Crestwood Midstream Partners LP (NYSE: CMLP) has reported its unaudited financial results for the three months ended September 30, 2013. This news release includes the separately reported, standalone operations of Crestwood Midstream Partners LP (Legacy Crestwood) and Inergy Midstream LP (Legacy Inergy) through September 30, 2013. As previously announced, Legacy Crestwood merged into Legacy Inergy on October 7, 2013, with Legacy Inergy surviving the merger and immediately thereafter changing its name to Crestwood Midstream Partners LP. The operations of the combined partnerships will be reported as a single consolidated entity beginning with the fourth quarter 2013, and its fiscal year-end will be December 31.

“We had an extremely active quarter,” stated Robert G. Phillips, chairman, president and chief executive officer of Crestwood’s general partner. “The Legacy Crestwood and Legacy Inergy businesses both delivered solid operating performances and made acquisitions that expanded our growing footprint in rich gas and crude oil unconventional shale plays to include the Niobrara shale play. We also continued our merger integration efforts, opportunistically raised capital, and laid the foundation for our recently-announced Arrow acquisition, which will further strengthen our position in the Bakken shale play. This recent quarter demonstrates the real benefits of our merger going forward: a diversified midstream asset portfolio which includes a strong, rich gas focused gathering and processing business, a stable storage and transportation business and a high-growth NGL and crude services business.”

“We are excited by Crestwood’s pipeline of expansion projects and growth opportunities heading into 2014. In the fourth quarter alone, we anticipate significant capital expenditures as we ramp up spending to facilitate increased production forecasts, particularly in our Marcellus rich-gas gathering footprint, and accelerate our earnings growth. We believe these projects provide a clear path for growing Crestwood’s distribution, and we look forward to discussing our growth plans and strategies in more detail when we provide 2014 guidance in early December,” said Phillips.

Third Quarter 2013 Highlights

Legacy Crestwood Highlights

  • Reported total natural gas gathering volumes of 1.0 billion cubic feet per day (Bcf/d), compared to 0.9 Bcf/d in the third quarter 2012, including a 47% increase in Marcellus shale volumes offset by 4% lower gathering volumes in the Barnett shale. Rich gas gathering volumes were 65% of total gathering volumes in the quarter which reflects Crestwood’s continued focus on rich natural gas and crude oil unconventional development plays; and
  • Acquired a 50% interest in the Jackalope Gathering System located in the rich natural gas and crude oil development areas of the Powder River Basin Niobrara shale play in Wyoming, as described in more detail below.

“We continue to execute on several important expansion projects which are expected to drive future growth. In the Marcellus Shale, growth capital expenditures were approximately $135 million for the first nine months of 2013. These projects expand our gathering systems and compression stations for our producer, Antero Resources, which completed its initial public offering in October 2013. In the third quarter, we completed the Zinnia 20-inch pipeline, a major backbone system for Antero’s active Greenbrier area in northern West Virginia,” commented Phillips.

“In addition, we placed into service the first phase of the West Union compressor station, located in Antero’s western area in August 2013, and expect to complete this month the second phase, which will add a combined 100 million cubic feet per day (MMcf/d) of compression capacity. We also expect to complete in the fourth quarter the Morgan and Perkins compressor stations, which will add a combined 150 MMcf/d of compression capacity on the Zinnia pipeline. With these projects, Antero’s Marcellus production continues to ramp up and we expect gathering volumes to exceed 500 MMcf/d by year-end 2013, an increase of more than 25% over the beginning of 2013,” said Phillips.

Legacy Inergy Highlights

  • Reported Adjusted EBITDA of $45.9 million, 47% higher than the third quarter 2012; adjusted distributable cash flow of $38.7 million, 32% higher than the third quarter 2012;
  • Reported a net loss of $1.0 million for the third quarter 2013, compared to net income of $13.7 million for the same period last year;
  • Results include approximately $9.0 million of significant transaction-related expenses primarily attributable to the merger and legal settlements;
  • Reported gross profit of $41.5 million in the Storage and Transportation segment, up 30% from the same period in 2012. This segment contribution continues to show the value of these strategically located storage and pipeline assets relative to record natural gas supply growth from the Marcellus shale play and increasing natural gas demand growth in the northeastern United States;
  • Reported gross profit of $9.9 million in the Crude Services segment, which includes the COLT Hub located in the Bakken Shale acquired in December 2012. Customers continue to utilize contracted capacity at the COLT Hub under long term take or pay contracts; and
  • Acquired an approximate 50% interest in a new crude oil rail terminal located in the Powder River Basin Niobrara shale play near the Jackalope Gathering System, as described in more detail below.

“In the Northeast, our natural gas storage and transportation hub continues to benefit from favorable market fundamentals driving strong customer demand given our premier market position in close proximity to Marcellus supply and critical Northeast demand markets. For example, in October we successfully sold on a firm transportation basis the 100 MMcf/d of MARC I pipeline capacity that was turned back in December 2012 due to project delays. Additionally, over the past several months we have successfully renewed firm contracts for the vast majority of our storage capacity up for renewal in 2014 at rates consistent with existing customer rates,” stated Phillips.

“In the Bakken, demand for crude oil outlets such as our COLT Hub remains strong on a long-term take or pay basis. We have entered into contracts supporting our ongoing expansion of the COLT Hub, which will increase our crude oil loading capacity to 160,000 barrels per day (Bpd) and crude oil storage to 1.2 million barrels and which we expect to complete in the first quarter 2014. We remain confident that the COLT Hub and, upon completion of the Arrow acquisition this month, the Arrow gathering system will establish a significant growth platform for delivering constraint-driven midstream services to Bakken shale producers,” reported Phillips.

Recent Acquisition Activity

  • On July 19, 2013, Legacy Crestwood acquired a 50% interest in the Jackalope Gas Gathering System, located in Converse County, Wyoming for approximately $107.5 million. The Jackalope System, serving the emerging Powder River Basin Niobrara Shale play, provides gathering and processing services under a 20-year cost of service fee-based agreement with Chesapeake Energy Corp. (Chesapeake) and RKI Exploration & Production LLC (RKI). The Jackalope System includes approximately 100 miles of low pressure gathering pipelines supported by a 311,000-acre area of dedication. The system currently gathers approximately 60 MMcf/d of natural gas and is being expanded to include a 120 MMcf/d processing plant to be placed in service in the second half of 2014;
  • On September 4, 2013, Legacy Inergy acquired an approximate 50% interest in the Powder River Basin Industrial Complex, a crude oil rail terminal facility located near Douglas, Wyo. for $22.5 million. The terminal, which was placed into service in August 2013, is anchored by a contract with Chesapeake. The terminal is currently being expanded to provide for unit-train service with a capacity to load 20,000 Bpd, which is expected to be completed in the first quarter 2014; and
  • On October 10, 2013, Crestwood announced a $750 million acquisition of Arrow Midstream Holdings LLC, which is expected to close on November 8, 2013. The Arrow systems, located in the core of the Bakken shale, include more than 460 miles of crude oil, natural gas and water gathering pipelines currently handling approximately 50,000 Bpd of crude oil, 15 MMcfd of natural gas and 8,500 Bpd of produced water. The Arrow systems are anchored by long-term, fee-based contracts and more than 150,000 acres of dedication from producers including WPX Energy, QEP Resources and Kodiak Oil & Gas Corp., among others. The Arrow gathering system is located approximately 60 miles southeast of and is connected to the COLT Hub through third party pipelines. The transaction was financed with an appropriate mix of long-term debt and equity capital as described below, and Crestwood will issue approximately 8.8 million of additional common units to the Arrow sellers upon closing of the transaction, representing approximately $200 million of the $750 million acquisition price.