Equitrans Midstream Announces First Quarter 2023 Results
CANONSBURG, Pa.–(BUSINESS WIRE)–Equitrans Midstream Corporation (NYSE: ETRN), today, announced financial and operational results for the first 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.
Q1 2023 Highlights:
- Delivered strong financial results ahead of forecast
- Reported $106.1 million of net income and $299.6 million of Adjusted EBITDA
- Generated $224.7 million of net cash from operating activities and $94.2 million of free cash flow
- Recorded 67% of total operating revenue from firm reservation fees
“The MVP project has almost certainly gone through more environmental review and scrutiny than any natural gas pipeline project in U.S. history, and we believe the immense amount of quality work, in-depth analysis, and comprehensive agency conclusions must be recognized at all levels,” said Thomas F. Karam, Equitrans chairman and chief executive officer. “This extensive review includes a third Biological Opinion, which was issued in February by the U.S. Fish and Wildlife Service, and a second Final Supplemental Environmental Impact Statement, which was published by the U.S. Forest Service in April.”
Karam continued, “While disappointed by the Fourth Circuit Court decision to vacate MVP’s West Virginia Water Quality Certification, we were not surprised given the hostile tone of the oral argument held last October. We firmly believe that the issues raised in the Court’s decision can and will be addressed by the West Virginia DEP. The path to an MVP completion during 2023 is narrower but based on the diligent and comprehensive work being done by the staff at various state and federal agencies and the expected overall permitting timeline, we believe the possibility of commencing forward construction this summer still exists. The MVP joint venture continues to work closely with all agencies involved and is continuing to proceed with the regular way permitting path, however the recent Court action on the West Virginia Water Quality Certification only serves to highlight the critical need for Congress to act on permitting reform legislation. We remain encouraged by the bipartisan support for permitting reform and believe there remain prospects for legislation.”
“Our operations are off to a good start as we delivered strong first quarter results for our stakeholders,” said Diana M. Charletta, Equitrans president and chief operating officer. “We continue to find innovative ways of utilizing our assets to drive efficiency and lower capital requirements. This past quarter, the team negotiated a transmission customer’s buyout of an existing transmission capacity contract and initiated a subsequent successful open season for the newly-available capacity. On the operations side, we are on track to add water storage capacity in the second quarter and expect to substantially complete our mixed-use water system later this year. We also expect to receive all approvals necessary to begin work later this year on our OVCX expansion project, which will add incremental capacity to reach key takeaway pipelines in Ohio. And last, on the ESG front, our teams are working on additional mitigation of our operational methane emissions towards our 2030 climate goals, the development of our TCFD reporting framework, and the implementation of a formal Environmental Management System, which will prepare us for future ISO 14001 certification.”
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2023 FIRST QUARTER SUMMARY RESULTS |
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|
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Three Months Ended March 31, |
|
|
$ millions (except per share metrics) |
2023 |
|
|
Net income attributable to ETRN common shareholders |
$ |
87.1 |
|
Adjusted net income attributable to ETRN common shareholders |
$ |
96.4 |
|
Earnings per diluted share attributable to ETRN common shareholders |
$ |
0.20 |
|
Adjusted earnings per diluted share attributable to ETRN common shareholders |
$ |
0.22 |
|
Net income |
$ |
106.1 |
|
Adjusted EBITDA |
$ |
299.6 |
|
Deferred revenue |
$ |
77.1 |
|
Net cash provided by operating activities |
$ |
224.7 |
|
Free cash flow |
$ |
94.2 |
|
Retained free cash flow |
$ |
29.3 |
Net income attributable to ETRN common shareholders for the first quarter 2023 was impacted by several items, including an $8.5 million unrealized loss on derivative instruments and $4.1 million of operating expense related to the November 2022 Rager Mountain natural gas storage field incident (discussed below). The unrealized loss is reported within other (expense) 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.
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 first quarter 2023 was $77.1 million.
Operating revenue for the first quarter 2023 increased by $34.2 million compared to the same quarter last year, primarily as a result of approximately $23.8 million in a one-time transmission contract buyout, a $5.0 million one-time gathering contract buyout, higher water services revenue, and partly offset by lower gathered volumes. Operating expenses increased by $15.0 million compared to the first quarter 2022, primarily from $4.1 million of expenses related to the Rager Mountain natural gas storage field incident and increased operating and maintenance, selling, general and administrative, and depreciation expenses.
QUARTERLY DIVIDEND
For the first quarter 2023, ETRN will pay a quarterly cash dividend of $0.15 per common share on May 15, 2023 to ETRN common shareholders of record at the close of business on May 5, 2023.
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TOTAL CAPITAL EXPENDITURES AND CAPITAL CONTRIBUTIONS |
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|
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Three Months Ended March 31, |
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$ millions |
2023 |
|
MVP |
$34 |
|
Gathering(1) |
$57 |
|
Transmission |
$9 |
|
Water |
$11 |
|
Total |
$111 |
|
(1) |
Excludes $3.2 million of capital expenditures related to the noncontrolling interest in Eureka Midstream Holdings, LLC (Eureka) for the three months ended March 31, 2023. |
2023 GUIDANCE
Due to the uncertainty around the MVP project’s ultimate path to completion and timing of forward construction, ETRN has provided full-year 2023 guidance assuming an MVP completion in late 2023 and provided full-year 2023 guidance assuming the absence of MVP’s forward construction and completion in 2023. The MVP project in-service timing impacts revenue recognition under certain related gathering and transportation agreements with EQT, including deferred revenue and the Henry Hub cash bonus payment provision. Therefore, ETRN is unable to provide full-year 2023 guidance for net income, adjusted EBITDA, and deferred revenue for the potential outcome in which there is no forward construction and completion of MVP in 2023, as the basis for any potential delay beyond 2023 is not known or reasonably able to be estimated.
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Full-Year 2023 Financial Outlook(1) |
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$ millions |
With MVP(2) |
|
Without MVP(3) |
|
Net income |
$330 – $410 |
|
– |
|
Adjusted EBITDA |
$990 – $1,070 |
|
– |
|
Deferred Revenue |
$330 – $335 |
|
– |
|
Free cash flow |
$(175) – $(95) |
|
$275 – $355 |
|
Retained free cash flow |
$(435) – $(355) |
|
$15 – $95 |
|
(1) |
Full-year 2023 includes an estimate of $8 – $10 million of operating expenses 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 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. |
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|
(2) |
Assumes MVP construction completion by 12/31/2023 and accordingly contractual obligations would commence 1/1/2024. 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. |
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|
(3) |
Assumes no MVP forward construction and completion in 2023. |
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Q2 2023 Financial Outlook(1)(2) |
|
|
$ millions |
|
|
Net income |
$30 – $50 |
|
Adjusted EBITDA |
$220 – $240 |
|
Deferred Revenue |
$80 – $85 |
|
(1) |
Q2 2023 includes an estimate of $2 million of operating expenses related to the Rager Mountain natural gas storage field incident based on current information. The Q2 2023 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) |
Assumes MVP construction completion by 12/31/2023 and accordingly contractual obligations would commence 1/1/2024. The deferred revenue amounts are subject to the ultimate in-service date of MVP. |
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Full-Year 2023 Capital Expenditures and Capital Contribution Outlook |
||||
|
$ millions |
|
With MVP(1) |
|
Without MVP(2) |
|
MVP |
|
$600 – $640 |
|
$150 – $200 |
|
Gathering(3) |
|
$240 – $290 |
|
$240 – $290 |
|
Transmission(4) |
|
$90 – $100 |
|
$90 – $100 |
|
Water |
|
$45 |
|
$45 |
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Total |
|
$975 – $1,075 |
|
$525 – $635 |
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(1) |
Assumes MVP construction completion by 12/31/2023. |
|
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(2) |
Assumes no MVP forward construction and completion in 2023. |
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(3) |
Excludes approximately $15 million of capital expenditures related to the noncontrolling interest in Eureka. |
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(4) |
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. |
BUSINESS AND PROJECT UPDATES
Outstanding Debt and Liquidity
As of March 31, 2023, ETRN reported $6.4 billion of consolidated debt; $190.0 million of borrowings and $234.9 million of letters of credit outstanding under EQM’s revolving credit facility; $303.0 million of borrowings under Eureka’s revolving credit facility; and $52.5 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. ETRN also continues to coordinate with the Pennsylvania Department of Environmental Protection (PADEP) and Federal Pipeline and Hazardous Materials Safety Administration (PHMSA).
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. The PADEP and the PHMSA are continuing to investigate the incident and ETRN continues to cooperate in such investigations. In the first quarter, ETRN incurred expenses of $4.1 million related to post-incident response activities. For the full-year 2023, ETRN estimates that it will incur approximately $8 – $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.
Transmission Capacity Optimization
In the first quarter of 2023, ETRN received a one-time payment of $23.8 million from a transmission customer in exchange for the early termination of 200 MMcf per day of firm transmission capacity that was scheduled to fully
expire by mid-year 2025. Subsequent to the early termination, ETRN completed an open season for the available transmission capacity and secured a firm capacity commitment that commenced on April 1, 2023, for an average of 95 MMcf per day through 2025 and an average of 58 MMcf per day from 2026 through 2030. ETRN is also engaged in active negotiations with potential shippers for the remaining available capacity.
Ohio Valley Connector Expansion Project
ETRN expects to receive all necessary approvals in the first half of 2023 and, accordingly, 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 February 28, 2023, the U.S. Fish and Wildlife Service issued a Biological Opinion for the project and project opponents recently sought a stay in the U.S. Fourth Circuit Court of Appeals (Fourth Circuit), which litigation is ongoing. On March 29, 2023, the Virginia Water Quality Certification was upheld by the Fourth Circuit. On April 3, 2023, the West Virginia Water Quality Certification was vacated by the Fourth Circuit, based on the Fourth Circuit’s view that certain aspects of the certification did not reflect sufficient explanation and that certain additional requirements should have been incorporated. ETRN believes that the West Virginia Department of Environmental Protection will adequately address the Fourth Circuit’s concerns. ETRN expects the U.S. Army Corps of Engineers to issue the necessary water crossing approval subsequent to the issuance of the West Virginia Water Quality Certification. On April 13, 2023, the U.S. Forest Service published the project’s Final Supplemental Environmental Impact Statement related to the Jefferson National Forest. ETRN expects the forest crossing Record of Decision from the U.S. Forest Service and Right-of-Way Authorization from the Bureau of Land Management by mid-May 2023.
Overall, ETRN expects the agencies will issue the required authorizations for the project by the early summer, allowing for a completion in late 2023 at a total project cost of approximately $6.6 billion, however, there remains significant risk and uncertainty, including regarding current and likely litigation at the Fourth Circuit. In addition to pursuing the regular way permitting path, ETRN continues to support the potential enactment of federal energy infrastructure permitting reform legislation that specifically requires the completion of the MVP project. ETRN continues to see bipartisan support and prospects for such legislation. ETRN believes that the MVP JV will complete the four to five months of remaining construction activity as promptly as practicable once authorized and fully mobilized and that the total project cost would be approximately $6.6 billion if MVP’s completion is achieved in 2023. Through March 31, 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 48.1% 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 expects to place into service its second above ground water storage facility in May 2023, which will bring total storage capacity to 350,000 barrels. The mixed-use water system is expected to be substantially completed in 2023.
In the first quarter, water operating income was $12.4 million and water EBITDA was $18.2 million. For 2023, ETRN expects water EBITDA of approximately $45 million.
Q1 2023 Earnings Conference Call Information
ETRN will host a conference call with security analysts today, May 2, 2023, at 10:30 a.m. (ET) to discuss first 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 March 31, 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 March 31, |
||||||
|
(Thousands, except per share information) |
2023 |
|
2022 |
||||
|
Net income attributable to ETRN common shareholders |
$ |
87,054 |
|
|
$ |
80,490 |
|
|
Add back (deduct): |
|
|
|
||||
|
Unrealized loss (gain) on derivative instruments |
|
8,494 |
|
|
|
(1,605 |
) |
|
Rager Mountain incident |
|
4,122 |
|
|
|
— |
|
|
Tax impact of non-GAAP items(1) |
|
(3,272 |
) |
|
|
418 |
|
|
Adjusted net income attributable to ETRN common shareholders |
$ |
96,398 |
|
|
$ |
79,303 |
|
|
Diluted weighted average common shares outstanding, assuming dilution |
|
434,254 |
|
|
|
433,913 |
|
|
Adjusted earnings per diluted share attributable to ETRN common shareholders |
$ |
0.22 |
|
|
$ |
0.18 |
|
|
(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 March 31, 2023.
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Reconciliation of Adjusted EBITDA |
|||||||
|
|
Three Months Ended March 31, |
||||||
|
(Thousands) |
2023 |
|
2022 |
||||
|
Net income: |
$ |
106,091 |
|
|
$ |
98,893 |
|
|
Add (deduct): |
|
|
|
||||
|
Income tax (benefit) expense |
|
(3,784 |
) |
|
|
5,601 |
|
|
Net interest expense |
|
104,957 |
|
|
|
93,121 |
|
|
Depreciation |
|
69,404 |
|
|
|
67,043 |
|
|
Amortization of intangible assets |
|
16,205 |
|
|
|
16,205 |
|
|
Preferred Interest payments |
|
2,746 |
|
|
|
2,746 |
|
|
Non-cash long-term compensation expense |
|
3,468 |
|
|
|
4,828 |
|
|
Rager Mountain incident |
|
4,122 |
|
|
|
— |
|
|
Equity income |
|
(122 |
) |
|
|
(4 |
) |
|
AFUDC – equity |
|
(206 |
) |
|
|
(59 |
) |
|
Unrealized loss (gain) on derivative instruments |
|
8,494 |
|
|
|
(1,605 |
) |
|
Adjusted EBITDA attributable to noncontrolling interest(1) |
|
(11,819 |
) |
|
|
(9,834 |
) |
|
Adjusted EBITDA |
$ |
299,556 |
|
|
$ |
276,935 |
|
Contacts
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
