Crestwood Announces First Quarter 2013 Financial and Operating Results

HOUSTON, May 7, 2013 /PRNewswire/ -- Crestwood Midstream Partners LP (NYSE: CMLP) ("Crestwood," "CMLP" or the "Partnership") reported today its unaudited financial results for the three months ended March 31, 2013.  Key financial and operating results for 2013 included the following:

First Quarter 2013 Highlights

• Adjusted earnings before interest, taxes, depreciation, amortization and accretion ("Adjusted EBITDA") was $38.8 million for the first quarter 2013, 8% higher than fourth quarter 2012, and 37% higher than first quarter 2012;
• First quarter 2013 performance was consistent with internal expectations and supports our full year 2013 Adjusted EBITDA guidance in the range of $170 million to $185 million.  Importantly, Crestwood's Adjusted EBITDA is on track to increase, on a quarterly basis, throughout 2013 as new Marcellus Shale gathering and compression projects are placed in service;   
• Adjusted distributable cash flow was $28.3 million for the first quarter 2013, 6% below fourth quarter 2012 which included a $3.9 million producer payment for minimum annual volume commitments, and 28% higher than first quarter 2012. Adjusted distributable cash flow was approximately 0.9 times the first quarter 2013 distribution of $0.51 per common unit, which was primarily the result of the conversion of 7.3 million Class C units from pay-in-kind distributions to cash pay; and
• Total gathering volumes averaged 975 million cubic feet per day ("MMcf/d"), 1% higher than fourth quarter 2012, and 59% higher than first quarter 2012. Gathering volumes were 63% from rich gas areas compared to 27% in the first quarter 2012. Average gathering volumes in the Marcellus, Barnett and Granite Wash segments were up 5%, 2% and 12% compared to fourth quarter 2012, while gathering volumes in the Fayetteville segment were down 11%. In addition, compression volumes contributed in the first quarter 2013 for the first time due to the December 28, 2012 acquisition of compression assets from Enerven Compression, LLC ("Enerven").

"We are pleased with our first quarter results, with each of our operating segments performing in-line with our expectations," stated Robert G. Phillips, Chairman, President and Chief Executive Officer of Crestwood's general partner. "The Marcellus region continues to drive our growth forecast for 2013 with approximately 80% of our 2013 capital budget dedicated to new pipeline and compression projects servicing the rich gas production of Antero Resources Appalachian Corporation ("Antero"). During the first quarter, we initiated the Zinnia pipeline expansion project and the Morgan, Perkins and West Union compressor station projects. These projects will add significant capacity to increase deliveries of Antero's gas to MarkWest's Sherwood gas processing facility ("Sherwood") later in the year. During the first quarter, we connected 15 of Antero's high volume wells to our gathering system, but flow rates were limited due to compression outages and downstream capacity limitations. Antero is continuing its aggressive development program with 12 rigs running in the area at present and plans to increase to 14 rigs by year end 2013. We are working closely with Antero and other third parties to ensure adequate downstream pipeline and compression capacity is available for production volumes connected to our gathering system.

We are also excited about the transactions we announced yesterday - a series of definitive agreements that Crestwood Holdings and the Partnership have entered into with Inergy, L.P. and Inergy Midstream, L.P., including an Agreement and Plan of Merger with Inergy Midstream, L.P. We encourage you to read yesterday's press release and investor presentation describing those transactions and we look forward to working toward completion of those transactions.

Two other recent events are also worthy of note.  On April 25, 2013, Crestwood entered into an amended binding letter of intent with RKI Exploration & Production ("RKI") to move forward with final due diligence and definitive documentation on the purchase of RKI's 50% interest in the Jackalope Gas Gathering System ("JGGS") located in the Powder River Basin Niobrara play. The transaction is subject to completion of definitive agreements with RKI and Access Midstream Partners, the operator and 50% owner of JGGS, and approval of the Board of Directors of Crestwood's general partner. This exciting new rich gas greenfield development opportunity is expected to close during the second quarter 2013.

Additionally, on April 30, 2013, Quicksilver Resources Inc. ("Quicksilver") closed its previously announced sale of 25% of its Barnett Shale assets to Tokyo Gas for $463 million and amended its credit facilities to provide for more financial flexibility over the next few years.  Quicksilver commented in the announcement, 'we welcome Tokyo Gas as a partner in our Barnett Shale project. Together, we anticipate efficiently developing natural gas volumes over many years.'  We are encouraged that as our largest producer representing approximately 35% of our gathering volumes in the first quarter 2013, Quicksilver and their new joint venture partner will be in a better position to develop the Barnett Shale properties dedicated to Crestwood," Phillips added. 

Marcellus Update

During the first quarter 2013, Crestwood completed the integration of four compression and dehydration stations acquired from Enerven in late December 2012. Additionally, we started construction on three new compression stations and the 20-inch Zinnia low pressure pipeline system that will gather gas from new Antero wells in the Greenbrier area. The Greenbrier area is located in the southwest rich gas portion of Crestwood's eastern area of dedication and is the current area of focus for Antero's 2013 drilling program. The Zinnia pipeline system, when completed, will connect directly to new well pads in the Greenbrier area and to both Crestwood and third party compressor stations for ultimate delivery to Sherwood through third party owned high pressure pipelines.  The first phase of the Zinnia pipeline project is expected to be in service by mid-June 2013 with the second phase in service by late July increasing total gathering capacity to Sherwood by approximately 100-125 MMcf/d depending upon the availability of compression. An example of Greenbrier area production flow is the recently connected Corder East pad which is producing approximately 35 MMcf/d from three new Marcellus Shale wells. The Zinnia pipeline system will also connect to Crestwood's existing Tichenal compressor station (acquired from Enerven) and the new Morgan and Perkins compressor stations currently under construction. The Morgan and Perkins compressor stations will be completed in phases and capacity increments (approximately 60 MMcf/d per phase per station) between the third quarter 2013 and the third quarter 2014.

Additionally, in March 2013, Crestwood signed a new compression services contract with Antero for adjacent rich gas acreage.  Under this agreement, Crestwood started construction of the West Union compressor station which will be completed in two phases, adding approximately 120 MMcf/d of capacity in the third and fourth quarters of 2013.

Gathering volumes in the Marcellus segment averaged 377 MMcf/d during the first quarter of 2013 compared to 360 MMcf/d in the fourth quarter 2012. While production volumes in excess of 400 MMcf/d were available to be gathered during the first quarter 2013, compression capacity was limited at third party compressor stations and our Tichenal compressor station which was impacted by a fire that occurred prior to Crestwood's acquisition of the Enerven stations in December 2012. The Tichenal station compressor capacity was fully restored in late March 2013 and a third party compressor station was placed in service in early April 2013. As a result, total Marcellus gathering volumes during April 2013 were in excess of 400 MMcf/d with May 1, 2013 spot volumes of approximately 415-420 MMcf/d. 

First Quarter 2013 Financial and Operating Results

Crestwood's Adjusted EBITDA for the first quarter 2013 was $38.8 million, compared to $36 million in the fourth quarter 2012, and $28.4 million in the first quarter 2012.  First quarter results included EBITDA of approximately $12 million from the Marcellus segment, $27 million from the Barnett segment and $7 million from the other segments. The West Johnson County system, acquired in August 2012 from Devon Energy Corporation ("Devon"), contributed operating margin of approximately $6 million in the first quarter 2013 while the Enerven compression assets, acquired in December 2012, contributed approximately $3 million in the first quarter 2013.

First Quarter 2013 Segment Performance

Marcellus Segment

Marcellus segment revenues were $14.3 million in the first quarter 2013 compared to $10.5 million in the fourth quarter 2012 with the increase attributable to the addition of compression services. Gathering volumes totaled 377 MMcf/d in the first quarter 2013, a 5% increase from 360 MMcf/d in the fourth quarter 2012. Compression revenues totaled $3.9 million in the first quarter 2013, on average volumes of 270 MMcf/d. Operating and maintenance expenses totaled $2.4 million during the first quarter 2013, up $1.2 million from the fourth quarter 2012, due primarily to incremental operating expenses related to the Enerven assets.

Barnett Segment

Barnett segment revenues were $34.6 million in the first quarter 2013, compared to $34.2 million in the fourth quarter 2012 and $33.9 million in the first quarter 2012. Gathering volumes totaled 449 MMcf/d in the first quarter 2013, compared to 442 MMcf/d in the fourth quarter 2012 and 447 MMcf/d in the first quarter 2012.  Processing volumes totaled 204 MMcf/d in the first quarter 2013, a 2% increase over the fourth quarter 2012, and a 54% increase over the first quarter 2012 largely attributable to the West Johnson County acquisition in August 2012. Quicksilver did not complete or connect any new wells during the first quarter 2013, however, Barnett system volume decline rates on both the dry gas and rich gas systems leveled out during the first quarter 2013 when compared with the fourth quarter 2012. Our analysis suggests three reasons for this trend: (i) volumes are further out on the decline curve, (ii) in recent quarters, Quicksilver has implemented enhanced well maintenance and operating procedures to improve production volumes, and (iii) lower wellhead pressures in the Cowtown area, as a result of the West Johnson County system integration completed in December 2012, are improving production performance of the Devon wells. Operating and maintenance expenses totaled $7.3 million during the first quarter 2013, up $1.1 million from the first quarter 2012 due to the addition of the West Johnson County assets.    

Other Segments

EBITDA contribution from our Fayetteville, Granite Wash and Other segments totaled approximately $7 million for the first quarter 2013, which was consistent with both the fourth quarter 2012 and the first quarter 2012.  Gathering volumes in these segments totaled 149 MMcf/d in the first quarter 2013, which was materially consistent with the fourth quarter 2012 and first quarter 2012.

General and Administrative Expenses

General and administrative expenses totaled $7.8 million in the first quarter 2013, $0.2 million higher than the fourth quarter of 2012.  During the first quarter 2013, $0.7 million of expense was incurred related to transaction and due diligence activities compared to $1.4 million of non-recurring expenses in the fourth quarter of 2012.  General and administrative expenses totaled $6.7 million in the first quarter 2012.   

Capital Investment and Resources

At March 31, 2013, Crestwood had approximately $726 million of debt outstanding, comprised of $350 million of 7.75% fixed-rate senior notes due 2019, $293 million under the CMLP revolving credit facility and $83 million under the Crestwood Marcellus Midstream LLC ("CMM") revolving credit facility which is used for the Marcellus capital program. The CMLP and CMM credit facilities have total committed capacity of $550 million and $200 million, respectively. CMLP utilized its revolving credit facility to fund $129 million of the drop-down acquisition of the remaining 65% interest in CMM in January 2013.

To partially finance the CMM drop-down and CMLP's 2013 capital development program, CMLP issued $126 million of Class D units, representing limited partner interests, to Crestwood Holdings in January 2013 and issued $119 million of new common units in a public offering in March and April 2013. The cash raised in the offering was used to repay outstanding balances on the CMLP and CMM revolving credit facilities. Following these equity issuances, Crestwood has 53.8 million common units and 6.2 million Class D Units outstanding.  These amounts include 7.3 million of Class C units that converted on a one-for-one basis into common units on April 1, 2013.

Crestwood's capital spending, excluding acquisition capital, for the three months ended March 31, 2013, totaled $24.3 million, comprised primarily of $22.4 million related to the construction of pipeline laterals and compression equipment in the Marcellus segment.  First quarter 2013 growth and maintenance capital expenditures were in line with our previously announced full year guidance for capital spending of $120 million to $150 million. 

Basis of Presentation and Non-GAAP Financial Measures

Pursuant to U.S. generally accepted accounting principles ("GAAP"), the acquisition of CMM in January 2013 was accounted for as a reorganization of entities under common control.  As such, the historic operations of CMM were retroactively adjusted to reflect Crestwood's results as if Crestwood owned 100% of CMM since CMM's formation and commencement of operations at the end of March 2012.  Full year 2012 results were recasted in a Form 8-K filed with the Securities and Exchange Commission on March 18, 2013.  Information related to 2012 reflected in this news release reflects the recasted nature of these amounts. 

Adjusted EBITDA and adjusted 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.

Conference Call

Crestwood will host a conference call for investors and analysts on Tuesday, May 7, 2013, beginning at 11:00 a.m. Central Time, to discuss the first quarter 2013 performance and the outlook for the remainder of 2013.  Interested parties may participate by joining the conference call 480-629-9643 at least 10 minutes before the call and asking for the Crestwood Earnings Call.  A replay of the call will be available for 90 days by dialing 303-590-3030 and using access code 4614994#.  The conference call will also be webcast live and can be accessed via the "Presentations" page of Crestwood's Investor Relations website at www.crestwoodlp.com.

Additional Information and Where to Find It

This communication contains information about the proposed merger transaction involving Crestwood and Inergy. In connection with the proposed merger transaction, Inergy will file with the SEC a registration statement on Form S-4 that will include a proxy statement/prospectus for the unitholders of Crestwood. Crestwood will mail the final proxy statement/prospectus to its unitholders. INVESTORS AND UNITHOLDERS ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC CAREFULLY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT CRESTWOOD, INERGY, THE PROPOSED MERGER TRANSACTION AND RELATED MATTERS. Investors and unitholders will be able to obtain free copies of the proxy statement/prospectus and other documents filed with the SEC by Inergy and Crestwood through the website maintained by the SEC at www.sec.gov. In addition, investors and unitholders will be able to obtain free copies of documents filed by Crestwood with the SEC from Crestwood's website, www.crestwoodlp.com, under the heading "SEC Filings" in the "Investor Relations" tab and free copies of documents filed by Inergy with the SEC from Inergy's website, www.inergylp.com/midstream, under the heading "SEC Filings" in the "Investor Relations" tab.

Participants in the Solicitation

Crestwood, Inergy and their respective general partner's directors and executive officers may be deemed to be participants in the solicitation of proxies from the unitholders of Crestwood in respect of the proposed merger transaction. Information regarding the persons who may, under the rules of the SEC, be deemed participants in the solicitation of the unitholders of Crestwood in connection with the proposed transaction, including a description of their direct or indirect interests, by security holdings or otherwise, will be set forth in the proxy statement/prospectus when it is filed with the SEC. Information regarding Crestwood's directors and executive officers is contained in Crestwood's Annual Report on Form 10-K for the year ended December 31, 2012, which is filed with the SEC. Information regarding Inergy's directors and executive officers is contained in Inergy's Annual Report on Form 10-K for the year ended September 30, 2012, which is filed with the SEC. Free copies of these documents may be obtained from the sources described above.

Forward-Looking Statements

The statements in this news release regarding future events, occurrences, circumstances, activities, performance, outcomes and results are forward-looking statements. Although these statements reflect the current views, assumptions and expectations of Crestwood's management, the matters addressed herein are subject to numerous risks and uncertainties which could cause actual activities, performance, outcomes and results to differ materially from those indicated. Such forward-looking statements include, but are not limited to, statements about the future financial and operating results, objectives, expectations and intentions and other statements that are not historical facts. Factors that could result in such differences or otherwise materially affect Crestwood's financial condition, results of operations and cash flows including, without limitation, changes in general economic conditions; fluctuations in oil, natural gas and NGL prices; the extent and success of drilling efforts, as well as the extent and quality of natural gas volumes produced within proximity of our assets; failure or delays by our customers in achieving expected production in their natural gas projects; competitive conditions in our industry and their impact on our ability to connect natural gas supplies to our gathering and processing assets or systems; actions or inactions taken or non-performance by third parties, including suppliers, contractors, operators, processors, transporters and customers; our ability to consummate acquisitions, successfully integrate the acquired businesses, realize any cost savings and other synergies from any acquisition; changes in the availability and cost of capital; operating hazards, natural disasters, weather-related delays, casualty losses and other matters beyond our control; timely receipt of necessary government approvals and permits, our ability to control the costs of construction, including costs of materials, labor and right-of-way and other factors that may impact our ability to complete projects within budget and on schedule; the effects of existing and future laws and governmental regulations, including environmental and climate change requirements; the effects of existing and future litigation; and risks related to our substantial indebtedness, as well as other factors disclosed in Crestwood's filings with the U.S. Securities and Exchange Commission. You should read our filings with the U.S. Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2012, and our most recent Quarterly Reports and Current Reports for a more extensive list of factors that could affect results.

About Crestwood Midstream Partners LP

Houston, Texas based Crestwood is a growth-oriented, midstream master limited partnership which owns and operates predominately fee-based gathering, processing, treating and compression assets servicing natural gas producers in the Barnett Shale in north Texas, the Marcellus Shale in northern West Virginia, the Fayetteville Shale in northwest Arkansas, the Granite Wash in the Texas Panhandle, the Avalon Shale/Bone Spring in southeastern New Mexico and the Haynesville/Bossier Shale in western Louisiana. For more information about Crestwood, visit www.crestwoodlp.com.

Investor Contact:

Mark Stockard
832-519-2207
[email protected]

SOURCE Crestwood Midstream Partners LP

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