Crestwood Equity Partners : Announces Third Quarter 2014 Financial and Operating Results

Crestwood Equity Partners LP (NYSE:CEQP) (“Crestwood Equity” or “CEQP”) reported today its financial results for the three months ended September 30, 2014.

Crestwood Equity owns the general partner of Crestwood Midstream Partners LP (NYSE:CMLP) (“Crestwood Midstream” or “CMLP”). Crestwood Midstream owns the majority of the assets of the consolidated results herein. Crestwood Equity directly owns an NGL supply and logistics business and the Tres Palacios natural gas storage facility. In a separate news release issued today, Crestwood Midstream reported stand-alone financial and operating results.

“Results for Crestwood Equity’s stand-alone operations in the third quarter 2014 were in-line with our expectations, reflecting strong performance from our supply and logistics business that partially offset continued weakness at our Tres Palacios gas storage facility in Texas,” stated Robert G. Phillips, Chairman, President and Chief Executive Officer of Crestwood’s general partner. “In the third quarter 2014, our supply and logistics business benefited from favorable price differentials on marketing contracts, and we anticipate continued improvement in the fourth quarter as a result of higher seasonal demand for butane blending at our West Coast facility and propane supply and transportation in the Eastern U.S. In addition, we have made progress with business development opportunities that would immediately improve Tres Palacios’ performance. These improvements, coupled with greater visibility for growth and increasing incentive distribution payments from Crestwood Midstream, should result in continued improvement in Crestwood Equity’s distributable cash flow.”

Third Quarter 2014 Financial Highlights ⁽¹⁾

• Crestwood Equity reported adjusted earnings before interest, taxes, depreciation, amortization and accretion (“Adjusted EBITDA”) for the third quarter 2014 of $128.9 million, compared with Adjusted EBITDA of $99.9 million in the third quarter 2013.
  • Assets owned by CMLP contributed Adjusted EBITDA of $116.2 million for the third quarter 2014, compared to $85.3 million in the third quarter 2013.
  • Assets owned by CEQP contributed Adjusted EBITDA of $12.7 million for the third quarter 2014, compared to $14.6 million in the third quarter 2013. The $1.9 million decrease was primarily attributable to a $4.0 million lower contribution from our Tres Palacios asset due to the expiration of firm gas storage contracts, partially offset by $0.8 million of increased margins from our NGL supply and logistics business and $1.3 million of lower general and administrative expenses.
• Crestwood Equity reported net income of $11.9 million for the third quarter 2014, compared with a net loss of $7.9 million in the third quarter 2013. The prior year quarter included $13.1 million of transaction-related costs primarily related to the Crestwood-Inergy merger.
• Crestwood Equity reported distributable cash flow attributable to its operations of $17.9 million for the third quarter 2014. Crestwood Equity also announced a quarterly cash distribution of $0.1375 per common unit ($0.55 per unit on an annualized basis), which will be paid on November 14, 2014 to unitholders of record as of the close of business on November 7, 2014.

Third Quarter 2014 Operating Results

Gathering and processing segment EBITDA totaled $50.3 million in the third quarter 2014, compared to $43.2 million in the third quarter 2013. The 16% increase in the third quarter 2014 was attributable to record natural gas gathering volumes that averaged 1,261 million cubic feet per day (“MMcf/d”) (a 22% increase over the third quarter 2013) and record compression volumes that averaged 590 MMcf/d (a 111% increase over the third quarter 2013). All of the assets included in the gathering and processing segment are owned by CMLP.

Storage and transportation segment reported consolidated EBITDA of $33.2 million during the third quarter 2014, compared to $34.9 million in the third quarter 2013. Segment EBITDA attributable to assets owned by CMLP increased 7% to $35.7 million during the third quarter 2014 from $33.4 million in the third quarter 2013. The CMLP increase was primarily attributable to higher transportation volumes and improved margins from its northeast natural gas storage and pipeline assets.

CEQP’s Tres Palacios storage and transportation asset contributed a loss of $2.5 million to consolidated segment EBITDA during the third quarter 2014, compared to EBITDA of $1.5 million in the third quarter 2013. The lower performance by Tres Palacios was primarily attributable to the expiration of long-term firm storage contracts during 2014. CEQP continues to evaluate development options for the Tres Palacios facility to improve performance. As part of these efforts, Crestwood recently ran a process to solicit third party interest in a strategic joint venture partnership that would immediately improve Tres Palacios’ performance and serve as a catalyst to facilitate a drop down of CEQP’s remaining interest to CMLP. Crestwood received numerous indications of interest as the result of that process and is currently in exclusive negotiations with one of those third parties to complete a transaction. Crestwood expects to finalize and announce a transaction during the fourth quarter of 2014. Completion of any transaction would remain subject to execution of definitive agreements and final CEQP and CMLP board approvals. The proposed transaction does not impact Crestwood’s previously filed application with the Federal Energy Regulatory Commission to reduce certificated capacity of the Tres Palacios facility and expects to receive a decision on the application by the end of 2014.

NGL and crude services segment consolidated EBITDA, excluding non-cash fair value adjustments on commodity inventory-based derivative contracts, totaled $53.9 million during the third quarter 2014, a 71% increase from $31.5 million in the third quarter 2013. Assets owned by CMLP contributed $36.7 million during the third quarter, compared to $15.1 million in the third quarter 2013. The CMLP increase was primarily attributable to the Arrow assets acquired in November 2013 and higher crude oil rail loading volumes at the COLT Hub.

CEQP’s NGL services assets contributed $17.2 million in the third quarter 2014, compared to $16.4 million in the third quarter 2013. The $0.8 million increase from CEQP’s NGL supply and logistics business was due primarily to higher margins earned on propane and butane volumes sold.

Corporate expenses include general and administrative expenses not allocated to the operating segments above. Corporate expenses attributable to CMLP and CEQP totaled $18.2 million and $3.0 million, respectively, during the third quarter 2014, compared with $25.2 million and $3.9 million, respectively, during the third quarter 2013. The third quarter 2013 included $13.1 million of merger-related costs noted above. The decrease in corporate expenses attributable to CEQP was due to a higher percentage of costs being allocated to CMLP in 2014 reflecting the expanding scope of its business.

Liquidity and Capital Spending

At September 30, 2014, debt outstanding was primarily composed of $1,461 million of fixed-rate senior notes issued primarily by Crestwood Midstream, $435 million outstanding under Crestwood Midstream’s revolving credit facility and $460 million outstanding under Crestwood Equity’s revolving credit facility.

During the third quarter 2014, Crestwood Equity amended its revolving credit facility, expanding the capacity to $625 million and increasing the allowed leverage ratio (as defined in the credit facility) from 4.75 times EBITDA, up to 5.50 times through December 31, 2014, and decreasing quarterly back to 4.75 times at September 30, 2015 and thereafter.

Organic growth capital expenditures and joint venture contributions for the nine months ended September 30, 2014 totaled approximately $305 million, of which $299 million was attributable to CMLP. The majority of capital spending was related to construction of pipeline laterals and compression equipment in the Marcellus Shale, expansion of the COLT Hub and Arrow gathering system in the Bakken Shale, and capital contributions to Jackalope Gas Gathering for construction of the Bucking Horse processing facility in the PRB Niobrara.

Conference Call

Management will host a conference call for investors and analysts of Crestwood Equity and Crestwood Midstream today at 9:00 a.m. Eastern Time (8:00 a.m. Central Time) which will be broadcast live over the Internet. Investors may participate in the call either by phone or audio webcast.

Non-GAAP Financial Measures

Adjusted EBITDA and distributable cash flow are non-GAAP financial measures. The accompanying schedules of this news release provide reconciliations of these non-GAAP financial measures to their most directly comparable financial measures calculated and presented in accordance with GAAP. Our non-GAAP financial measures should not be considered as alternatives to GAAP measures such as net income or operating income or any other GAAP measure of liquidity or financial performance.

Forward-Looking Statements

The statements in this news release regarding future events, occurrences, circumstances, activities, performance, outcomes and results are forward-looking statements. Although these statements reflect the current views, assumptions and expectations of Crestwood’s management, the matters addressed herein are subject to numerous risks and uncertainties which could cause actual activities, performance, outcomes and results to differ materially from those indicated. Such forward-looking statements include, but are not limited to, statements about the future financial and operating results, objectives, expectations and intentions and other statements that are not historical facts. Factors that could result in such differences or otherwise materially affect Crestwood’s financial condition, results of operations and cash flows include, without limitation, the possibility that expected synergies will not be realized, or will not be realized within the expected timeframe; fluctuations in crude oil, natural gas and NGL prices; the extent and success of drilling efforts, as well as the extent and quality of natural gas and crude oil volumes produced within proximity of Crestwood assets; failure or delays by customers in achieving expected production in their oil and gas projects; competitive conditions in the industry and their impact on our ability to connect supplies to Crestwood gathering, processing and transportation assets or systems; actions or inactions taken or non-performance by third parties, including suppliers, contractors, operators, processors, transporters and customers; the ability of Crestwood to consummate acquisitions, successfully integrate the acquired businesses, realize any cost savings and other synergies from any acquisition; changes in the availability and cost of capital; operating hazards, natural disasters, weather-related delays, casualty losses and other matters beyond Crestwood’s control; timely receipt of necessary government approvals and permits, the ability of Crestwood to control the costs of construction, including costs of materials, labor and right-of-way and other factors that may impact Crestwood’s ability to complete projects within budget and on schedule; the effects of existing and future laws and governmental regulations, including environmental and climate change requirements; the effects of existing and future litigation; and risks related to the substantial indebtedness, of either company, as well as other factors disclosed in Crestwood Equity’s and Crestwood Midstream’s filings with the U.S. Securities and Exchange Commission. You should read filings made by Crestwood with the U.S. Securities and Exchange Commission, including Annual Reports on Form 10-K and the most recent Quarterly Reports and Current Reports for a more extensive list of factors that could affect results. Readers are cautioned not to place undue reliance on forward-looking statements, which reflect management’s view only as of the date made. Crestwood does not assume any obligation to update these forward-looking statements.

About Crestwood Midstream Partners LP

Houston, Texas, based Crestwood Midstream (NYSE: CMLP) is a master limited partnership that owns and operates midstream businesses in multiple unconventional shale resource plays across the United States. Crestwood Midstream is engaged in the gathering, processing, treating, compression, storage and transportation of natural gas; storage, transportation and terminalling of NGLs; and gathering, storage, terminalling and marketing of crude oil.

About Crestwood Equity Partners LP

Houston, Texas, based Crestwood Equity (NYSE: CEQP) is a master limited partnership that owns the general partner interest, the incentive distribution rights and an approximate 4% limited partner interest of Crestwood Midstream. In addition, Crestwood Equity’s operations include a natural gas storage business in Texas and an NGL supply and logistics business that serves customers in the United States and Canada.