Q2 2022 Equitrans Midstream Corp Earnings Call
Hello, and thank you for standing by my name is Regina and I will be your conference operator today at this time I would like to welcome everyone to the equity oriented midstream second quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad, if you'd like to withdraw your question Press Star one again.
I'd now like to turn the conference over to Tom Karam, Chairman and CEO . Please go ahead.
Good morning, and welcome to the second quarter 2022 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 870 7020.
030, or 64736 to 9199 and the conference I D is 6625542.
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 each area and Form 10-K for the year ended December 31 2021.
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 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 most comparable GAAP financial measure on.
On the call today are Tom Karam, Chairman and CEO , Diana <unk>, President and Chief operating Officer.
Kirk Oliver Senior Vice President and Chief Financial Officer.
Justin Macken senior Vice President gas systems planning and engineering.
Brian <unk>, Vice President and Chief Accounting Officer.
And Janice Brenner, Vice President and Treasurer.
After their prepared remarks, we will open the call to questions with that I will turn it over to Tom.
Thanks, Nate and good morning, everyone.
Today, we reported second quarter results ahead of our forecast, including net income of $74 million.
Adjusted EBITDA of $264 million and deferred revenue of $89 million.
We also increased our full year financial guidance.
Kirk will provide details on our financial results in a few minutes.
The base business continues to deliver solid results.
We secured a nice compression growth projects that will further enhance our core assets and we will continue to make progress with our many ESG efforts as detailed in our recently published corporate sustainability report.
And then B P. We reiterate the targeted full in service date during the second half of 2023.
At a total project cost of $6 $6 billion.
We are encouraged by and appreciate the work being done by the federal agencies and the permitting renewal process.
We remain focused on everything within our control and believe projects like MVP that follow every required process and received every required permit should prevail.
And now I'll turn it to Diana for the operations update and then Kirk will discuss the financial results Diana.
Thanks, Tom Good morning, everyone I'll start with gathering.
During the quarter, we entered into an agreement with a producer customer to add booster compression to the existing facility backed by a firm long term agreeing that the project is targeted to be in service in mid 2024, with an investment total of about $70 million.
On compression projects like this we typically realize a building off the ball in the four to six times range.
At a high level, we still believe that a basin volumes will remain roughly flat until further takeaway capacity becomes available for this year. We continue to expect the gathered volumes will be slightly down year over year based on current year development plan and pad timing.
Moving on to transmission.
Earlier this year, we announced the Ohio Valley connector expansion RBC ex project and began the FERC application process.
July 1st provided its notice of intent to prefer an environmental impact statement for the project and based on the expected permitting timeframe. We are now targeting an in service in the first half of 2024.
Obviously, FX will add about 350 million cubic feet per day of deliverability on our Ohio Valley connector pipeline, which provides access to the mid continent, and Gulf coast markets through Interconnects and clearance in Ohio.
On the water side, we continue to expect our water EBITDA of approximately $30 million for the year and are making good progress on the next few system buildup.
Next an update on ESG.
Last week, we released our annual corporate sustainability report the report utilizes the global reporting initiative newest consolidated set of G. R. S standards 2021 and continues to follow the SaaS the oil and gas midstream standard. The report also reflect the results of our 2022.
T reality assessment, which for the first time included input from both internal and external stakeholders.
In 2021, we formalized many commitments, including the adoption of a supplier code of conduct human rights policy and stakeholder engagement and community investment policy and more recently, we published our environmental Justice policy.
As outlined in our climate policy. We are also taking active steps toward achieving the targeted 50% reduction in scope, one and scope two methane emissions by 2030.
For example, last year one of our methane reduction projects included the conversion of magnetic controller.
Some of our compressor station as we exit 2022. This is not a conversion project together with additional methane reduction initiatives that we continue to implement are expected to result in an estimated 20% decrease in methane emissions relative to our 2019 baseline inventory.
There are many highlights can be found in the report, including those around community partnerships and local giving safety and environmental leadership workplace culture initiative and diversity inclusion I encourage everyone to access the full report through our website at <unk> midstream dot com to see the details of our ESG.
I'll now turn the call over to Kurt.
Thanks, Diana and good morning, everyone.
Today, we reported second quarter net income attributable to E train common shareholders $55 million and earnings per diluted E train common share 13th.
Net income was $74 million adjusted EBITDA was $264 million.
Deferred revenue was $89 million.
We also reported net cash provided by operating activities of $351 million.
Free cash flow of $184 million.
Net income attributable to <unk> common shareholders was impacted by several items.
First by a $14 million unrealized gain 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 on specific Nymex Henry hub natural gas prices exceeding certain thresholds.
Mvp's in service and through 2024.
Second by a $25 million loss on extinguishment of debt.
Which is related to the purchase of $1 billion of aggregate principal amount of EQM senior notes and tender offers.
And lastly by a $16 million reduction of valuation allowances because of decreases in deferred tax assets.
This gets reported within the income tax expense line.
After adjusting for these items second quarter adjusted net income attributable to <unk> common shareholders.
Was $47 million and adjusted earnings per diluted E train common share was <unk> 11.
E train operating revenue for the second quarter of 2022 was lower compared to the same quarter of last year by $20 million.
This was primarily from the impact of deferred revenue.
Our gathered volumes and lower water services revenue.
Operating expenses for the second quarter of 2022 or $70 million lower than the same quarter last year, primarily as a result of a $56 million impairment.
Long lived assets in the second quarter of 2021.
The remaining decrease was from lower SG&A and O&M expenses.
For the second quarter E train will pay a quarterly cash dividend of <unk> 15 per common share on August 12, the common shareholders of record at the close of business on August 3rd.
In June we successfully access the bond market to address near term debt maturities.
We issued $1 billion of new senior notes.
Flip between a five year tranche and an eight year tranche.
Proceeds were used to purchase $500 million of the outstanding 2023 notes $200 million of the outstanding 2024 notes and $300 million of the outstanding 2025 notes.
In early July EQT elected to receive a $196 million cash payment to.
To forgo approximately $235 million of future rate relief.
We have ample availability under our revolver to make the payment.
We no longer will be providing the $235 million of rate relief under the gas gathering agreement. The average gathering rate use for GAAP reporting will increase by approximately a penny.
This slight increase in the average gathering rate means we'll be deferring less revenue into future periods.
This update is reflected in the financial guidance provided today.
As mentioned on the heels of a strong Q2, we have increased our full year guidance.
For the full year 2022, we now forecast net income of 255 million to $325 million adjusted EBITDA of one point <unk> 5 billion.
1.0, $85 billion and deferred revenue of approximately $340 million.
I will now hand, the call back to Tom.
Thanks Kirk.
So in summary, the base business and operations remain resilient.
We've added a compression growth project that will enhance our core business.
We've addressed near term debt maturities and we are working hard on completing the MVP permitting process.
It remains clear that our abundant domestic natural gas reserves must be developed and transported to meet the world's increasing demand for reliable energy.
It's also clear that MVP would not only provide reliable energy will also play a key role in our energy security as.
The geopolitical unrest continues.
As we work toward the reinsurance of permits.
Valley recently completed its updated supplement to the biological assessment.
Which was submitted to the U S fish and Wildlife service on July 29.
We believe this comprehensive document.
Which far exceeds the legal and regulatory standards for the issuance of biological opinions.
We will address the concerns outlined in the fourth circuit's decision to vacate and remand. Our previously approved 2020 biological opinion.
As well as issues raised by project opponents.
In addition, as part of MVP Certificate extension process. We were extremely pleased with the support letters that were filed with FERC by several southeast utilities and many Appalachian basin producers.
These companies offer the best real world insights into the consequences of inadequate access to natural gas supplies and further highlight the critical need for MVP.
And last as it relates to the proposed federal permitting reform and jobs Act announced yesterday.
The need for this proposed bill should be crystal clear.
By creating a very defined set of rules. This proposed legislation provides for a continued thorough review and approval process that is led by the expertise of federal agencies and provides best practices for public participation.
It addresses and ensures our nation's ability to produce and deliver our vast domestic energy resources, including renewables.
And is absolutely essential for our nation's energy security.
It enhances our ability to construct export facilities to deliver energy to our allies as well as our ability to effectively transition to a lower carbon future.
This proposed per permitting reform is essential to address the issues that have presented costly and time consuming delays in the construction of energy infrastructure.
And supports Americans demands to execute a timely transition to clean energy, while at the same time, ensuring energy reliability and affordability.
A perfect case in point is our MVP project, which has been collateral damage as a result of an uncertain permitting review process and judicial system.
Most importantly, this comprehensive reform goes far beyond MVP.
It is about furthering our nation's role as a leading energy producer for both natural and renewable resources in support of our National security and our allies.
While MVP is nearing the end of its long and delayed permitting process. This proposed legislation will benefit an MVP expansion and the MVP Southgate project as.
As well as other energy infrastructure projects by providing a timely and certain permitting process.
Is just as important for our renewable energy infrastructure projects as it is for oil and gas.
We look forward to further developments relating to this important and timely legislation.
And we applaud the steadfast leadership and resolve of Senator mansion in spearheading this legislation.
With that we're happy to take your questions.
At this time, if you'd like to ask a question simply press star one on your telephone keypad again that is star one for any questions. Our first question will come from the line of Jeremy Tonet with J P. Morgan. Please go ahead.
Hi, good morning.
Good morning, Jeremy.
Just wanted to kind of follow up with some of your points at the end there.
There has been media reports have indicated a separate side bill.
But that center mentioned it is proposed that could directly aid MVP pipeline permitting just wondering if you are familiar with these initiatives and if you can provide any thoughts there.
Yes, Jeremy Thanks for the question.
The proposed legislation that I referenced the federal permitting reform and jobs Act.
Is a comprehensive permitting reform bill that includes the direct treatment for MVP. So so there is no additional side built to that that is the proposed legislation and as.
As you might have suspected.
We've been engaging actively with Democratic and Republican Senators for quite some time now not only on MVP specific issues, but the broader reform issues and we think much of what was disclosed yesterday addresses.
Those those permitting reform issues that would be beneficial to all energy infrastructure as I highlighted oil and natural gas infrastructure as well as renewable energy infrastructure.
Got it thanks for that and if this bill were to be passed how might that impact the expected timeline for MVP at this point.
Yes, its tour, it's too early to tell and it.
All depends on the timing of of the legislation itself, but suffice it to say that.
We're clearly pleased with with this proposed legislation and we're cautious cautiously optimistic that it will be.
Passed in the near term and once we get there.
Those data points will be able to to revise our guidance as needed.
Got it I'll leave it there. Thank you thanks.
Thanks, Jeremy.
Your next question comes from the line of John Mcnulty with Goldman Sachs. Please go ahead.
Hey, Thanks for the time I wanted to pick up if I can on undisclosed last couple questions are you in understanding. Its early days are you comfortable with this potential legislation getting you through kind of.
Let's say all the remaining issues for MVP and I'm, specifically thinking of the ongoing.
Fourth circuit cases.
Just wondering if you can comment on that.
Yeah. So John let me let me respond this is Tom let me respond to ways.
We're comfortable and confident in the ordinary course process that we're going through right now with the reassurance of the biological opinion and our efforts to get the Army Corps and through the fourth circuit, we have a high degree of confidence that.
All of our submissions on our work far exceed any of the thresholds to have those permits issued and withstand judicial review. So that's answer a answer B is yes. We are confident that the proposed legislation on what's included in there would provide the requisite certainty around.
Around MVP.
Alright, that's great and that's clear. Thank you, maybe maybe just pick pick them up on last one let's say, we do still have to kind of go.
Normal course for this in mind, just sharing some thoughts on what you think of for the timing in terms of.
Getting the federal permits and also hearing back from the FERC on the timeline extension.
So we have outstanding guidance that that says second half of 2023 is when we expect to put MVP in service that incorporates the ordinary course, if you will process two to complete with the permitting and get through the fourth circuit.
So that's already within our guidance.
With the permits probably yes coming by the end of this year. So you can start construction early next year is that still the right way to think about it correct. We've we've provided our supplemental to the fish and wildlife we expect them to act timely and that we don't have an exact date as to when they would issue the actual opinion, but we expect to have.
All of those permits in hand by year end.
That's great. Thanks for your time tandem.
Thanks, John .
Your next question comes from the line of Neel Mitra with Bank of America. Please go ahead.
Hi, good morning.
I wanted to understand just the current.
Process right now so can you describe where you are in the process with of course circuit on the West, Virginia, and Virginia water permit.
And then.
When you would.
File for the Jefferson National Forest permit I'm, assuming you need the biological opinion first.
So Neil.
The biological opinion is like the gatekeeper for the.
Other agencies to actually issue their permits that would be the forest service as well as the Army Corps of engineers.
The 401 litigation as it relates to Virginia, and West Virginia is ongoing through the fourth circuit.
And I think Thats should run through the fall towards the end of this year. So.
Again, all of those things are in process.
We're confident that we're going to prevail and <unk>.
Exceed all statutory requirements for the sustained.
Permits.
Okay and then.
I did want to ask a question about the proposed legislation so.
I wanted to understand kind of the interplay between a.
Legislation and.
The judicial branch.
You know.
Is there a way for legislation to be passed so that the fourth circuit can intervene.
On past issues like stinks and progress like the.
The water permits as well as future issues and there is also other media reports, saying that it could be pushed to the D. C circuit rather than the fourth circuit.
Sorry, I was just wondering.
How that would fit together the legislation and the and the court cases, there because.
You know the obviously the fourth circuit has been.
The major issue in terms of moving the.
The project forward.
Neal I want to be careful not to swim outside my lane and talk about things that we can't see.
Date with confidence and certainty what I can tell you is that the proposed legislation provides the certainty that we need at MVP in a manner that is consistent within congresses purview.
Okay.
Okay alright, thank you.
Yes.
Your next.
Next question comes from the line of Michael Blum with Wells Fargo. Please go ahead.
Hi, Thanks. Good morning, everyone. Just wanted to first just clarify one of your earlier comments.
Are you, saying that the what the media.
<unk> is reporting is a quote unquote side deal.
<unk> mansion.
Mansion in leadership is actually just the federal permitting reform and jobs Act or.
Did I hear that correctly.
I'm not commenting on any characterization.
Michael Good morning by the way the only thing that I can respond to is the pieces of legislation that we're aware of.
The inflation reduction Act.
And the federal permitting reform and jobs Act. They are the only two pieces of proposed legislation that we're aware of and within the federal permitting reform and jobs Act.
Many of the permitting reforms that.
Our industry as well as the renewable industry is really anxious to have passed and within the body of that proposed legislation is the direct.
Focus on MVP.
Okay got it understood I appreciate that.
Just another unrelated question.
Just curious if youre seeing any.
James and messaging or tone from your producer customers around drilling activity or planned for changed drilling drilling activity in light of the higher natural gas price environment, we're seeing.
Yes look we can't speak to the production forecast of our customers, it's up to them to speak publicly about that.
While we can point you to our public statements that I think some and maybe all of them have made about the takeaway capacity constraints within the basin and that.
The need for additional takeaway capacity is one of the limiting factors in the ability for the basin to grow.
Got it alright, thank you very much.
Thank you.
Your next question comes from the line of Alex Kania with Wolfe Research. Please go ahead.
Alex.
Alex Your line may be on mute.
I'm, sorry, I was on mute.
Hi, Good morning, just a question on in the press release.
You mentioned, there's a discussion on kind of re scoping.
Southgate extension I was wondering if you could.
Provide a little bit more color on on what that could entail and then maybe again, maybe putting the cart before the horse just.
If there's been any kind of evolving discussions that you've been having with.
With entities just on trying to boost egress beyond what's been.
Whats going forward already cited under MVP for all these other uses of gas for export particular.
Yes. So this is Diana and good morning, we don't have an update right now on Southgate, we do continue to have <unk>.
Constructive conversations and discussions with our existing customers and potential customers. So I think I think the news and the.
The environment that we're in right now is positive then.
We continue to have those discussions to say exactly what they need when they need it.
Great. Thanks very much.
As a reminder to ask a question simply press star one on your telephone keypad. Your next question will come from the line of Brian Reynolds with UBS. Please go ahead.
Thank you.
Good morning, everyone.
As a follow up.
The mentioned side deal.
Revision of the clean Water Act is included in the email.
Federal permitting Reform Act.
Ultimately kind of curious if this would have any impact on MVP timeline and whether any changes in the ultimate permitting process. Good unintentionally impact the existing timeline for the buy up.
U S Army Corps in the water permit et cetera. Thanks.
So I don't think theres going to be any impact on the timing as it relates to anything that's in the proposed permitting provisions.
<unk>.
I don't think this is a side deal I think this is a necessary piece of proposed legislation.
To make the industry, both the oil and gas industry and the renewable energy industry more efficient and constructing.
Infrastructure and if you talk to anyone in the industry.
We've been.
Hoping that we could get such reforms. So I think this is a very important piece of legislation that both sides of the aisle have been.
Supporting and now is the time for it to get past because it was a piece of leverage that may or may not have played into it but for us.
This is a critical piece.
Of legislation of for this country's ability to remain energy secure and independent and to provide for an orderly transition over time so.
The first part of your question is no. There is no impacts on the timing as it relates to what's proposed in this legislation and secondly, this is a very important piece of legislation.
Understood and then as a follow up appreciate the color on the energy permitting perspective, but maybe to switch the tax side. You know there are proposals as it relates to the corporate minimum tax.
In addition to impacted prior Nols was curious if you could speak to E train's exposure substantially not being able to offset future earnings prior Nols given MVP delays from prior years. Thanks.
Yeah.
This is Kirk Brian .
Yes, we've looked at that we don't think its going to have any impact on us obviously, we'll keep an eye on the language if anything changes, we'll we'll keep everyone updated but as it stands right now we don't see any impact on us.
Great appreciate the color I have a great rest your day everyone.
With that I will turn the conference back over to management for any closing remarks.
Thank you very much for joining us today, we're very pleased with the results of our quarter. Our business remains strong we hope that all of you on the call today.
We'll support this proposed.
Energy permitting reform.
Legislation and let everybody that you you talked to know that this is critically important for the industry.
With that everybody have a safe.
Jeff day and enjoy your weekend to come thank you.
Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
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