Disclosures in this Annual Report on Form 10-K contain certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended.  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” 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 Annual Report on Form 10-K include the matters discussed in the sections captioned “Strategy” in Item 1, “Business” and “Outlook” in Item 7, “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 the PartnershipEQM and its subsidiaries, including guidance regarding the Partnership’sEQM’s transmission and storage and gathering revenue and volume growth; revenue projections; the weighted average contract life of transmission, storage and gathering contracts; infrastructure programs (including the timing, cost, capacity and sources of funding with respect to transmission and gathering expansion projects); the timing, cost, capacity and expected interconnections with facilities and pipelines of the Ohio Valley Connector (OVC) and Mountain Valley Pipeline (MVP) projects; the ultimate terms, partners and structure of the MVP joint venture; the Partnership's assumption of EQT Corporation's interest in the MVP joint venture;Joint Venture; natural gas production growth in the Partnership’sEQM’s operating areas for EQT Corporation and third parties; asset acquisitions, including the Partnership’sEQM’s ability to complete any asset acquisitions from EQT Corporation or third parties; the amount and timing of distributions, including expected increases; the use of proceeds from EQM capital market transactions; the effect of the Allegheny Valley Connector (AVC) facilities lease on distributable cash flow; future projected AVC lease payments; projected operating and capital expenditures, including the amount of capital expenditures reimbursable by EQT Corporation;EQT; liquidity and financing requirements, including sources and availability; the effects of government regulation and litigation; and tax position. The forward-looking statements included in this Annual Report on Form 10-K 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 PartnershipEQM has based these forward-looking statements on current expectations and assumptions about future events.  While the PartnershipEQM 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 Partnership’sEQM’s control. The risks and uncertainties that may affect the operations, performance and results of the Partnership’sEQM’s business and forward-looking statements include, but are not limited to, those set forth under Item 1A, “Risk Factors” and elsewhere in this Annual Report on Form 10-K.

Any forward-looking statement speaks only as of the date on which such statement is made and the PartnershipEQM does not intend to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise.

In reviewing any agreements incorporated by reference in or filed with this Annual Report on Form 10-K, please remember that such agreements are included to provide information regarding the terms of such agreements and are not intended to provide any other factual or disclosure information about the Partnership.EQM. The agreements may contain representations and warranties by the Partnership,EQM, which should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties to such agreements should those statements prove to be inaccurate. The representations and warranties were made only as of the date of the relevant agreement or such other date or dates as may be specified in such agreement and are subject to more recent developments.  Accordingly, these representations and warranties alone may not describe the actual state of affairs of the PartnershipEQM or its affiliates as of the date they were made or at any other time.

EQT Midstream Partners, LP (NYSE: EQM) is a growth-oriented limited partnership formed by EQT Corporation (NYSE: EQT) to own, operate, acquire and develop midstream assets in the Appalachian Basin. The Partnership provides substantially all of its natural gas transmission, storage and gathering services under contracts with long-term, firm reservation and/or usage fees. This contract structure enhances the stability of the Partnership's cash flows and limits its direct exposure to commodity price risk. For the year ended December 31, 2014, approximately 61% of the Partnership's revenues were generated from capacity reservation charges under long-term firm contracts, which have a weighted average remaining term of approximately 17 years for transmission and storage contracts, and approximately 10 years for firm gathering contracts as of December 31, 2014. The Partnership’s operations are primarily focused in southwestern Pennsylvania and northern West Virginia, a strategic location in the core of the rapidly developing natural gas shale play known as the Marcellus Shale. This same region is also the core operating area of EQT, the Partnership's largest customer. EQT accounted for approximately 62% of the Partnership's revenues generated for the year ended December 31, 2014. The PartnershipEQM provides midstream services to EQT and multiple third parties across 2122 counties in Pennsylvania and West Virginia through its two primary assets: the transmission and storage system, which serves as a header system transmission pipeline, and the gathering system, which delivers natural gas from wells and other receipt points to transmission pipelines. The PartnershipEQM provides substantially all of its natural gas transmission, storage and gathering services under contracts with long-term, firm reservation and/or usage fees. This contract structure enhances the stability of EQM's cash flows and limits its direct exposure to commodity price risk. For the year ended December 31, 2015, approximately 82% of EQM's revenues were generated from capacity reservation charges under long-term firm contracts. Including contracts on the Allegheny Valley Connector (AVC) facilities and contracts associated with expected future capacity from expansion projects that are not yet fully constructed but for which EQM has entered into firm contracts, firm transmission and storage contracts have a weighted average remaining term of approximately 17 years and firm gathering contracts have a weighted average remaining term of approximately 9 years as of December 31, 2015, in each case based on total projected contracted revenues. EQM’s operations are primarily focused in southwestern Pennsylvania and northern West Virginia, a strategic location in the core of the natural gas shale plays known as the Marcellus and Utica Shales. This same region is also the core operating area of EQT, EQM's largest customer. EQT accounted for approximately 73% of EQM's revenues generated for the year ended December 31, 2015. EQM believes that its strategically located assets, combined with its working relationship with EQT, position it as a leading Appalachian Basin midstream energy company.

 

EQT is one of the largest natural gas producers in the Appalachian Basin. As of December 31, 2014,2015, EQT reported 10.710.0 Tcfe of proved natural gas, natural gas liquids and crude oil reserves and, for the year ended December 31, 2014,2015, EQT reported total production sales volumes of 476603 Bcfe, representing a 26%27% increase compared to the year ended December 31, 2013.2014. Since 2010,2011, EQT has successfully grown production by 254% for202% through the year ended December 31, 2014,2015, primarily driven by production from the Marcellus Shale, while increasing proved reserves 106% over the same time period.Shale. EQT has announced that estimated sales volumes in 20152016 are expected to be 575700 to 600720 Bcfe, an increase of approximately 23%18% over 2014.2015. EQT has also announced a 20152016 capital expenditure forecast of $1.85 billion$820 million for well development, (excluding land acquisitions), which will be primarily focused in the Marcellus Shale. In order to facilitate production growth in its areas of operation, EQT invested approximately $1.6 billion in midstream infrastructure from January 1, 2010 through December 31, 2014. The Partnershipand Utica Shales. EQM believes its economic relationship with EQT incentivizes EQT to provide the PartnershipEQM with access to production growth in and around the Partnership'sEQM's existing assets and with acquisitionsorganic growth and organic growthacquisition opportunities, although EQT is under no obligation to make such opportunities available to the Partnership.EQM.

 

As of December 31, 2014, the Partnership’s2015, EQM’s transmission and storage system included an approximately 700 mile700-mile FERC-regulated interstate pipeline regulated by the FERC that connects to five interstate pipelines and multiple distribution companies. The transmission system is supported by 14 associated natural gas storage reservoirs with approximately 400 MMcf per day of peak withdrawal capability,capacity, 32 Bcf of working gas capacity and 27 compressor units, with total throughput capacity of approximately 3.03.1 Bcf per day as of December 31, 2014.2015. Through a lease with EQT, the PartnershipEQM also operates the AVC facilities, which include an

The Partnership has completed, and continues to work on, numerousIn the ordinary course of its business, EQM pursues transmission projects aimed at profitably increasing system capacity. In 2014, the Partnership completed the following transmission projects:

The PartnershipEQM generally provides transmission and storage services in two manners: firm service and interruptible service. The fixed monthly fee under a firm contract is referred to as a monthlycapacity reservation charge.fee, which is recognized ratably over the contract period based on the contracted volume regardless of the amount of natural gas that is transported or stored. In addition to monthlycapacity reservation charges, the Partnershipfees, EQM may also collect usage chargesfees when a firm transmission customer uses the capacity it has reserved under these firm transmission contracts. Where applicable, these chargesthe usage fees are assessed on the actual volume of natural gas transported on the transmission system. A firm transmission customer is billed an additional usage chargefee on volumes in excess of firm capacity when the

Under interruptible service contracts, customers pay usage fees based on their actual utilization of assets for transmission and storage services.assets. Customers that have executed interruptible contracts are not assured capacity or service on the applicable pipeline and storage facilities.systems. To the extent that physical capacity that is contracted for firm service is not being fully utilized or there is excess capacity that has not been contracted for service exists, the system can allocate such capacity to interruptible services. The Partnership also provides natural gas “park and loan” services to assist customers in managing gas surpluses or deficits.

Including AVC and expected future capacity from expansion projects that are not yet fully constructed but for which the PartnershipEQM has entered into firm transportation and storage agreements,contracts, approximately 3.74.7 Bcf per day of transmission capacity and 31.930.4 Bcf of storage capacity, respectively, were subscribed under firm transmission and storage contracts as of December 31, 2014. These contracts have a weighted average remaining contract life, based on total projected contracted revenues, of approximately 16 years for transmission contracts and 19 years for storage contracts.2015.

As of December 31, 2014,2015, approximately 87%90% of the Partnership'sEQM's contracted transmission firm capacity was subscribed by customers under negotiated rate agreements under its tariff. The remaining 13%10% of the Partnership’sEQM’s contracted transmission firm capacity was subscribed at the recourse rates under its tariff, (i.e.,which are the maximum rates an interstate pipeline may charge for its services under its tariff).tariff. EQM generally does not take title to the natural gas transported or stored for its customers.

The PartnershipEQM has an acreage dedication from EQT pursuant to which the PartnershipEQM has the right to elect to transport on its transmission and storage system all natural gas produced from wells drilled by EQT under an area covering approximately 60,000 acres in Allegheny, Washington and Greene counties in Pennsylvania and Wetzel, Marion, Taylor, Tyler, Doddridge, Harrison and Lewis counties in West Virginia. EQT has a significant natural gas drilling program in these areas.

The Partnership’sAs of December 31, 2015, EQM’s gathering system consists ofincluded approximately 45185 miles of high-pressurehigh pressure gathering lines associated primarily with Jupiter, which have six interconnectsapproximately 1.4 Bcf of total firm gathering capacity and multiple interconnect points with the Partnership’sEQM's transmission and storage system. EQM's gathering system as well as approximatelyalso included 1,500 miles of FERC-regulated low-pressurelow pressure gathering lines that have multiple delivery interconnects with the Partnership's transmission and storage system.lines. Gathering revenues represented approximately 35%52%, 43%47% and 40%51% of total revenues for the years ended December 31, 2014, 2013 and 2012, respectively.

DuringIn the ordinary course of its business, EQM pursues profitable gathering expansion projects for affiliates and third party producers. In 2015, EQM completed the Partnership intendsfollowing gathering projects: 

On the Partnership’sEQM’s low pressure regulated gathering system, the primary term of a typical gathering agreement is one year with month-to-month roll over provisions terminable upon at least 30 days notice. The rates for gathering service on the regulated system are based on the maximum posted tariff rate and assessed on actual receipts into the gathering system. The PartnershipEQM also retains a percentage of wellhead natural gas receipts to recover natural gas used to run its compressor stations and other requirements on all of its gathering systems.

The Partnership’sEQM’s principal business objective is to increase the quarterly cash distributions that it pays to its unitholders over time while ensuring the ongoing stability of its business. The PartnershipEQM expects to achieve thisits principal business objective through the following business strategies:

One of the Partnership’sEQM’s principal attributes is its relationship with EQT. Headquartered in Pittsburgh, Pennsylvania, in the heart of the Appalachian Basin, EQT is an integrated energy company, with an emphasis on natural gas production, gathering and transmission. EQT conducts its business through two business segments: EQT Production and EQT Midstream. EQT Production is one of the largest natural gas producers in the Appalachian Basin with 10.710.0 Tcfe of proved natural gas, natural gas liquids and crude oil reserves across approximately 3.4 million gross acres as of December 31, 2014,2015, of which approximately 630,000 gross acres were located in the Marcellus Shale. EQT Midstream provides transmission, storage and gathering services for EQT’s produced gas and to third parties in the Appalachian Basin.

As of December 31, 2015, EQT ownsGP Holdings, LP (NYSE: EQGP) (EQGP) and its subsidiaries owned a 2.0%1.8% general partner interest in the Partnership,EQM, all of the Partnership’sEQM’s incentive distribution rights and a 34.4%27.6% limited partner interest in EQM. As of December 31, 2015, EQT owned 100% of the Partnership.non-economic general partner interest and a 90.1% limited partner interest in EQGP. Because of its ownership of the incentive distribution rights,significant interest in EQM that EQT owns through EQGP, EQT is positioned to directly benefit from committing additional natural gas volumes to the Partnership’sEQM’s systems and from facilitating organic growth opportunities and accretive acquisitions and organic growth opportunities.for EQM. However, EQT is under no obligation to make acquisition opportunities available to the Partnership,EQM, is not restricted from competing with the PartnershipEQM and may acquire, construct or dispose of midstream assets without any obligation to offer the PartnershipEQM the opportunity to purchase or construct these assets.

 

The PartnershipEQM believes that its relationship with EQT is advantageous for the following reasons:

 

While the Partnership’sEQM’s relationship with EQT may provide significant benefits, it may also become a source of potential conflicts. For example, EQT is not restricted from competing with the Partnership.EQM. In addition, all of the executive officers and a majority of the directors of EQT Midstream Services, LLC, the Partnership’s general partner of EQM (the EQM General Partner) also serve as officers and in one case as a director of EQT, and these individuals face conflicts of interest, which include the allocation of their time between the PartnershipEQM and EQT. For a description of the Partnership’sEQM’s relationships with EQT, please read Item 13, “Certain Relationships and Related Transactions, and Director Independence.”

Reclassifying Equitable Gas Company, LLC (Equitable Gas Company) 2013 revenues as discussed below to third party revenues indue to EQT's 2013 and 2012,sale of Equitable Gas Company, EQT accounted for approximately 62%73%, 73%69% and 66%77% of the Partnership’sEQM’s total revenues for the years ended December 31, 2015, 2014 and 2013, and 2012, respectively. InFor the year ended December 31, 2013, EQT completed the sale of its LDC subsidiary, Equitable Gas Company LLC (Equitable Gas Company) to PNG Companies LLC. As a result, revenues from Equitable Gas Company were reported as third party revenues in 2014. accounted for approximately 11% of EQM’s total revenues.

For the years ended December 31, 20132015 and 2012, Equitable Gas Company accounted for

 

The PartnershipEQM provides natural gas transmission services for EQT and third parties, predominantly consisting of LDCs, marketers, producers and commercial and industrial users that the PartnershipEQM believes to be creditworthy. The Partnership’sEQM’s transmission system serves not only adjacent markets in Pennsylvania and West Virginia but also provides its customers with access to high-demand end-user markets in the Mid-Atlantic and Northeastern United States through 3.3 Bcf per day of delivery interconnect capacity with major interstate pipelines. The PartnershipEQM provides storage services to a mix of customers, including marketers and LDCs.

The Partnership’sEQM’s primary transportationtransmission and storage customer is EQT. For the years ended December 31, 2015, 2014 2013 and 2012,2013, EQT and its affiliates, including Equitable Gas Company for the year ended December 31, 2013, accounted for approximately 51%48%, 80%46% and 81%78%, respectively, of EQM's transmission revenues and 2%, 61% and 68%, respectively, of storage revenues. Additionally, for the yearyears ended December 31,

 

The Partnership’sEQM’s gathering system has approximately 2,4002,300 receipt points with a number of natural gas producers. EQT represented approximately 91%97%, 96% and 97% of EQM's gathering revenues for the 743 BBtu per day of gathered volumes inyears ended December 31, 2015, 2014 approximately 96% of the 629 BBtu per day of gathered volumes inand 2013, and approximately 92% of the 339 BBtu per day of gathered volumes in 2012.respectively.

Competition for natural gas transmission and storage volumes is primarily based on rates, customer commitment levels, timing, performance, commercial terms, reliability, service levels, location, reputation and fuel efficiencies. The Partnership’sEQM’s principal competitors in its natural gas transmission and storage market include companies that own major natural gas pipelines. In addition, the PartnershipEQM competes with companies that are building high pressure gathering facilities that are not subject to FERC jurisdiction to move volumes to interstate pipelines. EQT also owns, and in the future may construct, natural gas transmission pipelines and high-pressurehigh pressure gathering facilities. Major pipeline natural gas transmission companies that compete with the PartnershipEQM also have existing storage facilities connected to their transmission systems that compete with certain of the Partnership’sEQM’s storage facilities. Pending and future third-partythird party construction projects, if and when brought on-line, may also compete with the Partnership’sEQM’s natural gas transmission and storage services. These third-partythird party projects may include FERC-certificated expansions and greenfield construction projects.

Key competitors for new gathering systems include companies that own major natural gas pipelines, independent gas gatherers and integrated energy companies. Many of the Partnership’sEQM’s competitors have capital resources and control supplies of natural gas greater than it does.

 

The Partnership’sEQM’s interstate natural gas transportationtransmission and storage operations are regulated by the FERC under the NGA, the NGPA and the Energy Policy Act of 2005. The Partnership’sEQM’s regulated system operates under a tariff approved by the FERC that establishes rates, cost recovery mechanisms and the terms and conditions of service to its customers. Generally, the FERC’s authority extends to:

•                  rates and charges for natural gas transmission, storage and certainFERC-regulated gathering services;

•                  certification and construction of new interstate transportationtransmission and storage facilities;

•                   extension or abandonment of interstate transportationtransmission and storage services and facilities;

•                  maintenance of accounts and records;

•                  relationships between pipelines and certain affiliates;

•                  terms and conditions of services and service contracts with customers;

•                  depreciation and amortization policies;

•                  acquisition and disposition of interstate transportationtransmission and storage facilities; and

•                  initiation and discontinuation of interstate transportationtransmission and storage services.

 

The PartnershipEQM holds certificates of public convenience and necessity for its transmission and storage system issued by the FERC pursuant to Section 7 of the NGA covering rates, facilities, activities and services. These certificates require the PartnershipEQM to provide open-access services on its interstate pipeline and storage facilities on a non-discriminatory basis to all customers that qualify under the FERC gas tariff. In addition, under Section 8 of the NGA, the FERC has the power to prescribe the accounting treatment of certain items for regulatory purposes. Thus, the books and records of the Partnership’sEQM’s interstate pipeline and storage facilities may be periodically audited by the FERC.

The FERC regulates the rates and charges for transportationtransmission and storage in interstate commerce. Under the NGA, rates charged by interstate pipelines must be just and reasonable. The FERC’s cost-of-service regulations generally limit the recourse rates for transportationtransmission and storage services to the cost of providing service plus a reasonable rate of return. In each rate case, the FERC must approve service costs, the allocation of costs, the allowed rate of return on capital investment, rate design and other rate factors. A negative determination on any of these rate factors could adversely affect the Partnership’sEQM’s business, financial condition, results of operations, liquidity and ability to make distributions.distributions to its unitholders.

The recourse rate that the PartnershipEQM may charge for its services is established through the FERC’s ratemaking process. Generally, the maximum filed recourse rates for interstate pipelines are based on the cost of providing that service including recovery of and a return on the pipeline’s actual prudent historical cost of investment. Key determinants in the ratemaking process include the depreciated capital costs of the facilities, the costs of providing service, the allowed rate of return and certain taxes, as well as volume throughput and contractual capacity commitment assumptions. The maximum applicable recourse rates and terms and conditions for service are set forth in the pipeline’s FERC approvedFERC-approved tariff. Rate design and the allocation of costs also can impact a pipeline’s profitability. While the ratemaking process establishes the maximum rate that can be charged, interstate pipelines such as the Partnership’sEQM’s transmission and storage system are permitted to discount their firm and interruptible rates without further FERC authorization down to the variable cost of performing service, provided they do not “unduly discriminate.” In addition, pipelines are allowed to negotiate different rates with their customers, as described below.

Pursuant to the NGA, changes to rates or terms and conditions of service can be proposed by a pipeline company under Section 4, or the existing interstate transportationtransmission and storage rates or terms and conditions of service may be challenged by a complaint filed by interested persons including customers, state agencies or the FERC under Section 5. Rate increases proposed by a pipeline may be allowed to become effective subject to refund, while rates or terms and conditions of service which are the subject of a complaint under Section 5 are subject to prospective change by the FERC. Rate increases proposed by a regulated interstate pipeline may be challenged and such increases may ultimately be rejected by the FERC. Any successful challenge against existing or proposed rates charged for the Partnership’s transportationEQM’s transmission and storage services could have a material adverse effect on its business, financial condition, results of operations, liquidity and ability to make distributions.distributions to its unitholders.

The Partnership’sEQM’s interstate pipeline may also use negotiated rates which could involve rates above or below the recourse rate or rates that are subject to a different rate structure than the rates specified in EQM's interstate pipeline tariffs, provided that the affected customers are willing to agree to such rates and that the FERC has approved the negotiated rate agreement. A prerequisite for allowing the negotiated rates is that negotiated rate customers must have had the option to take service under the pipeline’s recourse rates. As of December 31, 2014,2015, approximately 87%90% of the system’s contracted firm transportation capacity was committed under such negotiated rate contracts. EachSome negotiated rate transaction istransactions are designed to fix the negotiated rate for the term of the firm transportation agreement and the fixed rate is generally not subject to adjustment for increased or decreased costs occurring during the contract term.

FERC regulations also extend to the terms and conditions set forth in agreements for transportationtransmission and storage services executed between interstate pipelines and their customers. These service agreements are required to conform, in all material respects, with the form of service agreements set forth in the pipeline’s FERC-approved tariff. In the event that the FERC finds that an agreement, in whole or part, is materially non-conforming, it could reject the agreement, require the PartnershipEQM to seek modification of the agreement or require the PartnershipEQM to modify its tariff so that the non-conforming provisions are generally available to all customers.

 

While the FERC does not generally regulate the rates and terms of service over facilities determined to be performing a natural gas gathering function, it has traditionally regulated rates charged by interstate pipelines for gathering services performed on the pipeline’s own gathering facilities when those gathering services are performed in connection with

 

The Partnership’sEQM’s interstate natural gas pipeline system is subject to regulation by PHMSA. PHMSA has established safety requirements pertaining to the design, installation, testing, construction, operation and maintenance of gas pipeline facilities, including requirements that pipeline operators develop a written qualification program for individuals performing covered tasks on pipeline facilities and implement pipeline integrity management programs. These integrity management plans require more frequent inspections and other preventive measures to ensure safe operation of oil and natural gas transportation pipelines in “high consequence areas,” such as high population areas or facilities that are hard to evacuate and areas of daily concentrations of people.

States are generally preempted by federal law in the area of pipeline safety, but state agencies may qualify to assume responsibility for enforcing federal regulations over intrastate pipelines. They may also promulgate additive pipeline safety regulations provided that the state standards are at least as stringent as the federal standards. Although many of ourEQM's natural gas facilities fall within a class that is not subject to integrity management requirements, weEQM may incur significant costs and liabilities associated with repair, remediation, preventive or mitigation measures associated with ourits non-exempt pipelines, particularly our gatheringtransmission pipelines. This estimate does not include theThe costs, if any, for repair, remediation, preventive or mitigating actions that may be determined to be necessary as a result of the testing program, which could be substantial. Such costs and liabilities might relate to repair, remediation, preventive or mitigating actions that may be determined to be necessary as a result of the testing program, as well as lost cash flows resulting from shutting down ourEQM's pipelines during the pendency of such repairs. Additionally, should weactions, could be material.

Should EQM fail to comply with DOT regulations, weit could be subject to penalties and fines. In addition, weEQM may be required to make additional maintenance capital expenditures in the future for similar regulatory compliance initiatives that are not reflected in ourits forecasted maintenance capital expenditures.

 

The PartnershipEQM believes that its operations are in substantial compliance with all existing federal, state and local pipeline safety laws and regulations, but the PartnershipEQM can provide no assurance that the adoption of new laws and regulations,

In addition, the Partnership’sEQM’s operations and construction activities are subject to state, county and local ordinances that restrict the time, place or manner in which those activities may be conducted so as to reduce or mitigate nuisance-type conditions, such as, for example, excessive levels of dust or noise or increased traffic congestion, requiring the PartnershipEQM to take curative actions to reduce or mitigate such conditions. However, the performance of such actions has not had a material adverse effect on the Partnership’sEQM’s results of operations.

Failure to comply with these laws and regulations may trigger a variety of administrative, civil and criminal enforcement measures, including the assessment of monetary penalties, the imposition of investigatory and remedial obligations and the issuance of orders enjoining future operations or imposing additional compliance requirements. Also, certain environmental statutes impose strict, and in some cases joint and several, liability for costs required tothe clean up and restorerestoration of sites where hydrocarbons or wastes have been disposed or otherwise released. Consequently, the PartnershipEQM may be subject to environmental liability at its currently owned or operated facilities for conditions caused by others prior to its involvement.

The PartnershipEQM has implemented programs and policies designed to keep its pipelines plants and other facilities in compliance with existing environmental laws and regulations, and the PartnershipEQM does not believe that its compliance with such legal requirements will have a material adverse effect on its business, financial condition, results of operations, liquidity or ability to make distributions.distributions to its unitholders. Nonetheless, the trend in environmental regulation is to place more restrictions and limitations on activities that may affect the environment, and thus,environment. Thus, there can be no assurance as to the amount or timing of future expenditures for environmental compliance or remediation, and actual future expenditures may be significantly in excess of the amounts the PartnershipEQM currently anticipates. The PartnershipFor example, during August and September 2015, the EPA published a suite of regulatory proposals aimed at reducing methane and volatile organic compound (VOC) emissions across the entire oil and gas sector. These actions are part of a larger climate action plan, which focuses primarily on reducing greenhouse gas (GHG) emissions from the power and oil and gas sectors. In addition, on October 1, 2015, the EPA revised the National Ambient Air Quality Standards (NAAQS) for ozone from 75 parts per billion for the current 8 hour primary and secondary ozone standards to 70 parts per billion for both standards. EQM tries to anticipate future regulatory requirements that might be imposed and plan accordingly to remain in compliance with changing environmental laws and regulations and to minimize the costs of such compliance. While the PartnershipEQM believes that it is in substantial compliance with existing environmental laws and regulations, there is no assurance that the current conditions will continue in the future.

Below is a discussion of several of the material environmental laws and regulations, as amended from time to time, that relate to the Partnership’sEQM’s business.

EQM also generates solid wastes, including hazardous wastes, which are subject to the requirements of the federal Resource Conservation and Recovery Act (RCRA), and comparable state statutes. While RCRA regulates both solid and hazardous wastes, it imposes strict requirements on the generation, storage, treatment, transportation and disposal of hazardous wastes. In the ordinary course of the Partnership’sEQM’s operations, the PartnershipEQM generates wastes constituting solid waste and, in some instances, hazardous wastes. While certain petroleum production wastes are excluded from RCRA’s hazardous waste regulations, it is possible that these wastes will in the future be designated as “hazardous wastes” and be subject to more rigorous and costly disposal requirements, which could have a material adverse effect on the Partnership’sEQM’s maintenance capital expenditures and operating expenses.

The PartnershipEQM owns, leases or leasesoperates properties where petroleum hydrocarbons are being or have been handled for many years. The PartnershipEQM has generally utilized operating and disposal practices that were standard in the industry at the time, although petroleum hydrocarbons or other wastes may have been disposed of or released on or under the properties owned, leased or leasedoperated by the Partnership,EQM, or on or under the other locations where these petroleum hydrocarbons and wastes have been transported for treatment or disposal. In addition, certain of these properties have been operated by third parties whose treatment and disposal or release of petroleum hydrocarbons and other wastes was not under the Partnership’sEQM’s control. These properties and the wastes disposed thereon may be subject to CERCLA, RCRA and analogous state laws. Under these laws, the PartnershipEQM could be required to remove or remediate previously disposed wastes (including wastes disposed of or released by prior owners or operators), to clean up contaminated property (including contaminated groundwater) or to perform remedial operations to prevent future contamination.

The U. S.U.S. Congress, along with federal and state agencies, have considered measures to reduce the emissions of GHGs. Legislation or regulation that restricts carbon emissions could increase the Partnership’sEQM’s cost of environmental compliance by requiring the PartnershipEQM to install new equipment to reduce emissions from larger facilities and/or purchase emission allowances. Climate change and GHG legislation or regulation could also delay or otherwise negatively affect efforts to obtain permits and other regulatory approvals with regard to existing and new facilities or impose additional monitoring and reporting requirements. For example, while the EPA has had rules in effect since 2011 that require the monitoring and annual reporting of GHG emissions from certain petroleum and natural gas sources in the United States, including among others, onshore processing, transmission and storage facilities, only recently, in December 2014,October 2015, the EPA proposedfinalized changes to this reporting rule that would expand the petroleum and natural gas system sources for which annual GHG emissions reporting is currently required to include, beginning in the 2016 reporting year, certain on shoreonshore gathering and boosting systems consisting primarily of gathering pipelines, compressors and processing equipment used to perform natural gas compression, dehydration and acid gas removal activities.activities and blowdowns of natural gas transmission pipelines. Conversely, legislation or regulation that sets a price on or otherwise restricts carbon emissions could also benefit the PartnershipEQM by increasing demand for natural gas because the combustion of natural gas results in substantially fewer carbon emissions per Btu of heat generated than other fossil fuels such as coal. The effect on the PartnershipEQM of any new legislative or regulatory measures will depend on the particular provisions that are ultimately adopted.

Weather impacts natural gas demand for power generation and heating purposes. Peak demand for natural gas typically occurs during the winter months as a result of the heating load.

The Partnership’sEQM’s real property falls into two categories: (i) parcels that it owns in fee and (ii) parcels in which its interest derives from leases, easements, rights-of-way, permits or licenses from landowners or governmental authorities, permitting the use of such land for the Partnership’sEQM’s operations. Portions of the land on which the Partnership’sEQM’s pipelines and facilities are located are owned by the PartnershipEQM in fee title, and it believes that it has satisfactory title to these lands. The remainder of the land on which the Partnership’sEQM’s pipelines and facilities are located are held by the PartnershipEQM pursuant to surface leases or easements between the Partnership,EQM, as lessee or grantee, and the respective fee owners of the lands, as lessors or grantors. The PartnershipEQM has held, leased or owned many of these lands for many years without any material challenge known to the PartnershipEQM relating to the title to the land upon which the assets are located, and it is believedEQM believes that the Partnershipit has satisfactory leasehold estates, easement interests or fee ownership to such lands. The PartnershipEQM believes that it has satisfactory title to all of its material leases, easements, rights-of-way, permits and licenses, and the PartnershipEQM has no knowledge of any material challenge to its title to such assets or their underlying fee title.

However, thereThere are, however, certain lands within the Partnership’sEQM’s storage pools as to which it does not currently have real property rights. The PartnershipEQM has identified the lands as to which it believes it must obtain such rights and is in the midst of a program to

Some of the leases, easements, rights-of-way, permits and licenses whichthat were transferred to the PartnershipEQM at the closing of theits IPO in July 2012 required the consent of the grantor of such rights, which in certain instances is a governmental entity. The PartnershipEQM obtained, prior to the closing of theits IPO, sufficient third-partythird party consents, permits and authorizations for the transfer of the assets necessary to enable it to operate its business in all material respects.

EQT and its affiliates continue to hold record title to portions of certain assets until the PartnershipEQM makes the appropriate filings in the jurisdictions in which such assets are located and obtains any consents and approvals that were not obtained prior to theEQM's IPO. Such consents and approvals include those required by federal and state agencies or political subdivisions. In some cases, EQT or its affiliates may, where required consents or approvals have not been obtained, temporarily hold title to property as nominee for the Partnership’sEQM’s benefit until a future date. The PartnershipEQM anticipates that there will be no material change in the tax treatment of its common units resulting from EQT holding the title to any part of such assets subject to future conveyance or as the Partnership’sEQM’s nominee.

The PartnershipEQM generally shares insurance coverage with EQT. EQM reimburses EQT for which it reimburses EQTthe cost of the insurance pursuant to the terms of theEQM's omnibus agreement.agreement with EQT. The Partnership’s insurance program includes generalexcess liability insurance, auto liability insurance, workers’ compensation insurance and property insurance. In addition, the PartnershipEQM has procured separate general liability and directors and officers liability policies. All insurance coverage is in amounts which management believes areto be reasonable and appropriate.

EQT leases its corporate offices in Pittsburgh, Pennsylvania. Pursuant to the omnibus agreement, the PartnershipEQM pays a proportionate share of EQT’s costs to lease the building.

The PartnershipEQM does not have any employees. The PartnershipEQM is managed by the directors and officers of its general partner. All executive management personnel of the Partnership’s general partnerEQM General Partner are employees of EQT or an affiliateofficers of EQT and devote the portion of their time to the Partnership’sEQM’s business and affairs that is required to manage and conduct its operations. The daily business operations of the PartnershipEQM are conducted by EQT Gathering, LLC (EQT Gathering), one of EQT’s operating subsidiaries. Under the terms of the omnibus agreement with EQT, the PartnershipEQM reimburses EQT for the provision of general and administrative services for its benefit, for direct expenses incurred by EQT on the Partnership’sEQM’s behalf, for expenses allocated to the PartnershipEQM as a result of it being a public entity and for operation and management services provided by EQT Gathering.

The PartnershipEQM makes certain filings with the SEC, including its annual reportAnnual Report on Form 10-K, quarterly reportsQuarterly Reports on Form 10-Q, current reportsCurrent Reports on Form 8-K and all amendments and exhibits to those reports, available free of charge through its website, http://www.eqtmidstreampartners.com, as soon as reasonably practicable after the date they are filed with, or furnished to, the SEC.  The filings are also available at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 or by calling 1-800-SEC-0330.  These filings are also available on the internet at http://www.sec.gov.

 

See Note 34 to the Consolidated Financial Statementsconsolidated financial statements for financial information by business segment including, but not limited to, revenues from external customers, operating income and total assets, which information is incorporated herein by reference.

EQT Midstream Partners, LP is a Delaware limited partnership formed in January 2012.

 

All of the Partnership’sEQM’s assets and operations are located in the continental United States.

  

In addition to the other information contained in this Annual Report on Form 10-K, the following risk factors should be considered in evaluating our business and future prospects.  Please note that additional risks not presently known to us or that are currently considered immaterial may also have a negative impact on our business and operations.  If any of the events or circumstances described below actually occurs, our business, financial condition, results of operations, liquidity or ability to make distributions could suffer and the trading price of our common units could decline.

 

 

Historically, we have provided a substantial percentage of our natural gas transmission, storage and gathering services to EQT. During the year ended December 31, 2014,2015, approximately 62%73% of our revenues were from EQT. We expect to derive a substantial majority of our revenues from EQT for the foreseeable future. Therefore, any event, whether in our areaareas of operations or otherwise, that adversely affects EQT’s production, financial condition, leverage, results of operations or cash flows may adversely affect our ability to sustain or increase cash distributions to our unitholders. Accordingly, we are indirectly subject to the business risks of EQT, including the following:

 

For example, as a result of lower commodity prices, in December 2015, EQT recently reduced its 2015announced a 2016 capital expenditure forecast for well development (excluding land acquisitions) from $2.3 billion to $1.85 billion.of $820 million, which is 51% lower than EQT's 2015 capital expenditures for well development. EQT may further reduce its capital expenditure spending in the future based on commodity prices or other factors. Unless we are successful in attracting significant unaffiliated third-partythird party customers, our ability to maintain or increase the capacity subscribed and volumes transported under service arrangements on our transmission and storage system as well as the volumes gathered on ourand gathering systemsystems will be dependent on receiving consistent or increasing commitments from EQT. While EQT has dedicated acreage to, and entered into long-term firm transportationtransmission and gathering contracts on, our systems, it may determine in the future that drilling in areas outside of our current areas of operations is strategically more attractive to it and it is under no contractual obligation to maintain its production dedicated to us. A reduction in the capacity subscribed or volumes transported, stored or gathered on our systems by EQT could have a material adverse effect on our business, financial condition, results of operations and ability to make quarterly cash distributions to our unitholders.

In order to pay the minimum quarterlyannounced fourth quarter 2015 distribution of $0.35$0.71 per unit per quarter, or $1.40$2.84 per unit on an annualized basis, we will require available cash of approximately $21.7$72.6 million per quarter, or $86.7$290.3 million per year, based on the number of common subordinated and general partner units and the incentive distribution rights (IDRs) outstanding at December 31, 2014.2015. We may not have sufficient available cash each quarter to enable us to pay the minimum quarterly cash distribution. The amount of cash we can distribute on our units principally depends upon the amount of cash we generate from our operations, which will fluctuate from quarter to quarter based on, among other things:

Key transactions during 20142015 included the JupiterNWV Gathering Acquisition, the MVP Interest Acquisition, the Preferred Interest Acquisition, an equity offering of 12,362,5009,487,500 common units in March, the launch of the $750 million ATM Program and the $500 million senior notean equity offering of 5,650,000 common units in November as discussed in the Overview section of Item 1, "Business."

EQM reported net income of $266.5 million in 2014 compared with $189.8 million in 2013. The increase of $76.7 million was primarily related to higher operating income of $81.9 million. The increase in operating income was driven by production development in the Marcellus Shale by third parties and EQT as transmission and storage revenues increased by $80.9 million and gathering revenues increased by $8.3$41.6 million. These increases in revenues were partly offset by higher operating costs of $28.6$40.6 million. Interest expense increased by $29.2 million primarily due to interest on the AVC capital lease and long-term debt while income tax expense decreased by $29.1$22.9 million as a result of the changes in tax status associated with the Jupiter Acquisition and Sunrise Merger.Merger in 2014 and 2013, respectively.

The Partnership reported net incomeOn January 21, 2016, EQM declared a cash distribution to unitholders of $171.1 million in 2013 compared with $94.2 million in 2012. The$0.71 per unit, which represented a 5% increase was primarilyover the previous distribution paid on November 13, 2015 of $0.675 per unit and a 22% increase over the distribution paid on February 13, 2015 of $0.58 per unit related to an increase in operating incomethe fourth quarter of $88.1 million, partly offset by2014. Total distributions related to 2015 were $2.635 per unit compared to $2.14 per unit total distributions related to 2014, a decrease in other income as a result of lower AFUDC on fewer regulated construction projects and increased income tax expense as a result of Jupiter operations prior to the acquisition. Transmission and storage revenues increased by $53.1 million due to increased firm transmission service and increased system throughput. Gathering revenues increased by $50.6 million due to an 86% increase in gathered volumes. Both revenue increases were driven by production development in the Marcellus Shale by EQT and third parties. These increases in revenues were partly offset by a $15.6 million increase in operating expenses.23% increase.

Operating segments are revenue-producing components of the enterprise for which separate financial information is produced internally and is subject to evaluation by the chief operating decision maker in deciding how to allocate resources.

 

Operating revenues and operating expenses related to the AVC facilities do not have an impact on adjusted EBITDA or distributable cash flow as the excess of the AVC revenues over operating and maintenance and selling, general and administrative expenses is paid to EQT as the current monthly lease payment. All revenues related to the AVC facilities are from third-parties.third parties.

Transmission and Storage Resultsstorage revenues increased by $42.1 million reflecting production development in the Marcellus Shale by affiliate and third party producers. The increase primarily resulted from higher firm reservation fees of Operations

Transmission and storage revenues increased by $80.9 million as a result of higher firm transmission and storage contracted capacity and throughput of $76.4 million, including $29.2 million related to the AVC facilities, and higher interruptible transmission service. The increase in transmission revenue is the result of increasedreflecting production development in the Marcellus Shale by third partiesparty producers and affiliates. The increase primarily resulted from higher firm reservation fees of $75.1 million and increased usage fees under interruptible contracts.

Operating expenses increased $22.6 million for the year ended December 31, 2014 compared to the year ended December 31, 2013. The increase in operating and maintenance expense resulted from $5.3 million of additional costs associated with operating the AVC facilities, of $5.3 million, $2.3 million of increased repairs and maintenance expenses associated with increased throughput and $1.2 million of higher allocations, including personnel costs, from EQT. Selling, general and administrative expense increased primarily from additional costs associated with operating the AVC facilities of $3.1 million and $1.1 million of increased personnel costs including incentive compensation.costs. The increase in depreciation and amortization expense was primarily a result of higher AVC facilities capital lease depreciation expense of $5.3$5.4 million and higher depreciation on the increased investment in transmission infrastructure, most notably the Low Pressure East expansion project that was placed into service in the fourth quarter of 2013 and the Jefferson compressor station expansion project that was placed into service in the third quarter of 2014.

Transmission and storageGathering revenues increased in 2013 by $53.1$95.5 million primarily as a result of higher firm transmission contracted capacity and throughput by affiliates and third parties as compared to the prior year. This increase included $44.8 million of revenue associated with increased reservation fees under firm contracts and $10.9 million of fees associated with firm usage charges and transportedaffiliate volumes in excess of firm capacity. These increases were primarilygathered driven by activity related toproduction development in the Sunrise Pipeline and the Blacksville compressor station, which were completedMarcellus Shale. EQM significantly increased firm reservation fee revenues in July and September 2012,2015 compared

Operating expenses totaled $48.9increased by $4.3 million for the year ended December 31, 20132015 compared to $39.7 million for the year ended December 31, 2012. The increase in selling, general2014. Operating and administrativemaintenance expense resulted from several items, including $2.4 million of lower reserve adjustments, $0.9 million of increased personnel costs and $0.7 million of transaction costs in connection with the Sunrise Merger. The lower reserve adjustments related to a long-term regulatory asset and a legal accrual. The regulatory reserve was established for the recovery of base storage gas. Asas a result of higher than anticipated recoveries through its transmission retainage factor due toallocations, including personnel costs, from EQT of $3.1 million and higher repairs and maintenance expenses associated with increased volumes on the system and system integrity improvements, the Partnership revised its estimate of the appropriate reserve and recorded reserve reductions of $2.5 million in 2012 and $0.7 million in 2013. The difference between the 2012 reserve reduction and the 2013 reduction resulted in a $1.8 million increase in selling,throughput. Selling, general and administrative expenses in 2013.decreased as a result of lower allocations primarily related to incentive compensation. The Partnership also recorded a $0.6 million reductionfinancial statements of NWV Gathering and Jupiter prior to a legal reserve in 2012.EQM's acquisition included long-term incentive compensation plan expense associated with certain EQT long-term incentive plans which were not an expense of EQM subsequent to the acquisitions. The increase in depreciation and amortization expense was a result of increased investment in transmission infrastructure, most notably a full year of depreciation in 2013 for both the Sunrise Pipeline and the Blacksville compressor station.resulted from additional assets placed in-service.

Operating expenses increased by $6.0$18.0 million for the year ended December 31, 2014 compared to the year ended December 31, 2013. The increase in operating and maintenance expense was primarily due to increases in allocations from EQT, including higher personnel costs, and repairs and maintenance, consistent with the growth of the gathering systems. The increase in selling, general and administrative expense primarily resulted from increased allocations from EQT of $2.5$7.3 million including personnel costs and transaction costs of $1.0 million incurred by the PartnershipEQM in connection with the Jupiter Acquisition. The increase in depreciation and amortization expense resulted from additional assets placed in-service.