Equitrans Midstream Corporation (NYSE: ETRN), today, announced
financial and operational results for the second quarter 2023.
Included in the "Non-GAAP Disclosures" section of this news release
are important disclosures regarding the use of non-GAAP
supplemental financial measures, including information regarding
their most comparable GAAP financial measure.
Q2 2023 Highlights:
- Reported $68.9 million of net income and $234.7 million of
Adjusted EBITDA
- Generated $298.6 million of net cash from operating activities
and $150.7 million of free cash flow
- Recorded 73% of total operating revenue from firm reservation
fees
- Received FERC Notice to Proceed for the Ohio Valley Connector
Expansion project
- Fiscal Responsibility Act of 2023 became law on June 3, 2023;
includes 'Expediting Completion of the MVP'
- Resumed forward construction of Mountain Valley Pipeline
following the July 27, 2023 U.S. Supreme Court decision to vacate
previously issued stay orders by the U.S. Court of Appeals for the
Fourth Circuit
“We are grateful for the full support of the White House, as
well as the strong leadership of Democratic and Republican
legislators in recognizing the MVP as a critical energy
infrastructure project,” said Thomas F. Karam, chairman and chief
executive officer for Equitrans Midstream. “The Fiscal
Responsibility Act of 2023 makes clear that a robust and diverse
energy mix is vital to our Nation’s prosperity and security, and
Congress' action only magnifies the critical need for comprehensive
permitting reform that goes beyond the important initial steps in
this legislation."
Karam continued, “We are also thankful that the U.S. Supreme
Court acted quickly to grant the application to vacate stays
imposed by the lower court. We have resumed construction and are
focused on the responsible completion of MVP’s remaining
construction. We continue to target completion of MVP by year-end
2023.”
“Nearly five years ago, Equitrans Midstream was launched as a
standalone, publicly traded company,” said Diana M. Charletta,
president and chief operating officer for Equitrans Midstream.
“Since that time, our employees, in addition to maintaining focus
on our ongoing projects and base business, have embraced the
importance of elevating our ESG performance – diligently working to
set the course for Equitrans to be a more sustainable business
enterprise. Our work during the past year focused on the
development of several ESG-related projects aimed to build upon and
strengthen our foundation – as discussed in our recently published
Corporate Sustainability Report. Equitrans and its employees are
proud to pursue safe and innovative solutions that are essential
for America’s energy reliability, independence, and security, and
we believe that incorporating ESG into our culture will serve to
create long-term value for all stakeholders.”
2023 SECOND QUARTER SUMMARY
RESULTS
Three Months Ended June
30,
$ millions (except per share metrics)
2023
Net income attributable to ETRN common
shareholders
$
52.6
Adjusted net income attributable to ETRN
common shareholders
$
40.3
Earnings per diluted share attributable to
ETRN common shareholders
$
0.12
Adjusted earnings per diluted share
attributable to ETRN common shareholders
$
0.09
Net income
$
68.9
Adjusted EBITDA
$
234.7
Deferred revenue
$
82.0
Net cash provided by operating
activities
$
298.6
Free cash flow
$
150.7
Retained free cash flow
$
85.7
Net income attributable to ETRN common shareholders for the
second quarter 2023 was impacted by several items, including an
$19.4 million unrealized gain on derivative instruments and $2.7
million of operating expense related to the November 2022 Rager
Mountain natural gas storage field incident (discussed below). The
unrealized gain is reported within other income, net, and relates
to the contractual agreement with EQT Corporation (EQT) in which
ETRN will receive cash from EQT conditioned on the quarterly
average of certain Henry Hub natural gas prices exceeding certain
thresholds beginning with the quarter in which the Mountain Valley
Pipeline (MVP) is placed in-service through the fourth quarter of
2024. The contract is accounted for as a derivative with the fair
value marked-to-market at each quarter-end. Additionally, ETRN
reported second quarter equity income of $23.7 million, which is
primarily associated with allowance for funds used during
construction (AFUDC) relating to the resumption of MVP forward
construction in June 2023.
As a result of the gathering agreement entered into with EQT in
February 2020, revenue from the contracted minimum volume
commitment (MVC) is recognized utilizing an average gathering rate
applied over the remaining contract life. The difference between
the cash received from the MVC and the revenue recognized results
in the deferral of revenue into future periods. Deferred revenue
for the second quarter 2023 was $82.0 million.
Operating revenue for the second quarter 2023 decreased by $10.1
million compared to the same quarter last year, primarily as a
result of lower gathered volumes, partly offset by increased water
services revenue. Operating expenses increased by $43.6 million
compared to the second quarter 2022, primarily from $16.8 million
of compensation expense related to the MVP performance award
program, including $14.1 million of cumulative catch-up since the
inception of the award, the payout of which program was deemed
probable to occur given the signing of the Fiscal Responsibility
Act. The remaining expense variance was primarily related to $2.7
million of expenses associated with the Rager Mountain natural gas
storage field incident, increased water operating expenses, and
increased other selling, general and administrative, operating and
maintenance, and depreciation expenses.
QUARTERLY DIVIDEND
For the second quarter 2023, ETRN will pay a quarterly cash
dividend of $0.15 per common share on August 14, 2023 to ETRN
common shareholders of record at the close of business on August 4,
2023.
TOTAL CAPITAL EXPENDITURES AND CAPITAL
CONTRIBUTIONS
$ millions
Three Months Ended June 30,
2023
Six Months Ended June 30,
2023
Full-Year 2023
Forecast
MVP(1)
$36
$70
$610 - $650
Gathering(2)
$67
$123
$240 - $280
Transmission(3)
$15
$24
$80 - $90
Water
$11
$22
$45
Total
$129
$239
$975 - $1,065
(1)
Full-year 2023 assumes MVP construction
completion by year-end 2023.
(2)
Excludes approximately $5.0 million and
$8.2 million of capital expenditures related to the noncontrolling
interest in Eureka Midstream Holdings, LLC (Eureka) for the three
and six months ended June 30, 2023, respectively. Full-year 2023
forecast excludes approximately $15 million of capital expenditures
related to the noncontrolling interest in Eureka.
(3)
Full-year 2023 includes an estimate of $5
- $10 million of capital expenditures related to the Rager Mountain
natural gas storage field incident based on current information.
The full-year 2023 guidance does not include estimates of all
potential capital expenditures from the incident as some items are
not able to be estimated at this time. ETRN is continuing to gather
and evaluate information about the incident, including related
financial impacts, and will provide further updates as
necessary.
2023 GUIDANCE
The financial guidance assumes MVP construction completion and
in-service authorization by the FERC by year-end 2023 and
accordingly contractual obligations would commence on January 1,
2024.
Financial Outlook(1)(2)
$ millions
Q3 2023
Net income
$115 - $135
Adjusted EBITDA
$225 - $245
Deferred Revenue
$82 - $87
$ millions
Full-Year 2023
Net income
$420 - $470
Adjusted EBITDA
$1,000 - $1,050
Deferred Revenue
$330 - $335
Free cash flow
$(135) - $(85)
Retained free cash flow
$(395) - $(345)
(1)
Q3 2023 includes an estimate of $2 million
and full-year 2023 includes an estimate of approximately $10
million of operating expenses related to the Rager Mountain natural
gas storage field incident based on current information. The
guidance does not include estimates of all potential costs and
expenses from the incident as some items are not able to be
estimated at this time. ETRN is continuing to gather and evaluate
information about the incident, including related financial
impacts, and will provide further updates as necessary.
(2)
Does not include any of the potential $60
million Henry Hub bonus, which is dependent on MVP in-service and
natural gas prices exceeding certain thresholds. The deferred
revenue amounts are subject to the ultimate in-service date of
MVP.
BUSINESS AND PROJECT UPDATES
Outstanding Debt and Liquidity
As of June 30, 2023, ETRN reported $6.3 billion of consolidated
debt; $255.0 million of borrowings and $220.7 million of letters of
credit outstanding under EQM's revolving credit facility; $315.0
million of borrowings under Eureka's revolving credit facility; and
$107.1 million of cash.
Rager Mountain Natural Gas Storage Field Incident
Update
In Q4 2022, an issue with a storage well at ETRN's Rager
Mountain natural gas storage field caused the venting of natural
gas, which lasted for approximately 13 days. ETRN remains engaged
with a leading firm involved in analyzing storage field incidents
to conduct an independent, root cause investigation of the
incident, which is progressing and is expected to be completed
during the summer of 2023.
Further, ETRN initiated a comprehensive review of all of its
storage wells, including wells at the Rager Mountain facility, and
this review of storage field asset integrity is ongoing. In the
second quarter, ETRN incurred expenses of $2.7 million related to
post-incident response activities. For the full-year 2023, ETRN
estimates that it will incur approximately $10 million of expenses
related to post-incident response activities. For further
information, refer to ETRN’s Annual Report on Form 10-K for the
year ended December 31, 2022, as updated by subsequent Form
10-Qs.
Ohio Valley Connector Expansion Project
On June 15, 2023, the Federal Energy Regulatory Commission
(FERC) issued a certificate of public convenience and necessity for
the OVCX project, and on July 27, 2023, the U.S. Army Corps of
Engineers issued the project's last outstanding approval. On July
31, 2023, FERC issued the Notice to Proceed and ETRN expects to
commence construction imminently. ETRN is targeting the incremental
capacity to be in-service during the first half of 2024. OVCX will
increase deliverability on ETRN's Ohio Valley Connector pipeline by
approximately 350 MMcf per day and is designed to meet growing
demand in key markets in the mid-continent and Gulf Coast through
existing interconnects with long-haul pipelines in Clarington, OH.
ETRN expects to invest approximately $160 million in the project,
which is primarily supported by a long-term firm capacity
commitment of 330 MMcf per day.
Mountain Valley Pipeline
On June 3, 2023, the President of the United States signed the
Fiscal Responsibility Act of 2023 (FRA) that raised the Nation's
debt limit and ratified and approved all permits and authorizations
necessary for the construction and initial operation of the MVP and
directed the applicable federal officials and agencies to maintain
such authorizations. The FRA also divested courts of jurisdiction
to review agency actions on approvals necessary for MVP
construction and initial operation and granted exclusive
jurisdiction for claims against the FRA to the United States Court
of Appeals for the District of Columbia Circuit. On June 23, 2023,
Mountain Valley Pipeline, LLC (MVP JV) received the last
outstanding required permit, which was the water crossing permit
from the U.S. Army Corps of Engineers, and on June 28, 2023, the
FERC authorized the resumption of all construction activities for
the project and accordingly, forward construction commenced.
On July 10, 2023, the U.S. Fourth Circuit Court of Appeals
(Fourth Circuit) issued a stay order halting construction in the
Jefferson National Forest. On July 11, 2023, the Fourth Circuit
issued a stay of the Biological Opinion and Incidental Take
Statement, effectively halting forward construction for the
entirety of the project.
On July 14, 2023, MVP JV filed an emergency application to
vacate the stays with the U.S. Supreme Court and on July 27, 2023,
the U.S. Supreme Court granted the application to vacate the stays.
Forward construction has since recommenced and ETRN is targeting
project completion by year-end 2023 at a total project cost of
approximately $6.6 billion. Through June 30, 2023, ETRN has funded
approximately $2.8 billion and, if the MVP project were to be
completed in 2023 at a total project cost of $6.6 billion, ETRN
expects to fund a total of approximately $3.4 billion and to have
an approximate 48.3% ownership interest in MVP. ETRN will operate
the pipeline.
MVP Southgate
The MVP JV continues to evaluate the MVP Southgate project and
is focused on active negotiations with the shipper and a
prospective customer regarding refining the project's design, scope
and/or timing in lieu of pursuing the project as originally
contemplated. ETRN has a 47.2% ownership interest in MVP Southgate
and is expected to operate the pipeline.
Water Services
ETRN placed its second above ground water storage facility into
service in July 2023, which brings total storage capacity to
350,000 barrels. The backbone of the mixed-use water system is
expected to be substantially completed in 2023.
In May 2023, ETRN executed an agreement with a producer customer
to provide fresh and mixed use water delivery service. ETRN expects
to invest approximately $30 million, primarily across 2023 and
2024, to complete the project build out. The 10-year agreement is
backed by a minimum volume commitment.
In the second quarter, water operating income was $0.5 million
and water EBITDA was $7.0 million. For 2023, ETRN expects water
EBITDA of approximately $45 million.
2023 Corporate Sustainability Report
On July 27, 2023, ETRN published its annual Corporate
Sustainability Report (CSR), which is in accordance with the Global
Reporting Initiative (GRI) Standard (GRI 1: Foundation 2021) and
GRI’s Oil and Gas Sector Standard 2021, and also incorporates the
Sustainability Accounting Standards Board (SASB) Oil & Gas
Midstream Standards. Beginning with this year’s report, ETRN
voluntarily elected to change the organizational boundary for its
greenhouse gas emissions and energy reporting, moving from an
operational control approach to an equity share approach to provide
better alignment with existing financial reporting. ETRN recognizes
that our stakeholders expect us to continue focusing on long-term
sustainable performance by managing the environmental, social, and
governance (ESG) factors that matter most, and the content within
the 2023 CSR reflects the results of the Company’s 2022 materiality
assessment, which included the engagement of both internal and
external stakeholders.
Q2 2023 Earnings Conference Call Information
ETRN will host a conference call with security analysts today,
August 1, 2023, at 10:30 a.m. (ET) to discuss second quarter 2023
financial results, operating results, and other business
matters.
Call Access: A webcast/audio live stream of the call will
be available on the internet, and participants are encouraged to
pre-register online, in advance of the call. A link to the
webcast/audio live stream will be available on the Investors page
of ETRN’s website the day of the call.
Security Analysts :: Dial-In
Participation To participate in the Q&A session, security
analysts may access the call in the U.S. toll free at (888)
330-3573; and internationally at (646) 960-0677. The ETRN
conference ID is 6625542.
All Other Participants :: Webcast/Audio
Live Stream Registration Please Note: For optimal audio
quality, the webcast is best supported through Google Chrome and
Mozilla Firefox browsers.
Call Replay: For 14 days following the call, an audio
replay will be available at (800) 770-2030 or (647) 362-9199. The
ETRN conference ID: 6625542.
ETRN management speaks to investors from time-to-time and the
presentation for these discussions, which is updated periodically,
is available via www.equitransmidstream.com.
NON-GAAP DISCLOSURES
Adjusted Net Income Attributable to ETRN Common Shareholders
and Adjusted Earnings per Diluted Share Attributable to ETRN Common
Shareholders
Adjusted net income (loss) attributable to ETRN common
shareholders and adjusted earnings (loss) per diluted share
attributable to ETRN common shareholders are non-GAAP supplemental
financial measures that management and external users of ETRN’s
consolidated financial statements, such as investors, may use to
make period-to-period comparisons of earnings trends. Management
believes that adjusted net income (loss) attributable to ETRN
common shareholders and adjusted earnings (loss) per diluted share
attributable to ETRN common shareholders as presented provide
useful information for investors for evaluating period-over-period
earnings. Adjusted net income (loss) attributable to ETRN common
shareholders and adjusted earnings (loss) per diluted share
attributable to ETRN common shareholders should not be considered
as alternatives to net income (loss) attributable to ETRN common
shareholders, earnings (loss) per diluted share attributable to
ETRN common shareholders or any other measure of financial
performance presented in accordance with GAAP. Adjusted net income
(loss) attributable to ETRN common shareholders and adjusted
earnings (loss) per diluted share attributable to ETRN common
shareholders as presented have important limitations as analytical
tools because they exclude some, but not all, items that affect net
income (loss) attributable to ETRN common shareholders and earnings
(loss) per diluted share attributable to ETRN common shareholders,
including, as applicable, impairments of long-lived assets and
equity method investments, unrealized gain (loss) on derivative
instruments, loss on extinguishment of debt, gain on the sale of
gathering assets, expenses for the Rager Mountain natural gas
storage field incident (Rager Mountain incident), and the related
tax impacts of these items, which items affect the comparability of
results period to period. Additionally, because these non-GAAP
metrics may be defined differently by other companies in ETRN’s
industry, ETRN’s definitions of adjusted net income (loss)
attributable to ETRN common shareholders and adjusted earnings
(loss) per diluted share attributable to ETRN common shareholders
may not be comparable to similarly titled measures of other
companies, thereby diminishing the utility of the measures.
Adjusted net income (loss) attributable to ETRN common shareholders
and adjusted earnings (loss) per diluted share attributable to ETRN
common shareholders should not be viewed as indicative of the
actual amount of net income (loss) attributable to ETRN common
shareholders or actual earnings (loss) of ETRN in any given
period.
The table below reconciles adjusted net income attributable to
ETRN common shareholders and adjusted earnings per diluted share
attributable to ETRN common shareholders with net income (loss)
attributable to ETRN common shareholders and earnings (loss) per
diluted share attributable to ETRN common shareholders as derived
from the statements of consolidated comprehensive income to be
included in ETRN’s Quarterly Report on Form 10-Q for the three
months ended June 30, 2023. Diluted weighted average common shares
outstanding assumes dilution for each applicable period.
Reconciliation of Adjusted Net Income
Attributable to ETRN Common Shareholders and Adjusted Earnings per
Diluted Share Attributable to ETRN Common Shareholders
Three Months Ended June
30,
(Thousands, except per share
information)
2023
2022
Net income attributable to ETRN common
shareholders
$
52,617
$
46,163
Add back (deduct):
Unrealized gain on derivative
instruments
(19,416
)
(3,701
)
Loss on extinguishment of debt
—
24,937
Rager Mountain incident
2,743
—
Tax impact of non-GAAP items(1)
4,324
(5,530
)
Adjusted net income attributable to ETRN
common shareholders
$
40,268
$
61,869
Diluted weighted average common shares
outstanding, assuming dilution
435,476
434,025
Adjusted earnings per diluted share
attributable to ETRN common shareholders
$
0.09
$
0.14
(1)
The adjustments were tax effected at
ETRN’s federal and state statutory tax rate for each period
including certain discrete valuation allowance adjustments.
Adjusted EBITDA
Adjusted EBITDA excludes the impact of certain non-operating
income and expenses, non-cash items, and other items that ETRN
believes are not indicative of ETRN's ongoing operations or affect
the comparability of results period to period. As used in this news
release, Adjusted EBITDA means, as applicable, net income (loss),
plus income tax expense (benefit), net interest expense, loss on
extinguishment of debt, depreciation, amortization of intangible
assets, impairments of long-lived assets and equity method
investment, payments on the preferred interest in EQT Energy
Supply, LLC (Preferred Interest), non-cash long-term compensation
expense, expenses for the Rager Mountain incident, and less equity
income, AFUDC-equity, unrealized gain (loss) on derivative
instruments, gain on sale of gathering assets, and adjusted EBITDA
attributable to noncontrolling interest.
The table below reconciles adjusted EBITDA with net income as
derived from the statements of consolidated comprehensive income to
be included in ETRN's Quarterly Report on Form 10-Q for the three
months ended June 30, 2023.
Reconciliation of Adjusted
EBITDA
Three Months Ended June
30,
(Thousands)
2023
2022
Net income:
$
68,920
$
64,739
Add (deduct):
Income tax expense
465
2,692
Net interest expense
103,644
95,117
Loss on extinguishment of debt
—
24,937
Depreciation
70,031
67,657
Amortization of intangible assets
16,205
16,205
Preferred Interest payments
2,746
2,746
Non-cash long-term compensation
expense
22,698
3,656
Rager Mountain incident
2,743
—
Equity income
(23,686
)
(39
)
AFUDC – equity
(195
)
(45
)
Unrealized gain on derivative
instruments
(19,416
)
(3,701
)
Adjusted EBITDA attributable to
noncontrolling interest(1)
(9,470
)
(10,117
)
Adjusted EBITDA
$
234,685
$
263,847
(1)
Reflects adjusted EBITDA attributable to
noncontrolling interest associated with the third-party ownership
interest in Eureka. Adjusted EBITDA attributable to noncontrolling
interest for the three months ended June 30, 2023 was calculated as
net income of $1.7 million plus depreciation of $3.2 million, plus
amortization of intangible assets of $2.1 million, and plus
interest expense of $2.5 million. Adjusted EBITDA attributable to
noncontrolling interest for the three months ended June 30, 2022
was calculated as net income of $3.9 million, plus depreciation of
$3.1 million, plus amortization of intangible assets of $2.1
million, and plus interest expense of $1.0 million.
Free Cash Flow
As used in this news release, free cash flow means net cash
provided by operating activities plus principal payments received
on the Preferred Interest, and less net cash provided by operating
activities attributable to noncontrolling interest, dividends paid
to Series A Preferred Shareholders, premiums and fees paid on
extinguishment of debt, capital expenditures (excluding the
noncontrolling interest share (40%) of Eureka capital
expenditures), and capital contributions to MVP JV.
Retained Free Cash Flow
As used in this news release, retained free cash flow means free
cash flow less dividends paid to common shareholders.
The table below reconciles free cash flow and retained free cash
flow with net cash provided by operating activities as derived from
the statements of consolidated cash flows to be included in ETRN's
Quarterly Report on Form 10-Q for the three months ended June 30,
2023.
Reconciliation of Free Cash Flow and
Retained Free Cash Flow
Three Months Ended June
30,
(Thousands)
2023
2022
Net cash provided by operating
activities
$
298,554
$
351,026
Add (deduct):
Principal payments received on the
Preferred Interest
1,449
1,370
Net cash provided by operating activities
attributable to noncontrolling interest(1)
(8,141
)
(10,475
)
ETRN Series A Preferred Shares
dividends(2)
(14,628
)
(14,628
)
Premiums and fees on debt
extinguishment
—
(20,400
)
Capital expenditures(3)(4)
(90,542
)
(84,144
)
Capital contributions to MVP JV
(36,020
)
(39,215
)
Free cash flow
$
150,672
$
183,534
Less:
Dividends paid to common
shareholders(5)
(64,977
)
(64,915
)
Retained free cash flow
$
85,695
$
118,619
(1)
Reflects 40% of $20.4 million and $26.2
million, which was Eureka’s standalone net cash provided by
operating activities for the three months ended June 30, 2023 and
2022, respectively, which represents the noncontrolling interest
portion for the three months ended June 30, 2023 and 2022,
respectively.
(2)
Reflects cash dividends paid of $0.4873
per ETRN Series A Perpetual Convertible Preferred Share.
(3)
Does not reflect amounts related to the
noncontrolling interest share of Eureka.
(4)
ETRN accrues capital expenditures when the
work has been completed but the associated bills have not yet been
paid. Accrued capital expenditures are excluded from the statements
of consolidated cash flows until they are paid.
(5)
First quarter 2023 dividend of $0.15 per
ETRN common share was paid during the second quarter 2023.
Adjusted EBITDA, free cash flow and retained free cash flow are
non-GAAP supplemental financial measures that management and
external users of ETRN's consolidated financial statements, such as
industry analysts, investors, lenders, and rating agencies, may use
to assess:
- ETRN’s operating performance as compared to other publicly
traded companies in the midstream energy industry without regard to
historical cost basis or, in the case of adjusted EBITDA, financing
methods
- The ability of ETRN’s assets to generate sufficient cash flow
to pay dividends to ETRN’s shareholders
- ETRN’s ability to incur and service debt and fund capital
expenditures and capital contributions
- The viability of acquisitions and other capital expenditure
projects and the returns on investment of various investment
opportunities.
ETRN believes that adjusted EBITDA, free cash flow, and retained
free cash flow provide useful information to investors in assessing
ETRN's financial condition and results of operations. Adjusted
EBITDA, free cash flow, and retained free cash flow should not be
considered as alternatives to net income (loss), operating income,
or net cash provided by operating activities, as applicable, or any
other measure of financial performance or liquidity presented in
accordance with GAAP. Adjusted EBITDA, free cash flow, and retained
free cash flow have important limitations as analytical tools
because they exclude some, but not all, items that affect net
income (loss), operating income and net cash provided by operating
activities. Additionally, because these non-GAAP metrics may be
defined differently by other companies in ETRN's industry, ETRN's
definitions of adjusted EBITDA, free cash flow, and retained free
cash flow may not be comparable to similarly titled measures of
other companies, thereby diminishing the utility of the measures.
Free cash flow and retained free cash flow should not be viewed as
indicative of the actual amount of cash that ETRN has available for
dividends or that ETRN plans to distribute and are not intended to
be liquidity measures.
ETRN is unable to provide a reconciliation of projected adjusted
EBITDA from projected net income (loss), the most comparable
financial measure calculated in accordance with GAAP, or a
reconciliation of projected free cash flow or retained free cash
flow to net cash provided by operating activities, the most
comparable financial measure calculated in accordance with GAAP.
ETRN has not provided a reconciliation of projected adjusted EBITDA
to projected net income (loss), the most comparable financial
measure calculated in accordance with GAAP, due to the inherent
difficulty and impracticability of predicting certain amounts
required by GAAP with a reasonable degree of accuracy. Net income
(loss) includes the impact of depreciation expense, income tax
expense (benefit), the impact of changes in the projected fair
value of derivative instruments prior to settlement, potential
changes in estimates for certain contract liabilities and unbilled
revenues and certain other items that impact comparability between
periods and the tax effect of such items, which may be significant
and difficult to project with a reasonable degree of accuracy.
Therefore, a reconciliation of projected adjusted EBITDA to
projected net income (loss) is not available without unreasonable
effort.
ETRN is unable to project net cash provided by operating
activities because this metric includes the impact of changes in
operating assets and liabilities related to the timing of cash
receipts and disbursements that may not relate to the period in
which the operating activities occurred. ETRN is unable to project
these timing differences with any reasonable degree of accuracy to
a specific day, three or more months in advance. Therefore, ETRN is
unable to provide projected net cash provided by operating
activities, or the related reconciliation of each of projected free
cash flow and projected retained free cash flow to projected net
cash provided by operating activities, without unreasonable effort.
ETRN provides a range for the forecasts of net income (loss),
adjusted EBITDA, deferred revenue, free cash flow and retained free
cash flow to allow for the inherent difficulty of predicting
certain amounts and the variability in the timing of cash spending,
receipts and project in-service (as applicable) and the impact on
the related reconciling items, many of which interplay with each
other.
Water EBITDA
As used in this news release, water EBITDA means water operating
income (loss) plus, as applicable, depreciation and impairment of
long-lived assets of ETRN’s water services business. Water EBITDA
is a non-GAAP supplemental financial measure that management and
external users of ETRN’s consolidated financial statements, such as
industry analysts, investors, lenders and rating agencies, use to
assess the impact of ETRN’s water services business on ETRN’s
operating performance and ETRN’s ability to incur and service debt
and fund capital expenditures. Water EBITDA should not be
considered as an alternative to ETRN’s net income (loss), operating
income or any other measure of financial performance presented in
accordance with GAAP. Water EBITDA has important limitations as an
analytical tool because the measure excludes some, but not all,
items that affect net income (loss) and operating income.
Additionally, because water EBITDA may be defined differently by
other companies in ETRN’s industry, the definition of water EBITDA
may not be comparable to similarly titled measures of other
companies, thereby diminishing the utility of the measure. The
table below reconciles water EBITDA from ETRN's water operating
income (loss) as derived from ETRN's statements of consolidated
comprehensive income to be included in ETRN's Quarterly Report on
Form 10-Q for the three months ended June 30, 2023.
ETRN has not provided a reconciliation of projected water EBITDA
from projected water operating income (loss), the most comparable
measure calculated in accordance with GAAP. ETRN does not allocate
certain costs, such as interest expense, to individual assets
within its business segments. Water operating income (loss)
includes the impact of depreciation expense, which may be
significant and difficult to project with a reasonable degree of
accuracy. Therefore, the reconciliation of projected water EBITDA
from projected water operating income (loss) is not available
without unreasonable effort.
Reconciliation of Water EBITDA
Three Months Ended June
30,
(Thousands)
2023
2022
Water operating income
$
530
$
3,120
Add: Depreciation
6,511
4,804
Water EBITDA
$
7,041
$
7,924
About Equitrans Midstream Corporation:
Equitrans Midstream Corporation has a premier asset footprint in
the Appalachian Basin and, as the parent company of EQM Midstream
Partners, is one of the largest natural gas gatherers in the United
States. Through its strategically located infrastructure assets in
the Marcellus and Utica regions, Equitrans has an operational focus
on gas transmission and storage systems, gas gathering systems, and
water services that support natural gas development and production
across the Basin. With a rich 140-year history in the energy
industry, Equitrans was launched as a standalone company in 2018
with a vision to be the premier midstream services provider in
North America. While working to meet America's growing need for
clean-burning energy, Equitrans is proud of its environmental,
social, and governance (ESG) practices, striving every day to
preserve and protect the environment, provide an engaging workplace
for its employees, support and enrich its local communities, and to
deliver sustained value for customers and shareholders.
Visit www.equitransmidstream.com; and to learn more about our
ESG practices visit
www.equitransmidstream.com/sustainability-reporting/
Cautionary Statements
This news release contains certain forward-looking statements
within the meaning of Section 21E of the United States Securities
Exchange Act of 1934, as amended (the Exchange Act), and Section
27A of the United States Securities Act of 1933, as amended (the
Securities Act), concerning ETRN and other matters. These
statements may discuss goals, intentions and expectations as to
future plans, trends, events, results of operations or financial
condition, or otherwise, based on current beliefs of the management
of ETRN, as well as assumptions made by, and information currently
available to, such management. Words such as “focused,” “goal,”
“guidance,” “scheduled,” “could,” “will,” “may,” “assume,”
”aspire,“ ”design,“ “forecast,” “position,” ”pursue,“ “predict,”
“strategy,” “expect,” “intend,” “plan,” ”aim,“ “estimate,”
“anticipate,” “believe,” “project,” “budget,” “potential,”
“target,” “seek,” “strive,” “view,” “continue,” "would,"
"approximate," ”opportunity,“ ”objective,“ or "outlook" and similar
expressions are used to identify forward-looking statements. These
statements are subject to various risks and uncertainties, many of
which are outside ETRN's control. Without limiting the generality
of the foregoing, forward-looking statements contained in this
communication may include expectations of plans, strategies,
objectives and growth and anticipated financial and operational
performance of ETRN and its affiliates, including guidance and any
changes in such guidance in respect of ETRN’s gathering,
transmission and storage and water services revenue and volume,
including the anticipated effects associated with the February 2020
Gas Gathering and Compression Agreement (and as subsequently
amended) and related documents entered into with EQT Corporation
(EQT) and certain affiliates (collectively, the EQT Global GGA);
projected revenue (including from firm reservation fees) and
volumes, gathering rates, deferred revenues, expenses, and contract
liabilities, and the effects on liquidity, leverage, projected
revenue, deferred revenue and contract liabilities associated with
the EQT Global GGA and the MVP project (including changes in timing
for such project); the ultimate gathering MVC fee relief, and
timing thereof, provided to EQT under the EQT Global GGA and
related agreements; ETRN’s ability to de-lever and timing and means
thereof; the ultimate financial, business, reputational and/or
operational impacts resulting, directly or indirectly, from the
Rager Mountain incident; forecasted adjusted EBITDA (and
incremental adjusted EBITDA with MVP full in-service), water
operating (loss) income, water EBITDA, net (loss) income, free cash
flow, retained free cash flow (and usage thereof), leverage ratio,
build multiples and deferred revenue; the weighted average contract
life of gathering, transmission and storage contracts;
infrastructure programs (including the targeted or ultimate timing,
cost, capacity and sources of funding with respect to gathering,
transmission and storage and water projects); the cost to construct
or restore right-of-way for, capacity of, shippers for, timing and
durability of regulatory approvals and concluding litigation, final
design (including project scope, expansions, extensions or
refinements and capital and incremental adjusted EBITDA related
thereto), ability and timing to contract additional capacity on,
mitigate emissions from, targeted in-service dates of, and
completion (including potential timing of such completion) of
current, planned or in-service projects or assets, in each case as
applicable; the effect of the Fiscal Responsibility Act of 2023 on
the MVP JV's ability to complete the MVP project; the potential for
future additional bipartisan support for, and the potential timing
for, additional federal energy infrastructure permitting reform
legislation to be enacted; the ultimate terms, partner
relationships and structure of the MVP JV and ownership interests
therein; the realizability of the MVP performance award program;
the realizability of all or any portion of the potential Henry Hub
bonus payments; the impact of changes in assumptions and estimates
relating to the potential completion and full in-service timing of
the MVP project (as well as changes in such timing) on, among other
things, the fair value of the Henry Hub cash bonus payment
provision of the EQT Global GGA, gathering rates, the amount of
gathering MVC fee relief and the estimated transaction price
allocated to ETRN's remaining performance obligations under certain
contracts with firm reservation fees and MVCs; ETRN’s ability to
identify and complete opportunities to optimize its existing asset
base and/or expansion projects in ETRN’s operating areas and in
areas that would provide access to new markets; ETRN’s ability to
bring, and targeted timing for bringing, in-service the backbone of
its mixed-use water system (and expansions thereto), and realize
benefits therefrom in accordance with its strategy for its water
services business segment; ETRN’s ability to identify and complete
acquisitions and other strategic transactions, including joint
ventures, effectively integrate transactions into ETRN’s
operations, and achieve synergies, system optionality, accretion
and other benefits associated with transactions, including through
increased scale; the potential for the MVP project, EQM Midstream
Partners, LP’s leverage, customer credit ratings changes, defaults,
acquisitions, dispositions and financings to impact EQM’s credit
ratings and the potential scope of any such impacts; the effect and
outcome of contractual disputes, litigation and other proceedings,
including regulatory investigations and proceedings; the potential
effects of any consolidation of or effected by upstream gas
producers, whether in or outside of the Appalachian Basin; the
potential for, timing, amount and effect of future issuances or
repurchases of ETRN’s securities; the effects of conversion, if at
all, of ETRN’s preferred shares; the effects of seasonality;
expected cash flows, cash flow profile (and support therefor from
certain contract structures) and MVCs, including those associated
with the EQT Global GGA, and the potential impacts thereon of the
commission and in-service timing (or absence thereof) and cost of
the MVP project; projected capital contributions and capital and
operating expenditures, including the amount and timing of
reimbursable capital expenditures, capital budget and sources of
funds for capital expenditures; ETRN’s ability to recoup
replacement and related costs; future dividend amounts, timing and
rates; statements regarding macroeconomic factors effects on ETRN’s
business, including, future commodity prices and takeaway capacity
constraints in the Appalachian Basin; future decisions of customers
in respect of production growth, curtailing natural gas production,
timing of turning wells in line, rig and completion activity and
related impacts on ETRN’s business, and the effect, if any, on such
future decisions should the MVP be brought in-service; ETRN’s
liquidity and financing position and requirements, including
sources, availability and sufficiency; statements regarding future
interest rates and/or reference rates and the potential impacts
thereof; the ability of ETRN’s subsidiaries (some of which are not
wholly owned) to service debt under, and comply with the covenants
contained in, their respective credit agreements; the MVP JV’s
ability to raise project-level debt, and the anticipated proceeds
that ETRN expects to receive therefrom; expectations regarding
natural gas and water volumes in ETRN’s areas of operations; ETRN’s
ability to achieve anticipated benefits associated with the
execution of the EQT Global GGA and other commercial agreements;
ETRN’s ability to position itself for a lower carbon economy,
achieve, and create value from, its ESG and sustainability
initiatives, targets and aspirations (including targets and
aspirations set forth in its climate policy) and respond, and
impacts of responding, to increasing stakeholder scrutiny in these
areas; the effectiveness of ETRN’s information technology and
operational technology systems and practices to detect and defend
against evolving cyberattacks on United States critical
infrastructure; the effects and associated cost of compliance with
existing or new government regulations including any quantification
of potential impacts of regulatory matters related to climate
change on ETRN; and future tax rates, status and position. These
forward-looking statements involve risks and uncertainties that
could cause actual results to differ materially from projected
results.
Accordingly, investors should not place undue reliance on
forward-looking statements as a prediction of actual results. ETRN
has based these forward-looking statements on management’s current
expectations and assumptions about future events. While ETRN
considers these expectations and assumptions to be reasonable, they
are inherently subject to significant business, economic,
competitive, regulatory, judicial, construction and other risks and
uncertainties, many of which are difficult to predict and are
beyond ETRN’s control. The risks and uncertainties that may affect
the operations, performance and results of ETRN’s business and
forward-looking statements include, but are not limited to, those
set forth under Part I, "Item 1A. Risk Factors" in ETRN's Annual
Report on Form 10-K for the year ended December 31, 2022 filed with
the Securities and Exchange Commission (the SEC), as updated by any
risk factors disclosed under Part II, "Item 1A. Risk Factors," of
ETRN’s Quarterly Report on Form 10-Q for the three months ended
March 31, 2023 filed with the SEC, ETRN's Quarterly Report on Form
10-Q for the three months ended June 30, 2023 to be filed with the
SEC and ETRN's subsequent filings. Any forward-looking statement
speaks only as of the date on which such statement is made, and
ETRN does not intend to correct or update any forward-looking
statement, unless required by securities laws, whether as a result
of new information, future events or otherwise. As forward-looking
statements involve significant risks and uncertainties, caution
should be exercised against placing undue reliance on such
statements.
EQUITRANS MIDSTREAM
CORPORATION
STATEMENTS OF CONSOLIDATED
COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended June
30,
2023
2022(1)
(Thousands, except per share
amounts)
Operating revenues
$
318,469
$
328,611
Operating expenses:
Operating and maintenance
45,767
32,442
Selling, general and administrative
56,932
29,009
Depreciation
70,031
67,657
Amortization of intangible assets
16,205
16,205
Total operating expenses
188,935
145,313
Operating income
129,534
183,298
Equity income
23,686
39
Other income, net
19,809
4,148
Loss on extinguishment of debt
—
(24,937
)
Net interest expense
(103,644
)
(95,117
)
Income before income taxes
69,385
67,431
Income tax expense
465
2,692
Net income
68,920
64,739
Net income attributable to noncontrolling
interests
1,675
3,948
Net income attributable to ETRN
67,245
60,791
Preferred dividends
14,628
14,628
Net income attributable to ETRN common
shareholders
$
52,617
$
46,163
Earnings per share of common stock
attributable to ETRN common shareholders - basic
$
0.12
$
0.11
Earnings per share of common stock
attributable to ETRN common shareholders - diluted
$
0.12
$
0.11
Weighted average common shares outstanding
- basic
433,961
433,333
Weighted average common shares outstanding
- diluted
435,476
434,025
(1)
In the course of its 2022 year-end
process, ETRN identified immaterial corrections in its previously
issued unaudited interim consolidated financial statements. ETRN
has revised the prior periods presented to reflect these items.
Refer to ETRN’s Annual Report on Form 10-K for the year ended
December 31, 2022 for further information.
EQUITRANS MIDSTREAM
CORPORATION
GATHERING RESULTS OF
OPERATIONS
Three Months Ended June
30,
2023
2022(4)
FINANCIAL DATA
(Thousands, except per day
amounts)
Firm reservation fee revenues(1)
$
141,737
$
138,605
Volumetric-based fee revenues
68,457
86,709
Total operating revenues
210,194
225,314
Operating expenses:
Operating and maintenance
25,136
21,703
Selling, general and administrative
38,446
19,269
Depreciation
49,387
48,573
Amortization of intangible assets
16,205
16,205
Total operating expenses
129,174
105,750
Operating income
$
81,020
$
119,564
Other income, net(2)
$
19,416
$
3,701
OPERATIONAL DATA
Gathered volumes (BBtu per day)
Firm capacity(1)
5,273
5,218
Volumetric-based services
2,147
2,654
Total gathered volumes
7,420
7,872
Capital expenditures(3)
$
71,893
$
69,189
(1)
Includes revenues and volumes, as
applicable, from contracts with MVCs.
(2)
Other income, net, includes the unrealized
gains on derivative instruments associated with the Henry Hub cash
bonus payment provision.
(3)
Includes approximately $5.0 million and
$8.7 million of capital expenditures related to noncontrolling
interests in Eureka for the three months ended June 30, 2023 and
2022, respectively.
(4)
In the course of its 2022 year-end
process, ETRN identified immaterial corrections in its previously
issued unaudited interim consolidated financial statements. ETRN
has revised the prior periods presented to reflect these items.
Refer to ETRN’s Annual Report on Form 10-K for the year ended
December 31, 2022 for further information.
EQUITRANS MIDSTREAM
CORPORATION
TRANSMISSION RESULTS OF
OPERATIONS
Three Months Ended June
30,
2023
2022
FINANCIAL DATA
(Thousands, except per day
amounts)
Firm reservation fee revenues
$
82,247
$
84,675
Volumetric-based fee revenues
10,293
6,403
Total operating revenues
92,540
91,078
Operating expenses:
Operating and maintenance
14,356
7,897
Selling, general and administrative
15,829
8,436
Depreciation
13,904
13,904
Total operating expenses
44,089
30,237
Operating income
$
48,451
$
60,841
Equity income
$
23,686
$
39
OPERATIONAL DATA
Transmission pipeline throughput (BBtu per
day)
Firm capacity reservation
3,212
3,037
Volumetric-based services
26
17
Total transmission pipeline throughput
3,238
3,054
Average contracted firm transmission
reservation commitments (BBtu per day)
3,542
3,793
Capital expenditures(1)
$
14,375
$
6,339
(1)
Transmission capital expenditures do not
include aggregate capital contributions made to the MVP JV for the
MVP and MVP Southgate projects of approximately $36.0 million and
$39.2 million for the three months ended June 30, 2023 and 2022,
respectively.
EQUITRANS MIDSTREAM
CORPORATION
WATER RESULTS OF
OPERATIONS
Three Months Ended June
30,
2023
2022(2)
FINANCIAL DATA
(Thousands, except MMgal
amounts)
Firm reservation fee revenues(1)
$
9,389
$
9,375
Volumetric-based fee revenues
6,346
2,844
Total operating revenues
15,735
12,219
Operating expenses:
Operating and maintenance
6,254
2,820
Selling, general and administrative
2,440
1,475
Depreciation
6,511
4,804
Total operating expenses
15,205
9,099
Operating income
$
530
$
3,120
OPERATIONAL DATA
Water services volumes (MMgal)
Firm capacity reservation(1)
114
106
Volumetric-based services
168
54
Total water volumes
282
160
Capital expenditures
$
11,148
$
22,526
(1)
Includes revenues and volumes from
contracts with MVCs or Annual Revenue Commitments (ARCs), as
applicable.
(2)
In the course of its 2022 year-end
process, ETRN identified immaterial corrections in its previously
issued unaudited interim consolidated financial statements. ETRN
has revised the prior periods presented to reflect these items.
Refer to ETRN’s Annual Report on Form 10-K for the year ended
December 31, 2022 for further information.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230801747673/en/
Analyst inquiries: Nate Tetlow – Vice President,
Corporate Development and Investor Relations 412-553-5834
ntetlow@equitransmidstream.com Media inquiries: Natalie Cox
– Communications and Corporate Affairs
ncox@equitransmidstream.com
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