Equitrans: Unexpected Setbacks Delay MVP Until Q1 2024 and Costs Rise to $7.2 Billion

After completing a progress review on the Mountain Valley Pipeline project, Equitrans ETRN has indicated that costs will now be $7.2 billion compared with its prior estimate of $6.8 billion. Our fair value estimate remains unchanged at $15 per share after updating our model, as does our narrow moat rating. We continue to think the stock is deeply undervalued, as investors are not giving the firm full credit for MVP nor its related projects entering service, which should boost EBITDA by about 30% once completed.

The firm blamed the delays and cost increases largely on unforeseen factors. More than half of the increase is due to the fact that multiple crews had decided not to work on the project due to its history of court-related construction halts, meaning Equitrans had a hard time recruiting work crews with sufficient experience. Equitrans also noted challenges with terrain and geology, especially due to the fact that it is pursuing enhanced environmental protocols, likely related to its consent decree with the Pipeline and Hazardous Materials Safety Administration, or PHMSA. The remaining portion is due to contractor settlements, labor and fuel inflation, and enhanced safety and security measures.

At the time of the surprise legislative approval in early June, we recognized the path forward to getting the pipeline in service in 2023 was a fairly narrow one, as even a few weeks’ delay would potentially challenge the schedule. We believed that the extensive planning the MVP management team had put into place to ensure a quick start, and had reaffirmed through the first half of the year, would be able to mitigate challenges as they arose. This is why we were fairly relieved to see the U.S. Supreme Court decision at the end of July allowing construction to resume, as a further delay would have much more material.