Crestwood Equity Partners' (NYSE: CEQP) expansion plan continues to pay dividends. The energy company -- which is nearing the tail end of a three-year, $1 billion growth program -- started service on two more midstream assets in the third quarter. Those projects helped fuel significant growth in earnings and cash flow for the MLP during the period.
Drilling down into Crestwood Equity Partners third-quarter earnings
As expected, Crestwood Equity Partners' growth rate accelerated during the third quarter. That enabled the company to generate enough cash to cover its 6.7%-yielding distribution by a comfy 1.9 times, well above the 1.2 times target of most MLPs.
Driving the strong quarter was across-the-board growth in all three of the company's operating segments:
Earnings in the company's gathering and processing segment surged nearly 27% year over year thanks to strong volume growth across several of its operating areas. In the Bakken Shale, the midstream company gathered record volumes as oil rocketed 47%, gas surged 44%, and produced water zoomed 52%. Fueling that fast-paced growth was the completion of the Bear Dean II processing plant and Station 8 compression station, which enabled producers in the region to complete more wells since they now have the necessary infrastructure to support their operations. Crestwood also benefited from strong gas volumes in the Powder River Basin (up 27% year over year) and Delaware Basin (up 12%) thanks to the level of drilling activities from producers in those regions.
The marketing, supply, and logistics segment also delivered a standout quarter as earnings skyrocketed more than 250% year over year. Driving this roaring growth was the company's ability to capture opportunities in the market to move and store the industry's record natural gas liquids (NGLs) production in the quarter.
Finally, earnings in the storage and transportation segment grew 15%, mainly due to an increase in Crestwood's share of the profits in its Stagecoach joint venture. That helped more than offset lower natural gas storage and transportation volumes as a result of weaker commodity prices.
What's ahead for Crestwood Equity Partners
Crestwood's exceptional third-quarter results allowed it to increase its full-year adjusted EBITDA guidance range to $520 million to $535 million. That's an increase from its prior forecast of $500 million to $530 million. At the midpoint, its new forecast implies nearly 26% year-over-year growth.
The company remains on track to invest $425 million to $475 million on growth projects this year as it finishes up its three-year plan. The final step will be to complete the Bucking Horse II plant and expansions to its Jackalope system in the Powder River Basin, which it expects to bring on line in the first quarter of next year. Those expansions, when combined with the ramp-up of Bear Den II, will fuel high-octane earnings growth over the next several quarters.
Meanwhile, Crestwood continues to expect that its investment spending will decline to a range of $100 million to $150 million next year. Given that outlook, the company is on track to produce a substantial amount of free cash flow in 2020. That will provide the company with the funds to start growing its high-yielding distribution as well as potentially buy back stock.
An excellent quarter with more high-octane growth ahead
Crestwood Equity Partners' strategic expansion plan is starting to pay off. It helped fuel big-time earnings and cash flow growth in the third quarter, which should continue through the next year. Meanwhile, with its major investment phase winding down, the company appears poised to start returning an even bigger boatload of cash to its investors in 2020. That makes it an excellent stock for income-focused investors.
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Matthew DiLallo owns shares of Crestwood Equity Partners LP. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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