CRESTWOOD EQUITY PARTNERS LP Our Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and the accompanying footnotes.
This report, including information included or incorporated by reference herein, contains forward-looking statements concerning the financial condition, results of operations, plans, objectives, future performance and business of our company and its subsidiaries. These forward-looking statements include:
• statements that are not historical in nature, including, but not limited
to: (i) our belief that anticipated cash from operations, cash
distributions from entities that we control, and borrowing capacity under
our credit facility will be sufficient to meet our anticipated liquidity
needs for the foreseeable future; (ii) our belief that we do not have
material potential liability in connection with legal proceedings thatwould have a significant financial impact on our consolidated financial
condition, results of operations or cash flows; and (iii) our belief that
our assets will continue to benefit from the development of unconventional
shale plays as significant supply basins; and
• statements preceded by, followed by or that contain forward-looking
terminology including the words "believe," "expect," "may," "will,"
"should," "could," "anticipate," "estimate," "intend" or the negation
thereof, or similar expressions.
Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:
• our ability to successfully implement our business plan for our assets and
operations;
• governmental legislation and regulations;
• industry factors that influence the supply of and demand for crude oil,
natural gas and NGLs;
• industry factors that influence the demand for services in the markets
(particularly unconventional shale plays) in which we provide services;
• weather conditions;
• the availability of crude oil, natural gas and NGLs, and the price of
those commodities, to consumers relative to the price of alternative and
competing fuels;
• economic conditions;
• costs or difficulties related to the integration of acquisitions and
success of our joint ventures' operations;
• environmental claims;
• operating hazards and other risks incidental to the provision of midstream
services, including gathering, compressing, treating, processing,
fractionating, transporting and storing energy products (i.e., crude oil,
NGLs and natural gas) and related products (i.e., produced water), as well
as terrorism, cyber-attacks or domestic vandalism;
• interest rates;
• the price and availability of debt and equity financing, including our
ability to raise capital through alternatives like joint ventures; and
• the ability to sell or monetize assets, to reduce indebtedness, to
repurchase our equity securities, to make strategic investments, or for
other general partnership purposes.
We have described under Part I, Item 1A. Risk Factors, additional factors that
could cause actual results to be materially different from those described in
the forward-looking statements. Other factors that we have not identified in
this report could also have this effect.
Overview
We own and operate crude oil, natural gas and NGL midstream assets and operations. Headquartered inHouston, Texas , we are a fully-integrated midstream solution provider that specializes in connecting shale-based energy supplies to key demand markets. We conduct our operations through our wholly-owned subsidiary,Crestwood Midstream , a limited partnership that owns and operates gathering, processing, storage and transportation assets in the most prolific shale plays acrossthe United States . 51
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Our Company
We provide broad-ranging services to customers across the crude oil, natural gas and NGL sector of the energy value chain. Our midstream infrastructure is geographically located in or near significant supply basins, especially developed and emerging liquids-rich and crude oil shale plays, acrossthe United States . Our operating assets, including those of our joint ventures, primarily include: • natural gas facilities with approximately 3.3 Bcf/d of gathering capacity,
1.0 Bcf/d of processing capacity, 75.8 Bcf of certificated working storage
capacity and 1.8 Bcf/d of operational transportation capacity;
• crude oil facilities with approximately 150,000 Bbls/d of gathering
capacity, 1.9 MMBbls of storage capacity, 20,000 Bbls/d of transportation
capacity and 180,000 Bbls/d of rail loading capacity;
• NGL facilities with approximately 2.6 MMBbls of storage capacity, as well
as our portfolio of transportation assets (consisting of truck and rail
terminals, truck/trailer units and rail cars) capable of transporting
approximately 1.3 MMBbls/d of NGLs; and
• produced water gathering facilities with approximately 110,000 Bbls/d of
gathering capacity.
Our financial statements reflect three operating and reporting segments: (i)
gathering and processing, which includes our natural gas, crude oil and produced
water G&P operations; (ii) storage and transportation, which includes our crude
oil and natural gas storage and transportation operations; and (iii) marketing,
supply and logistics, which includes our NGL, crude oil and natural gas
marketing and logistics operations and NGL storage and rail loading facilities
and fleet. For a description of the assets included in our operating and
reporting segments, see Part I, Item 1. Business.
Gathering and Processing
Our G&P operations and investment are located inNorth Dakota ,Wyoming ,West Virginia ,Texas ,New Mexico andArkansas and provide gathering, compression, treating and processing services to producers in multiple unconventional resource plays, some of which are the largest shale plays inthe United States in which we have established footprints in the "core of the core" areas. We believe that our strategy of focusing on prolific, low-cost shale plays positions us well to (i) generate greater returns in varying commodity price environments, (ii) capture greater upside economics when development activity occurs, and (iii) in general, better manage through commodity price cycles and production changes associated therewith.
Our S&T operations and investments consist of our crude oil terminals in the Bakken andPowder River Basin and our natural gas storage and transportation assets in the Northeast andTexas Gulf Coast .
Marketing, Supply and Logistics
Our MS&L segment consists of our NGL, crude oil and natural gas marketing and logistics operations, including our rail-to-truck terminals located inFlorida ,New Jersey ,New York ,Rhode Island ,North Carolina andConnecticut . We utilize our trucking and rail fleet, processing and storage facilities, and contracted storage and pipeline capacity on a portfolio basis to provide integrated supply and logistics solutions to producers, refiners and other customers in over 30 states fromNew Mexico toMaine .
Outlook and Trends
Our business objective is to create long-term value for our unitholders. We
expect to create long-term value by consistently generating stable operating
margins and improved cash flows from operations by prudently financing our
investments, maximizing throughput on our assets, and effectively controlling
our operating and administrative costs. Our business strategy depends, in part,
on our ability to provide increased services to our customers at competitive
fees, including opportunities to expand our services resulting from expansions,
organic growth projects and acquisitions that can be financed appropriately.
We have taken a number of strategic steps to better position the Company as a
stronger, better capitalized company that can over time accretively grow cash
flows and sustainably resume growing our distributions. Those strategic steps
included (i) simplifying our corporate structure to eliminate our incentive
distribution rights (IDRs) and create better alignment of interests with our
unitholders; (ii) divesting assets to reduce long-term debt to ensure long-term
balance sheet strength; (iii) realigning
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our operating structure to significantly reduce operating and administrative expenses; (iv) forming strategic joint ventures to enhance our competitive position around certain operating assets; and (v) focusing our acquisitions and growth capital expenditures on our highest return organic projects around our core growth assets in theBakken Shale ,Powder River Basin and Delaware Permian. We will remain focused on efficiently allocating capital expenditures by investing in accretive, organic growth projects, maintaining low-cost operations (through increased operating efficiencies and cost discipline) and maintaining our balance sheet strength through continued financial discipline. We expect to focus on expansion and greenfield opportunities to provide midstream services for crude oil, natural gas, NGLs and produced water, including gathering, storage and terminalling, condensate stabilization, truck loading/unloading options and connections to third party pipelines and produced water gathering, disposal and recycling in theBakken Shale ,Powder River Basin andDelaware Permian in the near term, while closely monitoring longer-term expansion opportunities in the northeast Marcellus. As a result, the Company is well positioned to execute its business plan and capitalize on the current market conditions around many of our core assets. The Company continues to be positioned to generate consistent results in a low commodity price environment without sacrificing revenue upside as market conditions improve. For example, many of our more mature G&P assets are supported by long-term, core acreage dedications in shale plays that are economic to varying degrees based upon natural gas, NGL and crude oil prices, the availability of infrastructure to flow production to market, and the operational and financial condition of our diverse customer base. In addition, a substantial portion of our midstream investments are based on fixed-fee or minimum volume commitment agreements that ensure a minimum level of cash flow regardless of actual commodity prices or volumetric throughput. Over time, we expect cash flows from our more mature, non-core, assets to stabilize and potentially increase with the current commodity price environment, while the growth from our core assets in theBakken Shale ,Powder River Basin ,Delaware Permian and northeast Marcellus drive significant growth to the Company.
Business Highlights
Below is a discussion of events that highlight our core business and financing activities. Through continued execution of our plan, we have materially improved the strategic and financial position of the Company and expect to capitalize on increasing opportunities in an improving but competitive market environment, which will position us to achieve our chief business objective to create long-term value for our unitholders. Bakken. In the Bakken, we are expanding and upgrading our Arrow system water handling facilities and increasing natural gas capacity on the system, which should allow for substantial growth in volumetric throughput across all of our crude oil, produced water and natural gas gathering systems to better serve our customer demands. During 2019, we placed in service a 120 MMcf/d cryogenic plant that will fulfill 100% of the processing requirements for producers on the Arrow system. This expansion increases our gas processing capacity to 150 MMcf/d. We believe the expansion of our gas processing capacity on the Arrow system will, among other things, spur greater development activity around the Arrow system, allow us to provide greater flow assurance to our producer customers and reduce flaring of natural gas, and reduce the downstream constraints currently experienced by producers on theFort Berthold Indian Reservation . In response to the water releases on our Arrow system, we removed approximately 30 miles of water gathering pipeline from service and incurred a$4.3 million impairment charge during the three months endedDecember 31, 2019 related to idling those facilities. In addition, we are currently in the process of replacing approximately 12 miles of water gathering pipeline with pipeline composed of higher capacity material that is more suitable for the environment and climate conditions in the Bakken, which will increase water gathering capacity on the Arrow system and further our commitment to sustainability and environmental stewardship in the areas where we live and operate.Powder River Basin . OnApril 9, 2019 , Crestwood Niobrara acquired Williams' 50% equity interest in Jackalope for approximately$484.6 million . The acquisition of the remaining 50% equity interest in Jackalope was financed through a combination of borrowings under theCrestwood Midstream credit facility and the issuance of$235 million in new Series A-3 preferred units toJackalope Holdings . For a further discussion of the acquisition of the remaining 50% equity interest in Jackalope, see Part IV, Item 15. Exhibits, Financial Statement Schedules, Notes 3 and 12. In thePowder River Basin , we are expanding the Jackalope gathering system and Bucking Horse processing plant to increase processing capacity to 345 MMcf/d in early 2020. The Phase 2 Jackalope expansion also includes gathering, compression and a second processing plant which will add an additional 200 MMcf/d of processing capacity to the Jackalope system. In addition, we are also commissioning two compressor stations with 18,750 horsepower. These expansions will allow us to attract incremental third party volumes in the growingPowder River Basin . Delaware Permian. In the Delaware Permian, we have identified gathering and processing and transportation opportunities in and around our existing assets, including our Crestwood Permian joint venture. In the Delaware Permian, we are expanding 53
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our systems to include a produced water gathering and salt water disposal system. We entered into a produced water gathering and disposal agreement with a large integrated producer in the Delaware Permian inCulberson andReeves Counties,Texas for initial system capacity of 60 MBbls/d with long-term plans to expand system capacity up to 120 MBbls/d based on producer activity. We have begun construction on the required infrastructure and expect to handle first volumes in the early second quarter 2020.Crestwood Permian Basin , a 50% equity investment of Crestwood Permian, owns and operates the Nautilus system in SWEPI's operated position in theDelaware Permian.Crestwood Permian Basin provides gathering, dehydration and treating services to SWEPI under a long-term fixed-fee gathering agreement. SWEPI has dedicated toCrestwood Permian Basin the gathering rights for SWEPI's gas production across a large acreage position inLoving ,Reeves ,Ward andCulberson Counties,Texas . The Nautilus gathering system will be expanded over time, as production increases, to include additional gathering lines and centralized compression facilities which will ultimately provide over 250 MMcf/d of gas gathering capacity.
Regulatory Matters
Many aspects of the energy midstream sector, such as crude-by-rail activities and pipeline integrity, have experienced increased regulatory oversight over the past few years. However, under the currentPresidential Administration , we anticipate changes in policy that could lessen the degree of regulatory scrutiny we face in the near term. OnMarch 15, 2018 , theFERC issued a Revised Policy Statement on Treatment of Income Taxes (Revised Policy Statement) stating that it will no longer permit master limited partnerships to recover an income tax allowance in their cost-of-service rates. Also onMarch 15, 2018 , theFERC issued a Notice of Proposed Rulemaking (NOPR) proposing rules for implementation of the Revised Policy Statement and the corporate income tax rate reduction with respect to pipeline rates. OnJuly 18, 2018 , theFERC issued an order denying requests for rehearing and clarification of its Revised Policy Statement because it is a non-binding policy and parties will have the opportunity to address the policy as applied in future cases. In the rehearing order, theFERC clarified that a pipeline organized as a master limited partnership will not be precluded in a future proceeding from providing support that it is entitled to an income tax allowance and demonstrating that its recovery of an income tax allowance does not result in a double-recovery of investors' income tax costs. Also onJuly 18, 2018 , theFERC issued a final rule adopting procedures that are generally the same as proposed in the NOPR with a few clarifications and modifications. With limited exceptions, the final rule requires allFERC -regulated natural gas pipelines that have cost-based rates for service to make a one-time Form No. 501-G filing providing certain financial information and to select one of four options: (i) file a limited NGA Section 4 filing reducing its rates only as required related to the Tax Cuts and Jobs Act and the Revised Policy Statement; (ii) commit to filing a general NGA Section 4 rate case in the near future; (iii) file a statement explaining why an adjustment to rates is not needed; or (iv) take no other action.Stagecoach Gas submitted its Form No. 501-G onDecember 6, 2018 . InDecember 2019 ,Stagecoach Gas reached a final settlement related to its NGA Section 5 rate proceeding, the results of which is not anticipated to have a material impact on our current or future results of operations. OnMarch 15, 2018 , theFERC also issued a Notice of Inquiry (NOI) requesting comments about whether, and if so how, theFERC should address changes relating to accumulated deferred income taxes and bonus depreciation. Comments on the NOI were filed byMay 21, 2018 , and any actions theFERC may take following receipt of these responses to the NOI are unknown at this time, but could impact the rates midstream companies are permitted to charge its customers for transportation services in the future. In addition, theFERC issued a NOI onApril 19, 2018 (Certificate Policy Statement NOI), thereby initiating a review of its policies on certification of natural gas pipelines, including an examination of its long-standing Policy Statement on Certification of New Interstate Natural Gas Pipeline Facilities, issued in 1999, that is used to determine whether to grant certificates for new pipeline projects. Comments on the Certificate Policy Statement NOI were due onJuly 25, 2018 , and we are unable to predict what, if any, changes may be proposed as a result of the NOI that will affect our natural gas pipeline business or when such proposals, if any, might become effective. We do not expect that any change in this policy would affect us in a materially different manner than any other similarly sized natural gas pipeline company operating inthe United States . Although we do not have any consolidated operations that haveFERC -regulated pipelines, two of our equity investments (Stagecoach Gas andTres Holdings ) haveFERC -regulated operations. These equity investments receive revenues from contracts that primarily have market-based rates or negotiated rates that are not tied to cost-of-service rates, and we currently do not expect rates subject to negotiated rates or market-based rates to be affected by the Revised Policy Statement, the Final Rule or any final regulations that may result from the NOI. As a result, we currently do not believe that the Revised Policy Statement, the Final Rule or NOI will have a material impact on our results of operations, but we continue to monitor developments at theFERC related to these matters to assess whether the final regulations could have an impact on the future results of our equity investments. 54
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Critical Accounting Estimates and Policies
Our significant accounting policies are described in Part IV, Item 15. Exhibits, Financial Statement Schedules, Note 2.
The preparation of financial statements in conformity with GAAP requires management to select appropriate accounting estimates and to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and the disclosures of contingent assets and liabilities. We consider our critical accounting estimates to be those that require difficult, complex, or subjective judgment necessary in accounting for inherently uncertain matters and those that could significantly influence our financial results based on changes in those judgments. Changes in facts and circumstances may result in revised estimates and actual results may differ materially from those estimates. We have discussed the development and selection of the following critical accounting estimates and related disclosures with the Audit Committee of the board of directors of our general partner.
Our goodwill represents the excess of the amount we paid for a business over the fair value of the net identifiable assets acquired. We evaluate goodwill for impairment annually onDecember 31 , and whenever events indicate that it is more likely than not that the fair value of a reporting unit could be less than its carrying amount. This evaluation requires us to compare the fair value of each of our reporting units to its carrying value (including goodwill). If the fair value exceeds the carrying amount, goodwill of the reporting unit is not considered impaired. We estimate the fair value of our reporting units based on a number of factors, including discount rates, projected cash flows and the potential value we would receive if we sold the reporting unit. We also compare the total fair value of our reporting units to our overall enterprise value, which considers the market value for our common and preferred units. Estimating projected cash flows requires us to make certain assumptions as it relates to the future operating performance of each of our reporting units (which includes assumptions, among others, about estimating future operating margins and related future growth in those margins, contracting efforts and the cost and timing of facility expansions) and assumptions related to our customers, such as their future capital and operating plans and their financial condition. When considering operating performance, various factors are considered such as current and changing economic conditions and the commodity price environment, among others. Due to the imprecise nature of these projections and assumptions, actual results can and often do, differ from our estimates. If the assumptions embodied in the projections prove inaccurate, we could incur a future impairment charge. In addition, the use of the income approach to determine the fair value of our reporting units (see further discussion of the income approach below) could result in a different fair value if we had utilized a market approach, or a combination thereof. Upon acquisition, we are required to record the assets, liabilities and goodwill of a reporting unit at its fair value on the date of acquisition. As a result, any level of decrease in the forecasted cash flows of these businesses or increases in the discount rates utilized to value those businesses from their respective acquisition dates would likely result in the fair value of the reporting unit falling below the carrying value of the reporting unit, and could result in an assessment of whether that reporting unit's goodwill is impaired. Current commodity prices are significantly lower compared to commodity prices during 2014, and that decrease has adversely impacted forecasted cash flows, discount rates and stock/unit prices for most companies in the midstream industry, including us. In light of these circumstances, we evaluated the carrying value of our reporting units and determined it was more likely than not that the goodwill associated with several of our reporting units was impaired in 2017, and as a result, we recorded goodwill impairments on those reporting units during 2017. We did not record any goodwill impairments during 2019 and 2018. 55
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The following table summarizes the goodwill impairments of our reporting units
during 2017 and our goodwill at
Goodwill
Impairments
during the Year
Ended December Goodwill at
31, 2017 December 31, 2019
G&P
Arrow $ - $ 45.9
Powder River Basin - 80.3
MS&L
NGL Marketing and Logistics - 92.7
West Coast 2.4 -
Storage and Terminals 36.4 -
Total $ 38.8 $ 218.9
We continue to monitor our remaining goodwill, and we could experience
additional impairments of the remaining goodwill in the future if we experience
a significant sustained decrease in the market value of our common or preferred
units or if we receive additional negative information about market conditions
or the intent of our customers on our remaining operations with goodwill, which
could negatively impact the forecasted cash flows or discount rates utilized to
determine the fair value of those businesses. A 5% decrease in the forecasted
cash flows or a 1% increase in the discount rates utilized to determine the fair
value of our Arrow and NGL Marketing and Logistics reporting units would not
have resulted in a goodwill impairment of either of those reporting units.
Because our Powder River Basin reporting unit was acquired as a part of the
Jackalope acquisition and its assets and liabilities were recorded at fair value
in 2019, its fair value approximates its book value at December 31, 2019 . For a
further discussion of the Jackalope acquisition, see Part IV, Item 15. Exhibits,
Financial Statement Schedules, Note 3.
Long-Lived Assets
Our long-lived assets consist of property, plant and equipment and intangible assets that have been obtained through multiple business combinations and property, plant and equipment that has been constructed in recent years. The initial recording of a majority of these long-lived assets was at fair value, which is estimated by management primarily utilizing market-related information, asset specific information and other projections on the performance of the assets acquired (including an analysis of discounted cash flows which can involve assumptions on discount rates and projected cash flows of the assets acquired). Management reviews this information to determine its reasonableness in comparison to the assumptions utilized in determining the purchase price of the assets in addition to other market-based information that was received through the purchase process and other sources. These projections also include projections on potential and contractual obligations assumed in these acquisitions. Due to the imprecise nature of the projections and assumptions utilized in determining fair value, actual results can, and often do, differ from our estimates. We utilize assumptions related to the useful lives and related salvage value of our property, plant and equipment in order to determine depreciation and amortization expense each period. Due to the imprecise nature of the projections and assumptions utilized in determining useful lives, actual results can, and often do, differ from our estimates. To estimate the useful life of our finite lived intangible assets we utilize assumptions of the period over which the assets are expected to contribute directly or indirectly to our future cash flows. Generally this requires us to amortize our intangible assets based on the expected future cash flows (to the extent they are readily determinable) or on a straight-line basis (if they are not readily determinable) of the acquired contracts or customer relationships. Due to the imprecise nature of the projections and assumptions utilized in determining future cash flows, actual results can, and often do, differ from our estimates. We continually monitor our business, the business environment and the performance of our operations to determine if an event has occurred that indicates that a long-lived asset may be impaired. If an event occurs, which is a determination that involves judgment, we may be required to utilize cash flow projections to assess our ability to recover the carrying value of our assets based on our long-lived assets' ability to generate future cash flows on an undiscounted basis. This differs from our evaluation of goodwill, for which we perform an assessment of the recoverability of goodwill utilizing fair value estimates that primarily utilize discounted cash flows in the estimation process (as described above), and accordingly a reporting unit that has experienced a goodwill impairment may not experience a similar impairment of the underlying long-lived assets included in that reporting unit. During 2019, we recorded$4.3 million of impairments of our property, plant and equipment related to 56
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certain of our water gathering facilities in our Arrow operations, which is further discussed in Part IV, Item 15. Exhibits, Financial Statement Schedules, Note 15. During 2018, we did not record any material impairments of our intangible assets and property, plant and equipment. During 2017, we incurred$82.2 million of impairments of our property, plant and equipment and intangible assets related to ourMS&L West Coast operations, which resulted from decreasing forecasted cash flows to be generated by those operations. During 2018, we sold ourMS&L West Coast operations for net proceeds of approximately$70.5 million , and recorded a$26.9 million of loss on long-lived assets associated with the sale. See Part IV, Item 15. Exhibits, Financial Statement Schedules, Note 3 for a further discussion of the sale of these assets. Projected cash flows of our long-lived assets are generally based on current and anticipated future market conditions, which require significant judgment to make projections and assumptions about pricing, demand, competition, operating costs, construction costs, legal and regulatory issues and other factors that may extend many years into the future and are often outside of our control. If those cash flow projections indicate that the long-lived asset's carrying value is not recoverable, we record an impairment charge for the excess of the carrying value of the asset over its fair value. The estimate of fair value considers a number of factors, including the potential value we would receive if we sold the asset, discount rates and projected cash flows. Due to the imprecise nature of these projections and assumptions, actual results can and often do, differ from our estimates. We continue to monitor our long-lived assets, and we could experience additional impairments of the remaining carrying value of these long-lived assets in the future if we receive additional negative information about market conditions or the intent of our long-lived assets' customers, which could negatively impact the forecasted cash flows or discount rates utilized to determine the fair value of those investments. Equity Method Investments We evaluate our equity method investments for impairment when events or circumstances indicate that the carrying value of the equity method investment may be impaired and that impairment is other than temporary. If an event occurs, we evaluate the recoverability of our carrying value based on the fair value of the investment. If an impairment is indicated, we adjust the carrying values of the asset downward, if necessary, to their estimated fair values. We estimate the fair value of our equity method investments based on a number of factors, including discount rates, projected cash flows, enterprise value and the potential value we would receive if we sold the equity method investment. Estimating projected cash flows requires us to make certain assumptions as it relates to the future operating performance of each of our equity method investments (which includes assumptions, among others, about estimating future operating margins and related future growth in those margins, contracting efforts and the cost and timing of facility expansions) and assumptions related to our equity method investments' customers, such as their future capital and operating plans and their financial condition. When considering operating performance, various factors are considered such as current and changing economic conditions and the commodity price environment, among others. Due to the imprecise nature of these projections and assumptions, actual results can and often do, differ from our estimates. We continue to monitor our equity method investments, and we could experience additional impairments of the remaining carrying value of these investments in the future if we receive additional negative information about market conditions or the intent of our equity method investments' customers, which could negatively impact the forecasted cash flows or discount rates utilized to determine the fair value of those investments. Our equity method investments have long-lived assets, intangible assets, goodwill and equity method investments in their underlying financial statements, and our equity investees apply similar accounting policies and have similar critical accounting estimates in assessing those assets for impairment as we do. OurStagecoach Gas equity method investment has approximately$656.5 million of goodwill in its financial statements, which it assesses for impairment annually onDecember 31 or whenever events indicate that it is more likely than not that its fair value could be less than its carrying amount. This assessment requiresStagecoach Gas to make certain assumptions about its future operating performance (which includes assumptions, among others, about estimating future operating margins and related future growth in those margins, contracting efforts and the cost and timing of facility expansions, in addition to current and changing economic conditions, the commodity price environment and discount rates). A significant decrease in the assumptions utilized byStagecoach Gas could result in impairments being recorded byStagecoach Gas , which could result in a significant reduction in our equity earnings fromStagecoach Gas . Our investment inStagecoach Gas was approximately$814.4 million atDecember 31, 2019 . 57
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Variable Interest Entities
We evaluate all legal entities in which we hold an ownership interest to determine if the entity is a variable interest entity (VIE). Our interests in a VIE are referred to as variable interests. Variable interests can be contractual, ownership or other interests in an entity that change with changes in the fair value of the VIE's assets. When we conclude that we hold an interest in a VIE we must determine if we are the entity's primary beneficiary. A primary beneficiary is deemed to have a controlling financial interest in a VIE. We consolidate any VIE when we determine that we are the primary beneficiary. We must disclose the nature of any interests in a VIE that is not consolidated. Significant judgment is exercised in determining that a legal entity is a VIE and in evaluating our interest in a VIE. We use primarily a qualitative analysis to determine if an entity is a VIE. We evaluate the entity's need for continuing financial support; the equity holder's lack of a controlling financial interest; and/or if an equity holder's voting interests are disproportionate to its obligation to absorb expected losses or receive residual returns. We evaluate our interests in a VIE to determine whether we are the primary beneficiary. We use primarily a qualitative analysis to determine if we are deemed to have a controlling financial interest in the VIE, either on a standalone basis or as part of a related party group. We continually monitor our interests in legal entities for changes in the design or activities of an entity and changes in our interests, including our status as the primary beneficiary to determine if the changes require us to revise our previous conclusions. As a result of our VIE analysis, we concluded that our investment in Crestwood Permian is a VIE that we are not the primary beneficiary of, and as a result, we account for our investment in Crestwood Permian as an equity method investment. Our other equity investments are not considered to be VIEs. In addition, Crestwood Niobrara and Jackalope (after the acquisition of the remaining 50% equity interest) are consolidated subsidiaries that are not considered to be VIEs. However, any future changes in the design or nature of the activities of these entities may require us to reconsider our conclusions associated with these entities. Such reconsideration would require the identification of the variable interests in the entity and a determination of which party is the entity's primary beneficiary. If an equity investment were considered a VIE and we were determined to be the primary beneficiary, the change could cause us to consolidate the entity. The consolidation of an entity that is currently accounted for under the equity method could have a significant impact on our financial statements. See Part IV, Item 15. Exhibits, Financial Statement Schedules, Note 6 for more information on our equity method investments.
Revenue Recognition
We recognize revenues for services and products under our revenue contracts as our obligations to perform services or deliver/sell products under the contracts are satisfied. A contract's transaction price is allocated to each performance obligation in the contract and recognized as revenue when, or as, the performance obligation is satisfied. Under certain contracts, we may be entitled to receive payments in advance of satisfying our performance obligations under the contract. We recognize a liability for these payments in excess of revenue recognized and present it as deferred revenue or contract liabilities on our consolidated balance sheets. AtDecember 31, 2019 and 2018, we had deferred revenues of approximately$153.5 million and$77.4 million . Our deferred revenues primarily relate to:
• Capital Reimbursements. Certain contracts in our G&P segment require that
our customers reimburse us for capital expenditures related to the
construction of long-lived assets utilized to provide services to them
under the revenue contracts. Because we consider these amounts as
consideration from customers associated with ongoing services to beprovided to customers, we defer these upfront payments in deferred revenue
and recognize the amounts in revenue over the life of the associated
revenue contract as the performance obligations are satisfied under the
contract.
• Contracts with Increasing (Decreasing) Rates per Unit. Certain contracts
in our G&P, S&T and MS&L segments have fixed rates per volume that
increase and/or decrease over the life of the contract once certain time
periods or thresholds are met. We record revenues on these contractsratably per unit over the life of the contract based on the remaining
performance obligations to be performed, which can result in the deferral
of revenue for the difference between the consideration received and the
ratable revenue recognized.
The evaluation of when performance obligations have been satisfied and the
transaction price that is allocated to our performance obligations requires
significant judgments and assumptions, including our evaluation of the timing of
when control of the underlying good or service has transferred to our customers,
estimating the revenue to be generated per unit over the life of the contracts,
and determining the relative standalone selling price of goods and services
provided to customers under contracts with multiple performance obligations.
Actual results can significantly vary from those judgments and assumptions.
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How We Evaluate Our Operations
We evaluate our overall business performance based primarily on EBITDA and Adjusted EBITDA. We do not utilize depreciation, amortization and accretion expense in our key measures because we focus our performance management on cash flow generation and our assets have long useful lives.
EBITDA and Adjusted EBITDA - We believe that EBITDA and Adjusted EBITDA are
widely accepted financial indicators of a company's operational performance and
its ability to incur and service debt, fund capital expenditures and make
distributions. We believe that EBITDA and Adjusted EBITDA are useful to our
investors because it allows them to use the same performance measure analyzed
internally by our management to evaluate the performance of our businesses and
investments without regard to the manner in which they are financed or our
capital structure. EBITDA is defined as income before income taxes, plus
debt-related costs (interest and debt expense, net, and gain (loss) on
modification/extinguishment of debt) and depreciation, amortization and
accretion expense. Adjusted EBITDA considers the adjusted earnings impact of our
unconsolidated affiliates by adjusting our equity earnings or losses from our
unconsolidated affiliates to reflect our proportionate share (based on the
distribution percentage) of their EBITDA, excluding impairments. Adjusted EBITDA
also considers the impact of certain significant items, such as unit-based
compensation charges, gains or losses on long-lived assets, gains on
acquisitions, impairments of long-lived assets and goodwill, third party costs
incurred related to potential and completed acquisitions, certain environmental
remediation costs, the change in fair value of commodity inventory-related
derivative contracts, costs associated with the historical realignment of our
operations and related cost savings initiatives, and other transactions
identified in a specific reporting period. The change in fair value of commodity
inventory-related derivative contracts is considered in determining Adjusted
EBITDA given that the timing of recognizing gains and losses on these derivative
contracts differs from the recognition of revenue for the related underlying
sale of inventory to which these derivatives relate. Changes in the fair value
of other derivative contracts is not considered in determining Adjusted EBITDA
given the relatively short-term nature of those derivative contracts. EBITDA and
Adjusted EBITDA are not measures calculated in accordance with GAAP, as they do
not include deductions for items such as depreciation, amortization and
accretion, interest and income taxes, which are necessary to maintain our
business. EBITDA and Adjusted EBITDA should not be considered as alternatives to
net income, operating cash flow or any other measure of financial performance
presented in accordance with GAAP. EBITDA and Adjusted EBITDA calculations may
vary among entities, so our computation may not be comparable to measures used
by other companies.
See our reconciliation of net income to EBITDA and Adjusted EBITDA in Results of
Operations below.
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Results of Operations
The following table summarizes our results of operations (in millions).
Crestwood Equity Crestwood Midstream
Year Ended December 31, Year Ended December 31,
2019 2018 2017 2019 2018
Revenues $ 3,181.9 $ 3,654.1 $ 3,880.9 $ 3,181.9 $ 3,654.1
Costs of product/services sold 2,544.9 3,129.4 3,374.7 2,544.9 3,129.4
Operations and maintenance expense 138.8 125.8 136.0 138.8 125.8
General and administrative expense 103.4 88.1 96.5 98.2 83.5
Depreciation, amortization and
accretion 195.8 168.7 191.7 209.9 181.4
Loss on long-lived assets, net 6.2 28.6 65.6 6.2 28.6
Gain on acquisition (209.4 ) - - (209.4 ) -
Goodwill impairment - - 38.8 - -
Loss on contingent consideration - - 57.0 - -
Operating income (loss) 402.2 113.5 (79.4 ) 393.3 105.4
Earnings from unconsolidated
affiliates, net 32.8 53.3 47.8 32.8 53.3
Interest and debt expense, net (115.4 ) (99.2 ) (99.4 ) (115.4 ) (99.2 )
Loss on modification/extinguishment
of debt - (0.9 ) (37.7 ) - (0.9 )
Other income, net 0.6 0.4 1.3 0.2 -
(Provision) benefit for income taxes (0.3 ) (0.1 ) 0.8
(0.3 ) -
Net income (loss) 319.9 67.0 (166.6 ) 310.6 58.6
Add:
Interest and debt expense, net 115.4 99.2 99.4 115.4 99.2 Loss on modification/extinguishment of debt - 0.9 37.7 - 0.9 Provision (benefit) for income taxes 0.3 0.1 (0.8 ) 0.3 - Depreciation, amortization and accretion 195.8 168.7 191.7 209.9 181.4 EBITDA 631.4 335.9 161.4 636.2 340.1 Unit-based compensation charges 47.0 28.5 25.5 47.0 28.5 Loss on long-lived assets, net 6.2 28.6 65.6 6.2 28.6 Gain on acquisition (209.4 ) - - (209.4 ) - Goodwill impairment - - 38.8 - - Loss on contingent consideration - - 57.0 - - Earnings from unconsolidated affiliates, net (32.8 ) (53.3 ) (47.8 ) (32.8 ) (53.3 ) Adjusted EBITDA from unconsolidated affiliates, net 74.9 95.6 80.3 74.9 95.6 Change in fair value of commodity inventory-related derivative contracts 2.7 (18.3 ) 2.2 2.7 (18.3 ) Significant transaction and environmental related costs and other items 6.5 3.1 12.4 6.5 3.1 Adjusted EBITDA$ 526.5 $ 420.1 $ 395.4 $ 531.3 $ 424.3 60
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Crestwood Equity Crestwood Midstream
Year Ended December 31, Year Ended December 31,
2019 2018 2017 2019 2018
Net cash provided by operating
activities $ 420.4 $ 253.6 $ 255.9 $ 424.1 $ 260.5
Net changes in operating assets and
liabilities (47.8 ) 46.9 (0.3 ) (46.5 ) 44.9
Amortization of debt-related
deferred costs (6.2 ) (6.8 ) (7.2 ) (6.2 ) (6.8 )
Interest and debt expense, net 115.4 99.2 99.4 115.4 99.2
Unit-based compensation charges (47.0 ) (28.5 ) (25.5 )
(47.0 ) (28.5 )
Loss on long-lived assets, net (6.2 ) (28.6 ) (65.6 ) (6.2 ) (28.6 )
Gain on acquisition 209.4 - - 209.4 -
Goodwill impairment - - (38.8 ) - -
Loss on contingent consideration - - (57.0 ) - -
Earnings from unconsolidated
affiliates, net, adjusted for cash
distributions received (6.9 ) (0.5 ) 0.1 (6.9 ) (0.5 )
Deferred income taxes - 0.7 2.1 (0.2 ) 0.1
Provision (benefit) for income taxes 0.3 0.1 (0.8 ) 0.3 -
Other non-cash income - (0.2 ) (0.9 ) - (0.2 )
EBITDA 631.4 335.9 161.4 636.2 340.1
Unit-based compensation charges 47.0 28.5 25.5 47.0 28.5
Loss on long-lived assets, net 6.2 28.6 65.6 6.2 28.6
Gain on acquisition (209.4 ) - - (209.4 ) -
Goodwill impairment - - 38.8 - -
Loss on contingent consideration - - 57.0 - -
Earnings from unconsolidated
affiliates, net (32.8 ) (53.3 ) (47.8 ) (32.8 ) (53.3 )
Adjusted EBITDA from unconsolidated
affiliates, net 74.9 95.6 80.3 74.9 95.6
Change in fair value of commodity
inventory-related derivative
contracts 2.7 (18.3 ) 2.2 2.7 (18.3 )
Significant transaction and
environmental related costs and
other items 6.5 3.1 12.4 6.5 3.1
Adjusted EBITDA $ 526.5 $ 420.1 $ 395.4 $ 531.3 $ 424.3
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Segment Results
The following tables summarize the EBITDA of our segments (in millions):
Gathering and Storage and Marketing, Supply
Crestwood Equity and Crestwood Midstream Processing Transportation and Logistics
Revenues $ 835.8 $ 20.4 $ 2,325.7
Intersegment revenues 175.0 14.2 (189.2 )
Costs of product/services sold 526.1 0.2 2,018.6
Operations and maintenance expense 98.7 4.0 36.1
Loss on long-lived assets, net (6.2 ) - (0.2 )
Gain on acquisition 209.4 - -
Earnings (loss) from unconsolidated
affiliates, net (2.1 ) 34.9 -
EBITDA for the year ended December 31,
2019 $ 587.1 $ 65.3 $ 81.6
Revenues $ 946.7 $ 17.1 $ 2,690.3
Intersegment revenues 192.4 10.5 (202.9 )
Costs of product/services sold 767.0 0.2 2,362.2
Operations and maintenance expense 71.7 3.3 50.8
Loss on long-lived assets, net (3.0 ) - (27.3 )
Earnings from unconsolidated affiliates,
net 22.5 30.8 -
EBITDA for the year ended December 31,
2018 $ 319.9 $ 54.9 $ 47.1
Crestwood Equity
Revenues $ 1,688.2 $ 37.2 $ 2,155.5
Intersegment revenues 134.5 6.7 (141.2 )
Costs of product/services sold 1,480.8 0.3 1,893.6
Operations and maintenance expense 68.4 4.2 63.4
Loss on long-lived assets, net (14.4 ) - (48.2 )
Goodwill impairments - - (38.8 )
Loss on contingent consideration - (57.0 ) -
Earnings from unconsolidated affiliates,
net 18.9 28.9 -
Other income, net 0.8 - -
EBITDA for the year ended December 31,
2017 $ 278.8 $ 11.3 $ (29.7 )
Segment Results
Below is a discussion of the factors that impacted EBITDA by segment for the
years ended
Gathering and Processing
Year Ended
EBITDA for our gathering and processing segment increased by approximately$267.2 million during the year endedDecember 31, 2019 compared to 2018. The comparability of our gathering and processing segment's EBITDA during the yearDecember 31, 2019 compared to 2018 was impacted by a$209.4 million gain related to our acquisition of the remaining 50% equity interest in Jackalope discussed below. Our gathering and processing segment's costs of products/services sold decreased by$240.9 million during the year endedDecember 31, 2019 compared to 2018, while our revenues decreased by approximately$128.3 million during 2019 compared to 2018. These variances were driven primarily by our Arrow operations which experienced lower average prices on its agreements under which it purchases and sells crude oil as a result of the decrease in crude oil prices during the year endedDecember 31, 2019 compared to 2018. Our costs of product/services sold decreased faster than our revenues year over year due to the offsetting impact of increasing volumes, which during the year endedDecember 31, 2019 , natural gas, crude oil and water volumes gathered by our Arrow system increased by 33%, 32%, and 48%, respectively, compared to 2018. InAugust 2019 , Arrow placed into service a 120 MMcf/d cryogenic plant at its natural gas processing facility which increased its 62
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processing capacity to 150 MMcf/d and, as a result, Arrow experienced a 124%
increase in its processing volumes during the year ended
Partially offsetting the decrease in our gathering and processing segment's revenues related to our Arrow operations were operating revenues of approximately$70.1 million recognized during the year endedDecember 31, 2019 related to our Jackalope operations. InApril 2019 , we acquired Williams' 50% equity interest in Jackalope and, as a result, we began consolidating Jackalope's operating results from the date of acquisition. Our gathering and processing segment's operations and maintenance expenses increased by approximately$27 million during the year endedDecember 31, 2019 compared to 2018, primarily due to the acquisition of the remaining 50% equity interest in Jackalope. Also contributing to the increase in our gathering processing segment's operations and maintenance expenses were environmental costs related to water releases on our Arrow system, which are further described in Part IV, Item 15. Exhibits, Financial Statement Schedules, Note 15. Our gathering and processing segment's EBITDA for the year endedDecember 31, 2019 was also impacted by a loss on long-lived assets of approximately$6.2 million , primarily related to the retirement of certain water gathering lines on our Arrow system and the retirement and disposal of certain of our Granite Wash gathering and processing assets. Our gathering and processing segment's EBITDA was also impacted by a decrease in earnings from unconsolidated affiliates of approximately$24.6 million during the year endedDecember 31, 2019 compared to 2018. Equity earnings from our Jackalope equity investment decreased by approximately$14.4 million during the year endedDecember 31, 2019 compared to 2018, due to the acquisition of the remaining 50% equity interest in Jackalope from Williams inApril 2019 . Our gathering and processing segment also experienced lower equity earnings from our Crestwood Permian equity investment of approximately$10.2 million during the year endedDecember 31, 2019 compared to 2018, primarily due to lower average margin generated on certain of its gathering contracts resulting from higher transportation and fractionation fees during 2019 compared to 2018, and lower gathering and processing volumes due to producer well shut-ins that resulted from declining natural gas prices. Also impacting the decrease in equity earnings from Crestwood Permian was our proportionate share of a$2.3 million loss recorded by Crestwood Permian on the retirement of certain of its gathering and processing assets in 2019 and an increase in its depreciation and accretion expense due to placing the Orla processing plant into service in mid-2018.
Year Ended
EBITDA for our gathering and processing segment increased by approximately$41.1 million for the year endedDecember 31, 2018 compared to 2017. Our gathering and processing segment's costs of product/services sold decreased by approximately$713.8 million during the year endedDecember 31, 2018 compared to 2017, while our revenues only decreased by$683.6 million year over year. Our gathering and processing segment's revenues and product costs were impacted by the modified retrospective adoption of ASU 2014-09, Revenue from Contracts with Customers, during the year endedDecember 31, 2018 , which decreased its revenues and product costs by approximately$1,015.4 million and$1,026.8 million , respectively. Also impacting our gathering and processing segment's EBITDA during the year endedDecember 31, 2018 compared to 2017, were lower revenues and product costs of approximately$30.2 million and$21.8 million , respectively, as a result of the deconsolidation ofCrestwood New Mexico Pipeline LLC (Crestwood New Mexico) in 2017. The remaining increase in our gathering and processing segment's revenues and costs of product/services sold of approximately$362.0 million and$334.8 million , respectively, during the year endedDecember 31, 2018 compared to 2017, was primarily driven by our Arrow operations. Natural gas volumes and water volumes gathered by our Arrow system increased by 40% and 30%, respectively, during the year endedDecember 31, 2018 compared to 2017. These favorable variances were driven by increased producer activity and expanded capacity on our Arrow system. In addition, the Bear Den processing plant was placed into service in late 2017, which increased natural gas volumes gathered and processed by the Arrow system. Arrow also experienced higher average prices on its agreements under which it purchases and sells crude oil as a result of the increase in crude oil prices in 2018 compared to 2017. Our gathering and processing segment's operations and maintenance expenses increased by approximately$3.3 million during the year endedDecember 31, 2018 compared to 2017, primarily due to the increase in volumes related to our Arrow operations described above. Our gathering and processing segment's EBITDA for the year endedDecember 31, 2018 includes a loss on long-lived assets of approximately$3.0 million , primarily related to the retirement and/or disposal of certain of our Arrow and Granite Wash 63
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gathering and processing assets.
Our gathering and processing segment's EBITDA was favorably impacted by a net increase in earnings from unconsolidated affiliates of approximately$3.6 million during the year endedDecember 31, 2018 compared to 2017. Equity earnings from our Jackalope equity investment increased by approximately$7.6 million primarily due to a 73% and 57% increase in its gathering and processing volumes during 2018 compared to 2017 resulting from increased producer activity on its system. Our equity earnings from our Crestwood Permian equity investment decreased by approximately$4.0 million during 2018 compared to 2017. Pursuant to the Crestwood Permian limited liability company agreement, we were allocated 100% of the equity earnings from Crestwood New Mexico throughJune 30, 2018 . Subsequent toJune 30, 2018 , our equity earnings from Crestwood New Mexico were allocated based on our ownership percentage in Crestwood Permian, which is currently 50%.
Year Ended
EBITDA for our storage and transportation segment increased by approximately$10.4 million during the year endedDecember 31, 2019 compared to 2018. Revenues from our COLT Hub operations increased by approximately$7 million during the year endedDecember 31, 2019 compared to 2018, primarily due to a 19% increase in COLT's rail loading volumes due to higher demand for rail loading services resulting from higher basis differentials between the Bakken andU.S. western and eastern markets. The increase in demand also resulted in an increase in our storage and transportations segment's operations and maintenance expense of$0.7 million during the year endedDecember 31, 2019 compared to 2018. Our storage and transportation segment's costs of product/services sold related to our COLT Hub operations were flat during the year endedDecember 31, 2019 compared to 2018. Our storage and transportation segment's EBITDA was also impacted by a net increase of approximately$4.1 million in earnings from unconsolidated affiliates (primarily from ourStagecoach Gas equity investment) during the year endedDecember 31, 2019 compared to 2018. Earnings from ourStagecoach Gas equity investment increased by approximately$4.9 million during the year endedDecember 31, 2019 compared to 2018 due to our share of its equity earnings increasing from 40% to 50% effectiveJuly 1, 2019 . Aside from this change in earnings percentage, our earnings from ourStagecoach Gas equity investment were relatively flat. This was due to demand for the natural gas storage and transportation services provided byStagecoach Gas being relatively flat given that the Northeast market for natural gas in whichStagecoach Gas operates is experiencing declining natural gas prices and basis differentials, offset by an increase in producer activity and lack of new infrastructure being built, which is keeping the demand forStagecoach Gas's storage and transportation services relatively stable. In addition, inDecember 2019 ,Stagecoach Gas reached a final settlement related to its NGA Section 5 rate proceeding, the results of which is not anticipated to have a material impact on our current or future results of operations. We believe theStagecoach Gas assets are well-positioned over the long-term to benefit from increased producer activity and access to key markets in the Northeast despite the current stable environment. During the year endedDecember 31, 2019 , earnings from ourTres Holdings equity investment increased by approximately$0.9 million compared to 2018. During 2018, we recorded our proportionate share of a$0.8 million loss recorded byTres Holdings related to the disposition of certain of its assets. Earnings from our PRBIC equity investment decreased by approximately$1.7 million during the year endedDecember 31, 2019 compared to 2018, due to the expiration of a rail loading contract with one of its customers in mid-2018.
Year Ended
EBITDA for our storage and transportation segment increased by approximately$43.6 million during the year endedDecember 31, 2018 compared to 2017. The comparability of our storage and transportation segment's EBITDA year over year was impacted by a$57 million loss on contingent consideration recorded during 2017 related to ourStagecoach Gas joint venture as further described below. During 2017 and early 2018, several of COLT's firm rail loading agreements expired that provided COLT with take-or-pay revenues at rates that were higher than spot market rates. As a result, COLT's revenues decreased by approximately$16.3 million during the year endedDecember 31, 2018 compared to 2017 despite its rail loading volumes increasing by 28% year-over-year. The increase in volumes was due to higher demand for rail loading services resulting from higher Bakken crude oil production and higher basis differentials between Bakken and theU.S. western and eastern markets. 64
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Our storage and transportation segment's EBITDA was also impacted by a net increase in earnings from unconsolidated affiliates during the year endedDecember 31, 2018 compared to 2017. Earnings from ourStagecoach Gas equity investment increased by approximately$4.0 million during 2018 compared to 2017, primarily due to our share ofStagecoach Gas' equity earnings increasing from 35% to 40% effectiveJuly 1, 2018 . Partially offsetting this increase were lower equity earnings from ourTres Holdings equity investment of approximately$2.2 million due to higher repair and maintenance costs at the joint venture.
Marketing, Supply and Logistics
Year Ended
EBITDA for our marketing, supply and logistics segment increased by approximately$34.5 million during the year endedDecember 31, 2019 compared to 2018. The comparability of our marketing, supply and logistics segment's EBITDA was impacted by a$26.9 million loss on sale of long-lived assets recorded during the year endedDecember 31, 2018 related to the sale of ourWest Coast assets. The sale of ourWest Coast assets in late 2018 resulted in lower revenues of approximately$196.2 million and lower costs of product/services sold of approximately$184.5 million compared to 2018. In addition, the sale of ourWest Coast assets and a related$2.9 million property tax refund received during 2019 were the primary drivers for lower operations and maintenance expenses of approximately$14.7 million during the year endedDecember 31, 2019 compared to 2018. Our NGL marketing and logistics operations (other thanWest Coast ) experienced a reduction in its revenues and costs of products/services sold of approximately$439.1 million and$439.7 million , respectively, during the year endedDecember 31, 2019 compared to 2018, primarily as a result of decreasing NGL prices. NGL prices decreased due to a combination of high NGL production and constrained NGL infrastructure. During both 2019 and 2018, our NGL marketing and logistics operations were able to take advantage of market disruptions, low NGL prices and unusual weather and crop drying conditions to utilize its trucking, rail and storage assets to economically source seasonal inventory and create strong margin for delivery into forward markets. Included in our costs of product/services sold was a gain of$19.5 million and$29.6 million during the years endedDecember 31, 2019 and 2018, respectively, related to the change in fair value of our derivative instruments which were also driven by the decreasing NGL prices described above. Our crude and natural gas marketing operations experienced an increase in its revenues and costs of products/services sold of approximately$284.4 million and$280.6 million , respectively, during the year endedDecember 31, 2019 compared to 2018. These increases were driven by higher crude marketing volumes, as our crude marketing operations were able to utilize excess storage capacity and transportation assets to capitalize on opportunities created by widening WTI to Bakken basis differentials.
Year Ended
EBITDA for our marketing, supply and logistics segment increased by approximately$76.8 million during the year endedDecember 31, 2018 compared to 2017. The comparability of our marketing, supply and logistics segment's results was impacted by the sale of certain of our assets during 2018 and 2017 and approximately$121.0 million of goodwill, intangible assets and property, plant and equipment impairments recorded during 2017, all of which are further described below. During the year endedDecember 31, 2018 , we recorded a$26.9 million loss on long-lived assets related to the sale of ourWest Coast facilities inOctober 2018 , which also resulted in lower revenues and costs of product/services sold of approximately$81.4 million and$71.4 million in 2018 compared to 2017. During the year endedDecember 31, 2017 , we recorded a$33.6 million gain related to the sale of US Salt, which also resulted in lower revenues and costs of product/services sold of approximately$59.8 million and$34.9 million during the year endedDecember 31, 2018 compared to 2017. EBITDA for our marketing, supply and logistics segment (excluding the impacts from the sale of ourWest Coast and US Salt assets described above) was also impacted by an increase in its revenues and costs of product/services sold of approximately$614.3 million and$574.9 million during the year endedDecember 31, 2018 compared to 2017. Our crude and natural gas marketing operations experienced an increase in its revenues and product costs of approximately$564.5 million and$557.6 million . These increases were driven by higher crude marketing volumes due to increased marketing activity surrounding our crude-related operations. The remaining$32.6 million increase in our revenues (net of costs of product/services sold) during the year endedDecember 31, 2018 compared to 2017 was driven by our NGL marketing and logistics operations. Included in our costs of product/ 65
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services sold was a gain of$29.6 million and a loss of$31.2 million during the years endedDecember 31, 2018 and 2017, respectively. Of the$29.6 million gain in 2018, approximately$18.3 million related to the change in fair value of commodity inventory-related derivative contracts that had not yet settled in cash atDecember 31, 2018 . The remaining increase in our revenues and costs of product/services sold of our NGL marketing and logistics operations was primarily the result of our ability to capture more marketing opportunities to purchase and sell NGLs given the unusually cold weather during 2018. In addition, we experienced increased demand for trucking, rail, storage and terminal services as a result of an expanded US NGL supply base and market dislocations caused by increased NGL supplies from various high growth regions and regional pipeline outages. During the year endedDecember 31, 2018 , our marketing, supply and logistics segment's operations and maintenance expenses decreased by approximately$12.6 million compared to 2017, primarily due to the sale of ourWest Coast and US Salt assets described above, in addition to efforts to realign certain of its operations. Other EBITDA Results General and Administrative Expenses. During the year endedDecember 31, 2019 , our general and administrative expenses increased compared to 2018, while we experienced a decrease in these expenses during 2018 compared to 2017. Our unit-based compensation charges increased by approximately$18.5 million during the year endedDecember 31, 2019 compared to 2018 and increased by approximately$3.0 million during 2018 compared to 2017. These increases were driven by the acceleration of certain awards due to the Corporate restructuring that occurred in early 2019 and higher average awards outstanding under our long-term incentive plans during both years. In addition, during the year endedDecember 31, 2019 , we incurred higher transaction-related costs primarily associated with our Jackalope acquisition, while during the year endedDecember 31, 2017 , we incurred higher costs associated with the realignment of our Marketing, Supply and Logistics operations.
Items not affecting EBITDA include the following:
Depreciation, Amortization and Accretion Expense. During the year endedDecember 31, 2019 , our depreciation, amortization and accretion expense increased compared to 2018, while we experienced a decrease in our depreciation, amortization and accretion expense during 2018 compared to 2017. These changes were primarily due to the Jackalope Acquisition inApril 2019 , partially offset by the sale of ourWest Coast assets and US Salt operations during 2018 and 2017, respectively, and the deconsolidation of our Crestwood New Mexico operations in 2017. For a further discussion of these transactions, see Part IV, Item 15. Exhibits, Financial Statement Schedules, Notes 3 and 6. Interest and Debt Expense, Net. During the year endedDecember 31, 2019 , interest and debt expense, net increased by approximately$16.2 million compared to 2018, primarily due to the issuance of$600 million unsecured senior notes due 2027 inApril 2019 and higher average outstanding balances on our credit facility that were primarily utilized to fund growth capital expenditures during 2019. During the year endedDecember 31, 2018 , interest and debt expense, net was relatively flat compared to 2017. The following table provides a summary of our interest and debt expense, net (in millions): Year Ended December 31, 2019 2018 2017 Credit facilities$ 26.4 $ 24.6 $ 18.6 Senior notes 96.6 72.5 76.4 Other debt-related costs 6.8 7.1 7.3
Gross interest and debt expense 129.8 104.2 102.3 Less: capitalized interest
14.4 5.0 2.9
Interest and debt expense, net
Loss on Modification/Extinguishment of Debt. During the year endedDecember 31, 2018 , we recognized a loss on modification of debt of approximately$0.9 million in conjunction with amending and restatingCrestwood Midstream's senior secured revolving credit facility. During the year endedDecember 31, 2017 , we recognized a loss on extinguishment of debt of approximately$37.7 million in conjunction with the tender of the principal amounts previously outstanding underCrestwood Midstream's senior notes due in 2020 and 2022.
Liquidity and Sources of Capital
Crestwood Equity is a holding company that derives all of its operating cash flow from its operating subsidiaries. Our principal sources of liquidity include cash generated by operating activities from our subsidiaries, distributions from our joint ventures, borrowings under theCrestwood Midstream credit facility, and sales of equity and debt securities. Our equity investments use cash from their respective operations to fund their operating activities, maintenance and growth capital expenditures, and service their outstanding indebtedness. We believe our liquidity sources and operating cash flows are sufficient to address our future operating, debt service and capital requirements. We make cash quarterly distributions to our common unitholders within approximately 45 days after the end of each fiscal quarter in an aggregate amount equal to our available cash for such quarter. InFebruary 2020 , we paid a quarterly distribution of$0.625 per limited partner unit, an increase of approximately 4% compared to the quarterly distributions declared throughout 2019, and we expect to maintain this quarterly distribution through 2020, subject to the board of directors' quarterly approval. We also pay cash quarterly distributions of approximately$15 million to our preferred unitholders and quarterly cash distributions of approximately$9 million to Crestwood Niobrara's non-controlling partner. We believe our operating cash flows will well exceed cash distributions to our partners, preferred unitholders and non-controlling partner at current levels, and as a result, we will have substantial operating cash flows as a source of liquidity for our growth capital expenditures. As ofDecember 31, 2019 , we had$661.3 million of available capacity under our revolving credit facility considering the most restrictive debt covenants in the credit agreement. As ofDecember 31, 2019 , we were in compliance with all of our debt covenants applicable to the credit facility and our senior notes. See Part IV, Item 15. Exhibits, Financial Statement Schedules, Note 9 for a more detailed description of the covenants related to our credit facility and senior notes.
Cash Flows
The following table provides a summary ofCrestwood Equity's cash flows by category (in millions): Year Ended December 31, 2019 2018 2017 Net cash provided by operating activities$ 420.4 $ 253.6 $ 255.9 Net cash provided by (used in) investing activities (943.7 ) (241.2 )
38.7
Net cash provided by (used in) financing activities 531.8 3.5
(294.9 ) Operating Activities Our operating cash flows increased by approximately$166.8 million during the year endedDecember 31, 2019 compared to 2018. The increase was primarily driven by lower costs of product/services sold of approximately$584.5 million primarily from our marketing, supply and logistics segment's and gathering and processing segment's operations, partially offset by lower revenues of approximately$472.2 million primarily from these segments as discussed above in Results of Operations above. In addition, we had a net cash inflow from working capital requirements of approximately$47.8 million . Our operating cash flows decreased by$2.3 million during the year endedDecember 31, 2018 compared to 2017. We experienced higher revenues and costs primarily from our gathering and processing segment's Arrow operations of$362.0 million and$334.8 million , respectively, and higher revenues (net of costs of product/services sold) from our marketing, supply and logistics segment's NGL marketing and logistics operations of approximately$32.6 million . Offsetting these higher revenues and costs was a$16.3 million decrease in operating revenues from our COLT Hub operations and a net cash outflow from working capital requirements of approximately$47.2 million .
Investing Activities
Capital Expenditures. The energy midstream business is capital intensive, requiring significant investments for the acquisition or development of new facilities. We categorize our capital expenditures as either:
• growth capital expenditures, which are made to construct additional assets,
expand and upgrade existing systems, or acquire additional assets; or
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• maintenance capital expenditures, which are made to replace partially or
fully depreciated assets, to maintain the existing operating capacity of
our assets, extend their useful lives or comply with regulatory
requirements.
During 2020, we anticipate growth capital expenditures of approximately $150
million to $200 million , which includes contributions to our equity investments
related to their capital projects. In addition, we expect to spend between
approximately $20 million to $25 million on maintenance capital expenditures and
approximately $30 million to $40 million on capital expenditures that are
directly reimbursable by our customers. We anticipate that our growth and
reimbursable capital expenditures in 2020 will increase the services we can
provide to our customers and the operating efficiencies of our systems. We
expect to finance our capital expenditures with a combination of cash generated
by our operating subsidiaries, distributions received from our equity
investments and borrowings under our credit facility.
We have identified growth capital project opportunities for our reporting
segments. Additional commitments or expenditures will be made at our discretion,
and any discontinuation of the construction of these projects will likely result
in less future cash flows and earnings. The following table summarizes our
capital expenditures for the year ended December 31, 2019 (in millions):
Growth capital $ 384.2
Maintenance capital 19.1
Other(1) 52.2
Purchases of property, plant and equipment
(1) Represents purchases of property, plant and equipment that are reimbursable
by third parties.
Investments in Unconsolidated Affiliates. During the year ended December 31,
2019 , we contributed approximately $28.3 million to our Crestwood Permian equity
investment primarily to fund its expansion projects and contributed $8.6 million
to our Stagecoach Gas , Tres Holdings and PRBIC equity investments for other
operating purposes. We also contributed $24.4 million to our Jackalope equity
investment prior to our acquisition of the remaining 50% equity interest in
Jackalope from Williams, and this contribution was primarily utilized by us
after Jackalope's consolidation to fund its growth capital expenditures. During
2018 and 2017, we contributed approximately $64.4 million and $58.0 million to
our equity investments to fund their expansion projects and other operating
activities.
Acquisition and Divestitures. Below is a summary of the acquisition and
divestitures which impacted our investing activities during the years ended
• In
in Jackalope for approximately $462.1 million , net of cash acquired of
approximately $22.5 million ;
• In
net proceeds of approximately
• In
affiliate of
$223.6 million . Financing Activities
Significant items impacting our financing activities during the years ended
Equity Transactions
• In
preferred units to
from Williams. For a further discussion of this transaction, See Part IV,
Item 15. Exhibits, Financial Statement Schedules, Note 12;
• In
Series A preferred units issued to a subsidiary of General Electric
an aggregate purchase price of
new Series A-2 preferred units to
discussion of this transaction, see Part IV, Item 15. Exhibits, Financial
Statement Schedules, Note 12. We began making distributions to Jackalope
Holdings on its Series A-2 preferred units in April 2018 .
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• During the years endedDecember 31, 2019 , 2018 and 2017, CrestwoodNiobrara paid cash distributions of approximately$25.0 million ,$9.9 million and$15.2 million to its non-controlling partner; • During the years endedDecember 31, 2019 , 2018 and 2017, we made cash distributions of approximately$60.1 million ,$60.1 million and$15
million to our preferred unitholders. Prior to
quarterly distributions to our preferred unitholders by issuing additional
preferred units;
• During the year ended
increased by approximately
$3.2 million during 2018 compared to 2017. These increases were due to an increase in our common units outstanding; • During the year endedDecember 31, 2017 , we received net proceeds of approximately$15.2 million from the issuance of CEQP common units; and
• During the year ended
compensation vesting increased by approximately
2018 and by approximately $1.9 million during 2018 compared to 2017,
primarily due to higher vesting of unit-based compensation awards.
Debt Transactions
• During the year ended
resulted in net proceeds of approximately $568.8 million compared to net
proceeds of approximately $253.4 million in 2018 and net repayments of
approximately
unsecured senior notes due 2027 and during 2017, we issued
senior unsecured notes due in 2025. During 2017, we redeemed all amounts
previously outstanding under
2020 and 2022. For a further discussion of these and other debt-related
transactions, see Part IV, Item 15. Exhibits, Financial Statement
Schedules, Note 9.
Contractual Obligations
We are party to various contractual obligations. A portion of these obligations
are reflected in our consolidated financial statements, such as long-term debt,
leases and other accrued liabilities, while other obligations, such as capital
and other commitments and contractual interest amounts are not reflected on our
consolidated balance sheets. The following table and discussion summarizes our
contractual cash obligations as of December 31, 2019 (in millions):
Less than 1
Year 1-3 Years 3-5 Years Thereafter Total
Long-term debt:
Principal $ 0.2 $ 0.4 $ 1,257.0 $ 1,100.0 $ 2,357.6
Interest(1) 128.6 257.1 158.2 85.9 629.8
Standby letters of
credit 31.7 - - - 31.7
Future minimum payments
under leases(2) 24.5 32.9 12.8 7.5 77.7
Asset retirement
obligations 1.5 - - 33.3 34.8
Fixed price commodity
purchase commitments(3) 712.3 80.1 - - 792.4
Purchase commitments and
other contractual
obligations(4) 133.3 - - - 133.3
Total contractual
obligations $ 1,032.1 $ 370.5 $ 1,428.0 $ 1,226.7 $ 4,057.3 (1)
Alternate Base rate or Eurodollar rate plus an applicable spread. These rates
plus their applicable spreads were between 3.96% and 6.00% at
2019. These rates have been applied for each period presented in the table.
(2) Includes our operating and finance leases. See Part IV, Item 15. Exhibits,
Financial Statement Schedules, Note 15 for a further discussion of these
obligations.
(3) Fixed price purchase commitments are volumetrically offset by third party
fixed price sale contracts.
(4) Primarily related to growth and maintenance contractual purchase obligations
in our gathering and processing segment and environmental obligations
included in other current liabilities on our balance sheet. Other contractual
purchase obligations are defined as legally enforceable agreements to
purchase goods or services that have fixed or minimum quantities and fixed or
minimum variable price provisions, and that detail approximate timing of the
underlying obligations.
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Off-Balance Sheet Arrangements
As of
Our equity interest in Crestwood Permian is considered to be a variable interest entity. We are not the primary beneficiary of Crestwood Permian and as a result, we account for our investment in Crestwood Permian as an equity method investment. For a further discussion of our investment in Crestwood Permian, see Part IV, Item 15. Exhibits, Financial Statement Schedules, Note 6.
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