Equitrans Midstream Corp (ETRN) 2019 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the ETRN and EQM Fourth Quarter and Year-end 2019 Earnings Call. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Tom Karam (sic) [Nate Tetlow]. Thank you. Please go ahead, sir.

Good morning, everyone, and thank you for joining us. On the call with me today are Tom Karam, Chairman and CEO; Diana Charletta, President and Chief Operating Officer; Kirk Oliver, Senior Vice President and Chief Financial Officer; and Justin Macken, Senior Vice President, Gas Systems, Planning and Engineering.

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 5280796.

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 releases and under risk factors in both ETRN's and EQM's Form 10-K for the year ended December 31, 2018, both of which are filed with the SEC and as updated by any subsequent Form 10-Qs. Also, the Form 10-Ks for the year ended December 31, 2019, will be filed with the SEC later today.

Today's call may also contain certain non-GAAP financial measures. Please refer to this morning's news releases and our investor presentation for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measure.

This morning, we reported fourth quarter and year-end 2019 results that were in line with our guidance. Given today's transformative announcements, our prepared remarks are focused primarily on these actions. However, we are happy to answer any questions on the earnings release during Q&A. After the prepared remarks, we will open the call to questions. With that, I'll turn it over to Tom.

Thanks, Nate. Good morning, everyone. As you may have seen, we have a lot to talk about today. We're excited about the actions we've taken to strengthen our balance sheet, upgrade our contractual relationship with EQT and accelerate our transformation to a C-Corp. Each action is designed to make us a stronger company, able to succeed in any environment. And as of today, both EQT and E-Train are stronger entities. E-Train will emerge a strong C-Corp with transparent governance with over 70% take-or-pay revenue beginning in 2021, about a 30% capital efficiency benefit from our actions, rapidly delevering, and importantly, with a stronger technology-driven customer poised to capitalize on their leading position in the basin.

So let's start right in on Slide 2. We're taking 4 distinct actions. The first action is the execution of what we call a blend, broaden and extend 15-year gas gathering agreement with EQT, effective immediately. Second is the purchase of 25.3 million E-Train shares from EQT or $52 million in cash and $196 million of present value rate relief. Third, E-Train will acquire EQM in an all-stock transaction. Each unit of EQM will receive 2.44 shares of E-Train stock. And fourth, we will establish a new financial policy, resetting our annual E-Train dividend to $0.60 per share, establishing a clear plan to exit 2021 at 4x leverage or below with positive retained free cash flow. Taken as a whole, these actions immediately strengthen our balance sheet and credit profile, strengthen our largest customer and move us toward being a C-Corp entity with transparent governance, striving to become an industry leader in ESG initiatives.

We've been consistent in stating our objective is to become a C-Corp with an industrial strength balance sheet, able to focus on efficient capital allocation to deliver value to our shareholders. This new creative blend, broaden and extend agreement with EQT provides long-term security in our cash flows, as I said, 70% take-or-pay revenue beginning in 2021, and long-term growth locked in through a significant additional acreage dedication. The agreement also ensures complete alignment with our largest customer, with both companies healthier and positioned to execute on the most capital-efficient development plans. The deal allows EQT to execute on their state-of-the-art combo development drilling plans. And for us, this translates to an estimated 30% reduction in capital as we benefit from building fewer miles of gathering lines, a clear win-win.

Another key objective is to revise our dividend and capital allocation policy. The dividend level was an output of our financial policy objectives, and we had the benefit of being able to listen to many shareholders as we fully developed our revised business plan. Our rapid delevering coupled with substantial free cash flow provides the opportunity and the flexibility in the future to return value to shareholders through buyback programs or appropriate dividend increases or further delevering.

On Slide 4, we highlight the key points of this new agreement. Phase 1 begins immediately and provides us a 15-year contract, base minimum volume commitments of 3 Bcf per day, an acreage dedication in excess of 100,000 acres in the West Virginia core and the significant capital protections I spoke of. For EQT, Phase 1 brings the ability to execute efficient development without constraints. The single MVC eliminates the legacy deficiency payment issue caused by multiple MVC contracts. And lastly, immediate liquidity of approximately $250 million through lower credit thresholds on posting requirement.

Slide 5 is where we outline Phase 2. It becomes effective on the in-service date of Mountain Valley Pipeline. In Phase 2, we get an MVC that ultimately steps up to 4 Bcf per day for a stretch of 9 years. A 5-year agreement on water, providing for an MVC of $60 million per year. And hopefully, as gas prices recover, we have the potential to earn up to $60 million per year for 3 years in bonus payments.

In Phase 2, EQT gets base rate relief of $300 million over 3 years. Again, this blend, broaden and extend agreement is the value trade each of our companies desired to achieve, resulting in 2 stronger companies, low-cost rates for EQT, high take-or-pay revenue for E-Train and an extended partnership covering substantial new acreage.

Slide 6 shows the previous MVCs with EQT versus the new MVC profile. To me, this graph speaks for itself, and I think this is a great page, but 2 things really jump out. First, under the old contracts, you see the MVC falling to below 1 Bcf per day by the end of 2025 as the existing current contracts expire. And second, with Phase 2, we will have that 9-year stretch of 4 Bcf per day of minimum volume commitments. The PV10 of the revenue generated solely from the MVCs jumps from a current $2.8 billion to a Phase 2 number of $4.9 billion. Removing volume uncertainty and locking in the MVC for the next 15 years is precisely the outcome we have been describing to the marketplace.

On Slide 7, we show the forecasted annual and cumulative net cash flow impact this new commercial agreement provides. Part of the value trade for gathering fee relief is the 5-year water MVC, which is about $20 million higher per year than our previous estimates. And we have the potential to earn up to $180 million additional dollars as Henry Hub pricing recovers. In addition to water and Henry Hub upside, incremental volume growth provides even further potential upside. Gathering agreement incentivizes volume growth through a $0.30 per dekatherm rate on volumes above the MVC.

And with that, I'll turn it over to Diana to discuss some of the operational aspects of the deal.

Thanks, Tom.

Deploying capital efficiently is at the core of what we do every day. This agreement with EQT provides multiple benefits that will advance our ability to control capital and ensure efficient buildout. We believe the newly dedicated West Virginia acreage will be a key development area for EQT over the next 5 years and estimate the investment to support the development of this acreage is worth about $500 million of net present value. The gathering agreement also provides mileage limitations on our obligations to build. Having firm, consistent and concentrated drilling plans leads to innovative system design, limits expensive winter construction and also reduces land acquisition costs. Each of these improvements contribute to lower capital costs over time.

Now on to Slide 9. Moving to a single MVC allows EQT to design and execute their combo development strategy without the previous constraints caused by multiple contracts. Combo development drilling has the overall benefit of reducing our required pipeline build. The result is an estimated 30% reduction in midstream capital, which is about $250 million of capital savings from 2021 through 2023. A longer-term benefit and one that could be a real step change in our capital program is return to pad drilling. The combo development example on Slide 9 shows 15 laterals, all drilled to the Northwest. In many cases, this is just the first step in the development program. The second step is a return to pad to drill 15 laterals that reach in the opposite direction to the Southeast.

Return to pad drilling requires minimal incremental midstream capital because the infrastructure built for step 1 can also be utilized for step 2. We think it's going to take about 4 or 5 years before we really start to realize the benefits of return to pad, but we are very excited about the impacts it will have in our future capital needs.

Now let's shift to our growth CapEx forecast on Slide 10. We forecast approximately $1.6 billion of growth CapEx from 2021 through 2023. Of that, about $400 million is driven by demand-pull projects, including Southgate, power plant connections, AVC upgrades and the MVP expansion. About $1.1 billion or $365 million a year is gathering CapEx that supports both EQT and other producers. The gathering capital supports the projected mid-single-digit volume growth CAGR over the time period. As you can see, our CapEx is expected to step down in 2023 as the transmission projects are largely complete in 2021 and '22, and we benefit from the gathering efficiencies we've discussed.

Before turning the call to Kirk, I do want to switch gears and provide a quick update on MVP. At year-end, the total project work on MVP was over 90% complete. We have been working with our partners to resolve the outstanding permit issues, and we continue to make good progress with these efforts. We expect the biological opinion and Nationwide 12 permit will be resolved in the spring, allowing construction to resume. We also remain hopeful that the Supreme Court will overturn the Fourth Circuit Court's original decision on ACP's case related to its Appalachian Trail crossing, resolving similar challenges for MVP. Oral arguments were held earlier this week, and we expect a decision from the court by June. We continue to target a full in-service date for the pipeline of late 2020 and an overall project cost estimate of $5.3 billion to $5.5 billion.

I'll now turn it over to Kirk.

Thank you, Diana, and I'm now on Slide 11. Today, we also announced the purchase of 25.3 million shares of E-Train stock from EQT at $9.54 per share. We will pay for the shares with a $52 million in upfront cash and $196 million of present value rate relief deferred until Phase 2. The future consideration will be paid through gathering fee relief of $235 million over 2 years. We expect all 25.3 million shares will be retired in March of this year. Share purchase from EQT represents half of the E-Train shares that EQT owns. The remaining shares that EQT owns will represent about 6% of the pro forma E-Train shares outstanding, significantly reducing the equity overhang in E-Train.

Slide 12 addresses revenue recognition considerations that will be important as you model the company going forward. This change for us is due to the rate structure and the new gathering agreement and how we expect revenue from the gathering agreement with EQT ultimately be recognized under GAAP. The new 15-year contract with EQT has a gathering rate profile that gradually reduces over the first 9 years before plateauing for the remaining term. This is the darker line labeled Cash Received on the graph. Under GAAP, we expect to recognize revenue using an average gathering rate on the MVC over the 15 years, represented by the lighter line on the graph, labeled Revenue Recognition. This results in significantly more cash received than the revenue that is expected to be recognized in the early years and then reverses in the later years as the revenue recognized is expected to exceed the cash received. The balance sheet will reflect a related contract liability that grows in the early years as more revenue is deferred and declines in the later years.

You can also see the impact at the bottom of the graph in the first year. First year deferral is particularly large due to the shares that are being repurchased in exchange for future rate relief. The shares repurchased account for approximately $190 million of the $450 million of expected revenue deferred in 2020. And finally, this accounting not only impacts revenue but also impacts all measures of income, including adjusted EBITDA.

On Slide 13, we detail the expected impact to adjusted EBITDA as it relates to the anticipated revenue recognition under the new gathering agreement. The first column shows our previous 2020 forecast, the deferred revenue forecast and the pro forma E-Train adjusted EBITDA forecast. The only change to our 2020 guidance for adjusted EBITDA is the revenue recognition under the new gathering agreement and a couple of million dollars of G&A expenses included at the E-Train level. We are also providing for the first time an E-Train-adjusted EBITDA forecast for 2021 through 2023 and have included the deferred revenue forecast, so you have the information to do an apples-to-apples comparison with your models.

On Slide 14, we summarized the terms of the roll-up transaction. Each unit of EQM will receive 2.44 shares of E-Train stock. The acquisition is expected to close in mid-2020 following approval of E-Train shareholders and EQM unitholders. We see value in being a single C-Corp security with simplified governance, a broader investor base and improved trading liquidity. In terms of cash taxes, we forecast near 0 through 2023 and minimal cash taxes for several years after that.

Slide 15 provides E-Train forecasted measures that are pro forma for the commercial agreements with EQT, the share repurchases, the acquisition of EQM and the financing plan. The DCF on the upper right, which is increasing at a 13% CAGR, reflects the cash associated with the deferred revenue in each period and provides a good picture of the improving cash flow profile of the company. The DCF coverage starts at above 2x in 2020 and is expected to grow to over 5x by 2023.

Finally, the lower left shows the free cash flow, which is after we cover all CapEx. From 2021 through 2023, we are forecasting $1.8 billion of cumulative free cash flow.

With that, I'll now turn the call back to Tom.

Thanks, Kirk. So to conclude, let's take a look at Slide 16, which I think sums things up pretty nicely. Putting everything together, you clearly see a business with a rapidly strengthening financial profile, an enviable contract structure and the ability to generate substantial free cash flow. And then layer on top of that the near-term addition of the substantial MVP project, which will further upgrade our business mix. We believe all of these things together position E-Train in the best possible place to create value for our stakeholders. We're very appreciative to the constructive relationship we've established with the new EQT management through these negotiations, and we're excited and look forward to the opportunity to build on it.

With that, we're happy to answer your questions.

(Operator Instructions) The first question comes from Jeremy Tonet of JPMorgan.

A lot of information to unpack here. And I was just hoping if you could kind of break down some of the pieces a bit here. If I'm looking at the guidance, maybe on Slide 13, the previous $1.38 billion for 2020, the adjusted EQM EBITDA there, just kind of the moving pieces to get to the $1.4 billion in 2021 as it relates to projects coming online and the various forms of rate relief. If you could just kind of help walk us through a bit here, I think that might be helpful.

Yes. Jeremy, this is Nate. We've assumed here year-end MVP in service. So in '21, we've got a full year of MVP, Hammerhead and the Equitrans expansion project. With MVP in service also starts Phase 2 of the deal with EQT. So the rate relief also comes in, in '21. So when you net all that out, and then also with the deferred revenue there, you get to the $1.4 billion. And again, the accounting change is on the deferred revenue, which is the $0.11 on Slide 13. There's some other growth in there. I mean we're doing some other projects for some other producers. But the big movements are MVP and service and the EBITDA that it contributes and then the rate relief kicking in.

Great. And maybe just diving into the dividend a bit more, I think you said it was kind of an output of what the business can deliver at this point. Maybe you could just provide a little bit more detail on how you settled in on this rate versus something higher or lower?

Yes. Jeremy, this is Tom. Thanks for that question. It's not necessarily what the business can deliver. The dividend level of $0.60 that we've reset was derived as an output from what our new going-forward financial policy is, and there are 2 main pillars to that. The first pillar is our commitment to exit 2021 at 4x leverage or below, and exit 2021 with positive retained free cash flow. And we define retained free cash flow as cash after paying for CapEx and dividends. We think that those 2 pillars are key to delivering the balance sheet strength that we think is warranted in this environment and then also warranted moving forward as investors think about putting money into the midstream space because, I think we've said this several times before, we've got to be very industrial looking moving forward to attract generalist investors and people willing to put money into our space. And we think that the actions we're taking today are key to moving us very far along that route.

Your next question comes from Spiro Dounis of Crédit Suisse.

Just maybe for Diana. Just wondering if you could walk us through this transaction from an IRR return perspective. You're going to be spending less, but obviously, the rate is coming down over time on the incentives. So maybe just help us think about how your returns on incremental invested dollars from here compare to maybe some of your legacy portfolio or any new deal you would have signed today otherwise? And maybe in framing that out, you could also just help us think about the free cash flow here. Obviously, $200 million cumulative impact, I guess, from a worst-case scenario, if you get none of the natural gas benefit, but how do we think about the resulting CapEx offset there as well?

Good questions, and I'm going to -- I'll let Justin help me out a little bit with some of this capital savings question. But from an IRR perspective, we look at this as from this point forward, the same IRRs, they're about the same as the deals that we're signing now, right? We're using a market rate right now and those rates of returns are something that we're very comfortable with. Going forward, as the combo drilling really starts to pick up, we'll have less and less capital that we have to contribute. So we feel like, actually, in the long term, the IRRs are better.

And Justin, maybe you can talk a little bit about what the system capital does over the next couple of years?

Sure. This is Justin. Just a little color, like Diana said, on the capital. We're viewing this as really just an important next step in the strategy that Diana and Tom have been laying out over the last year about, number one, integrating the various gathering systems that we have that allows us to provide our customers with an important posted stamp-type rate and helps us manage our capital efficiently, especially on the compression side, as we're able to balance the volumes across these various systems and not build for peaks.

The new contracts that we've now entered into with EQT really allows them to execute on their combo drilling program, and they've spoken extensively about how that helps them achieve their cost targets. But it's equally important for us on the midstream side and achieving our capital efficiencies. Diana spoke about the slide that demonstrates how we can reduce the pipeline mileage and certainly push down the capital requirements for hooking up new pads going forward.

And then as we look at the medium to long term, the capital protections that are in the new agreement and the return to pad drilling that Diana spoke about make us very comfortable in not only being able to sustain this CapEx run rate but actually driving it down in the long term.

Thanks.

Okay. That's helpful. And just switching gears a bit, just thinking about long-term growth opportunities, you've got a lot of visibility now with a 15-year deal on this contract. But Tom, you've also talked about in the past about maybe heading into a no-or-slow-growth environment here for the next few years. When you get past 2023, how do you think about E-Train's growth prospects from there? How much of that is coming from gathering versus maybe building out your transmission business with some expansions?

So my crystal ball is kind of foggy when you get to beyond 2023. I think, clearly, we're going to continue to serve EQT and our other producer customers in the basin, and we'll be there to continue to add volumes on the gathering side. We do believe that as we put Mountain Valley Pipeline in service at the end of the year and we continue to look to the Southeast off of the in-service of that pipe that there could very well be additional transmission and expansion opportunities. I think we've talked about a mainline expansion there.

So putting together the position we have in the basin and the transmission project that we're going to put into service at the end of this year, we think that we're going to be positioned to take advantage of any growth opportunity that makes economic sense to us, whether it's beyond 2023 or sooner. So it's kind of hard to be specific to answer the question, but we're in the business of midstream infrastructure.

Your next question comes from Chris Sighinolfi of Jefferies.

I did have a couple of follow-up questions, Kirk, I think, for you. I'm just trying to make sure I'm understanding the components of Slide 18 correctly. And really, I guess what I'm seeking to do is build into an enterprise value. You have leverage ratio quoted there, and it looks like it's defined as just consolidated debt. And then it's, I guess, what I would use the phrase, maybe a cash EBITDA, the adjusted EBITDA pro forma plus the deferred revenue. I'm just wondering does that -- is that inclusive of any pref treatment? I know you're going to have a residual pref that you're planning. I'm just curious of any other items that we should make sure we pay attention to.

No. That's excluding the pref.

Yes. The leverage ratio doesn't include the 600...

The pref got split into 2 pieces. There's $600 million of it that was refinanced, and that was -- that's going to be refinanced, I'm sorry. And that's going to be $600 million at EQM, so that would be included. $600 million of it is moving upstairs to E-Train, which is not included.

Okay. Yes, you're refinancing part of it with debt, and then part of it will remain a pref.

Yes.

Okay. And have you -- I guess have you had clarity from the agencies about how they'll treat that pref position? Is that going to be something you think gets partial equity credit or not?

We -- so S&P treats it 100% as debt. Fitch is more 50-50, but they'll have to look at it again because we've changed the terms of it a little bit. So they'll be looking at that again. We've talked to them about it. And Moody's will be looking at it again. And one of the features that we did change on that is there is a step-up in the coupon. That happens in 2024. And then beginning in January of 2024, we'll have the ability to call the security, which the rating agencies make that -- they view that as making it look more like a debt security. So the change will (inaudible) more like that.

Okay. And the leverage ratio that you're quoting here, is the assumption just that the excess retained free cash flow is just used to reduce the debt load?

Yes. Yes.

Okay. So we could actually think about that as a net debt number?

Yes.

And do you -- I guess a final question for me, Kirk. Do you have -- I know I can wait for your K, but do you have a year-end net debt balance that you can offer?

Year-end net debt, give me a minute. I'm looking.

We had the $2.4 billion available under the revolver. I can get you the net debt number. I don't have it in front of me.

It's about $7.6 billion. We plan on filing the K today, Chris. So you'll have that information this evening.

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

I'm with Chris, I'm also on Page 18. So can you help me with the assumptions and the growth in EBITDA from 2022 to 2023? Does that assume that EQT picks up drilling activity and adds some rigs and -- just how you put together your forecast, is that in conjunction with the drilling plans for EQT?

Becca, this is Tom. I'll answer it in part, and then I'm going to let Nate answer the rest. But part of that upward move is simply the way that we've tailored in the 2 pieces of rate relief, the base rate relief and then the consideration for the shares. It's predominantly aggregated in '21 and '22, and there's a big step-down in the rate relief as a result of this transaction in 2022. So that's part of the uplift.

Yes. Another big component, and Diana talked in her prepared remarks about the $400 million we're spending -- project to spend on demand-pull projects. One of those is an expansion of MVP, which would be incremental compression to add about 0.5 Bcf a day to MVP. That adds about $700 million of EBITDA in '23 relative to '22.

700?

70, sorry. $70 million. High rate.

Okay. That's a great project. Okay. So then I assume -- so that kind of answers my question on CapEx for 2022. I assume there's some CapEx in there for that project. And then going into 2023, the $420 million of CapEx, I assume that's the $365 million that you talked about to grow mid-single digits plus about $60 million in maintenance. Is that how you get that?

Correct.

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

I guess maybe just one question on just the contracts. You had the 15-year MVC, and then the Phase 2 seems to be sort of a -- drops off in kind of early 2030s. And then you have the 5-year with the -- on the water side. So I guess was there any conversation just to extend those out to match the 15 years? Sort of what's sort of driving just the 5-year and then the shorter-term for the Phase 2 portion? Just wanted to get your thoughts there.

So the water MVC is not really connected to the 15-year gas gathering agreement. That was a separate conversation that we had with EQT management, trying to create some certainty around their need for services and our need to have predictable revenues that were more like midstream gathering revenues than water revenues. But it's also, quite frankly, providing us an opportunity to get together with the EQT management team after everybody has had a chance to get a couple of nights sleep and to try to address a global solution for water for Pennsylvania and West Virginia so that we can maximize the efficiencies and minimize the infrastructure we need to build.

So yes, the 5-year deal is there. We're very happy to have it. It's consistent with the direction that EQT wants to go. But you should expect probably in the next 3 to 6 months, hopefully, we'll be able to put our collective heads together and come up with a more long-term permanent water solution.

Got it. And then maybe just to ask a quick one on MVP. You're forecasting 650, 700 this year. I think the biological opinion that there's still time line until end of March-ish. So I guess how should we think about the cadence of that CapEx spend? Is it kind of -- most of that's in kind of Q3 time frame, assuming everything kind of happens there? And then maybe just an update on where you stand on the land change proposal.

Yes. So we are planning to get back to construction end of April, when we get biologic opinion, Nationwide 12. So construction will start ramping up. I think your cadence is accurate. And I'm sorry, what was your last -- your last question was -- oh, land exchange.

Yes. Just the land exchange, yes. Just where you guys stand with that.

So we've kind of put that on hold right now, letting the resources work on everything else that we need as far as biological opinion, Nationwide 12 and really focusing on that, hoping that then the court decision comes out in June, and then we don't even need the land exchange. But it's there for us, and we can continue to go on that path if we need to. We've been doing some work in the background as far as acquiring acreage and things like that, the things that we really need to do from our side, but we've been letting the agencies kind of hold off on it right now.

Your next question comes from Sunil Sibal of Seaport Global Securities.

Thanks for all the clarity. Just going back to Slide 18 once again. The DCF coverage ratio that you quote there for 2020, I presume that's based on 3 quarters of new distribution and 1 which we paid out in January.

Yes. That's correct.

Okay. And then when we think about the balance sheet, so it seems like net-net, at a pro forma level, you're adding $600 million to the debt balance based on the fact that you're taking out the prefs. And obviously, the term loan B is -- was always at the consolidated level on ETRN. Is that fair?

Yes, that is fair.

Okay. Could you remind us how does your covenants kind of are going to treat this new treatment of EBITDA and cash, the way you're kind of accounting for it now?

Yes. So we've talked to the banks -- well, we talked to the lead bank on both our revolving credit facility and the term loan A, and both have indicated that getting covenant change for how we treat the revenue, the deferred revenue will not be a problem. They've seen that before.

And what is the maximum leverage limit on the covenants with the...

The covenants in the debt facility work a little different than the covenants you see here, but the max in the debt facility is 5x. But it's a different calculation of what we show here.

Okay. So that gives you credit for MVP and all that, I presume, right?

That's correct.

Yes. We have substantial room under the revolver covenant that we're not busting it.

Okay. And then have you reviewed this new arrangement with the rating agencies? Or what's kind of expectation there in terms of their opinions or the time line on their opinions?

Yes. I don't want to comment on what the rating agencies might or might not do, but we've reviewed it with the rating -- we've been reviewing it with them for some period of time and had calls with all 3 of them just yesterday. I think the tension for the rating agencies is they really like the action on the dividend. And they're wrestling with how they treat some of the changes around the preferred, the convertible preferred. So we'll wait to see where they get to, but I don't expect any kind of big change from the rating agencies.

And more importantly, the new financial policy that we've just discussed here today, we've got a high degree of confidence that, that's the best policy for us moving forward, notwithstanding what the agencies do or don't do. And we're going to remain committed to that policy.

Okay. And then one last verification. If the MVP is delayed beyond what you're assuming here, I assume that all the time line for the gathering contract gets shifted by the same amount? Or how does that work?

Yes. Sunil, that's exactly right. The way I would describe it is that all of the benefits of the Phase 2 of the gathering agreement are tethered to the in-service date of MVP and will slide or not slide, depending on the in-service date of MVP.

(Operator Instructions) The next question comes from [Warren Berry], a private investor.

My question is related to the impairments. There's been quite a few impairments of fairly sizable amounts over the last 5, maybe 6 quarters. The questions I have related to that is, one, I want to see if you could provide some clarification on the timing of those, why you chose to claim them when you claimed them, also what this quarter's impairments consisted of. And then if you can give some guidance on what you expect the impairments over the next few quarters to be. My main reason is because of the impact that, that has on the reported EPS as opposed to the numbers that I'm seeing, which look to be very good in comparison to the reported numbers.

Warren, this is Tom. Thanks for the question. It's a very good question in the weeds, so that surpasses my ability to answer it. So we're fortunate to have Brian Pietrandrea sitting in the room here with us, who's our Chief Accounting Officer. Brian, do you want to take a pass at Warren's question?

Sure. Thanks, Tom. Warren, good question. When you think about the impairments for this quarter, it's really been following a fact pattern in the basin over the last year. So we've been following the producers' activities and how that's impacted our cash flows as we project out in the future. So that was the driver in the -- that was primarily, obviously, in our Ohio and PA gathering assets.

And the timing was prescribed by our auditors that we had to take the write-down at that point.

Yes. And it's part of our annual assessment that we do and part of our policy.

Can you give some future guidance on what you expect the upcoming impairments if they need to be?

Yes. Warren, we're going to be reassessing our reporting units. But at this point, we have no guidance to provide there.

There are no further questions at this time. I will now return the call to our presenters.

Thank you, operator, and thanks to everyone for joining us today. I know that it's a pretty difficult tape-out there and kind of a difficult day to announce a complicated set of transactions like we did today, but we appreciate everyone's interest. We will make ourselves available to answer any additional questions you have. But we hope that, first, we get through today without any other major disruption and that everybody continues to pay attention to the space.

So with that, I'll say thank you, and have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.