Crestwood Equity Partners (CEQP) Q1 2023 Earnings Call Transcript

Crestwood Equity Partners (CEQP)
Q1 2023 Earnings Call
May 02, 2023, 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 2023 financial and operating results. Before we begin the call, listeners are reminded that 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 and adjusted EBITDA, distributable cash flow and free cash flow, will be discussed.

Reconciliations to the most comparable GAAP financial measures are included in the news release issued this morning. Joining us on today's call with prepared remarks are founder, chairman and chief executive officer, Bob Phillips; president Robert Halpin; and executive vice president and chief financial officer, Johnny Black. Additionally, additional members of the management team are available for the question-and-answer session with Crestwood's current analyst following the prepared remarks. Today's call is being recorded.

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

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

Thank you, operator, and good morning, everyone. Thank you for joining us today to discuss our first quarter 2023 results and little discussion on how we're positioned for the rest of the year. I'll begin by a few opening remarks and then turn it over to Robert for an operational review of the quarter, and then finally, Johnny, to review the first quarter financial results in more detail. As I start, as a reminder, when we -- we went into a lot of detail last quarter about our strategic M&A, but let me just give you a reminder that we have repositioned the Crestwood portfolio in the last couple of years through strategic M&A, specifically to bulk up our G&P assets in the areas that we operate and extend our long-term producer dedicated inventory in those core oil-weighted resource plays, which are the Williston, Delaware and Powder River basins.

Our producer customer portfolio continues to improve year over year through upstream consolidation. We believe all fundamentals will remain strong throughout the decade and natural gas prices, while lower today due to oversupply, will start to improve beginning in the second half of this year and on into 2024. We expect that to occur due to a pullback in gas-directed rig activity in the short term and LNG demand growth over the long term, so we're bullish on gas prices going forward. As producers are becoming more disciplined in their development programs across the industry, we think our G&P portfolio is strategically located on or near some of the best undeveloped acreage in these oil-weighted basins with the lowest breakeven cost and the highest potential for production growth, and we think this is indicated by the 70 new wells that we connected to Crestwood assets in the first quarter.

So, let me give you a high-level update on our core areas. First in the Williston. We're seeing the Arrow system slowly catch up to last year's volumes, as we expect to connect more than double the new wells in 2023 than we connected last year. Our key producers, Devon, Exxon, Enerplus, are maintaining active new drilling or DUC completion programs, and they have a number of workover rigs coming back in the field, bringing weather-related shut-in production back online.

So, a lot of activity around Arrow. On the Rough Rider system, Chord is spot-on on their 2023 development schedule and we just placed the very important city of Williston, three-product-gathering project in service last week, and this is critical infrastructure to support Chord's 2023 and '24 drilling program in the Western acreage dedicated to us. And let me finally say that our Williston operations team continues to do a great job in reducing operating costs, continuing to find integration synergies and mitigating winter weather disruptions that we've experienced in the fourth quarter and the first quarter of this year. Now, onto the Delaware.

Now, that our Sendero, CPJV, Willow Lake and Orla assets are fully integrated, we continue to see solid performance in producer drilling activity, new well connects, IP rates, system volumes and third-party processing opportunities. The efficient integration of our Delaware assets has allowed us to maximize available, gathering, compression and processing capacity while minimizing or delaying growth capital to capture new supplies. We have years of great Delaware inventory dedicated to our systems there with access to multiple competitive downstream markets we're very well positioned for future growth in the Delaware. With in-basin gas production continuing to hit record levels, the market for gas processing capacity has become very tight, which places a significant premium on unutilized processing capacity.

Based on our current schedules, we expect to see a significant amount of organic production growth over the next 12 to 18 months that we think will drive near full utilization of our processing capacity. So, good timing on the Sendero and CPJV acquisition last year, great integration effort by our operations team, extremely well done build-out by our EPM team with new gathering, compression, and we're beginning to utilize all of that processing capacity that we bought last year. Now, to the Powder River Basin. The future continues to look bright.

We've recently had meetings with Continental and they continue to ramp up their long-term development across all three dedicated acreage blocks. We expect to see that continue to grow over the next few years. With excess gathering, compression and processing capacity on the legacy system that we built for Chesapeake pre-bankruptcy, Crestwood is very well positioned to compete for not only the growth of Continental volumes, but significant new producer supplies that are being developed in the PRB in and around our gathering systems. Now, quickly to the finance side.

Despite all the changes in our portfolio, Crestwood continues to maintain strong distribution coverage and conservative financial metrics compared to our peer group. To keep our balance sheet in check, we divested legacy low growth and non-core G&P assets in the Barnett and Marcellus. Plus, we sold JV interest in our gas storage assets at Stagecoach and Tres Palacios. We got better-than-expected prices for those assets and are able to reduce our debt back to four times leverage on a pro forma basis.

We continue to believe that was a really good trade for Crestwood, as we scaled up our G&P portfolio with visible long-term growth in top-tier oil-weighted basins and we expect that to drive continued declines in leverage in 2023 and 2024. We're also continuing to streamline the Crestwood organization through the efficient integration of these new assets, resulting in lower per unit operating cost and, importantly, reduced emissions on the newly acquired assets using Crestwood's leading carbon management plan. Our operations plan this year is now to focus on execution, optimization and value creation, while our capital allocation strategy for 2023 remains focused on utilizing free cash flow after distributions to pay down debt and enhance Crestwood's financial flexibility. So, a couple of final notes before I hand the call over to Robert.

I want to reiterate that Crestwood is off to a great start in '23. We've got volumetric growth on key systems. Our quarterly performance was very much in line with market expectations and we continue to enhance our financial flexibility, closing the Tres transaction and getting our leverage ratio back to 4.0 pro forma. After a busy '22, we're excited to focus on this year's priorities to execute on our '23 guidance, grow EBITDA and free cash flow by optimizing our asset base, and creating long-term value for our unitholders through deleveraging of the balance sheet and paying out our well-covered distribution of $276 million a year to common unitholders.

We think the combination of all these strengths across the Crestwood organization will continue to represent a compelling total return opportunity for Crestwood investors and we're really pleased with how we're well positioned for the next several years to grow in all these areas. And with that overview, happy to turn the call over to Robert and Johnny to cover the quarter's operational and financial results. Robert?

Robert Halpin -- President

Thank you, Bob, and good morning, everyone. As Bob mentioned, I am very pleased with Crestwood's great start to the year and believe that the outlook for the remainder of the 2023 timeframe looks very strong across all of our assets. Starting in the Williston Basin. We connected 29 wells across the Arrow and Rough Rider systems during the first quarter, which was in line with our expectations as producers turned in line wells on schedule and on time.

This was a fantastic accomplishment for our operations teams up in North Dakota, as well as for our producer customers as this past winter proved to be exceptionally challenging as record snowfall and cold temperatures hit North Dakota and surrounding states. While we did experience some lingering volumetric impacts associated with the weather in the first quarter of this year, we are seeing positive trends across the assets as warmer weather has arrived. Also, important, it appears as though our customers have successfully mitigated some of the supply chain and labor challenges that we faced in North Dakota over the past year as D&C schedules year-to-date have been right in line and planned wells for Q1 and the early part of Q2 have turned in line on or even ahead of schedule. To that end, we continue to anticipate strong producer activity across the rest of the year and remain on track to connect between 115 to 125 new wells by year-end.

The majority of these new well connections are coming from key Bakken operators, Devon Energy and Chord Energy. Our growth capital spend in the basin, approximately half of our 2023 budget, is progressing as planned and is focused on the western expansion of the Rough Rider system, as well as incremental expansions on the Arrow system. We are excited to bring our Rough Rider expansion into service as we are optimistic about the growth potential of the dedicated acreage and the third-party opportunity set in the western Wilson Basin. In the Delaware Basin, we connected 35 wells across our New Mexico and Texas gathering assets during the quarter, which drove natural gas gathering volumes of 495 million cubic feet per day, or over a 100% year-over-year growth.

This is in part due to our acquisition of Sendero Midstream, but also as a result of substantial volume growth on our legacy Willow Lake system by both public and private operators, with gathering and processing volumes growing by 60% and 50% year over year, respectively. For the balance of the year, the development activity for our assets remains strong and we continue to expect 120 to 130 new well connections through the end of 2023. And finally, our capital spend in the Delaware, approximately 40% of our 2023 budget, remains on track and is focused primarily on well connects, system expansions, and compression additions in New Mexico to accommodate continued development from our dedicated customers. Now, moving to the Powder River Basin.

We connected six wells during the first quarter and Crestwood remains on track to connect between 10 to 20 new wells throughout 2023. Additionally, we are actively pursuing commercial opportunities with large operators in the basin to bring new volumes onto the Jackalope system and capitalize on our unutilized processing capacity at the Bucking Horse facility. And finally in the storage and logistics segment, our NGL logistics business, which constitutes about 90% of segment earnings following the Tres divestiture, had a successful quarter, optimizing our NGL storage and transportation assets in response to increased demand from winter weather in the Midwest and East Coast. The 10 million barrels of NGL storage in 13 terminals, the NGL logistics business is well positioned this year to capitalize on continued commodity price volatility and deliver a solid year of results.

And now, I'll turn the call over to Johnny to cover our financial results.

Johnny Black -- Executive Vice President, Chief Financial Officer

Thank you, Robert. For the first quarter of 2023, Crestwood generated adjusted EBITDA of $193 million, a year-over-year increase of 11%, driven by our expanded operations in the Williston and Delaware basins. Additionally, Crestwood delivered approximately $104 million of distributable cash flow. For the first quarter of 2023, Crestwood announced a $0.655 distribution, payable on May 15 to unitholders of record as of May 8, resulting in a quarterly coverage ratio of approximately 1.5 times.

Looking at the segment results. In the gathering and processing north segment, first quarter 2023 EBITDA totaled $133 million, roughly flat to the first quarter of 2022 due to incremental cash flow from a full quarter contribution of the Oasis Midstream assets, offset by lower gas gathering and processing volumes and reduced commodity prices impacting Arrow's percent of proceeds revenue contracts. In the gathering and processing south segment, first quarter 2023 segment EBITDA totaled $41 million, an increase of 50% year over year. Segment growth was driven by a combination of the Sendero Midstream and CPJV acquisitions, coupled with volume growth from the legacy Permian assets, offset by the divestitures of the Barnett and Marcellus G&P assets.

In the storage and logistics segment, EBITDA totaled $33 million for the first quarter, a year-over-year increase of 55%, driven by increased product demand from winter weather in the first quarter. Next, from a capital investment standpoint, during the first quarter, we invested a total of $37 million in growth capital projects, which was primarily related to the continued build-out of the three product gathering system for Chord Energy and other third parties on the western side of the Rough Rider system. In addition, we also invested capital in the Delaware for well connects and to expand our compression capacity to support the substantial volume growth over the next 12 months from our dedicated producers in New Mexico. On a full year basis, Crestwood continues to expect 2023 growth capital investments to be between $135 million and $155 million.

Turning to the balance sheet. Crestwood ended the first quarter with $3.3 billion of total debt outstanding, including $474 million drawn on our $1.75 billion revolving credit facility, resulting in a consolidated leverage ratio of 4.2 times. As Bob mentioned, pro forma for the sale of Tres Palacios, which closed a few weeks ago in early April, Crestwood now has a leverage ratio of 4.0 times and available borrowing capacity of approximately $1.2 billion as of the end of the first quarter. Lastly, from a strategy standpoint, Crestwood's No.

1 financial focus going forward is maximizing free cash flow generation from our assets and minimizing costs and capital needs across the portfolio. We are forecasting free cash flow to ramp in the second half of this year and we remain committed to allocating all free cash flow after distributions to debt pay down in 2023, as we are squarely focused on the balance sheet and reducing our debt outstanding. We believe this strategy will create financial flexibility for the company to deliver incremental returns to our unitholders over the long term. 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 Scotiabank. Please proceed with your question.

Tristan Richardson -- Scotiabank -- Analyst

Hey, good morning, guys. Just curious about maybe the mix of well connects this year in the Bakken, the 115 to 120. And maybe at a high level, just share kind of where you're seeing most of the activity east versus west, Rough Eider versus Arrow, etc.?

Johnny Black -- Executive Vice President, Chief Financial Officer

Yes. Hey, Tristan, this is Johnny. It's a great question. It's a pretty even split, I would say.

Of the midpoint call it 120, it's roughly 60 from Arrow and 60 from Rough Rider. On the Arrow system -- really across both of the systems, I'd say roughly 75% of those well connects are three-product well connects at both Arrow and Rough Rider, and then roughly 25% are kind of water-only well connects on both of those systems. And again, as Robert said, on the Arrow system, the activity is underpinned by Devon and then nice contributions from XTO, as well as Enerplus. And then, on the Rough Rider system, that's underpinned by Chord Energy, and then we also have some nice third-party producers connecting wells up there as well.

Tristan Richardson -- Scotiabank -- Analyst

Appreciate it, Johnny. And then, Bob, you talked about the potential to see your existing capacity in the Delaware full over the next 12 to 18 months. Could you talk a little bit about lead times you're seeing for early procurement for additional processing infrastructure? Maybe where geographically your future plant might go in the Delaware, or even just to the extent you're thinking about offloads as we see new third-party capacity in the Delaware coming online in '23 and '24?

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

Yes, Tristan, let me maybe answer a question that you didn't ask and then turn it over to Diaco, who runs that business for us. He's got much better handle on who's building new plants, what their time schedule is, and how we're going to fill the void there and make a good deal of what we think incremental profit by utilizing the available capacity. Do you remember when we announced the Sendero deal last year, one of the big attractions to us of that deal was a whole lot of excess processing capacity. We felt like our Orla plant was largely full or was going to be full fairly soon.

And we've properly evaluated that. That was a good buy and a good strategy for us. And the drilling has been better than we thought in the area that we operate. There have been a couple of maybe short-term delays or pushbacks just due to gas price, maybe a little rejiggering about target completions in a lot of these multi-zone wells out there.

I'll let Diaco talk about that. But on balance, we have been as one of the very few guys that has excess capacity in the area with all this new gas production coming online. We have been targeted by not only producers who ask us before they drill, can we get in your plant, but many of our competitors who we have good relationships with and interconnects with are coming to us and asking for unload or offload opportunities as the case may be. So, we have not only an active well connect program going on the acreage that's dedicated to us and we're more than serving all of our current contract producers' needs for processing capacity, but we are also actively pursuing onload opportunities with these other operators out there.

And we think that will last a year, year-and-a-half. And as our producers continue to execute on their drilling plans in '23 and '24, we'll largely be filling up that capacity with long-term dedicated production, and that's more profitable for us than onload is. So, Diaco, maybe give us a sense for who's building plants out there, what the timing is and how we see the overall lay of the land from a processing standpoint.

Diaco Aviki -- Chief Operating Officer

Yes. So, without going into details of specific counterparties, what we are doing, Bob's right on the strategy, we're working with others for onloads, and those onloads could be future offloads for us to mitigate capital and push capital out. So that's the structure that we're contemplating with others, helping each other out. The production activity, as Bob highlighted, is spot on.

We'll fill the void in interim as people build their plants. And those are all public, you can see those. And we'll help them out in interim as our producers ramp up. And then, as they ramp up, the onloads will come off, and we may or may not use offload.

We still have a very cheap low capital option at Orla to expand the processing capacity there. We'll probably trigger that first, and then explore a new plant addition down the road when we can underwrite it properly. And that will most likely be in New Mexico.

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

Yes. The good thing, Tristan, is it gives us a chance to not only fill up the available capacity, but push capital out as well. And that's really important to us right now, as we're trying to be very disciplined in all three basins about capital utilization.

Tristan Richardson -- Scotiabank -- Analyst

Great. Bob, Diaco, thank you, guys.

Operator

Thank you. Our next question comes from the line of Spiro Dounis with Citi. Please proceed with your question.

Unknown speaker

Hi. This is Chad on for Spiro. I believe you mentioned EBITDA, DCF and coverage metrics met or exceeded your expectations within the first quarter. And the guidance range for the full year appears to factoring in fairly wide range of scenarios.

Just curious when could you be in a better position to refine the EBITDA guidance range and what variables go into that?

Johnny Black -- Executive Vice President, Chief Financial Officer

Hey, good morning. This is Johnny speaking. So, it's a good question. I'd say to the extent we would revise or tighten our range, I would say that probably would be done in the August call after our second quarter earnings, where we got two quarters of actuals and more visibility into the second half of the year.

As we think about the outlook for the remainder of this year, by far the biggest factor for us will be the timing and the performance of the well connects to be brought online between Q2 and Q4. As we stated in our press release and our initial comments, we connected 70 wells in the first quarter, which exceeded our expectations. And then, from Q2 to Q4 this year, we're expecting to connect another 190 wells collectively across the Williston, Delaware and Powder River basins. So that's a lot of wells and that's a lot of IP volumes coming on to the system.

So, the timing and volume performance of the wells will have a large impact for us this year. And a lot of that activity occurs through the summer months, once it gets warmer, especially in the Bakken. From a timing standpoint, as Robert mentioned in his remarks, our producers generally connected wells ahead of our internal estimates through the first quarter. And based on feedback and activity from our producers, we're expecting that trend to hold for the remainder of 2023, especially since we're now past the extreme winter weather in the Bakken for the most part.

I'd say the other factor impacting our performance this year will just be around commodity prices. As we have said, we have roughly 15% of our company cash flow exposed to commodity prices via our POP contracts in the Williston and Delaware. So, realized gas and crude prices will have an impact on the financial performance, either to the high end or the low end of the range. So with that, I think, those are the key factors for this year.

Unknown speaker

OK. Thanks. That's helpful. And then, just second question, a small one.

Looking through the slide deck, I noticed, phraseme on the quarterly EBITDA ramp chart in the slide has changed to significant cash flow generation from I believe in fourth quarter call, it was $35 million EBITDA growth from Q1 to Q4. Anything to read in there? Or is the $35 million growth still a good way to think about the EBITDA ramp through the year? Just thinking about exit rates and looking into 2024 there.

Johnny Black -- Executive Vice President, Chief Financial Officer

No, it's a great question and good attention to detail there on the presentation. I'd say it's really just because we outperformed in the first quarter. And so, the $35 million was attributable to our internal projections from the first quarter to the fourth quarter back from the February guidance, because we outperformed in the first quarter. We -- the $35 million comes down a little bit, but I'd say that you know, Q4 number is still the same.

Unknown speaker

OK. Thanks. Makes sense. Thanks for the time today.

Operator

Thank you. Our next question comes from the line of Ned Baramov with Wells Fargo. Please proceed with your question.

Ned Baramov -- Wells Fargo Securities -- Analyst

Thanks. Good morning. Just wanted to go back to the Williston. So, well connects were in line in the first quarter yet gas gathering and processing volumes declined 7% or 8% year over year.

And you mentioned the impact of weather. You also reaffirmed well connect targets for the year in the Williston. Could you maybe review your expectations for volume growth in the Williston exiting 2023 for crude and gas?

Johnny Black -- Executive Vice President, Chief Financial Officer

Yes, I'll take a shot at that, Ned. The first quarter volumes were still impacted, as Robert said, through -- from the extreme winter weather. We saw through the fourth quarter and we continue to see a bit of that through the first quarter. Wells continue to be shut-in in the fourth -- in the first quarter.

Producers have been unable to get workover rigs out to the wells due to weather. So, we're beginning to see volumes lift right now through the second quarter as weather has improved in the Bakken and our producers are able to get workover rigs out to their pads. Importantly, that the weather in the first quarter, as you mentioned, did not impact their completion timing and their turn-in-line timing of the wells. I'd say cadence of growth between Q1 to Q4, it differs by product again, because there's three product wells and there's water-only wells.

I'd say generally we're expecting about 10% to 15% growth from Q1 levels to Q4 levels this year. So, again, pretty strong exit rates for 2023, setting up a pretty good 2024.

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

Diaco, give some color on our producers' activity in the field right now, what they're doing. And we're just now coming out of the wintertime really, and the roads aren't even clear, we still got a lot of mud, and so -- supply chain is improving, but give us some color around our producer activity.

Diaco Aviki -- Chief Operating Officer

Ned, I'd point you to two things and it's a good question you have. I mean, you think this level of D&C activity, there's a lot of shut-in for offset frac that goes on with that level of activity. And then, on top of that, I think we've got somewhere around 25 workover rigs working on Arrow right now. That's a large number of workover rigs.

It's cleaning out wells, putting down ESPs, and getting that production online. So, we should see those volumes come right back up as the quarter -- as it warms up -- as it has already warmed up and our customers are reaffirming their activity levels.

Ned Baramov -- Wells Fargo Securities -- Analyst

Thanks for that. Very thorough. And then, my second question is on leverage and your thoughts on longer-term targets. Specifically, are you looking to get to your stated long-term target of three and a half times at some point next year and then maybe stay there? Or would you consider further deleveraging below the three and a half?

Johnny Black -- Executive Vice President, Chief Financial Officer

Yes, great question, Ned. This is Johnny again. We've stated -- our long-term leverage target has moved I'd say from three and a half times to under three and a half times. As we mentioned, we are very focused on the balance sheet this year and allocating all excess free cash flow to debt pay down.

We want to get our leverage target closer to that three and a half times before we start thinking about incremental returns across the board.As we get into 2023 -- 2024, I'd say allocation of capital will really be a function of the outlook of the business at that point in time and opportunities to reduce our cost of capital and continue to drive value for investors. I'd say, over time, we see the free cash flow generation of the business ramping significantly in '24 and onwards, which should provide a lot of opportunity with that excess cash flow to either drive into the balance sheet or incremental returns to our unitholders.

Ned Baramov -- Wells Fargo Securities -- Analyst

Thank you.

Operator

Thank you. Our next question comes from the line of Neal Dingmann with Truist Securities. Please proceed with your question.

Neal Dingmann -- Truist Securities -- Analyst

Good morning, gentlemen. My first question is on your S&L segment specifically. Can you discuss expectations for the future earnings given what you're seeing down today's forward curve? And I know you had decreased the hedge position, so I'm just wondering how your thinking about that today.

Robert Halpin -- President

Yes. Neal, this is Robert. I mean, I think our outlook this year is pretty constructive. As we mentioned, we had a good first quarter.

We kind of think about that business as about $100 million a year business in aggregate. And I think the curve is set up to perform to that. So, I think it will be a solid year after a couple of years of some challenging market environments with pretty steep backwardation. And I think now as we look out into the future, and we eliminate some of the hedge losses we experienced last year, we should be back in line with kind of normal operating.

Neal Dingmann -- Truist Securities -- Analyst

OK. It's good to hear. And then, my second is just maybe on the Powder River asset specifically. Certainly not the size of your Williston or Delaware, but I'm just wondering if you could give some color on kind of what you're seeing in year-to-date activity there in the play and its impact on the Jackalope system -- on you Jackalope system?

Diaco Aviki -- Chief Operating Officer

Yes. Neal, one thing I'd highlight with our Jackalope well connect results, those actually under represent. What we don't report is the well connects that are behind Continental's gathering system to the north of the heritage Chesapeake asset. So, they're quite active over there.

They've run -- they're running two rigs right now. The well results we're seeing are fantastic. And really as producers ramp up in that area, which they have been doing, the supply chain costs start to become more and more attractive and well results, they're going to three-mile laterals and even testing four, are going to drive what's needed to break that basin force here soon. So, we're very, very pleased with what -- having Continental as a partner there.

They're no longer a public, they're private, which is fantastic for us, and we're really excited about what's in store for that basin.

Neal Dingmann -- Truist Securities -- Analyst

I appreciate the color. Thank you all.

Operator

Thank you. [Operator instructions] Our next question comes from the line of Elvira Scotto with RBC Capital Markets. Please proceed with your question.

Elvira Scotto -- RBC Capital Markets -- Analyst

Hey. Good morning, everyone. Just a couple of questions for me. Can you just remind us of what your commodity price sensitivity is specifically around the POP contract?

Johnny Black -- Executive Vice President, Chief Financial Officer

Yeah. Hey, Elvira. This is Johnny. We've got roughly 15% of our company cash flow correlated to commodity prices, as we show in the investor presentation, all that's in the Williston and the Delaware, roughly 75% of that in the Williston and 25% in the Delaware.

From a sensitivity standpoint, I'd say every dollar per MMBtu move in gas prices has about a $10 million annual impact on the plan, so about $1 million a month for a dollar per MMBtu move in gas. Similarly, on the crude side, every $10 per barrel move in oil prices has about a $12 million or $13 million annual impact on the plan or again a little bit, about $1 million a month or $10 per barrel is the way to think about it.

Elvira Scotto -- RBC Capital Markets -- Analyst

Thank you. That's helpful. And then, can you talk a little bit about -- I know you gave a lot of producer commentary, but are you hearing any differences between your public versus private producers or maybe some of your larger versus smaller mid-cap type producers?

Diaco Aviki -- Chief Operating Officer

Thank you, Elvira. This is Diaco. Appreciate the question. First, I want to point back to what Bob highlighted in his opening remarks.

Our strategic M&A has created a portfolio of assets with significant undeveloped inventory in the core of oil-weighted resource plays. And oil fundamentals remain strong and will remain strong. We do see a lot of discussion on private versus public operators. Our two largest privates are Continental and Mewbourne.

And if you think about those two, they're bigger than most public. So, we're not seeing any material deviation versus what they told us to shape our 2023 forecast. I mean, we put 70 wells in the books for Q1, a winter quarter, and we're reaffirming our 260 for the year in 2023, which should set us up for a solid '24. So again, going back we're in the core of the core of the oil-weighted basins and our privates are not typical private.

Elvira Scotto -- RBC Capital Markets -- Analyst

Great. Thank you very much.

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

And Elvira, this is Bob. I might add that in almost all of our basins, we've seen larger companies buying the small privates, almost in the way of an internal consolidation or a field consolidation. I'll give you a couple of examples. Of course, Continental bought out Chesapeake out of bankruptcy, and so that was great.

That was probably one of the most important things that happened to us over a couple of years ago. But in -- on the Arrow system, I mean, we've had Devon buyout Rimrock, we've had Enerplus buyout Bruin. We had Chord, before they merged with Whiting, buyout Diamondback. So, we're consolidating acreage in the hands of extremely strong basin players.

They're financially strong. They know how to drill and complete wells. Typically, they drill and complete better wells than the small privates did. Maybe not as aggressive on the drill schedule, that's understandable.

Private try to drill it up to get it sold. These guys are longer-term players, but we love the impact that consolidation has had on the customer quality of our producers around our assets. Same thing in the Delaware, and we're going through that process now. We've got some really impressive small privates that are drilling great wells.

And eventually, they're going to attract the attention of the bigger players in the play. And that's a good thing for us. Because we're a long-term player, as Diaco said, by our calculation and I think we've put that information out from time to time. I mean, we have several thousand long-term drilling locations dedicated to these three systems, and the ability to grow and reach out and capture additional inventory.

So, the financial strength, the long-term quality of our producers is really important to us. And we look at our portfolio overall right now, it has improved dramatically over the last couple of years. We've got great producers under contract. We have great relationships with them.

We provide good customer service. We talk to them in multiple basins. And so, it's -- we're in a really good spot with respect to our producer customers. Not sure that helps you with a broad brush across the industry or not, but we do see the private starting to pull back a little bit on gas price, whereas the publics probably weren't pushing it too hard to begin with.

But we don't see any big change in the areas we operate on drilling and development programs over the next 18 to 24 months. In fact, we think we've got great visibility, probably the best visibility that we've ever had with our customers in terms of collaborating to make sure that capacity is there, the well connects are there, processing capacity is there, so that we're not flaring gas in these basins, because that's critically important to everybody right now; no flare across the industry. I hope that helps.

Elvira Scotto -- RBC Capital Markets -- Analyst

That does. Thank you very much.

Operator

Thank you. There are no further questions at this time. I'd like to turn the floor back over to Bob for closing comments.

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

Thanks, operator. Just a point in time with the Tres transaction, which we closed in early April, we're largely completed with our strategic repositioning. I think we've done a great job to restructure this company portfolio. We're a top three gatherer and processor in the Williston, Delaware and the PRB, long-term inventory positions dedicated under long-term contracts, good terms, good margins, good access to additional supplies as technology improves and we go from two-mile to three-mile laterals.

Diaco didn't really talk about that, but that's going to have a big impact on productibility in the areas that we operate. Almost all of our operators are either doing it or thinking about it or coring up acreage and swapping acreage to get ready for three-mile laterals. We're going to see improved IP rates from some of these wells. We think that the new G&P position in these basins gives us a competitive advantage.

It's still a very competitive business out there, and there's still a catfight for undedicated acreage. And we're in a good spot in all three basins to continue to drive growth of our systems. We're going to do it with very disciplined capital spending, and Robert highlighted that and Johnny did too. Capital discipline this year and next is incredibly important to us.

Our capital spend should be going down year over year, and that should generate increased free cash flow and reduce debt. And that is our simple business plan and it's pretty darn simple. We've got great visibility, as I said, to the '23 and we think '24 drilling and development programs with our customers. A lot of our capital spend today will make new acreage available to be drilled next year, particularly the -- some of the new projects in the Williston Basin, the City of Williston and the Painted Woods.

So, great visibility there. Now, it's about execution quarter to quarter. And I think the team is excited to be really focused on the drill bit and the wellhead and the connects and maximizing available capacity at minimal capital expense. I want to thank all of our investors for supporting us through that restructuring period.

I know that wasn't easy and it probably didn't look like we knew what we were doing. But when you look back on it, it's almost like a triple bank shot to have been able to bought good assets, integrated them, cored up our position in three oil-weighted basins and then selling the rest of our assets, which didn't have any growth potential, to keep our balance sheet back in line. And now, we're on track to do what we do best, which is gather and process gas and market natural gas liquids. And I think the team is in good position.

And the first quarter was a good start to the year. So, thanks to everybody for joining us. Thanks to all the analysts for the questions. I know you guys have a lot of work to do today, with a number of companies coming out.

But we're really pleased with our first quarter performance, and thank everybody for their time this morning. Thank you, operator.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

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

Robert Halpin -- President

Johnny Black -- Executive Vice President, Chief Financial Officer

Tristan Richardson -- Scotiabank -- Analyst

Diaco Aviki -- Chief Operating Officer

Unknown speaker

Ned Baramov -- Wells Fargo Securities -- Analyst

Neal Dingmann -- Truist Securities -- Analyst

Elvira Scotto -- RBC Capital Markets -- Analyst

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