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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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(Mark One) |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
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or |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
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FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER |
001-38629 |
EQUITRANS MIDSTREAM CORPORATION
(Exact name of registrant as specified in its
charter)
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Pennsylvania |
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83-0516635 |
(State or other jurisdiction of incorporation or
organization) |
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(IRS Employer Identification No.) |
2200 Energy Drive, Canonsburg, Pennsylvania
15317
(Address of principal executive offices)
(Zip code)
(724) 271-7600
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(Registrant's telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
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Trading Symbol |
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Name of each exchange on which registered |
Common Stock, no par value |
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ETRN |
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New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed
all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such
files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See
the definitions of "large accelerated filer," "accelerated filer,"
"smaller reporting company" and "emerging growth company" in
Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer |
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Accelerated Filer
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Emerging Growth Company |
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Non-Accelerated Filer |
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Smaller Reporting Company |
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange
Act).
Yes ☐
No
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As of October 31, 2020, 432,470 shares of common stock (in
thousands), no par value, and 30,018 shares of Series A Perpetual
Convertible Preferred Stock (in thousands), no par value, of the
registrant were outstanding.
EQUITRANS MIDSTREAM CORPORATION
Index
EQUITRANS MIDSTREAM CORPORATION
Glossary of Commonly Used Terms, Abbreviations and
Measurements
Allowance for Funds Used During Construction (AFUDC)
– carrying costs
for
the construction of certain long-lived regulated assets are
capitalized and amortized over the related assets' estimated useful
lives. The capitalized amount for construction of regulated assets
includes interest cost and a designated cost of equity for
financing the construction of these regulated assets.
Appalachian Basin
– the area of the United States composed of those portions of West
Virginia, Pennsylvania, Ohio, Maryland, Kentucky and Virginia that
lie in the Appalachian Mountains.
associated gas
– natural gas that is produced as a byproduct of principally oil
production activities.
British thermal unit
– a measure of the amount of energy required to raise the
temperature of one pound of water one-degree
Fahrenheit.
EQGP
– EQGP Holdings, LP (formerly known as EQT GP Holdings, LP) and its
subsidiaries.
EQM
– EQM Midstream Partners, LP (formerly known as EQT Midstream
Partners, LP) and its subsidiaries.
EQT
– EQT Corporation (NYSE: EQT) and its subsidiaries.
EQT Global GGA
– that certain Gas Gathering and Compression Agreement entered into
on February 26, 2020 (the EQT Global GGA Effective Date) by the
Company (through EQM) with EQT and certain affiliates of EQT for
the provision of certain gas gathering services to EQT in the
Marcellus and Utica Shales of Pennsylvania and West Virginia, as
subsequently amended.
firm contracts
– contracts for gathering, transmission, storage and water services
that reserve an agreed upon amount of pipeline or storage capacity
regardless of the capacity used by the customer during each month,
and generally obligate the customer to pay a fixed, monthly
charge.
firm reservation fee revenues
–
contractually obligated revenues that include fixed monthly charges
under firm contracts and fixed volumetric charges under MVC
(defined below) contracts.
gas –
natural gas.
Minimum volume commitments (MVC or MVCs)
– contracts for gathering or water services that obligate the
customer to pay for a fixed amount of volumes daily, monthly,
annually or over the life of the contract.
Mountain Valley Pipeline (MVP)
– an estimated 300 mile, 42-inch diameter natural gas interstate
pipeline with a targeted capacity of 2.0 Bcf per day that will span
from the Company's existing transmission and storage system in
Wetzel County, West Virginia to Pittsylvania County, Virginia,
providing access to the growing Southeast demand
markets.
Mountain Valley Pipeline, LLC (MVP Joint Venture)
– a joint venture among the Company and, as applicable, affiliates
of each of NextEra Energy, Inc., Consolidated Edison, Inc. (Con
Edison), AltaGas Ltd. and RGC Resources, Inc. that is constructing
the MVP and the MVP Southgate (defined below)
projects.
MVP Southgate
– a proposed 75-mile interstate pipeline that will extend from the
MVP at Pittsylvania County, Virginia to new delivery points in
Rockingham and Alamance Counties, North Carolina.
Preferred Interest –
the preferred interest that the Company has in EQT Energy Supply,
LLC (EES), a subsidiary of EQT.
throughput –
the volume of natural gas transported or passing through a
pipeline, plant, terminal or other facility during a particular
period.
Water Services Letter Agreement –
that certain letter agreement entered into on February 26, 2020 by
the Company (through EQM) and EQT, pursuant to which EQT agreed to
utilize the Company for the provision of water services in
Pennsylvania under existing water services agreements and new water
services agreements if negotiated between the parties.
wellhead
–
the equipment at the surface of a well used to control the well's
pressure and the point at which the hydrocarbons and water exit the
ground.
Unless context otherwise requires, a reference to a “Note” herein
refers to the accompanying Notes to Consolidated Financial
Statements contained in "Item 1. Financial
Statements."
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Abbreviations |
Measurements |
ASC
– Accounting Standards Codification
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Btu
= one British thermal unit
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ASU
– Accounting Standards Update
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BBtu
= billion British thermal units
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FASB
–
Financial Accounting Standards Board
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Bcf =
billion cubic feet
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FERC
– U.S. Federal Energy Regulatory Commission
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Mcf
= thousand cubic feet
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GAAP
– United States Generally Accepted Accounting
Principles
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MMBtu
= million British thermal units
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IDRs
– incentive distribution rights
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MMcf
= million cubic feet
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NYMEX
– New York Mercantile Exchange
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MMgal
= million gallons
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NYSE
– New York Stock Exchange
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SEC
– U.S. Securities and Exchange Commission
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
EQUITRANS MIDSTREAM CORPORATION
Statements
of Consolidated Comprehensive Income (Unaudited)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2020 |
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2019 |
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2020 |
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2019 |
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(Thousands, except per share amounts) |
Operating revenues
(a)
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350,000 |
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408,434 |
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$ |
1,143,703 |
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$ |
1,204,383 |
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Operating expenses: |
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Operating and maintenance
(a)
|
33,905 |
|
|
43,021 |
|
|
113,990 |
|
|
117,460 |
|
Selling, general and administrative
(a)
|
31,626 |
|
|
24,151 |
|
|
94,186 |
|
|
83,553 |
|
Separation and other transaction costs |
984 |
|
|
256 |
|
|
23,797 |
|
|
24,606 |
|
Depreciation |
66,772 |
|
|
59,460 |
|
|
191,271 |
|
|
166,730 |
|
Amortization of intangible assets |
16,204 |
|
|
14,540 |
|
|
46,990 |
|
|
38,677 |
|
Impairments of long-lived assets
(b)
|
— |
|
|
305,459 |
|
|
55,581 |
|
|
385,594 |
|
|
|
|
|
|
|
|
|
Total operating expenses |
149,491 |
|
|
446,887 |
|
|
525,815 |
|
|
816,620 |
|
Operating income (loss) |
200,509 |
|
|
(38,453) |
|
|
617,888 |
|
|
387,763 |
|
Equity income
(c)
|
60,917 |
|
|
44,448 |
|
|
171,233 |
|
|
112,293 |
|
Other income
(d)
|
21,864 |
|
|
70 |
|
|
39,006 |
|
|
2,637 |
|
Loss on early extinguishment of debt
(e)
|
— |
|
|
— |
|
|
24,864 |
|
|
— |
|
Net interest expense
(a)
|
86,411 |
|
|
65,606 |
|
|
219,960 |
|
|
188,268 |
|
Income (loss) before income taxes |
196,879 |
|
|
(59,541) |
|
|
583,303 |
|
|
314,425 |
|
Income tax expense |
28,440 |
|
|
1,948 |
|
|
81,846 |
|
|
45,868 |
|
Net income (loss) |
168,439 |
|
|
(61,489) |
|
|
501,457 |
|
|
268,557 |
|
Net income attributable to noncontrolling interests |
3,973 |
|
|
4,336 |
|
|
210,765 |
|
|
203,562 |
|
Net income (loss) attributable to Equitrans Midstream |
164,466 |
|
|
(65,825) |
|
|
290,692 |
|
|
64,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred dividends
(f)
|
14,628 |
|
|
— |
|
|
44,132 |
|
|
— |
|
Net income (loss) attributable to Equitrans Midstream common
shareholders |
$ |
149,838 |
|
|
$ |
(65,825) |
|
|
$ |
246,560 |
|
|
$ |
64,995 |
|
|
|
|
|
|
|
|
|
Earnings (loss) per share of common stock attributable to Equitrans
Midstream common shareholders - basic
(g)
|
$ |
0.35 |
|
|
$ |
(0.26) |
|
|
$ |
0.78 |
|
|
$ |
0.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share of common stock attributable to Equitrans
Midstream common shareholders - diluted
(g)
|
$ |
0.35 |
|
|
$ |
(0.26) |
|
|
$ |
0.78 |
|
|
$ |
0.25 |
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic |
432,773 |
|
|
254,915 |
|
|
314,411 |
|
|
254,868 |
|
Weighted average common shares outstanding - diluted |
432,821 |
|
|
254,915 |
|
|
314,411 |
|
|
254,887 |
|
|
|
|
|
|
|
|
|
Statement of comprehensive income (loss): |
|
|
|
|
|
|
|
Net income (loss) |
$ |
168,439 |
|
|
$ |
(61,489) |
|
|
$ |
501,457 |
|
|
$ |
268,557 |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
Pension and other post-retirement benefits liability adjustment,
net of tax expense of $10, $7, $30 and $22
|
30 |
|
|
21 |
|
|
90 |
|
|
(252) |
|
Other comprehensive income (loss) |
30 |
|
|
21 |
|
|
90 |
|
|
(252) |
|
Comprehensive income (loss) |
168,469 |
|
|
(61,468) |
|
|
501,547 |
|
|
268,305 |
|
Less: Comprehensive income attributable to noncontrolling
interests |
3,973 |
|
|
4,336 |
|
|
210,765 |
|
|
203,562 |
|
Less: Comprehensive income attributable to preferred
dividends
(f)
|
14,628 |
|
|
— |
|
|
44,132 |
|
|
— |
|
Comprehensive income (loss) attributable to Equitrans Midstream
common shareholders |
$ |
149,868 |
|
|
$ |
(65,804) |
|
|
$ |
246,650 |
|
|
$ |
64,743 |
|
|
|
|
|
|
|
|
|
Dividends declared per common share |
$ |
0.15 |
|
|
$ |
0.45 |
|
|
$ |
0.45 |
|
|
$ |
1.35 |
|
(a)Includes
related party activity with EQT. See Note 7.
(b)See
Note 4 for disclosure regarding impairments of long-lived
assets.
(c)Represents
equity income from the MVP Joint Venture. See Note 8.
(d)See
Note 10 for disclosures regarding derivative
instruments.
(e)See
Note 9 for disclosure regarding loss on early extinguishment of
debt.
(f)See
Notes 2 and 11
for disclosures regarding the Equitrans Midstream Preferred Shares
(as defined in Note 1).
(g)See
Note 11 for disclosure regarding the Company's calculation of net
income per share of common stock (basic and diluted).
The accompanying notes are an integral part of these consolidated
financial statements.
EQUITRANS MIDSTREAM CORPORATION
Statements of Consolidated Cash Flows (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
2020 |
|
2019 |
|
(Thousands) |
Cash flows from operating activities: |
|
|
|
Net income |
$ |
501,457 |
|
|
$ |
268,557 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
Depreciation |
191,271 |
|
|
166,730 |
|
Amortization of intangible assets |
46,990 |
|
|
38,677 |
|
Deferred income taxes |
79,415 |
|
|
45,868 |
|
Impairments of long-lived assets (Note 4) |
55,581 |
|
|
385,594 |
|
Equity income (Note 8) |
(171,233) |
|
|
(112,293) |
|
Other income |
(38,403) |
|
|
(3,866) |
|
Loss on early extinguishment of debt |
24,864 |
|
|
— |
|
Share-based compensation plans |
9,388 |
|
|
1,900 |
|
Changes in other assets and liabilities: |
|
|
|
Accounts receivable |
(11,021) |
|
|
28,773 |
|
|
|
|
|
Accounts payable |
3,151 |
|
|
(72,369) |
|
Accrued interest |
(5,592) |
|
|
(39,103) |
|
Deferred revenue |
148,770 |
|
|
— |
|
Other assets and other liabilities |
(10,443) |
|
|
(17,999) |
|
Net cash provided by operating activities |
824,195 |
|
|
690,469 |
|
Cash flows from investing activities: |
|
|
|
Capital expenditures |
(377,592) |
|
|
(769,937) |
|
Capital contributions to the MVP Joint Venture |
(144,264) |
|
|
(512,852) |
|
Bolt-on Acquisition (as defined in Note 3), net of cash
acquired |
— |
|
|
(837,231) |
|
Principal payments received on the Preferred Interest |
3,726 |
|
|
3,471 |
|
|
|
|
|
Net cash used in investing activities |
(518,130) |
|
|
(2,116,549) |
|
Cash flows from financing activities: |
|
|
|
Proceeds from revolving credit facility borrowings |
1,965,000 |
|
|
1,969,000 |
|
Payments on revolving credit facility borrowings |
(2,080,000) |
|
|
(2,325,500) |
|
Proceeds from the issuance of long-term debt |
1,600,000 |
|
|
1,400,000 |
|
|
|
|
|
Debt issuance costs and credit facility origination
fees |
(26,720) |
|
|
(2,563) |
|
|
|
|
|
Payment for retirement of long-term debt |
(594,000) |
|
|
(32,825) |
|
|
|
|
|
|
|
|
|
Redemption of EQM Series A Preferred Units (as defined in Note
1) |
(617,338) |
|
|
— |
|
Distributions paid to noncontrolling interest EQM
unitholders |
(128,770) |
|
|
(285,834) |
|
Distributions paid to holders of EQM Series A Preferred Units (as
defined in Note 1) |
(61,931) |
|
|
(22,979) |
|
|
|
|
|
Dividends paid to holders of Equitrans Midstream Preferred
Shares |
(2,251) |
|
|
— |
|
|
|
|
|
Dividends paid to common shareholders |
(213,524) |
|
|
(333,493) |
|
Cash Shares and Cash Amount (as defined in Note 6) |
(52,323) |
|
|
— |
|
|
|
|
|
|
|
|
|
Purchase of EQGP Common Units (as defined in Note 2) |
— |
|
|
(238,455) |
|
Proceeds from issuance of EQM Series A Preferred Units, net of
offering costs |
— |
|
|
1,158,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
(211,857) |
|
|
1,285,664 |
|
|
|
|
|
Net change in cash and cash equivalents |
94,208 |
|
|
(140,416) |
|
Cash and cash equivalents at beginning of period |
88,322 |
|
|
294,172 |
|
Cash and cash equivalents at end of period |
$ |
182,530 |
|
|
$ |
153,756 |
|
|
|
|
|
Cash paid during the period for: |
|
|
|
Interest, net of amount capitalized |
$ |
221,918 |
|
|
$ |
223,257 |
|
|
|
|
|
Non-cash activity during the period for:
|
|
|
|
Issuance of Equitrans Midstream common stock pursuant to the EQM
Merger (as defined in Note 1), net of tax |
$ |
2,736,229 |
|
|
$ |
— |
|
Issuance of Equitrans Midstream Preferred Shares pursuant to the
Restructuring Agreement (as defined in Note 1) |
667,214 |
|
|
— |
|
Contract liability |
121,483 |
|
|
— |
|
|
|
|
|
The accompanying notes are an integral part of these consolidated
financial statements.
EQUITRANS MIDSTREAM CORPORATION
Consolidated Balance Sheets (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020 |
|
December 31, 2019 |
|
(Thousands) |
ASSETS |
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
182,530 |
|
|
$ |
88,322 |
|
|
|
|
|
Accounts receivable (net of allowance for credit losses of $3,609
and allowance for doubtful accounts of $285 as of September 30,
2020 and December 31, 2019, respectively)
(a)(b)
|
263,657 |
|
|
255,344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current assets
(a)
|
86,855 |
|
|
31,546 |
|
Total current assets
|
533,042 |
|
|
375,212 |
|
|
|
|
|
Property, plant and equipment |
8,782,420 |
|
|
8,583,124 |
|
Less: accumulated depreciation |
(943,687) |
|
|
(859,157) |
|
Net property, plant and equipment |
7,838,733 |
|
|
7,723,967 |
|
|
|
|
|
Investment in unconsolidated entity |
2,722,081 |
|
|
2,324,108 |
|
Goodwill |
486,698 |
|
|
486,698 |
|
Net intangible assets |
732,795 |
|
|
797,439 |
|
Deferred income tax asset |
— |
|
|
90,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
(a)
|
317,331 |
|
|
243,688 |
|
Total assets |
$ |
12,630,680 |
|
|
$ |
12,041,709 |
|
|
|
|
|
LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS' EQUITY |
|
|
|
Current liabilities: |
|
|
|
Current portion of revolving credit facility borrowings and
long-term debt
(c)
|
$ |
302,500 |
|
|
$ |
6,000 |
|
Accounts payable |
101,134 |
|
|
128,114 |
|
|
|
|
|
Capital contributions payable to the MVP Joint Venture |
127,626 |
|
|
45,150 |
|
Accrued interest |
67,863 |
|
|
73,455 |
|
Accrued liabilities |
73,187 |
|
|
83,238 |
|
Total current liabilities |
672,310 |
|
|
335,957 |
|
|
|
|
|
Long-term liabilities: |
|
|
|
Revolving credit facility borrowings
(d)
|
485,000 |
|
|
902,500 |
|
Long-term debt |
6,440,628 |
|
|
5,421,983 |
|
|
|
|
|
|
|
|
|
Contract liability
(e)
|
321,775 |
|
|
— |
|
|
|
|
|
Deferred income tax liability |
293,583 |
|
|
— |
|
Regulatory and other long-term
liabilities |
95,889 |
|
|
99,189 |
|
Total liabilities |
8,309,185 |
|
|
6,759,629 |
|
|
|
|
|
|
|
|
|
Mezzanine equity: |
|
|
|
Equitrans Midstream Preferred Shares, 30,018 and 0 shares issued
and outstanding as of September 30, 2020 and December 31, 2019,
respectively
(f)
|
681,842 |
|
|
— |
|
|
|
|
|
Shareholders' equity: |
|
|
|
|
|
|
|
Common stock, no par value, 432,470 and 254,745 shares issued and
outstanding as of September 30, 2020 and December 31, 2019,
respectively
|
3,955,934 |
|
|
1,292,804 |
|
Retained deficit |
(781,363) |
|
|
(618,062) |
|
Accumulated other comprehensive loss |
(1,936) |
|
|
(2,026) |
|
Total common shareholders' equity |
3,172,635 |
|
|
672,716 |
|
Noncontrolling interests |
467,018 |
|
|
4,609,364 |
|
Total shareholders' equity |
3,639,653 |
|
|
5,282,080 |
|
Total liabilities, mezzanine equity and shareholders'
equity |
$ |
12,630,680 |
|
|
$ |
12,041,709 |
|
(a)Includes
related party activity with EQT. See Note 7.
(b)See
Note 1 for a discussion of the adoption of ASU 2016-13,
Financial Instruments-Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments.
(c)Includes
aggregate borrowings outstanding on the Eureka Credit Facility (as
defined in Note 9) as of September 30, 2020. See Note 9 for
further detail.
(d)Includes
aggregate borrowings outstanding on the Amended EQM Credit Facility
(as defined in Note 9) as of September 30, 2020. As of
December 31, 2019, the Company had aggregate borrowings
outstanding of approximately $610 million and $293 million on
the
Amended EQM Credit Facility and the Eureka Credit Facility,
respectively. The Company had no borrowings outstanding under the
Equitrans Midstream Credit Facility as of December 31, 2019.
See Note 9 for further detail.
(e)See
Note 6 for disclosure regarding the Company's contract
liabilities.
(f)See
Note 2 for disclosures regarding the Equitrans Midstream Preferred
Shares.
The accompanying notes are an integral part of these consolidated
financial statements.
EQUITRANS MIDSTREAM CORPORATION
Statements of Consolidated Shareholders' Equity and Mezzanine
Equity (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
Retained |
|
Other |
|
|
|
|
|
|
|
Shares |
|
No |
|
Earnings |
|
Comprehensive |
|
Noncontrolling |
|
Total |
|
|
|
Outstanding |
|
Par Value |
|
(Deficit) |
|
Loss |
|
Interests |
|
Equity |
|
|
|
(Thousands, except per share and unit amounts) |
Balance at January 1, 2019 |
|
|
254,271 |
|
|
$ |
425,370 |
|
|
$ |
33,932 |
|
|
$ |
(1,509) |
|
|
$ |
4,801,840 |
|
|
$ |
5,259,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (net of tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
— |
|
|
— |
|
|
56,299 |
|
|
— |
|
|
143,267 |
|
|
199,566 |
|
Pension and other post-retirement benefits liability adjustment,
net of tax expense of $8
|
|
|
— |
|
|
— |
|
|
316 |
|
|
(295) |
|
|
— |
|
|
21 |
|
Dividends ($0.41 per share)
|
|
|
— |
|
|
— |
|
|
(104,251) |
|
|
— |
|
|
— |
|
|
(104,251) |
|
Share-based compensation plans |
|
|
413 |
|
|
853 |
|
|
— |
|
|
— |
|
|
255 |
|
|
1,108 |
|
Distributions paid to noncontrolling interest unitholders ($1.13
per common unit for EQM)
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(94,030) |
|
|
(94,030) |
|
Purchase of EQGP Common Units |
|
|
— |
|
|
(38,648) |
|
|
— |
|
|
— |
|
|
(199,807) |
|
|
(238,455) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net changes in ownership of consolidated entities (See Note
2) |
|
|
— |
|
|
991,098 |
|
|
— |
|
|
— |
|
|
(1,337,641) |
|
|
(346,543) |
|
Balance at March 31, 2019 |
|
|
254,684 |
|
|
$ |
1,378,673 |
|
|
$ |
(13,704) |
|
|
$ |
(1,804) |
|
|
$ |
3,313,884 |
|
|
$ |
4,677,049 |
|
Other comprehensive income (net of tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
— |
|
|
— |
|
|
74,521 |
|
|
— |
|
|
55,959 |
|
|
130,480 |
|
Pension and other post-retirement benefits liability adjustment,
net of tax expense of $7
|
|
|
— |
|
|
— |
|
|
— |
|
|
22 |
|
|
— |
|
|
22 |
|
Dividends ($0.45 per share)
|
|
|
— |
|
|
— |
|
|
(114,608) |
|
|
— |
|
|
— |
|
|
(114,608) |
|
Share-based compensation plans |
|
|
7 |
|
|
1,510 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,510 |
|
Distributions paid to noncontrolling interest unitholders ($1.145
per common unit for EQM)
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(95,278) |
|
|
(95,278) |
|
Issuance of EQM Series A Preferred Units, net of offering
costs |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,158,313 |
|
|
1,158,313 |
|
Bolt-on Acquisition |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
486,062 |
|
|
486,062 |
|
Net changes in ownership of consolidated entities |
|
|
— |
|
|
1,627 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,627 |
|
Balance at June 30, 2019 |
|
|
254,691 |
|
|
$ |
1,381,810 |
|
|
$ |
(53,791) |
|
|
$ |
(1,782) |
|
|
$ |
4,918,940 |
|
|
$ |
6,245,177 |
|
Other comprehensive income (net of tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
— |
|
|
— |
|
|
(65,825) |
|
|
— |
|
|
4,336 |
|
|
(61,489) |
|
Pension and other post-retirement benefits liability adjustment,
net of tax expense of $7
|
|
|
— |
|
|
— |
|
|
— |
|
|
21 |
|
|
— |
|
|
21 |
|
Dividends ($0.45 per share)
|
|
|
— |
|
|
— |
|
|
(114,634) |
|
|
— |
|
|
— |
|
|
(114,634) |
|
Share-based compensation plans, net |
|
|
53 |
|
|
(718) |
|
|
— |
|
|
— |
|
|
— |
|
|
(718) |
|
Distributions paid to noncontrolling interest unitholders ($1.160
per common unit for EQM)
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(96,526) |
|
|
(96,526) |
|
Distribution paid to EQM Series A Preferred unitholders ($0.9339
per unit)
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(22,979) |
|
|
(22,979) |
|
Bolt-on Acquisition measurement period adjustments
(Note 3) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(7,602) |
|
|
(7,602) |
|
Balance at September 30, 2019 |
|
|
254,744 |
|
|
$ |
1,381,092 |
|
|
$ |
(234,250) |
|
|
$ |
(1,761) |
|
|
$ |
4,796,169 |
|
|
$ |
5,941,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
Equitrans |
|
|
|
|
|
Retained |
|
Other |
|
|
|
|
|
Midstream |
|
Shares |
|
No |
|
Earnings |
|
Comprehensive |
|
Noncontrolling |
|
Total |
|
Preferred |
|
Outstanding |
|
Par Value |
|
(Deficit) |
|
Loss |
|
Interests |
|
Equity |
|
Shares |
|
(Thousands, except per share and unit amounts) |
Balance at January 1, 2020 |
254,745 |
|
|
$ |
1,292,804 |
|
|
$ |
(618,062) |
|
|
$ |
(2,026) |
|
|
$ |
4,609,364 |
|
|
$ |
5,282,080 |
|
|
$ |
— |
|
Other comprehensive income (net of tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
— |
|
|
— |
|
|
69,732 |
|
|
— |
|
|
119,828 |
|
|
189,560 |
|
|
— |
|
Pension and other post-retirement benefits liability adjustment,
net of tax expense of $10
|
— |
|
|
— |
|
|
— |
|
|
30 |
|
|
— |
|
|
30 |
|
|
— |
|
Dividends on common shares ($0.45 per share)
|
(178) |
|
|
— |
|
|
(115,400) |
|
|
— |
|
|
— |
|
|
(115,400) |
|
|
— |
|
Share-based compensation plans |
85 |
|
|
4,500 |
|
|
— |
|
|
— |
|
|
285 |
|
|
4,785 |
|
|
— |
|
Distributions paid to noncontrolling interest unitholders ($1.16
per common unit for EQM)
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(96,526) |
|
|
(96,526) |
|
|
— |
|
Distributions paid to holders of EQM Series A Preferred Units
($1.0364 per EQM Series A Preferred Unit)
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(25,501) |
|
|
(25,501) |
|
|
— |
|
Share Purchase Agreements (as defined in Note 6) |
(25,300) |
|
|
— |
|
|
(190,992) |
|
|
— |
|
|
— |
|
|
(190,992) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of Topic 326 (as defined in Note 1) |
— |
|
|
— |
|
|
(3,718) |
|
|
— |
|
|
— |
|
|
(3,718) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2020 |
229,352 |
|
|
$ |
1,297,304 |
|
|
$ |
(858,440) |
|
|
$ |
(1,996) |
|
|
$ |
4,607,450 |
|
|
$ |
5,044,318 |
|
|
$ |
— |
|
Other comprehensive income (net of tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
— |
|
|
— |
|
|
54,243 |
|
|
— |
|
|
86,964 |
|
|
141,207 |
|
|
2,251 |
|
Pension and other post-retirement benefits liability adjustment,
net of tax expense of $10
|
— |
|
|
— |
|
|
— |
|
|
30 |
|
|
— |
|
|
30 |
|
|
— |
|
Dividends on common shares ($0.15 per share)
|
— |
|
|
— |
|
|
(34,634) |
|
|
— |
|
|
— |
|
|
(34,634) |
|
|
— |
|
Share-based compensation plans |
(20) |
|
|
1,856 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,856 |
|
|
— |
|
Distributions paid to noncontrolling interest unitholders ($0.3875
per common unit for EQM)
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(32,244) |
|
|
(32,244) |
|
|
— |
|
Distributions paid to holders of EQM Series A Preferred Units
($1.0364 per EQM Series A Preferred Unit)
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(25,501) |
|
|
(25,501) |
|
|
— |
|
Partial period distributions on EQM Series A Preferred Units
converted in the EQM Merger |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(10,929) |
|
|
(10,929) |
|
|
— |
|
Redemption of EQM Series A Preferred Units |
— |
|
|
— |
|
|
(27,253) |
|
|
— |
|
|
(590,085) |
|
|
(617,338) |
|
|
— |
|
Restructuring Agreement (as defined in Note 1) |
— |
|
|
(82,717) |
|
|
— |
|
|
— |
|
|
(579,157) |
|
|
(661,874) |
|
|
667,214 |
|
EQM Merger (as defined in Note 1) |
203,137 |
|
|
2,736,229 |
|
|
— |
|
|
— |
|
|
(2,993,453) |
|
|
(257,224) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2020 |
432,469 |
|
|
$ |
3,952,672 |
|
|
$ |
(866,084) |
|
|
$ |
(1,966) |
|
|
$ |
463,045 |
|
|
$ |
3,547,667 |
|
|
$ |
669,465 |
|
Other comprehensive income (net of tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
— |
|
|
— |
|
|
149,838 |
|
|
— |
|
|
3,973 |
|
|
153,811 |
|
|
14,628 |
|
Pension and other post-retirement benefits liability adjustment,
net of tax expense of $10
|
— |
|
|
— |
|
|
— |
|
|
30 |
|
|
— |
|
|
30 |
|
|
— |
|
Dividends on common shares ($0.15 per share)
|
— |
|
|
— |
|
|
(65,117) |
|
|
— |
|
|
— |
|
|
(65,117) |
|
|
— |
|
Share-based compensation plans |
1 |
|
|
3,262 |
|
|
— |
|
|
— |
|
|
— |
|
|
3,262 |
|
|
— |
|
Dividends paid to holders of Equitrans Midstream Preferred Shares
($0.075 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,251) |
|
Balance at September 30, 2020 |
432,470 |
|
|
$ |
3,955,934 |
|
|
$ |
(781,363) |
|
|
$ |
(1,936) |
|
|
$ |
467,018 |
|
|
$ |
3,639,653 |
|
|
$ |
681,842 |
|
The accompanying notes are an integral part of these consolidated
financial statements.
EQUITRANS MIDSTREAM CORPORATION
Notes to Consolidated Financial Statements (Unaudited)
1. Financial Statements
Organization.
On November 12, 2018, Equitrans Midstream Corporation
(together with its consolidated subsidiaries as applicable, the
Company or Equitrans Midstream), EQT and, for certain limited
purposes, EQT Production Company, a wholly owned subsidiary of EQT,
entered into a Separation and Distribution Agreement, pursuant to
which, among other things, EQT effected the separation of EQT's
midstream business, which was composed of the separately-operated
natural gas gathering, transmission and storage and water services
operations of EQT, from EQT's upstream business, which was composed
of the natural gas, oil and natural gas liquids development,
production and sales and commercial operations of EQT (the
Separation), including the transfer of certain assets and
liabilities to Equitrans Midstream, and distributed 80.1% of the
then-outstanding shares of common stock, no par value, of Equitrans
Midstream (Equitrans Midstream common stock) to EQT shareholders of
record as of the close of business on November 1, 2018 (the
Distribution). The Distribution was effective at 11:59 p.m.,
Eastern Time, on November 12, 2018. As part of the Separation, EQT
retained the remaining 19.9% of the outstanding shares in Equitrans
Midstream.
EQM Merger.
On June 17, 2020, pursuant to that certain Agreement and Plan of
Merger, dated as of February 26, 2020 (the EQM Merger Agreement),
by and among the Company, EQM LP Corporation, a wholly owned
subsidiary of the Company (EQM LP), LS Merger Sub, LLC, a wholly
owned subsidiary of EQM LP (Merger Sub), EQM and EQGP Services,
LLC, the general partner of EQM (the EQM General Partner), Merger
Sub merged with and into EQM (the EQM Merger), with EQM continuing
and surviving as an indirect, wholly owned subsidiary of the
Company. Upon consummation of the EQM Merger, the Company acquired
all of the outstanding common units representing limited partner
interests in EQM (EQM Common Units) that the Company and its
subsidiaries did not already own. Following the closing of the EQM
Merger, EQM was no longer a publicly traded entity. See Note 2 for
further information on the EQM Merger.
Preferred Restructuring Agreement.
On February 26, 2020, Equitrans Midstream and EQM entered into a
Preferred Restructuring Agreement (the Restructuring Agreement)
with all of the holders of the Series A Perpetual Convertible
Preferred Units representing limited partner interests in EQM (such
units, EQM Series A Preferred Units and, such investors,
collectively, the Investors), pursuant to which, at the effective
time of the EQM Merger (the Effective Time): (i) EQM redeemed $600
million aggregate principal amount of the Investors' EQM Series A
Preferred Units issued and outstanding immediately prior to the
Restructuring Closing (defined below), which occurred substantially
concurrent with the closing of the EQM Merger, for cash at 101% of
the EQM Series A Preferred Unit purchase price of $48.77 per such
unit (the EQM Series A Preferred Unit Purchase Price) plus any
accrued and unpaid distribution amounts and partial period
distribution amounts, and (ii) immediately following such
redemption, each remaining issued and outstanding EQM Series A
Preferred Unit was exchanged for 2.44 shares of a newly authorized
and created series of preferred stock, without par value, of
Equitrans Midstream, convertible into Equitrans Midstream common
stock (the Equitrans Midstream Preferred Shares) on a one for one
basis, in each case, in connection with the occurrence of the
“Series A Change of Control” (as defined in the Fourth Amended and
Restated Agreement of Limited Partnership of EQM (as amended, the
Former EQM Partnership Agreement)) that occurred upon the closing
of the EQM Merger (collectively, the Restructuring and, the closing
of the Restructuring, the Restructuring Closing). See Note 2 for
further information on the Restructuring Agreement.
Basis of Presentation.
References in these financial statements to Equitrans Midstream or
the Company refer collectively to Equitrans Midstream Corporation
and, as applicable, its consolidated subsidiaries for all periods
presented, unless otherwise indicated.
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 Quarterly Report on Form 10-Q) necessary for a
fair presentation of the financial position of the Company as of
September 30, 2020 and December 31, 2019, the results of
its operations and equity for the three and nine months ended
September 30, 2020 and 2019 and its cash flows for the nine
months ended September 30, 2020 and 2019. The consolidated
balance sheet at December 31, 2019 has been derived from the
audited financial statements at that date but does not include all
of the information and notes required by GAAP for complete
financial statements. This Quarterly Report on Form 10-Q should be
read in conjunction with the Company's Annual Report on Form 10-K
for the year ended December 31, 2019, which includes all
disclosures required by GAAP.
Due to, among other things, the seasonal nature of the Company's
utility customer contracts and temporary volume curtailments by
certain of the Company's customers, including EQT, as well as
producers’ well completion activities and varying needs
for
fresh and produced water (which are partially driven by horizontal
lateral lengths and the number of completion stages per well), the
interim statements for the three and nine months ended
September 30, 2020 are not necessarily indicative of the
results that may be expected for the year ending December 31,
2020.
For further information, refer to the Company's annual consolidated
financial statements and related notes in the Company's Annual
Report on Form 10-K for the year ended December 31, 2019, as
well as "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained herein.
Recently Issued Accounting Standards
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments-Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments.
The standard amended 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 standard
eliminated the probable initial recognition threshold in then
current GAAP, and, in its place, requires an entity to recognize
its current estimate of all expected credit losses. The amendments
affected loans, debt securities, trade receivables, contract
assets, net investments in leases, off balance sheet credit
exposures, reinsurance receivables, and any other financial assets
not excluded from the scope of the standard that have the
contractual right to receive cash. In May 2019, the FASB issued ASU
2019-05,
Financial Instruments – Credit Losses (Topic 326).
The update provides entities with targeted transition relief that
is intended to increase comparability of financial statement
information for some entities that otherwise would have measured
similar financial instruments using different measurement
methodologies. In November 2019, the FASB issued ASU
2019-11,
Codification Improvements to Topic 326, Financial Instruments –
Credit Losses.
The update clarifies and addresses stakeholders' specific issues in
ASU 2016-13.
The Company adopted the standard on January 1, 2020, using the
modified retrospective method for all financial assets recorded at
amortized cost. Results for reporting periods beginning after
January 1, 2020 are presented under Topic 326 while prior period
amounts continue to be reported in accordance with previously
applicable GAAP. The Company's current expected credit loss (CECL)
methodology considers risks of collection based on a customer’s
current credit status. The standard requires an entity to assess
whether financial assets share similar risk characteristics and, if
so, group such assets in a pool. Customer balances are aggregated
for evaluation based on their credit risk rating, which takes into
account changes in economic factors that impact a customer’s
ability to meet its financial obligations. The Company's CECL
methodology assigns a reserve, even if remote, to each customer
based on credit risk. The table below summarizes the changes in the
allowance for credit losses by outstanding receivable for the nine
months ended September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts Receivable |
|
Contract Asset
(a)
|
|
Other Assets
(b)
|
|
Total |
Balance at December 31, 2019 |
$ |
(285) |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(285) |
|
Adoption of Topic 326 |
(2,708) |
|
|
— |
|
|
(1,010) |
|
|
(3,718) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for (recovery of) expected credit losses |
(616) |
|
|
(222) |
|
|
26 |
|
|
(812) |
|
Balance at September 30, 2020 |
$ |
(3,609) |
|
|
$ |
(222) |
|
|
$ |
(984) |
|
|
$ |
(4,815) |
|
(a) Included in other current assets in the
consolidated balance sheets.
(b) Includes the Company's Preferred
Interest in EES and other long-term receivables.
In August 2018, the FASB issued ASU 2018-13,
Fair Value Measurement, Changes to the Disclosure Requirements for
Fair Value Measurement,
which makes a number of changes to the hierarchy associated with
Level 1, 2 and 3 fair value measurements and the related disclosure
requirements. This guidance is effective for fiscal years beginning
after December 15, 2019, including interim periods within those
fiscal years. The Company adopted this standard on January 1, 2020.
The adoption of this standard did not have an impact on the
Company's financial statements.
In December 2019, the FASB issued ASU 2019-12,
Simplifying the Accounting for Income Taxes,
which enhances and simplifies various aspects of the income tax
accounting guidance including the elimination of certain exceptions
related to the approach for intra-period tax allocation, the
methodology for calculating income taxes in an interim period and
the recognition of deferred tax liabilities for outside basis
differences. The guidance also simplifies aspects of the accounting
for franchise taxes and enacted changes in tax laws or rates and
clarifies the accounting for transactions that result in a step-up
in the tax basis of goodwill. The guidance will be effective for
fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2020, with early adoption
permitted. The Company early-adopted the standard in the first
quarter of 2020 with no significant effect on its financial
statements or related disclosures.
In March 2020, the FASB issued ASU 2020-04,
Reference Rate Reform (Topic 848),
which provides practical expedients for contract modifications and
certain hedging relationships associated with the transition from
reference rates that are expected to be discontinued. This guidance
is applicable for the Amended EQM Credit Facility, the Amended 2019
EQM Term Loan Agreement (as defined in Note 9) and the Eureka
Credit Facility, as well as for each dividend following March 31,
2024 for the Equitrans Midstream Preferred Shares, which each use
the London Inter-Bank Offered Rate (LIBOR) as a reference rate. The
ASU is effective immediately but is only available through December
31, 2022. The Company is currently evaluating the potential impact
of this standard on its financial statements.
In August 2020, the FASB issued ASU 2020-06,
Accounting for Convertible Instruments and Contracts in an Entity’s
Own Equity,
which simplifies the accounting for convertible debt and
convertible preferred stock by removing the requirements to
separately present certain conversion features in equity. In
addition, the amendments in the ASU 2020-06 also simplify the
guidance in ASC Subtopic 815-40,
Derivatives and Hedging: Contracts in Entity’s Own
Equity,
by removing certain criteria that must be satisfied in order to
classify a contract as equity. Finally, the amendments revise the
guidance on calculating earnings per share, requiring use of the
if-converted method for all convertible instruments and rescinding
an entity’s ability to rebut the presumption of share settlement
for instruments that may be settled in cash or other assets. The
amendments will be effective for fiscal years beginning after
December 15, 2021. Early adoption is permitted for fiscal years
beginning after December 15, 2020. Adoption of the guidance must
commence at the beginning of the annual fiscal year. The Company is
currently evaluating the potential impact of this standard on its
financial statements.
2. Investments in Consolidated, Non-Wholly
Owned Entities
Investment in EQM
EQM IDR Transaction.
On February 22, 2019, the Company completed a simplification
transaction pursuant to that certain Agreement and Plan of Merger,
dated as of February 13, 2019, by and among the Company and certain
related parties, pursuant to which, among other things, (i)
Equitrans Merger Sub, LP merged with and into EQGP (the IDR Merger)
with EQGP continuing as the surviving limited partnership and a
wholly owned subsidiary of EQM, and (ii) each of (a) the
IDRs in EQM, (b) the economic portion of the general partner
interest in EQM and (c) the issued and outstanding common
units representing limited partner interests in EQGP (EQGP Common
Units) were canceled, and, as consideration for such cancellation,
certain affiliates of the Company received on a pro rata basis
80,000,000 newly-issued EQM Common Units and 7,000,000 newly-issued
Class B units representing limited partner interests in EQM
(Class B units), and the EQM General Partner retained the
non-economic general partner interest in EQM (such transactions,
collectively, the EQM IDR Transaction). Additionally, as part of
the EQM IDR Transaction, 21,811,643 EQM Common Units held by EQGP
were canceled and 21,811,643 EQM Common Units were issued pro rata
to certain subsidiaries of the Company. As a result of the EQM IDR
Transaction, the EQM General Partner replaced EQM Midstream
Services, LLC as the general partner of EQM.
After giving effect to the EQM IDR Transaction, including the
issuance of Class B units, Equitrans Gathering Holdings, LLC
(Equitrans Gathering Holdings), EQM GP Corporation (EQM GP Corp)
and Equitrans Midstream Holdings, LLC (EMH), each a wholly owned
subsidiary of Equitrans Midstream, held 89,505,616, 89,536 and
27,650,303 EQM Common Units, respectively, for a total of
117,245,455 EQM Common Units. Additionally, Equitrans Gathering
Holdings, EQM GP Corp and EMH held 6,153,907, 6,155 and 839,938
Class B units, respectively, for a total of 7,000,000 Class B
units.
During the first quarter of 2019, as a result of the EQM IDR
Transaction, the Company recorded, in the aggregate, a $991.1
million increase of common stock, no par value, a decrease in
noncontrolling interest of $1.3 billion and a decrease in deferred
tax asset of $346.5 million.
EQM Merger.
As discussed in Note 1, on June 17, 2020, the Company, EQM, EQM LP,
Merger Sub and the EQM General Partner completed the EQM Merger,
pursuant to which Merger Sub merged with and into EQM, with EQM
continuing and surviving as an indirect, wholly owned subsidiary of
the Company. As a result of the EQM Merger, EQM is no longer a
publicly traded entity.
At the Effective Time, subject to applicable tax withholding, (i)
each outstanding EQM Common Unit, other than EQM Common Units owned
by the Company and its subsidiaries, was converted into the right
to receive 2.44 shares of Equitrans Midstream common stock (the
Merger Consideration); (ii) (x) $600.0 million aggregate
principal amount of the EQM Series A Preferred Units issued and
outstanding immediately prior to the Effective Time were redeemed
by EQM for cash at 101% of the EQM Series A Preferred Unit Purchase
Price plus any accrued and unpaid distribution amounts and partial
period distribution amounts, and (y) immediately following such
redemption, each remaining issued and outstanding EQM Series A
Preferred Unit was exchanged for 2.44 Equitrans Midstream Preferred
Shares; and (iii) each outstanding phantom unit relating to an EQM
Common Unit issued pursuant to the Amended and Restated EQGP
Services, LLC 2012 Long-Term Incentive Plan, dated as of February
22, 2019 (the EQM LTIP), and any other award issued pursuant to the
EQM LTIP, whether vested or unvested, was converted into the right
to receive, with respect to each EQM Common Unit subject thereto,
the Merger Consideration (plus any
accrued but unpaid amounts in relation to distribution equivalent
rights). The limited partner interests in EQM owned by the Company
and its subsidiaries (including the Class B units) remained
outstanding as limited partner interests in the surviving entity.
The EQM General Partner continued to own the non-economic general
partner interest in the surviving entity.
No fractional shares of Equitrans Midstream common stock were
issued in the EQM Merger; instead, all fractions of Equitrans
Midstream common stock to which an EQM common unitholder otherwise
would have been entitled were aggregated and the resulting fraction
was rounded up to the nearest whole share of Equitrans Midstream
common stock.
In connection with the EQM Merger at the Effective Time, the
Company's omnibus and secondment agreements with EQM and certain
other subsidiaries of the Company terminated, subject to the
survival of certain license rights and indemnification
obligations.
Because the Company controlled EQM both before and after the EQM
Merger, the increase in the Company’s ownership interest in EQM
resulting from the EQM Merger was accounted for as an equity
transaction and reflected as a reduction of the noncontrolling
interest associated with public ownership of EQM Common Units,
offset by an increase in common stock, no par value. No gain or
loss was recognized in the Company’s statement of consolidated
comprehensive income as a result of the EQM Merger. In addition,
the tax effects of the EQM Merger are reported as adjustments to
deferred income taxes and Equitrans Midstream common stock,
consistent with ASC 740,
Income Taxes.
Immediately prior to the completion of the EQM Merger, the public
limited partners collectively owned a 40.1% interest in EQM,
excluding the impact of the EQM Series A Preferred Units. The
publicly-owned EQM Common Units, prior to completion of the EQM
Merger, were reflected within noncontrolling interest in the
Company's consolidated balance sheets as of March 31, 2020. The
portion of EQM earnings attributable to publicly held EQM Common
Units prior to completion of the EQM Merger was reflected in net
income attributable to noncontrolling interests in the Company's
statements of consolidated comprehensive income.
During the second quarter of 2020, as a result of the EQM Merger,
the Company recorded, in the aggregate, a $2.7 billion
increase of common stock, no par value, a decrease in
noncontrolling interest of $3.0 billion and an increase in
deferred tax liability of $257.2 million.
Additionally, for the period from January 1, 2020 to June 17, 2020,
the Company determined that EQM was a variable interest entity.
Through the Company's ownership and control of the general partner
of EQM during that period, the Company had the power to direct the
activities that most significantly affected EQM's economic
performance. As a result of the EQM Merger, EQM is no longer a
variable interest entity.
The Company recorded $1.0 million and $23.8 million in
expenses related to the EQM Merger and the EQT Global GGA (defined
in Note 4) during the three and nine months ended September 30,
2020, respectively. The expenses consisted of advisor, legal and
accounting fees related to the transactions and are included in
separation and other transaction costs in the statements of
consolidated comprehensive income.
Preferred Restructuring Agreement.
As discussed in Note 1, on June 17, 2020, concurrently with the
closing of the EQM Merger: (i) EQM redeemed $600 million aggregate
principal amount of the EQM Series A Preferred Units issued and
outstanding immediately prior to the Effective Time for cash at
101% of the EQM Series A Preferred Unit Purchase Price plus any
accrued and unpaid distribution amounts and partial period
distribution amounts, and (ii) immediately following such
redemption, each remaining issued and outstanding EQM Series A
Preferred Unit was exchanged for 2.44 Equitrans Midstream Preferred
Shares, in each case, in connection with the occurrence of the
“Series A Change of Control” (as defined in the Former EQM
Partnership Agreement) that occurred upon the closing of the EQM
Merger. The Equitrans Midstream Preferred Shares issued were not
registered under the Securities Act of 1933, as amended (the
Securities Act), in reliance upon the exemption provided in Section
4(a)(2) of the Securities Act and/or Regulation D promulgated
thereunder.
On June 17, 2020, the Company paid cash of $617.3 million to
redeem $600 million aggregate principal amount of the
Investors’ EQM Series A Preferred Units and pay partial period
distributions on such EQM Series A Preferred Units. At the time of
the redemption, the carrying value of the EQM Series A Preferred
Units was $590.1 million, resulting in a premium over the
carrying value of $27.3 million. The premium represented a
return similar to distributions to the holders of the EQM Series A
Preferred Units and, as such, reduced net income attributable to
Equitrans Midstream common shareholders, and was recorded in
retained earnings (deficit) in the statements of consolidated
shareholders' equity and mezzanine equity.
Pursuant to the Restructuring Agreement, in connection with the
Restructuring Closing, the Company filed a statement with respect
to shares, attaching a Certificate of Designations (the Certificate
of Designations), with the Pennsylvania Department of State on June
17, 2020 to, among other things, authorize and establish the
designations, rights and preferences of the Equitrans Midstream
Preferred Shares. On August 13, 2020, pursuant to the terms of
the Certificate of Designations, the Company paid
$10.9 million in the aggregate to holders of Equitrans Midstream
Preferred Shares related to forgone partial period distributions on
the EQM Series A Preferred Units that were converted into Equitrans
Midstream Preferred Shares in connection with the EQM
Merger.
The Equitrans Midstream Preferred Shares were a new class of
security as of June 2020. They rank pari passu with any other
outstanding class or series of preferred stock of the Company and
senior to Equitrans Midstream common stock with respect to dividend
rights and rights upon liquidation. The Equitrans Midstream
Preferred Shares vote on an as-converted basis with Equitrans
Midstream common stock and have certain other class voting rights
with respect to any amendment to the Certificate of Designations or
the Company’s Amended and Restated Articles of Incorporation that
would be adverse (other than in a
de minimis
manner) to any of the rights, preferences or privileges of the
Equitrans Midstream Preferred Shares.
The holders of the Equitrans Midstream Preferred Shares receive
cumulative quarterly dividends at a rate per annum of 9.75% for
each quarter ending on or before March 31, 2024, and thereafter
quarterly dividends at a rate per annum equal to the sum of (i)
three-month LIBOR as of the LIBOR Determination Date (as defined in
the Certificate of Designations) in respect of the applicable
quarter and (ii) 8.15%; provided that such rate per annum in
respect of periods after March 31, 2024 will not be less than
10.50%. The Company is not permitted to pay any dividends on any
junior securities, including on Equitrans Midstream common stock,
prior to paying the quarterly dividends payable to the Equitrans
Midstream Preferred Shares, including any previously accrued and
unpaid dividends.
Each holder of the Equitrans Midstream Preferred Shares may elect
to convert all or any portion of the Equitrans Midstream Preferred
Shares owned by it into Equitrans Midstream common stock initially
on a one-for-one basis, subject to certain anti-dilution
adjustments and an adjustment for any dividends that have accrued
but not been paid when due and partial period dividends (referred
to as the “conversion rate”), at any time (but not more often than
once per fiscal quarter) after April 10, 2021 (or immediately prior
to a liquidation, dissolution or winding up of the Company),
provided that any conversion involves an aggregate number of
Equitrans Midstream Preferred Shares of at least $20.0 million
(calculated based on the closing price of Equitrans Midstream
common stock on the trading day preceding notice of the conversion)
or such lesser amount if such conversion relates to all of a
holder’s remaining Equitrans Midstream Preferred Shares or if such
conversion is approved by the Company's Board of
Directors.
So long as the holders of the Equitrans Midstream Preferred Shares
have not elected to convert all of their Equitrans Midstream
Preferred Shares into Equitrans Midstream common stock, the Company
may elect to convert all of the Equitrans Midstream Preferred
Shares into Equitrans Midstream common stock, at the
then-applicable conversion rate, at any time after April 10, 2021
if (i) the shares of Equitrans Midstream common stock are listed
for, or admitted to, trading on a national securities exchange,
(ii) the closing price per share of Equitrans Midstream common
stock on the national securities exchange on which the shares of
Equitrans Midstream common stock are listed for, or admitted to,
trading exceeds $27.99 for the 20 consecutive trading days
immediately preceding notice of the conversion, (iii) the average
daily trading volume of the Equitrans Midstream common stock on the
national securities exchange on which the shares of Equitrans
Midstream common stock are listed for, or admitted to, trading
exceeds 1,000,000 shares (subject to certain adjustments) of
Equitrans Midstream common stock for the 20 consecutive trading
days immediately preceding notice of the conversion, (iv) the
Company has an effective registration statement on file with the
SEC covering resales of the shares of Equitrans Midstream common
stock to be received by such holders upon any such conversion and
(v) the Company has paid all prior accumulated and unpaid dividends
in cash in full to the holders.
Upon certain events involving a Change of Control (as defined in
the Certificate of Designations) in which more than 90% of the
consideration payable to the Company, or to the holders of
Equitrans Midstream common stock, is payable in cash, the Equitrans
Midstream Preferred Shares will automatically convert into
Equitrans Midstream common stock at a conversion ratio equal to the
greater of (i) the quotient of (a) the sum of (x) $19.99 (such
price, the Equitrans Midstream Preferred Share Issue Price) plus
(y) any accrued and unpaid dividends as of such date, including any
partial period dividends, with respect to the Equitrans Midstream
Preferred Shares, divided by (b) the Equitrans Midstream Preferred
Share Issue Price and (ii) the quotient of (a) the sum of (x)(1)
the Equitrans Midstream Preferred Share Issue Price multiplied by
(2) 110% plus (y) any accrued and unpaid dividends on such date,
including any partial period dividends with respect to the
Equitrans Midstream Preferred Shares, divided by (b) the volume
weighted average price of the shares of Equitrans Midstream common
stock for the 30-day period ending immediately prior to the
execution of definitive documentation relating to the Change of
Control.
In connection with other Change of Control events that do not
satisfy the 90% cash consideration threshold described above, in
addition to certain other conditions, each holder of Equitrans
Midstream Preferred Shares may elect to (i) convert all, but not
less than all, of its Equitrans Midstream Preferred Shares into
Equitrans Midstream common stock at the then-applicable conversion
rate, (ii) if the Company is not the surviving entity (or if the
Company is the surviving entity, but Equitrans Midstream common
stock will cease to be listed), require the Company to use
commercially reasonable efforts to cause the
surviving entity in any such transaction to deliver, in exchange
for such holder's Equitrans Midstream Preferred Shares, a
substantially equivalent security that has rights, preferences and
privileges substantially equivalent to the Equitrans Midstream
Preferred Shares (or if the Company is unable to cause such
substantially equivalent securities to be issued, to exercise the
option described in clause (i) or (iv) hereof or elect to convert
such Equitrans Midstream Preferred Shares at a conversion ratio
reflecting a multiple of invested capital), (iii) if the Company is
the surviving entity, continue to hold the Equitrans Midstream
Preferred Shares or (iv) require the Company to redeem the
Equitrans Midstream Preferred Shares at a price per share equal to
101% of the Equitrans Midstream Preferred Share Issue Price, plus
accrued and unpaid dividends, including any partial period
dividends, on the applicable Equitrans Midstream Preferred Shares
as of such date, which redemption price may be payable in cash,
Equitrans Midstream common stock or a combination thereof at the
election of the Company's Board of Directors (and, if payable in
Equitrans Midstream common stock, such Equitrans Midstream common
stock will be issued at 95% of the volume-weighted average price of
Equitrans Midstream common stock for the 20-day period ending on
the fifth trading day immediately preceding the consummation of the
Change of Control). Any holder of Equitrans Midstream Preferred
Shares that requires the Company to redeem its Equitrans Midstream
Preferred Shares pursuant to clause (iv) above will have the right
to withdraw such election with respect to all, but not less than
all, of its Equitrans Midstream Preferred Shares at any time prior
to the fifth trading day immediately preceding the consummation of
the Change of Control and instead elect to be treated in accordance
with any of clauses (i), (ii) or (iii) above.
At any time on or after January 1, 2024, the Company will have the
right, subject to applicable law, to redeem the Equitrans Midstream
Preferred Shares, in whole or in part, by paying cash for each
Equitrans Midstream Preferred Share to be redeemed in an amount
equal to the greater of (a) the sum of (i)(1) the Equitrans
Midstream Preferred Share Issue Price multiplied by (2) 110%, plus
(ii) any accrued and unpaid dividends, including partial period
dividends, with respect to the Equitrans Midstream Preferred Shares
as of such date and (b) the amount the holder of such Equitrans
Midstream Preferred Share would receive if such holder had
converted such Equitrans Midstream Preferred Share into shares of
Equitrans Midstream common stock at the then-applicable conversion
ratio and the Company liquidated immediately
thereafter.
Pursuant to the terms of the Restructuring Agreement, in connection
with the Restructuring Closing, the Company entered into a
registration rights agreement with the Investors (the Registration
Rights Agreement) pursuant to which, among other things, the
Company gave the Investors certain rights to require the Company to
file and maintain one or more registration statements with respect
to the resale of the Equitrans Midstream Preferred Shares and the
shares of Equitrans Midstream common stock that are issuable upon
conversion of the Equitrans Midstream Preferred Shares, and certain
Investors have the right to require the Company to initiate
underwritten offerings for the Equitrans Midstream Preferred Shares
and the shares of Equitrans Midstream common stock that are
issuable upon conversion of the Equitrans Midstream Preferred
Shares.
During the second quarter of 2020, as a result of the Restructuring
Closing, the Company recorded an increase in mezzanine equity of
$667.2 million, a decrease in noncontrolling interest of
$579.2 million and a decrease in common stock, no par value,
of $82.7 million, net of deferred taxes of
$5.3 million.
The Equitrans Midstream Preferred Shares are considered redeemable
securities under GAAP due to the possibility of redemption outside
the Company’s control. They are therefore presented as temporary
equity in the mezzanine equity section of the Company’s
consolidated balance sheets and are not considered to be a
component of shareholders’ equity on the consolidated balance
sheets. The Equitrans Midstream Preferred Shares were recorded at
fair value as of the date of issuance, and income allocations
increase the carrying value and declared dividends decrease the
carrying value of the Equitrans Midstream Preferred Shares. As the
Equitrans Midstream Preferred Shares are not currently redeemable
and not probable of becoming redeemable, adjustment to the initial
carrying amount is not necessary and would only be required if it
becomes probable that the Equitrans Midstream Preferred Shares
would become redeemable.
3. Mergers and Acquisitions
EQM Merger.
See Note 2.
Bolt-on Acquisition.
On March 13, 2019, the Company (through EQM) entered into a
Purchase and Sale Agreement with North Haven Infrastructure
Partners II Buffalo Holdings, LLC (NHIP), an affiliate of Morgan
Stanley Infrastructure Partners, pursuant to which the Company
acquired from NHIP a 60% Class A interest in Eureka Midstream
Holdings, LLC (Eureka Midstream) and a 100% interest in Hornet
Midstream Holdings, LLC (Hornet Midstream) (collectively, the
Bolt-on Acquisition) for total consideration of approximately $1.04
billion, composed of approximately $852 million in cash, net of
purchase price adjustments, and approximately $192 million in
assumed pro-rata debt. At the time of the acquisition, Eureka
Midstream owned a 190-mile gathering header pipeline system in Ohio
and West Virginia that services both dry Utica and wet Marcellus
Shale production and Hornet Midstream owned a 15-mile,
high-pressure gathering system in West Virginia that connects to
the Eureka Midstream system. The Bolt-on Acquisition closed on
April 10, 2019 and was funded through proceeds from the
March
2019 private placement by EQM of an aggregate of 24,605,291 EQM
Series A Preferred Units that closed concurrently with the Bolt-on
Acquisition.
At the closing of the Bolt-on Acquisition, a subsidiary of Hornet
Midstream terminated all of its obligations under its term loan
credit agreement and repaid the $28.2 million outstanding
principal balance and $0.1 million in related interest and
fees.
The Company recorded $0.3 million and $17.0 million in
acquisition-related expenses related to the Bolt-on Acquisition
during the three and nine months ended September 30, 2019,
respectively. The Bolt-on Acquisition acquisition-related expenses
included $0.3 million for professional fees for the three
months ended September 30, 2019 and $15.3 million for
professional fees and $1.7 million for compensation
arrangements for the nine months ended September 30, 2019, and are
included in separation and other transaction costs in the
statements of consolidated comprehensive income.
The Bolt-on Acquisition was accounted for as a business combination
using the acquisition method. As a result of the acquisition, the
Company recognized $99.2 million of goodwill, which was allocated
to the Gathering segment. Such goodwill primarily related to
additional commercial opportunities, a diversified producer
customer mix, increased exposure to dry Utica and wet Marcellus
acreage and operating leverage within the Gathering segment. The
purchase price allocation and related adjustments were finalized
during the fourth quarter of 2019. The following table summarizes
the final purchase price and allocation of the fair value of the
assets acquired and liabilities assumed in the Bolt-on Acquisition
as of April 10, 2019 by the Company, as well as certain
measurement period adjustments made subsequent to the Company's
initial valuation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
Preliminary Purchase Price Allocation (As initially
reported) |
|
Measurement Period Adjustments
(a)
|
|
Purchase Price Allocation (As adjusted) |
Consideration given: |
|
|
|
|
|
|
Cash consideration
(b)
|
|
$ |
861,250 |
|
|
$ |
(11,404) |
|
|
$ |
849,846 |
|
Buyout of portion of Eureka Midstream Class B Units and incentive
compensation |
|
2,530 |
|
|
— |
|
|
2,530 |
|
Total consideration |
|
863,780 |
|
|
(11,404) |
|
|
852,376 |
|
|
|
|
|
|
|
|
Fair value of liabilities assumed: |
|
|
|
|
|
|
Current liabilities |
|
52,458 |
|
|
(9,857) |
|
|
42,601 |
|
Long-term debt |
|
300,825 |
|
|
— |
|
|
300,825 |
|
|
|
|
|
|
|
|
Other long-term liabilities |
|
10,203 |
|
|
— |
|
|
10,203 |
|
Amount attributable to liabilities assumed |
|
363,486 |
|
|
(9,857) |
|
|
353,629 |
|
|
|
|
|
|
|
|
Fair value of assets acquired: |
|
|
|
|
|
|
Cash |
|
15,145 |
|
|
— |
|
|
15,145 |
|
Accounts receivable |
|
16,817 |
|
|
— |
|
|
16,817 |
|
Inventory |
|
12,991 |
|
|
(26) |
|
|
12,965 |
|
Other current assets |
|
882 |
|
|
— |
|
|
882 |
|
Net property, plant and equipment |
|
1,222,284 |
|
|
(8,906) |
|
|
1,213,378 |
|
Intangible assets
(c)
|
|
317,000 |
|
|
(6,000) |
|
|
311,000 |
|
Deferred tax asset |
|
5,773 |
|
|
(5,268) |
|
|
505 |
|
Other assets |
|
14,567 |
|
|
— |
|
|
14,567 |
|
Amount attributable to assets acquired |
|
1,605,459 |
|
|
(20,200) |
|
|
1,585,259 |
|
|
|
|
|
|
|
|
Noncontrolling interests |
|
(486,062) |
|
|
7,602 |
|
|
(478,460) |
|
|
|
|
|
|
|
|
Goodwill as of April 10, 2019 |
|
$ |
107,869 |
|
|
$ |
(8,663) |
|
|
$ |
99,206 |
|
Impairment of goodwill
(d)
|
|
|
|
|
|
(99,206) |
|
Goodwill as of September 30, 2020 |
|
|
|
|
|
$ |
— |
|
(a) The Company recorded measurement period
adjustments to its preliminary acquisition date fair values due to
the refinement of its valuation models, assumptions and inputs. The
measurement period adjustments were based upon information obtained
about facts and circumstances that existed at the acquisition date
that, if known, would have affected the measurement of the amounts
recognized at that date.
(b) The cash consideration for the Bolt-on
Acquisition was adjusted by approximately $11.4 million related to
working capital adjustments and the release of all escrowed
indemnification funds to EQM.
(c) After considering the refinements to the
valuation models, the Company estimated the fair value of the
customer-related intangible assets acquired as part of the Bolt-on
Acquisition to be $311.0 million. As a result, the fair value of
the customer-related intangible assets was decreased by $6.0
million on September 30, 2019 with a corresponding increase to
goodwill. In addition, the change to the provisional amount
resulted in a decrease in amortization expense and accumulated
amortization of approximately $0.4 million.
(d) During the third quarter of 2019, the
Company identified impairment indicators that suggested the fair
value of its goodwill was more likely than not below its carrying
amount. As such, the Company performed an interim goodwill
impairment assessment, which resulted in the Company recognizing
impairment to goodwill of approximately $268.1 million, of which
$99.2 million was associated with its Eureka/Hornet reporting unit,
bringing the reporting unit's goodwill balance to zero. See Note 4
for further detail.
The estimated fair value of midstream facilities and equipment,
generally consisting of pipeline systems and compression stations,
was estimated using the cost approach. Significant unobservable
inputs in the estimate of fair value under this approach included
management's assumptions about the replacement costs for similar
assets, the relative age of the acquired assets and any potential
economic or functional obsolescence associated with the acquired
assets. As a result, the estimated fair value of the midstream
facilities and equipment represented a Level 3 fair value
measurement.
As a result of the acquisition, the noncontrolling interest in
Eureka Midstream was estimated to be $478.5 million. The fair
value of the noncontrolling interest was calculated based on the
enterprise value of Eureka Midstream and the percentage ownership
not acquired by the Company. Significant unobservable inputs in the
enterprise value of Eureka Midstream include future revenue
estimates and future cost assumptions. As a result, the fair value
measurement is based on significant inputs that are not observable
in the market and thus represents a Level 3 fair value
measurement.
As part of the preliminary purchase price allocation, the Company
identified intangible assets for customer relationships with
third-party customers. The fair value of the customer relationships
with third-party customers was determined using the income
approach, which requires a forecast of the expected future cash
flows generated and an estimated market-based weighted average cost
of capital. Significant unobservable inputs in the determination of
fair value include future revenue estimates, future cost
assumptions and estimated customer retention rates. As a result,
the estimated fair value of the identified intangible assets
represents a Level 3 fair value measurement. The Company calculates
amortization of intangible assets using the straight-line method
over the estimated useful life of the intangible
assets.
The Company previously utilized a useful life of 20 years for the
Eureka Midstream- and Hornet Midstream-related intangible assets.
As a result of expected changes in cash flows due to decreases in
producer activity driven by lower natural gas prices, as of April
1, 2020, the Company prospectively changed the remaining useful
life of the Eureka Midstream-related intangible assets to 10.75
years, increasing the expected annual amortization expense by $9.1
million. In addition, as a result of then expected reductions in
future cash flows, as of October 1, 2019, the useful life of the
Hornet Midstream-related intangible assets was prospectively
changed to 7.25 years. The estimated annual amortization expense
for the Eureka Midstream- and Hornet Midstream-related intangible
assets for the remaining three months of 2020 and over the
successive five years is as follows: 2020 $5.8 million, 2021 $23.3
million, 2022 $23.3 million, 2023 $23.3 million, 2024 $23.3 million
and 2025 $23.3 million.
As discussed in Note 4, during the third quarter of 2019, as a
result of a recoverability test conducted due to a decrease in
producer activity, the Company determined that the estimated fair
value of the Hornet Midstream-related intangible assets was not in
excess of the assets’ carrying value, which resulted in an
impairment charge of $36.4 million related to certain of such
intangibles within the Company’s Gathering segment. The Company
also performed a recoverability test during the first quarter of
2020 due to significant declines in the unit price of EQM Common
Units and corresponding market capitalization, which resulted in an
additional impairment charge of $17.7 million to the Hornet
Midstream-related intangible assets (see Note 4). The useful life
of the Hornet Midstream-related intangible assets remained 7.25
years following the first quarter 2020 recoverability
test.
In conjunction with the Bolt-on Acquisition, the Company recorded
tax deductible goodwill of $43.0 million. The Company does not
have tax basis on the portion attributable to the former
noncontrolling limited partners of EQM or on the portion
attributable to the noncontrolling member of Eureka
Midstream.
4. Impairments of Long-Lived Assets
and Other-Than-Temporary Decline in Value
Goodwill.
On February 26, 2020 (the EQT Global GGA Effective Date), the
Company (through EQM) entered into a Gas Gathering and Compression
Agreement (as amended, the EQT Global GGA) with EQT for the
provision of certain gas gathering services to EQT in the Marcellus
and Utica Shales of Pennsylvania and West Virginia (as further
discussed in Note 6). Prior to the EQT Global GGA Effective Date,
the Company operated three reportable operating segments and seven
reporting units, which are one level below the operating segment
level and are generally based on how segment
management
reviews the Company's operating results. Commencing with the EQT
Global GGA Effective Date, the Company reduced its reporting units
from seven to six and maintained its three reportable operating
segments. As of the EQT Global GGA Effective Date, the only
reporting unit to which the Company had goodwill recorded related
to the Pennsylvania gathering assets acquired in connection with
EQM's merger with Rice Midstream Partners LP in July 2018 (RMP PA
Gas Gathering reporting unit). As a result of the EQT Global GGA,
the assets under, and operations associated with, the RMP PA Gas
Gathering reporting unit and the reporting unit associated with the
gas gathering and compression activities of EQM Gathering Opco,
LLC, an indirect wholly owned subsidiary of the Company (EQM Opco
reporting unit), were combined to service a collective MVC under
the agreement. Therefore, effective on the EQT Global GGA Effective
Date, the RMP PA Gas Gathering reporting unit was merged with and
into the EQM Opco reporting unit, with the EQM Opco reporting unit
surviving.
During the first quarter of 2020, the Company identified impairment
indicators in the form of significant declines in the unit price of
EQM Common Units and corresponding market capitalization.
Management considered these declines as indicators that the fair
value of the RMP PA Gas Gathering reporting unit was more likely
than not below its carrying amount, and the performance of an
interim quantitative goodwill impairment assessment was required.
Additionally, as a result of the combination of the RMP PA Gas
Gathering reporting unit and the EQM Opco reporting unit, the
Company tested both the RMP PA Gas Gathering and the merged EQM
Opco reporting units for goodwill impairment. In estimating the
fair value of the RMP PA Gas Gathering and the merged EQM Opco
reporting units, the Company used a combination of the income
approach and the market approach. The Company used the income
approach’s discounted cash flow method, which applies significant
inputs not observable in the public market (Level 3), including
estimates and assumptions related to the use of an appropriate
discount rate, future throughput volumes, operating costs, capital
spending and changes in working capital. The Company used the
market approach’s comparable company and reference transaction
methods. The comparable company method evaluates the value of a
company using metrics of other businesses of similar size and
industry. The reference transaction method evaluates the value of a
company based on pricing multiples derived from similar
transactions entered into by similar companies.
As a result of the interim assessment, the Company determined that
the fair values of the RMP PA Gas Gathering reporting unit and the
merged EQM Opco reporting unit, as applicable, were greater than
their respective carrying values. No impairment to goodwill was
recorded during the three months ended March 31, 2020. The Company
believes the estimates and assumptions used in estimating its
reporting units’ fair values are reasonable and appropriate;
however, different assumptions and estimates could materially
affect the calculated fair values of the RMP PA Gas Gathering
reporting unit and the merged EQM Opco reporting unit and the
resulting conclusions on impairment of goodwill, which could
materially affect the Company’s results of operations and financial
position. Additionally, actual results could differ from these
estimates. Additional adverse changes in the future could reduce
the underlying cash flows used to estimate the fair value of the
merged EQM Opco reporting unit and could result in a decline in
fair value that could trigger future impairment charges relating to
the EQM Opco reporting unit.
The three reporting units to which the Company had goodwill during
2019 were (i) the Ohio gathering assets acquired in connection with
EQM’s acquisition of the outstanding limited liability company
interests in each of EQM West Virginia Midstream LLC (EQM West
Virginia), EQM Olympus Midstream LLC (EQM Olympus) and Strike Force
Midstream Holdings LLC (Strike Force Holdings) (collectively, Rice
Retained Midstream) (ii) RMP PA Gas Gathering and (iii) the Ohio
and West Virginia gathering assets acquired in the Bolt-on
Acquisition (Eureka/Hornet, collectively with Rice Retained
Midstream and RMP PA Gas Gathering, the Reporting
Units).
During the third quarter of 2019, the Company identified impairment
indicators in the form of significant declines in the unit price of
EQM's Common Units and corresponding market capitalization,
primarily as a result of continued suppressed natural gas prices
and decreased producer drilling activity. Management considered
these declines as indicators that the fair value of goodwill was
more likely than not below the carrying amounts for the respective
Reporting Units. As such, the performance of an interim goodwill
impairment assessment was required. In estimating the fair value of
each of the Reporting Units, the Company used a combination of the
income approach and the market approach, both as described
above.
As of August 31, 2019, the Company determined that the fair value
of Rice Retained Midstream was greater than its carrying value;
however, the carrying values of RMP PA Gas Gathering and
Eureka/Hornet were each greater than their respective fair values.
As a result, the Company recognized impairment of goodwill of
$168.9 million and $99.2 million on RMP PA Gas Gathering
and Eureka/Hornet, respectively. The non-cash impairment charge is
included in the impairments of long-lived assets line on the
Company's statements of consolidated comprehensive
income.
Long-lived assets, including intangible assets and equity method
investments.
The Company evaluates long-lived assets, including related
intangibles, for impairment when events or changes in circumstances
indicate, in management's judgment, that the carrying value of such
assets may not be recoverable. Asset recoverability is measured by
comparing the carrying value of the asset or asset group with its
expected future pre-tax undiscounted cash flows. These cash flow
estimates require the Company to make projections and assumptions
for many years into the future for pricing, demand, competition,
operating cost and other factors. If the carrying amount exceeds
the expected future undiscounted cash flows, the Company recognizes
an
impairment equal to the excess of net book value over fair value as
determined by quoted market prices in active markets or present
value techniques if quotes are unavailable. The determination of
the fair value using present value techniques requires the Company
to make projections and assumptions regarding the probability of a
range of outcomes and the rates of interest used in the present
value calculations. Any changes the Company makes to these
projections and assumptions could result in significant revisions
to its evaluation of recoverability of its property, plant and
equipment and the recognition of additional
impairments.
As of March 31, 2020, the Company performed a recoverability test
of the Hornet Midstream long-lived assets due to decreased producer
activity. As a result of the recoverability test, management
determined that the carrying value of the Hornet Midstream
long-lived assets (which consisted of gathering assets and
customer-related intangible assets) was not recoverable under ASC
360,
Impairment Testing: Long-Lived Assets Classified as Held and
Used.
During the first quarter of 2020, the Company estimated the fair
value of the Hornet Midstream asset group and determined that the
fair value was not in excess of the assets’ carrying value, which
resulted in impairment charges of approximately $37.9 million to
the gathering assets and approximately $17.7 million to the
customer-related intangible assets both within the Company’s
Gathering segment. The non-cash impairment charges were recognized
during the first quarter of 2020 and are included in the
impairments of long-lived assets line on the statements of
consolidated comprehensive income.
During the third quarter of 2019, the Company assessed its
long-lived asset groups for impairment due to the triggering events
described in the goodwill impairment summary above. As a result of
the recoverability test, management determined that the carrying
value of certain long-lived assets associated with Eureka/Hornet
(specifically, Hornet Midstream customer-related intangible assets)
were not recoverable. The Company estimated the fair value of the
Hornet Midstream-related intangible assets and determined that the
fair value was not in excess of the assets’ carrying value, which
resulted in an impairment charge of approximately
$36.4 million related to certain of such intangible assets
within the Company's Gathering segment. The non-cash impairment
charge is included in the impairments of long-lived assets line on
the statements of consolidated comprehensive income.
During 2019, the Company reassessed its asset groupings for its
regulated pipelines due to certain regulatory ratemaking policy
changes affecting the regulated pipelines, changes in strategic
focus and plans for segmentation of operations. Prior to the second
quarter of 2019, the Company defined its regulated asset grouping
to include the FERC-regulated transmission and storage assets,
integrated with the low-pressure assets due to overlapping
operations, a shared costs structure and similar ratemaking
structures. During the second quarter of 2019, Equitrans L.P.
reached a settlement related to its FERC Form 501-G report, which
was focused solely on the Company’s FERC-regulated transmission and
storage assets. Further, management increased its operational focus
and emphasis on high-pressure gathering assets as illustrated by
the consummation of the Bolt-on Acquisition. As a result of these
regulatory changes and shift in operational focus, beginning with
the second quarter of 2019, the Company grouped its FERC-regulated
assets in two asset groupings: FERC-regulated transmission and
storage assets and FERC-regulated low-pressure gathering assets.
Upon the change in asset grouping, management evaluated whether any
indicators of impairment were present and, in conjunction with the
evaluation, the Company determined that the carrying values for the
non-core FERC-regulated low-pressure gathering assets exceeded
their undiscounted cash flows. Additionally, following the
settlement related to the FERC Form 501-G report, management did
not, and currently does not, plan to seek to recover the deficient
cash flows through a future rate proceeding. The Company therefore
estimated the fair values of FERC-regulated low-pressure gathering
assets and determined that their fair values were not in excess of
the assets’ carrying values, which resulted in recognized
impairments of property and equipment of approximately
$80.1 million during the second quarter of 2019 related to the
assets within the Company's Gathering segment. As a result of the
impairment, the assets carry no book value. The non-cash impairment
charge is included in the impairments of long-lived assets line on
the statements of consolidated comprehensive income.
The Company is also required to evaluate its equity method
investments, including investments in the MVP Joint Venture, to
determine whether they are impaired under ASC 323,
Investments - Equity Method and Joint Ventures.
The standard for determining whether an impairment must be recorded
under ASC 323 is whether there occurred an other-than-temporary
decline in value. The evaluation and measurement of impairments
under ASC 323 involves the same uncertainties as described above
for long-lived assets that the Company owns directly and accounts
for in accordance with ASC 360. The estimates that the Company
makes with respect to its equity method investments are based upon
assumptions that management believes are reasonable, and the impact
of variations in these estimates or the underlying assumptions
could be material. Additionally, if the projects in which the
Company holds these investments recognize an impairment under ASC
360, the Company would record its proportionate share of that
impairment loss and would evaluate its investment for an
other-than-temporary decline in value under ASC 323. The Company
evaluated its equity method investments, including investments in
the MVP Joint Venture, as of September 30, 2020 and determined
that there was not an other-than-temporary decline in
value.
There is risk that the carrying value of the Company's investments
in the MVP Joint Venture may be impaired in the future. There are
ongoing legal and regulatory matters that must be resolved
favorably before the MVP and MVP Southgate projects
can be completed. Assumptions and estimates utilized to test the
Company’s investments in the MVP Joint Venture for impairment may
change if adverse or delayed resolutions to these matters were to
occur, which could have a material effect on the fair value of the
Company's investments in the MVP Joint Venture.
5. Financial Information by Business
Segment
The Company reports its operations in three segments that reflect
its three lines of business: Gathering, Transmission and Water.
Gathering includes predominantly dry gas gathering systems of
high-pressure gathering lines and FERC-regulated low-pressure
gathering lines; Transmission includes FERC-regulated interstate
pipelines and storage systems; and Water consists of the Company's
water pipelines, impoundment facilities, pumping stations, take
point facilities and measurement facilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
(Thousands) |
Revenues from customers: |
|
|
|
|
|
|
|
Gathering |
$ |
232,651 |
|
|
$ |
299,491 |
|
|
$ |
764,229 |
|
|
$ |
847,038 |
|
Transmission |
93,329 |
|
|
87,299 |
|
|
288,869 |
|
|
289,926 |
|
Water |
24,020 |
|
|
21,644 |
|
|
90,605 |
|
|
67,419 |
|
Total operating revenues |
$ |
350,000 |
|
|
$ |
408,434 |
|
|
$ |
1,143,703 |
|
|
$ |
1,204,383 |
|
Operating income (loss): |
|
|
|
|
|
|
|
Gathering
(a)
|
$ |
129,186 |
|
|
$ |
(98,489) |
|
|
$ |
400,647 |
|
|
$ |
177,720 |
|
Transmission |
63,460 |
|
|
59,690 |
|
|
201,714 |
|
|
207,684 |
|
Water |
10,118 |
|
|
7,722 |
|
|
40,173 |
|
|
18,980 |
|
Headquarters
(b)
|
(2,255) |
|
|
(7,376) |
|
|
(24,646) |
|
|
(16,621) |
|
Total operating income (loss) |
$ |
200,509 |
|
|
$ |
(38,453) |
|
|
$ |
617,888 |
|
|
$ |
387,763 |
|
|
|
|
|
|
|
|
|
Reconciliation of operating income (loss) to net income
(loss): |
|
|
|
|
|
|
|
Equity income
(c)
|
$ |
60,917 |
|
|
$ |
44,448 |
|
|
$ |
171,233 |
|
|
$ |
112,293 |
|
Other income |
21,864 |
|
|
70 |
|
|
39,006 |
|
|
2,637 |
|
Loss on early extinguishment of debt |
— |
|
|
— |
|
|
24,864 |
|
|
— |
|
Net interest expense |
86,411 |
|
|
65,606 |
|
|
219,960 |
|
|
188,268 |
|
Income tax expense |
28,440 |
|
|
1,948 |
|
|
81,846 |
|
|
45,868 |
|
Net income (loss) |
$ |
168,439 |
|
|
$ |
(61,489) |
|
|
$ |
501,457 |
|
|
$ |
268,557 |
|
(a)Impairments
of long-lived assets of $298.7 million for the three months
ended September 30, 2019 and $55.6 million and
$378.8 million for the nine months ended September 30, 2020
and 2019, respectively, were included in Gathering operating income
(loss). See Note 4 for further information.
(b)Includes
separation and other transaction costs and other unallocated
corporate expenses.
(c)Equity
income is included in the Transmission segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020 |
|
December 31, 2019 |
|
(Thousands) |
Segment assets: |
|
|
|
Gathering |
$ |
7,743,615 |
|
|
$ |
7,572,911 |
|
Transmission
(a)
|
4,279,330 |
|
|
3,903,707 |
|
Water |
208,899 |
|
|
202,440 |
|
Total operating segments |
12,231,844 |
|
|
11,679,058 |
|
Headquarters, including cash |
398,836 |
|
|
362,651 |
|
Total assets |
$ |
12,630,680 |
|
|
$ |
12,041,709 |
|
(a)The
equity investments in the MVP Joint Venture are included in the
Transmission segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
(Thousands) |
Depreciation: |
|
|
|
|
|
|
|
Gathering |
$ |
44,648 |
|
|
$ |
38,943 |
|
|
$ |
126,915 |
|
|
$ |
104,502 |
|
Transmission |
13,659 |
|
|
13,347 |
|
|
40,787 |
|
|
38,474 |
|
Water |
8,105 |
|
|
6,907 |
|
|
22,720 |
|
|
19,801 |
|
Headquarters |
360 |
|
|
263 |
|
|
849 |
|
|
3,953 |
|
Total |
$ |
66,772 |
|
|
$ |
59,460 |
|
|
$ |
191,271 |
|
|
$ |
166,730 |
|
Capital expenditures for segment assets: |
|
|
|
|
|
|
|
Gathering
(a)
|
$ |
90,452 |
|
|
$ |
271,860 |
|
|
$ |
303,063 |
|
|
$ |
686,178 |
|
Transmission
(b)
|
6,721 |
|
|
16,296 |
|
|
32,983 |
|
|
46,287 |
|
Water |
2,530 |
|
|
13,466 |
|
|
8,377 |
|
|
31,490 |
|
Headquarters |
447 |
|
|
1,068 |
|
|
3,234 |
|
|
6,787 |
|
Total
(c)
|
$ |
100,150 |
|
|
$ |
302,690 |
|
|
$ |
347,657 |
|
|
$ |
770,742 |
|
(a)Includes
approximately $13.5 million and $37.1 million of capital
expenditures related to the noncontrolling interest in Eureka
Midstream for the three and nine months ended September 30, 2020,
respectively, and includes approximately $6.7 million and
$17.6 million of capital expenditures related to the
noncontrolling interest in Eureka Midstream for the three and nine
months ended September 30, 2019, respectively.
(b)Transmission
capital expenditures do not include capital contributions made to
the MVP Joint Venture for the MVP and MVP Southgate projects of
$65.6 million and $211.7 million for the three months ended
September 30, 2020
and
2019, respectively, and $144.3 million and $512.9
million for the nine months ended September 30,
2020 and 2019, respectively.
(c)The
Company accrues capital expenditures when the work has been
completed but the associated bills have not yet been paid. Accrued
capital expenditures are excluded from the statements of
consolidated cash flows until they are paid. The net impact of
non-cash capital expenditures, including the effect of accrued
capital expenditures, assumed capital expenditures associated with
the Bolt-on Acquisition, transfers from inventory as assets are
assigned to a project and capitalized share-based compensation
costs, was $8.3 million and $(15.3) million for the three
months ended September 30, 2020
and
2019, respectively, and $29.9 million and $(0.8) million
for the nine months ended September 30, 2020 and 2019,
respectively.
6. Revenue from Contracts with
Customers
For the three and nine months ended September 30, 2020 and 2019,
all revenues recognized on the Company's statements of consolidated
comprehensive income are from contracts with customers. As of
September 30, 2020 and December 31, 2019, all receivables
recorded on the Company's consolidated balance sheets represent
performance obligations that have been satisfied and for which an
unconditional right to consideration exists.
Summary of Disaggregated Revenues.
The tables below provide disaggregated revenue information by
business segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2020 |
|
|
Gathering |
|
Transmission |
|
Water |
|
Total |
|
|
(Thousands) |
Firm reservation fee revenues
(a)
|
|
$ |
145,533 |
|
|
$ |
84,612 |
|
|
$ |
9,005 |
|
|
$ |
239,150 |
|
Volumetric-based fee revenues |
|
87,118 |
|
|
8,717 |
|
|
15,015 |
|
|
110,850 |
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
$ |
232,651 |
|
|
$ |
93,329 |
|
|
$ |
24,020 |
|
|
$ |
350,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2019 |
|
|
Gathering |
|
Transmission |
|
Water |
|
Total |
|
|
(Thousands) |
Firm reservation fee revenues |
|
$ |
154,791 |
|
|
$ |
81,990 |
|
|
$ |
840 |
|
|
$ |
237,621 |
|
Volumetric-based fee revenues |
|
144,700 |
|
|
5,309 |
|
|
20,804 |
|
|
170,813 |
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
$ |
299,491 |
|
|
$ |
87,299 |
|
|
$ |
21,644 |
|
|
$ |
408,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2020 |
|
|
Gathering |
|
Transmission |
|
Water |
|
Total |
|
|
(Thousands) |
Firm reservation fee revenues
(a)
|
|
$ |
446,721 |
|
|
$ |
267,973 |
|
|
$ |
32,788 |
|
|
$ |
747,482 |
|
Volumetric-based fee revenues |
|
317,508 |
|
|
20,896 |
|
|
57,817 |
|
|
396,221 |
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
$ |
764,229 |
|
|
$ |
288,869 |
|
|
$ |
90,605 |
|
|
$ |
1,143,703 |
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019 |
|
|
Gathering |
|
Transmission |
|
Water |
|
Total |
|
|
(Thousands) |
Firm reservation fee revenues |
|
$ |
431,520 |
|
|
$ |
263,051 |
|
|
$ |
4,531 |
|
|
$ |
699,102 |
|
Volumetric-based fee revenues |
|
415,518 |
|
|
26,875 |
|
|
62,888 |
|
|
505,281 |
|
|
|
|
|
|
|
|
|
|
Total operating revenues |
|
$ |
847,038 |
|
|
$ |
289,926 |
|
|
$ |
67,419 |
|
|
$ |
1,204,383 |
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(a) For the three months ended September 30,
2020, firm reservation fee revenues associated with Gathering and
Water included approximately $2.6 million and
$1.9 million, respectively, of MVC unbilled revenues. For the
nine months ended September 30, 2020, firm reservation fee revenues
associated with Gathering and Water included approximately
$13.7 million and $11.4 million, respectively, of MVC
unbilled revenues. There were no MVC unbilled revenues associated
with Gathering and Water during the three and nine months ended
September 30, 2019.
Contract Assets.
The Company recognizes contract assets in instances where billing
occurs subsequent to revenue recognition and the Company's right to
invoice the customer is conditioned on something other than the
passage of time. The Company's contract assets primarily consist of
revenue recognized under contracts containing MVCs whereby
management has concluded (i) it is probable there will be a MVC
deficiency payment at the end of the then-current MVC period, which
is typically the period beginning at the inception of such
contracts through the successive twelve month periods after that
date, and (ii) that a significant reversal of revenue recognized
currently for the future MVC deficiency payment will not occur. As
a result, the Company's contract assets related to the Company's
future MVC deficiency payments are generally expected to be
collected within the next twelve months and are included
in other current assets in the Company's consolidated
balance sheets until such time as the MVC deficiency payments
are invoiced to the customer.
The following table presents changes in the Company's unbilled
revenue balance during the nine months ended September 30,
2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unbilled Revenue |
|
|
|
|
(Thousands) |
|
|
Balance as of January 1, 2020 |
|
$ |
— |
|
|
|
Revenue recognized in excess of amounts invoiced
(a)
|
|
25,086 |
|
|
|
Minimum volume commitments invoiced
(b)
|
|
— |
|
|
|
Balance as of September 30, 2020 |
|
$ |
25,086 |
|
|
|
|
|
|
|
|
(a)Revenues
associated with unbilled MVCs are included in firm reservation fee
revenues within the Gathering and Water segments, as described in
the Summary of Disaggregated Revenues table above.
(b)Unbilled
revenues are transferred to accounts receivable once the Company
has an unconditional right to consideration from the
customer.
Contract Liabilities. As
of September 30, 2020, the Company's contract liabilities
consist of deferred revenue associated with the EQT Global GGA,
including advance payments from EQT associated with the Rate Relief
Shares (as defined below) acquired by the Company as consideration
for certain commercial terms and the initial fair value of the
Henry Hub cash bonus payment provision (as defined below). The
contract liabilities are classified as current or non-current
according to when such amounts are expected to be recognized. As of
September 30, 2020, the contract liabilities are classified as
non-current as none of the deferred revenue is expected to be
recognized in revenue during the next five years.
Contracts requiring advance payments and the recognition of
contract liabilities are evaluated to determine whether the advance
payments provide the Company with a significant financing benefit.
This determination requires significant judgment and is based on
the combined effect of the expected length of time between when the
Company transfers the promised good or service to the customer and
when the customer pays for those goods or services and the
prevailing interest rates. The Company has assessed the EQT Global
GGA and determined that this agreement does not contain a
significant financing component.
The following table presents changes in the Company's deferred
revenue balances during the nine months ended September 30,
2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Revenue |
|
|
|
|
(Thousands) |
Balance as of January 1, 2020 |
|
|
|
$ |
— |
|
Amounts recorded during the period
(a)
|
|
|
|
321,775 |
|
Amounts transferred during the period
(b)
|
|
|
|
— |
|
Balance as of September 30, 2020 |
|
|
|
$ |
321,775 |
|
|
|
|
|
|
(a)Includes
deferred billed revenue of approximately $74.6 million and $148.8
million recorded during the three and nine months ended September
30, 2020, respectively, associated with the EQT Global
GGA.
(b)Deferred
revenues are recognized as revenue upon satisfaction of the
Company's performance obligation to the customer.
Summary of Remaining Performance Obligations.
The following table summarizes the estimated transaction price
allocated to the Company's remaining performance obligations under
all contracts with firm reservation fees and MVCs as of
September 30, 2020 that the Company will invoice or transfer
from contract liabilities and recognize in future
periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020(a)
|
|
2021 |
|
2022 |
|
2023 |
|
2024 |
|
Thereafter |
|
Total |
|
(Thousands) |
Gathering firm reservation fees
|
|
$ |
22,081 |
|
|
$ |
106,127 |
|
|
$ |
158,721 |
|
|
$ |
158,628 |
|
|
$ |
157,127 |
|
|
$ |
1,433,923 |
|
|
$ |
2,036,607 |
|
Gathering revenues supported by MVCs |
|
125,591 |
|
|
526,413 |
|
|
585,384 |
|
|
617,532 |
|
|
635,649 |
|
|
5,367,726 |
|
|
7,858,295 |
|
Transmission firm reservation fees |
|
94,112 |
|
|
360,242 |
|
|
380,890 |
|
|
342,566 |
|
|
282,962 |
|
|
2,609,294 |
|
|
4,070,066 |
|
Water revenues supported by MVCs |
|
9,006 |
|
|
16,521 |
|
|
60,000 |
|
|
60,000 |
|
|
60,000 |
|
|
105,000 |
|
|
310,527 |
|
Total
(b)
|
|
$ |
250,790 |
|
|
$ |
1,009,303 |
|
|
$ |
1,184,995 |
|
|
$ |
1,178,726 |
|
|
$ |
1,135,738 |
|
|
$ |
9,515,943 |
|
|
$ |
14,275,495 |
|
(a) October 1, 2020 through December 31,
2020.
(b) Includes assumptions regarding timing
for placing certain projects, including the MVP, in-service. Delays
in the in-service dates for projects may substantially alter the
remaining performance obligations for certain contracts with firm
reservation fees and/or MVCs.
Based on total projected contractual revenues, including projected
contractual revenues from future capacity expected from expansion
projects that are not yet fully constructed for which the Company
has executed firm contracts, the Company's firm gathering contracts
and firm transmission and storage contracts had weighted average
remaining terms of approximately 15 years and 14 years,
respectively, as of September 30, 2020.
EQT Global GGA.
On the EQT Global GGA Effective Date, the Company (through EQM)
entered into the EQT Global GGA with EQT for the provision by the
Company of certain gas gathering services to EQT in the Marcellus
and Utica Shales of Pennsylvania and West Virginia. Pursuant to the
EQT Global GGA, EQT is subject to an initial annual MVC of 3.0 Bcf
per day that gradually steps up to 4.0 Bcf per day for several
years following the in-service date of the MVP. The EQT Global GGA
runs from the EQT Global GGA Effective Date through December 31,
2035, and will renew annually thereafter unless terminated by EQT
or the Company pursuant to its terms. Pursuant to the EQT Global
GGA, the Company has certain obligations to build connections to
connect EQT wells to its gathering system, which are subject to
geographical limitations in relation to the dedicated area in
Pennsylvania and West Virginia, as well as the distance of such
connections to the Company's then-existing gathering system.
Management has estimated the total consideration expected to be
received over the life of the EQT Global GGA, including gathering
MVC revenue with a declining rate structure, the fair value of the
Rate Relief Shares and the initial fair value of the Henry Hub cash
bonus payment provision. The total consideration is allocated
proportionally to the performance obligation under the contract,
which is to provide daily MVC capacity over the life of the
contract, in order to recognize revenue in accordance with ASC
606,
Revenue from Contracts with Customers.
The performance obligations will be satisfied during the life of
the contract based on a units of production methodology for the
daily MVC capacity provided to EQT. Due to the declining rate
structure, there will be periods during which the billable
gathering MVC revenue will exceed the allocated consideration to
the performance obligation, which will result in billable gathering
MVC revenue being deferred to the contract liability. The deferred
consideration amounts are deferred until recognized in revenue when
the associated performance obligation has been satisfied and are
classified as current or non-current according to when such amounts
are expected to be recognized. In addition to the estimated total
consideration allocated to the daily MVC, the EQT Global GGA
includes other fees based on variable or volumetric-based services
that will be recognized in the period the services are
provided.
The EQT Global GGA provides for potential cash bonus payments
payable by EQT to the Company during the period beginning on the
first day of the calendar quarter in which the MVP in-service date
occurs through the earlier of the twelfth calendar quarter from
that point or the calendar quarter ending December 31, 2024 (the
Henry Hub cash bonus payment provision). The potential cash bonus
payments are conditioned upon the quarterly average of certain
Henry Hub natural gas prices exceeding certain price thresholds.
The Henry Hub cash bonus payment provision meets the definition of
an embedded derivative that should be bifurcated from the host
contract and accounted for separately in accordance with ASC
815,
Derivatives and Hedging.
The embedded derivative was recorded as a derivative asset at its
estimated fair value at inception of approximately $51.5 million
and as part of the contract liability to be included in the total
consideration to be allocated to the performance obligation under
ASC 606. Subsequent changes to the fair value of the derivative
instrument through the end of the contract are recognized in other
income on the Company's statements of consolidated comprehensive
income.
The gathering MVC fees payable by EQT (or its affiliates) to the
Company set forth in the EQT Global GGA are subject to potential
reductions for certain contract years as set forth in the EQT
Global GGA, conditioned upon the in-service date of the MVP, which
provide for estimated aggregate fee relief of approximately $270
million in the first year after the in-service date of the MVP,
approximately $230 million in the second year after the in-service
date of the MVP and approximately $35 million in the third year
after the in-service date of the MVP. In addition, if the MVP
in-service date has not occurred by January 1, 2022, EQT has an
option, exercisable for a period of twelve months (or such shorter
period if the in-service date of the MVP occurs), to forgo
approximately $145 million of the gathering fee relief in the first
year after the MVP in-service date and approximately $90 million of
the gathering fee relief in the second year after the MVP
in-service date in exchange for a cash payment from the Company
(through EQM) to EQT in the amount of approximately $196 million
(the EQT Cash Option). As consideration for the additional rate
relief subject to the EQT Cash Option, the Company purchased shares
of its common stock (see Rate Relief Shares discussed and defined
below) from EQT. The consideration received for future contractual
rate relief associated with the Rate Relief Shares was recorded at
a fair value of approximately $121.5 million as a contract
liability in accordance with ASC 606 and will be recognized as
revenue over the life of the contract.
Water Services Letter Agreement.
On February 26, 2020, the Company (through EQM) entered into a
letter agreement with EQT, pursuant to which EQT agreed to utilize
the Company for the provision of water services in Pennsylvania
under existing water services agreements and new water services
agreements if negotiated between the parties (such letter
agreement, the Water Services Letter Agreement). The Water Services
Letter Agreement is effective as of the first day of the first
month following the MVP in-service date and shall expire on the
fifth anniversary of such date. During each year of the Water
Services Letter Agreement, EQT agreed that fixed MVC fees payable
to the Company for water services incurred on a volumetric basis,
provided in accordance with existing agreements and new agreements
entered into between the parties pursuant to the Water Services
Letter Agreement (or the related agreements), shall be equal to or
greater than $60 million per year.
Share Purchase Agreements.
On February 26, 2020, the Company entered into two share purchase
agreements (the Share Purchase Agreements) with EQT, pursuant to
which the Company agreed to (i) purchase 4,769,496 shares of
Equitrans Midstream common stock (the Cash Shares) from EQT in
exchange for approximately $46 million in cash, (ii) purchase
20,530,256 shares of Equitrans Midstream common stock (the Rate
Relief Shares and, together with the Cash Shares, the Share
Purchases) from EQT in exchange for a promissory note in the
aggregate principal amount of approximately $196 million (which EQT
subsequently assigned to EQM as consideration for certain
commercial terms under the EQT Global GGA), and (iii) pay EQT cash
in the amount of approximately $7 million (the Cash Amount). On
March 5, 2020, the Company completed the Share Purchases and paid
the Cash Amount. The Company used proceeds from the EQM Credit
Facility (defined in Note 9) to fund the purchase of the Cash
Shares and to pay the Cash Amount in addition to other uses of
proceeds. After the closing of the Share Purchases, the Company
retired the Cash Shares and the Rate Relief Shares. Additionally,
the Company recorded a $17.2 million deferred tax liability in
conjunction with the Rate Relief Shares. On September 29, 2020, the
Company made a prepayment to EQM of all principal, interest, fees
and other obligations outstanding under the promissory note EQT
assigned to EQM and the promissory note was
terminated.
7. Related Party Transactions
Related Party Transactions with EQT
As of September 30, 2020, EQT remained a related party of the
Company due to its ownership of 25,296,026 shares of Equitrans
Midstream common stock, which represented an approximately 5.9%
ownership interest in the Company, excluding the impact of the
Equitrans Midstream Preferred Shares. In the ordinary course of
business, the Company engaged, and continues to engage, as
applicable, in transactions with EQT and its affiliates, including,
but not limited to, gathering agreements, transportation service
and precedent agreements, storage agreements and water services
agreements.
Operating revenues included related party revenues from EQT of
approximately $222.7 million and $275.4 million for the three
months ended September 30, 2020 and 2019, respectively, and $741.2
million and $843.9 million for the nine months ended September 30,
2020 and 2019, respectively. Operating and maintenance expense
included charges to EQT of approximately $2.4 million for both
the three and nine months ended September 30, 2019. Selling,
general and administrative expense included charges from EQT of
approximately $1.0 million for both the three and nine months
ended September 30, 2019. Additionally, net interest expense
included interest income on the Preferred Interest in EES of
approximately $1.5 million and $1.6 million for the three months
ended September 30, 2020 and 2019, respectively, and $4.6 million
and $4.8 million for the nine months ended September 30, 2020 and
2019, respectively.
Accounts receivable as of September 30, 2020 and
December 31, 2019 included approximately $194.3 million and
$175.2 million, respectively, of related party accounts
receivable from EQT. Other current assets as of September 30,
2020 included approximately $11.4 million of MVC unbilled
revenue from EQT. In addition, as of September 30, 2020, the
Preferred Interest in EES was approximately $106.3 million, of
which $5.2 million was recorded in other current assets and
$101.1 million was recorded in other assets on the Company's
consolidated balance sheets. As of December 31, 2019, the
Preferred Interest in EES was approximately $110.1 million, of
which $5.0 million was recorded in other current assets and
$105.1 million was recorded in other assets on the Company's
consolidated balance sheets.
Tax Matters Agreement.
On November 12, 2018, in connection with the Separation and
Distribution, the Company and EQT entered into a tax matters
agreement that governs the parties' respective rights,
responsibilities and obligations with respect to taxes (including
taxes arising in the ordinary course of business and taxes, if any,
incurred as a result of any failure of the Distribution and certain
related transactions to qualify as generally tax-free for U.S.
federal income tax purposes), tax attributes, the preparation and
filing of tax returns, the control of audits and other tax
proceedings and assistance and cooperation with respect to tax
matters (the Tax Matters Agreement). In addition, the Tax Matters
Agreement imposes certain restrictions on the Company and its
subsidiaries, including restrictions on certain equity issuances,
business combinations, sales of assets and similar transactions,
that are designed to preserve the tax-free status of the
Distribution and certain related transactions.
The Tax Matters Agreement provides special rules that allocate tax
liabilities in the event that the Distribution, together with
certain related transactions, is not tax-free. In general, under
the Tax Matters Agreement, each party is expected to be responsible
for any taxes, whether imposed on the Company or EQT, that arise
(i) from the failure of the Distribution, together with certain
related transactions, to qualify for tax-free treatment, or (ii) if
certain related transactions were to fail to qualify for their
intended tax treatment, in each case, to the extent that the
failure to qualify is attributable to actions, events or
transactions relating to such party's respective stock, assets or
business or a breach of the relevant representations or covenants
made by that party in the Tax Matters Agreement.
Credit Letter Agreement.
On February 26, 2020, in connection with the execution of the EQT
Global GGA, the Company (through EQM) and EQT entered into a letter
agreement (the Credit Letter Agreement) pursuant to which, among
other things, (a) the Company agreed to relieve certain credit
posting requirements for EQT, in an amount up to approximately $250
million, under its commercial agreements with the Company, subject
to EQT maintaining a minimum credit rating from two of three rating
agencies of (i) Ba3 with Moody’s Investors Service (Moody's), (ii)
BB- with S&P Global Ratings (S&P) and (iii) BB- with Fitch
Investor Services (Fitch) and (b) the Company agreed to use
commercially reasonable good faith efforts to negotiate similar
credit support arrangements for EQT in respect of its commitments
to the MVP Joint Venture.
EQT Global GGA.
See Notes 4 and 6 for further detail.
Water Services Letter Agreement.
See Note 6 for further detail.
Share Purchase Agreements.
See Note 6 for further detail.
8. Investments in Unconsolidated
Entity
The MVP Joint Venture is constructing the MVP, an estimated
300-mile natural gas interstate pipeline that will span from
northern West Virginia to southern Virginia. The Company will
operate the MVP and owned a 45.9% interest in the MVP project as of
September 30, 2020. On November 4, 2019, Con Edison
exercised an option to cap its investment in the MVP project at
approximately $530 million (excluding AFUDC). The Company and
NextEra Energy, Inc. are obligated to, and RGC Resources, Inc.,
another member of the MVP Joint Venture owning an interest in the
MVP project, has opted to, fund the shortfall in Con Edison's
capital contributions, on a pro rata basis. Such funding by the
Company and funding by other members has and will correspondingly
increase the Company's and such other funding members' respective
interests in the MVP project and decrease Con Edison's interest in
the MVP project. As a result, based on the midpoint of the
project's $5.8 billion to $6.0 billion (excluding AFUDC) targeted
cost, the Company's equity ownership in the MVP project will
progressively increase from approximately 45.9% to approximately
47.6%. 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. The Company is not the
primary
beneficiary of the MVP Joint Venture because the Company does not
have the power to direct the activities that most significantly
affect the MVP Joint Venture's economic performance. Certain
business decisions, such as decisions to make distributions of
cash, require a greater than 66 2/3% ownership interest approval,
and no one member owns more than a 66 2/3% interest.
In April 2018, the MVP Joint Venture announced the MVP Southgate
project, a proposed 75-mile interstate pipeline that will extend
from the MVP at Pittsylvania County, Virginia to new delivery
points in Rockingham and Alamance Counties, North Carolina. The
Company will operate the MVP Southgate pipeline and owned a 47.2%
interest in the MVP Southgate project as of September 30,
2020.
In September 2020, the MVP Joint Venture issued a capital call
notice for the funding of the MVP project to MVP Holdco, LLC (MVP
Holdco), a wholly owned subsidiary of the Company, for $126.6
million, of which $14.4 million and $112.2 million was paid in
October 2020 and November 2020, respectively. In September 2020,
the MVP Joint Venture issued a capital call notice for the funding
of the MVP Southgate project to MVP Holdco for $0.7 million, which
was paid in October 2020. In addition, in October 2020, the MVP
Joint Venture issued a capital call notice for the funding of the
MVP Southgate project to MVP Holdco for $0.3 million, which is
expected to be paid in November 2020. The capital contributions
payable and the corresponding increase to the investment balance
are reflected on the consolidated balance sheet as of
September 30, 2020.
The Company's interests in the MVP and MVP Southgate projects are
equity method investments for accounting purposes because the
Company has the ability to exercise significant influence, but not
control, over the MVP Joint Venture's operating and financial
policies. Accordingly, the Company records adjustments to the
investment balance for contributions to or distributions from the
MVP Joint Venture and for the Company's pro-rata share of MVP Joint
Venture earnings.
Equity income, which is primarily related to the Company's pro-rata
share of the MVP Joint Venture's AFUDC on the construction of the
MVP, is reported in equity income in the Company's statements of
consolidated comprehensive income.
Pursuant to the MVP Joint Venture's limited liability company
agreement, MVP Holdco is obligated to provide performance
assurances, which may take the form of a guarantee from EQM
(provided that EQM's debt is rated as investment grade in
accordance with the requirements of the MVP Joint Venture's limited
liability company agreement), a letter of credit or cash
collateral, in favor of the MVP Joint Venture to provide assurance
as to the funding of MVP Holdco's proportionate share of the
construction budget for the MVP project. In 2019, EQM issued
performance guarantees in an amount equal to 33% of MVP Holdco's
proportionate share of the then-remaining construction budget for
the MVP project. As of December 31, 2019, EQM's performance
guarantee was approximately $223 million, adjusted for capital
contributions made by EQM during the fourth quarter of
2019.
In addition, pursuant to the MVP Joint Venture's limited liability
company agreement, MVP Holdco is obligated to provide performance
assurances in respect of MVP Southgate, which performance
assurances may take the form of a guarantee from EQM (provided that
EQM's debt is rated as investment grade in accordance with the
requirements of the MVP Joint Venture's limited liability company
agreement), a letter of credit or cash collateral. In 2019, EQM
issued a performance guarantee of $14 million in favor of the MVP
Joint Venture for the MVP Southgate project.
As a result of EQM’s credit rating downgrades in the first quarter
of 2020, EQM delivered replacement credit support to the MVP Joint
Venture in the form of letters of credit in the amounts of
approximately $220.2 million and $14.2 million with respect to the
MVP project and MVP Southgate project, respectively. In connection
with delivering such letters of credit as replacement performance
assurances, EQM's performance guarantees associated with the MVP
and MVP Southgate projects were terminated. As of
September 30, 2020, the letters of credit with respect to the
MVP project and MVP Southgate project were in the amounts of
approximately $220.2 million and $14.2 million, respectively. As of
November 3, 2020, based on the midpoint of the targeted project
cost, MVP Holdco's obligation to deliver a replacement letter of
credit with respect to the MVP project was in the amount of
approximately $231.2 million. Upon the FERC’s initial release to
begin construction of the MVP Southgate project, the Company’s
current letter of credit to support MVP Southgate will be
terminated, and the Company will be obligated to deliver a new
letter of credit (or provide another allowable form of performance
assurance) in an amount equal to 33% of MVP Holdco’s proportionate
share of the remaining capital obligations for the MVP Southgate
project under the applicable construction budget.
As of September 30, 2020, the Company's maximum financial
statement exposure related to the MVP Joint Venture was
approximately $2,829 million, which consisted of the investment in
unconsolidated entity balance on the consolidated balance sheet as
of September 30, 2020, net of capital contributions payable,
and the letters of credit outstanding under the Amended EQM Credit
Facility. As of November 3, 2020, in conjunction with MVP Holdco's
obligation to deliver a replacement letter of credit with respect
to the MVP project, the Company's maximum financial statement
exposure related to the MVP Joint Venture was approximately $2,967
million.
The following tables summarize the unaudited condensed consolidated
financial statements of the MVP Joint Venture in relation to the
MVP project.
Condensed Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020 |
|
December 31, 2019 |
|
(Thousands) |
Current assets |
$ |
290,541 |
|
|
$ |
102,638 |
|
Non-current assets |
5,540,846 |
|
|
4,951,521 |
|
Total assets |
$ |
5,831,387 |
|
|
$ |
5,054,159 |
|
|
|
|
|
Current liabilities |
$ |
187,826 |
|
|
$ |
223,645 |
|
|
|
|
|
Equity |
5,643,561 |
|
|
4,830,514 |
|
Total liabilities and equity |
$ |
5,831,387 |
|
|
$ |
5,054,159 |
|
Condensed Statements of Consolidated Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
(Thousands) |
Environmental remediation reserve |
$ |
20 |
|
|
$ |
(516) |
|
|
$ |
(295) |
|
|
$ |
(2,682) |
|
Other income |
13 |
|
|
1,165 |
|
|
275 |
|
|
5,863 |
|
Net interest income |
39,280 |
|
|
29,100 |
|
|
110,868 |
|
|
73,035 |
|
AFUDC — equity |
91,653 |
|
|
67,902 |
|
|
258,693 |
|
|
170,416 |
|
Net income |
$ |
130,966 |
|
|
$ |
97,651 |
|
|
$ |
369,541 |
|
|
$ |
246,632 |
|
9. Debt
Equitrans Midstream Term Loan Facility.
In December 2018, Equitrans Midstream entered into a term loan
credit agreement (as amended in May 2019, the ETRN Term Loan Credit
Agreement) that provided for a senior secured term loan facility in
an aggregate principal amount of $600 million (the ETRN Term
Loans). The Company received net proceeds from the ETRN Term Loans
of $568.1 million, inclusive of a discount of $18.0 million and
estimated debt issuance costs of $13.9 million. The net proceeds
were primarily used to fund the purchase of the public EQGP Common
Units (the EQGP Buyout), including certain fees, costs and expenses
in connection therewith, and the remainder was used for general
corporate purposes. On March 3, 2020, EQM drew $650.0 million
under the Amended EQM Credit Facility and transferred such funds to
the Company, pursuant to a senior unsecured term loan agreement
with the Company. The Company utilized a portion of such funds to
pay off amounts outstanding under the ETRN Term Loans and the ETRN
Term Loan Credit Agreement was terminated. As a result, the Company
wrote off $24.4 million of unamortized discount and financing costs
related to the ETRN Term Loan Credit Agreement. The write off
charge is included in the loss on early extinguishment of debt line
on the statements of consolidated comprehensive income. On
September 29, 2020, the Company made a prepayment to EQM of all
principal, interest, fees and other obligations outstanding under
the senior unsecured term loan agreement and terminated the
agreement. As of December 31, 2019, the current portion of the
ETRN Term Loans was $6.0 million and was recorded in the current
portion of long-term debt on the consolidated balance sheet. The
Company had $594.0 million of borrowings outstanding and no letters
of credit outstanding under the ETRN Term Loan Credit Agreement as
of December 31, 2019. During the period from January 1,
2020 to March 3, 2020, the weighted average annual interest
rate was approximately 6.2%. For the three and nine months ended
September 30, 2019, the weighted average annual interest rates were
approximately 6.8% and 6.9%, respectively.
Equitrans Midstream Credit Facility.
In October 2018, Equitrans Midstream entered into a senior secured
revolving credit facility agreement that provided for $100 million
in borrowing capacity (the Equitrans Midstream Credit Facility).
Equitrans Midstream amended the Equitrans Midstream Credit Facility
on December 31, 2018 to, among other things, permit the
incurrence of the borrowings under the ETRN Term Loan Credit
Agreement. The Equitrans Midstream Credit Facility, which was
available for general corporate purposes and to fund ongoing
working capital requirements, was terminated on March 3, 2020
in conjunction with the Company's termination of the ETRN Term Loan
Credit Agreement (see above). As a result, the Company wrote off
$0.5 million of unamortized financing costs related to the
Equitrans Midstream Credit Facility. The write off charge is
included in the loss on early extinguishment of debt line on the
statements of consolidated comprehensive income.
The Company had no borrowings and no letters of credit outstanding
under the Equitrans Midstream Credit Facility as of
December 31, 2019 and during the period from January 1, 2020
to March 3, 2020. There were no borrowings on the Equitrans
Midstream Credit Facility during the three months ended September
30, 2019. For the nine months ended September 30, 2019, the maximum
outstanding borrowings was approximately $44 million, the average
daily balance was approximately $4 million and the weighted average
annual interest rate was approximately 4.3%. Commitment fees paid
to maintain credit availability under the credit facility were
approximately $0.1 million for the period from January 1, 2020
to March 3, 2020, and approximately $0.1 million and $0.3
million for the three and nine months ended September 30, 2019,
respectively.
Amended EQM Revolving Credit Facility and Amended 2019 EQM Term
Loan Agreement.
On October 31, 2018, EQM amended and restated its unsecured
revolving credit facility to increase the borrowing capacity from
$1 billion to $3 billion and extend the term to October 2023 (the
EQM Credit Facility). In August 2019, EQM entered into a term
loan agreement (the 2019 EQM Term Loan Agreement) that provided for
unsecured term loans (the EQM Term Loans) in an aggregate principal
amount of $1.4 billion.
Additionally, on March 30, 2020, EQM entered into (i) an amendment
to the EQM Credit Facility (as amended, the Amended EQM Credit
Facility) and (ii) an amendment to the 2019 EQM Term Loan Agreement
(as amended, the Amended 2019 EQM Term Loan Agreement) which, among
other things, amended certain defined terms and negative covenants
in the EQM Credit Facility and the 2019 EQM Term Loan
Agreement.
The Amended EQM Credit Facility is available for general
partnership purposes, including to purchase assets, to fund working
capital requirements and capital expenditures and to pay
distributions. Subject to satisfaction of certain conditions, the
Amended EQM Credit Facility has an accordion feature that allows
EQM to increase the available borrowings under the facility by up
to an additional $750 million. The Amended EQM Credit Facility has
a sublimit of up to $250 million for same-day swing line advances
and a sublimit of up to $400 million for letters of credit. In
addition, EQM has the ability to request that one or more lenders
make available term loans under the Amended EQM Credit Facility,
subject to the satisfaction of certain conditions. As of
September 30, 2020, no term loans were outstanding under the
Amended EQM Credit Facility. Such term loans would be secured by
cash, qualifying investment grade securities or a combination
thereof.
Under the terms of the Amended EQM Credit Facility, EQM can obtain
committed loans as Base Rate Loans (as defined in the Amended EQM
Credit Facility) or Eurodollar Rate Loans (as defined in the
Amended EQM Credit Facility). Base Rate Loans are denominated in
dollars and bear interest at a base rate plus a margin of 0.125% to
1.750% determined on the basis of a combination of EQM’s
then-current debt issuer credit ratings by Moody’s, S&P and
Fitch. Eurodollar Rate Loans bear interest at a Eurodollar Rate (as
defined in the Amended EQM Credit Facility) plus a margin of 1.125%
to 2.750% determined on the basis of a combination of EQM’s
then-current debt issuer credit ratings with Moody’s, S&P and
Fitch. EQM may voluntarily prepay its borrowings under the Amended
EQM Credit Facility, in whole or in part, without premium or
penalty, but subject to reimbursement of funding losses with
respect to certain prepayments of Eurodollar Rate Loans. Revolving
amounts prepaid under the Amended EQM Credit Facility may be
re-borrowed.
As of September 30, 2020, EQM had approximately $485 million
of borrowings and $235 million of letters of credit outstanding
under the Amended EQM Credit Facility. As of December 31,
2019, EQM had approximately $610 million of borrowings and $1
million of letters of credit outstanding under the Amended EQM
Credit Facility. During the three and nine months ended
September 30, 2020, the maximum outstanding borrowings at any
time were approximately $485 million and $2,040 million,
respectively, and the average daily balances were approximately
$485 million and $975 million, respectively. EQM incurred interest
at weighted average annual interest rates of approximately 2.6% and
2.9% for the three and nine months ended September 30, 2020,
respectively. During the three and nine months ended
September 30, 2019, the maximum outstanding borrowings at any
time was approximately $1,690 million for both periods, the average
daily balances were approximately $865 million and $950 million,
respectively, and the weighted average annual interest rates were
approximately 3.7% and 3.8%, respectively. For the three and nine
months ended September 30, 2020, commitment fees of $2.4 million
and $5.0 million, respectively, were paid to maintain credit
availability under the Amended EQM Credit Facility. For the three
and nine months ended September 30, 2019, commitment fees of $1.2
million and $3.3 million, respectively, were paid to maintain
credit availability under the Amended EQM Credit
Facility.
The EQM Term Loans mature in August 2022. EQM received net proceeds
from the issuance of the EQM Term Loans of $1,397.4 million,
inclusive of debt issuance costs of $2.6 million. The net proceeds
were primarily used to repay borrowings under the Amended EQM
Credit Facility and the remainder was used for general partnership
purposes. The Amended 2019 EQM Term Loan Agreement provides EQM
with the right to request incremental term loans in an aggregate
amount of up to $300 million, subject to, among other things,
obtaining additional commitments from existing lenders or
commitments from new lenders. As of September 30, 2020 and
December 31, 2019, EQM had $1.4 billion of borrowings
outstanding under the Amended 2019 EQM Term Loan Agreement for both
periods. During the three and nine months ended September 30,
2020, the weighted average annual interest rates for the periods
were approximately 2.4% and 2.8%, respectively. During the
applicable
portion of the two months ended September 30, 2019, the weighted
average annual interest rate for the period was approximately
3.6%.
Under the terms of the Amended 2019 EQM Term Loan Agreement, EQM
can obtain Base Rate Loans (as defined in the Amended 2019 EQM Term
Loan Agreement) or Eurodollar Rate Loans (as defined in the Amended
2019 EQM Term Loan Agreement). Base Rate Loans are denominated in
dollars and bear interest at a base rate plus a margin of 0.000% to
1.625% determined on the basis of a combination of EQM’s
then-current debt issuer credit ratings with Moody’s, S&P and
Fitch. Eurodollar Rate Loans bear interest at a Eurodollar Rate (as
defined in the Amended 2019 EQM Term Loan Agreement) plus a margin
of 1.000% to 2.625% determined on the basis of a combination of
EQM’s then-current debt issuer credit ratings with Moody’s, S&P
and Fitch. EQM may voluntarily prepay its borrowings under the
Amended 2019 EQM Term Loan Agreement, in whole or in part, without
premium or penalty, but subject to reimbursement of funding losses
with respect to certain prepayments of Eurodollar Rate Loans.
Amounts prepaid under the Amended 2019 EQM Term Loan Agreement may
not be reborrowed.
The Amended EQM Credit Facility and the Amended 2019 EQM Term Loan
Agreement each contain certain negative covenants, that, among
other things, limit the ability of EQM and certain of its
subsidiaries to incur or permit liens on assets, establish a
maximum consolidated leverage ratio that varies over the course of
the term ranging from not more than 5.75 to 1.00 to not more than
5.00 to 1.00 tested as of the end of each fiscal quarter (which in
limited circumstances is increased for certain measurement periods
following the consummation of certain acquisitions), limit
transactions with affiliates, mergers and other fundamental
changes, asset dispositions, the incurrence of new debt and entry
into burdensome agreements, in each case and as applicable, subject
to certain specified exceptions. The Amended EQM Credit Facility
and the Amended 2019 EQM Term Loan Agreement each also contains
certain specified events of default, including, among others,
failure to make certain payments (subject to specified grace
periods in some cases), failure to observe covenants (subject to
specified grace periods in some cases), cross-defaults to certain
other material debt, certain specified insolvency or bankruptcy
events and the occurrence of a change of control event, in each
case, the occurrence of which would allow the lenders to accelerate
EQM’s payment obligations under the Amended EQM Credit Facility or
the Amended 2019 EQM Term Loan Agreement, as
applicable.
Eureka Credit Facility.
Eureka Midstream, LLC (Eureka), a wholly owned subsidiary of Eureka
Midstream, has a $400 million senior secured revolving credit
facility that is available for general business purposes, including
financing maintenance and expansion capital expenditures related to
the Eureka system and providing working capital for Eureka’s
operations (as amended, the Eureka Credit Facility). The Eureka
Credit Facility matures on August 25, 2021. Subject to satisfaction
of certain conditions, the Eureka Credit Facility has an accordion
feature that allows Eureka to increase the available borrowings
under the facility to an amount no greater than
$500 million.
As of September 30, 2020 and December 31, 2019, Eureka
had approximately $303 million and $293 million, respectively, of
borrowings outstanding under the Eureka Credit Facility. For the
three and nine months ended September 30, 2020, the maximum
amount of outstanding borrowings under the Eureka Credit Facility
at any time was approximately $323 million for both periods, the
average daily balances were approximately $310 million and $300
million, respectively, and Eureka incurred interest at weighted
average annual interest rates of approximately 2.4% and 2.6%,
respectively. For the three months ended September 30, 2019 and for
the period from April 10, 2019 through September 30, 2019, the
maximum amount of outstanding borrowings under the Eureka Credit
Facility at any time was approximately $293 million for both
periods, the average daily balances were approximately $293 million
and $285 million, respectively, and Eureka incurred interest at a
weighted average annual interest rate of approximately 4.3% for
both periods. For the three and nine months ended September 30,
2020, commitment fees of $0.1 million and $0.4 million,
respectively, were paid to maintain credit availability under the
Eureka Credit Facility. For the three months ended September 30,
2019 and for the period from April 10, 2019 through
September 30, 2019, commitment fees of $0.1 million and $0.2
million, respectively, were paid to maintain credit availability
under the Eureka Credit Facility.
2020 Senior Notes.
During the second quarter of 2020, EQM issued $700 million
aggregate principal amount of new 6.000% senior unsecured notes due
July 1, 2025 and $900 million aggregate principal amount of
new 6.500% senior unsecured notes due July 1, 2027 (collectively,
the 2020 Senior Notes) and received net proceeds from the offering
of approximately $1,576.1 million, inclusive of a discount of $20.0
million and debt issuance costs of $3.9 million. The net proceeds
were used to repay a portion of the borrowings outstanding under
the Amended EQM Credit Facility, and the remainder was used for
general partnership purposes.
The 2020 Senior Notes were issued under and are governed by an
indenture, dated June 18, 2020 (the 2020 Indenture), between EQM
and the Bank of New York Mellon Trust Company, N.A., as trustee.
The 2020 Indenture contains covenants that limit EQM's ability to,
among other things, incur certain liens securing indebtedness,
engage in certain sale and leaseback transactions, and enter into
certain consolidations, mergers, conveyances, transfers or leases
of all or substantially all of EQM's assets. Upon the occurrence of
a Change of Control Triggering Event (as defined in the 2020
Indenture), EQM may be required
to offer to purchase the 2020 Senior Notes at a purchase price
equal to 101% of the aggregate principal amount of the 2020 Senior
Notes repurchased, plus accrued and unpaid interest, if any, to,
but excluding, the repurchase date.
The 2020 Senior Notes are unsecured and rank equally with all of
EQM’s existing and future senior obligations. The 2020 Senior Notes
are senior in right of payment to any of EQM’s future obligations
that are, by their terms, expressly subordinated in right of
payment to the 2020 Senior Notes. The 2020 Senior Notes are
effectively subordinated to EQM’s secured obligations, if any, to
the extent of the value of the collateral securing such
obligations, and structurally subordinated to all indebtedness and
obligations, including trade payables, of EQM’s subsidiaries, other
than any subsidiaries that may guarantee the 2020 Senior Notes in
the future.
As of September 30, 2020, EQM and Eureka were in compliance
with all debt provisions and covenants.
10. Fair Value Measurements
Assets Measured at Fair Value on a Recurring Basis.
The Company records derivative instruments at fair value on a gross
basis in its consolidated balance sheets. The Henry Hub cash bonus
payment provision, as described in Note 6, is recorded at its
estimated fair value using a Monte Carlo simulation model.
Significant inputs used in the fair value measurement include NYMEX
Henry Hub natural gas futures prices as of the date of valuation,
risk-free interest rates based on U.S. Treasury rates, expected
volatility of NYMEX Henry Hub natural gas futures prices and an
estimated credit spread of EQT. The expected volatility of
NYMEX Henry Hub natural gas futures prices used in the valuation
methodology represents a significant unobservable input causing the
Henry Hub cash bonus payment provision to be designated as a Level
3 fair value measurement. As of September 30, 2020, the fair
value of the Henry Hub cash bonus payment provision was $89.2
million, of which $35.3 million was recorded in other current
assets and $53.9 million was recorded in other assets on the
Company's consolidated balance sheets. During the three and nine
months ended September 30, 2020, the Company recognized gains of
$21.0 million and $37.7 million, respectively, representing the
change in estimated fair value of the derivative instrument during
the applicable period. The gain is reflected in other income in the
Company's statements of consolidated comprehensive
income.
Other Financial Instruments.
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; as such, their fair values are Level 1 fair value
measurements. The carrying values of borrowings under the Amended
EQM Credit Facility, the Eureka Credit Facility and the Amended
2019 EQM Term Loan Agreement approximate fair value as the interest
rates are based on prevailing market rates; these are considered
Level 1 fair value measurements. As EQM's borrowings under its
senior notes are not actively traded, their fair values are
estimated using an income approach model that applies a discount
rate based on prevailing market rates for debt with similar
remaining time-to-maturity and credit risk; as such, their fair
values are Level 2 fair value measurements. Effective on
March 3, 2020, the ETRN Term Loans were paid off with proceeds
from the Amended EQM Credit Facility (see Note 9), and the ETRN
Term Loan Credit Agreement was terminated. As of December 31,
2019, the estimated fair value of the ETRN Term Loans was
approximately $595 million and the carrying value of the ETRN Term
Loans was approximately $568 million. As of September 30, 2020
and December 31, 2019, the estimated fair values of EQM's
senior notes were approximately $5,139 million and $3,421 million,
respectively, and the carrying values of EQM's senior notes were
approximately $5,043 million and $3,462 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 September 30, 2020
and December 31, 2019, the estimated fair values of the
Preferred Interest were approximately $127 million and $126
million, respectively, and the carrying values of the Preferred
Interest were approximately $106 million and $110 million,
respectively.
11. Earnings (Loss) Per Share
The following tables set forth the computation of the basic and
diluted earnings (loss) per share attributable to Equitrans
Midstream common shareholders for the three and nine months ended
September 30, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
2020 |
|
2019 |
|
Basic |
|
Diluted |
|
Basic |
|
Diluted |
|
(In thousands, except per share data) |
Net income (loss) |
$ |
168,439 |
|
|
$ |
168,439 |
|
|
$ |
(61,489) |
|
|
$ |
(61,489) |
|
Less: Net income (loss) attributable to noncontrolling interests
(excluding EQM Series A Preferred Units) |
3,973 |
|
|
3,973 |
|
|
(44,144) |
|
|
(44,144) |
|
Less: EQM Series A Preferred Units interest in net
income |
— |
|
|
— |
|
|
48,480 |
|
|
48,480 |
|
Less: Preferred dividends |
14,628 |
|
|
14,628 |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Equitrans Midstream common
shareholders |
$ |
149,838 |
|
|
$ |
149,838 |
|
|
$ |
(65,825) |
|
|
$ |
(65,825) |
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
432,773 |
|
|
432,773 |
|
|
254,915 |
|
|
254,915 |
|
Dilutive securities
(a)(b)
|
— |
|
|
48 |
|
|
— |
|
|
— |
|
Diluted weighted average common shares outstanding |
432,773 |
|
|
432,821 |
|
|
254,915 |
|
|
254,915 |
|
|
|
|
|
|
|
|
|
Earnings (loss) per share of common stock attributable to Equitrans
Midstream common shareholders |
$ |
0.35 |
|
|
$ |
0.35 |
|
|
$ |
(0.26) |
|
|
$ |
(0.26) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
2020 |
|
2019 |
|
Basic |
|
Diluted |
|
Basic |
|
Diluted |
|
(In thousands, except per share data) |
Net income |
$ |
501,457 |
|
|
$ |
501,457 |
|
|
$ |
268,557 |
|
|
$ |
268,557 |
|
Less: Net income attributable to noncontrolling interests
(excluding EQM Series A Preferred Units) |
163,406 |
|
|
163,406 |
|
|
155,082 |
|
|
155,082 |
|
Less: EQM Series A Preferred Units interest in net
income |
47,359 |
|
|
47,359 |
|
|
48,480 |
|
|
48,480 |
|
|
|
|
|
|
|
|
|
Less: Preferred dividends |
44,132 |
|
|
44,132 |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
|
|
Net income attributable to Equitrans Midstream common
shareholders |
$ |
246,560 |
|
|
$ |
246,560 |
|
|
$ |
64,995 |
|
|
$ |
64,995 |
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
314,411 |
|
|
314,411 |
|
|
254,868 |
|
|
254,868 |
|
Dilutive securities
(a)(b)
|
— |
|
|
— |
|
|
— |
|
|
19 |
|
Diluted weighted average common shares outstanding |
314,411 |
|
|
314,411 |
|
|
254,868 |
|
|
254,887 |
|
|
|
|
|
|
|
|
|
Earnings per share of common stock attributable to Equitrans
Midstream common shareholders |
$ |
0.78 |
|
|
$ |
0.78 |
|
|
$ |
0.26 |
|
|
$ |
0.25 |
|
(a)For
the periods presented, as applicable, EQM's dilutive securities
issued and outstanding prior to the EQM Merger did not have a
material impact on the Company's diluted earnings per
share.
(b)For
the three and nine months ended September 30, 2020, the Company
excluded 30,099 and 11,995 (in thousands), respectively, of
weighted average anti-dilutive securities related to the Equitrans
Midstream Preferred Shares and stock-based compensation awards. For
the three months ended September 30, 2019, the Company excluded 45
(in thousands) of weighted average anti-dilutive securities related
to stock-based compensation awards.
Preferred dividends include a $27.3 million premium recognized
on the redemption of the EQM Series A Preferred Units as part of
the Restructuring Closing during the nine months ended September
30, 2020.
12. Income Taxes
The Company's effective tax rate was 14.4% for the three months
ended September 30, 2020, compared to (3.3)% for the three months
ended September 30, 2019. The Company's effective tax rate was
14.0% for the nine months ended September 30, 2020, compared
to 14.6% for the nine months ended September 30, 2019. The
effective tax rate was higher for the three months ended
September 30, 2020 compared to the three months ended
September 30, 2019 primarily due to the tax impact of the
impairments of long-lived assets (see Note 4) during the three
months ended September 30, 2019 and, for the three months ended
September 30, 2020, the decrease in net income attributable to
noncontrolling interests as a result of the EQM Merger
and related effect on the Company's estimated annual effective tax
rate, partially offset by an increase in AFUDC - equity. Excluding
other items, the effective tax rates for the three and nine months
ended September 30, 2020 and 2019 were lower than the
statutory rates because the Company does not record income tax
expense on the portion of its income attributable to the
noncontrolling member of Eureka Midstream and did not record income
tax expense on the portion of its income attributable to the
noncontrolling limited partners of EQM and EQGP for the periods
prior to the closing of the EQM Merger and the EQGP Buyout,
respectively.
EQUITRANS MIDSTREAM CORPORATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
You should read the following discussion and analysis of financial
condition and results of operations in conjunction with the
consolidated financial statements, and the notes thereto, included
elsewhere in this report.
Cautionary Statements
Disclosures in this Quarterly Report on Form 10-Q contain certain
forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended (the Exchange Act), and
Section 27A of the Securities Act. Statements that do not relate
strictly to historical or current facts are forward-looking and
usually identified by the use of words such as "anticipate,"
"estimate," "could," "would," "will," "may," "forecast,"
"approximate," "expect," "project," "intend," "plan," "believe,"
"target" and other words of similar meaning in connection with any
discussion of future operating or financial matters. Without
limiting the generality of the foregoing, forward-looking
statements contained in this Quarterly Report on Form 10-Q include
the matters discussed in the section captioned "Outlook" in
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," and the expectations of plans, strategies,
objectives, and growth and anticipated financial and operational
performance of Equitrans Midstream and its subsidiaries,
including:
•guidance
and any changes in such guidance regarding the Company’s gathering,
transmission and storage and water services revenue and volume
growth, including the anticipated effects associated with the EQT
Global GGA and related documents entered into with
EQT;
•projected
revenue (including from firm reservation fees), deferred revenues,
expenses and contract liabilities, and the effects on projected
revenue, deferred revenue and contract liabilities associated with
the EQT Global GGA and the MVP project (including changes in the
targeted full in-service date for such project);
•the
ultimate gathering fee relief provided to EQT under the EQT Global
GGA and related agreements, including the exercise by EQT of any
cash-out option as an alternative to receiving a portion of such
relief;
•the
Company's ability to de-lever;
•the
weighted average contract life of gathering, transmission and
storage contracts;
•infrastructure
programs (including the timing, cost, capacity and sources of
funding with respect to gathering, transmission and storage and
water expansion projects);
•the
cost, capacity, shippers for, timing of regulatory approvals, final
design (including expansions or extensions and capital related
thereto), ability to contract additional capacity on and targeted
in-service dates of current or in-service projects or assets, in
each case as applicable;
•the
ultimate terms, partners and structure of the MVP Joint Venture and
ownership interests therein;
•the
impact of changes in the targeted full in-service date of the MVP
project on the fair value of the Henry Hub cash bonus
provision;
•expansion
projects in the Company's operating areas and in areas that would
provide access to new markets;
•the
Company's ability to provide produced water handling services and
realize expansion opportunities and related capital
avoidance;
•the
Company's ability to identify and complete acquisitions and other
strategic transactions, including joint ventures, effectively
integrate transactions into the Company’s operations, and achieve
synergies, system optionality and accretion associated with
transactions, including through increased scale;
•the
Company's ability to access commercial opportunities and new
customers for its water services business, and the timing and final
terms of any definitive water services agreement or agreements
between EQT and the Company (a Water Services Agreement) entered
into pursuant to the terms of the Water Services Letter
Agreement;
•any
credit rating impacts associated with the MVP project, customer
credit ratings changes, including EQT's, and defaults,
acquisitions, dispositions and financings and any changes in EQM's
credit ratings;
•the
impact of a dispute with EQT (or resolution thereof) regarding the
Hammerhead gathering agreement and/or ownership of the Hammerhead
pipeline on the Company's business and results of
operations;
•the
impact of such dispute (or resolution thereof) on investors'
perceptions of the Company's commercial relationship with
EQT;
•the
effect and outcome of future litigation and other proceedings,
including regulatory proceedings;
•effects
of any consolidation of or effected by upstream gas producers,
whether in or outside of the Appalachian Basin;
•the
ability of the Company's contracts to survive a customer bankruptcy
or restructuring;
•the
timing and amount of future issuances or repurchases of the
Company's securities;
•effects
of conversion, if at all, of the Equitrans Midstream Preferred
Shares;
•effects
of seasonality;
•expected
cash flows and MVCs, including those associated with the EQT Global
GGA and any definitive agreement or agreements between EQT and the
Company related to the Water Services Letter Agreement, and the
potential impacts thereon of the commission timing and cost of the
MVP project;
•projected
capital contributions and capital and operating expenditures,
including the amount and timing of reimbursable capital
expenditures, capital budget and sources of funds for capital
expenditures;
•dividend
amounts, timing and rates;
•changes
in commodity prices and the effect of commodity prices on the
Company's business, including future decisions of customers in
respect of curtailing (or subsequently bringing back online)
natural gas production, choke management, timing of turning wells
in line, rig and completion activity and related impacts on the
Company's business;
•liquidity
and financing requirements, including sources and
availability;
•interest
rates;
•the
ability of the Company's subsidiaries (some of which are not wholly
owned) to service debt under, and comply with the covenants
contained in, their respective credit agreements;
•expectations
regarding production volumes in the Company's areas of
operations;
•the
Company's ability to achieve the anticipated benefits associated
with the execution of the EQT Global GGA, the Water Services Letter
Agreement and related agreements;
•the
impact on the Company and its subsidiaries of the coronavirus
disease 2019 (COVID-19) pandemic, including, among other things,
effects on demand for natural gas and the Company's services, the
duration of the reduction or curtailment of production of
associated gas from basins such as the Permian Basin, commodity
prices and access to capital;
•the
effects of government regulation; and
•tax
status and position.
The forward-looking statements included in this Quarterly Report on
Form 10-Q involve risks and uncertainties that could cause actual
results to differ materially from projected results. Accordingly,
investors should not place undue reliance on forward-looking
statements as a prediction of actual results. The Company has based
these forward-looking statements on management's current
expectations and assumptions about future events. While the
Company considers these expectations and assumptions to be
reasonable, they are inherently subject to significant business,
economic, competitive, regulatory and other risks and
uncertainties, many of which are difficult to predict and are
beyond the Company's control. The risks and uncertainties that
may affect the operations, performance and results of the Company's
business and forward-looking statements include, but are not
limited to, those set forth under "Item 1A. Risk Factors" in the
Company's Annual Report on Form 10-K for the year ended
December 31, 2019, as are updated by this Quarterly Report on
Form 10-Q.
Any forward-looking statement speaks only as of the date on which
such statement is made and the Company does not intend to correct
or update any forward-looking statement, unless required by
securities law, whether as a result of new information, future
events or otherwise.