Crestwood expects 58% year-over-year decrease in growth capital

Feb. 18, 2020
Crestwood expects to invest $150-$200 million of growth capital in 2020, a 58% decrease year-over-year.

Crestwood Equity Partners expects to invest $150-$200 million of growth capital in 2020 including the final costs for the Bucking Horse II processing plant and Jackalope gathering system expansions in the Powder River basin, upgrades and expansion of the Bakken Arrow produced water gathering system, and expansion of natural gas gathering and produced water systems in the Delaware basin.

Growth capital includes some $25 million for previously forecasted invoices that will be paid in early 2020 related to work completed during the fourth quarter 2019.

The company is entering “harvest mode as we maximize returns on our recent capital investments,” said Robert G. Phillips, chairman, president and chief executive officer of Crestwood’s general partner. “As a result, Crestwood expects to invest between $150 million to $200 million on growth projects for the year, a 58% decrease year-over-year, which will be entirely funded with retained cash flow. Based on a projected annual cash flow growth rate of 15% in 2020 and a reduction in growth capital, Crestwood expects to begin generating free cash flow in 2020.”

For fourth-quarter 2019, the company reported net income of $47.2 million, compared to net income of $59.6 million for the year-earlier quarter. Full-year net income was $319.9 million, compared to net income of $67.0 million in 2018.

Bakken

During the fourth quarter 2019, producers on the Arrow system connected 42 wells resulting in 118 total three-product well connections in 2019 and enabled the Arrow system to achieve new quarterly gathering records on all three products. During the quarter, the Arrow system averaged crude oil gathering volumes of 124,000 b/d and natural gas gathering volumes of 103 MMcfd, both 50% above the fourth quarter 2018, produced water gathering volumes of 80,000 b/d, an increase of 49% over the fourth quarter 2018, and processing volumes of 95 MMcfd, an increase of 235% over the fourth quarter 2018.

During 2019, Crestwood placed into service the Bear Den II processing plant, a 120 MMcf/d cryogenic processing plant adjacent to the 30 MMcf/d Bear Den I plant (OGJ Online, Aug. 14, 2019).

In 2020, Crestwood’s capital investments in the Bakken will remain focused on the expansion and enhancement of the produced water gathering system, ongoing natural gas and crude oil optimization projects to support producer development plans, and incremental system compression. In 2020, Crestwood expects between 100 and 110 three-product well connections driven by WPX Energy and XTO Energy and over 40 water-only well connections. These well connects will result in gathering volume increases of an estimated 20% in crude oil volumes, a 35% increase in natural gas volumes and a 50% increase in produced water volumes over full-year 2019 averages.

During the fourth quarter 2019, favorable market conditions at the COLT Hub resulted in average rail loading volumes of 62,000 b/d, an 11% increase compared to 56,000 b/d in the fourth quarter 2018. In 2019, the COLT Hub experienced an increase in demand from refineries on the East and West Coasts sourcing light sweet crude oil for feedstock. Additionally, crude oil production growth in the basin now exceeds currently available pipeline capacity creating market opportunities for crude-by-rail. Crestwood expects these favorable market conditions to continue in 2020 which has driven the company to reinstate 24-hour loading operations of the facility by the end of the first quarter 2020.

Powder River basin

During the fourth quarter 2019, the Jackalope system averaged gathering volumes of 154 MMcfd and processing volumes of 129 MMcfd, increases of 23% and 25%, respectively, over the fourth quarter of 2018. Crestwood connected 69 wells to the Jackalope system during the year that were targeting primarily the Turner and Niobrara formations.

In 2020, Crestwood’s capital investments in the Powder River Basin will cover the remaining expenditures for the Bucking Horse II processing plant and continued Jackalope gathering system expansions. The Bucking Horse II plant is a 200 MMcf/d cryogenic processing plant that increases total processing capacity to 345 MMcf/d and gives Crestwood the ability to process 100% of the gas gathered on the Jackalope system. The new processing plant is in the final stage of commissioning operations and is expected to be fully in-service in the coming weeks. Additional capital invested in 2020 will go towards various expansion and optimization projects across the system including line looping and compression, as the majority of well connect capital on the Jackalope system is paid by the producers. In 2020, Crestwood expects 50 well connects from Chesapeake Energy and Panther Energy resulting in an estimated 10% increase in natural gas gathering volumes and a 15% increase in processing volumes over full-year 2019 averages.

Delaware basin

During the fourth quarter 2019, Crestwood’s Delaware basin natural gas gathering assets averaged volumes of 210 MMcfd, a 15% increase compared to 182 MMcfd in fourth quarter 2018. The increase was driven by Royal Dutch Shell’s 5-rig development program on the Nautilus gathering system throughout the year and a resumption of development activity by Concho Resources Inc. and Mewbourne Oil Co. on the Willow Lake gathering system.

Crestwood has entered into a produced water gathering and disposal agreement with an integrated producer underpinned by a long-term contract for initial system capacity of 60,000 b/d with long-term plans to expand system capacity up to 120,000 b/d based on producer activity. Crestwood has begun construction on the required infrastructure and expects to handle first volumes in second quarter 2020.

In 2020, Crestwood expects growth capital in the Delaware basin to include Nautilus gathering system expansions, well connections, and the new produced water gathering and disposal system. In 2020, Crestwood expects 90 well connects primarily from Shell, Concho, and Mewbourne driving an estimated 25% increase in natural gas gathering volumes over full-year 2019 averages.