Q2 2021 Equitrans Midstream Corp Earnings Call
Good day, and thank you for standing by and welcome to the Heck with trends mid stream Q2, 2021earnings call.
At this time all participants are in a listen only mode.
After the Speakers' presentation, there will be a question and answer session.
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Please be advised that today's conference is being recorded.
If you require any further assistance. Please press the star zero and I would now like to hand, the call. So would you be speakers Nate Tetlow. Please go ahead.
Good morning, and welcome to the second quarter 2021 earnings call for equity and Midstream Corporation.
A replay of this call will be available for 14 days beginning of this evening.
The phone number for the replay is 805.
And 58583, and 6.7 or 4.1 and 6.6.
6214642.
And the conference I D is 45 to 9988.
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 and form 10-K from.
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 statements.
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.
Reconciliations to the most comparable GAAP financial measure.
On the call today are Tom Karam, Chairman and CEO, Diana short letter of 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 for change Ria, Vice President and Chief Accounting Officer.
After the prepared remarks, we will open the call to questions.
I'll turn it over to Tom.
Thanks, Nate and good morning, everyone.
For the quarter net income was $40 million and adjusted EBITDA was $272 million.
Marking another quarter of solid results.
Our assets operations and people continue to deliver as we exceeded the high end of our adjusted EBITDA guidance for the quarter.
Kirk will provide more details on the financial results and a few minutes.
Last week, we released our annual corporate sustainability report.
The report was produced in accordance with G. R I Global reporting initiative.
And sales be sustainability accounting standards Board standards.
Our 2021 and report expands our range of material ESG topics and outlines the progress we've made.
The highlight a couple of items, but I also encourage everyone to access the full report through our website and echoed trans midstream Dot com.
First we've made great progress on reducing total air emissions with 'twenty, 'twenty being 12.5% lower than 2019.
And specific to methane, our methane intensity rate decreased 17% year over year.
Second in 2020, we formally launched our new inclusion program.
The program provides employee education and is designed to enhance our recruitment processes employee engagement and inclusion related policies.
Lastly over the past year, we further developed our sustainability framework.
And initiated a climate policy and human rights policy.
We also established the position of Chief Sustainability Officer.
And enhanced our board with additional independent directors.
We now have a 9 member board of directors, including 8 independent directors 4 of whom are female.
I'll now turn the call over to Diana for the operations update.
Kirk will provide the finance update and <unk>.
I'll come back for some short closing remarks before we open the call to your questions.
Diana.
Thanks, Tom and good morning, everyone I'll start with MVP.
And the construction side, we have been working since spring and all approved upland areas and are on track to complete this work and the file once the upland work is complete the remaining work will include approximately 10 miles related to water crossings and 8 miles related the areas in and around the Jefferson National Forest.
On the permitting side since applying for the remaining water body and wetland permits and February and V. P has been providing requested information to the U S. Army Corps of engineers and FERC with regard to FERC Certificate of Amendment process first recently published the notice of schedule, which indicated that the environment.
All of assessment is expected to be published in mid August.
Moving on to the Army Corps individual permit process as anticipated the Virginia and West Virginia were granted additional time to perform therefore, oh and water quality certificate reviews.
We support these extensions and the new time of frames or the end of December from Virginia, and the end of November for West Virginia.
The permitting process hasn't been and we expect that it will continue to be very comprehensive and we appreciate the effort that the federal and state agencies are putting forth the expected permitting timelines for the FERC and the Army Corps remained consistent with MVP summer of 2020, 2 targeted and service and the total project.
Cost estimate remains approximately $6.2 billion.
1 final comment on N V P and July the JV announced plans to neutralize N V. Pes operational emissions for its first 10 years of service through the purchase of carbon offsets.
Non full implementation of the carbon offset plan and V. P will become 1 of the first Interstate natural gas transmission companies and the United States to achieve carbon neutrality for operational emissions. We're proud to make this important commitment with our MVP partners and advanced Echo trends and the industry's efforts to reduce.
Methane emissions and then.
On to our base business gathered volumes and transmission throughput. We're ahead of our forecast for the quarter with the natural gas price dropped providing some tailwind.
Those Henry hub, and local and natural gas prices had a nice uptick during the quarter, which continued in July while our customers remain focused on free cash flow generation over of volume growth. The pricing strength means we have not experienced the same price driven production curtailments. We saw last summer we are cautiously optimistic.
The prices will remain strong through the summer and into the winter withdrawal season, resulting in modest year every year of gathered volume growth.
On the water segment. We are also running ahead of our plan for freshwater delivery and today increased our full year water EBITDA guidance from $25 million to 30.
In terms of capital we've refined our plans for the year, which resulted in a reduction of $50 million from our previous guidance. The decrease is primarily a result of continued system optimization on the gathering segment favorable contract pricing and some shifting of project timing and.
And lastly, we recently completed a binding open season related to our Echo Trans transmission system. The open season resulted and shipper interest for access to markets and the Midwest and Gulf coast, primarily through existing delivery interconnects with the Interstate pipelines and clearing to and Ohio. We are pleased with the interest we received and.
And are evaluating shipper requests and we expect to have more details to discuss later this year I'll now turn the call over to Kirk.
Thanks, Diana and good morning, everyone.
Today, we reported second quarter net income attributable to E train common shareholders of $22 million and earnings per diluted common share of 5.
Net income was $40 million adjusted EBITDA was $272 million and the.
<unk> revenue was $75 million.
We also reported net cash provided by operating activities of $383 million of free cash flow of $220 million.
Net income attributable to <unk> common shareholders was impacted by 2 items during the quarter.
The first item is of 56 million dollar of impairment to the Ohio of water assets, which were acquired from Rice Midstream partners and 2018.
The second item and the $9 million unrealized gain on derivative instruments, which is reported and other income.
This relates to the contractual provision of entitling E train to receive cash payments from EQT.
Just on Henry hub natural gas prices exceeding certain thresholds starting in the quarter of MVP and service and continuing through the fourth quarter of 2024.
After adjusting for these 2 items.
Second quarter adjusted net income attributable to E train common shareholders was $57 million and <unk>.
The earnings per diluted common share was <unk> 13 cents.
E train operating revenue for the second quarter 2021 was higher compared to the same quarter last year by $8 million, primarily from increased gathering volumes and higher transportation and throughput, partially offset by decreased water services volume.
Operating expenses for the second quarter of 2021 or $50 million higher than the second quarter of 2020 with the increase primarily driven by the $56 million of impairment to the Ohio of water assets.
For the second quarter E train and will pay a quarterly cash dividend of 15 cents per common share on August 13th.
The common shareholders of record at the close of business on August 4th.
And lastly, as a result of our strong second quarter results and outlook for the remainder of the year. We raised our full year 2021, adjusted EBITDA guidance range from <unk>.
1 point of $7 billion to $1.14 billion and free cash flow guidance range to 380 million the $450 million.
I'll now hand, the call back to Tom.
Thanks Kirk.
So to summarize our base business continues to deliver the.
The natural gas price environment has strengthened and the macro outlook is encouraging.
Our customers are getting healthier and continuing to exhibit the discipline necessary for long term benefit.
We're making great strides on the ESG front and.
And lastly, MVP construction and permitting are on track with our expectations.
With that please stay safe and wash your hands and we're happy to take your questions.
Thank you to ask a question. Please press star 1 on your telephone keypad to withdraw your question press the pound key please standby, while we compile the Q&A roster.
The first responses from Shneur <unk> with UBS. Please go ahead.
Hi, good morning, everyone, maybe the to start off on the the MVP update.
Diana you sort of mentioned in your prepared remarks.
But you don't have set dates for west, Virginia, and and and for Virginia.
If if I recall correctly, 1 point, Virginia was actually looking for like a larger extension into March and so forth.
Now of a firm date and if they don't act by then.
And just the core just the issue I'm just trying to understand kind of the dynamics about how that's kind of specifically play out with Virginia.
Yeah. So all indications that we have right now from.
From the core and from the Virginia D. Too is that they can hit that 12, 31 day that they've set and.
The core does after that point have the ability to proceed assuming that Virginia would have waived but they don't have to so.
It's really up to the core but everything we're seeing which is important is that all of the agencies are working to that date.
Yeah.
Okay, and it would would it impact your ability like if if they did not hit that date and the core debt issued would that create potentially of wedge issue from a legal perspective or.
That would superseded.
So I mean, I think if they if they don't hit it there's a little bit of time built into our schedule because we're not really going to do a lot in January and February. So if they go all the way to March which is what they originally asked for it.
It really just pushes the C O D on MVP from early summer of 2 late summer.
Okay got it sort of the belief that a little bit.
And this is this is Tom Shneur, let me just just to clarify just a little bit the the.
The date that the.
We put out for the West, Virginia, and Virginia for the ones, we're not done in a vacuum the core was and consultation and communication with Virginia, and West, Virginia, and those dates where the results of that kind of consultation. So that there is agreement among the parties that those of the day.
Okay perfect I really appreciate that clarification, there so that everybody has gone and the onboarding of Aki and concert.
And maybe just to pivot a little bit here excuse me really cant talk about hammerhead show.
Was wondering if maybe you can talk about the open season.
Have you moved to a binding open season, because the higher transmission throughput that we're seeing sort of suggests there's somebody agreement signed the outside of it.
And kind of what of your your latest updates with respect to the open season that was originally filed a while ago. Yes. So we did move to a binding open season and that has also been closed so what we're doing right now is evaluating all of the shipper requests that came in and there were several so that's really good and.
And then part of that all of valuation is really determining what capital is required on the.
The project Economics, and there is still some back and forth with those shippers as far as where they want it come from and where they want to go. So we're working through all of that right now with shippers and.
And we should have final results and the next couple of months to give you more information.
But it was a good young open season.
No that makes sense I appreciate that thank you very much for all of the color today.
Thank you.
Thank you. Your next response is from John Mackay of Goldman Sachs. Please go ahead.
Hey, good morning, Thanks for the time, just wanted to circle back on the change and gathering Capex.
I know you said there were a couple of moving parts of their but just curious if there is any kind of read on 2022 volumes from that.
Hi, Good morning, this is Justin.
I'll add a little bit of color there on the gathering and the Capex. So you saw the downward revision of about $30 million on our 2021 gathering capex, that's really a mix of <unk>.
System optimization is made possible by our new gathering contracts and some lower realized contract or pricing that we're seeing as well and then some deferral of projects and the 22.
Do want to note the.
And the level of transparency and communication with our producer customers, especially EQT creates a lot of the benefits that we're seeing now in terms of aligning our projects and optimizing our spend but as it relates to your question and the deferrals It falls into 2 categories.
All of a chunk of it is related to pad timing and 2022. Our goal is really always to avoid winter construction where possible. So if of pad is scheduled for early 'twenty, 2 and we would generally construct those lines and the fall of 'twenty, 1, but if the pad moves. The later in 'twenty..2 we can ship that build into the spring of 'twenty, 2 and still meet the producers time.
And again.
The coordination efforts between the organizations and what really makes that level of scheduling possible. The other category of deferrals as compression and and we add compression as needed by the producers to optimize their production.
So some of the deferred capex the that we're seeing move to 'twenty 2 is related to compression projects that aren't required at this time.
And also keep in mind that most of our gathering contracts later and incremental fees windows compression projects come online as it saw a higher level of service, but in terms of volume.
Implications for 'twenty, 2 we're still expecting volumes to remain flat. The the deferral of projects is really just the function of our coordination efforts and our ability to optimize our spend accordingly.
That's great really helpful and.
Good to hear the relationship with EQT is still a slug of unwell.
Maybe I'll just ask 1 follow up on MVP.
We've seen some comments from the EPA recently I think they were kind of misunderstood by by some so just curious if you guys could give us an update on kind of.
And where that kind of communication is going and kind of what the EPA is role and this process overall is and will be thank you.
Sure Yeah. The EPA comments were provided as part of the Army Corps of permitting process. So that's how it's actually intended to work. So now the Cork and take those comments and ensure that they are appropriately addressed as they go through the permitting process. So we're confident the.
But all of the comments from the EPA either have been or will be addressed and then the Army Corps is the agency that ultimately issues the individual water permit that those comments were just.
Part of that process from the EPA.
Alright Thats it from me thank you.
Think of your nice responses from Spyros doing this of credit Suisse go ahead.
Hey morning team first of all of the multipart question on carbon neutrality. So obviously, you announced MVP offsetting its carbon just curious if you could talk a little bit more about your ability to implement something like that across the rest of your assets and how you're thinking about the ability to generate return from this initiative and then kind of more broadly is there a permanent.
And solution I guess over the long term rather than purchasing these offsets to do something more integrated.
So good questions.
We've been spending a lot of time developing strategies to continue to reduce that greenhouse gas emissions and.
And at the same time meet.
Meeting all of the essential needs that we have and.
And the the country has for energy.
Certainly looking and we understand that we have an obligation to address and attack methane reduction, but really wanting to find something that fits within our strategy. Our core competencies and also creates value for shareholders.
And.
If there's an economic opportunity to add that value. That's certainly something we're very interested and we're taking some time to learn right now we're doing small things small solar thing some waste heat them, a little bit of hydrogen research to make sure of that we're really paying attention. So learn as we implement some of the smaller.
Scale things and then as our balance sheet.
And.
Starts to strengthen and we get MVP behind us and I think there's an opportunity type size up a bit on what we've learned we don't have we have a plan right now to get to 2030 as far as cutting our methane and.
And have continued to work through those other goals that we've set which are to be net zero by.
By 2050 total greenhouse gas by the and cutting that by 50% by 2040, and so we keep we keep working and we keep learning I think.
What I'm seeing from my seat is that we're approaching this a lot like we approach safety, which is.
I can see I can see it permeating within the organization and it's starting to show up in everybody's language, it's becoming part of the culture and that's the best thing for US. So that every individual is really participating and and we've incorporated some of that into our targets for short term incentive to make sure that the whole.
Organization is following along and getting involved.
Great. Thanks for the color Diana Ah.
The second 1 I don't believe you've been asked about M&A.
M&A and a while just given the focus and N V P and completing that but just.
The checking on that front and where that stands both as the potential buyer or seller of assets, we're seeing a lot more assets change hands and this market.
And we'd have to think of some of that is crossing your desk. So I'm just curious how youre thinking about M&A here and then even if the MB VP comes online is there anything you'd be looking to sort of line up quickly once your balance sheet is ready for it.
Spiro. This is Tom I mean, clearly we always have our eyes on what's going on and the marketplace around us.
But make no mistake.
Our first job here is to complete MVP and begin the delevering the rapid delevering of our balance sheet.
You're correct there are a lot of assets out there that are.
Attempting to change hands.
And that we're aware of.
We're not leaning forward on anything right now.
But.
But you never say never but.
Our focus right now is completing MVP.
Understood. Thanks for the color guys and be well.
You too.
Thank you your next responses from Derek Walker of Bofa.
Thanks.
Maybe just a couple of quick ones from me and there was some provide and update on Southgate and sort of what are your approaches there I guess, how do you kind of see.
The approach evolving as of as potentially you know you get the feedback from the the FERC and.
And perhaps some of these are water permits and other states.
And does that have any influence on sort of the approach for his update.
Yeah, So right now and.
Certainly certainty on N V P and the mainline is will be helpful and right now we're working through all of those permitting obstacles.
Assuming that we start construction in 'twenty, 2 with a C O D. Sometimes spring 'twenty, 3 and South gate, So yeah, and I think that the MVP mainline does any positivity on that helps them with the permitting on Southgate.
Got it and I guess for the the FERC.
And he said the mid August I guess at this point, obviously, there's been some back and forth and they have everything they need at this point or do you anticipate anything else.
And now in the next couple of weeks here.
Yeah, I think they have everything that they need but we're in close.
Contact with them as far as the.
Data requests and things like that and so if there is anything else, we're well positioned to to give them what they need but I think they have everything right now.
Got it thanks, Dan and.
And that's it from me thank you.
Thank you to ask a question. Please press star 1 on your telephone keypad.
Your next response is from Jeremy Tonet of JP Morgan. Please go ahead.
Hi, good morning.
Good morning.
Just wanted to follow up on some of the de Carbonization I guess the questions and comments so far and.
Just wanted to see any thoughts you had on R&D at this point and opportunities for E train.
Forward with regards to R&D.
Yeah. So we continue to look at that.
I, it's it's something that's interesting to us, but I think in our footprint and and our core competency you know as that fits that's something that's interesting to us we don't have anything right now that we're moving forward with and that arena, but consider it.
And to be part of our our toolset.
Got it makes sense and I'll leave it there. Thank you.
Thank you and there are no further questions in the queue at this time.
Yeah.
Well, thanks to everyone for joining us please stay safe out there and we look forward to talking to you again and a couple of months.
Have a great day. Thank you.
This concludes today's conference call. Thank you for participating and you may now disconnect.
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