Q4 2022 Equitrans Midstream Corp Earnings Call
Ladies and gentlemen, thank you for standing by.
This time I would like to welcome everyone to the equity trends midstream yearend 2022 earnings conference call.
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 at that time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press Star one thank you.
Now my pleasure to turn today's call over to Mr. Nate Tetlow, Sir please begin.
Good morning, and welcome to the year end 2022 earnings call for <unk> Midstream Corporation.
Replay of this call will be available for 14 days beginning this evening.
The number for the replay is 870 702030 or 6473.
36 to 91.
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.
If you are and its Form 10-K for the year ended December 31st 2021.
And as updated by form 10, Qs for factors that could cause the actual results to differ materially.
These forward looking statements.
Also the Form 10-K for the year ended December 31, 2022 is expected to be filed with the SEC later today.
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 reconciliation to the most comparable.
Each measure.
On the call today are Tom Karam, Chairman and CEO .
Sure that our 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 to try Andrea Vice President and Chief Accounting Officer.
Janice Brenner, Vice President and Treasurer.
After the prepared remarks, we will open the call to questions.
That alternative over to Tom.
Thanks, David and good morning, everyone.
Today, we reported full year 2022 results, including a net loss of $257 million.
Adjusted EBITDA of nearly $1 $1 billion and deferred revenue of $345 million.
Kirk will provide details on the financial results in a few minutes.
I'll start today by addressing the MVP.
And the pads being pursued.
First on the permitting path.
We're actively engaged with the relevant agencies as they worked through yet another exhaust it round of analysis and review.
Specifically for the biological opinion.
Based on the fish and Wildlife services recent statements, we expect the biological opinion to be issued by February 28.
And based on the permitting timeline announced by the other agencies, we expect to receive all of the required permits and approvals.
Over the next few months.
This timing will allow for mobilization of construction crews in the summer of 2023, which will position us to bring MVP into service in 2023.
However.
As we all know we expect project opponents to yet again challenge these newly issued permits.
As such we believe the agencies are focused on issuing permits that will exceed all legal standards as well as address points previously leased by the fourth circuit.
Projects like MVP that comply with every process and receive every approval should prevail, which.
Which is why we remain committed to the regular way permitting path.
That said, we also believe that our country desperately needs federal permitting work for them.
This view has gained traction with members of Congress and the White house, especially since the passage of the inflation reduction Act, which promotes a variety of new infrastructure, primarily renewable project.
Companies need to have some assurance that if permits are issued and construction is authorized their investment won't be endlessly held hostage by legal challenge.
On the Legislative path, we were disappointed that Congress Couldnt pass a permitting reform Bill in December during the lame duck congressional session.
Although there are differences between and within the parties as to potential reform.
We believe there remains support from both sides of the aisle to work on a bipartisan solution and we think there continues to be prospects with legislation in the new car.
And now I'll turn it over to Diana for an operations update and then Kirk will discuss the financial results.
Diana.
Thanks, Tom Good morning, everyone.
First I want to address the storage well incident that occurred on November six that are regular mountain storage field, which is located in a remote area of Cambria County, Pennsylvania.
Shortly after notification Echo Chen's technicians arrived on site and observed natural gas escaping from advent on a single storage well, which was working as designed to relieve pressure from the casing. We immediately notified the Pennsylvania D E P and sensor and engaged a leading specially well control services company.
Inventing gas the successfully halted on November 19th.
During and after the incident, we were approved to withdraw gas from several other wells in the field for customer needs.
Currently and do not have permission to inject gas into the rigorous mountain field, but we are having active productive discussions with them and are hopeful of adult authorized us to inject gas during the coming season.
We have completed an inventory verification tests on the regular field and comparing to the previous inventory as the results indicate the storage inventory was reduced by approximately 129 Bcf.
We continue to evaluate whether and to what extent all of the inventory loss was due the venting or whether sun with Duke and so migration.
The root cause investigation phase is now underway.
We have engaged a leading firm with expertise in storage filled incidents to conduct an independent investigation and we also continue to closely coordinate our activities with the P E B E T.
In addition to the root cause analysis, we have initiated a comprehensive review of all of our storage well and storage stuff integrity. We will continue to work diligently throughout the review and expect to provide more information as it becomes available including the cause of the incident once the root cause analysis is complete.
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Our 2023 guidance, which Kirk will review in a moment does include expense and capital estimates related to the rigor incident based on what we know today.
We are continuing to gather and evaluate information about the incident, including related financial impact. So we will be very limited in what we can say today beyond what I've already provided in these prepared remarks.
Now moving on to the segments I'll start with gathering.
In 2022, we averaged about seven seven Bcf per day of gathered volume our outlook continues to be.
A basin volumes will remain roughly flat in 2023.
Producers hold to maintenance level development plans, largely driven by takeaway constraints in the basin.
Today, we initiated in 2020 three gathering capex guidance of $235 million to $285 million. This includes approximately $40 million for the new booster compression expansion project that we announced in 2022, which is slated for in service in 2024.
And approximately $20 million, but the other gathering growth project.
Moving on to transmission.
Last month for issued a final environmental impact statement for the Ohio Valley connector expansion or the O V C X project.
Expansion 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 clearing 10, Ohio.
We expect to receive all necessary approvals in the first half of 2020 three and the project remains on track to be placed in service during the first half of 2024.
Our 2020 three transmission Capex guidance is $90 million to $100 million, which includes approximately $65 million for the O V. C X project.
On the water segment the mixed use system build out is going well in 2022, we started operations at our first above ground water sports facility, which has a capacity of approximately 150000 barrel leaks.
We expect to bring the second above ground water storage facility into service in the next few months.
This will bring our total water storage capacity to about 350000 barrel. In addition to the storage. The water system will consist of approximately 70 miles of pipeline and to interconnect with the existing freshwater system.
We're also discussing multiple opportunities with producers to potentially expand and enhance the system as they continue to see the benefits of reducing the number of trucks on the red and simplifying the logistics of water handling.
In 2022, we reported water operating income of $15 million and water EBITDA of approximately $35 million and for 2020 three we expect water EBITDA of approximately $40 million to $45 million.
Lastly on our ESG program, we made many advancements during 2022 some of the highlights include submitting our first voluntary CDP water security questionnaire for which we received a score of <unk>.
Bleeding the T C F D readiness assessment instituting a new environmental Justice policy integrating 10 compressor sites from I believe pneumatic to love bleed or air Pneumatics.
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In addition to our company specific efforts, we also announced last month that Edward transit joining other industry participants as a founding member of the Appalachian methane initiative, a ni is committed to further enhancing methane monitoring throughout the basin and facilitating additional methane emission reductions in the region.
We are committed to the sustainability of our operations and looks forward to continuing our efforts in 2023.
Now I'll turn the call over to Kirk.
Thanks, Diana and good morning, everyone.
This morning, we reported our full year net loss attributable to E train common shareholders of $328 million and a loss per diluted common share of.
76 cents.
The net loss for the year was $257 million adjust.
Adjusted EBITDA was one point below $7 billion.
And deferred revenue was $345 million.
We also reported full year net cash provided by operating activities.
Of approximately $846 million pre.
Free cash flow of $380 million.
For the quarter, we reported a net income attributable to <unk> common shareholders of <unk>.
$66 million.
And earnings per diluted E train common share of <unk> 15.
Net income for the quarter was $82 million adjusted EBITDA was $271 million and deferred revenue was $84 million.
In the fourth quarter, we generated $99 million of net cash provided by operating activities.
$36 million of free cash flow.
Several items impacted both the full year and the fourth quarter results.
Net income attributable to <unk> common shareholders for the fourth quarter was impacted by a $5 1 million dollar.
Unrealized gain on derivative instruments, which is related to the contractual provision entitling E train to receive cash payments from EQT.
These cash payments are conditioned on specific Nymex Henry hub natural gas prices.
Exceeding certain thresholds beginning with the quarter in which MVP is placed in service and running through 'twenty 'twenty four.
In addition, the quarter was impacted by $8 1 million of operating expenses related to the radar mountain storage incident that Diana described.
After adjusting for these items Q.
Q4, adjusted net income attributable to <unk> common shareholders was $58 million and adjusted earnings per diluted E train common share was <unk> 13 cents.
The full year 2022 results were impacted by a $583 million impairment.
Of our investment in M. B P and an associated $70 million decrease in income tax benefit primarily due to a valuation allowance placed on deferred tax assets.
Other items impacting full year results include.
$25 million loss on extinguishment of debt primarily from the tender offers we executed in early 2022.
A $10 billion of unrealized gain on derivative instruments.
A $4 million gain on sale of non core gathering assets and.
And the previously mentioned $8 1 million of expenses related to the rig or mountain storage incident.
After adjusting for these items.
All year adjusted net income attributable to E train common shareholders.
It was $200 million and adjusted earnings per diluted E train common share was <unk> 46 cents.
Operating revenue for the year increased by $41 million.
Compared to last year and for the quarter operating revenue increased by $109 million.
Compared to the same quarter last year.
Both the year and quarter were higher primarily from deferred revenue and increased water services revenue, partially offset by lower gathered volumes.
Operating expenses for the year were lower by $62 million compared to last year, primarily from a $56 million impairment of long lived assets from 'twenty to 'twenty, one and lower SG&A expenses.
For the fourth quarter operating expenses increased by $18 million compared to last year, primarily from the $8 1 million of expenses related to the regular mountain storage incident, and higher O&M SG&A and depreciation.
For the fourth quarter E train paid a quarterly cash dividend of <unk> 15 per common share on February 14th.
E train common shareholders of record.
Those are business since February six.
And finally, the day, we initiated guidance for 2023.
With the ongoing uncertainty around the ultimate M. B P path to completion and timing of forward construction and in service, we're providing guidance using two scenarios.
The first assumes.
Second half of 2023 and service for MVP and the second assumes the.
The absence of MVP forward construction and completion in 2023.
Also based on initial estimates.
They included approximately $8 million to $10 million of operating expenses.
Approximately $5 million of Capex related to the ongoing work following the radar mountain incident, and our 2023 guidance.
While we are able to estimate these expenses and capital associated with the rig or mountain incident.
Based on what we know today.
Scenario, two with the absence of MVP forward construction and completion in 2023.
Our full year forecast, our capex and capital contributions of $510 million to $630 million.
Free cash flow of $270 million to $350 million.
On a retained free cash flow of $10 million to $90 million I'll now hand, the call back to Tom.
Thanks Kurt.
Before moving to your questions I want to acknowledge the outstanding work about employees.
Continued to embrace our core values of safety integrity collaboration transparency and excellent.
Specifically I wanted to acknowledge our employees, who persevered, while battling the extreme cold weather in December and also those employees, who have been directly managing the rigor mountain incident with true professionalism and commitment.
And lastly for our stakeholders as.
As we look to the remainder of 2023, we are focused on operating a sound base business keeping safety as a priority above all else.
And working as hard as we possibly can on all pads you get MVP to completion.
With that we're happy to take your questions.
Okay.
At this time I would like to remind everyone in order to ask a question. Please press star followed by the number one on your telephone keypad, we'll pause for just a moment to compile our Q&A roster.
Your first question comes from the line of Olivia Halferty with Goldman Sachs. Your line is open.
Hi, everyone. Good morning, Thank you for the time.
We could start on the permits still outstanding from the Forest service and the fish and Wildlife service. What dates are you targeting to receive both of these permits in order to achieve our second half 'twenty three in service date and on that front do you have any concerns on the second extension.
Dangerous species act consultation period. Thank you.
Thank you Olivia this is Tom no. We don't have any concern we've been in consultation and in agreement with that additional extension.
The fish and wildlife put on the FERC docket of statement that.
Extended the consultation period for the biological opinion to be issued by February 28th which is next week.
The permits to cross the Jefferson National Forest, the comment period from the Forest service ends.
On February 21st of 2023, and we expect D. C. I S to be issued by April 15th.
Then there'll be a 30 day council of environmental quality.
Review period, which would end may 15th.
So we expect the forest service to issue immediately following that and the Bureau of land management within a day or two following that.
We expect the Army Corps of engineers.
So issued the individual permits to cross the water bodies in mid April and subsequent to that we expect FERC to lift the stop work order.
And allow work in the forest.
And we should have about four to five months, probably closer to five months of remaining construction, which will allow US then to bring MVP into service in 2023.
Okay. That's great. Thank you for the color there and then staying on MVP, given the cost overruns and labor price inflation, we have seen with other large scale North American natural gas projects do you see any risk for further MVP spending need above the guidance provided today.
Well Olivia MVP is 94% complete so that.
The other.
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May be more vulnerable to large scale inflationary pressures, that's not to say that there won't be inflationary pressures.
With respect to MVP, but not of the order of magnitudes of projects that are not as far along as MVP.
So we'll just we'll just have to wait and see how that impacts, but I don't expect it to be.
Significant order of magnitude impact.
Okay.
Thank you for the color there I'll leave it there.
Thank you Olivia.
Again, if you would like to ask a question press star followed by the number one on your telephone keypad.
There are no further questions at this time I will now turn the call back over to Mr. Tom Karam.
Thank you everybody for joining the call today hope everyone has a good rest of your day and be safe out there. Thank you very much.
Ladies and gentlemen, thank you for participating. This concludes today's conference call you may now disconnect.
Yeah.
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