Equitrans Midstream Announces Full-Year and Fourth Quarter 2023 Results
CANONSBURG, Pa.–(BUSINESS WIRE)–Equitrans Midstream Corporation (NYSE: ETRN), today, announced financial and operational results for the full-year and fourth 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.
2023 Highlights:
- Reported $454.8 million of net income and $1.1 billion of Adjusted EBITDA
- Generated $1.0 billion of net cash from operating activities
- Recorded ~70% of total operating revenue from firm reservation fees
- Achieved ~8% transmission pipeline throughput growth versus 2022
- Achieved ~29% water operating revenue growth versus 2022
- Fiscal Responsibility Act of 2023 enacted in June 2023; provisions for ‘Expediting Completion of the MVP’
- Signed precedent agreements collectively providing 550 MMcf per day firm capacity in support of an amended Southgate project
“Following enactment of the Fiscal Responsibility Act of 2023, we have made substantial construction progress on the Mountain Valley Pipeline, and the major tasks to complete the pipeline continue to narrow,” said Diana M. Charletta, president and chief executive officer for Equitrans Midstream. “As we exited 2023, we continued to track to our prior guidance, despite challenging construction conditions causing lower productivity than forecasted. Along with unforeseen construction challenges, throughout much of January, construction crews encountered adverse weather conditions, including precipitation well above 20-year averages. While our construction plans took into account the potential effects of winter weather, these conditions were far worse and longer in duration than anticipated, imposing a significant impact on productivity, which, in turn, impeded our ability to reduce construction headcount. Collectively, these factors resulted in our updated timing and total project cost targets. ETRN is now targeting construction completion and commissioning in the second quarter of 2024, at a total estimated project cost ranging from approximately $7.57 billion to approximately $7.63 billion.”
Charletta continued, “As our teams continue to look for ways to optimize and grow our asset base, we are pleased with the strong results our business once again delivered for our stakeholders. Notably, we made significant progress on our in-basin organic projects, including the Ohio Valley Connector Expansion and a booster compression project for a producer customer, both of which are targeted for in-service in the first half of 2024, and we continued the build out of our mixed-use water system. Looking ahead, our well-integrated and strategically located system of gathering, transmission, and water assets is uniquely positioned to capture the benefits of MVP’s in-service.”
“Our Board of Directors has been engaged in a process with third parties that have expressed interest in strategic transactions with our Company,” said Thomas F. Karam, Equitrans’ executive chairman. “This interest is not surprising given the expected near-term completion of MVP, and our view of the strength of our underlying assets. Our board has engaged outside advisors and the process is ongoing. There is no guarantee that any transaction will result from this process. The organization’s top priority remains safely bringing MVP into service and continuing to provide superior service to our customers.”
2023 YEAR-END AND FOURTH QUARTER SUMMARY RESULTS
|
|
Three Months Ended December 31, |
|
Year Ended December 31, |
||||
|
$ millions (except per share metrics) |
2023 |
|
2023 |
||||
|
Net income attributable to ETRN common shareholders |
$ |
134.2 |
|
|
$ |
386.7 |
|
|
Adjusted net income attributable to ETRN common shareholders |
$ |
138.9 |
|
|
$ |
398.4 |
|
|
Earnings per diluted share attributable to ETRN common shareholders |
$ |
0.31 |
|
|
$ |
0.89 |
|
|
Adjusted earnings per diluted share attributable to ETRN common shareholders |
$ |
0.32 |
|
|
$ |
0.91 |
|
|
Net income |
$ |
150.0 |
|
|
$ |
454.8 |
|
|
Adjusted EBITDA |
$ |
272.0 |
|
|
$ |
1,056.1 |
|
|
Deferred revenue |
$ |
87.6 |
|
|
$ |
329.3 |
|
|
Net cash provided by operating activities |
$ |
291.2 |
|
|
$ |
1,016.1 |
|
|
Free cash flow |
$ |
(240.6 |
) |
|
$ |
(128.6 |
) |
|
Retained free cash flow |
$ |
(305.5 |
) |
|
$ |
(388.5 |
) |
Net income attributable to ETRN common shareholders for the fourth quarter 2023 was impacted by several items, including a $5.9 million unrealized loss on derivative instruments. 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. Additionally, ETRN reported fourth quarter equity income of $77.6 million, which is primarily associated with allowance for funds used during construction (AFUDC) related to resuming MVP forward construction in 2023.
For the full-year 2023, net income attributable to ETRN common shareholders was impacted by several items, including $9.4 million of operating expense related to the November 2022 Rager Mountain natural gas storage field incident; a $7.8 million write-down of a contract asset in the water segment; a $1.5 million unrealized gain on derivative instruments related to the previously described contractual agreement with EQT; and $175.2 million of equity income.
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 fourth quarter 2023 was $87.6 million and for the full-year 2023 was $329.3 million.
Operating revenue for the fourth quarter 2023 increased by $5.4 million compared to the same quarter last year, primarily as a result of increased gathered volumes, partially offset by lower water volumes. Operating expenses were relatively flat compared to the fourth quarter 2022, due to a $7.7 million decrease in expenses related to the Rager Mountain natural gas storage field incident compared to the fourth quarter 2022, offset by a $5.8 million increase in selling, general and administrative expenses in the fourth quarter 2023, due to an increase in personnel costs, and increased depreciation expenses.
Operating revenue for the full-year increased by $36.2 million compared to 2022, primarily from increased transmission revenues, including a one-time transmission customer contract buyout of $23.8 million; a one-time gathering customer contract buyout of $5.0 million; and increased water service revenue, partially offset by lower gathering revenues due to lower volumetric-based gathered volumes. Operating expenses increased by $89.4 million compared to 2022 due to increased selling, general, and administrative expenses and operating and maintenance expenses, primarily due to higher incentive compensation, including an increase in personnel costs related to the MVP performance award program, as well as an increase in water expenses, including the $7.8 million write-down of a contract asset, and increased depreciation expenses.
QUARTERLY DIVIDEND
For the fourth quarter 2023, ETRN paid a quarterly cash dividend of $0.15 per common share on February 14, 2024 to ETRN common shareholders of record at the close of business on February 6, 2024.
TOTAL CAPITAL EXPENDITURES AND CAPITAL CONTRIBUTIONS
|
|
|
Three Months Ended December 31, |
|
Year Ended December 31, |
|
$ millions |
|
2023 |
|
2023 |
|
MVP |
|
$409 |
|
$689 |
|
Gathering(1) |
|
$66 |
|
$253 |
|
Transmission(2) |
|
$30 |
|
$85 |
|
Water |
|
$14 |
|
$46 |
|
Total |
|
$519 |
|
$1,073 |
|
(1) |
Excludes approximately $2.8 million and $14.3 million of capital expenditures related to the noncontrolling interest in Eureka Midstream Holdings, LLC (Eureka) for the three months and year ended December 31, 2023, respectively. |
| (2) |
Includes capital contributions to MVP JV for the Southgate project. |
2024 GUIDANCE
Full-Year 2024 Financial Outlook(1)
|
$ millions |
|
|
|
Net income |
$375 – $455 |
|
|
Adjusted EBITDA |
$1,235 – $1,315 |
|
|
Deferred Revenue |
$145 |
|
|
Free cash flow |
$(145) – $(65) |
|
|
Retained free cash flow |
$(405) – $(325) |
|
(1) |
Assumes MVP construction completion by 5/31/2024 and accordingly MVP and MVP-related firm capacity contractual obligations would commence 6/1/2024 (with certain MVC step ups and gathering fee relief under ETRN’s February 2020 gas gathering agreement with EQT Commencing 4/1/2024). Does not include any of the potential $60 million Henry Hub bonus in 2024, 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. |
Q1 2024 Financial Outlook(1)
|
$ millions |
|
|
|
Net income |
$120 – $140 |
|
|
Adjusted EBITDA |
$265 – $285 |
|
|
Deferred Revenue |
$60 |
|
(1) |
Assumes MVP construction completion by 5/31/2024 and accordingly MVP and MVP-related firm capacity contractual obligations would commence 6/1/2024 (with certain MVC step ups and gathering fee relief under ETRN’s February 2020 gas gathering agreement with EQT Commencing 4/1/2024). The deferred revenue amounts are subject to the ultimate in-service date of MVP. |
Full-Year 2024 Capital Expenditures and Capital Contribution Outlook(1)
|
$ millions |
|
|
|
|
MVP(1) |
|
$540 – $575 |
|
|
Gathering(2) |
|
$210 – $260 |
|
|
Transmission(3) |
|
$75 – $85 |
|
|
Water |
|
$25 – $35 |
|
|
Total |
|
$850 – $955 |
|
(1) |
Assumes MVP construction completion by 5/31/2024. |
|
(2) |
Excludes approximately $15 million of capital expenditures related to the noncontrolling interest in Eureka. |
|
(3) |
Includes capital contributions to MVP JV for the Southgate project. |
BUSINESS AND PROJECT UPDATES
Executive Succession
Effective January 1, 2024, Diana M. Charletta assumed the role of president and chief executive officer, succeeding Thomas F. Karam, who became ETRN’s executive chairman. Both Ms. Charletta and Mr. Karam continue to serve as members of the Equitrans Midstream Corporation Board of Directors.
Mr. Karam served as chief executive officer since September 2018 and was appointed chairman of the board in July 2019. Ms. Charletta served as chief operating officer since September 2018, was appointed president and chief operating officer in July 2019, and was appointed to the board in April 2022.
Mountain Valley Pipeline
Mountain Valley Pipeline, LLC (the MVP JV) has made substantial progress on the MVP project after resuming construction in late summer 2023. The pace of forward progress, however, slowed at the end of 2023 through early 2024 as a result of unforeseen challenging construction conditions, combined with unexpected and substantially adverse winter weather conditions throughout much of January. As a result, the MVP JV retained a higher than planned contractor headcount through January, and into February, to maintain the right of way and address weather-induced issues, and also to be in a position to improve the pace of forward progress as soon as conditions became more favorable. While productivity has since improved at the end of January and into February, the combined effect of these unforeseen challenges significantly slowed the previously anticipated pace of construction and adversely affected project cost. As a result, ETRN is now targeting MVP project completion and commissioning in the second quarter of 2024, at a total estimated project cost ranging from approximately $7.57 billion to approximately $7.63 billion (excluding AFUDC).
Through December 31, 2023, ETRN had funded approximately $3.4 billion to the MVP JV for the MVP project. If the MVP project were to be completed in the second quarter of 2024 and at a total project cost ranging from approximately $7.57 billion to approximately $7.63 billion (excluding AFUDC), the Company expects its equity ownership in the MVP project would progressively increase from approximately 48.4% to approximately 49.0%, and expects it would incur a total of approximately $4.0 billion over the project’s construction, inclusive of approximately $245 million in excess of the Company’s ownership interest.
Strategic Process
The Company’s Board of Directors has been engaged in a process with third parties that have expressed interest in strategic transactions involving the Company. The board has engaged outside advisors and the process is ongoing. There is no assurance that such process will result in the execution, approval or completion of any specific transaction or outcome.
Ohio Valley Connector Expansion Project
During the third quarter 2023, ETRN commenced construction of the Ohio Valley Connector Expansion (OVCX) project. 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 multiple long-haul pipelines in Clarington, OH. ETRN expects to invest a total of approximately $160 million in the project, including approximately $40 million in 2024. The project is primarily supported by long-term firm capacity commitments of 330 MMcf per day, and ETRN is targeting the incremental capacity to be placed in-service during the second quarter of 2024.
Southgate Project
In late December 2023, the MVP JV entered into precedent agreements with each of Public Service Company of North Carolina, Inc. and Duke Energy Carolinas, LLC, which contemplate an amended Southgate project that would extend from the terminus of MVP in Pittsylvania County, VA to planned new delivery points in Rockingham County, NC. The precedent agreements, among other things, collectively provide for 550 MMcf per day of firm capacity commitments. The MVP JV recently completed an open season for the Southgate project and expects to finalize the project scope in the coming months.
The project is estimated to cost approximately $370 million, excluding AFUDC and certain costs incurred for purposes of the original project, and is targeted for completion in June 2028. ETRN is expected to operate Southgate and owned a 47.2% interest in Southgate as of December 31, 2023.
Fifth Amendment to Revolving Credit Agreement
On February 15, 2024, EQM Midstream Partners, LP (EQM), a wholly owned subsidiary of ETRN, entered into an amendment to its Third Amended and Restated Credit Agreement to, among other things, amend the financial covenant, such that the Consolidated Leverage Ratio (as defined in the Amended EQM Credit Facility) (i) as of March 31, 2024, cannot exceed 6.00 to 1.00, (ii) as of June 30, 2024, cannot exceed 6.25 to 1.00, (iii) as of September 30, 2024, cannot exceed 5.85 to 1.00 and (iv) as of the end of each fiscal quarter thereafter, cannot exceed 5.50 to 1.00.
Outstanding Debt and Liquidity
As of December 31, 2023, ETRN reported $6.3 billion of consolidated debt; $915.0 million of borrowings and $105.8 million of letters of credit outstanding under EQM’s revolving credit facility; $315.0 million of borrowings under Eureka’s revolving credit facility; and $258.9 million of cash.
2023 Year-End Earnings Conference Call Information
ETRN will host a conference call with security analysts today, February 20, 2024, at 10:30 a.m. (ET) to discuss year-end 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 industry analysts and 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 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, unrealized gain (loss) on derivative instruments, expenses for the Rager Mountain natural gas storage field incident (Rager Mountain incident), contract asset write-down, 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) per diluted share 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 Annual Report on Form 10-K for the year ended December 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 December 31, |
|
Year Ended December 31, |
||||
|
(Thousands, except per share information) |
2023 |
|
2023 |
||||
|
Net income attributable to ETRN common shareholders |
$ |
134,242 |
|
|
$ |
386,717 |
|
|
Add back (deduct): |
|
|
|
||||
|
Unrealized loss (gain) on derivative instruments |
|
5,946 |
|
|
|
(1,531 |
) |
|
Rager Mountain incident |
|
306 |
|
|
|
9,444 |
|
|
Contract asset write-down |
|
— |
|
|
|
7,800 |
|
|
Tax impact of non-GAAP items(1) |
|
(1,622 |
) |
|
|
(4,075 |
) |
|
Adjusted net income attributable to ETRN common shareholders
|
$ |
138,872 |
|
|
$ |
398,355 |
|
|
Diluted weighted average common shares outstanding, assuming dilution |
|
439,362 |
|
|
|
436,132 |
|
|
Adjusted earnings per diluted share attributable to ETRN common shareholders |
$ |
0.32 |
|
|
$ |
0.91 |
|
|
(1) |
The adjustments were tax effected at ETRN’s federal and state statutory tax rate for each period including certain discrete valuation allowance adjustments as necessary. |
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, depreciation, amortization of intangible assets, payments on the preferred interest in EQT Energy Supply, LLC (Preferred Interest), non-cash long-term compensation expense, expenses for the Rager Mountain incident, contract asset write-down, ETRN’s proportional ownership of MVP JV adjusted EBITDA, realized gains on derivative instruments and less equity income, AFUDC-equity, unrealized gain (loss) on derivative instruments, and adjusted EBITDA attributable to noncontrolling interest. As used in this news release, MVP JV adjusted EBITDA means, as applicable, MVP JV net income plus net interest expense and depreciation.
The table below reconciles adjusted EBITDA with net income as derived from the statements of consolidated comprehensive income to be included in ETRN’s Annual Report on Form 10-K for the year ended December 31, 2023.
Reconciliation of Adjusted EBITDA
|
|
Three Months Ended December 31, |
|
Year Ended December 31, |
||||
|
(Thousands) |
2023 |
|
2023 |
||||
|
Net income: |
$ |
150,039 |
|
|
$ |
454,754 |
|
|
Add (deduct): |
|
|
|
||||
|
Income tax benefit |
|
(4,528 |
) |
|
|
(18,823 |
) |
|
Net interest expense |
|
111,949 |
|
|
|
426,884 |
|
|
Depreciation |
|
70,603 |
|
|
|
279,386 |
|
|
Amortization of intangible assets |
|
16,205 |
|
|
|
64,819 |
|
|
Preferred Interest payments |
|
2,746 |
|
|
|
10,984 |
|
|
Non-cash long-term compensation expense |
|
5,890 |
|
|
|
39,313 |
|
|
Rager Mountain incident |
|
306 |
|
|
|
9,444 |
|
|
Contract asset write-down |
|
— |
|
|
|
7,800 |
|
|
Equity income |
|
(77,597 |
) |
|
|
(175,215 |
) |
|
AFUDC – equity |
|
(376 |
) |
|
|
(1,068 |
) |
|
Unrealized loss (gain) on derivative instruments |
|
5,946 |
|
|
|
(1,531 |
) |
|
Adjusted EBITDA attributable to noncontrolling interest(1) |
|
(9,212 |
) |
|
|
(40,649 |
) |
|
Adjusted EBITDA |
$ |
271,971 |
|
|
$ |
1,056,098 |
|
|
(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 December 31, 2023, was calculated as net income of $1.2 million plus depreciation of $3.2 million, plus amortization of intangible assets of $2.1 million, and plus interest expense of $2.7 million. Adjusted EBITDA attributable to noncontrolling interest for the year ended December 31, 2023, was calculated as net income of $9.5 million, plus depreciation of $12.8 million, plus amortization of intangible assets of $8.4 million, and plus interest expense of $9.9 million. |
Contacts
Analyst inquiries:
Anthony DeFabio – Treasurer and Director, Investor Relations
412-518-7193
adefabio@equitransmidstream.com
Media inquiries:
Natalie Cox – Communications and Corporate Affairs
