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Crestwood Equity Partners LP (CEQP)

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Crestwood Equity Partners LP (CEQP)

Q4 2016 Earnings Conference Call

February 21, 2017 9:00 am ET

Executives

Robert Phillips - Chairman, President, Chief Executive Officer

Robert Halpin - Senior Vice President, Chief Financial Officer

Heath Deneke - Chief Operating Officer

Will Moore - Senior Vice President, Strategy and Corporate Development

Analysts

JR Weston - Raymond James

Jerren Holder - Goldman Sachs

Andrew Burd - JP Morgan

Presentation

Operator

Good morning and welcome to the conference call to discuss Crestwood Equity Partners’ fourth quarter and full year 2016 financial and operating results and 2017 outlook.

Before we begin the call, listeners are reminded that the company may make certain forward-looking statements as defined in the Securities and Exchange Act of 1934 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, and distributable cash flow will be discussed. Reconciliations to the more 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 Senior 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’s current analysts following the prepared remarks.

Today’s call is being recorded. If anybody should require operator assistance during this conference, please press star, zero on your telephone keypad.

At this time, I will turn the call over to Bob Phillips.

Robert Phillips

Thanks Operator. Good morning to all of our investor partners, and thanks for joining us. The management team is very excited to announce a strong fourth quarter and full year 2016 results, given the challenges that we faced in the market over the past year. As you all know, we faced volatile commodity prices, a shutdown or slowdown in producer activity in some areas, and many of our customers went through their own set of financial challenges throughout the year. But I think the diversity of our U.S. portfolio allowed us to make it through the downturn in very good shape, and now we’re repositioned on the other side.

All that is past us now, and I’m pleased with how we’ve repositioned the company to resume growth again in the near future. Let me recap some of our 2016 accomplishments.

We hit the high side of our full-year guidance, which was no small feat in a year with historic production volatility, facing shutdowns in many areas, a slowdown in drilling, and of course a lot of ducts but very few completions. We strengthened our balance sheet and improved our financial flexibility to restart this growth investment phase that we’re facing in ’17. During the year, we paid down over a billion dollars in debt, we cut our distribution to be able to retain cash flow for reinvestment at higher returns, we delivered impressive leverage and coverage statistics compared to our peer group, and we formed strategic partnerships with Con Ed in the northeast and with First Reserve in the Delaware-Permian, and I wanted to point out that we ended the year with less than $100 million drawn on our $1.5 billion revolver. By the way, remember that we eliminated our IDRs in 2015, so our cost of capital is now competitive with our peer group and our access to capital is as well. I’m sure Robert will pick up on that when he talks about the 2017 plan.

We cleaned up a number of longstanding producer problems and contract issues in our portfolio by working through the Quicksilver bankruptcy in the Barnett, the Halcon bankruptcy on the Arrow Bakken system, and we finalized a long renegotiation of the gathering and processing contracts with Chesapeake and our partner, Williams on the Powder River Basin Niobrara Jackalope system.

We’ve seen some other signs of real progress in moving forward. Antero is now completing the ducts on the southwest Marcellus system, and we’ve recreated the COLT Hub into what we think will be the premier location for crude handling and market liquidity in North Dakota with the recent connection to Dapple, so we’ve done a lot in a tough year to reposition the company commercially. All of these commercial wins of course create a solid baseline performance for these assets in 2017 and beyond, and that’s the primary reason why we called our 2017 guidance conservative; and again, I’ll let Robert talk to that issue, but we really think this is a conservative platform from which we will grow.

With the financial and commercial successes in 2016, we’ve repositioned Crestwood for growth in the Delaware-Permian, the Barnett, and the Marcellus. Those are the three areas that we’re focused on for the next several years. We’re currently expanding the Arrow system to meet new producer demand as Arrow wells continue to come in stronger than expected due to improved completions, and volumes will rise in 2017 and ’18 due to higher drilling activity than we experienced last year. Clearly, producers are getting a higher price and they’re committing capital to the development of this core Bakken resource.

These 2017 projects will increase capacity on the system and continue to further improve netbacks for our producers, assuring that capital will continue to be allocated to these regions. These are all strong producers that have a portfolio of other opportunities, but they are all prioritizing their acreage on the Arrow system as some of the top performing acreage that they have in their portfolios.

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