Q3 2021 Crestwood Equity Partners LP Earnings and Oasis Petroleum Inc Merger Call
Yeah.
Good morning, and welcome to today's conference call to discuss Crestwood equity Partners' acquisition of Oasis midstream and its third quarter 2021 financial and operating 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 Commission Act of $19 34 that are based on assumptions and information currently available at the time of today's call.
Please refer to the company's latest filings with the SEC for a list of risk factors that may cause actual results to differ.
Additionally, certain non-GAAP financial measures such as EBITDA, adjusted EBITDA distributable cash flow and free cash flow will be discussed reckon.
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 our senior management team will be available for the question and answer session with Crestwood current analysts following the prepared remarks and at this time I'll turn the call over to Bob Phillips.
Thanks, Josh Thank you operator.
Good morning, everybody. Thank you for joining us early today.
This morning, we are very pleased issued two press releases.
And we've also posted as a brand new investor presentation on our website, which I would encourage everybody to take a look at got some good stuff in it.
First I want to let you know that we're very pleased to report another really good quarter in the third quarter another consecutive quarter of outstanding financial and operational results.
Again highlights our diversified midstream portfolio and once again, we exceeded consensus forecast so.
Really proud of the quarter that we just announced importantly during this quarter. We continued to operate good Crestwood way, we're optimizing our assets across all basins, maintaining our capital discipline.
Spending less than our budget, we generated free cash flow after growth capital and distributions for the fifth consecutive quarter Thats really important to us.
And we kept our leverage at approximately three five times or below well within our target all of this while keeping our momentum going to exceed the upper end of our 2021 guidance range, which was $570 million to $600 million of adjusted EBITDA.
I do hope with all that we're announcing today that it's not lost.
And all of this that while our Bakken operations again greatly exceeded our expectations.
To really do very well up there we've made really good progress in the powder River basin with our continental deal that we announced and in the Delaware Basin with a big expansion of our Novo contract relationship.
And both of those announced transactions will drive long term growth in those spaces too. So we've got a lot going on at Crestwood.
Across the board.
Obviously also very proud of the great job that all of our teams did during the third quarter. While we were working on the second press release, where Crestwood announced that we entered into a definitive agreement to acquire Oasis midstream.
Stock and cash transaction valued at about $1 8 billion.
I think Oasis midstream has an excellent midstream operator in the Bakken they've got very very complementary assets.
To both our Williston footprint and our Delaware footprint.
The merger makes exceptional industrial logic.
We smartly expand our footprint in those core basins makes a good deal of sense for both Master limited partnerships as the midstream sector begins to consolidate as we should to generate better returns for our investors and I can really call. This a win win win situation.
Proceed QP, our A&P and OAS, we're really pleased with this deal.
The combination as Youll read when you look through our materials.
<unk> Crestwood as a top three midstream company in the Bakken.
It adds another great Bakken producer to our portfolio in Oasis petroleum more than triples, our dedicated acreage.
<unk>, our inventory of tier one drilling locations and creates numerous synergies, including about $25 million a year in cost savings and about $20 million, a year and commercial growth opportunities or revenue enhancements.
But most importantly, it saves capital by optimizing the excess <unk> processing capacity.
For the increasing gas volumes on the arrow gathering system and I might note that arrow recently.
155 million cubic feet per day.
This is all happening while Bakken wide. The Geo ours are increasing as we all know and flare capture is definitely improving in that basin, which bodes well for increased gathering and processing volumes in the future.
Really excited about how this combination tracks our long term strategy. We've messaged. This for the last couple of years, we have some very.
Three important financial metrics in this deal checks all the boxes for value creation, we think it's a great follow up to the first reserve buyout early part of the year and the Stagecoach divestiture, which we completed in July.
And this deal is going to make a great 2021 for Crestwood. So let me give you some of the transaction specifics and then I know youll have questions for us. So it is a cash and equity transaction and its structure to maintain our very conservative metrics in.
Please understand that we have worked hard.
To protect and preserve our balance sheet and our liquidity and I think this transaction allows us to grow substantially in the areas that we know best preserves.
Preserves our balance sheet Crestwood is going to issue $33 8 million, new <unk> common units and we're going to provide a $160 million in cash.
In this deal as I said valued at about one $8 billion and at market transaction compared to yesterday's close and it gives crestwood about a $7 billion enterprise value. So definitely checks the box on size and scale.
The purchase price implies about a seven to eight times EBITDA multiple on 2021 cash flow.
With clear opportunities to bring that multiple down significantly over the next couple of years in 'twenty two 'twenty three as we realized cost synergies, we execute our strategies on integrating.
Businesses and commercializing the combined footprint the deals clearly going to be accretive in 'twenty, two and beyond at maintaining our target leverage ratio of three five times and.
And driving that lower over time, it preserves our substantial liquidity.
And it enhances our overall credit profile, so as I said it checks all of our boxes from a strategic and financial standpoint.
The rationale for the deal is compelling and think it will make logical sense for investors.
And the industry players alike, which have all been calling for consolidation and optimization of the existing midstream infrastructure still clearly hits the mark on all of those points. The combination greatly expands our Bakken operating footprint, which is our most important and profitable core area. We know the Bakken well we've been there.
Since 2012 in 2013 with the acquisition of Cold and Arrow.
Got an outstanding group of employees out there that run our business well, great producer contracts and relationships. It really is our favorite place to do business in.
And importantly, the Bakken continues to trade at very high oil prices in fact check the clubs. This morning, it's trading a little bit over WTS, probably has the best oil price and net backs of all of the major oil plays across the country.
With approximately 535000 acres dedicated to us after close our assets will extend well beyond the arrow system on the Fort Berthold Indian reservation and that expanded reach is going to give us a much more competitive position for third party opportunities as we see western development.
Across the Williston basin.
The merger clearly gives us Bakken scale makes crestwood a top three midstream player in the Williston basin.
And importantly on a combined basis, we will have four processing plants.
And about 430 million a day of processing capacity that will be 76% utilized giving us a lot of excess capacity about 100 million a day of immediately available processing capacity to utilize for increasing gas production from our arrow customers.
That has continued to exceed our expectation and is now pushing up against bear den plant capacity, so great synergy and the combination of our arrow business, our arrow plant complex.
And the Oasis gathering system and.
And while basin processing complex.
Based on current production forecast if you followed the Bakken I know many of our investors do.
North Dakota Petroleum Association expects Williston basin processing capacity to be constrained as early as 2024. So we're getting ahead of the curve not only solving for increasing volumes on arrow, but the opportunity to really be aggressive and chase third party volume.
Instead, our in the area.
That we know about would like to do business with a lot of thats current existing customers with additional acreage that we just don't have room for at bear den So theres going to be a great opportunity for us to expand our platform and be more competitive with third party supplies.
We're clearly going to avoid or alleviate potential constraints on the gas on the arrow production system, The third party business.
Is something that we've been looking at for a while but we didn't want to expand that.
<unk> plant. So this is a great fit for us the estimated $25 million year cost savings and the $20 million a year of commercial synergies or revenue enhancements to us is just icing on the cake for this strategically important transaction and as I said, the macro environment in the Bakken and across the entire industry.
Is ripe for additional growth in the near term.
Let's don't forget about the Delaware basin and that wasn't just to throw in through this acquisition. We're also gaining crude oil gathering system with about 95000 barrels a day capacity in the Delaware and a produced water gathering and disposal system with about 60000 barrels a day of disposal capacity I might point out that the asset.
That map on slide nine of our latest investor presentation illustrates the complementary fit with our existing Nautilus and desert Hills system down in the Delaware. Additionally, these assets are supported by dedication with a very high quality producer that we're excited to partner with their development.
Plans going forward, so a great combination of Bakken and Delaware really expands our footprint.
In both core areas.
Now the transaction clearly has a meaningful impact on Crestwood overall financial position and scale.
Pro forma our enterprise value as I said will grow from about <unk> 5 billion to $7 billion. Our annual pro forma 2021 estimated adjusted EBITDA will grow to more than $820 million, our leverage ratio will continue to be in the three to three five times.
By the end of 2022, which is where our leverage is today. So it's a leverage neutral transaction and we believe that both rating agencies view. This transaction very positive given the enhancement to scale, coupled with the strong balance sheet and the substantial total deleverage.
King of Crestwood, if you factor in our preferred equity as standard and Poor's does.
Their total leverage calculation, so going to be leverage neutral to banking and deleveraging to total leverage across our capital structure.
And given the confidence in the growing free cash flow profile of this combined business our ability to quickly integrate and bring those cost savings out Crestwood will accelerate our previously announced plans to return capital to our unit holders and we're going to be increasing the distribution by about 5% after.
The merger closes beginning in 2022, and I want to remind people that with all of that free cash flow.
We do have $175 million common and preferred equity buyback broke Graham.
That the board approved a couple of quarters ago, and that allows us to further enhance returns to investors and lower our cost of capital Opportunistically.
As we enjoy the benefit of that growing free cash flow over the next two to three years.
And I guess lastly, before I turn the call over to Robert I really want to take a personal moment and complement the Crestwood deal team led by Robert Halpin, Our CFO will Moore runs our Corp, Dev Yaacov <unk>.
<unk> tool group Curt Van Horn runs our Bakken ops. These guys had all of their support staff too many too.
Just worked tirelessly over the last couple of months to get this deal done we have a great Bakken team. We think we have the best Bakken team and North Dakota, they're chomping at the bit to integrate these assets.
And build Crestwood, a bigger better stronger Bakken platform I also want to compliment my counterpart, Danny Brown, the CEO of Oasis petroleum and his team, they're going to become our largest producer customer and a major unit holder of Crestwood Danny <unk>. Those teams have developed good relationships.
Through the acquisition of <unk>.
Diamondback acreage on the FBR on our Arrow system.
And we have a good strong working relationship we really dug into each other's businesses through this process, we're going to work very well together Oasis petroleum is a financially strong as you know first class E&P Bakken operator, and they share our vision of how to develop the Williston basin, both safely and responsibility.
Happy to be partners with them and I know they are as well and additionally, I should point out that they have assembled a first class group of but north Dakota employees across their midstream franchise.
It's a better group they've been working up there for a while these are great assets, they are going to fit well with us and we're very excited to welcome those oasis midstream employees into the Crestwood family. Following this transaction. So I know you will have questions on that note when it turned it over to Rob to discuss our.
The third quarter, and our financial outlook and I just want to say go Astros today as we kick off the World series Here Tonight in Houston, Okay, Robert tell us about the third quarter.
Thanks, Bob.
<unk> midstream transaction combined with our strong third quarter results and new commercial contracts in the powder River in the Delaware Basin make this a very exciting time to be at Crestwood.
To touch on the results first our diversified asset base continues to outperform our expectations.
This quarter, we generated $140 million and adjusted EBITDA.
$86 million and distributable cash flow.
$18 million in free cash flow after distribution payment.
We also completed the sale of Stagecoach gas services to Kinder Morgan and used our net proceeds to pay down outstanding borrowings on our revolver, which resulted in a leverage ratio of three five times and accelerated the achievement of our long term stated financial targets.
Based on these exceptional results the board of directors declared a distribution of <unk> $62.05 per common unit for the quarter.
For the 12 to unit holders of record on November the pit.
And looking at our operations for the quarter, the gathering and processing segment continued to benefit from favorable commodity prices and increased producer activity, resulting in EBITDA of $131 million, representing a 22% increase over the third quarter of 2020.
During the quarter Crestwood saw material increases in gas gathering volume highlighted by increases across the Bakken the powder River basin, the Delaware Basin and the Barnett systems.
Additionally, commodity prices increase substantially over the quarter, which drove increases on our pop contracts in the Bakken and our P&I contracts in the Barnett.
While the majority of our G&P contracts are fixed fee, we do have a meaningful upside potential when commodity prices catch a tailwind.
Conversely, as a part of the Conservative risk management program, we have an active hedging program, which appropriately manages downside exposure if prices were to reverse.
Now moving to the SMB segment as part of the divestiture of Stagecoach gas services. This past week.
We expect to close on the sale of the final subsidiary Twin theory pipeline in November.
This will result in an additional $30 million in proceeds were $15 million net the crestwood and we will use to pay down the revolver.
And the EMS segment, EBITDA totaled $12 million, which was flat when compared to the third quarter of 2020.
As we prepare for the upcoming winter season, we are well positioned to optimize our asset storage capacity and inventory to meet the increase in demand. Despite NGL market backwardation during the third quarter.
As we look forward to year end based on our strong year to date performance and the current favorable commodity price environment, we would expect crestwood to meet or exceed.
High range of our adjusted EBITDA guidance of $570 million to $600 million for 2021.
As Bob said at the beginning of the call we have been very busy these past few months.
In addition to the Oasis midstream acquisition, our commercial teams have done an exceptional job leveraging our existing assets to generate some big commercial wins in the powder River basin and in the Delaware Basin.
In the powder River basin, we entered into a long term agreement with continental resources to support them in the development of a large acreage position in converse County, Wyoming.
We have begun construction on a high pressure transportation line to connect continental's acreage position into our bucking horse processing complex.
<unk> is an exceptional operator, and we look forward to building a long term relationship with them in the coming years.
On the investment front based on the size and timing of the initial capital outlay for this project Crestwood still expect our 2021 growth capital to come into the previously announced range of $35 million to $45 million all of which will be funded with retained cash flow.
In the Delaware Basin, we are pleased to expand our relationship with Novo that will result in over 90, new well connections to our system over the next 24 months.
Based on the expected volume growth Crestwood is relocating several compressor stations from our southwest Marcellus system to meet increasing demand for gathering services in the area and drive project returns.
Want to congratulate our commercial technical and operations teams for working quickly to manage our asset portfolio.
Based on year to date financial results and the recent strategic initiatives Crestwood has differentiated itself as a best in class E&P, operator with significant financial strength.
As a result of our dedicated employee base and their track record of execution. We have set a strong foundation and provides the backdrop for crestwood to participate in industry consolidation with a logical acquisition of Oasis midstream.
This transaction makes breast with larger and more relevant in our core basin and also enhances our financial scale and relevancy with our Investor base.
As we move into the final quarter of the year and work to close the Oasis midstream transaction over the next several months.
We're encouraged by the current commodity price outlook and the implications around our gathering and processing assets.
We are excited about the enhanced scale, the operating leverage and financial strength that the combination with Oasis midstream providers and we look forward to using our expanded platform to create value for both our legacy and new unit holders in the future.
With that operator, we are ready to open the lineup for questions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Formation tone will indicate your line is another question Kim you May Press Star two if you would like to remove your question from Mccann.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, while we poll for questions.
Our first question is from Cheniere Krishna.
Please proceed with your question.
Hi, good morning, everyone.
Maybe to start off.
I don't want to put words in your mouth at all but as we sort of stand through the transaction in the slides and so forth just kind of wanted to understand kind of the takeaways that you wanted to leave us with that.
Yeah.
Should be neutral to enhance depending on.
How do you look at the preferreds.
In addition to generate free cash flow.
Distributions.
The deal provides an opportunity to push capex out that you otherwise would have had to spend and so putting it all together basically year financial metrics and trajectory of all kind of on the same path.
Since it was pre transaction.
So does that mean that you are in a position to opportunistically be buying back equity in preferred.
Upon close of the transaction.
Well Shneur I think all of those are key attributes and you did a great job of listing them for US there are many more.
Which I've talked about Robert will talk about more we'll talk about more.
This deal is accretive.
At the beginning.
And as we.
Complete those.
Integration and real cost savings.
The drop straight to the bottom line the revenue enhancements or re <unk>.
Third party opportunities on their system and on our combined system are absolutely real which we could not have pursued dose yes.
Yes, we are savings a significant amount of capital and not having to expand the bear den plant and Thats a good thing both from a capital standpoint, as well as a timing standpoint.
This basin is going to get tight processing capacity. We just went long processing capacity that gives the opco and our commercial.
Enormous flexibility.
To wheel and deal out there and bring some new producers into our portfolio that we don't even have today.
There is a lot of development activity, that's beginning to gen up in the Bakken.
Whole area of Western North Dakota that is really beginning to look like core acreage tier one acreage and so we're dramatically expanding our footprint around that.
Well.
We boxed up we integrate again, we've had a history of buying gathering and processing assets from producers integrating that and continuing to provide seamless great customer service and then really getting after the third party business and optimizing just go back to the beginning of Crestwood about Quicksilver gas.
Services from Quicksilver, we bought Antero gathering system, we bought the gathering system from Chesapeake in the powder I mean, we have a long history of this type of transaction carving out.
Either separate or stand alone assets integrated or Standalone assets.
Not only providing great service to the anchor customer, but really leveraging off of that for third party business. We didn't put any of those revenue enhancement any substantial revenue enhancements and to that when we look at the business just.
Finding the two companies' pro forma our free cash flow actually grows significantly over the next three years.
I'll, let Robert side, if he wants to message any of that but it is a substantial increase in free cash flow and that does substantially increase our optionality about how we reinvest that capital for the benefit of our investors talk to you all about our buyback plans, we haven't announced program.
Do have a strategy for dealing with what will be perceived by some people as an overhang in the stock we have lived with our general partner owning 25% of our outstanding Limited partnership units for 10 years, and we dealt with that and came to a very elegant solution. So yeah, I think yet number one.
One helps us operationally and commercially in our best Basin. That's got a lot of growth left number two it absolutely is accrete EBIT increases free cash flow, which gives us more flexibility strategically to improve returns for investors and we're going to do it the way that we've talked about it for subtype Robert do you want to.
Yes, I have to that or add any numbers to it I think Bob hit on the key points strategically. These are highly complementary assets right on top of each other with immediately identifiable and available synergies to capture and drive value through that Bob talked about the enhancement to our competitive footprint up in the Bakken going forward I think you hit on all the key.
<unk> elements. This is enhancing to every single financial element, we look at from the balance sheet to the cash flow generation.
And as we enhance our free cash flow generation after distributions inclusive of the 5% bump that we plan to implement post closing of the transaction we have more firepower today than we did prior to this deal to execute around our $175 million buyback program. So no change in any respect they're just enhanced.
Perfect really appreciate the color.
If I can just ask a quick question about kind of the existing operations.
Given where we see the rig count.
Today, given where we see completion crews today, how are you thinking about your Bakken completions trajectory into 'twenty, two and I guess, a similar question for the PRP as well in terms of growth.
Yes, I'll start on that and then I'll hand, it to <unk> <unk>, who runs the runs all of our G&P commercial operations and has very good relative to the.
The outlook for 2022 in light of the commodity price environment is very favorable.
We can see increases in completion activity expectations from our producers in.
In the Bakken in the powder and in the Delaware Basin, and we think all of that is going to add.
We see the completion project.
Three having a meaningful uplift next year relative to the 35% to 45 wells that we expected to complete this year.
We will see that start to translate into the cash flow generation of the asset.
And one of the points that we've talked about up in the Bakken.
<unk>, particularly on the gas side as the <unk> continue to increase in gas production improves up there is we're operating at top utilization and so on.
I think one of the key elements of this transaction to the ability to integrate our arrow footprint with the Oasis footprint.
Is the margin potential of the combined business by alleviating any constraints that may be in existence on the component parts.
In the powder River Basin, we signed up a new deal with Continental, which we announced today that significantly diversified diversifies, our customer portfolio. There that an active program going as they delineate our sizable acreage position and we're really excited to be their choice gatherer and processor in basin to execute for them for.
Long.
On track to add 90, new completion over the balance of the next few years continue to see an active program.
Graham out of Conoco in one of our other significant customers there.
So all in all I mean things are stacking up extremely favorable for the G&P portfolio.
Robert I don't have anything else to add said it well well Shneur, let me add just a subtle distinction that I know you've been around.
Long enough to know producer owned or controlled gathering systems are unique in this business, particularly when they tried to add third party business to it. We all know that that's not a bad thing I mean, there's a lot of guys to build your own gathering system that either IPO them again too.
<unk>.
An MLP or they drop them down or they ultimately sold them off and many still own them, but the reality is and these guys at our license have done a fabulous job over the last couple of years and trying to supplement that throughput on their system with third party opportunities and they have developed.
A pretty nice set of third party opportunities, but the reality is we're in the business of gathering and processing. We are a true independent third party and so we ought to do exceedingly better than they did.
By adding third party business to this system the key in the Bakken and the future is the availability of processing capacity.
And don't Miss how important that is in this transaction the extra processing capacity gives us substantial competitive leverage if you will to go aggressively pursued third party business, whereas maybe in the past the oasis guys. Despite their best efforts they couldn't aggressive.
Leeco pursue because they had their anchor tenant so we're going to provide the best of both worlds, we're going to provide a great service to our licensed petroleum, but we're also going to manage excess capacity for the benefit of our arrow producers and third party gas.
Gas is developed out of the western side of the play and I just can't tell you historically over time, how much better and independent third party can do in managing what was a producer owned gathering system. It just always works that way.
Well, great really appreciate the color today around the strategic nature of the transaction and the ability to still continue.
Opportunistically buyback ill jump.
I jumped back in the queue for that there.
There are a bunch of questions on agents are and so forth.
Okay.
Our next question is from Tristan Richardson with Suntrust.
Please proceed with your question.
Hey, good morning, guys congrats on the announcement.
I appreciate your comments on the leverage I think that goes a long way with investors.
You noted the three <unk> to three five exiting 'twenty two for the combined company.
I think when we think about that versus Crestwood.
Long term target.
The three <unk> to $3 five is there a suggestion there that that could be the new.
Long term target for the combined company.
I think I think Tristan.
Our view of where we feel comfortable operating our business has not changed we've guided.
Three and a half.
To 375 times as a long term target.
The transaction pro forma in and around the close is neutral to the low end of that range, where we are today and as we generate incremental free cash flow next year absent alternative strategies of deployment of that capital to optimize that fit the outcome from a leverage standpoint, I think we feel comfortable in that three five times Zip code and as we continue.
You bet.
For incremental investment opportunities in the capital structure and around our existing core asset.
We would hope that.
Got to work and things that enhanced returns that are significantly greater clip.
Appreciate it Robert and then.
Bob you talked about Capex.
Opportunities there at least to just unlock revenue synergies but.
I think when you look at the two companies Standalone the Capex profile.
This year is obviously indicative of.
A very low capex.
As demand and supply side continues to recover but just could you.
Frame up for us maybe what the combined company.
Annual opportunity set.
Annual Capex opportunity might look like.
Going forward.
Well I can give you a couple of <unk>.
And maybe you can triangulate on your own.
Oasis petroleum is going to be Turner of ours up there.
A substantial Bakken pure play.
<unk> got a significant amount of acreage, but theyre on public record.
Suggesting theyre just going to keep their volumes flat at least during this part of the cycle that we're in right now so.
As we looked at this business as we deliver the diligence.
We don't see a.
A significant amount of additional activity.
Flat to up as kind of the way I would describe it that's kind of the way that Dave described it to us so theres not a whole lot of capital that's going to come in 'twenty two.
Just based on the.
The expectations for Oasis Petroleum's development activity level.
That could accelerate that based on these prices, we don't have that baked into the forecast.
We're pretty flat to slightly up over time again, all back on the real business opportunity here for <unk> and his team to bring in some of these third parties and to the extent that we can bring in large acreage positions that are on dedicated or being renewed from contracts with other gnp's that.
Rolling off there may be some capital associated with that we don't have a significant amount of capital in the next couple of years rare.
Relative to what we have historically spin up there. So I think we're going to stay generally in the same neighborhood to maybe slightly up Robert do you want to add.
Yes, I would say roughly I would say interest and where we're at.
Going to be if you look at kind of each of the combined or each of the companies independently kind of their capital needs around their footprint for 2022.
Don't see any material changes to that and I think we do see.
<unk>.
Add some capture of that revenue and integration synergy through connecting the two systems physically which is all very manageable dollar. So I don't think any material deviation from what we communicated on a standalone basis, and I think what <unk> communicated generally on a standalone basis as well.
Great. Appreciate it thank you guys very much.
Our next question is from Ned <unk> with Wells Fargo. Please proceed with your question.
Yes.
Hi, good morning, Thanks for taking the questions.
Appreciate the detail on the Capex.
Could you maybe talk a little bit about the well connect capital at OMB and more specifically does it benefit from the same producer.
Reimbursement arrangements that <unk> has been placing debacle.
<unk>, yes, so well connect capital is going to be in line with their activity at a forecasted in their contracts are similar to those at the arrow footprint.
Capital for the wealth is the responsibility of the midstream provider in that arrangement, so little bit different but again subject to whatever their activity paces thats going to be commensurate with it.
Got it.
At just a little bit of color there.
I mean, we inherited the existing OMB OAS arrangements largely.
With very minor modifications, we got some additional contracts on acreage that had not been previously dedicated that was part of the deal.
But.
This was a public to public deal. So you can go look at the yield on key contracts and get a sense for what the historical relationship was between OAS and OMB and we're just stepping in those shoes. So.
We are not the same type of contracts that we have at arrow, but they will be very synergistic as we blend the two systems together.
Just add one more thing this is <unk>.
The wild basin footprint, where they have a predominant amount of their acreage and their activity is predominantly developed already so there is a lot of synergies associated with new development activity.
And that.
Got it thanks for that.
One more.
Unrelated question.
Worldwide, the lockup provisions in place for Oasis petroleum.
Ownership and Crestwood.
Yes, I would say that there will be standard provision as a part of the agreements around lockup on their ownership position.
I would say as we've discussed with them long term plans. We clearly are a critical service provider for their Williston basin production.
They are a pure play Williston company and their strategy is entirely centered around the long term development of that basin.
So I think all communications with them or they are very much aligned.
The benefit is a important customer to craft float and also an important unit holder of Crestwood.
That's fair.
How we would answer there are there are lock up provisions for a period of time.
And then as they go forward, we view it as a long term partnership with them as an important customer and us have been important service provider for them.
Thanks Robert.
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Our next question comes from of Irish Scott <unk> with RBC capital markets. Please proceed with your question.
Hey, Thanks, good morning, everyone.
A couple of follow up questions.
The acquisition, how much closer into OE volume well Craig.
Yes, so pro forma for the acquisition of Oasis.
Will become our largest customer.
Bell constitute on total volumetric basis, and Bakken between 20, and 30% of kind of total margin.
Okay. Thanks, and then.
Another follow up question, what's the minimum ownership level that belief.
Maintain to appoint the team directors.
So this is will they drop below 15% of pro forma TTP equity ownership, there dropped to one director and below 10%.
All rights participate at the board level.
Okay, and then just a couple of more questions for me.
Transaction are there any potential noncore asset sales that crestwood might consider.
I think of Ireland, we look at the business I would say the answer to that is consistent with what it's been in the past, we always look at our portfolio.
Think around optimizing our portfolio in terms of investing capital and what's core to us and looking for opportunistic ways to divest potentially things that are not <unk>.
Love the portfolio as it sits today, we have a lot of positive fundamentals at play behind each of our asset providing some real tailwind into 'twenty two and beyond.
So there's nothing imminent in the works, but I think we will continue to be very thoughtful around the portfolio and how we optimize both adding on assets to our core areas and divesting of assets that are less core to us.
Great. Thanks, and then last question for me is just on.
And the base business.
The novelist <unk> have that.
Yes.
Yes, I think no real change in what we've communicated in prior discussions obviously conoco taking over the sweat be positioned we view as a net positive to our position in the Delaware Basin.
Conoco has clearly committed to that basin with significant inventory that they have.
We're already an existing customer of ours in a meaningful way through their acquisition of Concho and now this.
Creates a more meaningful relationship with them.
So all in all we view it very positive on the upstream development side I think it obviously does create questions around <unk> long term investment in our joint venture at Nautilus and I think as we've said historically, we'd love to be a potential solution. There is a part of that but nothing imminent at this point, we will continue to work with our partners there to optimize.
The asset for the long term.
Great. Thank you very much.
Our next question comes from Kyle May with capital One Securities. Please proceed with your question.
Hey, good morning, everyone.
Just a quick question on the transaction.
Oasis and <unk> talked about some more recent acreage dedications this year and the.
Associated EBITDA expected to come on that in 'twenty, two and 'twenty three.
Are you expecting that Crestwood will follow that same path and trajectory or do you anticipate any changes to that.
No I think.
Their business plan.
From an OAS perspective, an OMB perspective is consistent with what we've outlined in the combined company going forward. So obviously very close working relationship with Oasis petroleum over the last several months Scott good looks at their development plans and I think what they've publicly communicated.
With what our expectations are in the basin.
Then maybe one question shifting gears looking at the new agreement with Continental.
Can you provide any color around I guess when do you expect to see new volumes.
And how much volume you expect to be added to the system and I think you mentioned there is no change.
This year, but do you.
Dissipating a significant capital going forward.
Dennis with Jaco Vicky.
From a timing perspective.
Volume should start sometime midyear 2022.
But it could stay in between mid <unk> to the end of 'twenty two.
Just depends that they are building some facilities on their end to effectuate volumes into our system.
The second question that you asked as far as capital goes we'll have some of the capital that's in our guidance today and 2022. The construction has already started on that project.
And we should wrap up before the mid year 2022, So I would say half and half from a capital perspective.
And then finally ultimate volumes look at the large acreage dedication.
We feel very confident about it we know the basin well I'll just say this we are building a 16 inch pipe that reaches up to their to their locations. There are expectations for fairly substantial volumes moving forward and how to put a little more clarity of the capital side. The total projects spread out over 'twenty one into 'twenty two is about $30 million all in.
Half and half in each year.
That included within the guidance range for 'twenty, one that we provided as well as kind of the soft guidance, we had given around CPP it for <unk>.
Got it I appreciate it guys.
Our next question is from Selman <unk> with Stifel. Please proceed with your question.
Thank you good morning, and congratulations.
So just real quick on the synergies that you've kind of outlined there.
In terms of.
The elimination G&A O&M should we expect that from day, one when this thing closes or is that.
Really take all the way to I guess 2023 days to be realized.
Selman I think it's all pretty quick actually when you look at $25 million of cost synergies that we've identified probably three quarters of that is kind of duplicate G&A eliminations that are real quick and then the balance of it on the O&M side, probably haven't paid throughout the year as we integrate the systems and optimize.
So there'll be.
Probably 70% to 80% of that realized in 2022, and then the full balance in 'twenty three.
And once we have a full year under our belt.
Great. Thank you for that.
And then I guess just flipping over.
Can you guys talk about what youre seeing inflation in general.
Sure I can take that so I think the short of it is.
We are seeing inflation across.
The industry broadly no different than a lot of industries out there with everything going on.
I think we have seen while there was some run in steel prices around some of the new pipes I think we've seen some stabilization in that of late the benefit we've seen is we have not.
Had a significant capital program and the capital that we have.
<unk> spent has largely been on pipe and compression and one of the comments Bob gave in his prepared remarks was our team's ability to source inventory across our portfolio of excess.
Compression capacity, we've had in some of our lower utilization areas such as the southwest Marcellus and then redeploying pipe that we have in inventory. So haven't really felt the impact of that escalation in cost. In addition to that I would also highlight that very consistent with.
Most midstream contracts all of our contracts have escalators built into them.
Oftentimes tied to CPI or other inflation metrics.
Alright that does it for me thank you.
As a reminder.
If you would like to ask a question. Please press star one on your telephone keypad.
Our next question is with Ned.
Wells Fargo. Please proceed with your question.
Thanks for taking my follow up.
Could you could you provide more details on <unk>.
Westwood current commodity price exposure.
Specifically are the PLP and the percentage of index contract.
Strictly tied to volumes that are going through your processing clients or is there some commodity price exposure on the gathering side too.
Yes. It is.
Barry by contracts and by location I would say the two asset where we have where.
But we do have commodity exposure or the percentage of proceeds arrangements, we have up in the Bakken and the percentage of index arrangements. We have in the Barnett shale and I think that what we have generally communicated is over time, our portfolio has been about 85% fixed fee and about 15%.
Commodity link I think just based on the significant run in commodities.
Obviously, our pop revenues have increased as a result of that to that number has increased but probably just north of 20%.
We have actively hedged.
Lot of that upside potential for 2021 and the team has started implementing strategies on taking some of that risk off the table for 2022.
So that's really the arrangement.
Bakken and Barnett your question on the gathering and processing it really depend but I would say that in the Barnett in the Bakken, which is the largest component of that is predominantly driven by gas price in liquids pricing associated to our netback on the on the processing side.
Got it thanks for that and then one more housekeeping item.
It seems that growth capital in the third quarter include included roughly $20 million.
Litigation related capital.
I think it was mentioned pertaining to the bear den two processing, Greg could you just elaborate a little bit more on that.
Sure I think as we've kind of communicated in our disclosures over time, we are still in a pending litigation with Lindy around the construction contract we had with them on the bear den plant.
$19 million payment was part of a settlement around that are part of a payment in relation to the ongoing litigation. There. We think we've got all future potential settlement payments accrued for at this point in time.
And really about all I can say that for now.
Perfect Thats all I had thank you.
We have reached the end of our question and answer session I would like to turn the floor back over to Bob Phillips for closing comments.
Well, thanks, operator, and thanks to all of you that joined US. This morning, just wanted to highlight all of the commercial operational and financial.
Objectives that we think we're meeting with this transaction I think youll see as we.
Efficiently integrate the business in the first quarter of next year, assuming we get a smooth close than then.
We're going to have a much bigger platform in the Bakken.
We will be a bigger player in terms of financial scale across all of our basins will have.
Significantly greater free cash flow.
To make some opportunistic and strategic decisions with.
Which could include expanding our presence in the other basins that we operate.
Where we have identified similarly situated opportunities.
Or just continuing to return capital to our investors through either distribution increases or stock buybacks.
I think the management team here has exhibited the ability to deal with these type of opportunities and challenges.
In the past and I think when we all look back at 2021, given the elegant solution to first reserve.
And that big buyback program, and how accretive that was for our investors.
Very strategic divestitures final divestiture.
<unk> coach and a pay down debt, which led to our ability to complete this transaction, which as we said substantially gross cash flow improves our long term inventory position in the Bakken, which we think is as the number two oil play in the United States. So we're really pleased with where we are.
Physician once we complete this transaction.
Look forward to meeting with you all again.
As we start investor conferences in December we will be.
Finishing up R 22.
Capital.
Operating budget the team has been working hard on that separate and apart from this oasis transaction taking.
Taking that preliminary budget to the board in November.
And then hopefully be able to start messaging how we.
Think about 2022, you all starting.
In December with some of those conferences that we typically go to.
And then as we get to closing the year. We're on track as we said with the high end of our guidance then we really feel good about our great 2021, both financially operationally and strategically.
Thanks for joining us we appreciate all the support we have from our investors our customers and our employees and look forward to talking to you again soon.
When we ultimately closed this transaction so thanks again everybody.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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