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spk09: Good morning and welcome to today's conference call to discuss Prestwood Equity Partners' acquisition of Oasis Midstream and its third quarter 2021 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 Security and Exchange Commission Act of 1934 that are based on assumptions and information currently available at the time of today's call. please refer to the company's latest filings with the SEC for a list of risk factors that may cause actual results to differ. Additionally, certain non-GAAP financial measures such as EBITDA, adjusted EBITDA, distributable cash flow, and free 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 Houghton. Additional members of our senior management team will be available for the question and answer session with Crestwood's current analysts following the prepared remarks. And at this time, I'll turn the call over to Bob Phillips.
spk03: Thanks, Josh. Thank you, Operator and President. Good morning to everybody. Thank you for joining us early today. This morning, we're very pleased to issue two press releases, and we've also posted a brand new investor presentation on our website, which I would encourage everybody to take a look at. It's got some good stuff in it. First, I want to let you know that we're very pleased to report another really good quarter in the third quarter, another consecutive quarter of outstanding financial and operational results. It again highlights our diversified midstream portfolio. And once again, we've seeded consensus forecast. So really proud of the quarter that we just announced. Importantly, during this quarter, we continue to operate the Crestwood way. We're optimizing our assets across all basins, maintaining our capital discipline, spending less than our budget, We generated free cash flow after growth capital and distributions for the fifth consecutive quarter. That's really important to us. And we kept our leverage at approximately three and a half times or below well within our target. All of this while keeping our momentum going to exceed the upper end of our 2021 guidance range, which was $570 million to $600 million of adjusted EBITDA. I do hope with all that we're announcing today that it's not lost in all of this, that while our Bakken operations, again, greatly exceeded our expectations and continue to really do very well up there, we've made really good progress in the Powder River Basin with our continental deal that we announced and in the Delaware Basin with a big expansion of our NOVO contract relationship. And both of those announced transactions will drive long-term growth. in those basements too. So we've got a lot going on at Crestwood across the board. I'm obviously also very proud of the great job that all of our teams did during the third quarter while we were working on the second press release where Crestwood announced that we entered into a definitive agreement to acquire Oasis Midstream in a stock and cash transaction valued at about $1.8 billion. I think Oasis Midstream is an excellent midstream operator in the Bakken. They've got very, very complimentary assets to both our Williston footprint and our Delaware footprint. We think the merger makes exceptional industrial logic as we smartly expand our footprint in those core basins. Makes a good deal of sense for both master limited partnerships as the midstream sector begins to consolidate, as we should. to generate better returns for our investors. And I can really call this a win-win-win situation for CEQP, OMP, and OAS. We're really pleased with this deal. The combination, as you'll read when you look through our materials, positions Crestwood as a top three midstream company in the Bakken. It adds another great Bakken producer to our portfolio in Oasis Petroleum, more than triples our dedicated acreage. doubles our inventory of Tier 1 drilling locations and creates numerous synergies, including about $25 million a year in cost savings and about $20 million a year in commercial growth opportunities or revenue enhancements. But most importantly, it saves capital by optimizing the excess oasis processing capacity for the increasing gas volumes on the aero gathering system. And I might note that Aero recently gathered 155 million cubic feet per day. This is all happening while Bakken-wide the GORs are increasing, as we all know, and flare capture is definitely improving in that basin, which bodes well for increased gathering and processing volumes in the future. Really excited about how this combination tracks our long-term strategy. We've messaged this for the last couple of years. We have some very important financial metrics, and this deal checks all the boxes for value creation. We think it's a great follow-up to the first reserve buyout early part of the year and the stagecoach divestiture, which we completed in July. And this deal is going to make a great 2021 for Crestwood. So let me give you some of the transaction specifics, and then I know you'll have questions for us. This is a cash and equity transaction, and it's structured to maintain our very conservative metrics. And please understand that we have worked hard to protect and preserve our balance sheet and our liquidity, and I think this transaction allows us to grow substantially in the areas that we know best, so preserves our balance sheet. Chriswood's going to issue 33.8 million new CEQP common units, and we're going to provide $160 million in cash in this deal, as I said, valued at about $1.8 billion. It's an at-market transaction compared to yesterday's close, and it gives Crestwood about a $7 billion enterprise value, so definitely checks the box on size and scale. The purchase price implies about a 7 to 8 times EBITDA multiple on 2021 cash flow, with clear opportunities to bring that multiple down significantly over the next couple of years in 22 and 23 as we realize cost synergies, we execute our strategies on integrating the businesses and commercializing the combined footprint. The deal is clearly going to be accretive in 22 and beyond. It maintains our target leverage ratio at three and a half times and driving that lower over time. It preserves our substantial liquidity and it enhances our overall credit profile. So, as I said, it checks all of our boxes from a strategic and financial standpoint. We think the rationale for the deal is compelling and think it will make logical sense for investors and industry players alike, which have all been calling for consolidation and optimization of existing midstream infrastructure. It still clearly hits the mark on all those points. Combination greatly expands our Bakken operating footprint, which is our most important and profitable core area. We know the Bakken well. We've been there since 2012 and 2013 with the acquisition of Colt and Arrow. We've got an outstanding group of employees up there that run our business well, great producer contracts and relationships. It really is our favorite place to do business. And importantly, the Bakken continues to trade at very high oil prices. In fact, Check the quotes this morning. It's trading a little bit over WTI, probably has the best oil price and netbacks of all the major oil plays across the country. With approximately 535,000 acres dedicated to us after close, our assets will extend well beyond the aero system on the Fort Birchhold Indian Reservation. And that expanded reach is going to give us a much more competitive position for third-party opportunities as we see Western development across the Williston Basin. The merger clearly gives us Bakken scale, makes Crestwood a top three midstream player in the Williston Basin. And importantly, on a combined basis, we will have four processing plants, and about $430 million a day of processing capacity. That will be 76% utilized, giving us a lot of excess capacity, about $100 million a day of immediately available processing capacity to utilize for increasing gas production from our aero customers. That has continued to exceed our expectation and is now pushing up against fair den plant capacity. great synergy in the combination of our aero business, our aero plant complex, and the Oasis Gathering System and Wild Basin processing complex. Based on current production forecast, if you follow the BACA, and I know many of our investors do, the North Dakota Petroleum Association expects Williston Basin processing capacity to be constrained as early as as 2024, so we're getting ahead of the curve, not only solving for increasing volumes on Arrow, but the opportunity to really be aggressive and chase third-party volumes that are in the area that we know about, would like to do business with. A lot of that's current existing customers with additional acreage that we just don't have room for at Bear Den, so this is going to be a great opportunity for us to expand our platform and be more competitive with third-party supplies. We're clearly going to avoid or alleviate potential constraints on the gas on the harrow production system. The third-party business is something that we've been looking at for a while, but we didn't want to expand the barricade plant, so this is a great fit for us. The estimated $25 million a year of cost savings and the $20 million a year of of commercial synergies or revenue enhancements to us is just icing on the cake for this strategically important transaction. And as I said, the macro environment in the Bakken and across the entire industry is ripe for additional growth in the near term. Let's don't forget about the Delaware Basin. That wasn't just a throw-in through this acquisition. We're also gaining crude oil gathering system with about 95,000 barrels a day capacity in the Delaware Basin. and a produced water gathering and disposal system with about 60,000 barrels a day of disposal capacity. I might point out that the asset map on slide 9 of our latest investor presentation illustrates the complementary fit with our existing Nautilus and Desert Hill system down in the Delaware area. Additionally, these assets are supported by a dedication with a very high-quality producer that we're excited to partner with on their development plans going forward. So a great combination of Bakken and Delaware really expands our footprint in both core areas. Now, the transaction clearly has a meaningful impact on Crestwood's overall financial position and scale. Pro forma, our enterprise value, as I said, will grow from about $5 billion to $7 billion. Our annual pro forma 2021 estimated adjusted EBITDA will grow to more than $820 million. Our leverage ratio will continue to be in the three to three and a half times by the end of 2022, which is where our leverage is today. So it's a leverage neutral transaction. And we believe that both rating agencies will view this transaction very positive given the enhancement to scale coupled with the strong balance sheet and the substantial total deleveraging of Crestwood if you factor in our preferred equity as Standard & Poor's does in their total leverage calculation. So going to be leverage neutral to bank and deleveraging to total leverage across our capital structure. And given the confidence and the growing free cash flow profile of this combined business, our ability to quickly integrate and bring those cost savings out, Crestwood will accelerate our previously announced plans to return capital to our unit holders. And we're going to be increasing the distribution by about 5% after the merger closes beginning in 2022. And I want to remind people that with all that free cash flow, we do have $175 million common and preferred equity buyback program that the board approved a couple of quarters ago, and that allows us to further enhance returns to investors and lower our cost of capital opportunistically as we enjoy the benefit of that growing free cash flow over the next two to three years. And I guess lastly, before I turn the call over to Robert, I really want to take a personal moment and compliment the Crestwood deal team led by Robert Haufen, our CFO, Will Moore, runs our corp dev, Jaco Beeky runs our tool group, Kurt Van Horn runs our back-end ops. These guys and all their support staff, too many to just work tirelessly over the last couple of months to get this deal done. We have a great Bakken team. We think we have the best Bakken team in North Dakota. They're chomping at the bit to integrate these assets and build Crestwood a bigger, better, stronger Bakken platform. I also want to compliment my counterpart, Danny Brown, the CEO of Oasis Petroleum and his team. They're going to become our largest producer customer and a major unit holder of Crestwood. Danny and I on both teams have developed good relationships through their acquisition of the Diamondback acreage on the FDR, on our aero system. And we have a good, strong working relationship. We really dug into each other's businesses through this process. We're going to work very well together. Oasis Petroleum is a financially strong, as you know, first-class E&P Bakken operator, and they share our vision of how to develop the Williston Basin both safely and responsibly. We're proud to be partners with them. and I know they are as well. And additionally, I should point out that they have assembled a first-class group of North Dakota employees across their Midstream franchise. It's a veteran group. They've been working up there for a while. These are great assets. They're going to fit well with us, and we're very excited to welcome those OASIS Midstream employees into the Crestwood family following this transaction. So I know you'll have questions on that note. I'm going to turn it over to Robert to discuss our outstanding third quarter and our financial outlook. And I just want to say go Astros today as we kick off the World Series here tonight in Houston. Okay, Robert, tell us about the third quarter. Thank you, Bob.
spk05: The OASIS midstream transaction combined with our strong third quarter results and new commercial contracts in the Powder River and the Delaware Basin make this a very exciting time to be at Crestwood. To touch on the results first, Our diversified asset base continues to outperform our expectations. This quarter, we generated $140 million in adjusted EBITDA, $86 million in distributable cash flow, and $18 million in free cash flow after distribution payment. We also completed the sale of Stagecoach gas services to Kinder Morgan and used our net proceeds to pay down outstanding borrowings on our revolver, which resulted in a leverage ratio of 3.5 times and accelerated the achievement of our long-term stated financial targets. Based on these exceptional results, the Board of Directors declared a distribution of 62.5 cents per common unit for the quarter, and on November 12th, the unit holders of record on November 5th. Now, looking at our operations for the quarter, the gathering and processing segment continued to benefit from favorable commodity prices and increased producer activity, resulting in EBITDA of $131 million, representing a 22% increase over the third quarter of 2020. During the quarter, Crestwood saw material increases in gas gathering volumes, highlighted by increases across the Bakken, the Powder River Basin, the Delaware Basin, and the Barnett systems. Additionally, commodity prices increased substantially over the quarter, which drove increases on our POP contracts in the Bakken and our POI contracts in the Barnett. While a majority of our GNP contracts are fixed fee, we do have a meaningful upside potential when commodity prices catch a tailwind. Conversely, as a part of a conservative risk management program, we have an active hedging program which appropriately manages downside exposure if prices were to reverse. Now moving to the S&P segment, as part of the divestiture of Stagecoach Gas Services this past July, we expect to close on the sale of the final subsidiary, TwinSeer Pipeline, in November. This will result in an additional $30 million in proceeds or $15 million net to Crestwood that we will use to pay down the revolver. In the MS&L segment, EBITDA totaled $12 million, which was flat when compared to the third quarter of 2020. As we prepare for the upcoming winter season, we are well positioned to optimize our asset storage capacity and inventory to meet the increase in demand despite MGL market backwardation during the third quarter. As we look forward to year-end, based on our strong year-to-date performance and the current favorable commodity price environment, we would expect Presswood to meet or exceed the high range of our adjusted EBITDA guidance of $570 million to $600 million for 2021. As Bob said at the beginning of the call, we have been very busy these past few months. In addition to the OASIS midstream acquisition, our commercial teams have done an exceptional job leveraging our existing assets to generate some big commercial wins in the Powder River Basin and in the Delaware Basin. In the Powder River Basin, we entered into a long-term agreement with Continental Resources to support them in the development of a large acreage position in Converse County, Wyoming. We have begun construction on a high-pressure transportation line to connect Continental's acreage position into our bucking horse processing complex. Continental is an exceptional operator, and we look forward to building a long-term relationship with them in the coming years. On the investment front, based on the size and timing of the initial capital outlay for this project, Crestwood still expects our 2021 growth capital to come into the previously announced range of $35 million to $45 million all of which will be funded with pertained cash flow. In the Delaware Basin, we are pleased to expand our relationship with Novo that will result in over 90 new welcome actions to our willing system over the next 24 months. Based on the expected volume growth, Crestwood is relocating several compressor stations from our southwest Marcellus system to meet increasing demand for gathering services in the area and drive project returns. I want to congratulate our commercial, technical, and operations teams for working closely to manage our asset portfolio. Based on year-to-date financial results and the recent strategic initiatives, Crestwood has differentiated itself as a best-in-class GNP operator with significant financial strength. As a result of our dedicated employee base, and their track record of execution, we have set a strong foundation that provides the backdrop for Presswood to participate in industry consolidation with a logical acquisition of Oasis Midstream. This transaction makes Presswood larger and more relevant in our core basins and also enhances our financial scale and relevancy with our investor base. As we move into the final quarter of the year and work to close the Oasis Midstream transaction over the next several months, We are encouraged by the current commodity price outlook and the implications around our gathering and processing assets. We are excited about the enhanced scale, the operating leverage, and financial strength that the combination with Oasis Midstream provides, and we look forward to using our expanded platform to create value for both our legacy and new unit holders in the future. With that, operator, we are ready to open the lineup for questions.
spk01: Thank you. We will now 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 participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Shamir Gurshunam, UBS. Please proceed with your question.
spk06: Good morning, everyone. Maybe to start off, and I don't want to put words in your mouths at all, but, you know, as we sort of scan through the transaction and the slides and so forth, just kind of wanted to understand kind of the takeaways that you wanted to leave us with is that Is it effectively a transaction where it's effectively a no-premium deal? Your leverage should be neutral to enhance, depending on how you look at the preferreds, in addition to generate free cash flow after distributions, and that the deal provides an opportunity to push capex out that you otherwise would have had to spend. And so putting it all together, basically your financial metrics and trajectory are all kind of on the same path as it was pre-transaction. And so does that mean that you're in a position to opportunistically be buying back equity and preferreds upon closing the transaction?
spk03: Well, Shaner, I think all of those are key attributes, and you did a great job of listing them for us. There are many more, some of which I talked about. Robert will talk about more. Will will talk about more. I mean, this deal is accretive at the beginning. And as we complete the integration and the real cost savings, those drop straight to the bottom line. The revenue enhancements are real. The third-party opportunities on their system and on our combined system are absolutely real, which we could not have pursued those. Yes, we are saving a significant amount of capital in not having to expand the Bergen plant, and that's a good thing. both from a capital standpoint as well as a timing standpoint. This basin is going to get tight processing capacity. We just went long processing capacity. That gives Diaco and our commercial enormous flexibility to wheel and deal out there and bring some new producers into our portfolio that we don't even have today. There is a lot of development activity that's beginning to gen up in the Bakken, a whole area of western uh north dakota that is really beginning to look like core acreage tier one acreage and so we're dramatically expanding our footprint around that and this is what we buy stuff we integrated in we've had a history of buying gathering and processing assets from producers integrating that in continuing to provide seamless great customer service and then really getting after the third-party business and optimizing. Just go back to the beginning of Crestwood. I bought Quicksilver Gas Services from Quicksilver. We bought Antero's gathering system. We bought the gathering system from Chesapeake. I mean, we have a long history of this type of transaction, carving out either separate or standalone assets, integrated or standalone assets, and not only providing great service to the accurate customer, but really leveraging off of that for third-party business. We didn't put any of those revenue enhancements, any substantial revenue enhancements into that. When we look at the business just combining the two companies pro forma, our free cash flow actually grows significantly over the next three years. I'll let Robert decide if he wants to message any of that. but it is a substantial increase in free cash flow, and that does substantially increase our optionality about how we reinvest that capital for the benefit of our investors. Talk to you all about our buyback plans. We have an announced program. We do have a strategy for dealing with what will be perceived by some people as an overhang in the stock. We have lived with our general partner owning 25% of our outstanding limited partner units for 10 years, and we dealt with that and came to a very elegant solution. So, yeah, I think it, number one, helps us operationally and commercially in our best basis. That's got a lot of growth left. Number two, it absolutely is a creative and increases free cash flow, which gives us more flexibility strategically to improve returns for investors. And we're going to do it the way that we've talked about it for some time. Robert, do you want to add to that or add any numbers to it?
spk05: I think Bob hit on the key point strategically. These are highly complementary assets right on top of each other with immediately identifiable and available synergies to capture and drive value through that. Bob talked about the enhancement to our competitive footprint up in the Bakken going forward. I think you hit on all the key financial elements. This is enhancing to every single financial element we look at from the balance sheet to the cash flow generation. And as we enhance our free cash flow generation after distribution, inclusive of the 5% bump in distribution that we plan to implement post-closing of the transaction, we have more firepower today than we did prior to this deal to execute around our $175 million buyback program. So no change in any respect there, just enhanced. Perfect.
spk06: Really appreciate the color. If I can just ask a quick question about kind of the existing operations. You know, given where we see the rig count today, given where we see completion crews today, how are you thinking about your BOP and completion trajectory into 22? And I guess a similar question for the PRB as well in terms of growth.
spk05: Yeah, I'll start on that, and then I'll hand it to Diaco Vicky, who runs all of our DNP commercial operations and has very good real-time intel from our producers. But the short of it is the outlook for 2022 in light of the commodity price environment is very favorable. We continue to see uptick in rigs across every basin in which we operate to varying degrees. We continue to see increases in completion activity expectations from our producers in the Bakken, in the Powder, and in the Delaware Basin. And we think all of that is going to add to the outlook for 2022 and beyond going forward. So I think that, you know, when you look at where we're positioned in the Williston Basin, you know, as we have talked about, you know, we see the completion trajectory having a meaningful uplift next year relative to the 35 to 45 wells that we expected to complete this year. And we will see that start to translate into the cash flow generation of the asset. And one of the points that we've talked about up in the Bakken area our aero system, particularly on the gas side, as the GORs continue to increase and gas production improves up there, is we're operating at top utilization. And so I think one of the key elements of this transaction is the ability to integrate our aero footprint with the OASIS footprint and optimize the margin potential of the combined business by alleviating any constraints that may be in existence on the component parts. In the Powder River Basin, we signed up a new deal with Continental, which we announced today. That significantly diversifies our customer portfolio there. They have an active program going as they delineate their sizeable acreage position, and we're really excited to be their choice gatherer and processor in basins to execute for them for the long term. And then lastly, I think for Delaware, it's no surprise we've continued to see a significant acceleration in activity. The contract adds 90 new completions over the balance the next few years. Continue to see an active program out of Conoco, one of our other significant customers there. So all in all, I mean, things are stacking up extremely favorable for the GNP portfolio.
spk02: Robert, I don't have anything else to add. You said it well.
spk03: Well, Shaner, let me add just a subtle distinction that I know you've been around long enough to know. Producer-owned or controlled gathering systems are unique in this business, particularly when they try to add third-party business to it. We all know that. That's not a bad thing. I mean, there's a lot of guys that built their own gathering system that either IPO'd them into a business an MLP or they dropped them down or they ultimately sold them off and many still own them. But the reality is, and these guys at Oasis have done a fabulous job over the last couple of years in trying to supplement the throughput on their system with third-party opportunities. And they have developed, you know, a pretty nice set of third-party opportunities. But the reality is we're in the business of gathering and processing. We are a true independent third party. And so we ought to do exceedingly better than they did by adding third-party business to this system. The key in the bucket in the future is the availability of processing capacity. And don't miss how important that is in this transaction. Extra processing capacity gives us substantial competitive opportunity leverage, if you will, to go aggressively pursue third-party business. Whereas maybe in the past, the OASIS guys, despite their best efforts, they couldn't aggressively go pursue because they had their anchor tenant. So, you know, we're going to provide the best of both worlds. We're going to provide a great service to OASIS Petroleum, but we're also going to manage excess capacity for the benefit of our aero producers and third-party businesses. gas that's developed out on the western side of the play. I just can't tell you historically over time how much better an independent third party can do in managing what was a produce-your-own-gathering system. It just always works that way.
spk06: Well, great. I really appreciate the color today around the strategic nature of the transaction and the ability to still continue to opportunistically buy back. I'll jump back in the queue. I heard that there are a bunch of questions on HSR and so forth. It's not over time.
spk01: Our next question is from Tristan Richardson with Truist. Please proceed with your question.
spk08: Hey, good morning, guys. Congrats on the announcement. Appreciate your comments on the leverage. I think that goes a long way with investors. You noted the 3.0 to 3.5 exiting 22 for the combined company. And I think when we think about that versus Crestwood's long-term target Is the 3.0 to 3.5, is there a suggestion there that that could be the new long-term target for the combined company?
spk05: I think, Tristan, our view of where we feel comfortable operating our business has not changed. We've guided, you know, kind of three and a half. to 3.75 times as a long-term target. The transaction pro forma in and around the close is neutral to the low end of that range where we are today. And as we generate the incremental free cash flow next year, absent alternative strategies or deployment of that capital to optimize, that's just the outcome from a leverage standpoint. I think we feel comfortable in that 3.5 times zip code, and as we continue to look for incremental investment opportunities in the capital structure and around our existing core assets, We would hope to put that to work in things that enhance returns at a significantly greater clip. Appreciate it, Robert.
spk08: And then, Bob, you talked about CapEx and opportunities there, at least to just unlock revenue synergies. I think when you look at the two companies standalone, the CapEx profile this year is obviously indicative of a period of very low CapEx as demand and supply side continues to recover. But just frame up for us maybe what the combined company annual opportunity set, annual CapEx opportunity might look like going forward.
spk03: Well, I can give you a couple of points, and maybe you can triangulate on your own. You know, Oasis Petroleum is going to be a partner of ours up there. They are a substantial lock and pure play. They've got a significant amount of acreage, but they're on public record as suggesting they're just going to keep their volumes flat, at least during this part of the cycle that we're in right now. So as we looked at this business, as we diligence it, we don't see a significant amount of additional activity. Flat to up is kind of the way I would describe it. That's kind of the way that they've described it to us. So there's not a whole lot of capital that's going to come in 22 just based on the expectations for Oasis Petroleum's development activity level. They could accelerate that based on these prices. We don't have that baked into the forecast. We're pretty flat to kind of slightly up over time. Again, I fall back on the real business opportunity here for Diaco and his team to bring in some of these third parties. And to the extent that we can bring in large acreage positions that are undedicated or being renewed from contracts with other GNPs that are rolling off, there may be some capital associated with that. We don't have a significant amount of capital in the next couple of years relative to what we have historically spent up there. So I think we're going to stay generally in the same neighborhood to maybe slightly up. Robert, do you want to?
spk05: Yeah, I would say, Tristan, we're going to be – if you look at kind of each of the combined – or each of the companies independently, kind of their capital needs around their footprint for 2022, we don't see any material changes to that. And I think we do see the opportunity to have some capture of that revenue and integration synergy through connecting the two systems physically, which is all very manageable dollars. So I don't think any material deviation from kind of what we've communicated on a standalone basis – And I think what OASIS has communicated generally on a standalone basis as well. Great. Appreciate it. Thank you guys very much.
spk01: Our next question is from Ned Baramov with Wells Fargo. Please proceed with your question.
spk07: Hi. Good morning. Thanks for taking the questions. Appreciate the detail on the CAPEX. Could you maybe talk a little bit about the WellConnect Capital at OMP, and more specifically, does it benefit from the same producer reimbursement arrangements that CEQP has in place in the BACL?
spk02: Yeah, this is Diaco Avicii. Yeah, so the WellConnect Capital is going to be in line with their activity as they forecast, and their contracts are just similar to those at the Arrow footprint, the connection capital for the Wells is the responsibility of the midstream provider in their arrangement. So a little bit different, but again, subject to whatever their activity pace is, that's going to be commensurate with it.
spk07: Got it.
spk03: I had just a little bit of color there. You know, I mean, we inherited the existing OMP system. OAS arrangements, largely with very minor modifications. We got some additional contracts on acreage that had not been previously dedicated. That was part of the deal. But, you know, this was a public-to-public deal, so you can go look at the old OMP contracts and get a sense for what the historical relationship was between OAS and OMP. And we're just stepping in those shoes, so... They are not the same type of contracts that we have at Arrow, but they will be very synergistic as we blend the two systems together.
spk02: Let me just add one more thing. This is Diaco. The walled basin footprint where they have a predominant amount of their acreage and their activity is predominantly developed already. So there's a lot of synergies associated with new development activity, and we enjoy that.
spk07: Got it. Thanks for this. And one more question. unrelated question, will there be lockup provisions in place for Oasis Petroleum's ownership in Crestwood?
spk05: Yes, I would say, Ned, there will be standard provisions as a part of the agreements around a lockup on their ownership position. I would say, as we've discussed with them for long-term plans, we clearly are a critical service provider for their Williston Basin production. You know, they are a pure play Wilson company, and their strategy is entirely centered around the long-term development of that basin. So I think all communications with them are they're very much aligned to benefit as an important customer to Crestwood and also an important unit holder of Crestwood. So that's kind of how we would answer it. There are lockup provisions for a period of time. And then as they go forward, we view it as a long-term partnership with them as an important customer and us as an important service provider for them.
spk07: Thanks, Robert.
spk01: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from Elvira Escoto with RBC Capital Markets. Please proceed with your question.
spk00: Hey, thanks. Good morning, everyone. So a couple of follow-up questions. Pro forma the acquisition, how much exposure to OASIS volumes will Crestwood have?
spk05: Yeah, so pro forma for the acquisition, OASIS, you know, will become our largest customer. They'll, you know, constitute on total volume at the base in Bakken between 20% and 30% of kind of total margin.
spk00: Okay, thanks. And then another follow-up question. What's the minimum ownership level that OASIS needs to maintain to appoint the two directors?
spk08: This is Will. So they dropped below 15% pro forma TPP equity ownership. They dropped to one director and below 10% they lose all rights to participate at the board level.
spk00: Okay. And then just a couple more questions for me. Pro forma this transaction, are there any, you know, potential non-core asset sales that Crestwood might consider?
spk05: I think, Elvira, when we look at the business, I would say that the answer to that is consistent with what it's been in the past. We always look at our portfolio and think around optimizing our portfolio in terms of investing capital in what's core to us and looking for optimistic ways to divest potentially things that are not. We love the portfolio as it sits today. We have a lot of positive fundamentals at play behind each of our assets, providing some real tailwinds into 2022 and beyond. So there's nothing imminent in the works, but I think we'll continue to be very thoughtful around the portfolio and how we optimize both adding on assets to our core areas and divesting of assets that are less core to us.
spk00: Great, thanks. And then the last question for me is just on the base business, just some thoughts on Conoco's acquisition of Shell's Permian Acreage and then on the Nautilus JV, how that plays out.
spk05: Yeah, I think no real change in what we've communicated in prior discussions. You know, obviously Conoco taking over the Swepi position we view as a net positive to our position in the Delaware Basin. You know, Conoco is clearly committed to that basin with the significant inventory that they have. They were already an existing customer of ours in a meaningful way through their acquisition of Concho. And now this, you know, creates a more meaningful relationship with them. So all in all, we view it very positive on the upstream development side. I think, you know, it obviously does create questions around, you know, Shell X's long-term, you know, investment in our joint venture at Nautilus. And I think, as we've said historically, you know, we'd love to be a potential solution there as a part of that, but nothing of it at this point. We'll continue to work with our partners there to optimize the asset for the long term.
spk01: Great. Thank you very much. Our next question comes from Kyle May with Capital One Securities. Please proceed with your question.
spk10: Hey, good morning, everyone. Just a quick question on the transaction. Oasis and OMP have talked about some more recent acreage dedications this year, and the, I guess, associated EBITDA that's expected to come with that in 22 and 23. Are you expecting that Crestwood will follow that same path and trajectory, or do you anticipate any changes to that?
spk05: No, I think that their business plan, you know, from an OAS perspective and OMP perspective is consistent with what we've outlined, you know, in the combined company going forward. So, obviously, very close working relationship with Oasis Petroleum over the last several months. Got good looks into their development plans, and I think what they've publicly communicated is consistent with what our expectations are in the basin.
spk10: Got it. Okay, thanks for that. And then maybe one question, shifting gears, looking at the new agreement with Continental, can you provide any color around, I guess, when you expect to see new volumes, maybe how much volume you expect to be added to the system? And I think you mentioned there's no change this year, but do you anticipate any significant capital going forward?
spk02: Yeah, this is Jaco, Vicky. From a timing perspective, The volume should start sometime mid-year 2022, but it could span between mid-year 2022 to the end of 2022. It just depends. They're building some facilities on their end to effectuate volumes into our system. The second question you asked, as far as capital goes, we'll have some of the capital that's in our guidance today in 2022. The construction's already started on that project. And we should wrap up before mid-year 2022. So I'd say half and half from a capital perspective. And then finally, ultimate volumes. Look, it's a large acreage dedication. We feel very confident about it. We know the basin well. I'll just say this. We're building a 16-inch pipe that reaches up to their location. So our expectations are for fairly substantial volumes moving forward.
spk05: And, Kyle, to put a little more clarity on the capital side, the total project spread out over 21 and 22 is about $30 million all in. It's about half and half in each year. And that included within the guidance range for 21 that we provided as well as kind of the soft guidance we had given around CQP for 22. Got it.
spk10: I appreciate it, guys.
spk01: Our next question is from Salman Akul with Steeple. Please proceed with your question.
spk04: Thank you. Good morning and congratulations. So just real quick, on the synergies that you've kind of outlined there, in terms of the elimination of G&A, O&M, should we expect that from day one when this thing closes, or does that really take all the way to, I guess, 2023 to be realized?
spk05: Selman, I think it's all pretty quick, actually. When you look at $25 million of cost synergies that we've identified, probably three-quarters of that is kind of duplicative DNA eliminations that are real quick. And then the balance of it on the O&M side probably happens throughout the year as we integrate the systems and optimize. So there will be probably 70% to 80% of that realized in 2022, and then the full balance in 2023 once we have a full year under our belt.
spk04: Great, thank you for that. And then I guess just flipping over, can you guys talk about what you're seeing inflation in general?
spk05: Sure, I can take that. So I think the short of it is we are seeing inflation across um you know the the industry broadly no different than a lot of industries out there with everything going on um you know i think we have seen uh while there was kind of some run in steel prices around some of the new pipes i think we've seen some stabilization in that of late the benefit we've seen is we have not um you know had a significant capital program and the capital that we have spent has largely been on pipe and compression. And one of the comments Bob gave in his prepared remarks was our team's ability to source inventory across our portfolio of excess compression capacity we've had in some of our lower utilization areas, such as the southwest Marcellus, and then redeploying pipe that we have in inventory. So haven't really felt the impact of that escalation in cost. In addition to that, I would also highlight that very consistent with, you know, most midstream contracts, all of our contracts have escalators built into them, you know, oftentimes tied to CPI or other inflation metrics.
spk04: All right. That does it for me. Thank you.
spk01: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question is with Ned Barama with Wells Fargo. Please proceed with your question.
spk07: Thanks for taking my follow-up. Could you provide more details on Crestwood's current commodity price exposure? Specifically, are the POP and the percentage of indexed contracts strictly tied to volumes that are going through your processing plans, or is there some commodity price exposure on the gathering side too?
spk05: Yeah, it varies by contract and by location. I would say the two assets where we do have commodity exposure are the percentage of proceeds arrangements we have up in the Bakken and the percentage of index arrangements we have in the Barnett Shale. And I think that what we have generally communicated is, you know, over time, our portfolio has been about 85% fixed fee and about 15%, you know, commodity linked. I think it's based on the significant run in commodities. You know, obviously our pop revenues have increased as a result of that, so that number has increased to probably just north of 20%. We have actively hedged, you know, a lot of that upside potential for 2021, and the team has started implementing strategies on taking some of that risk off the table for 2022. So that's really the arrangement. It's Bakken and Barnett. Your question on is it gathering and processing, it really depends. But I would say that in the Bakken, which is the largest component of that, it's predominantly driven by gas price and liquids pricing associated to our net back on the processing side.
spk07: Got it. Thanks for that. And then one more housekeeping item. It seems that growth capital in the third quarter included roughly $20 million of litigation-related capital. I think it was mentioned pertaining to the Burden 2 processing plant. Could you just elaborate a little bit more on this?
spk05: Sure. I think as we've kind of communicated in our disclosures over time, we are still in a pending litigation with Lindy around the construction contract we had with them on the Baird Inn plant. The $19 million payment was part of a settlement around that or part of a payment in relation to the ongoing litigation there. We think we've got all future potential settlement payments accrued for at this point in time and really about all I can say there for now.
spk07: Perfect. That's all I had. Thank you.
spk01: We have reached the end of our question and answer session. I would like to turn the floor back over to Bob Phillips for closing comments.
spk03: Well, thanks, Operator, and thanks to all of you that joined us this morning. Just want to highlight all of the commercial, operational, and financial objectives that we think we're meeting with this transaction. I think you'll see as we efficiently integrate the business in the first quarter of next year, assuming we get a smooth close, then we're going to have a much bigger platform in the Bakken. We'll be a bigger player in terms of financial scale across all of our basins. We'll have significantly greater free cash flow to make some opportunistic and strategic decisions with which could include expanding our presence in the other basins that we operate, where we have identified similarly situated opportunities, or just continuing to return capital to our investors through either distribution increases or stock buybacks. I think the management team here has exhibited the ability to deal with these type of opportunities and challenges in the past. And I think when we all look back at 2021, given the elegant solution to First Reserve and that big buyback program and how creative that was for our investors, the very strategic final divestiture of Stagecoach and the payday debt, which led to our ability to complete this transaction, which, as we said, substantially grows cash flow, improves our long-term inventory position in the Bakken, which we think is is the number two oil play in the United States. So we're really pleased with where we are positioned once we complete this transaction. But look forward to meeting with you all again as we start investor conferences in December. We will be finishing up our 22 operating budget. The team's been working hard on that. separate and apart from this OASIS transaction, be taking that preliminary budget to the board in November, and then hopefully be able to start messaging how we think about 2022 to you all starting in December with some of those conferences that we typically go to. And then as we get to closing the year, we're on track, as we said, with a high end of our guidance then we really feel good about a great 2021, both financially, operationally, and strategically. So thanks for joining us. We appreciate all the support we have from our investors, our customers, and our employees, and look forward to talking to you again soon when we ultimately close this transaction. So thanks again, everybody.
spk01: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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