Crestwood Equity Partners (CEQP) Misses Q4 EPS by 15c, Revenues Beat

Crestwood Equity Partners (NYSE: CEQP) reported Q4 EPS of $0.28, $0.15 worse than the analyst estimate of $0.43. Revenue for the quarter came in at $839.7 million versus the consensus estimate of $799.79 million.

Fourth Quarter and Full-Year 2019 Highlights1

• Fourth quarter 2019 net income of $47.2 million, compared to net income of $59.6 million in fourth quarter 2018; Full-year net income of $319.9 million, compared to net income of $67.0 million in 2018
• Fourth quarter 2019 Adjusted EBITDA of $149.0 million, compared to $114.1 million in the fourth quarter 2018; Full-year Adjusted EBITDA of $526.5 million, compared to $420.1 million in 2018, an increase of 25% year-over-year
• Fourth quarter 2019 distributable cash flow (“DCF”) to common unitholders of $89.6 million; The fourth quarter 2019 coverage ratio was 2.0x
• Ended 2019 with approximately $2.4 billion in total debt and a 4.1x leverage ratio. Crestwood has substantial liquidity available under its $1.25 billion revolver with $557 million drawn as of December 31, 2019
• Fourth quarter 2019 cash distribution of $0.625 per common unit, or $2.50 per common unit on an annualized basis, a 4.2% increase quarter-over-quarter, paid on February 14, 2020, to unitholders of record as of February 7, 2020

Recent Developments and 2020 Capital Summary

• Bucking Horse II plant commissioning operations commenced in February 2020; The Bucking Horse II facility is a 200 MMcf/d cryogenic processing plant that increases total Crestwood plant capacity to 345 MMcf/d in the Powder River Basin
• Crestwood Permian Joint Venture (“CPJV”) signed long-term water gathering and disposal agreement in the Delaware Basin with a large integrated producer; CPJV has begun construction on related infrastructure with first volumes expected in second quarter 2020
• Crestwood expects to invest $150 million to $200 million of growth capital in 2020 including the final costs for the Bucking Horse II processing plant and Jackalope gathering system expansions in the Powder River Basin, upgrades and expansion of the Bakken Arrow produced water gathering system and expansion of natural gas gathering and produced water systems in the Delaware Basin

Management Commentary

“Crestwood is pleased to deliver another strong quarter which culminated in a great year for the partnership in 2019 by generating Adjusted EBITDA of $526.5 million, a 25% increase over 2018, and Distributable Cash Flow of $304.9 million, a 36% increase over 2018. These results show the benefits of our robust three-year capital investment program and self-funding strategy as we closed out 2019 with a leverage ratio of 4.1x and distribution coverage ratio of 1.8x,” said Robert G. Phillips, Chairman, President and Chief Executive Officer of Crestwood’s general partner. “Our strong 2019 results were driven by timely completion of expansion projects, volume growth in the Bakken and Powder River Basin, and strong outperformance in our NGL and crude marketing and logistics business.”

Mr. Phillips continued, “In 2019, Crestwood completed a three-year $1 billion organic capital program that allowed the partnership to keep pace with Bakken, Powder River and Delaware basin producer activity, reduce flaring and trucking emissions, and drive an increase of over $210 million in annual cash flow by 2020, or over 50% since full-year 2017. Additionally, we issued Crestwood’s inaugural sustainability report and began to incorporate ESG sustainability standards into the way we operate across the US. Importantly, our Bakken assets performed very well in 2019 with record three-product gathering volumes on our Arrow system and completion of the Bear Den II processing plant which significantly reduced flared gas on the Fort Berthold Indian Reservation in North Dakota. Finally, the acquisition of the remaining 50% interest in Jackalope Gas Gathering Services from Williams allowed us to lower operating costs and improve reliability of service. Despite the relatively negative sentiment in the capital markets regarding energy in general, the business fundamentals in the core areas which Crestwood operates remain strong. Our producer customers are benefitting from low cost development programs, improved net-backs and economics and adequate takeaway capacity to market new oil, gas and natural gas liquids supplies. Crestwood continues to provide a critical role in connecting this new production to market and I am very pleased that we exited 2019 on solid footing and are well-positioned to deliver on all of our 2020 objectives.”

Mr. Phillips concluded, “Looking to 2020, Crestwood enters harvest mode as we maximize returns on our recent capital investments and continue to identify high-return growth opportunities within our core areas. In the Bakken, we will continue to upgrade and expand our produced water gathering system. In the Powder River Basin, the Bucking Horse II plant allows us to add incremental third-party production to our core dedicated acreage position. In the Delaware Basin, we are expanding the Nautilus and Willow Lake gathering systems as our producers continue their long-term development programs, and CPJV recently entered into a water gathering and disposal agreement with a large integrated producer that will result in an incremental source of cash flow growth and new business opportunities. As a result, Crestwood expects to invest between $150 million to $200 million on growth projects for the year, a 58% decrease year-over-year, which will be entirely funded with retained cash flow. Based on a projected annual cash flow growth rate of 15% in 2020 and a reduction in growth capital, Crestwood expects to begin generating free cash flow in 2020. Crestwood will continue to be prudent and maintain financial discipline and follow our strict investment criteria as we pursue opportunities in 2020 and focus on generating long-term value for our investors.”

For earnings history and earnings-related data on Crestwood Equity Partners (CEQP) click here.

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