Investments in Unconsolidated Affiliates

Crestwood Permian Basin Holdings LLC

In October 2016, Crestwood Infrastructure, our wholly-owned subsidiary, and an affiliate of First Reserve formed a joint venture, Crestwood Permian Basin Holdings LLC (Crestwood Permian), to fund and own the Nautilus gathering system (described below) and other potential investments in the Delaware Permian. As part of this transaction, we transferred to the Crestwood Permian joint venture 100% of the equity interests of Crestwood Permian Basin LLC (Crestwood Permian Basin), which owns the Nautilus gathering system. We manage and account for our 50% ownership interest in Crestwood Permian, which is a VIE, under the equity method of accounting as we exercise significant influence, but do not control Crestwood Permian and we are not its primary beneficiary due to First Reserve’s rights to exercise control over the entity.

Crestwood Permian Basin has a long-term agreement with SWEPI LP (SWEPI), a subsidiary of Royal Dutch Shell plc, to construct, own and operate a natural gas gathering system (the Nautilus gathering system) in SWEPI’s operated position in the Delaware Permian. SWEPI has dedicated to Crestwood Permian Basin approximately 100,000 acres and gathering rights for SWEPI’s gas production across a large acreage position in Loving, Reeves and Ward Counties, Texas. The Nautilus gathering system is designed to include 194 miles of low pressure gathering lines, 36 miles of high pressure trunklines and centralized compression facilities, which are expandable over time as production increases, providing gas gathering capacity of approximately 250 MMcf/d. The initial build-out of the Nautilus gathering system was completed on June 6, 2017 and includes 20 receipt point meters, 60 miles of pipeline, a 24-mile high pressure header system, 10,800 horsepower of compression and a high pressure delivery point. Crestwood Permian Basin provides gathering, dehydration, compression and liquids handling services to SWEPI on a fixed fee basis. In October 2017, Shell Midstream Partners L.P. (Shell Midstream), a subsidiary of Royal Dutch Shell plc, purchased a 50% equity interest in Crestwood Permian Basin for approximately $37.9 million in cash.

CEQP issued a guarantee in conjunction with the Crestwood Permian Basin gas gathering agreement with SWEPI described above, under which CEQP has agreed to fund 100% of the costs to build the Nautilus gathering system (which is currently estimated to cost $180 million, of which approximately $72.7 million has been spent through September 30, 2017) if Crestwood Permian fails to do so. We do not believe this guarantee is probable of resulting in future losses based on our assessment of the nature of the guarantee, the financial condition of the guaranteed party and the period of time that the guarantee has been outstanding, and as a result, we have not recorded a liability on our balance sheet at September 30, 2017 and December 31, 2016.

On June 21, 2017, we contributed to Crestwood Permian 100% of the equity interest of Crestwood New Mexico Pipeline LLC (Crestwood New Mexico), our wholly-owned subsidiary that owns our Delaware Basin assets located in Eddy County, New Mexico. This contribution was treated as a transaction between entities under common control (because of our relationship with First Reserve), and accordingly we deconsolidated Crestwood New Mexico and our investment in Crestwood Permian was increased by the historical book value of these assets of approximately $69.4 million. In conjunction with this contribution, First Reserve has agreed to contribute to Crestwood Permian the first $151 million of capital cost required to fund the expansion of the Delaware Basin assets, which includes a new processing plant located in Orla, Texas and associated pipelines (Orla processing plant).

Pursuant to Crestwood Permian's limited liability company agreement, we will receive 100% of Crestwood New Mexico's available cash (as defined in the limited liability company agreement) until the earlier of the Orla processing plant in-service date or June 30, 2018, at which time the distributions will be based on the members respective ownership percentages. Because our ownership and distribution percentages will differ during this period, equity earnings from Crestwood Permian is determined using the Hypothetical Liquidation at Book Value (HLBV) method. Under the HLBV method, a calculation is prepared at each balance sheet date to determine the amount that we would receive if Crestwood Permian were to liquidate all of its assets, as valued in accordance with GAAP, and distribute that cash to the members. The difference between the calculated liquidation distribution amounts at the beginning and the end of the reporting period, after adjusting for capital contributions and distributions, is our share of the earnings or losses from the equity investment for the period, which approximates how earnings are allocated under the terms of the limited liability company agreement.

Stagecoach Gas Services LLC. In June 2016, we contributed to Stagecoach Gas Services LLC (Stagecoach Gas) the entities owning the Northeast storage and transportation assets. Additionally, Con Edison Gas Pipeline Storage Northeast, LLC (CEGP), a wholly-owned subsidiary of Consolidated Edison, Inc., contributed $945 million to Stagecoach Gas in exchange for a 50% equity interest in Stagecoach Gas, and Stagecoach Gas distributed to us the cash proceeds received (net of approximately $3 million of cash transferred to the joint venture) from CEGP. Pursuant to the Stagecoach Gas limited liability company agreement, we may be required to make payments of up to $57 million to CEGP after December 31, 2020 if certain criteria are not met by Stagecoach Gas by December 31, 2020, including achieving certain performance targets on growth capital projects. We do not believe that this provision is probable of resulting in future payments to CEGP, and as a result we have not recorded a liability on our balance sheet as of September 30, 2017 and December 31, 2016.

We deconsolidated the Northeast storage and transportation assets as a result of this transaction discussed above and began accounting for our 50% equity interest in Stagecoach under the equity method of accounting. We recognized a loss on the deconsolidation of the Northeast storage and transportation assets of approximately $32.9 million.

Net Investments and Earnings

Our net investments in and earnings from our unconsolidated affiliates are as follows (in millions, unless otherwise stated):



	Investment					Earnings (Loss) from Unconsolidated Affiliates
	September 30,		December 31,			Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016			2017		2016		2017		2016
Stagecoach Gas Services LLC⁽¹⁾	$	854.3	$	871.0		$	6.4	$	6.8	$	19.0	$	9.1
Jackalope Gas Gathering Services, L.L.C.⁽²⁾	186.2		197.2			1.5		5.5		5.5		16.5
Tres Palacios Holdings LLC⁽³⁾	34.7		39.0			0.3		0.8		1.5		(0.7		)
Powder River Basin Industrial Complex, LLC⁽⁴⁾	8.6		8.7			0.5		0.3		1.0		1.2
Crestwood Permian Basin Holdings LLC⁽⁵⁾	114.7		(0.5		)	2.8		—		2.2		—
Total	$	1,198.5	$	1,115.4		$	11.5	$	13.4	$	29.2	$	26.1


(1)	As of September 30, 2017, our equity in the underlying net assets of Stagecoach Gas exceeded our investment balance by approximately $51.4 million. This excess amount is entirely attributable to goodwill and, as such, is not subject to amortization. Our Stagecoach Gas investment is included in our storage and transportation segment.

(2)

As of September 30, 2017, our equity in the underlying net assets of Jackalope Gas Gathering Services, L.L.C. (Jackalope) exceeded our investment balance by approximately $0.8 million. We amortize this amount over 20 years, which represents the life of Jackalope’s gathering agreement with Chesapeake Energy Corporation (Chesapeake), and we reflect the amortization as an increase in our earnings from unconsolidated affiliates. Our Jackalope investment is included in our gathering and processing segment.

(3)

As of September 30, 2017, our equity in the underlying net assets of Tres Palacios Holdings LLC (Tres Holdings) exceeded our investment balance by approximately $26.9 million. We amortize this amount over the life of the Tres Palacios Gas Storage LLC (Tres Palacios) sublease agreement, and we reflect the amortization as an increase in our earnings from unconsolidated affiliates. Our Tres Holdings investment is included in our storage and transportation segment.

(4)

As of September 30, 2017, our equity in the underlying net assets of Powder River Basin Industrial Complex, LLC (PRBIC) exceeded our investment balance by approximately $6.5 million. We amortize a portion of this amount over the life of PRBIC's property, plant and equipment and its agreement with Chesapeake, and we reflect the amortization as an increase in our earnings from unconsolidated affiliates. During 2015, we recorded an impairment of our PRBIC equity investment as further discussed in our 2016 Annual Report on Form 10-K. For the year ended December 31, 2016, PRBIC recorded a $41.3 million impairment of its goodwill and long-lived assets and as a result, we adjusted our excess basis in PRBIC by approximately $8.3 million to reflect our proportionate share of the fair value of PRBIC's net assets. Our PRBIC investment is included in our storage and transportation segment.


(5)	As of September 30, 2017, our equity in the underlying net assets of Crestwood Permian exceeded our investment balance by approximately $22.0 million, which is entirely attributable to goodwill and, as such, is not subject to amortization. Our Crestwood Permian investment is included in our gathering and processing segment.

Summarized Financial Information of Unconsolidated Affiliates

Below is the summarized operating results for our significant unconsolidated affiliates (in millions; amounts represent 100% of

unconsolidated affiliate information):



	Three Months Ended September 30,
	2017						2016
	Operating Revenues		Operating Expenses		Net Income		Operating Revenues		Operating Expenses		Net Income
Stagecoach Gas	$	43.1	$	20.4	$	22.7	$	42.8	$	18.4	$	24.4
Other⁽¹⁾	78.3		66.4		11.9		30.1		18.4		11.7
Total	$	121.4	$	86.8	$	34.6	$	72.9	$	36.8	$	36.1

(1)

Includes our Jackalope, Tres Holdings, PRBIC and Crestwood Permian equity investments. We amortize the excess basis in certain of our equity investments as an increase in our earnings from unconsolidated affiliates. We recorded amortization of the excess basis in our Jackalope equity investment of less than $0.1 million for both the three months ended September 30, 2017 and 2016. We recorded amortization of the excess basis in our Tres Holdings equity investment of approximately $0.3 million for both the three months ended September 30, 2017 and 2016. We recorded amortization of the excess basis in our PRBIC equity investment of approximately $0.2 million and $0.4 million for the three months ended September 30, 2017 and 2016.



	Nine Months Ended September 30,
	2017						2016
	Operating Revenues		Operating Expenses		Net Income		Operating Revenues		Operating Expenses		Net Income
Stagecoach Gas	$	127.1	$	58.4	$	68.8	$	56.0	$	24.1	$	31.9
Other⁽¹⁾	124.6		103.7		20.8		90.3		60.6		29.6
Total	$	251.7	$	162.1	$	89.6	$	146.3	$	84.7	$	61.5

(1)

Includes our Jackalope, Tres Holdings, PRBIC and Crestwood Permian equity investments. We amortize the excess basis in certain of our equity investments as an increase in our earnings from unconsolidated affiliates. We recorded amortization of the excess basis in our Jackalope equity investment of less than $0.1 million for both the nine months ended September 30, 2017 and 2016. We recorded amortization of the excess basis in our Tres Holdings equity investment of approximately $0.9 million for both the nine months ended September 30, 2017 and 2016. We recorded amortization of the excess basis in our PRBIC equity investment of approximately $0.5 million and $1.2 million for the nine months ended September 30, 2017 and 2016.

Distributions and Contributions



	Distributions				Contributions
	Nine Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Stagecoach Gas⁽¹⁾	$	35.7	$	3.7	$	—	$	—
Jackalope	19.4		19.9		2.9		0.7
Tres Holdings⁽¹⁾	5.8		6.2		—		5.5
PRBIC	1.1		1.6		—		—
Crestwood Permian⁽²⁾	—		—		113.0		—
Total	$	62.0	$	31.4	$	115.9	$	6.2


(1)	In October 2017, we received a cash distribution from Stagecoach Gas, Tres Holdings and Crestwood Permian of approximately $11.6 million, $3.1 million and $4.5 million, respectively.


(2)	On June 21, 2017, we contributed to Crestwood Permian 100% of the equity interest of Crestwood New Mexico at our historical book value of approximately $69.4 million. This contribution was treated as a non-cash transaction between entities under common control.