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Crestwood Equity Partners LLC (NYSE:CEQP)
Q4 2018 Earnings Conference Call
Feb. 19, 2019, 9:00 a.m. ET


Prepared Remarks:


Good morning and welcome to today's conference call to discuss Crestwood Equity Partners' Fourth Quarter 2018 Financial and Operating Results and 2019 Outlook.

Before we begin the call, listeners 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 today with prepared remarks are Chairman, President and Chief Executive Officer, Bob Phillips; and Executive Vice President and Chief Financial Officer, Robert Halpin; and Executive Vice President and Chief Operating Officer, Heath Deneke. 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. If anyone should require operator assistance during the conference, please press "*0" on your telephone keypad.

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

Bob Phillips -- Chairman, President, and Chief Executive Officer

Thanks, operator, and good morning and thanks to all of you for joining us again on this call. We're thrilled to discuss our 2018 results this morning and look forward to providing additional color on the very bright 2019 outlook that we [audio disruption].

First, I want to thank our great employees and our management team for delivering yet another tremendous year for our unit holders. It's not lost on me how much hard work goes in to delivering great years and great quarters on a consistent basis and our guys have done a great job over the last couple of years.

Crestwood's strategy of organically investing in our high-quality core growth basins while maintaining financial discipline is clearly working and separating us from those others in our peer group. It's evidence in the strong financial results that we were able to deliver in 2018 and permeates our strategy for 2019.

During 2018, we exceeded our internal expectations on both adjusted EBITDA and [audio disruption] EBITDA of over $420 million, which exceeded our guidance range and consistent estimates, and we delivered distributable cash flow of $224 million, which resulted in a very strong coverage ratio of 1.3 times.

Now, looking into 2019, our strategy is unchanged. The formula for success at Crestwood, which we adopted back in 2016 in response to a clearly changing market environment and listening carefully to our investors, has clearly driven [audio disruption] investment projects in our high-quality growth basins, which hold the best rock in the country, under strong producer contracts that are long-term, allowing for the full development of the properties that are dedicated to our systems, with the opportunity to continue to expand services across the value chain, to include crude, water, gas, and NGLs, and combine that with a capital efficiency and the financial discipline that we showed over the last two years to generate real DCF per unit growth.

As a result, we expect our DCF per unit to grow from $3.14 per unit in 2018 by over $1.00 to $4.15 per unit, which is our estimate by year-end 2020. That's well over 30% growth and clearly peer group-leading growth in DCF per unit based on current estimates in the market. More importantly, this growth will result in a peer group-leading leverage ratio of between 3.5 and 4 time and coverage well above 1.7 to 1.75 times over the same period. We think those metrics are worthy of being one of the best stocks in the peer group.

Our capital program over the last two years, and again in 2019, will be targeted in the prolific Bakken, Powder River, and Delaware Basins, where our assets are well-positioned for continued growth. And longer term, we would expect to see opportunities emerge in the northeast Marcellus with our partnership with Con Edison, as the northeast market continues to grow its natural gas usage and customers up there figure out ways to build new infrastructure to connect to the world's greatest gas resources located in northeast Pennsylvania.

Throughout this three-year investment program -- 2017, '18, and '19 -- Crestwood will have invested approximately $850 million that results in incremental EBITDA of approximately $160 million. And as a result of this high-return profile, we'll continue to invest in these same type infrastructure projects in these same basins to meet our current producer forecasts, which continue to grow, as many are still in the early stages of their development program. And, where appropriate, we will continue to evaluate with great financial discipline the opportunities that we have in those basins to continue to expand our franchise positions in the assets that we operate, in the areas where we operate, by potentially buying out our partners or acquiring third-party assets when they're priced appropriately, they're synergistic, and they're accretive to our bottom line.

Now, as you know, Crestwood's most important growth asset is our Bakken play, where we're now completing Arrow constraints projects, we're seeing record gathering volumes, we're placing the Bear Den II plant in service by mid-year 2019, and we're expanding our water system with the new Enerplus deal, all examples of the way Crestwood's business model develops the full value chain in these areas that we operate.

I want to point to recent third-party announcements which continue to highlight the value that the market places on great Bakken assets, with Target's announcement today of the sale of 45% of their Badlands system, which, by the way, is right next door to our Arrow system, for a multiple of 15 times current throughput, as well as Continental's announcement today that they expect to grow Bakken oil production by 12.5% per year over the next five years. Both of these announcements are third-party support that's extremely supportive of the value that Crestwood is creating for our unit holders in the Bakken region.

Now, in our non-core basins, particularly our legacy dry gas positions, we continue to see value for them in our portfolio as they deliver stable and predictable cash flow streams with minimum capital requirements. We have dedicated teams in these basins and we're continually looking for opportunities to optimize the productivity and minimize expenses in those regions.

And now, finally, in 2019, we think we're on track to implement an MLP industry-leading sustainability program in an effort, as well, to separate Crestwood from the pack. While MLPs have taken great strides to increase transparency on key ESG issues, we believe that taking the next step to publish a report in accordance with GRI standards will provide investors with a deeper insight into our process of managing ESG risk. And as the industry seeks incremental investment from non-traditional MLP investors, we believe that enhanced transparency for MLPs is an absolutely critical and necessary next step.

For example, our sustainability report will include additional insight into our compensation and key performance indicators. At Crestwood, as you may know, our compensation is driven by strict performance-based metrics, such as adjusted EBITDA, extensive safety metrics, total unit holder return relative to our peers, and, finally and most importantly, a DCF per unit metric. These metrics were selected by our Board and highlight management's incentive to conduct operations and manage our capital investments in a manner that maximizes value by responsibly creating true accretive growth per unit. We certainly lacked that in the industry over the last few years.

At Crestwood, we're demonstrating our ability to identify key growth basins and our ability to execute projects with thoughtful, conservative, and disciplined financing to maximize cash-on-cash yield and returns for our investors. We are committed to prudently growing our core franchise positions and believe we're in great position going into 2019 to have yet another great year for our investors.

And with that, I'm happy to turn it over to Robert for a review of our 2018 financial results and our '19 guidance and outlook. And then Heath is going to give you an update on the great assets and the great basins that we operate in. Robert?

Robert Halpin -- Executive Vice President and Chief Financial Officer

Thank you, Bob. I am extremely pleased with the financial results that we delivered in 2018. When we began 2018, we guided an adjusted EBITDA range of $390 million to $420 million. And for the year, we generated adjusted EBITDA of $420.1 million, just above the high end of our guidance range. The driver of this outperformance was solid operational and project execution, a focus on cost control and strong business fundamentals across our three operating segments that highlights the value of our diversified portfolio of assets.

Distributable cash flow available to common unit holders in 2018 was $224 million, net of our quarterly cash distribution to our Class A preferred unit holders. For the fourth quarter 2018, we declared a distribution of $0.60 to our common unit holders, resulting in distribution coverage for the quarter of approximately 1.5 times.

Now, as we look out into 2019, we are guiding adjusted EBITDA to be $460 million to $490 million and distributable cash flow to be $245 million to $275 million. At these ranges, we would expect our full-year distribution coverage ratio to be in the 1.4 times to 1.6 times range and our year-end leverage ratio to be between 4.0 times and 4.5 times.

We expect to invest approximately $275 million to $325 million on growth projects in 2019, primarily focused on our core growth assets in the Bakken, the Powder River Basin, and the Delaware Basin. Finally, we expect maintenance capital spending in the range of $20 million to $25 million.

As we execute our 2019 plan, we will be very mindful of our balance sheet. As of December 31st, Crestwood had approximately $1.8 billion of debt outstanding, including $1.2 billion of fixed rate senior notes and $578 million in outstanding borrowings on our revolving credit facility. This resulted in a year-end leverage ratio of 4.25 times.

In 2019, we expect our growth capital to be slightly front-loaded as we target placing our Bear Den II into service by the early third quarter. And once in service, we expect immediate cash flow ramp as we begin to process 100% of Arrow's gas volumes. Given the timing of our capital spend and the subsequent cash flow ramp, it is possible that our leverage ratio temporarily sits at the high end of our targeted range in the third quarter but quickly adjusts in the fourth quarter and the first half of 2020 into our long-term target range of 3.5 to 4.0 times.

As Bob discussed, our strategy over the past few years was to prioritize our excess cash flow to invest in organic projects that offer sub-six times economics, to protect our leverage and coverage metrics. We have financed our growth projects with excess cash flow, with available borrowings at our revolving credit facility, with joint venture partners, and with opportunistic asset sales from time to time. As we complete the expansion of the Bear Den processing plant and the Bucking Horse and Jackalope systems, we will continue to prioritize our excess cash flow toward completing these projects and maintaining a very strong balance sheet.

As a result, all factors being equal, we would expect to maintain our distribution at the current level of $2.40 per unit until we've placed these large-scale projects into service and we achieve our below 4 times targeted leverage ratio, which we expect will occur in the early part of 2020.

With that, I will now turn the call over to Heath to provide an update on our capital projects and business outlook.

J Heath Deneke -- Executive Vice President and Chief Operating Officer

Thanks, Robert. So, I want to start, again, by recognizing the great work by our employees in 2018 to deliver another strong year of financial and operating results, outstanding safety performance across our asset base, and solid execution of 2018 and year-to-date 2019 capital programs in the Bakken and Delaware Permian.

The company has got a lot of positive momentum coming into 2019 and we are laser-focused on executing our 2019 plan. Despite the industry headwinds that emerged in the fourth quarter of '18, we have continued to see resilience in our producers' development activity and plans across our core growth basins in 2019 and beyond. As we work to finalize our 2019 guidance, we stayed in close communication with each of our customers to understand and reconfirm their development plans across our assets. As we said today, we believe our guidance reflects our producers' activity levels, taking into consideration both the current price outlook as well as the MLP sector's overall need to focus on capital efficiency and returns versus just growth.

With that, let's jump to the Bakken, where we are seeing strong producer activity that led to record volumes on the Arrow system. In January of 2019, the Arrow system set record daily gathering volumes of 102,800 barrels of crude oil, 78 million a day of gas, and over 61,000 barrels a day of produced water.

During 2018, we connected 54 wells to the Arrow system. With the majority of the gathering system debottlenecking projects now complete, we expect to connect approximately 30 new wells in the first quarter of 2019, about half of which have already been completed to-date, and approximately 100 new third-party wells by the end of 2019.

In 2019, Crestwood also expects to invest capital in the Bakken to complete the Bear Den II processing plant, which will expand Crestwood's total processing capacity to 150 million a day. We're on track to achieve a third quarter in-service date, at which point Crestwood will be able to process 100% of the gas gathered along the Arrow system.

Also in the fourth quarter of 2018, Crestwood entered into a new commercial agreement with Enerplus, an existing Arrow customer, to dedicate a substantial amount of acreage surrounding the FBIR footprint to the Arrow water system. As a result, we are further expanding the Arrow-produced water gathering and disposal system by roughly 30,000 barrels a day at a cost of approximately $60 million that will be spent across 2019 and 2020.

We expect to connect over 50 water-only wells for Enerplus during 2019 and have an estimated total inventory of roughly 300 wells that we believe can be completed on the newly dedicated acreage in the coming years. So, based on current and projected water volumes, the Enerplus water expansion is expected to generate a 4 times yield multiple.

So, based on Crestwood's 2019 financial guidance, the company is forecasting the Arrow gathering and processing system to generate approximately $230 million of EBITDA in 2019, which is 40% above 2018 EBITDA.

So, now let's shift to the Powder River Basin. The PRB has recently been highlighted as the best emerging growth opportunity in North America. Producers in the basin are realizing initial production rates that are exceeding 3,000 barrels of oil equivalent per day from the Turner formation and are generating fairly consistent results with their delineation programs across their acreage positions. Many producers in the basin are now shifting into development mode on the Turner, while continuing to delineate additional productive formations on their acreage positions.

Given the current outlook, we expect the Powder River Basin to be Crestwood's second-largest growth driver in 2019 and 2020, due to strong producer economics, top-notch reservoir quality, and strong forecasted volume growth in the basin by Chesapeake and other notable offset producers.

During the fourth quarter of 2018, we completed the 145 million a day Jackalope system expansion and immediately reached max capacity. Chesapeake recently reiterated, in its January 2019 operational update, that it plans to maintain a five rig program targeting the Turner formation throughout the end of 2019 and beyond, with an estimated 60-70 new wells turned online by the end of the year. As a result, exit rate system volumes are expected to double by the end of 2019.

Additionally, Jackalope recently entered into a long-term gathering and processing dedication with Panther Energy, which is a Kayne Anderson-backed company. The new Panther agreement covers approximately 30,000 acres that will connect into the existing Jackalope gathering system, with gas volumes ultimately being processed at the Bucking Horse II plant when completed.

So, 2019 is a key execution year for Jackalope as well, as we continue to complete the expansion of the Bucking Horse processing plant and the gas gathering system to bring the total system's capacities up to 345 million day. Jackalope will continue to prudently evaluate growth opportunities in the basin to gather and process offset producer volumes or provide crude gathering services that meet our disciplined investment criteria and our producers' needs.

Based on Crestwood's 2019 financial guidance, the company is forecasting the Powder River Basin G&P assets to generate approximately $31 million of reportable EBITDA in 2019, or 21% above the 2018 reportable EBITDA level. On a net basis, the asset is expected to generate approximately $100 million of cash EBITDA in 2019.

Shifting to the Delaware Basin, during the fourth quarter, the Willow Lake and Nautilus gathering assets averaged natural gas volumes of 182 million a day, which was a 63% increase over the fourth quarter of 2017. Currently, there are five active rigs operating on Crestwood's Delaware Basin gathering systems and we expect roughly 70-80 new wells to be connected during 2019.

Additionally, we expect to see a pickup in processing volumes at our Orla plant in the second half of 2019, as NGL volumes leaving the plant will benefit from more favorable NGL net-backs associated with our CP volumes as they ramp up in July.

In our S&T segment, our Stagecoach joint venture with Con Ed will see a 10% step-up in cash flow beginning in July of 2019 and our COLT facility expects to continue to see strong rail loading demand throughout 2019, which should also drive 2019 EBITDA of roughly $20 million.

In our MSL segment, [audio disruption].


Excuse me, gentlemen, we're having a problem hearing you. Ladies and gentlemen, please stand by. We are experiencing technical difficulties. Ladies and gentlemen, please stand by. We are experiencing technical difficulties and will resume momentarily.

Gentlemen, please resume.

J Heath Deneke -- Executive Vice President and Chief Operating Officer

Okay. I think we're back online now. I apologize for those technical difficulties. So, I think I was just about to hit the MSL segment before we cut out, so I'll kind of restart there.

So, in our MSL segment, we expect our NGL and crude marketing teams to benefit from favorable market conditions, the utilization of our extensive transportation terminal assets. Over the past 12 months, we've continued to benefit from the increased integration and collaboration between our G&P and MSL segments, which has allowed Crestwood to capture additional value in our underlying asset base while providing our customers with a complementary suite of services that enhance net-backs and flow assurance in those highly constrained markets.

So, before we open the line for questions, I wanted to reiterate, again, how pleased we are with Crestwood's positioning going into 2019. Our assets support some of the best customers in the industry and are underpinned by the most economic oil and gas resources in North America. We have refreshed and reverified all of our producer's plans in each of our basins for 2019 and are making good progress on executing our remaining capital programs in the Bakken and the Powder River Basin. I'm, again, very proud of the work our employees have done in 2018 and I look forward to another strong year of execution into 2019.

So, with that, operator, I think we're ready to open the line for questions.

Questions and Answers:


Thank you. The floor is now open for questions. If you would like to ask a question, please press "*1" on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press "*2" if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing "*". Once again, that is "*1" to register questions at this time.

Our first question is coming from Tristan Richardson. Please go ahead. And you are with SunTrust Robinson Humphrey. Thank you, sir.

Tristan Richardson -- SunTrust Robinson Humphrey -- Analyst

Hey, good morning, guys. Just a quick question. Bob, in your prepared comments, you talked about consolidating JVs opportunistically and only at times when it made sense. Could you talk a little bit about sort of, as we look past your big projects that are expected to come online toward the end of this year and in early 2020, at that point, is that when that equation starts to pan out, in terms of thinking about longer term, looking at some of your joint ventures and joint venture partners?

Bob Phillips -- Chairman, President, and Chief Executive Officer

I don't think there's any time frame to it, Tristan. Like every other company that operates through a series of different partnerships in different basins, we have always viewed consolidating our partners at points in time in which the cash flow streams are more mature and are more certain and the plays have been better delineated. We adopted the partnership model back in 2016, if you'll recall. Like everybody else, we had too much debt. We sold half of our Stagecoach asset to Con Ed and reduced debt and right-sized our balance sheet at that point in time.

Previously, we have formed a partnership around Tres Palacios with Brookfield Infrastructure. Subsequent to that, we formed a partnership in the Delaware Basin with First Reserve and then later with Shell. And in the middle of all that, we formed a partnership, originally, with Access, which was bought out by Williams, and so we've had a partnership there as well. In fact, our ownership in that Jackalope partnership is owned further by a partnership with some financial partners. So, we've used that model for years and we've always viewed our ability to assess the actual growth rates and the long-term future value of these assets better than anybody else.

So, you know we're an opportunistic company and you know that we're always working to own as much of the assets that we're committed to as we possibly can. So, I can't say there's really a time frame that we're looking at. Those of you that have heard us talk about our five-year plan know that we have not built into our five-year plan the acquisition of any partner's interest. The numbers that we quote when we're talking about '19 guidance, when we're talking about 2020 leverage and coverage or we're talking about the three- or four- or five-year growth rate in DCF per unit, all of that is based upon our base case model. None of it includes the acquisitions of partnerships' interests.

But we are totally committed to the four basins that we operate in and so, from time to time, if we see an opportunity to acquire additional equity interest in the assets that we already own a piece of and feel strong about, by virtue of the fact that we continue to invest capital in it, we clearly feel strong about it -- then we will look to opportunistically add to our equity interest in those partnerships. Having said that, this is a difficult time in the capital market so it has to be done carefully and thoughtfully and not in a way that adds extra burden to our balance sheet.

So, that's about the best answer I can give you is that we're going to continue to be as thoughtful over the next three years as we have been over the last three years about how we add cash flow in the basins that we operate, at what value we place on those, and how we finance those without overburdening our balance sheet.

Tristan Richardson -- SunTrust Robinson Humphrey -- Analyst

Very helpful. Thank you. And then, Heath, just on the water system expansion, should we think about that as cash flow contributions from that project or initiative are pretty ratable? Or do we need to see the full spend kind of complete in 2020 before we start to see cash flow benefits?

J Heath Deneke -- Executive Vice President and Chief Operating Officer

Yeah. As we're building out the backbone, if you will, of the expansion, I think it's gonna be toward the end of 2019 before we start to see a meaningful contribution. But then fairly ratable when you go into 2020 and beyond. It's a pretty extensive acreage position, roughly 60,000 acres that have been dedicated to our water system now and, with that, we've seen, as I said, over 300 wells that we think potentially can be connected to the system during that time period. So, very excited. Really nice pickup. A very cost-effective expansion and just fits like a glove with our existing operations there.

Tristan Richardson -- SunTrust Robinson Humphrey -- Analyst

Great. And then just last one from me. Can you talk about just sort of the genesis of pursuing the ESG initiative and sort of how that came to pass and progress there?

Bob Phillips -- Chairman, President, and Chief Executive Officer

Yeah. It's a really important next big Crestwood initiative, not only inside the company but we believe it's going to have a positive impact across the entire peer group. When I say we've taken a leadership position, I really mean that we are well along the way to having what I believe is the first full, robust, and meaningful ESG sustainability program in the gathering and processing peer group space. We went out and hired very experienced people that have done this before, have the big pipelines, brought them in, fully supported that effort through a step-by-step process which has included, and we've already completed, our own internal ESG sustainability assessment, which cuts across the entire company to assess the risk of operations, the risk in every aspect of our business, and then steps through the process of risk mitigation.

And then, finally, bringing all that together in a format where we can file that publicly in a document that meets the highest level of GRI standards, which a lot of the pipeline companies have met, certainly some of the downstream utilities have done it, but very few in the midstream and upstream have done it so far. There's a handful that have and they've done it well. We think that we're on the leading edge of that.

What it allows us to do is to offer our investors total transparency about Crestwood as a company, Crestwood as an investment, Crestwood as a place to work, Crestwood as a company to do business with. And so you'll have much greater transparency into investing in, working for, doing business with, or providing services to Crestwood as an entity. What we hope that will do is provide leadership to the entire peer group and allow us all to begin to attract, through greater transparency, greater identification, and mitigation of inherent risks that exist in our business, to attract new investors to the MLP and midstream space.

It's going to take some time. The next big benchmark for us is the filing of our corporate responsibility report, which will be sometime in June of this year, but we hope it will become a model for the industry and we have already taken a very leading role in hosting industry and trade association groups here at Crestwood and across the industry in an effort to try to highlight the importance of this to bring new investors into the space and make the midstream sector a vitally important part of the overall oil and gas value chain across the United States. We think it's going to be the next big step in attracting new dollars into the MLP and midstream space.

Tristan Richardson -- SunTrust Robinson Humphrey -- Analyst

Helpful. Thank you, guys, very much.


Thank you. Our next question is coming from Dennis Coleman of Bank of America Merrill Lynch. Please go ahead with your question.

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

Yes. Good morning, everyone. Thanks for taking my question. I guess if we could start a little bit, Bob or maybe Robert, on capital allocation and once we get into the 2020 time frame when you're talking about hitting your leverage targets and just how you think about distribution increases or, more recently, I think the topic de jour has really been share repurchases and we've seen some announcements that have been pretty well-received by the market. So, I wonder if you might just talk about the thinking there.

Robert Halpin -- Executive Vice President and Chief Financial Officer

Yeah, Dennis, happy to cover that one. I think, from a capital allocation standpoint, as we've communicated today, we have an ongoing organic program, largely focused on our highest growth asset in the Bakken and then our second-highest growth asset in the Powder River Basin that we continue executing on throughout the balance of 2019 and into the first part of 2020. Our capital guidance for next year is $275 million to $325 million. That will be largely weighted toward our continued Bakken expansion, most notably, getting our Bear Den II plant in service by the midpoint of the year. And then also, in the Powder River Basin, getting our Bucking Horse plant, second plant there, in service by the end of this year or early part of 2020.

When you look at our investments and our allocation of capital, our focal point, as communicated today, is we believe these type projects generate substantial return to our unit holders in the long run. We provided some incremental detail on our capital investment in the Bakken by we believe we've put meaningful dollars to work there over the last several years in, call it, a 4 to 5 times type investment, multiple basis. As a result of that, we continue to believe that that is the absolute best utilization of our cash in the near term.

That said, as we've guided, we believe that taking our leverage to our target of 3.5 to 4 times in the first part of 2020 is a critical financial initiative for this company and provides us significant incremental flexibility to execute going forward. So, executing on our organic projects and driving our balance sheet to our targeted range of 3.5 to 4 times is Priority 1.

We've also guided that we expect coverage to be between 1.4 to 1.6 times in 2019 and, generally, around 1.75 times or higher in 2020. So, obviously, as we realize these objectives, there is significant incremental opportunity for return of capital to unit holders and we will continue to evaluate with our board, every quarter between now and then, the best and appropriate manner to do that. we do not have a preconceived point of view on what is best but, obviously, are focused on delivering those incremental returns and we'll drive that when we realize our financial objectives, first and foremost, executing the capital program.

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

Great. Thanks for that. That's very helpful. And maybe just a couple follow-ups on the CapEx side. CapEx guidance a little higher than we had. I guess that's just the inclusion of the Enerplus expansion. Is that the right way to take that?

Robert Halpin -- Executive Vice President and Chief Financial Officer

That's absolutely right. We generally were kind of in the $250 million to $300 million mark starting out kind of later part of last year. We underwrote and approved the Enerplus project in the latter part of 2018, as Heath alluded to in his comments. That's about a $50 million project spend in 2019 that will start driving substantial return in the latter part of '19 and fully into '20.

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

Perfect. Thanks for that. And then you also have talked about the Orla II plant and planning there. Anything there, I take it, would be also incremental to the $275 million to $325 million range?

Robert Halpin -- Executive Vice President and Chief Financial Officer

Yes, it would. But I would say, based upon where we are now and timing-wise, I think that that likely is going to have more impact on our 2020 capital program. So, probably not a lot of movement in the 2019 capital as it relates to that.

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

Got it. Okay. That's it for me. Thanks.


Thank you. Our next question is coming from J R. Weston of Raymond James. Please go ahead with your question.

J R. Weston -- Raymond James -- Analyst

Hey, good morning. Just recognizing a good portion of the growth in 2019 is really executing on the projects and capturing volumes that are already visible, just kind of within that context, can you outline some of the flex factors within the $30 million range for EBITDA and DCF guidance? I'm just kind of curious if there's anything of note within the guidance assumptions, outside of project timing, maybe in terms of commodity price assumptions or marketing expectations.

Robert Halpin -- Executive Vice President and Chief Financial Officer

Yeah, J.R., I can definitely provide a little bit of color around that. I think the driver of the range in our expectations is really almost entirely a function of exactly what you just laid out. So, obviously, Arrow continues to be the strongest growth driver for the company through calendar year 2019. We, from a commodity price standpoint, think we're in a really appropriate zip code. We're right around $50.00 in our forecast on the crude side. And as Heath alluded to in his comments, we have full reaffirmation from our producers on their development plans for 2019.

That said, it's really a function of just sticking to the completion timing and, more importantly, just timing of the Bear Den in-service date. We're still very confident delivering on that by early third quarter, but that provides some of the variability. It should have very limited impact on 2020 and beyond because, once that goes into service, as you mentioned, that volume is all captive and ready to flow into our plant.

J R. Weston -- Raymond James -- Analyst

Okay. Yeah. That's helpful for me. And then I guess just a follow-up on a prior question. Recognizing it's probably pretty early to be discussing this, but just wanted to get a little bit more clarity on, I guess, the overall scope of the opportunity set here. Several of the JVs that you all have formed have a very strong and usually a strategic partner. Just kind of curious if you'd be looking to buy out those partners in their entirety or simply stepping up your ownership interest and kind of leaving those partners with a smaller equity stake but still some skin in the game. So, just kind of curious on how you'd approach that.

Bob Phillips -- Chairman, President, and Chief Executive Officer

J.R., the opportunities are always there. We can always call our partner and say I like this asset more than you do. So, it doesn't necessarily have to be someone that's actually running a process or looking to refinance or recapitalize their interest. We love the assets that we're investing in right now. We appreciate our partners. It was all part of our plan. Because you think about the history of this company, it was largely built through acquisition and there was simply some times over the last eight years where we simply couldn't buy 100% of everything. But when we like the rock, we like the producers, we like the contracts, and we like the area, we invest as much as we can.

As you've been able to see over the last three years with our capital program, we really like the Bakken, we really like the Powder, and we really like the Delaware. But, unfortunately, as a small company, we haven't been able to finance 100% of the growth so we've had to have partnerships. Those partnerships are complicated, as you know, but they oftentimes are dynamic partnerships and guys that we're in partnership with may or may not have changing priorities over time. Our priorities are always the same. We love the Bakken, we love the Powder, and we love the Delaware. We love the Marcellus. So, any time we can have a chance or it's financially prudent for us to do that, then we're always going to be trying to buy more of our partnerships, fi the partner is willing, it's a good time for him to step out in whole or in part, or there's some other refinancing or recapitalization opportunity that emerges.

The one standard across all those opportunities is we will not overleverage our balance sheet to be able to do this. So, I'm going to let Robert talk a little bit about this because he's crafted all of these partnerships and he is the one that will be most responsible when and if we ever have an opportunity to buy additional interest in these partnerships. Robert's going to have to do it in a way that is not leveraging to our partnership and will be accretive, maybe not on Day 1, but accretive, clearly, with line of sight into the future. So, Robert, talk about how we think about not overleveraging our balance sheet in this context.

Robert Halpin -- Executive Vice President and Chief Financial Officer

Yeah. I think, really just to expand on what Bob said, not a whole lot of incremental color, but, I mean, I think we've been pretty clear, our capital allocation strategy and all the avenues to invest capital that we have is focused predominantly on getting to our objective of 3.5 to 4 times in early part of 2020. And I think that we have clear line of sight to doing that in exactly the ownership structure that we have today.

We are very committed to the four basins that Bob mentioned, the Bakken, the Powder, the Delaware, and the Marcellus, and certainly believe there will be opportunities, either through the strategic partnerships we have or the financial partnerships we have, to increase our ownership in part or in whole. And we will take advantage of those opportunities as we continue to build increasing flexibility to our coverage, to our leverage, continue building excess cash flow, and can finance those in a manner that's consistent with our strategy over the last several years of driving significant DCF per unit growth. So, no prescribed format as to exactly how that takes place but we have good partnerships and opportunities to do that as we continue to build strength and flexibility in our partnership.

J R. Weston -- Raymond James -- Analyst

That all makes a lot of sense to me. Appreciate that. And I guess just one last one, if I could. We had a bout of pretty cold weather here in first quarter 2019. Looks like the well connect number for the Bakken looks pretty good. But just kind of curious if there was any maybe positive impact, either in S&T or the marketing business.

J Heath Deneke -- Executive Vice President and Chief Operating Officer

Yeah, this is Heath. We have had some good impacts, somewhat weather driven, somewhat just price and basis driven. Up in the Bakken, for example, our crude marketing business was able to capture additional margins as the oil takeaway situation and capacity has really tightened up in that market. And so anytime we have basis blowouts or dislocations with our storage assets, our crude-by-rail facility, and transportation assets, we're able to kind of capitalize and make margin. So, I think we've seen good performance there. Solid performance, again, on the MSL side. And, as you mentioned, in the Bakken, despite the frigid temperatures, we're about halfway through the amount of well connects we expected in the first quarter. We have had some freeze-offs that have delayed some of the flow-back operations but, largely, we remain on track to have the amount of well connects that we were expecting for the first quarter.

J R. Weston -- Raymond James -- Analyst

Appreciate that. Thank you.


Thank you. Once again, ladies and gentlemen, that is "*1" if you'd like to register a question at this time. Our next question is coming from Schneur Gershuni of UBS. Please go ahead.

Schneur Gershuni -- UBS Securities -- Analyst

Morning, guys. Just kind of a follow-up to some of the earlier questions. There is a huge multiple paid today for a Bakken asset by a private equity. Does that make you sort of rethink your commitment to Jackalope asset, given that your partner is allegedly shopping the asset around? If you can get that kind of price, alternatively, are you potentially thinking about buying the other half? And then, as a second question, assuming your partner sells their stake in the asset, it's my understanding that operatorship just comes over to Crestwood's hands. Do you see any opportunities to improve operating efficiencies at Jackalope?

Bob Phillips -- Chairman, President, and Chief Executive Officer

Well, let me make sure I understood your question. You mentioned the Bakken transaction at a 15 times multiple and then you parlayed that over into the Powder. So, let's stay at the Bakken for just a second. You kind of do the math on that multiple, that makes our Bakken assets worth more than the whole company is right now. So, just want to make sure everybody has that perspective.

Secondly, when we look at the Powder, the Powder is a great basin. We are so happy to be there. We're excited about the prospects and excited about where Chesapeake is right now in their development plan. We've been in this deal for five years now and it's just now starting to provide real value for us. It's a business that, on a cash basis, is going to generate $100 million a year in 2019. That might surprise everybody. A business that Chesapeake has clearly stated they're going to double their production year-over-year and that'll be for the second year in a row. That might surprise everybody. So, it shouldn't surprise everybody that we think this is our second-fastest growing asset in the company.

Having said that, valuations are valuations and they differ from basin to basin. I think that Williams has been public about their interest in monetizing non-core assets. They have been public, I think, although I haven't listened to their calls as closely as I listen to our calls, they have been public that the interest that they own in our Jackalope joint venture is something that they would sell. We know that there has been a process ongoing. As the partner in Jackalope, you would expect us to be aware of and involved in the process. We are and we have been.

I can't begin to tell you how all that's going to work out. What I will tell you is that we are going to remand steadfastly committed to our strategy and that is we are not going to blow up our balance sheet just to make a deal to buy in a partner at a time unless we think it is absolutely the right time, the right value, and the right financial structure for us.

So, let me let Robert comment on that, then let Heath talk about what the operating synergies would be in the event we did, at some point in time, consolidate the Williams interest at Jackalope. Robert, you want to talk about the financing?

Robert Halpin -- Executive Vice President and Chief Financial Officer

Yeah. I mean, I think, Schneur, Bob kind of hit on the main point. I think that it's an asset that we're absolutely committed to. We have firm belief in the long-term prospects for Chesapeake's development of the Powder and a lot of the other off-set operators that are just now significantly ramping activity in and around our footprint. We think we've got an early start with our partnership with Williams on building out gas infrastructure in the basin and would love to find ways to really replicate the strategy we deployed up in the Bakken and keep building out that value chain there.

I think it's inappropriate and not the right time for us to speculate as to what's going on in Williams' process. I think we're probably limited in what we can say there. But the only point I would reaffirm is Bob's commentary on we are absolutely committed to our plan in driving the financial metrics that we've committed to in '19 and '20. And anything that goes against that is not something that we're going to entertain at this point in time. So, I mean, that's just probably the extent of the color we can give at this time.

J Heath Deneke -- Executive Vice President and Chief Operating Officer

Yeah. And this is Heath. Just as to your point around operating efficiencies, we do believe, if we were able to fully consolidate the operation, that there will be synergies. As a reminder, we currently function as a commercial lead for the joint venture, so we're kind of tip of the spear, interacting with customers and third-party opportunities and working with our producers to understand their development plans and activities. Williams is a good operator. We've enjoyed the benefit of having a two-team approach to our execution plans.

But as we look at the $400+ million expansion program that is currently under way, we're doing a lot of interaction with our project management teams to ensure that we're delivering those on time and on budget. We have recently, as we announced in the press release, we have taken over the project management responsibilities for the second train of Bucking Horse. We happen to have our team that just rolled off the Orla project available and the joint venture felt like that was the best team to step in and try to deliver this project on time, on budget, and safely.

But, definitely, from an operator's standpoint, from a capital program standpoint, we think Crestwood has got good experience that we demonstrated in the Bakken and down in the Permian to deliver low-cost but well-executed infrastructure plans and we'd like to be in a position to be able to kind of drive that program and deliver operating cost synergies as well as we have across our portfolio. So, those, again, are not baked into our outlook but we do think that there would be some accretive synergies on the operating side if we embedded that into our operations.

Schneur Gershuni -- UBS Securities -- Analyst

Great. Just to clarify two points. So, operatorship would completely roll to you if the stake is sold and you would be able to gain efficiencies by better integrating. Is that fair to say?

J Heath Deneke -- Executive Vice President and Chief Operating Officer

That's correct.

Schneur Gershuni -- UBS Securities -- Analyst

Okay. And the second clarification, and it goes back to kind of how Bob started to answer the question at the beginning, that it would value your company greater than where you are today, I guess what I'm ultimately looking for -- are you sometimes a buyer and sometimes a seller, if the economic profit makes sense?

Robert Halpin -- Executive Vice President and Chief Financial Officer

Schneur, we are always a buyer or seller, depending upon what the value proposition is.

Bob Phillips -- Chairman, President, and Chief Executive Officer

The business we're in is making money for our investors and if we have to sell to do that, that's fine too.

Schneur Gershuni -- UBS Securities -- Analyst

Okay. And one final guidance-related question. You guided to roughly about $50 million EBITDA for marketing, supply, and logistics. And you did note it was conservative and so forth, due to changing market dynamics. I was just wondering if you can explain the puts and takes in arriving at your number. With ME II coming online, I thought that was going to be kind of a capping or limiting factor there. Is it related to Bakken WTI spreads? I just kind of want to understand the build up to your number.

J Heath Deneke -- Executive Vice President and Chief Operating Officer

Yeah. Look, I would say, I think where we're continuing to see benefits, and what's embedded in what we think is a relatively conservative segment result there, we do have growing NGL supplies in the northeast. We're well-positioned with our terminals. These are not what I would kind of call "wholesale-type" terminals. These are engrained in the demand side across the northeast. So, with that and our trucking fleet and our rail fleet and our long-term customer relationships that we have, we're very efficient at buying supply at the right time, storing that supply, and then using our market terminals to kind of access premium markets, whether that's seasonally driven or supply driven.

So, I think we've had a continued track record of success on that. I don't think we're seeing anything splashy. I don't think we're looking at any major acquisitions or anything of that nature. It's really going to be just fundamental blocking and tackling that's leveraging our storage internal assets and transportation assets up in the northeast.

Additionally, as we commented on, we're seeing a lot more collaboration and, frankly, our MSL segment is getting a lot more involved at the tailgate of our own processing plants as those volumes have grown. We've stepped into NGL arrangements, like we did with Epic out of the Permian, like we've done leveraging our trucks and assets out of the Bakken to deliver NGL supplies. We're certainly making margins on that front as well.

And then, more broadly, I think we continue to benefit from the tightness. Even with any operation, certainly, there's been a lot of hiccups and starts and stops. And despite that pipeline capacity now being operational, we continue to see tightness up there and, really, customers really wanting to kind of diversify away from just pipe-only solutions. I mean, we're one of the larger independent subs there that are very active in this segment and we can provide a lot of value-added services to our customers. We're getting that one deal at a time.

And so I think it's hard to kind of give you a two or three item list of how we drive to that $50 million but I would say it's built off of a lot of small deals that we've been able to do and repeat business that we're able to generate, given our market position.

Schneur Gershuni -- UBS Securities -- Analyst

Great. That makes total sense. Really appreciate the color, guys. Thanks. Have a great day.


Thanks you. Our next question is coming from Ned Baramov of Wells Fargo. Please go ahead with your question.

Ned Baramov -- Wells Fargo -- Analyst

Good morning. Thanks for taking the question. Could you maybe provide updates on some of the long-term potential opportunities that Crestwood is pursuing, specifically water in the Permian and crude oil gathering opportunities in the Powder River Basin?

J Heath Deneke -- Executive Vice President and Chief Operating Officer

Yeah. I can touch on that. So, look, I think we continue to have a very robust set of growth opportunities. I think, obviously, we've got kind of a full plate in '19 and laser-focused on executing our Bakken plant expansion up the Arrow system. We've captured a really nice, accretive growth opportunity, kind of a bolt-on opportunity with Enerplus inside that footprint. And we continue to see a general need for additional produced water services, not only on the FBIR, the reservation that the Arrow system is on, but in and around our acreage footprint.

I think what we've proven to our customers up there is that we're in this business for the long haul and we're very prudent in terms of the gathering systems that we're building. We've very capable and have successfully drilled saltwater disposal wells in that basin. And just like we did with Enerplus, we think there's a fair amount of running room to kind of continue to go capture high-multiple expansions of our water system to continue to fully utilize or fully optimize our system up in that neck of the woods.

We also are seeing a very -- there's a lot of tightness in processing availability up there. The figures and the plan that you're seeing here are solely just processing our long-term dedicated G&P agreements. But we do believe there's going to be some opportunities to capture additional processing off-loads, if you will, that we could process out of Bear Den II. So, the good thing about the Bakken is we have spent quite a bit of capital over the past several years but we've also built in a lot of additional room to increase our water, our gas, and crude volumes, if that opportunity presents itself, without really a whole lot of incremental capital needs.

Kind of shifting down to the Powder, as we said, we did pass recently on a crude opportunity. Frankly, the returns weren't there. We liked the business, we thought it was synergistic to our platform, but at the end of the day, when we looked at the returns relative to the capital spend and the risk, we simply felt like it just didn't meet our investment criteria. So, we are willing to walk away from opportunities if they don't really deliver the type of financial results that we expect to generate for our shareholders.

That being said, this is still an emerging basin. There's still a lot of playing room there. I think we do have a nice terminal there in the Douglas facility that we think is well-positioned, well-connected to the pipeline grid and offers good solutions that should be an impetus for growth on the crude side, as well as continuing to capture bolt-on opportunities like Panther. We didn't talk a whole lot about it but that's a nice 30,000 acre pickup. It's sitting right on top of our existing gathering system that we'll be able to, very low capital, connect into our system and flow to kind of help fill our Bucking Horse II plant as that capacity comes online.

Beyond that, if you look at the rate of growth, I think we're generating somewhere around 200,000 barrels a day in the Powder. A lot of folks have forecasted that to grow up to roughly 1 million barrels a day. And if we see that kind of growth across the basin, there's going to be a lot of additional G&P and crude oil services that are going to need to come into fruition. And we're one of a handful of midstream providers in that basin that have a substantial asset position and we believe will capture our fair share of the market growth over time.

Finally, kind of going down to the Delaware Permian, I think we put together a world-class system there. I think we located our Orla complex right in the heart of the Delaware. It's got terrific access to residue takeaway. It's got great access to NGL takeaway. We've put a terrific deal together with Epic and CP Kim that gives us some of the lowest-cost NGL transportation fractionation in the basin. When we look at the combination of those three things, we believe we are going to capture our fair share of growth when we get out to 2020 and beyond.

As we said, we are continuing to have conversations with customers for Orla II. As Robert pointed out, that's more likely to be a 2020 capital spend than a '19 but I think that, frankly, times well with our capital program, as we kind of get the Arrow and the Bear Den plant operational and built.

Finally, up in the northeast Marcellus, we don't spend a whole lot of time talking about that, just given the long-term lead times that you need to develop the infrastructure up there. But as Bob alluded to, this is still the best gas play there is in the world. We see a lot of producers continuing to maintain production levels simply because there's not enough cost-effective takeaway to allow them to kind of grow production. And a lot of regulatory headwinds, a lot of challenges in getting things done, but one thing that is clear is that, given our system, it's in the right spot, we're connected to the right downstream pipes, we've got a customer base that desires to grow, and to the extent there is new takeaway infrastructure, we think we're well-positioned with our partnership in Con Ed and some of the surrounding pipes to be part of that solution as well.

So, again, a lot of our near-term growth, beyond once you get into the 2020 and beyond, we think a lot of that is going to be bolt-ons in the Bakken; expansions of our G&P footprint, potentially crude, in the Powder; in the Permian, again, Orla II potentially in the third train as we kind of see producers continuing to grow volumes. Just like we're doing in the water side in the Bakken, we've got a great team that has a great plan, we think, to enter into the produced water business in the Permian and we're excited about that prospect as well.

So, again, a multi-prong set of optionalities. And, above and beyond that, as Robert and Bob have alluded to, we've got a lot of great assets with great partners that, over time, we think we'll have the opportunity to take out. So, when we think of 2020 and beyond, I think we've got a lot of optionality, both organically as well as via consolidations, to kind of grow the platform within the core basins that we have today.

Ned Baramov -- Wells Fargo -- Analyst

That's very helpful. Thank you for this. And then maybe a second question on just general and administrative expenses, which seem to have declined significantly in the fourth quarter. Are there any additional cost reduction opportunities left?

Stephen Dougherty -- Senior Vice President and Chief Accounting Officer

So, this is Stephen Dougherty, Chief Accounting Officer. Yes, we are continuing to focus on our general and administrative costs. We've seen them continuing to decline. We do believe that there are opportunities in 2019 to continue to reduce those. But, for the most part, we think they're going to be relatively stable in '19 compared to '18.

Ned Baramov -- Wells Fargo -- Analyst

That's great. Thank you. That's all I had.


Thank you. Our next question is coming from Selman Akyol of Stifel. Please go ahead with your question.

Selman Akyol -- Stifel, Nicolaus & Company -- Analyst

Thank you. Just sort of following up on a couple of earlier questions, it seems like Orla II being more of a 2020 event, I'm just trying to think about the competitive dynamics between the PRB and the Permian. It seems like the Permian maybe not as great a focus going into 2019. Clearly, PRB picking up. So, can you just talk about the competitive dynamics between the two basins that you're seeing?

J Heath Deneke -- Executive Vice President and Chief Operating Officer

Yeah. I mean, I think the Permian, obviously, has got a tremendous amount of both private and public sponsors that are competing very heavily for gas gathering and processing. I think we do believe -- we knew that going into this. That's why we created the system that we did and that's why we wanted to make sure that we weren't just localized in one particular spot in the Delaware but we wanted to span the Delaware system. So, that's why we connected the Eddy County Willow Lake system with our Nautilus system that expands down in Loving and Borden County, with high pressure integrated pipelines that really can move gas volumes from the north to the south end of the basin, or aggregate from the north to the south end of the Delaware Basin. So, I think it is very competitive. There's certainly a lot more teams at work and options, if you will, on that side. But that being said, again, we feel like we're well-positioned on the G&P side.

There's also fewer players in the water business. There's quite a bit of private capital that's looking to develop produced water systems. I think we're one of a handful of public companies that have added that to their arsenal in terms of internal competencies. So, a little less congested on the water space. And, again, we're looking for water systems that kind of complement our existing footprint with customers that know us well and that we know that we have established relationship with. And we're looking at this as infrastructure that will be developed in contracts that would look a lot like our midstream agreements that we have on the G&P side. So, I think there's more work to be done but we believe that we're going to be competitive and successful building the water business in the Delaware Permian.

You contrast that a little bit to the Powder River Basin, I think most of the growth is, obviously, with an existing customer and that's Chesapeake. So, they are driving the growth that we talked about as you look into 2020. It's fully contracted. We're simply just needing to build a plant. As long as Chesapeake continues to run the five rigs that they're running now, those volumes will double by the end of '19 and continue to grow beyond that. So, I think we've got a nice, well-established platform under a long-term agreement with the most active producer in the basin.

That being said, I think the competition, while it is kind of ramping up, it's not quite as congested, if you will, as what we've seen in the Delaware Permian. Now, having said that, the barriers to entry are a little more challenging in the Powder. It's a big, wide basin. It doesn't, at least today, doesn't have quite the scale of development. As I mentioned, only roughly 200,000 barrels a day of oil relative to the Permian, which is approaching north of 2 million. So, certainly, there's not as much concentration. There's broad areas. And it's expensive to build a system out there.

So, I definitely feel like the incumbents that have been in the basin, like us, since the 2013 time frame do have a real advantage to be able to kind of grow the G&P systems. Same thing on the crude side. I think, to the extent you have existing operations, existing pipe in the area, you're should be able to generate higher margin opportunities and decent returns, if you will, to build out crude infrastructure alongside your gas. So, I think those are really the dynamics. I think you're looking Permian, definitely congested, but we think we have a really solid competitive position there. And in the Powder, I think we're early mover advantage and we'll continue to kind of bolt on to the existing infrastructure that we've developed to date.

Selman Akyol -- Stifel, Nicolaus & Company -- Analyst

Great. Thank you. I appreciate the color and everything else has been asked for me. Thanks.


Thank you. At this time, I'd like to turn the floor back over to Bob Phillips for closing comments.

Bob Phillips -- Chairman, President, and Chief Executive Officer

Thanks, operator, and thanks again for everybody that joined us on the call this morning. I just want to close with three points from our press release and highlight those for you going forward. No. 1, we've reaffirmed our 15% annual growth rate in EBITDA and DCF per unit through 2020. No. 2, we're entering the final year of a three-year capital program, spending $850 million in the basins that we operate in, Bakken, Powder, Delaware, generating incremental EBITDA of $160 million for an investment multiple of about 5.5 times. We think that's the business we're in and we think that is exactly where the company ought to be right now. That results in us achieving our targeted leverage ratio of 3.5 to 4 times in early 2020. And when we get there, or get to line of sight on that run rate, then we're going to reevaluate distribution growth going forward.

That's the plan. We're sticking to it. We know we sound like a broken record but the model is working and our team continues to execute well so we're going to stay with and hope that investors like what we're doing. And, with that, operator, thank you very much for the call and thanks to all of you that joined us today.


Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You may disconnect your lines at this time and have a wonderful day.

Duration: 68 minutes

Call participants:

Bob Phillips -- Chairman, President, and Chief Executive Officer

Robert Halpin -- Executive Vice President and Chief Financial Officer

J Heath Deneke -- Executive Vice President and Chief Operating Officer

Stephen Dougherty -- Senior Vice President and Chief Accounting Officer

Tristan Richardson -- SunTrust Robinson Humphrey -- Analyst

Dennis Coleman -- Bank of America Merrill Lynch -- Analyst

J R. Weston -- Raymond James -- Analyst

Schneur Gershuni -- UBS Securities -- Analyst

Ned Baramov -- Wells Fargo -- Analyst

Selman Akyol -- Stifel, Nicolaus & Company -- Analyst

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