Equitrans Midstream Corp [ETRN] Filings

10-Q 1 etrn-20230630.htm 10-Q etrn-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023


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	001-38629

EQUITRANS MIDSTREAM CORPORATION

(Exact name of registrant as specified in its charter)


Pennsylvania						83-0516635
(State or other jurisdiction of incorporation or organization)						(IRS Employer Identification No.)

2200 Energy Drive, Canonsburg, Pennsylvania 15317

(Address of principal executive offices) (Zip code)

(724) 271-7600


(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, no par value

ETRN

New York Stock Exchange

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 ☒ 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 ☒ 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

☒

Accelerated Filer

☐

Emerging Growth Company

☐

Non-Accelerated Filer

☐

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 ☒

The number of shares of common stock outstanding (in thousands), as of July 31, 2023: 433,261

EQUITRANS MIDSTREAM CORPORATION

Index


			Page No.

Glossary of Commonly Used Terms, Abbreviations and Measurements			3

Part I.	Financial Information:

Item 1.		Financial Statements (Unaudited):

		Statements of Consolidated Comprehensive Income for the Three and Six Months Ended June 30, 2023 and 2022	5

		Statements of Consolidated Cash Flows for the Six Months Ended June 30, 2023 and 2022	6

		Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022	7

		Statements of Consolidated Equity and Mezzanine Equity for the Three and Six Months Ended June 30, 2023 and 2022	8

		Notes to Consolidated Financial Statements	10

Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.		Quantitative and Qualitative Disclosures About Market Risk	36

Item 4.		Controls and Procedures	38

Part II.	Other Information:

Item 1.		Legal Proceedings	39

Item 1A.		Risk Factors	42

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	43

Item 5.		Other Information	43

Item 6.		Exhibits	44

Signature			45

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EQUITRANS MIDSTREAM CORPORATION

Glossary of Commonly Used Terms, Abbreviations and Measurements

2021 Water Services Agreement – that certain mixed-use water services agreement entered into on October 22, 2021 by the Company and EQT (as defined below), as subsequently amended, which became effective on March 1, 2022.

Allowance for Funds Used During Construction (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.

Amended EQM Credit Facility – that certain Third Amended and Restated Credit Agreement, dated as of October 31, 2018, among EQM, as borrower, Wells Fargo Bank, National Association, as the administrative agent, swing line lender, and a letter of credit (L/C) issuer, the lenders party thereto from time to time and any other persons party thereto from time to time (as amended by that certain First Amendment to Third Amended and Restated Credit Agreement, dated as of March 30, 2020, by that certain Second Amendment to Third Amended and Restated Credit Agreement, dated April 16, 2021, by that certain Third Amendment to the Third Amended and Restated Credit Agreement, dated as of April 22, 2022, and as may be further amended, restated, amended and restated, supplemented or otherwise modified from time to time). For the avoidance of doubt, any reference to the Amended EQM Credit Facility as of any particular date shall mean the Amended EQM Credit Facility as in effect on such date.

Annual Revenue Commitments (ARC or ARCs) – contractual term in a water services agreement that obligates the customer to pay for a fixed amount of water services annually.

Appalachian Basin – the area of the United States composed of those portions of West Virginia, Pennsylvania, Ohio, Maryland, Kentucky and Virginia that lie in the Appalachian Mountains.

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

delivery point – the point where gas is delivered into a downstream gathering system or transmission pipeline.

EQM – EQM Midstream Partners, LP and its subsidiaries. EQM is a wholly owned subsidiary of Equitrans Midstream Corporation.

EQT – EQT Corporation (NYSE: EQT) and its subsidiaries.

EQT Global GGA – that certain Gas Gathering and Compression Agreement entered into on February 26, 2020 (the EQT Global GGA Effective Date) by the Company with EQT and certain affiliates of EQT for the provision of certain gas gathering services to EQT in the Marcellus and Utica Shales of Pennsylvania and West Virginia, as subsequently amended.

Equitrans Midstream Preferred Shares – the Equitrans Midstream Corporation Series A Perpetual Convertible Preferred Shares, no par value.

firm contracts – contracts for gathering, transmission, storage and water services that reserve an agreed upon amount of pipeline or storage capacity regardless of the capacity used by the customer during each month, and generally obligate the customer to pay a fixed, monthly charge.

firm reservation fee revenues – contractually obligated revenues that include fixed monthly charges under firm contracts and fixed volumetric charges under MVC (as defined below) and ARC (as defined above) contracts.

gas – natural gas.

liquefied natural gas (LNG) – natural gas that has been cooled to minus 161 degrees Celsius for transportation, typically by ship. The cooling process reduces the volume of natural gas by 600 times.

Minimum volume commitments (MVC or MVCs) – contracts for gathering or water services that obligate the customer to pay for a fixed amount of volumes daily, monthly, annually or over the life of the contract.

Mountain Valley Pipeline (MVP) – 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 in Wetzel County, West Virginia to Pittsylvania County, Virginia, providing access to the growing Southeast demand markets.

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Mountain Valley Pipeline, LLC (MVP Joint Venture) – a joint venture among the Company and, as applicable, affiliates of each of NextEra Energy, Inc., Consolidated Edison, Inc. (Con Edison), AltaGas Ltd. and RGC Resources, Inc. (RGC) that is constructing the MVP and the MVP Southgate (as defined below) projects.

MVP Southgate – a contemplated interstate pipeline that was approved by the FERC to extend approximately 75 miles from the MVP at Pittsylvania County, Virginia to new delivery points in Rockingham and Alamance Counties, North Carolina. The project is subject to active negotiations between the MVP Joint Venture and the project shipper, Dominion Energy North Carolina, and a prospective customer as discussed in "MVP Southgate Project" in "Outlook" in Part I, "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Quarterly Report on Form 10-Q.

natural gas liquids (NGLs) – those hydrocarbons in natural gas that are separated from the gas as liquids through the process of absorption, condensation, adsorption or other methods in gas processing plants. Natural gas liquids include ethane, propane, pentane, butane and iso-butane.

Preferred Interest – the preferred interest that the Company has in EQT Energy Supply, LLC (EES), a subsidiary of EQT.

Rager Mountain natural gas storage field incident – that certain venting of natural gas, of which the Company first became aware on November 6, 2022, at a storage well (well 2244) at Equitrans, L.P.'s Rager Mountain natural gas storage facility, located in Jackson Township, a remote section of Cambria County, Pennsylvania.

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

wellhead – the equipment at the surface of a well used to control the well's pressure and the point at which the hydrocarbons and water exit the ground.

Unless the context otherwise requires, a reference to a “Note” herein refers to the accompanying Notes to Consolidated Financial Statements contained in Part I, "Item 1. Financial Statements" of this Quarterly Report on Form 10-Q and all references to "we," "us," "our" and "the Company" refer to Equitrans Midstream Corporation and its subsidiaries.


Abbreviations			Measurements
ASC – Accounting Standards Codification			Btu = one British thermal unit
ASU – Accounting Standards Update			BBtu = billion British thermal units
EPA – United States Environmental Protection Agency			Bcf = billion cubic feet
FASB – Financial Accounting Standards Board			Mcf = thousand cubic feet
FERC – United States Federal Energy Regulatory Commission			MMBtu = million British thermal units
GAAP – United States Generally Accepted Accounting Principles			MMcf = million cubic feet
IRS – United States Internal Revenue Service			MMgal = million gallons
NGA – Natural Gas Act of 1938, as amended
NYMEX – New York Mercantile Exchange
NYSE – New York Stock Exchange
SEC – United States Securities and Exchange Commission

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EQUITRANS MIDSTREAM CORPORATION

Statements of Consolidated Comprehensive Income (Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022 (a)		2023		2022 (a)
	(Thousands, except per share amounts)
Operating revenues	$	318,469	$	328,611	$	694,806	$	670,757
Operating expenses:
Operating and maintenance	45,767		32,442		88,629		65,523
Selling, general and administrative	56,932		29,009		89,554		58,726

Depreciation	70,031		67,657		139,435		134,700
Amortization of intangible assets	16,205		16,205		32,410		32,410


Total operating expenses	188,935		145,313		350,028		291,359
Operating income	129,534		183,298		344,778		379,398
Equity income (b)	23,686		39		23,808		43

Other income, net	19,809		4,148		11,707		5,659
Loss on extinguishment of debt	—		(24,937)		—		(24,937)
Net interest expense	(103,644)		(95,117)		(208,601)		(188,238)
Income before income taxes	69,385		67,431		171,692		171,925
Income tax expense (benefit)	465		2,692		(3,319)		8,293
Net income	68,920		64,739		175,011		163,632
Net income attributable to noncontrolling interest	1,675		3,948		6,084		7,723
Net income attributable to Equitrans Midstream	67,245		60,791		168,927		155,909






Preferred dividends	14,628		14,628		29,256		29,256
Net income attributable to Equitrans Midstream common shareholders	$	52,617	$	46,163	$	139,671	$	126,653

Earnings per share of common stock attributable to Equitrans Midstream common shareholders - basic	$	0.12	$	0.11	$	0.32	$	0.29


Earnings per share of common stock attributable to Equitrans Midstream common shareholders - diluted	$	0.12	$	0.11	$	0.32	$	0.29

Weighted average common shares outstanding - basic	433,961		433,333		433,834		433,326
Weighted average common shares outstanding - diluted	435,476		434,025		434,640		433,970

Statement of comprehensive income:
Net income	$	68,920	$	64,739	$	175,011	$	163,632
Other comprehensive income, net of tax:
Pension and other post-retirement benefits liability adjustment, net of tax expense of $7, $12, $14 and $24	22		34		44		68
Other comprehensive income	22		34		44		68
Comprehensive income	68,942		64,773		175,055		163,700
Less: Comprehensive income attributable to noncontrolling interest	1,675		3,948		6,084		7,723
Less: Comprehensive income attributable to preferred dividends	14,628		14,628		29,256		29,256
Comprehensive income attributable to Equitrans Midstream common shareholders	$	52,639	$	46,197	$	139,715	$	126,721

Dividends declared per common share	$	0.15	$	0.15	$	0.30	$	0.30

(a)Certain line items of the previously issued unaudited interim consolidated financial statements for the three and six months ended June 30, 2022 have been revised. See Note 1 for more information.

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

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

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EQUITRANS MIDSTREAM CORPORATION

Statements of Consolidated Cash Flows (Unaudited)


	Six Months Ended June 30,
	2023		2022 (a)
	(Thousands)
Cash flows from operating activities:
Net income	$	175,011	$	163,632
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	139,435		134,700
Amortization of intangible assets	32,410		32,410
Provision for credit losses on accounts receivable	1,258		—
Deferred income taxes	(6,457)		5,372

Equity income (b)	(23,808)		(43)
Other income, net	(11,323)		(5,410)
Loss on extinguishment of debt	—		24,937
Non-cash long-term compensation expense	26,166		8,484
Changes in other assets and liabilities:
Accounts receivable	40,862		38,760

Accounts payable	(12,474)		(339)
Accrued interest	(2,386)		(15,256)
Deferred revenue	157,783		176,206
Other assets and other liabilities	6,797		(26,481)
Net cash provided by operating activities	523,274		536,972
Cash flows from investing activities:
Capital expenditures	(171,940)		(163,139)
Capital contributions to the MVP Joint Venture	(70,533)		(111,752)

Principal payments received on the Preferred Interest	2,878		2,721

Net cash used in investing activities	(239,595)		(272,170)
Cash flows from financing activities:
Proceeds from revolving credit facility borrowings	215,000		140,000
Payments on revolving credit facility borrowings	(180,000)		(224,500)
Proceeds from the issuance of long-term debt	—		1,000,000

Debt discounts, debt issuance costs and credit facility arrangement fees	(60)		(19,911)
Payment for retirement of long-term debt	(98,941)		(1,021,459)








Dividends paid to holders of Equitrans Midstream Preferred Shares	(29,256)		(29,256)

Dividends paid to common shareholders	(129,941)		(129,816)







Distributions paid to noncontrolling interest	(20,000)		—
Other items	(1,307)		—
Net cash used in financing activities	(244,505)		(284,942)

Net change in cash and cash equivalents	39,174		(20,140)
Cash and cash equivalents at beginning of period	67,898		134,661
Cash and cash equivalents at end of period	$	107,072	$	114,521

Cash paid during the period for:
Interest, net of amount capitalized	$	208,269	$	198,463
Income taxes, net	$	550	$	1,243

(a)Certain line items of the previously issued unaudited interim consolidated financial statements for the six months ended June 30, 2022 have been revised. See Note 1 for more information.

(b)Represents equity income from the MVP Joint Venture. See Note 4.

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

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EQUITRANS MIDSTREAM CORPORATION

Consolidated Balance Sheets (Unaudited)


	June 30, 2023		December 31, 2022
	(Thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	107,072	$	67,898

Accounts receivable (net of allowance for credit losses of $4,289 and $3,031 as of June 30, 2023 and December 31, 2022, respectively)	237,630		246,887



Other current assets	71,012		74,917
Total current assets	415,714		389,702

Property, plant and equipment	9,528,396		9,365,051
Less: accumulated depreciation	(1,617,527)		(1,480,720)
Net property, plant and equipment	7,910,869		7,884,331

Investments in unconsolidated entities (a)	1,090,202		819,743
Goodwill	486,698		486,698
Net intangible assets	554,543		586,952




Other assets	268,987		278,159
Total assets	$	10,727,013	$	10,445,585

LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	—	$	98,830

Accounts payable	49,496		60,528

Capital contributions payable to the MVP Joint Venture	209,779		34,355
Accrued interest	133,376		135,762
Accrued liabilities	69,208		83,835
Total current liabilities	461,859		413,310

Long-term liabilities:
Revolving credit facility borrowings	570,000		535,000
Long-term debt	6,340,880		6,335,320


Contract liability	1,129,599		968,535


Regulatory and other long-term liabilities	124,875		112,974
Total liabilities	8,627,213		8,365,139


Mezzanine equity:
Equitrans Midstream Preferred Shares, 30,018 shares issued and outstanding as of June 30, 2023 and December 31, 2022	681,842		681,842

Shareholders' equity:

Common stock, no par value, 433,261 and 432,781 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively	4,001,030		3,974,127
Retained deficit	(3,047,267)		(3,053,590)
Accumulated other comprehensive loss	(1,288)		(1,332)
Total common shareholders' equity	952,475		919,205
Noncontrolling interest	465,483		479,399
Total shareholders' equity	1,417,958		1,398,604
Total liabilities, mezzanine equity and shareholders' equity	$	10,727,013	$	10,445,585

(a)Represents investment in the MVP Joint Venture. See Note 4.

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

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EQUITRANS MIDSTREAM CORPORATION

Statements of Consolidated Shareholders' Equity and Mezzanine Equity (Unaudited)


												Mezzanine
												Equity
						Accumulated						Equitrans
	Common Stock					Other						Midstream
	Shares	No		Retained		Comprehensive		Noncontrolling		Total		Preferred
	Outstanding	Par Value (a)		Deficit (a)		Loss		Interest		Equity (a)		Shares
	(Thousands, except per share amounts)
Balance at January 1, 2022	432,522	$	3,955,918	$	(2,464,573)	$	(2,054)	$	483,195	$	1,972,486	$	681,842
Other comprehensive income (net of tax):
Net income	—	—		80,490		—		3,775		84,265		14,628
Pension and other post-retirement benefits liability adjustment, net of tax expense of $12	—	—		—		34		—		34		—
Dividends on common shares ($0.15 per share)	—	—		(65,584)		—		—		(65,584)		—
Share-based compensation plans, net	155	4,670		—		—		—		4,670		—

Dividends paid to holders of Equitrans Midstream Preferred Shares ($0.4873 per share)	—	—		—		—		—		—		(14,628)
Balance at March 31, 2022	432,677	$	3,960,588	$	(2,449,667)	$	(2,020)	$	486,970	$	1,995,871	$	681,842
Other comprehensive income (net of tax):
Net income	—	—		46,163		—		3,948		50,111		14,628
Pension and other post-retirement benefits liability adjustment, net of tax expense of $12	—	—		—		34		—		34		—
Dividends on common shares ($0.15 per share)	—	—		(64,991)		—		—		(64,991)		—
Share-based compensation plans, net	104	4,470		—		—		—		4,470		—
Dividends paid to holders of Equitrans Midstream Preferred Shares ($0.4873 per share)	—	—		—		—		—		—		(14,628)
Balance at June 30, 2022	432,781	$	3,965,058	$	(2,468,495)	$	(1,986)	$	490,918	$	1,985,495	$	681,842

(a)Certain line items of the previously issued unaudited interim consolidated financial statements for the three and six months ended June 30, 2022 have been revised. See Note 1 for more information.

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												Mezzanine
												Equity
						Accumulated						Equitrans
	Common Stock					Other						Midstream
	Shares	No		Retained		Comprehensive		Noncontrolling		Total		Preferred
	Outstanding	Par Value		Deficit		Loss		Interest		Equity		Shares
	(Thousands, except per share amounts)
Balance at January 1, 2023	432,781	$	3,974,127	$	(3,053,590)	$	(1,332)	$	479,399	$	1,398,604	$	681,842
Other comprehensive income (net of tax):
Net income	—	—		87,054		—		4,409		91,463		14,628
Pension and other post-retirement benefits liability adjustment, net of tax expense of $7	—	—		—		22		—		22		—
Dividends on common shares ($0.15 per share)	—	—		(65,121)		—		—		(65,121)		—
Share-based compensation plans, net	402	3,050		—		—		—		3,050		—
Distributions paid to noncontrolling interest in Eureka Midstream Holdings, LLC	—	—		—		—		(8,000)		(8,000)		—
Dividends paid to holders of Equitrans Midstream Preferred Shares ($0.4873 per share)	—	—		—		—		—		—		(14,628)




Balance at March 31, 2023	433,183	$	3,977,177	$	(3,031,657)	$	(1,310)	$	475,808	$	1,420,018	$	681,842
Other comprehensive income (net of tax):
Net income	—	—		52,617		—		1,675		54,292		14,628
Pension and other post-retirement benefits liability adjustment, net of tax expense of $7	—	—		—		22		—		22		—
Dividends on common shares ($0.15 per share)	—	—		(68,227)		—		—		(68,227)		—
Share-based compensation plans, net	78	23,853		—		—		—		23,853		—
Distributions paid to noncontrolling interest in Eureka Midstream Holdings, LLC	—	—		—		—		(12,000)		(12,000)		—
Dividends paid to holders of Equitrans Midstream Preferred Shares ($0.4873 per share)	—	—		—		—		—		—		(14,628)
Balance at June 30, 2023	433,261	$	4,001,030	$	(3,047,267)	$	(1,288)	$	465,483	$	1,417,958	$	681,842

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

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EQUITRANS MIDSTREAM CORPORATION

Notes to Consolidated Financial Statements (Unaudited)

1. Financial Statements

Nature of Business. The Company's operating subsidiaries provide midstream services to the Company's customers in Pennsylvania, West Virginia and Ohio through three primary assets: the gathering system, which includes predominantly dry gas gathering systems of high-pressure gathering lines; the transmission system, which includes FERC-regulated interstate pipelines and storage systems; and the water network, which primarily consists of water pipelines and other facilities that support well completion activities and produced water handling activities.

Basis of Presentation. References in these financial statements to Equitrans Midstream or the Company refer collectively to Equitrans Midstream Corporation and its consolidated subsidiaries for all periods presented, unless otherwise indicated.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (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 Quarterly Report on Form 10-Q) necessary for a fair presentation of the financial position of the Company as of June 30, 2023, the results of its operations and equity for the three and six months ended June 30, 2023 and 2022 and its cash flows for the six months ended June 30, 2023 and 2022. The consolidated balance sheet at December 31, 2022 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by GAAP for complete financial statements. This Quarterly Report on Form 10-Q should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2022, which includes all disclosures required by GAAP.

Due to, among other things, the seasonal nature of the Company's utility customer contracts, as well as producers’ well completion activities and varying needs for fresh and produced water (which are primarily driven by horizontal lateral lengths and the number of completion stages per well), the interim statements for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

For further information, refer to the Company's consolidated financial statements and related notes in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, as well as Part I, "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" contained herein.

Revisions of Previously Issued Financial Statements.

In the course of its 2022 year-end process, the Company identified certain corrections in its previously issued unaudited interim consolidated financial statements primarily related to the accounting for the Henry Hub cash bonus payment provision (as defined in Note 7). In accordance with Staff Accounting Bulletin (SAB) No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the Company evaluated the corrections and, based on its analysis of quantitative and qualitative factors, determined that the related impact was not material to the Company's affected unaudited interim consolidated financial statements presented within this Quarterly Report on Form 10-Q. The Company has made the appropriate revisions to its previously issued interim consolidated financial statements in order to correct the Henry Hub cash bonus payment provision, and also made other immaterial revisions to its six months ended June 30, 2022 unaudited interim consolidated financial statements. For more information, see Notes 1 and 16 to the consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2022.

Recently Issued Accounting Standards.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), which provides practical expedients for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. This guidance is applicable to the calculation of each dividend following March 31, 2024 for the Equitrans Midstream Preferred Shares pursuant to the Company's Second Amended and Restated Articles of Incorporation, as well as any Company contracts that use the London Inter-Bank Offered Rate as a reference rate. In December 2022, the FASB also issued ASU 2022-06, which amended Topic 848 to defer the sunset date to apply the practical expedients until December 31, 2024. The Company adopted this standard on April 1, 2023 and it had no impact on the Company's financial statements and related disclosures.

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2. Financial Information by Business Segment

The Company reports its operations in three segments that reflect its three lines of business of Gathering, Transmission and Water, which reflects the manner in which management evaluates the business for making operating decisions and assessing performance.


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(Thousands)
Revenues from customers:
Gathering	$	210,194	$	225,314	$	420,946	$	445,104
Transmission	92,540		91,078		231,446		201,873
Water	15,735		12,219		42,414		23,780
Total operating revenues	$	318,469	$	328,611	$	694,806	$	670,757
Operating income (loss):
Gathering	$	81,020	$	119,564	$	185,314	$	233,416
Transmission	48,451		60,841		147,373		145,403
Water	530		3,120		12,903		1,195
Headquarters (a)	(467)		(227)		(812)		(616)
Total operating income	$	129,534	$	183,298	$	344,778	$	379,398

Reconciliation of operating income to net income:
Equity income (b)	$	23,686	$	39	$	23,808	$	43

Other income, net (c)	19,809		4,148		11,707		5,659
Loss on extinguishment of debt	—		(24,937)		—		(24,937)
Net interest expense	(103,644)		(95,117)		(208,601)		(188,238)
Income tax expense (benefit)	465		2,692		(3,319)		8,293
Net income	$	68,920	$	64,739	$	175,011	$	163,632

(a)Includes certain unallocated corporate expenses.

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

(c)Includes unrealized gains on derivative instruments recorded in the Gathering segment.


	June 30, 2023		December 31, 2022
	(Thousands)
Segment assets:
Gathering	$	7,597,998	$	7,610,233
Transmission (a)	2,590,514		2,333,896
Water	214,005		218,680
Total operating segments	10,402,517		10,162,809
Headquarters, including cash	324,496		282,776
Total assets	$	10,727,013	$	10,445,585

(a)The equity method investment in the MVP Joint Venture is included in the Transmission segment.

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	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(Thousands)
Depreciation:
Gathering	$	49,387	$	48,573	$	98,736	$	96,828
Transmission	13,904		13,904		27,792		27,798
Water	6,511		4,804		12,374		9,321
Headquarters	229		376		533		753
Total	$	70,031	$	67,657	$	139,435	$	134,700
Capital expenditures:
Gathering (a)	$	71,893	$	69,189	$	131,606	$	122,336
Transmission (b)	14,375		6,339		23,564		10,565
Water	11,148		22,526		22,224		32,091
Headquarters	—		1		—		13
Total (c)	$	97,416	$	98,055	$	177,394	$	165,005

(a)Includes capital expenditures related to the noncontrolling interest in Eureka Midstream Holdings, LLC (Eureka Midstream) of approximately $5.0 million and $8.2 million for the three and six months ended June 30, 2023, respectively, and approximately $8.7 million and $11.7 million for the three and six months ended June 30, 2022, respectively.

(b)Transmission capital expenditures do not include aggregate capital contributions made to the MVP Joint Venture for the MVP and MVP Southgate projects of approximately $36.0 million and $70.5 million for the three and six months ended June 30, 2023, respectively, and approximately $39.2 million and $111.8 million for the three and six months ended June 30, 2022, respectively.

(c)The Company accrues capital expenditures when the work has been completed but the associated bills have not yet been paid. Accrued capital expenditures are excluded from the statements of consolidated cash flows until they are paid. The net impact of non-cash capital expenditures, including the effect of accrued capital expenditures, transfers to/from inventory as assets are completed/assigned to a project and capitalized share-based compensation costs were $(1.1) million and $(5.5) million for the three and six months ended June 30, 2023, respectively, and $(6.2) million and $(1.9) million for the three and six months ended June 30, 2022, respectively.

3. Revenue from Contracts with Customers

For the three and six months ended June 30, 2023 and 2022, substantially all revenues recognized on the Company's statements of consolidated comprehensive income were from contracts with customers. As of June 30, 2023 and December 31, 2022, all receivables recorded on the Company's consolidated balance sheets represented performance obligations that have been satisfied and for which an unconditional right to consideration exists.

Summary of disaggregated revenues. The tables below provide disaggregated revenue information by business segment.


	Three Months Ended June 30, 2023
	Gathering		Transmission		Water		Total
	(Thousands)
Firm reservation fee revenues (a)	$	141,737	$	82,247	$	9,389	$	233,373
Volumetric-based fee revenues	68,457		10,293		6,346		85,096

Total operating revenues	$	210,194	$	92,540	$	15,735	$	318,469

	Three Months Ended June 30, 2022
	Gathering		Transmission		Water		Total
	(Thousands)
Firm reservation fee revenues (a)	$	138,605	$	84,675	$	9,375	$	232,655
Volumetric-based fee revenues	86,709		6,403		2,844		95,956

Total operating revenues	$	225,314	$	91,078	$	12,219	$	328,611


	Six Months Ended June 30, 2023
	Gathering		Transmission		Water		Total
	(Thousands)
Firm reservation fee revenues (a)	$	281,808	$	183,969	$	18,764	$	484,541
Volumetric-based fee revenues (b)	139,138		47,477		23,650		210,265

Total operating revenues	$	420,946	$	231,446	$	42,414	$	694,806

	Six Months Ended June 30, 2022
	Gathering		Transmission		Water		Total
	(Thousands)
Firm reservation fee revenues (a)	$	271,202	$	187,545	$	15,127	$	473,874
Volumetric-based fee revenues	173,902		14,328		8,653		196,883

Total operating revenues	$	445,104	$	201,873	$	23,780	$	670,757

(a) Firm reservation fee revenues associated with Gathering included MVC unbilled revenues of approximately $2.4 million and $5.7 million for the three and six months ended June 30, 2023, respectively, and $6.2 million and $8.9 million for the three and six months ended June 30, 2022, respectively.

(b) For the six months ended June 30, 2023, volumetric-based fee revenues associated with Gathering and Transmission included one-time contract buyouts by a customer for approximately $5.0 million and $23.8 million, respectively.

Contract assets. The Company's contract assets related to the Company's future MVC deficiency payments are generally expected to be collected within the next twelve months and are primarily included in other current assets in the Company's consolidated balance sheets until such time as the MVC deficiency payments are invoiced to the customer.

The following table presents changes in the Company's unbilled revenue balance:



	Six Months Ended June 30,
	2023		2022
	(Thousands)
Balance as of beginning of period	$	27,493	$	16,772
Revenue recognized in excess of amounts invoiced (a)	5,680		10,940
Minimum volume commitments invoiced (b)	(23,558)		(14,884)
Amortization (c)	(329)		(220)
Balance as of end of period	$	9,286	$	12,608

(a)Primarily includes revenues associated with MVCs that are generally included in firm reservation fee revenues within the Gathering and Water segments.

(b)Unbilled revenues are transferred to accounts receivable once the Company has an unconditional right to consideration from the customer.

(c)Amortization of capitalized contract costs paid to customers over the expected life of the agreement.

Contract liabilities. The Company's contract liabilities consist of deferred revenue primarily associated with the EQT Global GGA. Contract liabilities are classified as current or non-current according to when such amounts are expected to be recognized.

The following table presents changes in the Company's contract liability balances:



	Six Months Ended June 30,
	2023		2022
	(Thousands)
Balance as of beginning of period	$	973,087	$	822,416
Amounts recorded during the period (a)	165,011		176,743
Change in estimated variable consideration (b)	(3,392)		—
Amounts transferred during the period (c)	(3,835)		(537)

Balance as of end of period	$	1,130,871	$	998,622

(a)Includes deferred billed revenue during the six months ended June 30, 2023 and 2022 primarily associated with the EQT Global GGA.

(b)Change in estimated variable consideration represents the decrease in total deferred revenue due to changes in assumptions.

(c)Deferred revenues are recognized as revenue upon satisfaction of the Company's performance obligation to the customer.

Summary of remaining performance obligations. The following table summarizes the estimated transaction price allocated to the Company's remaining performance obligations under all contracts with firm reservation fees, MVCs and/or ARCs as of June 30, 2023 that the Company will invoice or transfer from contract liabilities and recognize in future periods.


		2023(a)		2024		2025		2026		2027		Thereafter		Total
	(Thousands)
Gathering firm reservation fees		$	48,677	$	172,708	$	176,307	$	166,930	$	160,370	$	1,707,106	$	2,432,098
Gathering revenues supported by MVCs		230,638		440,716		464,165		496,478		488,261		3,172,196		5,292,454
Transmission firm reservation fees		176,820		400,788		392,544		391,489		392,679		3,139,671		4,893,991
Water revenues supported by ARCs		22,755		45,706		48,441		45,159		44,065		166,644		372,770
Total (b)		$	478,890	$	1,059,918	$	1,081,457	$	1,100,056	$	1,085,375	$	8,185,617	$	12,991,313

(a) July 1, 2023 through December 31, 2023.

(b) Includes assumptions regarding timing for placing certain projects in-service. Such assumptions may not be realized and delays in the in-service dates for projects have substantially altered, and additional delays may further substantially alter, the remaining performance obligations for certain contracts with firm reservation fees, MVCs and/or ARCs. The MVP Joint Venture is accounted for as an equity method investment and those amounts are not included in the table above.

Based on total projected contractual revenues, including projected contractual revenues from future capacity expected from expansion projects that are not yet fully constructed or not yet fully in-service for which the Company has executed firm contracts, the Company's firm gathering contracts and firm transmission and storage contracts had weighted average remaining terms of approximately 13 years and 12 years, respectively, as of June 30, 2023.

4. Investment in Unconsolidated Entity

The MVP Joint Venture is constructing the Mountain Valley Pipeline (MVP), an estimated 300-mile natural gas interstate pipeline that is designed to span from northern West Virginia to southern Virginia. The Company will operate the MVP and owned a 47.3% interest in the MVP project as of June 30, 2023. On November 4, 2019, Consolidated Edison, Inc. (Con Edison) exercised an option to cap its investment in the construction of the MVP project at approximately $530 million (excluding AFUDC). On May 4, 2023, RGC Resources, Inc. (RGC) also exercised an option for the Company to fund RGC's portion of future capital contributions with respect to the MVP project, which funding the Company commenced in June 2023 and will continue through the full in-service date of the MVP. The Company and NextEra Energy, Inc. (NEE) are obligated to, and RGC prior to the exercise of its option described above had opted to, fund the shortfall in Con Edison's capital contributions, on a pro rata basis. Following RGC's exercise of its option, the Company is also funding RGC's portion of Con Edison's shortfall. Such funding by the Company in respect of the Con Edison shortfall and RGC's portion of capital contributions has and will correspondingly increase the Company's interests in the MVP project and decrease Con Edison's and RGC's respective interests,

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as applicable, in the MVP project. If the MVP project were to be completed in 2023 at a total project cost of approximately $6.6 billion (excluding AFUDC), the Company's equity ownership in the MVP project would progressively increase from approximately 47.3% to approximately 48.3%. 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. The Company is not the primary beneficiary of the MVP Joint Venture because the Company does not have the power to direct the activities that most significantly affect the MVP Joint Venture's economic performance. Certain business decisions, such as decisions to make distributions of cash, require a greater than 66 2/3% ownership interest approval, and no one member owns more than a 66 2/3% interest.

In April 2018, the MVP Joint Venture announced the MVP Southgate project, which is a contemplated interstate pipeline that was approved by the FERC to extend approximately 75-miles from the MVP at Pittsylvania County, Virginia to new delivery points in Rockingham and Alamance Counties, North Carolina. The Company is expected to operate the MVP Southgate pipeline and owned a 47.2% interest in the MVP Southgate project as of June 30, 2023. The MVP Joint Venture continues to evaluate the MVP Southgate project and is focused on its active negotiations with the project shipper, Dominion Energy North Carolina, and a prospective customer regarding refining the MVP Southgate project’s design, scope and/or timing for the benefit of such customers 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, among others, that the MVP Joint Venture will have completed construction of the project facilities by December 31, 2023. The Company is unable to ensure the results of the negotiations between the MVP Joint Venture and Dominion Energy North Carolina and a prospective customer, including the ultimate design, scope, timing, undertaking or completion of the project.

The Company reviews the carrying value of its investments in unconsolidated entities for impairment whenever events or changes in circumstances indicate that the fair value may have declined in value. There is risk that the Company's equity method investment in the MVP Joint Venture may be further impaired in the future due to ongoing (and potentially future) legal and regulatory matters, as well as potential macroeconomic factors, including other than temporary market fluctuations, changes in interest rates, cost increases and other unanticipated events. 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.

In June 2023, the MVP Joint Venture issued a capital call notice for the funding of the MVP project to MVP Holdco, LLC (MVP Holdco), a wholly owned subsidiary of the Company, for $209.6 million, of which $15.5 million and $55.3 million were paid in July 2023 and August 2023, respectively, with the remaining $138.8 million expected to be paid in September 2023.

Pursuant to the MVP Joint Venture's limited liability company agreement, MVP Holdco is obligated to provide performance assurances in respect of the MVP project, which may take the form of a guarantee from EQM (provided that EQM's debt is rated as investment grade in accordance with the requirements of the MVP Joint Venture's limited liability company agreement), a letter of credit or cash collateral, in favor of the MVP Joint Venture to provide assurance as to the funding of MVP Holdco's proportionate share of the construction budget for the MVP project.

In addition, pursuant to the MVP Joint Venture's limited liability company agreement, MVP Holdco is obligated to provide performance assurances in respect of MVP Southgate, which performance assurances may take the form of a guarantee from EQM (provided that EQM's debt is rated as investment grade in accordance with the requirements of the MVP Joint Venture's limited liability company agreement), a letter of credit or cash collateral.

As of June 30, 2023, the letter of credit with respect to the MVP project was in the amount of approximately $219.7 million. On April 6, 2023, EQM’s $14.2 million letter of credit with respect to the MVP Southgate project was terminated, following the determination to temporarily defer partners’ obligations to post performance assurances with respect to the MVP Southgate project, which may be reinstated upon further developments. Upon the FERC’s initial release to begin construction of the MVP Southgate project, the Company will be obligated to deliver an allowable form of performance assurance in an amount equal to 33% of MVP Holdco’s proportionate share of the remaining capital obligations under the applicable construction budget.

On June 3, 2023, the President of the United States signed into law the Fiscal Responsibility Act of 2023 that, among other things, ratified and approved all permits and authorizations necessary for the construction and initial operation of the MVP, directed the applicable federal officials and agencies to maintain such authorizations, required the Secretary of the Army to issue not later than June 24, 2023 all permits or verifications necessary to complete construction of the MVP and allow for the MVP’s operation and maintenance, and divested courts of jurisdiction to review agency actions on approvals necessary for MVP construction and initial operation. Following enactment of the Fiscal Responsibility Act of 2023, the Fourth Circuit issued a stay halting MVP project construction in the Jefferson National Forest and a stay of the new Biological Opinion and Incidental Take Statement for the MVP project effectively halting forward construction for the entirety of the project, on July 10, 2023 and July 11, 2023, respectively. The MVP Joint Venture subsequently filed an emergency application to vacate the

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stays with the U.S. Supreme Court and the U.S. Supreme Court vacated the stays on July 27, 2023. Accordingly, the MVP Joint Venture recommenced forward construction.

5. Share-based Compensation Plans

In December 2021, at the recommendation of the Human Capital and Compensation Committee (the Compensation Committee) and approval of the Company’s Board of Directors (the Board), the Company granted a special, one-time, performance award program designed to reward all employees should the Company’s most complex and strategically significant project, the MVP project, be placed in-service (the MVP PSU Program). The Company granted 1,450,110 shares to all participants in the 2018 Long-Term Incentive Plan, as amended, as of November 1, 2021 (LTIP Participants), except the Company’s named executive officers (NEOs) and certain other senior leaders (collectively, the Senior Executives), and 1,158,030 shares to the Senior Executives. The MVP PSU Program awards were granted on December 6, 2021 and will be paid in Company common stock, contingent on the MVP Joint Venture being authorized by the FERC to commence service on the MVP (such authorization, the In-Service Date) on or before a specified expiration date of January 1, 2024 (the Expiration Date, the continued applicability of which is discussed below), subject to continued service through the applicable payment date:

•As to shares issued to the LTIP Participants, 100% will be paid on the date selected by the Company that is not later than 90 days after the In-Service Date;

•As to shares issued to the Senior Executives:

•50% will be paid on the date selected by the Company that is not later than 90 days after the In-Service Date;

•25% will be paid on the date selected by the Company that is not later than 30 days after the first anniversary of the In-Service Date; and

•25% will be paid on the date selected by the Company that is not later than 30 days after the second anniversary of the In-Service Date.

Dividends are eligible to be paid in cash upon vesting on each share of common stock as dividends are declared on the Company's common stock during the vesting period.

As of June 30, 2023, the achievement of the MVP Joint Venture being authorized by the FERC to commence service on the MVP on or before the Expiration Date represented a performance condition as defined by ASC 718, Share-based Compensation, that should be assessed at the end of each reporting period as to whether the performance condition is probable of being achieved. Due to the graded vesting of the MVP PSU Program awards to the Senior Executives, the Company recognizes compensation cost over the requisite service period for each separately vested tranche of the award as though each award was, in substance, its own award. During the three months ended June 30, 2023, the performance condition associated with the MVP PSU Program awards was deemed to be probable, and therefore, the Company recognized compensation cost of approximately $16.8 million that includes the cumulative catch-up of approximately $14.1 million to reflect the requisite service period of each award that has been provided to date. As of June 30, 2023, there was approximately $7.5 million of unrecognized compensation cost related to non-vested MVP PSU Program awards that is expected to be recognized over a remaining weighted average vesting term of approximately 0.8 years.

The following table provides detailed information on the MVP PSU Program as of June 30, 2023:


MVP PSU Program	Non-vested Shares	Grant Date Fair Value (a)	Fair Value (Thousands)		Requisite Service Period	Unrecognized Compensation Cost (Thousands)
LTIP Participants	1,370,803	$9.59	$	13,146	25 months	$	3,109
Senior Executives T1	579,015	$9.59	5,553		25 months	1,333
Senior Executives T2	289,511	$9.59	2,776		37 months	1,351
Senior Executives T3	289,504	$9.59	2,776		49 months	1,700

(a) Determined based upon the closing price of the Company's common stock on the day before the grant date.

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As discussed further in Note 4, as well as in “Outlook” and Part II, “Item 1. Legal Proceedings” of this Quarterly Report on Form 10-Q, MVP forward construction had been halted by the Fourth Circuit implementing stays of project authorizations in July 2023. Construction resumed following the U.S. Supreme Court vacating the Fourth Circuit's stays on July 27, 2023.

In connection with considering the Company’s ongoing efforts to complete the MVP project, the Board has taken note of the significant legal and regulatory obstacles that have delayed progress on the MVP project that were outside of the control of the Company, particularly since the inception of the MVP PSU Program, the efforts undertaken by many of the Company’s employees, including the NEOs, to overcome these obstacles, and ongoing risks. The Board also is focused on and seeks to promote the Company's top priority of completing the MVP project safely and in compliance with applicable environmental standards. Taking into account these factors, the proximity of the Expiration Date, and noting the potential that the Expiration Date could distract from, or be cited by project opponents as a distraction from, a focus on safety and environmental compliance, the Board, on July 26, 2023, with the recommendation of the Compensation Committee, approved an amendment to the MVP PSU Program to eliminate the Expiration Date as a term of the MVP PSU Program and all award agreements thereunder (the Amendment).

Accordingly, the Equitrans Midstream Corporation Senior Executive 2021 MVP Performance Share Units Award Agreements to which the NEOs are parties and the Equitrans Midstream Corporation LTIP Participant 2021 MVP Performance Share Units Award Agreements have been amended to reflect the elimination of the Expiration Date, and the calculation of shares retained in the event of a participant’s termination due to death, disability or retirement also has been clarified. All other terms of the award agreements remain in full force and effect.

6. Debt

Amended EQM Credit Facility. As of June 30, 2023, the Company had aggregate commitments available under the Amended EQM Credit Facility of approximately $2.16 billion before October 31, 2023 (the Earlier Maturity Date), with approximately $1.55 billion in aggregate commitments available on and after the Earlier Maturity Date and prior to April 30, 2025 (the Later Maturity Date). As of June 30, 2023, EQM had approximately $255 million of borrowings and $220.7 million of letters of credit outstanding under the Amended EQM Credit Facility. As of June 30, 2023, pursuant to the terms of the Amended EQM Credit Facility, EQM had the ability to borrow approximately $0.6 billion under the Amended EQM Credit Facility. The amount EQM is able to borrow under the Amended EQM Credit Facility is bounded by a maximum consolidated leverage ratio. As of December 31, 2022, EQM had approximately $240 million of borrowings and $234.9 million of letters of credit outstanding under the Amended EQM Credit Facility.

During the three and six months ended June 30, 2023, the maximum outstanding borrowings at any time were approximately $255 million and $315 million, respectively, and the average daily balances were approximately $191 million and $225 million, respectively. EQM incurred interest at weighted average annual interest rates of approximately 7.9% and 7.7% for the three and six months ended June 30, 2023, respectively. For the three and six months ended June 30, 2023, commitment fees of $2.3 million and $4.4 million, respectively, were paid to maintain credit availability under the Amended EQM Credit Facility. During the three and six months ended June 30, 2022, the maximum outstanding borrowings at any time were approximately $180 million and $280 million, respectively, and the average daily balances were approximately $126 million and $193 million, respectively. EQM incurred interest at weighted average annual interest rates of approximately 3.5% and 3.0% for the three and six months ended June 30, 2022, respectively. For the three and six months ended June 30, 2022, commitment fees of $2.0 million and $3.8 million, respectively, were paid to maintain credit availability under the Amended EQM Credit Facility. As of June 30, 2023, no term loans were outstanding under the Amended EQM Credit Facility.

Eureka Credit Facility. On May 13, 2021, Eureka Midstream, LLC (Eureka) entered into a $400 million senior secured revolving credit facility with Sumitomo Mitsui Banking Corporation, as administrative agent, the lenders party thereto from time to time and any other persons party thereto from time to time (the 2021 Eureka Credit Facility). On March 29, 2023, Eureka entered into an amendment (the Eureka Amendment) to the 2021 Eureka Credit Facility. The Eureka Amendment replaced the London Interbank Offered Rate with the Secured Overnight Financing Rate as the benchmark rate for borrowings, including a credit spread adjustment of 0.10% for all applicable interest periods, as well as for daily swing line borrowings. Any reference to the 2021 Eureka Credit Facility as of any particular date shall mean the 2021 Eureka Credit Facility as in effect on such date.

As of June 30, 2023, and December 31, 2022, Eureka had approximately $315 million and $295 million, respectively, of borrowings outstanding under the 2021 Eureka Credit Facility. For the three and six months ended June 30, 2023, the maximum amount of outstanding borrowings under the 2021 Eureka Credit Facility at any time were approximately $315 million, the average daily balances were approximately $309 million and $303 million, respectively, and Eureka incurred interest at weighted average annual interest rates of approximately 7.7% and 7.4%, respectively. For the three and six months ended June 30, 2023, commitment fees of $0.1 million and $0.2 million, respectively, were paid to maintain credit availability under

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the 2021 Eureka Credit Facility. For the three and six months ended June 30, 2022, the maximum amount of outstanding borrowings under the 2021 Eureka Credit Facility at any time were approximately $268 million and $280 million, respectively, the average daily balances were approximately $262 million and $269 million, respectively, and Eureka incurred interest at weighted average annual interest rates of approximately 3.5% and 3.2%, respectively. For the three and six months ended June 30, 2022, commitment fees of $0.2 million and $0.3 million, respectively, were paid to maintain credit availability under the 2021 Eureka Credit Facility.

2023 Senior Notes Redemption. On June 21, 2023 (the Redemption Date), EQM redeemed in full its remaining outstanding 4.75% Senior Notes due 2023 (the 2023 Notes) in the aggregate principal amount of $98.9 million, pursuant the Indenture, dated as of August 1, 2014, by and between EQM, the subsidiary guarantors party thereto and The Bank of New York Mellon Trust Company, N.A. (BNYMTC), as trustee, as supplemented by that certain Third Supplemental Indenture, dated as of June 25, 2018, by and between the EQM and BNYMTC, at a redemption price equal to 100% of the principal amount of the 2023 Notes, plus accrued and unpaid interest to, but not including, the Redemption Date. Upon the redemption by EQM of the 2023 Notes, the Third Supplemental Indenture was discharged and ceased to be of further effect except as to rights thereunder. EQM utilized cash on hand to effect payment of the redemption on the Redemption Date.

2022 Senior Notes. On June 7, 2022, EQM completed a private offering of $500 million aggregate principal amount of new 7.50% senior notes due 2027 (the 2027 Notes) and $500 million aggregate principal amount of new 7.50% senior notes due 2030 (the 2030 Notes and, together with the 2027 Notes, the 2022 Senior Notes) and received net proceeds from the offering of approximately $984.5 million inclusive of a discount of approximately $12.5 million and debt issuance costs of approximately $3.0 million.

EQM used the net proceeds from the offering of the 2022 Senior Notes and cash on hand to purchase (i) an aggregate principal amount of approximately $501.1 million of its then outstanding 2023 Notes pursuant to a tender offer for any and all of the outstanding 2023 Notes (the Any and All Tender Offer) and an open market purchase following the expiration of the Any and All Tender Offer, and (ii) an aggregate principal amount of $300 million of its outstanding 6.00% notes due 2025 (2025 Notes), and an aggregate principal amount of $200 million of its outstanding 4.00% notes due 2024 (2024 Notes), pursuant to tender offers (the Maximum Tender Offers, together with the Any and All Tender Offer, the 2022 Tender Offers) for the 2025 Notes and 2024 Notes, which such Maximum Tender Offers reflected a maximum aggregate principal amount of 2025 Notes and 2024 Notes to be purchased of $500 million (such amount, the Aggregate Maximum Principal Amount).

2022 Tender Offers. On June 6, 2022, the Any and All Tender Offer expired and, on June 7, 2022 and June 9, 2022, EQM purchased an aggregate principal amount of approximately $496.8 million of 2023 Notes at an aggregate cost of approximately $506.7 million pursuant to the Any and All Tender Offer. On June 10, 2022, which was after the closing of the Any and All Tender Offer, EQM also repurchased an aggregate principal amount of approximately $4.3 million of 2023 Notes in the open market at an aggregate cost of approximately $4.4 million. On June 13, 2022, which was the early tender deadline for the Maximum Tender Offers, the Aggregate Maximum Principal Amount was fully subscribed by the 2024 Notes and 2025 Notes then tendered, and, on June 14, 2022, EQM purchased an aggregate principal amount of $200 million of 2024 Notes and $300 million of 2025 Notes at an aggregate cost of approximately $509 million (inclusive of the applicable early tender premium for the 2024 Notes and 2025 Notes described in that certain Offer to Purchase of EQM dated May 31, 2022, as amended).

During the three and six months ended June 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. This amount is included in the loss on extinguishment of debt line on the statements of consolidated comprehensive income.

As of June 30, 2023, EQM and Eureka were in compliance with all debt provisions and covenants.

7. Fair Value Measurements

Assets Measured at Fair Value on a Recurring Basis. The Company records derivative instruments at fair value on a gross basis in its consolidated balance sheets. The EQT Global GGA provides for potential cash bonus payments payable by EQT to the Company during the period beginning on the first day of the calendar quarter in which the MVP full in-service date occurs through the calendar quarter ending December 31, 2024 (the Henry Hub cash bonus payment provision). The potential cash bonus payments are conditioned upon the quarterly average of certain Henry Hub natural gas prices exceeding certain price thresholds. The Henry Hub cash bonus payment provision is accounted for as a derivative instrument and recorded at its estimated fair value using a Monte Carlo simulation model. Significant inputs used in the fair value measurement include NYMEX Henry Hub natural gas futures prices as of the date of valuation, probability-weighted assumptions regarding MVP

project completion, risk-free interest rates based on U.S. Treasury rates, expected volatility of NYMEX Henry Hub natural gas futures prices and an estimated credit spread of EQT. The probability-weighted assumptions regarding MVP project completion utilizing internally developed methodologies, and the expected volatility of NYMEX Henry Hub natural gas futures prices used in the valuation methodology represent significant unobservable inputs causing the Henry Hub cash bonus payment provision to be designated as a Level 3 fair value measurement. An expected average volatility of approximately 56.0% was utilized in the valuation model, which is based on market-quoted volatilities of relevant NYMEX Henry Hub natural gas forward prices.

As of June 30, 2023 the fair value of the Henry Hub cash bonus payment provision was $33.9 million, of which $29.5 million was recorded in other current assets and $4.4 million was recorded in other assets on the Company's consolidated balance sheets. As of December 31, 2022, the fair value of the Henry Hub cash bonus payment provision was $23.0 million which was recorded in other assets on the Company's consolidated balance sheets. During the three and six months ended June 30, 2023, the Company recognized gains of $19.4 million and $10.9 million, respectively, and during the three and six months ended June 30, 2022, the Company recognized gains of $3.7 million and $5.3 million, respectively, representing the change in estimated fair value of the derivative instrument during the respective periods and are recorded in other income, net in the Company's statements of consolidated comprehensive income.

Other Financial Instruments. The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to the short maturity of the instruments. The carrying values of borrowings under the Amended EQM Credit Facility and the 2021 Eureka Credit Facility approximate fair value as the interest rates are based on prevailing market rates. As EQM's borrowings under its senior notes are not actively traded, their fair values are estimated using an income approach model that applies a discount rate based on prevailing market rates for debt with similar remaining time-to-maturity and credit risk; as such, their fair values are Level 2 fair value measurements. 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 June 30, 2023, and December 31, 2022, the estimated fair values of the Preferred Interest were approximately $92.5 million and $95.2 million, respectively, and the carrying values of the Preferred Interest were approximately $91.4 million and $94.3 million, respectively.

8. Earnings Per Share

The Company excluded 31,125 and 32,506 (in thousands) of weighted average anti-dilutive securities related to the Equitrans Midstream Preferred Shares and stock-based compensation awards from the computation of diluted weighted average common shares outstanding for the three and six months ended June 30, 2023, respectively. The Company excluded 30,113 and 30,125 (in thousands) of weighted average anti-dilutive securities related to the Equitrans Midstream Preferred Shares and stock-based compensation awards from the computation of diluted weighted average common shares outstanding for the three and six months ended June 30, 2022, respectively.

The Company grants Equitrans Midstream phantom units to non-employee directors that will be paid in Equitrans Midstream common stock upon the director's termination of service from the Company's Board of Directors. As there are no remaining service, performance or market conditions related to these awards, 745 and 674 (in thousands) Equitrans Midstream phantom units were included in the computation of basic and diluted weighted average common shares outstanding for the three and six months ended June 30, 2023, respectively, and 588 and 615 (in thousands) Equitrans Midstream phantom units were included in the computation of basic and diluted weighted average common shares outstanding for the three and six months ended June 30, 2022, respectively.

9. Income Taxes

The Company's effective tax rate was 0.7% for the three months ended June 30, 2023 compared to 4.0% for the three months ended June 30, 2022. The Company's effective tax rate was (1.9)% for the six months ended June 30, 2023 compared to 4.8% for the six months ended June 30, 2022. The Company calculates the provision for income taxes for interim periods by applying an estimate of the annual effective tax rate for the full fiscal year to "ordinary" income or loss (income (loss) before income taxes excluding unusual or infrequently occurring items) for the periods. The effective tax rate was lower for the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022 and lower compared to the statutory rate for the three and six months ended June 30, 2023 primarily due to the impact of projected AFUDC – equity on the MVP project and the impact of changes in the valuation allowance that limit tax benefits for the Company’s federal and state deferred tax assets, partially offset by state tax expense related to uncertain tax benefits. The effective tax rate for the three and six months ended June 30, 2022 was lower than the statutory rate primarily due to the impact of changes in the valuation allowances that limit tax benefits for the Company's federal and state deferred tax assets.

During the three months ended June 30, 2023, the Company determined it is more likely than not that approximately $2.6 million of tax benefits related to the deductibility of capitalized interest will not be recognized. Interest on unrecognized tax benefits was $0.2 million for the three and six months ended June 30, 2023, which was recorded as a component of income

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tax expense. Within the next twelve months, it is reasonably possible that the amount of unrecognized tax benefits will decrease by approximately $0.9 million due to the expiration of statutes of limitation, which is anticipated to impact the effective tax rate.

For the six months ended June 30, 2023, the Company believes that it is more likely than not that the benefit from a portion of its federal and state net operating loss (NOL) carryforwards, deferred tax assets related to interest disallowance under Internal Revenue Code Section 163(j), and certain state deferred tax assets, net of offsetting deferred tax liabilities, will not be realized and accordingly, the Company maintains related valuation allowances. For the six months ended June 30, 2023, the Company recorded approximately $39.4 million income tax benefit related to changes in valuation allowances because of decreases in federal and state deferred tax assets. As of June 30, 2023 and December 31, 2022, the valuation allowances related to federal and state deferred tax assets were approximately $117.3 million and $156.7 million, respectively.

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EQUITRANS MIDSTREAM CORPORATION

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 (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," "aspire," "design," "potential," "focused," "forecast," "approximate," "opportunity," "objective," "expect," "project," "intend," "plan," "aim," "believe," "target," "outlook," "seek," "strive," "view," "continue," "goal," "guidance," "strategy," "scheduled," "position," "pursue," "predict," "budget" 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 of Equitrans Midstream Corporation (together with its subsidiaries, Equitrans Midstream or the Company), including the following and/or statements with respect thereto, as applicable:

•guidance and any changes in such guidance in respect of 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 timing for such project);

•the ultimate gathering MVC 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 and means thereof;

•the ultimate financial, business, reputational and/or operational impacts resulting, directly or indirectly, from the Rager Mountain natural gas storage field incident;

•the weighted average contract life of gathering, transmission and storage contracts;

•infrastructure programs (including the targeted or ultimate 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 (including potential timing of such completion) of current, planned or in-service projects or assets, in each case as applicable;

•the effect of the Fiscal Responsibility Act of 2023 on the MVP Joint Venture's ability to complete the MVP project;

•the ability to achieve, and targeted timing for achieving, completion of the MVP project, risks related thereto, the realizability of the MVP performance award program, and the degree to which, if at all, the Amendment (as defined in Note 5) fosters the Company completing the MVP project safely and in compliance with environmental standards;

•the realizability of all or any portion of the Henry Hub cash bonus payment provision of the EQT Global GGA;

•the potential for future bipartisan support for, and the potential timing for, additional federal energy infrastructure permitting reform legislation to be enacted;

•the ultimate terms, partner relationships and structure of the MVP Joint Venture and ownership interests therein;

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•the impact of changes in assumptions and estimates relating to the potential completion and full in-service timing of the MVP project (as well as changes in such timing) on, among other things, the fair value of the Henry Hub cash bonus payment provision of the EQT Global GGA, gathering rates, the amount of gathering MVC fee relief and the estimated transaction price allocated to the Company's remaining performance obligations under certain contracts with firm reservation fees and MVCs;

•the Company's ability to identify and complete opportunities to optimize its existing asset base and/or expansion projects in the Company's operating areas and in areas that would provide access to new markets;

•the Company's ability to bring, and targeted timing for bringing, in-service the backbone of its mixed-use water system (and expansions thereto), and realize benefits therefrom in accordance with its strategy for its water services business segment;

• 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;

• the potential for the MVP project, EQM's leverage, customer credit ratings changes, defaults, acquisitions, dispositions and financings to impact EQM's credit ratings and the potential scope of any such impacts;

• the effect and outcome of contractual disputes, litigation and other proceedings, including regulatory investigations and proceedings;

• the potential effects of any consolidation of or effected by upstream gas producers, whether in or outside of the Appalachian Basin;

• the potential for, timing, amount and effect of future issuances or repurchases of the Company's securities;

• the effects of conversion, if at all, of the Equitrans Midstream Preferred Shares;

• the effects of seasonality;

• expected cash flows, cash flow profile (and support therefor from certain contract structures) and MVCs, including those associated with the EQT Global GGA, and the potential impacts thereon of the commission and in-service timing (or absence thereof) and cost of the MVP project;

• 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;

• future dividend amounts, timing and rates;

• statements regarding macroeconomic factors' effects on the Company's business, including future commodity prices and takeaway capacity constraints in the Appalachian Basin;

• 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, and the effect, if any, on such future decisions should the MVP be brought in-service;

• the Company's liquidity and financing position and requirements, including sources, availability and sufficiency;

• statements regarding future interest rates and/or reference rates and the potential impacts thereof;

• 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;

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• 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 initiatives, 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 United States critical infrastructure;

• the effects and associated cost of compliance with existing or new government regulations including any quantification of potential impacts of regulatory matters related to climate change on the Company; and

• future 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, construction 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 include, but are not limited to, those set forth under Part I, "Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, as updated by this Quarterly Report on Form 10-Q, as applicable.

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 laws, whether as a result of new information, future events or otherwise.

Executive Overview

Net income attributable to Equitrans Midstream common shareholders was $52.6 million, $0.12 per diluted share, for the three months ended June 30, 2023 compared to $46.2 million, $0.11 per diluted share, for the three months ended June 30, 2022. The increase resulted primarily from a loss on extinguishment of debt during the three months ended June 30, 2022, higher equity income and higher other income, net, partially offset by higher operating expenses, lower operating revenues and higher interest expense.

Net income attributable to Equitrans Midstream common shareholders was $139.7 million, $0.32 per diluted share, for the six months ended June 30, 2023 compared to $126.7 million, $0.29 per diluted share, for the six months ended June 30, 2022. The increase resulted primarily from higher operating revenues, a loss on extinguishment of debt during the six months ended June 30, 2022, higher equity income and higher other income, net, partially offset by higher operating expenses and higher interest expense.

In the course of its 2022 year-end process, the Company identified certain corrections in its previously issued unaudited interim consolidated financial statements primarily related to the accounting for the Henry Hub cash bonus payment provision. The Company determined that the related impact was not material and has revised its previously issued unaudited interim consolidated financial statements for the affected prior periods. See Note 1 for additional information.

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 (expense), net and income tax expense (benefit) are managed on a consolidated basis. The Company has presented each segment's operating income (loss), other income (expense), 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 (loss) and net income (loss) in Note 2.

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Gathering Results of Operations


	Three Months Ended June 30,					Six Months Ended June 30,
	2023		2022		% Change	2023		2022		% Change
	(Thousands, except per day amounts)
FINANCIAL DATA
Firm reservation fee revenues (a)	$	141,737	$	138,605	2.3	$	281,808	$	271,202	3.9



Volumetric-based fee revenues (b)	68,457		86,709		(21.0)	139,138		173,902		(20.0)
Total operating revenues	210,194		225,314		(6.7)	420,946		445,104		(5.4)
Operating expenses:
Operating and maintenance	25,136		21,703		15.8	46,532		44,116		5.5
Selling, general and administrative	38,446		19,269		99.5	57,954		38,334		51.2

Depreciation	49,387		48,573		1.7	98,736		96,828		2.0
Amortization of intangible assets	16,205		16,205		—	32,410		32,410		—

Total operating expenses	129,174		105,750		22.2	235,632		211,688		11.3
Operating income	$	81,020	$	119,564	(32.2)	$	185,314	$	233,416	(20.6)

Other income, net (c)	$	19,416	$	3,701	424.6	$	10,922	$	5,305	105.9

OPERATIONAL DATA
Gathered volumes (BBtu per day)

Equitrans Midstream Corp [ETRN] Filings
Equitrans Midstream Corp [EQTNP] Filings
10-Q	[2023-08-01]
10-Q	[2023-05-02]
10-K	[2023-02-21]
10-Q	[2022-11-02]
10-Q	[2022-08-02]
10-Q	[2022-05-03]
10-K	[2022-02-23]
10-Q	[2021-11-02]
10-Q	[2021-08-03]
10-Q	[2021-05-04]
10-K	[2021-02-23]
10-Q	[2020-11-03]
10-Q	[2020-08-04]
10-Q	[2020-05-14]
10-K	[2020-02-27]
10-Q	[2019-11-05]
10-Q	[2019-07-30]
10-Q	[2019-04-30]
10-K	[2019-02-14]
10-Q	[2018-12-03]
S-1	[2018-11-02]
S-1	[2018-11-02]

Equitrans Midstream Corp [ETRN] Filings

Equitrans Midstream Corp [EQTNP] Filings