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Crestwood Equity Partners LP (CEQP) Q4 2019 Earnings Call Transcript

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Crestwood Equity Partners LP (NYSE: CEQP)
Q4 2019 Earnings Call
Feb 18, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Crestwood Equity Partners Fourth Quarter 2019 Financial and Operating Results, and 2020 Outlook Call. [Operator Instructions]

Before we begin, listeners may [Phonetic] are reminded that the Company may make certain forward-looking statements as defined in the Securities and Exchange Act of 1934 that are based on assumptions and information currently available at the time of today's call. Please refer to the Company's latest filings with the SEC for a list of risk factors that may cause actual results to differ. Additionally, certain non-GAAP financial measures such as EBITDA, adjusted EBITDA and distributable cash flow will be discussed. Reconciliations to the most comparable GAAP measures are included in the news release issued this morning.

Joining us with the prepared remarks are Chairman, President and Chief Executive Officer, Bob Phillips; and Executive Vice President and Chief Financial Officer, Robert Halpin. Additional members of the senior management team will be available for the question-and-answer session with Crestwood's current analysts following the prepared remarks. Today's call is being recorded.

At this time, I'll turn the call over to Bob Phillips.

Robert G. Phillips -- Chairman, President and Chief Executive Officer

Thanks, Melissa, and good morning to all of you. Thank you for joining us so early today. We're pleased to announce our 2019 results and give you a really good look at our forecast for 2020. Before I begin, I do want to acknowledge that this is the 10-year anniversary of Crestwood and the partnership that we formed with First Reserve, our general partner, back in the summer of 2010 to acquire the Barnett assets was the beginning of this great corporate story. Really proud of that partnership between Crestwood and First Reserve over the last decade.

We've built a company with close to 1,000 employees nationwide. We've assembled a network of assets across three different operating segments that support producers that are developing oil, gas and gas liquids and produced water supplies in the most premier basins or shale plays in the US. We've been very fortunate to locate our assets around the best rock with the best economics.

But clearly, during this period, we've seen large shifts in commodity prices, significant improvements in upstream technological advancements and real change in investor preferences, particularly regarding energy investments. But what has been constant throughout that decade is the support and commitment that we've received from First Reserve, our general partner, as well as the Crestwood employees that have been committed to safety as our top priority for the entire decade and to maximize value for all of our investors, our common equity investors, our preferred shareholders and our bond investors.

I've always said, based on my 40 -- now 43 years in the business that it takes 10 good years to build a great midstream company and I'm proud of, and I know the leadership team here at Crestwood is proud of, how we've positioned the Company today for the next 10 years as we continue to practice sustainability and financial discipline, which we think will drive peer-leading growth throughout our organization and throughout the industry. Crestwood is a relevant and important company that shows leadership in a lot of different ways. And so we appreciate the support of our employees, of our contractors, of our business partners, our customers, our general partner First Reserve and of course, our investors.

Now, let's look back to 2019. We certainly achieved some significant corporate milestones. Pleased to announce that last year we generated adjusted EBITDA of $527 million, that's up 25% year-over-year over '18. Our distributable cash flow, which is the real measure of growth for us, was $305 million, that was up 36% over 2018. And at these cash flow levels and with the confidence that we have in the business, Crestwood delivered very strong coverage and leverage ratios. For the full year, coverage was 1.8 times, closed out the year at 2.0 times in the fourth quarter, and our leverage for the full year was 4.1 time.

Our 2019 results highlight the value of our diversified portfolio that we've assembled in all three segments of the midstream business, and they all three experienced year-over-year growth during the year. And because of the confidence of the way that portfolio did perform, we increased our quarterly distribution by 4.2% in the fourth quarter of the year.

Let's look first at our Gathering and Processing segment, we got exposure to some of the premier oil-weighted basins across the US and that drove higher volumes as producers brought online approximately 290 wells across all of our assets, particularly in the Bakken, the Powder River Basin and the Delaware Basin out in West Texas.

In our Storage and Transportation segment, our COLT Hub facility saw close to a 20% increase in volumes and loading activity out of North Dakota and our Stagecoach asset stepped up to a 50:50 sharing arrangement with our partner Con Edison for that very important storage and transportation business located up in the heart of northeast Marcellus.

And finally, the largest outperformance in our portfolio came from our Marketing, Supply and Logistics team where our assets, and our NGL and crude marketing professionals utilized an extensive network of storage, rail, trucking and terminalling assets to capitalize on favorable market conditions and really knock it out of the park from that unit's perspective. And while this business didn't garner near as much attention, our MSL segment is an integral piece in Crestwood's ability to create sustainable value in a diversified business that is generally agnostic to commodity prices, so really looking forward to the contribution of the MSL team in 2020.

The next big achievement in 2019 was completing several expansions, most importantly, the expansion of the Arrow gathering and processing assets in the Bakken. As a result of this build out, we expect the Arrow asset to generate approximately $325 million of cash flow in 2020, that's up 40% over 2019, making it, no doubt, our most important asset. Robert Halpin is going to give you more color around that, but we'll get a full year out of those assets as well.

Now, producer activity and reservoir quality and economics continue to drive pretty significant upstream investment in the basin. And our 2020 growth forecast would not be possible without the capital investments that debottlenecking the expansions and the attention to customer service, well connections, system reliability that our Arrow team has given us over the past three years. We've expanded the system capacity pretty significantly. We've got a lot of room for growth, a good runway there, a lot of inventory positions left dedicated to us around Arrow and we're excited about another year of great growth there in 2020.

As you know, last August, we placed the Bear Den II plant into service, increasing our processing capacity for Bakken gas to 150 million cubic feet per day and allowing us to fully service all of our customers and help lead the industry and the very important initiative in North Dakota to eliminate unnecessary flaring and lost emissions. We've been a real player in that. Recent meetings with the state government acknowledged that on the Arrow system we're one of the best, if not the best, in terms of reducing flaring on the system, on the reservation and in the state of North Dakota.

On the gathering side, we expanded crude oil gathering capacity to 150,000 barrels a day. We're one of the largest deliverers into the DAPL system, over 100,000 barrels a day being delivered into DAPL there off of our Arrow gathering system. On the natural gas side, we also have about 150 million cubic feet a day of gathering capacity to match up to the 150 million a day of processing capacity at Bear Den I and II. And on the produced water side, we're up to a 110,000 barrels a day, allowing Crestwood to achieve record gathering volumes in oil, gas and produced water in 2019. We've got more capacity. We expect more growth based on producer activity.

One item I do want to highlight though is, despite the significant volume growth in 2019 on the Arrow system in the Bakken, our results were negatively impacted by about $6 million that was -- fourth quarter negatively impacted by about $6 million due to our election to shut-in and replace about 40 miles of our produced water gathering system.

Now, this is part of Crestwood's ongoing safety and sustainability initiatives. And we made this decision in the fourth quarter in response to a series of water releases over the last several years that we think were the result of substandard piping which was installed by the previous owner. We've been working on this problem for a number of years and our operating team has done an outstanding job of really optimizing the available capacity, but it was finally time to make a hard investment decision. So we're going to spend a little bit of money fourth quarter and in 2020 to replace the rest of that system. We took some of that out of service and that did negatively impact volumes and earnings in the fourth quarter.

Fortunately, these replacement of these segments of pipe and our continued expansion program will add incremental system capacity, so we should be able to realize the full potential of our produced water gathering system that we announced last year when we signed that contract with Enerplus. And it's going to allow us to more safely and effectively handle our forecasted produced water volume growth in 2020, that's about 50% increase in produced water volume growth based upon replacing the last of this legacy pipe and increasing the capacity. So I'm proud of the team for making the right choice there from a sustainability standpoint. We want to be good stewards of the environment. We want to protect the land on the reservation. We want to be part of the solution in North Dakota.

Crestwood has continued to be bullish on the long-term fundamentals of the Bakken. It's clearly emerged as the Number 2 oil basin in North America behind the Permian. The basin is forecasted to grow volumes from about 1.4 million barrels a day up to 1.8 million barrels a day, and we think that Arrow, COLT Hub and our MSL assets will position us to capture a lot of that growth as differentials and takeaway capacity begin to tighten over the next several years. We're well positioned to take advantage of that, move the product, move it efficiently, take it out of the basin, but make a little bit more margin by using all of our assets on an integrated basis.

As the premier wellhead service provider in North Dakota, we offer our producers exceptional takeaway optionality through the DAPL system, I mentioned earlier, over 100,000 barrels a day at the connection with Arrow. We also have connection at COLT. We're a big player on Northern Border, and a big player and anchor tenant on the Elk Creek expansion by ONEOK. And our new Bear Den processing plant has the ability to recover ethane if pipeline specs become an issue in the future on Northern Border.

I mentioned it early, I'll mention it again, our COLT Hub facility had a great year in 2019. We expect it to have another great year in 2020. We offer crude oil and NGL rail loading optionality there for our producer customers. It's been extremely valuable when pipeline capacity got tight or was constrained. And again, our MSL team can play stranded product into the local or regional markets there through trucking, rail, pipeline solutions, which helps maximize the netbacks for our Arrow customers and keep production and development going. Really proud of the job the team has done to build an integrated service model up in North Dakota. We're making more money, but we're helping our customers out move their production to market.

In the Powder River Basin, our acquisition of the remaining 50% of our Jackalope joint venture, which owns the Jackalope system in the Bucking Horse processing facility. We bought that from Williams back in April and it's positioned Crestwood to be one of the largest G&P operators in the basin. We got a big footprint out there.

I'm pleased to announce that we've begun commissioning activities at the Bucking Horse II plant, that's our expansion that's been under way for most of 2019. We expect to place it in-service in the next month or so. Once we do, our gathering and processing capacity will increase up to 345 million cubic feet per day. And this project allows Crestwood to be part of the solution to reduce flaring in eastern Wyoming in the Powder River Basin and also positions the Company, and our business development and commercial guys to be extremely competitive at attracting new third-party volumes both from producers like Occidental and Samson or area guys that are starting their development and delineation programs in 2020 as well as offset processors that may need excess capacity or are thinking about shutting down old plants and trying to optimize their facilities. We're in good position there to add significant volumes to our processing complex and probably add significant acreage to our commercial footprint there in the heart and core of the Powder River Basin.

Moving on to -- well, before I move to the Delaware, let me just talk about Chesapeake for a second. It's clearly been a potential overhang on our stock since the third quarter. We have the utmost respect for the Chesapeake management team. We've mentioned that several times over the last several quarters. They do a great job of drilling and completing wells. We understand their balance sheet situation. Since we've become operator of the asset after we bought out Williams in April of last year, we've built a great relationship of trust and communication. System reliability has improved dramatically. Well connection times are faster.

No doubt, following Chesapeake's credit rating downgrade in the fourth quarter, things started to change. Chesapeake did pay us $22 million for current and future well connect capital reimbursements, and we're fully reimbursed and fully caught up. Don't have any outstandings with those guys, no past due invoices and they've never missed a payment with us.

There is currently 316 wells on the Jackalope system that are operated by Chesapeake. It is an expansive system over a large acreage position and we have a long-term gathering and processing contract that was renegotiated to a fair market deal back in 2017. We've said this over and over again at investor conferences and 101s, and I want to hammer this point again, we've got a really good contract that's favorable to Crestwood in the event of any type of financial contingencies going forward. We are a critical service provider to Chesapeake. We can't imagine a situation where 316 wells would be shut-in on their best oil and gas producing property and it's their only access to get their natural gas to market in eastern Wyoming, which is a no-flare state.

At this time, as we announced back in the third quarter, we expect Chesapeake to maintain a two-rig program in 2020, results in about 30 to 40 well connects. You do the math. We expect another 15 or so wells from third-party customers that have active 2020 development plans that we're going to play an important role in getting their gas to market. At this level of activity, we expect gathering system volumes on the Jackalope to grow by about 10%, processing volumes to grow by about 15% in 2020 with a lot of upside depending upon the third-party developments and the potential for maybe consolidating some third-party processors in the Powder River Basin as well.

Now let's move to the Delaware. Pleased to announce that we're expanding our traditional gas gathering and processing services into long-term produced water gathering and disposal. We just signed a new contract with a large integrated producer, not ready to announce yet who that is but will when the system is completed. We expect our Permian Basin joint venture with First Reserve to invest about $45 million to build out the produced water gathering system and related infrastructure to handle about 60,000 barrels a day initially from that integrated producer and it will be capable of expanding up to 120,000 barrels a day, that's the design for the system, and ultimately, the amount of disposal and takeaway that we'll have for that producer.

We commenced construction within the last month or so and expect first volumes on this system in the second quarter of 2020. So it should make a sizable contribution to CPJV in 2020. We, as you know, have extensive experience in managing produced water operations. Very excited about entering this new business opportunity in the Delaware where, as you know, the water-oil ratio can range as high as six to seven to one, as high as 12 to one in certain parts of the basin.

We've been slow in getting into the produced water business in the Delaware. We've talked about it for a couple of years now. We've been very selective. Didn't want to go in through acquisition like most of our competitors have, where we think they've paid an enormous upfront price to get into the basin. I wanted to do it on an organic basis and make it part of our overall suite of services that we provide to our large integrated producers in the Delaware and make it within the footprint that we already operate, so that has some synergy with our existing gas operations.

We're thrilled to continue to partner with First Reserve on this investment and enhance our wellhead services in the Delaware, which we think is the Number 1 Basin in the US. But this is also a part of our continued focus on ESG and sustainability. And we know that First Reserve, as private equity firm, and Crestwood, as a leading midstream company, are totally focused on dealing with the issues the industry faces in flaring and water disposal. And this is one of our solutions and we're working on other solutions in the Delaware Basin to expand those opportunities. So excited to talk about that as we get it in-service in the second quarter and maybe add-on to that later in the year.

I guess, finally, before I hand the call over to Robert to give you color around last year's operations and next year's forecast, I might just lay out a couple of things that we've learned over the past 10 years that good companies have to adapt to through commodity volatility and the various business cycles that we experience in the US energy industry.

We're clearly in the middle of a transition now, have been for the last year or so. Investor preferences are shifting. We know that. We listen carefully to our investors. We continue to run our business based on good cash flow, accretive cash flow, good long-term investments and good long-term relationships with our customers. Valuations in this sector are clearly influx. We know that. Current market sentiment is negative in the space around energy in general, and the industry has to be able to prudently manage its business to attract capital back to the US oil and gas industry.

In order for that to begin, as an industry, we think we've got to collectively maintain financial discipline, we've got to focus on good investments, show investors good returns on growth projects, and continue to promote ESG and sustainability. The industry has to embrace transparency of our business risk, but we've also got a platform to highlight the benefits of continuing to develop and bring to market new oil, gas and gas liquids supplies to support the low-cost modern society that we all enjoy the benefit of.

We are big employers in the US and Texas, and in the areas that we operate, and we support the economic development through strong community engagement in the communities where we operate. I'm pleased to announce that based on our inaugural sustainability report, which we filed in June of last year for our 2018 period, that Corporate Knights, which is a Canadian organization that ranks companies based on sustainability initiatives, has ranked Crestwood in the top quartile of global midstream operators for our MLP-leading initiatives and that was just done in their 2020 Global 100 Most Sustainable Corporations Worldwide report. Our adoption of sustainability is important to us and it's an opportunity for Crestwood and the industry to provide more information to investors. Hopefully, investors will -- excuse me, regain confidence in the industry.

And with that, happy to turn it over to Robert to give you more color on last year's operations.

Robert T. Halpin -- Executive Vice President and Chief Financial Officer

Thank you, Bob. I am proud of the milestone that we have achieved in 2019 as Crestwood continues to grow its franchise through the disciplined investment of capital into accretive, high-returning growth projects. As a result of our strong operation and execution, our assets generated full year 2019 adjusted EBITDA of $527 million, up 25% year-over-year and distributable cash flow of $305 million, up 36% year-over-year, and both right in line with our full year 2019 guidance that we increased back on our third quarter call.

These financial results combined with our strong balance sheet coverage ratio of approximately 2.0 times and a decreased growth capital forecast for 2020 positioned the Company to deliver on our multi-year promise to investors of returning incremental capital in the form of a modest distribution increase. Beginning with the fourth quarter of 2019, we made the election to increase our distribution to $0.625 per unit or $2.50 per unit on an annualized basis, an increase of approximately 4% when compared to the prior quarterly distribution of $0.60 per unit.

Now looking to each of our operating segments. In our Gathering and Processing segment, fourth quarter EBITDA totaled $113 million, that representing a 40% increase over the $81 million that we reported in the fourth quarter of 2018. Segment results were primarily driven by the completion of the debottlenecking and expansion projects in the Bakken, continued producer development across our assets, the consolidation of the Jackalope joint venture in the Powder River Basin and the in-service of the Bear Den II processing plant.

In our Storage and Transportation segment, fourth quarter EBITDA totaled $17 million, a 23% increase over the $14 million we reported in the fourth quarter of last year. This increase is a result of the final step up in cash flow from our Stagecoach joint venture as well as outperformance at the COLT Hub as a result of higher rail loading volumes due to higher production volumes in the basin, tightened pipeline takeaway capacity and favorable economics for Bakken crude in the East to West Coast markets.

The Marketing, Supply and Logistics segment had an outstanding 2019 with fourth quarter EBITDA of $19 million compared to $20 million in the fourth quarter of 2018. The fourth quarter results, when combined with a very strong second quarter and third quarter performance, drove a record full year EBITDA of $84 million for the segment, exceeding the high point of our previously increased guidance by $9 million. As Crestwood continues to expand its processing assets in the Bakken, the Powder River Basin and the Delaware Basin, Crestwood expects our MS&L segment to support the G&P segment through our extensive network of trucking, rail and terminal assets that provide our producer customers flow assurance and premium market access.

Crestwood invested $413 million in growth capital projects in 2019, that below the low end of our 2019 guidance range as we completed the Bear Den II processing plant and system expansions in the Bakken, made significant progress on our Bucking Horse II processing plant in the Powder River Basin, and expanded our natural gas gathering system in the Permian.

Now taking a look at the balance sheet. At year-end, Crestwood had approximately $2.4 billion of long-term debt outstanding, including $1.8 billion of fixed rate senior notes and $557 million of outstanding borrowings on our revolving credit facility, resulting in a leverage ratio of 4.1 times as of December 31, 2019.

Now as we look forward into 2020, we are guiding to an adjusted EBITDA range of $590 million to $620 million, an increase of 15% year-over-year at the midpoint, and distributable cash flow of $350 million to $380 million, an increase of approximately 20% year-over-year at the midpoint. This growth is driven by our G&P segment as recently completed capital projects, new commercial contracts and producer drilling plans drive volume growth across our core basins.

In 2020, we expect to connect approximately 300 wells across our core growth basins, up slightly when compared to 2019. We expect solid, stable contributions from our storage and transportation assets and continued outperformance at the COLT Hub as NGL and crude takeaway optionality becomes more valuable in the Bakken. In the MS&L segment, our NGL and crude marketing teams will continue to focus on optimizing Crestwood's network of storage and transportation assets to place volumes to premium markets for producers.

We will continue to focus on preserving our balance sheet and expect full year distribution coverage of 1.9 times to 2.1 times in 2020, and a leverage ratio of between 3.5 times to 4.0 times in 2020. Now that our largest capital projects are complete, we are guiding to a growth capital range of $150 million to $200 million in 2020, representing a 58% decrease from 2019.

Our capital forecast is comprised of the remaining expenditures for the build out of the Bucking Horse II plant, continued expansion and upgrade of the produced water gathering systems in the Bakken, the continued build out of natural gas gathering and produced water systems in the Delaware Basin, and approximately $25 million of payments on invoices related to 2019 capital projects that we will pay out here in the early part of 2020. Crestwood intends to finance its current 2020 growth capital entirely through retained operating cash flow.

2019 marked another very successful year for Crestwood and we are very well positioned to achieve all of our financial, operational and strategic objectives in 2020. We will continue to make prudent investment decisions, only taking on new projects or transactions that meet each of our strict investment hurdles, transactions that fit our core strategy, that deliver returns clearly above our long-term cost of capital, that are immediately accretive and enhancing to our balance sheet for the long term. We believe we are positioned as one of only a few midstream companies generating real free cash flow in 2020, and with that comes tremendous flexibility to continue executing our business plan through all market cycles and allows us to selectively pursue the best uses of capital to enhance value for our unitholders going forward.

I think, with that, operator, we'll turn the call over for questions.

Questions and Answers:

Operator

Thank you. [Operator instructions] Our first question comes from the line of Shneur Gershuni with UBS. Please proceed with your question.

Shneur Gershuni -- UBS -- Analyst

Hi, good morning guys. Just a couple of clarifying questions. I was just wondering if we can sort of run through the capex guidance for today. It sort of seems like it's up $50 million from third quarter. Is $25 million effectively rollover from last year, and we'll see when the Q comes out that the capex from 2019 will have ended up being $25 million lower and that the real increase is $25 million, based on like from where your expectations were, is that the way to think about it?

Robert T. Halpin -- Executive Vice President and Chief Financial Officer

That's absolutely right, Shneur. As we've quoted, we came out below the low end of our guidance range for 2019, and the primary driver of that is about that $25 million that we mentioned is just shifting into early part of 2020.

Shneur Gershuni -- UBS -- Analyst

Okay, and just with respect to that capex, that's the replacement of the water system that you talked about, that you decided to improve the sustainability of it. And so we shouldn't actually expect any return as a result from it, or could we actually see a return from it?

Robert T. Halpin -- Executive Vice President and Chief Financial Officer

No. You'll actually see a substantial return from that investment. While definitely being the right thing from an operational standpoint, sustainability standpoint, we're actually pretty significantly enhancing system capacities. On average in 2019, we moved about 65,000 barrels a day across our system. We closed the year out for the fourth quarter just north of 80,000 barrels a day, and we expect to be comfortably north of 100,000 barrels a day all throughout 2020. I don't believe all of that would have been possible without these enhancements of these pipeline segments as well as the ongoing debottlenecking expansion across the remainder of the system.

Shneur Gershuni -- UBS -- Analyst

And so, are you able to put a return profile on it in terms of capex versus EBITDA?

Robert T. Halpin -- Executive Vice President and Chief Financial Officer

Yes. I think, of the, call it $20 million of enhancement projects that we're building, our water volumes are going to be up 50% year-over-year, which is largely driven by those plus the core funding debottlenecking. So I mean, very much in line with the ongoing debottlenecking capital we've spent across the system and kind of the call it five times that zip code.

Shneur Gershuni -- UBS -- Analyst

Got it, OK. And then just with respect to, you've added some new water contracts as well also. When I sort of think about -- you didn't give guidance last quarter but you gave coverage guidance, which hasn't changed, so it kind of feels like guidance hasn't changed. Is that basically offsetting the lower rig count versus original expectations in the Powder River from -- with respect to Chesapeake? And does it sort of fill the blank as you're trying to offset that by finding other customers in the Powder River? Is that the way to think about it? If you can give us a little more color, that'd be great.

Robert T. Halpin -- Executive Vice President and Chief Financial Officer

Just to clarify your question, because I wasn't fully following you. I think that as it relates to the Powder River, our outlook for 2020 is largely driven by Chesapeake's continued two-rig program plus where we are with a couple of the third parties on our system and our expectation for continued development from those individuals, some of which are existing customers, one of which is a prospective customer that we expect to have executed here in the coming days, if not weeks. Those incremental wells -- about 15 wells this year in addition to Chesapeake's wells, which gets us to about 50 wells for the year, that drives the 10% to 15% year-over-year volumetric growth expected out of that basin.

Robert G. Phillips -- Chairman, President and Chief Executive Officer

Shneur, let me just add a little color to that, just to make sure we're answering the right question for you. If you're just talking about the Powder, then Robert's answer is spot on. If you're trying to reconcile Crestwood's overall increase of 15% year-over-year in cash flow, just look first at the number of well connects. We're doing more well connects in '20 than we did in '19. The technology continues to improve in all three basins. The wells are bigger each year than they were the prior year, so volumes are growing. We get a full year of Bear Den II, we get a full year of Bucking Horse II, and market conditions continue to be very favorable for our MSL business and our COLT Hub and our crude oil trading business up in North Dakota. That's where the 15% year-over-year growth comes from, and that offsets the continued very, very low decline rate experienced by our legacy assets. So, not sure if you were trying to reconcile the entire portfolio or just the Powder.

Shneur Gershuni -- UBS -- Analyst

I was trying to reconcile -- maybe I'll break it apart a bit here. So your expectation for wells in the Powder and volumes is no different than what you expected in third quarter?

Robert T. Halpin -- Executive Vice President and Chief Financial Officer

That's true. That's consistent.

Robert G. Phillips -- Chairman, President and Chief Executive Officer

Correct.

Shneur Gershuni -- UBS -- Analyst

Okay. And so -- then you've added some new contracts in the Permian and so forth, and that -- I kind of would have expected that your guidance would improve or increase as a result. I realize you didn't give guidance last time but you did give us a coverage ratio number of 2.0 times, and that is still 2.0 times today, which sort of implies no change.

Robert T. Halpin -- Executive Vice President and Chief Financial Officer

Yes. The project we announced in the Delaware Basin, we're not getting significant contribution in calendar 2020 as we're building out that asset right now. In addition to that, it's owned in the joint venture where we share the economics with our partners.

Shneur Gershuni -- UBS -- Analyst

Got it. Okay, that makes perfect sense. Really appreciate the color today, and thanks for explaining the step up in capex was not as big as it sort of appears. Thank you.

Operator

Thank you. Our next question comes from the line of Tristan Richardson with SunTrust Robinson Humphrey. Please proceed with your question.

Tristan Richardson -- SunTrust Robinson Humphrey -- Analyst

Hey, good morning, guys. Just a quick one on the Delaware. Nice to see volume pick up in the fourth quarter. It seems like some activity has returned there based on your commentary on three of your [Phonetic] customers. So can you talk about sort of the outlook for '20? Is 4Q indicative of activity you see going forward?

Robert G. Phillips -- Chairman, President and Chief Executive Officer

Yes, I think it really is. I mean, Shell has continued to develop at a very steady pace throughout the entire year, and that doesn't change in 2020. They're not really price driven. They've got a huge acreage position. We've had years of inventory there to develop. All the majors are trying to get their cost per unit down, so they continue to drill and develop. And we move a lot of gas for them, and actually have, I think, a pretty interesting kind of development program for them putting in additional pipe and compression on the Nautilus gathering system in areas that they have not previously drilled, so excited about the changes in 2020 around Shell.

On the north side of the system up in New Mexico, Concho and Mewbourne continue to develop. Concho's finally gotten around to developing a pretty big acreage position that we've had under contract for several years that they have not been developing, and we're excited about the first few wells that they've brought on in the second half, actually the fourth quarter of the year. And those are big wells and pretty much exceeded our expectation volumetrically, and they've got some additional wells that they're bringing on in 2020. So we're looking at expansions on both sides of the system there. And I think the 4Q activity level is pretty indicative of what we expect for the full year.

Tristan Richardson -- SunTrust Robinson Humphrey -- Analyst

Helpful. And then Bob, you mentioned some potential synergy on the water project in the Delaware. Understand you have an undisclosed anchor there, but does this water system make Crestwood more competitive on the G&P side with existing customers or can encourage volumes from existing customers?

Robert G. Phillips -- Chairman, President and Chief Executive Officer

Yes and yes. We have always wanted to be a three-product service provider in the Delaware. It's been challenging because of how competitive that basin is and how aggressive a lot of our private equity friends have come into that basin and bid margins down, and -- so we know that's been a challenge. Very few midstream providers have been successful in providing all three product services at one time to a producer. That game is not necessarily over, and we continue to work in that area because the business model we have in the Bakken is the best way to provide producers with low cost services for oil, gas and produced water.

We've been working on the water deal for a while. It took us a while to do that. It is with a major integrated producer that we have an existing gas contract with and that we have provided services for and to in the past. We think it will make us more competitive in the future because of the design of that system is to overdesign that and actually have more gathering and disposal capacity than that particular producer needs in the next several years. So I would expect our commercial team will be aggressively marketing that additional capacity to producers that have offset produced water acreage in the area that we operate. We're looking forward to that.

Diaco, want to add anything to that? You run the Delaware and you know how competitive it is out there. I think our primary focus continues to be in 2020 to build our Orla plant up and get the second Orla plant built at some point time in the future if we're successful in getting additional dedications. You want to add anything to that?

Diaco Aviki -- Senior Vice President of Commercial Operations, Gathering and Processing

Yes. I mean, I think the one piece that we can't forget also is operating synergies, because it is so close to our other operating assets. It's the manpower needed to actually operate that footprint is de minimis, so the EBITDA contribution is, I think...

Robert G. Phillips -- Chairman, President and Chief Executive Officer

Yes. Labor and utilities is important. Yes. And we underwrote that getting some operating synergies given where it's going to be located relative to our gas gathering and processing business.

Tristan Richardson -- SunTrust Robinson Humphrey -- Analyst

Thanks, guys. And then just last one from me, if I could. Can you talk about your comments on customers signing for term on COLT? Could you help us just kind of understand what a term contract looks like, either number of months or years, or just how those look?

Robert T. Halpin -- Executive Vice President and Chief Financial Officer

Yes, Tristan. It really centers around some of the market dynamics that have been playing out over the last year and heading into 2020 with continued basin growth and really overall pipeline constraints until some of the expansions go into service at some point middle to late next year. We've seen increasing demand from both producers and refineries alike.

In terms of term, it's really gone from what was a spot, kind of, month-to-month basis to some people willing to step up for kind of 12-month type contracts. We're not seeing multi-year deals, but the margin has certainly enhanced, utilization day-in, day-out has gone up tremendously, and we have had several large customers that have stepped in for either multi-month and/or 12-month type terms.

Tristan Richardson -- SunTrust Robinson Humphrey -- Analyst

Appreciate it. Thank you guys very much.

Operator

Thank you. Our next question comes from the line of Jeremy Tonet with JP Morgan. Please proceed with your question.

James Kirby -- JP Morgan -- Analyst

Hey, good morning, guys. This is James on for Jeremy. Just wanted to talk a little about the marketing segment, maybe the guidance there. I think you had mentioned last quarter there was a little upside to kind of the $55 million run rate, but maybe can you just talk about the assumptions there and the confidence to hit kind of the above run rate guide you provided today?

Robert G. Phillips -- Chairman, President and Chief Executive Officer

Yes. Let me start off by just refreshing everybody's memory about our fundamental business platform in MSL. This is a longtime business that energy was involved in long before we merged with that company back in 2013. We have -- we think, substantially improved the platform by lowering operating expenses. We cut our truck fleet in half to get the most efficient trucks. We've reduced our rail fleet and reduced -- substantially reduced our cost of railing product around the country. We've expanded our trading platform with significant investments in systems and accounting and controls and analytics. And our team has just done a fabulous job of moving propane, butane to market on an integrated basis.

Our fundamental business model is we buy NGLs during the injection period. We truck, rail and terminal to storage, and then we have it available for our customers during the winter or our blending customers during the blend period, which is also typically in the winter. It is a fully integrated business. And John and the team located in Kansas City have done a fabulous job of taking advantage of differentials that occurred in the market in 2019 largely because we have a significant excess supply of NGLs in the US market, and there's only so much we can export that creates basis differential opportunities from time to time, which fits perfectly our model of acquiring and then truck, rail, pipe to storage and store for our customers, and either hedge that or sell it to them in the physical markets. We think that same market scenario is going to play out in 2020 because we think that the US NGL market will continue to be significantly long, and there will be disruptions.

John, you want to comment on your view of 2020 and how you see the NGL market playing out kind of from the spring all the way through next winter?

John Powell -- Senior Vice President and Chief Commercial Officer

Yes. I think that what we've seen over the last couple of years, I mean, continuing growth across each one of the basins, and as you know, each one of the incremental barrels that are produced really needs to go across the dock. So we think over the next couple of years that we'll continue to have an excess of NGLs. But really what we focus on really is kind of the midstream as well as the downstream segment, and that demand seems to be continues to be stable going forward. And so really it's just utilizing each one of our assets to continue to create that service, and we continue to see excess supply here in the US going forward over the next several years and so we're well positioned to take a position in that market and continue our growth pattern there.

Robert G. Phillips -- Chairman, President and Chief Executive Officer

James, we like this business. And as the business continues to consolidate as other guys kind of determine that their NGL activity is not core to them, we'd like to continue to grow in this area.

James Kirby -- JP Morgan -- Analyst

Great, thanks. And then I noticed it seems maybe the messaging changed slightly just in terms of when you guys expect to be free cash flow positive next year. I guess, it looks like maybe last quarter, you guys were messaging first half. Are there any drivers there? Am I reading that correctly?

Robert G. Phillips -- Chairman, President and Chief Executive Officer

No. I don't think the message has changed. I think that our outlook for 2020 has been largely fixed really for the full balance of '19, and even back to late '18. We haven't seen any real shifts in producer activity kind of stuck to our 15% year-over-year growth in EBITDA, 20% in DCF, and based on our capital needs for the year in our program, I think we still are in a position to generate strong free cash flow after capital investment and distribution and keep executing on that plan.

James Kirby -- JP Morgan -- Analyst

Got you. That's it for me, thanks.

Operator

Thank you. [Operator Instructions] Our next question comes from Elvira Scotto with RBC Capital Markets. Please proceed with your question.

Elvira Scotto -- RBC Capital Markets -- Analyst

Hey, good morning, everyone. Just to follow up on the shut-in on the produced water lines, is that remediation largely complete or is that ongoing?

Robert T. Halpin -- Executive Vice President and Chief Financial Officer

Well, good morning to you, Elvira. Great question and one that the management team has spent a lot of time working on and thinking about. I'll give you one answer which comes from an operational perspective, and then I want Diaco to talk about the significant growth potential of our produced water business. Robert mentioned that earlier that we expect volumes to be up 50% year-over-year, and I will tell you that it kind of caught us a little off guard. We have more water here than we thought we did. That was part of the equation.

But going back several years, we've had this series of kind of small leaks that have just pestered the heck out of me. They're expensive to remediate because they're on the reservation and we have a -- built a fundamental trust with the tribe, the MHA Nation, and we really take it seriously when we leak something on the ground there. So we go to extra lengths to remediate those leaks and we spend a lot of money doing that.

And our Chief Accounting Officer will tell you that we spent a lot of money in the fourth quarter remediating or taking charges for remediation that occurred from small leaks throughout the year. So we wanted to stop that and ensure the tribe that we didn't have a system out there that we thought would continue to kind of chronically leak because of the construction practices used by the original private operator that built the system we acquired in the fourth quarter of 2013. Having said that, as production volumes increased across the system, system pressures went up. And as the pressures went up, we began to realize that we didn't have enough capacity to handle all of the water that we expected going forward.

So, Diaco, you want to take it from there and kind of explain why we're investing in new capacity and replacement of old systems?

Diaco Aviki -- Senior Vice President of Commercial Operations, Gathering and Processing

Yes. So as we further dug into the amount of produced water out in the system, we identified a number of opportunities where there were constrained volumes, and working with our producer customers we will continue to actively replace the [Indecipherable] that's out there. We've got -- we're trying to minimize the trucks on the road. Our current production that we move on pipes eliminates north of 400 trucks on the road every day, and that's our main focus. There's still some active segments out there, and we've done that because the producers have asked us to continue to safely operate the segments at lower operating pressures so they can minimize trucks.

So I'd say, right now, there's probably 30,000 barrels a day of water that we're not picking up today, that with these enhancements we can do. An additional benefit that we're going to get out of being able to operate the system more reliably is we've already started to redeliver water from a sustainability perspective for our customers for their frac operations, for their frac protects [Phonetic]. We've done a number of trials out there recently and they've been very successful and received very positive feedbacks from our producer base. So again, this furthers our sustainability initiative and our customers' sustainability initiatives of minimizing trucks and reuse of water.

Robert G. Phillips -- Chairman, President and Chief Executive Officer

Yes. And Elvira, if you go to our website, I think we've got some pretty cool information in our sustainability area, talking about how important it is to take trucks off the road and reduce emissions that way. So, all of this kind of went into our thinking, but back to Shneur's question, I think, we're absolutely getting a really good return on this new investment because water is coming faster than we thought it was.

Elvira Scotto -- RBC Capital Markets -- Analyst

Got it, thank you. That's very helpful. Can you also provide a little more detail -- I'm just switching over here to the Powder River Basin. So, I think the guidance incorporates Chesapeake and Panther and then a potential additional third-party that you're about to sign within weeks. And then you said that there's some upside from incremental third parties as well as upside from consolidating some third-party plants, I think. Can you provide a little more detail around that?

Robert T. Halpin -- Executive Vice President and Chief Financial Officer

Yes, Elvira. This is Robert. What's included in our guidance is exactly as you laid out. It's the two-rig Chesapeake program plus the development that we have in our current development plans with Panther, as well as one other individual producer that we are in active discussions with and expect to have an executed contract here in short order. That's what's factored into our 2020 outlook.

Above and beyond that, as we look at our system capacity with the in-service date of Bucking Horse II coming and other competitors in the basin, and how we're all positioned from a capacity utilization standpoint, we think there is tremendous opportunity for us to leverage our footprint, work with some of those other competitors to optimize the utilization of the existing capacity, reduce cost across the basin, and drive synergies to our system. We're in active works on some of those and we hope to have some progress here through the balance of this year.

I think what it really speaks to, kind of final point, is just with the position we have as a true leader in the G&P side in this basin and the competitive dynamics, we are in position to aggressively pursue all of those third-party opportunities, that should strengthen our overall cash flow position, diversify our customer base, and put us in a strong position to be a real leader in the play over the long term.

Elvira Scotto -- RBC Capital Markets -- Analyst

Great. Thank you very much.

Operator

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I'll turn the floor back to Mr. Phillips for any final comments.

Robert G. Phillips -- Chairman, President and Chief Executive Officer

Thanks, Melissa, and thanks again for all of you joining us this morning. It really is an important time for Crestwood, recognizing our first 10 years and really excited about the platform that we've built for the next 10 years. This is going to be an important year, 2020, first year we're going to be free cash flow positive, which will allow us to continue to drive leverage sub-4 times and hopefully stay there, and keep coverage at 2 times or above for the full year but continue to have excess cash flow to reinvest to increase distributions over time, and potentially to give us a lot of financial flexibility.

I want to compliment the finance team for putting us on a good path. Three years ago, we spent $1 billion, generated well over $200 million of increased cash flow from that investment. That's a strong investment record. And these guys are really good at what they do and we're going to keep doing that over the next several years. They're very disciplined around their capital allocation strategy. We continue to self-fund for accretive capital projects. And while $150 million to $200 million doesn't seem like a lot compared to the $450 million or so we spent last year and the year before, it is a lot. It's enough to continue to grow at the pace that we've laid out in the plan and continue to reduce leverage, grow distributions, and improve our overall flexibility, which puts us in position to take advantage of other opportunities in the business that we see coming down the pipe.

So thanks to everybody that's been an investor, a business customer, an employee and a partner in our first 10 years. We're really excited about the next 10 years and where we go from here.

So, operator, thank you for moderation today. And I guess with that, we'll adjourn the meeting. Look forward to talking to you again after the first quarter. Thank you.

Operator

[Operator Closing Remarks]

Duration: 57 minutes

Call participants:

Robert G. Phillips -- Chairman, President and Chief Executive Officer

Robert T. Halpin -- Executive Vice President and Chief Financial Officer

Diaco Aviki -- Senior Vice President of Commercial Operations, Gathering and Processing

John Powell -- Senior Vice President and Chief Commercial Officer

Shneur Gershuni -- UBS -- Analyst

Tristan Richardson -- SunTrust Robinson Humphrey -- Analyst

James Kirby -- JP Morgan -- Analyst

Elvira Scotto -- RBC Capital Markets -- Analyst

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