Equitrans Midstream Announces Second Quarter 2023 Results

Equitrans Midstream Corporation (NYSE: ETRN), today, announced financial and operational results for the second quarter 2023. Included in the "Non-GAAP Disclosures" section of this news release are important disclosures regarding the use of non-GAAP supplemental financial measures, including information regarding their most comparable GAAP financial measure.

Q2 2023 Highlights:

• Reported $68.9 million of net income and $234.7 million of Adjusted EBITDA
• Generated $298.6 million of net cash from operating activities and $150.7 million of free cash flow
• Recorded 73% of total operating revenue from firm reservation fees
• Received FERC Notice to Proceed for the Ohio Valley Connector Expansion project
• Fiscal Responsibility Act of 2023 became law on June 3, 2023; includes 'Expediting Completion of the MVP'
• Resumed forward construction of Mountain Valley Pipeline following the July 27, 2023 U.S. Supreme Court decision to vacate previously issued stay orders by the U.S. Court of Appeals for the Fourth Circuit

“We are grateful for the full support of the White House, as well as the strong leadership of Democratic and Republican legislators in recognizing the MVP as a critical energy infrastructure project,” said Thomas F. Karam, chairman and chief executive officer for Equitrans Midstream. “The Fiscal Responsibility Act of 2023 makes clear that a robust and diverse energy mix is vital to our Nation’s prosperity and security, and Congress' action only magnifies the critical need for comprehensive permitting reform that goes beyond the important initial steps in this legislation."

Karam continued, “We are also thankful that the U.S. Supreme Court acted quickly to grant the application to vacate stays imposed by the lower court. We have resumed construction and are focused on the responsible completion of MVP’s remaining construction. We continue to target completion of MVP by year-end 2023.”

“Nearly five years ago, Equitrans Midstream was launched as a standalone, publicly traded company,” said Diana M. Charletta, president and chief operating officer for Equitrans Midstream. “Since that time, our employees, in addition to maintaining focus on our ongoing projects and base business, have embraced the importance of elevating our ESG performance – diligently working to set the course for Equitrans to be a more sustainable business enterprise. Our work during the past year focused on the development of several ESG-related projects aimed to build upon and strengthen our foundation – as discussed in our recently published Corporate Sustainability Report. Equitrans and its employees are proud to pursue safe and innovative solutions that are essential for America’s energy reliability, independence, and security, and we believe that incorporating ESG into our culture will serve to create long-term value for all stakeholders.”

Net income attributable to ETRN common shareholders for the second quarter 2023 was impacted by several items, including an $19.4 million unrealized gain on derivative instruments and $2.7 million of operating expense related to the November 2022 Rager Mountain natural gas storage field incident (discussed below). The unrealized gain is reported within other income, net, and relates to the contractual agreement with EQT Corporation (EQT) in which ETRN will receive cash from EQT conditioned on the quarterly average of certain Henry Hub natural gas prices exceeding certain thresholds beginning with the quarter in which the Mountain Valley Pipeline (MVP) is placed in-service through the fourth quarter of 2024. The contract is accounted for as a derivative with the fair value marked-to-market at each quarter-end. Additionally, ETRN reported second quarter equity income of $23.7 million, which is primarily associated with allowance for funds used during construction (AFUDC) relating to the resumption of MVP forward construction in June 2023.

As a result of the gathering agreement entered into with EQT in February 2020, revenue from the contracted minimum volume commitment (MVC) is recognized utilizing an average gathering rate applied over the remaining contract life. The difference between the cash received from the MVC and the revenue recognized results in the deferral of revenue into future periods. Deferred revenue for the second quarter 2023 was $82.0 million.

Operating revenue for the second quarter 2023 decreased by $10.1 million compared to the same quarter last year, primarily as a result of lower gathered volumes, partly offset by increased water services revenue. Operating expenses increased by $43.6 million compared to the second quarter 2022, primarily from $16.8 million of compensation expense related to the MVP performance award program, including $14.1 million of cumulative catch-up since the inception of the award, the payout of which program was deemed probable to occur given the signing of the Fiscal Responsibility Act. The remaining expense variance was primarily related to $2.7 million of expenses associated with the Rager Mountain natural gas storage field incident, increased water operating expenses, and increased other selling, general and administrative, operating and maintenance, and depreciation expenses.

QUARTERLY DIVIDEND

For the second quarter 2023, ETRN will pay a quarterly cash dividend of $0.15 per common share on August 14, 2023 to ETRN common shareholders of record at the close of business on August 4, 2023.

2023 GUIDANCE

The financial guidance assumes MVP construction completion and in-service authorization by the FERC by year-end 2023 and accordingly contractual obligations would commence on January 1, 2024.

BUSINESS AND PROJECT UPDATES

Outstanding Debt and Liquidity

As of June 30, 2023, ETRN reported $6.3 billion of consolidated debt; $255.0 million of borrowings and $220.7 million of letters of credit outstanding under EQM's revolving credit facility; $315.0 million of borrowings under Eureka's revolving credit facility; and $107.1 million of cash.

Rager Mountain Natural Gas Storage Field Incident Update

In Q4 2022, an issue with a storage well at ETRN's Rager Mountain natural gas storage field caused the venting of natural gas, which lasted for approximately 13 days. ETRN remains engaged with a leading firm involved in analyzing storage field incidents to conduct an independent, root cause investigation of the incident, which is progressing and is expected to be completed during the summer of 2023.

Further, ETRN initiated a comprehensive review of all of its storage wells, including wells at the Rager Mountain facility, and this review of storage field asset integrity is ongoing. In the second quarter, ETRN incurred expenses of $2.7 million related to post-incident response activities. For the full-year 2023, ETRN estimates that it will incur approximately $10 million of expenses related to post-incident response activities. For further information, refer to ETRN’s Annual Report on Form 10-K for the year ended December 31, 2022, as updated by subsequent Form 10-Qs.

Ohio Valley Connector Expansion Project

On June 15, 2023, the Federal Energy Regulatory Commission (FERC) issued a certificate of public convenience and necessity for the OVCX project, and on July 27, 2023, the U.S. Army Corps of Engineers issued the project's last outstanding approval. On July 31, 2023, FERC issued the Notice to Proceed and ETRN expects to commence construction imminently. ETRN is targeting the incremental capacity to be in-service during the first half of 2024. OVCX will increase deliverability on ETRN's Ohio Valley Connector pipeline by approximately 350 MMcf per day and is designed to meet growing demand in key markets in the mid-continent and Gulf Coast through existing interconnects with long-haul pipelines in Clarington, OH. ETRN expects to invest approximately $160 million in the project, which is primarily supported by a long-term firm capacity commitment of 330 MMcf per day.

Mountain Valley Pipeline

On June 3, 2023, the President of the United States signed the Fiscal Responsibility Act of 2023 (FRA) that raised the Nation's debt limit and ratified and approved all permits and authorizations necessary for the construction and initial operation of the MVP and directed the applicable federal officials and agencies to maintain such authorizations. The FRA also divested courts of jurisdiction to review agency actions on approvals necessary for MVP construction and initial operation and granted exclusive jurisdiction for claims against the FRA to the United States Court of Appeals for the District of Columbia Circuit. On June 23, 2023, Mountain Valley Pipeline, LLC (MVP JV) received the last outstanding required permit, which was the water crossing permit from the U.S. Army Corps of Engineers, and on June 28, 2023, the FERC authorized the resumption of all construction activities for the project and accordingly, forward construction commenced.

On July 10, 2023, the U.S. Fourth Circuit Court of Appeals (Fourth Circuit) issued a stay order halting construction in the Jefferson National Forest. On July 11, 2023, the Fourth Circuit issued a stay of the Biological Opinion and Incidental Take Statement, effectively halting forward construction for the entirety of the project.

On July 14, 2023, MVP JV filed an emergency application to vacate the stays with the U.S. Supreme Court and on July 27, 2023, the U.S. Supreme Court granted the application to vacate the stays. Forward construction has since recommenced and ETRN is targeting project completion by year-end 2023 at a total project cost of approximately $6.6 billion. Through June 30, 2023, ETRN has funded approximately $2.8 billion and, if the MVP project were to be completed in 2023 at a total project cost of $6.6 billion, ETRN expects to fund a total of approximately $3.4 billion and to have an approximate 48.3% ownership interest in MVP. ETRN will operate the pipeline.

MVP Southgate

The MVP JV continues to evaluate the MVP Southgate project and is focused on active negotiations with the shipper and a prospective customer regarding refining the project's design, scope and/or timing in lieu of pursuing the project as originally contemplated. ETRN has a 47.2% ownership interest in MVP Southgate and is expected to operate the pipeline.

Water Services

ETRN placed its second above ground water storage facility into service in July 2023, which brings total storage capacity to 350,000 barrels. The backbone of the mixed-use water system is expected to be substantially completed in 2023.

In May 2023, ETRN executed an agreement with a producer customer to provide fresh and mixed use water delivery service. ETRN expects to invest approximately $30 million, primarily across 2023 and 2024, to complete the project build out. The 10-year agreement is backed by a minimum volume commitment.

In the second quarter, water operating income was $0.5 million and water EBITDA was $7.0 million. For 2023, ETRN expects water EBITDA of approximately $45 million.

2023 Corporate Sustainability Report

On July 27, 2023, ETRN published its annual Corporate Sustainability Report (CSR), which is in accordance with the Global Reporting Initiative (GRI) Standard (GRI 1: Foundation 2021) and GRI’s Oil and Gas Sector Standard 2021, and also incorporates the Sustainability Accounting Standards Board (SASB) Oil & Gas Midstream Standards. Beginning with this year’s report, ETRN voluntarily elected to change the organizational boundary for its greenhouse gas emissions and energy reporting, moving from an operational control approach to an equity share approach to provide better alignment with existing financial reporting. ETRN recognizes that our stakeholders expect us to continue focusing on long-term sustainable performance by managing the environmental, social, and governance (ESG) factors that matter most, and the content within the 2023 CSR reflects the results of the Company’s 2022 materiality assessment, which included the engagement of both internal and external stakeholders.

Q2 2023 Earnings Conference Call Information

ETRN will host a conference call with security analysts today, August 1, 2023, at 10:30 a.m. (ET) to discuss second quarter 2023 financial results, operating results, and other business matters.

Call Access: A webcast/audio live stream of the call will be available on the internet, and participants are encouraged to pre-register online, in advance of the call. A link to the webcast/audio live stream will be available on the Investors page of ETRN’s website the day of the call.

Security Analysts :: Dial-In Participation
To participate in the Q&A session, security analysts may access the call in the U.S. toll free at (888) 330-3573; and internationally at (646) 960-0677. The ETRN conference ID is 6625542.

All Other Participants :: Webcast/Audio Live Stream Registration
Please Note: For optimal audio quality, the webcast is best supported through Google Chrome and Mozilla Firefox browsers.

Call Replay: For 14 days following the call, an audio replay will be available at (800) 770-2030 or (647) 362-9199. The ETRN conference ID: 6625542.

ETRN management speaks to investors from time-to-time and the presentation for these discussions, which is updated periodically, is available via www.equitransmidstream.com.

NON-GAAP DISCLOSURES

Adjusted Net Income Attributable to ETRN Common Shareholders and Adjusted Earnings per Diluted Share Attributable to ETRN Common Shareholders

Adjusted net income (loss) attributable to ETRN common shareholders and adjusted earnings (loss) per diluted share attributable to ETRN common shareholders are non-GAAP supplemental financial measures that management and external users of ETRN’s consolidated financial statements, such as investors, may use to make period-to-period comparisons of earnings trends. Management believes that adjusted net income (loss) attributable to ETRN common shareholders and adjusted earnings (loss) per diluted share attributable to ETRN common shareholders as presented provide useful information for investors for evaluating period-over-period earnings. Adjusted net income (loss) attributable to ETRN common shareholders and adjusted earnings (loss) per diluted share attributable to ETRN common shareholders should not be considered as alternatives to net income (loss) attributable to ETRN common shareholders, earnings (loss) per diluted share attributable to ETRN common shareholders or any other measure of financial performance presented in accordance with GAAP. Adjusted net income (loss) attributable to ETRN common shareholders and adjusted earnings (loss) per diluted share attributable to ETRN common shareholders as presented have important limitations as analytical tools because they exclude some, but not all, items that affect net income (loss) attributable to ETRN common shareholders and earnings (loss) per diluted share attributable to ETRN common shareholders, including, as applicable, impairments of long-lived assets and equity method investments, unrealized gain (loss) on derivative instruments, loss on extinguishment of debt, gain on the sale of gathering assets, expenses for the Rager Mountain natural gas storage field incident (Rager Mountain incident), and the related tax impacts of these items, which items affect the comparability of results period to period. Additionally, because these non-GAAP metrics may be defined differently by other companies in ETRN’s industry, ETRN’s definitions of adjusted net income (loss) attributable to ETRN common shareholders and adjusted earnings (loss) per diluted share attributable to ETRN common shareholders may not be comparable to similarly titled measures of other companies, thereby diminishing the utility of the measures. Adjusted net income (loss) attributable to ETRN common shareholders and adjusted earnings (loss) per diluted share attributable to ETRN common shareholders should not be viewed as indicative of the actual amount of net income (loss) attributable to ETRN common shareholders or actual earnings (loss) of ETRN in any given period.

The table below reconciles adjusted net income attributable to ETRN common shareholders and adjusted earnings per diluted share attributable to ETRN common shareholders with net income (loss) attributable to ETRN common shareholders and earnings (loss) per diluted share attributable to ETRN common shareholders as derived from the statements of consolidated comprehensive income to be included in ETRN’s Quarterly Report on Form 10-Q for the three months ended June 30, 2023. Diluted weighted average common shares outstanding assumes dilution for each applicable period.

Adjusted EBITDA

Adjusted EBITDA excludes the impact of certain non-operating income and expenses, non-cash items, and other items that ETRN believes are not indicative of ETRN's ongoing operations or affect the comparability of results period to period. As used in this news release, Adjusted EBITDA means, as applicable, net income (loss), plus income tax expense (benefit), net interest expense, loss on extinguishment of debt, depreciation, amortization of intangible assets, impairments of long-lived assets and equity method investment, payments on the preferred interest in EQT Energy Supply, LLC (Preferred Interest), non-cash long-term compensation expense, expenses for the Rager Mountain incident, and less equity income, AFUDC-equity, unrealized gain (loss) on derivative instruments, gain on sale of gathering assets, and adjusted EBITDA attributable to noncontrolling interest.

The table below reconciles adjusted EBITDA with net income as derived from the statements of consolidated comprehensive income to be included in ETRN's Quarterly Report on Form 10-Q for the three months ended June 30, 2023.

Free Cash Flow

As used in this news release, free cash flow means net cash provided by operating activities plus principal payments received on the Preferred Interest, and less net cash provided by operating activities attributable to noncontrolling interest, dividends paid to Series A Preferred Shareholders, premiums and fees paid on extinguishment of debt, capital expenditures (excluding the noncontrolling interest share (40%) of Eureka capital expenditures), and capital contributions to MVP JV.

Retained Free Cash Flow

As used in this news release, retained free cash flow means free cash flow less dividends paid to common shareholders.

The table below reconciles free cash flow and retained free cash flow with net cash provided by operating activities as derived from the statements of consolidated cash flows to be included in ETRN's Quarterly Report on Form 10-Q for the three months ended June 30, 2023.