Crestwood Equity Partners LP (CEQP) Q4 2021 Earnings Call Transcript

Crestwood Equity Partners LP (CEQP)
Q4 2021 Earnings Call
Feb 22, 2022, 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 fourth quarter 2021 financial and operating results and 2022 outlook. Before we begin the call, listeners are reminded that the company may make certain forward-looking statements as defined in the Securities and Exchange Act of 1934 that are based on assumptions and information currently available at the time of today's call. Please refer to the company's latest filings with the SEC for a list of risk factors that may cause actual results to differ. Additionally, certain non-GAAP financial measures, such as EBITDA, adjusted EBITDA, 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 and chief executive officer, Bob Phillips; and president and chief financial officer, Robert Halpin. Additional members of the senior management team will be available for a question-and-answer session with Crestwood's current analysts following the prepared remarks. Today's call is being recorded.

[Operator instructions] At this time, I'll turn the call over to Bob Phillips.

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

Thank you, operator, and good morning to everyone, and certainly thank you for joining us today. We know there's a lot going on this morning, but pleased that you're with us here just spend a little bit of time talking about the great year that Crestwood had last year and the very positive outlook we have going forward. On the call this morning, I want to touch on a couple of really important topics. Number one, being the major accomplishments that we had in 2021.

It was a year of strategic milestones for Crestwood and it also included record annual cash flow. So really proud of what the team did last year. I want to update you on the integration of our Oasis Midstream assets. We're going to talk a little bit about the very strong 2022 outlook that we have, and I'll give you some color on how we're thinking about capital allocation in a year that is really setting up nicely for us.

But before I start, I want to formally congratulate Robert Halpin who was just promoted to president and CFO; and Diaco Aviki who was just promoted to chief operating officer of Crestwood. Really proud of these guys. They've stepped up over the last several years, and we have a great, great team here at Crestwood. They're providing great leadership.

We're going to continue to do the same thing that we've been doing over the last several years, and that is getting stuff done every year in the areas that we operate. So you'll hear a lot more from Robert and Diaco later on in the call. Let me start with full year '21 results. We generated over $600 million in adjusted EBITDA for the first time in the history of the company.

That was 3% higher than 2020. And as you know, it was on the high end of our guidance range. So we're really pleased with how 2021 worked out for us. Contributing to these results were a number of different factors, all of which are still very much in play for us, higher commodity prices, accelerated producer development around our assets.

optimization of excess system and plant capacity, which is our operating folks, our engineering project management folks, and our commercial folks all working together to make sure that no producer is ever waiting on Crestwood to complete a well and turn it in line. So they did a great job for us with just-in-time connections and utilization of capacity. Our engineering and project management team did a tremendous job last year in on-time and on-budget system expansions while we didn't have many big projects and that will be the same thing in 2021. We did have a number of small important optimization projects, and those guys did a great job for us getting them done on time, on budget.

In many cases, ahead of time and under budget. We had impressive system reliability in flow assurance last year. Our operations guys in the Bakken and around the country just did a fabulous job for our producer customers, and they operated with very low operating costs and you continue to see our margins go up. And I think we've got some of the best G&P margins in the business, largely due to the great job that our operating teams around the country do and keeping costs low even as we see volumes increase.

They're managing their variable costs, and we are reducing our fixed cost per unit as we go. And we continue to look to all of these factors and trends to impact us positively. We've got a lot of momentum going into 2022. So we expect the same out of those teams.

Our record cash flow generation in '21 caps off what I think is at least the second most transformational year in the company's history, if not the first, you might remember that 2013 was a big year for us. We merged with energy that year. We bought Arrow that year and we bought the original interest in the Powder River Basin. All those were in infancy, but they later grew up to be very important assets for the company.

I think '21 is equal to that. As many of you might recall, back in March of last year, we were successful in buying out our original sponsor, First Reserve, private equity firm, my original partner back in 2010 when we started the company, and that buyout was not only accretive, we bought a significant amount of shares back. We bought the GP control in, but it now allows us to transition to a publicly elected board of directors with 90% independents. I'm really proud of how the governance model at Crestwood continues to lead our MLP peer group.

The transaction, as I said, significantly cleaned up our capital structure gave us a lot more strategic flexibility as we bought control and roll it in under the MLP. And I think if you look out next to the Stagecoach deal and then finally to the Oasis deal, we probably would not have been able to do that if we hadn't completed the First Reserve GP buy-in first. It not only gave us more flexibility and cleaned up our capital structure. But as I said, we repurchased 11.5 million of our common units outstanding or about 24% of the total units.

So we've got a lot of experience here in buying back stock. We may not be in the market every day hitting a bid with it, but we're going to keep our powder dry and make sure that we can clean up these situations when they come along. Robert can talk more about that later on. Today, Crestwood is truly an independent MLP and I think we're a bigger, better, stronger company for all those transactions that we completed last year.

Because of the governance enhancements, our board, as I said, is 90% independent. Over half of our directors are new members to the board, having three years or less of tenure. And I can tell you after our first board meeting just a couple of weeks ago, we've got a renewed energy in this board with tremendous skill and experience and resource for our management team to draw upon. I'm really proud of the new board that we put together.

We brought in some exceptional directors with four new ones, including two new ones from Oasis Petroleum and we are currently in the process of planning our first annual unitholder meeting and board elections for May of this year. So as I said, personally, having been a historian of good governance in my 45-year career, I really appreciate the fact that we've gotten to this point and I think it makes Crestwood unique and I think it differentiates us among some of the other MLPs in our peer group. The second big transaction occurred in July of last year when we divested Stagecoach Gas Services to Kinder Morgan for more than $1.2 billion. I think it highlights or showcases the fact that over our history, we've done a really good job of rationalizing our portfolio.

And this is yet another example of capturing an attractive valuation at a point in time from a buyer that really could do a lot more with those assets than we could. And I'm pleased with how Kinder has tucked Stagecoach in and really generated a lot of value for their customers because of that. It was a good deal for us. And following the divestiture, we used our share of the proceeds 50-50 to reduce debt, bringing our leverage ratio down to inside of our long-term target of three and a half times.

But more importantly, it positioned us to create value for our investors through optimizing returns on capital, the 5% distribution increase that we plan to kick off here in the first quarter, strategically pursuing third-party consolidation opportunities in the core basins like the Williston, the Powder, and the Delaware. Whenever those opportunities arise, we're going to be in good position and financially strong and flexible to be able to act on those and pursue those opportunities. And the Stagecoach sale and the deleveraging from that is a big cause of that. Third big transaction last year was the Oasis deal.

We're an independent midstream company with a strong balance sheet. We've clearly initiated our consolidation theme around the areas that we operate in the Williston, the Powder, and the Delaware. The acquisition of Oasis in October of '21 was a perfect example of that. A perfect example of the type of bolt-on acquisitions that we think we can make in these areas that are long on inventory have great producers, financially strong, good operators in areas where we can add to our existing footprint, create significant revenue enhancements and operating cost synergies in Oasis Midstream is a perfect example.

It checks all the boxes both operationally, commercially as well as from a financial standpoint. We think we're creating a lot of value here by adding Oasis into our Williston business. It's significantly increasing our operating scale in both the Williston and the Delaware Basin that was kind of a throw in at the end, but Delaware is going to be a big deal for us. Diaco can give you more details on that.

And importantly, it brings, it adds financial scale to Crestwood, and we're back up to being a $7 billion MLP, and we think that makes us more relevant to the industry and to investors and more competitive in the areas that we operate across the industry. We're about four weeks into the Oasis Midstream integration process, and our operations, commercial and administrative teams are moving full speed ahead to realize that $45 million worth of synergies that we highlighted and outlined for you when we announced the transaction back in October. We expect at least $20 million a year of G&A and O&M cost savings in 2022 as we eliminate duplicative corporate costs and rationalize operations. We think those are the easy ones, and my guess is we'll do a lot better than that.

On the commercial front, Diaco and his teams are utilizing their strong relationships in North Dakota because of our aero position for the last eight years. to bring incremental third-party revenue and opportunities to our new combined footprint when you combine Aero and the Oasis Midstream assets, it makes a huge footprint from the central to the Western part of the play. And we're really excited about where we are. The combination makes us the No.

3 G&P player in the Williston Basin, and we've already signed a number of new contracts, 100% of those third-party offset producers that we identified in our due diligence. So we've hit the ground running, as you'll see in our capital program, a lot of that capital is going to be dedicated to following a license around with a couple of rigs and capturing those third-party opportunities that we don't think they spent a lot of time or prioritized in the past, but we know that we're really good at that. And so we've already begun to bring some of those into our portfolio. We think this highlights the upside potential of being an independent up there as opposed to a producer-owned gathering system.

And as you know, customer service is our No. 1 priority, along with safety of operations, and we are really focused on bringing those third-party opportunities in. We set a $20 million plus commercial synergies or revenue enhancements goal over the next 12 to 18 months. From what I've seen so far, if we execute well over the next few months, I think we'll beat that goal as well.

So really excited about everything associated with the Oasis merger. Back to the overall market in '22. We continue to benefit from very strong market conditions, notwithstanding the things going on around the world. The market for oil, gas, and gas liquids is really, really constructive right now.

And this acquisition couldn't come at a better time for us with Bakken trading at a premium to WTI, a significant amount of excess capacity to come out of that basin. And really, the producers have an opportunity to move forward on their inventory development. First, I think we're going to be very, very transparent about our capital allocation program this year, and Robert can talk more about it. We're going to continue to protect our balance sheet.

We're not done. We're not one and done with Oasis. We're looking at all three of our basins for continued opportunities to consolidate assets and operations that fit our strategy in those areas. We're going to prioritize excess free cash flow to reduce debt and continue to maintain our flexibility.

In other words, we're going to use the same playbook in '22 that we did in '21. We think a strong balance sheet positions Crestwood to manage any unforeseen market volatility, both good and bad. It supports -- we can use that flexibility to support our common units, the Oasis Petroleum seeks liquidity in the position that they got through the acquisition. We have the opportunity potentially to consolidate our Delaware joint ventures if the opportunity is available and if the valuation is compelling.

But importantly, we're going to continue to invest in the small, high-returning brownfield growth projects around our assets, they've got to meet our very stringent internal investment criteria in our rate of return hurdle. Otherwise, we're going to continue to pay down debt, keep our powder dry and wait for our next big opportunity. We are laser-focused on optimizing our assets before we expand them. So when you see the capital projects that the team has developed, you can be assured, we've got producers that are drilling now, completing DUCs now, waiting on expansions, whether it be line loops in the field or more compression to fill up these plants that we have strategically located in the Williston, the Powder, and the Delaware.

So the team is really working well to do that. I think the third point is that we're going to continue to return capital to investors when it makes sense for us, too. And we've already announced the desire to increase distributions by 5%. For the first quarter of this year, we're going to recommend that to the board of directors for the first quarter of '22.

A big component of our investor story is now and always has been our ability to provide visibility to our very secure yet growing distribution for our investors. And I hope I don't need to remind anybody, but we were one of the very few that did not cut our distribution back during the COVID year 2020. So we're really proud of that. We've been consistent, we've been stable, we've been forward leaning, and we're going to continue to do that.

And finally, I want to remind you that we do have an authorized repurchase program of $175 million. We're going to use that to opportunistically deploy capital when we need to, to support our capital structure. If it makes good sense, if the valuation is right, we want to optimize our long-term cost of capital if our common or preferred equity valuations become materially dislocated. But more importantly, Robert wants to keep powder dry to make sure that we can help Oasis in the event they ever want to liquidate.

So that's an important part of our thinking about capital allocation in '22. As the year gets underway, I can't tell you how excited I am about how well we're positioned and where we're headed in the current commodity cycle. We've got three great growth assets in Williston, Powder Delaware. We've had some producer changes that have significantly upgraded our overall -- the quality of our overall portfolio.

Our teams are utilizing and optimizing capacity where it's available. We're building new capacity where we need to. It's just in time capacity, no big lag time. between capital expenditures and return.

And I think we're going to keep the momentum going in '22. The guys have come up with a great budget and plan. We think it's achievable based upon the very constructive environment we have and the feedback we're getting from our producers and really looking forward to that. I said before, I'll say again, I'm proud of Robert, Diaco, and the entire Crestwood management team.

We've got a really deep management bench here of really talented men and women. We're excited about how they're growing with the company as the company grows, and we're getting prepared for the next decade as we just finished our first decade. And with that, I hope you can hear the enthusiasm in my voice as we go into '22 with a lot of exciting opportunities to build value for our investors. Robert, I'll turn it over to you.

Thank you, Bob. I want to echo Bob's positive sentiment, and I'm excited to announce another record year for Crestwood, with full year adjusted EBITDA of $600 million, distributable cash flow of $371 million, and free cash flow after distributions of $154 million, all of which are up year over year. This record cash flow generated exceptional financial metrics and a solid balance sheet that is highlighted with year-end leverage of 3.5 times. Importantly, in February of 2022, we closed the merger with Oasis Midstream Partners and paid distributions to both Crestwood unitholders as well as legacy Oasis Midstream unitholders of $0.625 per unit or a total of approximately $61 million.

When including Oasis Midstream's fourth quarter distributable cash flow, this resulted in an overall coverage ratio of 2.1 times. As previously announced, we intend to recommend a 5% increase in the distribution for the first quarter of 2022 to $2.62 per unit annually. Now, let's move on to the quarterly operating results. In the Gathering and Processing North segment, which includes our Williston Basin and Powder River Basin gathering assets, fourth quarter 2021 EBITDA totaled $117 million, an increase of 7% over the fourth quarter of 2020.

During the quarter, strong commodity prices enabled Crestwood to realize increased revenues from our percent of proceeds contracts at Aero, Five wells were connected to the Williston Basin in the fourth quarter, resulting in 47 total well connections during all of 2021. In the Powder River Basin, six wells were connected to the Jackalope system, resulting in a total of 21 wells throughout the year, driving gathering and processing volumes to increase 25% and 18%, respectively, year over year. In the Gathering and Processing south segment, which includes our Delaware Basin, Barnett, and Marcellus assets, fourth quarter 2021 segment EBITDA totaled $30 million that representing a 51% increase year over year, driven by substantial activity on our Delaware Basin systems. Throughout 2021, producers in the Delaware Basin accelerated activity, connecting a total of 95 wells to the Willow Lake and Nautilus systems, driving significant increases in volumes year over year.

Of note, volumes at the Orla processing plant nearly doubled year over year and exited the year at an average of 120 million cubic feet per day. Now, moving to the storage and logistics segment. Fourth quarter 2021 EBITDA totaled $14 million compared to $42 million in the fourth quarter of 2020, which included $16 million in contributions from the Stagecoach joint venture, which we divested in July of 2021. As we experienced in previous quarters, backwardation in the NGL markets, paired with the second warmest winter on record through the month of December, continued to impact the demand for NGLs.

Fortunately, so far, in the first quarter of 2022, colder weather has returned across much of the country, and we have seen a material uptick in heating degree days and demands for products and utilization of our systems to meet that demand. In the fourth quarter, Crestwood invested $26 million in growth capital related to infrastructure to support new customers and commercial contracts in the Powder River Basin as well as the Delaware Basin. On the balance sheet, Crestwood ended 2021 with $2.1 billion of long-term debt and a leverage ratio of three and a half times. As we plan for the year ahead, our 2022 financial guidance is driven by the continued strength in commodity prices, increasing development and new customer contracts in all of our core basins and the realization of operating and commercial synergies resulting from the integration of the Oasis Midstream assets.

For full year 2022, Crestwood estimates adjusted EBITDA to be in the range of $780 million to $840 million, generally based on a crude price range assumption of $75 per barrel to $85 per barrel, and that includes only 11 months contribution from the Oasis Midstream assets given the closing on February 1 of this year. Crestwood anticipates full year 2022 growth capital investments to be in the range of $160 million to $180 million to support accelerated producer development and new long-term producer contracts in the Williston, the Powder River, and the Delaware Basins, and we also expect approximately $30 million to $35 million for maintenance capital projects across our assets. In the G&P North segment, Crestwood plans to support Oasis Petroleum's two-rig development program with the build-out of two new three product gathering systems in the Williston that further expands our footprint to the west and to the north. At Aero, we plan to continue system optimizations and expansions of the produced water gathering system to increase throughput.

And in the Powder River Basin, we will complete the Continental Express natural gas transportation line that expands the Jackalope system to the North. Recently, it was announced that Continental will acquire Chesapeake Energy's Powder River Basin assets. Once this transaction closes, Continental will become the new anchor customer on the Jackalope system with approximately 400,000 acres dedicated to Crestwood in the Powder River Basin. In the G&P south segment, we will continue to invest capital to construct a low-pressure gathering system to support Novo Oil and Gas development of its acreage in Eddy County, New Mexico as well as percussion Petroleum's two to three-rig program on the oil and water gathering systems, which we acquired with the Oasis Midstream assets.

Crestwood expects 100 to 110 well connects in the Delaware Basin, which is expected to result in more than $50 million in net cash flow in 2022. Overall, our outlook is in line with the forecast that we provided as a part of the S-4 filed in connection with the Oasis Midstream merger, but with some incremental updates to accelerated well completions and corresponding capital needs driven by the very constructive commodity price environment, all of which we believe will be value additive to our 2022 outlook and even more value additive in 2023. As Bob mentioned, our capital allocation strategy in 2022 will prioritize maintaining balance sheet strength and flexibility. We will accomplish this goal by maintaining leverage around three and a half times level and distribution coverage of more than two times even while accelerating our returns of capital to investors through a 5% annual increase in the distribution.

We believe that Crestwood is very well positioned to start 2022. We have a diverse asset base, leverage to a very constructive pricing environment across all commodities, a very strong customer base that continues to be high graded over time and a capital allocation plan that prioritizes its highest returning projects and maintaining financial flexibility to enhance unitholder returns. We think that this combination of highlights puts us on track to achieve even more records in 2022 and drive increasing and sustainable unitholder value going forward. With that, operator, we are ready to open the line up for questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from the line of Tristan Richardson with Truist Securities. Please proceed with your question.

Tristan Richardson -- Truist Securities -- Analyst

Hey. Good morning, guys. Appreciate all the comments on '22 and what you're seeing across your basins. I think we've just already seen a really robust start to the year in the Williston and you talked about the 110 to 120 in connects this year and the one to two rigs.

I think just given the current pricing environment and what we've even just seen so far, could you talk about sort of the high end of your guidance range and maybe what that assumes? And then just the upside case, is there a potential this year that we could see above and beyond either the well connects or the rigs that you guys are talking about for the 2022 budget?

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

Thanks for the question, Tristan, you raised an issue that we have been talking about daily over the last couple of weeks as we finalized our plan and presented it to the board. There's a fairly wide range on EBITDA and capital because we still haven't gotten our arms around all the third-party opportunities that are approximate to the Oasis assets. We identified many of them, as I said, in diligence. We have already signed contracts with those that we thought were closest and ready to go.

But the entire Western play in the Bakken at these prices is extremely economic. There are a lot of private producers out there. And we're seeing across the board, our private producers accelerate their drilling activity. My personal sense is there's likely to be a big push in the second half of the year to get stuff done if these prices hold up for the next several months, which we expect them to do.

So with that, let me turn it over to Diaco and he can give you kind of the blueprint for how we're going to start working the Oasis system, what kind of conversations he's having right now, what he's hearing from his customers. And don't forget, Arrow is still a pretty important asset for us, and that drives a lot of it as well. So Diaco, do you want to give them some color around the Williston?

Diaco Aviki -- Chief Operating Officer

Yes. Thank you, Bob. Tristan, one of the comments I'll make is we're having an active dialogue with every one of our customers. And Bob's actually right.

They are trying to accelerate. And second half is when we will see it. The key is they've got to pull crews together from a rig and frac perspective and deploy them out there, and that takes time. So that's where the back half weighting is going to come in.

Since we've acquired the Oasis assets, we've had interesting unique counterparties come to us just because of our unique nature and really being an independently run system now. So Oasis has got two rigs in the basin. Our aero customers will have one to two rigs in addition to completing they've got 19 DUCs on the system to start the year. So those will be completed, hopefully, all this year.

And so those are the conversations we're having. So our guidance right now for the Oasis system, it's an equal weighting between third parties and Oasis. And then for the Aero system, there could be some upside on that number as we're working to try to fit customers in to ensure that we minimize flaring, and we've got a couple of compressor stations coming out this year to expand our system capacity to do that. Does that help?

Tristan Richardson -- Truist Securities -- Analyst

I appreciate it. Thanks, Diaco. And then just a follow-up in the Delaware. You talked about significant growth in 2022.

Could you talk about maybe near term and long-term road map for processing capacity for your JV in the Permian. Some of your peers have talked about a strategy to use third-party offload, but then others have brought new plants on on a just-in-time basis. Can you talk about both the near-term and long-term strategy for processing capacity in the Delaware?

Diaco Aviki -- Chief Operating Officer

Yeah. Thank you, Tristan. On the near-term side of things, we've got sufficient capacity to meet our customers' needs in the current year. We are already looking at offloads ourselves, and we've got some partners out there that are more than willing to consider our expanse of our footprint.

We've got north of 100 close to 150 miles of trunk line out there. So that allows us a lot of flexibility from an offload perspective. But we're also looking at small debottleneck projects that are extremely capital efficient. And so we're going to be very thoughtful on how we expand that footprint.

And of course, Delaware is one of the asset footprints that if there's an opportunity there to consolidate, we'll be there for that.

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

Yeah. Tristan, let me just add a little color. And I think we've already messaged this, if not set it outright. But obviously, our Oasis integration in the Williston, our continued optimization of the Arrow system is the single most important focus of the company for this year.

But a close second is going to be our Delaware. We have built a pipeline system across some of the best rock in the basin. Our producers were a little bit slow in drilling some of that up over the first four or five years, but in the last couple of years, they have kicked it in high gear. We saw a 50% year-over-year increase in volumes on that system.

We expect to continue to see volumetric growth. We're looking at a lot of different capital-efficient options to be able to grow our footprint in the area. And we are laser-focused on the consolidation opportunities in the Delaware as well, including potentially that long-standing joint venture that we've had with Shell and with the First Reserve. Don't have anything done there.

Can't really handicap that. But I think you guys started asking us three or four years ago when were we going to buy out First Reserve and I think we said in three or four years. And so we're kind of getting close to that point in time where we think there's some real consolidation opportunities for Crestwood in the Delaware.

Tristan Richardson -- Truist Securities -- Analyst

That's great. Loud and clear. Bob, Diaco, thank you guys very much.

Operator

Thank you. [Operator instructions] Our next question comes from the line of Kyle May with Capital One Securities. Please proceed with your question.

Kyle May -- Capital One Securities -- Analyst

Hi. Good morning, everyone. Maybe following up on the Williston first. You did highlight your planning for about 110 to 120 well connects.

Can you provide any color on maybe the cadence of well connects or maybe exit volume year over year?

Diaco Aviki -- Chief Operating Officer

Yeah. Sure, Kyle. When you look at the Williston Basin, the Oasis footprint is fairly back-end loaded. There's some capital.

The capital we're deploying there is actually extending the backbone to the West. So you'll see a bit of a second, third, fourth quarter, more third, fourth quarter ramp over there on all three products. And then, on the aero system, it's pretty evenly distributed, second and third quarters and a little bit in the fourth, but we see some additional acceleration on the Aero footprint that we're trying to optimize right now. So exit, entry exit for Aero will be higher year over year.

And then same thing on the Oasis side just because of the weighting of the well connects.

Kyle May -- Capital One Securities -- Analyst

Got it. OK, that's helpful. And maybe following up on that, I was looking through the slide deck, and it looks like on Page 11, it shows growth capital looks a little bit higher in the second quarter. So I guess my first question is, is the higher spend in 2Q? Is that building out to the West or is there something else going on there? And then second question, as we see a step down in the back half of the year, can we read into this as a more normalized rate of spending long term?

Robert Halpin -- President and Chief Financial Officer

Yeah. I'll take that one, first, and I think you hit the nail on the head. I think as we outlined our capital and in a couple of pages after that, you can see kind of the breakdown by basin. But a meaningful majority of this capital is being spent in our G&P North segment, predominantly in the Williston Basin to really build out the Western extent of the system as Oasis moved their development in that direction and also to integrate the two assets and drive the optimization opportunities that we envisioned when we first announced the transaction.

And so what you're seeing from a capital cadence standpoint is exactly that. There's some upfront dollars being spent to get the systems in place, make sure we've got adequate capacities across the full extent of it. And then as those well completions occur, 2Q, 3Q, you see the big volume metric and cash flow ramp come thereafter. Importantly, as we've talked about across a number of our assets, we have the long-lead big capital items, we have meaningful excess capacity in all of our key plays today.

And what that allows for is these very high return kind of small bolt-on brownfield projects that Bob mentioned. And then as volumes come with those connections, we see the filling up of the plant capacity that we have in place today to drive significant accretion in cash flow growth on a free cash flow basis thereafter. So you hit it with your cadence. That's what you would expect is that we get to system built out kind of Q1, Q2 that starts pulling off in the second half of the year.

And then we've got a lot of running room heading into 2023.

Got it. Thanks for the color, Robert.

Operator

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Phillips for any final comments.

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

Great. Thank you, operator. I know everybody is busy with a lot of stuff going on, on the news today. One comment I wanted to make before we left, I think I touched on it, but we didn't really get to give it a lot of color.

We're really excited about the new customers that we have here at Crestwood. Let me just highlight Continental, not only our long-standing relationship with them at ColdHub, where we work together to move barrels out of the basin. But in the Powder River region, we just completed a 25-mile big inch pipeline up to their new acreage that they acquired last year and are developing. We're excited about that play.

We're really excited about the pending acquisition of the Chesapeake acreage. We like Continental a lot. They're kind of a company that we can work with. In the Delaware, same thing, Conoco, great company, really committed to the Delaware.

They bought out Shell. We thought that was a great deal for us. They bought out Concho. We're seeing an acceleration of drilling up around the Willow Springs area.

The wells are much better than we ever thought they would be. That's leading to higher volumes faster than we expected. So that's good. And some of the new privates that we brought into our portfolio; two, I want to mention Novo and Percussion, both in the Delaware both financially sound young teams with great operating experience, drilling great wells and we're excited to partner with them in the areas to build the critical infrastructure for these guys to continue their development program in some pretty darn nice acreage positions with a long inventory runway.

So when we said that we're high grading our overall portfolio, that's what we're talking about. We're now working with companies that have a long runway of development opportunities in the inventory, the financial health, and the operating expertise to drill great wells and stand behind it. So we're not as much buzzed about number of rigs running or number of wells completed because each year, the technology continues to improve and the wells get bigger and better and stronger. And we're building out the infrastructure to help these important customers market their production.

So we're really excited about '22 being a year where we do a lot of good work for a lot of good producers and developing supplies in this high-priced market, which is driving activity. So just wanted to close with that. We thank everybody for their time and attention this morning. As always, we thank the investors and the analysts for the coverage and the interest in Crestwood, we appreciate you investing along with us.

We're really pleased with last year, really excited about 2022. So with that, operator, we'll close and thank everybody. Look forward to talking to you after the second quarter -- after the first quarter.

Operator

[Operator signoff]

Duration: 41 minutes

Call participants:

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

Tristan Richardson -- Truist Securities -- Analyst

Diaco Aviki -- Chief Operating Officer

Kyle May -- Capital One Securities -- Analyst

Robert Halpin -- President and Chief Financial Officer

More CEQP analysis

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