Crestwood Equity Partners LP (CEQP)

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Crestwood Equity Partners LP (CEQP)

Q1 2018 Earnings Conference Call

May 1, 2018 9:00 am ET


Bob Phillips - President, Chief Executive Officer

Robert Halpin - Executive Vice President, Chief Financial Officer

Heath Deneke - Executive Vice President, Chief Operating Officer


Andrew Burd - JP Morgan

Shneur Gershuni - UBS

Ned Baramov - Wells Fargo

JR Weston - Raymond James



Good morning and welcome to today’s conference call to discuss Crestwood Equity Partners’ first quarter 2018 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. If anyone should require operator assistance during the conference, please press star, zero on your telephone keypad.

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

Bob Phillips

Thank you, Operator, and good morning. Thanks to all of you for joining us. I’m very pleased to deliver our first quarter financial and operating results. I wanted to give you some color around that. They exceeded our internal estimates well ahead of many analyst estimates out there, and it certainly keeps us on track to deliver our 2018 guidance targets. It’s a great way to start the year.

I want to compliment all of the operating and commercial teams across Crestwood for their contribution to the quarter. I think everybody did an outstanding job of collaborating despite some tough weather up in the north. I think we delivered stellar results.

Let me begin looking at the Crestwood partnership. It’s in very solid financial shape. At the end of the first quarter, I’d like to highlight that our leverage ratio was 3.9 times and our coverage ratio was 1.25 times, well within our targets going forward. We are prudently managing our business to provide Crestwood’s investors with the utmost confidence in our ability to operate the business and be successful in the current market environment and continue to drive value creation. We are 100% committed to maintaining our strong financial health as we evaluate and continue to pursue accretive growth opportunities in and around our asset portfolio.

Now despite the capital market volatility that has occurred since the beginning of the year, we think the business and cash flow fundamentals are very strong around Crestwood’s asset base. Across all three of our operating segments, we see strong fundamentals that are increasing the demand for our services and absolutely reaffirming our growth outlook for 2018 and 2019.

In our gathering and processing segment, the favorable commodity price environment combined with our producers’ ability to increase recoveries by well has led to strong year-over-year volume growth particularly in the Bakken, the Delaware Basin, and the Powder River Basin. Right now in the Bakken, our producers are getting netbacks that are over $16 a barrel higher than this same time last year. This is a result of both higher commodity prices, increasing by about $13 a barrel, plus basis strengthening of about $3 a barrel due to the in-service date of the Dakota Plains pipeline, which we’re connected to at Arrow and at Colt. As our number one growth asset in 2018 and 2019, this is extremely supportive of our current capital investment on the Arrow system, gives us great confidence in our volume forecast going forward.

In the Delaware Basin, the rig count has reached an all-time high with 229 rigs operating within 25 miles of our Nautilus and Willow Lake gathering systems. That’s the most active basin in the U.S. and certainly our assets sit right in the core of the Delaware Basin. In the Powder River Basin with the development of the Turner Formation, we’re seeing unlocked an extensive multi-year inventory of exceptionally high rate of return drilling prospects by the producers that we’re doing business with in the Powder River Basin, so we’re excited about the strong fundamentals that underlie and support producer activity in all three of these basins.

In our storage and transportation segment, our Stagecoach assets - reminding you that’s a joint venture with Consolidated Edison up in the northeast for storage and transportation - they are strategically located to benefit from what we think will be an improving storage utilization program going forward as current forecasts call for 2.3 Tcf of injections into natural gas storage during the summer. As many of you know, we had a very strong winter. It resulted in very low levels of inventory starting the new injection season, so we expect to see improving storage utilization through 2018 and into the winter of 2019. We’re also seeing new long-haul infrastructure projects, such as the Atlantic Sunrise project and the Millennium ESU project. Those will be directly or indirectly connected to our Stagecoach assets, and again we see that driving additional throughput and utilization of our storage and pipeline assets in the northeast.

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