Crestwood Equity Partners LP
Q4 2018 Earnings Call Transcript

Published: 19 Feb 2019

[Operator:]

Good morning and welcome to today’s conference call to discuss Crestwood Equity Partners’ Fourth Quarter 2018 Financial and Operating Results and 2019 Outlook. Before we begin the call, listeners are reminded that the Company may make certain forward-looking statements as defined in the Securities and Exchange Act of 1934, that are based on assumptions and information currently available at the time of today’s call. Please refer to the Company’s latest filings with the SEC for a list of risk factors that may cause actual results to differ. Additionally, certain non-GAAP financial measures such as EBITDA, adjusted EBITDA and distributable cash flow will be discussed. Reconciliations to the most comparable GAAP measures are included in the news release issued this morning. Joining us today with prepared remarks are Chairman, President and Chief Executive Officer, Bob Phillips; and Executive Vice President and Chief Financial Officer, Robert Halpin; and Executive Vice President and Chief Operating Officer, Heath Deneke. Additional members of the senior management team will be available for the question-and-answer session with Crestwood’s current analysts following the prepared remarks. Today’s call is being recorded. [Operator Instructions] At this time, I will turn the call over to Bob Phillips.

[Bob Phillips:]

Thanks, operator, and good morning and thanks to all of you for joining us again on this call today. We are thrilled to discuss our 2018 results this morning and look forward to providing a digital color on the very bright 2019 outlook that we laid out in our press release. First I want to thank our great employees and our management team for delivering yet another tremendous year for our unitholders. It’s not last on me how much hard work assumed to delivering great quarter – at great years and great quarters on a consistent basis and our guys just done a great job over the last couple of years. Crestwood’s strategy of organically investing in our high quality core growth basins while maintaining financial discipline is clearly working in separating us from those others in our peer group. It’s evident in the strong financial results that we were able to deliver in 2018 and permeates our strategy for 2019. During 2018, we exceeded our internal expectations on both adjusted EBITDA and adjusted EBITDA of over $420,000 which exceeded our guidance range and consistent estimates and we delivered distributable cash flow of $224 million which resulted in a very strong coverage ratio of 1.3 times. Now looking into 2019, our strategy is unchanged. The formula for success at Crestwood which we adopted back in 2016 in response to clearly changing market environment and listening carefully to our investors has clearly [Technical Difficulty] investment projects in our high-quality growth basins which hold the best rock in the country under strong producer contracts that are long-term allowing for the full development of the properties that are dedicated to our systems with the opportunity to continue to expand services across the value chain to include crude, water, gas and NGLs and combine that with the capital efficiency and the financial discipline that we showed over the last two years to generate real DCF per unit growth. As a result, we expect our DCF per unit to grow from $3.14 per unit in 2018 by over $1 to $4.15 per unit which is our estimate by year end 2020. That’s well over 30% growth and clearly peer group leading growth in DCF per unit based on current estimates in the market. More importantly, this growth will result in a peer group leading leverage ratio between 3.5 and 4 times and coverage well above 1.7 to 1.75 times over the same period. We think those metrics are worthy of being one of the best stocks in the peer group. Our capital program over the last two years and again in 2019 will be targeted in the prolific Bakken Powder River and Delaware Basins where our assets are well positioned for continued growth. In longer term, we would expect to see opportunities emerge in the northeast Marcellus with our partnership with Con Edison as the northeast market continues to grow its natural gas usage and customers out there figure out ways to build new infrastructure to connect to the world’s greatest gas resources located in Northeast Pennsylvania. Throughout this three year investment program, 2017 2018, and 2019, Crestwood will have invested approximately $850 million that results in incremental EBITDA of approximately $160 million. And as a result of this higher return profile, we will continue to invest in these same type infrastructure projects in these same basins to meet our current producer forecast which continue to grow as many are still in the early stages of their development program and where appropriate. We will continue to evaluate with great financial discipline the opportunities that we have in those basins to continue to expand our franchise positions in the assets that we operate, in the areas we operate, - where we operate by potentially buying out our partners or acquiring third-party assets when they are priced appropriately, they are synergistic and they are accretive to our bottom-line. Now, as you know, Crestwood’s most important growth asset is our Bakken play where we are now completing constraints projects, we are seeing record gathering volumes, replacing the Bear Den - 2 Plant in service by mid-year 2019 and we are expanding our water system with the new Enerplus deal. All examples of the way Crestwood’s business model develops the full value chain in these areas that we operate. I want to point to recent third-party announcements which continue to highlight the value that the marketplace is on great Bakken assets with Targa’s announcement today of the sale of 45% of their Badlands system, which by the way is right next to our Arrow System for a multiple of 15 times current throughput as well as Continental’s announcement today that they expect to grow Bakken oil production by 12.5% per year over the next five years. Both of these announcements are third-party support that’s extremely supportive of the value that Crestwood is creating for our unitholders in the Bakken region. Now in our non-core basins, particularly our legacy dry gas positions, we continue to see value present in our portfolio as they delivered stable and predictable cash flow streams with minimum capital requirements. We have dedicated teams in these basins and we are continually looking for opportunities to optimize the productivity and minimize expenses in those regions. And now finally, in 2019, we think we are on track to implement an MLP industry-leading sustainability program in an effort as well to separate Crestwood from the pack. While MLPs have taken great strides to increase transparency on key ESG issues, we believe that taking the next step to publish a report in accordance with GRI standards will provide investors with a deeper insight into our process of managing ESG risk. And as the industry seeks incremental investment on non-traditional MLP investors, we believe that enhanced transparency for MLPs is an absolutely critical and necessary next step. For example, our sustainability report will include additional insight into our compensation and key performance indicators. At Crestwood, as you may know our compensation is driven by strict performance-based metrics such as adjusted EBITDA, extensive safety metrics, total unitholder return relative to our peers and finally, and most importantly, a DCF per unit metric. These metrics were selected by our Board and highlight management’s incentive to conduct operations and manage our capital investments in a manner that maximizes value by responsibly creating true accretive growth per unit. We certainly lack that in the industry over the last few years. At Crestwood, we are demonstrating our ability to identify key growth basins and our ability to execute projects with thoughtful, conservative and disciplined financing to maximize cash-on-cash yield and returns for our investors. We are committed to prudently growing our core franchise positions and believe we are in great position going into 2019 to have yet another great year for our investors. And with that, I am happy to turn it over to Robert for a review of our 2018 financial results and our 2019 guidance and outlook and then Heath is going to give you an update on the great assets and the great basins that we operate in. Robert?

[Robert Halpin:]

Thank you, Bob. I am extremely pleased with the financial results that we delivered in 2018. When we began 2018, we’ve guided an adjusted EBITDA range of $390 million to $420 million and for the year, we generated adjusted EBITDA of $420.1 million, just above the high-end of our guidance range. The driver of this outperformance was solid operational and project execution, a focus on cost control and strong business fundamentals across our three operating segments that highlights the value of our diversified portfolio of assets. Distributable cash flow available to common unitholders in 2018 was $224 million, net of our quarterly cash distribution to our Class A preferred unitholders. For the fourth quarter 2018, we declared a distribution of $0.60 to our common unitholders resulting in distribution coverage for the quarter of approximately 1.5 times. Now as we look out into 2019, we are guiding adjusted EBITDA to be $460 million to $490 million and distributable cash flow to be $245 million to $275 million. At these ranges, we would expect our full year distribution coverage ratio to be in the 1.4 times to 1.6 times range and our year-end leverage ratio to be between 4.0 times and 4.5 times. We expect to invest approximately $275 million to $325 million on growth projects in 2019, primarily focused on our core growth assets in the Bakken, the Powder River Basin and the Delaware Basin. Finally, we expect maintenance capital spending in the range of $20 million to $25 million. As we execute our 2019 plan, we will be very mindful of our balance sheet. As of December 31, Crestwood had approximately $1.8 billion of debt outstanding including $1.2 million of fixed rate senior notes, and $578 million in outstanding borrowings under our revolving credit facilities. This resulted in a year-end leverage ratio of 4.25 times. In 2019, we expect our growth capital to be slightly front-loaded as we target placing our Bear Den - 2 into service by the early third quarter and once in service, we expect immediate cash flow ramp as we begin to process 100% of Arrow’s gas volumes. Given the timing of our capital spend and the subsequent cash flow ramp, it is possible that our leverage ratios temporarily sits at the high-end of our targeted range in the third quarter, but quickly adjusts in the fourth quarter and the first half of 2020 into our long-term target range of 3.5 to 4 times. As Bob discussed, our strategy over the past few years was to prioritize our excess cash flow to invest in organic projects that offer sub six times economics, to protect our leverage and coverage metrics. We have financed our growth projects with excess cash flow with available borrowings under our revolving credit facility with joint venture partners and with opportunistic asset sales from time-to-time. As we complete the expansion of Bear Den processing plant, and the Bucking Horse and Jackalope systems, we will continue to prioritize our excess cash flow for completing these projects and maintain a very strong balance sheet. As a result, all factors being equal, we would expect to maintain our distribution at the current level of $2.40 per unit until we place these large-scale project into service and we achieve our below four times targeted leverage ratio which we expect will occur in the early part of 2020. With that, I will now turn the call over to Heath to provide an update on our capital projects and business outlook.

[Heath Deneke:]

Okay, thanks, Robert. I want to start again by recognizing the great work by our employees in 2018 delivering another strong year of financial and operating results and outstanding safety performance across our asset base and solid execution of our 2018 year-to-date 2019 capital programs in the Bakken and Delaware Permian. The company has got a lot of positive momentum coming into 2019 and we are laser-focused on executing our 2019 plan. Despite the industry headwinds that emerged in the fourth quarter of 2018, we have continued to see resilience in our producers’ development activity and plans across our core growth basins in 2019 and beyond. As we work to finalize our 2019 guidance, we stayed in close communication with each of our customers to understand and reconfirm their development plans across our assets. As we sit today, we believe our guidance reflects our producers’ activity levels taking into consideration both the current price outlook, as well as the E&P sectors overall focus on capital efficiency and returns focus versus just growth. With that, let’s jump to the Bakken, where we are seeing strong producer activity that led to record volumes on the Arrow system. In January of 2019, Arrow systems set record daily gathering volumes of 102,800 barrels of crude oil, 78 million day of gas and over 61,000 barrels a day of produced water. During 2018, we connected 54 wells to the Arrow system with the majority of the Gathering system’s debottlenecking projects now complete, we expect to connect approximately 30 new wells in the first quarter of 2019, about half of which have already been completed today, and approximately 100 new third-party wells by the end of 2019. In 2019, Crestwood also expects to invest capital in Bakken to complete the Bear Den – 2 processing plant through which we will expand Crestwood’s total processing capacity to $150 million a day. We are on track to achieve a third quarter end service date at which point Crestwood would be able to process 100% of the gas gathered along the Arrow system. Also in the fourth quarter 2018, Crestwood entered into a new commercial agreement with Enerplus, an existing Arrow customer to dedicate a substantial amount of acreage surrounding the FBIR to the Arrow water system. As a result, we are further expanding the Arrow produced water gathering and disposal system by roughly 30,000 barrels a day at a cost of approximately $60 million that will be spent across 2019 and 2020. We expect to connect over 15 water-only wells through Enerplus during 2019, and at an estimated total inventory of roughly 300 wells that we believe can be completed on the newly dedicated acreage in the coming years. So based on current and projected water volumes, the Enerplus water expansion is expected to generate a four times build multiple. So based on Crestwood’s 2019 financial guidance, the company is forecasting the Arrow gathering and processing system to generate approximately $230 million of EBITDA in 2019 which is 40% above 2018 EBITDA. So now let’s shift to the Powder River Basin. The PRB has recently been highlighted that’s emerging growth opportunity in the North America. Producers in the base are realizing initial production rates that are exceeding 3000 barrels of oil equivalent per day from the current formation and are generating fairly consistent results for their delineation programs across our acreage positions. Many producers in the basin are now shifting into a development mode on the Turner while continuing to delineate additional productive fact bay formations on their acreage positions. Given the current outlook, we expect the Powder River Basin to be Crestwood’s second largest growth driver in 2019 and 2020 due to strong producer economics, top notch reservoir quality and strong forecast of volume growth in the basin by Chesapeake and other notable offset producers. During the fourth quarter of 2018, we completed the 145 million a day at Jackalope system expansion and immediately reached max capacity. Chesapeake, I recently reiterated in the January 2019 operational update that it plans to maintain a five rig program targeting the Turner formation throughout the end of 2019 and beyond with an estimated 60 to 70 new wells turned online by the end of the year. As a result, exit rate system volumes are expected to double by the end of 2019 Additionally Jackalope recently entered into a long-term gathering and processing dedication with Panther Energy which is a Kayne Anderson backed company. The new Panther agreement covers approximately 30,000 acres that will connect into the existing Jackalope Gathering System with gas lines ultimately being processed at the Bucking Horse 2 plant when completed. So 2019 is a key execution year for Jackalope as well as we continued to complete the expansion of the BuckingHorse processing plant and the gas gathering system to bring the total system capacities up to 345 million a day. Jackalope will continue to prudently evaluate growth opportunities in the basin to gather and process offset producer volume while provide crude gathering services that meet our disciplined investment criteria and our producers’ needs. Based on Crestwood’s 2019 financial guidance, the company is forecasting the Powder River Basin G&P assets to generate approximately $31 million of reportable EBITDA in 2019 or 21% above the 2018 reportable EBITDA level. On a net acre basis, the asset is set to generate approximately $100 million of cash EBITDA in 2019. Shifting to the Delaware Basin, during the fourth quarter, the Willow Lake and the Nautilus gathering assets averaged natural gas volumes of $182 million a day, which was a 63% increase over the fourth quarter of 2017. Currently, there are five active rigs operating on Crestwood’s Delaware Basin Gathering systems, and we expect roughly 70 to 80 new wells to be connected during 2019. Additionally, we expect to see a pick-up in processing volumes at our Orla plant in the second half of 2019 as NGL volumes leading the plant will benefit from more favorable NGL netbacks associated with our CP Chem volumes as they ramp up in July. In our S&T segment, our Stagecoach joint venture with Con Ed will see a 10% step-up in cash flow beginning in July of 2019 and our COLT Hub facility expects to continue to see strong rail loading demand throughout 2019 which should also drive 2019 EBITDA of roughly $20 million. In our MS&L segment, we expect the NGL and crude market [Technical Difficulty]

[Operator:]

Ladies and gentlemen, please standby. We are experiencing technical difficulties and we will resume momentarily. Gentlemen, please resume.

[Heath Deneke:]

Okay, I think we are back on line now. I apologize for the technical difficulties. So, I think was just about to hit the MSL segment before we cut out. So, I’ll kind of restart there. So, in our MS&L segment, we expect our NGL and crude marketing teams to benefit from favorable market conditions, the utilization by our extensive transportation terminal assets. Over the past 12 months, we’ve continued to benefit from the increased integration and collaboration in our G&P and MS&L segments which has allowed Crestwood to capture additional value in our underlying asset base while providing our customers with a complementary suite of services that enhance netbacks and flow assurance in those highly constrained markets. So before we open the line for questions, I wanted to reiterate again how pleased we are with Crestwood’s positioning going into 2019. Our assets support some of the best customers in the industry and are underpinned by the most economic oil and gas resources in North America. We have refreshed and re-verified all of our producers’ plans in each of our basins for 2019 and are making good progress on executing our remaining capital programs in the Bakken and the Powder River basin. I am again very proud of the work our employees have done in 2018 and I look forward to another strong year of execution into 2019. So with that, operator, I think we are ready to open the lines for questions.

[Operator:]

[Operator Instructions] Our first question is coming from Tristan Richardson. Please go ahead. And you are with SunTrust Robinson Humphrey. Thank you sir.

[Tristan Richardson:]

Hey, good morning guys. Just a quick question, Bob, in your prepared comments you talked about consolidating JVs opportunistically at only at times when it made sense. Could you talk a little bit about sort of, as we look past, your big projects that are expected to come online towards the end of this year and in early 2020? At that point is that’s when that equation starts to pan out in terms of thinking about longer-term looking at some of your joint ventures and joint venture partners?

[Bob Phillips:]

I don’t think there is any timeframe to it, Tristan. We, like every other company that operates through a series of different partnerships and different basins, we have always viewed consolidating our partners at points in time in which the cash flow streams are more mature and are more certain and the plays have been better delineated. We adopted a partnership model back in 2016 if you recall, like everybody else we had too much debt. We sold half of our Stagecoach asset to Con Ed and reduced debt and right-sized our balance sheet at that point in time. Previously, we had formed a partnership around Tres Palacios with Brookfield Infrastructure. Subsequent to that, we formed a partnership in the Delaware Basin with First Reserve and then later with Shell. And in the middle of all that, we formed a partnership originally with Access which was bought out by Williams and so we’ve had a partnership there as well. And in fact, our ownership in that Jackalope partnership is owned further by a partnership with some financial partners. So we use that model for years and we’ve always viewed our ability to assess the actual growth rates in the long-term future value of these assets better than anybody else. So, you know we are an opportunistic company and you know that we are always working to own as much of the assets that we are committed to as we possibly can. So I can’t say there is really a timeframe that we are looking at. Those of you that have heard us talk about our five year plan know that we have not built into our five year plan the acquisition of any partner’s interest that the numbers that we quote when we are talking about 2019 guidance, when we are talking about 2020 leverage and coverage, that we are talking about the three or four or five year growth rate in DCF per unit, all of that is based upon our base case model. None of this includes the acquisition of partnership’s interest. But we are totally committed to the four basins that we operate in and so, from time-to-time, if we see an opportunity to acquire additional equity interest in the assets that we already own a piece of, and feel strong about and by virtue of the fact we continue to invest capital in it, we clearly feel strong about it. Then we will look to opportunistically add to our equity interest in those partnerships. Having said that, this is a difficult time in the capital markets. So, it has to be done carefully and thoughtfully and not in a way that adds extra burden to our balance sheet. So, that’s about the best answer I can give you is that we are going to continue to be as thoughtful over the next three years as we have been over the last three years about how we add cash flow in the basins that we operate at what value we place on those and how we’ve financed those without overly burdening our balance sheet.

[Tristan Richardson:]

Very helpful. Thank you. And then, Heath, just on the water system expansion, should we think about that as cash flow contributions from that project or initiatives are pretty ratable or do we need to see the full spend kind of complete in 2020 before we start to see cash flow benefits?

[Heath Deneke:]

Yes, I think, as we are building out the backbone, if you will of the expansion, I think it’s going to be towards the end of 2019 before you start to see a meaningful contribution within fares are ratable when you go on to 2020 and beyond? There is pretty extensive acreage position roughly 60,000 acres that have been dedicated to our water system now and with that we’ve seen over 300 wells that we think potentially can be connected to the system during that time period. So, very, excited. Really nice pickup. Very cost-effective expansion and it just fits like glove with our existing operations there.

[Tristan Richardson:]

Great. And then, just last one from me, could you talk about, just the genesis of pursuing the ESG initiative? And sort of how that came to path and kind of progress there?

[Bob Phillips:]

Yes, it’s a really important next big Crestwood initiative not only inside the company, but we believe it’s going to have a positive impact across the entire peer group. When I say, we’ve taken a leadership position, I really mean that we are well along the way to having what I believe is the first full robust and meaningful ESG sustainability program in the Gathering and Processing peer group space. We went out and hired very experienced people that have done this before at the big pipelines, brought them in, fully supported that effort through a step-by-step process which has included and we’ve already completed our own internal ESG sustainability assessment, which cuts across the entire company to assess the risk of operations, the risk in every aspect of our business. And in steps through the process of risk mitigation and then finally, bringing all that together in a format where we can file that publicly in a document that meets the highest level of GRI standards, which a lot of the pipeline companies have met certainly some of the downstream utilities have done it, but very few in the midstream and upstream have done it so far. There is a handful of that have and they’ve done it well. We think that we are on the leading edge of that. What it allows us to do is to offer our investors total transparency about Crestwood, as a company, Crestwood as an investment, Crestwood as a place to work, Crestwood as a company to do business with, and so you will have much greater transparency into investing in, working for, doing business with or providing services to Crestwood as an entity. What we hope that will do is provide leadership to the entire peer group and allow us all to begin to attract through greater transparency, greater identification and mitigation of inherent risk that exists in our business to attract new investors to the MLP and midstream space. It’s going to take some time. The next big benchmark for us is the filing of our corporate responsibility report, which will be sometime in June of this year. But we hope that it will become a model for the industry and we are already taking a very leading role in hosting industry and trade association groups here at Crestwood and across the industry in an effort to try to highlight the importance of this to bring new investors into this space and make the midstream sector a vitally important part of the overall oil and gas value chain across the United States. We think it’s going to be the next big step in attracting new dollars into the MLP and midstream space.

[Tristan Richardson:]

Helpful. Thank you guys very much.

[Operator:]

Thank you. Our next question is coming from Dennis Coleman of Bank of America Merrill Lynch. Please go ahead with your question.

[Dennis Coleman:]

Yes, good morning everyone. Thanks for taking my question. I guess, if we could start a little bit, Bob, or maybe Robert, on the capital allocation and once we get into the 2020 timeframe when you are talking about hitting your leverage target and just how you think about distribution increases or more recently, I think the that top desire has really been share repurchases and we’ve seen some announcements that have been pretty well received by the market. So, I wonder if you might just talk about the shrink in that.

[Robert Halpin:]

Yes, Dennis, happy to cover that. I think that, from a capital allocation standpoint, as we’ve communicated today, we have a ongoing organic program largely focused on our highest growth asset in the Bakken and in our second highest growth asset in the Powder River Basin that we continue executing on throughout the balance of 2019 and in the first part of 2020. Our capital guidance for next year is $275 million to $325 million, that will be largely weighted towards our continued Bakken expansion, most notably getting our Bear Den 2 plant in service by the midpoint of the year and then also in the Powder River Basin getting our BuckingHorse plant second plant there in service by the end of this year or early part of 2020. And when you look at our investments and our allocation of capital, our focal point, as communicated today is we believe these type projects generate substantial reserves to our unitholders in the long run. We provided some incremental detail on our capital investment in the Bakken, but we believe we’ve put meaningful dollars to work there over the last several years and call it a 4 to 5 times type investment multiple basis. And as a result of that, we continue to believe that that is the absolute best utilization of our cash in the near-term. That said, as we’ve guided, we believe that taking our leverage to our target of 3.5 to 4 times in the first part of 2020 is a critical financial initiative for this company and provides us significant incremental flexibility to execute going forward. So, executing on our organic projects and driving our balance sheet to our targeted range of 3.5 to 4 times is priority one. We’ve also guided that we expect coverage to be between 1.4 to 1.6 times in 2019 and generally around 1.75 times or higher in 2020. So, obviously, as we realize these objectives, there is significant incremental opportunity for return of capital to unitholders and we will continue to evaluate with our Board every quarter between now and then the best and appropriate manner to do that. We do not have a pre-conceived point of view on what is best, but obviously our focus on delivering those incremental returns and we’ll drive that when we realize our financial objectives first and foremost executing the capital programs.

[Dennis Coleman:]

Great. Thanks for that. That’s very helpful. And maybe just a couple follow-ups on the CapEx side. CapEx guidance at little higher than we had, I guess, that’s just the inclusion of the Enerplus expansion. Is that the right way to take that?

[Robert Halpin:]

That’s absolutely right. We generally – we are having the $250 million to $300 million mark starting out in the later part of last year. We underwrote and approved the Enerplus project in the latter part of 2018 as people would have do this comment, that’s about $50 million project spend in 2018. It will start driving substantial returns in the latter part of 2018 and then fully into – sorry, latter part of 2019 and then fully into 2020.

[Dennis Coleman:]

Perfect. Thanks for that. And then, you also have talked about the Orla 2 plant and planning there. Anything there I take it would be also incremental to the $275 million, $325 million range?

[Robert Halpin:]

Yes, it would, but I would say, based upon where we are now and timing-wise, I think that’s likely is going to have more impact on our 2020 capital program. So, probably not a lot of movement in the 2019 capital as it relates to that.

[Dennis Coleman:]

Got it. Okay. That’s it for me. Thanks.

[Operator:]

Thank you. Our next question is coming from J.R. Weston of Raymond James. Please go ahead with your question.

[J.R. Weston:]

Hi, good morning. Just recognizing a good portion of the growth in 2019, that’s really executing on the projects and capturing volumes that are already visible. Just kind of within that context, can you outline some of the flex factors within the $30 million range for EBITDA and ECF guidance? And just kind of curious if there is anything of note within the guidance assumptions outside of project timing maybe in terms of commodity price assumptions or marketing expectations?

[Robert Halpin:]

Yes, J.R. I’d definitely provide a little bit of color around that. I think the driver of the range in our expectations is really almost entirely a function of exactly what you just laid out. So, obviously, Arrow continues to be the strongest growth driver for the company through calendar year 2019. We, from a commodity price standpoint, think we are in a really appropriate zip code. We are right around $50 in our forecast on the crude side. And as Heath alluded to in his comments has full reaffirmation from our producers on their development plans for 2019. That said, it’s really a function of just sticking to the completion timing and more importantly just timing of Bear Den and service days. We are still very confident delivering on that by early third quarter. But that provides some of the variability. It should have very limited impact on 2020 and beyond, because once that goes into service, as you mentioned that volume is all captive and ready to flow into our plans.

[J.R. Weston:]

Okay, yes, that’s helpful for me. And then, I guess, just a follow-up on a prior question. I am recognizing it’s probably pretty early to be discussing this. But just wanted to get a little bit more clarity on, I guess, the overall scope of the opportunity set here. And several of the JVs that you all have formed have a very strong and usually strategic partner. Just kind of curious if you’d be looking to buy out those partners in their entirety or simply stepping up your ownership interest and kind of leaving those partners with a smaller equity stake, but still some skin in the game. So, just kind of curious on how you’d approach that?

[Bob Phillips:]

J.R., the opportunities are always there. We can always call our partner and said, I like this asset more than you do. So, it doesn’t necessarily have to be someone that’s actually running a process or looking to readvance or recaptialize their interest. We love the assets that we are investing in right now. We appreciate our partners, it was all part of our plan because, if you think about the history of this company, it was largely built through acquisition and there was simply some times over the last eight years where we simply couldn’t buy 100% of everything. But, when we like the rock, we like the producers, we like the contracts and we like the area we invest as much as we can. As you’ve been able to see over the last three years with our capital program, we really like the Bakken. We really like the Powder and we really like the Delaware. But unfortunately, as a small company, we haven’t been able to finance a 100% of the growth. So we’ve had to have partnerships. Those partnerships are complicated, as you know. But they are often times are dynamic partnerships and guys that were in partnership with may or may not have changing priorities over time. Our priorities are always the same. We love the Bakken, we lover the Powder, we love the Delaware, we love the Marcellus. So, any time, we can have a chance or it’s financially prudent for us to do that, then we are always going to be trying to buy more of our partnerships if the partner is willing it’s a good time for him to step out in whole or in part or are there some other refinancing or recapitalization opportunity that emerges. The one standard across all those opportunities is, we will not overleverage our balance sheet to be able to do this. So I am going to let Robert talk a little bit about this, because is he has crafted all of these partnerships and he is the one that will be most responsible when and if we ever have an opportunity to buy additional interest in these partnerships, Robert is going to have to do it in a way that is not leveraging to our partnership and will be accretive, maybe not on day one, but accretive clearly with line of sight in the future. So, Robert, talk about how we think about not overleveraging our balance sheet in this context.

[Robert Halpin:]

Yes, I think, really just to expand on what Bob said, and not a whole lot of incremental color, but, I mean, I think we’ve been pretty clear, our capital allocation strategy in all the avenues to invest capital that we have is focused predominantly on hitting to our objective of 3.5 to 4 times in early part of 2020. And I think that we have clear line of sight to doing that and exactly the ownership structure that we have today, we are very committed to the four basins that Bob mentioned, the Bakken, the Powder, the Delaware and the Marcellus, and certainly believe there will be opportunities either through the strategic partnerships we have or the financial partnerships we have to increase our ownership in part or in whole. And we will take advantage of those opportunities as we continue to build increasing flexibility to our coverage, to our leverage, continued building of excess cash flow, and can finance those in a manner that’s fits with our strategy over the last several years of driving significant DCF per unit growth. So, those pre-described - prescribed format is exactly how that takes place, but we have good partnerships and opportunities to do that as we continue to build strength and flexibility in our partnership.

[J.R. Weston:]

That all makes a lot of sense to me. Appreciate that. And I guess, just one last one if I could. We had about a pretty cold weather here in first quarter 2019. It looks like the well connect number for the Bakken, it looks pretty good. But just kind of curious if there is any, maybe positive impact either in S&T or the marketing business?

[Heath Deneke:]

Yes, this is Heath. We have had some good impacts somewhat water-driven, somewhat price and basis driven up in the Bakken for example, our crude marketing business was able to capture additional margins as the old takeaway situation that just really tightened up in that market. And so, in the mean time, we had basis go out, sort of dislocations with our storage assets are accrued by our rail facility and transportation assets, we are able to kind of capitalize and make margins. So I think we can get performance there, solid performance again on the MSL side. And as you mentioned the Bakken, despite the temperatures were about half way through the amount of well connect we expected in the first quarter. We have had some freeze off that delayed some of the flow back operations, but largely we remain in track to have the amount of well connects that we were expecting for the first quarter.

[J.R. Weston:]

Appreciate that. Thank you.

[Operator:]

Thank you. [Operator Instructions] Our next question is coming from Shneur Gershuni of UBS. Please go ahead.

[Shneur Gershuni:]

Good morning guys.

[Bob Phillips:]

Good morning.

[Shneur Gershuni:]

Just kind of as a follow-up to some of the earlier questions. There is a huge multiple pay today for Bakken assets by private equity. Does that make you sort of rethink your commitment to the Jackalope asset, given that your partner is diligently shopping the asset around? If you can get that kind of price alternatively or are you potentially thinking about buying the other half? And then, as a second question, assuming your partners’ sells their stake in the asset, it’s my understanding that operatorship just comes over to Crestwood’s hands, do you see any opportunities to improve operating efficiencies at Jackalope?

[Bob Phillips:]

Let me make sure I understood the question. You had mentioned the Bakken transaction at a 15 times multiple and then you correlate that over into the Powder. So let’s stay at the Bakken for just a second. If you kind of do the math on that multiple, that makes our Bakken assets worth more than the whole company is right now. So, just want to make sure everybody has that perspective. Secondly, when we look at the Powder, the Powder is a great basin. We are so happy to be there. Very excited about the prospects and excited about where Chesapeake is right now in their development plan. We’ve been in this deal for five years now and it’s just starting to provide real value for us. That’s a business that on a cash basis is going to generate $100 million a year in 2019. That might surprise everybody, a business that Chesapeake has clearly stated they are going to double their production year-over-year and that will be for the second year in a row. That might surprise everybody. So, it shouldn’t surprise everybody that we think this is our second fastest growing asset in the company. Having said that, valuations are valuations when the differ from basin-to-basin. I think that Williams has been public about their interest in monetizing non-core assets. They have been public I think. Although I haven’t listened to their calls as closely as I listen to our calls. They have been public that the interest that they own in our Jackalope joint venture is something that they would sell. We know that there has been a process ongoing as the partner in Jackalope, you would expect us to be aware of an involved in the process w are and we have been. I can’t begin to tell you how all that’s going to work out. What will tell you is that we are going to remain steadfastly committed to our strategy and that is we are not going to blow up our balance sheet just to make a deal to buy in a partner as time, unless we think it is absolutely the right time, the right value and the right financial structure for us. So let me let Robert comment on that, then let Heath talk about what the operating synergies would be in the event we did at some point in time consolidate the way it’s interest Jackalope. Robert, do you want to talk about the financing?

[Robert Halpin:]

Yes, I mean, I think, Shneur is, Bob got to hit on the main point. I think that it’s an asset that we are absolutely committed to. We have firm belief in the long-term prospects for Chesapeake’s development, the development of the Powder and a lot of the other offset operators that are just now significantly ramping activity in and around our footprint. But if we got an early start with our partnership with Williams on building our gas infrastructure in the basin, and we’d love to find ways to really replicate the strategy we deployed up in the Bakken and keep building out that value chain there. I think it’s inappropriate and not the right time for us to speculate as to what’s going on in William’s process. So, I think we’re probably limited into what we can say there. But the only point I would reassure or reaffirm in Bob’s commentary on, we are absolutely committed to our plan and driving the financial metrics that we’ve committed to in 2019 and 2020. And anything that goes against that is not something that we are going to entertain at this point in time. And so, I mean, that’s just probably the answer to kind of extent of the color we can give at this time.

[Heath Deneke:]

This is Heath. Just as a point around operating efficiencies, I mean, we do believe if we were able to fully consolidate the operation if there will be synergies. As a reminder, we currently function as a commercial lead for the joint venture. So we are kind of tip of this fear, interacting with customers and third-party opportunities and working with our producers to understand our development plans activities. Williams is a good operator and we’ve enjoyed the benefit of having a kind of a two team approach to our execution plan. So as we look at the $400 plus million expansion program that we are currently underway, we are doing a lot of interaction with our project management teams to ensure that we are delivering those on time and on budget. We have recently, we announced in a press release, we have taken over the project management responsibilities for the second train at BuckingHorse. We have never – our team has just rolled off the Orla project available and we felt – the joint venture felt like that was the best thing to step in and try to deliver this project on time, on budget and safely. But it’s definite from an operator standpoint, from a capital program standpoint, we think Crestwood have got good experience that we demonstrated in the Bakken and down in the Permian to deliver low-cost, but well executed infrastructure plans and we are likely to be in a position to able to kind of drive that program and deliver operating cost synergies as well as we have across our portfolio. So, those again are not baked into our outlook, but we do think that there would be some accretive synergies, if you will on the operating side if we embedded that into our operations.

[Shneur Gershuni:]

Great. Just to clarify two points. So, operatorship would completely rolled to you if the stake fails, if the stake is sold and you would be able to gain efficiencies by better integrating. Is that fair to say?

[Heath Deneke:]

That’s correct.

[Shneur Gershuni:]

Okay. And the second clarification, and it goes back to kind of how Bob, you started to answer the question at the beginning, that it would value your company greater than where you are today. I guess, what I am ultimately looking for, are you sometimes a buyer and sometimes a seller if the economic profit makes sense?

[Bob Phillips:]

Shneur, we are always a buyer or seller depending upon what the value proposition is. The business we are in making money for our investors and if we have to sell to do that, that’s fine too.

[Shneur Gershuni:]

Okay. And one final guidance-related question. You guided to roughly about $50 million in EBITDA for marketing plan with Chesapeake. And you did note it was conservative, so forth due to change in market dynamics. I was just wondering if you can explain the puts and takes in arriving at the number, with ME2 coming on line, thought that that was kind of a tapping or a limiting factor there is related to Bakken TI spread, I just kind of want to understand the build up to your number?

[Robert Halpin:]

Yes, look, I would say, I think where we are continuing to see benefits, and what’s embedded in, and what we need is a relative conservative segment result there. We do have growing NGL supply in the Northeast. We are well positioned with our terminals at big or not, or what I would kind of call wholesale type terminals, these are engrained in the demand side across the Northeast. And so, with that in our trucking fleet, and our rail fleet and long-term customer relationships that we have, we are very efficient in buying supply at the right time, storing that supply and then using our market terminals to kind of access premium markets whether that’s seasonally driven or supply-driven. So I think we had a continued track record of success on that. I don’t think we are seeing anything splashy. I don’t think we are looking at any major acquisitions or anything of that nature. It’s really going to be just fundamental blocking and tackling that’s leveraging our storage and terminal assets and transportation assets up in the Northeast. Additionally, I can comment on, we are seeing lot more collaborations, in fact our MSL segment seen a lot more involved tollgate of our own processing plants as the volumes have grown. But we stepped into NGL arrangements like we did with Epic out of the Permian, like we’ve done leveraging our trucks and assets out of the Bakken to deliver NGL supplies. We are certainly making margins on that front as well. I think more broadly, I think we continue to benefit from the tightness even with any two operations, certainly there has been a lot of hiccups in starts and stops and despite that, pipeline capacity now being operational, we continue to see tightness up there and really marketers – customers really wanting to kind of diversify way from just pipeline solutions. I mean, we are one of the larger independents out there that are very active in this segment and we can provide a lot of value-added services to our customers. And we are getting that, one deal at a time. And so, I think it’s hard to kind of give you a two or three answer or two or three item list of how we drive with that 50. But I would say, it’s still off of a lot of small deals that we’ve been able to do, and repeat business that we are able to generate given our market position.

[Shneur Gershuni:]

Great. That makes total sense. Really appreciate the color guys. Thanks. Have a great day.

[Bob Phillips:]

Thanks, Shneur.

[Operator:]

Thank you. Our next question is coming from Ned Baramov of Wells Fargo. Please go ahead with your question.

[Ned Baramov:]

Good morning. Thanks for taking the question. Could you maybe provide updates on some of the long-term potential opportunities that Crestwood is pursuing, specifically, watering the Permian and crude oil gathering opportunities in the Powder River Basin?

[Heath Deneke:]

Yes, I can touch on that. So, look, I think, we continue to have a very robust set of growth opportunities. I think obviously, we’ve got kind of full play to 2019 and laser-focused on executing our Bakken plant expansion up the Arrow system. We’ve captured really nice accretive growth opportunity, kind of a bolt-on opportunity with Enerplus in side that footprint. And we continue to see a general need for additional produced water services, not only the FBIR reservation the Arrow system is on, but in and around our acreage footprint. I think what we’ve proven to our customers up there is that, we are in this business for a long haul, very prudent in terms of the gathering systems that we are building. We are very capable and have drilled – successfully drilled water disposal wells in that basin. And I just like with Enerplus, we think there is a fair amount of running room to kind of continue to go capture high multiple expansions of our water system to continue to fully utilize our – or fully optimize our system up in that neck of the woods. We are also seeing a very – there is a lot of tightness in processing availability up there. The figures in the plan that you are seeing here are solely us just processing our dedicated long-term – dedicated GC agreements. But we do believe there is going to be some opportunities to capture additional processing offloads if you will that we could process out of Bear Den too. So, the good thing about the Bakken is, we have spent quite a bit of capital in the past several years, but we’ve also built in a lot of additional room to increase our water, our gas and crude volumes if that opportunity presents itself without really a whole lot of incremental needs. Kind of shifting down to the Powder, as we said, we did passed recently on a crude opportunity, frankly, the returns weren’t there. We like the business. We thought it was it was synergistic to our platform, but at the end of the day, when we look to the returns relative to the capital spend and the risk, we simply felt like it just did meet our criteria – our investment criteria. So we are willing to walk away from opportunities if they don’t really deliver the type of financial results that we expect to generate for our shareholders. That being said, this is still an emerging basin. There is still a lot of playing room there. I think we do a have nice terminal there in the Douglas facility that we think is well-positioned, well-connected to the pipeline, great offer, good solutions that should be an interest for growth on the crude side, as well as continuing to capture bolt-on opportunities like Panther. We didn’t talk a whole lot about it, but that’s a nice 30,000 acre pick up. It’s sitting right on top of our existing gathering system that we’ll be able to connect into our system and flow that to kind of fill our BuckingHorse 2 plant, add that capacity comes online. Beyond that, I mean, if you look at the rate of growth, I think, we're generating somewhere around 200,000 barrels a day in the Powder. A lot of folks have forecasted that to roughly 1 million barrels a day and if we see that kind of growth across the basin, there is going to be a lot of additional G&P and crude oil services that are going to need to come into fruition and we are wanting a handful of midstream providers in that basin that have a substantial asset position we believe will capture our fair share of market growth over time. Finally, kind of going down to the Delaware Permian. I think we put together a world-class system there. I think we located our Orla complex right in the heart of the Delaware. It’s got terrific access to resin takeaway. It’s got great assets, NGL takeaways. We’ve put a terrific deal together with Epic and CP Chem. It gives us some of the lowest cost NGL track rotation fractionation in the basin and when you look to the combination of those three things, we believe we are going to capture our fair share of growth when we get out to 2020 and beyond. If we said, we are beginning to have conversations with customers for Orla 2, as Robert pointed out, that’s more likely to be a 2020 capital spend than in 2019. But I think that frankly times well with our capital program as we kind of get the Arrow and the Bear Den plant operational and built. Finally, up in the Northeast Marcellus, the whole I am talking about that is giving long-term lead times that you need to develop the infrastructure out there. But as Bob alluded to, I mean this is still the best gas plays there is the world. We see a lot of producers continuing to maintain current production levels, simply because there is not enough cost-effective takeaways to allow them to kind of grow production and the lot of regulatory headwinds, lot of challenges in getting things done. But one thing it is clear, is it given our system within the right, connected to the right downstream pipes, we’ve got a growing customer base that’s desirous to grow and to the extent there has been takeaway infrastructure, we think we're well positioned with our partnership with Con Ed and some of this grounding pipes to be part of that solution as well. Again, a lot of our near-term growth beyond once you kind of get into the 2020 beyond, we think a lot of that's going to be bolt-oned in the Bakken. It’s branching from G&P footprint potentially crude in the Powder, in the Permian, Again, Orla 2, potentially in the third train as we kind of see producers continuing to grow volumes just like we are doing in the water side in the Bakken. We got a great team that has a great plant, we think, to enter into the produced water business in the Permian and we are – we try to hit about that prospect as well. So, again multi-prong set of optionalities and on above and beyond that, as Robert and Bob alluded to, we’ve got a lot of great assets with great partners that, overtime, we think, will have the opportunity to take out. So, when we think of 20200 and beyond, I think we've got a lot of optionality both organically, as well as via consolidations kind of grow the platforms within the core basins that we have today.

[Ned Baramov:]

That’s very helpful. Thank you for this. And then, maybe a second question on just general and administrative expenses, which seems to have declined significantly in the fourth quarter. Are there any additional cost reduction opportunities left?

[Steven Dougherty:]

So, this is Steven Dougherty, Chief Accounting Officer. Yes, we are continuing to focus on our general and administrative cost. We’ve seen them continuing to decline and we do believe that there are opportunities in 2019 to continue to reduce them. But for the most part, we think they are going to be relatively stable in 2019 compared to 2018.

[Ned Baramov:]

That’s great. Thank you. That’s all I had.

[Operator:]

Thank you. Our next question is coming from Selman Akyol of Stifel. Please go ahead with your question.

[Selman Akyol:]

Thank you. Just sort of following up on a couple of earlier questions. It seems like Orla 2 being more of a 2020 event. I am just trying to think about the dynamics, the competitive dynamics between the PRB and the Permian, it seems like the Permian maybe not as greater focus going into 2019, clearly PRB picking up. So, can you just talk about the competitive dynamics between the two basins that you are seeing?

[Heath Deneke:]

Yes. I think, the Permian, obviously has got a tremendous amount of both private and public sponsors that are competing very heavily for gas gathering and processing. I think, we do believe we knew that going into this, that’s while we created a system within, that’s why we wanted to make sure that we weren’t just localizing one particular spot in the Delaware basin. But we wanted to stay in the Delaware System. So that’s why we connected the Eddy County Willow Lake system with our Nautilus system that stands down in Loving and Ward counties with high pressure integrated pipelines that really can move gas volumes from the north to south end of the basin or aggregate from the north to south end of the Delaware Basin. So, I think, we're – it is very competitive. There is certainly a lot more team that has work and options if you will on that side. But that being said, again, we feel, like we are well positioned on the G&P side, there is a few other players in the water business. There is quite a bit of private capital that’s looking to develop, produced water systems. I think we are one of the handful of public companies that have added back. So there are some - in terms of internal competencies. So little less congested on the water space and we didn’t – again we are looking for water systems that complement our existing footprint with customers that know us well and that we know that we have established relationships with and we are willing to – we are looking at this as infrastructure we redeveloped and contracts that we look a lot like our midstream agreements that we have on the G&P side. So, I think there is more work to be done, but we believe that we are going to be competitive and successful building the water business in the Delaware Permian. If you contrast a little bit to the Powder River basin. I think most of the growth is obviously within existing customer at Chesapeake. So, they are driving the growth that we talked about, as you look into 2020 as fully contracted. We are simply just being to build the plant. There is on the Chesapeake kind of continues to run the five rigs that they are running now. Those volumes will double by the end of 2019 and continue to grow beyond that. So I think we've got a nice well-established platform under a long-term agreement with the most active producer in the basin. That being said, I think the competition, while it is kind of ramping up, it’s not quite as congested if you will as what we’ve seen in the Delaware Permian. Now having said that, the barriers of entry are a little more challenging in the Powder. It’s a big wide basin. It doesn’t – at least today, it doesn’t have quite the scale of development as I mentioned only roughly 200,000 barrels of oil relative to the Permian which is fortunately, north of 2 million. So certainly, there is not as much concentration, there is broad areas and it’s expensive to build a system out there. So, I definitely feel like the incumbents that have been in the basin like us since 2013 timeframe do have a real advantage to be able to kind of grow the G&P systems. Same thing on the crude side. I think, we essentially have existing operations, existing pipe in the area, you are going to be - you should be able to generate higher margin opportunities and piece of returns if you will to build out crude infrastructure alongside your gas. So, I think those are really the dynamics. I think we are looking to Permian, definitely congested, but we think we have a really solid competitive position there. In the Powder, I think we are early mover advantage and we continue to kind of bolt-on to the existing infrastructure that we’ve developed today.

[Selman Akyol:]

Great. Thank you. I appreciate the color and everything else has been asked for me. Thanks.

[Operator:]

Thank you. At this time, I would like to turn the floor back over to Bob Phillips for closing comments.

[Bob Phillips:]

Thanks operator, and thanks again to for everybody handing that joined us on the call this morning. I just want to close with three points from our press release and highlight those for you going forward. Number one, we’ve reaffirmed our 15% annual growth rate in EBITDA and DCF per unit through 2020. Number two, we are entering the final year of the three year capital program spending $850 million in the basins that we operate in, Bakken, Powder, Delaware generating incremental EBITDA of $160 million or an investment multiple of about 5.5 times. We think that’s the business we are in and we think that is exactly where the company ought to be right now. That results in us achieving our targeted leverage ratio of 3.5 to 4 times in early 2020 and when we get there, or get to line of sight on that runrate, then we are going to reevaluate distribution growth going forward. That’s the plan we are sticking to it. We know we said like broken record, but the model is working and our team continues to execute well. So we are going to stay with it and hope that investors like what we are doing. And with that, operator, thank you very much for the call and thanks to all of you that joined us today.

[Operator:]

Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You may disconnect your line at this time, and have a wonderful day.