Crestwood Equity Partners LP (CEQP) Q3 2021 Earnings Call Transcript

Crestwood Equity Partners LP (CEQP)
Q3 2021 Earnings Call
Oct 26, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Josh Wannarka

Good morning and welcome to today's conference call to discuss Crestwood Equity Partners' acquisition of Oasis Midstream and its third-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 Commission 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, distributable cash flow, and free 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 our senior management team will be available for the question-and-answer session with Crestwood's current analysis following the prepared remarks. And at this time, I will turn the call over to Bob Phillips.

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

Thanks, Josh. Thank you, operator, and good morning to everybody. Thank you for joining us early today. This morning, we're very pleased to issue two press releases, and we've also posted a brand new investor presentation on our website, which I would encourage everybody to take a look at.

It's got some good stuff in it. First, I want to let you know that we're very pleased to report another really good quarter in the third quarter, another consecutive quarter of outstanding financial and operational results. It again just highlights our diversified midstream portfolio and once again we exceeded the consensus forecast, so really proud of the quarter that we just announced. Importantly, during this quarter, we continued to operate the Crestwood way.

We're optimizing our assets across all basins, maintaining our capital discipline, spending less than our budget. We generated free cash flow after growth capital and distributions for the fifth consecutive quarter. That's really important to us. And we kept our leverage at approximately 3.5 times or below, well within our target.

All of this while keeping our momentum going to exceed the upper end of our 2021 guidance range, which was $570 million to $600 million of adjusted EBITDA. I do hope with all that we're announcing today that it's not lost and all of this, that while our Bakken operations again, greatly exceeded our expectations and continue to really do very well up there. We made really good progress in the Powder River Basin with our Continental deal that we announced and the Delaware Basin with a big expansion of our Novo contract relationship. And both of those announced transactions will drive long-term growth in those basins too.

So we've got a lot going on at Crestwood across the board. I'm obviously also very proud of the great job that all of our teams did during the third quarter while we were working on the second press release, where Crestwood announced that we entered into a definitive agreement to acquire Oasis Midstream in a stock and cash transaction value. We did about $1.8 billion. I think Oasis Midstream is an excellent midstream operator in the Bakken.

They've got very, very complimentary assets to both our Williston footprint and our Delaware footprint. We think the merger makes exceptional industrial logic that as we smartly expand our footprint in those core basins, makes a good deal of sense for both mass limited partnerships as the midstream sector begins to consolidate, as we should, to generate better returns for our investors. And I can really call this a win, win, win situation for CEQP, OMP, and OAS. We're really pleased with this deal.

The combination, as you'll read, when you look through our materials, positions Crestwood as a top three midstream company in the Bakken. It adds another great Bakken producer to our portfolio in Oasis Petroleum, more than triples our dedicated acreage, doubles our inventory of Tier 1 drilling locations and creates numerous synergies, including about $25 million a year in cost savings, and about $20 million a year in commercial growth opportunities or revenue enhancements. But most importantly, it saves capital by optimizing the excess Oasis processing capacity for the increasing gas volumes on the Arrow gathering system. And I might note that Arrow recently got 155 million cubic feet per day.

This is all happening while Bakkenwide, the GORs are increasing, as we all know, and flare capture is definitely improving in that basin, which bodes well for increased gathering and processing volumes in the future. Really excited about how this combination tracks our long-term strategy. We've also messaged that -- this for the last couple of years. We have some very important financial metrics, and this deal checks all the boxes for value creation.

We think it's a great follow-up to the First Reserve buyout early part of the year in the Stagecoach divestiture, which we completed in July. And this deal is going to make a great 2021 for Crestwood, so let me give you some of the transaction specifics. And I know you'll have questions for us. It's a cash and equity transaction and it's structured to maintain our very conservative metrics, then -- and please understand that we have worked hard to protect and preserve our balance sheet and our liquidity, and I think this transaction allows us to grow substantially in the areas that we know best that preserves our balance sheet.

Crestwood is going to issue 33.8 million new CEQP common units and we're going to provide $160 million in cash in this deal, as I said, valued at about $1.8 billion. It's an at-market transaction compared to yesterday's close, and it gives Crestwood about a $7 billion enterprise value, so definitely checks the box on size and scale. The purchase price then implies about a seven to eight times EBITDA multiple on 2021 cash flow with clear opportunities to bring that multiple down significantly over the next couple of years in '22 and '23. As we realize cost synergies, we execute our strategies on integrating the businesses and commercializing the combined footprint.

The deal is clearly going to be accretive in '22 and beyond. It maintains our target leverage ratio at 3.5 times. And driving that lower over time, it preserves our substantial liquidity and enhances our overall credit profile. So, as I said, it checks all of our boxes from a strategic and financial standpoint.

We think the rationale for the deal is compelling, and I think it will make logical sense for investors and the industry players alike, which have all been calling for some consolidation and optimization of existing midstream infrastructure, still clearly hits the mark on all those points. The combination greatly expands our Bakken operating footprint, which is our most important and profitable core area. We know the Bakken well. We've been there since 2012 and 2013 with the acquisition of COLT and Arrow.

We've got an outstanding group of employees out there that run our business well with great producer contracts and relationships. It really is our favorite place to do business. And importantly, the Bakken continues to trade at high oil prices. In fact, we checked the quotes this morning.

It's trading a little bit over WTI, probably has the best oil price and netbacks of all the major oil plays across the country. With approximately 535,000 acres dedicated to us after close, our assets will extend well beyond the Arrow system on the Fort Berthold Indian Reservation, and that expanded reach is going to give us a much more competitive position for third-party opportunities as we see western development across the Williston Basin. The merger clearly gives us Bakken scale, makes Crestwood a top three midstream player in the Williston Basin. And importantly, on a combined basis, we will have four processing plants in about 430 million a day of processing capacity.

That will be 76% utilized, giving us a lot of excess capacity, about 100 million a day of immediately available processing capacity to utilize for increasing gas production from our Arrow customers that has continued to exceed our expectation and is now pushing up against Bear Den plant capacity. So a great synergy in the combination of our Arrow business, our Arrow plant complex and the Oasis gathering system in Wild Basin processing complex. Based on current production forecast, if you follow the Bakken that I know many of our investors do, the North Dakota Petroleum Association expects Williston Basin processing capacity to be constrained as early as 2024. So we're getting ahead of the curve, not only solving for increasing volumes on Arrow but the opportunity to really be aggressive and chase third-party volumes that are in the area that we know about, would like to do business with.

A lot of that's current existing customers with additional acreage that we just don't have room Fort Berthold, so this is going to be a great opportunity for us to expand our platform and be more competitive with third-party supplies. We're clearly going to avoid or alleviate potential constraints on the gas on the Arrow production system. The third-party business is something that we've been looking at for a while but we didn't want to expand the Bear Den plant, so this is a great fit for us. The estimated $25 million a year of cost savings and the $20 million a year of commercial synergies or revenue enhancements to us is just icing on the cake for this strategically important transaction.

And as I said, the macro environment in the Bakken and across the entire industry is ripe for additional growth in the near term. Let's -- don't forget about the Delaware Basin. That wasn't just a throw in through this acquisition. We're also gaining crude oil gathering system with that 95,000 barrels a day capacity in the Delaware and a produced water gathering and disposal system with about 60,000 barrels a day of disposal capacity.

I might point out that this asset map on Slide 9 of our latest investor presentation illustrates the complementary fit with our existing Nautilus and Desert Hills system down in the Delaware. Additionally, these assets were supported by dedication with a very high-quality producer that we're excited to partner with on Bear development plans going forward. So a great combination of Bakken and Delaware, really expands our footprint in both core areas. Now the transaction clearly has a meaningful impact on Crestwood's overall financial position and scale.

Pro forma, our enterprise value, as I said, will grow from about $5 billion to $7 billion. Our annual pro forma 2021 estimated adjusted EBITDA will grow to more than $820 million. Our new leverage ratio will continue to be in the three to three and a half times by the end of 2022, which is where our leverage is today. So it's a leverage-neutral transaction and we believe that both rating agencies will view this transaction very positive given the enhancement to scale, coupled with strong balance sheet and the substantial total deleveraging of Crestwood, if you factor in our preferred equity as Standard & Poor's does in their total leverage calculation.

So it's going to be leverage-neutral to bank and deleveraging to total leverage across our capital structure. And given the confidence in the growing free cash flow profile of this combined business, our ability to quickly integrate and bring those cost savings out, Crestwood will accelerate our previously announced plans to return capital to our unitholders and we're going to be increasing the distribution by about 5% after the merger closes beginning in 2022. And I want to remind people that with all that free cash flow, we do have $175 million common and preferred equity buyback program that the board approved a couple of quarters ago, and that allows us to further enhance returns to investors and lower our cost of capital opportunistically as we enjoy the benefit of that growing free cash flow over the next two to three years. And I guess, lastly, before I turn the call over to Robert, I really want to take a personal moment and complement the Crestwood deal team, led by Robert Halpin, our CFO; Will Moore runs our corp.

dev; Diaco Aviki, who runs our top group; Curt Van Hoorn runs our Bakken ops. These guys and all their support staff, too many to just worked tirelessly over the last couple of months to get this deal done. We have a great Bakken team. We think we have the best Bakken team in North Dakota.

They're chomping at the bit to integrate these assets and build Crestwood a bigger, better, stronger Bakken platform. I also want to complement my counterpart, Danny Brown, the CEO of Oasis Petroleum and his team. They're going to become our largest producer customer and a major unitholder of Crestwood. Danny and I and both teams have developed good relationships through their acquisition of the Diamondback acreage on the FDR on our Arrow system and we have a good strong working relationship.

We really dug into each other's businesses through this process. We're going to work very well together. Oasis Petroleum is a financially strong, as you know, first-class E&P Bakken operator, and that they share the vision of how to develop the Williston Basin, both safely and responsibility. We're proud to be partners with them, and I know they are as well.

And additionally, I should point out that they have assembled a first-class group of North Dakota employees across their midstream franchise. It's a veteran group. They've been working up there for a while. They're great assets.

They're also going to fit well with us, and we're very excited to welcome those Oasis Midstream employees into the Crestwood family, following this transaction. So, I know you'll have questions. On that note, I'm going to turn it over to Rob to discuss our outstanding third quarter and our financial outlook. And I just want to say go Astros today as we kick off the World Series here tonight in Houston.

OK, Robert, tell us about the third quarter.

Robert Halpin -- Chief Financial Officer

Thank you, Bob. The Oasis Midstream transaction, combined with our strong third quarter results and new commercial contracts in the Powder River and the Delaware Basin, make this a very exciting time to be at Crestwood. To touch on the results first, our diversified asset base continues to outperform our expectations. This quarter, we generated $140 million in adjusted EBITDA, $86 million in distributable cash flow, and $18 million in free cash flow after distribution payments.

We also completed the sale of Stagecoach Gas Services to Kinder Morgan and used our net proceeds to paydown outstanding borrowings on our revolver, which resulted in a leverage ratio of 3.5 times and accelerated the achievement of our long-term stated financial targets. Based on these exceptional results, the board of directors declared a distribution of $0.625 per common unit for the quarter [Audio gap] December 12, the unitholders of record on November 5th. I'm looking at our operations for the quarter, the Gathering & Processing segment continued to benefit from favorable commodity prices and increased producer activity, resulting in EBITDA of $131 million, representing a 22% increase over the third quarter of 2020. During the quarter, Crestwood saw material increases in gas gathering volumes, highlighted by increases across the Bakken, the Powder River Basin, the Delaware Basin, and the Barnett systems.

Additionally, commodity prices increased substantially over the quarter, which drove increases on our POP contracts in the Bakken and our POI contracts in the Barnett. While a majority of our G&P contracts are fixed fee, we do have a meaningful upside potential when commodity prices catch a tailwind. Conversely, as a part of a conservative risk management program, we have an active hedging program, which appropriately manages downside exposure if prices were to reverse. Now moving to the S&P segment, as part of the divestiture of Stagecoach Gas Services [Inaudible], we expect to close on the sale of the final subsidiary, Twin Tier Pipeline in November.

This will result in an additional $30 million in proceeds or $15 million net to Crestwood that we will use to paydown the revolver. In the MS&L segment, EBITDA totaled $12 million, which was flat when compared to the third quarter of 2020. As we prepare for the upcoming winter season, we are well-positioned to optimize our asset storage capacity and inventory to meet the increase in demand despite NGL market backwardation during the third quarter. As we look forward to year end, based on our strong year-to-date performance and the current favorable commodity price environment, we would expect Crestwood to meet or exceed the high range of our adjusted EBITDA guidance of $570 million to $600 million for 2021.

As Bob said at the beginning of the call, we have been very busy these past few months. In addition to the Oasis Midstream acquisition, our commercial teams have done an exceptional job leveraging our existing assets to generate some big commercial wins in the Powder River Basin and in the Delaware Basin. In the Powder River Basin, we entered into a long-term agreement with Continental Resources to support them in the development of a large acreage position in Converse County, Wyoming. We have begun construction on a high-pressure transportation line to connect Continental's acreage position into our Bucking Horse processing complex.

Continental is an exceptional operator and we look forward to building a long-term relationship with them in the coming years. On the investment front, based on the size and timing of the initial capital outlay for this project, Crestwood still expects our 2021 growth capital to come into the previously announced range of $35 million to $45 million, all of which will be funded with retained cash flow. In the Delaware Basin, we are pleased to expand our relationship with Novo that will result in over 90 new well connections to our [Inaudible] over the next 24 months. Based on the expected volume growth, Crestwood is relocating several compressor stations from our Southwest Marcellus system to meet increasing [Inaudible] for gathering services in the area and drive project returns.

I want to congratulate our commercial, technical and operations teams for working [Inaudible] to manage our asset portfolio. Based on year-to-date financial results and the recent strategic initiatives, Crestwood has differentiated itself as a best-in-class G&P operator, with significant financial strength. As a result of our dedicated employee base and their track record of execution, we have set a strong foundation that provides the backdrop for Crestwood to participate in industry consolidation with the logical acquisition of Oasis Midstream. This transaction may express with larger and more relevant in our core basins and also enhances our financial scale and relevancy with our investor base.

As we move into the final quarter of the year and work to close the Oasis Midstream transaction over the next several months, we are encouraged by the current commodity price outlook and the implications around our gathering and processing assets. We are excited about the enhanced scale, the operating leverage and financial strength that the combination with Oasis Midstream provides, and we look forward to using our expanded platform to create value for both our legacy and the unitholders in the future. With that, operator, we're ready to open the line up for questions.

Questions & Answers:

Operator

Thank you. We will now be conducting a question-answer session. [Operator instructions] Our first question is from Shneur Gershuni, UBS. Please proceed with your question.

Shneur Gershuni -- UBS -- Analyst

Hi. Good morning, everyone. Maybe to start off, and I don't want to put words in your mouth at all but as we sort of stand through the transaction and the slides and so forth, just kind of wanted to understand kind of the takeaways that you wanted to leave us with. Is that -- is it then effectively a transaction where it's effectively no premium deal? Your leverage should be neutral to enhance depending on how you look at the preferreds in addition to generate free cash flow after distributions and that the deal provides an opportunity to push capex out that you otherwise would have had to spend.

And so putting it all together, basically, your financial metrics and trajectory are all kind of on the same path as it was pre-transaction. And so does that mean that you're in a position to opportunistically be buying back equity and preferreds upon close of the transaction?

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

Well, Shneur, I think all of those are key attributes. And you did a great job of listing them for us. There are many more, some of which I talked about. Robert will talk about more.

Will will talk about more. This deal is accretive at the beginning. And as we complete those -- the integration and the real cost savings, those drop straight to the bottom line. The revenue enhancements are [Inaudible] the third-party opportunities on their system and on our combined system are absolutely real, which we could not have perceived those.

Yes, we are saving a significant amount of capital and not having to expand the Bear Den plant, and that's a good thing both from our capital standpoint as well as a timing standpoint. This basin is going to get pipe processing capacity. We just went along processing capacity that gives Diaco in our commercial [Inaudible] enormous flexibility to wheel and deal out there and bring some new producers into our portfolio that we don't even have today. There is a lot of development activity that's beginning to gin up in the Bakken.

A whole area of Western North Dakota that is really beginning to look like core acreage, Tier 1 acreage. And so we're dramatically expanding our footprint around that. This is what [Inaudible] we based up, we integrated in. We've had a history of buying, gathering and processing assets from producers, integrating that in, continuing to provide seamless, great customer service and then really getting after the third-party business and optimizing.

Just go back to the beginning of Crestwood. I bought QuickSilver Gas Services from QuickSilver. We bought Antero's gathering system. We bought the gathering system from Chesapeake in the Powder.

We have a long history of this type of transaction, carving out either separate or stand-alone assets -- integrated or stand-alone assets and not only providing great service to the anchor customer, but really leveraging off of that for third-party business. We didn't put any of those revenue enhancement -- any substantial revenue enhancements into that. And when we look at the business, just combining the two companies' pro forma, our free cash flow grows significantly over the next three years. I'll let Robert decide if he wants to message any of that, but it is a substantial increase in free cash flow, and that does substantially increase our optionality about how we reinvest that capital for the benefit of our investors.

We talked to you all about our buyback plans. We haven't announced program. We do have a strategy for dealing with what will be received by some people as an overhang in the stock. We have lived with our general partner owning 25% of our outstanding limited partner units for 10 years and we dealt with that and came to a very elegant solution.

So yeah, I think it, No.1, helps us operationally and commercially in our best basin, that's got a lot of growth left. No. 2, it absolutely is accretive and increases free cash flow, which gives us more flexibility strategically to improve returns to investors. And we're going to do it the way that we've talked about it for some time.

Robert, do you want to add to that or add any numbers to it.

Robert Halpin -- Chief Financial Officer

I think, Bob hit on the key point strategically. These are highly complementary assets, right on top of each other with immediately identifiable and available synergies to capture and drive value through that. Bob talked about the enhancement to our competitive footprint up in the Bakken going forward. So I think you hit on all the key financial elements.

This is enhancing every single financial element we look at from the balance sheet to the cash flow generation. And as do we enhance our free cash flow generation after distributions, inclusive of the 5% bump into [Audio gap] that we plan to implement post-closing of the transaction, and that we have more firepower today than we did prior to this deal to execute around our $175 million buyback program. So no change in any respect there, just enhanced.

Shneur Gershuni -- UBS -- Analyst

Perfect. Really appreciate the color. If I can just ask a quick question about kind of the existing operations. Given where we see the rig count today, given where we see completion crews today, how are you thinking about your Bakken completion trajectory into 2022? And I guess a similar question for the PRB as well in terms of growth.

Robert Halpin -- Chief Financial Officer

Yeah. Shneur, I'll start on that, and then I'll hand it to Diaco Aviki, who runs both those -- runs all of our G&P, Commercial operations and has a very good real-time intel from our producers. But the short of it is the outlook for 2022 in light of the commodity price environment is very favorable. We also continue to see this uptick in rigs across every basin in which we operate to varying degrees.

We continue to see increases in completion activity expectations from our producers in the Bakken, in the Powder, and in the Delaware Basin. And we think all of that is going to add to the outlook for '22 and beyond going forward. So I think that when you look at where we're positioned in the Williston Basin, as we have talked about, we see the completion trajectory having a meaningful uplift next year relative to the 35 to 45 wells that we expected to complete this year and we will see that start to translate into the cash flow generation of the asset. And one of the points that we've talked about up in the Bakken our Arrow system, particularly on the gas side, as the GORs continue to increase and gas production improves up there is that we're operating at top utilization.

And so, I think one of the key elements of this transaction is the ability to integrate our Arrow footprint with the Oasis footprint and optimize the margin potential of the combined business by alleviating any constraints that may be in existence on the component parts. In the Powder River Basin, we signed up a new deal with Continental, which we announced today. That significantly diversifies our customer portfolio there. They have an active program going as they delineate their sizable acreage position, and we're really excited to be their choice, gather and process or in-basin to execute for them for the long-term.

And then lastly, I think the Delaware is no surprise. We've continued to see a significant acceleration in activity on track at 90 new completions over the balance of the next few years, continue to see an active program out of Conoco, one of our other significant customers there. So all-in-all, I mean, things are stacking up extremely favorable for the G&P portfolio.

Diaco Aviki -- Senior Vice President of Commercial, Gathering and Processing

Robert, I don't have anything else to add. You said it all.

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

Well, Shneur, let me add just a subtle distinction that I know you've been around long enough to know. Producer owned or controlled gathering systems are unique in this business, particularly when they try to add third-party business to it. We all know that. That's not a bad thing.

I mean, there's a lot of guys that build their own gathering system that either IPOed them into an MLP or they drop them down or they ultimately sold them off and many of them still own them. But the reality is -- and these guys at Oasis have done a fabulous job over the last couple of years in trying to supplement the throughput on their system with third-party opportunities, and they have developed a pretty nice set of third-party opportunities. But the reality is we're in the business of gathering and processing. We are a true independent third-party.

And so, we ought to do exceedingly better than they did by adding third-party business to this system. The key in the Bakken in the future is the availability of processing capacity. And don't miss how important that is in this transaction. Extra processing capacity gives us substantial competitive leverage, if you will, to go aggressively pursue third-party business.

Whereas maybe in the past, the Oasis guys, despite their best efforts, they couldn't aggressively go -- pursue because they had their anchor tenant. So we're going to provide the best of both worlds. We're going to provide a great service to Oasis Petroleum but we're also going to manage excess capacity for the benefit of our Arrow producers and third-party gas is developed out on the western side of the play. I just can't tell you, historically, over time, how much better than independent third-party can do in managing what was a producer owned gathering system.

It just always works that way.

Shneur Gershuni -- UBS -- Analyst

Great. I really appreciate the color today around the strategic nature of the transaction and the ability to still continue to opportunistically buyback. I'll jump back in the queue. I'm sure there are a bunch of questions on HSR and so forth.

I'll now turn it over to you.

Operator

Our next question is from Tristan Richardson with Truist. Please proceed with your question.

Tristan Richardson -- Truist Securities -- Analyst

Hey, good morning, guys. Congrats on the announcement. Appreciate your comments on the leverage. I think that goes a long way with investors.

You noted the 3.0 to 3.5 exiting 2022 for the combined company. And I think when we think about that versus Crestwood's long-term target, is the 3.0 to 3.5, is there a suggestion there that that could be the new long-term target for the combined company?

Robert Halpin -- Chief Financial Officer

I think, Tristan, our view of where we feel comfortable operating our business has not changed. We've guided kind of 3.5 to 3.75 times as a long-term target. The transaction pro forma in and around the close is neutral to the low end of that range where we are today. As we generate the incremental free cash flow next year, absent alternative strategies or deployment of that capital to optimize, that's just the outcome from a leverage standpoint.

I think we feel comfortable in that 3.5 time code and as we continue to look at incremental investment opportunities in the capital structure and around our existing core assets, we would hope to put that to work in things that enhance returns at a significantly greater clip.

Tristan Richardson -- Truist Securities -- Analyst

Appreciate it, Robert. And then, Bob, you talked about capex and opportunities there, at least to just unlock revenue synergies there but I think when you look at the two companies stand-alone, the capex profile, this year is obviously indicative of a period of very low capex as demand and supply side continues to recover. But just frame up for us maybe what the combined company annual opportunity set, annual capex opportunity might look like going forward?

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

Well, I can give you a couple of points, and maybe you can triangulate on your own. Oasis Petroleum is going to be [Audio gap] up there. They are a substantial Bakken pure-play. They've got a significant amount of acreage, but they're on public record as suggesting they're just going to keep their volumes flat at least during this part of the cycle that we're in right now.

So as we looked at this business, as we diligence it, we don't see a significant amount of additional activity, flat to up is kind of the way I would describe it. That's kind of the way that they've described it to us. So, there's not a whole lot of capital that's about going to come in '22 just based on the expectations for Oasis Petroleum's development activity level. They could accelerate that based on these prices.

We don't have that baked into the forecast. We're pretty flat to kind of slightly up over time. Again, I fall back on the real business opportunity here is for Diaco and his team to bring in some of these third parties. So to the extent that we can bring in large acreage positions that are undedicated or being renewed from contracts with other G&Ps that are rolling off, there may be some capital associated with that.

We don't have a significant amount of capital in the next couple of years relative to what we have historically spent up there. So I think we're going to stay generally in the same neighborhood to maybe slightly up. Robert, do you want to --

Robert Halpin -- Chief Financial Officer

Yeah. I would say, Tristan, we're going to be -- if you look at kind of each of the combined or each of the companies independently, kind of their capital needs around their footprint for 2022. We don't see any material changes to that and I think we do see the opportunity to have some capture of that revenue and integration synergy through connecting the two systems physically, which is all very manageable powers.So I don't think any material deviation of -- from kind of what we've communicated on a stand-alone basis. And I think what Oasis just communicated generally on a stand-alone basis as well.

Tristan Richardson -- Truist Securities -- Analyst

Great. Appreciate it. Thank you, guys, very much.

Operator

Our next question is from Ned Baramov with Wells Fargo. Please proceed with your question.

Ned Baramov -- Wells Fargo Securities, LLC -- Analyst

Hi. Good morning. Thanks for taking the question. I appreciate the detail on the capex.

Could you maybe talk a little bit about the low connect capital at OMP? And more specifically, does it benefit from the same producer reimbursement arrangements that CEQP has in place in the Bakken?

Diaco Aviki -- Senior Vice President of Commercial, Gathering and Processing

Yeah. This is Diaco Aviki. Yeah. So the well capital is going to be in line with their activity as they forecast, and their contracts are dissimilar to those at the Arrow footprint.

The connection capital for these wells is the responsibility of the midstream provider in their arrangement. So, a little bit different. But again, subject to just whatever their activity pace is, that's going to be commensurate with it.

Ned Baramov -- Wells Fargo Securities, LLC -- Analyst

Got it. And then --

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

I add just a little bit of color there. I mean, we inherited the existing OMP, OAS arrangements, largely with very modern modifications. We've got some additional contracts on acreage that had not been previously dedicated. That was part of the deal but that's -- this was a public-to-public deal so you can go look at the old OMP contracts and get a sense for what the historical relationship was between OAS and OMP, and we're just stepping in those shoes.

So they are not the same type of contracts that we have at Arrow, but they will be very synergistic as we blend the two systems together.

Diaco Aviki -- Senior Vice President of Commercial, Gathering and Processing

And let me just add one more thing. This is Diaco. The Wild Basin footprint where they have predominant acreage and their activity. This predominantly developed already.

So there's a lot of synergies associated with new development activities, and we enjoy that.

Ned Baramov -- Wells Fargo Securities, LLC -- Analyst

Got it. Thanks for those. And one more unrelated question. Will there be lock-up provisions in place for Oasis Petroleum ownership in Crestwood?

Robert Halpin -- Chief Financial Officer

Yes. I would say, Ned, there will be standard provisions as part of the agreement around lock-up on their ownership position. I would say, as we've discussed with them long-term plans, we clearly are a critical service provider for their Williston Basin production. They are a pure-play Williston company and their strategy is entirely centered around the long-term development of that basin.

So I think all communications with them or they're very much aligned to benefit as an important customer to Crestwood and also an important unitholder of Crestwood. So that's kind of how we would answer it. There are lock-up provisions for a period of time. And then as they go forward, we view it as a long-term partnership with them as an important customer and us for an important service provider for them.

Ned Baramov -- Wells Fargo Securities, LLC -- Analyst

Thanks, Robert.

Operator

[Operator instructions] Our next question comes from Elvira Scotto with RBC Capital Markets. Please proceed with your question.

Elvira Scotto -- RBC Capital Markets -- Analyst

Hey, thanks. Good morning, everyone. A couple of follow-up questions. Pro forma the acquisition, how much exposure to Oasis volumes will Crestwood have?

Robert Halpin -- Chief Financial Officer

Yeah. So pro forma for the acquisition, Oasis will become our largest customer. They'll constitute on total volume at basis in Bakken, between 20% and 30% of kind of total margin.

Elvira Scotto -- RBC Capital Markets -- Analyst

OK. Thanks. And then, another follow-up question. What's the minimum ownership level that Oasis needs to maintain to appoint the two directors?

Will Moore -- Executive Vice President, Corporate Strategy

Elvira, this is Will. So, they drop below 15% of pro forma CEQP equity ownership. They drop to one director and below 10%, they lose all rights to participate at the board level.

Elvira Scotto -- RBC Capital Markets -- Analyst

OK. And then just a couple more questions for me. Pro forma transaction, are there any potential non-core asset sales that Crestwood might consider?

Robert Halpin -- Chief Financial Officer

I think, Elvira, when we look at the business, I would say that the answer to that is consistent with what it's been in the past. We always look at our portfolio I think around optimizing our portfolio in terms of investing capital in what's core to us and looking for opportunistic ways to divest potentially things that are not. We love the portfolio as it sits today. We have a lot of positive fundamentals to play behind each of our assets, providing some real tailwinds into '22 and beyond.

So there's nothing imminent in the works, but I think we'll continue to be very thoughtful around the portfolio and how we optimize both adding on assets to our core areas and divesting of assets that are less core to us.

Elvira Scotto -- RBC Capital Markets -- Analyst

Great. Thanks. And then the last question for me is just on the base business, just some thoughts on Conoco's acquisition of Shell Permian Acreage. And then on the Nautilus JV, how that kind of plays out?

Robert Halpin -- Chief Financial Officer

Yes. I think no real change in what we've communicated in prior discussions. Obviously, Conoco is taking over the sweaty position. We view as a net positive to our position in the Delaware Basin.

Conoco is clearly committed to that basin with significant inventory that they have. They were already an existing customer of ours in a meaningful way through their acquisition of Concho. And now this creates a more meaningful relationship with them. So all-in-all, we view it very positive on the upstream development side.

I think it obviously does create questions around Shell exit long-term investment in our joint venture at Nautilus. And I think as we've said historically, we'd love to be a potential solution there as a part of that, but nothing imminent at this point. We'll continue to work with our partners there to optimize the asset for the long term.

Elvira Scotto -- RBC Capital Markets -- Analyst

OK. Thank you very much.

Operator

Our next question comes from Kyle May with Capital One Securities. Please proceed with your question.

Kyle May -- Capital One Securities -- Analyst

Hey. Good morning, everyone. Just a quick question on the transaction. Oasis and OMP have talked about some more recent acreage dedications this year and the -- I guess, associated EBITDA that's expected to come with that in '22 and '23.

Are you expecting that Crestwood will follow that same path and trajectory or do you anticipate any changes to that?

Robert Halpin -- Chief Financial Officer

No. I think their business plan, from an OAS perspective and OMP perspective is consistent with what we've outlined in the combined company going forward. So, obviously, very close working relationship with Oasis Petroleum over the last several months, got good looks into their development plans. And I think what they've publicly communicated is consistent with what our expectations are in the basin.

Kyle May -- Capital One Securities -- Analyst

Got it. OK. Thanks for that. And then maybe one question, shifting gears, looking at the new agreement with Continental.

Can you provide any color around, I guess, when you expect to see new volumes? Maybe how much volume you expect to be added to the system? I think you mentioned there's no [Audio gap] this year, but do you anticipate any significant capital going forward?

Diaco Aviki -- Senior Vice President of Commercial, Gathering and Processing

Yeah. This is Diaco Aviki. From a timing perspective, the bond should start sometime midyear 2022, but it could span between midyear 2022 to the end of '22. It just depends that they're building some facilities on their end to effectuate volumes into our system.

The second question you asked, as far as capital goes, we'll have some of the capital that's in our guidance today in 2022. The construction has already started on that project and we should wrap up before midyear 2022.So I'd say half and half from a capital perspective. And then finally, ultimate volumes, look at the large acreage dedication. We feel very confident about it.

We know the basin well. I'll just say this. We built -- we're building a 16-inch pipe that reaches up to their locations. So our expectations are for fairly substantial volumes moving forward.

Robert Halpin -- Chief Financial Officer

And, Kyle, to put a little more clarity on the capital side. The total project, spread out over '21 and '22 is about $30 million all-in. It's about half and half in each year. And that included within the guidance range for 2021 that we provided as well as kind of the soft guidance we had given around CEQP for '22.

Kyle May -- Capital One Securities -- Analyst

Got it. Appreciate it, guys.

Operator

Our next question is from Selman Akyol with Stifel. Please proceed with your question.

Selman Akyol -- Stifel Financial Corp. -- Analyst

Thank you. Good morning and congratulations. So just real quick, on the synergies that you've kind of outlined there in terms of the elimination of G&A, O&M, should we expect that from day one when this thing closes or does that really take all the way to, I guess, 2023 to be realized?

Robert Halpin -- Chief Financial Officer

Yeah. Selman, I think it's all pretty quick actually. When you look at $25 million of cost synergies that we've identified, probably three quarters of that is kind of be pointing to G&A eliminations that are real quick and then the balance of it on the O&M side probably happens stage throughout the year as we integrate the systems and optimize. So there will be probably 70% to 80% of that realized in 2022 and then the full balance in '23.

We're looking at a full year under our belt.

Selman Akyol -- Stifel Financial Corp. -- Analyst

Great. Thank you for that. And then, I guess, just flipping over -- or just can you guys talk about whether you're seeing inflation in general?

Robert Halpin -- Chief Financial Officer

Sure. I can take that. So I think the short of it is we are seeing inflation across the industry broadly, no different than a lot of industries out there with everything going on.I think we have seen -- while there was kind of some run-in steel prices around some of the new pipes, I think we've seen some stabilization in that of late. The benefit we've seen is we have not had a significant capital program and the capital that we have spent has largely been on pipe and compression.

And one of the comments Bob gave in his prepared remarks was our team's ability to source inventory across our portfolio. The excess compression capacity we've had in some of our lower utilization areas, such as the Southwest Marcellus and then redeploying plants that we have in inventory. So haven't really felt the impact of that escalation in cost.In addition to that, I would also highlight that very consistent with most midstream contracts. All of our contracts have escalators built into them, oftentimes tied to CPI or other inflation metrics.

Selman Akyol -- Stifel Financial Corp. -- Analyst

All right. That's it for me. Thank you.

Operator

[Operator instructions] Our next question is with Ned Baramov with Wells Fargo. Please proceed with your question.

Ned Baramov -- Wells Fargo Securities, LLC -- Analyst

Thanks for taking my follow-up. Could you provide more details on Crestwood's current commodity price exposure? Specifically, are the POP and the percentage of index contracts strictly tied to volumes that are going through your processing plants or is there some commodity price exposure on the gathering side, too?

Robert Halpin -- Chief Financial Officer

Yeah. It varies by contract and by location. I would say the two assets where we have -- where we do have commodity exposure, are the percentage of proceeds arrangements we have up in the Bakken and the percentage of index arrangements we have in the Barnett shale. And I think that what we have generally communicated is over time our portfolio has been about 85% fixed fee and about 15% commodity linked.

I think it's based on the significant run-in commodities. Obviously, our top revenues have increased as a result of that. So that number has increased to probably just north of 20%. We have actively hedged a lot of that upside potential for 2021 and the team has started implementing strategies on taking some of that risk off the table for 2022, so that's really the arrangement is Bakken and Barnett.

Your question on, is it gathering and processing? I mean it really depends, but I would say that in the Bakken, which is the largest component of that, it's predominantly driven by gas price and liquids pricing associated to our netback on the profits side.

Ned Baramov -- Wells Fargo Securities, LLC -- Analyst

Got it. Thanks for that. And then one more housekeeping item. It seems that growth capital in the third quarter included roughly $20 million of litigation-related capital.

I think it was mentioned pertaining to the Bear Den II processing plant. Could you just elaborate a little bit more on this?

Robert Halpin -- Chief Financial Officer

Sure. I think as we've kind of communicated in our disclosures over time, we are still in a pending litigation with Linde around the construction contract we had with them on the Bear Den plant. The $19 million payment was part of the settlement around that or part of a payment in relation to our ongoing litigation there. We think we've got all future potential settlement payments accrued for it at this point in time.

And really, that's all I can say there for now.

Ned Baramov -- Wells Fargo Securities, LLC -- Analyst

OK. That's all I have. Thank you.

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 closing comments.

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

Well, thanks, operator, and thanks to all of you that joined us this morning. I just want to highlight all of the commercial operational and financial objectives that we think we're meeting with this transaction. I think you'll see as we efficiently integrate the business in the first quarter of next year, assuming we get a smooth close then, we're going to have a much bigger platform in the Bakken. We'll be a bigger player in terms of financial scale across all of our basins.

We'll have significantly greater free cash flow to make some opportunistic and strategic decisions with, which could include expanding our presence in the other basins that we operate, where we have identified similarly situated opportunities or just continuing to return capital to our investors through either distribution increases or stock buybacks. I think the management team here has exhibited the ability to deal with these type opportunities and challenges in the past and I think when we all look back at 2021, given the elegant solution to First Reserve and that big buyback program and how accretive that was for our investors, the very strategic final divestiture of Stagecoach and [Audio gap], which led to our ability to complete this transaction, which, as we said, substantially grows cash flow, improves our long-term inventory position in the Bakken, which we think is the No. 2 oil play in the United States. So we're really pleased with where we are positioned once we complete this transaction.

Well, we look forward to meeting with you all again as we start investor conferences in December. We will be finishing up our 2022 capital -- operating budget. The team has been working hard on that. Separate and apart from this Oasis transaction, we'll be taking that preliminary budget to the board in November and hopefully, be able to start messaging how we think about 2022 to you all starting in December with some of those conferences that we typically go to.

Then as we get to closing the year, we're on track, as we said, with the high end of our guidance and we really feel good about a great 2021, both financially, operationally, and strategically. So thanks for joining us. We appreciate all the support we have from our investors, our customers, and our employees, and we look forward to talking to you again soon when we hopefully close this transaction. So thanks again, everybody.

Operator

[Operator signoff]

Duration: 67 minutes

Call participants:

Josh Wannarka

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

Robert Halpin -- Chief Financial Officer

Shneur Gershuni -- UBS -- Analyst

Diaco Aviki -- Senior Vice President of Commercial, Gathering and Processing

Tristan Richardson -- Truist Securities -- Analyst

Ned Baramov -- Wells Fargo Securities, LLC -- Analyst

Elvira Scotto -- RBC Capital Markets -- Analyst

Will Moore -- Executive Vice President, Corporate Strategy

Kyle May -- Capital One Securities -- Analyst

Selman Akyol -- Stifel Financial Corp. -- Analyst

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