Crestwood Equity Partners LP

Good morning. Welcome to today's conference call to discuss Crestwood Equity Partners' second 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 with prepared remarks are Founder, Chairman, and Chief Executive Officer Bob Phillips, President and Chief Financial Officer Robert Halpin, and Executive Vice President and Chief Operating Officer Daiko Aviki. 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. If anyone should require operator assistance, please press star zero from your telephone keypad. At this time, I'll turn the call over to Mr. Bob Phillips.

Thanks, Rob, and good morning, everyone. Thanks again for joining us for this quarterly update. We're going to discuss our second quarter results in some detail in our outlook for the second half of the year. But first, I want to highlight where we are strategically as Crestwood has completed a lot of key transactions in the past 18 months. I also want to really brag on the management team for repositioning the company in front of this current commodity cycle. I think we're extremely well positioned to do to really grow the business over the next couple of years. I also want to touch on the late winter weather incident that we experienced up in North Dakota caused us to come in a little bit under market expectations for the quarter. I think when you see, when you add back the impact of that to our actual results, we would have come in right at consensus and expectations. Then I'm going to turn it over to Robert to go through the quarterly results in detail. and also the updated guidance for 2022, which I think is critically important here. So to get started, I'm pleased to tell you how well we are positioned and how good the portfolio looks for the next 24 months in the current commodity cycle. If we take a step back, Crestwood's come a long way in a short amount of time. Just a quick review, in 2017 to 2019, you might remember that we completed a number of significant organic capital projects, including the Bear Den plant up in North Dakota, the Bucking Horse plant in eastern Wyoming, and the Orla gas plant down in Texas in the Delaware Basin. These are our three core areas, the Williston, the Powder River, and the Delaware. This is the underpinning of the company going forward. In 2020, we clearly made it through the COVID disruptions without cutting our distribution, and we maintained a strong balance sheet That gave us currency to be able to continue to grow the business and we're proud of our actions there. In 2021 and year to date through 2022, as those core assets and expansion projects were filling up, we started executing on a regional consolidation strategy through very complimentary bolt-on acquisitions such as Oasis Midstream in the Williston, Sendero and rolling up CPJV in the Delaware, We paired those with some long-term critical infrastructure projects that expanded our reach in each of those basins, including such as the Continental Express Pipeline System in the Powder River Basin, which connects all of Continental Resources acreage there in the basin. Our goal was and will continue to be a top three GMP company in all of our core areas. Throughout the execution of our recent consolidation strategy, To maintain balance sheet strength and flexibility, which is our top priority, we acquired many of these assets with common equity, aligning the interest of the holders with Crestwood and in transactions that were immediately accretive to DCF. We also divested some of our low growth assets in the portfolio at premium market multiples, which greatly improved our overall portfolio growth potential for the future. And as a result, I just want to highlight that we've transformed Crestwood from a company that was generating adjusted EBITDA of about $527 million in 2019 with a relatively scattered asset base and limited competitive advantage in these high growth basins. And we are now at generating north of $820 million a year of adjusted EBITDA. That's an increase of over 55%. And we're generating that with an asset base that is solid and competitive in the regions where we operate with enhanced competitive positioning, much larger scale operational synergies, and a strong customer base in our core areas of the Williston, the Delaware, and the Powder River. So just a quick update on our strategy. We think we're in a really good position right now to generate some real strong growth in these areas. Our acquisitions have been timely. They offer significant operational and commercial synergies, and they're easily integrated into our core positions in each of these basins. Most importantly, they allow Crestwood to continue to grow while avoiding significant future capital expenditures due to the excess processing and compression capacity that we acquired in each of these acquisitions. Today, we now have $430 million a day. processing capacity in the Williston as it bounces back from winter storms. Pleased to see we have about 43 rigs running there and production's headed back to 1.1 million barrels a day that it was before the storms. We have 550 million a day of processing capacity in the Delaware, which I think you all know is the most active producing region in the U.S. by rig count today. We're really pleased with how our Orla, Willow Lake, and Sendero assets are integrating together. And then finally, we have $345 million a day of processing capacity in the Powder River Basin. We have great expectations for growth there in late 2022 and 2023. Each of these transactions gives us valuable, available capacity to meet future production growth from our producers. And going forward, We're now ready to shift our strategy back to harvest mode as we focus on integration and optimization of these assets to ensure that we capture all the benefits from the combined platforms. Now, alongside our A&D program, we've also benefited from upstream consolidations amongst our producer group. It's a very high quality group of producer customers in all three basins. In the Williston, As you know, Oasis just merged with Whiting to create Cord Energy, and they're a leading Williston Basin-focused company. And also, Devon Energy just completed its acquisition of Rimrock, our number one and number two producers on the Aero system, and we're really pleased with the seamless nature of that and the integration synergies that they will see that will benefit the Aero gathering system. These combinations not only enhance our customer base, but it also highlights the long-term resource potential and the value of the Williston Basin and much of the acreage that's dedicated to us. In the Powder River Basin, Continental has multiple acquisitions over the past year or two, and that gives us great optimism about the future of that basin and highlights the fact that now all of our core assets are underpinned and supported by some of the largest and most active upstream players in each of the basins, for the Williston, the Powder, and the Delaware. So really pleased about where we are strategically as we head into a fairly strong commodity cycle. Now shifting gears in the second quarter in North Dakota, we did experience two unusually late extreme winter storms, which brought over four feet of snow and caused prolonged power outages and other facilities disruptions that impacted production volumes across the Williston Basin. And while the weather is always outside of our control, I want to say that I'm extremely proud of the work that our operations and commercial teams did alongside our producer customers to mitigate the impact and ensure that our assets were back up and running as safely and efficiently as possible after the storm subsided. While we estimate this event had a negative cash flow impact of about $13 million to the second quarter results, our assets are now back to full capacity and producers are working hard to play catch up, which should drive volumes and completion activity in the second half of the year and well into 2023. And I guess finally, before I hand the call over to Robert to go through the numbers, I'd like to say how proud I am of our employees and their efforts to create a bigger, better, stronger Crestwood in the areas that we operate. The Oasis and Sendero opportunities were logical consolidation opportunities that checked all of our boxes for value creation and were extremely synergistic with our existing assets and existing commercial relationships. We now have the necessary tools in our core assets to organically build financial and operational scale and continue to be competitive for future third-party opportunities. The fundamentals of the business are very strong right now, particularly in the Williston Powder and Delaware, despite the short-term noise around the second quarter weather impact, I think we're very well positioned to benefit from the commodity price upside going forward. And I'm excited about our outlook as we begin to really benefit from enhanced operational scale, meaningful excess cash flow that we think will create significant long-term value for our unit holders. So again, just to make a point, After 18 months and six significant transactions, we're in great position right now to really benefit from the market that we're in in the areas that we operate. And with that, I'll turn it over to Robert to provide the details of the second quarter results. Thank you, Bob.

For the second quarter, Crestwood generated adjusted EBITDA of $180 million and distributable cash flow of $108 million. year-over-year increases of 23% and 26% respectively. Our second quarter results were driven by robust Delaware Basin activity and strong commodity prices, offset by the $13 million impact from the winter storms that impacted the Williston Basin for a big portion of April and May. If not for the weather impact, our earnings would have been in line with to slightly ahead of our internal budget forecast for the quarter. For the second quarter, Crestwood announced a 65 and a half cent distribution payable on August the 12th to unit holders of record as of August the 5th, resulting in a coverage ratio of 1.7 times. Looking to the segments, in the gathering and processing north segment, second quarter 2022 EBITDA totaled $153 million, an increase of 47% over the second quarter of 2021, largely the result of the contribution from the OASIS midstream assets. During the quarter, volumes began flowing through the continental express pipeline in the Powder River Basin and have already exceeded internal expectations. We expect these volumes to continue to ramp up as Continental Resources executes on its drilling program in the basin. There are currently four rigs running in the Williston Basin and two rigs running in the Powder River Basin. In the gathering and processing south segment, second quarter 2022 segment EBITDA totaled $32 million, that representing a 60% increase year over year, driven by growth in the Delaware Basin and strong natural gas prices on the recently divested Barnett shale assets. During the quarter, our producers operated on an average of seven rigs. including the newly acquired sendero assets we now anticipate more than 120 wells to be connected in the delaware basin in all of 2022. finally in the storage and logistics segment second quarter 2022 ebada totaled five million dollars a decrease year over year primarily due to the divestiture of the stagecoach gas services joint venture in july of 2021 and the negative impact of the hedges related to our commodity exposure on our gathering and processing assets. During the quarter, the NGL logistics business benefited from increased volumes offset by fewer storage opportunities. Based on first half results and the recent strategic transactions, Prestwood now expects full year adjusted EBITDA to be in the range of $800 million to $840 million. This revised range is driven by the favorable impacts of the Sendero and CPJV acquisitions, partially offset by the divestiture of the Barnett assets, the impacts of the weather events in North Dakota, and some timing shifts in well completion activity due to weather and ongoing oilfield services constraints in the Williston Basin. In addition, we are also revising our 2022 growth capital to a range of $220 million to $240 million, which includes approximately $35 million of capital, which we inherited with the recent Sendero and CPJB acquisitions, and approximately $25 million in newly underwritten organic projects to support accelerated customer activity, primarily in the Delaware Basin. A sizable mix of our 2022 capital program is centered around integrating Crestwood's legacy systems with many of the assets that we have acquired over the last year. As our customers continue to execute their development plans in this favorable commodity backdrop, this positions Crestwood for robust volumetric and cash flow growth in 2023 with substantially lower capital requirements. Crestwood remains committed to maintaining a strong balance sheet and significant financial flexibility. As of June 30th, Crestwood ended the second quarter with $2.9 billion in long-term debt, including $679 million drawn on our $1.5 billion revolving credit facility, resulting in a leverage ratio of 3.7 times. Before going to the Q&A, I want to echo Bob's sentiment. I am very pleased with how Crestwood is positioned here midway through 2022. The recent investments we have made in the last 12 months significantly high grade and expand our operating footprint in our core basins. which represent the most economic upstream basins in the US. All three of Crestwood's core assets are underpinned by long-term contracts with the best capitalized and most active producers in each respective basin. As a result, we are now better positioned to capture the full extent of continued volume growth in the second half of 2022 and well into 2023 in this current commodity cycle. As Crestwood has executed its near-term strategy of M&A consolidation, around our core areas, we now shift our focus exclusively towards integration of these new assets and organic growth projects, resulting in meaningful free cash flow growth that we will use to further reduce leverage and enhance returns to our investors. We believe this will best position Crestwood to continue delivering long-term value for our unit holders. With that, operator, we are now ready to open the lineup for questions.