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Crestwood Equity Partners Expects Simplification Merger to Close in Q3

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   |    Thursday,August 06,2015

Crestwood Equity Partners LP has reported its financial results for the three months ended June 30, 2015.

Second Quarter 2015 Highlights:

• Crestwood Equity’s NGL supply and logistics business contributed Adjusted EBITDA of $7.7 million, compared to $8.0 million in the second quarter 2014
• Reduced consolidated adjusted operating and administrative costs by $19.5 million in the second quarter 2015 compared to the fourth quarter of 2014 when Crestwood implemented its cost reduction initiative; on-track to exceed more than the previously guided cost savings of $15 million in 2015 and run-rate savings of $25-$30 million per year2
• Combined cost savings efforts year-to-date, recent internal reorganization and simplification merger positions the post-merger Crestwood to deliver on its 2015 consolidated guidance range of Adjusted EBITDA of $540 million to $575 million; Expected pro forma post-merger distribution coverage ratio of 1.05x for 2015
• Distributable Cash Flow totaled $15.8 million in the second quarter 2015, a 18% increase compared to $13.4 million in the second quarter 2014

Robert G. Phillips, Chairman, President and Chief Executive Officer of Crestwood’s general partner said: "Despite the disappointing performance we have experienced in both CEQP and CMLP unit prices since the announcement of our simplification merger, the fundamentals of our business remains solid and the consolidated Crestwood entity delivered another strong quarter of results showing the benefit of our diversified midstream portfolio, largely fee based business model and focused cost reduction efforts. As most midstream companies are facing lower volumes, decreased margins and slower project growth due to volatile commodity prices and uncertain customer development plans, Crestwood proved again in the second quarter that our partnerships are well positioned to compete in this environment. The simplification merger, which we expect to complete in the third quarter, will only improve our ability through larger scale, lower operating costs and ultimately, a lower cost of capital to invest when project development opportunities return to previous levels.

With respect to CEQP’s NGL supply and logistics business, the second quarter 2015 results were typical of a shoulder quarter for NGL supply and demand. Demand for services were lower than expected due to demand disruptions experienced during the second quarter 2015 as a result of force majeure events and labor strikes experienced by West Coast refinery customers, but these decreases were offset by higher performance from the NGL supply and terminals business. Looking forward, significant NGL supply growth and lower crude oil prices have pushed NGL prices lower, creating an opportunity for our NGL business to begin buying seasonal storage inventory at favorable prices which should translate into better margins during the winter peak demand season in the fourth quarter 2015 and first quarter 2016."

Simplification Merger Update

On May 5, 2015, Crestwood Equity and Crestwood Midstream entered into a definitive agreement to merge the two partnerships and simplify Crestwood’s corporate structure into a single publicly traded partnership. Under the terms of the merger agreement, a newly formed subsidiary of Crestwood Equity will merge with and into Crestwood Midstream, with Crestwood Midstream surviving the merger. As part of the merger consideration, Crestwood Midstream common unitholders will become unitholders of Crestwood Equity in a tax free exchange, with Crestwood Midstream common unitholders receiving 2.75 common units of Crestwood Equity for each common unit held at the completion of the merger. Following the completion of the merger, Crestwood Midstream common units will cease to be listed on the NYSE and its incentive distribution rights will be eliminated. Crestwood Midstream expects to complete the merger in the third quarter of 2015, subject to approval by its unitholders.

Michael France, Managing Director of First Reserve, the general partner of Crestwood Holdings said: "As a long time unitholder in the Crestwood partnerships, First Reserve recognizes the significant improvement in bottom line results in the second quarter 2015 as a result of management’s continued focus on operating efficiency and cost reductions. This type of execution is particularly important during the period of commodity price uncertainty being experienced by the industry. Over the long term, we believe the simplification merger is the right next step for the partnership as it positions Crestwood to be more competitive for growth opportunities. We continue to support this strategy and look forward to completing the merger in the third quarter of 2015 and continuing to find avenues to support the Crestwood platform into the future."

Consolidated Second Quarter 2015 Segment Results

• During the second quarter 2015, average natural gas gathering volumes were 1,155 million cubic feet per day (MMcf/d), a 5% decrease from the second quarter 2014, processing volumes increased 13% to 216 MMcf/d and compression volumes increased 34% over the second quarter 2014 to 629 MMcf/d. Segment EBITDA was positively impacted by a 3% year-over-year decrease in operating expenses and higher Marcellus Antero and PRB Niobrara contributions attributable to significant capital expansion projects completed in 2014, offset by a lower Barnett contribution.
• Storage and Transportation segment volumes averaged 2,187 MMcf/d in the second quarter 2015, a 14% increase over the second quarter 2014, due primarily to Northeast pipeline expansion projects completed in the fourth quarter 2014 and a full-quarter contribution from the Tres Palacios joint venture. Crestwood’s Stagecoach natural gas storage facility and MARC I / North South pipelines, located in the dry gas region of the Marcellus, continue to be key contributors to segment EBITDA.

Capitalization and Liquidity Update

As of June 30, 2015, debt outstanding was primarily composed of $1.8 billion of fixed-rate senior notes issued by Crestwood Midstream, $355 million outstanding under Crestwood Midstream’s revolving credit facility and $341 million outstanding under Crestwood Equity’s revolving credit facility. In conjunction with the simplification merger, Crestwood Equity intends to repay and retire its revolving credit facility and Crestwood Midstream intends to amend and upsize its revolving credit facility to fund the combined operations with $1.5 billion of revolver borrowing capacity. In July 2015, Crestwood Midstream received final lender commitments for the $1.5 billion credit facility, and subject to customary closing conditions, the facility will close concurrent with the closing of the simplification merger.

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