Equitrans Midstream Announces Full-Year and Fourth Quarter 2022 Results
CANONSBURG, Pa.–(BUSINESS WIRE)–Equitrans Midstream Corporation (NYSE: ETRN), today, announced financial and operational results for the full-year and fourth quarter 2022. 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.
2022 Highlights:
- Generated $846 million of net cash from operating activities and $380 million of free cash flow
- Recorded 71% of total operating revenue from firm reservation fees
- Initiated a mixed-use water system build out and commenced operations of first above ground water storage facility
- Secured a new booster compression expansion project
- Published our annual Corporate Sustainability Report in accordance with GRI and SASB
- Completed senior notes offering with proceeds used to repay nearest-term maturities
“We continue to pursue multiple paths in order to complete the MVP project. Although federal energy infrastructure permitting reform legislation was not enacted in 2022, we believe there continues to be significant bipartisan support for permitting reform in the new congress,” said Thomas F. Karam, Equitrans chairman and chief executive officer. “On the regular way permitting path, we are engaged with the necessary federal agencies and appreciate the tremendous efforts of the staff who have put immense time into their reviews and analyses, especially considering some permits are being reviewed for a second and third time. We believe that the agencies are working to issue authorizations over the next several months, which we believe would position us to safely complete construction of MVP in 2023. However, we must acknowledge that the ultimate hurdle remains legal challenges of the permits before the U.S. Fourth Circuit Court of Appeals. As we’ve said before, we believe that projects, like MVP, that follow every required process and receive every required permit should prevail.”
“In 2022, we remained committed to operating safely and delivering strong results for our stakeholders as we continue to find ways to drive capital efficiency, optimize systems, and control costs,” said Diana M. Charletta, Equitrans president and chief operating officer. “During the year we made progress on several in-basin organic projects, including receiving the Final Environmental Impact Statement for our OVCX project and securing an approximately $70 million booster compression project from a producer customer, both of which are targeted for a 2024 in-service. In addition, we made many advancements in our sustainability program during the year, including the voluntary submission of our first CDP Water Security questionnaire, for which we received a score of ‘B.’ We also completed our TCFD readiness assessment; instituted a new Environmental Justice Policy; and converted high-bleed pneumatics to low-bleed or full-air pneumatics at ten compressor sites in support of our Climate Policy and emission reduction targets. As a follow-on to these efforts, in January 2023, we announced Equitrans’ status as a founding member of the Appalachian Methane Initiative, which is committed to further enhancing methane monitoring throughout the Appalachian Basin and facilitating additional methane emissions reduction in the region.”
|
2022 YEAR-END AND FOURTH QUARTER SUMMARY RESULTS |
||||||
|
|
Three Months Ended December 31, |
|
Twelve Months Ended December 31, |
|||
|
$ millions (except per share metrics) |
2022 |
|
2022 |
|||
|
Net income (loss) attributable to ETRN common shareholders |
$ |
66.0 |
|
$ |
(327.9 |
) |
|
Adjusted net income attributable to ETRN common shareholders |
$ |
57.6 |
|
$ |
200.2 |
|
|
Earnings (loss) per diluted share attributable to ETRN common shareholders |
$ |
0.15 |
|
$ |
(0.76 |
) |
|
Adjusted earnings per diluted share attributable to ETRN common shareholders |
$ |
0.13 |
|
$ |
0.46 |
|
|
Net income (loss) |
$ |
82.2 |
|
$ |
(257.1 |
) |
|
Adjusted EBITDA |
$ |
271.3 |
|
$ |
1,071.4 |
|
|
Deferred revenue |
$ |
84.2 |
|
$ |
345.1 |
|
|
Net cash provided by operating activities |
$ |
99.2 |
|
$ |
845.8 |
|
|
Free cash flow |
$ |
136.0 |
|
$ |
379.9 |
|
|
Retained free cash flow |
$ |
71.1 |
|
$ |
120.2 |
|
Net income attributable to ETRN common shareholders for the fourth quarter 2022 was impacted by several items, including a $5.1 million unrealized gain on derivative instruments and $8.1 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 (expense), 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.
For the full-year 2022, net loss attributable to ETRN common shareholders was impacted by several items, including a $583.1 million impairment of equity method investment related to Mountain Valley Pipeline, LLC (MVP JV) and an associated $69.9 million reduction in income tax benefit primarily due to a valuation allowance placed on the deferred tax assets; a $24.9 million loss on extinguishment of debt primarily related to the purchase in tender offers of approximately $1.0 billion in aggregate principal amount of several tranches of senior notes of EQM Midstream Partners, LP (EQM), a wholly owned subsidiary of ETRN; a $9.6 million unrealized gain on derivative instruments related to the previously described contractual agreement with EQT; a $3.7 million gain on sale of non-core gathering assets; and $8.1 million of operating expense related to the Rager Mountain natural gas storage field incident.
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 2022 was $84.2 million and for the full-year 2022 was $345.1 million.
Operating revenue for the fourth quarter increased by $108.6 million compared to the same quarter last year, primarily due to approximately $106.1 million of deferred revenue in the fourth quarter of 2021 related to the cumulative impact of a transmission services contract amendment, increased transmission services revenue, higher water services revenue, and partially offset by lower gathered volumes. Operating expenses increased by $18.0 million compared to the fourth quarter 2021, primarily from $8.1 million of expenses, including a regulatory reserve, related to the Rager Mountain natural gas storage field incident and increased operating and maintenance, selling, general and administrative, and depreciation expenses.
Operating revenue for the full year increased by $40.7 million compared to 2021, primarily from the impact of deferred revenue, increased water services revenue, and partially offset by lower gathered volumes. Operating expenses decreased by $61.5 million compared to 2021, primarily driven by a $56.2 million impairment of long-lived assets in 2021 and lower selling, general, and administrative expenses.
QUARTERLY DIVIDEND
For the fourth quarter 2022, ETRN paid a quarterly cash dividend of $0.15 per common share on February 14, 2023, to ETRN common shareholders of record at the close of business on February 6, 2023.
TOTAL CAPITAL EXPENDITURES AND CAPITAL CONTRIBUTIONS
|
|
Three Months Ended December 31, |
|
Twelve Months Ended December 31, |
|
$ millions |
2022 |
|
2022 |
|
MVP |
$41 |
|
$199 |
|
Gathering(1) |
$67 |
|
$246 |
|
Transmission(2) |
$13 |
|
$37 |
|
Water(3) |
$17 |
|
$67 |
|
Total |
$138 |
|
$549 |
|
(1) |
Excludes $2.7 million and $20.3 million of capital expenditures related to the noncontrolling interest in Eureka Midstream Holdings, LLC (Eureka) for the three and twelve months ended December 31, 2022, respectively. |
|
(2) |
Includes capital contributions to MVP JV for the MVP Southgate project. |
|
(3) |
Full-year 2022 includes approximately $10 million to replace certain previously installed water lines that ETRN believes do not meet their prescribed quality standards. ETRN has instituted actions in pursuit of recoupment of such replacement and related costs. |
2023 GUIDANCE
Due to the uncertainty around the ultimate MVP path to completion and timing of forward construction and in-service, ETRN has provided full-year 2023 guidance assuming an MVP in-service during the second half of 2023 and provided full-year 2023 guidance assuming the absence of forward MVP 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 since the basis for any potential delay beyond 2023 is not known or reasonably able to be estimated.
|
Full-Year 2023 Financial Outlook(1) |
|||
|
$ millions |
With MVP(2) |
|
Without MVP(3) |
|
Net income |
$325 – $405 |
|
– |
|
Adjusted EBITDA |
$1,060 – $1,140 |
|
– |
|
Deferred Revenue |
$285 |
|
– |
|
Free cash flow |
$(220) – $(140) |
|
$270 – $350 |
|
Retained free cash flow |
$(480) – $(400) |
|
$10 – $90 |
|
(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. |
|
(2) |
Assumes a second half of 2023 MVP in-service. Does not include any of the potential $60 million Henry Hub bonus in 2023, 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. |
|
(3) |
Assumes no MVP forward construction and completion in 2023. |
|
Q1 2023 Financial Outlook(1)(2) |
|
|
$ millions |
|
|
Net income |
$60 – $80 |
|
Adjusted EBITDA |
$270 – $290 |
|
Deferred Revenue |
$80 |
|
(1) |
Q1 2023 includes an estimate of $5 million of operating expenses related to the Rager Mountain natural gas storage field incident based on current information. The Q1 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 a second half of 2023 MVP in-service. The deferred revenue amounts are subject to the ultimate in-service date of MVP. |
|
Full-Year 2023 Capital Expenditures and Capital Contribution Outlook |
||||
|
$ millions |
|
With MVP(1) |
|
Without MVP(2) |
|
MVP |
|
$610 – $660 |
|
$150 – $200 |
|
Gathering(3) |
|
$235 – $285 |
|
$235 – $285 |
|
Transmission(4) |
|
$90 – $100 |
|
$90 – $100 |
|
Water |
|
$35 – $45 |
|
$35 – $45 |
|
Total |
|
$970 – $1,090 |
|
$510 – $630 |
|
(1) |
Assumes a second half of 2023 MVP in-service. |
|
(2) |
Assumes no MVP forward construction and completion in 2023. |
|
(3) |
Excludes approximately $15 million of capital expenditures related to the noncontrolling interest in Eureka. |
|
(4) |
Full-year 2023 includes an estimate of $5 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 December 31, 2022, ETRN reported $6.4 billion of consolidated debt; $240 million of borrowings and $234.9 million of letters of credit outstanding under EQM’s revolving credit facility; $295.0 million of borrowings under Eureka’s revolving credit facility; and $67.9 million of cash.
Rager Mountain Natural Gas Storage Field Incident
On November 6, 2022, ETRN responded to an incident regarding the venting of natural gas from a storage well at its Rager Mountain natural gas storage field, located in a remote area of Cambria County, Pennsylvania. ETRN engaged a leading specialty well control services company and, in coordination with the Pennsylvania Department of Environmental Protection (PADEP) and Federal Pipeline and Hazardous Materials Safety Administration (PHMSA), successfully halted the venting of gas on November 19, 2022. ETRN has retained a leading firm involved in analyzing storage field incidents to conduct an independent investigation of the incident’s root cause, which is ongoing. Based on the results of testing to estimate the total change in natural gas inventory at the Rager Mountain storage reservoir, ETRN estimates that the Rager Mountain storage inventory was reduced by approximately 1.29 Bcf. However, as part of ongoing post-incident response activities, ETRN continues to evaluate whether and to what extent the inventory was reduced because of venting or whether some was due to potential migration.
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 investigating the incident and ETRN continues to cooperate in such investigations. In the fourth quarter, ETRN incurred expenses of $8.1 million, which includes a regulatory reserve for potential penalties, and continues to incur costs in 2023 in relation 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, to be filed with the SEC.
Exercise of Cash Option
Pursuant to the 2020 gathering agreement with EQT, on July 8, 2022, EQT elected to forgo aggregate potential gathering rate relief of up to approximately $235 million in the 24 months following MVP’s in-service in exchange for a cash payment of approximately $196 million. The cash payment represented final consideration for approximately 20.5 million ETRN common shares that were purchased from EQT and retired in the first quarter of 2020. ETRN made the $196 million cash payment to EQT on October 4, 2022.
Ohio Valley Connector Expansion Project
On January 20, 2023, the Federal Energy Regulatory Commission (FERC) issued the Final Environmental Impact Statement for the Ohio Valley Connector Expansion Project (OVCX). 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 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. 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
MVP JV remains engaged in the permitting process with the relevant federal agencies regarding the outstanding permits required to complete the project. ETRN believes that the agencies are working to issue such authorizations over the next several months and to produce authorizations, for the third time in certain cases, that address points raised by the U.S. Fourth Circuit Court of Appeals and exceed legal and regulatory standards. Based on the expected permitting timeline, ETRN believes the remaining construction activity could be completed to achieve a second half of 2023 in-service at a total project cost of approximately $6.6 billion, however, there remains significant uncertainty around current and potential litigation at the Fourth Circuit. In addition to pursuing the regular way permitting path, ETRN continues to support potential enactment of federal energy infrastructure permitting reform legislation that specifically requires the completion of the MVP project. ETRN believes that there remains 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 December 31, 2022, ETRN has funded approximately $2.7 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 its ongoing discussions and negotiations with the shipper and other prospective customers 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
During 2022, ETRN began the buildout of its mixed-use water system and, in August 2022, ETRN placed into service its initial above ground water storage facility, which has a capacity of approximately 150,000 barrels. ETRN expects to place the second above ground water storage facility, which will have a capacity of approximately 200,000 barrels, into service in the first half of 2023. The mixed-use water system is expected to be substantially completed in 2023.
In the fourth quarter, water operating income was $11.1 million and water EBITDA was $16.6 million. For the full year 2022, water operating income was $14.6 million and water EBITDA was $34.6 million. For 2023, ETRN expects water EBITDA of approximately $40 – $45 million.
2022 Year-End Earnings Conference Call Information
ETRN will host a conference call with security analysts today, February 21, 2023, at 10:30 a.m. (ET) to discuss year-end 2022 financial results, operating results, and other business matters.
Call Access: An 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 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 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 (Loss) Attributable to ETRN Common Shareholders and Adjusted Earnings (Loss) 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 Annual Report on Form 10-K for the year ended December 31, 2022. 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, |
|
Twelve Months Ended December 31, |
||||
|
(Thousands, except per share information) |
2022 |
|
2022 |
||||
|
Net income (loss) attributable to ETRN common shareholders |
$ |
65,986 |
|
|
$ |
(327,854 |
) |
|
Add back (deduct): |
|
|
|
||||
|
Impairment of equity method investment |
|
— |
|
|
|
583,057 |
|
|
Unrealized gain on derivative instruments |
|
(5,102 |
) |
|
|
(9,593 |
) |
|
Loss on extinguishment of debt |
|
— |
|
|
|
24,937 |
|
|
Gain on sale of gathering assets |
|
— |
|
|
|
(3,719 |
) |
|
Rager Mountain incident |
|
8,055 |
|
|
|
8,055 |
|
|
Tax impact of non-GAAP items(1) |
|
(11,323 |
) |
|
|
(74,717 |
) |
|
Adjusted net income attributable to ETRN common shareholders |
$ |
57,616 |
|
|
$ |
200,166 |
|
|
Diluted weighted average common shares outstanding, assuming dilution |
|
434,347 |
|
|
|
434,111 |
|
|
Adjusted earnings per diluted share attributable to ETRN common shareholders |
$ |
0.13 |
|
|
$ |
0.46 |
|
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
