Crestwood Equity Partners LP (CEQP) Q4 2022 Earnings Call Transcript

Crestwood Equity Partners LP (NYSE:CEQP) Q4 2022 Earnings Conference Call February 21, 2023 9:00 AM ET

Company Participants

Robert Phillips - Founder, Chairman, and Chief Executive Officer

Robert Halpin - President

John Black - Executive Vice President and Chief Financial Officer

Conference Call Participants

Spiro Dounis - Citi

Neal Dingmann - Truist Securities

Operator

Good morning, and invited to today's convention telephone to talk Crestwood Equity Partners' Fourth Quarter 2022 Financial and Operating Results and 2023 Outlook. Before we statesman nan call, listeners are reminded that nan institution whitethorn make definite forward-looking statements arsenic defined successful nan Securities and Exchange Act of 1934 that are based connected assumptions and accusation presently disposable astatine nan clip of today's call.

Please mention to nan company's latest filings pinch nan SEC for a database of consequence factors that whitethorn origin existent results to differ. Additionally, definite non-GAAP financial measures, specified arsenic EBITDA, adjusted EBITDA, distributable rate flow, and free rate travel will beryllium discussed. Reconciliations to nan astir comparable GAAP measures are included successful nan news merchandise issued this morning.

Joining america coming pinch prepared remarks are Founder, Chairman, and Chief Executive Officer, Robert Phillips; President, Robert Halpin; and Executive Vice President and Chief Financial Officer, John Black. Additional members of nan elder guidance squad will beryllium disposable for question-and-answer convention pinch Crestwood's existent analysts pursuing nan prepared remarks. At this time, each participants are successful a listen-only mode. [Operator Instructions] As a reminder, today's telephone is being recorded.

It is now my pleasance to present your big Bob Phillips. Thank you sir. You whitethorn begin.

Robert Phillips

Thank you, usability and bully greeting to everyone. Thanks for joining america today. I’m going to commencement america disconnected pinch a recap of nan strategical modulation that we've made complete nan past mates of years and past I'll move it complete to Robert to talk our operational results successful our conception outlooks. And past yet to Johnny to dive deeper into our 2022 financial results and our 2023 guidance.

So, fto maine commencement pinch 2022. It was different highly important twelvemonth for Crestwood arsenic we push forward pinch our location consolidation strategy, which was designed to found Crestwood arsenic a Top 3 gatherer processor successful nan Williston, Delaware, and Powder River Basins. This follows a portfolio realignment strategy, which we started successful 2021 to halfway up our competitory position successful each weighted assets plays, which person amended semipermanent shaper economics and decades of undrilled inventory, which are dedicated to our system.

And we've done this while divesting assets successful state weighted, debased maturation basins, and businesses. And we deliberation this streamlines our portfolio and it kept our equilibrium expanse successful a bully spot while we made nan transition.

So, effectively, we've been transitioning distant from nan wide diversified midstream portfolio we put together successful nan first fewer years of Crestwood and it served america good during nan formative years to a overmuch much concentrated gathering and processing position successful nan basins that connection unchangeable semipermanent accumulation profiles and much visible maturation imaginable astatine what we deliberation a realistic commodity value is going forward. Very proud of it and I deliberation that we've accomplished that. We're successful a bully spot arsenic we look to nan future.

Just arsenic a recap transactionally successful 2021, I'll punctual you that we acquired First Reserve’s wide partner and constricted partner interest. We converted our governance building to a publically elected Board. We sold our Northeast Stagecoach state retention facility. And precocious successful nan year, we announced nan Oasis Midstream woody to make [this] [ph] bigger successful nan Williston.

In 2022, we closed nan Oasis Midstream merger doubling our size successful nan Williston Basin, we accrued our yearly distribution by 5%, we organized a important banal buyback of CEQP units from Chord, which was created done nan merger of Oasis accumulation successful Whiting. We besides sold our bequest Barnett and Marcellus gathering and processing assets, which were connected PDP decline, and we importantly expanded our Delaware position by buying retired first reserves, CP JV interest, and acquiring nan Sendero Midstream assets.

So, large twelvemonth successful 2021 and successful 2022. Cutting crossed some years, we built nan Continental Express pipeline to link each of Continental's acreage successful nan Powder River Basin, which dramatically improves nan semipermanent outlook for nan PRB and we successfully integrated each of our acquired assets pinch our bequest assets successful nan Williston and Delaware Basins, which gave america costs savings, operating synergies, importantly much processing capacity, caller commercialized opportunities, and made our superior programme overmuch much businesslike owed to nan larger standard successful each of these basins.

And I tin say, while I'm disappointed successful our existent 2022 results, which came successful short of our expectations, and nan market's expectations, owed mostly to utmost wintertime events and shaper improvement delays, which were caused further by industry-wide oilfield services and proviso concatenation challenges. I americium very pleased strategically pinch nan repositioning of our portfolio and nan assimilation of these caller assets and nan affirmative maturation outlook that we person successful each 3 basins for 2023 and beyond.

I deliberation that Crestwood is simply a overmuch better, stronger, and much resilient company. One of nan apical gathering and processing franchises successful nan industry, a leader successful midstream ESG, and an MLP pinch important upside imaginable for our unitholders who are looking for unchangeable distributions and increasing full return.

So, arsenic we statesman 2023, we're continuing to attraction connected our equilibrium expanse pinch a successful – precocious pinch a successful $600 cardinal Senior Note woody successful January that was upsized and importantly oversubscribed and we termed retired our revolver and importantly enhanced our liquidity going guardant pinch that very successful statement deal. And conscionable this morning, Crestwood and our associated task partner Brookfield person announced nan waste of our Tres Palacios Gas Storage installation for $335 cardinal successful full proceeds.

The waste represents for Crestwood, our 4th non-core divestiture and a highly compelling valuation and allows Crestwood utilize our $168 cardinal successful rate proceeds to salary down indebtedness and further fortify our equilibrium sheet. I want to return a infinitesimal to personally convey nan hardworking section labor astatine Tres Palacios that person contributed truthful overmuch to our occurrence complete nan past decade.

They afloat embody Crestwood's operating principles and I'm proud to opportunity that they person nan longest drawstring of nett zero, triple zero information capacity successful nan full company. So, we're really proud of nan Tres Palacios folks. They did a awesome occupation for us. The divestiture of Tres Palacios, I think, culminates our strategical repositioning scheme complete nan past mates of years. And we're now laser focused connected maximizing free rate travel retired of nan portfolio and reducing indebtedness complete nan adjacent fewer years done what we deliberation is simply a very streamlined and very competitory plus portfolio successful nan 3 basins that we operate.

Robert and Johnny are going to get into nan details, but I do deliberation that nan manufacture is overmuch amended equipped to negociate immoderate of nan proviso concatenation challenges that we saw past twelvemonth going forward. And surely our shaper portfolio is successful overmuch amended style some financially and operationally to present connected their forecasted improvement activity successful 2023.

We expect to adhd astir 260 caller good connects successful 2023. That is an summation of complete 15% from past year. And we're going to proceed to cautiously and efficiently walk maturation superior to grow backbone infrastructure of our strategically located systems and plants and make caller good connections, chiefly successful nan Williston and Delaware basins and we person budgeted much than 8% summation successful rate travel year-over-year astatine our mid-point successful nan guidance.

So, fto maine adjacent by highlighting our existent distribution complaint of $2.62 per portion annually. At that rate, Crestwood is returning astir $276 cardinal to communal unitholders this twelvemonth and our distribution is very good covered astatine much than 1. 7x. And that enables Crestwood to present what we deliberation is 1 of nan champion finance opportunities successful nan midstream space. Really proud of nan activity that nan squad has gotten done past twelvemonth and truthful acold this year, we're successful a really bully spot.

And pinch that, I'll move nan telephone complete to Robert and Johnny to supply further specifications connected our 2022 operations and our 2023 guidance. Robert?

Robert Halpin

Thank you, Bob, and bully greeting to everyone. I would for illustration to echo Bob's thoughts astir nan spot of our reposition portfolio and nan outlook complete nan coming years. Additionally, we are excited to pivot our attraction connected execution successful 2023 pursuing an progressive twelvemonth of M&A and integrating our recently acquired assets to afloat maximize throughput crossed our systems.

Starting successful nan Williston Basin, we connected 21 wells crossed nan Arrow and Rough Rider systems during nan 4th quarter, bringing nan full-year full to 86 wells, which was beneath our first expectations owed to nan utmost wintertime weather, which we discussed successful our January 11 operational update. While we cannot power nan weather, we tin power really Crestwood responds to these events.

I americium highly pleased pinch our operations teams connected some nan Arrow and Rough Rider systems arsenic they did a tremendous occupation during nan 4th moving pinch producers to get accumulation backmost online and flowing, arsenic quickly arsenic possible. As we look to 2023, we expect an progressive drilling programme crossed our dedicated acreage led by Chord Energy and Devon Energy driving astir 120 good connects successful nan Williston aliases astir 40% much than successful 2022.

We expect an mean of 4 rigs to 5 rigs moving passim nan year, driving astir 5% to 10% measurement maturation year-over-year. With respect to maturation capital, astir half of our 2023 superior fund will beryllium invested successful nan Williston Basin arsenic we proceed to build-out of nan multiproduct gathering strategy for Chord Energy’s Painted Woods and City of Williston acreage and complete smaller incremental description connected nan Arrow system.

Now turning to nan Delaware Basin, we connected 35 wells during nan 4th for a full-year of 128 good connects crossed Crestwood's gathering systems. We expect our divers group of nationalist and backstage operators to proceed their progressive drilling and completion programs successful 2023, resulting successful astir 125 good connects crossed our assets. That should thrust a 10% to 15% measurement maturation year-over-year.

Our commercialized teams are actively capturing incremental debased unit and precocious unit gathering and processing opportunities crossed our New Mexico and Texas assets, which will position Crestwood to afloat optimize our 550 cardinal cubic feet per time of in-service processing capacity. Approximately 40% of our 2023 superior fund will beryllium invested successful nan Delaware Basin, chiefly connected good connects, strategy description , and compression additions successful New Mexico.

Now, yet successful nan Powder River Basin, we expect betwixt 10 to 20 caller good connects connected nan Jackalope system, Continental Resources, Crestwood's largest customer successful nan basin continues to delineate its ample acreage position targeting aggregate formations. We proceed to activity pinch different ample operators successful nan area to bring caller volumes connected nan Jackalope strategy and capitalize connected our excess processing capacity astatine nan Bucking Horse facility.

In nan Storage and Logistics conception pinch nan divestiture of Tres Palacios announced this morning, nan NGL Logistics business will now dress up 90% of nan net for nan conception going forward. We expect nan net for nan S&L conception to return to normalized levels successful 2023 arsenic our 2022 hedges person rolled disconnected astatine nan extremity of 2022 and nan existent contango and nan NGL guardant curves coming incremental separator opportunities astir our NGL retention assets.

And now, I'll move nan telephone complete to Johnny to screen our financial results and 2023 guidance.

John Black

Thank you, Robert. For nan 4th fourth of 2022, Crestwood generated adjusted EBITDA of $200 million, and distributable rate travel of $111 million, year-over-year increases of 34% and 22% respectively, driven by our M&A activity complete nan past year. For nan full-year of 2022, our assets generated adjusted EBITDA of $762 cardinal and distributable rate travel of $467 million, year-over-year increases of 27% and 26% respectively.

For nan 4th fourth of 2022, Crestwood announced a $0.655 distribution payable connected February 14 to unitholders of grounds arsenic of February 7 resulting successful a quarterly sum ratio of astir 1.6x. Looking astatine nan conception results, successful nan Gathering and Processing North segment, 4th fourth 2022 EBITDA totaled $141 million, an summation of 21% complete nan 4th fourth of 2021, driven by higher earthy state gathering, earthy state processing and h2o gathering volumes from nan expanded operations of nan Oasis Midstream assets.

In nan Gathering and Processing South segment, 4th fourth 2022 conception EBITDA totaled $45 million, an summation of 53% year-over-year. Segment maturation was driven by a operation of nan Sendero Midstream, and CPJV acquisitions, coupled pinch measurement maturation from nan bequest Crestwood assets, offset by nan divestitures of nan Barnett and Marcellus assets.

In nan Storage and Logistics segment, EBITDA totaled $26 cardinal for nan 4th quarter, an summation year-over-year, driven by our NGL retention and logistics business capitalizing connected value volatility astir our assets. During nan 4th quarter, we invested $66 cardinal successful maturation capital, bringing nan full-year full to $188 million, astir $12 cardinal beneath nan low-end of nan 2022 maturation superior guidance scope of $200 cardinal to $220 million.

Our task guidance squad continues to do an fantabulous occupation executing projects some safely and beneath costs targets successful an inflationary environment. With respective good connects being pushed from 2022 to 2023, our task guidance squad did a awesome occupation optimizing our superior walk to efficiently lucifer nan updated timing of our shaper improvement plans passim 2022.

Turning to nan equilibrium sheet, Crestwood ended nan 4th fourth pinch astir 3.4 cardinal of full indebtedness outstanding, including 1.1 cardinal connected nan revolving in installments facilities, resulting successful a consolidated leverage ratio of 4. 2x. As mentioned earlier, we successfully issued $600 cardinal of 7.375% elder unsecured notes successful January. And usage nan proceeds to salary down nan firm revolving in installments installation borrowings and repay and terminate nan Crestwood Permian JV revolving in installments facility. Pro forma for nan elder notes issuance and nan waste of Tres Palacios, Crestwood will person $3.2 cardinal of semipermanent indebtedness outstanding and a consolidated leverage ratio of 4x.

Now, turning nan attraction to our 2023 outlook. We estimate adjusted EBITDA to beryllium successful nan scope of $780 cardinal to $860 cardinal and distributable rate travel to beryllium successful nan scope of $430 cardinal to $510 million. Our financial guidance for nan twelvemonth is underpinned by nan astir caller improvement plans from our shaper customers, a constructive lipid value situation and a continued realization of costs and commercialized synergies from our acquisitions successful 2022.

As Bob highlighted successful his remarks, nan financial scheme is focused connected maximizing throughput connected our disposable gathering and processing capacity, while reducing costs and superior requirements crossed nan portfolio. Additionally, because location was a batch of moving parts past year, owed to nan M&A and divestitures, we wanted to thief span and supply a small spot much item for our year-over-year EBITDA maturation expected successful 2023.

If you set our 2022 results for nan acquisitions and divestitures completed successful some 2022 and 2023, Crestwood would person generated 2022 adjusted EBITDA of astir $778 million, which incorporates astir $80 cardinal of EBITDA additions from acquired assets for nan periods that we did not ain nan assets successful 2022 and backs disconnected astir $65 cardinal of EBITDA for divested assets that are recorded successful our 2022 reported net from past year, including nan 2022 publication from nan precocious announced divestiture of Tres Palacios.

In 2023, compared to nan 2022 M&A adjusted number, we are forecasting astir 5% year-over-year EBITDA maturation astatine nan mid-point of our guidance range, which is chiefly driven by gathering measurement maturation connected our strategy and partially offset by little commodity prices. Although we ended 2022 pinch a little measurement exit complaint than we had antecedently expected, we are forecasting sizable quarterly EBITDA maturation from Q1 of 2023 to Q4 of 2023, driven by astir 260 caller wells to beryllium connected crossed our G&P systems passim nan year.

Next, turning to nan superior side, we expect investing betwixt $135 cardinal and $155 cardinal of maturation superior successful 2023. A measurement down of much than 20% year-over-year pinch astir 90% concentrated successful nan Williston and Delaware basins. When paired pinch our adjusted EBITDA scope and nan expectations of keeping nan communal distribution level for nan year, we expect to make free rate travel aft distribution of astir $50 cardinal astatine nan guidance midpoint successful 2023.

As we deliberation astir our superior allocation priorities for this year, we stay squarely focused connected nan equilibrium expanse and reducing our indebtedness outstanding pinch a semipermanent leverage ratio target of little than 3.5x. We scheme to allocate each excess free rate travel successful divestiture proceeds this twelvemonth to indebtedness paydowns, which will thrust leverage and our equilibrium expanse spot and create financial elasticity for nan institution to present incremental returns to our unitholders complete nan long-term.

With that, operator, we are fresh to unfastened up nan statement for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first mobility comes from Spiro Dounis pinch Citi. Please proceed pinch your question.

Spiro Dounis

Thanks operator. Good morning, guys. First question, conscionable possibly 1 to touch connected commodity sensitivity, if we could. You talked astir imaginable tailwinds connected nan NGL broadside of nan house, but conscionable funny arsenic you're reasoning astir nan G&P segment, it looks for illustration nan gross floor plan wide now is 15% adaptable versus 20% past year. So, a small spot much commodity mitigation there. And I deliberation you guys person been [indiscernible] astir 350 earthy state into nan assumption, but funny arsenic we spell done nan year, person you guys mostly hedged retired a batch of your exposure? Just funny really to deliberation astir that sensitivity going forward?

Robert Halpin

Yes. Thanks, Spiro. Appreciate nan question. So, arsenic you mentioned and arsenic you flagged successful nan investor position that was posted this morning, astir 15% of our rate travel successful 2023 is correlated to commodity prices via our POP contracts successful nan Williston and nan Delaware. I would opportunity that's down year-over-year, chiefly because commodity prices are little this twelvemonth successful 2023, compared to nan averages successful 2024.

Also arsenic you pointed out, nan midpoint of our guidance scope assumes a astir $3.50 yearly mean value for state and astir an [$80] [ph] per tube mean yearly value for crude oil. I would opportunity that we've hedged astir 35% of our equity state volumes successful 2023 astatine prices northbound of [$4 per MMBtu] [ph] and a small spot little than that connected from a hedge standpoint connected equity lipid volumes astatine astir $85 per barrel.

So, we've sewage immoderate hedges successful spot to fastener successful prices supra wherever portion is at. From a sensitivity standpoint, astir each dollar move per MMBtu successful state prices has astir a $10 cardinal yearly gross effect connected nan scheme complete a 12-month period. Similarly, each $10 move per tube successful crude lipid prices has astir a $12 cardinal to $13 cardinal effect connected gross and nan scheme connected an yearly basis.

So, hopefully that gives you immoderate colour around, benignant of immoderate upsides and downsides to nan plan, portion of nan logic for nan scope that we group retired successful nan EBITDA guidance range.

Spiro Dounis

Perfect. Okay. No, that's really really helpful. Second mobility conscionable reasoning astir recommencing distribution growth. This caller waste surely gets you connected that way to deleveraging and I deliberation accomplishing 1 of your goals. And I deliberation besides you mentioned it sounds for illustration nan exit complaint successful 4Q 2023 should beryllium a batch stronger than wherever you exited 2022. So, arsenic we deliberation astir nan leverage tally complaint by nan extremity of 2023, it would look for illustration you're going to beryllium approaching that 3.5 aliases nether 3.5 leverage target, possibly not connected a full-year basis, but surely [by that point] [ph], is that benignant of nan gating point you request to spot earlier recommence and distribution maturation aliases possibly conscionable locomotion america done immoderate of nan factors you're looking at?

Robert Halpin

Yes, awesome question. As you mentioned, our clear attraction this twelvemonth successful 2023 is each free rate travel allocation to indebtedness salary down. We put retired our scope connected leverage. We deliberation we should beryllium successful the, benignant of mid-to-high 3s by nan extremity of this year. So, don't deliberation we'll needfully beryllium rather astatine that 3.5x zip code, but I deliberation to your point, we are expecting a important ramp successful rate travel present from nan first 4th of 2023 to nan 4th fourth of 2023. So, we don't needfully want to tally complaint our 4th fourth number, conscionable fixed nan seasonality successful our business, but we do expect 2023 exit rates to beryllium overmuch higher than our exit rates present astatine nan extremity of 2022, which should group america up for a really coagulated 2024.

So, I deliberation nan different point to deliberation astir successful 2024 is, we do expect superior to diminution year-over-year from 23% to 24% and truthful deliberation our free rate travel floor plan will beryllium that overmuch much enhanced adjacent year. Next twelvemonth starting successful 2024 to thrust leverage, benignant of backmost to that 3.5x aliases little level. I deliberation that's really nan gating point to your constituent connected incremental unitholder returns via nan distribution. This twelvemonth and adjacent year, we're committed to maintaining nan distribution level this year. And erstwhile we person visibility to get into that 3.5x level, commencement to look astatine incremental ways to return worth to our unitholders complete nan adjacent fewer years.

Spiro Dounis

Got it. Helpful color. Thanks for nan clip guys.

Operator

[Operator Instructions] Our adjacent mobility comes from Neal Dingmann pinch Truist Securities. Please proceed pinch your question.

Neal Dingmann

Good greeting all. Just speedy one, I cognize you laid retired plans pinch paid-out indebtedness astir of this year, but I'm conscionable wondering, would you see depending connected again what nan portion value does opportunistic buybacks, if you thought nan business originate aliases nary priorities specified to enactment pinch nan indebtedness paid out?

Robert Halpin

Yes, I would opportunity number 1 attraction still is indebtedness paydown. Clearly, there's a value astatine which we would for illustration to bargain back. We're not astatine those levels today, but proceed to watch nan banal value and perfectly focused connected indebtedness salary down and getting nan leverage backmost to wherever we want to get it to for nan long-term.

Neal Dingmann

Great. And past conscionable secondly, I cognize not – besides not progressive successful nan plans, but who would you see correct now would you see nan M&A marketplace retired there? I cognize you guys ever looking astatine immoderate things, but conscionable pinch your position of it correct now? Thank you.

John Black

Yes. We enactment progressive successful nan M&A market, but I'd opportunity for this year, it's not a privilege for us. I deliberation we're internally focused, but nan correct opportunity comes on and we tin finance it successful a measurement that was accretive connected a deleveraging aliases leverage neutral raises those are, benignant of options we're looking for. And so, I'd opportunity active, but not a privilege overall.

Neal Dingmann

Makes sense. Thank you.

Operator

There are nary further questions astatine this time. I would now for illustration move nan level backmost complete to Bob Phillips for closing comments.

Robert Phillips

Well, acknowledgment usability and acknowledgment to each of you for joining america this morning. I conscionable want to item 1 of my comments successful nan intro and that is, we're mostly done pinch nan strategical realignment of nan company's portfolio. We're very proud of nan portfolio that we put together, proud of nan operating teams and nan commercialized teams that are commercializing and expanding nan business opportunities successful these very progressive areas erstwhile you look astatine our assets successful nan Delaware and nan Williston and soon to beryllium successful nan Powder immoderate of nan highest drilling rig complaint levels crossed nan full U.S. All weighted by mostly lipid prices, but we do use from higher state prices. So, we deliberation that's upside successful this year.

Let maine conscionable opportunity that we're very pleased pinch nan repositioning, we're very pleased pinch nan assimilation and integration of nan assets. Our operating taxable for this twelvemonth is going to beryllium execution. To proceed to thrust what we deliberation is very beardown affirmative outlook for our assets successful these basins. This is simply a unsocial clip that we're successful correct now. Industry needs much proviso from Wellhead to Burner-Tip. We are a captious portion of that successful each of those 3 basins. We've sewage a batch of room for maturation from a capacity standpoint.

Our superior is going to beryllium declining complete nan adjacent respective years, which should thrust importantly greater free rate flow, indebtedness salary down, and past we'll beryllium successful a position for illustration Johnny said to look astatine immoderate return of superior to investors. And I deliberation that's what we've built for ourselves pinch a strategical realignment getting into nan halfway areas of nan [oil weighted basins] [ph] and retired of nan state weighted basins wherever we had virtually nary maturation near successful those assets. So, very pleased pinch nan squad and really excited astir what we're going to execute successful 2023.

So operator, convey you very overmuch for managing nan telephone this greeting and to each our investors. Thank you for hanging successful location pinch us. I cognize it's been a small confusing from a budgeting standpoint to fig retired nan ins and outs of this, but I deliberation nan boys put together a very bully blueprint for really we [shook out] [ph] past twelvemonth and what nan fund looks for illustration for 2023. So, if you're successful Houston, please extremity by and spot us. We’re happy to talk to anybody really excited astir wherever we spell from here. Thank you very much.

Operator

This concludes today's teleconference. You whitethorn disconnect your lines astatine this time. Thank you for your participation.