EQUITRANS MIDSTREAM CORPORATION You should read the following discussion and analysis of financial condition and results of operations in conjunction with the consolidated financial statements, and the notes thereto, included elsewhere in this report.
Cautionary Statements about Forward-Looking Statements
Disclosures in this Quarterly Report on Form 10-Q contain certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and Section 27A of the Securities Act of 1933, as amended (the Securities Act). Statements that do not relate strictly to historical or current facts are forward-looking and usually identified by the use of words such as "anticipate," "estimate," "could," "would," "will," "may," "assume," "potential," "forecast," "approximate," "expect," "project," "intend," "plan," "believe," "target," "outlook," "seek," "strive," "continue" and other words of similar meaning in connection with any discussion of future operating or financial matters. Without limiting the generality of the foregoing, forward-looking statements contained in this Quarterly Report on Form 10-Q include the matters discussed in the section captioned "Outlook" in Part I, "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations," and the expectations of plans, strategies, objectives, and growth and anticipated financial and operational performance ofEquitrans Midstream Corporation (together with its subsidiaries,Equitrans Midstream or the Company), including: •guidance and any changes in such guidance regarding the Company's gathering, transmission and storage and water services revenue and volume, including the anticipated effects associated with the EQT Global GGA and related documents entered into with EQT; •projected revenue (including from firm reservation fees) and volumes, gathering rates, deferred revenues, expenses and contract liabilities, and the effects on liquidity, leverage, projected revenue, deferred revenue and contract liabilities associated with the EQT Global GGA and the MVP project (including changes in the targeted full in-service date for such project);
•the ultimate gathering fee relief, and timing thereof, provided to EQT under the EQT Global GGA and related agreements;
•the Company's ability to de-lever and timing thereof;
•the weighted average contract life of gathering, transmission and storage contracts;
•infrastructure programs (including the timing, cost, capacity and sources of funding with respect to gathering, transmission and storage and water projects);
•the cost to construct or restore right-of-way for, capacity of, shippers for, timing and durability of regulatory approvals and concluding litigation, final design (including project scope, expansions, extensions or refinements and capital related thereto), ability to contract additional capacity on, mitigate emissions from, targeted in-service dates of, and completion of current, planned or in-service projects or assets, in each case as applicable;
•the potential for federal energy infrastructure permitting reform legislation favorable to the MVP project to be expeditiously proposed and enacted;
•the ultimate terms, partner relationships and structure of the MVP Joint Venture and ownership interests therein;
•the impact of changes in the targeted full in-service date of the MVP project on, among other things, the fair value of the Henry Hub cash bonus payment provision of the EQT Global GGA, gathering fee relief and the estimated transaction price allocated to the Company's remaining performance obligations under certain contracts with firm reservation fees and MVCs;
•expansion projects in the Company's operating areas and in areas that would provide access to new markets;
•the Company's ability to provide produced and mixed water handling services and realize expansion opportunities;
•the Company's ability to identify and complete acquisitions and other strategic
transactions, including joint ventures, effectively integrate transactions into
the Company's operations, and achieve synergies, system optionality, accretion
and other benefits associated with transactions, including through increased
scale;
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•any credit rating impacts associated with the MVP project, customer credit ratings changes, defaults, acquisitions, dispositions and financings and any changes in EQM's credit ratings;
•the effect and outcome of contractual disputes, litigation and other proceedings, including regulatory proceedings;
•the effects of any consolidation of or effected by upstream gas producers,
whether in or outside of the
•the timing and amount of future issuances or repurchases of the Company's securities;
•the effects of conversion, if at all, of the Equitrans Midstream Preferred Shares (as defined herein);
•the effects of seasonality;
•expected cash flows and MVCs, including those associated with the EQT Global GGA, and the potential impacts thereon of the commission timing and cost of the MVP project;
•the ability to achieve, and time for achieving, Hammerhead pipeline full commercial in-service;
•projected capital contributions and capital and operating expenditures, including the amount and timing of reimbursable capital expenditures, capital budget and sources of funds for capital expenditures;
•the Company's ability to recoup replacement and related costs;
•dividend amounts, timing and rates;
•changes in commodity prices and the effect of commodity prices on the Company's business;
•future decisions of customers in respect of production growth, curtailing natural gas production, timing of turning wells in line, rig and completion activity and related impacts on the Company's business;
•liquidity and financing requirements, including sources and availability;
•interest rates;
•the ability of the Company's subsidiaries (some of which are not wholly owned) to service debt under, and comply with the covenants contained in, their respective credit agreements;
•expectations regarding natural gas and water volumes in the Company's areas of operations;
•the Company's ability to achieve anticipated benefits associated with the execution of the EQT Global GGA and other commercial agreements;
•the impact on the Company and its subsidiaries of the coronavirus disease 2019 (COVID-19) pandemic;
•the Company's ability to position itself for a lower carbon economy, achieve, and create value from, its environmental, social and governance (ESG) and sustainability targets and aspirations (including targets and aspirations set forth in its climate policy) and respond, and impacts of responding, to increasing stakeholder scrutiny in these areas;
•the effectiveness of the Company's information technology and operational
technology systems and practices to detect and defend against evolving
cyberattacks on
•the effects of government regulation including any quantification of potential impacts of regulatory matters related to climate change on the Company; and
•tax rates, status and position.
The forward-looking statements included in this Quarterly Report on Form 10-Q
involve risks and uncertainties that could cause actual results to differ
materially from projected results. Accordingly, investors should not place undue
reliance on forward-looking statements as a prediction of actual results. The
Company has based these forward-looking statements on management's current
expectations and assumptions about future events. While the Company considers
these expectations and assumptions to be reasonable, they are inherently subject
to significant business, economic, competitive, regulatory, judicial and other
risks and uncertainties, many of which are difficult to predict and are beyond
the Company's control. The risks and uncertainties that may affect the
operations, performance and results of the Company's business and
forward-looking statements
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include, but are not limited to, those set forth under "Item 1A. Risk Factors"
in the Company's Annual Report on Form 10-K for the year ended
Any forward-looking statement speaks only as of the date on which such statement is made and the Company does not intend to correct or update any forward-looking statement, unless required by securities law, whether as a result of new information, future events or otherwise.
Executive Overview
Net loss attributable toEquitrans Midstream common shareholders was$(521.2) million ($(1.20) per diluted share) for the three months endedSeptember 30, 2022 compared to net income attributable toEquitrans Midstream common shareholders of$72.7 million ($0.17 per diluted share) for the three months endedSeptember 30, 2021 . The decrease resulted primarily from an impairment of the Company's equity method investment in the MVP Joint Venture, lower other income, net, decreased operating revenues, lower equity income and higher interest expense, partially offset by lower income tax expense. Net loss attributable toEquitrans Midstream common shareholders was$(379.4) million ($(0.88) per diluted share) for the nine months endedSeptember 30, 2022 compared to net income attributable toEquitrans Midstream common shareholders of$153.3 million ($0.35 per diluted share) for the nine months endedSeptember 30, 2021 . The decrease resulted primarily from an impairment of the Company's equity method investment in the MVP Joint Venture, lower operating revenues, lower other income, net and a decrease in equity income, partially offset by lower operating expenses, lower income tax expense and a decrease in the loss on extinguishment of debt. COVID-19 Update The Company continues to monitor updates in guidelines from theU.S. Centers for Disease Control and Prevention related to the COVID-19 outbreak, and, where applicable, make adjustments to its companywide working protocols. Although the outbreak has had, and continues to have, minimal direct impact on the Company's overall operations, the Company cannot predict that the pandemic, or further developments regarding variants of COVID-19 or related governmental action, will not have any impact in the future on the Company's business, results of operations or financial position. For further information regarding the potential impact of COVID-19 on the Company, see "The ongoing outbreak of COVID-19 and its variant strains (or any future pandemic) could harm our business, results of operations and financial condition." under "Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 .
Business Segment Results
Operating segments are revenue-producing components of an enterprise for which
separate financial information is produced internally and is subject to
evaluation by the chief operating decision maker in deciding how to allocate
resources. Headquarters costs consist primarily of certain unallocated corporate
expenses and transaction costs, as applicable. Net interest expense, loss on
extinguishment of debt, components of other income, net and income tax expense
(benefit) are managed on a consolidated basis. The Company has presented each
segment's operating income (loss), other income, net, equity income, impairment
of equity method investment and various operational measures, as applicable, in
the following sections. Management believes that the presentation of this
information is useful to management and investors regarding the financial
condition, results of operations and trends and uncertainties of its segments.
The Company has reconciled each segment's operating income (loss) to the
Company's consolidated operating income and net income (loss) in Note 3 to the
consolidated financial statements.
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Gathering Results of Operations
Three Months Ended September 30, Nine Months Ended September 30,
% %
2022 2021 Change 2022 2021 Change
(Thousands, except per day amounts)
FINANCIAL DATA
Firm reservation fee revenues (a) $ 144,730 $ 151,004 (4.2) $ 415,932 $ 448,556 (7.3)
Volumetric-based fee revenues 82,450 92,812 (11.2) 256,352 285,288 (10.1)
Total operating revenues 227,180 243,816 (6.8) 672,284 733,844 (8.4)
Operating expenses:
Operating and maintenance 27,855 25,758 8.1 71,733 72,698 (1.3)
Selling, general and administrative 21,717 21,831 (0.5) 58,520 72,324 (19.1)
Depreciation 49,125 47,441 3.5 145,953 140,899 3.6
Amortization of intangible assets 16,204 16,204 - 48,614 48,614 -
Total operating expenses 114,901 111,234 3.3 324,820 334,535 (2.9)
Operating income $ 112,279 $ 132,582 (15.3) $ 347,464 $ 399,309 (13.0)
Other income, net (b) $ 1,332 $ 21,328 (93.8) $ 21,500 $ 37,897 (43.3)
OPERATIONAL DATA
Gathered volumes (BBtu per day)
Firm capacity (c) 5,125 5,110 0.3 5,199 5,211 (0.2)
Volumetric-based services 2,413 2,880 (16.2) 2,600 3,109 (16.4)
Total gathered volumes 7,538 7,990 (5.7) 7,799 8,320 (6.3)
Capital expenditures (d) $ 73,589 $ 62,916 17.0 $ 195,925 $ 170,709 14.8
(a)For the three and nine months ended September 30, 2022 , firm reservation fee
revenues included approximately $8.5 million and $17.4 million , respectively, of
MVC unbilled revenues. For the three and nine months ended September 30, 2021 ,
firm reservation fee revenues included approximately $5.5 million and
$12.4 million , respectively, of MVC unbilled revenues.
(b)Other income, net includes the unrealized (losses) gains on derivative
instruments associated with the Henry Hub cash bonus payment provision and gain
on sale of gathering assets. See Note 8 to the consolidated financial statements
for further details on the Henry Hub cash bonus payment provision.
(c)Includes volumes up to the contractual MVC under agreements structured with MVCs. Volumes in excess of the contractual MVC are reported under Volumetric-based services.
(d)Includes approximately$5.9 million and$17.6 million of capital expenditures related to the noncontrolling interest in Eureka Midstream for the three and nine months endedSeptember 30, 2022 , respectively, and includes approximately$4.8 million and$10.6 million of capital expenditures related to the noncontrolling interest in Eureka Midstream for the three and nine months endedSeptember 30, 2021 , respectively.
Three Months Ended
Gathering operating revenues decreased by$16.6 million for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . Firm reservation fee revenues decreased by$6.3 million primarily due to higher deferred revenue primarily resulting from assumption changes impacting the estimated total consideration under the EQT Global GGA partially offset by increased firm reservation revenues from other customers. Volumetric-based fee revenues decreased by$10.3 million primarily due to lower gathered volumes resulting from reduced producer activity. Gathering operating expenses increased by$3.7 million for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . Operating and maintenance expenses increased by$2.1 million primarily due to higher property taxes. Depreciation expense increased by$1.7 million as a result of additional assets placed in-service. 24
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Nine Months Ended
Gathering operating revenues decreased by$61.6 million for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 . Firm reservation fee revenues decreased by$32.6 million primarily due to higher deferred revenue primarily resulting from assumption changes impacting the estimated total consideration under the EQT Global GGA, partially offset by increased firm reservation revenues from other customers. Volumetric-based fee revenues decreased by$28.9 million primarily due to lower gathered volumes resulting from reduced producer activity. Gathering operating expenses decreased by$9.7 million for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 . Selling, general and administrative expenses decreased by$13.8 million primarily due to legal fees associated with the Hammerhead pipeline arbitration during the nine months endedSeptember 30, 2021 and lower personnel costs. The decrease in selling, general and administrative expenses was partially offset by an increase in depreciation expense of$5.1 million as a result of additional assets placed in-service. See also "Outlook" for discussions of the EQT Global GGA and the transactions related thereto, including the potential gathering fee relief to EQT thereunder. The Company expects that the revenues resulting from the MVCs under the EQT Global GGA will increase the proportion of the Company's total operating revenues that are firm reservation fee revenues, and correspondingly decrease the portion of the Company's total operating revenues that are volumetric-based fee revenues, in future periods. Firm reservation fee revenues under the Company's Hammerhead gathering agreement with EQT also are expected to contribute to an increase in the Company's firm reservation fee revenues following achievement of the Hammerhead pipeline full commercial in-service. See also "Outlook" for discussions of the expected timing of the Hammerhead pipeline in service.
Transmission Results of Operations
Three Months Ended September 30, Nine Months Ended September 30,
% %
2022 2021 Change 2022 2021 Change
(Thousands, except per day amounts)
FINANCIAL DATA
Firm reservation fee revenues $ 84,584 $ 84,053 0.6 $ 272,129 $ 269,239 1.1
Volumetric-based fee revenues 6,973 6,833 2.0 21,301 25,964 (18.0)
Total operating revenues 91,557 90,886 0.7 293,430 295,203 (0.6)
Operating expenses:
Operating and maintenance 4,143 7,922 (47.7) 15,973 23,682 (32.6)
Selling, general and administrative 9,428 9,426 - 26,270 26,907 (2.4)
Depreciation 13,909 13,835 0.5 41,707 41,461 0.6
Total operating expenses 27,480 31,183 (11.9) 83,950 92,050 (8.8)
Operating income $ 64,077 $ 59,703 7.3 $ 209,480 $ 203,153 3.1
Equity income $ 48 $ 8,461 (99.4) $ 91 $ 14,385 (99.4)
Impairment of equity method investment
100.0 $ (583,057) $ - 100.0
OPERATIONAL DATA
Transmission pipeline throughput (BBtu
per day)
Firm capacity reservation 3,058 2,939 4.0 3,082 2,927 5.3
Volumetric-based services 65 7 828.6 41 9 355.6
Total transmission pipeline throughput 3,123 2,946 6.0 3,123 2,936 6.4
Average contracted firm transmission
reservation commitments (BBtu per day) 3,748 3,819 (1.9) 4,009 4,008 -
Capital expenditures (a) $ 12,429 $ 5,755 116.0 $ 22,994 $ 17,050 34.9
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(a)Transmission capital expenditures do not include aggregate capital
contributions made to the MVP Joint Venture for the MVP and MVP Southgate
projects of approximately
Three Months Ended
Transmission operating revenues increased by$0.7 million for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 primarily as a result of increased firm reservation fee revenues primarily due to higher average rates.
Operating expenses decreased by
Equity income decreased by$8.4 million for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 due to no AFUDC at the MVP Joint Venture in the current period. Impairment of equity method investment reflects the impairment of the Company's equity method investment in the MVP Joint Venture during the third quarter of 2022. See Note 2 for further information.
Nine Months Ended
Transmission operating revenues decreased by$1.8 million for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 . Firm reservation revenues increased$2.9 million due to higher average rates and customers contracting for additional firm capacity. Volumetric-based fee revenues decreased$4.7 million due to lower storage activities. Operating expenses decreased by$8.1 million for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 primarily as a result of lower operating and maintenance expense due to operational efficiencies. Equity income decreased by$14.3 million for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 due to no AFUDC at the MVP Joint Venture in the current period. The Company's equity income in future periods will continue to be affected by the timing of the resumption of the remaining MVP project growth construction activities and associated AFUDC, and the timing of the completion of the MVP project, and such impact could continue to be substantial. Impairment of equity method investment reflects the impairment of the Company's equity method investment in the MVP Joint Venture during the third quarter of 2022. See Note 2 for further information. 26
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Water Results of Operations
Three Months Ended September 30, Nine Months Ended September 30,
% %
2022 2021 Change 2022 2021 Change
(Thousands, except MMgal amounts)
FINANCIAL DATA
Firm reservation fee revenues
(a) $ 9,375 $ 1,061 783.6 $ 24,502 $ 3,834 539.1
Volumetric-based fee revenues 3,639 6,311 (42.3) 12,292 37,484 (67.2)
Total operating revenues 13,014 7,372 76.5 36,794 41,318 (10.9)
Operating expenses:
Operating and maintenance 3,280 5,053 (35.1) 12,809 14,581 (12.2)
Selling, general and
administrative 2,230 2,369 (5.9) 5,896 5,396 9.3
Depreciation 5,162 4,364 18.3 14,483 20,740 (30.2)
Impairment of long-lived assets - - - - 56,178 (100.0)
Total operating expenses 10,672 11,786 (9.5) 33,188 96,895 (65.7)
Operating income (loss) $ 2,342 $ (4,414) 153.1 $ 3,606 $ (55,577) 106.5
OPERATIONAL DATA
Water services volumes (MMgal)
Firm capacity reservation (b) 107 16 568.8 323 70 361.4
Volumetric-based services 96 161 (40.4) 358 837 (57.2)
Total water volumes 203 177 14.7 681 907 (24.9)
Capital expenditures $ 17,041 $ 10,803 57.7 $ 49,132 $ 20,430 140.5
(a) For the three and nine months ended September 30, 2021 , firm reservation
fee revenues included approximately $0.5 million and $1.5 million , respectively,
of MVC unbilled revenues.
(b) Includes volumes up to the contractual MVC under agreements structured with MVCs or ARCs, as applicable. Volumes in excess of the contractual MVC are reported under volumetric-based services.
Three Months Ended
Water operating revenues increased by$5.6 million for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . Firm reservation fee revenues increased by$8.3 million primarily as a result of increased revenues associated with ARCs. Volumetric-based fee revenues decreased by$2.7 million primarily due to lower volumes resulting from more firm capacity volumes in the current period due to the 2021 Water Services Agreement replacing contracts that provided service previously on a volumetric fee basis and overall decreased customer activity. Water operating expenses decreased by$1.1 million for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . Operating and maintenance expenses decreased by$1.8 million primarily due to preventive pipeline activities in the prior year, which was partially offset by an increase in depreciation expense of$0.8 million as a result of additional assets placed in-service.
Nine Months Ended
Water operating revenues decreased by$4.5 million for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 . Firm reservation fee revenues increased by$20.7 million primarily as a result of increased revenues associated with ARCs. Volumetric-based fee revenues decreased by$25.2 million primarily due to lower volumes resulting from more firm capacity volumes in the current period due to the 2021 Water Services Agreement replacing contracts that provided service previously on a volumetric fee basis and overall decreased customer activity and rates. Water operating expenses decreased by$63.7 million for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 primarily as a result of the$56.2 million impairment of long-lived assets during the second quarter of 2021. Depreciation expense decreased$6.3 million due to the impairment of certain long-lived assets during the 27
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second quarter of 2021. Operating and maintenance expenses decreased by$1.8 million primarily due to lower purchased water costs resulting from decreased activity. The Company's volumetric-based water services are directly associated with producers' well completion activities and fresh and produced water needs (which are primarily driven by horizontal lateral lengths and the number of completion stages per well). Therefore, the Water volumetric operating results traditionally fluctuate from year-to-year in response to producers' well completion activities. Firm reservation revenues are expected to be mostly consistent due to the ARC under the 2021 Water Services Agreement that became effectiveMarch 1, 2022 . The Company expects total Water operating revenues to be higher for the year endingDecember 31, 2022 as compared to the year endedDecember 31, 2021 primarily due to the operating revenues from the 2021 Water Services Agreement that became effective onMarch 1, 2022 . The Company also expects that the contractual revenues resulting from the ARC under the 2021 Water Services Agreement will increase the proportion of the Company's total water operating revenues that are firm reservation fee revenues, and correspondingly decrease the portion of the Company's total water operating revenues that are volumetric-based fee revenues, in future periods. See "Outlook" for further discussion of the 2021 Water Services Agreement.
Other Income Statement Items
Other Income, Net
Other income, net decreased by$20.3 million for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . The decrease was primarily due to a$2.4 million unrealized loss on derivative instruments during the three months endedSeptember 30, 2022 , as compared to a$21.3 million unrealized gain on derivative instruments during the three months endedSeptember 30, 2021 , both associated with the Henry Hub cash bonus payment provision due to changes in NYMEX Henry Hub natural gas futures prices, partially offset by a$3.7 million gain on the sale of non-core gathering assets. Other income, net decreased by$16.8 million for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 . The decrease was primarily due to a$20.1 million decrease in unrealized gain on derivative instruments associated with the Henry Hub cash bonus payment provision due to changes in NYMEX Henry Hub natural gas futures prices, partially offset by a$3.7 million gain on the sale of non-core gathering assets. See also "Outlook" for a discussion of factors affecting the estimated fair value of the derivative asset attributable to the Henry Hub cash bonus payment provision that is recognized in other income, net on the Company's statements of consolidated comprehensive income.
Loss on Extinguishment of Debt
During the nine months endedSeptember 30, 2022 , the Company incurred a loss on extinguishment of debt of approximately$24.9 million related to the payment of the 2022 Tender Offers and open market repurchase premiums and fees, and write off of the respective unamortized discounts and financing costs associated with the purchase of portions of 2023, 2024 and 2025 Notes in the 2022 Tender Offers. During the nine months endedSeptember 30, 2021 , the Company incurred a loss on the extinguishment of debt of$41.0 million related to the payment of the 2021 Tender Offers premium and write off of unamortized discounts and financing costs related to the prepayment of the EQM Term Loans under, and termination of, the Amended 2019 EQM Term Loan Agreement and purchase of 2023 Notes in the 2021 Tender Offers. See Note 7 to the consolidated financial statements for additional discussion.
Net Interest Expense
Net interest expense increased by$7.0 million for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 primarily due to the issuance of the 2022 Senior Notes and increased interest rates on the revolving credit facilities, partially offset by the impact of the 2022 Tender Offers. Net interest expense increased by$4.4 million for the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 primarily due to the issuance of the 2022 Senior Notes, partially offset by the impact of the 2022 Tender Offers. As a result of the issuance of the 2022 Senior Notes and purchase of portions of 2023, 2024 and 2025 Notes in the 2022 Tender Offers, the Company expects its annual net interest expense to be higher in future periods.
See also Note 7 to the consolidated financial statements for a discussion of certain of the Company's outstanding debt.
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Income Taxes
See Note 10 to the consolidated financial statements for an explanation of the changes in income taxes for the three and nine months endedSeptember 30, 2022 compared to the three and nine months endedSeptember 30, 2021 . Management continues to evaluate the need for valuation allowances on the Company's deferred tax assets. As a result of the impairment of the Company's equity method investment in the MVP Joint Venture, management expects a full valuation allowance on the Company's deferred tax assets, net of deferred tax liabilities, for the year endedDecember 31, 2022 . The Company's estimated annual effective tax rate is susceptible to change, including the amount of valuation allowances realized, and such impact may be substantial.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests was relatively flat for the three and nine months endedSeptember 30, 2022 compared to the three and nine months endedSeptember 30, 2021 .
Capital Expenditures
See "Investing Activities" and "Capital Requirements" under "Capital Resources and Liquidity" for discussion of capital expenditures and capital contributions.
Outlook
The Company's strategically-located assets overlay core acreage in theAppalachian Basin . The location of the Company's assets allows its producer customers to access major demand markets in theU.S. The Company is one of the largest natural gas gatherers in theU.S. and its largest customer, EQT, was one of the largest natural gas producers in theU.S. based on average daily sales volumes as ofSeptember 30, 2022 and EQT's public senior debt had investment grade credit ratings from Standard & Poor's Global Ratings (S&P) and Fitch Ratings (Fitch) as of that date. The Company believes it has a stable cash flow profile, with approximately 71% of its operating revenue for the nine months endedSeptember 30, 2022 generated by firm reservation fees. The percentage of the Company's operating revenues that are generated by firm reservation fees is expected to increase in future years as a result of the 15-year term EQT Global GGA, which includes an MVC of 3.0 Bcf per day that became effective onApril 1, 2020 and gradually steps up to 4.0 Bcf per day throughDecember 2031 following the full in-service date of the MVP (should it be placed in-service). The Company intends for the contract structure to enhance the stability of the Company's cash flows and limit its exposure to customer volume variability. The Company's principal strategy is to achieve greater scale and scope, enhance the durability of its financial strength and to continue to work to position itself for a lower carbon economy, which the Company expects will drive future growth and investment. The Company is implementing its strategy by leveraging its existing assets, executing on its growth projects (including through potential expansion and extension opportunities), periodically evaluating strategically-aligned inorganic growth opportunities (whether within its existing footprint or to extend the Company's reach into the southeastUnited States and to become closer to key demand markets, such as theGulf of Mexico LNG export market), and focusing on ESG and sustainability-oriented initiatives. Additionally, the Company is also continuing to focus on strengthening its balance sheet through:
•highly predictable cash flows backed by firm reservation fees;
•actions to de-lever its balance sheet;
•disciplined capital spending;
•operating cost control; and
•an appropriate dividend policy.
As part of its approach to organic growth, the Company is focused on its projects and assets outlined below, many of which are supported by contracts with firm capacity, MVC or ARC commitments.
The Company expects that the MVP (should it be placed in-service), together with the Hammerhead pipeline and Equitrans,L.P. Expansion Project (EEP), will primarily drive the Company's organic growth, as discussed in further detail below, and, in the case of the MVP, the Company's ability to de-lever and the pace thereof (which delevering the Company views as a critical strategic objective for its business). 29
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•Mountain Valley Pipeline. The MVP is being constructed by a joint venture among the Company and affiliates of each of NextEra Energy, Inc., Consolidated Edison, Inc. (Con Edison ), AltaGas Ltd. and RGC Resources, Inc. As ofSeptember 30, 2022 , the Company owned an approximate 47.1% interest in the MVP project and will operate the MVP. The MVP is an estimated 300-mile, 42-inch diameter natural gas interstate pipeline with a targeted capacity of 2.0 Bcf per day that is designed to span from the Company's existing transmission and storage system inWetzel County, West Virginia toPittsylvania County, Virginia , which will provide access to the growing southeast demand markets. The MVP Joint Venture has secured a total of 2.0 Bcf per day of firm capacity commitments at 20-year terms. Additional shippers have expressed interest in the MVP project and the MVP Joint Venture is evaluating an expansion opportunity that could add approximately 0.5 Bcf per day of capacity through the installation of incremental compression. InOctober 2017 , theFERC issued the Certificate of Public Convenience and Necessity (the Certificate) for the MVP. In the first quarter of 2018, the MVP Joint Venture received limited notice to proceed with certain construction activities from theFERC and commenced construction. However, as discussed in "The regulatory approval process for the construction of new midstream assets is very challenging, has significantly increased costs and delayed targeted in-service dates, and decisions by regulatory and judicial authorities in pending or potential proceedings, particularly with respect to litigation in the Fourth Circuit, are likely to impact our or the MVP Joint Venture's ability to obtain or maintain in effect all approvals and authorizations necessary to complete certain projects in a timely manner or at all or our ability to achieve the expected investment returns on the projects." included in Part II, "Item 1A. Risk Factors", as well as in Part II, "Item 1. Legal Proceedings" of this Quarterly Report on Form 10-Q, the MVP project has been subject to repeated, significant delays and cost increases because of legal and regulatory setbacks, particularly in respect of litigation in theU.S. Court of Appeals for the Fourth Circuit (Fourth Circuit), including, as discussed in Part II, "Item 1. Legal Proceedings" of this Quarterly Report on Form 10-Q, onJanuary 25, 2022 , the Fourth Circuit's vacatur and remanding on specific issues of the MVP Joint Venture's authorizations related to theJefferson National Forest (JNF) received from theBureau of Land Management (BLM) and theU.S. Forest Service (USFS) and onFebruary 2, 2022 , the Fourth Circuit's vacatur and remanding on specific issues of the Biological Opinion and Incidental Take Statement issued by theUnited States Department of the Interior's Fish and Wildlife Service (FWS) for the MVP project. Given ongoing litigation and regulatory matters, onJune 24, 2022 , the MVP Joint Venture filed a request with theFederal Energy Regulatory Commission (FERC) for an extension of time to complete the MVP project for an additional four years (relative to a prior obtained extension) throughOctober 13, 2026 , which request was granted onAugust 23, 2022 . The MVP Joint Venture has sought new authorizations relating to the JNF, a new Biological Opinion and Incidental Take Statement, and an Individual Permit from theHuntington ,Pittsburgh and Norfolk Districts of theU.S. Army Corps of Engineers (Army Corps ) to effect approximately 300 water crossings utilizing open cut techniques. InApril 2022 , the MVP obtained theFERC's authorization to amend the Certificate to utilize alternative trenchless construction methods to effect approximately 120 water crossings. In order to complete the project, in addition to the authorizations with respect to water crossings and other relevant regulatory matters, the MVP Joint Venture needs to continue to have available the orders previously issued by theFERC that are necessary to complete the MVP project and receive authorization from theFERC to complete construction work in the portion of the project route currently remaining subject to theFERC's previous stop work order and in the JNF. The MVP Joint Venture also is participating in the defense of Section 401 water quality certification approvals received inDecember 2021 from each of theWest Virginia Department of Environmental Protection (WVDEP) and theVirginia Department of Environmental Quality (VADEQ) (the State 401 Approvals), which are the subject of ongoing litigation in the Fourth Circuit. For further information regarding litigation and regulatory related delays and risks affecting the completion of the MVP project, see Part II, "Item 1. Legal Proceedings" of this Quarterly Report on Form 10-Q. See also "The regulatory approval process for the construction of new midstream assets is very challenging, has significantly increased costs and delayed targeted in-service dates, and decisions by regulatory and judicial authorities in pending or potential proceedings, particularly with respect to litigation in the Fourth Circuit, are likely to impact our or the MVP Joint Venture's ability to obtain or maintain in effect all approvals and authorizations necessary to complete certain projects in a timely manner or at all or our ability to achieve the expected investment returns on the projects." and "Expanding our business by constructing new midstream assets subjects us to risks." included in Part II, "Item 1A. Risk Factors" of this Quarterly Report on Form 10-Q and "Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 , as applicable. 30
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OnOctober 25, 2022 , oral argument was held in the Fourth Circuit relating to the WVDEP State 401 Approval, which oral argument was conducted by the same panel of Fourth Circuit judges as have appeared, and overruled permitting agencies, in numerous prior matters relating to the MVP Joint Venture. Based upon the oral argument, the Company perceives continued hostility to and risk posed by the Fourth Circuit panel to the MVP Joint Venture's State 401 Approvals and those potential future authorizations and permits within the Fourth Circuit's jurisdiction, including any new authorizations for the JNF and new Biological Opinion and Incidental Take Statement. Further, as of the filing of this Quarterly Report on Form 10-Q, there remains uncertainty with respect to the relevant federal agencies' final permitting issuance timelines. Notwithstanding prior setbacks and ongoing risks, the MVP Joint Venture continues to engage in pursuing the requisite authorizations necessary under applicable law from the relevant agencies to complete the MVP project. However, in light of the continuing and likely future litigation and regulatory challenges posed to the MVP project (including the need for existing or future authorizations to remain in effect notwithstanding any pending or future challenge thereto) and timing uncertainties within the permitting process, the Company believes that the best path to complete the MVP in accordance with the Company's previously-communicated targeted full in-service date for the project during the second half of 2023 and at a targeted total project cost of approximately$6.6 billion (excluding AFUDC) is for theUnited States Congress to expeditiously pass, and there to be enacted, federal energy infrastructure permitting reform legislation that specifically requires the completion of the MVP project, similar to MVP-specific aspects of legislation proposed inSeptember 2022 by each ofUnited States SenatorsJoseph Manchin andShelley Moore Capito . As of the date of this Quarterly Report on Form 10-Q, the Company is cognizant of continuing significant bipartisan support for federal energy infrastructure permitting reform legislation and that the MVP project continues to be a prominent part of discussions with respect to such legislation. OnNovember 4, 2019 ,Con Edison exercised an option to cap its investment in the construction of the MVP project at approximately$530 million (excluding AFUDC). The Company and NextEra Energy, Inc. are obligated, and RGC Resources, Inc., another member of the MVP Joint Venture owning an interest in the MVP project, has opted, to fund the shortfall inCon Edison's capital contributions on a pro rata basis. Such funding by the Company and funding by other members has and will correspondingly increase the Company's and such other members' respective interests in the MVP project and decreaseCon Edison's interest in the MVP project. As a result, based on the Company's total targeted cost for the project of approximately$6.6 billion (excluding AFUDC), the Company's equity ownership in the MVP project will progressively increase from approximately 47.1% to approximately 48.1%. ThroughSeptember 30, 2022 , based on the MVP project's total targeted cost, the Company had funded approximately$2.7 billion of its estimated total capital contributions of approximately$3.4 billion (inclusive of additional contributions required due to theCon Edison cap described above), which estimated total capital contributions include approximately$180 million in excess of the Company's ownership interest. For 2022, the Company expects to make total capital contributions of approximately$190 million to$210 million primarily related to ongoing right-of-way maintenance, as well as work completed in late 2021, of which approximately$157.3 million had been contributed to the MVP Joint Venture as ofSeptember 30, 2022 . •Wellhead Gathering Expansion Projects and Hammerhead Pipeline. During the nine months endedSeptember 30, 2022 , the Company invested approximately$195.9 million in gathering projects (inclusive of capital expenditures related to the noncontrolling interest in Eureka Midstream). For 2022, the Company expects to invest approximately$265 million to$285 million in gathering projects (inclusive of expected capital expenditures of approximately$20 million related to the noncontrolling interest in Eureka Midstream). The primary projects include infrastructure expansion of core development areas in the Marcellus and Utica Shales in southwesternPennsylvania , southeasternOhio and northernWest Virginia for EQT, Range Resources Corporation (Range Resources) and other producers. The Hammerhead pipeline is a 1.6 Bcf per day gathering header pipeline that is primarily designed to connect natural gas produced inPennsylvania andWest Virginia to the MVP,Texas Eastern Transmission and Dominion Transmission, is supported by a 20-year term, 1.2 Bcf per day, firm capacity commitment from EQT and cost approximately$540 million . The Company expects Hammerhead pipeline full commercial in-service to commence in conjunction with full MVP in-service. During the second quarter of 2022, the Company entered into an agreement with a producer customer to install approximately 32,000 horsepower booster compression to existing facilities. The project is backed by a long-term commitment and is targeted to be in-service in mid-2024. The Company expects to invest approximately$70 million , with a majority of the capital spend in 2023 and 2024. 31
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•Transmission Projects and Equitrans Expansion Project. During the nine months endedSeptember 30, 2022 , the Company invested approximately$23.0 million in transmission projects, including the EEP. The EEP is designed to provide north-to-south capacity on the mainlineEquitrans, L.P. system, including primarily for deliveries to the MVP. A portion of the EEP commenced operations with interruptible service in the third quarter of 2019. The EEP provides capacity of approximately 600 MMcf per day and offers access to several markets through interconnects withTexas Eastern Transmission , Dominion Transmission andColumbia Gas Transmission . Once the MVP is fully placed in service, firm transportation agreements for 550 MMcf per day of capacity will commence under 20-year terms. For 2022, the Company expects to invest approximately$35 million in transmission projects, inclusive of capital expenditures expected for 2022 associated with the Company's Ohio Valley Connector expansion project (OVCX). OVCX will increase deliverability on the Company's existingOhio Valley Connector pipeline (OVC) by approximately 350 MMcf per day, create new receipt and delivery transportation paths, and enhance long-term reliability. The project is supported by new long-term firm capacity commitments of 330 MMcf per day, as well as an extension of approximately 1.0 Bcf per day of existing contracted mainline capacity for EQT. OVCX is designed to meet growing demand in key markets in the mid-continent and gulf coast through existing interconnects with long-haul pipelines inClarington, Ohio . OnJuly 7, 2022 , theFERC issued a Notice of Intent to Prepare an Environmental Impact Statement for OVCX, and onSeptember 30, 2022 , issued a Draft Environmental Impact Statement for the project. Based on the expected regulatory and permitting timeframe, the Company is targeting the incremental OVC capacity to be in-service during the first half of 2024. The Company expects to invest approximately$160 million in the project, which includes approximately$130 million for new compression. The project is consistent with the Company's ongoing efforts to optimize existing assets and achieve capital efficiency. •MVP Southgate Project. InApril 2018 , the MVP Joint Venture announced the MVP Southgate project, which is a proposed 75-mile interstate pipeline that was approved by theFERC to extend from the MVP atPittsylvania County, Virginia to new delivery points inRockingham andAlamance Counties,North Carolina . The MVP Southgate project is backed by a 300 MMcf per day firm capacity commitment from Dominion Energy North Carolina, and, as currently designed, reflects potential expansion capabilities that could provide up to 900 MMcf per day of total capacity. The Company is expected to operate the MVP Southgate project and owned a 47.2% interest in the MVP Southgate project as ofSeptember 30, 2022 . The MVP Joint Venture submitted the MVP Southgate certificate application to theFERC inNovember 2018 . InJune 2020 , theFERC issued the Certificate of Public Convenience and Necessity for the MVP Southgate; however, theFERC , while authorizing the project, directed theOffice of Energy Projects not to issue a notice to proceed with construction until necessary federal permits are received for the MVP project and the Director of theOffice of Energy Projects lifts the stop work order and authorizes the MVP Joint Venture to continue constructing the MVP project. See the corresponding discussion set forth in Part II, "Item 1. Legal Proceedings" of this Quarterly Report on Form 10-Q. In addition, there have been certain other litigation and regulatory-related delays affecting completion of the MVP Southgate project, including onAugust 11, 2020 , theNorth Carolina Department of Environmental Quality denied the MVP Southgate project's application for a Clean Water Act Section 401 Individual Water Quality Certification and Jordan Lake Riparian Buffer Authorization due to uncertainty surrounding the completion of the MVP project, which denial was reissued inApril 2021 following an appellate proceeding. OnDecember 3, 2021 , theVirginia State Air Pollution Control Board denied the permit for the MVP Southgate project's Lambert compressor station, which decision the MVP Joint Venture initially appealed before withdrawing its request to review the denial. Given the continually evolving regulatory and legal environment for greenfield pipeline construction projects, as well as factors specific to the MVP and MVP Southgate projects, including theDecember 2021 compressor station state air permit denial, the MVP Joint Venture continues to evaluate the MVP Southgate project, including engaging in discussions with Dominion Energy North Carolina regarding options with respect to the MVP Southgate project, including likely refining the project's design, scope and timing in lieu of pursuing the project as originally contemplated. Dominion Energy North Carolina's obligations under the precedent agreement in support of the original project are subject to certain conditions, including that the MVP Joint Venture would have completed construction of the project facilities byJune 1, 2022 , which deadline is subject to extension by virtue of previously declared events of force majeure. The Company is unable to predict the results of the discussions between the MVP Joint Venture and Dominion Energy North Carolina, including any potential modifications to the project, or ultimate undertaking or completion of the project. 32
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The MVP Southgate project, as originally designed, was estimated to cost a total of approximately$450 million to$500 million , a portion of which the Company expected to fund. For 2022, the Company expects to make capital contributions of less than$5 million to the MVP Joint Venture for the MVP Southgate project, of which approximately$0.9 million had been contributed as ofSeptember 30, 2022 . •Water Operations. During the nine months endedSeptember 30, 2022 , the Company invested approximately$49.1 million in its water infrastructure. In 2022, the Company expects to invest approximately$70 million to complete the initial mixed-use water system buildout. This includes approximately$20 million to replace certain previously installed water lines that the Company believes do not meet their prescribed quality standards. The Company has placed and is targeting placing portions of the system in service in 2022, with the majority of the system targeted to be placed in service in 2023. The Company is pursuing recoupment of such replacement and related costs.
See further discussion of capital expenditures in the "Capital Requirements" section below.
EQT Global GGA. OnFebruary 27, 2020 , the Company announced the EQT Global GGA, which is a 15-year contract that includes, among other things, a 3.0 Bcf per day MVC (which gradually steps up to 4.0 Bcf per day throughDecember 2031 following the full in-service date of the MVP) and the dedication of a substantial majority of EQT's core acreage in southwesternPennsylvania andWest Virginia to the Company. Under the EQT Global GGA, EQT has the ability to receive certain gathering fee relief over a period of three years. The EQT Global GGA replaced 14 previous gathering agreements between EQT and the Company. Under the EQT Global GGA, the performance obligation is to provide daily MVC capacity and as such the total consideration is allocated proportionally to the daily MVC over the life of the contract. In periods that the gathering MVC revenue billed will exceed the allocated consideration, the excess will be deferred to the contract liability and recognized in revenue when the performance obligation has been satisfied. While the 3.0 Bcf per day MVC capacity became effective onApril 1, 2020 , additional daily MVC capacity and the associated gathering MVC fees payable by EQT to the Company as set forth in the EQT Global GGA are conditioned upon the full in-service date of the MVP. There are ongoing (and potentially future) legal and regulatory matters that affect the MVP project which have had and/or could have (as applicable) a material effect on the performance obligation, the allocation of the total consideration over the life of the contract and the gathering MVC fees payable by EQT under the contract. BeforeJanuary 1, 2026 , beginning the first day of the quarter in which the full in-service date of the MVP occurs, the gathering MVC fees payable by EQT to the Company are subject to potential reductions for certain contract years as set forth in the EQT Global GGA, which, prior to EQT's exercise of the EQT Cash Option, provided for an estimated aggregate fee relief of up to approximately$270 million in the first twelve-month period, approximately$230 million in the second twelve-month period and approximately$35 million in the third twelve-month period. Further, the EQT Global GGA provides for a fee credit to the gathering rate for certain gathered volumes that also receive separate transmission services under certain transmission contracts. Given that the MVP full in-service date did not occur byJanuary 1, 2022 , onJuly 8, 2022 , EQT irrevocably elected under the EQT Global GGA to forgo up to approximately$145 million of the potential gathering fee relief in such first twelve-month period and up to approximately$90 million of the potential gathering fee relief in such second twelve-month period in exchange for a cash payment from the Company to EQT in the amount of approximately$195.8 million . As a result of EQT exercising the EQT Cash Option, the maximum aggregate fee relief applicable under the EQT Global GGA in such first twelve-month period and such second twelve-month period was reduced to be approximately$125 million and$140 million , respectively. The Company utilized borrowings under the Amended EQM Credit Facility to effect payment of the EQT Cash Option to EQT onOctober 4, 2022 , which payment will be reflected in net cash provided by operating activities for the fourth quarter of 2022. Based on the Henry Hub natural gas forward strip prices as ofOctober 28, 2022 and the terms of the Henry Hub cash bonus payment provision, any further delays in the full in-service date for the MVP project, including beyond the Company's previously communicated targeted full in-service date for the project during the second half of 2023, would further decrease the estimated fair value of the derivative asset attributable to the Henry Hub cash bonus payment provision, and such decrease may be substantial. For a discussion of the potential effect of hypothetical changes to the NYMEX Henry Hub natural gas future prices on the estimated fair value of the derivative asset attributable to the Henry Hub cash bonus payment provision, see "Commodity Prices" in Part I, "Item 3. Quantitative and Qualitative Disclosures About Market Risk" of this Quarterly Report on Form 10-Q. Changes in estimated fair value are recognized in other income, net, on the Company's statements of consolidated comprehensive income.
2021 Water Services Agreement. On
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Agreement became effective onMarch 1, 2022 and replaced the Water Services Letter Agreement and certain other existingPennsylvania water services agreements. Pursuant to the 2021 Water Services Agreement, EQT has agreed to pay the Company a minimum ARC for water services equal to$40 million in each of the first five years of the 10-year contract term and equal to$35 million per year for the remaining five years of the contract term. For further discussion of the Company's commercial relationship with EQT and related considerations, including risk factors, see "Item 1A. Risk Factors." in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 . For further discussion on litigation and regulatory challenges affecting the MVP project, see "Outlook" above and Part II, "Item 1. Legal Proceedings" of this Quarterly Report on Form 10-Q. Potential Future Impairments. The accounting estimates related to impairments are susceptible to change, including estimating fair value which requires considerable judgment. For goodwill, management's estimate of a reporting unit's future financial results is sensitive to changes in assumptions, such as changes in stock prices, weighted-average cost of capital, terminal growth rates and industry multiples. Similarly, cash flow estimates utilized for purposes of evaluating long-lived assets and equity method investment (such as in the MVP Joint Venture) require the Company to make projections and assumptions for many years into the future for pricing, demand, competition, operating costs, commencement of operations, resolution of relevant legal and regulatory matters, and other factors. The Company evaluates long-lived assets and equity method investments for impairment when events or changes in circumstances indicate, in management's judgment, that the carrying value of such assets may not be recoverable (meaning, in the case of its equity method investment, that such investment has suffered other-than-temporary declines in value under ASC 323). The Company believes the estimates and assumptions used in estimating its reporting units', its long-lived assets' and its equity investment's fair values are reasonable and appropriate as ofSeptember 30, 2022 ; however, assumptions and estimates are inherently subject to significant business, economic, competitive, regulatory, judicial and other risks that could materially affect the calculated fair values and the resulting conclusions regarding impairments, which could materially affect the Company's results of operations and financial position. Additionally, actual results could differ from these estimates and assumptions may not be realized. When estimating the fair value of its equity method investment, the Company utilizes an income approach under which significant judgments and assumptions, including the discount rate and probability-weighted scenarios, are sensitive to change. For example, an increase of 25 basis points to the discount rate and a 5% decrease to the probability of success would have resulted in an increase to the third quarter 2022 impairment charge discussed in Note 2 to the consolidated financial statements by approximately$158 million or 20.2%. The Company also continues to evaluate and monitor the ongoing legal and regulatory matters affecting the MVP and MVP Southgate projects, as further described in Part II, "Item 1. Legal Proceedings" of this Quarterly Report on Form 10-Q. Further adverse or delayed developments with respect to such matters or other adverse developments, as well as potential macroeconomic factors, including other than temporary market fluctuations, changes in interest rates, cost increases and other unanticipated events, could require that the Company further modify assumptions reflected in the probability-weighted scenarios of discounted future net cash flows (including with respect to the probability of success) utilized to estimate the fair value of its equity investment in the MVP Joint Venture, which could result in an other-than-temporary decline in value, resulting in an incremental impairment of that investment. While macroeconomic factors in and of themselves may not be a direct indicator of impairment, should an impairment indicator be identified in the future, macroeconomic factors such as changes in interest rates could ultimately impact the size and scope of any potential impairment. See "Reviews of our goodwill, intangible and other long-lived assets and equity method investment in the MVP Joint Venture have resulted in significant impairment charges, and reviews of our goodwill, intangible and other long-lived assets and equity method investment in the MVP Joint Venture could result in future significant impairment charges." included in "Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 and the Company's discussion of "Critical Accounting Estimates" included in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 . See Note 2 to the consolidated financial statements for discussion of the impairment of the Company's equity method investment in the MVP Joint Venture during the third quarter of 2022.
As of the filing of this Quarterly Report on Form 10-Q, the Company cannot predict the likelihood or magnitude of any future impairment.
For a discussion of capital expenditures, see "Capital Requirements" under "Capital Resources and Liquidity" below.
Capital Resources and Liquidity
The Company's liquidity requirements are to finance its operations, its capital
expenditures, potential acquisitions and other strategic transactions and
capital contributions to joint ventures, including the MVP Joint Venture, to pay
cash dividends and distributions and to satisfy any indebtedness obligations.
The Company's ability to meet these liquidity requirements depends on the
Company's cash flow from operations, the continued ability of the Company to
borrow under its credit facilities and the Company's ability to raise capital in
banking and capital markets. We believe that our cash on hand and future cash
generated
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from operations, together with available borrowing capacity under our subsidiaries' credit facilities and our access to banking and capital markets, will provide adequate resources to fund our short-term and long-term capital, operating and financing needs. However, cash flow and capital raising activities may be affected by prevailing economic conditions in the natural gas industry and other financial and business factors (including those market forces discussed in "Our business is subject to climate change-related transitional risks (including evolving climate-focused regulation and climate change-driven trends emphasizing financing non-fossil fuel businesses and prompting pursuit of emissions reductions, lower-carbon technologies and alternative forms of energy) and physical risks that could significantly increase our operating expenses and capital costs, adversely affect our customers' development plans, and reduce demand for our products and services." included in "Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 ), some of which are beyond the Company's control. The Company's available sources of liquidity include cash from operations, cash on hand, borrowings under its subsidiaries' revolving credit facilities, issuances of additional debt and issuances of additional equity securities. As ofSeptember 30, 2022 , pursuant to the terms of the Amended EQM Credit Facility, EQM had the ability to borrow approximately$0.7 billion under the Amended EQM Credit Facility. The amount the Company is able to borrow under the Amended EQM Credit Facility is bounded by a maximum consolidated leverage ratio. See "Security Ratings" below for a discussion of EQM's credit ratings during 2022. Based on EQM's credit rating levels, EQM has delivered credit support to the MVP Joint Venture in the form of letters of credit, which, in the case of the MVP project, is in the amount of approximately$219.7 million and is, in the case of the MVP Southgate project,$14.2 million , in each case as ofSeptember 30, 2022 and which are subject to adjustment based on the applicable construction budget. See "A further downgrade of EQM's credit ratings, including in connection with the MVP project or customer credit ratings changes, which are determined by independent third parties, could impact our liquidity, access to capital, and costs of doing business." included in "Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 .
Operating Activities
Net cash flows provided by operating activities were$746.5 million for the nine months endedSeptember 30, 2022 compared to$822.0 million for the nine months endedSeptember 30, 2021 . The decrease was primarily driven by the timing of working capital receipts and payments.
Investing Activities
Net cash flows used in investing activities were$427.2 million for the nine months endedSeptember 30, 2022 compared to$386.1 million for the nine months endedSeptember 30, 2021 . Investing activities increased by approximately$41.0 million for the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 , primarily due to an increase in capital expenditures spending on various wellhead gathering and water expansion projects, partially offset by a decrease in capital contributions to the MVP Joint Venture. See "Capital Requirements" below for a discussion of forecasted 2022 capital expenditures and capital contributions to the MVP Joint Venture.
Financing Activities
Net cash flows used in financing activities were$406.0 million for the nine months endedSeptember 30, 2022 compared to$449.7 million for the nine months endedSeptember 30, 2021 . For the nine months endedSeptember 30, 2022 , the primary uses of financing cash flows were the purchase of an aggregate cost of$1,021.5 million of certain tranches of EQM's outstanding long-term indebtedness pursuant to the 2022 Tender Offers and an open market purchase, repayments on borrowings under the revolving credit facilities, and the payment of dividends to shareholders, while the primary source of financing cash flows were the issuance of the 2022 Senior Notes and borrowings under the revolving credit facilities. For the nine months endedSeptember 30, 2021 , the primary uses of financing cash flows were the payment for retirement of the EQM Term Loans and termination of the Amended 2019 EQM Term Loan Agreement, repayments on borrowings under the revolving credit facilities, the Company's purchase of an aggregate principal amount of$500 million of EQM's 2023 Notes pursuant to the 2021 Tender Offers and the payment of dividends to shareholders, while the primary source of financing cash flows was the issuance of the 2021 Senior Notes and borrowings under the revolving credit facilities.
Capital Requirements
The gathering, transmission and storage and water services businesses are capital intensive, requiring significant investment to develop new facilities and to maintain and upgrade existing operations.
Capital expenditures in 2022 are expected to be approximately
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primarily related to ongoing work required for right-of-way maintenance and work completed in late 2021 and less than$5 million related to the MVP Southgate project. Capital contributions payable to the MVP Joint Venture are accrued upon the issuance of a capital call by the MVP Joint Venture. The Company's short-term and long-term capital investments may vary significantly from period to period based on the available investment opportunities, the timing of the construction of the MVP, MVP Southgate and other projects, and maintenance needs. The Company expects to fund short-term and long-term capital expenditures and capital contributions primarily through cash on hand, cash generated from operations, available borrowings under its subsidiaries' credit facilities and its access to banking and capital markets.
See Note 7 for further discussion of the reduction of commitments under the Amended EQM Credit Facility pursuant to the Third Amendment.
Credit Facility Borrowings
See Note 7 to the consolidated financial statements for discussion of the Amended EQM Credit Facility and the 2021 Eureka Credit Facility.
Security Ratings
The table below sets forth the credit ratings for EQM's debt instruments atSeptember 30, 2022 . EQM Senior Notes Rating Service Rating Outlook Moody's Ba3 Stable S&P BB- Negative Fitch BB Negative OnSeptember 30, 2022 , Moody's affirmed EQM's rating of Ba3 and revised EQM's outlook from negative to stable. In connection with the issuance of the 2022 Notes each of Moody's, S&P and Fitch affirmed EQM's credit ratings. EQM's credit ratings are subject to revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating. The Company cannot ensure that a rating will remain in effect for any given period of time or that a rating will not be lowered or withdrawn entirely by a credit rating agency if, in its judgment, circumstances so warrant. If any credit rating agency downgrades or withdraws EQM's ratings, including for reasons relating to the MVP project (such as delays in the targeted full in-service date of the MVP project or increases in such project's targeted costs), EQM's leverage or credit ratings of the Company's customers, the Company's access to the capital markets could become more challenging, borrowing costs will likely increase, the Company may be required to provide additional credit assurances (the amount of which may be substantial) in support of commercial agreements such as joint venture agreements, and the potential pool of investors and funding sources may decrease. In order to be considered investment grade, a company must be rated Baa3 or higher by Moody's, BBB- or higher by S&P, or BBB- or higher by Fitch. All of EQM's credit ratings are considered non-investment grade.
Commitments and Contingencies
In the ordinary course of business, various legal and regulatory claims and
proceedings are pending or threatened against the Company and its subsidiaries.
While the amounts claimed may be substantial, the Company is unable to predict
with certainty the ultimate outcome of such claims and proceedings. The Company
accrues legal and other direct costs related to loss contingencies when
incurred. The Company establishes reserves whenever it believes it to be
appropriate for pending matters. Furthermore, after consultation with counsel
and considering available insurance, the Company believes that the ultimate
outcome of any matter currently pending against it or any of its consolidated
subsidiaries will not materially affect its business, financial condition,
results of operations, liquidity or ability to pay dividends to its
shareholders.
See "The regulatory approval process for the construction of new midstream
assets is very challenging, has significantly increased costs and delayed
targeted in-service dates, and decisions by regulatory and judicial authorities
in pending or potential proceedings, particularly with respect to litigation in
the Fourth Circuit, are likely to impact our or the MVP Joint Venture's ability
to obtain or maintain in effect all approvals and authorizations necessary to
complete certain projects in a timely manner or at all or our ability to achieve
the expected investment returns on the projects." under Part II, "Item 1A. Risk
Factors" of this Quarterly Report on Form 10-Q and Part II, "Item 1. Legal
Proceedings" of this Quarterly Report on Form 10-Q for discussion of certain
litigation and regulatory proceedings, including related to the MVP and MVP
Southgate projects.
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See Note 16 to the annual consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended
Dividends
OnOctober 25, 2022 , the Board declared cash dividends for the third quarter of 2022 of$0.15 per common share and$0.4873 per Equitrans Midstream Preferred Share to shareholders of record at the close of business onNovember 2, 2022 .
Critical Accounting Estimates
The Company's critical accounting policies are described in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 . Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been included in the notes to the Company's consolidated financial statements in Part I, "Item 1. Financial Statements" of this Quarterly Report on Form 10-Q. The Company's critical accounting policies are considered critical due to the significant judgments and estimates used in the preparation of the Company's consolidated financial statements and the material impact on the results of operations or financial condition. Actual results could differ from those judgments and estimates.
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