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EQT Midstream Partners Reports Second Quarter 2013 Results



  EQT Midstream Partners Reports Second Quarter 2013 Results

Business Wire

PITTSBURGH -- July 25, 2013

EQT Midstream Partners, LP (NYSE: EQM), an EQT Corporation company, today
announced second quarter 2013 financial and operating results. Net income for
the quarter totaled $17.9 million and adjusted EBITDA was $23.4 million.
Distributable cash flow was $21.1 million for the quarter. Adjusted operating
income was $3.9 million, or 24% higher than the same quarter last year. The
non-GAAP financial measures are reconciled in the Non-GAAP Disclosures section
below.

Additional Highlights:

  * Acquired Sunrise Pipeline from EQT Corporation (EQT)
  * Announced an increase in quarterly cash distribution to $0.40 per unit,
    $0.03 or 8% higher than the first quarter
  * Increasing adjusted EBITDA guidance for 2013 to between $113 - $118
    million
  * Increasing distributable cash flow guidance for 2013 to between $95 - $100
    million
  * Completed new interconnect adding 300 BBtu per day of transmission
    capacity

EQT Midstream Partners, LP (Partnership) closed its initial public offering
(IPO) on July 2, 2012. Results for periods prior to the IPO are attributable
to its predecessor, Equitrans, LP (Equitrans).

The Partnership had a capital lease with EQT for the lease of the Sunrise
Pipeline (Sunrise), and operated the pipeline as part of its transmission and
storage system. Revenues and expenses associated with Sunrise have been
included in the Partnership’s financial statements since Sunrise was turned in
line in July 2012. Prior to the Sunrise acquisition, monthly lease payments to
EQT offset the impact on the Partnership’s distributable cash flow; therefore,
second quarter 2013 results are discussed on an adjusted basis, excluding
Sunrise. The revenues and expenses associated with Sunrise are found in the
reconciliation table in the Non-GAAP Disclosures section below. The lease
payment, which totaled $8.3 million in the second quarter, did not have a net
positive or negative impact on distributable cash flow. The lease was
terminated on July 22, 2013 in connection with the Sunrise acquisition.

For the second quarter, adjusted operating revenues increased $5.9 million, or
20%, compared to the same quarter last year. The increase was primarily due to
higher system throughput related to growth in Marcellus Shale development and
an increase in contracted transmission capacity associated with the
Blacksville Compressor project that was completed in September 2012. Adjusted
operating expenses increased $2.1 million versus the second quarter of 2012
and included $0.5 million related to the Sunrise acquisition.

Operating revenues are seasonal, and based on utility customer contracts, are
currently expected to be about $2 million per quarter higher in the first and
fourth quarters of each year.

Sunrise Acquisition
On July 22, 2013, the Partnership acquired Sunrise from EQT for $507.5 million
cash and $32.5 million of common and general partner units, with an additional
$110 million of consideration to be paid to EQT if an additional third-party
transportation agreement becomes effective. The additional consideration
payment relates to a 20-year firm transportation agreement that becomes
effective upon the close of EQT’s sale of its natural gas distribution
business, which is subject to regulatory reviews that are expected to be
completed by year-end 2013.

The Sunrise assets consist of 41.5 miles of 24-inch diameter FERC-regulated
pipeline that parallels and interconnects with the segment of the
Partnership’s transmission and storage system from Wetzel County, West
Virginia to Greene County, Pennsylvania; the Jefferson compressor station in
Greene County; and an interconnect with the Texas Eastern pipeline in Greene
County. Sunrise has existing throughput capacity of approximately 400 BBtu per
day, all of which is subscribed under firm transmission contracts. In
addition, the Jefferson compressor station is currently being expanded and
will provide approximately 550 BBtu per day of additional capacity, which is
fully subscribed. The Jefferson compressor expansion is expected to be
in-service in the third quarter 2014. As a result of the expansion, and
including the anticipated new third-party transportation agreement described
above, Sunrise adjusted EBITDA is expected to grow from a current annual run
rate of approximately $40 million, to approximately $55 million in 2014 and
approximately $80 million in 2015.

Follow-on Equity Offering
In conjunction with the Sunrise acquisition, the Partnership completed an
offering of 12,650,000 common units representing limited partner interests,
which included the full exercise of the underwriters’ over-allotment option.
The offering closed on July 22, 2013, with proceeds used to fund the Sunrise
acquisition.

The Partnership received gross proceeds of approximately $550 million and net
proceeds of approximately $529 million from the offering, after deducting the
underwriters’ discount and estimated offering expenses of approximately $21
million. The Partnership used the net offering proceeds to fund the cash
payment to EQT related to the Sunrise acquisition. Taking into account the
proceeds from the offering and the Sunrise acquisition, the Partnership has
zero debt outstanding and approximately $46 million of cash.

Quarterly Distribution
The Partnership announced a quarterly cash distribution of $0.40 per unit for
the second quarter of 2013. The distribution will be paid on August 14, 2013
to all unitholders of record at the close of business on August 5, 2013.

Guidance
The Partnership increased its 2013 forecast for adjusted EBITDA and
distributable cash flow, which includes the impact of the Sunrise acquisition.
Adjusted EBITDA is expected to be between $113 and $118 million and
distributable cash flow is expected to be between $95 and $100 million. The
Partnership forecasts third quarter adjusted EBITDA to be approximately $30 -
$33 million.

CAPITAL EXPENDITURES

Expansion
Second quarter expansion capital expenditures totaled $6.7 million, of which
$3.4 million related to the Low Pressure East Pipeline project and the balance
for new interconnects and other system upgrades. During the second quarter the
Partnership completed the Morris III interconnect, which added 300 BBtu per
day of incremental transmission capacity.

The Partnership forecasts expansion capital expenditures of $43 million for
2013. Approximately $25 million will be for the Low Pressure East Pipeline
project, which will upgrade nearly 26 miles of existing pipeline in Greene,
Washington and Allegheny counties of Pennsylvania. The project will add 150
BBtu per day of transmission capacity and is expected to be completed in the
fourth quarter of 2013. A total of $5 million is related to the Jefferson
compressor expansion project. The remaining $13 million is for new
interconnects and dehydration upgrades.

Ongoing Maintenance
Ongoing maintenance capital expenditures are cash expenditures made to
maintain, over the long term, the Partnership’s operating capacity or
operating income. Ongoing maintenance capital expenditures are all maintenance
capital expenditures other than funded regulatory compliance capital
expenditures and reimbursable maintenance capital expenditures. Ongoing
maintenance capital expenditures totaled $2.1 million in the second quarter
2013 and $4.2 million year-to-date. The Partnership forecasts ongoing
maintenance capital expenditures of $17 million for 2013. Maintenance-related
capital expenditures are expected to vary quarter-to-quarter, primarily based
on increased activity when weather is favorable.

Reimbursable Maintenance
Plugging and abandonment and bare steel replacement capital expenditures are
referred to as reimbursable maintenance capital expenditures in the
reconciliation table in the Non-GAAP Disclosures section below.

Plugging and Abandonment
EQT has agreed, for ten years following the IPO, to reimburse the Partnership
for plugging and abandonment expenditures associated with certain identified
wells. Plugging and abandonment capital expenditures totaled $0.1 million in
the second quarter, all of which will be reimbursed by EQT.

Bare Steel Replacement Program
EQT has agreed, for ten years following the IPO, to reimburse the Partnership
for bare steel replacement capital expenditures in the event that ongoing
maintenance capital expenditures and bare steel capital expenditures exceed
$17.2 million in any calendar year. EQT Corporation will reimburse the
Partnership for the lesser of (i) the amount of bare steel replacement capital
expenditures during such year; and (ii) the amount by which ongoing
maintenance capital expenditures and bare steel capital expenditures exceed
$17.2 million. Second quarter 2013 bare steel capital expenditures totaled
$0.6 million, all of which is expected to be reimbursed by EQT.

The Partnership forecasts ongoing maintenance capital expenditures of $17
million plus bare steel capital expenditures of $6.0 million in 2013, which
results in a forecasted reimbursement of $6.0 million in 2013.

Funded Regulatory Compliance
Funded regulatory compliance capital expenditures relate to discrete
expenditures necessary to comply with certain regulatory and other legal
requirements. The Partnership has identified two specific regulatory
compliance initiatives, system segmentation and isolation; and valve pit
remediation. In order to fund these two initiatives, the Partnership retained
$32 million from the IPO. Funded regulatory compliance capital expenditures do
not impact the calculation of distributable cash flow. Second quarter 2013
included $3.8 million of funded regulatory compliance capital expenditures.
Since the IPO, the Partnership has incurred $12.9 million of funded regulatory
compliance capital expenditures and forecasts $12 million in 2013.

NON-GAAP DISCLOSURES

Adjusted EBITDA and Distributable Cash Flow
As used in this press release, adjusted EBITDA means net income plus net
interest expense, income tax expense (if applicable), depreciation and
amortization expense, non-cash long-term compensation expense and other
non-cash adjustments (if applicable), less other income and the Sunrise lease
payment. As used in this press release, distributable cash flow means adjusted
EBITDA less net cash paid for interest expense, ongoing maintenance capital
expenditures, reimbursable maintenance capital expenditures and income taxes
(if applicable) plus reimbursable maintenance capital expenditures expected to
be reimbursed by EQT. Adjusted EBITDA and distributable cash flow are non-GAAP
supplemental financial measures that management and external users of the
Partnership’s consolidated financial statements, such as industry analysts,
investors, lenders and rating agencies, use to assess:

  * the Partnership’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 the Partnership’s assets to generate sufficient cash flow
    to make distributions to the Partnership’s unitholders;
  * the Partnership’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.

The Partnership believes that adjusted EBITDA and distributable cash flow
provide useful information to investors in assessing the Partnership’s
financial condition and results of operations. Adjusted EBITDA and
distributable cash flow should not be considered 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 the industry, the Partnership’s definition of adjusted
EBITDA and distributable cash flow may not be comparable to similarly titled
measures of other companies, thereby diminishing their utility. The table
below reconciles adjusted EBITDA and distributable cash flow with net income
and net cash provided by operating activities as derived from the statements
of consolidated operations and the statements of consolidated cash flows to be
included in the Partnership’s quarterly report on Form 10-Q for the quarter
ended June 30, 2013.

Reconciliation of Adjusted EBITDA and Distributable Cash Flow

                                                            Three Months Ended
                                                            June 30, 2013
                                                            (in thousands $)
Operating revenues:
Transmission and storage                                  $ 41,960
Gathering                                                   2,877        
Total operating revenues                                    44,837
Operating expenses:
Operating and maintenance                                   6,729
Selling, general and administrative                         6,104
Depreciation and amortization                               7,858        
Total operating expenses                                    20,691       
Operating income                                            24,146
Other income                                                229
Interest expense                                            (6,485      )
Net income                                                $ 17,890       
Add:
Interest expense, net                                       6,485
Depreciation and amortization                               7,858
Non-cash long-term compensation expense                     209
Non-cash reserve adjustment                                 (430        )
Less:
Other income, net                                           (229        )
Sunrise Pipeline lease payment                              (8,338      )
Adjusted EBITDA                                           $ 23,445
Less:
Cash interest, net                                          (221        )
Ongoing maintenance capital expenditures                    (2,097      )
Reimbursable plugging & abandonment maintenance             (105        )
capital expenditures
Reimbursable bare steel replacement maintenance             (648        )
capital expenditures
Add:
Reimbursement of plugging & abandonment                     105
maintenance capital expenditures
Reimbursement of bare steel replacement                     648          
maintenance capital expenditures
Distributable cash flow                                   $ 21,127       
Distributions declared (a)                                $ 19,514
Coverage ratio                                              1.08x

      Reflects quarterly cash distribution of $0.40 per unit for the second
(a)   quarter 2013 and 48.78 million units, which includes 12.65 million units
      issued to the public in July 2013 and 0.75 million units issued to EQT
      as part of the consideration for the Sunrise acquisition.
       

                                                      Three Months Ended
                                                      June 30, 2013
                                                      (in thousands $)
                                                       
Net cash provided by operating activities           $ 26,066
Add:
Interest expense, net                                 6,485
Sunrise Pipeline lease payment                        (8,338      )
Other, including changes in working capital           (768        )
Adjusted EBITDA                                     $ 23,445       
                                                       

Adjusted Operating Revenues, Adjusted Operating Expenses, Adjusted Operating
Income and Adjusted Income Before Income Taxes
Adjusted operating revenues, adjusted operating expenses, adjusted operating
income and adjusted income before income taxes, all of which exclude the
impact associated with Sunrise, are non-GAAP supplemental financial measures
that are presented because they are important measures used by management to
evaluate the Partnership’s performance. Sunrise did not have a net positive or
negative impact on the Partnership’s distributable cash flow. Adjusted
operating revenues, adjusted operating expenses, adjusted operating income and
adjusted income before income taxes should not be considered alternatives to
operating revenues, operating expenses, operating income or income before
income taxes, or any other measure of financial performance or liquidity
presented in accordance with GAAP. The table below reconciles adjusted
operating revenues, adjusted operating expenses, adjusted operating income and
adjusted income before income taxes with operating revenues, operating
expenses, operating income and income before income taxes as derived from the
statements of consolidated operations to be included in the Partnership’s
quarterly report on Form 10-Q for the quarter ended June 30, 2013.

                            Three Months Ended June 30,
                            2013                                      2012
                                         Adjustment     Adjusted
(Thousands)                 Reported     to exclude     Results       Reported
                            Results      Sunrise        (excludes     Results
                                                        Sunrise)
Revenues:
Operating
revenues –                $ 35,404     $ (7,310  )    $ 28,094      $ 23,197
affiliate
Operating
revenues – third            9,433        (1,946  )      7,487         6,468
party
Total operating             44,837       (9,256  )      35,581        29,665
revenues
                                                                       
Operating
Expenses
Operating and               6,729        (302    )      6,427         6,162
maintenance
Selling, general
and                         6,104        (616    )      5,488         4,334
administrative
Depreciation and            7,858        (4,050  )      3,808         3,170
amortization
Total operating             20,691       (4,968  )      15,723        13,666
expenses
Operating income            24,146       (4,288  )      19,858        15,999
Plus: Other                 229          —              229           4,157
income, net
Less: Interest              6,485        (6,256  )      229           1,214
expense, net
Income before             $ 17,890     $ 1,968        $ 19,858      $ 18,942
income taxes
                                                                       

Q2 2013 Webcast Information
EQT Midstream Partners will host a live webcast with security analysts today,
beginning at 11:30 a.m. Eastern Time. The topics of the webcast will be
financial results, operating results and other matters with respect to second
quarter of 2013. The webcast will be available at
www.eqtmidstreampartners.com; and a replay will be available for seven days
following the call.

EQT Corporation (EQT), which is the Partnership's general partner and owner of
a 44.6% equity interest in the Partnership, will also host a teleconference
with security analysts today, beginning at 10:30 a.m. Eastern Time. The
Partnership's unitholders are encouraged to listen to the EQT teleconference,
which is expected to cover topics that are relevant to the Partnership, such
as EQT's financial and operational results and potential asset dropdown
transactions involving the Partnership. This teleconference may also include
second quarter 2013 results and other matters with respect to the Partnership.
The webcast can be accessed via www.eqt.com and will be available as a replay
for seven days following the call.

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 two primary assets: the
Equitrans Transmission and Storage System and the Equitrans Gathering System.
The Partnership has a 700-mile FERC-regulated interstate pipeline system and
more than 2,000 miles of FERC-regulated, low-pressure gathering lines.

Visit EQT Midstream Partners, LP at www.eqtmidstreampartners.com.

Cautionary Statements
The Partnership is unable to provide a reconciliation of its projected
adjusted EBITDA, including projected Sunrise adjusted EBITDA and projected
distributable cash flow to projected net income or projected net cash provided
by operating activities, the most comparable financial measures calculated in
accordance with generally accepted accounting principles, because of
uncertainties associated with projecting future net income and changes in
assets and liabilities.

Disclosures in this press release contain certain forward-looking statements.
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 press release specifically
include the expectations of plans, strategies, objectives and growth and
anticipated financial and operational performance of the Partnership and its
subsidiaries, including guidance regarding the Partnership’s transmission and
storage and gathering revenue growth and volume growth; revenue projections;
infrastructure programs (including the timing, cost, capacity and sources of
funding with respect to such programs); natural gas production growth in the
Partnership’s operating areas for EQT Corporation (EQT) and third parties;
asset acquisitions, including the Partnership’s ability to complete any asset
purchases from EQT or third parties and anticipated synergies associated with
any acquisition; the Partnership’s ability to enter into additional
third-party transportation precedent agreements on the Sunrise Pipeline,
internal rate of return (IRR); compound annual growth rate (CAGR), capital
commitments, projected 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; distribution rate
and growth; projected adjusted EBITDA, including projected Sunrise adjusted
EBITDA, and projected distributable cash flow, including the effect of the
Sunrise acquisition on projected adjusted EBITDA, including projected Sunrise
adjusted EBITDA, and projected distributable cash flow; the effects of
government regulation; 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. The Partnership has based these forward-looking statements on current
expectations and assumptions about future events. While the Partnership
considers these expectations and assumptions to be reasonable, they are
inherently subject to significant business, economic, competitive, regulatory
and other risks and uncertainties, most of which are difficult to predict and
many of which are beyond the Partnership’s control. The risks and
uncertainties that may affect the operations, performance and results of the
Partnership’s business and forward-looking statements include, but are not
limited to, those set forth under Item 1A, “Risk Factors” of the Partnership’s
Form 10-K for the year ended December 31, 2012, as updated by any subsequent
Form 10-Q’s. Any forward-looking statement speaks only as of the date on which
such statement is made and the Partnership does not intend to correct or
update any forward-looking statement, whether as a result of new information,
future events or otherwise.

Information in this press release regarding EQT Corporation and its
subsidiaries, other than the Partnership, is derived from publicly available
information published by EQT.

This release serves as qualified notice to nominees under Treasury Regulation
Sections 1.1446-4(b)(4) and (d). Please note that 100% of the Partnership’s
distributions to foreign investors are attributable to income that is
effectively connected with a United States trade or business. Accordingly, all
of the Partnership’s distributions to foreign investors are subject to federal
income tax withholding at the highest effective tax rate for individuals or
corporations, as applicable. Nominees, and not the Partnership, are treated as
the withholding agents responsible for withholding on the distributions
received by them on behalf of foreign investors.

                                                
                                                    
EQT Midstream Partners, LP

 

Statements of Operations (unaudited)
                                                    
                                                   Three Months Ended June 30,
(Thousands, except per unit amounts)               2013               2012
Revenues:
Operating revenues – affiliate                   $ 35,404         $   23,197
Operating revenues – third party                   9,433              6,468
Total operating revenues                           44,837             29,665
                                                                       
Operating expenses:
Operating and maintenance                          6,729              6,162
Selling, general and administrative                6,104              4,334
Depreciation and amortization                      7,858              3,170
Total operating expenses                           20,691             13,666
Operating income                                   24,146             15,999
Other income, net                                  229                4,157
Interest expense, net                              6,485              1,214
Income before income taxes                         17,890             18,942
Income tax expense                                 —                  6,930
Net income                                       $ 17,890         $   12,012
                                                                       
Net income per limited partner unit -            $ 0.51               N/A
basic
Net income per limited partner unit -            $ 0.50               N/A
diluted
                                                                       
Weighted average limited partner units             34,679             N/A
outstanding – basic
Weighted average limited partner units             34,785             N/A
outstanding – diluted
                                                                       

Operating Results
                                                
                                                   Three Months Ended June 30,
                                                   2013               2012
OPERATING DATA (in BBtu per day):
Transmission pipeline throughput                   1,152              517
                                                                       
CAPITAL EXPENDITURES (in thousands):
Expansion capital expenditures,                  $ 6,743          $   11,358
excluding Sunrise Pipeline project
Sunrise Pipeline project capital                   —                  60,148
expenditures
Maintenance capital expenditures:
Ongoing maintenance                                2,097              1,584
Funded regulatory compliance                       3,790              196
Reimbursable P&A maintenance                       105                460
Reimbursable bare steel maintenance                648                425
Total maintenance capital expenditures             6,640              2,665
Total capital expenditures                       $ 13,383         $   74,171
                                                                       

Contact:

EQT Midstream Partners
Analyst inquiries please contact:
Nate Tetlow, 412-553-5834
Investor Relations Manager
ntetlow@eqtmidstreampartners.com
or
Patrick Kane, 412-553-7833
Chief Investor Relations Officer
pkane@eqtmidstreampartners.com
or
Media inquiries please contact:
Natalie Cox, 412-395-3941
Corporate Director, Communications
ncox@eqtmidstreampartners.com
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