Equitrans Midstream Corp (ETRN) 2020 Q1 法說會逐字稿

Good morning, everyone, and welcome to the Equitrans Midstream Corporation and EQM Midstream Partners First Quarter 2020 Conference Call. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Nate Tetlow, Vice President, Corporate Development and Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to the First Quarter 2020 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 (800) 585-8367 or (416) 621-4642. The conference ID is 5710108.

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, 2019, 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.

On the call today, are Tom Karam, Chairman and CEO; Diana Charletta, President and Chief Operating Officer; Kirk Oliver, Senior Vice President and Chief Financial Officer; Justin Macken, Senior Vice President, Gas Systems Planning and Engineering; and Brian Pietrandrea, Vice President and Chief Accounting Officer. 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. First, let me take a moment to acknowledge the dedication and professionalism of our workforce. Since the onset of COVID-19, our field teams have never missed a beat in continuing to safely operate and maintain our assets, and we continue to move over 8 Bcf per day of indispensable natural gas to the nation.

Our management team and functional departments transitioned to remote work in early March. Since that time, the team's productivity and connectivity have remained high. And our new technology platforms have been able to scale up with only a few minor temporary hiccups. We were fortunate to have implemented a telecommuting policy last year, which gave us a head start to transition to remote working conditions. While we were among the first to go remote, we will be very thoughtful about how and when to change this policy. The silver lining in all of this is what we're learning about how we can evolve our work environment and still be productive and remain connected. That information will inform us as we plan for the future. Beyond our own workforce, as members of the community, we are forever grateful to the frontline health care and essential workers with the great service they are doing for our country, risking their own health to keep us healthy. All of us, our companies, neighbors, friends and members of the communities have an obligation to support those who are suffering as a result of this pandemic and to alleviate the stress and anxiety that surrounds us as much as possible. Through donations from our ETRN Foundation as was directly from our corporate local giving programs, we have acted and we'll continue to act in support of many of these efforts to help. We encourage all of our employees and all of you listening to do all you can to help as well.

Now moving on to our business report. This morning, we announced strong first quarter results, which exceeded our plan, confirming our optimism for 2020. Kirk will give you the numbers in a minute.

In late February, we announced 4 transformational actions, which allow E-Train to be a strong C-Corp able to thrive in this or any environment. First, we executed a 15-year blend, broaden and extend agreement with EQT, strengthening both companies and allowing for the most capital-efficient development plans. The new agreement enhances our stable cash flow profile as over 70% of our revenue will be generated from take-or-pay contracts once MVP is placed in service. And the new agreement provides us with long-term meaningful capital efficiencies. Diana will discuss this in more detail in a few minutes.

Second, E-Train purchased 25.3 million of its shares from EQT in exchange for future rate relief. These shares were retired in early March. Third, we established an industrial-style dividend and capital allocation policy, focused on achieving positive retained free cash flow, quickly delevering and shoring up our liquidity.

And fourth, we announced the proposed roll-up of EQM by each E-Train. The E-Train shareholder vote and EQM unitholder vote are scheduled for June 15. And we are targeting to close the acquisition shortly after.

These actions immediately strengthened our balance sheet to provide flexibility for our largest customer to optimize its development while delivering significant value to us as long -- as well as creating a strong C-Corp entity.

I'll now turn it over to Diana who will provide an operations update. Kirk will then provide a financial update, and I'll come back for some closing remarks before we open the call to your questions. Diana?

Thanks, Tom, and good morning, everyone. I also want to echo Tom's opening remarks regarding the extraordinary work of our employees as well as those who are on the frontlines helping to keep each of us safe. The saying has never been more true. We are indeed all in this together.

I'll begin by briefly emphasizing the significant future capital savings from our new gathering agreement with EQT. By creating a comprehensive gathering agreement with single MVC, EQT can execute its combo development drilling strategy without contractual constraints. This creates 2 significant benefits for us. First, we can reduce the amount of required gathering pipeline as a result of the compact geographic development approach. We estimate that this saves us approximately $250 million over the next few years. And second, EQT's return to pad drilling plan will result in substantial future capital avoidance. When EQT returns to pad, which we estimate will start in about 4 years, the existing midstream infrastructure installed for Phase 1 development will be utilized again for Phase 2 development. This means that our future gathering capital will be greatly reduced, enhancing E-Train's ability to generate meaningful and sustainable free cash flow.

Now moving on to MVP. On the Appalachian Trail crossing, we were encouraged by the tone of the oral arguments at the Supreme Court on the Atlantic Coast Pipelines case and remain hopeful that the Fourth Circuit Court's original decision will be overturned. Regarding MVP's biological opinion, the U.S. Fish and Wildlife recently requested an extension to continue its review of MVP's information. We respect and endorse this extension as it is far more important that the agency is focused on an accurate, thorough and comprehensive biological opinion, which MVP expects to receive in early July.

Finally, with regard to the recent Montana Federal Court decision impacting the Nationwide 12 program, we were perplexed by the judge's decision this week to narrow the ruling to apply only to oil and gas pipeline projects. We will continue to monitor this case, including any appeal to the ninth circuit. Provided we received the biological opinion in July and FERC lists the stop work order, our construction plan incorporates sufficient tie-in work and activity to get us into the fall without the Nationwide 12. This keeps us on track with the existing schedule and budget. Putting all that together means we still have a narrow path to achieve the targeted full in-service date of late 2020 at an overall project cost of approximately $5.4 billion.

Lastly, we completed the review of our capital requirements for 2020, and we're able to reduce estimated capital expenditures and capital contributions by approximately $150 million. The reduction is driven by $75 million of capital pushed into 2021, largely related to Southgate capital and MVP reclamation capital and $75 million in reductions based on development scope changes and efficiency gains related to the new EQT gathering agreement. We continue to be actively engaged with our customers and remain focused on deploying capital efficiently.

With that, I'll turn the call over to Kirk.

Thanks, Diana. This morning, we reported net income attributable to E-Train of approximately $70 million and earnings per diluted share of $0.28 for the first quarter. After adjusting for certain nonrecurring items and a gain on derivative, we reported adjusted net income attributable to E-Train of approximately $118 million and adjusted earnings per diluted share of $0.46. E-Train also reported net cash from operating activities of $249 million and free cash flow of $31 million. We reported net income attributable to EQM of $252 million. EQM adjusted EBITDA was $381 million. Net cash provided by operating activities was $285 million, and distributable cash flow was $283 million.

First quarter results were impacted by several nonrecurring items. First, E-Train and EQM had a $56 million impairment of long-lived assets associated with the Hornet gathering system, which EQM acquired in April 2019. Second, E-Train had a $25 million loss on early extinguishment of debt, which is primarily associated with the early retirement of the E-Train Term Loan B during the quarter. And lastly, EQM had about $4 million of transaction costs, and E-Train had about $7 billion of its own transaction costs.

First quarter EQM operating revenue increased by $63 million compared to the same quarter last year. The increase was primarily related to the addition of the Eureka and Hornet assets and increased water revenue, which was partially offset by lower transmission revenue.

EQM operating expense increased by $80 million compared to the first quarter of 2019. $56 million was related to the impairment charges, and the remainder was primarily from the addition of Eureka and Hornet assets.

Today, we also announced an increase in our full year earnings and cash flow guidance for E-Train, primarily based on the strong first quarter results. At the midpoint of our guidance range, we now expect full year net income attributable to E-Train of approximately $408 million; pro forma E-Train adjusted EBITDA of $1.175 billion; deferred revenue, which will be reflected in the contract liability on the balance sheet, of approximately $225 million; free cash flow of negative $125 million; and retained free cash flow of negative $535 million.

In terms of the water business, our first quarter water EBITDA of $25 million was driven by our customers' completion schedules. For the year 2020, we are forecasting water EBITDA of $60 million to $65 million. I will also note that we intended to discontinue reporting DCF and ongoing maintenance CapEx following the close of the EQM acquisition. These measures are common in the MLP space, but we believe free cash flow and retained free cash flow will provide C-Corp investors with more useful information.

For the first quarter, EQM will pay a quarterly distribution of $0.3875 per common unit on May 14 to common unitholders of record at the close of business on May 5. E-Train will pay a $0.15 quarterly dividend on May 21 to shareholders of record at the close of business on May 12.

As a reminder, the actions we announced in February create some accounting items important to our financial reporting. First, the gas gathering agreement with EQT has a gathering rate profile that gradually reduces over time before plateauing for the remaining term. Under GAAP, we will recognize revenue using an average gathering rate for the MVCs over the 15-year contract. This creates deferred revenue over the next several years as the cash received will be higher than the revenue recognized. This dynamic did not impact first quarter results as the contract rate structure commenced on April 1, so you'll start to see the deferred revenue impacts in the second quarter. For the second quarter, we estimate deferred revenue of approximately $75 million.

Second, the agreement with EQT includes a provision entitling E-Train to receive cash payments from EQT. This is conditioned on specific NYMEX Henry Hub index prices exceeding certain thresholds. This provision applies during the 3 years following MVP's in-service date was not -- but does not extend beyond December 2024. The agreement is accounted for as a derivative at fair value and mark-to-market at each quarter end. Subsequent changes in the mark-to-market value will be recognized through the income statement. At quarter end, the derivative fair value of the asset was $56 million.

In terms of liquidity, we had about $1.3 billion available on our $3 billion EQM revolver at quarter end. While we have ample liquidity on the revolver, we'll continue to monitor the debt capital markets. We're also planning to secure MVP JV level debt financing when the project is in service. We are committed to the delevering plan and continue to target a sub-4.0x leverage ratio.

I'll now turn the call back to Tom.

Thanks, Kirk. Despite this truly challenging time, things appear to have stabilized in the natural gas space and specifically for those operating in the A-Basin. We are increasingly bullish about natural gas forward prices as we see the oil and gas rig count dropping each week. And we also see the relative resilience of natural gas demand. There is not much doubt that the supply and demand dynamics are good for gas near term. The real question are how good? And for how long? E-Train has great assets, long-term contracts, very limited exposure to NGLs and customers that are positioned to take advantage of the improvement in the Northeast gas environment. We've not seen any material pullback in producer activity around our assets and expect that the improving natural gas strip will allow our customers to maintain and eventually increase activity.

So to conclude, in February, we took action on everything within our control. We remain confident that we will get MVP over the goal line. Our operations continued to deliver solid results, and we're optimistic about the macro setup for natural gas and the Appalachian Basin.

Stay safe. Wash your hands. Please continue supporting our health care workers and our other first responders. And we're happy to take your questions.

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

Was just wondering if I could start with the guidance here and if you could provide a little bit more detail as far as kind of the drivers and help us bridge through the guidance provided last quarter, EBITDA and CapEx. And really, what were the moving pieces to get you to this updated guidance for both would be helpful.

Jeremy, this is Tom. I can give you a high level, and then maybe Kirk can fill in some of the details for you. I mean clearly, we have more confidence given that we printed the first quarter, and it was pretty strong, and volumes are as we had anticipated. The water revenue was front-loaded a little bit in our yearly guidance but still puts us ahead of plan a little bit. So I think that the movement we've made in our guidance just reflects the fact that we have 1 quarter behind us, and we have more certainty about the trajectory of our business.

Kirk, do you want to add anything to that?

I think that pretty much captures it, Tom.

Okay. And then, I guess, just on the MVP side, just want to clarify a little bit more, I guess. With the Nationwide 12 permit kind of being uncertain at this point, can you just walk us through, I guess, how you're able to kind of complete construction here with the pipe move forward even without -- even if NWP 12 is kind of delayed here?

Yes, Jeremy. So that's a good question. And again, I'll speak to the high level, and then maybe Diana can fill in any gaps to what I say here. But the Nationwide 12 permit specifically speaks to bodies of water and stream crossings. The vast majority of the remaining work we have on the project is upland work. So if we receive the biological opinion in July as we expect and FERC releases or lifts the stop work order, we will be able to modify our work streams and have sufficient work to complete substantially all of the upland work to take us right through fall. And that's why we still believe that while we describe it as a narrow path, we're still on that path to complete by the end of the year at $5.4 billion, and that's why we still have confidence in that.

Diana, did I miss anything?

No. That's correct. We have over 30 miles of upland work to do. So we'll get started on that as soon as we're allowed. We're anticipating that to be July, and plenty of work on that and some tie-in work that we still have left to do to get us through for the courts to work out the Nationwide 12 issue.

That's helpful. And just one last one, if I could. Just wondering what gas price level do you think would really incent more activity on the dry gas side. Just trying to get a feel for outside of EQT, what you guys are seeing production activity wise from your other customers?

Yes. So that's a great question. I think that goes back to what I said in the script as to -- we know that the macro environment is getting better. We don't know how good or for how long. I think most of our customers have 2020 pretty well hedged and have a -- I don't want to say they're on a glide path, but they're certainly on a path where those volumes are more visible to us. I think it might be later in the year before we start to see movement on the forward strip. Certainly, the closer you get to $3 on that strip, I think the more confidence producers may have in modifying their plans and still be able to drill and generate free cash flow. But to be any more specific than that, Jeremy, I think I'd be getting too far out over my skis. So I'll leave it as the closer you get to $3, the better the environment is.

Your next question comes from Shneur Gershuni from UBS.

Just wanted to follow up to Diana's response, actually, to Jeremy just before on the Nationwide 12. So I just want to make sure I heard correctly that you can do all the upland work without the Nationwide 12? Or do you need the Nationwide 12 to do that? Just trying to understand what the Nationwide 12 actually would impact from a completion perspective.

Yes. We can do the upland work with -- we need the biological opinion and we need FERC to let us start back and lift that stoppage. But without the -- the Nationwide 12 is really just the water bodies. So we can do all of the upland work and whatever tie-ins we have, reclamation, all of that can be done without the Nationwide 12.

Got it. Okay. And then kind of 2 questions here. One, to expand on the -- your views on the higher natural gas environment that we have today sort of impacts everything. I'm kind of wondering if it's not a 1-dimensional or 2-dimensional answer of, I think, it's $3 and so forth. But I'm kind of wondering if -- when I sort of think about the balance sheets of the Northeast producers, is it really about a certain price level? Or does a certain amount of time have to occur? Is it more of a quantum look at how everything is because you have to repair the balance sheet to the Northeast before they can actually get capital to drill?

And where does the decline rates become a risk against that, that if they just sort of sit back, collect cash, repair their balance sheets and decide not to increase drilling activity for, let's say, 18 months? Where does that impact you versus how that all ties together? I'm kind of wondering if we can sort of have that discussion at a more multidimensional level than just specifically on price.

That's a pretty full slate of questions. I think you do have a point that there's a requirement that each of our producers, and quite frankly, every producer that's operating in shale be very sensitive to their balance sheet. When you talk about improving natural gas prices, clearly, you're able to drill more and generate more free cash flow at a certain inflection point of price. So it's more than 2-dimensional. It's probably 3-dimensional because the current prices is the weakest that we see over the next couple of years. And if they can generate sufficient free cash flow now, moving into an improving price environment, I think that activity will firm up. And the decline rate issue that you raised, we don't see that as being -- impacting our business at all because we see everybody drilling at least at maintenance levels or slightly above.

But you're right, it's not a switch on or switch off move. It will be something that will take time, and it will depend on the opportunity and success that producers have in hedging their production and then their access to capital to drill. I don't want to say we view it as asymmetric, but we are less sensitive to decline rates where we are in the Appalachian basin than others might be in the more oily basins around the country.

That makes perfect sense. And I really appreciate the thoughtful answer there. Maybe as one last follow-up here. In the restructuring that was announced earlier this year, and you do have some color on it in the slide that you put out today. With the new gas gathering agreement, I recall that there are some material CapEx benefits. You sort of talk about some real efficiencies there and so forth. I'm just trying to understand the full impact to Equitrans. Is it -- it's a straight up we're more efficient, less CapEx, more free cash flow, and it's really kind of an operating leverage benefit? Or is there something in the agreement that would claw some of it back because there's less spend because of how a typical cost-of-service type of agreement works? And just trying to understand, is it -- are there any reset clauses that would claw some of that benefit back? Or is it truly an optimization play?

Yes. It's a 15-year optimization plan where the agreement was constructed based on the drilling philosophy of EQT and, thereby, directly moving to the capital efficiency benefit to E-Train. I mean that was really -- those are 2 barbells of the deal. So there's no clawback provision. It's -- that's the permanent state of play.

Your next question comes from Spiro Dounis from Credit Suisse.

Just want to go back to nationwide permit, a kind of a multipart question here, so bear with me. But is there a good way to think about the increases on MVP or cost increases for each quarter to the extent you do start to see delays? Obviously, pipeline substantially complete at this point. Just curious what sort of costs sort of linger each quarter, each month that there is a delay should it happen?

And when -- I guess, thinking around timing, when do you think you'll be in a position to, I guess, update us on whether or not you can still hit that target? And then finally, along those lines, thinking around alternatives to Nationwide 12, does that only relate to the 4 remaining water crossings? Or is there an alternative to just permit each water crossing individually?

Spiro, I'll take a crack at some -- answering some of those points, and then maybe Diana can give me an assist here. You're correct. MVP is substantially complete, over 90%. And as Diana said, we have 30-plus miles of upland work that we can do. Where we sit today, we're not in a position where we have enough information to even attempt to quantify what delayed costs may be if there are delays. So I'm just going to leave that there for now.

The timing issue, as we said, we are focused on this narrow path given the biological opinion being issued in July and getting the stop work order lifted by FERC around the same time. We have ample work to get us through the fall, which will move to complete substantially the remaining construction work, which gives us that kind of confidence.

And I'll take a crack at a legal assessment here. But the Nationwide 12 permit is a permit that's issued in lieu of individual permits, so that every midstream company, every construction project always has the opportunity to go in for individual permits. The Nationwide 12 is designed in part as a more efficient way to facilitate construction.

Diana, you want to add some intelligent color to that?

I think that was quite intelligent. But yes, as far as delay cost, the more and more we get done, the less and less delay we have, just like the less risk or delay costs. So as we continue building and we continue doing the upland work and getting things into reclamation, then as we delay, that's less substantial to us because we don't have to keep all of those environmental protections and controls in place. So I would say that on the delay.

And as far as The Nationwide 12, agree. That was all-encompassing everything under one, but to pivot and do it individually is certainly an option for us.

Okay. That's really helpful. So let me just paraphrase some of that. It sounds like if we were to look back at some of your prior delay cost per quarter, that would skew us way too high. And then, Tom, on your timing, it sounds like to the extent you get the Nationwide 12 permit in the fall as you're sort of running out of work, you can mobilize quickly to still hit that on-goal date. And then as far as permitting individually, an option, but it sounds like a little too cumbersome and not something that you realistically want to do right now. Is that kind of all fair?

I think you nailed it.

Awesome. All right. Next question, sorry for being long-winded here. Just on CapEx cuts. Good to see them kind of come in again. Just curious, Diana, you mentioned a little bit in your prepared remarks, but a lot of that sounded similar to what we heard last quarter. So just curious how you found these additional efficiencies, maybe what changed. And as we think about the go forward, you obviously provided that outlook, the multiyear outlook when you did the EQT transaction. Fair to say that gathering CapEx that was provided for also skews a little bit lower?

Yes. So I'll start. And again, if Justin hears something that I missed, I'll ask him to chime in. But yes, the efficiencies, so half of that CapEx in efficiencies, part of it was MVP in Southgate, which is just moving. But the other is really things that we can save. And most of that is due to the fact that we got the complete EQT drilling plan after we signed the deal and firmed everything up, even the places that maybe weren't dedicated to us before that are now. We got that complete plan, and we're able to, one, gain efficiencies by tying some stuff together, building some shorter pipe or just leaving and being able to cut things that weren't needed anymore. So that is the main part on that.

And then going forward, again, we'll continue to be able to tie things together and utilize efficiencies and compression. And now all of the systems, it doesn't matter which one we tie to, we can tie to the closest one, so that's helpful. Them being compact and drilling all in 1 place, again, helpful. And then the return to pad will even help our future more than what we have out there right now.

This is Justin. Just to add a little bit more color. So Diana mentioned the efficiencies. I think this is just realizing what we've been talking about for the last couple of calls in terms of the new agreement and work with EQT. And then with the other producers, we work with them every day to make sure we understand their drilling activity and their development plans. And as they adjust or move into maintenance mode, we've been able to adjust our plans accordingly. So I think what you're seeing here is just a reflection of all of that effort.

Our next question comes from the line of Chris Tillett from Equity Research.

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water crossings. How many water crossings do you guys have left that are affected by the Nationwide 12 issue? Is it just a matter of sort of what's left to build? Or could this potentially impact all the crossings through the entire pipeline?

Chris, if you wouldn't mind restating that question. You blacked out in the beginning of it. We only heard the end of it.

Sure. Sorry about that. I guess my question was on the Nationwide 12 permit. And as it relates to water crossings, just how many of the crossings does the permit affect? Is it a matter of what you have left to build? Or is it -- would it potentially impact all of the water crossings throughout the course of the pipeline?

Yes -- go ahead, Diana.

It's just what we have left to build. It doesn't impact what we've already crossed.

Okay. And do you have a number on that? Or not at the moment?

Not at the moment.

Okay. And then, I guess, maybe just from a logistical standpoint on that permit as well. What -- I guess, what are the sort of the next steps here with that proceeding? What are we looking for? What should we be watching for?

Well, I think the DOJ is taking a lead on seeking to have an appeal of the judge's ruling on the Nationwide 12, and I believe that will go to the Ninth Circuit. And our expectation and what we've seen and read so far is that they're attempting to fast track the process as best they can. So rather than just taking many months, the hope is that it will be a much more truncated process. And that's why, as Diana said, once we get the biological opinion and the release from the stop work order, we will fully mobilize and get upwards of 4,000 people on the right of way to start doing all of that upland work as the Nationwide 12 issue works its way through the courts.

Okay. That's helpful. And then, last from me on the 2021-plus guidance that was issued with the transaction that was announced in February, I guess, maybe just curious to know sort of the thought behind withdrawing that at this point in time, particularly given a lot of it is backed by MVCs and the macro outlook looks more constructive today than it did then. So just curious to hear your thoughts on that.

Yes. Chris, I don't believe we withdrew it. We just didn't reissue it here, and maybe it's for exactly the same reason you said that the macro environment is improving, and probably later this year, we'll have the opportunity to take a look at the forward guidance again with more specificity. But we focus this quarter on 2020 and modifying our 2020 guidance to the upside. So there was no intent or desire by us to show less confidence in '21 forward.

Our next question comes from the line of Derek Walker from Bank of America.

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numerous times and now it's expected to be in July. Have you been in touch with the Fish and Wildlife? Is there anything in particular there that they're still working on? Or is it just kind of delays associated with perhaps COVID-19? And just any sort of thought on what's really driving the extensions? And is it tied to perhaps the Nationwide 12 permit?

So we missed the beginning of that question -- I'm sorry, we're all remote.

So Derek -- yes, that's what I was going to say.

Yes, just on the -- can you hear me now?

Yes.

Yes.

Okay. Just on the biological opinion, it's obviously been extended multiple times and just wanted to get a sense on this latest extension. To what extent did you -- did you have any conversations with the Fish and Wildlife? Is there anything in particular that they're looking for? Or was the extension just related to kind of COVID-19 issues and getting people out to do evaluations? Just any thought there?

So Tom, I'll go for that one. We know that they are very focused on being accurate and thorough and comprehensive, and that is really important to us. We want that to happen. So it really is more or less them wanting to make sure they have all of the data, and they've gone through all the data, and they've done a really comprehensive -- I don't think we're seeing an impact from COVID. They've been engaged in the last couple of months and working very hard on it. Actually, we're encouraged by the back and forth with them.

Okay. That's helpful. And then, I guess, just on the Nationwide 12, assuming they go through the appeal process, and they're also filing a motion to stay potentially as well. I guess, do you have any sense or view on sort of what the probabilities of that being granted?

The stay being granted? No, we can't handicap that. Look, we think that the judge's decision was wrong. It doesn't make sense. Certainly, it doesn't make sense that they could issue an opinion like that and only have it apply to oil and gas pipelines. So again, it's going to work its way through the courts. We're hopeful that it will be a truncated and quick process in legal terms. But handicapping the stay or not, that's above our pay grade here, Derek.

Our next question comes from the line of Vikram Bagri from Jefferies.

I wanted to start with MVP, if I may. Would it be easier to get individual permits to cross all the water bodies since PDA is already being done by the Fish and Wildlife services? Or the substantial number of crossings are still left to be crossed? I believe the MVP filing had 540 crossings. If the pipeline is 90% done, is it -- will it be wrong to assume that 90% of those crossings are -- already have been crossed by the pipeline and you just need to do a few crossings and you can take individual permits for that?

So I'm just trying not to talk over, Tom. I would say that it wouldn't be an accurate calculation to just have the percentage of the pipeline that's done, assume that that's how many crossings are done. We've been back and forth and moved around a bit on that project. So I wouldn't say it's that. But it -- all of the work is done for the crossings as far as regulatory data that's been gathered. So whether it was gathered to do 1 Nationwide 12 permit or you needed to take that data and divide it up to get individual ones, the work is all done. It's just the process in which we need to do it. So I'm not super concerned about which way. Of course, we would love to go the Nationwide 12 way, but we can work through it the other if we need to. The work is done.

Okay. And I wanted to ask Spiro's question slightly differently. Can you identify the biggest components of cost increases in case the pipeline is delayed? How much does it -- how much do you need to spend to hold the write-off base on MBP on a monthly basis? And how much do you need to spend on just holding the construction contract? I believe those are the largest components and the need to spend to hold the construction contract is much smaller now than it was prior to your construction contract renegotiations. Is it possible to quantify those 2 components of potential cost increases?

So it's difficult because it changes monthly as we go on. And when the project is asleep, it's one number. And then as we start to ramp up, then, of course, it's better because all the money that we're spending is going toward productive activity.

Yes. Vikram, let me just add to that. I think based on the work plan that we're discussing today where in July, if we get the issuance of the biological opinion and the release from the stop work order and we fully deploy to the right-of-way in the upland construction areas, the more of the right-of-way that we can permanently restore, the more we reduce any delay cost that potentially may happen. I think that that's the way you should think about the right of way. The more we permanently restore, the lower that monthly maintenance cost will be.

Okay. Okay. Understood. And I have 2 quick housekeeping questions as well. Gathering OpEx declined nicely in 1Q, and I believe some of that is seasonal. And though you have not explicitly talked about any potential OpEx savings, I wanted to understand if some of the decline in OpEx in gathering segment in 1Q is sustainable and it's a result of any initiatives you might be undertaking.

So we continuously have the initiative to drive down costs. We work on it every day, something that's on the forefront of all of our field people's mind. So they -- there are some seasonal costs. There are things that will go up as we start to ramp up activity. But as far as personnel and efficiencies, we continue to drive those down.

Okay. And then just the last one for me, if I may. On capacity volumes, the gathering segment shut down in 1Q relative to 4Q of '19. Is that -- are those decline in EQT's volume, so they are focusing drilling on areas most profitable area? They're not focused on areas where they were under MVCs already, right ahead of combining all their MVC areas? Or is that due to -- is it being driven by any other producer? I was just trying to understand the cause of decrease in form capacity reservation volume in gathering segments.

Yes. I think there's just a little bit of decline in some of the areas that they weren't drilling and they don't plan to drill. And then it's just choppy as far as what's coming on and what's in the pipe. Because the water volumes were so high this quarter, you can see that the activity is there and that those wells will then start turning in line. So we expect overall mid-8 Bcf a day average for the year. We don't expect it to -- expect to be a little bit higher than what this quarter was in the next couple of quarters.

Okay. Put it differently, is any other producer below MVCs, a large producer below MVCs, besides EQT?

I think there's probably one other producers that is below MVC, Justin?

Yes. Not in a material way, but yes, you're right.

Our next question comes from the line of Michael Blum from Wells Fargo.

Just 2 quick ones for me. One, I'm just curious if any of your current producer customers are behind on payments. Or is everyone sort of current? And is there anything you're doing proactively to sort of protect yourself on that front to the extent any of your customers do run into some trouble here?

So I believe all of our customers are current. I think that your question was a good one in the sense that the renegotiated contract with EQT is state-of-the-art as it relates to language and surviving bankruptcy, and we feel really good about that. All of our other contracts are at market, and quite frankly, the producers, even if they run into trouble, only have 1 outlet to generate revenue for themselves. So we feel pretty good about all of our contracts in that regard.

Okay. Perfect. My other question was just now that you've announced, I guess I'd call it, the grand deal or grand transformation, is there any further feedback you've gotten from the rating agencies?

Yes. Tom, this is Kirk. The rating agencies have all put out reports fairly recently. Moody's and S&P was in early April, and Fitch was in mid-February -- mid- to late February. So you could -- I mean, other comments are there. I think, in general, they like the transaction and have been pretty positive on it. So there hasn't been anything other -- anything specific aside from that.

And our next question comes from the line of Becca Followill from U.S. Capital Advisors.

It looks like deferred revenue went down from $450 million to $227 million. So did that help drive the increase in EBITDA?

Yes. I'll take a shot at this one. So the deferred revenue number, it can change as we go forward in time. The big driver there was the change in the stock that we acquired as a part of the transaction, the repurchase of our stock. And the estimate at the time we did the transaction versus what the stock price was when we closed on the purchase of the shares. So that will change over time. And really, what it does is it changes the amount of revenue that we can recognize. So it doesn't really impact the economic EBITDA of the company, if you will. So I think what a lot of investors do is add the deferred revenue to whatever the EBITDA is to come up with what they're sort of calling a cash EBITDA number. And we'll continue to provide everyone with the deferred revenue and the EBITDA as we go forward.

So just to clarify, on the prior numbers, you guys had deferred revenue of $450 million and E-Train adjusted EBITDA of $920 million to get to the $138 million. And so here, you combine the $1.175 billion and the $227 million to hit $214 million. And so that's kind of your delta?

Yes. Yes.

Okay. So the uplift is really more like $30 million?

Yes, that's correct.

From -- okay. I wanted to make sure of that.

That's correct.

Okay. And then second, beyond this year's spending on Mountain Valley, how much more do you have left in 2021?

On MVP, Becca??

Yes.

Yes. So we've spent $2.1 million to date. And our spend is $2.7 million total, help me make -- how much...

Yes, I think there'll be about $50 million left in the next year.

Thank you.

$50 million. Great. And then finally, I know you're working through a lot of different scenarios, but what is the Plan B in the event that you don't have the Nationwide 12 by the fall?

I think the Plan B, as Diana talked about it, is we always have the right to go get individual permits for those stream process.

(Operator Instructions) Our next question comes from the line of TJ Schultz from RBC.

Just 1 for me. As you move to free cash flow and retained free cash flow as a focus point for investors, what's your long-term view once MVP is online, just on the optimal payout ratio for you all? Or just how should we think about the priority to increase the dividend?

Yes. Tom, I guess, I can start on this. The objective is to be able to self-fund the business going forward. So you should see positive retained cash flow on a going-forward basis. And that's how we will intend to run the company. Once we get to the point where we get our leverage ratio down below 4x, we'll be, obviously, reevaluating dividend policy.

Yes. I think that's right.

Yes. I guess we're expecting retained free cash flow to be positive '21. And we're looking at -- we've given this before. We aren't updating guidance or anything. But what we've said before is positive retaining free cash flow in 2021 and below 4x in 2022.

And we have no further questions in queue. I'll turn the call back to the presenters for closing remarks.

Well, thank you, everybody, for joining us today. As we said at the outset, we are gaining confidence in the macro. We believe that there could be some strengthening in the A-Basin, certainly, that we're seeing. And hopefully, everybody will stay safe, and we'll get through this. Thank you. Have a good day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.