Equitrans Midstream Corp (ETRN) 2019 Q2 法說會逐字稿

Good morning.

My name is Mariama, and I will be your conference operator today.

At this time, I would like to welcome everyone to the ETRN and EQM Q2 2019 Earnings Call.

(Operator Instructions) Thank you.

I would now like to turn the call over to Nate Tetlow, Vice President, Investor Relations.

You may begin your conference.

Thank you.

Good morning, and welcome to the Second Quarter 2019 Earnings Call for Equitrans Midstream and EQM Midstream Partners.

A replay of this call will be available for 14 days beginning this evening.

The phone number for the replay is (855) 859-2056, and the conference ID is 7177601.

Today's call may contain forward-looking statements related to future events and expectations.

Factors that could cause the actual results to differ materially from these forward-looking statements are listed in today's news release and under Risk Factors in both ETRN's and EQM's Form 10-Ks for the year ended December 31, 2018, both of which are filed with the SEC and as updated by any subsequent Form 10-Qs.

Today's call may also contain certain non-GAAP financial measures.

Please refer to this morning's news release and our investor presentation for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measure.

Joining me on the call today are Tom Karam, Chairman and CEO; Diana Charletta, President and Chief Operating Officer; and Kirk Oliver, Senior Vice President and Chief Financial Officer.

After our prepared remarks, we will open the call to questions.

With that, I'll turn it over to Tom.

Thanks, Nate, and good morning, everyone.

This morning, EQM and E-Train reported solid second quarter results with adjusted EBITDA coming in ahead of our guidance.

Kirk will provide details on the financial results shortly.

As we discussed last quarter, we're operating in an environment of lower for longer natural gas prices resulting in low or even no production growth.

To succeed in this environment, we must continue our focus of being the low-cost midstream service provider in the basin.

This includes remaining disciplined with our capital investment decisions and controlling our costs.

The second quarter results highlight our ability to manage our costs by controlling O&M and SG&A expenses.

It also means being more willing to explore creative ways to work alongside our producer customers to be a partner with them as they, too, look for ways to be more capital efficient.

I want to take this opportunity to address a few factors related to the recent change of control at EQT.

First, we've had really good dialogue with members of the new management team.

In fact, each of our organizations has formed transition teams to ensure seamless communication and operational continuity.

Second, we see opportunity for significant long-term value in the rigorous planning process and combo development strategy that EQT's new management intends to implement.

These large scale, fully coordinated drilling plans will allow us to maximize capital efficiencies for future build-outs in gathering as well as water handling services.

And lastly, with respect to contract negotiations, we believe that simplifying the contract structure for both gas and water can provide a mutually beneficial outcome, and we look forward to growing our relationship with EQT's new management team and working in lockstep on their development plans.

With that, I'll turn the call over to Kirk for a finance update, and then Diana will then provide an operations update, and I'll come back for some closing remarks.

Kirk?

Thanks, Tom.

Good morning, everyone.

Before discussing the financial results, I want to remind you of 2 accounting items.

First, EQM's second quarter 2018 results have been recast to include the results of Rice Midstream Partners, the Olympus gathering system and 75% of the Strike Force gathering system, all of which came under common control late in 2017.

Second, EQM closed the acquisition of Eureka and Hornet on April 10, 2019, the Eureka JV is consolidated in EQM and the Equitrans financial statements for accounting purposes.

Now for the results.

EQM reported second quarter 2019 adjusted EBITDA of $328 million, distributable cash flow of $239 million, and net income attributable to EQM of $152 million.

Equitrans reported net income of $75 million.

The results for both EQM and Equitrans were impacted by an $80 million impairment charge related to the write-down of non-core FERC regulated, low-pressure gathering assets.

This legacy system largely gathers shallow vertical wells, and after the impairment, the assets will carry no book value.

For the second quarter of 2019, EQM operating revenues were $406 million, an increase of $31 million versus the prior year quarter.

The increase was primarily related to higher contracted firm gathering capacities, the addition of the recently acquired Eureka and Hornet assets and was partially offset by lower water services revenue.

Stable cash flow profile of the business remains a consistent highlight as EQM generated approximately 88% of transmission revenue and approximately 52% of gathering revenue from firm reservation fees during the second quarter.

EQM's second quarter operating expenses were $239 million, an increase of $110 million from the prior year quarter.

Two nonrecurring items make up the majority of the increase.

The impairment of the low-pressure gathering assets accounted for $80 million and transaction costs associated with the Eureka and Hornet acquisition accounted for $10 million of the increase.

The remaining increase was primarily related to the addition of the Eureka and Hornet systems as well as higher system throughput and additional assets placed in service, which is consistent with the growth in the business.

For the second quarter of 2019, EQM will pay a quarterly cash distribution of $1.16 per common unit, which will be paid on August 13 to unitholders of record at the close of business on August 2. We continue to target a 6% distribution growth rate at EQM.

Now moving onto Equitrans.

For the second quarter of 2019, Equitrans will receive $136 million in cash from its ownership in EQM.

We will pay the dividend of $0.45 per share for the second quarter, which will be paid on August 22 to shareholders of record at the close of business on August 13.

For the balance of 2019, Equitrans expects to pay a quarterly dividend of $0.45 per share, resulting in an annual dividend of $1.80 per share.

We continue to target an annual dividend growth rate of 8%.

In terms of liquidity, EQM had about $1.1 billion drawn on its $3 billion credit facility at the end of the second quarter so we remain in a strong position to fund our organic growth projects.

Lastly, we updated our full year 2019 guidance this morning.

We're now forecasting net income attributable to EQM of $900 million to $950 million and adjusted EBITDA of $1.31 billion to $1.36 billion.

The revised 2019 outlook reflects the reduction in our expected water EBITDA and modest variations in gathered volumes.

Given the change of control at EQT, we are going to defer updating our long-term guidance at this time.

We expect to have more clarity on EQT's development plans over the next couple of months.

However, our base growth trajectory remains clearly defined by the $400 million of incremental firm EBITDA associated with MVP, Hammerhead, Equitrans expansion, Southgate and various firm gathering transactions.

I'll now turn the call over to Diana for the operations update.

Thanks, Kirk, and good morning, everyone.

The second quarter was another successful quarter for our E-Train team.

We began integrating the Eureka and Hornet Systems, gathered an average of 7.9 Bcf per day, which is a new record, managed our expenses, and continued to operate safely and efficiently.

We are making progress on our large growth projects.

Let's start with MVP.

Total project work is more than 85% complete, and we are working diligently to resolve the project's remaining legal and regulatory issues.

We are targeting a mid-2020 full in-service date at an overall project cost estimate of $4.8 billion to $5 billion, of which EQM would fund approximately $2.4 billion.

Moving onto other projects.

We expect to commence operations on a portion of the Equitrans expansion project as early as tomorrow.

The project will offer interruptible service of 600 million cubic feet per day and will provide access to several markets through interconnects with TETCO, DTI and TCO.

As a reminder, the Equitrans expansion project will ultimately provide delivery to MVP.

The project is backed by 550 million per day of firm commitment, which will commence with MVP's in-service.

A portion of our Hammerhead project is also expected to be operational by the end of this year.

Hammerhead will provide interruptible service until MVP is fully in service.

Such project is backed by a 1.2 Bcf per day firm commitment from EQT, which commences with MVP and service.

In terms of MVP Southgate, FERC issued a draft environmental impact statement for the project on July 26, and the final environmental impact statement is expected in December 2019.

Southgate will transport gas from MVP to points in North Carolina and is backed by a 300 million a day commitment from PSNC Energy.

The project has a targeted in-service date during the fourth quarter of 2020.

Now moving on to the Water Services business.

Today, we lowered our 2019 water EBITDA guidance to $50 million.

Over the last couple of months, a number of customers have modified their well completion schedules for the remainder of 2019 in response to lower natural gas prices.

This impacts the expected timing of freshwater delivery service provided by EQM.

We acknowledge that our previous forecast for the second half of the year was optimistic, which was primarily based on the momentum we experienced earlier this year securing new business.

On the produced water side, we are evaluating the best approach to serve our customers, particularly EQT.

As we've studied the landscape and discussed solutions with customers, our thinking has evolved over the last few months.

We currently see the opportunity centered around concentrated development areas that can utilize a header type system.

This approach will be much less capital-intensive and will provide greater returns than a full system build-out aimed at touching every pad in the basin.

We're still in the planning process, and we'll keep you updated as we make progress in this area.

I'll now turn the call back to Tom.

Before moving on to your questions, I'd like to take a moment to acknowledge and to congratulate Diana on her recent election and promotion to President of EQM and E-Train.

Diana's promotion is a well-earned act, and the Board is quite pleased to name her the President.

Her 25 years' experience in the business has been resoundingly successful, and we expect that to continue.

So with that, we'll open the line for questions.

(Operator Instructions) Your first question comes from Jeremy Tonet with JPMorgan.

Just wanted to touch base on Nationwide Permit 12, not sure if I missed that there, but just wanted to see if that was still tracking for August and what your expectations were there?

Yes, we are expecting to get it here late summer.

We're just waiting on the agency.

That's helpful.

And just wanted to turn to the balance sheet here and with the leverage, how it's kind of ticking up in advance of the project.

Spend it before the EBITDA shows up, and just wondering how the most recent communications with the agencies were and your comfort level with retaining investment-grade at this point.

Yes.

This is Kirk Oliver.

We are in constant dialogue with the rating agencies, and they are aware of the timing on MVP.

Obviously, it's critical for them and they're watching it closely, but we're comfortable with the status of that right now.

Your next question comes from Holly Stewart with Scotia Howard Weil.

Maybe first, Tom, can we just touch on MVP?

There's been -- seems to be a lot of chatter in the marketplace on just EQT and their options around maybe paying a penalty to kind of walk away from the contract?

If you could just give us your perspective on that?

Holly, thanks for the question.

Last week, on EQT's call, I thought Blue Jenkins did a great job of dispelling that rumor and just talking about what would be a massive penalty.

What we've come to learn is that there are 1 or 2 firms promulgating completely unfounded rumor about that, and it's really bothered us.

The fact of the matter is that the contract provides that in order for the shipper to walk from the contract, they would have to pay us plus a significant premium penalty above the cost paid.

Given where we are, in order to even contemplate that from EQT, they'd have to write a check of north of $3 billion, which is just untenable.

So it's just something that is just a nonstarter.

And I hope this will put to bed people who are spreading those rumors.

So thank you for the question.

Sure.

Absolutely.

Maybe along still the EQT lines.

Is -- can you just kind of talk through, should the -- gas pricing has obviously been very weak.

Should EQT get downgraded below investment grade, how does that impact EQM?

We don't know with certainty.

Clearly, we've been moving toward having the agencies decouple us from EQT, which they've said they were doing.

There's always the look-through to the credit-worthiness of your largest customers.

But given the trajectory and the approach that the new management team is taking towards strengthening their balance sheet, we still feel very good about having them as our largest customer.

Sure, sure.

Okay, that's great.

And then maybe just one minutiae detail.

Diana, you mentioned Hammerhead being partial in service by the end of the year.

Any sense you can give us in terms of what those volumes could look like?

It's really going to be more of an interruptible service.

So they're working on a couple of deals and a couple of things, but I can't give you anything firm right now.

Okay, okay.

That's okay.

And then just maybe one -- sorry, one final one for me, on just -- you previously talked about some shut-in volumes related to the optimization and integration of the systems.

Any CapEx numbers you can kind of throw out there that's associated with this project?

So the numbers are small for this year.

We're doing some low-hanging fruit, trying to reduce pressures where they were created.

We have some plans for next year, but without EQT's new development plans, it's hard to -- they really are hand-in-hand.

So once we get that in the next couple of months, we'll be able to give you a better idea of what that integration looks like.

Holly, if I could just follow up on that with a slightly broader perspective.

We've really been encouraged by the dialogue that our teams have been having with EQT's new management team because our desire in this low commodity price environment to be -- to really husband our CapEx is entirely consistent with the way they're planning to do their development.

So we're not -- we're very bullish about our ability to create a runway where we will be much more capital efficient over the next several years as this plan gets rolled out, which will be a tremendous mitigant to operating in a lower production environment.

Your next question comes from Spiro Dounis with Credit Suisse.

Just a 2-part question here on new management at EQT.

Was hoping maybe you could clarify some comments just last week, specifically around the gathering negotiations.

It sounded like maybe at first, the current gathering rates would not be touched, and that a lot of the cost benefit to EQT would come from new water business.

But I guess later in the call, it seemed to imply that maybe gathering fees would be on the table.

Just looking for clarity there.

And then just also on the capital efficiency gains, is that incremental to the $300 million to $500 million of capital of the ones you guys have been guiding to?

On the capital?

So the efficiencies will be -- it's all in that same number, the $300 million to $500 million.

Those are the efficiencies that we thought we could gain with the existing plans.

So once we see what the new plan is, then we'll be able to give you a better number on that.

It really depends on where the wells are drilled and when.

Spiro, this is Tom.

I think the conversations so far with the new management team at EQT have been very productive.

We're starting to highlight for each other what our areas of desired value expectations are in these negotiations.

So I don't want to front run any of the conversations more than to say that there is a mutually beneficial value trade to be had here, and each of us are looking forward to getting into the details sooner rather than later.

Okay.

That's fair enough.

Yes.

No, understand.

You guys are obviously in the middle of negotiations.

So respect that.

Just second one on MVP.

Solicitor General had mentioned the land swap in the ACP petition.

And it seems like the point there was really more to highlight, I guess the extraordinary lengths some companies have to go through to just get a pipeline built.

But they did say that the land swap does pose substantial questions.

And I was just curious, is that in sync with your view?

And how do you feel like -- do you feel like you'll be able to actually address these questions and get the Department of Interior comfortable?

We believe firmly that the land exchange is well within the discretion of the Department of Interior.

Our conversations with them have confirmed that.

I'd be out of my depth to speak to the legal thinking of the Solicitor General's report, so I'll leave that alone.

But for right now, we still feel the way we did when we made this initial announcement that this is a viable and timely solution for us.

Understood.

Last one for me, just in terms of pursuing leverage at the MLP JV level.

I suspect we're still probably a ways off from there, maybe until MVP gets online.

But how are you thinking about putting that cash to work?

And what sort of loan-to-value metrics seem right to you and how you deploy those proceeds?

Yes, this is Kirk.

I think we would be able to get about 50 debt, 50 equity at the partnership level, and we will put that in place once the project's in service.

And the use of the proceeds will be to pay down debt at EQM.

Your next question comes from Derek Walker with Bank of America.

Just a couple for me.

Just I know you're waiting for the development plan on the EQT side of things, but maybe you can just give a high level sense of what we should expect kind of when -- once you roll that plan out.

Should we also expect sort of an announcement around the produced watering side at that point as well as sort of the resolution around the contract negotiations?

Or is that going to kind of spill into 2020?

Yes, we're still tying that together in our discussions.

So in our first meeting with them, we focused on gas, talked a bit about water.

But we really do need to understand how they're going to use water in order to determine if that is going to be a viable project for them.

But we're tying it together in the conversations now.

I do think their efficiencies in drilling and the way that they are planning to drill from a combo drilling perspective will be more efficient for us as far as laying pipeline.

They seem to be focused on an area and be very disciplined about what that plan will be.

They're also talking about us having that plan over 24 months in advance, which will be very helpful in our planning and permitting as well and will give us efficiencies in the capital world.

And then I guess just on the capital side.

I know this is probably all tied to it, but I'll ask it anyway.

I think there was kind of a multi-year guidance with Eureka on the capital spend.

You gave updated water for this year.

Should we just kind of wait for the updated development plan to kind of rethink about that CapEx spend in 2021?

Or how should we think about that?

Yes.

So we're working through that right now with customers.

Their drilling plans have changed a bit, so we want to make sure that we have what their plans are for next year, and we'll set it all at one time.

Your next question comes from Chris Sighinolfi with Jefferies.

Tom, you had mentioned and -- or it's mentioned in today's release, just how MVP continues to work through several alternatives to resolve the remaining legal challenges.

Obviously, the land exchange proposal you outlined in June was new from the last call, perhaps a novel approach to get a resolution on the Appalachian Trail front.

But I'm just wondering if you could give us a quick, but perhaps a bit more detailed rundown on what the options you're advancing are and where you stand on each?

Chris, the statement in the release wasn't intended to suggest that there are any new avenues that we're pursuing.

We continue to pursue the ones that we've talked about repeatedly over the last year or so that clearly would include supporting the action at the Supreme Court legislative action and de-delegation activity at the DOI.

So those remain the avenues that we continue to pursue in concert with the land exchange.

Okay.

And the timing, the update from June was predicated on the land exchange.

That's what's sort of driving the time and cost estimates at this point.

Is that a correct understanding?

I think when we talked about the land exchange, we said 9- to 12-month time period.

And that's what's driving the end date.

Okay.

Okay.

If I could switch gears a little bit, Diana, I just was -- would like to circle back on the guidance change for the water business this year and perhaps a window into how we should think about it next year and longer term.

And obviously seeing the customer updates that you referenced in terms of responding to lower natural gas prices with the reduced activities.

But I'm just -- the magnitude of the pullback this year, you mentioned it was an optimistic second half outlook.

But if we can get just a little bit more color on, I guess what changed?

Or if it's what producer -- I don't know if you want to name producers, but like we didn't -- if we go through EQT's updates, it didn't sort of speak to that magnitude of a change.

So I'm just curious if there was producers on the come that didn't materialize?

And how we should think about that, I guess, as it transitions into 2020?

So yes, it's a couple of things.

One is that there were producers on the come that were telling us that they were going to drill.

But there were also producers that were contracted.

So we had contracts to move the water, but when they changed the drilling, it's still tied to that.

So the thing about EQT, you're correct.

Theirs didn't change as much.

There is some movement in the EQT water and what we were thinking.

So some of the things that we had planned in the second half of the year moved out, but some actually went away.

And the ones that went away, really what we're seeing is there were contracts and deals with people that we aren't moving their gas necessarily, but they were customers that we were really just moving water, and that was the plan.

So you don't see as big of an impact on the gas side, one, because we have MVCs; but two, because some of that, we weren't really even planning on moving their gas, just their water.

So some of it's movement and most of it's slowing, though, because of gas price.

Okay.

And in terms of, I guess the nature of those contracts, are they such that if somebody has -- is contracted with you for a water need and they have that need and you provide it, you earn a fee?

Where there's no sort of reservation activity charge for you standing by waiting for them?

Correct, it's more timing.

So they're committed when they drilled the well, they're committed to using us for the water.

But it's not like a gas contract.

So you don't have the same kind of reservation.

Okay.

So the excitement earlier in the -- okay, go ahead, sorry.

So if we get to that place where we can negotiate it a little different, that's something that's more secure for us and we'll continue to try to do that.

But the contracts that we have for this half of the year weren't.

Okay.

And so then just -- and sorry to beat this, but just so I understand.

So the euphoria, the excitement earlier in the year was that you had signed up these new parties, they were telling you a schedule that would have impacted positively this year and then that changed.

And so that's maybe the biggest element of change and not something we would have necessarily seen reported by them.

Correct.

Okay.

Understood, okay.

And then final one for me is I think for Kirk.

Just with regard to the impairment, just curious what prompted that to be done now?

And then is -- I realize there's no carried value on that asset any longer, but is anything flowing on it?

Or is it potentially suitable for repurposement of some kind?

Or I guess should we just expect that asset just to sit there?

It's -- yes, I think you should think of it as -- there is some modest flow on it, but it's -- we wrote it down to 0. So there's no book value in the asset.

And what prompted us looking at it is we had the 501 filing and we had looked at that asset as a part of the transmission business before, but we broke it out this time around.

So looking at it standalone, we had to impair it.

Your next question comes from Ross Payne with Wells Fargo Securities.

I guess my first question is on the land swap.

If you get that done, seems like the environmentalists have been able to put hurdles in front of the number of pipelines at different junctures.

I mean if you do get the land swap done, is there anything you can foresee that the environmentalists will put in front of you to cause further delays?

Ross, this is Tom.

I think we've long ago given up trying to predict how vociferous the opponents will be.

I think our approach to the land exchange is one that not only is it a path to completion, but it is also the most environmentally constructive move because it would eliminate any further degradation of the Jefferson National Forest.

So we actually are cautiously optimistic that we would be able to manage any conversations or issues raised by the opposition.

Okay.

And then also on Eureka and Hornet, can you go into just a little bit of detail on the positive impacts of those acquisitions?

I'll start with the higher level positive impacts, and then I'll let Diana talk a little bit about the operational benefits.

But clearly the connectivity of those assets to our existing footprint was a natural.

Simply by looking at the map, you could tell that we would be able to leverage our existing infrastructure to serve additional producer customers there as well as eventually adding to the water business in that part of our footprint.

It's a positive long term.

We have to acknowledge reality.

And reality is that since we signed that deal, the natural gas strip has gone down 50 to 60 basis points.

So the level of activity has slowed dramatically, as it has throughout the basin.

But we're in the business to own and construct and operate assets for the long term.

And for the long term, we'd really like to fit with the Eureka and the Hornet assets.

Diana, is there anything you want to add operationally?

So operationally, obviously, geographically, it was a great fit.

It gives us the opportunity to diversify our customer base.

It gives us the opportunity to offer different markets for those producers.

I think, ultimately, the rock is the rock, and it's good to have that asset.

It's just the timing and the slowing of drilling right now is where we are.

Yes, and this is a cyclical business.

And we know that when commodity prices are low and people pull their horns in and have more discipline with respect to production CapEx, that we have to be more disciplined ourselves and weather this low commodity price period, and we will.

Okay.

On that note, given you guys are the biggest in the business, what are your expectations of slowing growth or negative growth in the Marcellus/Utica for next year?

And what do you think is needed to balance the markets, given the price of the commodity to start moving it back in the right direction?

So I listened to the comments that Kyle Durham and Toby Rice made on the EQT call.

And I thought directionally, they were very spot on.

I think there's a lot of activity that needs to slow, particularly in the Appalachian Basin, and they were talking about the Haynesville as well.

We don't anticipate any production growth of size over the next 18 to 24 months in the basin.

Think our planning is going to be predicated on 0 to very, very modest growth.

And we'll do all of our OpEx and SG&A planning around that.

To the extent that we get some good, positive movement in natural gas prices, then we're prepared to benefit from that.

But we don't see a catalyst right now in the near term that would move up the level of activity in the basin.

Do you have a crystal ball at all in terms of when you think there will be a rebound in pricing?

And what are your thoughts just generally on associated gas out of other parts of the country?

Yes, I think my crystal ball says that prices will go up when prices go up, I don't necessarily have a date.

As I said, it's -- we're in a cyclical business.

They will moderate over time when, Ross, I think your guess is probably far better than mine.

Looking at the level of activity in the basin and looking at the different hedge books and the recent focus on capital discipline, we expect there to be a period of either no production growth or, at best, very modest production growth.

And Ross, I said that, I said that, but I don't mean that to be like as something that's detrimental to the long-term benefit of our company.

One of the tradeoffs to that is particularly now that we're going to have our largest customer with a very disciplined and concentrated development plan, we will be able to have more benefit to our free cash flow in this environment by being disciplined in our capital efficiency.

So there will be meaningful mitigants with this lower production environment for us over the next 18 to 24 months.

Your next question comes from Tim Howard with Stifel.

So there are a number of initiatives going on under the new management team in EQT around transparency, technology and just cultural.

And I'm just interested, as the transition teams talk, are there any new initiatives at EQM or E-Train, given all the changes in evolution at EQT?

So we have been talking to them.

They do use a couple of platforms, one in particular, to communicate.

They're very interested in us seeing, real time, their schedule changes, just like the people in their company are seeing it.

So I think there are some ways that we can integrate the workflows and the systems that we use right now for project management with their scheduling.

So I think it'll be good.

Okay.

And then are there any associated costs with that, that we would consider meaningful?

No, it really shouldn't be.

No.

Okay.

And then on the...

One of the aspects of the new relationship that I think will be meaningful to us from a planning standpoint is either the actual or the virtual embedding of our team with the development team at EQT.

That will pay dividends.

We have the systems that they use.

We just use them a little differently now.

So it's really a configuration and integration, whether it's that we dump things out of their system and into ours or we truly start to use it in a different way.

But there are things that I think we can do and we're excited about it.

The greatest opportunity for us to execute on capital efficiencies will be when EQT rolls out their final development plan, for them to stick with that plan with as few changes over the course of a couple years as possible.

That will then provide the opportunity and the foundation for us to be as capital-efficient as possible.

That's what we're trying to formulate in concert with them right now, the plan that will be predicated on as few changes over the period as possible.

That's helpful.

And then kind of pivoting to the flat to no growth environment as we think about the next 18 months.

So should we think about the gathering cash flow as relatively -- or the volume in cash flow as relatively flat?

I know there was previous conversation about the MVCs at Eureka asset, unaware if those kind of ramp up.

And then just as you talk about the capital efficiency gathering investment has been pretty robust in the first half of the year.

And just as we think about that, kind of as we progress over the next 18 months as well.

Yes, the Eureka assets, the MVCs, they do ramp up some.

But in general, I think if the growth is flat, then we're going to see the cash flow staying pretty flat in the gathering business.

Yes.

And then our focus has to be if we're going to have relatively flat revenues, we have to squeeze every cost and capital efficiency we can so that we can come out with as good, if not better, free cash flow.

Right.

I think as people adjust their plans, it'll impact the growth in EBITDA, but it will also impact the CapEx, right.

Your next question comes from Becca Followill with U.S. Capital Advisors.

To get some clarity on timing, on the land exchange, what is the next step in the process?

And is this exchange publicly filed?

So we've given them all the information that we have right now.

And so what we're waiting on right now, actually, is for them to come back to us with a request.

We did file, it's on our...

Yes, it's on the FERC docket.

FERC docket, so it's publicly filed, but really just waiting for a response.

And when they respond, they respond with more comments that they need more information or what happens from there?

Yes, I think that's what'll happen.

So I think what will happen is they'll come back with all of the information that -- because it was really our proposal to them.

So they'll come back with what they need to see.

And one of the biggest things we know that they'll need will be the EIS, which is complete.

So that we feel like is what will give us a better (inaudible).

Yes, this -- the land exchange is not so much a regulatory process as it is a real estate transaction that has certain prerequisites that are required in order to allow the DOI to exercise their discretion to execute it.

And I think what Diana's talking about is that we'll get a laundry list of the prerequisites that will need to be complete and filed to get to that point.

So it will be a series of back-and-forths with each time this being filed with the FERC?

It doesn't -- I don't think it has to be filed with the FERC each time.

I think it's really going to be a back and forth of getting them all the things that they need, all the assessments and things that they need to get comfortable to do the exchange itself.

There's 3 major things that I'm aware of that, again, not getting outside our depth in terms of talking about legal aspects is environmental impact study on the one parcel, environmental assessment on the other parcel and a federal appraisal.

Yes.

It has to go through their channel.

Has to go through their channels, Becca.

So that's why we're saying it's more deliverables for this transaction as opposed to a regulatory process.

But to the extent you have more detailed questions on that, we could pass you off to the lawyers.

No, that's -- I don't want to do that.

Gosh, okay.

Very helpful.

And then the other question is, before, I think the plan was to put in this high-low system.

You got your Hydraulic City last year that was supposed to be in by the end of this year, and then you were really going to begin the negotiations with EQT in earnest.

That's obviously changed with the new management team.

They've got about a 30- to 60-day period that they're going to review and then give us their guidance or their outlook.

So what is the timing for your negotiations?

Is that hopefully by the end of this year?

Or is it a -- no timeline on it, what's the thought on that?

Our hope is sooner rather than later.

I think that we're -- as Diana said, we're in conversations and meetings and consultation in coordination with EQT team now in the development of their plan.

They've been very open and anxious to have us involved in that process.

We have begun to say to them, we want to have this global conversation.

And they're willing to do that, they need to put a little bit more meat on the bones as to what their plan is in order for them to have an informed assessment as to what exactly are their hot buttons for, negotiation as will we.

So if you're talking about will it slide into next year, I don't think so.

(Operator Instructions) Your next question comes from Sunil Sibal with Seaport Global Securities.

I just had a follow-up on what was said previously with regard to liability on EQT for it to walk away from MVP.

I just wanted to clarify, are there certain contractual requirements that EQM or MVP has to meet for that liability to occur?

How does that plays out?

Well, the short answer is no.

So as far as you're concerned, you met all the obligations for that liability on the part of EQT trigger, correct?

Correct.

And that's similar contract with other shippers on the pipeline, too?

Correct.

Your next question comes from Loren Berry with private investor.

I wanted to see if you could talk about the new listing that you had of impairment of long-lived assets, and if that's going to be a onetime expense, will continue and what that comprised of?

It's just a onetime expense.

And it's a gathering system in West Virginia.

It's a low pressure with old vertical wells, old gathering system.

There are no further questions at this time.

I will now turn the call back over to the presenters.

Thank you very much for joining us today.

We look forward to speaking with all of you again soon.

Have a great day.

This concludes today's conference call.

You may now disconnect.