Crestwood Midstream’s Barrels of Opportunity

Even when energy prices were falling, Hugo Guerrero kept Crestwood Midstream growing by streamlining operations and capitalizing on new opportunities

Hugo Guerrero, VP of Engineering, Construction, and Project Management, Crestwood Midstream Partners

Crestwood Midstream Partners is an astoundingly different company today than it was when Hugo Guerrero joined in 2013. Formed in 2010 with the acquisition of Quicksilver Gas Services, the company provides integrated services such as transportation and storage of natural gas, oil, and other derivative products among energy producers, transportation networks, and end users. Crestwood then grew exponentially after merging with Inergy LP, another midstream operator, in 2013.

That’s when Guerrero joined the company. The vice president of technical services was presented with a company uniquely primed for growth, but still in need of structure and process-driven workflows, especially around project execution.

Guerrero’s first step was to centralize the project management function that had been at the operating asset level and was unaligned with the rest of the organization. Because there were no formal policies or guidelines for engineering and design, contracts and procurement, or controls, a large percentage of projects were going over budget. “We needed a standardized approach to monitor spend, authorize expenditures, delegate authority, and give cost center owners actual control over each of their areas of responsibility,” he says.

The newly created project management system unified Crestwood and Inergy’s formerly disparate systems and provides transparency into procurement, accounting, and cost center approvals. It has also created a centralized portal for managing project life cycle information that is used for detailed forecasting and reporting status. These improvements have made it possible to monitor ongoing progress through reporting at the portfolio level.

“Simply being able to track when orders are placed and having visibility into who is placing them has enabled us to address at least half of our original project expenditure issues,” Guerrero points out.   

He also discovered that daily volumes reporting, a critical key performance indicator for tracking productivity, was being compiled manually by several different staff members—the equivalent of 1.5 full-time employees aggregating the required data every day. The new system has automated that process, enabling those employees to focus on more key responsibilities.

Although he was originally charged with creating and leading the company’s project management function, Guerrero’s responsibilities have since expanded to include all aspects of system planning, project execution, project controls, engineering, construction, and other operational technical support services. The result of having all of these service components under a single umbrella is that Guerrero and his team are able to improve the overall level of service, eliminate waste, and ultimately increase value to the entire organization.

Leveraging Market Conditions

Guerrero began implementing these improvements at Crestwood, just as falling oil and gas prices were causing difficulties throughout the energy industry. However, because midstream operators do not own the oil or gas flowing through their networks, they are financially insulated to a degree by relying on firm commitments from producers and/or transporters to reserve space on their assets.

Although overall portfolio volumes declined, Crestwood was able to optimize operations, cut costs, and, in some cases, provide economic incentives for customers to reactivate wells and increase production. These factors were successful in partially offsetting declines in other areas of the company’s portfolio.

“By optimizing our own operations, we’ve been able to bring some customers back online and simultaneously take advantage of new opportunities to grow,” Guerrero says. “My team is continuing to work with their commercial counterparts to identify ongoing optimization opportunities that require minimal capital investments to unlock the full potential of our assets.”

Making the transition from what Guerrero characterizes as “a relatively small and unknown operator” to an organization with a sophisticated, scalable platform has not gone unnoticed by major industry players. Crestwood has entered into agreements with partners for two large, multiyear projects in the Permian Basin that are unusual for a company of its size. One calls for a large scale three-stream gathering system that spans more than 400,000 acres and will aggregate crude and condensate volumes to Crestwood’s Orla Terminal. As currently designed, the system will consist of approximately 600 miles of pipelines and will be capable of handling 200,000 barrels per day.

Guerrero attributes those kinds of opportunities to the company’s safety record, internal leadership, and unique operational experience with similar assets. But he points out that the contributions of its system planning team have been just as important. The speed with which they are able to include extensive and comprehensive technical detail into company proposals far exceeds that of most competitors. While many of them take months to conduct research and due diligence, they are still unable to provide the level of detail and planning that the Crestwood team is able to produce in a matter of a few weeks.

“We’ve combined multiple technologies to develop a process that enables us to size a system and produce a quality CAPEX [capital expenditure] estimate parametrically in a relatively short amount of time,” Guerrero says. “This gives our commercial team more time to find the best option for Crestwood along with a competitive fee, all of which adds tremendous credibility to our proposals.”

Continued Improvement for a Competitive Edge

In addition to improved operations, Crestwood has taken other significant steps to improve its competitive position in the industry. In 2015, it simplified its corporate structure, which was followed by a new distribution policy. Most recently, the company undertook a joint venture transaction aimed at significantly reducing its debt. All of these strategies have resulted in an overall improvement in company financial metrics and the cost of capital as it continues growing.

“A strong technology infrastructure and optimized business structure is enabling us to wisely select and evaluate new opportunities at a time when other companies are in distress,” Guerrero explains. “And that puts us in a highly competitive position to win even more deals as commodity prices continue to improve.”