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Edited Transcript of CEQP earnings conference call or presentation 29-Oct-19 1:00pm GMT

Q3 2019 Crestwood Equity Partners LP Earnings Call

KANSAS CITY Nov 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Crestwood Equity Partners LP earnings conference call or presentation Tuesday, October 29, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Diaco Aviki

Crestwood Equity Partners LP - SVP, Business Development & Commercial - Bakken and Rockies

* John Powell

Crestwood Equity Partners LP - Senior VP & Chief Commercial Officer of MSL

* Robert G. Phillips

Crestwood Equity Partners LP - Chairman, President & CEO of Crestwood Equity GP LLC

* Robert Thornbury Halpin

Crestwood Equity Partners LP - Executive VP & CFO of Crestwood Equity GP LLC

* William H. Moore

Crestwood Equity Partners LP - SVP of Strategy & Corporate Development of Crestwood Equity GP LLC

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Conference Call Participants

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* Elvira Scotto

RBC Capital Markets, Research Division - Director

* James Randal Weston

Raymond James & Associates, Inc., Research Division - Senior Research Associate

* Jeremy Bryan Tonet

JP Morgan Chase & Co, Research Division - Senior Analyst

* Kyle May

Capital One Securities, Inc., Research Division - Associate

* Ned Antonov Baramov

Wells Fargo Securities, LLC, Research Division - Associate Analyst

* Selman Akyol

Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Equity Research

* Shneur Z. Gershuni

UBS Investment Bank, Research Division - Executive Director in the Energy Group and Analyst

* Tristan James Richardson

SunTrust Robinson Humphrey, Inc., Research Division - VP

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Presentation

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Operator [1]

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Good morning, and welcome to today's conference call to discuss Crestwood Equity Partners' third quarter 2019 financial and operating results. Before we begin the call, listeners are reminded that the company may make certain forward-looking statements as defined in the Securities and Exchange Act of 1934 that are based on assumptions and information currently available at the time of today's call. Please refer to the company's latest filings with the SEC for a list of risk factors that may cause actual results to differ. Additionally, certain non-GAAP financial measures such as EBITDA, adjusted EBITDA and distributed cash flow will be discussed. Reconciliations to the most comparable GAAP measures are included in the news release issued this morning.

Joining us today with prepared remarks are Chairman, President and Chief Executive Officer, Bob Phillips; and Executive Vice President and Chief Financial Officer, Robert Halpin. Additional members of the senior management team will be available for question-and-answer session with Crestwood's current analysts following the prepared remarks. Today's call is being recorded. (Operator Instructions)

At this time, I will turn the call over to Bob Phillips.

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Robert G. Phillips, Crestwood Equity Partners LP - Chairman, President & CEO of Crestwood Equity GP LLC [2]

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Good morning. Thanks, operator, and thanks to all of you for joining us today. We're certainly very pleased to report another great quarter here in the third quarter of 2019. Also, I want to provide you with an update on our expectations for the remainder of the year and provide some preliminary insight into our 2020 outlook.

It's certainly an exciting time at Crestwood. We've got great momentum as a company in all the areas that we operate. I want to highlight 4 things that come to my mind, year-to-date 2019. Number one, our business continues to exceed internal and market expectations quarter after quarter. I think we've proven this management team can set lofty goals and deliver on those goals. Number two, our projects are being completed as expected with great safety performance. Safety has always been our top priority, but when you have an active campaign going where you've got a lot of construction people in the field in multiple areas, to deliver the kind of safety performance we have is exemplary performance in the midstream space. Number three, our operating costs continue to decrease as margins improve. I want to highlight there, the great job that our PRB operations team has done in transitioning operations away from Williams starting in April of this year. The last 6 months, by our calculation, operating costs per unit are down about 27% compared to a similar 6-month period last year under the previous operator. So operating costs continue to decrease and margins improve across all of our assets. And finally and most importantly, number four, we're beginning to see real volume ramp-up and cash flow ramp-up in the Bakken, the Powder and the Delaware. And that's delivering great investment multiples, and we think peer group-leading financial metrics. So that's the bottom line for year-to-date 2019.

On last quarter's call, we said the third quarter was going to be a very important inflection point in the cash flow trajectory of Crestwood, and I'm pleased to announce that this quarter we achieved that key milestone with adjusted EBITDA of $141 million, that's a 39% year-over-year increase, and distributable cash flow of $83 million, and that represents a 60% year-over-year increase. We'll talk about it in more detail, but this is a direct result of the 3-year capital program that we've had. At these cash flow levels, I would point out to you that we're delivering very healthy coverage at 1.9x and leverage of 4.2x, respectively. And our target remains below 4x in 2020.

Our third quarter results, I think, also highlight the value of our diversified portfolio of midstream assets, with our Gathering and Processing and our Marketing, Supply and Logistics segments having great quarters again, as they have all year long. And that leads us to the upward revision of full year 2019 adjusted EBITDA in the range of $520 million to $535 million, and that's a slight increase from our previous guidance with the midpoint up about 2% to a revised $527.5 million. So, very pleased that we continue to push upwards throughout the year, expect to close with a solid fourth quarter, have good visibility into that. And so we're revising guidance upward, and that will give us momentum into 2020.

Let's look back on '19 a little bit. I want to credit our continued outperformance so far this year, really on 4 things. Number one, financial discipline with the balance sheet. Credit Robert and the finance team doing a great job so far this year, keeping us within the guardrails that we set early in the year with the budget. Number two, solid partnerships with our joint venture partners. I think you all remember that we were one of the first in the industry to use joint venture partnerships to help finance and expand commercially our competitive positioning in the regions that we operate. And that's been an important part of our success and will remain so. Number three, strong execution on our key 2019 capital projects by the field operations team, our great technical services group, our safety team and our commercial teams, all working together to deliver these projects as we expect them in the budget. And then finally, number 4, and I witnessed this last week and I'll give you a little color on it, and that's the collaborative relationships that we have with our customers on both sides of the midstream value chain whether it's G&P, Storage and Transportation or downstream at the refinery and petchem level with our MS&L group. We have great relationships with our customers. I witnessed that, and I was impressed by that in our recent Arrow customer meeting that we had in North Dakota last week where we all jointly focused on very efficient use of capital. We all know that we're going into a capital-constrained period in 2020, and I was just really impressed with the collaboration between our guys and our customers' teams to make efficient use of capital, and also our joint commitment to the environment and to regulatory compliance. We spent a lot of time focused on making sure that we keep flaring below the minimums, and that we all coordinate our efforts to make sure that the gas production on the Fort Berthold Indian Reservation represents the best gas capture program in the state of North Dakota and I was very impressed with that. I think the collaborative relationships we have with our customers ensures that we're going to provide great customer service so we get repeat business with these guys; provides best-in-class flow assurance. Reliability is very important to producers. We're showing improving netbacks, particularly in the Bakken, and we've got plenty of future capacity for long-term growth and that's true in all 3 basins. So we built out the backbone systems in the Bakken, the Delaware and the Powder. And so they've got plenty of room to grow, and they know that. And they're going to be working towards that with their development plans over the next couple of years.

I'm also proud of the Crestwood culture that we're developing here, focused on the vitally important ESG sustainability initiatives. Those include employee and contractor health and safety, minimizing our environmental impact, reducing our footprint and increasing the social investment in the communities where we operate and where our employees live.

We've made great progress in 2019 on that, and we'll make even better progress in 2020. So as we near the end of 2019, let me give you a status report on our 3-year capital expansion program. We've been talking about this for several years, we've been articulating the amount of capital we're spending and where we're spending it in the projects and what the impact will be, and I'm pleased to say that we're within one quarter of being finished with this program after 3 years, and I can't tell you how proud I am of the organization, which if you'll recall if you've been with us from the beginning, we've built this company around M&A. But about 4 years ago, we transitioned and built a great organic project management team. We've managed these projects, we've designed them, we've negotiated them and built them all on our own. And I think the team's done a great job. We're nearing the end. On a net-net basis, we've spent about $1 billion of net growth capital on the projects and with the JV contributions in the areas where we have JV ownership. And we're building out vital long-term infrastructure assets in the Bakken, the Powder and the Delaware basins, and we're building out these critical midstream assets in support of very clear, visible long-term supply development plans that our customers have from very large dedicated acreage positions in some of the most core areas of the most economic and productive shale plays in the industry. And again, that's the Bakken core on the FBIR, the Southern Powder River Basin in the deep play where the Turner and the (inaudible) are prolific, and as each quarter goes by, we see bigger and bigger wells and better and better economics on a normalized basis for those producers. And then, of course, in the Delaware, where we've got 100-mile 20-inch pipeline system with big gathering systems on either end, and that is absolutely the richest part of the Delaware. So we're building assets that are going to be there for 50 years, gathering production that's going to be there for longer than 50 years. So we think we're in a great spot with this 3-year buildout program. Our producers are clearly having a great 2019 also, as reflected by the record volumes that we're posting on -- in all 3 basins. And we believe, and if you do the work on it you'll see that our producers believe, they have years of undrilled inventory yet to develop around this backbone capacity that we've built over the past 3 years.

Just to give you some context, since the end of 2016, our 3-year capital expansion program has increased our high and low-pressure pipeline infrastructure by 32%, up to 2,200 miles of pipe in the ground. Our gas processing capacity has been increased by 90% to 1.2 Bcf a day, significant production of NGLs, and our MS&L team has done an incredible job of marketing to the best markets available, providing flow assurance to our producers and our plants, and in some cases actually improving on the netbacks. And we think netback margin improvement is going to continue throughout the fourth quarter of this year and into 2020.

Our gas compression capacity, we are largely a gathering and processing company that takes low pressure gas and compresses it into the nation's pipeline capacity. Our compression capacity is up by 37% to over 550,000 horsepower of compression. We are a large gathering company in every sense of the word.

As a result of all that, our gas gathering system capacities have increased by about 1/3 to 3.5 Bcf a day. Our crude oil gathering capacity is up 20% to 150,000 barrels a day, and our produced water disposal and gathering capacity has grown dramatically up over 200% to 125,000 barrels a day.

This is a monumental expansion program by any measure, and it positions Crestwood and our partners and our customers with ample capacity for years of growth with only modest maintenance and well connect capital required to handle the expected increasing volumes. Taken as a whole, we think the program demonstrates again that Crestwood has achieved meaningful scale in the last 3 years in the areas that we operate. We've made prudent investments in the right areas, we've been able to maintain our balance sheet discipline, and it provides our current and our future customers with significant capacity to grow. We're at a really good spot in the history of Crestwood. Our expanded systems also support Crestwood and our customers' joint commitment to sustainability by taking a significant number of trucks off the road and significantly lowering emissions from reduced flaring in the areas that we operate. We take this seriously, and we're among the industry leaders in reducing emissions and reducing flaring in the areas we operate.

Importantly to our investors, each dollar invested has followed a very strict criteria to maximize returns, and the big Aha! here is that 2017 to 2020 with that $1 billion net investment, we expect to grow cash flow by over $225 million a year, driven by this expansion program. And we think that provides very impressive return on invested capital in cash flow multiples of approximately 4 to 4.5x. This is the way you deliver accretive DCF per unit to investors in the MLP world today.

So now that we're nearing the completion of the major buildout program, our 2020 capital budget is not insignificant, but as we've been signaling for the last couple of quarters, it's significantly lower than it has been. We're expecting right now to decrease capital spending to a range of $100 million to $150 million a year in 2020. That compares to about $425 million to $475 million in 2019.

Just a little bit of color on our 2020 capital program. These are currently identified projects, and obviously we have a very competitive business development team that's out there looking hard, working hard for third-party production and additional expansion opportunities, but these are the identified projects that we see today. We'll focus that capital on completing the Bucking Horse 2 processing plant, which will be finished in the first quarter of 2020 and will be largely finished with gas processing in the PRB for a long time. We've got a lot of excess capacity, and there's a number of producers in that region that will use 2020 to increase their delineation program in the areas surrounding our core Chesapeake acreage dedication. We'll also be continuing to expand the Jackalope gathering and compression system with expansions throughout the year. We've got 3 compressor station projects that are underway and are almost complete, but will be completed at various times throughout 2020. And those will add to the effective capacity we have to gather and process gas there.

And we're going to continue with our expansion program on the Bakken Arrow produced water system, and I just might point out that we're very, very close and will complete in the fourth quarter what we call the [Gondor] wells, which should add 25,000 to 35,000 barrels a day of additional water gathering and disposal capacity. That capital's largely been spent, that project is almost complete. We should be bringing it into service within the next couple of weeks, and that will drive a lot of the produced water system capital expansion in 2020. There's still a significant amount of water on the reservation, and we need to get those trucks off the road. So we're going to be emphasizing Arrow produced water expansion in 2020.

Most importantly, I want to remind our investors that we have exceptional well connect agreements with our producer customers, and that's really going to benefit us in 2020. It meaningfully limits the amount of capital that we have to spend to bring new wells online, and let me just remind you, in those 3 areas in the Bakken our well connects are 100% reimbursed by the producer.

In the Powder River Basin, we're reimbursed for connections longer than 600 feet. That's basically a hot tap and a meter run. And in the Delaware Basin, want to remind you that our CPJV joint venture structure buffers Crestwood's balance sheet from large capital requirements there, and that system is largely built out in what I predict in 2020 are just more interconnections to third-party systems to be able to compete for gathered gas to process, given the competitive advantage we now have that our CP Chem downstream NGL contract has kicked in, really gives us quite an advantage in marketing of processing capacity. So in all 3 basins we're largely protected from our well connect capital, and that contributes to the much lower capital spend forecast that we have for 2020. As Robert is going to point out, spending $100 million to $150 million allows us to get to free cash flow very early in the year and supports our primary financial metric of getting our leverage sub-4x in 2020.

Before I hand the call over to Robert, let me just take a moment to thank the Crestwood employees, all of our business partners, our joint venture partners and our contractors and tell you how proud I am of the entire organization and their efforts to produce another standout year for Crestwood.

We challenged our operating teams to come in with 10% lower cost, and they've just absolutely demolished that number in our operating results so far this year. We're really proud of how the team has focused on productivity and improved efficiency in not only the way we operate, the services we provide, but the amount of capital and dollars that we spend on the operating side. We've talked a lot about the project management teams delivering these projects as expected in the budget and as our producer customers expected. In 2020 we're going to continue that, but we're going to benefit from that key inflection point in the third quarter where we begin to see volumes and cash flow significantly ramp up to provide these kind of industry-leading metrics that we're talking about in 2020. And I do want to highlight, and again, Robert will talk about it in more detail, that our primary financial objective in 2020 will be to become free cash flow positive in the first half of the year. We think that's going to be attractive to investors, and think you'll be able to see that reflected in our stock. If we do that, we'll certainly be operating at sub-4x leverage with coverage at 2x or above, and that's going to give us a lot of financial flexibility.

These are milestones for us, and we're going to aggressively pursue those milestones in 2020, like we have the capital plan over the last 3 years. It sets the stage for us, we think, to execute a best-in-class capital allocation strategy. We've talked to many of you about this. Over time, we'll continue to self-fund accretively our capital projects, we'll reduce our leverage when we have excess cash flow, we'll start thinking about distribution growth as long as it's stable and it's permanent, and we'll have the potential for common and preferred unit buybacks. We know that each of those categories is important to different stakeholders that we have, but most importantly, we're going to evaluate each one of those opportunities very opportunistically with a goal of maximizing returns for our unitholders. We are still an MLP, and we're proud of it. We don't mind being small, but we want to be the best small MLP out there,

and I think 2019 is setting a great platform as we roll into 2020.

So with that, happy to turn it over to Robert, our CFO, for a third quarter financial review and a comment or two on the balance sheet, and then maybe he can transition us into Q&A. Robert?

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Robert Thornbury Halpin, Crestwood Equity Partners LP - Executive VP & CFO of Crestwood Equity GP LLC [3]

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Great. Thank you, Bob. The third quarter has been another very strong quarter for Crestwood, driven by continued execution in our Gathering and Processing segment as well as our Marketing, Supply and Logistics segments. Our third quarter 2019 adjusted EBITDA was $141 million, that up 39% year-over-year compared to $101 million in the third quarter of 2018. Our distributable cash flow was $83 million, that up 60% year-over-year compared to $52 million in the third quarter of 2018.

For the third quarter of 2019, our general partner declared a distribution of $0.60 to our common unitholders, resulting in distribution coverage for the quarter of approximately 1.9x.

In our Gathering and Processing segment, EBITDA totaled $99 million in the third quarter of 2019, that representing an increase of 27% over the $78 million that we reported in the third quarter of 2018. Third quarter 2019 segment EBITDA growth was driven by the in-service of our Bear Den 2 processing plant in the Bakken, which, compared with the completion of the majority of our debottlenecking projects, led the way for increased volumes across all 3 products on the Arrow system, partially offset by some declines in our legacy natural gas basins.

Our Storage and Transportation segment EBITDA totaled $17 million for the third quarter of 2019 on average volumes of 2.2 billion cubic feet per day. This represents an increase of 15% over $15 million in EBITDA that we reported in the third quarter of 2018. On July 1, Crestwood began receiving a 50% cash distribution from Stagecoach Gas Services, which represented the final step-up in the agreement with our joint venture partner, Con Edison. And at the COLT Hub, the facility benefited from the in-service of the Bear Den plant as it saw additional demand for NGL loading and storage services. Our Marketing, Supply and Logistics segment EBITDA totaled $26 million for the third quarter, driven by record NGL production, driving higher utilization of our NGL storage, trucking and rail terminal assets, coupled with our marketing team's ability to successfully capture the value of wider seasonal spreads resulting from softer NGL pricing during the summer inventory build season.

Now moving to the balance sheet. As of September 30, Crestwood had approximately $2.3 billion of debt outstanding, including $1.8 billion of fixed rate senior notes and $498 million of outstanding borrowings on our revolving credit facility.

Leverage as of September 30 was 4.2x, and Crestwood remains committed to long-term leverage of 3.5x to 4x, a target we expect to achieve by mid-2020.

In the third quarter of 2019, we invested approximately $139 million in consolidated growth capital projects and joint venture contributions, primarily focused on the Bear Den 2 processing plant in the Bakken and the Bucking Horse 2 processing plant in the Powder River Basin. As previously communicated, Crestwood intends to continue to fund its growth capital needs through excess retained distributable cash flow, availability under our revolving credit facility and proceeds from any potential non-core asset divestitures.

Now looking forward to 2020, as Bob mentioned in his commentary, we expect to invest between $100 million to $150 million in growth capital, almost exclusively in our key growth areas of the Bakken shale, the Powder River Basin and the Delaware Basin. Crestwood will continue to maintain a close dialogue with our customers to further optimize our capital spending as they finalize their 2020 plans.

And similar to 2019, we expect to fund our 2020 capital program with 100% of organic capital spend covered with excess retained distributable cash flow. The third quarter of 2019 has been another very successful quarter for Crestwood. Consistent execution year-to-date has positioned us to tighten and increase our adjusted EBITDA guidance for 2019 and sets us up for a clear path in 2020 to generate substantial free cash flow, achieve our long-term leverage objective and position the company to begin executing our strategy to optimize returning capital to unitholders. With that, operator, I'll now turn the call over to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Tristan Richardson with SunTrust.

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Tristan James Richardson, SunTrust Robinson Humphrey, Inc., Research Division - VP [2]

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Just curious -- we appreciate all the commentary on priorities for cash flow and the timing of the shift to free cash flow positive. It seems like leverage is the primary financial objective next year. At the point where you're comfortable maintaining that sub-4x level, where do priorities shift for free cash flow at that point?

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Robert Thornbury Halpin, Crestwood Equity Partners LP - Executive VP & CFO of Crestwood Equity GP LLC [3]

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Yes. Thanks, Tristan. I think it's really -- kind of as we've continue to state, our primary objective long-term is to maintain our balance sheet strength as we talked about. We feel very comfortable in the 3.5 to 4x range, given our capital needs and how our business is positioned with the excess capacity we have in our key growth basins going forward. And with the excess cash flow that we plan to build with roughly 2x coverage in 2020, we begin to look hard at how we can optimize returns to our investors through returning capital. We'll always have a continuation of pursuing highly attractive, high return (inaudible) opportunities around our portfolio, and we'll certainly expect to capture our fair share of those and allocate capital towards those. But I think beginning in 2020, looking at how we can optimize returns through some form of distribution increase as well as potentially opportunistic buyback of units is how we would think about with any excess above and beyond our organic capital need.

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Tristan James Richardson, SunTrust Robinson Humphrey, Inc., Research Division - VP [4]

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Helpful. And then could you talk a little bit about the, maybe, loosely bucket the 2020 CapEx budget between your 3 growth areas? I know you kind of highlighted a project at Jackalope and 3 other compression projects. Just generally, high level, how to think about that $100 million to $150 million?

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Robert Thornbury Halpin, Crestwood Equity Partners LP - Executive VP & CFO of Crestwood Equity GP LLC [5]

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Yes. Of the $100 million to $150 million, I'd say it's probably about 40% Bakken, 40% Powder River and then the balance, the Delaware Permian. Rough numbers.

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Tristan James Richardson, SunTrust Robinson Humphrey, Inc., Research Division - VP [6]

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Perfect. And then just a last one for me. Just opportunities you guys seeing in the Permian, with -- we're thinking about weighing your Chevron deal that came online and just generally narrowing basis for residue gas against a broader backdrop of general pullback. Can you talk about customer plans or to the extent these market developments have opened up the valves for your large customer?

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Robert G. Phillips, Crestwood Equity Partners LP - Chairman, President & CEO of Crestwood Equity GP LLC [7]

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Yes. Tristan, that's something that we monitor very carefully. And as you know, we're just at the end of October. I haven't even gotten into full budget season yet for our producers. They're pretty mindful of commodity prices before they finalize plans, which, based on our experience, typically is even as late as January. I think everybody will be talking to their boards in November about preliminary views on capital. As I mentioned, we just had a Bakken producers meeting, and there wasn't a single producer there that had finalized their 2020 budget yet. So having really good conversations. In the Delaware, a couple of things that I would point you to: number one, our biggest producer is Shell. And Shell, like most majors, has a tendency to drill through commodity cycles and is not really as impacted by short-term price constraints like we've witnessed with natural gas prices just in the last couple of weeks. Having said that, we're watchful on commodity prices out of the Delaware for all 3 products: oil, gas and gas liquids. On the oil side, which is the primary economic driver of the basin and drilling activity, we believe there's ample oil capacity, and the basis is trading reasonably right now. Is that correct, Rob?

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Robert Thornbury Halpin, Crestwood Equity Partners LP - Executive VP & CFO of Crestwood Equity GP LLC [8]

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That's correct.

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Robert G. Phillips, Crestwood Equity Partners LP - Chairman, President & CEO of Crestwood Equity GP LLC [9]

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So no real impact there. On the gas side, as I mentioned, there's been a recent downturn in net gas prices in the Waha region, notwithstanding the fact that Gulf Coast Express just went into service. The forward markets tell us that it's largely filled up or is filling up. And so in the forward market, there's a little bit of a basis change for natural gas. Having said that, natural gas liquids, despite the low commodity prices, have remained reasonably stable throughout the year. In other words, the basis differentials or the T&F, the transportation and fractionation you have to pay to get Y-grade from the Delaware to the Gulf Coast, been reasonably stable. Our Chevron Phillips Chemical contract provides us with a better than market T&F. It's a long-term contract with increasing volumes, starting January 1, 2020, and it's going to enable us to be more competitive as a gatherer and processor to attract volumes into our plant and pass that strong NGL netback price on to our producers. We believe that the combination of a stable oil price netback in the basin and a stable NGL price netback in the basin -- which for most of these production in the area we operate, is probably 75% to 80% of the total barrel -- we think those economics will prevail throughout 2020. And while there may be some softness at the beginning of the year, I think throughout the entire 2020 year, we're going to have equal to or greater supply development activity in the areas that we operate. And we've got excess capacity at Orla, and we're going to be aggressively competing for volumes from the major interconnects that we've completed in the second half of the year with a fairly optimistic view that our producers are going to drill throughout the year on a balanced basis. So we don't see any near-term impact on volumes and don't see any near-term impact on drilling. But if I had to guess for the small independent producer, there will be a pullback in the first half of the year, and that will probably improve second half of 2020 as more capacity comes online. That's probably more than you wanted to know, but you asked me what time it was. So I've told you how to build a watch. Tristan, are you still there?

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Operator [10]

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Our next question comes from the line of Elvira Scotto with RBC.

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Elvira Scotto, RBC Capital Markets, Research Division - Director [11]

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Just to follow-up on the growth CapEx question, the preliminary estimates of $100 million to $150 million for 2020. Thanks for the detail that you provided, but how much of that growth CapEx is from projects that you are still completing versus some of the expansions that you mentioned? And then how quickly can you change that CapEx if producers do pull back activity?

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Robert Thornbury Halpin, Crestwood Equity Partners LP - Executive VP & CFO of Crestwood Equity GP LLC [12]

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Yes. Elvira, I think my breakdown of being roughly 40% Bakken, 40% Powder and the balance in Delaware Permian, if you look at the composition of that, I would say Bakken is largely all new build expansion. So new projects, largely focused on the water side of the business, as Bob mentioned in his commentary. The Powder River Basin is predominantly focused on finishing the Bucking Horse 2 plant, and then the Delaware Basin component is largely well connect capital, well completion capital for Shell's ongoing development plans around our Nautilus system. So if you break those 3 buckets down, I think there's tremendous ability to optimize our water spend in the Bakken, but given where we are on that system and the amount of water that is behind pipe today, I don't expect we will curb any of that given where our producers are and what we expect to be their development plans heading into 2020. In the Powder River Basin, as I mentioned, most of that is just completion of the Bucking Horse 2 plant, which will go in service in early 2020. So that's largely committed to, and we're going to get that plant done to have that capacity available for Chesapeake and other third parties that we've talked about that we're actively pursuing. And then the last one, well connect capital, obviously that's 100% driven by the timing of well completions and how that development plan ultimately pans out. But as Bob mentioned, Shell is pretty fixed in terms of what they plan to do long term.

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Elvira Scotto, RBC Capital Markets, Research Division - Director [13]

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That's helpful. And then just on the Marketing, Supply and Logistics, you increased the guidance, EBITDA guidance, to $65 million to $75 million from the $55 million to $60 million previously. Does that -- is that just a 2019 phenomenon? Or does -- how should we think about run rate EBITDA in marketing? Should we still think of that as closer to $55 million kind of going forward?

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Robert Thornbury Halpin, Crestwood Equity Partners LP - Executive VP & CFO of Crestwood Equity GP LLC [14]

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I think you got to look, Elvira, a little bit at our business, kind of what the team has accomplished over the last, call it, 12 to 24 months, what transpired in the market this year, and kind of how we're positioned heading into 2020 to really understand kind of the full perspective on that question. I think, generally speaking, we saw market opportunities in 2019 that the team successfully captured that we don't believe will be repeatable year in, year out, that's driven the degree of outperformance that we've seen. That said, I think we also believe that our business, as we built out the platform, as we build out the capability and are now marketing around some of our hard assets that we've scaled up in the Bakken and elsewhere, we probably see the baseline of that business being in excess of the $50 million to $55 million that we guided to at the beginning of this year. Still finalizing our plans for the outlook but I think we're going to see upside of that on a sustainable basis in 2020 and beyond, but probably not see the same degree of dislocation that we saw this year that we captured to the upside. John, anything you'd expand upon that?

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John Powell, Crestwood Equity Partners LP - Senior VP & Chief Commercial Officer of MSL [15]

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Yes. I think we just had a couple of things, particularly in the third quarter here. I mean, we had record high inventories, larger-than-normal carries that we saw that we were able to capture, and I think the team executed extremely well on that. In addition to that, we had a little bit of market consolidation out there, particularly in the space that we are in. And so we're able to continue to grow from that standpoint. And also, as they alluded to, the increased G&P activity on volumes across the platform, we're running a very well-integrated platform. And we spent over the last 3 years, really just trying to create a much more integrated platform, implementing a lot of efficiency gains, providing scalable activities, particularly as we knew these volumes would grow up. And I think that's really the diversity of having a good Supply and Logistics platform across the U.S. And with that, we're going to maintain some of this momentum here to provide top-quality service and pricing for both our producers and our consumers.

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Elvira Scotto, RBC Capital Markets, Research Division - Director [16]

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Great. And then just the last ones for me. So in the press release and even in your -- in the prepared remarks, you kind of talked about using the proceeds from any non-core asset sales to self-fund, to hit your leverage target, et cetera. Are you in active discussions here with respect to potentially selling some non-core assets? And then in addition to that, how are you thinking about the M&A opportunities or the landscape over the next 12 to 24 months?

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William H. Moore, Crestwood Equity Partners LP - SVP of Strategy & Corporate Development of Crestwood Equity GP LLC [17]

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Yes. This is Will. Right now, we're not in any active negotiations on any divestitures. I think that comment is just that we will be opportunistic if someone values an asset more than we do. We would entertain that as possibility to help us further de-lever. But nothing active right now on the divestiture front. From an M&A perspective, I'd say it's not a priority here. When we talk about M&A, it has to check all of our boxes. The first, it has to be in our core basin. It has to be a -- have appropriate return on invested capital. As Bob talked about in his comments, our organic capital has been about 4x to 5x multiples. So that's tough to compete for capital with when you're looking at M&A. Additionally, it's got to be immediately accretive to us from a DCF per unit basis, and it's got to be financed in a way where it's leverage enhancing to leverage neutral. So when we look through those 4 lenses, if you will, at acquisitions, we haven't seen anything other than what we were able to do on the consolidation at Jackalope that really hits all those metrics. And so while we'll continue to be active and look at opportunities, I think it's, as I said, not a priority, and if -- although if we do find something that checks all 4 of those boxes, and it makes sense for us, I think it's something that we'll work hard on as well.

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Operator [18]

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Our next question comes from the line of Kyle May with Capital One Securities.

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Kyle May, Capital One Securities, Inc., Research Division - Associate [19]

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Maybe following up, I believe that was Will, and you had talked about consolidating the PRB from Williams. How are you looking at the landscape for your other JVs? And how does that fit in your capital allocation over the next 1 to 2 years?

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Robert G. Phillips, Crestwood Equity Partners LP - Chairman, President & CEO of Crestwood Equity GP LLC [20]

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That's a great question. We get asked that a lot by investors, particularly in one-on-ones, because we threaded the needle on the Williams Jackalope deal, and if it worked out incredibly well for us, it wasn't easy to not only strike a bargain with them at a price that made sense for both of us, but to finance that in a way that made sense for us. We did it. It was accretive upfront to us. It gave us the ability to take over operations. I've already commented that taking over operations in the Jackalope has resulted in, we think, about a 27% reduction in operating expense comparing the 6 months that we've operated to the 6 months previously that they operated. We've also dramatically improved the reliability of the system, largely through reducing operating pressure; there were parts of the system that were running in excess of 400 pounds. The contract was a 90 pound contract. We're now in compliance across the system. We've done that by instituting a pigging regimen that is much different than the previous operator had used. And so the result overall is just better use of capacity and better reliability across the system. We're going to always look for opportunities like that. If we can buy somebody in the areas that we operate and operate the system better than they do, then that adds real value to the transaction. It's not just run rate volumes or forecasted growth times a margin. We're really good at operating systems, and I think we've proven that over the last several years. We're good at taking over operations from other people. Oftentimes, these are people that have been in business for a long time. They just have a different way of operating. I think our focus is on the environment, it's on the public in the areas we operate, and it's on providing a great customer service. And to do that, you've got to be an efficient operator, and you've got to be in tune with your producers' needs and have a collaborative relationship. So these are the elements or the principles that we look at in a deal. From a purely economic standpoint, we are absolutely invested in the 3 areas that we talk about over and over and over again. It is the Bakken, it is the Powder and it is the Delaware. We have identified, and our business development team has identified and we continue to watch and monitor, expansion opportunities where we can acquire assets that would be bolt-ons to our existing systems, and take advantage of taking over operations and seeing that 27% reduction in operating costs and seeing that improvement in customer relations that leads to quicker well connects and higher volumes across the system and better flow assurance and higher netbacks for our producers. In our August Board meeting, we identified all those opportunities in the areas that we operate. We like the rock, we like our core assets as being a backbone system, and we see numerous opportunities to acquire things and bolt them on to our existing system. Having said that, it's Will Moore's job to find those opportunities and be timely about it, and working in combination with Robert and the finance team to be able to deliver something that checks all 4 boxes and grows our portfolio in a financially prudent and financially disciplined manner. So Will, not sure how much color you want to give, but we know in the Delaware, the Powder and the Bakken that there's other operators out there that might be opportunities for us. You want to talk about that?

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William H. Moore, Crestwood Equity Partners LP - SVP of Strategy & Corporate Development of Crestwood Equity GP LLC [21]

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Yes. Real quick, just to get back to Kyle's question on the JVs. Obviously, nothing in our plans on consolidating JVs. I think the Permian is probably the most natural, that business needs to mature over time. And I think we'll have an opportunity to work with our partner, First Reserve, there on what we do when they're ready to exit that, but nothing imminent there. So it is something that we somewhat control, but that transaction is going to get priced to the highest value, and we may or may not be competitive there. On the other JVs that we're at, we're happy to operate with our partners there and don't see any near-term consolidation on any of those. On the broader M&A market, I think Bob covered it, we see opportunities in and around our footprint for consolidation and efficiencies that can be gained as these basins mature, but it has to go through the screens that we talked about and check all the boxes, and right now, there's still a disconnect between buyers and sellers on getting to appropriate values. And so we're going to stay disciplined.

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Robert G. Phillips, Crestwood Equity Partners LP - Chairman, President & CEO of Crestwood Equity GP LLC [22]

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So having said that, though, Kyle, I would tell you that -- and you guys can do the research, you just draw a circle around our 3 core areas -- there's other assets in those areas where the owner operators are over their skis, whether they paid too much for it, as is the case in most of the Delaware stuff, or they over-levered it, as is also the case there, or there's just other reasons why it's an opportunity. We are going to continue to be very disciplined in the way that we think about growing our portfolio in these regions. And I think it's -- from our standpoint, it's a buyers’ market. We have built a great balance sheet. We've got a lot of momentum as a company, we can deliver industry-leading DCF per unit to our investors, and if we can expand our portfolio and lengthen out our inventory position in these 3 core areas where there's 50 years of supply development, then we're going to do that, but we're going to do it at a price and a structure that makes sense to us.

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Kyle May, Capital One Securities, Inc., Research Division - Associate [23]

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Got it. That's a lot to chew on, but a lot of good information. I appreciate it. Maybe one thing, kind of switching gears to operations. In the press release, you mentioned substantial room for future volumes on the Arrow system. Can you just give us kind of an update on your expectations for utilization of Bear Den 2? And then maybe a broader look at processing demand in the basin?

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Robert Thornbury Halpin, Crestwood Equity Partners LP - Executive VP & CFO of Crestwood Equity GP LLC [24]

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Sure. I think we can speak, first, to just our system what we communicated. Obviously, we've got, as we commented in our press release today, with Bear Den 2 going into service and getting fully lined out by the end of the third quarter, we're now gathering and processing 100% of the gas on system. We are seeing substantial step-up in utilization as a result of that and the well completions keep coming. We had 83 wells connected year-to-date. We still expect to be around 120 for the year, and recent communication from a lot of our producers heading into 2020, as recent as our customer meetings last week, suggests that the development is going to continue and we're going to continue to see that step-up in utilization. I think we're still very focused on optimization of that plant. We expect that we will be probably at full utilization quicker than we would have otherwise thought, given the development plans. I think that we will first look at how we can optimize incremental available capacity in basin and around with other third parties to make sure we're all being as efficient as we can with capital, but I do think there will be expansion opportunities above and beyond what we have in the plan longer-term as you get out '22, '23 and beyond, with the ongoing productivity we're seeing out of these wells. To overall processing capacity in the basin, I mean, there are expansions ongoing. I think we were quick to get ours done. It was very timely to be able to take all the gas off ONEOK and put it on our system and meet our producers near-term demands. We think we've got good runway for them for the foreseeable future, and we'll continue to work closely with them on when the next leg of expansion is needed or warranted.

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Operator [25]

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Our next question comes from the line of Jeremy Tonet with JPMorgan.

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Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [26]

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Just want to start off with the guidance as you talked about it before, a 3-year guidance going through 2020 of greater than 20% growth. Just wondering if you could update us there on your thoughts? Or maybe you could just talk about, in general, what type of per share growth do you expect as a normalized level that Crestwood can deliver, given the opportunity set ahead of you?

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Robert Thornbury Halpin, Crestwood Equity Partners LP - Executive VP & CFO of Crestwood Equity GP LLC [27]

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Yes. Jeremy, I don't think anything's changed relative to the through 2020 outlook. Obviously, that time frame of that outlook was largely centered around the capital investment program that Bob talked a lot about on the call. And the corresponding ramps in volumes and cash flow we expected from that. So no change. I think we communicated a generally close to 15-plus percent EBITDA growth rate over that time frame from baseline '17 to year-end '20, and 20% or north of 20% growth in DCF per unit over that time frame. And as we sit today, I don't expect there to be any change to that heading out to 2020 and beyond.

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Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [28]

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Okay. Great. And then maybe turning to the PRB, I was just wondering if you could touch a bit more as far as what type of growth you're seeing there? I think you'd thrown out some numbers for cash flow before that you expect to see? And then in the PR you're talking about being in kind of late-stage discussions with offset third party producers. Wondering if you could expand a little bit there?

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Robert G. Phillips, Crestwood Equity Partners LP - Chairman, President & CEO of Crestwood Equity GP LLC [29]

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Yes. Just a couple of notes, and then we'll have more information as we go through the year and work with our producers in the area. Chesapeake is years ahead of everybody else in terms of delineating the geologic structure out there and understanding the geology of the Turner formation in the Niobrara. If you do the research on the materials they have that's public, there's clearly a delineation of the Turner formation into what I think is similar to the 3 windows of the Eagle Ford. There is an oil prone window, an oil and rich gas window and then a gassier window. As it would not surprise you, they've been focusing on the oilier window in 2019 because that's where the best economics come from. Oil prices are, on a relative basis, higher than gas prices out there. Having said that, they're still in a fairly early delineation phase of those different windows. And to our surprise and excitement, a recent well, a Turner well, that they drilled -- 2 wells, a 2-well pad -- that maybe we thought was going to be in the oilier year window winds up being in the oil and gas window, and gas production at 15 million a day out of 2 Turner wells exceeded anybody's expectation. So that was very exciting new IP rate for a new pad that we just introduced into the system. We're spending a lot of time with Chesapeake right now to better understand their 2020 plan. In fact, we're -- I've got lunch with Doug on Friday, and we're going up there to compare notes. We have largely built out the system. And as Robert said, we'll finish up the Bucking Horse 2 plant in the first quarter and turn that on. They'll see better recoveries for NGLs out of that plant versus Bucking Horse 1, which was built by Williams several years ago. Different technologies that will have better NGL capture and reliability out of that plant. So we'll turn that on in February or March, and they'll get the benefit of that. We continue to add compression to the system to bring pressures down, to get the benefit of uplift. And we've seen that. Diaco, we had record gas volumes in, I think early October, what was that?

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Diaco Aviki, Crestwood Equity Partners LP - SVP, Business Development & Commercial - Bakken and Rockies [30]

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That's right. 173 million.

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Robert G. Phillips, Crestwood Equity Partners LP - Chairman, President & CEO of Crestwood Equity GP LLC [31]

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173 million a day. I mean, you guys can remember for the early part of this year, we were still sitting at 100 million to 120 million a day range. So they've drilled a lot of wells and added a lot of gas production and a lot of oil production out there. It's too early yet to know exactly what they're going to do. I think they'll message that sometime next week when they have their announcement and start to give preliminary guidance, and so we don't have that information. But I can tell you that the offset operators who are under contract -- an example of that would be Panther -- they have 2 rigs running right now. They have a couple of wells down they're about to complete here in the fourth quarter. And so we'll be able to see what kind of production they're going to have. We're excited about that because just in the last few months, they've increased the number of permits to 18. And so that is -- I think that's exciting news to us, and we're beginning to have preliminary plans for what looks like it might be a pretty robust drilling program in 2020 by the Panther guys. Anadarko Oxy also, as you know, has a big acreage position. And what we understand is their early 2020 delineation program we think is focused on the area that's closest to our gathering system. We've been in constant communication with them. We've discussed contract options for how we would get their gas into our system, and we're excited about the opportunity to provide services to Oxy if they have a 2020 drilling program there. So I think overall, we're in really good shape volumetrically for the year. Our capital programs will be largely done by the end of the first quarter, and then we'll sit back and we'll watch and we'll wait and we'll see what these producers could do with the netback prices that they're going to get in 2020. I know a number of them have been hedging forward. And so they've probably got better economics than the current market would show. I hope that answers the question in -- on what we're seeing going forward in the Powder?

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Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [32]

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Got you. That's helpful. And one last one, if I could. Just wanted to see your thoughts as far as Bakken take -- residue gas takeaway. How do you guys see kind of supply-demand there? Do you think that there's going to be enough takeaway to match all the processing plants that are coming online? Or how does that progress?

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Robert Thornbury Halpin, Crestwood Equity Partners LP - Executive VP & CFO of Crestwood Equity GP LLC [33]

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Yes. Right now, on the Bakken, we continue to displace the Canadian gas coming down. I think the next couple of years, we'll have ample takeaway out of these there. I know there's some rumblings in the industry out there. People are looking at other options. We'll continue to monitor, and we will stay on top of it. For right now, the next couple of years, we should have enough takeaway.

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Operator [34]

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Our next question comes from the line of Shneur Gershuni with UBS.

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Shneur Z. Gershuni, UBS Investment Bank, Research Division - Executive Director in the Energy Group and Analyst [35]

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Long call today. Just a few questions, if you can believe there's still some left. Starting off, I found it interesting that you mentioned that preferred in your press release is one of the options for returning capital. Is that something that's a priority, or would you be looking first to get upgraded to IG before you would look to take that out? Or given the high yield on it, that's actually a priority or something that you would want to direct capital towards?

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Robert Thornbury Halpin, Crestwood Equity Partners LP - Executive VP & CFO of Crestwood Equity GP LLC [36]

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Yes. Shneur, I think -- I wouldn't read too much into the commentary. I think what we're highlighting is that our primary focal point is to first generate the free cash flow. We're highly confident we're going to do that. And then from there, we got a whole lot of optionalities how we can maximize returns to our investors through how we choose to allocate that capital. It will be a combination of self-funding the organic program, both the one that's in the current backlog for 2020 and anything new that comes up and beyond 2020. It will be some form of distribution. And then as we look opportunistically around optimizing the capital structure and investment in common and preferred. That's fluid, and we talk about that with our Board regularly at every quarterly meeting and even intermittent between them, and it's something that we have the flexibility to capitalize on when those windows of opportunities pop up. So we don't have any predisposed or preconceived plan around what we would do, how much we would do. We know that we're going to be in a substantial position of positive free cash flow, and we're going to optimize that as we go.

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Shneur Z. Gershuni, UBS Investment Bank, Research Division - Executive Director in the Energy Group and Analyst [37]

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That makes sense. And -- or do you expect to have discussions with the rating agencies about where you're rated right now?

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Robert Thornbury Halpin, Crestwood Equity Partners LP - Executive VP & CFO of Crestwood Equity GP LLC [38]

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We do. We have conversations with them throughout the year and one big annual update at the start of every year. I think given the 3-year performance of the business, where we're trending and where we look to head into 2020 from a balance sheet standpoint, we'll continue to press upon them the execution. I think we've got a really good working relationship. In all honesty, our cost of capital on the debt side is pretty competitive right now. So I don't think we're too fussed about where we are. The market remains open to us. And I think that, really, in all honesty, the greatest limiting factor is still going to be a scale dynamic with the agencies in terms of meaningful upward mobility. So we'll always have a dialogue with them, but I think we're pretty well positioned right now.

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Shneur Z. Gershuni, UBS Investment Bank, Research Division - Executive Director in the Energy Group and Analyst [39]

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Okay. And just two more questions. Your CapEx number for 2020, does that include an FID of Bear Den 3? I'm just sort of looking where your volumes are and so forth, it kind of seems like that's something that should be on the horizon reasonably soon?

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Robert Thornbury Halpin, Crestwood Equity Partners LP - Executive VP & CFO of Crestwood Equity GP LLC [40]

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No. That's not. As we talked about, the bulk of the capital in the Bakken for 2020 is largely focused on all the water that's behind our system right now.

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Shneur Z. Gershuni, UBS Investment Bank, Research Division - Executive Director in the Energy Group and Analyst [41]

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Okay. Got it. And then finally, your comments about 2x coverage for next year. Does that already assume a distribution increase? Or that's kind of where you're at, at this stage right now? And can we think of it as an early indication of how you're thinking about 2020 from an EBITDA perspective if we sort of back into what would give you 2x coverage?

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Robert Thornbury Halpin, Crestwood Equity Partners LP - Executive VP & CFO of Crestwood Equity GP LLC [42]

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I think yes, yes and yes to all those. So I think it is in line with the guidance we've given in the past around our 2020 outlook and kind of the impact we expect from the capital projects we've executed on. We do expect to have some incremental return of capital through the distribution in 2020. It will be prudent and it will be consistent with our long-term strategy to realize our balance sheet objectives and to continue executing on our business plan around our portfolio. And so that 2x is consistent -- is inclusive of anything we would do on an incremental returns of capital.

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Operator [43]

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Our next question comes from the line of JR Weston with Raymond James.

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James Randal Weston, Raymond James & Associates, Inc., Research Division - Senior Research Associate [44]

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Recognize we're pretty late in the call here, so I'll just ask one real quick. I was looking at the 2021 guidance for Jackalope, and I just wanted to be sure that any development from Panther would be upside to that? And that was -- the guidance was really just originally driven by Chesapeake. Is that correct?

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Robert Thornbury Halpin, Crestwood Equity Partners LP - Executive VP & CFO of Crestwood Equity GP LLC [45]

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That's correct.

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Operator [46]

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Our next question comes from the line of Ned Baramov with Wells Fargo.

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Ned Antonov Baramov, Wells Fargo Securities, LLC, Research Division - Associate Analyst [47]

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Real quick for me as well. But just going back to the PRB, any thoughts on additional OpEx reductions in the region, not that the 27% realized to date is not meaningful enough, but mostly in light of the new opportunities you're pursuing for incremental dedications with the offset producers you talked about?

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Robert G. Phillips, Crestwood Equity Partners LP - Chairman, President & CEO of Crestwood Equity GP LLC [48]

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No. I don't think so on the operating side. I mean, we are going through our -- the final stages of our 2020 planning process. The PRB teams had their arms around this asset for 6 months. It's a look-alike to the way we operate our Delaware system, with big high-pressure compression -- high-pressure, low-pressure system with a lot of compression at the wellhead and a big processing plant at the end. Takeaways are similar. I think the operations are lining themselves out right now. We might see modest improvement as we get a full year, but I don't think we see any big things. What we are going to see, though, is potentially better netbacks for our producer as we get the new plant up and running, get better recoveries. I think the producer will see better netbacks. And then we're going to be very, very disciplined in the way we add compression to this system going forward. In the past, I would say that a lot of compression was spent in bulk. And I think the backbone of the system is largely built out right now. I think adding compression and laterals will be incrementally done as we see wells get drilled and pads be ready for first production. And so that will be a difference in the way we efficiently use our capital more so than our operating expense. Diaco, you want to comment on anything?

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Diaco Aviki, Crestwood Equity Partners LP - SVP, Business Development & Commercial - Bakken and Rockies [49]

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Yes. Thank you, Bob. Yes, absolutely. One of the things that we're doing is, as we're going out and developing the additional compression stations that we talked about earlier in the call, we are tying them together so they can leverage each other. So that will reduce our capital going forward and allow us to effectively move Chesapeake's volumes and any other producers' volumes across the system and lower the pressures immediately.

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Robert G. Phillips, Crestwood Equity Partners LP - Chairman, President & CEO of Crestwood Equity GP LLC [50]

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Yes. And it's a different design.

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Diaco Aviki, Crestwood Equity Partners LP - SVP, Business Development & Commercial - Bakken and Rockies [51]

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Yes. There's some redundancy built in the system that will be effective for us from a capital perspective in [both].

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Robert G. Phillips, Crestwood Equity Partners LP - Chairman, President & CEO of Crestwood Equity GP LLC [52]

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So we could continue to see lower compression expenses, lower fuel, because we're optimizing the design of the system, which I think -- we think that it was not being done previously. That was all baked into our acquisition economics when we stepped up and paid a full price to Williams for their 50%, but I think we had these type of efficiencies in mind. So yes, we will see some savings from that standpoint.

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Ned Antonov Baramov, Wells Fargo Securities, LLC, Research Division - Associate Analyst [53]

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That's great. And maybe one more. Could you just break out how much of the outperformance and upwardly revised guidance for the Marketing, Supply and Logistics segment is related to the in-service of the Bear Den 2 plant?

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Robert Thornbury Halpin, Crestwood Equity Partners LP - Executive VP & CFO of Crestwood Equity GP LLC [54]

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Not -- directionally, I would say, Ned, we haven't really gotten into that granularity. Most of that, we're working on optimizing pricing for our producers through the pass-through of the economics. So it's been -- the team's done a phenomenal job of providing that flow assurance and making sure we can vacate all the liquids off of our plant in this interim period while we work towards getting Elk Creek in service here in the fourth quarter or when we'll give our liquids to ONEOK. So having given that specific granularity. The bulk of the outperformance, I would say, was the other factors we mentioned in the MSL segment.

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Robert G. Phillips, Crestwood Equity Partners LP - Chairman, President & CEO of Crestwood Equity GP LLC [55]

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Well, and our producers will see a netback improvement once we go online with Elk Creek. We've got a fairly unlimited volume capability on that pipeline. We'll get the trucks and the rail out of the equation. And I think our producers could see as much as $0.10 to $0.15 of improvement just on their netbacks by us not having to vacate those liquids by truck, rail and terminal. And so it's important. And they know that. We just talked about that at our customer meeting. They'll see a pretty good improvement in netbacks once we switch over.

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Operator [56]

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Our final question comes from the line of Selman Akyol with Stifel.

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Selman Akyol, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Equity Research [57]

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So just going back to the PRB for a minute. In the press release, you guys referenced discussions with third party producers. And I'm wondering: number one, when would you expect those to maybe come to fruition or have an outcome; and then number two, as you think about your 2020 CapEx guidance, so sort of the $100 million to $150 million, if those discussions were successful, does that take you above the $150 million? Or should we really think of the $150 million as being a hard ceiling for 2020 as it allows you to pursue your other objectives?

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Robert G. Phillips, Crestwood Equity Partners LP - Chairman, President & CEO of Crestwood Equity GP LLC [58]

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Diaco, go ahead.

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Diaco Aviki, Crestwood Equity Partners LP - SVP, Business Development & Commercial - Bakken and Rockies [59]

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Yes. Thank you. Good question. The capital estimated for 2020 includes the third-party opportunity that we're talking about. So we're being conservative in our guidance and our upper range of our guidance, and that's the $150 million range.

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Robert G. Phillips, Crestwood Equity Partners LP - Chairman, President & CEO of Crestwood Equity GP LLC [60]

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Yes. Having said that, it's not meaningful capital because we're -- we've got existing compression and existing processing capacity. All we're doing is just laying the lines and meter runs out to a couple of potential pads that are going to be drilled inside our existing footprint. It's not a big stretch, and it's not adding significant backbone capacity or adding compression that would otherwise be idled, and then it'll all be incremental. So that would be a great upside if we can do it. And like Diaco said, we're being conservative in the way we're budgeting that capital, so that's already included.

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Selman Akyol, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Equity Research [61]

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So then is it correct to be thinking about the $150 million as really a hard ceiling as for what you see for 2020 as of right now?

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Robert G. Phillips, Crestwood Equity Partners LP - Chairman, President & CEO of Crestwood Equity GP LLC [62]

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As of right now, that's correct.

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Operator [63]

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Mr. Phillips, I would now like to turn the floor back over to you for closing comments.

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Robert G. Phillips, Crestwood Equity Partners LP - Chairman, President & CEO of Crestwood Equity GP LLC [64]

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Thank you very much, operator. We've gone too long, but we appreciate all the great questions and the interest in Crestwood's performance. I want to thank the employees again for delivering yet another great quarter. We'll close the -- close the call with saying, "Go Astros," and look forward to meeting with you again in February timeframe to give you more specific information about our 2020 plan. But hopefully, if you paid attention and do the work, you get a really good idea as to what next year is going to look like for Crestwood. So hope we've answered that. If not, call Josh and the IR team, and you'll have more answers. Thank you very much, operator, and thanks to all of you for joining us this morning.

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Operator [65]

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Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.