EQT Midstream Partners, LP (EQM), an EQT Corporation (EQT) company, today announced third quarter 2014 financial and operating results. Net income for the quarter totaled $56.5 million and adjusted EBITDA was $71.4 million. Distributable cash flow was $61.8 million for the quarter. Adjusted operating income was $62.3 million, or 16% higher than the same quarter last year. The non-GAAP financial measures are reconciled in the Non-GAAP Disclosures section, found below.
Additional Highlights:
- The Partnership will assume EQT’s interest in Mountain Valley Pipeline, LLC
- Mountain Valley Pipeline, LLC secures 2 Bcf per day of capacity commitments
- The Jefferson compressor station was placed into service
- Third quarter distribution per unit was 28% higher than the same period last year
In December 2013, EQT Midstream Partners (Partnership) entered into a capital lease with EQT for the lease of its Allegheny Valley Connector facilities (AVC), which includes a 200-mile FERC-regulated pipeline. The Partnership operates the AVC and the related revenues and expenses are included in the Partnership’s financial statements; however, the monthly lease payment to EQT offsets the impact on the Partnership’s distributable cash flow. As a result, third quarter 2014 operating results are discussed on an adjusted basis, excluding the AVC. Payments due under the lease totaled $3.6 million for the third quarter. The revenues and expenses associated with the AVC are found in the reconciliation table in the Non-GAAP Disclosures section of this news release.
Third quarter adjusted operating revenues increased $12.3 million, or 16%, compared to the same quarter last year. The increase was primarily due to increased contracted firm transmission capacity and throughput from third-parties and EQT. Adjusted operating expenses increased $4.0 million versus the third quarter of 2013, consistent with the growth of the business.
Mountain Valley Pipeline
EQT announced today that the Partnership will assume EQT’s interest in Mountain Valley Pipeline, LLC, a joint venture with a subsidiary of NextEra Energy, Inc. The Mountain Valley Pipeline (MVP) will extend from the Partnership’s existing transmission and storage system in Wetzel County, West Virginia to Pittsylvania County, Virginia. The Partnership expects to own a majority interest in the joint venture and will operate the estimated 300-mile pipeline.
The joint venture has secured a total of 2 Bcf per day of firm capacity commitments at 20-year terms, and is currently in negotiation with additional shippers who have expressed interest in the MVP project. As a result, the final project scope, including pipe diameter and total capacity, is not yet determined.
The pipeline, which is subject to Federal Energy Regulatory Commission (FERC) approval, will provide Marcellus and Utica natural gas supply to the growing demand markets in the southeast region. The pre-filing process with FERC is expected to begin this month; and the pipeline is expected to be in-service during the fourth quarter of 2018. For more information on the project please visit www.mountainvalleypipeline.info.
Long-term Debt Offering
On August 1, 2014, the Partnership closed its inaugural long-term debt offering. The $500 million offering of 10-year senior notes was issued at a 4.0% coupon and matures in August 2024. The Partnership ended the third quarter with $155 million of cash and zero drawn on its $750 million credit facility.
Quarterly Distribution
The Partnership announced a quarterly cash distribution of $0.55 per unit for the third quarter of 2014. The distribution will be paid on November 14, 2014 to all unitholders of record at the close of business on November 4, 2014. The quarterly cash distribution is $0.03 per unit, or 6% higher than the second quarter of 2014 and $0.12 per unit, or 28% higher than the third quarter of 2013. The Partnership expects to continue to increase the per unit distribution by $0.03 each quarter through at least 2016.
Guidance
The Partnership’s full-year 2014 adjusted EBITDA and distributable cash flow forecasts are $254 million and $221 million, respectively. The forecasts reflect lower expected fourth quarter gathered volumes on the Jupiter natural gas gathering system due to EQT’s revised production volume forecast.
CAPITAL EXPENDITURES
Expansion
The Partnership completed the Jefferson compressor station expansion in the third quarter 2014. The expansion added 550 BBtu per day of transmission capacity.
The Partnership is constructing two transmission expansion projects for Antero Resources and is constructing a gathering and transmission expansion for Range Resources. In total, the Partnership expects to spend $50 million in 2014 and $55 million in 2015 to complete these expansion projects.
The Partnership has begun preliminary work on the 36-mile Ohio Valley Connector (OVC) project, which will connect the Partnership’s transmission and storage system in northern West Virginia to Clarington, Ohio. The pipeline will provide 1.0 Bcf per day of transmission capacity and is estimated to cost $300 million. The Partnership projects capital expenditures of approximately $10 million in 2014 related to the OVC project. The OVC is expected to be placed in-service by mid-year 2016.
In the fourth quarter 2014, the Partnership expects to install 350 MMcf per day of compression capacity, along with gathering pipelines associated with its Jupiter natural gas gathering system.
Expansion capital expenditures totaled $59.9 million in the third quarter and $131.6 million year-to-date. The Partnership forecasts total expansion capital expenditures of approximately $200 – $220 million in 2014.
Ongoing Maintenance
Ongoing maintenance capital expenditures are cash expenditures made to maintain, over the long-term, the Partnership’s operating capacity or operating income. Ongoing maintenance capital expenditures, net of expected reimbursements, totaled $5.7 million in the third quarter 2014 and $10.5 million year-to-date. The Partnership forecasts ongoing maintenance capital expenditures of approximately $17 – $18 million for 2014.
NON-GAAP DISCLOSURES
Adjusted EBITDA and Distributable Cash Flow
As used in this news release, adjusted EBITDA means net income plus net interest expense, depreciation and amortization expense, income tax expense (if applicable), non-cash long-term compensation expense and other non-cash adjustments (if applicable), less other income, capital lease payments and Jupiter adjusted EBITDA prior to acquisition (if applicable). As used in this news release, distributable cash flow means adjusted EBITDA less interest expense, excluding capital lease interest and ongoing maintenance capital expenditures, net of expected reimbursements. Distributable cash flow should not be viewed as indicative of the actual amount of cash that the Partnership has available for distributions from operating surplus or that the Partnership plans to distribute. Adjusted EBITDA and distributable cash flow are non-GAAP supplemental financial measures that management and external users of the Partnership’s consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, use to assess:
- the Partnership’s operating performance as compared to other publicly traded partnerships in the midstream energy industry without regard to historical cost basis or, in the case of adjusted EBITDA, financing methods;
- the ability of the Partnership’s assets to generate sufficient cash flow to make distributions to the Partnership’s unitholders;
- the Partnership’s ability to incur and service debt and fund capital expenditures; and
- the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.
The Partnership believes that adjusted EBITDA and distributable cash flow provide useful information to investors in assessing the Partnership’s financial condition and results of operations. Adjusted EBITDA and distributable cash flow should not be considered as alternatives to net income, operating income, net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjusted EBITDA and distributable cash flow have important limitations as analytical tools because they exclude some, but not all, items that affect net income and net cash provided by operating activities. Additionally, because adjusted EBITDA and distributable cash flow may be defined differently by other companies in its industry, the Partnership’s definition of adjusted EBITDA and distributable cash flow may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. The table below reconciles adjusted EBITDA and distributable cash flow with net income and net cash provided by operating activities as derived from the statements of consolidated operations and cash flows to be included in the Partnership’s quarterly report on Form 10-Q for the quarter ended September 30, 2014.
