued to improve but with that level of activity, we should see a pretty stable cash flow generation every single quarter throughout 'twenty one.
So we will see relative to where we exited <unk>.
Fairly flat, a little bit down and the first quarter as the completions lag and the Bakken until we get to the summer timeframe, and then that ramp and activity that drives and acceleration into the back half of the year. So all in year over year pretty flat segment up segment.
He might have also let me just add color to that he might have also been asking what does it cost to keep G&P cash flow relatively flat and thats actually a great part of the Crestwood story for 2021, we've only got to spend 30 or $40 million of new well connect capital and three different areas Bakken powder.
And.
And Delaware all three of those are tying into existing pads, where doug's exist under existing contracts very accretive investments.
Very high return because they are literally just short lateral extensions or the addition of pumps or compressors to add additional production from wells that were largely drilled last year and are just waiting to be completed it got kind of interrupted due to the pandemic, but for a company of this size to be able to keep G&P cash flow.
Which is about 70% of the total flat on only 30 35, maybe $40 million a year of additional capital those are pretty impressive numbers guys and the maintenance capital remains.
Right and the range of about $20 million a year. The big change. There is this year, we've got a pretty sizable amount of new what we call ESG capital, where we're really starting to spend money to add technology around our emissions reduction and that's the reason why we were so confident and coming out with a low emissions reduction goal.
And <unk> and adding that.
And to our incentive compensation programs. So all in all for a company this size to spend only $50 million a year to basically maintain integrity of assets and operations good reliable services and to add some additional volumes on wells that are already drilled that's a pretty impressive place to be coming on.
Off a year like 2020 and going into a year like 'twenty one.
Got it that's very helpful day.
And just wanted to follow up on sales.
Okay.
And just talking about looking for any opportunistic asset sales.
Bottom line Facebook harping on that and think counterparty that day.
So the cycle on the final word.
Good day.
Belinda participated with adequate balance.
And how.
On the highest part of it.
Right.
Sure Yes.
Still kind of catching on every every other word breaking up just a little bit been day, but I think that the question was around or kind of whats been in the marketplace on continental <unk> interest and potentially exiting its interest and our stagecoach joint venture and how with Crestwood potentially participate on that so obviously as there is an evaluation process on going on at Liberty to speak <unk>.
Significantly openly on that but I think it's consistent with what we've communicated in the past.
And we do.
A tremendous amount of value on that asset for the long term and I think the market does as well and I think crestwood.
And while we absolutely love the positioning of the asset and we love the long term fundamentals that support that asset and the contracted nature of it I think we certainly will be.
Participating actively with con Edison as it evaluates what it wants to do and if there were opportunities for us to participate and we'd have to entertain those I think that our our objective is to continue to be a great partner out there to continue to operate the assets and the best of our ability and.
And see how their ultimate process plays out and what that potentially means for us so not really at liberty to speak beyond that but I think.
It's an ongoing evaluation and one that we think will garner a lot of attention from the marketplace and one that we are extremely excited to participate side by side with con Edison around.
Okay. Thanks debt.
And following on that and you chat anytime line.
Deposits were gone.
Anything you can disclose on that right now.
Okay.
Yes, not really.
And anything I am at Liberty to discuss right now.
Got it thanks, and all that volume day. Thanks.
And a good day.
Sure.
Our next question is with snow and <unk> with UBS. Please proceed with your question.
Good morning, everyone.
Just to start off just to confirm your response to the last question on day Stagecoach asset so youre willing to participate in a sale process, but.
Is it fair to conclude from your remarks that you are not going to buy it from that and correct.
I would say that that's generally a fair statements Cheniere I think that the asset is one that is extremely.
Thats very irreplaceable and the marketplace. Its value is extremely solidified as a result of the contract structure and just the positioning to deliver critical and.
Infrastructure solutions and gas to the markets up and the northeast and I think that the.
And the interest level that we expect will be garnered around that and kind of the type value expectations are probably prohibited for us.
But I think we will continue to operate and maintain our position as a great partner up there.
And if theres avenues for us to participate and that potentially would investigate those.
Okay, Great I appreciate that color there maybe as a follow up question and just kind of wondering if we can dive into the <unk>.
New Chesapeake contract and the incentives around it.
If I understood correctly, theres and incentive there for them to drill wells.
And that don't require capital on your and at.
At the same time it seems their outlook doesn't seem to have any worries in the PRP at this stage right now can you sort of give us some thoughts or color on when we would see some activity around those assets.
Yes.
And I can't speak definitively on what Chesapeake intense our actions are what I can tell you is what we've generally discussed with them anecdotally in the past and kind of the rationalization for our commercial agreements that we reached with them back in December. So you are correct and the structure of the way that it's intended to work as a crestwood was able to provide some short term incentive.
Rate relief to help mitigate any potential curtailment or shut in risk.
Obviously out of the question with where pricing levels are today, but also and probably most importantly, incentivize incremental activity over the next couple of years on the system and in exchange for that the activity to qualify for the instead of has to require no capital for us.
And it has to be capital efficient and we think that given the pricing environment, where we are today the likelihood of that occurring is pretty significant share.
<unk> does have for docs on the system that will be completed this year.
And the general framework, we've heard historically, it's kind of that $60 price level as a as an attractive level and obviously with where we are today, we think theres good momentum around that but nothing definitive at this point.
Okay and.
Can you talk about whether there are any incentives in place with Devon or CLR right now to try and grab volume either along the same lines or something a little different.
No no no and finance I mean, obviously those are sizable customers and the base and a sizeable producers and the basin that will be focused on from a commercial standpoint and have.
Continued active discussion with both those companies across the space and in other basins. So have a good commercial relationship with them and.
Would certainly be focused on trying to be part of their solutions, but no definitive.
Answered there and.
And are just to add a point on the powder.
For us that is a very long term asset that has tremendous long term.
Potential we have spent the money we built the system out and we built the compression now.
We built the processing and we have several 100 million a day and total capacity, they're running about 100 and a little over 100 million a day to day, we don't have to spend any more money other than to connect wells or pads from producers that drill on or near our existing gathering system. We think we're the best.
<unk> positioned gas gatherer and processor in the basin, we've got a lot of very financially strong producers all around us.
And the commodity price deck out there in the powder looks very favorable for 'twenty, one and 'twenty two and now our number one customer who is under a long term contract is financially strong again too we're not in any real hurry for him to have to start drilling up there and actually we are spending a lot of time talking.
And third parties, who are quite attracted to the capacity, we have and the competitive position that we have and the basin.
Chesapeake will get around the drilling this base and again, they've got a huge acreage position. The wells are incredibly economic but now that they've just emerged from bankruptcy they've got some other opportunities, particularly in the dry natural gas plays where I think they are focused and from an economic standpoint, that's probably where they should be focused right. Now we're just happy to have all.
And this behind US we remain the number one on G&P, operator, and the basin the basin has.
Has started to show some life again people are starting to look at buying acreage and we're beginning to put development plans in place. So we will see plenty of powder River basin activity over the next couple of years and by the way, we don't have anything and our 'twenty one plan that guidance doesn't really project.
Whole lot of additional activity other than those ducks and some third party wells that we have under contract that we're going to connect.
Great.
And maybe one final question, just given the unfortunate weather impacts and Texas.
Over the last week and a half or so.
And your App, that's potentially benefit from it from the storage position that you have from taxes.
And.
Key benefit either from the higher prices or more turns on the assets. Just wondering if you can give a little bit of color on that.
We really don't because we're not a commodity player trader and this business, where a service provider to a large extent.
And last week's weather event was a microcosm of what we experienced and the second and third quarter last year.
Due to the pandemic when you have this extreme and extraordinary unprecedented.
Demand events in this case last week, coupled with an unprecedented supply event and there is there is an obvious call on storage and there was a call on our storage, particularly at Tres Palacios I want to complement our operating team down there.
That facility going despite losing power.
Went on backup generation.
While we.
Did have some dicey moments down there due to the weather our guys performed admirably, we met all of our firm customer obligations Martin Mitchell's here he runs that business for us.
I would guess that we're one of the top performing storage facilities on the Gulf Coast. During the last week, Mark you want to comment on the market around price.
The comments on the events of last week, Bob and I would say that and general over the last three years or so we have seen a continued.
The increase and demand for storage at Tres Palacios and part due to a lot of the factors that you're aware of with LNG development on the Gulf Coast.
Right around us and growth in demand and Mexico.
Proliferation of the gas coming out of the Permian and the pipes.
Kind of connection this year to Permian Highway pipeline, which is going to help us with our activity with producer customers and I think that as a result of the events of last week and just reinforces the importance of storage.
Long term and it support to the the gas infrastructure in times like these and so we do believe we will continue to see interest and our facility there grow.
Great. Thank you very much everyone take care and have a safe day.
Thanks Shneur.
Our next question.
Scott with RBC capital markets. Please proceed with your question.
Good morning, everyone and hope you're all well.
A few follow up questions here, so if capital were to temporarily shut down and how quickly could you ramp.
On.
And <unk>.
Yes.
And the answer to that Elvira is immediately I mean, obviously servicing customers today and we've been working with our customers both direct aero customers and third party producers and the base and trying to market their barrels out.
And I think that there's been a lot of increased demand and some contracts executed there around uncertainty with Apple.
It is we can certainly provide service for all the demand that exists today and with some very minor modifications just enhancing it to a 24 hour service, we can uptake all the way to full capacity levels pretty quick.
Yes, I might also add we've got one 2 million barrels of storage there and we don't sell all that capacity to third parties, we keep a fair amount of that capacity back so that our.
Crestwood crude services team can help manage the marketing of all these barrels, particularly off of the arrow system. We have a priority focus on making sure that all of our aero customer barrels get marketed first and that Kohl's has a significant amount of both storage and <unk>.
Line truck and rail capacity available for the Aero customers should they need it now.
Typically are around the mid middle part of the month 17, 18th of a month you get nominations in for the following months. So its not like all of this happens overnight.
And to the extent that there's continued planning and collaboration and communication between all of the customers all the pipes.
Our Ccs team and our KOL team, we're going to make sure that all the barrels flow.
And then.
Aero I know you have.
Significant excess capacity.
Pasadena, and but assuming kind of mid <unk>.
And 50 to $60 crude oil price and how much runway do you have with your processing capacity.
Point, keeping even moving to actually add walk from hospital.
I'm going to give my friend Jaco the chance to think about that for a second because we deal with this issue every day.
We have been so fortunate to bill.
Bill the processing complex that we did several years ago, we built a 30 million a day first and then came back with a honored.
On and 20 million a day, so we've got 100 and on.
On 50 or so of capacity.
And we.
Would obviously fill up our plant first if we had too much gas and then we have and offload connection to one oak that has been in place since the beginning of the gathering system back in 2011.
Cancel that contract several years ago, when we made the decision to build our own plants at bear den but that interconnect point has remained operable from time to time, we actually flow gas there on.
Often times they need a little gas, we help them out sometimes it helps the system to unload some gas over there.
And then maybe were pressured up with new wells come on and so we work with one very very well to make sure that that's an open point I think it was 55 million a day is that right. What's the capacity there and Thats correct. Bob Yeah. So I think we'd have to get close to 200 million a day of total gas gathering capacity.
At some point in time before we would ever consider investing in additional plants and I'll be honest with you.
There's a lot of excess plant capacity up there and that basin and areas that are not what we call core that are losing volumes. Some of these second and third tier plants have a lot of capacity and there is a number of guys that reach out to us from time to time looking to see if they can make interconnects and we can give them some additional gas so.
I don't think the basin is ever going to run out of plant capacity and certainly we're not going to ever get a situation, where our arrow producers natural gas is having to be curtailed or flared and packed on very very proud of our team with our flaring statistics last year, notwithstanding all the shut ins and all with production volatility went on.
We were one of the very few gathering systems that actually met the state requirement last year on flaring maximum so really proud of that I think we're in good shape to gather and process. All the gas that we have but we certainly have offload points. If we needed at the IPO you want to add anything. Thank you Bob you don't need my help.
The thing I will add.
From your virus that we actually also have considerable amount of storage capacity and era.
It Hasnt been highlighted we've got 250000 barrel storage Arrow, which is significant when you think about that yes, we've got tons of ability to help our customers. We don't feel concerned at all about that and a lot of runway for growth if needed.
And building on an expansion on the water system to which is the majority of the capital that we're spending and 21 up there.
Produced water system going.
Area that we had not previously serve but under contract with.
And one of our very important customers enter plus who you might recall, our recently acquired brew and so they've consolidated acreage all on our system and we're really excited about 2021 capital program.
Okay.
Great. Thanks, and then just my last question.
So I know you touched on this before COVID-19.
And your leverage target and what.
No.
And I know you've talked about optimizing the capital structure, but what are your capital allocation priority is kind of after that and maybe in that and you can talk about.
Recent increases, but also kind of how you're thinking about and.
M&A, especially.
And I would say a little bit of M&A pick up.
A deal announced last week and the lepton.
Yes, it's a good great question of IRA and I think as you said and as we've communicated with 2021 and the cash flow generation that we expect.
First priority is getting to the leverage target and we think we'll achieve that this year.
Over the course of this year and I think beyond that we.
We have a handful of opportunities to invest that incremental cash flow generation and.
On the capital structure as well as continuation of finding attractive opportunities around our assets, where they're synergistic bolt ons or consolidation plays I think that the.
Priority <unk> of that obviously is a function of how the market continues to evolve and move and kind of what assets are available and how our capital structure continues to evolve and we.
And we like the risk profile of guaranteed returns and continuing to enhance our long term financial flexibility while at the same time, we obviously also like continuing to increase our competitive positioning and advantages around the core basins that we operate and where we have those kind of top tier franchise position. So.
It's hard to precisely to take where we expected to allocate those dollars and numerate those dollar specifically today.
Obviously, we're very happy and fortunate to be and Additionally, we have those dollars and as the year progresses, we'll continue to optimize how we make the best return on that and position our company for the greatest long term success.
Great. Thanks, Dave on everyone.
Thank you.
Our next question is with net Paramount with Wells Fargo. Please proceed with your question.
Hi, good morning, Thanks for taking the question.
And just looking at your guidance for the storage and transportation segment. It seems that the expected contribution in 2021 is about.
$10 million give or take lower than the guidance you had for this segment in 2020 could you maybe talk about what is driving the year over year decrease and I mean, given the higher contracting on cold the increase demand for <unk> and then what typically stable cash flow from stagecoach I would've expected.
And to the either flat or slightly higher.
Yes, the primary driver of that.
And to a small extent very small extent the state facility that the biggest driver of that is really on the colt asset and while we have seen increasing demand for rail loading services. That's traditional rail loading services at that margin. If you will recall back in the second quarter of 2020 that asset performed exceptionally well and connection with the <unk>.
And volatility and.
And utilization of our storage and other positions, we have up and cold and so I would say that the second quarter results of last year.
And indicative of how that asset can perform and those type by type of events take place, but probably not a base level of cash flow that we would underwrite as being here and your year in year out repeatable going forward.
Got it and then my.
Second question can you can you maybe just talk about the <unk>.
Capex incurred to complete the arrow can make sure and read the true company's pipeline and the Bakken.
They are not.
Okay. That's great. That's all I had and I. Thank you.
Thanks Ned.
Ladies and gentlemen from and we are.
<unk> reached the end of the question and answer session and I would like to turn the call back over to Bob Phillips for closing remarks.
Thanks, Maria and thanks again for all the great questions and.
As always we appreciate everybody's interest and Crestwood and the support of our investors our customers our employees.
And friends of the company, we had an outstanding year and 2020, despite unprecedented market conditions to me that speaks to the diversity of the portfolio.
And the ability of our 30% storage transportation and logistics business to offset any kind of disruption and production and our G&P business. That's the easy way to understand what happened.
The reason for the big increase year over year was because we invested a lot of money and the last three years to four years and building out the infrastructure and that is the real benefit going forward to generate.
Hopefully $100 million to $150 million year on free cash flow. After distributions that again is a result of years of investment and the right place great acreage and financially strong customers and.
And a very constructive price deck at $55 to $60 a barrel there is upside to this and we put that in the high side. There's also downside if.
And if the pandemic roars back and we see a slowdown and the recovery.
And as a result, we see a big impact on oil and gas production. We don't think that's going to happen, we think we've been pretty conservative and our guidance.
Particularly optimistic about how well our assets are running today coming out of the fourth quarter with a lot of year end exit rate volume and a lot of positive momentum here on the first half of the year, but we do expect drilling and development to pick up and the second half of the year as prices get a little bit harder and a little bit farmer and.
Producers get comfortable with this price debt throughout the year. Many have been hedging at these higher prices and are locking in really good commodity prices and good net backs for their production. So while it may feel a little slow to start the year, particularly with the weather event that we.
Had last week.
And we certainly think thats going to pick up steam later in the year I want to highlight ESG. One more time. It continues to be something that's very important to us at Crestwood, because it's important to our investors. It's important to people that support the company, we remain committed and all facets and admissions.
<unk> and diversity and inclusion and improving our governance structure.
Crestwood has a unique MLP out there and that we have consistently provided distribution and good return to our investors over the last several years and I think that consistency and stability.
Is a very important aspect when when investors think about making an investment and Crestwood, we're very comfortable where we are financially Robert and the finance team have done a great job of navigating.
These market conditions over the past couple of years.
We're happy where we are from a leverage standpoint, but want to continue to improve and delever the balance sheet, all creating liquidity. So that we can be opportunistic when opportunities come along for us to grow the business and the areas that we operate or and the businesses that we're very comfortable with up and down the value chain. So I'm really excited.
And about 2021 as we start our second decade here at Crestwood. Thanks.
Thanks for everybody's time. This morning, we look forward to talking to you again throughout the year and I know, we have a number of investor conferences, starting up this week. So I am sure. We will have one on one time with many of you that are on the call. So thanks again, everybody hope that you stay well stay healthy.
And continue to have a good year in 2021. Thanks.
Yes.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.