Q1 2021 Crestwood Equity Partners LP Earnings Call
<unk> the results 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 of 1930 for that are based on assumptions on information currently available at the time of today's call. Please refer to the company's latest filings with the SEC for a list of risk factors that may cause.
Cause actual results to differ Additionally.
Additionally, certain non-GAAP financial.
The measures such as EBITDA, adjusted EBITDA and distributable cash flow will not will be discussed reconciliations for 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 management team will be available for the question and answer session with Crestwood current analysis following the prepared remarks.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder of this conference is being recorded I would now like to turn the conference over to your host Bob Phillips.
Thanks, operator, and good morning to everyone. Thank you all for joining us.
Today.
We're certainly excited too.
Announced on another great quarter.
The portfolio was resilient during the quarter and the employees did an absolutely phenomenal job given all of the challenges we face the at the industry faced throughout the quarter.
I think it's important to note that we're more than a year and of the COVID-19 pandemic.
And while we're all used to working remotely I know here at Crestwood, we look forward to.
Being able to meet our investors and analyst in our Crestwood stakeholders in person later this year, we're anxious to get there and know that you all are too.
We continue to take employee and contractor safely safety very seriously here at Crestwood.
We have not let the pandemic hinder our goal of becoming a best in class midstream operator, we simply just didn't take the last year off we've made a lot of progress in the past year on a number of our long term goals.
Including positive free cash flow really excited about that.
For a strong balance sheet.
Near term maturities.
What we think is an industry, leading sustainability program here at Crestwood and most recently and I'm really proud of this.
The team put together a buyout of our general partner for.
First reserve, which we think will transform crestwood MLP governance structure.
Two of best in class and it probably elected board of directors.
When you combine that with very impressive outperformance in the first quarter of this year under difficult circumstances.
And listen to our message and the <unk>.
Color around our portfolio, which we think underpins our very positive outlook for the remainder of 2021.
We think this is an exceptional start to the year.
Robert is going to cover the first quarter in detail I do want to highlight some things that I think are important for you to take note of starting with adjusted EBITDA of $165 million and distributable cash flow of the $108 million. Both were increases over the first quarter of last year both of a record quarterly result.
And our 10 year history for Crestwood, and both were well above consensus estimates.
We did generate first quarter free cash flow after distributions of $64 million also of record. We're on track and I think Youll note that we expect that free cash flow generation to continue throughout the year and get our debt level back to our target level.
We did use that free cash flow.
To reduce debt.
The resulting in the first quarter leverage ratio of four two times.
That includes the $268 million that we bought the complete the 11 5 million common unit buyback from first reserve. So you can do the math there.
And importantly, we posted a record distribution coverage of two eight times thats the highest coverage ratio. We've had in the 10 year history of Crestwood as an MLP.
Additionally, in the first quarter, we took advantage of higher commodity prices.
To reset our gathering and processing of percentage of proceeds contract margin 2021 hedge book.
And we made really good progress on a handful of 2021 on capital projects, where we're expanding our Bakken our powder River and our Delaware Basin gathering systems.
So looking forward by the end of the second quarter, we will have invested about 80% of our 2021 capital budget.
Which is the reminder was $35 to $45 million.
And we have a number of rigs running on our assets again, so the timing.
Could not have been better and Robert <unk> will speak to the rigs that are running on our assets the.
The combination of these expanded facilities and leading to increasing volumes and higher margins that we've locked in for the second half of the year puts us squarely on track.
To achieve our revised 2021 guidance.
Which should generate free cash flow on the range of $130 million to $180 million and as I said allow us to meet our number one financial objective and that is the continued debt reduction down to our target range of three five to four times I think the company is hitting on all cylinders right now.
Notably during the quarter, our employees had their hands full as almost everyone in the energy business did.
With the extreme weather event winter storm Yuri that affected production volumes.
From North Dakota to of Wyoming to Texas in fact, and when you look at the tables in the back you will see some volume reductions and those are largely attributable to shut in volumes that we had during the storm offset by as we've always already pointed to higher margins do.
Due to the resiliency of our portfolio I thought the company did an outstanding job and we've heard that from our customers how much. They appreciate the great work that our operating teams did in ensuring safe and reliable operations for.
For our producers and our customers on the downstream side throughout this extreme winter event I know that different companies have reacted different ways to the storm net net winter storm here was a positive in the event for Crestwood because of our portfolio and our incredibly dedicated employees, who kept the lights on GAAP.
The gas flowing through the gathering systems processing plants and out of the storage facilities, notably at Tres Palacios, which is our natural gas storage facility located on the Texas Gulf Coast, we generated approximately $10 million and adjusted EBITDA net of Crestwood remember, that's a 50 50 joint venture.
With Brookfield.
And that was entirely due to prior winter realization efforts in the backup generator that we had invested in previously which allowed our facility uniquely to remain operational and meet demand from our firm customers and I want to point out that.
That those those employees down of trace did a yeomans job in keeping that facility going during the winter storm here, despite the loss of commercial power.
We were able to deliver over five bcf of gas to our customers, which was more gas than any other independent storage facility in Texas delivered during that critical week in February so really proud of the job that those guys did for our customers.
Also during the first quarter I think Crestwood took a really big step forward certainly in the 10 year history of the company. This was a milestone event for us when we simplified our organizational structure through the successful by end of first reserves limited partner and general partner interest that's the entity that we can.
Call. It Crestwood holdings. So if you hear us refer to the holdings transaction, that's the buy in of.
First reserve true.
Fans action provided what we thought was a very elegant solution for the first reserve to exit their 10 year investment and Crestwood and set up the partnership for success going forward and I want to take this minute to publicly thank our partners at vs are for the long term relationship that we've had with them since two.
<unk> thousand 10.
They've been of great partner and of Great sponsor and we look forward to continuing to work with them on our Delaware, Delaware Basin joint venture, where they retain their interest and we're really excited about the future potential of that investment for the first reserve as well the <unk>.
<unk> Holdings transaction was very well received by the market.
It enhanced our alignment with public investors certainly improves our financial flexibility it increases our public float while at the same time, reducing the total number of common units outstanding.
The secondary offering where we sold off some of the first reserve's units.
It was oversubscribed and it was bought by some extremely reputable dedicated long term institutional investors, we consider the entire trends transaction to be a win win win transaction for everybody.
Now as part of the holdings transaction.
We announced that we expect the transition to a publicly elected board of directors.
It is something that we started messaging back in the third quarter of 2020. It was aspirational band we didn't have specific plans.
But as time went on from quarter to quarter, we work shoulder to shoulder with first reserve and our independent board of directors.
To get this deal done.
As a result.
We bought in the GP interest in the Crestwood. So we expect to expand our board further we will continue to focus on board diversity as we expand the board.
And we expect to hold our first board elections in the spring of 2022.
And at that point in time, Crestwood will be one of only three existing midstream mlps that has publicly elected board.
We think that adds substantially to our ESG program. Additionally, Additionally on the ESG front our team is working towards publishing Crestwood third annual sustainability report.
As a new.
The point of this third report these disclosures will be in accordance with the task force for climate related financial disclosures. So youll see some additional information about how we are dealing with emissions here at Crestwood.
This past year, we've done a lot of good work on methane emission reduction targets.
By tying it to our executive in our employee compensation plans.
We're certainly looking now at some of the industry is.
To potentially make investments for responsibly sourced gas or RFG.
You'll hear us talk about that more in the future and we continue to collaborate with other midstream companies and trade groups across the midstream industry like the ASC and the GPA to educate the country on the benefits of responsible energy development.
On encouraging ESG best practices, so really proud of the leadership role that the team has taken across the industry in ESG.
I guess is the final note looking forward.
Pointed out we're seeing growing activity across our G&P assets, where producers are in fact, showing capital discipline as we all hoped for.
But rig rig counts on our assets continue to increase.
As the economics for us.
<unk> very very strong in the areas that we operate in the Bakken the powder and the Delaware and because of high gas prices now in the Barnett as well.
With crude oil hovering in the $60 per barrel range of our producer customers have eight to 10 rigs operating across our systems, even more completion crews.
Taking care of some of that DUC inventory and we are starting to have incremental discussions about adding additional drilling locations to the schedule in the second half of the year and early 'twenty. Two so the outlook remains positive I guess the last point I know that some of you want to ask about the <unk>.
Stagecoach divestiture of process, which are which were running with our partner of consolidated Edison.
We've been engaged in that process for a while now we expect to have more information on that process in the coming weeks.
But I can tell you that we've been very encouraged by the number and quality of <unk>.
Participants in that process.
So with that as the final note just really proud of the job. The team did in the first quarter and I want to turn it over to Robert Halpin for a review of the first quarter financial results and the Big an update on our 2021 on guidance Robert.
Great. Thank you Bob the <unk>.
Bob's comments I am also very proud to report another strong quarter for Crestwood.
In the first quarter, our assets generated record adjusted EBITDA of $165 million add up 9% year over year.
And distributable cash flow of $108 million that up 15% year over year, both above our internal forecast and above consensus estimates.
These results drove free cash flow after distributions of almost $64 million, which we used to reduce debt on the balance sheet, resulting in a leverage ratio of four two times at the end of the first quarter.
Crestwood maintained its distribution of <unk> 62, five cents per unit for the quarter, resulting in a coverage ratio of approximately two eight times.
Now, let's look at the quarterly operating segment results.
In the gathering and processing segment first quarter, EBITDA totaled $120 million, which was flat year over year. These.
These results were driven by higher commodity prices that had a net positive impact on crestwood percentage of proceeds contracts in the Bakken and percent of index contracts in the Barnett and that went a long way to help offset some of the small volumetric declines or impacts that we saw as the result of the winter storm.
As a part of Crestwood conservative risk management practices.
Took advantage of favorable commodity price movements in the first quarter to reset our overall hedge position for over 50% of our.
<unk> volume across the portfolio at attractive prices for the remainder of the year, which drives upside from our original budget and guidance range and provide cash flow certainty towards achieving our increased guidance range.
Lee we have 10 rigs the operating on acreage dedicated to our G&P system in the Bakken the powder River basin and the Delaware Basin.
This level of activity is expected to drive an increase in well connects in the second and third quarters, which will drive volume growth into the summer months and into the back half of this year.
In our storage and transportation segment first quarter, EBITDA was $20 million compared to $14 million in the first quarter of 2020.
The first quarter 2021 results exclude the impact of a $140 million goodwill impairment taken on our equity investment in our stagecoach joint venture.
This impairment charge as a non cash adjustment of the fair value of the assets based on market based information that was received during the quarter day.
<unk> has continued to see record demand as a result of increased production in the Marcellus and as a result, both the storage and transportation assets are nearly a 100% contracted.
Moving to the colt hub rail loading volumes in the first quarter of 2021 increased 17% over the fourth quarter of 2020 as demand has continued to increase for crude by rail takeaway in light of the remaining uncertainty around Apple.
Finally, as Bob mentioned in his remarks, the Tres Palacios storage facility and our employees down at Tres performed exceptionally well during the winter storm, which played an important part in driving segment results during the first quarter.
And the marketing supply and logistics segment first quarter, EBITDA totaled $31 million compared to $26 million in the first quarter of 2020.
During the quarter, our gas marketing business benefited from market volatility driven by extreme weather and Crestwood NGL marketing and logistics team continued to see consistent retail demand.
Going forward Crestwood NGL business expects to see increased commercial and refinery demand as the economies continue to reopen across the country, which will drive enhanced margin opportunities for the business.
Now moving on to the capital investments for the quarter Crestwood invested $9 million in growth capital and joint venture contributions, which were focused on our produced water system expansion that arrow and well connects in the Delaware Basin we.
We continue to expect full year growth capital to be in the range of $35 million to $45 million with maintenance capital in the range of $20 million to $25 million.
As we've previously mentioned at the end of March Crestwood announced several important transactions that resulted in a simplified corporate structure and facilitated first reserve's complete exit from its investment in <unk> on.
On March 31st Reserve closed on a private placement of 6 million common units to a high quality institutional investor base for proceeds of $132 million.
In conjunction with that secondary offering Crestwood purchased first reserves remaining 11 5 million common units and the general partner interest for $268 million, which we financed on our revolving credit facility.
By retiring 11 5 million common units.
<unk> reduced its total units outstanding by 15% driving substantial accretion to distributable cash flow of per unit, which will also help drive $29 million in annual distributions savings at the current distribution rate, which results in incremental free cash flow of distribution after after distribution.
To accelerate our debt reduction objectives going forward.
In connection with this announcement.
Towards the board of Directors also authorized a 175 million common and preferred unit repurchase program.
While establishing the buyback program creates greater optionality for our strong expected free cash flow generation going forward, let me be clear, we remain firmly committed to prioritizing our free cash flow towards debt reduction until crestwood reaches its long term leverage target of three five to four times.
Once we realize that target we will continue to leverage the financial the financial flexibility that we have to further optimize our asset portfolio and capital structure and potentially capitalize on our buyback program as opportunities present themselves.
Last week, the Crestwood close the redemption of the remaining $288 million of fixed and one quarter percent senior notes due 2023 at par by utilizing incremental borrowings on our revolving credit facility.
Pro forma for this transaction Crestwood has $2 6 billion in long term debt outstanding comprised of $1 $8 billion in senior notes and $818 million drawn on our one 5 billion revolver.
With the full redemption of the 2023 notes our next senior note maturity is not until 2025.
Crestwood currently has more than $400 million in availability on the revolver, which when combined with our substantial free cash flow provides crestwood more of an ample liquidity to execute on our go forward business strategy.
I am very pleased with where Crestwood is positioned at this point of the year. We have of line of sight on strong volumetric increases on our G&P assets and strong utilization on our S&P and <unk> infrastructure into the middle of this year, which gives us confidence in the assets ability to generate between 570.
$5 million $625 million and adjusted EBITDA for the full year.
We also have a solid balance sheet highlighted by strong coverage and leverage ratios. We remain on track to generate total free cash flow after distributions within our revised guidance range of $130 million to $180 million for the year.
And with the first reserve transactions, we bought back 15% of our total common units outstanding resulting in material accretion to our unit holders and cash distribution savings, resulting in significantly increased distribution coverage, all while increasing our total public unit flow.
Finally, we delivered on our stated commitment the best in class governance by taking action to eliminate our GP governance structure and put in place a path to a publicly elected board.
We believe that all of these accomplishments taken together further differentiate crestwood from our peers and we will continue to drive increased value for our unit holders at this time, operator, we are ready to turn the call over for questions.
At this time, we'll be conducting a question and answer session.
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One moment.
Call for questions.
Our next question is the way.
Sure sure sure.
Please proceed with your question.
Hey, good morning.
Guys congrats on the transaction.
Just a quick question about stagecoach.
Talk about the the impairment there it sounds like this was.
From the sort of annual test can you talk about sort of what factors came into play during the comments strategic review that that maybe triggered this action.
Okay.
Interest in this Bob I'm going to go first and then I'm going to turn it over to Steve <unk>, Our Chief Accounting Officer.
As you know we've been conducting that process for a while on behalf of.
Con Ed our partner.
There have been several steps to the process and from a purely timing and sequencing standpoint.
We just recently got.
Not really into the meat of the process with the various participants many of which had been conducting relatively extended due diligence as you would expect.
On that process. So the combination of the recent transactions like the on GPO deal and our own knowledge or feedback from that process. What we were hearing from participants.
Cause dock to need to take a second look despite the fact that we had already just taken a look at that.
On our normal year end.
<unk> of valuation so Doc you want to go through the basics of how that works for people that aren't accountants.
Totally so likely described in our year end 10-K.
Stage credit, which is our equity investment did an evaluation of its goodwill.
That was the for consolidated Edison and Stagecoach received any market based information related to the potential sales process. So that information was received here in first quarter. When some of the bids started rolling in related to their potential process.
Based on the information that we received we had an indication that the market value of <unk>.
Page coaches assets was below its carrying value so because of that stagecoach recorded an impairment of which we recorded our $120 million share of that so.
So that result, as we indicated in the earnings release, and ending investment balance for us of $666 million related to our investment interest and the last point I would range on that is just from a market based approach. We also had a very comparable transaction announced.
At the similar timeframe with the in GPL trade.
Coming in at 11 to 12 times range, which was kind of also on the ZIP code of how we assessed fair value of first quarter based on those events.
Really helpful. Thank you guys and then just.
Follow up for me can you talk about maybe the high end and low end of the guidance range relative to the 45 plus.
Well completions. This year you guys discussed.
If we see the level of activity that you're seeing currently in the second quarter does that sort of.
<unk> on the low end or maybe just kind of frame up the 45% versus the high and low end.
Yes, I think that the.
It's a good question and I think that when you look at the 45, plus well completions as we expect today, coupled with kind of where the forward strip is on the commodity price.
All three commodity prices that are factored into our plan and where we've got hedges I think we're feeling pretty good about where we're trending relative to the range of $5, 75% to 625% with 45 wells on the pricing holding in I think you are trending towards the upper.
I think with where we are right now.
Our producers have added rigs pretty meaningfully in the first quarter as the comments that we have 10 rigs operating actively on our systems in the Bakken and the powder River on the Delaware.
I think that has firmed up the.
The 21 development plans that we had hoped for and as Bob alluded to in his comments I think there are incremental discussions around potentially adding to that in the back half of this year early part of the next that helps further for the drive throughput.
It's credit Robert Thank you guys very much.
Our next question is from.
Yes.
UBS. Please proceed with your question.
Good morning, guys of snare.
Price units there.
Just a quick follow up care interest in the questions before I jump into line just given the process that you have.
Rebased Youre Stagecoach investment based on everything there.
Does that change whether you're interested in participating in the content process or not relative to when you last updated us on the fourth quarter call in February.
So that's of Great question.
It's something that we think a lot of about ourselves here based on what the potential outcomes could be.
Will Moore has been running that process for us.
I think it would be good for him to give everyone an update on the process itself because the point that I made was we've been pleasantly surprised with the number of participants and the quality of the participants which to us speaks to the real value of the asset at.
This point in time and I hope people are not confused by the impairment that is accounting and we have to do that based upon the information that we had not only precedent transactions like.
In GPL.
But indications of interest that we received in the early part of the process. So we will I think it's helpful for people to understand the timing and the sequencing and just the overall positive.
The back that we're getting on the asset itself, yes, thank Bob and the record volumes of Theyre running right now I think that's the important part of the business is performing well ahead of plan for the year and we continue to see that for the balance of the year. So thats great fundamental backdrop to be participating in this process with our partner Con Ed I think from evaluation perspective lots of surprise.
On where the values are shaking out here is more of just the timing of when we receive those values and then the accounting treatment that we had to apply to those values.
But we're going to be opportunistic on this process rent, although at the B, a good partner and maximize value for con Ed and so that could go a number of ways here and we'll know more on the coming months and report back to you then.
And before we leave that Robert if you want to add anything from a financial perspective fine if not I mean, I think from here I would answer the fixed for itself I would answer your question more directly and net no. It hasn't changed our thought process at all I think we've been pretty vocal around our active participation with our partners Con Edison.
We've been pleased with the level of participation of number of high quality participants as will said.
<unk>.
The value range is that we're talking about at.
On a strong solid double digit type multiple.
I think we have a lot of optionality to think about how we want to play that and drive greater value for our long term strategy.
Sure.
That is almost of free drop for us. It really is it will be based on the totality of the circumstances because of the point that I made in my opening comments I want to make sure everybody gets if we hit our numbers through the rest of the portfolio and deliver the $130 million to $180 million with free cash flow, we're going to do.
Our leverage ratio back in our target range of $3 five for.
So this really is a lot of positive optionality for this partnership going forward and you guys have to trust us that we'll make the best decision under the circumstances based upon what the market tells us.
Really appreciate the color of just a clarification question, but the extent of color is definitely helpful.
Just two specific questions with respect to the <unk>.
The lease today.
I was wondering if you can talk about the declines in Aero.
Is it a function of the better than expected activity during the for Q&A I'm focusing more on the cash and the crude side.
Is it a function of the better than expected activity that you had during the fourth quarter.
And then as the results you have a larger percentage of wealth in their first year decline and Thats why you had such a high decline rate during the quarter and will this moderate going forward as it balances out just wondering if you have any any color that you could help us with respect of that.
Yes, absolutely the Cheniere and I think it's important you commented on kind of delay the three streams all work together because the gas volumes are on the level that we've seen has been a very positive dynamic towards margin generation up there, but the direct answer to your question is as you said, we had 21 well completions in the fourth quarter of that stacked up in the November.
<unk> timeframe through.
Through the early December timeframe that put our system shortfall from the flush production standpoint at the end of the year as we communicated in our guidance and in our general expectations with producers given the winter.
That usually takes place in North Dakota, and this winter in particular with some of the extreme conditions that we saw we had zero completions in the first quarter and we saw some production freeze offs.
During that period of the of the winter storm event. So those two factors are what drove the first quarter relative to fourth quarter change. We currently have active rigs running and we've got 10 to 15 three products just a great product connects and 10 to 15 water can actually expected here in the early part of the second quarter and I would expect that Youll see those.
<unk> levels.
The step back up where we would've expected on them in the balance of <unk> and into the second half of the year.
Great and one for.
Final question.
You talked about on your prepared remarks on in the release about the authorization to buy shares and the preferreds.
But she also emphasize of leverage reduction of the primary priority.
Do you consider the prep.
Kind of a hybrid towards that debt.
Leverage goal as well too just given the high coupon on it.
With that the your preference before getting to share buybacks, but just kind of curious if you can talk about the order of priority on whether the prep would be part of your goal around the leverage reduction.
The short answer is yes, we think about prioritization is first get leverage from a true of indebtedness standpoint for the three five to four times target, we've talked about combination of free cash flow generation and other potential catalyst events that could pretty quickly accelerate to those levels.
And then gave US further optionality to look at look more broadly to the capital structure from there. It's the balance between overall financial leverage reduction inclusive of the preferred in that calculation cost of capital and maximizing return on that capital investment as we allocate those excess dollars two of those various securities and so that's the fault calculus on.
Really the breath and the comment on publicly traded and they move around every day in terms of what the cost of that is but.
But we do have an ultimate objective to reduce financial leverage across the structure of broadly inclusive of the preferred while also maximizing return on that investment and driving lower cost of capital overall.
Perfect.
Thank you very much really appreciate the comments on that.
Our next question is from credit.
With Barclays. Please proceed with your question.
Yeah, Hey, guys good morning.
Thanks for taking my call I guess.
I appreciate all the comments, thus far on on the backend, but maybe just to circle back there.
How would you characterize the conversations youre, having up there.
More generally I guess, it's no secret that rig counts as they stand today are still well below.
Pre pandemic levels.
Do you see that sort of marching steadily back up over time do you think producers are waiting.
For clarity on dapple.
Just be curious to know sort of what indications you are getting on that front.
Great.
Thanks Christmas of Dr kind of Vinci.
The conversation, we're having on the general nature are absolutely positive, especially towards the back half of the year.
We are seeing activity come back into the basin right now there's still a healthy inventory of of Ducks out there that they'll get after so activity is absolutely robust and were looking forward to the.
The rest of the year.
Okay. I mean, do you sense any any hesitancy on on their behalf due to the situation with dapple or you think that the secondary consideration for them at this point of course not at all of our customers are quite confident on our ability to evacuate barrels and their ability to evacuate barrels with the apple less in the third of our.
Volumes currently are on dapple, and we've got plenty of excess capacity beyond Apple on the other pipelines throughout the basin as we mentioned in the last earnings call. We've got the the true company Bridger Forbearance pipeline that just recently got connected and as you are aware they've got some expansion projects out there.
Shortly within a month, we should be able to push into the 70000 barrels of incremental ones the bigger.
At the end of May So we've got that solve for our customers with cold out there too we've got backups format. So that's not a non issue of them traditionally you generally say very little rig activity in the winter months.
Always picks up in the second and third quarter of distance we had in the last several years very active third and fourth quarters, we expect that to continue.
Okay.
That's helpful. Thanks, that's it for me.
As a reminder.
The question.
On your telephone.
Our next question Rob.
J P. Morgan. Please proceed with your cash.
Hi, good morning.
Of note.
The high end.
Okay.
Thank you.
Firstly on <unk>.
The gasoline declined 8% on <unk>.
Great.
Quarter over quarter.
I understand like how the Fortinet Ain't worth of it Adam.
On the AG.
Thanks.
The cap, Canada is there any EBIT right.
The Canadian gas and coal.
The gas ratio.
Yes, I think every day.
It's a great question and I think Theres a couple of factors driving into one as we mentioned when you are comparing quarter over quarter.
In North Dakota update around our arrow asset you've got the flush production that stemmed from the large number of completions at the end of last year.
Then the than the winter months through the first quarter of this year, where we did not have any completions as expected and then adding to that you had some production shut ins due to freeze offs for that call. It three to five day period.
During the winter storm.
As we have talked about we have seen a growing phenomenon up there across the basin and certainly around our assets around and increasing gas to oil ratio, that's driving very strong utilization on our gathering and processing assets, which is certainly a favorable dynamic that's our highest margin business and will help.
Drive our cash flow profile going forward. So when you kind of try to compare this quarter. The last you've got some noise in it driven by the weather events that took place and that continued development of the <unk>, but overall, we do expect gas volumes to trend more favorably than our water and crude volumes as incremental.
Completions come on line.
Got it thanks.
And then one other question on so.
So as.
As mentioned.
We will keep on track from the Bakken that kind of spend.
The getting the line queue just follow on if any.
Any guess on how might the adding back would it be.
The especially kind of setting volume upside when you think about second half of paint line.
On a lot of from recent equity coming up in second quarter.
It looks like there will be some williams of flip on.
Hang on.
Margins remain the same.
How should we think about the margins in that case.
Sure. So on the on the percentage of proceeds side, we've talked and we havent gotten into specific contract levels down for the basin and specific customer contracts, but we have disclosed.
For a number of for a lot of time now is around our overall margin and roughly 15% of our overall portfolio I can tell you think we've talked about it publicly with the update to our hedges, which we measure of the first quarter and with where the current strip is we think we've generally locked in about $20 million of incremental margin generation.
Relative to what was in our initial guidance range. So part of the revision upward was our more bullish outlook on development and throughput, but also on more bullish outlook on commodity prices and now having locked in a good chunk of that through our hedge program.
When you look at the volumetric uplift in the overall margin generation.
As I just mentioned it does matter, which volumes are moving whether it's gas for gas.
Gas crude or water.
And the gas side in particular, where the Gol has been improving we have a structure, where we get to gather and process and generate fees on that and margin through the value chain and so I think that the overall margin on a per molecule basis is higher on the GAAP than it is on the crude and the water.
It is a favorable dynamic towards the overall margin and cash flow generation across the three product assets.
Alright got it.
One last question if I may.
So you kind of mentioned Jackalope foundation for a much.
Back to us.
Do you think of any upside potential.
And just wanted to add on.
On the relation to having getting net.
Yes, I think that there is.
I think 2021, we've probably got decent line of sight too, but I think certainly as commodities have stabilized and improve theres been some of active M&A activity in the basin and I think there will potentially be some more.
In the coming quarters or year, and I think that our assets continues to be well positioned from a capacity standpoint to handle some of those volumes as those two factors play out specifically, we mentioned that we've got our completion activity has not changed thats largely driven by several well.
Oxy development.
Which was part of the late 2020 plans that got deferred to 'twenty one.
Oxy has continued to accelerate their appraisal program and we think there is incremental opportunity going forward with them. In addition to that we've seen activity obviously from continental around the acquisition of Sampson.
<unk> has continued to be an operator, and I think over time Chesapeake on their physician, whether it's them or through the potential divesture over time I think we see.
Good productivity around accelerated development, there just given where commodity prices are so certainly on the longer term outlook kind of 'twenty two and beyond I think we think the based on the setting up very well for.
For incremental development of throughput and our assets are well positioned to play a part of that.
Got it thanks, a lot guys that's it from.
We have reached the end of our question and answer session I would like to turn the floor back over to Bob.
Concluding comment.
Great. Thanks, operator, and thanks to all of you for joining US. This morning, obviously, we're really proud of what the assets and the team did in the first quarter of this year.
I think if there is of a message from this it's that we have an increased degree of confidence about our revised 2021 guidance. So I just want to remind everybody.
We put that guidance out when we announced the Crestwood holdings transaction.
So for the year is shaping up materially better for us than we thought it was.
We've got rigs running on Arrow jackalope.
Our Williston brings and and novel of systems in the Delaware in the Barnett because of higher gas prices in Texas, our operating expenses G&A, we cut $40 million out of that last year, and we think thats a permanent cut that's not going to come back as of as volumes increase our balance sheet.
<unk> is probably in the best shape that it's been in a long time.
The team did a great job of getting off of $700 million offering in January had very low cost that deal was accretive to us and it pushed out all of our near term maturities. We've got plenty of financial flexibility on the balance sheet plenty of liquidity to run our business.
And we continue to make great progress on corporate governance, which we believe is very attractive to investors on the margin when theyre trying to differentiate.
<unk>, we can't speak to the broader issues of taxation.
Or.
Changes in the and the administration's policy towards fossil fuel what we can continue to do is be the best MLP, the best gathering and processing company the.
The best small to mid cap stock out there in this space.
We think that thats attractive to investors, so I want to congratulate the.
Leadership team here at Crestwood for continuing to do a great job navigating through all of these issues really proud of the portfolio that we have and the employees.
We have that are committed to performance every quarter I think we're going to have an outstanding 2021, and if we come in at mid point on all of these guidance as they will be records again in our 11th year history of Crestwood. So at least at this point in time, where the positive commodity price outlook.
And really good conversations that we're having with our key customers and all of our areas. We're very very optimistic about the future and operator, we will leave it with that and thank you all for joining US. This morning hope everyone has had as of <unk>.
The rest of the day and the rest of the week. Thank you very much.
Yes.
This concludes today's conference. Thank you for your participation you may disconnect your line.