Crestwood Equity Partners LP
Q2 2015 Earnings Call Transcript

Published: 5 Aug 2015

[Operator:]

Good morning, and welcome to this morning's joint conference call to discuss Crestwood Equity Partners and Crestwood Midstream Partners’ Second Quarter 2015 Financial and operating results. Before we begin the call, listeners are reminded that the company may make certain forward-looking statements as defined in the Securities and Exchange Act of 1934, and are 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 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 by both companies. Joining us this morning with prepared remarks is Chairman, President and Chief Executive Officer, Bob Phillips and Senior Vice President and Chief Financial Officer, Robert Halpin. After the speakers' remarks, there will be a question-and-answer session with Crestwood's current analysts. Today's call is being recorded. At this time, I would turn the call over to Bob Phillips.

[Robert G. Phillips:]

Thank you, operator and good morning, thanks to all of you for joining us on this call. I’m going to give a brief overview of where we are at Crestwood right now really just touch on three strategic points and then turn it over to Robert to review the details of the quarter. Point Number 1. First, we are very pleased with our second quarter performance particularly given the significant challenges facing the industry right now. As you can tell from our results, we have been laser focused on cost savings since the first of the year and very pleased to report the second quarter came in with about $20 million of consolidated cost savings compared to our fourth quarter 2014 run rate. This is a huge accomplishment and I want to congratulate all of our dedicated employees both in the office and in the field for this achievement. These are particularly broad cost savings they are largely fixed cost savings some small variable cost savings, but we consider these to be largely permanent cost savings. Their improvements across all of operating areas some dating back to initiatives that we started several quarters ago. We had streamlining in the back half as you recall that we announced a realignment of our commercial and business development organization in the operating teams. All of this contributed to these cost savings. We’ve also had aggressive supply chain activities pushing back on our vendors to become more competitive, all of these contributed to this great achievement. On that basis, I’m very conformable that Crestwood will exceed the $15 million estimated cost savings for the full-year $25 million and the $25 million to $30 million run rate savings that we predicted after the completion of our project adapted on March 30, 2015. And importantly we are getting these costs savings while maintaining our operating efficiency, we had very run times throughout the quarter and very important to Crestwood we’re meeting our safety and our compliance goals at this same time. Point Number 2. Secondly, we are beginning to see some very solid commercial activity and starting to pick away at some bolton growth projects, new customers, positive contract renewals around our existing assets. Let me highlight six areas for you. Number one, COLT Hub in the Bakken. We added new refinery customers; we had an important contract extension. Our West Coast customers during the quarter were impacted by fires and strikes are east cost customers were impacted by narrow WTI to spreads, but we had very consistent performance throughout the first and second quarters of this year. Importantly just within the last week we had record loading of over 200,000 barrels a day, very proud of the accomplishments of our crude-by-rail loading team up at the COLT Hub. They continue to perform well operationally. From a macro economic standpoint, I know you are interested in our view of the Bakken crude-by-rail volumes continue to go strongly to both coast. Refineries on both coast have made the Bakken barrel and important part of their overall feed slide, those volumes compared to pipeline volumes have remaind relatively flat since June of last year that’s an important feature of the business. We’re still moving as an industry 550,000 to 600,000 barrels a day out of about 1.2 million barrels a day of production. So crude-by- rail continues to move at least 50% of Bakken production to the market and as you know COLT continues to be the leader in crude-by-rail flat volume in the Bakken play. So we are very pleased with our competitive position there, had a good quarter, we’re starting to see contract renewals that are positiv,e new customers coming to COLT Hub for their supplies that’s all positive going forward. Number two, Arrow also in the Bakken. Signed up new producers and new storage customers finally finished our 200,000 new storage facility at the COLT CDP that’s supported by a long-term contract, which is Arrow, and we added a new refinery customer to that storage business there. Beginning to see Bakken, producers migrate from fringe areas to top acreage in the Bakken as we had predicted a couple of quarter ago. Statistically 94% of the rigs now running in North Dakota are running in four counties Dunn, McKenzie, which is where the Fort Berthold Indian Reservation is and where our Arrow gathering system is located in Williams county where our COLT Hub is located. So our assets are located in the hot spot in the Bakken that’s where producers have gone to at lower prices to continue to develop Bakken production. New estimates of breakeven prices have recently come out; suggesting that in those areas, those four counties Bakken producers can produce economically between $24 and $41 per barrel. So again, we are in the right place to have continued development activity. Our producers drilling and completion cost are coming down as our others in the Bakken. EURs are improved, RP rates are higher both WPX and Houcon our most aggressive producers during the last six months and over the next six months both had great announcements recently indicating their success of drilling on our system. I want to commend our operations team at Arrow as operating expenses are down over 30% since the first quarter of 2015 and even more since our operating expenses peaked back in the third quarter of 2014. Our volumes are good, they are solid, oil was flat, gas and water both up I’m now pleased to say we are capturing more than 90% of the gas being produced on the reservation that is a very important statistic for gas capture. Number three, the Delaware Permian area not an area that might have big contribution to our second quarter but is beginning to become what we think is material development area for us, we signed up five new producers around our Willow Lake facility earlier in the year as Wolfcamp and Bone Spring to development moves into this area, we have been waiting for several years for this. It is driving plans to potentially add a $30 million a day processing plant, expand our gathering system and expand our takeaway capacity as producers are beginning to drill more and more wells in our area and we’re also working on the potential underwriting of the relocation of $100 million a day processing plant that we own over in the Barnett Shale that we would move out to Eddy County in New Mexico. So we’re excited about the potential of that area over the next several quarters. Number four, Antero, operating expense is down 30% since the fourth quarter of 2014, Antero Resources Public announcement confirms they will be completing the 22 drilled but uncompleted wells on our system in 2016 that should boost volumes back up to the level that we've seen over the past year or so. If you look at netbacks in that region going forward, we also see the potential for future dry gas development as NGLs continue to lose some value at the well head and economics are changing for producers in that region. So we’re very optimistic about our Arrow gathering system over the second half of this year as it bottoms out and into 2016 as volumes increase again. Number five, storage and transportation both in the North East as well as Tres Palacios we have added new shippers and capacity expansions on the Mark 1 and North South Pipelines, steady progress on Mark 2 which would tie into Penn East, our North East gas storage is 99% contracted. Tres Palacios had a really good quarter over 90% subscribed for the second half of 2015, we have brought in new customers, the market is tightening up as Eagle Ford supply declines and we get higher demand out of the Gulf Coast market. We are seeing improving storage in hub services and we had a three times increase in year-over-year volumes in the second quarter on our pipeline system there at Tres owing to the introduction of customers on Kinder’s Copano processing plant to the broader market that they can access through Tres, we are very pleased with that. Over the long term, Tres continues to be well positioned to serve Freeport LNG still on schedule to be interconnected via Boardwalk late in 2016. So we have upside potential there as we discuss storage services with Freeport LNG suppliers and shippers. And finally, our NGL business had a really good quarter in the second quarter despite relatively historic and somewhat extreme volatility during the quarter particularly for propane and butane. We've seen increased NGL supplies from the Marcellus Utica region, which is where we are one of the leading marketers in that area that matches up well with the long-term transportation position we took out on [indiscernible] which should come in service in 2016. So we've got long-term growth built into that business. In the near-term our propane and butane business has set up very well for a strong winter market as we have been able to acquire supplies at some of the lowest cost that we've seen in the last few stores in store into our approximately 2.4 million barrels of NGL storage that we have under contract both owned as well as third-party. So the NGL business sets up well for the third quarter. Each of these items that I mentioned on six of our key assets businesses should bear significant fruit to us in the quarters ahead. Third point we are making very good progress on simplification merger, we expect to close it in the third quarter. We have no hiccups or have had no hiccups along the way and we are very much on track for our timeline. Notwithstanding the poor unit, performance that we have seen we still remind very committed to the margin. It’s clear that our industry is consolidating that size does matter as competition increases in all areas along the midstream value chain. We still believe in our strategies diversified asset base fixed fee contract model. We still believe our assets and operations are located in the right shale plays and basins for a long-term growth. The simplification merger is going to be a very important step to improve our competitiveness. This is a market where exceptional customer service and low-cost safe operations will create comparative advantages and opportunities for growth and so we are positioning Crestwood with there, we think the merger will lead to more cost savings for Crestwood a lower long-term weighted average cost of capital and more strategic options for us. Our controlling shareholder first service have been very supportive of merger strategy and is helping us finance new project opportunities as they arise I thought it was important to point out to the new support that were getting from them particularly at this time when we know our cost of equity capital is not comparative and so first reserve is stepping into the breach and will help us until our equity capital improves. And all that note let me say again that was very disappointed in the way the units have responded since the merger was announced on May 05, I don’t feel like were being picked on particularly there’s been a lot of good consolidation transactions that have not faired well after announcement. We are particularly concerned that our current unit prices do not reflect the fundamentals of our key assets in our businesses; they don’t reflect the quality of the cash flow that’s being generated from Crestwood’s assets. They certainly don’t reflect the extended period of improving performance that we’ve shown over the past six quarters with increases in EBITDA, DCF coverage ratio and leverage improvement. And we don’t think that they reflect a long-term growth potential in the regions that we operate in or the benefits of the simplification merger. So to our investors we appreciate your continued support we hope that the second quarter results will be recognized as another very important positive step in the process to build long-term value at Crestwood. We think the merger will be another important step in the third quarter. And finally, achieving our 2015 adjusted EBITDA guidance in the range of $540 million to $575 million and delivering post merger distribution coverage of about 1.05 times by fiscal year in 2015 will be yet another step and another indicator of value creation at Crestwood as we move into 2016. And without overview, I will turn it over to Robert Halpin our CFO to discuss our second quarter financial and operating results. Robert?

[Robert T. Halpin:]

Thanks Bob, and thanks again to everyone on the call for us joining this morning. In the second quarter of 2015, Crestwood delivered another strong quarter of financial and operating results despite continued challenging market conditions. I will first discussed the results for CMLP and then provide a summary some of remarks for CEQP. At CMLP, second quarter adjusted EBITDA totaled $125 million a 14% increase over the second quarter of 2014. Distributable cash flow totaled $97 million representing a 19% increase over the second quarter of 2014. Distribution coverage for the quarter improved to 1.09 times or 0.97 times on a 100% cash pay basis including the Class A preferred units. Our adjusted EBITDA in DCF growth year-over-year demonstrates the strong execution from operating and commercial teams to capture substantial cost reductions and improve our margins. In our gathering and processing segment, segment EBITDA exclusive of a non-cash goodwill impairment totaled $48.5 million in the second quarter a 9% increase compared to $44.5 million in the second quarter of 2014. During the second quarter of 2015 average natural gas gathering volumes were 1.16 bcf per day a 5% decrease from the second quarter of 2014. Processing volumes increased 13% to 216 million cubic feet per day and compression volume increased 34% over the second quarter of 2014 to 629 million cubic feet per day. Despite slightly slower gathering through put year-over-year segment EBITDA was positively impacted by a 3% year-over-year decrease in operating expenses and higher Marcellus, Antero and PRB Niobrara contributions. Now turning to our storage and transportation segment, segment EBITDA totaled $37.1 million in the second quarter of 2015, compared to $37.8 million in the second quarter 2014. Segment volumes averaged 2.2 Bcf/d for the quarter, a 21% increase over the second quarter 2014, due primarily to Northeast pipeline expansion projects completed in the fourth quarter 2014, as well as a full-quarter contribution from the Tres Palacios joint venture. Segment EBITDA increased 1% during the first six months of 2015 compared to 2014 but declined 2% from the second quarter 2014 as a result of lower revenues from interruptible services driven by Crestwood’s continued shift in strategy towards firm transportation services over the last 12 months. In our NGL and Crude Services segment, segment EBITDA excluding of non-cash goodwill impairment totaled $49 million in the second quarter 2015 representing a 41% increase compared to $34.7 million in the second quarter of 2014. Segment EBITDA growth was driven by increased volumes on the aero gathering system and facility expansions supported by take or pay contracts at the COLT Hub. In the second quarter 2015, Arrow crude gas and water volumes increased 2%, 41% and 33% respectively from the second quarter of 2014. COLT Hub rail loadings were up 10% from the second quarter of 2014. Crestwood achieved substantial cost savings associated with our Bakken operations lower operating expenses by 37% and 19% for Arrow and CULT respectively compared to the first quarter of 2015. Now moving to the balance sheet at CMLP, as of June 30, CMLP had approximately 2.2 billion of debt outstanding, including $1.8 billion of fixed rate senior notes. And $358 million outstanding under our $1 billion revolving credit facility. In conjunction with the simplification merger Crestwood midstream intends to upsize its revolving credit facility to $1.5 billion the proceeds of which will be used to retire Crestwood equities revolving credit facility and fund the combined partnership’s ongoing operations/. In July 2015, Crestwood midstream received final lender commitments for the $1.5 billion credit facility and subject to customary closing conditions, the facility will close concurrent with the closing of the simplification merger. Now moving to CEQP. CEQP's second quarter consolidated adjusted EBITDA totaled $133 million, a 13% increase over the second quarter of 2014. CEQP’s standalone operating assets generated $7.7 million of EBITDA in the second quarter 2015 compared to $8 million in the second quarter of 2014. Second quarter 2015 segment EBITDA was slightly below second quarter 2014 primarily due to [indiscernible] events with West Coast refining customers offset by a higher performance from the NGL supply and terminals business. Looking forward into the second half of 2015, as Bob mentioned we remained very optimistic about the prospects for the NGL business due to the combination of significant NGLs supply growth and lower crude oil prices, the price of NGLs have continued to move lower which has created an opportunity for our NGL supply and logistics business to build seasonal storage inventory at favorable prices and lock in fixed oversales during the winder peak demand season that should translate into improving segment margins in the fourth quarter 2015 and first quarter 2016. Now the CEQP’s balance sheet, as of June 30, CEQP had $341 million outstanding under it’s revolving credit facility and as previously mentioned this will be refinanced under the new $1.5 billion revolver concurrent with the closing of the simplification merger. Before opening the line up for questions, I did want to follow-up on Bob’s introductory commentary around year-to-date performance and where we go from here. For the first half 2015, our team has largely delivered on its financial, commercial and operational objectives from a financial standpoint we have meaningfully grown year-over-year EBITDA and DCF for materially improving our coverage ratio and decreasing our coverage ratio and decreasing our leverage ratio. We have done so largely through financial discipline and aggressive cost cutting efforts to materially improve our profit margins. As such, we remain on track to the level on our 2015 guidance despite industry headwinds stemming from commodity price volatility. As for next steps, we remain committed to the simplification strategy. Crestwood is located in the right basins and shale plays to develop new growth projects and we are doing what we can to ensure we are positioned to capture our share of those opportunities. Through the simplification transaction we are actively positioning Crestwood to be more competitive and continued execution through the remainder of 2015 and 2016 remains our core focus to get back on track towards building unit order value. With that, I will now open the question up, Operator for open the line up for questions.

[Operator:]

[Operator Instructions] And our first question comes from the line of Gabe Moreen with Bank of America. Please proceed with your questions.

[Gabe Moreen:]

Hi good morning everyone. Questions on the Antero incentive tariffs I think mechanism that has been put in place I guess two fold question, one does that have any impact on 2Q volumes and I am just wondering if there is more color in terms of how that structured in terms of does when does it kick in about what level of volumes and maybe if you can talk about sort of what pricing level on that gas as well?

[Robert T. Halpin:]

Gabe, I am going to let Heath Deneke, our Chief Operating Officer answer that question and I think it raises the broader issue for us and that is when this dry gas in that area become economic to begin to drill vis-à-vis the lower netbacks that are getting for rich gas right now, so Heath wants you to touch on the agreement and then talk about how optimistic we are about future dry gas development in that area.

[Heath Deneke:]

Yes thanks first I mean, I think the incentive fee is really a win, win between us and Antero, I think it sort of reflective of our continued strong relationship that we have in place. It is intended to be a it is a month to month contract, we put it in place late in the second quarter, so really didn’t have a lot of impact on 2Q volumes but it certainly has helped us have higher flows in what we have otherwise would have had during the third quarter. So we are very pleased that it is in fact and is working as designed. We expect it to be a kind of a short term bridge, it really is in place to get us through this summer time during the period of low demand, I think as we get into the winter when local demand is stronger and in particular when the New Stone Wall regional pipeline is in place we think the need for such an incentive fee will largely go away. So as it relates to your specific question on the second quarter volumes I would say there is it did have some impact, in other words keeping higher volumes on the what it otherwise would have it is probably maybe too detail to get into the exact pricing mechanisms, so I won’t go into that direction. But what I will tell you is it, it only applies to a portion of our volumes that somewhat captive to local market sales. So it is not across our entire volume portfolio and we retain, largely retain majority of our margins in the discounted fee structure. And I do want to comment just a bit on what Bob alluded to, when you look at current frac spreads in the Northeast there is certainly in some cases looking at the value of the MMBTUs and the gas stream relative to the NGL stream it certainly does start to get us excited about the prospects of returning to the dry gas areas of our eastern area of dedication in that region and so I think it kind of goes hand in hand as we start to see more gas takeaway, improvement in local gas prices in that basin, we think that spread would only intensify which we think in long term is a good thing for us.

[Gabe Moreen:]

Thanks Heath. And then I guess another question from me in terms of preliminary shorts and I don’t know if you give any around what 2016 growth CapEx might be across gas?

[Robert G. Phillips:]

We specifically Antero or generically all of our producer assets, we won’t start working with our producers on 2016 drilling plans until probably November of this year and maybe later depending upon what kind of price volatility we have in the fourth quarter. So we don’t have visibility to those 16 development plans in any area.

[Robert T. Halpin:]

And I was just said this in the Marcellus specifically we would, we got fair amount of capacity that we have build out at the end of 2014.

[Robert G. Phillips:]

Yes, we won’t have spent much capital in many places on Antero, but I just say generically.

[Gabe Moreen:]

Right.

[Robert G. Phillips:]

It will be at least another three, four months for before producer starting feeding back 2016 plans for us. Probably spend some capital on Antero definitively we are going to see some expand geographical expansions there, so we’ll need build out the system maybe add some capacity within the system per hour volumes at peak rates but we build out $875 million day of capacity at Antero we are running at about $600 a day million right now. So we got plenty of excess capacity and we are very leverage to the upside with the either price improvement or it just the peak volumes that will come from completing those 22 docks in the second half of the year that’ll have big volume push and we won’t have spend any capital to handle all that.

[Gabe Moreen:]

Got it, and last question from me guys is just the proxy obviously makes for pretty interesting reading in terms of the discussion we had around before you got the simplification process, can you just kind of talk about whether kind of discussions continues. I think you are talking to multiple parties whether I guess out of the change in the MLP landscape or continuing evolving landscape appear on the commodity front as meant, either discussion have been revived or other things are going on.

[Robert T. Halpin:]

Well Gabe, you evolve people should know that we talked to a lot of people over the last year, we had that discussion each quarter and we were very transparent quarter-to-quarter and clearly with the proxy information that we filed that was even more transparent from chronological stand point. So, I don’t think we have anything to add to that we are always looking at strategic alternatives here at Crestwood to try to create value for our investors. We are very disappointed were the stock prices are trading right now, but that doesn’t mean that we have stop thinking about ways to grow the business or get bigger, better stronger. And so we will always have conversations with people when there is an opportunity to look at a new way to create value for investors, but since you did about proxy let me us that as an opportunity to ask Joel Lambert to just jump real quick and give us an update on the timetable for the merger. Joel do you want to do that?

[Joel C. Lambert:]

Yes, sure thanks Bob, so people know we file the proxy back in June, and receive comments back in the SEC here in July four weeks ago. We responded back to the SEC on July 24 and we are waiting to see new filing comments from the SEC and whether we can go effective with the proxy planned to set record date here in the next week or so and then from there we will go to hopefully have above here in mid late September.

[Robert T. Halpin:]

Great. Anything else Gabe.

[Gabe Moreen:]

No, thanks everyone. Thanks Bob.

[Robert G. Phillips:]

Okay, thank you.

[Operator:]

And our next question comes from the line of Michael Blum with Wells Fargo. Please go ahead with your question.

[Michael Blum:]

Hi, good morning guys.

[Robert G. Phillips:]

Good morning Michael.

[Michael Blum:]

Just two really quick question for me, one obviously interesting incentive deal with Antero, I am just curious is that something you think you we could see applied more probably across portfolio or maybe other areas or do you think the there is kind of specific case here.

[Robert G. Phillips:]

The answer is absolutely yes and we didn’t just invent this. We have been doing an incentive rate deals in low prices cycles since I have been in the business back in the 70, so remember the 80s would became short terms incentive rate deals in the 80s last of the decade unfortunately, but the midstream companies in a down cycle have very tools one is to cut cost and be more efficient and provide a better service. The other is share the pain with our customers and so we view incentive rates structures as very by for partition of very proactive we know that our producers have long memories and then when we help them when they are down they help us, when prices are good they are back to drilling again. So the Antero deals not the only deal, we actually announce the deal like that on the Barnett with Quicksilver last year and that incentive rate structure brought some new volumes to the system and it was very positive for us and it has a great NPV. We are talking with customers on other systems such as Arrow for example and we think that is a very important collaborative step that we can take with our producer customers to try to get them through this tough time, improve their returns, their economics a little bit, show then that rolling this together and when we can get a term extension or some other upside potential might be even put a floor under those volumes like we’ve done in other areas than we think an incentive rate structures of positive thing and it’s a win-win for both. Steve, if you want to comment.

[Steven M. Dougherty:]

I think you covered that largely. I do think that on the margin that these incentive fee structure is really about maximizing volumes and so I think they make a lot of sense for us and our customers and really improve the margin on that incremental volume that we see or otherwise might not have if it weren’t from the fee. So to Bob’s point, we’ve seen it in the Bakken, we’ve got it in Barnett we’ve got it in Marcellus and I think we’ve seen some improved results volumetrically as a result of that.

[Robert G. Phillips:]

And by the Michael, our net margin improvement was in spite of those incentive rate get backs that we had. So we pointed down in our press release that our net margins were up big time, and that was offset by some of that incentive rate getback but we like the concept of helping our producers during tough times and we get it back through contract extensions and additional acreage dedications and it’s just the right thing to do at a time like this.

[Michael Blum:]

Okay. Great. And then other thing I wanted to just confirm or ask you the NGL marketing business, which is housed at [indiscernible] in the past you’ve talked about that business sort of on a run rate basis generating $60 million to $65 million of EBITDA, is that still the right range?

[Robert G. Phillips:]

We think it is. They are having a very good year, I’m going to let Bill, go through who runs that business for us, talk about this in a second. Gives him an opportunity to brag on the great job his people did in the second quarter. We had a good second quarter and a good first half of the year despite some real problems, we’ve got a West Coast facility that’s largely tied to and provide services to West Coast refineries. And I think everybody knows what happen over the first half of the year to Exxon and to [indiscernible] and other refineries out there between fires and strikes and lambs and tigers and bears. There was lot of disruption in that market and so that had an impact on that business. Having said that, you could see the results were positive and above same period in prior year. So that means the rest of the NGL business particularly are supplying logistics, business did exceptionally well and we’re very excited about how they position this for the second half of the year with our propane and bitumen business. So, Bill you want to jump there and give some color on that.

[William H. Moore:]

Yes. I would just say that we would affirm that run rate and we have a number of things that we think will provide incremental growth both in 2016 and then I think particularly in 2017 as we see that the new pipeline systems coming on in the East Coast and we need to and what that does in terms of volumes and get into export docs. And I’d just say business in general, it’s a diversified platform between the trucking business, the rail business, our pipeline shipping business, the marketing and hedging business, storage and then the terminals and fee based assets that we have and so you get some variation and where the dollars come from but the track record of the total platform has been very consistent and we feel very good about it particularly in this environment where you have product that’s constrained and a lot of volatility it particularly complements our the downstream logistical asset base.

[Michael Blum:]

Great. Thank you very much, guys.

[Operator:]

Our next question comes from the line of Ethan Bellamy with Robert W. Baird. Please go ahead with your questions.

[Ethan Bellamy:]

Good morning, everyone. With respect to COLT, how are you guys thinking about long-term recontracting prospects with all that pipeline infrastructure coming online in the Bakken.

[Robert G. Phillips:]

Thanks for the question, Ethan. That’s a good question. It’s not one that we have to deal with imminently, our largely customer there to sort that contract goes through 2016, it does give us an opportunity to re-emphasis that we have almost a 150,000 barrels a day of rail loading facility and storage there, that is under take-or-pay contract, so we do get whether they use it or not, I did point out that in the second quarter, we did have rail loading volume impact on those West Coast shed ins and the tight spreads on the East Coast. Having said that the deficiency payments made up the difference and so it worked exactly the way it should, I’m going to ask Brian Freed who runs our Western Commercial Operations and specifically manages COLT and was the person who originally entered into those contracts with those East and West Coast refiners, he had very good success in the quarter, extending Flint Hills contract by another 39 months, he has added new customer in Northern Tier, so Brian you want to give color around our recontracting exposure and how you think that is going to play out?

[Brian Freed:]

Yes so the first thing I would say - first thing I would say is that we have most of our contracts that extend as Bob mentioned improve and through and pass the end of 2016, so there is some near term recontracting that we need to do but we do have larger longer term contracts that we have set out at the COLT terminal. Additionally beyond that we focused a lot and primarily on West Coast customers, so the majority of the volume going out of our facility does add to the West Coast, Pacific North West in particular and it is a vast majority of the volume that we have is directed in that direction and that is quite frankly where the best netbacks going out of the Bakken result into and there are no pipelines that are coming on board that are headed out to the West Coast at least in the near term planning stage. So we think that in the Pacific North West in particular it is going to be a long-term rail in particular it is going to be a long term portion of that refineries laid out there and then additionally on the East Coast that is larger the case there too. So most of the new pipelines that are coming on are feeding into the Gulf Coast where you got Permian production and Eagle Ford production also going down there too to compete with it as well in terms of pricing.

[Robert G. Phillips:]

And we really don’t compete with the Gulf Coast market for our barrels.

[Robert T. Halpin:]

There are very few volumes that goes out of our facility out of the Gulf Coast.

[Robert G. Phillips:]

Keeping one of the competitive advantage we have at COLT and we talk about at each quarter is that we typically have about 300,000 barrels a day that can access the COLT Hub and that is a reason why refiner customer come there is to have access to that kind of supply. They have spent years building their supply purchasing capability logistically from the well head through the truck, through the gathering system in the COLT into this significant amount of storage that they have there at COLT and the rail loading facility is just one of the avenues by which those customers take barrels away from there. So we feel like as long as the Bakken barrel remains price competitive, which it is very, very price competitive today at these lower prices, we are going to continue to be a service provider to those coast refineries and as Brian said, we view the West Coast refinery market as being a permanent market opportunity market for us.

[Ethan Bellamy:]

Thanks Bob and Brian. Just one follow-up, Bob you see a lot of field level real time data that we don’t see, do you have any big picture outlook on commodity through crude oil that you could opine on?

[Robert G. Phillips:]

We really don’t Ethan we have a board meeting coming up in Wilmore who runs our business development, corporate development has been tasked with bringing us up to speed on what 2016 and beyond looks like. So maybe Will you might have a comment there but I think from our standpoint running the company, we are focused entirely on running Crestwood as if we are in a perpetual $50 crude, $3 gas price environment. We have cut our cost and reduced our cost structure to a level where we can be profitable and continue to grow the business and provide good services to our customers even at that low level. Having said that, we don’t spend whole lot of time trying to predict price because as you recall about 95% of our margin as I will fix anyway, so other than volume exposure we don’t have a lot of direct exposure to crude oil. Will you want to comment?

[William H. Moore:]

Yes the only thing I would add to that is in this kind of low of the longer pricing scenario that we are in, I think what has proven out is our - where we are asking the place, everybody like to tapp for the core, but I think you are seeing from the results that we see on a real time basis that the volumes are there and the producers are going through the quarter four in respective place that is leading to maybe not the high growth that we saw in the past years in those areas, but keeping steady volumes and growing volumes over time and I think that validates kind of the investments that we have made here at Crestwood.

[Robert G. Phillips:]

Just final response to his question. We see a lot of producer development plans and we know the economics that they are running their net backs in the areas that they were operating in like the Bakkin like CRB Niobrara and like the Delaware Premian for example almost all the producers we talked to can economically develop their prosperities at current prices [indiscernible].

[William H. Moore:]

Yes, I think so I mean and largely the result is as they are starting that to see the service cost on their side of - on materialize the improvement [indiscernible] and completion techniques that really provided them the opportunity that continue to drill as Will pointed out maybe not quite as robust as what they would have last year, but we are starting to see a very in return of some significant drilling plans in those areas of acreage

[Robert G. Phillips:]

We don’t have a better forecast than that is but if I was a good forecaster, I would be in a different business.

[Ethan Bellamy:]

Thank you very much.

[Robert G. Phillips:]

Okay.

[Operator:]

Thank you [Operator Instructions]. Our next question comes from the line of J.R. Weston with Raymond James. Please go ahead with your question.

[J.R. Weston:]

Hi, good morning, congrats on the quarter. I just had a question is trying to stay big picture just thinking about the guidance that you gave on the performance and see back up on the initial announcement and you updated a commentary today and then just even know the forecast prepared in as for complex committee from back in June. I was just wondering if maybe number one when you guys is looks on guidance data for me to those and if anything changed and just without the operating environment shaped up over the last six weeks or so across the whole midstream’s space and then maybe number 2 just talked about the EBITDA growth components over the next 2 or 3 years obviously you guys were mentioned 11% DCF growth to 2017 in the initial announcement. Just wonders if maybe you guys can talk about some of those a little bit.

[Robert T. Halpin:]

Sure, Thanks J. R this is Robert, now I will ahead on that largely and I think first of your question on the guidance we’ve provided, both for 2015 as well as the through the [indiscernible] proxy statement in the projections that utilize by the committees and that evolution. As Bob, mentioned today we are still feel very confident 2015 outlook, reaffirming were we expect to come out for the year on a consolidated basis and would expect to achieve those targets, by the end of the year. Longer term at this point you know we continue to evaluate the opportunities around our platforms continue to evaluate the commodity price environment that we are in and how that will impact our business. And I don’t believe particularly in the kind of 2016, 2017 time frame we have any information today that would suggest that we would expect any different then what we have reviewed with our committees and what we have laid out, I just think there is obviously one of the benefits of our diversified portfolio as you might see different mix and how that’s get achieved, but we have still see a lot of opportunity around our businesses across the country. I think that kind of setaways into your next question and that is where the key drivers of it’s kind of EBITDA growth and I think that they have largely or the same before we talked about, around the simplification transaction is well eluted to we still are very bullish on our walk in position particularly at the Arrow system we are our customers there continue to drill even in lower commodity price environment. I think as we pointed out that the growth trajectory obviously what’s little bit different than what we would have expect in a $100 crude pricing environment, but what we had consider that when we put the production together around the proxy statement obviously we were already you know in the cycle of crude price decline at that point and I think that is largely factored into the between 2016 and 17 numbers that we played out. The Bakkins are big one I think that when you think about longer term Marcellus our Northeast stores and transport position continues to be one of the shinning stars in the organization. And we announce some relatively small but very economic both on expansion opportunities there here in the second quarter expansions on the MARC I system obviously longer term we still believe in those MARC II project, if that is the project is that the market needs and we expect will be completed into that will be another significant driver, lag of growth over the five year period. I think those are the that’s really the two highlights and then continued development operation around the remainder of our GNP portfolio and I think we continue to work with our producers as Bob mentioned in fine ways cut cost and effectively and efficiently manage our business and I think we are starting to see the - of that here in the second quarter and I think that trend will continue through the balance of 2015 and on into 2016.

[J.R. Weston:]

Great. Thank you. And that really helps. Just in terms of the geographic mix and kind of the organic growth portfolio you guys have and maybe just thinking even bigger picture and just kind of looking at that S4 guidance and kind of into the out years. I was just wondering if maybe even qualitatively you guys could talk about how much of it is predicated by that organic growth that you talked about or compared to may be just the overall improvement in commodity prices. And then, you maybe optimizing or taking market share on the existing base business. So think don’t know if you guys could maybe talk about that a little bit as well.

[Heath Deneke:]

Yes. Hi, this is Heath. Yes, I guess, I would kind of articulate it this way. I think it’s in two fold. I mean one around our existing assets as we mention up in the Marcellus with the potential for dry gas development when we think about producers like WPX adding of couple of rigs in the back half of this quarter to increase drilling activity. We see a lot of organic growth around our existing portfolio that doesn’t really require a whole lot of CapEx. I think the systems are largely the bank loan system in place are looking at well connection capital we think that return of even modest drilling activity in combination with our reduced cost really kind of drives a lot of that organic growth going forward. But also have to say, we mentioned activity in the Delaware premium, we think that that is a basin we’ve worked over the past two and half years to establish a footprint in and is starting to pay dividends. I think that might be a basin that we would look towards to say that their significant Greenfield projects that we’re honing in on around our Will Lake and other areas of the basin that we think are going to be a material growth driver for us going forward. And then again, around our Marcellus assets have been North East Pennsylvania, we continue to see the value of our storage and pipeline that work up in that area. We still have a lot of producer activity around that system as well a resergeant of utilities that really value the connectivity to storage, the connectivity to the diversity of supply. And think that’s going to bode well not only for our Mark 2 project but continue to see improving margins and additional development opportunities around our North East Marcellus assets. So I think I would say largely when we think about growth of the next three to four years, I mean there could be an acquisition or two out there but as mostly accommodation of just our existing contracted portfolio growing efficiently as well as some new exciting green field projects around the core asset positions we have.

[J.R. Weston:]

Thanks for your help. Thanks.

[Steven M. Dougherty:]

Thanks, J.R.

[J.R. Weston:]

Thank you.

[Steven M. Dougherty:]

Okay. George, we are ready to close. All right. Let’s do it. So just a couple of points to investors. Number one, great quarter by the Creatwood team, great job guys. Number two, appreciate the continued support of first reserve very supportive of the merger, they have been helping us look at financing projects as our PD people bring them in. So appreciate that support very excited about closing the merger in the third quarter and then finishing 2015 strong. And we were very, very explicit about confirming our guidance there so this is an exciting time for Creastwood despite our unit prices hope that this is a turning point in the eyes of investors and we’re excited about finishing out these rest of the year, we’ve got a lot on our plate and better than average amount of activity around our assets. So thanks to all the investors that joined us on the call and that’s it. Operator, we are done.

[Operator:]

Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time and thank you for your participation.