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spk06: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Equitrans Midstream second quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, press star one again. I would now like to turn the conference over to Nate Tedlow. Please go ahead.
spk04: Good morning, and welcome to the second quarter 2023 earnings call for Equitrans Midstream Corporation. A replay of this call will be available for 14 days beginning this evening. The phone number for the replay is 800-770-2030 or 647-362-9199. The conference ID is 6625542. Today's call may contain forward-looking statements related to future events and expectations. Please refer to today's news release and risk factors in ETRN's Form 10-K for the year ended December 31st, 2022, and as updated by Form 10-Q's, for factors that could cause the actual results to differ materially from these forward-looking statements. Today's call may contain certain non-GAAP financial measures. Please refer to this morning's news release and our investor presentation for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measure. On the call today are Tom Karam, Chairman and CEO Diana Sharletta, President and Chief Operating Officer. Kirk Oliver, Senior Vice President and Chief Financial Officer. Justin Mackin, Senior Vice President, Gas Systems Planning and Engineering. And Janice Brenner, Vice President and Treasurer. After the prepared remarks, we will open the call to questions. And with that, I'll turn it over to Tom.
spk01: Thanks, Nate. And good morning, everyone. Today we reported second quarter 2023 results, including net income of $69 million, adjusted EBITDA of $235 million, and deferred revenue of $82 million. Kirk will provide details on the financial results in a few minutes. It has been a remarkable couple months for MVP. We saw congressional leadership from both sides of the aisle, together with the administration work in a bipartisan way to enact the fiscal responsibility act of 2023 on June 3rd. This legislation includes section 324, which ratifies and approves all permits and authorizations necessary for the construction and initial operation of MVP. Importantly, the legislation also divests any court of jurisdiction to review agency actions on approvals necessary for MVP construction and initial operation and grants exclusive jurisdiction for claims against the legislation to the U.S. Court of Appeals for the District of Columbia. On June 28th, after MVP received all required permits, FERC authorized all construction activities to resume. After only days of active construction, the U.S. Court of Appeals for the Fourth Circuit issued stay orders on two of the project's federal authorizations, again halting forward construction. On July 14th, we filed an emergency application with the United States Supreme Court seeking to vacate the stays and requesting a summary ruling on the extent of the Fourth Circuit's jurisdiction. On July 27, the Supreme Court vacated the stays and our previously filed motions to dismiss the underlying cases are pending with the Fourth Circuit. We have now resumed forward construction and are still targeting completion by year end at a total project cost of approximately $6.6 billion. Despite all the twists and turns, we are grateful for the timely ruling by the Supreme Court and to be once again focused on construction. And now I'll turn it to Diana for the operations update, and then Kirk will discuss the financial results, and I'll have some brief closing comments. Diana?
spk00: Thanks, Tom. Good morning, everyone. In the second quarter, we gathered about 7.4 BCF per day, and we continue to expect volumes to be roughly flat for the year. After MVP in service, we are optimistic and expect that we will see volume growth behind our gathering and transmission system. The new takeaway capacity will serve to do bottleneck the region and allow for overall basin volume growth. From an operations perspective, our systems provide the only direct upstream connectivity to MVP, making our assets well-positioned to benefit. Our assets provide shippers with flexibility to direct their gas to MVP from southwestern Pennsylvania, northern West Virginia, and Ohio. So, given our connectivity to MVP, we expect to gain a disproportionate share of volumes, even if overall basin volumes were to remain flat. On the transmission segment, the Ohio Valley Connector Expansion Project, or OVCX, received its FERC certificate on June 15th and received the final required federal authorization from the U.S. Army Corps of Engineers on July 27th. And just yesterday, we received the notice to proceed from FERC and expect to commence construction in the coming days. OVCX is a $160 million capital project that will add about 350 million cubic feet per day of deliverability on our Ohio Valley Connector Pipeline, which provides access to the Mid-Continent and Gulf Coast markets through interconnects in Clarington, Ohio. The incremental capacity is targeted for in-service in the first half of 2024. On the water segment, our second storage facility was placed in service in July, which brings total water storage capacity to 350,000 barrels. We expect the backbone of the mixed-use water system to be substantially complete in 2023. Additionally, we recently executed an agreement with a producer customer to provide both fresh and mixed-use water service, further extending the reach of the mixed-use system. We will invest approximately $30 million in this new project With most of the capital outlay in 2023 and 2024. The agreement is for 10 years and is backed by a minimum volume commitment. This new agreement is evidence that the hub and spoke strategy for the mixed use water system provides the connectivity and optionality that producers are looking for. Moving on to an update on the regular mountain storage well incident that occurred in the fourth quarter last year. We are progressing with the independent root cause investigation, which is expected to be completed this summer. In the second quarter, we incurred approximately $2.7 million of operating expense related to post incident activities. And based on what we know today for the full year, we expect to incur approximately $10 million of expense and approximately five to $10 million of CapEx related to this incident. We will continue to work diligently throughout the review and expect to provide more information once the root cause analysis is complete. So, again, we will be very limited in what we say today beyond this brief update. Lastly, on the ESG front, we published our 2023 corporate sustainability report last week, which is based on year-end 2022 data and information. I'll highlight a few items and encourage everyone to access the full report through our website at equitransmitstream.com. We converted 10 compressor sites from high bleed pneumatics to low bleed or air pneumatics for a total of 20 compressor conversions since 2021. We formally adopted our environmental justice policy to expand our project outreach efforts beyond regulatory requirements. We joined other industry participants as a founding member of the Appalachian Methane Initiative to further enhance methane monitoring through the basin and facilitate additional methane emission reductions in the region. And I'll turn the call over to Kirk.
spk02: Thanks Diana and good morning everyone. Today, we reported second quarter net income attributable to E-Train common shareholders of $53 million and earnings per diluted common share of 12 cents. Net income was $69 million, adjusted EBITDA was $235 million, and deferred revenue was $82 million. We also reported net cash provided by operating activities of $299 million and free cash flow of $151 million. Net income attributable to E-Train common shareholders was impacted by several items. First, by a $19 million unrealized gain on derivative instruments, which is reported within other income. This relates to the contractual provision entitling E-Train to receive cash payments from EQT, conditioned on specific NYMEX Henry Hub natural gas prices, exceeding certain thresholds, post-MVPs in service, and running through 2024. Second, by the previously mentioned $2.7M of operating expenses related to the Rager Mountain storage incident. After adjusting for these items, second quarter adjusted net income attributable to E-Train common shareholders was $40M. Adjusted earnings per diluted common share was $0.09. Additionally, we reported second quarter equity income of $24M, which is primarily associated with afudc relating to the restart of mvp forward construction in june of 2023 operating revenue for the second quarter of 2023 was lower compared to the same quarter of last year by 10 million dollars the decrease was driven primarily from the impact of lower gathered volumes was partially offset by increased water service revenue Operating expenses for the second quarter of 2023 were $44 million higher than the second quarter of 2022. The increase was driven primarily by compensation expense related to the MPP Performance Award Program of $17 million, which includes $14 million of cumulative catch-up since the inception of the award. The payout of the award was deemed probable given the enactment of the Fiscal Responsibility Act. remaining expense variance was primarily related to expenses associated with the regular mountain natural gas storage fuel incident increased water operating expenses and increased other sgna onm and depreciation expenses for the second quarter e-train will pay a quarterly cash dividend of 15 cents per common share on august 14th 2023 to shareholders of record at the close of business on August 4th, 2023. With MVP construction underway again, we wanted to remind everyone of the contributions expected and the contractual obligations in the Gathering Agreement with EQT that become effective following the completion of MVP. First, as detailed on slide 20 of our investor presentation that was posted earlier today, we estimate MVP will contribute approximately 220 million of annual adjusted EBITDA. Hammerhead is estimated to contribute approximately 75 million of annual adjusted EBITDA, and the Equitrans expansion project is expected to contribute approximately 20 million of annual adjusted EBITDA. With regard to the gathering agreement with EQT, The minimum volume commitment steps up to 3.5 per day for 1 year. Then 3.75 per day for the following year. And then 4 per day in the 3rd year. The stays at 4 per day through 2031 and then goes back at 3 per day through 2035. With MVP in service, we would also be eligible to earn the Henry Hub bonus in 2024, which could be up to $60 million depending on gas prices. And lastly, there remains rate relief to EQT that is specifically contingent on MVP in service. Assuming contractual obligations commencing on January 1st, 2024, this could be up to approximately $125 million in 2024 and up to approximately $140 million in 2025. Additionally, the EQT Global GGA provides for a fee credit to the gathering rate for certain gathered volumes that also receive separate transmission services under certain transmission contracts. On slide seven of our investor deck, We have provided the estimated annual deferred revenue through the contract term. Again, this is based on year-end 2023 MVP completion and the contract obligations commencing on January 1st of 2024. The actual deferred revenue is subject to the ultimate MVP in-service date. In terms of financing and de-levering plans, during the second quarter, we retired approximately 100 million of senior notes maturing in 2023. After MVP in service, we plan to issue debt at the joint venture level and anticipate our portion to be approximately $800 million to $1 billion. These proceeds are expected to be used to pay down EQM debt. From there, we expect to utilize our retained free cash flow for further debt reduction and delivering. And lastly, we refined our 2023 guidance, which is available in today's earnings release. Assuming MVP completion by year-end 2023, free cash flow and retained free cash flow are about $25 million higher than the previous guidance at the midpoint, primarily based on year-to-date actual results and slight decreases in expected full-year total capex. All other financial guidance was largely in line with our previous expectations. I'll now hand the call back to Tom.
spk01: Thanks, Kirk. Well, it's been a long and challenging journey for MVP. While we don't expect the opposition to give up, we have the highest degree of confidence that we will complete the project. Our focus and commitment are on the responsible completion of the remaining portion of construction, which includes the safety of everyone working on the right-of-way and stringent environmental protection measures in accordance with our issued permit. We look forward to bringing the benefits of reliable and affordable natural gas to consumers while also enhancing natural energy security and helping to achieve state and national goals for lowering carbon emissions. With that, we're happy to take your questions.
spk06: At this time, if you'd like to ask a question, simply press star followed by the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Our first question will come from the line of Brian Reynolds with UBS. Please go ahead.
spk03: Hi, good morning, everyone. Maybe just to touch on the MVP timeline, you know, just given year end, 23 versus, you know, your parent talking about, you know, first half 24. You know, just kind of curious around the winter timeframe specifically. Previously, there was always commentary around difficulty in building, but You know, is there a point where construction could halt in the winter, or are project developers and the EPC contractors perhaps aligned and incentivized to work through all seasons to complete MVP kind of by this year-end, 23 or early 24 timeline? Thanks.
spk01: Hi, Brian. This is Tom Karam. So, first of all, we are the parent. We are the partner in MVP along with Nextera, Con Ed, Roanoke, and Washington Gas Light. As we've repeatedly said, we expect four to five months' worth of construction. It's ordinary course construction where there could be some weather impact as with any project, but absent some of those extreme conditions, we're fairly confident that we're going to bring MVP into line around year end.
spk03: Great, thanks. And then just talking about, you know, migrating debt to the JV level once MVP is complete, can you just give us an update on perhaps, you know, the absolute amount just given, you know, the 6.6 total project costs and perhaps the timing of that of whether, you know, that could happen with the in-service of MVP or perhaps before or after? Thanks.
spk01: Are you talking about project level finance? Yes. Okay, Janice Brenner, our treasurer, will answer that question for you, Brian.
spk07: Good morning, Brian. Yes, we do intend to pursue that project level debt once MVP is in service. The ultimate size will depend on a variety of factors, which include market conditions, the target credit rating, as well as the underlying shipper quality. But as Kirk mentioned in the prepared remarks, we anticipate roughly $800 million to a billion. of cash back to E-Train from the JV level debt issuance. As we work towards completion by year end, we will work with our partners and our banks to refine all of those details and the approach for that financing.
spk05: Great. Appreciate the color. Have a good rest of your morning. Thanks. Once again, for any questions, please press star 1 on your telephone keypad. And we have no further questions at this time.
spk06: I'll turn the call back over to Tom Carroll for any closing remarks.
spk01: Well, thank you all for joining us today. We have a lot of work ahead of us, which is really what we do in the midstream business. So we're excited to continue that work and complete this project as well as the other projects we have underway. And we look forward to speaking to you all next quarter. Thank you.
spk06: Ladies and gentlemen, that will conclude today's meeting. We thank you all for joining and you may now disconnect.
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