Equitrans Midstream Corporation, announced financial and operational results for the first quarter 2021.
Q1 2021 Highlights:
- Delivered first quarter 2021 results ahead of guidance
- Raised full-year 2021 adjusted EBITDA and free cash flow guidance
- Generated $77 million of net income and achieved $308 million of adjusted EBITDA
Recorded 66% of total operating revenue from firm reservation fees
"As we continue to enhance our ESG platform, Equitrans has initiated measurable actions to advance diversity and inclusion in the workplace," said Thomas F. Karam, ETRN chairman and chief executive officer. "To reinforce our collective commitment, I have recently signed the CEO Pledge offered by the CEO Action for Diversity and Inclusion Coalition. We believe diverse perspectives lead to growth, improvement, and innovation, building stronger teams and delivering more opportunities to achieve and maintain long-term success."
"We were ahead of our forecast for the first quarter, with strong results in multiple areas including gathered volume, seasonal park and loan activity, and delivered water volume," said Diana M. Charletta, ETRN president and chief operating officer. "With this encouraging and positive start to the year, we are confident in our outlook for the remainder of 2021 and have increased our full-year financial guidance."
Net income attributable to ETRN common shareholders for the first quarter 2021 was impacted by a $7.1 million unrealized gain on derivative instruments. The unrealized gain is reported within other income 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 during the three years following the Mountain Valley Pipeline's (MVP) in-service, but in no case extending beyond December 2024. The contract is accounted for as a derivative with the fair value marked-to-market at each quarter-end. Net income attributable to ETRN common shareholders for the first quarter 2021 was also impacted by a $41.0 million loss on extinguishment of debt primarily related to the purchase in a tender offer in January 2021 of $500 million in aggregate principal amount of outstanding EQM Midstream Partners, LP (EQM) 4.75% senior notes due 2023.
As a result of the gathering agreement with EQT entered into in February 2020, revenue from the contracted minimum volume commitment (MVC) is recognized utilizing an average rate applied over the 15-year contract life. The difference between the cash received from the contracted MVC and the revenue recognized results in the deferral of revenue into future periods. In the first quarter 2021, deferred revenue was $72.0 million.
Operating revenue for the first quarter was lower compared to the same quarter last year by $73.1 million, primarily from the impact of deferred revenue and lower water services revenue. The reduction in operating revenue was partially offset by increased revenue from higher gathering MVCs and higher park and loan activity. Operating expenses decreased by $56.6 million compared to the first quarter 2020, primarily as a result of a $55.6 million impairment of long-lived assets in the first quarter 2020. Additionally, operating and maintenance expense decreased versus the prior year quarter while selling, general and administrative and depreciation expense increased.
For the first quarter 2021, ETRN will pay a quarterly cash dividend of $0.15 per common share on May 14, 2021 to ETRN common shareholders of record at the close of business on May 5, 2021.
BUSINESS AND PROJECT UPDATES
Outstanding Debt and Liquidity
As of March 31, 2021, ETRN reported $6.4 billion of consolidated long-term debt; $485 million of borrowings and $246 million of letters of credit outstanding under EQM's revolving credit facility; and $232 million of cash.
On April 16, 2021, EQM entered into an amendment to its revolving credit facility which, among other things, reduced the revolver size from $3.0 billion to $2.25 billion. The new revolver size is expected to provide better alignment with future business and liquidity needs.
Bond Offering and Tender
In January 2021, ETRN's wholly owned subsidiary, EQM, issued $800 million of 4.50% senior unsecured notes due 2029 and $1,100 million of 4.75% senior unsecured notes due 2031. Net proceeds from the offering and cash on hand were used to repay EQM's $1.4 billion term loan and to purchase, in a tender offer, $500 million in aggregate principal amount of outstanding EQM 4.75% senior notes due 2023.
Mountain Valley Pipeline
In February 2021, MVP JV requested revocation of its Nationwide Permit 12, previously issued by the U.S. Army Corps of Engineers (Army Corps), and initiated an alternative permitting process with the Army Corps and the Federal Energy Regulatory Commission (FERC) related to the project’s remaining waterbody and wetland crossings. MVP JV has submitted an individual permit application to the Army Corps, as well as related applications for 401 water quality certifications to West Virginia and Virginia, for approximately 300 crossings. Additionally, MVP JV submitted a Certificate Amendment application to the FERC, requesting a change to utilize the boring method for approximately 120 crossings.
In March and April 2021, respectively, the Virginia Department of Environmental Quality and the West Virginia Department of Environmental Protection submitted requests to the Army Corps seeking to extend the 120-day review period to evaluate the respective 401 water quality certification applications. ETRN expects and supports that some additional review time will be granted. Accordingly, ETRN no longer expects that MVP JV will have the necessary waterbody and wetland crossing approvals by Q3 2021. MVP JV is now incorporating the winter 2021/2022 season into its project schedule and, as a result, is targeting a full in-service date during the summer of 2022 at a total project cost of approximately $6.2 billion. As of March 31, 2021, ETRN funded approximately $2.3 billion and, based on the total project cost estimate, expects to fund a total of approximately $3.1 billion and to have an approximate 47.8% ownership interest in MVP. ETRN will operate the pipeline.
Based on the adjustment to MVP's targeted full in-service date and current expectations regarding timing of MVP Southgate permit approvals, ETRN is targeting commencing construction during 2022 and placing the project in-service during the spring of 2023. The approximately 75-mile pipeline is designed to receive gas from MVP in Virginia for transport to new delivery points in Rockingham and Alamance Counties, North Carolina. With a total project cost estimate of approximately $450 million to $500 million, MVP Southgate is backed by a 300 MMcf per day firm capacity commitment from Dominion Energy North Carolina and, as designed, the pipeline has expansion capabilities that could provide up to 900 MMcf per day of total capacity. ETRN has a 47.2% ownership interest in MVP Southgate and will operate the pipeline.
Water operating income was $4.5 million and water EBITDA was $12.7 million in the first quarter 2021. Water operating loss is forecast to be approximately $8 million for the full-year 2021 and water EBITDA is forecast to be approximately $25 million for the full-year 2021.