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Aug. 3, 2021, 4:17 p.m. EDT

10-Q: EQUITRANS MIDSTREAM CORP

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(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of financial condition and results of operations in conjunction with the consolidated financial statements, and the notes thereto, included elsewhere in this report. Cautionary Statements Disclosures in this Quarterly Report on Form 10-Q contain certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and Section 27A of the Securities Act of 1933, as amended (the Securities Act). Statements that do not relate strictly to historical or current facts are forward-looking and usually identified by the use of words such as "anticipate," "estimate," "could," "would," "will," "may," "forecast," "approximate," "expect," "project," "intend," "plan," "believe," "target" and other words of similar meaning in connection with any discussion of future operating or financial matters. Without limiting the generality of the foregoing, forward-looking statements contained in this Quarterly Report on Form 10-Q include the matters discussed in the section captioned "Outlook" in Part I, "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations," and the expectations of plans, strategies, objectives, and growth and anticipated financial and operational performance of Equitrans Midstream and its affiliates, including: guidance and any changes in such guidance regarding the Company's gathering, transmission and storage and water services revenue and volume growth, including the anticipated effects associated with the EQT Global GGA and related documents entered into with EQT; projected revenue (including from firm reservation fees) and volumes, deferred revenues, expenses and contract liabilities, and the effects on liquidity, projected revenue, deferred revenue and contract liabilities associated with the EQT Global GGA and the MVP project (including changes in the targeted full in-service date for such project); the ultimate gathering fee relief provided to EQT under the EQT Global GGA and related agreements, including the exercise by EQT of any cash-out option as an alternative to receiving a portion of such relief; the Company's ability to de-lever; the weighted average contract life of gathering, transmission and storage contracts; infrastructure programs (including the timing, cost, capacity and sources of funding with respect to gathering, transmission and storage and water projects); the cost, capacity, shippers for, timing of regulatory approvals (including permitting timelines with respect to the MVP project water crossings), final design (including expansions or extensions and capital related thereto), ability to contract additional capacity on, mitigate emissions from and targeted in-service dates of current or in-service projects or assets, in each case as applicable; the ultimate terms, partner relationships and structure of the MVP Joint Venture and ownership interests therein; the impact of changes in the targeted full in-service date of the MVP project on, among other things, the fair value of the Henry Hub cash bonus provision of the EQT Global GGA; expansion projects in the Company's operating areas and in areas that would provide access to new markets; the Company's ability to provide produced water handling services and realize expansion opportunities; the Company's ability to identify and complete acquisitions and other strategic transactions, including joint ventures, effectively integrate transactions into the Company's operations, and achieve synergies, system optionality and accretion associated with transactions, including through increased scale; the Company's ability to access commercial opportunities and new customers for its water services business, and the timing and final terms of any definitive water services agreement or agreements between EQT and the Company entered into pursuant to the terms of the Water Services Letter Agreement; any credit rating impacts associated with the MVP project, customer credit ratings changes, defaults, acquisitions, dispositions and financings and any changes in EQM's credit ratings; Table of Contents

the impact of the dispute with EQT (or resolution thereof) regarding the Hammerhead gathering agreement and/or ownership of the Hammerhead pipeline on the Company's business and results of operations;







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include, but are not limited to, those set forth under "Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2020, as are updated by this Quarterly Report on Form 10-Q.







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Executive Overview

Net income attributable to Equitrans Midstream common shareholders was $22.5 million for the three months ended June 30, 2021 compared to $27.0 million for the three months ended June 30, 2020. The decrease resulted primarily from impairment charges associated with long-lived assets on Water, lower equity income from the Company's investment in the MVP Joint Venture and higher net interest expense, partially offset by lower net income attributable to noncontrolling interests, a premium on the redemption of EQM Series A Preferred Units recorded during the second quarter of 2020, lower income tax expense and higher operating revenues.

Net income attributable to Equitrans Midstream common shareholders was $80.5 million for the six months ended June 30, 2021 compared to $96.7 million for the six months ended June 30, 2020. The decrease resulted primarily from lower equity income from the Company's investment in the MVP Joint Venture, lower operating revenues on Gathering (primarily due to impacts of the EQT Global GGA) and Water, higher net interest expense and additional loss on extinguishment of debt charges, partially offset by lower net income attributable to noncontrolling interest, transaction costs recorded during the first half of 2020 and lower income tax expense. See Note 5 to the consolidated financial statements for a discussion of deferred revenues under the EQT Global GGA.

COVID-19 Update

While the COVID-19 pandemic is continuing, the outbreak has had, and continues to have, a minimal direct impact on the Company's overall operations. The Company continues to actively manage its response to the COVID-19 pandemic in collaboration with relevant parties and, given that the situation surrounding COVID-19 remains fluid, a number of Company-wide measures undertaken in response to COVID-19 remain in effect to continue to promote the safety and health of field and office-based employees and contractors.

Notwithstanding the outbreak's minimal direct impact to date on the Company's overall operations, the Company acknowledges that the COVID-19 pandemic is still ongoing and therefore the Company cannot predict that the pandemic, or further developments regarding variants of COVID-19, will not have any impact in the future on the Company's business, results of operations or financial position. For further information regarding the potential impact of COVID-19 on the Company, see "The outbreak of COVID-19 (or any future pandemic), and related declines in economic output and demand for natural gas, could harm our business, results of operations and financial condition." under "Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.

Business Segment Results

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        Gathering Results of Operations
                                                                Three Months Ended June 30,                                      Six Months Ended June 30,
                                                                                                  %                                                                %
                                                       2021                  2020               Change                 2021                  2020               Change
                                                                                            (Thousands, except per day amounts)
        FINANCIAL DATA
        Firm reservation fee revenues (a)        $      149,360          $ 149,109                 0.2           $      297,552          $ 301,188                 (1.2)
        Volumetric-based fee revenues (b)                90,592             72,422                25.1                  192,476            230,390                (16.5)
        Total operating revenues                        239,952            221,531                 8.3                  490,028            531,578                 (7.8)
        Operating expenses:
        Operating and maintenance                        24,274             22,745                 6.7                   46,940             41,623                 12.8
        Selling, general and administrative              25,689             24,521                 4.8                   50,493             45,756                 10.4
        Transaction costs                                     -                  -                   -                        -              4,104               (100.0)
        Depreciation                                     46,911             41,827                12.2                   93,458             82,267                 13.6
        Amortization of intangible assets                16,205             16,205                   -                   32,410             30,786                  5.3
        Impairments of long-lived assets                      -                  -                   -                        -             55,581               (100.0)
        Total operating expenses                        113,079            105,298                 7.4                  223,301            260,117                (14.2)
        Operating income                         $      126,873          $ 116,233                 9.2           $      266,727          $ 271,461                 (1.7)
        Other income (c)                         $        9,434          $  12,554               (24.9)          $       16,569          $  16,724                 (0.9)
        OPERATIONAL DATA
        Gathered volumes (BBtu per day)
        Firm capacity (d)                                 5,279              5,079                 3.9                    5,262              4,268                 23.3
        Volumetric-based services                         3,106              2,607                19.1                    3,225              3,723                (13.4)
        Total gathered volumes                            8,385              7,686                 9.1                    8,487              7,991                  6.2
        Capital expenditures (e)                 $       59,680          $ 101,157               (41.0)          $      107,793          $ 212,611                (49.3)
        


(a)For the three and six months ended June 30, 2021, firm reservation fee revenues included approximately $3.7 million and $6.9 million, respectively, of MVC unbilled revenues. For the three and six months ended June 30, 2020, firm reservation fee revenues included approximately $4.8 million and $11.1 million, respectively, of MVC unbilled revenues.







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Gathering operating revenues decreased by $41.6 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. Firm reservation fee revenues decreased by $3.6 million primarily due to $72.4 million of deferred revenue resulting from the EQT Global GGA, partly offset by $61.9 million of increased MVC revenues resulting from the EQT Global GGA and increased firm capacity by other producers. Volumetric-based fee revenues decreased by $37.9 million primarily due to increased MVC revenues attributable to volumes that previously were subject to volumetric-based fees prior to the EQT Global GGA. See Note 5 to the consolidated financial statements for a discussion of deferred revenues under the EQT Global GGA.

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        Transmission Results of Operations
                                                               Three Months Ended June 30,                                      Six Months Ended June 30,
                                                                                                 %                                                               %
                                                       2021                 2020               Change                 2021                  2020               Change
                                                                                           (Thousands, except per day amounts)
        FINANCIAL DATA
        Firm reservation fee revenues            $       83,797          $ 83,764                   -           $      185,186          $ 183,361                 1.0
        Volumetric-based fee revenues                     9,101             5,161                76.3                   19,131             12,179                57.1
        Total operating revenues                         92,898            88,925                 4.5                  204,317            195,540                 4.5
        Operating expenses:
        Operating and maintenance                         8,478             9,630               (12.0)                  15,760             19,071               (17.4)
        Selling, general and administrative               8,632             5,905                46.2                   17,481             11,087                57.7
        Depreciation                                     13,826            13,570                 1.9                   27,626             27,128                 1.8
        Total operating expenses                         30,936            29,105                 6.3                   60,867             57,286                 6.3
        Operating income                         $       61,962          $ 59,820                 3.6           $      143,450          $ 138,254                 3.8
        Equity income                            $        5,921          $ 56,244               (89.5)          $        5,924          $ 110,316               (94.6)
        OPERATIONAL DATA
        Transmission pipeline throughput (BBtu
        per day)
        Firm capacity reservation                         2,906             2,742                 6.0                    2,921              2,871                 1.7
        Volumetric-based services                            12                 7                71.4                       11                 11                   -
        Total transmission pipeline throughput            2,918             2,749                 6.1                    2,932              2,882                 1.7
        Average contracted firm transmission
        reservation commitments (BBtu per day)            3,780             3,767                 0.3                    4,102              4,110                (0.2)
        Capital expenditures (a)                 $        7,790          $ 15,464               (49.6)          $       11,295          $  26,262               (57.0)
        


(a)Transmission capital expenditures do not include aggregate capital contributions made to the MVP Joint Venture for the MVP and MVP Southgate projects of $73.9 million and $84.7 million for the three and six months ended June 30, 2021, respectively, and $33.5 million and $78.6 million for the three and six months ended June 30, 2020, respectively.







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Operating expenses increased by $3.6 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 primarily as a result of higher selling, general and administrative expense resulting from increased professional service fees and personnel costs, partly offset by lower operating and maintenance expense primarily due to operational efficiencies. Equity income decreased by $104.4 million for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 due to the decrease in the MVP Joint Venture's AFUDC on the MVP project for the six months ended June 30, 2021.







        Water Results of Operations
                                                         Three Months Ended June 30,                                     Six Months Ended June 30,
                                                                                           %                                                              %
                                                 2021                 2020               Change                 2021                 2020               Change
                                                                                     (Thousands, except MMgal amounts)
        . . .
        


Aug 03, 2021

COMTEX_390872724/2041/2021-08-03T16:17:18

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