Q4 2020 Equitrans Midstream Corp Earnings Call
And this quarter.
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Thank you for standing by and welcome to the <unk> Midstream Q4, and full year 'twenty and 'twenty earnings call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
Ask a question during the session you will need to press star one on your telephone please be advised and today's conference is being recorded if you require any further assistance. Please press star zero and thank you I would now like to hand, the conference over to Nate Tetlow, Vice President corporate development and Investor Relations. Mr. Tetlow. Please go ahead.
Good morning, and welcome to the year end 2020 earnings call for equity and Midstream Corporation.
A replay of this call will be available for 14 days beginning this evening.
The phone number for the replay is 800.
5858367.
Or or 166214642.
The conference I'd is 4233.
Six to nine.
Today's call may contain forward looking statements related to future events and expectations.
Please refer to today's news release, and the risk factors and new tier and <unk> form 10-K for the year ended December 31, 2019 and.
And as updated by form 10, Qs for factors that could cause the actual results to differ materially from these forward looking statements.
Also the form 10-K for the year ended December 31, 2020 is expected to be filed with the SEC later today.
Today's call may contain certain non-GAAP financial measures.
We used to refer to this morning's news release.
And our investor presentation for important disclosures.
Disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measure.
On the call today are Tom Karam, Chairman and CEO.
And I started later, president and Chief operating Officer.
Kirk Oliver Senior Vice President and Chief Financial Officer.
And Justin Macken, Senior Vice President gas systems planning and engineering and.
And Brian Pitz, Andrea Vice President and Chief Accounting Officer.
After the prepared remarks, we will open the call to questions and.
And with that I'll turn it over to Tom.
Thanks, Nate and good morning.
We hope everyone is continuing to stay safe and healthy.
Today, we reported full year net income of $638 million.
And adjusted EBITDA of $1 2 billion.
Kirk will provide more details on the financials and a few minutes.
2020 was an unprecedented year as we all navigate it depends.
Your training acted quickly to implement COVID-19 protocols.
All while achieving a number of very significant accomplishments.
We executed a new 15 year gas gathering agreement with EQT, establishing the foundation for long term stable cash flows and enhanced capital efficiency.
We simplified our structure by role and EQM.
And two ETR and.
We advanced our ESG efforts, which included publishing our first comprehensive sustainability report.
And also recently, establishing our climate policy.
We strengthened our liquidity and balance sheet to a $1 $6 billion long term bond offering.
We made slow but certain progress with MVP.
And lastly, our operations teams didn't Miss a beat during a very challenging environment.
Continuing to deliver results all while maintaining the highest safety standards.
I'll now turn it over to Diana for the operations update and then Kurt will provide financial update and I'll come back for some closing remarks before we open the call for your questions.
Diana.
Thanks, Tom and good morning, everyone.
Let's start with MVP.
In January and the project secured another key permit as the Bureau of land management granted the right of way permit for Mvp's crossing and the Jefferson National Forest.
Currently working on a single outstanding regulatory approval, which relates to our remaining water body and white wine and craft things. The wider body authorization is a two pronged approach first MVP has applied to the Army Corps districts for an individual project permit to implement open cut crossing.
And techniques on and so.
And that did group of water bodies and second MVP has submitted a certificate of amendment application to the FERC requesting to utilize trench list crossing methods for certain crossings previously approved as open cut.
Our primary focus is on the process and ensuring the agencies have everything they require to perform a thorough review and issue authorizations that will withstand challenge.
One quick note on the legal side last Friday, the DC Circuit Court of Appeals denied our motion for stay brought by project opponents related to several <unk> orders.
We're pleased with this decision and I appreciate the comprehensive work that has been and continues to be done.
And all of the federal agencies involved.
In terms of construction. Our current view is that we will have all permits in hand by mid year, allowing us to ramp up to full construction. This would still allow us to meet the targeted full in service date in late 2021.
The total project cost estimate remains approximately five $8 billion to $6 billion.
At the mid point E train expects to fund approximately $2 $9 billion of the overall cost.
Moving to gathering for.
For the full year 2020, we averaged eight two bcf per day of gathered volume, which was roughly a 5% increase over 2019, we.
We did see a nice uptick and Q4 volumes, which averaged eight six bcf per day as the summer and fall volume Curtailments, we're back on line.
We continue to expect our producer customers to be less focused on volume growth and 2021 and more focused on efficient capital deployment as such our 2021 guidance reflects roughly flat year over year volume.
Now for a short recap of some of our 2020 and more recent ESG efforts and.
And 2020, we published our first comprehensive sustainability report, which was produced in accordance with both the <unk> and saves be reporting standards are reported as.
Available on our website and offers easy to navigate functionality.
Beyond the formal report we also took several tangible steps during the last 12 months, including <unk>.
Establishing the board appointed role of Chief Sustainability Officer.
Increasing our board to nine directors, including the addition of two new female directors our board and now includes eight independent directors of which half are female.
Launching a diversity and inclusion program focused on employee education and talent recruitment.
Publishing our initial climate policy, which includes our long term goal of net zero carbon by 2050, and interim targets, a 50% reduction and methane emissions by 2030, and 50% reduction in greenhouse gases by 2040.
The climate policy is also available on the sustainability pages of our website.
And lastly, we have incorporated and methane emission mitigation targets into our 2021 and short term incentive plan and.
Ensuring that we have company wide incentive to work toward our interim and long term climate policy targets were.
And we're excited about where ESG efforts are going and will continue to provide updates as we make progress.
Lastly, we continue to drive capital efficiency improvements are gathering capex came in right around 300 million for the full year, which was more than 25% lower than our expectation at the beginning of the year.
We expect continued capital efficiency in 'twenty and 'twenty, one and the coming years, driven by the new EQT gathering agreement, which provides for more flexibility across our gathering systems and transmission assets.
I'll now turn the call over to Kirk.
Thank you Diana and good morning, everyone.
This morning, we reported full year net income attributable to E train common shareholders of $364 million.
And earnings per diluted D train and common share of $1 <unk>.
Net income was $638 million adjusted EBITDA was just over $1 $2 billion and deferred revenue was $226 million.
We also reported full year net cash provided by operating activities of approximately $1 1 billion and free cash flow of $317 million.
For the quarter.
Net income attributable to E train and common shareholders was $118 million and earnings per diluted E train and common share was 27.
Net income for the quarter was $137 million adjusted EBITDA was $286 million.
And deferred revenue was $77 million.
And the fourth quarter.
We generated $317 million of net cash provided by operating activities and <unk>.
$87 million of free cash flow.
Net income for the quarter was impacted by a $21 million unrealized loss on derivative instruments, which is reported within other income.
This is related to the contractual provision entitling E train to receive cash payments from EQT conditioned.
Conditioned on specific Nymex Henry hub natural gas prices exceeding.
Exceeding certain thresholds during the three years post MVP and service.
After adjusting for the loss on derivative.
Q4, adjusted net income attributable to E train and common shareholders was $134 million and adjusted earnings per diluted E train common share was 31.
You try and operating revenue for the fourth quarter 2020 was lower compared to the same quarter of last year by $59 million. This was primarily from the impact of $77 million of deferred revenue and the fourth quarter of this year.
It reduced revenue was partially offset by higher gathered volumes and increases and transmission and water revenue.
Operating expenses for the fourth quarter 2020.
$577 million lower than the fourth quarter of 2019.
The decrease was mainly driven by a $584 million impairment of long lived assets and Q4 2019.
O&M expenses were down about $8 million versus the same quarter last year and this was offset by increases in depreciation and SG&A expenses.
For the fourth quarter E train paid a quarterly cash dividend of <unk> 15 per common share on February 12.
E train and common shareholders of record at the close of business on February 3rd.
At year end, we had approximately $2 billion available under the EQM revolver and approximately $208 million of consolidated cash.
And finally in January we raised $800 million.
Eight year senior notes with a four 5% coupon and.
And the 1 billion one of 10 year senior notes with a $4 seven and 5% coupon.
Proceeds from the new issuances addressed our nearest term maturities with $1 $4 billion used to repay the EQM term loan a.
And $500 million.
For a tender of EQM and <unk> 2023 senior notes.
I'll now hand, the call back to Tom.
Thanks Kirk.
So in summary, 2020 was a busy year with a number of accomplishments.
And that should position us well for the coming years.
On a long term strategy is designed to consistently generate substantial free cash flow and.
Allocate our capital and free cash flow with disciplined and <unk>.
Deliver maximum value to our shareholders.
Before taking your questions I wanted to briefly comment on what we saw last week, and Texas with the liquor store and power outages and the aftermath.
First we hope all our friends and families and colleagues are safe and doing well.
This event highlights the critical role of energy infrastructure.
We need major upgrade investments and our electric grids across the nation.
Alongside this we need continued investment and natural gas infrastructure.
And maintain the base load and certainty of demand.
Projects like MVP.
And will serve the south eastern United States will safely transport the natural gas supply needed to.
To ensure that base load certainty can be achieved.
Last week brought us all that reliability cannot and should not be ignored.
Everyone expected to be able to heat their homes and the winter.
And this summer.
And that sets and reliability must be the first priority.
And we firmly believe natural gas and natural gas infrastructure.
On a long term integral role and delivering this reliability.
We stay so we're happy to take your questions.
At this time, if you'd like to ask a question. Please press star one on your telephone keypad, Jeremy Tonet with Jpmorgan. Your line is open.
Hey, good morning, and this is James on for Jeremy.
And I just wanted to good morning, and just wanted to start I noticed EQT is building their own.
Water infrastructure I believe they mentioned and earnings.
And I'm just wondering maybe if theres any conversation to have that constructed by you guys and what day.
And really ship and its kind of going forward with the chevron assets.
Hi, Good morning, this is Justin.
Just touching on Eqt's plans so.
We have a lot of dollar water assets in Pennsylvania, and southern Ohio, but our focus has really been on leveraging those existing water assets and Pennsylvania is going forward.
EQT does have some existing water assets and west, Virginia, and will likely be able to leverage those as they build out their new water system.
We have a lot of construction synergies and Pennsylvania, as we build out the gas and water infrastructure together.
Because of the location on the water sources, and West, Virginia, and we don't see as many opportunities to co locate gas and water facilities and realize those capital synergies in West Virginia. So we've had those conversations with.
EQT and.
And certainly understand and.
Their plans and less Virginia, and how that makes sense for them and and just to reiterate we're very much focused on realized and all the capital efficiencies on our buildup state.
Got it and that makes sense I appreciate color there.
And then just looking at the Capex.
I think 2012 on and it came out a little below.
When you guys got it to Jim.
Wondering what the moving pieces were there if theres anything pushing on 2021.
And then just on the gathering side.
Is that just well connects given eqt's.
Kind of operating and maintenance mode and Thats, just the welcome back and they're hooking up to your system next year or is there something else and embedded in that.
Sure.
2020, and we started to realize some of the benefits of the EQT gathering deal and the capital efficiencies built into that arrangement.
So as we look at 'twenty one.
Yeah. Most of it is well connects and I do want to mention also the little over $300 million and gathering Capex that we do have we also have about $50 million and compression projects built into that and those those compression projects and also bring with them incremental fees.
Even if it's not increasing the volume.
Probably a little bit different than what we would consider to be sustaining capex because those projects do carry some additional revenue with them.
But outside of that you're right, it's mostly well connects for EQT and other producers we work with.
Great. Thanks, a lot I'll stop there.
Yes.
John Mccain with Goldman Sachs. Your line is open.
Hey, good morning, Thanks from time.
I wanted to ask about the FERC amendment request process flow.
And all about last week it looks like there was about 120 <unk> to do I know you can do a lot of these and parallel and some will take more time and others. Just wondering if you can share any more detail on when you expect to be able to start that and then really I guess, how many crews you can have.
Along the right and one thanks.
So let me just take that as an opening hi, this is Diana and.
And maybe I can answer everybody's N V P questions all at one time.
So we have two primary types of construction work remaining.
Upland and and Jefferson National forests, and parts of Virginia, and then we have the watercraft things we've completed the compressor stations and original interconnect. So that work is all done and we have about 265 miles of pipe welded and.
Which leaves approximately 40 ish miles to complete so the water crossings are all included and not mileage.
We estimate that we complete the we can complete the upland work and as you asked the water crossings inside of six months and are scheduled.
So given that we aren't starting from scratch.
Same route the same crossings considering the amount of data that the agencies have already reviewed we expect the agencies.
West, Virginia D P, Virginia D acute will take four to six months to complete their work and issue their approvals on the water crossings.
And which then does include whatever comment periods that they have to do so this time frame is built into our schedule and guidance and.
I think that.
That's the nuts and bolts of everything there are different pieces of the right away and that we can have different crews that kind of thing that we do the crossings. We believe we can get done and under six months.
And I appreciate that.
And maybe just one more on that side.
Can you just talk a little bit more about the.
And you mentioned the boring process, but for the individual permits adjusted what that process actually looks like and maybe if you can share anything in your conversations with Virginia at this point.
Sure so for the individual process and for the permit the agency will follow a very well established specs and four F on permitting process. It includes analysis.
And the open cut crossings and public input on.
And there is a well established process to receive the 401 water certificates and.
And we have to get that from West, Virginia, and Virginia, and that's intended to happen concurrently inside that Army Corps process.
We have had conversations with them, obviously and but we did just submit 6600 pages and our applications so and it's.
It's going to take them a little bit to digest, and then we'll be able to talk more about what that timeframe and looks like.
All right understood. Thanks for that that's it from me.
Thank you.
Spiro <unk> with credit Suisse. Your line is open.
Came on everyone.
And our first one for you and sorry to disappoint you almost answered.
Questions I did have some follow up unfortunately.
Okay.
And from.
On the timeline for the six months from the agencies to work that out.
Curious in terms of the.
Goalposts that we should be looking for I know theres, a public common period, a lot of back and forth and things like that could you just for the benefit of the people on the call walk us through some of the big mile markers, you see sort of as that process plays out.
So I don't I don't know that there is anything obviously, the on Virginia and West Virginia.
Approvals from the day issue and the D E P.
Happened and there and then.
First we will ask whatever questions and whatever additional information they need from us, we'll get that back to them and there are some comment periods and both processes, but I can't tell you exactly when those will happen yet so.
I think it's really I don't I don't know that there is anything debt.
I can point to concretely debt should be the first thing you see.
Okay.
And just one more follow up on that as well and just in terms of thinking about that six months or under six months to complete the water crossings.
And that shot clock start once you have the permanent and hand or is there a preliminary work youre kind of doing ahead of that and so really once you get the permit it's something less than six months are well inside of it.
So it's it's well inside of it obviously, we can be doing the open cuts with certain crews and we can be doing the board with other crews and.
So those two things they don't have to be done and some kind of series. They can all be done in parallel as long as on.
And I don't think we're going to have any problem getting crews.
As far as activity goes so.
Flow inside six months.
And so when you have left.
And we had sorry, we do have up on work that we can do before that to prep and be ready and we.
Has the ability to be working and we probably wont start that though until the weather breaks and get moving on that.
Understood. Okay. That's helpful color last one quickly and sorry, if I missed it but guidance for 'twenty 'twenty, one seems to imply a step down in EBITDA generation for the back three quarters as opposed to the first quarter.
And so just curious what's driving that decline and the later part of the year and really what I'm getting on and it's how much of that is you being conservative versus kind of firm gas from some of your producers.
So and as far as volumes, we did see and.
And uptick in fourth quarter.
Volumes last year, and we're certainly happy to see that and right now we.
And you're guiding to flat, which is what we have been hearing from.
Our producers we did see some curtailments due to pricing last year, so as we.
It's still kind of early for us to be from.
More optimistic than not and so we're kind of sticking with the flat right now and we'll go from there were lumpy because of the usage on the system as far as quarter to quarter, but nothing really big.
Got it.
And be well everybody.
Thank you.
Brian Reynolds with UBS Your line is open.
Hi, good morning, everyone as Brian rental compression and Ergo Shunyi on.
On the gas gathering agreements my understanding that if MVP not on line by 122, you can see on the absolute optionality for tens of million dollar cash payment or the lowest cost structure could you guys provide some color around potential payment and could this.
Essentially reduce GMP and ore transportation fees on MVP.
Yes.
Yes that was related to the shares that we repurchase from EQT. So if you recall.
We bought back $25 3 million shares of E train.
So the payment they would receive and is really consideration for those shares. So has the agreement sits today.
And once MVP and service EQT would be entitled to two years of rate relief as consideration.
But if MVP is not in service by January of 'twenty to EQT could elect to take that consideration and the form of a onetime payment and forego the gathering rate release.
Great and <unk>.
And I guess would it be just cash consideration or is there I guess any type of color you know, how and how that pay and what happened what happened on January 1st or is it kind of still and then negotiation period.
And it would be a cash payment I believe they have one year to.
To exercise that option.
So I think you'll just have to make a decision this MVP and service starting in January.
And I left that option if they so choose.
Yeah.
Great. Thanks, and I guess, just as one quick follow up is there a resolution to hammerhead or does you know.
Ultimately does that you know.
And with more clarity around MVP and service time on and kind of negotiation with EQT ultimately.
Yes. This is this is Tom there's no resolution yet and hammerhead.
Isolated issue is and arbitration and.
And that will run on its own course completely separate from all the other activity that we have going on the EQT and separate from anything having to do with with MVP.
Great. Thank you guys from the color and Havent been safe day.
Thank you.
Skinner with Wolfe Your line is open.
Hey, good morning.
Two questions first could you just take us through the.
Kind of how maybe a F. P C accounting changes for this year.
And then and secondly, just a couple of your partners kind of have.
Elected to impair their investments and M B P.
And I'm, just kind of wondering kind of what.
Is there and there are differences of opinion or is this just really a call based on their accountants on and then to the extent that there is.
On impairment at some point does it actually have any kind of impact to <unk>.
<unk> or anything like that that maybe that we should be thinking about.
Yeah. This is Kirk.
And if I can remember and we will try to go in reverse order. So if there were and impairment there is if it doesn't create any <unk>.
Problems and any of our indentures or credit agreements or anything of that nature.
Hum.
Excuse me on your impairment.
We've been consistent and our approach on how we look at the impairment.
And we will continue to be consistent.
Got.
We're not afraid to take and impairment were following the accounting rules and.
And and you just don't see and impairment.
At this time and.
And then I think your other question was on the day after your D C and basically.
You know theres been a lot of fits and starts on MVP over time, and so what we've decided to do going forward is to just accrue.
D C on the actual construction on the pipe, what we're calling kind of a growth component of getting the project on we're no longer going to be accruing on maintenance capital that's going into basically babysat the pipe.
Got it okay, so that doesn't that doesn't and obviously it doesn't impact cash or anything like that.
Okay, Great and obviously, that's okay right.
Alright, and then I guess.
Maybe just following up on the water permits, but just is there and it.
It seems like you've probably been working with the agencies to make sure that you have.
Got fulsome applications.
And does it feel like just the kind of the tone of conversations is pretty constructive and it feels like these are very.
Okay.
Straightforward approval processes and I'm, just wondering if there were any kind of pitfalls or anything like that or even maybe early indications and we may get from and agencies.
Prior to this kind of this four to six month approval process.
The comprehensive.
Filing and the data is all there this is a normal standard.
The business permit that and as far as that.
Not just not gone so it's renewables ask for these same kind of individual permits and.
So it's something they do and normal course of business and we don't expect anything too crazy to come out of it.
Great. Thanks.
Derek Walker with Bank of America, and your line is open.
Thank you and good morning, everyone.
Maybe just a quick one around.
The conversations on credit agencies, and I think EQT mentioned that its hold on.
Kathy talked.
Talking about some of the.
Our partner has taken the impairments I guess, just how are you and it.
And obviously the wholesale application that you just filed with the core and FERC I guess, how do those conversations go with the credit age and sex.
Yeah.
You know that we stayed and dialogue with the agencies and treasury team.
Stays and communication with them and try to keep them updated and we don't surprise them.
<unk>.
The agency Big focus with US is and you know just basically continues to be what it has been which is M. D. P. So.
That's what they're really watching they haven't given us any.
You know Theres no line, that's been drawn and the sand on anything around that but that's I mean, that's there and that's obviously there are point of focus.
Got it and maybe just.
A quick follow up and down on it.
Your comments around the.
And he talked defensive apt.
Applications.
Yes, so we do see a FERC commission and sort of the majority change for the mid year, but debt.
And kind of change how you guys think about how these how the applications to get reviewed.
No it doesn't really change.
The review process.
We've been in close contact with Barrick and staff and understand what they need as far as the application and.
And we've had good comment as far as.
And if I'm, sorry commissioners as to meeting the permits and then being able to Christine.
Great. Thank you that's it from me I appreciate it.
Again, if you'd like to ask a question. Please press star one on your telephone keypad, John Mackay with Goldman Sachs. Your line is open.
Hey, Thanks, just wanted to ask a few more follow ups and EQT talked about being able to offload some of its capacity on MVP.
Curious, if you guys might be able to share.
<unk>.
And just taking that up and I know they are running a process, but really anything else on that front debt.
It might be helpful. Thanks.
Yeah. John This is this is Tom.
Can't share and share anything beyond what what EQT has said in that regard.
Nearly we're well aware of the activity and are you.
In fact supportive of it I think it's.
No you shouldn't read too much into this I mean.
Storage really it's it's been and.
Natural progression of long haul pipes that they were initiated and originated by supply push.
Issues that then over time transition to demand pull customers and.
And by that.
Production company, releasing some of its capacity.
That doesn't mean that they won't make firm gas sales to fill that capacity so that.
You could misread it to say well Gee.
Pipers and need it any longer when in fact, what it is is a transitioning to the demand pull customers hold and the capacity.
For their own reliability and certainty and then coupling that with firm gas sales.
From some of those same upstream customers. So we're supportive of it we think it's the natural.
Progression and transition of many long haul pipes, and we think it's it's a situation where it could be beneficial to EQT and E train and to the downstream day.
Demand from customers.
No sorry that makes a lot of sense and that's the only helps too and you guys tried to do the the.
And the debt refinancing and rebates.
Definitely makes sense, just just thinking of it any more color.
One last one.
Back to EQT, and if they're shifting from a development from West Virginia.
West Virginia from Pennsylvania.
Does that have any impact on you guys. This year and is that baked into guidance for COVID-19.
Net.
That's that's baked into guidance, that's part of the new gathering agreement that we and.
Sign with them that dedication and so it's well on our plans.
All right well that does it from me. Thanks for let me do two rounds I appreciate it.
Thank you.
There are no further questions at this time and it's now my pleasure to turn the call back over to Thomas for closing comments.
And I'd just like to thank everybody for joining the call today.
And stay safe wash your hands and hopefully we'll talk to you again soon.
Have a good day.
This concludes today's call. We thank you for your participation you may now disconnect.
Yeah.
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