Crestwood experienced significant change last year as it merged with Inergy LP and Inergy Midstream LP, then added to its Bakken presence with the acquisition of Arrow Midstream. The result creates a business with a total enterprise value of approximately $8.5 billion. Crestwood enters 2014 with a liquids-focused growth strategy for its diverse operations linking producers, active in multiple shale plays, and end-user customers across the natural gas, natural gas liquids (NGL) and crude oil sectors.

MIDSTREAM Please take a moment to talk about yourself. How did you get into the midstream business?

PHILLIPS I started my career in the midstream back in 1977 out of the University of Texas. I was a petroleum landman but also going to night law school. I quickly found out that, as landmen are prone to travel, and as law school usually has a minimum attendance requirement, those two didn't work very well together. I was very fortunate that my first job out of college was with Gulf Oil—one of the original seven sisters. I got transferred into the natural gas sales department. That was 1977, and I've basically been in the same job for the past 36 years.

I’m starting my 37th year in 2014, and I'm having more fun today than I've had in many, many years. There’s something truly rewarding about building a great midstream company, which is what we're doing here at Crestwood. It’s also exciting to be right in the middle of the greatest shale plays and the largest midstream infrastructure build-out in the history of our industry. This is also a good time to raise capital for all these new projects that are connecting new oil and gas supplies with markets.

MIDSTREAM Crestwood certainly was busy in 2013 with the Inergy merger completed in October, the Arrow acquisition completed in November and two Powder River basin (PRB) Niobrara shale play acquisitions, which were completed in the third quarter. How have these developments changed your corporate focus?

PHILLIPS The acquisitions have dramatically shifted our focus toward crude oil and NGLs and helped build out a part of the business that we're very focused on. Hopefully, we can not only strengthen our position in the Bakken and Niobrara but also take these skill sets into other crude oil and NGL-based plays and be more competitive there as well.

Our focus for 2014 will continue to be on rich natural gas and crude oil plays with a heavy emphasis on natural gas gathering and processing, trucking NGLs, railing crude oil and storage and transportation of all three energy commodities with ultimate deliveries of these products to our end-use customers.

Our strategy is connecting supply and demand across the value chain. We want to provide services from the wellhead, where we gather and process rich natural gas, all the way through to the liquids and crude that we ultimately deliver to the refinery or petrochemical plant.

MIDSTREAM You recently issued 14 million common units and also offered $600 million in senior notes. Were these moves related to the merger and acquisition or dry powder for the future?

PHILLIPS Well, a little bit of both. The merger with Inergy provided Crestwood with a bigger balance sheet that enabled us to finance the $750 million Arrow acquisition very efficiently while still preserving plenty of financial capacity, or dry powder as you called it, for our 2014 capital growth plan. We issued $200 million of new Crestwood equity to the Arrow sellers, which showed the confidence they had in the Arrow assets and in Crestwood’s ability to quickly integrate Arrow and grow the business. That leaves $550 million of Arrow purchase price to be raised with new capital. In three different transactions around the time of the Inergy merger and the Arrow acquisition, we raised a total of $1.2 billion in public equity and debt. With $550 million of new public capital going to the Arrow acquisition, that leaves in excess of $650 million as dry powder for future acquisitions and to support our 2014 capital program.

MIDSTREAM Do you plan to emphasize organic growth for 2014, or do you plan to seek additional acquisitions?

PHILLIPS Both really. The merger and the acquisitions we completed in 2013 have positioned us very well for organic growth in 2014 and 2015. In 2014, we plan to spend approximately one-half-billion dollars on identified and contracted expansion projects around our existing asset footprint—and that would be more than either Inergy or Crestwood would have spent independently.

The Marcellus gathering system is Crestwood’s most prolific growth asset because our producer, Antero Resources, is accelerating its drilling program due to their successful IPO [initial public offering] in October 2013. The Bakken capital program will include the completion of the [North Dakota] COLT hub expansion, which was started in mid-2103, and the continued expansion of the Arrow gathering systems for crude oil, natural gas and produced water. We will be integrating the COLT and Arrow facilities in 2014, which may provide some additional expansion opportunities. We also acquired interests in two assets in the PRB Niobrara shale in 2013. The Jackalope gathering system and the Enserco crude rail terminal are well positioned to take advantage of increasing crude oil and natural gas liquids production in an area that lacks critical midstream infrastructure.

We are very acquisitive by nature so we will keep our eyes out for additional opportunities like Arrow if it is a strategic fit, has visible growth and is synergistic with our existing operations.

MIDSTREAM Analysts following Crestwood seem to remain neutral to positive about your story even after you increased the unit distribution in third-quarter 2013. What might investors be missing right now? PHILLIPS The market is waiting to see integration and execution. Analysts and investors get the strategic benefits of the merger between Crestwood and Inergy, and they support our liquids driven growth strategy. For example, they were very receptive to the Arrow acquisition, which is immediately accretive to our distributable cash flow, and how it expands our crude oil business and bolsters our competitive position in the Bakken Shale with the COLT Hub.

Investors get all that, they have just been waiting for us to pull all this together where we’re operating as a consolidated entity. The first combined quarter of post-merger consolidated operations didn’t happen until the fourth quarter of 2013, so investors are waiting to see how we pull all this together and if we can deliver immediate results and execute on our 2014 growth plan.

MIDSTREAM Please discuss the Marcellus and Utica plays. What does the midstream need to do from here to serve those two plays that are growing rapidly?

PHILLIPS I think the Marcellus is a great play to talk about because it really reminds me of the Rockies back in the 1980s and 1990s. No matter how fast the midstream sector built out pipelines and plants, we could never keep up with the tremendous pace of drilling and supply development.

The Marcellus is a world-class play, clearly the largest shale play in North America and potentially in the world. It has totally changed the traditional natural gas supply/demand balance for the industry with such a large potential gas supply resource being developed so close to the nation’s largest natural gas market. Supply development in the Marcellus shale is happening so fast that total supplies are now dwarfing even peak demand for natural gas in the Northeast U.S.

The midstream sector is working incredibly hard to develop infrastructure needed for the Marcellus and the Utica for both natural gas and NGLs. The sector started in the Marcellus and Utica plays just three years ago—with limited excess pipeline capacity to the Northeast market, no ability to backhaul gas from the Marcellus into the Southeast and the Midcontinent areas, virtually no processing assets capable of handling all of this very rich natural gas and almost no NGL takeaway capability for the liquids that needed to be processed. When you compound those challenges with the need to develop a large, skilled labor force and the significant capital that’s been spent, it is truly amazing what the midstream sector has accomplished in such a short period of time.

Crestwood has two significant operations in the Marcellus. First, is our Marcellus gas gathering system, located in northern West Virginia, which supports Antero Resources, the most active Marcellus producer. Second, we operate natural gas and NGL storage assets that are full of Marcellus and Utica natural gas and NGLs, located in Pennsylvania and New York. These multiturn storage facilities with great connectivity to our transportation assets link the Marcellus and Utica shale plays with New York and New Jersey utilities like Consolidated Edison, New Jersey Natural and PSE&G.

MIDSTREAM Talk a little about Arrow and your presence now in the Bakken, what trends do you see in that play?

PHILLIPS Well, the Arrow acquisition highlights two opportunities for Crestwood. First, the Arrow crude gathering system fits nicely with Crestwood’s existing COLT Hub, which is the leading Bakken crude-by-rail terminal, located just 60 miles north of the Arrow system. COLT and Arrow are connected by third-party pipes, creating market optionality for Arrow producers to export their crude and another source of crude supplies for COLT customers. The combination creates a direct link from the Arrow production area to refineries on the East Coast and the West Coast. We have observed that Bakken producers want access to higher-priced markets than Cushing, Oklahoma, and are willing to pay the higher rail charges to get higher net-backs. Similarly, refiners on both coasts want access to more Bakken crude to displace Brent and Alaska North Slope, resulting in lower feedstock costs to them.

The other trend is on the gas side. One of the reasons we bought this gathering system is to capture significant flared gas in this area, which is a problem in North Dakota right now. The Arrow producers know there is a real opportunity to capture flared gas in the area by building out the gathering system, and we have a number of projects under way, both on the Arrow system and downstream pipelines to get that done as soon as possible. This is our highest priority on the Arrow system in 2014.

MIDSTREAM What do you expect to be happening in North America’s midstream during the next five years? What big trends are worth watching?

PHILLIPS To a large extent, I’d say it’s more of the same. It’s the next generation of midstream infrastructure for the Marcellus, Bakken and Eagle Ford—which are trying to catch up to the infrastructure needed to handle the full supply development potential of those unconventional resource plays. In other areas like the Permian basin, it’s re-plumbing, upgrading or re-purposing old pipelines, plants and terminals to handle new shale supplies. Exports of natural gas and NGLs will be an important next step to balance the markets and continue the growth and many projects are under way. Expansion by the petrochemical sector will be critical to balancing the NGL markets.

The other trend that we are watching carefully is new plays—are there any other Marcelluses or Eagle Fords out there? I think that’s probably unlikely, but there are a lot of Niobraras out there.

Then finally, the last thing—ultimately, we think that the midstream industry is part of America’s energy independence solution. The midstream sector is a vital part of connecting new energy supplies to market, so that the U.S. economy can truly benefit from these great oil and gas resources being developed and ultimately lead to energy independence for America.