Crestwood Equity Partners LP
Q4 2014 Earnings Call Transcript

Published: 24 Feb 2015

[Operator:]

Good morning, and welcome to this morning's joint conference call to discuss Crestwood Midstream Partners and Crestwood Equity Partners Fourth Quarter 2014 Operating Results and 2015 Outlook. Before today’s call begin, listeners are reminded that Company may make certain forward-looking statements as defined in the Securities and Exchange Act of 1934 based on the 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 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 releases issued this morning by both companies. Joining us this morning for prepared remarks is Chairman, President and Chief Executive Officer, Bob Phillips, Senior Vice President and Chief Financial Officer, Mike Campbell and Vice President of Finance, Robert Halpin. After the speakers remarks there will be question and answer session discuss with Crestwood's current research analysts. At this time, all participants are in listen-only mode. [Operator Instructions] Today’s call is being recorded. At this time, I would now like to turn the call over to Bob Phillips.

[Robert Phillips:]

Good morning and thanks to all of you for joining us on the call. We have posted a new slide deck to our website and while we won’t be going slide-by-slide, it is therefore reference. There’s a little bit more detail on the topics that we will discuss and I would encourage you to take a look at that at your convenience. We’re very pleased to present Crestwood's financial and operating results for fourth-quarter and full-year 2014 and to finally provide our outlook for 2015. I know it's been a long time coming. We understand the volatility in the commodity markets has caused a lot of concern with investors about future growth across both the upstream and the midstream sectors, but I want to assure you that Crestwood is very well situated to handle this market correction, and we think in good position to develop into a stronger Company with better outlook for long-term success. So before Mike gets into the details on fourth quarter and full year, I want to highlight some of the 2014 accomplishments and give you some key facts about our most important assets that we think you need to know going into 2015. So let me start with the accomplishment. We fully integrated Crestwood Energy and Arrow in 2014 creating a new midstream company, one that had diverse assets with long term growth potential, a competitive position in multiple shale plays and full capability across natural gas, natural gas liquids and the crude market. This was the primary goal of the Energy merger and we feel like we successfully accomplished that in 2014. Going play by play, we established a premier competitive position in the Bakken becoming one of the largest handlers of crude to our gathering pipeline, storage, crude by rail loading and trucking assets truly a value chain operation there that we put in place in 2014. Two primary assets, the Arrow gathering system and the COLT crude by rail loading facility at Arrow, we continue to add volumes. You have seen sequential quarterly growth quarter over quarter since the first quarter of last year. Our producers continue to drill and complete wells, the wells get better and better. We’re now seeing IP rates above 2,000 barrels a day. We have a solid connections schedule for 2015. Volumes will grow year-over-year. Tudor Pickering has recently reviewed our acreage within internal study and called the acreage dedicated to our Arrow system, the second best acreage in the Bakken referring to Fort Berthold Indian Reservation acreage. Our COLT Hub remains the leading crude by rail loading facility in North Dakota by volume. We have the most connectivity to supplies and markets of any hub or crude by rail loading facility in the Bakken play. We completed our third R&D track at COLT in December. Volumes in January averaged 133,000 barrels a day. Our take-or-pay volumes for 2015 are 149,000 barrels a day. The Brent-to-WTI spread is widen back to $9. Our refinery customers are making good money in this market and they continue to want to source Bakken barrels. I think we’re in good shape in 2015 in the Bakken despite all the noise about rig count and net backs. In the Antero we just completed a three-year build out of our Antero gas gathering system in the rich gas Marcellus play. Antero has clearly pulled back with their January announcement and in fact updated announcement today. They continue to have capacity limitations for processing and downstream markets. They will allocate that capacity based on economics, so we’re expecting flat volumes around 600 million a day in 2015 that will still be a nice bump over 2014. More importantly over the long-term, we have 20-year contract with Antero and 114,000 acres of prime Marcellus acreage that’s dedicated to us. We’re largely built out, won’t have to spend any more capital for the next couple of years. We have minimum volume commitments through 2018, but our actual volume forecast during that time period is well above the MVCs. but I wanted to point that safety net. Antero has over 1,000 drilling locations on our dedication that are economic even at today’s prices, but they’re going to be allocating capital and downstream capacity. They have to use our gathering system to meet their annual production targets. I think the Antero system is a very good long term asset for us and one that we will continue to grow over the next few years. In the dry gas Marcellus area we had very good year in 2014. We consolidated operations with our Antero gathering system. We reconstructed and expanded our storage and pipeline assets, which are located in the best part of the dry gas play in Northern Pennsylvania. We have move to 95% of our storage contracts and 84% of our total revenues in this business segment under firm take-or-pay style contracts. So a good safety net there for 2015, but we still have good leverage to basis blowouts, which typically occur in the summer time. We just finished an expansion of the North South line in 2014. We have an anchor tenant for a MARC I expansion in 2015 and we continue to see good demand from customers for our MARC II expansion Penn East in 2016 and 2017. In the Powder River Basin Niobrara, we’ve made a substantial investment and created another long term value chain opportunity with our rich gas gathering and processing system in our crude by rail loading facility. Chesapeake, our main producer continues to aggressively develop this 330,000 acre Niobrara dedication which has significant shallow production options for the producers that are even more economic in this market as drilling and completion costs are beginning to decline. Williams is our 50/50 and in 2014 we built out the first phase of the gathering system in our first 120 million a day processing plant both of which will make big contributions to the joint venture in 2015. A reminder, we have a typical Chesapeake access style cost of service agreement for gathering and processing, so fees go up as capital is invested to ensure an overall mid-teens return on invested capital for the midstream service providers. We think this play has great long term growth potential for Crestwood and for Williams. We completed a major CEQP goal in 2014 with the sale of Tres Palacios to a new joint venture between Crestwood Midstream and Brookfield infrastructure. The deal greatly improves cash flow profile and long term outlook for the business. Tres may have turned the corner with the Brookfield deal. We’ve gone from about 20% contracted in 2014 to about 70% contracted with firm storage services through 2015 and ended 2016 with a lot of new third-party deals recently at rates higher than what we experienced in 2014. So the market is definitely beginning to think of Tres as a key storage asset as LNG gets closer in the Mexican gas market begins to take more gas from South Texas suppliers. Additionally, we think Brookfield is going to be a very good partner for us as we’ve already bid on a couple of deals with them, and I think the joint venture has a lot of growth potential not only around Tres but in some other areas as well. All these key assets will make important contributions to our 2015 results that Robert will layout for you in a few minutes. The last three things that I want to talk about are distributions, cost reductions in Quicksilver. As you remember in the first part of 2014 we shifted our strategy to maintain current distribution levels to drive further financial strength across the partnership. We’ve taken a significant step forward over the past year and achieving those objectives with fourth quarter 2014 coverage ratio at CMLP coming in at 1.05 times and our average ratio at 4.5 times, that’s compared to 0.82 times in the first quarter of 2014 and 5.1 times leverage at the end of last year when we started down this strategic path. So given the challenging operating environment that our industry is facing, we’re going to continue the strategy in 2015 of holding distributions flat to focus on building financial strength and sustainability for the long term. On that note, as I said, we’re going to hold distributions flat and continue the trend of materially deleveraging our balance sheet and substantially improving our coverage ratios at both CMLP and CEQP. This is strategy that we think is best for investors over the long term and we have a lot of confidence in our 2015 budget, so we feel very confident about our 2015 distributions and our growth potential in 2016 when drilling and development gets back to normal on our systems. Another important part of our 2015 strategy is to align our operating cost to match our customer requirements in the current market environment. No doubt we built a company for growth in 2014, but we have an extensive organizational realignment underway to right-size Crestwood for the next couple of years. This is a company-wide cross functional effort that will result in a reduction in workforce with targeted cost savings in the $25 to $30 million range, but importantly we will not sacrifice safety, compliance or customer service in this process. We’ll simply right-size the company to the current market environment that we’re operating in. And finally, a note on a Quicksilver, they’ve announced last week that they’re not going to make an interest payment and have about 30 days to work that out with creditors. We followed with the press release that indicated where we stand legally in this matter as a critical vendor in the unlikely case that the contracts can be rejected or voided and spelling out our rights in both pre-bankruptcy and post-bankruptcy payments for services. We are critical vendor to Quicksilver and their partners Tokyo Gas and ENI. We have been working with them four months and hope that they are successful and restructuring their balance sheet. We have been getting paid from – we have been getting paid – they have being paying their invoices from us on a very timely basis and we have no amounts outstanding right now other than for February services which have not been build yet. Our net exposure to Quicksilver’s working interest in the production is down to about $6 million a month. We have discounted our volume and revenue forecast in 2015 to take this situation into account. And as we learn more about Quicksilver and their creditors and how they’re going to work this out, we’ll let you know. But clearly we feel like we’re in very good shape legally to continue to provide services to the producers and the creditors and get paid on a timely basis under the existing contracts. And with those highlights I’ll turn it over to Mike Campbell, who will give details on the fourth quarter and the full year 2014 and then he’ll turn it over to Robert for the 2015 outlook. Mike?

[Mike Campbell:]

Thanks Bob. As a reminder to the listeners earlier this morning we distributed two separate press releases, one for Crestwood Midstream Partners or CMLP and a separate release for Crestwood Equity Partners or CEQP. I’ll first discuss the results for CMLP and then provide some summary remarks on CEQP. At CMLP in the fourth quarter, adjusted EBITDA totaled $118 million, a 29% increase over the fourth quarter of 2013. Fourth quarter 2014 distributable cash flow at CMLP totaled $89 million representing a 39% increase from the prior year quarter. And as Bob spoke to you, our coverage ratio for the fourth quarter was 1.05 times. Our adjusted EBITDA and DCF growth year-over-year reflects contribution of the Arrow acquisition completed in the fourth quarter of 2013 and capital project completed in 2014 which drew increased volumes across our business segments. In our gathering and processing segment we increased fourth quarter gathering volumes to 1.3 billion cubic feet a day, a 15% increase over the last year driven primarily by growth in the Marcellus and the Niobrara systems. Compression volumes in the fourth quarter increased to 658 million cubic feet a day or 89% last year due to installation of six new compressor stations in our Marcellus system, while processing volumes were down slightly from last year primarily attributable to lower activity in the wet gas corridor of the Barnett. In our storage and transportation segment firm volume increase to 1.6 billion cubic feet a day or 17% increase over last year primarily the results of better transportation volume. And our Northeast Storage asset as Bob spoke to remain largely fully contracted under long term fixed-fee contract structures. In the Bakken, we’ve increased total crude handle by the company in the fourth quarter to 207,000 barrels a day or 49% increase over 2013. This increase is driven by a 31% volume growth at the COLT Hub and 39% volume growth on the Arrow systems and the acquisition of our crude transportation business in 2014. As of December 31, CMLP had $555 million drawn on a $1 billion revolving credit facility and debt to adjusted EBITDA ratio is defined in our in our credit facility was right at 4.5 times. As of December 31, CMLP’s liquidity position consisted of $430 million of undrawn capacity under our revolver, $60 million of remaining equity commitment under the Class A preferred agreement and an effective registration statement for the sales of up to 300 million common unites under our at-the-market equity offering program. To-date, the ATM program has not been utilized. Now moving on to CEQP, in the fourth quarter consolidate adjusted EBITDA totaled $133 million, a 20% increased over the fourth quarter of 2013 and on a standalone basis fourth quarter adjusted EBITDA for the operating assets that reside at CEQP was $15 million. Distributable cash flow attributable to CEQP totaled $19 million in the fourth quarter of 2014, a slight decrease from the same quarter of 2013, the result of lower adjusted EBITDA primarily from Tres Palacios prior to the fourth quarter drop down as Bob alluded to earlier. It also decreased due to higher interest expense and maintenance capital. The distribution coverage ratio for the fourth quarter was 0.7 times and as of December 31, CEQP had approximately $369 million drawn on its $495 million revolving credit facility. CEQP’s debt to adjusted EBITDA ratio as defined in the credit facility was 4.0 times. The undrawn capacity under the revolver at December 31 was approximately $69 million. And with that very quick summary overview of the quarter results, I’m going now turn the call over to Robert Halpin to provide a detail review of our 2015 outlook. Robert?

[Robert Halpin:]

Thanks, Mike and good morning to everyone. While I’m going to keep my commentary relatively brief today, so that we can allow adequate time for Q&A. I would encourage investors to review the two press releases and presentation both Mike and Bob mentioned that we posted to our websites this morning. In 2015, we expected adjusted EBITDA for CMLP to be in the range of $480 million to $510 million, representing a 12% increase from 2014 actual results to the midpoint of our range. Our outlook for 2015 is based on the latest feedback from all of our customers across our multiple operating regions and fully incorporates the impact of the current pricing environment for crude oil, natural gas and natural gas liquids. Growth in 2015 EBITDA will be driven primarily by our operating footprints in the Bakken shale, in the Powder River Basin Niobrara shale and due to the cost-cutting initiative that Bob discussed earlier. In the Bakken shale we continue to see substantial producer development activity on the acreage dedicated to our Arrow system driving estimated cash flow growth in 2015 of approximately 26% over 2014 actual results. At the COLT Hub we completed our 40,000 barrel a day expansion project in 2014 and we’ll experience the full year impact of that project in 2015 through both incremental firm contracted loading volumes as well increasing estimated utilization of our facility from our West Coast and East Coast refinery customers. Moving to the Powder River Basin Niobrara, as Bob mentioned, Crestwood and Williams recently completed the 120 million a day, Bucking Horse processing plant and the joint venture expect significant increase in EBITDA as Chesapeake works to fill out available capacity over the course of 2015. And finally, as Bob mentioned in response to the commodity price volatility that our industry is currently facing, we are aggressively working through a partners wide cost reduction initiative and expect to capture $25 million to $30 million of run rate savings by the end of the second quarter of 2015, $15 million of which we estimate will be realized in calendar year 2015. Distributable cash flow is expected to be in the range of $335 million to $365 million representing a 7% increase from 2014 actuals to the midpoint of our range. Growth capital expenditures in 2015 are expected to be in $115 million to a $125 million range and maintenance capital expenditures will be between $22 million and $25 million. Forecasted capital spending in 2015 solely includes contracted expansion projects around our existing asset footprint, specifically on our Arrow systems in the Bakken shale, expansion of the Jackalope system in the Powder River Basin Niobrara as well as ongoing transportation expansion projects in our Northeast Marcellus footprint. At CMLP, we have $60 million remaining on our Class A preferred equity commitment and anticipate drawing upon that commitment prior to September 30, 2015. With the preferred equity commitment and approximately $430 million of undrawn capacity under our revolving credit facility as of December 31, 2014, we maintain more than ample liquidity to fully finance our capital requirements for 2015 without capital markets activity. That said, we will continue to monitor the debt capital markets for potentially attractive opportunities to term out existing revolver borrowings and optimize our current CMLP debt capital structure. Consistent with our stated strategy of building financial strength in 2015, we expect CMLP to exist the year with the leverage ratio of approximately 4.2 times based on the midpoint of guidance range as calculated under our credit agreement. Now turning to CEQP, we expect 2015 consolidated adjusted EBITDA to be in the range of $540 million to $575 million, representing a 12% increased from 2014 actual results to the midpoint of our range. CEQP standalone adjusted EBITDA is expected to be between $60 million and $65 million representing a 17% increase relative to 2014 actual results. CEQP distributable cash flow is expected to be in the range of $80 million to $85 million representing an 18% increase from 2014 actuals. Growth and distributable cash flow at CEQP is primarily attributable to continued year-over-year growth in the NGL supply and logistics business. CEQP’s portion of the 2015 targeted cost reductions across the partnership and the full year 2015 impact of the recent sale of Tres Palacios to the joint venture between Brookfield and CMLP. In closing, we believe our 2015 outlook represents a conservative view of our expected performance in light of the commodity market volatility our industry is facing. While we know commodity prices are cyclical and we will see increases in crude oil, natural gas and natural gas liquid prices driving significant growth potentials to our portfolio over time. We will continue to manage our business in 2015 as though we will be operating in a $50 per barrel and a $3 per Mcf environment for the long term. As such our primarily objectives in 2015 will be to maintain our current cash distribution levels and drive further improvements to coverage ratio and balance sheet strength. With our diversified assets positioned in the premier shale plays in the United States. Our contract portfolio that provides significant downside protection through fixed fee, minimum volume commitments, cost to service arrangement and take-or-pay arrangements, we believe that we’re well positioned to deliver on these stated objectives. With that, I’ll now turn the call over to questions and answers.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of Gabe Moreen with Bank of America Merrill Lynch. Please proceed with your questions.

[Gabe Moreen:]

Hey, good morning everyone. Questions on the guidance and I guess, the run rate for the NGL and crude services assets, known specifically at CEQP, correct me if I'm wrong, but it looks like you may be guiding to down year-on-year in there to the standalone NGL assets at CEQP. And I'm just wondering why. And the second part of that question has to do with whether that $60 million to $65 million is a good run rate to think about for those assets going forward?

[Robert Phillips:]

Gabe, thanks for the question. Let me just make a quick comment and then turn it over to Robert. I want to remind everybody in the CEQP press release that we went to great lengths to give a pretty extensive updated description of that business. And what we stopped short of was a lot of strategies that we have ongoing in 2014 and 2015 relative to continued growth in natural liquids in the Marcellus and Utica play. That’s really our backyard. It’s where lot of our assets are concentrated. It’s where all of our growth potential business is focused right now. Bill and his team have done a really good job of not only expanding our supply access at the new processing plants and fractionators has been build there in the Marcellus Utica, but also extending downstream to wide range of different markets that are very complementary to the long term markets that we have served there, retail propane and refiners and Petchems [ph] on the East Coast. So really feel like the business has had very good last year. It is set up to have a very good 2015. And with that, I’ll turn it over to Robert to talk about the difference between 2014 actuals and 2015 forecast.

[Robert Halpin:]

Yes. Thanks Bob. And Gabe, to your question around the NGL business they were really two parts to that. The first is the guidance in 2015 and the second part being the long term outlook for the NGL business. And the commentary I would give and I may ask [indiscernible] little bit pertaining to the accounting results. But in the press release disclosures we gave for full year 2014 CEQP business, the $75 million does not include adjustments attributable to some of the derivative items elements. When you look at a comparable year-over-year forecast we’re actually expecting about $2 million to $3 million increase in the underlying performance of the NGL assets relative to 2014. I would also remind everyone that in 2014 in the first quarter we obviously had substantial opportunity for margin expansion around the polar vortex experiences part of that year. We think that despite the upside presented in the early part of 2014 the team is still able to deliver year-over-year growth in 2015 even with that outsize first quarter 2014 performance. And further to that, in terms of longer term forecast I think we’ve kind of guided this is being a, call it 10% year-over-year growth business. Obviously, there will be some cyclicality that that around opportunities like presented in the first quarter of 2014. But when we look out longer term with the scalability of this business, the team we have in place, the relationships we’ve developed with some of the producers particularly in the Utica Marcellus areas, we see a continued opportunity to drive that kind of 10% year-over-year growth across the business.

[Gabe Moreen:]

Great. Thanks Bob. Thanks Robert. I guess related to that, when you are thinking about the eventual drop down of that business to CMLP, it sounds like you guys are closer than ever to pulling the trigger on that. Can you just talk about thoughts around timing, funding? Is it dependent on cost of capital at CMLP? Just any color there would be helpful.

[Robert Phillips:]

Okay. Again, I’ll tag team with Robert since he and the finance team have been working with these special committees over the last few weeks to kind of start that process and get it up to speed. But I’ll also refer you to paragraph in my quote on the CMLP press release where we indicate that we’re continuing to explore a number of strategies across Crestwood equity and Crestwood Midstream that we think will position us for long term. One of those mentioned is a potential dropdown of the NGL business as well we’re evaluating and having discussions in ways that we might restructure all this to be able to show investors maybe stronger GP sponsorship and at the same time we continue to be actively involved in a number of acquisition, discussions going around the industry right now. All three of those are somewhat interrelated and no one of which is separate and standalone. So the process of evaluating the timing, the price and the consideration for a dropdown of that business from CEQP to CMLP will take a while as did Tres Palacios we worked on that for the better part of 2014 before when we finally got it done in the fourth quarter. So, we’re not in a real hurry to do it, but it is absolutely on our bucket list for 2015 to get that done. And if I haven’t confused you enough, let me tell you that it and specific answer to your question it does not necessarily depend upon the current cost of equity at CMLP. It is not dependent upon any particular performance levels of the NGL business itself. While we have not take that into our 2015 plan, and I want to be clear about that. The guidance that Robert rolled out does not include a potential significant acquisition for CMLP of that NGL business nor does the CEQP guidance include a potential debt restructuring associated with the sale of that business to CMLP. So, with that background those are the variables that we’re dealing with. Robert, do you want to comment further on that.

[Robert Halpin:]

Yes. I’ll expand just a little bit, Gabe. Obviously as we evaluate the opportunity and work with our special committees to kind of determine what we think fair value is, we’re not really at liberty to provide fair guidance around that at this point in time. But I would communicate consistent with some of the remarks we’ve made and I think consistent with some of the comments we’ve given to the numbers of our investors over time and on historical calls. At the end of the day CMLP and ongoing operating performance at CMLP remains most critical focus of the partnership. We fully understand the value of the GP IDRs and how that works relative to growth at CMLP. So, we stated in 2015, we have two primarily objectives and that is, continued building, improve strength both to the balance sheet and to the coverage ratio at CMLP. So what I would guide investors and you to is that any transaction that did take place between the partnerships in the form dropping down of those – dropdown of those assets or be a transaction that’s structured in a way that absolutely drives greater visibility to both balance sheet strength as well as distribution, growth profile at CMLP.

[Gabe Moreen:]

Got it. Thanks, guys. And then just last quick one for me is just the contract renewals on the storage in the Northeast segment. You talked about the success you had in recontracting. Can you talk about some of the rates at which you renewed those storage facilities at?

[Heath Deneke:]

Heath Deneke here. Yes. I think in large part are in line with these existing rates. The majority of our – virtually all of our stagecoach renewals were done at existing or slightly higher rates. Some of our Arlington contracts were not renewed at existing rates, there were some reduction, but overall majority I would say, were in line with previous rates.

[Gabe Moreen:]

Thanks.

[Operator:]

Our next question comes from the line of Michael Blum with Wells Fargo. Please proceed with your questions.

[Michael Blum:]

Hi. Good morning. Just one other question, I think Gabe covered a lot of it. Just in terms of the guidance and the 4.2 times debt to EBITDA target for year-end, does that assume any issuance under the ATM program? And if so, how should we think about how that proceeds through the year?

[Robert Halpin:]

Yes. Michael, this is Robert. As we alluded in my prepared remarks, just to give you a little more color. What we assumed in 2015 from a financing perspective in line with the capital requirements that we have, is that we will draw on the remaining $60 million of preferred equity commitments that we have outstanding, and that will take place in line with our capital requirements, but prior to September 30, 2015. And we do not anticipate nor do we have any in our plan, any utilization of the ATM program at this time. So the 4.2 times targeted leverage at year end incorporates to $60 million of preferred equity commitment as well as the midpoint of the EBITDA guidance range that we provided.

[Michael Blum:]

Okay, great.

[Robert Phillips:]

As to remind everybody we don’t have any acquisitions built into the 2015 plan. This is just base plan based on producer, development and drilling forecast that they provided us as well as cost reductions across our entire complex. So, we have no capital markets activity, no acquisition built into the plan at this point in time. That would all be upside potential for us.

[Michael Blum:]

Okay, great. Thanks you guys.

[Operator:]

[Operator Instructions] Our next question comes from the line of Brian Lasky of Morgan Stanley. Please proceed with your questions.

[Brian Lasky:]

Good morning. Robert, I'm just wondering if you can provide little bit more color on the volume trajectories that you expect out of Arrow and also the Northeast for 2015. Maybe just give us a little that of color 4Q over 4Q relative to your expectations year over year?

[Robert Halpin:]

Absolutely, Brian, I’ll focus on the Bakken and I would encourage you to if you look through the press release as well as the presentation materials that we provided. I think we’ve got a significant level of details specifically at Arrow and what are expectations are year-over-year. But I think in the Bakken specifically give a little commentary on the producer profile and producer development activity and in the corresponding volumes that we expect. And I think what you’ll see is relative to where we are today, we’ve got a pretty significant amount of conservatism we believe built into the plan for the 2015 time frame. So, with all of our producers and as we mentioned in the remarks we have received final and formal feedback from everyone of our operators in the Bakken. And what we have reflected in this plan is the development activity, communication they provided to us. If you’ll recall we have a pretty significant amount of visibility to development plans around these contracts with Exhibit B structures that we have in place where our producers provide for us. They expected well connects and actually fund capital for those well connects in advance. So lot of visibility into the 2015 plan, but specifically as we mentioned in the remark – in the press release over the course of 2015 we expect gas – sorry, crude gathering volumes in the 60,000 to 65,000 barrel a day range, expect gas gathering volume into 40 million to 45 million cubic feet a day range, and expect water gathering volumes in the 20,000 to 25,000 barrel a day range. If you think at where we are from a spot perspective today we’re right on top of those numbers. So I think that clearly when we think about the well connect equity next year, I think that speak somewhat to the conservatism we think is baked in and we’ve applied some risking factors to our producer forecasting and the volume as they expect. We also disclose that on annual basis based upon net volume expectation we anticipate a range of kind of asset level cash flow into $75 million to $80 million range for Arrow specifically.

[Brian Lasky:]

Perfect. And then, Bob, I was wondering maybe if you could just speak a little bit more on your thoughts around what structure could look like around enhancing your GP sponsorship. I'm sure there’s some sensitivity around that and there’s a lot of moving parts there, but maybe just provide a little more color on how you guys are thinking about structuring a potential transaction?

[Robert Phillips:]

Yes. Brian, we talked about this when you were – when you had your group down here. And so we’ve been pretty open about the concept of first reserve our current GP sponsor working with us to try to bring additional capital into the GP structure so that we can have more Arrows in our quiver so to speak. First Reserve has been a great partner. But given the fund that we were originally placed back in 2010 when we started Crestwood, they have not able to provide a lot of additional capital. They’ve provided a lot of strategic and capital market support, but have not been able invest directly in the acquisition or development of assets like some of our competitors have to warehouse those assets at the GP level and create the dropdown structure that investors or so fond of in this market. So certainly First Reserve has recognized that we’ve fallen behind in that regard. They’ve been working with us over the last several months to come up with a plan that would allow us to look into the market and see if there’s not additional potential sponsors that would like to co-sponsor this organization over the next cycle which is probably a couple of years and an important one where we are going to see deal prices come down substantially just like we did back in 2008, 2009 after the Lehman bankruptcy, so we are trying to set ourselves up and position Crestwood to be an acquirer over the next year or two at these much lower prices than the industry experienced in 2013 and 2014 and to do that we think we need some help at the GP sponsor level. So there’s a lot of different structures that we’ve talked about publicly and that anyone can conjure up and there’s certainly been some very successful structures in our peer group over the last several years where GP sponsors have come in, made investments, moved to the side and had additional GP sponsorship come in additional capital, a very strong co-sponsorship for a period of time, transitioning to allowing the first guy out and the second guy to take over. We think Crestwood is a classic opportunity for that type of restructuring if you will of the sponsorship. In any event it will give visibility to grow but I think our investors so desperately wants, it’s pretty obvious in the way that they price this stock right now that investors don’t see the growth potential of this stock, so we think bringing in a co-sponsor might give some visibility to that particularly at a time where will more and I’ll think we are going to see some real opportunities in the market over the next 12 to 24 months. That’s about all the color I can give you Brian. We are continually in discussions with different parties and we think that there is real opportunity to do something here in 2015 and hope that we can get that done and it might have an opportunity to rewrite the stock.

[Brian Lasky:]

And finally if I could, just real quickly on the coverage, how are you guys thinking you got fairly, clearly you are looking to build coverage to your near-term and then also to work on the balance sheet. So how do you guys kind of think about levels at which you dealer contemplate potentially increasing the distribution modestly or you continue to build a coverage and focus more on paying down debt, how do you guys kind of think about your longer term coverage and where you want to get that before you start considering either increasing the distribution growth rate or paying down leverage, how do you guys kind of think about that balance?

[Robert Phillips:]

Yes, absolutely Brian I’ll try to get some color around that. So as we’ve discussed our current plans in 2015 are to maintain current distributions I mean of $1.64 at CMLP to further improve coverage in line with what we’ve done over the last three sequential quarters through the balance of 2015 as well as to continue strengthening the balance sheet. We’ve talked more long term around coverage targets in the 1.05 to 1.1 times range and leverage targets at 4 times or below. I think those objectives still stay out there. The other commentary I would give is we review our targeted distribution and policies around that with our board of directors every quarter and clearly our focus here is managing for sustainability and distribution increases and coverage for the longer term once increases are resumed. And so as a part of that ongoing evaluation we consider all of the relevant factors including the dilutive impact of the Class A pick units that we issued back in mid year 2014. The long term coverage ratio targets that I alluded to as well as the near term capital requirements and capital project timing and the corresponding cash flow growth around that, so longer term I think 105 to 11 on a cash pay basis is where we get comfortable and I think we’ll always keep in mind as we work out with the Series A preferred units, baking in adequate coverage in preparation for that in the 2017 timeframe.

[Mike Campbell:]

Brian, one follow up comment from me and that is management and the board are laser focused on this issue. We stabilize the business in 2014, 2015 was going to be a year that we were going to get back to increasing distributions again, somebody decided to cut the price overall to $50 and gas below $3 and so that has slowed down our progress for 2015, but undeniably we are laser focused on giving leverage coverage improvement at CEQP. And building coverage ratio in DCF at CMLP to cover the pick preferred as quickly as possible. We think we have a plan to do that, part of the strategy that we talked about in terms of the drop down of the NGL business and possible co-sponsorship and additional investment or restructuring could potentially have a big impact and get us there faster, but I just want you and the investors to know that management and board are laser focused on getting that coverage ratio gap narrowed, covered and then get back to increasing distributions again. We are building a company for the long term here. And so we felt like last year was the right time to focus on quality of earnings as opposed to absolute distribution growth. And therefore we made a hard decision that we did to hold distributions flat, but for this big correction in commodity prices we wouldn’t be holding distributions flat in ’15 we would be increasing distributions that was our plan but unfortunately we are going to have to continue to hold flat for another few quarters but Robert’s right, our board takes a hard look at this every quarter and so we will analyze, forecast, evaluate and continue to be conservative in terms of carrying out distribution and coverage ratio and leverage ratio policy. So hope that gives investors a pretty clear view as to where we are coming from on this issue.

[Brian Lasky:]

Thanks, Bob and Robert.

[Operator:]

Our next question comes from the line of Robert Balsamo with UBS. Please proceed with your question.

[Robert Balsamo:]

How are doing guys? I just have a quick question on Powder River Basin. You mentioned some volumes coming back from third parties onto those assets. Can you just elaborate a little bit on that production, the rich gas production being redirected? Where it is coming from, if you are getting any fees on that now, how that impacts?

[Heath Deneke:]

Yes, this is Heath Deneke. So basically this is up until and service date of our Bucking Horse plant our gathering system was really feeding into a third party processing facility. They had about 60 million a day of capacity for our producers and with the commissioning and placing in service of our plant we believe the majority of that gas, if not all of that gas is going to get re-routed and will now be processed to our Bucking Horse facility. So I think that’s in large part, the reference we were referring to there.

[Robert Balsamo:]

Okay, great. The rest of my questions were answered. Thank you very much.

[Operator:]

We have reached the end of the question and answer session. I would now like to turn the floor back over to management for closing comments.

[Robert Phillips:]

Thanks, operator and thanks to all of you analysts and investors that have joined us on the call. This is a pretty important time for us in the one year beginning of the next. We’ve worked hard on our budget, it’s a very conservative budget and includes all the elements of what we invested in the last year plus the rightsizing of the company for the market that we’re operating in 2015 with a healthy dose of our conservative philosophy towards improving quality of earnings, holding distributions, continuing to build coverage ratio and improve our balance sheet to lower leverage. So I think we’re in very good position in 2014 to perform, to hit our guidance and to deliver for our investors anything better than that’s upside potential for us, our prices and acquisition opportunity, the impact of the drop down or restructuring or potential co-sponsorship at the CEQP level all of that would be upside potential for Crestwood and the Crestwood investors. So with that, thanks again for joining us on the call. We look forward to talking to you after our first quarter announcement.

[Operator:]

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.