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Edited Transcript of EQM earnings conference call or presentation 5-Nov-19 2:00pm GMT

Q3 2019 EQM Midstream Partners LP and Equitrans Midstream Corp Earnings Call

Pittsburgh, Nov 10, 2019 (Thomson StreetEvents) -- Edited Transcript of EQM Midstream Partners LP earnings conference call or presentation Tuesday, November 5, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Diana M. Charletta

Equitrans Midstream Corporation - President & COO

* Kirk R. Oliver

Equitrans Midstream Corporation - Senior VP & CFO

* Nathan Tetlow

Equitrans Midstream Corporation - VP of Corporate Development & IR

* Thomas F. Karam

Equitrans Midstream Corporation - Chairman & CEO

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Conference Call Participants

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* Christopher Paul Sighinolfi

Jefferies LLC, Research Division - Senior Equity Research Analyst, Master Limited Partnerships

* Christopher Paul Tillett

Barclays Bank PLC, Research Division - Research Analyst

* Derek Bryant Walker

BofA Merrill Lynch, Research Division - VP

* Rahul Krotthapalli

JP Morgan Chase & Co, Research Division - Analyst

* Ross Payne

Wells Fargo Securities, LLC, Research Division - MD & Senior High Grade Analyst

* Shneur Z. Gershuni

UBS Investment Bank, Research Division - Executive Director in the Energy Group and Analyst

* Spiro Michael Dounis

Crédit Suisse AG, Research Division - Director

* Torrey Joseph Schultz

RBC Capital Markets, Research Division - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you standing by and welcome to the ETRN and EQM Q3 2019 Earnings Call. (Operator Instructions).

I would now like to hand the conference over to your speaker today, Nate Tetlow, Vice President of Corporate Development and Investor Relations. Please go ahead.

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Nathan Tetlow, Equitrans Midstream Corporation - VP of Corporate Development & IR [2]

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Good morning and welcome to the Third Quarter 2019 Earnings Call for Equitrans Midstream and EQM Midstream Partners. A replay of this call will be available for 14 days beginning this evening. The phone number for the replay is (855) 859-2056 and the conference ID is 1924428.

Today's call may contain forward-looking statements related to future events and expectations. Factors that could cause the actual results to differ materially from these forward-looking statements are listed in today's news release and under risk factors in both ETRN's and EQM's Form 10-Ks for the year ended December 31, 2018, 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 investor presentation for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measure.

Joining me on the call today are Tom Karam, Chairman and CEO; Diana Charletta, President and Chief Operating Officer; and Kirk Oliver, Senior Vice President and Chief Financial Officer. After our prepared remarks, we will open the call to questions.

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

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Thomas F. Karam, Equitrans Midstream Corporation - Chairman & CEO [3]

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Thanks, Nate. Good morning, everyone. Before we discuss our third quarter results, I want to take a minute to discuss the critical role that natural gas plays in mitigating the impact of climate change. As an industry, we need to be more vocal about the benefits of natural gas and how we continue to mitigate the effects of greenhouse gas emissions. We benefited from the tremendous success in developing domestic natural gas reserves from our abundant shale formations through job creation, tax revenues, a growing economy and very importantly, financial security to so many families where this development occurs. Yet there are common misperceptions regarding the industry's practices surrounding methane in the environment.

As you know, methane is the most significant component of natural gas. Therefore we as an industry and E-Train as a company must be accountable and responsible for understanding and improving our methane management practices from cradle to grave. And while there is always room for improvement, we do have a successful story to tell on each of these fronts.

Our industry has made great strides during the past several decades with U.S. EPA's April 2019 inventory report showing total methane emissions are down more than 15% since 1990. In addition, every conversion of traditional coal-fired electric generation facilities to clean-burning natural gas brings an exponential benefit of overall greenhouse gas reduction.

The Midstream industry in particular is continuing to push forward in a meaningful way to effectuate real mitigation of climate change impacts. For E-Train and EQM, we believe it is not enough to achieve regulatory compliance on methane emissions. We must and will do better by proactively pursuing the implementation of best practices, reducing our overall carbon footprint over time.

E-Train has recently joined the Environmental Partnership, a voluntary reduction program offered through the American Petroleum Institute and the ONE Future coalition, which is a group of natural gas companies working together to voluntarily reduce methane emissions across the natural gas supply chain. And as a member of the Interstate Natural Gas Association of America, E-Train and other companies work with regulators to ensure that natural gas pipelines, compressor stations and storage facilities are designed and built safely and operate in ways that minimize methane emissions.

Banning fossil fuels is not the answer. In fact continuing to develop and utilize our domestic energy resources in a responsible manner, natural gas should be viewed as the gateway to the future possibilities offered by the world of renewables. Protecting the environment and future generations as a shared responsibility and the natural gas industry has been doing and will continue to do its part. At E-Train, we do not believe that energy development and environmental stewardship are mutually exclusive.

Now let's move on to our earnings information. This morning, EQM and E-Train reported third quarter results with adjusted EBITDA coming in at the high end of our guidance. Kirk will provide more details behind those financial shortly. As we've discussed in past quarters, we're operating within a new paradigm of lower for longer natural gas prices resulting in a slowdown in A-Basin production growth.

In 2018, the average rig count in the Marcellus and Utica was 77 rigs. And as of last week, there were approximately 51 rigs operating. This 35% reduction is a positive sign. Over the long term, more moderate production growth will make EMP customers stronger, it will reduce our gathering capital needs and will provide more stable and consistent long term our earnings growth. Not only can we survive in this new paradigm, but we can also thrive in it.

With that, I'll turn the call over to Kirk for the finance update and Diana will provide an operations update, and I will come back for some closing remarks. Kirk?

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

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Thanks, Tom. Good morning, everyone. Before discussing the financial results, I want to remind you of 2 accounting items. First, EQM's third quarter 2018 results have been recast to include the pre-acquisition results of RMP which came under common control in 2017. And second, the Eureka joint venture is consolidated in EQM's and E-Train's financial statements for accounting purposes.

Now to the results. EQM reported third quarter 2019 adjusted EBITDA of $335 million, distributable cash flow of $234 million and net loss attributable to EQM of $11 million. We're also reporting a net loss attributable to E-Train of $66 million.

E-Train and EQM third quarter net loss was impacted by a $299 million impairment charge to goodwill and net intangible assets. The impairment was primarily driven by lower forecasted natural gas production growth behind the RMP, Eureka and Hornet gathering systems.

For the third quarter of 2019, EQM operating revenue was $408 million, an increase of $44 million versus the same quarter last year. The increase was primarily related to the higher contracted firm gathering capacity and the addition of the Eureka and Hornet assets. Stable cash flow profile of the business remains a core highlight as EQM generated approximately 94% transmission operating revenue and approximately 52% of gathering operating revenue from firm reservation fees during the third quarter.

EQM's third quarter operating expenses were $440 million, an increase of $308 million from the prior-year quarter. The impairment expense accounted for $299 million of the increase. The remaining increase is primarily related to the addition of the Eureka and Hornet systems as well as higher gathering system throughput and additional assets placed in service.

For the third quarter of 2019, EQM will pay a quarterly cash distribution of $1.16 per common unit, which will be paid on November 13 to common unit holders of record at the close of business on November 1. Additionally, E-Train will pay a quarterly cash distribution of $0.45 per share which will be paid on November 22 to shareholders of record at the close of business on November 13.

We intend to hold the EQM distributions and the E-Train dividends constant at least through the in-service date of MVP. Once MVP is in service, we will reevaluate the distribution and dividend growth rates.

In August, EQM entered into a 3-year term loan for $1.4 billion with the proceeds primarily being used to pay down our revolver borrowings. At the end of the quarter, we had about $300 million drawn on EQM's $3 billion revolver, though we have ample liquidity to fund our growth projects. We are currently in the middle of our annual planning process and we expect to provide guidance in mid-December after finalizing and receiving board approval of the 2020 plan.

I will now turn the call over to Diana for the operations update.

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Diana M. Charletta, Equitrans Midstream Corporation - President & COO [5]

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Thanks, Kirk. And good morning, everyone. The third quarter 2019 was another successful operating quarter for our team. Our systems gathered a record of 8.2 Bcf per day. We continue to make progress on our large-growth projects and we remain focused on operating efficiently and safely.

We recognized the need to be disciplined with our cost in this new operating environment and our expenses highlight our commitment to managing cost. Our year-to-date gathering O&M expense unit rate of just over $0.03 reflects our ongoing focus on operating as efficiently as possible without compromising our commitment to safety.

In addition to O&M expenses, we have been very focused on overall corporate costs. It has been almost a full year since standing up a new independent company and I'm pleased that our SG&A expenses have averaged lower than our guidance of $30 million to $35 million per quarter.

In terms of our large-growth projects, I will start with MVP. The total project work will be approximately 90% complete by the end of the year. We continue to work through the remaining permitting and regulatory items. First, we are very pleased that the Supreme Court agreed to hear the Atlantic coast pipelines case related to its Appalachian Trail crossing authorization. And we are hopeful that the lower court decision will be overturned.

Second, with regard to MVP's biological opinion, the Fish and Wildlife Service recently began the necessary re-consultation process and we expect the permit will be reissued early in 2020. Lastly, the U.S. Army Corps of Engineers is currently doing their review on the nationwide 12 permit and we expect to have that permit issued in the next couple of months.

We are currently winding down construction for the winter and plan to ramp construction back up next April. We recently adjusted the project schedule and budget to reflect our current expectations regarding regulatory milestone and construction strategy. We are now targeting a late 2020 in-service date and an overall project cost of $5.3 billion to $5.5 billion.

Additionally, Con Edison recently expressed that it intends to exercise an option to cap its investment in MVP. This decision would increase EQM's ownership interest in the MVP JV to approximately 47% and EQM would be expected to fund approximately $2.7 billion. To date, EQM has funded about $1.7 billion.

The 2 main supply feeder projects for MVP, the Equitrans Expansion Project and the Hammerhead pipeline will both be completed ahead of MVP. A portion of the Equitrans Expansion Project is currently operational and a portion of Hammerhead is expected to be operational by year-end. Those projects can provide partial interruptible service capacity until MVP is online. Upon MVP in service, the 2 projects have long term firm capacity commitments that will commence.

Moving on to MVP Southgate, as a reminder, the project is a 70 mile pipeline that is expected to receive gas at MVP and transport gas to new delivery points in North Carolina. The project is backed by a 300 million per day commitment from PSNC Energy. Southgate is currently in the regulatory review process with FERC and numerous state and federal agencies. The project is expected to be placed in service in 2021 at an overall project cost of $450 million to $500 million.

As it relates to EQT, we are having productive discussions with the new team regarding their updated development plans and simplifying the midstream agreement. We continue to believe that a mutually beneficial outcome can be achieved. As a starting point, we don't expect any deal to take effect prior to MVP in service. Our focus is obtaining the best outcome for our shareholders and unit holders.

Executing on our main growth projects remains our top priority. Once these projects are in service, they will provide the backbone for valuable expansion and extension opportunities. This new infrastructure will be critical to serving future demand growth in the mid-Atlantic and Southeast regions of the United States.

I will now turn the call back to Tom.

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Thomas F. Karam, Equitrans Midstream Corporation - Chairman & CEO [6]

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Thanks, Diana. So it has been just about a year since the spinoff of E-Train from EQT. To say it has been an active year with many unexpected events would be an understatement. Yet there has been one constant and that is the strength of our business and the commitment of our management team. The team will remain focused on executing on its projects and creating shareholders value at every turn.

With that, we will be happy to take 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 with JP Morgan.

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Rahul Krotthapalli, JP Morgan Chase & Co, Research Division - Analyst [2]

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This Rahul on for Jeremy. Thanks for taking my question here. First one, can you provide us an update on the progress of EQT negotiations and how they're shaping up so far?

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Diana M. Charletta, Equitrans Midstream Corporation - President & COO [3]

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They are shaping up well. We're having very constructive conversations with the new team and continue to make progress. I think there is enough in the deal for both sides that we come out with a positive income -- positive outcome or income.

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Rahul Krotthapalli, JP Morgan Chase & Co, Research Division - Analyst [4]

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Are there any other partners on the MVP project with similar provisions on the investment cap that could follow Con Ed's lead at this point and if so, would EQM bear like most of the increases for this party to stop distributions to MVP?

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Diana M. Charletta, Equitrans Midstream Corporation - President & COO [5]

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There is no other contractual ability to cap form any of the other partners.

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Rahul Krotthapalli, JP Morgan Chase & Co, Research Division - Analyst [6]

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And then one last thing. On the leverage trajectory here, is there any changes to your long-term outlook at this point from the 3.5x to 4x which you had in your previous slides?

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Kirk R. Oliver, Equitrans Midstream Corporation - Senior VP & CFO [7]

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Well, we're working -- this is Kirk. We're working on our forecast and planning which will we will have some time in December and we will have a better handle on what those numbers look like at that point in time. It will take us longer, I think, to get to those targets now with just what's happening in the basin with production.

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Operator [8]

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Your next question comes from the line of Shneur Gershuni with UBS.

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Shneur Z. Gershuni, UBS Investment Bank, Research Division - Executive Director in the Energy Group and Analyst [9]

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If I can just sort of revisit the discussion about the renegotiations with EQT. You made an interesting comment in your slide, it was worded as if no change would happen until MVP comes into service. So is this negotiation that's going on right now is something that you will agree to potentially in the next few quarters or so, but would be signed before MVP comes in service, but nothing would happen until it actually comes to service, that kind of (technical difficulty) going.

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Diana M. Charletta, Equitrans Midstream Corporation - President & COO [10]

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Yes, I think we both come to the agreement that nothing will change until after MVP comes in service as far as rates. So my thought is that we will have it signed and negotiated before then, but nothing will come into effect until after in-service.

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Shneur Z. Gershuni, UBS Investment Bank, Research Division - Executive Director in the Energy Group and Analyst [11]

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And in your response to the last question about positive outcome, income and so forth, can we talk about it on an NPV basis? I mean, are we looking for something that's going to be close to NPV neutral? Is that kind of the way to be thinking about it where give and take somewhere else, but it ends up on an NPV neutral basis?

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Diana M. Charletta, Equitrans Midstream Corporation - President & COO [12]

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We're in the middle of negotiations right now. So we would prefer to let that to a later date.

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Shneur Z. Gershuni, UBS Investment Bank, Research Division - Executive Director in the Energy Group and Analyst [13]

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And just a couple of follow-ups on guidance (technical difficulty) their plans for 2020. You've taken down some CapEx on the gathering side. Do you have enough breadcrumbs for us or do have a few breadcrumbs for us just how you're thinking about 2020 at this stage right now? Was that gathering be CapEx deferred into 2020 or is it going to go to 2021? How do we think about the fact talking about volume here if you can sort of give us first to how you're thinking about 2020?

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Thomas F. Karam, Equitrans Midstream Corporation - Chairman & CEO [14]

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You might want to re-ask that question because you're breaking up.

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Shneur Z. Gershuni, UBS Investment Bank, Research Division - Executive Director in the Energy Group and Analyst [15]

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My apologies there. So just wanted to better understand if you have any thoughts or early views on 2020 a guidance, I mean just given in the context that EQT has already given some volumetric guidance. I mean obviously you want to tighten it up when you give your proper guidance from the board. But as to at least how you're thinking about it for 2020 at this stage in the context of what EQT said last week?

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Diana M. Charletta, Equitrans Midstream Corporation - President & COO [16]

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We're still working through that. So as far as volumes 2020 and what EQT has ready for us, we can kind of start working through that. But from a capital perspective, we really need to understand they're 2021 locations and that's still -- we don't have that all pinned down yet. So as we work through it, we should be in a better position mid-December to be able to give that guidance.

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Operator [17]

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Your next question comes from the line of Spiro Dounis with Credit Suisse.

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Spiro Michael Dounis, Crédit Suisse AG, Research Division - Director [18]

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Just following up on negotiations with EQT, I just totally respect that obviously you're in the middle of negotiations. But maybe you just want to try and marry 2 comments that I guess both parties really talked about in the past. I think more recently EQT seem to offer a increased acreage dedications in exchange for a lower rate. I guess I'm just wondering, is that consistent with your understanding of what's going on right now and maybe how does that tie to your goal which I think at one point was to be revenue neutral at a minimum?

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Diana M. Charletta, Equitrans Midstream Corporation - President & COO [19]

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So I think there are a couple of things that we're working through. One is an increased acreage dedication, but there's also an increase of MVC, which is very important to us, an extension of those contracts to a longer term. So there's a couple of things on both sides that we're working through.

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Spiro Michael Dounis, Crédit Suisse AG, Research Division - Director [20]

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And is that goal of revenue neutral still part of it or is that sort of still evolving?

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Diana M. Charletta, Equitrans Midstream Corporation - President & COO [21]

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It's still evolving.

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Spiro Michael Dounis, Crédit Suisse AG, Research Division - Director [22]

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The second question just with respect to the Supreme Court decision, certainly positive in your direction. Just curious now with respect to the land swap, is that or has that become kind of an option at this point where you sort of pick that up maybe midway through next year after a decision to the extent you need to or is there a parallel process you can run simultaneously here?

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Diana M. Charletta, Equitrans Midstream Corporation - President & COO [23]

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Our goal would be to run that parallel.

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Spiro Michael Dounis, Crédit Suisse AG, Research Division - Director [24]

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And so by the time you would get a Supreme Court decision in let's call it June, any sense for how much longer after that a land swap could sort of occur?

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Diana M. Charletta, Equitrans Midstream Corporation - President & COO [25]

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No, there's -- our goal would be that we have it tied up and ready to go.

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Operator [26]

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Your next question comes from the line of Ross Payne with Wells Fargo.

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Ross Payne, Wells Fargo Securities, LLC, Research Division - MD & Senior High Grade Analyst [27]

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First question is, what kind of permitting is needed to get through Virginia to Transco and second of all, what kind of hurdles do you see getting through North Carolina?

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Thomas F. Karam, Equitrans Midstream Corporation - Chairman & CEO [28]

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Good one. On the Transco question, we've already completed those interconnects with Transco. So I think we're good there. With regard to North Carolina, it's the standard water permit we would need from them, I believe it's the 404. So we've made an application and that process is ongoing.

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Ross Payne, Wells Fargo Securities, LLC, Research Division - MD & Senior High Grade Analyst [29]

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Given the increased cost and your increased ownership in MVP, it sounds like you're not going to cut your distribution until -- or you're not going to address your distribution until after MVP. Is cutting your distribution something we can think about to shore up cost on that front and to potentially protect your IG rating.

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Thomas F. Karam, Equitrans Midstream Corporation - Chairman & CEO [30]

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No, I wouldn't think about -- I wouldn't look for a distribution cut. That's not something that we would consider.

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Ross Payne, Wells Fargo Securities, LLC, Research Division - MD & Senior High Grade Analyst [31]

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How are your conversations going with the rating agencies related to your investment grade ratings and how important is it for you to keep those?

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Thomas F. Karam, Equitrans Midstream Corporation - Chairman & CEO [32]

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Well, it's very important for us to keep the investment grade rating. And as you know, we're on outlook by 2 of the agencies. We keep a very consistent dialogue with all 3 of the rating agencies. We try to keep them updated when there's something that seems worth updating. We'll make sure they don't have any questions after this call. And we will be meeting with all of them once we have our plan put together in December. So we keep a good dialogue with them. But as you know, we don't have any clear yay or nay about what they might do in the future. We do believe that we'll have plenty of time to react to anything that they might raise with us.

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Ross Payne, Wells Fargo Securities, LLC, Research Division - MD & Senior High Grade Analyst [33]

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Do you have any idea what they need to see happen from their standpoint in terms of staying in IG, given the hurdles you have with increasing cost and changes in your rate structure with EQT?

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Thomas F. Karam, Equitrans Midstream Corporation - Chairman & CEO [34]

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I don't really want to speak for them on that. I mean, they obviously want to see our leverage metrics improve. And as I mentioned earlier, given what's happening with production in the basin and the delays with MVP, that improvement will happen a little bit more slowly than what we previously thought. So that's going to be something obviously they'll be looking at and we'll be talking to them about. But I can't really speak for them in terms of where their cutoff is.

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Ross Payne, Wells Fargo Securities, LLC, Research Division - MD & Senior High Grade Analyst [35]

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And finally, a number of fixed income investors, including ourselves on the sell-side, have a hard time getting through to IR. So can they be more responsive to returning our phone calls?

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Thomas F. Karam, Equitrans Midstream Corporation - Chairman & CEO [36]

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Absolutely.

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Ross Payne, Wells Fargo Securities, LLC, Research Division - MD & Senior High Grade Analyst [37]

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That would be appreciated.

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Operator [38]

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Your next question comes from the line of Derek Walker with Bank of America.

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Derek Bryant Walker, BofA Merrill Lynch, Research Division - VP [39]

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I think this first one from me, I think EQT in their call mentioned that there're some asset sales outside of the core that Marcellus should looking to divest. Is any of that acreage behind EQM systems and if so, would the contracts associated with that acreage transfer over to the new potential customer there?

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Diana M. Charletta, Equitrans Midstream Corporation - President & COO [40]

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So I don't think we can speak to what that acreage really is. They didn't disclose what that was. So it would be out of term for us to speak to what that is.

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Derek Bryant Walker, BofA Merrill Lynch, Research Division - VP [41]

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And I think they also mentioned that sort of after the gathering re-contracting that sort of a natural follow up would be around the water. So there was indicating a produced water solution. So if that's the case, should we kind of think about produced water solution as a 2021, maybe in '22 sort of event?

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Diana M. Charletta, Equitrans Midstream Corporation - President & COO [42]

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So we continue to work through fresh water with them. Even that I think will change a bit with the way that they want to use water. And then on the produce side, we continue to work with them for what they need. I don't think it's going to be a huge capital build, but if there are certain aspects on the produce side that they need and we can help with, we're certainly working through that. So we're in active conversations with both of those things so that we can meet what they need on the water side.

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Derek Bryant Walker, BofA Merrill Lynch, Research Division - VP [43]

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And then maybe just a quick one on the process. I think on the nationwide side of things, you mentioned in the next couple of months you expect to get that. Is that something that you would expect after the Fish and Wildlife piece?

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Diana M. Charletta, Equitrans Midstream Corporation - President & COO [44]

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I don't think it necessarily has to be. But I think they're close to the same timing. So I'd say early next year for both of them and then our current schedule really doesn't have us hitting it hard until April.

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Operator [45]

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Your next question comes from the line of Chris Tillett with Barclays.

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Christopher Paul Tillett, Barclays Bank PLC, Research Division - Research Analyst [46]

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Just I guess to follow-up on a couple of items in the release. Are you able to provide any further breakdown of the write-downs that you took in the quarter just in terms of how much was attributable to RMP versus the Eureka and Hornet systems?

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Kirk R. Oliver, Equitrans Midstream Corporation - Senior VP & CFO [47]

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Sure. RMP was just under $170 million and Eureka, Hornet was about $99 million of a goodwill impairment and then there was some -- a deferred tax component to both of those of about $7 million and then we had intangible assets at Hornet Midstream related to contracts with producers of about $36 million.

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Christopher Paul Tillett, Barclays Bank PLC, Research Division - Research Analyst [48]

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And then to follow up on Diana's comments from a little earlier, how much capacity or how much volume flow are you guys able to provide on the interruptible service today on the Equitrans expansion and the Hammerhead project?

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Diana M. Charletta, Equitrans Midstream Corporation - President & COO [49]

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So it really depends on, I think the capacity is, are you looking at 600, yes. But it really depends on market and what the differentials are as far as what we can move, whether with…?

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Christopher Paul Tillett, Barclays Bank PLC, Research Division - Research Analyst [50]

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I mean, I guess is any of that built into your current outlook or should we expect that as just being more opportunistic?

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Diana M. Charletta, Equitrans Midstream Corporation - President & COO [51]

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No, it's opportunistic.

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Operator [52]

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Your next question comes from the line of Chris Sighinolfi with Jefferies.

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Christopher Paul Sighinolfi, Jefferies LLC, Research Division - Senior Equity Research Analyst, Master Limited Partnerships [53]

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I wanted just to follow, a lot has been asked and answered and I appreciate it all. I just have one follow up if I could and that's to circle back on some of Ross's questions just with regard to the dividend distribution and reassessment process. I think we all understand the decision to hold payouts flat over the remaining MVP execution timeline, just given the uncertainty inherent in it and the escalating cost of the project. But I guess presuming MVP and then Southgate commence on your current guidance, I'm wondering, Tom, what factors you will weigh or how you come to think about shareholder payouts after that point. At the Analyst Day, you guys obviously a year ago when ETRN was first spinning, it was articulated as a full payout C Corp and I'm just -- it seems to be changed views at least in regards to the C Corp entities versus the MLPs in terms of how shareholders returns get allocated, whether that be through the dividend, through buyback or improvements in leverage. And so I'm just curious, your current thoughts on that.

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Thomas F. Karam, Equitrans Midstream Corporation - Chairman & CEO [54]

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Yes, Chris, this is Tom. That's a really good question. We don't have an answer for you as we sit here today because we're still -- the issue we're facing is we have so many balls up in the air with these different projects with MVP, with the reopening of the contracts with EQT, with some other things that the next 12 months would bring to bear. We're just trying to keep our powder dry and our options open as it relates to the ultimate use of funds and use of proceeds from our cash flow. So let me defer answering that today, but the question is on point with something that as we get into early next year, we're going to be much more clear about. Clearly, we're very sensitive to our leverage. I think that is priority #1 for us right now.

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Christopher Paul Sighinolfi, Jefferies LLC, Research Division - Senior Equity Research Analyst, Master Limited Partnerships [55]

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What I'm getting after and maybe it's just premature given the timetable is, if you were to, for example, resume growth in the pad at EQM, is it an option -- it's certainly an option, is it a view that you think is credible that maybe the growth doesn't follow at a commensurate pace at ETRN and net cash either builds or is used for accelerate term loan repayment or share repurchase or something other than commensurate level of dividend growth?

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Thomas F. Karam, Equitrans Midstream Corporation - Chairman & CEO [56]

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Understood. And I like to answer the question this way and that is, that cash will be used to maximize shareholder return in some form or fashion.

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Operator [57]

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Your next question comes from the line of TJ Schultz with RBC Capital Market.

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Torrey Joseph Schultz, RBC Capital Markets, Research Division - Analyst [58]

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Just one follow-up on the land exchange plan. I'm just trying to understand the next steps there, understanding the goal to have it tied up and ready to go by next summer. If you can kind of just walk through what needs to happen to get there.

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Diana M. Charletta, Equitrans Midstream Corporation - President & COO [59]

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So we're still working with the agency on what those steps need to be. And as we continue to define them, we can continue to talk about them.

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Operator [60]

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Your next question comes from the line of Ross Payne with Wells Fargo.

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Ross Payne, Wells Fargo Securities, LLC, Research Division - MD & Senior High Grade Analyst [61]

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One more question. I guess based on your comment to protect the balance sheet and deleverage, why does it not make sense to go ahead and cut the distribution now to help fund -- to keep the balance sheet in shape, to fund the increased cost of MVP and ultimately to deal with any kind of decrease in rates with EQT? Why don't you go ahead and do that now?

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Kirk R. Oliver, Equitrans Midstream Corporation - Senior VP & CFO [62]

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Because we've made the determination not to, Ross.

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Operator [63]

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There are no further telephone questions at this time. I turn the call back to our presenters.

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Thomas F. Karam, Equitrans Midstream Corporation - Chairman & CEO [64]

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Thank you very much for joining the call today. We appreciate everybody's attention to us. Have a good day. Be careful out there. Go (inaudible).

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Operator [65]

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This concludes today's conference call. You may now disconnect.