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Crestwood Equity Partners LP (CEQP)

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Crestwood Equity Partners LP (CEQP)

Q3 2017 Earnings Conference Call

October 31, 2017 9:00 AM ET

Executives

Bob Phillips – Chairman, President and Chief Executive Officer

Robert Halpin – Senior Vice President and Chief Financial Officer

Heath Deneke – Senior Vice President and Chief Operating Officer

Steven Dougherty – Chief Accounting Officer

Will Moore – Senior Vice President, Strategy and Corporate Development

Analysts

J.R. Weston – Raymond James

Andrew Burd – JPMorgan

Selman Akyol – Stifel

Ned Baramov – Wells Fargo

Presentation

Operator

Good morning, and welcome to this morning's conference call to discuss Crestwood Equity Partners' Third Quarter 2017 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 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 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; 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.

Bob Phillips

Thanks, Devin and good morning to all our investors and thank you all for joining us early. We have a number of positive things to talk about this morning. I'm happy to lead it off and then turn it over to Robert Halpin, our CFO to cover the quarterly results and to Heath Deneke, our Chief Operating Officer to give you an exciting update about the many projects that we have going cross the country.

So let me kick it off with four or five really key highlights of the quarter. Things that I would like to draw out for you. The first is growing volumes, Crestwood delivered another solid quarter based on strong year-over-year and consecutive quarter gathering and processing segment volume growth.

We saw increases across the Board in our portfolio with natural gas, crude oil and water volumes up 10%, 58% and 38% respectively over the same period last year. Gathering volumes I might point out are now up three consecutive quarters in a row. And oil gathering volumes are up four consecutive quarters in a row.

The drivers of the G&P segment or the Arrow system in the Bakken that's our biggest EBITDA contributor. The Willow Lake and Nautilus Systems in the Delaware Permian these are our newest systems and in the early stages of expansion so much more to come there.

In our Southwest Marcellus system, which is our largest gas gathering system by volume, as well as our Barnett systems, which are our second largest gas gathering systems by volume. And I would like to point out that the Barnett Systems have remained relatively flat year-over-year with only a 2% decrease showing we think a very impressive low PDP decline rate for those assets. So wanted to point that out and remind people that very first asset, we started the Company with is still making a significant contribution to Crestwood.

The second topic is low operating costs, I want to remind everybody that cutting our operating cost a couple years ago was really the first big step that we have here at Crestwood to get ready for the lower-for-longer environment that we live in today. We continue even through the third quarter, reducing our operating costs year-over-year despite clearly higher volumes and a growing portfolio. So that's not easy to do and I want to compliment our teams because of that.

When you adjust for stock-based compensation, our year-to-date 2017 total expenses, which were O&M and G&A were $21 million lower or about 12% below the same year-to-date period in 2016. That's quite a fee and again something that we're very committed to. As we've previously discussed with you, we've taken a lot of cost out of our Transportation business and assets like COLT in some of our older gathering systems over the past several quarters. And again I want to congratulate our operating teams and the management team on their commitment to safe and low cost operations.

This is a culture that you need in a recovery of a cycle to differentiate companies like Crestwood from others. It drives better operating margins and makes us more competitive in the field for new business. The third highlight is strong financial metrics. We posted yet another quarter of very healthy leverage in coverage ratios in the third quarter. And we're on track to hit our increased full year 2017 earnings guidance.

The third quarter leverage at 4.1x positions us to maintain conservative leverage for our ongoing capital program in the Bakken and the Delaware Permian. Our third quarter coverage of 1.2x is net of paying cash distributions to our preferred unitholders for the first time. And in the aggregate, we continue to generate significant excess cash flow above distributions, which we’re reinvesting in growth projects.

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