Crestwood Equity Partners

Raging Capital – Crestwood Equity Partners LP (CEQP): Comeback [Slides]

Crestwood Equity Partners LP (CEQP): Comeback from Raging Capital

Crestwood Equity Partners: Classically Cheap

Crestwood Equity Partners

  • A fee-based midstream MLP with embedded IDRs that operates in three segments:
  • NGL and Crude Services: Includes its NGL supply and logistics business, crude oil rail terminals, and the Arrow gathering system
  • Gathering and Processing: Provides natural gas gathering, processing, treating, and compression services in the Marcellus, Barnett, Fayetteville, PRB Niobrara, and other basins
  • Storage and Transportation: Owns and operates natural gas storage facilities with an aggregate working gas storage capacity of approximately 79.3 Bcf

Why We Are Bullish on Crestwood

Raging Capital View:

  • CEQP’s stock is extremely undervalued and misunderstood
  • Investors are getting paid to wait
  • Attractive assets in Northeast storage, Marcellus, Bakken, Niobrara, and Permian
  • Embedded IDRs is an underappreciated benefit to unitholders over the long term
  • Partially cutting the distribution would provide multiple levers to drive unitholder value

Why Has CEQP’s Stock Come Under Pressure?

  • Failed strategic alternatives process
    • Multiple potential bidders/partners when stock was at a split-adjusted price range of $60 to $140 per unit, but a transaction was not consummated
  • Tax-loss selling and decreased liquidity following reverse stock split
  • MLP asset class pressure from energy price declines and technical factors
    • Many MLPs have direct exposure to oil and natural gas prices, as well as an IDR structure that is unfavorable to LP unitholders
  • Exposure to Bakken crude-by-rail and gathering contracts and a bankrupt Barnett Shale producer

MLP Valuation

  • Under our worst-case 2017 scenario of $529M in EBITDA, CEQP would trade at:
    • 3.4x P/DCF
    • 29.4% DCF yield
  • Under our base-case 2017 scenario of $607M in EBITDA, CEQP would trade at:
    • 2.7x P/DCF
    • 37.3% DCF yield
  • Based on their 2017 LP’s contributions, the average midstream MLP trades at:
    • 9.1x P/DCF, and 9.5x for companies with embedded IDRs
    • 11.8% DCF yield, and 11.2% for companies with embedded IDRs

Peer Valuations

Crestwood Equity Partners

Operating Highlights

  • No direct commodity exposure
  • 90% fee-based revenues
  • Embedded IDRs
  • 2016 run-rate costs savings of $25-30M, and $5M public-entity cost savings
  • EBITDA growth amid energy price declines

Crestwood Equity Partners

Crestwood Equity Partners

Asset-by-Asset Analysis

  • To really understand Crestwood, investors need to take a deep dive into each of its key assets
  • We explain why Crestwood’s assets are misunderstood and lay out potential scenarios as to how these assets are likely to perform

Asset-by-Asset Analysis: Natural Gas Storage

  • Description
    • Four storage facilities located in New York and Pennsylvania with 40.9 Bcfof capacity
    • Best asset is Stagecoach in NY, which has 26.2 Bcf of storage
    • Also have 50% ownership of Gulf Coast facility, Tres Palacios
  • Contract Type
    • Take-or-Pay
    • 100% contracted; 15% of capacity up for renewal in 2016
  • Customers: Consolidated Edison (ED), NJ Natural Gas, Repsol
  • 2016 Estimated EBITDA Contribution: $140-150M

Natural Gas Storage Highlights

  • Weighted average contract term of 4 years
  • Majority of contract renewals expected at or above existing rates
  • Northeast scarcity value and permitting challenges with new facilities
  • Stagecoach is the closest natural gas storage facility to NYC
  • MARC I Pipeline expansion adds $6.3M in revenue at 90% EBITDA margin

Crestwood Equity Partners

See full slides below.


Saved Articles

The Life and Career of Charlie Munger

Charlie is more than just Warren Buffett’s friend and Berkshire Hathaway’s Vice Chairman – Buffett has actually credited him with redefining how he looks at investing. Now you can learn from Charlie firsthand via this incredible ebook and over a dozen other famous investor studies by signing up below:

  • Learn from the best and forever change your investing perspective
  • One incredible tidbit of knowledge after another in the page-turning masterpiece of a book
  • Discover the secrets to Charlie’s success and how to apply it to your investing
Never Miss A Story!
Subscribe to ValueWalk Newsletter. We respect your privacy.

Congrats! Are you a smart person?

We have an exclusive targeted for being a sophisticated and loyal reader.

Welcome in the new year by signing up up for ValueWalkPremium today and get our exclusive content for 40% off. This is our second biggest discount ever!!

Use coupon code VIP20 or click on the button below

Limited time offer only ENDS 1/31/2019 or after next 30 23 subscribers take advantage whichever comes first – please do not share this discount with others