Equitrans Midstream Announces Full-Year and Fourth Quarter 2021 Results
CANONSBURG, Pa.–(BUSINESS WIRE)–Equitrans Midstream Corporation (NYSE: ETRN), today, announced financial and operational results for the full-year and fourth quarter 2021. 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.
2021 Highlights:
- Generated $1.2 billion of net cash from operating activities and $488 million of free cash flow
- Recorded 64% of total operating revenue from firm reservation fees
- Achieved record annual gathered volumes of 8.3 Bcf per day
- Published second annual Corporate Sustainability Report in accordance with GRI and SASB
- Entered into a new 10-year water services agreement with largest customer
- Initiated free cash flow guidance of $340 – $420 million for full-year 2022
“This past year our employees continued to navigate through the changing work environment, all while keeping safety as the top priority and delivering consistent and strong results,” said Diana M. Charletta, Equitrans president and chief operating officer. “The team continues driving a base business that produces strong free cash flow; always working to optimize systems, improve capital efficiency and control costs. We also advanced our ESG efforts with the introduction of several long-term targets, published our second annual Corporate Sustainability Report, and made strides with operational improvements to reduce methane emissions. We look forward to executing in 2022 and beyond for all of our stakeholders.”
“While we are pleased with the strong performance of our base business, we are extremely disappointed in the recent decisions by the Fourth Circuit Court to vacate and remand MVP’s Jefferson National Forest crossing permit and Biological Opinion. The Biological Opinion, in particular, underwent an extensive, year-long analysis of relevant, scientific data and included an unprecedented level of review by federal agencies that far exceeded reviews for comparable infrastructure projects,” said Thomas F. Karam, Equitrans chairman and chief executive officer.
Karam continued, “This was the second time the Court issued judicial opinions that overruled the extensive federal regulatory review process undertaken by USFS, BLM and USFWS. The Court’s decisions, which do not reflect traditional judicial deference, create greater uncertainty in our ability to bring this critical infrastructure project to completion, despite total project work being roughly 94% complete. We remain committed to completing the project and are actively engaging with federal agencies, legal counsel and our partners to evaluate the best path forward. We are no longer targeting a summer 2022 in-service and will provide an update following further discussions with the agencies and our partners.”
2021 YEAR-END AND FOURTH QUARTER SUMMARY RESULTS
|
| Three Months Ended |
| Twelve Months Ended | ||||
| $ millions (except per share metrics) | 2021 |
| 2021 | ||||
| Net loss attributable to ETRN common shareholders | $ | (1,592.3 | ) |
| $ | (1,439.0 | ) |
| Adjusted net (loss) income attributable to ETRN common shareholders | $ | (31.5 | ) |
| $ | 165.6 |
|
| Loss per diluted share attributable to ETRN common shareholders | $ | (3.68 | ) |
| $ | (3.32 | ) |
| Adjusted (loss) earnings per diluted share attributable to ETRN common shareholders | $ | (0.07 | ) |
| $ | 0.38 |
|
| Net loss | $ | (1,573.6 | ) |
| $ | (1,365.9 | ) |
| Adjusted EBITDA | $ | 166.9 |
|
| $ | 1,012.4 |
|
| Deferred revenue | $ | 198.4 |
|
| $ | 423.7 |
|
| Net cash provided by operating activities | $ | 346.7 |
|
| $ | 1,168.8 |
|
| Free cash flow | $ | 139.7 |
|
| $ | 488.1 |
|
| Retained free cash flow | $ | 74.9 |
|
| $ | 228.6 |
|
Net loss attributable to ETRN common shareholders for the fourth quarter 2021 was impacted by a $1.9 billion impairment of equity method investment related to the Mountain Valley Pipeline, LLC (MVP JV) as a result of the ongoing legal and regulatory challenges and delay in targeted in-service, an associated $97.6 million valuation allowance placed on the deferred tax assets, and a $54.3 million unrealized loss on derivative instruments. The unrealized loss is reported within other (expense) 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 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.
For the full-year 2021, net loss attributable to ETRN common shareholders was impacted by several items, including the $1.9 billion impairment of equity method investment related to the MVP JV; an associated $97.6 million valuation allowance placed on the deferred tax assets; a $56.2 million impairment of long-lived assets associated with ETRN’s water assets located in Ohio; a $41.0 million loss on extinguishment of debt 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; and a $16.4 million unrealized loss on derivative instruments related to the previously described contractual agreement with EQT.
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 15-year contract life. The difference between the cash received from the MVC and the revenue recognized results in the deferral of revenue into future periods. In addition, the gathering agreement provides for a fee credit to the gathering fee for certain gathered volumes that also receive separate transmission services. As previously disclosed in December 2021, ETRN and EQT amended a transmission services agreement, for which the fee credit applies. Although there will be no impact to free cash flow as a result of the amended transmission services agreement, ETRN expects increased future transmission revenue and, accordingly, a lower average gathering rate over the life of the gathering agreement. For the fourth quarter 2021, deferred revenue was $198.4 million, which includes approximately $106.1 million of cumulative impact related to the transmission services amendment and covers the period from the effective date of the gathering agreement through Q3 2021. Full-year 2021 deferred revenue was $423.7 million, an increase of $198 million compared to full-year 2020.
Operating revenue for the fourth quarter decreased by $120.5 million, compared to the same quarter last year, primarily from the impact of deferred revenue, partially offset by increased volumetric gathering revenue. Operating expenses decreased by $1.3 million compared to the fourth quarter 2020, primarily as a result of lower selling, general and administrative expenses and depreciation, partially offset by increased operating and maintenance expenses.
Operating revenue for the full-year 2021 decreased by $193.8 million compared to 2020, primarily from the impact of deferred revenue. Operating expenses decreased by $2.8 million compared to 2020, with lower transaction costs offset by increased selling, general and administrative and depreciation.
QUARTERLY DIVIDEND
For the fourth quarter 2021, ETRN paid a quarterly cash dividend of $0.15 per common share on February 14, 2022, to ETRN common shareholders of record at the close of business on February 3, 2022.
TOTAL CAPITAL EXPENDITURES AND CAPITAL CONTRIBUTIONS
| $ millions |
| Three Months Ended |
| Twelve Months Ended |
| MVP |
| $108 |
| $284 |
| Gathering(1) |
| $49 |
| $211 |
| Transmission(2) |
| $9 |
| $30 |
| Water |
| $14 |
| $35 |
| Total |
| $180 |
| $560 |
| (1) | Excludes $3.5 million and $14.1 million of capital expenditures related to the noncontrolling interest in Eureka Midstream Holdings, LLC (Eureka) for the three and twelve months ended December 31, 2021, respectively. | |
| (2) | Includes capital contributions to MVP JV for the MVP Southgate project. |
2022 GUIDANCE
The ultimate MVP project in-service timing impacts certain items, including deferred revenue and revenue recognition under the gathering agreement with EQT. Therefore, ETRN is unable to provide 2022 guidance for Net Income, Adjusted EBITDA and Deferred Revenue due to ETRN’s ongoing review of certain recent legal decisions and evaluation of possible paths forward for the MVP project. See “Mountain Valley Pipeline” below.
Financial Outlook
| $ millions | Full-Year 2022 | |
| Free cash flow | $340 – $420 | |
| Retained free cash flow | $80 – $160 |
Capital Expenditures and Capital Contribution Outlook
| $ millions |
| Full-Year 2022 |
| MVP |
| $175 – $225 |
| Gathering(1) |
| $250 – $300 |
| Transmission(2) |
| $50 |
| Water |
| $50 |
| Total |
| $525 – $625 |
| (1) | Excludes $20 million of capital expenditures related to the noncontrolling interest in Eureka. | |
| (2) | Includes approximately $5 million of capital contributions to MVP JV for the MVP Southgate project. |
BUSINESS AND PROJECT UPDATES
Outstanding Debt and Liquidity
As of December 31, 2021, ETRN reported $6.4 billion of consolidated long-term debt; $225 million of borrowings and $235 million of letters of credit outstanding under EQM’s revolving credit facility; $280 million of borrowings under Eureka’s revolving credit facility; and $135 million of cash.
Mountain Valley Pipeline
On January 25, 2022, the U.S. Court of Appeals for the Fourth Circuit (Fourth Circuit) issued a decision vacating and remanding, on specific issues, the permits issued to MVP JV by the U.S. Forest Service and Bureau of Land Management related to crossing the Jefferson National Forest. On February 2, 2022, the Fourth Circuit issued a decision vacating and remanding, on specific issues, the Biological Opinion and Incidental Take Statement issued to MVP JV by the U.S. Fish and Wildlife Service. MVP JV continues to review these recent decisions and evaluate the possible paths forward, which include working with the relevant federal agencies and the consideration of potential legal appeals. As a result, ETRN is not able to provide an update regarding the in-service timing and overall cost for the project, except that ETRN is no longer targeting a summer 2022 in-service date. ETRN had funded approximately $2.5 billion through December 31, 2021, and expects to make capital contributions of approximately $200 million in 2022 related to work completed in late 2021 and ongoing work required for right-of-way maintenance.
MVP Southgate
Due to the evolving regulatory and legal environment for pipeline construction and ongoing challenges related to MVP and MVP Southgate, the MVP JV is evaluating the MVP Southgate project, including engaging in discussions with the shipper regarding options for the project, including potential changes to the project design and timing in lieu of pursuing the project as originally contemplated. As originally designed, MVP Southgate is estimated to cost approximately $450 million to $500 million and is backed by a 300 MMcf per day firm capacity commitment from Dominion Energy North Carolina. In 2022, ETRN expects to make capital contributions related to MVP Southgate to the MVP JV of approximately $5 million. ETRN has a 47.2% ownership interest in MVP Southgate and would operate the pipeline.
Ohio Valley Connector Expansion Project
In January 2022, ETRN submitted an application to the FERC for the Ohio Valley Connector Expansion (OVCX) project. OVCX will increase deliverability on ETRN’s Ohio Valley Connector (OVC) pipeline by approximately 350 MMcf per day, create new receipt and delivery transportation paths, and enhance long-term reliability. The project is supported by new long-term firm capacity commitments of 330 MMcf per day, as well as an extension of approximately 1.0 Bcf per day of existing contracted mainline capacity for EQT. OVCX 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, Ohio. The targeted in-service for the incremental OVC capacity is the third quarter of 2023. ETRN expects to invest approximately $160 million, which includes approximately $130 million for new compression. The project is consistent with ETRN’s ongoing effort to optimize existing assets and achieve capital efficiency and is estimated to save approximately $30 million of capital relative to a greenfield buildout.
Water Services
As previously announced, in October 2021, ETRN and EQT entered into a new 10-year mixed-use water services agreement covering operations within a dedicated area in southwestern Pennsylvania. Service under the agreement is expected to commence in the first quarter of 2022. The new water services agreement includes an annual revenue commitment of $40 million for the first five years and $35 million in the last five years. ETRN expects to invest approximately $50 million in 2022, primarily to complete the initial mixed-use system buildout. Future annual water related capital expenditures are expected to be approximately $10 – $15 million, dependent upon drilling activity.
In the fourth quarter, water operating income was $1.6 million and water EBITDA was $6.1 million. For the year, water operating loss was $54.0 million and water EBITDA was $27.4 million.
Environmental, Social, and Governance (ESG)
During 2021, ETRN continued to advance its ESG efforts and reporting disclosures. In January 2021, ETRN published its climate policy which outlines several targets including a 50% reduction in scope 1 and 2 methane emissions by 2030, a 50% reduction in total scope 1 and 2 greenhouse gas emissions by 2040, and a net zero carbon goal by 2050. As part of the Company’s aggressive pursuit of methane emission mitigation, ETRN’s 2021 Air Conversion Project, which is a program to replace high bleed with low bleed pneumatics, as well as certain gas driven pneumatics with instrument air systems, in ETRN’s operations, contributed to a reduction in annualized pneumatic methane emissions by roughly 52% for the year relative to a 2019 methane emissions baseline. In July, ETRN published its annual corporate sustainability report, which continues to follow the Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB) Oil & Gas Midstream reporting standards and outlines the Company’s ESG-related efforts for the previous year. The report can be viewed online at csr.equitransmidstream.com. In addition, ETRN continued to enhance its ESG reporting by submitting its first CDP Climate Change questionnaire response, which received a score of B-. ETRN also received a rating of BBB (on a scale of AAA-CCC) in the MSCI ESG Ratings assessment, which was a two-grade increase from ETRN’s previous B rating.
2021 Year-End Earnings Conference Call Information
ETRN will host a conference call with security analysts today, February 22, 2022, at 10:30 a.m. (ET) to discuss year-end 2021 financial results, operating results, and other business matters.
Call Access: An 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 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. tollfree at (888) 330-3573; and internationally at (646) 960-0677. The ETRN conference ID is 6625542.
All Other Participants :: Webcast 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 (Loss) Attributable to ETRN Common Shareholders and Adjusted Earnings (Loss) 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 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 (loss) income attributable to ETRN common shareholders and adjusted (loss) earnings per diluted share attributable to ETRN common shareholders with net loss attributable to ETRN common shareholders and loss per diluted share attributable to ETRN common shareholders as derived from the statements of consolidated comprehensive income to be included in ETRN’s Annual Report on Form 10-K for the year ended December 31, 2021.
Reconciliation of Adjusted Net (Loss) Income Attributable to ETRN Common Shareholders and Adjusted (Loss) Earnings per Diluted Share Attributable to ETRN Common Shareholders
|
| Three Months Ended |
| Twelve Months Ended | ||||
| (Thousands, except per share information) | 2021 |
| 2021 | ||||
| Net loss attributable to ETRN common shareholders | $ | (1,592,250 | ) |
| $ | (1,438,990 | ) |
| Add back (deduct): |
|
|
| ||||
| Impairments of long-lived assets and equity method investment |
| 1,926,402 |
|
|
| 1,982,580 |
|
| Unrealized loss on derivative instruments |
| 54,259 |
|
|
| 16,362 |
|
| Loss on extinguishment of debt |
| — |
|
|
| 41,025 |
|
| Tax impact of non-GAAP items(1) |
| (419,913 | ) |
|
| (435,409 | ) |
| Adjusted net (loss) income attributable to ETRN common shareholders | $ | (31,502 | ) |
| $ | 165,568 |
|
| Diluted weighted average common shares outstanding |
| 433,032 |
|
|
| 433,008 |
|
| Adjusted (loss) earnings per diluted share attributable to ETRN common shareholders | $ | (0.07 | ) |
| $ | 0.38 |
|
| (1) | The adjustments were tax effected at ETRN’s federal and state statutory tax rate for each period and account for certain discrete valuation allowances associated with the impact of nonrecurring items. |
Adjusted EBITDA
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, and less equity income, AFUDC-equity, unrealized gain (loss) on derivative instruments and adjusted EBITDA attributable to noncontrolling interest.
The table below reconciles adjusted EBITDA with net loss as derived from the statements of consolidated comprehensive income to be included in ETRN’s Annual Report on Form 10-K for the year ended December 31, 2021.
Reconciliation of Adjusted EBITDA
|
| Three Months Ended |
| Twelve Months Ended | ||||
| (Thousands) | 2021 |
| 2021 | ||||
| Net loss | $ | (1,573,571 | ) |
| $ | (1,365,948 | ) |
| Add (deduct): |
|
|
| ||||
| Income tax benefit |
| (410,271 | ) |
|
| (345,091 | ) |
| Net interest expense |
| 93,763 |
|
|
| 378,650 |
|
| Loss on extinguishment of debt |
| — |
|
|
| 41,025 |
|
| Depreciation |
| 66,450 |
|
|
| 270,404 |
|
| Amortization of intangible assets |
| 16,205 |
|
|
| 64,819 |
|
| Impairments of long-lived assets and equity method investment |
| 1,926,402 |
|
|
| 1,982,580 |
|
| Preferred Interest payments |
| 2,746 |
|
|
| 10,984 |
|
| Non-cash long-term compensation expense |
| 4,331 |
|
|
| 14,921 |
|
| Equity income |
| (3,194 | ) |
|
| (17,579 | ) |
| AFUDC – equity |
| (56 | ) |
|
| (319 | ) |
| Unrealized loss on derivative instruments |
| 54,259 |
|
|
| 16,362 |
|
| Adjusted EBITDA attributable to noncontrolling interest(1) |
| (10,127 | ) |
|
| (38,383 | ) |
| Adjusted EBITDA | $ | 166,937 |
|
| $ | 1,012,425 |
|
| (1) | Reflects adjusted EBITDA attributable to noncontrolling interest associated with the third-party ownership interest in Eureka. Adjusted EBITDA attributable to noncontrolling interest for the three months ended December 31, 2021 was calculated as net income of $4.0 million plus depreciation of $3.0 million, plus amortization of intangible assets of $2.1 million and plus interest expense of $1.0 million. Adjusted EBITDA attributable to noncontrolling interest for the twelve months ended December 31, 2021 was calculated as net income of $14.5 million, plus depreciation of $11.9 million, plus amortization of intangible assets of $8.4 million, and plus interest expense of $3.6 million. |
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, premiums paid on extinguishment of debt, capital expenditures (excluding the noncontrolling interest share (40%) of Eureka capital expenditures), capital contributions to MVP JV, and dividends paid to Series A Preferred shareholders.
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 Annual Report on Form 10-K for the year ended December 31, 2021.
Contacts
Analyst inquiries:
Nate Tetlow – Vice President, Corporate Development and Investor Relations
412-553-5834
[email protected]
Media inquiries:
Natalie Cox – Communications and Corporate Affairs
[email protected]
