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spk01: Good morning and welcome to today's conference call to discuss Crestwood Equity Partners' fourth quarter 2020 financial and auditing results and 2021 outlook. Before we begin the call, listeners are reminded that the company may make certain forward-looking statements as defined in the Securities and Exchange Act of 1934 that are based on 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 results to differ. Additionally, certain non-GAAP financial measures such as EBITDA and distributable cash flow will be discussed. Reconciliations to the most comparable GAAP measures are included in the news release issued this morning. Joining us today with prepared remarks are Chairman, President, and Chief Executive Officer Bob Phillips, and Executive Vice President and Chief Financial Officer Robert Halpin. Additional members of the senior management team will be available for the question and answer session with Crestwood's current analysis following the prepared remarks. At this time, all participants are in a listen-only mode. session, follow the formal presentation. If anyone should require assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Bob Phillips.
spk04: Thanks, Maria, and good morning to everybody. Thanks for joining us on the call. Maria, you were cutting out just a little bit in the intro, so if my comments are cutting out as well, somebody please give us a message and we'll see what we can do about that. Again, good morning to everyone. Thanks for joining us. We're really excited about announcing our fourth quarter and 2020 earnings and giving you an update. on the business given everything that's been going on. I want to first say that we hope that everyone is still safe and healthy as we continue to navigate around the COVID-19 epidemic. And as we move into 2021, clearly the events of the last week or so, this recent winter storm has been uppermost on everybody's mind. So we hope everyone is safe and doing well and in the recovery mode. Crestwood continues to take these type situations very seriously. The health and safety of our employees, our contractors. Their families remains our top priority here at Crestwood. We do continue to monitor the state of the pandemic in our two corporate headquarters, Houston and Kansas City, as well as in all of our field locations across the United States. And we're continuing to monitor and operate according to local and state guidelines. So the pandemic is not going away anytime soon, and Crestwood continues to be focused on how to operate efficiently during this process. Even with all the challenges that we faced in 2020, our employees and our assets showed incredible resiliency. And I think that positioned the company to have the best year in its 10-year history. We generated $580 million of adjusted EVA DA and $360 million of distributable cash flow. Both of those were records, and they grew by more than 10% over 2019. They were well above the top end of our revised guidance range, above consensus across the board, and even above our internal budgets. And with our number one asset, the Aero system up in the Bakken, North Dakota, being shut in for 40%, over a two-month period in the second quarter, and Jackalope, our asset in the Powder River Basin in eastern Wyoming, being shut in for 50% for about six months out of the year, I think the results are even more compelling. It was good timing that in April of last year we acquired additional NGL logistics assets uh to expand our ngl platform and that provided an immediate step up in cash flow from those assets which fit seamlessly with our existing ngl logistics platform and as you know we talked about over the course of the last several quarters it added significant storage capacity to our portfolio which our team used very well during the pandemic Crestwood's diversified and integrated asset base performed very, very well in the face of last year's price volatility. And when combined with our strong balance sheet, it enabled the partnership to maintain a full distribution throughout the year while delivering very, very high coverage ratio of two times and a year-end leverage ratio of four times. Both of those metrics are best in class across our GNP peers. Most importantly, though, in 2020, we finally achieved our goal of generating positive free cash flow, and we expect to continue to grow that FCF throughout 2021. Now let's quickly take a deeper look at the results, starting with the Aero system up in the Bakken. It continues to be our primary driver here at Crestwood. It had an incredible fourth quarter outperformance. by achieving record volumes across all three products in that gathering system due to accelerated well connects, many of which were originally scheduled for 2021, but were brought forward by our customers into November and December. In addition to that, the wells continued to improve with IP rates that were consistently in the 5,000 a barrel equivalent per day range, and some were even as high as 10,000 barrels a day equivalent also. The wells have gotten bigger as producers continue to optimize their drilling and completion costs up there. The buck in play remains extremely economic. And as we look into 2021 in a $55 to $60 crude price environment, we anticipate a lot more activity in 2021. We expect 45 three-product wells to be connected to Arrow. 25 to 30 of those are ducts. and all of that new production is expected to drive growth in natural gas and produced water volumes year over year so we're looking for arrow to have a really good year in 2021. three issues that i want to touch on which impact the bakken first you might have noticed that we've had a lot of recent producer m a activity around our system and throughout the basin and that has put our customers many of our customers in very strong financial position to continue to drill and develop their acreage on the Fort Berthold Indian Reservation. And we think it also highlights, and if you look at some of those announcements, it highlights the great economics that our producers enjoy up there in the Bakken with the lower and lower drilling and development costs, the DNC costs coming down on a per-bud basis, and the well performance continuing to improve each year. Secondly, I want to talk about the Biden administration's ban on federal lands permitting. As you know, the Department of Interior has excluded tribal lands from those executive actions, and the BIA continues to issue new permits, new leases and right of ways. around the aero system. So I want to make sure that you're very clear about the impact of that executive order, the non-impact of that executive order on our aero system. And third, I guess we should talk about DAPL. It's been an issue for about a year now. We continue to monitor the legal developments around DAPL. Over the past six months, our customers have worked collaboratively with us and other pipelines to ensure that we have very attractive takeaway options on the Aero system in the event of a disruption in the future. The Aero system has current interconnects with Tesoro's High Plains pipeline, Kinder Morgan's Highland pipeline, in addition to DAPL. And I'm pleased to announce today that our commercial team up there recently added a new interconnect with the True Company's We're tying into the Bridger for Bears pipeline system, and when combined with High Plains and Highland, provides three pipeline outlets with capacity exceeding 120,000 barrels a day for our aero producers. As you know, in addition to that, Crestwood's integrated Bakken footprint provides our aero producers with access to trucking alternatives, and they can easily get over to our Colt hub, which has seen a big increase in new contracting and demand over the last few months. We think as a result of the uncertainty around DAPL. Just a reminder, Colt offers 160,000 barrels a day of rail capacity, 1.2 million barrels a day of crude storage. and connections to additional pipelines out of the basin. So while we expect the uncertainty around Bakken's full takeaway picture to continue until the DAPL situation is resolved, Crestwood does not anticipate any impact on our operations, and we remain well positioned to continue to provide our customers with attractive access to markets at very good netbacks. So I hope we've dealt with some of those issues in giving you that update. Moving down to the Powder River Basin in eastern Wyoming, as you know, Chesapeake Energy successfully exited bankruptcy. At the beginning of the month, they've got a new capital structure, lower operating costs. sufficient liquidity to operate their business. As you know, they got rid of a ton of debt. We think they're a bigger, better, stronger company, and that's going to work well for Crestwood in the future. During the fourth quarter, our commercial team proactively signed a new agreement with Chesapeake, which puts the company in a very strong position to develop and produce its acreage in the Powder River Basin with reduced fees in the short term that mitigate shut-in risk given all the price volatility we have out there, but incentivize rates that leverage new capacity additions to support new development over the next few years. Approximately 60% of Chesapeake's mineral acreage is located on private or state lands, and the company does have a significant number of approved federal permits in hand to continue to drill and develop over the next few years. And in the current price environment, our commercial teams are starting to have discussions with other producers in the basin for incremental activity, which we think will drive additional volumes through the jackalope system and the bucking horse processing plant. So we're pretty optimistic about the future of the Powder River Basin, particularly now that we're out of the Chesapeake bankruptcy. We have a really good contract, and we continue to have a good relationship with them and provide great services to them. Moving down to the Delaware Permian, we had a lot of activity in 2020. We connected 47 wells to our gathering systems. and we expect to connect uh 50 percent more than that in 2021 our systems are supported by strong counterparties as you know shell concho recently merged with conoco newbern one of the top independents out there in the basin and we have seen a lot of activity and expect more activity in 2021. our system is fortunately located on largely on private lands But even so, our producers have proactively applied for and received numerous permits on federal lands, ensuring that the executive action should have limited impact on our Delaware Permian system over the next few years. In addition to our gas and gathering and processing business out there, we continue to develop our produced water infrastructure business, which we built and got up in service in 2020, and we expect that system to continue to grow in 2021. With the anchor producer out there, a major of that development program, we expect material growth year over year for that. So that'll be a good contributor to that joint venture with First Reserve. uh in 2021 we like the delaware we like the acreage that we have dedicated to us we like the financial strength of our customers and the long-term runway that they have in developing the inventory and as you know the economics are better in the delaware than they are in any other shell play in the u.s so just to recap and maybe for those that haven't followed the company for a long time We've had to pivot Crestwood multiple times during the 10-year history of the company, which we started back in 2010 in a very high gas price environment. I remember natural gas was trading for about $5.50 in MCF back then when we purchased the Barnett and the Fayetteville gathering assets in 10 and 11 years. Then when gas prices dropped, we had to pivot to rich gas plays. We acquired the Southwest Marcellus system from Antero in 2012. And then in 2013, we pivoted to crude oil basins with the acquisition of the Jackalope Gathering System in the Powder River Basin and the Arrow Gathering System in the Bakken. We have continued to pivot when we needed to strategically to fulfill our mission. We did that again in 2017 when we started expanding our gas processing business in the Delaware, in the Powder, and in the Bakken. We spent more than a billion dollars to build out gathering and processing capacity in those three basins, and we really benefited from that in 2020 with all of that capacity. We didn't have to spend near as much capital, and we're going to benefit from that even more in 2021 since our major expansion projects are now complete. And when we do spend capital, it'll be expansions of our gathering systems to existing or production that's being drilled under existing contracts and existing rights. We've got a lot of excess capacity out there, and it's aligned with our producer forecast. So as we pivot again to a lower capital spend model, we're going to be focused entirely on free cash flow generation. This year, we expect our capital investment to be 72% less than last year at the midpoint. And most importantly, and I highlighted that in my opening comment, our free cash flow is expected to be between $90 and $160 million this after capital expenditures and distributions, and the finance team is going to use that to continue to delever and enhance our liquidity so that we can continue to be in a growth mode here at Crestwood. A couple of final notes, importantly, on ESG and sustainability. We had a great year in 2020 advancing our commitment to sustainability throughout the organization, and we were a leader in the midstream sector. Our ESG initiatives will be crucial to Crestwood and other midstream companies during the energy transition as it evolves. And Crestwood continues to encourage enhanced transparency and disclosure from the midstream sector. I'm proud to have worked with colleagues on the first ever midstream ESG reporting template. which we put forward through the Energy Infrastructure Council and the GPA and other industry trade associations and leaders. And Crestwood was one of the first companies to publish our performance using the new EIC ESG reporting template, and we did that in December. So that was quite an achievement for our team and our industry. At Crestwood, we continue to focus on diversity and inclusion initiatives. We've recently been recognized at Crestwood and have become one of only three midstream companies which were included in the inaugural Bloomberg Gender Equality Index. In addition, we've recently welcomed Ms. Fran Vallejo to our board of directors this month. Fran joined us in February. She's an experienced veteran of the industry, spent years at Conoco in finance, treasury, and strategic planning. She brings a lot to our board. We continue to seek ways to improve the delivery of energy safely and sustainability across our footprint. We also know this has to be an industry initiative. Therefore, we joined One Future, which is a coalition of 37 energy companies, which voluntarily worked together to reduce methane emissions to 1% or less by 2025. And to further showcase our commitment to methane emissions reductions in 2021, we're going to be tying a portion of our employee compensation to our methane emissions intensity reduction goal. We think this will help drive innovation and help us measure the impact of our footprint at Crestwood so we can continue to reduce emissions over time. And finally, while we still see volatility in the sector in 2021, We're increasingly optimistic about the year, and we see a lot of potential for increased activity. We're looking at a $55 to $60 a barrel crude price for the year. We're beginning to hear more and more positive outlooks from producer customers, and we anticipate a pickup of activity in our crude basins driving incremental volumes. We're also seeing very high gas prices and we've seen elevated natural gas activity over the past six months and expect that to continue as well. When we combine that with our stable cash flow contributions, not only from our GMP business but our bottle storage and transportation business and our NGO marketing supply and logistics assets, our outlook for 21 is increasingly bright. I think you'll see that in our guidance. I'm very pleased to have Robert review the 2020 financial results and give you some details around our 21 guidance. And we have the entire team here available to answer questions if you all have any. So, again, very optimistic about 21. And, Robert, I'll turn it over to you.
spk05: Thank you, Bob. As Bob highlighted in his prepared comments, I could not be more proud of the Crestwood organization and the financial results that the company delivered in 2020, a year that certainly brought its fair share of challenges on a number of fronts. Our diversified asset base generated record full-year 2020 adjusted EBITDA of $580 million. that up 10% year over year, and distributable cash flow of $361 million, that up 18% year over year, both above the high end of our revised guidance range. These exceptional financial results position Crestwood to maintain its distribution at $2.50 per unit for the full year, resulting in a full-year coverage ratio of approximately two times and a leverage ratio of four times. As we completed our major growth projects in the middle of 2020, the company also reached an inflection point of beginning to generate positive free cash flow in the third quarter and into the fourth quarter. Now moving to the quarterly operating segment results, in the gathering and processing segment, fourth quarter EBITDA totaled $128 million, an increase of 13% over $113 million in the fourth quarter of 2019. These results were driven primarily by the aero system in the Bakken. As producers accelerated 2021 well connections into the fourth quarter, at the same time, enhanced well completions continued to drive higher IP rates, resulting in record-gathering volumes in the fourth quarter for all three products, crude oil, natural gas, and produced water. During the fourth quarter, Crestwood had producer rig activity in the Bakken, in the Delaware Permian, and in the Barnett Shale, which will drive incremental volumes and momentum heading into 2021. In our storage and transportation segment, fourth quarter EBITDA was $15 million compared to $17 million in the fourth quarter of 2019. At the Stagecoach joint venture with Consolidated Edison, increased producer development driven by stronger dry gas economics resulted in record transportation volumes. At the Colt Hub, rail loading volumes increased 4% over the third quarter of 2020 as production from the basin continued to increase from the trough, which we experienced back in the second quarter. And finally, at Trace Palacios, Crestwood has continued to see increased demand for Gulf Coast storage assets and recently completed a connection to the Permian Highway pipeline that has already driven incremental producer interest. Finally, in the marketing supply and logistics segment, fourth quarter EBITDA totaled $28 million compared to $19 million in the fourth quarter of 2019. For full year 2020, the MS&L segment benefited from nine months of contribution from the NGL assets that Crestwood acquired from Plains All-American back in April of 2020, and that drove full year EBITDA of $89 million. Now, looking to 2021, Crestwood expects the NGL logistics business to continue to benefit from the integration of the Plains assets and additional opportunities to capture incremental market share. In 2020, Crestwood invested $144 million in growth capital, that at the low end of our revised guidance range of $140 million to $160 million. And our 2020 growth capital was front-end loaded, which allowed Crestwood to expand our GNP system capacities to meet long-term producer development activity, minimizing all future capital investments to WellConnects and minor gathering system expansions as needed around our systems. Now, moving to the balance sheet, at year-end, Crestwood had approximately $2.5 billion of long-term debt outstanding, including just under $1.8 billion of fixed-rate senior notes and $719 million of outstanding borrowings on our evolving credit facility, resulting in a leverage ratio of four times as of December 31, 2020. In January of this year, we opportunistically took advantage of a favorable high yield market by successfully issuing $700 million of new 6% senior unsecured notes due 2029. And in connection with the transaction, Crestwood tendered approximately $400 million, or just under 60% of our outstanding 6.25% 2023 notes. After closing of these transactions, Crestwood had approximately $2.1 billion of senior notes outstanding and $430 million drawn on its revolving credit facility, but will plan to repay the remaining 2023 notes still outstanding in April of 2021 when those notes become callable at par. This transaction allowed us to push our next nearest term senior note maturity out to 2025 and reduced our annual interest expense by around $2 million per year. Now, looking forward to 2021, we expect producers to remain disciplined in their spending and focused on measured growth that supports balance sheet strength and free cash flow generation. Based on current producer forecasts and our forward outlook for commodity prices, we expect our assets to generate adjusted EBITDA in the range of $550 million to $610 million for 2021 and driving distributable cash flow in the range of $320 million to $380 million, and between $90 million and $160 million in free cash flow generation after total capital expenditures in our current distribution. As discussed in our press release this morning, our guidance range generally factors in our estimates for cash flows under various sensitivity cases of commodity prices and ranging from $45 to $50 per barrel on the oil side at the low end of our range up to approximately $60 per barrel on the high end of our range. At the current crude oil prices of approximately $55 to $60 per barrel average for the year, we anticipate that our producer customers will connect approximately 140 wells across our gathering assets driven by the completion of duct inventories and incremental rig activity in the Bakken, ongoing rig activity in the Delaware Permian, as well as the current rig activity that we're seeing in the Barnett. In the S&T segment, our Stagecoach assets are almost fully contracted for the year, and the Pult Hub continues to benefit from increasing demand for rail loading services as customers plan around the potential event of a short-term DAPL shutdown. In the MS&L segment, the MGL logistics team continues to optimize our expanded asset base, which we acquired in 2020, and maximize opportunities to further gain market share here in 2021. In 2021, Crestwood will continue to focus on maintaining our strong financial position and estimates the full-year distribution coverage ratio at the current distribution level of 1.7 times to 2 times based on our guidance range and a leverage ratio of 3.75 times to 4.25 times, which is nearing our long-term objective of 3.5 to 4 times as we have consistently communicated over the past several quarters and years. Our total capital investment for 2021 is expected to include $35 million to $45 million in growth capital and $20 million to $25 million in maintenance capital. At the midpoint, this represents a 72% reduction in growth capital year over year and includes the optimization and enhancement projects at Arrow and WellConnect Capital in the Powder River Basin and the Delaware Permian. Crestwood intends to finance the entirety of its 2021 capital budget through retained operating cash flow. So despite the many challenges in 2020, Crestwood had one of its most successful years to date, and we certainly intend to build on that momentum in 2021. With the improvements we've seen in commodity prices here at the first start of this year and the very positive momentum from our producers, we continue to get increasingly optimistic around the range of cash flow that we've put out and expect to deliver a very solid year's Our dedicated employees, our diversified asset base, and our strengthening balance sheet continue the company to continue to execute on its plan to deliver strong results year over year and drive continued increasing value to our unit holders. At this time, operator, we are ready to open the lineup for questions.
spk01: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For our participants using speaker equipment, it may be necessary to use your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is with Tristan Richardson from Truist Securities. Please proceed with your question.
spk07: Hey, good morning, guys. Really appreciate all the comments on the BAC and your assumptions there. Just a quick question on your WellConnect assumptions there. You may have mentioned this with respect to ducks, but just on the WellConnects in 2021, do we need to see directional improvement in customer rig activity to hit that type of completion run rate you talked about at the low end, or given the duck count
spk05: you could see that without any change to rigs no that's correct christian at the low end of the guidance range roughly 31 well connects in 2021 on the aero system the vast majority that almost all of that is covered with current activity and ducks 27 ducks currently on the system to complete those helpful thank you and then just thinking about the the aggregate alternative takeaway options you guys talked about
spk07: Can you divide that up for us in terms of either pipeline versus rail and or destination point?
spk04: Yeah, Tristan, Diaco Avica runs that business for us. He's been instrumental in not only mitigating our CDP delivery point activities, but working with our producer customers. And let me just remind everybody that we gather the oil production and we deliver it where our customers want to. They're the ones that are largely responsible for making sure that they've got adequate contractual takeaway capacity and that they nominate to those points and they earn capacity when there's an allocation on those downstream pipelines. So, we've had six, maybe nine months now that we've been working on this with them. We've moved a ton of crude off of DAPL and on to the other pipelines. When we talk about capacities and arrangements, we're talking about the physical interconnects that we have made, both invested the capital to make the hot tap and the meter runs, build the interconnects, tie it to our system, get the pressures right, pumps when necessary. And in addition to that, we've made sure that all of these facilities are up and running, operable. We've moved production through them. We've tested those. And all of our customers have worked with us to actually nominate volumes to those various points. This is not a theoretical exercise, with the exception of the brand-new point we talked about with True. So, Diaco Avica has run this business. Diaco, why don't you walk through pipeline by pipeline and how we think about takeaway capacity so that they can add it up and, I think, ultimately get to a couple hundred thousand barrels a day of capacity.
spk03: Yeah, thank you, Bob. Let me take it over from here. So if you look at the Arrow system, it's located in Johnson Corner, which is the most liquid point in the Bakken from a pipeline takeaway perspective. The three additional takeaways that we have beyond DAPL on the pipeline side are Tesoro High Plains, about 60,000 barrels a day, Kinder Highland at 30,000 barrels a day, and then True Company is currently at 30,000 barrels a day, and we're looking to expand that. So you add those three up, that's 120,000 barrels a day. And that doesn't include our central aero CDP truck away capacity of 25,000 barrels a day that we can run up to Colt and move barrels via Colt, not just by pipeline, but via truck too. Does that help?
spk07: Absolutely. Thank you guys very much. And then just one last one for me, if I could. Rob, you talked about the progress on some liabilities management activities. Do you Do you see more opportunities for that this year, maybe thinking specifically with respect to the corporate preferred?
spk05: Yeah, Tristan, it's a great question. I think that, you know, as we've communicated over the years, you know, our primary focal point was to continue increasing utilization and cash flow generation from our asset base, particularly as we've concluded our capital program, you know, back in the midpoint of 2020. As we guided with $90 million to $160 million of free cash flow generation after all capital requirements and after all distribution payments, you That gives us a tremendous amount of incremental flexibility to further optimize and drive lower cost of capital and enhanced capital structure. So I think, you know, as we've communicated, we're still pretty laser focused on realizing absolutely our long-term leverage objectives of three and a half to four times first priority. As guided today, we expect to be within that range by the end of the year pretty comfortably. And I think we, you know, tend to like the lower side of that versus the higher side of that. But certainly as the cash flow ramp takes place, we'll continue to look at incremental optimization opportunities, you know, across the structure and ways to drive greater return on capital and realize greatest amount of financial flexibility for the long term. Thank you guys very much.
spk01: Our next question is with Vinay Teh.
spk00: Hi, guys. Good morning. I just quickly wanted to follow up on GNP segment for 2021. I appreciate all the commentary on WellConnect you have disclosed for the next year, but just trying to compare it with what is required to maintain current cash flows and if you see any cash flow increment compared to 2020, and especially with what's going on in the Colorado River Basin and with Chesapeake Bay. If you could share any commentary how the cash flows would be impacted, that would be very helpful. Thanks.
spk05: Yeah, sorry. I was kind of breaking up a little bit there on that. But I think that the general question was just trying to kind of bridge from activity levels and on the GNP segment, you know, kind of where we were in 20 and where we exited 20 and then kind of trajectory heading into 21. And I think, you know, obviously the GMP segment had an exceptional fourth quarter. That really driven by, as we talked about, that acceleration of duct completion activity in the Bakken with 21 well connects, you know, in November and December. With the performance of those wells, we saw record production throughput, you know, on the aero system. And as a result, you know, tremendous contribution from that asset in the quarter. As is typically the case when you think about cadence of well completion activity in 21, oftentimes our producers, particularly in Wyoming and North Dakota, you've got the wintertime to contend with in the January, February, and even March timeframe. And so we usually see a little bit of slower activity in those months in the plans and then a continued ramp heading into the springtime, summertime, and then the third and fourth quarter of next year. So based on kind of current outlook and the guidance range that we provided with the roughly 140 well connects across the system, and I would posit that we're growing increasingly optimistic around that number and potentially enhancements to that number as crude prices continue to improve. But with that level of activity, we should see pretty stable cash flow generation every single quarter throughout 21. So we'll see, you know, relative to where we exited 20, you know, fairly flat, a little bit down in the first quarter as the completions lag in the Bakken until we get to the summer timeframe. And then that rampant activity that drives an acceleration into the back half of the year. So all in year over year, pretty flat segment of segment.
spk04: He might have also, let me just add color to that, he might have also been asking, what does it cost to keep GNP cash flow relatively flat? And that's actually a great part of the Crestwood story for 2021. We've only got to spend $30 or $40 million of new WellConnect capital in three different areas, Bakken, Powder, and Delaware. All three of those are tying into existing pads where ducks exist. under existing contracts, very accretive investments, very high return because they're literally just short lateral extensions or the addition of pumps or compressors to add additional production from wells that were largely drilled last year and are just waiting to be completed. You know, it got kind of interrupted due to the pandemic. But for a company of this size to be able to keep GNP cash flow, which is about 70% of the total, flat on only $30, $35, maybe $40 million a year of additional capital, those are pretty impressive numbers, guys. And the maintenance capital remains right in the range of about $20 million a year. The big change there is is this year we've got a pretty sizable amount of new, what we call ESG capital, where we're really starting to spend money to add technology around our emissions reduction, and that's the reason why we were so confident in coming out with an emissions reduction goal and adding that. to our incentive compensation program. So all in all, for a company this size to spend only $50 million a year to basically maintain integrity of assets and operations, good reliable services, and to add some additional volumes on wells that are already drilled, that's a pretty impressive place to be coming off a year like 2020 and going into a year like 2021.
spk00: Got it. That's very helpful, guys. Just wanted to follow up on asset divestiture here. So you guys did previously discuss about looking for any opportunistic asset sales. Your partner in Stagecoach has announced their intention to sell their stage previously. So just trying to understand, would Presscode be willing to participate in the sale if the terms were attractive? And if you had thought about how those cash flows would be utilized?
spk05: Sure, yeah, I'm still kind of catching every other word, breaking up just a little bit, Vinay, but I think that the question was around our kind of what's been in the marketplace on Con Edison's interest in potentially exiting its interest in our Stagecoach joint venture and how would Crestwood potentially participate in that. So, obviously, as there is an evaluation process ongoing, not at liberty to speak significantly openly on that, but I think it's consistent with what we've communicated in the past about We do see a tremendous amount of value in that asset for the long term, and I think the market does as well. And I think Crestwood, while we absolutely love the positioning of the asset, we love the long-term fundamentals that support that asset and the contracted nature of it, I think we certainly will be participating actively with Con Edison as it evaluates what it wants to do. And if there were opportunities for us to participate, we'd have to entertain those. I think that our objective is to continue to be a great partner up there, to continue to operate the assets to the best of our ability, and then see how their ultimate process plays out and what that potentially means for us. So not really at liberty to speak beyond that, but I think, you know, it's an ongoing evaluation and one that we think will garner a lot of attention from the marketplace and one that we are extremely excited to participate side-by-side with Con Edison around.
spk00: Sorry, thanks. Just following up there, can you share any timelines of how the process could go on here? Like anything you could disclose, otherwise that's it from me. Thanks.
spk05: Yeah, not really anything I'm at liberty to discuss right now.
spk00: Got it. Thanks for all the commentary. Thanks. Have a good day.
spk01: Our next question is with Shnu Jaguni with UBS. Please proceed with your question.
spk09: Morning, everyone. Just to start off, just to confirm your response to the last question on the stagecoach asset. So you're willing to participate in the sale process, but is it fair to conclude from your remarks that you're not going to buy it from them?
spk05: Correct? I would say that's generally a fair statement. I think that the asset is one that is extremely – it's very irreplaceable in the marketplace. Its value is extremely solidified as a result of the contract structure and just the positioning to deliver critical infrastructure solutions and gas to the markets up in the northeast. And I think that, you know, the interest level that we expect will be garnered around that and kind of the type value expectations are probably prohibitive for us. But I think we will continue to operate and maintain our position as a great partner up there. And if there's avenues for us to participate in that, you know, potentially would investigate those.
spk09: Okay, great. I appreciate that color there. Maybe it's a follow-up question. Just kind of wondering if we can dive into the new Chesapeake contract and the incentives around it. If I understood correctly, there's incentives there for them to drill wells that don't require capital on your end. At the same time, it seems their outlook doesn't seem to have any worries in the PRB at this stage right now. Can you sort of give us some thoughts or color on when we would see some activity around those assets?
spk05: Yeah, I mean, while I can't speak definitively on what Chesapeake's intents or actions are. What I can tell you is what we've generally discussed with them anecdotally in the past and kind of the rationalization for our commercial agreements that we reached with them back in December. So you're correct in the structure. The way that it's intended to work is that Crestwood was able to provide some short-term incentive rate relief to help mitigate any potential curtailment or shut-in risk. That's obviously out of the question with where pricing levels are today. But also, and probably most importantly, incentivize incremental activity over the next couple of years on the system. And in exchange for that, the activity to qualify for the incentive has to require no capital for us. And it has to be, you know, capital efficient. And we think that given the pricing environment of where we are today, the likelihood of that occurring is pretty significant. Chesapeake does have four ducts on the system that'll be completed this year. And the general framework we've heard historically is kind of that $60 price level is an attractive level. And obviously with where we are today, we think there's good momentum around that, but nothing definitive at this point.
spk09: Okay. And can you talk about whether there are any incentives in place with Devon or CLR right now to try and grab volumes, either along the same lines or something a little different?
spk05: No, no incentives. I mean, obviously, those are sizable customers in the basin or sizable producers in the basin that we'll be focused on from a commercial standpoint and have continued active discussion with both those companies across this basin and other basins, so have a good commercial relationship with them and would certainly be focused on trying to be part of their solutions, but no definitive answers there.
spk04: Engineer, just to add a point on the powder, you know, for us, that is a very long-term asset that has tremendous long-term potential. We have spent the money. We built the system out. We built the compression out. We built the processing out. We have several hundred million a day of total capacity there. running about 100 or a little over 100 million a day today. We don't have to spend any more money other than to connect wells or pads from producers that drill on or near our existing gathering system. We think we're the best positioned gas gatherer processor in the basin. We've got a lot of very financially strong producers all around us, The commodity price deck out there in the powder looks very favorable for 21 and 22. And now our number one customer who's under a long-term contract is financially strong again, too. We're not in any real hurry for him to have to start drilling up there. And actually, we're spending a lot of time talking to third parties who are quite attracted to the capacity we have and the competitive position that we have in the basin. Chesapeake will get around to drilling this basin again. They've got a huge acreage position. The wells are incredibly economic. But now that they've just emerged from bankruptcy, they've got some other opportunities, particularly in the dry natural gas plays where I think they're focused. And from an economic standpoint, that's probably where they should be focused right now. We're just happy to have all this behind us. We remain the number one GMP operator in the basin. The basin has started to show some life again. People are starting to look at buying acreage and or buying beginning to put development plans in place. So we'll see plenty of Powder River Basin activity over the next couple of years. And by the way, we don't have anything in our 21 plan. That guidance doesn't really project a whole lot of additional activity other than those ducts and some third-party wells that we have under contract that we're going to connect.
spk09: Great. And maybe one final question, just given the unfortunate weather impacts in Texas over the last week and a half or so, Do any of your assets potentially benefit from the storage position that you have in Texas? Do you benefit either from the higher prices or from more turns on the asset? Just wondering if you can give a little bit of color on that.
spk04: We really don't because we're not a commodity player trader in this business. We're a service provider to a large extent. I think last week's weather event was a microcosm of what we experienced in the second and third quarter last year due to the pandemic. When you have this extreme and extraordinary unprecedented demand events, in this case last week, coupled with an unprecedented supply event, then there's an obvious call on storage. And there was a call on our storage, particularly at Trace Palacios. I want to compliment our operating team down there. They kept that facility going despite losing power. They went on backup generation. While we did have some dicey moments down there due to the weather, our guys performed admirably. We met all of our firm customer obligations. Mark Mitchell's here. He runs that business for us. I would guess that we're one of the top performing storage facilities on the Gulf Coast during the last week. Mark, you want to comment on the market around Trace?
spk06: Yeah, and I appreciate the comments on the events of last week, Bob. And I would say that, in general, over the last three years or so, we have seen a continued increase in demand for storage at Trace Palacios, in part due to a lot of the factors that you're aware of with LNG development in the Gulf Coast right around us, the growth in demand in Mexico, proliferation of the gas coming out of the Permian and the pipes. Got a connection this year to Permian Highway Pipeline, which is going to help us with our activity with producer customers. And I think that, you know, as a result of the events of last week, it just reinforces the importance of storage long-term and its support to the gas infrastructure in times like these. And so we do believe we will continue to see interest in our facility there grow. Great.
spk09: Thank you very much, everyone. Take care and have a safe day.
spk04: Thanks, Yunar.
spk01: Our next question with Alvira Scott with RBC Capital Markets. Let's proceed with your question.
spk02: Hey, good morning, everyone. I hope you're all well. A few follow up questions here. So if DAPL were to temporarily shut down, I mean, how quickly could you ramp service on hold?
spk05: Yeah. The answer to that, Elvira, is immediately. I mean, it's obviously servicing customers today. We've been working with our customers, both direct arrow customers and third-party producers in the basin, trying to market their barrels out. And I think that, you know, there's been a lot of increased demand and some contracts executed there around uncertainty with DAPL. So short of it is, We can certainly provide service for all the demand that exists today. And with some very minor modifications, just enhancing it to a 24-hour service, we can uptake all the way to full capacity levels pretty quick.
spk04: Yeah, I might also add, you know, we've got 1.2 million barrels of storage there, and we don't sell all that capacity to third parties. We keep a fair amount of that capacity back so that our Crestwood crude services team can help manage the marketing of all these barrels, particularly off of the Arrow system. We have a priority focus on making sure that all of our Arrow customer barrels get marketed first, And that cold has a significant amount of both storage, pipeline, truck, and rail capacity available for the aero customers should they need it. Now, you know, typically around the mid-middle part of the month, 17th, 18th of the month, you get nominations in for the following month. So it's not like all this happens overnight. Right. And to the extent that there's continued planning and collaboration and communication between all the customers, all the pipes, our CCS team and our coal team, we're going to make sure that all the barrels flow.
spk02: Great. Thanks. And then on Arrow, I know you have – you have excess capacity there, but assuming kind of mid $50 to $60 crude oil price, like how much runway do you have with your processing capacity? I mean, at what point do you think you would need to actually add more capacity?
spk04: I'm going to give my friend Diaco a chance to think about that for a second because he deals with this issue every day. We have been so fortunate to build the processing complex that we did several years ago. We built a $30 million a day first and then came back with $120 million a day. So we've got 150 or so of capacity. We would obviously fill up our plant first if we had too much gas. And then we have an offload connection to One Oak that has been in place since the beginning of the gathering system back in 2011. We canceled that contract several years ago when we made the decision to build our own plants at Bear Den. But that interconnect point has remained operable. From time to time, we actually flow gas there. Oftentimes they need a little gas, we help them out. Sometimes it helps the system to unload some gas over there when maybe we're pressured up, when new wells come on. And so we work with 1-0 very, very well to make sure that that's an open point. I think it was 55 million a day, is that right? Was the capacity there?
spk03: That's correct, Bob.
spk04: Yeah, so I think we'd have to get close to 200 million a day of total gas gathering capacity. at some point in time before we would ever consider investing in additional plants. And I'll be honest with you, there's a lot of excess plant capacity up there in that basin in areas that are not what we call core, that are losing volumes. Some of these second and third tier plants have a lot of capacity, and there's a number of guys that reach out to us from time to time looking to see if they can make interconnects and we can give them some additional gas so i don't think the basin is ever going to run out of plant capacity and certainly we're not going to ever hit a situation where our aero producers natural gas is having to be curtailed or flared in fact i'm very very proud of our team with our flaring statistics last year notwithstanding all the shut-ins and all the production volatility that went on we were one of the very few gathering systems that actually met the state requirement last year on flaring maximum. So really proud of that. I think we're in good shape to gather and process all the gas that we have, but we certainly have offload points if we need it. Jaco, you want to add anything?
spk03: Thank you, Bob. You don't need my help. You did a great job. One thing I will add for Yale's Aero is that we actually also have a considerable amount of storage capacity at Aero that hasn't been highlighted. We've got 250,000 barrels of storage at Aero, which is significant when you think about that. We've got tons of ability to help our customers. We don't feel concerned at all about that and a lot of runway for growth if needed.
spk04: That's right. And building out an expansion on the water system, too, which is the majority of the capital that we're spending in 21 up there is the produced water system going to an area that we had not previously served but under contract with one of our very important customers, Interplus, who you might recall recently acquired Bruin. So they've consolidated acreage all on our system, and we're really excited about their 2021 capital program.
spk02: Great, thanks. And then just my last question. So I know you touched on this before. You're close to reaching your leverage target. What are your, you know, I know you talked about optimizing your capital structure, but what are your capital allocation priorities kind of after that? And maybe in that, you know, you can talk about, you know, distribution increases, but also kind of how you're thinking about M&A, especially since I think we've started to see a little bit of M&A pick up and, you know, saw a deal announced last week in the mid-conflict.
spk05: Yeah, it's a great question, Elvira. I think, you know, as you said and as we've communicated, you know, with 2021 and the cash flow generation that we expect, First priority is getting to the leverage target. We think we'll achieve that this year, over the course of this year. And I think that, you know, beyond that, we have a handful of opportunities to invest that incremental cash flow generation, you know, in the capital structure, as well as, you know, a continuation of finding attractive opportunities around our assets, whether synergistic, bolt-ons, or consolidation plays. I think that the prioritization of that, obviously, is a function of how the market continues to evolve and move and kind of what assets are available and how our capital structure continues to evolve. We like the risk profile of guaranteed returns and continuing to enhance our long-term financial flexibility, while at the same time, we obviously also like continuing to increase our competitive positioning and advantages around the core basins that we operate in where we have those kind of top-tier franchise positions. So it's hard to precisely, you know, to take where we expected to allocate those dollars and enumerate those dollars specifically today. Obviously, we're very happy and fortunate to be in a position where we have those dollars. And as the year progresses, we'll continue to optimize how we make the best return on that and position our company for the greatest long-term success.
spk02: Great, thanks. Stay well, everyone.
spk04: Thank you.
spk01: Our next question is with Ned Barimov with Wells Fargo. Please proceed with your question.
spk08: Hi, good morning. Thanks for taking the question. Just looking at your guidance for the storage and transportation segments, it seems that the expected contribution in 2021 is about $10 million, give or take, lower than the guidance you had for this segment in 2020. Could you maybe talk about what is driving the year-over-year decrease? I mean, given the higher contracting on Colts, the increased demand for Trez Palacios, and then the typically stable cash flows from Stagecoach, I would have expected this to be either flat or slightly higher.
spk05: Yeah, the primary driver of that is to a small extent, very small extent, the state facility. But the biggest driver of that is really on the Colt asset. And while we have seen increasing demand for rail-loading services, that's traditional rail-loading services at that margin, if you will recall back in the second quarter of 2020, That asset performed exceptionally well in connection with the shut-in volatility and utilization of our storage and other positions we have up at Colt. And so I would say that the second quarter results of last year were indicative of how that asset can perform when those type of events take place, but probably not a base level of cash flow that we would underwrite as being year-in, year-out repeatable going forward.
spk08: Got it. And then My second question, can you maybe just talk about the APEX you incurred to complete the Arrow connection with the True Companies pipeline in the back end?
spk07: Zero.
spk08: Zero, none. Okay, that's great. That's all I had today. Thank you. Thanks, Ned.
spk01: Ladies and gentlemen, we have reached the end of the question and answer session, and I would like to turn the call back over to Bob Phillips for closing remarks.
spk04: Thanks, Maria, and thanks again for all the great questions. And as always, we appreciate everybody's interest in Crestwood and the support of our investors, our customers, our employees, and friends of the company. We had an outstanding year in 2020 despite unprecedented market conditions. To me, that speaks to the diversity of the portfolio. and the ability of our 30% storage transportation and logistics business to offset any kind of disruption in production in our GNP business. That's the easy way to understand what happened. The reason for the big increase year over year was because we invested a lot of money in the last three to four years in building out the infrastructure. And that is the real benefit going forward to generate hopefully $100 million to $150 million a year of free cash flow after distributions. That, again, is a result of years of investment in the right place, great acreage, financially strong customers. and a very constructive price stack at $55 to $60 a barrel. There is upside to this, and we put that in the high side. There's also downside if the pandemic roars back and we see a slowdown in the recovery. And as a result, we see a big impact on oil and gas production. We don't think that's going to happen. We think we've been pretty conservative in our guidance. We're particularly optimistic about how well our assets are running today, coming out of the fourth quarter with a lot of year-end losses. uh exit rate volume and a lot of positive momentum here in the first half of the year but we do expect drilling and development to pick up in the second half of the year as prices get a little bit higher and a little bit firmer and producers get comfortable with this price deck throughout the year many have been hedging at these higher prices and are locking in really good commodity prices and good netbacks for their production. So while it may feel a little slow to start the year, particularly with the weather event that we had last week, uh we certainly think that's going to pick up steam later in the year i want to highlight esg one more time it continues to be something that's very important to us at crestwood because it's important to our investors it's important to people that support the company we remain committed in all facets in admissions reduction in diversity and inclusion and improving our governance structure Crestwood is a unique MLP out there in that we have consistently provided distribution and good return to our investors over the last several years. And I think that consistency and stability is a very important aspect when investors think about making an investment in Crestwood. We're very comfortable where we are financially. Robert and the finance team have done a great job of navigating these market conditions over the past couple of years. We're happy where we are from a leverage standpoint, but want to continue to improve and deliver the balance sheet, all creating liquidity so that we can be opportunistic when opportunities come along for us to grow the business in the areas that we operate or in the businesses that we're very comfortable with up and down the value chain. So I'm really excited about 2021 as we start our second decade here at Crestwood. Thanks for everybody's time this morning. We look forward to talking to you again throughout the year. And I know we have a number of investor conferences starting up this week, so I'm sure we'll have one-on-one time with many of you that are on the call. So thanks again, everybody. Hope that you stay well, stay healthy, and continue to have a good year in 2021. Thanks.
spk01: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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