? Less complicated corporate structures should propel industry growth in 2018.
? Joint ventures helped Crestwood reduce debt.
? Private equity is not as big a threat to Marcellus shale operations.
Robert Phillips is chairman, president and CEO of Crestwood Energy Partners LP, which focuses on gas gathering and processing, transportation, storage, and marketing. Source: Crestwood Equity Partners LP |
Crestwood Equity Partners LP Chairman, President and CEO Robert Phillips sat down with S&P Global Market Intelligence on the sidelines of a Pittsburgh conference held by Hart Energy to talk about U.S. energy sector trends and the importance of partnering on larger projects. The following is an edited transcript of the conversation.
S&P Global Market Intelligence: What do you see as the main opportunities for Crestwood and its peers in 2018?
Robert Phillips:
2018 is the first year where I think the industry is going to grow again. The Marcellus … is an area that's absolutely going to grow. There is currently about 17.5 Bcf/d of natural gas pipeline projects that have either been underwritten, approved or are moving forward with the construction phase. …
Generally the industry will do a better job of executing on the projects. I think we've learned a lot from pipeline projects like [Dakota Access], what's been happening to Energy Transfer Partners LP on a lot of their pipelines.
In the past two years, Crestwood has partnered with Northeast utility Consolidated Edison Inc. and private equity company First Reserve Corp in the Permian. These are two of the hottest areas in the country for oil and gas development. What advantage did these partnerships provide in those big resource plays?
The partnerships were part of my plan to reposition the company. Crestwood … needed to reduce debt. The ConEd sale was primarily the divestiture to take those proceeds and pay down our debt. It was a$1 billion sale, I subsequently sold another asset for $225 million. With excess cash flow I paid down about $1.5 billion over the past two years which is cutting my debt by 40%, so it improved the financial capability of the company to move forward. …
The other advantage of having ConEd as a partner is … ConEd is a fabulous partner from a regulatory standpoint. They've got a great lens into the way regulators in Pennsylvania and New York think and in New Jersey they have extensive outreach programs. They do regulatory compliance for a living. … They're surprisingly commercial and surprisingly entrepreneurial.
And what have you learned from working with these partners on your midstream projects?
They are of course an additional source of capital. Crestwood is still a small company, we're under $5 billion in enterprise value, and while we have dramatically improved our financial condition and our ability to spend capital and grow, we still need partners because we work on big boy deals, whether it's in the Delaware and Permian or the Bakken or Marcellus.
Even though you have partnered with private equity in the past, do you also see it as a threat to Crestwood's ability to grow?
Not so much in the Marcellus or the Bakken, but in the Delaware [and] Permian, yes. … We're at a point now where a lot of the private equity firms are two to three years into their investment, and that's typically the hold period for a typical private equity firm, so we're starting to see a lot of those assets come to market. I think what is frustrating for us as well as everyone else is private equity tends to drive valuations up and returns down, so I'm anxious to kind of get through this cycle.
I think we're not seeing as much new private equity capital come in as the guys that invested several years ago being ready to sell. Once we kind of go through that cycle, and it'll take a couple of years, I think valuations will be back to normal again and those private equity guys will go somewhere else like the Powder River basin, for example.
Crestwood underwent a simplification in 2015 when it merged its general and limited partners and eliminated their incentive distribution rights agreement. Now that we’re seeing more master limited partnerships making similar modifications, do you think it's necessary for that trend to continue?
I think it's absolutely critical that the industry continue to simplify. Investors lost a lot of money in the [2013, 2014 and 2015] period. [They] are demanding less burdens by the general partner, higher quality of earnings, less leverage and higher coverage. … Not growth at any cost. Real growth that improves DCF per unit as opposed to growth that just drives EBITDA higher. …
We are starting to see retail investors come back. They believe that oil prices are stable, that the industry's more disciplined now.
Does Crestwood also plan to self-fund its own equity needs as part of that capital discipline strategy?
We are. The non-core business we sold in December 2017 for $225 million in cash was the exact amount of money I needed to essentially pay for my 2018 capital program without having to issue equity, so a perfect fit for us.

