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Crestwood Announces Fourth Quarter 2016 Financial and Operating Results; Provides 2017 Outlook

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Crestwood Equity Partners LP (NYSE: CEQP) ("Crestwood") reported today
its financial and operating results for the three months and year ended
December 31, 2016.

Fourth Quarter and Full-Year 2016 Highlights1

  • Fourth quarter 2016 net loss of $64.3 million, compared to a net loss
    of $1.4 billion in the fourth quarter 2015; Full-year 2016 net loss of
    $192.1 million, compared to a net loss of $2.3 billion in 20152
  • Fourth quarter 2016 Adjusted EBITDA of $125.6 million, compared to
    $118.9 million in the fourth quarter 2015; Full-year 2016 Adjusted
    EBITDA of $455.6 million, compared to $527.4 million in 2015
  • Fourth quarter 2016 distributable cash flow to common unitholders of
    $77.8 million, compared to $71.9 million in fourth quarter 2015,
    resulting in a fourth quarter 2016 cash distribution coverage ratio of
    approximately 1.9x; Full-year 2016 distributable cash flow to common
    unitholders of $301.9 million, compared to $361.5 million in 2015,
    resulting in a full-year 2016 cash distribution coverage ratio of
    approximately 1.8x
  • Ended 2016 with approximately $1.6 billion in total debt and a 3.7x
    leverage ratio. Crestwood has substantial liquidity available under
    its $1.5 billion revolver with $77 million drawn as of December 31,
    2016
  • Declared fourth quarter 2016 cash distribution of $0.60 per common
    unit, or $2.40 per common unit on an annualized basis, paid on
    February 14, 2017 to unitholders of record as of February 7, 2017

Management Commentary

"Despite record commodity price volatility and challenging industry
conditions in 2016, Crestwood delivered on all of the strategic
initiatives we laid out to investors at the beginning of the year,"
stated Robert G. Phillips, Chairman, President and Chief Executive
Officer of Crestwood's general partner. "With strong fourth quarter
Adjusted EBITDA of $126 million, Crestwood delivered full-year 2016
Adjusted EBITDA of $456 million and achieved the upper end of our 2016
guidance range, resulting in a full-year distribution coverage ratio of
1.8x and a year-end leverage ratio of 3.7x. Also during 2016, we
favorably resolved longstanding producer issues on our Barnett and PRB
Niobrara gathering systems, reduced our outstanding debt by $1 billion,
reduced operating and G&A expenses by another 15%, adjusted our common
unit distribution to retain excess cash flow for reinvestment in new
projects during 2016 and 2017, and repositioned Crestwood for long-term
growth through the Nautilus system with Shell, and the formation of
strategic partnerships with Con Edison in the Northeast and with First
Reserve in the fast growing Delaware Permian."

Mr. Phillips continued, "Heading into 2017, our commercial teams are
having success expanding assets and services in three core areas:
Delaware Permian, Bakken and Marcellus. Our 2017 capital budget is
currently concentrated on Arrow system expansions and the Nautilus
build-out, and our teams continue to work on developing several new
capital projects that we expect to finalize and announce later this
year. Our 2017 adjusted cash flow guidance is lower than 2016 due to a
full-year deconsolidation of the Stagecoach assets and contract
expirations at the COLT Hub. As such, we view 2017 as a transition year
where system volumes stabilize, key systems are expanded and overall
volumes and cash flow begin to pick up in the second half of the year
with increasing activity around our Delaware Permian, Bakken, Marcellus,
PRB Niobrara and Barnett systems."

"We are very pleased with where Crestwood is positioned today and are
very confident in our ability to execute on our conservative 2017 plan.
The improved outlook in our base business, along with 2017 expansion
projects currently underway or in development in the Delaware Permian
and Bakken regions, and longer-term projects around our Stagecoach
assets, should allow Crestwood to deliver increased cash flows, maintain
prudent leverage targets and potentially lead to a resumption of
distribution growth in 2018," added Mr. Phillips.

Fourth Quarter and Full-Year 2016 Segment Results

Gathering and Processing ("G&P") segment EBITDA totaled $61.9 million in
the fourth quarter 2016 compared to $8.2 million in the fourth quarter
2015, which includes a $51.4 million equity investment impairment and
excludes non-cash goodwill impairments and losses on long-lived assets
in the fourth quarter 2015. During the fourth quarter 2016, average
natural gas gathering volumes were 883 million cubic feet per day
("MMcf/d"), crude oil gathering volumes were 64 thousand barrels per day
("MBbls/d"), processing volumes were 217 MMcf/d and compression volumes
were 411 MMcf/d. Segment EBITDA increased quarter-over-quarter as a
result of a 5% reduction in operating expenses and increased EBITDA
generated by the Arrow, Willow Lake and PRB Niobrara systems. Full-year
G&P segment EBITDA totaled $253.7 million compared to $211.4 million in
2015, excluding goodwill impairments and losses on long-lived assets.
For the full-year 2016 compared to 2015, the G&P segment EBITDA
increased primarily due to the equity investment impairment described
above.

Storage and Transportation ("S&T") segment EBITDA totaled
$33.2 million in the fourth quarter 2016 compared to $29.2 million in
the fourth quarter 2015, excluding goodwill impairments and gains on
long-lived assets. Fourth quarter 2016 segment EBITDA reflects
Crestwood's 35% share of Stagecoach JV earnings and the recognition of
$14.3 million of deficiency payments at the COLT Hub. During the fourth
quarter 2016, natural gas storage and transportation volumes averaged
1.9 Bcf/d, compared to 2.0 Bcf/d in the fourth quarter 2015, and 1.8
Bcf/d in the third quarter 2016. Fourth quarter 2016 volumes increased
4% sequentially from the third quarter 2016 primarily as a result of
increased Northeast storage withdrawals offset by lower volumes at the
Tres Palacios storage facility. Full-year S&T segment EBITDA totaled
$154.2 million compared to $197.1 million in 2015, excluding goodwill
impairments and losses on long-lived assets. For the full year 2016
compared to 2015, the S&T segment reflects lower EBITDA primarily as a
result of seven months of deconsolidated operating results related to
the formation of the Stagecoach JV in June 2016.

Marketing, Supply and Logistics ("MS&L") segment EBITDA totaled $22.1
million in the fourth quarter 2016 compared to $28.2 million in the
fourth quarter 2015. Both periods are exclusive of non-cash goodwill
impairments and losses on long-lived assets. Fourth quarter 2016 segment
EBITDA reflects lower activity in Crestwood's trucking and terminal
business units, offset by higher margins on NGL marketing volumes in the
Northeast, due to more normalized winter weather related demand, and
record product sales at US Salt due to capital investments in recent
years. Full-year MS&L segment EBITDA totaled $60.9 million compared to
$89.8 million in 2015, excluding non-cash goodwill impairments and
losses on long-lived assets. For the full year 2016 compared to 2015,
the MS&L segment was impacted by significantly warmer than normal winter
weather during the first quarter 2016 and a full-year lower contribution
from the trucking business.

Combined O&M and G&A expenses for the full-year 2016, net of unit based
compensation and other significant costs, decreased by $37.7 million, or
15%, compared to full-year 2015. Crestwood exceeded its cost reduction
goals in 2016 by reducing employee costs, improving maintenance
practices and reducing expenses by utilizing strategic purchasing and
professional service agreements.

Business Update and Outlook

Bakken - Arrow Gathering System

On the Arrow system, average crude oil, natural gas and produced water
volumes increased 16%, 10% and 12%, respectively, in the fourth quarter
2016 compared to volumes in the third quarter 2016 despite weather in
the region that negatively impacted production levels and typically
strong year-end drilling and completions. In 2016, 48 wells were
connected to the Arrow system and it is expected that approximately 70
wells will be connected in 2017. In 2017, Crestwood plans to invest
approximately $55 million on the Arrow system to expand and upgrade
water handling facilities, increase natural gas gathering capacity and
complete an interconnect with the Dakota Access Pipeline ("DAPL") which
is expected to provide Arrow producers with access to new crude oil
markets for Bakken production and potentially higher net-back prices.
Additionally, due to the expectation of increasing gas volumes on the
Arrow system, Crestwood is evaluating a long-term gas processing
solution that will lead to increased development activity, enhanced flow
assurance, reduced flaring and improved producer natural gas net-backs
across the Arrow system. This project is not included in the current
capital spending guidance for 2017.

Delaware Basin Update

In September 2016, Crestwood contracted with a subsidiary of Royal Dutch
Shell (SWEPI) to construct, own and operate the Nautilus natural gas
gathering system in Loving and Ward counties, Texas. The system is owned
by the 50%/50% joint venture with First Reserve, which expects to invest
$90 million, $45 million net to Crestwood, for the initial system
build-out in 2017. Pipeline engineering and right of way acquisition are
substantially complete, system construction is underway with a targeted
in-service date before July 1, 2017.

During the fourth quarter 2016, the Willow Lake system averaged
gathering volumes of 43 MMcf/d and processing volumes of 38 MMcf/d
compared to volumes of 21 MMcf/d and 11 MMcf/d, respectively, in the
fourth quarter 2015. Additional Wolfcamp and Bone Springs wells are
scheduled to be connected in 2017, bringing the Willow Lake system and
plant to full capacity. Crestwood continues to work with area producers
to evaluate 2017 and 2018 drilling plans which may result in an
expansion of the Willow Lake processing facility or the construction of
the previously proposed Delaware Ranch processing plant. This project is
not included in the current capital spending guidance for 2017.

Crestwood extended and continues to operate on an exclusive basis with
an anchor shipper to develop the RIGS system located in Reeves County,
Texas in the Delaware Basin. The RIGS system, located adjacent to the
Nautilus system, will be included in the joint venture with First
Reserve. This project is not included in the current capital spending
guidance for 2017.

PRB Niobrara – Jackalope Joint Venture

On January 1, 2017, Crestwood and Williams Partners L.P. (50%/50% joint
venture) executed a new 20-year gathering and processing agreement with
Chesapeake Energy. The new fixed-fee contract, which replaces the
original cost-of-service agreement, includes minimum annual revenue
guarantees over the next five to seven years that will provide baseline
cash flow to Crestwood. During the fourth quarter 2016, Chesapeake
resumed development activity on the Jackalope system and is currently
running two drilling rigs. Crestwood expects to connect 20 to 25 wells
in 2017. No additional capital is required on the Jackalope system in
2017 as the system is currently running at 40% of total capacity.

SW Marcellus Gathering System

Crestwood has been notified that Antero Resources is completing its 22
drilled-but-uncompleted wells on Crestwood's eastern area of dedication
in 2017. Completion crews are currently onsite with four wells expected
online by the end of the first quarter 2017 and four additional wells by
the end of the second quarter 2017. The remaining 14 wells are expected
to be brought online beginning in the second half of 2017.

Barnett Shale Gathering Systems

During the fourth quarter 2016, dry and rich gathering volumes were flat
quarter-over-quarter as BlueStone Natural Resources implemented a
workover program to offset natural field decline. Recently, BlueStone
completed seven drilled but uncompleted wells and is expected to
continue workover activity to offset natural field decline on the
Barnett system in 2017.

Stagecoach Gas Services – Con Edison Joint Venture

Stagecoach Gas Services (50%/50% joint venture) in the fourth quarter
benefited from heavy storage withdrawals driven by colder winter
temperatures. These above average withdrawals reaffirm the value of
Stagecoach assets and their proximity to key East Coast demand markets.
Stagecoach is encouraged by the recent progress in the Northeast
regulatory environment enabling some previously announced infrastructure
projects in the basin to move forward. An increase in long haul
infrastructure projects is expected to benefit Stagecoach's base
business and prospects for future growth opportunities.

COLT Hub

On November 30, 2016, contracts for 60 MBbls/d of take-or-pay rail
loading volumes expired reducing the level of remaining take-or-pay rail
loading volumes to 40 MBbls/d at a weighted average rail loading fee of
approximately $1.60 per barrel. Rail loading volumes for the month of
January 2017 averaged approximately 65 MBbls/d resulting in
approximately $4.5 million of monthly cash flow. Rail loading volumes
are exceeding take-or-pay contracts levels due to increased utilization
from daily spot customers and new short-term contracts. Crestwood
connected the COLT Hub to DAPL in the fourth quarter 2016, which is
expected to attract additional volumes to the facility after DAPL is
placed into service.

NGL Marketing & Logistics

In the fourth quarter 2016, Crestwood expanded its West Coast NGL
business with the acquisition of Turner Gas Company for approximately $7
million. The acquisition included significant long-term Western US
propane customers, numerous Rocky Mountain contracts for direct NGL
supplies from processing plants and fractionators, three rail-to-truck
terminals located in Nevada and Wyoming and a truck terminal in Salt
Lake City, Utah. The acquired assets will enhance Crestwood's ability to
provide supply, transportation and storage services to wholesale
customers in the western and north central regions of the United States
and augment Crestwood's West Coast refineries services business.
Crestwood is developing a greenfield rail-to-truck NGL terminal in
Montgomery, NY that will increase propane supply reliability across the
Northeast markets. The terminal, which is expected to be placed into
service in the summer of 2017, will be supported by product controlled
by Crestwood from multiple producers in the Marcellus and Utica regions.

2017 Outlook

Based upon the business update and outlook noted above, Crestwood's 2017
guidance is provided below. These projections are subject to risks and
uncertainties as described in the "Forward-Looking Statements" section
at the end of this release.

  • Net income of $0 to $30 million
  • Adjusted EBITDA of $360 million to $390 million
  • Contribution by operating segment is set forth below:
                $US millions   Adj. EBITDA Range
Operating Segment Low High
Gathering & Processing $265 - $275
Storage & Transportation 80 - 90
Marketing, Supply & Logistics 80 - 90
Less: Corporate G&A (65) (65)
FY 2017 Totals $360

-

$390
  • Distributable cash flow of $200 million to $230 million
  • Cash distributions of $2.40 per common unit resulting in full-year
    2017 cash distribution coverage ratio of approximately 1.2x to 1.4x
  • Targeted 2017 leverage ratio between 4.0x and 4.5x
  • Growth project capital spending and joint venture contributions in the
    range of $130 million to $150 million
  • Maintenance capital spending in the range of $20 million to $25 million

Robert T. Halpin, Senior Vice President and Chief Financial Officer,
commented, "In 2017, Crestwood plans to fund all currently budgeted
capital requirements through our regional joint ventures and ample
liquidity under our revolving credit facility. Crestwood remains
committed to maintaining our targeted distribution coverage and leverage
goals as we execute our organic growth projects in the Delaware Permian
and Bakken, which will drive growing cash flows and increased
distribution coverage in 2018."

Capitalization and Liquidity Update

As of December 31, 2016, Crestwood had approximately $1.6 billion of
debt outstanding, comprised primarily of $1.5 billion of fixed-rate
senior notes and $77 million outstanding under its $1.5 billion
revolving credit facility. Crestwood's leverage ratio was 3.7x compared
to the leverage covenant under its revolving credit facility of 5.5x.
Crestwood currently has 68.0 million preferred units outstanding which
pay an annual distribution of 9.25% payable quarterly in cash or through
the issuance of additional preferred units.

Goodwill and Long-Lived Asset Charges

Generally Accepted Accounting Principles ("GAAP") required Crestwood to
record the assets and goodwill in its storage and transportation segment
and marketing, supply and logistics segment at fair value when the
assets were acquired in 2013, and further require subsequent analysis to
assess the recoverability of assigned values, including goodwill.

As a result of this analysis, Crestwood recorded goodwill and long-lived
asset impairments of $84 million during the fourth quarter of 2016 ($228
million for full-year 2016), primarily related to its COLT Hub and
trucking assets, and impairments of $1.3 billion during the fourth
quarter of 2015 ($2.2 billion for full-year 2015), primarily related to
its COLT Hub, trucking and Barnett shale assets. These impairments
primarily resulted from decreasing forecasted cash flows from these
assets and increasing the discount rate utilized in determining the fair
value of these assets when taking into consideration continued commodity
price weakness and its impact on the midstream industry and Crestwood's
customers in these areas.

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