Equitrans Midstream Announces Third Quarter 2023 Results
CANONSBURG, Pa.–(BUSINESS WIRE)–Equitrans Midstream Corporation (NYSE: ETRN), today, announced financial and operational results for the third 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.
Q3 2023 Highlights:
- Reported $129.7 million of net income and $249.9 million of Adjusted EBITDA
- Generated $201.6 million of net cash from operating activities
- Recorded 71% of total operating revenue from firm reservation fees
- Achieved 12% transmission pipeline throughput growth versus same quarter last year
“Once in-service, there is little doubt MVP will be one of the most valuable pipelines in the U.S., directly connecting our country’s largest and lowest-cost natural gas resource and the rapidly growing demand of the mid-Atlantic and southeast markets,” said Thomas F. Karam, chairman and chief executive officer of Equitrans Midstream. “The revised guidance on cost and completion for MVP are certainly more than we would prefer. However, we must deliver on our commitments of deploying unprecedented environmental protocols while at the same time remaining vigilant to protect the safety of our contractors and employees, as well as the opposition who continue to trespass on the right of way.”
Karam continued, “I am incredibly proud of the capabilities and perseverance displayed by our employees during these past few years, and, as we look to the future, I am very pleased to be passing my leadership reins to Diana, marking the start of a new chapter for Equitrans. Diana has proven herself as a respected leader and will bring a rare blend of operational expertise and strategic vision to the CEO role, and I am excited to see her plans in action as she continues to position Equitrans for long-term, sustainable success.”
“As demonstrated in our Q3 results, Equitrans’ operations continue to deliver, with our integrated gathering and transmission assets providing the flexibility to take on significant ramps in volume like we experienced this quarter,” said Diana M. Charletta, president and chief operating officer for Equitrans Midstream. “One element of our strategy for the last several years has been the deliberate focus on enhancing our backbone system to provide gas delivery for the major takeaway pipelines, including MVP. Looking ahead, we anticipate several years of mid-single digit annual volume growth, which is based primarily on possessing the direct connections to MVP, having currently available capacity provided by our gathering and transmission assets, and the world-class resource base that sits under our assets.”
2023 THIRD QUARTER SUMMARY RESULTS
|
|
Three Months Ended September 30, |
||
|
$ millions (except per share metrics) |
|
2023 |
|
|
Net income attributable to ETRN common shareholders |
$ |
112.8 |
|
|
Adjusted net income attributable to ETRN common shareholders |
$ |
122.8 |
|
|
Earnings per diluted share attributable to ETRN common shareholders |
$ |
0.26 |
|
|
Adjusted earnings per diluted share attributable to ETRN common shareholders |
$ |
0.28 |
|
|
Net income |
$ |
129.7 |
|
|
Adjusted EBITDA |
$ |
249.9 |
|
|
Deferred revenue |
$ |
82.6 |
|
|
Net cash provided by operating activities |
$ |
201.6 |
|
|
Free cash flow |
$ |
(132.9 |
) |
|
Retained free cash flow |
$ |
(197.9 |
) |
Net income attributable to ETRN common shareholders for the third quarter 2023 was impacted by several items, including a $7.8 million write-down of a contract asset in the water segment, a $3.4 million unrealized loss on derivative instruments and $2.3 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 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 third quarter equity income of $73.8 million, which is primarily associated with allowance for funds used during construction (AFUDC) relating to the resumption of MVP forward construction.
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 third quarter 2023 was $82.6 million.
Operating revenue for the third quarter 2023 increased by $6.8 million compared to the same quarter last year, primarily as a result of increased transmission usage volumes and higher water volumes, partially offset by lower gathering revenue. Operating expenses increased by $30.8 million compared to the third quarter 2022, primarily from the $7.8 million write-down of a contract asset in the water segment, a $7.5 million expense related to a one-time cash bonus awarded to Mr. Karam for his efforts in the inclusion of MVP provisions in the Fiscal Responsibility Act of 2023, $4.5 million of favorable net gas sales which occurred in the third quarter 2022, $2.3 million of expenses associated with the Rager Mountain natural gas storage field incident, and increased other operating and maintenance, selling, general and administrative expenses.
QUARTERLY DIVIDEND
For the third quarter 2023, ETRN will pay a quarterly cash dividend of $0.15 per common share on November 14, 2023 to ETRN common shareholders of record at the close of business on November 3, 2023.
TOTAL CAPITAL EXPENDITURES AND CAPITAL CONTRIBUTIONS
|
$ millions |
|
Three Months Ended September 30, 2023 |
|
Nine Months Ended September 30, 2023 |
|
Full-Year 2023 Forecast |
|
MVP(1) |
|
$210 |
|
$280 |
|
$725 – $745 |
|
Gathering(2) |
|
$64 |
|
$188 |
|
$240 – $260 |
|
Transmission(3) |
|
$31 |
|
$55 |
|
$80 – $90 |
|
Water |
|
$10 |
|
$32 |
|
$45 |
|
Total |
|
$315 |
|
$555 |
|
$1,090 – $1,140 |
|
(1) |
Full-year 2023 assumes MVP construction completion in Q1 2024 and a total project cost of approximately $7.2 billion. |
|
(2) |
Excludes approximately $3.3 million and $11.5 million of capital expenditures related to the noncontrolling interest in Eureka Midstream Holdings, LLC (Eureka) for the three and nine months ended September 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. |
2023 GUIDANCE
Financial Outlook(1,2)
|
$ millions |
Full-Year 2023 |
|
Net income |
$425 – $445 |
|
Adjusted EBITDA |
$1,020 – $1,040 |
|
Deferred Revenue |
$325 – $330 |
|
Free cash flow |
$(200) – $(180) |
|
Retained free cash flow |
$(460) – $(440) |
|
(1) |
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. |
|
(2) |
Assumes MVP construction completion and in-service authorization by the FERC in Q1 2024 and assumes contractual obligations commence on April 1, 2024. |
BUSINESS AND PROJECT UPDATES
Executive Succession
As previously announced, Diana M. Charletta will succeed Thomas F. Karam as chief executive officer, effective January 1, 2024. At that time, Mr. Karam will become ETRN’s executive chairman. Both Ms. Charletta and Mr. Karam will continue to serve as members of the ETRN Board of Directors following the leadership transition.
Mr. Karam has served as chief executive officer since September 2018 and was appointed chairman of the Board in July 2019. Ms. Charletta has 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.
Outstanding Debt and Liquidity
As of September 30, 2023, ETRN reported $6.3 billion of consolidated debt; $525.0 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 $180.6 million of cash.
Rager Mountain Natural Gas Storage Field Incident Update
On August 24, 2023, ETRN submitted information to the Pipeline and Hazardous Materials Safety Administration (PHMSA) regarding the root cause investigation and analysis related to the Rager Mountain natural gas storage field incident that occurred in November 2022. The comprehensive root cause analysis was conducted by an independent, third-party company with expertise in reservoir management and well and corrosion engineering. Following PHMSA’s approval of ETRN’s subsequent injection plan, on October 5, 2023, ETRN resumed injections at the storage field.
In the third quarter, ETRN incurred expenses of $2.3 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
During the third quarter, 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 $60 million in 2023. The project is primarily supported by a long-term firm capacity commitment of 330 MMcf per day and ETRN is targeting the incremental capacity to be in-service during the first half of 2024.
Mountain Valley Pipeline
On October 18, 2023, ETRN announced that the MVP Joint Venture revised the targeted project completion to the first quarter of 2024 at a total project cost of approximately $7.2 billion, which includes approximately $120 million of contingency. The revision was primarily a result of unexpected slowness in the ramp of the contractor workforce, less than expected construction progress in areas of challenging terrain and geology, in part because of the MVP Joint Venture’s commitment to, and application of, heightened environmental protocols, and several other factors that impact productivity and cost.
Through September 30, 2023, ETRN had funded approximately $3.0 billion and, if the project were to be completed in the first quarter of 2024 and at the updated total project cost of approximately $7.2 billion, ETRN expects to fund a total of approximately $3.7 billion and to have an approximate 48.8% ownership interest in MVP. ETRN will operate the pipeline.
MVP Southgate
The MVP JV continues to engage 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
In the third quarter, water operating loss was $(2.3) million and adjusted water EBITDA was $12.2 million. For 2023, ETRN expects adjusted water EBITDA of approximately $45 million.
Q3 2023 Earnings Conference Call Information
ETRN will host a conference call with security analysts today, October 31, 2023, at 10:30 a.m. (ET) to discuss third 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 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, impairment of equity method investment, 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), 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 Quarterly Report on Form 10-Q for the three months ended September 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 September 30, |
||||||
|
(Thousands, except per share information) |
|
2023 |
|
|
|
2022 |
|
|
Net income (loss) attributable to ETRN common shareholders |
$ |
112,804 |
|
|
$ |
(520,493 |
) |
|
Add back (deduct): |
|
|
|
||||
|
Impairment of equity method investment |
|
— |
|
|
|
583,057 |
|
|
Unrealized loss on derivative instruments |
|
3,445 |
|
|
|
815 |
|
|
Gain on sale of gathering assets |
|
— |
|
|
|
(3,719 |
) |
|
Rager Mountain incident |
|
2,273 |
|
|
|
— |
|
|
Contract asset write-down |
|
7,800 |
|
|
|
— |
|
|
Tax impact of non-GAAP items(1) |
|
(3,506 |
) |
|
|
(21,607 |
) |
|
Adjusted net income attributable to ETRN common shareholders
|
$ |
122,816 |
|
|
$ |
38,053 |
|
|
Diluted weighted average common shares outstanding, assuming dilution |
|
439,034 |
|
|
|
434,187 |
|
|
Adjusted earnings per diluted share attributable to ETRN common shareholders |
$ |
0.28 |
|
|
$ |
0.09 |
|
|
(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, impairment of 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, contract asset write-down 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 September 30, 2023.
|
Reconciliation of Adjusted EBITDA |
|||||||
|
|
Three Months Ended September 30, |
||||||
|
(Thousands) |
|
2023 |
|
|
|
2022 |
|
|
Net income (loss): |
$ |
129,704 |
|
|
$ |
(502,933 |
) |
|
Add (deduct): |
|
|
|
||||
|
Income tax benefit |
|
(10,976 |
) |
|
|
(366 |
) |
|
Net interest expense |
|
106,334 |
|
|
|
101,085 |
|
|
Depreciation |
|
69,348 |
|
|
|
68,572 |
|
|
Amortization of intangible assets |
|
16,204 |
|
|
|
16,204 |
|
|
Impairment of equity method investment |
|
— |
|
|
|
583,057 |
|
|
Preferred Interest payments |
|
2,746 |
|
|
|
2,746 |
|
|
Non-cash long-term compensation expense |
|
7,257 |
|
|
|
3,658 |
|
|
Rager Mountain incident |
|
2,273 |
|
|
|
— |
|
|
Contract asset write-down |
|
7,800 |
|
|
|
— |
|
|
Equity income |
|
(73,810 |
) |
|
|
(48 |
) |
|
AFUDC – equity |
|
(291 |
) |
|
|
(78 |
) |
|
Unrealized loss on derivative instruments |
|
3,445 |
|
|
|
815 |
|
|
Gain on sale of gathering assets |
|
— |
|
|
|
(3,719 |
) |
|
Adjusted EBITDA attributable to noncontrolling interest(1) |
|
(10,148 |
) |
|
|
(9,642 |
) |
|
Adjusted EBITDA |
$ |
249,886 |
|
|
$ |
259,351 |
|
|
(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 September 30, 2023 was calculated as net income of $2.3 million plus depreciation of $3.2 million, plus amortization of intangible assets of $2.1 million, and plus interest expense of $2.6 million. Adjusted EBITDA attributable to noncontrolling interest for the three months ended September 30, 2022 was calculated as net income of $2.9 million, plus depreciation of $3.1 million, plus amortization of intangible assets of $2.1 million, and plus interest expense of $1.5 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 September 30, 2023.
|
Reconciliation of Free Cash Flow and Retained Free Cash Flow |
|||||||
|
|
Three Months Ended September 30, |
||||||
|
(Thousands) |
|
2023 |
|
|
|
2022 |
|
|
Net cash provided by operating activities |
$ |
201,586 |
|
|
$ |
209,567 |
|
|
Add (deduct): |
|
|
|
||||
|
Principal payments received on the Preferred Interest |
|
1,469 |
|
|
|
1,389 |
|
|
Net cash provided by operating activities attributable to noncontrolling interest(1) |
|
(7,166 |
) |
|
|
(7,260 |
) |
|
ETRN Series A Preferred Shares dividends(2) |
|
(14,628 |
) |
|
|
(14,628 |
) |
|
Capital expenditures(3)(4) |
|
(104,234 |
) |
|
|
(105,867 |
) |
|
Capital contributions to MVP JV |
|
(209,938 |
) |
|
|
(46,426 |
) |
|
Free cash flow |
$ |
(132,911 |
) |
|
$ |
36,775 |
|
|
Less: |
|
|
|
||||
|
Dividends paid to common shareholders(5) |
|
(64,989 |
) |
|
|
(64,917 |
) |
|
Retained free cash flow |
$ |
(197,900 |
) |
|
$ |
(28,142 |
) |
|
(1) |
Reflects 40% of $17.9 million and $18.2 million, which was Eureka’s standalone net cash provided by operating activities for the three months ended September 30, 2023 and 2022, respectively, which represents the noncontrolling interest portion for the three months ended September 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) |
Second quarter 2023 dividend of $0.15 per ETRN common share was paid during the third 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.
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
