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Crestwood Equity Partners LP (NYSE:CEQP)
Q1 2021 Earnings Call
Apr 27, 2021, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning, and welcome to today's conference call to discuss Crestwood Equity Partners' first-quarter 2021 financial and operating results. 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. Additional members of the senior management team will be available for the question-and-answer session with Crestwood's current analysis following the prepared remarks. [Operator instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Bob Phillips.

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

Thanks, operator, and good morning to everyone. Thank you all for joining us today. We're certainly excited to announce another great quarter. The portfolio was resilient during the quarter and the employees did an absolutely phenomenal job given all the challenges that we faced -- that the industry faced throughout the quarter.

I think it's important to note that we're more than a year into the COVID-19 pandemic, and while we're all used to working remotely, I know here at Crestwood we look forward to being able to meet our investors and analysts and our Crestwood stakeholders in person later this year. We're anxious to get there and know that you all are too. We continue to take employee and contractor safety very seriously here at Crestwood, but we have not let the pandemic hinder our goal of becoming a best-in-class midstream operator. We simply just didn't take the last year off.

We've made a lot of progress in the past year on a number of our long-term goals including positive free cash flow, really excited about that, very strong balance sheet, no near-term maturities, and what we think is an industry-leading sustainability program here at Crestwood. Most recently, and I'm really proud of this, the team put together a buyout of our general partner, First Reserve, which we think will transform Crestwood's MLP governance structure to a best-in-class and publicly elected board of directors. When you combine that with very impressive outperformance in the first quarter of this year under difficult circumstances and listen to our message and the color around our portfolio, which we think underpins our very positive outlook for the remainder of 2021. We think this is an exceptional start to the year.

While Robert's going to cover the first quarter in detail, I do want to highlight some things that I think are important for you to take note of. Starting with adjusted EBITDA of $165 million and distributable cash flow of $108 million. Both were increases over the first quarter of last year, both were record quarterly results in our 10-year history for Crestwood, and both were well above consensus estimates. We did generate first-quarter free cash flow after distributions of $64 million, also a record.

We're on track and I think you'll note that we expect that free cash flow generation to continue throughout the year and get our debt level back to our target level. We did use that free cash flow to reduce debt resulting in first-quarter leverage ratio of 4.2 times. Now, that includes the $268 million that we borrowed to complete the 11.5 million common unit buyback from First Reserve. So you can do the math there.

And importantly, we posted a record distribution coverage of 2.8 times. That's the highest coverage ratio we've had in the 10-year history of Crestwood as an MLP. Additionally, in the first quarter, we took advantage of higher commodity prices to reset our gathering and processing percentage of proceeds contract margin, 2021 hedge book, and we made really good progress on a handful of 2021 capital projects where we're expanding our Bakken, our Powder River, and our Delaware Basin gathering systems. So looking forward by the end of the second quarter, we will have invested about 80% of our 2021 capital budget, which as a reminder was $35 million to $45 million, and we have a number of rigs running on our assets again so the timing could not have been better.

And Robert and Diaco Aviki will speak to the rigs that are running on our assets. The combination of these expanded facilities leading to increasing volumes in the higher margins that we've locked in for the second half of the year puts us squarely on track to achieve our revised 2021 guidance, which should generate free cash flow in the range of $130 million to $180 million and, as I said, allow us to meet our number one financial objective and that is to continue debt reduction down to our target range of 3.5 times to 4 times. I think the company is hitting on all cylinders right now. Notably, during the quarter, our employees had their hands full, as almost everyone in the energy business did, with the extreme weather event Winter Storm Uri that affected production volumes from North Dakota to Wyoming to Texas.

In fact, when you look at the tables in the back, you'll see some volume reductions, and those are largely attributable to shut-in volumes that we had during the storm offset by, as we've always already pointed to, higher margins due to the resiliency of our portfolio. I thought the company did an outstanding job and we've heard that from our customers how much they appreciate the great work that our operating teams did in ensuring safe and reliable operations for our producers and our customers on the downstream side throughout this extreme winter event. I know that different companies have reacted different ways to the storm. Net-net, Winter Storm Uri was a positive event for Crestwood because of our portfolio and our incredibly dedicated employees who kept the lights on, gas flowing through the gathering systems, processing plants, and out of the storage facilities.

Notably, at Tres Palacios, which is our natural gas storage facility located on the Texas Gulf Coast, we generated approximately $10 million in adjusted EBITDA, net to Crestwood. Remember that's a 50-50 joint venture with Brookfield and that was entirely due to prior winterization efforts and a backup generator that we had invested in previously, which allowed our facility uniquely to remain operational and meet demand from our firm customers. And I want to point out that those employees down at Tres did a yeoman's job in keeping that facility going during Winter Storm Uri. Despite the loss of commercial power, we were able to deliver over 5 Bcf of gas to our customers, which was more gas than any other independent storage facility in Texas delivered during that critical week in February.

So really proud of the job that those guys did for our customers. Also during the first quarter, I think Crestwood took a really big step forward certainly in the 10-year history of the Company, this was a milestone event for us when we simplified our organizational structure through the successful buy-in of First Reserves limited partner and general partner interest. That's the entity that we call Crestwood Holdings so if you hear us refer to the Holdings transaction, that's the buy-in of First Reserve. The transaction provided what we thought was a very elegant solution for First Reserve to exit their 10-year investment in Crestwood and set up the partnership for success going forward.

And I want to take this minute to publicly thank our partners at First Reserve for the long-term relationship that we've had with them since 2010. They've been a great partner and a great sponsor, and we look forward to continuing to work with them on our Delaware Basin joint venture where they retain their interest and we're really excited about the future potential of that investment for First Reserve as well. The Crestwood Holdings transaction was very well received by the market as it enhanced our alignment with public investors, certainly improves our financial flexibility, it increases our public float while at the same time reducing the total number of common units outstanding. The secondary offering where we sold off some of First Reserve's units was oversubscribed and it was bought by some extremely reputable dedicated long-term institutional investors who consider the entire transaction to be a win-win-win transaction for everybody.

Now, as part of the Holdings transaction, we announced that we expect to transition to a publicly elected board of directors. This is something that we started messaging back in the third quarter of 2020. It was aspirational then, we didn't have specific plans, but as time went on from quarter to quarter, we worked shoulder to shoulder with First Reserve and our independent board of directors to get this deal done. As a result, we bought in the GP interest into Crestwood, so we expect to expand our board further.

We'll continue to focus on board diversity as we expand the board, and we expect to hold our first board elections in the spring of 2022. And at that point in time, Crestwood will be one of only three existing midstream MLPs that has a publicly elected board. We think that adds substantially to our ESG program. Additionally, on the ESG front, our team is working toward publishing Crestwood's third annual Sustainability Report.

As a new point of this third report, these disclosures will be in accordance with the Task Force on Climate-related Financial Disclosures. So you'll see some additional information about how we're dealing with emissions here at Crestwood. This past year, we've done a lot of good work on methane emission reduction targets by tying it to our executive and our employee compensation plans. We're certainly looking now at some of the industry areas to potentially make investments for responsibly sourced gas or RSG, you'll hear us talk about that more in the future, and we'll continue to collaborate with other midstream companies and trade groups across the midstream industry like the EIC and the GPA to educate the country on the benefits of responsible energy development and encouraging ESG best practices.

So really proud of the leadership role that the team has taken across the industry in ESG. I guess as a final note, looking forward as I pointed out, we're seeing growing activity across our G&P assets where producers are in fact showing capital discipline as we all hoped for. But rig counts on our assets continue to increase as the economics remain very, very strong in the areas that we operate in the Bakken, the Powder, and the Delaware and because of high gas prices now in the Barnett as well. With crude oil hovering in the $60 per barrel range, our producer customers have eight to ten rigs operating across our systems.

Even more completion crews taking care of some of that DUC inventory, and we are starting to have incremental discussions about adding additional drilling locations to the schedule in the second half of the year and early '22. So the outlook remains positive. I guess the last point, I know that some of you want to ask about Stagecoach divestiture process, which are -- which we're running with our partner, Consolidated Edison. We've been engaged in that process for a while now.

We expect to have more information on that process in the coming weeks, but I can tell you that we've been very encouraged by the number and quality of participants in that process. So with that as a final note, just really proud of the job the team did in the first quarter. I want to turn it over to Robert Halpin for a review of the first-quarter financial results and to give you an update on our 2021 guidance. Robert?

Robert Halpin -- Executive Vice President and Chief Financial Officer

Great. Thank you, Bob. To echo Bob's comments, I'm also very proud to report another strong quarter for Crestwood. In the first quarter, our assets generated record adjusted EBITDA of $165 million, that's up 9% year over year, and distributable cash flow of $108 million, that's up 15% year over year, both above our internal forecasts and above consensus estimates.

These results drove free cash flow after distributions of almost $64 million, which we used to reduce debt on the balance sheet resulting in a leverage ratio of 4.2 times at the end of the first quarter. Crestwood maintained its distribution of $62.5 per unit for the quarter resulting in a coverage ratio of approximately 2.8 times. Now, let's look at the quarterly operating segment results. In the gathering and processing segment, first-quarter EBITDA totaled $120 million, which was flat year over year.

These results were driven by higher commodity prices that had a net positive impact on Crestwood's percent of proceeds contracts in the Bakken and percent of index contracts in the Barnett and that went a long way to help offset some of the small volumetric declines or impacts that we saw as a result of the Winter Storm. As a part of Crestwood's conservative risk management practices, we took advantage of favorable commodity price movements in the first quarter to reset our overall hedge position for over 50% of our PLP and PLI volumes across the portfolio at attractive prices for the remainder of the year, which drives upside from our original budget and guidance range and provides cash flow certainty toward achieving our increased guidance range. Currently, we have 10 rigs operating on acreage dedicated to our G&P system in the Bakken, the Powder River Basin, and the Delaware Basin. This level of activity is expected to drive an increase in well connects in the second and third quarters, which will drive volume growth into the summer months and into the back half of this year.

In our storage and transportation segment, first-quarter EBITDA was $20 million, compared to $14 million in the first quarter of 2020. The first-quarter 2021 results exclude the impact of a $140 million goodwill impairment taken on our equity investment in our Stagecoach joint venture. This impairment charge is a non-cash adjustment of the fair value of the assets based on market-based information that was received during the quarter. Stagecoach has continued to see record demand as a result of increased production in the Marcellus and as a result, both the storage and transportation assets are nearly 100% contracted.

Moving to the COLT Hub, rail loading volumes in the first quarter of 2021 increased 17% over the fourth quarter of 2020 as demand has continued to increase for crude by rail takeaway in light of the remaining uncertainty around DAPL. Finally, as Bob mentioned in his remarks, the Tres Palacios storage facility and our employees down at Tres performed exceptionally well during the Winter Storm, which played an important part in driving segment results during the first quarter. In the marketing, supply, and logistics segment; first-quarter EBITDA totaled $31 million, compared to $26 million in the first quarter of 2020. During the quarter, our gas marketing business benefited from market volatility driven by extreme weather, and Crestwood's NGL marketing and logistics team continued to see consistent retail demand.

Going forward, Crestwood's NGL business expects to see increased commercial and refinery demand as economies continue to reopen across the country, which will drive enhanced margin opportunities for the business. Now, moving on to the capital investments for the quarter. Crestwood invested $9 million in growth capital and joint venture contributions, which were focused on our produced water system expansion at Arrow and well connects in the Delaware Basin. We continue to expect full-year growth capital to be in the range of $35 million to $45 million with maintenance capital in the range of $20 million to $25 million.

As we previously mentioned, at the end of March Crestwood announced several important transactions that resulted in a simplified corporate structure and facilitated First Reserve's complete exit from its investment in CEQP.On March 30, First Reserve closed on a private placement of 6 million common units to a high-quality institutional investor base for proceeds of $132 million. In conjunction with that secondary offering, Crestwood purchased First Reserve's remaining 11.5 million common units and the general partner interest for $268 million, which we financed on our revolving credit facility. By retiring 11.5 million common units, Crestwood reduced its total units outstanding by 15% driving substantial accretion to distributable cash flow per unit, which will also help drive $29 million in annual distribution savings at the current distribution rate, which results in incremental free cash flow distribution -- after distributions to accelerate our debt-reduction objectives going forward. In connection with this announcement, Crestwood's board of directors also authorized a 175 million common and preferred unit repurchase program.

While establishing the buyback program creates greater optionality for our strong expected free cash flow generation going forward, let me be clear we remain firmly committed to prioritizing our free cash flow toward debt reduction until Crestwood reaches its long-term leverage target of 3.5 times to 4 times. Once we realize that target, we will continue to leverage the financial flexibility that we have to further optimize our asset portfolio and capital structure and potentially capitalize on our buyback program as opportunities present themselves. Last week, Crestwood closed the redemption of the remaining $288 million of 6.25% senior notes due 2023 at par by utilizing incremental borrowings on our revolving credit facility. Pro forma for this transaction, Crestwood has $2.6 billion in long-term debt outstanding comprised of $1.8 billion in senior notes and $818 million drawn on our $1.25 billion revolver.

With the full redemption of the 2023 notes, our next senior note maturity is not until 2025. Crestwood currently has more than $400 million in availability on the revolver, which when combined with our substantial free cash flow provides Crestwood with more than ample liquidity to execute on our go-forward business strategy. I am very pleased with where Crestwood is positioned at this point in the year. We have a line of sight on strong volumetric increases on our G&P assets and strong utilization on our S&T and MS&L infrastructure into the middle of this year, which gives us confidence in the assets' ability to generate between $575 million and $625 million in adjusted EBITDA for the full year.

We also have a solid balance sheet highlighted by strong coverage and leverage ratios. We remain on track to generate total free cash flow after distributions within our revised guidance range of $130 million to $180 million for the year. With the First Reserve transactions, we bought back 15% of our total common units outstanding resulting in material accretion to our unitholders and cash distribution savings resulting in significantly increased distribution coverage, all while increasing our total public unit flow. Finally, we delivered on our stated commitment to best-in-class governance by taking action to eliminate our GP governance structure and put in place a path to a publicly elected board.

We believe that all of these accomplishments taken together further differentiate Crestwood from our peers and will continue to drive increased value for our unitholders.At this time, operator, we are ready to turn the call over for questions.

Questions & Answers:


Operator

We will now be conducting a question-and-answer session. [Operator instructions] Our first question is with Tristan Richardson from Truist Securities. Please proceed with your question.

Tristan Richardson -- Truist Securities -- Analyst

Hey, good morning, guys, and congrats on the transaction. Just a quick question about Stagecoach. Could you talk about the impairment there? It sounds like this was different from the sort of annual task. Can you talk about sort of what factors came into play during the ConEd strategic review that maybe triggered this action?

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

Tristan, this is Bob. I'm going to go first, and then I'm going to turn it over to Steve Dougherty, who's our chief accounting officer. As you know, we've been conducting that process for a while on behalf of ConEd, our partner. There have been several steps to the process.

And from a purely timing and sequencing standpoint, we just recently got really into the meat of the process with the various participants, many of which had been conducting relatively extended due diligence as you'd expect on that process. So a combination of the recent transactions like the NGPL deal and our own knowledge or feedback from that process what we were hearing from participants caused Dough to need to take a second look despite the fact that we had already just taken a look at that in our normal year-end asset evaluation. So, Dough, you want to go through the basics of how that works for people that aren't accountants?

Steven Dougherty -- Chief Accounting Officer and Senior Vice President

Yeah, absolutely. So like you described, in our year-end 10-K, Stagecoach, which is our equity investment, did an evaluation of its goodwill. That was before Consolidated Edison and Stagecoach received any market-based information related to the potential sales process. So that information was received here in first quarter when some of the bids started rolling in related to their potential process.Based on the information that we received, we had an indication that the market value of Stagecoach's asset was below its carrying value.

So because of that, Stagecoach recorded an impairment, of which we recorded our $120 million share of that. So that resulted, as we indicated in the earnings release, in ending investment balance for us of $666 million related to our investment.

Robert Halpin -- Executive Vice President and Chief Financial Officer

And, Tristan, the last point I would raise on that is just from a market-based approach, we also had a very comparable transaction announced, a similar time frame with the NGPL trade coming in the 11 times to 12 times range, which was kind of also in the zip code of how we assessed fair value at first quarter based on those events.

Tristan Richardson -- Truist Securities -- Analyst

Really helpful. Thank you, guys. And then just a follow-up from me. Can you talk about maybe the high end and low end of the guidance range relative to the 45-plus well completions this year you guys discussed? If we see the level of activity that you're seeing currently in the second quarter, does that sort of secure the low end or maybe just kind of frame up the 45 versus the high and low end?

Robert Halpin -- Executive Vice President and Chief Financial Officer

Yeah. I think the -- it's a good question. And I think that when you look at the 45-plus well completions which we expect today, coupled with kind of where the forward strip is on the commodity price, all three commodity prices that are factored into our plan and where we've set hedges, I think we're feeling pretty good about where we're trending relative to the range of $5.75 to $6.25. With 45 wells and the pricing holding, I think you're trending toward the upper.

I think with where we are right now, our producers have added rigs pretty meaningfully in the first quarter. As we commented, we have 10 rigs operating actively on our systems in the Bakken, the Powder River, and the Delaware. I think that has firmed up the '21 development plan that we had hoped for. And as Bob alluded to in his comments, I think there are incremental discussions around potentially adding to that in the back half of this year and early parts of next that helps further drive throughput.

Tristan Richardson -- Truist Securities -- Analyst

Thank you, guys, very much.

Operator

Our next question is from Shneur Gershuni with UBS. Please proceed with your question.

Shneur Gershuni -- UBS -- Analyst

Good morning, guys. It's Shneur. Just a quick follow-up here to Tristan's questions before I jump into mine. Just given the process that you have rebased your Stagecoach investment based on everything there, does that change whether you're interested in participating in the ConEd process or not relative to when you last updated us on the fourth-quarter call in February?

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

So that's a great question, and it's something that we think a lot about ourselves here based on what the potential outcomes could be. Will Moore has been running that process for us and I think it would be good for him to give everyone an update on the process itself because the point that I made was we've been pleasantly surprised with the number of participants and the quality of the participants, which, to us, speaks to the real value of the asset at this point in time. And I hope people are not confused by the impairment. That is accounting and we had to do that based upon the information that we had not only precedent transactions like NGPL but indications of interest that we received in the early part of the process.

So, Will, I think it's helpful for people to understand the timing and the sequencing and just the overall positive feedback that we're getting on the asset itself.

Will Moore -- Executive Vice President, Corporate Strategy

Yes. Thanks, Bob.

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

And the record volumes that they're running at right now.

Will Moore -- Executive Vice President, Corporate Strategy

Yes. I think that's an important part. The business is performing well ahead of plan for the year, and we continue to see that for the balance of the year. So that's great fundamental backdrop to be participating in this process with our partner ConEd.

I think from a valuation perspective, we weren't surprised on where the values are shaking out here. It was more just the timing of when we receive those values and the accounting treatment that we had to apply to those values. But we're going to be opportunistic on this process. We're going to -- our goal is to be a good partner and maximize value for ConEd and so that can go a number of ways here, and we'll know more in the coming months and report back to you then.

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

And before we leave that, Robert, if you want to add anything from a financial perspective, fine. If not, I mean, it speaks for itself.

Robert Halpin -- Executive Vice President and Chief Financial Officer

Right. I would answer your question more directly, and no, it hasn't changed our thought process at all. I think that we've been pretty vocal around our active participation with our partners Con Edison. We've been pleased with the level of participation and number of high-quality participants, as Will said.

And I think that in the value ranges that we're talking about at a strong solid double-digit type multiple. I think we have a lot of optionality to think about how we want to play that and drive greatest value for our long-term strategy.

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

And, Shneur, that is almost a free drop for us. It really is. It will be based on the totality of the circumstances because the point that I made in my opening comments, I want to make sure everybody gets. If we hit our numbers through the rest of the portfolio and deliver that $130 million to $180 million worth of free cash flow, we're going to get our leverage ratio back in our target range of 3.5 times to 4 times, OK? So there really is a lot of positive optionality for this partnership going forward and you guys have to trust us that we'll make the best decision under the circumstances based upon what the market tells us.

Shneur Gershuni -- UBS -- Analyst

Really appreciate the color. It was just a clarification question, but the expanded color is definitely helpful. Just two specific questions with respect to the release today. I was wondering if you can talk about the declines in Arrow.

Is it a function of the better-than-expected activity during the 4Q? And I'm focusing more on the gas and the crude side? But is it a function of the better-than-expected activity that you had during the fourth quarter, and as a result, you have a larger percentage of wells in their first-year decline, and that's why you had such a high decline rate during the quarter and will this moderate going forward if it balances out? Just wondering if you have any color that you can help us with respect to that.

Robert Halpin -- Executive Vice President and Chief Financial Officer

Yes, absolutely, Shneur. And I think that it's important you commented on kind of the way the three streams all work together because the gas volumes are at a level that we've seen has been a very positive dynamic toward margin generation out there. But the direct answer to your question is as you said. We had 21 well completions in the fourth quarter that stacked up in the November timeframe through the early December time frame that put our system just flush from a production standpoint at the end of the year.

As we communicated in our guidance and in our general expectation with producers given the winter that usually takes place in North Dakota and this winter in particular with some of the extreme conditions that we saw, we had zero completions in the first quarter, and we saw some production freeze-offs during that period of the Winter Storm event. So those two factors are what drove the first quarter relative to fourth-quarter change. We currently have active rigs running and we've got 10 to 15 three product system -- three product connects and 10 to 15 water connects expected here in the early part of the second quarter, and I would expect that you'll see those production levels step back up. We're expecting them in the balance of 2Q, 3Q, and into the second half of the year.

Shneur Gershuni -- UBS -- Analyst

Great. And one final question. You know, you talked about in your prepared remarks and in the release about the authorization to buy shares and the preferreds, but you also emphasized a leverage reduction as the primary priority. Do you consider the pref as kind of a hybrid toward that leverage goal as well to just given the high coupon on it? Would that be your preference before getting to share buybacks? Just kind of curious if you can talk about the order of priority and whether the pref would be part of your goal around leverage reduction?

Robert Halpin -- Executive Vice President and Chief Financial Officer

The short answer is yes. We think about prioritization is first get leverage from a true indebtedness standpoint to the 3.5 times to 4 times target. We've talked about combination of free cash flow generation and other potential catalyst events that could pretty quickly accelerate to those levels and then give us further optionality to look at -- look more broadly the capital structure. From there, it's a balance between overall financial leverage reduction inclusive of the preferred in that calculation, cost of capital, and maximizing return on that capital investment as we allocate those excess dollars to those various securities.

And so that's the whole calculus. Obviously, the prep and the common are publicly traded and they move around every day in terms of what the cost of that is, but we do have an ultimate objective to reduce financial leverage across the structure broadly inclusive of the preferred while also maximizing return on that investment and driving lower cost of capital overall.

Shneur Gershuni -- UBS -- Analyst

Perfect. Gentlemen, thank you very much. Really appreciate the color today.

Operator

Our next question is from Chris Tillett with Barclays. Please proceed with your question.

Chris Tillett -- Barclays Investment Bank -- Analyst

Yeah. Hey, guys. Good morning. Thanks for taking my call.

I guess appreciate all the comments thus far on the Bakken, but maybe just to circle back there. How would you characterize the conversations you're having up there more generally? I guess it's no secret that rig counts as they stand today are still well below pre-pandemic levels. Do you see that sort of marching steadily back up over time? Do you think producers are waiting for clarity on DAPL? Just be curious to know sort of what indications you're getting on that front.

Diaco Aviki -- Senior Vice President, Commercial and Processing

Thanks, Chris. This is Diaco Aviki. Yes, the conversation we're having in a general nature are absolutely positive especially toward the back half of the year. We are seeing activity come back into the basin.

Right now, there's still a healthy inventory of DUCs out there that they'll get after. So activity is absolutely robust, and we're looking forward to the rest of the year.

Chris Tillett -- Barclays Investment Bank -- Analyst

OK. I mean, do you sense any hesitancy on their behalf due to the situation with DAPL, or do you think that's a secondary consideration for them at this point?

Diaco Aviki -- Senior Vice President, Commercial and Processing

Chris, not at all. Our customers are quite confident in our ability to evacuate barrels and their ability to evacuate barrels with DAPL. Less than a third of our volumes currently are on DAPL and we've got plenty of excess capacity beyond DAPL on other pipelines throughout the basin. As we mentioned in the last earnings call, we've got the True Companies Bridger, Four Bears pipeline that just recently got connected, and as we are aware that they've got some expansion projects out there.

Shortly within a month, we should be able to push another 70,000 barrels incremental into Bridger at the end of May. So we've got that solved for our customers. And with COLT out there, too, we've got backups beyond that. So that's not an issue with them.

Traditionally you generally see very little rig activity in the winter months. That usually always picks up in second and third quarter just as we had the last several years, very active third and fourth quarters. We expect that to continue.

Chris Tillett -- Barclays Investment Bank -- Analyst

OK. That's helpful. Thanks. That's it for me.

Operator

[Operator instructions] Our next question is from Vinay Chitteti with J.P. Morgan. Please proceed with your question.

Vinay Chitteti -- J.P. Morgan -- Analyst

Hi. Good morning. [Technical difficulty] firstly, on -- when you say the gas volumes declined by 6% and oil hit 20% plus quarter over quarter, I just want to understand like how this proportionately was a better hit on that or was it more with respect to higher flare capture, or is there any details why the delta is that big between gas and crude?

Robert Halpin -- Executive Vice President and Chief Financial Officer

Yeah. I think, Vinay, it's a great question, and I think there's a couple of factors driving into it. One, as we mentioned, when you're comparing quarter over quarter in North Dakota up and around our Arrow asset, you've got the flush production that stemmed from the large number of completions at the end of last year. Then the winter months through the first quarter of this year where we did not have any completions as expected.

And then adding to that, you had some production shut-ins due to freeze-offs for that, call it, three to five-day period during the Winter Storm. As we have talked about, we have seen a growing phenomenon up there across the basin and certainly around our assets around an increase in gas to oil ratio that's driving very strong utilization on our gathering and processing assets, which is certainly a favorable dynamic as that's our highest margin business and will help drive our cash flow profile going forward. So when you kind of try to compare this quarter to last, you've got some noise in it driven by the weather events that took place and that continued development of the GORs. But overall, we do expect gas volumes to trend more favorably than our water and crude volumes as incremental completions come online.

Vinay Chitteti -- J.P. Morgan -- Analyst

Got it. Thanks. And then one other question about it. So you kind of mentioned strong POP contracts in the Bakken that kind of benefited in the 1Q.

Just wanted to understand if you could give any details on how much the dollar impact would be and especially considering volume upside when you think about second half of 2021 and a lot of completion activity coming up in second quarter. It looks like there will be some volumes uplift and trying to understand if margins remain the same, how should we think about margins in that case?

Robert Halpin -- Executive Vice President and Chief Financial Officer

Sure. So on the percent of proceeds side, we've talked -- we haven't gotten into specific contract levels down to the basin and specific customer contracts, but we have disclosed for a number of -- for a lot of time now around our overall margin at roughly 50% of our overall portfolio. I can tell you since we've talked about it publicly that with the update to our hedges, which we made through the first quarter and with where the current strip is, we think we've generally locked in about $20 million of incremental margin generation relative to what was in our initial guidance range. So part of the revision upward was our more bullish outlook on development and throughput, but also our more bullish outlook on commodity prices and now having locked in a good chunk of that through our hedge program.When you look at the volumetric uplift and the overall margin generation, as I just mentioned, it does matter which volumes are moving; whether it's gas, crude, or water.

In the gas side in particular where the GOR has been improving, we have a structure where we get to gather and process, and generate fees on that and margin through the value chain. And so I think that the overall margin on a per molecule basis is higher on the gas than it is on the crude and the water. So that is a favorable dynamic toward overall margin and cash flow generation across the three product assets.

Vinay Chitteti -- J.P. Morgan -- Analyst

Got it. One last question if I may here. So you kind of mentioned Jackalope completion pretty much tilted toward 2Q here. Do you think there is any upside potential in that basin? Just want to hear producer conversations you're having regarding that.

Robert Halpin -- Executive Vice President and Chief Financial Officer

Yes. I think that there is. I think 2021, we probably got decent line of sight to. But I think certainly as commodities have stabilized and improved, there's been some active M&A activity in the basin, and I think there will potentially be some more in the coming quarters or year.

And I think that our asset continues to be well-positioned from a capacity standpoint to handle some of those volumes as those two factors play out. Specifically, we've mentioned that we've got -- our completion activity has not changed. That's largely driven by several well OXY development, which was part of the late 2020 plan but got deferred to '21. OXY has continued to accelerate their appraisal program and we think there is incremental opportunity going forward with them.

In addition to that, we've seen activity obviously from Continental around the acquisition of Samson. EOG has continued to be an operator. And I think over time Chesapeake and their position, whether it's them or through potential divestiture over time, I think we see good prospectivity around accelerated development there just given where commodity prices are. So certainly, you -- on the longer-term outlook kind of '22 and beyond, I think we think the basin is setting up very well for incremental development and throughput and our assets are well-positioned to play a part in that.

Vinay Chitteti -- J.P. Morgan -- Analyst

Got it. Thanks a lot, guys.

Operator

We have reached the end of our question-and-answer session. I would like to turn the floor back over to Bob Phillips for concluding comments.

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

Great. Thanks, operator. And thanks to all of you for joining us this morning. Obviously, we're really proud of what the assets and the team did in the first quarter of this year.

I think if there is a message from this, it's that we have an increased degree of confidence about our revised 2021 guidance. So I just want to remind everybody that we put that guidance out when we announced the Crestwood Holdings transaction. So the year is shaping up materially better for us than we thought it was. We've got rigs running on Arrow, Jackalope, our Willow Springs, and Nautilus systems in the Delaware, in the Barnett because of higher gas prices in Texas.

Our operating expense and G&A, we cut $40 million out of that last year and we think that's a permanent cut, that's not going to come back as volumes increase. Our balance sheet is probably in the best shape that it's been in a long time. The team did a great job of getting off a $700 million offering in January at very low cost. That deal was a pretty does and it pushed out all our near-term maturities.

We've got plenty of financial flexibility on the balance sheet, plenty of liquidity to run our business. And we continue to make great progress on corporate governance, which we believe is very attractive to investors on the margin when they're trying to differentiate MLPs. We can't speak to the broader issues of taxation or changes in the administration's policy toward fossil fuel. What we can continue to do is be the best MLP, the best gathering, and processing company, the best small to mid-cap stock out there in this space, and we think that that's attractive to investors.

So I want to congratulate the leadership team here at Crestwood for continuing to do a great job navigating through all of these issues. Really proud of the portfolio that we have and the employees that we have that are committed to performance every quarter. I think we're going to have an outstanding 2021 and if we come in at midpoint on all these guidances, they will be records again in our 11-year history of Crestwood. So at least at this point in time, with the positive commodity price outlook and really good conversations that we're having with our key customers in all of our areas, we're very, very optimistic about the future.

And, operator, we'll leave it with that. And thank you all for joining us this morning. Hope everyone has a safe rest of the day and rest of the week. Thank you very much.

Operator

[Operator signoff]

Duration: 47 minutes

Call participants:

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

Robert Halpin -- Executive Vice President and Chief Financial Officer

Tristan Richardson -- Truist Securities -- Analyst

Steven Dougherty -- Chief Accounting Officer and Senior Vice President

Shneur Gershuni -- UBS -- Analyst

Will Moore -- Executive Vice President, Corporate Strategy

Chris Tillett -- Barclays Investment Bank -- Analyst

Diaco Aviki -- Senior Vice President, Commercial and Processing

Vinay Chitteti -- J.P. Morgan -- Analyst

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