Crestwood Equity Partners LP (CEQP)

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Crestwood Equity Partners LP (CEQP)

Q3 2018 Earnings Conference Call

October 30, 2018 9:00 A.M. ET


Bob Phillips - Chairman, President and Chief Executive Officer

Robert Halpin - Executive Vice President and Chief Financial Officer

Heath Deneke - Executive Vice President and Chief Operating Officer

John Powell - Senior Vice President and Chief Commercial Officer, MSL

Rob de Cardenas - Vice President Crude Marketing


Tristan Richardson - SunTrust

Shneur Gershuni - UBS

Kyle May - Capital One Securities

Dennis Coleman - Bank of America

Ned Baramov - Wells Fargo

Selman Akyol - Stifel



Good morning and welcome to today’s conference call to discuss Crestwood Equity Partners’ Third 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. [Operator Instructions]

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

Bob Phillips

Good morning, operator, and good morning to all of you and thanks for joining the call today. It’s certainly an opportunity to announce yet another strong quarter of financial and operating results. And we are pleased to discuss this with you this morning and give you a lot of color and background on the great progress that we’re making within our organization and relative to the numerous growth projects that we have underway in all of the basins that we operate. So, we are excited about the chance to present all that to you.

Looking at the third quarter and for the first nine months of 2018, we’ve certainly exceeded our internal expectations for both adjusted EBITDA, as well as distributable cash flow and I think would largely beat consensus estimates along the way. So, we’re very pleased with that. That does position us to have a really strong finish to 2018 and we’re clearly on track to achieve our financial guidance targets, which at the mid-point you might remember would imply year-over-year adjusted EBTIDA growth of about 10% from 2017, and recall that we adjusted our guidance up mid-year as we gain more confidence in the volumes across our systems and the services that we’re providing to customers.

So that certainly positions us very well for the ability to deliver adjusted EBITDA and DCF growth of about 15% per year over the next few years starting in 2019, and we’re very excited about being in a good position to do that. So, clearly the confidence level at Crestwood is high. And I think our expectations for annual growth in 2019 are driven by a few factors or themes that I want to highlight for you today.

First, and most important to me, I’m very proud of Crestwood’s employees and our ability to execute our business plan across the entire organization. Our performance year-to-date continues to be a result of Crestwood’s execution on capital projects, our commitment to customer service, and the emerging culture of financial discipline in cost management is certainly is evident here at Crestwood, but I think beginning to take hold across the entire mid-stream industry.

This is highlighted by our O&M and G&A expenses, which you continue to decline quarter-over-quarter, in-light of growing volumes and higher activity levels across the company. This indicates efficiency. Additionally, our project execution teams are doing a great job of staying on schedule, delivering projects on budget, and with great safety performance during these critically important construction projects and this indicates a commitment to customer service.

The entire Crestwood organization is committed to expanding our peer group leading operational safety performance, regulatory, compliance initiatives, and dedication to environmental stewardship and community engagement, and this is being highlighted by our recent plan to implement what we think is the first comprehensive MLP midstream, ESG sustainability program here at Crestwood.

I think Crestwood is making a peer growth leading progress on this initiative with plans to publish our first sustainability report in 2019, and this indicates a commitment to great operating principles. We certainly feel like we’ve got the right people and the right culture and the organization to continue to deliver solid results for our investors.

Second thing, or factor driving growth is, looking at across all of our operating segments, the business fundamentals are very strong in this part of the recovery cycle. We expect this to continue to drive volume growth and opportunities for Crestwood to capture incremental margin and offer even more service opportunities across the value chain.

In our G&P segment, our producers continue to ramp up drilling activity, based on strong [indiscernible] economics in almost all the basins that we operate in with high-crew, high-NGLs, and high gas prices. And they continue to improve drilling and completion results in almost every area that we operate. And that isn't lost on us that the ability to grow volumes is not necessarily rig count or well connections, but in every area, we operate, new wells are coming in bigger and better and stronger than they ever have before.

Preliminary 2019 forecast indicated this trend will continue and Heath is going to give you a lot of color and explain in detail what our expectations are to finish out the year and move into 2019. Certainly, we’re at a point in the recovery cycle where we’re working hard to stay ahead of our producers. We think that’s a good spot to be in, given the very large acreage dedications that Crestwood has and the large undrilled inventories that producers committed to our systems have in the core areas of the Marcellus, the Bakken, the Delaware Basins, and the Powder River Basin.

As you know, we recently completed the Orla processing plant in the Delaware Permian and we’re currently making great progress on two large-scale processing expansion projects in the Bakken and in the Powder, and this is all designed to support current and forecasted volume growth. These are not built [ph] and they will perm type projects. These are projects where the gas is available today, the rigs are on the system and the drilling forecasts are very strong and robust going forward.

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