The Daley Note

Start of MVP Triggers Earnings Waterfall for Equitrans

Written by East Daley Analytics | Jul 5, 2023 10:35:25 PM

The Daley Note: July 6, 2023

The natural gas market impact of Mountain Valley Pipeline (MVP) may be up for debate, but there is no question that the outlook for Equitrans (ETRN) hinges on the project. Start-up of MVP would set off a waterfall effect and unlock new investment opportunities for the lead developer.

Dogged for years by legal challenges, MVP has new life courtesy of recent pro-pipe legislation from Congress. The expected financial impacts of MVP and related projects are included in the ETRN Financial Blueprint. Equitrans would see ~$220MM in annual Adj. EBITDA if MVP could finally cross the commercial finish line.

East Daley Analytics expects plenty of spare capacity on MVP when the 2 Bcf/d pipeline starts up. Nevertheless, due to contractual commitments, earnings are locked in for ETRN regardless of future pipeline flows.

Completion of MVP would trigger several contracts contingent on start-up, shown in the table from the ETRN Blueprint. ETRN began the West Virginia and Pennsylvania gathering agreement with parent EQT in 1Q20 with a minimum volume commitment (MVC) of 3 Bcf/d. Once MVP enters service, the contract includes a step-up clause to 3.5 Bcf/d for the first year, 3.75 Bcf/d for the second year, and 4 Bcf/d for 10 years following start-up. The commitment then drops back to 3 Bcf/d for the rest of the 15-year contract. The first three years of MVP’s in-service come with associated rate relief to EQT, offsetting the benefit to ETRN for the step-up in volumes for the first year of service.

ETRN has several other agreements with EQT linked to completion of MVP. ETRN can recoup from EQT up to $60MM/year for three years following MVP’s in-service if Nymex Henry Hub futures prices exceed certain price thresholds. This agreement between ETRN and EQT expires at the end of 4Q24. EQT also holds a 400 MMcf/d contract on the Equitrans Expansion Project (EEP), which is expected to create $20MM in annual Adj. EBITDA. Finally, EQT has a 20-year firm transport contract for 1.2 Bcf/d on the Hammerhead pipeline that would go into effect when MVP comes online. The Hammerhead pipeline is a 1.6 Bcf/d header system that provides an outlet for southwestern Pennsylvania gas to Southeast markets via MVP. Hammerhead is expected to add $75MM in annual EBITDA.

MVP also has a planned extension line, Southgate, that could lead to future upside. Southgate would extend from southern Virginia to central North Carolina. A local utility, Public Service of North Carolina, backs the segment with a 300 MMcf/d commitment, leaving 200 MMcf/d of capacity unsubscribed.

Southgate is currently in limbo due to regulatory problems. The North Carolina Department of Environmental Quality has denied MVP’s request for a 401 water quality certification for the project. The division stated that work on the Southgate extension could lead to unnecessary effects on water bodies if ETRN cannot complete MVP’s mainline. Southgate is unlikely to see any progress until construction of MVP is certain. EDA estimates Southgate will generate ~$29MM in annual EBITDA if it is completed. – Alex Gafford Tickers: EQT, ETRN.

 

 

Request Access to Energy Data Studio

East Daley Analytics has launched Energy Data Studio, a platform for our industry-leading midstream data and commodity production forecasts. All clients have access to the new client portal. If you have not yet logged in, please fill out the form to request a registration email be resent.

Energy Data Studio leverages our G&P data set for insights into midstream assets across every major oil and gas basin in North America. Users can navigate detailed visual dashboards by region, pipeline, or individual asset to understand crude oil, natural gas and NGL supply at the most granular level.

Energy Data Studio is available through data downloads from the visual interface, in Excel files, or as a direct feed delivered into subscribers’ workflow via secure file transfer. To learn more about Energy Data Studio, please contact insight@eastdaley.com.

Review the Year Ahead in Dirty Little Secrets

The 2023 Dirty Little Secrets is Now Available! Is Midstream on the cusp of another infrastructure wave? Find out in our new annual report.

Dirty Little Secrets reviews the outlook for Midstream and commodity markets in 2023 and the years ahead. East Daley discusses the outlook for crude oil, natural gas and NGLs and the impacts to midstream assets in our 2023 Dirty Little Secrets annual market report. Click here for a copy of the 2023 Dirty Little Secrets report.

The Daley Note

Subscribe to The Daley Note (TDN) for midstream insights delivered daily to your inbox. The Daley Note covers news, commodity prices, security prices and EDA research likely to affect markets in the short term.