EQT Midstream Partners, LP (NYSE: EQM), EQT GP Holdings, LP
(NYSE: EQGP), and Rice Midstream Partners LP (NYSE: RMP), today,
announced a midstream streamlining transaction that includes:
- EQM’s acquisition of EQT Corporation’s
(NYSE: EQT) retained midstream assets and Gulfport Energy’s (NYSE:
GPOR) 25% ownership in the Strike Force Gathering System for $1.69
billion. EQT will receive $1.15 billion in cash and 5.9 million EQM
common units and Gulfport Energy will receive $175 million in
cash.
- The merger of EQM and RMP in a
unit-for-unit transaction at an exchange ratio of 0.3319x, which
implies a transaction value of $2.4 billion, including the
assumption of RMP debt. The RMP debt balance as of March 31, 2018
was $325 million.
- EQGP’s purchase of RMP’s Incentive
Distribution Rights (RMP IDRs) from EQT for 36.3 million EQGP
common units.
This streamlining transaction is expected to be immediately
accretive to both EQM and EQGP’s distributable cash flow per
unit.
Transaction Details
EQM has entered into a definitive agreement with EQT to acquire
its Olympus Gathering System and its 75% interest in the Strike
Force Gathering System. EQM has also entered into a definitive
agreement with Gulfport Energy to acquire its 25% interest in the
Strike Force Gathering System. EQT will receive $1.15 billion in
cash and 5.9 million EQM common units and Gulfport Energy will
receive $175 million in cash. Additional details regarding the
Olympus Gathering System and the Strike Force Gathering System
(Ohio Gathering Assets), including an adjusted EBITDA forecast, are
provided below. The acquisition is expected to close in the second
quarter of 2018.
EQM and RMP have entered into a definitive merger agreement
under which EQM will acquire RMP in a unit-for-unit transaction.
Each holder of a common unit of RMP will receive 0.3319 units of
EQM, representing a 10% premium to RMP and an equity value of $2.1
billion based on the closing RMP and EQM unit prices on April 25,
2018. EQM will also assume RMP debt, which totaled $325 million as
of March 31, 2018. The transaction is expected to close in the
third quarter of 2018, subject to customary closing conditions and
the closing of the RMP IDRs purchase.
The merger of EQM and RMP creates significant operational
efficiencies through the optimized buildout of gathering and header
pipeline systems to service the combined EQT and legacy Rice Energy
acreage footprint. The efficiency gains are expected to result in
approximately $500 million of capital avoidance, while achieving
the same level of gathered volume growth during the next five
years. In addition to the capital synergies, EQM expects to realize
savings of approximately $15 million per year in operating and
maintenance expense and selling, general and administrative
expense.
EQGP has entered into a definitive agreement with EQT to acquire
its ownership of the RMP IDRs for 36.3 million EQGP common units,
which represents $937 million based on the April 25, 2018 EQGP
closing unit price. The transaction is expected to close in the
second quarter of 2018. In the event that the EQM/RMP merger is not
completed, 8.5 million EQGP common units that had been issued as
consideration would be cancelled and EQT would pay EQGP the
aggregate amount of any distributions received from EQGP related to
the cancelled units in cash.
Ohio Gathering Assets
The Ohio Gathering Assets consist of two dry natural gas
gathering systems, known as Olympus and Strike Force. The Ohio
Gathering Assets were designed and constructed to gather natural
gas in the Utica shale in eastern Ohio, primarily in Belmont and
Monroe Counties.
Olympus gathering
- 68,000 acres dedicated to system
- 1.0 Bcf per day average gathered volume
in Q1 2018
- 85 miles of natural gas gathering
pipeline
- 15,000 horsepower compression
- Multiple interstate pipeline
connections (TETCO, REX, DEO)
Strike Force gathering
- 5-year minimum volume commitment from
Gulfport
- 98,000 acres dedicated to system
- 0.9 Bcf per day average gathered volume
in Q1 2018
- 67 miles of natural gas gathering
pipeline
- 17,000 horsepower compression
- Multiple interstate pipeline
interconnects (TETCO, ET Ohio River, Rover, LXP)
Ohio Gathering Assets Projections
2018* 2019
2020 Gathered Volume (Bcf/day)
1.8 – 2.0 2.0 – 2.2 2.2 – 2.4
Adjusted EBITDA ($MM) $165 - $175
$245 - $255 $255 - $265 Expansion Capex ($MM)
$210 $180 $90
*Reflects full-year. EQM acquisition of the Ohio Gathering
Assets is expected to be effective May 1, 2018.
See the Non-GAAP Disclosures section of this news release for
important disclosures regarding projected adjusted EBITDA and
projected distributable cash flow.
EQM Financing
EQM has entered into a $2.5 billion 364-day syndicated term loan
facility. EQM expects to borrow under the term loan facility to
finance the cash consideration of the Ohio Gathering Assets
acquisition, 2018 expansion capital expenditures, and Mountain
Valley Pipeline (MVP) capital contributions. EQM expects to access
the public debt markets over the coming months to retire amounts
outstanding under the term loan facility and to fund expansion
capital expenditures and MVP capital contributions.
Based on the strength of EQM’s credit metrics and the current
organic growth project backlog, EQM is not forecasting any
additional public equity issuance at least through 2020.
Pro-forma Projections
The projections below assume a May 1, 2018 effective date for
the Ohio Gathering Asset acquisition and a September 1, 2018
closing date for the EQM/RMP merger.
EQM pro-forma:
- Five-year organic growth capital
backlog of approximately $4.8 billion
- Long-term target of 3.5x debt to
EBITDA, which is an investment grade metric
- 1.1x - 1.2x target distribution
coverage ratio
- Annual distribution per unit growth of
15% to 20% for several years
2018 2019
2020 EQM
Net Income ($B)
$0.70 - $0.80 $0.95 - $1.05 $1.00 -
$1.10 Adjusted EBITDA ($B) $0.90 - $1.00
$1.40 - $1.50 $1.55 - $1.65 Distributable Cash
Flow ($B) $0.75 - $0.85 $1.15 - $1.25
$1.25 - $1.35 Distribution per unit (using midpoint
of guidance)* $4.50 $5.29
$6.21 Expansion Capex + MVP capital contributions ($B)
$1.6 - $1.8 $0.9 - $1.1 $0.5 -
$0.7
EQGP
Distribution per unit* $1.21
$1.67 $2.09 Distribution per unit
year-over-year growth* 39% 38%
25%
*Based on midpoint of 15% - 20% year-over-year distribution
growth rate guidance for EQM.
Approvals
The boards of directors of EQT and each of EQGP, EQM and RMP, as
well as the conflicts committees of EQGP, EQM and RMP, have
unanimously approved these transactions. Completion of the EQM/RMP
merger is subject to the approval of the RMP unitholders, as well
as certain customary regulatory and other closing conditions.
Advisors
Goldman Sachs & Co. LLC acted as financial advisor and
Wachtell, Lipton, Rosen & Katz and Baker Botts L.L.P. acted as
legal advisors to EQT. Evercore acted as financial advisor and
Richards, Layton & Finger, P.A. acted as legal advisor to the
Conflicts Committee of EQM. Jefferies LLC acted as financial
advisor and Latham & Watkins LLP acted as legal advisor to the
Conflicts Committee of RMP. Baird acted as financial advisor and
Hunton Andrews Kurth LLP acted as legal advisor to the Conflicts
Committee of EQGP.
About EQT Midstream
Partners:
EQT Midstream Partners, LP is a growth-oriented limited
partnership formed by EQT Corporation to own, operate, acquire, and
develop midstream assets in the Appalachian Basin. The Partnership
provides midstream services to EQT Corporation and third-party
companies through its strategically located transmission, storage,
and gathering systems that service the Marcellus and Utica regions.
The Partnership owns approximately 950 miles of FERC-regulated
interstate pipelines; and also owns approximately 1,800 miles of
high- and low-pressure gathering lines.
Visit EQT Midstream Partners, LP at
www.eqtmidstreampartners.com.
About EQT GP Holdings:
EQT GP Holdings, LP is a limited partnership that owns the
general partner interest, all of the incentive distribution rights,
and a portion of the limited partner interests in EQT Midstream
Partners, LP. EQT Corporation owns the general partner interest and
a 90% limited partner interest in EQT GP Holdings, L.P.
Visit EQT GP Holdings, LP at
www.eqtmidstreampartners.com.
About Rice Midstream
Partners:
Rice Midstream Partners LP is a fee-based, growth-oriented
limited partnership formed to own, operate, develop and acquire
midstream assets in the Appalachian basin. RMP provides midstream
services to EQT Corporation and third-party companies through its
natural gas gathering, compression and water assets in the rapidly
developing dry gas cores of the Marcellus and Utica Shales.
Visit Rice Midstream Partners LP at www.ricemidstream.com.
About EQT Corporation:
EQT Corporation is an integrated energy company with emphasis on
Appalachian area natural gas production, gathering, and
transmission. With nearly 130 years of experience and a
long-standing history of good corporate citizenship, EQT is the
largest producer of natural gas in the United States. As a leader
in the use of advanced horizontal drilling technology, EQT is
committed to minimizing the impact of drilling-related activities
and reducing its overall environmental footprint. Through safe and
responsible operations, EQT is helping to meet our nation’s growing
demand for clean-burning energy, while continuing to provide a
rewarding workplace and enrich the communities where its employees
live and work. EQT owns the general partner interest and a 90%
limited partner interest in EQT GP Holdings, LP, which owns the
general partner interest, all of the incentive distribution rights,
and a portion of the limited partner interest in EQT Midstream
Partners, LP. EQT also owns the general partner interest, all of
the incentive distribution rights, and a 28% limited partner
interest in Rice Midstream Partners LP.
Visit EQT Corporation at www.EQT.com; and to learn more about
EQT’s sustainability efforts, please visit https://csr.eqt.com.
NON-GAAP DISCLOSURES
Adjusted EBITDA and Distributable Cash Flow
As used in this news release, adjusted EBITDA means net income
plus net interest expense, depreciation and amortization expense,
payments on EQM's preferred interest in EQT Energy Supply, LLC
(Preferred Interest) received and non-cash long-term compensation
expense less equity income and AFUDC - equity. As used in this news
release, distributable cash flow means EQM adjusted EBITDA less net
interest expense excluding interest income on the Preferred
Interest, capitalized interest and AFUDC - debt, and ongoing
maintenance capital expenditures net of expected reimbursements.
Distributable cash flow should not be viewed as indicative of the
actual amount of cash that EQM has available for distributions from
operating surplus or that EQM plans to distribute. Adjusted EBITDA
and distributable cash flow are non-GAAP supplemental financial
measures that management and external users of EQM’s consolidated
financial statements, such as industry analysts, investors, lenders
and rating agencies, use to assess:
- EQM’s operating performance as compared
to other publicly traded partnerships in the midstream energy
industry without regard to historical cost basis or, in the case of
adjusted EBITDA, financing methods;
- the ability of EQM’s assets to generate
sufficient cash flow to make distributions to EQM unitholders;
- EQM’s ability to incur and service debt
and fund capital expenditures; and
- the viability of acquisitions and other
capital expenditure projects and the returns on investment of
various investment opportunities.
EQM believes that adjusted EBITDA and distributable cash flow
provide useful information to investors in assessing EQM’s results
of operations and financial condition. Adjusted EBITDA and
distributable cash flow should not be considered as alternatives to
net income, operating income, net cash provided by operating
activities or any other measure of financial performance or
liquidity presented in accordance with GAAP. Adjusted EBITDA and
distributable cash flow have important limitations as analytical
tools because they exclude some, but not all, items that affect net
income and net cash provided by operating activities. Additionally,
because adjusted EBITDA and distributable cash flow may be defined
differently by other companies in its industry, EQM’s definition of
adjusted EBITDA and distributable cash flow may not be comparable
to similarly titled measures of other companies, thereby
diminishing the utility of the measures.
EQM is unable to project net cash provided by operating
activities or provide the related reconciliation between projected
distributable cash flow and projected net cash provided by
operating activities, the most comparable financial measure
calculated in accordance with GAAP, because net cash provided by
operating activities includes the impact of changes in operating
assets and liabilities. Changes in operating assets and liabilities
relate to the timing of EQM’s cash receipts and disbursements that
may not relate to the period in which the operating activities
occurred, and EQM is unable to project these timing differences
with any reasonable degree of accuracy to a specific day, three or
more months in advance. EQM is also unable to provide a
reconciliation of its projected EBITDA to projected net income, the
most comparable financial measure calculated in accordance with
GAAP, because EQM does not provide guidance with respect to the
intra-year timing of its or the Mountain Valley Pipeline, LLC’s
capital spending, which impact AFUDC-debt and equity and equity
earnings, among other items, that are reconciling items between
adjusted EBITDA and net income. The timing of capital expenditures
is volatile as it depends on weather, regulatory approvals,
contractor availability, system performance and various other
items. EQM provides a range for the forecasts of net income,
adjusted EBITDA and distributable cash flow to allow for the
variability in the timing of cash receipts and disbursements,
capital spending and the impact on the related reconciling items,
many of which interplay with each other. Therefore, the
reconciliations of projected distributable cash flow and adjusted
EBITDA to projected net cash provided by operating activities and
net income are not available without unreasonable effort.
EQT’s Retained Midstream Assets Adjusted EBITDA
EQT’s Retained Midstream Assets EBITDA means the earnings before
interest, taxes and depreciation of EQT’s retained midstream
assets. EBITDA of these assets is a non-GAAP supplemental financial
measure that management and external users of EQM’s consolidated
financial statements, such as industry analysts, investors, lenders
and rating agencies, use to assess the impact of the potential sale
of the retained midstream assets from EQT to EQM through one or
more drop-down transactions on EQM’s future results of
operations.
EQM believes that the projected EBITDA of the retained midstream
assets provides useful information to investors in assessing the
impact of the potential drop-down transactions on EQM’s future
results of operations. EBITDA should not be considered as an
alternative to net income, operating income, or any other measure
of financial performance or liquidity presented in accordance with
GAAP. EBITDA has important limitations as an analytical tool
because it excludes some, but not all, items that affect net
income. Additionally, because EBITDA may be defined differently by
other companies in EQM’s industry, the definition of EBITDA may not
be comparable to similarly titled measures of other companies,
thereby diminishing the utility of the measure.
EQM has not provided projected net income from the retained
midstream assets, the most comparable financial measure calculated
in accordance with GAAP, or a reconciliation of projected EBITDA to
projected net income of the assets. The retained midstream assets
are operated as part of EQT’s Production business segment, and EQT
does not allocate certain costs, such as interest and tax expenses,
to individual assets within its business segments. Therefore, the
projected net income of the retained midstream assets and a
reconciliation of projected EBITDA of the assets to projected net
income from those assets are not available without unreasonable
effort.
Cautionary Statements
Disclosures in this news release contain certain forward-looking
statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, and Section 27A of the Securities
Act of 1933, as amended. Statements that do not relate strictly to
historical or current facts are forward-looking. Without limiting
the generality of the foregoing, forward-looking statements
contained in this news release specifically include the
expectations of plans, strategies, objectives and growth and
anticipated financial and operational performance of EQT and its
subsidiaries, including EQGP, EQM, and RMP, including whether the
midstream transactions described in this news release are
completed, as expected or at all, and the timing of any such
transactions; whether the conditions to the midstream transactions
can be satisfied; whether the operational, financial and strategic
benefits of the midstream transactions can be achieved; whether the
costs and expenses of the midstream transactions can be controlled
within expectations; potential adverse reactions or changes to
business or employee relationships, including those resulting from
the announcement or completion of the midstream transactions;
competitive responses to the transactions; the possibility that the
anticipated benefits of the transactions are not realized when
expected or at all; the possibility that the transactions may be
more expensive to complete than anticipated, including as a result
of unexpected factors or events; diversion of management’s
attention from ongoing business operations and opportunities;
potential adverse reactions or changes to business or employee
relationships, including those resulting from the announcement or
completion of the transactions; litigation relating to the
transactions; guidance regarding EQM’s volumes and related growth;
infrastructure programs (including the timing, cost, capacity and
sources of funding with respect to gathering and transmission
projects); the cost, capacity, timing of regulatory approvals and
anticipated in-service date of the Mountain Valley Pipeline (MVP);
the ultimate terms, partners and structure of the MVP joint
venture; internal rate of return (IRR); compound annual growth rate
(CAGR); capital commitments, projected capital contributions and
capital and operating expenditures, including the amount and timing
of capital expenditures reimbursable by EQT, capital budget and
sources of funds for capital expenditures; liquidity and financing
requirements, including funding sources and availability (including
the availability of the 364-day term loan facility described
above); distribution amounts, rates and growth; projected net
income, projected adjusted EBITDA, projected EBITDA for EQT’s
retained midstream assets and projected distributable cash flow;
the timing of future debt or equity issuances; changes in EQM’s
credit ratings; the effects of government regulation and
litigation; and tax position. These forward looking statements
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. EQM and EQGP have based these
forward-looking statements on current expectations and assumptions
about future events. While EQM and EQGP consider these expectations
and assumptions to be reasonable, they are inherently subject to
significant business, economic, competitive, regulatory and other
risks and uncertainties, many of which are difficult to predict and
beyond the partnerships’ control. The risks and uncertainties that
may affect the operations, performance and results of EQM’s and
EQGP’s business and forward-looking statements include, but are not
limited to, those set forth under Item 1A, “Risk Factors” of the
Form 10-K for the year ended December 31, 2017 as filed with the
Securities and Exchange Commission (SEC) of each of EQT, EQGP, EQM
and RMP, in each case as may be updated by any subsequent Form
10-Qs. Any forward-looking statement speaks only as of the date on
which such statement is made, and none of EQT, EQGP, EQM or RMP
intends to correct or update any forward-looking statement, whether
as a result of new information, future events or otherwise.
No Offer or Solicitation
This release is for informational purposes only and shall not
constitute an offer to sell or the solicitation of an offer to buy
any securities pursuant to the proposed transactions or otherwise,
nor shall there be any sale of securities in any jurisdiction in
which the offer, solicitation or sale would be unlawful prior to
the registration or qualification under the securities laws of any
such jurisdiction. No offer of securities shall be made except by
means of a prospectus meeting the requirements of Section 10 of the
Securities Act of 1933, as amended.
Additional Information and Where to Find It
In connection with their proposed business combination
transaction, EQM and RMP intend to file a registration statement on
Form S-4, containing a proxy statement/prospectus (the Form S-4)
with the SEC. This communication is not a substitute for the
registration statement, definitive proxy statement/prospectus or
any other documents that EQM or RMP may file with the SEC or send
to RMP unitholders in connection with the proposed transaction.
UNITHOLDERS OF RMP ARE URGED TO READ ALL RELEVANT DOCUMENTS FILED
WITH THE SEC, INCLUDING THE FORM S-4 AND THE DEFINITIVE PROXY
STATEMENT/PROSPECTUS INCLUDED THEREIN IF AND WHEN FILED, AND ANY
OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. When
available, investors and security holders will be able to obtain
copies of these documents, including the proxy statement/prospectus
and the registration statement, and any other documents that may be
filed with the SEC with respect to the proposed transaction free of
charge at the SEC’s website, http://www.sec.gov or as described in
the following paragraph.
The documents filed with the SEC by EQT and its publicly traded
subsidiaries (including EQM, RMP and EQGP) may be obtained free of
charge at the applicable website (www.eqt.com for EQT,
www.eqtmidstreampartners.com for EQGP and EQM, and
www.ricemidstream.com for RMP) or by requesting them by mail at EQT
Corporation, 625 Liberty Avenue, Suite 1700, Pittsburgh, PA 15222,
Attention: Investor Relations, or by telephone at (412)
553-5700.
Participants in the Solicitation
EQT, EQM, RMP and EQGP (EQM, RMP and EQGP collectively, the
Partnerships) and certain of their respective directors and
executive officers may be deemed to be participants in the
solicitation of proxies from the unitholders of RMP in connection
with the proposed transaction. Information about the directors and
executive officers of the general partners of EQM, RMP and EQGP is
set forth, respectively, in the Annual Report on Form 10-K for the
year ended December 31, 2017 filed by such Partnership with the SEC
on February 15, 2018 and certain of the Partnerships’ respective
Current Reports on Form 8-K. Information regarding EQT’s directors
and executive officers is available in its Annual Report on Form
10-K for the year ended December 31, 2017 filed by EQT with the SEC
on February 15, 2018, EQT’s definitive proxy statement for its 2017
annual meeting of shareholders filed with the SEC on February 17,
2017 and certain of EQT’s Current Reports on Form 8-K. These
documents can be obtained free of charge from the sources indicated
above. Other information regarding the participants in the proxy
solicitation and a description of their direct and indirect
interests, by security holdings or otherwise, will be contained in
the proxy statement/prospectus and other relevant materials to be
filed with the SEC when they become available.
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version on businesswire.com: https://www.businesswire.com/news/home/20180426005388/en/
EQT Midstream Partners / EQT GP Holdings / Rice Midstream
Partners analysts:Nate Tetlow, 412-553-5834Investor Relations
Directorntetlow@eqtmidstreampartners.comorEQT
analysts:Patrick Kane, 412-553-7833Chief Investor Relations
Officerpkane@eqtmidstreampartners.comorMedia
inquiries:Natalie Cox, 412-395-3941Corporate Director,
Communicationsncox@eqtmidstreampartners.com
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