By a News Reporter-Staff News Editor at Energy Weekly News -- Crestwood Midstream Partners LP (NYSE: CMLP) ("Crestwood") reported its financial results for the three months ended March 31, 2014.
"Crestwood's diversified midstream portfolio continued to demonstrate quarter-over-quarter improvement in all areas of our business which validates our merger strategy and supports our 2014 goals," stated Robert G. Phillips, Chairman, President and Chief Executive Officer of Crestwood's general partner. "Importantly, during the first quarter 2014, we set new volume records for natural gas gathering and compression services in the Marcellus and combined crude volumes in the Bakken, despite the impact of severe winter weather on production area activities. We are seeing producers resume their development plans in the second quarter, which is leading to more well connections and higher throughput in several of our core plays. Additionally, strong first quarter winter demand for energy in the northeastern United States helped maintain the high level of utilization of our natural gas storage and transportation and natural gas liquids assets that we experienced in the fourth quarter." First Quarter 2014 Financial and Operating Highlights (1) (2) Crestwood reported adjusted earnings before interest, taxes, depreciation, amortization and accretion ("Adjusted EBITDA") of $98.9 million, a 9% increase over Adjusted EBITDA of $90.9 million in the fourth quarter 2013, and distributable cash flow of $70.3 million, a 9% increase from the $64.3 million of distributable cash flow in the fourth quarter 2013. These results reflect the full-period contribution of our Bakken Arrow gathering system acquired in November 2013, increased gathering and compression volumes on our Marcellus systems, increased firm and interruptible revenues in our Northeast natural gas storage and transportation operations, and increased loadings at our Bakken COLT Hub crude rail terminal.
Crestwood reported net income of $5.5 million for the first quarter 2014, compared to a net loss of $42.3 million in the fourth quarter 2013. First quarter 2014 results included $5.8 million of significant transaction-related expenses primarily related to the Crestwood-Inergy merger and the Arrow acquisition that were completed in the fourth quarter of 2013.
Crestwood announced a quarterly cash distribution of $0.41 per common unit, or $1.64 per common unit on an annualized basis. The announced distribution will be paid on May 15, 2014, to unitholders of record as of the close of business on May 8, 2014. (1)
Given the accounting treatment of the Crestwood-Inergy merger completed in October 2013 and the acquisition of Arrow Midstream Holdings, LLC ("Arrow") in November 2013, Crestwood has, where appropriate, compared first quarter 2014 financial and operating results to fourth quarter 2013 results for purposes of providing more meaningful disclosure to investors. In addition, the results discussed herein do not include the natural gas liquids ("NGL") business and the Gulf Coast natural gas storage and transportation assets owned by Crestwood Equity Partners LP. (2) Adjusted EBITDA and distributable cash flow are non-GAAP measures. Please refer to the financial tables accompanying this release for reconciliation to GAAP.
"As we have previously indicated, our Marcellus and Bakken operations will be the primary drivers of growth in 2014," said Phillips. "During the first quarter, gathering and compression volumes on our Marcellus systems increased 15% and 29%, respectively, while the Bakken crude volumes handled by our COLT and Arrow operations increased 8% quarter-over-quarter. The Arrow crude oil gathering system was particularly impacted by weather during the first quarter, with only 65% of planned wells being completed and connected during the quarter, and we experienced substantial downstream pipeline disruptions from the Arrow central delivery point ("CDP"). To improve operational efficiencies and provide greater flow assurances to our producers, we have taken several steps: (i) we recently acquired a Bakken crude trucking business which adds approximately 22,000 of offtake capacity and several new Bakken producers to our portfolio, (ii) we are pursuing additional firm transportation capacity on a third-party pipeline expansion that connects Arrow to COLT, and (iii) we are constructing additional crude oil tank storage capacity at the Arrow CDP (50% of which has already been contracted to one customer under a long-term, take-or-pay storage agreement). Moreover, our efforts to capture flared gas across the Fort Berthold Indian Reservation are beginning to pay off, with gas gathering volumes up 47% compared to the fourth quarter 2013 due to the completion of several looping and compression projects. We expect these factors, combined with increased producer drilling and completion activities, to improve our Arrow results in the second quarter 2014.
"While first quarter 2014 performance was slightly below our internal expectations, we remain committed to our 2014 guidance and expect the ramp up in forecast volumes for 2014 to accelerate in the second quarter. In the first quarter, our board of directors made a strategic decision to maintain our distribution at existing levels. The decision will allow us to improve our coverage ratio, while reinvesting in our significant portfolio of organic growth projects and achieving our long-term distribution goals. We appreciate the confidence our directors have shown in our assets, customers and employees," commented Phillips. First Quarter 2014 Financial and Operating Segment Results Gathering and processing segment EBITDA totaled $48.2 million in the first quarter, compared to $47.5 million in the fourth quarter 2013, excluding the impact of the non-cash accrual for the Antero earn-out. Natural gas gathering volumes increased 4% to 1,129 million cubic feet per day ("MMcf/d") during the first quarter, largely due to a 15% increase on our Marcellus systems, offset by a 5% decrease on our Barnett gathering systems, which typically receive a higher service fee than comparable Marcellus gathering services. Compression volumes were up 29% quarter-over-quarter, largely due to the completion of Marcellus compression projects, and processing volumes were down 4% quarter-over-quarter.
Storage and transportation segment EBITDA totaled $36.8 million during the first quarter 2014, a 10% increase from $33.6 million in the fourth quarter 2013. The improved performance was due to increased interruptible and hub services revenues resulting from strong demand for storage and pipeline capacity that connects the northern Marcellus dry gas producing region with local utilities in the premium Northeast demand markets, increased daily price volatility and wider basis spreads attributable to the sustained colder weather throughout the region. During the first quarter 2014, total throughput deliveries (including storage withdrawals plus firm and interruptible transportation services) averaged approximately 1.44 billion cubic feet per day ("Bcf/d"), an increase of 5% from the fourth quarter 2013, with peak deliveries reaching as high as 1.77 Bcf/d during the quarter.
NGL and crude services segment EBITDA totaled $26.3 million during the first quarter 2014, a 27% increase from $20.7 million in the fourth quarter 2013, led by a $4.7 million increase attributable to the full-period contribution from the Arrow system acquired in November 2013. While Arrow's crude gathering volumes were down slightly due to delayed producer drilling and completion activities, natural gas and produced water volumes increased due to system expansions completed in the fourth and first quarters. Crude loading rates at the COLT Hub also contributed to the improved results, with rail loading volumes increasing 15% to an average 98,100 barrels per day ("Bbls/d") during the first quarter 2014.
Corporate expenses include operating and administrative expenses not allocated to the operating segments above. Corporate expenses during the first quarter 2014 totaled $24.1 million, compared with $36.7 million in the fourth quarter 2013. The decrease was primarily attributable to lower significant transaction-related expenses, which totaled $5.8 million in the first quarter 2014 compared with $15.9 million in the fourth quarter 2013. Additionally, non-cash compensation expense was $4.7 million higher in the fourth quarter 2013 due to accelerated vesting as a result of the closing of the Crestwood-Inergy merger in October 2013. Excluding significant transaction-related costs and non-cash equity compensation expense, corporate expenses totaled $13.7 million, $2.2 million higher than the fourth quarter, primarily due to administrative support costs related to the Arrow acquisition and increased personnel and professional services expense. Project Update and 2014 Business Outlook Marcellus Shale In the rich gas southwest portion of the Marcellus Shale, we have completed several expansions on our Antero gathering systems that have increased total gathering capacity to 700 MMcf/d, compared to actual first quarter average volumes of 531 MMcf/d and late April 2014 daily spot volumes of approximately 625 MMcf/d. Additional expansion projects on the Marcellus systems this year are expected to increase total gathering capacity to approximately 875 MMcf/d and gathering volumes to 750 MMcf/d at year-end 2014. We expect to complete an additional 120 MMcf/d compressor station in Antero's western development area during the second quarter of 2014. We estimate that Antero had 32 drilled but uncompleted wells on pads connected to our gathering system at March 31, 2014. Many of these wells were completed in April, leading to the recent increase in volumes. Antero continues to operate approximately 15 drilling rigs in northern West Virginia.
Keywords for this news article include: Energy, Oil & Gas, Natural Gas, Crestwood Midstream Partners LP.
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