Notes to Consolidated Financial Statements (Unaudited)
Organization
EQT GP Holdings, LP and subsidiaries (collectively, EQGP) owns EQT's partnership interests in EQM, a growth-oriented Delaware limited partnership. EQT Midstream Services, LLC (EQM General Partner) is a direct wholly owned subsidiary of EQGP and is the general partner of EQM. EQT GP Services, LLC (EQGP General Partner) is an indirect wholly owned subsidiary of EQT and is the general partner of EQGP.
EQGP has no independent operations or material assets other than its partnership interests in EQM. EQGP's financial statements differ from those of EQM primarily as a result of noncontrolling interest ownership attributable to the publicly held limited partner interests in EQM and additional expenses incurred by EQGP, which include selling, general and administrative expenses and net interest expense or income.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the requirements of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, these unaudited consolidated financial statements include all adjustments (consisting of only normal recurring adjustments, unless otherwise disclosed in this Form 10-Q) necessary for a fair presentation of the financial position of EQGP as of
March 31, 2018
and
December 31, 2017
, and the results of its operations, cash flows and equity for the
three
months ended
March 31, 2018
and
2017
. Certain previously reported amounts have been reclassified to conform to the current year presentation. The balance sheet at
December 31, 2017
has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements.
Due to the seasonal nature of EQM's utility customer contracts, the interim statements for the
three
months ended
March 31, 2018
are not necessarily indicative of the results that may be expected for the year ending
December 31, 2018
.
For further information, refer to the consolidated financial statements and related footnotes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in EQGP's Annual Report on Form 10-K for the year ended
December 31, 2017
.
Recently Issued Accounting Standards
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers
. The standard requires an entity to recognize revenue in a manner that depicts the transfer of goods or services to customers at an amount that reflects the consideration the entity expects in exchange for those goods or services. EQGP adopted this standard on January 1, 2018 using the modified retrospective method of adoption. Adoption of the ASU did not require an adjustment to the opening balance of equity. EQGP does not expect the standard to have a significant effect on its results of operations, liquidity or financial position. EQGP implemented processes and controls to ensure new contracts are reviewed for the appropriate accounting treatment and to generate the disclosures required under the new standard in the first quarter of 2018. For the disclosures required by this ASU, see Note B.
In January 2016, the FASB issued ASU No. 2016-01,
Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities
. The standard primarily affects accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments, and eliminates the cost method of accounting for equity investments. EQGP adopted this standard in the first quarter of 2018 with no significant effect on its financial statements or related disclosures.
In February 2016, the FASB issued ASU No. 2016-02,
Leases
. The standard requires an entity to record assets and obligations for contracts currently recognized as operating leases. Lessees and lessors must apply a modified retrospective transition approach. The ASU will be effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early adoption permitted. EQGP has completed a high-level identification of agreements covered by this standard and will continue to evaluate the effect this standard will have on its financial statements, internal controls and related disclosures.
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments.
This ASU amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, this ASU eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The ASU will be effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period. EQGP is currently evaluating the effect this standard will have on its financial statements and related disclosures.
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B.
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Revenue from Contracts with Customers
|
As discussed in Note A, EQGP adopted ASU No. 2014-09,
Revenue from Contracts with Customers
, on January 1, 2018 using the modified retrospective method of adoption. EQGP applied the ASU to all open contracts as of the date of initial application. Adoption of the ASU did not require an adjustment to the opening balance of equity and did not materially change EQGP's amount and timing of revenues.
EQM provides gathering, transmission and storage services in two manners: firm service and interruptible service. Firm service contracts are typically long term and include firm reservation fees, which are fixed, monthly charges for the guaranteed reservation of pipeline or storage capacity. Interruptible service contracts include volumetric based fees, which are charges for the volume of gas actually gathered, transported or stored and do not guarantee access to the pipeline or storage facility. These contracts can be short or long term. Volumetric based fees can also be charged under firm contracts for actual volumes transported, gathered or stored in excess of the firm contracted volume. Firm and interruptible contracts are billed at the end of each calendar month, with payment typically due within
21
days.
Under a firm contract, EQM has a stand-ready obligation to provide the service over the life of the contract. The performance obligation for firm reservation fee revenue is satisfied over time as the pipeline capacity is made available to the customer. As such, EQM recognizes firm reservation fee revenue evenly over the contract period, using a time-elapsed output method to measure progress. The performance obligation for volumetric based fee revenues is generally satisfied upon EQM's monthly billing to the customer for actual volumes gathered, transported or stored during the month. The amount billed corresponds directly to the value of EQM's performance to date as the customer obtains value as each volume is gathered, transported or stored.
For the
three months ended
March 31, 2018
and
2017
, all revenues recognized on EQM's statements of consolidated operations are from contracts with customers. As of
March 31, 2018
and
December 31, 2017
, all receivables recorded on EQM's consolidated balance sheets represent performance obligations that have been satisfied and for which an unconditional right to consideration exists.
The table below provides disaggregated revenue information by EQM business segment for the
three months ended
March 31, 2018
.
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Three Months Ended March 31, 2018
|
|
|
Gathering
|
|
Transmission
|
|
Total
|
|
|
(Thousands)
|
Firm reservation fee revenues
|
|
$
|
109,933
|
|
|
$
|
97,775
|
|
|
$
|
207,708
|
|
Volumetric based fee revenues:
|
|
|
|
|
|
|
Usage fees under firm contracts
(1)
|
|
12,108
|
|
|
3,822
|
|
|
15,930
|
|
Usage fees under interruptible contracts
|
|
3,867
|
|
|
5,337
|
|
|
9,204
|
|
Total volumetric based fee revenues
|
|
15,975
|
|
|
9,159
|
|
|
25,134
|
|
Total operating revenues
|
|
$
|
125,908
|
|
|
$
|
106,934
|
|
|
$
|
232,842
|
|
|
|
(1)
|
Includes fees on volumes gathered and transported in excess of firm contracted capacity as well as commodity charges and fees on all volumes transported under firm contracts.
|
Based on total projected contractual revenues and including contracts associated with expected future capacity from expansion projects that are not yet fully constructed but for which EQM has entered into firm contracts, EQM's firm gathering contracts
and firm transmission and storage contracts had weighted average remaining terms of approximately
8
and
15
years, respectively, as of
December 31, 2017
.
The following table summarizes the transaction price allocated to EQM's remaining performance obligations under all contracts with firm reservation fees as of
March 31, 2018
.
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2018
|
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2019
|
|
2020
|
|
2021
|
|
2022
|
|
Thereafter
|
|
Total
|
|
(Thousands)
|
Gathering firm reservation fees
|
|
$
|
333,316
|
|
|
$
|
443,741
|
|
|
$
|
443,741
|
|
|
$
|
443,741
|
|
|
$
|
443,741
|
|
|
$
|
1,485,787
|
|
|
$
|
3,594,067
|
|
Transmission firm reservation fees
|
|
294,044
|
|
|
384,018
|
|
|
381,788
|
|
|
377,619
|
|
|
372,544
|
|
|
3,039,812
|
|
|
4,849,825
|
|
Total firm reservation fees
|
|
$
|
627,360
|
|
|
$
|
827,759
|
|
|
$
|
825,529
|
|
|
$
|
821,360
|
|
|
$
|
816,285
|
|
|
$
|
4,525,599
|
|
|
$
|
8,443,892
|
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C.
|
Equity and Net Income per Limited Partner Unit
|
As of
March 31, 2018
, EQT indirectly held
239,715,000
EQGP common units, representing a
90.1%
limited partner interest, and the entire non-economic general partner interest in EQGP.
EQM Equity.
The following table summarizes EQM's limited partner common units and general partner units issued from January 1,
2018
through
March 31, 2018
. There were
no
issuances in
2017
.
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EQM Limited Partner Common Units
|
|
EQM General Partner Units
|
|
Total
|
Balance at January 1, 2018
|
80,581,758
|
|
|
1,443,015
|
|
|
82,024,773
|
|
Common units issued
(1)
|
9,608
|
|
|
—
|
|
|
9,608
|
|
Balance at March 31, 2018
|
80,591,366
|
|
|
1,443,015
|
|
|
82,034,381
|
|
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(1)
|
Units issued upon a resignation from the EQM General Partner's Board of Directors in February 2018.
|
As of
March 31, 2018
, EQGP and its subsidiaries owned
21,811,643
EQM common units, representing a
26.6%
limited partner interest,
1,443,015
EQM general partner units, representing a
1.8%
general partner interest, and all of the incentive distribution rights (IDRs) in EQM.
Net Income per Limited Partner Unit.
The weighted average phantom unit awards included in the calculation of basic weighted average limited partner units outstanding was
28,275
and
18,219
for the
three months ended March 31, 2018
and
2017
, respectively.
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D.
|
Financial Information by Business Segment
|
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Three Months Ended
March 31,
|
|
2018
|
|
2017
|
|
(Thousands)
|
Revenues from external customers (including affiliates):
|
|
|
|
|
|
Gathering
|
$
|
125,908
|
|
|
$
|
102,329
|
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Transmission
|
106,934
|
|
|
97,743
|
|
Total operating revenues
|
$
|
232,842
|
|
|
$
|
200,072
|
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Operating income:
|
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|
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Gathering
|
$
|
98,891
|
|
|
$
|
73,704
|
|
Transmission
|
79,451
|
|
|
71,604
|
|
Headquarters
|
(1,227
|
)
|
|
(1,212
|
)
|
Total operating income
|
$
|
177,115
|
|
|
$
|
144,096
|
|
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Reconciliation of operating income to net income:
|
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|
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Equity income
|
$
|
8,811
|
|
|
$
|
4,277
|
|
Other income
|
898
|
|
|
1,537
|
|
Net interest expense
|
10,817
|
|
|
7,922
|
|
Net income
|
$
|
176,007
|
|
|
$
|
141,988
|
|
|
|
|
|
|
|
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|
March 31,
2018
|
|
December 31,
2017
|
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(Thousands)
|
Segment assets:
|
|
|
|
|
|
Gathering
|
$
|
1,519,496
|
|
|
$
|
1,463,247
|
|
Transmission
|
1,494,439
|
|
|
1,487,501
|
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Total operating segments
|
3,013,935
|
|
|
2,950,748
|
|
Headquarters, including cash
|
680,049
|
|
|
598,877
|
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Total assets
|
$
|
3,693,984
|
|
|
$
|
3,549,625
|
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Three Months Ended
March 31,
|
|
2018
|
|
2017
|
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(Thousands)
|
Depreciation and amortization:
|
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|
|
|
|
Gathering
|
$
|
10,738
|
|
|
$
|
8,860
|
|
Transmission
|
12,441
|
|
|
11,687
|
|
Total
|
$
|
23,179
|
|
|
$
|
20,547
|
|
|
|
|
|
Expenditures for segment assets:
|
|
|
|
Gathering
|
$
|
68,933
|
|
|
$
|
48,838
|
|
Transmission
|
18,929
|
|
|
21,389
|
|
Total
(1)
|
$
|
87,862
|
|
|
$
|
70,227
|
|
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(1)
|
EQM accrues capital expenditures when work has been completed but the associated bills have not yet been paid. These accrued amounts are excluded from capital expenditures in the statements of consolidated cash flows until they are paid in a subsequent period. Accrued capital expenditures were approximately
$36.9 million
and
$33.1 million
at
March 31, 2018
and
December 31, 2017
, respectively. Accrued capital expenditures were approximately
$34.0 million
and
$26.7 million
at
March 31, 2017
and
December 31, 2016
, respectively.
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E.
|
Related Party Transactions
|
In the ordinary course of business, EQGP and EQM engage in transactions with EQT and its affiliates including, but not limited to, gas gathering agreements, transportation service and precedent agreements and storage agreements. EQGP and EQM each have an omnibus agreement with EQT. Pursuant to the omnibus agreements, EQT performs centralized corporate, general and administrative services for EQGP and EQM and provides a license for the use of the name "EQT" and related marks in connection with EQGP's and EQM's businesses. In exchange, EQGP and EQM reimburse EQT for the expenses incurred by EQT in providing these services. The omnibus agreements also provide for certain indemnification obligations between EQM and EQT. Pursuant to a secondment agreement, employees of EQT and its affiliates may be seconded to EQM to provide operating and other services with respect to EQM's business under the direction, supervision and control of EQM. EQM reimburses EQT and its affiliates for the services provided by the seconded employees. The expenses for which EQGP and EQM reimburse EQT and its affiliates may not necessarily reflect the actual expenses that EQGP and EQM would incur on a stand-alone basis. EQGP and EQM are unable to estimate what those expenses would be on a stand-alone basis.
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F.
|
Investment in Unconsolidated Entity
|
The MVP Joint Venture is constructing the Mountain Valley Pipeline (MVP), an estimated
300
-mile natural gas interstate pipeline spanning from northern West Virginia to southern Virginia. EQM is the operator of the MVP and owned a
45.5%
interest in the MVP Joint Venture as of
March 31, 2018
. The MVP Joint Venture is a variable interest entity because it has insufficient equity to finance its activities during the construction stage of the project. EQM is not the primary beneficiary because it does not have the power to direct the activities of the MVP Joint Venture that most significantly impact its economic performance. Certain business decisions require the approval of owners holding more than a 66 2/3% interest in the MVP Joint Venture and no one member owns more than a 66 2/3% interest. The MVP Joint Venture is an equity method investment for accounting purposes as EQM has the ability to exercise significant influence over operating and financial policies of the MVP Joint Venture.
In
February 2018
, the MVP Joint Venture issued a capital call notice to MVP Holdco, LLC (MVP Holdco), a direct wholly owned subsidiary of EQM, for
$65.8 million
, which is expected to be paid in
May 2018
. The capital contribution payable has been reflected on the consolidated balance sheet as of
March 31, 2018
with a corresponding increase to EQM's investment in the MVP Joint Venture.
Equity income, which is primarily related to EQM's portion of the MVP Joint Venture's AFUDC on construction of the MVP, is reported in equity income in the statements of consolidated operations.
As of
March 31, 2018
, EQM had issued a
$91 million
performance guarantee in favor of the MVP Joint Venture to provide performance assurances for MVP Holdco's obligations to fund its proportionate share of the construction budget for the MVP. As of
March 31, 2018
, EQM's maximum financial statement exposure related to the MVP Joint Venture was approximately
$637 million
, which consists of the investment in unconsolidated entity balance on the consolidated balance sheet as of
March 31, 2018
and amounts that could have become due under EQM's performance guarantee as of that date.
The following tables summarize the unaudited condensed financial statements for the MVP Joint Venture.
Condensed Consolidated Balance Sheets
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|
March 31,
2018
|
|
December 31,
2017
|
|
(Thousands)
|
Current assets
|
$
|
349,620
|
|
|
$
|
330,271
|
|
Noncurrent assets
|
906,626
|
|
|
747,728
|
|
Total assets
|
$
|
1,256,246
|
|
|
$
|
1,077,999
|
|
|
|
|
|
Current liabilities
|
$
|
55,305
|
|
|
$
|
65,811
|
|
Equity
|
1,200,941
|
|
|
1,012,188
|
|
Total liabilities and equity
|
$
|
1,256,246
|
|
|
$
|
1,077,999
|
|
Condensed Statements of Consolidated Operations
|
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|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2018
|
|
2017
|
|
(Thousands)
|
Net interest income
|
$
|
6,183
|
|
|
$
|
2,247
|
|
AFUDC - equity
|
13,182
|
|
|
7,153
|
|
Net income
|
$
|
19,365
|
|
|
$
|
9,400
|
|
|
|
G.
|
Credit Facility Borrowings
|
EQGP Working Capital Facility.
EQGP has a Working Capital Loan Agreement with EQT (the Working Capital Facility) that provides for interest bearing loans of up to
$50 million
outstanding at any one time and matures on the earlier of February 18, 2019 or at least
90
days after EQT gives notice of termination. EQGP had
$0.1 million
and
$0.2 million
of borrowings outstanding under the Working Capital Facility as of
March 31, 2018
and
December 31, 2017
, respectively, which were included in due to related party on the consolidated balance sheets. The maximum amounts of EQGP's outstanding borrowings under the Working Capital Facility were
$0.2 million
and
$0.3 million
during the
three months ended March 31, 2018
and
2017
, respectively, and interest was incurred at weighted average annual interest rates of approximately
3.1%
and
2.3%
, respectively.
EQM
$1
Billion Facility.
EQM has a
$1 billion
credit facility that expires in July 2022. The
$1
Billion Facility is available to fund working capital requirements and capital expenditures, to purchase assets, to pay distributions and repurchase units and for general partnership purposes (including purchasing assets from EQT and other third parties). EQM's
$1
Billion Facility contains various provisions that, if violated, could result in termination of the credit facility, require early payment of amounts outstanding or similar actions. The most significant covenants and events of default relate to maintenance of a permitted leverage ratio, limitations on transactions with affiliates, limitations on restricted payments, insolvency events, nonpayment of scheduled principal or interest payments, acceleration of and certain other defaults under other financial obligations and change of control provisions. Under the
$1
Billion Facility, EQM is required to maintain a consolidated leverage ratio of not more than
5.00
to 1.00 (or not more than
5.50
to 1.00 for certain measurement periods following the consummation of certain acquisitions).
EQM had
no
letters of credit outstanding under its credit facility as of
March 31, 2018
and
December 31, 2017
. During the
three
months ended
March 31, 2018
, the maximum amount of EQM's outstanding borrowings under the credit facility at any time was
$420 million
and the average daily balance was approximately
$301 million
. EQM incurred interest at a weighted average annual interest rate of approximately
3.0%
for the
three
months ended
March 31, 2018
. There were
no
borrowings outstanding at any time during the
three
months ended
March 31, 2017
.
EQM
364
-Day Facility.
EQM has a
$500 million
,
364
-day, uncommitted revolving loan agreement with EQT that matures on October 24, 2018 and will automatically renew for successive
364
-day periods unless EQT delivers a non-renewal notice at least
60
days prior to the then current maturity date. Interest accrues on outstanding borrowings at an interest rate equal to the rate then applicable to similar loans under the
$1
Billion Facility, or a successor revolving credit facility, less the sum of (i) the then applicable commitment fee under the
$1
Billion Facility and (ii) 10 basis points.
EQM had
no
borrowings outstanding on the
364
-Day Facility as of
March 31, 2018
and
December 31, 2017
. There were
no
borrowings outstanding at any time during the
three
months ended
March 31, 2018
. During the
three
months ended
March 31, 2017
, the maximum amount of EQM's outstanding borrowings under the credit facility at any time was
$50 million
and the average daily balance was approximately
$26 million
. EQM incurred interest at a weighted average annual interest rate of approximately
2.0%
for the
three
months ended
March 31, 2017
.
As of
March 31, 2018
, EQGP and EQM were in compliance with all debt provisions and covenants.
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H.
|
Fair Value Measurements
|
The carrying values of cash and cash equivalents, accounts receivable, amounts due to/from related parties and accounts payable approximate fair value due to the short maturity of the instruments; these are considered Level 1 fair value measurements. The carrying value of the credit facility borrowings approximates fair value as the interest rates are based on prevailing market rates; this is considered a Level 1 fair value measurement. As EQM's senior notes are not actively traded,
their fair values are considered Level 2 fair value measurements and are estimated using a standard industry income approach model that applies a discount rate based on market rates for debt with similar remaining time to maturity and credit risk. As of
March 31, 2018
and
December 31, 2017
, the estimated fair value of EQM's senior notes was approximately
$974 million
and
$1,006 million
, respectively, and the carrying value of EQM's senior notes was approximately
$988 million
and
$987 million
, respectively. The fair value of the Preferred Interest is a Level 3 fair value measurement and is estimated using an income approach model that applies a market-based discount rate. As of
March 31, 2018
and
December 31, 2017
, the estimated fair value of the Preferred Interest was approximately
$128 million
and
$133 million
, respectively, and the carrying value of the Preferred Interest was approximately
$118 million
and
$119 million
, respectively.
The following table summarizes the quarterly cash distributions declared by EQM and EQGP to their respective unitholders from January 1,
2017
through
March 31, 2018
.
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Quarter Ended
|
|
EQM Distribution per Common Unit
|
|
EQM Total Distribution
|
|
EQM Total Distribution to EQGP
|
|
EQGP Distribution
per Common Unit
|
|
EQGP Total Distribution
|
|
|
(Thousands, except per unit amounts)
|
2017
|
|
|
|
|
|
|
|
|
|
|
March 31
|
|
$
|
0.89
|
|
|
$
|
104,238
|
|
|
$
|
51,933
|
|
|
$
|
0.191
|
|
|
$
|
50,838
|
|
June 30
|
|
0.935
|
|
|
111,455
|
|
|
56,505
|
|
|
0.21
|
|
|
55,895
|
|
September 30
|
|
0.98
|
|
|
118,673
|
|
|
61,078
|
|
|
0.228
|
|
|
60,686
|
|
December 31
|
|
1.025
|
|
|
125,890
|
|
|
65,651
|
|
|
0.244
|
|
|
64,944
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
March 31
(1)
|
|
$
|
1.065
|
|
|
$
|
132,321
|
|
|
$
|
69,721
|
|
|
$
|
0.258
|
|
|
$
|
68,671
|
|
|
|
(1)
|
On
April 24, 2018
, the Board of Directors of the EQM General Partner declared a cash distribution to EQM's unitholders for the
first quarter
of
2018
of
$1.065
per common unit. The cash distribution will be paid on
May 15, 2018
to unitholders of record at the close of business on
May 4, 2018
. Based on the
80,591,366
EQM common units outstanding on
April 26, 2018
, cash distributions to EQGP will be approximately
$23.2 million
related to its limited partner interest,
$2.3 million
related to its general partner interest and
$44.2 million
related to its IDRs in EQM. The distribution amounts to EQGP related to its general partner interest and IDRs in EQM are subject to change if EQM issues additional common units on or prior to the record date for the
first quarter
2018
distribution.
|
On
April 24, 2018
, the Board of Directors of the EQGP General Partner declared a cash distribution to EQGP's unitholders for the
first quarter
of
2018
of
$0.258
per common unit. The cash distribution will be paid on
May 24, 2018
to unitholders of record at the close of business on
May 4, 2018
.
|
|
J.
|
Consolidated Variable Interest Entity
|
EQM is a variable interest entity. Through EQGP's ownership and control of the EQM General Partner, EQGP has the power to direct the activities that most significantly impact EQM's economic performance. In addition, through EQGP's general partner interest, IDRs and limited partner interest in EQM, EQGP has the obligation to absorb EQM's losses and the right to receive benefits from EQM in accordance with its general partner and limited partner ownership percentages and IDRs. Therefore, EQGP consolidates EQM. For additional information, see Note 15 to the consolidated financial statements in EQGP's Annual Report on Form 10-K for the year ended
December 31, 2017
.
EQGP's only cash-generating assets consist of its partnership interests in EQM. As a result, EQGP's
results of operations do not differ materially from the results of operations of EQM. For a discussion on the risks associated with EQM's operations, see EQGP's Annual Report on Form 10-K for the year ended
December 31, 2017
and this Quarterly Report on Form 10-Q. For further discussion on the effect that EQGP's involvement in EQM has on EQGP's financial position, results of operations and cash flows, see EQGP's Annual Report on Form 10-K for the year ended
December 31, 2017
. For discussion on related party transactions, see Note 5 to the consolidated financial statements in EQGP's Annual Report on Form 10-K for the year ended
December 31, 2017
and Note E to these financial statements.
The following table presents amounts included in EQGP's consolidated balance sheets that were for the use or obligation of EQM.
|
|
|
|
|
|
|
|
|
Classification
|
March 31,
2018
|
|
December 31,
2017
|
|
(Thousands)
|
Assets:
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
8,988
|
|
|
$
|
2,557
|
|
Accounts receivable
|
29,481
|
|
|
28,804
|
|
Accounts receivable – affiliate
|
91,655
|
|
|
103,304
|
|
Other current assets
|
17,217
|
|
|
12,662
|
|
Net property, plant and equipment
|
2,864,040
|
|
|
2,804,059
|
|
Investment in unconsolidated entity
|
546,428
|
|
|
460,546
|
|
Other assets
|
135,466
|
|
|
136,895
|
|
Liabilities:
|
|
|
|
Accounts payable
|
$
|
48,189
|
|
|
$
|
47,040
|
|
Due to related party
|
23,769
|
|
|
31,673
|
|
Capital contribution payable to MVP Joint Venture
|
65,786
|
|
|
105,734
|
|
Accrued interest
|
11,376
|
|
|
10,926
|
|
Accrued liabilities
|
15,103
|
|
|
16,871
|
|
EQM credit facility borrowings
|
317,000
|
|
|
180,000
|
|
EQM senior notes
|
987,756
|
|
|
987,352
|
|
Regulatory and other long-term liabilities
|
20,880
|
|
|
20,273
|
|
EQM-RMP Merger
On April 25, 2018, EQM entered into an Agreement and Plan of Merger (the Merger Agreement) with Rice Midstream Partners LP (RMP), Rice Midstream Management LLC, the general partner of RMP (the RMP General Partner), the EQM General Partner, EQM Acquisition Sub, LLC, a wholly owned subsidiary of EQM (Merger Sub), EQM GP Acquisition Sub, LLC, a wholly owned subsidiary of EQM (GP Merger Sub), and, solely for certain limited purposes set forth therein, EQT. Pursuant to the Merger Agreement, Merger Sub and GP Merger Sub will merge with and into RMP and the RMP General Partner, respectively, with RMP and the RMP General Partner surviving as wholly owned subsidiaries of EQM (the Mergers). Pursuant to the Merger Agreement, each RMP common unit issued and outstanding immediately prior to the effective time of the Mergers will be converted into the right to receive
0.3319
EQM common units.
The completion of the Mergers is subject to the satisfaction or waiver of certain customary closing conditions, including, but not limited to: (i) approval of the Merger Agreement by a majority of RMP's unitholders, (ii) expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (iii) the completion of the Drop-Down Transactions (as defined below), and (iv) the completion of the IDR Transaction (as defined below). The Merger Agreement provides that upon termination of the Merger Agreement under certain circumstances RMP may be required to pay EQM a termination fee equal to
$63.4
million less any previous reimbursements by RMP. The Merger Agreement also provides that upon termination of the Merger Agreement under certain circumstances EQM may be required to reimburse RMP's expenses up to
$5 million
and RMP may be required to reimburse EQM's expenses up to
$5 million
. As a result of the Mergers, RMP's common units will no longer be publicly traded. EQM expects to complete the Mergers during the third quarter of 2018.
RMP IDR Purchase and Sale Agreement
On April 25, 2018, EQT, Rice Midstream GP Holdings LP, a wholly owned subsidiary of EQT that owns the RMP IDRs, and EQGP entered into an Incentive Distribution Rights Purchase and Sale Agreement pursuant to which EQGP will acquire all of the issued and outstanding RMP IDRs in exchange for
36,293,766
EQGP common units (the IDR Transaction). If the unit consideration is issued and the Mergers are not consummated on or prior to December 31, 2018 or the Merger Agreement is earlier terminated,
8,539,710
of the EQGP common units issued to EQT will be canceled and EQT will pay to EQGP an amount in cash equal to the aggregate amount of any distributions paid by EQGP to EQT related to the forfeited EQGP common units. The completion of the IDR Transaction is subject to certain customary closing conditions. Pursuant to the terms
of the Merger Agreement, the RMP IDRs will be canceled effective at the time of the Mergers. EQGP expects to complete the IDR Transaction during the second quarter of 2018.
Drop-Down Transactions and Gulfport Transaction
On April 25, 2018, EQT, Rice Midstream Holdings LLC, a wholly owned subsidiary of EQT, EQM and EQM Gathering Holdings, LLC (EQM Gathering), a wholly owned subsidiary of EQM, entered into a Contribution and Sale Agreement (the Drop-Down Agreement) pursuant to which EQM Gathering will acquire, in one or more transactions, from EQT all of EQT's interests in Rice Olympus Midstream LLC, Rice West Virginia Midstream LLC and Strike Force Midstream Holdings LLC (Strike Force Holdings) in exchange for an aggregate of
5,889,282
EQM common units and aggregate cash consideration of
$1.15 billion
, subject to customary post-closing purchase price adjustments (collectively, the Drop-Down Transactions). Strike Force Holdings owns a
75%
limited liability company interest in Strike Force Midstream LLC (Strike Force Midstream). The completion of the Drop-Down Transactions is subject to certain customary closing conditions.
Also on April 25, 2018, EQM, EQM Gathering, Gulfport Energy Corporation (Gulfport) and an affiliate of Gulfport entered into a Purchase and Sale Agreement pursuant to which EQM will acquire the remaining
25%
limited liability company interest in Strike Force Midstream not owned by EQT for
$175 million
(the Gulfport Transaction). The completion of the Gulfport Transaction is subject to certain customary closing conditions.
EQM expects to complete the Drop-Down Transactions and the Gulfport Transaction during the second quarter 2018.
EQM Term Loan
On April 25, 2018, EQM entered into a
$2.5 billion
unsecured multi-draw
364
-day term loan facility with a syndicate of lenders (the EQM Term Loan Facility). The EQM Term Loan Facility is available to fund the cash consideration for the Drop-Down Transactions, to repay borrowings under EQM's
$1 billion
revolving credit facility and, following the Mergers, under RMP's
$850 million
revolving credit facility, to fund ongoing working capital requirements and for other general partnership purposes. Unused commitments under the EQM Term Loan Facility will terminate automatically on December 31, 2018. The EQM Term Loan Facility matures on April 24, 2019 and includes mandatory prepayment and commitment reduction requirements related to the receipt by EQM of net cash proceeds from certain debt transactions, equity issuances, asset sales and joint venture distributions.
EQT GP HOLDINGS, LP AND SUBSIDIARIES