Post on 03-Jul-2020
Investor Presentation
June 2020
Key Investment Highlights
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Leading footprint in the Appalachian Basin
• Premier gathering, transmission and water infrastructure positioned to benefit from core development in the Marcellus / Utica Shales
• One of the largest natural gas gatherers in the United States
Stable cash flows backed by long-term contracts
• Greater than 70% of revenue forecasted from firm / MVC contracts once MVP is placed in-service(1)
• Gathering agreement executed with EQT in February 2020 creates 15-year MVC gathering contract
• 14-year weighted average firm transmission & storage contract life(2)
Significant organic growth projects support long-term
growth
• MVP and related projects are backed by firm commitments
• Projects are expected to add approximately $350 MM of incremental firm project EBITDA(3)
Disciplined capital structure • Utilizing excess retained free cash flow to reduce debt; targeting a <4.0x leverage ratio(3)
• Ample liquidity available through EQM revolver
Recently announced total transformation reshapes ETRN
• Simplified corporate structure creates a single public C-Corp
• Commercial alignment with EQT enables optimized drilling plans and creates significant midstream capital efficiencies
• New dividend and capital allocation policy strengthens balance sheet
(1) Pro forma revenue projections do not include revenue contributions from MVP or MVP Southgate, which are accounted for as equity investments. (2) Statistics as of March 31, 2020. (3) See slide 37 and 38 for important information regarding the non-GAAP financial measures retained free cash flow and firm project EBITDA, respectively.
Accelerated Total Transformation Overview
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Accelerated Total Transformation
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Four Actions to Reshape ETRN – Announced February 27, 2020
• 15-year gas gathering contract with 3 Bcf/d MVC and step-up to 4 Bcf/d MVC(1)
• Over 100,000 core West Virginia acres dedicated
Purchased and Retired 25.3 MM ETRN Shares(2)
• Unique opportunity to buy back ETRN shares from EQT
• Represented nearly 10% of shares outstanding
• Consideration structured to minimize upfront cash payment
ETRN to Acquire EQM
• Each public common unit of EQM to receive 2.44 common shares of ETRN
• Expected to close in June 2020
• Simplified structure offers enhanced governance and broadens investor base
Dividend and Capital Allocation Policy
• $0.60 per ETRN share annual dividend
• Dividend policy targets(3):
• Leverage ratio <4.0x
• Ability to generate positive retained free cash flow
Agreements with EQT
(1) See slide 8 for additional information regarding the MVC profile. (2) Closed in early March 2020. See slide 11 for additional information regarding the share purchase.(3) Leverage Ratio is Pro forma ETRN Consolidated Debt / (Pro forma ETRN Adjusted EBITDA + deferred revenue). See slide 37 for important disclosures regarding the non-GAAP financial measures adjusted
EBITDA and retained free cash flow.
Accomplishing Key Objectives
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Final step to simplified single C-Corp security with enhanced corporate governance
Asymmetric risk profile through highly predictable cash flow
Commercial alignment with EQT allows optimized drilling plan and midstream capital efficiency
Dividend and capital allocation policy designed to advance strategic objectives and return value to shareholders in any environment
De-levering plan to quickly strengthen balance sheet
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Became effective with execution of new gas gathering agreement
Phase One – Blend, Broaden and Extend
MVC of 3.0 Bcf/d
15-year contract
Over 100,000 core WV acres dedicated
Capital investment protections
Flexibility to execute combo development
Single MVC eliminates legacy deficiencies
Lower credit threshold for letter-of-credit posting
• Created ~$250 MM of liquidity
15-year gas gathering agreement for PA & WV replaces over a dozen agreements
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Effective with MVP in-service
Phase Two – Blend, Broaden and Extend
(1) See slide 32 for additional information regarding water MVC.(2) See slide 33 for additional information regarding the Henry Hub upside potential.
MVC step-up
• Peaking at 4.0 Bcf/d
5-year PA water MVC(1)
• Will generate $60 MM per year of firm revenue
3-year Henry Hub upside potential(2)
• Up to $60 MM per year of cash flow
Rate relief limited to 3 years
• $125 MM, $140 MM and $35 MM
Gas Gathering Agreement
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Significant step-up and extension of gathering MVC drives predictable cash flows
New EQT MVC covers Pennsylvania and West
Virginia volumes
Assumes early 2021 MVP in-service.Prior EQT MVCs include firm reservation commitments.
Phase 2 MVC
Phase 1 MVC
Gas Gathering Agreement
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Securing growth opportunity and enhancing capital efficiency
Estimated $500 MM net present value from investment supporting development of newly dedicated West Virginia acreage
• Over 100,000 acres dedicated in core development areas across northern West Virginia
Capital investment protections
Incremental compression investments will generate a separate compression fee
Acreage Map
Net present value based on 10% discount rate.
Gas Gathering Agreement
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Combo development / return to pad drilling leads to step-change in CAPEX
Systematic buildout of gas gathering system yields
midstream capital efficiency
• Concentrated footprint reduces overall build miles relative
to scattered pad development
• ~30% reduction in capital from 50% fewer pipeline miles and
upsized pipe diameter from 12” to 16”
• Estimated $250 MM of capital savings over next few years
EQT choke management program results in predictable
operations and enhanced midstream planning
• Avoid sizing midstream facilities for short-lived peak initial
production rates
• Minimize back-off of nearby wells when new production
comes on-line
Existing gathering lines and
compression
Combo Development / Return to Pad Example
Step one – initial drilling plan
Step two – return to pad drilling utilizes
infrastructure built for step one
Significant CAPEX Reductions Drive Long-Term Free Cash Flow(1)
(1) See slide 37 for important information regarding the non-GAAP financial measure free cash flow.
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Unique opportunity to buy back significant block of ETRN stock
25.3 MM Shares of ETRN Purchased from EQT
Shares acquired & retired in March 2020
$52 MM upfront cash
$196 MM PV-10 consideration to be paid in rate relief in Phase 2
Reduced equity overhang
Upfront cash of $52 MM
Rate relief over 2-years with MVP in-service (Phase 2)
• $145 MM year-one and $90 MM year-two
• EQT has option to receive the rate relief consideration in cash in the event that MVP is not in-service by January 2022
EQT remaining 25.3 million shares of ETRN represents approximately 6% of pro
forma ETRN shares outstanding
ETRN will acquire EQM in a 100% share-for-unit exchange
• EQM public common unitholders will receive 2.44 shares of ETRN common stock for each common unit of EQM
• ~3% premium to the 20-day VWAP(1)
EQM to become a wholly owned subsidiary of ETRN following merger
Expected to close in June 2020, subject to closing conditions and approval from ETRN shareholders and EQM unitholders
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Roll-up transaction simplifies structure and provides multiple benefits
ETRN to Acquire EQM
Acquisition Terms Strategic Rationale
Single C-Corp security eliminates complexity and offers improved governance
ETRN projected near zero cash taxes through 2023 and minimal cash taxes after giving effect to the merger
Creates broader investor base
Increased float improves trading liquidity
Enhances opportunity for index inclusion
(1) Based on volume weighted average price for EQM and ETRN over the 20-days ending February 26, 2020.
Assets and Organic Growth Projects
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Integrated asset footprint across core Marcellus & Utica development areas
Gathering Assets
OH Utica Gathering
• 195 miles of high pressure pipeline
• 90,000 HP compression
• Minimum Volume Commitment (MVC) from Gulfport
• Dry gas gathering in core acreage in Belmont and Monroe counties
• ~195,000 acres dedicated
PA and WV Gathering
• 540 miles of high pressure pipeline
• 305,000 HP of compression
• Newly executed 15-year MVC contract with EQT covers core development in PA and WV
• 3.0 Bcf/d MVC with EQT steps up to 4.0 Bcf/d following MVP in-service
• ~100,000 acres of core West Virginia acreage dedicated from EQT
• Additional 0.6 Bcf/d high pressure header pipeline for Range Resources
Statistics as of December 31, 2019 unless otherwise stated. (1) Reflects 100% of acreage dedications for the Eureka system, including additional acreage dedicated in Q1 2020.
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Eureka & Hornet Midstream Gathering
• 255 miles of high pressure pipeline
• 50,000 HP of compression
• MVCs of ~1 Bcf/d
• Supports core dry gas development in Ohio Utica and core wet gas development in West Virginia Marcellus
• ~220,000 core acres dedicated across OH Utica and WV Marcellus(1)
System aggregates supply and exports to the interstate pipeline system
4.4 Bcf per day current capacity
950-mile FERC-regulated interstate pipeline
18 storage pools with 43 Bcf of working gas storage capacity
Ohio Valley Connector (OVC) provides access to Midwest markets
Assets traverse core Marcellus acreage
Approximately 96% of firm capacity commitments under negotiated rate agreements
Transmission and Storage Assets
Strategically Located Assets
Statistics as of December 31, 2019.
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Gathering 8.3 Bcf per day(1)
Pipeline position cannot be replicated
• Multiple large diameter pipelines aggregate gas and provide access to every major region
Producers have optionality to reach many markets and enhance net-back price
• Interconnects with 7 interstate pipelines and provides access to local demand
Demand customers have access to low cost gas supply close to wellhead
Storage provides balancing and park & loan services
Equitrans Transmission System offers optionality to diverse set of markets
Connecting A-Basin Supply to Markets
Local
Demand
Local
Demand
Northeast
Market Takeaway Pipelines
Northeast TETCO, TCO, DTI, TGP, NFG
Midwest REX, ET Rover
Gulf TETCO, TCO, TGP
Southeast Transco (Upon MVP in-service)
Local Demand EGC / PNG
(1) EQM gathered volumes for the three months ended March 31, 2020, which includes 100% of Eureka.
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Complementary service with concentrated footprint
Water Assets
Provides full service sourcing and hauling for drilling and
completion activities
Approximately 180 miles of fresh water pipelines
Fresh water access via major rivers and regional sources
5-year PA water MVC with EQT (commences with MVP in-
service)
Significant cost and safety advantage versus trucking
Potential for produced water solution provides upside
17Statistics as of December 31, 2019.
Long-haul pipeline will be main takeaway artery out of A-basin
Mountain Valley Pipeline
Delivering supply to the growing natural gas demand markets in southeast U.S.
• 300-mile, 42” diameter FERC-regulated pipeline
• Targeted full in-service date in early 2021
• Approximately $5.4 B estimated project cost(1)
• EQM ownership approximately 47%(2)
• EQM will operate the pipeline
2.0 Bcf per day capacity
• Fully subscribed under 20-year firm contracts
Expansion opportunity
• Incremental ~500 MMcf per day with compression expansion
Aligned with JV Partners
Strategic 50+ year pipeline asset
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(1) On June 11, 2020, EQM announced that the overall project cost for the MVP project could potentially increase by approximately 5%.(2) In Q4 2019, ConEd exercised an option to cap its investment in MVP. EQM will fund shortfall capital contributions, which will increase EQM’s equity ownership from 45.5% to approximately 47%, assuming the project’s estimated $5.4 B budget.
Hammerhead Gathering Pipeline
Outlet for southwestern PA development to access southeast U.S. demand market (via MVP)
Natural gas gathering header pipeline
• 64-mile pipeline
• Aggregate gas from several gathering systems
1.6 Bcf per day maximum capacity
• 1.2 Bcf per day firm commitment from EQT with a 20-year term
Firm commitment will commence upon MVP in-service(1)
Approximately $555 MM of capital
(1) The Hammerhead project is expected to become operational in Q2 2020 and will provide interruptible service until MVP in-service. 19
Project driven by demand pull from the tailgate of MVP
MVP Southgate
Approximately 75-mile extension into North Carolina
Project backed by 300 MMcf per day firm capacity commitment from PSNC Energy
Pipe has expansion capabilities up to 900 MMcf/d of total capacity
Approximately $450 - $500 MM of total capital
2021 targeted in-service
EQM ownership approximately 47%
EQM to operate pipeline
Aligned with JV Partners
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Investing ~$3.6 B in firm projects which will transport gas to key demand markets
Growth Driven by MVP & Related Projects
Note: EQM estimated capital for MVP project assumes $5.4 B overall project cost. On June 11, 2020, EQM announced that, in connection with the adjusted targeted in-service date of early 2021, EQM expects that the total costs for the MVP project may potentially increase by approximately 5% over the project’s estimated $5.4 B budget. (1) Of the $3,620 MM estimated EQM capital and capital contributions, approximately $2,680 MM was spent through March 31, 2020.(2) In Q4 2019, ConEd exercised an option to cap its investment in MVP. EQM will fund approximately $2.7 B of total estimated project cost, and EQM ’s equity ownership percentage will increase to approximately 47%, assuming the project’s estimated $5.4 B budget. (3) Represents EQM ownership percentage of MVP and MVP Southgate firm project EBITDA. Projects are accounted for as equity investments.(4) Firm contracts will commence once MVP is placed in-service. The Hammerhead project is expected to become operational with interruptible service during Q2 2020. A portion of EEP commenced operations with interruptible service during Q3 2019. Both projects will provide interruptible service until MVP in-service. (5) See slide 38 for important disclosures regarding the non-GAAP financial measure firm project EBITDA. See slide 34 for important information regarding forward-looking statements.
MVP & related projects are expected to add approximately $350 MM of incremental firm project EBITDA (5)
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ProjectTargeted
In-Service Date
EQM Estimated
Capital ($MM)(1)
Estimated Annual Firm
Project EBITDA Once Fully
Operational ($MM)(5)
MVP(3) Early 2021 $2,700(2) $225(2)
Hammerhead(4) Early 2021 $555 $75
Equitrans Expansion Project (EEP)(4) Early 2021 $140 $20
MVP Southgate(3) 2021 $225 $30
Total MVP and Related Projects $3,620 $350
Potential Firm Project Upsides
Existing projects provide low cost expansion upside
MVP Expansion
• ~500 MMcf/d incremental capacity through compression expansion
Hammerhead
• ~200 MMcf/d available capacity
MVP Southgate
• ~400 MMcf/d incremental capacity through compression expansion
1
2
3
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Financial Overview
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Financial Summary
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Dividend and capital allocation policy designed to advance strategic objectives and return value to shareholders in any environment
De-levering plan in place to strengthen balance sheet
Ample liquidity available through EQM revolver
Stable cash flow profile and capital efficiencies drives retained free cash flow (1)
(1) See slide 37 for important information regarding the non-GAAP financial measures free cash flow and retained free cash flow.
Financing Plan
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Path to de-lever and ample liquidity to execute plan
Capital Allocation and Liquidity Funding Plan
ETRN annual dividend of $0.60 per share designed to achieve key objectives(1):
• Generate positive retained free cash flow to reduce debt
• Achieve target leverage of <4.0x
EQM revolver provides ample liquidity
• Approximately $1.3 billion available through EQM revolver as of March 31, 2020
• Maturity date of October 31, 2023
Current project backlog expected to be funded with EQM credit facility borrowings and free cash flow(1)
Evaluating MVP JV level debt
Current EQM Credit Ratings:
• BB- (S&P), BB (Fitch), Ba3 (Moody’s)
(1) Leverage ratio is Pro Forma ETRN Consolidated Debt/(Pro Forma ETRN Adjusted EBITDA + deferred revenue). See slide 37 for impo rtant information regarding the non-GAAP financial measures adjusted EBITDA, free cash flow and retained free cash flow.
2020E Guidance
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Financial Guidance Capital Guidance
2020E ($MM)
Maintenance Capital $55
See slide 37 for important information regarding the non-GAAP financial measures adjusted EBITDA, free cash flow and retained free cash flow.(1) Includes $15 - $20 million of expected transaction costs in Q2 2020.(2) On February 26, 2020, EQM and EQT entered into a new gas gathering agreement. As a result of the new agreement, and beginning in Q2 2020, revenue under the EQT contract will be recognized based on an average gathering rate applied to each period's MVC over the 15-year contract life. The actual cash received under the contract is expected to be higher than the revenue recognized in the early years of contract, resulting in the deferral of revenue into future periods and a corresponding contract liability. The deferred revenue amounts are subject to the ultimate in-service date of MVP. The current deferred revenue estimate is based on MVP’s targeted early 2021 in-service date. (3) ETRN’s forecasts for free cash flow and retained cash flow take into account the impact of transaction costs associated only with ETRN’s pending acquisition of EQM, ETRN’s purchase of its shares from EQT and EQM’s new gas gathering agreement with EQT and related transactions.(4) Includes 60% of Eureka expansion capital expenditures. (5) Includes capital contributions to MVP JV for the MVP Southgate project.
2020E ($MM)
Net income attributable to ETRN(1) $390 - $425
Adjusted EBITDA $1,150 - $1,200
Deferred revenue(2) $227
Free cash flow(3) $(100) - $(150)
Retained free cash flow(3) $(510) - $(560)
2020E ($MM)
MVP $580 - $630
Gathering(4) $350 - $370
Transmission(5) $60 - $80
Water $15
Total Growth Capital $1,005 - $1,095
Key Investment Highlights
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Leading footprint in the Appalachian Basin
• Premier gathering, transmission and water infrastructure positioned to benefit from core development in the Marcellus / Utica Shales
• One of the largest natural gas gatherers in the United States
Stable cash flows backed by long-term contracts
• Greater than 70% of revenue forecasted from firm / MVC contracts once MVP is placed in-service(1)
• Gathering agreement executed with EQT in February 2020 creates 15-year MVC gathering contract
• 14-year weighted average firm transmission & storage contract life(2)
Significant organic growth projects support long-term
growth
• MVP and related projects are backed by firm commitments
• Projects are expected to add approximately $350 MM of incremental firm project EBITDA(3)
Disciplined capital structure • Utilizing excess retained free cash flow to reduce debt; targeting a <4.0x leverage ratio(3)
• Ample liquidity available through EQM revolver
Recently announced total transformation reshapes ETRN
• Simplified corporate structure creates a single public C-Corp
• Commercial alignment with EQT enables optimized drilling plans and creates significant midstream capital efficiencies
• New dividend and capital allocation policy strengthens balance sheet
(1) Pro forma revenue projections do not include revenue contributions from MVP or MVP Southgate, which are accounted for as equity investments. (2) Statistics as of March 31, 2020. (3) See slide 37 and 38 for important information regarding the non-GAAP financial measures retained free cash flow and firm project EBITDA, respectively.
Appendix
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E-Train is Committed to Ethical, Responsible and Sustainable Business Practices
ESG Standards & Practices
Safety
Environmental
• Significant safety education and training program in place
• Safety policies and metrics apply to employees and contractors
• Focusing on identifying incidents with serious potential for injuries
• Operations mainly support natural gas development, a key source of emissions reduction in the U.S.
• Declining methane intensity
• Committed to greenhouse gas mitigation efforts
• Member of the Environmental Partnership, a program offered through API and ONE Future Coalition
Source: Equitrans Midstream 2019 Interim Corporate Sustainability Report.
Governance
Community & Economic Impact
• ETRN’s board is comprised of 89% independent directors
• Four of nine ETRN directors are female
• Four standing committees ensure best practices and decision-making
• All ETRN directors have prior experience on the boards of other companies
• Operations support a large number of ancillary jobs
• Equitrans Midstream Foundation supports non-profits in our operating regions
Organizational Chart
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Pro Forma Structure
100.0% LP Interest Non-economic GP Interest
ETRN
Public
(Private)
Convertible
Preferred
94.0% Interest 6.0% Interest
$600 MM Preferred
Gas Gathering Agreement with EQT
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Deal creates meaningful value for ETRN
Increase in MVCs to drive predictable revenues
• Increase from ~2.0 Bcf/d to 3.0 Bcf/d
• Incremental step-up in MVC upon MVP in-service(1)
Long-term contract • 15-year contract provides long-term stability
Contract structure provides capital protections
• Provides mileage limitations on obligations to build
Rate relief coincides with MVP in-service
• Rate relief under GGA limited to three years ($125MM, $140MM and $35 MM)(2)
Single MVC allows EQT to optimize its development plans
• Improves midstream capital efficiency through better planning and optimal system designs
Improves customer relationship• Over 100,000 core WV acres dedicated for gathering services
• Reduced credit assurance thresholds enhance EQT liquidity
(1) See slide 8 for additional information regarding the MVC profile. (2) See slide 11 for additional information regarding the rate relief related to the ETRN share purchase.
New water services agreement for Pennsylvania development
• 5-year MVC
• Commences with MVP in-service
• Will generate $60 MM per year of firm water revenue
• $20 MM higher per year revenue with new agreement
Water Agreement with EQT
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MVC for water services in PA enhances predictable cash flow profile
Potential for up to $60 MM per year of incremental cash flow
• Applies to the 3-year period beginning with MVP’s in-service but in no case extending beyond December 2024
EQT to pay cash to EQM in an amount equal to:
• (i) 15% of every $0.01/MMBtu that the average quarterly NYMEX Henry Hub first of the month closing index price is above $2.50/MMBtu and, if applicable, above $2.70/MMBtu during any periods in 2024 multiplied by (ii) the applicable MVC volume for such quarter
Henry Hub Upside
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Structure allows EQM to participate in higher commodity price environment
This presentation contains certain forward-looking statements within the meaning of Section 21E of the United States Securities Exchange Act of 1934, as amended (the Exchange Act), and Section 27A of the United States Securities Act of 1933, as amended (the Securities
Act), concerning Equitrans Midstream Corporation (ETRN) and EQM Midstream Partners, LP (EQM), the proposed transactions and other matters. These statements may discuss goals, intentions and expectations as to future plans, trends, events, results of operations or
financial condition, or otherwise, based on current beliefs of the management of ETRN and EQM, as well as assumptions made by, and information currently available to, such management. Words such as “could,” “will,” “may,” “assume,” “forecast,” “position,” “predict,”
“strategy,” “expect,” “intend,” “plan,” “estimate,” “anticipate,” “believe,” “project,” “budget,” “potential,” or “continue,” and similar expressions are used to identify forward-looking statements. These statements are subject to various risks and uncertainties, many of which
are outside the parties' control. Without limiting the generality of the foregoing, forward-looking statements contained in this presentation specifically include expectations of plans, strategies, objectives and growth and anticipated financial and operational performance of
ETRN, EQM and their respective affiliates, including whether the proposed transactions will be completed, as expected or at a ll, the timing of the closing of the proposed transactions, whether the conditions to the proposed transactions can be satisfied, guidance and changes
in such guidance regarding EQM's gathering, transmission and storage and water service revenue and volume growth, including the anticipated effects associated with the new Gas Gathering and Compression Agreement and related documents entered into with EQT
Corporation (EQT) as described herein (collectively, the EQT Global GGA); projected revenue (including from firm reservation fees and deferred revenues associated with the EQT Global GGA, as more fully described in Note 6 to EQM's consolidated financial statements for the
quarter ended March 31, 2020), expenses and contract liabilities, and the effects on projected revenue and contract l iabilities associated with the EQT Global GGA and the Mountain Valley Pipeline (MVP) project; the ultimate gathering fee relief provided to EQT under the EQT
Global GGA and related agreements, including the exercise by EQT of any cash-out option as an alternative to receiving rate relief; ETRN's and EQM's ability to de-lever; forecasted adjusted EBITDA, firm project EBITDA, water EBITDA, net income, net income attributable to
ETRN, adjusted net income attributable to ETRN, net cash provided by operating activities, free cash flow, retained free cash flow, leverage ratio, coverage ratio, and deferred revenue; the weighted average contract l ife of gathering, transmission and s torage contracts;
infrastructure programs (including the timing, cost, capacity and sources of funding with respect to gathering, transmission and storage and water expansion projects); the cost, capacity, timing of regulatory approvals, final design and targeted in-service dates of current
projects; the ultimate terms, partners and structure of Mountain Valley Pipeline, LLC (MVP JV) and ownership interests therein; expansion projects in EQM's operating areas and in areas that would provide access to new markets; EQM's ability to provide produced water
handling services and realize expansion opportunities and related capital avoidance; ETRN's and EQM's ability to identify and complete acquisitions and other strategic transactions, including the proposed merger of EQM and joint ventures, effectively integrate transactions
into ETRN's and EQM's operations, and achieve synergies, system optionality and accretion associated with transactions, including through increased scale; EQM's ability to access commercial opportunities and new customers for its water services business, and the timing and
final terms of any definitive water services agreement or agreements between EQT and EQM entered into pursuant to the letter agreement between the parties in respect of water services (Water Services Letter Agreement); any further credit rating impacts associated with
the MVP project, customer credit ratings changes, including EQT's, and defaults, acquisitions, dispositions and financings and any further changes in EQM's credit ratings; the ability of EQM's contracts to survive a customer bankruptcy or restructuring; expected transaction
expenses related to the proposed merger of EQM and related transactions; the possible diversion of management time on issues relating to the proposed merger of EQM; the impact and outcome of threatened, pending and future litigation relating to the proposed merger of
EQM; the timing and amount of future issuances or repurchases of securities, including in connection with the proposed merger of EQM; effects of conversion of EQM securities in connection with ETRN's proposed acquisition of EQM or otherwise; effects of s easonality;
expected cash flows and minimum volume commitments (MVCs), including those associated with the EQT Global GGA and any definitive agreement or agreements between EQT and EQM related to the Water Services Letter Agreement, and the potential impact thereon of the
commission timing and cost of the MVP project; capital commitments; projected capital contributions and capital and operating expenditures, including the amount and timing of reimbursable capital expenditures, capital budget and sources of funds for capital expenditures;
dividend and distribution amounts, timing and rates, including the effect thereon of the completion of the MVP project; the effect and outcome of pending and future litigation and regulatory proceedings; changes in commodity prices and the effect of commodity prices on
ETRN's and EQM's business, including future decisions of EQM's customers in respect of curtailing natural gas production, choke management, timing of turning wells in line, rig and completion activity, and related impacts on EQM's business; the location of, and EQM's
gathering systems affected by, any customer production curtailments; l iquidity and financing requirements, including sources andavailability; interest rates; EQM's and EQM's subsidiaries' respective abilities to service debt under, and comply with the covenants contained in,
their respective credit agreements; expectations regarding production volumes in EQM's areas of operations; ETRN's and EQM's abilities to achieve the anticipated benefits associated with the execution of the EQT Global GGA, the Water Services Letter Agr eement and the
merger agreement entered into between EQM and ETRN and related agreements; the impact on ETRN and its subsidiaries of the cor onavirus 2019 (COVID-19) pandemic, including, among other things, effects on demand for natural gas and EQM's services, commodity prices
and access to capital; the effects of government regulation; and tax status and 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. ETRN and EQM have based these forward-looking statements on current expectations and assumptions about future events. While ETRN and EQM considers
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 ETRN's and/or EQM's control. The risks and
uncertainties that may affect the operations, performance and results of ETRN's and EQM's business and forward-looking statements include, but are not l imited to, those set forth under (i) Item 1A, "Risk Factors" in ETRN's Annual Report on Form 10-K for the year ended
December 31, 2019 filed with the Securities and Exchange Commission (the SEC) as updated and as may be updated by Part II, Item 1A, "Risk Factors," of ETRN's subsequent Quarterly Reports on Form 10-Q fi led with the SEC, and (ii) Item 1A, "Risk Factors" in EQM's Annual
Report on Form 10-K for the year ended December 31, 2019 filed with the SEC as updated and as may be updated by Part II, Item 1A, "Risk Factors," of EQM's subsequent Quarterly Reports on Form 10-Q filed with the SEC.
All forward-looking statements speak only as of the date they are made and are based on information available at that time. ETRN and EQM assume no obligation to update forward-looking statements to reflect circumstances or events that occur after the date the forward-
looking statements were made or to reflect the occurrence of unanticipated events except as required by federal securities laws. As forward-looking statements involve significant risks and uncertainties, caution should be exercised against placing undue reliance on such
statements.
Cautionary Statement
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No Offer or Solicitation; Participants in the Solicitation
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This communication is not intended to and does not constitute an offer to sell or the solicitation of an offer to subscribe for or buy or an invitation to purchase or subscribe for any securities or the solicitation of any vote in any jurisdiction pursuant to the proposed transactions or otherwise, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act. Subject to certain exceptions to be approved by the relevant regulators or certain facts to be ascertained, the public offer will not be made directly or indirectly, in or into any jurisdiction where to do so would constitute a violation of the laws of such jurisdiction, or by use of the mails or by any means or instrumentality (including without limitation, facsimile transmission, telephone and the internet) of interstate or foreign commerce, or any facility of a national securities exchange, of any such jurisdiction.
ETRN, EQM, EQM’s general partner and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies in connection with the
proposed transactions. Information regarding the directors and executive officers of ETRN is contained in ETRN’s Form 10-K for the year ended December 31, 2019 and definitive
proxy statement filed with the SEC on April 3, 2020. Information regarding the directors and executive officers of EQM’s general partner is contained in EQM’s Form 10-K for the
year ended December 31, 2019. Additional information regarding the interests of participants in the solicitation of proxies in connection with the proposed transactions is
included in the proxy statement/prospectus.
In connection with their proposed transactions, ETRN and EQM filed a registration statement on Form S-4, containing a joint proxy statement/prospectus (the Form S-4) with the SEC. This communication is not a substitute for the registration statement, definitive proxy statement/prospectus or any other documents that ETRN or EQM may file with the SEC or send to the shareholders of ETRN or the unitholders of EQM in connection with the proposed transactions. SHAREHOLDERS OF ETRN AND UNITHOLDERS OF EQM ARE URGED TO READ ALL RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE FORM S-4 AND THE DEFINITIVE PROXY STATEMENT/PROSPECTUS INCLUDED THEREIN, AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTIONS. When available, investors and security holders will be able to obtain copies of these documents, including the proxy statement/prospectus, and any other documents that may be filed with the SEC with respect to the proposed transactions free of charge at the SEC’s website, http://www.sec.gov or as described in the following paragraph.
The documents filed with the SEC by ETRN may be obtained free of charge at its website (www.equitransmidstream.com) or by requesting them by mail at Equitrans Midstream Corporation, 2200 Energy Drive, Canonsburg, PA 15317, Attention: Corporate Secretary, or by telephone at (724) 271-7600. The documents filed with the SEC by EQM may be obtained free of charge at its website (www.eqm-midstreampartners.com) or by requesting them by mail at EQM Midstream Partners, LP, 2200 Energy Drive, Canonsburg, PA 15317, Attention: Corporate Secretary, or by telephone at (724) 271-7600.
Where You Can Find More Information
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As used in this presentation, adjusted EBITDA means pro forma ETRN’s net income, plus net interest expense, depreciation, amo rtization of intangible assets, impairments of long lived assets, payments on the preferred
interest in EQT Energy Supply, LLC (Preferred Interest), non-cash long-term compensation expense, and separation and other transaction costs, less equity income, AFUDC equity, unrealized gain (loss) on derivative
instruments and adjusted EBITDA attributable to noncontrolling interest.
As used in this presentation, ETRN’s free cash flow means ETRN’s net cash provided by operating activities plus principal pay ments on the Preferred Interest, and less net cash provided by operating activities attributable to
noncontrolling interest, capital expenditures (excluding the noncontrolling interest share (40%) of Eureka capital expenditures), capital contributions to MVP JV, and distributions paid to Series A Preferred
unitholders/shareholders (as applicable).
As used in this presentation, ETRN’s retained free cash flow means free cash flow less dividends paid and distributions paid to noncontrolling interest unitholders.
Adjusted EBITDA, free cash flow and retained free cash flow are non-GAAP supplemental financial measures that management and external users of ETRN's and EQM’s consolidated financial statements, such as industry
analysts, investors, lenders, and rating agencies, may use to assess:
• ETRN’s and EQM’s operating performance as compared to other publicly traded companies in the midstream energy industry withou t regard to historical cost basis or, in the case of adjusted EBITDA, financing methods
• The ability of ETRN’s and EQM’s assets to generate sufficient cash flow to make distributions to ETRN’s shareholders and EQM’s unitholders, as applicable
• ETRN’s and EQM’s ability to incur and service debt and fund capital expenditures and capital contributions
• The viability of acquisitions and other capital expenditure projects and the returns on investment of various investment oppo rtunities
ETRN and EQM believe that adjusted EBITDA, free cash flow, and retained free cash flow provide useful information to investors in assessing ETRN's and EQM’s financial condition and results of operations. Adjusted EBITDA,
free cash flow, and retained free cash flow should not be considered as alternatives to net income, operating income, net cas h provided by operating activities or any other measure of financial performance or liquidity
presented in accordance with GAAP. Adjusted EBITDA, free cash flow, and retained free cash flow have important limitations as analytical tools because they exclude some, but not all, items that affect net income, operating
income and net cash provided by operating activities. Additionally, because these non-GAAP metrics may be defined differently by other companies in ETRN's and EQM’s industry, ETRN's and EQM’s definitions of adjusted EBITDA, free cash flow, and retained free cash flow may not be comparable to similarly titled measures of other companies, thereby diminishing the utility of the measures. Free cash flow and retained free cash flow should
not be viewed as indicative of the actual amount of cash that ETRN and EQM have available for dividends and distributions, as applicable, or that ETRN or EQM plan to distribute and are not intended to be liquidity measures.
ETRN and EQM are unable to provide a reconciliation of projected adjusted EBITDA from projected net income attributable to ETRN, the most comparable financial measure calculated in accordance with GAAP, or a
reconciliation of projected free cash flow or retained cash flow to net cash provided by operating activities, the most comparable financial measure calculated in accordance with GAAP. ETRN and EQM have not provided a
reconciliation of projected adjusted EBITDA to projected net income (loss), the most comparable financial measure calculated in accordance with GAAP, due to the inherent difficulty and impracticability of predicting certain amounts required by GAAP with a reasonable degree of accuracy. Net income (loss) includes the impact of depreciation expense, income tax expense, the revenue impact of changes in the projected fair value of derivative
instruments prior to settlement, potential changes in estimates for certain contract liabilities and unbilled revenues and ce rtain other items that impact comparability between periods and the tax effect of such items, which
may be significant and difficult to project with a reasonable degree of accuracy. Therefore, a reconciliation of projected ad justed EBITDA to projected net income (loss) is not available without unreasonable effort.
ETRN and EQM are unable to project net cash provided by operating activities because this metric includes the impact of changes in operating assets and liabilities related to the timing of cash receipts and disbursements
that may not relate to the period in which the operating activities occurred. ETRN and EQM are unable to project these timing differences with any reasonable degree of accuracy to a specific day, three or more months in advance. Therefore, ETRN and EQM are unable to provide projected net cash provided by operating activities, or the related re conciliation of each of projected free cash flow and projected retained free cash flow to
projected net cash provided by operating activities without unreasonable effort. ETRN and EQM provide a range for the forecasts of net income attributable to ETRN, adjusted EBITDA, free cash flow and retained free cash
flow to allow for the inherent difficulty of predicting certain amounts and the variability in the timing of spending and the impact on the related reconciling items, many of which interplay with each other.
Non-GAAP Measures
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Non-GAAP Measures
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ContinuedProjected firm project EBITDA means the projected earnings before interest, taxes, depreciation and amortization of EQM’s firm capacity gathering and transmission projects, including the
Hammerhead, Equitrans Expansion and other gathering projects, plus EQM’s proportionate interest of the projected earnings before interest, taxes, depreciation and amortization of Mountain Valley Pipeline, LLC’s MVP and MVP Southgate projects. Projected water EBITDA means the projected earnings before interest, taxes, depreciation and amortization of EQM’s water services business. Projected firm project EBITDA and projected water EBITDA are non-GAAP supplemental financial measures that management and external users of ETRN’s and EQM’s consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, use to assess the antic ipated impact of EQM’s in-flight firm capacity projects, both on an aggregate and project-by-project basis, and EQM’s water services business on ETRN’s and EQM’s results of operations and financia l condition, the project returns on firm capacity projects and EQM’s ability to incur and service debt and fund capital expenditures. Firm project EBITDA and water EBITDA should not be considered as alternatives to EQM’s net income, operating income or any other measure of financial performance presented in accordance with GAAP. Firm project EBITDA and water EBITDA have important limitations as analytical tools because they exclude some, but not all, items that affect net income and operating income. Additionally, because firm project EBITDA and water EBITDA may be defined differently by other companies in ETRN’s and EQM’s industry, ETRN’s and EQM’s definitions of firm project EBITDA and water EBITDA may not be comparable to similarly t itled measures of other companies, thereby diminishing the utility of the measures.
ETRN and EQM have not provided the projected net income of the firm projects or the projected operating income of EQM’s water services business segment, the most comparable financial measures calculated in accordance with GAAP, or reconciliations of projected firm project EBITDA or projected water EBITDA to projected net income of the firm projects or projected
operating income of EQM’s water services business segment. The projects are under construction and, upon completion, will be reported in EQM’s Gathering and Transmission business segments. EQM does not allocate certain costs, such as interest expenses, to individual assets within its business segments. In addition, for the MVP and MVP Southgate projects, EQM does not provide guidance with respect to the intra-year timing of its or Mountain Valley Pipeline, LLC’s capital spending, which impact AFUDC-debt and equity and equity earnings, among other things, that are reconciling items between firm project EBITDA and net income of the projects. The timing of capital expendi tures is volatile as it depends on weather, regulatory approvals,
contractor availability, system performance and various other items. Therefore, the projected net income of the firm projects, in the aggregate or on a project-by-project basis, and the projected operating income of EQM’s water services business segment, and reconciliations of projected firm project EBITDA and projected water EBITDA to projected net income of the firm projects and projected operating income of EQM’s water services business segment are not available without unreasonable effort.