Crestwood Equity Partners LP

Good morning and welcome to today's conference call to discuss Crestwood Equity Properties Partners first quarter 2022 financial and operating results. Before we begin the call, listeners are reminded that the company may make certain forward-looking statements as defined in the Securities and Exchange Act of 1934 that are based on 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 for prepared remarks are Founder, Chairman, and Chief Executive Officer Bob Phillips, and 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 analysts following the prepared remarks. Today's call is being recorded. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. It's now my pleasure to turn the call over to Bob Phillips. Please go ahead.

Thanks operator and good morning to everyone. Thanks again for joining us today. We're very pleased to report another strong quarter for Crestwood and a really good start to the rest of the year. I'm going to make a few general industry comments, highlight some of our first quarter achievements, update on expectations for the full year 2022, and then turn it over to Robert to go through the quarterly numbers. So first let me just comment on what's going on around the world. We continue to manage through volatility both domestically and globally. Some of the recent global events have re-emphasized to us the importance of secure, low-cost, reliable energy. And I'm proud that the U.S. energy industry continues to show the ability to provide this energy and service safely and sustainably. I believe Crestwood will continue to play a really important role in connecting American energy supply to market demand. As you know, global commodity prices are high and been volatile, but they're still well ahead of our 22 budget, and they remain very constructive for the balance of the year. We have 12 rigs operating on our assets today, and we're planning on significant producer activity through the rest of 2022 and into 2023. This is keeping our gathering and processing teams busy getting ready for a big ramp up in volumes in the second and third quarters of the year. Additionally, I want to highlight that our storage and logistics teams have done a great job so far this year managing volatility very well in the first quarter despite the backward-dated commodity curves which appear to be flattening for the remainder of 2022. Secondly, I want to highlight how positive we are on recent steps that Crestwood has taken to add long-term value to our business portfolio. We've doubled our size and scale in the Williston Basin with the Oasis Midstream acquisition, and integration of Oasis Midstream is well ahead of schedule. Our largest producer, Oasis Petroleum, has recently announced its merger with Whiting, making the combined company one of the largest Williston-only producers. We think this merger provides Crestwood with an even longer growth runway in the basin via OASIS Tier 1 and Tier 2 inventory, combined with Whiting's significant free cash flow generation. On to the Powder River Basin, we've recently completed the Continental Express pipeline, which connects Continental's largest acreage blocks in the basin to our bucking horse processing complex, and we're expecting first volumes to flow through this pipeline from Continental in mid-May. And in the Delaware basin, we saw a big increase in gas and water volumes in the first quarter, which should drive bigger than expected volume growth throughout 2022. I want to particularly highlight the recent Novo production ramp on the Willow Lake system in New Mexico and the expected growth of percussion volumes on the Panther crude and produce water gathering system, which we acquired in the Oasis midstream deal. And they currently have three rigs running on that system now. Third, I want to highlight our capital allocation strategy. It's on full display as we expand key infrastructure and core basins through high return accretive projects, which are supported by strong producer customers, substantial acreage dedications, significant undrilled inventory, and long-term contracts. And we're doing that while maintaining a balance sheet with a three and a half times leverage ratio at the end of the first quarter. As you know, our balance sheet is extremely important to the long-term growth of the company. I'm also proud that Crestwood's Board of Directors has shown confidence in our portfolio with the recent 5% increase in the quarterly common unit distribution as we importantly prepare for our first annual unit holders meeting on May 12th. And lastly, I want to highlight our finance team's hard work on the upgrade we recently received from S&P to double B-flat as we continue to look for strategic M&A opportunities around our assets as the midstream industry continues to consolidate. Fourth, I want to give a shout out to our sustainability team as they published Presswood's first carbon management plan in January. We also recently joined an industry collaboration with Chenier, the largest US LNG exporter and several other major gas pipeline companies to drive the development and adoption of a QMRV GHG emissions program that we think is going to position US gas supply in the global markets for LNG. And also we're preparing to publish our fourth annual sustainability report in June. I think it's our best one yet. And we also continue to play an important leadership role at the Energy Infrastructure Council as EIC makes progress on our ESG 2.0 reporting template update. These are all really important to Crestwood and the midstream industry. And I think finally I want to compliment our operating teams in the Williston, in the Delaware, in the Powder. Our Williston and Delaware operating teams have done an amazing job of integrating the OASIS midstream assets since the February 1st closing. Despite extreme weather experienced in North Dakota, in the past couple of months and in recent weeks. Our consolidated Williston Basin operating team now with a very large footprint and our PRB ops team has had to dig out from two major late winter storms recently and have navigated 11 to 12 extreme weather events, which we define as above the 10 year average HDDs year to date so far. And these have in fact impacted our Williston GNP volumes. Despite that, Oasis Midstream Williston Assets really outperformed our expectations in the first quarter, and our operations teams there now exemplify the very best in operational safety, reliability, and environmental stewardship as our Bakken producers begin to kick off their 22 development programs, and I think that's evidenced clearly by the recent 20% increase in rigs in the Bakken in April. So that's the overview. We obviously have a lot going on at Crestwood. We've had great achievements year to date. We have high expectations for the rest of the year. And with that, I'll turn it over to Robert to provide more details on the first quarter results. Robert. Thank you, Bob.

Our strong first quarter 2022 results, which exceeded our internal forecasts, include two months contribution from the OASIS midstream assets. And as Bob mentioned, we are very pleased with how those assets have been performing to date. For the first quarter, Crestwood generated adjusted EBITDA of $173 million, that representing a 4% increase year-over-year. Distributable cash flow for the quarter was $117 million, which represents an 8% increase year-over-year, and free cash flow after distributions was $28 million. Notably, we executed on our previously announced plans to increase the common unit distribution for the first quarter by 5%. This distribution of 65 and a half cents per unit will be paid on May the 13th to unit holders of record as of May the 6th and results in a coverage ratio of approximately 2.0 times. Now let's get right into the quarterly operating results. In the gathering and processing north segment, first quarter 2022 EBITDA totaled $133 million, an increase of 29% over the first quarter of 2021, driven primarily by the addition of the Oasis midstream assets. Currently, we have four rigs active across our footprint in the Wilson Basin and two rigs active in the Powder River Basin. At this level of activity, we would expect to achieve our original WellConnect forecast for 2022 of 110 to 120 wells in the Wilson Basin and 10 to 15 wells in the Powder River Basin. In the Gathering and Processing South segment, First quarter 2022 segment EBITDA totaled $27 million, that representing a 72% increase year-over-year, driven once again by significant growth year-over-year on our Delaware Basin gathering systems. As Bob highlighted, gathering volumes on the Permian Basin gas gathering systems increased substantially year-over-year as our private producer customers continued to drive rig activity in the basin. We are also seeing an increase across our produced water gathering and disposal infrastructure as producers continue development activity with volumes of 102,000 barrels a day during the first quarter. In the Barnett, Crestwood continues to see stable volumes and benefit from higher natural gas prices on its percent of index contracts. Finally, in the storage and logistics segment, first quarter 2022 EBITDA totaled $25 million a decrease year-over-year due to the divestiture of the Stagecoach Gas Services joint venture in July of 2021, as well as the $10 to $15 million contribution from the events during Winter Storm Uri last year. During the quarter, our NGL logistics business was able to optimize our extensive infrastructure of 10,000 barrels of NGL storage, pipeline and operating trucking assets to meet increased demand driven by winter weather and continued price volatility. Crestwood has a highly experienced NGL team that does a great job utilizing each of these assets to the fullest extent of its capabilities to generate margin opportunities each year. And finally, the Trace Palacios gas storage facility exceeded our internal estimates as commodity price volatility drove incremental volumes to the facility. Now moving to the balance sheet, Crestwood ended the first quarter with $2.8 billion in long-term debt, including $560 million drawn on its $1.5 billion revolving credit facility, resulting in more than $900 million in available liquidity and a 3.5 times leverage ratio at the end of the quarter. During the quarter, we invested approximately $30 million in growth capital and joint venture contributions, across the diversified footprint to meet the needs of our producers development programs. In the Wilson Basin, we are continuing construction on three product gathering systems for Oasis Petroleum, as well as our new third party contracts. And in the Delaware Basin, we are expanding the crude oil and water gathering systems for percussion petroleum, as well as expanding compression and gathering capacity in New Mexico. As Bob mentioned and consistent with our comments on the previous call, we believe Crestwood is very well positioned for 2022 to be another strong year on all fronts. Crestwood is now a stronger company than before the OASIS midstream acquisition, highlighted by a solid balance sheet with low leverage and ample liquidity, and operating leverage to strong commodity prices across our diverse gathering and processing assets. We expect to generate meaningful free cash flow after distributions this year, which we will allocate according to our capital allocation priorities in an effort to continually drive enhanced unit holder returns. With that, operator, we are ready to open the line up for questions.