Transaction enables Crestwood to be one of the largest gas gathering
and processing companies by volume in the high-growth Powder River Basin
(“PRB”)
Generates immediate DCF per unit accretion; drives total company DCF
per unit growth in excess of 20% through FY 2020
Allows Crestwood to preserve its financial strength and flexibility
by remaining on-track to realize its target of 3.5x to 4.0x leverage
ratio by 1H 2020
HOUSTON--(BUSINESS WIRE)--
Crestwood Equity Partners LP (NYSE: CEQP) (“Crestwood”) announced today,
in a separate joint press release with The Williams Companies, Inc.
(NYSE: WMB)(“Williams”), that Crestwood Niobrara LLC (“Crestwood
Niobrara”) acquired a 50% interest in Jackalope Gas Gathering Services,
L.L.C. (“Jackalope”) from Williams for approximately $485 million. The
acquisition of Williams’ interest is a continuation of Crestwood’s
strategy to expand its operational footprint in its core growth basins.
Consolidating the Jackalope assets positions Crestwood for long-term
growth in the prolific Powder River Basin by supporting Chesapeake
Energy’s (NYSE: CHK) and other producer customers’ long-term development
plans. Crestwood funded the acquisition through a combination of
borrowing under its revolving credit facility and the issuance of an
additional $235 million of preferred equity to Crestwood Niobrara’s
existing preferred equity investors, led by Global Infrastructure
Partners. Crestwood expects the transaction to be leverage neutral to
the Crestwood balance sheet and immediately accretive to distributable
cash flow per unit in 2019, with growing accretion thereafter based upon
Chesapeake’s current development activity. The transaction, which was
not subject to regulatory approval, is closed with an effective date of
April 9, 2019.
Transaction Highlights
1
-
Positions Crestwood to be leading G&P company
in Powder River Basin
: Crestwood immediately doubles
its position in one of its core, high-growth assets, becoming one of
the largest gas processing companies in the basin, with opportunity to
expand commercial services to undedicated third-party operators
-
Strong cash flow growth at attractive
valuation
: Crestwood expects the Jackalope assets to
contribute annual cash flow of $100 million in 2019 and growing to
approximately $150 million by 2021
-
Achieves strategic financial goals
:
The acquisition coupled with the committed financing plan improves
Crestwood’s DCF per unit growth profile to greater than 20% through
2020 while maintaining financial flexibility and balance sheet
strength with an expected leverage ratio of 3.5x to 4.0x by first half
of 2020
-
Committed financing at an attractive cost of
capital
: Issuance of additional preferred equity to
existing Crestwood Niobrara investors to fund ~50% of purchase price
allows Crestwood flexibility to continue executing its strategic plan
without accessing public equity to fund growth capital in 2019 and
2020; $200 million accordion available from Crestwood Niobrara
preferred investors for future growth projects in the Powder River
Basin
-
Secures operatorship to drive cost reductions
and commercial synergies
: By aligning field
operations, project management and commercial efforts under one common
operator, Crestwood expects to significantly enhance the competitive
position of its Powder River franchise. Additionally, Crestwood will
retain all of the high-quality employees currently operating the
assets and expects to reduce Crestwood Niobrara expenses by
approximately $6 million to $8 million annually through assuming the
role of operator.
Management Commentary
“Today’s announcement marks a key step in Crestwood’s long-term growth
objectives to accretively build meaningful scale in a core franchise
position, which offers substantial producer development growth potential
while positioning Crestwood to be one of the largest G&P service
providers in the highly prolific Powder River Basin,” said Robert G.
Phillips, Chairman, President and Chief Executive Officer. “We would
like to thank Williams for what has been a very strong partnership over
the last several years and welcome all of the highly-talented employees
that will join Crestwood as part of the transaction. Consistent with all
of our assets that we operate around the country, we will reaffirm our
commitment to safe and reliable operations while providing best-in-class
customer service for the producers that we service in the basin.”
Mr. Phillips continued, “In the midstream business it is rare to find a
high-quality acquisition within an existing asset footprint that offers
immediate accretive returns, enhances our leverage profile and financial
strength, and strengthens our midstream value chain service offerings to
our customers, all at an attractive valuation. By already owning 50% of
the Jackalope system, our teams have an in-depth understanding of the
economics of the Powder River Basin, the development plans and
corresponding capital requirements for our existing and prospective
customers, and the long-term prospects for future growth on and around
our Jackalope system, all of which uniquely positioned Crestwood to
capitalize on this opportunity. Furthermore, today’s transaction is
consistent with our ongoing strategy to expand our core growth assets
through prudent investments in accretive, high return capital projects
that meet our strict investment hurdles. Our goal is always aimed to
generate long-term value for our investors and we are confident this
transaction, through bolstering Crestwood’s position of generating peer
group leading DCF per unit growth while building balance sheet strength,
will do just that.”
Powder River Basin Update
The Jackalope assets are located in Converse County, Wyoming, and
provide gathering, compression and processing services and include the
Jackalope Gas Gathering System and the Bucking Horse Processing Plant.
The system is supported by a 358,000 acreage dedication by Chesapeake
and a 30,000 acreage dedication by Panther Energy. The Bucking Horse and
Jackalope assets are currently undergoing extensive expansion projects
to increase gathering and processing capacity to 345 MMcf/d. These
expansion projects, including line looping and system compression, are
expected to be substantially complete in the first quarter 2020.
Currently, the Jackalope system is averaging gathering volumes of 140.0
MMcf/d, an increase of 12%, compared to 125.5 MMcf/d in the fourth
quarter 2018. Crestwood expects continued volume growth on the system as
Chesapeake plans to operate five to six rigs in the basin targeting the
highly prolific Turner formation. In the fourth quarter 2018, Chesapeake
drilled its highest producing Turner formation well to date achieving a
24-hour initial production rate of approximately 3,100 barrels of oil
equivalent per day. Chesapeake has announced plans to further delineate
and test other production benches, such as the Niobrara and Parkman
during 2019. Based on current rig activity and growing initial
production volumes, Chesapeake expects to double system volumes in 2019.
Powder River Basin Minimum Revenue Guarantee and Revenue Recognition
The Bucking Horse gas processing plant and the Jackalope gas gathering
systems are supported by a 20-year fixed fee gathering and processing
agreement with Chesapeake that includes a minimum revenue guarantee
provision that allows for a higher fixed fee until a certain cash flow
threshold is obtained. Once the minimum revenue guarantee threshold is
achieved the fixed rate will adjust to a lower fee. Under FASB’s ASC 606
revenue recognition guidance, Crestwood utilizes an average blended flat
rate over the life of the contract to recognize revenue in its GAAP
financial statements. As a result, the actual cash Crestwood receives
from Jackalope will be substantially higher than what it will recognize
in consolidated revenues and Adjusted EBITDA. For 2019, that variance
between actual cash flows and recognized revenues is expected to be
approximately $20 million. While Crestwood will not adjust for this
difference in its reported Adjusted EBITDA, Crestwood will adjust its
calculation of distributable cash flow available to common unitholders
for this difference going forward as it provides a more accurate
depiction of Crestwood’s available cash. In addition, when reporting its
financial leverage ratio, Crestwood will make the same adjustment for
actual cash flow from Jackalope instead of reported Adjusted EBITDA in
accordance with the covenants in its credit agreement.
Revised 2019 Pro Forma Financial Guidance
Based upon the acquisition of the Powder River Basin joint venture,
Crestwood’s revised 2019 guidance is provided below. These projections
are subject to risks and uncertainties as described in the
“Forward-Looking Statements” section at the end of this release.
-
Net income of $125 to $155 million
-
Adjusted EBITDA of $500 million to $530 million, excluding $20 million
of PRB cash received in excess of recognized revenues in Q2-Q4 2019
-
Contribution by operating segment is set forth below:
|
|
|
$US millions
|
|
FY 2019 Range
|
Operating Segment
|
|
Low
|
|
High
|
Gathering & Processing
|
|
$425
|
-
|
$445
|
Storage & Transportation
|
|
85
|
-
|
90
|
Marketing, Supply & Logistics
|
|
55
|
-
|
60
|
Less: Corporate G&A
|
|
(65)
|
|
(65)
|
Adjusted EBITDA*
|
|
$500
|
-
|
$530
|
Plus: PRB cash received in excess of recognized revenues
|
|
20
|
|
20
|
Less: Maintenance Capital
|
|
(20)
|
|
(25)
|
Less: Interest Expense
|
|
(130)
|
|
(135)
|
Less: Other
|
|
(5)
|
|
(5)
|
Distributable Cash Flow
|
|
$365
|
|
$395
|
Less: Distributions to Niobrara Preferred
|
|
(30)
|
|
(30)
|
Less: Distributions to Series A Preferred
|
|
(60)
|
|
(60)
|
Distributable Cash Flow Available to Common Unitholders
|
|
$275
|
|
$305
|
|
|
|
|
|
*Note: Excludes approximately $20 million of Powder River Basin
deferred revenue. PRB deferred revenue is calculated as the
difference between the actual cash generated by the PRB assets’
minimum revenue commitment and revenue recognized under ASC 606.
|
|
|
|
|
|
-
Full-year 2019 coverage ratio increases to 1.5x to 1.7x
-
Full-year 2019 leverage ratio unchanged between 4.0x and 4.5x
-
Growth project capital spending and joint venture contributions in the
range of $425 million to $475 million; Growth capital increases driven
by Williams’s portion of the Bucking Horse and Jackalope expansion
capital
Evercore acted as financial adviser to Crestwood and Vinson & Elkins
served as legal counsel to Crestwood. Crestwood posted an updated
investor presentation to its website that contains additional
information on today’s announcement.
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
This news release contains forward-looking statements within the meaning
of the U.S. Private Securities Litigation Reform Act of 1995 and Section
21E of the Securities and Exchange Act of 1934. The words “expects,”
“believes,” anticipates,” “plans,” “will,” “shall,” “estimates,” and
similar expressions identify forward-looking statements, which are
generally not historical in nature. Forward-looking statements are
subject to risks and uncertainties and are based on the beliefs and
assumptions of management, based on information currently available to
them. Although Crestwood believes that these forward-looking statements
are based on reasonable assumptions, it can give no assurance that any
such forward-looking statements will materialize. Important factors that
could cause actual results to differ materially from those expressed in
or implied from these forward-looking statements include the risks and
uncertainties described in Crestwood’s reports filed with the Securities
and Exchange Commission, including its Annual Report on Form 10-K and
its subsequent reports, which are available through the SEC’s EDGAR
system at www.sec.gov
and on our website. Readers are cautioned not to place undue reliance on
forward-looking statements, which reflect management’s view only as of
the date made, and Crestwood assumes no obligation to update these
forward-looking statements.
About Crestwood Equity Partners LP
Houston, Texas, based Crestwood Equity Partners LP (NYSE: CEQP) is a
master limited partnership that owns and operates midstream businesses
in multiple shale resource plays across the United States. Crestwood
Equity is engaged in the gathering, processing, treating, compression,
storage and transportation of natural gas; storage, transportation,
terminalling, and marketing of NGLs; gathering, storage, terminalling
and marketing of crude oil; and gathering and disposal of produced water.
CRESTWOOD EQUITY PARTNERS LP
|
Revised Full Year 2019 Adjusted EBITDA and Distributable Cash
Flow Guidance
|
Reconciliation to Net Income
|
(in millions)
|
(unaudited)
|
|
|
|
|
|
|
Expected 2019 Range
|
|
|
|
|
|
|
Low - High
|
Net income
|
|
$125 - $155
|
Interest and debt expense, net
|
|
125 - 130
|
Depreciation, amortization and accretion
|
|
175 - 180
|
Unit-based compensation charges
|
|
25 - 30
|
Earnings from unconsolidated affiliates
|
|
(50) - (55)
|
Adjusted EBITDA from unconsolidated affiliates
|
|
90 - 95
|
Adjusted EBITDA
|
|
$500 - $530
|
|
|
|
|
|
|
|
Cash interest expense (a) |
|
(130) - (135)
|
Maintenance capital expenditures (b) |
|
(20) - (25)
|
PRB cash received in excess of recognized revenues (c) |
|
20
|
Adjusted EBITDA from unconsolidated affiliates
|
|
(90) - (95)
|
Distributable cash flow from unconsolidated affiliates
|
|
85 - 90
|
Cash distributions to preferred unitholders (d) |
|
(90)
|
Distributable cash flow attributable to CEQP
(e)
|
|
$275 - $305
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Cash interest expense less amortization of deferred financing costs.
|
|
|
(b)
|
|
Maintenance capital expenditures are defined as those capital
expenditures which do not increase operating capacity or revenues
from existing levels.
|
|
|
(c)
|
|
Cash received from our customers of our Powder River Basin
operations pursuant to certain contractual minimum revenue
commitments in excess of related revenue recognized under FASB ASC
606.
|
|
|
(d)
|
|
Includes cash distributions to preferred unit holders and Crestwood
Niobrara preferred unitholders.
|
|
|
(e)
|
|
Distributable cash flow is defined as Adjusted EBITDA, adjusted for
cash interest expense, maintenance capital expenditures, income
taxes, the cash received from our Powder River Basin operations in
excess of revenue recognized, and our proportionate share of our
unconsolidated affiliates' distributable cash flow. Distributable
cash flow should not be considered an alternative to cash flows from
operating activities or any other measure of financial performance
calculated in accordance with GAAP as those items are used to
measure operating performance, liquidity, or the ability to service
debt obligations. We believe that distributable cash flow provides
additional information for evaluating our ability to declare and pay
distributions to unitholders. Distributable cash flow, as we define
it, may not be comparable to distributable cash flow or similarly
titled measures used by other companies.
|
1 Please see non-GAAP reconciliation table included at the
end of the press release.
View source version on businesswire.com:
https://www.businesswire.com/news/home/20190410005502/en/
Crestwood Equity Partners LP
Investor Contact
Josh Wannarka, 713-380-3081
[email protected]
Vice
President, Investor Relations
Source: Crestwood Equity Partners LP