Equitrans Midstream (ETRN) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics - Full-year net income attributable to ETRN common shareholders was approximately $387 million, with earnings per diluted common share of $0.89 [42] - Adjusted EBITDA for the full year was $1,056 million, and deferred revenue was $329 million [42] - Net cash provided by operating activities for the full year was approximately $1 billion, while free cash flow was negative $129 million [42] - Fourth quarter net income attributable to ETRN common shareholders was $134 million, with earnings per diluted common share of $0.31 [42] - Fourth quarter adjusted EBITDA was $272 million, and deferred revenue was $88 million [42] - Full-year equity income was $175 million, with $78 million in the fourth quarter, primarily associated with AFUDC relating to MVP construction [43] - Operating revenue for the full year increased by $36 million compared to the previous year, driven by increased transmission and water service revenue, partially offset by lower gathering revenue [43] - Fourth quarter operating revenue increased by $5.4 million compared to the same period in 2022, primarily due to increased gathered volumes, partially offset by lower water volumes [43] Business Line Data and Key Metrics - Gathering segment averaged about 7.7 Bcf per day of gathered volumes in 2023, roughly flat year-over-year, with expectations for 2024 to remain flat [29] - Transmission segment is nearing completion of the Ohio Valley Connector Expansion Project (OVCX), expected to add 350 million cubic feet per day of incremental capacity, with a total capacity of over 1.2 billion cubic feet per day once complete [30] - Hammerhead pipeline generated $5 million in revenue in 2023, with additional volumes expected to flow North mid-year, contributing to the $65 million EBITDA target [4] - Water segment completed the majority of its mixed-use water system in 2023, with 2024 water CapEx expected to be $25 million to $35 million [41] Market Data and Key Metrics - MVP project is targeted for completion in the second quarter of 2024, with an estimated total project cost ranging from $7.57 billion to $7.63 billion [19] - MVP joint venture executed 20-year binding precedent agreements with two Southeast utility customers for the amended Southgate project, totaling 550 million cubic feet per day of firm capacity commitments [66] - Southgate project is targeted for completion in June 2028 [41] Company Strategy and Industry Competition - Company's priority remains bringing MVP into service safely, with a focus on environmental protocols and permitting compliance [19] - MVP and potential expansion projects are expected to add approximately 2.5 Bcf per day of takeaway capacity, addressing constraints in the basin and supporting volume growth in the southeast [40] - Company is engaged in a strategic process with third parties interested in potential transactions, reflecting the strength of its assets and the near-term completion of MVP [63] Management Commentary on Operating Environment and Future Outlook - Management highlighted the impact of adverse weather conditions on construction productivity, particularly in January, which led to updated timing and cost targets for the MVP project [27] - Favorable weather conditions in February have improved productivity, with expectations to further narrow construction timelines [38] - Management remains confident in the amended revolver covenant, providing adequate cushion for the MVP project financing [10][12] - Company expects to reduce leverage quickly after MVP project-level financing is completed [10] Other Important Information - Company initiated 2024 guidance, forecasting net income of $375 million to $455 million, adjusted EBITDA of $1.235 billion to $1.315 billion, and deferred revenue of approximately $145 million [70] - Full-year CapEx and capital contributions are expected to be $850 million to $955 million, with free cash flow projected to be negative $65 million to negative $145 million [70] - Company paid a cash dividend of $0.15 per common share in the fourth quarter [44] Q&A Session Summary Question: Thoughts on reducing the dividend to accelerate deleveraging - Management stated no plans to reduce the dividend, focusing instead on deleveraging through MVP project financing, which is expected to reduce debt by $800 million to $1 billion [94] Question: Steady-state sustaining CapEx after MVP is in service - Management confirmed sustaining CapEx for the Gathering segment is expected to be $200 million to $250 million, with 2024 likely at the lower end of this range [95] Question: Amended credit facility and leverage ratio - Management explained the amended credit facility provides a cushion, with leverage ratios set at 6 times for Q1, 6.25 times for Q2, and then decreasing to 5.85 times and 5.5 times in subsequent quarters [53] Question: Permitting status for MVP crossings - Management confirmed all permits are in good standing, with no delays triggered by weather issues, and close collaboration with regulatory agencies [74] Question: Timeline for MVP completion - Management provided an updated timeline for MVP completion, targeting the second quarter of 2024, with construction expected to finish in March and commissioning in April [21][51] Question: Hammerhead EBITDA expectations - Management clarified that Hammerhead's EBITDA is now reflected at $65 million, tied directly to MVP's in-service firm commitments, with potential for higher earnings [57] Question: Strategic process and third-party interest - Management acknowledged ongoing discussions with third parties regarding strategic transactions but declined to provide further details [63] Question: Progress on Appalachian Trail and Roanoke River crossings - Management reported 60% completion on the Appalachian Trail crossing and 20 feet remaining on the Roanoke River crossing, with no significant challenges expected [99] Question: MVP expansion project returns - Management indicated the MVP expansion is expected to add 0.5 Bcf per day of capacity, with build multiples in the 3 Bcf to 4 Bcf range, focusing on compression investments [72]