Last week MDN told you that NextEra Energy, a partner in Equitrans’ 303-mile Mountain Valley Pipeline (MVP) that will run from Wetzel County, WV to the Transco Pipeline in Pittsylvania County, VA, said MVP will most likely not get finished this year (see Mountain Valley Pipe Partner Says 2019 Startup Now “Unlikely”). On a conference call to discuss first quarter 2019 results, Equitrans officials said they still “hope” to complete MVP this year, but confess it doesn’t seem “likely.” Doublespeak?
On a conference call yesterday, Diana Charletta, Equitrans EVP and Chief Operating Officer, said MVP is now 80% built. She also said that while completing the project by the end of this year may appear unlikely, the company has not given up hope just yet. There’s a way-out-there chance they may still pull it off. So for now, they’re still aiming for 4Q19.
Moving on to the execution of our large growth projects, let’s start with MVP. During the first quarter, we maintained a scaled back pipeline construction effort which was consistent with our plan for the winter months. Currently, total project work is about 80% complete, which includes the three compressor stations and related facilities.
At this point, while the completion of our project by year-end may appear unlikely, a narrow path continues to exist and the MVP JV is targeting a full in-service date during the fourth quarter.
We are working closely with various agencies to adjust the outstanding issues in the timeframes we have outlined previously, which would allow us to attain a fourth quarter 2019 in-service date. We expect to have more definitive information regarding permit resolutions in the next few months. (1)
Charletta went on to say this about MVP Southgate, the new project to extend MVP from southern Virginia into North Carolina:
Moving on to MVP Southgate, on March 22nd, FERC issued a notice of schedule for the project, which includes the expected delivery of the Final Environmental Impact Statement in December of 2019.
As a reminder, the project is a 70-mile extension from MVP that will transport gas to points in North Carolina and is backed by a 300 million a day commitment from PSNC Energy. Subject to FERC approval, the project has a targeted in-service date during the fourth quarter of 2020. (1)
There were a LOT of questions about MVP during the Q&A portion of the conference call. Equitrans CEO Tom Karam fielded many of them. This was the first one asked:
Jeremy Tonet
Okay. And then just a last one, if I could. With MVP, just wondering if you could update us on the options that you are talking about with a bit more detail. Any resolution between the Department of Interior, Department of Agriculture, the different departments there as far as the right away through the National Park Service land?
Tom Karam
So, Jeremy, there is no resolution at this point. We continue to interact with the agencies in a very productive manner on a regular basis to continue to explore the avenues that we have talked about before.
There is no real change in our guidance. I think what we are acknowledging is the passage of time here where we have said before that the next inflection point is the issuance of the West Virginia 401 permit and the Nationwide 12, which last week.
I think on April 24th, West Virginia submitted the responses to the comments on the new rigs to the EPA, which now has to consent to the new rigs and then forward that consent to the Army Corp. for the issuance of the 401 and the Nationwide 12 permit, which we have all along said is sometime in this summer window.
Because again just to reiterate, we predicated the 4Q 2019 a three windows of issuance, the 401 Nationwide 12, which I just talked about, the reissuance of a permit from the Forest Service as it relates to the erosion and sedimentation control in the Jefferson National Forest and we are aware that they continue to work on that and then the resolution around the Appalachian trail.
So, we really have no further update other than we would guide you toward the next inflection point being the issuance of that 401 permit. (1)
The answer to the next question reveals just how important MVP is to the company. Karam says the project will be, “the largest driver of our growth.” It’s a critically important project.
Spiro Dounis
And then on MVP, hate to harp on it, I know you guys are probably sick of talking about it. But I believe one of the options is a reroute of the pipeline. And I guess I’m just wondering at what point do you think you have enough information either rule that out or move forward with it? And I guess, the other way of asking it is, is there any merit to just starting with the reroute today? Does it give you any more certainty just to do that today and sort of waiting for the current process to play out, which does carry some uncertainty I suppose?
Tom Karam
So let me start with the assumption that we are not tired of talking about MVP because MVP is going to be the largest driver of our growth in both the transmission business and ability to service our Appalachian customers to move their gas to better pricing markets in the South.
So, once you get past the headlines, we remain exceedingly confident and bullish around MVP. A reroute, as I have said repeatedly and we have been pretty consistent on this, that’s the path of last resort because it would require the greatest time delay and cost increase and as long as we continue to have traction and some positive movement on the other pads, we are going to continue down those paths.
And I would also point you to that, as we come out of winter, we are starting the spring season at roughly 80% complete and now we are ramping up our construction again for the construction season and to the extent that we get the West Virginia 401 issued sometime in the summer, by the time we get to leaving the third quarter into the fourth quarter, we are going to be north of 90% complete with this pipeline.
So that I appreciate the focus and we are focused on those three up – keep calling them inflection points, that we need to resolve on the pipeline. But I don’t want to lose sight of the fact that this is a 50 to 80-year asset that’s going to be incredibly valuable for this Company and that with each month that we constructed, we take more budget risk and timing risk off the table. (1)
A questioner asked about the hit Equitrans has taken to its credit rating by ratings agencies because MVP is not yet online. You don’t often think about impacts like that. A poor credit rating translates into inability to borrow money, or if you can borrow, at much higher interest rates. Disgusting green groups blocking the project with lawsuits are having a very real, negative impact on the companies they target. Maybe we can sue them back and recover some of that money?! (It’s a nice thought, even if impractical.)
Dan Lungo
Hey, guys. I’m just wondering with the recent commentary of both S&P and Fitch putting you guys on negative outlook, if there were to be further delay to MVP, pass really is May-June timeframe is when S&P put the timeframe as, what would you do to try and defend the investment grade ratings?
Janice Brenner
There are several alternatives that we would consider to defend the investment grade ratings. Clearly, there is advantages to maintaining it and that’s certainly our preference. And we have considered several alternatives, looking at whether it’s distribution growth rates, whether it’s spending, cost reductions, we are basically exploring all options in order to make sure that we are able to continue to execute on our growth strategy as expected.
So we have good line of sight once we get that 20 year fully contracted, $300 million of annual EBITDA from MVP online and at that point we believe that we will be in line with those investment grade target.
So it’s more in the near term and we expect that leverage will creep up as MVP is coming online and even it from the inception of EQM we made sure that we funded our drop-down in a debt-friendly manner using equity over advertising those and then you saw on our most recent acquisition, we financed that in a way it was mindful of our ratings. (1)
A question about the court case currently holding up MVP (for now) from crossing Jefferson National Forest:
David Amoss
Good morning. Tom, I’m just trying to think a little bit more about the critical path for MVP and I apologize for asking a similar question for the third time, but just related specifically to the Jefferson Forest and the issues that you’ve had there, can you at least give us kind of what you think the fence posts are to resolve that issue and what you have to do to achieve that resolution specific to the forest?
Tom Karam
So David, before the Cowpasture decision coming out of the Fourth Circuit, there was a singular issue with the Jefferson National Forest that related to the reissuance of the E&S permit allowing us to work in the forest.
I think we have been pretty clear in saying that when we were first issued the permit, we used hypothetical data that supported the issuance of the permit was issued. When the permit was vacated as a result of the original Fourth Circuit decision, we then had the benefit of actual data and the actual data is even more supportive of the reissuance of the permit than the hypothetical data.
So from a factual and technical basis, we are in really good shape as it relates to the forest service. However, since December when the Cowpasture decision came out of the Fourth Circuit, for all practical purposes those two decisions are tied together.
I can’t imagine that the forest service would issue a permit without resolution to the Appalachian trail. So the goal posts are figuring out a solution to cross the trail either through public lands or private lands that will allow us to get back to work.
We still think that there are pads that we are working, either with the DOI and the DOA and the National Park Service that could get us there toward the end of the year, but I really don’t have anything more definitive to say today. (1)
Question: How can you prevent MVP costs from rising even more? Answer: Complete the #$%@ pipe!
TJ Schultz
Just on the workforce you have out for MVP right now how quickly can you scale up if you get some positive feedback on the inflection points or any concerns there and then alternatively just how insulated are you from significant cost increases as this timing is pushed out?
Tom Karam
So we are back to work now, we are scaling up as we speak, so there really wouldn’t be any step change as it related to the issuance of the 401 to allow us to do that. As it relates to the second part of your question was cost related, look, we are already 80% complete and every day we complete more and more of the pipe. So the best insulation from a steep change in cost is to complete the pipe. (1)
Finally, what’s the plan if Equitrans is forced to abandon the existing route–what if it can’t cross the Appalachian Trail?
Timm Schneider
So, just assuming worst case scenario and you guys can’t cross the trail, obviously there is a tremendous amount of pipe or steel that’s already in the ground. Are there any alternative off takes that you guys could potentially get to outside of that?
Tom Karam
I think that we have been pretty clear that there is an option to cross the trail through private lands and that would be under the reroute scenario that we have talked about before.
Timm Schneider
Okay, got it. I was just curious if there was any other pods along the line that you could potentially get to outside of that, but it sounds like the private land one is the most likely scenario.
Tom Karam
That would be for the ultimate completion of the pipe. But as you know the route of MVP interconnects with the WB line at mile marker 77 and then the KA line at mile marker 180.5. So, there are two interconnects we will call them, two opportunities for independent utility status at each one of those along the way.
So, there are multiple points of opportunity here, Tim. And again, let me just step back a little bit. We understand the headlines and we live with it every day and we are trying to acknowledge reality here with our partners in MVP, but we don’t want anybody to go away from this call questioning our confidence that we are going to get this pipeline built and in-service. (1)
So there you have it. Karam says MVP WILL get built. If not by the end of this year, then early next year. It’s inconceivable it won’t get finished–it’s already 80% done.
Finally, we spotted the following article from Reuters, which contains some added information. For example, Reuters says the project cost is now $4.6 billion (up from the original $3.5 billion). Reuters quotes an analyst who believes the necessary final permit from the Army Corps won’t be issued until late this year, pushing project completion to mid-2020.
EQM Midstream Partners LP said Tuesday it was “unlikely” to complete the long-delayed $4.6 billion Mountain Valley natural gas pipeline from West Virginia to Virginia during 2019 due to ongoing legal and regulatory challenges.
EQM, however, said in its first-quarter earnings report that the joint venture building the project “continues to target a full in-service date for the fourth quarter 2019.”
EQM Chief Executive Thomas Karam told analysts on a call that the project was about 80 percent complete and the company remained confident it would get the pipeline built.
When EQM started construction in February 2018, it estimated Mountain Valley would cost about $3.5 billion and be completed by the end of 2018.
The 303-mile (488-km) pipeline is designed to deliver 2 billion cubic feet per day (bcfd) of gas.
One billion cubic feet is enough gas to supply about 5 million U.S. homes for a day.
EQM said it is working through the project’s remaining challenges, including securing a Nationwide 12 Permit from the U.S. Army Corps of Engineers for stream and waterbody crossings, which it expects sometime this summer.
Analysts at Height Capital Markets in Washington, however, said they do not expect Mountain Valley to receive a new Nationwide Permit 12 until the fourth quarter of 2019, which likely will delay the project’s completion until mid-2020.
In addition to Mountain Valley, environmental legal challenges have also slowed construction of Dominion Energy Inc’s $7.0 billion to $7.5 billion Atlantic Coast gas pipe from West Virginia to North Carolina.
Mountain Valley and Atlantic Coast are the biggest pipelines under construction to connect growing output in the Marcellus and Utica shale basins in Pennsylvania, West Virginia and Ohio with customers in other parts of the United States.
Mountain Valley is owned by units of EQM, NextEra Energy Inc, Consolidated Edison Inc, AltaGas Ltd and RGC Resources Inc. EQM will fund about $2.2 billion of the project and operate the pipe.
Equitrans Midstream Corp of Pittsburgh owns the general partner and a majority interest in EQM.
EQM is also developing the $555-million Hammerhead project between Pennsylvania and West Virginia, which will feed up to 1.6 bcfd of gas into Mountain Valley and other pipes when it enters service in the fourth quarter of 2019.
EQM has a contract to transport 1.2 bcfd on Hammerhead from EQT Corp, the nation’s biggest gas producer and the former parent of EQM and Equitrans. (2)
(1) Seeking Alpha (Apr 30, 2019) – EQM Midstream Partners LP (EQM) CEO Tom Karam on Q1 2019 Results – Earnings Call Transcript
(2) Reuters (Apr 30, 2019) – EQM says ‘unlikely’ to complete Mountain Valley natgas pipe in 2019
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