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Our Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and the accompanying footnotes and Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2020 Annual Report on Form 10-K. 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 that would 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, followed or containing forward-looking terminology, in particular the words “believe”, “expect”, “may”, “will”, “should”, “could”, “anticipate”, “estimate”, ” intention “or its negation, 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; •outbreak of illness, pandemic or any other public health crisis, including the COVID-19 pandemic; •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; •the availability of storage for hydrocarbons; •the ability of members of theOrganization of Petroleum Exporting Countries (OPEC) and other oil-producing countries to agree and maintain oil price and production controls; •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); •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. For additional factors that could cause actual results to be materially different from those described in the forward-looking statements, see Part I, Item 1A. Risk Factors of our 2020 Annual Report on Form 10-K and Part II, Item 1A. Risk Factors of this Quarterly Report on Form 10-Q.
Outlook and trends
Our business goal is to create long-term value for our unitholders. We plan to create value for our investors by driving stable operating margins and improving cash flow from our diversified middle business with prudence.
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financing investments in our assets and expansions of our portfolio, maximizing throughput and optimizing services on our assets, and effectively controlling our capital expenditures, operating and administrative costs. We have taken a number of strategic steps to better position the Company as a stronger, better capitalized company that can accretively grow cash flows and as an industry leader in Environmental, Social and Governance (ESG) efforts. During 2021, CEQP paidCrestwood Holdings approximately$268 million to (i) acquire approximately 11.5 million CEQP common units, 0.4 million subordinated units of CEQP and 100% of the equity interests ofCrestwood Marcellus Holdings LLC andCrestwood Gas Services Holdings LLC (whose assets consisted solely of CEQP common and subordinated units and 1% of the limited partner interests inCrestwood Holdings LP ); and (ii) acquire the general partner and the remaining 99% limited partner interests ofCrestwood Holdings LP (whose assets consist solely of its ownership interest inCrestwood Equity GP LLC , which owns CEQP's non-economic general partner interest) (collectively theCrestwood Holdings Transactions). The purchase price was funded through borrowings under theCrestwood Midstream credit facility. The Crestwood Holdings Transactions resulted in CEQP retiring the common and subordinated units acquired fromCrestwood Holdings . The Crestwood Holdings Transactions were a significant step in our strategy to drive peer leading governance and set the stage for future growth by simplifying our organizational structure, increasing our public float and liquidity and enhancing our financial flexibility as we strive to generate long-term value for our unitholders. Additionally, in connection with theCrestwood Holdings Transactions,Crestwood Holdings repaid all of its outstanding debt which further enhances CEQP's future flexibility around capital allocation priorities and eliminates any potential future risks around a change of control related toCrestwood Holdings' debt as previously described in Part I, Item 1A. Risk Factors of our 2020 Annual Report on Form 10-K. In conjunction with the completion of the Crestwood Holdings Transactions, CEQP will transition to a traditional public company governance structure with a publicly elected board of directors beginning in 2022 which further ensures alignment between management and the Board of Directors with common unitholders and is consistent with our long-term ESG program. To further enhance our financial flexibility and execute our long-term business strategy, inJuly 2021 ,Stagecoach Gas sold certain of its wholly-owned subsidiaries to a subsidiary of Kinder Morgan, Inc. (Kinder Morgan) for approximately$1.195 billion plus certain purchase price adjustments (Initial Closing) pursuant to a purchase and sale agreement dated as ofMay 31, 2021 between our wholly owned subsidiary,Crestwood Pipeline and Storage Northeast LLC (Crestwood Northeast),Con Edison Gas Pipeline and Storage Northeast, LLC (CEGP), a wholly owned subsidiary of Consolidated Edison, Inc.,Stagecoach Gas and Kinder Morgan.Stagecoach Gas distributed to us approximately$614 million as our proportionate share of the gross proceeds received from the sale. Following the Initial Closing and subject to certain customary closing conditions, Crestwood Northeast and CEGP will sell each of their equity interests inStagecoach Gas and its wholly-owned subsidiary,Twin Tier Pipeline LLC (Second Closing) to Kinder Morgan for approximately$30 million , subject to certain closing adjustments. We anticipate the Second Closing to occur either in the fourth quarter of 2021 or first quarter of 2022.The Stagecoach Gas divestiture enabled us to decrease our net debt to consolidated EBITDA ratio of our revolving credit facility below 3.5x atSeptember 30 . 2021, which should position us to utilize a greater portion of our cash flow going forward to increase returns to our unitholders through continued distributions, prudent capital investments around our higher-growth gathering and processing assets, and opportunistic repurchases of our preferred and common units under our approved$175 million unit repurchase program described below in "Liquidity and Sources of Capital". We continue to drive our long-term growth strategy through disciplined capital investments utilizing our current financial flexibility, and onOctober 25, 2021 , we entered into a merger agreement with Oasis Midstream Partners LP (Oasis Midstream) under which we will acquire Oasis Midstream in an equity and cash transaction valued at approximately$1.8 billion . Pursuant to the merger agreement, Oasis Petroleum Inc. (Oasis Petroleum) will receive$150 million in cash plus 21.0 million newly issued CEQP common units in exchange for its 33.8 million common units held in Oasis Midstream. In addition, Oasis Midstream's public unitholders will receive 12.9 million newly issued CEQP common units in exchange for the 14.8 million Oasis Midstream common units held by them. Additionally, under the merger agreement, Oasis Petroleum will receive a$10 million cash payment for its ownership of the general partner of Oasis Midstream. This transaction further solidifies Crestwood's competitive position in theWilliston Basin with exposure to approximately 1,200 drilling locations and 535,000 dedicated acres and expands the company's relationship with Oasis Petroleum. Additionally, Oasis Midstream'sWild Basin gathering and processing assets are highly complementary with our Arrow gathering system and Bear Den processing facility which provides for immediate opportunities to drive cost savings and commercial synergies and better utilization of available gas processing capacity. 40
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In addition to the strategic steps discussed above, we have also taken steps to (i) minimize capital expenditures to better align with development activity by our gathering and processing customers; (ii) realign our organization to reduce operating and administrative expenses; (iii) engage with our customers to maintain volumes across our asset portfolio; (iv) optimize our storage, transportation and marketing assets to take advantage of regional commodity price volatility; and (v) evaluate our debt and equity structure to preserve liquidity and ensure balance sheet strength. Given our efforts over the past few years to improve the partnership's competitive position in the businesses we operate, manage costs and improve margins and create a stronger balance sheet, we believe the Company is well positioned to execute its business plan.
Recent developments
Bakken DAPL Matter. InJuly 2020 , aU.S. District Court (District Court) ordered the Dakota Access Pipeline (DAPL) to cease operation based on an alleged procedural permitting failure. OnAugust 5, 2020 , theU.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit ) stayed the DAPL shutdown, and set an expedited briefing schedule to determine the merits of the District Court's decision. The D.C. Circuit issued an opinion onJanuary 26, 2021 , which upheld the District Court's decision on the merits, but did not rule on whether DAPL should be prohibited from continued operation. The plaintiffs sought another injunction against DAPL's continued operation, which was denied by the District Court inMay 2021 .The U.S. Army Corps of Engineers is currently conducting an environmental impact statement, which is expected to be complete in 2022 and we expect that DAPL will remain in operation while the environmental impact statement is being completed. The Arrow gathering system currently connects to the DAPL, Hiland, Tesoro and True Companies'Bridger Four Bears pipelines, providing significant downstream delivery capacity for our Arrow customers. Additionally, we can transport Arrow crude volumes to our COLT Hub facility by pipeline or truck, which mitigates the impact to our producers with the ability to access multiple markets out of the basin. Regulatory Matters TheFederal Energy Regulatory Commission (FERC) issued a Notice of Inquiry (NOI) onApril 19, 2018 (2018 NOI) initiating a review of its policies on certification of natural gas pipelines, including an examination of its long-standing Policy Statement on Certification ofNew Interstate Natural Gas Pipeline Facilities (1999 Policy Statement), issued in 1999, that is used to determine whether to grant certificates for new pipeline projects. OnFebruary 18, 2021 , theFERC issued another NOI (2021 NOI), reopening its review of the 1999 Policy Statement. Comments on the 2021 NOI were due onMay 26, 2021 , and although theFERC has not taken any further action regarding the 2018 NOI or 2021 NOI, we are unable to predict what, if any, changes may be proposed as a result of the NOIs that will affect our natural gas pipeline operations or when such proposals, if any, might become effective.
How we evaluate our operations
We assess our overall business performance based primarily on EBITDA and Adjusted EBITDA. We do not use amortization and accretion charges in our key metrics because we focus our performance management on generating cash flow and our assets have a long useful life.
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 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 gains and losses on
long-lived assets and other impairments. Adjusted EBITDA also considers the
impact of certain significant items, such as unit-based compensation charges,
gains or losses on long-lived assets, impairments of 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 realignment and restructuring of
our operations and corporate structure, 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
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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.
Results of operations
The following tables summarize our operating results (in millions):
Crestwood Equity
Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2021 2020 2021 2020 2021 2020 2021 2020
Revenues $ 1,226.3 $ 519.2 $ 3,188.6 $ 1,599.8 $ 1,226.3 $ 519.2 $ 3,188.6 $ 1,599.8
Costs of product/services sold 1,099.3 358.7 2,710.3 1,118.8 1,099.3 358.7 2,710.3 1,118.8
Operations and maintenance expense 31.6 31.0 90.2 100.2 31.6 31.0 90.2 100.2
General and administrative expense 25.9 19.6 67.4 64.0 24.4 18.5 61.3 60.4
Depreciation, amortization and accretion 64.6 60.8 182.6 177.9 68.2 64.2 193.2 188.4
Loss on long-lived assets, net 18.5 21.3 19.6 26.1 18.5 21.3 19.6 26.1
Goodwill impairment - - - 80.3 - - - 80.3
Operating income (loss) (13.6) 27.8 118.5 32.5 (15.7) 25.5 114.0 25.6
Earnings (loss) from unconsolidated
affiliates, net 4.9 10.5 (125.9) 24.4 4.9 10.5 (125.9) 24.4
Interest and debt expense, net (30.9) (33.7) (102.0) (100.3) (30.9) (33.7) (102.0) (100.3)
Loss on modification/extinguishment of
debt - - (6.7) - - - (6.7) -
Other income, net 0.1 - 0.2 0.2 - - - -
(Provision) benefit for income taxes (0.1) - (0.1) 0.1 (0.1) - (0.1) 0.2
Net income (loss) (39.6) 4.6 (116.0) (43.1) (41.8) 2.3 (120.7) (50.1)
Add:
Interest and debt expense, net 30.9 33.7 102.0 100.3 30.9 33.7 102.0 100.3
Loss on modification/extinguishment of
debt - - 6.7 - - - 6.7 -
Provision (benefit) for income taxes 0.1 - 0.1 (0.1) 0.1 - 0.1 (0.2)
Depreciation, amortization and accretion 64.6 60.8 182.6 177.9 68.2 64.2 193.2 188.4
EBITDA 56.0 99.1 175.4 235.0 57.4 100.2 181.3 238.4
Unit-based compensation charges 12.9 8.1 22.8 17.3 12.9 8.1 22.8 17.3
Loss on long-lived assets, net 18.5 21.3 19.6 26.1 18.5 21.3 19.6 26.1
Goodwill impairment - - - 80.3 - - - 80.3
(Earnings) loss from unconsolidated
affiliates, net (4.9) (10.5) 125.9 (24.4) (4.9) (10.5) 125.9 (24.4)
Adjusted EBITDA from unconsolidated
affiliates, net 9.8 20.4 56.5 57.6 9.8 20.4 56.5 57.6
Change in fair value of commodity
inventory-related derivative contracts 46.8 (3.0) 48.9 12.7 46.8 (3.0) 48.9 12.7
Significant transaction and environmental
related costs and other items 0.8 0.6 1.9 10.6 0.7 0.6 (0.4) 10.6
Adjusted EBITDA $ 139.9 $ 136.0 $ 451.0 $ 415.2 $ 141.2 $ 137.1 $ 454.6 $ 418.6
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Crestwood Equity Crestwood Midstream
Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2021 2020 2021 2020 2021 2020 2021 2020
Net cash provided by operating
activities $ 79.4 $ 111.9 $ 372.9 $ 295.3 $ 81.3 $ 112.9 $ 378.5 $ 294.0
Net changes in operating assets
and liabilities (25.1) (15.5) (114.8) (26.9) (25.3) (15.3) (114.1) (21.8)
Amortization of debt-related
deferred costs (1.7) (1.7) (5.1) (4.9) (1.7) (1.7) (5.1) (4.9)
Interest and debt expense, net 30.9 33.7 102.0 100.3 30.9 33.7 102.0 100.3
Unit-based compensation charges (12.9) (8.1) (22.8) (17.3) (12.9) (8.1) (22.8) (17.3)
Loss on long-lived assets, net (18.5) (21.3) (19.6) (26.1) (18.5) (21.3) (19.6) (26.1)
Goodwill impairment - - - (80.3) - - - (80.3)
Earnings (loss) from
unconsolidated affiliates, net,
adjusted for cash distributions
received 3.6 - (137.5) (5.4) 3.6 - (137.5) (5.4)
Deferred income taxes 0.3 0.1 0.4 0.4 - - - 0.1
Provision (benefit) for income
taxes 0.1 - 0.1 (0.1) 0.1 - 0.1 (0.2)
Other non-cash income (0.1) - (0.2) - (0.1) - (0.2) -
EBITDA 56.0 99.1 175.4 235.0 57.4 100.2 181.3 238.4
Unit-based compensation charges 12.9 8.1 22.8 17.3 12.9 8.1 22.8 17.3
Loss on long-lived assets, net 18.5 21.3 19.6 26.1 18.5 21.3 19.6 26.1
Goodwill impairment - - - 80.3 - - - 80.3
(Earnings) loss from
unconsolidated affiliates, net (4.9) (10.5) 125.9 (24.4) (4.9) (10.5) 125.9 (24.4)
Adjusted EBITDA from
unconsolidated affiliates, net 9.8 20.4 56.5 57.6 9.8 20.4 56.5 57.6
Change in fair value of
commodity inventory-related
derivative contracts 46.8 (3.0) 48.9 12.7 46.8 (3.0) 48.9 12.7
Significant transaction and
environmental related costs and
other items 0.8 0.6 1.9 10.6 0.7 0.6 (0.4) 10.6
Adjusted EBITDA $ 139.9 $ 136.0 $ 451.0 $ 415.2 $ 141.2 $ 137.1 $ 454.6 $ 418.6
Segment Results
The following table summarizes the EBITDA of our segments (in millions):
Three Months Ended Three Months Ended
September 30, 2021 September 30, 2020
Marketing,
Gathering and Storage and Supply and Gathering and Storage and Marketing, Supply
Processing Transportation Logistics Processing Transportation and Logistics
Revenues $ 171.2 $ 2.0 $ 1,053.1 $ 145.2 $ 3.5 $ 370.5
Intersegment revenues 125.6 2.3 (127.9) 44.9 1.9 (46.8)
Costs of product/services sold 150.1 (0.2) 949.4 63.2 - 295.5
Operations and maintenance
expenses 19.5 1.5 10.6 19.4 0.7 10.9
Loss on long-lived assets, net (18.5) - - (19.1) - (2.4)
Earnings from unconsolidated
affiliates, net 4.2 0.7 - 0.5 10.0 -
EBITDA $ 112.9 $ 3.7 $ (34.8) $ 88.9 $ 14.7 $ 14.9
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Nine Months Ended Nine Months Ended
September 30, 2021 September 30, 2020
Marketing, Marketing,
Gathering and Storage and Supply and Gathering and Storage and Supply and
Processing Transportation Logistics Processing Transportation Logistics
Revenues $ 498.9 $ 6.0 $ 2,683.7 $ 474.6 $ 10.1 $ 1,115.1
Intersegment revenues 315.1 7.8 (322.9) 99.2 6.9 (106.1)
Costs of product/services sold 387.2 (0.2) 2,323.3 192.8 0.3 925.7
Operations and maintenance
expenses 55.6 3.1 31.5 65.7 2.8 31.7
Gain (loss) on long-lived
assets, net (19.7) - 0.1 (23.7) - (2.6)
Goodwill impairment - - - (80.3) - -
Earnings (loss) from
unconsolidated affiliates, net 4.4 (130.3) - 0.3 24.1 -
EBITDA $ 355.9 $ (119.4) $ 6.1 $ 211.6 $ 38.0 $ 49.0
Below is a discussion of the factors that impacted EBITDA by segment for the
three and nine months ended September 30, 2021 compared to the same periods in
2020.
Gathering and Processing
EBITDA for our gathering and processing segment increased by approximately $24.0
million and $144.3 million during the three and nine months ended September 30,
2021 compared to the same periods in 2020. Our gathering and processing
segment's EBITDA for the three and nine months ended September 30, 2021 and 2020
were impacted by losses we recorded related to our long-lived assets, which are
further described below, and an $80.3 million goodwill impairment recorded
during the nine months ended September 30, 2020 related to our Jackalope
operations (see Item 1. Financial Statements, Note 2 for a further discussion of
this impairment).
Our gathering and processing segment's revenues increased by approximately
$106.7 million and $240.2 million during the three and nine months ended
September 30, 2021 compared to the same periods in 2020, while our costs of
product/services sold increased by approximately $86.9 million and $194.4
million during those same periods. The increases were primarily driven by higher
volumes on our Arrow system (described below) and higher average prices (i.e.,
more than an 75% increase in commodity prices during the three months ended
September 30, 2021 compared to the same period in 2020) that our gathering and
processing segment realized on its agreements under which it purchases and sells
crude oil, natural gas and NGLs during the three and nine months ended September
30, 2021 compared to the same periods in 2020. During the three months ended
September 30, 2021 , Arrow's natural gas gathering and processing volumes
increased by 17% and 14%, respectively and during the nine months ended
September 30, 2021 , Arrow's natural gas gathering and processing volumes
increased by 27% and 28%, respectively, compared to the same periods in 2020.
Also contributing to the increase in our gathering and processing segment's
revenues and costs of product/services sold were higher gathering and processing
volumes on our Jackalope system during the three months ended September 30, 2021
compared to the same period in 2020, primarily due to its major customer
bringing production back online during late 2020 and early 2021. During the
three months ended September 30, 2021 , Jackalope's natural gas gathering and
processing volumes increased by 41% and 37%, respectively. Partially offsetting
the increase in our gathering and processing segment's revenues for the nine
months ended September 30, 2021 were lower revenues from our Fayetteville
operations due to the sale of these assets in October 2020 .
Our gathering and processing segment's operations and maintenance expenses
decreased by approximately $10.1 million during the nine months ended September
30, 2021 compared to the same period in 2020, primarily due to the sale of our
Fayetteville assets in October 2020 and efforts we undertook starting in the
second quarter of 2020 to reduce costs in response to lower commodity prices
during that period. Our gathering and processing segment's operations and
maintenance expenses were relatively flat during the three months ended
September 30, 2021 compared to the same period in 2020.
Our gathering and processing segment's EBITDA was impacted by a loss on
long-lived assets of approximately $19 million during the three and nine months
ended September 30, 2021 related to the abandonment and dismantlement of certain
of our Marcellus West Union compressor station assets. For a further discussion
on the abandonment and dismantlement of our Marcellus West Union compressor
station assets, see Item 1. Financial Statements, Note 2. Our gathering and
processing segment's EBITDA for the three and nine months ended September 30,
2020 was impacted by a loss on long-lived assets of approximately $19.9 million
related to the sale of our Fayetteville assets in October 2020 . In addition,
during the nine months
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ended
Our gathering and processing segment's EBITDA was also impacted by an increase in equity earnings of approximately$4 million from our Crestwood Permian equity investment during both the three and nine months endedSeptember 30, 2021 compared to the same periods in 2020. During the three and nine months endedSeptember 30, 2021 , Crestwood Permian experienced an increase in its natural gas gathering and processing revenues and volumes primarily due to its customers connecting more wells to its system during 2021 as a result of the increases in commodity prices compared to the same periods in 2020. During the nine months endedSeptember 30, 2021 , Crestwood Permian experienced an increase in its water gathering revenues and volumes compared to the same period in 2020 primarily due to placing in-service its produced water gathering and disposal system in late second quarter of 2020. Partially offsetting these increases during the nine months endedSeptember 30, 2021 were higher electricity costs experienced during the first quarter of 2021 due to the unusual weather conditions experienced during that period.
EBITDA for our storage and transportation segment decreased by approximately$11.0 million and$157.4 million during the three and nine months endedSeptember 30, 2021 compared to the same periods in 2020. Our EBITDA for the three and nine months endedSeptember 30, 2021 was impacted by a reduction to the equity earnings from ourStagecoach Gas investment as further discussed below. During the both the three and nine months endedSeptember 30, 2021 , COLT's rail loading volumes decreased by 4% compared to the same periods in 2020 due to lower demand for rail loading services which resulted in a decrease in revenues of approximately$1.1 million and$3.2 million . Our storage and transportation segment's costs of product/services sold and operations and maintenance expenses were relatively flat during the three and nine months endedSeptember 30, 2021 compared to the same periods in 2020. Our storage and transportation segment's EBITDA was also impacted by a net decrease in earnings from unconsolidated affiliates during both the three and nine months endedSeptember 30, 2021 compared to the same periods in 2020. InJuly 2021 ,Stagecoach Gas sold certain of its wholly-owned subsidiaries to a subsidiary of Kinder Morgan, which resulted in a decrease in equity earnings from ourStagecoach Gas equity investment of approximately$9.0 million during the three months endedSeptember 30, 2021 compared to the same period in 2020 due to our 2021 results not reflecting a full quarter of equity earnings from theStagecoach Gas assets which were sold. During the nine months endedSeptember 30, 2021 , our earnings from ourStagecoach Gas equity investment were reduced by approximately$155.4 million as a result of recording our proportionate share of a loss on long-lived assets (including goodwill) recorded by ourStagecoach Gas equity investment related to the sale ofStagecoach Gas . In addition, our earnings from unconsolidated affiliates during the nine months endedSeptember 30, 2021 were also reduced by our proportionate share of transaction costs of approximately$3.0 million related to the sale of theStagecoach Gas equity investment. For a further discussion of these matters, see Item 1. Financial Statements, Note 5. During the nine months endedSeptember 30, 2021 , earnings from ourTres Holdings equity investment increased by approximately$8.9 million compared to the same period in 2020, primarily due to higher revenues from gas inventory sales and an increase in demand for its storage and transportation services due to the unusually cold weather experienced during early 2021 compared to 2020. During the nine months endedSeptember 30, 2021 , earnings from our PRBIC equity investment increased by$4.4 million compared to the same period in 2020, primarily as a result of recording our proportionate share of a loss on long-lived assets impairment recorded by our PRBIC equity investment during 2020.
Marketing, Procurement and Logistics
EBITDA for our marketing, supply and logistics segment decreased by approximately$49.7 million and$42.9 million during the three and nine months endedSeptember 30, 2021 compared to the same periods in 2020, which was driven primarily by unrealized losses on our price risk management activities during 2021, which is further described below. Our marketing, supply and logistics segment's revenues increased by approximately$601.5 million and$1,351.8 million during the three and nine months endedSeptember 30, 2021 compared to the same periods in 2020, while our costs of product/services sold increased by$653.9 million and$1,397.6 million during those same periods. Our NGL marketing and logistics operations experienced an increase in revenues of approximately$415.5 million and$892.6 million during the three and nine months endedSeptember 30, 2021 compared to the same periods in 2020, and an increase in its costs of product/services of approximately$464.1 million and$938.9 million during those same periods. These increases were primarily due to increases in NGL prices during 2021 compared to 2020 as a result of overall increases in commodity 45
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prices and the unusually cold weather experienced during early 2021 compared to 2020. Our NGL marketing and logistics operations' costs of product/services sold increased more than its revenues primarily due to the impact that the significant increase in crude, natural gas and NGL commodity prices (described above) had on our price risk management activities that primarily hedged our company-wide commodity exposures during 2021. Included in our costs of product/services sold was a loss of$53.4 million and$94.8 million during the three and nine months endedSeptember 30, 2021 , and a loss of$1.8 million and a gain of$13.4 million during the three and nine months endedSeptember 30, 2020 related to our price risk management activities. Partially offsetting the impact of our price risk management activities was the impact of the operating results of the NGL assets acquired from Plains All American Pipeline, L.P. (Plains) inApril 2020 , which increased our ability to capture additional opportunities in the markets in which these assets operate. Our crude and natural gas marketing operations experienced an increase in its revenues of approximately$186.0 million and$459.2 million during the three and nine months endedSeptember 30, 2021 compared to the same periods in 2020, and an increase in its product costs of approximately$189.8 million and$458.7 million during those same periods. These increases were driven primarily driven by an increase in marketing activity surrounding our crude-related operations primarily in the Bakken as a result of higher commodity prices and an increase in marketing activity surrounding our natural-gas related operations driven by unusual winter weather conditions experience during early 2021.
Other EBITDA results
General and Administrative Expenses. During the three months endedSeptember 30, 2021 , our general and administrative expenses increased by approximately$6 million compared to the same period in 2020, primarily due to higher unit-based compensation charges driven by higher average awards outstanding under our long-term incentive plans.Crestwood Midstream's general and administrative expenses were relatively flat during the nine months endedSeptember 30, 2021 compared to the same period in 2020 due to the impact of cost reductions we under took beginning in the second quarter of 2020.Crestwood Equity's general and administrative expenses increased by approximately$3.4 million during the nine months endedSeptember 30, 2021 compared to the same period in 2020 due to transaction costs that were expensed related to theCrestwood Holdings Transactions discussed in Item 1. Financial Statements, Note 1.
Items not affecting EBITDA are as follows:
Depreciation, Amortization and Accretion Expense. During the three and nine months endedSeptember 30, 2021 compared to the same periods in 2020, our depreciation, amortization and accretion expense increased by approximately$4 million and$5 million , respectively, primarily due to acquisition of the NGL assets acquired from Plains inApril 2020 , placing in-service the expansion of our processing capacity at our Bucking Horse processing facility on ourPowder River Basin system in early 2020, and the expansion of our gathering and processing facilities at our Arrow system. Partially offsetting these increases was lower depreciation, amortization and accretion expense due to the sale of our Fayetteville assets in late 2020. Interest and Debt Expense, Net. Interest and debt expense, net decreased by approximately$2.8 million during the three months endedSeptember 30, 2021 compared to the same period in 2020, primarily due to lower average outstanding balances on ourCrestwood Midstream credit facility. During the nine months endedSeptember 30, 2021 , our interest and debt expense, net increased by approximately$1.7 million compared to the same period in 2020, primarily due to the issuance of$700 million unsecured senior notes inJanuary 2021 and lower capitalized interest period over period due to the timing of growth capital projects primarily in thePowder River Basin , partially offset by lower average outstanding balances on ourCrestwood Midstream credit facility. The following table provides a summary of interest and debt expense (in millions): Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Credit facility$ 3.1 $ 5.5 $ 12.0 $ 18.0 Senior notes 26.1 26.6 82.9 79.7 Other 1.8 1.7 7.4 5.3 Gross interest and debt expense 31.0 33.8 102.3 103.0 Less: capitalized interest 0.1 0.1 0.3 2.7 Interest and debt expense, net$ 30.9 $ 33.7 $ 102.0 $ 100.3 46
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Loss on Extinguishment of Debt. During the nine months endedSeptember 30, 2021 , we recognized a loss on extinguishment of debt of approximately$6.7 million in conjunction with the redemption of our 2023 Senior Notes.
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 and contributions from us 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 quarterly cash 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. OnOctober 14, 2021 , we declared a quarterly cash distribution of$0.625 per unit to our common unitholders, which will be paid onNovember 12, 2021 and was consistent with the distribution paid inAugust 2021 . Based on our financial performance during the nine months endedSeptember 30, 2021 , and our estimates of our financial performance for future quarters, we believe the current level of distributions is appropriate. As described above, the Crestwood Holdings Transactions resulted inCrestwood Equity acquiring and cancelling approximately 11.5 million common units, which decreased our anticipated annual distributions (at the current annual rate of$2.50 per unit) by approximately$29 million per year and eliminates any future consideration by our board of directors regarding the level of distributions to our unitholders of any risks created byCrestwood Holdings' debt (which was fully repaid as ofSeptember 30, 2021 ). We also pay quarterly cash distributions of approximately$15 million to our preferred unitholders and beginning with the first quarter of 2021, we pay quarterly cash distributions of approximately$10 million to Crestwood Niobrara's non-controlling partner. We believe our operating cash flows will exceed cash distributions to our partners, preferred unitholders and non-controlling partner, and as a result, we will have adequate operating cash flows as a source of liquidity for our growth capital expenditures. InMarch 2021 ,Crestwood Equity's board of directors authorized a$175 million common unit and preferred unit repurchase program effective throughDecember 31, 2022 . Pursuant to the program, we may purchase common and preferred units from time to time in the open market in accordance with applicable securities laws at current market prices. The timing and amount of purchases under the program will be determined based on growth capital opportunities, financial performance and outlook, and other factors, including acquisition opportunities and market conditions. The unit repurchase program does not obligate us to purchase any specific dollar amount or number of units and may be suspended or discontinued at any time. As ofSeptember 30, 2021 , we had$985.3 million of available capacity under theCrestwood Midstream credit facility considering the most restrictive debt covenants in the credit agreement. As ofSeptember 30, 2021 , we were in compliance with all of our debt covenants applicable to the credit facility and senior notes. We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions, tender offers or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. During the nine months endedSeptember 30, 2021 , we redeemed and cancelled approximately$687.2 million of principal outstanding under the 2023 Senior Notes, utilizing a portion of the proceeds from the issuance of the 2029 Senior Notes and borrowings under ourCrestwood Midstream credit facility. InJuly 2021 ,Stagecoach Gas closed on the sale of certain of its wholly-owned subsidiaries to a subsidiary of Kinder Morgan and distributed to us approximately$614 million as our proportionate share of the gross proceeds received from the sale. We utilized approximately$3 million of these proceeds to pay transaction costs related to the sale described above,$40 million of these proceeds to pay our contingent consideration obligation and related accrued interest, and the remainder of these proceeds to repay a portion of the amounts outstanding under theCrestwood Midstream credit facility. 47
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Cash flow
The following table provides a summary ofCrestwood Equity's cash flows by category (in millions): Nine Months Ended September 30, 2021 2020 Net cash provided by operating activities$ 372.9 $
295.3
Net cash provided by (used in) investing activities
Net cash used in financing activities
$ (955.5) $ (8.8) Operating Activities Our operating cash flows increased by approximately$77.6 million during the nine months endedSeptember 30, 2021 compared to the same period in 2020. The increase was primarily driven by an increase in net cash inflow from working capital of approximately$87.9 million , driven mostly by the sale of higher levels of NGL inventory at the close of the winter season during the nine months endedSeptember 30, 2021 compared to the same period in 2020 due to increased activity primarily from the NGL assets acquired from Plains during the second quarter of 2020. Partially offsetting this net increase was higher costs of product/services sold of approximately$1,591.5 million , partially offset by higher operating revenues of approximately$1,588.8 million primarily from our marketing, supply and logistics segment and gathering and processing segment as discussed in Results of Operations above. In addition, during the nine months endedSeptember 30, 2021 , our equity earnings from ourStagecoach Gas equity investment were lower due to the sale of certain of its assets inJuly 2021 which resulted in a reduction in our net operating cash flows compared to the same period in 2020. Investing Activities
Capital expenditure. Intermediate energy activity is capital intensive, requiring significant investments for the acquisition or development of new facilities. We classify our capital expenditures as follows:
• growth capital expenditures, which are made to build additional assets, expand and upgrade existing systems, or acquire additional assets; Where
•maintenance capital expenditures, which are made to replace partially or fully depreciated assets, to maintain the existing operating capacity of our assets, extend their useful lives or comply with regulatory requirements. Our growth capital expenditures during the year will increase the services we can provide to our customers and the operating efficiencies of our systems. We expect to finance our capital expenditures with a combination of cash generated by our operating subsidiaries, distributions received from our equity investments and borrowings under our credit facility. Additional commitments or expenditures will be made at our discretion, and any discontinuation of these construction projects could result in less future operating cash flows and earnings.
The following table summarizes our capital expenditures for the nine month period ended.
Growth capital (1)$ 40.9 Maintenance capital 13.1 Other (2) 1.8 Purchases of property, plant and equipment$ 55.8
(1) Includes
Investments in Unconsolidated Affiliates. During the nine months endedSeptember 30, 2021 and 2020, we contributed approximately$6.9 million and$6.0 million to ourTres Holdings equity investment for its operating purposes. During the nine months endedSeptember 30, 2021 , we contributed approximately$3.3 million to our Crestwood Permian equity investment primarily to fund its expansion projects. During the nine months endedSeptember 30, 2021 , we received a distribution fromStagecoach Gas of approximately$614 million , which represented our proportionate share of the gross proceeds received byStagecoach Gas related to the sale of certain of its assets to Kinder Morgan as discussed above. 48
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The following equity and debt transactions impacted our financing activities during the nine months ended
Equity and debt transactions
• During the nine months ended
•During the nine months endedSeptember 30, 2021 , distributions to our partners decreased by approximately$11.7 million compared to the same period in 2020, primarily due to the decrease in common units outstanding as a result of the Crestwood Holdings Transactions;
• During the nine months ended
• During the nine months ended
• During the nine months ended
Summary financial information of the guarantor
Crestwood Midstream andCrestwood Midstream Finance Corp. are issuers of our debt securities (the Issuers).Crestwood Midstream is a holding company and owns no operating assets and has no significant operations independent of its subsidiaries.Crestwood Midstream Finance Corp. isCrestwood Midstream's 100% owned subsidiary and has no material assets or operations other than those related to its service as co-issuer of our senior notes. Obligations underCrestwood Midstream's senior notes and its credit facility are jointly and severally guaranteed by substantially all of its subsidiaries (collectively, the Guarantor Subsidiaries), except forCrestwood Infrastructure Holdings LLC ,Crestwood Niobrara LLC ,Crestwood Pipeline and Storage Northeast LLC ,Powder River Basin Industrial Complex LLC , andTres Palacios Holdings LLC and their respective subsidiaries (collectively, Non-Guarantor Subsidiaries). The assets and credit of our Non-Guarantor Subsidiaries are not available to satisfy the debts of the Issuers or Guarantor Subsidiaries, and the liabilities of our Non-Guarantor Subsidiaries do not constitute obligations of the Issuers or Guarantor Subsidiaries. For additional information regarding our credit facility and senior notes and related guarantees, see our 2020 Annual Report on Form 10-K and Item 1. Financial Statements, Note 8 of this Quarterly Report on Form 10-Q. The following tables provide summarized financial information for the Issuers and Guarantor Subsidiaries (collectively, theObligor Group ) on a combined basis after elimination of significant intercompany balances and transactions between entities in theObligor Group . The investment balances in the Non-Guarantor Subsidiaries have been excluded from the supplemental summarized combined financial information. Transactions with other related parties, including the Non-Guarantor Subsidiaries, represent affiliate transactions and are presented separately in the summarized combined financial information below. 49
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Information on the summary combined balance sheet (in millions)
September 30, 2021 December 31, 2020 Current assets $ 615.9 $ 371.3 Current assets - affiliates $ 5.8 $ 1.1 Property, plant and equipment, net $ 2,215.9 $ 2,295.2 Non-current assets $ 657.4 $ 696.2 Current liabilities $ 752.4 $ 345.4 Current liabilities - affiliates $ 16.8 $
5.0
Long-term debt, less current portion $ 2,024.9 $ 2,483.8 Non-current liabilities
$ 144.1 $ 157.4
Information on the condensed combined income statement (in millions)
Nine Months Ended
September 30, 2021
Revenues $ 3,105.2
Revenues - affiliates $ 28.3
Cost of products/services sold $ 2,603.0
Cost of products/services sold - affiliates $ 101.3
Operations and maintenance expenses(1) $ 76.2
General and administrative expenses, net(2) $ 61.3
Operating income $ 121.5
Net income $ 14.8
(1) We have operating agreements with certain of our affiliates pursuant to
which we charge them operations and maintenance expenses in accordance with
their respective agreements, and these charges are reflected as a reduction of
operations and maintenance expenses in our consolidated statements of
operations. During the nine months ended September 30, 2021 , we charged $23.9
million to our affiliates under these agreements.
(2) Includes $19.8 million of net general and administrative expenses that were
charged by our affiliates to us.
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