Crestwood Midstream Partners' (CMLP) CEO Bob Phillips on Q1 2014 Results - Earnings Call Transcript

| About: Crestwood Midstream (CMLP)

Crestwood Midstream Partners LP (NYSE:CMLP)

Q1 2014 Earnings Conference Call

May 6, 2014 9:00 ET


Mark Stockard - Vice President, Investor Relations

Bob Phillips - Chairman, President, CEO, the General Partner

Mike Campbell - CFO, SVP, the General Partner


Gabe Moreen - Bank of America

Edward Rowe - Raymond James

Michael Blum - Wells Fargo

Jeff Birnbaum - UBS


Good day, ladies and gentlemen. Thank you for standing by. Welcome to Crestwood's First Quarter Earnings Conference Call. During today's presentation all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. This conference is being recorded today May 6, 2014.

I would now like to turn the conference over to Mr. Mark Stockard, Vice President of Investor Relations. Please go ahead.

Mark Stockard

Good morning, and welcome to our call. We hope you had a chance to review our two news releases we issued this morning. This call is a joint call to discuss both Crestwood Midstream Partners and Crestwood Equity Partners.

Before we begin, I would like to remind you that during this call we will make certain forward-looking statements as defined in the Securities and Exchange Act of 1934 based on the beliefs of the company as well as assumptions made by and information currently available to management. Although management believes that these expectations are reasonable, we can give no assurance they 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.

In addition, we will be discussing certain financial measures such as EBITDA, adjusted EBITDA and distributable cash flow, which are non-GAAP measures. Reconciliations to the most directly comparable GAAP measures are included in the news releases that each of the partnerships issued earlier this morning. These press releases are posted on the Investor Relations section of our Web site at A reminder that information reported on this call speaks only as of today, May 6, 2014, and therefore, time-sensitive information that may no longer be accurate at the time of any replay.

With that, I'll turn the call over to Bob Phillips, Chairman, President and CEO of the General Partners of Crestwood Midstream and Crestwood Equity.

Bob Phillips

Thanks Mark, and thanks to all of you that have joined the call this morning. Let me briefly comment on the first quarter then give you a quick update on a lot of our projects kind of going around the country on a shale-by-shale basis. Let you know updates and a little bit background color on a lot of the things that we have going on as well as our continued outlook for 2014 and over the next few years. Then I will turn the call over to Mike Campbell, our CFO. He will give you more detail and break down the results between CMLP and CEQP for the first quarter. Then we will open it up for your questions.

So the first quarter of 2014 another a very, very important quarter for Crestwood, our second quarter out of the gates. It's another building quarter for us. We have put in the foundation in place to build a great midstream partnership just five months out of the gate from our Crestwood Inergy merger back in October 2013.

So when the first quarter CEQP reported consolidated adjusted EBITDA of $117 million, up 5% over the fourth quarter of 2013, and CMLP reported adjusted EBITDA of $99 million, up 9% over the fourth quarter so improvements on both bottom lines. Overall, I think the entire portfolio performed inline with our expectations in a couple of areas certainly exceeded our internal expectations in one area of the Bakken Shale; we did not meet our expectations internally.

The Bakken as you heard from many of the producers and midstream companies, who have already announced, was negatively affected by severe winter weather in January and February as it was in November and December as well. And as you can see from our numbers that affected gathering volumes from North Dakota due to production freeze offs but more importantly delays in drilling completion. Our expansion projects largely completed on time. But we did have significant disruptions in our downstream takeaway pipelines. That also had the effect of curtailing producer volumes all the way back to the well hit.

So we are going to talk about steps that we have taken to alleviate some of those problems in the future. I will also point out and then highlight it again that our producers are back on track in the second quarter and certainly doing a well at least in the first quarter – in the second quarter of this year.

Moving forward, we continue to be excited about the outlook across the country in other areas. And we are going to touch on some of those as well. I do want to point out that a couple of our segments are NGL supply and logistic segment had a great quarter, of course that's owned by CEQP and our Northeast Storage and Transportation business also had a great quarter that's owned by CMLP both of those benefited from historic winter demand for natural gas and propane up in the New England, Northeast and the eastern markets of the U.S.

We continue to be very excited about progress we are making in a number of our high growth areas, the Marcellus Utica and the Bakken, the Powder River Niobrara Shale plays recently the Delaware Permian Basin, where we have a number of projects we are working to develop more scalable long-term opportunities for the partnership. As we have indicated in the past, we are staying focused on the NGL rich and crude basins where producer economics continue to be the best.

While our Bakken assets did cause first quarter performance to be slightly below our expectations, we remain very committed to our 2014 operational and financial guidance and expect meaningful growth through the remaining quarters of 2014 as volumes continue to strength around our Bakken operations and producers catch up as I indicated that they already have. We will give you more color on that recently.

One very important financial and strategic decision that we made was our Board of Directors recent decision to hold distributions flat for the first quarter of 2014. I will remind you that the Board, the management team First Reserve has a substantial investment in the Crestwood Equity Partners and Crestwood Midstream Partners. We have one of the best of alignment of interest.

The MLP set out their in the marketplace. We made a strategic decision to improve the long-term growth profile of our partnerships by aggressively improving our near term coverage ratio. We did that after having conversations and consultations with a lot of our large investors that wanted to see improving coverage ratio.

We think that the opportunity set in front of Crestwood today is exponentially greater than it was when we decided to put the partnerships together back in May of last year in achieving greater than what we observed back in October of last year, when we completed the merger.

As a result, we are very focused on creating long-term value for our investors over the next five years versus the next five quarters and that we believe improving near term coverage ratio will create incremental flexibility for us to reinvest available cash flow into some of these high return growth opportunities that we are seeing presently around our existing assets. We think that generates the greatest long-term value for our unitholders.

Having said that, I want to reiterate that we still remain very confident in our 2014 plan and our guidance and certainly the long-term outlook for Crestwood looks better than we thought it was going to.

Now for a quick update on each of the operating regions and some of the ongoing expansion projects that we talked about publicly.

Start with the Marcellus Shale, in the rich gas southwest portion of the Marcellus where we gather for Antero, we completed several expansions to our gathering system during the first quarter importantly we have now increased total gathering capacity to right at 700 million cubic feet per day. We finally got ahead of Antero which was a challenge because as you know been the most aggressive driller in the Marcellus Shale where there is as many as 15 rigs running in the area around our assets.

So importantly our projects have now caught up to and exceeded the available capacity for Antero that's a good thing. During the first quarter, despite the weather our gathering volumes on the system averaged 531 million cubic feet per day that was a 15% increase relative to the 461 million cubic feet per day that we saw in the fourth quarter of 2013 all due to new projects being placed in service.

At the end of April, daily volumes had already increased to approximately 625 million a day, a big increase from the first quarter average and that is a result of after the winter weather moved down Antero has done a good job of getting frac crews back in there and catching up on their first quarter plan.

Additionally 2014 expansion projects are very much on track and on schedule. Our plans for the year to increase total gathering capacity to 875 million cubic feet per day and to be able to handle in our forecast as exiting the year around 750 million cubic feet per day, so again, we will have available capacity and stay ahead of our producer which is a midstreamers primary objective out there. And that 750 million a day to put in perspective would be a 50% increase from fiscal year volumes in 2014. That's in the Eastern AOD.

In the Western AOD, we are completing an additional 120-million-a-day compressor station and Antero's western area during the second quarter that will bring total capacity, compression capacity up to 240 million cubic feet per day. So just to remind investors on the Eastern side dedicated under the 20-year contract, we get paid a gathering fee and a compression fee on the Western side. So far it's just a compression service that we are providing, but those are incremental volumes when you are looking at our performance.

At the end of the first quarter, we believe Antero had approximately 32 DUCs, or drilled but uncompleted wells on pads connected to our gathering system and as we have observed during the month of April, their frac crews and their completion crews have been very active and starting to raise those volumes as I said earlier spot volumes in April is higher 625 million a day. So Antero continues to do a great job and we are very pleased with the service that we are providing there.

In the dry gas Northeastern part of the Marcellus Shale, our storage and transportation assets operated at record levels during the first quarter due to the extreme cold weather conditions that affected much of the Northeast. That was similar to the fourth quarter, we saw increasing price volatility, wider basis spreads which drove very strong demand for capacity on our MARC 1 and North-South pipelines. And as a result of that we signed a new customer agreement for total of about 40,000 dekatherms per day of available firm transportation capacity on our pipelines that new service began April 1, 2014. And as you know, we announced and have completed and are in the negotiating phase on an open season for the North-South and the MARC 1 pipelines we expect to complete relatively sooner than announced approximately 150,000 dekatherms per day of additional capacity sold on a firm basis.

Demand for the open season was very robust as producers continue to seek access to premium markets there in the dry gas Marcellus region basis spread just to give you an example across the pipeline system averaged almost $1.40 per dekatherm through the first quarter and reached levels as high as $5.33 per dekatherm. So that shows that our assets are very much located in the right spot. We continue to benefit from strong supply development in that region and as a result we are seeing large basis spreads and significantly high absolute prices. So we expect to see continued utilization of our storage and transportation assets there. And we will expect to complete the plans for the open season fairly soon and announce those. But, I can tell you that process is going exceptionally well.

The Bakken was an area that's very important to us. During the first quarter of 2014, Crestwood continued to complete various places of the COLT hub and Arrow gathering system resulting in record crude oil volumes additionally, and I want to point that we have been active looking for bolt-on acquisitions around all of our assets. We did complete the acquisition of the Red Rock Transportation Company located in North Dakota that added trucks and approximately 22,000 barrels a day of crude oil and [one] (ph) truck transportation volumes. This was very complementary acquisition and one that we think is one of the series of steps that we are providing additional connectivity between the COLT and Arrow platforms to enhance lower spreads for our producers.

In addition to that, we are in the process adding 200,000 barrel a day crude oil storage, tank on Arrow gathering system, we are very much involved in a process on a third-party pipeline and open season process on a third-party pipeline, which directly connects Arrow to COLT and we expect to be contracting for firm downstream pipeline capacity on those. And we have recently ordered, I'm sorry we ordered last year [and soon to] (ph) receive two crude oil unit trains that are expected to be received in the first quarter of 2014. So all of that activity is very helpful to continue to increase the throughput on our Arrow gathering system and COLT hub.

We did have significant weather-related volume delays on the Arrow system and we think that we are certainly beginning to take some steps to improve that in the first quarter crude oil gathering volumes averaged about 44,000 barrels a day, natural gas volumes averaged about 20 million cubic feet per day and produced water volumes averaged 12,000 barrels a day as a result, our EBITDA was a little short of expectations about $8 million per quarter relative to our internal estimates.

Importantly as weather conditions have improved in the latter stages of the first quarter and now well into the second quarter, we are seeing significant improvements in throughput to our system as producers are going back to work to catch up on their development plans.

Additionally, the construction of that incremental storage at the Arrow CEP purchase of the Red Rock Transportation fleet and our subscription to the firm priority capacity on that third party pipeline which directly connects Arrow to COLT, we think will create operational flexibility and better flow assurance for our producer customers on the Arrow System.

Well performance across the Arrow System continues to exceed both our internal and our producers’ expectations as indicated in recent producer investor materials released back to two of our largest producers up there Halcon and WPX. Both are expecting to add additional rigs in coming months on the Fort Berthold reservation which is where our Arrow Gathering System sits, currently produces and running 9 rigs in our area of dedication and current development plans. We expect 38 incremental wells to be connected through the end of the second quarter, so if that happens we certainly should be in very good shape to catch up on those volumes.

Current daily gathering volumes on the Arrow System is largely a result of just the wells that have been completed in the last several weeks since we started to see the spring fall. Our oil volumes are in excess of 60,000 barrels a day. We have seen gas volumes as high as 25 million cubic feet per day and produced water volumes in excess of 20,000 barrels a day all around the end of April. So we continue to expect levels closer to our original expectations throughout the rest of the year.

Just north of the Arrow System at the COLT hub actual loaded volumes in the first quarter were almost 100,000 barrels a day actually 80,000, 100,000 barrels a day representing the 15% increase of loaded volumes in the fourth quarter of 2013. Our COLT hub expansion project is largely complete increased well loading capacity to 160,000 barrels a day added 400,000 barrels of crude oil storage all of that was completed in the first quarter of this year. We have one project left and add as the installation of new release in departure track that's on schedule for completion in the third quarter of 2014 and should provide the BNSF with additional operational flexibility and should drive increased loading volumes through the facility. Importantly during the first quarter we announced two new long-term contracts with customers at COLT hub, BP Products North America and Statoil Marketing and Trading both signed up long-term agreements in the starting to use the facility effective April 1st.

So we are pleased with where Arrow is presently as producers get back to work happy to sign up two new customers at COLT and we are really beginning to see improved liability at COLT and the BNSF begins to sort out their issues on the railroad system.

Moving to the Powder River Basin Niobrara, the expansion of our Jackalope gas gathering system and the construction of our 120 million cubic feet per day Bucking Horse gas processing plant remain on track to be completed by the fourth quarter of this year.

In the first quarter volumes on the system were limited to 53 million cubic feet per day as we have said before our volumes are capped at 60 million cubic feet per day that is the limitation on local processing that's available to our producers until our Bucking Horse plant is placed in service at which point in time, we will see a significant ramp up in volumes.

Chesapeake and RKI are two primary producers, they have approximately 37 DUCs or drilled uncompleted wells that are available to be connected to the system and Chesapeake continues to earn three rigs building up that DUC inventory given that processing volumes are limited to about 60 million cubic feet per day. So continued development there things look very good both along the area of dedication as well as in the area, you might recall that our gathering and processing agreement with Chesapeake and RKI is a cost of service agreement. As a result, our cost of service gathering piece have been increased substantially in 2014 to take into account the limited volumes that we can flow through the system by taking into account the significant capital that's being invested through our joint venture between Crestwood and Access.

Additionally, there has been a significant amount of increase rig activity in drilling permits in the area to the north of our dedication with Chesapeake and RKI. Producers are targeting multiple formations up there such as the Niobrara, the Frontier/Turner, Sussex/Shannon, the Parkman/Teapot throughout the PRB region. And we continue to look at a number of projects, gathering and processing projects to expand our assets up there to very active area we got in last year in the early stage of the play and I think we are well-positioned to complete some additional projects to grow our footprint.

Also a quick update on our Douglas Crude Rail Terminal which we own a 50% interest in, it’s located only 8 miles from the Bucking Horse plant. In the first quarter, we only loaded about 7,000 barrels a day but the facility is currently being expanded to handle more than 20,000 barrels a day and we expect unit train loading service to start in May of this year. We are also expanding our storage there by an additional 120,000 barrel a day of additional capacity. So starting to make some progress and attracting producers crude to that Douglas Terminal.

Now let me quickly move to the Permian basin as you know we announced in early April a new project was really faced two of the old project called the Willow Lake project which we started on a couple of years ago when we bought dry gas pipelines that we thought might be convertible into rich gas service as the Avalon Shale in Bone Spring play move towards our location. They have producers and now very actively and aggressively drilling for Avalon Bone Spring and Wolfcamp in the Eddy County New Mexico area where our top lines are located. We are now going from the JT skid to a 20 million a day cryo plant and we are also expanding the system we just announced a 10-year gathering and processing agreement with Legend Production, which is a Riverstone portfolio affiliate company.

And we have an area of mutual interest with Legend covering more than 100,000 acres in this Eddy, New Mexico area were again producers are targeting Avalon Bone Spring to and Wolfcamp.

Construction of the Willow Lake plant is very much on schedule. We expected to be on service in the third quarter of this year. We are spending about $25 million to $30 million total on that project. This project was not in our original 2014 plan. And we are actively working with producers in the area for a Phase III expansion which would be the Delaware Ranch plant. That plant we own, it's located right now. We are in the Barnett Shale. It's about a 120-million-a-day cryo plant that we acquired from Devon a couple of years ago. And we can move that plant over once we get the producers subscriptions to support that.

Mentioning the Barnett, I want to highlight something that surprised all of us. While our Barnett volumes were down by 5% in the first quarter compared to the fourth quarter of 2013, recently Quicksilver Resources has resumed drilling activity substantially in the alliance and Lake Arlington to dry gas areas. They completed 14 wells in late March 2014 as a result volumes were up about 14%, 15% in recent weeks over the fourth quarter average. We are moving about 440 million cubic feet per day through the Barnett Shale systems that's a big increase.

Quicksilver just made their third quarter earnings call this morning and announced to our surprise they expect to complete about 47 wells in 2014. We had about half of that many in our 2014 plans. So we are pleased with that.

Moving on to couple of other areas at CEQP, our NGL Supply and Logistics business had another excellent quarter following up a very strong fourth quarter. So they got a great winter largely as a result of strong demand for propane and butane in the market areas. That group generated $19 million of EBITDA excluding mark-to-market gains that represented a 6% increase over the fourth quarter of 2013 and was very, very strong performance primarily due as you know due to the unprecedented product demand in wider basis differentials particularly for propane that we saw coming in out of the polar vortex or the extreme cold weather that the Northeast experienced over the fourth and first quarters.

Our wholesale team utilized our strategically located logistics assets primarily in the Marcellus Utica in the New York area to provide critical services to our NGL customers in the market areas we were part of the solution in many instances where harsh weather conditions drew higher demand. And local suppliers were really challenged. This created both the combination of the strong winter demand and some downstream disruptions created supply disruption opportunities to some of the local suppliers that exacerbated market imbalances that we have seen across a number of different NGL suppliers and an increase demand for many of our firm services.

Our transportation team did a great job during the quarter despite those tough weather conditions. And with the strong first quarter under our belt, I think we are well-positioned to meet all of our 2014 objectives on the NGL Supply and Logistics Group. We continue to make small, but important scale and diversification investments across our entire NGL footprint including taking out long-term pipeline capacity out of the Marcellus Utica towards the East Coast as well as continuing to add to an upgrade, our transportation fleet or truck as well as real handling a lot of the liquids that are coming out of the Marcellus Utica's so that's going to be a core business for us for a number of years. And we continue to sign producers and processors that have liquids available to be sold into the market.

So I'm very pleased with the job that our NGL Supply and Logistics team have done. At Tres Palacios, we continue to work on our optimization opportunities and cost cutting initiatives in the first quarter Tres is slightly ahead of expectations do in part to higher optimization revenues and lower rig expenses.

Let me just reiterate that market conditions remain extremely challenging for Gulf Coast storage. And we hadn't changed our opinions of that throughout 2014 continued to work with the product on our authorization request to reduce certificated capacity at Tres by up to 60%. We simply can't sell it at above or break even prices and so we continue to be optimistic that will get Boards approval ultimately realize pretty significant anticipated cost savings there that might put Tres then on solid footing going forward. On the tax side, we recently filed with tax appraisal districts in Texas for a reduction in those property taxes. Again, that impacted property tax reduction is expected to be up above $4 million annually.

And then long-term, we continue to have a very active discussions with customers in Mexico and along the U.S. Gulf Coast. As far as LNG business we think Tres is very well positioned for that don't have anything to report this quarter. But I will report that we remain actively engage in discussions with Pemex and CFE in Mexico with shippers that have signed up at Freeport LNG, amongst others to utilize Tres in our extensive pipeline hub system down there as part of their overall long-term LNG supply portfolio.

So we have a number of positive opportunities around Tres and we will continue to pursue those aggressively. That's a very quick overview of a lot of things we have going on in our most important plays.

And so with that background, I will turn it over to Mike Campbell who will talk about the detailed financial performance for the quarter. Mike?

Mike Campbell

Thanks Bob.

As with our normal practice, this morning we distributed two separate press releases one for Crestwood Midstream Partners or CMLP and a separate press release for Crestwood Equity Partners or CEQP. I will first discuss the operations and the results for CMLP and then I will turn to CEQP separately.

As we have previously discussed, we closed the merger of Crestwood – Legacy Crestwood Inergy Midstream on October 7, 2013 as a result of the reverse merger accounting treatment we report consolidated results of CMLP back to June 19, the day that merger came under – the day that Inergy Midstream and Legacy Crestwood came under common control.

As such results prior to June only include Legacy Crestwood operations and in today's discussion, I will be making comparisons between the first quarter of 2014 and the fourth quarter of 2013 for context as the prior year numbers include only the ops of Legacy Crestwood.

Additionally, in our fourth quarter 2013 results those reflect the contribution of Arrow Midstream beginning on November 7, the day the acquisition closed.

For the first quarter of 2014, CMLP reported adjusted EBITDA of approximately $98.9 million, 9% increase from the fourth quarter of 2013 results in the first quarter reflect a full period contribution of our Bakken gathering system and record volume metric throughput in each of our reporting segments.

In the gathering and processing segment, gathering volumes averaged 1.13 billion cubic feet per day and compression volumes averaged 448 million cubic feet per day. In the Storage and Transportation segment, volumes delivered averaged 1.44 billion cubic feet per day with peak day throughput of 1.77 billion cubic feet per day.

In our crude oil business segment, we gathered at Arrow and loaded across the rail rack at COLT an average of 142,000 barrels a day. Our reported net income of $5.5 million for the first quarter included $5.8 million of significant transaction expenses primarily related to the Crestwood Inergy merger in the Arrow acquisition, $4.6 million of non-cash equity based compensation expense and $2.1 million non-cash accrual for the Antero earn-out.

Now turning to the EBITDA contribution of each of our three reporting segments. Gathering and Processing segment EBITDA totaled $48.2 million in the first quarter compared to $47.5 million in the fourth quarter of 2013. These amounts exclude the $2.1 million Antero earn-out recorded in the first quarter of 2014 and 31.4 million recorded in the fourth quarter. The higher results in the first quarter were due to the increased Marcellus gathering volumes which as Bob pointed out increased about 15% to 531 million cubic feet per day and increased compression volumes in the Marcellus which increased 29% 448 million cubic feet per day.

Gathering volumes are other areas – other operating areas decreased about 4% due to natural production decline rates. But again, as we – as Bob discussed looking forward to the second quarter the decline rates experienced in the first quarter expected to be offset by the 14 additional wells that were connected to our Barnett Shale Systems in later March.

April 2014, quarter-to-date gathering volumes on these systems again have averaged 440 million cubic feet per day or about 14% higher than first quarter volumes. In the Storage and Transportation segment, EBITDA increased about 10% to $36.8 million during the first quarter of 2014 as we posted higher results at each of our operating facilities due to higher demand for interruptible in hub services attributable to the increased daily price volatility and wider basis spreads resulting from the cold weather experienced throughout the region.

In the NGL accrued services segment, EBITDA increased 27% to $26.3 million during the first quarter. The increase reflects $4.7 million attributable to the full period contribution of the Arrow System and $1.6 million increase related to the COLT hub operations. As we discussed volumes in our Arrow System were again negatively impacted by the extremely cold weather experienced in the quarter.

Our Arrow crude volumes declined about 3,200 barrels a day from 4Q of 2013 due to the shut-ins and lower than expected well connects on our systems as producers struggled with the challenging environment. We were not alone as total North Dakota crude production also declined about 50,000 barrels a day from the fourth quarter highs due to the extreme weather.

Despite the weather, we completed several projects to capture flared gas that led to a 47% increase in gathered gas volumes compared to the daily volume averages in the fourth quarter.

At the COLT hub, railroading volumes increased 15% to an average of – just over 98,000 barrels a day during the fourth quarter of 2014. And in the corporate area which includes general and administrative expenses not allocated to our operating segments. Expenses totaled $24.1 million in the first quarter compared to $36.7 million in the fourth quarter. The decrease was primarily attributable to lower transaction related expenses due to the merger and the Arrow acquisition, lower non-cash equity based compensation expense which resulted from the accelerated divesting in the fourth quarter due to the merger.

Excluding the transaction costs and the equity compensation expense, our corporate expenses were approximately $2.2 million higher than in the fourth quarter primarily due to increased support cost related to the Arrow assets and the acquisition and increased personnel and professional services expense.

Now, turning to the distributable cash flow of CMLP, first quarter 2014 DCF totaled $70.3 million, the 9% increase in DCF quarter-over-quarter was due to increased adjusted EBITDA as I have discussed $1.1 million of cash received from deficiency payments on minimum volume commitments at the COLT hub. A $2.3 million decrease in maintenance CapEx related to the timing of that capital spending and all of that partially offset by increased cash interest expense on the $600 million of senior notes we issued in November of 2013.

On May 15th, CMLP will pay a $0.41 per unit cash distribution to the unitholders of record on May 8.

Now moving on CEQP. As a reminder, in all of our SEC reporting, CEQP consolidates the results of CMLP. In addition similar to our CMLP discussion results included in this mornings CEQP news release reflect the combined merged operations of Inergy and Crestwood subsequent to June 19th and again, in my discussion, first quarter results will be compared to the fourth quarter of 2013 for comparability.

We reported consolidated adjusted EBITDA of $116.6 million for the first quarter of 2014, a 5% increase over the adjusted EBITDA of $110 million in the fourth quarter of 2013. To calculate CEQPs standalone operations adjusted EBITDA which includes our NGL supply logistics operations in the Tres Palacios storage business, we subtracted $98.9 million of adjusted EBITDA reported by CMLP to arrive at $17.7 million of adjusted EBITDA attributable to the standalone operations of CEQP during the fourth quarter of 2014. That compares to the $19.7 million, we reported during the fourth quarter of 2013.

CEQPs adjusted EBITDA in the fourth quarter of 2014 included a $18.7 million contribution from the NGL supply logistics business and $1.3 million from the Tres Palacios storage business offset by $2.2 million of corporate expenses excluding transaction costs and non-cash equity based compensation.

The $2 million decrease from the fourth quarter was largely due to lower adjusted EBITDA from Tres due to the true-up of property tax accruals that we recorded in the fourth quarter.

Now turning to DCF of CEQP, distributable cash flow attributable to CEQP totaled $19.7 million for the first quarter compared with $24.3 million in the fourth quarter of last year. The decrease was primarily attributable to the lower adjusted EBITDA and the timing of maintenance capital expenditures attributable to the CEQP assets.

On May 15th, CEQP will pay thirteen and three quarter cent per unit cash distribution to unitholders of record on May 8.

Before I turn the call back over to Bob, let me briefly touch on our capital spending in balance sheet liquidity of CMLP partnership.

During the first quarter of 2014, CMLPs growth capital spending and joint venture contributions totaled approximately $76 million and we continued to estimate total growth capital spending between $400 million and $425 million for the full year of 2014. As of March 31, CMLP had approximately $532 million drawn on its $1 billion revolving credit facility and as expected our debt-to-adjusted EBITDA ratio as defined in our credit facility was approximately 5.06x.

As I mentioned in last quarter's call, we filed a self-registration statement for an at-the-market or ATM program. We expect the filing to become effective during the second quarter following the SECs customary review and comment period.

We remain committed to building financial flexibility and long-term balance sheet strength by managing leverage and our liquidity targets and for the remainder of 2014, we expect to reduce CMLPs leverage and expand liquidity through EBITDA growth coupled with disciplined utilization of the ATM program.

Additionally, as we continue to evaluate large scale expansion opportunities around our existing asset platform, we are continuously assessing alternative financing options and development opportunities including joint ventures, partnerships as well as incremental sponsorship equity support to support those growth objectives.

With that, I will turn the call back to Bob for any closing remarks. Bob?

Bob Phillips

Yes. Thanks Mike.

And just a couple of things to investors before we start the Q&A. Let me just give you a little perspective. The first quarter weather was tough on a lot of issues in a lot of areas particularly the Bakken for us, but we saw basin wide production volumes go down from November through December through January to February, they will just now starting to bounce up. So, it was not unique to our particular producers on our gathering system. The weather was simply so tough that it really shut the industry down largely for about a 90-day period December through February.

So statistically, while growth on the Arrow crude volumes was not as high as we hoped should be despite that weather, we are seeing a significant bounce back with producer drilling activities and the long-term view of the Bakken Arrow System is much broader today than it was we are seeing a significant commitment by these producers to the long-term drilling and development of this area and the information that we are getting from producers now about their pilot programs were down spacing and how that is going to have a significant increase in the number of drillable locations in our area is very impressive to us and makes us even more committed to the acquisition that we made back in November of last year.

Secondly, across all of our rich gas regions, the Marcellus Utica, the new Permian, the Powder River Basin Niobrara and as well in the Bakken. We are really seeing the benefit of the Crestwood Inergy merger, the Crestwood gathering and processing capability, the Inergy NGL and crude supply logistics, trucking, terminals, rail. We are establishing a value chain presence in all of these rich gas and crude oil truck in place. And I'm very impressed with the progress that our commercial and operating teams have made just in the last five months since the merger in not only building a great customer service opportunities for us but the commercial guys are actually starting really leverage our acquisition in these areas investing in long-term downstream transportation capacity enhanced truck terminal and rail expanded storage opportunities whether they would be above ground type or below ground propane storage like we are trying to get approved up in upstate New York at Watkins Glen.

All of these efforts are going to be realized in 2014 as we hit the run rate, the ramp up of these producer volumes and that's a reason why we have remained very firmly committed with high degree of confidence in our ability to come in the range of our guidance.

And so with that Mark Stockard, I will turn it back to you to start the Q&A.

Mark Stockard

All right. Operator, please open up the line for questions.

Question-and-Answer Session


Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) Please ask one question and one follow-up. Then we queue for additional questions. Our first question is from the line of Gabe Moreen with Bank of America. Please go ahead.

Gabe Moreen - Bank of America

Hi. Good morning, everyone. Couple of questions, one on just Tres, and the back and forth with the FERC. It sounds like that low cost savings on property taxes in Texas that sounds like its coming through, but can you just remind us sort of what's in guidance this year for cost savings at Tres and given all the back and forth with the FERC, were those any risk I guess to that cost savings and the timing of that slipping at all?

Mike Campbell

Sure. First of all, the $4 million of property tax savings that we discussed was not in our original guidance and so I think that represents upside to the plan. We did have about $4 million worth of savings associated with the FERC abandonment. I would say at this point, I mean, I think timing we are a little bit delayed in terms of getting an order out of FERC, we remain very confident in our position here. I think there is still is some opportunity to realize savings for 2014 associated with that. Again, would be incremental if you will to the $4 million of cost savings hardly realized.

Gabe Moreen - Bank of America

Great. Thanks. And then turning to the Marcellus ops and expanded capacity of MARC 1, you added volumes, it sounds like, two par question from me. One is on the additional volumes will be adding on the open season that was successful, can you talk about I guess the CapEx associated with assume it's relatively modest. And number two is, given the success, given the base differentials how long would it be, do you think before you are out for another open season and at that point, would you have to loop line or can you just continue that more compression?

Mike Campbell

CapEx it is relatively low. We are essentially replacing existing compression station and that's really how this evolved in 150 million a day that we discussed. I think and that is associated with the north-south capacity. I think future expansions of the north-south on would require some looping. But again, pretty low cost, looping as opposed to a new greenfield line.

On the MARC 1 side, a little bit difference story. We continue to have quite a bit of low cost expense building on MARC 1 well-above what we are anticipating contract and this open season away from the close. You are aware Transco announced the Atlantic Sunrise project that had a 1.7 takeaway in 2017-2018 timeframe. And the take-off point for that project is within 3 miles of the terminus of our MARC 1 facility.

So we do see a lot of long-term upside associated with MARC 1, we think is the Transco Leidy system and the Atlantic Sunrise system open up capacity to the East Coast, we think MARC 1 will be very well positioned to capture that going forward again, with a very, very low cost expandability.

Gabe Moreen - Bank of America

Great. Thanks very much.


Our next question is from the line of Edward Rowe with Raymond James. Please go ahead.

Edward Rowe - Raymond James

Hi. Good morning guys. With some of the projects they are coming online this year and the volume ran from current assets DCF and EBITDA should improve coverage. How are you thinking about distribution coverage versus keeping enough cash flows to reinvest in the partnership and cost of capital and deleveraging, is there a sort of target coverage that guys are looking at before you start distribution growth again at CMLP?

Mike Campbell

Bob, do you want me to take that?

Bob Phillips

Yes. Go ahead, Mike.

Mike Campbell

Okay. I mean that's a very good question. As we are thinking about this and obviously as we execute on the backlog of projects in 2014, our distribution growth decisions are going to be made quarter-by-quarter as we immediately here focused on getting coverage back comfortably above one times.

And I think as we look forward, we expect to do that in the second half of 2014. From a target coverage perspective, I think over the long-term or target coverage expectations really have a change, we would like to see ourselves comfortably over 105 to 1.1x in our area of operations. And I think we are really focused here in the near term to expand kind of incremental financial flexibility and build that coverage back over 1.

Back to your point, as we are executing and realizing the growth in adjusted EBITDA and DCF in 2014. So I think, just one other point I would make is relative to the distribution growth in 2014 relative to 2013, our expectations is that that will be below our initial guidance of 6% to 10%. But the long-term health and the long-term outlook the partnership is really unchanged. And based on the opportunity in front of us, I think we remain very, very confident in delivering that 6% to 10% unit distribution growth to unitholders over the long-term

Edward Rowe - Raymond James

Okay. That's helpful. And just a quick follow-up on that with the preferred units from the GE Financial Services coming January 2015, is there an option to extent that word, they continue to get in essence kind of take units or more preferred units versus having to payout cash?

Mike Campbell

The January 2015, those units will start paying cash there is not an option to continue to pick those units. And that's baked into comp – five year plan.

Edward Rowe - Raymond James

Okay. And last one, just following up on Gabe's Tres Palacios. We coverage a little tighter at CEQP and the weather, the storm initiatives, can you share with us, your view on the risk that FERC and maybe the state courts could stall the abandonment of Tres Palacios? And that's all I have. Thanks.

Mike Campbell

Yes. Just on the Tres again, I think we remain confident in our position with FERC. We continue to seek interest and have offered out the entire capacity at Tres to the marketplace and have been unsuccessful in taking down the large portion of contracts at rates to cover our cost.

So I mean I think the message there, the President is on our side, the FERC, the followings are in front of FERC today and we do expect to have to hear back soon relatively speaking on.

And as far as speculating, I think we are comfortable with our position as we were today, we filed it and the timeline is maybe dragging out a little bit longer than we remain confident and being able to realize some savings associated with it.


Thank you. Our next question is from the line of Michael Blum with Wells Fargo. Please go ahead.

Michael Blum - Wells Fargo

Hi, good morning. Can you just talk about the cost of the truck business you bought in the Bakken, what was the acquisition price and then how should we think about the return on that?

Bob Phillips

It was a pretty small acquisition. And on those type of transactions we tend to target a 3, 4 times multiple on that. I can tell you already we are seeing that multiple will be driven down lower than we originally expected.

The real benefit of that business is really building up the value chain there. And it’s not a large investment sub-15 million dollars of investment. But it has – brings additional synergies and flexibility and a difference suite of services that we can offer to the producer community up there.

Michael Blum - Wells Fargo

Okay. And then, on the ATM program, is there a target we should think off, like a quarterly run rate or certain amount of equity, you think you can do this year with that program?

Mike Campbell

Michael, the size of the ATM is – self-registration was about $300 million. I think that typically as I look at being very disciplined about using that facility that $300 million could require a couple of years to execute on. I think that once we get the ATM in place and up and running, I think we will probably learn a lot more. But, safe to say that we expect to be very disciplined about the usage of that ATM program and really not impact our unit price. But also look to utilize to manage the balance sheet here through the remainder of 2014.

Michael Blum - Wells Fargo

Okay. And then last question, just going back to your, your comment on distribution growth target for 2014, do you have a revised target or is it going to be a quarter-to-quarter, didn't actually just think about how this will play out?

Mike Campbell

Michael, I think it's the latter. It's going to be a quarter-by-quarter decision. Again, I think as we look forward, we are looking to comfortably move our coverage and we are listening to investors to get that coverage up over one as we kind of ramp into additional EBITDA on DCF. And we expect to do that in the back half of 2014. So that's the decision that the Board will make on a quarter-by-quarter basis. So we really don't have a revised target so to speak in mind.

I think safe to say again, and I will reiterate this, the long-term 6% to 10% distribution growth for the CMLP partnership is, the pieces is in tact and we remain highly confident of being able to achieve that again over the long-term.

Michael Blum - Wells Fargo

Great. Thank you.


(Operator Instructions) Our next question is from the line of Jeff Birnbaum with UBS. Please go ahead.

Jeff Birnbaum - UBS

Good morning, guys. Just one more on Tres, you mentioned things were going a little slower there, any update on when you think the time – there might be a resolution on that now, is it 3Q or 4Q instead of maybe now where was by mid-year?

Mike Campbell

I think the short answer is, I mean we don't know. We would expect potentially to hear by the end of the second quarter at the earliest. We don't control the time associated with that. But I did want to point out again, the comment that I made earlier about – what we assumed in the plan was roughly about $4 million of the total $6 million to $7 million of annual run rate savings we thought we could generate. But, we have largely already captured $4 million of property tax savings that wasn't integrated in the original guidance. I guess at this point from a cost standpoint, the thing that we are successful getting the abandonment through and doing so in the first half of the year, I think there could be some additional savings upside relative to the plan.

Jeff Birnbaum - UBS

Okay. Thanks. It's helpful. And then, Mike, I think you mentioned there was a $1.1 million in MVC payments from COLT in the first quarter; do you have a ballpark estimate or a range for where those could come in for the year? I know on the last call, I think you guys have mentioned there was a variety of contracts and commitments and so on. But is there any sort of range that you think that you might contribute to DCF this year?

Mike Campbell

That's a tough question because we fully expect that as we get the R&D track in place and increase the flexibility around that facility that our customers will be increasing and utilizing the facility more. So it’s hard to put a target on what the MVCs are because our full expectation is that that customers are utilizing their contracted capacities at the COLT hub.

I'm a little reticent to try and estimate below 100% utilization on the facility. I think suffice to say this contracts and this minimum volume commitments should provide investors the confidence that we are realizing the DCF attributable to the COLT, what are they utilizing the facility or making their minimum volume commitments to us.

Jeff Birnbaum - UBS

Okay. Thanks. And those wouldn't get – those commitments wouldn't – or impacted by if there is downstream takeaways or anything like that, right, I think they happened in the first quarter?

Mike Campbell

That's correct. If they are not utilizing that subtracted in their obligated on the minimum volume commitment.

Jeff Birnbaum – UBS

Okay. Thanks a lot guys.

Mike Campbell

You bet.

Bob Phillips

Just – Mike, let's give a little background color on that. The downstream pipeline issues in the Bakken were related to the Arrow gathering system, not the COLT hub. I know it was confusing the way that we laid it out, but our gathering volumes on the Arrow System which average 44,000 barrels a day as supposed to the more than 60,000 barrels a day we have seen in recent days that was impacted during the first quarter by downstream pipeline issues taking crude away from the Arrow central delivery point not downstream pipeline issues related to the COLT hub.

The impact, the weather had on the COLT hub was simply the turnaround times and the reliability of trains getting to the location and then being taken away from the COLT hub by BNSF. And that's the responsibility of our customers. We were there ready really enable to load as much as 150,000 barrels a day, we actually had a day during the quarter where we loaded 150,000 barrels a day as compared to the almost 100,000 barrel a day average.

So weather had – did had an impact on giving the trains there and taking them away on a timely basis. But, I don't want to confuse the downstream pipeline issues that we experienced at Arrow with the performance of the COLT hub that was purely rail – that was purely a rail downstream rail issue associated with the COLT performance.


Thank you. That does conclude the question-and-answer session for today. I would now like to turn the call back over to Mr. Phillips for closing remarks.

Bob Phillips

Thank you, operator. Again, I want to remind investors that we are making some substantial long-term investment decisions; the decision by the Board to lead the distribution for the first quarter was very much a quarter-to-quarter decision. They were taking into account issues that we faced specifically within the quarter, but more importantly taking into account the long-term investment opportunities that we see in the Marcellus Utica, around the Bakken, in the Powder River Niobrara and in the Permian Basin as we all see. Hope that our investors appreciate the conservatism and the thoughtfulness that went into that decision. It is not a long-term decision to whole distribution slab. It's a long-term decision to strengthen the partnership, strengthen our ability to compete in the areas where we have operations and assets.

So operator, thank you very much. And with that we appreciate all of our investors calling in. Look forward to visiting with you after the second quarter call. Thank you.


Ladies and gentlemen, this concludes Crestwood's first quarter earnings conference call. If you like to listen to a replay of today's conference please dial 1-800-303-590-3030 or 303-590-3030 with the access code of 4680744. We like to thank you for your participation. You may now disconnect.

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