Crestwood Equity Partners LP
Q3 2015 Earnings Call Transcript

Published: 4 Nov 2015

[Operator:]

Good morning, and welcome to this morning's conference call to discuss Crestwood Equity Partners' Third 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 that 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 Phillips:]

Thank you, operator and good morning. Thanks to all of you for joining us. We had a very busy quarter. In the third quarter we got a lot done, a lot accomplished on our long term plan. Despite obviously another very tough period of volatile commodity prices and largely reduced activity across the industry. So I'm going to touch on the highlights then hand it off to Robert to give you the details on the third quarter financial results. I want to point out that Heath Deneke, our Chief Operating Officer is here as well and ready to answer any questions that you might have about our Delaware Permian strategy. So let's start with the merger, our biggest accomplishment it was completed on September 30. I'm glad to see that others are now doing what we have done with Target announcing the same plan today. So we didn't miss that. We do appreciate the overwhelming support of our unitholders in the vote which strongly endorsed the rational for the merger of CEQP and CMLP. Let me just remind you that a simplified partnership, a simplified capital structure focused business plan lower operating cost and the per minute elimination of IDRs is good in any market. But particularly helpful in a down market like we're experiencing right now. We think all these factors will be big contributors to our future success and with the merger behind us we can now focus on executing our long range plan through several steps. Number one, continue to deliver solid operating performance which we did again in the third quarter. Number two, execute on our Delaware Permian strategy and our new joint venture with First Reserve which we announced last week. And then finally providing our investors with visibility to our 2016 and 2017 plans, which we expect to deliver in early 2016. So we'll lay it all out for you in the next couple of months and you can judge as we go forward the success of the merger and the restructuring and repositioning of Crestwood. Secondly, to the quarter we announced another full quarterly distribution this time post-merger it was $13.75 per common unit payable on November 13th. I'll point out that our coverage ratio for the quarter was 0.97 first time it's been under 1 in a while but of course that recognizes that third quarter is always a seasonal or a shoulder quarter for a lot of our businesses. But our long term - our last 12 months coverage ratio is still above 1 at a solid 1.02. So we are maintaining our discipline in our strategy towards building coverage as we go forward. Our cash flow is in our outlook continued to support this quarterly distribution and we remain committed to maintaining the distribution and continuing to build coverage ratio despite the poor performance of our units since the merger was announced back in May. We continue to believe that our units are mispriced relative to our distribution and our fundamentals. But we're optimistic even in this down market through energy stocks that our valuation will improve overtime as we execute on our plan. Third accomplishment in the quarter was the announcement of the 1 for 10 reverse units split. This is a step designed to make Crestwood units easier to own by large institutional investors and retail holders which have had problems owning CEQP since the unit price move below $5 per unit after the merger announcement in May. Those are technical factors. We received very broad based in strong anecdotal support from our largest unitholders on this decision, we believe that now is the right time to do this and it will particularly help us as we begin to execute on other parts of plan. The reverse unit split will take place after the market closes on November 23rd. Fourth, and probably the biggest item on the list is the announcement of our Delaware Permian growth strategy and our new partnership with First Reserve, our general partner to finance those projects. The Delaware Permian as most of you know is one of the most active plays in the US with new oil and gas supplies being developed despite low commodity prices. And there is a serious need for new midstream infrastructure in the area that we're operating. Now we think that this is a great spot for Crestwood and First Reserve as we are leveraging existing assets, relationships and experiences in the region. This is a new area for us. We've been working there for the last couple of years. The new infrastructure requirements for growing Delaware Permian, Wolfcamp and Bone Spring production fits Crestwood's midstream operating expertise and profile in other shale plays, we're bringing a good deal of experience to this Delaware Permian area to build out new infrastructure. As an example the Orla terminal and the Delta pipeline are very similar in design to our COLT hub and COLT connector system in the Bakken and the Three String gathering system that we've described in the press release is an absolute lookalike to our aero system up in the Bakken as well. So we have the skillset to execute on this opportunity and this is the exact capability that operators are looking for in this region. The ability to move multiple products at a very competitive rate to access the broadest markets possible for their production, that's what will drive overall development of the region. And of course, First Reserve's upfront capital support allows us to build these new long-term projects in an accretive manner at great returns to Crestwood and that's what we believe will drive future cash flows for our investors. So in summary, just a few of those steps as we execute these strategies and deliver consistent operating performance over the next few quarters, we think we'll draw investors back to Crestwood. Management in First Reserve continue to believe in our assets, our employees, our competitive position and the long-term growth potential of the shale plays that we operate in. At the current evaluation, Crestwood offer significant total return opportunity for investors that value and independent diversified low-cost midstream MLP that's well-positioned for long-term growth. So with that overview let me turn to the quarter very quick and just touch on some of the highlights of our operations before I turn it over to Robert. Our gathering and processing business performed very well year-over-year despite lower volumes in some basins due to slower producer activity, but that was offset by reduced operating cost across almost all of our operations. In the Bakken aero gathering system significantly outperformed on record crude volumes, while the Southwest Marcellus gathering system had lower volumes due to shut-ins from downstream constraints that we could not control and lower margins from incentive rates charged to Ontario due to very low regional gas prices that they experienced during the quarter. Again we couldn't control either one of those factors. We think those issues get largely resolved for Ontario in the Stonewall pipeline goes in service in the fourth quarter of this year. To the Barnett, we had lower margins and lower volumes, the volumes were off due to shut-ins from floods in the Dallas Fort Worth area during the summer and some offset fracking by other operators but I will point out that Quicksilver made good progress on their restructuring during the quarter and we have signed a new compression services deal with Devon. So it's still an active area for us and we're doing a lot to cut cost and keep volumes at a maintenance level. We look forward to working with the new owner of the Barnett properties at the conclusion of the bankruptcy process. We hope to structure a deal that will make sense for everybody, but most importantly well result in the incentives necessary to fully develop the properties overtime. We remain convinced that these are good properties, good assets they operate at a very low operating cost compared to other Barnett midstream operations. And so we're well-positioned to continue to add value there when the new owner comes along. In our storage and transportation segment, it contributed solid results as expected due to the significant number of take-or-pay contracts that we have in that segment, our Northeast Marcellus natural gas storage business and our Bakken PRB oil crude by rail and pipeline terminal businesses as you know are largely based on take-or-pay contracts. Specifically on the gas side stage coach remains a critical North East storage center. Our MARC I pipeline is going to benefit from an expansion that we're putting in place here in November for the 4th quarter. Tres Palacious made a good year-over-year contribution of storage in hub margins improved in South Texas with Eagle Ford volumes dropping on the oil side COLT Hub had a very good quarter despite lower oil prices and tighter spreads and declining North Dakota production. COLT continues to be the leading CBR facility in the Bakken by volume with about 25% of that market. And while total North Dakota crude-by-rail volumes were down from their 2013 high. CBR still held up well against pipelines in the third quarter transporting about 50%, 47% actually of total Bakken crude despite very narrow WTI to Brent and WTI to ANS Arbs. So it's clear to us that the coastal refiners continue to want the Bakken barrel due to favorable refine products crack spreads, our customers are telling us this in their negotiation and as they utilize the facility under existing contracts. We think spreads will widen and absolute prices will increase in 2016 increasing utilization further from where we are today and while we have ongoing negotiations with our customers on contract renewals we have nothing to report at this time but I remain convinced that COLT's access, unique access to supplies in the Bakken and in our superior storage and customer service position will enable us to maintain our leadership in the Bakken CBR market going forward. Our marketing supply and logistic segment also had a very strong contribution in the quarter it was higher year-over-year with our NGL marketing and logistics team having a very strong quarter and meaningful outperformance from our wholesale NGL storage in terminal business. We look to continue the momentum of that business into the fourth quarter as our NGL team has positioned us to have another knock-out quarter in 4Q as they aggressively built Profane and Butane storage inventory at depressed rates during the second and third quarter with extremely favorable forward contract sales in the peak winter months and they've done this by utilizing our extensive and somewhat unique North East NGL storage trucking and rail infrastructure to capitalize on this opportunity. This is a business that would be very hard for anybody else to duplicate despite other companies having larger size, we're a particularly strong player in the Marcellus, Utica and we'll continue to leverage off of that. Overall, let me just say that we've kept a lid on cost as you can see safety continues to be on track or better than we've expected and we're still making changes to the organization ringing out cost and improving efficiency. Now, I'm going to let Heath Deneke, our COO to answer questions about Delaware Permian and Robert Halpin, our CFO is going to give you details on Crestwood's third quarter and financial condition and more information on our recently announced new joint venture with First Reserve. So with that Robert, I'll turn it over to you.

[Robert Halpin:]

Thanks Bob, and thanks again to everyone on the call for joining us this morning. In the third quarter 2015, Crestwood delivered another strong quarter of financial and operating results despite continued challenging market conditions. As a result we've remained on track to retrieve our previously stated guidance targets for 2015. For the third quarter and nine months ended September 30, 2015, adjusted EBITDA totaled 133.5 million and 408.5 million respectively, representing a 4% increase and 12% increase over the comparable period in 2014. Distributable cash flow in the quarter totaled $92 million and distribution coverage for the quarter was 0.97 times or 1 point or two times on a trailing 12 month basis. Our 3Q performance continues to highlight the quality and stability of our asset footprint as well as the continued aggressive approach, our operational managers have taken to cut cost out of our business and improve margins despite volume metric decline. Before discussing our segment results, I wanted to point out that we have made some modifications to our reporting segment that better reflect the operations and management of our assets following to closing of the simplification transaction. We have three reporting segments. First, our gathering and processing. Second, storage and transportation. And third, marketing supply and logistics. With these modifications, our gathering and processing segment now includes the aero system in the Bakken and the storage and transportation segment includes COLT Hub and the Douglas terminal. All historical operational statics and financial results prior to the closing of the simplification merger have been adjusted according to these segment modifications for period over period comparisons. Additionally all segment results discussed are exclusive of non-cash goodwill impairments reported today and covered in more detail in the earnings release we put out this morning. In our gathering and processing segment, segment EBITDA totaled $64.5 million in the third quarter compared to $64.6 million in the third quarter of 2014. Natural gas gathering volumes and compression volumes declined 16% and 9% respectively compared to the third quarter of 2014. Gas gathering and compression volume metric declines were offset by an 18% increase in processing volumes, a 6% increase in crude oil gathering volumes and a 35% increase in produced water gathering volumes. Operations and maintenance expense were reduced 30% in the third quarter 2015 compared to third quarter 2014 driving significant improvements to segment margins and completely offsetting year-over-year revenue declines attributable to decreased volumes. In our storage and transportation segment, segment EBITDA totaled 49 million in the third quarter of 2015 compared to 48.7 million in the third quarter of 2014. Natural gas storage and transportation volumes averaged 1.9 Bcf per day for both the third quarter 2015 and 2014. Despite flat volumes compressed spreads across the North South and MARC 1 pipelines led to slightly reduced margins on interruptible and short term firm transportation services across our pipeline assets. Our COLT Hub EBITDA increased 12% from the third quarter 2014 primarily as a result of higher take-or-pay revenues at facility. Now turning to our marketing supply and logistics segment, segment EBITDA totaled 27.3 million in the third quarter of 2015 compared to 24.1 million in the third quarter of 2014. Segment EBITDA increased as a result of meaningful outperformance impressed with NGL wholesale marketing and NGL storage and terminals business which took advantage of Crestwood’s strong NGL supply position in the Marcellus Utica region. The market transport and store NGLs for our customers in the Northeast United States. Now turning to the expense side, we have continued to drive profitability through cost cutting across the organization, reducing operations and maintenance and general and administrative expense for the third quarter of 2015 by $4.6 million or a 7% reduction from the third quarter of 2014. Now on to the balance sheet, as of September 30th, Crestwood had approximately 2.5 billion of debt outstanding including 1.8 billion of fixed rate senior notes and 717 million in outstanding borrowings under our $1.5 billion revolving credit facility in connection with the simplification merger, Crestwood upsized our revolving credit facility from 1 billion to 1.5 billion and extended the term through September of 2020. Crestwood also amended certain terms of our revolving credit facility such as increasing the total leverage ratio covenant from 5.0 times to 5.5 times and adding a senior secured leverage ratio of 3.75 times. Among other adjustments that provide the simplifying Crestwood much greater flexibility to execute our going forward business plan. Before opening the line-up for questions I want to add some incremental commentary on our business performance and outlook including Colorado 2016 guidance plans and key areas of focus. As for 2016, guidance we continue to work with all of our key customers to finalize our 2016 development plans. We intend to finalize those plans over the balance of 2015 and provide our full outlook to the market no later than our fourth quarter earnings release in February of 2016. That said, we understand a number of the questions our analysts and investors have and wanted to provide some clarity on a couple of key themes as we head into 2016. First, commodity price volatility continues to impact Crestwood’s outlook in corresponding volume declines for most of our G&P portfolio that said, we do expect our producers to largely stick to their current plans and it does not take meaningful activity about what you’ve seen in 2015 to drive year-over-year growth into 2016. We have demonstrated in 2015 that we have the ability to cut significant cost to drive overall profitability despite lower volumes and that initiative will absolutely continue into 2016. Second, we will prudently manage our balance sheet given our current cost of capital we will only deploy capital and our highest returning areas with the quickest payback on investment. Assuming commodity environment in 2016 stays consistent with where we sit today. We anticipate spending less than $50 million for growth capital projects located outside of our Permian region where we will have the support of our joint venture with First Reserve. With just under $750 million currently drawn on our $1.5 billion facility and our current leverage ratio at 4.6 times relative to our 5.5 times total leverage covenant, we have more than ample liquidity and we do not anticipate substantial draws in 2016. Third, to our recently announced expansion projects in the Permian and our financing plans with First Reserve, we continue to advance commercial negotiations on both of our pre-stream gathering development project in Reeves, Loving, and Culberson counties Texas as well as our delta pipeline open season. For the financing on that, we are finalizing negotiations on our joint venture structure with First Reserve under the structure, First Reserve and Crestwood will collectively commit $500 million to the project to help drive quicker upfront accretion to Crestwood, First Reserve will fund 100% of the early build out capital yet both Crestwood and First Reserve will split the cash flow generated by the project 50-50 during that build out stage. First Reserve’s capital provides a flexible alternative financing source for Crestwood’s Permian growth opportunities at a much more competitive cost than our current common equity and further and of importance to eliminate any need for Crestwood to raise any external financing associated with these development projects. Last, on distributions, we are clearly aware of the fact that the market is describing limited value to the current annualized distribution of $0.55 per unit despite our business continuing to perform with the year-to-date distributable cash flow up 11% over the nine months ended September 30, 2014 and current distribution coverage greater than one times. Every quarter management, our Board of Directors in First Reserve evaluates our full financial outlook and accesses the best use of our available cash to drive the greatest value to our unitholders. We are committed to the current distribution and remain confident in our business model and the outlook for our assets in 2016. We expect to maintain our current strategy focused on improving distribution coverage and we look forward to updating the market on our 2016 plans in the coming months. I think with that operator, we are ready to open the lineup for any questions.

[Operator:]

At this time, we will be conducting a question-and-answer session. [Operator Instructions]. Our first question comes from the line of Andrew Bird from J.P. Morgan. Please proceed with your question.

[Andrew Bird:]

Congratulations for turning the page on a busy quarter. I was hoping to get a couple of exact details on the funding arrangement with First Reserve just in terms of the exact mechanics of how the cash outflow from Crestwood works. Is this something where First Reserve funds the first $250 million before you contribute anything or is it more of 50-50 by project basis but still Crestwood wouldn’t contribute until 50% of the project was funded by First Reserve?

[Robert Halpin:]

Thanks Andrew and I’ll cover that one. I think that just for little bit of clarity on where we stand in the negotiations with First Reserve on our joint venture. The commitment is $500 million in aggregate and as you've pointed out or as you questioned, First Reserve will fund 100% of the upfront capital dollars, the Crestwood not funding any of those upfront capital dollars but the capital accounts or the investment ownership percentages will be 50-50 from day one. So, clearly the intent is to bridge the project in the early stage development, drive greater near-term accretion to Crestwood as the ramp up occurs and then ultimately after the initial development capital spent Crestwood will fund to realign the capital accounts with that 50-50 structure. Does that provide any clarity?

[Andrew Bird:]

Yeah. So, with that be like the one time one payment or would you commence funding incremental expenditures once that certain threshold is been reached?

[Robert Halpin:]

No it’s a commitment up to a dollar amount and so obviously the nature of the projects that we’re evaluating in the Permian most notably the three stream gathering build out. There is a development cycle and plan associated with those assets and we have capital needs over the near-term months to build out the infrastructure for our customer. And so the capital availability from First Reserve is available 100% as needed for the project up until our threshold capital amount is met and then Crestwood fund thereafter to catch-up.

[Andrew Bird:]

Great. That’s really helpful. And in terms of that JV entity is there an opportunity to fund projects elsewhere or is this particular entity just focused on this geography?

[Robert Halpin:]

This joint venture as this point in time for now is focused on the broad Permian development opportunity that we have. I think clearly with our commitment from First Reserve they've got a strong interest and level of support for the partnership going forward. But for now it really covers the totality of our Permian operations and it allows us to really get that platform up and running on '16, '17 timeframe.

[Andrew Bird:]

Okay and then on the Delta pipeline is that predicated on the gathering agreement going through or are they kind of mutually dependent projects?

[Robert Halpin:]

Yeah, I think they are mutually independent and I think clearly the rationale for Delta is that we are as part of our three phase gathering system. We are aggregating a substantial amount of crude and condensate volumes to a central location near Orla. And so as part of that we think having the large concentration of supply make sense to have a header system that extends out of Orla and connects to multiple markets downstream. So while I think we certainly hope that both projects get over the finish line and get done that it is feasible that we move forward to gathering system and not the pipeline a lot of that just going to depend on the market support.

[Andrew Bird:]

And the gathering system is that a fairly competitive bidding process or is it where you kind of approach given your expertise and existing presence in the area?

[Robert Halpin:]

Yeah, I think it was a combination of both. I think first, let me just kind of step back and just say that we are very excited about the opportunity set. They expand our presence here in the basin and as Bob mentioned we've been added for 2.5 to 3 years now and we are combining our experience up in the Bakken with crude pipelines along with our experience in they Marcellus as they head of aggressive producers and I think that combination of the skill set plus the active position that we had has really led us to the point to where we are right now. So we are in exclusive negotiations with our anchor shipper, we will construct the three phase our three stream gathering super system if you will that is in heart of a Delaware Wolfcamp and Bone Spring play and that system is going to span Reeves, Loving, and Culberson counties. We look at it an aggregate as we announced. Now this system will blank it in the area of north of 400,000 acres and will include over 600 miles of crude water and gas pipelines. So to get to the competitive nature of the business I think the way I would answer it is the design and the scale of the gathering system along with the substantial efficiencies that we see an upfront planning of an integrated solution and simultaneous build out of the three pipeline system. Not only we'll dramatically reduce our anchor producers cost versus status quo provides an attractive way to return for our shareholders and our joint venture partner first reserve. So when you step out and you look at the Delaware Permian there aren't many three stream super systems out there certainly none that are capable or have been built the handle of sizeable Wolfcamp production plan. So as we build out our system for anchor shipper we believe there is a rich environment of third party offset operators that we'll be looking improve netbacks and so we are contemplating that upfront. So our gathering system is being built for scale and we think we'll be able to provide very cost effective expansion opportunities to those offset operators.

[Andrew Bird:]

Great.

[Robert Phillips:]

Andrew this is Bob. Let me-- before you get you off the line, let me just add to your first question and that is the nature and the flexibility of the joint venture with First Reserve. I want to take this opportunity to let people know that first reserves is really stepping up for the company here. I think lot of investors have wondered where they've been in the last couple of years in terms of supporting the company. There is a wide range of different funding mechanisms that we are seeing come out in the market today we've seen them from different tops of companies to fund their growth projects in different ways and this is another example of we think a very unique opportunity for First Reserve to show their support as general partner and make long term investment which is the business that they are in a set of assets that they view based on their experience in this region as a great investment opportunity. So in my mind that joint venture with First Reserve answers a lot of questions about their long term support for Crestwood as well as the investment potential of this particular area and these gathering systems oil terminals and pipelines, oil pipelines that we're proposing the build for people. So I hope that's not lost on investors that First Reserves really stepping up. The structure of the deal that Robert in the First Reserve team have put together really gives Crestwood a lot of flexibility. But still delivers a good return for everybody. So I hope that's not lost that this is a way for us to bring new capital into our overall structure and really be the tip of the spear in terms of investing upfront and making this deal really accretive for the Crestwood investors. So, I hope First Reserve, our general partner and Crestwood generally get some credit, for how unique this structure is and how flexible it is and beneficial to the existing LPs and CQP.

[Andrew Bird:]

Yeah, great. That's very helpful color Bob. I just have one more housekeeping question to close on the new debt covenants 5.5 times is that a permanent new level that was - that does revert back down the five times at some point and then what was the debt covenant leverage at quarter end?

[Robert Halpin:]

The 5.5 times the permanent covenant. So total leverage ratio of 5.5 times for the life facility. At quarter end our leverage ratio was 4.6 times.

[Andrew Bird:]

Great. Thanks very much.

[Operator:]

Our next question comes from the line of J. R. Weston from Raymond James. Please proceed with your question.

[J. R. Weston:]

Hi, good morning. Really nice development in the Delaware First Reserve and this is kind of touched on a little bit already but I just wanted to ask a little bit differently. So obviously Crestwood and First Reserve both have plenty of relationships with the BMPs to leverage and I was just kind of wondering beyond the recent announcement. If there was another region or we could see some type of partnership with First Reserve as CEQP get a little more vertically integrated in some existing basins where they already have asset. Does there anything like that looks attractive to you?

[Robert Halpin:]

I think as we look out obviously we see some organic development around Marcellus ad Bakken position but again the First Reserve joint venture is really targeted on helping us to get our Delaware basin off the ground and running. As Robert alluded to though I mean I don't think we're as unique to necessarily just our gathering system or to our delta project and for example we announced in the press release that we got a sizable processing opportunity and just north of there in Eddie county in New Mexico and we certainly think the partnership and the joint venture we'll find good solid projects really throughout the Permian basin.

[J. R. Weston:]

Okay. Great. And then just kind of following up on that. I was wondering if you could talk it all about the cash flow maybe as it materializes there in 2017, is that going to be pretty lumpy as those asset start up or little bit kind of layer online or maybe a little bit more of a linear volume growth ramp or is it just too early to tell on some of that?

[Robert Halpin:]

Yeah. I think we're going to have to differ that answer a little bit on down the road here. We feel like in the coming weeks for month as we conclude our negotiations with our anchor ship we'll be in a better position to get more feedback to the market on that.

[J. R. Weston:]

Okay. Great. And just one last question kind of switching years. So in the press release you mentioned stronger volumes and operating performance so that couple of processing plants, I think [indiscernible] just kind of wondering if you could provide any color on what drove the performance there and the volume growth or is this part of your cost cutting initiatives coming through or something else driving operating performance and then go ahead. Thanks.

[Robert Halpin:]

Yeah. I mean I'll guess try to tackle that. I think obviously across the board we've seen substantial reductions in our operating cost both the fixed cost as well as the variable cost in a more associated with some of the production decline. So I think that's definitely helped us maintained and improved margins across the business. On the processing side both the Jack Lope and Willow Lake, I kind of start with Jack Lope as you know we're placed our processing facility and service earlier in the year end and have seen volumes kind of ramp up throughout the summer months. So I think that's kind of driven third quarter results up in our joint venture at in Wyoming with Williams and Willow Lake likewise I think what we've seen is a shift from what I would call Delaware stands and Bone Spring centric production around it Willow Lake footprint to Wolfcamp production. And with Wolfcamp you're starting to see IPs north of 5 million a day and we're seeing quite a focused from our offset - from our customers and operators around that asset. So that's really what's driven us to field the existing plan that we have and move forward with the RJT plan addition here in the first quarter of 2016. And when we look at the development plan in the activity even despite current commodity prices, we still remain fairly bullish on our Delaware Ranch plan expansion that again roughly 120 million a day plant that we will move forward with when our customers provide the development plans for showing that that investments needed. So again just across the board and some of our higher plays across the Permian, we'll continue to see that activity level and expect to see increases in 2016.

[J. R. Weston:]

Great. Thank you.

[Operator:]

[Operator Instructions]. And our next question comes from the line of Selman Akyol from Stifel. Please proceed with your question.

[Selman Akyol:]

Thank you. Good morning and congratulations on the repositioning. Couple of quick questions for me, first of all as it relates to the JV with First Reserves up to the $500 million. Do you guys anticipate layering in debt at the JV overtime as well?

[Robert Halpin:]

Yeah Selman I think that as we think about the development opportunities at the joint venture level, clearly there would be a focus from both parties long-term to optimize the capital structure that joint venture for projects that make sense to do so. And I think that going upfront, we got the equity support we needed for the perceivable capital around the projects. And I that absolutely something we will entertain and consider to better optimize the capital structure and maximize capital availability to the joint venture.

[Selman Akyol:]

Alright. And then my other question is, in relates to the aero systems in the press release you alluded to coming a producer extending the gathering agreement up there with the additional volume commitments. Did you guy offer any incentives to do that.

[Heath Deneke:]

Yeah, this is Heath here. Yeah we did, in fact we worked in conjunction with our producer like we have in multiple basins to really kind a find that spot that would incentive wise new drilling activity. So the NBC's were largely set at kind current production levels and then the incentives were out there to encourage additional rigs to move into the area to keep volumes well north of NBC. So that definitely was a reduction on the crude side of that equation. And it was all things considered we think it was a fairly modest reduction relative to the increased margin and the volume growth that we expect to experience.

[Selman Akyol:]

Great thanks so much and I appreciate all the color especially as you address sort of the distribution going into 2016. Thanks again.

[Operator:]

Okay, there is no further questions right now. Mr. Phillips would you like to make any closing remarks?

[Robert Phillips:]

I would operator. Thanks. Again thanks to all of the participants on the call today. So a lot of information but we've got a lot of done in the third quarter, the future outlook looks particularly good now that we're restructured and resituated to be more competitive the Delaware Permian announcements. I think reflect our ability to be competitive for basic, midstream services even in a challenged market. Customer still like to do business. The companies have given them good low cost safe operating services and so Crestwood is built on that concept. I think our experience in multiple shale plays is coming together very nicely and multi-faceted infrastructure opportunity that we have in the Delaware Permian. Our general partner First Reserve has stepped up clearly to help support these new investments and through that they're supporting the entire enterprise and being a strong general partner in a way that's good for them and good for us and provides Crestwood with a lot of flexibility financially to work our way through this down cycle without having to sell stock at a missed priced level. So those are the positives from the quarter. Let me just remind everybody that these assets continue to generate very consistent performance. Each quarter will have highs and lows but the diversity of the portfolio and the fundamental basis of our fixed fee and take-or-pay contracts is what driving stable cash flows and we expects that to continue as Robert pointed out in 2016. Our gathering and processing assets are located in exactly the right areas and when you do the research and you look at that new production coming on, you can see a multiple locations that producers are making much better wells. We don't have to have as many rigs running. We don't have to complete and connect as many wells to keep volumes flat to up and on the margin if we see a slight improvement in gas liquids and crude prices next year as Robert pointed out that's more than enough to offset declines and give us growth in our portfolio. Our storage and transport assets are absolutely located in the right area whether it's the Northeast Marcellus or the trace Tres Palacious facility in South Texas. Those are long-term assets supported by long-term contracts with great creditworthy customers, they have great value to us and they will continue to generate strong cash flows and kind of left out in this quarter but not to be missed. It’s the tremendous job that our NGL supply and logistics team did with a very unique set of assets in the Northeast that is now and will continue to take advantage of the big increase in NGLs coming out of the Marcellus Utica. And the combination of our truck, our rail, our storage and our terminal business as well as the relationships we have with producers, processors and fractionators in that region will enable us to continue to access supply and either store it and resale it domestically or take it to markets and sell it into the international markets. So that's a growing area of the business and we really appreciate the great job they did in the third quarter and what they'll bring to us in the fourth quarter. So operator, thanks again and thanks to all of our investors for joining and we look forward to talking to you after the fourth quarter. Thanks.

[Operator:]

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