Q1 2021 Equitrans Midstream Corp Earnings Call
Good day and thank you for standing by welcome to the mid stream Q1 2021 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. Please be advised that today's conference is being recorded to ask of.
Question during the session you'll need the press star one on your telephone if you require any further assistance. Please press star Zero I would now like to hand, the conference over to your speaker today, Nate Tetlow, Vice President of corporate development Investor Relations. Please go ahead.
Good morning, and welcome to the first quarter 2021 earnings call for <unk> Midstream Corporation.
A replay of this call will be available for 14 days beginning this evening the.
Phone number for the replay is 805.
The 858367 or for 16621 for.
For six for two and the conference I D.
286 for 556.
Today's call may contain forward looking statements related to future events and expectations.
Please refer to today's news release and risk factors in the ETR and form 10-K for the year ended December 31st 2020, and as updated by form 10, Qs for factors that could cause the actual results to differ materially from these forward looking statement.
Yeah.
Today's call may 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 Diane.
Diana start later, President and Chief operating Officer, Kirk, Oliver Senior Vice President and Chief Financial Officer.
Justin Macken Senior Vice President gas systems planning and engineering, and Brian Betray Andrea Vice President and Chief Accounting Officer.
After the prepared remarks, we will open the call for questions.
With that I will turn it over to Tom.
Thanks, Nate good morning, everyone.
Today, we reported first quarter net income of $77 million and adjusted EBITDA of $308 million.
Both exceeded our forecast.
Our operating assets continue to perform well with gathered volume park and loan activity and delivered water volume all stronger than our forecast.
Kirk will provide some more details on the financial results in a few minutes.
This morning, we announced changes to N V peace target in service date and budget.
The changes will provide governmental agencies with the time needed to complete a comprehensive regulatory process that meets or exceeds all requirements and will withstand any potential legal challenges.
Diana will provide more details in a minute.
Operating safely executing on our projects and building out our ESG platform will remain top priorities for us.
I am proud to have recently signed the CEO pledge offered by the CEO action for diversity and inclusion coalition.
At E train, we believe diverse perspectives create growth and innovation build stronger teams and ultimately provide more opportunities to drive and maintain long term success.
We also reaffirmed our opposition to the E. P. H 'twenty 'twenty rollback of methane regulations.
It is vital for the oil and gas industry Act to reduce climate change impacts.
We believe that methane controls and reduction in our industry need to evolve as we transition to a low carbon economy.
And he trained supports the methane resolution under the Congressional Review Act.
As a reminder, we've established the target of 50% reduction in our methane emissions by 23rd.
I'll now turn the call over to Diana for the operations update.
Kirk will provide the finance update.
And I'll come back for some closing remarks before we open the call to your questions.
Diana.
Thanks, Tom and good morning, everyone, let's start with MVP in February and V. P of submitted applications to the U S. Army Corps of engineers and first to cross the remaining water bodies and wetland areas. This included submitting an individual permit application to the Army Corps and re.
<unk> for one water quality certificate to West, Virginia, and Virginia for approximately 300 crossings.
And filing an application with FERC to amend the project certificate in order to change the crossing method divorce for approximately 120 crossings.
For the respective agencies are concurrently of reviewing our applications and performing the necessary analysis and reviews.
Recently, the the Virginia D EQ and the West Virginia D. P requested additional time beyond the 120 day review period, we do support and expect that the Army Corps for Grant additional review time and as the result, we do not believe that we will receive the necessary approvals during the third quarter of 2021.
Which we previously expected.
This shift in permit timing now introduces another winter season to navigate which led to our updated in service target and cost. We are now targeting a full in service date during the summer of 'twenty 'twenty, two and a total project cost of approximately $6 $2 billion, each day and expects to fund approximately.
The $3 $1 billion of the overall cost.
Given the shift in MVP timing and expectations for the timing of Southgate permit approvals. We now are targeting starting southgate construction in 'twenty 'twenty two and in service during spring 'twenty 'twenty three in.
In terms of our existing assets, we had a strong first quarter, our transmission and storage business saw increased park and loan activity as a result of the extreme cold temperatures, we were able to optimize our assets and provide flexibility for our customers to help me with incremental volume out of the region.
Ali our gathered volume in water service volume, we're ahead of our forecast.
Lastly, a quick update on golf Port the Gulfport bankruptcy processes almost complete in late April Gulfport agreed to assume our existing gathering contracts.
I'll now turn the call over to Kurt.
Thanks, Diana and good morning, everyone.
This morning, we reported first quarter net income attributable to E train common shareholders of $58 million on earnings per diluted E train common share of <unk> 13 cents.
Net income was $77 million.
Just the EBITDA was $308 million and deferred revenue was $72 million. We also reported net cash provided by operating activities of $230 million and free cash flow of $110 million.
Net income attributable to E train was impacted by two items.
First by a 7 billion dollar of unrealized gain on derivative instruments, which is reported within other income.
This is related to the contractual provision of entitling E train to receive cash payments from EQT.
Conditioned on specific Nymex Henry hub natural gas prices exceeding certain thresholds during the three years post the MVP in service.
And second by of $41 million loss on extinguishment of debt primarily related to the purchase through a tender offer of $500 million and EQM 2023 senior notes.
After adjusting for these two items.
The first quarter adjusted net income attributable to E train common shareholders was $83 million and adjusted earnings per diluted.
Common share was <unk> 19 cents.
Train operating revenue for the first quarter 2021 was lower compared to the same quarter of last year by $73 million.
This was primarily from the impact of deferred revenue and lower water services revenue.
The reduced revenue was partially offset by higher gathering N V C's and increased park and loan activity.
Operating expenses for the first quarter 2021 were $57 million of lower than the first quarter 2020.
The decrease was mainly driven by of 56 million dollar impairment of long lived assets in the first quarter of 2020.
O&M expenses were down about $4 million versus the same quarter of last year and this was offset by increases in depreciation and SG&A expenses.
For the first quarter E train will pay a quarterly cash dividend of 15 cents per common share on may 14th.
To common shareholders of record at the close of business I may 5th.
In January we addressed our near term debt maturities, we raised $800 million of eight year senior notes.
The 4.5% coupon.
1.1 billion of 10 year notes.
With a four and three quarter percent coupons.
Proceeds from the new issuance were used to repay the $1 4 billion dollar EQM term loan a.
And the $500 million.
Was used for of tender of the EQM 2023 senior notes.
We recently amended our EQM credit facility to reduce the size of the facility from $3 billion to $2.25 billion.
The size better aligns with our liquidity needs going forward. We also simplified the calculation of debt to EBITDA covenant.
Which is now 595 times through the third quarter of 2022.
This provides flexibility for the updated N V P of guidance.
And lastly, as a result of our strong first quarter results, we raised our full year 2021 EBITDA guidance.
To a range of $1.15 billion to $1.12 billion on.
I'll now hand, the call back to Tom.
Thanks Kirk.
So to summarize our business remains strong and resilient.
We're well positioned from a liquidity perspective.
And we believe the additional time provided for M. B P regulatory review reinforces our confidence that we will bring MVP into service in the summer of 2022.
Please stay safe and wash your hands and with that we're happy to take your questions.
As a reminder to ask the question you'll need the press star one on your telephone to withdraw your question press the pound or Husky. Please standby, we compile the Q&A roster.
Your first question comes from the line of Spiro <unk> from Credit Suisse. Your line is open.
Hey, good morning, guys for.
First question, starting with MVP I don't believe the Army Corps has yet to provide that updated timeframe to Virginia to get you that permit review I believe they requested until March of 2022, and so I guess, what I'm wondering is to the extent they do actually allow them up until that point.
Does that still in line with your summer 2022 startup and I guess another way of asking it is the extent of the Army Corps of comes back and request on an earlier date. So September October of this year.
Does that mean MVP could come on in the spring or just the logistics of starting construction and stopping it really puts you in the summer no matter what.
Yeah.
Good morning, this is Diana.
On the.
Very good question. So let me just kind of give you the order of what we're thinking and I should answer all of those points are true.
He started in March we resumed construction and all of the upland areas, where we're currently have the approval to construct and we're on track to complete all of that work by September of this year.
So once that work is complete we will have roughly 10 miles of pipe to finish for the water crossings and eight miles of work in and around Jefferson National for US. That's what we'll have left to do so our current construction plan and targeted summer of 'twenty. Two in service is based on receiving the water crossing approval.
From the Army Corps, and first and the lifting of the remaining exclusion zone around Jefferson National forests by the end of 2021.
So if for some reason the water crossing approvals go into early next year like you talked about on the current budget and targeted in service is still achievable. If we have the permits by year end, we may be able to do some more work during the winter, but for the most part the current schedule assumes.
Minimal activity in January and February so really activity ramping up in March of 'twenty, 'twenty, two which would allow us for an early summer I wouldn't say spring, but I'd say early summer if we get those permits a little earlier.
Then the March that they asked for.
Yeah.
Okay. That's that's helpful. Appreciate that Diana and then sticking on this a little bit changing gears here just just on EQT I believe they've got the option now for a lot of the cash payment given that the pipeline won't won't be online by the end of the year and so I guess I'm curious I guess have they expressed to you of any preference one way or the other in terms of cash payment.
Or lower tariff rates and then could you just quickly walk us through the mechanics on if they were to elect a cash payment when would they have to do that by and and I guess, one would you have to pay it.
Yeah. So this is a this is kirk we don't have any indication yet as to what.
They may or may not want to do but basically a.
Starting on January one of 'twenty, two they have an option for one year or two either.
Stay with the the.
The reduction in rates, which will kick in when the N V P goes into service or or take the cash upfront $196 million.
Gotcha, and then sorry, just last one I can tell you on there I know you guys talked about being comfortable from a leverage position you obviously relaxed some of your covenants recently, so it sounds like everything is fine, but just wanted to see.
Sort of go right out and say you know to the extent they do of like that cash payment.
Is your balance sheet sort of prepared for that.
The potential as well.
Yes. It is.
Perfect. That's all I had for today. Thanks.
Thanks, guys.
Thank you.
The next question comes from the line of John Mackay from Goldman Sachs. Your line is open.
Hey, good morning. Thanks for the time just wanted to circle up on a few of those comments from Spiro, maybe just on the new timeline I think the detail of Super helpful.
Just curious if that day.
Any space in case the for it comes back to you and says they want to do a.
Yes on the amendment process.
That wasn't specifically contemplated in it basically the idea on the bank amendment was to clean things up and streamline and give ourselves some flexibility so.
We were able to eliminate the qualified add back for.
For N V P, which was the mechanism that was in the bank facility. We basically got rid of that and just took the leverage covenant of up to the 595 times of level.
Okay, Alright that makes sense I guess I was curious more on the on the construction timeline just with the you know.
The targeted construction some time starting March of next year. If you do end up needing the the ER, yes out of the FERC on the amendment is their time in there as well or would that be kind of incremental on the schedule.
Yes, John we have.
Go ahead day, that's like ahead of time.
John This is Tom.
The the amendment.
On the certificate that we filed with the does not change the limits of disturbance of the original certificate all of that does this changes the method of crossing certain of the streams. So we don't anticipate nor do we think it's relevant to any requirements for ntis, it's simply a change of crossing method.
Alright, that's fair Thanks, Tom maybe.
Maybe just for my follow up then.
Some of your peers have talked about weakness in the Utica I know, it's obviously smaller for you, but just curious if you could kind of update on update us on trends, there and then and it looks like golf carts being resolved the nicely just maybe if you've seen any volume impact there that could come back. Thanks.
So on the Gulfport side, yes, it has been.
Been resolved nicely or at least it's on its way to final resolution on we're not really seeing any impact there.
As far as volumes there, they're flying what they were flowing on.
From the Utica perspective.
I would flip it to Justin.
I don't have any other information on on how things are changing differently in the Utica I would just check with Justin and make sure. He agrees.
Hi, This is Justin Yeah, I agree I mean, our exposure to the Utica is primarily over in Ohio assets and we have a number of customers that are still pretty active over there, but I don't think of Theres any other real changes to report from line.
Understood. Thanks for the time.
Your next question comes from the line of Brian Reynolds from UBS. Your line is open.
Hey, Thanks for taking my question. This is Brian on for Shneur just to start off on the follow up the Shneur regarding the Army Corps on for Ike regulatory processes is the current guidance kind of expecting the regulatory decisions coming horky for both of at this point. Thanks.
Yes, yes, so our.
The guidance kind of encompasses a range, but our construction plan right now assumes that both of those approvals come on.
Before year end, but we've also worked we're not going to do a ton of work over the winter. So if for some reason one of those lags to the first quarter, we can still hit that same guidance range.
Right and I guess, specifically related to the Army Corps of regulatory process, just seems like there will be the delay from the July 2nd.
On the timeline is there any kind of update of when we should be expecting that at this time or is that no kind of of black box and one on just.
From a regulatory perspective things you know I thought the I's and cross the Ts.
Yeah. So on that there are discussions going on and we do expect that we'll we'll find that out here in the next couple of months, but.
There's we don't have any further information as far as when we will know that but the agencies are talking so that's always a good sign.
Great. Thanks, and that's just a quick follow up related to the Capex.
Is it mostly just one for one pushed into 'twenty two with some timing delays or is there anything else that we should be thinking about as it relates to capex.
Yeah, so from a budget perspective about half of the cost is due the timing adjustments on.
Which require the need to maintain environmental controls on the right away for a longer period of time. The remaining of that that balance is really due to re sequences of construction activities and related mobilization of crews.
And our ability to completely reclaim along certain portions of the route. So just some of that re sequencing. We don't have much construction risk left it's just we were hoping to get some of the uplands and the.
Streams down at the same time and now we're gonna have to go back.
Great that all makes sense, thanks, everyone and have a great day.
Yeah.
Your next question comes from the line of Jeremy Tonet from Jpmorgan. Your line is open.
Hey, Good morning. This is James on for Jeremy just wanted to follow up with the previous question just on the cost it seems like for the N V. P of the cost increase you said, it's for maintaining the the right way for a longer period of time just.
Just to make sure I heard that right and the 200 million cost increase as.
As of resolve that and not really the change of mythology in terms of how the MVP the completion.
Correct, it's not it's it's it's the delay that's really driving that and then just some re sequencing things that we have to do separately instead of all at one time and some of it doesn't liberalizations, but nothing nothing other than delay.
Got it thank you for bringing it up and then just on the rate of interest season in leverage side of of the business.
How have you had any conversations with the really interesting since kind of of the pushback in timeline and have.
How do they have any bogeys for their thresholds as to what they're looking for in terms of completion and and you know where they stand on the underwriting of the spaces.
They haven't given us any bogeys or lines on the sand or anything of that nature. We we we keep a pretty regular dialogue with them and we try never to surprise him. So we did let him know that.
The timing on N V P of completion had changed.
I suspect that will be coming out with some comments for some of them will.
Got it makes sense and then last one for me just on the quarter, you mentioned higher parking alone and storage business have you seen the continued through Q1 and what is the dynamic really in the storage for the northeast right now as you're seeing it play out.
Justin I'll pass that to you.
Sure I think you know as it relates to the overall transmission and storage business, we see some seasonality to that so Q2 will be down from Q1 as a result of just the seasonality.
You know I think from an overall standpoint, our park and loan activity.
In the first quarter is generally a function of.
Volatility of the market and.
As you know as everybody saw in February with a lot of activity there that we were able to capitalize on so.
Hard to predict that going forward, but generally speaking like I said the.
Transmission and storage business has some seasonality to it.
Yeah.
Got it thanks, so I'll stop there.
Your next question comes from the line of Derek Walker from Bank of America. Your line is open.
Hey, good morning, everyone. Thank you for the color on MVP, maybe I'll just start with the crystal of Levered target of being below Forex I guess at this point I know, there's a proof that the patient days of project financing as a point on what the.
He came on line.
There's the Forex target I guess, assuming that and should we be thinking of that as sort of a point of 23 of them at the point.
I think the best way to think about that as you know once we get M. V. P done we will immediately be doing some sort of a non recourse financing.
Hum.
If if EQT stays for the counterparty and keeps the capacity.
We think we can do probably about 800 million of an investment grade level, if that capacity goes to of utility company.
Probably get to like $1 billion, so that'll be on an immediate.
Dropping the leverage ratio and then we'll just continue to delever with the cash flow from ops.
It probably hit that four times threshold in about two years. After N V. P goes into service.
The I appreciate that and maybe with the a.
A quick one on just hell.
On the V. P. Here any lessons learned from the previous winter season around maintaining the right away and sort of how you are approaching the next winter season.
It sounds like your net debt.
The planning too much in January February, but just how are you.
Just the approach on sort of maintaining the right of way instead of through the network.
Yeah. So I don't know that it's really a lesson learned but it's certainly our utmost FERC focus which as you know we don't want to get ahead of ourselves and get too much right of way open. Our main goal is to make sure that we are controlling the right away and have our E. S. P. N S controls so that we don't get side.
Ways from the regulatory standpoint, we want to make sure. We're following in complying with everything and so that's our main focus during this tough winter months.
Got it I appreciate the day that and then maybe just the last one for me. It's just if you can talk about starting to update the construction of its likely to is there a general time frame.
Yeah on the first half of the second half point, you thought there would be helpful.
Yeah, so it would be.
Mid year, starting construction, that's that's our plan right now one of just make sure we get all of our permits and everything taken care of and then that's why it'll go into 'twenty three.
Alright, thanks, very much I appreciate it.
Derek. This is this is Tom I, just wanted to add a little bit of color around your question because I think it's a good one part of the frustration that we felt around mvps delay.
Is that we've continued to to have the right of way open when we could have otherwise permanently restored it and we're on many landowners property for for too long and what what are hoping objective is here now is it.
To get these comprehensive regulatory reviews done as quickly as we can and to get the FERC approval to two board of certain amount of the crossings. So that we can complete the project on permanently restore the right of way quickly and get off of everyone's property and we think the bed is the most environmentally sound thing we can do.
At this point.
Okay.
Thanks for the additional other tough that's from.
Yeah.
Your next question comes from the line of Christopher <unk> from Barclays. Your line is open.
Hey, guys good morning.
Most of my questions have been asked already but just one quick one if I could can you give us an update on how your conversations with the.
Of the partners in the project are on.
Our are going are proceeding I know a few of them have expressed interest in possibly selling their stakes.
In BP over the last couple of months, So just curious to hear how.
How that relationship is today.
This is Tom.
The relationship is quite good and over time.
Peoples.
Portfolios change in their requirements change for what they want to hold this asset so I think it's.
It's.
It's no surprise that the.
That's some of our partners may in fact the.
On exploring monetizing some of their interest to us, but it certainly doesn't impact.
The transparency.
And quality of our relationship with our partners, we think that.
Coming through a project like M B P.
With the.
With our partnership intact shows the the strength of the partnership but in terms of whether it's the capacity or their interest each company makes it makes the decision based on what their own strategies.
Yeah understood I guess the.
The second part of that is.
Obviously, there's a number of considerations but.
Would would echo trends be interested in upping their stake in the project or are you guys happy with how it stands today.
Well I think the partnership agreement provides for us to have an opportunity to discuss that.
We're not at that point, yet, but certainly.
<unk>.
Right now we're focused on managing our capital discipline, and making sure that we finish the project.
You put on opportunity presents itself, we'll evaluate.
Uh huh.
We'll evaluate the opportunity at that time.
Okay for now no more no more color on that right now.
Okay understood that's it for me thanks.
Yeah.
Again, if you would like to ask the question. Please press star and the number one on your telephone keypad.
Next question comes from the sign of Sydney also stable from Seaport Global Your line is open.
Yes, hi, good morning, everybody and thanks for all of the clarity and just sort of follow up.
A question with regard for the project debt and the P. I think you mentioned 800 million two of billion you start on MVP on 100 per tonne basis on your part of the MVP.
That would just be are part of of.
N V P.
Okay.
That's all I have thanks for the color.
Okay.
There are no further questions at this time I turn the call back over to Tom Karam.
Yeah.
Thank you and thanks to everybody for joining us so as.
As our results show today.
The core foundation of our company performed well quarter after quarter.
And we need to complete MVP as we talked about.
And two to.
To take it take advantage of the narrowing of regulatory process.
We will continue to focus on operating safely and reliably and we will continue to lean into creating.
The initiatives on ESG that are close to our core competencies and uplift our assets in that regard to mitigate methane emissions and to hit our targets.
Particularly 2030 by reducing methane emissions by 50%.
So with that thank you all for joining us today, and we look forward to speaking with you again.
This concludes today's conference call. Thank you for participating you may now disconnect.
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Yeah.
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