Q2 2015 Results Announced for EQT Midstream Partners and EQT GP Holdings

PITTSBURGH--()--EQT Midstream Partners, LP (NYSE: EQM) and EQT GP Holdings, LP (NYSE: EQGP) today announced second quarter 2015 financial and operating results. EQT Midstream Partners (EQM) net income for the quarter totaled $91.3 million, adjusted EBITDA was $110.5 million, and distributable cash flow was $102.8 million. EQM adjusted operating income was $99.8 million, or 43% higher than the same quarter last year. The non-GAAP financial measures are reconciled in the Non-GAAP Disclosures section of this news release.

EQT GP Holdings, LP (EQGP) owns a 30.2% limited partner interest and 2% general partner interest, along with 100% of the incentive distribution rights in EQM. EQGP completed its initial public offering of 26.45 million common units on May 15, 2015. Net income attributable to EQGP for the second quarter totaled $28.7 million.

Q2 Highlights:

  • Announced agreement to construct natural gas header pipeline for Range Resources
  • Completed the east side expansion project for Antero Resources
  • Increasing EQM distributable cash flow guidance for 2015 to $390 – $400 million

In December 2013, EQM entered into a capital lease with EQT for its Allegheny Valley Connector facilities (AVC), which includes a 200-mile pipeline regulated by the Federal Energy Regulatory Commission (FERC). EQM operates the AVC and the related revenues and expenses are included in the financial statements; however, the monthly lease payment to EQT offsets the impact on distributable cash flow. As a result, second quarter 2015 operating results are discussed on an adjusted basis, excluding the AVC. Payments due under the lease totaled $3.4 million for the second 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.

EQM second quarter adjusted operating revenues increased $35.7 million, or 35%, compared to the same quarter last year. The increase was primarily due to increased contracted firm transmission capacity and increased gathered volumes. Adjusted operating expenses were up $5.6 million versus the second quarter of 2014, consistent with the growth of the business.

QUARTERLY DISTRIBUTION

EQM

For the second quarter of 2015, EQM will pay a quarterly cash distribution of $0.64 per unit. The distribution will be paid on August 14, 2015 to all unitholders of record at the close of business on August 4, 2015. The quarterly cash distribution is $0.12 per unit, or 23% higher, than the second quarter of 2014.

EQGP

For the second quarter of 2015, EQGP will pay an initial distribution of $0.04739 per unit. The prorated distribution reflects the 47 day period from the initial public offering closing to the end of the quarter and corresponds to a full quarterly distribution of $0.09175 per unit. The distribution will be paid on August 24, 2015 to EQGP unitholders of record at the close of business on August 4, 2015.

GUIDANCE

EQM forecasts third quarter 2015 adjusted EBITDA of $112 – $117 million and full-year 2015 adjusted EBITDA of $435 – $445 million. EQM is also increasing its full-year distributable cash flow forecast to $390 – $400 million. EQM is targeting annual distribution growth of 20% through 2017, which equates to more than 40% annual distribution growth at EQGP over the same time period. The financial and distribution guidance does not include financial impacts of potential acquisitions.

EQM CAPITAL EXPENDITURES

Expansion

In the second quarter, EQM continued its gathering infrastructure expansion with approximately $68 million in investments related to gathering pipeline and compression projects for EQT and third-party producers. A majority of the investment was related to the Jupiter Gathering System (Jupiter) and the Northern West Virginia Marcellus Gathering System (NWV Gathering). EQM forecasts total gathering related investments of approximately $195 – $205 million in 2015.

EQM invested approximately $34 million in the Ohio Valley Connector (OVC) project during the second quarter. The OVC is estimated to cost $300 million, of which approximately $120 – $130 million will be invested in 2015.

EQM also invested $20 million during the quarter in other transmission expansion projects – most notably the east side expansion project for Antero Resources, which was placed into service during the quarter and added 100 MMcf per day of transmission capacity. EQM transmission capacity now stands at 3.1 Bcf per day. Investments of approximately $50 million for transmission projects are expected in 2015.

While no capital contribution was made to Mountain Valley Pipeline, LLC during the second quarter, EQM continues to expect total capital contributions to Mountain Valley Pipeline of approximately $105 – $115 million in 2015.

Expansion capital expenditures totaled $122 million in the second quarter. EQM forecasts 2015 total expansion capital expenditures including capital contributions to Mountain Valley Pipeline of approximately $470 – $500 million.

Ongoing Maintenance

Ongoing maintenance capital expenditures are cash expenditures made to maintain, over the long term, EQM operating capacity or operating income. EQM ongoing maintenance capital expenditures, net of expected reimbursements, totaled $1.9 million in the second quarter 2015. EQM forecasts full-year 2015 ongoing maintenance capital expenditures of approximately $20 – $25 million.

Project Update

Natural Gas Header Pipeline for Range Resources

As announced today in a separate news release, EQM will invest approximately $250 million for the construction of 32 miles of pipeline and installation of approximately 32,000 horsepower of compression. The natural gas header pipeline will support Range Resources’ dry Marcellus and Utica development in southwestern Pennsylvania. EQM plans to complete the project in two phases, with phase one expected to be in-service by the third quarter of 2016 and phase two by mid-year 2017. The majority of capital investment is expected to occur throughout 2016 and the first half of 2017. The pipeline will provide greater than half a billion cubic feet per day of firm capacity and is backed by a long-term firm capacity reservation commitment.

NON-GAAP DISCLOSURES

EQM Adjusted EBITDA and Distributable Cash Flow

As used in this news release, EQM adjusted EBITDA means EQM’s net income plus interest expense, depreciation and amortization expense, and non-cash long-term compensation expense less equity income, other income, and capital lease payments. 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 EQM has available for distributions from operating surplus or that EQM plans to distribute. Adjusted EBITDA and distributable cash flow are non-GAAP supplemental financial measures that management and external users of EQM’s consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, use to assess:

  • EQM’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 EQM’s assets to generate sufficient cash flow to make distributions to EQM unitholders;
  • EQM’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.

EQM believes that adjusted EBITDA and distributable cash flow provide useful information to investors in assessing EQM’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, EQM’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 EQM’s quarterly report on Form 10-Q for the quarter ended June 30, 2015.

Reconciliation of EQM Adjusted EBITDA and Distributable Cash Flow

(Thousands)     Three Months Ended

June 30, 2015

Operating revenues:
Transmission and storage $ 68,140
Gathering   76,473  
Total operating revenues 144,613
Operating expenses:
Operating and maintenance 17,232
Selling, general and administrative 13,727
Depreciation and amortization   12,258  
Total operating expenses   43,217  
Operating income 101,396
Equity income 394
Other income 1,169
Interest expense   11,640  
Net income $ 91,319  
Add:
Interest expense 11,640
Depreciation and amortization expense 12,258
Non-cash long-term compensation expense 239
Less:
Equity income (394 )
Other income (1,169 )
Capital lease payments for AVC   (3,427 )
Adjusted EBITDA $ 110,466  
Less:
Interest expense, excluding capital lease interest (5,742 )

Ongoing maintenance capital expenditures, net of expected reimbursements

  (1,878 )
Distributable cash flow $ 102,846  
Distributions declared(1):
Limited Partner $ 45,253
General Partner   11,211  
Total $ 56,464
Coverage ratio 1.82x
 

(Thousands)

Three Months Ended

June 30, 2015

 
 

Net cash provided by operating activities

$

124,443

Adjustments:

Interest expense

11,640

Capital lease payments for AVC

(3,427

)

Other, including changes in working capital

(22,190

)

Adjusted EBITDA

$

110,466

 

(1)

 

Reflects cash distribution of $0.64 per limited partner unit for the second quarter.

 

EQM Adjusted Operating Revenues, Adjusted Operating Expenses, Adjusted Operating Income and Adjusted Income Before Income Taxes

EQM Adjusted operating revenues, adjusted operating expenses, adjusted operating income and adjusted income before income taxes, all of which exclude the impact of the AVC, are non-GAAP supplemental financial measures that are presented because they are important measures used by management to evaluate EQM’s performance. The AVC did not have a net positive or negative impact on EQM’s distributable cash flow. Adjusted operating revenues, adjusted operating expenses, adjusted operating income and adjusted income before income taxes should not be considered as alternatives to operating revenues, operating expenses, operating income or income before income taxes, or any other measure of financial performance presented in accordance with GAAP. The table below reconciles adjusted operating revenues, adjusted operating expenses, adjusted operating income and adjusted income before income taxes with operating revenues, operating expenses, operating income and income before income taxes as derived from the statements of consolidated operations to be included in EQM’s quarterly report on Form 10-Q for the quarter ended June 30, 2015.

  Three Months Ended June 30, 2015
(Thousands)

Reported
Results

 

Adjustment
to exclude
AVC

 

Adjusted
Results
(excludes
AVC)

Operating Revenues:
Operating revenues – affiliate $ 107,693 $ - $ 107,693
Operating revenues – third party 36,920 (6,052 ) 30,868
Total operating revenues 144,613 (6,052 ) 138,561
 
Operating Expenses
Operating and maintenance 17,232 (1,159 ) 16,073
Selling, general and administrative 13,727 (1,466 ) 12,261
Depreciation and amortization 12,258 (1,781 ) 10,477
Total operating expenses 43,217 (4,406 ) 38,811
Operating income 101,396 (1,646 ) 99,750
Equity income 394 394
Other income 1,169 1,169
Interest expense 11,640 (5,898 ) 5,742
Income before income taxes $ 91,319 $ 4,252   $ 95,571
 

  Three Months Ended June 30, 2014(1)
(Thousands)

Reported
Results

 

Adjustment
to exclude
AVC

 

Adjusted
Results
(excludes
AVC)

Operating Revenues:
Operating revenues – affiliate $ 74,916 $ - $ 74,916
Operating revenues – third party 34,411 (6,423 ) 27,988
Total operating revenues 109,327 (6,423 ) 102,904
 
Operating Expenses
Operating and maintenance 13,626 (1,158 ) 12,468
Selling, general and administrative 12,865 (1,049 ) 11,816
Depreciation and amortization 10,436 (1,471 ) 8,965
Total operating expenses 36,927 (3,678 ) 33,249
Operating income 72,400 (2,745 ) 69,655
Other income 559 559
Interest expense 6,629 (5,354 ) 1,275
Income before income taxes $ 66,330 $ 2,609   $ 68,939
 

(1)

 

Q2 2014 has been recast to include the historical results of NWV Gathering and Jupiter.

 

Q2 2015 Webcast Information

EQM and EQGP will host a joint live webcast with security analysts today at 11:30 a.m. ET. Topics include second quarter 2015 financial results, operating results, and other matters. The webcast is available at www.eqtmidstreampartners.com and a replay will be available for seven days following the call.

EQT Corporation (EQT), which owns EQGP’s general partner and holds a 90% limited partner interest in EQGP, will also host a webcast with security analysts today at 10:30 a.m. ET. EQM and EQGP unitholders are encouraged to listen-in, as the discussion may include topics relevant to EQM and EQGP, such as EQT's financial and operational results, potential asset dropdown transactions, and specific reference to EQM and EQGP second quarter 2015 results. The webcast can be accessed via www.eqt.com and will be available as a replay for seven days following the call.

About EQT Midstream Partners:

EQT Midstream Partners, LP is a growth-oriented limited partnership formed by EQT Corporation to own, operate, acquire, and develop midstream assets in the Appalachian Basin. The Partnership provides midstream services to EQT Corporation and third-party companies through its strategically located transmission, storage, and gathering systems that service the Marcellus and Utica regions. The Partnership owns 700 miles and operates an additional 200 miles of FERC-regulated interstate pipelines; and also owns more than 1,600 miles of high- and low-pressure gathering lines.

Visit EQT Midstream Partners, LP at www.eqtmidstreampartners.com

About EQT GP Holdings:

EQT GP Holdings, LP is a limited partnership that owns a 30% limited partner interest and 2% general partner interest, including 100% of the incentive distribution rights, in EQT Midstream Partners, LP. EQT Corporation owns a 90% limited partner interest in EQT GP Holdings, LP.

Visit EQT GP Holdings, LP at www.eqtmidstreampartners.com

EQM and EQGP management speak to investors from time to time and the analyst presentation for these discussions, which is updated periodically, is available via the EQM and EQGP website at www.eqtmidstreampartners.com.

Cautionary Statements

EQM is unable to provide a reconciliation of its projected adjusted EBITDA and projected distributable cash flow to projected net income or projected net cash provided by operating activities, the most comparable financial measures calculated in accordance with generally accepted accounting principles (GAAP), because of uncertainties associated with projecting future net income and changes in assets and liabilities.

Disclosures in this news release contain certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Statements that do not relate strictly to historical or current facts are forward-looking. Without limiting the generality of the foregoing, forward-looking statements contained in this news release specifically include the expectations of plans, strategies, objectives and growth and anticipated financial and operational performance of EQGP and its subsidiaries, including EQM, including guidance regarding EQM’s transmission and storage and gathering revenue and volume growth; revenue projections; infrastructure programs (including the timing, cost, capacity and sources of funding with respect to transmission and gathering projects); the timing, cost, capacity and expected interconnects with facilities and pipelines of the Ohio Valley Connector and Mountain Valley Pipeline (MVP); the ultimate terms, partners and structure of the MVP joint venture; natural gas production growth in EQM’s operating areas for EQT and third parties; asset acquisitions, including EQM’s ability to complete any asset purchases from EQT or third parties and anticipated synergies and accretion associated with any acquisition; internal rate of return (IRR); compound annual growth rate (CAGR); capital commitments, projected capital and operating expenditures, including the amount and timing of capital expenditures reimbursable by EQT, capital budget and sources of funds for capital expenditures; liquidity and financing requirements, including funding sources and availability; distribution rates and growth; projected adjusted EBITDA and projected distributable cash flow, including the effect of the AVC lease on distributable cash flows; future AVC lease payments; the effects of government regulation and litigation; and tax position. These forward looking statements 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. EQM and EQGP have based these forward-looking statements on current expectations and assumptions about future events. While EQM and EQGP consider these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks and uncertainties, many of which are difficult to predict and beyond the partnerships’ control. The risks and uncertainties that may affect the operations, performance and results of EQM’s and EQGP’s business and forward-looking statements include, but are not limited to, those set forth under Item 1A, “Risk Factors” of EQM’s Form 10-K for the year ended December 31, 2014 and under the caption “Risk Factors” in EQGP’s prospectus dated May 11, 2015 and filed with the Securities and Exchange Commission on May 12, 2015, as each may be updated by any subsequent Form 10-Q’s. Any forward-looking statement speaks only as of the date on which such statement is made, and neither EQM nor EQGP intends to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise.

Information in this news release regarding EQT Corporation and its subsidiaries, other than EQM and EQGP, is derived from publicly available information published by EQT.

This release serves as qualified notice to nominees under Treasury Regulation Sections 1.1446-4(b)(4) and (d). Please note that 100% of EQM’s and EQGP’s distributions to foreign investors are attributable to income that is effectively connected with a United States trade or business. Accordingly, all of EQM’s and EQGP’s distributions to foreign investors are subject to federal income tax withholding at the highest effective tax rate for individuals or corporations, as applicable. Nominees, and not EQM or EQGP, as applicable, are treated as the withholding agents responsible for withholding on the distributions received by them on behalf of foreign investors.

EQT Midstream Partners, LP

Statements of Consolidated Operations (unaudited)

   
Three Months Ended
June 30,
(Thousands, except per unit amounts) 2015    

2014(1)

Operating revenues(2) $ 144,613 $ 109,327
 
Operating expenses:
Operating and maintenance 17,232 13,626
Selling, general and administrative 13,727 12,865
Depreciation and amortization 12,258   10,436  
Total operating expenses 43,217   36,927  
Operating income 101,396 72,400
Equity income 394 -
Other income 1,169 559
Interest expense 11,640   6,629  
Income before income taxes 91,319 66,330
Income tax expense -   7,362  
Net income $ 91,319   $ 58,968  
 
Calculation of limited partner interest in net income:
Net income $ 91,319 $ 58,968
Less:
Pre-acquisition net income allocated to parent - (12,390 )
General partner interest in net income (11,908 ) (2,792 )
Limited partner interest in net income $ 79,411   $ 43,786  
 
Net income per limited partner unit - basic $ 1.12 $ 0.81
Net income per limited partner unit - diluted $ 1.12 $ 0.81
 
Weighted average limited partner units outstanding – basic 70,722 54,259
Weighted average limited partner units outstanding – diluted 70,876 54,386
 

(1)

 

Q2 2014 has been recast to include historical results of NWV Gathering, which was acquired on March 17, 2015, and Jupiter, which was acquired on May 7, 2014.

(2)

Operating revenues included affiliate revenues of $107.7 million and $74.9 million for Q2 2015 and Q2 2014, respectively.

 

EQT Midstream Partners, LP

Operating Revenues

 
Three Months Ended

June 30,

(Thousands) 2015     2014(1)
Transmission and Storage
Firm reservation fee revenues $ 56,671 $ 45,170
Volumetric based fee revenues:
Usage fees under firm contracts(2) 10,084 11,260
Usage fees under interruptible contracts 1,385   2,695
Total volumetric based fee revenues 11,469   13,955
Total transmission and storage operating revenues $ 68,140 $ 59,125
Gathering
Firm reservation fee revenues $ 64,091 $ 8,432
Volumetric based fee revenues:
Usage fees under firm contracts(2) 7,182 11,107
Usage fees under interruptible contracts 5,200   30,663
Total volumetric based fee revenues 12,382   41,770
Total gathering operating revenues $ 76,473   $ 50,202
 

(1)

 

Q2 2014 has been recast to include historical results of NWV Gathering and Jupiter.

(2)

Includes commodity charges and fees on volumes transported or gathered in excess of firm contracted capacity.

 

EQT Midstream Partners, LP

Operating Results

 
Three Months Ended
June 30,
2015    

2014(1)

OPERATING DATA (in BBtu per day):
Transmission pipeline throughput (excluding AVC)
Firm capacity reservation 1,782 1,142
Volumetric based services(2)   229   412  
Total transmission pipeline throughput (excluding AVC) 2,011 1,554
 
Average contracted firm transmission reservation commitments (excluding AVC) 2,238 1,621
 
AVC transmission pipeline throughput 71 122
 
Gathered volumes
Firm reservation 1,102 155
Volumetric based services(2)   319   880  
Total gathered volumes 1,421 1,035
 

CAPITAL EXPENDITURES (in thousands):

Expansion capital expenditures $ 122,360 $ 74,873
Maintenance capital expenditures:
Ongoing maintenance(3) 3,413 4,092
Funded regulatory compliance   1,276   2,521  
Total maintenance capital expenditures   4,689   6,613  
Total capital expenditures $ 127,049 $ 81,486  
 

(1)

 

Q2 2014 has been recast to include historical results of NWV Gathering and Jupiter.

(2)

Includes volumes transported or gathered under interruptible contracts and volumes in excess of firm contracted capacity.

(3)

Approximately $1.5 million of the Q2 2015 ongoing maintenance capital expenditures are expected to be reimbursed by EQT for the bare steel replacement program.

 

EQT GP Holdings, LP

Statements of Consolidated Operations (unaudited)

 
Three Months Ended
June 30,
(Thousands, except per unit amounts) 2015    

2014(1)

Operating revenues(2) $ 144,613 $ 109,327
 
Operating expenses:
Operating and maintenance 17,232 13,626
Selling, general and administrative 14,765 12,865
Depreciation and amortization 12,258   10,436  
Total operating expenses 44,255   36,927  
Operating income 100,358 72,400
Equity income 394 -
Other income 1,169 559
Interest expense 11,640   6,629  
Income before income taxes 90,281 66,330
Income tax expense 5,436   13,705  
Net income 84,845 52,625
Net income attributable to noncontrolling interests 56,189   27,343  
Net income attributable to EQT GP Holdings, LP $ 28,656   $ 25,282  
 
Calculation of limited partner interest in net income:
Net income attributable to EQT GP Holdings, LP $ 28,656 N/A
Less:
Results attributable to pre-IPO period (8,303 ) N/A  
Limited partner interest in net income $ 20,353   N/A  
 
Net income per limited partner unit – basic and diluted $ 0.08 N/A
 
Weighted average limited partner units outstanding – basic and diluted 266,167 N/A
 

(1)

 

Q2 2014 has been recast to include historical results of NWV Gathering, which was acquired on March 17, 2015.

(2)

Operating revenues included affiliate revenues of $107.7 million and $74.9 million for Q2 2015 and Q2 2014, respectively.

Contacts

EQT Midstream Partners
Analyst inquiries please contact:
Nate Tetlow – Investor Relations Director, 412-553-5834
ntetlow@eqtmidstreampartners.com
or
Patrick Kane – Chief Investor Relations Officer, 412-553-7833
pkane@eqtmidstreampartners.com
or
Media inquiries please contact:
Natalie Cox – Corporate Director, Communications, 412-395-3941
ncox@eqtmidstreampartners.com

Contacts

EQT Midstream Partners
Analyst inquiries please contact:
Nate Tetlow – Investor Relations Director, 412-553-5834
ntetlow@eqtmidstreampartners.com
or
Patrick Kane – Chief Investor Relations Officer, 412-553-7833
pkane@eqtmidstreampartners.com
or
Media inquiries please contact:
Natalie Cox – Corporate Director, Communications, 412-395-3941
ncox@eqtmidstreampartners.com