Q3 2020 Equitrans Midstream Corp Earnings Call
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Thank you for standing by and welcome to the Equitrans Midstream Q3, 2020 quarterly earnings call. At this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session you need to press star one on your telephone please be advised that todays conference is being recorded.
If you are quite any further assistance. Please press star zero I'd now like to hand, the conference over to your speaker today Nate Tetlow. Thank you you may begin.
Good morning, and welcome to the third quarter 2020 earnings call for Equitrans Midstream Corporation.
A replay of this call will be available for 14 days beginning this evening.
Phone number for the replay is 800.
5858367.
Or 416.
Two one for six for two.
And the confirmation I'd is 75 to nine one to six.
Today's call may contain forward looking statements related to future events and expectations.
Please refer to today's news release and risk factors and each year end form 10-K for the year ended December 31st 2019.
And as updated by form 10-Q for factors that could cause the actual results to differ materially from these forward looking statements.
Today's call May also contain certain non-GAAP financial measures.
Please refer to this morning's news release.
And our investor presentation for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measure.
On the call today are Tom Karam, Chairman and CEO.
Hi, Anna short letter, President and Chief operating Officer Kirk.
Kirk Oliver Senior Vice President and Chief Financial Officer.
Justin Macken Senior Vice President gas systems planning and engineering and Brian for train, Andrea Vice President and Chief Accounting Officer.
After the prepared remarks, we will open the call to questions.
That alternate over to Tom.
Thanks, Nate and good morning.
We hope everyone is continuing to stay safe.
Today, we reported net income of $168 million and adjusted EBITDA of $282 million for the third quarter.
Both exceeded our expectations.
Our asset base and operations remain strong.
The results reflect that.
Third quarter results were driven by the efforts to optimize our assets.
Reduce operating costs and lower our capex.
I'll now turn it over to Diana for the operations update.
It will provide a financial update and I'll come back for some closing remarks before we open the call to your questions Diana.
Diana.
Thanks, Tom and good morning, let's start with MDP, there's been several developments since our last call.
In September the fish and Wildlife service issued a new biological opinion for the project following nearly a year as extensive analysis and review that was based on scientific and factual data. We are very pleased with the comprehensive nature of the opinion.
In October the FERC authorized forward construction to reason along the majority of them B piece route.
On the water crossings. The Army Corps of engineers issued the nationwide permit 12 in September and October. However, the permit was challenged and the fourth circuit Court issued a temporary administrative state to provide additional time for the court to thoroughly review and roll on the motion to stay.
The court has scheduled oral arguments on the full motion to stay for November nine.
Lastly, we continue to expect a right of way permit for the Jefferson National forests in the fourth quarter, allowing us to complete the 3.5 miles of forest work.
Based on the current project schedule, which takes into account project delays during prime construction season. This year the projects current inability to complete water body crossings and the timing of Fercs authorization trees teamwork and the roughly 25 miles a private lands in the National Forest, we're targeting a full.
In service state during the second half of 2021 at a total project cost estimate of $5.8 billion to $6 billion.
At the mid point, each train expects to fund approximately $2.9 billion of the overall cost. While we are disappointed with the setbacks that have led to cost increases and delays. We remain steadfast that n. V. P will reach completion and more importantly that the value of this critical infrastructure project will.
Be realized.
On South gate, the North Carolina regulators denied the application for a section for a one water quality certification, we disagree with the merits of this decision and have already initiated an appeal.
We expect a resolution during the first half of 2021 upon.
Upon receiving all necessary permits and authorizations construction is expected to commence in 2021 and the project is targeted for in service during 2022.
In the third quarter, we average more than eight Bcf per day of gathered volumes, we did see some price driven curtailments during the quarter with each new T. curtailing roughly 570 million per day for the month of September. These volumes were brought back online during the first half of October as.
Tom mentioned in his opening remarks, there are several initiatives that are driving a reduction in our operating and maintenance expenses.
First the new gathering agreement with <unk> provides the flexibility to connect our gathering and transmission assets and optimize compression across the overall system.
This has allowed us to reduce redundant compression and in turn reduce costs.
Second we are utilizing technology and data to drive efficiency. For example, we've been able to decrease our pigging frequency by using instantaneous pressure data along with hydraulic modeling to pinpoint areas of fluid buildup in the system by quickly identifying these areas, we've not only reduce start picking.
In frequency, but we've also reduced the amount of fluid handling by approximately four to five times.
Lastly, these types of optimization efforts have created opportunities for us to utilize internal resources for tasks that have been traditionally outsourced leading to an overall reduction of our external contractor costs put simply we are working more efficiently with the internal resources. We currently have in pay.
Place.
We intend to build on these initiatives and carry that momentum into 2021, which includes maintaining our stringent focus on safety and also working to maximize free cash flow.
Finally, we continue to improve on capital efficiency, we updated our full year 2020 capital guidance. This morning, reducing total capex by about $360 million versus the prior midpoint.
Proximately $320 million is from MVP capital that will shift into next year with the remaining reduction primarily driven by ongoing optimization and capital efficiency gains I'll now turn the call over to Kirk.
Thanks, Diana good morning, everyone.
This morning, we reported net income attributable to eat train common shareholders of $150 million and earnings per diluted D train common share of 35 cents.
Net income was $168 million and adjusted EBITDA was $282 million. We also reported net cash provided by operating activities of $231 million or free cash flow of $45 million.
Net income in the quarter was impacted by a $21 million unrealized gain on derivative instruments, which is reported within other income.
This is related to the contractual provision entitling you trained to receive cash payments for me Q T.
Conditioned on specific Nymex Henry hub natural gas prices.
Seeing certain thresholds during the three years post MVP in service.
After adjusting for the gain on derivative.
Net income attributable to you train common shareholders was $135 million and adjusted earnings per diluted D train common share was 31 cents.
You train operating revenue for the third quarter 2020 was lower compared to the third quarter of last year by $58 million. This.
This was primarily from the impact of $75 million of deferred revenue in the third quarter of this year.
Reduced revenue was partially offset by increases in transmission and water revenue.
Third quarter 2020 operating revenue was also impacted by the temporary production curtailments that Diana mentioned.
Operating expenses for the third quarter 2020 were $297 million lower than the third quarter 29 team.
The decrease was mainly driven by a $305 million impairment of goodwill in the third quarter 2019, and no. One m. expenses were down about 9 million versus the same quarter last year.
This was offset by an increase in depreciation and SGN a expenses.
For the third quarter 2020, you trend will pay a quarterly cash dividend of 15 cents per common share on November 13, two you train common shareholders of record at the close of business on November Threerd.
At the end of the third quarter, we had approximately $2 billion available under the UQM revolver and approximately $183 million of consolidated cash.
And finally, we increased our full year 2020 earnings and cash flow guidance at the midpoint, we expect adjusted EBITDA, just above $1.2 billion and free cash flow of approximately $330 million.
I'll now hand, the call back to Tom.
Thanks Kirk.
So to summarize.
We've made progress on the regulatory front with NBP.
And our back to forward construction.
We're continuing to optimize our operations to drive efficiency.
Our financial performance is solid.
And we have ample liquidity.
Our long term strategy is designed to consistently generate substantial free cash flow.
Allocate our capital and free cash flow with discipline and.
And deliver maximum value to our shareholders.
Before going to the question and answer portion.
I want to provide a brief update.
On the hammerhead contract dispute would be Q2.
Well this legal dispute is an arbitration, we will not comment further.
But I want to reassure everyone that the situation is isolated.
It has not and will not affect our broader very.
Very positive relationship.
Our teams worked collaboratively each and every day to create value for our respective shareholder.
And to that end, we congratulate you team on the recently announced deal to acquire the Appalachian assets from Chevron.
Please stay safe wash your hands and don't forget to book today.
With that we're happy to take your questions.
Thank you at this time I would like to remind everyone in order to ask a question. Please press star one well pause for just a moment to compile the Q and a roster while we do so CEO Tom Karen do you have any further remarks.
Yes. Thank you operator, I was remiss in not bring up one more update related to NBP yesterday.
Yesterday afternoon, Mbps opposition filed a motion with the fourth circuit asking that the court stay mbps biological opinion.
As we talked about earlier this was not an unexpected development.
We remain confident in the strength of NBP is revised biological opinion and were preparing a response to that.
That motion.
Our confidence has not changed because of these expected challenges at all.
We'll continue to work with our partners.
Our federal and state agencies to complete the pipeline in 2021.
In fact, just five minutes ago, a FERC approved.
A package of bore variances requested by MVP and the forest service to facilitate the issuance of the right of way through the Jefferson National Force.
With that operator, I think we're now ready to open it up to questions.
Thank you Tom our first question comes from Jeremy Tonet with Jpmorgan Securities. Your line is open.
Hey, Good morning, guys. This is James on for Jeremy just want to start off with any kind of general on 2021, just given the moving pieces. If you can provide a capex kind of ballpark number there and just given the you know your previous comments.
Previous quarters on free cash flow and de leveraging if there's any change in upstream there soon.
So you guys are still targeting kind of a long term four times target there, but just any change in machine there.
Yeah, I'll I'll address.
You Levering. This is this is Kirk we we aren't providing an update to 2021, we're still working on that budget, but the delay of NBP obviously.
Free cash flow in the year or so.
You know in the past we've been guiding to around four times, it will probably be a little higher than that.
Okay got it and I know you mentioned you had a comment I believe in prepared remarks, just lucky [laughter] did you see and Chevron purchase last week.
Just wondering.
What is if you kind of how much you can disclose on not just the midstream agreement on that deal and what the you know if any business impacts on Q T long term production cadence will be.
Compared to the impact on your business [noise].
So this is Diana good morning, as far as the Chevron acquisition, we don't really think that it's going to have a material impact for us we're already doing some of the gathering I've sat around production the eastern side of Greene County, and there are likely some new opportunity.
These for us the acreage looks like it's gonna be spread across several midstream areas. So some is going to get into Laurel mountain or is already there some goes.
Oh, Yeah, and then there are some Greene county acreage positions that will fall within our dedicated area, but that's about you know in Q2 still digesting, where that's about all we have on that right now.
Okay fair enough I'll leave it that thanks for the questions.
[noise]. Your next question comes from Michael Blum with Wells Fargo. Your line is open.
Thanks, Good morning, everyone.
So first question sort of topical today I guess is just in light of these [noise].
Continued delays you have an MVP <unk> do you see any impact from the elections potentially on N.B.P. or on the on the ability to get that to the finish line.
<unk>.
Hi, Michael This is Tom no we really don't.
Okay, Great and then second question just your thoughts about getting a timeline and the path to get back to investment grade given MVP delays is that still a long term goal and due to that have you had any contain additional dialogue.
With the rating agencies on any of that.
Yeah. This is Kirk again Michael.
Yeah, we but that is still our long term goal to get to investment grade and to get to investment grade credit metrics.
Obviously the delay in MVP.
Ladies at a bit we stay in dialogue with the agencies and I've talked to them. All very recently they remain you know the the improvement and you tease credit is a positive for us but of course the agencies all remain very focused on it.
Got it thank you so much.
[noise] [noise]. Your next question comes from Shneur Gershuni with DBS. Your line is open.
Hi, Good morning, everyone I'm just I know you don't you are in arbitration with respect to the hammerhead situation, but I was just wondering if we can if you can sort of give us some color or clarity I guess about your relationship with you a few key in general just given the fact that you've entered into this arbitration proceeding.
It specifically about that in other words relationship is very good I was just wondering if you can give us some update with respect to how you're you're working and partnering with the Q2, just given the size of the relationship that you have with them economically.
Yes. This is this is Tom our relationship is really good I mean, this is an isolated legal dispute.
Compartmentalised in M- Lub departments.
And as I said in my prepared remarks, our teams work with them All day every day and you.
No I I was really happy that you team was able to announce that deal with Chevron in Texas are Toby rice to tell on that.
Back to you right away. So look I think our relationship was good.
Okay, and maybe as a follow up question. This is really a a hypothetical sensitivity type of question Blake.
I mean, obviously, we've been talking about NBP you know years now at this point right now and you know the constant.
Constant legal battles with the with the opposition and so forth and you know I understand that you're doing what you can on your end bike <unk>. If the M.W.P. hypothetically is just you know not allowed any hocking you know go for individual public what would be the hypothetical timeline. If you went down.
On that path I understand it's a worst case scenario, but you know just to help US frame you know even if it's a low probability what the legal in service date could be for this for this outside.
So hi, good morning, this is Diana.
Our past still continues its the nationwide 12, it's not a possibility for it we actually still have two options. One is to ask FERC for approval the door and two is on the individual permit. So I think it would be more of a combination of both and.
That timeframe is worked into the guidance that we just gave so.
The 2021.
Second half guidance incorporate one of.
Three Pat I guess the nationwide flow.
Working under that.
Or or a combination board and the individual permit.
<unk>.
So just I understand you're saying that that that answer sorry.
That you're actually considering a whole boring aspects I'm just trying to sound like if you have to go full boring request for what would that timeline be.
Yes, so what I'm, saying is any combination of those three is work into our guidance right. Now. So we can do any of those three pads and hit the guidance that we've given.
And I think it'll be a combination of all that.
[laughter].
Got it okay. Appreciate that color on that thank you very much and enjoy your day Josh.
[laughter]. Your next question comes from Spiro Dounis with Credit Suisse. Your line is open.
Hi, Good morning, everyone I wanted to start out with Southgate and just just curious was the permit denial there foreseeable anyway I understand that you disagree with the merits on it but maybe could you provide a little bit more color on what North Carolina, specifically asking for and what the remedies.
So there weren't a lot of specifics they said that they denied it because the permits on the main line. We're not we didnt have all the permits we needed on the main line.
But that would sign off so that's why we appealed there where there really isn't a remedy he once we get where they left it wasn't that once we got the permit we would be allowed.
And that's why we have to do the appeal.
So that we wouldn't have to start a new application.
Okay, Okay, and then switching gears a bit tiki on the on the last call. They talked about the ability to curtail more frequently and move volumes from one period to the next depending on maybe what a higher natural gas prices. How do you see that impacting your business and as you know once you get some more seasonality.
Okay.
But are there any other impacts we should be thinking about.
I, So I would agree I think that maybe the seasonality around it we see a little more certainly I think in the shoulder months and when prices are low were going to see it at that I think the good thing about equitrans is they they can hit different market at different times, so that does give them a little bit of luck.
Stability and Optionality and I would say that it doesn't materially impact us as we firmed up that N.V.C. and so we really firmed up the bulk of that business.
Okay got it one last quick clean up one for me and I'm, sorry to belabor it but just on hammerhead Tom use this grade isolated it sounds like you're referring to the relationship that this is maybe a one sort of apply new and then when it comes to the overall relationships, but I guess just thinking more broadly about all the other contracts you have what pipelines that are still being.
We developed are there similar features in all be contracting approaching deadlines, we need to be aware of.
No no us girls or there's not and.
And not to not to belabor the point too much going back to your earlier point with Diane about the curtailments the communication level between our two teams is critical to U.T. being able to effectively.
Execute on their curtailment plan and to our ability to help facilitate that to maximize their optimization at the same time, making sure that we can ratchet down our opex to mitigate any you know timing changes in those costs. So that's just to reconfirm that.
[noise] occasions between our two companies is is really good hammerhead situation is a one off isolated legal issues that we don't spend any time on as it relates to managing our relationship with each UTI.
Okay understood.
I was going to ask if on which way, Pennsylvania flips today, but maybe I'll save that for offline. So I appreciate the time.
Thank you very much yes, sir.
Thank you.
Your next question comes from John Mccain with Goldman Sachs. Your line is open.
Hey, good morning. Thanks for the time just wanted to talk about the Capex increase on MVP. Just wondering if that is mostly you know having more construction workers on standby and more lawyers et cetera or does it include it kind of any potential contingency for a route change or anything like that.
So good morning, it it isn't really at all because of the lawyer, but they are expenses. That's lawyers. It is really because we have the delay in starting back so as we start because that's an activity we've had to continue.
To maintain the N.S. control, but the driver really the bulk of the increases that we're planning for now Unfortunately more winter activity. So all else equal construction is less efficient in.
In the winter, which means more time and money so.
There's additional work that we have to do because we.
HM two temporary things the right way instead of final eating with we were hoping to do by the end of this year. So it's really just the timing and the delay that growth is hot.
Got it okay. Thanks, and then on a related note just with the Capex slightly higher and the timeline pushed to the right a little bit.
How comfortable are you feeling with the balance sheet going into 2021.
And you know really were.
You know, where you're going to let leverage go to kind of before that comes online.
[noise] Oh, Yeah. This is this is kirk yeah, we're pretty comfortable with the balance sheet, we have access to capital we have over $2 billion of Ah liquidity available.
So we're pretty comfortable with the balance sheet.
All right that's it for me thank you.
[laughter]. Your next question comes from Derek Walker USA. Your line is open.
Hey, good morning, guys.
A couple of quick ones or maybe Tom just wanted to make sure I.
Heard you right.
Like we said that a the FERC approved some the boring for the Jefferson National Forest, and so that that you're still waiting for or the forest service sedimentation study is that correct.
No actually the <unk>.
Yes has been issued and posted.
The the.
I think it's probably four or six or variances that FERC approved today put on their docket those were gatekeeping issues that will facilitate.
The the forest service issuing the ultimate right of way, which we expect sometime next month.
Yeah. So the draft was issued but the final assay I asked well will be issued on its scheduled to be issued on 11 nine right, but that is one of the things. They did ask us to do and they wanted that ought to be done before the before they had to close and issued the final.
The.
We should be on track there goodness.
Got it that's helpful. And then I think on you can see is call. They feel that they couldn't give us some commentary around just offloading, some or all the seats capacity and hopefully having some of that wrapped up by the end of the year does this revised timeline with MVP does that shift some of that discussion at all.
I I don't think so I was just looking at the time was going to answer that I don't think so I don't think that we can't speak for what's going on with 18 their counterparties, but I don't know that NVP in service is something that is.
Crucial to that release.
And obviously at some point it will be but.
For them to make that deal right now I don't think that that matter.
Got it Okay and then maybe just a last quick one from me or I mean, I think you mentioned that the year, what kind of response, the biological up and is that something that we should expect you know this week next week look what sort of the timeline or the.
I think later this week.
Nothing on rescheduling some filed with the court.
Perfect.
Thank you guys that's it for me.
Thank you.
Again, if youd like to ask a question. Please press star one our next question comes from James Carreker with U.S. Capital Advisors. Your line is open.
Hi, guys. Thanks for the question I'm, just thinking about 2021 capital.
When you would put up that total transformation presentation earlier this year.
Which assumed NBP in service at the end of 2020, I think the capital number for her 2021 was around $800 million.
I guess, just thinking about the pluses and minuses versus that number is that is that a good number to think about and then add to that the expected MVP spend or are there any other pushes and takes that.
Got that.
[noise] [noise]. So we're still working on that final 2021 number, especially with our.
Producers to make sure that we have in there what we need to I would say the biggest need right now is the NBP, though I don't know that there is anything.
Oh, it's really they go thinner comes out.
Okay.
And then with respect to the oral arguments being heard on November 9th would you would expect.
A decision on that one way or another but I guess fairly quickly or is this going to be a protracted.
Decision from.
From the float circuit.
We generally don't have any insight into that our hope is that it would be a quick.
A quick decision from the fourth circuit and obviously, our our hope and belief is that supports you know would deny this day.
Okay. Thank you.
[noise] [noise] and that's all the questions. We have at this time I turn the call back to the presenters for any closing remarks.
Well, thank you everybody and thanks for your attention to us and.
Wash your hands.
No.
Have a good day. Thank you.
[noise]. This concludes today's conference call you may now disconnect.
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