(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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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.
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
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