Crestwood Midstream Partners LP Management Discusses Q4 2012 Results - Earnings Call Transcript

| About: Crestwood Midstream (CMLP)

Crestwood Midstream Partners LP (NYSE:CMLP)

Q4 2012 Earnings Call

February 26, 2013 11:00 am ET


Mark G. Stockard - Vice President of Investor Relations - Crestwood Gas Services GP LLC, Treasurer of Crestwood Gas Services GP LLC and Assistant Secretary of Crestwood Gas Services GP LLC

Robert G. Phillips - Chairman of Crestwood Gas Services GP LLC, Chief Executive Officer of Crestwood Gas Services GP LLC and President of Crestwood Gas Services GP LLC

Steven Michael Dougherty - Chief Accounting Officer, Interim Chief Financial Officer and Senior Vice President

Robert Thornbury Halpin - Vice President of Finance

Joel D. Moxley - Chief Operating Officer of Crestwood Gas Services GP LLC - General Partner and Senior Vice President of Operations and Commercial of Crestwood Gas Services GP LLC - General Partner

J. Heath Deneke - Senior Vice President of Crestwood Gas Services GP LLC and Chief Commercial Officer of Crestwood Gas Services GP LLC


TJ Schultz - RBC Capital Markets, LLC, Research Division


Good day, everyone, and welcome to the Crestwood Midstream Fourth Quarter 2012 Earnings Conference Call. As a note, today's call is being recorded. And now, at this time, it is my pleasure to turn the conference over to Mr. Mark Stockard, Treasurer and VP of Investor Relations. Please go ahead, sir.

Mark G. Stockard

Thank you. Good morning, and welcome to our call. Before I turn the call over to Bob Phillips, Crestwood's Chairman, President and Chief Executive Officer, I'd like to remind you that during this call, we'll make certain forward-looking statements as defined in the Securities and Exchange Act of 1934, based upon the beliefs of the company, as well as assumptions made by and information currently available to management. Although management believes that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Please refer to our latest filings with the SEC for a list of factors that may cause actual results to differ materially from those in the forward-looking statements during this call.

In addition, during the call, we'll be discussing certain forward -- certain financial measures, such as EBITDA, adjusted EBITDA and distributable cash flow and adjusted net income, which are non-GAAP measures. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is included in the press release that we issued earlier this morning and posted on the Investor Relations section of our website at

With that, I'll turn the call over to Bob.

Robert G. Phillips

Thanks, Mark, and good morning to all of you. Thanks for joining us. Some very important announcements today in the press release, particularly in the area of business development. I know that our investors have been waiting patiently over the last couple of quarters for news about the progress we're making, so we've got Joel Moxley on the line to talk about the Marcellus; and Heath Deneke on the line to talk about all the other newbuild opportunities that he and his team are progressing. So I hope that you'll take an opportunity to ask them some questions.

Just by way of overview, let me make some initial comments about our 2012 achievements and our outlook for 2013 and then I'll turn the call over to Steven Dougherty. Steve is -- or Doc as we call him, is our current Chief Accounting Officer. He is acting in the role as our Interim Chief Financial Officer. Doc is doing a great job of combining the accounting and finance functions kind of back together again, and you're going to hear from Doc on our fourth quarter and our full year 2012 results.

Also new to the executive team is Robert Halpin. He's our new Vice President of Finance. Robert has been working in the BD group with Heath since last summer, working on creating financial opportunities for these new build-out projects. Robert moves over into the role of VP Finance, and he's already doing a great job for us there, and Robert's going to walk you through the details of the 2013 forecast and our guidance. After that, we'll open it up for questions.

So let me give you my perspective on where we've come over the last couple of years. Clearly, the last 2 years have been significant growth, largely through acquisitions. We did build a broad geographic portfolio of shale assets all across the United States.

2012 was really a transition year for us, as we faced decreasing natural gas prices early in the year, which impacted our expectations for our dry gas systems, and then we saw increasing M&A valuations later in the year, which presents some clear challenges if you're growing only by acquisitions.

So to offset these market conditions, we focused on 3 growth strategies in 2012. The first being shifting our focus to entirely rich gas plays. The second making bolt-on acquisitions at much more competitive multiples since -- than some of the deals that we've seen take place over the past year in this market. Those assets or assets near approximate to our existing assets and provide real operating synergies to drive accretion. And third, and most importantly to me, we started out midyear building a North American business development team to increase our presence in the rich gas areas that require greenfield midstream infrastructure, and we think we're large enough now to support some pretty significant infrastructure build-out programs in some of the other shale plays that we are not currently located.

I think we accomplished all 3 of these objectives throughout the year, and clearly, repositioned Crestwood for both the near-term and long-term growth.

And just as a recap, in 2012, we completed over $550 million of accreting -- accretive acquisitions, all in the rich gas areas, of course, including the $380 million Marcellus Shale acquisition in March of last year. This gives us a foothold in one of the top 3 shale plays in North America, the Marcellus. We also completed 2 bolt-on acquisitions, 1 in the Barnett rich, a second in the Marcellus, which extends our value chain to include a pretty -- now pretty significant compression services business to complement our growing gathering business.

And just to be clear about that, so there's not any confusion, we didn't buy a compression rental fleet. We bought existing compressors under long-term contract to the same producer, Antero, that we gather for. The compressors were already located on our pipeline system, so it was very much a bolt-on, but it does highlight the growing need for compression in these shale plays, the opportunity to provide compression as a separate stand-alone service, and we think that expense the value chain and continues to diversify our portfolio.

But we also have now largely staffed our BD team over the past 6 months, with former El Paso, Kinder Morgan and Williams professionals, and they're fast at work developing projects in Powder River Basin Niobrara, in the Permian Basin where we have some assets and in the Utica Shale play, which, of course, is brand new also.

Operationally, in 2012, our consolidated assets reached operational critical mass by gathering about 1 Bcf a day. In my 35 years in the business, that's always kind of been a benchmark for producers, and I think it creates a lot of operational credibility in the minds of producers, particularly in these new areas where we're developing projects. Notably, in the fourth quarter, 62% of our gathering volumes came from rich gas areas, like the Marcellus, the Barnett rich and the Granite Wash, compared to just 26% from the rich areas in 2011.

So with all of this growth, we were able to maintain our preferred contract portfolio with 98% of our revenues still coming from fixed--fee contracts in 2012. That's important to us. Continues to be quite unique in our gathering and processing peer group, and hope that our investors recognize that, that promotes cash flow stability.

We also made significant progress in reducing our dependence on the Barnett Shale -- the Barnett Shale dry gas and Quicksilver Resources, as the table in the press release clearly illustrates, and we put that in there specifically to answer those questions, where are you in your process of diversifying away from Barnett, away from dry gas and away from Quicksilver. So hopefully we've answered those questions relative to our 2013 forecast.

In the '13 forecast, we also anticipate that rich gas will generate about 2/3 of our volumes. Antero will become our largest producer by volume, comprising over 42% of our consolidated volumes in 2013. The Marcellus will become our most important growth segment, and Quicksilver Resources will be reduced to less than 40% of total revenues in 2013. So quite an accomplishment over about 2.5 years when we bought the proprietary business from Quicksilver, and they were virtually 100% of our revenue base.

And finally, in 2013, diversification, as I said, it's not only geographic now, but down the value chain, we think it's important to note that 66% of our volumes will come from gathering services where we're charging a fee, 20% will come from compression services where we're charging a separate fee and 14% will come from processing services. All that compared to over 80% gathering volumes in 2012. So again, diversification down the value chain.

On the organizational front, a quick update. We mentioned it in the press release, our focus has been clearly on building a substantial operating presence and a team in the Marcellus. We've opened 2 regional offices there. They're fully staffed in Clarksburg and Charleston, West Virginia. That's a stand-alone team. As I've committed to Antero, we're going to have all the people that we need up there to make sure that we can execute on the projects in 2013 and 2014 as we look forward.

We'll spend more than 80% of our organic capital budget up in the Marcellus this year, and it's really an accelerated growth mode for pipelines and compressor stations to meet Antero's aggressive development targets in what we call the Eastern AOD, which is about 130,000 acres that's dedicated to us. And it's notable that Antero continues to actively pursue acreage up there that increase the acreage under our contract dedication under our 20-year contract by about 30,000 acres, or almost 30%, just since we did the deal a year ago. So the acreage expands and therefore, the drilling or drillable locations expand as well.

Let me just note Antero, we think of them as an absolute first-class operator. From our experiences over the past 3 years across a broad range of shale plays and a lot of different producers, Antero was definitely the best shale play developer that we've worked with. We appreciate the opportunity that they've given us. We're fortunate to partner with them. This is a very important infrastructure play, not only for Antero and Crestwood, but for the Marcellus and the industry as well. So we're really taking a leadership role there.

We're currently working on some opportunities in the Western area, which is not dedicated to us, but is the subject of a ROFO which we publicized when we signed the contract a year ago. And I think it's exciting what the opportunities are over there, and that will be another compelling example of growth potential in this area. Joel Moxley, our Chief Operating Officer, and his team are doing a great job, and he'll be happy to answer any questions that you have about Antero or Marcellus.

In the Barnett, very quickly, the West Johnson County asset acquisition from Devon last year was both timely and beneficial to us and to Devon. Devon monetized the non-core midstream asset, although they still have a substantial set of assets up in the Barnett Shale. Devon has its own midstream business. I think it's important to note, they sold that asset to us because they felt like we could incorporate it into our Cowtown asset and really get operating synergies for both us and for Devon. So we've done that.

We have a little bit of a delay in the fourth quarter. Doc will talk about that. That led to part of the miss relative to guidance and expectations for the fourth quarter. But that's now all completed. We have fully incorporated all Devon's gas into our Cowtown facility, lowering operating cost for us going forward and then giving us a surplus 100 million cubic feet per day processing plant that Heath is looking to redeploy in some of these rich gas plays.

In the Fayetteville and Granite Wash, they continue to be important parts of our overall portfolio. Surprisingly, BHP looks to continue to maintain and slightly increase production volumes in the Fayetteville in 2013, and the Granite Wash continues to grow. An affiliate of ours, a First Reserve portfolio company, now named Sabine formally NFR, has taken over the acreage there and we're excited about their development plans, which may require a plan expansion up in the Granite Wash by year end 2013. We're waiting to see their full year development plans before we start that engineering work.

In the BD area, we continue to make a lot of progress on some exciting projects, all in the rich gas plays. We'll continue looking at M&A opportunities, but the market still pretty choppy in our view. We provide a pretty significant update on BD activities in our press release. Although we don't have announceable material acquisitions, we thought that we're doing so much work there, and that's an important part of our story going forward that you would want to know and get an update, so Heath will be happy to answer questions that you have about those projects.

On the financial side, we continue to grow our business and maintain a conservative balance sheet. We just came back from our semiannual meeting with the rating agencies and continued to confirm our commitment to a conservative balance sheet and improving credit metrics, so we're going to do what we need to do it in 2013 to meet our objectives there on the balance sheet side.

In 2012, we did opportunistically access both equity and debt markets because we're benefiting from historically low cost of capital. We know that. Our banks have been strong supporters of our business plan. We had significant demand from our banks when we upsized the CMLP revolver to $550 million, last year, we also got lower pricing and extended the maturity date, so all part of rightsizing our balance sheet and providing flexibility for all these opportunities that we're developing.

The CMM drop-drown transaction just announced in January does continue to highlight, we think, the benefit of having a very strong general partner in First Reserve. The fact that they agreed to sell the 65% interest in CMM at a very fair multiple, probably a year ahead of schedule and by agreeing to take back half the consideration in Series D units that have a PIK feature, like the current Series C units, all provides flexibility for Crestwood on our 2013 financing plans, and continues to show our limited partners the great alignment of interest that we have with First Reserve. So I do want to highlight that as well. That was an important move on their part and it all is designed to support long-term growth for our partners.

So as we said in the press release, 2013, I think, will be another transition year for Crestwood, but it will show significant improvement over 2012. The capital that we plan to invest this year, primarily in the Marcellus, but hopefully, with fingers crossed, some of these new business development opportunities will materialize over the next several months and allow us to really drive growth in 2014. And if we can do that, then I think we'll be in a good position to return to what I promised all of you back when we started back in the summer of 2010, and that's kind of an annual distribution target of 8% to 10% per year.

So with that background, hopefully, that answers a lot of the strategic questions. I'll now turn it over to Steve and then Robert to cover 2012 performance and 2013 guidance. Okay, Doc?

Steven Michael Dougherty

Thanks, Bob. So as we included in our news release this morning, Crestwood's adjusted EBITDA for the fourth quarter was about $30.5 million, which is about $1 million lower than last quarter and was relatively consistent with what we had in fourth quarter of '11.

Our fourth quarter adjusted EBITDA came in lower than third quarter and market expectations, primarily due to a $5 million decline in the operating margin from our Barnett segment, if you exclude the West Johnson County assets that we just acquired in August. We also incurred about $1 million of additional operating expenses related to the decommissioning of the West Johnson County plant, and another $1 million or so of higher general and administrative costs, primarily related to increased business development activities that Bob mentioned earlier. These items are partially offset by around $5 million of operating margin generated by the West Johnson County asset, excluding the decommissioning cost that I just mentioned.

For the year ended December 31, 2012, adjusted EBITDA totaled around $119 million, a 9% increase from $110 million we had in 2011.

Adjusted distributable cash flow, or DCF, was $23 million for the fourth quarter '12, which was consistent with fourth quarter '11. For the full year 2012, adjusted DCF was around $91 million or 4% over 2011. Earlier this month, we paid our fourth quarter 2012 distribution of about $0.51 per unit, which brought us to $2.02 of distributions for 2012 compared to $1.87 for 2011, an 8% increase.

The year-over-year growth in our adjusted EBITDA and adjusted DCF was primarily attributable to our investment in Crestwood Marcellus Midstream, which we referred to as CMM.

Before I go into our consolidated systems, I'd like to take a minute to talk about CMM. As you know, we account for a 35% investment in CMM under the equity method of accounting, and accordingly, Crestwood only picks up 35% of CMM's net income to equity earnings and picks up 35% of its adjusted EBITDA as well. This will change in 2013 with Crestwood's acquisition at the remaining 65% interest in CMM that Bob mentioned earlier.

With that in mind, Crestwood recorded approximately $1.6 million of equity earnings and $3 million of adjusted EBITDA for its 35% interest in CMM during the fourth quarter '12. This means that CMM's adjusted EBITDA on a 100% basis was $8.5 million for the fourth quarter, which is a 32% increase from the $6.4 million of adjusted EBITDA that we reported in third quarter. The growth in adjusted EBITDA was fueled by a 25% increase in CMM's gathering volumes, up to 360 million cubic feet per day for the fourth quarter '12; that's compared to only 289 million cubic feet per day in the third quarter.

Now let's go to Crestwood's 100%-owned systems. Volumes on these systems averaged around 606 million per day in the fourth quarter '12, which was consistent with the third quarter, but down from the 662 million per day gathered in the fourth quarter of '11. For the year, volumes averaged 595 million per day, compared to 570 million per day in 2011, a 4% increase year-over-year. The volume growth was driven by steady increases in volumes from our rich gas systems throughout 2012, primarily in the rich areas of the Barnett Shale. This was offset by a steady decline in gathering volumes in the dry areas of the Barnett Shale.

Let's talk about our Barnett operations for a moment. Operating margin in the Barnett segment totaled $26 million for the fourth quarter '12, which is pretty consistent with what our operating margin was for the third quarter. Gathering volumes increased to 442 million per day during the fourth quarter '12, up from 438 million a day in the third quarter.

Our Barnett segment's fourth quarter volumes include the 209 million a day from our rich gas Cowtown area, which significantly over -- increased over third quarter due to the West Johnson County assets acquired from Devon in August, which added 84 million cubic feet per day of gathering volumes during the quarter. This growth in rich gas gathering volumes was offset by a decline in gathering volumes in the Lake Arlington and Alliance dry gas areas of the Barnett, which averaged 233 million cubic feet per day in the fourth quarter, which was a 14% decline from what we saw in the third quarter. The decrease in the dry gas areas reflects your normal natural gas production declines, as no additional wells were connected during the fourth quarter on those areas.

Processing volumes in the Barnett segment totaled 200 million cubic feet per day in the fourth quarter '12, a 25% increase over the 160 million a day processed in the third quarter of '12. This increase is consistent with the increase in rich gas gathering volumes that I described earlier.

One thing to note, as Bob described earlier, we acquired the West Johnson County assets in August and it included 100 million cubic feet per day processing facility that we intended to shut down and either sell or redeploy where we have future processing needs. We completed the decommissioning of the plant on December 1, which was about a month later than what we expected, and completed the connection of the West Johnson County gathering system to our Cowtown processing facility, which is now processing all the natural gas gathered on that system.

During the fourth quarter of '12, our operations and maintenance expense increased to approximately $8 million, up from $7 million in the third quarter due to the decommissioning of the facility and the related firing up of our one idle units at the Cowtown facility. We anticipate realizing operating efficiencies from utilizing the Cowtown plant for these services in the future, which should decrease our operating expenses in the future as well.

Going to other segments. Operating margin in the Fayetteville segment totaled approximately $5 million in the fourth quarter of '12, which was consistent with the third quarter of '12. Fourth quarter gathering volumes increased to 93 million cubic feet per day compared to 91 million cubic feet in the third quarter, which was attributable primarily to realizing the full quarter benefit of wells that connected in the middle of the third quarter. These were higher revenues, were offset by higher maintenance cost.

Operating margin in the Granite Wash segment totaled approximately $700,000 in both the third and fourth quarters of 2012, reflecting consistent gathering and processing volumes of approximately 20 million cubic feet per day in both periods. Operating margin in Crestwood's other operating systems, which include the Sabine gathering system and the Haynesville/Bossier Shale and the Las Animas system in the Avalon Shale totaled $1.6 million for the fourth quarter, down about $800,000 from the third quarter. Gathering volume at our Sabine and Las Animas systems totaled 50 million cubic feet per day during the fourth quarter of '12, compared to 55 million in the third quarter of '12.

Operation and maintenance expenses related to the these assets totaled around $700,000 in the fourth quarter of '12, which was consistent with third quarter.

Now, let's move to our balance sheet and financing activity. At year end, the partnership had around $557 million of debt outstanding, which was comprised of $350 million of fixed-rate senior notes and around $207 million of borrowings on our credit facility. As you may recall, during the fourth quarter of '12, we issued $150 million of senior notes that I've just mentioned, and also increased the total borrowing capacity of the revolving credit facility by $50 million to the current capacity of $550 million. Our senior notes mature in 2019 and our credit facility matures in 2017.

At year end 2012, the ratio of our total debt to pro forma EBITDA defined in our credit facility was approximately 4.2x.

On January 8, 2013, we purchased the remaining 65% interest in CMM for $258 million, of which we paid 50% of our $129 million in cash, which we borrowed under the CMLP credit facility, and issued the $129 million of Class D units in general partner interest that Bob mentioned earlier. The $4.6 million Class D units are structured substantially identical to our existing Class C units and allow us flexibility of paying our 2013 quarterly distributions either in cash or through the issuance of additional Class B units. The class B units did not participate in the fourth quarter '12 distribution, and will convert to regular common units in the first quarter of 2014.

As a reminder, our $7.4 million Class C units will convert to regular units on April 1, 2013, and we'll receive a cash distribution starting with the first quarter 2013 distribution.

Regarding CMM, please recall that CMM -- the CMM joint venture has a stand-alone revolving credit facility that has remained in place following the drop-down transaction that I just mentioned. The balance under this facility was $127 million at year end and has a maximum borrowing capacity of up to $200 million. The year end balance includes $95 million that we borrowed under the facility in late December to fund the acquisition of the compression assets from Enerven. The total debt to pro forma EBITDA under that facility was approximately 3.4x at year end.

During 2012, we had approximately 32 million of growth capital expenditures and 4 million of maintenance capital. Crestwood's growth capital excludes acquisitions and was primarily related to the construction of pipeline laterals and compression equipment in the Fayetteville and Barnett Shales.

As I've described previously, Crestwood spent $87 million for the acquisition of the West Johnson County system from Devon in August, and also made $131 million investment in CMM in 2012 as well.

Growth capital spending by CMM, excluding acquisitions, totaled $17 million since commencing operations at the end of March of '12. The capital spending was primarily used to construct new pipeline gathering laterals. Acquisitions by CMM during 2012 included the $380 million initial acquisition of assets from Antero back in March of '12 and the $95 million acquisition of the compression assets that I mentioned from Enerven in December of '12. The Antero acquisition was funded with the initial capital contributions from both CMLP and from Crestwood Holdings, and the Enerven acquisition was funded with the CMM revolver, as I've previously noted.

With that, now I'll turn the call over to Robert Halpin to review the outlook for 2013

Robert Thornbury Halpin

Thank you, Steven. As noted in our news release this morning, Crestwood estimates that adjusted EBITDA for 2013 will be in a range of $170 million to $185 million. This represents an increase of approximately 50% from 2012 and nearly 2.5x our EBITDA when Crestwood took over operations of the partnership back in 2010.

As Bob and Steven reviewed, Crestwood continues to diversify its operations into higher growth rich gas areas. Consistent with that, we expect that the substantial majority of our growth in 2013 will occur in our Marcellus Shale assets. We expect 2013 volumes in the Marcellus to average approximately 460 million cubic feet per day, increasing from approximately 390 million cubic feet per day at the beginning of 2013, to approximately 500 million cubic feet per day by the end of 2013. In the Barnett, we anticipate the total volumes from the rich gas area will be up 32% relative to 2012. This translates to a 20% increase in net revenues or $15 million. It is important to note that virtually all of this growth in our rich gas Cowtown area is attributable to the full year contribution of the Devon West Johnson acquisition.

In the dry gas portion of the Barnett, we are not expecting any new drilling from our producers, which leads to a 12% decline in 2013 expected volumes relative to the volumes we saw in 2012. This translates to a 14% decline in net revenues or $8 million. Our expectations for 2013 volumes in the Barnett area are consistent with the information that Quicksilver reported in its earnings call yesterday morning.

The Barnett Shale continues to be an important producing area for us. And as we have continued our diversification in bolt-on acquisition strategy, we have had success in mitigating the risk we face from some of the continued near-term gas price weaknesses and Quicksilver's reduced activity around our Barnett assets. As we reported in our press release this morning, and as Bob addressed in his opening remarks, by year end 2013, Quicksilver will be surpassed by Antero as the largest producer in our portfolio by volumes, and net revenues from Quicksilver production will only constitute 40% of total CMLP revenues versus 65% in 2012.

As for our other segments, we expect combined gathering volumes in the Fayetteville and Haynesville in 2013 to also remain relatively flat with Q4 2012 volumes, with growth in the Fayetteville offsetting some Haynesville production declines. In the rich gas Granite Wash play, we are forecasting activity to stay very robust with gathering and processing volumes increasing more than 25% year-over-year. Considering all of these factors, we anticipate that our gathering volumes from rich gas areas will be approximately 66% of our total gathering volumes for 2013, up from about 50% in 2012, which is inclusive of CMM. This is consistent with our strategy of further diversifying our operations away from dry gas areas into more rich gas areas that Bob described earlier.

As we note in our press release this morning, organic capital spending is expected to be in the range of $120 million to $150 million for the full year 2013. Over 80% of that will be spent to expand gathering and compression business in the Marcellus region to support the growth in volumes from Antero. Included in these amounts are approximately $10 million of maintenance capital spending for 2013. We anticipate that our growth in maintenance capital expenditures will be funded through operating cash flows, existing capacity under our credit facilities and access to the capital markets.

On estimating our adjusted EBITDA for 2013, it's important to note that we have assumed that we will acquire $200 million of additional assets, and that these additional acquisitions are in addition to the January CMM drop-down, and they will occur in mid to late 2013. Although we anticipate that these acquisitions will have a marginal impact on our 2013 adjusted EBITDA, we believe that including these acquisitions in our forecast is reasonable and conservative given our track record of completing bolt-on acquisitions at these levels over the past several years, and the visibly that we have today on potential bolt-on opportunities in and around our existing asset base.

I also want to point out that our growth capital expenditure estimate only includes projects that we have contracted to complete in 2013. We have clear visibility on these projects, and we anticipate that these projects will take 6 months or less to complete.

As Bob discussed at the beginning of the call, Heath and the BD team have -- are actively pursuing a number of greenfield development projects in preparation for the potentially sizable growth capital expenditures. Associated with executing on one of these development projects, we are engaged in the number of active discussions for potential financing alternatives at the GP and joint venture level, consistent with a drop-down financing strategy that we have shared with the public in our prior investor presentation materials. We continue to receive multiple favorable indications of support for these potential transactions. That said, we have not factored these Greenfield products into our 2013 outlook. But as Bob mentioned, we remain very optimistic about the progress we have made to advance these projects, and we believe these projects will help drive long-term growth for Crestwood that, again, is not factored into our current estimates.

Now with that, I'll turn the call back over, and I believe the team here is ready to on questions.

Question-and-Answer Session


[Operator Instructions] We'll take our first question from TJ Schultz with RBC Capital.

TJ Schultz - RBC Capital Markets, LLC, Research Division

I guess maybe just quickly on the Barnett before I focus there. If we look at the dry gas volumes in the Barnett, maybe kind of what does the guidance assume on trajectory there? I guess you're down 14% sequentially in fourth quarter, and now looking for 12% year-over-year decreases in '13, so maybe if you could discuss either the expectation for the exit rate this year, or how you're looking at kind of decline rate as we move through 2013?

Robert Thornbury Halpin

Sure, TJ, and I'm glad you asked that. I think that consistent with what Quicksilver disclosed yesterday, what we've seen in our dry gas area specifically is we are starting to see a little bit of flattening in the curves as they haven't brought on a tremendous amount of new wells of late. It's predominantly late 2011 well completions, as well as early 2012. And so what we're seeing is a decline rate that's more consistent or getting to kind of the flattening portion of the decline curves that we have. So as you pointed out, we're seeing kind of a 12% year-over-year decline. In terms of exit rates, I think we exited our 2012 kind of the dry gas area around 233 million a day and are expecting that, as I said, to kind of on an annual average, decline at about 12%. But exiting the year 2013, kind of right around the same total level, let me pull the exact number for you -- sorry, that's 2,006 -- sorry, 268 million cubic feet per day for total year 2012 relative to the 235 million, which again constitute that 12%. Apologies, I was looking at a different number there.

Joel D. Moxley

This is Joel. Let me just add something. To date, for the first 2 months of the year, we're actually flat in the dry areas of Barnett for fourth quarter, so we've averaged 234 million a day in the first 2 months of the year. So they've done some things to flatten out the volumes in the first 2 months of the year.

TJ Schultz - RBC Capital Markets, LLC, Research Division

Okay. Appreciate that. I guess, just kind of moving to the rich side, gathering volumes, up 32% for 2013 expectations and revenues plus 20%. So just trying to get my arms around maybe the processing volumes, I guess, you're at 200 million a day in the fourth quarter, so maybe if you could talk about the trajectory on processing volumes as we move through this year.

Robert Thornbury Halpin

Yes, I think, TJ, on the processing front and, again, I think as we addressed in the call, that the numbers are a little bit -- the growth is predominantly attributable to the fact that we do have a full year contribution from Devon West Johnson, and taking those volumes now that we've decommissioned the plant for the full year versus just the final quarter, as we really had in 2012. But in terms of total processing amount in Cowtown, I think you're seeing an increase of kind of annual averages of about 155 -- or sorry, 155 million a day growing to, call it, about around 207 million a day in 2013.

TJ Schultz - RBC Capital Markets, LLC, Research Division

Okay. Just moving on to some of the greenfield projects. I guess, first on the Niobrara. I guess, still appears to be fairly early days there. Obviously, you guys have some nice flexibility with the sponsor support. I guess, just as you look at the assets, what kind of time frame would you think the Niobrara would be warehouse at the sponsor level, or what type of kind of initial ownership would you maybe look to take at CMLP right out of the box there?

J. Heath Deneke

Yes, TJ, this is Heath. I'll take that and then if need be, Robert can follow up on specifics. But from a timing standpoint, as we mentioned, we're currently in negotiation -- or stages in negotiation and unfortunately, given that and our confidentiality agreements, we can get a whole lot into specifics on structure and timing. As we mentioned in our press release, we do hope to be in a position during the first half of 2013 to execute definitive documentation. As far as -- we do initially view this being a significant capital expenditure over a multiyear horizon, and our initial thoughts, as Robert indicated in his comments, is that we would -- we try to warehouse the majority of that at the joint venture/GP level over time and potentially create, as we've indicated in our past releases, a drop-down strategy that will provide CMLP the opportunity to acquire the assets over time as the development occurs.

TJ Schultz - RBC Capital Markets, LLC, Research Division

Okay. Fair enough. I guess, just lastly, on the bolt-on opportunities. First off, did I hear right that $200 million kind of at the midpoint for some of the bolt-on, you are including some of that in your guidance for 2013? And if so, when are you kind of expecting some of that to begin contributing this year? And then, as we look at the opportunities in front of you for some of these bolt-ons, I think you made the comment that you're looking at some of the stuff in the Western AOD ROFOs and there's other stuff in the Barnett that Devon holds. I guess, maybe if there's any more color on where particularly you would be looking for bolt-on opportunities?

Robert Thornbury Halpin

Yes. First, TJ, in response to the question around what's included in our guidance, that is correct, we have assumed $200 million of additional bolt-on acquisitions in the guidance numbers that we've provided. I would note that those are expected to or included in the guidance in late 2013 or in the second half of the year kind of staged in over Q3, Q4. And so I think the actual impact to the EBITDA numbers is fairly marginal. In terms of kind of what the genesis for that is, as we addressed in kind of our comments as well as the press release, is we have a pretty high visibility to some opportunities around our existing assets, the majority of which is in Marcellus. Some of those are at different stages, some of those are with Antero, so probably under some of the CAs that were -- the CAs that we have in place, the agreements we have in place in them, I'm not at liberty to disclose significant detail on them. But I think that what we decided and elected to include in our guidance is consistent and we think relatively conservative, given the visibility that we have in front of us.


[Operator Instructions] It appears that we have no further questions at this time.

Mark G. Stockard

Okay. Well, thank you, everyone. We appreciate your participation on the call this morning. This concludes the Crestwood call this morning. Thank you.


Again, this does conclude today's conference. we thank you for your participation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: Thank you!