Q1 2022 Crestwood Equity Partners LP Earnings Call

Please press Star zero on your telephone keypad, it's now my pleasure to turn the call over to Bob Phillips. Please go ahead.

Thanks, operator, and good morning to everyone. Thanks again for joining US today, we're very pleased to report another strong quarter for Crestwood and a really good start to the rest of the year I am going to make a few general industry comments highlight some of our first quarter achievements.

Data on expectations for the full year 2022, and then turn it over to Robert to go through the quarterly numbers. So first let me just comment on what's going on around the world. We continue to manage through volatility both domestically and globally.

Some of the recent global events have reemphasize reemphasize to us the importance of secure low cost reliable energy and I'm proud that the U S energy industry continues to show the ability to provide the synergy and service safely and sustainably.

Believe Crestwood will continue to play a really important role in connecting American energy supply to market demand.

As you know global commodity prices are high and have been volatile, but theyre still well ahead of our 22 budget and they remain very constructive for the balance of the year.

We have 12 12 rigs operating on our assets today, and we're planning on significant producer activity through the rest of 2022 and into 2023. This is keeping our gathering and processing processing teams.

Busy getting ready for a big ramp up in volumes in the second and third quarters of the year. Additionally, I want to highlight that our storage and logistics teams have done a great job. So far this year managing volatility very well in the first quarter. Despite the backward dated commodity curves, which appear to be flattening for the remainder of 2020.

Two <unk>.

Secondly, I want to highlight how positive we are on recent steps at Crestwood has taken to add long term value to our business portfolio with double our size and scale in the Williston basin with the Oasis Midstream acquisition and integration of voices Midstream is well ahead of schedule our largest producer.

Oasis Petroleum has recently announced its merger with Whiting, making the combined company one of the largest Williston only producers. We think this merger provides crestwood with an even longer growth runway in the basin via Oasis tier one and tier two inventory combined with Whiting Signet.

Free cash flow generation.

Onto the powder River Basin, and we've recently completed the Continental Express pipeline, which connects continental's largest acreage blocks in the basin to our bucking horse processing complex and we're expecting first volumes to flow through this pipeline from continental in mid May and.

And in the Delaware Basin, we saw a big increase in gas and water volumes in the first quarter, which should drive bigger than expected volume growth throughout 2022, I want to particularly highlight the recent novo production ramp on the Willow Lake system in new Mexico, and the expected growth of percussion volumes on.

Panther crude and produced water gathering system, which we acquired in the Oasis midstream deal and they currently have three rigs running on that system now.

Third I want to highlight our capital allocation strategy is on full display.

As we expand key infrastructure in core basins through high return accretive projects, which are supported by strong producer customers substantial acreage dedications significant undrawn inventory and long term contracts and we're doing that while maintaining a balance sheet with a three five times <unk>.

Average ratio at the end of the first quarter as you know our balance sheet is extremely important to the long term growth of the company I'm also proud that Crestwood board of directors has shown confidence in our portfolio with the recent 5% increase in the quarterly common unit distribution as we importantly prepare.

For our first annual unit holders meeting on May 12, and lastly, I want to highlight our finance team's hard work on the upgrade we recently received from S&P to double be flat as we continue to look for strategic M&A opportunities around our assets as the midstream industry continues to.

Consolidate.

I want to give a shout out to our sustainability team as they publish Presswoods first carbon management plan in January . We also recently joined in industry collaboration with Cheniere, the largest U S. LNG exporter and several other major gas pipeline companies to drive the development and adoption of our <unk>.

MRV Ghd emissions program that we think is going to position U S gas supply in the global markets for LNG and also we are preparing to publish our fourth annual sustainability report in June I think it's our best one yet and we also continue to play an important leadership role.

At the energy infrastructure Council as EIC makes progress on our ESG to point.

Reported template update these are all really important to crestwood in the midstream industry.

And I think finally I want to complement our operating teams in the Williston and the Delaware in the powder.

Our Williston and Delaware operating teams have done an amazing job of integrating the Oasis midstream assets since the February one closing despite extreme weather experienced in North Dakota in the past couple of months and in recent weeks, our consolidated Williston Basin operating team now with a very large footprint.

And our <unk> ops team has had to dig out from two major late winter storms recently.

And have navigated, 11% to 12 extreme weather events.

Which we define as above the 10 year average hdds year to date, so far and these have in fact impacted our Williston G&P volumes, despite that Oasis midstream Williston assets really outperformed our expectations in the first quarter and our operations teams there now exemplified the very best.

And operational safety reliability, and environmental stewardship as our Bakken producers begin to kick off their 22 development programs and I think thats evidenced clearly by the recent 20% increase in rigs in the Bakken in April . So that's the overview, we obviously have a lot going on at Crestwood.

We've had great achievements year to date, we have high expectations for the rest of the year and with that I'll turn it over to Robert to provide more details on the first quarter results Robert Thank you Bob.

Our strong first quarter 2022 results, which exceeded our internal forecast included two months contribution from the Oasis midstream assets and as Bob mentioned, we are very pleased with how those assets have been performing to date.

For the first quarter Crestwood generated adjusted EBITDA of $173 million that representing a 4% increase year over year.

Distributable cash flow for the quarter was $117 million, which represents an 8% increase year over year and free cash flow after distributions was $28 million.

Notably we executed on our previously announced plans to increase the common unit distribution for the first quarter by 5%.

This distribution of <unk> 65, and a half cent per unit will be paid on may the 13th to unitholders of record as of May the sixth and results in a coverage ratio of approximately 2.0 times.

So, let's get right into the quarterly operating results.

In the gathering and processing nor segment first quarter 2022, EBITDA totaled $133 million, an increase of 29% over the first quarter of 2021, driven primarily by the addition of the Oasis midstream assets.

Currently we have four rigs active across our footprint in the Williston basin and two rigs active in the powder River basin at this level of activity, we would expect to achieve our original well connect forecast for 2022 of 110 to 120 wells in the Williston Basin and 10 to 15 wells in the Powder River Basin.

In the gathering and processing South segment first quarter 2022 segment EBITDA totaled $27 million that representing a 72% increase year over year, driven once again by significant growth year over year on our Delaware Basin gathering systems as Bob highlighted gathering volume.

<unk> on the Permian basin gas gathering systems increased substantially year over year as our private producer customers continue to drive rig activity in the basin.

We are also seeing an increased across our produced water gathering and disposal infrastructure as producers continued development activity with volumes of 102000 barrels a day during the first quarter and the Barnett Crestwood continues to see stable volumes and benefit from higher natural gas prices on its percent of index.

Contracts.

Finally in the storage and logistics segment first quarter 2022, EBITDA totaled $25 million a.

Kris year over year due to the divestiture of the Stagecoach gas services joint venture in July of 2021, as well as the $10 million to $15 million contribution from the events during winter storm here last year.

During the quarter, our NGL logistics business was able to optimize our extensive infrastructure of 10000 barrels of Ngls of NGL storage pipeline and operating trucking assets to meet increased demand driven by winter weather and continued price volatility.

Crestwood has a highly experienced NGL team that does a great job utilizing each of these assets to the fullest extent of its capabilities to generate margin opportunities each year.

And finally, the Tres Palacios gas storage facility exceeded our internal estimates as commodity price volatility drove incremental volumes to the facility.

Now moving to the balance sheet Crestwood ended the first quarter with $2 8 billion in long term debt, including $560 million drawn on its $1 5 billion revolving credit facility, resulting in more than $900 million in available liquidity and a three five times leverage ratio at the end of the quarter.

During the quarter, we invested approximately $30 million in growth capital and joint venture contributions across the diversified footprint to meet the needs of our producer's development programs.

In the Williston Basin, we are continuing construction on three product gathering systems for Oasis petroleum as well as our new third party contracts.

And in the Delaware Basin, we are expanding the crude oil and water gathering systems.

<unk> petroleum as well as expanding compression and gathering capacity in new Mexico.

As Bob mentioned and consistent with our comments on the previous call. We believe Crestwood is very well positioned for 2020 to be another strong year on all fronts. Crestwood is now a stronger company than before the Oasis midstream acquisition highlighted by a solid balance sheet with low leverage and ample liquidity and operating leverage.

<unk> strong commodity prices across our diverse gathering and processing assets.

We expect to generate meaningful free cash flow after distributions this year, which we will allocate according to our capital allocation priorities in an effort to continually drive enhanced unitholder returns.

That operator, we're ready to open the lineup for questions.

Thank you, we'll now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to move your question from the queue.

Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star one one moment. Please while we poll for questions.

Our first question today is coming from Kyle May from capital One Securities. Your line is now live.

Hi, good morning, everyone.

I wanted to start out on the Delaware assets and I believe you started with your comments that youre seeing more activity from the privates.

But just curious maybe what youre hearing more recently from conversations with maybe your producers collectively and if theres any change in activity plans for the year based on.

Commodity prices and everything else Thats going on right now.

Carl This is Bob Thanks for the question I'm going to give you some color and then <unk>, our chief operating officer, who really manages that part of the business for us.

It's great relationships.

All of these basins one of the unique features of Crestwood diverse portfolio is we have a really strong producer customer base and so we get to see.

Activity levels, the future plans and stay in close contact with both majors and producers.

There's absolutely no question that the majors the large independents are continuing to be capital disciplined in their approach to growing volumes.

Likewise, there is no doubt that we're seeing across our portfolio that independent.

Producers, particularly those backed by private equity dollars.

Our being more aggressive to the extent that they can get more rigs.

We have a very balanced portfolio across the Bakken or the Williston the powder.

And the Delaware. So I think we're in a unique position to see the trends in the industry and I think we are seeing those and benefiting from both the long term view of the majors in the short term aggressiveness of the small independent producers.

<unk> you want to give some color on the Delaware, particularly.

Small independent producers are the ones that are really driving the volume growth there yes. Thank you Bob.

In the Delaware, we've got three bigger independent producers with Novo oil and gas percussion and Mewbourne.

The guidance that we laid out for the Delaware is a 100 to 110 wells for the year, we're going to meet the high end of that not exceed it with current guidance from our producer customers.

Course, that's constantly changing and it seems to be changing in the right direction for us. So we're excited about that.

And with the majority of our backbone infrastructure already built we should be able to deliver that efficiently and effectively.

Got it that's helpful and maybe one more on the Delaware since it appears we have additional Permian natural gas egress capacity on the way do you see any other potential pinch points from a midstream perspective either before.

<unk> or after the additional capacity is online.

Thank you Carl no I do not.

Okay, great well I'll try to answer it.

<unk>, just a little bit more color as it relates to our Delaware assets, we have multiple downstream for both gas and gas liquids. So we're not going to have our producers will not have a problem getting there their production to market that's right call speaking for ourselves yes.

Okay now I understand.

And maybe any additional thoughts on the broader.

I guess the broader industry that maybe something we need to keep an eye out for.

I don't think anything other than whats, commonly talked about in the press right. Now there is multiple new gas pipeline projects that are being talked about throughout the industry several or our advance to this stage that they are actually out marketing capacity with rates.

I'm, 100% convinced that industry is going to stay ahead of gas production in the Permian and we won't go through an extended period of time, where we have big basis differential blowouts, just because the last mcf of gas can't get out of the basin I think the industry has a ton of capital invested.

There are numerous projects that are underway right now that don't require full complete brand new pipelines to run from.

The Permian basin to the Gulf Coast. There is a lot of expansions, we think they all make a good deal of sense economically and we think the producers do too. So we're not concerned about that from an industry standpoint.

Understood. Thanks for the time this morning.

Thanks Kyle.

The next question today is coming from Dan walk from JP Morgan. Your line is now live.

Hi, good morning, everyone.

Just one or two quick I.

I guess housekeeping items.

And they are both weather related so the first.

Can you quantify.

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Either in terms of throughput impact or EBITDA impact.

The effect of weather in the first quarter, and then I guess I'll just I'll just throw my follow up quickly as well.

I understand there was.

A pretty heavy storm this past weekend and the Bakken as well and is there anything you can tell us I know, it's early but at this.

At this stage in terms of.

Operational impact there.

Yeah. Thanks, Dan I'll speak to your first question that I may ask jaco to speak to the second part of that question around the most recent weather events up in North Dakota.

And also a little bit in the powder River, but from our first quarter operating standpoint, as we mentioned this morning, we exceeded internal estimates. Despite some of the weather impacts that we no doubt experienced in January and February just given the extreme weather events across both North Dakota, and Wyoming from a volumetric standpoint, we're about anywhere between 3% to five.

Percent off of kind of internal estimates.

Based on some of those producer shut ins and deferrals of completions, but expect to get right back on track volumetric Lee with the significant amount of completion activity in Q2 and Q3 I think we are.

Expected now unfortunately, some of that was offset by some of the higher commodity prices relative to budget, but that 3% to 5% did resonate through the EBITDA line.

Greater outperformance, we would've seen without it.

Let me talk about specifics.

Minimal downtime and most importantly, our operations team had some of the one of the best quarters from a safety performance. Despite the extreme weathers.

One thing you've got to appreciate we've got it's a real testament to our overall operating operations influence reliability in our design basis, and the ability of our operations teams to execute leverage it with our producer customers there some.

Redundancy across system, we've got Gen sets ready to go we know we're operating in the Williston means in the powder River means to us.

We know how to respond to it we know how to prepare for it we had folks that had prepared to stay within our control facilities and had food and bumped up and we're ready to go.

So great execution, there I think our customers will testify to that.

At the end of the day winter.

Storms and high winds it did impact our producer customers and their ability to execute a drilling and workover programs.

And that's going to result in some slight delays outside of that power outages were mitigated through gen units.

Redundancy that we have across the gathering system. So we're really proud of our teams up there and our producer teams and the collaboration that they have with one another and most of our operating safely during that weather.

<unk> wouldn't you just highlight that Oasis petroleum and Oasis midstream assets actually performed very well given the weather conditions, yes, they actually exceeded budget as we as we highlighted.

I appreciate that.

Thanks.

Anything you can you can comment on regarding the more recent.

Stone or yes.

How many of that we had.

Yes, absolutely we had genuine it's out there ready to go our facilities are up and running we're meeting downstream dapple crude volumes.

Again going back to the reliability of our producers will come up real fast you will see the volume show right back up as they always do and.

You can actually say it today.

So despite the severe weather I think that redundancy.

Everybody is experience and knows what to do.

It's playing out in spades.

Hopefully winters over in North Dakota, Yes, we're ready to move on to spring.

Understood. Okay I appreciate that thank you.

Thanks, Dan.

Thank you as a reminder, that star one to be placed in the question queue. Our next question today is coming from Ned <unk> from Wells Fargo. Your line is now live.

Hey, good morning, Thanks for taking the questions I guess first one on on the processing expansion.

Delaware Basin could you maybe just walk through the timeline of.

When you need to reach an investment decision.

To have.

Professional processing capacity ready to go before the end of the year.

Just going to be cool.

Yes, let me answer that for you we've actually already began to execute on that project. Its very simple our bottleneck right now is our residue compression capacity. So we've got a unit on order, it's getting delivered its in stock.

We're executing on that we should see the results of that possibly late <unk> early <unk>.

So it's a real simple project low cost power.

Are they efficient.

And on the margin increases processing capacity pretty significantly without having to build a brand new $100 million plan absolutely yes.

Okay. That's good.

Great and then.

Second question for me I guess.

Continental's 'twenty 'twenty capex.

Capex budget includes the build out of gas gathering infrastructure and some water facility.

Could you maybe talk about that decision to build some of that infrastructure themselves rather than delegate these projects to crestwood.

<unk> again, yes continental has a lot of experience building a system as you remember the system. The island system in the Bakken was built by Continental and sold to Kinder Morgan.

So theyre very proficient at that so if you look at our set up with them in the powder River basin.

We provide high pressure gathering and processing continental spend all the capital on a low pressure gathering and.

And compression so from that perspective, being able to do crude water gas same pipes in the ditch is quite efficient form they will control the delivery and available to execute their plan the way they want to execute it.

Thank you we've reached end of our question and answer session I would like to turn the floor back over to Bob for any further closing comments.

Thanks, operator, and thanks to all of you for joining in the questions as we close.

To highlight our capital allocation strategy and execution, so far with message that several times over the last.

A few months.

The expectation that we would close the choices we did on February one we're a bigger better stronger company now the integration has gone well, we're spending capital with discipline around our assets on the margin to increase usable capacity and stay ahead of our producers and I'm very comfortable that we're going to.

<unk> all the way into 2023 being able to really handle all the volumes that are going to come at us throughout the rest of the year doing that while starting the year at a three five leverage ratio getting an upgrade from S&P all good there keeping our powder dry for strategic M&A and stock buybacks and.

Not unimportant was a 5% increase in distribution to our unit holders that have.

Supported us through all these years, so really proud of where the company is right now we're in a good spot a lot of activity on our systems. We're excited about how second and third quarter will play out and the momentum that we'll have going throughout the end of this year and into next year. So thank you all for joining us and look forward to talking to you after the second.

Quarter. Thanks.

Thank you that does conclude today's teleconference. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.