Crestwood Equity Partners LP
Q1 2018 Earnings Call Transcript

Published: 1 May 2018

[Operator:]

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. Finally, in that immediate area we estimate there is approximately 4,000 megawatts of new gas-fired co-gen load which will be put into service within the next year in the vicinity of our Stagecoach assets, so again as a result we would expect to see continued increased storage and transport volumes at Stagecoach and we are currently receiving significant interest from customers that will supply these new additions, new markets, new demand in advance of their service date, so we’re excited about the near term and long term future of Stagecoach. In our marketing, supply and logistics segment, during the first quarter we finally experienced some cold weather that increased demand for propane in the central and northeast regions, and I’m very pleased with that segment’s ability to collaborate with our processing projects in the Bakken and the Delaware Basin to provide our producer customers with a full range of services and solutions to get their NGL products from the wellhead to the downstream markets at a higher netback with greater flow assurance than we’ve been experiencing in the past. This segment will be a valuable competitive advantage for Crestwood as we continue to expand our processing assets in the Bakken and the Delaware Permian, as well as the Powder River Basin. I think you can see our view that the business fundamentals are strong and driving demand across our entire asset base. When combined with the new projects that we have coming online in 2018, we expect Crestwood will reach an inflection point near midyear 2018 to begin to see meaningful cash flow growth as we exit the year and move into 2019. While we’re extremely bullish on our assets’ ability to grow and we’re operating in a macro environment that is creating some noise, I think it would be helpful if I take a minute or two to just explain some of the reasons why we think MLP valuations are being depressed, and it certainly starts with the macro noise related to the recent FERC ruling in March, corporate governance changes, that is the GP-LP simplification trade that’s occurring throughout the space, and the impact on incentive distribution rights, and then finally there’s a lot of talk in the industry about C-corp conversions. All these things - the FERC ruling, simplification, IDRs, C-corp conversions, or tax issues, we believe has created a skittishness amongst MLP investors despite there being zero impact from those issues on Crestwood. In an effort to provide some clarity as it relates to Crestwood and your investment in Crestwood, let me briefly run through our thoughts on each topic. First in March, the FERC announced that there would be a revision to their 2005 policy statement for recovery of income tax cost. As Crestwood, as you know, we only have two FERC assets in our portfolio - Stagecoach in the northeast Marcellus and Tres Palacios along the Gulf Coast. Both are storage and pipeline assets. Both of these assets account for a combined $55 million in annual cash flow to those two joint ventures. Tres does not offer cost of service rates and as a result will absolutely not be impacted. Stagecoach has minimal exposure as a significant majority of the revenues are received through market-based and negotiated rates which are insulated from any change to cost of service rates that might result from revisions promulgated by FERC or new rules that they might come up with. Accordingly, we believe emphatically that Crestwood does not expect either asset to have a meaningful cash flow impact from this latest ruling. Now to corporate governance as it relates to the GP-LP structure that continues to be an issue that dogs the industry, particularly regarding the payout of incentive distribution rights. Structural simplification has been a topic that’s emerged in the market and it’s now demanding stronger alignment of management and unit holder interest. This is something that we take very seriously at Crestwood. Our general partner, our management team and our board of directors collectively own about one-third of the common units outstanding of Crestwood. Our business decisions are purely driven to enhance the total return for our unit holders, and let me remind you that back in September of 2015, we were one of the first MLPs to simplify our public GP and LP structure and we have not and do not have incentive distribution rights, therefore we do not have that additional burden on our cost of capital. Now finally to the recent lack of funds flow in the MLP space, FERC tax reform shifting views on corporate governance, the topic of C-corp conversions or, as they’re now being called, ticking the box transactions, those have clearly become a concern for investors that are making capital allocations about who to invest in, in the MLP space. Given the perception of adverse tax consequences related to MLPs converting to a C-corp format, or investors that are apprehensive to invest ahead of such an event, let me tell you that unequivocally at Crestwood our tax and legal teams have proactively evaluated the pros and cons of a C-corp conversion and as we stand today, we are totally committed to remaining a master limited partnership. I want to make sure that we’ve cleared the air regarding those issues that seem to be impacting the entire space in a lot of our peers. Before I hand the call to Robert and Heath, let me just saying that given my over 40 years experience in the industry, we know that during periods of capital market uncertainty, there’s only a few things that we can do to control our future. This means that the Crestwood management team continues to be laser focused on physical discipline, project management, environmental health and safety, and providing outstanding customer service in a very competitive business. The business fundamentals are as strong as they’ve been since early 2014. We have multiple growth catalysts on the horizon, very visible growth projects in the Bakken, the Delaware Permian, the Powder River Basin, long-term opportunities around Stagecoach in the northeast Marcellus, and as we begin to bring these projects into service over the next three or four quarters, I expect that we will begin to unlock what we think is unrecognized value across Crestwood’s portfolio and in the process we expect to drive meaningful value creation for our unit holders. With that overview, happy to turn it over to Robert to give you a quick review of the financial results of the first quarter. Robert?

[Robert Halpin:]

Thank you, Bob. During the first quarter, adjusted EBITDA totaled $102 million, which is up 12% year over year when compared to the $91 million in the first quarter of 2017. Distributable cash flow available to common unit holders for the first quarter of 2018 was $53 million, that net of our quarterly cash distribution to our Class A preferred unit holders. For the first quarter of 2018, we declared a distribution of $0.60 to our common unit holders resulting in total distribution coverage for the quarter of 1.25 times. In our gathering and processing segment, segment EBITDA totaled $82 million in the first quarter of 2018, representing a 23% increase when compared to $67 million in the first quarter of 2017. Segment EBITDA increased during the quarter as a result of strong volume growth across multiple basins. In the Bakken, crude oil volumes increased 17%, natural gas volumes increased 29%, and produced water volumes increased 23%. In the Delaware Basin, natural gas volumes grew 233% primarily as a result of placing the Nautilus system in service in June of 2017. In the Powder River Basin, we saw a 59% increase in natural gas volumes and volumes in the southwest Marcellus increased 20% when compared to 2017. G&P segment volume growth reflects increased completion activity over the past 12 months as producers in these basins continued to benefit from rising commodity prices and improving recoveries. In our storage and transportation segment, segment EBITDA totaled $12 million in the first quarter of 2018 compared to $17 million in the first quarter of 2017. Segment EBITDA decreased primarily as a result of the expected lower year-over-year EBITDA contribution from the Colt hub. In our natural gas storage and transportation business, segment volumes increased 10% year over year as a result of higher firm storage services demand at Stagecoach due to favorable winter weather conditions and higher firm and interruptible services at Tres Palacios driven by growing Gulf Coast LNG demand. In our marketing, supply and logistics segment, segment EBITDA totaled $13 million in the first quarter of 2018 compared to $17 million in the first quarter of 2017. First quarter 2018 reflects the divestiture of U.S. Salt, which contributed approximately $6 million of segment EBITDA per quarter prior to its sale in the fourth quarter of 2017. Adjusted for the sale of U.S. Salt, segment EBITDA for our marketing, supply and logistics segment increased 23% year over year driven by colder temperatures in the central and northeast regions, pipeline disruptions, and increased collaboration with our G&P segment. Now moving to expenses, combined O&M and G&A expenses for the first quarter were down 3%, or $1.6 million. We continued to have cost discipline across our entire organization, and while these numbers may slightly increase as a result of growing activity and new projects in 2018 and 2019, we expect profit margins to continue to expand with incremental revenues from our projects once they are placed in service. Moving to the balance sheet as of March 31, Crestwood had approximately $1.5 billion of debt outstanding, including $1.2 billion of fixed rate senior notes and $293 million in outstanding borrowings under our $1.5 billion revolving credit facility. This resulted in a leverage ratio of 3.9 times. For the remainder of 2018, Crestwood remains committed to achieving our targeted distribution coverage and leverage goals and prudently financing our organic growth projects. Crestwood’s 2018 capital program is fully funded with excess cash flow and revolver borrowings, and we do not expect to access the equity markets in 2018. While our leverage ratio may fluctuate in 2018 due to the timing of capital investment, we expect as we bring these highly accretive organic capital projects online, the incremental cash flow ramps in the latter half of 2018 and full-year 2019 will provide visibility to leverage well below 4 times. Now I’ll turn the call over to Heath to provide an update on our capital projects and business outlook.

[Heath Deneke:]

All right, thanks Robert. Starting with capital, Crestwood invested $58 million in growth capital during the first quarter on organic projects in the Bakken, Delaware and Powder River Basins. As previously announced, we expect to invest a total of $250 million to $300 million of growth capital in 2018 that’s net of our joint venture partner’s consideration. Approximately 80% of that amount will be invested in the Bakken, 15% in the Delaware Permian, and 5% in the Powder River Basin. Our project execution teams continue to make excellent progress on delivering our 2018 and 2019 project backlog on time, on budget, and with top tier safety performance. Also as Robert commented on in his remarks, we are continuing to experience strong volumetric growth across our core growth basins during the first quarter, and our underlying fundamentals are strengthening in each basin with continued gains in producer activity levels and efficiency, improving well results, and a more favorable oil price environment. With all of these factors, we remain very confident in our base plan and that our portfolio of committed growth projects are on track to meet or exceed the economic returns we envisioned when we underwrote those expansions back in 2017. With that as a high level summary, I will now go through more specifics on our projects and business outlook in each of our core growth areas. Starting in the Bakken, during the first quarter we saw a 20% or above increase in all three product volumes gathered on the Arrow system despite the really harsh weather conditions that resulted in freeze-offs at the wellhead and new well completion delays. Despite those weather-related volume impacts, the Arrow system still outperformed our budget expectations for the quarter largely due to wellhead performance continuing to outpace our internal risk tight curves. This was also the first quarter of the Bear Den processing plant being placed in service. During the quarter, the plant was fully operational and as expected allowed us to further increase the amount of gas gathered on the Arrow system during the quarter while reducing our exposure to third party processing constraints. Also, Crestwood’s NGL marketing and logistics team performed very well by ensuring flow assurance on the NGLs leaving the Bear Den plant while enhancing our overall margins through product sales. During the quarter, Crestwood invested approximately $56 million in growth projects on the Arrow system to debottleneck existing constraints and expand our crude, natural gas and produced water handling capabilities to meet future volume growth. We expect the majority of these projects will be completed towards the end of the third quarter of 2018 which will allow for meaningful volume growth as well as driving cash flows on the Arrow system during the second half of 2018 and beyond. Additionally, as planned, Crestwood kicked off construction activities on the Bear Den Plant 2 expansion during the month of April. The plant expansion will increase our processing capacity to $150 million a day, allowing us to process 100% of the natural gas that we forecast to be produced on the Arrow system over the coming years. The Phase 2 project is expected to be in service during the third quarter of 2019. As previously discussed during our call last quarter, our portfolio of Bakken projects offers extremely attractive total project returns with an expected sub-4 times overall build multiple when the full expansion program is complete. These projects remain on track to drive very meaningful and accretive cash flow growth for Crestwood in 2018 and ’19 and beyond, with Arrow’s total cash flow contribution going an expected 15% cumulative annual growth rate from year-end 2017 through 2022. Shifting to the Delaware Basin, during the first quarter Crestwood’s gathering assets averaged natural gas volumes of 130 million a day, which was a 233% increase over the first quarter of 2017. This was primarily as a result of completing the Nautilus gathering system for Shell back in June of 2017. Volumes will continue to grow throughout the second quarter, and with a total of six rigs now active on the Delaware Basin systems, we expect to see a significant ramp-up in volumes during the second half of 2018. During the quarter, Crestwood Permian Basin Holdings, our partnership with First Reserve and Crestwood, we invested approximately $47 million in growth projects in the Delaware Basin. We currently have three projects underway

[Operator:]

[Operator instructions] Our first question comes from the line of Andrew Burd with JP Morgan. Please proceed with your question.

[Andrew Burd:]

Hi, good morning. A couple questions. First, congratulations on the potential [indiscernible] in the Niobrara. Question on if the Chesapeake outlook materializes as they’ve kind of portrayed and there’s a big opportunity there, what potential opportunities longer term, besides just piling a bunch of processing plants there, could you pursue? Are there other pipeline projects, and what is included in the acreage dedication that you have with Chesapeake? Then a follow-on to that is potential for new third parties in the area.

[Heath Deneke:]

This is Heath here, Andrew. Thanks for the question. First, starting with the Chesapeake agreement, our current dedication includes gas gathering, compression and processing, and we also have additional opportunities, preferred rights if you will, to entertain crude gathering if and when they’re ready to take that on as well. When you think about our neck of the woods in the Power River, while the gas system and processing capacity certainly has been developed and is well positioned to start growth, most of the crude in our area is not dedicated today and is largely being trucked away or basically barrels sold at the lease and then put on trucks to get to local markets. When you think about Chesapeake’s growth over the next two to three years on the oil side, we definitely think it’s going to make sense for them. It will improve their economics and also flow assurance to develop the gathering system to support their production. But as you pointed out, obviously there’s a fairly large ramp-up in producer activity really across the basin, and we think we’re very well positioned both on the gas front as well as on the crude potentially to add third party opportunities. Earlier in the year, we actually added contracts with two of those operators in the basin to provide gas gathering and processing services, and we certainly look forward to expanding those relationships as they continue to grow and further develop the acreage in the vicinity.

[Operator:]

Our next question comes from the line of Shneur Gershuni with UBS. Please proceed with your question.

[Shneur Gershuni:]

Hi, good morning guys. Just a couple of quick questions here. First of all, I was just wondering if we can talk about your NGL position and takeaway in the Bakken. You have a competitor talking about converting an oil pipeline and railing it out and so forth. How does the changing dynamic of some of your competitors change your position? Where do you see yourself within the basin in terms of NGL evacuation?

[Heath Deneke:]

I’ll start us off, and we have John Powell here as well, who heads up our NGL business development and commercial team. I’d start with today with Phase 1, again we have a 30 million a day plant that’s operational today. Our MS&L group are providing very vital truck and NGL logistics services to ensure that we are moving products away from the plant. As I mentioned in my commentary, we’re also making a nice margin, if you will, on our marketing services in some of the assets that we’re utilizing to provide that service, so I think that’s going to continue certainly until we get to Bear Den 2. As we think about Bear Den 2, we expect to have a pretty broad opportunity set around NGLs. We think that with One Oaks expansion of their Elk Creek line, I think we’re going to see additional pipeline capacity opening into the basin that we’re well positioned to take advantage of, but we’ll always have the backstop if needed to continue to provide additional back-up services, being truck and rail, out of the Bear Den facility. I think the good news here is in addition to just pure flow assurance, we think the addition of capacity that One Oak is developing, as well as what you’re seeing from Endeavor and others in the basin, we think that the netbacks associated with NGLs are only going to get stronger and certainly won’t be the constraint that we feared them to be probably this time last year. John, anything else to add on that front? Okay.

[Shneur Gershuni:]

All right, and as a follow-up, I know that you’re sort of talking about some of the opportunities that you’re seeing in the PRB and so forth. At the same time, there’s kind of been a lot of discussion about the amount of natural gas being produced in the U.S. and other basins, and sort of having a knock-on effect on lower pricing and potential drilling impacts. How do you protect yourself in terms of putting up capital to build the next processing plant when you could have a producer decide to lay down the rigs? You would have volume risk, I would assume, but is there a way to sort of protect yourself on the initial investment and so forth in case some of the fears come to fruition?

[Heath Deneke:]

I think first of all, and I’ll speak directly to the Bakken and Powder River and our Permian, all three of these, all the economics are driven by oil. Gas is effectively a by-product and really isn’t all that meaningful as it relates to the single well economics that our producers enjoy. I think first and foremost, as we kind of embarked a few years ago, we wanted much more exposure to the crude side of the equation, and I think we’ve been able to develop a good footprint in good acreage that has breakeven substantially below the near term and long term oil price outlook. So I think first and foremost, I’d make that point. Furthermore, I think particularly as it relates to the Bakken, we’ve amassed a pretty large set of PDP production. We’ve got producers that have really a lot of running room, almost a decade worth of inventory with breakevens that sit somewhere in the low to mid 30s, so again I think the combination of PDP production as well as the vast amount of inventory over the next decade, we feel really confident with our volume and activity on that front. But as you remember on the gas side of the equation, the processing, which is the bulk of the capital that we’re spending on the system, we’re really just shifting existing production away from our third party processing agreement and self-performing that, so we have a very substantial wedge of gas related production that’s forced the economics of our Bear Den 1 and Bear Den plants. Moving down to the Powder River, as a reminder, we do have minimum volume commitments in place with Chesapeake. Those are substantial over the next three to five years. They effectively, as well as a tiered rate structure which in aggregate provides about 450 million of cash flow protection, if you will, over that near term horizon, so I think those MVCs are certainly there to help us de-risk at Powder River, as a year ago--obviously we’ve made a lot of progress in the basin and things are going well, but those MVCs were put in place given the uncertainty at the time. Shifting down to the Delaware Permian, kind of the same story. I think the wellhead economics are crude driven. I think you see breakevens going down into the low 20s in most of the footprint that we’re operating in, and plus just given the activity level that we’ve had with Shell and our other producers up in Eddy County, we’ve been able to develop a pretty large scale infrastructure that really has been built for growth, and it is surrounded by 300,000 of highly prolific dedicated acreage, but largely the economics that underwrote those projects were with existing contracts and existing producer level activity, so if you kind of think about going forward, we’ve got a lot of built-in room for growth. I don’t think we need--at this point in time, we do think we’ll be expanding those facilities, but we’ll continue to make those decisions and continue to watch drilling activity and production results before those other projects are put into final investment decision mode.

[Shneur Gershuni:]

Appreciate the color, thank you. Maybe just one final question on the financials, I guess. You reported coverage of 1.25, your leverage is sub-4 times now. At this stage, it looks like you’re funding about 20% of your capex with internally generated funds. How do you think about the distribution on a go-forward basis? Do you see an opportunity to raise it? Are you going to be targeting coverage, are you going to be targeting internally generated cash flow metrics? Just if you can walk us through your thought process and how you’re discussing it with the board.

[Robert Halpin:]

Absolutely, Shneur. I’ll take that one - this is Robert. I think just to start off, based on our first quarter actual and outlook for the rest of the year, we remain right on track to deliver our 2018 guidance. As we talked about on the call, the long-term fundamentals around our business have only been improving over the first quarter time frame. I think as we’ve stated a number of times, whether you’re talking about a percentage of capital being internally funded or targeted metrics from a leverage and coverage standpoint, I think our commitment first and foremost is to the balance sheet and delivering long-term leverage less than 4.0 times, and long-term coverage greater than 1.2 times or better. As you alluded to, we’re at those metrics today and we expect to stay at those metrics based on our outlook. We are continuing to execute on our organic program in 2018. We spent just under $60 million in the first quarter net to Crestwood, expect to still spend between $250 million and $300 million for the full year, and remain right on track to bring those projects online and in service as outlined. I think the impact of that will be that in the latter half of 2018 and full year 2019, we’ll see material improvements to those financial metrics, both the balance sheet as well as the distribution coverage, and see those move to levels nicely inside of our targets. I think as we think about distribution plans every quarter and the way we communicate with the board as we continue to work to evaluate all conditions in the market, all the capital investment opportunities that we have in front of us, and we will ultimately elect to allocate our excess cash flow in the manner that we believe sticks first and foremost within our core financial principles, and second in the manner that delivers what we believe to be the highest long-term return proposition to our unit holders. I don’t think we’re prepared to give any more granular color at this point, but I think we’re right on track to deliver the cash flow piece of the equation and the allocation of capital will really be a function of the market environment and the opportunity sets for investment we have in front of us.

[Shneur Gershuni:]

Would you consider buybacks as one of the ways to think about returning capital, if you didn’t think your stock price was reflecting the yield?

[Robert Halpin:]

I think absolutely, Shneur, we’d consider, as I said, all alternatives that drive the greatest value and return proposition to our investors. I think as we’re seeing it in the projects that we are committing to, we’re expecting to invest those dollars at between four and five times cash flow, and with where we’re trading today in the market at north of 10 times, investing at four times works really well and drives significant value uplift over time.

[Shneur Gershuni:]

Perfect. Thank you very much, guys, really appreciate the color.

[Operator:]

Our next question comes from the line of Ned Baramov from Wells Fargo. Please proceed with your question.

[Ned Baramov:]

Good morning. Thanks for the update on the progress of your near term growth projects. Could you maybe also provide an update on some of the longer term opportunities you have been evaluating in the last six months or so, specifically the water business in the Permian, downstream, NGL assets in the Bakken, and so on?

[Heath Deneke:]

Yes, sure. Well, just starting with our committed backlog, we’ve got the capital program in the Bakken that we have underwritten and are executing well, and expect to start contributing towards the second half of ’18 and certainly going into ’19 as we complete Bear Den Phase 2. Coming down to the Powder, as we talked about, we are putting a small expansion in service in 2018 that will increase our processing capacity by 25 million a day and our gathering system capacity as well. Beyond that, we have the processing expansion that we’re getting really close here, probably in the next month or so, to reach a final investment decision on. That additional 200 a day plant at Jackalope will be fully supported by the four to five rig activity that Chesapeake has currently guided us towards, so we think that that alone supports that investment decision and we’ll certainly be talking about that more here in the future. Also in the Powder River, as I mentioned, crude gathering particularly in our neck of the woods is going to be crucial for these producers to ramp up their development activity, and we’re proactively working with several of them today to try to lay out plans for a gathering system. So again, we think that that would be--certainly the processing, the next processing expansion is teed up next for a final investment decision, but I think over the course of the summer we’ll figure out whether or not there is a crude project that makes sense for Crestwood to sponsor and develop for our producers. Moving down to the Permian, like we said, Orla, the first of our processing expansions at Orla is going in service on or before July 1 of 2018, as well as the connecting lines that integrate our Willow Lake system with our Nautilus gathering system. So again, all of those are in the bag, they are financed, and we think will drive a lot of accretive growth for Crestwood here going forward. Beyond that in the Permian, I think we definitely see the need for additional water gathering and disposal services for the customers. I think if you look at it, sure, there’s some potential bottlenecks on the crude and on the gas takeaway side, but most of those are going to be behind us starting in the second half of 2019. What we see lagging is the development of large scale water gathering and deep Devonian injection wells that can, frankly, ramp up at the expected level of production that we’re seeing out of our producers, and that’s where we’ve been focused over the past year. We’ve been doing a lot of research, we’ve been talking to a lot of producers. I think we’ve developed a pretty unique plan of attack here, and over the course of the past six months or so, I think we’ve narrowed in on an anchor customer or two that we’re making progress with on a commercial front to try to get an anchor that would enable us to kind of go forward with our project. So again, it’s not a done deal yet, but we think it’s the right project for the right area, and we think that there’s going to be a lot of addressable market in that produced water handling space that will continue to give us the opportunity to invest in if we want over time. Then in addition, as I mentioned in my commentary, we have developed largely on the backs of existing contracts a very large scale gas gathering and processing footprint spanning from the middle of Eddy County all the way down through Loving, Ward, and Reeves County. With that, our high pressure trunk lines that basically span 100 miles of the basin have the capability of moving over 650 million of day of high pressure gas to our Orla location, so we’re starting with the 200 million a day plant, we’ve already put an option on a kit for a second plant, and we expect as our producer activity continues to increase and as other producers go to market for additional processing services, we’re very, very well positioned to add another train, and potentially two trains at the Orla location. Then finally when you think about getting up to that level of processing, we certainly are looking at opportunities to kind of further enhance optionality for our producers on both the NGL and gas takeaway front, so we think in the long run there’s going to be good opportunities as well as the volumes materialize as we expect to be involved in some of those projects, and some are probably something that might come into production sooner than later. Then finally on the long-term front, we didn’t talk a lot about the Marcellus today, but we continue to be really optimistic about the basin in the long run. While we do know there’s a lot of associated gas coming onto the market, in our neck of the woods in Bradford and Susquehanna County, you still see producer breakevens that are in the low to mid $2 range, so there’s a lot of inventory that needs to be unlocked. Frankly, what’s been detracting from that is there’s just not sufficient downstream takeaway to move that gas out of basin, so with the projects that are being sponsored and being built today by Williams and others up in the basin, effectively our transportation system kind of feeds into a lot of those outlets, and we think basis will start to improve certainly as you get into later half of 2018 and into 2019, so we think of our opportunity set really kind of picking up in the Marcellus sometime in the 2020 to 2021 time period, again being able to take gas off of gathering systems that are connected to our system and to redistribute those into our interconnects that we have with Millennium, with Tennessee Gas Pipeline, and with the Transco system. As Bob mentioned in his comments, we are either directly or indirectly connected with all of those outlets, so again we think there will be another round of projects that will need to be built to enable our producers to ramp up beyond current levels of production, and we think we’re pretty well positioned with our partnership at ConEd to get our fair share, if you will, of that volume growth and new capacity needed to get gas out of the basin.

[Ned Baramov:]

That’s very helpful, thank you. Then assuming that a lot of these projects come--the longer term projects come to fruition, could you maybe talk about the investment opportunity in terms of capex dollars per year?

[Robert Halpin:]

Yes, I think at this point, Ned, we’re not prepared to give that long term guidance in absolute capital dollars. I think we’ll continue to evaluate project by project all of these and give clarity when we have it. I think it would be premature at this point. I think sticking to what we’ve got committed for ’18, ’19, we see the ability to deliver on that well within our stated objectives and see a material uplift in the balance sheet and coverage statistics, and I think that we like the self-funding model, we believe that it provides the greatest amount of flexibility to deliver value to unit holders, and I think in the long term that will be in the back of our minds as we ultimately sign these up and execute going forward.

[Ned Baramov:]

That’s fair, thank you.

[Bob Phillips:]

Ned, this is Bob. Let me add some color to that. We haven’t talked about it today, so I want to remind everybody that we intentionally back in 2015 and ’16 moved towards a strategy of forming strategic joint venture partnerships in each of the basins that we operate in, because we saw years of infrastructure build-out and at the time didn’t feel like we could finance, fully finance 100% of all these project opportunities, but we didn’t want to miss the opportunity to be competitive and be commercial, so we intentionally went out and started forming partnerships, many times with our largest customers and the assets. The first was Tres Palacios and Brookfield Infrastructure is our partner there, and they have substantial capital and they are our largest customer at that asset. That started the trend towards strategic partnerships, and you see it play out across our entire portfolio except for Bakken. We thought the Bakken was so good, we wanted to keep that 100% for ourselves. But in the northeast, ConEd is our partner, they’re investment grade, they’re commercial. They want to make more non-regulated investments - that’s part of their corporate strategy. We don’t miss an opportunity to look for a deal, and so we’re not going to miss a deal because we can’t finance it, and certainly our strategic partnerships will play a big role in that. Same thing in the Powder River Basin with Williams as our partner, and then we have a financing partnership layered on top of that. Same thing in the Delaware Permian where our primary partnership is with First Reserve Fund 13, but we have another partnership with Shell who is also our largest customer. The strategy here is to be in position to go compete for these bigger projects and not let Crestwood’s size or, at the time, balance sheet have a negative impact on our ability to be competitive and fully develop these opportunities, and that is the reason why we have all these partnerships in these high growth areas, because we still think there is a lot of infrastructure opportunity left and we’re not going to miss an opportunity because we can’t finance it on the Crestwood balance sheet. These partnerships are set up to make us more competitive and to help us finance projects.

[Ned Baramov:]

Thank you, Bob.

[Operator:]

As a reminder, if you would like to ask a question, please press star, one on your telephone keypad. Our next question comes from the line of JR Weston from Raymond James. Please proceed with your question.

[JR Weston:]

Hi, good morning. Just kind of had a higher level question. Appreciated the commentary at the beginning of the call comparing first quarter results to the full year budget. Just wondering if you could talk in a little bit more detail on the puts and takes from the weather driven issues in the quarter. You mentioned maybe some headwinds in the Bakken and PRB but maybe offsetting increase in propane demand, and then Stagecoach’s performance during the quarter. So just any more color on those dynamics?

[Robert Halpin:]

Yes, I think we can give some high level color as it relates to our commentary around internal plan and puts and takes. I don’t think we typically as a policy get into the granular detail asset by asset, but I think we can certainly give you directional commentary that gives us confidence in our outlook for the remainder of the year. As we mentioned, from a weather perspective you had some instances where the harsher weather in some regions of the country helped as it relates to our propane business for the MSL segment, obviously the first winter in a while where we did have some periods of strong demand that helped drive opportunity. The offset to that is that in the Bakken, we had a harsh winter up there, we did see some impact to completion activity and curtailments on the system or freeze-offs on the system attributable to extreme cold. I think when you look at the specific results, as we’ve communicated with kind of right at $102 million of the quarter on an EBITDA basis, we were a little bit ahead of our internal plans and I think generally in line with expectations, and well on our way for the remainder of the year to delivering towards the upper end of our guidance range, so I think we feel really good about the outlook and I think, again, pluses and minuses, but not really getting into the granular dollar amounts asset by asset.

[JR Weston:]

Okay, appreciate that. Maybe changing gears a little bit, there have been a few mentions in the release and then also on the call already of the positive impact of the processing capacity expansions in the Bakken and Delaware on the marketing, supply and logistics segment. Just wondering if you can go into a little bit more detail on the operational impact there and then kind of how we should think about that composition of cash flow in that segment changing over time.

[Heath Deneke:]

I’ll speak to the asset level, and maybe Robert or John can weigh in kind of on the cash flow contribution. I think we’re really finally starting to see what when we originally merged Crestwood and Energy together, we knew that there was going to be growth on the asset level from a processing standpoint, which created NGL opportunities. I think the Bakken is a great example of that. Without our Marcellus segment, we simply wouldn’t have been able to put that 30 million a day plant in if we didn’t have confidence in our ability to truck and rail and move NGLs efficiently throughout the market, and that’s proven out very well. I think the contributions are significant relative to the overall EBITDA, segment EBITDA from the group at Bear Den, but more importantly it’s really unlocking our ability to develop these assets in the Bakken. Similarly in the Permian, I think we are laser focused on how we can enhance optionality from our producers and simply just do better than selling into the incumbent pipelines out at [indiscernible] Orla. We’re not ready to announce anything yet, but I can tell you there’s been a lot of promising developments, again just not only with our overall NGL knowledge in the basin, the markets attached to it, but how we could further optimize our value chain by taking purity products out of Bellevue and redistributing those to the growing petrochems in and around the Gulf Coast area. So I think again, I think the segment contribution, you will start to see some increases from infrastructure that we develop downstream of the plant, but I can’t tell you how important it is to have the resources and capabilities that we do to underwrite the fundamental assets in each of those basins. With that, Robert or JP, anything on the asset contribution, the composition of the asset contribution?

[Robert Halpin:]

Yes, I think the commentary I would give in terms of the segment make-up as relates to MSL and the benefit of collaborating across segments with that service to our more hard asset business on the gathering and processing side, I think that really it’s exactly what he said. It creates a tremendous amount of advantage to us to deliver the hard service on the G&P side, knowing that we’ve got the market expertise to deliver the most favorable outlet point all the way to the demand center for the customer and provide that flow assurance as we scope and build and make those commercial proposals to our customers. In terms of our cash flow outlook, our guidance for 2018 is inclusive of the small but nice contribution from our Bear Den expansion and our MSL business handling all of the liquids off-take from that plant. As we phase into Bear Den 2, obviously there is a much more meaningful growth in liquids production as a result of that, and we expect there will be a continued role for the MSL segment to play to ensure that the netbacks our producers realize and the flow assurance our producers realize is as great as it possibly can be. Beyond that, it’s not a material game changer in term of segment contribution, but it has played a role in how we’ve thought about our business and how our teams are working together to make Crestwood as competitive as we possibly can be.

[JR Weston:]

That’s all for me, thanks.

[Operator:]

Our next question comes from the line of Andrew Burd from JP Morgan. Please proceed with your question.

[Andrew Burd:]

Hey, thanks. Actually other folks addressed most of my questions, so only a couple housekeeping remain. I apologize if you did address this on the prepared remarks, but why were the Marcellus gathering volumes down quarter over quarter, and how are we thinking about the volumes set up this quarter and the second quarter?

[Heath Deneke:]

I’m sorry, I heard the first part of the question but I missed the second part of the question.

[Andrew Burd:]

Sorry, the first part was why was Marcellus lower quarter over quarter, and then thoughts on the outlook for the second quarter, the current quarter based on that.

[Heath Deneke:]

Okay. Yes, I think the first quarter was really a result of weather. I think we’re going to see a lot of that correct itself, I think coming out of the second quarter in the Marcellus area. Again, I think we’ve kind of given general guidance on 2018, that we expect the overall production to be roughly equivalent to what it was for a full year in 2017, so I think we’re still on track to see that occur on the Marcellus.

[Andrew Burd:]

Great, thanks. Then the final question is on the Marcellus compression assets. You do give best-in-class disclosures in the 10-K on your assets, so thank you for that, and I noticed that it’s really the only contract expiring anytime soon in gathering and processing, so can you just remind us what happens when that contract for the compression assets ends? Does it get re-contracted, or what?

[Heath Deneke:]

Yes, sure. We do have a portfolio of contracts in the Marcellus. Some are very long term in nature. We do have some that are kind of in rollover status today, and we’ve certainly been working with our customer there to extend those contracts on the eastern area of dedication, so we do expect those contracts to largely be extended and continue to perform in line with what we have expected for 2018 and beyond.

[Andrew Burd:]

Okay, extended at similar terms and economics as today, or would that have to be reconsidered?

[Heath Deneke:]

I mean, I think from a materiality standpoint, yes, there may be some tweaks here and there; but generally speaking, we would expect them to not materially deviate from what we’ve been planning in 2018 and beyond.

[Andrew Burd:]

Great, thanks very much.

[Operator:]

Ladies and gentlemen, we have reached the end of the question and answer session. I would like to turn the call back to Bob Phillips for closing remarks.

[Bob Phillips:]

Thank you, Operator, and thanks for all the great questions, and thanks again for everybody that joined the call - investors, employees, business partners, those in the communities that we operate in where we’re giving back. You’re all part of our family, and we appreciate the support. Before we close, I want to go back to this issue of unrecognized value and just make the case again that we really believe this unit price is undervalued from several different perspectives, and let me just tick them off for you one more time. Direct line of sight to accretive cash flow growth in 2018 and 2019 - where is it coming from? Number one, the Bakken. Full value chain - we are not getting credit for all the fees that we’re charging on the production that we’re moving and the growth ramp-up that we’ve experienced and will experience. Number two, Delaware Permian, a great set of brand-new assets right in the middle of the core of the most active basin in North America today, and I don’t believe we’re getting credit for all the growth potential out of that. Number three, Powder River Basin, a huge acreage dedication, long-term contract, good pricing, good support for when we build out, incrementally progressing the system to the point where we are reaching a high level of confidence that the volumes are going to grow dramatically. That’s the reason for the accounting change that we noted both in the press release as well as you’ll see more detail in the 10-Q, and I don’t think we’re getting credit for the high return wells that Chesapeake is drilling and the growth potential there for both gas and oil. Then finally over the long term in the northeast Marcellus around our Stagecoach assets, these are the premier dry gas assets in the industry. They have the lowest netbacks. Companies like Cabot and Chesapeake continue to drill at very, very good returns. Go do the research on them and they’ll tell you how great the returns are, even at low gas prices. We don’t have a FERC issue there. We’re strategically located for long term infrastructure expansion, and we continue to operate very competitively and our team does a great job, along with our partner at ConEd, so we’re not going to miss an opportunity to grow up there. All of these projects will begin to have a material impact over the next year and a half, two years, and they’re fully financed without equity issuance to dilute our DCF. That’s our case for unrecognized value in the Crestwood unit price today, and we’re going to continue to work hard and, as Robert says, we’re going to control what we can control in a tough, noisy market and continue to execute on our projects and deliver good value for our investors. Operator, thanks for your time, and thanks again for all those that joined the call and asked great questions. With that, we’ll close the call for today.

[Operator:]

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.