Acquisitions, Mergers and Divestitures | Acquisitions, Mergers and Divestitures Bolt-on Acquisition On March 13, 2019, EQM entered into a Purchase and Sale Agreement (the Purchase and Sale Agreement) with North Haven Infrastructure Partners II Buffalo Holdings, LLC (NHIP), an affiliate of Morgan Stanley Infrastructure Partners, pursuant to which EQM acquired from NHIP a 60% Class A interest in Eureka Midstream Holdings, LLC (Eureka Midstream) and a 100% interest in Hornet Midstream Holdings, LLC (Hornet Midstream) (collectively, the Bolt-on Acquisition) for total consideration of approximately $1.04 billion , composed of approximately $852 million in cash, net of purchase price adjustments, and approximately $192 million in assumed pro-rata debt. Eureka Midstream owns a 190 -mile gathering header pipeline system in Ohio and West Virginia that services both dry Utica and wet Marcellus Shale production. Hornet Midstream owns a 15 -mile, high-pressure gathering system in West Virginia that connects to the Eureka Midstream system. The Bolt-on Acquisition closed on April 10, 2019 and was funded through proceeds from the Private Placement of Series A Preferred Units that closed concurrently with the Bolt-on Acquisition. See Notes 1 and 5 for further information regarding the Private Placement. On the closing of the Bolt-on Acquisition, a subsidiary of Hornet Midstream terminated all of its obligations under its term loan credit agreement and repaid the $28.2 million outstanding principal balance and $0.1 million in related interest and fees. EQM recorded $0.3 million and $17.0 million in acquisition-related expenses related to the Bolt-on Acquisition during the three and nine months ended September 30, 2019 , respectively. The Bolt-on Acquisition acquisition-related expenses included $0.3 million for professional fees for the three months ended September 30, 2019 and $15.3 million for professional fees and $1.7 million for compensation arrangements for the nine months ended September 30, 2019 and are included in separation and other transaction costs in the statements of consolidated operations. Allocation of Purchase Price. The Bolt-on Acquisition was accounted for as a business combination using the acquisition method. The following table summarizes the preliminary purchase price and preliminary estimated fair values of assets acquired and liabilities assumed as of April 10, 2019, with any excess of purchase price over estimated fair value of the identified net assets acquired recorded as goodwill. The $99.7 million of goodwill was allocated to the Gathering segment. Such goodwill primarily relates to additional commercial opportunities, a diversified producer customer mix, increased exposure to dry Utica and wet Marcellus acreage and operating leverage within the Gathering segment. The purchase price allocation and related adjustments remain subject to further adjustments during the applicable measurement period; thus, the purchase price allocation and related adjustments included in the financial statements are preliminary as of September 30, 2019 . The following table summarizes the allocation of the fair value of the assets acquired and liabilities assumed in the Bolt-on Acquisition as of April 10, 2019 by EQM, as well as certain measurement period adjustments made subsequent to EQM's initial valuation. (in thousands) Preliminary Purchase Price Allocation (As initially reported) Measurement Period Adjustments (a) Preliminary Purchase Price Allocation (As adjusted) Consideration given: Cash consideration (b) $ 861,250 $ (11,404 ) $ 849,846 Buyout of Eureka Midstream Class B Units and incentive compensation 2,530 — 2,530 Total consideration 863,780 (11,404 ) 852,376 Fair value of liabilities assumed: Current liabilities 52,458 (9,857 ) 42,601 Long-term debt 300,825 — 300,825 Other long-term liabilities 10,203 — 10,203 Amount attributable to liabilities assumed 363,486 (9,857 ) 353,629 Fair value of assets acquired: Cash 15,145 — 15,145 Accounts receivable 16,817 — 16,817 Inventory 12,991 (26 ) 12,965 Other current assets 882 — 882 Net property, plant and equipment 1,222,284 (8,906 ) 1,213,378 Intangible assets (c) 317,000 (6,000 ) 311,000 Other assets 14,567 — 14,567 Amount attributable to assets acquired 1,599,686 (14,932 ) 1,584,754 Noncontrolling interests (486,062 ) 7,602 (478,460 ) Goodwill as of April 10, 2019 $ 113,642 $ (13,931 ) $ 99,711 Impairment of goodwill (d) (99,711 ) Goodwill as of September 30, 2019 $ — (a) EQM recorded measurement period adjustments to its preliminary acquisition date fair values due to the refinement of its valuation models, assumptions and inputs. The measurement period adjustments were based upon information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the measurement of the amounts recognized at that date. (b) The cash consideration for the Bolt-on Acquisition was adjusted by approximately $11.4 million related to working capital adjustments and the release of all escrowed indemnification funds to EQM. (c) After considering the refinements to the valuation models, EQM estimated the fair value of the customer-related intangible assets acquired as part of the Bolt-on Acquisition to be $311.0 million. As a result, the fair value of the customer-related intangible assets was decreased by $6.0 million on September 30, 2019 with a corresponding increase to goodwill. In addition, the change to the provisional amount resulted in a decrease in amortization expense and accumulated amortization of approximately $0.4 million. (d) During the third quarter of 2019, EQM identified impairment indicators that suggested the fair value of its goodwill was more likely than not below its carrying amount. As such, EQM performed an interim goodwill impairment assessment, which resulted in EQM recognizing impairment to goodwill of approximately $261.3 million, of which $99.7 million was associated with its Eureka/Hornet reporting unit bringing the reporting unit's goodwill balance to zero. See Note 3 for further detail. The goodwill impairment charge related to the Eureka/Hornet reporting unit recorded in the third quarter of fiscal 2019 is subject to change based upon the final purchase price allocation during the measurement period for estimated fair values of assets acquired and liabilities assumed in the Bolt-on Acquisition. There can be no assurance that such final allocations will not result in material increases or decreases to the recorded goodwill impairment charge based upon the preliminary purchase price allocations due to changes in the provisional opening balance sheet estimates of goodwill. EQM’s estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date). The estimated fair value of midstream facilities and equipment, generally consisting of pipeline systems and compression stations, was estimated using the cost approach. Significant unobservable inputs in the estimate of fair value include management's assumptions about the replacement costs for similar assets, the relative age of the acquired assets and any potential economic or functional obsolescence associated with the acquired assets. As a result, the estimated fair value of the midstream facilities and equipment represent a Level 3 fair value measurement. The noncontrolling interest in Eureka Midstream is estimated to be $478 million . The fair value of the noncontrolling interest was calculated based on the enterprise value of Eureka Midstream and the percentage ownership not acquired by EQM. Significant unobservable inputs in the enterprise value of Eureka Midstream include future revenue estimates and future cost assumptions. As a result, the fair value measurement is based on significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement. As part of the preliminary purchase price allocation, EQM identified intangible assets for customer relationships with third-party customers. The fair value of the customer relationships with third-party customers was determined using the income approach, which requires a forecast of the expected future cash flows generated and an estimated market-based weighted average cost of capital. Significant unobservable inputs in the determination of fair value include future revenue estimates, future cost assumptions and estimated customer retention rates. As a result, the estimated fair value of the identified intangible assets represents a Level 3 fair value measurement. EQM calculates amortization of intangible assets using the straight-line method over the estimated useful life of the intangible assets which is 20 years for the Eureka-related intangible assets. As discussed in Note 3 , during the third quarter of 2019 , as a result of the recoverability test, EQM estimated the fair value of the Hornet-related intangible assets and determined that the fair value was not in excess of the assets’ carrying value, which resulted in an impairment charge of approximately $36.4 million related to certain of such intangible assets within EQM's Gathering segment. As a result of the reduction in expected future cash flows, the useful life of the Hornet-related intangible assets was prospectively changed to 7.25 years as of October 1, 2019 , over which EQM calculates amortization using the straight-line method. After the impact of the impairment and the decrease in the useful life of the Hornet-related intangible assets, the expected annual amortization expense increased by $1.0 million . Amortization expense recorded in the statements of consolidated operations for the three and nine months ended September 30, 2019 was $4.1 million and $7.5 million , respectively. The estimated annual amortization expense for the fourth quarter of 2019 and over the successive five years is as follows: 2019 $4.2 million , 2020 $16.8 million , 2021 $16.8 million , 2022 $16.8 million , 2023 $16.8 million and 2024 $16.8 million . Intangible assets, net as of September 30, 2019 , are detailed below. (in thousands) As of September 30, 2019 Intangible assets $ 311,000 Less: impairment of Hornet-related intangible assets (a) 36,405 Less: accumulated amortization 7,517 Intangible assets, net $ 267,078 (a) See Note 3 for disclosure regarding impairments of long-lived assets. Post-Acquisition Operating Results. Subsequent to the completion of the Bolt-on Acquisition, Eureka Midstream and Hornet Midstream collectively contributed the following to both the Gathering segment and EQM's consolidated operating results for the period from April 10, 2019 through September 30, 2019 . (in thousands) (unaudited) April 10, 2019 through September 30, 2019 Operating revenues $ 61,579 Operating loss attributable to EQM $ (109,277 ) Net loss attributable to noncontrolling interests $ (25,664 ) Net loss attributable to EQM $ (87,949 ) Unaudited Pro Forma Information. The following unaudited pro forma combined financial information presents EQM's results as though the EQM IDR Transaction and Bolt-on Acquisition had been completed at January 1, 2018. The pro forma combined financial information has been included for comparative purposes and is not necessarily indicative of the results that might have actually occurred had the EQM IDR Transaction and Bolt-on Acquisition taken place on January 1, 2018; furthermore, the financial information is not intended to be a projection of future results. (in thousands, except per unit data)(unaudited) Nine Months Ended September 30, 2019 Pro forma operating revenues $ 1,235,963 Pro forma net income $ 396,339 Pro forma net loss attributable to noncontrolling interests $ (22,447 ) Pro forma net income attributable to EQM $ 418,786 Pro forma income per limited partner common unit (basic) $ 1.85 Pro forma income per limited partner common unit (diluted) $ 1.78 (in thousands, except per unit data)(unaudited) Three Months Ended September 30, 2018 Nine Months Ended September 30, 2018 Pro forma operating revenues $ 391,151 $ 1,195,096 Pro forma net income $ 221,037 $ 730,440 Pro forma net income attributable to noncontrolling interests $ 4,752 $ 13,462 Pro forma net income attributable to EQM $ 216,285 $ 716,978 Pro forma income per unit (basic) $ 0.95 $ 3.20 Pro forma income per unit (diluted) $ 0.92 $ 3.09 Shared Assets Transaction On March 31, 2019, EQM entered into an Assignment and Bill of Sale (the Assignment and Bill of Sale) with Equitrans Midstream pursuant to which EQM acquired certain assets and assumed certain leases that primarily support EQM’s operations for an aggregate cash purchase price of $49.7 million (the initial purchase price), which reflected the net book value of in-service assets and expenditures made for assets not yet in-service (collectively, and inclusive of the additional assets subsequently acquired as described in the following sentences, the Shared Assets Transaction). Further, pursuant to the Assignment and Bill of Sale, EQM acquired, effective on the first day of the second quarter of 2019, certain additional assets from Equitrans Midstream for $8.9 million cash consideration, reflecting the net book value of in-service assets and expenditures made in respect of assets not yet in-service as of June 30, 2019, which subsequent purchase price was subject to certain adjustments. Additionally, pursuant to the Assignment and Bill of Sale, EQM acquired, effective on the first day of the third quarter of 2019, an additional asset from Equitrans Midstream for a de minimus dollar amount reflecting the net book value of such asset as of September 30, 2019. EQM may, pursuant to the Assignment and Bill of Sale, acquire certain additional assets from Equitrans Midstream for additional cash consideration reflecting the net book value of in-service assets and expenditures made with respect to assets not yet in-service and/or may assume an additional facilities lease. The initial and subsequent purchase prices were funded utilizing EQM’s $3 Billion Facility (defined in Note 10 ). Prior to the Shared Assets Transaction, EQM made quarterly payments to Equitrans Midstream based on fees allocated from Equitrans Midstream for use of in-service assets transferred to EQM in the Shared Assets Transaction. In connection with the entry into the Assignment and Bill of Sale, that certain omnibus agreement (ETRN Omnibus Agreement) among Equitrans Midstream, EQM and the New EQM General Partner (as successor to the Former EQM General Partner) was amended and restated in order to, among other things, govern Equitrans Midstream’s use of the acquired assets following their conveyance to EQM and provide for reimbursement of EQM by Equitrans Midstream for expenses incurred by EQM in connection with such use. EQM-RMP Merger On April 25, 2018, EQM entered into an Agreement and Plan of Merger (the Merger Agreement) with RMP, Rice Midstream Management LLC, the general partner of RMP (the RMP General Partner), the Former EQM General Partner, EQM Acquisition Sub, LLC, a wholly-owned subsidiary of EQM (Merger Sub), EQM GP Acquisition Sub, LLC, a wholly-owned subsidiary of EQM (GP Merger Sub), and, solely for certain limited purposes set forth therein, EQT. Pursuant to the Merger Agreement, on July 23, 2018, Merger Sub and GP Merger Sub merged with and into RMP and the RMP General Partner, respectively, with RMP and the RMP General Partner surviving as wholly-owned subsidiaries of EQM. Pursuant to the Merger Agreement, each RMP common unit issued and outstanding immediately prior to the effective time of the EQM-RMP Merger was converted into the right to receive 0.3319 EQM common units (the Merger Consideration), the issued and outstanding IDRs of RMP were canceled and each outstanding award of phantom units in respect of RMP common units fully vested and converted into the right to receive the Merger Consideration, less applicable tax withholding, in respect of each RMP common unit subject thereto. The aggregate Merger Consideration consisted of 33,975,777 EQM common units of which 9,544,530 EQM common units were received by an indirect wholly-owned subsidiary of EQT. As a result of the EQM-RMP Merger , RMP's common units are no longer publicly traded. Drop-Down Transaction On April 25, 2018, EQT, Rice Midstream Holdings LLC (Rice Midstream Holdings), a wholly-owned subsidiary of EQT, EQM and EQM Gathering Holdings, LLC (EQM Gathering), a wholly-owned subsidiary of EQM, entered into a Contribution and Sale Agreement pursuant to which EQM Gathering acquired from EQT all of EQT's interests in EQM Olympus, Strike Force and EQM WV in exchange for an aggregate of 5,889,282 EQM common units and aggregate cash consideration of approximately $1.15 billion . EQM Olympus owns a natural gas gathering system that gathers gas from wells located primarily in Belmont County, Ohio. Strike Force owns a 75% limited liability company interest in Strike Force Midstream LLC (Strike Force Midstream), which gathers gas from wells located primarily in Belmont and Monroe Counties, Ohio. The Drop-Down Transaction closed on May 22, 2018 with an effective date of May 1, 2018 . As a result of the recast associated with the EQM-RMP Merger and the Drop-Down Transaction, EQM recognized approximately $1,384.9 million of goodwill, all of which was allocated to two reporting units within the Gathering segment. The goodwill value was based on a valuation performed by EQT as of November 13, 2017 with regard to the Rice Merger. EQT recorded goodwill as the excess of the estimated enterprise value of RMP, EQM Olympus, Strike Force and EQM WV over the sum of the fair value amounts allocated to the assets and liabilities of RMP, EQM Olympus, Strike Force and EQM WV. Goodwill was attributed to additional perceived growth opportunities, synergies and operating leverage within the Gathering segment. Prior to the recast, EQM had no goodwill. The following table summarizes the allocation of the fair value of the assets and liabilities of RMP, EQM Olympus, Strike Force and EQM WV as of November 13, 2017 through pushdown accounting from EQT, as well as certain measurement period adjustments made subsequent to EQT's initial valuation. Goodwill and Purchase Price Allocation (Thousands) Estimated fair value of RMP, EQM Olympus, Strike Force (a) and EQM WV $ 4,014,984 Estimated Fair Value of Assets Acquired and Liabilities Assumed: Current assets (b) 132,459 Intangible assets (c) 623,200 Property and equipment, net (d) 2,265,900 Other non-current assets 118 Current liabilities (b) (117,124 ) RMP $850 Million Facility (e) (266,000 ) Other non-current liabilities (e) (9,323 ) Total estimated fair value of assets acquired and liabilities assumed 2,629,230 Goodwill as of November 13, 2017 (f) 1,385,754 Impairment of goodwill (g) 261,941 Goodwill as of December 31, 2018 1,123,813 Impairment of goodwill (h) 161,595 Goodwill as of September 30, 2019 $ 962,218 (a) Includes the estimated fair value attributable to noncontrolling interest in Strike Force of $166 million. (b) The fair value of current assets and current liabilities was assumed to approximate their carrying values. (c) The identifiable intangible assets for customer relationships were estimated by applying a discounted cash flow approach which was adjusted for customer attrition assumptions and projected market conditions. (d) The estimated fair value of long-lived property and equipment were determined utilizing estimated replacement cost adjusted for a usage or obsolescence factor. (e) The estimated fair value of long-term liabilities was determined utilizing observable market inputs where available or estimated based on their then current carrying values. (f) Reflected the value of perceived growth opportunities, synergies and operating leverage anticipated through the acquisitions and ownership of the acquired gathering assets as of November 13, 2017. (g) During its annual goodwill assessment for the year ended December 31, 2018, EQM determined that the carrying value of the RMP PA Gas Gathering (as defined in Note 3) reporting unit, which comprises the Pennsylvania gathering assets acquired in the Rice Merger, was greater than its fair value. As a result, EQM recognized an impairment to goodwill of approximately $261.9 million. (h) As discussed above, during the third quarter of 2019, EQM identified impairment indicators that suggested the fair value of its goodwill was more likely than not below its carrying amount. As such, EQM performed an interim goodwill impairment assessment, which resulted in EQM recognizing an impairment to goodwill of approximately $261.3 million, of which $161.6 million was associated with its RMP PA Gas Gathering reporting unit. As of September 30, 2019, EQM’s goodwill balance was reduced to $962.2 million, including $923.4 million and $38.8 million associated with RMP PA Gas Gathering and Rice Retained Midstream (as defined in Note 3), respectively. See Note 3 for further detail. The Gulfport Transaction On May 1, 2018, pursuant to the Purchase and Sale Agreement, dated April 25, 2018, by and among EQM, EQM Gathering, Gulfport Energy Corporation (Gulfport) and an affiliate of Gulfport, EQM Gathering acquired the remaining 25% limited liability company interest in Strike Force Midstream not then owned by Strike Force for $175 million (the Gulfport Transaction). As a result, EQM owned 100% of Strike Force Midstream effective as of May 1, 2018. RMP and the entities part of the Drop-Down Transaction were businesses and the related acquisitions were transactions between entities under common control; therefore, EQM recorded the assets and liabilities of these entities at their carrying amounts to EQT on the date of the respective transactions. The difference between EQT's net carrying amount and the total consideration paid to EQT was recorded as a capital transaction with EQT, which resulted in a reduction in equity. This portion of the consideration was recorded in financing activities in the statements of consolidated cash flows. EQM recast its consolidated financial statements to retrospectively reflect the EQM-RMP Merger and the Drop-Down Transaction for the periods the acquired businesses were under the common control of EQT; however, the consolidated financial statements are not necessarily indicative of the results of operations that would have occurred if EQM had owned the acquired businesses during the periods reported. Divestitures As discussed in Note 3 , EQM incurred an $80.1 million impairment charge during the second quarter of 2019 associated with certain FERC-regulated low-pressure gathering pipelines. During the third quarter of 2019, EQM divested certain of its FERC-regulated low-pressure gathering pipelines associated with its Copley gathering system located in West Virginia. On August 14, 2019 , Equitrans, L.P., a subsidiary of EQM, entered into a Purchase and Sale Agreement with Diversified Gas & Oil Corporation for the sale of the Copley gathering system (including approximately 530 miles of low-pressure gathering pipelines, four compressor stations and related assets) for a purchase price of $1,000 , subject to certain post-closing adjustments and FERC approval. The initial transaction closed on September 26, 2019 in respect of non-certificated gathering assets comprising a portion of the Copley gathering system. The second transaction will be completed following FERC approval of the abandonment of the certificated assets, which is expected in the fourth quarter of 2019. |