EQGP Holdings Earnings 2018-09-30

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

10-Q 1 eqgp930201810q.htm 10-Q - EQGP 9.30.2018 Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2018



or

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	FOR THE TRANSITION PERIOD FROM TO

	COMMISSION FILE NUMBER 001-37380

EQGP Holdings, LP

(Exact name of registrant as specified in its charter)



DELAWARE		30-0855134
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)



625 Liberty Avenue, Suite 2000, Pittsburgh, Pennsylvania	15222
(Address of principal executive offices)	(Zip code)

(412) 553-5700
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer x		Accelerated Filer ¨	Emerging Growth Company ¨
Non-Accelerated Filer ¨	(Do not check if a smaller reporting company)	Smaller Reporting Company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of September 30, 2018, there were 302,458,766 Common Units outstanding.

EQGP HOLDINGS, LP AND SUBSIDIARIES

Index



			Page No.

Glossary of Commonly Used Terms, Abbreviations and Measurements			3

Part I.	Financial Information:

Item 1.		Financial Statements (Unaudited):

		Statements of Consolidated Operations for the Three and Nine Months Ended September 30, 2018 and 2017	4

		Statements of Consolidated Cash Flows for the Nine Months Ended September 30, 2018 and 2017	5

		Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017	6

		Statements of Consolidated Equity for the Nine Months Ended September 30, 2018 and 2017	7

		Notes to Consolidated Financial Statements	8

Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.		Quantitative and Qualitative Disclosures About Market Risk	30

Item 4.		Controls and Procedures	32

Part II.	Other Information:

Item 1.		Legal Proceedings	32

Item 1A.		Risk Factors	34

Item 6.		Exhibits	39

Signature			41

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Glossary of Commonly Used Terms, Abbreviations and Measurements

adjusted EBITDA – a supplemental non-GAAP (as defined below) financial measure defined by EQM Midstream Partners, LP (formerly known as EQT Midstream Partners, LP) and subsidiaries (collectively, EQM) as net income attributable to EQM plus net interest expense, depreciation, amortization of intangible assets, Preferred Interest (as defined below) payments, non-cash long-term compensation expense and transaction costs less equity income, AFUDC – equity (as defined below) and adjusted EBITDA of assets prior to acquisition.

Allowance for Funds Used During Construction or AFUDC – carrying costs for the construction of certain long-lived regulated assets are capitalized and amortized over the related assets' estimated useful lives. The capitalized amount for construction of regulated assets includes interest cost and a designated cost of equity for financing the construction of these regulated assets.

British thermal unit – a measure of the amount of energy required to raise the temperature of one pound of water one degree Fahrenheit.

gas – all references to "gas" refer to natural gas.

Preferred Interest – the preferred interest that EQM has in EQT Energy Supply, LLC (EES).

throughput – the volume of natural gas transported or passing through a pipeline, plant, terminal or other facility during a particular period.



Abbreviations	Measurements
ARO - asset retirement obligations	Btu = one British thermal unit
ASU – Accounting Standards Update	BBtu = billion British thermal units
FASB – Financial Accounting Standards Board	Bcf = billion cubic feet
FERC – Federal Energy Regulatory Commission	Dth = dekatherm or million British thermal units
GAAP – United States Generally Accepted Accounting Principles	Mcf = thousand cubic feet
IDRs – incentive distribution rights	MMBtu = million British thermal units
IPO – Initial Public Offering	MMcf = million cubic feet
IRS – Internal Revenue Service	MMgal = million gallons
SEC – Securities and Exchange Commission

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EQGP HOLDINGS, LP AND SUBSIDIARIES

Statements of Consolidated Operations (Unaudited) ⁽¹⁾



	Three Months Ended September 30,					Nine Months Ended September 30,
	2018			2017		2018			2017
	(Thousands, except per unit amounts)
Operating revenues ⁽²⁾	$	364,584		$	206,293	$	1,110,307		$	603,180
Operating expenses:
Operating and maintenance ⁽³⁾	48,092			19,589		118,534			54,721
Selling, general and administrative ⁽³⁾	31,619			19,301		94,229			54,314
Depreciation	43,567			22,244		126,957			64,191
Amortization of intangible assets	10,387			—		31,160			—
Total operating expenses	133,665			61,134		370,880			173,226
Operating income	230,919			145,159		739,427			429,954
Equity income ⁽⁴⁾	16,087			6,025		35,836			15,413
Other income	1,345			637		3,193			3,576
Net interest expense ⁽⁵⁾	40,966			9,414		76,661			25,994
Net income	207,385			142,407		701,795			422,949
Net income attributable to noncontrolling interests	109,896			75,463		355,355			231,299
Net income attributable to EQGP Holdings, LP	$	97,489		$	66,944	$	346,440		$	191,650

Calculation of limited partner interest in net income:
Net income attributable to EQGP Holdings, LP	$	97,489		$	66,944	$	346,440		$	191,650
Less pre-acquisition net income allocated to parent	(2,386		)	—		(78,775		)	—
Limited partner interest in net income	$	95,103		$	66,944	$	267,665		$	191,650

Net income per common unit – basic and diluted	$	0.31		$	0.25	$	0.94		$	0.72
Weighted average common units outstanding – basic and diluted	302,490			266,186		284,342			266,185

Cash distributions declared per unit ⁽⁶⁾	$	0.315		$	0.228	$	0.879		$	0.629

(1)

As discussed in Note A, the consolidated financial statements of EQGP Holdings, LP (formerly known as EQT GP Holdings, LP) (EQGP) have been retrospectively recast to include the pre-acquisition results of Rice Olympus Midstream LLC (ROM), Strike Force Midstream Holdings LLC (Strike Force) and Rice West Virginia Midstream LLC (Rice WV), which were acquired by EQM effective on May 1, 2018 (the May 2018 Acquisition), and Rice Midstream Partners LP (RMP), which was acquired by EQM effective on July 23, 2018 (the EQM-RMP Merger), because these transactions were between entities under common control.


(2)	Operating revenues included affiliate revenues from EQT Corporation and subsidiaries (collectively, EQT) of $276.9 million and $154.2 million for the three months ended September 30, 2018 and 2017, respectively, and $827.8 million and $445.8 million for nine months ended September 30, 2018 and 2017, respectively. See Note F.

(3)

Operating and maintenance expense included charges from EQT of $14.0 million and $10.7 million for the three months ended September 30, 2018 and 2017, respectively, and $38.4 million and $29.8 million for the nine months ended September 30, 2018 and 2017, respectively. Selling, general and administrative expense included charges from EQT of $28.3 million and $18.6 million for the three months ended September 30, 2018 and 2017, respectively, and $80.8 million and $52.0 million for the nine months ended September 30, 2018 and 2017, respectively. See Note F.


(4)	Represents equity income from Mountain Valley Pipeline, LLC (the MVP Joint Venture). See Note G.


(5)	Net interest expense included interest income on the Preferred Interest in EES of $1.6 million and $1.7 million for the three months ended September 30, 2018 and 2017, respectively, and $5.0 million and $5.1 million for the nine months ended September 30, 2018 and 2017, respectively.


(6)	Represents the cash distributions declared related to the period presented. See Note J.

The accompanying notes are an integral part of these consolidated financial statements.

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EQGP HOLDINGS, LP AND SUBSIDIARIES

Statements of Consolidated Cash Flows (Unaudited)⁽¹⁾



	Nine Months Ended September 30,
	2018			2017
	(Thousands)
Cash flows from operating activities:
Net income	$	701,795		$	422,949
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	126,957			64,191
Amortization of intangible assets	31,160			—
Equity income	(35,836		)	(15,413		)
AFUDC – equity	(3,585		)	(4,128		)
Non-cash long-term compensation expense	1,553			451
Changes in other assets and liabilities:
Accounts receivable	2,193			(1,106		)
Accounts payable	28,172			1,848
Due to/from EQT affiliates	(11,720		)	7,271
Other assets and other liabilities	22,320			3,503
Net cash provided by operating activities	863,009			479,566
Cash flows from investing activities:
Capital expenditures	(616,365		)	(224,591		)
Capital contributions to the MVP Joint Venture	(446,049		)	(103,448		)
May 2018 Acquisition from EQT	(1,193,160		)	—
Principal payments received on the Preferred Interest	3,281			3,103
Net cash used in investing activities	(2,252,293		)	(324,936		)
Cash flows from financing activities:
Proceeds from credit facility borrowings of EQM and RMP	2,524,000			334,000
Payments on credit facility borrowings of EQM and RMP	(2,968,000		)	(229,000		)
Proceeds from EQM's issuance of long-term debt	2,500,000			—
EQM debt discount and issuance costs	(34,249		)	(2,257		)
Net proceeds from / (payments on) the EQGP Working Capital Facility	32			(55		)
Distributions paid to noncontrolling interest unitholders of EQM and RMP	(298,752		)	(157,210		)
Distributions paid to noncontrolling interest in Strike Force Midstream LLC	(750		)	—
Distributions paid to EQGP unitholders	(226,167		)	(153,844		)
Acquisition of 25% of Strike Force Midstream LLC	(175,000		)	—
Capital contributions	15,672			216
Net contributions from EQT	3,660			—
Net cash provided by (used in) financing activities	1,340,446			(208,150		)

Net change in cash and cash equivalents	(48,838		)	(53,520		)
Cash and cash equivalents at beginning of period	54,900			60,453
Cash and cash equivalents at end of period	$	6,062		$	6,933

Cash paid during the period for:
Interest, net of amount capitalized	$	42,655		$	31,093

Non-cash activity during the period for:
(Decrease) increase in capital contribution receivable from EQT	$	(11,758	)	$	758


(1)	As discussed in Note A, the consolidated financial statements of EQGP have been retrospectively recast to include the pre-acquisition results of the May 2018 Acquisition and the EQM-RMP Merger because these transactions were between entities under common control.

The accompanying notes are an integral part of these consolidated financial statements.

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EQGP HOLDINGS, LP AND SUBSIDIARIES

Consolidated Balance Sheets (Unaudited) ⁽¹⁾



	September 30, 2018			December 31, 2017
	(Thousands, except number of units)
ASSETS
Current assets:
Cash and cash equivalents	$	6,062		$	54,900
Accounts receivable (net of allowance for doubtful accounts of $717 and $446 as of September 30, 2018 and December 31, 2017, respectively)	58,358			60,551
Accounts receivable – affiliate	167,481			158,720
Other current assets	9,394			14,367
Total current assets	241,295			288,538

Property, plant and equipment	6,127,076			5,516,504
Less: accumulated depreciation	(518,718		)	(405,665		)
Net property, plant and equipment	5,608,358			5,110,839

Investment in unconsolidated entity	1,300,430			460,546
Goodwill	1,384,872			1,384,872
Intangible assets, net	586,500			617,660
Other assets	146,685			137,179
Total assets	$	9,268,140		$	7,999,634

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	134,027		$	105,273
Due to related party	44,285			35,453
Capital contribution payable to MVP Joint Venture	463,733			105,734
Accrued interest	46,165			11,067
Accrued liabilities	16,401			20,995
Total current liabilities	704,611			278,522

Credit facility borrowings of EQM and RMP	22,000			466,000
EQM senior notes	3,455,296			987,352
Regulatory and other long-term liabilities	31,010			29,633
Total liabilities	4,212,917			1,761,507

Equity:
Predecessor equity	—			2,350,913
Predecessor noncontrolling interests	—			1,738,993
Common (302,458,766 and 266,165,000 common units issued and outstanding at September 30, 2018 and December 31, 2017, respectively)	299,927			(1,013,913		)
Noncontrolling interests of EQM	4,755,296			3,162,134
Total equity	5,055,223			6,238,127
Total liabilities and equity	$	9,268,140		$	7,999,634


(1)	As discussed in Note A, the consolidated financial statements of EQGP have been retrospectively recast to include the pre-acquisition results of the May 2018 Acquisition and the EQM-RMP Merger because these transactions were between entities under common control.

The accompanying notes are an integral part of these consolidated financial statements.

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EQGP HOLDINGS, LP AND SUBSIDIARIES

Statements of Consolidated Equity (Unaudited) ⁽¹⁾



	Predecessor Equity			Predecessor noncontrolling interests			Common			Noncontrolling interests of EQM			Total Equity
	(Thousands)
Balance at January 1, 2017	$	—		$	—		$	(1,077,100	)	$	3,069,822		$	1,992,722
Net income	—			—			191,650			231,299			422,949
Capital contributions	—			—			2,624			—			2,624
Equity-based compensation plans	—			—			261			190			451
Distributions paid to noncontrolling interest unitholders of EQM	—			—			—			(157,210		)	(157,210		)
Distributions paid to EQGP unitholders	—			—			(153,844		)	—			(153,844		)
Balance at September 30, 2017	$	—		$	—		$	(1,036,409	)	$	3,144,101		$	2,107,692

Balance at January 1, 2018	$	2,350,913		$	1,738,993		$	(1,013,913	)	$	3,162,134		$	6,238,127
Net income	78,775			88,813			267,665			266,542			701,795
Capital contributions	—			—			3,917			—			3,917
Equity-based compensation plans	260			662			350			281			1,553
Distributions paid to noncontrolling interest unitholders of EQM and RMP	(24,513		)	(43,877		)	—			(230,362		)	(298,752		)
Distributions paid to EQGP unitholders	—			—			(226,167		)	—			(226,167		)
Changes in ownership, net ⁽²⁾	(145		)	145			298,879			(298,879		)	—
Net contributions from EQT	3,660			—			—			—			3,660
Net distributions paid to noncontrolling interest of Strike Force Midstream LLC	—			(750		)	—			—			(750		)
Acquisition of 25% of Strike Force Midstream LLC	—			(176,068		)	1,068			—			(175,000		)
May 2018 Acquisition from EQT ⁽³⁾	(1,436,297		)	—			243,137			—			(1,193,160		)
EQM-RMP Merger ⁽³⁾	(972,653		)	(1,607,918		)	724,991			1,855,580			—
Balance at September 30, 2018	$	—		$	—		$	299,927		$	4,755,296		$	5,055,223


(1)	As discussed in Note A, the consolidated financial statements of EQGP have been retrospectively recast to include the pre-acquisition results of the May 2018 Acquisition and the EQM-RMP Merger because these transactions were between entities under common control.


(2)	EQGP recorded an increase to common units and a corresponding decrease to noncontrolling interests to reflect the change in the noncontrolling interest's ownership in EQM's net assets. See Note B.

(3)

Under common control accounting, any difference between consideration transferred and the net assets received at historical cost is recorded as an equity transaction. In addition, equity issued in a common control transaction is recorded at an amount equal to the carrying value of the net assets transferred, even if the equity issued has a readily determinable fair value. The EQM common units issued in the May 2018 Acquisition are valued at the excess of the net assets received by EQM over the cash consideration.

The accompanying notes are an integral part of these consolidated financial statements.

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EQGP HOLDINGS, LP AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)


A.	Financial Statements

Organization and Basis of Presentation

EQGP owns EQT's partnership interests in EQM, a growth-oriented Delaware limited partnership. EQM Midstream Services, LLC (formerly known as EQT Midstream Services, LLC) (EQM General Partner), is a direct wholly owned subsidiary of EQGP and is the general partner of EQM. EQGP Services, LLC (formerly known as EQT GP Services, LLC) (EQGP General Partner), is an indirect wholly owned subsidiary of EQT and is the general partner of EQGP. EQGP was formed under the name EQT GP Holdings, LP and changed its name to EQGP Holdings, LP in October 2018.

EQGP has no independent operations or material assets other than its partnership interests in EQM (see Note K). EQGP's financial statements differ from those of EQM primarily as a result of noncontrolling interest ownership attributable to the publicly held limited partner interests in EQM and additional expenses incurred by EQGP, which include selling, general and administrative expenses and net interest expense or income.

The accompanying unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the requirements of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, these unaudited consolidated financial statements include all adjustments (consisting of only normal recurring adjustments, unless otherwise disclosed in this Form 10-Q) necessary for a fair presentation of the financial position of EQGP as of September 30, 2018 and December 31, 2017, the results of its operations for the three and nine months ended September 30, 2018 and 2017, and its cash flows and equity for the nine months ended September 30, 2018 and 2017. Certain previously reported amounts have been reclassified to conform to the current year presentation. The balance sheet at December 31, 2017 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements.

EQGP's consolidated financial statements have been retrospectively recast to include the pre-acquisition results of the May 2018 Acquisition and the EQM-RMP Merger because these transactions were between entities under common control. The recast is for the period the acquired businesses were under the common control of EQT, which began on November 13, 2017 as a result of EQT's merger with Rice Energy Inc. (Rice) (the Rice Merger). EQM recorded the assets and liabilities acquired in the May 2018 Acquisition and the EQM-RMP Merger at their carrying amounts to EQT on the effective dates of the transactions. The consolidated financial statements are not necessarily indicative of the actual results of operations if EQM and the assets acquired in the May 2018 Acquisition and the EQM-RMP Merger had been operated together during the pre-acquisition periods.

Due to the seasonal nature of EQM's utility customer contracts, the interim statements for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.

For further information, refer to the consolidated financial statements and related footnotes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in EQGP's Annual Report on Form 10-K for the year ended December 31, 2017.

Recently Issued Accounting Standards

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The standard requires an entity to recognize revenue in a manner that depicts the transfer of goods or services to customers at an amount that reflects the consideration the entity expects in exchange for those goods or services. EQGP adopted this standard on January 1, 2018 using the modified retrospective method of adoption. Adoption of the ASU did not require an adjustment to the opening balance of equity. EQGP does not expect the standard to have a significant effect on its results of operations, liquidity or financial position. EQGP implemented processes and controls to ensure new contracts are reviewed for the appropriate accounting treatment and to generate the disclosures required under the new standard in the first quarter of 2018. For the disclosures required by this ASU, see Note C.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The standard primarily affects accounting for equity investments, financial liabilities under the fair value option, the presentation and disclosure requirements for financial instruments and eliminates the cost method of accounting for equity investments. EQGP adopted this standard in the first quarter of 2018 with no significant effect on its financial statements or related disclosures.

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In February 2016, the FASB issued ASU No. 2016-02, Leases. The standard requires an entity to record assets and obligations for contracts currently recognized as operating leases. In July 2018, the FASB also targeted improvements to this ASU in ASU 2018-11. This update provides entities with an optional transition method, which permits an entity to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. EQGP has elected to utilize the optional transition method. The ASU will be effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early adoption permitted. EQGP is utilizing a lease accounting system to document its current population of contracts classified as leases, which will be updated as EQGP's lease population changes. EQGP continues to evaluate new business processes and related internal controls and is assessing and documenting the accounting impacts related to the new standard. Although the evaluation is ongoing, EQGP expects that the adoption will impact its financial statements as the standard requires recognition on the balance sheet of a right of use asset and corresponding lease liability.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments. This ASU amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, this ASU eliminates the probable initial recognition threshold in current GAAP and requires an entity to reflect its current estimate of all expected credit losses. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The ASU will be effective for annual reporting periods beginning after December 15, 2019, including interim periods within that reporting period. EQGP is currently evaluating the effect this standard will have on its financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test of Goodwill Impairment. ASU 2017-04 simplifies the quantitative goodwill impairment test requirements by eliminating the requirement to calculate the implied fair value of goodwill. Instead, a company would record an impairment charge based on the excess of a reporting unit’s carrying value over its fair value. The standard’s provisions are to be applied prospectively. EQGP adopted this standard in the first quarter of 2018 with no significant effect on its financial statements or related disclosures.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement, Changes to the Disclosure Requirements for Fair Value Measurement, which makes a number of changes to the hierarchy associated with Level 1, 2 and 3 fair value measurements and the related disclosure requirements. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. EQGP is currently evaluating the effect this standard will have on its financial statements and related disclosures but does not expect the adoption of this standard to have a material impact on its financial statements and related disclosures.


B.	Acquisitions and Merger

May 2018 Acquisition

On April 25, 2018, EQT, Rice Midstream Holdings LLC, a wholly owned subsidiary of EQT, EQM and EQM Gathering Holdings, LLC (EQM Gathering), a wholly owned subsidiary of EQM, entered into a Contribution and Sale Agreement pursuant to which EQM Gathering acquired from EQT all of EQT's interests in ROM, Strike Force and Rice WV in exchange for an aggregate of 5,889,282 EQM common units and aggregate cash consideration of $1.15 billion, plus working capital adjustments. ROM owns a natural gas gathering system that gathers gas from wells located primarily in Belmont County, Ohio. Strike Force owns a 75% limited liability company interest in Strike Force Midstream LLC (Strike Force Midstream). The May 2018 Acquisition closed on May 22, 2018 with an effective date of May 1, 2018.

EQM-RMP Merger

On April 25, 2018, EQM entered into an Agreement and Plan of Merger (the Merger Agreement) with RMP, Rice Midstream Management LLC, the general partner of RMP (the RMP General Partner), the EQM General Partner, EQM Acquisition Sub, LLC, a wholly owned subsidiary of EQM (Merger Sub), EQM GP Acquisition Sub, LLC, a wholly owned subsidiary of EQM (GP Merger Sub), and, solely for certain limited purposes set forth therein, EQT. Pursuant to the Merger Agreement, on July 23, 2018, Merger Sub and GP Merger Sub merged with and into RMP and the RMP General Partner, respectively, with RMP and the RMP General Partner surviving as wholly owned subsidiaries of EQM. Pursuant to the Merger Agreement, each RMP common unit issued and outstanding immediately prior to the effective time of the EQM-RMP Merger was converted into the right to receive 0.3319 EQM common units (the Merger Consideration), the issued and outstanding IDRs of RMP were canceled and each outstanding award of phantom units in respect of RMP common units fully vested and converted into the right to receive the Merger Consideration, less applicable tax withholding, in respect of each RMP common unit subject thereto. The aggregate Merger Consideration consisted of approximately 34 million EQM common units of which 9,544,530

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EQM common units were received by an indirect wholly owned subsidiary of EQT. As a result of the EQM-RMP Merger, RMP's common units are no longer publicly traded.

As a result of the recast, EQM recognized approximately $1,384.9 million of goodwill. The goodwill value was based on a valuation performed by EQT as of November 13, 2017 with regard to the Rice Merger. EQT recorded goodwill as the excess of the estimated enterprise value of RMP, ROM, Strike Force and Rice WV over the sum of the fair value amounts allocated to the assets and liabilities of RMP, ROM, Strike Force and Rice WV. Goodwill was attributed to additional growth opportunities, synergies and operating leverage within the Gathering segment. Prior to the recast, EQM had no goodwill. The following table summarizes the allocation of the fair value of the assets and liabilities of RMP, ROM, Strike Force and Rice WV as of November 13, 2017 through pushdown accounting from EQT. The preliminary allocation to certain assets and/or liabilities may be adjusted by material amounts as EQT continues to finalize the fair value estimates.



	At November 13, 2017
	(Thousands)
Estimated fair value of RMP, ROM, Strike Force and Rice WV ⁽¹⁾	$	4,014,984

Estimated Fair Value of Assets Acquired and Liabilities Assumed:
Current assets ⁽²⁾	132,459
Intangible assets ⁽³⁾	623,200
Property and equipment, net ⁽⁴⁾	2,265,900
Other non-current assets	118
Current liabilities ⁽²⁾	(116,242		)
RMP $850 Million Facility ⁽⁵⁾	(266,000		)
Other non-current liabilities ⁽⁵⁾	(9,323		)
Total estimated fair value of assets acquired and liabilities assumed	2,630,112
Goodwill	$	1,384,872


(1)	Includes the estimated fair value attributable to noncontrolling interest of $166 million.


(2)	The fair value of current assets and current liabilities were assumed to approximate their carrying values.


(3)	The identifiable intangible assets for customer relationships were estimated by applying a discounted cash flow approach which was adjusted for customer attrition assumptions and projected market conditions.


(4)	The estimated fair value of long-lived property and equipment were determined utilizing estimated replacement cost adjusted for a usage or obsolescence factor.


(5)	The estimated fair value of long-term liabilities was determined utilizing observable market inputs where available or estimated based on their then current carrying values.

As a result of the recast, EQM also recognized approximately $623.2 million in intangible assets. These intangible assets were valued by EQT based upon the estimated fair value of the customer contracts as of November 13, 2017. The customer contracts were assigned a useful life of 15 years and are amortized on a straight-line basis. Amortization expense for the three and nine months ended September 30, 2018 was $10.4 million and $31.2 million, respectively. As of September 30, 2018 and December 31, 2017, accumulated amortization was $36.7 million and $5.5 million, respectively. There was no amortization expense recognized for the three and nine months ended September 30, 2017. The estimated annual amortization expense over the next five years is $41.5 million.

As a result of the recast, EQM recognized a liability for AROs related to dismantling, reclaiming and disposing of the water services assets. Based on an estimate of the timing and amount of their settlement, EQM recorded a liability and capitalized a corresponding amount to asset retirement costs. The liability was estimated using the present value of expected future cash flows, adjusted for inflation and discounted at EQM's credit-adjusted, risk-free rate. The current portion of the AROs was recorded in regulatory and other long-term liabilities on the consolidated balance sheets. The following table presents a reconciliation of the AROs for the periods from November 13, 2017 through September 30, 2018.

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	Asset Retirement Obligations
	(Thousands)
Balance at November 13, 2017	$	9,286
Accretion expense	35
Balance at December 31, 2017	$	9,321
Accretion expense	321
Balance at September 30, 2018	$	9,642

Gulfport Transaction

On May 1, 2018, pursuant to the Purchase and Sale Agreement dated April 25, 2018, by and among EQM, EQM Gathering, Gulfport Energy Corporation (Gulfport) and an affiliate of Gulfport, EQM Gathering acquired the remaining 25% limited liability company interest in Strike Force Midstream not owned by Strike Force for $175 million (the Gulfport Transaction). As a result, EQM owned 100% of Strike Force Midstream effective as of May 1, 2018.

Investment in RMP IDRs

On May 22, 2018, pursuant to an Incentive Distribution Rights Purchase and Sale Agreement dated April 25, 2018, by and among EQT, Rice Midstream GP Holdings LP (Rice Midstream GP Holdings), a wholly owned subsidiary of EQT that owned the RMP IDRs, and EQGP (the IDR Purchase Agreement), EQGP acquired all of the issued and outstanding RMP IDRs in exchange for 36,293,766 EQGP common units (the IDR Transaction). The IDR Purchase Agreement provided for the forfeiture of a portion of the EQGP common units if the EQM-RMP Merger was not complete by December 31, 2018. The investment in RMP IDRs was a transfer of financial assets between entities under common control. The fair value of $865 million was based on a discounted cash flow model, which is a Level 2 measurement. Pursuant to the terms of the Merger Agreement, the RMP IDRs were canceled at the completion of the EQM-RMP Merger and the value of the RMP IDRs will be realized through the EQM IDRs.


C.	Revenue from Contracts with Customers

As discussed in Note A, EQGP adopted ASU No. 2014-09, Revenue from Contracts with Customers, on January 1, 2018 using the modified retrospective method of adoption. EQGP applied the standard to all open contracts as of the date of initial application. Adoption of the standard did not require an adjustment to the opening balance of equity and did not materially change EQGP's amount or timing of revenues.

For the three and nine months ended September 30, 2018 and 2017, all revenues recognized on EQM's statements of consolidated operations are from contracts with customers. As of September 30, 2018 and December 31, 2017, all receivables recorded on EQM's consolidated balance sheets represent performance obligations that have been satisfied and for which an unconditional right to consideration exists.

Gathering, Transmission and Storage Service Contracts. EQM provides gathering, transmission and storage services in two manners: firm service and interruptible service. Firm service contracts are typically long-term and include firm reservation fees, which are fixed, monthly charges for the guaranteed reservation of pipeline or storage capacity. Volumetric-based fees can also be charged under firm contracts for each firm volume actually transported, gathered or stored as well as for volumes transported, gathered or stored in excess of the firm contracted volume. Interruptible service contracts include volumetric-based fees, which are charges for the volume of gas gathered, transported or stored and generally do not guarantee access to the pipeline or storage facility. These contracts can be short or long-term. Firm and interruptible contracts are billed at the end of each calendar month, with payment typically due within 21 days.

Under a firm contract, EQM has a stand-ready obligation to provide the service over the life of the contract. The performance obligation for firm reservation fee revenue is satisfied over time as the pipeline capacity is made available to the customer. As such, EQM recognizes firm reservation fee revenue evenly over the contract period, using a time-elapsed output method to measure progress. The performance obligation for volumetric-based fee revenue is generally satisfied upon EQM's monthly billing to the customer for volumes gathered, transported or stored during the month. The amount billed corresponds directly to the value of EQM's performance to date as the customer obtains value as each volume is gathered, transported or stored.

Certain of EQM's gas gathering agreements are structured with minimum volume commitments (MVCs), which specify minimum quantities for which a customer will be charged regardless of quantities gathered under the contract. Revenue is recognized for MVCs when the performance obligation has been met, which is the earlier of when the gas is gathered or when it is remote that the producer will be able to meet its MVC.

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Water Service Contracts. EQM's water service revenues represent fees charged by EQM for the delivery of fresh water to a customer at a specified delivery point and for the collection and recycling or disposal of flowback and produced water. All of EQM’s water service revenues are generated pursuant to variable price per volume contracts with customers. For fresh water service contracts, the only performance obligation in each contract is for EQM to provide water (usually a minimum daily volume of water) to the customer at a designated delivery point. For flowback and produced water, the performance obligation is collection and disposition of the water which typically occur within the same day. For all water service arrangements, the customer is typically invoiced on a monthly basis with payment due 21 days after the receipt of the invoice.

Summary of Disaggregated Revenues. The tables below provide disaggregated revenue information by EQM business segment.



	Three Months Ended September 30, 2018
	Gathering		Transmission		Water		Total
	(Thousands)
Firm reservation fee revenues	$	112,598	$	82,669	$	—	$	195,267
Volumetric based fee revenues:
Usage fees under firm contracts ⁽¹⁾	8,661		5,331		—		13,992
Usage fees under interruptible contracts ⁽²⁾	131,602		1,350		—		132,952
Total volumetric based fee revenues	140,263		6,681		—		146,944
Water service revenues	—		—		22,373		22,373
Total operating revenues	$	252,861	$	89,350	$	22,373	$	364,584

	Nine Months Ended September 30, 2018
	Gathering		Transmission		Water		Total
	(Thousands)
Firm reservation fee revenues	$	334,233	$	262,666	$	—	$	596,899
Volumetric based fee revenues:
Usage fees under firm contracts ⁽¹⁾	30,725		13,981		—		44,706
Usage fees under interruptible contracts ⁽²⁾	366,482		8,782		—		375,264
Total volumetric based fee revenues	397,207		22,763		—		419,970
Water service revenues	—		—		93,438		93,438
Total operating revenues	$	731,440	$	285,429	$	93,438	$	1,110,307


(1)	Includes fees on volumes gathered and transported in excess of firm contracted capacity as well as usage fees and fees on all volumes transported under firm contracts.


(2)	Includes volumes from contracts under which EQM has agreed to hold capacity available without charging a capacity reservation fee.

Summary of Remaining Performance Obligations. The following table summarizes the transaction price allocated to EQM's remaining performance obligations under all contracts with firm reservation fees and MVCs as of September 30, 2018.



		2018 ⁽¹⁾		2019		2020		2021		2022		Thereafter		Total
	(Thousands)
Gathering firm reservation fees		$	113,018	$	476,270	$	552,197	$	562,196	$	562,196	$	2,834,111	$	5,099,988
Gathering revenues supported by MVCs		—		65,700		71,370		71,175		71,175		136,875		416,295
Transmission firm reservation fees		94,077		346,893		344,328		339,588		334,522		2,477,808		3,937,216
Total		$	207,095	$	888,863	$	967,895	$	972,959	$	967,893	$	5,448,794	$	9,453,499


(1)	October 1 through December 31

Based on total projected contractual revenues, including projected contractual revenues from additional pipeline capacity that will result from expansion projects that are not yet fully constructed, EQM's firm gathering contracts and firm transmission and storage contracts had weighted average remaining terms of approximately 8 and 15 years, respectively, as of December 31, 2017.

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D.	Equity and Net Income per Limited Partner Unit

EQGP Equity. As of September 30, 2018, EQT indirectly held 276,008,766 EQGP common units, representing a 91.3% limited partner interest, and the entire non-economic general partner interest in EQGP.

Net Income per Limited Partner Unit. Net income attributable to the May 2018 Acquisition and the EQM-RMP Merger for the periods prior to May 1, 2018 and July 23, 2018, respectively, was not allocated to the limited partners for purposes of calculating net income per limited partner unit as these pre-acquisition amounts were not available to the EQM unitholders. The weighted average phantom unit awards included in the calculation of basic weighted average limited partner units outstanding was 31,602 and 20,750 for the three months ended September 30, 2018 and 2017, respectively, and 30,142 and 19,706 for the nine months ended September 30, 2018 and 2017, respectively.

EQM Equity. The following table summarizes EQM's limited partner common units and general partner units issued from January 1, 2018 through September 30, 2018. There were no issuances in 2017.



	EQM Limited Partner Common Units	EQM General Partner Units	Total
Balance at January 1, 2018	80,581,758	1,443,015	82,024,773
Common units issued ⁽¹⁾	9,608	—	9,608
May 2018 Acquisition consideration	5,889,282	—	5,889,282
Common units issued with the EQM-RMP Merger	33,975,777	—	33,975,777
Balance at September 30, 2018	120,456,425	1,443,015	121,899,440


(1)	Units issued upon a resignation from the EQM General Partner's Board of Directors in February 2018.

As of September 30, 2018, EQGP owned 21,811,643 EQM common units, representing a 17.9% limited partner interest, 1,443,015 EQM general partner units, representing a 1.2% general partner interest, and all of the IDRs in EQM. As of September 30, 2018, EQT owned 15,433,812 EQM common units, representing a 12.7% limited partner interest in EQM.


E.	Financial Information by Business Segment

Prior to the EQM-RMP Merger, all of EQM's operating activities were conducted through two business segments: Gathering and Transmission. Following the EQM-RMP Merger, EQM adjusted its internal reporting structure to incorporate the newly acquired assets consistent with how EQM's chief operating decision maker reviews its business operations. EQM now conducts its business through three business segments: Gathering, Transmission and Water. Gathering primarily includes high pressure gathering lines and the FERC-regulated low pressure gathering system. Transmission includes EQM's FERC-regulated interstate pipeline and storage business. Water includes water pipelines, impoundment facilities, pumping stations, take point facilities and measurement facilities. EQM has recast the corresponding segment information for the period in which RMP was under the common control of EQT, which began on November 13, 2017.

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	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
	(Thousands)
Revenues from external customers (including affiliates):
Gathering	$	252,861		$	116,522		$	731,440		$	330,996
Transmission	89,350			89,771			285,429			272,184
Water	22,373			—			93,438			—
Total operating revenues	$	364,584		$	206,293		$	1,110,307		$	603,180

Operating income (loss):
Gathering	$	177,902		$	85,932		$	510,755		$	243,061
Transmission	58,691			59,770			198,784			189,237
Water	(3,093		)	—			35,627			—
Headquarters	(2,581		)	(543		)	(5,739		)	(2,344		)
Total operating income	$	230,919		$	145,159		$	739,427		$	429,954

Reconciliation of operating income to net income:
Equity income ⁽¹⁾	16,087			6,025			35,836			15,413
Other income	1,345			637			3,193			3,576
Net interest expense	40,966			9,414			76,661			25,994
Net income	$	207,385		$	142,407		$	701,795		$	422,949


(1)	Equity income is included in the Transmission segment.



	September 30, 2018		December 31, 2017
	(Thousands)
Segment assets:
Gathering	$	6,131,380	$	5,656,094
Transmission ⁽¹⁾	2,833,519		1,947,566
Water	177,126		208,273
Total operating segments	9,142,025		7,811,933
Headquarters, including cash	126,115		187,701
Total assets	$	9,268,140	$	7,999,634


(1)	The equity investment in the MVP Joint Venture was included in the headquarters segment prior to June 30, 2018. As of June 30, 2018, the investment in the MVP Joint Venture was included in the Transmission segment and the amount at December 31, 2017 has been recast to conform with this presentation.

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
	(Thousands)
Depreciation:
Gathering	$	25,359	$	9,983	$	72,309	$	28,398
Transmission	12,357		12,261		37,228		35,793
Water	5,851		—		17,420		—
Total	$	43,567	$	22,244	$	126,957	$	64,191

Expenditures for segment assets:
Gathering	$	194,477	$	48,182	$	515,072	$	150,728
Transmission	37,626		22,312		84,517		73,679
Water	7,981		—		17,358		—
Total ⁽¹⁾	$	240,084	$	70,494	$	616,947	$	224,407

(1)

EQM accrues capital expenditures when work has been completed but the associated bills have not yet been paid. These accrued amounts are excluded from capital expenditures in the statements of consolidated cash flows until they are paid in a subsequent period. Accrued capital expenditures were approximately $91.3 million, $84.6 million and $90.7 million at September 30, 2018, June 30, 2018 and December 31, 2017, respectively. Accrued capital expenditures were approximately $26.5 million, $31.2 million and $26.7 million at September 30, 2017, June 30, 2017 and December 31, 2016, respectively.


F.	Related Party Transactions

In the ordinary course of business, EQGP and EQM engage in transactions with EQT and its affiliates including, but not limited to, gas gathering agreements, transportation service and precedent agreements, storage agreements and water services agreements. EQGP and EQM each have an omnibus agreement with EQT. Pursuant to the omnibus agreements, EQT performs centralized corporate, general and administrative services for EQGP and EQM. In exchange, EQGP and EQM reimburse EQT for the expenses incurred by EQT in providing these services. EQM's omnibus agreement also provides for certain indemnification obligations between EQM and EQT. Pursuant to a secondment agreement, employees of EQT and its affiliates may be seconded to EQM to provide operating and other services with respect to EQM's business under the direction, supervision and control of EQM. EQM reimburses EQT and its affiliates for the services provided by the seconded employees. The expenses for which EQGP and EQM reimburse EQT and its affiliates may not necessarily reflect the actual expenses that EQGP and EQM would incur on a stand-alone basis. EQGP and EQM are unable to estimate what those expenses would be on a stand-alone basis.

In connection with the completion of the Rice Merger, RMP, EQT and other affiliates entered into an amended and restated omnibus agreement (the Amended RMP Omnibus Agreement). Pursuant to the Amended RMP Omnibus Agreement, EQT performed centralized corporate general and administrative services for RMP. In exchange, RMP reimbursed EQT for the expenses incurred by EQT in providing these services. Following the completion of the EQM-RMP Merger, RMP reimburses EQT for the expenses incurred by EQT providing services to RMP and its subsidiaries under the EQM Omnibus Agreement. The Amended RMP Omnibus Agreement continues in existence for purposes of certain indemnification obligations that survived the merger.


G.	Investment in Unconsolidated Entity

The MVP Joint Venture is constructing the Mountain Valley Pipeline (MVP), an estimated 300-mile natural gas interstate pipeline spanning from northern West Virginia to southern Virginia. EQM is the operator of the MVP and owned a 45.5% interest in the MVP Joint Venture as of September 30, 2018. The MVP Joint Venture is a variable interest entity because it has insufficient equity to finance its activities during the construction stage of the project. EQM is not the primary beneficiary because it does not have the power to direct the activities of the MVP Joint Venture that most significantly impact its economic performance. Certain business decisions require the approval of owners holding more than a 66 2/3% interest in the MVP Joint Venture and no one member owns more than a 66 2/3% interest. The MVP Joint Venture is an equity method investment for accounting purposes as EQM has the ability to exercise significant influence over operating and financial policies of the MVP Joint Venture. In April 2018, the MVP Joint Venture announced the MVP Southgate project, a proposed 70-mile interstate pipeline that will extend from the MVP at Pittsylvania County, Virginia to new delivery points in Rockingham and Alamance Counties, North Carolina. As of September 30, 2018, EQM had a 32.7% ownership interest in the MVP Southgate project and will operate the pipeline.

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In September 2018, the MVP Joint Venture issued a capital call notice to MVP Holdco, LLC (MVP Holdco), a direct wholly owned subsidiary of EQM, for $456.0 million, of which $175.2 million was paid as of October 2018, and $280.8 million is expected to be paid in the fourth quarter of 2018. In addition, in September 2018, the MVP Joint Venture issued a capital call notice to MVP Holdco for $7.7 million for funding of the MVP Southgate project that is expected to be paid in the fourth quarter of 2018. The capital contribution payables have been reflected on the consolidated balance sheet as of September 30, 2018 with corresponding increases to EQM's investment in the MVP Joint Venture.

Equity income is EQM's portion of the MVP Joint Venture's AFUDC on construction of the MVP.

As of September 30, 2018, EQM had issued a $91 million performance guarantee in favor of the MVP Joint Venture. The guarantee provides performance assurances of MVP Holdco's obligations to fund its proportionate share of the MVP construction budget. As of September 30, 2018, EQM's maximum financial statement exposure related to the MVP Joint Venture was approximately $1,391 million, which consists of the investment in unconsolidated entity balance on the consolidated balance sheet as of September 30, 2018 and amounts that could have become due under EQM's performance guarantee as of that date.

The following tables summarize the unaudited condensed financial statements for the MVP Joint Venture.

Condensed Consolidated Balance Sheets



	September 30, 2018		December 31, 2017
	(Thousands)
Current assets	$	1,260,789	$	330,271
Noncurrent assets	2,330,467		747,728
Total assets	$	3,591,256	$	1,077,999

Current liabilities	$	726,528	$	65,811
Equity	2,864,728		1,012,188
Total liabilities and equity	$	3,591,256	$	1,077,999

Condensed Statements of Consolidated Operations



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
	(Thousands)
Net interest income	$	11,958	$	3,227	$	25,873	$	8,205
AFUDC - equity	23,417		10,055		52,906		25,710
Net income	$	35,375	$	13,282	$	78,779	$	33,915


H.	Debt

EQGP Working Capital Facility. EQGP has a Working Capital Loan Agreement with EQT (the Working Capital Facility) that provides for interest bearing loans of up to $50 million outstanding at any one time. EQGP had approximately $0.2 million of borrowings outstanding under the Working Capital Facility as of September 30, 2018 and December 31, 2017, which were included in due to related party on the consolidated balance sheets. The maximum amounts of EQGP's outstanding borrowings under the Working Capital Facility was $0.2 million and $0.3 million during the nine months ended September 30, 2018 and 2017, respectively, and interest was incurred at weighted average annual interest rates of approximately 3.3% and 2.4%, respectively. EQGP expects the Working Capital Facility to be terminated at or prior to the proposed separation of EQT's production and midstream businesses (the Separation).

EQM $1 Billion Facility. EQM has a $1 billion credit facility that expires in July 2022. The $1 Billion Facility is available to fund working capital requirements and capital expenditures, to purchase assets, to pay distributions and repurchase units and for general partnership purposes (including purchasing assets from EQT and other third parties). EQM's $1 Billion Facility contains various provisions that, if violated, could result in termination of the credit facility, require early payment of amounts outstanding or similar actions. The most significant covenants and events of default relate to maintenance of a permitted leverage ratio, limitations on transactions with affiliates, limitations on restricted payments, insolvency events, nonpayment of

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scheduled principal or interest payments, acceleration of and certain other defaults under other financial obligations and change of control provisions. Under the $1 Billion Facility, EQM is required to maintain a consolidated leverage ratio of not more than 5.00 to 1.00 (or not more than 5.50 to 1.00 for certain measurement periods following the consummation of certain acquisitions).

EQM had $22 million in borrowings and $1 million of letters of credit outstanding under its credit facility as of September 30, 2018. EQM had $180 million in borrowings and no letters of credit outstanding under its credit facility as of December 31, 2017. During the three and nine months ended September 30, 2018, the maximum amount of EQM's outstanding borrowings under the credit facility at any time was $74 million and $420 million, respectively, and the average daily balance was approximately $22 million and $147 million, respectively. EQM incurred interest at weighted average annual interest rates of approximately 3.7% and 3.2% for the three and nine months ended September 30, 2018, respectively. During the three and nine months ended September 30, 2017, the maximum amount of EQM's outstanding borrowings under the credit facility at any time was $177 million and the average daily balances were approximately $95 million and $32 million, respectively. Interest was incurred at a weighted average annual interest rate of approximately 2.7% for the three and nine months ended September 30, 2017. Prior to the Separation, EQM intends to increase its borrowing capacity from $1 billion up to $3 billion.

EQM 364-Day Facility. EQM has a $500 million, 364-day, uncommitted revolving loan agreement with EQT. Interest accrues on outstanding borrowings at an interest rate equal to the rate then applicable to similar loans under the $1 Billion Facility, or a successor revolving credit facility, less the sum of (i) the then applicable commitment fee under the $1 Billion Facility and (ii) 10 basis points.

EQM had no borrowings outstanding on the 364-Day Facility as of September 30, 2018 and December 31, 2017. There were no borrowings outstanding at any time during the three and nine months ended September 30, 2018. During the three and nine months ended September 30, 2017, the maximum amount of EQM's outstanding borrowings under the credit facility at any time was $40 million and $100 million, respectively, and the average daily balances were approximately $11 million and $30 million, respectively. EQM incurred interest at weighted average annual interest rates of approximately 2.4% and 2.2% for the three and nine months ended September 30, 2017, respectively. EQM expects EQT to terminate the 364-Day Facility at or prior to the Separation.

EQM Term Loan Facility. On April 25, 2018, EQM entered into a $2.5 billion unsecured multi-draw 364-day term loan facility with a syndicate of lenders. The EQM Term Loan Facility was used to fund the cash consideration for the May 2018 Acquisition, to repay borrowings under EQM's $1 Billion Facility and for other general partnership purposes. During the second quarter 2018, the balance outstanding under the EQM Term Loan Facility was repaid, and the EQM Term Loan Facility was terminated on June 25, 2018 in connection with EQM's issuance of the 2018 Senior Notes (defined below). As a result of the termination, EQM expensed $3 million of deferred issuance costs. From April 25, 2018 through June 25, 2018, the maximum amount of EQM's outstanding borrowings under the EQM Term Loan Facility at any time was $1,825 million and the average daily balance was approximately $1,231 million. EQM incurred interest at a weighted average annual interest rate of approximately 3.3% for the period from April 25, 2018 through June 25, 2018.

RMP $850 Million Facility. RM Operating LLC (formerly known as Rice Midstream OpCo LLC) (Rice Midstream OpCo), a wholly owned subsidiary of RMP, had an $850 million credit facility. The RMP $850 Million Facility was available for general partnership purposes, including to purchase assets, and to fund working capital requirements and capital expenditures, pay dividends and repurchase units. The RMP $850 Million Facility was secured by mortgages and other security interests on substantially all of RMP's properties and was guaranteed by RMP and its restricted subsidiaries.

As of December 31, 2017, Rice Midstream OpCo had $286 million of borrowings and $1 million of letters of credit outstanding under the RMP $850 Million Facility. For the periods from July 1, 2018 through July 23, 2018 and from January 1, 2018 through July 23, 2018, the maximum amounts of RMP's outstanding borrowings under the RMP $850 Million Facility at any time were $260 million and $375 million, respectively, and the average daily outstanding balances under the RMP $850 Million Facility were approximately $249 million and $300 million, respectively. Interest was incurred on the RMP $850 Million Facility at weighted average annual interest rates of 4.1% and 3.8% for the periods from July 1, 2018 through July 23, 2018 and from January 1, 2018 through July 23, 2018, respectively.

In connection with the completion of the EQM-RMP Merger, on July 23, 2018, EQM repaid the approximately $260 million of borrowings outstanding under the RMP $850 Million Facility and the RMP $850 Million Facility was terminated.

2018 Senior Notes. During the second quarter of 2018, EQM issued 4.75% senior notes due July 15, 2023 in the aggregate principal amount of $1.1 billion, 5.50% senior notes due July 15, 2028 in the aggregate principal amount of $850 million and 6.50% senior notes due July 15, 2048 in the aggregate principal amount of $550 million (collectively, the 2018 Senior Notes). EQM received net proceeds from the offering of approximately $2,465.8 million, inclusive of a discount of $11.8 million and estimated debt issuance costs of $22.4 million. The net proceeds were used to repay the balances outstanding under the EQM

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Term Loan Facility and the RMP $850 Million Facility, and the remainder is expected to be used for general partnership purposes. The 2018 Senior Notes were issued pursuant to new supplemental indentures to EQM's existing indenture dated August 1, 2014. The 2018 Senior Notes contain covenants that limit EQM's ability to, among other things, incur certain liens securing indebtedness, engage in certain sale and leaseback transactions, and enter into certain consolidations, mergers, conveyances, transfers or leases of all or substantially all of the EQM's assets.

As of September 30, 2018, EQGP and EQM were in compliance with all debt provisions and covenants.


I.	Fair Value Measurements

The carrying values of cash and cash equivalents, accounts receivable, amounts due to/from related parties and accounts payable approximate fair value due to the short maturity of the instruments; these are considered Level 1 fair value measurements. The carrying value of the credit facility borrowings approximates fair value as the interest rates are based on prevailing market rates; this is considered a Level 1 fair value measurement. As EQM's senior notes are not actively traded, their fair values are considered Level 2 fair value measurements and are estimated using a standard industry income approach model that applies a discount rate based on market rates for debt with similar remaining time to maturity and credit risk. As of September 30, 2018 and December 31, 2017, the estimated fair value of EQM's senior notes was approximately $3,532 million and $1,006 million, respectively, and the carrying value of EQM's senior notes was approximately $3,455 million and $987 million, respectively. The fair value of the Preferred Interest is a Level 3 fair value measurement and is estimated using an income approach model that applies a market-based discount rate. As of September 30, 2018 and December 31, 2017, the estimated fair value of the Preferred Interest was approximately $122 million and $133 million, respectively, and the carrying value of the Preferred Interest was approximately $116 million and $119 million, respectively.


J.	Distributions

The following table summarizes the quarterly cash distributions declared by EQM and EQGP to their respective unitholders from January 1, 2017 through September 30, 2018.



Quarter Ended	EQM Distribution per Common Unit		EQM Total Distribution		EQM Total Distribution to EQGP		EQGP Distribution per Common Unit		EQGP Total Distribution
	(Thousands, except per unit amounts)
2017
March 31	$	0.89	$	104,238	$	51,933	$	0.191	$	50,838
June 30	0.935		111,455		56,505		0.21		55,895
September 30	0.98		118,673		61,078		0.228		60,686
December 31	1.025		125,890		65,651		0.244		64,944
2018
March 31	$	1.065	$	132,321	$	69,721	$	0.258	$	68,671
June 30	1.09		201,809		94,286		0.306		92,552
September 30 ⁽¹⁾	1.115		207,735		97,746		0.315		95,275

(1)

On October 23, 2018, the Board of Directors of the EQM General Partner declared a cash distribution to EQM's unitholders for the third quarter of 2018 of $1.115 per common unit. The cash distribution will be paid on November 14, 2018 to unitholders of record at the close of business on November 2, 2018. Based on the EQM common units outstanding on October 25, 2018, cash distributions to EQGP will be approximately $24.3 million related to its limited partner interest, $2.5 million related to its general partner interest and $71.0 million related to its IDRs in EQM. The distribution amounts to EQGP related to its general partner interest and IDRs in EQM are subject to change if EQM issues additional common units on or prior to the record date for the third quarter 2018 distribution.

On October 23, 2018, the Board of Directors of the EQGP General Partner declared a cash distribution to EQGP's unitholders for the third quarter of 2018 of $0.315 per common unit. The cash distribution will be paid on November 23, 2018 to unitholders of record at the close of business on November 2, 2018.

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K.	Consolidated Variable Interest Entity

EQM is a variable interest entity. Through EQGP's ownership and control of the EQM General Partner, EQGP has the power to direct the activities that most significantly impact EQM's economic performance. In addition, through EQGP's general partner interest, IDRs and limited partner interest in EQM, EQGP has the obligation to absorb EQM's losses and the right to receive benefits from EQM in accordance with its general partner and limited partner ownership percentages and IDRs. Therefore, EQGP consolidates EQM. For additional information, see Note 15 to the consolidated financial statements in EQGP's Annual Report on Form 10-K for the year ended December 31, 2017.

EQGP's only cash-generating assets consist of its partnership interests in EQM. As a result, EQGP's results of operations do not differ materially from the results of operations of EQM. For a discussion on the risks associated with EQM's operations, see EQGP's Annual Report on Form 10-K for the year ended December 31, 2017 and this Quarterly Report on Form 10-Q. For further discussion on the effect that EQGP's involvement in EQM has on EQGP's financial position, results of operations and cash flows, see EQGP's Annual Report on Form 10-K for the year ended December 31, 2017. For discussion on related party transactions, see Note 5 to the consolidated financial statements in EQGP's Annual Report on Form 10-K for the year ended December 31, 2017 and Note F to these consolidated financial statements.

The following table presents amounts included in EQGP's consolidated balance sheets that were for the use or obligation of EQM.



Classification	September 30, 2018		December 31, 2017
	(Thousands)
Assets:
Cash and cash equivalents	$	4,712	$	2,557
Accounts receivable	58,358		28,804
Accounts receivable – affiliate	167,481		103,304
Other current assets	9,080		12,662
Net property, plant and equipment	5,608,358		2,804,059
Investment in unconsolidated entity	1,300,430		460,546
Goodwill	1,384,872		—
Intangible assets, net	586,500		—
Other assets	146,400		136,895
Liabilities:
Accounts payable	$	134,026	$	47,040
Due to related party	39,709		31,673
Capital contribution payable to MVP Joint Venture	463,733		105,734
Accrued interest	46,165		10,926
Accrued liabilities	16,401		16,871
Credit facility borrowings of EQM and RMP	22,000		180,000
EQM senior notes	3,455,296		987,352
Regulatory and other long-term liabilities	31,010		20,273

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EQGP HOLDINGS, LP AND SUBSIDIARIES

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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

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, and Section 27A of the Securities Act of 1933, as amended. 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," "forecast," "approximate," "expect," "project," "intend," "plan," "believe" 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 "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 of EQGP and its subsidiaries, including EQM, including guidance regarding EQM's gathering, transmission and storage and water revenue and volume growth; 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 water expansion projects); the cost, capacity, timing of regulatory approvals and anticipated in-service date of the MVP and MVP Southgate projects; the ultimate terms, partners and structure of the MVP Joint Venture; expansion projects in EQM's operating areas and in areas that would provide access to new markets; asset acquisitions, including EQM's ability to complete asset acquisitions; the expected growth of production volumes in EQM's areas of production; the impact and outcome of pending and future litigation; the timing of the proposed separation of EQT's production and midstream businesses (the Separation) and the parties' ability to complete the Separation; the amount and timing of distributions, including expected increases; the structure and timing of any simplification of the midstream structure to address the IDRs, if pursued and implemented; the amounts and timing of EQM's projected capital contributions and operating and capital expenditures, including the amount of capital expenditures reimbursable by EQT; the impact of commodity prices on EQM's business; liquidity and financing requirements, including sources and availability and EQM's plan to increase its borrowing capacity up to $3 billion; the effects of government regulation; and tax 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. EQGP has based these forward-looking statements on current expectations and assumptions about future events. While EQGP considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks and uncertainties, many of which are difficult to predict and are beyond EQGP's control. The risks and uncertainties that may affect the operations, performance and results of EQGP's and EQM's business and forward-looking statements include, but are not limited to, those set forth under Item 1A, "Risk Factors" in EQGP's Annual Report on Form 10-K for the year ended December 31, 2017, as updated by Part II, Item 1A, "Risk Factors," of this Quarterly Report on Form 10-Q.

Any forward-looking statement speaks only as of the date on which such statement is made and EQGP does not intend to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise.

In reviewing any agreements incorporated by reference in or filed with this Quarterly Report on Form 10-Q, please remember that such agreements are included to provide information regarding the terms of such agreements and are not intended to provide any other factual or disclosure information about EQGP or EQM. The agreements may contain representations and warranties by EQGP or EQM, which should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties to such agreements should those statements prove to be inaccurate. The representations and warranties were made only as of the date of the relevant agreement or such other date or dates as may be specified in such agreement and are subject to more recent developments. Accordingly, these representations and warranties alone may not describe the actual state of affairs of EQGP or its affiliates as of the date they were made or at any other time.

EXECUTIVE OVERVIEW

For the three months ended September 30, 2018, net income attributable to EQM was $209.9 million compared to $142.9 million for the three months ended September 30, 2017. The increase resulted primarily from higher gathering and water revenues, which were driven mainly by the EQM-RMP Merger and the May 2018 Acquisition, which support production development in the Marcellus and Utica Shales, and higher equity income, partly offset by higher operating expenses and higher net interest expense.

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For the nine months ended September 30, 2018, net income attributable to EQM was $704.1 million compared to $425.3 million for the nine months ended September 30, 2017. The increase primarily resulted from higher gathering, transmission and water revenues, which were driven mainly by the EQM-RMP Merger and the May 2018 Acquisition, which support production development in the Marcellus and Utica Shales, and higher equity income, partly offset by an increase in operating expenses and higher net interest expense.

EQM declared a cash distribution to its unitholders of $1.115 per unit on October 23, 2018, which was 2% higher than the second quarter 2018 distribution of $1.09 per unit and 14% higher than the third quarter 2017 distribution of $0.98 per unit.

EQGP declared a cash distribution to its unitholders of $0.315 per unit on October 23, 2018, which was 2% higher than the second quarter of 2018 distribution of $0.306 per unit and 38% higher than the third quarter 2017 distribution of $0.228 per unit.

Items Affecting the Comparability of EQGP's Financial Results to Those of EQM

The following table reconciles the differences between net income attributable to EQM as reported in EQM's Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2018 and 2017 and net income attributable to EQGP for the same period.



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
	(Thousands)
Net income attributable to EQM	$	209,927	$	142,938	$	704,109	$	425,273
Less:
Net income attributable to noncontrolling interests	109,896		75,463		352,009		231,299
Additional expenses, net	2,542		531		5,660		2,324
Net income attributable to EQGP	$	97,489	$	66,944	$	346,440	$	191,650

Noncontrolling Interests. The common units in EQM not held by EQGP are reflected as noncontrolling interests in the consolidated financial statements. The increases in net income attributable to EQM noncontrolling interests resulted from higher EQM net income for the three and nine months ended September 30, 2018 compared to the three and nine months ended September 30, 2017, as well as additional noncontrolling interests outstanding as a result of the EQM common units issued for the May 2018 Acquisition and the EQM-RMP Merger, partly offset by higher IDRs.

Additional Expenses. As a result of being a publicly traded partnership, EQGP incurs selling, general and administrative expenses separate from and in addition to similar costs incurred by EQM. EQGP also incurs interest expense under its Working Capital Facility and earns interest income on cash on hand. Additional expenses, net increased for the three and nine months ended September 30, 2018 compared to the three and nine months ended September 30, 2017 primarily related to transaction costs associated with the IDR Transaction.

Business Segment Results

Operating segments are revenue-producing components of the 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. Other income and net interest expense are managed on a consolidated basis. EQGP has presented each segment's operating income and various operational measures in the following sections. Management believes that the presentation of this information provides useful information to management and investors regarding the financial condition, results of operations and trends of segments. EQGP's three segments are the same as those of EQM as EQGP does not have any operating activities separate from those of EQM. EQGP has reconciled each segment's operating income to EQGP's consolidated operating income and net income in Note E to the consolidated financial statements.

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GATHERING RESULTS OF OPERATIONS



	Three Months Ended September 30,					Nine Months Ended September 30,
	2018 ⁽¹⁾		2017		% Change	2018 ⁽¹⁾		2017		% Change
	(Thousands, except per day amounts)
FINANCIAL DATA
Firm reservation fee revenues	$	112,598	$	104,772	7.5	$	334,233	$	300,901	11.1
Volumetric based fee revenues:
Usage fees under firm contracts ⁽²⁾	8,661		7,873		10.0	30,725		19,173		60.3
Usage fees under interruptible contracts⁽³⁾	131,602		3,877		3,294.4	366,482		10,922		3,255.4
Total volumetric based fee revenues	140,263		11,750		1,093.7	397,207		30,095		1,219.8
Total operating revenues	252,861		116,522		117.0	731,440		330,996		121.0
Operating expenses:
Operating and maintenance	18,850		10,104		86.6	54,551		30,737		77.5
Selling, general and administrative	20,363		10,503		93.9	62,665		28,800		117.6
Depreciation	25,359		9,983		154.0	72,309		28,398		154.6
Amortization of intangible assets	10,387		—		100.0	31,160		—		100.0
Total operating expenses	74,959		30,590		145.0	220,685		87,935		151.0
Operating income	$	177,902	$	85,932	107.0	$	510,755	$	243,061	110.1

OPERATIONAL DATA
Gathered volumes (BBtu per day)
Firm capacity reservation	2,114		1,838		15.0	2,029		1,783		13.8
Volumetric based services ⁽⁴⁾	4,437		370		1,099.2	4,291		292		1,369.5
Total gathered volumes	6,551		2,208		196.7	6,320		2,075		204.6

Capital expenditures	$	194,477	$	48,182	303.6	$	515,072	$	150,728	241.7


(1)	Includes the pre-acquisition results of the May 2018 Acquisition and the EQM-RMP Merger, which were effective on May 1, 2018 and July 23, 2018, respectively. The recast is for the period the acquired businesses were under the common control of EQT, which began on November 13, 2017 as a result of the Rice Merger.


(2)	Includes fees on volumes gathered in excess of firm contracted capacity.


(3)	Includes volumes from contracts under which EQM has agreed to hold capacity available without charging a capacity reservation fee.


(4)	Includes volumes gathered under interruptible contracts and volumes gathered in excess of firm contracted capacity.

Three Months Ended September 30, 2018 Compared to Three Months Ended September 30, 2017

Gathering revenues increased by $136.3 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017 primarily driven by the EQM-RMP Merger, the May 2018 Acquisition and affiliate and third party production development in the Marcellus and Utica Shales. Firm reservation fee revenues increased primarily as a result of increased affiliate contracted gathering capacity and higher rates on various affiliate wellhead expansion projects in the current period. Usage fees under firm contracts increased due to increased third party volumes gathered in excess of firm contracted capacity. Usage fees under interruptible contracts increased as a result of the EQM-RMP Merger and the May 2018 Acquisition, which added revenues of $69.7 million and $58.4 million, respectively, for the three months ended September 30, 2018.

Operating expenses increased by $44.4 million for the three months ended September 30, 2018 compared to the three months ended September 30, 2017. Operating expenses increased $17.9 million and $24.5 million as a result of the EQM-RMP Merger and the May 2018 Acquisition, respectively. In addition, operating and maintenance expense increased due to higher repairs and maintenance expense consistent with the growth of the business. Selling, general and administrative also increased due to transaction costs of $2.2 million. Depreciation expense also increased as a result of additional assets placed in-service. Amortization of intangible assets relates to the customer contract intangible associated with the May 2018 Acquisition.

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Nine Months Ended September 30, 2018 Compared to Nine Months Ended September 30, 2017

Gathering revenues increased by $400.4 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017 primarily driven by the EQM-RMP Merger, the May 2018 Acquisition and affiliate and third party production development in the Marcellus and Utica Shales. Firm reservation fee revenues increased primarily as a result of increased affiliate and third party contracted gathering capacity and higher rates on various affiliate wellhead expansion projects in the current period. Usage fees under firm contracts increased due to increased third party and affiliate volumes gathered in excess of firm contracted capacity. Usage fees under interruptible contracts increased as a result of the EQM-RMP Merger and the May 2018 Acquisition, which added revenues of $193.5 million and $161.9 million, respectively, for the nine months ended September 30, 2018.

Operating expenses increased by $132.8 million for the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. Operating expenses increased $53.2 million and $72.8 million as a result of the EQM-RMP Merger and the May 2018 Acquisition, respectively. In addition, operating and maintenance expense increased due to higher repairs and maintenance expense consistent with the growth of the business. Selling, general and administrative also increased due to transaction costs of $7.5 million. Depreciation expense also increased as a result of additional assets placed in-service, including those associated with the Range Resources header pipeline project and various wellhead gathering expansion projects. Amortization of intangible assets relates to customer contract intangible associated with the May 2018 Acquisition.

TRANSMISSION RESULTS OF OPERATIONS



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018		2017		% Change		2018		2017		% Change
	(Thousands, except per day amounts)
FINANCIAL DATA
Firm reservation fee revenues	$	82,669	$	84,438	(2.1	)	$	262,666	$	256,224	2.5
Volumetric based fee revenues:
Usage fees under firm contracts ⁽¹⁾	5,331		3,427		55.6		13,981		9,787		42.9
Usage fees under interruptible contracts	1,350		1,906		(29.2	)	8,782		6,173		42.3
Total volumetric based fee revenues	6,681		5,333		25.3		22,763		15,960		42.6
Total operating revenues	89,350		89,771		(0.5	)	285,429		272,184		4.9
Operating expenses:
Operating and maintenance	10,721		9,485		13.0		27,082		23,984		12.9
Selling, general and administrative	7,581		8,255		(8.2	)	22,335		23,170		(3.6	)
Depreciation	12,357		12,261		0.8		37,228		35,793		4.0
Total operating expenses	30,659		30,001		2.2		86,645		82,947		4.5
Operating income	$	58,691	$	59,770	(1.8	)	$	198,784	$	189,237	5.0

Price	20.48	EPS	2
Shares	302	P/E	9
MCap	6,194	P/FCF	7
Net Debt	-6	EBIT	701
TEV	6,188	TEV/EBIT	9
TTM 2018-09-30, in MM, except price, ratios

10-Q	2018-09-30	Filed 2018-10-25
10-Q	2018-06-30	Filed 2018-07-26
10-Q	2018-03-31	Filed 2018-04-26
10-K	2017-12-31	Filed 2018-02-15
10-Q	2017-09-30	Filed 2017-10-26
10-Q	2017-06-30	Filed 2017-07-27
10-Q	2017-03-31	Filed 2017-04-27
10-K	2016-12-31	Filed 2017-02-09
10-Q	2016-09-30	Filed 2016-10-27
10-Q	2016-06-30	Filed 2016-07-28
10-Q	2016-03-31	Filed 2016-04-28
10-K	2015-12-31	Filed 2016-02-11
10-Q	2015-09-30	Filed 2015-10-22
10-Q	2015-06-30	Filed 2015-07-23

8-K	2019-01-10
8-K	2018-12-31
8-K	2018-11-29
8-K	2018-11-12
8-K	2018-10-31
8-K	2018-10-25
8-K	2018-10-24
8-K	2018-10-12
8-K	2018-09-25
8-K	2018-08-08
8-K	2018-07-26
8-K	2018-07-23
8-K	2018-05-22
8-K	2018-04-26
8-K	2018-04-25
8-K	2018-03-14
8-K	2018-02-15

EX-10.2	ex102-1stamxredacted.htm
EX-10.3	ex103-crackerjackxredacted.htm
EX-10.6	ex106-offerletter.htm
EX-10.7	ex107-karamnonxcompete.htm
EX-31.1	eqgp9302018ex311.htm
EX-31.2	eqgp9302018ex312.htm
EX-32	eqgp9302018ex32.htm

EQGP 10Q Quarterly Report

EQGP Holdings Earnings 2018-09-30