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Edited Transcript of EQM earnings conference call or presentation 25-Oct-18 3:30pm GMT

Q3 2018 EQT Midstream Partners LP and EQT GP Holdings LP Earnings Call

Pittsburgh, Nov 2, 2018 (Thomson StreetEvents) -- Edited Transcript of EQM Midstream Partners LP earnings conference call or presentation Thursday, October 25, 2018 at 3:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Diana M. Charletta

Equitrans Midstream Corporation - VP and COO

* Kirk R. Oliver

Equitrans Midstream Corporation - CFO & Senior VP

* Nathan Tetlow

EQM Midstream Partners, LP - IR Director

* Thomas F. Karam

EQM Midstream Partners, LP - President, CEO & Director

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Conference Call Participants

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* Alexis Stephen Kania

Wolfe Research, LLC - Utilities SVP

* Christopher Paul Tillett

Barclays Bank PLC, Research Division - Research Analyst

* David Meagher Amoss

Heikkinen Energy Advisors, LLC - Research Analyst

* Dennis Paul Coleman

BofA Merrill Lynch, Research Division - Global Head of High Grade Debt Research and MD

* Jeremy Bryan Tonet

JP Morgan Chase & Co, Research Division - Senior Analyst

* Jerren Holder

Goldman Sachs Group Inc., Research Division - Associate

* Spiro Michael Dounis

Crédit Suisse AG, Research Division - Director

* Timothy D. Howard

Stifel, Nicolaus & Company, Incorporated, Research Division - Associate

* Vikram Bagri

Jefferies LLC, Research Division - Equity Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, greetings, and welcome to the EQM Midstream Partners Third Quarter Earnings Conference Call. (Operator Instructions) As a reminder, this program is being recorded.

It is now my pleasure to introduce your host, Nate Tetlow. Thank you. You may begin.

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Nathan Tetlow, EQM Midstream Partners, LP - IR Director [2]

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Thank you, operator. Good morning, and welcome to the third quarter 2018 earnings call for EQM and EQGP. A replay of this call will be available for 7 days beginning this evening. The phone number for the replay is (877) 660-6853 and the confirmation code is 13674493. The call will also be replayed for 7 days on our website at eqm-midstreampartners.com.

Today's call may contain forward-looking statements related to future events and expectations. Factors that could cause the partnership's actual results to differ materially from these forward-looking statements are listed in today's news release and under Risk Factors in both EQM and EQGP's Form 10-K for the year ended December 31, 2017, both of which are filed with the SEC and as updated by any subsequent Form 10-Qs.

Today's call may also contain certain non-GAAP financial measures. Please refer to this morning's news release and our analyst presentation, which will be posted to our website today, for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measure.

Joining me on the call today are Diana Charletta, who will be our Chief Operating Officer; Kirk Oliver, who will be our Chief Financial Officer; and Tom Karam, who joined EQM in August as CEO.

With that, I'll turn it over to Tom.

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Thomas F. Karam, EQM Midstream Partners, LP - President, CEO & Director [3]

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Thanks, Nate. Good morning, everyone. I'm excited to join today's call and the company as CEO.

This morning, EQM reported third quarter adjusted EBITDA of $280 million and distributable cash flow of $219 million. Kirk Oliver, our new CFO, will provide detail behind these numbers in a minute.

I'm about 2.5 months in as CEO, and I'd like to share some of my observations and discuss some actions we've already taken.

First and most importantly, EQM is a fantastic business. Our substantial gathering system, connected to multiple takeaway pipes, strong customers and strong contracts, our location on top of some of the best rock and lowest cost production in the United States create a solid platform from which to grow, which is why we are able to announce today that we project our EBITDA will grow by 54% through 2021, even with a slower growth rate by our largest customer.

Second, to be successful in this hypercompetitive environment, we must not only execute, but we must at all times be a commercial solutions partner for our customers. So we've made changes to our senior team to be just that.

The company has always had a culture of safety and execution. Moving forward, we must also have a culture commercially driven as well. Here are a few of the most important and impactful changes we've made to create this culture. Diana Charletta was appointed Chief Operating Officer. We recruited Kirk Oliver as our CFO. Cliff Baker was appointed Senior Vice President for Commercial Development. And Paul Kress was recruited to serve as Vice President of Business Development. In addition, we've given Nate Tetlow the added role of leading our corporate development efforts. And we've made other changes inside the organization to support this culture as well.

Diana has over 25 years of leadership and success not only in the midstream sector, but upstream as well. This skill set will be invaluable to us moving forward. Diana will lead the company knowing she has the widespread support and respect of the entire organization. Diana will provide an update on operations as well as MVP in a few minutes.

Cliff Baker has earned his new position with the full support of our largest customer as well as a few important future customers since he embodies the solutions-oriented, can-do attitude producers appreciate. Paul Kress comes with 15 years upstream, commercial and optimization experience. It is this expertise and insight that we will need to connect our customers to markets to meet their needs.

We also recruited Kirk Oliver as CFO. Well known to many of you, Kirk brings the depth and breadth of experience we need as we navigate our desire to grow with our mandate to maintain a strong balance sheet.

With that, I'll turn it over to Kirk to walk through the numbers. Then Diana will provide an operations and MVP update, and I'll return to talk a bit about our strategy moving forward and some 2019 action items. Kirk?

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Kirk R. Oliver, Equitrans Midstream Corporation - CFO & Senior VP [4]

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Thank you, Tom, and good morning, everybody. I've been on the team for 1.5 months now and just want to say that I'm thrilled to be here and look forward to working and meeting with you going forward.

Before getting to the results, I want to remind you of one accounting item to keep in mind. On July 23, EQM closed the acquisition of Rice Midstream Partners and on May 1, we completed the acquisition of the Ohio Gathering assets from EQT. As a result of these transactions, our financial statements have been recast to include the pre-acquisition results for these assets dating back to November 2017, which is when EQT completed the acquisition of Rice Energy. Another item to point out is that we picked up an attractive water business with the Rice acquisition and now include a water segment in our financial reports.

Moving now to the results. EQM operating revenues were $365 million for the quarter, an increase of $158 million versus last year. The acquired assets accounted for about $148 million of the increase. The remaining revenue increase was driven from higher contracted firm transmission and gathering capacity. A substantial portion of our revenue is derived from the firm reservation fees. During the quarter, we generated 45% of gathering and 93% of transmission revenues from firm reservation fees.

On the expense side, third quarter operating expenses increased by $71 million versus last year, with $67 million of the increase driven by the acquired assets. Most of the remaining increase was $2.2 million of transaction costs. So our year-over-year operating expenses in the legacy business were essentially flat.

At EQM, we announced a cash distribution of $1.115 per unit for the third quarter of 2018, which is 14% higher than the third quarter of 2017. At EQGP, we announced a quarterly distribution of $0.315 per unit, which is 38% higher than the third quarter 2017 distribution.

Our reported coverage ratio for the quarter was 1.05x. If we reflect a full quarter of RMP, the coverage ratio would have been 1.11x. Our quarter end debt-to-EBITDA was 3.0x based on Q3 annualized EBITDA.

In terms of liquidity, we're in the process of arranging a new $3 billion, 5-year credit facility. We expect to close on this facility at the end of the month. At the end of the quarter, we had $22 million drawn on our existing revolver. So we remain in outstanding shape in terms of access to capital.

Our full year guidance for adjusted EBITDA remains at $1 billion at the midpoint. In our release today, we also provided an update to our 3-year EBITDA and CapEx outlook. Our forecast incorporates a mid-single-digit annual production growth rate by EQT. We're forecasting a significant ramp in EBITDA over the next few years driven largely by projects backed by firm commitments, including MVP, Hammerhead, the Equitrans Expansion Project, MVP Southgate and some firm gathering deals. Once these firm projects are fully in-service, they'll add about $375 million of annual EBITDA and will provide even more stability to our cash flow profile.

We are currently forecasting $1.8 billion of adjusted EBITDA in 2021, which is more than 50% higher than our current run rate adjusted EBITDA of about $1.2 billion. Importantly, we can fund the steep EBITDA ramp through the combination of retained cash flow and debt with no need to access the equity markets for the foreseeable future.

I'll now pass the call on to Diana for the operational update.

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Diana M. Charletta, Equitrans Midstream Corporation - VP and COO [5]

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Thanks, Kirk. Good morning, everyone. I'm very excited to be taking on this new role. I'll start with an update on the Mountain Valley Pipeline.

A few weeks ago, the Fourth Circuit Court of Appeals vacated the Nationwide 12 permit issued by the Army Corps of Engineers. This is a permit needed for water crossings and wetland work. The court ruling is the result of a West Virginia condition that limits work at each water crossing to 72 hours. There are 4 river crossings on the route where the dry-ditch method of crossing cannot be completed within the 72-hour window. The West Virginia DEP has been working to modify their language to make it explicit that the 72-hour restriction does not apply to the dry-ditch method. We expect West Virginia to complete their work in the coming weeks, which will then allow the Army Corps to complete their process for issuing a new or revised Nationwide 12 permit. We expect to have the permit back in hand early in 2019.

While we currently cannot work in wetlands or do water crossings in West Virginia or Virginia, we do remain very active with construction activity in upland areas and at the 3 compressor stations. We remain confident in both our cost and in-service estimates and will keep you updated as we make progress.

Moving on to the Hammerhead project, which will be the primary feeder pipeline into MVP. We are planning to bring Hammerhead into service in conjunction with MVP during Q4 2019. We've made a few revisions to the project scope, including adding about 7 miles of pipeline, and we have also experienced some labor inflation as we've gone through the construction bid process. With these changes, we are now estimating a CapEx of $555 million for Hammerhead. The project is anchored by EQT with a 1.2 Bcf per day firm capacity commitment. And based on active discussions, we are optimistic that we will secure additional shipper commitments. We expect Hammerhead to generate about $75 million of annual EBITDA.

Now on to MVP Southgate. As a reminder, this project will move gas from MVP about 70 miles further south into North Carolina. Southgate is anchored by a 300 million a day firm capacity commitment from PSNC Energy, a natural gas utility that provides service to residential, commercial and industrial customers. We are finalizing the project scope and continue to have good discussions with several potential shippers. Prefiling work with FERC is well underway, and we expect to make our application filing before year-end. The project cost is expected to be between $350 million and $500 million, with final capital numbers dependent on the ultimate project scope. EQM will operate the pipeline and will have 33% ownership in the project. MVP Southgate is targeted for a Q4 2020 in-service date.

During the quarter, we gathered an average 6.6 Bcf per day and moved another 3 Bcf per day through our Equitrans transmission system, both are quarterly records. We also installed about 37 miles of pipe and added 32,500 horsepower of compression in the quarter.

On the business development side, the short-term focus is on the MVP expansion opportunity and enhancing Southgate by adding additional volume and shippers. We are also actively engaged with producers in the A Basin for both gathering and water services. The water business is relatively new for us as most of these assets were acquired from RMP. We've established a dedicated team to focus on the water business and are excited about the initial response we are getting from producers. There is a significant cost advantage to freshwater pipeline delivery versus trucking. And equally important, there's a significant safety and environmental advantage to getting water trucks off the road. In 2018, the water business is expected to generate about $65 million of EBITDA, and we see this growing to about $100 million in 2019.

Lastly, we've initiated a hydraulic study of our Greene and Washington County gathering systems with a focus on how to best integrate and optimize the legacy EQM assets and the acquired RMP assets. While it's early in process, we expect to avoid significant future capital expenditures by making some small investments to tie the systems together and utilize existing compression. The goal is to create an optimized system that gives producers both high and low pressure gathering options as the basin matures. This will allow EQT and other producers to be indifferent to where they access the system and focus solely on drilling their very best locations.

We expect to complete the study by the end of this year and be in a position to begin implementing a plan in 2019. Our preliminary thought is we could avoid somewhere around $300 million to $500 million of capital over the next 5 years.

With that, I'll turn it back to Tom.

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Thomas F. Karam, EQM Midstream Partners, LP - President, CEO & Director [6]

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Thanks, Diana. So some separation logistics. It looks like over the next several weeks we will start trading E-T-R-N or ETRN when issued on October 31, effect the spin November 12 and begin official trading on November 13. We will be on the road hopefully meeting many of you beginning on October 29 and concluding on the first day of trading. That's a lot of miles and a lot of meetings to tell our story, and we're excited to do so.

Our strategy to achieve the scale and scope of a top-tier midstream company begins with executing on our 2019 to-do list. First and foremost, build and complete the projects in front of us, MVP and Hammerhead are top of the list; evaluate the IDRs; firm up MVP Southgate filings and project scope; walk down the expansion for MVP, which requires only compression; get some real traction on handling produced water as well as growing our total water handling business; leverage the benefits from our gathering system optimization to identify direct and synthetic ways to expand our scale and scope.

Everything I just mentioned is to support our ability to generate sustainable, long-term growth and as a result, deliver consistent distribution growth, strengthen our coverage ratio and live within our means without issuing equity. Our view of capital must be that it is scarce, and we will deploy it with discipline. The strategy is designed to allow us to succeed in what we expect to be a lower-for-longer commodity price environment.

We will constantly seek ways to leverage the assets we and others have in place to provide solutions and growth for our customers. We're very excited about our future and the strength we have as we begin our journey as an independent company.

So thank you very much for listening. I'll now turn the call back over to Nate to tell us a little bit about Equitrans Midstream and then we're happy to answer all of your questions.

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Nathan Tetlow, EQM Midstream Partners, LP - IR Director [7]

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Thanks, Tom. Equitrans Midstream Corporation or as we like to call it, ETRN, will trade on the New York Stock Exchange under the ticker symbol ETRN. As Tom mentioned, November 13 will be the first day of regular-way trading. ETRN will generate its cash flow from ownership of 276 million units of EQGP and 15.4 million units of EQM. After some annual SG&A expenses, we expect ETRN to pay out all of its available cash flow. We are starting the ETRN roadshow next Monday in New York City, and we look forward to engaging with the investment community over the next several weeks.

We'd now like to open the call to your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Jeremy Tonet from JPMorgan.

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Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [2]

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Just want to start off there where you talk about your 3-year look on the guidance and you talk about that being predicated on EQT production growth in the mid-single digits. I was wondering if there's any way you could sensitize that for us if EQT decides to go X growth and try to maximize free cash flow, what would that mean for your guidance, EBITDA up or down X percent. Any thoughts you can provide around that?

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Thomas F. Karam, EQM Midstream Partners, LP - President, CEO & Director [3]

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Jeremy, that's a good question. And I think I'll answer it this way. I think when you look at the total profile of our portfolio, the exact level of production growth, either from 0 or to 10 of EQT, our largest customer, will really only affect our growth rate around the margins. We think that we're pretty well insulated from a contract perspective and also from additional customers in our water business so that while there may be some impact, it will be around the margins. And we feel good about the guidance we've provided.

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Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [4]

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That's helpful. And just looking at the distribution growth going forward, I was wondering if you could share some thoughts there with how you think about that philosophically. It seems like growth is not being rewarded in the same sense, especially with the balance sheet being stretched more here with the MVP cost going higher and delays. What level of distribution growth makes sense at this point?

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Thomas F. Karam, EQM Midstream Partners, LP - President, CEO & Director [5]

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So I think we view our level of distribution growth based on the current environment, right? So if we're going to assume that we're going to be in a lower-for-longer commodity price environment, I think we have to change the priorities of the company and focus first and foremost on the strength of our balance sheet, our retained cash flow and coverage ratio because then that will allow us to continue to fund more and more of our project backlog with cash as opposed to debt and further push out into the future any need we may have for equity. And then as you go through our priority list, that's going to signal us toward the distribution growth rate that we've indicated in the press release, which I think is 8% to 10%. So again, I don't mean to be flippant, but we feel pretty good about the guidance we provided based on the current environment, what our expectations are for our largest customer and the opportunities that we see in the basin with others.

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Operator [6]

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Our next question comes from the line of Spiro Dounis from Crédit Suisse.

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Spiro Michael Dounis, Crédit Suisse AG, Research Division - Director [7]

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Just want to start off on the simplification process. I believe one of the gating items was just on ETRN, getting the board to get it there and convening to make a decision. I guess, are you still planning on an update around 4Q? And do any of the recent peer simplifications that we've seen impact how you think about the ultimate outcome?

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Thomas F. Karam, EQM Midstream Partners, LP - President, CEO & Director [8]

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So Spiro, we're not going to really have any movement until the spin is effected as it relates to what we may or may not do relative to evaluating the IDRs. So I think we have to just leave it at that for now so that we don't have the lawyers breathing down our back as they sometimes do when you say the wrong thing on a conference call.

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Spiro Michael Dounis, Crédit Suisse AG, Research Division - Director [9]

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Sure. Totally understand, figure I had to try. So second question just around the CapEx.

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Thomas F. Karam, EQM Midstream Partners, LP - President, CEO & Director [10]

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Nice try.

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Spiro Michael Dounis, Crédit Suisse AG, Research Division - Director [11]

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The second question was around the CapEx and your comments around the ability to avoid it going forward. So it sounds like, I just want to confirm this, that's not contemplated in that 3-year outlook that you gave, so those numbers could actually come down. So one, is that true? And then two, if we look out to 2021, I think you've guided about $500 million in CapEx, which is a pretty material step-down from here obviously because of MVP. But could that number come up with new opportunities? Or are you sort of intentionally driving that down to get to what you believe is a normalized level?

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Kirk R. Oliver, Equitrans Midstream Corporation - CFO & Senior VP [12]

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Yes, this is Kirk. The number could come up with new opportunities if we find the opportunities that we feel are real and that makes sense to put into the forecast. And those numbers do include the capital avoidance that we expect to get from the system integration that Diana discussed on the call.

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Operator [13]

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Our next question comes from the line of Jerren Holder from Goldman Sachs.

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Jerren Holder, Goldman Sachs Group Inc., Research Division - Associate [14]

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Maybe starting off with how should we think about the composition of firm revenues over the next few years just given some of the guidance you've given? As we think about gathering, that 45% number, should we expect that to go up or down?

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Thomas F. Karam, EQM Midstream Partners, LP - President, CEO & Director [15]

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Yes. Thanks for that question. I was actually hoping someone would ask that question. So I think Kirk referred to our current state, which is about 54% of our revenues are firm. In the guidance we've provided and in our comments, we indicate that in 2021 we expect our EBITDA to be $1.8 billion or about a 54% increase in our EBITDA. During that period, we actually will also experience an increase in the percentage of firm revenues that we have. We're anticipating that, that $1.8 billion of revenues will be underpinned by 61% firm revenues for the company. So we're actually rapidly growing our EBITDA as well as uplifting the percentage of revenues that are firm. And we think that, that will pay dividends for our shareholders and us in terms of keeping our group risk profile on a lower trajectory moving forward.

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Jerren Holder, Goldman Sachs Group Inc., Research Division - Associate [16]

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And the 61% is both transmission and gathering together, correct?

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Thomas F. Karam, EQM Midstream Partners, LP - President, CEO & Director [17]

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Correct. Correct. And the bulk of that growth is long-term firm transmission as opposed to gathering. So that mix in our portfolio will be reallocated as well moving forward, skewed a little bit more towards transmission. Again, another good risk-reward profile for us.

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Jerren Holder, Goldman Sachs Group Inc., Research Division - Associate [18]

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Got it. And as we think about Southgate, if for some reason MVP gets delayed even further, does that mean Southgate gets pushed back? Should we just think about it as a 12-month time line between MVP being complete in Southgate? Or is there some optionality to maybe do some work in Southgate and still keep that on time?

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Thomas F. Karam, EQM Midstream Partners, LP - President, CEO & Director [19]

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Yes. We believe the dates we put in the press release and we feel pretty good about those.

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Jerren Holder, Goldman Sachs Group Inc., Research Division - Associate [20]

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And then lastly, looks like the 2020 EBITDA number for guidance went up a little bit. Can you talk about what's like the driver there?

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Kirk R. Oliver, Equitrans Midstream Corporation - CFO & Senior VP [21]

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Yes. So this is Kirk again. The driver there is a more third-party gathering revenue and revised estimates on what we think the water business can do.

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Operator [22]

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Our next question comes from the line of Chris Sighinolfi from Jefferies.

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Vikram Bagri, Jefferies LLC, Research Division - Equity Analyst [23]

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This is Vikram Bagri for Chris. My first question is on MVP. I just wanted to understand the potential for change in MVP time line due to any further delays in regulatory process. How different is the time line for a new versus a reissued nationwide permit? And also if you can clarify if you're baking in some potential for delays in your 4Q '19 in-service estimate.

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Diana M. Charletta, Equitrans Midstream Corporation - VP and COO [24]

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We have what we've anticipated the regulatory process is baked into our fourth quarter number for MVP. So as long as there isn't another stoppage or something beyond our control, the regulatory process to renew that permit and everything that we need to do is already baked in the forecast.

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Vikram Bagri, Jefferies LLC, Research Division - Equity Analyst [25]

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So you are baking in probably a month or 2 of any potential delays over and above the currently anticipated time line. Is that -- did I understand that right?

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Diana M. Charletta, Equitrans Midstream Corporation - VP and COO [26]

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Yes. We anticipate for the regulatory change to happen in the upcoming weeks, like I said in my script. And we anticipate only a couple of months then to get that permit revised.

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Vikram Bagri, Jefferies LLC, Research Division - Equity Analyst [27]

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Okay. Perfect. And the second question I had was about the changing outlook, production outlook at EQT. EQT indicated that the higher cost and somewhat the learning process of testing these longer laterals is driving the sort of moderate drilling program at the upstream level. Is there a possibility to increase the pace of drilling as the parent sort of understands the drilling process and optimizes the entire process? And how much of that outlook is based on differentials at MVP station 165 versus the producing region?

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Thomas F. Karam, EQM Midstream Partners, LP - President, CEO & Director [28]

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So Vikram, let me try to answer your question this way. The forecast that we put out are a forecast that's built on a very modest production growth rate at our largest customer, EQT. We fully expect that Rob and Blue and Erin and Jimmi Sue will very quickly get their arms around things and be able to execute on their plan. Clearly, our plan and their plan have plenty of room for increased volume production, and we'll welcome it anytime they deliver it. But we would much rather under-promise and over-deliver as we move forward and just be prepared to handle the volumes that their production levels and the strip allow them to produce and generate their cash flow. So I think that you'll see that we will very efficiently be able to moderate our operating plan to handle additional volumes.

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Operator [29]

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Our next question comes from the line of David Amoss from Heikkinen Energy Advisors.

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David Meagher Amoss, Heikkinen Energy Advisors, LLC - Research Analyst [30]

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I wanted to start with a question on the water business. It seems like just based on the segment reporting that you're reporting a much lower margin than RMP used to report on a per gallon basis for that water business. Can you just talk about why that might be and your expectations for that margin going forward?

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Thomas F. Karam, EQM Midstream Partners, LP - President, CEO & Director [31]

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Yes, David, that may be a little bit misleading in what we call the stub period because we're just getting our arms around it and we're also working through the new environment where the laterals that EQT is currently drilling are much longer. So I wouldn't put too much stock into that snapshot of the stub period margins. Those will moderate over time, and we feel pretty comfortable about the margin we're going to generate from that business.

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David Meagher Amoss, Heikkinen Energy Advisors, LLC - Research Analyst [32]

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Okay. And then...

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Thomas F. Karam, EQM Midstream Partners, LP - President, CEO & Director [33]

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And one other thing, if I can answer a question that maybe you didn't ask because I think as we begin to create scale in the water business, our OpEx will come down as well and our ability to deploy capital more efficiently will allow those margins to grow. But that also bleeds over into the natural gas gathering because we're just now starting to understand the benefits of integrating the legacy EQT system and the legacy Rice system and how that will impact our operating metrics moving forward. Diana, can you give the people on the call a feel for how you view the trajectory of our OpEx because of this phenomenon of integrating these 2 legacy systems?

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Diana M. Charletta, Equitrans Midstream Corporation - VP and COO [34]

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Yes. The integration of the Rice assets has definitely resulted in a downward trend for OpEx. We're realizing the benefits of the synergies of the 2 companies, and the system optimization will also add to that. So as we tie the systems together and utilize our compression more efficiently, that will also help us drive our costs downward.

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Thomas F. Karam, EQM Midstream Partners, LP - President, CEO & Director [35]

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Sorry, David, to steal the mic. I just wanted to make sure we got that out there.

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David Meagher Amoss, Heikkinen Energy Advisors, LLC - Research Analyst [36]

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No, that's helpful. And then one more on MVP. It doesn't sound like you had to lay anybody off this go-round with the Fourth Circuit with the issue on the permit 12. Is there a point, like if you don't get that permit 12 back in service and execute your plan according to that time line, is there a point where you might have to again put some of your workers on the sidelines at least for a period of time?

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Thomas F. Karam, EQM Midstream Partners, LP - President, CEO & Director [37]

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Well, first of all, we don't envision that happening. We obviously are in constant communication with the Forest Service and with the Bureau of Land Management. And we fully expect that within the time line we need to bring MVP online in the fourth quarter of '19, we'll have all of the authority we need. And in the meantime, we've got a full complement of contractors running really hard to get as much work done before we start buttoning down parts of the pipe for winter. So that -- we don't expect any unexpected activity on MVP right now or through 2019.

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Operator [38]

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Our next question comes from the line of Dennis Coleman from Bank of America Merrill Lynch.

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Dennis Paul Coleman, BofA Merrill Lynch, Research Division - Global Head of High Grade Debt Research and MD [39]

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I think one more maybe on MVP just to sort of get a sense. Do you have any -- are there any stats in terms of miles of pipe or sort of percentage completion, where you're at today or where you expect to get, for example, where you mentioned before you start buttoning down for winter and whatnot?

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Diana M. Charletta, Equitrans Midstream Corporation - VP and COO [40]

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Sure. We are, at the latest update, 116 miles laid. We anticipate to get at least 50% of the route done before winter or before the end of the year. We may be a little higher than that 50%. But we'll continue to do things through the winter that makes sense, that are efficient for winter construction, gentle grade, easy access. So we won't completely stop. But anything that we feel like we can do environmentally smartly, we'll do.

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Dennis Paul Coleman, BofA Merrill Lynch, Research Division - Global Head of High Grade Debt Research and MD [41]

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Okay. Great. Great. That's helpful. A couple more detailed questions from me, just to finish up. I don't think you mentioned it, but maybe you did or I might have missed it. You mentioned the EBITDA for Hammerhead. I didn't hear one for Southgate. I mean, is that a similar kind of EBITDA multiple that we should think about there?

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Thomas F. Karam, EQM Midstream Partners, LP - President, CEO & Director [42]

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So Dennis, I think we have a range, and we just want to be careful not to disclose too much because we're still in contract discussions with some other folks down there. So for the time being, we just like to demur on that.

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Dennis Paul Coleman, BofA Merrill Lynch, Research Division - Global Head of High Grade Debt Research and MD [43]

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Okay. Okay. Understood. That makes sense. And then also, I guess, just again more detail. On the CapEx, it was asked a little bit, the decline through the out-years. Is it fair to think about the $700 million in '20 and the $500 million in '21, are those known projects? Or is it you'll add projects into that and it would grow as you add projects?

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Kirk R. Oliver, Equitrans Midstream Corporation - CFO & Senior VP [44]

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Those are known projects.

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Thomas F. Karam, EQM Midstream Partners, LP - President, CEO & Director [45]

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Yes. They're known and committed projects. I think, Dennis, on a larger basis, I think what you should expect from us moving forward is we're going to take a different view toward the "organic project backlog." We're not going to try to find projects to build that number bigger. What we're going to disclose and discuss is our organic project backlog are going to be firmed up projects that we're going to build. It's not going to be a laundry list of things because we want to be consistent. We've told you that our capital is going to be viewed as being scarce, and we're going to deploy it with discipline. And we're also going to discuss what we think our project backlog is with that same discipline.

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Operator [46]

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Our next question comes from the line of Chris Tillett from Barclays.

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Christopher Paul Tillett, Barclays Bank PLC, Research Division - Research Analyst [47]

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Just quickly on MVP, sort of as we look into the continued construction on that next year and think about some of the tightness in the labor market. Do you guys have the manpower you need sort of contracted through that 4Q in-service date? Or are there possible risks to cost overruns on that front?

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Diana M. Charletta, Equitrans Midstream Corporation - VP and COO [48]

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We have everything we need from a manpower perspective.

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Christopher Paul Tillett, Barclays Bank PLC, Research Division - Research Analyst [49]

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Okay. So I mean, have you -- I guess, take it from that, then you've fully secured the crews and everything you need then at this point?

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Diana M. Charletta, Equitrans Midstream Corporation - VP and COO [50]

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Correct.

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Operator [51]

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Our next question comes from the line of Tim Howard from Stifel.

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Timothy D. Howard, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [52]

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Just circling back on MVP. Is there a slack built into the $4.6 billion cost estimate just given that, that was announced in late September then there's kind of additional water permit snags thereafter? So is there just some room for that so that the cost doesn't increase from those most recent delays?

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Diana M. Charletta, Equitrans Midstream Corporation - VP and COO [53]

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Everything that's under our control that we can anticipate and plan for is within that cost. So technically, if there was another work stoppage or something else out of our control happened, that may be a risk.

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Thomas F. Karam, EQM Midstream Partners, LP - President, CEO & Director [54]

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So Tim, that was the Chief Operating Officer answering that question. The CEO is saying that we're going to squeeze every last dollar out of this project to ensure that we don't spend a penny more than we have to.

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Timothy D. Howard, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [55]

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Okay. That makes sense. And then, I guess, have you had any conversations or correspondence with FERC about a full stop work order? I've seen a number kind of advocating for that and just wondered if you had any feel from them on that potential.

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Thomas F. Karam, EQM Midstream Partners, LP - President, CEO & Director [56]

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Yes. We don't believe that that's in the cards.

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Timothy D. Howard, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [57]

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Okay. Got it. And then just last one. Could you discuss any kind of construction triggers that would happen on future delays that would kind of increase costs? Are those kind of -- with the 4Q '19 in-service, those are not an issue anymore?

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Diana M. Charletta, Equitrans Midstream Corporation - VP and COO [58]

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They're not an issue. The things that we've experienced in the past and that we've seen to this point, those costs, that's all incorporated in our estimate.

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Operator [59]

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Our next question comes from the line of Alex Kania from Wolfe Research.

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Alexis Stephen Kania, Wolfe Research, LLC - Utilities SVP [60]

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Just a question following on your financing plans. Just how should we think about, just in light of the MVP budget change, what you -- where you'd like to be -- where you'd like to have leverage metrics? I guess thinking about it, near term is probably going to bump up a bit, but just on a sustainable basis once MVP is in-service. And then similarly, just maybe a little bit better color on where you'd like coverage to be as well.

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Kirk R. Oliver, Equitrans Midstream Corporation - CFO & Senior VP [61]

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Yes. And you're right. We expect it to bump up a little bit as we get towards the end of construction on MVP. So it might poke through the 4.0 level a little bit, and our long-range target is more in the 3.5 to 4 range. And once we get MVP to the point where it's near completion, we'll start work on a project financing there. So that will be at the JV level.

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Alexis Stephen Kania, Wolfe Research, LLC - Utilities SVP [62]

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Oh, I see. So basically, when you report EBITDA, you do it for distributions, but you'll be able to move some of the debt down to the project level?

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Kirk R. Oliver, Equitrans Midstream Corporation - CFO & Senior VP [63]

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That's right. We'll do a project financing down there and take some of our capital back out once we get to the point where we can get that done.

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Operator [64]

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Ladies and gentlemen, we have no further questions in queue at this time. I'd like to turn the floor back over to management for closing.

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Thomas F. Karam, EQM Midstream Partners, LP - President, CEO & Director [65]

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Thank you, Adam. So thanks to all of you for joining us on the call today. The new team is really excited to get on the road and tell our story. We think it's a really good one. And we look forward to future calls and continuing to execute on our strategy. So thanks, everybody, and be safe out there. Thank you.

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Operator [66]

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Thank you. Ladies and gentlemen, this does conclude our teleconference for today. You may now disconnect your line at this time. Thank you for your participation, and have a wonderful day.