CANONSBURG, Pa.--(BUSINESS WIRE)--Equitrans Midstream Corporation (NYSE: ETRN), today, announced financial and operational results for the third quarter 2020. 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.
Equitrans Midstream Announces Q3 2020 Results
Q3 2020 Highlights:
- Delivered third quarter 2020 results ahead of guidance
- Generated $168 million of net income and achieved $282 million of adjusted EBITDA
- Recorded 68% of total operating revenue from firm reservation fees
- Raised full-year 2020 adjusted EBITDA and free cash flow guidance
"Our third quarter results demonstrate our ability to generate predictable and stable revenue in any type of operating environment," said Thomas F. Karam, ETRN chairman and chief executive officer. "The transformative actions that we took earlier in the year have allowed us to focus on controlling costs and efficiently deploying capital, which ultimately enables us to strengthen our balance sheet and generate substantial free cash flow."
"Our results also reflect the benefits we are realizing as a result of the new gathering agreement executed earlier this year," said Diana M. Charletta, ETRN president and chief operating officer. "This new agreement allows us to optimize our assets by eliminating redundancies, scheduling efficient construction plans, and safely streamlining operations, all of which lead to meaningful capital reductions."
Charletta continued, "In addition, as our nation continues to navigate the uncertainties of the COVID-19 pandemic, ETRN is proud to play a part in safely transporting critical energy resources during these unprecedented times. By implementing strict pandemic-related working protocols early on, our operations teams have continued to provide safe, reliable, and uninterrupted midstream services for our customers."
THIRD QUARTER 2020 SUMMARY RESULTS
Net income attributable to ETRN common shareholders for the third quarter 2020 was impacted by a $21.0 million unrealized gain on derivative instruments. The unrealized gain is reported within other income 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 during the three years following the Mountain Valley Pipeline's (MVP) in-service, but in no case extending beyond December 2024. The contract is accounted for as a derivative with the fair value marked-to-market at each quarter-end.
As a result of the gathering agreement with EQT entered into in February 2020, revenue from the contracted minimum volume commitment (MVC) is recognized utilizing an average rate applied over the 15-year contract life. The difference between the cash received from the contracted MVC and the revenue recognized results in the deferral of revenue into future periods. In the third quarter 2020, deferred revenue was $74.6 million.
Operating revenue for the third quarter was lower compared to the same quarter last year by $58.4 million, primarily from the impact of deferred revenue. The reduction in operating revenue was partially offset by increased revenue from higher MVCs. Operating expenses decreased by $297.4 million compared to the third quarter 2019, primarily as a result of a $305.5 million impairment of goodwill in the third quarter 2019. Additionally, operating and maintenance expense decreased versus the prior year quarter while selling, general and administrative and depreciation expense increased.
QUARTERLY DIVIDEND
For the third quarter 2020, ETRN will pay a quarterly cash dividend of $0.15 per common share on November 13, 2020 to ETRN common shareholders of record at the close of business on November 3, 2020.
BUSINESS AND PROJECT UPDATES
Outstanding Debt and LiquidityAs of September 30, 2020, ETRN reported $6.4 billion of consolidated long-term debt; $485 million of borrowings and $235 million of letters of credit outstanding under the $3 billion revolving credit facility; and $182.5 million of cash.
Water ServicesWater operating income was $10.1 million and water EBITDA was $18.2 million in the third quarter 2020. Water EBITDA is forecast to be approximately $70 - $75 million for the full-year 2020.
Volume Curtailment UpdateThird quarter 2020 gathered volumes and revenue were impacted by temporary production curtailments by EQT. The curtailed volumes averaged approximately 570 MMcf per day during the month of September and were brought back online in a phased approach during the first half of October.
Mountain Valley PipelineRecently, the MVP JV obtained a number of key permits and authorizations. In September, the MVP JV received the project's new Biological Opinion, and the U.S. Army Corps of Engineers (USACE) approved the project's Nationwide Permit 12 (NWP12); and in early October, the MVP JV received approval from the U.S. Federal Energy Regulatory Commission (FERC) to resume forward construction along the majority of the route. In mid-October, the Fourth Circuit Court of Appeals issued a temporary administrative stay of the project’s NWP12, which prevents construction of waterbody crossings under the USACE's NWP12 program until the Court rules on the full motion to stay. The Court has scheduled oral arguments for November 9 on the full motion to stay. Additionally, in late October, a challenge was filed against the project's new Biological Opinion.
Due to unanticipated delays during the prime 2020 construction seasons resulting from the current inability to complete certain construction work related to the NWP12 and the remaining FERC stop work order related to approximately 25 miles of the project, the MVP JV is targeting a full in-service date for the project during the second half of 2021. The total project cost estimate is $5.8 - $6.0 billion, of which ETRN expects to fund approximately $2.9 billion. As of September 30, 2020, ETRN had funded approximately $2.1 billion. Based on the midpoint of the total project cost estimate, ETRN expects to have an approximate 47.6% ownership interest in MVP and will operate the pipeline.
MVP SouthgateIn June 2020, the FERC issued the Certificate of Public Convenience and Necessity for the MVP Southgate project. In August 2020, North Carolina regulators denied the MVP JV's application for a Section 401 water quality certification, which was appealed in September 2020. Project construction is expected to begin in 2021, upon receiving all necessary permits and authorizations, and MVP Southgate is targeted to enter service during 2022. The approximately 75-mile pipeline is expected to receive gas from MVP in Virginia and transport the gas to new delivery points in Rockingham and Alamance Counties, North Carolina. With a total project cost estimate of approximately $450 million to $500 million, MVP Southgate is backed by a 300 MMcf per day firm capacity commitment from Dominion Energy North Carolina and, as designed, the pipeline has expansion capabilities that could provide up to 900 MMcf per day of total capacity. ETRN has a 47.2% ownership interest in MVP Southgate and will operate the pipeline.
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, capital expenditures (excluding the noncontrolling interest share (40%) of Eureka capital expenditures), capital contributions to MVP JV, and distributions/dividends and redemption amounts paid to Series A Preferred unitholders/shareholders (as applicable).
Retained Free Cash FlowAs used in this news release, retained free cash flow means free cash flow less dividends paid to common shareholders and distributions paid to noncontrolling interest EQM common unitholders (as applicable).
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, 2020.
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. Adjusted EBITDA, free cash flow, and retained free cash flow should not be considered as alternatives to net income, operating income, net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjusted EBITDA, free cash flow, and retained free cash flow have important limitations as analytical tools because they exclude some, but not all, items that affect net income, operating income and net cash provided by operating activities. Additionally, because these non-GAAP metrics may be defined differently by other companies in ETRN's industry, ETRN's definitions of adjusted EBITDA, free cash flow, and retained free cash flow may not be comparable to similarly titled measures of other companies, thereby diminishing the utility of the measures. Free cash flow and retained free cash flow should not be viewed as indicative of the actual amount of cash that ETRN has available for dividends or that ETRN plans to distribute and are not intended to be liquidity measures.
ETRN is unable to provide a reconciliation of projected adjusted EBITDA from projected net income (loss), the most comparable financial measure calculated in accordance with GAAP, or a reconciliation of projected free cash flow or retained cash flow to net cash provided by operating activities, the most comparable financial measure calculated in accordance with GAAP. ETRN has not provided a reconciliation of projected adjusted EBITDA to projected net income (loss), the most comparable financial measure calculated in accordance with GAAP, due to the inherent difficulty and impracticability of predicting certain amounts required by GAAP with a reasonable degree of accuracy. Net income (loss) includes the impact of depreciation expense, income tax expense, the revenue impact of changes in the projected fair value of derivative instruments prior to settlement, potential changes in estimates for certain contract liabilities and unbilled revenues and certain other items that impact comparability between periods and the tax effect of such items, which may be significant and difficult to project with a reasonable degree of accuracy. Therefore, a reconciliation of projected adjusted EBITDA to projected net income (loss) is not available without unreasonable effort.
ETRN is unable to project net cash provided by operating activities because this metric includes the impact of changes in operating assets and liabilities related to the timing of cash receipts and disbursements that may not relate to the period in which the operating activities occurred. ETRN is unable to project these timing differences with any reasonable degree of accuracy to a specific day, three or more months in advance. Therefore, ETRN is unable to provide projected net cash provided by operating activities, or the related reconciliation of each of projected free cash flow and projected retained free cash flow to projected net cash provided by operating activities without unreasonable effort. ETRN provides a range for the forecasts of net income attributable to ETRN, adjusted EBITDA, free cash flow and retained free cash flow to allow for the inherent difficulty of predicting certain amounts and the variability in the timing of spending and the impact on the related reconciling items, many of which interplay with each other.
Water EBITDA
As used in this news release, water EBITDA means the earnings before interest, taxes, depreciation and amortization of ETRN’s water services business. Water EBITDA is a non-GAAP supplemental financial measure that management and external users of ETRN’s consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, use to assess the impact of ETRN’s water services business on ETRN’s operating performance and ETRN’s ability to incur and service debt and fund capital expenditures. Water EBITDA should not be considered as an alternative to ETRN’s net income, operating income or any other measure of financial performance presented in accordance with GAAP. Water EBITDA has important limitations as an analytical tool because the measure excludes some, but not all, items that affect net income and operating income. Additionally, because water EBITDA may be defined differently by other companies in ETRN’s industry, the definition of water EBITDA may not be comparable to similarly titled measures of other companies, thereby diminishing the utility of the measure. The table below reconciles water EBITDA from ETRN's water operating income as derived from ETRN's statements of consolidated comprehensive income to be included in ETRN's Quarterly Report on Form 10-Q for the three months ended September 30, 2020.
ETRN has not provided a reconciliation of projected water EBITDA from projected water operating income, the most comparable measure calculated in accordance with GAAP. ETRN does not allocate certain costs, such as interest expenses, to individual assets within its business segments. Therefore, the reconciliation of projected water EBITDA from projected water operating income is not available without unreasonable effort. ETRN has provided a range for the forecast of water EBITDA to allow for the variability in the timing of spending and the impact on the related reconciling items, many of which interplay with each other.
About Equitrans Midstream Corporation:
Equitrans Midstream Corporation (ETRN) has a premier asset footprint in the Appalachian Basin and, as the parent company of EQM Midstream Partners, is one of the largest natural gas gatherers in the United States. Through its strategically located assets in the Marcellus and Utica regions, ETRN has an operational focus on gas transmission and storage systems, gas gathering systems, and water services that support natural gas development and production across the Basin. With a rich 135-year history in the energy industry, ETRN was launched as a standalone company in 2018 with the vision to be the premier midstream services provider in North America. ETRN is helping to meet America’s growing need for clean-burning energy, while also providing a rewarding workplace and enriching the communities where its employees live and work.
For more information on Equitrans Midstream Corporation, visit www.equitransmidstream.com; and to learn more about our environmental, social, and governance practices visit https://csr.equitransmidstream.com.
