Crestwood Equity Partners LP (CEQP)

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Crestwood Equity Partners LP (CEQP)

Q2 2017 Earnings Conference Call

August 1, 2017 09:00 ET


Robert Phillips - Chairman, President & CEO

Robert Halpin - SVP & CFO

Heath Deneke - EVP & COO

Steven Dougherty - Chief Accounting Officer


Darren Horowitz - Raymond James

Andrew Burd - JP Morgan

Shneur Gershuni - UBS Securities

Elvira Scotto - RBC Capital Markets



Good morning and welcome to this morning's conference call to discuss Crestwood Equity Partners' Second Quarter 2017 Financial 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 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; and Executive Vice President and Chief Operating Officer, Heath Deneke. 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. [Operator Instructions]

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

Robert Phillips

Thank you, Audrey. Good morning to everybody and thanks for joining us. We are really excited to announce our second quarter results and give you an update on our projects. Before we do that, I want to give our investors some context on where we are strategically so that they will know what to expect going forward. Let's start with a personal observation based on my 40 years in the energy business.

The past couple of years have been tough on the midstream sector in general and to Crestwood in particular. Like a lot of other midstream partnerships, many that were bigger than us, we were ill-prepared for the market crash in 2015 and 2016, we had too much debt, not enough coverage while committing to what now seems to be unrealistic distribution growth goals to attract investors. We think that's a bad combination and we're not going to go back there.

While conditions have improved greatly in the first half of 2017, I think we all agree that we still live in a potentially lower-for-longer environment, which means there will continue to be some level of investor uncertainty and I think midstream valuations will suffer from high correlation to crude oil. Our diversified operating model is built around this premise and I think in this recovering market, investors will likely be attracted to Steady Eddie companies that show visible growth while being managed with financial and operating discipline.

Starting last year, we repositioned Crestwood not only to survive in this period, but actually thrive in this market. We fixed our balance sheet, changed our operating cost structure, got past our producer in recontracting issues and focus narrowly on the strong growth potential of our Bakken, our Delaware-Permian and our Marcellus assets which represents three of the lowest breakeven regions in the industry.

We effectively rebuilt the portfolio and I think Crestwood's recent performance is starting to highlight the future earnings potential of this portfolio. Crestwood as you know has an impressive acreage and throughput dedications across the entire portfolio in some of the best areas of these low-cost basins which still have significant economic supply potential and still meet midstream infrastructure. We're building off of that base and we have substantial growth potential ahead of us.

Along the way, our commitment to project execution and operational efficiency, safety and compliance and best-in-class customer service remain the pillars of our organization. Those principals are now more important than ever before to differentiate Crestwood from other mid-cap midstream companies.

Financially, the moves that we made along with First Reserve, our general partner and with the guidance of our Board of Directors are allowing us to fully develop the potential of our growth assets in the Bakken and the Delaware-Permian in the near term and in the Marcellus over the long term. As I said, we fixed our balance sheet through asset sales, capital efficiency, we pushed out our long term debt and we built significant financial flexibility through partnerships. We're now delivering strong leverage and coverage ratios quarter-after-quarter.

This should give our investors greater confidence in our ability to meet the current distribution, clear visibility to resume DCF growth in 2018 and dry powder to take advantage of new investment opportunities to drive long term accretive DCF growth. We're very proud of our assets and we invite investors to compare Crestwood's long term grown potential in these regions to others in the mid-cap MLP space.

I think we make a very favorable comparison. On the commercial side, we continue to sign up new customers like Shell and our long term customers like WPX and Chesapeake are improving their ability to grow volumes on our systems. Our portfolio remains reasonably balanced between gas, NGLs and crude, with water becoming a larger contributor and an important growth area for us.

While oil is the economic driver in the Bakken, we are still largely a gas company with gas volumes on a revenue basis of approximately 4 BCF a day across the portfolio. So we have substantial exposure to gas upside [ph], which we think is significant particularly in the Marcellus, our contracts are still largely fixed fee with a growing but appropriate exposure to NGLs through our new gas processing plant projects in the Delaware-Permian and the Bakken. We also thank NGLs have substantial room to grow to the upside and that we should benefit from that over the next few years.

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