Analyst Note| Stephen Ellis |
Equitrans' first-quarter results were relatively strong, thanks to a boost in gathering and water volumes, but the delay and cost increase for the Mountain Valley Pipeline (MVP) overshadowed the strength, in our view. We had been concerned about the rising odds of a delay given permit setbacks so far this year. Equitrans initiated a comprehensive permit reset as detailed in our note on Jan. 27, but the Virginia Department of Environmental Quality and West Virginia Department of Environmental Protection asked for extensions on their normal 120-day review period to evaluate their 401 water quality certifications. As the permits are now not expected to be issued in a timely manner before the more expensive and complex winter construction season, the MVP in-service date has been delayed until summer 2022 and costs have been increased to $6.2 billion from $5.9 billion. Similarly, the related MVP Southgate project has been delayed to mid-2023 from mid-2022, while total project costs of $450 million to $500 million remains unchanged. At first glance, we will maintain our fair value estimate and narrow moat rating while we update our MVP cost and schedule forecasts.
Despite the delay, the good news is that Equitrans' liquidity is in good shape. All the assets are backed by long-term decade-plus contracts, and Dominion's recent cancelation of the Atlantic Coast Pipeline still means those shippers need to find a transportation option, providing MVP with potential yet-to-be-announced incremental expansion opportunities. Further, Equitrans was able to issue notes earlier this year to address its near-term maturity risk.