Latest News and Analysis
Deals and Transactions
Track Drilling (Rigs by operator) | Completions (Frac Spreads)

Quarterly / Earnings Reports | Third Quarter (3Q) Update | Financial Results | Capital Markets

Crestwood Equity Partners Third Quarter 2021 Results

emailEmail    |    printPrint    |    bookmarkBookmark
   |    Wednesday,October 27,2021

Crestwood Equity Partners LP reported its Q3 2021 results.

Third Quarter 2021 Highlights:

  • Third quarter 2021 net loss of $39.6 million, compared to net income of $4.6 million in third quarter 2020
  • Third quarter 2021 Adjusted EBITDA of $139.9 million, a 3% increase compared to $136.0 million in the third quarter 2020
  • Third quarter 2021 distributable cash flow to common unitholders of $85.8 million; Third quarter 2021 distribution coverage ratio was 2.18x
  • Ended September 30, 2021, with approximately $2.1 billion in total debt and a 3.45x leverage ratio; Crestwood had $251 million drawn under its $1.25 billion revolver as of September 30, 2021
  • Announced third quarter 2021 cash distribution of $0.625 per common unit, or $2.50 per common unit on an annualized basis, payable on November 12, 2021, to unitholders of record as of November 5, 2021

Recent Highlights:

  • In a separate press release issued this morning, Crestwood announced that it has entered into a definitive merger agreement to acquire Oasis Midstream Partners LP (NASD: OMP) ("Oasis Midstream") in an equity and cash financed transaction valued at approximately $1.8 billion. The combined company will have an enterprise value of approximately $7 billion and is expected to generate pro forma 2021E Adjusted EBITDA greater than $820 million. The transaction further solidifies Crestwood's competitive position as a leading service provider in the Williston Basin with exposure to approximately 1,200 tier 1 drilling locations and 535,000 dedicated acres and expands the company's relationship with Oasis Petroleum. Additionally, Oasis Midstream's Wild Basin gathering and processing assets are highly complementary with Crestwood's Arrow gathering system and Bear Den processing complex which provides for immediate integration and optimization opportunities to drive substantial cost savings, commercial synergies and better utilization of available gas processing capacity.
  • In the Powder River Basin, Crestwood has signed a long-term agreement with Continental Resources, Inc. (NYSE:CLR) ("Continental") that includes a large acreage dedication in Converse County, Wyoming, directly north of the Jackalope system's existing footprint, that will improve long term utilization of available natural gas processing capacity at the Bucking Horse complex.
  • In the Delaware Permian, Crestwood has signed a long-term, fixed fee natural gas gathering and processing agreement with Novo Oil and Gas ("Novo") to support its on-going development program in the basin and will improve long term utilization of available gas processing capacity at the Orla complex.

Robert G. Phillips, Chairman, President and Chief Executive Officer of Crestwood's general partner, commented: "I am pleased to announce another exceptional quarter for Crestwood as favorable commodity prices led to increased producer activity across our G&P assets driving Adjusted EBITDA of $139.9 million, distributable cash flow of $85.8 million, and free cash flow after distributions of $17.5 million. When combined with the divestiture of Stagecoach in July 2021, Crestwood's midstream portfolio performance has driven accelerated balance sheet improvement to a third quarter leverage ratio of 3.45x and a distribution coverage ratio of 2.18x. Based on year-to-date results and the current commodity price environment, Crestwood expects to end full-year 2021 at or above the high end of its previously announced Adjusted EBITDA guidance range of $570 million to $600 million. Additionally, the recently announced transactions with Oasis Midstream in the Bakken, Continental Resources in the Powder River Basin and Novo in the Delaware Basin position us to drive our long-term organic growth strategy through continued disciplined capital investment while optimizing existing assets and using our operating leverage to attract new opportunities in our core basins."

Mr. Phillips continued, "Strategically, the announcement today to acquire Oasis Midstream, with complementary systems in the Williston and Delaware Basins, allows us to expand Crestwood's G&P footprint in two of our core growth basins and makes the company a top midstream operator in the Williston Basin. The increase in dedicated acreage and undrilled inventory in the Williston Basin positions us for long term growth in a world-class resource play that is currently enjoying strong commodity prices that should drive further near-term supply development. Financially, the combination creates immediate financial scale that results in Crestwood's pro forma 2021E Adjusted EBITDA of greater than $820 million and a combined company enterprise value of approximately $7 billion. As we quickly and efficiently integrate the Oasis Midstream operations, we expect the transaction to be immediately accretive to distributable cash flow per unit and to support a distribution increase of approximately 5% which improves our return to unitholders. In summary, 2021 has been an incredible year for Crestwood with the earlier buyout of First Reserve, the sale of Stagecoach, and now the combination with Oasis Midstream positioning Crestwood to be a consolidator of midstream assets across the industry."

Third Quarter 2021 Segment Results and Outlook

NOTE: As a result of the pending acquisition of Oasis Midstream, Crestwood anticipates that it will re-evaluate its segments for reporting purposes in the near future.

Gathering and Processing (G&P) segment EBITDA totaled $131.4 million in the third quarter 2021, an increase of 22% compared to $108.0 million in the third quarter 2020. The third quarter 2021 excludes an $18.5 million loss on long-lived assets related to the transfer of compressor assets in the southwest Marcellus to the Delaware Basin and third quarter 2020 excludes a $19.1 million loss on long-lived assets related to the sale of the Fayetteville assets. In an effort to optimize operating expenses and growth capital, Crestwood will relocate the compressors from the southwest Marcellus to meet increasing demand for gathering services on its Willow Lake system in the Delaware Basin. During the third quarter 2021, segment cash flow increased as a result of the positive impact of favorable commodity prices on Crestwood's percent of proceeds ("POP") and percent of index ("POI") contracts in the Bakken and Barnett, combined with producer development activity that drove increases in throughput across all key basins. Most notably, there was a 17% and 14% increase in Arrow natural gas gathering and processing volumes, respectively, a 41% and 37% increase in Powder River Basin gathering and processing volumes, respectively, a 41% and 79% increase in Delaware Permian natural gas gathering and processing volumes, respectively, and a 16% increase in Barnett gathering volumes. Crestwood expects fourth quarter results to benefit from continued producer development activity and the continued positive impact of current commodity prices.

Storage and Transportation (S&T) segment EBITDA totaled $3.7 million in the third quarter 2021 compared to $14.7 million in the third quarter 2020. The reduction of segment cash flow in the third quarter 2021 was a result of the divestiture of Stagecoach Gas Services LLC ("Stagecoach") to Kinder Morgan Inc. (NYSE:KMI) on July 9, 2021, for approximately $1.2 billion. Crestwood and Consolidated Edison continue to own Twin Tier Pipeline LLC, a subsidiary of Stagecoach, in a 50/50 joint venture and expect the divestiture of this final remaining subsidiary to close in November 2021, generating additional proceeds of $30 million or $15 million net to Crestwood. At the COLT Hub, rail loading volumes during the third quarter 2021 were 41 MBbls/d, a decrease of 4% year-over-year, as more barrels have returned to the Dakota Access Pipeline for takeaway out of the basin. During the quarter, Tres Palacios benefitted from higher natural gas prices and continued increased interest from downstream counterparties.

Marketing, Supply & Logistics (MS&L) segment EBITDA totaled $12.0 million, compared to $11.9 million during the third quarter of 2020. Both periods exclude the non-cash change in fair value of commodity inventory-related derivative contracts. During the third quarter 2021, the MS&L segment benefited from favorable margins in its crude and natural gas marketing business, offset by the continued impact of NGL market backwardation and fewer butane storage opportunities during the quarter. Crestwood is positioned to benefit from colder weather conditions typically experienced during the fourth and first quarters with significant flexibility to optimize its 10.0 MMBbls of propane storage during the winter months.


Combined O&M and G&A expenses, net of non-cash unit-based compensation, in the third quarter 2021 were $44.6 million compared to $42.5 million in the third quarter 2020. O&M expenses were relatively flat year-over-year while G&A expenses increased year-over-year as a result of higher employee-related expenses related to supporting higher commercial and volumetric activity across the asset base in 2021.

Third Quarter 2021 Business Update


During the third quarter 2021, the Arrow system averaged crude oil gathering volumes of 82 MBbls/d, natural gas gathering volumes of 139 MMcf/d, natural gas processing volumes of 131 MMcf/d, and water gathering volumes of 90 MBbls/d. Recently, the Arrow system achieved a new daily gas gathering record of 155 MMcf/d. The record natural gas gathering volumes were driven by increased gas capture across the Arrow system as a result of flare minimization efforts and increasing gas-to-oil ratios (GORs) across the basin, which offset lower crude oil and produced water volumes year-over-year. Additionally, during the quarter the Arrow system outperformed cash flow expectations as a result of the favorable impact higher commodity prices had on its NGL and natural gas POP contracts. Based on current favorable commodity prices, Crestwood expects to continue to benefit from its blend of fixed fee and POP contracts during the fourth quarter 2021.

Crestwood invested $5.1 million in the Bakken during the quarter on system optimization projects and incremental system compression. During the quarter, Crestwood connected ten three-product and eight water-only wells which positions the company to achieve its previously guided full-year 2021 range of 30 - 45 new well connects.

Powder River Basin

During the third quarter 2021, the Powder River Basin system averaged natural gas gathering volumes of 102 MMcf/d and processing volumes of 98 MMcf/d, increases of 41% and 37%, respectively. Year-over-year volumes increases were primarily a result of Chesapeake Energy resuming production in early 2021 on previously shut-in volumes. Currently, there are two rigs operating on the Jackalope system. In August 2021, Chesapeake resumed drilling activities and expects to drill four wells in the fourth quarter that will be connected to the Jackalope system by mid-2022. On the eastern portion of the Jackalope system, a large public E&P company is operating the second active rig where the producer has dedicated certain incremental drilling service units (DSUs) to Crestwood. Based on this incremental rig activity, four wells were connected to Jackalope during the third quarter 2021, and Crestwood anticipates an incremental six wells to be connected during the fourth quarter 2021.

During the quarter, Crestwood was actively engaged in commercial discussion with new third-party customers to optimize utilization of the Bucking Horse processing facilities. Recently, Crestwood successfully executed a new long-term agreement with Continental, a new entrant into the basin, to support the company's development program. As part of the long-term agreement, Continental dedicated a large acreage position in Converse County, Wyoming to Crestwood that is directly north of Jackalope's existing footprint. Crestwood will extend the Jackalope system to transport Continental's volumes to the Bucking Horse processing complex. Based on timing of capital investments for the required infrastructure, Crestwood does not expect any changes to its previously stated 2021E growth capital range of $35 million to $45 million.

Diaco Aviki, Crestwood's Senior Vice President of G&P Commercial, commented, "We very excited to welcome Continental as a new customer in the Powder River Basin and look forward to providing excellent customer service and flow assurance to support their new development program."

Delaware Basin

During the third quarter 2021, Crestwood's Delaware Basin natural gas gathering assets averaged volumes of 260 MMcf/d, a 41% increase year-over-year, and processing volumes of 104 MMcf/d, a 79% increase year-over-year. These volumetric increases are largely driven by the increase in rig activity on the Willow Lake system that began earlier in the year as a result of the favorable commodity price environment. On the produced water system, gathering and disposal volumes averaged 42 MBbls/d during the third quarter 2021 as the anchor producer re-used incremental volumes for its frac program during the quarter. As a result of the anchor producer's increased development activity, Crestwood expects to drill two incremental saltwater disposal wells (SWDs) that will expand permitted disposal capacity by approximately 60,000 barrels per day.

In Eddy County, New Mexico, Crestwood has signed a new long-term, fixed fee natural gas gathering and processing agreement with Novo Oil and Gas ("Novo"), a private EnCap Investments LP portfolio company. Based on the current commodity price environment, Novo's planned development program is expected to result in more than 90 new well connects to the Willow Lake system through 2023, including 12 wells in the fourth quarter 2021. When paired with the 13 wells connected during the third quarter, Crestwood now expects to exceed to the top end of its well connect range of 65 - 75 new well connects for 2021.

Capitalization and Liquidity Update

In the third quarter 2021, Crestwood invested approximately $9.5 million in growth capital (excluding litigation-related capital pertaining to the Bear Den II processing plant), primarily focused on optimization projects at Arrow, including incremental compression and upgrades to the produced water system. Crestwood generated approximately $17.5 million in free cash flow after distributions(2) and significantly reduced total debt outstanding by using its proceeds from the divestiture of Stagecoach to repay outstanding borrowings on its revolving credit facility. As of September 30, 2021, Crestwood had approximately $2.1 billion of debt outstanding, comprised of $1.8 billion of fixed-rate senior notes and $251 million outstanding under its $1.25 billion revolving credit facility, resulting in a leverage ratio of 3.45x. Crestwood currently has approximately $1.0 billion of liquidity under its revolving credit facility. With its leverage ratio below the target range of 3.50x - 3.75x, Crestwood has the flexibility to focus on its capital allocation priorities and to opportunistically optimize its capital structure.

Crestwood currently has 71.3 million preferred units outstanding (par value of $9.13 per unit) which pay a fixed-rate annual cash distribution of 9.25%, payable quarterly. The preferred units are listed on the New York Stock Exchange and trade under the ticker symbol CEQP-P.

Sustainability Program Update

During the quarter, Crestwood conducted a refresh of its materiality assessment to evaluate and identify its on-going risks and opportunities to ensure its material ESG issues are still relevant in the changing and evolving ESG landscape. Through this process, Crestwood engaged with key stakeholders and investors to assess and identify Crestwood's management and disclosure of key ESG issues that will help inform Crestwood's next three-year sustainability strategy, which will include developing a carbon management plan, as the company continues to position itself as a MLP midstream ESG industry leader.

As part of developing its carbon management plan, Crestwood remains focused on opportunities to reduce its methane emissions across its asset base. In September 2021, Crestwood began to pilot continuous methane emissions monitoring on its Jackalope gas gathering system in Douglas, Wyoming. Crestwood has selected Scientific Aviation's SOOFIE device while evaluating additional next-generation applications as part of its ongoing initiatives to find more robust and faster ways to detect and mitigate emissions. Based on results from the pilot program, Crestwood aims to deploy continuous methane emissions monitoring at key operations while improving its emissions performance by the fourth quarter 2022.

Mr. Phillips, commented, "Crestwood is committed to best-in-class environmental performance and reducing our methane emissions remains a critical component of our sustainability strategy. This initiative will help us quantify our methane emissions and enhance our methane management, while supporting a lower-carbon future. Our goal will be to eventually implement continuous emissions monitoring across our entire gathering and processing segment as a vital foundation to our carbon management plan."

Related Categories :

Third Quarter (3Q) Update   

More    Third Quarter (3Q) Update News

Permian News >>>

Permian - Delaware Basin News >>>