Crestwood Equity Partners LP
Q4 2016 Earnings Call Transcript

Published: 21 Feb 2017

[Operator:]

Good morning and welcome to the conference call to discuss Crestwood Equity Partners’ fourth quarter and full year 2016 financial and operating results and 2017 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 more 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 Senior Vice President and Chief Financial Officer, Robert Halpin. 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 anybody should require operator assistance during this conference, please press star, zero on your telephone keypad. At this time, I will turn the call over to Bob Phillips.

[Robert Phillips:]

Thanks Operator. Good morning to all of our investor partners, and thanks for joining us. The management team is very excited to announce a strong fourth quarter and full year 2016 results, given the challenges that we faced in the market over the past year. As you all know, we faced volatile commodity prices, a shutdown or slowdown in producer activity in some areas, and many of our customers went through their own set of financial challenges throughout the year. But I think the diversity of our U.S. portfolio allowed us to make it through the downturn in very good shape, and now we’re repositioned on the other side. All that is past us now, and I’m pleased with how we’ve repositioned the company to resume growth again in the near future. Let me recap some of our 2016 accomplishments. We hit the high side of our full-year guidance, which was no small feat in a year with historic production volatility, facing shutdowns in many areas, a slowdown in drilling, and of course a lot of ducts but very few completions. We strengthened our balance sheet and improved our financial flexibility to restart this growth investment phase that we’re facing in ’17. During the year, we paid down over a billion dollars in debt, we cut our distribution to be able to retain cash flow for reinvestment at higher returns, we delivered impressive leverage and coverage statistics compared to our peer group, and we formed strategic partnerships with Con Ed in the northeast and with First Reserve in the Delaware-Permian, and I wanted to point out that we ended the year with less than $100 million drawn on our $1.5 billion revolver. By the way, remember that we eliminated our IDRs in 2015, so our cost of capital is now competitive with our peer group and our access to capital is as well. I’m sure Robert will pick up on that when he talks about the 2017 plan. We cleaned up a number of longstanding producer problems and contract issues in our portfolio by working through the Quicksilver bankruptcy in the Barnett, the Halcon bankruptcy on the Arrow Bakken system, and we finalized a long renegotiation of the gathering and processing contracts with Chesapeake and our partner, Williams on the Powder River Basin Niobrara Jackalope system. We’ve seen some other signs of real progress in moving forward. Antero is now completing the ducts on the southwest Marcellus system, and we’ve recreated the COLT Hub into what we think will be the premier location for crude handling and market liquidity in North Dakota with the recent connection to Dapple, so we’ve done a lot in a tough year to reposition the company commercially. All of these commercial wins of course create a solid baseline performance for these assets in 2017 and beyond, and that’s the primary reason why we called our 2017 guidance conservative; and again, I’ll let Robert talk to that issue, but we really think this is a conservative platform from which we will grow. With the financial and commercial successes in 2016, we’ve repositioned Crestwood for growth in the Delaware-Permian, the Barnett, and the Marcellus. Those are the three areas that we’re focused on for the next several years. We’re currently expanding the Arrow system to meet new producer demand as Arrow wells continue to come in stronger than expected due to improved completions, and volumes will rise in 2017 and ’18 due to higher drilling activity than we experienced last year. Clearly, producers are getting a higher price and they’re committing capital to the development of this core Bakken resource. These 2017 projects will increase capacity on the system and continue to further improve netbacks for our producers, assuring that capital will continue to be allocated to these regions. These are all strong producers that have a portfolio of other opportunities, but they are all prioritizing their acreage on the Arrow system as some of the top performing acreage that they have in their portfolios. Finally, we’re finalizing a processing solution, gas processing solution for those producers on the Arrow system that will further ensure better flow assurance and improve economics for our producers. Arrow will continue to be our top EBITDA contributor for the next several years, and we have a lot of growth and a lot of inventory built in to that asset, so we’re very pleased with that acquisition that we made back in 2013. In the Delaware-Permian, the upside potential is even greater, starting with the Shell Nautilus system which we’re in construction on today and set for first production as early as June of ’17. We’re already seeing multiple third party opportunities around the Nautilus system and we’re competing aggressively for those. In the Willow Lake area, which is just north of the state line in the northern Delaware-Permian, we’re already seeing opportunities to expand the system and build a new plant that we talked about for a year or so. Another plant expansion opportunity to support 2017 - 2018 drilling is certainly within our capacity, both commercially as well as financially, and we’re working to finalize that project and hope to announce it soon as well. Then of course, we continue to work with our producers on the three phase gathering system down in Reeves County, Texas that we engineered a year and a half ago but continue to modify, based on the significant results that are coming from producers in that area. I think we’re all aware of the wide range of different benches and targets within the Reeves County, Loving, Ward County areas. So many producers are now having success, such great success in so many different benches that its tending to alter the original design of our system, so our engineering team and our project management team is hard at work to try to modify that system and make all the right connections to be able to handle the production, again to provide flow assurance and the best netbacks possible to those producers. We remain optimistic on that, and I know that Heath will want to talk to you specifically about where we are in the process of discussing that system with our potential customers. All of these projects taken collectively will boost our platform and continue to expand our portfolio, setting a solid baseline for 2017 and clear visibility to growth in 2018. With the financial capacity that we now have and the success our commercial teams are having executing on high return expansion projects, staying away from those very expensive acquisitions that are available to everybody that wants to go jump in line at the next auction and compete for them. We’re really in position to drive accretive growth in our Dcf per unit over the next couple years, and that’s the fastest way for us to increase coverage or restart our distribution, which we think is possible in 2018. So with that background and a big congratulations to the team here at Crestwood for all the work that they’ve done under tough circumstances in 2016, but with a very optimistic outlook in 2017, happy to turn it over to Robert to cover the fourth quarter and to discuss our 2017 guidance. Again, I note that we think our 2017 guidance is conservative for a transition year. Certainly there are a lot of companies out there that are providing fairly conservative guidance as well. I think there’s more upside than downside in this guidance, and again I think Robert can point out to you where the upside opportunities are. But the real picture here at Crestwood is to jump to 2018 and see the full-year benefit of some of the projects we’ve announced already in ’17 that we will complete this year and further projects we’ll announce this year that will be building on and bring into service late this year or early next year. With that, happy to turn it over to Robert Halpin, the CFO, to cover 4Q and ’17 guidance. Robert?

[Robert Halpin:]

Thank you, Bob. Crestwood had a very strong finish in 2016, and I am pleased with the outlook of our asset base now heading into 2017. For the fourth quarter, adjusted EBITDA totaled $126 million compared to $119 million in the fourth quarter of 2016. This resulted in adjusted EBITDA for the full year of $456 million, which falls on the upper end of our guidance range that we provided back in April of 2016 when we entered into the Con Edison joint venture. Distributable cash flow for the fourth quarter was $78 million compared to $72 million in the fourth quarter of 2015, and our financial results for the fourth quarter 2016 reflect Crestwood’s 35% share of Stagecoach’s earnings that began back in June of 2016. For the fourth quarter 2016, we declared a cash distribution of $0.60 to our common unit holders, driving distribution coverage for the quarter at 1.9 times, or 1.5 times if our Class A preferred units were currently paying cash distributions. We remain committed to providing unit holders strong distribution coverage and a very conservative balance sheet heading into 2017. Now turning to a review of our segment results, in our gathering and processing segment, segment EBITDA totaled $62 million in the fourth quarter of 2016 compared to $8 million in the fourth quarter of 2015, noting that the fourth quarter of 2015 included a $51 million equity investment impairment. Segment EBITDA increased quarter over quarter as a result of a 5% reduction in operating expenses and increased EBITDA generated by the Arrow, Willow Lake, and the Powder River Basin Niobrara systems. In our storage and transportation segment, segment EBITDA totaled $33 million in the fourth quarter of 2016 compared to $29 million in the fourth quarter of 2015. Fourth quarter segment EBITDA reflects Crestwood’s 35% share of Stagecoach JV earnings and the recognition of $14.3 million of deficiency payments received at the COLT Hub. During the fourth quarter of 2016, natural gas storage and transportation volumes averaged 1.9 Bcf a day. That compared to 2 Bcf a day in the fourth quarter of 2015 and 1.8 Bcf a day in the third quarter of 2016. Fourth quarter 2016 volumes increased 4% sequentially from the third quarter of 2016 primarily as the result of increased northeast storage withdrawals offset by lower volumes at the Tres Palacios storage facility. In our marketing, supply and logistics segment, segment EBITDA totaled $22 million in the fourth quarter of 2016 compared to $28 million in the fourth quarter of 2015. Fourth quarter 2016 segment EBITDA reflects lower activity in Crestwood’s trucking and terminaling business units offset by higher margins on seasonal NGL volumes in the northeast as well as higher product sales at U.S. Salt. Now moving to expenses, our full-year operating and maintenance expense and G&A expense net of unit-based compensation and other significant costs decreased $38 million or 15% compared to full-year 2015. At the beginning of the year, we tasked every department across our organization to find ways to capture cost savings while maintaining the highest level of customer service, safety, and environmental stewardship. Our teams strongly delivered on those objectives in 2016. Crestwood substantially exceeded its cost reduction goals by reducing employee costs, improving maintenance practices, and reducing expenses by utilizing strategic purchasing and professional service agreements. Now turning to the balance sheet, as of December 31, Crestwood had approximately $1.6 billion of debt outstanding, including $1.5 billion of fixed rate senior notes and $77 million in outstanding borrowings under our $1.5 billion revolving credit facility. As of December 31, Crestwood’s leverage ratio was a very comfortable 3.7 times. As we look into 2017, the commodity price market has stabilized, giving our customers increasing confidence in their business plans, and given Crestwood’s very strong balance sheet and a normalized cost of capital, we are once again in position to aggressively pursue organic growth opportunities around our portfolio. As you will see, we view 2017 as a transition year where system volumes stabilize, key systems are expanded, and overall volumes and cash flow begin to pick up in the second half of the year with increasing activity around our Delaware-Permian, our Bakken, our Marcellus, our Powder River Niobrara and our Barnett systems. In 2017, Crestwood expects to generate adjusted EBITDA of $360 million to $390 million. Our 2017 adjusted cash flow guidance is lower than 2016 due to the full-year deconsolidation of our northeast storage and transportation assets as a result of the formation of the Stagecoach joint venture as well as contract expirations at the COLT Hub. This EBITDA range is conservative, but we want to give our unit holders absolute confidence in our ability to deliver on our 2017 objectives and finish the year with very health coverage and leverage statistics. In 2017, we expect gathering and processing segment EBITDA of $265 million to $275 million. We expect our storage and transportation segment will generate $80 million to $90 million, and we expect our marketing, supply and logistics segment will generate $80 million to $90 million. We expect distributable cash flow of $200 million to $230 million, which when compared to our cash distributions of $2.40 per common unit will result in full-year 2017 cash distribution coverage ratio of approximately 1.2 times to 1.4 times. This coverage range reflects the Class A preferred units converting to cash distribution payments attributable to the fourth quarter of 2017. We currently expect growth project capital spending and joint venture contributions in the range of $130 million to $150 million, and maintenance capital spending in the range of $20 million to $25 million. As Bob mentioned in his remarks, we continue to work on several exciting growth opportunities around our Delaware-Permian and our Bakken assets, which we have not currently included in our guidance ranges; but obviously as those projects are executed and announced, we will be adjusting our guidance ranges as appropriate throughout the year. We expect to finance our growth opportunities through financing commitments that we have already secured within our regional joint ventures, with available liquidity under our revolving credit facility, and with retained excess distributable cash flow. Based on that execution plan, we expect to exit 2017 with a leverage ratio between 4.0 times and 4.5 times, and remain very committed to maintaining long-term leverage of less than 4.0 times once we begin experiencing full cash flow contributions from our ongoing growth projects in late 2017 and 2018. In the coming weeks, Crestwood plans to file two registration statements with the SEC, one to update our existing equity shelf registration and the other to reinstate our ATM shelf registration which we simply did not update under CEQP after we completed our simplification merger with Crestwood Midstream back in September of 2015. As I stated earlier, our 2017 capital needs are fully financed through available liquidity as well as capital commitments that we have already secured through our regional joint venture relationships, so while we do not have any near-term requirements for equity capital, we believe it is prudent to keep these tools available to Crestwood as we continue to manage and grow our business going forward. As we look ahead into 2017, Crestwood will remain committed to achieving our targeted distribution coverage and leverage goals as we now shift into execution mode, and as new projects come into service and volumes across our base business grow, we expect to generate growing cash flows and increase distribution coverage into 2018. I am very pleased with where Crestwood is positioned today and with our outlook going forward, and we very much look forward to updating you on all of our accomplishments as we progress through this exciting year ahead. Now with that, Operator, we’ll turn the call over to questions.

[Operator:]

[Operator instructions] Our first question is coming from JR Weston of Raymond James. Please proceed with your question.

[JR Weston:]

Hi, good morning. First question on the rig system, just kind of wondering if you could offer some color on the scoping issues you’re going through now, and just what the next few stepping stones are that we need to get accomplished in order to get rigs into guidance.

[Heath Deneke:]

Hey JR, this is Health Deneke. You know, really, there hasn’t been a whole lot of change in our rigs conversations. I think as we said last quarter and as we are today, we’re still in exclusive arrangements with our anchor producer, and I think a lot of what Bob alluded to was we are looking at ensuring that the gathering system is really well equipped to handle all of the foreseeable production that spans close to 400,000 acres from an AMI standpoint. Our producer has been very focused on ensuring that they have an optimized development plan and are really looking at all the different completions and landing zones and things of that nature inside of this footprint. As you’re probably aware, in the Delaware-Permian, there’s a lot of excitement about the various levels of benches in the Wolf Camp, and I think along with that comes different IPs on the gas side and the crude and condensate side, so I think a lot of what we’re doing now is just ensuring and kind of working with our producer to make sure that the gathering system is designed optimally to handle a wide range of productive benches from the Bone Springs all the way down to Wolf Camp D and everything in between. So you know, unfortunately we don’t have a whole lot more to add at this particular point in time, other than we continue to be optimistic and expect that we’ll be able to close this transaction, and hopefully we’ll be in a position here next quarter to give a little more fulsome update.

[JR Weston:]

Okay, thank you, that’s helpful. I guess maybe kind of switching gears, a lot of discussion about the COLT Hub here recently, and you guys have done a very good job in the last few quarters outlining the process you’re going through to reposition the asset. I was just kind of wondering, as we go through that repositioning and within the context of what you put in the release today as far as updated commentary, and then the metrics that you report for the segment, just kind of wondering if you could offer any color or advice on how the model the sub-segment moving forward.

[Heath Deneke:]

Yes, at COLT, this is definitely a transition year as we announced--you know, we had the Tesoro contract that rolled off as of the end of November of last year, and I think what we’ve put into guidance for 2017 is very conservative, we believe. It’s in and around $30 million a year. A lot of that is already underpinned by our existing take-or-pay contracts that we still have on, that go through the balance of 2017. What I will say is just kind of looking--you know, we’re just kind of a month and a half into 2017, and performance to date has trended to be a little bit higher than expectations. I think we’ve had a pretty strong January in terms of crude by rail volumes, and we’re still optimistic than when Dapple comes online in and around the April time period, that we’ll be able to generate additional revenues there. So as we said, we’ve kind of stuck with what we believe to be conservative guidance for COLT, around $30 million, and I think as we kind of watch 2017 and we shift away from being long-term take-or-pay type contracts, I think that there is some considerable upside to the portfolio if we continue to have the strong results that we’ve seen in January.

[JR Weston:]

Okay, thank you, that’s great. I guess just one last one from me, switching gears and kind of a nuts and bolts question, looking at the 2017 guidance, just wondering if you could walk us through the handling of equity earnings and distributions received in that guidance, just kind of reconciling segment EBITDA to your overall adjusted EBITDA. I know there’s a little bit of a difference there normally, and it’s especially relevant considering how important the JVs have become to the Crestwood model over the last few years.

[Robert Halpin:]

Yes JR, I’ll handle that. If you look at the various segments, obviously as you pointed out, we do have a couple of joint ventures and equity method investments from an accounting standpoint that factor into our results. What we quote or report from an adjusted EBITDA standpoint largely reflects our proportionate share of the EBITDA attributable to those joint ventures. Obviously when you look at our financial results and the reconciliations, we account for those on the equity method basis and then adjust accordingly to get back to a proportionate EBITDA. But when thinking about our guidance for the year in the segments, the most notable joint venture in the storage and transportation segment is with our Stagecoach joint venture, and what you see laid out in that $80 million to $90 million guidance range for the year is effectively our 35% share in the cash flow of the asset on the 2017 time frame. In addition to that, the other joint ventures around our Delaware-Permian asset as well as our Tres Palacios, those are owned on a 50/50 basis, and as a result we account for them and report them the same way with 50% of the corresponding EBITDA of those assets. Did that give some clarity, or is helpful?

[JR Weston:]

Yes, I think so. I guess I was just kind of wondering--so we saw one of your other midstream peers kind of go through a change in their guidance here in the last month or so as far as equity earnings and distributions received were handled, and I was just wondering if maybe there was some upside in that overall adjusted EBITDA number that maybe we weren’t quite seeing, just with the comparison at the segment level.

[Robert Halpin:]

Yes, I don’t believe that to be the case. I think we’ve got a pretty clean outlook that, as I said, just reflects the proportionate share of the EBITDA or cash flow from each of our joint ventures.

[JR Weston:]

Okay, that’s very helpful. Thank you.

[Operator:]

Thank you. Our next question is coming from Jerren Holder of Goldman Sachs. Please proceed with your question.

[Jerren Holder:]

Hi, good morning. Just wanted to get into--I know you guys have talked about guidance being conservative, and just trying to assess how conservative it is. So when we look at some of our segments where you do have minimum volume commitments or revenues such as the PRB, the Niobrara, Marcellus and COLT Hub in your guidance, are you guys assuming effectively those are at MVCs, or how should we think about at least those to start?

[Robert Halpin:]

Yes Jerren, I’ll take that one. I think it really--the answer I would give is it really depends asset by asset. We obviously build up each asset independently and we look at the feedback we’re getting from our producer customers in terms of their development plans and activity levels for 2017 and beyond, and then we internally digest that and assess how we view that, measuring both the risks and upside that could come to that feedback. I think you mentioned the Powder River Basin specifically - you know, we do have a minimum revenue guarantee there that gives a very strong baseline of cash flow. We have had some very favorable commentary from Chesapeake throughout the fourth quarter and early parts of 2017. They’ve recently added a second rig to the acreage, and I think that if they continue to develop on that pace, we do have some real upside to kind of the MCV levels there relative to what’s in our current plan or guidance. But I think at this point, we feel very good and very confident in our numbers for 2017, believe that we can achieve all of our objectives, and if we can continue to execute, we do think there’s upside from there.

[Jerren Holder:]

I guess maybe focusing on two of your larger assets, growth assets - Arrow and Stagecoach, as you look 2017 versus ’16, are you guys expecting growth there or those assets to be fairly flat? How should we think about that on a fully consolidated basis?

[Heath Deneke:]

Yes Jerren, this is Heath. I would say for Arrow in particular, and just to try to touch on your previous question as well in terms of the conservative nature, we definitely see Arrow growing year-over-year. I think right now we are expecting around 70 well connects in 2017 - that’s up from, I think we closed around 48, I believe, for 2016. Now, we have haircut our producer forecast by about 30%, so as it stands right now if you look at the current drilling plans that we have from our producers, it guides closer to 95 versus that 70 that I just told you. So yes, we’re expecting growth to be materially higher than what we put into the guidance if the producers actually perform to the current drilling schedules that they have in front of us today. You know, in our Stagecoach joint venture, again we do see fairly steady state year-over-year performance there. We do have some re-contracting, a very minor amount of re-contracting that we expect to kind of come in, in line with guidance, so I don’t think you’re going to see a whole lot of year-over-year change. I think most of the growth in that asset we see kind of more towards the 2019 - 2020 time period associated with new projects. We think we’ll be able to kind of hold serve, if you will, with the run rate EBITDA that’s largely contracted under agreements here in the northeast.

[Jerren Holder:]

Thanks. I guess last one from me, obviously you guys are a fee-based business, but now your Barnett contract does have a sort of commodity price leverage, so to speak. What assumption are you guys using for commodity prices in your guidance?

[Robert Halpin:]

The general assumption we have on the gas side is $3.00, and then obviously a mixed bag on the NGL side.

[Heath Deneke:]

Pretty much in line with current strip.

[Robert Halpin:]

Yes.

[Jerren Holder:]

Okay, thank you.

[Operator:]

Once again, that is star, one to register any questions at this time. Our next question is coming from Andrew Burd of JP Morgan. Please proceed with your question.

[Andrew Burd:]

Hi, good morning. Thanks for taking my questions. So the press release indicated possible distribution growth in 2018. Just wondering what types of milestones might trigger that growth process and whether you could kind of get there based only on the current backlog that’s in guidance, or some of these other projects might need to cross the finish line first. Thanks.

[Robert Phillips:]

Andy, this is Bob. Thanks for the question. I think it’s the key question of the whole conference call and what you all should be focused on and what I hope you take away from this. As you know, we’re in a multi-year planning process. We described ’17 as a conservative year, a transition year. What I specifically mean by that is that we fixed a lot of the problems in our portfolio and they’re going to operate and produce at a pretty solid baseline number, whether it be COLT as Heath just described or the Barnett, as you just talked about. We’re going to be able to make more money generally with flat volumes, in some cases even lower volumes, because the well activity is just better in each of the areas that we operate, and the Bakken is a perfect example. We’ll see fewer wells connected but greater volumes just because the wells are significantly greater than they have been in the past. You know, that’s a phenomenon that’s occurring everywhere in the industry today, not just in the Barnett or the Bakken, and one of the reasons why we keep chasing a lot of these Delaware-Permian projects, is because the wells just come in better and better and better than we originally thought. So that’s a phenomenon that’s occurring and it’s going to establish a better baseline for our 2017 EBITDA than we had last year. Going into guidance last year, it was almost pin the tail on the donkey - we had no idea where prices were going to go. We were positioning the company for lower for longer. We did a lot of things that we knew we had to do to structurally improve our ability to compete in a lower for longer market, and fortunately for us we did the right things at the right time, and now we’re in that position to really be able to compete for new business going forward. To get to where we want to get, which is resumption of distribution growth, you have to make at least three assumptions

[Andrew Burd:]

Great, thanks very much for that color. A quick follow-up - I think I could discern it from your comments on M&A, but given your highly improved cost of capital relative to a year ago and your ample liquidity, what is the appetite for M&A and has that changed at all over the last year?

[Robert Phillips:]

You want to take that one, Will?

[Will Moore:]

Yes. Hey Andrew, this is Will. I would say we’re more active in the deals that we’re looking at, obviously, because we’re in a position to transact. But as Bob alluded to earlier, with the projects that we have in our organic portfolio, when you look at a competition for capital, the return profile is so much stronger in the organic portfolio than what we’re seeing on the M&A front, that I think M&A in this market is very unlikely. We’re going to continue to work the deals, look at them, try to find one that hits the sweet spot, but we are in a competition for capital business and right now the organic portfolio’s return profile is much greater than what we’re seeing in the current M&A market.

[Andrew Burd:]

Yes. Again, our focus is on driving Dcf per unit, Andy, over the next couple of years. While we’re not immune to catching a cripple coming over or buying something cheap if the opportunity presents itself, in this market we are totally focused on internal growth around our assets in the Bakken, internal growth around our assets, and then additional a whole other phase of potential growth in the Delaware-Permian if we can put to bed some of these deals we’re working on right now, which we actual hope to be able to tell you about fairly soon throughout the year, knowing that we have the financial capacity to finance those with our First Reserve partnership. We think that’s going to get us the growth profile that’s going to make us a very attractive investment to investors that are looking at ’17 as a bridge year or a transition year, and are already looking out there in ’18 and ’19 to see where the growth is. One final comment, and I don’t mean to belabor the point, but we went--we took this entire Q&A session and never mentioned the northeast and Marcellus, and I think it’d be--I’m reluctant to do that because it’s such an important part of our long-term story. You know, we didn’t mention projects in the northeast around our Stagecoach joint venture because they're just not ready yet. But if you look at market fundamentals and market conditions up there, they’re absolutely breaking our direction. We’re clearly seeing an improved regulatory environment up there where projects are going to start moving again. Prices are high enough to where producers are bringing volumes on that have been shut in over the last year or so - that’s positive. Volume activity is going to be up. Producers are clearly making better wells up there than they have before. There’s a Southwestern Energy deck that’s out right now that I think really nails it, that northeast Marcellus can be as productive or more productive at this rig level than it’s ever been before. It’s on a comparable level of the number of rigs running in 2012 to actually grow production, which is a small portion of the peak rig activity in 2014. So everything up in the northeast is working well. Our partnership with Con Ed is working better than we expected. They’re a great partner. They’re putting us in position to be successful commercially and regulatorily up there, and this is a winter where we finally saw utilities go back to fundamental draws on storage to support their operational needs and that’s a positive thing. That creates long-term demand pull for our pipelines and for our storage facilities, and so as we begin to flesh out the opportunities in front of us in Bakken and Delaware-Permian, by the time we get to the end of this year, we’re going to have clear visibility as to how the northeast Marcellus is going to drive long-term growth through that joint venture as well. So we’ve got a lot in our inventory. Now that the finance guys have done their job, it’s really up to the commercial team to start putting these things on the board for us and do it in a way that we can execute where there’s a high degree of visibility to what the growth is going to be. But as we play through our forecast, we think ’18 is the year where we’re going to have a choice of either keeping coverage high and continuing to reinvest cash flow into these projects at higher returns, or starting to increase distributions and make better returns to our investors, which we hope then will drive valuation and get us back to where we need to be with Crestwood.

[Andrew Burd:]

Great. Then my final question, more specifically to the Bakken, in the press release you noted a potential processing opportunity in the Bakken. Just curious if you could expand a little more on that - would that new plant be driven by market share gains of existing volumes, or is it kind of based on the expectation of incremental volumes that need to be processed longer term?

[Heath Deneke:]

I think the answer to that is both. We basically have reached kind of the limits of our existing contractual capacity. We want to make sure that when we move forward with the processing, our own system processing if you will, it’s there to kind of supplement our existing contracts. But we think over the next two to three years, we can continue to expand and self-perform all of our processing needs up in the Bakken. As Bob mentioned, we’re not quite ready to call this one done, but we hope maybe in the next 30 days or so we’ll be able to have an announcement here to kind of provide some more color. Again, none of that is in the current guidance. We are moving forward with gas gathering expansions as well as crude system expansions that will really create a lot of running room for our system just to grow organically with these new well connects, and the processing will just be a really nice returning project that will drive some pretty significant growth up in the Bakken as well.

[Andrew Burd:]

Have you disclosed when the third party processing contract at Arrow expires?

[Heath Deneke:]

I don’t think we have. I’ll maybe answer the question this way - I think what we have contractually obligated, I think will be expiring here in the next couple of years, but again--yeah, next couple years. I think as we mentioned, we have the opportunity to put a plant in, and as soon as that plant comes operational effectively base load our current Arrow volumes through our own self-performing plant, so it would effectively be a plant than when we brought online would basically fill up Day 1 and would kind of swing on our existing contractual arrangements.

[Andrew Burd:]

Great, thanks for taking my questions.

[Robert Halpin:]

Andy, let me just add that we noted roughly $55 million of capital dedicated to Arrow, which does not include a processing plant. We have a significant gas system expansion underway right now. We’re trying to stay ahead of our producers. We don’t like flared gas, they don’t like flared gas, the reservation doesn’t like flared gas, so we’re approaching our limits on our existing gas system capacity. We’re doing the same thing on water - our water system needs to be upgraded and expanded as well, so under the current plans we’ll be expanding gas well beyond the amount of gas that we’ve been moving in 2016. Think about it this way - a processing plant would allow us to process the additional gas we’re going to be gathering under that new gas gathering system capacity expansion first, and then ultimately that could become the primary processing facility for the gas with a swing on the third party that’s currently processing it. Economics would be better for the producers in either case because we improve flow assurance, we reduce the potential for flaring, and we think we can provide better netbacks for the producers from an NGL standpoint.

[Andrew Burd:]

Great, thanks Bob.

[Operator:]

Thank you. At this time, I’d like to turn the floor back over to Mr. Phillips for closing comments.

[Robert Phillips:]

Well, thank you Operator, and thanks to all of our investors. It looked like we had a record number of call-ins for this. I just want to comment again about Robert’s 2017 guidance. We do think it’s conservative and we think that is appropriate for a transition year. We do believe fundamentally that prices will improve throughout the year and that drilling will increase. As Heath pointed out, we clearly have some pretty conservative system-by-system forecasts as haircutting forecasts, haircutting current producer estimates because, remember, these guys have been challenged to put their 2017 capital budgets together at a time where there’s still a little bit of volatility in commodity prices. But as we look across our producer portfolio, most of our producers are well hedged in ’17 and well into ’18, so we think we’re going to see better drilling, and as a result we’ve taken a conservative view of that. It forms a good baseline and the upside will come from potentially higher volumes in the back half of the year, potentially lower operating expenses. Again, we cut almost 15% of our total G&A and operating expense out of the budget last year. Our teams are well versed in how to optimize their operating while maintaining positive safety, regulatory compliance and environmental stewardship, and these projects that we’re talking about as we announce them, we think you’ll see visibility to improving our overall outlook for the year and ultimately by the time we get to 2017 what our full-year results will be. So with that, we thank everybody and we appreciate your attendance today. Look forward to talking to you soon. Thanks Operator.

[Operator:]

Ladies and gentlemen, thank you for your participation. This concludes today’s teleconference. You may disconnect your lines at this time and have a wonderful day.