Business Strategy & Outlook:
Equitrans’ biggest challenge is moving the deeply troubled Mountain Valley Pipeline, or MVP, into service. Equitrans sees Sen. Joe Manchin’s support as helpful and has been in frequent contact with the West Virginia Democratic senator. The recently announced proposed energy permitting provisions (separate legislation from the Inflation Reduction Act of 2022) contains direct benefits for MVP, thanks to Senator Manchin’s support, given the pipeline’s presence in West Virginia. A similar legislative proposal has also been introduced by the republican senator of West Virginia, Shelley Moore Capito. The Fourth Circuit remains the primary roadblock presently, as it has overruled state and federal agencies’ technical conclusions more than 10 times at this stage. Both legislative proposals address the judicial review. Manchin’s proposal moves the MVP case to the DC Circuit court, while Capito’s simply states that none of the approvals issued by the federal agencies as it relates to the MVP are subject to judicial review. It is observed that the two legislative proposals are indicative of fairly broad support for overall pipeline permitting reform. If either version were to pass as written, they would move the MVP into service, so it is seen the uncertainty primarily around obtaining enough political support to pass likely via adding or deleting certain provisions, which will likely be a razor-thin margin given the current political environment.
Risk and Uncertainty:
The Mountain Valley Pipeline represents the largest risk to Equitrans from a financial and reputational perspective, given the numerous permitting issues it faces. The pipeline also recently resolved an over two-year criminal investigation into its activities without any issues. Another investigation was settled with $2.15 million in fines and court-ordered monitoring. The MVP bet is made bigger because of the over $500 million committed to several related projects that are explicitly tied to the MVP becoming operational. Customer concentration risk with EQT is a concern, as EQT makes up about 70% of Equitrans’ revenue. The firm recently resolved a dispute regarding the Hammerhead pipeline via an arbitration panel. The firm wrote off over $1.2 billion in 2018 and 2019, and another $2.5 billion in 2021 and 2022 related to MVP. Given the difficulty in valuing long-term 10- to 20-year contracts for gathering and processing assets due to the challenges in planned drilling and production,it is believed future write-downs are possible. From an ESG perspective, it is considered a major risk to Equitrans to be managing its carbon emissions profile and stakeholder management. Equitrans’ carbon emissions profile becomes important especially if the United States seeks to implement a national carbon tax. From a stakeholder management perspective, the legal, community, and regulatory challenges over the MVP have added billions of dollars in costs to the pipeline, and the damaged stakeholder relationships could also influence future projects.
Bulls Say:
- The integration of Rice Energy Midstream offers optimization opportunities, given the geographic closeness of the assets, representing $300 million to $500 million in potential capital avoidance over the next five years.
- With the cancellation of the Atlantic Coast Pipeline, the MVP can take advantage of higher shipper demand and launch additional expansion efforts.
- Equitrans has been very successful at driving down unit costs at its gathering operations, with a 45% decline since 2015.
Company Description:
Equitrans acquired EQM Midstream in mid-2020, consolidating the midstream family. Equitrans now own EQM assets directly versus just unit ownership. EQM Midstream provides gathering, transmission, and water services to primarily Appalachian producers in Pennsylvania, West Virginia, and Ohio.
(Source: Morningstar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.
The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.
The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.