The Daley Note: February 17, 2023
The outlook is bright for Crestwood Equity (CEQP) despite some recent bumps in the road. East Daley expects growth from the company’s Arrow G&P system in the Williston Basin to create momentum once winter supply disruptions are in the rearview.
Crestwood warned in January its operations were impaired by severe weather in December. A massive Arctic front cut power and froze over wells in several basins ahead of the holidays. At the time, East Daley tracked widespread supply curtailments as the storm swept through the Lower 48.
CEQP estimates its 4Q22 gathering volumes fell by ~15% in the Williston and by 5-10% in the Powder River and Delaware basins due to the weather event. CEQP said it will miss previous full-year 2022 EBITDA guidance as a result.
Crestwood plans to release earnings before markets open on Tuesday, Feb. 21. In our CEQP Financial Blueprint ahead of the release, East Daley forecasts CEQP to report 4Q22 Adj. EBITDA of $200 million, down $42 million (-17%) from our previous model updates due to the effects of the inclement weather.
Looking past the quarter, we anticipate improving performance for Crestwood, mainly from growing volumes collected by the company’s three-stream Arrow system in the Williston. Arrow gathers crude oil, natural gas and water from Bakken drilling and is CEQP’s largest G&P system. East Daley estimates that ~40% of EBITDA from Crestwood’s G&P segment is generated by the Arrow assets.
A key to growth on Arrow is CEQP’s $1.8 billion purchase of Oasis Midstream in February 2022. The acquisition included the nearby Wild Basin G&P system near Watford, ND. CEQP has directly tied the Wild Basin system into the Arrow assets, helping de-bottleneck constraints CEQP faced in Bakken gas processing. The merger allows the Arrow system to grow across all three commodities.
In our CEQP Financial Blueprint, we forecast gas volumes processed on the Arrow and Wild Basin systems grow by nearly 50% over the next two years, from ~250 MMcf/d in 4Q22 to nearly 370 MMcf/d by 4Q24. Oil and water volumes also grow. The ramp we expect has been delayed somewhat by the recent blizzard and an additional storm in early February, but the secular growth trend remains in place. - Maria Paz Urdaneta. Tickers: CEQP.
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