Crestwood Announces Fourth Quarter 2020 Financial and Operating Results and Provides 2021 Guidance and Outlook
February 23, 2021 at 07:00 AM EST
Crestwood Equity Partners LP (NYSE: CEQP) (“Crestwood”) reported today its financial and operating results for the three months ended December 31, 2020.
Fourth Quarter and Full-Year 2020 Highlights1
Recent Developments and 2021 Capital Summary
“Despite 2020 being one of the more challenging years our industry has ever faced, I am very proud of the performance of our team and assets here at Crestwood as we delivered Adjusted EBITDA of $580.3 million and Distributable Cash Flow of $361.2 million. These record annual results were both increases of more than 10% over 2019, well above consensus estimates and the highest levels we have reported in our ten year history despite the unprecedented volatility the industry experienced in the second and third quarters of 2020 due to the pandemic. Most importantly, in a year where most of our industry took a step backwards, we continued to move forward by enhancing our strategic and financial position with strong year-end leverage and coverage ratios of 4.0x and 2.0x, respectively. These results highlight the quality of Crestwood’s integrated asset portfolio and our team’s ability to manage customer relationships in a tough market, keep operating expenses low while delivering reliable services and execute our business plans through adversity,” commented Robert G. Phillips, Chairman, President and Chief Executive Officer of Crestwood’s general partner. “Despite historic commodity price volatility throughout 2020, our gathering and processing segment bounced back in the second half of the year with new rig activity in the Bakken, Delaware Basin and Barnett shale driving increased volumes, which combined with stable contributions from our legacy gas assets, high utilization of our premier northeast storage and transportation infrastructure, and the expansion of our NGL logistics business, drove positive free cash flow after capital expenditures and distributions. These factors led to strong year-end exit rates and resulted in record fourth quarter 2020 performance for Crestwood, which positions the partnership with significant momentum as we begin 2021.”
Mr. Phillips continued, “Looking into 2021, we are increasingly optimistic that the recent improvements in commodity prices are reflective of constructive market fundamentals underpinned by increasing hydrocarbon demand as the vaccination rollout continues and economies begin to fully reopen. With that backdrop, Crestwood expects to generate 2021 Adjusted EBITDA of $550 million to $610 million, with the expectation that the upper end of that guidance range becomes increasingly likely as producers continue to increase activity in a prolonged $55 to $60 per barrel crude oil price environment. During 2021, we have a modest number of highly accretive capital projects to expand key gathering systems for new production under existing contracts. Based on this guidance range, Crestwood expects to generate between $90 million and $160 million in free cash flow after paying its current distribution, that we intend to allocate toward increasing financial flexibility with further debt reduction until we achieve our long-term leverage ratio target between 3.5x and 4.0x. Based on our expected free cash flow generation, our strengthening balance sheet and financial flexibility, and our commitment to leading the MLP industry in sustainability initiatives, Crestwood is well-positioned to benefit from improving markets conditions and to maximize total returns for our unitholders in 2021.”
Fourth Quarter 2020 Segment Results
Gathering and Processing (G&P) segment EBITDA totaled $128.1 million in the fourth quarter 2020, an increase of 13%, compared to $112.9 million in the fourth quarter 2019. During the fourth quarter 2020, segment EBITDA increased primarily as a result of volume growth across the Arrow system in the Bakken as producers accelerated well connections and achieved higher initial production rates. Compared to the fourth quarter 2019, Arrow natural gas processing volumes increased 45%, natural gas gathering volumes increased 38%, water gathering volumes increased 21%, and oil gathering volumes increased 5%. In the fourth quarter 2020, Crestwood had producer rig activity in the Bakken, Delaware Permian and the Barnett shale as producers resumed drilling and completion activities in the backdrop of rising crude prices.
Storage and Transportation segment EBITDA totaled $14.7 million in the fourth quarter 2020, compared to $16.8 million in the fourth quarter 2019. Fourth quarter 2020 natural gas storage and transportation volumes averaged 2.2 Bcf/d, compared to 2.0 Bcf/d in the fourth quarter 2019. During the fourth quarter 2020, Stagecoach achieved record volumes on its transportation assets as producers continue to benefit from stronger dry gas economics that led to an increase in development capital to the region. These assets are also fully contracted for 2021. During the fourth quarter 2020, Stagecoach proactively entered into a new commercial agreement with Chesapeake as part of its bankruptcy process that was approved by the Federal Energy Regulatory Commission (FERC). This new agreement positions Chesapeake and Stagecoach to continue their strong working relationship in the Northeast Marcellus, which Chesapeake has highlighted as a core focus area going forward. At the Tres Palacios facility, Crestwood has continued to see an increased interest in storage from natural gas operators and LNG exporters in the Gulf Coast region, and recently completed a new interconnect with Kinder Morgan’s Permian Highway Pipeline that is expected to drive incremental producer volumes and producer interest in the facility. At the COLT Hub, fourth quarter 2020 rail loading volumes of 44 MBbls/d decreased compared to the fourth quarter 2019 due to reduced production in the Bakken over the course of 2020. Based on continued uncertainty around DAPL, the COLT Hub is beginning to benefit from increased contracts for take-or-pay services as producers begin to diversify take-aways options in the Bakken.
Marketing, Supply and Logistics (MS&L) segment EBITDA totaled $27.5 million in the fourth quarter 2020, compared to $19.3 million in the fourth quarter 2019. For full-year 2020, the MS&L segment generated EBITDA of $89.2 million, which includes nine months of contribution from the Plains All American (“Plains”) assets acquired in early April 2020. All periods exclude the non-cash change in fair value of commodity inventory-related derivative contracts. During the fourth quarter 2020, the NGL marketing and logistics business benefited from consistent demand as a result of on-going stay-at-home orders, slightly offset by more moderate than normal weather in October and November. In 2021, Crestwood estimates its NGL marketing and logistics business to grow year-over-year based on the full integration of the Plains assets, opportunities to capture additional market share, and consistent upstream and downstream demand.
Combined O&M and G&A expenses, net of non-cash unit-based compensation, in the fourth quarter 2020 were $45.7 million compared to $53.1 million in the fourth quarter 2019. The decrease in expenses in fourth quarter 2020 was due to Crestwood’s efforts during the second quarter of 2020 to permanently reduce costs.
Fourth Quarter 2020 Business Update and FY 2021 Outlook
During the fourth quarter 2020, the Arrow system averaged crude oil gathering volumes of 130 MBbls/d, a 21% increase over the third quarter of 2020, natural gas gathering volumes of 142 MMcf/d, 19% above the third quarter 2020, and produced water gathering volumes of 98 MBbls/d, 1% above the third quarter 2020. Stable commodity pricing during the quarter enabled producers to accelerate well connections originally scheduled for 2021 into the fourth quarter 2020 and resulted in the Arrow system achieving new gathering records on all three products during the quarter. During the fourth quarter 2020, producers on the Arrow system connected 21 three-product wells resulting in a total of 70 three-product well connections and 14 water-only well connections in 2020. At current strip pricing, Crestwood estimates there are approximately 500 to 600 three-product drilling locations and approximately 350 to 450 water-only drilling locations on the Arrow system. The Bear Den processing complex averaged volumes of 138 MMcf/d, an increase of 20% over the third quarter 2020. Volumes on the Arrow system continue to benefit from enhanced recovery methods that have driven average initial production rates as high as 10,000 Boe/d allowing Arrow producers to maintain stronger volumes with reduced drilling activity.
In 2021, Crestwood’s capital investments in the Bakken will remain focused on the enhancement and expansion of the produced water gathering system, ongoing natural gas and crude oil optimization projects to support producer development plans, and incremental system compression. Based on current producer forecasts, in a $45 to $50 per barrel crude oil price environment, Crestwood estimates 25 – 35 three-product well connects and 20 - 25 water-only well connects in 2021, and in a $60 per barrel crude oil price environment, estimates more than 45 three-product well connects, resulting in year-over-year growth in natural gas and produced water gathering volumes.
Crestwood continues to actively monitor the legal proceedings on DAPL and remains well-positioned to manage its Bakken operations under any potential outcome for the pipeline. Over the past few months, Crestwood’s customers have mitigated their exposure to a DAPL shutdown by beginning to establish shipper history on other takeaway options, resulting in significant decrease in customer nominated Arrow redeliveries to DAPL despite overall volume growth on the Arrow system. Currently, in addition to DAPL, Arrow offers its customers connectivity to Kinder Morgan’s Hiland pipeline, Tesoro’s High Plains pipeline, and the True Companies’ Bridger Four Bears pipeline system, in addition to the COLT Hub and trucking takeaway. In total, Arrow has over 200 MBbls/d of takeaway capacity for customers, allowing it to competitively clear all of its producers’ product from the basin in the event operations on DAPL are temporarily suspended. Additionally, Crestwood has already begun to experience increased demand for crude-by-rail services at the COLT Hub facility which is the leading crude oil terminal in the Bakken with multiple pipeline connections, storage capacity of 1.2 MMBbls and rail loading capacity of 160 MBbls/d.
Powder River Basin Update
During the fourth quarter 2020, the Jackalope system averaged gathering volumes of 82 MMcf/d and processing volumes of 84 MMcf/d, increases of 14% and 18%, respectively, over the third quarter of 2020. During the fourth quarter 2020, Chesapeake continued to bring shut-in wells back online and had 90% of its wells flowing by the end of 2020. The remaining shut-in wells were brought back online in January 2021, driving an incremental increase in volumes through the system which is currently flowing approximately 110 - 115 MMcf/d. Crestwood connected 11 wells to the Jackalope system during 2020.
In February 2021, Chesapeake emerged from bankruptcy as a relatively stronger E&P company with a new capital structure, lower operating expenses, and sufficient liquidity to support on-going operations. During the bankruptcy process, Crestwood proactively entered into new commercial agreements with Chesapeake in the Powder River Basin and Northeast Marcellus. Under the new commercial agreement in the Powder River Basin, Chesapeake is in the best position possible to successfully produce and develop its acreage with reduced fees in the short-term that mitigate shut-in risk, and incentivized rates that leverage recent capacity additions to support incremental development over the next few years. The new agreement protects Crestwood’s downside exposure with extended minimum volume commitments (MVCs), and provides upside to Crestwood with a higher long-term fee that generates NPV (net present value) positive economics with new development.
In 2021, Crestwood expects capital investments in the Powder River Basin to support new well connections across the Jackalope gathering system. Based on current producer forecasts, Crestwood expects 15 - 20 new wells to be connected to the Jackalope system in 2021 from the system’s primary producers providing incremental volumes and offsetting natural field decline.
Delaware Basin Update
During the fourth quarter 2020, 18 wells were connected to Crestwood’s Delaware Basin natural gas gathering systems, resulting in average volumes of 172 MMcf/d. Volumes decreased 7% compared to the third quarter 2020 due to frac protection and the new well connections coming later in the quarter and thus driving higher volumes to start 2021. During 2020, 47 wells were connected to the natural gas gathering systems driven by Royal Dutch Shell’s (“Shell”) development program on the Nautilus gathering system and activity by Concho Resources Inc. and Mewbourne Oil Company on the Willow Lake gathering system. Volumes on the recently constructed produced water infrastructure averaged 44 MBbl/d during the fourth quarter 2020, a decrease of 6% quarter-over-quarter, as the anchor producer re-used incremental barrels for fracking as a part of its development program during the quarter. Based on the producer’s current forecast, Crestwood expects average annual produced water volumes to materially increase in 2021.
In 2021, Crestwood expects growth capital in the Delaware Basin to include Nautilus and Willow Lake gathering system expansions and well connections. Based on current producer forecasts, Crestwood estimates 65 - 75 wells to be connected to the Delaware Basin gathering systems during 2021, driven by Shell’s three-rig program on acreage dedicated to the Nautilus system and various operators on the Willow Lake system.
Federal Land Exposure Update
Following the recent executive orders and actions by the Biden Administration, Crestwood continues to assess the impact to its business related to the temporary suspension of new leasing on federal lands. Based on the initial assessment, Crestwood believes that it is well-positioned to manage the orders made to date on its federal land exposure in the Bakken, Powder River and Delaware Basins. In the Bakken, the Arrow system is located on the Fort Berthold Indian Reservation and the Department of the Interior excluded tribal lands from its executive actions; thereby, allowing the Bureau of Indian Affairs (BIA) to continue issuing new permits, rights-of-way, and leases. In the Powder River Basin, Crestwood has minimal surface exposure to federal lands and does not expect any issues with obtaining incremental rights-of-way for additional gathering lines. Crestwood estimates approximately 55% - 60% of its primary producers’ mineral acreage is located on private lands and data from the BLM indicates there are approximately 330 federally approved drilling permits on the Jackalope system, allowing producers to develop new wells in the basin for the foreseeable future with limited impact from any regulatory limitations on federal lands. In New Mexico, the Willow Lake system is 86% on private land; therefore, Crestwood does not expect material issues gaining incremental rights-of-way. Additionally, the major producers on the Willow Lake system have been proactive in permitting wells located on federal lands prior to the Biden Administration taking office.
Barnett Shale Update
In the Barnett shale, there is currently one rig running on the Lake Arlington system and Crestwood expects an eight well pad to be connected in early second quarter 2021. Crestwood anticipates the incremental volumes from this activity to more than offset natural field decline for the year.
2021 Financial Guidance
Crestwood’s 2021 guidance reflects the general business update and outlook noted above, the most recent feedback from customers, and Crestwood’s current outlook on commodity prices. Given continued commodity price volatility resulting from the ongoing demand recovery from COVID-19, Crestwood has factored commodity price sensitivities into the guidance ranges provided below. The guidance range is generally estimated to reflect Crestwood’s business performance at an oil price environment of $45 to $50 per barrel on the low end of the range, up to approximately $60 per barrel at the upper end of the guidance range, taking into consideration the impact commodity price movements may have on Crestwood’s customers’ development plans, as well as the limited direct commodity price exposure Crestwood has under its percent of proceeds and marketing contracts. These projections are subject to risks and uncertainties as described in the “Forward-Looking Statements” section at the end of this release.
Capitalization and Liquidity Update
Crestwood invested approximately $5.7 million in consolidated growth capital projects and joint venture contributions during the fourth quarter 2020 and approximately $143.8 million during full-year 2020, coming in at the low end of the revised guidance range. As of December 31, 2020, Crestwood had approximately $2.5 billion of debt outstanding, comprised of $1.787 billion of fixed-rate senior notes and $719 million outstanding under its $1.25 billion revolving credit facility, resulting in a leverage ratio of 4.0x.
On January 6, 2021, Crestwood priced an offering of $700 million 6% senior unsecured notes due 2029 and concurrently launched a tender offer for its existing $700 million 6.25% senior unsecured notes due 2023. Approximately 58% of the 2023 notes were validly tendered and Crestwood closed the offering and funded the tender settlement on January 21, 2021. Pro forma for the closing of the transactions, Crestwood has $2.1 million of senior notes outstanding and approximately $430 million drawn on its revolving credit facility. Crestwood expects to redeem the remaining 2023 senior notes when they become callable at par on April 1, 2021.
Crestwood expects growth capital for 2021 to be in a range of $35 million to $45 million, primarily focused on optimizations to the Arrow gathering system in the Bakken and well connects in the Delaware Permian and Powder River Basin. Crestwood expects to invest between $20 million to $25 million on maintenance capital projects for the year. Based on the current outlook, Crestwood expects to fund its total 2021 capital program with retained cash flow and to generate meaningful free cash flow after distributions.
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
Since 2018, Crestwood has been a leader in the midstream ESG space by advancing ESG initiatives both within the company and across the energy industry. Recent ESG/Sustainability achievements and milestones for Crestwood include,
With the achievement of these significant ESG milestones and enhanced transparency, Crestwood’s ESG scores improved with the key ESG rating and ranking organizations, including recent upgrade by MSCI, improvement of its 2020 Sustainalytics score by 21% and its 2019 Bloomberg ESG score improved by 65%.
Mr. Phillips commented, “ESG is a fundamental part of how Crestwood conducts its business, and I am proud of the continued enhancements our company has made throughout 2020 and into 2021. As we continue to encourage enhanced transparency and disclosure within the energy industry, Crestwood was one of the first to complete and publish its performance metrics in the new EIC/GPA ESG reporting template this past December. Last month, Crestwood was honored to join Enbridge Inc. and TC Energy as the only three midstream companies included in the 2021 Bloomberg Gender-Equality Index which showcases the advancements our company has made in D&I over the past year and Crestwood has also taken another step to engrain these values into its culture by tying a portion of executive and all-employee compensation to our D&I initiatives.”
Mr. Phillips concluded, “Oil and gas will be an essential contributor to the transition to a lower carbon future and it is imperative that Crestwood, and the rest of our industry, addresses the dual challenge of meeting the world's growing energy demand while also being mindful of the potential risks associated with climate change. Crestwood is pleased to join other natural gas companies as a part of ONE Future and will continue to reduce methane emissions across its assets through enhanced detection and repair practices and other methane emission reduction technologies.”
Crestwood remains on track to publish its third annual sustainability report in June 2021 in accordance with the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) Midstream Framework, and this year will incorporate additional disclosures through the Task Force on Climate-Related Financial Disclosures (TCFD).
For more information on Crestwood’s approach to sustainability, please visit https://esg.crestwoodlp.com.
Upcoming Conference Participation
Crestwood’s management will participate in the following upcoming virtual investor conferences. Prior to the start of each conference, new presentation materials may be posted to the Investors section of Crestwood’s website at www.crestwoodlp.com.
2020 K-1 Tax Packages
Crestwood’s K-1 tax packages are expected to be made available online and mailed the week of March 15, 2021. Once available, K-1s can be found online at www.taxpackagesupport.com/CEQP for the common units or www.taxpackagesupport.com/CEQP_Preferred for the preferred units.
2020 Annual Report Form 10-K
Crestwood plans to file its annual report on Form 10-K with the Securities and Exchange Commission for the year ended December 31, 2020 on February 26, 2021. The 10-K report will be available to view, print or download on the Investors page of Crestwood’s website at www.crestwoodlp.com. Crestwood will also provide a printed copy of the annual report on Form 10-K, free of charge upon request. Such requests should be directed in writing via email to email@example.com or via mail to Investor Relations, 811 Main St., Suite 3400, Houston, TX 77002.
Earnings Conference Call Schedule
Management will host a conference call for investors and analysts of Crestwood today at 9:00 a.m. Eastern Time (8:00 a.m. Central Time) which will be broadcast live over the Internet. Investors will be able to connect to the webcast via the “Investors” page of Crestwood’s website at www.crestwoodlp.com. Please log in at least 10 minutes in advance to register and download any necessary software. A replay will be available shortly after the call for 90 days.
Non-GAAP Financial Measures
Adjusted EBITDA, distributable cash flow and free cash flow are non-GAAP financial measures. The accompanying schedules of this news release provide reconciliations of these non-GAAP financial measures to their most directly comparable financial measures calculated and presented in accordance with GAAP. Our non-GAAP financial measures should not be considered as alternatives to GAAP measures such as net income or operating income or any other GAAP measure of liquidity or financial performance.
This news release contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities and Exchange Act of 1934. The words “expects,” “believes,” “anticipates,” “plans,” “will,” “shall,” “estimates,” and similar expressions identify forward-looking statements, which are generally not historical in nature. Forward-looking statements are subject to risks and uncertainties and are based on the beliefs and assumptions of management, based on information currently available to them. Although Crestwood believes that these forward-looking statements are based on reasonable assumptions, it can give no assurance that any such forward-looking statements will materialize. Important factors that could cause actual results to differ materially from those expressed in or implied from these forward-looking statements include the risks and uncertainties described in Crestwood’s reports filed with the Securities and Exchange Commission, including its Annual Report on Form 10-K and its subsequent reports, which are available through the SEC’s EDGAR system at www.sec.gov and on our website. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management’s view only as of the date made, and Crestwood assumes no obligation to update these forward-looking statements.
About Crestwood Equity Partners LP
Houston, Texas, based Crestwood Equity Partners LP (NYSE: CEQP) is a master limited partnership that owns and operates midstream businesses in multiple shale resource plays across the United States. Crestwood Equity is engaged in the gathering, processing, treating, compression, storage and transportation of natural gas; storage, transportation, terminalling and marketing of NGLs; gathering, storage, terminalling and marketing of crude oil; and gathering and disposal of produced water. Visit Crestwood Equity Partners LP at www.crestwoodlp.com; and to learn more about Crestwood’s sustainability efforts, please visit https://esg.crestwoodlp.com.
Source: Crestwood Equity Partners LP
1 Please see non-GAAP reconciliation tables included at the end of the press release
2 Defined as distributable cash flow attributable to common unitholders less growth capital expenditures and distributions to common unitholders