The number of shares of common stock outstanding (in thousands), as of January 31, 2019: 254,2712024: 433,661
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 (the Exchange Act), and Section 27A of the Securities Act of 1933, as amended (the Securities Act). Statements that do not relate strictly to historical or current facts are forward-looking and usually identified by the use of words such as "aim," "anticipate," "approximate," "aspire," "assume," "believe," "budget," "continue," "could," "design," "estimate," "could,"expect," "would,"focused," "forecast," "goal," "guidance," "intend," "may," "objective," "opportunity," "outlook," "plan," "position," "potential," "predict," "project," "pursue," "scheduled," "seek," "should," "strategy," "strive," "target," "view," "will," "may," "forecast," "approximate," "expect," "project," "intend," "plan," "believe"or "would" 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 "Strategy"captioned "Developments, Market Trends and Competitive Conditions" in Part I, "Item 1. Business" and "Outlook" in Part II, "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 Equitrans Midstream Corporation (together with its subsidiaries, Equitrans Midstream or the Company), including the following and/or statements with respect thereto, as applicable:
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. Equitrans MidstreamThe Company has based these forward-looking statements on management's current expectations and assumptions about future events. While Equitrans Midstreamthe Company considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory, judicial, construction and other risks and uncertainties, many of which are difficult to predict and are beyond Equitrans Midstream's control.the Company's control, including, as it pertains to the MVP project, risks and uncertainties such as the physical construction conditions, including steep slopes and any further unexpected geological impediments, continued crew availability, ability to meet contractor draw down plans, and productivity realizable, project opposition, the receipt of certain time of year and other variances and approvals, if applicable, and weather. The risks and uncertainties that may affect the operations, performance and results of Equitrans Midstream's and EQM's businessesthe Company's business and forward-looking statements include, but are not limited to, those set forth under Part I, "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 Equitrans Midstreamthe Company does not intend to correct or update any forward-looking statement, unless required by securities law, whether as a result of new information, future events or otherwise. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance on such statements.
See also "Our exposure to commodity price risk may increase in the future and NYMEX Henry Hub futures prices affect the fair value, and may affect the realizability, of potential cash payments to us by EQT pursuant to the EQT Global GGA.” included in Part I, "Item 1A. Risk Factors" of this Annual Report on Form 10-K for a discussion of factors affecting the estimated fair value of the derivative asset attributable to the Henry Hub cash bonus payment provision.
The following diagram depicts the Company's organizational and ownership structure as of December 31, 2023:
The following is a map of the EQM'sCompany's gathering, transmission and storage and water services operations as of December 31, 2018.2023. Also included are the MVP and MVP Southgate routes, which projects are discussed under "Developments, Market Trends and Competitive Conditions" in Part I, "Item 1. Business" of this Annual Report on Form 10-K.
Business Segments
The Company throughreports its controloperations in three segments that reflect its three lines of EQM, conducts its business through three business segments:business: Gathering, Transmission and Water. These segments include all of the Company's operations. For discussion of the composition of the three segments, see Notes 1 and 5 to the consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data."
The Company's three business segments correspond to the Company's three primary assets: the gathering system, transmission and storage system and water service system.
The following table summarizes the composition of the Company's operating revenuerevenues by business segment.
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| Gathering operating revenues | 62 | % | | 66 | % | | 66 | % |
| Transmission operating revenues | 32 | % | | 30 | % | | 30 | % |
| Water operating revenues | 6 | % | | 4 | % | | 4 | % |
|
| | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| Gathering operating revenues | 67 | % | | 57 | % | | 54 | % |
| Transmission operating revenues | 26 | % | | 42 | % | | 46 | % |
| Water operating revenues | 7 | % | | 1 | % | | — | % |
Gathering assets. As of December 31, 2018, the gathering system included approximately 700 miles of high-pressure gathering lines with compression of approximately 333,000 horsepower and multiple interconnect points with the Company's transmission and storage system and to other interstate pipelines. The gathering system also included approximately 1,500 miles of FERC-regulated, low-pressure gathering lines.
Transmission and Storage assets. As of December 31, 2018, the transmission and storage system included approximately 950 miles of FERC-regulated, interstate pipeline that have interconnect points to seven interstate pipelines and LDCs. The transmission and storage system is supported by 41 compressor units, with total throughput capacity of approximately 4.4 Bcf per day and compression of approximately 120,000 horsepower, and 18 associated natural gas storage reservoirs, which have a peak withdrawal capacity of approximately 645 MMcf per day and a working gas capacity of approximately 43 Bcf.
Water assets. As of December 31, 2018, the water system included two independent systems composed of approximately 160 miles of pipeline that deliver fresh water from the Monongahela River, the Ohio River, local reservoirs and several regional waterways. In addition, as of December 31, 2018, the water system assets included 28 fresh water impoundment facilities.
Strategy
The Company's assets overlay core acreage in the prolific Appalachian Basin. The location of the Company's assets allows it to access major demand markets in the U.S. The Company is one of the largest natural gas gatherers in the U.S., and its largest customer, EQT, is the largest natural gas producer in the U.S. based on produced volumes. The Company maintains a stable cash flow profile, with over 50% of its revenue for the year ended December 31, 2018 generated by firm reservation fees.
The Company's principal strategy is to leverage its existing and planned growth projects and to seek and execute on strategically-aligned acquisition and joint venture opportunities to achieve the scale and scope of a top-tier midstream company. As part of its approach to organic growth, the Company is focused on building and completing its key gathering and transmission growth projects outlined below, many of which are supported by contracts with firm capacity commitments. Additionally, the Company expects to achieve growth from its water service business and from volumetric gathering opportunities and transmission and storage services. The water service business is complementary to the gathering business, and the Company recognizes an opportunity to expand its existing asset footprint and is actively pursuing solutions for produced water handling. The Company is also focused on optimizing and integrating its Pennsylvania gathering systems to create additional system gathering capacity and provide high- and low-pressure gathering solutions for its customers. The Company's focus on execution of its organic projects, coupled with asset optimization efforts, disciplined capital spending and operating cost control, is complemented by the Company's commitment to seek, evaluate and execute on strategically-aligned acquisition and joint venture opportunities. The Company believes that this approach will enable the Company to achieve its strategic goals.
The Company expects that the following expansion projects will be its primary organic growth drivers:
Mountain Valley Pipeline. The MVP Joint Venture is a joint venture with EQM and affiliates of each of NextEra Energy, Inc., Con Edison, AltaGas Ltd. and RGC Resources, Inc. that is constructing the MVP. As of December 31, 2018, EQM is the operator of the MVP and owned a 45.5% interest in the MVP. The MVP is an estimated 300 mile, 42-inch diameter natural gas interstate pipeline with a targeted capacity of 2.0 Bcf per day that will span from the Company's existing transmission and storage system in Wetzel County, West Virginia to Pittsylvania County, Virginia, providing access to the growing southeast demand markets. As currently designed, the MVP is estimated to cost a total of approximately $4.6 billion, excluding AFUDC, of which EQM is expected to fund approximately $2.2 billion through capital contributions to the MVP Joint Venture, including approximately $65 million in excess of EQM's ownership interest. In 2019, EQM expects to make capital contributions of approximately $0.9 billion to the MVP Joint Venture, depending on the timing of the construction of the MVP and the MVP Southgate projects. The MVP Joint Venture has secured a total of 2.0 Bcf per day of firm capacity commitments at 20-year terms and is currently in negotiation with additional shippers that have expressed interest in the MVP project. The MVP Joint Venture is evaluating an expansion opportunity that could add approximately 0.5 Bcf per day of capacity through the installation
of incremental compression. The MVP Joint Venture is also undertaking the MVP Southgate project and is evaluating other future pipeline extension projects.
In October 2017, the FERC issued the Certificate of Public Convenience and Necessity for the MVP. In the first quarter of 2018, the MVP Joint Venture received limited notice to proceed with certain construction activities from the FERC and commenced construction. As discussed under "The regulatory approval process for the construction of new midstream assets is challenging, and recent decisions by regulatory and judicial authorities in pending proceedings could impact EQM's or the MVP Joint Venture's ability to obtain all approvals and authorizations necessary to complete certain projects on the projected time frame or at all or EQM's ability to achieve the expected investment return on the project" in "Item 1A. Risk Factors – Risks Related to EQM's Business," there are several pending challenges to certain aspects of the MVP project that must be resolved before the MVP project can be completed. The MVP Joint Venture is working to respond to the court and agency decisions and restore all permits. The MVP is targeted to be placed in service during the fourth quarter of 2019, subject to litigation and regulatory-related delay as further discussed in "Item 3. Legal Proceedings."
Wellhead Gathering Expansion and Hammerhead Project. In 2019, EQM expects to invest approximately $900 million in gathering expansion projects, including the continued gathering infrastructure expansion of core development areas in the Marcellus and Utica Shales, primarily in southwestern Pennsylvania and eastern Ohio, for EQT, Range Resources Corporation (Range Resources) and other producers, and the Hammerhead project, a 1.6 Bcf per day gathering header pipeline that is designed to connect natural gas produced in Pennsylvania and West Virginia to the MVP and is supported by a 1.2 Bcf per day firm capacity commitment from EQT. The Hammerhead project is expected to cost a total of approximately $555 million. EQM expects to invest approximately $400 million in the Hammerhead project in 2019. The Hammerhead project is expected to be placed in service in conjunction with the MVP project in the fourth quarter of 2019.
MVP Southgate Project. In April 2018, the MVP Joint Venture announced the MVP Southgate project, a proposed 70-mile interstate pipeline that will extend from the MVP at Pittsylvania County, Virginia to new delivery points in Rockingham and Alamance Counties, North Carolina. The MVP Southgate project is backed by a 300 MMcf per day firm capacity commitment from PSNC Energy. As designed, the MVP Southgate project has expansion capabilities that could provide up to 900 MMcf per day of total capacity. The MVP Southgate project is estimated to cost a total of approximately $450 million to $500 million, which is expected to be spent primarily in 2019 and 2020. In 2019, EQM expects to provide capital contributions of approximately $40 million to the MVP Joint Venture for the MVP Southgate project. In the fourth quarter of 2018, EQM assumed a portion of Con Edison's ownership interest and purchased a portion of PSNC Energy's ownership interest in the MVP Southgate project. As a result of these transactions, EQM's ownership interest increased from 32.7% to 47.2%. As of December 31, 2018, EQM was the operator of the MVP Southgate pipeline and owned a 47.2% interest in the MVP Southgate project. The MVP Joint Venture submitted the MVP Southgate certificate application to the FERC in November 2018. Subject to approval by the FERC, the MVP Southgate project has a targeted in-service date of the fourth quarter of 2020.
Transmission Expansion. In 2019, EQM expects to invest approximately $60 million in other transmission expansion projects, primarily attributable to the Allegheny Valley Connector (AVC), the Equitrans, L.P. Expansion project, which is designed to provide north-to-south capacity on the mainline Equitrans, L.P. system for deliveries to the MVP, and power plant projects. The Equitrans, L.P. Expansion project has a targeted in-service date of the fourth quarter of 2019.
Transmission – New Power Plant Connection. EQM recently executed a precedent agreement with ESC Brooke County Power I, LLC to construct a natural gas pipeline for connection to a proposed 830-Megawatt power plant in Brooke County, West Virginia. The agreement includes a ten-year firm reservation commitment for 140 MMcf per day of capacity. EQM expects to invest an estimated $80 million to construct the approximately 16-mile pipeline, which has a targeted in-service date of mid-year 2022.
Water Expansion. In 2019, EQM expects to invest approximately $100 million in the expansion of its fresh water delivery infrastructure in Pennsylvania and Ohio. EQM recently expanded its water service relationship with EQT and entered into agreements with four other Marcellus and Utica producers.
Markets and Customers
The Company's two largest customers are EQT and its affiliates and PNG Companies LLC and its affiliates. EQT, the largest natural gas producer in the United States, accounted for approximately 74%61%, 74%61% and 75%, respectively59% of the Company's total revenues for the years ended December 31, 2018, 20172023, 2022 and 2016. For the years ended December 31, 2018, 2017 and 2016, PNG Companies LLC and its affiliates, an LDC, accounted for approximately 7%, 11% and 12%, respectively, of the Company's total revenues, all of which was included in Transmission.2021, respectively.
Gathering Customers
Customers.For the year ended December 31, 2018,2023, EQT accounted for approximately 80%59% of Gathering's throughput and approximately 62% of Gathering's revenues. Subject to certain exceptions and limitations, as of December 31, 2023, Gathering (inclusive of acreage dedications to Eureka Midstream Holdings, LLC (Eureka Midstream), a joint venture in which the Company is the operator and has a 60% interest) had significant acreage dedications through which EQMthe Company has the right to elect to gather all natural gas produced from wells under an area coveringdedicated areas in (i) approximately 260,000 gross acres in Pennsylvania pursuant to agreements with EQT, including the EQT Global GGA, and agreements with certain affiliates ofother third parties, (ii) West Virginia pursuant to agreements with EQT, including the EQT Global GGA, and agreements with certain other third parties, and (ii) approximately 176,000 gross acres in(iii) Ohio pursuant to agreements with certain affiliates of EQT and othervarious third parties. In addition, Gathering has an acreage dedication of approximately 5,000 gross acres, with a producer option to expand towards approximately 30,000 gross acres, in Pennsylvania, pursuant to which EQM has the right to provide a proposal to gather all natural gas provided from wells under that area.
The Company provides gathering services in two manners: firm service and interruptible service. Firm service contracts are typically long-term and canoften include firm reservation fees, which are fixed, monthly charges for the guaranteed reservation of pipeline access. Revenues under firm reservation fees also include fixed volumetric charges under MVCs. As of December 31, 2018,2023, the gathering system had total contracted firm reservation capacity (including contracted MVCs) of approximately 2.47.7 Bcf per day.day (inclusive of Eureka Midstream contracted capacity), which included contracted firm reservation capacity of approximately 1.8 Bcf per day associated with the Company's high-pressure header pipelines. Including future capacity expected from expansion projects that are not yet fully constructed or not yet fully in-service for which the Company has executed firm contracts, the gathering system had total contracted firm reservation capacity (including contracted MVCs) of approximately 2.78.8 Bcf per day (inclusive of Eureka Midstream contracted capacity) as of December 31, 2018.2023, which included contracted firm reservation capacity of approximately 1.9 Bcf per day associated with the Company's high-pressure header pipelines. Volumetric-based fees can also be charged under firm contracts for each firm volume gathered, as well as for volumes gathered in excess of the firm contracted volume, if system capacity exists.volume. Based on total projected contractual revenues, including projected contractual revenues from future capacity expected from expansion projects that are not yet fully constructed or not yet fully in-service for which the Company has executed firm contracts, the Company's firm gathering contracts had a weighted average remaining term of approximately 1113 years as of December 31, 2018.2023.
Interruptible service contracts include volumetric-based fees, which are charges for the volume of natural gas gathered and generally do not guarantee access to the pipeline. These contracts can be short- or long-term. OnTo the Company's low-pressure regulatedextent that capacity reserved by customers with firm service contracts is not fully used or excess capacity exists, the gathering system the typical gathering agreement providescan allocate capacity to interruptible service and has a one-year term with month-to-month rollover 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.services.
The Company generally does not take title to the natural gas gathered for its customers but retains a percentage of wellhead gas receipts to recover natural gas used to powerfuel certain of its compressor stations and meet other requirements on the Company's low- and high-pressure gathering systems.
Transmission Customers
Customers.For the year ended December 31, 2018,2023, EQT accounted for approximately 62%61% of Transmission's throughput and approximately 54%51% of Transmission's revenues. As of December 31, 2023, Transmission hashad an acreage dedication from EQT through which EQM hasthe Company had the right to elect to transport all gas produced from wells drilled by EQT under an area covering approximately 60,000 acresdedicated areas in Allegheny, Washington and Greene Counties in Pennsylvania and Wetzel, Marion, Taylor, Tyler, Doddridge, Harrison and Lewis Counties in West Virginia. For the year ended December 31, 2018, PNG Companies LLC and its affiliates accounted for approximately 27% of Transmission's revenues. OtherThe Company's other customers include LDCs, marketers, producers and commercial and industrial users. The Company's transmission and storage system provides customers with
access to adjacent markets in Pennsylvania, West Virginia and Ohio and to the Mid-Atlantic, Northeastern, Midwestern and Gulf Coast markets through interconnect points with major interstate pipelines.
The Company provides transmission and storage services in two manners: firm service and interruptible service. Firm service contracts are typically long-term and canoften include firm reservation fees, which are fixed, monthly charges for the guaranteed reservation of pipeline access and storage capacity. Volumetric-based fees can also be charged under firm contracts for firm volume transported or stored, as well as for volumes transported or stored in excess of the firm contracted volume, if there is system capacity. Customers are not assuredvolume. As of December 31, 2023, the Company had firm capacity or service for volumes in excesssubscribed under firm transmission contracts of the firm contracted volume as such volumes have the same priority as interruptible service. Includingapproximately 5.8 Bcf per day, which includes future capacity expected from expansion projects that are not yet fully constructed or not yet fully in-service for which the Company has executed firm transmission contracts and excludes approximately 5.02.6 Bcf per day of transmissionfirm capacity commitments associated with the MVP and 29.3 BcfMVP Southgate projects. As of December 31, 2023, the Company had firm storage capacity wereof approximately 29.8 Bcf subscribed under firm transmission and firm storage contracts, respectively, as of December 31, 2018.contracts. Based on total projected contractual revenues, including projected contractual revenues from future capacity expected from expansion projects that are not yet fully constructed or not yet fully in-service for which the Company has executed firm contracts, the Company's firm transmission and storage contracts had a weighted average remaining term of approximately 1512 years as of December 31, 2018.2023.
Interruptible service contracts include volumetric-based fees, which are charges for the volume of natural gas transported or stored and generally do not guarantee access to the pipeline or storage facility. These contracts can be short- or long-term. Customers with interruptible service contracts are not assured capacity or service on the transmission and storage systems. To the extent that capacity reserved by customers with firm service contracts is not fully used or excess capacity exists, the transmission and
storage systems can allocate capacity to interruptible services.
The Company generally does not take title to the natural gas transported or stored for its customers.customers but retains a percentage of gas receipts to recover natural gas used to fuel its compressor stations and meet other requirements of the Company's transmission and storage systems.
As of December 31, 2018,2023, approximately 86%97% of Transmission's contracted firm transmission capacity was subscribed by customers under negotiated rate agreements under its tariff. Approximately 10%As of Transmission'sDecember 31, 2023, Transmission had minimal contracted firm transmission capacity was subscribed at discounted rates and recourse rates under its tariff, whichtariff. See also "FERC Regulation" under "Regulatory Environment" below and "Our and the MVP Joint Venture's natural gas gathering, transmission and storage services, as applicable, are the maximum rates an interstate pipeline may chargesubject to extensive regulation by federal, state and local regulatory authorities. Changes in or additional regulatory measures adopted by such authorities, and related litigation, could have a material adverse effect on our business, financial condition, results of operations, liquidity and ability to pay dividends.” included in Part I, "Item 1A. Risk Factors" of this Annual Report on Form 10-K for its services under its tariff. The remaining 4% of Transmission's contracted firm transmission capacity was subscribed at discounted rates under its tariff, which are less than the maximum rates an interstate pipeline may charge for its services under its tariff.additional information.
Water Customers
Customers.For the year ended December 31, 2018,2023, EQT accounted for approximately 93%96% of Water's revenues. The Company has the exclusive right to provide fluid handling services to certain EQT-operated wells until December 22,through 2029 (and thereafter such right continueswill continue on a month-to-month basis) within areas of dedication in Washington and Greene Counties, Pennsylvania and Belmont County, Ohio, including the delivery of fresh water for well completion operations and the collection and recycling or disposal of flowback and produced water. The Company also provides water services to other customers operating in the Marcellus and Utica Shales.
The Company's Assets
Gathering Assets. As of December 31, 2023, the gathering system, inclusive of Eureka Midstream's gathering system, included approximately 1,220 miles of high-pressure gathering lines, 138 compressor units with compression of approximately 491,000 horsepower and multiple interconnect points with the Company's transmission and storage system and to other interstate pipelines.
Transmission and Storage Assets. As of December 31, 2023, the transmission and storage system included approximately 940 miles of FERC-regulated, interstate pipelines that have interconnect points to seven interstate pipelines and multiple LDCs. As of December 31, 2023, the transmission and storage system was supported by 42 compressor units, with total throughput capacity of approximately 4.4 Bcf per day and compression of approximately 135,000 horsepower, and 18 associated natural gas storage reservoirs, which had a peak withdrawal capacity of approximately 820 MMcf per day and a working gas capacity of approximately 43 Bcf.
Water Assets. As of December 31, 2023, the fresh water systems included approximately 201 miles of pipeline that deliver fresh water from local municipal water authorities, the Monongahela River, the Ohio River, local reservoirs and several regional waterways. In addition, as of December 31, 2023, the fresh water systems consisted of permanent, buried pipelines, surface pipelines, 17 fresh water impoundment facilities, as well as pumping stations, which support water transportation throughout the systems, and take point facilities and measurement facilities, which support well completion activities. During 2023, the Company completed the majority of the main trunkline pipelines on the mixed water system including a pipeline that connects its two mixed water storage facilities. As of December 31, 2023, the mixed water system included approximately 53 miles of
buried pipeline and two water storage facilities with 350,000 barrels of capacity, as well as two interconnects with the Company’s existing Pennsylvania fresh water systems and provides services to producers in southwestern Pennsylvania. The Company plans to continue to expand its mixed water system in 2024, including the completion of a pipeline to serve a producer in West Virginia and a water pipeline, scheduled to be completed in the first quarter of 2025, to interconnect with the same producer's Pennsylvania mixed water network.
Developments, Market Trends and Competitive Conditions
The Company's strategically located and integrated assets overlay core acreage in the Appalachian Basin. The location of the Company's assets allows its producer customers to access major demand markets in the U.S. The Company is one of the largest natural gas gatherers in the U.S., and its largest customer, EQT, was one of the largest natural gas producers in the U.S. based on average daily sales volumes as of December 31, 2023 and EQT's public senior debt had investment grade credit ratings from Standard & Poor's Global Ratings (S&P), Fitch Ratings (Fitch) and Moody's Investors Service (Moody's) as of that date. For the year ended December 31, 2023, approximately 70% of the Company's operating revenues were generated from firm reservation fee revenues. Generally, the Company is focused on utilizing contract structures reflecting long-term firm capacity, MVC or ARC commitments which are intended to provide support to its cash flow profile. The percentage of the Company's operating revenues that are generated by firm reservation fees (as well as the Company's revenues generally) may vary year to year depending on various factors, including customer volumes and the rates realizable under the Company's contracts, including the EQT Global GGA which provides for periodic gathering MVC fee declines through January 1, 2028 (with the fee then remaining fixed throughout the remaining term). Additionally, as discussed above under "Overview of the Company and Operations" in Part 1, "Item 1. Business" of this Annual Report on Form 10-K, in connection with MVP full in-service the EQT Global GGA provides for more significant potential gathering MVC fee declines in certain contract years.
The Company's principal strategic aim is to achieve greater scale and scope, enhance the durability of its financial strength and to continue to work to position itself for a lower carbon economy.
The Company's standalone strategy reflects its continued pursuit of organic growth projects, including completing and placing in service revenuesthe MVP, focusing on identifying opportunities to use its existing assets to deepen and grow its customer relationships at optimized levels of capital spending and taking into account the Company’s leverage, and continuing to prudently invest resources in its sustainability-oriented initiatives. The Company’s strategy also reflects its continued focus on achieving a strong balance sheet, and given the Company’s size, operating footprint and other factors considering inorganic opportunities, such as to extend the Company’s operations into the southeast United States and new, key demand markets, such as the Gulf of Mexico LNG export market.
In conjunction with the Company working to execute on its standalone strategy, the Company’s Board of Directors has been engaged in a process with third parties that have expressed interest in strategic transactions involving the Company. The board has engaged outside advisors and the process is ongoing. There is no assurance that such process will result in the execution, approval or completion of any specific transaction or outcome.
The Company expects that the MVP, together with the Hammerhead pipeline and Equitrans, L.P. Expansion Project (EEP), will primarily drive the Company's near-term organic growth, as discussed in further detail below. In particular, the Company believes that the MVP, among other benefits, will allow for greater natural gas production in the southwestern Appalachian Basin (and/or result in increased volumes flowing to the Company's gathering and transmission system given the Company's belief in the system's current unique positioning to provide the supply path to MVP). In addition, the Company continues to focus on de-levering its balance sheet (which the Company views as a critical strategic objective), including in connection with the MVP.
•Mountain Valley Pipeline. The MVP is being constructed by a joint venture among the Company and affiliates of each of NextEra Energy, Inc. (NEE), Consolidated Edison, Inc. (Con Edison), AltaGas Ltd. and RGC Resources, Inc. (RGC). As of December 31, 2023, the Company owned an approximate 48.4% interest in the MVP project and will operate the MVP. The MVP is an estimated 300-mile, 42-inch diameter natural gas interstate pipeline with a targeted capacity of 2.0 Bcf per day that is designed to span from the Company's existing transmission and storage system in Wetzel County, West Virginia to Pittsylvania County, Virginia, which will provide access to the growing southeast demand markets once it is placed in-service. The MVP Joint Venture has secured a total of 2.0 Bcf per day of firm capacity commitments at 20-year terms. Additional shippers have expressed interest in the MVP project and the MVP Joint Venture is evaluating an expansion opportunity that could add approximately 0.5 Bcf per day of capacity through the installation of incremental compression.
In October 2017, the FERC issued the Certificate of Public Convenience and Necessity for the MVP. In the first quarter of 2018, the MVP Joint Venture received limited notice to proceed with certain construction activities from the FERC and commenced construction. However, the MVP project was repeatedly, significantly delayed and subject to cost increases because of legal and regulatory setbacks, particularly in respect of litigation in the U.S. Court of Appeals
for the Fourth Circuit (Fourth Circuit). Notwithstanding such prior setbacks, the MVP Joint Venture continued to engage in pursuing the authorizations necessary to complete the MVP project, including on February 28, 2023, the U.S. Department of the Interior’s Fish and Wildlife Service (FWS) issuing a new Biological Opinion and Incidental Take Statement (2023 BiOp) for the MVP project and in May 2023, the U.S. Forest Service and Bureau of Land Management issuing authorizations related to MVP’s segment in the Jefferson National Forest (JNF).
On June 3, 2023, the President of the United States signed into law the Fiscal Responsibility Act of 2023 that, among other things, ratified and approved all permits and authorizations necessary for the construction and initial operation of the MVP, directed the applicable federal officials and agencies to maintain such authorizations, required the Secretary of the Army to issue not later than June 24, 2023 all permits or verifications necessary to complete construction of the MVP and allow for the MVP’s operation and maintenance, and divested courts of jurisdiction to review agency actions on approvals necessary for MVP construction and initial operation.
Thereafter, certain necessary authorizations were issued to the MVP Joint Venture, and the FERC authorized the MVP Joint Venture to resume all construction activities in all MVP project locations. After the Fourth Circuit issued a stay halting MVP project construction in the JNF and a stay of the 2023 BiOp, the U.S. Supreme Court vacated the stays on July 27, 2023. The MVP Joint Venture recommenced forward construction activity in August 2023.
Since then, the MVP Joint Venture has made substantial progress on completing the MVP. As of February 15, 2024, the MVP Joint Venture, among other things, has completed:
•approximately 300 miles of pipeline installed (less than 4 miles remaining to install);
•415 crossings (13 remaining);
•the hydrotesting of approximately 180 miles (approximately 125 miles remain to be tested, inclusive of interconnect piping);
•the purging and packing of the pipeline through to the second compressor station (total of approximately 77 miles);
•the commissioning of two of three MVP compressor stations; and
•restoration of a substantial portion of the pipeline right of way, with the remaining approximately 112 miles of pipeline restoration to occur following MVP in-service.
Forward progress slowed at the end of 2023 through early 2024 as a result of unforeseen challenging construction conditions, combined with unexpected and substantially adverse winter weather conditions throughout much of January 2024. As a result, the MVP Joint Venture retained a higher than planned contractor headcount through January into February to maintain the right of way and address weather-induced issues and also to be in a position to improve forward progress as soon as conditions became more favorable. While productivity has since improved at the end of January and into February 2024, the combined effect of these unforeseen challenges significantly slowed the previously anticipated pace of construction and adversely affected project cost. As a result, the Company is targeting MVP project completion and commissioning in the second quarter of 2024, at a total estimated project cost ranging from approximately $7.57 billion to approximately $7.63 billion (excluding allowance for funds used during construction (AFUDC)).
Based on such targeted completion timing and following in-service authorization from the FERC, the Company expects that MVP and MVP-related firm capacity contractual obligations would commence on June 1, 2024 (with certain MVC step ups and more significant gathering MVC fee declines under the EQT Global GGA commencing April 1, 2024).
As the MVP Joint Venture continues to diligently work towards responsibly completing the MVP project, it will
continue to prioritize the safety of its workforce, communities, and assets, and the project's compliance with applicable
environmental standards and regulations.
The targeted completion timing and cost, and accordingly the commencement of MVP and MVP-related firm capacity contractual obligations are primarily generated under variable price per volume contracts.subject to many factors, including the physical construction conditions, weather and productivity, many of which are beyond the Company's control.
Further adverse developments however, whatever the cause, affecting the MVP project could further increase project
costs and/or further delay completion or in-service of the project, and adversely affect the Company, including its
leverage levels and potential liquidity. See also "Expanding our business by constructing new midstream
assets subjects us to construction, business, economic, competitive, regulatory, judicial, environmental, political and
legal uncertainties that are beyond our control." included in Part I, "Item 1A. Risk Factors" of this Annual Report on
Form 10-K. See also Part II, "Item 3. Legal Proceedings" of this Annual Report on Form 10-K.
On November 4, 2019, Con Edison exercised an option to cap its investment in the construction of the MVP project at approximately $530 million (excluding AFUDC). On May 4, 2023, RGC exercised an option for the Company to fund RGC's portion of future capital contributions with respect to the MVP project, which funding the Company commenced in June 2023 and will continue through the full in-service date of the MVP. The fees chargedCompany and NEE are obligated, and RGC, prior to the exercise of its option described above had opted, to fund the shortfall in Con Edison's capital contributions on a pro rata basis. Following RGC's exercise of its option, the Company is also funding RGC's portion of Con Edison's shortfall. Such funding by the Company in respect of the Con Edison shortfall and RGC's portion of capital contributions has and will correspondingly increase the Company's interests in the MVP project and decrease Con Edison's and RGC's respective interest, as applicable, in the MVP project. If the project were to be completed in the second quarter of 2024 and at a total project cost ranging from approximately $7.57 billion to approximately $7.63 billion (excluding AFUDC), the Company expects its equity ownership in the MVP project would progressively increase from approximately 48.4% to approximately 49.0%.
Through December 31, 2023, the Company had funded approximately $3.4 billion to the MVP Joint Venture for the MVP project. If the MVP project were to be completed in the second quarter of 2024 at a total project cost ranging from approximately $7.57 billion to approximately $7.63 billion (excluding AFUDC), the Company expects it would make total capital contributions to the MVP Joint Venture in 2024 of approximately $540 million to $575 million primarily related to forward construction, and expects that it would incur a total of approximately $4.0 billion over the project's construction, inclusive of approximately $245 million in excess of the Company's ownership interest.
•Wellhead Gathering Expansion Projects and Hammerhead Pipeline. During the year ended December 31, 2023, the Company invested approximately $267.7 million in gathering projects (inclusive of capital expenditures related to the noncontrolling interest in Eureka Midstream). For 2024, the Company expects to invest approximately $225 million to $275 million in gathering projects (inclusive of expected capital expenditures of approximately $15 million related to the noncontrolling interest in Eureka Midstream). The primary projects include infrastructure expansion and optimization in core development areas in the Marcellus and Utica Shales in southwestern Pennsylvania, southeastern Ohio and northern West Virginia for EQT, Range Resources Corporation (Range Resources) and other producers. The Company has seen and expects that it will continue to see the benefits of return-to-pad drilling and system integrations in 2024, and estimates gathering capital expenditures required to maintain flat gathered volumes in a given year would be between approximately $200 million and $250 million for 2024.
The Hammerhead pipeline is a 1.6 Bcf per day gathering header pipeline that is primarily designed to connect natural gas produced in Pennsylvania and West Virginia to the MVP, Texas Eastern Transmission and Eastern Gas Transmission, is supported by a 20-year term, 1.2 Bcf per day, firm capacity commitment from EQT, and cost approximately $540 million. The Company expects Hammerhead pipeline full commercial in-service to commence in conjunction with full MVP in-service and is focused on obtaining additional firm capacity commitments and/or additional interruptible volumes for the pipeline. During the fourth quarter of 2023, the Company provided firm and interruptible volumes from the Company's Hammerhead Gathering agreement with EQT and expects to continue the interruptible volumes up to the full commercial in-service date of the Hammerhead pipeline when firm commitments will commence.
The Company also has an agreement with a producer customer to install approximately 32,000 horsepower booster compression to existing facilities. The project is backed by a long-term firm commitment and is expected to be in-service in the first quarter of 2024. The majority of spend on the project was incurred in 2023.
•Transmission Projects. During the year ended December 31, 2023, the Company invested approximately $84.2 million in transmission projects. For 2024, the Company expects to invest approximately $75 million to $85 million in transmission projects, including approximately $40 million to complete the Company's Ohio Valley Connector expansion project (OVCX). The Company expects OVCX will increase deliverability on the Company's existing Ohio Valley Connector pipeline (OVC) by approximately 350 MMcf per day, create new receipt and delivery transportation paths, and enhance long-term reliability. The project is primarily 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. On January 20, 2023, the FERC issued the Final Environmental Impact Statement for the project. On June 15, 2023, the FERC issued the Certificate of Public Convenience and Necessity for OVCX. On July 31, 2023, the FERC issued the Notice to Proceed and the Company commenced construction during the third quarter of 2023. The Company expects to invest a total of approximately $160 million in the project and is targeting the incremental capacity to be placed in-service during the second quarter of 2024. The OVCX project, as well as the Company's successful open season in 2023 for the available transmission capacity that was subject of the one-time transmission customer's contract buyout during the first quarter of 2023, is consistent with the Company's ongoing efforts to optimize existing assets and achieve capital efficiency.
The Company's EEP project is designed to provide north-to-south capacity on the mainline Equitrans, L.P. system, including primarily for deliveries to the MVP. A portion of the EEP commenced operations with interruptible service in the third quarter of 2019. The EEP provides capacity of approximately 600 MMcf per day and offers access to several markets through interconnects with Texas Eastern Transmission, Eastern Gas Transmission and Columbia Gas Transmission. In connection with MVP full in-service, firm transportation agreements for 550 MMcf per day of capacity will commence under 20-year terms.
•MVP Southgate Project. In December 2023, the MVP Joint Venture announced an amended MVP Southgate project in lieu of the original project. The amended project would extend approximately 31 miles from the terminus of the MVP in Pittsylvania County, Virginia to planned new delivery points in Rockingham County, North Carolina using 30-inch diameter pipe. The MVP Southgate project, which was announced in April 2018, previously contemplated an approximate 75-mile interstate pipeline that was approved by the FERC to extend from the MVP at Pittsylvania County, Virginia to new delivery points in Rockingham and Alamance Counties, North Carolina. The Company is expected to operate the MVP Southgate project and owned a 47.2% interest in the MVP Southgate project as of December 31, 2023. The amended MVP Southgate is estimated to cost a total of approximately $370 million, excluding AFUDC and certain costs incurred for purposes of the original project. The Company expects to fund its proportionate share through capital contributions made to the MVP Joint Venture.
The MVP Joint Venture has entered into precedent agreements with each of Public Service Company of North Carolina, Inc. (PSNC), and Duke Energy Carolinas, LLC (Duke), which precedent agreements contemplate the amended project (in lieu of the original project). In contrast to the original, lengthier project, which traversed 155 water crossings and required an additional compressor station (the permit application for which was denied by the Virginia State Air Pollution Control Board in 2021), the amended project would include substantially fewer water crossings (all of which would be evaluated for boring) and would not require a new compressor station. The new precedent agreements, among other things, collectively provide for 550,000 Dth per day of firm capacity commitments (whereas the original project was supported by a 300,000 Dth per day firm capacity commitment with PSNC, which has been superseded by the new precedent agreement with PSNC), are generally tieredeach for 20-year terms (subject to two potential five-year extensions), and thus, are lowerdescribe certain conditions precedent to the parties’ respective obligations regarding MVP Southgate (including, among others, that both precedent agreements remain in full force and effect). Given the court-related construction stops experienced on MVP, the new precedent agreements also incorporate certain spending and termination protections which may be exercised in certain circumstances in accordance with the terms of the precedent agreements, including in connection with a per gallon basis oncedelay, stay or vacatur of certain thresholds are met.governmental authorizations. The MVP Joint Venture recently completed an open season for the MVP Southgate project and expects to finalize the project scope in the coming months. The targeted completion timing for the project is June 2028, with the majority of the capital spend expected to occur in 2027.
CompetitionThe FERC previously conditioned its authorization on MVP Southgate being built and made available for service by June 18, 2023. On June 15, 2023, the MVP Joint Venture filed a request with the FERC for an extension of time to June 18, 2026, to complete MVP Southgate, which the FERC granted on December 19, 2023. Project opponents filed a request for rehearing of the FERC's December 19, 2023 order. On February 20, 2024, the FERC denied the rehearing request. The MVP Joint Venture is evaluating the permitting and regulatory roadmap for the project, including requesting an updated completion due date.
•Water Operations. During the year ended December 31, 2023, the Company invested approximately $45.7 million in its water infrastructure, primarily to continue to construct the initial mixed-use water system buildout. The Company placed portions of the initial mixed-use water system in service during 2022 and its second above ground water storage facility into service in July 2023, which brings its total water storage capacity to 350,000 barrels. During 2023, the Company completed the majority of the main trunkline pipelines on the mixed water system, including a pipeline that connects its two mixed water storage facilities. In May 2023, the Company executed an agreement with a producer customer to provide mixed-use water delivery service. The 10-year agreement is backed by a minimum volume commitment. For 2024, the Company expects to invest approximately $25 million to $35 million in its water operations, primarily related to the continued construction of its mixed-use water system buildout.
See "Sustainability and Corporate Responsibility" in Part II, "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" of this Annual Report on Form 10-K for a discussion of the Company's continued focus on sustainability matters which the Company believes will help to distinctively position the Company and create value.
Competitive Conditions.Key competitors for new natural gas gathering systems include companies that own major natural gas pipelines, independent gas gatherers and integrated energy companies. When compared to the Company or its customers, some of the Company's competitors have operations in multiple natural gas producing basins, have greater capital resources and access to, or control of, larger natural gas supplies. Natural gas producers that develop their own gas gathering systems or acquire such systems may also compete with the Company depending on the location of such systems relative to the Company's assets and existing agreements.
Competition for natural gas transmission and storage is primarily based on rates, customer commitment levels, timing, performance, commercial terms, reliability, service levels, location, reputation and fuel efficiencies. The Company's principal competitors in its transmission and storage market include companies that own major natural gas pipelines in the Marcellus Utica and Upper DevonianUtica Shales. In addition, the Company competes with companies that are building high-pressure gathering facilities that are able to transport natural gas to interstate pipelines without being subject to FERC jurisdiction. Major natural gas transmission companies that compete with the Company also have storage facilities connected to their transmission systems that compete with certain of the Company's storage facilities.
Key competition for water services includeincludes natural gas producers that develop their own water distribution systems in lieu of employing the Company's water services assets and other natural gas midstream companies that offer water services. The Company's ability to attract customers to its water service business depends on its ability to evaluate and select suitable projects and to consummate transactions in a highly competitive environment.
Further, natural gas as a fuel competes with other forms of energy available to end-users, including coal, certain liquid fuels and, increasingly, renewable and alternative energy. Demand for renewable and alternative energy is increasing generally with changes in consumer preferences, governmental clean energy policies, and as renewable and alternative energy becomes more cost competitive with traditional fuels (including by technological advancement, legislation or government subsidies, as well as traditional supply and demand dynamics) and more widely available. Continued increases in the demand for renewable and alternative energy at the expense of natural gas (or increases in the demand for other sources of energy, particularly if prices for natural gas are elevated relative to other forms of energy as fuel) could lead to a reduction in demand for natural gas gathering, transmission and storage, and water services.
See also “Increased competition from other companies that provide gathering, transmission and storage, and water services, or from alternative fuel or energy sources, could negatively impact demand for our services, which could adversely affect our financial results.” included in Part I, "Item 1A. Risk Factors" of this Annual Report on Form 10-K.
Regulatory Environment
FERC Regulation
EQM'sRegulation. The Company's interstate natural gas transmission and storage operations are regulated by the FERC under the NGA,Natural Gas Act of 1938, as amended (NGA), the NGPA and the EnergyNatural Gas Policy Act of 2005. EQM's regulated system operates1978, as amended (NGPA), and the regulations, rules and policies promulgated under those and other statutes. The Company's FERC-regulated operations are pursuant to tariffs approved by the FERC that establish rates (other than market-based rate authority), cost recovery mechanisms and the terms and conditions of service to its customers. Generally, the FERC's authority extends to:
•rates and charges for the Company's natural gas transmission and storage and FERC-regulated gathering services;
•certification and construction of new interstate transmission and storage facilities;
•abandonment of interstate transmission 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•acquisitions and dispositiondispositions of interstate transmission and storage facilities; and
•initiation and discontinuation of interstate transmission and storage services.
The FERC regulates the rates and charges for transmission and storage in interstate commerce. UnderUnless market-based rates have been approved by the NGA,FERC, the maximum applicable recourse rates charged by interstate pipelines must be just and reasonable.
The recourse rate that EQM may chargeterms and conditions for its services is established throughservice are set forth in the FERC's cost-of-service ratemaking process.pipeline's FERC-approved tariff. Generally, the maximum filed recourse rates for interstate pipelines are based on the cost of providing that service, including the recovery of and a return on the pipeline's actual and prudent historical cost of investment.investment costs. 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 income tax allowance, as well as volume throughput and contractual capacity commitment assumptions. On March 15, 2018, the FERC issued an order prohibiting MLP-owned
Interstate pipelines from including an allowance for investor income tax liability in their cost-of-service based rates. Under its prior policy, the FERC had permitted all interstate pipelines to include an income tax allowance in the cost-of-service used as the basis for calculating their regulated recourse rates. On July 18, 2018, the FERC issued an order affirming the principal finding in the March order regarding income tax recovery and also clarifying the treatment of Accumulated Deferred Income Taxes (ADIT) in light of the prohibition on MLP income tax allowances. Challenges to these orders are currently pending in a consolidated proceeding before the U.S. Court of Appeals for the District of Columbia Circuit. On October 17, 2018, an intervenor filed a motion to hold the proceeding in abeyance. On October 24, 2018, the FERC filed a motion to dismiss the proceeding. The court hasmay not acted on either motion at this time. We cannot currently predict when the court will act on these motions. Also on July 18, 2018, the FERC issued Order No. 849, adopting regulations requiring that natural gas pipelines submit a one-time report, Form 501-G, due in the fourth quarter of 2018. Rehearing of Order No. 849 has been requested and is currently pending before the FERC. For MLP-owned pipelines, the Form 501-G report calculates an earned rate of return on equity that attempts to identify potential cost of service of over-recovery arising from the Tax Cuts and Jobs Act, the FERC's prohibition of an income tax allowance for MLP-owned pipelines and the ADIT clarification. On December 28, 2018, Equitrans, L.P. filed its Form 501-G with the FERC. The FERC will evaluate these Form 501-G filings on a case-by-case basis and permit a limitedcharge rates or a general rate case initiated by pipelines, open an investigation, or take no further action. The FERC has initiated rate cases against at least four pipelines as a result of their respective Form 501-G filings. EQM cannot determine whether the FERC or any customer will initiate a rate case against Equitrans, L.P. as a result of its Form 501-G filing or for any other reason. The maximum applicable recourse rates andimpose terms and conditions forof service that, upon review by the FERC, are set forth in the pipeline's FERC-approved tariff.found to be unjust or unreasonable, unduly discriminatory or preferential. Rate design and the allocation of costs also can affect a pipeline's profitability. While the ratemaking process establishes the maximum rate that can be charged, interstate pipelines such as EQM'sthe Company's transmission and storage system are permitted to discount their firm and interruptible rates without further FERC authorization down to a specified minimum level, provided they do not unduly discriminate. In addition, pipelines are allowed to negotiate different rates with their customers, as described later in this section.
under certain circumstances. Changes to rates or terms and conditions of service, and contracts can be proposed by a pipeline company under Section 4 of the NGA, or the existing interstate transmission and storage rates, or terms and conditions of service and/or contracts may be challenged by a complaint filed by interested persons including customers, state agencies or the FERC under Section 5 of the NGA. Rate increases proposed by a pipeline may be allowed to become effective subject to refund and/or a period of suspension, while rates or terms and conditions of service whichthat are the subject of a complaint under Section 5 of the NGA 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 EQM's transmission and storage services could have a material adverse effect on its business, financial condition, results of operations, liquidity and ability to make quarterly cash distributions to EQM's unitholders, including the Company.
EQM'sThe Company's interstate pipeline may also use negotiated rates whichthat 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'sthe Company'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, 2018,2023, approximately 86%97% of the system's contracted firm transmission capacity was subscribed by customers under negotiated rate agreements under its tariff. Some negotiated rate transactions 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.
FERCThe FERC’s regulations also extend to the terms and conditions set forth in agreements for transmission 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. Non-conforming agreements must be filed with and accepted by the FERC. In the event that the FERC finds that an agreement is materially non-conforming, in whole or in part, is materially non-conforming, it could reject, or require the agreement, require EQMCompany to seek modification of, the agreement, or alternatively require EQMthe Company to modify its applicable tariff so that the non-conforming provisions are generally available to all customers or class of customers.
The FERC’s jurisdiction also extends to the certification and construction of new interstate transmission and storage facilities, including, but not limited to, acquisitions, facility replacements and upgrades, expansions, and abandonment of facilities and services. Prior to commencing construction of new or existing interstate transmission and storage facilities, an interstate pipeline must obtain (except in certain circumstances, such as where the activity is permitted under the FERC’s regulations or is authorized under the operator’s existing blanket certificate issued by the FERC) a certificate authorizing the construction, or file to amend its existing certificate, from the FERC.
On April 19, 2018, the FERC issued a Notice of Inquiry (2018 Notice of Inquiry) seeking information regarding whether, and if so how, it should revise its approach under its currently effective policy statement on the certification of new natural gas transportation facilities (Certificate Policy Statement). The formal comment period in this proceeding closed on June 25, 2018. On February 18, 2021, the FERC issued another Notice of Inquiry in the same proceeding that modified and expanded the inquiry and renewed its request for public comment (together with the 2018 Notice of Inquiry, the Certificate Policy Statement NOI). The formal comment period closed May 26, 2021. On February 18, 2022, the FERC issued an Updated Certificate Policy Statement. On February 18, 2022, the FERC issued an interim GHG policy. On March 24, 2022, the FERC issued an order suspending the effectiveness of the Updated Certificate Policy Statement and the interim GHG policy and has taken no further action to date.
In 2024, there is a possibility that the U.S. Congress could pass legislation revising the NGA or other statutes that may impact the Company's existing facilities and operations or the ability to construct new facilities. Potential areas of revision include, but are not limited to, (i) amending Section 5 of the NGA to allow the FERC to require a pipeline to make refunds from the date that a NGA Section 5 complaint was filed with the FERC if rates are later found to be unjust and unreasonable; (ii) amending
Section 7 of the NGA affecting the ability of companies to exercise eminent domain; and (iii) amending Section 19(b) of the NGA to provide the FERC additional time to act on requests for rehearing.
The FERC’s assessment of greenhouse gas emissions in the NEPA review of pipeline certificate projects remains a divided issue among the Commissioners. In 2023, the FERC reached a compromise position among Acting Chairman Phillips and Commissioners Danly and Christie whereby the FERC will disclose the social cost of GHG calculations for informational purposes, but does not characterize the significance of the projects’ greenhouse gas emissions. This compromise position continued in the FERC’s 2023 Order on Remand in Rio Grande LNG, LLC in response to a U.S. Court of Appeals for the District of Columbia (D.C. Circuit) directive that the FERC address arguments regarding whether the social cost of carbon protocol is a generally accepted analytical tool for assessing the significance of greenhouse gas impacts. Commissioner Allison Clements has continued to file dissenting opinions opposing the Commission’s approach. The D.C. Circuit could decide several pending appeals in 2024 regarding the FERC’s treatment of greenhouse gas emissions in natural gas pipeline certificate reviews.
The FERC had four commissioners in 2023. However, Commissioner James Danly left the FERC at the end of 2023. On February 9, 2024, President Biden named Willie Phillips Chairman of the FERC. Commissioner Allison Clements’s term expires on June 30, 2024, and she has indicated that she will not seek another term, leaving the possibility that the FERC could be without a quorum of three members in 2024. If Congress does not confirm Commissioner Clements's replacement prior to expiration of her term, Commissioner Clements may remain in her position until the end of the current the U.S. Congress in January 2025. As of the filing of this Annual Report on Form 10-K, President Biden has not yet nominated new commissioners.
FERC Regulation of Gathering Rates and Terms of Service
Service. Section 1(b) of the NGA exempts natural gas gathering facilities from regulation by the FERC under the NGA. 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 jurisdictional interstate transmission facilities. EQMservices. The Company submitted an application to the FERC requesting authorization to abandon its low-pressure gathering facilities and services. On June 17, 2022 and December 16, 2022, the FERC issued orders authorizing Equitrans, L.P. to abandon these low-pressure gathering facilities, subject to certain conditions. In 2023, Equitrans, L.P. completed the abandonments of the remaining low-pressure gathering facilities and no longer maintains rates and terms of service in its tariff for unbundled gathering services performed on its gathering facilities in connection with theits transmission service. Just as with rates and terms of service for transmission and storage services, EQM's rates and terms of services for its FERC-regulated low-pressure gathering system may be challenged by complaint and are subject to prospective change by the FERC. Rate increases and changes to terms and conditions of service EQM proposes for its FERC-regulated low-pressure gathering service may be protested, and such increases or changes can be delayed and may ultimately be rejected by the FERC.
Section 1(b) of the NGA exempts certain natural gas gathering facilities from regulation by the FERC under the NGA. EQMThe Company believes that its high-pressure gathering systems meet the traditional tests the FERC has used to establish a pipeline's status as an exempt gatherer not subject to regulation as a jurisdictional natural gas company. However, the distinction between FERC-regulated transmission services and federally unregulated gathering services is often the subject of litigation in the industry, so the classification and regulation of these systems are subject to change based on future determinations by the FERC, the courts or the U.S. Congress.
Pipeline Safety and Maintenance
EQM'sMaintenance. The Company's interstate natural gas pipeline system isand natural gas storage assets are subject to regulation by the PHMSA. The PHMSA has established safety requirements pertaining to the design, installation, testing, construction, operation and maintenance of gas pipeline and storage facilities, including requirements that pipeline and storage operators develop a written qualification program for individuals performing covered tasks on pipeline facilities and implement pipeline and storage well 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 and storage facilities in HCAs, such as high population areas or facilities that are hard to evacuate and areas of daily concentrations of people.
Notwithstanding the investigatory and preventative maintenance costs incurred in EQM'sthe Company's performance of customary pipeline and storage management activities, EQMthe Company may incur significant additional expenses if anomalous pipeline or storage conditions are discovered or more stringent pipeline safety requirements are implemented. For example, in April 2016, the PHMSA published a notice of proposed rulemaking addressing several integrity management topics and proposing new requirements to address safety issues for natural gas transmission and gathering lines.lines, along with certain storage facilities (the Mega Rule). The proposed rule wouldPHMSA intended the Mega Rule to strengthen existing integrity management requirements, expand assessment and repair requirements to pipelines in areas with medium population densities, and extend regulatory requirements to onshore gas gathering lines that are currently exempt. Part I of the Mega Rule was promulgated on October 1, 2019, with an effective date of July 1, 2020 (see discussion below). Part II was promulgated on November 15, 2021, with an effective date of May 16, 2022 (see discussion below). Finally, Part III of the Mega Rule was promulgated on August 24, 2022, with an effective date of May 24, 2023 (see discussion below).
Further, in June 2016, then-President Obama signed the Protecting Our Infrastructure of Pipelines and Enhancing Safety Act of 2016 (the 2016 Pipeline Safety Act), extending the PHMSA's statutory mandate under prior legislation through 2019. In
addition, the 2016 Pipeline Safety Act empowered the PHMSA to address imminent hazards by imposing emergency restrictions, prohibitions and safety measures on owners and operators of gas or hazardous liquid pipeline facilities without prior notice or an opportunity for a hearing and also required the PHMSA to develop new safety standards for natural gas storage facilities by June 2018. Pursuant to those provisions of the 2016 Pipeline Safety Act, in October 2016 and December 2016,the PHMSA issued two separate Interim Final Rulesa final rule effective December 2, 2019 that expanded the agency's authority to impose emergency restrictions, prohibitions and safety measures and issued a final rule effective March 13, 2020 that strengthened the rules related to underground natural gas storage facilities, including well integrity, wellbore tubing and casing integrity. The Decemberintegrity
Following the October 2016 Interim Final Rule, relatingthe PHMSA also published five final rules on pipeline safety applicable to underground gas storage facilities,the Company: "Enhanced Emergency Order Procedures;" "Safety of Gas Transmission Pipelines: Maximum Allowable Operating Pressure Reconfirmation, Expansion of Assessment Requirements, and Other Related Amendments" (also known as the Mega Rule Part I); and "Safety of Gas Gathering Pipelines: Extension of Reporting Requirements, Regulation of Large, High-Pressure Lines, and Other Related Amendments" (also known as the Mega Rule Part II); and "Safety of Gas Transmission Pipelines: Repair Criteria, Integrity Management Improvements, Cathodic Protection, Management of Change, and Other Related Amendments" (also known as the Mega Rule Part III); and “Pipeline Safety: Requirement of Valve Installation and Minimum Rupture Detection Standards” (the valve rule). The Enhanced Emergency Order Procedures rule, which became effective on December 2, 2019, implements an existing statutory authorization for the PHMSA to issue emergency orders related to pipeline safety if an unsafe condition or practice, or a combination of unsafe conditions and practices, constitutes, or is causing an imminent hazard. Mega Rule Part I, which went into effect on July 1, 2020, requires operators of certain gas transmission pipelines that have been tested or that have inadequate records to determine the material strength of their lines by reconfirming the Maximum Allowable Operating Pressure (MAOP), and establishes a new Moderate Consequence Area for determining regulatory requirements for gas transmission pipeline segments outside of high consequence areas. The rule also establishes new requirements for conducting baseline assessments, incorporates into the regulations industry standards and guidelines regarding design, construction and in-line inspections (ILI), and new requirements for data integration and risk analysis in January 2017, with a compliance deadline in January 2018.integrity management programs, including seismicity, manufacturing and construction defects, and crack and crack-like defects, and includes several requirements that allow operators to notify the PHMSA determined, however, that it will not issue enforcement citationsof proposed alternative approaches to any operators for violations of provisionsachieving the objectives of the December 2016 Interim Finalminimum safety standards. Mega Rule Part II, which was finalized on November 15, 2021 and went into effect on May 16, 2022, extends existing design, operational and maintenance, and reporting requirements to onshore natural gas gathering pipelines in rural areas. The rule requires operators of onshore gas gathering pipelines to report incidents and file annual reports (with the first annual reports submitted in Spring 2023), and creates new safety requirements that had previously been non-mandatory provisionsvary based on pipeline diameter and potential consequences of American Petroleum Institute Recommended Practices 1170a failure. Mega Rule Part III, which was finalized on August 24, 2022, went into effect on May 24, 2023. The rule requires operators of certain transmission pipelines to assess their integrity management practices, and 1171 until one year aftercomply with enhanced corrosion control and mitigation timelines. It also establishes new requirements for pipeline inspections following an extreme weather event or natural disaster, and provides enhanced guidance for pipeline repairs. The valve rule requires the installation of remote operated rupture mitigation valves on new or entirely replaced transmission and storage lines when valves are installed to meet valve spacing requirements. In addition the valve rule includes requirements for operator actions to be taken when notified of a potential rupture that include notifying emergency response agencies and closing valves within a specified timeframe. In 2023, the Company did not incur material compliance costs in connection with complying with the PHMSA issues a final rule; however, no final rule has been issued. Additionally,rules applicable to the Company. However, as discussed below, the Company does expect certain compliance costs to increase in January 2017, PHMSA announced a new final rule regarding hazardous liquid pipelines, which increases the qualitynear future, and frequency of tests thatthe Company continues to assess the conditionimpact of compliance with these rules which could materially impact its future costs of operations and revenue from operations. For example, Mega Rule Part I requires MAOP reconfirmation of certain previously untested transmission pipeline segments, which are commonly referred to as ‘‘grandfathered’’ pipelines. The Company’s grandfathered pipeline MAOP reconfirmation efforts, which the Company has initiated, may result in unanticipated testing and/or replacement costs. When reconfirming MAOP on certain of the Company’s grandfathered pipeline segments the Company may be required to remove portions of pipelines requires operatorsfor testing, shut in certain pipelines, and/or may face significant operational or technical challenges when performing either a pressure test or an ILI examination, which could result in substantial costs related thereto, or to annually evaluate therepairs, remediation, or replacing existing protective measures in place for pipeline segments in HCAs, extends certain leak
detection requirements for hazardous liquid pipelines, not located in HCAs, and expands the list of conditionsand/or other mitigating actions that require immediate repair. However, it is unclear when or if this rule will go into effect because, on January 20, 2017, the Trump Administration requested that all regulations that had been sentmay be determined to the Officebe necessary as a result of the Federal Register, but were not yet published,tests, as well as lost cash flows resulting from shutting down the Company's pipelines during the pendency of any such actions, which could be immediately withdrawn for further review. Accordingly, this rule has not become effective through publication inmaterial to capital expenditures, earnings and the Federal Register. TheCompany's competitive position. Additionally, ensuring complete compliance with the applicable Mega Rule compliance deadlines may cause the Company is monitoring and evaluating the effect of these and other emerging requirements on the EQM's operations.to incur significant additional expenses if anomalous pipeline conditions are discovered.
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 EQM'sthe Company's natural gas facilities fall within a class that is not subject to integrity management requirements, EQMthe Company may incur significant costs and liabilities associated with repair, remediation, preventive or mitigation measures associated with its non-exempt transmission pipelines. The costs, if any, for 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 EQM'sthe Company's pipelines during the pendency of any such actions, could be material.material to capital expenditures, earnings and the Company's competitive position.
Should EQMthe Company fail to comply with U.S. DOT regulations adopted under authority granted to the PHMSA, it could be subject to penalties and fines. The PHMSA has the statutory authority to impose civil penalties for pipeline safety violations up to a maximum of approximately $200,000$266,000 per day for each violation and approximately $2$2.6 million for a related series of violations. This maximum penalty authority established by statute will continue to be adjusted periodically to account for inflation. In addition, EQM maythe Company could be required to make additional, unforeseen maintenance capital expenditures in the future for similarits regulatory compliance initiatives that are not reflected in its forecasted maintenance capital expenditures.
EQM believes that its operations are in substantial compliance with all existing federal, state and local pipeline safety laws and regulations. However,initiatives. Additionally, the adoption of new laws and regulations, such as those proposed by PHMSA,the Mega Rule discussed above, could result in significant added costs or delays to in service or the termination of projects, which could have a material adverse effect on EQM and the Company in the future.
On December 27, 2020, then-President Trump signed the "Protecting our Infrastructure of Pipelines and Enhancing Safety (PIPES Act) of 2020," which reauthorized the federal pipeline safety program that expired in 2019. The PIPES Act identifies areas where the U.S. Congress believed additional oversight, research, or regulations was needed. The PIPES Act includes new mandates for the PHMSA to require operators to update, as needed, their emergency response plans and operating and maintenance plans. The PIPES Act also requires operators to manage records and update, as necessary, their existing district regulator stations to eliminate a common mode of failure. The PHMSA will also require that leak detection and repair programs consider the environment, the use of advance lead detection practices and technologies, and that operators be able to locate and categorize all leaks that are hazardous to human safety, the environment, or that can become hazardous. The Company has not incurred and does not anticipate incurring material capital expenditures in connection with complying with the PIPES Act.
Cybersecurity. The U.S. government has continued to issue public warnings that indicate that energy assets might be specific targets of cyberattacks. In May and July 2021, the U.S. Department of Homeland Security's Transportation Safety Administration (the TSA) issued security directives applicable to certain midstream companies requiring such companies to comply with mandatory reporting measures and undertake a number of specific cybersecurity enhancements for both information technology (IT) and operational technology (OT) systems. In both 2022 and 2023, the TSA released updated versions of the security directives, with the most recent versions requiring, among other things, the assessment of the effectiveness of our security measures. The Company continues to work with the TSA to ensure compliance with the security directives and is implementing the requirements of those security directives, as needed. While such implementation is utilizing significant internal resources, as of the filing of this Annual Report on Form 10-K, implementation of, and ongoing compliance with, our cybersecurity implementation program (CIP) and security directives have not materially adversely affected the Company's business and operations.
On November 30, 2022, the TSA issued an advanced notice of proposed rulemaking seeking comment on how to strengthen cybersecurity and resiliency in, among other areas, the pipeline sector. The comment period ended in February 2023. As of the filing of this Annual Report on Form 10-K, it is not clear if or when the TSA will issue a notice of proposed rulemaking. Should any regulations be promulgated, the Company will likely be covered by them, but it is not possible as of the filing of this Annual Report on Form 10-K to predict the ultimate impact such regulations may have on the Company's business or operations.
In March 2022, President Biden signed into law the Cyber Incident Reporting for Critical Infrastructure Act of 2022 (CIRCIA). CIRCIA directs the U.S. Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency (CISA) to promulgate regulations requiring certain entities to report to CISA certain cyber incidents. The Company expects that it will be subject to such regulations after they are promulgated and continues to monitor regulatory developments to ensure future compliance and assess the impact the compliance with these rules on its future costs of operations. As of the filing of this Annual Report on Form 10-K, it is not possible to predict the ultimate impact such regulations may have on the Company’s business or operations.
The regulatory environment surrounding cybersecurity continues to evolve in ways that are frequently difficult to predict. We have been required and may further be required to expend additional resources as a result of current or new laws, regulations, directives or other requirements, or changes in the interpretation or enforcement practices thereof, related to cybersecurity, which could result in material compliance costs. Additionally, we may become subject to multiple incident reporting requirements and other cybersecurity obligations that could overlap or conflict with each other, resulting an increased risk of non-compliance or in different responses to the same incident. Any failure to remain in compliance with laws or regulations governing cybersecurity, including the requirements contained in the Company’s CIP, may result in penalties, fines, enforcement actions, or mandated changes in our practices, which may have a material adverse effect on our business and operations.
For further information, see also “Cyberattacks aimed at us or those third parties on which we rely, as well as any noncompliance by us or such third parties with applicable laws and regulations governing cybersecurity and/or data privacy, could materially adversely affect us.” under Part I, "Item 1A. Risk Factors" of this Annual Report on Form 10-K.
OSHA Regulation. U.S. Department of Labor’s Occupational Safety and Health Administration (OSHA) is focusing on hazards posed to workers by extreme heat. The Biden Administration has indicated that it considers heat-related illnesses to be a growing hazard because of climate change. To combat this hazard, on September 1, 2021, the OSHA implemented an enforcement initiative prioritizing inspections of work activities when the heat index exceeds 80 degrees Fahrenheit. The OSHA further stepped-up enforcement in this area, announcing a National Emphasis Program for Outdoor and Indoor Heat-Related Hazards on April 8, 2022. In addition, the OSHA continues to make progress towards a formal national heat stress standard. In 2021, the OSHA issued an Advanced Notice of Proposed Rulemaking on heat injury and illness prevention in outdoor and indoor work settings and on August 24, 2023, the OSHA released options for a regulatory framework to address heat stress in the workplace. These programs will not likely impact the Company’s remote employees, but could result in increased inspections and fines at the Company’s outdoor worksites.
Employee Health and Safety.As noted above, the Company is subject to a number of federal and state laws and regulations, including the federal Occupational Safety and Health Act and comparable state statutes, whose purpose is to protect the health and safety of workers. In addition, the OSHA hazard communication standard, the U.S. Environmental Protection Agency (EPA) community "right-to-know" regulations and comparable state laws and regulations require that information be maintained concerning hazardous materials used or produced in the Company's operations and that this information be provided to employees, state and local government authorities and citizens.
Environmental Matters
General. EQM'sThe Company's operations are subject to stringent federal, state and local laws and regulations relating to the protection of the environment. These laws and regulations can restrict or affect EQM's business activities in many ways, such as:environment, which may have the following effects on the Company:
•requiring that the acquisition ofCompany obtains various permits to conduct regulated activities;
•requiring the installation of pollution-control equipment or otherwise restrictingregulating the way EQMthe Company can handle or dispose of its wastes;
•limiting or prohibiting construction activities in sensitive areas, such as wetlands, coastal regionswater sources, or areas inhabited by endangered or threatened species; and
•requiring investigatory and remedial actions to mitigate or eliminate pollution conditions caused by EQM'sthe Company's operations or attributable to former operations.
In addition, EQM'sthe Company's operations and construction activities aremay be subject to county and local ordinances that restrict the time, place or manner in which those operations and 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.conducted.
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 the cleanup and restoration of sites where hydrocarbons or wastes have been disposed or otherwise released regardless of the fault of the current site owner or operator. Consequently, EQMthe Company may be subject to environmental liability at its currently owned or operated facilities for conditions caused by others prior to itsthe Company's involvement.
EQMThe Company has implemented programs and policies designed to keep its pipelines and other facilities in compliance with existing environmental laws and regulations, and EQMthe Company does not believe that the cost of 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 quarterly cash distributionspay dividends to its unitholders, including the Company.shareholders. Nonetheless, the trend in environmental regulation is to place more restrictions and limitations on activities that may affect the environment.environment, and it is generally expected that such trend will likely increase under the Biden Administration. 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 EQM currently anticipates.the Company anticipates as of the filing of this Annual Report on Form 10-K. For example, in October 2015, the EPA revisedBiden Administration has announced that it will be reviewing the NAAQSNational Ambient Air Quality Standards (NAAQS) for ozone from 75 parts per billion for the current 8-hour primary and secondary ozonemay make these standards to 70 parts per billion for both standards. The EPA may designatemore stringent. This could result in the areas in which EQMthe Company operates being designated as nonattainment areas. States that contain any areas designated as nonattainment areas will be required to develop implementation plans demonstrating how the areas will attain the applicable standard within a prescribed period of time. These plans may require the installation of
additional equipment to control emissions. The EPA did not make the ozone NAAQS more stringent when it reviewed them in 2020, but the Biden Administration has announced that it will be commencing a review of these NAAQS. In addition, in May 2016,December 2023, the EPA finalized rulesissued a final rule that imposemakes more stringent the volatile organic compound (VOC) and methane emissions limits (and collaterally reduce methane emissions) on certain new and modified equipment in the oil and gas source category, including certain types of compressors and pneumatic pumps, aspumps. The final rule also extends these requirements to existing sources for the first time. Some states are also enacting methane reduction programs. For example, Pennsylvania has a methane reduction framework for the oil and gas industry that will result in an existing source VOC regulation with the stated goal of reducing methane emissions from well as requiring the developmentsites, compressor stations and implementation of leak monitoring plans for compressor stations. The EPA finalized amendments to some requirements in these standards in March 2018 and September 2018, including rescission of certain requirements and revisions to other requirements such as fugitive emissions monitoring frequency. pipelines.
Compliance with these or other new regulations could, among other things, require installation of new emission controls on some of EQM'sthe Company's equipment, result in longer permitting timelines, and significantly increase EQM'sthe Company's capital expenditures and operating costs, which could adversely affect EQM'sthe Company's business. EQM triesThe Company continuously attempts to anticipate future regulatory requirements that might be imposed and plan accordinglyworks to remain in compliance with changing environmental laws and regulations and to minimize the costs of such compliance. While EQM 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.regulations.
The following is a discussion of several of the material environmental laws and regulations, as amended from time to time, that relate to EQM'sthe Company's business.
Hazardous Substances and Waste. CERCLAThe Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and comparable state laws impose liability, without regard to fault or the legality of the original conduct, on certain classes of persons who are considered to be responsible for the release of a "hazardous substance" into the environment. These persons include current and prior owners or operators of the site where a release of hazardous substances occurred and companies that transported, disposed or arranged for the transportation or disposal of the hazardous substances found at the site. Under CERCLA, these "responsible persons" may be subject to strict and joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources and for the costs of certain health studies. CERCLA also authorizes the EPA and, in some instances, third parties, to act in response to threats to the public health or the environment and to seek to recover from the responsible classes of persons the costs they incur. It is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by hazardous substances or other pollutants released into the environment. EQMThe Company generates materials in the course of its ordinary operations that are regulated as "hazardous substances" under CERCLA or similar state laws and, as a result,laws. The Company may be jointly and severally liable under CERCLA, or such laws, for all or part of the costs required to clean up sites at which these hazardous substances have been released into the environment.
EQM alsoIn the ordinary course of the Company's operations, the Company generates wastes constituting solid wastes, includingand in some instances hazardous wastes, which are subject to the requirements of RCRA,the 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 EQM's operations, EQM 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 EQM'sthe Company's maintenance capital expenditures and operating expenses.
EQMThe Company owns, leases or operates properties where petroleum hydrocarbons are being or have been handled for many years. EQMThe Company has generally utilized operating and disposal practices that wereare 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 operated by EQM,the Company, or on or under the other locations where these petroleum hydrocarbons and wastes have been transported for treatment or disposal. In addition,Petroleum hydrocarbons or other wastes may have been disposed or released on certain of these properties have been operated by third parties that previously operated, owned or leased these properties and whose treatment and disposal or release of petroleum hydrocarbons and other wastes were not under EQM'sthe Company's control. These properties and the wastes disposed thereon may be subject to CERCLA, RCRA and analogous state laws. Under these laws, EQMthe Company 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.
Air Emissions. The federal Clean Air Act and comparable state laws and regulations restrict the emission of air pollutants from various industrial sources, including EQM'sthe Company's compressor stations, and also impose various monitoring and reporting requirements. Such laws and regulations may require that EQMthe Company obtain pre-approval for the construction or modification of certain projects or facilities, obtain and strictly comply with air permits containing various emissions and operational limitations and utilize specific emission control technologies to limit emissions. EQM'sThe Company's failure to comply with these requirements could subject it to monetary penalties, injunctions, conditions or restrictions on operations and, potentially,
criminal enforcement actions. EQMThe Company may be required to incur certain capital expenditures in the future for air pollution control
equipment in connection with obtaining and maintaining permits and approvals for air emissions. Compliance
These types of capital expenditures could also be required in areas that are nonattainment for the ozone NAAQS depending on the design of the relevant state’s implementation plan to meet the air quality standards. The EPA did not make the ozone NAAQS more stringent when it reviewed them in 2020, and although the Biden Administration initially indicated that it would reconsider that decision, the EPA announced in August 2023 that it would cease its reconsideration and begin an entirely new review of the ozone NAAQS that would need to be completed by 2025 under the federal Clean Air Act. As of the filing of this Annual Report on Form 10-K, it is not clear when the EPA will issue a notice of proposed rulemaking. If the ozone NAAQS are made more stringent, this could result in additional nonattainment areas being designated, which could in turn result in the Company being required to install additional pollution control equipment. Moreover, with regard to the 2015 ozone NAAQS, the EPA released a final rule in May 2023 called the Good Neighbor Plan that imposes a federal implementation plan in 23 states to address air pollution from those states that is contributing to downwind nonattainment of the 2015 ozone NAAQS in other states. The final rule establishes limitations on emissions of nitrogen oxides for certain industrial stationary sources in 23 states, including states in which the Company operates. The rule has been stayed in 12 states including West Virginia by seven different federal courts of appeals because the underlying disapproval of those states’ state implementation plans has been found likely to have been unlawful. The Good Neighbor Plan remains in effect in the remaining 11 states including Ohio, Pennsylvania and Virginia. The final Good Neighbor Plan has been challenged in various courts of appeals, including the D.C. Circuit. The D.C. Circuit denied a motion to stay the rule in September 2023, and some of the parties filed emergency stay applications with the U.S. Supreme Court in October 2023. The U.S. Supreme Court has scheduled oral argument on the emergency stay applications for February 21, 2024. As of the filing of this Annual Report on Form 10-K, it is not clear how the U.S. Supreme Court will rule on the emergency stay application or how the other courts of appeals will rule on the challenges to the underlying disapproval of some states' implementation plans and on the Good Neighbor Plan itself. If the Good Neighbor Plan withstands these judicial challenges and remains in place in states in which the Company operates, the Company will be required to install additional pollution control equipment on certain of its assets, but the Company does not anticipate that compliance with the Good Neighbor Plan will have a material effect on the Company’s capital expenditures, earnings and competitive position.
In August 2023, an EPA issued final rule removing the “emergency” affirmative defense provision from the EPA’s Title V permit program regulations became effective. The EPA removed this provision from the permitting program because the agency found that these provisions conflicted with its current interpretation of the enforcement structure of the Clean Air Act. The EPA has directed states with similar emergency affirmative defense provisions in their Title V permitting programs to revise permits contains those provisions during permit renewals. The final rule has been challenged in the D.C. Circuit, but, as of the filing of this Annual Report on Form 10-K, is in abeyance awaiting a decision in a separate D.C. Circuit case involving a different EPA rule that may have relevance to the challenge to the emergency defense rule. Although the EPA has stated that it “may” use its “case-by-case” enforcement discretion to determine whether to initiate enforcement as appropriate, this rule removes the automatic defense the Company could claim in an emergency situation and may make it more difficult to avoid liability for Title V permit violations.
On February 7, 2024, the EPA released a final rule revising the NAAQS for fine particulate matter (PM2.5). In the final rule, the EPA lowered the level of the annual NAAQS from 12.0 µg/m3 to 9.0 µg/m3. The new annual NAAQS could result in additional nonattainment areas being designated in areas in which the Company operates, which would result in new construction being more difficult in these areas. It would also result in states having to develop new state implementation plans setting forth the measures the state intends to take to attain the new annual standard, and it is possible that these new state implementation plans could require air pollution control devices to be installed on existing compression stations. The rule will take effect 60 days after it is published in the Federal Register, which had not occurred as of the filing of this Annual Report. It is not possible as of the filing date of this Annual Report on Form 10-K to predict the ultimate impact the revised annual PM2.5 NAAQS may have on the Company’s business or operations.
Future compliance with these requirements may require modifications to certain of EQM'sthe Company's operations, including the installation of new equipment to control emissions from EQM'sthe Company's compressors, that could result in significant costs, including increased capital expenditures and operating costs, and could adversely affect EQM'sthe Company's business.
Climate Change. The Company has announced an aspiration of becoming net zero for scope 1 and 2 carbon emissions by 2050. The Company’s climate policy includes two interim emission reduction goals: (i) a 50 percent reduction of its Scope 1 and Scope 2 methane emissions by 2030; and (ii) a 50 percent reduction of its total Scope 1 and Scope 2 greenhouse gas (GHG) emissions by 2040.
Legislative and regulatory measures to address climate change and GHG emissions are in various phases of discussion or implementation. implementation and are a major focus of the Biden Administration. On January 27, 2021, President Biden signed an executive
order on "Tackling the Climate Crisis at Home and Abroad." This executive order contains sweeping direction to the executive branch to address climate issues. As discussed further below, the construction of interstate natural gas transportation pipelines pursuant to the NGA requires authorization from the FERC, and FERC actions are subject to review under NEPA. NEPA requires federal agencies, such as the FERC, to evaluate major federal actions having the potential to significantly affect the environment. On January 9, 2023, the White House Council on Environmental Quality published new interim guidance entitled “National Environmental Policy Act Guidance on Consideration of Greenhouse Gas Emissions and Climate Change.” Generally, the interim guidance calls for increased scrutiny of the GHG effects of proposed federal action, including requiring agencies to quantify the proposed action’s GHG emissions and relevant climate impacts. The interim guidance and increased review of the GHG impacts of federal action has the potential to significantly delay or limit, and significantly increase the cost of, development of midstream infrastructure. The EPA announced its Climate Enforcement and Compliance Strategy in September 2023, which directs all enforcement and compliance programs in the EPA to address climate change, wherever appropriate, in every matter within their jurisdiction. The Compliance Strategy also directs the EPA to prioritize enforcement and compliance actions to mitigate climate change and to include climate adaptation and resilience requirements whenever appropriate.
The EPA regulates GHG emissions from new and modified facilities that are potential major sources of criteria pollutants under the Clean Air Act's Prevention of Significant Deterioration and Title V programs.programs and has adopted regulations that require, among other things, preconstruction and operating permits for certain large stationary sources and the monitoring and reporting of GHGs from certain onshore oil and natural gas production sources on an annual basis.
Since May 2016, the EPA has regulated methane and VOCs from the oil and gas sector through its new source performance standard program under the Clean Air Act. These initial rules (Subpart OOOOa) impose methane and VOC emissions limits on certain types of new and modified compressors and pneumatic pumps. In December 2023, the EPA issued a final rule, which as of the filing of this Annual Report on Form 10-K has not yet been published in the Federal Register, that does three things: (i) modifies Subpart OOOOa to, among other things, increase fugitive emissions monitoring frequency; (ii) promulgates a new Subpart OOOOb that imposes more stringent requirements on new and modified oil and gas sources that commence construction or modification on or after December 6, 2022; and (iii) promulgates an emissions guideline (a new Subpart OOOOc) that provides direction to the states to regulate VOC and methane emissions from existing sources in the sector for the first time. The Subpart OOOOc directs states to regulate existing sources in largely the same manner in which new and modified sources are regulated under Subpart OOOOb. It is expected that some parties may challenge the final rule once it is published in the Federal Register. It is also expected that some parties may file petitions for reconsideration asking the EPA to reexamine certain parts of the final rule. If those challenges are filed and the rule withstands judicial review, or if the EPA decides against any changes to the final rule in response to petitions for reconsideration, the Company will be required to incur certain capital expenditures for air pollution control equipment, increased fugitive emissions monitoring, and other requirements that could result in significant costs and could adversely affect the Company's business. In addition, the Pennsylvania Environmental Quality Board has promulgated regulations that require conventional oil and natural gas sources of volatile organic compounds and methane to meet reasonably available control technology standards to control these emissions, which could result in significant costs that could adversely affect the Company’s business.
In August 2022, the Inflation Reduction Act (IRA) was enacted. Among other provisions, the IRA includes a methane fee that is imposed on certain types of facilities, including certain ones owned and/or operated by the Company. The IRA exempts from the methane fee those facilities that are subject to the EPA’s final methane rule (Subparts OOOOb and OOOOc discussed above), provided that the rule results in emission reductions that are at least equivalent to those that would be achieved under the November 2021 proposed rule (which is the case for new and modified sources and will be the case for existing sources unless a state is able to justify a lesser standard based on the Clean Air Act’s “remaining useful life and other factors” provision). The EPA published a proposed rule in the Federal Register in January 2024. The proposed rule makes clear that the EPA does not think the exemption for existing sources that are subject to Subpart OOOOc would be available until state plans implementing OOOOc are approved and in effect in all states with sources subject to Subpart OOOOc. If the EPA finalizes this interpretation of the IRA’s exemption, the methane fee could have a material effect on the Company until all states have finalized and had their plans approved by the EPA. Under the IRA, the Company could be liable for methane emissions from applicable facilities that are above 25,000 metric tons of carbon dioxide equivalent. These fees are written into the IRA and are: (1) $900 per ton for any tons over the threshold that are reported for calendar year 2024; (2) $1,200 per ton for any tons over the threshold that are reported for calendar year 2025; and (3) $1,500 per ton for any tons over the threshold that are reported for calendar year 2026 and each year thereafter. Even once all the states have approved state plans to implement Subpart OOOOc, it is possible that the Company could have operations in a state that implements less stringent emissions standards than the final Subpart OOOOc emissions guideline, in which case the exemption would not be available for applicable facilities in that state.
The IRA also directed the EPA to amend Subpart W of the Greenhouse Gas Reporting Rule (which governs GHG emissions by the oil and gas sector). The EPA issued a proposed rule amending Subpart W in August 2023. Depending on how the Subpart OOOOc of the EPA’s final rule and the Subpart W of the Greenhouse Gas Reporting Rule are finalized, there is a potential for
significant impacts on calculation of the Company’s IRA methane fee. In May 2023, the EPA proposed revised new source performance standards and an emissions guideline for certain new, modified, reconstructed, and existing natural gas-fired electric generating units. If finalized, this rule could have an impact on the demand for natural gas from the U.S. power sector, which could have an adverse effect on the demand for the Company’s business. State programs regulating GHG emissions from power plants, such as the Regional Greenhouse Gas Initiative (RGGI), can also have the effect on the Company of reducing demand for natural gas by power plants. RGGI was found, however, to be unconstitutional in Pennsylvania in November 2023, but this decision is being appealed. Virginia also withdrew from the RGGI program effective January 1, 2024, but as of the filing of this Annual Report on Form 10-K, the decision has not yet been challenged in court.
California enacted two climate-related disclosure laws called the Climate Corporate Data Accountability Act (CCDAA) and the Climate-Related Financial Risk Act (CRFRA) on October 7, 2023. These laws may apply to the Company if we are considered to be “doing business in California” under the CCDAA and the CRFRA. Under the CCDAA, we may be required to quantify and disclose certain GHG emissions data in accordance with the GHG Protocol, a standard developed by the World Resources Institute and the World Business Council for Sustainable Development beginning in 2026 (with the reporting of 2025 emissions data). These reports must be independently audited by a third-party assurance provider. The CRFRA may require us to prepare and submit a biennial report in accord with the framework of the Final Report and Recommendations of the Task Force on Climate-related Financial Disclosures disclosing the company’s climate-related financial risk, and the measures it has adopted to reduce and adapt to climate-related financial risk, with the first report due on January 1, 2026. These financial risk reports must be made available to the public on our website by the applicable compliance dates. There are annual fees associated with both the CCDAA and the CRFRA as well. The CCDAA and the CRFRA may cause us to incur additional (and potentially accelerate) compliance and reporting costs, certain of which could be material, including related to monitoring, collecting, analyzing and reporting new metrics and implementing systems and procuring additional necessary attestation. As of the filing of this Annual Report on Form 10-K, the California Air Resources Board has not yet issued proposed regulations to implement these two climate disclosure laws. Similarly, on March 21, 2022, the SEC released proposed rule changes that would require new climate-related disclosure in SEC filings, including certain climate-related metrics and GHG emissions. The SEC proposal, which as of the filing of this Annual Report on Form 10-K has not been finalized, would also require disclosure of our certain GHG emissions, further increasing our compliance and reporting costs. Such costs may adversely affect our future business, financial condition, results of operations, and liquidity.
The U.S. Congress, along with federal and state agencies, has also considered other measures to reduce the emissions of GHGs. Legislation or regulation that imposes a carbon tax on carbon emissions or that restricts carbonthose emissions could increase EQM'sthe Company's cost of environmental compliance through the Company's incurrence of increased non-income taxes or by requiring EQMthe Company to install new equipment to reduce emissions from larger facilities and/or, depending on any future legislation, purchase emission allowances. The effect of climate change legislation or regulation on the Company's business is uncertain as of the filing of this Annual Report on Form 10-K. If the Company incurs additional costs to comply with such legislation or regulations, it may not be able to pass on the higher costs to its customers or recover all the costs related to complying with such requirements and any such recovery may depend on events beyond the Company's control, including the outcome of future rate proceedings before the FERC or state regulatory agencies and the provisions of any final legislation or implementing regulations. The Company's future results of operations, cash flows or financial condition could be adversely affected if such costs are not recovered through regulated rates or otherwise passed on to its customers. Additionally, the Company's producer customers may also be affected by legislation or regulation, which may, directly or indirectly, adversely impact their ability and willingness to produce natural gas and accordingly affect such producers' financial health or reduce the volumes delivered to the Company and demand for its services. Climate change and GHG legislation or regulation could also delay or otherwise negatively affect efforts to obtain and maintain permits and other regulatory approvals with regard tofor existing and new facilities, or impose additional monitoring and reporting requirements. For example, in October 2015,requirements or adversely affect demand for the EPA expanded the petroleum and natural gas system sources for which annual GHG emissions reporting would be required. Additionally, several states are pursuing similar measures to regulate emissions of GHGs from newthe Company gathers, transports and existing sources. If implemented, such restrictions may result in additional compliance obligations with respect to, or taxes on the release, capture and use of GHGs that could have an adverse effect on EQM's operations. Conversely, legislation or regulation that sets a price on or otherwise restricts carbon emissions could also benefit EQM 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.stores. The effect on EQMthe Company of any new legislative or regulatory measures will depend on the particular provisions that are ultimately adopted.
See also “Our business is subject to climate change-related transitional risks (including evolving climate-focused regulation and climate change-driven trends emphasizing the financing of non-fossil fuel businesses and prompting the pursuit of emissions reductions, lower-carbon technologies, and alternative forms of energy), as well as physical risks that could significantly increase our operating expenses and capital costs, adversely affect our customers’ development plans, and reduce demand for our products and services.” under Part I, "Item 1A. Risk Factors" of this Annual Report on Form 10-K.
Water Discharges. The federal Clean Water Act and analogous state laws impose restrictions and strict controls regarding the discharge of pollutants or dredged and fill material into federal and state waters as well as waters of the United States, including adjacent wetlands. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of permits issued by the EPA, the U.S. Army Corps of Engineers (U.S. Army(Army Corps) or an analogous state agency. In September 2015, new EPA and U.S. Army Corps rules defining the scope of the EPA's and the U.S. Army Corps' jurisdiction became effective (the 2015 Clean Water Rule). But, however, the 2015 Clean Water Rule was promptly challenged in courts and was enjoined by judicial action
in some states. Further, it has been delayed in effectiveness through agency rulemaking until February 6, 2020 nationwide. In December 2018,October 2019 the EPA issued a rule repealing the 2015 Clean Water Rule and recodifying the U.S.preexisting regulations. In June 2020, new EPA and Army Corps of Engineers issued a proposed ruleregulations narrowing the regulatory scope of the Clean Water Act's jurisdiction.Act became effective (the 2020 Navigable Waters Protection Rule). Like the 2015 Clean Water Rule, the 2020 Navigable Water Protection Rule was promptly challenged in courts and has been enjoined by judicial action in at least one state. On December 7, 2021, the EPA and the Army Corps published a proposed rule that would reinstate the pre-2015 definition of waters of the United States, updated to reflect recent U.S. Supreme Court decisions through that date. On December 30, 2022, the EPA and the Army Corps announced the final revised rule, which took effect on March 20, 2023. On May 25, 2023, the U.S. Supreme Court issued its ruling in Sackett v. EPA, U.S. Supreme Court Docket No. 21-454, holding that portions of the existing rules defining “waters of the United States” were invalid, and announcing a new definition of “waters.” On August 29, 2023, the EPA and the Army Corps issued a revised final rule designed to conform their regulations to the Sackett decision (the Conforming Rule), and the Conforming Rule took effect immediately upon its publication on September 8, 2023. However, the Conforming Rule itself does not define certain language from the U.S. Supreme Court’s ruling, and could be expanded or face additional legal challenges in the future. To the extent that any future rules expand the scope of the Clean Water Act's jurisdiction, EQMor to the extent individual states choose to define their jurisdiction to include, and impose requirements on, waters previously regulated by the federal agencies, the Company could face increased costs and delays with respect to obtaining permits for activities in jurisdictional and non-jurisdictional waters, including wetlands.
The Sackett decision may also have effects on the implementation of Water Quality Certifications (WQC) under Section 401 of the Clean Water Act. Section 401 requires that any activity that may result in a discharge to waters of the United States must first receive a Section 401 WQC before a federal agency may issue a permit for that activity. A WQC is typically issued by the state where the discharge originates, or by the EPA itself in areas where a state or tribe does not have authority. In 2020, the EPA finalized a series of changes to the Clean Water Act regulations governing the WQC process, largely curtailing states’ and tribes’ authority over WQCs. On September 27, 2023, the EPA published a final rule that restores states’ and tribes’ authority to review requests for WQCs and imposes additional requirements on the WQC process. The final rule took effect on November 27, 2023, but has been challenged by states and regulated entities in ongoing litigation enjoin its enforcement. If certain elements of the final rule remain in effect, such as expanding the scope of WQCs to non-water quality impacts and changing the allowed time for review by states and tribes, or if states or tribes attach non-water-quality conditions to issuance of WQCs, the Company could face increased costs and delays with respect to obtaining permits for pipeline crossings and other activities in jurisdictional and non-jurisdictional waters.
Spill prevention, control and countermeasure requirements of federal laws require appropriate containment berms and similar structures to help prevent the contamination of regulated waters in the event of a hydrocarbon spill, rupture or leak. In addition, the Clean Water Act and analogous state laws require individual permits or coverage under general permits for discharges of storm water runoff from certain types of facilities. Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with discharge permits or other requirements of the Clean Water Act and analogous state laws. EQMThe Company believes that compliance with existing permits and foreseeable new permit requirements will not have a material adverse effect on its business, financial condition, results of operations, liquidity or ability to make quarterly cash distributionspay dividends to its unitholders,shareholders.
Nationwide Permits (NWPs) are issued by the Army Corps under the Clean Water Act and the Rivers and Harbors Act of 1899 and act as a type of general permit to minimize delays and paperwork for certain activities and discharges in federal jurisdictional waters and wetlands. NWPs are typically reviewed and reissued (or modified) every five years. One such permit, NWP 12, authorizes certain “Oil or Natural Gas Pipeline Activities” and was most recently modified and reissued in January 2021. On March 28, 2022, reportedly at the request of the Biden Administration, the Army Corps initiated an early review of NWP 12 to determine whether any future actions may be appropriate to modify NWP 12 prior to its expiration in 2026. The Army Corps solicited public and stakeholder comments through public meetings held in May 2022, but has not provided any additional updates on the status of its review. To the extent future revisions to NWP 12 or litigation relating to such revisions modify its provisions with respect to oil and natural gas pipeline activities, the Company could face increased costs and delays with respect to obtaining permits for activities in jurisdictional waters, including the Company.wetlands.
National Environmental Policy Act. The construction of interstate natural gas transportation pipelines pursuant to the NGA requires authorization from the FERC. The FERC actions are subject to the National Environmental Policy Act of 1978, as amended (NEPA). NEPA requires federal agencies, such as the FERC, to evaluate major federal actions having the potential to significantly affect the environment. In the course of such evaluations, an agency will either prepare an environmental assessment that assessesexamines the potential direct, indirect and cumulative effects of a proposed project or, if necessary, a more detailed Environmental Impact Statement. Any proposed plans for future construction activities that require FERC authorization will be subject to the requirements of NEPA. This process has the potential to significantly delay or limit, and significantly increase the cost of, development of midstream infrastructure. In September 2020, new Council on Environmental Quality regulations intended to streamline the NEPA evaluation process went into effect. Those rules have been challenged in courts, although initial efforts to enjoin enforcement of the rule were unsuccessful. On January 20, 2020, President Biden issued an
Executive Order requiring a review of certain federal regulations, and in response the Council on Environmental Quality initiated a two-phase process to review NEPA regulations. Phase 1 of that process resulted in new regulations taking effect in May 2022, partially reverting NEPA regulations to rules that were in effect at the end of the Obama administration. On July 31, 2023, the Council on Environmental Quality published proposed Phase 2 revisions to NEPA regulations, including revisions to bring the regulations into compliance with changes made to NEPA by the Fiscal Responsibility Act of 2023, to increase substantive obligations placed on federal agencies in NEPA process, require consideration of climate change consequences, and require consideration of environmental justice, among other changes. The comment period for the proposed Phase 2 rules ended on September 29, 2023; a final rule is expected to follow.
Endangered Species Act. The federal Endangered Species Act (ESA) restricts activities that may adversely affect endangered and threatened species or their habitats. Federal agencies are required to ensure that any action authorized, funded or carried out by them is not likely to jeopardize the continued existence of listed species or modify their critical habitat. While some of EQM's facilities are located in areas that are designated as habitats for endangered or threatened species, EQM believes that it is in substantial compliance with the ESA. The federal designation of previously unprotected species as being endangered or threatened, or the federal designation of previously unprotected areas as a critical habitat for such species, has caused and could in the future cause EQMthe Company to incur additional costs, resulted in and could in the future result in delays in construction of pipelines and facilities, or cause EQMthe Company to become subject to operating restrictions in areas where the species are known or presumed to exist. For example, on September 14, 2022, the U.S. Fish and Wildlife Service (FWS) proposed to list the Tricolored Bat (Perimyotis subflavus) as an endangered species; the Tricolored Bat is located in 39 states including North Carolina, Ohio, Pennsylvania, Virginia, and West Virginia. As of the filing of this Annual Report on Form 10-K, the FWS has not finalized that proposal, but an endangered species listing of the Tricolored Bat could limit development activities, particularly tree clearing, in areas where the bat is known or presumed to be present, including areas where we operate. The FWS continues to receive
hundreds of petitions to consider listing additional species as endangered or threatened and is being regularly sued or threatened with lawsuits to address these petitions. Some of these legal actions may result in the listing of species located in areas in which EQMthe Company operates. Throughout 2020, the U.S. Department of Interior narrowed the ESA regulations and their applicability. These regulations have been challenged in the courts. In August 2022, the U.S. Department of the Interior rescinded certain aspects of the 2020 changes to the ESA regulations. On June 22, 2023, the FWS also proposed further revisions to three sets of ESA regulations, all intended to reverse rules issued in 2019; those proposed rules remain pending. Some or all of these rules could be subject to additional rulemaking or litigation to revise or rescind the rules currently in effect as of the filing of this Annual Report on Form 10-K.
EmployeeEnvironmental Justice. The federal government has made advancing environmental justice a priority and has announced a number of new initiatives in the area. Some of those initiatives could have impacts on the business of oil and gas companies, although the amount of impacts remain uncertain. The Biden Administration announced a renewed commitment to environmental justice in a day one executive order, Executive Order 13990: Protecting Public Health and Safety. EQMthe Environment and Restoring Science to Tackle the Climate Crisis, and followed up that action with Executive Order 14008: Tackling the Climate Crisis at Home and Abroad, which further solidified the administration’s commitment to addressing climate change and advancing environmental justice. Further, in April 2023, the Biden Administration issued Executive Order 14096: Revitalizing Our Nation’s Commitment to Environmental Justice for All, which reinforced the administration’s whole-of-government approach to advancing environmental justice. Since the beginning of the Biden Administration, numerous federal agencies have announced initiatives to prioritize environmental justice as they fulfill their missions.
On May 5, 2022, the U.S. Department of Justice (DOJ) launched a comprehensive environmental justice enforcement strategy designed to guide the DOJ’s work and ensure use of all available tools to promote environmental justice. The strategy provides a roadmap for using DOJ’s civil and criminal enforcement authorities to advance environmental justice through prioritizing enforcement of environmental and civil rights violations in overburdened communities. On the same day, DOJ also launched the Office of Environmental Justice, which has the mission of protecting overburdened and underserved communities from the harm caused by environmental crimes, pollution and climate change. The office serves as a central hub for implementing DOJ’s comprehensive environmental justice enforcement strategy and engages with all department entities to carry out this task.
Further, on September 24, 2022, the EPA launched the Office of Environmental Justice and External Civil Rights. In addition to providing resources and technical assistance on civil rights and environmental justice, the Office of Environmental Justice and External Civil Rights enforces federal civil rights laws, including Title VI of the Civil Rights Act of 1964, which prohibits discrimination by federal funding recipients.
In addition, the FERC has increased its focus on environmental justice issues in its processes and analyses. For example, in March 2023, the FERC convened the Roundtable on Environmental Justice and Equity in Infrastructure Permitting as part of its two-year Equity Action Plan to promote equity and remove barriers that underserved communities, including environmental justice communities, face in the context of the FERC’s processes and policies in five focus areas.
Equitrans Midstream is aware of these changes regarding environmental justice-related policy and enforcement and is in the process of assessing whether and how they may affect the Company. Equitrans Midstream will continue to monitor new developments and actions taken by each of these offices.
States are also in the process of reexamining environmental justice law and policy. Pennsylvania’s then governor signed Executive Order 2021-07 in October 2021. The executive order permanently created an Office of Environmental Justice within the Pennsylvania Department of Environmental Protection, formally established the existent Environmental Justice Advisory Board, and created an Environmental Justice Interagency Council. In September 2023, the Pennsylvania Department of Environmental Protection’s interim final Environmental Justice Policy became effective after an extensive public comment period. The interim final policy was subject to a numberpublic comment period that ended November 30, 2023, indicating the policy may be amended further. The prior policy had been in effect since 2004. Under the interim final policy, applications for certain Pennsylvania Department of federalEnvironmental Protection permits in environmental justice areas would be subject to specified enhanced public participation requirements, and the agency would prioritize inspections and enforcement in environmental justice areas. In Virginia, the legislature enacted the Environmental Justice Act of 2020, which requires state lawsagencies to examine the environmental justice impacts of their actions and regulations, includingcreates a council to recommend new environmental justice policies. In May 2023, the federal Occupational Safety and Health Act (OSHA) and comparable state statutes, whose purpose isVirginia Department of Environmental Quality released for public comment draft guidance entitled Environmental Justice in the Permitting Process, which provides guidance to protectagency personnel on a permit evaluation process for permitting actions in environmental justice communities. Finalization of the health and safetyguidance document remains pending. The West Virginia Department of workers. In addition, the OSHA hazard communication standard,Environmental Protection released draft Public Engagement Guidelines, which set forth guidance for agency public engagement efforts, for public comment in September 2023. The guidelines are pending finalization. Ohio appears to be monitoring developments at the EPA and other federal agencies. Many of the key issues before the states appear to be focused on enhancing public participation in permitting and other project development-related decisions. State agencies also appear to be considering new approaches to environmental justice in permitting decisions, potentially denying permits or other authorizations on environmental justice grounds. The Company will continue to monitor state legal and regulatory developments in this area and respond as appropriate.
The majority of environmental justice litigation matters appear focused on whether state or federal agencies with permitting or other decision-making responsibility have adequately considered environmental justice issues during the decision-making process. These kinds of litigation, even if unsuccessful, present risks to the underlying project’s timeline and budget. Equitrans Midstream will continue to monitor these litigation-related developments.
Equitrans Midstream takes environmental justice issues seriously and is committed to supporting the communities in which the Company operates. In July 2022, the Company published its Environmental Justice Policy that reaffirms our commitment to providing reliable energy infrastructure in a safe and responsible manner while treating all people fairly. Additionally, one of the Company’s pillars of sustainability is stakeholder engagement, including engagement with the communities where Equitrans Midstream operates. For example, Equitrans Midstream has adopted a Stakeholder Engagement and Community Investment Policy, which emphasizes early and consistent community "right-to-know" regulationsengagement throughout project development and comparable state lawsoperation, and regulations require that information be maintained concerning hazardous materials used or produced in EQM's operationsit specifically prioritizes environmental justice and that this information be providedenvironmental stewardship. The Company has also adopted a Human Rights Policy committing the Company to employees, statesafeguarding dignity and local government authoritiesrespect for all people throughout the Company’s value chain, including through community engagement and citizens. EQM believes that it is in substantial compliance with all applicable laws and regulations relating to worker health and safety.the prevention of discrimination.
Seasonality
Weather affects 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.
EmployeesHuman Capital Management
To ensure that we are well positioned to provide innovative solutions and reliable energy infrastructure services in a safe, efficient, and responsible manner and in a changing economic landscape focused on long-term, sustainable operations, the Company seeks to employ a team of highly accomplished people who are dedicated to the Company’s success and to foster an engaging workplace environment that provides for competitive pay and benefits, attractive career development opportunities, and a collaborative, respectful culture.
As of December 31, 2023, the Company had 773 employees. During 2023, the Company's overall turnover was 6% (with more than 5% being voluntary turnover) of the total employee population.
Company Culture. The Company’s five core values of Safety, Integrity, Collaboration, Transparency, and Excellence shape its culture and identity and provide the framework for employee conduct and the Company’s relationships with its stakeholders.
Safety. Above all else, safety is the Company's main priority – this includes the safety of its employees, contractors, and communities – always. The Company is committed to maintaining a strong safety culture and continuing to identify and mitigate safety risks. The Health, Safety, Sustainability and Environmental Committee of the Board provides oversight for the Company's safety initiatives. The Company tracks numerous safety-related metrics to evaluate its safety performance and has incorporated safety metrics into the Company's annual incentive plan.
Diversity and Inclusion. The Company believes that diversity of thought and perspective and a team-based approach are essential to its continued success and the Company is committed, through its Inclusion Program and other initiatives, to continuing to build a diverse, inclusive, respectful, and safe workplace. During 2023, the Company hosted, and more than 300 employees attended, five educational sessions on inclusion topics, including a training on disability awareness and cognitive bias; implemented an automated resume redaction process for initial resume reviews during recruitment; promoted and obtained more than 50% employee participation in an Equitrans DEI Badge program whereby employees completed inclusion-focused courses to earn one of three badge levels (advocate, ambassador, and champion) to display in their email signatures and on LinkedIn; continued the annual mentor program for high potential underrepresented employees based on a successful pilot program in 2022; and continued to publish an Inclusion Scorecard to capture relevant employee demographics for discussion with leadership and for all employees to review.
The Company also partners with several diverse organizations to broaden and extend its recruitment efforts, including HBCUConnect.com (Historically Black Colleges and Universities Connect), DiversityJobs.com, RecruitMilitary.com and GettingHired.com (representing individuals with disabilities).
Total Rewards. The Company believes its employees are critical to its success and its subsidiaries had 770total rewards and benefits are structured to attract and retain a talented and engaged workforce. These benefits include comprehensive health insurance for full- and part-time employees; a robust wellness program; annual flu immunizations; access to an Employee Assistance Program; tuition reimbursement; adoption assistance and paid new parent leave; paid time off for holidays, vacation, bereavement, jury duty, military and volunteer time; paid short- and long-term disability, life insurance, and business travel insurance; medical spending accounts for eligible retirees; competitive base salaries and an annual incentive plan and long-term incentive opportunities; and a robust retirement plan with generous company matching and non-elective contributions. In addition, the Company offers flexible work arrangements based on job duties, which the Company recognizes is enabling it to compete for talent on a broad geographic basis.
Talent Development. The Company believes it has a robust talent and leadership development framework. The Human Capital and Compensation Committee of the Board reviews and discusses with management the human capital management matters relevant to the Company’s work force, including talent attraction and retention. The Company provides technical, behavioral, and leadership training to multiple levels of Company individual contributors, managers, and leaders, as well as customized, executive-level assessment, development, and coaching programs for senior leaders. Employees at all levels within the Company are encouraged to participate in relevant developmental opportunities through Company partnerships with external learning organizations and all employees are encouraged to complete an annual development plan.
Culture and Inclusion Council. The Company continues to utilize a cross-functional Culture and Inclusion Council (CIC) which solicits employee feedback on ways to further enhance corporate culture. In 2023, as part of December 31, 2018; noneits One Team philosophy, the Company emphasized internal relationships and connectedness in a hybrid person-centric work environment. The CIC hosted four regionally based networking opportunities for employees in Pennsylvania, Texas, and Florida; six Coffee Talks, which are subjectvirtual informational sessions on various Company or wellbeing topics; and seven Lunch with Leaders opportunities in which members of the leadership team take small groups of employees to lunch. The Company also continued to promote a collective bargaining agreement.flexible work environment for all employees, regardless of how or from where they work. This includes flexible temporary schedules when family or personal matters arise, and various permanent work schedule options based on the nature of the job and an employee’s personal preference. We encourage all employees, both field and non-field workers, to utilize flexibility opportunities as needed. As part of its person-centric work environment, the Company believes that nurturing relationships, supporting employees’ individual needs, and connecting with one another helps to foster a One Team environment to further drive efficiency and promote a stronger corporate culture long-term.
Additional Information. The Company publishes an annual Corporate Sustainability Report (CSR), which contains the most recent available data on a variety of topics, including those discussed above under the heading "Human Capital Management."Copies of the 2023 CSR are available free of charge on the Company’s website (www.equitransmidstream.com) by selecting the "Sustainability" tab on the main page and then the "Sustainability Reporting" link. Information included in the CSR or our website is not incorporated into this Annual Report on Form 10-K.
Availability of Reports
The Company makes certain filings with the SEC, including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments and exhibits to those reports, available free of charge through its website, www.equitransmidstream.com, as soon as reasonably practicable after they are filed with or furnished to the SEC. Reports filed with, or furnished to, the SEC are also available on the SEC's website at http://www.sec.gov.
Jurisdiction and Year of Formation
The Company is a Pennsylvania corporation formed in May 2018 in connection with the Separation.
Item 1A. Risk Factors
In addition to the other information contained in this Annual Report on Form 10-K, the following risk factors (and related summary) should be considered in evaluating the Company'sour business and future prospects. The following discussion of risk factors, including the summary, contains forward-looking statements. TheseThe summary below is not exhaustive and is qualified by reference to the full set of risk factors set forth in this section.
The risk factors may be important for understanding any statement in this Annual Report on Form 10-K or elsewhere. The following information, including the full set of risk factors set forth in this section, should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation"Operations" and the financial statements and accompanying notes included in "Item 8. Financial Statements and Supplementary Data."Data" in Part II of this Annual Report on Form 10-K. Note that additional risks not presently known to us or that are currently considered immaterial as of the filing of this Annual Report on Form 10-K may also have a negative impact on our business and operations. If any of the events or circumstances described below actually occurs, the Company'sour business, financial condition, results of operations, liquidity or ability to pay dividends could suffer and the trading price of our common stock could decline.
Because of the following factors, as well as other variables affecting the Company'sour results of operations, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods.
Summary of Risk Factors
The following is a summary of the most significant risks relating to our business activities that we have identified. If any of these risks actually occur, our business could be materially adversely affected. For a more complete understanding of our material risk factors, this summary should be read in conjunction with the detailed description of our risk factors which follows this section.
Risks Related to Our Operations
•We generate a substantial majority of our revenues from EQT and therefore are subject to the business and liquidity risks of EQT, and any decrease in EQT's drilling or completion activity or a greater focus of such activity on acreage not dedicated to us could adversely affect us.
•Expanding our business by constructing new midstream assets subjects us to risk.
•The regulatory approval process, including judicial review, for the construction of new transmission assets is very challenging and has significantly impacted, and in the future could impact, our and the MVP Joint Venture's ability to obtain or maintain all approvals necessary to complete certain projects in a timely manner or at all or our ability to achieve the expected investment returns on the projects. If we do not complete organic growth projects, realize revenue generating volume growth on our systems, and/or identify and complete inorganic growth opportunities, our future growth may be limited. Further, there is no assurance as to the outcome of our Board of Directors' ongoing strategic process with respect to the Company.
•Decreases or a lack of growth in production of natural gas in our areas of operation, and the lack of diversification of our assets, products and geographic locations, could further adversely affect us.
•Impairments of our assets, including property, plant, and equipment, intangible assets, goodwill and our equity method investment in the MVP Joint Venture, previously have reduced, and if incurred in the future could reduce, our earnings.
•Cyberattacks aimed at us and/or third parties on which we rely, as well as any noncompliance by us or our third parties with applicable laws and regulations governing cybersecurity and/or data privacy, could materially adversely affect us.
•Our subsidiaries' significant indebtedness, and any future indebtedness, as well as the restrictions under our subsidiaries' debt agreements, could adversely affect us.
•We or our joint ventures may be unable to obtain financing on satisfactory terms and financing transactions may increase our financial leverage or cause dilution to our shareholders. A further downgrade of EQM’s credit ratings could impact our liquidity, access to capital, and costs of doing business.
•Increasing scrutiny and changing stakeholder expectations for ESG matters and sustainability practices may adversely affect us.
•Our business is subject to climate change-related transitional risks and physical risks that could significantly increase our operating expenses and capital costs, adversely affect our customers’ development plans, and reduce demand for our products and services.
•We face and will continue to face opposition to and negative public perception regarding the development of our projects and the operation of our pipelines and facilities from various groups.
•Increased competition from other companies that provide gathering, transmission and storage, and water services, or from alternative fuel or energy sources, could have a negative impact on customer throughput and the demand for our services and could limit our ability to grow.
•We are exposed to the credit risk of our counterparties in the ordinary course of our business.
•We may not be able to realize the expected investment return under certain of our existing contracts, or renew or replace expiring contracts at favorable rates, on a long-term basis or at all, and we have in the past been and may become subject to disagreements with counterparties on the interpretation of existing or future contractual terms.
•Third-party pipelines and other facilities interconnected to our pipelines and facilities may become unavailable to transport or process natural gas, or may not accept deliveries of natural gas from us or our joint ventures.
•Joint ventures that we have entered into (or may in the future enter into) might restrict our operational and corporate flexibility and divert our management’s time and our resources. We do not exercise control over our joint ventures or joint venture partners, and it may be difficult or impossible for us to cause these joint ventures or partners to take actions that we believe would be in our or the joint venture’s best interests.
•Strategic transactions could reduce, rather than increase, our results of operations and liquidity, and adversely affect our ability to pay dividends to our shareholders.
•We have incurred and expect to continue to incur costs and expenses resulting from or arising out of the Rager Mountain natural gas storage field incident in November 2022, including potentially additional regulatory penalties.
•We do not insure against all potential losses and could be seriously harmed by unexpected liabilities.
•Significant portions of our pipeline systems have been in service for several decades, and we are subject to numerous hazards, regulatory compliance obligations and operational risks.
•We do not own all of the land on which our assets are located, which could disrupt our operations and future development.
•The loss or disengagement of key personnel could adversely affect our ability to execute our plans.
•Our exposure to commodity price risk may increase in the future.
Legal and Regulatory Risk
•Our natural gas gathering, transmission and storage services are subject to extensive regulation. Changes in or additional regulatory measures, and related litigation, could have a material adverse effect on us.
•We may incur significant costs as a result of performance of our pipeline integrity management programs and compliance with increasingly stringent safety regulations.
Risks Related to an Investment in Us
Our only cash-generating assets are our ownership interests in EQM, and our cash flow is therefore completely dependent upon•For the abilitytaxable years prior to January 1, 2021, the tax treatment of EQM depended on its status as a partnership for U.S. federal income tax purposes. If the IRS were to make quarterly cash distributionstreat EQM as a corporation or if EQM becomes subject to its partners, including us.
Theadditional amounts of entity-level taxation, it would reduce the amount of cash we have available to pay dividends to our shareholders.
•We face certain risks related to the tax treatment of EQM and any potential audit adjustment to EQM's income tax returns for tax years beginning after 2017.
•Our stock price has fluctuated and may further fluctuate significantly and our shareholders’ percentage of ownership in us may be diluted in the future.
•We cannot guarantee the timing, amount or payment of dividends dependson our common stock.
•Anti-takeover provisions contained in our governing documents and Pennsylvania law could impair an attempt to acquire us and our exclusive forum provision in our governing documents could discourage lawsuits against us and our directors and officers.
•Equitrans Midstream Preferred Shares issued present a number of risks to current and future holders of our common stock.
Risks Related to the Separation
•We continue to face risks related to the Separation, including among others, those related to U.S. federal income taxes, contingent liabilities allocated to us following the Separation, EQT's obligations under certain Separation-related agreements and potential indemnification liabilities.
Risk Factors
Risks Related to Our Operations
We generate a substantial majority of our revenues from EQT. Therefore, we are subject to the business and liquidity risks of EQT, and any decrease in EQT's drilling or completion activity (or significant production curtailments) or a shift in such activity away from our assets could adversely affect our business and operating results.
Historically, we have provided EQT a substantial percentage of its natural gas gathering, transmission and water services. EQT accounted for approximately 61% of our revenues for the year ended December 31, 2023. We expect to continue to derive a substantial majority of our revenues from EQT for the foreseeable future.
Given the scope of our business relationship with EQT, any event, whether in our areas of operations or otherwise, that adversely affects EQT’s production (or the amount of its production which flows to our systems), financial condition, leverage, results of operations or cash flows may adversely affect us. Accordingly, we are subject to the business risks of EQT, including the following:
•decisions of EQT’s management to reduce, slow or maintain at relatively flat levels EQT’s natural gas production or to prioritize production away from our assets or obligations to build, which such decisions have been and may in the future be influenced by corporate capital allocation strategies, regional takeaway constraints, commodity prices, and/or other factors (as applicable); such decisions have in certain instances in the past directly and adversely impacted demand for our services and aspects of our business, including, in combination with MVP project delays, the value potentially realizable under certain of our contracts, and future such decisions could (including, without limitation, as gathering fee declines take effect under the EQT Global GGA) directly and adversely impact us and our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders;
•EQT’s ability to develop additional reserves that are economically recoverable, to optimize existing well production and to sustain production, including by use of large-scale, sequential, highly choreographed drilling and hydraulic fracturing, including combo and return-to-pad development;
•prevailing and projected commodity prices, primarily natural gas and natural gas liquids (NGLs), including their effect on EQM'sEQT’s hedge positions;
•natural gas price volatility or periods of low commodity prices, which may have an adverse effect on EQT’s drilling operations, revenue, profitability, future rate of growth, creditworthiness and liquidity;
•the proximity, capacity, cost and availability of gathering and transportation facilities, and other factors that result in differentials to benchmark prices;
•the costs of producing natural gas, including the availability and costs of drilling rigs and crews and other equipment;
•geologic and reservoir risks and considerations;
•risks associated with the operation of EQT’s wells and facilities, including potential environmental liabilities;
•EQT’s ability to identify future exploration, development and production opportunities and midstream alternatives;
•uncertainties inherent in projecting future rates of production, levels of reserves, and demand for natural gas, NGLs and oil;
•EQT’s execution of its strategic plan and additional strategic transactions, if any;
•adverse effects of governmental and environmental regulation, including the availability of drilling permits, the regulation of hydraulic fracturing (including limitations in respect of engaging in hydraulic fracturing in specific areas), the potential removal of certain federal income tax deductions with respect to natural gas and oil exploration and development or additional state taxes on natural gas extraction, and changes in tax laws, and negative public perception, whether as a result of stakeholder focus on ESG and sustainability matters or otherwise, regarding EQT’s operations;
•the loss or disengagement of key personnel and/or the effectiveness of their replacements;
•EQT’s ability to achieve its ESG and sustainability targets; and
•risks associated with cybersecurity, environmental activists and other threats.
While EQT has dedicated a significant amount of its acreage to us and executed long-term contracts with substantial firm reservation and MVCs 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 other than the firm reservations and MVCs, it is under no contractual obligation to maintain its production dedicated to us. A substantial reduction in the capacity subscribed or volumes transported or gathered on our systems by EQT (or sustained lack of growth in respect of such volumes) could have a material adverse effect on our business, financial condition, results of operations, liquidity and our ability to pay dividends to our shareholders.
As discussed under the heading “Decreases or a lack of growth in production of natural gas in our areas of operation, whether as a result of regional takeaway constraints, producer corporate capital allocation strategies, lower regional natural gas prices, natural well decline, and/or other factors, have adversely affected, and in the future could adversely affect, our business and operating results and reduce our cash available to pay cash dividends to our shareholders.”in Part I, “Item 1A. Risk Factors” of this Annual Report on Form 10-K, there are a number of factors that could cause EQT and other producers to elect to reduce or maintain then-current levels of drilling activity or curtail production. Any sustained reductions in development or production activity in our areas of operation, particularly from EQT, or maintenance levels of production could adversely affect our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders.
Expanding our business by constructing new midstream assets subjects us to construction, business, economic, competitive, regulatory, judicial, environmental, political and legal uncertainties that are beyond our control.
Our growth strategy includes organic optimization of our existing assets and greenfield growth projects. The development and construction by us or our joint ventures of pipeline and water infrastructure and storage facilities and the optimization of such assets involve numerous construction, business, economic, competitive, regulatory, judicial, environmental, political and legal uncertainties that are beyond our control, require the expenditure of significant amounts of capital and expose us to risks. Those risks include, but are not limited to: (i) physical construction conditions, such as topographical, or unknown or unanticipated geological, conditions and impediments; (ii) construction site access logistics; (iii) crew availability and productivity and ability to adhere to construction workforce drawdown plans; (iv) adverse weather conditions; (v) project opposition, including delays caused by landowners, advocacy groups or activists opposed to our projects and/or the natural gas industry through lawsuits or intervention in regulatory proceedings; (vi) environmental protocols and evolving regulatory or legal requirements and related impacts therefrom, including additional costs of compliance; (vii) the application of time of year or other regulatory restrictions affecting construction, (viii) failure to meet customer contractual requirements; (ix) environmental hazards; (x) vandalism; (xi) the lack of available skilled labor, equipment and materials (or escalating costs in respect thereof, including as a result of inflation); (xii) issues regarding availability of or access to connecting infrastructure; and (xiii) the inability to obtain necessary rights-of-way or approvals and permits from regulatory agencies on a timely basis or at all (and maintain such rights-of-way, approvals and permits once obtained, including by reason of judicial hostility or activism). Risks inherent in the construction of these types of projects, such as unanticipated geological conditions, challenging terrain in certain of our construction areas and severe or continuous adverse weather conditions, have adversely affected, and in the future could adversely affect, project timing, completion and cost, as well as increase the risk of loss of human life, personal injuries, significant damage to property or environmental pollution. Most notably, certain of these risks have been realized in the construction of the MVP project, including construction-related risks and adverse weather conditions, and such risks or other risks may be realized in the future which may further adversely affect the timing and/or cost of the MVP project.
Given such risks and uncertainties, our projects or those of our joint ventures may not be completed on schedule, within budgeted cost or at all. As a further example, public participation, including by pipeline infrastructure opponents, in the review and permitting process of projects, through litigation or otherwise, has previously introduced, and in the future can introduce, uncertainty and adversely affect project timing, completion and cost. See also “The regulatory approval process for the construction of new transmission assets is very challenging, and, as demonstrated with the MVP pipeline, has resulted in significantly increased costs and delayed targeted in-service dates, and decisions by regulatory and/or judicial authorities in pending or potential proceedings relevant to the development of midstream assets, particularly any litigation instituted in the Fourth Circuit, such as regarding the MVP Southgate project and/or expansions or extensions of the MVP, are likely to impact our or the MVP Joint Venture's ability to obtain or maintain in effect all approvals and authorizations, including as may be necessary to complete certain projects in a timely manner or at all, or our ability to achieve the expected investment returns on the projects.” in Part I, "Item 1A. Risk Factors" of this Annual Report on Form 10-K. Further, civil protests regarding environmental justice and social issues or challenges in project permitting processes related to such issues, including proposed construction and location of infrastructure associated with fossil fuels, poses an increased risk and may lead to increased litigation, legislative and regulatory initiatives and review at federal, state, tribal and local levels of government or permitting delays that can prevent or delay the construction of such infrastructure and realization of associated revenues.
Additionally, construction expenditures on projects generally occur over an extended period, yet we will not receive revenues from, or realize any material increases in cash flow andas a result of, the relevant project until it is placed into service. Moreover, our cash flow from a project may be delayed or may not solelymeet our expectations, including as a result of taxes which could potentially be calculated based on EQM's profitability,excess expenditures, inclusive of maintenance, incurred during extended court-driven construction delays. Furthermore, we may construct facilities to capture anticipated future growth in production and/or demand in a region in which such growth does not materialize or is affected by non-cash items.delayed beyond our expectations. As a result, EQM may make cash distributions during periods when EQM records a loss for financial reporting purposes andnew facilities may not make cash distributions during periods when EQM records net earningsbe able to attract enough throughput to achieve our expected investment return. Such issues in respect of the construction of midstream assets could adversely affect our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders.
The regulatory approval process for financial reporting purposes.the construction of new transmission assets is very challenging, and, as demonstrated with the MVP pipeline, has resulted in significantly increased costs and delayed targeted in-service dates, and decisions by regulatory and/or judicial authorities in pending or potential proceedings relevant to the development of midstream assets, particularly any litigation instituted in the Fourth Circuit, such as regarding the MVP Southgate project and/or expansions or extensions of the MVP, are likely to impact our or the MVP Joint Venture's ability to obtain or maintain in effect all approvals and authorizations, including as may be necessary to complete certain projects in a timely manner or at all, or our ability to achieve the expected investment returns on the projects.
The amountour projects require regulatory approval from federal, state and/or local authorities prior to and/or in the course of cash that EQM can distribute each quarterconstruction, including any extensions from, expansions of or additions to its partners, including us, principally depends uponour and the amount of cash EQM generates from its operations, which will fluctuate from quarter to quarter based on, among other things:
the rates EQM charges for EQM's gathering, transmission, storage and water services;
the level of firmMVP Joint Venture’s gathering, transmission and storage capacity soldsystems, as applicable. The approval process for certain projects has become increasingly slower and volumesmore difficult, due in part to federal, state and local concerns related to exploration and production, transmission and gathering activities and associated environmental impacts, and the increasingly negative public perception regarding, and opposition to, the oil and gas industry, including major pipeline projects like the MVP and MVP Southgate. Further, regulatory approvals and authorizations, even when obtained, have increasingly been subject to judicial challenge by activists requesting that issued approvals and authorizations be stayed and vacated.
Accordingly, authorizations needed for our or the MVP Joint Venture’s projects, including any expansion of the MVP project and the MVP Southgate project or other extensions, may not be granted or, if granted, such authorizations may include burdensome or expensive conditions or may later be stayed or revoked or vacated, as was repeatedly the case with the construction of the MVP project, particularly in respect of litigation in the Fourth Circuit. Significant delays in the regulatory approval process for projects, as well as stays and losses of critical authorizations and permits, should they be experienced, have the potential to significantly increase costs, delay targeted in-service dates and/or affect operations for projects (among other adverse effects), as has happened with the MVP and the originally contemplated MVP Southgate projects and could occur in the future in the case of authorizations required for our or the MVP Joint Venture’s current or future projects, including in respect of developing expansions or extensions, such as expansion of the MVP project and the MVP Southgate project.
Any such adverse developments and uncertainties could adversely affect our ability, and/or, as applicable, the ability for the MVP Joint Venture and its owners, including us, to achieve expected investment returns, adversely affect our willingness or ability and/or that of our joint venture partners to continue to pursue projects, and/or cause impairments, including, as has occurred in the past, to our equity investment in the MVP Joint Venture.
We have experienced and may further experience increased opposition with respect to our and the MVP Joint Venture’s projects from activists in the form of lawsuits, intervention in regulatory proceedings and otherwise, which in the past resulted in adverse impacts to our business, financial condition, results of operations and liquidity. In particular, opponents were successful in past challenges with respect to the MVP project and two challenges with respect to MVP project authorizations remains outstanding as of the filing of this Annual Report on Form 10-K (see Part I, “Item 3. Legal Proceedings — Challenges to FERC Certificate, D.C. Circuit” of this Annual Report on Form 10-K). Opposition is ongoing regarding the MVP Southgate project and is expected for future projects, including any expansions of the MVP. If ongoing or future challenges were successful, it could result in significant, adverse impacts to our business, financial condition, results of operations and liquidity. Such opposition has made it increasingly difficult to complete projects and place them in service and, following any in-service, may also affect operations or affect extensions and/or expansions of projects. Further, such opposition and/or adverse court rulings and regulatory determinations may have the effect of increasing the timeframe on necessary agency action to address actual or perceived concerns in prior adverse court rulings, or may have the effect of increasing the risk that at a future point joint venture partners may elect not to continue to pursue or fund a project, which could, absent additional project sponsors, significantly imperil the ability to complete the project. See “We have entered into joint ventures, and may in the future enter into additional or modify existing joint ventures, that might restrict our operational and corporate flexibility and divert our management’s time and our resources. In addition, we exercise no control over joint venture partners and it may be difficult or impossible for us to cause these joint ventures or partners to take actions that we believe would be in our or the joint venture’s best interests and these joint ventures are subject to many of the same risks to which we are subject.”in Part I,
"Item 1A. Risk Factors" of this Annual Report on Form 10-K. Challenges to our projects have adversely affected and could adversely affect our business (including by increasing the possibility of investor activism), financial condition, results of operations, liquidity and ability to pay dividends to our shareholders.
Decreases or a lack of growth in production of natural gas EQM gathers, transportsin our areas of operation, whether as a result of regional takeaway constraints, producer corporate capital allocation strategies, lower regional natural gas prices, natural well decline, and/or other factors, have adversely affected, and storesin the future could adversely affect, our business and operating results and reduce our cash available to pay cash dividends to our shareholders.
Our business is dependent on continued natural gas production and the availability and development of reserves in our areas of operation. Periods of higher natural gas prices have not caused our largest customers to materially increase their production forecasts. At various times our customers have previously announced, and may in the future announce, lower, flat or modest increases to production forecasts based on various factors, which could include (and have in the past included) regional takeaway capacity limitations (including without limitation the lack of completion of MVP), natural gas prices, access to capital, investor expectations regarding free cash flow, a desire to reduce or refinance leverage or other factors. See, for its customers;example, “We generate a substantial majority of our revenues from EQT. Therefore, we are subject to the business and liquidity risks of EQT, and any decrease in EQT's drilling or completion activity (or significant production curtailments) or a shift in such activity away from our assets could adversely affect our business and operating results.” in Part I, "Item 1A. Risk Factors" of this Annual Report on Form 10-K. Such decisions by our customers affect production levels and, accordingly, demand for our services and therefore our results of operations. Additionally, regional takeaway constraints, corporate capital allocation strategies or lower regional natural gas prices have caused and could cause producers to determine in the future that drilling activities in areas outside of our current areas of operation are strategically more attractive to them. Further reduction, or continued lack of growth, in the natural gas volumes supplied by our producer customers could limit our ability to grow, reduce throughput on our systems and adversely impact our business, including our ability to pay dividends to our shareholders.
Prices for natural gas and NGLs, including regional basis differentials, have previously adversely affected, and may in the future adversely affect, the timing of development of additional reserves and production that is accessible by our pipeline and storage assets, which also negatively affects our water services business, and the creditworthiness of our customers. Lower natural gas prices, particularly in the Appalachian region, have in the past caused, and may in the future cause, certain producers, including certain of our customers, to determine to take actions to slow production growth and/or maintain or reduce production, which when effected by our producer customers reduces the demand for, and usage of, our services. For instance, temporary production curtailments have previously resulted in a decrease in our volumetric-based fee revenues. An extended period of low natural gas prices and/or instability in natural gas prices in future periods, especially in the Appalachian region, or other factors could cause EQT or other producers to curtail production in the future, which could have a significant negative effect on the demand for our services, our volumetric-based fee revenue, and therefore our results of operations.
Maintaining or increasing the contracted capacity or the volume of water deliverednatural gas not subject to itsMVCs gathered, transported and stored on our systems and cash flows associated therewith is substantially dependent on our customers and the cost of water;
regional, domestic and foreign supply and perceptions of supplycontinually accessing additional reserves of natural gas;gas in or accessible to our current areas of operations. For example, while EQT has dedicated production from a substantial portion of its leased properties to us, we have no control over the level of demanddrilling activity in our areas of operation, the amount of reserves associated with wells connected to our gathering and perceptionstransmission systems or the rate at which production from a well naturally declines over time. EQT and other producers may not develop the acreage they have dedicated to us for a variety of demand in EQM's end-use markets;reasons, including, among other things, the availability and actualcost of capital, corporate capital allocation policies, producers’ focus on generating free cash flow and/or de-levering, prevailing and anticipated futureprojected energy prices, hedging strategies and environmental or other governmental regulations. Our ability to obtain non-dedicated sources of natural gas is affected by the level of successful drilling activity near our systems and other commodities (and the volatility thereof), which may affect EQM'sour ability to renewcompete for volumes from successful new wells, and replace firm gathering, transmission and storage agreements;most development areas in our areas of operation are already dedicated to us or one of our competitors.
the effect of seasonal variations in temperature onIn addition, the amount of natural gas reserves underlying wells may also be less than anticipated, and the rate at which production from these reserves declines may be greater than anticipated. We do not obtain independent evaluations of natural gas reserves connected to our systems. Accordingly, we do not have independent estimates of total reserves connected to our systems or the anticipated life of such reserves. If the total reserves or estimated life of the reserves connected to our systems are less than we anticipated based upon publicly available data provided by our producer customers, or the timeline for the development of reserves is longer than we anticipate, and we are unable to secure additional sources of natural gas, there could be a material adverse effect on our business, results of operations, financial condition, liquidity and ability to pay dividends to our shareholders.
Impairments of our assets, including property, plant, and equipment, intangible assets, goodwill and our equity method investment in the MVP Joint Venture, previously have significantly reduced our earnings, and additional impairments could further reduce our earnings.
GAAP requires us to test certain assets for impairment on either an annual basis or when events or circumstances occur which indicate that EQM gathers, transportsthe carrying value of such assets might be impaired. The outcome of such testing previously has resulted in, and stores;in the future could result in, impairments of our assets, including our property, plant, and equipment, intangible assets, goodwill and/or our equity method investment in the MVP Joint Venture. If we determine that an impairment has occurred, we would be required to take a noncash charge to earnings, which, if significant, could have a material adverse effect on our results of operations and financial position. See Note 2 to the consolidated financial statements for a discussion of impairments previously recognized.
Further, the levelaccounting estimates related to impairments are susceptible to change, including estimating fair value which requires considerable judgment. For goodwill, management’s estimate of a reporting unit’s future financial results is sensitive to changes in assumptions, such as changes in stock prices, weighted-average cost of capital, terminal growth rates and industry multiples. Similarly, cash flow estimates utilized for purposes of evaluating long-lived assets and equity method investments (such as in the MVP Joint Venture) require us to make projections and assumptions for many years into the future for pricing, demand, competition, operating costs, timing of operations, and other factors. We evaluate long-lived assets and equity method investments for impairment when events or changes in circumstances indicate, in management’s judgment, that the carrying value of such assets may not be recoverable (meaning, in the case of its equity method investment, that such investment has suffered other-than-temporary declines in value under ASC 323, Investments: Equity Method Investments and Joint Ventures (ASC 323)). When a quantitative assessment is performed, we use estimates and assumptions in estimating our reporting units', our long-lived assets' and our equity method investment's fair values that we believe are reasonable and appropriate at that time; however assumptions and estimates are inherently subject to significant business, economic, competitive and other risks that could materially affect the calculated fair values and the resulting conclusions regarding impairments, which could materially affect our results of operations and financial position.
Cyberattacks aimed at us or those third parties on which we rely, as well as any noncompliance by us or such third parties with applicable laws and regulations governing cybersecurity and/or data privacy, could materially adversely affect us.
We have become increasingly dependent upon digital technologies, including information systems, infrastructure, and cloud applications, to conduct our business, and the maintenance of our financial and other records has long been dependent upon such technologies. Our business also involves collection, uses and other processing of personally identifiable information of our employees, contractors, land agreement counterparties, and other related parties by the Company and/or our third-party business partners. We depend on both our own systems, networks, and technology as well as the systems, networks and technology of our vendors, customers and other business partners. Our increasing reliance on digital technologies puts us at greater risk for system failures, disruptions, incidents, data breaches and cyberattacks (including through third parties with which we do business), which could significantly impair our ability to conduct our business. Additionally, if our major customers or suppliers experience deliberate attacks on, or unintentional events affecting their digital technologies, it may reduce their ability to utilize our, or provide, services, which could have a material adverse impact on our operations and business. Energy industry participants, including midstream companies, have been the victims of high-profile ransomware attacks, and we expect to continue to be targeted by cyberattacks as a critical infrastructure company.
The U.S. government has continued to issue public warnings that indicate that energy assets might be specific targets of cyberattacks. The TSA has issued a series of security directives applicable to certain midstream companies, including us, requiring such companies to comply with mandatory reporting measures and undertake a number of specific cybersecurity enhancements for both IT and OT systems. In addition to the TSA security directives, there are multiple regulatory rulemaking processes, and contemplated legislation that may result in new regulations or requirements applicable to us. For additional information regarding cybersecurity matters applicable to us, including our TSA-approved CIP and laws and regulations such as the TSA security directives, see "Regulatory Environment" and "Cybersecurity" under Part I, “Item 1. Business” of this Annual Report on Form 10-K. We have been required and may further be required to expend additional resources as a result of current or new laws, regulations, directives or other requirements related to critical infrastructure cybersecurity. With the proliferation of regulations, we may become subject to overlapping or conflicting regulatory requirements. Any failure to remain in compliance with laws or regulations governing cybersecurity, including the TSA security directives, may result in penalties, fines, enforcement actions, or mandated changes in our practices, which may have a material adverse effect on our business and operations.
We rely on IT systems, some of which are managed by third parties that we do not control, that may also be, and may have been, susceptible to cyber threats and cyber-related risks described in this risk factor. While we and third parties that provide
services to us commit resources to the design, implementation and monitoring of our IT and OT systems, there is no guarantee that our or such third parties’ cybersecurity measures will provide absolute security.
Despite these measures, we may not be able to anticipate, detect or prevent all cyberattacks or incidents, particularly because the methodologies used by attackers change frequently or may not be recognized until launched, and because attackers are increasingly using tactics, techniques, and procedures designed to circumvent controls and avoid detection. Attacks may originate from outside or inside parties, hackers, criminal organizations, or other midstream energythreat actors, including nation states. As artificial intelligence (“AI”) capabilities improve and gain widespread use, we may experience cyberattacks created using AI or incidents related to the use of AI, which may be difficult to detect and mitigate against.
Deliberate attacks on, or unintentional events or incidents affecting, our IT and OT systems or infrastructure or the systems or infrastructure of third parties could, depending on the extent or duration of the event, materially adversely affect us, including by leading to corruption, misappropriation or loss of our proprietary and sensitive data, delays (which could be significant) in the performance of services for our customers, difficulty in completing and settling transactions, challenges in maintaining our books and records, communication interruptions, environmental damage, regulatory scrutiny, personal injury or death, property damage and other operational disruptions, as well as damage to our reputation, financial condition and cash flows and potential legal claims and liabilities. Like other companies in the natural gas industry, we have identified and expect to continue to identify cyberattacks and incidents on our systems. Additionally, we have received notification from third party service providers of certain such matters on their systems. None of the cyberattacks and incidents we have identified, or been notified of, to the filing of this Annual Report on Form 10-K has had a material impact on our business or operations.
Further, as cyberattacks continue to evolve and increase in sophistication and volume, we have expended, and expect to continue to expend, additional resources relating to cybersecurity, including, as applicable, to continue to modify or enhance our preventive, protective, and response measures and/or to investigate and remediate potential vulnerabilities to or consequences of cyberattacks and incidents. There can be no assurance that any preventive, protective, response, or remedial measures will address or mitigate all threats that arise.
The regulatory landscape with regard to data privacy continues to rapidly develop in foreign, federal and state jurisdictions. Compliance with new laws and regulations governing data privacy, as well as any unauthorized disclosure of personal information, is becoming increasingly complex and may potentially increase our compliance costs. Any failure by us, a company that we acquire, or one of those third parties on which we rely, to comply with these laws and regulations, where applicable, could adversely affect us, including by resulting in reputational harm, penalties, regulatory investigations scrutiny, liabilities, legal claims and/or mandated changes in our business practices.
Our subsidiaries’ significant indebtedness, and any future indebtedness, as well as the restrictions under our subsidiaries’ debt agreements, could adversely affect our operating flexibility, business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders.
Our subsidiaries have significant amounts of debt outstanding under the Amended EQM Credit Facility, the 2021 Eureka Credit Facility (as such terms are defined in Note 9) and the senior unsecured notes issued by EQM. See Note 9 to the consolidated financial statements for a discussion of the Amended EQM Credit Facility, the 2021 Eureka Credit Facility and the senior unsecured notes issued by EQM and see Note 15 to the consolidated financial statements for a discussion of the Fifth Amendment to the Amended EQM Credit Facility. The respective debt agreements of EQM and Eureka Midstream, LLC (Eureka), a wholly owned subsidiary of Eureka Midstream, contain various covenants and restrictive provisions that limit EQM’s and Eureka’s, as applicable, ability to, among other things: incur or guarantee additional debt, make distributions on or redeem or repurchase units, incur or permit liens on assets, enter into certain types of transactions with affiliates, enter into burdensome agreements, subject to certain specified exceptions, enter into certain mergers or acquisitions; and, dispose of all or substantially all of their respective assets.
The Amended EQM Credit Facility contains certain negative covenants, that, among other things, establish for EQM a maximum Consolidated Leverage Ratio (as defined in the Amended EQM Credit Facility) that could not exceed 5.85 to 1.00 for the quarter ended December 31, 2023, 6.00 to 1.00 for the quarter ending March 31, 2024, 6.25 to 1.00 for the quarter ending June 30, 2024, 5.85 to 1.00 for the quarter ending September 30, 2024, and 5.50 to 1.00 for quarters thereafter, with the then-applicable ratio being tested as of the end of each fiscal quarter. Under the 2021 Eureka Credit Facility, Eureka is required to maintain a Consolidated Leverage Ratio (as defined in the 2021 Eureka Credit Facility) of not more than 4.75 to 1.00 (or not more than 5.25 to 1.00 for certain measurement periods following the consummation of certain acquisitions). Additionally, as of the end of any fiscal quarter, Eureka may not permit the ratio of Consolidated EBITDA (as defined in the 2021 Eureka Credit Facility) for the four fiscal quarters then ending to Consolidated Interest Charges (as defined in the 2021 Eureka Credit Facility) to be less than 2.50 to 1.00.
In addition, the Amended EQM Credit Facility and the 2021 Eureka Credit Facility each contain certain events of default, including the occurrence of a change of control (as defined in the applicable credit facility). Events beyond the control of EQM and Eureka (including changes in general economic and business conditions) and with respect to EQM, certain delays in the full in-service of the MVP project (absent mitigating actions by management), may affect the ability of EQM and Eureka to, as applicable, meet and comply with their respective financial obligations and covenants.
The provisions of the debt agreements may affect our ability to obtain future financing and pursue attractive business opportunities and our flexibility in planning for, and reacting to, changes in business conditions. In addition, a failure to comply with the provisions of these debt agreements could result in an event of default, which could enable creditors to, subject to the terms and conditions of the applicable agreement, declare any outstanding principal of that debt, together with accrued and unpaid interest, to be immediately due and payable. If the payment of the debt is accelerated, our assets may be insufficient to repay such debt in full, and in turn our shareholders could experience a partial or total loss of their investments. The Amended EQM Credit Facility and the 2021 Eureka Credit Facility each contain a cross default provision that applies to a default related to any other indebtedness the applicable borrower may have with an aggregate principal amount in excess of $25 million as to EQM, and $10 million as to Eureka.
Our subsidiaries’ levels of debt could have important consequences to us, including that our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired, or such financing may not be available on favorable terms; our funds available for operations, future business opportunities and dividends to our shareholders may be reduced by that portion of our cash flow required to make interest payments on our or our subsidiaries’ debt; we may be more vulnerable to competitive pressures or a downturn in our business or the economy generally; and our flexibility in responding to changing business and economic conditions may be limited.
Our ability to service our subsidiaries’ current, or our or our subsidiaries’ future respective debts, will depend upon, among other things, our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our control. Further, we view de-levering our business as a critical strategic objective given that leverage levels affect the manner in which we may pursue strategic and organic initiatives, our ability to respond to market and competitive pressures, and the competition for investment capital. Our ability to de-lever and the pace thereof will depend on our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors (including particularly bringing the MVP in-service), as well as the MVP Joint Venture’s ability to execute on project-level financing, some of which are beyond our control.
If our operating results are not sufficient to service our subsidiaries’ current, or our or our subsidiaries’ future indebtedness, as applicable, or our operating results affect our ability to comply with covenants in our debt agreements, we will be forced to take actions such as seeking modifications to the terms of our debt agreements (for example, the Amended EQM Credit Facility has been amended to increase the Consolidated Leverage Ratio in the past), including providing guarantees, pledging assets as collateral, reducing dividends, reducing or delaying our business activities, acquisitions, investments or capital expenditures, selling assets or seeking additional equity or debt capital. We may not be able to timely effect any of these actions on satisfactory terms or at all. Further, if our operating results are not sufficient to enable de-levering or affect the pace of de-levering, or if MVP project-level financing is not realized, the manner in which we may pursue strategic and organic initiatives, address market and competitive pressures, and compete for investment capital may be adversely affected, absent additional actions to de-lever, which may not be available to us on satisfactory terms or at all.
Our subsidiaries’ current substantial indebtedness and the additional debt we and/or our subsidiaries will incur in the future for, among other things, working capital, repayment of existing indebtedness, capital expenditures, capital contributions to the MVP Joint Venture, acquisitions or operating activities may adversely affect our liquidity and therefore our ability to pay dividends to our shareholders.
In addition, our subsidiaries’ significant indebtedness may be viewed negatively by credit rating agencies, which could cause our subsidiaries’ respective access to the capital markets to become more challenging. Any future additional downgrade of the debt issued by EQM could increase our capital costs or adversely affect our operating flexibility or ability to raise capital in the future. See “A further downgrade of EQM’s credit ratings could impact our liquidity, access to capital, and costs of doing business.” in Part I, “Item 1A. Risk Factors” of this Annual Report on Form 10-K.
Additionally, our ability to obtain financing in the future may be adversely affected by market forces driven by concern for climate change. See “Our business is subject to climate change-related transitional risks (including evolving climate-focused regulation and climate change-driven trends emphasizing the financing of non-fossil fuel businesses and prompting the pursuit of emissions reductions, lower-carbon technologies, and alternative forms of energy), as well as physical risks that
could significantly increase our operating expenses and capital costs, adversely affect our customers’ development plans, and reduce demand for our products and services.” in Part I, “Item 1A. Risk Factors” of this Annual Report on Form 10-K.
If we, our subsidiaries or our joint ventures are unable to obtain needed capital or financing on satisfactory terms, our ability to execute our business strategy and pay dividends to our shareholders may be diminished. Additionally, financing transactions may increase our financial leverage or could cause dilution to our shareholders.
In order to fund our capital expenditures and capital contributions so to grow and maintain our asset base and complete expansion projects, including the MVP project, any expansion of the MVP project and the MVP Southgate project, as well as to fund potential strategic transactions, if any, we may use cash from our operations, incur borrowings under our subsidiaries’ credit facilities or through debt capital market transactions, enter into new credit arrangements or sell additional shares of our equity or a portion of our assets. Using cash from operations will reduce the cash we have available to pay dividends to our shareholders. Our subsidiaries’ or our joint ventures’ ability to obtain or maintain bank financing or to access the capital markets for debt offerings, or our ability to access the capital markets for future equity offerings, may be limited by, among other things and as applicable, our subsidiaries’ or our joint ventures’ financial condition at the time of any such financing or offering, our subsidiaries’ or our joint ventures’ credit ratings, as applicable, the covenants in our subsidiaries’ or our joint ventures’ debt agreements, the rights and preferences governing the Equitrans Midstream Preferred Shares, the status of the MVP project, general economic conditions, market conditions in our industry, changes in law (including tax laws), and other contingencies and uncertainties that are beyond our control. Additionally, market forces are affecting (and are expected to continue to affect) the availability and cost of capital to companies in the fossil fuel sector. See “Our business is subject to climate change-related transitional risks (including evolving climate-focused regulation and climate change-driven trends emphasizing the financing of non-fossil fuel businesses and prompting the pursuit of emissions reductions, lower-carbon technologies, and alternative forms of energy), as well as physical risks that could significantly increase our operating expenses and capital costs, adversely affect our customers’ development plans, and reduce demand for our products and services.” in Part I, “Item 1A. Risk Factors” of this Annual Report on Form 10-K.
Even if we, our subsidiaries, or our joint ventures are successful in obtaining funds through debt or equity financings, as applicable, the terms thereof could limit our ability to pay dividends to our shareholders and otherwise adversely affect us, such as by requiring additional or more restrictive covenants that impose operating and financial restrictions or, in the case of debt, requiring that collateral be posted to secure such debt. In addition, incurring additional debt may significantly increase our interest expense and financial leverage thereby limiting our ability to further borrow, and issuing additional equity may result in significant common shareholder dilution and increase the aggregate amount of cash required to maintain the then-current dividend rates, which could materially decrease our ability to pay dividends at the then-current dividend rates. If funding is not available to us, our subsidiaries or joint ventures when needed, or is available only on unfavorable terms, we may be unable to execute our business plans, complete acquisitions or otherwise take advantage of business opportunities or respond to competitive pressures, any of which (or actions taken to attempt to address any such funding issue) could have a material adverse effect on our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders. For example, our strategic plans reflect the potential to incur debt at the MVP Joint Venture following MVP in-service so to enhance our ability to de-lever and pace thereof. The MVP Joint Venture’s ability to incur debt is subject to many of the same factors and considerations, as applied to the MVP Joint Venture, as are described for us and our subsidiaries in this risk factor, as well as joint venture considerations described under “We have entered into joint ventures, and may in the future enter into additional or modify existing joint ventures, that might restrict our operational and corporate flexibility and divert our management’s time and our resources. In addition, we exercise no control over joint venture partners and it may be difficult or impossible for us to cause these joint ventures or partners to take actions that we believe would be in our or the joint venture’s best interests and these joint ventures are subject to many of the same risks to which we are subject.”in Part I, “Item 1A. Risk Factors” of this Annual Report on Form 10-K, and there is no assurance that debt at the MVP Joint Venture level, or related impacts or benefits, will be realized.
A further downgrade of EQM’s credit ratings could impact our liquidity, access to capital, and costs of doing business.
As of February 20, 2024, EQM’s credit ratings were Ba3 with a stable outlook, BB- with a negative outlook and BB on Rating Watch Positive from Moody’s, S&P and Fitch, respectively. EQM’s credit ratings have fluctuated (and may further fluctuate) depending on, among other things, EQM’s leverage, in-service timing and total project cost of the MVP project, and the credit profile of our customers.
EQM’s credit ratings are subject to further revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating. We cannot ensure that a rating will remain in effect for any given period of time or that a rating will not be lowered or withdrawn entirely by a credit rating agency if, in its judgment, circumstances so warrant, including in connection with the MVP project, EQM's geographic markets;
leverage or the creditworthiness of EQM's customers;EQM’s customers. Credit rating agencies perform an independent analysis when assigning credit ratings. This analysis includes a
number of criteria such as business composition, market and operational risks, various financial tests, ESG matters, as well as analysis of various financial metrics. Credit rating agencies continue to review the criteria for industry sectors and various debt ratings and may make changes to those criteria from time to time.
If any credit rating agency further downgrades or withdraws EQM’s ratings, including for reasons relating to the MVP project (such as for delays affecting the MVP project or increases in EQM'ssuch project’s targeted costs), EQM’s leverage or credit ratings of our customers, our subsidiaries’ respective access to the capital markets could become more challenging, borrowing costs will likely increase, our operating flexibility may be adversely affected, EQM may be required to provide additional credit assurance (the amount of which may be substantial) in support of commercial agreements such as joint venture agreements;agreements, and the potential pool of investors and funding sources may decrease.
In order to be considered investment grade, EQM must be rated Baa3 or higher by Moody’s, BBB- or higher by S&P and BBB- or higher by Fitch. EQM’s non-investment grade credit ratings have resulted in greater borrowing costs, including under the amountAmended EQM Credit Facility, and timingincreased collateral requirements, including under the MVP Joint Venture’s limited liability company agreement, than if EQM’s credit ratings were investment grade.
In addition to causing, among other impacts, higher borrowing costs and/or more restrictive terms associated with modifications to existing debt instruments, any further downgrade could also require additional or more restrictive covenants on future indebtedness that impose operating and financial restrictions on us or our subsidiaries, certain of distributions receivedour subsidiaries to guarantee such debt and certain other debt, and certain of our subsidiaries to provide collateral to secure such debt.
Any increase in our financing costs resulting from a credit rating downgrade, and/or more restrictive covenants or the pledging of security, could adversely affect our ability to finance future operations and limit our operating flexibility. If a credit rating downgrade and/or a resultant collateral requirement were to occur at a time when we are experiencing significant working capital requirements or otherwise lack liquidity, our business, results of operations, liquidity and ability to pay dividends to our shareholders could be adversely affected.
Increasing scrutiny and changing stakeholder expectations and disclosures in respect of ESG and sustainability practices may adversely impact our business and our stock price and impose additional costs or expose us to new or additional risks.
Companies across all industries are facing increasing scrutiny from stakeholders related to their ESG and sustainability practices. Investor advocacy groups, proxy advisory firms, certain institutional investors and lenders, investment funds and other influential investors and rating agencies are also increasingly focused on ESG and sustainability practices and matters and on the implications and social cost of their investments and loans. Increased focus related to ESG and sustainability matters may adversely affect our business, financial condition, results of operations, and liquidity, as well as our stock price, and expose us to new or additional risks, including as described below.
Increased focus on ESG and sustainability matters, particularly with respect to climate change and related demand for renewable and alternative energy, may, among other things, hinder our access to capital given our fossil fuel-based operations and/or adversely affect demand for our services. See “Our business is subject to climate change-related transitional risks (including evolving climate-focused regulation and climate change-driven trends emphasizing the financing of non-fossil fuel businesses and prompting the pursuit of emissions reductions, lower-carbon technologies, and alternative forms of energy), as well as physical risks that could significantly increase our operating expenses and capital costs, adversely affect our customers’ development plans, and reduce demand for our products and services.”in Part I, "Item 1A. Risk Factors" of this Annual Report on Form 10-K. Additionally, due to an increased focus on climate change and/or environmental justice policies, particularly as it relates to the fossil fuel industry, pipeline infrastructure companies and projects, as was the case with the MVP project, face increased legal scrutiny and execution risk, including related to litigation and enhanced and lengthier regulatory reviews by EQMfederal, state and/or environmental regulators.
We recognize that our shareholders, employees, customers, regulators, and other stakeholders expect us to continue to focus and report on long-term sustainable performance, including by addressing significant, relevant ESG factors, further working to prioritize sustainable energy practices, reducing our carbon footprint and promoting sustainability. We have incurred and expect to continue to incur costs and capital expenditures in doing so, and certain of such future costs and capital expenditures could be material, including because of increasing regulatory demands, which may not be consistent in their requirements. For example, California enacted two climate related disclosure laws called the Climate Corporate Data Accountability Act (“CCDAA”) and the Climate-Related Financial Risk Act (“CRFRA”) on October 7, 2023. Further, on March 21, 2022, the SEC released proposed rule changes that would require new climate-related disclosure in SEC filings. For additional information regarding the SEC’s climate related disclosures rule, the CCDAA and the CRFRA, please see “Regulatory Environment — Climate Change” under its joint venture agreements;Part I, "Item 1. Business" of this Annual Report on Form 10-K. The CCDAA and the CRFRA would, and the SEC’s climate related disclosures rule if adopted as proposed would, cause us to incur additional (and potentially accelerate) compliance and reporting costs, certain of which could be material, including related to monitoring, collecting, analyzing and
reporting new metrics and implementing systems and procuring necessary attestations, as applicable. Such costs, or costs or impacts associated with any failures to comply with such or any similar laws, may adversely affect our future business, financial condition, results of operations, and liquidity.
Further, if we do not adapt to or comply with investor or other stakeholder expectations and standards, which are evolving, or if we are perceived not to have responded appropriately or quickly enough to growing concern for ESG and sustainability issues, our business could suffer, including from reputational damage (and negative public perception regarding us or our industry may lead to additional regulatory scrutiny or other adverse developments). We have disclosed aspirational goals, targets, potential financial impacts and other expectations and assumptions related to reducing our carbon footprint and promoting sustainability that are necessarily uncertain due to, among other things, long implementation timelines, and thus may not be realized. Failure to realize (or timely achieve progress on) such aspirational goals, targets, cost estimates, and other expectations or assumptions may adversely impact us. Our disclosures regarding aspirational goals, targets, cost estimates, and other expectations or assumptions, as applicable, could receive increased scrutiny by shareholders or regulators which may adversely impact us, including as a result of unforeseen events which may affect us.
Additionally, activist shareholders may submit proposals to promote or oppose an ESG-related position. Responding to such proposals, proxy contests and other actions by activist shareholders can be costly and time-consuming, disrupting our operations, causing reputational harm, and diverting the levelattention of EQM's operating, maintenanceour Board and generalsenior management from the pursuit of business strategies. Further, a multitude of organizations that provide information to investors have developed ratings processes for evaluating companies on their approach to ESG and administrative costs;
sustainability matters. Such ratings and reports are used by some investors to inform their investment and voting decisions. Favorable or unfavorable ESG ratings, or perceptions of us or our industry as a result of such ratings or our ESG and sustainability practices, may lead to increased negative investor and other stakeholder sentiment toward us or our customers, and to the allocation of investment capital to other industries and companies, which could negatively affect our stock price and access to and costs of capital.
The occurrence of any of the foregoing may adversely affect our business, financial condition, results of operations, liquidity and/or our stock price.
Our business is subject to climate change-related transitional risks (including evolving climate-focused regulation and climate change-driven trends emphasizing the financing of non-fossil fuel businesses and prompting the pursuit of emissions reductions, lower-carbon technologies, and alternative forms of energy), as well as physical risks that could significantly increase our operating expenses and capital costs, adversely affect our customers’ development plans, and reduce demand for our products and services.
Combating the effects of climate change continues to attract considerable attention in the United States and internationally, including from regulators, legislators, companies in a variety of industries, financial market participants, and other stakeholders. Governmental, scientific, and public concern over the threat of climate change arising from GHG emissions has resulted in increasing risks and governmental actions that could have an adverse impact on our operations in the United States. Numerous proposals and regulations have been made and will continue to be made to monitor and limit existing GHG emissions, as well as to restrict or eliminate future emissions. Accordingly, our business and operations, and those in our value chain, including our producer customers, are subject to executive, regulatory, political, litigation, and financial risks associated with natural gas and the emission of GHGs.
At the federal level, the United States has taken steps to address climate change through legislative action, executive actions, and regulatory initiatives pursuant to existing statutes, such as the Clean Air Act. The EPA released in December 2023 its final rule, which has not yet been published in the Federal Register as of the filing of this Annual Report on Form 10-K, regulating methane emissions from the oil and gas sector under the Clean Air Act. The Inflation Reduction Act of 2022 amended the Clean Air Act to require a “methane fee” for specific facilities that exceed GHG emission and/or methane intensity thresholds beginning in 2024. These new Clean Air Act regulations, as well as any other future laws or regulations that legislators or federal agencies may adopt, could have an adverse impact on our operations and results thereof. State and regional efforts could establish requirements in states in which our assets, employees or customers are located regardless of federal action.
States where our, the MVP Joint Venture’s or our customers’ assets are located have entered or sought to enter into the Regional Greenhouse Gas Initiative (RGGI), which is a consortium of certain Northeastern and Mid-Atlantic states that set declining limits on CO2 emissions from fossil fuel sources;fired power plants. Initiatives such as RGGI, if enforceable in our areas of operation, may result in increased uncertainty regarding demand for natural gas used in the generation of electricity, including in our operating markets. Beyond regional and state efforts, nationally, demand for natural gas used in the generation of electricity could also be affected by federal action, such as the EPA’s proposed rulemaking to regulate GHG emissions from new and existing fossil fuel fired power plants.
There remains considerable uncertainty surrounding the timing, scope and potential impact of future state, national and international action with respect to GHG emissions, including methane in particular. Although we continue to monitor legislative, regulatory, action affectingand judicial developments in this area to assess potential impacts on our operations and otherwise take efforts and invest funds proactively to limit and reduce GHG emissions from our facilities, we cannot predict what form future laws, regulations, and legal requirements relating to climate change might take. Nor can we predict the supplystringency of any such requirements, when they might become effective, or their exact effect on us. Further, laws, regulations, and other legal requirements relating to climate change are constantly changing or being interpreted or reinterpreted, and this may occur during the permitting and construction phases of our projects, and may result in increased costs and delays. Generally, development and implementation of processes to comply with changing legal requirements are likely to be costly and time consuming. Laws, regulations and legal requirements designed to reduce GHG emissions also may: (i) make some of our activities, or those of our customers, uneconomic or less economically advantageous to maintain or operate, which may affect the estimated fair values of underlying assets and results of operations; (ii) reduce the number of attractive business opportunities available to us and discourage investments in our securities; (iii) impose additional and costly compliance obligations such as new emission control requirements, taxes, fees or other costs on the release of GHGs, cause longer permitting timelines, require that we purchase allowances for emissions, expose us to regulatory penalties or affect our reputation; and (iv) adversely affect production of or demand for natural gas (such as by increasing the ratescost of producing natural gas, increasing the cost of producing electricity with natural gas, or prompting consumers to use renewable fuels).
If any of the foregoing events were to occur, it may have an adverse effect on our business, financial condition, results of operations, liquidity or ability to pay dividends to our shareholders. Although future laws, regulations, and legal requirements relating to climate change could have a material impact on our industry and us, attempts at quantification are based on speculation of what may occur in the future which is inherently uncertain.
Litigation risks relating to climate change continue to increase. Parties have brought suit against certain large oil and natural gas exploration and production companies, alleging, among other things, that such companies created public nuisances by producing fuels that contributed to climate change effects, such as rising sea levels, and therefore are responsible for resultant damages. Parties have also alleged that these companies have been aware of the adverse effects of climate change for some time but misled their investors and consumers by failing to adequately disclose those impacts. While we are not currently party to any such litigation as of the filing of this Annual Report on Form 10-K, we, joint ventures in which we participate, or third parties with which we do business could be named in future actions given that our or their business involves natural gas. Further, climate change-related factors may prompt governmental investigations or adversely affect the regulatory approval process for the construction and operation of midstream assets, as, for example, opposition parties have cited, and are likely to cite in the future, our and/or the MVP Joint Venture's direct and/or indirect GHG emissions as a specific concern during comment periods for regulatory permit reviews.
Market forces driven by concern for climate change are also affecting (and are expected to continue to affect) the availability and cost of capital to companies in the fossil fuel sector. For example, climate change activists continue to direct their attention towards, among other things, sources of funding for fossil fuel energy companies, which has resulted in certain financial institutions, funds, and other sources of capital restricting or adding more burdensome terms to or altogether eliminating their investments in, or lending with respect to, fossil fuel energy-related activities and companies (as we have experienced with respect to the Amended EQM can charge on its assets, how EQM contractsCredit Facility (as defined in Note 9), and in the future could experience). Further, such institutions are increasingly allocating funds to those industries and companies perceived as having better growth opportunities and/or stronger ESG metrics and practices. These market forces may adversely affect our ability to obtain financing in the future (and thus our pursuit of initiatives, such as growth projects) or achieve increases in our stock price, and these forces may also adversely affect our customers, which could result in, among other things, increased counterparty risk and/or decreased demand for services, EQM's existing contracts, EQM's operating costsour services. Further, the concern surrounding climate change is increasing demand for lower-carbon technologies and EQM's operating flexibility;alternate forms of energy in the marketplace, which is driving innovation and
prevailing market conditions. investment in products that compete with natural gas. Continued momentum to develop and drive down the cost of competitive energy alternatives may adversely affect demand for natural gas and accordingly our producer customers.
In addition to such transitional risks, climate change also may create physical risks to our business. Climate impacts, such as increasing temperatures, changing weather patterns, and more frequent or intense floods and storms, can pose serious challenges for our facilities, supply chains, employees, contractors, current and potential customers, and the actual amount of cash EQM will have available for distribution will dependcommunities in which we operate. In particular, our operations are primarily located in the Appalachian Basin, which is a rain-susceptible region and given its geography there is inherent risk associated with landslides which could increase with climate change. Further, climate-induced rainfall events and severe storms above and beyond historical estimates, magnitudes, and frequency could exceed the pre-designed environmental controls in place on our construction projects, and/or cause pipeline slips or other factors, including:
the leveldamage to our physical assets, especially facilities located in low-lying areas near streams and timing of capital expendituresriverbanks and capital contributions EQM makes;
the level of EQM's operatingpipelines situated in landslide-prone and maintenance and general and administrative expenses;
the ability of EQM to successfully identify and consummate joint ventures and other transactions, including strategic acquisitions, if any, and to successfully integrate those acquisitions into EQM's business;
EQM's debt service requirements and other liabilities;
fluctuations in EQM's working capital needs;
EQM's ability to borrow funds and access capital markets on satisfactory terms;
restrictions on distributions contained in EQM's debt agreements;
the amount of EQM's cash reserves; and
other business risks affecting EQM's cash levels.
Because of these factors, EQMrain-susceptible regions, which may not have sufficient available cash (as defined in EQM's partnership agreement) each quarter to pay quarterly distributions at its most recently announced fourth quarter 2018 distribution amount of $1.13 per unitadversely affect or any other amount. The amount of cash that EQM has available for distribution depends primarily upon its cash flow, including cash flow from operations and working capital borrowings, and is not solely a function of profitability, which will be affected by non-cash items. As a result, EQM may be able to make cash distributions when it records losses for financial accounting purposes andtemporarily interrupt our operations. We may not be able to pass on resultant financial impacts to our customers or recover all costs related to mitigating these physical risks or
repairing damage due to such events. Further, our ability to mitigate the adverse impacts of these events depends in part on the resilience of our environmental controls, facilities and the effectiveness of planning for disaster preparedness and response and business continuity, which plans may not fully encompass every potential climate-driven eventuality. Additionally, changing climate patterns could impact the demand for energy in the regions we currently and plan to serve. For example, extreme warm weather in the winter months may lead to decreased natural gas usage, which may affect our results of operations and financial condition.
One or more of any such developments could have an adverse effect on our business, financial condition, results of operations, liquidity or ability to pay dividends to our shareholders.
For additional information on GHG laws, regulations and other legal requirements applicable to us, see “Regulatory Environment — Environmental Matters” under “Item 1. Business” in Part I of this Annual Report on Form 10-K.
Negative public perception regarding us, the MVP, MVP Southgate, other of our or the MVP Joint Venture’s extension or expansion projects, the midstream industry, and/or the natural gas industry in general have had and could continue to have an adverse effect on our operations and business, and negative public perception may increase the likelihood of governmental initiatives aimed at the natural gas industry.
Negative public perception regarding us, the MVP, MVP Southgate, other of our or the MVP Joint Venture’s extension or expansion projects and/or our industry, resulting from, among other things, concerns raised by advocacy groups regarding climate change; oil or produced water spills; gas and other hydrocarbon leaks; the explosion or location of natural gas transmission and gathering lines and other facilities; erosion and sedimentation issues; hydraulic fracturing, environmental justice concerns; as well as general and specific concerns relating to our operations or pipeline and expansion projects, has led to, and may in the future lead to, increased regulatory scrutiny, and/or new local, state, and federal safety and environmental laws, regulations, guidelines, enforcement interpretations and/or adverse judicial rulings or regulatory actions.
These actions have caused, and may continue to cause, operational delays or restrictions, increased construction and operating costs, penalties under construction contracts, additional regulatory burdens, and increased litigation. Moreover, governmental authorities exercise considerable discretion in the timing and scope of permit issuance, and the public may engage in the permitting process, including through intervention in the courts. Negative public perception could further cause the permits we and the MVP Joint Venture need to complete extension or expansion projects, including the MVP Southgate project and any expansion of the MVP, and to conduct our and its respective operations to be denied, removed, withheld, delayed, stayed or burdened by requirements that restrict our and its respective abilities to profitably conduct business or make it more difficult to obtain the real property interests needed to operate relevant assets or complete planned growth projects, which could, among other adverse effects, affect project completion or subsequent operation, result in revenue loss or a reduction in our and the MVP Joint Venture’s customer bases.
Furthermore, the 2024 election cycle will impact public policy initiatives at the federal and state level. In addition to the U.S. presidential election, all 435 seats in the U.S. House of Representatives and 34 U.S. Senate seats are subject to election. With the exception of Virginia, all of the states in our, or the MVP Joint Venture’s, operating area have elections that will determine control of state legislatures, including a gubernatorial election in North Carolina. The results of these elections will have a significant effect on the legislative and regulatory landscape for the natural gas industry. Additionally, there have been and continue to be certain initiatives at the federal, state and local levels aimed at the natural gas industry, including those to restrict the use of hydraulic fracturing as discussed in more detail in “The adoption of legislation relating to hydraulic fracturing and the enactment of new or increased severance taxes and impact fees on natural gas production could cause our current and potential customers to reduce the number of wells they drill in the Marcellus and Utica Shales or curtail production of existing wells connected to our assets. If reductions are significant for those or other reasons, the reductions could have a material adverse effect on our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders.” in Part I, “Item 1A. Risk Factors” of this Annual Report on Form 10-K. Adoption of legislation or regulations (which may be prompted by negative public perception) placing restrictions on hydraulic fracturing activities or other limitations with respect to the natural gas industry could materially adversely affect our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders.
The lack of diversification of our assets, products and geographic locations could adversely affect us.
We rely exclusively on revenues generated from our gathering, transmission and storage and water systems, substantially all of which are located in the Appalachian Basin in Pennsylvania, West Virginia and Ohio, and as of December 31, 2023 dry natural gas comprised approximately 86% of our product portfolio. Due to our lack of diversification in assets, products and geographic location and the challenging environment for completing transmission projects such as the MVP and MVP Southgate, an adverse development in these businesses or our areas of operations, including adverse developments due to catastrophic events, pandemics, epidemics, weather, regulatory action, local prices, producer liquidity or production determinations, decreases in
demand for natural gas from the Appalachian Basin, takeaway capacity constraints from the Appalachian Basin (including as may remain long term notwithstanding any completion of MVP and limit our producer customers’ future ability to grow production volumes to then-existing pipeline capacity and consequently affect natural gas prices adversely within the Appalachian Basin) or increases in supply of natural gas from other natural gas or oil producing basins (such as associated gas production from the Permian Basin) could have a more significant impact on our business, financial condition, results of operations, liquidity and our ability to pay dividends than if we maintained more diverse assets, products and locations.
We are exposed to the credit risk of our counterparties and our credit risk management cannot completely eliminate such risk.
We are exposed to the risk of loss resulting from the nonpayment and/or nonperformance of our customers, suppliers, joint venture partners and other counterparties as further described in “Credit Risk” under Part II, “Item 7A. Quantitative and Qualitative Disclosure About Market Risk” of this Annual Report on Form 10-K. We extend credit to our customers as a normal part of our business. While we have established credit policies, including assessing the creditworthiness of our customers as permitted by our FERC-approved natural gas tariffs, and may require appropriate terms or credit support from them based on the results of such assessments, including in the form of prepayments, letters of credit, or guaranties, we may not adequately assess the creditworthiness of our existing or future customers or any other party and our credit policies cannot completely eliminate credit risk. Pursuant to certain agreements with EQT, amongst other things, (a) we agreed to relieve certain credit posting requirements for EQT, in an amount up to approximately $250 million under its commercial agreements with us, subject to EQT maintaining a minimum credit rating from two of three rating agencies of (i) Ba3 with Moody’s, (ii) BB- with S&P and (iii) BB- with Fitch, however, there can be no assurance that EQT will maintain sufficient credit ratings or such rating thresholds are protective against all credit risk in the case of EQT.
Periods of natural gas price declines and sustained periods of low natural gas and NGL prices, previously have had, and could in the future have, an adverse effect on the creditworthiness of our customers, including their ability to pay firm reservation fees under long-term contracts. Periods of low commodity prices have previously negatively impacted natural gas producers causing some producers significant economic stress including, in certain cases, to file for bankruptcy protection or to seek renegotiated contracts. We cannot predict the extent to which the businesses of our counterparties would be impacted if commodity prices decline, commodity prices are depressed for a sustained period of time, or other conditions in the energy industry were to deteriorate, nor can we estimate the impact such conditions would have on the abilities of our customers to perform under their gathering, transmission and storage and water services agreements with us. To the extent one or more of our counterparties is in financial distress or commences bankruptcy proceedings, contracts with these counterparties may be subject to renegotiation or rejection under applicable provisions of the United States Bankruptcy Code (Bankruptcy Code). Nonpayment and/or nonperformance by our counterparties and/or any unfavorable renegotiation or rejection of contracts under the Bankruptcy Code could have a material adverse effect on our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders.
Our future growth may be limited and our cash distributions during periods when it records net incomeflows adversely affected if we do not complete organic growth projects, realize revenue generating volume growth on our systems and/or identify and complete inorganic strategic transactions and realize anticipated benefits therefrom, which could have a material adverse effect on our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders. Additionally, our Board of Directors is engaged in a process with third parties that have expressed interest in strategic transactions involving the Company, and there is no assurance as to the outcome of that process.
Our ability to grow organically depends primarily upon our ability to complete organic growth projects, such as the MVP project (and related extensions or expansions thereof), leverage our existing asset base to benefit our existing customer relationships and attract new customers, and realize increasing commitments and/or volume growth that generate revenue from customers. As gathering fee declines take effect under the EQT Global GGA, the failure to grow organically, including particularly the failure to achieve increasing commitments and/or volume growth that generate revenue, could adversely affect our cash flows and potentially our business. See, for financial accounting purposes. Please readexample, “We generate a substantial majority of our revenues from EQT. Therefore, we are subject to the business and liquidity risks of EQT, and any decrease in EQT's drilling or completion activity (or significant production curtailments) or a shift in such activity away from our assets could adversely affect our business and operating results.” in Part I, "Item 1A. Risk Factors" of this Annual Report on Form 10-K. Factors – Risks Related to EQM's Business" for a discussion on risks affecting EQM'swhich may adversely affect our ability to generate cash flow.grow organically include, among other things, any inability to:
•identify attractive organic growth projects;
•obtain and/or maintain necessary rights-of-way, real-estate rights or permits or other government approvals, including approvals by regulatory agencies;
•successfully integrate the infrastructure we build with our existing systems;
•obtain and/or maintain sources of fresh or produced water;
•generate sufficient cash from our operations and/or raise financing on economically acceptable terms for projects;
•realize assumptions about volumes, revenues, costs, producer turn-in-lines and in-service timing, as well as potential growth; or
•secure or maintain adequate customer commitments, including to use newly expanded facilities.
Additionally, we face and expect to continue to face staunch and protracted opposition to the development of expansion and extension projects (such as has been case with the MVP and MVP Southgate projects) and operation of our pipelines and facilities from environmental groups, certain landowners, local, regional and national groups opposed to the natural gas industry and/or fossil fuels generally, activists and other advocates. Such opposition has taken and will likely continue to take many forms, including organized protests, attempts to block, vandalize or sabotage our development or operations, intervention in regulatory or administrative proceedings involving our assets directly or indirectly, lawsuits or other actions designed to prevent, disrupt or delay the development or operation of our assets and business.
Any event that delays or interrupts (or continues to delay or interrupt) the completion of expansion or extension projects, and/or revenues generated, or expected to be generated, by our operations or that causes us to make significant expenditures associated with delayed construction completion or not covered by insurance, could adversely affect our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders.
We also periodically evaluate inorganic growth opportunities, including additional interests in existing joint ventures. Our Board of Directors has been engaged in a process with third parties that have expressed interest in strategic transactions involving the Company. The board has engaged outside advisors and the process is ongoing. There is no assurance that such process will result in the execution, approval or completion of any specific transaction or outcome. See also “Strategic transactions that we enter into could reduce, rather than increase, our results of operations and liquidity, and adversely affect our ability to pay dividends to our shareholders.” in Part I, “Item 1A. Risk Factors” of this Annual Report on Form 10-K.
Failure to achieve growth could adversely affect our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders.
We have incurred and expect to incur costs and expenses as a result of or arising in relation to the Rager Mountain natural gas storage field incident in November 2022, which has included and may include potential additional regulatory penalties or other sanctions, which could, depending on their scope and timing, materially adversely affect our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders.
On November 6, 2022, we became aware of natural gas venting from a storage well (well 2244) at Equitrans, L.P.’s Rager Mountain natural gas storage facility, located in Cambria County, Pennsylvania, which venting was halted on November 19, 2022 (the Rager Mountain natural gas storage field incident). During and continuing since the occurrence of the incident, we have incurred costs and expenses relating to or arising out of the incident, including in connection with a root cause analysis of the incident, which was conducted by an independent, third-party company with expertise in reservoir management and well and corrosion engineering and which was submitted to the PHMSA in August 2023.
Although in October 2023, following authorization from the PHMSA of our injection plan for the Rager Mountain facility, we returned the Rager Mountain facility, other than well 2244 and two additional wells, to injection operations, as discussed in Part I, “Item 3. Legal Proceedings” of this Annual Report on Form 10-K, the PADEP, the PHMSA and other investigators are continuing to conduct civil and criminal investigations of the incident and we and our subsidiary Equitrans L.P., as applicable, are cooperating in such investigations. There can be no assurance as of the filing of this Annual Report on Form 10-K as to the outcome of any investigation or pending or future proceeding with respect to the Rager Mountain natural gas storage field incident, nor can there be any assurance regarding the scope of potential (or ultimately actual) financial or other impacts or sanctions to the Company as a result of such incident. Certain of the statutory provisions cited by the PADEP in certain notices of violation relating to the incident provide for a maximum penalty of up to $25,000 per day of violation, and if penalties are pursued and ultimately imposed related to the Rager Mountain natural gas storage field incident, the penalties are expected to result in monetary sanctions in excess of $300,000.
See also “We do not insure against all potential losses and could be seriously harmed by unexpected liabilities or the inability of our insurers to satisfy our claims.” in Part I, “Item 1A. Risk Factors.”, and see also Note 14 to the consolidated financial statements, Part I, “Item 3. Legal Proceedings” and Part II, “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations” of this Annual Report on Form 10-K for further information regarding the Rager Mountain natural gas storage field incident.
We are subject to numerous operational risks and hazards, as well as unforeseen interruptions.
Our business operations are subject to the inherent hazards and risks normally incidental to the gathering, transmission and storage of natural gas and performance of water services. These operating risks, some of which we have experienced and/or could experience in the future, include but are not limited to:
•aging infrastructure and mechanical or structural problems;
•security risks, including cybersecurity;
•pollution and other environmental risks;
•operator error;
•failure of equipment, facilities or new technology;
•damage to pipelines, wells and storage assets, facilities, equipment, environmental controls and surrounding properties, and pipeline blockages or other operational interruptions, caused or exacerbated by natural phenomena, weather conditions, acts of sabotage, vandalism and terrorism;
•inadvertent damage from construction, vehicles, and farm and utility equipment;
•uncontrolled releases of natural gas and other hydrocarbons or of fresh, mixed or produced water, or other hazardous materials;
•leaks, migrations or losses of natural gas as a result of issues regarding pipeline and/or storage equipment or facilities and, including with respect to storage assets, as a result of undefined boundaries, geologic anomalies, limitations in then-applied industry-standard testing methodologies, operational practices (including as a result of regulatory requirements), natural pressure migration and wellbore migration or other factors relevant to such storage assets;
•ruptures, fires, leaks and explosions; and
•other hazards that could also result in personal injury and loss of life, pollution to the environment and suspension of operations.
Any such events, certain of which we have experienced, and any of which we may experience in the future, could result in loss of human life, personal injuries, significant damage to property, environmental pollution, impairment or interruption, which could be significant, of our operations, regulatory investigations and penalties or other sanctions and substantial losses to us and could have a material adverse effect on our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders, particularly if the event is not fully covered by insurance. See also “We do not insure against all potential losses and could be seriously harmed by unexpected liabilities or the inability of our insurers to satisfy our claims.” and “We have incurred and expect to continue to incur costs and expenses as a result of or arising in relation to the Rager Mountain natural gas storage field incident in November 2022, which has included and may include potential additional regulatory penalties or other sanctions, which could, depending on their scope and timing, materially adversely affect our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders.”in Part I, "Item 1A. Risk Factors" of this Annual Report on Form 10-K. The location of certain segments of our systems in or near populated areas, including residential areas, commercial business centers and industrial sites, could increase the damages resulting from these risks. Accidents or other operating risks have resulted, and in the future could result, in loss of service available to our customers. Customer impacts arising from service interruptions on segments of our systems and/or our assets have included and/or may include, without limitation and as applicable, curtailments, limitations on our ability to satisfy customer contractual requirements, obligations to provide reservation charge credits to customers and solicitation of our existing customers by third parties for potential new projects that would compete directly with our existing services. Such circumstances could adversely impact our ability to retain customers and, as has been the case in certain instances in the past, negatively impact our business, financial condition, results of operations, liquidity and/or ability to pay dividends to our shareholders.
Increased competition from other companies that provide gathering, transmission and storage, and water services, or from alternative fuel or energy sources, could negatively impact demand for our services, which could adversely affect our financial results.
Our ability to renew or replace existing contracts or add new contracts at rates sufficient to maintain or grow current revenues and cash flows could be adversely affected by the activities of our competitors. Our systems compete primarily with other interstate and intrastate pipelines and storage facilities in the gathering, transmission and storage of natural gas. Some of our competitors have greater financial resources and may be better positioned to compete, including if the midstream industry moves towards greater consolidation; further, some of such competitors may now, or in the future, have access to greater supplies of natural gas or water than we do. Some of these competitors may expand or construct gathering systems, transmission and storage systems and water systems that would create additional competition for the services we provide to our customers. In addition, certain of our customers, including EQT, have developed or acquired their own gathering and water infrastructure, and may acquire or develop gathering, transmission or storage and/or water infrastructure in the future, which could have a negative impact on the demand for our services depending on the location of such systems relative to our assets and our producer customers’ drilling plans, commodity prices, existing contracts and other factors.
The policies of the FERC promoting competition in natural gas markets continue to have the effect of increasing the natural gas transmission and storage options for our customer base. As a result, we have experienced, and in the future could experience, “turnback” of firm capacity as existing agreements expire. If we are unable to remarket this capacity or can remarket it only at substantially discounted rates compared to previous contracts, we may have to bear the costs associated with the turned back capacity. Increased competition could reduce the volumes of natural gas transported or stored on our systems or, in cases where we do not have long-term firm contracts, could force us to lower our transmission or storage rates. Increased competition could also adversely affect demand for our water services.
Further, natural gas as a fuel competes with other forms of energy available to end-users, including coal, liquid fuels and, increasingly, renewable and alternative energy. Demand for and development of renewable and alternative energy is increasing as a result of concern regarding climate change. Further, the availability of renewable and alternative energy is growing, and it continues to become more cost competitive with fossil fuels, including natural gas. Continued increases, whether driven by legislation, regulation or consumer preferences, in the availability and demand for renewable and alternative energy at the expense of natural gas (or increases in the demand for other sources of energy relative to natural gas based on price and other factors) could adversely affect our producer customers and lead to a reduction in demand for our natural gas gathering, transmission and storage, and water services.
In addition, competition, including from renewable and alternative energy, could intensify the negative impact of factors that decrease demand for natural gas in the markets served by our systems, such as adverse economic conditions, weather, higher fuel costs and taxes or other governmental or regulatory actions that directly or indirectly increase the cost or limit the use of natural gas.
All of these competitive pressures could make it more difficult for us to retain our existing customers and/or attract new customers and/or additional volumes from existing customers as we seek to maintain and expand our business, which could have a material adverse effect on our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders.
We may not be able to renew or replace expiring contracts at favorable rates, on a long-term basis or at all, and disagreements have occurred and may arise with contractual counterparties on the interpretation of existing or future contractual terms.
One of our exposures to market risk occurs at the time our existing contracts expire and are subject to renegotiation and renewal. As these contracts expire, we may have to negotiate extensions or renewals with existing customers or enter into new contracts with existing customers or other customers. We may be unable to do so on favorable commercial terms, if at all. Further, we also may be unable to maintain the economic structure of a particular contract with an existing customer or the overall mix of our contract portfolio. The extension or renewal of existing contracts and entry into new contracts depends on a number of factors beyond our control, including, but not limited to: (i) the level of existing and new competition to provide services to our markets; (ii) macroeconomic factors affecting natural gas economics for our current and potential customers; (iii) the balance of supply and demand, on a short-term, seasonal and long-term basis, in our markets; (iv) the extent to which the customers in our markets are willing to contract on a long-term basis or require capacity on our systems; (v) customers’ existing and future downstream commitments; and (vi) the effects of federal, state or local regulations on the contracting practices of our customers and us. For more information related to contracting practices applicable to certain of our services, see “Regulatory Environment — FERC Regulation” under Part I, “Item 1. Business” of this Annual Report on Form 10-K. Additionally, disagreements may arise with contractual counterparties on the interpretation of contractual provisions, as had been the case with EQT with the Hammerhead gathering contract, including during the negotiation, for example, of contract amendments required to be entered into upon the occurrence of specified events.
Any failure to extend or replace a significant portion of our existing contracts or to extend or replace our significant contracts, or extending or replacing contracts at unfavorable or lower rates or with lower or no associated firm reservation fee revenues, or other disadvantageous terms relative to the prior contract structure, or disagreements or disputes on the interpretation of existing or future contractual terms, could have a material adverse effect on our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders.
We may not be able to increase our customer throughput and resulting revenue due to competition and other factors, which could limit our ability to grow.
Our ability to increase our customer-subscribed capacity and throughput and resulting revenue is subject to numerous factors beyond our control, including competition from producers’ existing contractual obligations to competitors, the location of our assets relative to those of competitors for existing or potential producer customers (or such producer customers’ own midstream assets), takeaway capacity constraints out of the Appalachian Basin, commodity prices, producers’ optionality in utilizing our (relative to third-party) systems to fill downstream commitments, and the extent to which we have available capacity when and where shippers require it. To the extent that we lack available capacity on our systems for volumes, or we cannot economically increase capacity, we may not be able to compete effectively with third-party systems for additional natural gas production in our areas of operation and capacity constraints, as well as commodity prices, may, as has occurred in the past, adversely affect the degree to which natural gas production occurs in the Appalachian Basin, and relatedly the degree to which our systems are utilized.
Our efforts to attract new customers or larger commitments from existing customers may be adversely affected by our desire to provide services pursuant to long-term firm contracts and contracts with MVCs. Our potential customers may prefer to obtain services under other forms of contractual arrangements which could require volumetric exposure or potentially direct commodity exposure, and we may not be willing to agree to such other forms of contractual arrangements.
If third-party pipelines and other facilities interconnected to our pipelines and facilities become unavailable to transport or process natural gas or do not accept deliveries of natural gas from us, our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders could be adversely affected.
We depend on third-party pipelines and other facilities that provide receipt and delivery options to and from our transmission and storage system. For example, our and the MVP Joint Venture’s (once MVP is placed in-service) transmission, and our storage, system interconnects, as applicable, with the following third-party interstate pipelines: Transcontinental Gas Pipe Line Company, LLC (Transco), East Tennessee Natural Gas, Texas Eastern, Eastern Gas Transmission, Columbia Gas Transmission, Tennessee Gas Pipeline Company, Rockies Express Pipeline LLC, National Fuel Gas Supply Corporation and ET Rover Pipeline, LLC, as well as multiple distribution companies. Similarly, our gathering systems have multiple delivery interconnects to multiple interstate pipelines. In the event that our or the MVP Joint Venture's access to such systems is impaired (or any third party refuses to accept our or any of the MVP Joint Venture's deliveries), our or the MVP Joint Venture's operations could be adversely affected, resulting in adverse economic impact to us or the MVP Joint Venture. We have been affected by certain such circumstances in the past, which for example has reduced revenues from our gathering activities.
Because we do not own these third-party pipelines or facilities, their continuing operation and access requirements are not within our control. If these or any other pipeline connections or facilities were to become unavailable for current or future volumes of natural gas due to repairs, damage to the facility, lack of capacity or any other reason, our (or, with MVP in-service, the MVP Joint Venture’s) ability to operate efficiently and ship natural gas to end markets could be restricted, as has occurred in the past. Any temporary or permanent interruption at any key pipeline interconnect or facility could have a material adverse effect on our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders.
A substantial majority of the services we provide on our transmission and storage system are subject to long-term, fixed-price “negotiated rate” contracts that are subject to limited or no adjustment, even if our cost to perform such services exceeds the revenues received from such contracts, and, as a result, our costs could exceed our revenues received under such contracts, we could be unable to achieve the expected investment return under such contracts, and/or our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders could be adversely affected.
It is possible that costs to perform services under “negotiated rate” contracts could exceed the negotiated rates we have agreed to with our customers. If this occurs, it could decrease the cash flow realized by our systems and, therefore, could have a material adverse effect on our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders. Under FERC policy, a regulated service provider and a customer may mutually agree to a “negotiated rate,” and that contract must be filed with and accepted by the FERC. As of December 31, 2023, approximately 97% of the contracted firm transmission capacity on our system was subscribed under such “negotiated rate’’ contracts. Unless the parties to these “negotiated rate” contracts agree otherwise, the contracts generally may not be adjusted to account for increased costs that could
be caused by inflation, GHG emission cost (such as carbon taxes, fees, or assessments) or other factors relating to the specific facilities being used to perform the services.
We have entered into joint ventures, and may in the future enter into additional or modify existing joint ventures, that might restrict our operational and corporate flexibility and divert our management’s time and our resources. In addition, we exercise no control over joint venture partners and it may be difficult or impossible for us to cause these joint ventures or partners to take actions that we believe would be in our or the joint venture’s best interests and these joint ventures are subject to many of the same risks to which we are subject.
We have entered into joint ventures to construct the MVP and MVP Southgate projects and a joint venture relating to Eureka Midstream, and may in the future enter into additional joint venture arrangements with third parties, including in respect of any expansion of the MVP. Joint venture arrangements may restrict our operational and corporate flexibility. Joint venture arrangements and dynamics can also divert management and operating resources in a manner that is disproportionate to our ownership percentage in such ventures. Because we do not control all of the decisions of our joint ventures or joint venture partners, it may be difficult or impossible for us to cause these joint ventures or partners to take actions that we believe would be in our or the joint venture’s best interests. Moreover, joint venture arrangements involve various risks and uncertainties, such as committing that we fund operating and/or capital expenditures, the timing and amount of which we may not control, and our joint venture partners may not act in a manner that we believe would be in our or the joint venture’s best interests, may elect not to support further pursuit of projects, and/or may not satisfy their financial obligations to the joint venture. The loss of joint venture partner support in further pursuing or funding a project may, and would in the case of the MVP project, significantly adversely affect the ability to complete the project. In addition, the MVP Joint Venture, Eureka Midstream and any joint ventures we may enter into in the future are subject to many of the same risks to which we are subject.
Strategic transactions that we enter into could reduce, rather than increase, our results of operations and liquidity, and adversely affect our ability to pay dividends to our shareholders.
We have, and may in the future, engage in acquisitions, dispositions, and other strategic transactions. These transactions involve risks that have impacted and may in the future impact our ability to realize a benefit from the transaction, including, among other potential risks (and as applicable): (i) an inability to obtain necessary regulatory and third-party approvals; (ii) the timing of and conditions imposed upon us by regulators in connection with such approvals; (iii) failure to realize assumptions about volumes, revenues, capital expenditures and costs, including synergies and potential growth; (iv) an inability to secure or maintain adequate customer commitments to use the acquired systems or facilities; (v) an inability to successfully integrate the assets or businesses we acquire; (vi) we could be required to contribute additional capital to support acquired businesses or assets, and we may assume liabilities that were not disclosed to us, for which we are not indemnified or insured or for which our indemnity or insurance is inadequate; (vii) the diversion of management’s and employees’ attention from other business concerns in a manner that is disproportionate to the relative size and impact of, or ownership percentage in, such acquired assets or entities; and (viii) unforeseen difficulties operating a larger organization or in new geographic areas, with new joint venture partners or new business lines.
If risks such as the above are realized, or if a strategic transaction fails to be accretive over the long term to our cash generated from operations on a per share basis, it could have a material adverse effect on our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders.
We do not insure against all potential losses and could be seriously harmed by unexpected liabilities or the inability of our insurers to satisfy our claims.
We are not fully insured against all risks inherent in our business, including certain environmental accidents that might occur as well as many cyber events. We do not maintain insurance in the type to cover all possible risks of loss, including “wild well” coverage or certain damage caused by cyberattacks. In addition, we do not maintain business interruption insurance of the types and in amounts necessary to cover all possible risks of loss, like project delays caused by pandemics, cyberattacks, certain environmental incidents, governmental action or inaction. The occurrence of any risks not fully covered by insurance could have a material adverse effect on our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders.
In addition to requiring in many instances that we are named as additional insureds on policies maintained by vendors such as construction contractors, as of the filing of this Annual Report on Form 10-K we maintain excess liability insurance that covers our and our affiliates’ legal and contractual liabilities arising out of bodily injury, personal injury or property damage, including resulting loss of use, to third parties. This excess liability insurance includes coverage for sudden and accidental pollution liability but excludes: release of pollutants subsequent to their disposal; release of substances arising from the combustion of fuels that result in acidic deposition; and testing, monitoring, clean-up, containment, treatment or removal of pollutants from property owned, occupied by, rented to, used by or in the care, custody or control of us and our affiliates. We also maintain
coverage for us and our affiliates for physical damage to assets and resulting business interruption, including, in limited circumstances, certain damage caused by cyberattacks.
Most of our insurance is subject to deductibles or self-insured retentions. If a significant accident or event occurs for which we are not fully insured, it could adversely affect our operations, business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders. We may not be able to maintain or obtain insurance of the types and in the amounts we desire at reasonable rates, and we have elected and may elect in the future to self-insure a portion of our asset portfolio. The insurance coverage we have obtained or may obtain may contain large deductibles or fail to cover certain hazards or cover all potential losses. In addition, for pre-Distribution losses, we share insurance coverage with EQT, and we will remain responsible for payment of any deductible or self-insured amounts under those insurance policies. To the extent we experience a pre-Distribution loss that would be covered under EQT’s insurance policies, our ability to collect under those policies may be reduced to the extent EQT erodes the limits under those policies.
Furthermore, any insurance company that provides coverage to us may experience negative developments that could impair its ability to pay any of our claims. As a result, we could be exposed to greater losses than anticipated and may have to obtain replacement insurance, if available, at a greater cost.
Significant portions of our assets have been in service for several decades. There could be unknown events or conditions, or increased maintenance or repair expenses and downtime, associated with our assets that could have a material adverse effect on our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders.
Significant portions of our transmission and storage system have been in service for several decades. The age and condition of these systems has contributed to, and could result in, adverse events, or increased maintenance or repair expenditures, and downtime associated with increased maintenance and repair activities, as applicable. Any such adverse events or any significant increase in maintenance and repair expenditures or downtime, or related loss of revenue, due to the age or condition of our systems could adversely affect our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders. See also,“We may incur significant costs and liabilities as a result of performance of our pipeline and storage integrity management programs and compliance with increasingly stringent safety regulation.” in Part I, “Item 1A. Risk Factors” of this Annual Report on Form 10-K.
The loss or disengagement of key personnel or other workforce problems could adversely affect our ability to execute our strategic, operational and financial plans.
Our operations are dependent upon key management, technical and professional personnel, and one or more of these individuals could leave our employment or become unavailable due to, among other things, pandemics or epidemics, natural disaster, war, act of terrorism, sustained illness or injury. The unexpected loss of the services and skills of one or more of these individuals could have a detrimental effect on us. In addition, the success of our operations depends, in part, on our ability to identify, attract, develop and retain experienced personnel. There continues to be increased competition for experienced technical and other professionals, which could increase the costs associated with identifying, attracting and retaining such personnel. Additionally, a lack of employee engagement could lead to increased employee burnout, loss of productivity, increased propensity for errors, increased employee turnover, increased absenteeism, increased safety incidents and decreased customer satisfaction, which may in turn negatively impact our results of operations and financial condition. If we cannot identify, attract, develop, retain and engage key management, technical and professional personnel, along with other qualified employees, to support the various functions of our business, our ability to compete could be harmed.
Our exposure to commodity price risk may increase in the future and NYMEX Henry Hub futures prices affect the fair value, and may affect the realizability, of potential cash payments to us by EQT pursuant to the EQT Global GGA.
For the years ended December 31, 2023, 2022 and 2021, approximately 70%, 71% and 64%, respectively, of our operating revenues were generated from firm reservation fee revenues. Consequently, cash flows generated from such revenues generally had limited exposure to commodity price risks. However, cash flows that are not derived from firm reservation fees, such as those derived from our volumetric-based services, do create a level of exposure to commodity price risk in that producer customers may adjust their plans as a result of changes in the commodity price environment. Although our goal is to continue to seek to contractually minimize our exposure to commodity price risk in the future by executing long-term firm reservation fee, MVC and ARC contracts with new or existing customers, our efforts to obtain such contractual terms may not be successful. In addition, we may acquire or develop additional midstream assets in the future that do not provide services primarily based on capacity reservation charges, MVCs, ARCs or other fixed fee arrangements and therefore may have a greater exposure to fluctuations in customer volume variability driven by commodity price risk. Our existing and future exposure, primarily through volumetric-based services, to the volatility of natural gas prices, including regional basis differentials with regard to natural gas prices, and any significant increase to such exposure could have a material adverse effect on our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders.
Additionally, the EQT Global GGA provides for potential cash bonus payments payable by EQT to us during the period beginning on the first day of the calendar quarter in which the MVP full in-service date occurs through the calendar quarter ending December 31, 2024 (the Henry Hub cash bonus payment provision). The fair value of the derivative asset attributable to the Henry Hub cash bonus payment provision is largely determined by estimates of the NYMEX Henry Hub natural gas forward price curve and probability-weighted assumptions regarding MVP full in-service timing, and payments are conditioned upon the quarterly average of certain Henry Hub natural gas prices exceeding certain price thresholds. The NYMEX Henry Hub future price of natural gas is a widely used benchmark for the price of natural gas in the United States. Based on the Henry Hub natural gas forward strip prices as of February 16, 2024 and the terms of the Henry Hub cash bonus payment provision, any adverse change in assumptions regarding the MVP project may further decrease the estimated fair value of the derivative asset attributable to the Henry Hub cash bonus payment provision, and such adverse change or simply commodity prices on their own could ultimately result in further decreases to such estimated fair value, including to zero. Such changes in estimated fair value, if any, would be recognized in other income (expense), net, on our statements of consolidated comprehensive income. Depending on the future NYMEX Henry Hub prices, payments under the Henry Hub cash bonus payment provision may not be triggered even if MVP were to be placed in-service (and, even if prices are sufficient to meet necessary thresholds, payments will not be triggered if the MVP is not placed in-service in or before the quarter ending December 31, 2024), which could have an adverse effect on our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders.
We do not own all of the land on which our pipelines and facilities are located, which could disrupt our operations and future development.
We do not own all of the land on which our pipelines, storage systems and facilities have been constructed, and we have been, and in the future could be, subject to more onerous terms, and/or increased costs or delays, in attempting (or by virtue of the need to attempt) to acquire or to maintain use rights to land. See “Item 2. Properties” in Part I of this Annual Report on Form 10-K for additional information. Although many of these rights are perpetual in nature, we occasionally obtain the rights to construct and operate our pipelines and other facilities on land owned by third parties and governmental agencies for a specific period of time or in a manner in which certain facts could give rise to the presumption of the abandonment of the pipeline or other facilities. As has been the case in the past, if we were to be unsuccessful in negotiating or renegotiating rights-of-way or easements, we might have to institute condemnation proceedings on our FERC-regulated assets, the potential for which may have a negative effect on the timing and/or terms of FERC action on a project’s certification application and/or the timing of any authorized activities, or relocate our facilities for non-regulated assets. The FERC has announced a policy that would presumptively stay the effectiveness of certain future construction certificates, which may limit when we are able to exercise condemnation authority. It is possible that the U.S. Congress may amend Section 7 of the NGA to codify the FERC's presumptive stay or otherwise limit, modify, or remove the ability to utilize condemnation. It is also possible that a court may limit, modify or remove an operator’s ability to utilize condemnation under Section 7 of the NGA. A loss of rights-of-way, lease or easements or a relocation of our non-regulated assets could have a material adverse effect on our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders. Additionally, even when we own an interest in the land on which our pipelines, storage systems and facilities have been constructed, agreements with correlative rights owners have caused us to, and in the future may require that we, relocate pipelines and facilities or shut in storage systems and facilities to facilitate the development of the correlative rights owners’ estate, or pay the correlative rights owners the lost value of their estate if they are not willing to accommodate development.
Legal and Regulatory Risk
Our and the MVP Joint Venture’s natural gas gathering, transmission and storage services, as applicable, are subject to extensive regulation by federal, state and local regulatory authorities. Changes in or additional regulatory measures adopted by such authorities, and related litigation, could have a material adverse effect on our business, financial condition, results of operations, liquidity and ability to pay dividends.
Our and the MVP Joint Venture’s interstate natural gas transmission and storage operations, as applicable, are regulated by the FERC under the NGA and the NGPA and the regulations, rules and policies promulgated under those and other statutes. Our and the MVP Joint Venture’s FERC-regulated operations are pursuant to tariffs approved by the FERC that establish rates (other than market-based rate authority), cost recovery mechanisms and terms and conditions of service to our customers. The FERC’s authority extends to a variety of matters relevant to our operations. For additional information, see “Regulatory Environment — FERC Regulation” under “Item 1. Business” in Part I of this Annual Report on Form 10-K.
Pursuant to the NGA, existing interstate transmission and storage rates, terms and conditions of service, and contracts may be challenged by complaint and are subject to prospective change by the FERC. Additionally, rate increases, changes to terms and conditions of service and contracts proposed by a regulated interstate pipeline may be protested and such actions can be delayed and may ultimately be rejected by the FERC. As of the filing of this Annual Report on Form 10-K, we and the MVP Joint
Venture currently hold authority from the FERC to charge and collect (i) “recourse rates,” which are the maximum rates an interstate pipeline may charge for its services under its tariff, (ii) “discount rates,” which are rates below the “recourse rates” and above a minimum level, (iii) “negotiated rates,” which involve rates that may be above or below the “recourse rates,” provided that the affected customers are willing to agree to such rates and that the FERC has approved the negotiated rate agreement, and (iv) market-based rates for some of our storage services from which we derive a small portion of our revenues. As of December 31, 2023, approximately 97% of our contracted firm transmission capacity was subscribed by customers under negotiated rate agreements under our tariff, rather than recourse, discount or market-based rate contracts. There can be no guarantee that we or the MVP Joint Venture will be allowed to continue to operate under such rates or rate structures for the remainder of those assets’ operating lives. Customers, the FERC or other interested stakeholders, such as state regulatory agencies, may challenge our or the MVP Joint Venture’s rates offered to customers or the terms and conditions of service included in our tariffs. Neither we nor the MVP Joint Venture have an agreement in place that would prohibit customers, including EQT or its affiliates, from challenging our or the MVP Joint Venture’s rates or tariffs. Any successful challenge against rates charged for our or the MVP Joint Venture’s transmission and storage services, as applicable, could have a material adverse effect on our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders.
Any changes to the FERC’s policies regarding the natural gas industry may have an impact on us, including the FERC’s approach to pro-competitive policies as it considers matters such as interstate pipeline rates and rules and policies that may affect rights of access to natural gas transmission capacity and transmission and storage facilities. The FERC and U.S. Congress may continue to evaluate changes in the NGA or new or modified FERC regulations or policies that may impact our or the MVP Joint Venture’s operations and affect our or the MVP Joint Venture’s ability to construct new facilities and the timing and cost of such new facilities, as well as the rates charged to our or the MVP Joint Venture’s customers and the services provided.
Our and the MVP Joint Venture’s significant construction projects generally require review by multiple governmental agencies, including state and local agencies, whose cooperation is important in completing the regulatory process on schedule. Any agency’s delay in the issuance of, or refusal to issue, authorizations or permits, issuance of such authorizations or permits with unanticipated conditions, or the loss of a previously-issued authorization or permit, for one or more of these projects may mean that we will not be able to pursue these projects or that they will be constructed in a manner or with capital requirements that we did not anticipate (as has been the case with our MVP project). Such delays, refusals, losses of permits, or resulting modifications to projects, certain of which we have experienced with respect to the MVP project and the originally contemplated MVP Southgate project, could materially and negatively impact the revenues and costs expected from these projects or cause us or our joint venture partners to abandon planned projects.
Failure to comply with applicable provisions of the NGA, the NGPA, federal pipeline safety laws and certain other laws, as well as with the regulations, rules, orders, restrictions and conditions associated with these laws, could result in the imposition of administrative and criminal remedies and civil penalties. For example, the FERC is authorized to impose civil penalties of up to approximately $1.5 million (adjusted periodically for inflation) per violation, per day for violations of the NGA, the NGPA or the rules, regulations, restrictions, conditions and orders promulgated under those statutes.
In addition, future federal, state or local legislation or regulations under which we or the MVP Joint Venture will operate may have a material adverse effect on our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders.
We are subject to stringent environmental and other laws and regulations that expose us to significant costs and liabilities that could exceed our expectations and affect our business. The current laws and regulations affecting our business are subject to change and in the future we may be subject to additional or revised laws, regulations and legal requirements, that could adversely impact our business.
Our operations are regulated extensively at the federal, state and local levels. For additional information on laws, regulations and other legal requirements applicable to us, see “Regulatory Environment” under “Item 1. Business” in Part I of this Annual Report on Form 10-K. Laws, regulations and other legal requirements applicable to our business, including relating to environmental protection, health and safety, cybersecurity, as well as climate change, have, among other things, increased, and in the future could continue to increase, our cost of compliance and doing business, including costs related to planning, designing, permitting, constructing, installing, operating, updating and/or abandoning gathering, transmission and water systems and pipelines, as well as storage systems. The need to comply with such laws, regulations and other legal requirements, and incidents of noncompliance, whether by us or third parties with whom we engage, has adversely affected and will likely continue to adversely affect our business, such as by, among other things and as applicable, resulting in increased costs, costly delays, operating restrictions and diversion of management time and resources in evaluating the ability to pursue projects, such as when new or additional permits or alternative construction methods are required. For example, see Part I, “Item IA. Risk Factors” of this Annual Report on Form 10-K under “We have incurred and expect to continue to incur costs and expenses as
a result of or arising in relation to the Rager Mountain natural gas storage field incident in November 2022, which has included and may include potential additional regulatory penalties or other sanctions, which could, depending on their scope and timing, materially adversely affect our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders.” and Part I, “Item 3. Legal Proceedings” of this Annual Report on Form 10-K. In addition, noncompliance with applicable laws, regulations or other legal requirements, including required permits and other approvals, has subjected and could subject us to, among other things, claims for personal injuries, property damage and other damages and, even if as a result of factors beyond our control and irrespective of our fault, could result in the suspension or termination of our operations and subject us to administrative, civil and criminal penalties and damages that could materially and negatively affect our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders. The risk of our incurring environmental costs and liabilities in connection with our operations is significant given our handling of natural gas, produced water and other hydrocarbons, as well as air emissions related to our operations. Risk is also present as a result of historical industry operations and waste disposal practices, and our handling of waste. These matters are subject to stringent and complex federal, state and local laws and regulations governing environmental protection and could affect our business in many ways. For example, release, irrespective of fault, from one of our pipelines or storage systems, has subjected and could subject us, as applicable, to substantial liabilities arising from environmental cleanup and restoration costs, claims made by neighboring landowners and other third parties for personal injury and property damage and fines or penalties for related violations of environmental laws or regulations. We may not be able to recover all or any of these costs from insurance. Further, we are generally responsible for all liabilities associated with the environmental condition of our facilities and assets, whether acquired or developed, regardless of when the liabilities arose and whether they are known or unknown. In connection with certain acquisitions and divestitures, we could acquire, or be required to provide indemnification against, environmental liabilities that could expose us to material losses, which may not be covered by insurance. In addition, the steps needed to bring certain facilities that were acquired into compliance have been expensive. In the future, steps to bring other acquired facilities into compliance could be prohibitively expensive, and we might be required to shut down, divest or alter the operation of those facilities, which might cause us to incur losses.
Laws, regulations and other legal requirements applicable to our business also are constantly changing, and implementation of compliant processes in response to such changes could be costly and time consuming. As an example, designations of previously unprotected species as being endangered or threatened, or the designation of previously unprotected areas as a critical habitat for such species, has adversely affected and may in the future adversely affect our assets or projects. Additionally, as discussed under “Regulatory Environment” in “Item 1. Business” in Part I of this Annual Report on Form 10-K, federal and state governments and agencies, including states where we operate, have made advancing environmental justice a priority. A significant number of current environmental justice initiatives focus on enhancing public participation in permitting and other project development-related decisions. Our projects and the MVP Joint Venture’s projects have been, and in the future may be, the target of objections to permits before state and federal agencies and related litigation brought by individuals or advocacy organizations that are purporting to raise environmental justice issues. In addition, various federal and state agencies have increased their focus on, and resources devoted to, environmental justice and certain agencies, including EPA and DOJ, have sought out opportunities to address environmental justice issues through federal and state enforcement actions. Revised or additional laws, regulations or legal requirements (or interpretations thereof) that result in increased compliance costs, litigation or additional operating restrictions, particularly if those costs are not fully recoverable from our customers, or affect our customers’ production and operations, could have a material adverse effect on our business, financial position, results of operations, liquidity and ability to pay dividends to our shareholders.
For information related to risks associated with laws and regulations concerning climate change, see “Our business is subject to climate change-related transitional risks (including evolving climate-focused regulation and climate change-driven trends emphasizing the financing of non-fossil fuel businesses and prompting the pursuit of emissions reductions, lower-carbon technologies, and alternative forms of energy), as well as physical risks that could significantly increase our operating expenses and capital costs, adversely affect our customers’ development plans, and reduce demand for our products and services.” in Part I, “Item 1A. Risk Factors” of this Annual Report on Form 10-K.
We and our joint ventures may incur significant costs and liabilities as a result of performance of our pipeline and storage integrity management programs and compliance with increasingly stringent safety regulation.
The DOT, acting through PHMSA, and certain state agencies certificated by PHMSA, have adopted regulations requiring pipeline operators to develop an integrity management program for transmission pipelines located where a leak or rupture could impact high population sensitive areas (also known as High Consequence Areas or HCAs) and newly defined Moderate Consequence Areas (MCAs), and an integrity management program for storage wells, unless the operator effectively demonstrates by a prescriptive risk assessment that these operational assets have mitigated risks that could affect these predefined areas, as applicable. The regulations require operators, including us, to perform ongoing assessments of pipeline and storage integrity; identify and characterize applicable threats to pipeline segments and storage wells that could impact population sensitive areas; confirm maximum allowable operating pressures; maintain and improve processes for data
collection, integration and analysis; repair and remediate facilities as necessary; and implement preventive and mitigating actions. In addition to population sensitive areas, PHMSA has recently adopted regulations extending existing design, operational and maintenance, and reporting requirements to onshore gathering pipelines in rural areas. Finally, new PHMSA regulations require operators of certain transmission pipelines to assess their integrity management and maintenance practices, comply with enhanced corrosion control and mitigation timelines, and follow new requirements for pipeline inspections following an extreme weather event or natural disaster.
The cost and financial impact of compliance will vary and depend on factors such as the number and extent of maintenance determined to be necessary as a result of the application of our integrity management programs, and such costs and financial impact could have a material adverse effect on us. Further, our pipeline and storage integrity management programs depend in part on inspection tools and methodologies developed, maintained, enhanced and applied, and certain testing conducted, by certain third parties, many of which are widely utilized within the natural gas industry. Advances in these tools and methodologies could identify potential and/or additional integrity issues for our assets. Consequently, we may incur additional costs and expenses to remediate those newly identified or potential issues, and we may not have the ability to timely comply with applicable laws and regulations. Additionally, pipeline and storage safety laws and regulations are subject to change and failures to comply with pipeline and storage safety laws and regulations, including changes in such laws and regulations or interpretations thereof that result in more stringent or costly safety standards, could have a material adverse effect on us. For more information on the laws, regulations and risks applicable to us, including risks associated with compliance with the Mega Rule, see “Regulatory Environment — Safety and Maintenance” under “Item 1. Business” in Part I of this Annual Report on Form 10-K.
We may, and joint ventures of which we are the operator could, as is the case with the MVP Joint Venture, become subject to consent orders and agreements relating to integrity matters. On October 3, 2023, PHMSA issued a consent order incorporating the terms of a consent agreement entered into by PHMSA and the Company as the operator of the MVP project (the MVP Consent Agreement). The MVP Consent Agreement resolves the Notice of Proposed Safety Order (NOPSO) that PHMSA issued to the Company on August 11, 2023, for the MVP project, without admission or denial of any of the allegations in the NOPSO. The MVP Consent Agreement outlines the steps being taken by the MVP Joint Venture to responsibly complete construction, including, among other things, enhancing MVP’s existing coating, remediation and inspection processes, mandating or accelerating certain previously planned MVP inline inspections, accelerating the regulatory timeline for conducting cathodic protection surveys, and implementing additional measures to assess cathodic protection following MVP full in-service. The MVP Joint Venture has been conducting surveys and analyses and submitting reports to PHMSA in compliance with the requirements of the consent agreement. Failure to comply with the terms of the MVP Consent Agreement could have adverse effects on our business, including, in the case of the MVP Consent Agreement, adverse effects regarding MVP project completion.
The adoption of legislation relating to hydraulic fracturing and the enactment of new or increased severance taxes and impact fees on natural gas production could cause our current and potential customers to reduce the number of wells they drill in the Marcellus and Utica Shales or curtail production of existing wells connected to our assets. If reductions are significant for those or other reasons, the reductions could have a material adverse effect on our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders.
Our assets are primarily located in the Marcellus Shale fairway in southwestern Pennsylvania and northern West Virginia and the Utica Shale fairway in southeastern Ohio, and a substantial majority of the production that we receive from customers is produced from wells completed using hydraulic fracturing. Hydraulic fracturing is an important and commonly used process in the completion of oil and gas wells, particularly in unconventional resource plays like the Marcellus and Utica Shales.
The U.S. Congress has from time to time considered the adoption of legislation to provide for federal regulation of hydraulic fracturing, while a number of states, including those in which we operate, have adopted, and other states are considering adopting, regulations that could impose more stringent disclosure and/or well construction requirements on hydraulic fracturing operations. Some states, such as Pennsylvania, have imposed fees on the drilling of new unconventional oil and gas wells. Some states have elected, and other states could elect, to prohibit hydraulic fracturing altogether. In addition, there are regulations existing and proposed at the federal and state level that could indirectly limit or affect hydraulic fracturing. Also, certain local governments have adopted, and others may adopt, ordinances within their jurisdictions regulating the time, place and manner of drilling activities in general or hydraulic fracturing activities in particular. Further, several federal governmental agencies, including the EPA, as well as certain states, have conducted reviews and studies on the environmental aspects of hydraulic fracturing. The results of such reviews or studies have and could further spur initiatives to further regulate hydraulic fracturing.
The adoption of new laws, regulations, ordinances, or executive actions at the federal, state or local levels imposing more stringent restrictions on hydraulic fracturing could make it more difficult for our customers to complete natural gas wells,
increase customers’ costs of compliance and doing business, and otherwise adversely affect the hydraulic fracturing services they perform, which could negatively impact demand for our gathering, transmission and storage, or water services.
Furthermore, the tax laws, rules and regulations that affect our customers are subject to change. For example, in Pennsylvania legislation was proposed to impose a state severance tax on the extraction of natural resources, including natural gas produced from the Marcellus and Utica Shale formations, either in replacement of or in addition to the existing state impact fee. Pennsylvania’s legislature has not thus far advanced any of the severance tax proposals; however, severance tax legislation may continue to be proposed in future legislative sessions. Any such tax increase or change could adversely impact the earnings, cash flows and financial position of our customers and cause them to reduce their drilling in the areas in which we operate, which could negatively impact demand on our gathering, transmission and storage, and water services.
Risks Related to an Investment in Us
For the taxable years prior to January 1, 2021, the tax treatment of EQM dependsdepended on its status as a partnership for U.S. federal income tax purposes, as well as it not being subject to a material amount of entity-level taxation by individual states. If the IRS were to treat EQM as a corporation or if EQM becomes subject to additional amounts of entity-level taxation for state or foreign tax purposes for any open taxable year prior to January 1, 2021, it would reduce the amount of cash we have available for distribution to us.pay dividends to our shareholders.
We own, directly or indirectly, a 1.2% general partner interest, all of the IDRs and a 30.6% limited partner interest in EQM. Following the completion ofPrior to the EQM IDR Transaction, we expect to own, directly or indirectly,Merger, EQM was a 59.9% limited partner interest in EQM, which we expect will consist of 117,245,455 EQM common unitspublicly traded partnership and 7 million Class B units. Accordingly, the value of our investment in EQM, as well as the anticipated after-tax economic benefit of an investment in our shares dependsdepended largely on EQM being treated as a partnership for federal income tax purposes, which requires that 90% or more of EQM'sEQM’s gross income for every taxable year consist of qualifying income, as defined in Section 7704 of the Code. As a result of the EQM Merger, the requirements under Section 7704 of the Code are no longer applicable to EQM for taxable years beginning after December 31, 2020.
Despite the fact that EQM is a limited partnership under Delaware law and has not elected to be treated as a corporation for federal income tax purposes, it is possible, under certain circumstances, that the IRS could determine on audit for taxable years prior to January 1, 2021 for EQM to be treated as a corporation for federal income tax purposes. A change in EQM's business could cause EQM to be treated as a corporation for federal income tax purposes or otherwise subject EQM to federal income taxation as an entity. For example, EQM would be treated as a corporation if the IRS determined that less than 90% of EQM'sEQM’s gross income for any such taxable year consistsconsisted of "qualifying income"qualifying income within the meaning of Section 7704 of the Code.
If EQM was treated as a corporation for federal income tax purposes for any taxable year prior to January 1, 2021, EQM would be required to pay federal income tax on its taxable income at the corporate tax rate which is currently 21%applicable to the relevant tax year and would likely pay state income taxes at varying rates. Distributions to EQM's partners (including us)us after the Separation Date would generally be taxed again as corporate distributions, and no income, gains, losses or deductions would flow through to EQM's partners. Because a tax would be imposed upon EQM as a corporation, its cash available for distribution would be substantially reduced. Therefore, treatmentus. Treatment of EQM as a corporation wouldcould result in a material reduction in the anticipated cash flow and after-tax returnin the year of the payment to us, likelythe IRS, potentially causing, among other things, a substantial reduction in the value of our shares.
Current law may change, causing EQM to be treated as a corporation for federal income tax purposes or otherwise subjecting EQM to entity-level taxation. In addition, several states are evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise and other forms of taxation. Imposition of any entity-level taxes on EQM will reduce its cash available for distribution to its partners.
EQM's partnership agreement provides that if a law is enacted or existing law is modified or interpreted in a manner that subjects EQM to taxation as a corporation or otherwise subjects EQM to entity-level taxation for federal income tax purposes, EQM's minimum quarterly distribution and target distribution amounts will be adjusted to reflect the impact of that law on EQM. If this were to happen, the amount of distributions we receive from EQM and our resulting cash flows could be reduced substantially, which would adversely affect our ability to pay dividends.
The tax treatment of publicly traded partnerships such as EQM could be subject to potential legislative, judicial, or administrative changes and differing interpretations, possibly on a retroactive basis.
The present U.S. federal income tax treatment of publicly traded partnerships, including EQM, may be modified by legislative, judicial, or administrative changes, or interpretations of applicable law at any time. Any modifications to the U.S. federal income tax laws that may be applied retroactively or prospectively could make it more difficult or impossible to meet the expectation of future cash distributions or reduce the cash available for dividends to our shareholders. For example, from time to time, members of the U.S. Congress propose and consider such substantive changes to the existing federal income tax laws that affect publicly traded partnerships. If enacted, the proposals could eliminate the qualifying income exception to the treatment of all publicly traded partnerships as corporations upon which EQM relies for its treatment as a partnership for U.S. federal income tax purposes. We are unable to predict whether any of these changes or other proposals will ultimately be enacted, but it is possible that a change in law could affect EQM and may, if enacted, be applied retroactively. Any such changes could negatively impact the value of our direct or indirect investments in EQM, and therefore our shares.
If the IRS makes audit adjustments to EQM'sEQM’s income tax returns for tax years beginning after 2017, the IRS (and some states) may assess and collect any resulting taxes (including any applicable penalties and interest) directly from EQM, in which case EQMwe may require its unitholders (including us)be required, and potentially former unitholders would be required, to reimburse EQM for such paymentpayments or, if EQM is required to bear such payment, EQM's cash available for distributionpayments, such payments could have a material adverse effect on our business, financial position, results of operations, liquidity and ability to its unitholders (including us) might be substantially reduced.pay dividends to our shareholders.
Pursuant to the Bipartisan Budget Act of 2015, if the IRS makes audit adjustments to EQM'sEQM’s income tax return for tax years beginning after 2017, the IRS (and some states) may assess and collect any resulting taxes (including any applicable interest and penalties) directly from EQM. EQM will have a limited ability to shift any such tax liability to its general partner and
unitholders, including us, in accordance with their interests in EQM during the year under audit, but there can be no assurance that EQM will be able to (or will choose to) do so under all circumstances, or that EQM will be able to (or choose to) effect corresponding shifts in state income or similar tax liability resulting from the IRS adjustment in states in which EQM does business in the year under audit or in the adjustment year. As a result of the EQM Merger, we own all of the EQM common units. If EQM makes payments of taxes, penalties and interest resulting from audit adjustments EQM may require its unitholders, including us,with respect to tax periods beginning after 2017 and before 2021, we and potentially former unitholders may be required to reimburse it for such payment or, if EQM is required to bear such payment, EQM's cash available for distributionpayments, such payments could have a material adverse effect on our business, financial position, results of operations, liquidity and ability to its unitholders, including us, might be substantially reduced. Additionally, EQM may be requiredpay dividends to allocate an adjustment disproportionately among its unitholders, causing its publicly traded units to have different capital accounts, which could negatively impact the value of our investment in EQM, unless the IRS issues further guidance.shareholders.
In the event the IRS makes an audit adjustment to EQM'sEQM’s income tax returns and EQM does not or cannot shift the liability to its unitholders in accordance with their interests in EQM during the year under audit, EQM will generally have the ability to request that the IRS reduce the determined underpayment by reducing the suspended passive loss carryovers of EQM'sEQM’s unitholders (without any compensation from EQM to such unitholders), to the extent such underpayment is attributable to a net
decrease in passive activity losses allocable to certain partners. Such reduction, if approved by the IRS, will be binding on any affected unitholders.
If in the future we cease to manage and control EQM, we may be deemed to be an investment company under the Investment Company Act of 1940.
If we cease to manage and control EQM, and as a result we are deemed to be an investment company under the Investment Company Act of 1940 (the Investment Company Act), we will either have to register as an investment company under the Investment Company Act, obtain exemptive relief from the SEC or modify our organizational structure or our contractual rights to fall outside the definition of an investment company. Registering as an investment company could, among other things, materially limit our ability to engage in transactions with affiliates, including the purchase and sale of certain securities or other property to or from our affiliates, restrict our ability to borrow funds or engage in other transactions involving leverage, require us to add additional directors who are independent of us and our affiliates, and adversely affect the price of our common stock.
EQM may issue additional limited partner interests or other equity securities, which may increase the risk that EQM will not have sufficient available cash to maintain or increase its cash distribution level.
EQM has wide latitude to issue additional limited partner interests on the terms and conditions established by its general partner. The value of ourOur stock price has a correlation to the value of the EQM limited partner interests that we hold. Additional EQM limited partner interest issuances will have a dilutive effect on EQM's earnings per unit, which could adversely affect the market price of EQM's common unit price. If EQM were to issue additional limited partnership interests it would have a dilutive effect on our economic interests in EQM.
The creditfluctuated and risk profile of EQM could adversely affect our credit ratings and risk profile, which could increase our borrowing costs or hinder our ability to raise capital.
The credit and business risk profiles of EQM may be factors considered in credit evaluations of us. This is because our only cash-generating assets are our ownership interests in EQM, and our cash flow is therefore completely dependent upon the ability of EQM to make quarterly cash distributions to its partners, including us. Due to our relationship with EQM, our ability to access the capital markets, or the pricing or other terms of any capital markets transactions, may be adversely affected by any impairments to EQM's financial condition, including the degree of its financial leverage or adverse changes in its credit ratings. Any material limitations on our ability to access capital as a result of adverse changes at EQM could limit our ability to obtain future financing under favorable terms, or at all, or could result in increased financing costs in the future. Similarly, material adverse changes at EQM could negatively impact our share price, limiting our ability to raise capital through equity issuances or debt financing, could negatively affect our ability to engage in, expand or pursue our business activities, and could also prevent us from engaging in certain transactions that might otherwise be considered beneficial to us.
If EQM's unitholders remove the EQM General Partner, we would lose our general partner interest and our ability to manage EQM.
We currently manage EQM through the EQM General Partner, our wholly-owned subsidiary and the general partner of EQM. EQM's partnership agreement, however, gives unitholders of EQM the right to remove the EQM General Partner upon the affirmative vote of holders of 66 2⁄3% of EQM's outstanding units. If the EQM General Partner were to be removed as general partner of EQM, we would lose our ability to manage EQM. If we lose our ability to manage EQM, the successor general partner of EQM may change EQM's operations in a manner that could have a material impact on EQM's financial condition, liquidity and results of operations and may also reduce distributions to EQM's unitholders, all of which could have a material
impact on our financial condition, liquidity and results of operations. A reduction in EQM's distributions will adversely affect the amount of cash distributions we receive and our ability to declare dividends to our shareholders.
Our ability to sell our partnership interests in EQM may be limited by securities law restrictions and liquidity constraints.
We beneficially own 37,245,455 EQM common units, representing a 30.6% limited partner interest in EQM, all of which are unregistered and restricted securities, within the meaning of Rule 144 under the Securities Act of 1933, as amended (the Securities Act). Unless we exercise our registration rights with respect to these common units, we will be limited in our ability to sell our EQM common units in the public market.
Our stock price may fluctuate significantly.
The market price of our common stock has experienced substantial price volatility in the past and may decline or fluctuate significantlycontinue to do so due to a number of factors, including the MVP project, some of which may be beyond our control, including:
actual or anticipated fluctuations in our or EQM's operating results;
flat or slow growth in the production of natural gas in EQM's areas of operation;
declining operating revenues derived from EQM's core business;
any further delays to the MVP in-service date or further MVP cost increases;
the gain or loss of significant customers;
additions or departures of key personnel;
the operating and stock price performance of companies that investors deem comparable to us;
changes in the regulatory and legal environment under which we operate;
market conditions in the oil-and-gas industry and domestic and worldwide economy as a whole;
changes in recommendations by securities analysts;
news reports relating to trends, concerns and other issues in the energy, gas and water industries;
new technology used, or services offered, by competitors;
perceptions in the marketplace regarding us, our competitors, and/or our customers;
significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors;
failure to identify or integrate acquisitions or realize anticipated benefits from acquisitions, business combinations, strategic partnerships or joint ventures;
changes in our, EQM's or EQT's credit ratings;
additional investments from third parties; and
issuance of additional shares of our common stock.
control. General market fluctuations, industry factors, such as climate change-related physical and transitional risks, and general economic and political conditions and events, such as economic slowdowns or recessions, as well as factors specific to our business (including the status of and cost to construct the MVP project and perceptions regarding our growth opportunities), have, as applicable, caused and could also continue to cause our stock price to decrease regardless of operating results.
Our If we fail to meet expectations related to future growth, profitability, cash dividends, de-levering, strategic transactions or other market expectations, the market price of our common stock may decline significantly. Additionally, our stock price may be adversely affected by dispositions oftransactions in our common stock by significant shareholders, including EQT.
Following the Distribution, EQT retained 19.9% of the outstanding shares of our common stock. EQT publicly disclosed that it currently plans to dispose of all of our commonshareholders. A reduced stock that it retained after the Distribution, which may include dispositions through one or more subsequent exchanges for debt or a sale of such shares for cash as soon as practical following the Distribution consistent with the business reasons for the retention of those shares, but in no event later than five years after the Distribution. We agreed that, upon the request of EQT, we will use commercially reasonable efforts to effect a registration under applicable U.S. federal and state securities laws of any shares of our common stock retained by EQT. See "Item 13. Certain Relationships and Related Party Transactions and Director Independence." Any disposition by EQT, or any
significant shareholder, of our common stock in the public market, or the perception that such dispositions could occur, could adversely affect prevailing market prices for our common stock.
Our ability to meet our financial needs may be adversely affected by our lack of operational assets.
Our only cash-generating assets are partnership interests in EQM, and we currently have no independent operations separate from those of EQM. A reduction in EQM's distributions will affect the amount of cash distributions we receive and the amount of cash we will be able to distribute to our shareholders. Given that our only cash-generating assets are partnership interests in EQM, we may not have enough cash to meet our needs if any of the following events occur:
an increase in our operating expenses;
an increase in our general and administrative expenses;
an increase in our working capital requirements; or
an increase in the cash needs of EQM or its subsidiaries that reduces EQM's distributions.
Additionally, we may over time reduce our partnership interests in EQM, which would have the effect of reducing EQM's cash distributions to us.
Our indebtedness, and restrictions under the agreements governing our indebtedness, could adversely affect our operating flexibility, business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders.
Our level of debt could have important consequences to us, including the following:
Our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired, or such financing may not be available on favorable terms;
Our funds available for operations, future business opportunities and dividends to shareholders will be reduced by that portion of our cash flow required to service our debt;
We may be more vulnerable to competitive pressures or a downturn in our business or the economy generally; and
Our flexibility in responding to changing business and economic conditions may be limited.
Our ability to service our debt will depend principally on receiving distributions from EQM which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond our or EQM's control. See "– Risks Related to EQM's Business."
In addition, our debt agreements contain, and future debt agreements may contain, various covenants and restrictive provisions that could limit our ability to,price affects, among other things:
incur or guarantee additional debt;
make distributions on or redeem or repurchase common stock;
make certain investments;
incur or permit liens on assets;
enter into certain typesthings, our cost of transactions with affiliates;
enter into certain mergers or acquisitions;capital and
dispose of certain of our assets.
Our $100 million revolving credit facility and our $600 million term loan credit facility each contain a covenant (that is suspended during the continuance of either the Company or the term loans under the term loan facility obtaining and maintaining an investment grade rating from two of Moody's Investors Service (Moody's), Standard & Poor's Ratings Service (S&P) and Fitch Ratings Service (Fitch), in each case with a stable or better outlook) requiring us to maintain a debt service coverage ratio of not more than 1.10 to 1.00. Our $100 million revolving credit facility contains a covenant requiring us to maintain a consolidated leverage ratio of not more than 3.50 to 1.00. Our $600 million term loan credit facility contains a covenant (that is suspended during the continuance of either the Company or the term loans under the term loan facility
obtaining and maintaining an investment grade rating from two of Moody's, S&P and Fitch, in each case with a stable or better outlook) requiring us to make quarterly prepayments based on a variable percentage of excess cash flow, ranging from 50% to 0% depending on the Company's consolidated net leverage ratio. None of these covenants are currently suspended. Our ability to comply with restrictions and covenants may be affected by events beyond our control and we cannot assure our shareholders that we will comply with these covenants. In addition, our $100 million revolving credit facility and our $600 million term loan credit facility contain events of defaults customary for such facilities, including the occurrence of a change of control.
The provisions of our debt agreements may could affect our ability to obtainexecute future financing and pursue attractive businessstrategic transactions, as well as increases opportunities and our flexibility in planning for and reacting to, changes in business conditions. In addition, a failure to comply with the provisions of our debt agreements could result in an event of default, which could enable our lenders to, subject to the terms and conditions of the applicable agreement, declare any outstanding principal of such debt, together with accrued and unpaid interest, to be immediately due and payable. Our debt agreements also contain a cross default provision that applies to any other indebtedness we may have exceeding an aggregate principal amount of $25 million. Our only cash-generating assets are our ownership interests in EQM and if the payment of our debt is accelerated, our assets may be insufficient to repay such debt in full, and our shareholders could experience a partialinvestor activism or total loss of their investments.
In addition, our indebtedness or our subsidiaries' indebtedness may be viewed negatively by credit rating agencies, which could result in increased costs for us to access the capital markets. Any future downgrade of the debt issued by us or our subsidiaries could significantly increase our capital costs or adversely affect our ability to raise capital in the future.unsolicited third-party activity affecting us.
We cannot guarantee the timing, amount or payment of dividends on our common stock.stock, and we may further reduce the amount of the cash dividend that we pay on our common stock or may not pay any cash dividends at all to our shareholders. Our ability to declare and pay cash dividends to our shareholders, if any, in the future will depend on various factors, many of which are beyond our control.
We are not required to declare and pay dividends to our common shareholders. Our Board previously has reduced, and in the future may decide to further reduce, the amount of the cash dividend that we pay on our common stock. Our Board may also decide not to declare any dividends in the future. Although we expect to payhave in the past paid regular cash dividends, the timing, declaration, amount andany payment of future dividends to shareholders will fall withinbe at the sole discretion of our Board of Directors (the Board). The Board's decisions regarding the payment of dividendsand will depend onupon many factors, such as ourincluding the Pennsylvania Business Corporation Law (PBCL), the financial condition, earnings, liquidity and capital requirements any debt service obligations andof our operating subsidiaries, covenants associated with suchcertain debt service obligations, industry practice, legal requirements, our leverage, regulatory constraints and other factors thatdeemed relevant by our Board. We also may not pay any dividends on any junior securities, including any shares of our common stock, prior to paying the Board deems relevant. Because our only source of operating cash flow consists of cash distributions from EQM, the amount ofquarterly dividends we are able to pay to our shareholders may fluctuate based on the level of distributions EQM makes to its partners, including us. We cannot assure you that EQM will continue to make quarterly cash distributions at its most recently announced fourth quarter 2018 distribution amount of $1.13 per unit or any other amount or increase its quarterly distributions in the future. In addition, while we would expect to increase or decrease dividends to our shareholders if EQM were to increase or decrease distributions to unitholders, the timing and amount of such changes in dividends, if any, would not necessarily be comparablepayable to the timingholders of Equitrans Midstream Preferred Shares, including any previously accrued and amount of any changes in distributions made by EQM to us. Various factors, such as reserves established by the Board of Directors of the EQM General Partner, may affect the distributions EQM makes to its unitholders, including us. In addition, prior to making any distributions to its unitholders, EQM will reimburse the EQM General Partner and its affiliates for all direct and indirect expenses incurred by us and certain of our affiliates on its behalf. The EQM General Partner will determine the amount of these reimbursed expenses. The reimbursement of these expenses could adversely affect the amount of distributions EQM makes to its unitholders, including us.unpaid dividends.
YourOur shareholders’ percentage of ownership in us may be diluted inby future issuances of stock, which could, among other things, have a dilutive effect on our earnings per share and related effects on the future.market price for our common stock.
YourOur shareholders’ percentage of ownership in us may be diluted because of equity issuances for acquisitions, capital market transactions or otherwise, including, without limitation, equity awards that we may grant to our directors, officers, and employees or otherwise as a result of equity issuances for acquisitions or capital market transactions.employees. Our Management DevelopmentHuman Capital and Compensation Committee hasand our Board have authority to grant share-based awards to our employees under employee benefit plans and, from time to time, we issue share-based awards to our employees under our employee benefit plans. Such awards will have a dilutive effect on our earnings per common share, which could adversely affect the market price of our common stock. From time to time, we will issue share-based awards toEquity issuances may have a dilutive effect on our employees underearnings per share, which could adversely affect the market for and the market price of our employee benefits plans.stock, and have a dilutive effect on our shareholders’ ownership interests in us.
In addition, our Second Amended and Restated Articles of Incorporation authorize us to issue, without the approval of our shareholders, one or more classes or series of preferred stock that have such designations, powers, preferences and relative, participating, optional and other special rights, including preferences over our common stock respecting dividends and distributions, as our Board generally may determine.
The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. As discussed under "– The Board has adopted a shareholder rights agreement, which could delay or discourage a merger, tender offer, or assumption of control of the Company not approved by the Board," on November 13, 2018, our Board declared a dividend of one Right (as defined below) for each outstanding share of our common stock and adopted the Rights Plan (as defined below). If issued, the Preferred Stock (as defined below) issuable upon the exercise of the Rights will have a dilutive effect on the voting power and could reduce the value of our common stock.
Similarly, the repurchase or redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of our common stock.
As more fully described under “The Equitrans Midstream Preferred Shares by virtue of their terms and preferences present a number of risks to current and future holders of our common stock.” in Part I, “Item 1A. Risk Factors” of this Annual Report on Form 10-K, upon the occurrence of certain events or the passage of time, the Equitrans Midstream Preferred Shares may be converted by the holder or us, as applicable, initially on a one-for-one basis in the case of certain conversions by holders, subject to certain anti-dilution adjustments and an adjustment for any dividends that have accrued but not been paid when due and partial period dividends. If we or a holder of the Equitrans Midstream Preferred Shares convert Equitrans Midstream Preferred Shares into common stock, the conversion will have a dilutive effect on our earnings per share of common stock, which could adversely affect the market price of our common stock.
Anti-takeover provisions contained in our Second Amended and Restated Articles of Incorporation and Fifth Amended and Restated Bylaws, as well as provisions of Pennsylvania law, could impair an attempt to acquire us.us and limit the opportunity for our shareholders to receive a premium for their shares of our common stock.
Our Second Amended and Restated Articles of Incorporation and Fifth Amended and Restated Bylaws contain provisions that could have the effect of rendering more difficult or discouraging an acquisition of us deemed undesirable by our Board. These include provisions:
requiring the vote of the holders of not less than 80% of the combined voting power of the then-outstanding shares of capital stock for the approval of certain transactions;
requiring the vote of the holders of not less than 80% of the combined voting power of the then-outstanding shares of capital stock to amend our articles of incorporation and bylaws, under certain circumstances;
•authorizing blank check preferred stock, which we could issue with voting, liquidation, dividend and other rights superior to those of our common stock;
•limiting the liability of, and providing indemnification to, our directors and officers;
•specifying that our shareholders may take action only at a duly called annual or special meeting of shareholders and otherwise in accordance with our bylaws and prohibiting our shareholders from calling special meetings;
•requiring advance notice of proposals by our shareholders for business to be conducted at shareholder meetings and for nominations of candidates for election to our Board; and
•controlling the procedures for conduct of our Board and shareholder meetings and election appointment and removalappointment of our directors.
These provisions, alone or together, could deter or delay hostile takeovers, proxy contests and changes in control or management of us. As a Pennsylvania corporation, we are also subject to provisions of Pennsylvania law, including certain provisions of Chapter 25 of the Pennsylvania Business Corporation Law (PBCL),PBCL, which, among other things, requires enhanced shareholder approval for certain transactions between us and a shareholder who is a party to the transaction or is treated differently from other shareholders and also prevents some shareholderspersons who become the beneficial owner of shares representing 20% or more of our voting power from engaging in certain business combinations without approval of our Board, and in some cases preventing consummation of the holders of substantially all of our outstanding common stock.transaction for at least five years.
Any provision of our Second Amended and Restated Articles of Incorporation, orFifth Amended and Restated Bylaws or Pennsylvania law that has the effect of delaying or deterring a change in control of us could limit the opportunity for our shareholders to receive a premium for their shares of our common stock and also could affect the price that some investors are willing to pay for our common stock.
The Board has adopted a shareholder rights agreement, which could delay or discourage a merger, tender offer, or assumption of control of the Company not approved by the Board.
On November 13, 2018, the Board declared a dividend of one preferred share purchase right (Right) for each outstanding share of Equitrans Midstream common stock and adopted a shareholder rights plan as set forth in the rights agreement (the Rights Agreement), dated as of November 13, 2018, by and between Equitrans Midstream and American Stock Transfer & Trust Company, LLC, as rights agent. The dividend was paid on November 23, 2018 to Equitrans Midstream shareholders of record as of the close of business on November 23, 2018.
The Rights Agreement was adopted to assist the Board in managing the period immediately following the Separation and Distribution, by protecting against creeping accumulations or other share acquisition activity that the Board believes would not be in the best interest of shareholders. The Rights Agreement imposes a significant penalty upon any person or group that acquires 10% (or 15% in the case of a 13G Investor, as defined in the Rights Agreement, or 20% in the case of EQT and a single permitted transferee of the Retained Interest) or more of the outstanding shares of our common stock without the approval of the Board. The Rights Agreement should not interfere with any merger or other business combination approved by the Board. The Rights Agreement will expire on March 31, 2019, unless earlier redeemed by us.
Upon certain triggering events, each Right would entitle the holder to purchase from us one one-hundredth (subject to adjustment) of one share of Series A Junior Participating Preferred Stock, without par value (Preferred Stock), of the Company at an exercise price of $100 (the Exercise Price) per one one-hundredth of a share of Preferred Stock. The following are the potential consequences of a person or group becoming an Acquiring Person, as defined in the Rights Agreement:
Flip In. If a person or group becomes an Acquiring Person, all holders of Rights, except the Acquiring Person, may, for the Exercise Price, purchase shares of our common stock with a market value of $200, based on the market price of our common stock prior to such acquisition.
Exchange. After a person or group becomes an Acquiring Person, but before an Acquiring Person owns 50% or more of the outstanding shares of our common stock, the Board may extinguish the Rights by exchanging one share of our common stock, or an equivalent security, for each Right other than the Rights held by the Acquiring Person.
Flip Over. If the Company is later acquired in a merger or similar transaction after the date that the Rights become exercisable, all holders of Rights, except the Acquiring Person may, for the Exercise Price, purchase shares of the acquiring corporation with a market value of $200 based on the market price of the acquiring corporation's stock prior to such transaction.
The Rights Plan could render more difficult or discourage a merger, tender offer or assumption of control of the Company that is not approved by the Board.
Our Fifth Amended and Restated Bylaws designate the state and federal courts sitting in the judicial district of the Commonwealth of Pennsylvania, embracing the county in which our registered office is locatedCounty of Allegheny, as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our shareholders, which could discourage lawsuits againstand limit our shareholders’ ability to obtain a perceived favorable judicial forum for disputes with us, and our directors andor our officers.
Our Fifth Amended and Restated Bylaws provide that, unless our Board otherwise determines, the state and federal courts sitting in the judicial district of the Commonwealth of Pennsylvania, embracing the county in which our registered office is locatedCounty of Allegheny, will be the sole and exclusive forum for any derivative action or proceeding brought on behalf of us, any action asserting a claim of breach of a fiduciary duty owed by any director or officer or other employee of ours to us or our shareholders, any action asserting a claim against us or any director or officer or other employee of us arising pursuant to any provision of the PBCL or our Second Amended and Restated Articles of Incorporation orand Fifth Amended and Restated Bylaws or any action asserting a claim against us or any director or officer or other employee of ours governed by the internal affairs doctrine. ThisThe choice of forum provision set forth in our Fifth Amended and Restated Bylaws does not apply to actions arising under the Securities Act or the Exchange Act.
When applicable, this exclusive forum provision may limit the ability of our shareholders to bring a claim in a judicial forum that such shareholders find favorable for disputes with us or our directors or officers, which may discourage such lawsuits against us and our directors and officers. Alternatively, if a court outside of Pennsylvania were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, results of operations and financial condition.
The lossEquitrans Midstream Preferred Shares by virtue of key personnel could adversely affect our abilitytheir terms and preferences present a number of risks to execute our strategic, operationalcurrent and financial plans.
Our operations are dependent upon key management and technical personnel, and one or more of these individuals could leave our employment. The unexpected loss of the services of one or more of these individuals could have a detrimental effect on us. In addition, the successfuture holders of our operations will depend,common stock.
Equitrans Midstream Preferred Shares present a number of risks to current and future holders of our common stock, including a preference in part,favor of holders of Equitrans Midstream Preferred Shares in the payment of dividends on our ability to identify, attract, develop and retain experienced personnel. There is competition within our industry for experienced technical personnel and certain other professionals, which could increasecommon stock, the costs associated with identifying, attracting and retaining such personnel. If we cannot identify, attract, develop and retain our technical and professional personnel or attract additional experienced technical and professional personnel, our ability to compete could be harmed.
Cyber incidents may adversely impact our operations.
Our business has become increasingly dependent upon digital technologies, including information systems, infrastructure and cloud applications, to operate our businesses, and the maintenancerisk of our financial and other records has long been dependent upon such technologies. The U.S. government has issued public warnings that indicate that energy assets might be specific targets of cyber security threats. Deliberate attacks on, or unintentional events affecting, our systems or infrastructure, the systems or infrastructure of third parties or the cloud could lead to corruption or loss of our proprietary data and potentially sensitive data, delays of delivery of natural gas and NGLs, difficulty in completing and settling transactions, challenges in maintaining our books and records, communication interruptions, environmental damage, personal injury, property damage and other operational disruptions, as well as damage to our reputation, financial condition and cash flows. Further, as cyber incidents continue to evolve, we may be required to expend additional resources to continue to modify or enhance protective
measures or to investigate and remediate any vulnerability to cyber incidents. In addition, new U.S. laws and regulations governing data privacy and the unauthorized disclosure of personal information may potentially elevate our compliance costs. Any failure by us to comply with these laws and regulations, including as a result of a cyber incident, could result in significant penalties and liability to us. Additionally, if we acquire a company that has violated or is not in compliance with applicable data protection laws, we may incur significant liabilities and penalties as a result.
The EQM General Partner owes duties to EQM's unitholders that may conflict with our interests, including in connection with the terms of contractual agreements, the determination of cash distributions to be made by EQM, and the determination of whether EQM should make acquisitions and on what terms, and the duties of our officers and directors may conflict with their duties as officers and/or directors of the EQM General Partner.
Conflicts of interest exist and may arise in the futuredilution occurring as a result of the relationships between us and our affiliates, including the EQM General Partner, on the one hand, and EQM, on the other hand. For example, conflicts of interest may arise in connection with the following:
the terms and conditions of any contractual agreements between us and our affiliates, on the one hand, and EQM, on the other hand;
the determinationconversion of the amount of cash to be distributed to EQM's partners, including us, and the amount of cash to be reserved for the future conduct of EQM's business;
the determination of whether EQM should make acquisitions and on what terms;
the determination of whether EQM should use cash on hand, borrow or issue equity to raise cash to finance acquisitions, other strategic transactions or expansion capital projects, repay indebtedness, meet working capital needs, pay distributions or otherwise;
any decision we make in the future to engage in business activities independent of EQM;Equitrans Midstream Preferred Shares into our common stock and
the allocation of shared overhead expenses between EQM and us.
The directors and officers of the EQM General Partner have duties to manage EQM in a manner that is beneficial to us as the EQM General Partner's indirect owner. At the same time, the EQM General Partner, as the general partner of EQM, has a duty to manage EQM in a manner beneficial to EQM and its limited partners.61
Additionally, our officers and directors have duties to manage our business in a manner beneficial to us and our shareholders. However, two of our directors are also directors of the EQM General Partner, and five of our officers are also officers and/or directors of the EQM General Partner, each of whom has duties to manage the businesses of EQM in a manner beneficial to EQM, and its unitholders. Consequently, these directors and officers may encounter situations in which their obligations to EQM and/or the EQM General Partner, as applicable, on the one hand, and us, on the other hand, are in conflict.
The Board of Directors of the EQM General Partner or its conflicts committee may resolve conflicts and has broad latitude to consider the interests of all parties to the conflict. The resolution of conflicts may not always be in our best interest or that of our shareholders.
the ability of the holders of the Equitrans Midstream Preferred Shares to vote with the holders of our common stock on most matters, as well as the risk that the holders of the Equitrans Midstream Preferred Shares will have certain other class voting rights with respect to any amendment to our organizational documents that would be adverse (other than in a de minimis manner) to any of the rights, preferences or privileges of the Equitrans Midstream Preferred Shares.
We are party to a Registration Rights Agreement with certain holders of the Equitrans Midstream Preferred Shares pursuant to which, among other things, we gave the investors certain rights to require us to file and maintain one or more registration statements with respect to the resale of the Equitrans Midstream Preferred Shares and the shares of our common stock that are issuable upon conversion of the Equitrans Midstream Preferred Shares. In July 2023, pursuant to this Registration Rights Agreement, we filed a registration statement with the SEC to register up to 30,018,446 Equitrans Midstream Preferred Shares and up to 30,018,446 shares of our common stock that are issuable upon conversion of the Equitrans Midstream Preferred Shares held by such certain investors party to the Registration Rights Agreement.
Risks Related to the Separation
We have only operated as an independent company since November 12, 2018, and our historical and pro forma financial information is not necessarily representative of the results that we would have achieved or will achieve as a separate, publicly traded company and may not be a reliable indicator of our future results.
The historical and pro forma financial information included in this Annual Report on Form 10-K for period prior to November 12, 2018, refers to our business as operated by and integrated with EQT, which was derived from the consolidated financial statements and accounting records of EQT. Accordingly, the historical and pro forma financial information for dates prior to November 12, 2018 do not necessarily reflect the financial condition, results of operations and cash flows that we would have achieved as a separate, publicly traded company during the periods presented, or those that we will achieve in the future, primarily as a result of the factors described below:
Prior to the Separation, our business was operated by EQT as part of its broader corporate organization, rather than as an independent company. EQT or one of its affiliates performed certain corporate functions for us. Our historical and pro forma financial results prior to the Separation reflect allocations of corporate expenses from EQT for such functions that are likely to be less than the expenses we will incur as a separate publicly traded company.
In the past, our working capital requirements and capital for our general corporate purposes, including capital expenditures and acquisitions, were generally satisfied as part of the corporate-wide cash management policies of EQT. As a separate company, we are responsible for obtaining our own sources of financing, which may be obtained from banks, through public offerings or private placements of debt or equity securities, strategic relationships or other arrangements, which may or may not be available and may be more costly.
Historically, our business was integrated with other businesses of EQT and we shared economies of scope and scale in costs, employees, vendor relationships and customer relationships with other businesses of EQT. While we have made arrangements to attempt to retain and capture the benefits that we enjoyed as a result of such integration with EQT, there is no guarantee these arrangements will continue to retain or fully capture the benefits we previously enjoyed, which could have a material adverse effect on our results of operations and financial condition.
Our cost of capital may be higher than EQT's cost of capital prior to the Separation.
As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act) and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act) and are required to prepare our financial statements according to the rules and regulations required by the SEC. Complying with these requirements could result in significant costs to us and require us to divert substantial resources, including management time, from other activities.
Other significant changes may occur in our cost structure, management, financing and business operations as a result of operating as a company separate from EQT. For additional information about the past financial performance of our business, see "Item 6. Selected Financial Data" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as the financial statements and accompanying notes included in "Item 8. Financial Statements and Supplementary Data."
If the Separation and Distribution, together with certain related transactions, does not continue to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, we, EQT, and our respective shareholders could be subject to significant tax liabilities and, in certain circumstances, we could be required to indemnify EQT for material taxes and other related amounts pursuant to indemnification obligations under the tax matters agreement.
It was a condition to the Distribution that (i) a private letter ruling from the IRS regarding the qualification of the Distribution, together with certain related transactions, as a transaction that is generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code and certain other U.S. federal income tax matters relating to the Separation and Distribution shall not have been revoked or modified in any material respect and (ii) EQT received an opinion from Wachtell, Lipton, Rosen & Katz, in form and substance acceptable to EQT,of counsel with respect to certain tax matters relating to the qualification of the Distribution, together with certain related transactions, as a transaction described in Sections 355 and 368(a)(1)(D) of the Code. The IRS private letter ruling is based onupon and relies uponon, and the opinion of counsel is based upon and relies on, among other things, various facts and assumptions, as well as certain representations, statements and undertakings of EQT and us, including those relating to the past and future conduct of EQT and us. If any of these representations, statements or undertakings is, or becomes, inaccurate or incomplete, or if any representations or covenants
contained in any of the Separation-related agreements and documents or in any documents relating to any IRS private letter ruling or opinion of counsel are breached, such IRS private letter ruling and/or opinion of counsel may be invalid and the conclusions reached therein could be jeopardized.
Notwithstanding receipt of the IRS private letter ruling and opinion of counsel, the IRS could determine that the Distribution and/or certain related transactions should be treated as taxable transactions for U.S. federal income tax purposes if it determines that any of the representations, assumptions or undertakings upon which such IRS private letter ruling or the opinion of counsel was based are false or have been violated. In addition, the IRS private letter ruling does not address all of the issues that are relevant to determining whether the Distribution, together with certain related transactions, continues to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, and the opinion of counsel represented the judgment of such counsel and is not binding on the IRS or any court and the IRS or a court may disagree with the conclusions in any opinion of counsel. Accordingly, notwithstanding receipt of an IRS private letter ruling or opinion of counsel, there can be no assurance that the IRS will not assert that the Distribution and/or certain related transactions do not qualify for the intended tax treatment or that a court would not sustain such a challenge. In the event the IRS were to prevail with such challenge we, EQT, and our respective shareholders could be subject to material U.S. federal income tax liability.
Even if the Distribution otherwise qualifies as generally tax-free for U.S. federal income tax purposes under Section 355 and Section 368(a)(1)(D) of the Code, it would result in a material U.S. federal income tax liability to EQT (but not to its shareholders) under Section 355(e) of the Code if one or more persons acquire, directly or indirectly, a 50-percent or greater interest (measured by either vote or value) in EQT'sEQT’s stock or in the stock of us as part of a plan or series of related transactions that includes the Distribution, and we may be required to indemnify EQT for any such liability under the tax matters agreement entered into by EQT and us in connection with the Distribution. Any acquisition of EQT's stock or our stock (or any predecessor or successor corporation) within two years before or after the Distribution generally would be presumed to be part of a plan that includes the Distribution, although such presumptions may be rebutted under certain circumstances. The process for determining whether an acquisition is part of a plan under these rules is complex, inherently factual in nature and subject to a comprehensive analysis of the facts and circumstances of the particular case. Notwithstanding the IRS private letter ruling and opinion of counsel described above, a sufficient change in ownership of EQT or the Companyour common stock may occur which could result in a material tax liability to EQT.
Under the tax matters agreement that EQT entered into with us, we may be required to indemnify EQT against any additional taxes and related amounts resulting from (i) an acquisition of all or a portion of our equity securities or assets, whether by merger or otherwise (and regardless of whether we participated in or otherwise facilitated the acquisition), (ii) other actions or failures to act by us or (iii) any of our representations, covenants or undertakings contained in any of the Separation-related
agreements and documents or in any documents relating to the IRS private letter ruling or the opinion of counsel being incorrect or violated. Any such indemnity obligations could be material. For a more detailed discussion, see "Item 13. Certain Relationships and Related Party Transactions and Director Independence."
We andIf the IRS were to successfully assert that the EQM may determine to forgoMerger or be required to forgo certain transactionsshare purchases from EQT in order to avoid the risk of incurring material tax-related liabilities or indemnification obligations under the tax matters agreement.
As a result of requirements of Section 355 of the Code and/or other applicable tax laws, we may determine to forgo certain transactions that would otherwise be advantageous. In particular, we may determine to continue to operate certain business operations for the foreseeable future even if a sale or discontinuance of such business would otherwise be advantageous. Moreover,2020 resulted in light of the requirements of Section 355(e) of the Code, we may determine to forgo certain transactions, including share repurchases, stock issuances, certain asset dispositions and other strategic transactions, for some period of time following the Distribution. To preserve the tax-free treatment of the Separation and the Distribution and in addition to our indemnity obligations described above, the tax matters agreement restricts us, for the two-year period following the Distribution, except in specific circumstances, from: (i) entering into any transaction pursuant to which all and/or a portion of our stock would be acquired, whether by merger or otherwise, (ii) issuing equity securities beyond certain thresholds, (iii) repurchasing shares of our stock other than in certain open-market transactions, (iv) ceasing to actively conduct certain of our businesses, including, for example, ceasing to hold at least a 35% interest in each of the profit, loss and capital in EQM or (v) taking or failing to take any other action that prevents the Distribution and certain related transactions from qualifyingbeing treated as a transaction that is generally tax-freetaxable transactions to EQT for U.S. federal income tax purposes, under Sections 355we may be required to indemnify EQT for such taxes and 368(a)(1)(D) of the Code. These restrictions may limit our ability to pursue certain equity issuances, strategic transactions or other transactions that may maximize the value of our business. For more information, see "Item 13. Certain Relationships and Related Party Transactions and Director Independence."related amounts.
Certain contingent liabilities allocated to us following the Separation may mature, resulting in material adverse impacts to our business.
There are several significant areas where the liabilities of EQT may become our obligations. For example, under the Code and the related rules and regulations, each corporation that was a member of the EQT consolidated U.S. federal income tax return group (EQT Tax Group) during a taxable period or portion of a taxable period ending on or before the effective date of the Distribution is jointly and severally liable for the U.S. federal income tax liability of the EQT consolidated U.S. federal income tax return groupTax Group for that taxable period. Consequently, if EQT is unable to pay the consolidated U.S. federal income tax liability for a pre-Separation period, we could be required to pay the amount of such tax, which could be substantial and in excess of the amount allocated to us under the tax matters agreement. For a discussion of the tax matters agreement, see "Item 13. Certain Relationships and Related Party Transactions and Director Independence." Other provisions of federal law establish similar liability for other matters, including laws governing tax-qualified pension plans, as well as other contingent liabilities.
We may not achieve some or all of the expected benefits of the Separation, and failure to realize such benefits may materially and adversely affect our business.
We may be unable to achieve the full strategic and financial benefits expected to result from the Separation, or such benefits may be delayed or not occur at all. The Separation and Distribution were expected to provide the following benefits, among others:
allow us to more effectively pursue and implement our own distinct operating priorities and strategies and improve board of director and management fit and focus, enabling us to pursue unique opportunities for long-term growth and profitability;
allow our equity to be used as a focused acquisition currency, and as such, provide us with greater opportunities to pursue strategic investments and merger and acquisition opportunities;
afford us direct access to capital markets, facilitating our ability to pursue our specific growth objectives;
allow us the flexibility to develop a growth strategy that capitalizes on our distinct strengths and consequently enable us to be well-positioned to capitalize on the available opportunity set in our specific market;
permit us to concentrate our financial resources solely on our own operations, providing us with greater flexibility to invest capital in our business at a time and in a manner appropriate for our distinct strategy and business needs;
facilitate a more efficient allocation of capital based on our profitability, cash flow and growth opportunities and allow us to pursue an optimal mix of return of capital to shareholders, reinvestment in leading-edge technology and value-enhancing investments and merger and acquisition and joint venture opportunities;
facilitate our access to equity capital markets by making us eligible for inclusion in certain stock indices and to debt capital markets by allowing ratings agencies to evaluate our creditworthiness on a standalone basis;
facilitate deeper understanding by investors of our business, allowing investors to more transparently value our merits, strategy, performance and future prospects, further facilitating our access to capital markets;
facilitate EQM's ability to contract with customers and suppliers, especially those that currently prefer to enter into certain commercial arrangements with pure-play midstream business rather than integrated midstream and upstream companies, thereby allowing EQM to expand and diversify its customer and supplier bases; and
facilitate incentive compensation arrangements for employees that are more directly tied to the performance of our businesses. An improved equity currency will enhance employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives.
We may not achieve these or other anticipated benefits for a variety of reasons, including, among others: (i) matters relating to the Separation continue to require significant amounts of management time and effort, which may divert management attention from operating and growing our business; (ii) as an independent company, following the Separation, we may be more susceptible to market fluctuations and other adverse events than if we were still a part of EQT; and (iii) following the Separation, our business is now less diversified than EQT's business prior to the Separation. If we fail to achieve some or all of the benefits expected to result from the Separation, or if such benefits are delayed, our business, results of operations and financial condition could be materially and adversely affected.
We are still incurring costs with respect to the Separation which, if significantly higher than we currently anticipate, may adversely affect our financial condition, results of operations and cash flows.
The process of completing the Separation was time-consuming and involved significant costs and expenses. During the year ended December 31, 2018, the Company recorded approximately $73 million in non-recurring costs associated with the Separation and Distribution. These costs were related primarily to third-party consulting, legal, contractor or other fees directly associated with the Separation process. Of the total amount, the Company recorded approximately $21 million in capital expenditures related to the relocation or augmentation of corporate facilities and creation of new IT systems and approximately $52 million in expenses, including a $15 million charitable contribution to the Equitrans Midstream Foundation, a charitable organization established to continue EQT's legacy of charitable giving. Future contributions to the Equitrans Midstream Foundation, if any, will be evaluated from time to time. We may incur costs related to the Separation and Distribution after the year ended December 31, 2018 that are significantly higher than the estimated $10 million in capital expenditures and $5 million in expenses that we currently anticipate and may adversely affect our financial condition, results of operations and cash flows. For more information on the Separation, see section "The Separation" in "Item 1. Business."
We or EQT may fail to perform under various transaction agreements that were executed as part of the Separation, or we may fail to have necessary systems and services in place when certain of the transaction agreements expire.
In connection with the Separation, we and EQT entered into a Separation and Distribution Agreement as well as various other agreements, including a transition services agreement, a tax matters agreement, an employee matters agreement and a shareholder and registration rights agreement with respect to EQT's continuing ownership of our common stock. The Separation and Distribution Agreement, the tax matters agreement and the employee matters agreement determined the allocation of assets and liabilities between the companies following the Separation for those respective areas and include indemnification related to liabilities and obligations. The transition services agreement provides for the performance of select services by each company for the benefit of the other, in each case for a limited period of time after the Separation. With respect to services to be performed by EQT for the benefit of us, we are relying on EQT to satisfy its performance obligations under these agreements. If EQT is unable or unwilling to satisfy its obligations under these agreements, including its indemnification obligations, our business, results of operations and financial condition could be materially and adversely affected. If we do not have in place our own systems and services, or if we do not have agreements with other providers of these services, once transaction agreements with EQT expire or terminate, we may not be able to operate our business effectively and our profitability may decline. We are in the process of creating our own, or engaging third parties to provide, systems and services to replace many of the systems and services that EQT provided to us. However, we may not be successful in implementing these systems and services, we may incur additional costs in connection with or following the implementation of these systems and services, and we may not be successful in transitioning data from EQT's systems to ours. For a description of these agreements with EQT, see "Item 13. Certain Relationships and Related Party Transactions and Director Independence."
Certain members of our management and directors hold stock in both EQT and us, and as a result may face actual or potential conflicts of interest.
Although none of our management or directors serve at both EQT and the Company, certain of our management and directors may own both shares of common stock in EQT (EQT common stock) and our common stock. This ownership overlap could create, or appear to create, potential conflicts of interest when our management and directors and EQT management and directors face decisions that could have different implications for us and EQT. For example, potential conflicts of interest could arise in connection with the resolution of any dispute between us and EQT regarding the terms of the agreements governing the Distribution and our relationship with EQT following the Distribution. These agreements include the Separation and Distribution Agreement, the tax matters agreement, the employee matters agreement, the transition services agreement and any other agreements between the parties or their respective affiliates. Potential conflicts of interest may also arise out of any commercial arrangements between us or EQM, on the one hand, and EQT, on the other hand.
Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could materially and adversely affect us.
As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the Dodd-Frank Act and are required to prepare our financial statements according to the rules and regulations required by the SEC. In addition, the Exchange Act requires that we file annual, quarterly and current reports. Our failure to prepare and disclose this information in a timely manner or to otherwise comply with applicable law could subject us to penalties under federal securities laws, expose us to lawsuits and restrict our ability to access financing.
In addition, the Sarbanes-Oxley Act requires that, among other things, we establish and maintain effective internal controls and procedures for financial reporting and disclosure purposes. To comply with this statute, beginning with the year ending
December 31, 2019, we will be required to document and test our internal control procedures, our management will be required to assess and issue a report concerning our internal control over financial reporting, and our independent auditors will be required to issue an opinion on their audit of our internal control over financial reporting. Our management report on our internal controls over financial reporting and our auditors' report on the effectiveness of our internal control over financial reporting are not contained in this report due to a transition period established under SEC rules for newly public companies as discussed in "Item 9A. Controls and Procedures." Internal control over financial reporting is complex and may be revised over time to adapt to changes in our business or changes in applicable accounting rules. We cannot assure you that our internal control over financial reporting will be effective in the future or that a material weakness will not be discovered with respect to a prior period for which we had previously believed that internal controls were effective. If we are not able to maintain or document effective internal control over financial reporting, our independent registered public accounting firm will not be able to certify as to the effectiveness of our internal control over financial reporting.
Matters affecting our internal controls may cause us to be unable to report our financial information on a timely basis, or may cause us to restate previously issued financial information, and thereby subject us to adverse regulatory consequences, including sanctions or investigations by the SEC, or violations of applicable stock exchange listing rules. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements is also likely to suffer if we or our independent registered public accounting firm reports a material weakness in our internal control over financial reporting. This could have a material and adverse effect on us by, for example, leading to a decline in our share price or impairing our ability to raise additional capital.
EQT may retain a significant ownership stake in us for a period of time.
We expect that EQT will ultimately dispose of its remaining ownership interest in us, representing 19.9% of our outstanding common stock, as soon as practicable consistent with the business reasons for the retention of such common stock, but in no event later than five years after the Distribution. There can be no assurance regarding the method by which EQT will dispose of its interest in us, as we expect it to seek to maximize overall value to its shareholders. Alternatives include one or more subsequent exchanges of such common stock for debt and a sale of such common stock for cash.
The disposition by EQT of its remaining ownership interest in us may be subject to various conditions, including receipt of any necessary regulatory and other approvals, the existence of satisfactory market conditions, and the confirmation of credit and financial strength ratings. These conditions may not be satisfied or EQT may decide for any other reason not to consummate the disposition and instead retain a significant ownership interest in us for a period of time, not exceeding five years. Satisfying the conditions relating to such disposition may require actions that EQT has not anticipated. Any delay by EQT in completing the disposition could have a material adverse effect on the market price for our common stock.
Potential indemnification liabilities to or from EQT pursuant to agreements relating to the Separation and Distribution could materially and adversely affect us.
The agreement that effected the Separation (the Separation and Distribution Agreement with EQTAgreement) provides for, among other things, provisions governing the relationship between us and EQT with respect to and resulting from the Separation. For a description of the Separation and Distribution Agreement, see "Item 13. Certain Relationships and Related Party Transactions and Director Independence."Among other things, the Separation and Distribution Agreement provides for indemnification obligations designed to make us financially responsible for substantially all liabilities that may exist relating to our business activities, whether incurred prior to or after the Separation, as well as those obligations of EQT assumed by us pursuant to the Separation and Distribution Agreement. If we are required to indemnify EQT under the circumstances set forth in the Separation and Distribution Agreement, we may be subject to substantial liabilities.
In addition, See also the discussion of potential indemnification obligations under “If the Separation and Distribution, together with certain related transactions, does not continue to qualify as a transaction that is generally tax-free for U.S. federal income tax matters agreement thatpurposes, we, entered into with EQT, and our respective shareholders could be subject to significant tax liabilities and, in certain circumstances, we maycould be required to indemnify EQT against any additionalfor material taxes and other related amounts resulting from (i) an acquisitionpursuant to indemnification obligations under the tax matters agreement.” in Part I, “Item 1A. Risk Factors” of all or a portion of our equity securities or assets, whether by merger or otherwise (and regardless of whether we participated in or otherwise facilitated the acquisition), (ii) other actions or failures to act by us or (iii) any of our representations, covenants or undertakings contained in any of the Separation-related agreements and documents or in any documents relating to the IRS private letter ruling or the opinion of counsel being incorrect or violated. Any such indemnity obligations could be material. For a more detailed discussion, see "Item 13. Certain Relationships and Related Party Transactions and Director Independence."
Risks Related to EQM's Business
EQM dependsthis Annual Report on EQT for a substantial majority of its revenues and future growth. For example, EQM's water service business is directly associated with EQT's well completion activities and water needs, which are partially driven by horizontal lateral lengths and the number of completion stages per well. Therefore, EQM is subject to the business risks of EQT, and any further decrease in EQT's drilling or completion activity could adversely affect EQM's business and operating results. EQM has no control over EQT's business decisions and operations, andForm 10-K. Further, if EQT is unable or unwilling to satisfy its obligations under no obligation to adopt athese agreements, including its indemnification obligations, our business, strategy that favors EQM.
Historically, EQM has provided a substantial percentage of its natural gas gathering, transmission and storage and water services to EQT. EQT accounted for approximately 74% of EQM's revenues for the year ended December 31, 2018. We expect EQM to derive a substantial majority of its revenues from EQT for the foreseeable future. For example, EQM's ability to maintain water service revenues is substantially dependent on continued completion activity by EQT and other customers over time, including the volume of fresh water it distributes and produced water it handles for customers. EQM's fresh water distribution services, which make up a substantial portion of its water service revenues, will be in greatest demand in connection with completion activities. To the extent that EQT or other fresh water distribution customers complete fewer wells, or wells with shorter lateral lengths, the demand for EQM's fresh water distribution services would be reduced from that needed for more wells and longer lateral lengths. In addition, EQM's fresh water distribution business is dependent upon active development in EQM's areas of operation. In order to maintain or increase throughput levels on EQM's fresh water distribution systems, EQM must service new wells. If reductions in development activity result in EQM's inability to maintain the current levels of throughput on EQM's water services, or if reductions in lateral lengths result in a decrease in demand for EQM's water services on a per well basis, those reductions could adversely affect EQM's business, financial condition, results of operations and liquidity and ability to make quarterly cash distributions to its unitholders, including us.
Therefore, any event, whether in EQM's areas of operations or otherwise, that adversely affects EQT's production, financial condition leverage, results of operations or cash flows may adversely affect us. Accordingly, we are subject to the business risks of EQT, including the following:
prevailing and projected natural gas, NGLs and oil prices;
the proximity, capacity, cost and availability of gathering and transportation facilities, and other factors that result in differentials to benchmark prices;
natural gas price volatility or a sustained period of lower commodity prices may have an adverse effect on EQT's drilling operations, revenue, profitability, future rate of growth, credit worthiness and liquidity;
a further reduction in or slowing of EQT's anticipated drilling and production schedule, which would directlycould be materially and adversely impact demand for EQM's services;affected.
the costs of producing natural gas and the availability and costs of drilling rigs and crews and other equipment;
infrastructure capacity constraints and interruptions;
geologic considerations;
risks associated with the operation of EQT's wells and facilities, including potential environmental liabilities;
the availability and cost of capital on a satisfactory economic basis to fund EQT's operations;
EQT's ability to identify exploration, development and production opportunities based on market conditions;
uncertainties inherent in projecting future rates of production, levels of reserves, and demand for natural gas, NGLs and oil;
EQT's ability to develop additional reserves that are economically recoverable, to optimize existing well production and to sustain production;
adverse effects of governmental and environmental regulation, including the availability of drilling permits, the regulation of hydraulic fracturing, the potential removal of certain federal income tax deductions with respect to natural gas and oil exploration and development or additional state taxes on natural gas extraction, changes in tax laws and negative public perception regarding EQT's operations;
the loss of key personnel; and
risk associated with cyber security threats.
On January 22, 2019, EQT publicly announced a 2019 capital expenditure forecast of $1.9 billion to $2.0 billion, compared to 2018 capital expenditures of $2.4 billion. EQT may further reduce its capital spending in the future based on commodity prices or other factors. Unless EQM is successful in attracting significant new customers, its ability to maintain or increase the capacity subscribed and volumes transported under service arrangements on its gathering, transmission and storage and water systems will be dependent on receiving consistent or increasing commitments from EQT. While EQT has dedicated certain acreage to, and executed long-term firm gathering and transmission contracts on, EQM's systems, it may determine in the future that drilling in areas outside of EQM's current areas of operations is strategically more attractive to it and it is under no contractual obligation to maintain its production dedicated to EQM. Moreover, in connection with the Separation, EQT previously disclosed publicly that EQT's strategy was transitioning from one focused on volume growth to one focused on capital efficiency and free cash flow generation and that EQT was evaluating the long-term pace of development of its Upstream Business in order to achieve the optimal balance between free cash flow generation and volume growth. Based on this evaluation and as EQT publicly disclosed, EQT is currently targeting mid-single digit annual production growth over the next five years. A reduction in the capacity subscribed or volumes transported or gathered on EQM's systems by EQT could have a material adverse effect on EQM's business, financial condition, results of operations, liquidity and ability to make quarterly cash distributions to its unitholders, including us.
EQT may also elect to reduce its drilling activity if commodity prices decrease. Fluctuations in energy prices can also greatly affect the development of reserves. In general terms, the prices of natural gas, oil and other hydrocarbon products fluctuate in response to changes in supply and demand, market uncertainty and a variety of additional factors that are beyond EQM's control. These factors include worldwide economic conditions, weather conditions and seasonal trends, the levels of domestic production and consumer demand, the levels of imported and exported natural gas, oil and LNG, the availability of transportation systems with adequate capacity, the volatility and uncertainty of regional pricing differentials, the price and availability of alternative fuels, the effect of energy conservation measures, the nature and extent of governmental regulation and taxation, and the anticipated future prices of natural gas, oil, LNG and other commodities. Declines in commodity prices could have a negative impact on EQT's development and production activity, and if sustained, could lead to a material decrease in such activity. Sustained reductions in development or production activity in EQM's areas of operation could lead to reduced utilization of EQM's services, which could adversely affect EQM's business, financial condition, results of operations, liquidity and ability to make quarterly cash distributions to its unitholders, including us.
Due to these and other factors, even if reserves are known to exist in areas serviced by EQM's assets, producers have chosen, and may choose in the future, not to develop those reserves.
The demand for the services provided by EQM's water distribution business could decline as a result of several factors.
EQM's water service business includes fresh water distribution for use in EQM's customers' natural gas, NGLs and oil exploration and production activities. Water is an essential component of natural gas, NGLs and oil production during the drilling, and in particular, the hydraulic fracturing process. As a result, the demand for EQM's fresh water distribution and produced water handling services is tied to the level of drilling and completion activity of EQM's customers, including EQT, which is currently and anticipated to continue to be EQM's primary customer for such services. More specifically, the demand for EQM's water distribution and produced water handling services could be adversely affected by any further reduction in or slowing of EQT's or other customers' well completions, any reduction in produced water attributable to completion activity, or the extent to which EQT or other customers complete wells with shorter lateral lengths, which would lessen the volume of fresh water required for completion activity. In addition, increased regulation of hydraulic fracturing could result in reductions or delays in natural gas, NGLs and oil production by EQM's water service customers, which could reduce the number of wells for which EQM provides water services.
The availability of our water supply may be limited due to reasons including, but not limited to, prolonged drought or regulatory delays associated with infrastructure development. Restrictions on the ability to obtain water or changes in wastewater disposal requirements may incentivize water recycling efforts by oil and natural gas producers, which could decrease the demand for EQM's fresh water distribution services.
EQM's natural gas gathering, transmission and storage services are subject to extensive regulation by federal, state and local regulatory authorities. Changes or additional regulatory measures adopted by such authorities could have a material adverse effect on EQM's business, financial condition, results of operations, liquidity and ability to make distributions.
EQM's interstate natural gas transmission and storage operations are regulated by the FERC under the NGA, the NGPA and the Energy Policy Act of 2005. Certain portions of EQM's gathering operations are also rate-regulated by the FERC in connection with its interstate transmission operations. EQM's FERC-regulated systems operate under tariffs approved by the FERC that establish rates, cost recovery mechanisms and terms and conditions of service to its customers. Generally, the FERC's authority extends to:
rates and charges for EQM's natural gas transmission and storage and FERC-regulated gathering services;
certification and construction of new interstate transmission and storage facilities;
abandonment of interstate transmission 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;
acquisitions and dispositions of interstate transmission and storage facilities; and
initiation and discontinuation of interstate transmission and storage services.
Interstate pipelines may not charge rates or impose terms and conditions of service that, upon review by the FERC, are found to be unjust and unreasonable or unduly discriminatory. The recourse rate that may be charged by EQM's interstate pipeline for its transmission and storage services is established through the FERC's ratemaking process. The maximum applicable recourse rate and terms and conditions for service are set forth in EQM's FERC-approved tariffs.
Pursuant to the NGA, existing interstate transmission and storage rates and terms and conditions of service may be challenged by complaint and are subject to prospective change by the FERC. Additionally, rate increases and changes to terms and conditions of service proposed by a regulated interstate pipeline may be protested and such increases or changes can be delayed and may ultimately be rejected by the FERC. EQM currently holds authority from the FERC to charge and collect (i) "recourse rates," which are the maximum rates an interstate pipeline may charge for its services under its tariff, (ii) "discount rates," which are rates below the "recourse rates" and above a minimum level, (iii) "negotiated rates," which involve rates above or below the "recourse rates," provided that the affected customers are willing to agree to such rates and that the FERC has approved the negotiated rate agreement, and (iv) market-based rates for some of EQM's storage services from which EQM derives a small portion of its revenues. As of December 31, 2018, approximately 86% of the contracted firm transmission capacity on EQM's system was committed under such "negotiated rate'' contracts, rather than recourse, discount or market rate contracts. There can be no guarantee that EQM will be allowed to continue to operate under such rate structures for the remainder of those assets' operating lives. Any successful challenge against rates charged for EQM's transmission and storage services could have a material adverse effect on its business, financial condition, results of operations, liquidity and ability to make quarterly cash distributions to its unitholders, including us.
While the FERC does not generally regulate the rates and terms of service over facilities determined to be performing a natural gas gathering function, the FERC 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 jurisdictional interstate transmission facilities. EQM maintains rates and terms of service in its tariff for unbundled gathering services performed on a portion of its gathering facilities that are connected to its transmission and storage system. Just as with rates and terms of service for transmission and storage services, EQM's rates and terms of services for its FERC-regulated gathering services may be challenged by complaint and are subject to prospective change by the FERC. Rate increases and changes to terms and conditions of service which EQM proposes for its FERC-regulated gathering services may be protested, and such increases or changes can be delayed and may ultimately be rejected by the FERC.
The FERC's jurisdiction extends to the certification and construction of interstate transmission and storage facilities, including, but not limited to, acquisitions, facility maintenance, expansions, and abandonment of facilities and services. While the FERC exercises jurisdiction over the rates and terms of service for EQM's FERC-regulated gathering services, these gathering facilities are not subject to the FERC's certification and construction authority. Prior to commencing construction of
new or existing interstate transmission and storage facilities, an interstate pipeline must obtain a certificate authorizing the construction, or file to amend its existing certificate, from the FERC. On April 19, 2018, the FERC issued a Notice of Inquiry seeking information regarding whether, and if so how, it should revise its approach under its currently effective policy statement on the certification of new natural gas transportation facilities. The formal comment period in this proceeding closed on July 25, 2018. We cannot currently predict when the FERC will issue an order in the Notice of Inquiry proceeding or what action the FERC may take in any such order. If the FERC changes its existing certificate policy, it could impact EQM's ability to construct interstate pipeline facilities. Further, typically a significant expansion project requires review by a number of governmental agencies, including state and local agencies, whose cooperation is important in completing the regulatory process on schedule. Any agency's delay in the issuance of, or refusal to issue, authorizations or permits for one or more of these projects may mean that EQM will not be able to pursue these projects or that they will be constructed in a manner or with capital requirements that EQM did not anticipate. Such delays, refusals or resulting modifications to projects could materially and negatively impact the revenues and costs expected from these projects or cause EQM to abandon planned projects.
FERC regulations also extend to the terms and conditions set forth in agreements for transmission and storage services executed between interstate pipelines and their customers. These service agreements are required to conform, in all material respects, with the forms of service agreements set forth in the pipeline's FERC-approved tariff. Non-conforming agreements must be filed with, and accepted by, the FERC. In the event that the FERC finds that an agreement is materially non-conforming, in whole or in part, it could reject the agreement or require EQM to seek modification, or alternatively require EQM to modify its tariff so that the non-conforming provisions are generally available to all customers.
On March 15, 2018, the FERC issued an order prohibiting master limited partnership (MLP)-owned pipelines from including an allowance for investor income tax liability in their cost-of-service based rates. Under its prior policy, the FERC had permitted all interstate pipelines to include an income tax allowance in the cost-of-service used as the basis for calculating their regulated rates. On July 18, 2018, the FERC issued an order affirming the principal finding in the March order regarding income tax recovery and also clarifying the treatment of ADIT in light of the prohibition on MLP income tax allowances. Challenges to these orders are currently pending in a consolidated proceeding before the U.S. Court of Appeals for the District of Columbia Circuit. On October 17, 2018, an intervenor filed a motion to hold the proceeding in abeyance. On October 24, 2018, the FERC filed a motion to dismiss the proceeding. The court has not acted on either motion at this time. We cannot currently predict when the court will act on these motions or the broader proceeding, or what actions the court may take. Also, on July 18, 2018, the FERC issued Order No. 849, adopting regulations requiring that natural gas pipelines must make a one-time report, Form 501-G, due in the fourth quarter of 2018. For MLP-owned pipelines, the Form 501-G report must calculate an earned rate of return on equity that addresses any potential over-recovery of their cost of service arising from the prohibition of the income tax allowance and the ADIT clarification. On December 28, 2018, Equitrans, L.P. filed its Form 501-G with the FERC. The FERC will evaluate these Form 501-G filings on a case-by-case basis and may open a limited or a general rate case, open an investigation, or take no further action. The FERC has initiated rate cases against at least four pipelines as a result of their respective Form 501-G filings. EQM cannot determine whether the FERC or any customer will initiate a rate case against Equitrans, L.P. as a result of its Form 501-G filing or for any other reason. Rehearing of Order No. 849 has been requested and is currently pending before the FERC. We cannot currently predict when the FERC will issue an order on rehearing in this proceeding or what action the FERC may take in any such order. This recent action by the FERC could adversely affect EQM's business, financial condition, results of operations, liquidity and ability to make quarterly cash distributions to unitholders, including us.
The FERC may not continue to pursue its approach of pro-competitive policies as it considers matters such as interstate pipeline rates and rules and policies that may affect rights of access to natural gas transmission capacity and transmission and storage facilities.
Section 1(b) of the NGA exempts certain natural gas gathering facilities from regulation by the FERC under the NGA. EQM believes that its high-pressure natural gas gathering pipelines meet the traditional tests the FERC has used to establish a pipeline's status as an exempt gatherer not subject to regulation as a natural gas company, although the FERC has not made a formal determination with respect to the jurisdictional status of those facilities. However, the distinction between FERC-regulated transmission services and federally unregulated gathering services is often the subject of litigation within the industry, so the classification and regulation of EQM's high-pressure gathering systems are subject to change based on future determinations by the FERC, the courts or the U.S. Congress.
Failure to comply with applicable provisions of the NGA, the NGPA, federal pipeline safety laws and certain other laws, as well as with the regulations, rules, orders, restrictions and conditions associated with these laws, could result in the imposition of administrative and criminal remedies and civil penalties. For example, the FERC is authorized to impose civil penalties of up to approximately $1.2 million per violation, per day for violations of the NGA, the NGPA or the rules, regulations, restrictions, conditions and orders promulgated under those statutes. This maximum penalty authority established by statute
will continue to be adjusted periodically for inflation.
In addition, future federal, state or local legislation or regulations under which EQM will operate its natural gas gathering, transmission and storage businesses may have a material adverse effect on its business, financial condition, results of operations, liquidity and ability to make quarterly cash distributions to its unitholders, including us.
Any significant decrease in production of natural gas in EQM's areas of operation could adversely affect its business and operating results and reduce its cash available to make distributions.
EQM's business is dependent on the continued availability of natural gas production and reserves in its areas of operation. A sustained low-price environment for natural gas or regulatory limitations could adversely affect development of additional reserves and production that is accessible by EQM's pipeline and storage assets and fresh water sources. Production from natural gas wells will naturally decline over time. The amount of natural gas reserves underlying these wells may also be less than anticipated, and the rate at which production from these reserves declines may be greater than anticipated. Additionally, producers may determine in the future that drilling activities in areas outside of EQM's current areas of operations are strategically more attractive to them due to the price environment for natural gas or other reasons. A reduction in the natural gas volumes supplied by producers could result in reduced throughput on EQM's systems and adversely impact its ability to grow its operations and increase quarterly cash distributions to its unitholders, including us. Accordingly, to maintain or increase the contracted capacity or the volume of natural gas gathered, transported and stored on EQM's systems and cash flows associated therewith, EQM's customers must continually access additional reserves of natural gas.
The primary factors affecting EQM's ability to obtain non-dedicated sources of natural gas include the level of successful drilling activity near EQM's systems and EQM's ability to compete for volumes from successful new wells. While EQT has dedicated production from certain of its leased properties to EQM, EQM has no control over the level of drilling activity in its areas of operation, the amount of reserves associated with wells connected to EQM's gathering systems or the rate at which production from a well declines. In addition, EQM has no control over EQT or other producers or their drilling or production decisions, which are affected by, among other things, the availability and cost of capital, prevailing and projected energy prices, demand for hydrocarbons, levels of reserves, the producer's contractual obligations to EQM and other midstream companies, geological considerations, environmental or other governmental regulations, the availability of drilling permits, the availability of drilling rigs and crews, and other production and development costs.
Fluctuations in energy prices can also greatly affect the development of new natural gas reserves. In general terms, the prices of natural gas, oil and other hydrocarbon products fluctuate in response to changes in supply and demand, market uncertainty and a variety of additional factors that are beyond EQM's control. For example, the daily spot prices for NYMEX Henry Hub natural gas ranged from a high of $7.13 per MMBtu to a low of $2.44 per MMBtu from January 1, 2017 through December 31, 2018. Factors affecting natural gas prices include worldwide economic conditions; weather conditions and seasonal trends; the levels of domestic production and consumer demand; new exploratory finds of natural gas; the availability of imported, and the ability to export, natural gas and LNG; the availability of transportation systems with adequate capacity; the volatility and uncertainty of regional basis differentials and premiums; the price and availability of alternative fuels; the effects of energy conservation measures; the nature and extent of governmental regulation and taxation; and the anticipated future prices of natural gas, oil, LNG and other commodities. Low natural gas prices, particularly in the Appalachian Basin, have had a negative impact on exploration, development and production activity and, if sustained, could lead to a material decrease in such activity. Sustained reductions in exploration or production activity in EQM's areas of operation would lead to reduced utilization of EQM's systems. Because of these factors, even if new natural gas reserves are known to exist in areas served by EQM's assets, producers may choose not to develop those reserves. Moreover, EQT may not develop the acreage it has dedicated to EQM. If reductions in drilling activity result in EQM's inability to maintain levels of contracted capacity and throughput, it could reduce EQM's revenue and impair its ability to make quarterly cash distributions to its unitholders, including us.
EQM does not obtain independent evaluations of natural gas reserves connected to its systems. Accordingly, EQM does not have independent estimates of total reserves connected to its systems or the anticipated life of such reserves. If the total reserves or estimated life of the reserves connected to EQM's systems are less than EQM anticipates, or the timeline for the development of reserves is longer than EQM anticipates, and EQM is unable to secure additional sources of natural gas, there could be a material adverse effect on its business, results of operations, financial condition, liquidity and ability to make quarterly cash distributions to its unitholders, including us.
If new supplies of natural gas are not obtained to replace the natural decline in volumes from existing supply basins in EQM's area of operation, or if natural gas supplies are diverted to serve other markets, the overall volume of natural gas gathered, transported and stored on EQM's systems would decline, which could have a material adverse effect on EQM's business, financial condition, results of operations, liquidity and ability to make quarterly cash distributions to its unitholders, including
us. Additionally, see "– EQM depends on EQT for a substantial majority of its revenues and future growth. For example, EQM's water service business is directly associated with EQT's well completion activities and water needs, which are partially driven by horizontal lateral lengths and the number of completion stages per well. Therefore, EQM is subject to the business risks of EQT, and any further decrease in EQT's drilling or completion activity could adversely affect EQM's business and operating results. EQM has no control over EQT's business decisions and operations, and EQT is under no obligation to adopt a business strategy that favors EQM."
The lack of diversification of EQM's assets and geographic locations could adversely affect its ability to make distributions to its unitholders, including us.
EQM relies exclusively on revenues generated from its gathering, transmission and storage and water systems, which are primarily located in the Appalachian Basin in Pennsylvania, West Virginia and Ohio. Due to EQM's lack of diversification in assets and geographic location, an adverse development in these businesses or EQM's areas of operations, including adverse developments due to catastrophic events, weather, regulatory action and decreases in demand for natural gas, could have a more significant impact on EQM's results of operations and distributable cash flow to its unitholders, including us, than if EQM maintained more diverse assets and locations.
EQM may not be able to increase its customer throughput and resulting revenue due to competition and other factors, which could limit its ability to grow.
Part of EQM's growth strategy includes diversifying its customer base by identifying opportunities to offer services to parties other than EQT. For the years ended December 31, 2018, 2017 and 2016, EQT accounted for approximately 80%, 88% and 96%, respectively, of EQM's gathering revenues and approximately 54%, 54% and 51%, respectively, of EQM's transmission and storage revenues. For the year ended December 31, 2018 and for the period from November 13, 2017 through December 31, 2017, EQT accounted for approximately 93% and 99% of EQM's water service revenues, respectively. EQT accounted for approximately 74%, 74% and 75% of EQM's total revenues for the years ended December 31, 2018, 2017 and 2016, respectively. EQM's ability to increase its customer-subscribed capacity and throughput and resulting revenue is subject to numerous factors beyond its control, including competition from third-party producers' existing contractual obligations to competitors and the extent to which EQM has available capacity when shippers require it. To the extent that EQM lacks available capacity on its systems for volumes, it may not be able to compete effectively with third-party systems for additional natural gas production in its areas of operation.
EQM has historically provided gathering, transmission, storage and water services to parties other than EQT on only a limited basis and may not be able to attract material service opportunities. EQM's efforts to attract new customers may be adversely affected by EQM's desire to provide services pursuant to long-term firm contracts. EQM's potential customers may prefer to obtain services under other forms of contractual arrangements under which EQM would be required to assume direct commodity exposure. In addition, EQM must continue to improve our reputation among its potential customer base for providing high quality service to successfully attract new customers.
The regulatory approval process for the construction of new midstream assets is challenging, and recent decisions by regulatory and judicial authorities in pending proceedings could impact EQM's or the MVP Joint Venture's ability to obtain all approvals and authorizations necessary to complete certain projects on the projected time frame or at all or EQM's ability to achieve the expected investment return on the project.
Certain of EQM's internal growth projects may require regulatory approval from federal, state and local authorities prior to construction, including any extensions from or additions to its transmission and storage system. The approval process for storage and transportation projects has become increasingly challenging, due in part to state and local concerns related to exploration and production, transmission and gathering activities in new production areas, including the Marcellus, Utica and Upper Devonian Shales, and negative public perception regarding the oil and gas industry, including major pipeline projects like the MVP. Such authorization may not be granted or, if granted, such authorization may include burdensome or expensive conditions.
In addition, any significant delays in the regulatory approval process for the MVP project could increase costs and negatively impact the scheduled in-service date of fourth quarter 2019, which in turn could adversely affect the ability for the MVP Joint Venture and its owners, including EQM, to achieve the expected investment return. The MVP project is subject to several challenges that must be resolved before the MVP project can be completed, as described in more detail in "Item 3. Legal Proceedings."
Although the MVP Joint Venture is actively defending the relevant agency actions and judicial challenges to the project, and is in active dialogue with all of the affected agencies to resolve these issues and restore the affected permits, there is no guarantee as to how long the agency proceedings and judicial challenges will take to resolve, or whether the MVP Joint
Venture will ultimately succeed in restoring the permits in their present form or within the MVP Joint Venture's targeted time frame for placing the project in service. This and other similar litigation could adversely affect EQM's business, financial condition, results of operations, liquidity and ability to make quarterly cash distributions to its unitholders, including us.
EQM is exposed to the credit risk of its counterparties in the ordinary course of its business.
EQM is exposed to the risk of loss resulting from the nonpayment and/or nonperformance of its customers, suppliers, joint venture partners and other counterparties. EQM extends credit to its customers, including EQT as its largest customer, as a normal part of EQM's business. While EQM has established credit policies, including assessing the creditworthiness of its customers as permitted by its FERC-approved natural gas tariffs, and requiring appropriate terms or credit support from them based on the results of such assessments, EQM may not have adequately assessed the creditworthiness of its existing or future customers. We cannot predict the extent to which the businesses of EQM's counterparties, including EQT, would be impacted if commodity prices decline, commodity prices are depressed for a sustained period of time, or other conditions in the energy industry were to deteriorate, nor can we estimate the impact such conditions would have on the abilities of EQM's counterparties to perform under their gathering, transmission and storage and water service agreements with EQM. The low commodity price environment has negatively impacted natural gas producers causing some producers in the industry significant economic stress including, in certain cases, to file for bankruptcy protection or to renegotiate contracts. To the extent one or more of EQM's customers is in financial distress or commences bankruptcy proceedings, contracts with these customers may be subject to renegotiation or rejection under applicable provisions of the United States Bankruptcy Code. Any resulting nonpayment and/or nonperformance by EQM's counterparties could have a material adverse effect on EQM's business, financial condition, results of operations, liquidity and ability to make quarterly cash distributions to its unitholders, including us.
Increased competition from other companies that provide gathering, transmission and storage, and water services, or from alternative fuel sources, could have a negative impact on the demand for EQM's services, which could adversely affect its financial results.
EQM's ability to renew or replace existing contracts at rates sufficient to maintain current revenues and cash flows could be adversely affected by the activities of its competitors. EQM's systems compete primarily with other interstate and intrastate pipelines and storage facilities in the gathering, transmission and storage of natural gas. Some of EQM's competitors have greater financial resources and may now, or in the future, have access to greater supplies of natural gas or water than EQM does. Some of these competitors may expand or construct gathering systems, transmission and storage systems and water systems that would create additional competition for the services EQM provides to its customers. In addition, EQM's customers may develop their own gathering, transmission or storage, or water services instead of using EQM's. Moreover, we are not limited in our ability to compete with EQM.
The policies of the FERC promoting competition in natural gas markets are having the effect of increasing the natural gas transmission and storage options for EQM's traditional customer base. As a result, EQM could experience some "turnback" of firm capacity as existing agreements expire. If EQM is unable to remarket this capacity or can remarket it only at substantially discounted rates compared to previous contracts, EQM may have to bear the costs associated with the turned back capacity. Increased competition could reduce the volumes of natural gas transported or stored on EQM's system or, in cases where EQM does not have long-term firm contracts, could force EQM to lower its transmission or storage rates. Increased competition could also adversely affect demand for EQM's water services.
Further, natural gas as a fuel competes with other forms of energy available to end-users, including coal, liquid fuels and renewable and alternative energy. Increased demand for such forms of energy at the expense of natural gas could lead to a reduction in demand for natural gas gathering, transmission and storage, and water services.
All of these competitive pressures could make it more difficult for EQM to retain its existing customers and/or attract new customers as EQM seeks to expand its business, which could have a material adverse effect on EQM's business, financial condition, results of operations, liquidity and ability to make quarterly cash distributions to its unitholders, including us. In addition, competition could intensify the negative impact of factors that decrease demand for natural gas in the markets served by EQM's systems, such as adverse economic conditions, weather, higher fuel costs and taxes or other governmental or regulatory actions that directly or indirectly increase the cost or limit the use of natural gas.
If third-party pipelines and other facilities interconnected to EQM's pipelines and facilities become unavailable to transport or process natural gas, EQM's revenues and cash available to make distributions to its unitholders could be adversely affected.
EQM depends on third-party pipelines and other facilities that provide receipt and delivery options to and from EQM's transmission and storage system. For example, EQM's transmission and storage system interconnects with the following
interstate pipelines: Texas Eastern, Dominion Transmission, Columbia Gas Transmission, Tennessee Gas Pipeline Company, Rockies Express Pipeline LLC, National Fuel Gas Supply Corporation and ET Rover Pipeline, LLC, as well as multiple distribution companies. Similarly, EQM's gathering systems have multiple delivery interconnects to multiple interstate pipelines. In the event that EQM's access to such systems was impaired, the amount of natural gas that EQM's gathering systems can gather and transport would be adversely affected, which could reduce revenues from EQM's gathering activities. Because EQM does not own these third-party pipelines or facilities, their continuing operation is not within EQM's control. If these or any other pipeline connections or facilities were to become unavailable for current or future volumes of natural gas due to repairs, damage to the facility, lack of capacity or any other reason, EQM's ability to operate efficiently and continue shipping natural gas to end markets could be restricted. Any temporary or permanent interruption at any key pipeline interconnect or facility could have a material adverse effect on EQM's business, financial condition, results of operations, liquidity and ability to make quarterly cash distributions to its unitholders, including us.
Certain of the services EQM provides on its transmission and storage system are subject to long-term, fixed-price "negotiated rate" contracts that are not subject to adjustment, even if EQM's cost to perform such services exceeds the revenues received from such contracts, and, as a result, EQM's costs could exceed its revenues received under such contracts.
It is possible that costs to perform services under "negotiated rate" contracts will exceed the negotiated rates EQM has agreed to provide to its customers. If this occurs, it could decrease the cash flow realized by EQM's systems and, therefore, the cash EQM has available for distribution to its unitholders, including us. Under FERC policy, a regulated service provider and a customer may mutually agree to a "negotiated rate," and that contract must be filed with and accepted by the FERC. As of December 31, 2018, approximately 86% of the contracted firm transmission capacity on EQM's system was subscribed under such "negotiated rate'' contracts. Unless the parties to these "negotiated rate" contracts agree otherwise, the contracts generally may not be adjusted to account for increased costs that could be caused by inflation or other factors relating to the specific facilities being used to perform the services.
EQM may not be able to renew or replace expiring contracts at favorable rates or on a long-term basis.
EQM's primary exposure to market risk occurs at the time its existing contracts expire and are subject to renegotiation and renewal. Based on total projected contractual revenues, including projected contractual revenues from future capacity expected from expansion projects that are not yet fully constructed for which EQM has executed firm contracts, EQM's firm gathering contracts and firm transmission and storage contracts had weighted average remaining terms of approximately 11 years and 15 years, respectively, as of December 31, 2018. The extension or replacement of existing contracts, including EQM's contracts with EQT, depends on a number of factors beyond EQM's control, including:
the level of existing and new competition to provide services to EQM's markets;
the macroeconomic factors affecting natural gas economics for EQM's current and potential customers;
the balance of supply and demand, on a short-term, seasonal and long-term basis, in EQM's markets;
the extent to which the customers in EQM's markets are willing to contract on a long-term basis; and
the effects of federal, state or local regulations on the contracting practices of EQM's customers.
Any failure to extend or replace a significant portion of EQM's existing contracts, or extending or replacing them at unfavorable or lower rates, could have a material adverse effect on EQM's business, financial condition, results of operations, liquidity and ability to make quarterly cash distributions to its unitholders, including us.
If the tariffs governing the services EQM provides are successfully challenged, EQM could be required to reduce its tariff rates, which could have a material adverse effect on EQM's business, financial condition, results of operations, liquidity and ability to make quarterly cash distributions to its unitholders, including us.
Rate payers, the FERC or other interested stakeholders, such as state regulatory agencies, may challenge EQM's rates offered to individual customers or the terms and conditions of service included in EQM's tariffs. EQM does not have an agreement in place that would prohibit customers, including EQT or its affiliates, from challenging EQM's tariffs. If any challenge were successful, among other things, the rates that EQM charges on its systems could be reduced. Successful challenges could have a material adverse effect on EQM's business, financial condition, results of operations, liquidity and ability to make quarterly cash distributions to its unitholders, including us. See "– EQM's natural gas gathering, transmission and storage services are subject to extensive regulation by federal, state and local regulatory authorities. Changes or additional regulatory measures adopted by such authorities could have a material adverse effect on EQM's business, financial condition, results of operations, liquidity and ability to make distributions."
If EQM does not complete expansion projects, its future growth may be limited.
A significant component of EQM's growth strategy is to continue to grow the cash distributions on its units by expanding its business. EQM's ability to grow depends, in part, upon its ability to complete expansion projects, including, without limitation, the MVP, MVP Southgate and Hammerhead projects, that result in an increase in the cash EQM generates. EQM may be unable to complete successful, accretive expansion projects for many reasons, including, but not limited to, the following:
an inability to identify attractive expansion projects;
an inability to obtain necessary rights-of-way, real estate rights or permits or other government approvals, including approvals by regulatory agencies, whether as a result of further government shutdowns or otherwise;
an inability to successfully integrate the infrastructure EQM builds;
an inability to raise financing for expansion projects on economically acceptable terms;
incorrect assumptions about volumes, revenues and costs, including potential growth; or
an inability to secure adequate customer commitments to use the newly expanded facilities.
In addition, EQM's ability to secure required permits and rights-of-way or otherwise proceed with construction of its expansion projects could encounter opposition from political activists, who may attempt to delay pipeline construction through protests and other means, as has recently occurred to the MVP.
Expanding EQM's business by constructing new midstream assets subjects EQM to risks.
Organic and greenfield growth projects are a significant component of EQM's growth strategy. The development and construction of pipelines and storage facilities involves numerous regulatory, environmental, political and legal uncertainties beyond EQM's control and will require the expenditure of significant amounts of capital. The development and construction of pipeline infrastructure and storage facilities expose EQM to construction risks such as the failure to meet customer contractual requirements, delays caused by landowners or advocacy groups opposed to the natural gas industry, environmental hazards, adverse weather conditions, the performance of third-party contractors, the lack of available skilled labor, equipment and materials and the inability to obtain necessary rights-of-way or approvals and permits from regulatory agencies on a timely basis or at all (and maintain such rights-of-way, approvals and permits once obtained). These types of projects may not be completed on schedule, at the budgeted cost or at all. Moreover, EQM's revenues may not increase for some time after completion of a particular project. For instance, EQM will be required to pay construction costs generally as they are incurred but construction will typically occur over an extended period of time, and EQM will not receive revenues or material increases in revenues until the project is placed into service. Moreover, EQM may construct facilities to capture anticipated future growth in production and/or demand in a region in which such growth does not materialize. As a result, new facilities may not be able to attract enough throughput to achieve EQM's expected investment return, which could adversely affect EQM's business, financial condition, results of operations, liquidity and ability to make quarterly cash distributions to its unitholders, including us.
EQM may face opposition to the development or operation of its pipelines and facilities from various groups.
EQM may face opposition to the development or operation of its pipelines and facilities from environmental groups, landowners, local groups and other advocates. Such opposition could take many forms, including organized protests, attempts to block or sabotage EQM's operations, intervention in regulatory or administrative proceedings involving its assets, or lawsuits or other actions designed to prevent, disrupt or delay the development or operation of its assets and business. For example, repairing EQM's pipelines often involves securing consent from individual landowners to access their property; one or more landowners may resist EQM's efforts to make needed repairs, which could lead to an interruption in the operation of the affected pipeline or other facility for a period of time that is significantly longer than would have otherwise been the case. In addition, acts of sabotage or eco-terrorism could cause significant damage or injury to people, property or the environment or lead to extended interruptions of EQM's operations. Any such event that interrupts the revenues generated by EQM's operations, or which causes it to make significant expenditures not covered by insurance, could reduce its cash available for paying distributions to its unitholders, including us, and, accordingly, adversely affect our financial condition and the market price of our securities.
Recently, activists concerned about the potential effects of climate change have directed their attention towards sources of funding for fossil-fuel energy companies, which has resulted in certain financial institutions, funds and other sources of capital restricting or eliminating their investment in energy-related activities. Ultimately, this could make it more difficult to secure
funding for exploration and production activities or energy infrastructure related projects, and consequently could both indirectly affect demand for EQM's services and directly affect its ability to fund construction or other capital projects.
Acquisitions EQM may make could reduce, rather than increase, its cash generated from operations on a per unit basis.
If EQM does make acquisitions that it believes will be accretive, these acquisitions may nevertheless result in a decrease in the cash generated from operations on a per unit basis. Any acquisition involves potential risks, including, among other things:
mistaken assumptions about volumes, revenues and costs, including synergies and potential growth;
an inability to secure adequate customer commitments to use the acquired systems or facilities;
an inability to integrate successfully the assets or businesses EQM acquires;
the assumption of unknown liabilities for which EQM is not indemnified or for which EQM's indemnity is inadequate;
the diversion of management's and employees' attention from other business concerns; and
unforeseen difficulties operating in new geographic areas or business lines.
If any acquisition fails to be accretive to EQM's distributable cash flow per unit, it could have a material adverse effect on EQM's business, financial condition, results of operations, liquidity and ability to make quarterly cash distributions to its unitholders, including us.
Review of our goodwill has resulted in and could result in future significant impairment charges.
GAAP requires us to perform an assessment of goodwill at the reporting unit level for impairment at least annually and whenever events or changes in circumstance indicate that the fair value of a reporting unit is less than its carrying amount.
We may perform either a qualitative or quantitative assessment of potential impairment. Our qualitative assessment of potential impairment may result in the determination that a quantitative impairment analysis is not necessary. Under this elective process, we assess qualitative factors to determine whether the existence of events or circumstances leads us to determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If after assessing the totality of events or circumstances, we determine that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then performing a quantitative analysis is not required. However, if we conclude otherwise, then we perform a quantitative impairment analysis. If we choose not to perform a qualitative assessment, or if we choose to perform a qualitative assessment but are unable to qualitatively conclude that no impairment has occurred, then we will perform a quantitative evaluation. In the case of a quantitative assessment, we estimate the fair value of the reporting unit with which the goodwill is associated and compare it to the carrying value. If the estimated fair value of a reporting unit is less than its carrying value, an impairment charge is recognized for the excess of the reporting unit's carrying value over its fair value.
Assessing the recoverability of goodwill requires significant judgments and estimates by management. Fair values of goodwill are primarily estimated using discounted cash flows based on forecasts of financial results that incorporate assumptions including, but not limited to, the discount rate, terminal value factor, peer groups, control premiums and earnings before interest, taxes, depreciation and amortization multiples. All of our goodwill relates to businesses that were acquired and valued by EQT's management in the Rice Merger.
Following the third quarter of 2018 and prior to the Separation, we identified impairment indicators in the form of production curtailments announced by a primary customer of the two reporting units to which our goodwill is recorded that could reduce volumetric-based fee revenues of those reporting units. For the year ended December 31, 2018, we determined that the carrying value of one of those reporting units (the RMP PA Gas Gathering reporting unit, which comprises the Pennsylvania gathering assets acquired in the Rice Merger) was greater than its fair value. As a result, we recognized impairment of goodwill of $261.9 million. If the operations or projected operating results of these businesses decline significantly, we could incur additional goodwill impairment charges. Future impairment charges could be significant and could have a material adverse impact on our financial condition and results of operations for the period in which the impairment is recorded. As of December 31, 2018, we had approximately $1,239 million of goodwill, which will be monitored for future impairment. Management will continue to monitor and evaluate the factors underlying the fair market value of acquired businesses over the course of the year to determine if any interim assessments are necessary and will take any additional impairment charges required.
EQM's failure to successfully combine and integrate the businesses of EQM and RMP may adversely affect the future results of the combined organization and EQM's ability to achieve the intended benefits of the EQM-RMP Mergers.
The success of the EQM-RMP Mergers depends, in part, on EQM's ability to realize the anticipated benefits from combining the businesses of EQM and RMP, and integration of the parties gathering systems remains ongoing. To realize these anticipated benefits, the businesses must be successfully combined and integrated. If the combined organization is not able to achieve these objectives, or is not able to achieve these objectives on a timely basis, the anticipated benefits of the EQM-RMP Mergers may not be realized fully or at all. In addition, the ongoing integration may result in additional and unforeseen expenses, which could reduce the anticipated benefits of the EQM-RMP Mergers. There can be no assurance that EQM's combination with RMP will deliver the strategic, financial and operational benefits anticipated by EQM. EQM's business may be negatively impacted if it is unable to effectively manage its expanded operations, which could have a material adverse effect on EQM's ability to make quarterly cash distributions to its unitholders, including us.
If EQM is unable to obtain needed capital or financing on satisfactory terms to fund expansions of its asset base or acquisitions, its ability to make quarterly cash distributions may be diminished or its financial leverage could increase. EQM does not have any commitment with the EQM General Partner or us to provide any direct or indirect financial assistance to EQM.
In order to expand EQM's asset base and complete announced expansion projects, including the MVP, MVP Southgate and Hammerhead projects, EQM will need to make significant expansion capital expenditures and acquisition capital expenditures. If EQM does not make sufficient or effective capital expenditures, it will be unable to expand its business operations and may be unable to maintain or raise the level of its quarterly cash distributions.
In order to fund its expansion capital expenditures and acquisition capital expenditures, EQM will be required to use cash from its operations, incur borrowings or sell additional common units or other partner interests. Using cash from operations will reduce distributable cash flow to EQM's common unitholders, including us. EQM's ability to obtain bank financing or to access the capital markets for future equity or debt offerings may be limited by its financial condition at the time of any such financing or offering, the covenants in EQM's debt agreements, general economic conditions and contingencies and uncertainties that are beyond EQM's control. Furthermore, market demand for equity issued by master limited partnerships has been significantly lower in recent years than it has been historically, which may make it more challenging for EQM to finance its expansion capital expenditures and acquisition capital expenditures with the issuance of equity in the capital markets. Even if EQM is successful in obtaining funds for expansion and acquisition capital expenditures through equity or debt financings, the terms thereof could limit its ability to pay distributions to its common unitholders, including us. In addition, incurring additional debt may significantly increase EQM's interest expense and financial leverage, and issuing additional partner interests may result in significant common unitholder dilution and increase the aggregate amount of cash required to maintain the then-current distribution rates, which could materially decrease EQM's ability to pay distributions at the then-current distribution rates, and our ability to pay dividends. If funding is not available to EQM when needed, or is available only on unfavorable terms, EQM may be unable to execute its business plans, complete acquisitions or otherwise take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on EQM's business, financial condition, results of operations, liquidity and ability to make quarterly cash distributions to its unitholders, including us. There is no commitment from the EQM General Partner or us to provide any direct or indirect financial assistance to EQM.
EQM is subject to numerous hazards and operational risks.
EQM's business operations are subject to all of the inherent hazards and risks normally incidental to the gathering, transmission and storage of natural gas and performance of water services. These operating risks include, but are not limited to:
damage to pipelines, facilities, equipment, environmental controls and surrounding properties caused by hurricanes, earthquakes, tornadoes, abnormal amounts of rainfall, floods, fires, droughts, landslides and other natural disasters and acts of sabotage and terrorism;
inadvertent damage from construction, vehicles, and farm and utility equipment;
uncontrolled releases of natural gas and other hydrocarbons;
leaks, migrations or losses of natural gas as a result of the malfunction of equipment or facilities and, with respect to storage assets, as a result of undefined boundaries, geologic anomalies, natural pressure migration and wellbore migration;
ruptures, fires and explosions;
pipeline freeze offs due to cold weather; and
other hazards that could also result in personal injury and loss of life, pollution to the environment and suspension of operations.
These risks could result in loss of human life, personal injuries, significant damage to property, environmental pollution, impairment of EQM's operations, regulatory investigations and penalties and substantial losses to EQM. The location of certain segments of EQM's systems in or near populated areas, including residential areas, commercial business centers and industrial sites, could increase the damages resulting from these risks. In spite of any precautions taken, an event such as those described above could cause considerable harm to people, property or the environment and could have a material adverse effect on EQM's business, financial condition, results of operations, liquidity and ability to make quarterly cash distributions to its unitholders, including us. Accidents or other operating risks could further result in loss of service available to EQM's customers. Such circumstances, including those arising from maintenance and repair activities, could result in service interruptions on segments of EQM's systems. Potential customer impacts arising from service interruptions on segments of EQM's systems could include limitations on its ability to satisfy customer requirements, obligations to provide reservation charge credits to customers in times of constrained capacity, and solicitation of EQM's existing customers by others for potential new projects that would compete directly with EQM's existing services. Such circumstances could adversely impact EQM's ability to meet contractual obligations and retain customers, with a resulting negative impact on EQM's business, financial condition, results of operations, liquidity and ability to make quarterly cash distributions to its unitholders, including us.
Negative public perception regarding EQM, the MVP, MVP Southgate, other EQM projects and/or the midstream industry could have an adverse effect on EQM's operations.
Negative public perception regarding EQM, the MVP, MVP Southgate, other EQM projects and/or the midstream industry resulting from, among other things, oil spills, the explosion of natural gas transmission and gathering lines, erosion and sedimentation issues, and general concerns raised by advocacy groups about hydraulic fracturing and pipeline projects, has led to, and may in the future lead to, increased regulatory scrutiny, which may, in turn, lead to new local, state and federal safety and environmental laws, regulations, guidelines and enforcement interpretations. See "Item 3. Legal Proceedings." These actions have caused, and may continue to cause, operational delays or restrictions, increased construction and operating costs, penalties under construction contracts, additional regulatory burdens and increased risk of litigation. As discussed under "– The regulatory approval process for the construction of new midstream assets is challenging, and recent decisions by regulatory and judicial authorities in pending proceedings could impact EQM's or the MVP Joint Venture's ability to obtain all approvals and authorizations necessary to complete certain projects on the projected time frame or at all or EQM's ability to achieve the expected investment return on the project," there are several pending challenges to certain aspects of the MVP project that must be resolved before the MVP project can be completed. Moreover, governmental authorities exercise considerable discretion in the timing and scope of permit issuance and the public may engage in the permitting process, including through intervention in the courts. Negative public perception could cause the permits EQM and the MVP Joint Venture need to conduct their operations to be removed, withheld, delayed or burdened by requirements that restrict their ability to profitably conduct business.
EQM does not insure against all potential losses and could be seriously harmed by unexpected liabilities.
EQM is not fully insured against all risks inherent in its business, including environmental accidents that might occur. In addition, EQM does not maintain business interruption insurance of the types and in amounts necessary to cover all possible risks of loss, like project delays caused by governmental action or inaction. The occurrence of any operating risks not fully covered by insurance could have a material adverse effect on EQM's business, financial condition, results of operations, liquidity and ability to make quarterly cash distributions to its unitholders, including us.
We currently maintain excess liability insurance that covers our and our affiliates', including EQM's, legal and contractual liabilities arising out of bodily injury, personal injury or property damage, including resulting loss of use, to third parties. This excess liability insurance includes coverage for sudden and accidental pollution liability but excludes: release of pollutants subsequent to their disposal; release of substances arising from the combustion of fuels that result in acidic deposition; and testing, monitoring, clean-up, containment, treatment or removal of pollutants from property owned, occupied by, rented to, used by or in the care, custody or control of us and our affiliates, including EQM. We also maintain coverage for us and our affiliates, including EQM, for physical damage to assets and resulting business interruption, including damage caused by terrorist acts.
All of our insurance is subject to deductibles or self-insured retentions. If a significant accident or event occurs for which EQM is not fully insured, it could adversely affect EQM's operations and financial condition. We may not be able to maintain or obtain insurance for ourselves and our affiliates, including EQM, of the types and in the amounts we desire at reasonable rates, and we may elect to self-insure a portion of EQM's asset portfolio. The insurance coverage we have obtained or may obtain may contain large deductibles or fail to cover certain hazards or cover all potential losses. In addition, for pre-Distribution losses, we will share insurance coverage with EQT, and we will remain responsible for payment of any deductible or self-insured amounts under those insurance policies. To the extent EQM experiences a pre-Distribution loss that would be covered under EQT's insurance policies, our ability to collect under those policies may be reduced to the extent EQT erodes the limits under those policies.
Terrorist or cyber security attacks or threats thereof aimed at EQM's pipelines or facilities or surrounding areas and new laws and regulations governing data privacy could adversely affect its business.
EQM's business has become increasingly dependent upon digital technologies, including information systems, infrastructure and cloud applications, to operate its assets, and the maintenance of EQM's financial and other records has long been dependent upon such technologies. The U.S. government has issued public warnings that indicate that energy assets might be specific targets of cyber security threats. Deliberate attacks on, or unintentional events affecting, EQM's systems or infrastructure, the systems or infrastructure of third parties or the cloud could lead to corruption or loss of EQM's proprietary data and potentially sensitive data, delays in delivery of natural gas and NGLs, difficulty in completing and settling transactions, challenges in maintaining EQM's books and records, communication interruptions, environmental damage, personal injury, property damage and other operational disruptions, as well as damage to our reputation, financial condition and cash flows. Further, as cyber incidents continue to evolve, EQM may be required to expend additional resources to continue to modify or enhance its protective measures or to investigate and remediate any vulnerability to cyber incidents. In addition, new U.S. laws and regulations governing data privacy and the unauthorized disclosure of personal information may potentially elevate EQM's compliance costs. Any failure by EQM to comply with these laws and regulations, including as a result of a cyber incident, could result in significant penalties and liability to EQM. Additionally, if EQM acquires a company that has violated or is not in compliance with applicable data protection laws, EQM may incur significant liabilities and penalties as a result.
EQM is subject to stringent environmental laws and regulations that may expose it to significant costs and liabilities.
EQM's operations are regulated extensively at the federal, state and local levels. Laws, regulations and other legal requirements have increased the cost to plan, design, install, operate and abandon gathering, transmission and water systems and pipelines. Environmental, health and safety legal requirements govern discharges of substances into the air, water and ground; the management and disposal of hazardous substances and wastes; the clean-up of contaminated sites; groundwater quality and availability; plant and wildlife protection; locations available for pipeline construction; environmental impact studies and assessments prior to permitting; restoration of properties after construction or operations are completed; pipeline safety (including replacement requirements); and work practices related to employee health and safety. Compliance with the laws, regulations and other legal requirements applicable to EQM's business, including delays in obtaining permits or other government approvals, may increase EQM's cost of doing business, result in delays or restrictions in the performance of operations due to the need to obtain additional or more detailed permits or other governmental approvals or even cause EQM not to pursue a project. For example, the U.S. Fish and Wildlife Service continues to receive hundreds of petitions to consider listing of additional species as endangered or threatened and is being regularly sued or threatened with lawsuits to address these petitions. Some of these legal actions may result in the listing of species located in areas in which EQM operates. Such designations of previously unprotected species as being endangered or threatened, or the designation of previously unprotected areas as a critical habitat for such species, can result in increased costs, construction delays, restrictions in EQM's operations or abandonment of projects. Listing of aquatic species could potentially affect water supplies or delay related infrastructure development. In addition, compliance with laws, regulations or other legal requirements could subject EQM to claims for personal injuries, property damage and other damages. EQM's failure to comply with the laws, regulations and other legal requirements applicable to its business, even if as a result of factors beyond its control, could result in the suspension or termination of its operations and subject EQM to administrative, civil and criminal penalties and damages.
Laws, regulations and other legal requirements are constantly changing, and implementation of compliant processes in response to such changes could be costly and time consuming. For example, in October 2015, the EPA revised the 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. The EPA may designate the areas in which EQM operates as nonattainment areas. States that contain any areas designated as nonattainment areas will be required to develop implementation plans demonstrating how the areas will attain the applicable standard within a prescribed period of time. These plans may require the installation of additional equipment to control emissions. In addition, in May 2016, the EPA finalized rules that impose volatile organic compound emissions limits (and collaterally reduce methane emissions) on certain types of compressors and pneumatic pumps, as well as requiring the
development and implementation of leak monitoring plans for compressor stations. The EPA finalized amendments to some requirements in these standards in March 2018 and September 2018, including rescission of certain requirements and revisions to other requirements such as fugitive emissions monitoring frequency. Compliance with these or other new regulations could, among other things, require installation of new emission controls on some of EQM's equipment, result in longer permitting timelines, and significantly increase EQM's capital expenditures and operating costs, which could adversely impact EQM's business. In addition to periodic changes to air, water and waste laws, as well as recent EPA initiatives to impose climate change-based air regulations on industry, the U.S. Congress and various states have been evaluating climate-related legislation and other regulatory initiatives that would further restrict emissions of GHGs, including methane (a primary component of natural gas) and carbon dioxide (a byproduct of burning natural gas). Several states are also pursuing similar measures to regulate emissions of GHGs from new and existing sources. If implemented, such GHG restrictions may result in additional compliance obligations with respect to, or taxes on the release, capture and use of GHGs that could have an adverse effect on EQM's operations.
There is a risk that EQM may incur costs and liabilities in connection with its operations due to historical industry operations and waste disposal practices, its handling of wastes and potential emissions and discharges related to EQM's operations. Private parties, including the owners of the properties through which EQM's gathering system or its transmission and storage system pass and facilities where its wastes are taken for reclamation or disposal, may have the right to pursue legal actions to require remediation of contamination or enforce compliance with environmental requirements as well as to seek damages for personal injury or property damage. In addition, changes in environmental laws occur frequently, and any such changes that result in more stringent and costly waste handling, storage, transport, disposal or remediation requirements could have a material adverse effect on EQM's business, financial condition, results of operations, liquidity or ability to make quarterly cash distributions to its unitholders, including us. EQM may not be able to recover all or any of these costs from insurance.
Climate change and related legislation, regulatory initiatives and litigation could result in increased operating costs and reduced demand for the natural gas services EQM provides.
Legislative and regulatory measures to address climate change and GHG emissions are in various phases of discussion or implementation. The EPA regulates GHG emissions from new and modified facilities that are potential major sources of criteria pollutants under the Clean Air Act's Prevention of Significant Deterioration and Title V programs and has adopted regulations that require, among other things, preconstruction and operating permits for certain large stationary sources and the monitoring and reporting of GHGs from certain onshore oil and natural gas production sources on an annual basis.
In addition, the U.S. Congress, along with federal and state agencies, has considered measures to reduce the emissions of GHGs. Legislation or regulation that restricts carbon emissions could increase EQM's cost of environmental compliance by requiring it to install new equipment to reduce emissions from larger facilities and/or, depending on any future legislation, purchase emission allowances. Climate change and GHG legislation or regulation could also delay or otherwise negatively affect efforts to obtain and maintain permits and other regulatory approvals for existing and new facilities, impose additional monitoring and reporting requirements or adversely affect demand for the natural gas EQM gathers, transports and stores. Conversely, legislation or regulation that sets a price on or otherwise restricts carbon emissions could also benefit EQM 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 EQM of any new legislative or regulatory measures will depend on the particular provisions that are ultimately adopted.
Significant portions of EQM's pipeline systems have been in service for several decades. There could be unknown events or conditions, or increased maintenance or repair expenses and downtime associated with its pipelines that could have a material adverse effect on EQM's business, financial condition, results of operations, liquidity and ability to make distributions.
Significant portions of EQM's transmission and storage system and FERC-regulated gathering system have been in service for several decades. The age and condition of these systems could result in increased maintenance or repair expenditures, and any downtime associated with increased maintenance and repair activities could materially reduce EQM's revenue. Any significant increase in maintenance and repair expenditures or loss of revenue due to the age or condition of EQM's systems could adversely affect its business, financial condition, results of operations, liquidity and ability to make quarterly cash distributions to its unitholders, including us.
EQM may incur significant costs and liabilities as a result of increasingly stringent pipeline safety regulation, including pipeline integrity management program testing and related repairs.
The DOT, acting through PHMSA, has adopted regulations requiring pipeline operators to develop integrity management programs for transmission pipelines located where a leak or rupture could harm HCAs, including high population areas, unless the operator effectively demonstrates by risk assessment that the pipeline could not affect the area. The regulations require operators, including EQM, to:
perform ongoing assessments of pipeline integrity;
identify and characterize applicable threats to pipeline segments that could impact an HCA;
maintain processes for data collection, integration and analysis;
repair and remediate pipelines as necessary; and
implement preventive and mitigating actions.
Changes to pipeline safety laws and regulations that result in more stringent or costly safety standards could have a significant adverse effect on EQM and similarly situated midstream operators. For example, in April 2016, PHMSA published a notice of proposed rulemaking addressing several integrity management topics and proposing new requirements to address safety issues for natural gas transmission and gathering lines. The proposed rule would strengthen existing integrity management requirements, expand assessment and repair requirements to pipelines in areas with medium population densities and extend regulatory requirements to onshore gas gathering lines that are currently exempt. Further, in June 2016, then-President Obama signed the 2016 Pipeline Safety Act that extended PHMSA's statutory mandate under prior legislation through 2019. In addition, the 2016 Pipeline Safety Act empowered PHMSA to address imminent hazards by imposing emergency restrictions, prohibitions and safety measures on owners and operators of gas or hazardous liquid pipeline facilities without prior notice or an opportunity for a hearing and also required PHMSA to develop new safety standards for natural gas storage facilities by June 2018. Pursuant to those provisions of the 2016 Pipeline Safety Act, in October 2016 and December 2016, PHMSA issued two Interim Final Rules that expanded the agency's authority to impose emergency restrictions, prohibitions and safety measures and strengthened the rules related to underground natural gas storage facilities, including well integrity, wellbore tubing and casing integrity. The December 2016 Interim Final Rule, relating to underground gas storage facilities, went into effect in January 2017, with a compliance deadline in January 2018. PHMSA determined, however, that it will not issue enforcement citations to any operators for violations of provisions of the December 2016 Interim Final Rule that had previously been non-mandatory provisions of American Petroleum Institute Recommended Practices 1170 and 1171 until one year after PHMSA issues a final rule; however, no final rule has been issued. Additionally, in January 2017, PHMSA announced a new final rule regarding hazardous liquid pipelines, which increases the quality and frequency of tests that assess the condition of pipelines, requires operators to annually evaluate the existing protective measures in place for pipeline segments in HCAs, extends certain leak detection requirements for hazardous liquid pipelines not located in HCAs, and expands the list of conditions that require immediate repair. However, it is unclear when or if this rule will go into effect because, on January 20, 2017, the Trump Administration requested that all regulations that had been sent to the Office of the Federal Register, but were not yet published, be immediately withdrawn for further review. Accordingly, this rule has not become effective through publication in the Federal Register. We are monitoring and evaluating the effect of these and other emerging requirements on EQM's operations.
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 EQM's natural gas facilities fall within a class that is not subject to integrity management requirements, EQM may incur significant costs and liabilities associated with repair, remediation, preventive or mitigation measures associated with its non-exempt transmission pipelines. The costs, if any, for 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 EQM's pipelines during the pendency of such actions, could be material.
Should EQM fail to comply with DOT regulations adopted under authority granted to PHMSA, it could be subject to penalties and fines. PHMSA has the authority to impose civil penalties for pipeline safety violations up to a maximum of approximately $200,000 per day for each violation and approximately $2 million for a related series of violations. This maximum penalty authority established by statute will continue to be adjusted periodically to account for inflation. In addition, EQM may be required to comply with new safety regulations and make additional maintenance capital expenditures in the future for similar regulatory compliance initiatives that are not reflected in its forecasted maintenance capital expenditures.
The adoption of legislation relating to hydraulic fracturing and the enactment of new or increased severance taxes and impact fees on natural gas production could cause EQM's current and potential customers to reduce the number of wells they drill in the Marcellus, Utica and Upper Devonian Shales or curtail production of existing wells. If reductions are significant for those or other reasons, the reductions would have a material adverse effect on EQM's business, financial condition, results of operations, liquidity and ability to make quarterly cash distributions to its unitholders, including us.
EQM's assets are primarily located in the Marcellus Shale fairway in southwestern Pennsylvania and northern West Virginia and the Utica Shale fairway in eastern Ohio, and a substantial majority of the production that EQM receives from customers is produced from wells completed using hydraulic fracturing. Hydraulic fracturing is an important and commonly used process in the completion of oil and gas wells, particularly in unconventional resource plays like the Marcellus, Utica and Upper Devonian Shales. Hydraulic fracturing is typically regulated by state oil and gas commissions and similar agencies, but several federal agencies have asserted regulatory authority over aspects of the process, including the EPA, which finalized effluent limit guidelines allowing zero discharge of waste water from shale gas extraction operations to a publicly owned treatment plant in 2016 in addition to existing limits on direct discharges. Additionally, in response to increased public concern regarding the alleged potential impacts of hydraulic fracturing, the EPA has asserted federal regulatory authority pursuant to the federal Safe Drinking Water Act (SDWA) over certain hydraulic fracturing activities involving the use of diesel fuels and published permitting guidance in February 2014 addressing the performance of such activities using diesel fuels. The federal Bureau of Land Management (BLM), has also asserted regulatory authority over aspects of the process, and issued a final rule in March 2015 that established more stringent standards for performing hydraulic fracturing on federal and Indian lands. The BLM rule was struck down by a federal court in Wyoming in June 2016, but was reinstated on appeal by the Tenth Circuit in September 2017. While this appeal was pending, BLM proposed a rulemaking in July 2017 to rescind these rules in their entirety. BLM published a final rule rescinding the 2015 rules in December 2017. However, other federal or state agencies may look to the BLM rule in developing new regulations that could apply to EQM's operations.
The U.S. Congress has from time to time considered the adoption of legislation to provide for federal regulation of hydraulic fracturing, while a growing number of states, including those in which EQM operates, have adopted, and other states are considering adopting, regulations that could impose more stringent disclosure and/or well construction requirements on hydraulic fracturing operations. Some states, such as Pennsylvania, have imposed fees on the drilling of new unconventional oil and gas wells. States could elect to prohibit hydraulic fracturing altogether, as was announced in December 2014 with regard to hydraulic fracturing activities in New York. Also, certain local governments have adopted, and additional local governments may further adopt, ordinances within their jurisdictions regulating the time, place and manner of drilling activities in general or hydraulic fracturing activities in particular. Further, several federal governmental agencies are conducting reviews and studies on the environmental aspects of hydraulic fracturing, including the EPA. For example, in December 2016, the EPA issued its final report on a study it had conducted over several years regarding the effects of hydraulic fracturing on drinking water sources. The final report, contrary to several previously published draft reports issued by the EPA, found instances in which impacts to drinking water may occur. However, the report also noted significant data gaps that prevented the EPA from determining the extent or severity of these impacts. The results of such reviews or studies could spur initiatives to further regulate hydraulic fracturing.
State and federal regulatory agencies recently have focused on a possible connection between the hydraulic fracturing related activities and the increased occurrence of seismic activity. When caused by human activity, such events are called induced seismicity. In a few instances, operators of injection disposal wells in the vicinity of seismic events have been ordered to reduce injection volumes or suspend operations. Some state regulatory agencies, including those in Colorado, Ohio, Oklahoma and Texas, have modified their regulations to account for induced seismicity. While Pennsylvania is not one of the states where such regulation has been enacted, regulatory agencies at all levels are continuing to study the possible linkage between oil and gas activity and induced seismicity. These developments could result in additional regulation and restrictions on the use of injection disposal wells and hydraulic fracturing. Such regulations and restrictions could cause delays and impose additional costs and restrictions on EQM's customers.
The adoption of new laws, regulations or ordinances at the federal, state or local levels imposing more stringent restrictions on hydraulic fracturing could make it more difficult for EQM's customers to complete natural gas wells, increase customers' costs of compliance and doing business, and otherwise adversely affect the hydraulic fracturing services they perform, which could negatively impact demand for EQM's gathering, transmission and storage, or water services.
Furthermore, the tax laws, rules and regulations that affect EQM's customers are subject to change. For example, Pennsylvania's governor and legislature have continued to discuss the imposition of a state severance tax on the extraction of natural resources, including natural gas produced from the Marcellus, Utica and Upper Devonian Shale formations, either in replacement of or in addition to the existing state impact fee. A consensus on the characteristics, such as the effective tax rate, or enactment of a state severance tax has yet to be reached. Any such increase or change could adversely impact the earnings,
cash flows and financial position of EQM's customers and cause them to reduce their drilling in the areas in which EQM operates.
EQM's exposure to direct commodity price risk may increase in the future.
For the years ended December 31, 2018 and 2017, approximately 54% and 84%, respectively, of EQM's revenues were generated from firm reservation fees under long-term contracts. The decrease from 2017 to 2018 reflects the inclusion of RMP's gathering systems for a full year compared to the period from November 13, 2017 through December 31, 2017, as RMP's gathering systems were not supported by contracts with firm reservation fee components. Rather, all of RMP's gathering revenues were generated under long-term interruptible service contracts. As a result, following the Rice Merger, EQM has greater exposure to short- and medium-term declines in volumes of gas produced and gathered on its systems than it has historically. Although EQM intends to execute long-term firm contracts with new customers in the future, its efforts to obtain such contractual terms may not be successful. EQM's water service agreements are volumetric in nature and therefore may be more sensitive to fluctuations in commodity prices and downturns in production by EQM's customers in the future. In addition, EQM may acquire or develop additional midstream assets in the future that do not provide services primarily based on capacity reservation charges or other fixed fee arrangements and therefore have a greater exposure to fluctuations in commodity price risk than its current operations. Future exposure to the volatility of natural gas prices, including regional basis differentials, as a result of EQM's future contracts could have a material adverse effect on its business, financial condition, results of operations, liquidity and ability to make quarterly cash distributions to its unitholders, including us.
EQM does not own all of the land on which its pipelines and facilities are located, which could disrupt its operations.
EQM does not own all of the land on which its pipelines and facilities have been constructed, and it is therefore subject to the possibility of more onerous terms and/or increased costs to retain necessary land use if it does not have valid rights-of-way, if such rights-of-way lapse or terminate or if its facilities are not properly located within the boundaries of such rights-of-way. Although many of these rights are perpetual in nature, EQM occasionally obtains the rights to construct and operate its pipelines on land owned by third parties and governmental agencies for a specific period of time. If EQM were to be unsuccessful in negotiating or renegotiating rights-of-way, it might have to institute condemnation proceedings on its FERC-regulated assets or relocate its facilities for non-regulated assets. A loss of rights-of-way or a relocation could have a material adverse effect on EQM's business, financial condition, results of operations, liquidity and ability to make quarterly cash distributions to its unitholders, including us. Additionally, even when EQM owns an interest in the land on which its pipelines and facilities have been constructed, agreements with correlative rights owners may require EQM to relocate pipelines and facilities, shut in storage facilities to facilitate the development of the correlative rights owners' estate, or pay the correlative rights owners the lost value of their estate if they are not willing to accommodate development.
Any significant and prolonged change in or stabilization of natural gas prices could have a negative impact on EQM's natural gas storage business.
Historically, natural gas prices have been seasonal and volatile, which has enhanced demand for and increased the value of EQM's storage services. The natural gas storage business has benefited from significant short-term price fluctuations and seasonal price sensitivity, which impacts the level of demand for EQM's services and the rates it is able to charge for such services. On a system-wide basis, natural gas is typically injected into storage between April and October when natural gas prices are generally lower and withdrawn during the winter months of November through March when natural gas prices are typically higher. However, the market for natural gas may not continue to experience short-term volatility and seasonal price sensitivity in the future at the levels previously seen. If price volatility and seasonality in the natural gas industry decrease, because of increased production volumes and higher demand for natural gas during the injection season, the demand for EQM's storage services and the prices that EQM will be able to charge for those services may decline.
In addition to volatility and seasonality, an extended period of high natural gas prices would increase the cost of acquiring base gas and drilling new storage wells due to higher demand for drilling rigs and likely place upward pressure on the costs of associated storage expansion activities. An extended period of low natural gas prices could adversely impact storage values for some period of time until market conditions adjust. These commodity price impacts could have a negative impact on EQM's business, financial condition, results of operations, liquidity and ability to make quarterly cash distributions to its unitholders, including us.
EQM has entered into joint ventures, and may in the future enter into additional or modify existing joint ventures, that might restrict its operational and corporate flexibility. In addition, these joint ventures are subject to many of the same operational risks to which EQM is subject.
EQM has entered into joint ventures to construct the MVP and MVP Southgate projects and may in the future enter into additional joint venture arrangements with third parties. Joint venture arrangements may restrict EQM's operational and corporate flexibility. Because EQM does not control all of the decisions of the MVP Joint Venture, it may be difficult or impossible for EQM to cause the joint venture to take actions that EQM believes would be in EQM's or the joint venture's best interests. For example, EQM cannot unilaterally cause the distribution of cash by the MVP Joint Venture. Moreover, joint venture arrangements involve various risks and uncertainties, such as committing EQM to fund operating and/or capital expenditures, the timing and amount of which EQM may not control, and EQM's joint venture partners may not satisfy their financial obligations to the joint venture.
In addition, the operations of the MVP Joint Venture and any joint ventures we or EQM may enter into in the future are subject to many of the same operational risks to which we and EQM are subject to.
EQM's significant indebtedness, and any future indebtedness, as well as the restrictions under EQM's debt agreements, could adversely affect its operating flexibility, business, financial condition, results of operations, liquidity and ability to make quarterly cash distributions to its unitholders, including us.
EQM's debt agreements contain various covenants and restrictive provisions that limit EQM's ability to, among other things:
incur or guarantee additional debt;
make distributions on or redeem or repurchase units;
incur or permit liens on assets;
enter into certain types of transactions with affiliates;
enter into certain mergers or acquisitions; and
dispose of all or substantially all of its assets.
In October 2018, EQM amended and restated its credit facility to increase the borrowing capacity from $1 billion to $3 billion and extend the term to October 2023. EQM's credit facility contains a covenant requiring EQM to maintain a consolidated leverage ratio of not more than 5.00 to 1.00 (or not more than 5.50 to 1.00 for certain measurement periods following the consummation of certain acquisitions). EQM's ability to meet these covenants can be affected by events beyond its control and EQM cannot assure its unitholders that it will meet these covenants. In addition, EQM's $3 billion credit facility contains events of default customary for such facilities, including the occurrence of a change of control. Furthermore, in June 2018, EQM issued senior unsecured notes in an aggregate principal amount of $2.5 billion, consisting of $1.1 billion in aggregate principal amount of its 4.75% senior notes due 2023, $850 million in aggregate principal amount of its 5.50% senior notes due 2028, and $550 million in aggregate principal amount of its 6.50% senior notes due 2048.
The provisions of EQM's debt agreements may affect EQM's ability to obtain future financing and pursue attractive business opportunities and its flexibility in planning for, and reacting to, changes in business conditions. In addition, a failure to comply with the provisions of EQM's debt agreements could result in an event of default, which could enable EQM's creditors to, subject to the terms and conditions of the applicable agreement, declare any outstanding principal of that debt, together with accrued and unpaid interest, to be immediately due and payable. If the payment of EQM's debt is accelerated, EQM's assets may be insufficient to repay such debt in full, and its unitholders and our shareholders could experience a partial or total loss of their investments. EQM's credit facility also has cross default provisions that apply to any other indebtedness EQM may have with an aggregate principal amount in excess of $25 million.
EQM may in the future incur additional debt. EQM's level of debt could have important consequences to EQM, including the following:
EQM's ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired, or such financing may not be available on favorable terms;
EQM's funds available for operations, future business opportunities and distributions to unitholders, including us, will be reduced by that portion of its cash flow required to make interest payments on its debt;
EQM may be more vulnerable to competitive pressures or a downturn in its business or the economy generally; and
EQM's flexibility in responding to changing business and economic conditions may be limited.
EQM's ability to service its debt will depend upon, among other things, its future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond its control. If EQM's operating results are not sufficient to service its current or future indebtedness, EQM will be forced to take actions such as reducing distributions, reducing or delaying its business activities, acquisitions, investments or capital expenditures, selling assets or seeking additional equity capital. EQM may not be able to effect any of these actions on satisfactory terms or at all.
EQM's substantial indebtedness and the additional debt EQM will incur in the future for, among other things, working capital, capital expenditures, capital contributions to the MVP Joint Venture, acquisitions or operating activities may adversely affect EQM's liquidity and therefore its ability to make quarterly cash distributions to its unitholders, including us.
In addition, EQM's significant indebtedness may be viewed negatively by credit rating agencies, which could result in increased costs for EQM or us to access the capital markets. Any future downgrade of the debt issued by EQM or its subsidiaries could significantly increase its capital costs or adversely affect EQM's or our ability to raise capital in the future.
A downgrade of EQM's credit ratings, which are determined by independent third parties, could impact EQM's liquidity, access to capital, and costs of doing business.
If any credit rating agency downgrades EQM's credit ratings, EQM's access to credit markets may be limited, EQM's borrowing costs could increase, and EQM may be required to provide additional credit assurances in support of commercial agreements, such as joint venture agreements and construction contracts, the amount of which may be substantial. EQM's credit ratings by Moody's, S&P and Fitch were Ba1, BBB- and BBB-, respectively, as of February 14, 2019. In order to be considered investment grade, EQM must be rated Baa3 or higher by Moody's, BBB- or higher by S&P and BBB- or higher by Fitch. EQM's non-investment grade credit rating by Moody's and any future downgrade of EQM's S&P and/or Fitch credit ratings to non-investment grade may result in greater borrowing costs and collateral requirements than would be available to EQM if all its credit ratings were investment grade. EQM's ability to access capital markets could also be limited by economic, market or other disruptions. An increase in the level of EQM's indebtedness in the future may result in a downgrade in the ratings that are assigned to its debt. Credit rating agencies perform an independent analysis when assigning credit ratings. This analysis includes a number of criteria such as business composition, market and operational risks, as well as various financial tests. Credit rating agencies continue to review the criteria for industry sectors and various debt ratings and may make changes to those criteria from time to time. Credit ratings are subject to revision or withdrawal at any time by the ratings agencies.
Increases in interest rates could adversely impact demand for EQM's storage capacity, its unit price, its ability to issue equity or incur debt for acquisitions or other purposes and its ability to make quarterly cash distributions at its intended levels.
There is a financing cost for EQM's customers to store natural gas in its storage facilities. That financing cost is impacted by the cost of capital or interest rates incurred by the customer in addition to the commodity cost of the natural gas in inventory. Absent other factors, a higher financing cost adversely impacts the economics of storing natural gas for future sale. As a result, a significant increase in interest rates could adversely affect the demand for EQM's storage capacity independent of other market factors. In addition, interest rates on EQM's current credit facility, future credit facilities and debt securities could be higher than current levels, causing EQM's financing costs to increase. As with other yield-oriented securities, EQM's unit price is impacted by the level of its cash distributions and implied distribution yield. The distribution yield is often used by investors to compare and rank yield-oriented securities for investment decision-making purposes. Therefore, changes in interest rates, either positive or negative, may affect the yield requirements of investors who invest in EQM's units, and a rising interest rate environment could have an adverse impact on EQM's unit price, its ability to issue equity or incur debt for acquisitions or other purposes and its ability to make quarterly cash distributions at its intended levels.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Due to the critical nature of our business to the U.S. economy and national energy security and the continuous threat of cyberattacks, we regard cybersecurity as a top tier enterprise risk. Cybersecurity is integrated into our enterprise risk management program, which includes quarterly technology and cybersecurity risk assessments. We use the results of the technology and cybersecurity risk assessments for risk-based decision making to determine actions and priorities for our cybersecurity program. The technology and cybersecurity risk assessment process includes an objective, risk-ranking process; documented mitigation activities; and action plans for those risks requiring additional mitigation. These activities consider safety implications, operational disruptions, and business and financial impacts. As part of the cybersecurity program, we regularly obtain threat intelligence from various sources, which sources originate from private, commercial, and independent entities. In addition, our IT leadership routinely conducts risk quantification, simulations, and assessment exercises. We regularly engage with relevant government agencies to report and share certain security information enabling us to benchmark our capabilities, establish appropriate program targets, and adapt to emerging cybersecurity issues.
To manage our cybersecurity risk, we practice cyber hygiene through, among other measures, identity and access management, vulnerability and patch management, and asset management programs. We also segment our informational and operational technologies, and leverage network micro-segmentation and combine this practice with zero-trust security concepts. Operationally, we continuously monitor for cyber intrusions and augment our internal resources and capabilities with third-party service providers. Multiple security technologies are employed to protect our systems, applications, and data, including
next generation firewalls, multi-factor authentication and access controls, and endpoint detection and response solutions. We have integrated our cloud-hosted services with our security operations center and have implemented measures aimed at securing our remote workforce. We measure our cybersecurity practices against the National Institute of Standards and Technology Cybersecurity Framework, relevant industry standards, and government regulations. We routinely engage independent third-party security firms to exercise and assess our cybersecurity capabilities.
Our information technology governance, including cybersecurity, is documented through written policies, procedures, guidelines, and standard operating procedures. All of our employees are required to undergo quarterly cybersecurity training. This training includes cybersecurity policies, cyber threats, and incorporating best practices into daily routines. Contractors and vendors that have access to our data, devices, or services are required to complete cybersecurity training prior to receiving access. Employees, vendors, and contractors with access to our operational technology network are required to undergo additional training specific to operational technology interactions. We maintain a Supplier Code of Conduct that is provided to our providers of materials and services during the onboarding process and that conveys our expectations regarding use and access requirements when using our technology resources.
We also manage cybersecurity risk through incident response strategies. We employ a fault-tolerant, highly available architecture and network segmentation as part of our containment strategy. We do not solely rely on architecture to ensure continuity and containment, and we employ additional technologies including, but not limited to, automated account disabling, automated device quarantining, network segment-isolation scripts, and cyber kill chain runbooks. We have implemented an Enterprise Data Backup Policy, which includes, among other activities, offsite backups, intra-day recovery points, and routine restoration of critical data. We use infrastructure-as-code to enable recovery of virtualized environments and employ data replication across multiple operating regions. We routinely exercise our recovery capabilities. Our Cybersecurity Incident Response Plan establishes a framework to manage the life cycle of a cyber event. Additionally, our Enterprise Crisis Management Plan provides a structure to assemble an enterprise crisis team in the event of a potential cyber related crisis. The crisis response team, including our Chief Information Officer (CIO), is responsible for managing the channels of communication pursuant to our Crisis Management Plan. This notification includes the notification or reporting of any significant cyber incidents to executive management. We periodically conduct cyber incident drills that include, as applicable, members of our Board of Directors, executives, certain business stakeholders, and legal and security partners, as necessary.
While we and third parties that provide services to us commit resources to the design, implementation and monitoring of our digital systems, there is no guarantee that our or our third parties’ cybersecurity measures will provide absolute security. Like other companies in the natural gas industry, we have identified and expect to continue to identify cyberattacks and incidents on our systems. Additionally, we have received notification from third-party service providers of certain such matters on their systems. None of the cyberattacks and incidents we have identified, or been notified of, to the filing of this Annual Report on Form 10-K has had a material impact on our business strategy, results of operations or financial condition. For more information regarding the risks associated with cybersecurity that may impact our business strategy, results of operations, or financial condition, see “Cyberattacks aimed at us or those third parties on which we rely, as well as any noncompliance by us or such third parties with applicable laws and regulations governing cybersecurity and/or data privacy, could materially adversely affect us.” included in Part I, “Item 1A. Risk Factors” of this Annual Report on Form 10-K.
Given the importance to us of our cybersecurity program, in April 2022, our Board elected to exercise direct oversight of cybersecurity matters, rather than acting through its committees. The Board, as well as separately our executive management, receives, and has the opportunity to ask questions and raise discussion points regarding, management reports from the CIO and Senior Director of Cybersecurity and Network Operations on cybersecurity matters, as needed and no less than quarterly throughout the year, which reports include items such as cybersecurity updates, cybersecurity operational results, and audit findings. In addition, the Board and executive management receives and reviews the results of our cybersecurity risk and capabilities assessment on an annual basis.
The cybersecurity program is managed by our CIO and our Senior Director of Cybersecurity and Network Operations and reviewed and monitored by executive management, with oversight from the Board. Our CIO has significant expertise and more than 30 years of experience in information technology and cybersecurity including cloud technologies and reports to our Executive Vice President & Chief Legal Officer. Our Senior Director of Cybersecurity and Network Operations has more than two decades of experience in the fields of information technology and cybersecurity and holds cybersecurity certifications, including the Certified Information Systems Security Professional, Certified Cloud Security Professional, and GIAC Information Security Professional certifications. The CIO and Senior Director of Cybersecurity and Network Operations meet regularly with each other and members of their team to discuss cybersecurity threats, capabilities and program strategy. We have built in incident workflows that automatically provide notifications and escalate cybersecurity incidents. During an incident, the CIO acts as the incident commander and the Senior Director of Cybersecurity and Network Operations acts as operations section chief, working together to provider supervision over incident response.
Item 2. Properties
The Company leases its corporate headquarters office in Pittsburgh, Pennsylvania and its corporate office in Canonsburg, Pennsylvania.
EQM'sThe Company'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 EQM'sthe Company's operations. Certain lands on which EQM'sthe Company's pipelines and facilities are located are owned by EQMthe Company in fee title, and EQMthe Company believes that it has satisfactory title to these lands. The remainder of thelands in all material respects. Other lands on which EQM'sthe Company's pipelines and facilities are located are held by EQM pursuant to surface leases or easements between EQM,the Company, as lessee or grantee, and the respective fee owners of the lands, as lessors or grantors. EQMThe Company has held, leased or owned many of these lands for many years without any material challenge known to EQMthe Company relating to the title to the land upon which the assets are located, and EQMthe Company believes that it has satisfactory leasehold estates, easement interests or fee ownership to such lands. EQMlands in all material respects. The Company believes that it has satisfactory title to all of its material leases, easements, rights-of-way, permits and licenses in all material respects, and EQMthe Company has no knowledge of any material challenge to its title to such assets or their underlying fee title.
There are, however, certain lands within EQM'sthe Company's storage pools and where the Company's pipelines and other facilities are located as to which it may not currently have vested real property rights as of the filing of this Annual Report on Form 10-K, some of which are subject to ongoing acquisition negotiations or inverse condemnation proceedings. In accordance with EQM'sEquitrans, L.P.'s FERC certificates, the geological formations within which its permitted storage facilities are located cannot be used by third parties in any way that would detrimentally affect its storage operations, and EQMthe Company has the power of eminent domain with respect to the acquisition of necessary real property rights to use such storage facilities. Certain property owners have initiated legal proceedings against EQMthe Company and its affiliates for trespass, inverse condemnation and other claims related to these matters, and there is no assurance that other property owners will not initiate similar legal proceedings against EQMthe Company and its affiliates prior to final resolution. See "We do not own all of the land on which our pipelines and facilities are located, which could disrupt our operations and future development." included in Part I, "Item 1A. Risk Factors" of this Annual Report on Form 10-K.
See Part I, "Item 1. Business" of this Annual Report on Form 10-K for a discussion of the Company's business segments relevant to its property holdings and map of the Company's operations.
Item 3. Legal Proceedings
As of February 14, 2019, Equitrans Midstream Corporation was not partyFrom time to any legal proceedings.
In the ordinary course of business,time, various legal and regulatory claims, investigations and proceedings are pending or threatened against EQMthe Company and its subsidiaries. While to the extent applicable the amounts claimed may be substantial, EQMthe Company is unable to predict with certainty the ultimate outcome of such claims, investigations and proceedings. EQMThe Company accrues legal and other direct costs related to loss contingencies when incurred. EQMThe Company establishes reserves whenever it believes it to bea reserve is appropriate for pending matters. Furthermore, after consultation with counsel and considering availablethe availability, if any, of insurance, EQMthe Company believes, although no assurance can be given, that the ultimate outcome of any matter currently pending against EQMit or any of its consolidated subsidiaries as of the filing of this Annual Report on Form 10-K will not materially adversely affect its business, financial condition, results of operations, liquidity or ability to make distributionspay dividends to EQM unitholders, including the Company.its shareholders.
Environmental Proceedings
Allegheny Valley Connector, CambriaPratt Storage Field. On October 31, 2018, a gas explosion occurred in Morgan Township, Greene County, Pennsylvania. Between September 2015 and February 2016, EQM, asPennsylvania (the Incident). Following the operator of the AVC facilities, which, at that time, were owned by EQT, received eight Notices of Violation (NOVs) fromexplosion, the Pennsylvania Department of Environmental Protection (PADEP).(the PADEP), the Pennsylvania Public Utilities Commission and the PHMSA began investigating the Incident. In October 2019, the PADEP notified the Company that it was required to submit an investigation report pursuant to the state’s gas migration regulations due to the Incident's proximity to the Company's Pratt Storage Field assets. The NOVs allegedCompany, while disputing the applicability of the regulations, submitted a report to the PADEP in May 2020. In September 2020, the PADEP responded to the Company’s investigation report with a request for additional information. The Company responded to the September 2020 request. Over the next months the Company provided many responses to the PADEP’s continuing information requests.The PADEP issued a final report and closed its investigation and the Company does not expect further inquiry from the PADEP on this matter. On October 23, 2023, the Company received permission from the FERC to plug and abandon the well in the Pratt Storage Field that is the subject of the PADEP’s investigation of the Company.Additionally, the Company is continuing to defend in a civil litigation related to the Incident.
On October 30, 2023, the Company received a criminal complaint from the State Attorney General’s Office charging the Company with violations of the Pennsylvania Clean Streams Law (the Pratt Complaint). In response to the Pratt Complaint, the Company intends to fully assert its rights and defenses to the claims raised. The Pratt Complaint carries the possibility of a monetary
sanction, that if imposed could result in connection with inadvertent releasesa fine in excess of sediment and bentonite to water that occurred while drilling for$300,000. The Pratt Complaint could also cause reputational or other adverse impacts.
Rager Mountain Storage Field. On November 6, 2022, the Company became aware of natural gas venting from one of the storage wells, well 2244, at Equitrans, L.P.’s Rager Mountain natural gas storage facility (Rager Mountain facility), located in Jackson Township, a pipeline replacement project inremote section of Cambria County, Pennsylvania. EQTPennsylvania, which venting was halted on November 19, 2022. The PADEP, the PHMSA and EQM immediately addressedother investigators are continuing to conduct civil and criminal investigations of the releases and fully cooperated with the PADEP. In October 2016, EQM acquired the AVC facilities from EQT, including any future obligations related to these releases. On November 1, 2018, EQMincident and the PADEP agreed to a Consent Order and Agreement that requires ongoing monitoring and payment of a civil penalty of $163,000. The civil penalty has been paid, and documents resolving this matter have been signed.
Consent Orders, Beta Pipeline Project, Greene County, PA, and Barracuda Pipeline Project, Washington County, PA. The PADEP issued multiple NOVs to EQM related to the Beta Pipeline Project for construction, sediment and erosion control issues and failure to implement required corrective actions during the period of November 2017 to April 2018. The PADEP also issued multiple NOVs to EQM related to a sediment slip in mid-2018 on the Barracuda Pipeline Project that impacted a surface water stream. The Company is working to bring this project into compliance and has reached a tentative settlement with the PADEP within the amount reserved.
Administrative Order, Swarts Storage Field, Greene County, PA.cooperating in such investigations. On December 26, 2018, EQM7, 2022, the Company and its subsidiary Equitrans, L.P. each separately received an administrative order from the PADEP alleging, non-compliancein connection with certain regulations and failureearth disturbance activities undertaken to submit required information regarding encroaching mining operationshalt the venting of natural gas from well 2244, (i) in the case of the order received by the Company, violations of Pennsylvania’s Clean Streams Law and requiring certain remedial actions and (ii) in the case of the order received by Equitrans, L.P., violations of Pennsylvania’s 2012 Oil and Gas Act, Clean Streams Law and Solid Waste Management Act and requiring certain remedial actions. On December 8, 2022, the PADEP submitted a compliance order to Equitrans, L.P. relating to certain alleged violations of law in respect of wells at the Rager Mountain natural gas storage field and authorizingthe venting of natural gas, including from well 2244. The December 8, 2022 order also prohibited Equitrans, L.P. from injecting natural gas into the storage wells at the Rager Mountain facility. The Company and Equitrans, L.P. disputed aspects of the applicable orders, and on January 5, 2023, the Company and Equitrans, L.P., as applicable, appealed each of the orders to the Commonwealth of Pennsylvania Environmental Hearing Board. Additionally, the Company and Equitrans, L.P., as applicable, have received, and may continue to receive, notices of violation (NOVs) related to the incident which allege violations of various Pennsylvania statutes and regulations. The Company has been engaged in discussions with the PADEP to shut downaddress the outstanding NOVs. Equitrans, L.P. and the PADEP entered into a Stipulation of Settlement on April 12, 2023 that, among other things, resulted in the PADEP rescinding its December 8, 2022 order and Equitrans, L.P. withdrawing its appeal of such order. Equitrans, L.P.’s and the Company's appeals of the December 7, 2022 orders remain pending and negotiations regarding a potential consent order with respect to certain NOVs remain ongoing. On October 5, 2023, Equitrans, L.P. received an NOV from the PADEP’s Bureau of Air Quality for the release of uncontrolled hydrocarbons to the atmosphere during the Rager Mountain natural gas storage field. EQM believesfield incident, and expects to finalize a consent order and civil penalty related the NOV in the first quarter of 2024.
On December 29, 2022, the PHMSA issued the Company a Notice of Proposed Safety Order that it has substantially compliedincluded proposed remedial requirements related to the Rager Mountain natural gas storage field incident, including, but not limited to, completing a root cause analysis. The Company addressed certain proposals in advance of an order from the agency. These efforts included conducting testing, evaluating other wells at the Rager field and hiring a third-party specialist firm to undertake a root cause analysis, and subsequently on May 26, 2023, the PHMSA issued a consent order to the Company incorporating the terms of a consent agreement between the parties, which, among other things, required the completion of a root cause analysis and a remedial work plan, and specified that the Company may not resume injection operations at the Rager Mountain facility until authorized by the PHMSA. As discussed in “Transmission Results of Operation” in Part II, "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Annual Report on Form 10-K, in August 2023, the Company submitted a root cause analysis to the PHMSA in accordance with the regulations, has complied withconsent order and later submitted a remedial work plan and, following completion of all actions in its remedial work plan, an injection plan to the PADEP information requests,PHMSA seeking authority to resume injections at Rager Mountain using all wells except three, which remain disconnected. On October 2, 2023, the PHMSA approved the Company’s injection plan. The Company began injections at Rager Mountain on October 5, 2023, subject to certain pressure restrictions and objects toother requirements specified in the
factual foundations of consent agreement between the administrative order.PHMSA and the Company. On January 10, 2019,November 16, 2023, the PADEPPHMSA issued a letter suspendingto the portionCompany approving the Company’s request to remove all pressure restrictions at the Rager Mountain facility. The Company plans to continue working with the PHMSA, pursuant to the consent order, regarding the remaining three wells.
If additional penalties are pursued and ultimately imposed related to the Rager Mountain natural gas storage field incident, the penalties, individually and/or in the aggregate, are expected to result in monetary sanctions in excess of $300,000. While the Company does not believe that penalties, if imposed, will have a material adverse impact on the Company's financial condition, results of operations or liquidity, there can be no assurance as of the administrative order that purportedfiling of this Annual Report on Form 10-K regarding the scope of potential (or ultimately actual) financial or other impacts to authorize the PADEP to shut down the storage field. The administrative order does not containCompany as a penalty assessment; however, resolutionresult of the matter may include imposition of operational constraints. On January 25, 2019, EQM filed an administrative appeal on the PADEP's order to preserve its rights in any future proceedings. No reserve has been established for this matter.
Consent Order, Legacy Ohio Pipeline - Multiple Locations in Ohio. The Ohio Environmental Protection Agency (OEPA) has issued NOVs to EQM that encompass fill violations and/or storm water (sedimentation) violations incurred during the ownership of the Legacy Ohio pipeline by EQM's predecessor entities. The NOVs allege violations related to state storm water permits and state and federal clean water laws. EQM addressed the violations with agency oversight and cooperated with the OEPA to proactively address future corrective actions. EQM received a draft consent order in January 2019. Settlement discussions are ongoing. The Company believes it has reserved an amount sufficient to cover a settlement and expects that amount to be sufficient for any penalties associated with the Legacy Ohio pipeline. The Company is working to bring this project into compliance.Rager Mountain natural gas storage field incident.
MVP Project ChallengesMatters
The MVP Joint Venture is currently defendingThere remain certain agency actionslegal and judicial challengesregulatory matters relevant to the MVP that must be resolved favorably beforeproject, the outcome of which could have adverse effects with respect to the project can be completed,and consequently the Company, including matters pending with the following:
In February 2018, the Sierra Club filed a lawsuit, Sierra Club, et al. v. U.S. Army Corps of Engineers, et al., consolidated under Case No. 18-1173, in the United States Fourth Circuit Court of Appeals (Fourth Circuit) againstfor the U.S. Army Corps of Engineers (the U.S. Army Corps) challenging the verification by the Huntington District of the U.S. Army Corps that Nationwide Permit 12, which generally authorizes under Section 404 of the Clean Water Act discharges of dredge or fill material into waters of the United States and the construction of pipelines across such waters, could be utilized in the Huntington District (which covers all but the northernmost area of West Virginia) for the MVP project. The crux of Sierra Club's position was that the MVP Joint Venture, pursuantColumbia (D.C. Circuit) described below:
•Challenges to its FERC license, planned to use a certain methodology (dry open cut creek crossing methodology) to construct the pipeline across streams in West Virginia that would take considerably longer than the 72 hours allowed for such activities pursuant to the terms of West Virginia's Clean Water Act Section 401 certification for Nationwide Permit 12. A three-judge panel of the Fourth Circuit agreed with the Sierra Club and on October 2, 2018, issued a preliminary order stopping the construction in West Virginia of that portion of the pipeline that is subject to Nationwide Permit 12. Following the issuance of the court's preliminary order, the U.S. Army Corps' Pittsburgh District (which had also verified use of Nationwide Permit 12 by MVP in the northern corner of West Virginia) suspended its verification that allowed the MVP Joint Venture to use Nationwide Permit 12 for stream and wetlands crossings in northern West Virginia. On November 27, 2018, the Fourth Circuit panel issued its final decision vacating the Huntington District's verification of the use of Nationwide Permit 12 in West Virginia. As a consequence, unless and until West Virginia revises its Section 401 certification for Nationwide Permit 12 (an administrative process presently underway as described below) and the U.S. Army Corps Huntington and Pittsburgh Districts re-verify the MVP Joint Venture's use of Nationwide Permit 12, or the MVP Joint Venture secures an individual Section 404 permit with the concurrence of both Districts, the MVP Joint Venture cannot perform any construction activities in any streams and wetlands in West Virginia. The administrative proceeding described below is addressing the issues raised by the Court.
On April 13, 2017, the West Virginia Department of Environmental Protection (WVDEP) issued a 401 Water Quality Certification for the U.S. Army Corps Nationwide Permits. In August 2018, the WVDEP initiated an administrative process to revise this certification and requested public comment to, among other things, specifically revise the 72-hour limit for stream crossings noted as problematic by the Fourth Circuit as well as other conditions. The WVDEP has issued a new notice and comment period for further modifications of the 401 certification. This notice and comment period will end on March 4, 2019. The full administrative process requires notice and opportunity for public comment, response to public comment, and adherence to the state's administrative procedures legislation. The WVDEP is also required to obtain the EPA's agreement to the modified 401 certification. Assuming that the WVDEP's administrative process results in the clarification or elimination of any problematic conditions, and the EPA's agreement is secured, the MVP Joint Venture anticipates that it will once again secure from the U.S. Army Corps Districts within West Virginia verification that its activities, including stream crossings, may proceed under Nationwide Permit 12 as re-certified by the WVDEP. The MVP Joint Venture expects that reverification to occur within the first half of 2019. However, the MVP Joint Venture cannot guarantee that either the WVDEP, the EPA or the U.S. Army Corps Districts will act promptly or be deemed to have acted properly if challenged, in which case re-verification may be delayed past the first half of 2019.
In June 2018, the Sierra Club filed a second petition in the Fourth Circuit against the U.S. Army Corps, seeking review and a stay of the U.S. Army Corps' Norfolk District decision to verify the MVP Joint Venture's use of Nationwide Permit 12 for stream crossings in Virginia. Sierra Club, et al. v. U.S. Army U.S. Army Corps of Engineers, et al., Case No. 18-1713. The Fourth Circuit denied the Sierra Club's request for a stay on August 28, 2018. On October 5, 2018, the U.S. Army Corps' Norfolk District suspended its verification under Nationwide Permit 12 for stream crossings in Virginia pending the resolution of the West Virginia proceedings outlined above. On December 10, 2018, the U.S. Army Corps filed a motion to place the case in abeyance which the court granted on January 9, 2019. Until the U.S. Army Corps lifts its suspension, the MVP Joint Venture cannot perform any construction activities in any streams and wetlands in Virginia.
In a different Fourth Circuit appeal filed in December 2017, the Sierra Club challenged a Bureau of Land Management (BLM) decision to grant a right-of-way to the MVP Joint Venture and a U.S. Forest Service (USFS) decision to amend its management plan to accommodate MVP, both of which affect the MVP's 3.6-mile segment in the Jefferson National Forest in Virginia. Sierra Club, et al. v. U.S. Forest Service, et al., consolidated under Case No. 17-2399. On July 27, 2018, agreeing in part with the Sierra Club, the Fourth Circuit vacated the BLM and USFS decisions, finding fault with the USFS' analysis of erosion and sedimentation effects and the BLM's analysis of the practicality of alternate routes. On August 3, 2018, citing the court's vacatur and remand, the FERC issued a stop work order for the entire pipeline pending the agency actions on remand. The FERC modified its stop work order on August 29, 2018 to allow work to continue on all but approximately 25 miles of the project. The MVP Joint Venture has resumed construction of those portions of the pipeline. On October 10, 2018, the Fourth Circuit granted a petition for rehearing filed by the MVP Joint Venture for the limited purpose of clarifying that the July 27, 2018, order did not vacate the portion of the BLM's Record of Decision authorizing a right-of-way and temporary use permit for MVP to cross the Weston and Gauley Bridge Turnpike Trail in Braxton County, West Virginia. On October 15, 2018, the MVP Joint Venture filed with the FERC a request to further modify the August 3, 2018 stop work order to allow the MVP Joint Venture to complete bore and install the pipeline under the Weston and Gauley Bridge Turnpike Trail. On October 24, 2018, the FERC granted the MVP Joint Venture's request to further modify the stop work order and authorize construction. The MVP Joint Venture has resumed construction of those portions of the pipeline. However, work on the 3.6-mile segment in the Jefferson National Forest must await a revised authorization, which the MVP Joint Venture is working to obtain.
Certificate, D.C. Circuit. Multiple parties have sought judicial review of the FERC'sFERC’s order issuing a certificate of public convenience and necessity to the MVP Joint Venture and/or the exercise by the MVP
Joint Venture of eminent domain authority. There areOn February 19, 2019, the D.C. Circuit issued an order rejecting multiple consolidated petitions before the Court of Appeals for the District of Columbia Circuit seeking direct review of the FERC order under the Natural Gas Act of 1938, as amended (NGA) and certain challenges to the exercise by the MVP Joint Venture of eminent domain authority in Appalachian Voices, et al. v. FERC, et al., consolidated under Case No. 17-1271. Those petitioners requested a stay of the FERC's order pending the resolution of the petitions, which the FERC and the MVP Joint Venture opposed. The Court of Appeals denied the request for a stay on August 30, 2018. Oral argument on the merits of the17-1271. No petitions for reviewrehearing or petitions for rehearing en banc were filed by the April 5, 2019 deadline. The mandate was heldissued on January 28,April 17, 2019. Another group of parties filed a complaint in the U.S. District Court for the District of Columbia asserting that the FERC'sFERC’s order issuing certificates is unlawful on constitutional and other grounds in Bold Alliance, et al. v. FERC, et al., Case No. 1:17-cv-01822-RJL.17-1822. The district court plaintiffs seeksought declaratory relief as well as an injunction preventing the MVP Joint Venture from developing its project or exercising eminent domain authority. In December 2017 and January 2018, the FERC and the MVP Joint Venture, respectively, moved to dismiss the petitions for lack of subject matter jurisdiction. The court granted the motion and dismissed thisplaintiffs’ complaint on September 28, 2018. On October 26, 2018, plaintiffs appealed the decision in Case No. 17-1822 to the U.S. Court of Appeals for the District of ColumbiaD.C. Circuit in Bold Alliance, et al. v. FERC, et al., Case No. 18-5322.18-5322. On December 3, 2018, the FERC, as appellee, filed a joint motion with the appellants to hold Case No. 18-5322 in abeyance pending completion of the ongoing appeals of the final agency orders related to the MVP certificate in consolidated Case No. 17-1271.17-1271 and Atlantic Coast Pipeline’s (ACP) certificate. The MVP Joint Venture filed a motion to dismiss the case as to some of the plaintiffs. On February 15, 2019, the D.C. Circuit entered an order holding this appeal in abeyance pending rulings on the appeals from the ACP and MVP FERC proceedings. The ACP petitioners on November 16, 2022, filed a joint motion for voluntary dismissal of all petitions for review pertaining to ACP, except for the Bold Alliance proceeding. The court granted the motion on November 17, 2022. On January 5, 2023, the D.C. Circuit entered an order holding the Bold Alliance proceeding in abeyance pending further order of the court and requiring the parties to file motions to govern future proceedings within 60 days of the U.S. Supreme Court disposition of the petition for writ of certiorari in Bohon et al. v. FERC et al., discussed below. On June 26, 2023, the court entered an order continuing the abeyance of Bold Alliance until 30 days after the disposition of Case No. 20-5203, discussed below.
Similarly, another group of parties filed a complaint in the U.S. District Court for the District of Columbia in Bohon et al. v. FERC et al., Case No. 20-00006, asserting that the delegation of authority to the FERC under the NGA violates the nondelegation doctrine and separation-of-powers principle of the U.S. Constitution. The MVP Joint Venture and the FERC filed motions to dismiss which were granted by the court. On July 6, 2020, the landowners filed a notice of appeal to the D.C. Circuit in Case No. 20-5203. On November 30, 2020, appellants asked the D.C. Circuit to overturn the decision of the lower court. The D.C. Circuit issued an order on September 15, 2021 denying appellants’ motion for summary reversal of the decision of the lower court and supplemental briefing was completed as of October 6, 2021. On June 21, 2022, the D.C. Circuit upheld the lower court’s decision to dismiss the lawsuit. On September 15, 2022, the petitioners filed a petition for writ of certiorari with the U.S. Supreme Court. The FERC and the MVP Joint Venture filed responses to the petition in November 2022. On April 24, 2023, the U.S. Supreme Court granted the petition for certiorari, vacated the judgment, and remanded the case to the D.C. Circuit for further consideration in light of the U.S. Supreme Court's April 14, 2023 opinion in Axon Enterprises, Inc. v. FTC. The D.C. Circuit subsequently issued an order authorizing, among other things, the parties to address in their supplemental briefing the implications of Section 324 of the Fiscal Responsibility Act of 2023 in addition to Axon. On October 24, 2023, the D.C. Circuit denied a stay motion filed by the petitioners. The parties filed their respective supplemental briefs on November 13, 2023. On November 26, 2023, the petitioners filed in the U.S. Supreme Court an “emergency” motion for an injunction requesting a judicial injunction on, or access to, the petitioners’ three properties pending resolution of their underlying claims in the Bohon matter. On December 5, 2023, Chief Justice John Roberts denied the application, without calling for a response from the MVP Joint Venture or the federal government. On February 13, 2024, the D.C. Circuit affirmed and reinstated its June 21, 2022 judgment upholding the lower court's decision to dismiss the lawsuit. If oneappealed to the U.S. Supreme Court and the appeal were successful on its merits, or more of these challengesif the Bold Alliance appeal were successful, it could result in the MVP Joint Venture'sVenture’s certificate of public convenience and necessity being vacated and/or additional proceedings before the FERC, the outcome of which the Company cannot predict.
Several landowners have challengedensure, and cause a delay or further delay in the constitutionality of the eminent domain provisions of the Natural Gas Act generally and as applied tofull in-service date for the MVP Joint Venture specifically. The U.S. District Court for the Western District of Virginia, in Orus Ashby Berkley, et al. v. Mountain Valley Pipeline, LLC, et al., Case No. 7:17-cv-00357-EKD, dismissed the challenge for lack of subject matter jurisdiction in January 2018. The Fourth Circuit affirmed this judgment on appeal in July 2018 in Orus Ashby Berkley, et al. v. Mountain Valley Pipeline, LLC, et al., Case No. 18-1042. In October 2018, the plaintiffs petitioned the U.S. Supreme Court for a writ of certiorari with respect to these jurisdictional rulings in Orus Ashby Berkley, et al. v. FERC, et al., Case No. 18-561. On January 22, 2019, the U.S. Supreme Court denied the writ of certiorari.
Several landowners have filed challenges in various U.S. District Courts to the condemnation proceedings by which the MVP Joint Venture obtained access to their property. In each case, the district court found that the MVP Joint Venture was entitled to immediate possession of the easements, and the landowners appealed to the Fourth Circuit. The Fourth Circuit has consolidated these cases in Mountain Valley Pipeline, LLC v. 6.56 Acres of Land, et al., consolidated under Case No. 18-1159, and held oral argument in September 2018. On February 5, 2019, the Fourth Circuit Court of Appeals issued an opinion affirming the decisions of the U.S. District Courts granting the MVP Joint Venture immediate access for construction of the pipeline.
In August 2017, the Greenbrier River Watershed Association appealed the MVP Joint Venture's Natural Stream Preservation Act Permit obtained from the West Virginia Environmental Quality Board (WVEQB) for the Greenbrier River crossing. Petitioners alleged that the issuance of the permit failed to comply with West Virginia's Water Quality Standards for turbidity and sedimentation. WVEQB dismissed the appeal in June 2018. In July 2018, the Greenbrier River Watershed Association appealed the decision to the Circuit Court of Summers County, asking the court to remand the permit with instructions to impose state-designated construction windows and pre- and post-construction monitoring requirements as well as a reversal of the WVEQB's decision that the permit was lawful. On September 18, 2018, the Circuit Court granted a stay. A hearing on the merits was held on October 23, 2018. The court has not yet issued a decision. In the event of an adverse decision, the MVP Joint Venture would appeal or work with the WVDEP to attempt to resolve the issues identified by the court.
Other Proceedings that May Affect the MVP Project
On December 13, 2018, in Cowpasture River Preservation Association, et al. v. U.S. Forest Service, et al., Case No. 18-1144, an unrelated case involving the Atlantic Coast Pipeline, the Fourth Circuit held that the Forest Service, which is part of the Department of Agriculture, lacked the authority to grant rights-of-way for oil and gas pipelines to cross the Appalachian Trail. Although the MVP Joint Venture obtained its grant to cross the Appalachian Trail from the BLM, a part of the Department of Interior, the rationale of the Fourth Circuit's opinion could apply to the BLM as well. The MVP Joint Venture anticipates that the Forest Service will request rehearing or en banc review of the Fourth Circuit's decision.
On January 7, 2019, the MVP Joint Venture received a letter from the U.S. Attorney's Office for the Western District of Virginia stating that it and the EPA are investigating potential criminal and/or civil violations of the Clean Water Act and other federal statutes as they relate to the construction of the MVP. The January 7, 2019 letter requests the MVP Joint Venture and its members, contractors, suppliers and other entities involved in the construction of the MVP to preserve documentsproject (and consequent impacts related to the MVP generated from September 1, 2018 to the present. In a telephone call on February 4, 2019, the U.S. Attorney's Office confirmed that it has opened a criminal investigation. On February 11, 2019, the MVP Joint Venture received a grand jury subpoena from the U.S. Attorney's Office for the Western District of Virginia requesting certain documents related to the MVP from August 1, 2018 to the present. The MVP Joint Venture is complying with the letter and subpoena but cannot predict whether any action will ultimately be brought by the U.S. Attorney's Officesuch delay), or what the outcome of such an action would be.otherwise have adverse effects.
On December 7, 2018, the Virginia Department of Environmental Quality and the State Water Control Board filed suit against the MVP Joint Venture in the Circuit Court of Henrico County, captioned Paylor, et al. v. Mountain Valley Pipeline, LLC, Case No. CL18-4874-00, alleging violations of Virginia's State Water Control Law, Water Resources and Wetlands Protection Program, and Water Protection Permit Program Regulations at sites in Craig, Franklin, Giles, Montgomery and Roanoke Counties, Virginia. The MVP Joint Venture answered the suit on January 11, 2019, stating that it does not admit and will contest the allegations. The MVP Joint Venture has initiated settlement negotiations to resolve this matter. The MVP Joint Venture anticipates that a resolution could result in penalties and injunctive relief designed to assure compliance with relevant environmental laws and regulations. Shortly after the filing of this suit, the Virginia State Water Control Board (VSWCB) voted to reconsider/schedule a hearing to revoke MVP's Clean Water Act Section 401 certification. The MVP Joint Venture was informed that the VSWCB has provided public notice of a special VSWCB meeting to be held on March 1, 2019 to discuss the MVP's Clean Water Act Section 401 certification. MVP will vigorously oppose any action by the VSWCB which would result in revocation of its authorizations to continue project activities in Virginia.
Item 4. Mine Safety Disclosures
Not applicable.
Information About Our Executive Officers
| | | | | | | | | | | | | | | | | | | | |
| Name | | Age | | Year Initially Elected as Executive Officer | | Title |
| Thomas F. Karam | | 65 | | 2018 | | Executive Chairman |
| Diana M. Charletta | | 51 | | 2018 | | President and Chief Executive Officer |
| Kirk R. Oliver | | 66 | | 2018 | | Executive Vice President and Chief Financial Officer |
| Justin M. Macken | | 44 | | 2024 | | Executive Vice President, Pipeline Operations and Project Execution |
| Stephen M. Moore | | 64 | | 2019 | | Executive Vice President and Chief Legal Officer |
| Nathan P. Tetlow | | 46 | | 2024 | | Senior Vice President, Commercial Services |
Mr. Karam has served as Executive Chairman of the Registrant (as of February 14, 2019)
|
| | | | | | |
| Name | | Age | | Year Initially Elected as Executive Officer | | Title |
| Thomas F. Karam | | 60 | | 2018 | | President and Chief Executive Officer |
| Diana M. Charletta | | 46 | | 2018 | | Executive Vice President and Chief Operating Officer |
| Kirk R. Oliver | | 61 | | 2018 | | Senior Vice President and Chief Financial Officer |
| Robert C. Williams | | 66 | | 2018 | | Vice President and General Counsel |
| Phillip D. Swisher | | 46 | | 2018 | | Vice President and Chief Accounting Officer |
Mr. Karam was appointed PresidentEquitrans Midstream since January 1, 2024, and previously served as Chief Executive Officer of Equitrans Midstream infrom September 2018 and was appointed tothrough December 31, 2023, a Director on the Board of Directors insince November 2018 uponand Chairman of the Separation.Board since July 2019. Mr. Karam also served as President of Equitrans Midstream from September 2018 to July 2019. Prior to his service at Equitrans Midstream, he was named Senior Vice President, EQT;served as senior vice president, EQT and President, Midstreampresident, midstream from August 2018, serving in August 2018. He was also appointedthose capacities until the Separation. Mr. Karam served as a Directorchief executive officer and as President and Chief Executive Officerchairman of the EQM General Partner from July 2019 until the EQM Merger in June 2020, chairman, president and chief executive officer, from October 2018 to July 2019, and as president, chief executive officer and director, from August 2018 and became Chairman into October 2018. Mr. Karam hasAdditionally, he served as the Presidentchairman, president and Chief Executive Officer and a Directorchief executive officer of EQGP Services, LLC (formerly known as EQT GP Services, LLC), the general partner of EQGP from October 2018 through Equitrans Midstream's acquisition of 100% of the limited partner interests in EQGP in January 2019 (the EQGP General Partner) of EQGP, sinceBuyout), as well as president, chief executive officer and director from August 2018 and assumed the role of Chairman of the Board into October 2018. Mr. Karam served on EQT's BoardEQT’s board of Directorsdirectors from November 2017 until the Separation in November 2018.Separation. Mr. Karam is the founder and served as Chairmanchairman of Karbon Partners, LLC, which invests in, owns, constructs, and operates midstream energy assets, from April 2017 to August 2018. Mr. Karam previously served as the founder, Chairmanchairman and Chief Executive Officerchief executive officer of the general partner of PennTex Midstream Partners, LLCLP (PennTex), a publicly traded master limited partnership with operations in North Louisiana and the Permian Basin from 2014 until its sale to Energy Transfer Partners in 2016. Preceding PennTex, he was the founder, Chairmanchairman and Chief Executive Officerchief executive officer of Laser Midstream Partners, LLC, one of the first independent natural gas gathering systems in the northeast Marcellus Shale, from 2010 until 2012 when it was acquired by Williams Partners.
Ms. Charletta was has served as President and Chief Executive Officer of Equitrans Midstream since January 1, 2024 and previously served as President and Chief Operating Officer of Equitrans Midstream from July 2019 through December 31, 2023. The Board appointed Ms. Charletta as a Director in April 2022. She previously served as Executive Vice President and Chief Operating Officer of Equitrans Midstream insince September 2018. She has also served as Executive Vice President, Chief Operating Officerexecutive vice president, chief operating officer and a Directordirector of the EQM General Partner sincefrom October 2018.2018 through July 2019, when she was promoted to president and chief operating officer.She served as president, chief operating officer and director of the EQM General Partner through the EQM Merger. Ms. Charletta has served as the Executive Vice President, Chief Operating Officerexecutive vice president, chief operating officer and as a Directordirector of EQGP's general partner from October 2018 through the consummation of the EQGP General Partner since October 2018.Buyout. Ms. Charletta joined EQT in 2002 as a senior pipeline engineer and from that time held various management positions with increasedincreasing responsibility. She assumed the role of Senior Vice Presidentsenior vice president of Midstream Operationsmidstream operations of a subsidiary of EQT in December 2013 and was promoted to Seniorsenior vice president of midstream engineering and construction in July 2017, a position she held until the Separation. Ms. Charletta also has served as a director of the Southern Gas Association, a natural gas trade association, since November 2022.
Mr. Oliver has served as Executive Vice President and Chief Financial Officer of Equitrans Midstream Engineering and Construction in July 2017.
Mr. Oliver was appointedsince January 1, 2024, having previously served as Senior Vice President and Chief Financial Officer forof Equitrans Midstream infrom September 2018.2018 through December 31, 2023. He has also served as Senior Vice President, Chief Financial Officersenior vice president, chief financial officer and a Directordirector of the EQM General sincePartner from October 2018.2018 through the EQM Merger. Mr. Oliver has served as the Senior Vice President, Chief Financial Officersenior vice president, chief financial officer and as a Directordirector of the general partner of EQGP General Partner sincefrom October 2018.2018 through the EQGP Buyout. Prior to joining Equitrans Midstream, he was Chief Financial Officerchief financial officer for UGI Corporation, which distributes, stores, transports and markets energy products and related service,services, from October 2012 through May 2018.
Mr. WilliamsMacken has served as Executive Vice President, Pipeline Operations and Project Execution of Equitrans Midstream since January 1, 2024, having previously served as Equitrans Midstream's Senior Vice President of Gas Systems Planning and Engineering from September 2018 through December 31, 2023. Mr. Macken joined EQT in 2008 as manager of gas systems planning and engineering and was appointedpromoted to director of gas systems planning in 2010 and vice president of gas systems planning in 2014, a position he held until the Separation.
Mr. Moore has served as Executive Vice President and Chief Legal Officer of Equitrans Midstream since January 1, 2024, having previously served as Senior Vice President and General Counsel of Equitrans Midstream in September 2018.from April 2019 through
December 31, 2023. Prior to joining Equitrans Midstream, Mr. WilliamsMoore was general counsel of PennTex Midstream Partners, LP, a publicly traded master limited partnership, from 2014 through 2017. From March 2018 to April 2019, Mr. Moore served as special projects counsel to UGI Corporation.
Mr. Tetlow has served as Senior Vice President, Commercial Services of Equitrans Midstream since January 1, 2024, having previously served as Vice President, Corporate Development and Investor Relations from November 2018 through December 31, 2023. Mr. Tetlow joined EQT in April 2008 as a business specialist in the treasury department and served as Deputy General Counselheld various management positions with increased responsibility. Mr. Tetlow was promoted to manager of Business Operations, supporting the midstream, production,corporate treasury in 2011 and commercial business unitsbecame investor relations manager in 2012 and investor relations director in 2015, a position he held until the Separation in November 2018.
Mr. Swisher was appointed as Vice President and Chief Accounting Officer of Equitrans Midstream upon the Separation in November 2018. He was also was appointed as Vice President and Chief Accounting Officer of the EQM General Partner in October 2018. Mr. Swisher also has served as the Vice President and Chief Accounting Officer of the EQGP General Partner since October 2018. Mr. Swisher joined EQT in 2002 and was appointed as Controller, Shared Services in September 2011, overseeing the shared services accounting function at EQT and its subsidiaries until the Separation in November 2018.Separation.
All executive officers have executed agreements with the Company and serve at the pleasure of the Company's Board of Directors.Board. Officers are elected annually to serve during the ensuing year or until their successors are elected and qualified, or until their death, resignation or removal.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Equitrans Midstream common stock began tradingtrades on the NYSE on a "regular way" basis under the symbol "ETRN" on November 13, 2018.
On November 13, 2018, the Board declared a dividend of one Right for each outstanding share of Equitrans Midstream common stock and adopted a shareholder rights plan, as set forth in the Rights Agreement. The dividend was paid on November 23, 2018 to Equitrans Midstream shareholders of record as of the close of business on such date. The Rights initially traded with, and are inseparable from, the shares of Equitrans Midstream common stock. New Rights will accompany any new shares of Equitrans Midstream common stock issued after November 23, 2018 until the earlier of the time when the Rights become exercisable and any redemption or expiration of the Rights. The Rights will expire on March 31, 2019..
As of January 31, 2019,2024, there were 2,0671,626 shareholders of record of Equitrans Midstream common stock.
On February 5, 2019,January 23, 2024, the Board declared a cash dividenddividends for the fourth quarter of 20182023 of $0.41$0.15 per common share payableand $0.4873 per Equitrans Midstream Preferred Share, which dividends were paid on February 27, 201914, 2024 to shareholders of record at the close of business on February 15, 2019.6, 2024.
TheAs discussed under "We cannot guarantee the timing, amount or payment of dividends on our common stock, and we may further reduce the amount of the cash dividend that we pay on our common stock or may not pay any cash dividends at all to our shareholders. Our ability to declare and pay cash dividends to our shareholders, if any, in the future will depend on various factors, many of which are beyond our control.” included in Part I, "Item 1A. Risk Factors" of this Annual Report on Form 10-K, the amount and timing of dividends is subject to the discretion of the Board and depends upon business conditions, including, but not limited to, the financial condition, results of operations, liquidity and capital requirements of the Company's operating subsidiaries, covenants associated with certain debt obligations, legal requirements and strategic direction.direction and other factors deemed relevant by the Board. The Board has the discretion to change the dividend at any time for any reason.
EQM Cash Distribution. On January 16, 2019,Securities Authorized for Issuance under Equity Compensation Plans
See Part III, “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Annual Report on Form 10-K for information relating to the Board of Directors of the EQM General Partner declared a cash distribution to EQM's unitholders for the fourth quarter of 2018 of $1.13 per EQM common unit or $211.3 million in the aggregate. On February 13, 2019, EQM paid the cash distribution to its unitholders of record at the close of business on February 1, 2019.Company’s equity compensation plans.
Recent Sales of Unregistered Securities
On May 11, 2018, the Company issued 100 shares of its common stock to EQT Production Company, a wholly-owned subsidiary of EQT, pursuant to Section 4(a)(2) of the Securities Act. The Company did not register the issuancehave any sales of unregistered securities registered under Section 12 of the issued shares underExchange Act during the Securities Act because such issuance did not constitute a public offering.three months ended December 31, 2023.
Market Repurchases
The Company did not repurchase anyfollowing table sets forth the Company's repurchases of its common stockequity securities registered under Section 12 of the Exchange Act that occurred during 2018.the three months ended December 31, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total number of shares purchased (a) | | Average price paid per share | | Total number of shares purchased as part of publicly announced plans or programs | | Approximate dollar value of shares that may yet be purchased under the plans or programs |
| October 2023 (October 1 - October 31) | | — | | | $ | — | | | — | | | $ | — | |
| November 2023 (November 1 - November 30) | | — | | | — | | | — | | | — | |
| December 2023 (December 1 - December 31) | | 161,466 | | | 10.25 | | | — | | | — | |
| Total | | 161,466 | | | $ | 10.25 | | | — | | | $ | — | |
(a) Reflects shares withheld by the Company to pay taxes upon vesting of restricted stock.
Stock Performance Graph
The following graph below compares the cumulative five-year total return provided to shareholders on Equitrans MidstreamMidstream's common stock relative to the cumulative total returns of (i) the S&P 500 index and a customized peer group of twenty companies.(ii) the Alerian US Midstream Energy Index. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in Equitrans Midstream common stock in theand each index beginning on December 31, 2018, and in the peer group on November 13, 2018. Relativerelative performance is tracked through December 31, 2018.2023. 
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 12/31/2018 | | 12/31/2019 | | 12/31/2020 | 12/31/2021 | 12/31/2022 | 12/31/2023 |
| Equitrans Midstream Corporation | | | $ | 100.00 | | | $ | 74.86 | | | $ | 49.96 | | $ | 69.08 | | $ | 48.18 | | $ | 79.55 | |
| S&P 500 | | | 100.00 | | | 131.49 | | | 155.68 | | 200.37 | | 164.08 | | 207.21 | |
| Alerian U.S. Midstream Energy | | | 100.00 | | | 115.56 | | | 86.72 | | 125.75 | | 162.93 | | 194.14 | |
| | | | | | | | | | |
Item 6. Reserved
|
| | | | | | | | | | | |
| | 11/13/2018 | | 11/30/2018 | | 12/31/2018 |
| Equitrans Midstream Corporation | $ | 100.00 |
| | $ | 106.85 |
| | $ | 95.84 |
|
| S&P 500 | 100.00 |
| | 102.04 |
| | 92.82 |
|
Peer Group (a) | 100.00 |
| | 100.13 |
| | 90.75 |
|
| |
(a) | The twenty companies included in the Company's Peer Group are as follows: Andeavor Logistics LP, Antero Midstream GP LP, Buckeye Partners, L.P., Cheniere Energy, Inc., Crestwood Equity Partners LP, DCP Midstream, LP, Enable Midstream Partners, LP, Energy Transfer LP, EnLink Midstream, LLC, Enterprise Products Partners L.P., Kinder Morgan, Inc., Magellan Midstream Partners, L.P., MPLX LP, ONEOK, Inc., Phillips 66 Partners LP, Plains All American Pipeline, L.P., Plains GP Holdings, L.P., Targa Resources Corp., Western Gas Equity Partners, LP and The Williams Companies, Inc. |
Item 6. Selected Financial Data
The following selected financial data should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 8. Financial Statements and Supplementary Data."
For each of the periods prior to the Separation presented in this Annual Report on Form 10-K, the consolidated financial statements and related notes include the assets, liabilities and results of operations of the Midstream Business that were transferred to the Company upon the closing of the Distribution and represent the predecessor for accounting purposes of Equitrans Midstream (the Predecessor).
|
| | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 (a) (b) | | 2016 (a) | | 2015 (a) | | 2014 (a) (c) |
| | (Thousands, except per share amounts) |
| Operating revenues | $ | 1,495,098 |
| | $ | 895,558 |
| | $ | 732,272 |
| | $ | 632,936 |
| | $ | 489,218 |
|
| | | | | | | | | | |
| Net income (loss) attributable to Equitrans Midstream Corporation | 218,398 |
| | (27,156 | ) | | 65,153 |
| | 174,296 |
| | 120,602 |
|
| | | | | | | | | | |
| Earnings (loss) per share of common stock attributable to Equitrans Midstream | | | | | | | | | |
| Basic: | | | | | | | | | |
| Weighted average common stock outstanding | 254,432 |
| | 254,432 |
| | 254,432 |
| | 254,432 |
| | 254,432 |
|
| Net income (loss) | $ | 0.86 |
| | $ | (0.11 | ) | | $ | 0.26 |
| | $ | 0.69 |
| | $ | 0.47 |
|
| Diluted: | | | | | | | | | |
| Weighted average common stock outstanding | 255,033 |
| | 254,432 |
| | 255,033 |
| | 255,033 |
| | 255,033 |
|
| Net income (loss) | $ | 0.86 |
| | $ | (0.11 | ) | | $ | 0.26 |
| | $ | 0.68 |
| | $ | 0.47 |
|
| | | | | | | | | | |
| Cash dividends declared per share of common stock | $ | 0.41 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
| |
(a) | For periods prior to the Separation Date, earnings per share was calculated based on the shares of Equitrans Midstream common stock distributed in connection with the Separation and Distribution and is considered pro forma in nature. Prior to the Separation Date, the Company did not have any issued or outstanding common stock (other than shares owned by EQT). |
| |
(b) | For the year ended December 31, 2017, because the Company generated a net loss, the Company's computation of EPS excluded potentially dilutive securities; as such, basic and diluted weighted average common stock outstanding were the same for the year ended December 31, 2017. |
|
| | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2018 | | 2017 | | 2016 | | 2015 (a) | | 2014 (a) |
| | (Thousands) |
| Total assets | $ | 10,523,835 |
| | $ | 8,328,796 |
| | $ | 4,392,155 |
| | $ | 3,486,515 |
| | $ | 2,206,479 |
|
| Long-term debt | 4,660,244 |
| | 1,453,352 |
| | 985,732 |
| | 493,401 |
| | 492,633 |
|
See "Item 1A. Risk Factors," "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 1 to the consolidated financial statements included in "Item 8. Financial Statements and Supplementary Data" for a discussion of matters that affect the comparability of the selected financial data as well as uncertainties that might affect the Company's future financial condition.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of financial condition and results of operations should be read in conjunction with Part I, "Item 1. Business," Part I, "Item 1A. Risk Factors," and the consolidated financial statements, and the notes thereto, included in Part II, "Item 8. Financial Statements and Supplementary Data" ofin this Annual Report on Form 10-K.
Executive Overview
Net income attributableThe information covered in this section provides a comparison of material changes in the Company's results of operations and financial condition for fiscal year 2023 relative to Equitrans Midstream was $218.4 million in 2018 compared with net loss attributablefiscal year 2022. For the discussion of fiscal year 2022 relative to Equitrans Midstreamfiscal year 2021, see Part II, "Item 7. Management's Discussion and Analysis of $27.2 million in 2017. The increase resulted primarily from higher gathering, waterFinancial Condition and transmission revenues, higher equity income and lower income tax expense, partly offset by higher operating expenses, net interest expense and net income attributable to noncontrolling interests.
Net loss attributable to Equitrans Midstream was $27.2 million in 2017 compared with net income attributable to Equitrans MidstreamResults of $65.2 million in 2016. The decrease resulted from higher income tax expense, operating expenses, net income attributable to noncontrolling interests and net interest expense, partly offset by higher gathering, transmission and water revenues and higher equity income.
On February 5, 2019,Operations" of the Board declared a cash dividend for the fourth quarter of 2018 of $0.41 per share payable on February 27, 2019 to shareholders of record at the close of business on February 15, 2019.
The following table reconciles the differences between operating income attributable to EQM as reported in EQM'sCompany's Annual Report on Form 10-K for the yearsyear ended December 31, 2018, 2017 and 2016 and operating2022, filed with the SEC on February 21, 2023.
Executive Overview
Net income (loss) attributable to Equitrans Midstream forcommon shareholders was $386.7 million, $0.89 per diluted share, in 2023 compared to $(327.9) million, ($0.76) per diluted share, in 2022. The increase resulted primarily from an impairment of the same period.
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (Thousands) |
| Operating income attributable to EQM | $ | 726,653 |
| | $ | 620,705 |
| | $ | 527,856 |
|
| Less: | | | | | |
| Selling, general and administrative | 1,980 |
| | 3,018 |
| | 3,042 |
|
| Separation and other transaction costs: | 77,682 |
| | 85,124 |
| | — |
|
| Depreciation | 3,907 |
| | (10,487 | ) | | — |
|
| Impairment of long-lived assets | — |
| | — |
| | 59,748 |
|
| Operating income attributable to Equitrans Midstream | $ | 643,084 |
| | $ | 543,050 |
| | $ | 465,066 |
|
Selling, General and Administrative Expense. The Company incurs selling, general and administrative expenses separate from and in addition to similar costs incurred by EQM. In the Predecessor period, these expenses included allocations from EQT for compensation, centralized general and administrative services and auditing, legal and regulatory fees. In the Successor period, these expenses included auditing, legal and regulatory fees and share-based compensation costs.
Separation and Other Transaction Costs. Separation and other transaction costs represent selling, general and administrative expenses related to the Rice Merger, the EQM-RMP Mergers, the Drop-Down Transaction, the Separation and the EQGP Buyout and included charges from EQT of $53.3 million and $85.1 million for the years ended December 31, 2018 and 2017, respectively. Separation costs recorded in 2018 also included a one-time charitable contribution of $15.0 million made to the Equitrans Midstream Foundation, a charitable organization established to continue EQT's legacy of charitable giving. Future contributions to the Equitrans Midstream Foundation, if any, will be evaluated from time to time.
Depreciation. The Company recorded depreciation expense on corporate assets placed in serviceCompany's equity method investment in the second half of 2018. DuringMVP Joint Venture incurred during the year ended December 31, 2017, EQM's Transmission business segment recorded2022, higher equity income, higher operating revenues, a non-cash charge to depreciationloss on extinguishment of $10.5 million related to the revaluation of differences between regulatory and tax bases in Equitrans, L.P.'s regulated property, plant and equipment. For consolidated reporting at Equitrans Midstream, the $10.5 million is recorded as income tax expense. This difference in presentation is shown as a reduction to depreciation.
Impairment of Long-lived Assets. Duringdebt incurred during the year ended December 31, 2016,2022 and higher income tax benefit, partially offset by higher operating expenses and higher net interest expense. See Note 2 to the consolidated financial statements for a discussion of the impairment of the Company's equity method investment in the MVP Joint Venture.
As part of implementing the Company's succession plan, on January 1, 2024, Mr. Thomas F. Karam stepped down as Chief Executive Officer of the Company recorded impairmentand Diana M. Charletta, the former President and Chief Operating Officer, became President and Chief Executive Officer.
Sustainability and Corporate Responsibility
The Company recognizes that the long-term interests of long-lived assetsshareholders are served by managing ESG matters important to the Company’s stakeholders and working to be resilient and appropriately positioned in any environment, including a lower-carbon economy. The Company embraces working to conduct business in a socially responsible and ethical manner by respecting all stakeholders, and is focused on identifying and executing on ESG and sustainability initiatives while further integrating corporate responsibility and ESG concerns into its business strategy and decision-making throughout the organization. The Company also is committed to continuing to operate with integrity, accountability and transparency. As a result, the Company anticipates that it will continue to prudently allocate capital resources to ESG and sustainability initiatives in the future, which may include at increasing levels, which the Company believes will benefit the sustainability of $59.7 million relatedthe Company's business and help to create value.
The Company believes that natural gas will remain a significant component of the global and national energy complex and will play a vital role in the transformation to a lower-carbon economy, notwithstanding increased demand for alternative energy sources and negative sentiment with respect to natural gas, including natural gas infrastructure, from certain gathering assets. Usingactors. Further, the income approach with Level 3 fair value measurement inputs, these gathering assets were written downCompany believes that continued natural gas production and infrastructure growth are directly supportive of the United States' energy security, as evidenced by the historic inclusion of provisions mandating the completion of the MVP project in the Fiscal Responsibility Act of 2023. The Company also acknowledges the reality and risks of climate change as a critical current issue and, as an energy infrastructure company, recognizes the ongoing developments and risks surrounding climate change. As a result, the Company is focused on long-term sustainable performance, such as continuing to fair value. proactively pursue climate change mitigation aspirations while also balancing the need to deliver reliable, safe, and affordable natural gas energy in the United States now and in the future.
The impairment was triggered byCompany is focused on executing on sustainability initiatives while further integrating sustainability-focused risks and opportunities into the Company’s strategic and capital spending decision processes. In 2023, the Company focused primarily on developing the appropriate strategy and building the requisite programs and plans for achieving its GHG reduction goals. In January 2023, the Company announced its status as a founding member of the newly formed Appalachian Methane Initiative (AMI), a coalition of regional natural gas operators committed to further enhancing methane monitoring throughout the Appalachia Basin and facilitating additional methane emissions reduction in estimated future cash flows caused bythe region. Additionally, the Company’s GHG Committee developed a low commodity price environment, which reduced producer drilling activityportfolio of 2024 capital projects that includes avoiding or eliminating methane emissions from both certain fixed and event-based sources. Further, the Company finalized its GHG Management program, providing the roadmap and accounting protocols for pursuing achievement of and reporting on progress towards its aspirational emissions targets. Additionally, aspects of the Company's compensation structure reflect sustainability-oriented goals and developments. For example, the Human Capital and Compensation Committee of the Board determined to include the completion of certain scenario analyses under the Task Force on Climate-Related Financial Disclosures framework, and the development of a related throughput onpublishable report, as a metric in the gathering assets. The impairment was not recorded by EQM's Gathering business segment as the impairment was
Company’s 2023 short-term incentive compensation program applicable to all employees,
including executives. The Company expects to continue to pursue strategic sustainability initiatives as appropriate, including with respect to climate change, and to incur costs and capital expenditures to do so. Costs and expenses associated with sustainability and ESG matters could be material.
recognized byAs discussed in “Our business is subject to climate change-related transitional risks (including evolving climate-focused regulation and climate change-driven trends emphasizing the financing of non-fossil fuel businesses and prompting the pursuit of emissions reductions, lower-carbon technologies, and alternative forms of energy), as well as physical risks that could significantly increase our operating expenses and capital costs, adversely affect our customers’ development plans, and reduce demand for our products and services.” in Part I, “Item 1A. Risk Factors” and “Regulatory Environment” in Part I, “Item 1. Business” of this Annual Report on Form 10-K, the Company immediately priorrecognizes the evolving landscape of international accords and federal, state and local laws and regulations regarding GHG emissions or climate change initiatives. The Company also recognizes, as discussed in "Increasing scrutiny and changing stakeholder expectations and disclosures in respect of ESG and sustainability practices may adversely impact our business and our stock price and impose additional costs or expose us to new or additional risks." in Part I, "Item 1A. Risk Factors" of this Annual Report on Form 10-K, the changing expectations from a variety of stakeholders relating to ESG and sustainability practices.Changing market conditions, competition from lower emitting fuels, new laws and regulatory requirements, as well as unanticipated or inconsistent application of existing laws and regulations by administrative agencies, make it difficult to predict the long-term business impact of GHG emission and climate change initiatives on the Company’s liquidity, capital resources, results of operations and financial condition. However, the Company is taking steps to prudently invest capital in furtherance of its salegoal of the gathering assetslong-term sustainable operations and recognizes that responsive adaptation efforts are likely to EQM. No impairment of any long-lived assets was recorded during the years ended December 31, 2018be costly and 2017.time consuming.
Business Segment Results
Operating segments are revenue-producing components of an 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. OtherHeadquarters costs consist primarily of certain unallocated corporate expenses and transaction costs, as applicable. Net interest expense, loss on extinguishment of debt, components of other income (expense), net, interest expense and income tax expense (benefit) are managed on a consolidated basis. The Company has presented each segment's operating income (loss), other income (expense), net, equity income, impairment of equity method investment and various operational measures, as applicable, in the following sections. Management believes that the presentation of this information is useful to management and investors regarding the financial condition, results of operations and trends and uncertainties of its segments. The Company has reconciled each segment's operating income (loss) to the Company's consolidated operating income (loss) and net income (loss) in Note 53 to the consolidated financial statements.
GATHERING RESULTS OF OPERATIONS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2023 | | 2022 | | %
Change | | 2021 | | %
Change |
| FINANCIAL DATA | (Thousands, except per day amounts) |
Firm reservation fee revenues (a) | $ | 572,899 | | | $ | 562,947 | | | 1.8 | | | $ | 468,156 | | | 20.2 | |
Volumetric-based fee revenues (b) | 297,268 | | | 327,632 | | | (9.3) | | | 393,897 | | | (16.8) | |
| Total operating revenues | 870,167 | | | 890,579 | | | (2.3) | | | 862,053 | | | 3.3 | |
| Operating expenses: | | | | | | | | | |
| Operating and maintenance | 96,863 | | | 101,194 | | | (4.3) | | | 99,387 | | | 1.8 | |
| Selling, general and administrative | 113,710 | | | 82,590 | | | 37.7 | | | 93,245 | | | (11.4) | |
| | | | | | | | | |
| Depreciation | 196,547 | | | 195,059 | | | 0.8 | | | 188,633 | | | 3.4 | |
| Amortization of intangible assets | 64,819 | | | 64,819 | | | — | | | 64,819 | | | — | |
| | | | | | | | | |
| Total operating expenses | 471,939 | | | 443,662 | | | 6.4 | | | 446,084 | | | (0.5) | |
| Operating income | $ | 398,228 | | | $ | 446,917 | | | (10.9) | | | $ | 415,969 | | | 7.4 | |
| | | | | | | | | |
Other income (expense), net (c) | $ | 1,531 | | | $ | 13,312 | | | (88.5) | | | $ | (47,804) | | | 127.8 | |
| | | | | | | | | |
| OPERATIONAL DATA | | | | | | | | | |
| Gathered volumes (BBtu per day) | | | | | | | | | |
Firm capacity (d) | 5,441 | | | 5,211 | | | 4.4 | | | 5,216 | | | (0.1) | |
| Volumetric-based services | 2,238 | | | 2,484 | | | (9.9) | | | 3,098 | | | (19.8) | |
| Total gathered volumes | 7,679 | | | 7,695 | | | (0.2) | | | 8,314 | | | (7.4) | |
| | | | | | | | | |
Capital expenditures(e) | $ | 267,748 | | | $ | 265,864 | | | 0.7 | | | $ | 223,807 | | | 18.8 | |
|
| | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | %
Change | | 2016 | | %
Change |
| FINANCIAL DATA | (Thousands, except per day amounts) |
| Firm reservation fee revenues | $ | 447,360 |
| | $ | 407,355 |
| | 9.8 | | $ | 339,237 |
| | 20.1 |
|
| Volumetric-based fee revenues | 549,710 |
| | 102,612 |
| | 435.7 | | 58,257 |
| | 76.1 |
|
| Total operating revenues | 997,070 |
| | 509,967 |
| | 95.5 | | 397,494 |
| | 28.3 |
|
| Operating expenses: | | | | | | | | | |
| Operating and maintenance | 79,477 |
| | 45,325 |
| | 75.3 | | 37,751 |
| | 20.1 |
|
| Selling, general and administrative | 92,020 |
| | 45,052 |
| | 104.3 | | 39,678 |
| | 13.5 |
|
| Depreciation | 98,678 |
| | 44,957 |
| | 119.5 | | 30,422 |
| | 47.8 |
|
| Amortization of intangible assets | 41,547 |
| | 5,540 |
| | 649.9 | | — |
| | 100.0 |
|
| Impairment of goodwill | 261,941 |
| | — |
| | 100.0 | | — |
| | — |
|
| Total operating expenses | 573,663 |
| | 140,874 |
| | 307.2 | | 107,851 |
| | 30.6 |
|
| Operating income | $ | 423,407 |
| | $ | 369,093 |
| | 14.7 | | $ | 289,643 |
| | 27.4 |
|
| | | | | | | | | | |
| OPERATIONAL DATA | |
| | |
| | | | | | |
| Gathering volumes (BBtu per day) | | | | | | | | | |
| Firm capacity reservation | 2,044 |
| | 1,826 |
| | 11.9 | | 1,553 |
| | 17.6 |
|
| Volumetric-based services | 4,445 |
| | 816 |
| | 444.7 | | 420 |
| | 94.3 |
|
| Total gathered volumes | 6,489 |
| | 2,642 |
| | 145.6 | | 1,973 |
| | 33.9 |
|
| | | | | | | | | | |
| Capital expenditures | $ | 717,251 |
| | $ | 254,522 |
| | 181.8 | | $ | 295,315 |
| | (13.8 | ) |
(b)For the year ended December 31, 2023, volumetric-based fee revenues included a one-time contract buyout by a customer for approximately $5.0 million. For the years ended December 31, 2023, 2022, and 2021, volumetric-based fee revenues included approximately $4.6 million, $4.2 million and $3.5 million, respectively, of MVC unbilled revenues.
(c)Other income (expense), net, includes the unrealized gain (loss) on derivative instruments associated with the Henry Hub cash bonus payment provision and gain on sale of gathering assets in 2022. See Note 10 to the consolidated financial statements for further information on the Henry Hub cash bonus payment provision.
(d)Includes volumes up to the contractual MVC under agreements structured with MVCs. Volumes in excess of the contractual MVC are reported under volumetric-based services.
(e)Includes approximately $14.3 million, $20.3 million and $14.1 million of capital expenditures related to noncontrolling interest in Eureka Midstream for the years ended December 31, 2023, 2022 and 2021, respectively.
Year Ended December 31, 20182023 Compared to Year Ended December 31, 20172022
Gathering operating revenues increaseddecreased by $487.1$20.4 million in 2018for the year ended December 31, 2023 compared to 2017, driven primarily by revenue earned by RMP and the Drop-Down Entities, which came under common control of the Company on November 13, 2017, and production development in the Marcellus and Utica Shales.year ended December 31, 2022. Firm reservation fee revenues increased by $10.0 million primarily as a resultdue to $15.8 million of customers contracting for additionalhigher firm gatheringreservation fees associated with the EQT Global GGA due to assumption changes impacting the estimated total consideration in the prior year and increased contracted capacity, and higherpartially offset by lower average rates on various wellhead expansion projects in 2018.a certain customer MVC. Volumetric-based fee revenues increaseddecreased by $30.4 million primarily due to increasedlower gathered volumes gathered under interruptible contracts, driven primarilyresulting from reduced producer activity and lower effective rates, partially offset by revenue earneda one-time contract buyout by RMP and the Drop-Down Entitiesa customer of $238approximately $5.0 million and $199$4.7 million respectively,associated with firm and increasedinterruptible gathered volumes gathered in excesson Hammerhead. The Company expects interruptible volumes from the Company's Hammerhead gathering agreement with EQT to continue up to the full commercial in-service date of the Hammerhead pipeline when firm contracted capacity.commitments will commence.
Gathering operating expenses increased by $432.8$28.3 million in 2018for the year ended December 31, 2023 compared to 2017, driven primarily by impairment of goodwill of $261.9 million and expenses incurred by RMP and the Drop-Down Entities of $92.6 million and $71.8 million, respectively. Operating and maintenance expense increased due to the full-year recognition of compressor-related expenses associated with RMP's and the Drop-Down Entities' compression assets of $18.4 million, increased personnel costs related primarily to increased employee headcount of $5.3 million, higher contracted labor of $3.1 million and higher reserves of $2.1 million.year ended December 31, 2022. Selling, general and administrative expenseexpenses increased by $31.1 million primarily due to increased overhead allocations followinghigher incentive compensation of $29.2 million, including $12.3 million associated with the Rice MergerMVP PSU Program that included the impact of a cumulative catch-up since the inception of the award. Operating and transactionmaintenance expenses decreased by $4.3 million primarily due to lower operating expenses associated with the divestiture of the regulated low pressure gathering assets in June 2023 and lower repairs and maintenance expenses, partially offset by higher personnel costs of $7.8 million related to the EQM-RMP Mergers and the Drop-Down Transaction.higher property taxes. Depreciation expense increased $48.7by $1.5 million dueas a result of additional assets placed in-service.
See "Overview of the Company and Operations" in Part 1, "Item 1. Business" of this Annual Report on Form 10-K for discussions of the EQT Global GGA, and the transactions related thereto, including periodic gathering MVC fee declines and, additionally, discussion that in connection with MVP full in-service the EQT Global GGA provides for more significant potential gathering MVC fees declines in certain contract years. Firm reservation fee revenues under the Company’s Hammerhead gathering agreement with EQT are expected to acontribute to an increase in the Company’s firm reservation fee revenues following achievement of the Hammerhead pipeline full commercial in-service in conjunction with full MVP in-service. However, the percentage of the Company's operating revenues that are generated by firm reservation fees may vary year to year depending on various factors, including customer volumes and the rates realizable under the Company’s contracts, including the EQT Global GGA. See also "Commodity Price Risk" in Part II, "Item 7A. Quantitative and Qualitative Disclosures About Market Risk" of depreciation incurredthis Annual Report on Form 10-K for additional information on factors that could affect the Company's operating revenues. Also, see Note 8 for further discussion on the RMP and Drop-Down assets and fromMVP PSU Program.
TRANSMISSION RESULTS OF OPERATIONS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2023 | | 2022 | | %
Change | | 2021 | | %
Change |
| FINANCIAL DATA | (Thousands, except per day amounts) |
| Firm reservation fee revenues | $ | 361,416 | | | $ | 370,769 | | | (2.5) | | | $ | 366,323 | | | 1.2 | |
Volumetric-based fee revenues (a) | 81,703 | | | 33,748 | | | 142.1 | | | 33,879 | | | (0.4) | |
| Total operating revenues | 443,119 | | | 404,517 | | | 9.5 | | | 400,202 | | | 1.1 | |
| Operating expenses: | | | | | | | | | |
| Operating and maintenance | 55,180 | | | 33,429 | | | 65.1 | | | 33,883 | | | (1.3) | |
| Selling, general and administrative | 57,446 | | | 37,782 | | | 52.0 | | | 36,483 | | | 3.6 | |
| Depreciation | 56,056 | | | 55,614 | | | 0.8 | | | 55,310 | | | 0.5 | |
| Total operating expenses | 168,682 | | | 126,825 | | | 33.0 | | | 125,676 | | | 0.9 | |
| Operating income | $ | 274,437 | | | $ | 277,692 | | | (1.2) | | | $ | 274,526 | | | 1.2 | |
| | | | | | | | | |
| Equity income | $ | 175,215 | | | $ | 168 | | | 104,194.6 | | | $ | 17,579 | | | (99.0) | |
| Impairments of equity method investment | $ | — | | | $ | (583,057) | | | 100.0 | | | $ | (1,926,402) | | | 69.7 | |
| | | | | | | | | |
| OPERATIONAL DATA | | | | | | | | | |
| Transmission pipeline throughput (BBtu per day): | | | | | | | | | |
Firm capacity (b) | 3,402 | | | 3,140 | | | 8.3 | | | 2,960 | | | 6.1 | |
| Interruptible capacity | 24 | | | 33 | | | (27.3) | | | 11 | | | 200.0 | |
| Total transmission pipeline throughput | 3,426 | | | 3,173 | | | 8.0 | | | 2,971 | | | 6.8 | |
| | | | | | | | | |
| Average contracted firm transmission reservation commitments (BBtu per day) | 3,812 | | | 4,059 | | | (6.1) | | | 4,082 | | | (0.6) | |
| | | | | | | | | |
Capital expenditures (c) | $ | 84,224 | | | $ | 35,971 | | | 134.1 | | | $ | 25,977 | | | 38.5 | |
(a)For the additionalyear ended December 31, 2023, volumetric-based fee revenues included a one-time contract buyout by a customer for approximately $23.8 million.
(b)Firm capacity includes volumes associated with firm capacity contracts including volumes in excess of firm capacity.
assets placed in service during 2018. Amortization expense increased due to a full year of amortization incurred on the Drop-Down Entities' customer contract intangible asset.
See "Outlook" and Note 1(c)Transmission capital expenditures do not include aggregate capital contributions made to the consolidated financial statementsMVP Joint Venture for discussionthe MVP and MVP Southgate projects of approximately $689.4 million, $199.6 million and $287.7 million for the impairment of goodwill recognized in 2018.years ended December 31, 2023, 2022 and 2021, respectively.
Year Ended December 31, 20172023 Compared to Year Ended December 31, 2016
Gathering operating revenues increased by $112.5 million in 2017 compared to 2016, driven primarily by revenue earned by RMP and the Drop-Down Entities and third-party and EQT production development in the Marcellus Shale. Firm reservation fee revenues increased primarily as a result of third parties and EQT contracting for additional firm gathering capacity, which increased by approximately 475 MMcf per day following the completion of the Range Resources header pipeline project and various EQT wellhead gathering expansion projects in 2017. The increase in volumetric-based fee revenues was driven primarily by revenue earned by RMP and the Drop-Down Entities of $55.4 million, partly offset by lower EQT volumes gathered in excess of firm contracted capacity and lower volumetric-based fee revenues under interruptible contracts due to an increase in contracts for firm gathering capacity.
Gathering operating expenses increased by $33.0 million in 2017 compared to 2016, driven primarily by expenses incurred by RMP and the Drop-Down Entities of $20.5 million, higher personnel costs and increased property taxes. Selling, general and administrative expense increased due to expenses associated with the Rice Merger. Depreciation expense increased $8.4 million from the additional assets placed in service, including those associated with the Range Resources header pipeline project and various EQT wellhead gathering expansion projects, and $6.2 million from depreciation expense incurred by RMP and the Drop-Down Entities. Amortization of intangible assets relates to the Drop-Down Entities' customer contract intangible asset.
TRANSMISSION RESULTS OF OPERATIONS |
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | %
Change | | 2016 | | %
Change |
| FINANCIAL DATA | (Thousands, except per day amounts) |
| Firm reservation fee revenues | $ | 356,725 |
| | $ | 348,193 |
| | 2.5 |
| | $ | 277,816 |
| | 25.3 |
|
| Volumetric-based fee revenues | 30,076 |
| | 23,793 |
| | 26.4 |
| | 56,962 |
| | (58.2 | ) |
| Total operating revenues | 386,801 |
| | 371,986 |
| | 4.0 |
| | 334,778 |
| | 11.1 |
|
| Operating expenses: | | | | | | | | | |
| Operating and maintenance | 39,563 |
| | 33,908 |
| | 16.7 |
| | 31,504 |
| | 7.6 |
|
| Selling, general and administrative | 31,936 |
| | 31,922 |
| | — |
| | 32,792 |
| | (2.7 | ) |
| Depreciation | 49,723 |
| | 58,689 |
| | (15.3 | ) | | 32,269 |
| | 81.9 |
|
| Total operating expenses | 121,222 |
| | 124,519 |
| | (2.6 | ) | | 96,565 |
| | 28.9 |
|
| Operating income | $ | 265,579 |
| | $ | 247,467 |
| | 7.3 |
| | $ | 238,213 |
| | 3.9 |
|
| | | | | | | | | | |
| Equity income | $ | 61,778 |
| | $ | 22,171 |
| | 178.6 |
| | $ | 9,898 |
| | 124.0 |
|
| | | | | | | | | | |
| OPERATIONAL DATA | |
| | |
| | |
| | | | |
| Transmission pipeline throughput (BBtu per day) | | | | | | | | | |
| Firm capacity reservation | 2,903 |
| | 2,399 |
| | 21.0 |
| | 1,651 |
| | 45.3 |
|
| Volumetric-based services | 59 |
| | 37 |
| | 59.5 |
| | 430 |
| | (91.4 | ) |
| Total transmission pipeline throughput | 2,962 |
| | 2,436 |
| | 21.6 |
| | 2,081 |
| | 17.1 |
|
| | | | | | | | | | |
| Average contracted firm transmission reservation commitments (BBtu per day) | 3,909 |
| | 3,627 |
| | 7.8 |
| | 2,814 |
| | 28.9 |
|
| | | | | | | | | | |
| Capital expenditures | $ | 114,450 |
| | $ | 111,102 |
| | 3.0 |
| | $ | 292,049 |
| | (62.0 | ) |
Year Ended December 31, 2018 Compared to Year Ended December 31, 20172022
Transmission operating revenues increased by $14.8$38.6 million in 2018for the year ended December 31, 2023 compared to 2017.the year ended December 31, 2022. Firm reservation fee revenues increaseddecreased by $9.4 million primarily due to higher contractual rates on existing contracts with customers in 2018 and customers contracting for additional firm transmission capacity.lower contracted capacity payments resulting from the one-time contract buyout that occurred during the first quarter of 2023. Volumetric-based fee revenues increased due toby $48.0 million primarily as a result of a one-time contract buyout by a customer of approximately $23.8 million and higher volumes in excess of firm capacity contracts.
Operating expenses increased volumes transported under firm contracts.
Transmission operating expenses decreased by $3.3$41.9 million in 2018for the year ended December 31, 2023 compared to 2017the year ended December 31, 2022. Operating and maintenance expense increased $21.8 million primarily due to operational efficiencies associated with operating activities with the Gathering segment for replenishment gas on the regulated low pressure gathering assets which were divested in June 2023, increased personnel costs and expenses associated with the Rager Mountain natural gas storage field incident. Selling, general and administrative expenses increased by $19.7 million resulting primarily from higher incentive compensation of $12 million, including $4.7 million associated with the MVP PSU Program that included the impact of a non-cash chargecumulative catch-up since the inception of $10.5 million recordedthe award, an increased reserve for bad debt expense and higher professional fees.
Regarding the Rager Mountain natural gas storage field incident, the root cause analysis, which was conducted by an independent, third-party company with expertise in 2017reservoir management and well and corrosion engineering, was submitted to depreciationthe PHMSA in August 2023, which root cause analysis indicated that the direct cause of the venting from the relevant Rager Mountain facility storage well (well #2244) was due to corrosion caused by the infiltration of water, oxygen and debris into the well's annulus, and such corrosion resulted in a failure of the well casing. Based on results of an inventory verification test conducted after the venting incident was resolved, the Company’s initial gas loss estimate for well #2244 was approximately 1.29 Bcf. Following completion of the root cause analysis, the cumulative gas loss was determined to be approximately 1.164 Bcf, approximately 1.037 Bcf of which was vented to the atmosphere and roughly 0.127 Bcf was diverted to and contained within formation(s) located at approximately 1,800’ and/or 3,000’ below ground. Post-incident workstreams related to the revaluationsafe and environmentally responsible operation of differencesthe Rager Mountain facility and other storage fields are ongoing.
The Company worked with various third-party experts to identify and address the causes and/or contributors to the November 2022 incident. The damaged casing on well #2244 has been replaced, and the well remains temporarily plugged. The Company intends to seek any necessary approval from PHMSA to perform certain capital activities to remediate well 2244 and ultimately return it to in-service. Additionally, several other Rager wells have undergone top joint casing replacements to address proactively less-aggressive corrosion that was identified. The Company also has performed supplemental evaluations and testing, including updated wireline logging, on all other wells at the Rager Mountain facility. In October 2023, following authorization from PHMSA of the Company's injection plan for the Rager Mountain facility, the Company returned the Rager Mountain facility, other than well #2244 and two additional wells, to injection operations, subject to certain operating pressure restrictions and other requirements specified in the consent agreement between the PHMSA and the Company. On November 16, 2023, the PHMSA issued a letter to the Company approving the Company's request to remove all pressure restrictions at the Rager Mountain facility. For additional information, see Part I, "Item 3. Legal Proceedings", Part I, "Item 1. Business" and "We have incurred and expect to continue to incur costs and expenses as a result of or arising in relation to the Rager Mountain natural gas storage field incident in November 2022, which has included and may include potential additional regulatory penalties or other sanctions, which could, depending on their scope and tax bases timing, materially adversely affect our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders." in Equitrans, L.P.'s regulated property, plant and equipment, partially offset by an increase in operating and maintenance expense associated with increased personnel costs, which were primarily associated with the growthPart I, "Item 1A. Risk Factors" of the business.this Annual Report on Form 10-K.
Equity income increased by $39.6$175.0 million in 2018for the year ended December 31, 2023 compared to 2017the year ended December 31, 2022 due to the increase in the MVP Joint Venture's AFUDC on the MVP as a resultproject resulting from the resumption of continued spending ongrowth construction activities in 2023. Following MVP full in-service, the Company's equity income will be primarily derived from 20-year firm reservation contracts for the MVP project.
Impairments of equity method investment includes the separate impairments of the Company's equity method investment in the MVP Joint Venture. See Note2 to the consolidated financial statements for further information.
WATER RESULTS OF OPERATIONS | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | %
Change | | 2021 | | %
Change |
| FINANCIAL DATA | (Thousands) |
| Firm reservation fee revenues | $ | 39,168 | | | $ | 33,877 | | | 15.6 | | | $ | 5,063 | | | 569.1 | |
| Volumetric-based fee revenues | 41,475 | | | 28,774 | | | 44.1 | | | 49,719 | | | (42.1) | |
| Total operating revenues | 80,643 | | | 62,651 | | | 28.7 | | | 54,782 | | | 14.4 | |
| Operating expenses: | | | | | | | | | |
| Operating and maintenance | 25,833 | | | 19,960 | | | 29.4 | | | 19,801 | | | 0.8 | |
| Selling, general and administrative | 15,498 | | | 8,073 | | | 92.0 | | | 7,481 | | | 7.9 | |
| Depreciation | 26,043 | | | 20,016 | | | 30.1 | | | 25,233 | | | (20.7) | |
| Impairment of long-lived assets | — | | | — | | | — | | | 56,178 | | | (100.0) | |
| Total operating expenses | 67,374 | | | 48,049 | | | 40.2 | | | 108,693 | | | (55.8) | |
| Operating income (loss) | $ | 13,269 | | | $ | 14,602 | | | (9.1) | | | $ | (53,911) | | | 127.1 | |
| | | | | | | | | |
| OPERATIONAL DATA | | | | | | | | | |
| Water services volumes (MMgal): | | | | | | | | | |
Firm capacity (a) | 513 | | | 433 | | | 18.5 | | | 105 | | | 312.4 | |
| Volumetric-based services | 942 | | | 706 | | | 33.4 | | | 1,015 | | | (30.4) | |
| Total water volumes | 1,455 | | | 1,139 | | | 27.7 | | | 1,120 | | | 1.7 | |
| | | | | | | | | |
| Capital expenditures | $ | 45,691 | | | $ | 66,569 | | | (31.4) | | | $ | 34,877 | | | 90.9 | |
(a) Includes volumes up to the contractual MVC under agreements structured with MVCs or ARCs, as applicable. Volumes in excess of the contractual MVC are reported under Volumetric-based services.
Year Ended December 31, 20172023 Compared to Year Ended December 31, 2016
Transmission operating revenues increased by $37.2 million in 2017 compared to 2016. Firm reservation fee revenues increased due to EQT and third parties contracting for additional firm transmission capacity, primarily on the Ohio Valley Connector (OVC), as well as higher contractual rates on existing contracts in 2017. Higher firm transmission capacity on the OVC and reduced throughput on interruptible contracts resulted in lower volumetric-based fee revenues, partly offset by increased storage and parking revenue, which does not have associated pipeline throughput.
Transmission operating expenses increased by $28.0 million in 2017 compared to 2016 primarily due to property taxes on the OVC and higher personnel costs. Selling, general and administrative expenses decreased primarily due to lower corporate allocations from EQT as a result of EQT's shift in focus during 2017 from midstream drop-down transactions to upstream asset and corporate acquisition projects. Depreciation expense increased as a result of the OVC project being placed in service in the fourth quarter of 2016 and a non-cash charge of $10.5 million recorded in 2017 to depreciation related to the revaluation of differences between the regulatory and tax bases in Equitrans, L.P.'s regulated property, plant and equipment. The related regulatory liability will be amortized over the estimated useful life of the underlying property of 43 years.
Equity income increased by $12.3 million in 2017 compared to 2016 due to the increase in the MVP Joint Venture's AFUDC on the MVP as a result of continued spending on the project.
WATER RESULTS OF OPERATIONS |
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | %
Change | | 2016 | | %
Change |
| FINANCIAL DATA | (Thousands) |
| Water service revenues | $ | 111,227 |
| | $ | 13,605 |
| | 717.5 |
| | $ | — |
| | 100.0 |
|
| | | | | | | | | | |
| Operating expenses: | | | | | | | | | |
| Operating and maintenance | 44,152 |
| | 5,598 |
| | 688.7 |
| | — |
| | 100.0 |
|
| Selling, general and administrative | 5,895 |
| | 347 |
| | 1,598.8 |
| | — |
| | 100.0 |
|
| Depreciation | 23,513 |
| | 3,515 |
| | 568.9 |
| | — |
| | 100.0 |
|
| Total operating expenses | 73,560 |
| | 9,460 |
| | 677.6 |
| | — |
| | 100.0 |
|
| Operating income | $ | 37,667 |
| | $ | 4,145 |
| | 808.7 |
| | $ | — |
| | 100.0 |
|
| | | | | | | | | | |
| OPERATIONAL DATA | | | | | | | | | |
| Water service volumes (MMgal) | 2,088 |
| | 226 |
| | 823.9 |
| | — |
| | 100.0 |
|
| | | | | | | | | | |
| Capital expenditures | $ | 23,537 |
| | $ | 6,233 |
| | 277.6 |
| | $ | — |
| | 100.0 |
|
Year Ended December 31, 2018 Compared to Year Ended December 31, 20172022
Water operating revenues increased by $97.6 million in 2018 compared to 2017, as a result of a full year of revenue earned by RMP, which came under control of the Company on November 13, 2017. Water operating expenses increased by $64.1 million in 2018 compared to 2017, as a result of a full year of operating expenses incurred by RMP.
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
Water operating revenues increased by $13.6 million in 2017 compared to 2016, consisting of revenue earned by RMP. Water operating expenses increased by $9.5 million in 2017 compared to 2016, consisting of operating expenses incurred by RMP. Operating expenses were composed of customary expenses for a water service business, including water procurement costs.
Other Income Statement Items
Other Income
Other income increased $0.6 million for the year ended December 31, 2018 compared to year ended December 31, 2017 due primarily to increased AFUDC – equity. Other income decreased by $22.7 million for the year ended December 31, 2017 compared to the year ended December 31, 2016 driven primarily by decreased AFUDC – equity of $14.3 million associated with the OVC being placed in service in the fourth quarter of 2016 and distributions from EES of $8.3 million. As discussed in Note 1 to the consolidated financial statements, effective October 1, 2016, the accounting for EQM's investment in EES converted from a cost method investment to a note receivable. Beginning October 1, 2016, distributions received from EES are recorded partly as interest income and partly as a reduction in the note receivable. This change decreased the amount of other income recognized and increased interest income in the year ended December 31, 2017 compared to 2016.
Net Interest Expense
Net interest expense increased by $80.7 million for the year ended December 31, 2018 compared to the year ended December 31, 2017 due primarily to interest expense of $69.6 million on the EQM $2.5 Billion Senior Notes (defined in Note 10 to the consolidated financial statements), higher interest expense of $21.1 million on credit facility borrowings and higher amortization of debt issuance costs of $4.7 million, partly offset by increased capitalized interest and AFUDC – debt of $8.0 million and interest income earned on cash on hand of $4.4 million.
Net interest expense increased by $18.0 million for the year ended December 31, 20172023 compared to the year ended December 31, 20162022. Firm reservation fee revenues increased by $5.3 million primarily as a result of increased revenues due to a full year of ARCs associated with the 2021 Water Services Agreement. Volumetric-based fee revenues increased by $12.7 million primarily due to interesthigher volumes.
Water operating expenses increased by $19.3 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. Selling, general and administrative expense increased by $7.4 million primarily due to a contract asset write-down. Operating and maintenance expense increased by $5.9 million due to higher mixed-use water storage expenses related to storage facilities placed in-service during the year ended December 31, 2023. Depreciation expense increased $6.0 million due to additional assets placed in-service.
The Company’s volumetric-based water services are directly associated with producers’ well completion activities and fresh and produced water needs (which are primarily driven by horizontal lateral lengths and the number of $17.4completion stages per well). Therefore, the Water volumetric operating results traditionally fluctuate from year-to-year in response to producers’ well completion activities.
Other Income Statement Items
Other Income (Expense), Net
Other income (expense), net, decreased $10.6 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. The decrease was primarily due to a $1.5 million unrealized gain on long-term debt issuedderivative instruments during the year ended December 31, 2023 as compared to a $9.6 million unrealized gain on derivative instruments during the year ended December 31, 2022, and a $3.7 million gain on the sale of non-core gathering assets during the year ended December 31, 2022, partially offset by higher sublease income. The decrease in November 2016, lower capitalized interestunrealized gains on derivative instruments was primarily due to changes in timing and AFUDC –probability-weighted assumptions regarding MVP project completion and changes in NYMEX Henry Hub natural gas futures prices associated with the Henry Hub cash bonus payment provision.
See also "Our exposure to commodity price risk may increase in the future and NYMEX Henry Hub futures prices affect the fair value, and may affect the realizability, of potential cash payments to us by EQT pursuant to the EQT Global GGA." included in Part I, "Item 1A. Risk Factors" of this Annual Report on Form 10-K for a discussion of factors affecting the estimated fair value of the derivative asset attributable to the Henry Hub cash bonus payment provision.
Loss on Extinguishment of Debt
During the year ended December 31, 2022, the Company incurred a loss on extinguishment of debt of $5.3 million from decreased spending on capital projects, allocated amortization of debt issuance costs from EQT of $2.9approximately $24.9 million related to a bridgethe 2022 Tender Offers (as defined in Note 9) for Senior Notes and open market repurchase premiums and fees, and write off of the respective unamortized discounts and financing commitment entered into to supportcosts associated with the Rice Mergerpurchase of portions of 2023, 2024 and higher2025 Notes in such Tender Offers.
Net Interest Expense
Net interest expense increased by $32.6 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to increased interest rates and borrowings under the revolving credit facilities and interest on EQM's credit facility borrowings, partlythe 2022 Senior Notes (as defined in Note 9), partially offset by increased interest income recorded on distributions from EESthe impact of $5.1 millionthe 2022 Tender Offers and higher interest income earned on cash on handthe redemption of $4.7 million.the 2023 Notes effected in June 2023.
See also Note 109 and Note 15 to the consolidated financial statements for a discussion of certain of the Company's outstanding debt.
Income TaxesTax Expense (Benefit)
The Company's operations had been included in EQT's consolidated income tax return for federal and state tax purposes priorSee Note 12 to the Separation. As a result, theconsolidated financial statements include the income taxes incurred by the Company computed on a separate return basis. EQM and EQGP are limited partnerships for U.S. federal and state income tax purposes and are not subject to U.S. federal or state income taxes. In addition, as of December 31, 2017, Rice Midstream Holdings LLC (Rice Midstream Holdings) was a multi-member LLC and was not subject to U.S. federal or state income taxes. In the fourth quarter of 2018, Rice Midstream Holdings was merged out of existence as part of internal restructurings.
On December 22, 2017, the U.S. Congress enacted the Tax Cuts and Jobs Act (the Tax Reform Legislation), which made significant changes to U.S. federal income tax law, including lowering the federal corporate tax rate to 21% from 35% beginning January 1, 2018. The Tax Reform Legislation contains several other provisions, such as limiting the utilization of net operating losses generated after December 31, 2017 that are carried into future years to 80% of taxable income and limitations on the deductibility of interest expense, which are not expected to have a material effect on the Company's results of operations. As of December 31, 2018, the Company completed its accounting for the effectsan explanation of the Tax Reform Legislation, including accounting for the revaluation of net deferred tax assets and for state income tax effects, and recorded deferredchanges in income tax expense of $7.5 million, which is in addition to the $129.3 million of deferred incomeand effective tax expense recorded duringrate for the year ended December 31, 2017. The Company also considered whether existing deferred tax assets will be recovered in future periods under this legislation and noted no significant effect on the deferred tax assets.
All of EQGP's and EQM's income is included in the Company's pre-tax income; however, the Company does not record income tax expense on the portions of its income attributable2023 compared to the noncontrolling limited partners of EQGP and EQM and, for the period prior to May 1, 2018, to Gulfport Midstream. This reduces the Company's effective tax rate in periods when the Company has consolidated pre-tax income. Also, given that Rice Midstream Holdings was a multi-member limited liability company prior to October 22, 2018, the Company was not required to record income tax expense on Rice Midstream Holdings' income in that period.
year ended December 31, 2022.
Net Income Attributable to Noncontrolling Interests
For the years ended December 31, 2018, 2017 and 2016, the Company's noncontrolling interests comprised third-party ownership interests in EQGP and EQM. For the year ended December 31, 2017 and the periods in 2018 prior to the Company's acquisition of their remaining respective noncontrolling interests, the Company's noncontrolling interests also included the third-party ownership interests in RMP and Gulfport Midstream's 25% ownership interest in Strike Force Midstream. Net income attributable to noncontrolling interests fluctuates based on the amount of net income earned by the entities with noncontrolling interests, the amount of net income allocated to the holder of the IDRs and any changes in the noncontrolling ownership percentages.Interest
Net income attributable to noncontrolling interests increasedinterest decreased $2.7 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily as a result of higherlower net income as well as additional noncontrolling interests outstanding due to EQM equity issuances.on Eureka Midstream.
Capital Expenditures
See "Investing Activities" and "Capital Requirements" under "Capital Resources and Liquidity" for a discussion of capital expenditures.expenditures and capital contributions.
Outlook
The Company's strategically located and integrated assets overlay core acreage in the prolific Appalachian Basin. The location of the Company's assets allows itits producer customers to access major demand markets in the U.S. The Company is one of the largest natural gas gatherers in the U.S., and its largest customer, EQT, iswas one of the largest natural gas producerproducers in the U.S. based on produced volumes. The Company maintains a stable cash flow profile, with over 50%average daily sales volumes as of its revenue forDecember 31, 2023 and EQT's public senior debt had investment grade credit ratings from Standard & Poor's Global Ratings (S&P), Fitch Ratings (Fitch) and Moody's Investors Service (Moody's) as of that date. For the year ended December 31, 20182023, approximately 70% of the Company's operating revenues were generated from firm reservation fee revenues. Generally, the Company is focused on utilizing contract structures reflecting long-term firm capacity, MVC or ARC commitments which are intended to provide support to its cash flow profile. The percentage of the Company's operating revenues that are generated by firm reservation fees.fees (as well as the Company's revenues generally) may vary year to year depending on various factors, including customer volumes and the rates realizable under the Company’s contracts, including the EQT Global GGA which provides for periodic gathering MVC fee declines through January 1, 2028 (with the fee then remaining fixed throughout the remaining term). Additionally, as discussed in "Overview of the Company and Operations" in Part 1, "Item 1. Business", in connection with MVP full in-service the EQT Global GGA provides for more significant potential gathering MVC fee declines in certain contract years.
The Company's principal strategystrategic aim is to leverage its existing and planned growth projects and to seek and execute on strategically-aligned acquisition and joint venture opportunities to achieve thegreater scale and scope, enhance the durability of its financial strength and to continue to work to position itself for a top-tier midstream company. lower carbon economy.
The Company's standalone strategy reflects its continued pursuit of organic growth projects, including completing and placing in service the MVP, focusing on identifying opportunities to use its existing assets to deepen and grow its customer relationships at optimized levels of capital spending and taking into account the Company’s leverage, and continuing to prudently invest resources in its sustainability-oriented initiatives. The Company’s strategy also reflects its continued focus on achieving a strong balance sheet, and given the Company’s size, operating footprint and other factors considering inorganic opportunities, such as to extend the Company’s operations’ into the southeast United States and new, key demand markets, such as the Gulf of Mexico LNG export market.
In conjunction with the Company working to execute on its standalone strategy, the Company’s Board of Directors has been engaged in a process with third parties that have expressed interest in strategic transactions involving the Company. The board has engaged outside advisors and the process is ongoing. There is no assurance that such process will result in the execution, approval or completion of any specific transaction or outcome.
As part of its approach to organic growth, the Company is focused on buildingits projects and completing its key gatheringassets outlined in "Developments, Market Trends and transmission growth projects outlined under "Strategy"Competitive Conditions" in Part I, "Item 1. Business,"Business" of this Annual Report on Form 10-K, many of which are supported by contracts with firm capacity, MVC or ARC commitments.
Additionally, the Company expects to achieve growth from its water service business and from volumetric gathering opportunities and transmission and storage services. The water service business is complementary to the gathering business, and the Company recognizes an opportunity to expand its existing asset footprint and is actively pursuing solutions for produced water handling. The Company is also focused on optimizing and integrating its Pennsylvania gathering systems to create additional system gathering capacity and provide high- and low-pressure gathering solutions for its customers. The Company's focus on executionFor discussion of its organic projects, coupled with asset optimization efforts, disciplined capital spending and operating cost control, is complemented by the Company's commitment to seek, evaluatecommercial relationship with EQT and executerelated considerations, including risk factors, see Part I, "Item 1A. Risk Factors" of this Annual Report on strategically-aligned acquisition and joint venture opportunities. The Company believes that this approach will enable the Company to achieve its strategic goals.
See "EQM IDR Transaction" in "Item 1. Business."Form 10-K.
For further discussion of key growth projects, see "Strategy" in "Item 1. Business." For furthera discussion of capital expenditures, see "Capital Requirements."Requirements" under "Capital Resources and Liquidity" below.
Following the third quarter of 2018 and prior to the Separation, the Company identified impairment indicators in the form of production curtailments announced by a primary customer of the two reporting units to which the Company's goodwill is recorded that could reduce volumetric-based fee revenues of those reporting units. For the year ended December 31, 2018, the Company determined that the carrying value of one of those reporting units (the RMP PA Gas Gathering reporting unit, which comprises the Pennsylvania gathering assets acquired in the Rice Merger) was greater than its fair value. As a result, the Company recognized impairment of goodwill of $261.9 million. As of December 31, 2018, the Company had approximately $1,239 million of goodwill, which will be monitored for future impairment. Management will continue to monitor and evaluate the factors underlying the fair market value of acquired businesses over the course of the year to determine if any interim assessments are necessary and will take any additional impairment charges required. See Note 1 to the consolidated financial statements.
Capital Resources and Liquidity
The Company's principal liquidity requirements are to finance EQM'sits operations, fund EQM'sits capital expenditures, potential acquisitions and other strategic transactions and capital contributions to joint ventures, including the MVP Joint Venture, to pay cash dividends and distributions, when declared and to our shareholderssatisfy any indebtedness obligations. Additionally, the Company or its affiliates may, at any time and from time to time, seek to retire or purchase outstanding debt through cash purchases and/or exchanges for equity or debt, in open-market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will be upon such terms and at such prices as the Company may determine, and will depend on prevailing market conditions, the Company's other liquidity requirements, contractual restrictions and other factors and the noncontrolling interests in EQM, respectively, and satisfy indebtedness obligations.amounts involved may be material. The Company's ability to meet these liquidity requirements will dependdepends on the amountCompany's cash flow from operations, the continued ability of the Company to borrow under its subsidiaries' credit facilities and timing of distributions received from EQM, EQM's ability to generate cash in the future and its and EQM'sCompany's ability to raise capital in banking and capital markets. We believe that our cash on hand, future cash generated from operations and future cash received from potential distributions from the MVP Joint Venture, together with available borrowing capacity under our subsidiaries' credit facilities and our access to banking and capital markets, will provide adequate resources to fund our short-term and long-term capital, operating and financing needs. However, cash flow, available borrowing capacity and capital raising activities may be affected by prevailing economic conditions in the natural gas industry and other
financial and business factors, including factors discussed in Part I, "Item 1A. Risk Factors" of this Annual Report Form 10-K (for example, see “If we, our subsidiaries or our joint ventures are unable to obtain needed capital or financing on satisfactory terms, our ability to execute our business strategy and pay dividends to our shareholders may be diminished. Additionally, financing transactions may increase our
markets.financial leverage or could cause dilution to our shareholders."), some of which are beyond the Company's control. The Company's available sources of liquidity include cash from quarterlyoperations, cash distributions from EQM,on hand, borrowings under its subsidiaries' revolving credit facilities, cash on hand,issuances of additional debt offerings and issuances of additional equity interests, including sharessecurities. The amount the Company is able to borrow under the Amended EQM Credit Facility is bounded by a maximum consolidated leverage ratio that could not exceed 5.85 to 1.00 for the quarter ended December 31, 2023, 6.00 to 1.00 for the quarter ending March 31, 2024, 6.25 to 1.00 for the quarter ending June 30, 2024, 5.85 to 1.00 for the quarter ending September 30, 2024, and 5.50 to 1.00 for quarters thereafter, with the then-applicable ratio being tested as of the Company or limited partner interestsend of EQM. Pursuanteach fiscal quarter. As of December 31, 2023, EQM had the ability to borrow approximately $0.4 billion under the Tax Matters Agreement (defined inAmended EQM Credit Facility. See Note 89 and Note 15 to the consolidated financial statements),statements for further information regarding the Company is subjectAmended EQM Credit Facility. See also "Our subsidiaries’ significant indebtedness, and any future indebtedness, as well as the restrictions under our subsidiaries’ debt agreements, could adversely affect our operating flexibility, business, financial condition, results of operations, liquidity and ability to certain restrictions relatedpay dividends to certain corporate actions, including restrictions related to the issuance of Company and EQM securities beyond certain thresholds as set forthour shareholders." included in the Tax Matters Agreement. See "We and EQM may determine to forgo or be required to forgo certain transactions in order to avoid the risk of incurring material tax-related liabilities or indemnification obligations under the tax matters agreement." under "Risk Factors – Risks Related to an Investment in Us" included inPart I, "Item 1A. Risk Factors.Factors" of this Annual Report on Form 10-K.
See “Security Ratings” below for a discussion of EQM’s credit ratings during 2023. Based on EQM's credit rating levels, EQM has delivered credit support to the MVP Joint Venture in the form of a letter of credit, which is for MVP project, and was in the amount of approximately $104.7 million as of December 31, 2023. The letter of credit with respect to the MVP project is expected to be further reduced as the Company contributes capital to fund MVP Holdco's remaining proportionate share of the construction budget, subject to a minimum-required level to be maintained through in-service of the MVP project. See "A further downgrade of EQM’s credit ratings could impact our liquidity, access to capital, and costs of doing business." EQMincluded in Part I, "Item 1A. Risk Factors" of this Annual Report on Form 10-K. See Note 7 to the consolidated financial statements for further information on EQM's letters of credit.
The following table is not forecasting any public equity issuancea summary of the cash flows by activity for currently anticipated organic growth projects.the years ended December 31, 2023, 2022 and 2021, respectively.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| (Thousands) |
| Cash flows | | | | | |
| Net cash provided by operating activities | $ | 1,016,078 | | | $ | 845,775 | | | $ | 1,168,768 | |
| Net cash used in investing activities | (1,070,082) | | | (567,037) | | | (572,969) | |
| Net cash provided by (used in) financing activities | 244,983 | | | (345,501) | | | (669,161) | |
| Net increase (decrease) in cash and cash equivalents | $ | 190,979 | | | $ | (66,763) | | | $ | (73,362) | |
Operating Activities
Net cash flows provided by operating activities were $721.7increased approximately $170.3 million for the year ended December 31, 20182023 as compared to $669.7 million for the year ended December 31, 2017.2022. The increase was primarily driven primarily by higher operating income, for which contributing factors are discussed in "Executive Overview" and "Business Segment Results."the payment of the EQT Cash
Net cash flows provided by operating activities were $669.7 million forOption during the year ended December 31, 2017 compared to $549.5 million for2022 and the year ended December 31, 2016. The increase was driven primarilytiming of other working capital receipts and payments, partially offset by higher operating income, for which contributing factors are discussed in "Executive Overview" and "Business Segment Results."interest payments.
Investing Activities
Net cash flows used in investing activities were $1,786.0increased by $503.0 million for the year ended December 31, 20182023 as compared to $535.5 million for the year ended December 31, 2017.2022. The increase was attributable primarily due to increased capital expenditures, as further describedan increase in "Capital Requirements," increased capital contributions to the MVP Joint Venture, consistent with commencementVenture. See “Capital Requirements” below for a discussion of construction on the MVP, and the purchase of interests in the MVP Southgate project.
Net cash flows used in investing activities were $535.5 million for the year ended December 31, 2017 compared to $669.7 million for the year ended December 31, 2016. The decrease was attributable primarily to decreasedforecasted 2024 capital expenditures as further described in "Capital Requirements," partly offset by increasedand capital contributions paid to the MVP Joint Venture in 2017 and sales of interests in the MVP Joint Venture in 2016.Venture.
Financing Activities
Net cash flows provided by financing activities were $1,237.4$245.0 million for the year ended December 31, 20182023 as compared to net cash flows used in financing activities of $1,041.1$345.5 million for the year ended December 31, 2017.2022. For the year ended December 31, 2018,2023, the primary sourcessource of financing cash flows were proceeds from borrowings under the issuances of the EQM $2.5 Billion Senior Notes and the Term Loans (each defined in Note 10 to the consolidated financial statements) and netrevolving credit facility borrowings,facilities, while the primary uses of financing cash flows were net distributionsrepayments on borrowings under the revolving credit facilities, the payments of dividends to EQT,shareholders, the redemption of the 2023 Notes and distributions paid to noncontrolling interest unitholders, the EQGP Unit Purchases and the Gulfport Transaction.
Net cash flows used in financing activities were $1,041.1 million for the year ended December 31, 2017 compared to net cash flows provided by financing activities of $423.5 million for the year ended December 31, 2016.interest. For the year ended December 31, 2017,2022, the primary uses of financing cash flows were net distributionsthe purchase of certain tranches of EQM's outstanding long-term indebtedness pursuant to EQTthe 2022 Tender Offers and distributionsan open market purchase, repayments on borrowings under the revolving credit facilities, and the payments of dividends to noncontrolling interest unitholders, andshareholders, while the primary source of financing cash flows was netwere the issuance of the 2022 Senior Notes and borrowings under the revolving credit facility borrowings. For the year ended December 31, 2016, the primary sources of financing cash flows were proceeds from long-term debt and equity offerings and contributions from EQT, and the primary uses of financing cash flows were net payments of credit facility borrowings and distributions paid to noncontrolling interest unitholders.
facilities.
Capital Requirements
The gathering, transmission and storage and water serviceservices businesses are capital intensive, requiring significant investment to develop new facilities and to maintain and upgrade existing operations.
The following represents the Company's material short-term and long-term cash requirements from contractual and other obligations as of December 31, 2023. |
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (Thousands) |
Expansion capital expenditures (a) | $ | 803,347 |
| | $ | 328,529 |
| | $ | 558,071 |
|
| Maintenance capital expenditures: | 51,891 |
| | 43,328 |
| | 29,293 |
|
| Headquarters capital expenditures | 29,336 |
| | — |
| | — |
|
| Total capital expenditures | 884,574 |
| | 371,857 |
| | 587,364 |
|
Plus: accrued capital expenditures at the end of prior period (b) | 90,655 |
| | 26,678 |
| | 24,133 |
|
Plus: accrued capital expenditures at acquisition on November 13, 2017 (b) | — |
| | 72,271 |
| | — |
|
Less: accrued capital expenditures at the end of current period (b) | (109,347 | ) | | (90,655 | ) | | (26,678 | ) |
| Total cash capital expenditures | $ | 865,882 |
| | $ | 380,151 |
| | $ | 584,819 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total | | 2024 | | 2025 – 2026 | | 2027 – 2028 | | 2029 + |
| | (Thousands) |
Long-term debt, including current portion thereof (a) | $ | 6,400,000 | | | $ | 300,000 | | | $ | 900,000 | | | $ | 2,250,000 | | | $ | 2,950,000 | |
| | | | | | | | | |
Credit facility borrowings (b) | 1,230,000 | | | — | | | 1,230,000 | | | — | | | — | |
Interest payments on senior notes (c) | 2,315,771 | | | 355,875 | | | 660,031 | | | 439,948 | | | 859,917 | |
Purchase obligations (d) | 5,202 | | | 1,339 | | | 3,696 | | | 167 | | | — | |
| | | | | | | | | |
Lease obligations (e) | 65,028 | | | 14,220 | | | 17,577 | | | 14,614 | | | 18,617 | |
Other liabilities (f) | 78,139 | | | 49,152 | | | 28,987 | | | — | | | — | |
| Total contractual and other obligations | $ | 10,094,140 | | | $ | 720,586 | | | $ | 2,840,291 | | | $ | 2,704,729 | | | $ | 3,828,534 | |
| |
(a) | Expansion capital expenditures do not include capital contributions made to the MVP Joint Venture of $913.2 million, $159.6 million and $98.4(a)Includes approximately $6.4 billion in aggregate principal amount of EQM's senior notes as of December 31, 2023. See Note 9 to the consolidated financial statements for further information. (b)Credit facility borrowings are classified based on the termination date of the credit facility agreements. As of December 31, 2023, the Company had aggregate credit facility borrowings outstanding of $915 million and $315 million under the Amended EQM Credit Facility and the 2021 Eureka Credit Facility, respectively. See Note 9 and Note 15 to the consolidated financial statements for further information. (c)Interest payments exclude interest related to the Amended EQM Credit Facility and the 2021 Eureka Credit Facility as the interest rates on the credit facility borrowings are variable. (d)Excludes purchase obligations of the MVP Joint Venture. Purchase obligations represent agreements to purchase goods or services that are enforceable, legally binding and specify all significant terms, including the approximate timing of the transaction. As of December 31, 2023, the Company's purchase obligations included commitments for the years ended December 31, 2018, 2017 and 2016, respectively. |
| |
(b) | The Company accrues capital expenditures when capital work has been completed but the associated bills have not yet been paid. Accrued capital expenditures are excluded from the statements of consolidated cash flows until they are paid. See Note 5 to the consolidated financial statements. |
Expansion capital expenditures, operating expenses and service contracts.
(e)Lease obligations are expenditures incurredprimarily entered into for capital improvementsvarious office locations, compression equipment and a water storage facility.
(f)Other liabilities represent accruals for short-term employee compensation and estimated payouts for the Company's various liability award plans as of December 31, 2023. See "Critical Accounting Estimates" below and Note 8 to the consolidated financial statements for discussion of factors that affect the Company expects will increase its operating income or operating capacity overultimate amount of the long term. In 2018, expansion capital expenditures related primarily to capital expenditures invested inpayout of the assets of RMPCompany's liability award plans.
Contractual and the Drop-Down Entities and in the following projects: the Hammerhead project,other obligations exclude dividends associated with the Equitrans L.P. Expansion project and various wellhead gathering expansion projects, partly offset by decreased spending on the Range Resources header pipeline project. In 2017, expansion capitalMidstream Preferred Shares.
Capital expenditures related primarilyin 2024 are expected to be approximately $325 million to $395 million (including approximately $15 million attributable to the following projects: various wellhead gathering expansion projects,noncontrolling interest in Eureka Midstream). If the Range Resources header pipelineMVP project and the AVC expansion project. In 2016, expansion capital expenditures related primarilywere to the following projects: the OVC project, the Range Resources header pipeline project, the Northern West Virginia Marcellus gathering system expansion project and the AVC expansion project. The OVC project was placed in service during the fourth quarter of 2016 and the Range Resources header pipeline project was placed in service in several phases beginning in the fourth quarter of 2016 and endingbe completed in the second quarter of 2017.
Maintenance capital expenditures are expenditures made2024 and at a total project cost ranging from approximately $7.57 billion to maintain, over the long term, EQM's operating capacity or operating income. Examples of maintenance capital expenditures are expenditures to repair, refurbish and replace pipelines, to connect new wells to maintain throughput, to maintain equipment reliability, integrity and safety and to address environmental laws and regulations. Maintenance capital expenditures increased by $8.6 million in 2018 compared to 2017 and $14.0 million in 2017 compared to 2016 primarily as a result of additional assets in service, including those of the RMP and Drop-Down Entities, and timing of ongoing maintenance projects. In connection with the Separation,approximately $7.63 billion (excluding AFUDC), the Company assumed all of EQT's obligations to indemnify and reimburse EQM under EQM's omnibus agreement with EQT other than for those losses or expenses relating to or arising from plugging and abandonment obligations.
In 2019, EQM expects toit would make total capital contributions to the MVP Joint Venture in 2024 of approximately $0.9 billion depending on the timing of the$540 million to $575 million primarily related to forward construction of the MVP andproject. Capital contributions payable to the MVP Southgate projects. ExpansionJoint Venture are accrued upon the issuance of a capital expenditures are expected to be approximately $1.1 billion and maintenance capital expenditures are expected to be approximately $60 million.call by the MVP Joint Venture. The Company's futureshort-term and long-term capital investments may vary significantly from period to period based on the available investment opportunities, and the timing of the construction of the MVP and MVP Southgate projects. Maintenance capital expenditures are also expected to vary quarter to quarter.other projects, and maintenance needs. The Company expects to fund futureshort-term and long-term capital expenditures and capital contributions primarily through cash on hand, cash generated from EQM's operations, available borrowings under its subsidiaries' credit facilities debt offerings and issuances of additional equity interests. EQM is not forecasting any public equity issuance for currently anticipated organic growth projects. The Company does not forecastits access to banking and capital expenditures associated with potential projects that are not committed as of the filing of this Annual Report on Form 10-K.
markets.
Credit FacilitiesFacility Borrowings
See Note 109 and Note 15 to the consolidated financial statements for discussion of the Company'sAmended EQM Credit Facility and EQM's credit facilities.the 2021 Eureka Credit Facility.
Security Ratings
The table below sets forth the credit ratings for EQM's debt instruments of the Company and EQM as ofat December 31, 2018.2023.
| | | | | | | | | | | | | | | | | | | |
| | | EQM | | | | | | | |
| | | Senior Notes | | Equitrans Midstream | EQM |
| Term Loan B | | Senior Notes |
| Rating Service | | | | | Rating | | Outlook | | Outlook | | Rating | Outlook |
| Moody's | | | | | Ba3 | | Stable | | Stable | | Ba1 | Stable |
| S&P | | BB | | | BB- | | Negative | | Stable | | BBB- | Stable |
| Fitch | | | | | BB | | N/A | | Stable | | BBB- | Stable |
The Company's andOn August 29, 2023, Fitch affirmed EQM's credit rating on Rating Watch Positive. EQM's credit ratings are subject to revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating. The Company and EQM cannot ensure that a rating will remain in effect for any given period of time or that a rating will not be lowered or withdrawn entirely by a credit rating agency if, in its judgment, circumstances so warrant. If any credit rating agency downgrades or withdraws EQM's ratings, including for reasons relating to the MVP project (such as delays affecting the MVP project or increases in such project’s targeted costs), EQM’s leverage or credit ratings of the Company's or EQM's ratings,customers, the Company's or EQM's access to the capital markets may be limited,could become more challenging, borrowing costs couldwill likely increase, the Company or EQM may, depending on contractual provisions in effect at such time, be required to provide additional credit assurances in support of commercial agreements such as joint venture agreements and construction contracts, the(the amount of which may be substantial,substantial) and the potential pool of investors and funding sources may decrease. In order to be considered investment grade, a company must be rated Baa3 or higher by Moody's, BBB- or higher by S&P, or BBB- or higher by Fitch. Anything below these ratings, including allAll of the Company'sEQM's credit ratings and EQM's current credit rating of Ba1 by Moody's, are considered non-investment grade.
Schedule of Contractual Obligations
The following represents the Company's, including EQM's, contractual obligations as of December 31, 2018. Purchase obligations exclude EQM's future capital contributions to the MVP Joint Venture and purchase obligations of the MVP Joint Venture.
|
| | | | | | | | | | | | | | | | | | | |
| | Total | | 2019 | | 2020 – 2021 | | 2022 – 2023 | | 2024 + |
| | (Thousands) |
| Long-term debt | $ | 3,500,000 |
| | $ | — |
| | $ | — |
| | $ | 1,100,000 |
| | $ | 2,400,000 |
|
| Term loan | 600,000 |
| | 6,000 |
| | 12,000 |
| | 12,000 |
| | 570,000 |
|
Credit facility borrowings (a) | 641,500 |
| | — |
| | — |
| | 641,500 |
| | — |
|
Interest payments on senior notes (b) | 2,093,736 |
| | 182,861 |
| | 350,750 |
| | 350,750 |
| | 1,209,375 |
|
| Purchase obligations | 56,526 |
| | 56,526 |
| | — |
| | — |
| | — |
|
Water infrastructure (c) | 767 |
| | 767 |
| | — |
| | — |
| | — |
|
Operating lease obligations (d) | 68,377 |
| | 7,174 |
| | 12,430 |
| | 12,209 |
| | 36,564 |
|
Other liabilities (e) | 28,151 |
| | 8,065 |
| | 20,086 |
| | — |
| | — |
|
| Total contractual obligations | $ | 6,989,057 |
| | $ | 261,393 |
| | $ | 395,266 |
| | $ | 2,116,459 |
| | $ | 4,215,939 |
|
| |
(a) | Credit facility borrowings were classified based on the termination date of the underlying credit facility agreements. |
| |
(b) | Interest payments exclude interest related to the credit facility borrowings and the term loan as the interest rates on the credit facility borrowings and the Company's term loan are variable. |
| |
(c) | See Note 13 to the consolidated financial statements. |
| |
(d) | Operating leases are primarily entered into for various office locations and warehouse buildings, as well as lease obligations for compression equipment under existing contracts with third parties. |
| |
(e) | Other liabilities represent commitments for estimated payouts as of December 31, 2018 for various Equitrans Midstream liability award plans. See "Critical Accounting Policies and Estimates" below and Note 9 to the consolidated financial statements for discussion of factors that affect the ultimate amount of the payout of these obligations. |
Commitments and Contingencies
As of February 14, 2019, Equitrans Midstream Corporation was not partyFrom time to any legal proceedings.
In the ordinary course of business,time, various legal and regulatory claims and proceedings are pending or threatened against EQMthe Company and its subsidiaries. While the amounts claimed may be substantial, EQMthe Company is unable to predict with certainty the ultimate outcome of such claims and proceedings. EQMThe Company accrues legal and other direct costs related to loss contingencies when incurred. EQMThe Company establishes reserves whenever it believes it to be appropriate for pending matters. Furthermore, after consultation with counsel and considering availablethe availability, if any, of insurance, EQMthe Company believes, although no assurance can be given, that the ultimate outcome of any matter currently pending against EQMit or any of its consolidated subsidiaries as of the filing of this Annual Report on Form 10-K will not materially adversely affect its business, financial condition, results of operations, liquidity or ability to make distributionspay dividends to EQM unitholders, including the Company.its shareholders.
See "The regulatory approval process for the construction of new midstream assets is challenging, and recent decisions by regulatory and judicial authorities in pending proceedings could impact EQM's or the MVP Joint Venture's ability to obtain all approvals and authorizations necessary to complete certain projects on the projected time frame or at all or EQM's ability to achieve the expected investment return on the project" under "Risk Factors – Risks Related to EQM's Business" included in "Item 1A. Risk Factors" and seePart I, "Item 3. Legal Proceedings" of this Annual Report on Form 10-K for discussion of litigation and regulatory proceedings, including related to the MVP project.Rager Mountain natural gas storage field incident, and, further relating to that incident, "We have incurred and expect to continue to incur costs and expenses as a result of or arising in relation to the Rager Mountain natural gas storage field incident in November 2022, which has included and may include potential additional regulatory penalties or other sanctions, which could, depending on their scope and timing, materially adversely affect our business, financial condition, results of operations, liquidity and ability to pay dividends to our shareholders." under Part I, "Item 1A. Risk Factors," of this Annual Report on Form 10-K.
See Note 1314 to the consolidated financial statements for further discussion of the Company's commitments and contingencies.
Off-Balance Sheet ArrangementsDividends
See Note 7On February 14, 2024, the Company paid cash dividends for the fourth quarter of 2023 of $0.15 per common share and $0.4873 per Equitrans Midstream Preferred Share to shareholders of record at the close of business on February 6, 2024.
For each quarter ending after March 31, 2024, the holders of the Equitrans Midstream Preferred Shares will receive quarterly dividends at a rate per annum equal to the consolidated financial statements for discussionsum of (i) three-month CME Term SOFR, administered by CME Group Benchmark Administration, Ltd., plus a tenor spread adjustment of 0.26161% per annum as of the MVP Joint Venture guarantees.relevant determination date in respect of the applicable quarter and (ii) 8.15%; provided that such rate per annum in respect of periods after March 31, 2024 will not be less than 10.50%. As such, the Company expects dividends paid to holders of the Equitrans Midstream Preferred Shares to be higher beginning in the third quarter of 2024.
Recently Issued Accounting Standards
SeeRecently issued accounting standards relevant to the Company are described in Note 1 to the consolidated financial statements for discussionstatements.
Critical Accounting Policies and Estimates
The Company's significant accounting policies are described in Note 1 to the consolidated financial statements, which have been prepared in accordance with GAAP. Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been included in the notes to the Company's consolidated financial statements. Preparation of financial statements requires management to make estimates and judgmentsassumptions that affect the reported amounts of assets, liabilities, revenuesin the Company's consolidated financial statements and expenses and the related disclosures of contingent assets and liabilities.accompanying notes. The followingCompany's critical accounting policies which were reviewed bydiscussed below are considered critical due to the Company's Audit Committee, relate to its more significant judgments and estimates used in the preparation of itsthe Company's consolidated financial statements.statements and the material impact on the results of operations or financial condition. Actual results could differ from those judgments and estimates.
Income Taxes. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the Company's consolidated financial statements or tax returns.
The Company has federal and state Net Operating Loss (NOL) carryforwards related to federal and various state jurisdictions. The federal and West Virginia NOL carryforwards have no expiration, but utilization is limited to 80% of taxable income in the year of utilization. Other state NOL carryforwards expire in 2038. The Company believes that it is more likely than not that the benefit from certain federal and state NOL carryforwards will be realized. In addition to the NOL carryforwards, the Company has recorded deferred tax assets principally resulting from its investment in partnerships. No valuation allowances have been established, as it is believed that future sources of taxable income, reversing temporary differences and other tax planning strategies will be sufficient to realize these deferred tax assets. Any determination to change the valuation allowance would impact the Company's income tax expense and net income in the period in which such a determination is made.
Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not (greater than 50%) that a tax benefit will not be realized. In evaluating the need for a valuation allowance, management considers all potential sources of taxable income, including income available in carry-back periods, future reversals of taxable temporary differences, projections of taxable income and income from tax planning strategies, as well as all available positive and negative evidence. Positive evidence includes factors such as a history of profitable operations, projections of future profitability within the carry-forward period, including from tax planning strategies, and experience.
Tax benefits related to uncertain tax positions taken or expected to be taken on a tax return are recorded when such benefits meet a more likely than not threshold; otherwise, the tax benefit is recorded when the tax position has been effectively settled, either because the statute of limitations has expired or the appropriate taxing authority has completed its examination. Interest and penalties related to uncertain tax positions are recognized as part of the provision for income taxes and are accrued beginning in the period that such interest and penalties would be applicable under relevant tax law until such time that the related tax benefits are recognized.
The Company believes that accounting estimates related to income taxes are "critical accounting estimates" because the Company must assess the likelihood that deferred tax assets will be recovered from future taxable income, exercise judgment when evaluating whether or not a valuation allowance must be established on deferred tax assets and exercise judgment regarding the amount of financial statement benefit to record for uncertain tax positions. To the extent that a valuation allowance or an uncertain tax position is established or increased or decreased during a period, the Company includes an expense or benefit within income tax expense on the statements of comprehensive income. Future results of operations for any particular quarterly or annual period could be materially affected by changes in the Company's assumptions. See Note 11 to the consolidated financial statements for additional information.
Property, Plant and Equipment. Determination of depreciation expense requires judgment regarding the estimated useful lives and salvage values of property, plant and equipment. The Company has not historically experienced material changes in its results of operations from changes in the estimated useful lives or salvage values of its property, plant and equipment; however, these estimates are reviewed periodically, including each time Equitrans, L.P. files with the FERC for a change in its transmission and storage rates. Determination of internal costs capitalized requires judgment as to the percent of time spent on capitalized projects for the capitalization of costs such as salaries, benefits and other indirect costs. The Company believes that the accounting estimatesestimate related to depreciation and capitalization of internal costs areexpense is a "critical accounting estimates"estimate" because theythe assumptions used to estimate useful lives and salvage values of property, plant and equipment are susceptible to change. These assumptions affect the gross property, plant and equipment balances and the amount of depreciation and operating expense and, if changed, wouldcould have ana material effect on the Company's results of operations and financial position. See Note 1 to the consolidated financial statements for additional information.
Impairments of Long-Lived Assets. Assets and Equity Method Investment. The Company evaluates long-lived assets and equity method investments for impairment when events or changes in circumstances indicate, in management's judgment, that the carrying value of such assets may not be recoverable. With respect to property, plant and equipment and finite lived intangibles, asset recoverability is measured by comparing the carrying value of the asset or asset group with its expected future pre-tax undiscounted cash flows. Any accounting estimate related to an impairment of property, plant and equipment, finite-lived intangible assets, goodwill or an investment in an unconsolidated entity may require the Company's management to make assumptions about future cash flows, discount rates, the fair value of investments and whether losses in the value of its investments are other than temporary.other-than-temporary. Management's assumptions about future cash flows require significant judgment because, among other things, actual operating levels have fluctuatedbeen and may be different from estimated levels.
Goodwill is the cost of an acquisition less the fair value of the identifiable net assets of the acquired business. Goodwill is evaluated for impairment at least annually or whenever events or changes in circumstances indicate it is more likely than not that the pastfair value of a reporting unit is less than its carrying amount. When performing a quantitative assessment, the Company uses a combination of an income and are expectedmarket approach to fluctuate in the future. Additionally, management's assumptions aboutestimate the fair value of its investment in an unconsolidated entity require significant judgment because the investment is not traded on an active market.
During the fourth quarter of 2018, a triggering event occurred as a result of the Company's annual goodwill impairment evaluation, which required the Company to perform a recoverability test on its long-lived assets. No impairment was recorded as a result of the recoverability test.reporting units.
The Company has not historically had indications of impairments; however, the Company believes that the accounting estimates related to impairments are "critical accounting estimates" because they require assumptions that are susceptible to change. Any potential impairment would have an effect onchange, including estimating fair value which requires considerable judgment. For example, in the case of goodwill, management’s estimate of a reporting unit’s future financial results is sensitive to changes in assumptions, such as changes in the Company's stock price, weighted-average cost of capital, terminal growth rates and industry multiples. When a quantitative assessment is performed, the Company uses estimates and assumptions in estimating its reporting units’ fair values that it believes are reasonable and appropriate at that time; however, different assumptions and estimates could materially affect the calculated fair value and the resulting conclusion of whether goodwill is impaired, which could materially affect the Company’s results of operations and financial position.
The Company’s investment in unconsolidated entity also requires considerable judgment to estimate fair value because the Company’s investment is not traded on an active market. When estimating the fair value of its equity method investment, the Company utilizes an income approach under which significant judgments and assumptions, including the discount rate and probability-weighted scenarios, are sensitive to change. Additionally, the Company's investment in unconsolidated entity is susceptible to impairment risk from adverse macroeconomic conditions and/or other adverse factors. Adverse developments could require that the Company modify assumptions reflected in the probability-weighted scenarios of discounted future net cash flows (including with respect to the probability of success prior to completion) utilized to estimate the fair value of its equity method investment in the MVP Joint Venture, which could result in an incremental other-than-temporary impairment of that investment. While macroeconomic factors in and of themselves may not be a direct indicator of impairment, should an impairment indicator be identified in the future, macroeconomic factors such as changes in interest rates could ultimately impact the size and scope of any potential impairment.
See NoteNotes 1 and 7 to the consolidated financial statements for additional information.
Allocated General and Administrative Costs. Prior to the Separation, general and administrative costs and operating and maintenance costs were allocated by EQT to the Company based on the nature of the expenses. Costs that were directly related to the Company and its subsidiaries were directly charged to the Company and its subsidiaries. Other costs were allocated based on operational and financial metrics. Allocations are based on estimates and assumptions that management believes are reasonable; however, the Company believes that the accounting estimates related to allocated costs are "critical accounting estimates" because different estimates and assumptions would change the amounts allocated to the Company and its subsidiaries, and those differences could be material. These assumptions affect the amount of general and administrative expense and operating and maintenance expense and would have an effect on the results of operations if changed. See Notes 1 and 8 to the consolidated financial statements for additional information.
Regulatory Accounting. Determination and application of regulatory accounting requires judgment regarding probability that certain expenses and income will be allowed in the rate setting process in a period different from the period in which they would have been reflected on the statements of consolidated operations for a non-regulated entity. The Company has not historically experienced material changes in its results of operations from changes in regulatory accounting; however, these estimates are reviewed periodically, including each time Equitrans, L.P. files with the FERC for a change in transmission and storage rates. The Company believes that the accounting estimates related to regulatory accounting are "critical accounting estimates" because they are susceptible to change. These assumptions affect the gross regulatory assets and liabilities and the amount of regulated operating revenues and expenses and would have an effect on the results of operations and financial position if changed. See Note 1 to the consolidated financial statements for additional information.
Contingencies. EQM is involved in various regulatory and legal proceedings that arise in the ordinary course of business. A liability is recorded for contingencies based on EQM's assessment that a loss is probable and that the amount of the loss can be
reasonably estimated. EQM considers many factors in making these assessments, including the history and specifics of each matter. Estimates are developed in consultation with legal counsel and are based on an analysis of potential results.
The Company believes that the accounting estimates related to contingencies are "critical accounting estimates" because the Company must assess the probability and amount of loss related to contingencies. Future results of operations could be materially affected by changes in the assumptions. See Notes 1 and 13 for additional information.
Revenue Recognition. Revenue from the gathering, transmission and storage of natural gas is generally recognized when the service is provided. Revenue from water services is generally recognized when water is delivered. Contracts often contain fixed
and variable consideration. Fixed consideration primarily relates to firm reservation payments including MVCs and ARCs. Variable consideration is generally dependent on volumes and recognized in the period they occur. At each reporting date and, as circumstances or events warrant, management reviews and updates the assumptions utilized to estimate the total consideration for all contracts. The Company allocates the transaction price to each performance obligation based on the estimated relative standalone selling price. When applicable, the excess of consideration received over revenue recognized results in the deferral of those amounts until future periods based on a units of production or straight-line methodology as these methods appropriately match the consumption of services provided to the customer. The units of production methodology requires the use of production estimates that are uncertain and the use of judgment when developing estimates of future production volumes, thus impacting the rate of revenue recognition. Production estimates are monitored as circumstances and events warrant. Certain of the Company's gas gathering and water agreements have MVCs or ARCs. If a customer under such an agreement fails to meet its MVC or ARC for a specified period (thus not exercising all the contractual rights to gathering and water services within the specified period, herein referred to as “breakage”), it is obligated to pay a contractually determined fee based upon the shortfall between the actual volumes and the MVC or ARC for the period contained in the contract. When management determines it is probable that the customer will not exercise all or a portion of its remaining rights, the Company recognizes revenue associated with such breakage amount in proportion to the pattern of exercised rights within the respective MVC or ARC period.
Revenue related to services provided but not yet billed is estimated each month. These estimates are generally based on contract data, preliminary throughput and allocation measurements. Final billsamounts for the current month are billed and collected in the following month. See Notes 1 and 3Note 4 to the consolidated financial statements for additional information. EQM
The Company records an allowance for credit losses on a monthly provisionquarterly basis in order to estimate uncollectible receivables. The Company's current expected credit loss (CECL) methodology considers risks of collection based on a customer’s current credit status. The standard requires an entity to assess whether financial assets share similar risk characteristics and, if so, group such assets in a pool. Customer balances are aggregated for accounts receivableevaluation based on their credit risk rating, which takes into account changes in economic factors that are considered uncollectible.impact a customer’s ability to meet its financial obligations. The Company's CECL methodology assigns a reserve, even if remote, to each customer based on credit risk and the reserve is evaluated on a quarterly basis. In order to calculate the appropriate monthly provision, a historicalallowance, the Company utilizes an estimated loss rate of accounts receivable losses as a percentage of total revenue is used. This historical rate is applied to the current revenuesfactor based on a monthly basiscustomer's credit rating for receivables and is updated periodicallya risk-adjusted reserve based on events thatthe receivable aging schedule in order to account for the receivables which may changebe at a greater risk of collection. Customer credit risk ratings are updated quarterly and management has enabled a risk-responsive approach to changes in customer and economic factors. While the rate, such as a significant change to the natural gas industry or to the economy as a whole. Management reviews the adequacy of the allowance on a quarterly basis using the assumptions that apply at that time. While EQMCompany has not historically experienced material bad debt expense, declineslosses on uncollected receivables, a decline in the market price for natural gas affecting producer activity combined with the increase inadditional customers on EQM'sthe Company's systems may result in a greater exposure to potential losses than management's current estimates. As of December 31, 2018, EQM had accounts receivable of $255.5 million, net of an allowance for doubtful accounts of $0.1 million.
The Company believes that the accounting estimates related to revenue recognition are "critical accounting estimates" because estimated relative standalone selling prices and volumes are subject to change based on actual measurements, including prior period adjustments.measurements. In addition, the Company believes that the accounting estimates related to the allowance for doubtful accounts receivablecredit losses are "critical accounting estimates" because the underlying assumptions used for the allowance can change and the actual mix of customers and their ability to pay may vary significantly from management's estimates, which could affect the collectability of customer accounts.receivables. These accounting estimates could potentially have a material effect on the Company's results of operations and financial position.
Business Combinations – Rice Merger. EQT recorded the Rice Merger using the acquisition method of accounting; accordingly, the value assigned to theIncome Taxes. The Company recognizes deferred tax assets and liabilities of RMP and the Drop-Down Entities are based on EQT's purchase accounting estimates.
Accounting for the acquisitionexpected future tax consequences of a business requires a companyevents that have been included in the Company's consolidated financial statements or tax returns.
The Company has federal and state of West Virginia net operating loss (NOL) carryforwards. The NOL carryforwards have no expiration, but utilization is limited to record80% of taxable income in the acquired identifiableyear of utilization. In addition to the NOL carryforwards, the Company has deferred tax assets and liabilities at fair value. The estimated fair value of midstream facilitiesprincipally resulting from interest disallowance under Code Section 163(j) and equipment, which generally consist of pipeline systems and compression stations,investment in partnerships.
Valuation allowances are recorded to reduce deferred tax assets when it is estimated usingmore likely than not (greater than 50%) that a tax benefit will not be realized. In evaluating the cost approach, which incorporates assumptions about the replacement costs for similar assets, the relative age of the assets and any potential economic or functional obsolescence. The fair values of the intangible assets are estimated using the multi-period excess earnings model, which estimates revenues and cash flows derived from the intangible asset and then deducts portions of cash flow that can be attributed to supporting assets otherwise recognized.
Given the time required to obtain pertinent information necessary to finalize the allocation of the purchase price to the acquired net assets, the purchase price allocation may remain preliminaryneed for a periodvaluation allowance, this requires significant judgment and management considers all available evidence, both positive and negative, including potential sources of time before the required fair value estimates are finalized. Accordingly, it is not uncommon for the initial estimates to be subsequently revised. During the fourth quartertaxable income, income available in carry-back periods, future reversals of 2018, the Rice Merger purchase price accounting was finalized. See Note 2 to the consolidated financial statements.
The Company believes that the accounting estimates related to business combinations are "critical accounting estimates" because in determining the fair valuetaxable temporary differences, projections of assets acquired, assumptions must be made about projections regarding the timingtaxable income and amountincome from tax planning strategies. Positive evidence includes reversing temporary differences and projection of future developmentprofitability within the carry-forward period, including from tax planning strategies. Negative evidence includes historical pre-tax book losses.
Deferred tax assets for which no valuation allowance is recorded may not be realized, and operating costschanges in facts and projections of replacement cost of and future cash flows from midstream assets and cash flows from customer relationships. Different assumptionscircumstances may result in materially different values for these assets, which would affect the Company's future resultsestablishment of operationsa valuation allowance. Existing valuation allowances are re-examined under the same
standards of positive and financial position.
Goodwill. Goodwillnegative evidence that apply to valuation allowance establishment. If it is the cost of an acquisition less the fair value of the identifiable net assets of the acquired business. As a result of the Rice Merger, on November 13, 2017, Rice Midstream Holdings recorded goodwill to two reporting units within the Gathering segment. Prior to the Rice Merger, the Company had no goodwill. See Note 2 to the consolidated financial statements.
Goodwill is evaluated for impairment at least annually or whenever events or changes in circumstances indicatedetermined that it is more likely than not that the fair value of a reporting unitdeferred tax asset for which a valuation allowance is less than its carrying amount. The Company usesrecorded will be realized, all or a combination of an income and market approach to estimate the fair value of a reporting unit. In the fourth quarter of 2018, the Company determined that a goodwill impairment indicator existed prior to its annual assessment date of November 30, 2018. As a resultportion of the Company's goodwill evaluation, which quantitatively considered the production curtailments announced by a primaryvaluation allowance may be released. Deferred tax assets and liabilities are also remeasured to reflect changes in underlying tax rates from tax law changes and any changes in uncertain tax benefits.
customer of the Rice Retained Midstream and RMP PA Gas Gathering reporting units, the Company recorded impairment of goodwill. See Note 1 to the consolidated financial statements.
The Company believes that the accounting estimates related to goodwillincome taxes are "critical accounting estimates" because estimating the fair value of reporting units requires considerable judgment. In addition, management's estimate of a reporting unit's future financial results is sensitive to changes in assumptions, such as changes in stock prices, weighted-average cost of capital, terminal growth rates and industry multiples. The Company believes the estimates and assumptions used in estimating its reporting units' fair values are reasonable and appropriate, however, different assumptions and estimates could materially affect the calculated fair value and the resulting conclusion on impairment of goodwill, which could materially affect the Company's results of operations and financial position. Additionally, actual results could differ from these estimates. The Company performed a sensitivity analysis for each reporting unit to quantify the effect of certain changes to assumptions used in the goodwill assessment. While not impaired as of December 31, 2018, it was determined that a 1% increase to the weighted average cost of capital (WACC) and a corresponding 1% decrease to the terminal cash flow growth rate would have resulted in the Company's recognition of approximately $13.8 million of impairment of goodwill associated with the Rice Retained Midstream reporting unit (defined and discussed in Note 1). In addition, a 1% increase to the WACC and a corresponding 1% decrease to the terminal cash flow growth rate would have resulted in the Company's recognition of approximately $114.4 million of additional impairment of goodwill associated with the RMP PA Gas Gathering reporting unit (defined and discussed in Note 1).
Share-Based Compensation. The Company awards share-based compensation in connection with specific programs. Awards to employees are typically made in the form of performance-based awards, time-based restricted stock awards, time-based restricted unit awards and stock options. Awards to directors are typically made in the form of phantom units that vest upon grant.
Restricted units and performance-based awards expected to be satisfied in cash are treated as liability awards. For liability awards, the Company is required to estimate, onmust assess the grant datelikelihood that deferred tax assets will be recovered from future taxable income, and on each reporting date thereafter until vesting and payment, the fair value of the ultimate payout based upon the expected performance through, and value of the Company's common stock on, the vesting date. The Company then recognizes a proportionate amount of the expense for each period in the Company's financial statements over the vesting period of the award. The Company reviews its assumptions regarding performance and common stock value on a quarterly basis and adjusts its accrualexercise judgment when changes in these assumptions result in a material change in the fair value of the ultimate payouts.
Performance-based awards expected to be satisfied in Company common stock are treated as equity awards. For equity awards, the Company is required to determine the grant date fair value of the awards, which is then recognized as expense in the Company's financial statements over the vesting period of the award. Determination of the grant date fair value of the awards requires judgments and estimates regarding, among other things, the appropriate methodologies to follow in valuing the awards and the related inputs required by those valuation methodologies. Most often, the Company is required to obtainevaluating whether or not a valuation based upon assumptions regarding risk-free rates of return, dividend yields, expected volatilities and the expected term of the award. The risk-free rate is basedallowance must be established on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield is based on the historical dividend yield of the Company's common stock adjusted for any expected changes and, where applicable, of the common stock of the peer group members at the time of grant. Expected volatilities are based on historical volatility of the Company's common stock and, where applicable, the common stock of the peer group members at the time of grant. The expected term represents the period of time elapsing during the applicable performance period.
For time-based restricted stock awards, the grant date fair value of the awards is recognized as expense in the Company's financial statements over the vesting period, typically three years. For director phantom units (which vest on the date of grant) expected to be satisfied in equity, the grant date fair value of the awards is recognized as an expense in the Company's financial statements in the year of grant. The grant date fair value, in both cases, is determined based upon the closing price of the Company's common stock on the date of the grant.
For non-qualified stock options, the grant date fair value is recognized as expense in the Company's financial statements over the vesting period, typically three years. The Company utilizes the Black-Scholes option pricing model to measure the fair value of stock options, which includes assumptions for a risk-free interest rate, dividend yield, volatility factor and expected term. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield is based on the dividend yield of the Company's common stock at the time of grant. The expected volatility is based on historical volatility of the Company's common stock at the time of grant. The expected term represents the period of time that options granted are expected to be outstanding based on historical option exercise experience at the time of grant.
The Company believes that the accounting estimates related to share-based compensation are "critical accounting estimates" because they may change from period to period based on changes in assumptions about factors affecting the ultimate payout of awards, including the number of awards to ultimately vest and the market price and volatility of the Company's common stock. Future results of operations for any particular quarterly or annual period could be materially affected by changes in the Company's assumptions.deferred tax assets. See Note 912 to the consolidated financial statements for additional information.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk. Changes in interest rates affect the amount of interest the Company earns on cash, cash equivalents and short-term investments and the interest rates the Company paysEQM and Eureka pay on borrowings under itstheir respective revolving credit facilities. The Equitrans MidstreamAmended EQM Credit Facility and Equitrans Midstream Term Loanthe 2021 Eureka Credit Facility (each defined in Note 10 to the consolidated financial statements) both have aprovide for variable interest raterates and thus expose the Company, through EQM and Eureka, to fluctuations in market interest rates. In addition, EQM's interest rates under the Amended EQM Credit Facility are impacted by changes in EQM's credit ratings (which changes may be caused by factors outside of EQM's control). Eureka's interest rates under the 2021 Eureka Credit Facility are impacted by changes in Eureka's Consolidated Leverage Ratio (as defined in the 2021 Eureka Credit Facility) which canmay fluctuate based on Eureka Midstream's distributions to its members, liquidity needs or operating results. Accordingly, if interest rates were to increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. Based on commitments as of December 31, 2023 and assuming all loans are fully drawn, each quarter point change in interest rates would result in a change of approximately $3.9 million in annual interest expense on indebtedness under the Amended EQM Credit Facility. Assuming all loans are fully drawn, each quarter point change in interest rates would result in a change of approximately $1.0 million in annual interest expense on indebtedness under the 2021 Eureka Credit Facility. Further, regarding the dividend payable on Equitrans Midstream Preferred Shares for quarters after March 31, 2024, changes in accordance with the Adjustable Interest Rate (LIBOR) Act (the LIBOR Act), and the rules implementing the LIBOR Act, three-month CME Term SOFR, administered by CME Group Benchmark Administration, LTD., plus a tenor spread adjustment of 0.26161% per annum, replaced, by operation of law, the three-month London Interbank Offered Rate (LIBOR) to calculate dividends payable on the Series A Preferred Stock for each fiscal quarter ending after March 31, 2024. Fluctuations in three-month CME Term SOFR may affect such dividend (which will not be less than 10.50% under the Company's resultsSecond Amended and Restated Articles of operations and liquidity.Incorporation), which could affect, among other things, the amount of cash the Company has available to make quarterly cash dividends to its shareholders. EQM's senior notes are fixed rate and thus do not expose the Company to fluctuations in market interest rates. Changes in interest rates do affect the fair value of EQM's fixed rate debt. See Notes 109 and 110 to the consolidated financial statements for discussiondiscussions of debtborrowings and fair value measurements, respectively. The CompanyEQM and Eureka may from time to time hedge the interest on portions of its borrowings under the revolving credit facilities, as applicable, in order to manage risks associated with floating interest rates. However, the Company may not maintain hedges with respect to all of its variable rate indebtedness, and any hedges it enters into may not fully mitigate its interest rate risk
Credit Risk. The Company is exposed to credit risk, which is the risk that it may incur a loss if a counterparty fails to perform under a contract. The Company actively manages its exposure to credit risk associated with customers through credit analysis, credit approval credit limits and monitoring procedures. For certain transactions, the Company may requestrequests letters of credit, cash collateral, prepayments or guarantees as forms of credit support. Equitrans, L.P.'s FERC tariffs require tariff customers that do not meet specified credit standards to provide three months of credit support; however, the Company is exposed to credit risk beyond this three-month period when its tariffs do not require its customers to provide additional credit support. For some of the Company's more recent long-term contracts associated with system expansions, it has entered into negotiated credit agreements that provide for enhanced forms ofother credit support if certain credit standards are not met. The Company has historically experienced only minimal credit losses in connection with its receivables. Approximately 82% of revenues were from investment grade counterparties for the year ended December 31, 2018.
The Company is exposed to the credit risk of EQT,its customers, including its largest customer.customer, EQT, including as a result of changes in customer credit ratings, liquidity and access to capital markets. In August 2023, Moody's upgraded EQT's public senior debt to an investment grade credit rating and as of December 31, 2023, EQT's public debt has investment grade credit ratings from S&P, Fitch and Moody's. On February 26, 2020, in connection with EQM's IPOthe execution of the EQT Global GGA, the Company and EQT entered into a letter agreement (the Credit Letter Agreement) pursuant to which, among other things, (a) the Company agreed to relieve certain credit posting requirements for EQT, in 2012,an amount up to approximately $250 million, under its commercial agreements with the Company, subject to EQT maintaining a minimum credit rating from two of three rating agencies of (i) Ba3 with Moody's, (ii) BB- with S&P and (iii) BB- with Fitch and (b) the Company agreed to use commercially reasonable good faith efforts to negotiate similar credit support arrangements for EQT in respect of its commitments to the MVP Joint Venture. In addition, EQT has guaranteed allthe payment obligations of certain of its subsidiaries, up to a maximum amount of $50$115 million, due$131 million and payable$30 million related to Equitrans, L.P. by EQT Energy, LLC, onegathering, transmission and water services, respectively, across all applicable contracts, for the benefit of Equitrans, L.P.'s largest customers and a wholly owned subsidiarythe subsidiaries of EQT. The EQT guaranty will terminate on November 30, 2023 unless terminated earlier by EQT upon 10 days' written notice. At December 31, 2018, EQT's public senior debt had an investment grade credit rating.the Company providing such services. See Note 1213 to the consolidated financial statements in this Annual Report on Form 10-K, for further discussion of the Company's exposure to certain credit risk.risks.
Commodity PricesPrice Risk. The Company's business is dependent on the continued availability of natural gas production and the availability and development of reserves in its areas of operation. Low pricesPrices for natural gas and NGLs, including those resulting from regional basis differentials, couldhave previously adversely affected, and may in the future adversely affect, timing of development of additional reserves and production that is accessible by the Company'sCompany’s pipeline and storage assets, which also negatively affects the Company’s water services business, and the creditworthiness of the Company’s customers.
Lower natural gas prices, particularly in the Appalachian region, have in the past caused, and may in the future cause, producers such as EQT to determine to take actions to slow production growth and/or lower drilling activity,maintain flat or reduce production, which would decreasewhen effected by our producer customers limits growth in or may reduce the demand for, and usage of, our services. For instance, in certain periods of low natural gas prices prior to 2023, temporary production curtailments resulted in a decrease in our volumetric-based gathering fee revenues. Based on the Company's services. Lowerforward price strip as of February 16, 2024, the Company perceives continued risk that EQT and/or other producers could curtail production in 2024 or maintain at flat levels, which, depending on the nature and duration of any such curtailment, could have a significant negative effect on the demand for our services, our volumetric-based fee revenue, and therefore our results of operations, and any such maintenance may limit growth associated with our assets. See also “Decreases or a lack of growth in production of natural gas in our areas of operation, whether as a result of regional takeaway constraints, producer corporate capital allocation strategies, lower regional natural gas prices, natural well decline, and/or other factors, have adversely affected, and in the future could adversely affect, our business and operating results and reduce our cash available to pay cash dividends to our shareholders.”, "The lack of diversification of our assets, products and geographic locations could adversely affect us." and “We generate a substantial majority of our revenues from EQT. Therefore, we are subject to the business and liquidity risks of EQT, and any decrease in EQT's drilling or completion activity (or significant production curtailments) or a shift in such activity away from our assets could adversely affect our business and operating results.”, each included in Part I, "Item 1A. Risk Factors" in this Annual Report on Form 10-K.
Price declines and sustained periods of low natural gas and NGL prices could have an adverse effect on the creditworthiness of the Company's customers and related ability to pay firm reservation fees under long-term contracts and/or affect, as discussed above, activity levels and, accordingly, volumetric-based fees, which could affect the Company’s results of operations, liquidity or financial position. Credit risk and related management is further discussed under “Credit Risk” in Part II, “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” of this Annual Report on Form 10-K.
Increases in natural gas prices do not necessarily result in corresponding increases to the production forecasts of the Company's customers. Even when natural gas prices have been commercially attractive, certain of the Company's customers maintained largely flat production forecasts in light of, among other things, the absence of incremental takeaway capacity from the Appalachian Basin and the Company's customers may still maintain flat or modest increases to production forecasts based on various factors, which could include regional takeaway capacity limitations, access to capital, investor expectations regarding free cash flow, a desire to reduce or refinance leverage or other factors.
Additionally, lower natural gas prices (including regionally), corporate capital allocation strategies or regional takeaway constraints, could cause producers to determine in the future that drilling activities in areas outside of the Company's current areas of operation are strategically more attractive to them.
Many of the Company’s customers, including EQT, have entered into long-term firm reservation gathering, transmission and water services contracts or contracts with MVCs or ARCs, as applicable, on the Company's systems and approximately 70% of the Company's operating revenues for the year ended December 31, 2023 were generated by firm reservation fee revenues. The Company believes that such contract structure is advantageous to its overall business, although significant declines in gas production in the Company's customersareas of operations would likely adversely affect the Company's results of operations, financial condition and liquidity as approximately 30% of the Company’s operating revenues for the year ended December 31, 2023 was generated by volumetric-based fee revenues. See "Our exposure to commodity price risk may reduce capital spendingincrease in the future based on commodityand NYMEX Henry Hub futures prices or other factors. Unlessaffect the Company is successful in attractingfair value, and retaining new customers,may affect the Company's abilityrealizability, of potential cash payments to maintain or increaseus by EQT pursuant to the capacity subscribed EQT Global GGA." and volumes transported under service arrangements on its transmission and storage system, the volumes gathered on its gathering systems, or the volumes“We generate a substantial majority of water provided by its water service business will be dependent on receiving consistent or increasing commitmentsour revenues from EQT. Therefore, we are subject to the business and liquidity risks of EQT, and any decrease in EQT’s drilling or completion activity (or significant production curtailments) or a shift in such activity away from our assets could adversely affect our business and operating results." included in Part I, "Item 1A. Risk Factors" in this Annual Report on Form 10-K.
While EQT has dedicated a substantial portion of its core acreage in southwestern Pennsylvania and West Virginia to the Company and has entered into long-term firm gathering and transmission contracts and gathering contracts with MVCs on certain of the Company's systems, EQT may determine in the future that drilling or continuing to produce gas from existing wells in the Company's areas of operations is not economical above the amount to fulfill its required MVCs or that drilling in areas outside ofotherwise strategically determine to curtail volumes on the Company's current areas of operations is strategically more attractivesystems. Other than with respect to it.its MVCs and other firm commitments under existing contracts, EQT is under no contractual obligation to continue to develop its acreage dedicated to the Company. See also "Overview of the Company and Operations" in Part 1, "Item 1. Business" of this Annual Report on Form 10-K for a discussion of the EQT Global GGA.
ForThe fair value of the year endedCompany’s derivative instruments is, in part, determined by estimates of the NYMEX Henry Hub natural gas forward price curve. A hypothetical 10% increase in NYMEX Henry Hub natural gas futures prices would increase the valuation of the Company’s derivative instruments by approximately $5.9 million, while a hypothetical 10% decrease in
NYMEX Henry Hub natural gas futures prices would decrease the valuation of the Company’s derivative instruments by approximately $6.0 million. This fair value change assumes volatility based on prevailing market parameters at December 31, 2018, approximately 54%2023. See Note 10 and "Our exposure to commodity price risk may increase in the future and NYMEX Henry Hub futures prices affect the fair value, and may affect the realizability, of potential cash payments to us by EQT pursuant to the EQT Global GGA." included in Part I, "Item 1A. Risk Factors" of this Annual Report on Form 10-K for a discussion of the Company's revenues were generated from firm reservation fees under long-term contracts. As a result, the Company believes that short- and medium-term declines in volumes of gas produced, gathered, transported or stored on its systems will not have a significant effect on its results of operations, liquidity, financial position or ability to pay dividends or EQM's ability to pay quarterlyHenry Hub cash distributions because these firm reservation fees are paid regardless of volumes supplied to the system by customers. Longer term price declines could have an adverse effect on customer creditworthiness and related ability to pay firm reservation fees under long-term contracts which could affect the Company's results of operations, liquidity or financial position. Additionally, long-term declines in gas production in the Company's areas of operations would limit the Company's growth potential.bonus payment provision.
Other Market Risks. The Company's credit facilityAmended EQM Credit Facility is underwritten by a syndicate of nine14 financial institutions eachon and after October 31, 2023 and prior to April 30, 2025, and a syndicate of which13 financial institutions on and after April 30, 2025 and prior to April 30, 2026. The 2021 Eureka Credit Facility is underwritten by a syndicate of 16 financial institutions before November 13, 2024 and a syndicate of 14 financial institutions on and after November 13, 2024 and prior to November 13, 2025. Each financial institution is obligated to fund its pro rata portion of any borrowings by the Company. Each lender of the financial institutions in the
syndicate holds 11% of the facility.EQM or Eureka, as applicable. EQM's credit facility is underwritten by a syndicate of 21 financial institutions, each of which is obligated to fund its pro rata portion of any borrowings by EQM. No one lender of the financial institutions in the syndicate holds more than 10% of the facility. The Company's and EQM'sEureka's respective large syndicate groups and relatively low percentage of participation by each lender is expected to limit the Company's and EQM'sEureka's respective exposure to disruption or consolidation in the banking industry.
See Note 9 to the consolidated financial statements for further details.
Item 8. Financial Statements and Supplementary Data
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| Page No. |
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| Page No. |
ReportReports of Independent Registered Public Accounting Firm (PCAOB ID: 42) | |
Statements of Consolidated Comprehensive Income for the Years Ended December 31, 2018, 20172023, 2022 and 20162021 | |
Statements of Consolidated Cash Flows for the Years Ended December 31, 2018, 20172023, 2022 and 20162021 | |
Consolidated Balance Sheets as of December 31, 20182023 and 20172022 | |
Statements of Consolidated Shareholders' Equity and Mezzanine Equity for the Years Ended December 31, 2018, 20172023, 2022 and 20162021 | |
| Notes to Consolidated Financial Statements | |
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Equitrans Midstream Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Equitrans Midstream Corporation (including its Predecessor as defined in Note 1) (the Company) as of December 31, 20182023 and 2017,2022, the related statements of consolidated comprehensive income, cash flows and shareholders' equity and mezzanine equity for each of the three years in the period ended December 31, 2018,2023, and the related notes (collectively referred to as the “financial“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 20182023 and 2017,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018,2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 20, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Accounting Oversight Board (United States) (PCAOB)PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
| | | | | |
| |
| |
| Valuation of Equity Method Investment in Mountain Valley Pipeline, LLC (MVP Joint Venture) |
| |
| Description of the Matter | At December 31, 2023, the Company has an investment in the MVP Joint Venture, which is constructing the Mountain Valley Pipeline, of approximately $1,832.3 million. As discussed in Notes 1, 2, and 7 to the consolidated financial statements the Company accounts for its interest in the MVP Joint Venture under the equity method because it can exercise significant influence, but not control, over the MVP Joint Venture's operating and financial policies. The Company reviews its investment in the MVP Joint Venture for impairment whenever events or changes in circumstances indicate that the fair value may have declined in value below the carrying value. Adverse developments, including legal and regulatory matters, cost increases, and other unanticipated events may indicate an impairment in value. During the year ended December 31, 2023, the Company evaluated the developments around the MVP Joint Venture and concluded no impairment existed.
Auditing management’s evaluation of the MVP Joint Venture for indicators of impairment was complex due to the significant judgment required, particularly related to legal and regulatory matters, cost increases, and other developments that could impact the viability of the Mountain Valley Pipeline project. The audit procedures to evaluate the reasonableness of management’s monitoring of impairment indicators required a high degree of auditor judgement and an increased extent of effort.
|
| |
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s monitoring of impairment indicators for the MVP Joint Venture.
To test the Company’s impairment evaluation related to its investment in the MVP Joint Venture, we performed audit procedures that included evaluating management’s process for identifying impairment indicators. We assessed management’s consideration of potential changes in legal or regulatory trends, cost increases and other events and how such developments could impact factors that influence the viability of the project. We evaluated both supporting and contrary evidence. Our procedures also included evaluating the sufficiency of the Company’s disclosures with respect to the valuation of the investment in the MVP Joint Venture described in Note 2 and 7 to the consolidated financial statements.
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| | |
| /s/ Ernst & Young LLP | |
| We have served as the Company's auditor since 2018. | |
| Pittsburgh, Pennsylvania | |
February 14, 2019 | 20, 2024 |
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Equitrans Midstream Corporation
Opinion on Internal Control Over Financial Reporting
We have audited Equitrans Midstream Corporation's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Equitrans Midstream Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2023 and 2022, the related statements of consolidated comprehensive income, cash flows and shareholders' equity and mezzanine equity for each of the three years in the period ended December 31, 2023, and the related notes and our report dated February 20, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
| | |
| /s/ Ernst & Young LLP |
| Pittsburgh, Pennsylvania |
| February 20, 2024 |
EQUITRANS MIDSTREAM CORPORATION
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31,
| | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| | (Thousands, except per share amounts) |
| Operating revenues | $ | 1,393,929 | | | $ | 1,357,747 | | | $ | 1,317,037 | |
| Operating expenses: | | | | | |
| Operating and maintenance | 177,972 | | | 154,667 | | | 153,179 | |
| Selling, general and administrative | 187,374 | | | 128,472 | | | 137,056 | |
| | | | | |
| Depreciation | 279,386 | | | 272,195 | | | 270,404 | |
| Amortization of intangible assets | 64,819 | | | 64,819 | | | 64,819 | |
| | | | | |
| Impairment of long-lived assets | — | | | — | | | 56,178 | |
| Total operating expenses | 709,551 | | | 620,153 | | | 681,636 | |
| Operating income | 684,378 | | | 737,594 | | | 635,401 | |
Equity income (a) | 175,215 | | | 168 | | | 17,579 | |
| Impairments of equity method investment | — | | | (583,057) | | | (1,926,402) | |
| Other income (expense), net | 3,222 | | | 13,871 | | | (47,546) | |
| Loss on extinguishment of debt | — | | | (24,937) | | | (41,025) | |
| Net interest expense | (426,884) | | | (394,333) | | | (378,650) | |
| Income (loss) before income taxes | 435,931 | | | (250,694) | | | (1,740,643) | |
| Income tax (benefit) expense | (18,823) | | | 6,444 | | | (343,353) | |
| Net income (loss) | 454,754 | | | (257,138) | | | (1,397,290) | |
| Net income attributable to noncontrolling interest | 9,525 | | | 12,204 | | | 14,530 | |
| Net income (loss) attributable to Equitrans Midstream | 445,229 | | | (269,342) | | | (1,411,820) | |
| Preferred dividends | 58,512 | | | 58,512 | | | 58,512 | |
| Net income (loss) attributable to Equitrans Midstream common shareholders | $ | 386,717 | | | $ | (327,854) | | | $ | (1,470,332) | |
| | | | | |
Earnings (loss) per share of common stock attributable to Equitrans Midstream common shareholders - basic | $ | 0.89 | | | $ | (0.76) | | | $ | (3.40) | |
| Earnings (loss) per share of common stock attributable to Equitrans Midstream common shareholders - diluted | $ | 0.89 | | | $ | (0.76) | | | $ | (3.40) | |
| | | | | |
| Weighted average common shares outstanding - basic | 433,963 | | | 433,341 | | | 433,008 | |
| Weighted average common shares outstanding - diluted | 436,132 | | | 433,341 | | | 433,008 | |
| | | | | |
| Statement of comprehensive income (loss): | | | | | |
| Net income (loss) | $ | 454,754 | | | $ | (257,138) | | | $ | (1,397,290) | |
| Other comprehensive income, net of tax: | | | | | |
| Pension and other post-retirement benefits liability adjustment, net of tax expense of $19, $236 and $62 | 60 | | | 722 | | | 175 | |
| Other comprehensive income | 60 | | | 722 | | | 175 | |
| Comprehensive income (loss) | 454,814 | | | (256,416) | | | (1,397,115) | |
| Less: Comprehensive income attributable to noncontrolling interest | 9,525 | | | 12,204 | | | 14,530 | |
| Less: Comprehensive income attributable to preferred dividends | 58,512 | | | 58,512 | | | 58,512 | |
| Comprehensive income (loss) attributable to Equitrans Midstream common shareholders | $ | 386,777 | | | $ | (327,132) | | | $ | (1,470,157) | |
| | | | | |
| Dividends declared per common share | $ | 0.60 | | | $ | 0.60 | | | $ | 0.60 | |
|
| | | | | | | | | | | |
| | 2018 | | 2017 | | 2016 |
| | (Thousands, except per share amounts) |
Operating revenues (a) | $ | 1,495,098 |
| | $ | 895,558 |
| | $ | 732,272 |
|
| Operating expenses: | | | | | |
|
Operating and maintenance (b) | 163,192 |
| | 84,831 |
| | 69,255 |
|
Selling, general and administrative (b) | 124,069 |
| | 80,339 |
| | 75,512 |
|
Separation and other transaction costs (b) | 85,444 |
| | 85,124 |
| | — |
|
| Depreciation | 175,821 |
| | 96,674 |
| | 62,691 |
|
| Amortization of intangible assets | 41,547 |
| | 5,540 |
| | — |
|
| Impairment of long-lived assets | — |
| | — |
| | 59,748 |
|
| Impairment of goodwill | 261,941 |
| | — |
| | — |
|
| Total operating expenses | 852,014 |
| | 352,508 |
| | 267,206 |
|
| Operating income | 643,084 |
| | 543,050 |
| | 465,066 |
|
Equity income (c) | 61,778 |
| | 22,171 |
| | 9,898 |
|
| Other income | 5,011 |
| | 4,439 |
| | 27,113 |
|
Net interest expense (d) | 115,454 |
| | 34,801 |
| | 16,761 |
|
| Income before income taxes | 594,419 |
| | 534,859 |
| | 485,316 |
|
| Income tax expense | 83,142 |
| | 212,402 |
| | 98,243 |
|
| Net income | 511,277 |
| | 322,457 |
| | 387,073 |
|
| Less: Net income attributable to noncontrolling interests | 292,879 |
| | 349,613 |
| | 321,920 |
|
| Net income (loss) attributable to Equitrans Midstream Corporation | $ | 218,398 |
| | $ | (27,156 | ) | | $ | 65,153 |
|
| | | | | | |
| Earnings (loss) per share of common stock attributable to Equitrans Midstream Corporation: | | | | | |
| Basic: | | | | | |
| Weighted average common stock outstanding | 254,432 |
| | 254,432 |
| | 254,432 |
|
| Net income (loss) | $ | 0.86 |
| | $ | (0.11 | ) | | $ | 0.26 |
|
| Diluted: | | | | | |
| Weighted average common stock outstanding | 255,033 |
| | 254,432 |
| | 255,033 |
|
| Net income (loss) | $ | 0.86 |
| | $ | (0.11 | ) | | $ | 0.26 |
|
| | | | | | |
| Net income | $ | 511,277 |
| | $ | 322,457 |
| | $ | 387,073 |
|
| Other comprehensive loss, net of tax: | | | | | |
| Pension and other post-retirement benefits liability adjustment, net of tax expense of $638 | (1,509 | ) | | — |
| | — |
|
| Other comprehensive loss | (1,509 | ) | | — |
| | — |
|
| Comprehensive income | 509,768 |
| | 322,457 |
| | 387,073 |
|
| Less: Comprehensive income attributable to noncontrolling interests | 292,879 |
| | 349,613 |
| | 321,920 |
|
| Comprehensive income (loss) attributable to Equitrans Midstream Corporation | $ | 216,889 |
| | $ | (27,156 | ) | | $ | 65,153 |
|
| |
(a) | Operating revenues included related party revenues from EQT Corporation (NYSE: EQT) (EQT) of approximately $1.1 billion, $665.9 million and $551.4 million for the years ended December 31, 2018, 2017 and 2016, respectively. See Note 8. |
| |
(b) | Operating and maintenance expense included charges from EQT of $49.8 million, $40.6 million and $34.2 million for the years ended December 31, 2018, 2017 and 2016, respectively. Selling, general and administrative expense included charges from EQT of $85.1 million, $75.6 million and $70.4 million for the years ended December 31, 2018, 2017 and 2016, respectively. See Note 8. Separation and other transaction costs represent selling, general and administrative expenses related to the Rice Merger, the EQM-RMP Mergers, the Drop-Down Transaction, the Separation and the EQGP Buyout (each defined in Note 1) and included charges from EQT of $53.3 million and $85.1 million for the years ended December 31, 2018 and 2017, respectively. See Notes 1 and 8. |
| |
(c) | Represents equity income from Mountain Valley Pipeline, LLC (the MVP Joint Venture). See Note 7. |
| |
(d) | Net interest expense included interest income on the Preferred Interest (defined in Note 1) of $6.6 million, $6.8 million and $1.7 million for the years ended December 31, 2018, 2017 and 2016, respectively. Other income included distributions received from EES (defined in Note 1) of $8.3 million for the year ended December 31, 2016. See Note 1. |
The accompanying notes are an integral part of these consolidated financial statements.
EQUITRANS MIDSTREAM CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOWS
|
| | | | | | | | | | | |
| | 2018 | | 2017 | | 2016 |
| | (Thousands) |
| Cash flows from operating activities: | |
| | |
| | |
| Net income | $ | 511,277 |
| | $ | 322,457 |
| | $ | 387,073 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation | 175,821 |
| | 96,674 |
| | 62,691 |
|
| Amortization of intangible assets | 41,547 |
| | 5,540 |
| | — |
|
| Impairment of long-lived assets | — |
| | — |
| | 59,748 |
|
| Impairment of goodwill | 261,941 |
| | — |
| | — |
|
| Deferred income taxes | 25,246 |
| | 158,369 |
| | (17,576 | ) |
| Equity income | (61,778 | ) | | (22,171 | ) | | (9,898 | ) |
| AFUDC — equity | (5,570 | ) | | (5,110 | ) | | (19,402 | ) |
| Non-cash long-term compensation expense | 4,190 |
| | 468 |
| | 373 |
|
| Changes in other assets and liabilities: | | | | | |
| Accounts receivable | (36,225 | ) | | (24,569 | ) | | (3,718 | ) |
| Accounts payable | (90,502 | ) | | 130,347 |
| | 87,099 |
|
| Other assets and other liabilities | (104,237 | ) | | 7,736 |
| | 3,115 |
|
| Net cash provided by operating activities | 721,710 |
| | 669,741 |
| | 549,505 |
|
| Cash flows from investing activities: | |
| | |
| | |
| Capital expenditures | (865,882 | ) | | (380,151 | ) | | (584,819 | ) |
| Capital contributions to the MVP Joint Venture | (913,195 | ) | | (159,550 | ) | | (98,399 | ) |
| (Purchases)/ Sales of interests in the MVP Joint Venture | (11,302 | ) | | — |
| | 12,533 |
|
| Principal payments received on the Preferred Interest | 4,406 |
| | 4,166 |
| | 1,024 |
|
| Net cash used in investing activities | (1,785,973 | ) | | (535,535 | ) | | (669,661 | ) |
| Cash flows from financing activities: | |
| | |
| | |
| Proceeds from the issuance of EQM common units, net of offering costs | — |
| | — |
| | 217,102 |
|
| Proceeds from credit facility borrowings | 3,446,500 |
| | 544,000 |
| | 740,000 |
|
| Payments on credit facility borrowings | (3,271,000 | ) | | (344,000 | ) | | (1,039,000 | ) |
| Proceeds from the issuance of EQM's senior notes | 2,500,000 |
| | — |
| | 500,000 |
|
| Proceeds from the issuance of long-term debt | 600,000 |
| | — |
| | — |
|
| Net (payments on) proceeds from EQGP's working capital loan with EQT | (168 | ) | | 84 |
| | 18 |
|
| Net (distributions to) contributions from EQT | (1,117,577 | ) | | (1,009,501 | ) | | 203,926 |
|
| Net contribution to Strike Force Midstream LLC by minority owner | — |
| | 6,738 |
| | — |
|
| Distributions paid to noncontrolling interest unitholders | (380,651 | ) | | (236,123 | ) | | (189,981 | ) |
| Acquisition of 25% of Strike Force Midstream LLC | (175,000 | ) | | — |
| | — |
|
| Acquisition of EQGP common units | (291,206 | ) | | — |
| | — |
|
| Debt discount, debt issuance costs and credit facility origination fees | (73,467 | ) | | (2,257 | ) | | (8,580 | ) |
| Net cash provided by (used in) financing activities | 1,237,431 |
| | (1,041,059 | ) | | 423,485 |
|
| | | | | | |
| Net change in cash and cash equivalents | 173,168 |
| | (906,853 | ) | | 303,329 |
|
Cash and cash equivalents at beginning of year (a) | 121,004 |
| | 1,027,857 |
| | 662,941 |
|
| Cash and cash equivalents at end of year | $ | 294,172 |
| | $ | 121,004 |
| | $ | 966,270 |
|
| |
(a) | Cash and cash equivalents at beginning of year for December 31, 2017 includes $61.6 million of cash and cash equivalents acquired at the effective time of the Rice Merger. See Note 2. |
| | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 |
| | (Thousands) |
| Cash flows from operating activities: | | | | | |
| Net income (loss) | $ | 454,754 | | | $ | (257,138) | | | $ | (1,397,290) | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | |
| Depreciation | 279,386 | | | 272,195 | | | 270,404 | |
| Amortization of intangible assets | 64,819 | | | 64,819 | | | 64,819 | |
| Provision for (recovery of) credit losses on accounts receivable and contract asset write-down | 11,198 | | | 335 | | | (2,004) | |
| Deferred income tax (benefit) expense | (38,061) | | | 5,472 | | | (348,206) | |
| Impairments of long-lived assets and equity method investment | — | | | 583,057 | | | 1,982,580 | |
Equity income (a) | (175,215) | | | (168) | | | (17,579) | |
| Other (income) expense, net | (2,599) | | | (13,644) | | | 47,485 | |
| Loss on extinguishment of debt | — | | | 24,937 | | | 41,025 | |
| Non-cash long-term compensation expense | 39,313 | | | 15,800 | | | 13,083 | |
| Changes in other assets and liabilities: | | | | | |
| Accounts receivable | 21,947 | | | 22,523 | | | 66,176 | |
| Accounts payable | (4,156) | | | 12,667 | | | (2,709) | |
| | | | | |
| Accrued interest | (1,432) | | | (16,147) | | | 25,718 | |
| Deferred revenue | 328,013 | | | 346,491 | | | 423,666 | |
| EQT Cash Option | — | | | (195,820) | | | — | |
| | | | | |
| Other assets and other liabilities | 38,111 | | | (19,604) | | | 1,600 | |
| Net cash provided by operating activities | 1,016,078 | | | 845,775 | | | 1,168,768 | |
| Cash flows from investing activities: | | | | | |
| Capital expenditures | (386,514) | | | (376,661) | | | (290,521) | |
| Capital contributions to the MVP Joint Venture | (689,405) | | | (199,613) | | | (287,665) | |
| | | | | |
| Principal payments received on the Preferred Interest (defined in Note 1) | 5,837 | | | 5,518 | | | 5,217 | |
| Proceeds from sale of gathering assets | — | | | 3,719 | | | — | |
| Net cash used in investing activities | (1,070,082) | | | (567,037) | | | (572,969) | |
| Cash flows from financing activities: | | | | | |
| | | | | |
| Proceeds from revolving credit facility borrowings | 1,177,000 | | | 554,500 | | | 467,500 | |
| Payments on revolving credit facility borrowings | (482,000) | | | (524,500) | | | (750,000) | |
| Proceeds from the issuance of long-term debt | — | | | 1,000,000 | | | 1,900,000 | |
| Debt discounts, debt issuance costs and credit facility arrangement fees | (3,362) | | | (19,880) | | | (29,904) | |
| Payments for retirement of long-term debt | (98,941) | | | (1,021,459) | | | (1,936,250) | |
| | | | | |
| Dividends paid to common shareholders | (259,920) | | | (259,650) | | | (259,495) | |
| Dividends paid to holders of Equitrans Midstream Preferred Shares | (58,512) | | | (58,512) | | | (58,512) | |
| Distributions paid to noncontrolling interest | (26,320) | | | (16,000) | | | (2,500) | |
| | | | | |
| Other items | (2,962) | | | — | | | — | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Net cash provided by (used in) financing activities | 244,983 | | | (345,501) | | | (669,161) | |
| | | | | |
| Net change in cash and cash equivalents | 190,979 | | | (66,763) | | | (73,362) | |
| Cash and cash equivalents at beginning of year | 67,898 | | | 134,661 | | | 208,023 | |
| Cash and cash equivalents at end of year | $ | 258,877 | | | $ | 67,898 | | | $ | 134,661 | |
| | | | | |
| Cash paid during the year for: | | | | | |
| Interest, net of amount capitalized | $ | 422,817 | | | $ | 401,156 | | | $ | 343,351 | |
| Income taxes, net | 7,201 | | | 1,243 | | | 3,500 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
(a) Represents equity income from the MVP Joint Venture. See Note 1 for supplementary cash flow information.
7.
EQUITRANS MIDSTREAM CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
| | | | | | | | | | | |
| 2023 | | 2022 |
| (Thousands) |
| ASSETS | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 258,877 | | | $ | 67,898 | |
| Accounts receivable (net of allowance for credit losses of $6,429 and $3,031 as of December 31, 2023 and 2022, respectively) | 258,264 | | | 246,887 | |
| Other current assets | 78,356 | | | 74,917 | |
| Total current assets | 595,497 | | | 389,702 | |
| | | |
| Property, plant and equipment | 9,745,298 | | | 9,365,051 | |
| Less: accumulated depreciation | (1,752,914) | | | (1,480,720) | |
| Net property, plant and equipment | 7,992,384 | | | 7,884,331 | |
| | | |
Investment in unconsolidated entity (a) | 1,832,282 | | | 819,743 | |
| Goodwill | 486,698 | | | 486,698 | |
| Net intangible assets | 522,133 | | | 586,952 | |
| | | |
| Other assets | 280,432 | | | 278,159 | |
| Total assets | $ | 11,709,426 | | | $ | 10,445,585 | |
| | | |
| LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS' EQUITY | | | |
| Current liabilities: | | | |
| Current portion of long-term debt | $ | 299,731 | | | $ | 98,830 | |
| | | |
| Accounts payable | 60,884 | | | 60,528 | |
| Capital contributions payable to the MVP Joint Venture | 181,051 | | | 34,355 | |
| Accrued interest | 134,330 | | | 135,762 | |
| Accrued liabilities | 106,870 | | | 83,835 | |
| Total current liabilities | 782,866 | | | 413,310 | |
| Long-term liabilities: | | | |
| Revolving credit facility borrowings | 1,230,000 | | | 535,000 | |
| Long-term debt | 6,046,709 | | | 6,335,320 | |
| Contract liability | 1,296,039 | | | 968,535 | |
| | | |
| Regulatory and other long-term liabilities | 165,695 | | | 112,974 | |
| Total liabilities | 9,521,309 | | | 8,365,139 | |
| | | |
| Mezzanine equity: | | | |
| Equitrans Midstream Preferred Shares, 30,018 shares issued and outstanding as of December 31, 2023 and 2022 | 681,842 | | | 681,842 | |
| | | |
| Shareholders' equity: | | | |
| | | |
| Common stock, no par value, 433,505 and 432,781 shares issued and outstanding as of December 31, 2023 and 2022, respectively | 3,977,149 | | | 3,974,127 | |
| Retained deficit | (2,932,206) | | | (3,053,590) | |
| Accumulated other comprehensive loss | (1,272) | | | (1,332) | |
| Total common shareholders' equity | 1,043,671 | | | 919,205 | |
| Noncontrolling interest | 462,604 | | | 479,399 | |
| Total shareholders' equity | 1,506,275 | | | 1,398,604 | |
| Total liabilities, mezzanine equity and shareholders' equity | $ | 11,709,426 | | | $ | 10,445,585 | |
|
| | | | | | | |
| | 2018 | | 2017 |
| | (Thousands) |
| ASSETS | |
| Current assets: | |
| | |
|
| Cash and cash equivalents | $ | 294,172 |
| | $ | 121,004 |
|
Accounts receivable (net of allowance for doubtful accounts of $75 and $446 as of December 31, 2018 and 2017, respectively) (a) | 255,496 |
| | 219,271 |
|
| Other current assets | 19,171 |
| | 14,565 |
|
| Total current assets | 568,839 |
| | 354,840 |
|
| | | | |
| Property, plant and equipment | 6,469,846 |
| | 5,516,527 |
|
| Less: accumulated depreciation | (602,199 | ) | | (405,665 | ) |
| Net property, plant and equipment | 5,867,647 |
| | 5,110,862 |
|
| | | | |
| Investment in unconsolidated entity | 1,510,289 |
| | 460,546 |
|
| Goodwill | 1,239,269 |
| | 1,384,872 |
|
| Net intangible assets | 576,113 |
| | 617,660 |
|
| Deferred income taxes | 597,321 |
| | 257,128 |
|
| Other assets | 164,357 |
| | 142,888 |
|
| Total assets | $ | 10,523,835 |
| | $ | 8,328,796 |
|
| | | | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | |
| | |
|
| Current liabilities: | |
| | |
|
| Current portion of long-term debt | $ | 6,000 |
| | $ | — |
|
Accounts payable (a) | 210,007 |
| | 468,422 |
|
| Capital contribution payable to the MVP Joint Venture | 169,202 |
| | 105,734 |
|
| Accrued interest | 80,236 |
| | 11,067 |
|
| Accrued liabilities | 84,011 |
| | 20,995 |
|
| Total current liabilities | 549,456 |
| | 606,218 |
|
| | | | |
| Credit facility borrowings | 641,500 |
| | 466,000 |
|
| EQM senior notes | 3,456,639 |
| | 987,352 |
|
| Long-term debt | 562,105 |
| | — |
|
| Regulatory and other long-term liabilities | 54,502 |
| | 30,462 |
|
| Total liabilities | 5,264,202 |
| | 2,090,032 |
|
| | | | |
| Shareholders' equity: | |
| | |
|
| Parent net investment | — |
| | 1,143,769 |
|
| Common stock, no par value, authorized 1,250,000 shares, issued 254,271 shares in 2018 | 425,370 |
| | — |
|
| Retained earnings | 33,932 |
| | — |
|
| Accumulated other comprehensive loss | (1,509 | ) | | — |
|
| Total common shareholders' equity | 457,793 |
| | 1,143,769 |
|
| Noncontrolling interests | 4,801,840 |
| | 5,094,995 |
|
| Total shareholders' equity | 5,259,633 |
| | 6,238,764 |
|
| Total liabilities and shareholders' equity | $ | 10,523,835 |
| | $ | 8,328,796 |
|
| |
(a) | Accounts receivable as of December 31, 2018 and 2017 included $175.9 million and $158.7 million, respectively of accounts receivable due from EQT, a related party. Accounts payable as of December 31, 2018 and 2017 included $34.1 million and $363.1 million, respectively, of accounts payable due to EQT. |
(a) Represents investment in the MVP Joint Venture. See Note 7.
The accompanying notes are an integral part of these consolidated financial statements.
EQUITRANS MIDSTREAM CORPORATION
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY AND MEZZANINE EQUITY
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Common Stock | | | | | | | | |
| | | | | | | | | | Accumulated Other | | | | |
| | | | | | | | | | | | | |
| | Parent Net | | Shares | | No | | Retained | | Comprehensive | | Noncontrolling | | Total |
| | Investment | | Outstanding | | Par Value | | Earnings | | Loss | | Interests | | Equity |
| | (Thousands, except per unit amounts) |
| Balance at January 1, 2016 | $ | (898,703 | ) | | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 2,950,251 |
| | $ | 2,051,548 |
|
| Net income | 65,153 |
| | — |
| | — |
| | — |
| | — |
| | 321,920 |
| | 387,073 |
|
| Net contributions from EQT | 740,797 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 740,797 |
|
| Share-based compensation plans | 212 |
| | — |
| | — |
| | — |
| | — |
| | 161 |
| | 373 |
|
Distributions paid to noncontrolling interest unitholders ($3.05 and
$0.571 per common unit for EQM and EQGP, respectively) | — |
| | — |
| | — |
| | — |
| | — |
| | (189,981 | ) | | (189,981 | ) |
| Issuance of EQM common units, net of offering costs | — |
| | — |
| | — |
| | — |
| | — |
| | 217,102 |
| | 217,102 |
|
| Net changes in ownership of consolidated entities | 24,296 |
| | — |
| | — |
| | — |
| | — |
| | (40,487 | ) | | (16,191 | ) |
| Elimination of net current and deferred tax liabilities | 1,945 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1,945 |
|
| Balance at December 31, 2016 | $ | (66,300 | ) | | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 3,258,966 |
| | $ | 3,192,666 |
|
| Net income | (27,156 | ) | | — |
| | — |
| | — |
| | — |
| | 349,613 |
| | 322,457 |
|
| Net distributions to EQT | (893,682 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (893,682 | ) |
| Net contribution to Strike Force Midstream LLC by minority owner | — |
| | — |
| | — |
| | — |
| | — |
| | 6,738 |
| | 6,738 |
|
| Share-based compensation plans | 278 |
| | — |
| | — |
| | — |
| | — |
| | 190 |
| | 468 |
|
Distributions paid to noncontrolling interest unitholders ($3.655 and
$0.806 per common unit for EQM and EQGP, respectively) | — |
| | — |
| | — |
| | — |
| | — |
| | (236,123 | ) | | (236,123 | ) |
Rice Merger (a) | 2,130,629 |
| | — |
| | — |
| | — |
| | — |
| | 1,715,611 |
| | 3,846,240 |
|
| Balance at December 31, 2017 | $ | 1,143,769 |
| | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 5,094,995 |
| | $ | 6,238,764 |
|
| Other comprehensive income (net of tax): | | | | | | | | | | | | | |
| Net income | 184,466 |
| | — |
| | — |
| | 33,932 |
| | — |
| | 292,879 |
| | 511,277 |
|
| Pension and other post-retirement benefits liability adjustment, net of tax expense of $638 | — |
| | — |
| | — |
| | — |
| | (1,509 | ) | | — |
| | (1,509 | ) |
| Purchase of Strike Force Midstream LLC noncontrolling interests | 1,818 |
| | — |
| | — |
| | — |
| | — |
| | (176,818 | ) | | (175,000 | ) |
| Net changes in ownership of consolidated entities | (159,255 | ) | | — |
| | — |
| | — |
| | — |
| | 214,924 |
| | 55,669 |
|
| Share-based compensation plans | 340 |
| | 2 |
| | 2,897 |
| | — |
| | — |
| | 953 |
| | 4,190 |
|
| Issuance of Equitrans Midstream common stock | — |
| | 254,269 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| Net distributions to EQT | (701,901 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | (701,901 | ) |
| Separation-related adjustments | (469,237 | ) | | — |
| | 469,237 |
| | — |
| | — |
| | — |
| | — |
|
| Distributions paid to noncontrolling interest unitholders ($4.295, $1.123 and $0.5966 per common unit for EQM, EQGP and RMP, respectively) | — |
| | — |
| | — |
| | — |
| | — |
| | (380,651 | ) | | (380,651 | ) |
| Purchase of EQGP common units | — |
| | — |
| | (46,764 | ) | | — |
| | — |
| | (244,442 | ) | | (291,206 | ) |
| Balance at December 31, 2018 | $ | — |
| | 254,271 |
| | $ | 425,370 |
| | $ | 33,932 |
| | $ | (1,509 | ) | | $ | 4,801,840 |
| | $ | 5,259,633 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Mezzanine |
| | | | | | | | | | | | | | | Equity |
| | | | | | | | | Accumulated Other | | | | | | Equitrans |
| | | Common Stock | | | | | | | | | Midstream |
| | | | Shares | | No | | Retained | | Comprehensive | | Noncontrolling | | Total | | Preferred |
| | | | Outstanding | | Par Value | | Deficit | | Loss | | Interest | | Equity | | Shares |
| | | | (Thousands, except per share amounts) | | |
| Balance at January 1, 2021 | | | 432,470 | | | $ | 3,941,295 | | | $ | (734,019) | | | $ | (2,229) | | | $ | 471,165 | | | $ | 3,676,212 | | | $ | 681,842 | |
| Other comprehensive income (net of tax): | | | | | | | | | | | | | | | |
| Net (loss) income | | | — | | | — | | | (1,470,332) | | | — | | | 14,530 | | | (1,455,802) | | | 58,512 | |
| Pension and other post-retirement benefits liability adjustment, net of tax benefit of $62 | | | — | | | — | | | — | | | 175 | | | — | | | 175 | | | — | |
| Dividends on common shares ($0.60 per share) | | | — | | | — | | | (260,222) | | | — | | | — | | | (260,222) | | | — | |
| Share-based compensation plans, net | | | 52 | | | 14,623 | | | — | | | — | | | — | | | 14,623 | | | — | |
| Distributions paid to noncontrolling interest in Eureka Midstream Holdings, LLC | | | — | | | — | | | — | | | — | | | (2,500) | | | (2,500) | | | — | |
| | | | | | | | | | | | | | | |
| Dividends paid to holders of Equitrans Midstream Preferred Shares ($1.9492 per Share) | | | — | | | — | | | — | | | — | | | — | | | — | | | (58,512) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Balance at December 31, 2021 | | | 432,522 | | | $ | 3,955,918 | | | $ | (2,464,573) | | | $ | (2,054) | | | $ | 483,195 | | | $ | 1,972,486 | | | $ | 681,842 | |
| Other comprehensive income (net of tax): | | | | | | | | | | | | | | | |
| Net (loss) income | | | — | | | — | | | (327,854) | | | — | | | 12,204 | | | (315,650) | | | 58,512 | |
| Pension and other post-retirement benefits liability adjustment, net of tax expense of $236 | | | — | | | — | | | — | | | 722 | | | — | | | 722 | | | — | |
| Dividends on common shares ($0.60 per share) | | | — | | | — | | | (261,163) | | | — | | | — | | | (261,163) | | | — | |
| Share-based compensation plans, net | | | 259 | | | 18,209 | | | — | | | — | | | — | | | 18,209 | | | — | |
| Distributions paid to noncontrolling interest in Eureka Midstream Holdings, LLC | | | — | | | — | | | — | | | — | | | (16,000) | | | (16,000) | | | — | |
| Dividends paid to holders of Equitrans Midstream Preferred Shares ($1.9492 per share) | | | — | | | — | | | — | | | — | | | — | | | — | | | (58,512) | |
| Balance at December 31, 2022 | | | 432,781 | | | $ | 3,974,127 | | | $ | (3,053,590) | | | $ | (1,332) | | | $ | 479,399 | | | $ | 1,398,604 | | | $ | 681,842 | |
| Other comprehensive income (net of tax): | | | | | | | | | | | | | | | |
| Net income | | | — | | | — | | | 386,717 | | | — | | | 9,525 | | | 396,242 | | | 58,512 | |
| Pension and other post-retirement benefits liability adjustment, net of tax expense of $19 | | | — | | | — | | | — | | | 60 | | | — | | | 60 | | | — | |
| Dividends on common shares ($0.60 per share) | | | — | | | — | | | (265,333) | | | — | | | — | | | (265,333) | | | — | |
| Share-based compensation plans, net | | | 724 | | | 40,558 | | | — | | | — | | | — | | | 40,558 | | | — | |
| Distributions paid to noncontrolling interest in Eureka Midstream Holdings, LLC | | | — | | | — | | | — | | | — | | | (26,320) | | | (26,320) | | | — | |
| Dividends paid to holders of Equitrans Midstream Preferred Shares ($1.9492 per share) | | | — | | | — | | | — | | | — | | | — | | | — | | | (58,512) | |
| Other items | | | — | | | (37,536) | | | — | | | — | | | — | | | (37,536) | | | — | |
| Balance at December 31, 2023 | | | 433,505 | | | $ | 3,977,149 | | | $ | (2,932,206) | | | $ | (1,272) | | | $ | 462,604 | | | $ | 1,506,275 | | | $ | 681,842 | |
| |
(a) | Represents the estimated fair value of the Rice Midstream Holdings LLC net assets acquired by EQT and allocated to Equitrans Midstream Corporation as part of the Rice Merger. See Notes 1 and 2. |
Common shares authorized: 1,250,000 shares. Preferred shares authorized: 50,000 shares. There are no preferred shares issued or outstanding.
The accompanying notes are an integral part of these consolidated financial statements.
EQUITRANS MIDSTREAM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 20182023
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1. | Summary of Operations and Significant Accounting Policies |
1. Summary of Operations and Significant Accounting Policies
Organization
On February 21, 2018, EQT announced its plan to separate its midstream business, which was composed of the separately-operated natural gas gathering, transmission and storage and water services of EQT (collectively, the Midstream Business), from its upstream business, which was composed of the natural gas, oil and natural gas liquids development, production and sales and commercial operations of EQT (collectively, the Upstream Business) (the Separation). Equitrans Midstream Corporation (together with its consolidated subsidiaries Equitrans Midstream or the Company) was incorporated on May 11, 2018 as a wholly-owned subsidiary of EQT to hold the assets, liabilities and results of operations of EQT's Midstream Business.
On November 12, 2018, Equitrans Midstream, EQT and, for certain limited purposes, EQT Production Company, a wholly-owned subsidiary of EQT, entered into a separation and distribution agreement (the Separation and Distribution Agreement), pursuant to which, among other things, EQT effected the Separation, including the transfer of certain assets and liabilities toapplicable, the Company and distributed 80.1% of the then outstanding shares of common stock, no par value, ofor Equitrans Midstream (Equitrans Midstream common stock) to EQT shareholders of record as of the close of business on November 1, 2018 (the Distribution). The Distribution was effective at 11:59 p.m.Midstream), Eastern Time, on November 12, 2018 (the Separation Date). EQT retained the remaining 19.9% of the outstanding shares in Equitrans Midstream (the Retained Interest).
Post-Separation, the Company holds investments in the entities then-conducting the Midstream Business, including limited and general partner interests in EQGP Holdings, LP (formerly known as EQT GP Holdings, LP) (EQGP), which, as of December 31, 2018, owned limited partner interests, the entire general partner interest and all of the incentive distribution rights (IDRs) in EQM Midstream Partners, LP (formerly known as EQT Midstream Partners, LP) (NYSE: EQM) (EQM). As of December 31, 2018, EQGP was a subsidiary of Equitrans Gathering Holdings, LLC (formerly known as EQT Gathering Holdings, LLC) (Equitrans Gathering Holdings). Following the closing of the EQGP Unit Purchases and the exercise of the Limited Call Right (each defined and discussed in Note 6 and collectively referred to as the EQGP Buyout), EQGP becamePennsylvania corporation, is an indirect, wholly-owned subsidiary of the Company.
EQMindependent, publicly traded company that owns, operates, acquires and develops midstream assets, in and originating from the Appalachian Basin. As of December 31, 2018, EQM Midstream Services, LLC (formerly known as EQT Midstream Services, LLC) (the EQM General Partner) was a wholly-owned subsidiary of EQGP and EQM's general partner. As of December 31, 2018, EQGP Services, LLC (formerly known as EQT GP Services, LLC) (the EQGP General Partner) was a wholly-owned subsidiary of Equitrans Gathering Holdings and EQGP's general partner.
The Company's assets, liabilities and results of operations also includeoperating subsidiaries hold the legacy assets of Rice Midstream Holdings LLC (Rice Midstream Holdings). EQT obtained control of Rice Midstream Holdings on November 13, 2017 (the Rice Merger Date), when, pursuant to the agreement and plan of merger dated June 19, 2017 by and among EQT, Rice Energy Inc. (Rice Energy) and a wholly-owned subsidiary of EQT (EQT Merger Sub), Rice Energy became a wholly-owned, indirect subsidiary of EQT, and EQT became the indirect parent of Rice Midstream Holdings (the Rice Merger). The operations of Rice Midstream Holdings were primarily conducted through RM Partners LP (formerly known as Rice Midstream Partners LP) (RMP), Rice West Virginia Midstream LLC (now known as EQM West Virginia Midstream LLC) (EQM West Virginia), Rice Olympus Midstream LLC (now known as EQM Olympus Midstream LLC) (EQM Olympus) and Strike Force Midstream Holdings LLC (Strike Force Holdings). At the Rice Merger Date, Strike Force Holdings owned 75%majority of the outstanding limited liability company interests in Strike Force Midstream LLC (Strike Force Midstream), a Delaware limited liability company. Rice Midstream Holdings, through its wholly-owned, indirect subsidiary Rice Midstream GP Holdings LP (RMGP), owned Rice Midstream Management LLC (now known as EQM Midstream Management LLC), RMP's general partner (the RMP General Partner), as well as limited partner interestsCompany's assets and all ofthere are substantially no assets at the IDRs in RMP. Rice Midstream Holdings controlled the RMP General Partner and therefore consolidated the results of RMP. In 2018, EQM obtained control of the operating entities of Rice Midstream Holdings through the following transactions:
On April 25, 2018, EQM, RMP and certain of their affiliates entered into an agreement and plan of merger, pursuant to which EQM acquired RMP and the RMP General Partner (the EQM-RMP Mergers). The EQM-RMP Mergers closed on July 23, 2018.
On May 1, 2018, EQM acquired 25% of the outstanding limited liability company interests in Strike Force Midstream from Gulfport Midstream Holdings, LLC (Gulfport Midstream), an affiliate of Gulfport Energy Corporation, in exchange for $175 million in cash (the Gulfport Transaction).
On May 22, 2018, and effective May 1, 2018, EQM, through its wholly-owned subsidiary EQM Gathering Holdings, LLC, a Delaware limited liability company (EQM Gathering), acquired all the outstanding limited liability company interests in each of EQM West Virginia, EQM Olympus and Strike Force Holdings (collectively the Drop-Down Entities), pursuant to the terms of a contribution and sale agreement dated as of April 25, 2018 by and among EQM, EQM Gathering, EQT and Rice Midstream Holdings, in exchange for an aggregate of 5,889,282 common units representing limited partner interests in EQM (EQM common units) and cash consideration of $1.15 billion, plus working capital adjustments (the Drop-Down Transaction). As a result of the closing of the Drop-Down Transaction, effective May 1, 2018, the Drop-Down Entities and Strike Force Midstream became indirect, wholly-owned subsidiaries of EQM.
Basis of Presentation
As of December 31, 2018, the EQGP General Partner was a wholly-owned subsidiary of Equitrans Gathering Holdings and controlled EQGP through its general partner interest in EQGP; therefore, the financial statements of the Company consolidate EQGP. As of December 31, 2018, the EQM General Partner was a wholly-owned subsidiary of EQGP and controlled EQM through its general partner interest in EQM; therefore, the financial statements of EQGP consolidated EQM.
For each of the periods prior to the Separation presented in this Annual Report on Form 10-K, the consolidated financial statements and related notes include the assets, liabilities and results of operations of the Midstream Business that were transferred to the Company upon the closing of the Distribution and represent the predecessor for accounting purposes of Equitrans Midstream (the Predecessor).
Predecessor financial information has been derived from EQT's consolidated financial statements and accounting records and reflects the historical results of operations, financial position and cash flows of the Company as if the Midstream Business had been consolidated for all periods presented. The financial statements include expense allocations for certain corporate functions historically performed by EQT, such as executive oversight, accounting, treasury, tax, legal, procurement, information technology and share-based compensation. See Note 8. The Company believes the assumptions underlying the consolidated financial statements are reasonable; however, as organizational structure and strategic focus dictate expenses incurred, the financial statements may not include all expenses that would have been incurred had the Company existed as a standalone, publicly traded company for the entirety of the three years ended December 31, 2018. Similarly, the financial statements may not reflect the results of operations, financial position and cash flows had the Company existed as a standalone, publicly traded company.
References in these financial statements to Equitrans Midstream or the Company refer collectively to Equitrans Midstream Corporation and the Predecessor as applicable for all periods presented.stand-alone entity.
Nature of Business
The Company, through its control of EQM, providesCompany's operating subsidiaries provide midstream services to itsthe Company's customers in Pennsylvania, West Virginia and Ohio through its three primary assets: the gathering system, which delivers naturalincludes predominantly dry gas from wells and other receipt points to transmission pipelines;gathering systems of high-pressure gathering lines; the transmission system, which includes Federal Energy Regulatory Commission (FERC) regulated interstate pipelines and storage system, which delivers natural gas to local demand users and interstate pipelines for access to demand markets;systems; and the water service system,network, which primarily consists of water pipelines, impoundment facilities, pumping stations, take point facilitiesstorage, and measurementother facilities that support well completion activities and collect flowback and produced water for recycling or disposal.handling activities.
As of December 31, 2018,2023, the gathering system, inclusive of Eureka Midstream Holdings, LLC's (Eureka Midstream) gathering system, included approximately 7001,220 miles of high-pressure gathering lines with total contracted firm reservation capacity of approximately 2.47.7 billion cubic feet (Bcf) per day, which included contracted firm reservation capacity of approximately 1.8 Bcf per day associated with the Company's high-pressure header pipelines, 138 compressor units with compression of approximately 333,000491,000 horsepower and multiple interconnect points with the Company's transmission and storage system and to other interstate pipelines. The gathering system also included approximately 1,500 miles of Federal Energy Regulatory Commission (FERC)-regulated, low-pressure gathering lines.
As of December 31, 2018,2023, the transmission and storage system included approximately 950940 miles of FERC-regulated, interstate pipelinepipelines that have interconnect points to seven interstate pipelines and multiple local distribution companies (LDCs). The transmission and storage system is supported by 4142 compressor units, with total throughput capacity of approximately 4.4 Bcf per day and compression of approximately 120,000135,000 horsepower, and 18 associated natural gas storage reservoirs, which have a peak withdrawal capacity of approximately 645820 million cubic feet (MMcf) per day and a working gas capacity of approximately 43 Bcf.Bcf, in each case as of December 31, 2023.
As of December 31, 2018,2023, the Company's fresh water systemsystems included two independent systems composed of approximately 160201 miles of pipelinepipelines that deliver fresh water from local municipal water authorities, the Monongahela River, the Ohio River, local reservoirs and several regional waterways. The fresh water delivery services systems consist of permanent, buried pipelines, surface pipelines, and17 fresh water storage
impoundment facilities, as well as pumping stations, and 28 fresh water impoundment facilities, which support fresh water transportation throughout the systems, and take point facilities and measurement facilities, which support well completion activitiesactivities. As of December 31, 2023, the mixed water system included approximately 53 miles of buried pipeline and collecttwo water storage facilities with 350,000 barrels of capacity, as well as two interconnects with the Company's existing Pennsylvania fresh water systems and recycle or dispose flowbackprovides services to producers in southwestern Pennsylvania. The Company plans to continue to expand its mixed water system in 2024, including the completion of a pipeline to serve a producer in West Virginia and produced water.an interconnect to access another producer's West Virginia water network.
Significant Accounting Policies
Principles of Consolidation. The Company, for the periods presented in these consolidated financial statements priorinclude the accounts of all entities in which the Company holds a controlling financial interest. For consolidated subsidiaries in which the Company’s ownership is less than 100%, the Company records noncontrolling interest related to November 12, 2018, did not exist as a standalone, publicly-traded company holding the Midstream Business. Therefore, these consolidated financial statements are reflective of the Predecessor as applicable as describedthird-party ownership interests in "Basis of Presentation."
those entities. Investments over which the Company can exert significant influence, but not control, over operating and financial policies are recordedaccounted for under the equity method of accounting. Intercompany transactions have been eliminated for purposes of preparing these consolidated financial statements. Transactions between EQT, on the one hand, andReferences in these financial statements to Equitrans Midstream or the Company EQGP or EQM, on the other hand, during the period priorrefer collectively to the Separation Date, have been identifiedEquitrans Midstream Corporation and its consolidated subsidiaries for all periods presented, as transactions between related parties as discussed in Note 8.unless otherwise indicated.
Segments. Operating segments are revenue-producing components of the enterprise for which separate financial information is produced internally and is subject to evaluation by the Company's chief operating decision maker in deciding how to allocate resources. The Company reports its operations in three segments that reflect its three lines of business of Gathering, Transmission and Water. The operating segments are evaluated based on their contribution to the Company's operating income and equity income. Transmission also includes the Company's investment in the MVP Joint Venture, which is treatedaccounted for as
an equity method investment for accounting purposes as described in Note 7; as a result,7. Transmission's portion of the MVP Joint Venture's operating results is reflected in equity income and not in Transmission's operating income. All of the Company's operating revenues, income and assets are generated or located in the United States. See Note 53 for financial information by segment.
Reclassification.Certain previously reported amounts have been reclassified to conform to the current year presentation.
Use of Estimates. The preparation of financial statements in conformity with U.S. Generally Accepted Accounting Principles (GAAP) requires management to make estimates and assumptions that affect amounts reported in these financial statements. Actual results could differ from those estimates.
The Company's Post-Separation Relationship with EQT. Following the Separation and Distribution, the Company and EQT are separate companies with separate management teams and separate boards of directors, however, due to the Retained Interest held by EQT as of December 31, 2018, the Company and EQT remain related parties. See Note 8. In connection with the Distribution, the Company and EQT executed the Separation and Distribution Agreement and various other agreements, including the Transition Services Agreement, the Tax Matters Agreement, the Employee Matters Agreement and the Shareholder and Registration Rights Agreement (each defined and discussed in Note 8), to effect the Separation and provide a framework for their relationship after the Separation. These agreements provide for, among other things, the identification and transfer of the Midstream Business' assets, employees, liabilities and obligations (including investments, property, plant and equipment, employee benefits and tax-related assets and liabilities) to the Company and govern the relationship between the Company and EQT subsequent to the Separation. Net transfers and settlements related to the Separation and Distribution were presented as a net distribution to EQT on the statement of consolidated equity for the year ended December 31, 2018.
Cash Equivalents. The Company classifies highly-liquid investments with original maturities of three months or less as cash equivalents. Interest earned on cash equivalents is recorded as a reduction to net interest expense on the statements of consolidated comprehensive income.
Accounts Receivables. Trade and other receivables are stated at their historical carrying amount. Judgment is required to assessdetermine the ultimate realization of accounts receivable, including assessing the probability of collection and the creditworthiness of customers. BasedThe Company evaluates the allowance for credit losses on assessments by management, allowances for doubtful accounts were $0.1 million and $0.4 million ata quarterly basis in order to estimate uncollectible receivables.
Other Current Assets. The following table summarizes the Company's other current assets as of December 31, 20182023 and 2017, respectively. The Company also has receivables due2022. | | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
| (Thousands) |
| Prepaid expenses | $ | 26,795 | | | $ | 23,346 | |
| Henry Hub cash bonus payment provision | 24,503 | | | — | |
| Inventory | 15,851 | | | 19,173 | |
| Unbilled revenue | 8,753 | | | 24,465 | |
| Other current assets | 2,454 | | | 7,933 | |
| Total other current assets | $ | 78,356 | | | $ | 74,917 | |
Derivative Instruments. Derivative instruments are recorded on the Company’s consolidated balance sheets as either an asset or liability measured at fair value. Cash flows associated with derivative instruments and the related gains and losses are recorded as cash flows from EQT as discussed inoperating activities on the Company's statement of consolidated cash flows. See Note 8.10.
Fair Value of Financial Instruments.Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the reporting date. The Company categorizesCompany’s assets and liabilities disclosedthat are measured at fair value usingat each reporting date are classified according to a three-level fair value hierarchy based on priority ofthat prioritizes inputs and assumptions underlying the inputs used in the valuation. Thevaluation techniques. This fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets andor liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Owing to their short maturity,and consists of three broad levels:
•Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets as of the carrying values of cash and cash equivalents, accounts receivable and accounts payablereporting date.
•Level 2: Observable market-based inputs or unobservable inputs that are assumed to approximate fair value; as such, their fair valuescorroborated by market data. These are inputs other than quoted prices in active markets included in Level 1 that are either directly or indirectly observable as of the reporting date.
•Level 3: Unobservable inputs that are not corroborated by market data and may be used with internally developed methodologies that result in management’s best estimate of fair value.
The Company prioritizes valuation techniques that maximize the use of observable inputs. Assets and liabilities are classified in their entirety based on the lowest priority level of input that is significant to the fair value measurements. Interest rates on credit facility borrowings are based on prevailing market rates, so the carrying valuesmeasurement. The assessment of the credit facility borrowings approximatesignificance of a particular input to the fair value measurement requires judgment and may affect the placement of assets and liabilities within the levels of the fair values arevalue hierarchy. Reclassifications of fair value between Level 1, Level 2 and Level 3 of the fair value measurements. Ashierarchy, if applicable, are made at the Company's Term Loans (defined in Note 10) and EQM's senior notes are not actively traded, their fair values are estimated using an income approach model that applies a
discount rate based on prevailing market rates for debt with similar remaining time-to-maturity and credit risk; as such, their fair values are Level 2 fair value measurements.each reporting period. See Note 10.
The10 for information regarding the fair value of the Preferred Interest is estimated using an income approach model that applies a discount rate based on prevailing market rates and is a Level 3 fair value measurement. As of December 31, 2018 and 2017, the estimated fair value of the Preferred Interest was approximately $122 million and $133 million, respectively, and the carrying value of the Preferred Interest was approximately $115 million and $119 million, respectively, inclusive of $4.4 million for each period reported in other current assets on the consolidated balance sheets.financial instruments.
Property, Plant and Equipment. The Company's property, plant and equipment are stated at depreciated cost. Maintenance projects that do not increase the overall life of the related assets are expensed as incurred. Expenditures that extend the useful life of the asset are capitalized. The Company capitalized overhead, including internal labor costs, of $54.4$52.2 million, $46.5 $47.3
million and $53.2$50.8 million in the years ended December 31, 2018, 20172023, 2022 and 2016,2021, respectively. The Company capitalized interest, including the debt component of Allowance for Funds Used During Construction (AFUDC), of $12.6$11.4 million, $4.7$8.7 million and $9.4$4.9 million in the years ended December 31, 2018, 20172023, 2022 and 2016,2021, respectively.
The following table summarizes the Company's property, plant and equipment.
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
| (Thousands) |
| Gathering assets | $ | 7,440,220 | | | $ | 7,176,011 | |
| Accumulated depreciation | (1,113,967) | | | (919,465) | |
| Net gathering assets | 6,326,253 | | | 6,256,546 | |
| Transmission and storage assets | 2,001,489 | | | 1,928,894 | |
| Accumulated depreciation | (531,259) | | | (475,688) | |
| Net transmission and storage assets | 1,470,230 | | | 1,453,206 | |
| Water services assets | 289,891 | | | 245,258 | |
| Accumulated depreciation | (101,541) | | | (79,518) | |
| Net water services assets | 188,350 | | | 165,740 | |
| Other property, plant and equipment | 13,698 | | | 14,888 | |
| Accumulated depreciation | (6,147) | | | (6,049) | |
| Net other property, plant and equipment | 7,551 | | | 8,839 | |
| Net property, plant and equipment | $ | 7,992,384 | | | $ | 7,884,331 | |
|
| | | | | | | |
| | December 31, |
| | 2018 | | 2017 |
| | (Thousands) |
| Gathering assets | $ | 4,387,908 |
| | $ | 3,642,937 |
|
| Accumulated depreciation | (247,720 | ) | | (153,791 | ) |
| Net gathering assets | 4,140,188 |
| | 3,489,146 |
|
| Transmission and storage assets | 1,785,157 |
| | 1,674,080 |
|
| Accumulated depreciation | (286,693 | ) | | (248,474 | ) |
| Net transmission and storage assets | 1,498,464 |
| | 1,425,606 |
|
| Water services assets | 194,465 |
| | 193,825 |
|
| Accumulated depreciation | (26,489 | ) | | (3,363 | ) |
| Net water services assets | 167,976 |
| | 190,462 |
|
| Net other property, plant and equipment | 61,019 |
| | 5,648 |
|
| Net property, plant and equipment | $ | 5,867,647 |
| | $ | 5,110,862 |
|
Depreciation is recorded using composite rates on a straight-line basis over the estimated useful life of the asset. The average depreciation rates for the years ended December 31, 2018, 20172023, 2022 and 20162021 were 2.7%2.6%, 1.8%2.6% and 2.2%2.6%, respectively. The Company estimates that gathering and transmission pipelines have useful lives of 20 years to 6550 years and compression equipment has useful lives of 20 years to 50 years. The Company estimates that water pipelines, pumping stations and impoundment facilities have useful lives of 10 years to 15 years. As circumstances warrant, depreciation estimates are reviewed to determine if any changes in the underlying assumptions are necessary. Equitrans, L.P., the Company's FERC-regulated subsidiary, re-evaluates depreciation rates for its regulated property, plant and equipment each time it files with the FERC for a change in transmission and storage rates.
Intangible Assets. Intangible assets are recorded under the acquisition method of accounting at their estimated fair values at the acquisition date, which are calculated as the present value of estimated future cash flows using a risk-adjusted discount rate. The Company did not have any intangible assets prior to the Rice Merger. At the Rice Merger Date, through pushdown accounting, the Company recorded $623.2 million of intangible assets associated with acquired customer relationships. See Note 2. The Company's intangible assets have a useful life of 15 years and are amortized on a straight-line basis. Accumulated amortization as of December 31, 2018 and 2017 was $47.0 million and $5.5 million, respectively. Estimatedbasis over each intangible asset's estimated remaining useful life. The estimated annual amortization expense related to the intangible assets for each of the next five years is $41.5 million.$64.8 million for years one through three and then $62.5 million in years four and five. The weighted average amortization period is approximately eight years.
ImpairmentThe following tables summarize the Company's intangible assets as of Long-lived Assets. Whenever events or changes in circumstances indicate that the carrying value of its long-lived assets may not be recoverable, the Company reviews its long-lived assets for impairment by first comparing the carrying value of the asset to the sum of the undiscounted cash flows expected to result from the useDecember 31, 2023 and eventual disposition of the assets. If the carrying value exceeds the sum of the undiscounted cash flows, the Company estimates and recognizes an impairment loss equal to the difference between the carrying value and fair value of the assets.2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | December 31, 2023 |
| (In thousands) | | Remaining Life | | Gross | | Accumulated Amortization | | Net |
| Customer relationships | | 9 years | | $ | 623,199 | | | $ | (254,819) | | | $ | 368,380 | |
| Eureka Midstream-related customer relationships | | 7 years | | 237,000 | | | (90,112) | | | 146,888 | |
| Hornet Midstream-related customer relationships | | 3 years | | 74,000 | | | (67,135) | | | 6,865 | |
| | | | $ | 934,199 | | | $ | (412,066) | | | $ | 522,133 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | December 31, 2022 |
| (In thousands) | | Remaining Life | | Gross | | Accumulated Amortization | | Net |
| Customer relationships | | 10 years | | $ | 623,199 | | | $ | (213,273) | | | $ | 409,926 | |
| Eureka Midstream-related customer relationships | | 8 years | | 237,000 | | | (69,128) | | | 167,872 | |
| Hornet Midstream-related customer relationships | | 4 years | | 74,000 | | | (64,846) | | | 9,154 | |
| | | | $ | 934,199 | | | $ | (347,247) | | | $ | 586,952 | |
| | | | | | | | |
| | | | | | | | |
During the fourth quarterImpairment of 2018, a triggering event occurred as a result of the Company's annual goodwill impairment evaluation, which required the Company to perform a recoverability test on its long-lived assets. No impairment was recorded as a result of the recoverability test.
No impairment of any long-lived assets was indicated or recorded during the year ended December 31, 2017.
During the year ended December 31, 2016, the Company recorded an impairment of long-lived assets of $59.7 million related to certain gathering assets. Using the income approachGoodwill and Level 3 fair value measurement inputs, the gathering assets were written down to fair value. The impairment was triggered by a reduction in estimated future cash flows caused by the low commodity price environment, which reduced producer drilling activity and related throughput on the gathering assets.
Goodwill. Goodwill is the total consideration of an acquisition less the fair value of the identifiable, acquired net assets. As a result of the Rice Merger, Rice Midstream Holdings recorded goodwill to two reporting units within the Gathering segment. See Note 2. Prior to the Rice Merger, the Company had no goodwill.
Long-Lived Assets. Goodwill is evaluated for impairment at least annually andor whenever events or changes in circumstance indicate, in management's judgment, it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company may perform either a qualitative assessment of potential impairment or proceed directly to a quantitative assessment of potential impairment. The Company's qualitative assessment of potential impairment may result in the determination that a quantitative impairment analysis is not necessary. Under this elective process, the Company assesses qualitative factors to determine whether the existence of events or circumstances leads the Company to determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, the Company determines that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then performing a quantitative analysisassessment is not required. However, if the Company concludes otherwise, then it performs a quantitative impairment analysis. Ifanalysis is performed.
When the Company chooses not to perform a qualitative assessment, or if it chooses to perform a qualitative assessment but is unable to qualitatively conclude that no impairment has occurred, then the Company will perform a quantitative evaluation. In the case ofperforms a quantitative assessment, the Company estimates the fair value of the reporting unit with which the goodwill is associated and compares it to the carrying value. If the estimated fair value of a reporting unit is less than its carrying value, an impairment charge is recognized for the excess of the reporting unit's carrying value over its fair value.
The two reporting units to which the Company's goodwill is recorded are (i) Rice Retained Midstream, which comprises the Ohio gatheringCompany evaluates long-lived assets acquired in the Rice Merger, and (ii) RMP PA Gas Gathering, which comprises the Pennsylvania gathering assets acquired the Rice Merger. Rice Retained Midstream and RMP PA Gas Gathering earn a substantial portion of their revenues from volumetric-based fees, which are sensitive tofor impairment when events or changes in their customers' development plans.
Following the third quarter of 2018 and prior to the Separation, the Company identified impairment indicatorscircumstances indicate, in the form of production curtailments announced by a primary customer of the Rice Retained Midstream and RMP PA Gas Gathering reporting units that could reduce volumetric-based fee revenues of those reporting units. In estimating the fair value of its reporting units, the Company used a combination of the income approach and the market approach. The Company used the income approach's discounted cash flow method, which applies significant inputs not observable in the public market (Level 3), including estimates and assumptions related to future throughput volumes, operating costs, capital spending and changes in working capital. The Company used the market approach's comparable company method and reference transaction method. The comparable company method evaluates the value of a company using metrics of other businesses of similar size and industry. The reference transaction method evaluates the value of a company based on pricing multiples derived from similar transactions entered into by similar companies.
For the year ended December 31, 2018, the Company determinedmanagement's judgment, that the carrying value of such assets may not be recoverable. With respect to property, plant and equipment and finite lived intangibles, asset recoverability is measured by comparing the RMP PA Gas Gathering reporting unit was greater thancarrying value of the asset or asset group with its expected future pre-tax undiscounted cash flows. These cash flow estimates require the Company to make projections and assumptions for many years into the future for volumes, pricing, demand, competition, operating costs and other factors. If the carrying amount exceeds the expected future undiscounted cash flows, the Company recognizes an impairment equal to the excess of carrying value over fair value; however,value as determined by quoted market prices in active markets or present value techniques if quotes are unavailable. The determination of the fair value of the Rice Retained Midstream reporting unit exceeded its carrying value. As a result,using present value techniques requires the Company recognized impairmentto make projections and assumptions regarding the probability of goodwilla range of $261.9 million, with a corresponding decreaseoutcomes and the rates of interest used in the present value calculations. Any changes the Company makes to goodwill onthese projections and assumptions could result in significant revisions to its evaluations of recoverability and the consolidated balance sheet.recognition of additional impairments. See Note 2 for further detail.
Investment in Unconsolidated Entity. The Company accounts for investments in unconsolidated entities under the equity method. The Company’s pro-rata share of net income in unconsolidated entities is included in equity income in the Company’s statements of consolidated comprehensive income. Contributions to or distributions from unconsolidated entities and the Company’s pro-rata share of net income in unconsolidated entities are recorded as adjustments to the investment balance. The Company reviews the carrying value of its investments in unconsolidated entities for impairment whenever events or changes in circumstances indicate, in management's judgment, that the carrying value of such investment may have declined in value. The impairment review involves comparingWhen there is evidence of loss in value that is other-than-temporary, the Company compares the investment's carrying value to its estimated fair value.value to determine whether impairment has occurred. If the carrying value exceeds the estimated fair value, the Company estimates and recognizes an impairment losscharge equal to the difference between the investment's carrying value and fair value. See Note 2 for further detail.
Preferred Interest. EQT Energy Supply, LLC(EES), a subsidiary of EQT, (EES), generates revenue by providing services to a local distribution company. Upon EQM's acquisition ofThe preferred interest that the preferred interestCompany has in EES (the Preferred Interest) is accounted for as a note receivable and is presented in April 2015 and through October 2016,other assets in the consolidated balance sheets with the current portion reported in other current assets. Distributions received from EES are recorded as a reduction to the Preferred Interest was treatedand as a cost method investment for accounting purposes. In October 2016,interest income, which is included in net interest expense in the Company's statements of consolidated comprehensive income. The EES operating agreement was amended to provideprovides for mandatory redemption of the Preferred Interest at the end of
the preference period, which is expected to be December 31, 2034. As a result of the amendment, EQM's investment in EES converted from a cost method investment to a note receivable effective October 1, 2016. The change did not affect the carrying value of the instrument but did affect the financial statement classification and presentation of distributions from EES. Distributions from EES received prior to the amendment were included in other income in EQM's statements of consolidated operations; distributions received after the amendment are recorded partly as a reduction to the Preferred Interest and partly as interest income, which is included in net interest expense in EQM's statements of consolidated comprehensive income.See Note 10 for further detail.
Unamortized Debt Discount and Issuance Costs. The Company amortizes debt discounts and issuance costs over the term of the related borrowing. Costs incurred from the arrangement, issuance andand/or extension of revolving credit facilities, including the Amended EQM Credit Facility (defined in Note 10) and the issuance of the Equitrans Midstream Credit Facility and Equitrans Midstream Term Loan2021 Eureka Credit Facility (each as defined in Note 10)9), are presented in other assets onin the consolidated balance sheets. Debt discounts and issuance costs for all other debt instruments are presented as a reduction to debt on the consolidated balance sheets. See Note 9 for further detail.
Gas Imbalances. Gas imbalances occur whenLeases. Right-of-use assets represent the actual amount of gas delivered from a pipeline system or storage facility variesright to use the underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the amountlease. Right-of-use assets and lease liabilities are recognized on the
consolidated balance sheets at the lease commencement date based on the present value of lease payments over the lease term. The Company values gas imbalances due to/from shippers and operatorsdetermines if an arrangement is a lease at current index prices. Gas imbalances are settled in-kind, subjectinception based on whether the Company has the right to control the termsuse of an identified asset, the right to obtain substantially all of the FERC tariffs. Aseconomic benefits from the use of the asset and the right to direct the use of the asset during the lease term and accounts for leases in accordance with ASC 842, Leases (ASC 842).
Leases in which the Company is the lessee that do not have a readily determinable implicit rate utilize an incremental borrowing rate, based on the information available at the lease commencement date, to determine the present value of lease payments. When a secured borrowing rate is not readily available, unsecured borrowing rates are adjusted for the effects of collateral to determine the incremental borrowing rate. The Company reassesses the incremental borrowing rate for any new and modified lease contracts as of the contract effective date. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Lease expense for finance leases includes the amortization of the right-of-use assets on a straight-line basis and the interest expense recognized on lease liabilities using the effective interest method over the lease term. See Note 5 for further detail.
Other Current Liabilities. The following table summarizes the Company's accrued liabilities as of December 31, 20182023 and 2017, gas imbalance receivables of $3.3 million and $5.2 million, respectively, were presented in other current assets, with offsetting amounts recorded to system gas, a component of property, plant and equipment, on the consolidated balance sheets. The Company classifies gas imbalances as current because they are expected to settle within one year.2022.
| | | | | | | | | | | |
| December 31, |
| | 2023 | | 2022 |
| | (Thousands) |
| Accrued employee compensation | $ | 52,263 | | | $ | 47,742 | |
| Non-income tax accruals | 21,851 | | | 20,629 | |
| Current portion of lease liabilities | 11,581 | | | 7,886 | |
| Current portion of contract liability | 5,061 | | | 4,552 | |
| Other accrued liabilities | 16,114 | | | 3,026 | |
| Total accrued liabilities | $ | 106,870 | | | $ | 83,835 | |
Asset Retirement Obligations. Obligations (AROs). The Company has asset retirement obligationsAROs related to its water system impoundments and facilities and to one of its compressiongathering compressor stations, for which the Company recorded an associated liability and capitalized a corresponding amount to asset retirement costs. The liability relates to the expected future obligation to dismantle, reclaim and dispose of these assets and was estimated using the present value of expected future cash flows, adjusted for inflation, and discounted at the Company's credit-adjusted, risk-free rate. Asset retirement obligationsThe AROs are recorded in regulatory and other long-term liabilities on the consolidated balance sheets.
The following table presents a reconciliation of the beginning and ending carrying amounts ofchanges in the Company's assetAROs during 2023 and 2022.
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
| (Thousands) |
| AROs at beginning of period | $ | 13,961 | | | $ | 11,241 | |
| Liabilities incurred | 2,154 | | | — | |
| Liabilities settled | (3,028) | | | (996) | |
| | | |
Revisions to estimated liabilities (a) | 306 | | | 3,153 | |
| Accretion expense | 862 | | | 563 | |
| AROs at end of period | $ | 14,255 | | | $ | 13,961 | |
(a)Revisions to estimated liabilities reflect changes in retirement obligations.cost assumptions and the estimated timing of liability settlement.
|
| | | | | | | |
| | December 31, |
| | 2018 | | 2017 |
| | (Thousands) |
| Asset retirement obligation at beginning of period | $ | 9,321 |
| | $ | — |
|
| Liabilities assumed at Rice Merger | — |
| | 9,286 |
|
| Liabilities incurred | 231 |
| | — |
|
Revisions to estimated liabilities (a) | 1,928 |
| | — |
|
| Accretion expense | 455 |
| | 35 |
|
| Asset retirement obligation at end of period | $ | 11,935 |
| | $ | 9,321 |
|
| |
(a) | Revisions to estimated liabilities reflect changes in retirement cost assumptions and to the estimated timing of liability settlement. |
The Company is not legally or contractually obligated to restore or dismantle its transmission and storage system.systems and its gathering systems, other than the one aforementioned gathering compressor station. The Company is legally required to operate and maintain these assets and intends to do so as long as supply and demand for natural gas exists, which the Company expects to continue into the foreseeable future. Therefore, the Company did not have any asset retirement obligationsAROs related to its transmission and storage and gathering (other than the aforementioned gathering compressor station) assets as of December 31, 20182023 and 2017.2022.
Contingencies. EQMThe Company is, from time to time, involved in various regulatory and legal proceedings that arise in the ordinary course of business.proceedings. A liability is recorded when the loss is probable and the amount of loss can be reasonably estimated. EQMThe Company considers many factors when
making such assessments, including historical knowledge and matter specifics. Estimates are developed through consultation with legal counsel and analysis of the potential results. See Note 13.14.
Regulatory Accounting. Equitrans, L.P. owns all of the Company's gathering,FERC-regulated transmission and storage operations as well as its low-pressure gathering assets. Equitrans, L.P. is subject to FERC regulation.operations. Through the rate-setting process, rate regulation allows Equitrans, L.P. to recover the costs of providing regulated services plus an allowed return on invested capital. Regulatory accounting allows Equitrans, L.P. to defer expenses and income to its consolidated balance sheets as regulatory assets and liabilities when it is probable that those expenses and income will be allowed in the rate-setting process for a period other than the period that they would be reflected in a non-regulated entity's statements of consolidated comprehensive income. Regulatory
assets and liabilities are recognized in the Company's statements of consolidated comprehensive income in the period that the underlying expenses and income are reflected in the rates charged to shippers and operators. Equitrans, L.P. expects to continue to be subject to rate regulation that will provide for the recovery of deferred costs.
The following table summarizes Equitrans, L.P.'s regulatory assets and liabilities that are included in other assets and regulatory and other long-term liabilities, respectively, in the Company's consolidated balance sheets.
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
| (Thousands) |
| Regulatory assets: | | | |
Deferred taxes (a) | $ | 123,128 | | | $ | 85,046 | |
Other recoverable costs (b) | 3,834 | | | 4,608 | |
| Total regulatory assets | $ | 126,962 | | | $ | 89,654 | |
| Regulatory liabilities: | | | |
Deferred taxes (a) | $ | 8,931 | | | $ | 9,329 | |
On-going post-retirement benefits other than pension and other reimbursable costs (c) | 19,862 | | | 19,251 | |
| | | |
| Total regulatory liabilities | $ | 28,793 | | | $ | 28,580 | |
|
| | | | | | | |
| | December 31, |
| | 2018 | | 2017 |
| | (Thousands) |
| Regulatory assets: | | | |
Deferred taxes (a) | $ | 22,252 |
| | $ | 18,786 |
|
Other recoverable costs (b) | 4,312 |
| | 6,165 |
|
| Total regulatory assets | $ | 26,564 |
| | $ | 24,951 |
|
| Regulatory liabilities: | | | |
Deferred taxes (a) | $ | 10,920 |
| | $ | 11,318 |
|
On-going post-retirement benefits other than pension (c) | 10,132 |
| | 7,724 |
|
| Other reimbursable costs | (328 | ) | | 860 |
|
| Total regulatory liabilities | $ | 20,724 |
| | $ | 19,902 |
|
| |
(a) | The regulatory asset from deferred taxes is primarily related to a historical deferred income tax position and taxes on the equity component of AFUDC. The regulatory liability from deferred taxes relates to the revaluation of a historical difference between the regulatory and tax bases of regulated property, plant and equipment. Equitrans, L.P. expects to recover the amortization of the deferred tax positions ratably over the depreciable lives of the underlying assets. Equitrans, L.P. expects to recover the taxes on the equity component of AFUDC through future rates over the depreciable lives of the underlying long-lived assets. |
| |
(b) | The regulatory asset from other recoverable costs is primarily related to the costs associated with the Retirement Plan (defined below). |
| |
(c) | Equitrans, L.P. defers expenses for on-going post-retirement benefits other than pensions, which are subject to recovery in approved rates. The regulatory liability reflects lower cumulative actuarial expenses than the amounts recovered through rates. |
(b)The regulatory asset from other recoverable costs is primarily related to the costs associated with the Company's legacy post-retirement benefits plan. Equitrans, L.P. expects to continue to recover these costs over the remaining 8.5 years.
(c)Equitrans, L.P. defers expenses for on-going post-retirement benefits other than pensions, which are subject to recovery in approved rates. The regulatory liability reflects lower cumulative actuarial expenses than the amounts recovered through rates. Equitrans, L.P. expects to continue to recover costs as long as the existing recourse rates provide for recovery.
The following tables present Equitrans, L.P.'s regulated operating revenues and operating expenses and property, plant and equipment included in the Company's statements of consolidated comprehensive income and consolidated balance sheets, respectively. | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| (Thousands) |
| Operating revenues | $ | 446,184 | | | $ | 407,884 | | | $ | 403,634 | |
| Operating expenses | 169,449 | | | 137,782 | | | 135,888 | |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (Thousands) |
| Operating revenues | $ | 393,911 |
| | $ | 383,309 |
| | $ | 343,978 |
|
| Operating expenses | 140,832 |
| | 143,614 |
| | 114,978 |
|
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
| (Thousands) |
| Property, plant and equipment | $ | 2,001,489 | | | $ | 1,928,898 | |
| Accumulated depreciation | (531,259) | | | (475,689) | |
| Net property, plant and equipment | $ | 1,470,230 | | | $ | 1,453,209 | |
Gas imbalances occur when the actual amount of gas delivered from a pipeline system or storage facility varies from the amount of gas scheduled for delivery. The Company values gas imbalances due to/from shippers and operators at current index prices. Gas imbalances are settled in-kind, subject to the terms of the applicable FERC tariffs. As of December 31, 2023 and 2022, gas imbalance receivables were $1.3 million and $7.0 million, respectively, and are presented in other current assets, with offsetting amounts recorded to system gas, a component of property, plant and equipment, on the consolidated balance sheets. The Company classifies gas imbalances as current because they are expected to settle within one year.
Revenue Recognition. Revenue is measured based on considerations specific in a contract with a customer. The Company recognizes revenue under gathering, transmission and storage and water services contracts when it satisfies certain performance obligations, as discussed below.
The Company provides gathering, transmission and storage services in two manners: firm service and interruptible service. Firm service is provided under firm contracts, which are contracts for gathering, transmission or storage services that generally obligate the customer to pay a fixed, monthly charge to reserve an agreed upon amount of pipeline or storage capacity regardless of the capacity used by the customer during each month. Volumetric-based fees can also be charged under firm contracts for each firm volume transported, gathered or stored, as well as for volumes transported, gathered or stored in excess of the firm contracted volume, if capacity exists. Interruptible service contracts include volumetric-based fees, which are charges for the volume of gas gathered, transported or stored and generally do not guarantee access to the pipeline or storage facility. Firm and interruptible contracts can be short- or long-term in duration. Firm and interruptible transmission and storage service contracts are billed at the end of each calendar month, with payment typically due within 10 days. Firm and interruptible gathering contracts are billed on a one-month lag, with payment typically due within 21 days. Revenue related to gathering services provided but not yet billed is estimated each month. These estimates are generally based on contract data, preliminary throughput and allocation measurements.
Under a firm contract, the Company has a stand-ready obligation to provide the service over the life of the contract. The performance obligation for firm reservation fee revenue is satisfied over time as the pipeline capacity is made available to the customer. As such, the Company recognizes firm reservation fee revenue evenly over the contract period using a time-elapsed output method to measure progress. The performance obligation for volumetric-based fee revenue is generally satisfied upon the Company's monthly billing to the customer for volumes gathered, transported or stored during the month. The amount billed generally corresponds directly to the value of the Company's performance to date as the customer obtains value as each volume is gathered, transported or stored.
Water service revenues represent fees charged by the Company for the delivery of fresh and produced water to a customer at a specified delivery point and for the collection and recycling or disposal of flowback and produced water. The Company's water service revenues are generated under firm service and interruptible service contracts, which primarily utilize fixed prices per volume delivered. Firm service provides water services under firm contracts to customers with priority. Interruptible service contracts generally do not guarantee access to the water facilities. For fresh and produced water delivery service contracts, the only performance obligation in each contract is for the Company to provide water (usually a minimum daily volume of water) to the customer at a designated delivery point. For flowback and produced water, the performance obligation is collection and disposal of the water, which typically occur within the same day. Water service contracts are billed on a monthly basis, with payment typically due within 30 days.
For all contracts, the Company allocates the transaction price to each performance obligation based on the estimated relative standalone selling price. When applicable, the excess of consideration received over revenue recognized results in the deferral of those amounts until future periods based on a units of production or straight-line methodology as these methods appropriately match the consumption of services provided to the customer. The units of production methodology requires the use of production estimates that are uncertain and the use of judgment when developing estimates of future production volumes, thus impacting the rate of revenue recognition. Production estimates are monitored as circumstances and events warrant.
Certain of the Company's gas gathering and water services agreements, including the EQT Global GGA and the 2021 Water Services Agreement, are structured with MVCs or ARCs, as applicable, which specify minimum quantities for which a customer will be charged regardless of quantities gathered or delivered under the contract. Revenue is recognized for MVCs or
|
| | | | | | | |
| | December 31, |
| | 2018 | | 2017 |
| | (Thousands) |
| Property, plant and equipment | $ | 1,900,411 |
| | $ | 1,787,656 |
|
| Accumulated depreciation | (317,988 | ) | | (278,756 | ) |
| Net property, plant and equipment | $ | 1,582,423 |
| | $ | 1,508,900 |
|
Revenue Recognition.ARCs when the performance obligation has been met, which is the earlier of when the gas is gathered or water provided, or when it is remote that the producer will be able to meet its MVC or ARC. If a customer under such an agreement fails to meet its MVC or ARC for a specified period (thus not exercising all the contractual rights to gathering and water services within the specified period, herein referred to as “breakage”), it is obligated to pay a contractually determined fee based upon the shortfall between the actual volumes and the MVC or ARC for the period contained in the contract. See Note 3.4.
AFUDC. AFUDC. The Company capitalizes the carrying costs of financing the construction of certain long-lived, regulated assets. Such costs are amortized over the asset's estimated useful life and include interest costs (the debt component of AFUDC) and equity costs (the equity component of AFUDC). The debt component of AFUDC is recorded as a reduction to net interest expense on the statements of consolidated comprehensive income, and the equity component of AFUDC is recorded in other income on the statements of comprehensive income. The debt component of AFUDC for the years ended December 31, 2018, 2017 and 2016 was $1.0
million, $0.8 million and $2.4 million, respectively, and the equity component of AFUDC for the years ended December 31, 2018, 2017 and 2016 was $5.6 million, $5.1 million and $19.4 million, respectively.
Insurance. The Company purchases workers compensation, automobile liability and other casualty insurance. Workers compensation and automobile policies do not have a deductible or self-insured retention. The Company maintains a self-insured retention for general liability, environmental liability and other casualty lines. Under the terms of the Separation and Distribution Agreement, the Company is financially responsible for future payment of workers compensation claims incurred by EQT related to Equitrans Midstream employees prior to the Separation. The recorded reserves represent estimates of the ultimate cost of claims incurred as of the balance sheet date. The estimated liabilities are based on analysis of historical data and are not discounted. The liabilities are reviewed by management quarterly to ensure that they are appropriate. While the Company believes these estimates are reasonable based on the information available, financial results could be affected if actual trends, including the severity or frequency of claims, differ from estimates.
Share-Based Compensation. EQT transferred to the Company obligations related to share-based compensation awards in connection with the Separation. Outstanding awards were transferred based on a 0.80 conversion rate. Awards to employees are typically made in the form of performance-based awards, time-based restricted stock awards, time-based restricted unit awards and stock options. Awards to non-employee directors are typically made in the form of phantom unit awards (Equitrans Midstream phantom units) that vest upon grant. See Note 9. As of December 31, 2018, the Company had $42.1 million of accrued incentive compensation, which was included in accrued liabilities on the consolidated balance sheets.
Pension and Other Post-Retirement Benefit Plans. In 2014, EQT terminated the EQT Corporation Retirement Plan for Employees (the Retirement Plan)(expense), a defined benefit pension plan. Prior to its termination, the retirees of Equitrans, L.P. participated in the Retirement Plan. On March 2, 2016, the Internal Revenue Service (IRS) issued a favorable determination letter for the termination of the Retirement Plan. On June 28, 2016, EQT purchased annuities from, and transferred the Retirement Plan assets and liabilities to, American General Life Insurance Company. In the third quarter of 2016, the Company reimbursed EQT for its proportionate share of the funding related to the retirees of Equitrans, L.P. The settlement charge is expected to be recoverable in FERC-approved rates and, thus, was recorded as a regulatory asset that will be amortized for rate recovery purposes over a period of 16 years. Upon Separation, EQT transferred to the Company the post-retirement benefits liability and accumulated other comprehensive income balance associated with the Retirement Plan. The Company recognizes expense for on-going post-retirement benefits other than pension, a portion of which is subject to recovery in the approved rates of Equitrans, L.P.'s rate-regulated business. See Note 14.
The Company presents the associated pension and other post-retirement benefits liability adjustment, net, of tax, as a reclassification from accumulated other comprehensive income on the statements of consolidated comprehensive income and consolidated equity andincome.
Share-Based Compensation. The Company recognizes share-based compensation cost based upon the estimated fair value of awards over the requisite service period. Time-based restricted units expected to be satisfied in cash are accounted for as liability awards recorded over the requisite service period, typically three years. The fair value of liability awards is remeasured at the end of each reporting period based on the consolidated balance sheets.closing price of the Company’s common stock. Time-based restricted stock awards expected to be satisfied in Company common stock are accounted for as equity awards and are recorded over the requisite service period, typically three years, based on the grant date fair value. Director phantom units expected to be satisfied in Company common stock vest on the date of grant and are recorded based on the grant date fair value. The accumulated other comprehensive income reclassification relatesgrant date fair value, in both cases, is determined based upon the closing price of the Company's common stock on the day before the grant date. The Company accounts for forfeitures as they occur.
Performance-based awards expected to be satisfied in cash are accounted for as liability awards and remeasured at fair value at the end of each reporting period, recognizing a proportionate amount of the compensation cost for each period over the vesting period of the award.Performance-based awards expected to be satisfied in Company common stock are accounted for as equity awards and recorded based on an estimated grant date fair value over the vesting period of the award. For plans that include a performance condition that affects the number of awards that will ultimately vest, the probability that the performance condition will be achieved is reevaluated at the end of each reporting period and the payout multiplier is applied to the net actuarial lossgrant date fair value or measurement date fair value to record compensation cost, as applicable. Determination of the fair value of awards requires judgments and net prior service costsestimates regarding, among other things, the appropriate methodologies to follow in valuing the awards and the related toinputs required by those valuation methodologies.
The Company obtains a valuation at each reporting date for liability awards and at the grant date for equity awards for plans that include a market condition based upon assumptions regarding risk-free rates of return, expected volatilities, the expected term of the award and dividend yield, as applicable. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of valuation. Expected volatilities are based on historical volatility of the Company's Retirement Plan.common stock and, where applicable, the common stock of the peer group members at the time of valuation. The expected term represents the period of time elapsing during the applicable performance period. The dividend yield is based on the historical dividend yield of the Company's common stock adjusted for any expected changes and, where applicable, the common stock of the peer group members at the time of valuation. Each plan subject to a market condition is accounted for separately for each vesting tranche of the award.
Dividends on awards are eligible to be paid in cash upon vesting on each share of common stock as dividends are declared on the Company's common stock during the vesting period. See Note 8 for further detail.
Income Taxes. Beginning on the Separation DateThe Company files a consolidated income tax return for federal income taxes and forward, the provision for income taxes wasis determined using the asset and liability approach of accounting for income taxes. Under this approach, the provision for income taxes represents income taxes paid or payable (or received or receivable) for the current year plus the change in deferred taxes duringfor the current year. In all periods priorEQM is a limited partnership for U.S. federal and state income tax purposes. Eureka Midstream is a limited liability company for such purposes. EQM and Eureka Midstream are not subject to the Separation Date, the Company's operations wereU.S. federal or state income taxes.
All of Eureka Midstream's income is included in the Company's pre-tax income; however, the Company does not record income tax filingsexpense on the portions of EQT. The provision forits income taxes inattributable to the noncontrolling member of Eureka Midstream. This reduces the Company's consolidated statements of comprehensive income was determinedeffective tax rate in the same manner described above, but on a separate return methodology as ifperiods when the Company was a standalone taxpayer filing hypotheticalhas consolidated pre-tax income and increases the effective tax returns where applicable. Any additional accrued tax liability or refund arising as a result of this approach was assumed to be settled with EQT on the Separation Date as a component of parent net investment.
The Company's operations have historically been includedrate in the income tax filings of EQT. The provision for income taxes reflected in the Company's statements of comprehensive income for periods prior to the Separation Date is based on a separate return methodology using the asset and liability approach of accounting for income taxes. Under this approach, the provision for income taxes represents income taxes paid or payable (or received or receivable) for the current year plus the change in deferred taxes during the year, which is calculated as ifwhen the Company was a standalone taxpayer filing hypothetical income tax returns where applicable. Any accrued current tax liability or refund arising from this approach was presented in accounts payable as an amount due to related party on thehas consolidated balance sheets and was settled with EQT as a component of parent's net investment on an annual basis.pre-tax losses.
Deferred taxes represent the future tax consequences of differences between the financial and tax bases of the Company's assets and liabilities. Deferred tax balances are adjusted for changes in tax rates and tax laws when enacted. Deferred tax assets are reflected on the consolidated balance sheets for net operating losses, credits or other attributes transferred to or generated by the Company. Any difference between the attributes transferred to the Company and the attributes generated on a separate return basis were adjusted as a component of parent net investment. Valuation allowances are recorded to reduce deferred tax assets
when it is more likely than not (greater than 50%) that a tax benefit will not be realized. In evaluating the need for a valuation allowance, management considers all available evidence, both
positive and negative, including potential sources of taxable income, including income available in carry-back periods, future reversals of taxable temporary differences, projections of taxable income and income from tax planning strategies, as well as all available positive and negative evidence. Positive evidence includes factors such as a historystrategies. The Company records the impact of profitable operations, projectionsvaluation allowances or any uncertain tax position within income tax expense (benefit) on the statements of future profitability within the carry-forward period, including from tax planning strategies, and experience. No significant negative evidence has been noted.consolidated comprehensive income.
Deferred tax assets for which no valuation allowance is recorded may not be realized and changes in facts and circumstances may result in the establishment of a valuation allowance. Existing valuation allowances are re-examined under the same standards of positive and negative evidence that apply to valuation allowance establishment. If it is determined that it is more likely than not that a deferred tax asset for which a valuation is recorded will be realized, all or a portion of the valuation allowance may be released. Deferred tax assets and liabilities are also re-measured to reflect changes in underlying tax rates from tax law changes.
Tax benefits related to uncertain tax positions taken or expected to be taken on a tax return are recorded when such benefits meet a more likely than not threshold; otherwise, the tax benefit is recorded when the tax position has been effectively settled, either because the statute of limitations has expired or the appropriate taxing authority has completed its examination. Interest and penalties related to uncertain tax positions are recognized as part of the provision for income taxes and are accrued beginning in the period that such interest and penalties would be applicable under relevant tax law until such time that the related tax benefits are recognized. The Company has not identified any uncertain tax positions as of December 31, 2018, 2017 and 2016.are resolved. See Note 11.12.
Noncontrolling Interests. For the years ended December 31, 2018, 2017 and 2016, the Company's noncontrolling interests comprised third-party ownership interests in EQGP and EQM. For the period from November 13, 2017 through December 31, 2017 and the periods in 2018 priorMezzanine Equity. The Equitrans Midstream Preferred Shares are considered redeemable securities under GAAP due to the Company's acquisitionpossibility of their remaining respective noncontrolling interests as discussed herein,redemption outside the Company's noncontrolling interests also included the third-party ownership interests in RMP and Gulfport Midstream's 25% ownership interest in Strike Force Midstream. Noncontrolling interestsCompany’s control. They are therefore presented as temporary equity in the mezzanine equity section of the Company’s consolidated balance sheets and are not considered to be a component of shareholders’ equity on the consolidated balance sheets. NetThe Equitrans Midstream Preferred Shares were recorded at fair value as of the date of issuance, and income attributableallocations increase the carrying value and declared dividends decrease the carrying value of the Equitrans Midstream Preferred Shares. As the Equitrans Midstream Preferred Shares were not redeemable or probable of becoming redeemable as of December 31, 2023, adjustment to the carrying amount is not necessary and would only be required if it becomes probable that the Equitrans Midstream Preferred Shares would become redeemable.
Noncontrolling Interest. Noncontrolling interest represents the portion of the equity of consolidated entities that are not wholly owned by the Company and are reported as a component of shareholders’ equity in the consolidated balance sheets. Noncontrolling interest is adjusted by the amount of net income earned by the entities with noncontrolling interest, distributions paid to noncontrolling interest holders and any changes in the noncontrolling ownership percentages. For all periods presented, the Company's noncontrolling interest included third-party ownership interests represents income allocated to third-party investors.in Eureka Midstream.
Statement of Cash Flow Supplementary Information
The following summarizes cash paid during the period for interest, net of amount capitalized and non-cash activity included on the consolidated statements of cash flow.
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (Thousands) |
| Cash paid during the period for: | |
| | |
| | |
| Interest, net of amount capitalized | $ | 54,089 |
| | $ | 43,797 |
| | $ | 13,902 |
|
| | | | | | |
| Non-cash activity during the period for: | | | | | |
| Acquisition of Rice Midstream Holdings LLC | $ | — |
| | $ | 3,846,240 |
| | $ | — |
|
| Settlement of separation and other transaction costs with EQT | 133,286 |
| | — |
| | — |
|
| Net settlement of current income taxes payable with EQT | 54,033 |
| | 115,819 |
| | 536,871 |
|
| Elimination of net current and deferred tax liabilities | — |
| | — |
| | 1,945 |
|
| Separation-related adjustments | 228,357 |
| | — |
| | — |
|
| Revision to estimated asset retirement obligations | 1,928 |
| | — |
| | — |
|
Earnings Per Share (EPS).Basic EPS is computed by dividing net income (loss) attributable to Equitrans Midstream common shareholders by the weighted average number of shares of Equitrans Midstream common stock outstanding during the period without considering any dilutive items.period. Diluted EPS is computed by dividing net income (loss) attributable to Equitrans Midstream common shareholders by the weighted average number of shares of Equitrans Midstream common stock outstanding and the assumed issuance of all potentially dilutive securities, netsecurities. Each issue of potential common shares assumedis evaluated separately in sequence from the most dilutive to be repurchasedthe least dilutive. The dilutive effect of share-based payment awards and stock options is calculated using the treasury stock method. Purchases of treasury stockmethod, which assumes share purchases are calculated using the average share price of Equitrans Midstream common stock during the applicable period. PotentiallyThe Company uses the if-converted method to compute potential common shares from potentially dilutive convertible securities. Under the if-converted method, dilutive convertible securities ariseare assumed to be converted from the assumed conversiondate of outstanding stock optionsthe issuance and other share-based awards. For the years ended December 31, 2018 and 2016, the Company's computation of EPS included potentially dilutive securities related to stock options and awards of 601,622. For the year ended December 31, 2017, because the Company generated a net loss, the Company's computation of EPS excluded potentially
dilutive securities; as such, basic and diluted weighted averageresulting common stock outstanding were the same for the year ended December 31, 2017. See Note 9 for information on the Company's stock options and awards.
The Company grants Equitrans Midstream phantom units to certain non-employee directors that will be paid in Equitrans Midstream common stock upon the director's termination of service on the Company's Board of Directors (the Board). As thereshares are no remaining service, performance or market conditions related to these awards, 161,696 Equitrans Midstream phantom units were included in the computationdenominator of basic andthe diluted weighted average common shares outstandingEPS calculation for each applicable period. Income attributable to preferred dividends on convertible preferred stock that accumulated during the years ended December 31, 2018, 2017 and 2016.period is added back to the numerator for purposes of the if-converted method. See Note 9 for information on Equitrans Midstream phantom units.
For periods prior to the Separation Date, EPS shown on the statements of consolidated comprehensive income and in Note 15 was calculated based on the shares of Equitrans Midstream common stock distributed in connection with the Separation and Distribution and is considered pro forma in nature. Prior to the Separation Date, the Company did not have any issued or outstanding common stock (other than shares owned by EQT).11.
Recently Issued Accounting Standards
In May 2014,March 2020, the Financial Accounting Standards Board (FASB)FASB issued Accounting Standard Update (ASU) No. 2014-09, RevenueASU 2020-04, Reference Rate Reform (Topic 848), which provides practical expedients for contract modifications and certain hedging relationships associated with the transition from Contracts with Customers. The standard requires entitiesreference rates that are expected to recognize revenue inbe discontinued. This guidance is applicable to the calculation of each dividend following March 31, 2024 for the Equitrans Midstream Preferred Shares pursuant to the Company's Second Amended and Restated Articles of Incorporation, as well as any Company contracts that use the London Inter-Bank Offered Rate as a manner that depictsreference rate. In December 2022, the transfer of goods or servicesFASB also issued ASU 2022-06, which amended Topic 848 to customers at an amount that reflectsdefer the considerationsunset date to apply the entity expects in exchange for those goods or services.practical expedients until December 31, 2024. The Company adopted this standard on JanuaryApril 1, 2018 using2023 and it had no impact on the modified retrospective method of adoption. Adoption of the standard did not require an adjustment to the opening balance of equity. The Company has implemented processesCompany's financial statements and controls to review new contracts for appropriate accounting treatment in the context of the standard and to generate disclosures required under the standard. For the disclosures required by the standard, see Note 3.related disclosures.
In January 2016,November 2023, the FASB issued ASU No. 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The standard primarily affects the accounting for equity investments, the accounting for financial liabilities measured under the fair value option and the presentation and disclosure of financial instruments and eliminates the cost method of accounting for equity investments. The Company adopted this standard in the first quarter of 2018 with no significant effect on its financial statements or related disclosures.
In February 2016, the FASB issued ASU No. 2016-02, Leases. The standard requires entities2023-07, Segment Reporting (Topic 280): Improvements to record assets and obligations for contracts currently recognized as operating leases. In July 2018, the FASB targetedReportable Segment Disclosures, which provides improvements to ASU 2016-02 through its issuance of ASU No. 2018-11. This update providesreportable segment disclosures and is intended to enhance the disclosures regarding significant segment expenses. The guidance is applicable to all public entities with an optional transition method, which permits an entity to initially apply the standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The standard also allows for election of transition practical expedients. The Company adopted the standards on January 1, 2019 using the optional transition method of adoption. Adoption of the standards did not require an adjustment to the opening balance of equity.
For leases with commencement dates prior to the effective date, the Company elected to apply the package of practical expedients that state (i) an entity need not reassess whether any expired or existing contracts are or contain leases, (ii) an entity need not reassess the lease classification for any expired or existing leases, and (iii) an entity need not reassess initial direct costs for any existing leases. The Company elected not to use hindsight in determining the lease term. Additionally, the Company elected not to assess whether existing or expired land easements that were not previously accounted for as leases under Topic 840 are or contain a lease under Topic 840.
The quantitative impacts of the standards are dependent on the leases in force at the time of reporting. As a result, the evaluation of the effect of the standards on the results of operations and liquidity will extend over future periods. However, the Company does not expect the standards to have a significant effect on its results of operations or liquidity in 2019. On January 1, 2019, the Company recognized a right-of-use asset and corresponding lease liability of approximately $50 million on its consolidated balance sheet related to its facilities and compressor operating leases. The Company has no capital leases.
Additional disclosures will be required to describe the nature, maturity and amount of the Company's lease liabilities, including the significant assumptions and judgments required to value its lease liabilities, and the accounting policy elections taken. The Company is using a lease accounting system to document its current population of contracts classified as leases, which will be updated as the Company's lease population changes. The Company is implementing processes and controls to review new lease contracts for appropriate accounting treatment in the context of the standards and to generate disclosures required under the standards, which the Company expects to disclose in its Quarterly Report on Form 10-Q for the first quarter of 2019.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. The standard amends guidance on reporting credit losses on assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, this standard eliminates the probable initial recognition
report segment
thresholdinformation in accordance with Topic 280 and is to be applied retrospectively to all prior periods presented in its place, requires entities to recognize the current estimate of all expected credit losses. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables and any other financial assets not excluded from the scope of the standard that have the contractual right to receive cash. The standard will be effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period.statements. The Company is currently evaluating the effectpotential impact of adopting this standard will have on its financial statements and related disclosures.
In January 2017,December 2023, the FASB issued ASU No. 2017-01, Business Combinations: Clarifying the Definition of a Business.2023-09, Income Taxes: Improvements to Income Tax Disclosures, which provides improvements to income tax disclosures and is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. The standard provides guidance on evaluating whether a transactionis applicable to all public entities required to report income taxes in accordance with ASC 740 and should be accounted for as an acquisition (or disposal) of assets or a business. The Company adopted the standard in the first quarter of 2018 with no significant effect on its financial statements or related disclosures.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test of Goodwill Impairment. The standard simplifies the quantitative goodwill impairment test requirements by eliminating the requirement to calculate the implied fair value of goodwill. Instead, an entity would record an impairment charge based on the excess of a reporting unit's carrying value over its fair value. The Company adopted this standard in the first quarter of 2018 with no significant effect on its financial statements or related disclosures.
In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation: Scope of Modification Accounting. The standard provides guidance on evaluating whether a change to the terms or conditions of a share-based award requires modification accounting. The Company adopted the standard in the first quarter of 2018 with no significant effect on its financial statements or related disclosures. The standard will be applied prospectively, to awards modified on or after the adoption date.
In February 2018, the FASB issued ASU 2018-02, Income Statement, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Reform Legislation (described in Note 11) and will improve the usefulness of information reported to financial statement users. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoptionbut retrospective application is permitted. The standard requires disaggregated information about a reporting entity’s effective tax rate reconciliation, information on income taxes paid, and various other disclosure changes. The Company plans to adoptis currently evaluating the potential impact of adopting this standard in 2019 but does not expect the adoption of this standard to have a material effect on its financial statements and related disclosures.
In August 2018,
2.Impairments of Long-Lived Assets and Equity Method Investment
Goodwill. The Company's goodwill balance is associated entirely with the FASB issued ASU 2018-13, Fair Value Measurement, Changes to the Disclosure Requirements for Fair Value Measurement, which makes a number of changes to the hierarchyreporting unit associated with Level 1, 2the gas gathering and 3 fair value measurementscompression activities of EQM Gathering Opco, LLC, an indirect wholly owned subsidiary of the Company, and such reporting unit is included within the related disclosure requirements. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted.Gathering segment. The Company is currently evaluatingfollowing table summarizes the effect this standard will have on its financial statements and related disclosures but does not expect the adoptioncarrying amount of this standard to have a material effect on its financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other: Internal-Use Software, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contractgoodwill associated with the requirements for capitalizing implementation costs incurredCompany's reporting units as of December 31, 2023 and 2022.
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
| | | |
| (Thousands) |
| Gross Goodwill | $ | 1,350,721 | | | $ | 1,350,721 | |
| Accumulated impairment losses | (864,023) | | | (864,023) | |
| Balance as of end of period | $ | 486,698 | | | $ | 486,698 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
There was no impairment to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This guidance is effective for fiscalgoodwill recorded during the years beginning afterended December 15, 2019, including interim periods within those fiscal years. The31, 2023, 2022 and 2021.
During the fourth quarter of 2023, the Company early-adopted the standard using the prospective method of adoption on January 1, 2019. The Company does not expect the adoption of this standard to haveperformed a significant effect on its results of operations, liquidity or financial position in 2019. Additional disclosures will be required to describe the naturequalitative impairment assessment. As a result of the Company's hosting arrangementsassessment, it was determined that are service contracts and to report the capitalized implementation costs as a separate major class of depreciable assets.
As discussed in Note 1, on November 13, 2017, EQT completed the Rice Merger. EQT recorded the Rice Merger as a business combination using the acquisition method of accounting and performed a preliminary valuation of the fair value of Rice Midstream Holdings' assets and liabilities as of the Rice Merger Date.
The fair value of Rice Midstream Holdings' current assets and current liabilities were assumed to approximate their carrying values; as such, their fair values are Level 1 fair value measurements. The estimated fair value of long-lived property, plant and equipment were determined using estimated replacement cost, as adjusted by a usage obsolescence factor. As inputs used in the property, plant and equipment valuation areit was not observable, the assets' fair values are Level 3 fair value measurements. The fair value of the identified intangible asset was measured using an income approach modelmore likely than not that discounts estimated future cash
flows using a market-based weighted average cost of capital discount rate. As inputs used in the valuation are not observable, the intangible asset's fair value is a Level 3 fair value measurement.
The acquired noncontrolling interest consisted of the third-party ownership interests in RMP and Strike Force Midstream as of the Rice Merger Date. The noncontrolling interest in RMP was calculated using RMP's common unit market price as of the Rice Merger Date. As RMP's common units were actively traded on the New York Stock Exchange, the fair value of the RMP noncontrolling interest is a Level 1 fair value measurement. The noncontrolling interest in Strike Force MidstreamEQM Opco reporting unit was calculated based on the enterprise value of Strike Force Midstreamless than its carrying amount and the ownership percentage not acquired by EQT. As inputs used in the valuation are not observable, the noncontrolling interest's fair value is a Level 3 fair value measurement.
See Note 1 for a discussion on fair value measurements.
On the Rice Merger Date, Rice Midstream Holdings recorded goodwill of $1,384.9 million to two reporting units within the Gathering segment. In connection with the Separation, EQT transferred to the Company a deferred tax liability assumed in the Rice Merger and a corresponding increase to goodwill of $137.0 million.as such, no further impairment testing was necessary. During the fourth quarter of 2018,2022, the Rice Merger purchase price accounting was finalized and,Company performed a quantitative impairment assessment as required as part of the annual goodwill impairment assessment. As a result of the annual assessment, the Company recorded a reduction of $20.7 million to goodwill and a corresponding increase of $0.9 million to accounts payable and decrease of $21.6 million to deferred tax liability.
The following table summarizes the final purchase price allocation ofdetermined that the fair value of the assetsEQM Opco reporting unit was greater than its carrying value.
The Company believes the estimates and
liabilities of Rice Midstream Holdingsassumptions used in estimating its reporting unit's fair values are reasonable and appropriate; however, different assumptions and estimates, including those that could be driven by risks associated with future adverse market or economic conditions and Company specific qualitative factors, contractual changes or modifications or other adverse factors such as
unexpected production curtailment by customers, could materially affect the calculated fair value of the
Rice Merger Date. These values were recorded by Rice Midstream Holdings through pushdown accountingEQM Opco reporting unit and the resulting conclusions on impairment of goodwill, which could materially affect the Company’s results of operations and financial position. Additionally, actual results could differ from
EQT.these estimates and assumptions may not be realized. |
| | | |
| | Rice Merger |
| | Purchase Price Allocation |
| | and Goodwill |
| | (Thousands) |
Enterprise value (a) | $ | 3,846,240 |
|
| Fair value of assets acquired and liabilities assumed: | |
| Current assets | 141,410 |
|
| Property, plant and equipment | 2,265,924 |
|
| Intangible assets | 623,200 |
|
| Other assets | 118 |
|
| Current liabilities | (107,101 | ) |
| RMP Credit Facility | (266,000 | ) |
Due to EQT (b) | (187,742 | ) |
| Deferred income taxes | (115,456 | ) |
| Other long-term liabilities | (9,323 | ) |
| Total fair value of assets acquired and liabilities assumed | 2,345,030 |
|
Goodwill (c) | 1,501,210 |
|
Impairment of goodwill (d) | 261,941 |
|
| Goodwill as of December 31, 2018 | $ | 1,239,269 |
|
| |
(a) | Includes the fair value of noncontrolling interests assumed of $1.5 billion and $0.2 billion for RMP and Strike Force Midstream, respectively. |
| |
(b) | At the time of the Rice Merger, EQT repaid $187.5 million of outstanding principal and $0.2 million in accrued interest under Rice Midstream Holdings' revolving credit facility. Following repayment, EQT terminated the Rice Midstream Holdings revolving credit facility agreement. As of December 31, 2017, the $187.7 million is included in accounts payable on the Company's consolidated balance sheet. The Company reimbursed EQT for this amount in 2018. |
| |
(c) | Reflected the value of perceived growth opportunities, synergies and operating leverage anticipated through the acquisition and ownership of the acquired gathering assets as of November 13, 2017. |
| |
(d) | See Note 1 for discussion of the Company's evaluation and recognition of the impairment of goodwill for the year ended December 31, 2018. |
Long-Lived Assets. As of June 30, 2021, the Company performed a recoverability test of the Equitrans Water Services (OH) LLC (Ohio Water) long-lived assets due to decreased producer activity in Ohio within the Company's Water segment. As a result of the recoverability test, management determined that the carrying value of the Ohio Water long-lived assets was not recoverable under ASC 360, Impairment Testing: Long-Lived Assets Classified as Held and Used. The Company estimated the fair value of the Ohio Water asset group and determined that the fair value was less than the assets’ carrying value, which resulted in impairment charges of approximately $56.2 million to the Ohio Water assets within the Company's Water segment. The non-cash impairment charge was recognized during the second quarter of 2021 and is included in the impairment of long-lived assets line on the statements of consolidated comprehensive income.
Equity Method Investment. The standard for determining whether an impairment must be recorded under ASC 323, Investments: Equity Method Investments and Joint Ventures (ASC 323) is whether there occurred an other-than-temporary decline in value. The Company reviews the carrying value of investments in unconsolidated entities for impairment recorded under ASC 323 whenever events or changes in circumstances indicate, in management's judgment, that the carrying value of such investment may have experienced an other-than-temporary decline in value. The fair value of an equity method investment is generally estimated using an income approach under which significant judgments and assumptions include expected future cash flows, the appropriate discount rate and probability-weighted scenarios. Events or circumstances that may be indicative of an other-than-temporary decline in value of an equity method investment include, but are not limited to:
•a prolonged period of time that the fair value is below the investor’s carrying value;
•the current expected financial performance is significantly worse than anticipated when the investor originally invested in the investee;
•adverse regulatory action is expected to substantially reduce the investee’s product demand or profitability;
•the investee has unamortized carryover tax basislost significant customers or suppliers with no immediate prospects for replacement;
•the investee’s discounted or undiscounted cash flows are below the investor’s carrying amount; and
•the investee’s industry is declining and significantly lags the performance of $387.1 millionthe economy as a whole.
The estimates that the Company makes with respect to its equity method investment are based upon assumptions that management believes are reasonable, and the impact of tax-deductible goodwillvariations in these estimates or the underlying assumptions could be material. Additionally, if any joint venture to which the investment relates recognizes an impairment under ASC 360, the Company would be required to record its proportionate share of such impairment loss and would also evaluate such investment for an other-than-temporary decline in value under ASC 323.
During the fourth quarter of 2021, certain legal challenges before the U.S. Court of Appeals for the Fourth Circuit (Fourth Circuit) regarding regulatory authorizations previously granted to the MVP Joint Venture were completed, other than the issuance of decisions in those matters. In connection with the completion of those proceedings, the Company identified as an indicator of an other-than-temporary decline in value the various uncertain legal outcomes and the potential impacts that certain unfavorable outcomes could have on the then-targeted full in-service date for the MVP project and consequent timing for certain projects related thereto and total targeted MVP project costs. In January 2022, the Fourth Circuit vacated and remanded the MVP Joint Venture's then-authorizations related to the Rice Merger.Jefferson National Forest (JNF) received from the Bureau of Land Management and the U.S. Forest Service and, in February 2022, the Fourth Circuit vacated and remanded the then-Biological Opinion and Incidental Take Statement issued by the U.S. Department of the Interior’s Fish and Wildlife Service for the MVP project. The Company considered these unfavorable decisions by the Fourth Circuit as supplemental evidence in evaluating its equity method investment in the MVP Joint Venture as of December 31, 2021, to determine if the investment’s carrying value exceeded the fair value and, if so, whether that decline in value was other-than-temporary.
The Company estimated the fair value of its investment in the MVP Joint Venture using an income approach that primarily considered revised probability-weighted scenarios of discounted future net cash flows based on the estimates of total project costs and revenues. These scenarios reflected assumptions and judgments regarding potential delays and cost increases resulting from various then-ongoing legal and regulatory matters affecting the MVP and MVP Southgate projects (as defined herein).The Company’s analysis also took into account, among other things, probability-weighted growth expectations from additional compression expansion opportunities. The Company generally used an after-tax discount rate of 5.5% in the analysis derived based on a market participant approach. The Company considered scenarios under which then-ongoing or new legal and regulatory matters furthered delay the completion and increased the total costs of the project; all required legal and regulatory approvals and authorizations and certain compression expansion opportunities are realized; and the MVP project is canceled. As a result of the assessment, the Company recognized a pre-tax impairment charge of approximately $1.9 billion. Given the significant assumptions and judgments used in estimating the fair value of the Company's investment in the MVP Joint Venture, the fair value of the investment in the MVP Joint Venture represents a Level 3 measurement.
During the third quarter of 2022 assessment, the Company identified an increased risk of further permitting delays resulting primarily from legal developments and regulatory uncertainties, as well as macroeconomic pressures primarily due to increased interest rates impacting the discount rate used within the estimated fair value of its investment in the MVP Joint Venture. The Company considered these factors to be indicators of a decline in value. As such, the Company evaluated if the carrying value of its equity method investment in the MVP Joint Venture exceeded the fair value and, if so, whether that decline in value was other-than-temporary, and thus the equity method investment was impaired under ASC 323.
The Company estimated the fair value of its investment in the MVP Joint Venture using an income approach generally consistent with that described above, except that the Company generally used an after-tax discount rate of 7.5% in the analysis derived based on a market participant approach. As a result of the assessment, the Company recognized a pre-tax impairment charge of approximately $583.1 million.
Future adverse developments, as well as potential macroeconomic factors, including other-than-temporary market fluctuations, changes in interest rates, cost increases and other unanticipated events could result in additional impairment of the Company's equity method investment in the MVP Joint Venture. While macroeconomic factors in and of themselves may not be a direct
indicator of impairment, should an impairment indicator be identified in the future, these macroeconomic factors could ultimately impact the size and scope of any potential impairment.
Post-Acquisition Operating Results
Subsequent3. Financial Information by Business Segment
The Company reports its operations in three segments that reflect its three lines of business of Gathering, Transmission and Water, which reflects the manner in which management evaluates the business for making operating decisions and assessing performance. Refer to Note 1 for discussion on business segments.
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| | (Thousands) |
| Revenues from customers: | | | | | |
Gathering (a) | $ | 870,167 | | | $ | 890,579 | | | $ | 862,053 | |
Transmission (a) | 443,119 | | | 404,517 | | | 400,202 | |
| Water | 80,643 | | | 62,651 | | | 54,782 | |
| Total operating revenues | $ | 1,393,929 | | | $ | 1,357,747 | | | $ | 1,317,037 | |
| Operating income (loss): | | | | | |
Gathering | $ | 398,228 | | | $ | 446,917 | | | $ | 415,969 | |
| Transmission | 274,437 | | | 277,692 | | | 274,526 | |
Water (b) | 13,269 | | | 14,602 | | | (53,911) | |
Headquarters (c) | (1,556) | | | (1,617) | | | (1,183) | |
| Total operating income | $ | 684,378 | | | $ | 737,594 | | | $ | 635,401 | |
| | | | | |
| Reconciliation of operating income to net (loss) income: | | | | | |
Equity income (d) | $ | 175,215 | | | $ | 168 | | | $ | 17,579 | |
Impairments of equity method investment (d) | — | | | (583,057) | | | (1,926,402) | |
Other income (expense), net (e) | 3,222 | | | 13,871 | | | (47,546) | |
| Loss on extinguishment of debt | — | | | (24,937) | | | (41,025) | |
| Net interest expense | (426,884) | | | (394,333) | | | (378,650) | |
| Income tax (benefit) expense | (18,823) | | | 6,444 | | | (343,353) | |
| Net income (loss) | $ | 454,754 | | | $ | (257,138) | | | $ | (1,397,290) | |
(a)For the year ended December 31, 2023, volumetric-based fee revenues associated with Gathering and Transmission included one-time contract buyouts by a customer for approximately $5.0 million and $23.8 million, respectively.
(b)Impairment of long-lived assets of $56.2 million for the year ended December 31, 2021 were included in Water operating income (loss). See Note 2 for further information.
(c)Includes certain unallocated corporate expenses.
(d)Equity income and impairments of equity method investment are included in the Transmission segment.
(e)Includes unrealized gains (losses) on derivative instruments and, for the year ended December 31, 2022, gain on sale of gathering assets recorded in the Gathering segment.
| | | | | | | | | | | | | | | | | | | |
| December 31, | | |
| 2023 | | 2022 | | 2021 | | |
| | (Thousands) | | |
| Segment assets: | | | | | | | |
| Gathering | $ | 7,612,820 | | | $ | 7,610,233 | | | $ | 7,600,637 | | | |
Transmission (a) | 3,369,718 | | | 2,333,896 | | | 2,769,097 | | | |
| Water | 217,225 | | | 218,680 | | | 151,151 | | | |
| Total operating segments | 11,199,763 | | | 10,162,809 | | | 10,520,885 | | | |
| Headquarters, including cash | 509,663 | | | 282,776 | | | 361,639 | | | |
| Total assets | $ | 11,709,426 | | | $ | 10,445,585 | | | $ | 10,882,524 | | | |
(a)The equity investment in the MVP Joint Venture is included in the Transmission segment.
| | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| | (Thousands) |
| Depreciation: | | | | | |
| Gathering | $ | 196,547 | | | $ | 195,059 | | | $ | 188,633 | |
| Transmission | 56,056 | | | 55,614 | | | 55,310 | |
| Water | 26,043 | | | 20,016 | | | 25,233 | |
| Headquarters | 740 | | | 1,506 | | | 1,228 | |
| Total | $ | 279,386 | | | $ | 272,195 | | | $ | 270,404 | |
| Capital expenditures: | | | | | |
Gathering (a) | $ | 267,748 | | | $ | 265,864 | | | $ | 223,807 | |
Transmission (b) | 84,224 | | | 35,971 | | | 25,977 | |
| Water | 45,691 | | | 66,569 | | | 34,877 | |
| Headquarters | — | | | 13 | | | 1,494 | |
Total (c) | $ | 397,663 | | | $ | 368,417 | | | $ | 286,155 | |
(a)Includes approximately $14.3 million, $20.3 million and $14.1 million of capital expenditures related to noncontrolling interest in Eureka Midstream for the years ended December 31, 2023, 2022 and 2021, respectively.
(b)Transmission capital expenditures do not include aggregate capital contributions made to the completion of the Rice Merger, Rice Midstream Holdings contributed the following to the Company's consolidated operating resultsMVP Joint Venture for the period from November 13, 2017 throughMVP and MVP Southgate projects of approximately $689.4 million, $199.6 million and $287.7 million for the years ended December 31, 2017.2023, 2022 and 2021, respectively. |
| | | |
| | November 13, 2017 |
| | through |
| | December 31, 2017 |
| | (Thousands) |
| Operating revenues | $ | 14,881 |
|
| Operating income attributable to Equitrans Midstream | 69,036 |
|
| Net income attributable to noncontrolling interests | 16,644 |
|
| Net income attributable to Equitrans Midstream | 21,814 |
|
Unaudited Pro Forma Information
(c)The following unaudited pro forma financial information presentsCompany accrues capital expenditures when the Company's results as though the Rice Merger hadwork has been completed but the associated bills have not yet been paid. Accrued capital expenditures are excluded from the statements of consolidated cash flows until they are paid. The net impact of non-cash capital expenditures, including the effect of accrued capital expenditures, transfers to/from inventory as assets are completed/assigned to a project and capitalized share-based compensation costs, was $(11.1) million, $8.2 million and $4.4 million at January 1, 2016. The pro forma financial information has been included for comparative purposesDecember 31, 2023, 2022 and is not necessarily indicative of the results that might have actually occurred had the Rice Merger taken place on January 1, 2016; furthermore, the financial information is not intended to be a projection of future results.2021, respectively.
|
| | | | | | | |
| | Years Ended December 31, |
| | 2017 | | 2016 |
| | (Thousands) |
| Pro forma operating revenues | $ | 1,264,704 |
| | $ | 997,829 |
|
| Pro forma net income | 549,567 |
| | 440,735 |
|
| Pro forma net income attributable to noncontrolling interests | 445,576 |
| | 376,284 |
|
| Pro forma net income attributable to Equitrans Midstream | 103,991 |
| | 64,451 |
|
| |
3.
| Revenue from Contracts with Customers |
As discussed in Note 1, the Company adopted ASU No. 2014-09, 4.Revenue from Contracts with Customers, on January 1, 2018 using the modified retrospective method of adoption. The Company applied the standard to all open contracts as of the date of initial application. Adoption of the standard did not require an adjustment to the opening balance of equity and did not materially change the amount or timing of the Company's revenues.
For the years ended December 31, 2018, 20172023, 2022 and 2016,2021, substantially all revenues recognized on the Company's statements of consolidated comprehensive income arewere from contracts with customers. As of December 31, 20182023 and 2017,2022, all receivables recorded on the Company's consolidated balance sheets represent performance obligations that have been satisfied and for which an unconditional right to consideration exists.
Gathering, Transmission and Storage Service Contracts
The Company provides gathering, transmission and storage services in two manners: firm service and interruptible service. Firm service is provided under firm contracts, which are contracts for gathering, transmission or storage services that generally obligate the customer to pay a fixed, monthly charge to reserve an agreed upon amount of pipeline or storage capacity regardless of the capacity used by the customer during each month. Volumetric-based fees can also be charged under firm contracts for each firm volume transported, gathered or stored as well as for volumes transported, gathered or stored in excess of the firm contracted volume. Interruptible service contracts include volumetric-based fees, which are charges for the volume of gas gathered, transported or stored and generally do not guarantee access to the pipeline or storage facility. These contracts can be short- or long-term. Firm and interruptible contracts are billed at the end of each calendar month, with payment typically due within 21 days.
Under a firm contract, the Company has a stand-ready obligation to provide the service over the life of the contract. The performance obligation for firm reservation fee revenue is satisfied over time as the pipeline capacity is made available to the customer. As such, the Company recognizes firm reservation fee revenue evenly over the contract period using a time-elapsed output method to measure progress. The performance obligation for volumetric-based fee revenue is generally satisfied upon the Company's monthly billing to the customer for volumes gathered, transported or stored during the month. The amount
billed corresponds directly to the value of the Company's performance to date as the customer obtains value as each volume is gathered, transported or stored.
Certain of the Company's gas gathering agreements are structured with minimum volume commitments (MVCs), which specify minimum quantities for which a customer will be charged regardless of quantities gathered under the contract. Revenue is recognized for MVCs when the performance obligation has been met, which is the earlier of when the gas is gathered or when it is remote that the producer will be able to meet its MVC.
Water Service Contracts
Water service revenues represent fees charged by the Company for the delivery of fresh water to a customer at a specified delivery point and for the collection and recycling or disposal of flowback and produced water. All of the Company's water service revenues are generated under variable price per volume contracts. For fresh water service contracts, the only performance obligation in each contract is for the Company to provide water (usually a minimum daily volume of water) to the customer at a designated delivery point. For flowback and produced water, the performance obligation is collection and disposition of the water, which typically occur within the same day. Water service contracts are billed on a monthly basis, with payment typically due within 21 days.
Summary of Disaggregated Revenues
disaggregated revenues. The tables below provide disaggregated revenue information by business segment.
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2023 |
| Gathering | | Transmission | | Water | | Total |
| (Thousands) |
Firm reservation fee revenues (a) | $ | 572,899 | | | $ | 361,416 | | | $ | 39,168 | | | $ | 973,483 | |
Volumetric-based fee revenues (b) | 297,268 | | | 81,703 | | | 41,475 | | | 420,446 | |
| Total operating revenues | $ | 870,167 | | | $ | 443,119 | | | $ | 80,643 | | | $ | 1,393,929 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| Gathering | | Transmission | | Water | | Total |
| (Thousands) |
Firm reservation fee revenues (a) | $ | 562,947 | | | $ | 370,769 | | | $ | 33,877 | | | $ | 967,593 | |
Volumetric-based fee revenues (b) | 327,632 | | | 33,748 | | | 28,774 | | | 390,154 | |
| Total operating revenues | $ | 890,579 | | | $ | 404,517 | | | $ | 62,651 | | | $ | 1,357,747 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Gathering | | Transmission | | Water | | Total |
| (Thousands) |
Firm reservation fee revenues (a) | $ | 468,156 | | | $ | 366,323 | | | $ | 5,063 | | | $ | 839,542 | |
Volumetric-based fee revenues (b) | 393,897 | | | 33,879 | | | 49,719 | | | 477,495 | |
| Total operating revenues | $ | 862,053 | | | $ | 400,202 | | | $ | 54,782 | | | $ | 1,317,037 | |
(a) For the years ended December 31, 2023, 2022 and 2021, firm reservation fee revenues associated with Gathering included approximately $4.1 million, $20.2 million and $11.3 million, respectively, of MVC unbilled revenues.
(b) For the year ended December 31, 2023, volumetric-based fee revenues associated with Gathering and Transmission included one-time contract buyouts by a customer for approximately $5.0 million and $23.8 million, respectively. For the years ended December 31, 2023, 2022 and 2021, volumetric-based fee revenues associated with Gathering included approximately $4.6 million, $4.2 million and $3.5 million, respectively, of MVC unbilled revenues.
Contract assets. The Company recognizes contract assets primarily in instances where billing occurs subsequent to revenue recognition and the Company's right to invoice the customer is conditioned on something other than the passage of time. The Company's contract assets primarily consist of revenue recognized under contracts containing MVCs (whereby management has concluded (i) it is probable there will be a MVC deficiency payment at the end of the then-current MVC period, which is typically the period beginning at the inception of such contracts through the successive twelve-month periods after that date, and (ii) that a significant reversal of revenue recognized currently for the future MVC deficiency payment will not occur), as well as certain other contractual commitments. As a result, the Company's contract assets related to the Company's future MVC deficiency payments are generally expected to be collected within the next twelve months and are primarily included in other current assets in the Company's consolidated balance sheets until such time as the MVC deficiency payments are invoiced to the customer.
The following table presents changes in the Company's contract assets balance during the years ended December 31, 2023 and 2022:
|
| | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 |
| | Gathering | | Transmission | | Water | | Total |
| | (Thousands) |
| Firm reservation fee revenues | $ | 447,360 |
| | $ | 356,725 |
| | $ | — |
| | $ | 804,085 |
|
| Volumetric-based fee revenues | 549,710 |
| | 30,076 |
| | — |
| | 579,786 |
|
| Water service revenues | — |
| | — |
| | 111,227 |
| | 111,227 |
|
| Total operating revenues | $ | 997,070 |
| | $ | 386,801 |
| | $ | 111,227 |
| | $ | 1,495,098 |
|
|
| | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | Gathering | | Transmission | | Water | | Total |
| | (Thousands) |
| Firm reservation fee revenues | $ | 407,355 |
| | $ | 348,193 |
| | $ | — |
| | $ | 755,548 |
|
| Volumetric-based fee revenues | 102,612 |
| | 23,793 |
| | — |
| | 126,405 |
|
| Water service revenues | — |
| | — |
| | 13,605 |
| | 13,605 |
|
| Total operating revenues | $ | 509,967 |
| | $ | 371,986 |
| | $ | 13,605 |
| | $ | 895,558 |
|
|
| | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | Gathering | | Transmission | | Water | | Total |
| | (Thousands) |
| Firm reservation fee revenues | $ | 339,237 |
| | $ | 277,816 |
| | $ | — |
| | $ | 617,053 |
|
| Volumetric-based fee revenues | 58,257 |
| | 56,962 |
| | — |
| | 115,219 |
|
| Water service revenues | — |
| | — |
| | — |
| | — |
|
| Total operating revenues | $ | 397,494 |
| | $ | 334,778 |
| | $ | — |
| | $ | 732,272 |
|
| | | | | | | | | | | | | | | | |
| | Contract Assets |
| | 2023 | | 2022 | | |
| | (Thousands) | | |
| Balance as of beginning of period | | $ | 27,493 | | | $ | 16,772 | | | |
Revenue recognized in excess of amounts invoiced (a) | | 12,233 | | | 30,477 | | | |
Minimum volume commitments invoiced (b) | | (27,945) | | | (19,256) | | | |
Amortization (c) | | (658) | | | (500) | | | |
| Balance as of end of period | | $ | 11,123 | | | $ | 27,493 | | | |
| | | | | | |
(a) Primarily includes revenues associated with MVCs that are included in revenues within the Gathering and Water segments.
(b) Unbilled revenues are transferred to accounts receivable once the Company has an unconditional right to consideration from the customer.
(c) Amortization of capitalized contract costs paid to customers over the expected life of the agreement.
Contract liabilities. On February 26, 2020 (the EQT Global GGA Effective Date), the Company entered into a
Gas Gathering and Compression Agreement (as amended, the EQT Global GGA) with EQT and certain of its affiliates for the
provision of certain gas gathering services to EQT in the Marcellus and Utica Shales of Pennsylvania and West Virginia. The Company's contract liabilities consist of deferred revenue primarily associated with the EQT Global GGA. Contract liabilities are classified as current or non-current according to when such amounts are expected to be recognized.
On July 8, 2022, the Company received written notice from EQT, pursuant to the EQT Global GGA, of EQT’s irrevocable election under the agreement to forgo up to approximately $145 million of potential gathering MVC fee relief in the first twelve-month period beginning the first day of the quarter in which the MVP full in-service date occurs and up to approximately $90 million of potential gathering MVC fee relief in the second such twelve-month period in exchange for a cash payment from the Company to EQT in the amount of approximately $195.8 million (the EQT Cash Option). As a result of EQT’s election to forgo potential rate relief in exchange for the cash option payment, the Company recorded a reduction to the contract liability of approximately $195.8 million. The Company utilized borrowings under the Amended EQM Credit Facility to effect such payment to EQT on October 4, 2022.
During the fourth quarter of 2021, the Company entered into two amendments to an agreement for firm transportation service (FTS) with EQT that, subject to the satisfaction of certain conditions, would have the effect of extending the primary term of the FTS. As a result of the potential extension, management reassessed the expected gathering MVC fee credit assumptions and, as a result of the impacts to such assumptions, the total consideration expected under the EQT Global GGA was reduced. The Company recognized a cumulative adjustment that decreased revenue and increased contract liability by $123.7 million, respectively, during the year ended December 31, 2021. The cumulative adjustment had no impact to the amount billed to and cash collected from EQT under the EQT Global GGA.
On October 22, 2021, the Company and EQT entered into a 10-year, mixed-use water services agreement covering operations within a dedicated area in southwestern Pennsylvania (as subsequently amended, the 2021 Water Services Agreement). The 2021 Water Services Agreement became effective on March 1, 2022 and replaced the letter agreement for water services entered into with EQT in February 2020 and certain other existing Pennsylvania water services agreements. Pursuant to the 2021 Water Services Agreement, EQT agreed to pay the Company a minimum ARC for water services equal to $40 million in each of the first five years of the 10-year contract term and equal to $35 million per year for the remaining five years of the contract term.
The following table presents changes in the Company's contract liability balances during the years ended December 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | |
| | | | Contract Liability |
| | | | 2023 | | 2022 | | |
| | | | (Thousands) |
| Balance as of beginning of period | | | | $ | 973,087 | | | $ | 822,416 | | | |
Amounts recorded during the period (a) | | | | 338,860 | | | 359,797 | | | |
Change in estimated variable consideration (b) | | | | (5,331) | | | (11,761) | | | |
Amounts transferred during the period (c) | | | | (5,516) | | | (1,545) | | | |
| EQT Cash Option | | | | — | | | (195,820) | | | |
| Balance as of end of period | | | | $ | 1,301,100 | | | $ | 973,087 | | | |
| | | | | | | | |
(a) Includes deferred billed revenue during the years ended December 31, 2023 and 2022 primarily associated with the EQT Global GGA.
(b) For the year ended December 31, 2023, the change in estimated variable consideration represents the decrease in total deferred revenue due to changes in MVP timing assumptions. For the year ended December 31, 2022, the change in estimated variable consideration represents the decrease in total deferred revenue required for gathering MVC revenue with a declining rate structure, resulting from the EQT Cash Option election that required total estimated gathering consideration to be increased and from contractual amendments that required total estimated gathering consideration to be reduced.
(c) Deferred revenues are recognized as revenue upon satisfaction of the Company's performance obligation to the customer.
Summary of Remaining Performance Obligations
remaining performance obligations.The following table summarizes the estimated transaction price allocated to the Company's remaining performance obligations under all contracts with firm reservation fees, and MVCs and/or ARCs as of December 31, 2018.2023 that the Company will invoice or transfer from contract liabilities and recognize in future periods.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2024 | | 2025 | | 2026 | | 2027 | | 2028 | | Thereafter | | Total |
| | (Thousands) |
| Gathering firm reservation fees | $ | 162,177 | | | $ | 176,657 | | | $ | 167,163 | | | $ | 160,370 | | | $ | 156,747 | | | $ | 1,568,133 | | | $ | 2,391,247 | |
| Gathering revenues supported by MVCs | 427,513 | | | 457,339 | | | 489,679 | | | 487,710 | | | 485,079 | | | 2,685,762 | | | 5,033,082 | |
| Transmission firm reservation fees | 397,514 | | | 400,073 | | | 400,429 | | | 399,680 | | | 396,999 | | | 2,765,237 | | | 4,759,932 | |
| Water revenues supported by ARCs/MVCs | 45,706 | | | 48,441 | | | 45,159 | | | 44,065 | | | 45,706 | | | 120,938 | | | 350,015 | |
Total (a) | $ | 1,032,910 | | | $ | 1,082,510 | | | $ | 1,102,430 | | | $ | 1,091,825 | | | $ | 1,084,531 | | | $ | 7,140,070 | | | $ | 12,534,276 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total |
| | (Thousands) |
| Gathering firm reservation fees | $ | 476,709 |
| | $ | 552,636 |
| | $ | 562,635 |
| | $ | 562,635 |
| | $ | 562,635 |
| | $ | 2,273,123 |
| | $ | 4,990,373 |
|
| Gathering revenues supported by MVCs | 65,700 |
| | 71,370 |
| | 71,175 |
| | 71,175 |
| | 71,175 |
| | 65,700 |
| | 416,295 |
|
| Transmission firm reservation fees | 351,028 |
| | 343,984 |
| | 340,218 |
| | 335,137 |
| | 295,243 |
| | 2,178,736 |
| | 3,844,346 |
|
| Total | $ | 893,437 |
| | $ | 967,990 |
| | $ | 974,028 |
| | $ | 968,947 |
| | $ | 929,053 |
| | $ | 4,517,559 |
| | $ | 9,251,014 |
|
Based on total projected contractual revenues, including projected contractual revenues from future capacity expected from expansion projects that are not yet fully constructed or not yet fully in-service for which the Company has executed firm contracts, the Company's firm gathering contracts and firm transmission and storage contracts had weighted average remaining terms of approximately 1113 years and 1512 years, respectively, as of December 31, 2018.2023.
4. Equity5. Leases
In connectionThe Company has certain facility and compressor operating lease contracts that are classified as operating leases and one lease contract for the rental of a water storage facility classified as a financing lease in accordance with ASC 842. Leases with an initial term of 12 months or less are considered short-term, recognized in expense on a straight-line basis over the Distribution described in Note 1,lease term and basedare not recorded on the 254,586,700 shares of outstanding common stock of EQT (EQT common stock) as of the record date for the Distribution, the Company issued 254,268,864 shares of Equitrans Midstream common stock.balance sheet. As of December 31, 2018, there were 254,270,971 shares of Equitrans Midstream common stock outstanding, of which EQT owned 50,599,503.
On February 5, 2019, the Board declared a cash dividend for the fourth quarter of 2018 of $0.41 per share payable on February 27, 2019 to shareholders of record at the close of business on February 15, 2019.
Rights Agreement
On November 13, 2018, the Board of Directors of Equitrans Midstream (the Board) declared a dividend of one preferred share purchase right (Right) for each outstanding share of Equitrans Midstream common stock2023 and adopted a shareholder rights plan as set forth in the rights agreement (the Rights Agreement), dated as of November 13, 2018, by and between Equitrans Midstream and American Stock Transfer & Trust Company, LLC, as rights agent. The dividend was paid on November 23, 2018 to Equitrans Midstream shareholders of record as of the close of business on November 23, 2018.
The Rights Agreement imposes a significant penalty upon any person or group that acquires 10% (or 15% in the case of a 13G Investor, as defined in the Rights Agreement, or 20% in the case of EQT and a single permitted transferee of the Retained Interest) or more of the outstanding shares of Equitrans Midstream common stock without the approval of the Board. The Rights Agreement will expire on March 31, 2019, unless earlier redeemed by the Company.
Upon certain triggering events, each Right would entitle the holder to purchase from2022, the Company one one-hundredth (subjectwas not the lessor to adjustment) of one share of Series A Junior Participating Preferred Stock, without par value (Preferred Stock), ofany arrangement; however, the Company at an exercise price of $100 (the Exercise Price) per one one-hundredth of a share of Preferred Stock. The following are the potential consequences of a person or group becoming an Acquiring Person, as defined in the Rights Agreement:
Flip In. If a person or group becomes an Acquiring Person, all holders of Rights, except the Acquiring Person, may, for the Exercise Price, purchase shares of Equitrans Midstream common stock with a market value of $200, based on the market price of Equitrans Midstream common stock priorwas party to such acquisition.
Exchange. After a person or group becomes an Acquiring Person, but before an Acquiring Person owns 50% or more of the outstanding shares of Equitrans Midstream common stock, the Board may extinguish the Rights by exchanging one share of Equitrans Midstream common stock, or an equivalent security, for each Right other than the Rights held by the Acquiring Person.
Flip Over. Ifcertain subleasing arrangements whereby the Company, is later acquired inas sublessor, agreed to sublet leased office space to a merger or similar transaction after the date that the Rights become exercisable, all holders of Rights, except the Acquiring Person may, for the Exercise Price, purchase shares of the acquiring corporation with a market value of $200 based on the market price of the acquiring corporation's stock prior to such transaction.
third party.
5. Financial Information by Business Segment
The Company reports its operations in three segments that reflect its three lines of business of Gathering, Transmission and Water. Refer to Note 1 for discussion on business segments.
The financial statements include expense allocations for certain corporate functions historically performed by EQT. The financial statements may not include all expenses that would have been incurred had the Company existed as a standalone, publicly traded corporationfollowing table summarizes lease cost for the entirety of the periods presented.
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (Thousands) |
| Revenues from external customers (including related parties): | | | | | |
|
| Gathering | $ | 997,070 |
| | $ | 509,967 |
| | $ | 397,494 |
|
| Transmission | 386,801 |
| | 371,986 |
| | 334,778 |
|
| Water | 111,227 |
| | 13,605 |
| | — |
|
| Total operating revenues | $ | 1,495,098 |
| | $ | 895,558 |
| | $ | 732,272 |
|
| Operating income (loss): | | | | | |
|
Gathering (a) | $ | 423,407 |
| | $ | 369,093 |
| | $ | 289,643 |
|
| Transmission | 265,579 |
| | 247,467 |
| | 238,213 |
|
| Water | 37,667 |
| | 4,145 |
| | — |
|
Other (b) | (83,569 | ) | | (77,655 | ) | | (62,790 | ) |
| Total operating income | $ | 643,084 |
| | $ | 543,050 |
| | $ | 465,066 |
|
| | | | | | |
| Reconciliation of operating income to net income: | | | | | |
Equity income (c) | 61,778 |
| | 22,171 |
| | 9,898 |
|
| Other income | 5,011 |
| | 4,439 |
| | 27,113 |
|
| Net interest expense | 115,454 |
| | 34,801 |
| | 16,761 |
|
| Income tax expense | 83,142 |
| | 212,402 |
| | 98,243 |
|
| Net income | $ | 511,277 |
| | $ | 322,457 |
| | $ | 387,073 |
|
| |
(a) | Impairment of goodwill of $261.9 million was included in Gathering's operating income for 2018. See Note 1. |
| |
(b) | Other operating loss includes selling, general and administrative expense, separation and other transaction costs and depreciation that are not allocated to the business segments. |
| |
(c) | Equity income is included in the Transmission segment. |
|
| | | | | | | |
| | December 31, |
| | 2018 | | 2017 |
| | (Thousands) |
| Segment assets: | |
| | |
|
| Gathering | $ | 6,011,654 |
| | $ | 5,656,094 |
|
Transmission (a) | 3,066,659 |
| | 1,947,566 |
|
| Water | 237,602 |
| | 208,273 |
|
| Total operating segments | 9,315,915 |
| | 7,811,933 |
|
| Headquarters, including cash | 1,207,920 |
| | 516,863 |
|
| Total assets | $ | 10,523,835 |
| | $ | 8,328,796 |
|
| |
(a) | The equity investment in the MVP Joint Venture is included in the Transmission segment. |
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (Thousands) |
| Depreciation: | | | | | |
|
| Gathering | $ | 98,678 |
| | $ | 44,957 |
| | $ | 30,422 |
|
| Transmission | 49,723 |
| | 58,689 |
| | 32,269 |
|
| Water | 23,513 |
| | 3,515 |
| | — |
|
Other (a) | 3,907 |
| | (10,487 | ) | | — |
|
| Total | $ | 175,821 |
| | $ | 96,674 |
| | $ | 62,691 |
|
| Expenditures for segment assets: | | | | | |
| Gathering | $ | 717,251 |
| | $ | 254,522 |
| | $ | 295,315 |
|
| Transmission | 114,450 |
| | 111,102 |
| | 292,049 |
|
| Water | 23,537 |
| | 6,233 |
| | — |
|
| Other | 29,336 |
| | — |
| | — |
|
Total (b) | $ | 884,574 |
| | $ | 371,857 |
| | $ | 587,364 |
|
| |
(a) | Depreciation within the Transmission segment for the year ended December 31, 2017 includes a non-cash charge of $10.5 million related to the revaluation of differences between the regulatory and tax bases in Equitrans, L.P.'s regulated property, plant and equipment. For purposes of the Company's consolidated reporting, the $10.5 million is reported in income tax expense with a corresponding reduction to depreciation. |
| |
(b) | The Company accrues capital expenditures when the capital work has been completed but the associated bills have not been paid. Accrued capital expenditures are excluded from the statements of consolidated cash flows until they are paid. Accrued capital expenditures were approximately $109.3 million, $90.7 million, $26.7 million and $24.1 million at December 31, 2018, 2017, 2016 and 2015, respectively. At the Rice Merger Date, the Company assumed $72.3 million of Rice Midstream Holdings accrued capital expenditures. |
| |
6. | Investments in Consolidated, Non-Wholly-Owned Entities |
Investment in EQGP
RMP IDR Transaction. On May 22, 2018, pursuant to an IDR purchase and sale agreement dated April 25, 2018, by and among EQT, RMGP and EQGP, EQGP acquired from RMGP all of the issued and outstanding IDRs in RMP in exchange for 36,293,766 common units representing limited partner interests in EQGP (EQGP common units) (the RMP IDR Transaction).
EQGP Unit Purchases. On November 29, 2018, the Company entered into written agreements (the Unit Purchase Agreements) with (i) funds managed by Neuberger Berman Investment Adviser LP, pursuant to which the Company acquired 5,842,704 EQGP common units for $20.00 per EQGP common unit (the Purchase Price), (ii) funds managed by Goldman Sachs Asset Management, L.P., pursuant to which the Company acquired 1,865,020 EQGP common units for the Purchase Price, (iii) funds managed by Cushing Asset Management, LP, pursuant to which the Company acquired 920,130 EQGP common units for the Purchase Price, (iv) funds managed by Kayne Anderson Capital Advisors, L.P., pursuant to which the Company acquired 1,363,974 EQGP common units for the Purchase Price, and (v) ZP Energy Fund, L.P., pursuant to which the Company acquired 5,372,593 EQGP common units for the Purchase Price (collectively, the EQGP Unit Purchases).
On December 31, 2018, the Company closed on the acquisition of an aggregate 14,560,281 EQGP common units pursuant to the Unit Purchase Agreements (the Initial Unit Purchase Closing) for an aggregate purchase price of $291.2 million. The Initial Unit Purchases Closing resulted in a reduction of additional paid-in capital of $46.8 million and a decrease in noncontrolling interest in consolidated subsidiaries of $244.4 million for the yearyears ended December 31,
2018.2023, 2022 and 2021: | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| (Thousands) |
| Operating lease cost | $ | 10,613 | | | $ | 9,540 | | | $ | 12,571 | |
| Finance lease cost: | | | | | |
| Amortization of leased assets | 1,622 | | | 541 | | | — | |
| Interest on lease liabilities | 888 | | | 310 | | | — | |
| Short-term lease cost | 5,786 | | | 7,747 | | | 6,057 | |
| Variable lease cost | 102 | | | 7 | | | 7 | |
| Sublease income | (1,155) | | | (742) | | | (492) | |
| Total lease cost | $ | 17,856 | | | $ | 17,403 | | | $ | 18,143 | |
Operating lease expense related to the Company's compressor lease contracts and facility lease contracts is reported in operating and maintenance expense and selling, general and administrative expense, respectively, on the Company's statements of consolidated comprehensive income. Finance lease expense related to the Company's water storage facility contract amortization and interest is reported in operating and maintenance expense and net interest expense, respectively, on the Company's statements of consolidated comprehensive income.
The following table summarizes the cash paid for operating and finance lease liabilities for the years ended December 31, 2023, 2022 and 2021:
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| (Thousands) |
| Operating lease liabilities | $ | 10,923 | | | $ | 10,484 | | | $ | 12,792 | |
| Finance lease liabilities | 2,021 | | | 670 | | | — |
The following table summarizes balance sheet information related to our leases is as follows: | | | | | | | | | | | | | | | | | | | | |
| | | | December 31, |
| | Balance Sheet Classification | | 2023 | | 2022 |
| | | | (Thousands) |
| Assets: | | | | | | |
| Operating lease right-of-use | | Other assets | | $ | 37,598 | | | $ | 35,969 | |
| Finance lease | | Other assets | | 14,061 | | | 15,683 | |
| Total right-of-use assets | | | | $ | 51,659 | | | $ | 51,652 | |
| Liabilities: | | | | | | |
| Current operating | | Accrued liabilities | | $ | 10,284 | | | $ | 6,682 | |
| Current finance | | Accrued liabilities | | 1,297 | | | 1,203 | |
| Non-current operating | | Regulatory and other long-term liabilities | | 28,889 | | | 30,272 | |
| Non-current finance | | Regulatory and other long-term liabilities | | 13,434 | | | 14,660 | |
| Total lease liabilities | | | | $ | 53,904 | | | $ | 52,817 | |
As of December 31, 2018, following2023 and 2022, the Initial Unit Purchase Closing, the Company owned 290,569,047 EQGP common units, representing an approximate 96.1% limited partner interest in EQGP,weighted average remaining operating lease terms were six years and seven years, respectively, and the entire non-economic general partner interest in EQGP.
Following the Initial Unit Purchase Closing, the Company exercised a limited call right (the Limited Call Right) provided for in Section 15.1(a) of the Second Amendedweighted average discount rates were 6.1% and Restated Agreement of Limited Partnership of EQGP, dated as of October 12, 2018. In January 2019, the Company closed on the acquisition of the remaining EQGP common units not owned by the Company pursuant to the Unit Purchase Agreements and the Limited Call Right. See Note 17.
Investment in EQM
Public Offerings of EQM Common Units. During the third quarter of 2015, EQM entered into an equity distribution agreement that established an ATM common unit offering program, pursuant to which a group of managers acting as EQM's sales agents could sell EQM common units having an aggregate offering price of up to $750 million (the $750 Million ATM Program). During the year ended December 31, 2016, EQM issued 2,949,309 EQM common units under the $750 Million ATM Program at an average price per unit of $74.42. EQM received proceeds from the issuances of $217.1 million, net of underwriters' discount and other offering expenses of $2.4 million, which included commissions of approximately $2.2 million. The $750 Million ATM Program expired in the third quarter of 2018. EQM had no public offerings of its common units during the years ended December 31, 2018 and 2017.
Issuances as Drop-Down Transaction and EQM-RMP Mergers Consideration. As described in Note 1, the Drop-Down Transaction was completed effective May 1, 2018. As part of the consideration for the Drop-Down Transaction, EQM issued 5,889,282 EQM common units to a wholly-owned subsidiary of the Company.
On July 23, 2018, in connection with the EQM-RMP Mergers discussed in Note 1, the 102,323,796 RMP common units then issued and outstanding converted into 33,963,753 EQM common units based on the exchange ratio of 0.3319, the 36,220 outstanding RMP phantom units fully vested and converted into 12,024 EQM common units based on the exchange ratio of 0.3319, less applicable tax withholding, and the issued and outstanding IDRs in RMP were canceled. Of the RMP common units issued and outstanding at the time of the EQM-RMP Mergers, the Company owned 28,757,246 RMP common units, which converted into 9,544,530 EQM common units.
5.9%, respectively. As of December 31, 2018, EQGP owned 21,811,643 EQM common units, representing an approximate 17.9% limited partner interest, 1,443,015 EQM general partner units, representing a 1.2% general partner interest,2023 and all of2022, the IDRsremaining finance lease term was nine years and ten years, respectively, and the discount rate was 5.8% and 5.9%, respectively.
The following table summarizes undiscounted cash flows owed by the Company to lessors pursuant to noncancelable contractual agreements in EQM, which entitled EQGP to receive 48.0% of all incremental cash distributions in a quarter after $0.5250 has been distributed to each EQM common and general partner unitholder in that quarter. In addition,effect as of December 31, 2018,2023 and related imputed interest.
| | | | | | | | | | | |
| Operating Leases | | Finance Leases |
| Year ending December 31, | (Thousands) |
| 2024 | $ | 12,170 | | | $ | 2,050 | |
| 2025 | 8,344 | | | 2,081 | |
| 2026 | 5,040 | | | 2,112 | |
| 2027 | 5,111 | | | 2,144 | |
| 2028 | 5,183 | | | 2,176 | |
| Thereafter | 10,359 | | | 8,258 | |
| Total | 46,207 | | | 18,821 | |
| Less: imputed interest | 7,034 | | | 4,090 | |
| Present value of lease liabilities | $ | 39,173 | | | $ | 14,731 | |
6. Related Party Transactions
In the ordinary course of business, the Company owned 15,433,812 EQM common units, representing an approximate 12.7%engages in transactions with EQT and its affiliates, including but not limited partner interestto, entering into new or amending existing gathering agreements, transportation service and precedent agreements, storage agreements and/or water services agreements, however, based solely on information reported by EQT in EQM.
See Note 17 for discussiona Schedule 13G/A filed with the SEC on the EQM IDR Transaction.
EQM Cash Distribution. On January 16, 2019, the Board of DirectorsApril 28, 2022, EQT was no longer a related party of the EQM General Partner declared a cash distributionCompany as of April 22, 2022 and the amounts disclosed related to EQM's unitholders for the fourth quarter of 2018 of $1.13 per EQM common unit or $211.3 million. On February 13, 2019, EQM paid the cash distribution to its unitholders of record at the close of business on February 1, 2019. Cash distributions paid by EQM to the Company were $117.3 million, consisting of $42.1 millionEQT below are accordingly presented with respect to the Company's limited partner interest in EQM, $2.5 million with respect to the Company's general partner interest in EQM and $72.7 million with respect to the Company's IDRs in EQM.full 2021 period during which EQT was considered a related party.
Net Changes in Ownership of EQGP and EQM
As a result of equity transactions of EQGP and EQM, the Company is required to adjust noncontrolling interest and parent net investment. The following table summarizes the net changes in the Company's parent net investment from changes in the Company's ownership interests in EQGP or EQM for the year ended December 31, 2018. EQGP and EQM had no equity transactions in 2017, and, as such, there were no changes in the Company's net ownership of EQGP or EQM. During the year ended December 31, 2016, as a result of EQM common units issued under the $750 Million ATM Program and through vestings of long-term incentive plan awards, the Company recorded a gain to parent net investment of approximately $24 million, an increase to deferred tax liability of approximately $16 million and a decrease in noncontrolling interest in consolidated subsidiaries of approximately $40 million.related party transactions.
|
| | | |
| | Year Ended December 31, 2018 |
| (Millions) |
| Net changes in parent net investment | |
| Drop-Down Transaction | $ | 16 |
|
| RMP IDR Transaction | (35 | ) |
| EQM-RMP Mergers | (140 | ) |
| Net decrease in parent net investment | (159 | ) |
| Net decrease in deferred tax liability | 56 |
|
| Net increase in noncontrolling interest in consolidated subsidiaries | $ | 215 |
|
In addition, as discussed above, the EQGP Unit Purchases increased the Company's ownership in EQGP.
| | | | | | | | | | | |
| | Year Ended December 31, |
| 7. | | 2021 | | Investments in Unconsolidated Entity |
| | (Thousands) |
| Operating revenues | | | $ | 777,276 | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Interest income from the Preferred Interest | | | 5,767 | | | |
| | | | | |
| | | | | |
| Principal payments received on the Preferred Interest | | | 5,217 | | | |
| | | | | |
In 2015, EQM assumed EQT's interest
7. Investment in Unconsolidated Entity
The MVP Holdco, LLC (MVP Holdco),Joint Venture. The Company has an indirect, wholly-owned subsidiary of EQM, which holds the Company's interest in the Mountain Valley Pipeline (the MVP). In January 2016, EQM sold an 8.5% ownership interest in the MVP. The sales of interestsequity method investment in the MVP were for consideration that represented the proportional amount of capital contributions made to the joint venture as of the transaction date.
As of December 31, 2018, EQM is the operator of the MVP and owned a 45.5% interest in the MVP.Joint Venture. The MVP Joint Venture is constructing the Mountain Valley Pipeline and is developing the MVP Southgate project, each discussed in more detail below. The Company maintains separate ownership interests in and is expected to operate the two MVP Joint Venture projects.
Mountain Valley Pipeline. The MVP Joint Venture is constructing the Mountain Valley Pipeline (MVP), an estimated 300-mile natural gas interstate pipeline that willis designed to span from northern West Virginia to southern Virginia. The Company will operate the MVP and owned a 48.4% interest in the MVP project as of December 31, 2023. On November 4, 2019, Consolidated Edison, Inc. (Con Edison) exercised an option to cap its investment in the construction of the MVP project at approximately $530 million (excluding AFUDC). On May 4, 2023, RGC Resources, Inc. (RGC) also exercised an option for the Company to fund RGC's portion of future capital contributions with respect to the MVP project, which funding the Company commenced in June 2023 and will continue through the full in-service date of the MVP. The Company and NextEra Energy, Inc. are obligated to, and RGC prior to the exercise of its option described above had opted to, fund the shortfall in Con Edison's capital contributions, on a pro rata basis. Following RGC's exercise of its option, the Company is also funding RGC's portion of Con Edison's shortfall. Such funding by the Company in respect of the Con Edison shortfall and RGC's portion of capital contributions has and will correspondingly increase the Company's interests in the MVP project and decrease Con Edison's and RGC's respective interests, as applicable, in the MVP project.
On June 3, 2023, the President of the United States signed into law the Fiscal Responsibility Act of 2023 that, among other things, ratified and approved all permits and authorizations necessary for the construction and initial operation of the MVP, directed the applicable federal officials and agencies to maintain such authorizations, required the Secretary of the Army to issue not later than June 24, 2023 all permits or verifications necessary to complete construction of the MVP and allow for the MVP’s operation and maintenance, and divested courts of jurisdiction to review agency actions on approvals necessary for MVP construction and initial operation. Thereafter, certain necessary authorizations were issued to the MVP Joint Venture, and the FERC authorized the MVP Joint Venture to resume all construction activities in all MVP project locations. After the Fourth Circuit issued a stay halting MVP project construction in the Jefferson National Forest and a stay of the 2023 Biological Opinion and Incidental Take Statement, the U.S. Supreme Court vacated the stays on July 27, 2023. The MVP Joint Venture recommenced forward construction activity in August 2023.
Construction on the MVP project occurred throughout the late summer, fall and into the 2023-2024 winter season, and as of the filing of this Annual Report on Form 10-K is continuing. The MVP project made substantial progress after resuming construction in late summer 2023. Forward progress, however, slowed at the end of 2023 through early 2024 as a result of unforeseen challenging construction conditions, combined with unexpected and substantially adverse winter weather conditions throughout much of January. As a result, the MVP Joint Venture retained a higher than planned contractor headcount through January into February to maintain the right of way and address weather-induced issues and also to be in a position to improve forward progress as soon as conditions became more favorable. While productivity has since improved at the end of January and into February, the combined effect of these unforeseen challenges significantly slowed the previously anticipated pace of construction and adversely affected project cost. As a result, the Company is now targeting MVP project completion and commissioning in the second quarter of 2024, at a total estimated project cost ranging from approximately $7.57 billion to approximately $7.63 billion (excluding allowance for funds used during construction (AFUDC)).
Based on such targeted completion timing and following in-service authorization from the FERC, the Company expects that MVP and MVP-related firm capacity contractual obligations would commence on June 1, 2024 (with certain MVC step ups and more significant gathering MVC fee declines under the EQT Global GGA commencing April 1, 2024). Such targeted completion timing and cost, and accordingly the commencement of contractual obligations, are subject to certain factors, including the physical construction conditions including hard rock and steep terrain, weather and productivity, many of which are beyond the Company’s control. If the project were to be completed in the second quarter of 2024 and at a total estimated project cost ranging from approximately $7.57 billion to approximately $7.63 billion (excluding AFUDC), the Company expects its equity ownership in the MVP project would progressively increase from approximately 48.4% to approximately 49.0%.
The MVP Joint Venture is a variable interest entity because it has insufficient equity to finance its activities during the construction stage of the project. The Company through EQM, is not the primary beneficiary of the MVP Joint Venture because the Company does not have the power to direct the activities that most significantly affect the MVP Joint Venture's economic performance. Certain business decisions, such as decisions to make distributions of cash, require a greater than 66 2/3% ownership interest approval, and no one member owns more than a 66 2/3% interest.
In April 2018, Upon completion of the MVP project, the Company expects the MVP Joint Venture announced the MVP Southgate project,to no longer be a proposed 70-mile interstate pipeline thatvariable interest entity because it will extend from the MVP at Pittsylvania County, Virginiahave sufficient equity to new delivery points in Rockinghamfinance its activities, including accessing capital markets and Alamance Counties, North Carolina. In the fourth quarter of 2018, EQM assumedreturning a portion of Con Edison's ownership interest and purchased a portion of PSNC Energy's ownership interest in the MVP Southgate project for $11.3 million. As a result of these transactions, EQM's ownership interest increased from 32.7%invested capital to 47.2%. As of December 31, 2018, EQM was the operator of the MVP Southgate pipeline and owned a 47.2% ownership interest in the MVP Southgate project. The MVP Joint Venture submitted the MVP Southgate certificate application to the FERC in November 2018. Subject to approval by the FERC, the MVP Southgate project has a targeted in-service date of the fourth quarter 2020.its owners.
In November 2018,December 2023, the MVP Joint Venture issued a capital call notice for the funding of the MVP project to MVP Holdco, LLC (MVP Holdco), a wholly owned subsidiary of the Company, for $167.4$181.1 million, of which $143.0 million was paid in January 2019 and $24.4 million is expected to be paid in March 2019. In addition, in December 2018, the MVP Joint Venture issued a capital call notice for the funding of the MVP Southgate project to MVP Holdco for $1.8 million, all of which is expected to be paid in March 2019.2024. The capital contributioncontributions payable and the corresponding increase to the investment balance are reflected on the consolidated balance sheet as of December 31, 2018.
The interests in MVP and MVP Southgate are equity method investments for accounting purposes because EQM has the ability to exercise significant influence over the MVP Joint Venture's operating and financial policies. Accordingly, EQM records adjustments to the investment balance for contributions to or distributions from2023. In January 2024, the MVP Joint Venture andissued a capital call notice for EQM's pro rata share of MVP Joint Venture earnings.
Equity income, which is primarily related to EQM's pro rata sharethe funding of the MVP Joint Venture's AFUDC on the construction of theproject to MVP is reportedHoldco for $113.6 million, which was paid in equity income in the Company's statements of comprehensive income.February 2024.
Pursuant to the MVP Joint Venture's limited liability company agreement, EQMMVP Holdco is obligated to issueprovide performance assurances in respect of the MVP project, which may take the form of a performance guarantee from EQM (provided that EQM's debt is rated as investment grade in accordance with the requirements of the MVP Joint Venture's limited liability company agreement), a letter of credit or cash collateral, in favor of the MVP Joint Venture to provide performance assurancesassurance as to the funding of MVP Holdco's obligations to fund its proportionate share of the construction budget for the MVP project. As of December 31, 2018,2023, the Company's maximum financial statement exposure relatedletter of credit with respect to the MVP Joint Ventureproject was in the amount of approximately $1.7 billion, which consisted$104.7 million. The letter of credit with respect to the investment in unconsolidated entity balance onMVP project is expected to be further reduced as the consolidated balance sheet as of December 31, 2018 and amounts that could have become due under EQM's performance guarantees as of that date.
In January 2019, EQM issued a performance guarantee in an amount equalCompany contributes capital to 33% of EQM'sfund MVP Holdco's remaining proportionate share of the construction budget, forsubject to a minimum-required level to be maintained through in-service of the MVP project.
The following tables summarize the condensed financial statements of the MVP Joint Venture in relation to the MVP project.
Condensed Balance Sheets | | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
| | | |
| (Thousands) |
| Current assets | $ | 349,417 | | | $ | 71,535 | |
| Non-current assets | 8,480,539 | | | 6,737,064 | |
| Total assets | $ | 8,829,956 | | | $ | 6,808,599 | |
| | | |
| Current liabilities | $ | 371,508 | | | $ | 118,679 | |
| Equity | 8,458,448 | | | 6,689,920 | |
| Total liabilities and equity | $ | 8,829,956 | | | $ | 6,808,599 | |
Condensed Statements of Operations | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2023 | | 2022 | | 2021 |
| | | | | |
| (Thousands) |
| Operating (expenses) income | $ | (199) | | | $ | 20 | | | $ | (399) | |
| Other income | 4,792 | | | 335 | | | 18 | |
| AFUDC – debt | 108,681 | | | — | | | 11,452 | |
| AFUDC – equity | 253,602 | | | — | | | 26,722 | |
| | | | | |
| Net income | $ | 366,876 | | | $ | 355 | | | $ | 37,793 | |
The Company's ownership interest in the MVP Joint Venture related to the MVP project which was $261 million atis significant for the time of issuance. The amountyear ended December 31, 2023 as defined by the SEC's Regulation S-X Rule 1-02(w). Accordingly, as required by Regulation S-X Rule 3-09, the Company has included audited financial statements of the performance guarantee will decrease basedMVP Joint Venture, with respect to the MVP project, as of and for the year ended December 31, 2023 as Exhibit 99.1 to this Annual Report on Form 10-K.
MVP Southgate Project. In April 2018, the MVP Joint Venture announced the MVP Southgate project (MVP Southgate) as a contemplated interstate pipeline that was approved by the United States FERC and designed to extend approximately 75 miles from the MVP in Pittsylvania County, Virginia to new delivery points in Rockingham and Alamance Counties, North Carolina using 24-inch and 16-inch diameter pipe.
In late December 2023, following completion of its negotiations with each of Public Service Company of North Carolina, Inc. (PSNC) and Duke Energy Carolinas, LLC (Duke), the MVP Joint Venture entered into precedent agreements with each of PSNC and Duke. The precedent agreements contemplate an amended project (in lieu of the original project). The amended project would extend approximately 31 miles from the terminus of the MVP in Pittsylvania County, Virginia to planned new delivery points in Rockingham County, North Carolina using 30-inch diameter pipe.
The Company is expected to operate the MVP Southgate pipeline and owned a 47.2% interest in the MVP Southgate project as of December 31, 2023. The amended MVP Southgate is estimated to cost a total of approximately $370 million, excluding AFUDC and certain costs incurred for purposes of the original project. The Company expects to fund its proportionate share through capital contributions made by MVP Holdco to the MVP Joint Venture. The targeted completion timing for the project is June 2028, with the majority of the capital spend expected to occur in 2027.
In addition,Pursuant to the MVP Joint Venture's limited liability company agreement, MVP Holdco is obligated to provide performance assurances in February 2019,respect of MVP Southgate, which performance assurances may take the form of a guarantee from EQM issued a performance guarantee of $14 million(provided that EQM's debt is rated as investment grade in favoraccordance with the requirements of the MVP Joint Venture forVenture's limited liability company agreement), a letter of credit or cash collateral. On April 6, 2023, EQM’s $14.2 million letter of credit with respect to the MVP Southgate project.project was terminated, following the determination to temporarily defer partners’ obligations to post performance assurances with respect to the MVP Southgate project, which may be reinstated upon further developments. Upon the FERC'sFERC’s initial release to begin construction of the MVP Southgate project, EQM's current MVP Southgate performance guarantee will be terminated, and EQMthe Company will be obligated to issue a new guaranteedeliver an allowable form of performance assurance in an amount equal to 33% of EQM'sMVP Holdco’s proportionate share of the remaining capital obligations forunder the MVP Southgate project.
applicable construction budget.
8. Share-based Compensation Plans
The following tables summarizeCompany maintains employee share-based compensation plans for restricted stock, restricted stock units, performance awards, stock options and other equity or cash-based awards as governed by the audited financial statementsEquitrans Midstream Corporation 2018 Long-Term Incentive Plan, as amended (the 2018 Plan), which was effective as of November 12, 2018. Non-employee members of the MVP Joint Venture.
Consolidated Balance Sheets |
| | | | | | | |
| | December 31, |
| | 2018 | | 2017 |
| | (Thousands) |
| Current assets | $ | 687,657 |
| | $ | 330,271 |
|
| Noncurrent assets | 3,223,220 |
| | 747,728 |
|
| Total assets | $ | 3,910,877 |
| | $ | 1,077,999 |
|
| | | | |
| Current liabilities | $ | 617,355 |
| | $ | 65,811 |
|
| Equity | 3,293,522 |
| | 1,012,188 |
|
| Total liabilities and equity | $ | 3,910,877 |
| | $ | 1,077,999 |
|
Statements of Consolidated Operations |
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (Thousands) |
| AFUDC – equity | $ | 91,056 |
| | $ | 32,054 |
| | $ | 16,315 |
|
| Net interest income | 44,786 |
| | 16,674 |
| | 5,206 |
|
| Net income | $ | 135,842 |
| | $ | 48,728 |
| | $ | 21,521 |
|
| |
8. | Related Party Transactions |
Related Party Transactions with EQT
EQT remains a related party following the Separation due to its ownership of the Retained Interest. In the ordinary course of business, the Company, through EQM, engaged, and continues to engage, in transactions with EQT and its affiliates, including, but not limited to, gathering agreements, transportation service and precedent agreements, storage agreements and water service agreements.
EQGP's, EQM's and RMP's Omnibus Agreements with EQT. Prior to the Separation and Distribution, EQGP, EQM and RMP each had an omnibus agreement with EQT. Pursuant to the omnibus agreements, EQT performed centralized corporate general and administrative services for EQGP, EQM and RMP and provided a license for EQGP's and EQM's use of the name "EQT" and related marksBoard receive phantom units in connection with their businesses. EQGP, EQM and RMP reimbursed EQT forboard service payable in Company common stock upon the expenses incurred by EQT in providing these services. EQM and RMP's omnibus agreement also provided for certain indemnification obligations between EQM and EQT.
On November 12,director's termination of services from the Board. The 2018 EQT terminatedPlan's term is through the EQGP, EQM and RMP omnibus agreements. Certain indemnification obligations of EQT, EQM and RMP remain in effect following the termination and have been memorialized pursuant to (i) the amended and restated omnibus agreement, dated November 13, 2018, among EQT, EQM2028 shareholders' meeting and the EQM General Partner,maximum number of shares of common stock that may be issued and (ii)as to which awards may be granted under the second amended and restated omnibus agreement, dated November 13, 2018 among EQT, EQT RE, LLC, RM Partners LP (formerly known as Rice Midstream Partners LP), EQM Midstream Management LLC (formerly known as Rice Midstream Management LLC) and EQM Poseidon Midstream LLC (formerly known as Rice Poseidon Midstream LLC). Plan is 38,592,386 shares.
The Company is generally responsible foralso has remaining obligations pertaining to the surviving obligationssettlement of EQT under the Separationunexercised stock options of former employees and Distribution Agreement.
EQGP Working Capital Facilityoutstanding phantom unit awards to certain directors, which were granted in accordance with EQT. See Note 10.
EQM 364-Day Facility. See Note 10.
Separationan Employee Matters Agreement by and Distribution Agreement. On November 12, 2018,between the Company EQT and EQT Production Company entered into the Separation and Distribution Agreement, pursuant to which, among other things, EQT effected the Separation. The Separation and Distribution Agreement provides for, among other things, indemnification obligations designed to make the Company financially responsible for substantially all liabilities that may exist relating to the Midstream Business, whether incurred prior to or after the Separation.
Transition Services Agreement. Onon November 12, 2018 in connection with the Separation and Distribution, the Company and EQT entered into a transition services agreement (the Transition Services Agreement). Pursuant to the Transition Services Agreement, each party agreed to provide certain services to the other on an interim, transitional basis, including services related to information technology, the administration of certain employee benefits and other corporate support services. The Company and EQT agreed to pay the other a fee for these services on a monthly basis. The Transition Services Agreement will terminate on the expiration of the term of the last service provided under it, which will generally be up to 12 months following the Distribution, subject to each party's right to terminate a service prior to the scheduled expiration date.
Tax Matters Agreement. On November 12, 2018, in connection with the Separation and Distribution, the Company and EQT entered into a tax matters agreement (the Tax Matters Agreement) that governs the parties' respective rights, responsibilities and obligations with respect to taxes (including taxes arising in the ordinary course of business and taxes, if any, incurred as a result of any failure of the Distribution and certain related transactions to qualify as generally tax-free for U.S. federal income tax purposes), tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and assistance and cooperation with respect to tax matters. In addition, the Tax Matters Agreement imposes certain restrictions on the Company and its subsidiaries, including restrictions on share issuances, business combinations, sales of assets and similar transactions, that are designed to preserve the tax-free status of the Distribution and certain related transactions.
The Tax Matters Agreement provides special rules that allocate tax liabilities in the event that the Distribution, together with certain related transactions, are not tax-free. In general, under the Tax Matters Agreement, each party is expected to be responsible for any taxes, whether imposed on the Company or EQT, that arise from (i) the failure of the Distribution, together with certain related transactions, to qualify for tax-free treatment, or (ii) if certain related transactions were to fail to qualify for their intended tax treatment, in each case, to the extent that the failure to qualify is attributable to actions, events or transactions relating to such party's respective stock, assets or business or a breach of the relevant representations or covenants made by that party in the Tax Matters Agreement.
Employee Matters Agreement. On November 12, 2018, in connection with the Separation and Distribution, the Company and EQT entered into an employee matters agreement (the Employee(Employee Matters Agreement). Pursuant to the Employee Matters Agreement, the Company and EQT allocated liabilities and responsibilities related to employment and compensation and benefits matters and generally agreed to the Company's assumption of liabilities associated with employees transferred from EQT to the Company in connection with the Separation and Distribution. The Company also agreed to establish certain retirement and welfare plans that mirrored similar plans in effect at EQT, and EQT and the Company agreed to the adjustment and replacement of equity compensation awards denominated in EQT common stock in part with awards denominated in Equitrans Midstream common stock.
Shareholder and Registration Rights Agreement. On November 12, 2018, in connection with the Separation and Distribution, the Company entered into a shareholder and registration rights agreement (the Registration Rights Agreement) with EQT, pursuant to which the Company agreed that, upon the request of EQT, the Company will use commercially reasonable efforts to effect the registration of the shares comprising the Retained Interest, and EQT agreed to vote any shares comprising the Retained Interest in proportion to the votes cast by the Company's other shareholders. EQT granted the Company a proxy to vote its shares comprising the Retained Interest in such proportion. The Registration Rights Agreement also includes provisions to facilitate the transferability of the Retained Interest.
Related Party Transactions with EQGP and EQM.
For the period from November 13, 2018 through December 31, 2018, EQM and EQGP reimbursed the Company for certain expenses related to corporate and general and administrative services provided by the Company pursuant to omnibus agreements between EQM and/or EQGP and the Company. These expenses may not necessarily reflect the actual expenses that EQM or EQGP would have incurred on a stand-alone basis. EQM and EQGP are unable to estimate what those costs would have been on a stand-alone basis. The omnibus agreement between EQGP and the Company was terminated on January 10, 2019. See Note 17.
On November 13, 2018, Equitrans Midstream entered into a working capital loan agreement with EQGP (the EQGP Working Capital Facility), through which the Company agreed to make interest-bearing loans available in an aggregate principal amount not to exceed $20 million outstanding at any one time. The EQGP Working Capital Facility was terminated on January 10, 2019. As of December 31, 2018, EQGP had approximately $1 million of borrowings outstanding under the EQGP Working Capital Facility, all of which was forgiven in connection with the termination of the EQGP Working Capital Facility. See note 17. During the period from November 13, 2018 through December 31, 2018, the maximum outstanding borrowing was $3.3 million, the average daily balance was approximately $0.9 million and the weighted average annual interest rate was 4.1%.
Summary of Related Party Transactions
The following table summarizes the Company's related party transactions.
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (Thousands) |
| Operating revenues | $ | 1,111,289 |
| | $ | 665,939 |
| | $ | 551,353 |
|
Operating and maintenance expense (a) | 49,778 |
| | 40,601 |
| | 34,179 |
|
Selling, general and administrative expense (a) | 85,081 |
| | 75,610 |
| | 70,387 |
|
Separation and other transaction costs (a) (b) | 53,272 |
| | 85,124 |
| | — |
|
| Equity income | 61,778 |
| | 22,171 |
| | 9,898 |
|
| Other income from the Preferred Interest | — |
| | — |
| | 8,293 |
|
| Interest income from the Preferred Interest | 6,578 |
| | 6,818 |
| | 1,740 |
|
Net interest expense (b) | 5 |
| | (2,120 | ) | | 3 |
|
| Net (payments on) proceeds from EQGP's working capital loan with EQT | (168 | ) | | 84 |
| | 18 |
|
| Capital contributions to the MVP Joint Venture | (913,195 | ) | | (159,550 | ) | | (98,399 | ) |
| Principal payments received on the Preferred Interest | 4,406 |
| | 4,166 |
| | 1,024 |
|
| Net (distributions to) contributions from EQT | (701,901 | ) | | (893,682 | ) | | 740,797 |
|
| |
(a) | Reimbursements to EQT may not necessarily reflect the actual expenses that the Company would have incurred on a standalone basis. The Company is unable to estimate what those expenses would be on a standalone basis. |
| |
(b) | For the years ended December 31, 2018 and 2017, separation and other transaction costs included charges related to the Rice Merger from EQT of $13.7 million and $85.1 million, respectively. In addition, in 2017, the Company recorded $2.9 million in interest expense related to EQT's financing of the Rice Merger that was allocated to the Company from EQT. The basis for allocation of both the Rice Merger transaction costs and interest expense was the relative fair value of Rice Midstream Holdings' net assets acquired by EQT and distributed to the Company in the Rice Merger. See Note 2. |
For the year ended December 31, 2018, separation and transaction costs included charges related to the Drop-Down Transaction, the EQM-RMP Mergers and the Separation from EQT of $39.6 million. The basis for allocated separation costs was 50% of such costs incurred by EQT.
The following table summarizes the Company's related party receivables and payables. |
| | | | | | | |
| | December 31, |
| | 2018 | | 2017 |
| | (Thousands) |
| Accounts receivable – related parties | $ | 175,869 |
| | $ | 158,720 |
|
| Investment in unconsolidated entity | 1,510,289 |
| | 460,546 |
|
| Preferred Interest | 114,720 |
| | 119,127 |
|
| Accounts payable – related parties | 34,071 |
| | 363,058 |
|
| Capital contribution payable to the MVP Joint Venture | 169,202 |
| | 105,734 |
|
| |
9. | Share-based Compensation Plans |
Prior to the Separation, share-based compensation amounts in the accompanying financial statements included phantom stock awards issued to non-employee directors of the EQM General Partner and the EQGP General Partner. In accordance with the Employee Matters Agreement, previously outstanding share-based compensation awards granted under EQT's equity compensation programs prior to the Separation and held by certain executives and employees of the Company and EQT were adjusted to reflect the impact of the Separation on these awards. To preserve the aggregate intrinsic value of EQT awards held prior to the Separation, as measured immediately before and immediately after the Separation, except for EQT option awards (which were converted in accordance with the conversion provisions set forth in the Employee Matters Agreement) each holder of EQT share-based compensation awards generally received an adjusted award consisting of both a share-based compensation award denominated in EQT equity and a share-based compensation award denominated in Company equity. These awards were adjusted accordance with the basket method, resulting in participants retaining one unit of the existing EQT incentive award
while receiving an additional 0.8 units of a Company-based award and include awards that will be share-settled and awards expected to be satisfied in cash, which are treated as liability awards. In connection with the Separation, EQT transferred to the Company certain obligations related to the EQT share-based compensation awards outstanding. Subject to certain exceptions, the terms of the underlying long-term incentive programs remain unchanged and are tied to EQT performance metrics and employees' vesting for all awards requires continuous service to their post-Separation employer through the vesting date of the respective awards.
The share-based compensation awards that were adjusted and assumed by the Company in connection with the Separation consist primarily of the following programs: Incentive Performance Share Unit Programs, Value Driver Award Programs, Restricted Stock, Restricted Stock Unit awards, deferred share equivalents and Non-Qualified Stock Option awards which are discussed below.
Non-employee members of the Board of Directors of the Company and the EQM General Partner receive phantom units in connection with their board service payable in the applicable entity's common equity upon the director's termination of services from the applicable board of directors.
The Company is required to recognize share-based compensation expense related to unvested awards held by its employees, no matter which entity settles the obligation. In accordance with the Employee Matters Agreement, the Company will be obligated to settle all outstanding share-based compensation awards denominated in the Company's equity, regardless of whether the holders are employees of the Company or EQT on the vesting date. Likewise, EQT will be obligated to settle all of its outstanding share-based compensation awards denominated in its equity, regardless of whether the holders are employees of the Company or EQT, at the vesting date regardless of whether the holders are employees of EQT or the Company. Changes in performance and the number of outstanding awards can impact the ultimate amountnumber of these obligations.the Company's performance awards to be settled. Share-based awards to be settled in Equitrans Midstream common stock upon settlement will beare funded by shares acquired by the Company in the open market or from any other person, stock issued directly by the Company or any combination of the foregoing. Share counts for share-based compensation discussed herein represent outstanding shares to be remitted by the Company to its employees and employees of EQT pursuant to the Employee Matters Agreement.
The following table summarizes the components of share-based compensation expense for the yearyears ended December 31, 2018.2023, 2022 and 2021.
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| (Thousands) |
| | | | | |
| 2023 PSU Program | 4,800 | | | — | | | — | |
| 2022 PSU Program | 6,077 | | | 5,672 | | | — | |
| 2021 MVP PSU Program | 20,576 | | | — | | | — | |
| 2021 PSU Program | 2,083 | | | 1,527 | | | 5,940 | |
| 2020 PSU Program | — | | | (221) | | | 1,297 | |
| 2019 PSU Program | — | | | — | | | 984 | |
| | | | | |
| | | | | |
| | | | | |
| Restricted stock awards | 15,186 | | | 7,840 | | | 11,268 | |
| Other programs, including non-employee director awards | 1,416 | | | 1,132 | | | 1,367 | |
| Total share-based compensation expense | $ | 50,138 | | | $ | 15,950 | | | $ | 20,856 | |
|
| | | |
| | Year Ended December 31, 2018 |
| | (Thousands) |
| 2016 EQT Incentive Performance Share Unit Program | $ | 956 |
|
| 2017 EQT Incentive Performance Share Unit Program | 1,642 |
|
| 2018 EQT Incentive Performance Share Unit Program | 906 |
|
| 2017 EQT Value Driver Performance Share Unit Award Program | 255 |
|
| 2018 EQT Value Driver Performance Share Unit Award Program | 2,890 |
|
| Restricted stock awards | 1,048 |
|
| Non-qualified stock options | 201 |
|
| Other programs, including non-employee director awards | 2,678 |
|
| Total share-based compensation expense | $ | 10,576 |
|
ForThe Company capitalizes compensation cost for its share-based compensation awards based on an employee's job function. Capitalized compensation costs for the years ended December 31, 20172023, 2022 and 2016,2021 were $5.0 million, $2.0 million and $4.2 million, respectively. The Company recorded $2.9 million, $1.0 million, and $2.0 million for the years ended December 31, 2023, 2022 and 2021, respectively, of tax expense for excess tax benefits related to share-based compensation expense was wholly composed of non-employee director awards of $0.5 million and $0.4 million, respectively.plans.
Incentive Performance Share Unit Programs – Equity & Liability
PortionsThe Human Capital and Compensation Committee of the following Incentive Performance Share Unit Programs were transferredCompany's Board (referred to herein as the Company atCompensation Committee) adopted the Separation Date:
the 2016 EQT IncentiveEquitrans Midstream Corporation 2019 Performance Share Unit Program (2016 Incentive(the 2019 PSU Program);
, the 2017 EQT IncentiveEquitrans Midstream Corporation 2020 Performance Share Unit Program (2017 Incentive(the 2020 PSU Program); and
, the 2018 EQT IncentiveEquitrans Midstream Corporation 2021 Performance Share Unit Program (2018 Incentive(the 2021 PSU Program), the Equitrans Midstream Corporation 2022 Performance Share Unit Program (the 2022 PSU Program) and the Equitrans Midstream Corporation 2023 Performance Share Unit Program (the 2023 PSU Program).
The 2016 Incentive2019 PSU Program, the 2017 Incentive2020 PSU Program, the 2021 PSU Program, the 2022 PSU Program and the 2018 Incentive2023 PSU Program are collectively referred to as(collectively, the Incentive PSU Programs. The 2016 Incentive PSU Program will vest in equity awards. The 2017 Incentive PSU Program and the 2018 Incentive PSU Program willPrograms) vest in both equity and liability awards.
EQT reported thatThe Company established the Incentive PSU Programs were established to provide long-term incentive opportunities to key employees to further align their interests with those of EQT'sthe Company's shareholders and with the strategic objectives of EQT.the Company. The performance period for each of the awards under the Incentive PSU Programs, except for the 2020 PSU Program, is 36 months, with vesting occurring upon payment following the expiration of the performance period.period, subject to continued service through such vesting date. The awards under the 2020 PSU Program were earned over four separate performance periods as follows: (i) 20% for each of the
three calendar years that occurred following the vesting commencement date (i.e., the 2020, 2021 and 2022 calendar years) and (ii) 40% for the cumulative three-year period following the vesting commencement date (i.e., January 1, 2020 through December 31, 2022), with vesting occurring upon payment following the expiration of the cumulative three-year performance period, subject to continued service through such vesting date.
The Incentive PSU Program awards granted in 20162020, 2021 and 2017 are earned based on the following:
the level of EQT total shareholder return relative to a predefined peer group; and
the cumulative EQT total sales volume growth, in each case, over the performance period.
For the year ended December 31, 2018, the Incentive PSU Program awards granted in 20182022 were or will be earned based on the following:
the level of EQTEquitrans Midstream total shareholder return (TSR) relative to a predefined peer group;
the level of EQT operating and development cost improvement; and
EQT return on capital employed.
For the years ending December 31, 2019 and 2020, the Incentivegroup. The PSU Program awards granted in 2023 will be earned based upon the level of TSR relative to a predefined peer group, the achievement of certain levels of free cash flow before changes in working capital, and the number of ESG-related projects completed, in each case during the performance period and, in the case of free cash flow before changes in working capital, on newan annual basis within such performance goals related to Equitrans Midstreamperiod. The Company commences recording compensation cost for the free cash flow before changes in working capital performance to becondition when the targets have been established by the Company's Management Development and Compensation Committee (the Compensation Committee), subject to continued employment through the payment date.for each annual period.
The payout factor for the PSU Programs varies between zero and 300%200% of the number of outstanding units, each contingent on the applicable performance metrics. The Company recorded the 2016 Incentive PSU Program and the portionsportion of the 2017 Incentive PSU Program and the 2018 Incentive PSU ProgramPrograms containing a market condition that are to be settled in stock as equity awards using a grant date fair value determined through a Monte Carlo simulation, which projects the common stock price offor the Company and its peers at the ending point of the applicable performance period. The 2017 Incentive PSU Program and the 2018 Incentive PSU ProgramPrograms containing a market condition also included awards to be settled in cash and, therefore, were recorded at fair value as of the measurement date determined through a Monte Carlo simulation, which projects the common stock price for the Company and its peers at the ending point of the applicable performance period. The expected share prices were generated using each company'sthe Company's annual volatility for the expected term and the commensurate three-year or two-year risk-free rates (each shown in the chart below) for equity awards and liability awards, respectively. As the Incentive PSU Programs include a performance condition that affects the number of shares that will ultimately vest, the Monte Carlo simulation computed the grant date fair value for equity awards or the measurement date fair value for liability awards for each possible performance condition outcome on the grant date for equity awards or the measurement date for liability awards. The Company reevaluates the then-probable outcome at the end of each reporting period to record expense at the probable outcome grant date fair value or measurement date fair value, as applicable. The vesting of units of the units under each Incentive PSU ProgramPrograms occurs upon payment afterfollowing the endexpiration of the applicable performance period.period, subject to continued service through such date, and the satisfaction of the underlying performance or market condition.
The following table provides detailed information on each award:summarizes all PSU Programs to be settled in stock and classified as equity awards:
| | | | | | | | | | | | | | | | | | | | |
| | Non-vested Shares | | Weighted Average Fair Value Per Share | | Aggregate Fair Value |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Outstanding at December 31, 2020 | | 1,300,567 | | | $ | 13.78 | | | $ | 17,925,467 | |
| Granted | | 1,540,230 | | | 8.77 | | | 13,507,817 | |
| Vested | | (85,872) | | | 76.53 | | | (6,571,784) | |
| Forfeited | | (95,729) | | | 8.45 | | | (808,857) | |
| Outstanding at December 31, 2021 | | 2,659,196 | | | $ | 9.05 | | | $ | 24,052,643 | |
| Granted | | 1,274,910 | | | 14.86 | | | 18,945,163 | |
| Vested | | (474,488) | | | 15.03 | | | (7,131,551) | |
| | | | | | |
| Outstanding at December 31, 2022 | | 3,459,618 | | | $ | 10.37 | | | $ | 35,866,255 | |
| Granted | | 1,523,826 | | | 8.04 | | | 12,247,293 | |
| Vested | | (703,583) | | | 5.59 | | | (3,931,628) | |
| | | | | | |
| Outstanding at December 31, 2023 | | 4,279,861 | | | $ | 10.32 | | | $ | 44,181,920 | |
|
| | | | | | | | | | | | | | | | | | | | | | |
| Incentive PSU Program | | Settled In | | Accounting Treatment | | Fair Value (a) | | Risk Free Rate | | Vested/ Payment Date | | Awards Paid | | Value (Millions) | | Unvested/ Expected Payment Date (b) | | Awards Outstanding as of December 31, 2018 (c) |
| 2016 | | Stock | | Equity | | $ | 109.30 |
| | 1.31 | % | | N/A | | N/A | | N/A | | First Quarter of 2019 | | 307,553 |
|
| 2017 | | Stock | | Equity | | $ | 120.60 |
| | 1.47 | % | | N/A | | N/A | | N/A | | First Quarter of 2020 | | 35,728 |
|
| 2017 | | Cash | | Liability | | $ | 59.90 |
| | 2.61 | % | | N/A | | N/A | | N/A | | First Quarter of 2020 | | 84,014 |
|
| 2018 | | Stock | | Equity | | $ | 76.53 |
| | 1.97 | % | | N/A | | N/A | | N/A | | First Quarter of 2021 | | 85,872 |
|
| 2018 | | Cash | | Liability | | $ | 33.87 |
| | 2.46 | % | | N/A | | N/A | | N/A | | First Quarter of 2021 | | 100,435 |
|
| |
(a) | Grant date fair value was determined using a Monte Carlo simulation for equity awards. Fair value was determined using a Monte Carlo simulation as of the measurement date for liability awards. For unvested Incentive PSU Programs, the grant date fair value for equity awards and the measurement date fair value for liability awards is as of December 31, 2018. The Company recorded |
compensation expense asAs of December 31, 2018 using the grant date fair value for equity awards and the measurement date fair value for liability awards, each computed for the outcome that management estimates2023, $15.6 million of unrecognized compensation cost related to be most probable.
| |
(b) | Vesting will occur upon payment following the expiration of the performance period, subject to continued service through such date. |
| |
(c) | Represents the number of outstanding units as of December 31, 2018, adjusted for forfeitures. The 2016, 2017 and 2018 Incentivenon-vested PSU Programs to be settled in stock include 203,238, 30,112, and 58,160 shares, respectively, for EQT employees that will be settled by the Company under the Employee Matters Agreement. The 2017 and 2018 Incentive PSU Programs to be settled in cash include 46,297 and 54,643 shares, respectively, for EQT employees that will be settled by the Company under the Employee Matters Agreement. |
The following table sets forth the total compensation costs capitalized related to the Incentive PSU Programs.
|
| | | |
| | Year Ended December 31, 2018 |
| | (Thousands) |
| 2016 Incentive PSU Program | $ | 80.8 |
|
| 2017 Incentive PSU Program (liability only) | 1,046.8 |
|
| 2018 Incentive PSU Program (liability only) | 304.9 |
|
As of December 31, 2018, $0.3 million, $1.6 million, $0.3 million and $2.2 million of unrecognized compensation cost (assuming no changes to the performance condition achievement level) related to the 2017 Incentive PSU Program – Equity, the 2017 Incentive PSU Program – Liability, the 2018 Incentive PSU Program – Equity and the 2018 Incentive PSU Program – Liability, respectively, was expected to be recognized over the remaindera remaining weighted average vesting term of the performance periods.approximately one year.
The following table summarizes all PSU Programs to be settled in cash and classified as liability awards:
| | | | | | | | | | | | | | | | | | | | |
| | Non-vested Units | | Weighted Average Fair Value Per Unit | | Aggregate Fair Value |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Outstanding at December 31, 2020 | | 712,595 | | | $ | 11.85 | | | $ | 8,441,384 | |
| Granted | | 873,460 | | | 8.77 | | | 7,660,244 | |
| Vested | | (87,145) | | | 33.87 | | | (2,951,624) | |
| Forfeited | | (27,145) | | | 8.23 | | | (223,349) | |
| Outstanding at December 31, 2021 | | 1,471,765 | | | $ | 8.78 | | | $ | 12,926,655 | |
| Granted | | 717,930 | | | 14.86 | | | 10,668,440 | |
| Vested | | (226,135) | | | 14.67 | | | (3,318,009) | |
| Forfeited | | (85,758) | | | 10.81 | | | (927,125) | |
| Outstanding at December 31, 2022 | | 1,877,802 | | | $ | 10.30 | | | $ | 19,349,961 | |
| Granted | | 625,009 | | | 8.04 | | | 5,023,320 | |
| Vested | | (389,160) | | | 5.59 | | | (2,174,332) | |
| Forfeited | | (82,236) | | | 10.69 | | | (878,913) | |
| Outstanding at December 31, 2023 | | 2,031,415 | | | $ | 10.50 | | | $ | 21,320,036 | |
The payout factor of the weighted-average assumptions usedfree cash flow before changes in working capital performance metric covering the first annual period of the 2023 PSU Program was achieved at a performance of 200%, subject to final certification by the Compensation Committee. The total liability recorded for the cash-settled PSU Programs was $6.9 million and $3.9 million as of December 31, 2023 and 2022, respectively.
Fair value is estimated using a Monte Carlo simulation to estimate fair value:
|
| | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| Accounting Treatment | Liability (a) | | Equity | | Liability (a) | | Equity | | Equity |
| Risk-free rate | 2.46 | % | | 1.97 | % | | 2.61 | % | | 1.47 | % | | 1.31 | % |
Dividend yield (b) | N/A |
| | N/A |
| | N/A |
| | N/A |
| | N/A |
|
| Volatility factor | 35.70 | % | | 32.60 | % | | 41.17 | % | | 32.30 | % | | 28.43 | % |
| Expected term | 2 Years |
| | 3 Years |
| | 1 Year |
| | 3 Years |
| | 3 Years |
|
| |
(a) | Information shown for the valuation of the liability plan is as of measurement date. |
| |
(b) | Dividends paid from the beginning of the performance period will be cumulatively added as additional shares of common stock. |
Value Driver Award Programs
The 2017 EQT Value Driver Award Program (2017 EQT VDPSU Program) and the 2018 EQT Value Driver Award Program (2018 EQT VDPSU Program) are collectively referred to as the VDPSU Programs.
EQT reported that the VDPSU Programs were established to align the interests of key employees with those of EQT's shareholders andvaluation method with the strategic objectives of EQT. Under the VDPSU Programs, 50%following weighted average assumptions:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For PSU Programs Issued During the Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Accounting Treatment | Liability (a) | | Equity | | Liability (a) | | Equity | | Liability (a) | | | Equity |
| Risk-free rate | 4.20 | % | | 4.48 | % | | 4.25 | % | | 1.16 | % | | 4.65 | % | | | 0.16 | % |
| Dividend yield | N/A | | N/A | | N/A | | N/A | | N/A | | | N/A |
| Volatility factor | 47.7 | % | | 57.8 | % | | 58.4 | % | | 54.0 | % | | 58.4 | % | | | 61.0 | % |
| Expected term | 2 years | | 3 years | | 2 years | | 3 years | | 1 year | | | 3 years |
(a)Information shown for liability plan valuations is as of the awards confirmed vest upon payment following the first anniversary of the grant date and the remaining 50% of the awards confirmed vest upon payment following the second anniversary of the grant date subject to continued service through suchmeasurement date. Due to the graded vesting of each award under the VDPSU Programs, the Company recognized compensation cost over the requisite service period for each separately vesting tranche of the award as though each award was, in substance, multiple awards. The payments are contingent upon EQT's adjusted earnings before interest, income taxes, depreciation and amortization performance as compared to EQT's annual business plan and individual, business unit and Company value driver performance over the respective one-year periods.
The following table provides detailed information on each award:
|
| | | | | | | | | | | | | | | | | |
| EQT VDPSU Program | | Settled In | | Accounting Treatment | | Fair Value per Unit (a) | | Vested/ Payment Date | | Cash Paid (Millions) | | Unvested/ Expected Payment Date | | Awards Outstanding (Including Accrued Dividends) as of December 31, 2018 (b) |
| 2017 | | Cash | | Liability | | $ | 20.02 |
| | N/A | | N/A | | First Quarter of 2019 | | 170,966 |
|
| 2018 | | Cash | | Liability | | $ | 20.02 |
| | N/A | | N/A | | First Tranche First Quarter of 2019 | | 205,420 |
|
| | | | | | | N/A |
| | N/A | | N/A | | Second Tranche First Quarter of 2020 | | 205,781 |
|
| |
(a) | The fair value per unit is calculated as a weighted average of the Company's and EQT's respective common stock prices on the measurement date. |
| |
(b) | The 2017 and 2018 EQT VDPSU Programs include 94,488 and 194,460 awards, respectively, for EQT employees that will be settled by the Company under the Employee Matters Agreement. |
The following table sets forth the total compensation costs capitalized related to the VDPSU Programs.
|
| | | |
| | Year Ended December 31, 2018 |
| | (Thousands) |
| 2017 EQT VDPSU Program | $ | 955.4 |
|
| 2018 EQT VDPSU Program | 1,903.2 |
|
Restricted Stock Awards – Equity
A summary of restricted stock equity award activity during the years ended December 31, 2023, 2022 and 2021 is presented below. | | | | | | | | | | | | | | | | | |
| Non-vested Shares | | Weighted Average Fair Value Per Share | | Aggregate Fair Value |
| Outstanding at January 1, 2021 | 841,068 | | | $ | 17.08 | | | $ | 14,366,346 | |
| Granted | 660,250 | | | 8.04 | | | 5,308,410 | |
| Vested | (58,185) | | | 44.20 | | | (2,572,026) | |
| Forfeited | (49,732) | | | 11.17 | | | (555,522) | |
| Outstanding at December 31, 2021 | 1,393,401 | | | $ | 11.88 | | | $ | 16,547,208 | |
| Granted | 546,520 | | | 10.34 | | | 5,651,017 | |
| Vested | (293,281) | | | 17.81 | | | (5,223,311) | |
| | | | | |
| Outstanding at December 31, 2022 | 1,646,640 | | | $ | 10.31 | | | $ | 16,974,914 | |
| Granted | 1,646,000 | | | 6.23 | | | 10,254,580 | |
| Vested | (870,970) | | | 10.89 | | | (9,481,533) | |
| | | | | |
| Outstanding at December 31, 2023 | 2,421,670 | | | $ | 7.33 | | | $ | 17,747,961 | |
The restricted stock awards will beequity grants generally become fully vested at the end of the three-yearservice period commencing with the vesting commencement date, of grant, assuming continued service through such date.
As of December 31, 2018, $2.02023, $9.1 million of unrecognized compensation cost related to non-vested restricted stock equity awards was expected to be recognized over a remaining weighted average vesting term of approximately 1.311.6 years.
A summary of restricted stock equity award activity as of December 31, 2018, and changes during the year then ended, is presented below. |
| | | | | | | | | | |
| | Non-vested Shares (a) | | Weighted Average Fair Value | | Aggregate Fair Value |
| Outstanding at January 1, 2018 | — |
| | $ | — |
| | $ | — |
|
| Transferred in connection with the Separation | 157,000 |
| | 59.85 |
| | 9,396,455 |
|
| Vested | (8,383 | ) | | 61.49 |
| | (515,448 | ) |
| Forfeited | (1,245 | ) | | 65.18 |
| | (81,149 | ) |
| Outstanding at December 31, 2018 | 147,372 |
| | $ | 59.71 |
| | $ | 8,799,858 |
|
| |
(a) | Non-vested shares outstanding at December 31, 2018 included 66,610 shares for EQT employees that will be settled by the Company once vested under the Employee Matters Agreement. |
Restricted Stock Unit Awards – Liability
In connection with the Separation, EQT transferred 513,413A summary of restricted stock unit liability awards toaward activity during the Company that will be paid in cash. Adjusting for 3,085 forfeitures, there were 510,328 awards outstanding as ofyears ended December 31, 2018. Because these awards are liability awards, the Company records compensation expense based on the fair value of the awards as remeasured at the end of each reporting period. 2023, 2022 and 2021 is presented below.
| | | | | | | | | | | | | | | | | |
| Non-vested Units | | Weighted Average
Fair Value Per Unit | | Aggregate Fair Value |
| Outstanding at January 1, 2021 | 877,596 | | | $ | 15.46 | | | $ | 13,565,895 | |
| Granted | 430,800 | | | 8.06 | | | 3,472,652 | |
| Vested | (190,036) | | | 20.76 | | | (3,944,942) | |
| Forfeited | (38,656) | | | 10.73 | | | (414,837) | |
| Outstanding at December 31, 2021 | 1,079,704 | | | $ | 11.74 | | | $ | 12,678,768 | |
| Granted | 380,250 | | | 9.77 | | | 3,716,834 | |
| Vested | (267,642) | | | 16.82 | | | (4,502,803) | |
| Forfeited | (45,043) | | | 10.00 | | | (450,504) | |
| Outstanding at December 31, 2022 | 1,147,269 | | | $ | 9.97 | | | $ | 11,442,295 | |
| Granted | 1,136,000 | | | 6.25 | | | 7,102,647 | |
| Vested | (403,261) | | | 11.98 | | | (4,832,392) | |
| Forfeited | (79,118) | | | 7.26 | | | (574,614) | |
| Outstanding at December 31, 2023 | 1,800,890 | | | $ | 7.30 | | | $ | 13,137,936 | |
The restricted stock unit awards will begrants generally become fully vested at the end of the three-yearservice period commencing with the vesting commencement date, of original grant, assuming continued service through such date. The total liability recorded for these restricted stock units was $4.5$10.9 million and $6.5 million as of December 31, 2018. Non-vested awards outstanding2023 and 2022, respectively.
MVP PSU Program
In December 2021, at the recommendation of the Compensation Committee and approval of the Board, the Company granted a special, one-time, performance award program designed to reward all employees should the Company’s most complex and strategically significant project, the MVP project, be placed in-service (the MVP PSU Program). The Company granted 1,450,110 shares to all participants in the 2018 Plan as of November 1, 2021 (LTIP Participants), except the Company’s named executive officers (NEOs) and certain other senior leaders (collectively, the Senior Executives), and 1,158,030 shares to the Senior Executives. The MVP PSU Program awards were granted on December 31, 2018 included 296,616 awards for EQT employees that6, 2021 and will be settledpaid in Company common stock, contingent on the MVP Joint Venture being authorized by the FERC to commence service on the MVP (such authorization, the In-Service Date) on or before a specified expiration date of January 1, 2024 (the Expiration Date, the now inapplicability of which is discussed below), subject to continued service through the applicable payment date:
•As to shares issued to the LTIP Participants, 100% will be paid on the date selected by the Company once vested underthat is not later than 90 days after the Employee Matters Agreement.In-Service Date;
•As to shares issued to the Senior Executives:
•50% will be paid on the date selected by the Company that is not later than 90 days after the In-Service Date;
•25% will be paid on the date selected by the Company that is not later than 30 days after the first anniversary of the In-Service Date; and
•25% will be paid on the date selected by the Company that is not later than 30 days after the second anniversary of the In-Service Date.
Non-Qualified Stock Options
The achievement of the MVP Joint Venture being authorized by the FERC to commence service on the MVP on or before the Expiration Date represented a performance condition as defined by ASC 718, Share-based Compensation, that should be assessed at the end of each reporting period as to whether the performance condition is probable of being achieved. Due to the graded vesting of the MVP PSU Program awards to the Senior Executives, the Company recognizes compensation cost over the requisite service period for each separately vested tranche of the award as though each award was, in substance, its own award. In connectionJune 2023, the performance condition associated with the Separation, EQT transferred stock options to the Company. The fair value of the Company's stock option grantsMVP PSU Program awards was estimated at the dates of grant using a Black-Scholes option-pricing model. Refer to the table below for assumptions used in the Black-Scholes option-pricing model. Risk-free rates for periods within the contractual life of the option are based on the U.S. Treasury yield curve in effect at the date of grant. Dividend yields are based on the dividend yield of EQT's common stock at the time of grant. Expected volatilities are based on historical volatility of EQT's common stock. Expected term represents the period that options granted are expecteddeemed to be outstanding based on historical option exercise experience.
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| Risk-free rate | 2.25 | % | | 1.95 | % | | 1.67 | % |
| Dividend yield | 0.20 | % | | 0.18 | % | | 0.16 | % |
| Volatility factor | 26.46 | % | | 27.45 | % | | 28.59 | % |
| Expected term | 5 Years |
| | 5 Years |
| | 5 Years |
|
| Options transferred in connection with the Separation | 57,440 |
| | 32,560 |
| | 105,600 |
|
| Weighted average grant date fair value | $ | 8.55 |
| | $ | 9.89 |
| | $ | 8.53 |
|
| Total intrinsic value of options exercised (Millions) | $ | — |
| | $ | — |
| | $ | — |
|
probable. During the year ended December 31, 2023, the Company recognized compensation cost of approximately $20.6 million that includes the impact of a cumulative catch-up to reflect the requisite service period of each award that has been provided to date. As of December 31, 2018, $0.32023, there was approximately $3.6 million of unrecognized compensation cost related to outstanding non-vested stock options wasMVP PSU Program awards that is expected to be recognized over a remaining weighted average vesting term of approximately 0.6 years.
In connection with considering the Company’s ongoing efforts to complete the MVP project, the Board took note of the significant legal and regulatory obstacles that delayed progress on the MVP project that were outside of the control of the Company, particularly since the inception of the MVP PSU Program, the efforts undertaken by December 31, 2020.many of the Company’s employees, including the NEOs, to overcome these obstacles, and ongoing risks. The Board also was focused on and sought to promote the Company's top priority of completing the MVP project safely and in compliance with applicable environmental standards. Taking into account these factors, the proximity of the Expiration Date, and noting the potential that the Expiration Date could distract from, or be cited by project opponents as a distraction from, a focus on safety and environmental compliance, the Board, on July 26, 2023, with the recommendation of the Compensation Committee, approved an amendment to the MVP PSU Program to eliminate the Expiration Date as a term of the MVP PSU Program and all award agreements thereunder (the MVP PSU Amendment).
A summaryAccordingly, the Equitrans Midstream Corporation Senior Executive 2021 MVP Performance Share Units Award Agreements to which the NEOs are parties and the Equitrans Midstream Corporation LTIP Participant 2021 MVP Performance Share Units Award Agreements were amended to reflect the elimination of option activitythe Expiration Date, and the calculation of shares retained in the event of a participant’s termination due to death, disability or retirement also was clarified. All other terms of the award agreements remain in full force and effect.
The MVP PSU Amendment resulted in a change to the original performance condition of the MVP PSU Program. As such, the Company accounted for the MVP PSU Amendment as a Type Ι modification in accordance with ASC 718, which did not result in any additional compensation cost related to the awards.
The following table provides detailed information on the MVP PSU Program as of December 31, 2018,2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| MVP PSU Program | | Non-vested Shares | | Grant Date Fair Value (a) | | Fair Value (Thousands) | | Requisite Service Period | | Unrecognized Compensation Cost (Thousands) | | |
| LTIP Participants | | 1,362,243 | | | $9.59 | | $ | 13,064 | | | 28 months | | $ | 883 | | | |
| Senior Executives T1 | | 579,015 | | | $9.59 | | 5,553 | | | 28 months | | 381 | | | |
| Senior Executives T2 | | 289,511 | | | $9.59 | | 2,776 | | | 40 months | | 948 | | | |
| Senior Executives T3 | | 289,504 | | | $9.59 | | 2,776 | | | 52 months | | 1,382 | | | |
(a) Determined based upon the closing price of the Company's common stock on the day before the grant date.
Non-Qualified Stock Options
In connection with the Separation, the Company assumed stock options related to EQT share-based compensation awards. Stock options outstanding and changesexercisable expire between 2024 and 2028 and there are no unrecognized compensation costs remaining related to these options. A summary of stock option activity during the year thenyears ended December 31, 2023, 2022 and 2021 is presented below. | | | | | | | | |
| | Options |
| Outstanding at January 1, 2021 | | 464,876 | |
| | |
| Expired | | — | |
| Outstanding at December 31, 2021 | | 464,876 | |
| | |
| Expired | | (94,132) | |
| Outstanding at December 31, 2022 | | 370,744 | |
| | |
| Expired | | (83,207) | |
| Outstanding at December 31, 2023 | | 287,537 | |
|
| | | | | | | | | | | | | |
| | Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term | | Aggregate Intrinsic Value |
| Outstanding at January 1, 2018 | — |
| | $ | — |
| | — |
| | $ | — |
|
| Transferred in connection with the Separation | 464,876 |
| | 38.55 |
| | — |
| | — |
|
| Exercised | — |
| | — |
| | — |
| | — |
|
| Forfeited | — |
| | — |
| | — |
| | — |
|
| Expired | — |
| | — |
| | — |
| | — |
|
| Outstanding at December 31, 2018 | 464,876 |
| | $ | 38.55 |
| | 5.69 Years |
| | $ | — |
|
| | | | | | | | |
| Exercisable at December 31, 2018 | 271,311 |
| | $ | 40.63 |
| | 2.45 Years |
| | $ | — |
|
Equitrans Midstream Phantom Units
The Company grants Equitrans Midstream phantom unit awards to certain non-employee directors. The Equitrans Midstream phantom units vest upondirectors who serve or at the time of grant and the value of the Equitrans Midstream phantom units will be paid in Equitrans Midstream common stock upon the directors' termination of serviceserved on the Board. The Equitrans MidstreamDirector phantom units expected to be satisfied in Company common stock vest on the date of grant and are accounted for as equity awards; as such, the Company recognizes the fair value of the awardsrecorded based on the grant date as share-based compensation expensefair value, which is determined based upon grant.the closing price of the Company’s common stock on the day before the grant date. The Company granted 41,880 Equitrans Midstreamvalue of director phantom units during the year ended December 31, 2018. The weighted average fair value of the grants, based on the Company's closingis paid in Company common stock price on the business day prior to the grant date, was $21.51 for the year ended December 31, 2018.
EQGP Phantom Units
Prior to the completion of the EQGP Buyout, the EQGP General Partner granted phantom unit awards (EQGP phantom units) to certain non-employee directors of the EQGP General Partner. The EQGP phantom units vested upon grant, and the value of the EQGP phantom units were paid in EQGP common units upon the director's termination of service on the EQGP General Partner's BoardBoard.
A summary of Directors. The EQGP phantom units were accounted for as equity awards; as such, EQGP recognized the fair value of the awards on the grant date as share-based compensation expense upon grant. As of December 31, 2018, there were 21,289 EQGP phantom units, including accrued distributions, outstanding. EQGP granted 10,560, 8,940 and 8,270 EQGP phantom units during the years ended December 31, 2018, 2017 and 2016, respectively. The weighted average fair value of the grants, based on EQGP's common unit price on the grant date, was $26.28, $25.21 and $21.57units' activity for the years ended December 31, 2023, 2022 and 2021 is presented below.
| | | | | | | | | | | | | | | | | | | | | | | |
| |
| Equitrans Midstream phantom units | | |
| Units | | Weighted Average
Fair Value Per Share | | Aggregate Fair Value | | | | | | |
| Outstanding at January 1, 2021 | 318,605 | | | $ | 16.43 | | | $ | 5,234,709 | | | | | | | |
| Granted | 177,156 | | | 8.16 | | | 1,445,036 | | | | | | | |
| Distributions | (16,957) | | | 20.29 | | | (343,982) | | | | | | | |
| Dividends | 33,636 | | | 8.88 | | | 298,813 | | | | | | | |
| Outstanding at December 31, 2021 | 512,440 | | | $ | 12.95 | | | $ | 6,634,576 | | | | | | | |
| Granted | 141,778 | | | 10.03 | | | 1,422,140 | | | | | | | |
| Distributions | (104,603) | | | 14.75 | | | (1,542,823) | | | | | | | |
| Dividends | 37,533 | | | 7.86 | | | 294,990 | | | | | | | |
| Outstanding at December 31, 2022 | 587,148 | | | $ | 11.60 | | | $ | 6,808,883 | | | | | | | |
| Granted | 265,115 | | | 5.17 | | | 1,371,610 | | | | | | | |
| Distributions | (78,840) | | | 7.56 | | | (595,686) | | | | | | | |
| Dividends | 63,591 | | | 7.30 | | | 464,084 | | | | | | | |
| Outstanding at December 31, 2023 | 837,014 | | | $ | 9.62 | | | $ | 8,048,891 | | | | | | | |
2024 Awards
Effective in February 2024, the Compensation Committee adopted the Equitrans Midstream Corporation 2024 Performance Share Unit Program (2024 PSU Program) under the 2018 2017Plan. The 2024 PSU Program was established to align the interests of key employees with the interests of shareholders and 2016, respectively. EQGP recognized share-based compensation expensethe strategic objectives of $0.3 million, $0.3 millionthe Company. Awards under the 2024 PSU Program, consisting of both equity and liability awards, are expected to be granted in the first quarter of 2024.
The vesting of the units under the 2024 PSU Program will occur upon payment after the expiration of the performance period, which is January 1, 2024 to December 31, 2026, assuming continued employment with the Company. The payout will vary between zero and 200% of the number of outstanding units contingent upon the level of total shareholder return relative to a predefined peer group, the achievement of certain levels of free cash flow before changes in working capital and planning and executing on certain methane emissions mitigation projects, in each case during the performance period and, in the case of free cash flow before changes in working capital, on an annual basis within such performance period.
110The Company also expects to grant restricted stock equity and restricted stock unit liability awards in the first quarter of 2024. The restricted stock equity awards and restricted stock unit liability awards will be fully vested January 1, 2027, assuming continued employment with the Company.
$0.2 million forFor the years ended December 31, 2018, 20172023, 2022 and 2016, respectively. In connection with the completion of the EQGP Buyout, the non-employee directors of the EQGP General Partner were paid the Purchase Price for each EQGP phantom unit that they held. See Note 17.
EQM Phantom Units
The EQM General Partner has granted phantom unit awards (EQM phantom units) to certain non-employee directors of the EQM General Partner. The EQM phantom units vest upon grant, and the value of the EQM phantom units are paid in EQM common units upon the director's termination of service on the EQM General Partner's Board of Directors. The EQM phantom units are accounted for as equity awards; as such,2021, the Company recognizes the fair valuerecognized expense related to its defined contribution plan of the awards on the grant date as share-based compensation expense upon grant. As of December 31, 2018, there were 17,470 EQM phantom units, including accrued distributions, outstanding. EQM granted 5,100, 2,940 and 2,610 EQM phantom units during the years ended December 31, 2018, 2017 and 2016, respectively. The weighted average fair value of the grants, based on EQM's common unit price on the grant date, was $68.66, $76.68 and $75.46 for the years ended December 31, 2018, 2017 and 2016, respectively. The Company recognized share-based compensation expense of $0.4$8.2 million, $0.2$8.0 million and $0.2$7.6 million, for the years ended December 31, 2018, 2017 and 2016, respectively.
RMP Phantom Units
Prior to the EQM-RMP Mergers, the RMP General Partner granted phantom unit awards (RMP phantom units) to certain non-employee directors
Table of the RMP General Partner. The RMP phantom units would cliff vest at the end of the requisite service period of approximately one year, and the value of the RMP phantom units were paid in RMP common units upon vesting. The RMP phantom units were equity awards; as such, RMP recognized the fair value of the awards on the grant date as share-based compensation expense on a straight-line basis over the vesting period. On July 23, 2018, in connection with the EQM-RMP Mergers, the 36,220 outstanding RMP phantom units fully vested and converted into 12,024 EQM common units based on the exchange ratio of 0.3319, less applicable tax withholding. The Company recognized share-based compensation expense of $0.9 million for the period from January 1, 2018 through July 23, 2018.Contents 9. Debt
The following table presents the Company's and its affiliates'consolidated subsidiaries' outstanding debt as of December 31, 20182023 and 2017.2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
| Principal | | Carrying Value(a) | | Fair Value(b) | | Principal | | Carrying Value(a) | | Fair Value(b) |
| (Thousands) |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Amended EQM Credit Facility | $ | 915,000 | | | $ | 915,000 | | | $ | 915,000 | | | $ | 240,000 | | | $ | 240,000 | | | $ | 240,000 | |
| 2021 Eureka Credit Facility | 315,000 | | | 315,000 | | | 315,000 | | | 295,000 | | | 295,000 | | | 295,000 | |
| Total credit facility borrowings | $ | 1,230,000 | | | $ | 1,230,000 | | | $ | 1,230,000 | | | $ | 535,000 | | | $ | 535,000 | | | $ | 535,000 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
EQM 4.75% Senior Notes due 2023 (c) | — | | | — | | | — | | | 98,941 | | | 98,830 | | | 97,086 | |
| EQM 4.00% Senior Notes due 2024 | 300,000 | | | 299,731 | | | 297,150 | | | 300,000 | | | 299,270 | | | 288,291 | |
| EQM 6.00% Senior Notes due 2025 | 400,000 | | | 398,203 | | | 399,816 | | | 400,000 | | | 397,005 | | | 386,000 | |
| EQM 4.125% Senior Notes due 2026 | 500,000 | | | 497,518 | | | 482,940 | | | 500,000 | | | 496,667 | | | 444,700 | |
| EQM 6.50% Senior Notes due 2027 | 900,000 | | | 893,324 | | | 916,407 | | | 900,000 | | | 891,417 | | | 860,175 | |
| EQM 7.50% Senior Notes due 2027 | 500,000 | | | 494,686 | | | 515,200 | | | 500,000 | | | 493,130 | | | 489,630 | |
| EQM 5.50% Senior Notes due 2028 | 850,000 | | | 844,893 | | | 842,206 | | | 850,000 | | | 843,775 | | | 760,036 | |
| EQM 4.50% Senior Notes due 2029 | 800,000 | | | 793,506 | | | 755,784 | | | 800,000 | | | 792,217 | | | 671,936 | |
| EQM 7.50% Senior Notes due 2030 | 500,000 | | | 493,770 | | | 537,510 | | | 500,000 | | | 492,799 | | | 481,760 | |
| EQM 4.75% Senior Notes due 2031 | 1,100,000 | | | 1,090,261 | | | 1,023,715 | | | 1,100,000 | | | 1,088,877 | | | 899,250 | |
| EQM 6.50% Senior Notes due 2048 | 550,000 | | | 540,548 | | | 563,580 | | | 550,000 | | | 540,163 | | | 412,198 | |
| Total debt | 6,400,000 | | | 6,346,440 | | | 6,334,308 | | | 6,498,941 | | | 6,434,150 | | | 5,791,062 | |
| Less current portion of long-term debt | 300,000 | | | 299,731 | | | 297,150 | | | 98,941 | | | 98,830 | | | 97,086 | |
| Total long-term debt | $ | 6,100,000 | | | $ | 6,046,709 | | | $ | 6,037,158 | | | $ | 6,400,000 | | | $ | 6,335,320 | | | $ | 5,693,976 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2018 | | December 31, 2017 |
| | Principal | | Carrying Value(a) | | Fair Value(b) | | Principal | | Carrying Value(a) | | Fair Value(b) |
| | (Thousands) |
| Equitrans Midstream Credit Facility | $ | 16,500 |
| | $ | 16,500 |
| | $ | 16,500 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| EQGP Working Capital Facility with EQT | — |
| | — |
| | — |
| | 168 |
| | 168 |
| | 168 |
|
| EQM Credit Facility | 625,000 |
| | 625,000 |
| | 625,000 |
| | 180,000 |
| | 180,000 |
| | 180,000 |
|
| RMP Credit Facility | — |
| | — |
| | — |
| | 286,000 |
| | 286,000 |
| | 286,000 |
|
| Total credit facility borrowings | $ | 641,500 |
| | $ | 641,500 |
| | $ | 641,500 |
| | $ | 466,168 |
| | $ | 466,168 |
| | $ | 466,168 |
|
| | | | | | | | | | | | |
| Equitrans Midstream Term Loans | $ | 600,000 |
| | $ | 568,105 |
| | $ | 589,500 |
| | $ | — |
| | $ | — |
| | $ | — |
|
| EQM 4.00% Senior Notes due 2024 | 500,000 |
| | 495,708 |
| | 479,950 |
| | 500,000 |
| | 494,939 |
| | 504,110 |
|
| EQM 4.125% Senior Notes due 2026 | 500,000 |
| | 493,264 |
| | 454,200 |
| | 500,000 |
| | 492,413 |
| | 501,990 |
|
| EQM 4.75% Senior Notes due 2023 | 1,100,000 |
| | 1,089,742 |
| | 1,099,890 |
| | — |
| | — |
| | — |
|
| EQM 5.50% Senior Notes due 2028 | 850,000 |
| | 839,302 |
| | 841,526 |
| | — |
| | — |
| | — |
|
| EQM 6.50% Senior Notes due 2048 | 550,000 |
| | 538,623 |
| | 549,566 |
| | — |
| | — |
| | — |
|
| Total debt | 4,100,000 |
| | 4,024,744 |
| | 4,014,632 |
| | 1,000,000 |
| | 987,352 |
| | 1,006,100 |
|
| Less current portion of debt | 6,000 |
| | 6,000 |
| | 6,000 |
| | — |
| | — |
| | — |
|
| Total long-term debt | $ | 4,094,000 |
| | $ | 4,018,744 |
| | $ | 4,008,632 |
| | $ | 1,000,000 |
| | $ | 987,352 |
| | $ | 1,006,100 |
|
| |
(a) | Carrying value of the senior notes and term loans represents principal amount less unamortized debt issuance costs and debt discounts. |
(a)Carrying values of the senior notes represent principal amount less unamortized debt issuance costs and debt discounts.
111(b)See Note 10 for a discussion of fair value measurements.
| |
(b) | See Note 1 for a discussion of fair value measurements.
|
TheAs of December 31, 2023, the combined aggregate amounts of maturities for long-term debt, areincluding the current portion thereof, were as follows: $1.1 billion in 2023 and $3.0$0.3 billion in 2024, $0.4 billion in 2025, $0.5 billion in 2026, $1.4 billion in 2027, $0.85 billion in 2028 and $2.95 billion in 2029 and thereafter.
Equitrans MidstreamEQM Revolving Credit Facility
InFacility. On October 2018, Equitrans Midstream entered into a credit facility agreement that provides for $100 million in borrowing capacity and matures in October6, 2023 (the Equitrans Midstream Credit Facility). The Equitrans Midstream Credit Facility is available for general corporate purposes and to fund ongoing working capital requirements. Subject to satisfaction of certain conditions, the Equitrans Midstream Credit Facility has an accordion feature that allows the Company to increase the available borrowings under the facility by up to an additional $200 million. The Equitrans Midstream Credit Facility has a sublimit of up to $25 million for same-day swing line advances and a sublimit of up to $15 million for letters of credit.
Under the terms of the Equitrans Midstream Credit Facility, Equitrans Midstream can obtain Base Rate Loans (as defined in the Equitrans Midstream Credit Facility) or Fixed Period Eurodollar Rate Loans (as defined in the Equitrans Midstream Credit Facility) (the Eurodollar Rate Loans). Base Rate Loans are denominated in dollars and bear interest at a base rate plus a margin of 0.75% to 1.25% based on Equitrans Midstream's consolidated leverage ratio. Eurodollar Rate Loans bear interest at a Eurodollar Rate (as defined in the Equitrans Midstream Credit Facility) plus a margin of 1.75% to 2.25% based on Equitrans Midstream's consolidated leverage ratio.
In December 2018, Equitrans MidstreamFourth Amendment Date), EQM entered into an amendment (the Fourth Amendment) to the Equitrans MidstreamThird Amended and Restated Credit Agreement, dated as of October 31, 2018 (as amended, supplemented or otherwise modified, the Amended EQM Credit Facility), among EQM, as borrower, Wells Fargo Bank, National Association, as the administrative agent, swing line lender and an L/C issuer, the lenders party thereto from time to time and any other persons party thereto from time to time. The Fourth Amendment extended the stated maturity date of the Amended EQM Credit Facility which amendedwith such extension only applicable for the Equitrans Midstreamlenders approving the Fourth Amendment, from April 30, 2025 to April 30, 2026. After giving effect to such extension contemplated by the Fourth Amendment, EQM had or, as applicable, has aggregate commitments available under the Amended EQM Credit Facility of approximately $2.16 billion before October 31, 2023, approximately $1.55 billion in aggregate commitments available on and after October 31, 2023 and prior to among other things, permit (i) Equitrans Midstream's entrance into the Term Loan Credit Agreement (defined below), (ii) the EQGP BuyoutApril 30, 2025, and the EQM IDR Transaction (definedapproximately $1.45 billion in aggregate commitments available on and discussed in Note 17)after April 30, 2025 and (iii) pari passu liens on the collateral securing the obligations under the Term Loan Credit Agreement and the amended Equitrans Midstream Credit Facility.
Loans under the Equitrans Midstream Credit Facility are guaranteed by substantially all of the assets of the Company and the Company's direct and indirect, existing and future, wholly-owned, domestic-restricted subsidiaries, including all of the limited partner interests in EQM and EQGP, subjectprior to certain exceptions and limitations, including the general partner interests in EQM and EQGP. Following the completion of the EQM IDR Transaction (defined and discussed in Note 17), EQGP will no longer be a wholly-owned subsidiary of the Company, and its limited partner interest will no longer guarantee the term loans.
The Equitrans Midstream Credit Facility contains negative covenants that, among other things, limit restricted payments, incurrence of debt, dispositions, mergers, fundamental changes and transactions with affiliates. In addition, the Equitrans Midstream Credit Facility contains events of default, including insolvency, nonpayment of scheduled principal or interest obligations, change of control and cross-default related to the acceleration or default of certain other financial obligations, that if occur, could result in termination of the Equitrans Midstream Credit Facility, early payment of amounts outstanding or similar actions. Under the Equitrans Midstream Credit Facility, the Company is required to maintain a consolidated leverage ratio of not more than 3.50 to 1.00, excluding the indebtedness of EQM and its subsidiaries.April 30, 2026.
As of December 31, 2018,2023, the Company had aggregate commitments available under the Amended EQM Credit Facility of approximately $1.55 billion. As of December 31, 2023, EQM had no$915 million of borrowings and approximately $105.8 million of letters of credit outstanding under the Amended EQM Credit Facility. During the period from November 13, 2018 through December 31, 2018, the maximum outstanding borrowingThe amount EQM is able to borrow under the Equitrans MidstreamAmended EQM Credit Facility was $16.5 million, the average daily balance was approximately $7.4 million and the weighted average annual interest rate was 4.2%.
Equitrans Midstream Term Loan Facility
In December 2018, Equitrans Midstream entered intois bounded by a term loan credit agreement (the Term Loan Credit Agreement) with Goldman Sachs Bank USA, as administrative agent, PNC Bank, National Association, as collateral agent, and the lenders from time to time party thereto, that provides for a senior secured term loan facility in an aggregate principal amount of $600 million and matures in January 2024 (the Term Loans and such facility, the Equitrans Midstream Term Loan Facility). The Company received net proceeds from the Term Loans of $568.1 million, inclusive of a discount of $18.0 million and estimated debt issuance costs of $13.9 million. The net proceeds were used to fund the EQGP Buyout, including certain fees, costs and expenses in connection therewith, and the remainder is expected to be used for general corporate purposes.
The Term Loans accrue interest equal to one of the following, at Equitrans Midstream's option: (i) an alternate base rate (defined as the greatest of (a) the prime rate, (b) the federal funds effective rate plus 0.50% per annum and (c) one-month London Interbank Offered Rate (LIBOR) plus 1.00% per annum), plus an applicable margin of 3.50% per annum, or (ii) LIBOR, plus an applicable margin of 4.50% per annum. The Term Loans are due in equal, quarterly installments in an aggregate annual amount equal to 1.00% of the original principal amount of the Term Loans, or $6 million, with the remaining
outstanding balance payable on the maturity date. The current portion of the Term Loans is recorded in Current portion of long-term debt on the consolidated balance sheet.
The Term Loan Credit Agreement requires Equitrans Midstream to prepay outstanding Term Loans, subject to certain exceptions, with Net Proceedsmaximum Consolidated Leverage Ratio (as defined in the Term LoanAmended EQM Credit Agreement) from certain non-ordinary course dispositionsFacility), and as of assets or from the issuance or incurrence of debt obligations for borrowed money notOctober 1, 2023 (the MVP Mobilization Effective Date), such maximum Consolidated Leverage Ratio permitted under the Term Loan Credit Agreement and certain other debt obligations for borrowed money, and, beginning on March 31, 2019 (but suspended during the continuance of either the Company or the Term Loans obtaining and maintaining an investment grade rating from two of S&P, Moody's and Fitch, in each case with a stable or better outlook), a variable percentage of excess cash flow, ranging from 50%respect to 0% depending on the Company's consolidated net leverage ratio.
The Term Loans are guaranteed by substantially all of the assets of the Company and the Company's direct and indirect, existing and future, wholly-owned, domestic-restricted subsidiaries, including all of the limited partner interests in EQM and EQGP, subject to certain exceptions and limitations, including the general partner interests in EQM and EQGP.
The Term Loan Credit Agreement contains negative covenants that, among other things, limit the Company's and its subsidiaries' abilities to incur indebtedness or make guarantees of indebtedness; incur liens; make investments, loans and acquisitions; merge or consolidate; sell assets and issue equity interests; pay dividends on capital stock or redeem, repurchase or retire capital stock, subject to exceptions; alter the Company's business; engage in transactions with affiliates; enter into agreements limiting subsidiary distributions; and enter into certain hedging transactions. In addition, the Term Loan Credit Facility contains events of default, including insolvency, nonpayment of scheduled principal or interest obligations, change of control and cross-default related to the acceleration or default of certain other financial obligations, that if occur, could result in termination of the Equitrans Midstream Credit Facility, early payment of amounts outstanding or similar actions. Under the Term Loan Credit Agreement, the Company is required to maintain a debt service coverage ratio of not more than 1.10 to 1.00 beginning with the fiscal quarter ended on Marchending December 31, 2019 (but suspended during2023 and the continuanceend of either the Company or the Term Loans obtaining and maintaining an investment grade rating from twoeach of S&P, Moody's and Fitch, in each case with a stable or better outlook). In additionEQM's three
consecutive fiscal quarters thereafter was 5.85 to permitting the EQGP Buyout, the Term Loan Credit Agreement permits, subject to limited conditions, transactions contemplated by any definitive agreements related to the EQM IDR Transaction (defined and discussed in Note 17).
The Term Loan Credit Agreement provides the Company1.00, with the rightthen-applicable ratio being tested as of the end of the applicable fiscal quarter. As of December 31, 2023, EQM had the ability to request incremental term loans in an aggregate amount of up to $150 million minus the aggregate commitmentsborrow approximately $0.4 billion under the Equitrans MidstreamAmended EQM Credit Facility (or any other permitted pari passu revolvingFacility. As of December 31, 2022, EQM had $240 million of borrowings and approximately $234.9 million of letters of credit agreement then in effect), plus the amount of any voluntary prepayment in respect of the Term Loans. The lenders under the Term Loan Credit Agreement are under no obligation to provide such incremental commitments or term loans and any addition of or increase in commitments or term loans is subject to certain customary conditions precedent.
EQGP Working Capital Facility with EQT
Prior to the Separation, EQGP had a working capital loan agreement with EQT (the EQGP Working Capital Facility with EQT), through which EQT agreed to make interest-bearing loans available in an aggregate principal amount not to exceed $50 million outstanding at any one time. Borrowings outstanding under the EQGP Working CapitalAmended EQM Credit Facility. For the avoidance of doubt, any reference to the Amended EQM Credit Facility with EQT were presentedas of any particular date shall mean the Amended EQM Credit Facility as in accounts payable as an amount dueeffect on such date.
See Note 15 for discussion of the Fifth Amendment to related party on the consolidated balance sheets. On November 12, 2018, EQGP repaid $3.2 million of borrowings outstanding under the facility, and EQT terminated the working capital loan agreement. During the period from January 1, 2018 through November 12, 2018, the maximum outstanding borrowing was $3.2 million, the average daily balance was approximately $0.2 million and the weighted average annual interest rate was 3.5%. Amended EQM Credit Facility.
During the years ended December 31, 20172023, 2022 and 2016,2021, the maximum outstanding borrowings were $0.3$915 million, $315 million and $0.2$525 million, respectively, the average daily balance for each period was $0.1balances were approximately $354 million, $193 million and $395 million, respectively, and the weighted average annual interest rates were 2.5%approximately 8.1%, 4.5% and 2.0%, respectively.
EQM Credit Facility
In October 2018, EQM amended and restated its credit facility to increase the borrowing capacity from $1 billion to $3 billion and extend the term to October 2023 (the EQM Credit Facility). The EQM Credit Facility is available for general partnership purposes, including to purchase assets, and to fund working capital requirements and capital expenditures, pay distributions and repurchase units. Subject to satisfaction of certain conditions, the EQM Credit Facility has an accordion feature that allows EQM to increase the available borrowings under the facility by up to an additional $750 million. The EQM Credit Facility has a sublimit of up to $250 million for same-day swing line advances and a sublimit of up to $400 million for letters of credit. In addition, EQM has the ability to request that one or more lenders make available term loans under the EQM Credit Facility, subject to the satisfaction of certain conditions. Such term loans would be secured by cash and qualifying investment grade securities. EQM's obligations under the revolving portion of the EQM Credit Facility are unsecured.
EQM's debt issuer credit ratings determine the level of fees associated with the EQM Credit Facility and the interest rate charged by the counterparties on amounts borrowed against the lines of credit. EQM's debt credit rating and level of fees and interest rates are inversely related.
Under the terms of the EQM Credit Facility, EQM can obtain Base Rate Loans (as defined in the EQM Credit Facility) or Fixed Period Eurodollar Rate Loans (as defined in the EQM Credit Facility) (Eurodollar Rate Loans). Base Rate Loans are denominated in dollars and bear interest at a base rate plus a margin of 0.125% to 0.875% determined on the basis of EQM's then current credit rating. Eurodollar Rate Loans bear interest at a Eurodollar Rate (as defined in the EQM Credit Facility) plus a margin of 1.125% to 1.875% determined on the basis of EQM's then current credit rating. EQM may voluntarily prepay its borrowings, in whole or in part, without premium or penalty, but subject to reimbursement of funding losses with respect to prepayment of Eurodollar Rate Loans.
The EQM Credit Facility contains negative covenants that, among other things, limit restricted payments, incurrence of debt, dispositions, mergers and fundamental changes and transactions with affiliates. In addition, the EQM Credit Facility contains events of default such as insolvency, nonpayment of scheduled principal or interest obligations, change of control and cross-default related to the acceleration or default of certain other financial obligations. Under the EQM Credit Facility, EQM is required to maintain a consolidated leverage ratio of not more than 5.00 to 1.00 (or not more than 5.50 to 1.00 for certain measurement periods following the consummation of certain acquisitions).
As of December 31, 2018, EQM had $1 million of letters of credit outstanding under the EQM Credit Facility. As of December 31, 2017, EQM had no letters of credit outstanding under the EQM Credit Facility. During the years ended December 31, 2018, 2017 and 2016, the maximum outstanding borrowings were $674 million, $260 million and $401 million, respectively; the average daily balances were approximately $230 million, $74 million and $77 million, respectively; and the weighted average annual interest rates were 3.6%, 2.8% and 2.0%2.6%, respectively. For the years ended December 31, 2018, 20172023, 2022 and 2016,2021, commitment fees of $2.8$7.6 million, $1.8$8.4 million and $1.6$7.4 million, respectively, were paid to maintain credit availability under the Amended EQM Credit Facility. As of December 31, 2023 and 2022, no term loans were outstanding under the Amended EQM Credit Facility.
EQM 364-DayEureka Credit Facilities.On May 13, 2021, Eureka Midstream, LLC (Eureka), a wholly owned subsidiary of Eureka Midstream, repaid all outstanding principal borrowings plus accrued and unpaid interest under and terminated its credit facility with ABN AMRO Capital USA LLC, as administrative agent, the lenders party thereto from time to time and any other persons party thereto from time to time (the Former Eureka Credit Facility). In conjunction with the termination of, and to fund the repayment of all outstanding amounts under the Former Eureka Credit Facility,
Prior on May 13, 2021, Eureka entered into a $400 million senior secured revolving credit facility withSumitomo Mitsui Banking Corporation, as administrative agent, the lenders party thereto from time to time and any other persons party thereto from time to time (the 2021 Eureka Credit Facility). On March 29, 2023, Eureka entered into an amendment (the First Eureka Amendment) to the Separation, EQM had2021 Eureka Credit Facility that replaced the London Interbank Offered Rate with the Secured Overnight Financing Rate as the benchmark rate for borrowings, including a $500 million, 364-day, uncommitted revolving loan agreement with EQTcredit spread adjustment of 0.10% for all applicable interest periods, as well as for daily swing line borrowings. On October 5, 2023, Eureka entered into an amendment (the EQM 364-Day Facility). Interest accrued on outstanding borrowings at an interest rate equalSecond Eureka Amendment) to the rate then2021 Eureka Credit Facility that extended the stated maturity date of the 2021 Eureka Credit Facility, with such extension only applicable for the lenders approving the Second Eureka Amendment, from November 13, 2024 to similar loans underNovember 13, 2025. Any reference to the revolving credit agreement with2021 Eureka Credit Facility as of any particular date shall mean the largest aggregate commitment amount to which EQM was then a party, less the sum2021 Eureka Credit Facility as in effect on such date.
As of (i) the then applicable commitment fee under such agreementDecember 31, 2023 and (ii) 10 basis points. On November 12, 2018, EQT terminated the EQM 364-Day Facility.
EQM2022, Eureka had no$315 million and $295 million, respectively, of borrowings outstanding under the EQM 364-Day Facility as of2021 Eureka Credit Facility. During the years ended December 31, 2017. There were no2023 and 2022, the maximum amount of outstanding borrowings outstandingunder the 2021 Eureka Credit Facility at any time during the period from January 1, 2018 through November 12, 2018 or the year ended December 31, 2016. During the year ended December 31, 2017, under the EQM 364-Day Facility, the maximum outstanding borrowing was $100.0approximately $315 million and $295 million, the average daily balance was approximately $23$310 million and the$281 million, and Eureka incurred interest at a weighted average annual interest rate was 2.2%.
EQM Term Loanof approximately 7.8% and 4.4%, respectively. For the years ended December 31, 2023 and 2022, commitment fees of $0.4 million and $0.5 million were paid to maintain credit availability under the 2021 Eureka Credit Facility,
In April 2018, EQM entered into a $2.5 billion unsecured multi-draw 364-day term loan facility (the EQM Term Loan Facility). The EQM Term Loan Facility was used to fund respectively. During the cash consideration foryear ended December 31, 2021, the Drop-Down Transaction, to repaymaximum amount of outstanding borrowings under EQM's then-existing revolving credit facility and for other general partnership purposes. In connection with EQM's issuance of the EQM $2.5 Billion Senior Notes (defined below), on June 25, 2018, the outstanding balance under the EQM Term LoanFormer Eureka Credit Facility was repaid and the EQM Term Loan2021 Eureka Credit Facility at any time was terminated. As a result of the termination, EQM expensed $3 million of deferred issuance costs. Under the EQM Term Loan Facility, from April 25, 2018 through June 25, 2018, the maximum outstanding borrowing was $1,825approximately $315 million, the average daily balance was approximately $1,231$301 million and theEureka incurred interest at a weighted average annual interest rate was 3.3%of approximately 2.5%. For the year ended December 31, 2021, commitment fees of $0.5 million were paid to maintain credit availability under the Former Eureka Credit Facility and the 2021 Eureka Credit Facility.
EQM $2.5 Billion2023 Senior Notes
In Redemption. On June 2018,21, 2023 (the Redemption Date), EQM issuedredeemed in full its then-outstanding 4.75% senior notesSenior Notes due July 2023 (the 2023 Notes) in the aggregate principal amount of $1.1 billion, 5.50% senior notes due July 2028 in$98.9 million, pursuant the Indenture, dated as of August 1, 2014, by and between EQM, the subsidiary guarantors party thereto and The Bank of New York Mellon Trust Company, N.A. (BNYMTC), as trustee, as supplemented by that certain Third Supplemental Indenture, dated as of June 25, 2018, by and between the EQM and BNYMTC, at a redemption price equal to 100% of the principal amount of the 2023 Notes, plus accrued and unpaid interest to, but not including, the Redemption Date. Upon the redemption by EQM of the 2023 Notes, the Third Supplemental Indenture was discharged and ceased to be of further effect except as to rights thereunder. EQM utilized cash on hand to effect the redemption on the Redemption Date.
2022 Senior Notes. On June 7, 2022, EQM completed a private offering of $500 million aggregate principal amount of $850 million and 6.50%new 7.50% senior notes due July 2048 in the2027 (the 2027 Notes) and $500 million aggregate principal amount of $550 million (collectively,new 7.50% senior notes due 2030 (the 2030 Notes and, together with the EQM $2.5 Billion2027 Notes, the 2022 Senior Notes). EQM and received net proceeds from the offering of $2,465.8approximately $984.5 million (excluding costs related to the 2022 Tender Offers discussed below), inclusive of a discount of $11.8approximately $12.5 million and estimated debt issuance costs of $22.4approximately $3.0 million.
The net proceeds were used to repay the outstanding balances under the EQM Term Loan Facility and the RMP Credit Facility (defined below), and the remainder was used for general partnership purposes. The EQM $2.5 Billion2022 Senior Notes were issued pursuant to new supplemental indentures to EQM's existingunder and are governed by an indenture, dated August 1, 2014.June 7, 2022 (the 2022 Indenture), between EQM and U.S. Bank Trust Company, National Association, as trustee. The EQM $2.5 Billion Senior
2022 Indenture contains covenants that limit EQM’s ability to, among other things, incur certain liens securing indebtedness, engage in certain sale and leaseback transactions, and
enter into certain consolidations, mergers, conveyances, transfers or leases of all or substantially all of EQM’s assets. The 2027 Notes will mature on June 1, 2027 and interest on the 2027 Notes is payable semi-annually on June 1 and December 1 of each year, commencing December 1, 2022. The 2030 Notes will mature on June 1, 2030 and interest on the 2030 Notes is payable semi-annually on June 1 and December 1 of each year, commencing December 1, 2022.
EQM used the net proceeds from the offering of the 2022 Senior Notes containand cash on hand to purchase (i) an aggregate principal amount of approximately $501.1 million of its outstanding 2023 Notes pursuant to a tender offer for any and all of the outstanding 2023 Notes (the Any and All Tender Offer) and an open market purchase following the expiration of the Any and All Tender Offer, and (ii) an aggregate principal amount of $300 million of its outstanding 6.00% notes due 2025 (2025 Notes), and an aggregate principal amount of $200 million of its outstanding 4.00% notes due 2024 (2024 Notes), pursuant to tender offers (the Maximum Tender Offers, together with the Any and All Tender Offer, the 2022 Tender Offers) for the 2025 Notes and 2024 Notes, which such Maximum Tender Offers reflected a maximum aggregate principal amount of 2025 Notes and 2024 Notes to be purchased of $500 million (such amount, the Aggregate Maximum Principal Amount).
2022 Tender Offers. On June 6, 2022, the Any and All Tender Offer expired and, on June 7, 2022 and June 9, 2022, EQM purchased an aggregate principal amount of approximately $496.8 million of 2023 Notes at an aggregate cost of approximately $506.7 million pursuant to the Any and All Tender Offer. On June 10, 2022, which was after the closing of the Any and All Tender Offer, EQM also repurchased an aggregate principal amount of approximately $4.3 million of 2023 Notes in the open market at an aggregate cost of approximately $4.4 million. On June 13, 2022, which was the early tender deadline for the Maximum Tender Offers, the Aggregate Maximum Principal Amount was fully subscribed by the 2024 Notes and 2025 Notes then tendered, and, on June 14, 2022, EQM purchased an aggregate principal amount of $200 million of 2024 Notes and $300 million of 2025 Notes at an aggregate cost of approximately $509 million (inclusive of the applicable early tender premium for the 2024 Notes and 2025 Notes described in that certain Offer to Purchase of EQM dated May 31, 2022, as amended).
The Company incurred a loss on the extinguishment of debt of approximately $24.9 million during the year ended December 31, 2022 related to the payment of the 2022 Tender Offers and open market repurchase premiums and fees, and write off of the respective unamortized discounts and financing costs associated with the purchase of portions of 2023, 2024 and 2025 Notes in the 2022 Tender Offers. This amount is included in the loss on extinguishment of debt line on the statements of consolidated comprehensive income.
2021 Senior Notes. During the first quarter of 2021, EQM issued, in a private offering, $800 million aggregate principal amount of new 4.50% senior notes due 2029 (the 2029 Notes) and $1,100 million aggregate principal amount of new 4.75% senior notes due 2031 (the 2031 Notes and, together with the 2029 Notes, the 2021 Senior Notes) and received net proceeds from the offering of approximately $1,876.5 million (excluding costs related to the 2021 Tender Offers discussed below), inclusive of a discount of $19 million and debt issuance costs of $4.5 million. EQM used the net proceeds from the offering of the 2021 Senior Notes and cash on hand to repay all outstanding borrowings under the term loan agreement EQM entered into in August 2019 (as amended, the Amended 2019 EQM Term Loan Agreement), to purchase an aggregate principal amount of $500 million of its outstanding 2023 Notes pursuant to tender offers for certain of EQM's outstanding indebtedness (such tender offers, the 2021 Tender Offers), and for general partnership purposes.
The 2021 Senior Notes were issued under and are governed by an indenture, dated January 8, 2021 (the 2021 Indenture), between EQM and The Bank of New York Mellon Trust Company, N.A., as trustee. The 2021 Indenture contains covenants that limit EQM'sEQM’s ability to, among other things, incur certain liens securing indebtedness, engage in certain sale and leaseback transactions, and enter into certain consolidations, mergers, conveyances, transfers or leases of all or substantially all of EQM'sEQM’s assets. The 2029 Notes will mature on January 15, 2029 and interest on the 2029 Notes is payable semi-annually on January 15 and July 15 of each year, commencing July 15, 2021. The 2031 Notes will mature on January 15, 2031 and interest on the 2031 Notes is payable semi-annually on January 15 and July 15 of each year, commencing July 15, 2021.
2021 Tender Offers. On January 15, 2021 (the 2021 early tender deadline), the maximum principal amount for the 2021 Tender Offers was fully subscribed by the 2023 Notes tendered as of the 2021 early tender deadline and on January 20, 2021, EQM 4.125% and 4.00% Senior Notes
In the fourth quarter of 2016, EQM issued $500 millionpurchased an aggregate principal amount of 4.125% senior notes due December 2026 (the 4.125% Senior Notes). EQM used the net proceeds from the offering to repay the then outstanding borrowings under the EQM Credit Facility and for general partnership purposes. In the third quarter of 2014, EQM issued $500 million of 2023 Notes at an aggregate principalcost of approximately $537 million (inclusive of the applicable early tender premium for the 2023 Notes described in that certain Offer to Purchase of EQM dated January 4, 2021, as amended, plus accrued interest).
The Company incurred a loss on the extinguishment of debt of $41.0 million during the 2021 related to the payment of the premium in the 2021 Tender Offers and write off of unamortized discounts and financing costs related to the prepayment of the loans under, and termination of, the Amended 2019 EQM Term Loan Agreement and purchase of 2023 Notes in the 2021 Tender Offers. This amount is included in the loss on extinguishment of 4.00% senior notes due August 2024 (the 4.00% Senior Notes). EQM useddebt line on the net proceeds from the offering to repay the outstanding borrowings under the EQM Credit Facility and for general partnership purposes.statements of consolidated comprehensive income.
Both the 4.125% Senior Notes and the 4.00% Senior Notes contain covenants that limit EQM's ability to, among other things, incur certain liens securing indebtedness, engage in certain sale and leaseback transactions and enter into certain consolidations, mergers, conveyances, transfers or leases
RMP Credit Facility
RM Operating LLC (formerly Rice Midstream OpCo LLC), a wholly-owned subsidiary of RMP, had an $850 million credit facility (the RMP Credit Facility) that was terminated on July 23, 2018 in conjunction with the EQM-RMP Mergers. Prior to its termination, the RMP Credit Facility was available for general partnership purposes, including to purchase assets, and to fund working capital requirements and capital expenditures, pay distributions and repurchase units.
As of December 31, 2017, RM Operating LLC had $1 million of letters of credit outstanding under the RMP Credit Facility. Under the RMP Credit Facility, for the period from January 1, 2018 through July 23, 2018, the maximum outstanding borrowing was $375 million, the average daily balance was approximately $300 million2023, EQM and the weighted average interest rate was 3.8%. For the period from November 13, 2017 through December 31, 2017, the maximum outstanding borrowing was $286 million, the average daily balance was approximately $268 million and the weighted average interest rate was 3.1%.
As of December 31, 2018, the Company and EQMEureka were in compliance with all debt provisions and covenants.
10. Fair Value Measurements
Assets Measured at Fair Value on a Recurring Basis. The Company records derivative instruments at fair value on a gross basis in its consolidated balance sheets. The EQT Global GGA provides for potential cash bonus payments payable by EQT to the Company during the period beginning on the first day of the calendar quarter in which the MVP full in-service date occurs through the calendar quarter ending December 31, 2024 (the Henry Hub cash bonus payment provision). The potential cash bonus payments are conditioned upon the quarterly average of certain Henry Hub natural gas prices exceeding certain price thresholds. The Henry Hub cash bonus payment provision is accounted for as a derivative instrument and recorded at its estimated fair value using a Monte Carlo simulation model. Significant inputs used in the fair value measurement include NYMEX Henry Hub natural gas futures prices as of the date of valuation, probability-weighted assumptions regarding MVP project completion, risk-free interest rates based on U.S. Treasury rates, expected volatility of NYMEX Henry Hub natural gas futures prices and an estimated credit spread of EQT. The probability-weighted assumptions regarding MVP project completion, utilizing internally developed methodologies, and the expected volatility of NYMEX Henry Hub natural gas futures prices used in the valuation methodology represent significant unobservable inputs causing the Henry Hub cash bonus payment provision to be designated as a Level 3 fair value measurement. An expected average volatility of approximately 47.5% was utilized in the valuation model, which is based on market-quoted volatilities of relevant NYMEX Henry Hub natural gas forward prices.
As of December 31, 2023, the fair value of the Henry Hub cash bonus payment provision was $24.5 million, which was recorded in other current assets on the Company's consolidated balance sheets. As of December 31, 2022, the fair value of the Henry Hub cash bonus payment provision was $23.0 million, which was recorded in other assets on the Company's consolidated balance sheets. During the years ended December 31, 2023, 2022 and 2021, the Company recognized a gain of $1.5 million, a gain of $9.6 million and a loss of $47.8 million, respectively, representing the change in estimated fair value of the derivative instrument during the respective periods and these amounts are recorded in other income (expense), net, in the Company's statements of consolidated comprehensive income.
Other Financial Instruments. The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short maturity of the instruments. The carrying values of borrowings under the Amended EQM Credit Facility, the Former Eureka Credit Facility (prior to its termination) and the 2021 Eureka Credit Facility approximate fair value as the interest rates are based on prevailing market rates. As EQM's borrowings under its senior notes are not actively traded, their fair values are estimated using an income approach model that applies a discount rate based on prevailing market rates for debt with similar remaining time-to-maturity and credit risk; as such, their fair values are Level 2 fair value measurements. See Note 9 for further information on the fair value of the Company’s outstanding debt. The fair value of the Preferred Interest is a Level 3 fair value measurement and is estimated using an income approach model that applies a market-based discount rate. As of December 31, 2023 and 2022, the estimated fair values of the Preferred Interest were approximately $90.7 million and $95.2 million, respectively, and the carrying values of the Preferred Interest were approximately $88.5 million and $94.3 million, respectively.
11. Earnings (Loss) Per Share
For the years ended December 31, 2023, 2022 and 2021, the Company excluded 30,278 (in thousands), 30,835 (in thousands), and 30,556 (in thousands), respectively, of weighted average anti-dilutive securities related to the Equitrans Midstream Preferred Shares and stock-based compensation awards from the computation of diluted weighted average common shares.
The Company grants Equitrans Midstream phantom units to certain non-employee directors that will be paid in Equitrans Midstream common stock upon the director's termination of service on the Board. As there are no remaining service, performance or market conditions related to these awards, 750, 595 and 498 (in thousands) Equitrans Midstream phantom units were included in the computation of basic and diluted weighted average common shares outstanding for the years ended December 31, 2023, 2022 and 2021, respectively. See Note 8 for information on Equitrans Midstream phantom units.
12. Income Taxes
The following table summarizes income tax (benefit) expense for the years ended December 31, 2018, 20172023, 2022 and 2016.2021.
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (Thousands) |
| Current income tax expense: | | | | | |
| Federal | $ | 41,788 |
| | $ | 43,794 |
| | $ | 94,068 |
|
| State | 16,108 |
| | 10,239 |
| | 21,751 |
|
| Total current income tax expense | 57,896 |
| | 54,033 |
| | 115,819 |
|
| Deferred income tax expense (benefit): | | | | | |
| Federal | 96,499 |
| | 148,623 |
| | (7,892 | ) |
| State | (71,253 | ) | | 9,746 |
| | (9,684 | ) |
| Total deferred income tax expense (benefit) | 25,246 |
| | 158,369 |
| | (17,576 | ) |
| Total income tax expense | $ | 83,142 |
| | $ | 212,402 |
| | $ | 98,243 |
|
| | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| (Thousands) |
| Current income tax expense: | | | | | |
| Federal | $ | 4,323 | | | $ | — | | | $ | — | |
| State | 14,915 | | | 972 | | | 4,853 | |
| Total current income tax expense | 19,238 | | | 972 | | | 4,853 | |
| Deferred income tax expense (benefit): | | | | | |
| Federal | (15,403) | | | (5,391) | | | (273,512) | |
| State | (22,658) | | | 10,863 | | | (74,694) | |
| Total deferred income tax (benefit) expense | (38,061) | | | 5,472 | | | (348,206) | |
| Total income tax (benefit) expense | $ | (18,823) | | | $ | 6,444 | | | $ | (343,353) | |
The following table summarizes differences between income tax expense (benefit) and amounts computed at the applicable federal statutory rate on pre-tax income for the years ended December 31, 2018, 20172023, 2022 and 2016.2021.
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (Thousands) |
| Income tax expense at statutory rate | $ | 124,828 |
| | $ | 187,201 |
| | $ | 169,860 |
|
| Tax Reform Legislation | 7,443 |
| | 129,266 |
| | — |
|
| State income tax expense | 21,827 |
| | 12,710 |
| | 7,844 |
|
| Noncontrolling interests' share of earnings | (61,505 | ) | | (116,539 | ) | | (112,672 | ) |
| Impairment of goodwill | 16,535 |
| | — |
| | — |
|
| Rice Midstream Holdings income not subject to tax | (26,538 | ) | | (13,460 | ) | | — |
|
| Regulatory (asset) liability | (368 | ) | | 10,488 |
| | 35,438 |
|
| Other | 920 |
| | 2,736 |
| | (2,227 | ) |
| Income tax expense | $ | 83,142 |
| | $ | 212,402 |
| | $ | 98,243 |
|
| Effective tax rate | 14.0 | % | | 39.7 | % | | 20.2 | % |
On December 22, 2017, the U.S. Congress enacted the Tax Reform Legislation, which made significant changes to U.S. federal income tax law, including lowering the federal corporate tax rate to 21% from 35% beginning January 1, 2018. As of December 31, 2018, the Company completed its accounting for the effects of the Tax Reform Legislation, including accounting for the revaluation of net deferred tax assets and for state income tax effects, and recorded deferred income tax expense of $7.5 million, which is in addition to the $129.3 million of deferred income tax expense recorded during the year ended December 31, 2017. The Company also considered whether existing deferred tax assets will be recovered in future periods under this legislation and noted no significant effect on the deferred tax assets.
For the years ended December 31, 2018, 2017 and 2016, the effective tax rates were reduced from the federal and statutory rates because the Company did not record income tax expense on the portions of its income attributable to the noncontrolling limited partners of EQGP and EQM and, for the period prior to July 23, 2018 and May 1, 2018, attributable to the noncontrolling limited partners of RMP and Gulfport Midstream's 25% interest in Strike Force Midstream, respectively.
Prior to October 22, 2018, Rice Midstream Holdings was a multi-member limited liability company; therefore, the earnings of Rice Midstream Holdings and its subsidiaries were not subject to federal income tax. In the fourth quarter of 2018, Rice Midstream Holdings was merged out of existence as part of internal restructurings. | | | | | | | | | | | | | | | | | |
| Years Ended December 31, |
| 2023 | | 2022 | | 2021 |
| (Thousands) |
| Income tax expense (benefit) at statutory rate | $ | 91,546 | | | $ | (52,646) | | | $ | (365,535) | |
| Valuation allowances | (99,802) | | | 49,799 | | | 106,886 | |
| State income tax expense (benefit) | 17,738 | | | 9,440 | | | (81,573) | |
| Noncontrolling interest share of earnings | (2,000) | | | (2,563) | | | (3,051) | |
| | | | | |
| | | | | |
| | | | | |
| AFUDC - equity | (25,575) | | | 11 | | | (2,595) | |
| Unrecognized tax benefit - statute of limitations lapse | (7,426) | | | — | | | — | |
| Other | 6,696 | | | 2,403 | | | 2,515 | |
| Income tax (benefit) expense | $ | (18,823) | | | $ | 6,444 | | | $ | (343,353) | |
| Effective tax rate | (4.3) | % | | (2.6) | % | | 19.7 | % |
For the year ended December 31, 2017,2023, the Company recorded a $10.5 millioneffective tax rate was lower than the federal and state statutory rates primarily due to the impact of changes in the valuation allowance that limit tax benefits for the Company's federal and state deferred tax assets and the impact of projected AFUDC - equity from the MVP project. For the year ended December 31, 2023, the effective tax rate was lower than the year ended December 31, 2022, primarily due to the impact of projected AFUDC - equity from the MVP project and the impact of changes in the valuation allowance, partially offset by higher state tax expense relatedcaused by the effects of a difference between the current and deferred applicable rates.
For the year ended December 31, 2022, the effective tax rate was lower than the federal and state statutory rates due to Equitrans, L.P.'s FERC-regulatedthe increase in the valuation allowances that limit tax benefits for the Company's federal and state deferred tax assets, primarily due to the impairment of the Company's equity method investment in the MVP Joint Venture and its impact on the loss before income taxes and deferred income tax assets. For the year ended December 31, 2022, the effective tax rate was lower than the year ended December 31, 2021, primarily due to the lower 2022 impairment of the Company's equity method investment in the MVP Joint Venture and its impact on the loss before income taxes and deferred income tax assets as compared to the 2021 impairment of the Company's equity method investment in the MVP Joint Venture. For the year ended December 31, 2022, state income tax decreased the effective tax rate before valuation allowances due to the reduction of the future Pennsylvania Corporate Income Tax Rates and reduced the Pennsylvania deferred tax asset. As a result of an offsetting decrease to valuation allowances, the corporatedecrease in the Pennsylvania Corporate Income Tax Rates had no net impact on the effective tax rate reductionfor the year ended December 31, 2022.
For the year ended December 31, 2021, the effective tax rate was lower than the federal and state statutory rates due to the increase in the Tax Reform Legislation. Followingvaluation allowances that limit tax benefits for the normalization rulesCompany's federal and state deferred tax assets, primarily due
to the impairment of the Internal Revenue Code (IRC), this regulatory liability is amortizedCompany's equity method investment in the MVP Joint Venture and its impact on a straight-line basis over the estimated remaining life of the relatedloss before income taxes and deferred income tax assets.
The following table summarizes the components of net deferred tax (liabilities) assets.
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
| (Thousands) |
| Deferred income tax assets: | | | |
| Investment in partnerships | $ | — | | | $ | 65,896 | |
| Section 163(j) interest limitation | 45,822 | | | 36,523 | |
| Net operating loss carryforwards | 36,668 | | | 71,639 | |
| Other | 2,557 | | | — | |
| Total deferred tax assets | 85,047 | | | 174,058 | |
| Valuation allowance | (56,883) | | | (156,685) | |
| Net deferred tax asset | 28,164 | | | 17,373 | |
| Deferred income tax liabilities: | | | |
| | | |
| Investment in partnerships | (18,716) | | | — | |
| Deferred revenue | (14,166) | | | (15,143) | |
| Other | — | | | (2,230) | |
| Total deferred income tax liabilities | (32,882) | | | (17,373) | |
| | | |
| Net deferred income tax liability | $ | (4,718) | | | $ | — | |
| | | |
| | | |
|
| | | | | | | |
| | December 31, |
| | 2018 | | 2017 |
| | (Thousands) |
| Total deferred income tax asset: | | | |
| Net operating loss carryforwards | $ | 36,202 |
| | $ | — |
|
| Investment in partnerships | 559,858 |
| | 257,128 |
|
| Other | 1,261 |
| | — |
|
| Total excluding valuation allowance | 597,321 |
| | 257,128 |
|
| Valuation allowance | — |
| | — |
|
| Total net deferred income tax asset | $ | 597,321 |
| | $ | 257,128 |
|
The following table provides details related to our net operating losses (NOL) and valuation allowances as of:
| | | | | | | | | | | | | | | | | | | | |
| | | December 31, | |
| | Expiration Period | 2023 | | 2022 | |
| | | (Thousands) | |
| NOL carryforwards | | | | | | |
| U.S. federal net operating losses | | Indefinite | $ | 35,161 | | | $ | 61,710 | | |
| Pennsylvania net operating losses | | 2040 - 2042 | — | | | 6,792 | | |
| Other state net operating losses | | Indefinite | 1,507 | | | 3,137 | | |
| Total NOL carryforwards | | | 36,668 | | | 71,639 | | |
| | | | | | |
| Valuation allowance on NOL carryforwards | | | | | | |
| Federal | | | $ | (18,061) | | | $ | (61,710) | | |
| State | | | (1,150) | | | (9,929) | | |
| Total valuation allowance on NOL carryforwards | | | (19,211) | | | (71,639) | | |
For the years ended December 31, 2023 and 2022, the Company has federal and state Net Operating Loss (NOL) carryforwardshad a valuation allowance related to federal and various state jurisdictions.interest disallowances under Internal Revenue Code (Code) Section 163(j) of $36.5 million in each case. The federalCompany also had a valuation allowance related to certain investment in partnership deferred tax assets, net of offsetting deferred tax liability, for the years ended December 31, 2023 and West Virginia NOL carryforwards have no expiration, but utilization is limited to 80%2022, of taxable income in$1.2 million and $48.5 million, respectively.
For the year of utilization. Other state NOL carryforwards expire in 2038. Theended December 31, 2023, the Company believes that it is more likely than not that the
benefit from certaina portion of its federal and state NOL carryforwards, will be realized. In addition to the NOL carryforwards, the Company has recorded deferred tax assets principally resulting from its investment in partnerships. No valuation allowances have been established, as it is believed that future sourcesrelated to interest disallowance under Code Section 163(j), and certain
state deferred tax assets. Any determination to changeassets, net of offsetting deferred tax liabilities, will not be realized and accordingly, the Company maintains related valuation allowance would impact the Company's income tax expense and net income in the period in which such a determination is made.
allowances. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not (greater than 50%) that a tax benefit will not be realized. In evaluating the need for a valuation allowance, management considers allavailable evidence, both positive and negative, including potential sources of taxable income, including income available in carry-back periods, future reversals of taxable temporary differences, projections of taxable income and income from tax planning strategies, as well as all available positive and negative evidence.strategies. Positive evidence includes factors such as a history of profitable operations, projectionsreversing temporary differences and projection of future profitability within the carry-forward period, including from tax planning strategies, and experience. No significant negativestrategies. Negative evidence has been noted.
Deferred tax assets for which no valuation allowance is recorded may not be realized and changes in facts and circumstances may result in the establishment of a valuation allowance. Existing valuation allowances are re-examined under the same standardsincludes historical pre-tax book losses. A review of positive and negative evidence regarding these tax benefits resulted in the conclusion that apply to valuation allowance establishment. Ifallowances on a portion of the Company’s federal and state NOL carryforwards and reversals of the investment in partnership deferred tax asset, net of offsetting deferred tax liabilities, were warranted as it is determined that it iswas more likely than not that a deferred tax asset for which a valuation is recordedthese assets will not be realized, all or a portion ofrealized. Any determination to change the valuation allowance may be released. Deferredwould impact the Company's income tax assetsexpense in the period in which such a determination is made.
The following table summarizes the difference in the valuation allowance for the years ended December 31, 2023, 2022 and liabilities are also re-measured2021:
| | | | | | | | | | | | | | | | | | | | |
| | Additions |
| | Beginning Balance | | Credited to Costs and Expenses | | Ending Balance |
| | (Thousands) |
| 2023 | | | | | | |
Deferred tax asset valuation allowance (a) | | $ | 156,685 | | | $ | (99,802) | | | $ | 56,883 | |
| 2022 | | | | | | |
Deferred tax asset valuation allowance (a) | | $ | 106,886 | | | $ | 49,799 | | | $ | 156,685 | |
| 2021 | | | | | | |
Deferred tax asset valuation allowance (a) | | $ | — | | | $ | 106,886 | | | $ | 106,886 | |
| | | | | | |
(a) Deducted from related assets.
The following table sets forth the reconciliation of gross unrecognized tax benefits and summarizes specific line items as of:
| | | | | | | | | | | | |
| | December 31, |
| | 2023 | | | | |
| | (Thousands) |
| Beginning balance, January 1 | | $ | — | | | | | |
| Additions for tax positions taken in current year | | 17,465 | | | | | |
| Additions for tax positions taken in prior year | | 55,612 | | | | | |
| Lapse in statute of limitations | | (7,782) | | | | | |
| Ending balance, December 31 | | $ | 65,295 | | | | | |
| | | | | | |
| If recognized, affects the effective tax rate (including valuation allowances) | | $ | 31,378 | | | | | |
| Recorded as an offset to related deferred tax assets and liabilities in Consolidated Balance Sheets | | $ | 32,557 | | | | | |
There were no gross unrecognized tax benefits during the years ended December 31, 2022 and 2021.
During the year ended December 31, 2023, the Company recorded unrecognized tax benefits related to reflect changes in underlyingthe deductibility of capitalized interest and certain state tax rates from law changes.items. As of December 31, 2023, it is reasonably possible that the amount of unrecognized tax benefits will decrease by approximately $3.6 million within the next twelve months due to the expiration of statutes of limitation and is anticipated to impact the effective tax rate before considering the impact of valuation allowances.
The Company has not identified any uncertainrecorded interest and penalties associated with unrecognized tax positions asbenefits of approximately $1.7 million for the year ended December 31, 20182023. The Company did not recognize interest and 2017.penalties related to unrecognized tax benefits for the years ended December 31, 2022 and 2021.
| |
12. | Concentrations of Credit Risk |
The Company is not subject to federal or state income tax examination by tax authorities for years before 2020.
13. Concentrations of Credit Risk
The Company is exposed to the credit risk of its customers, including EQT, its largest customer, other producers, natural gas marketers, distribution companies and other end users. For the years ended December 31, 2018, 20172023, 2022 and 2016,2021, EQT accounted for approximately 74%61%, 74%61% and 75%59%, respectively, of the Company's total revenues across all of the Company's operating segments. Additionally, for the years endedAs of December 31, 2018, 20172023, EQT's public debt had investment grade credit ratings from S&P, Fitch and 2016, PNG Companies LLCMoody's.
As of December 31, 2023 and its affiliates2022, EQT accounted for approximately 7%, 11%69% and 12%72%, respectively, of the Company's total revenues.
As of December 31, 2018 and 2017, approximately 51% and 39%, respectively, of the accounts receivable balances, represented amounts due fromwhile various other natural gas marketers excluding EQT.and producers accounted for the majority of the remaining accounts receivable balances. To manage the credit risk related to transactions with marketers, the Company engages with only those that meet specified criteria for credit and liquidity strength and actively monitors accounts with marketers. In connection with its assessment of marketer credit and liquidity strength, the Company may request a letter of credit, guarantee, performance bond or other credit enhancement. The Company did not experience significant defaults on accounts receivable during the years ended December 31, 2018, 20172023, 2022 and 2016.2021.
| |
13. | Commitments and Contingencies |
Equitrans Midstream Corporation is not currently a party14. Commitments and Contingencies
From time to any legal proceedings; however, in the ordinary course of business,time, various legal and regulatory claims, investigations and proceedings are pending or threatened against EQMthe Company and its subsidiaries. While to the extent applicable the amounts claimed may be substantial, EQMthe Company is unable to predict with certainty the ultimate outcome of such claims, investigations and proceedings. EQMThe Company accrues legal and other direct costs related to loss contingencies when incurred. EQMThe Company establishes reserves whenever it believes it to bea reserve is appropriate for pending matters. Furthermore, after consultation with counsel and considering availablethe availability, if any, of insurance, EQMthe Company believes, although no assurance can be given, that the ultimate outcome of any matter currently pending against EQMit or any of its consolidated subsidiaries as of the filing of this Annual Report on Form 10-K will not materially adversely affect its business, financial condition, results of operations, liquidity or ability to make quarterly cash distributionspay dividends to EQM unitholders, includingits shareholders.
The Company has established a regulatory reserve in connection with the Company.Rager Mountain natural gas storage field incident, which is included in regulatory and other long-term liabilities in the consolidated balance sheets as of December 31, 2023 and 2022. The ultimate regulatory costs and expenses as a result of the Rager Mountain natural gas storage field incident, may exceed such reserve and, if significant individually or in the aggregate, could have a material adverse effect on the Company's business, financial condition, results of operations, liquidity or ability to pay dividends to the Company's shareholders.
EQMThe Company is subject to federal, state and local environmental laws and regulations. These laws and regulations, which are constantly changing, can require expenditures for remediation and, in certain instances, have resulted and can result in assessment of fines. EQMThe Company has established procedures for the ongoing evaluation of its operations to seek to identify potential environmental exposures and to ensurepromote compliance with regulatory requirements. The estimated costs associated with identified situations requiring remedial action are accrued; however, when recoverable through future regulated rates, certain of these costs are deferred as regulatory assets. OngoingThrough December 31, 2023, ongoing expenditures for compliance with environmental laws and regulations, including investments in facilities to meet environmental requirements, have not been material. ManagementBased on applicable environmental laws and regulations, management believes that any such required expenditures in respect thereof will not be significantly different in either nature or amount in the future and does not know of any environmental liabilities that will have a material adverse effect on EQM'sthe Company's business, financial condition, results of operations, liquidity or ability to make quarterly cash distributionspay dividends to EQM's unitholders,the Company's shareholders (however, the Company cautions that the ultimate expenditures related to or arising out of the Rager Mountain incident may affect the nature and magnitude of future expenditures, and such expenditures and the ultimate impact of the Rager Mountain incident are not yet known). Nonetheless, the trend in environmental regulation is to place more restrictions and limitations on activities that may affect the environment, and it is generally expected that such trend will likely increase in the future. Thus, compliance with environmental laws and regulations in the future could result in significant costs and could have a material adverse effect on the Company's business, financial condition, results of operations, liquidity or ability to pay dividends to the Company's shareholders.
Purchase obligations represent agreements to purchase goods or services that are enforceable, legally binding and specify all significant terms, including the Company. The Company has identified situations that require remedial action for which approximately $2.1 million is included in other liabilities and credits onapproximate timing of the consolidated balance sheets astransaction. As of December 31, 2018.2023, the Company had approximately $5.2 million of purchase obligations, which included commitments for capital expenditures, operating expenses and service contracts.
For the years ended December 31, 2018, 2017 and 2016,information related to operating lease rental payments for office locations and warehouse buildings, as well as for a limited number of compressors, were $7.2 million, $5.4 million and $4.7 million, respectively. Future lease payments under non-cancelable operating leases and compressors as of December 31, 2018 totaled $68.4 million (2019 – $7.2 million, 2020 – $6.3 million, 2021 – $6.2 million, 2022 – $6.2 million, 2023 – $6.0 million and 2024 and thereafter – $36.5 million)see Note 5.
EQM has a water system expansion and supply agreement with Southwestern Pennsylvania Water Authority (SPWA) (SPWA Agreement), pursuant to which EQM agreed to fund and assist SPWA in its construction and expansion of a water supply system that serves parts of Greene, Fayette and Washington Counties in Pennsylvania. In exchange, SPWA granted EQM preferred rights to water volumes supplied through the system for use in EQM's business. EQM is also entitled to a surcharge of $3.50 per 1,000 gallons of water sold assessed by SPWA against customers that use the system. All facilities and improvements that are constructed pursuant to the SPWA Agreement are the property of SPWA. To date, EQM authorized expenditures of approximately $29.5 million and funded expenditures of $13.4 million and $11.7 million during the years ended December 31, 2018 and 2017, respectively. As of December 31, 2018, EQM had a remaining commitment of approximately $0.8 million associated with these authorizations.
See Note 7 for discussion of the letters of credit to support MVP Holdco's performance assurances to the MVP Joint Venture guarantees.
14. Post-retirement Benefit Plans
Prior to the Separation and Distribution, employees of EQT operated the Company's and EQM's assets. EQT charged the Company for the payroll and benefit costs associated with these individuals and for the retirees of Equitrans, L.P.
Post-Separation, employees of the Company operate EQM's assets. The Company charges EQM for the payroll and benefit costs associated with these individuals and for the retirees of Equitrans, L.P. The Company carries obligations for employee-related benefits in its financial statements.
In 2014, EQT terminated the Retirement Plan. Prior to its termination, the retirees of Equitrans, L.P. participated in the Retirement Plan. On March 2, 2016, the IRS issued a favorable determination letter for the termination of the Retirement Plan. On June 28, 2016, EQT purchased annuities from, and transferred the Retirement Plan assets and liabilities to, American General Life Insurance Company. In the third quarter of 2016, the Company reimbursed EQT $5.2 million for its proportionate share of the funding related to the retirees of Equitrans, L.P. The settlement charge is expected to be recoverable in FERC-approved rates and, thus, was recorded as a regulatory asset that will be amortized for rate recovery purposes over a period of 16 years. Excluding the Retirement Plan termination settlement described above, for the year ended December 31, 2016, the Company reimbursed EQT $1.9 million for the funding of the Retirement Plan and was allocated expenses associated with the Retirement Plan of $0.1 million.
Upon Separation, EQT transferred to the Company the post-retirement benefits liability and accumulated other comprehensive income balance associated with the Retirement Plan. The Company recognizes expense for on-going post-retirement benefits other than pension, a portion of which is subject to recovery in the approved rates of Equitrans, L.P.'s rate-regulated business.
Prior to the Separation, the Company contributed to a defined contribution plan sponsored by EQT. The contribution amount was equal to a percentage of allocated base salary. During the period from January 1, 2018 through November 12, 2018 and for the years ended December 31, 2017 and 2016, the Company was charged its contribution percentage through the EQT payroll and benefit costs discussed in Note 8. For the period from the Separation Date through December 31, 2018, the Company recognized expense related to its defined contribution plan of $0.6 million.
The Company recognizes expenses for ongoing post-retirement benefits other than pensions, which are subject to recovery in FERC-approved rates. Expenses recognized by the Company for ongoing post-retirement benefits other than pensions were approximately $1.2 million for each year ended December 2018, 2017 and 2016.
Venture.
15. Interim Financial Information (Unaudited)Subsequent Events
The following quarterly summary of operating results reflects variations due primarily
Fifth Amendment to EQM Revolving Credit Facility. On February 15, 2024 (the Fifth Amendment Date), EQM entered into an amendment (the Fifth Amendment) to the effectAmended EQM Credit Facility. The Fifth Amendment, among other things, amended the financial covenant, such that the Consolidated Leverage Ratio (as defined in the Amended EQM Credit Facility) (i) as of March 31, 2024, cannot exceed 6.00 to 1.00, (ii) as of June 30, 2024, cannot exceed 6.25 to 1.00, (iii) as of September 30, 2024, cannot exceed 5.85 to 1.00 and (iv) as of the Tax Reform Legislation in the three months ended December 31, 2017, the effectend of the Rice Merger for the period from November 13, 2017 through December 31, 2018, the effect of increasing separation and other transaction costs relatedeach fiscal quarter thereafter, cannot exceed 5.50 to the EQM-RMP Mergers, the Drop-Down Transaction, the Separation and the EQGP Buyout, the $261.9 million of impairment of goodwill recorded in the fourth quarter of 2018 and the seasonal nature of the Company's transmission and storage business.1.00.
|
| | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31 (a) | | June 30 (a) | | September 30 (a) | | December 31 (a)(b) |
| | (Thousands, except per share amounts) |
| 2017 | | | | | | | |
| Operating revenues | $ | 200,072 |
| | $ | 196,815 |
| | $ | 206,293 |
| | $ | 292,378 |
|
| Operating income | 144,096 |
| | 139,178 |
| | 141,282 |
| | 118,494 |
|
| Net income (loss) | 118,982 |
| | 115,885 |
| | 115,451 |
| | (27,861 | ) |
| Net income (loss) attributable to Equitrans Midstream | 32,269 |
| | 34,366 |
| | 33,334 |
| | (127,125 | ) |
| | | | | | | | |
| Earnings (loss) per share of common stock attributable to Equitrans Midstream | | | | | | | |
| Basic: | | | | | | | |
| Weighted average common stock outstanding | 254,432 |
| | 254,432 |
| | 254,432 |
| | 254,432 |
|
| Net income (loss) | $ | 0.13 |
| | $ | 0.14 |
| | $ | 0.13 |
| | $ | (0.50 | ) |
| Diluted: | | | | | | | |
| Weighted average common stock outstanding | 255,033 |
| | 255,033 |
| | 255,033 |
| | 254,432 |
|
| Net income (loss) | $ | 0.13 |
| | $ | 0.13 |
| | $ | 0.13 |
| | $ | (0.50 | ) |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended |
| | March 31 (a) | | June 30 (a) | | September 30 (a) | | December 31 (b) |
| | (Thousands, except per share amounts) |
| 2018 | | | | | | | |
| Operating revenues | $ | 371,026 |
| | $ | 374,697 |
| | $ | 364,584 |
| | $ | 384,791 |
|
| Operating income (loss) | 249,340 |
| | 234,868 |
| | 218,322 |
| | (59,446 | ) |
| Net income (loss) | 223,744 |
| | 219,607 |
| | 185,966 |
| | (118,040 | ) |
| Net income (loss) attributable to Equitrans Midstream | 82,729 |
| | 101,067 |
| | 82,825 |
| | (48,223 | ) |
| | | | | | | | |
| Earnings (loss) per share of common stock attributable to Equitrans Midstream | | | | | | | |
| Basic: | | | | | | | |
| Weighted average common stock outstanding | 254,432 |
| | 254,432 |
| | 254,432 |
| | 254,432 |
|
| Net income (loss) | $ | 0.33 |
| | $ | 0.40 |
| | $ | 0.33 |
| | $ | (0.19 | ) |
| Diluted: | | | | | | | |
| Weighted average common stock outstanding | 255,033 |
| | 255,033 |
| | 255,033 |
| | 254,432 |
|
| Net income (loss) | $ | 0.32 |
| | $ | 0.40 |
| | $ | 0.32 |
| | $ | (0.19 | ) |
| |
(a) | For periods prior to the Separation Date, EPS was calculated based on the shares of Equitrans Midstream common stock distributed in connection with the Separation and Distribution and is considered pro forma in nature. Prior to the Separation Date, the Company did not have any issued or outstanding common stock (other than shares owned by EQT). |
| |
(b) | For the quarters ended December 31, 2018 and 2017, because the Company generated a net loss, the Company's computation of EPS excluded potentially dilutive securities; as such, basic and diluted weighted average common stock outstanding were the same for the quarters ended December 31, 2018 and 2017. |
| |
16. | Consolidated Variable Interest Entities |
As of December 31, 2018, EQGP and EQM were variable interest entities. Through the Company's ownership and control of the EQGP General Partner and the EQM General Partner, the Company had the power to direct the activities that most significantly affected EQGP's and EQM's economic performance during the periods presented.
Through its limited partner interests in EQGP and EQM and through EQGP's general partner interest, limited partner interest and IDRs in EQM, the Company had the right to receive benefits from, as well as the obligation to absorb the losses of, EQGP and EQM.
As the Company is the primary beneficiary of and has a controlling financial interest in EQGP and EQM, the Company consolidated EQGP, which consolidated EQM for the periods presented. In addition, for discussion of related party transactions, see Note 8. Following the completion of the EQGP Buyout, EQGP became an indirect, wholly-owned subsidiary of the Company. See Note 17.
Significant risks associated with EQM include, without limitation, the following:
The Company's only cash-generating assets are its partnership interests in EQM; as such, the Company's cash flow is dependent on EQM cash distributions.
Given EQM's expectation that it will derive a substantial majority of its revenues from EQT for the foreseeable future, any event, whether in EQM's areas of operations or otherwise, that adversely affects EQT's production, financial condition, leverage, results of operations or cash flows may adversely affect EQM's ability to sustain or increase cash distributions to its unitholders, including the Company;
Gathering, transmission and water services are subject to extensive regulation, environmental and otherwise, by federal, state and local authorities, which may expose EQM to significant costs and liabilities;
Expanding EQM's business through construction of midstream assets subjects EQM to risks. If EQM does not complete its planned expansion projects on schedule, at the budgeted cost or at all, its business, financial condition, results of operations, liquidity and ability to make quarterly cash distributions to its unitholders, including the Company, may be adversely affected and Company's and EQM's future growth may be limited;
EQM is subject to hazards and operational risks, including, but not limited to, ruptures, fires, explosions and leaks to pipelines, facilities, equipment and surrounding properties caused by natural disasters, adverse weather, acts of sabotage and terrorism and inadvertent error; and
Certain services EQM provides on its transmission and storage system are subject to long-term, fixed-price negotiated rate contracts that are not subject to adjustment, regardless of whether EQM's cost to perform such a service exceeds the revenues received; as a result, EQM's costs could exceed the revenues received.
The following table presents assets and liabilities included in the Company's consolidated balance sheets that were for the use or obligation of EQM, inclusive of receivables and payables due from or to related parties. |
| | | | | | | |
| | December 31, |
| | 2018 | | 2017 (a) |
| | (Thousands) |
| ASSETS | |
| | |
|
| Cash and cash equivalents | $ | 17,515 |
| | $ | 2,557 |
|
Accounts receivable (a) | 254,390 |
| | 132,108 |
|
| Other current assets | 14,909 |
| | 12,662 |
|
| Net property, plant and equipment | 5,806,628 |
| | 2,804,059 |
|
| Investment in unconsolidated entity | 1,510,289 |
| | 460,546 |
|
| Goodwill | 1,123,813 |
| | — |
|
| Net intangible assets | 576,113 |
| | — |
|
| Other assets | 152,464 |
| | 136,895 |
|
| LIABILITIES | | | |
Accounts payable (a) | $ | 207,877 |
| | $ | 78,713 |
|
| Capital contribution payable to the MVP Joint Venture | 169,202 |
| | 105,734 |
|
| Accrued interest | 80,199 |
| | 10,926 |
|
| Accrued liabilities | 20,672 |
| | 16,871 |
|
| Credit facility borrowings | 625,000 |
| | 180,000 |
|
| EQM Senior notes | 3,456,639 |
| | 987,352 |
|
| Regulatory and other long-term liabilities | 38,724 |
| | 20,273 |
|
| |
(a) | Amounts as of December 31, 2017 have not been recast to include the results of the EQM-RMP Mergers and Drop-Down Transaction. |
| |
(b) | Accounts receivable and accounts payable as of December 31, 2018 and 2017 included $174.8 million and $103.3 million, respectively, of receivables due from EQT and $34.0 million and $31.7 million, respectively, of payables due to EQT that were for the use or obligation of EQM, respectively, on that date. |
The following table summarizes EQM's statements of consolidated operations and cash flows, inclusive of transactions with related parties.
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 (a) | | 2016 |
| | (Thousands) |
| Operating revenues | $ | 1,495,098 |
| | $ | 826,522 |
| | $ | 732,272 |
|
| Operating expenses | 768,445 |
| | 245,032 |
| | 204,416 |
|
| Other (expenses) income | (55,305 | ) | | (9,586 | ) | | 10,098 |
|
| Net income | $ | 671,348 |
| | $ | 571,904 |
| | $ | 537,954 |
|
| | | | | | |
| Net cash provided by operating activities | $ | 1,187,239 |
| | $ | 650,550 |
| | $ | 537,904 |
|
| Net cash used in investing activities | (2,950,254 | ) | | (456,968 | ) | | (732,033 | ) |
| Net cash provided by (used in) financing activities | 1,725,930 |
| | (251,393 | ) | | (106,459 | ) |
| |
(a) | Amounts for the year ended December 31, 2017 have not been recast to include the results of the EQM-RMP Mergers and Drop-Down Transaction. |
17. Subsequent Events
EQGP Buyout
EQGP Unit Purchases. On January 2, 2019 and January 3, 2019, the Company closed on the acquisition of the remaining 804,140 EQGP common units that the Company did not purchase on December 31, 2018, pursuant to the Unit Purchase Agreements for an aggregate purchase price of $16.1 million.
Limited Call Right. Following the Initial Unit Purchase Closing, on December 31, 2018, the Company exercised the Limited Call Right, pursuant to which, on January 10, 2019, the Company closed on the acquisition of the 11,097,287 outstanding EQGP common units not owned by the Company or its affiliates for an aggregate purchase price of $221.9 million, and EQGP became an indirect, wholly-owned subsidiary of the Company.
In connection with the completion of the EQGP Buyout on January 10, 2019, certain non-employee members of the Board of Directors of the EQGP General Partner stepped down from their roles and were paid the Purchase Price for each EQGP phantom unit that they held, which was, in the aggregate, 29,829 EQGP phantom units, including accrued distributions.
Termination of the EQGP Omnibus Agreement and EQGP Working Capital Facility. On January 10, 2019, EQGP's omnibus agreement with Equitrans Midstream and the EQGP Working Capital Facility were terminated. In connection with the termination of the EQGP Working Capital Facility, the Company agreed that all loans and other amounts outstanding and all other obligations of EQGP to the Company under the EQGP Working Capital Facility were deemed forgiven, satisfied, discharged and paid in full.
EQM IDR Transaction
On February 13, 2019, Equitrans Midstream entered into a definitive agreement and plan of merger with the EQM General Partner (the IDR Merger Agreement) and certain related parties, pursuant to which, among other things, Equitrans Midstream will exchange and cancel the IDRs and economic general partner interest in EQM that it holds, indirectly, for (a) 80 million newly-issued EQM common units and 7 million newly-issued Class B units (Class B units), both representing limited partner interests in EQM, and (b) the retention of a non-economic general partner interest in EQM (the EQM IDR Transaction). As a result of the EQM IDR Transaction, (i) EQGP Services, LLC will replace EQM Midstream Services, LLC as the general partner of EQM and (ii) the IDRs and economic general partner interest in EQM will be exchanged and canceled.
The Class B units will become convertible at the holder's option in three tranches, with 2.5 million becoming convertible on April 1, 2021, 2.5 million becoming convertible on April 1, 2022, and 2 million becoming convertible on April 1, 2023 (each, a Class B unit conversion date). Until the applicable Class B unit conversion date, the Class B units will not be entitled to receive any distributions of available cash. After the applicable Class B unit conversion date, whether or not such Class B units have been converted into EQM common units, the Class B units will participate pro rata with the EQM common units in distributions of available cash. Furthermore, the Class B units will become convertible at the holder's option into EQM common units immediately before a change of control of EQM.
The holders of Class B Units will vote together with the holders of EQM's common units as a single class, except that Class B Units owned by the general partner of EQM and its affiliates will be excluded from voting if EQM common units owned by such parties are excluded from voting. Holders of Class B Units will be entitled to vote as a separate class on any matter that adversely affects the rights or preferences of the Class B Units in relation to other classes of partnership interests in any material respect or as required by law.
The completion of the EQM IDR Transaction is subject to certain conditions, including, among other things: (1) all required filings, consents, approvals, permits and authorizations of any governmental authority in connection with the EQM IDR Transaction having been made or obtained; (2) there being no law or injunction prohibiting the consummation of the EQM IDR Transaction; (3) subject to specified materiality standards, the accuracy of the representations and warranties of the other party; (4) compliance by the other party in all material respects with its covenants; and (5) the receipt by EQM and EQGP of certain opinions covering matters described in the partnership agreements of EQM and EQGP and in the IDR Merger Agreement with respect to the EQM IDR Transaction. The EQM IDR Transaction will be accomplished by merging a subsidiary of EQM with and into EQGP, with EQGP surviving as a wholly-owned subsidiary of EQM. The Company expects the EQM IDR Transaction to close in February 2019.
After giving effect to the EQM IDR Transaction, Equitrans Gathering Holdings, EQM GP Corporation (EQM GP Corp) and Equitrans Midstream Holdings, LLC (EMH), each a subsidiary of Equitrans Midstream, will hold 89,505,616, 89,536 and 27,650,303 of EQM's common units, respectively, representing an aggregate 56.5% limited partner interest in EQM. Additionally, Equitrans Gathering Holdings, EQM GP Corp and EMH will hold 6,153,907, 6,155 and 839,938 of Class B units,
respectively, representing an aggregate 3.4% limited partner interest in EQM. In total, the Company expects to own, directly or indirectly, a 59.9% limited partner interest in EQM, which the Company expects will consist of 117,245,455 EQM common units and 7 million Class B units.
Investment in Unconsolidated Entity. See Note 7 for discussion of the MVP and MVP Southgate capital call notices and performance guarantees.
Cash Dividends and EQM's Cash Distributions. See Notes 4 and 6, respectively.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of management, including the Company's Principal Executive Officer and Principal Financial Officer, an evaluation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)), was conducted as of the end of the period covered by this report. Based on that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report.
Internal Control over Financial Reporting. The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules that generally require every company that files reports with the SEC to include in their annual reports a report of management on the company's internal control over financial reporting and the registered public accounting firm's attestation report. Based on transition period relief established by the SEC rules that are applicable to new public companies, the Company is not required to include a report of management on the Company's internal control over financial reporting or the Company's registered public accounting firm's attestation report as part of an annual report until the filing of the Company's Annual Report on Form 10-K for the year ending December 31, 2019. In the Company's Annual Report on Form 10-K for the year ending December 31, 2019, management and the Company's independent registered public accounting firm will be required to provide an assessment as to the effectiveness of the Company's internal control over financial reporting.
Changes in Internal Control over Financial Reporting. There were no changes in the Company's internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that occurred during the fourth quarter of 20182023 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Management's Report on Internal Control over Financial Reporting. The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's internal control system is designed to provide reasonable assurance to the management and Board of the Company regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent limitations. Accordingly, even effective controls can provide only reasonable assurance with respect to financial statement preparation and presentation. The management of the Company assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2023. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on this assessment, management concluded that the Company maintained effective internal control over financial reporting as of December 31, 2023.
Ernst & Young LLP (Ernst & Young), the independent registered public accounting firm that audited the Company's consolidated financial statements, has issued an attestation report on the Company's internal control over financial reporting. Ernst & Young's attestation report on the Company's internal control over financial reporting appears in Part II, "Item 8. Financial Statements and Supplementary Data" of this Annual Report on Form 10-K and is incorporated by reference herein.
Item 9B. Other Information
Not applicable.During the three months ended December 31, 2023, no director or officer of the Company subject to Section 16 of the Exchange Act adopted, terminated or modified a ‘Rule 10b5-1 trading arrangement’ or ‘non-Rule 10b5-1 trading arrangement,’ as each term is defined in Item 408(a) of Regulation S-K.
Item 1.01. Entry Into a Material Definitive Agreement.
Fifth Amendment to Revolving Credit Agreement
On the Fifth Amendment Date, EQM, a wholly owned subsidiary of the Company, entered into the Fifth Amendment to the Amended EQM Credit Facility. The Fifth Amendment, among other things, amended the financial covenant, such that the Consolidated Leverage Ratio (as defined in the Amended EQM Credit Facility) (i) as of March 31, 2024, cannot exceed 6.00 to 1.00, (ii) as of June 30, 2024, cannot exceed 6.25 to 1.00, (iii) as of September 30, 2024, cannot exceed 5.85 to 1.00 and (iv) as of the end of each fiscal quarter thereafter, cannot exceed 5.50 to 1.00.
The Fifth Amendment is attached as Exhibit 10.1(f) to this Annual Report on Form 10-K and incorporated into this Item 1.01 by reference. The foregoing summary has been included to provide investors and security holders with information regarding certain of the terms of the Fifth Amendment and is qualified in its entirety by the terms and conditions of the Fifth Amendment and the Amended EQM Credit Facility. It is not intended to provide any other factual information about the Company or its subsidiaries and affiliates, including EQM.
Relationships.
Certain of the lenders under the Amended EQM Credit Facility and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory, commercial and/or investment banking services for the Company and/or its affiliates, for which they have received or may receive customary fees and expenses. Certain affiliates of
such lenders have acted, and may in the future act, as underwriters, agents, arrangers or lenders, as applicable, in respect of certain of the Company’s and/or its subsidiaries’ and/or affiliates’ debt or equity issuances or credit facilities.
Item 2.03.Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
The information set forth under Item 1.01 above is incorporated into this Item 2.03 by reference.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
| | | | | | | | |
| Exhibit No. | | Description |
| | Fifth Amendment to Third Amended and Restated Credit Agreement, dated as of February 15, 2024, by and among EQM Midstream Partners, LP, the lender parties thereto and Wells Fargo Bank, National Association, as administrative agent. |
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by Item 10 is incorporated by reference from the information under the captions "PROXY STATEMENT SUMMARY," "ITEM NO. 1 - ELECTION OF DIRECTORS," "EQUITY OWNERSHIP" AND "CORPORATE GOVERNANCE AND BOARD MATTERS", to the extent applicable, in the Proxy Statement and under the caption "EXECUTIVE OFFICERS OF THE REGISTRANT (AS OF FEBRUARY 14, 2019)""Information About Our Executive Officers" in Part I of this Annual Report on Form 10-K.
Equitrans Midstream has a written Code of Business Conduct and Ethics that applies to Equitrans Midstream's Chief Executive Officer (Principal Executive Officer), Chief Financial Officer (Principal Financial Officer), Chief Accounting Officer (Principal Accounting Officer) and others. The Code of Business Conduct and Ethics is available on Equitrans Midstream's website at www.equitransmidstream.com (accessible by clicking on the "Investors""About" link on the main page followed by the "Corporate Governance""Governance" link), and a printed copy will be delivered free of charge on request by writing to the corporate secretary at Equitrans Midstream Corporation, c/o Corporate Secretary, 625 Liberty Avenue, Suite 2000, Pittsburgh, PA 15222).2200 Energy Drive, Canonsburg, Pennsylvania 15317. Any amendments to, or waivers from, a provision of the Company's Code of Business Conduct and Ethics that applies to the Company's Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer and that relatesrelate to any element of the code of ethics enumerated in paragraph (b) of Item 406 of Regulation S-K shall be disclosed by posting such information on the Company's website at www.equitransmidstream.com.
Information required by Item 401 of Regulation S-K with respect to executive officers is included after Item 4.4 at the end of Part I of this Annual Report on Form 10-K under the caption "Executive Officers of the Registrant (as of February 14, 2019),""Information About Our Executive Officers" and is incorporated herein by reference.
The Company has adopted insider trading policies and procedures governing the purchase, sale and/or other disposition of the Company's securities by directors, officers and employees that are reasonably designed to promote compliance with insider trading laws, rules and regulations and applicable listing standards. Item 11. Executive Compensation
The information required by Item 11 is incorporated by reference from the information under the captions "CORPORATE GOVERNANCE AND BOARD MATTERS," "DIRECTORS"DIRECTORS' COMPENSATION" and "EXECUTIVE COMPENSATION INFORMATION" in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by Item 12 is incorporated by reference from the information under the captions "EQUITY OWNERSHIP" and "SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS" in the Proxy Statement.
Item 13. Certain Relationships and Related Party Transactions and Director Independence
The information required by Item 13 is incorporated by reference from the information under the captions "ITEM NO. 1 - ELECTION OF DIRECTORS" and "CORPORATE GOVERNANCE AND BOARD MATTERS" in the Proxy Statement.
Item 14. Principal Accounting Fees and Services
The information required by Item 14 is incorporated by reference from the information under the caption "ITEM NO. 45 - RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM" in the Proxy Statement.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Documents filed as part of this report
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| 1 | | Financial Statements | Page
Reference | | | | | |
| 1
| Financial Statements | Page
Reference
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| Statements of Consolidated Comprehensive Income for the Years Ended December 31, 2018, 20172023, 2022 and 20162021 | | | | | | |
| Statements of Consolidated Cash Flows for the Years Ended December 31, 2018, 20172023, 2022 and 20162021 | | | | | | |
| Consolidated Balance Sheets as of December 31, 20182023 and 20172022 | | | | | | |
| Statements of Consolidated Shareholders' Equity and Mezzanine Equity for the Years Ended December 31, 2018, 20172023, 2022 and 20162021 | | | | | | |
| Notes to Consolidated Financial Statements | | | | | | |
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| 2 | |
Financial Statement Schedules | | | | | | |
| All schedules are omitted since the subject matter thereof is either not present or is not present in amounts sufficient to require submission of the schedules. The financial statements of the MVP Joint Venture, Series A are included in this filing as Exhibit 99.1 pursuant to Rule 3-09 of Regulation S-X. | | | | | | |
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| 3 | | Exhibits | |
| 3
| Exhibits | |
| The exhibits referenced below are filed (or, as applicable, furnished) as part of this Annual Report on Form 10-K. | |
In reviewing any agreements incorporated by reference in this Form 10-K or filed with this Form 10-K, please remember that such agreements are included to provide information regarding their terms. They are not intended to be a source of financial, business or operational information about the Company or any of its subsidiaries or affiliates. The representations, warranties and covenants contained in these agreements are made solely for purposes of the agreements and are made as of specific dates; are solely for the benefit of the parties; may be subject to qualifications and limitations agreed upon by the parties in connection with negotiating the terms of the agreements, including being made for the purpose of allocating contractual risk between the parties instead of establishing matters as facts; and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors or security holders. Investors and security holders should not rely on the representations, warranties and covenants or any description thereof as characterizations of the actual state of facts or condition of the Company or any of its subsidiaries or affiliates or, in connection with acquisition agreements, of the assets to be acquired. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the agreements. Accordingly, these representations and warranties alone may not describe the actual state of affairs as of the date they were made or at another time.
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| Exhibit No. | |
| Document Description | | Method of Filing |
| |
| Separation and Distribution Agreement, dated as of November 12, 2018, by and among EQT Corporation, Equitrans Midstream Corporation and, solely for certain limited purposes therein, EQT Production Company. | | Incorporated herein by reference to Exhibit 2.1 to Form 8-K (#001-38629) filed on November 13, 2018. |
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| Transition Services Agreement, dated as of November 12, 2018, by and between EQT Corporation and Equitrans Midstream Corporation. | | Incorporated herein by reference to Exhibit 2.2 to Form 8-K (#001-38629) filed on November 13, 2018. |
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| | Tax Matters Agreement, dated as of November 12, 2018, by and between EQT Corporation and Equitrans Midstream Corporation. | | Incorporated herein by reference to Exhibit 2.3 to Form 8-K (#001-38629) filed on November 13, 2018. |
| |
| Employee Matters Agreement, dated as of November 12, 2018, by and between EQT Corporation and Equitrans Midstream Corporation. | | Incorporated herein by reference to Exhibit 2.4 to Form 8-K (#001-38629) filed on November 13, 2018. |
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| | Purchase and Sale Agreement, dated as of March 13, 2019, by and between EQM Midstream Partners, LP and North Haven Infrastructure Partners II Buffalo Holdings, LLC. | | Incorporated herein by reference to Exhibit 2.1 to Form 8-K (#001-38629) filed on March 15, 2019. |
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| Agreement and Plan of Merger, dated as of April 25, 2018, by and among EQM Midstream Partners, LP (formerly known as EQT Midstream Partners, LP), EQM Midstream Services, LLC (formerly known as EQT Midstream Services, LLC), EQM Acquisition Sub, LLC, EQM GP Acquisition Sub, LLC, RM Partners LP (formerly known as Rice Midstream Partners LP), EQM Midstream Management LLC (formerly known as Rice Midstream Management LLC) and, solely for purposes of certain provisions therein, EQT Corporation. EQM Midstream Partners, LP (formerly known as EQT Midstream Partners, LP) will furnish supplementally a copy of any omitted schedule and similar attachment to the SEC upon request. | | Incorporated herein by reference to Exhibit 2.1 to EQGP Holdings, LP's Form 8-K (#001-37380) filed on AprilFebruary 26, 2018. |
|
| | Incentive Distribution Rights Purchase and Sale Agreement, dated as of April 25, 2018, by and among EQGP Holdings, LP (formerly known as EQT GP Holdings, LP), Rice Midstream GP Holdings LP and EQT Corporation. | | Incorporated herein by reference to Exhibit 2.3 to EQGP Holdings, LP's Form 8-K (#001-37380) filed on April 26, 2018. |
|
| | Contribution and Sale Agreement, dated as of April 25, 2018, by and among EQT Corporation, Rice Midstream Holdings LLC, EQM Midstream Partners, LP (formerly known as EQT Midstream Partners, LP) and EQM Gathering Holdings, LLC. EQM Midstream Partners, LP will furnish supplementally a copy of any omitted schedule and similar attachment to the SEC upon request. | | Incorporated herein by reference to Exhibit 2.2 to EQGP Holdings, LP's Form 8-K (#001-37380) filed on April 26, 2018. |
|
| | Contribution and Sale Agreement, dated as of March 10, 2015, by and among EQM Midstream Partners, LP (formerly known as EQT Midstream Partners, LP), EQM Midstream Services, LLC (formerly known as EQT Midstream Services, LLC), EQM Gathering Opco, LLC, EQT Corporation, EQT Gathering, LLC, EQT Energy Supply Holdings, LP, and EQT Energy, LLC. EQT GP Holdings, LP will furnish supplementally a copy of any omitted schedule and similar attachment to the SEC upon request. | | Incorporated herein by reference to Exhibit 2.1 to EQT Midstream Partners, LP's Form 8-K (#001-35574) filed on March 10, 2015. |
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| | Amendment No. 1 to Contribution and Sale Agreement, dated as of March 30, 2017, by and among EQM Midstream Partners, LP (formerly known as EQT Midstream Partners, LP), EQM Midstream Services, LLC (formerly known as EQT Midstream Services, LLC), EQM Gathering Opco, LLC, EQT Corporation, EQT Gathering, LLC, EQT Energy Supply Holdings, LP, and EQT Energy, LLC. | | Incorporated herein by reference to Exhibit 2.1 to EQT Midstream Partners, LP's Form 10-Q (#001-35574) for the quarterly period ended March 31, 2017. |
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| | Purchase and Sale Agreement, dated as of October 13, 2016, by and among EQT Corporation, EQT Gathering Holdings, LLC, EQT Gathering, LLC, EQM Midstream Partners, LP (formerly known as EQT Midstream Partners, LP), Equitrans Investments, LLC, Equitrans, L.P. and EQM Gathering Opco, LLC. EQT GP Holdings, LP will furnish supplementally a copy of any omitted schedule and similar attachment to the SEC upon request. | | Incorporated herein by reference to Exhibit 2.1 to EQT Midstream Partners, LP's Form
8-K (#001-35574) filed on October 13, 2016.
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| | Agreement and Plan of Merger, dated February 13, 2019,2020, by and among Equitrans Midstream Corporation, EQM Midstream Services,LP Corporation, LS Merger Sub, LLC, EQM Midstream Partners, LP and EQGP Services, LLC, EQGP Holdings, LP and the other parties thereto. Equitrans Midstream Corporation will furnish supplementally a copy of any omitted schedule and similar attachment to the SEC upon request.LLC. | | Incorporated herein by reference to Exhibit 2.1 to Form 8-K (#001-38629) filed on February 14, 2019.28, 2020. |
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| Second Amended and Restated Articles of Incorporation of Equitrans Midstream Corporation. | | Incorporated herein by reference to Exhibit 3.1 to Form 8-K (#001-38629) filed on November 13, 2018.April 28, 2021. |
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| Fifth Amended and Restated Bylaws of Equitrans Midstream Corporation. | | Incorporated herein by reference to Exhibit 3.1 to Form 8-K (#001-38629) filed on February 8, 2019.December 14, 2022. |
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| | Statement with Respect to Shares of Series A Junior Participating Preferred Stock. | Incorporated herein by reference to Exhibit 3.3 to Equitrans Midstream Corporation's Form 8-K (#001-38629) filed on November 13, 2018. |
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| Certificate of Amendment to Certificate of Limited Partnership of EQGP Holdings, LP (formerly known as EQT GP Holdings, LP), dated as of October 12, 2018. | | Incorporated herein by reference to Exhibit 3.1 to EQGP Holdings, LP's Form 8-K (#001-37380) filed on October 15, 2018. |
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| | Certificate of Amendment to Certificate of Formation of EQGP Services, LLC (formerly known as EQT GP Services, LLC), dated as of October 12, 2018. | | Incorporated herein by reference to Exhibit 3.2 to EQGP Holdings, LP's Form 8-K (#001-37380) filed on October 15, 2018. |
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| | Certificate of Amendment to Certificate of Limited Partnership of EQM Midstream Partners, LP (formerly known as EQT Midstream Partners, LP), dated as of October 12, 2018. | | Incorporated herein by reference to Exhibit 3.1 to EQM Midstream Partners, LP's Form 8-K (#001-35574) filed on October 15, 2018. |
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| | Certificate of Amendment to Certificate of Formation of EQM Midstream Services, LLC (formerly known as EQT Midstream Services, LLC), dated as of October 12, 2018. | | Incorporated herein by reference to Exhibit 3.2 to EQM Midstream Partners, LP's Form 8-K (#001-35574) filed on October 15, 2018. |
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| | Second Amended and Restated Agreement of Limited Partnership of EQGP Holdings, LP, dated as of October 12, 2018. | | Incorporated herein by reference to Exhibit 3.3 to EQGP Holdings, LP's Form 8-K (#001-37380) filed on October 15, 2018. |
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| | Second Amended and Restated Limited Liability Company Agreement of EQGP Services, LLC, dated as of October 12, 2018. | | Incorporated herein by reference to Exhibit 3.4 to EQGP Holdings, LP's Form 8-K (#001-37380) filed on October 15, 2018. |
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| | Second Amended and Restated Agreement of Limited Partnership of EQM Midstream Partners, LP, dated as of October 12, 2018. | | Incorporated herein by reference to Exhibit 3.3 to EQM Midstream Partners, LP's Form 8-K (#001-35574) filed on October 15, 2018. |
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| | Fourth Amended and Restated Limited Liability Company Agreement of EQM Midstream Services, LLC, dated as of October 12, 2018. | | Incorporated herein by reference to Exhibit 3.4 to EQM Midstream Partners, LP's Form 8-K (#001-35574) filed on October 15, 2018. |
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| | Certificate of Limited Partnership of EQM Midstream Partners, LP (formerly known as EQT Midstream Partners, LP). | | Incorporated herein by reference to Exhibit 3.1 to EQM Midstream Partners, LP's (formerly known as EQT Midstream Partners, LP) Form S-1 Registration Statement (#333-179487) filed on February 13, 2012. |
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| | Certificate of Formation of EQM Midstream Services, LLC (formerly known as EQT Midstream Services, LLC). | | Incorporated herein by reference to Exhibit 3.3 to EQM Midstream Partners, LP's (formerly known as EQT Midstream Partners, LP) Form S-1 Registration Statement (#333-179487) filed on February 13, 2012. |
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| | Certificate of Limited Partnership of EQGP Holdings, LP (formerly known as EQT GP Holdings, LP). | | Incorporated herein by reference to Exhibit 3.1 to EQGP Holdings, LP's (formerly known as EQT GP Holdings, LP) Form S-1 Registration Statement (#333-202053) filed on February 12, 2015 |
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| | Certificate of Formation of EQGP Services, LLC (formerly known as EQT GP Services, LLC). | | Incorporated herein by reference to Exhibit 3.3 to EQT GP Holdings, LP's Form S-1 Registration Statement
(#333-202053) filed on February 12, 2015.
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| | Indenture, dated as of August 1, 2014, by and among EQM Midstream Partners, LP (formerly known as EQT Midstream Partners, LP), as issuer, the subsidiaries of EQM Midstream Partners, LP (formerly known as EQT Midstream Partners, LP) party thereto, and The Bank of New York Mellon Trust Company, N.A., as trustee. | | Incorporated herein by reference to Exhibit 4.1 to EQM Midstream Partners, LP's Form 8-K (#001-35574) filed on August 1, 2014. |
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| First Supplemental Indenture, dated as of August 1, 2014, by and among EQM Midstream Partners, LP (formerly known as EQT Midstream Partners, LP), as issuer, the subsidiaries of EQM Midstream Partners, LP (formerly known as EQT Midstream Partners, LP) party thereto, and The Bank of New York Mellon Trust Company, N.A., as trustee. | | Incorporated herein by reference to Exhibit 4.2 to EQM Midstream Partners, LP's Form 8-K (#001-35574) filed on August 1, 2014. |
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| Second Supplemental Indenture, dated as of November 4, 2016, by and between EQM Midstream Partners, LP (formerly known as EQT Midstream Partners, LP), as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee. | | Incorporated herein by reference to Exhibit 4.2 to EQM Midstream Partners, LP's Form 8-K (#001-35574) filed on November 4, 2016. |
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| | Third Supplemental Indenture, dated as of June 25, 2018, by and between EQM Midstream Partners, LP (formerly known as EQT Midstream Partners, LP), as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee. | Incorporated herein by reference to Exhibit 4.2 to EQM Midstream Partners, LP's Form 8-K (#001-35574) filed on June 25, 2018. |
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| Fourth Supplemental Indenture, dated as of June 25, 2018, by and between EQM Midstream Partners, LP (formerly known as EQT Midstream Partners, LP), as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee. | | Incorporated herein by reference to Exhibit 4.4 to EQM Midstream Partners, LP's Form 8-K (#001-35574) filed on June 25, 2018. |
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| Fifth Supplemental Indenture, dated as of June 25, 2018, by and between EQM Midstream Partners, LP (formerly known as EQT Midstream Partners, LP), as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee. | | Incorporated herein by reference to Exhibit 4.6 to EQM Midstream Partners, LP's Form 8-K (#001-35574) filed on June 25, 2018. |
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| | Description of Certain of Registrant's Securities. | | Filed herewith as Exhibit 4.6. |
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| Shareholder and Registration Rights Agreement, dated as of November 12, 2018,June 17, 2020, by and between EQTamong Equitrans Midstream Corporation and Equitrans Midstream Corporation.the Investors party thereto. | | Incorporated herein by reference to Exhibit 4.1 to Form 8-K (#001-38629) filed on November 13, 2018.June 17, 2020. |
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| Rights Agreement,Indenture, dated as of November 13, 2018,June 18, 2020, by and between EquitransEQM Midstream CorporationPartners, LP and American Stock Transfer &The Bank of New York Mellon Trust Company, LLC, which includes the form of Statement of DesignationN.A., as Exhibit A, the form of Right Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Shares as Exhibit C.trustee. | | Incorporated herein by reference to Exhibit 4.24.1 to Form 8-K (#001-38629) filed on November 13, 2018.June 18, 2020. |
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| EQM Midstream Services, LLC (formerly known as EQT Midstream Services, LLC) 2012 Long-Term Incentive Plan,Indenture, dated as of July 2, 2012.January 8, 2021, by and between EQM Midstream Partners, LP and The Bank of New York Mellon Trust Company, N.A., as trustee. | | Incorporated herein by reference to Exhibit 10.54.1 to EQM Midstream Partners, LP's Form 8-K (#001-35574)(#001-38629) filed on July 2, 2012.January 8, 2021. |
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| FormIndenture, dated as of June 7, 2022, by and between EQM Midstream Partners, LP (formerly knownand U.S. Bank Trust Company, National Association, as EQT Midstream Partners, LP) Phantom Unit Award Agreement.trustee. | | Incorporated herein by reference to Exhibit 10.6 to Amendment No. 2 to EQM Midstream Partners, LP's Form S-1 Registration Statement (#333-179487) filed on May 10, 2012. |
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| | Form of EQM Midstream Services, LLC (formerly known as EQT Midstream Services, LLC) Director and/or Executive Officer Indemnification Agreement. | | Incorporated herein by reference to Exhibit 10.15 to Amendment No. 3 to EQM Midstream Partners, LP's Form S-1 Registration Statement (#333-179487) filed on June 5, 2012. |
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| | EQGP Services, LLC (formerly known as EQT GP Services, LLC) 2015 Long-Term Incentive Plan, dated as of May 15, 2015. | | Incorporated herein by reference to Exhibit 10.3 to EQGP Holdings, LP's Form 8-K (#001-37380) filed on May 15, 2015. |
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| | Form of EQGP Holdings, LP (formerly known as EQT GP Holdings, LP) Phantom Unit Award Agreement. | | Incorporated herein by reference to Exhibit 10.5 to Amendment No. 1 to EQGP Holdings, LP's Form S-1/A Registration Statement (#333-202053) filed on April 1, 2015. |
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| | Form of EQGP Services, LLC (formerly known as EQT GP Services, LLC) Director and/or Executive Officer Indemnification Agreement. | | Incorporated herein by reference to Exhibit 10.3 to Amendment No. 1 to EQGP Holdings, LP's Form S-1/A Registration Statement (#333-202053) filed on April 1, 2015. |
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| | Revolving Credit Agreement, dated as of October 31, 2018, by and among Equitrans Midstream Corporation, PNC Bank, National Association, as Administrative Agent, Swing Line Lender and an L/C Issuer, and the other lenders party thereto. | | Incorporated herein by reference to Exhibit 10.14.1 to Form 8-K (#001-38629) filed on October 31, 2018.June 7, 2022. |
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| First Amendment to Credit Agreement, dated as of December 31, 2018, by and among Equitrans Midstream Corporation, the lender parties thereto, and PNC Bank, National Association, as Administrative Agent. | | Incorporated herein by reference to Exhibit 10.2 to Form 8-K (#001-38629) filed on December 31, 2018. |
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| | Credit Agreement, dated as of December 31, 2018, by and among Equitrans Midstream Corporation, Goldman Sachs Bank USA, as Administrative Agent and Initial Lender, PNC Bank, National Association, as Collateral Agent, and the other lenders from time to time party thereto. | | Incorporated herein by reference to Exhibit 10.1 Form 8-K (#001-38629) filed on December 31, 2018. |
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| | Third Amended and Restated Credit Agreement, dated as of October 31, 2018, by and among EQM Midstream Partners, LP, Wells Fargo Bank, National Association, as Administrative Agent, Swing Line Lender and an L/C Issuer, and the other lenders party thereto. | | Incorporated herein by reference to Exhibit 10.1 to EQM Midstream Partners, LP's Form 8-K (#001-35574) filed on October 31, 2018. |
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| 364-Day Term LoanFirst Amendment to Third Amended and Restated Credit Agreement, dated as of April 25, 2018,March 30, 2020, by and among EQM Midstream Partners, LP, (formerly known as EQT Midstream Partners, LP),the lender parties thereto and Wells Fargo Bank, National Association, as Administrative Agentadministrative agent. | | Incorporated herein by reference to Exhibit 10.1 to Form 8-K (#001-38629) filed on March 30, 2020. |
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| | Second Amendment to Third Amended and aRestated Credit Agreement, dated as of April 16, 2021, by and among EQM Midstream Partners, LP, the lender parties thereto and the other lenders party thereto.Wells Fargo Bank, National Association, as administrative agent. | | Incorporated herein by reference to Exhibit 10.1 to EQM Midstream Partners, LP's Form 8-K (#001-35574)(#001-38629) filed on April 26, 2018.19, 2021. |
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| | Sublease Agreement, effective as of March 1, 2011, by and between Equitrans, L.P. and EQT Production Company. |
| Incorporated herein by reference to Exhibit 10.12 to Amendment No. 2 to EQM Midstream Partners, LP's Form S-1/A Registration Statement (#333-179487) filed on May 10, 2012. | | | |
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| Third Amendment of Subleaseto Third Amended and Restated Credit Agreement, dated as of April 5, 2012,22, 2022, by and between Equitrans, L.P. and EQT Production Company. | | Incorporated herein by reference to Exhibit 10.13 to Amendment No. 2 toamong EQM Midstream Partners, LP's Form S-1/A Registration Statement (#333-179487) filed on May 10, 2012. |
| LP, the lender parties thereto and Wells Fargo Bank, National Association, as administrative agent. | |
| EQT Guaranty dated as of April 25, 2012, executed by EQT Corporation in favor of Equitrans, L.P. | | Incorporated herein by reference to Exhibit 10.11 to Amendment No. 2 to EQM Midstream Partners, LP's Form S-1/A Registration Statement (#333-179487) filed on May 10, 2012. |
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| | Transportation Service Agreement Applicable to Firm Transportation Service Under Rate Schedule FTS, Contract No. EQTR 18679-852, dated as of December 20, 2013, by and between Equitrans, L.P. and EQT Energy, LLC. | | Incorporated herein by reference to Exhibit 10.16 to EQM Midstream Partners, LP's Form 10-K (#001-35574) for the year ended December 31, 2013. |
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| | Transportation Service Agreement Applicable to Firm Transportation Service Under Rate Schedule FTS, Contract No. EQTR 20242-852, dated as of September 24, 2014, by and between Equitrans, L.P. and EQT Energy, LLC. | | Incorporated herein by reference to Exhibit 10.5 to EQM Midstream Partners, LP's Form 10-Q (#001-35574) for the quarterly period ended September 30, 2015. |
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| | Transportation Service Agreement Applicable to Firm Transportation Service Under Rate Schedule FTS, Contract No. CW2250463-1296, dated as of January 8, 2016, as amended through December 20, 2017, by and between Equitrans, L.P. and EQT Energy, LLC. | | Incorporated herein by reference to Exhibit 10.13 to EQM Midstream Partners, LP's Form 10-K (#001-35574) for the year ended December 31, 2017. |
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| | Jupiter Gas Gathering Agreement, effective as of May 1, 2014, by and among EQT Production Company and EQT Energy, LLC, on the one hand, and EQM Gathering Opco, LLC (as assignee of EQT Gathering, LLC), on the other hand. Specific items in this exhibit have been redacted, as marked by three asterisks [***], because confidential treatment for those items has been granted by the SEC. The redacted material has been separately filed with the SEC. | | Incorporated herein by reference to Exhibit 10.1 to EQM Midstream Partners, LP's Form 10-Q (#001-35574) for the quarterly period ended June 30, 2014.8-K (#001-38629) filed on April 25, 2022. |
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| Fourth Amendment No. 1 to Jupiter Gas Gathering Agreement, dated as of December 17, 2014, byThird Amended and among EQT Production Company and EQT Energy, LLC, on the one hand, and EQM Gathering Opco, LLC, on the other hand. | | Incorporated herein by reference to Exhibit 10.24(b) to EQM Midstream Partners, LP's Form 10-K (#001-35574) for the year ended December 31, 2015. |
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| | Amendment No. 2 to Jupiter Gas GatheringRestated Credit Agreement, dated as of October 26, 2015,6, 2023, by and among EQT Production Company and EQT Energy, LLC, on the one hand, and EQM Gathering Opco, LLC, on the other hand. Specific items in this exhibit have been redacted, as marked by three asterisks [***], because confidential treatment for those items has been granted by the SEC. The redacted material has been separately filed with the SEC. | | Incorporated herein by reference to Exhibit 10.24(c) to EQM Midstream Partners, LP's Form 10-K (#001-35574) forLP, the year ended December 31, 2015. |
| lender parties thereto and Wells Fargo Bank, National Association, as administrative agent. | |
| Amendment No. 3 to Jupiter Gas Gathering Agreement, dated as of August 1, 2016, by and among EQT Production Company and EQT Energy, LLC, on the one hand, and EQM Gathering Opco, LLC, on the other hand. Specific items in this exhibit have been redacted, as marked by three asterisks [***], because confidential treatment for those items has been granted by the SEC. The redacted material has been separately filed with the SEC. | | Incorporated herein by reference to Exhibit 10.2 to EQM Midstream Partners, LP's Form 10-Q (#001-35574) for the quarterly period ended September 30, 2016. |
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| | Amendment No. 4 to Jupiter Gas Gathering Agreement, dated as of June 1, 2017, by and among EQT Production Company and EQT Energy, LLC, on the one hand, and EQM Gathering Opco, LLC, on the other hand. | | Incorporated herein by reference to Exhibit 10.2 to EQM Midstream Partners, LP's Form 10-Q (#001-35574) for the quarterly period ended June 30, 2017. |
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| | Amendment No. 5 to Jupiter Gas Gathering Agreement, dated as of October 1, 2017, by and among EQT Production Company and EQT Energy, LLC, on the one hand, and EQM Gathering Opco, LLC, on the other hand. Specific items in this exhibit have been redacted, as marked by three asterisks [***], because confidential treatment for those items has been requested from the SEC. The redacted material has been separately filed with the SEC. | | Incorporated herein by reference to Exhibit 10.14(f) to EQM Midstream Partners, LP's Form 10-K (#001-35574) for the year ended December 31, 2017. |
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| | Gas Gathering Agreement for the Mercury, Pandora, Pluto and Saturn Gas Gathering Systems, effective as of March 1, 2015, by and among EQT Production Company and EQT Energy, LLC, on the one hand, and EQM Gathering Opco, LLC (as assignee of EQT Gathering, LLC), on the other hand. Specific items in this exhibit have been redacted, as marked by three asterisks [***], because confidential treatment for those items has been requested from the SEC. The redacted material has been separately filed with the SEC. | | Incorporated herein by reference to Exhibit 10.2 to EQM Midstream Partners, LP's Form 8-K (#001-35574) filed on March 31, 2015. |
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| | Amendment No. 1 to Gas Gathering Agreement for the Mercury, Pandora, Pluto and Saturn Gas Gathering Systems, dated as of September 18, 2015, by and among EQT Production Company and EQT Energy, LLC, on the one hand, and EQM Gathering Opco, LLC, on the other hand. | | Incorporated herein by reference to Exhibit 10.25(b) to EQM Midstream Partners, LP's Form 10-K (#001-35574) for the year ended December 31, 2015. |
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| | Amendment No. 2 to Gas Gathering Agreement for the Mercury, Pandora, Pluto and Saturn Gas Gathering Systems, dated as of March 30, 2017, by and among EQT Production Company and EQT Energy, LLC, on the one hand, and EQM Gathering Opco, LLC, on the other hand. Specific items in this exhibit have been redacted, as marked by three asterisks [***], because confidential treatment for those items has been requested from the SEC. The redacted material has been separately filed with the SEC. | | Incorporated herein by reference to Exhibit 10.1 to EQM Midstream Partners, LP's Form 10-Q (#001-35574) for the quarterly period ended March 31, 2017. |
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| | Gas Gathering Agreement for the WG-100 Gas Gathering System, effective as of March 1, 2015, by and among EQT Production Company and EQT Energy, LLC, on the one hand, and EQM Gathering Opco, LLC (as assignee of EQT Gathering, LLC), on the other hand. Specific items in this exhibit have been redacted, as marked by three asterisks [***], because confidential treatment for those items has been requested from the SEC. The redacted material has been separately filed with the SEC. | | Incorporated herein by reference to Exhibit 10.3 to EQM Midstream Partners, LP's Form 8-K (#001-35574) filed on March 31, 2015. |
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| | Amendment No. 1 to Gas Gathering Agreement for the WG-100 Gas Gathering System, dated as of April 1, 2017, by and among EQT Production Company and EQT Energy, LLC, on the one hand, and EQM Gathering Opco, LLC, on the other hand. | | Incorporated herein by reference to Exhibit 10.1 to EQM Midstream Partners, LP's Form 10-Q (#001-35574) for the quarterly period ended June 30, 2017. |
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| | Gas Gathering and Compression Agreement, dated as of December 22, 2014, by and among Rice Drilling B LLC, RM Partners LP (formerly known as Rice Midstream Partners LP) and Alpha Shale Resources LP. | | Incorporated herein by reference to Exhibit 10.3 to Rice Midstream Partners LP's Form 8-K (#001-36789) filed on December 22, 2014. |
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| | First Amendment to Gas Gathering and Compression Agreement, effective as of October 19, 2016, by and among Rice Drilling B LLC, Alpha Shale Resources LP and RM Partners LP (formerly known as Rice Midstream Partners LP). Specific items in this exhibit have been redacted, as marked by three asterisks [***], because confidential treatment for those items has been requested from the SEC. The redacted material has been separately filed with the SEC. | | Incorporated herein by reference to Exhibit 10.50 to Registration Statement on Form 10-12B/A (#001-38629) filed on September 24, 2018.October 10, 2023. |
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| SixthFifth Amendment to Third Amended and Restated Cracker Jack Gas GatheringCredit Agreement, dated as of February 28, 2017,15, 2024, by and among EQM Poseidon Midstream LLC (formerly known as Rice Poseidon Midstream LLC), EQT Energy, LLC and EQT Production Company. Specific items in this exhibit have been redacted, as marked by three asterisks [***], because confidential treatment for those items has been requested from the SEC. The redacted material has been separately filed with the SEC. | | Incorporated herein by reference to Exhibit 10.14 to Rice Midstream Partners, LP, 's Form 10-K (#001-36789) for the year ended December 31, 2017.lender parties thereto and Wells Fargo Bank, National Association, as administrative agent. | | Filed herewith as Exhibit 10.1(f). |
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| | Second Amended and Restated Gas Gathering and Compression Agreement, dated as of March 31, 2017, by and between Rice Drilling D LLC and EQM Olympus Midstream LLC (formerly known as Rice Olympus Midstream LLC). Specific items in this exhibit have been redacted, as marked by three asterisks [***], because confidential treatment for those items has been granted by the SEC. The redacted material has been separately filed with the SEC. |
| Incorporated herein by reference to Exhibit 10.3 to EQM Midstream Partners, LP's Form 10-Q (#001-35574) for the quarterly period ended June 30, 2018. | | | |
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| Amended and Restated Water Services Agreement, dated as of November 4, 2015, by and between Rice Drilling D LLC and Rice Water Services (PA) LLC. | | Incorporated herein by reference to Exhibit 10.2 to Rice Midstream Partners LP's Form 8-K (#001-36789) filed on November 5, 2015. |
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| | Amended and Restated Water Services Agreement, dated as of November 4, 2015, by and between Rice Drilling B LLC and Rice Water Services (OH) LLC. | | Incorporated herein by reference to Exhibit 10.3 to Rice Midstream Partners, LP's Form 8-K (#001-36789) filed on November 5, 2015. |
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| | Third Amended and Restated Limited Liability Company Agreement of Mountain Valley Pipeline, LLC, dated as of April 6, 2018, by and among MVP Holdco, LLC, US Marcellus Gas Infrastructure, LLC, WGL Midstream MVP LLC (formerly WGL Midstream, Inc.), Con Edison Gas Pipeline and Storage, LLC, RGC Midstream, LLC and Mountain Valley Pipeline, LLC. Specific items in this exhibit have been redacted, as marked by three asterisks [***], because confidential treatment for those items has been granted by the SEC. The redacted material has been separately filed with the SEC. | | Incorporated herein by reference to Exhibit 10.1 to EQM Midstream Partners, LP's Form 10-Q/A (#001-35574) for the quarterly period ended March 31, 2018. |
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| AssignmentFirst Amendment to Third Amended and AssumptionRestated Limited Liability Company Agreement of Mountain Valley Pipeline, LLC, dated as of March 30, 2015,February 5, 2020, by and among Equitrans Gathering,MVP Holdco, LLC, US Marcellus Gas Infrastructure, LLC, WGL Midstream MVP LLC (formerly known as EQT Gathering, LLC)WGL Midstream, Inc.), EQMCon Edison Gas Pipeline and Storage, LLC, RGC Midstream, Partners, LP (formerly known as EQT Midstream Partners, LP)LLC and MVP Holdco,Mountain Valley Pipeline, LLC. | | Incorporated herein by reference to Exhibit 10.310.21(b) to EQMForm 10-K (#001-38629) for the year ended December 31, 2019. |
| | Transportation Service Agreement Applicable to Firm Transportation Service Under Rate Schedule FTS, Contract No. EQTR 20242-852, dated as of September 24, 2014, and Exhibit A amended August 12, 2020 and Exhibit C amended April 1, 2019 by and between Equitrans, L.P. and EQT Energy, LLC. | | Incorporated herein by reference as Exhibit 10.10(a) to Form 10-K (#001-38629) for the year ended December 31, 2021. |
| | Transportation Service Agreement Applicable to Firm Transportation Service Under Rate Schedule FTS, Contract No. EQTR 20242-852, dated as of September 24, 2014 as Amended December 6, 2021 by and between Equitrans L.P and EQT Energy, LLC. | | Incorporated herein by reference as Exhibit 10.10(b) to Form 10-K (#001-38629) for the year ended December 31, 2021. |
| | Transportation Service Agreement Applicable to Firm Transportation Service Under Rate Schedule FTS, Contract No. EQTR 20242-852, dated as of September 24, 2014 as amended December 6, 2021 by and between Equitrans L.P and EQT Energy, LLC. | | Incorporated herein by reference as Exhibit 10.10(c) to Form 10-K (#001-38629) for the year ended December 31, 2021. |
| | Transportation Service Agreement Applicable to Firm Transportation Service Under Rate Schedule FTS, Contract No. EQTR19837-1296, dated as of January 8, 2016 and amended December 6, 2021, by and between Equitrans, L.P. and EQT Energy, LLC. | | Incorporated herein by reference as Exhibit 10.11 to Form 10-K (#001-38629) for the year ended December 31, 2021. |
| | Equitrans Midstream Partners, LP'sCorporation Amended and Restated Directors’ Deferred Compensation Plan. | | Incorporated herein by reference to Exhibit 10.18 to Form 10-Q (#001-35574)(#001-38629) for the quarterly period ended March 31, 2015.2020. |
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| Omnibus Agreement, dated as of May 15, 2015, by and among EQGP Holdings, LP (formerly known as EQT GP Holdings, LP), EQGP Services, LLC (formerly known as EQT GP Services, LLC) and EQT Corporation. | | Incorporated herein by reference to Exhibit 10.1 to EQGP Holdings, LP's Form 8-K (#001-37380) filed on May 15, 2015. |
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| | Secondment Agreement, dated as of December 7, 2017, by and among EQT Corporation, Equitrans Gathering, LLC (formerly known as EQT Gathering, LLC), Equitrans, L.P., EQM Midstream Partners, LP (formerly known as EQT Midstream Partners, LP), and EQM Midstream Services, LLC (formerly known as EQT Midstream Services, LLC). | | Incorporated herein by reference to Exhibit 10.1 to EQM Midstream Partners, LP's Form 8-K (#001-35574) filed on December 8, 2017. |
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| | Amended and Restated Omnibus Agreement, dated November 13, 2018, among EQT Corporation, EQM Midstream Partners, LP and EQM Midstream Services, LLC. | | Incorporated herein by reference to Exhibit 10.1 to EQM Midstream Partners, LP's Form 8-K (#001-35574) filed on November 13, 2018. |
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| | Second Amended and Restated Omnibus Agreement, dated November 13, 2018, among EQT Corporation, RM Partners LP, EQM Midstream Management LLC, and EQM Poseidon Midstream LLC. | | Incorporated herein by reference to Exhibit 10.2 to EQM Midstream Partners, LP's Form 8-K (#001-35574) filed on November 13, 2018. |
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| | Omnibus Agreement, dated as of November 13, 2018, by and among Equitrans Midstream Corporation, EQGP Holdings, LP, EQGP Services, LLC and, for certain limited purposes, EQM Midstream Partners, LP. | | Incorporated herein by reference to Exhibit 10.1 to Form 8-K (#001-38629) filed on November 13, 2018. |
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| | Omnibus Agreement, dated as of November 13, 2018, by and among Equitrans Midstream Corporation, EQM Midstream Partners, LP and EQM Midstream Services, LLC. | | Incorporated herein by reference to Exhibit 10.2 to Form 8-K (#001-38629) filed on November 13, 2018. |
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| | Secondment Agreement, dated as of November 13, 2018, by and among Equitrans Midstream Corporation, EQM Midstream Partners, LP and EQM Midstream Services, LLC. | | Incorporated herein by reference to Exhibit 10.3 to Form 8-K (#001-38629) filed on November 13, 2018. |
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| | Working Capital Loan Agreement, dated as of May 15, 2015, by and between EQGP Holdings, LP (formerly known as EQT GP Holdings, LP) and EQT Corporation. | | Incorporated herein by reference to Exhibit 10.2 to EQGP Holdings, LP's Form 8-K (#001-37380) filed on May 15, 2015. |
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| | 364-Day Uncommitted Revolving Loan Agreement, dated as of October 26, 2016, by and between EQT Corporation and EQM Midstream Partners, LP (formerly known as EQT Midstream Partners, LP). | | Incorporated herein by reference to Exhibit 10.1 to EQM Midstream Partners, LP's Form 10-Q (#001-35574) for the quarterly period ended September 30, 2016. |
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| | Working Capital Loan Agreement, dated as of November 13, 2018, between Equitrans Midstream Corporation and EQGP Holdings, LP. | | Incorporated herein by reference to Exhibit 10.4 to Form 8-K (#001-38629) filed on November 13, 2018. |
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| | Equitrans Midstream Corporation Directors' Deferred Compensation Plan. | | Incorporated herein by reference to Exhibit 4.3 to Registration Statement on Form S-8 (File No. 333-228340) filed on November 9, 2018. |
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| | Equitrans Midstream Corporation 2018 Long-Term Incentive Plan. | | Incorporated herein by reference to Exhibit 4.3 to Registration Statement on Form S-8 (File No. 333-228337) filed on November 9, 2018. |
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| First Amendment to the Equitrans Midstream Corporation Executive Short-Term2018 Long-Term Incentive Plan. | | Incorporated herein by reference to Exhibit 10.710.2 to Form 8-K (#001-38629) filed on November 13, 2018.June 17, 2020. |
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| Equitrans Midstream Corporation 2018 Payroll Deduction and Contribution Program. | | Incorporated herein by reference to Exhibit 10.8 to Form 8-K (#001-38629) filed on November 13, 2018. |
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| | Letter Agreement, dated as of August 9, 2018, with Thomas F. Karam. | | Incorporated herein by reference to Exhibit 10.57 to Registration Statement on Form 10-12B/A (#001-38629) filed on October 18, 2018. |
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| Letter Agreement, dated as of September 4, 2018, with Kirk R. Oliver. | | Incorporated herein by reference to Exhibit 10.58 to Registration Statement on Form 10-12B/A (#001-38629) filed on October 18, 2018. |
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| Amended and Restated Confidentiality, Non-Solicitation and Non-Competition Agreement, dated as of January 15, 2019, with Diana M. Charletta | | Incorporated herein by reference to Exhibit 10.1 to Form 8-K (#001-38629) filed on January 22, 2019. |
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| First Amendment, dated February 20, 2023, to Amended and Restated Confidentiality, Non-Solicitation and Non-Competition Agreement, dated as of July 29, 2015,January 15, 2019, with Charlene Petrelli.Diana M. Charletta. | | Incorporated herein by reference to Exhibit 10.6410.14(b) to Registration Statement on Form 10-12B/A10-K (#001-38629) filed on October 18, 2018.for the year ended December 31, 2022. |
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| Transition Agreement and General Release, dated as of January 3, 2019, with Charlene Petrelli. | | Filed herewith as Exhibit 10.44(b). |
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| | Second Amendment to Amended and Restated Confidentiality, Non-Solicitation and Non-Competition Agreement, dated as of July 29, 2015, with Robert C. Williams.January 15, 2019, by and between Equitrans Midstream Corporation and Diana M. Charletta. | | Incorporated herein by reference to Exhibit 10.6510.2 to Registration Statement on Form 10/A8-K (#001-38629) filed on October 18, 2018.September 7, 2023. |
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| Confidentiality, Non-Solicitation and Non-Competition Agreement, dated as of September 8, 2008, with Phillip D. Swisher. | | Incorporated herein by reference to Exhibit 10.66 to Registration Statement on Form 10-12B/A (#001-38629) filed on October 18, 2018. |
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| | Amendment to Confidentiality, Non-Solicitation and Non-Competition Agreement, dated as of January 1, 2014, with Phillip D. Swisher. | | Incorporated herein by reference to Exhibit 10.67 to Registration Statement on Form 10-12B/A (#001-38629) filed on October 18, 2018. |
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| | Second Amendment to Confidentiality, Non-Solicitation and Non-Competition Agreement, dated as of January 1, 2015, with Phillip D. Swisher. | | Incorporated herein by reference to Exhibit 10.68 to Registration Statement on Form 10-12B/A (#001-38629) filed on October 18, 2018. |
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| | Amended and Restated Confidentiality, Non-Solicitation and Non-Competition Agreement, dated as of November 13, 2018, by and between Equitrans Midstream Corporation and Thomas F. Karam. | | Incorporated herein by reference to Exhibit 10.9 to Form 8-K (#001-38629) filed on November 13, 2018. |
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First Amendment, dated as of February 20, 2023, to Amended and Restated Confidentiality, Non-Solicitation and Non-Competition Agreement, dated as of November 13, 2018, by and between Equitrans Midstream Corporation and Thomas F. Karam. | | Incorporated herein by reference to Exhibit 10.15(b) to Form 10-K (#001-38629) for the year ended December 31, 2022. |
| | Second Amendment to Amended and Restated Confidentiality, Non-Solicitation and Non-Competition Agreement, dated as of November 13, 2018, by and between Equitrans Midstream Corporation and Thomas F. Karam. | | Incorporated herein by reference to Exhibit 10.3 to Form 8-K (#001-38629) filed on September 7, 2023. |
| | Amended and Restated Confidentiality, Non-Solicitation and Non-Competition Agreement, dated as of November 13, 2018, by and between Equitrans Midstream Corporation and Kirk R. Oliver. | | Incorporated herein by reference to Exhibit 10.10 to Form 8-K (#001-38629) filed on November 13, 2018. |
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First Amendment, dated as of February 20, 2023, to Amended and Restated Confidentiality, Non-Solicitation and Non-Competition Agreement, dated as of November 13, 2018, by and between Equitrans Midstream Corporation and Kirk R. Oliver. | | Incorporated herein by reference to Exhibit 10.16(b) to Form 10-K (#001-38629) for the year ended December 31, 2022. |
| | Second Amendment to Amended and Restated Confidentiality, Non-Solicitation and Non-Competition Agreement, dated as of November 13, 2018, by and between Equitrans Midstream Corporation and Kirk R. Oliver. | | Incorporated herein by reference to Exhibit 10.4 to Form 8-K (#001-38629) filed on September 7, 2023 |
| | Letter Agreement, dated April 2, 2019, with Stephen M. Moore. | | Incorporated herein by reference to Exhibit 10.12 to Form 10-Q (#001-38629) for the quarterly period ended March 31, 2019. |
| | Confidentiality, Non-Solicitation and Non-Competition Agreement, dated April 15, 2019, with Stephen M. Moore. | | Incorporated herein by reference to Exhibit 10.13 to Form 10-Q (#001-38629) for the quarterly period ended March 31, 2019. |
| | First Amendment, dated as of February 20, 2023, to Confidentiality, Non-Solicitation and Non-Competition Agreement, dated April 15, 2019, by and between Equitrans Midstream Corporation and Stephen M. Moore. | | Incorporated herein by reference to Exhibit 10.18(b) to Form 10-K (#001-38629) for the year ended December 31, 2022. |
| | Second Amendment to Confidentiality, Non-Solicitation and Non-Competition Agreement, dated as of April 15, 2019, by and between Equitrans Midstream Corporation and Stephen M. Moore. | | Incorporated herein by reference to Exhibit 10.5 to Form 8-K (#001-38629) filed on September 7, 2023. |
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| | Form of Agreement of Assignment of Confidentiality, Non-Solicitation and Non-Competition Agreement. | | Incorporated herein by reference to Exhibit 10.11 to Form 8-K (#001-38629) filed on November 13, 2018. |
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| | Confidentiality, Non-Solicitation and Non-Competition Agreement, dated as of February 20, 2023, by and between Equitrans Midstream Corporation and Brian P. Pietrandrea. | | | | Incorporated herein by reference to Exhibit 10.20 to Form 10-K (#001-38629) for the year ended December 31, 2022. |
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First Amendment to Confidentiality, Non-Solicitation and Non-Competition Agreement, dated as of February 20, 2023, by and between Equitrans Midstream Corporation and Brian P. Pietrandrea. | | Incorporated herein by reference to Exhibit 10.6 to Form 8-K (#001-38629) filed on September 7, 2023. |
| | Confidentiality, Non-Solicitation and Non-Competition Agreement, dated as of July 26, 2023, by and between Equitrans Midstream Corporation and Nathan P. Tetlow. | | Filed herewith as Exhibit 10.16(a). |
| | First Amendment to Confidentiality, Non-Solicitation and Non-Competition Agreement, dated as of July 26, 2023, by and between Equitrans Midstream Corporation and Nathan P. Tetlow. | | Filed herewith as Exhibit 10.16(b). |
| | Confidentiality, Non-Solicitation and Non-Competition Agreement, dated as of July 26, 2023, by and between Equitrans Midstream Corporation and Justin S. Macken. | | Filed herewith as Exhibit 10.17(a). |
| | First Amendment to Confidentiality, Non-Solicitation and Non-Competition Agreement, dated as of July 26, 2023, by and between Equitrans Midstream Corporation and Justin S. Macken. | | Filed herewith as Exhibit 10.17(b). |
| | Form of Equitrans Midstream Corporation Director and/or Executive Officer Indemnification Agreement. | | Incorporated herein by reference to Exhibit 10.16 to Registration Statement on Form 10-12B/A (#001-38629) filed on October 18, 2018. |
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Equitrans Midstream Corporation 2019 Performance Share Unit Program. | | Incorporated herein by reference to Exhibit 10.7(a) to Form 10-Q (#001-38629) for the quarterly period ended March 31, 2019. |
| | Form of Equitrans Midstream Corporation Restricted Stock Award Agreement (Standard) under 2018 Long-Term Incentive Plan (2019 grants). | | Incorporated herein by reference to Exhibit 10.7(b) to Form 10-Q (#001-38629) for the quarterly period ended March 31, 2019. |
| | Form of Participant Award Agreement under the 2019 Performance Share Unit PurchaseProgram. | | Incorporated herein by reference to Exhibit 10.7(c) to Form 10-Q (#001-38629) for the quarterly period ended March 31, 2019. |
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| | Form of Equitrans Midstream Corporation Director Participant Award Agreement. | | Incorporated herein by reference to Exhibit 10.10 to Form 10-Q (#001-38629) for the quarterly period ended March 31, 2019. |
| | Equitrans Midstream Corporation 2020 Performance Share Unit Program. | | Incorporated herein by reference to Exhibit 10.13 to Form 10-Q (#001-38629) for the quarterly period ended March 31, 2020. |
| | Form of Participant Award Agreement under 2020 Performance Share Unit Program. | | Incorporated herein by reference to Exhibit 10.14 to Form 10-Q (#001-38629) for the quarterly period ended March 31, 2020. |
| | Form of Equitrans Midstream Corporation Restricted Stock Award Agreement (2020 Awards). | | Incorporated herein by reference to Exhibit 10.15 to Form 10-Q (#001-38629) for the quarterly period ended March 31, 2020. |
| | Preferred Restructuring Agreement, dated November 29, 2018,as of February 26, 2020, by and among Equitrans Midstream Corporation, EQM Midstream Partners, LP and funds managedthe Investors party thereto. | | Incorporated herein by Neuberger Berman Investment Adviser LP.reference to Exhibit 10.1 to Form 8-K (#001-38629) filed on February 28, 2020. |
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| | Gas Gathering and Compression Agreement, dated as of February 26, 2020, by and among EQT Corporation, EQT Production Company, Rice Drilling B LLC, EQT Energy, LLC and EQM Gathering Opco, LLC. | | Incorporated herein by reference to Exhibit 10.4 to Form 8-K/A (#001-38629) filed on March 13, 2020. |
| | First Amendment to Gas Gathering and Compression Agreement, dated as of August 26, 2020, by and among EQT Production Company, Rice Drilling B LLC, EQT Energy, LLC and EQM Gathering Opco, LLC. | | Incorporated herein by reference to Exhibit 10.1 to Form 10-Q (#001-38629) for the quarterly period ended September 30, 2020. |
| | Second Amendment to Gas Gathering and Compression Agreement, dated as of December 6, 2021, by and among EQT Production Company, Rice Drilling B LLC, EQT Energy, LLC and EQM Gathering Opco, LLC. | | Incorporated herein by reference to Exhibit 10.34(j) to Form 10-K (#001-38629) for the year ended December 31, 2021. |
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| | Third Amendment to Gas Gathering and Compression Agreement, dated as of December 21, 2021, by and among EQT Production Company, Rice Drilling B LLC, EQT Energy, LLC and EQM Gathering Opco, LLC. | | Incorporated herein by reference to Exhibit 10.34(k) to Form 10-K (#001-38629) for the year ended December 31, 2021. |
| | Letter Agreement, dated as of December 14, 2022, by and among EQM Gathering Opco, LLC, EQT Corporation, EQT Production Company, Rice Drilling B LLC, and EQT Energy, LLC. | | Incorporated herein by reference to Exhibit (d)(8)10.31(q) to Form 10-K (#001-38629) for the Transaction Statement on Schedule 13E-3 filed by on November 30, 2018.year ended December 31, 2022. |
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| Unit PurchaseFourth Amendment to Gas Gathering and Compression Agreement, dated November 29, 2018,as of January 23, 2023, by and among Equitrans MidstreamEQT Production Company, Rice Drilling B LLC, EQT Energy, LLC and funds managed by Goldman Sachs Asset Management, L.P.EQM Gathering Opco, LLC. | | Incorporated herein by reference to Exhibit (d)(9)10.31(r) to Form 10-K (#001-38629) for the Transaction Statement on Schedule 13E-3 filed by on November 30, 2018.year ended December 31, 2022. |
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| Unit PurchaseLetter Agreement, dated November 29, 2018,as of January 23, 2023, by and among Equitrans MidstreamEQM Gathering Opco, LLC, EQT Corporation, EQT Production Company, Rice Drilling B LLC, and funds managed by Cushing Asset Management, LP.EQT Energy, LLC. | | Incorporated herein by reference to Exhibit (d)(10)10.31(s) to Form 10-K (#001-38629) for the Transaction Statement on Schedule 13E-3 filed by on November 30, 2018.year ended December 31, 2022. |
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| Unit PurchaseLetter Agreement, dated November 29, 2018,as of January 27, 2023, by and among Equitrans MidstreamEQM Gathering Opco, LLC, EQT Corporation, EQT Production Company, Rice Drilling B LLC, and funds managed by Kayne Anderson Capital Advisors, L.P.EQT Energy, LLC. | | Incorporated herein by reference to Exhibit (d)(11)10.31(t) to Form 10-K (#001-38629) for the Transaction Statement on Schedule 13E-3 filed by on November 30, 2018.year ended December 31, 2022. |
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Letter Agreement, dated as of June 1, 2023, by and among EQM Gathering Opco, LLC, EQT Corporation, EQT Production Company, Rice Drilling B LLC, and EQT Energy, LLC. | | Incorporated herein by reference to Exhibit 10.01 to Form 10-Q (#001-38629) for the quarterly period ended June 30, 2023. |
| | Unit Letter Agreement, dated as of October 3, 2023, by and among EQM Gathering Opco, LLC, EQT Corporation, EQT Production Company, Rice Drilling B LLC, and EQT Energy, LLC. | | Incorporated herein by reference to Exhibit 10.9 to Form 10-Q (#001-38629) for the quarterly period ended September 30, 2023. |
| | Fifth Amendment to Gas Gathering and Compression Agreement, dated as of October 4, 2023, by and among EQT Corporation, EQT Production Company, Rice Drilling B LLC, EQT Energy, LLC and EQM Gathering Opco, LLC. | | Incorporated herein by reference to Exhibit 10.10 to Form 10-Q (#001-38629) for the quarterly period ended September 30, 2023. |
| | Letter Agreement, dated as of October 5, 2023, by and among EQM Gathering Opco, LLC, Equitrans, L.P., EQT Corporation, EQT Production Company, Rice Drilling B LLC, and EQT Energy, LLC. | | Incorporated herein by reference to Exhibit 10.11 to Form 10-Q (#001-38629) for the quarterly period ended September 30, 2023. |
| | Amended and Restated Letter Agreement, dated as of October 12, 2023, by and among EQM Gathering Opco, LLC, EQT Corporation, EQT Production Company, Rice Drilling B LLC, and EQT Energy, LLC | | Incorporated herein by reference to Exhibit 10.12 to Form 10-Q (#001-38629) for the quarterly period ended September 30, 2023. |
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| | Credit Letter Agreement, dated as of February 26, 2020, by and between EQM Midstream Partners, LP and EQT Corporation. | | Incorporated herein by reference to Exhibit 10.5 to Form 10-Q (#001-38629) for the quarterly period ended March 31, 2020. |
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| | Purchase Agreement, dated November 29, 2018,June 16, 2020, by and between EQM Midstream Partners, LP and J.P. Morgan Securities LLC, as representative of the several initial purchasers named on Schedule 1 thereto. | | Incorporated herein by reference to Exhibit 10.1 to Form 8-K (#001-38629) filed on June 18, 2020. |
| | Purchase Agreement, dated January 4, 2021, by and among EQM Midstream Partners, LP, Equitrans Midstream Corporation (for certain limited purposes) and ZP Energy Fund, L.P.Barclays Capital Inc., as representative of the several initial purchasers named on Schedule 1 thereto. | | Incorporated herein by reference to Exhibit 10.1 to Form 8-K (#001-38629) filed on January 5, 2021. |
| | Purchase Agreement, dated May 31, 2022, by and among EQM Midstream Partners, LP, Equitrans Midstream Corporation (for certain limited purposes) and BofA Securities Inc., as representative of the several initial purchasers named on Schedule 1 thereto. | | Incorporated herein by reference to Exhibit 10.1 to Form 8-K (#001-38629) filed on June 2, 2022. |
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| | Equitrans Midstream Corporation 2021 Performance Share Unit Program. | | Incorporated herein by reference to Exhibit (d)(12)10.47 to the Transaction StatementForm 10-K (#001-38629) filed on Schedule 13E-3 filed by on November 30, 2018.February 23, 2021. |
| | Form of Participant Award Agreement under 2021 Performance Share Unit Program. | | Incorporated herein by reference to Exhibit 10.48 to Form 10-K (#001-38629) filed on February 23, 2021. |
| | Form of Equitrans Midstream Corporation Restricted Stock Award Agreement (2021 Awards). | | Incorporated herein by reference to Exhibit 10.49 to Form 10-K (#001-38629) filed on February 23, 2021. |
| | Form of Equitrans Midstream Corporation Senior Executive 2021 MVP Performance Share Units Award Agreement. | | Incorporated herein by reference to Exhibit 10.3 to Form 8-K (#001-38629) filed on December 7, 2021. |
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| | Form of Equitrans Midstream Corporation Senior Executive 2021 MVP Performance Share Units Award Agreement Notice. | | Incorporated herein by reference to Exhibit 10.02 to Form 10-Q (#001-38629) for the quarterly period ended June 30, 2023. |
| | Equitrans Midstream Corporation 2022 Performance Share Unit Program. | | Incorporated herein by reference to Exhibit 10.44 to Form 10-K (#001-38629) for the year ended December 31, 2021. |
| | Form of Participant Award Agreement under 2022 Performance Share Unit Program. | | Incorporated herein by reference to Exhibit 10.45 to Form 10-K (#001-38629) for the year ended December 31, 2021. |
| | Form of Equitrans Midstream Corporation Restricted Stock Award Agreement (2022 Awards). | | Incorporated herein by reference to Exhibit 10.46 to Form 10-K (#001-38629) for the year ended December 31, 2021. |
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| | Equitrans Midstream Corporation Employee Stock Purchase Plan. | | Incorporated herein by reference to Exhibit 10.1 to Form 8-K (#001-38629) filed on April 27, 2022. |
| | Equitrans Midstream Corporation 2023 Performance Share Unit Program. | | Incorporated herein by reference to Exhibit 10.47 to Form 10-K (#001-38629) for the year ended December 31, 2022. |
| | Form of Participant Award Agreement under 2023 Performance Share Unit Program. | | Incorporated herein by reference to Exhibit 10.48 to Form 10-K (#001-38629) for the year ended December 31, 2022. |
| | Form of Equitrans Midstream Corporation Restricted Stock Award Agreement (2023 Awards). | | Incorporated herein by reference to Exhibit 10.49 to Form 10-K (#001-38629) for the year ended December 31, 2022. |
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| | Equitrans Midstream Corporation Second Amended and Restated Executive Short-Term Incentive Plan | | Incorporated herein by reference to Exhibit 10.50 to Form 10-K (#001-38629) for the year ended December 31, 2022. |
| | Transition Agreement between Equitrans Midstream Corporation and Thomas F. Karam. | | Incorporated herein by reference to Exhibit 10.1 to Form 8-K (#001-38629) filed on September 7, 2023. |
| | Equitrans Midstream Corporation 2024 Performance Share Unit Program. | | Filed herewith as Exhibit 10.45. |
| | Form of Participant Award Agreement under 2024 Performance Share Unit Program. | | Filed herewith as Exhibit 10.46. |
| | Form of Equitrans Midstream Corporation Restricted Stock Award Agreement (2024 Awards). | | Filed herewith as Exhibit 10.47. |
| | Equitrans Midstream Corporation Corporate Stock Trading Policy, effective February 7, 2024, and related Addendum for Section 16 Reporting Officers and Directors. | | Filed herewith as Exhibit 19.1. |
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| Schedule of Subsidiaries. | | Filed herewith as Exhibit 21.1. |
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| Consent of Independent Registered Public Accounting Firm. | | Filed herewith as Exhibit 23.123.1. |
| | Consent of Independent Auditors (Mountain Valley Pipeline, LLC - Series A). | | Filed herewith as Exhibit 23.2. |
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| Rule 13(a)-14(a) Certification of Principal Executive Officer. | | Filed herewith as Exhibit 31.1. |
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| Rule 13(a)-14(a) Certification of Principal Financial Officer. | | Filed herewith as Exhibit 31.2. |
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| Section 1350 Certification of Principal Executive Officer and Principal Financial Officer. | | Furnished herewith as Exhibit 32. |
101 | |
Equitrans Midstream Corporation Compensation Recoupment Policy, Amended and Restated as of October 24, 2023. | | Filed herewith as Exhibit 97. |
| | Mountain Valley Pipeline, LLC (Series A) financial statements. | | Filed herewith as Exhibit 99.1. |
| 101 | | | Inline Interactive Data File. | | Filed herewith as Exhibit 101. |
| 104 | | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | | Filed herewith as Exhibit 104. |
* Management contract and compensatory arrangement in which any director or any named executive officer participates
** Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. Equitrans Midstream Corporation hereby undertakes to furnish supplemental copies of any of the omitted schedules and exhibits upon request by the SEC.
# Certain portions of the exhibits that are not material and is of the type Equitrans Midstream treats as confidential have been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K. Copies of the unredacted exhibits will be furnished to the SEC upon request.
## Certain personally identifiable information has been omitted from this exhibit pursuant to Item 601(a)(6) of Regulation S-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| Equitrans Midstream Corporation |
| (Registrant) |
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| By: | /s/ KIRK R. OLIVER |
| | Kirk R. Oliver |
| By: | /s/ THOMAS F. KARAM |
| | Thomas F. Karam |
| | Executive Vice President and Chief ExecutiveFinancial Officer |
| | February 14, 201920, 2024 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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| /s/ DIANA M. CHARLETTA | | President and Chief Executive | | February 20, 2024 |
| Diana M. Charletta | | Officer | | |
| | (Principal Executive Officer) | | |
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| /s/ KIRK R. OLIVER | | Executive Vice President and | | February 20, 2024 |
| Kirk R. Oliver | | Chief Financial Officer | | |
| | (Principal Financial Officer) | | |
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| /s/ BRIAN P. PIETRANDREA | | Vice President and Chief | | February 20, 2024 |
| Brian P. Pietrandrea | | Accounting Officer | | |
| | (Principal Accounting Officer) | | |
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| /s/ VICKY A. BAILEY | | Director | | February 20, 2024 |
| Vicky A. Bailey | | | | |
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| /s/ SARAH M. BARPOULIS | | Director | | February 20, 2024 |
| Sarah M. Barpoulis | | | | |
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| /s/ KENNETH M. BURKE | | Director | | February 20, 2024 |
| Kenneth M. Burke | | | | |
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| /s/ THOMAS F. KARAM | | Executive Chairman | | President, Chief Executive | February 14, 201920, 2024 |
| Thomas F. Karam | | | | |
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| /s/ D. MARK LELAND | Officer and Director | Director | | February 20, 2024 |
(Principal Executive Officer)D. Mark Leland | | | | |
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/s/ KIRK R. OLIVER | | Senior Vice President and Chief | | February 14, 2019 |
Kirk R. Oliver | | Financial Officer | | |
(Principal Financial Officer) | | | | |
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/s/ PHILLIP D. SWISHER | | Vice President and Chief | | February 14, 2019 |
Phillip D. Swisher | | Accounting Officer | | |
(Principal Accounting Officer) | | | | |
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/s/ VICKY A. BAILEY | | Director | | February 14, 2019 |
Vicky A. Bailey | | | | |
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/s/ KENNETH M. BURKE | | Director | | February 14, 2019 |
Kenneth M. Burke | | | | |
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/s/ MARGARET K. DORMAN | | Director | | February 14, 2019 |
Margaret K. Dorman | | | | |
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/s/ DAVID L. PORGES | | Chairman | | February 14, 2019 |
David L. Porges | | | | |
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| /s/ NORMAN J. SZYDLOWSKI | | Director | | February 14, 201920, 2024 |
| Norman J. Szydlowski | | | | |
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| /s/ ROBERT F. VAGT | | Director | | February 14, 201920, 2024 |
| Robert F. Vagt | | | | |
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