UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2014 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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FOR THE TRANSITION PERIOD FROM TO |
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COMMISSION FILE NUMBER 1-35574 |
EQT Midstream Partners, LP
(Exact name of registrant as specified in its charter)
DELAWARE |
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37-1661577 |
(State or other jurisdiction of incorporation or organization) |
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(IRS Employer Identification No.) |
625 Liberty Avenue, Suite 1700, Pittsburgh, Pennsylvania |
15222 |
(Address of principal executive offices) |
(Zip code) |
(412) 553-5700 (Registrants telephone number, including area code) |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer |
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Accelerated Filer |
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Non-Accelerated Filer |
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Smaller reporting company |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
As of June 30, 2014, there were 43,347,452 Common Units, 17,339,718 Subordinated Units and 1,238,514 General Partner Units outstanding.
EQT MIDSTREAM PARTNERS, LP
Glossary of Commonly Used Terms, Abbreviations and Measurements
adjusted EBITDA - a supplemental non-GAAP financial measure defined by EQT Midstream Partners, LP (the Partnership) as net income plus net interest expense, depreciation and amortization expense, income tax expense (if applicable), non-cash long-term compensation expense and other non-cash adjustments (if applicable) less other income and capital lease payments. The results associated with the Jupiter natural gas gathering system (Jupiter) prior to the acquisition of Jupiter by the Partnership (the Jupiter Acquisition) are excluded from adjusted EBITDA.
AFUDC Allowance for Funds Used During Construction - c arrying costs for the construction of certain long-term assets are capitalized and amortized over the related assets estimated useful lives. The capitalized amount for construction of regulated assets includes interest cost and a designated cost of equity for financing the construction of these regulated assets.
Appalachian Basin the area of the United States composed of those portions of West Virginia, Pennsylvania, Ohio, Maryland, Kentucky and Virginia that lie in the Appalachian Mountains.
British thermal unit a measure of the amount of energy required to raise the temperature of one pound of water one degree Fahrenheit.
distributable cash flow a supplemental non-GAAP financial measure defined by the Partnership as adjusted EBITDA less interest expense, excluding capital lease interest and ongoing maintenance capital expenditures, net of expected reimbursements. The results associated with Jupiter prior to the Jupiter Acquisition are excluded from distributable cash flow.
firm contracts contracts for transportation and gathering services that obligate customers to pay a fixed monthly charge to reserve an agreed upon amount of pipeline capacity regardless of the actual pipeline capacity used by a customer during each month.
gas all references to gas in this report refer to natural gas.
omnibus agreement the agreement entered into among the Partnership, its general partner and EQT Corporation (EQT) in connection with the Partnerships initial public offering, pursuant to which EQT agreed to provide the Partnership with certain general and administrative services and a license to use the name EQT and related marks in connection with the Partnerships business. The omnibus agreement also provides for certain indemnification and reimbursement obligations between the Partnership and EQT.
play - a proven geological formation that contains commercial amounts of hydrocarbons.
throughput the volume of natural gas transported or passing through a pipeline, plant, terminal or other facility during a particular period.
working gas the volume of natural gas in the storage reservoir that can be extracted during the normal operation of the storage facility.
Abbreviations
FERC Federal Energy Regulatory Commission
GAAP United States Generally Accepted Accounting Principles
IRS Internal Revenue Service
SEC Securities and Exchange Commission
Glossary of Commonly Used Terms, Abbreviations and Measurements
Measurements
Btu = one British thermal unit
BBtu = billion British thermal units
Bcf = billion cubic feet
Dth = million British thermal units
Mcf = thousand cubic feet
MMBtu = million British thermal units
MMcf = million cubic feet
TBtu = trillion British thermal units
Tcf = one trillion cubic feet
EQT MIDSTREAM PARTNERS, LP
Statements of Consolidated Operations (Unaudited)
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Three Months Ended
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Six Months Ended
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2014 (1) |
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2013 (1) |
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2014 (1) |
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2013 (1) |
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(Thousands, except per unit amounts) |
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Operating revenues: |
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Operating revenues affiliate |
$ |
57,158 |
$ |
66,238 |
$ |
115,125 |
$ |
125,811 |
Operating revenues third party |
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34,410 |
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9,433 |
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69,854 |
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19,412 |
Total operating revenues |
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91,568 |
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75,671 |
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184,979 |
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145,223 |
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Operating expenses: |
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Operating and maintenance (2) |
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10,947 |
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8,367 |
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21,557 |
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16,280 |
Selling, general and administrative (2) |
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10,556 |
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8,030 |
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21,030 |
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14,111 |
Depreciation and amortization |
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8,525 |
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6,434 |
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16,896 |
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12,699 |
Total operating expenses |
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30,028 |
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22,831 |
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59,483 |
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43,090 |
Operating income |
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61,540 |
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52,840 |
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125,496 |
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102,133 |
Other income, net |
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559 |
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229 |
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828 |
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526 |
Interest expense, net (3) |
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6,629 |
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213 |
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12,284 |
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417 |
Income before income taxes |
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55,470 |
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52,856 |
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114,040 |
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102,242 |
Income tax expense |
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3,390 |
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12,197 |
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12,456 |
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21,848 |
Net income |
$ |
52,080 |
$ |
40,659 |
$ |
101,584 |
$ |
80,394 |
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Calculation of limited partner interest in net income: |
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Net income |
$ |
52,080 |
$ |
40,659 |
$ |
101,584 |
$ |
80,394 |
Less pre-acquisition income allocated to parent |
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(5,502) |
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(19,628) |
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(20,151) |
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(35,284) |
Less general partner interest in net income |
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(2,792) |
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(465) |
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(4,514) |
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(970) |
Limited partner interest in net income |
$ |
43,786 |
$ |
20,566 |
$ |
76,919 |
$ |
44,140 |
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Net income per limited partner unit basic |
$ |
0.81 |
$ |
0.59 |
$ |
1.49 |
$ |
1.27 |
Net income per limited partner unit diluted |
$ |
0.81 |
$ |
0.59 |
$ |
1.49 |
$ |
1.27 |
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Weighted average limited partner units outstanding basic |
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54,259 |
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34,679 |
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51,499 |
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34,679 |
Weighted average limited partner units outstanding diluted |
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54,386 |
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34,785 |
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51,622 |
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34,790 |
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Cash distributions declared per unit (4) |
$ |
0.52 |
$ |
0.40 |
$ |
1.01 |
$ |
0.77 |
(1) Financial statements for the three and six months ended June 30, 2014 and 2013 have been retrospectively recast to reflect the inclusion of Sunrise Pipeline, LLC (Sunrise) and the Jupiter Gathering System (Jupiter). See Note B.
(2) Operating and maintenance expense includes charges from EQT Corporation (EQT) and subsidiaries of $6.3 million and $4.9 million for the three months ended June 30, 2014 and 2013, respectively, and $11.6 million and $9.0 million for the six months ended June 30, 2014 and 2013, respectively. Selling, general and administrative expense includes charges from EQT and subsidiaries of $8.1 million and $7.0 million for the three months ended June 30, 2014 and 2013, respectively, and $15.9 million and $12.5 million for the six months ended June 30, 2014 and 2013, respectively. See Note D.
(3) Interest expense for the three and six months ended June 30, 2014 includes $5.4 million and $10.3 million, respectively, related to interest on a capital lease with an affiliate. See Note G.
(4) Represents the cash distributions declared related to the period presented. See Note J.
The accompanying notes are an integral part of these Consolidated Financial Statements.
EQT MIDSTREAM PARTNERS, LP
Statements of Consolidated Cash Flows (Unaudited)
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Six Months Ended
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2014 (1) |
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2013 (1) |
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(Thousands) |
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Cash flows from operating activities: |
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Net income |
$ |
101,584 |
$ |
80,394 |
Adjustments to reconcile net income to cash provided by operating activities: |
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Depreciation and amortization |
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16,896 |
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12,699 |
Deferred income taxes |
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428 |
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2,862 |
Other income |
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(828) |
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(526) |
Non-cash long-term compensation expense |
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1,805 |
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562 |
Non-cash adjustments |
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(680) |
Changes in other assets and liabilities: |
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Accounts receivable |
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(3,643) |
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(137) |
Accounts payable |
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5,372 |
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(18,835) |
Due to/from EQT affiliates |
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5,657 |
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7,884 |
Other assets and liabilities |
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(3,112) |
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(859) |
Net cash provided by operating activities |
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124,159 |
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83,364 |
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Cash flows from investing activities: |
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Capital expenditures |
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(79,950) |
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(41,557) |
Jupiter Acquisition net assets from EQT |
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(168,198) |
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Net cash used in investing activities |
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(248,148) |
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(41,557) |
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Cash flows from financing activities: |
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Proceeds from the issuance of common units, net of offering costs |
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902,451 |
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Jupiter Acquisition purchase price in excess of net assets from EQT |
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(952,802) |
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Short-term loans |
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450,000 |
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Payments of short-term loans |
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(120,000) |
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Sunrise Merger payment |
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(110,000) |
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Distributions paid to unitholders |
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(47,989) |
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(25,479) |
Credit facility origination fees |
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(2,020) |
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Capital contributions |
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45 |
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3,487 |
Partners investments and net change in parent advances |
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13,905 |
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(16,546) |
Predecessor distributions paid to EQT |
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(29,031) |
Capital lease principal payments |
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(2,216) |
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Net cash provided by (used in) financing activities |
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131,374 |
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(67,569) |
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Net change in cash and cash equivalents |
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7,385 |
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(25,762) |
Cash and cash equivalents at beginning of period |
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18,363 |
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50,041 |
Cash and cash equivalents at end of period |
$ |
25,748 |
$ |
24,279 |
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Cash paid during the period for: |
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Interest paid |
$ |
10,800 |
$ |
219 |
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Non-cash activity during the period for : |
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Capital lease asset/obligation |
$ |
5,178 |
$ |
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Elimination of net current and deferred tax liabilities |
$ |
51,813 |
$ |
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Limited partner and general partner units issued for Jupiter acquisition |
$ |
59,000 |
$ |
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(1) Financial statements for the six months ended June 30, 2014 and 2013 have been retrospectively recast to reflect the inclusion of Sunrise and Jupiter. See Note B.
The accompanying notes are an integral part of these Consolidated Financial Statements.
EQT MIDSTREAM PARTNERS, LP
Consolidated Balance Sheets (Unaudited)
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June 30, |
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December 31, |
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2014 |
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2013 (1) |
ASSETS |
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(Thousands, except number of
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Current assets: |
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Cash and cash equivalents |
$ |
25,748 |
$ |
18,363 |
Accounts receivable (net of allowance for doubtful accounts of $212 as of June 30, 2014 and $152 as of December 31, 2013) |
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12,106 |
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8,463 |
Accounts receivable affiliate |
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16,518 |
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23,620 |
Other current assets |
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909 |
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1,033 |
Total current assets |
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55,281 |
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51,479 |
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Property, plant and equipment |
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1,255,924 |
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1,163,683 |
Less: accumulated depreciation |
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(184,338) |
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(168,740) |
Net property, plant and equipment |
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1,071,586 |
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994,943 |
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Regulatory assets |
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15,101 |
|
16,246 |
Other assets |
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3,441 |
|
1,304 |
Total assets |
$ |
1,145,409 |
$ |
1,063,972 |
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LIABILITIES AND PARTNERS CAPITAL |
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Current liabilities: |
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Accounts payable |
$ |
14,006 |
$ |
8,634 |
Short-term loans |
|
330,000 |
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Due to related party |
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11,694 |
|
25,621 |
Sunrise merger consideration to EQT |
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|
110,000 |
Lease obligation - current |
|
1,868 |
|
662 |
Accrued liabilities |
|
17,067 |
|
12,951 |
Total current liabilities |
|
374,635 |
|
157,868 |
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Deferred income taxes, net |
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|
39,840 |
Lease obligation |
|
135,489 |
|
133,733 |
Other long-term liabilities |
|
5,537 |
|
6,014 |
Total liabilities |
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515,661 |
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337,455 |
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Partners capital: |
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Predecessor equity |
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82,329 |
Common units (43,347,452 and 30,468,902 units issued and outstanding at June 30, 2014 and December 31, 2013, respectively) |
|
1,607,579 |
|
818,431 |
Subordinated units (17,339,718 units issued and outstanding at June 30, 2014 and December 31, 2013) |
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(945,846) |
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(175,996) |
General partner interest (1,238,514 and 975,686 units issued and outstanding at June 30, 2014 and December 31, 2013, respectively) |
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(31,985) |
|
1,753 |
Total partners capital |
|
629,748 |
|
726,517 |
Total liabilities and partners capital |
$ |
1,145,409 |
$ |
1,063,972 |
(1) Financial statements as of December 31, 2013 have been retrospectively recast to reflect the inclusion of Jupiter. See Note B.
The accompanying notes are an integral part of these Consolidated Financial Statements.
EQT MIDSTREAM PARTNERS, LP
Consolidated Statements of Partners Capital (Unaudited) (1)
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Partners Capital |
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Predecessor |
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Limited Partners |
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General |
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Equity |
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Common |
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Subordinated |
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Partner |
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Total |
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(Thousands) |
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Balance at January 1, 2013 |
$ |
279,576 |
$ |
313,304 |
$ |
153,664 |
$ |
8,108 |
$ |
754,652 |
Net income |
|
35,284 |
|
20,363 |
|
23,777 |
|
970 |
|
80,394 |
Capital contribution |
|
|
|
910 |
|
910 |
|
38 |
|
1,858 |
Equity-based compensation plans |
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|
|
562 |
|
|
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|
|
562 |
Distributions to unitholders |
|
|
|
(12,485) |
|
(12,485) |
|
(509) |
|
(25,479) |
Predecessor distributions paid to EQT |
|
(29,031) |
|
|
|
|
|
|
|
(29,031) |
Partners investments and net change in parent advances |
|
(16,546) |
|
|
|
|
|
|
|
(16,546) |
Balance at June 30, 2013 |
$ |
269,283 |
$ |
322,654 |
$ |
165,866 |
$ |
8,607 |
$ |
766,410 |
|
|
|
|
|
|
|
|
|
|
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Balance at January 1, 2014 |
$ |
82,329 |
$ |
818,431 |
$ |
(175,996) |
$ |
1,753 |
$ |
726,517 |
Net income |
|
20,151 |
|
52,020 |
|
24,899 |
|
4,514 |
|
101,584 |
Capital contribution |
|
|
|
338 |
|
152 |
|
10 |
|
500 |
Equity-based compensation plans |
|
|
|
1,967 |
|
|
|
|
|
1,967 |
Distributions to unitholders |
|
|
|
(28,946) |
|
(16,472) |
|
(2,571) |
|
(47,989) |
Proceeds from equity offering, net of offering costs |
|
|
|
902,451 |
|
|
|
|
|
902,451 |
Elimination of net current and deferred income tax liabilities |
|
51,813 |
|
|
|
|
|
|
|
51,813 |
Jupiter net assets from EQT |
|
(168,198) |
|
|
|
|
|
|
|
(168,198) |
Issuance of units |
|
|
|
39,091 |
|
|
|
19,909 |
|
59,000 |
Purchase price in excess of net assets from EQT |
|
|
|
(177,773) |
|
(778,429) |
|
(55,600) |
|
(1,011,802) |
Partners investments and net change in parent advances |
|
13,905 |
|
|
|
|
|
|
|
13,905 |
Balance at June 30, 2014 |
$ |
|
$ |
1,607,579 |
$ |
(945,846) |
$ |
(31,985) |
$ |
629,748 |
(1) Financial statements for the six months ended June 30, 2014 and 2013 have been retrospectively recast to reflect the inclusion of Sunrise and Jupiter. See Note B.
The accompanying notes are an integral part of these Consolidated Financial Statements.
EQT Midstream Partners, LP
Notes to Consolidated Financial Statements (Unaudited)
A. Financial Statements
Organization
EQT Midstream Partners, LP (EQT Midstream Partners or the Partnership) is a growth-oriented Delaware limited partnership. EQT Midstream Services, LLC, a wholly owned subsidiary of EQT Corporation, is the Partnerships general partner. References in these consolidated financial statements to EQT refer collectively to EQT Corporation and its consolidated subsidiaries.
Limited Partner and General Partner Units
The following table summarizes common, subordinated and general partner units issued January 1, 2013 through June 30, 2014.
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Limited Partner Units |
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General |
|
|
|
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|
|
Common |
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Subordinated |
|
Partner Units |
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Total |
|
Balance at January 1, 2013 |
|
17,339,718 |
|
17,339,718 |
|
707,744 |
|
35,387,180 |
|
July 2013 equity offering |
|
12,650,000 |
|
|
|
|
|
12,650,000 |
|
Sunrise Merger consideration |
|
479,184 |
|
|
|
267,942 |
|
747,126 |
|
Balance at December 31, 2013 |
|
30,468,902 |
|
17,339,718 |
|
975,686 |
|
48,784,306 |
|
May 2014 equity offering |
|
12,362,500 |
|
|
|
|
|
12,362,500 |
|
Jupiter Acquisition consideration |
|
516,050 |
|
|
|
262,828 |
|
778,878 |
|
Balance at June 30, 2014 |
|
43,347,452 |
|
17,339,718 |
|
1,238,514 |
|
61,925,684 |
|
On May 7, 2014, the Partnership completed an underwritten public offering of 12,362,500 common units. Net proceeds from the offering were used to finance the cash consideration paid to EQT in connection with the acquisition of the Jupiter gathering system (Jupiter) from EQT (Jupiter Acquisition). The Partnership received net proceeds of approximately $902 million from the offering after deducting the underwriters discount and offering expenses.
As of June 30, 2014, EQT retained a 36.4% equity interest in the Partnership, which includes 3,959,952 common units, 17,339,718 subordinated units and 1,238,514 general partner units.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the requirements of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, these unaudited consolidated financial statements include all adjustments (consisting of only normal recurring accruals, unless otherwise disclosed in this Form 10-Q) necessary for a fair presentation of the financial position of the Partnership as of June 30, 2014 and December 31, 2013, the results of its operations for the three and six months ended June 30, 2014 and 2013 and its cash flows for the six months ended June 30, 2014 and 2013. Certain previously reported amounts have been reclassified to conform to the current year presentation.
The balance sheet at December 31, 2013 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements.
As discussed in Note B, the Jupiter Acquisition and Sunrise Merger (as defined in Note B) were transactions between entities under common control; therefore, the Partnership recorded the assets and liabilities of Jupiter and Sunrise at their carrying amounts to EQT on the date of the respective transactions. The difference between EQTs net carrying amount and the total consideration paid to EQT was recorded as a capital transaction with EQT, which resulted in a reduction in partners capital. The Partnership recast its consolidated financial statements to retrospectively reflect the Jupiter Acquisition and Sunrise Merger as if the assets and liabilities were owned for all periods presented; however, the consolidated financial statements are not necessarily indicative of the results of operations that would have occurred if the Partnership had owned the assets during the periods reported.
EQT Midstream Partners, LP
Notes to Consolidated Financial Statements (Unaudited)
Due to the seasonal nature of the Partnerships utility customer contracts, the interim statements for the three and six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.
For further information, refer to the consolidated financial statements and footnotes thereto for the year ended December 31, 2013 included in the Partnerships Current Report on Form 8-K, as filed on June 26, 2014, as well as Managements Discussion and Analysis of Financial Condition and Results of Operations contained therein.
Recently Issued Accounting Standards
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. The standard requires an entity to recognize revenue in a manner that depicts the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 will replace most of the existing revenue recognition requirements in GAAP when it becomes effective. The guidance in ASU 2014-09 is effective for public entities for annual reporting periods beginning after December 15, 2016, including interim periods therein. Early adoption is not permitted. The Partnership is currently evaluating the method of adoption and impact this standard will have on its financial statements and related disclosures.
B. Jupiter Acquisition and Sunrise Merger
On April 30, 2014, the Partnership, its general partner, EQM Gathering Opco, LLC (EQM Gathering), a wholly owned subsidiary of the Partnership, and EQT Gathering, LLC (EQT Gathering), a wholly owned subsidiary of EQT entered into a contribution agreement (Contribution Agreement) pursuant to which, on May 7, 2014, EQT Gathering contributed to EQM Gathering certain assets constituting the Jupiter natural gas gathering system (Jupiter Acquisition).
The aggregate consideration paid by the Partnership to EQT in connection with the Jupiter Acquisition was approximately $1,180 million, consisting of a $1,121 million cash payment and issuance of 516,050 common units and 262,828 general partner units of the Partnership. The cash portion of the purchase price was funded with the net proceeds from an equity offering, as discussed in Note A, and borrowings under the Partnerships credit facility, as discussed in Note F.
On July 15, 2013, the Partnership and Equitrans, L.P. (Equitrans) entered into an Agreement and Plan of Merger with EQT and Sunrise Pipeline, LLC (Sunrise), a wholly owned subsidiary of EQT and the owner of the Sunrise Pipeline. Effective July 22, 2013, Sunrise merged with and into Equitrans , with Equitrans continuing as the surviving company (Sunrise Merger). Upon closing, the Partnership paid EQT consideration of $540 million, consisting of a $507.5 million cash payment, 479,184 Partnership common units and 267,942 Partnership general partner units. Prior to the Sunrise Merger, Equitrans entered into a precedent agreement with a third party for firm transportation service on the Sunrise Pipeline over a twenty-year term (the Precedent Agreement). Pursuant to the Agreement and Plan of Merger, following the effectiveness of the transportation agreement contemplated by the Precedent Agreement in December 2013, the Partnership paid additional consideration of $110 million to EQT in January 2014.
Prior to the Sunrise Merger, the Partnership operated the Sunrise Pipeline as part of its transmission and storage system under a lease agreement with EQT. The lease was a capital lease under GAAP; therefore, prior to the merger, revenues and expenses associated with Sunrise were included in the Partnerships historical consolidated financial statements and the Sunrise Pipeline was depreciated over the lease term of 15 years. Effective as of the closing of the Sunrise Merger on July 22, 2013, the lease agreement was terminated. Because the Sunrise Merger was a transaction between entities under common control, the Partnership has recast its financial statements to retrospectively reflect the merger. This included recasting depreciation expense recognized for the periods prior to the merger to reflect the pipelines useful life of 40 years. The decrease in depreciation expense and interest expense associated with the capital lease increased previously reported net income for the first six months of 2013.
EQT Midstream Partners, LP
Notes to Consolidated Financial Statements (Unaudited)
C. Financial Information by Business Segment
Operating segments are revenue-producing components of the enterprise for which separate financial information is produced internally and is subject to evaluation by the chief operating decision maker in deciding how to allocate resources.
The Partnership reports its operations in two segments, which reflect its lines of business. Transmission and storage includes the Partnerships FERC-regulated interstate pipeline and storage business. Gathering includes Jupiter and the FERC-regulated low pressure gathering system. The operating segments are evaluated on their contribution to the Partnerships results based on operating income.
All of the Partnerships operating revenues, income from operations and assets are generated or located in the United States.
|
|
Three Months Ended
|
|
Six Months Ended
|
||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
|
(Thousands) |
||||||
Revenues from external customers: |
|
|
|
|
|
|
|
|
Transmission and storage |
$ |
59,125 |
$ |
41,960 |
$ |
118,442 |
$ |
83,025 |
Gathering |
|
32,443 |
|
33,711 |
|
66,537 |
|
62,198 |
Total |
$ |
91,568 |
$ |
75,671 |
$ |
184,979 |
$ |
145,223 |
Operating income: |
|
|
|
|
|
|
|
|
Transmission and storage |
$ |
41,982 |
$ |
29,666 |
$ |
84,019 |
$ |
60,127 |
Gathering |
|
19,558 |
|
23,174 |
|
41,477 |
|
42,006 |
Total operating income |
$ |
61,540 |
$ |
52,840 |
$ |
125,496 |
$ |
102,133 |
Reconciliation of operating income to net income: |
|
|
|
|
|
|
||
Other income, net |
|
559 |
|
229 |
|
828 |
|
526 |
Interest expense, net |
|
6,629 |
|
213 |
|
12,284 |
|
417 |
Income tax expense |
|
3,390 |
|
12,197 |
|
12,456 |
|
21,848 |
Net income |
$ |
52,080 |
$ |
40,659 |
$ |
101,584 |
$ |
80,394 |
|
|
June 30, |
|
December 31, |
|
|
2014 |
|
2013 |
|
|
(Thousands) |
||
Segment assets: |
|
|
|
|
Transmission and storage |
$ |
854,946 |
$ |
807,287 |
Gathering |
|
264,715 |
|
238,322 |
Total operating segments |
|
1,119,661 |
|
1,045,609 |
Headquarters, including cash |
|
25,748 |
|
18,363 |
Total assets |
$ |
1,145,409 |
$ |
1,063,972 |
EQT Midstream Partners, LP
Notes to Consolidated Financial Statements (Unaudited)
|
|
Three Months Ended
|
|
Six Months Ended
|
||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
|
(Thousands) |
||||||
Depreciation and amortization: |
|
|
|
|
|
|
|
|
Transmission and storage |
$ |
6,322 |
$ |
4,442 |
$ |
12,481 |
$ |
8,753 |
Gathering |
|
2,203 |
|
1,992 |
|
4,415 |
|
3,946 |
Total |
$ |
8,525 |
$ |
6,434 |
$ |
16,896 |
$ |
12,699 |
Expenditures for segment assets: |
|
|
|
|
|
|
|
|
Transmission and storage |
$ |
25,080 |
$ |
12,284 |
$ |
39,081 |
$ |
23,223 |
Gathering |
|
24,858 |
|
6,924 |
|
41,031 |
|
18,334 |
Total (1) |
$ |
49,938 |
$ |
19,208 |
$ |
80,112 |
$ |
41,557 |
(1) The Partnership capitalizes certain labor overhead costs which include a portion of non-cash equity-based compensation. These non-cash capital expenditures in the table above were approximately $0.1 million and $0.2 million for the three and six months ended June 30, 2014, respectively.
D. Related-Party Transactions
In the ordinary course of business, the Partnership has transactions with affiliated companies. The Partnership has various contracts with affiliates including, but not limited to, transportation service and precedent agreements, storage agreements and gas gathering agreements.
The Partnership has various agreements with EQT. Pursuant to an omnibus agreement, EQT performs centralized corporate, general and administrative services for the Partnership, such as legal, corporate recordkeeping, planning, budgeting, regulatory, accounting, billing, business development, treasury, insurance administration and claims processing, risk management, health, safety and environmental, information technology, human resources, investor relations, cash management and banking, payroll, internal audit, taxes and engineering. In exchange, the Partnership reimburses EQT for the expenses incurred in providing these services, except for any expenses associated with EQTs long-term incentive programs as these are not expenses of the Partnership subsequent to the initial public offering (IPO) under the Partnerships omnibus agreement. The Partnerships general partner established its own long-term incentive compensation plan in 2012. The omnibus agreement further requires that the Partnership reimburse EQT for the Partnerships allocable portion of the premiums on any insurance policies covering the Partnerships assets. EQT does not record any profit or margin for the administrative and operational services charged to the Partnership.
Pursuant to an operation and management services agreement, EQT Gathering provides the Partnerships pipelines and storage facilities with certain operational and management services. The Partnership reimburses EQT Gathering for such services pursuant to the terms of the omnibus agreement. The expenses for which the Partnership reimburses EQT and its subsidiaries may not necessarily reflect the actual expenses that the Partnership would incur on a stand-alone basis and the Partnership is unable to estimate what those expenses would be on a stand-alone basis.
E. Income Taxes
As a result of its limited partnership structure, the Partnership is not subject to federal and state income taxes. For federal and state income tax purposes, all income, expenses, gains, losses and tax credits generated by the Partnership flow through to the unitholders; accordingly, the Partnership does not record a provision for income taxes. As discussed in Note B, the Partnership completed the Sunrise Merger on July 22, 2013 and the Jupiter Acquisition on May 7, 2014, which were transactions between entities under common control. Prior to these transactions, the income from Sunrise and Jupiter was included in EQTs consolidated federal tax return; therefore, the Sunrise and Jupiter financial statements included U.S. federal and state income tax. The income tax effects associated with the operations of Sunrise and Jupiter prior to the Sunrise Merger and the Jupiter Acquisition are reflected in the Partnerships consolidated financial statements for those periods.
EQT Midstream Partners, LP
Notes to Consolidated Financial Statements (Unaudited)
F. Debt
In February 2014, the Partnership amended its credit facility to increase the borrowing capacity to $750 million. The amended credit facility will expire in February 2019. The credit facility is available to fund working capital requirements and capital expenditures, to purchase assets, to pay distributions, to repurchase units and for general partnership purposes.
On May 7, 2014, the Partnership borrowed $340 million on its credit facility for the Jupiter Acquisition. On May 14, 2014, the Partnership made a $120 million payment to reduce its outstanding balance on the credit facility.
As of June 30, 2014, the Partnership had $330 million outstanding on the credit facility. There were no amounts outstanding on the credit facility as of December 31, 2013. The maximum amount of the Partnerships outstanding short-term loans at any time during the three and six months ended June 30, 2014 was $450 million. The average daily balance of short-term loans outstanding was approximately $252 million and $173 million for the three and six months ended June 30, 2014, respectively. The loans bear interest at a weighted average rate of 1.68% for the six months ended June 30, 2014. The carrying value of short-term borrowings approximates fair value as the interest rates are based on prevailing market rates.
G. Lease Obligations
On December 17, 2013, the Partnership entered into a lease with EQT for the Allegheny Valley Connector (AVC) facilities. Under the lease, the Partnership operates the AVC facilities as part of its transmission and storage system under the rates, terms and conditions of its FERC-approved tariff. The AVC facilities are strategically located to connect Marcellus Shale supply and demand and include an approximately 200 mile pipeline that interconnects with the Partnerships transmission and storage system. Additionally, the AVC facilities provide 450 BBtu per day of additional firm capacity to the Partnerships system and are supported by 4 associated natural gas storage reservoirs with approximately 260 MMcf per day of peak withdrawal capability and 15 Bcf of working gas capacity. Of the total 15 Bcf of working gas capacity, the Partnership leases and operates 13 Bcf of working gas capacity. The lease payment due each month is the lesser of the following alternatives: (1) a revenue-based payment reflecting the revenues generated by the operation of the AVC facilities minus the actual costs of operating the AVC facilities and (2) a payment based on depreciation expense and pre-tax return on invested capital for the AVC facilities. As a result, the payments to be made under the AVC lease will be variable.
The AVC lease is a capital lease under GAAP. The gross capital lease assets and obligations recorded in 2013 were approximately $134.4 million. The Partnership expects modernization capital expenditures will be incurred by EQT to upgrade the AVC facilities. As the capital expenditures are incurred, the capital lease asset and obligations will increase.
For the three and six months ended June 30, 2014, interest expense of $5.4 million and $10.3 million, respectively, and depreciation expense of $1.5 million and $2.8 million, respectively, were recorded related to the capital lease. At June 30, 2014, accumulated depreciation was $3.2 million, net capital lease assets were $135.6 million and capital lease obligations were $137.4 million.
H. Net Income per Limited Partner Unit
The Partnerships net income is allocated to the general partner and limited partners, including subordinated unitholders, in accordance with their respective ownership percentages, and when applicable, giving effect to incentive distributions allocable to the general partner. The allocation of undistributed earnings, or net income in excess of distributions, to the incentive distribution rights is limited to available cash (as defined by the Partnerships partnership agreement) for the period. Net income allocated to the general partner includes amounts attributed to incentive distributions, as applicable. The Partnerships net income allocable to the limited partners is allocated between common and subordinated unitholders by applying the provisions of the Partnerships partnership agreement that govern actual cash distributions as if all earnings for the period had been distributed. Any common units issued during the period are included on a weighted-average basis for the days in which they were outstanding. The phantom units granted to the independent directors of the Partnerships general partner will be paid in common units on a directors termination of service on the general partners Board of Directors. As there are no remaining service, performance or market conditions related to these awards, approximately 11,500 phantom unit awards were
EQT Midstream Partners, LP
Notes to Consolidated Financial Statements (Unaudited)
included in the calculation of basic weighted average limited partner units outstanding for the three and six months ended June 30, 2014, respectively.
Diluted net income per limited partner unit reflects the potential dilution that could occur if securities or agreements to issue common units, such as awards under the long-term incentive plan, were exercised, settled or converted into common units. When it is determined that potential common units resulting from an award subject to performance or market conditions should be included in the diluted net income per limited partner unit calculation, the impact is reflected by applying the treasury stock method. Potentially dilutive securities, consisting of performance awards, included in the calculation of diluted net income per limited partner unit totaled 126,202 and 105,740 for the three months ended June 30, 2014 and 2013, respectively. Potentially dilutive securities, consisting of performance awards, included in the calculation of diluted net income per limited partner unit totaled 122,907 and 110,959 for the six months ended June 30, 2014 and 2013, respectively. The 2014 EQM Value Driver Awards granted in the first quarter of 2014 were not included in potentially dilutive securities because the performance condition has not yet been met.
The following table presents the Partnerships calculation of net income per limited partner unit for common and subordinated limited partner units. Net income attributable to Sunrise for periods prior to July 22, 2013 and to Jupiter for periods prior to May 7, 2014 was not allocated to the limited partners for purposes of calculating net income per limited partner unit.
|
|
Three Months Ended
|
|
Six Months Ended
|
||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
|
(Thousands, except per unit data) |
||||||
Net income |
$ |
52,080 |
$ |
40,659 |
$ |
101,584 |
$ |
80,394 |
Less: |
|
|
|
|
|
|
|
|
Pre-acquisition net income allocated to parent |
|
(5,502) |
|
(19,628) |
|
(20,151) |
|
(35,284) |
General partner interest in net income 2% |
|
(932) |
|
(465) |
|
(1,628) |
|
(970) |
General partner interest in net income attributable to incentive distribution rights |
|
(1,860) |
|
|
|
(2,886) |
|
|
Limited partner interest in net income |
$ |
43,786 |
$ |
20,566 |
$ |
76,919 |
$ |
44,140 |
|
|
|
|
|
|
|
|
|
Net income allocable to common units - basic |
$ |
30,861 |
$ |
9,209 |
$ |
52,020 |
$ |
20,363 |
Net income allocable to subordinated units - basic |
|
12,925 |
|
11,357 |
|
24,899 |
|
23,777 |
Limited partner interest in net income - basic |
$ |
43,786 |
$ |
20,566 |
$ |
76,919 |
$ |
44,140 |
|
|
|
|
|
|
|
|
|
Net income allocable to common units diluted |
$ |
30,871 |
$ |
9,236 |
$ |
52,038 |
$ |
20,426 |
Net income allocable to subordinated units diluted |
|
12,915 |
|
11,330 |
|
24,881 |
|
23,714 |
Limited partner interest in net income diluted |
$ |
43,786 |
$ |
20,566 |
$ |
76,919 |
$ |
44,140 |
|
|
|
|
|
|
|
|
|
Weighted average limited partner units outstanding basic |
|
|
|
|
|
|
|
|
Common units |
|
36,919 |
|
17,339 |
|
34,159 |
|
17,339 |
Subordinated units |
|
17,340 |
|
17,340 |
|
17,340 |
|
17,340 |
Total |
|
54,259 |
|
34,679 |
|
51,499 |
|
34,679 |
|
|
|
|
|
|
|
|
|
Weighted average limited partner units outstanding diluted |
|
|
|
|
|
|
|
|
Common units |
|
37,046 |
|
17,445 |
|
34,282 |
|
17,450 |
Subordinated units |
|
17,340 |
|
17,340 |
|
17,340 |
|
17,340 |
Total |
|
54,386 |
|
34,785 |
|
51,622 |
|
34,790 |
|
|
|
|
|
|
|
|
|
Net income per limited partner unit basic |
|
|
|
|
|
|
|
|
Common units |
$ |
0.84 |
$ |
0.53 |
$ |
1.52 |
$ |
1.17 |
Subordinated units |
|
0.75 |
|
0.65 |
|
1.44 |
|
1.37 |
Total |
$ |
0.81 |
$ |
0.59 |
$ |
1.49 |
$ |
1.27 |
EQT Midstream Partners, LP
Notes to Consolidated Financial Statements (Unaudited)
|
|
Three Months Ended
|
|
Six Months Ended
|
||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
|
(Thousands, except per unit data) |
||||||
Net income per limited partner unit diluted |
|
|
|
|
|
|
|
|
Common units |
$ |
0.83 |
$ |
0.53 |
$ |
1.52 |
$ |
1.17 |
Subordinated units |
|
0.74 |
|
0.65 |
|
1.43 |
|
1.37 |
Total |
$ |
0.81 |
$ |
0.59 |
$ |
1.49 |
$ |
1.27 |
I. Subsidiary Guarantors
The Partnership filed a registration statement on Form S-3 with the SEC on July 1, 2013, as updated by a post- effective amendment filed with the SEC on June 26, 2014. The purpose of the Form S-3 was to register, among other securities, debt securities. Certain subsidiaries of the Partnership are co-registrants with the Partnership (Subsidiary Guarantors), and the registration statement registered guarantees of debt securities by one or more of the Subsidiary Guarantors (other than EQT Midstream Finance Corporation, a 100% owned subsidiary of the Partnership whose primary purpose is to act as co-issuer of debt securities). The Subsidiary Guarantors are 100% owned by the Partnership and any guarantees by the Subsidiary Guarantors will be full and unconditional. Subsidiaries of the Partnership other than the Subsidiary Guarantors and EQT Midstream Finance Corporation, if any, are minor. The Partnership has no assets or operations independent of the Subsidiary Guarantors and EQT Midstream Finance Corporation, and there are no significant restrictions upon the ability of the Subsidiary Guarantors to distribute funds to the Partnership by dividend or loan. In the event that more than one of the Subsidiary Guarantors provide guarantees of any debt securities issued by the Partnership, such guarantees will constitute joint and several obligations. None of the assets of the Partnership or the Subsidiary Guarantors represent restricted net assets pursuant to Rule 4-08(e)(3) of Regulation S-X under the Securities Act of 1933, as amended.
J. Subsequent Events
On July 22, 2014, the Board of Directors of the Partnerships general partner declared a cash distribution to the Partnerships unitholders for the second quarter of 2014 of $0.52 per common and subordinated unit, $0.7 million to the general partner related to its 2% general partner interest and $1.9 million to the general partner related to its incentive distribution rights. The cash distribution will be paid on August 14, 2014 to unitholders of record at the close of business on August 5, 2014.
EQT Midstream Partners, LP
Managements Discussion and Analysis of Financial Condition and Results of Operations
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
EQT Midstream Partners, LP (EQT Midstream Partners or the Partnership) is a growth-oriented Delaware limited partnership. The Partnerships consolidated financial statements have been retrospectively recast for all periods presented to include the historical results of Sunrise Pipeline, LLC (Sunrise), which was merged into the Partnership on July 22, 2013, and the Jupiter Gathering System (Jupiter), which was acquired on May 7, 2014, as the transactions were between entities under common control. You should read the following discussion and analysis of financial condition and results of operations in conjunction with the consolidated financial statements, and the notes thereto, included elsewhere in this report. References in the following discussion and analysis to EQT refer collectively to EQT Corporation and its consolidated subsidiaries.
CAUTIONARY STATEMENTS
Disclosures in this Quarterly Report on Form 10-Q contain certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Statements that do not relate strictly to historical or current facts are forward-looking and usually identified by the use of words such as anticipate, estimate, could, would, will, may, forecast, approximate, expect, project, intend, plan, believe and other words of similar meaning in connection with any discussion of future operating or financial matters. Without limiting the generality of the foregoing, forward-looking statements contained in this Quarterly Report on Form 10-Q include the matters discussed in the section captioned Outlook in Managements Discussion and Analysis of Financial Condition and Results of Operations, and the expectations of plans, strategies, objectives, and growth and anticipated financial and operational performance of the Partnership and its subsidiaries, including guidance regarding the Partnerships transmission and storage and gathering revenue and volume growth; infrastructure programs (including the timing, cost, capacity and sources of funding with respect to transmission and gathering expansion projects); the timing, cost and capacity of the Ohio Valley Connector (OVC) and Mountain Valley Pipeline (MVP) projects; the expected terms and structure of the proposed joint venture related to the MVP project, including the EQT affiliate to own and/or operate MVP; natural gas production growth in the Partnerships operating areas for EQT and third parties; asset acquisitions, including the Partnerships ability to complete any asset acquisitions from EQT or third parties; the amount and timing of distributions, including expected increases; the effect of the AVC lease on distributable cash flow; future projected AVC lease payments; projected operating and capital expenditures; liquidity and financing requirements, including sources and availability; the effects of government regulation and litigation; and tax position. The forward-looking statements included in this Quarterly Report on Form 10-Q involve risks and uncertainties that could cause actual results to differ materially from projected results. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. The Partnership has based these forward-looking statements on current expectations and assumptions about future events. While the Partnership considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks and uncertainties, most of which are difficult to predict and many of which are beyond the Partnerships control. With respect to the proposed pipeline projects, these risks and uncertainties include, among others, the ability to obtain regulatory permits and approvals, the ability to secure customer contracts, the availability of skilled labor, equipment and materials, and, with respect to MVP, the risk that the joint venture may not be consummated. Additional risks and uncertainties that may affect the operations, performance and results of the Partnerships business and forward-looking statements include, but are not limited to, those set forth under Item 1A, Risk Factors in the Partnerships Form 10-K for the year ended December 31, 2013.
Any forward-looking statement speaks only as of the date on which such statement is made and the Partnership does not intend to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise.
In reviewing any agreements incorporated by reference in or filed with this Quarterly Report on Form 10-Q, please remember that such agreements are included to provide information regarding the terms of such agreements and are not intended to provide any other factual or disclosure information about the Partnership. The agreements may contain representations and warranties by the Partnership, which should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties to such agreements should those statements prove to be inaccurate. The representations and warranties were made only as of the date of the relevant agreement or such other date or dates as may be specified in such agreement and are subject to more recent developments. Accordingly, these representations and warranties alone may not describe the actual state of affairs of the Partnership or its affiliates as of the date they were made or at any other time.
EQT Midstream Partners, LP
Managements Discussion and Analysis of Financial Condition and Results of Operations
Executive Overview
The Partnership declared a cash distribution to unitholders of $0.52 per unit on July 22, 2014, which represents a 6% increase over the previous distribution paid on May 15, 2014 of $0.49 per unit.
For the three months ended June 30, 2014, the Partnership reported net income of $52.1 million compared to $40.7 million for the three months ended June 30, 2013. The increase was primarily related to an increase in transmission and storage revenues of $17.2 million primarily due to increased firm transmission contracted capacity, driven by production development in the Marcellus Shale and the addition of AVC and lower income tax expense. These increases were partly offset by a $7.2 million increase in operating expenses and higher interest expense primarily related to the AVC lease.
For the six months ended June 30, 2014, the Partnership reported net income of $101.6 million compared to $80.4 million for the six months ended June 30, 2013. The increase was primarily related to an increase in operating revenues of $39.8 million driven by production development in the Marcellus Shale and the addition of AVC, and lower income tax expense. These increases were partly offset by a $16.4 million increase in operating expenses and higher interest expense primarily related to the AVC lease.
Business Segment Results of Operations
Operating segments are revenue-producing components of the enterprise for which separate financial information is produced internally and is subject to evaluation by the chief operating decision maker in deciding how to allocate resources. Interest and other income are managed on a consolidated basis. The Partnership has presented each segments operating income and various operational measures in the sections below. Management believes that presentation of this information provides useful information to management and investors regarding the financial condition, results of operations and trends of segments. The Partnership has reconciled each segments operating income to the Partnerships consolidated operating income and net income in Note C to the Consolidated Financial Statements.
Operating revenues and operating expenses related to the AVC facilities do not have an impact on adjusted EBITDA or distributable cash flow as the excess of the AVC revenues over operating and maintenance and selling, general and administrative expenses is paid to EQT as the current monthly lease payment. All revenues related to the AVC facilities are from third-parties.
EQT Midstream Partners, LP
Managements Discussion and Analysis of Financial Condition and Results of Operations
Transmission and Storage Results of Operations
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||
|
|
2014 |
|
2013 |
|
% |
|
2014 |
|
2013 |
|
% |
FINANCIAL DATA |
|
(Thousands, other than per day amounts) |
||||||||||
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues affiliate (1) |
$ |
26,955 |
$ |
33,904 |
|
(20.5) |
$ |
53,056 |
$ |
66,486 |
|
(20.2) |
Operating revenues third party (1) |
|
32,170 |
|
8,056 |
|
299.3 |
|
65,386 |
|
16,539 |
|
295.3 |
Total operating revenues |
|
59,125 |
|
41,960 |
|
40.9 |
|
118,442 |
|
83,025 |
|
42.7 |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating and maintenance |
|
5,292 |
|
3,480 |
|
52.1 |
|
10,450 |
|
6,774 |
|
54.3 |
Selling, general and administrative |
|
5,529 |
|
4,372 |
|
26.5 |
|
11,492 |
|
7,371 |
|
55.9 |
Depreciation and amortization |
|
6,322 |
|
4,442 |
|
42.3 |
|
12,481 |
|
8,753 |
|
42.6 |
Total operating expenses |
|
17,143 |
|
12,294 |
|
39.4 |
|
34,423 |
|
22,898 |
|
50.3 |
Operating income |
$ |
41,982 |
$ |
29,666 |
|
41.5 |
$ |
84,019 |
$ |
60,127 |
|
39.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATIONAL DATA |
|
|
|
|
|
|
|
|
|
|
|
|
Transmission pipeline throughput (BBtu per day) |
|
1,676 |
|
1,152 |
|
45.5 |
|
1,640 |
|
1,027 |
|
59.7 |
Capital expenditures |
$ |
25,080 |
$ |
12,284 |
|
104.2 |
$ |
39,081 |
$ |
23,223 |
|
68.3 |
(1) On December 17, 2013, EQT completed the sale of Equitable Gas Company, LLC (EGC). Prior to the sale, revenues related to sales to EGC were recorded as affiliate revenues. Subsequent to the sale, revenues related to sales to EGC are recorded as third party revenues. For the three and six months ended June 30, 2013, these revenues were $9.1 million and $20.0 million, respectively.
Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013
Transmission and storage revenues increased by $17.2 million as a result of higher third party and affiliate firm transmission contracted capacity of $15.8 million, including $6.4 million related to the AVC facilities, and higher interruptible transmission service. The increase in transmission revenue is the result of increased production development in the Marcellus Shale.
Operating expenses totaled $17.1 million for the three months ended June 30, 2014 compared to $12.3 million for the three months ended June 30, 2013. The increase in operating and maintenance expense resulted from additional costs associated with operating the AVC facilities of $1.2 million and increased repairs and maintenance expenses associated with increased throughput. The selling, general and administrative expenses increased primarily related to additional costs associated with operating the AVC facilities of $1.0 million. The increase in depreciation and amortization expense was primarily a result of AVC facilities capital lease depreciation expense of $1.5 million as well as higher depreciation on the increased investment in transmission infrastructure, most notably the Low Pressure East expansion project that was placed into service in the fourth quarter of 2013.
Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013
Transmission and storage revenues increased by $35.4 million as a result of higher third party and affiliate firm transmission contracted capacity of $34.4 million, including $15.4 million related to the AVC facilities, and higher interruptible transmission service. The increase in transmission revenue is the result of increased production development in the Marcellus Shale.
Operating expenses totaled $34.4 million for the six months ended June 30, 2014 compared to $22.9 million for the six months ended June 30, 2013. The increase in operating and maintenance expense resulted from additional costs associated with operating the AVC facilities of $2.3 million, increased repairs and maintenance expenses associated with increased throughput and higher allocations including personnel costs from EQT. Selling, general and
EQT Midstream Partners, LP
Managements Discussion and Analysis of Financial Condition and Results of Operations
administrative expenses increased primarily related to additional costs associated with operating the AVC facilities of $1.9 million, $1.1 million of increased professional services and other costs associated with growth of the business and $0.8 million of increased personnel costs including incentive compensation. The increase in depreciation and amortization expense was primarily a result of AVC facilities capital lease depreciation expense of $2.8 million as well as higher depreciation on the increased investment in transmission infrastructure, most notably the Low Pressure East expansion project that was placed into service in the fourth quarter of 2013.
Gathering Results of Operations
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||
|
|
2014 |
|
2013 |
|
% |
|
2014 |
|
2013 |
|
% |
FINANCIAL DATA |
|
(Thousands, other than per day amounts) |
||||||||||
Operating revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues affiliate |
$ |
30,203 |
$ |
32,334 |
|
(6.6) |
$ |
62,069 |
$ |
59,325 |
|
4.6 |
Operating revenues third party |
|
2,240 |
|
1,377 |
|
62.7 |
|
4,468 |
|
2,873 |
|
55.5 |
Total operating revenues |
|
32,443 |
|
33,711 |
|
(3.8) |
|
66,537 |
|
62,198 |
|
7.0 |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating and maintenance |
|
5,655 |
|
4,887 |
|
15.7 |
|
11,107 |
|
9,506 |
|
16.8 |
Selling, general and administrative |
|
5,027 |
|
3,658 |
|
37.4 |
|
9,538 |
|
6,740 |
|
41.5 |
Depreciation and amortization |
|
2,203 |
|
1,992 |
|
10.6 |
|
4,415 |
|
3,946 |
|
11.9 |
Total operating expenses |
|
12,885 |
|
10,537 |
|
22.3 |
|
25,060 |
|
20,192 |
|
24.1 |
Operating income |
$ |
19,558 |
$ |
23,174 |
|
(15.6) |
$ |
41,477 |
$ |
42,006 |
|
(1.3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATIONAL DATA |
|
|
|
|
|
|
|
|
|
|
|
|
Gathering volumes (BBtu per day) |
|
708 |
|
656 |
|
7.9 |
|
687 |
|
596 |
|
15.3 |
Capital expenditures |
$ |
24,858 |
$ |
6,924 |
|
259.0 |
$ |
41,031 |
$ |
18,334 |
|
123.8 |
Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013
Gathering revenues decreased by $1.3 million as a result of a lower average gathering fee partly offset by higher gathered volumes for the three months ended June 30, 2014 compared to the three months ended June 30, 2013. The average gathering fee decreased due to a lower gathering rate on Marcellus Shale volumes in the current year for Jupiter. The increase in gathered volumes was the result of increased production development in the Marcellus Shale.
Operating expenses totaled $12.9 million for the three months ended June 30, 2014 compared to $10.5 million for the three months ended June 30, 2013. The increase in operating and maintenance expense was primarily due to increases in repairs and maintenance and allocations from EQT partly offset by decreased purchased gas costs. Fuel usage and other requirements on the gathering system, excluding Jupiter, have historically exceeded the natural gas retained from the Partnerships gathering customers as compensation for its fuel usage and other requirements. Purchased gas costs were recorded for the difference. The decline in purchased gas costs during 2014 was primarily the result of operating improvements. The increase in selling, general and administrative expense primarily resulted from increased allocations from EQT of $0.7 million due to higher corporate overhead and personnel costs as well as transaction costs of $0.7 million incurred by the Partnership in connection with the Jupiter Acquisition. The increase in depreciation and amortization expense resulted from additional assets placed in-service.
EQT Midstream Partners, LP
Managements Discussion and Analysis of Financial Condition and Results of Operations
Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013
Gathering revenues increased by $4.3 million as a result of higher gathered volumes partly offset by a lower average gathering fee for the six months ended June 30, 2014 compared to the six months ended June 30, 2013. The increase in gathered volumes was the result of increased production development in the Marcellus Shale. The average gathering fee decreased due to a lower gathering rate on Marcellus Shale volumes in the current year for Jupiter.
Operating expenses totaled $25.1 million for the six months ended June 30, 2014 compared to $20.2 million for the six months ended June 30, 2013. The increase in operating and maintenance expense was primarily due to increases in repairs and maintenance and allocations from EQT partly offset by decreased purchased gas costs. Fuel usage and other requirements on the gathering system, excluding Jupiter, have historically exceeded the natural gas retained from the Partnerships gathering customers as compensation for its fuel usage and other requirements. Purchased gas costs were recorded for the difference. The decline in purchased gas costs during 2014 was primarily the result of operating improvements. The increase in selling, general and administrative expense primarily resulted from increased allocations from EQT of $1.9 million due to higher corporate overhead and personnel costs and transaction costs of $0.7 million incurred by the Partnership in connection with the Jupiter Acquisition. The increase in depreciation and amortization expense resulted from additional assets placed in-service.
Other Income Statement Items
Other income primarily represents the equity portion of AFUDC, which generally increases during periods of increased construction and decreases during periods of reduced construction of regulated assets. Other income increased $0.3 million for the three and six months ended June 30, 2014, compared to the three and six months ended June 30, 2013.
Interest expense was $6.6 million for the three months ended June 30, 2014 compared to $0.2 million for the three months ended June 30, 2013. The increase primarily related to interest incurred on the AVC facilities capital lease of $5.4 million and interest related to the borrowings on the credit facility of $1.1 million. Interest expense was $12.3 million for the six months ended June 30, 2014 compared to $0.4 million for the six months ended June 30, 2013. The increase primarily related to interest incurred on the AVC facilities capital lease of $10.3 million and interest related to the borrowings on the credit facility of $1.5 million.
Income tax expense was $3.4 million for the three months ended June 30, 2014 compared to $12.2 million for the three months ended June 30, 2013 and $12.5 million for the six months ended June 30, 2014 compared to $21.8 million for the six months ended June 30, 2013. The Partnership is not subject to U.S. federal and state income taxes. As previously noted, the Sunrise Merger on July 22, 2013 and the Jupiter Acquisition on May 7, 2014 were transactions between entities under common control for which the consolidated financial statements of the Partnership have been retrospectively recast to reflect the combined entities. Accordingly, the income tax effects associated with Sunrises and Jupiters operations prior to the Sunrise Merger and the Jupiter Acquisition are reflected in the consolidated financial statements as Sunrise and Jupiter were previously part of EQTs consolidated federal tax return. The first half of 2013 included a full six months of recast income tax expense for Sunrise and Jupiter, while 2014 included no income tax for Sunrise and income tax for Jupiter through May 7, 2014 only. The decrease in income tax expense resulted primarily from the timing of the Sunrise Merger and the Jupiter Acquisition.
See Investing Activities and Capital Requirements in the Capital Resources and Liquidity section below for a discussion of capital expenditures.
Non-GAAP Financial Measures
The Partnership defines adjusted EBITDA as net income plus net interest expense, depreciation and amortization expense, income tax expense (if applicable), non-cash long-term compensation expense and other non-cash adjustments (if applicable) less other income and capital lease payments and Jupiter EBITDA prior to acquisitions. The Partnership defines distributable cash flow as adjusted EBITDA less interest expense, excluding capital lease interest and ongoing maintenance capital expenditures, net of expected reimbursements. Adjusted EBITDA and distributable cash flow are non-GAAP supplemental financial measures that management and external users of the Partnerships consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, use to assess:
EQT Midstream Partners, LP
Managements Discussion and Analysis of Financial Condition and Results of Operations
· the Partnerships operating performance as compared to other publicly traded partnerships in the midstream energy industry without regard to historical cost basis or, in the case of adjusted EBITDA, financing methods;
· the ability of the Partnerships assets to generate sufficient cash flow to make distributions to the Partnerships unitholders;
· the Partnerships ability to incur and service debt and fund capital expenditures; and
· the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.
The Partnership believes that adjusted EBITDA and distributable cash flow provide useful information to investors in assessing the Partnerships financial condition and results of operations. Adjusted EBITDA and distributable cash flow should not be considered as alternatives to net income, operating income, net cash provided by operating activities or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjusted EBITDA and distributable cash flow have important limitations as analytical tools because they exclude some, but not all, items that affect net income and net cash provided by operating activities. Additionally, because adjusted EBITDA and distributable cash flow may be defined differently by other companies in its industry, the Partnerships definition of adjusted EBITDA and distributable cash flow may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. Distributable cash flow should not be viewed as indicative of the actual amount of cash that the Partnership has available for distributions from operating surplus or that the Partnership plans to distribute.
Reconciliation of Non-GAAP Measures
The following table presents a reconciliation of adjusted EBITDA and distributable cash flow with net income and net cash provided by operating activities, the most directly comparable GAAP financial measures.
EQT Midstream Partners, LP
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
|
Three Months Ended
|
|
Six Months Ended
|
||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
|
(Thousands) |
||||||
Net income |
$ |
52,080 |
$ |
40,659 |
$ |
101,584 |
$ |
80,394 |
Add: |
|
|
|
|
|
|
|
|
Interest expense, net |
|
6,629 |
|
213 |
|
12,284 |
|
417 |
Depreciation and amortization expense |
|
8,525 |
|
6,434 |
|
16,896 |
|
12,699 |
Income tax expense |
|
3,390 |
|
12,197 |
|
12,456 |
|
21,848 |
Non-cash long-term compensation expense |
|
827 |
|
209 |
|
1,805 |
|
562 |
Non-cash adjustments |
|
|
|
(430) |
|
|
|
(680) |
Less: |
|
|
|
|
|
|
|
|
Other income, net |
|
(559) |
|
(229) |
|
(828) |
|
(526) |
Capital lease payments for AVC (1) |
|
(4,216) |
|
|
|
(11,195) |
|
|
Pre-merger capital lease payments for Sunrise (1) |
|
|
|
(8,338) |
|
|
|
(15,201) |
Adjusted EBITDA attributable to Jupiter prior to acquisition (2) |
|
(9,496) |
|
(27,286) |
|
(34,733) |
|
(49,374) |
Adjusted EBITDA |
$ |
57,180 |
$ |
23,429 |
$ |
98,269 |
$ |
50,139 |
Less: |
|
|
|
|
|
|
|
|
Interest expense, excluding capital lease interest |
|
(1,275) |
|
(221) |
|
(1,992) |
|
(440) |
Ongoing maintenance capital expenditures, net of expected reimbursements |
|
(3,340) |
|
(2,097) |
|
(4,821) |
|
(4,171) |
Distributable cash flow |
$ |
52,565 |
$ |
21,111 |
$ |
91,456 |
$ |
45,528 |
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
$ |
78,000 |
$ |
36,070 |
$ |
124,159 |
$ |
83,364 |
Adjustments: |
|
|
|
|
|
|
|
|
Interest expense, net |
|
6,629 |
|
213 |
|
12,284 |
|
417 |
Current tax expense |
|
3,291 |
|
10,220 |
|
12,028 |
|
18,986 |
Capital lease payments for AVC (1) |
|
(4,216) |
|
|
|
(11,195) |
|
|
Pre-merger capital lease payments for Sunrise (1) |
|
|
|
(8,338) |
|
|
|
(15,201) |
Adjusted EBITDA attributable to Jupiter prior to acquisition (2) |
|
(9,496) |
|
(27,286) |
|
(34,733) |
|
(49,374) |
Other, including changes in working capital |
|
(17,028) |
|
12,550 |
|
(4,274) |
|
11,947 |
Adjusted EBITDA |
$ |
57,180 |
$ |
23,429 |
$ |
98,269 |
$ |
50,139 |
(1) Capital lease payments presented are the amounts incurred on an accrual basis and do not reflect the timing of actual cash payments. These lease payments are generally made monthly on a one month lag.
(2) Adjusted EBITDA attributable to Jupiter prior to acquisition for the periods presented was excluded from the Partnerships adjusted EBITDA calculations as these amounts were generated by Jupiter prior to the Partnerships acquisition; therefore, they were not amounts that could have been distributed to the Partnerships unitholders. Adjusted EBITDA attributable to Jupiter for the three and six months ended June 30, 2014 is calculated as net income of $5.5 million and $20.1 million plus depreciation and amortization expense of $0.6 million and $2.1 million plus income tax expense of $3.4 million and $12.5 million, respectively. Adjusted EBITDA attributable to Jupiter for the three months and six months ended June 30, 2013 is calculated as net income of $16.1 million and $29.1 million plus depreciation and amortization expense of $1.3 million and $2.5 million plus income tax expense of $9.9 million and $17.8 million, respectively.
Adjusted EBITDA was $57.2 million for the three months ended June 30, 2014 compared to $23.4 million for the three months ended June 30, 2013 and $98.3 million for the six months ended June 30, 2014 compared to $50.1 million for the six months ended June 30, 2013. These increases were primarily a result of increased transmission
EQT Midstream Partners, LP
Managements Discussion and Analysis of Financial Condition and Results of Operations
and storage operating revenues related to production development in the Marcellus Shale and the Sunrise Merger and Jupiter Acquisition, which resulted in Sunrise and Jupiter EBITDA being reflected in adjusted EBITDA subsequent to the transactions, partly offset by an increase in operating expenses consistent with the overall growth of the transmission system. Distributable cash flow was $52.6 million for the three months ended June 30, 2014 compared to $21.1 million for the three months ended June 30, 2013 and $91.5 million for the six months ended June 30, 2014 compared to $45.5 million for the six months ended June 30, 2013. These increases were mainly attributable to the increase in adjusted EBITDA.
Outlook
The Partnerships principal business objective is to increase the quarterly cash distributions that it pays to its unitholders over time while ensuring the ongoing growth of its business. The Partnership believes that it is well-positioned to achieve growth based on the combination of its relationship with EQT and its strategically located assets, which cover portions of the Marcellus Shale that lack substantial natural gas pipeline infrastructure. As production increases in the Partnerships areas of operations, the Partnership believes it will have a competitive advantage in attracting volumes to its system through relatively low-cost capacity expansions. Additionally, the Partnership may acquire additional midstream assets from EQT, or pursue asset acquisitions from third parties. Should EQT choose to pursue midstream asset sales, it is under no contractual obligation to offer the assets to the Partnership.
In the near term, the Partnership expects that the following expansion projects will also allow it to capitalize on increased drilling activity by EQT and other third-party producers.
Jefferson Compressor Station Expansion Project . This project involves expanding the Jefferson compressor station to provide approximately 550 BBtu per day of incremental capacity on the Sunrise Pipeline system. When complete, the project is expected to more than double the existing throughput capacity on the Sunrise Pipeline of approximately 400 BBtu per day. The expansion is expected to cost approximately $30 million and to be placed into service in the third quarter of 2014.
Transmission Expansion (Antero Project) . The Partnership entered into two separate agreements with Antero Resources for firm transportation services on the Partnerships transmission system. Under each agreement, the Partnership will ultimately provide 100 BBtu per day of firm transmission capacity on the transmission system for a combined total of 200 BBtu per day. As part of the agreements, the Partnership expects to spend approximately $55 million on two separate transmission expansion projects in northern West Virginia. The West-Side Expansion will add 100 BBtu per day of transmission capacity at an estimated cost of $26 million and is expected to be in full service by year-end 2014. The East-Side Expansion will add 100 BBtu per day of transmission capacity at an estimated cost of $29 million and is expected to be in full service by mid-year 2015. The agreements are primarily fixed-fee, demand based contracts with a 10-year term commencing on the applicable projects full 100 BBtu per day in-service date.
Transmission and Gathering Expansion (Range Resources Project) . The Partnership entered into agreements with a subsidiary of Range Resources Corporation to provide gathering, compression, and transmission services in southwestern Pennsylvania. The Partnership expects to invest approximately $30 million in gathering infrastructure and $25 million in a transmission expansion project in conjunction with the agreements. The transmission expansion will add approximately 100 BBtu per day of capacity to the Partnerships transmission system and is expected to be in service in the fourth quarter of 2014. The agreements include a fee-based 10-year minimum volume commitment for gathering and transmission services.
Jupiter Gathering Expansion. The Partnership expects to complete several expansion projects related to the Jupiter gathering system during 2014 and 2015. These expansion projects are fully subscribed under the Jupiter Gas Gathering Agreement with EQT. The 2014 expansion involves the construction of the Halo compressor station and the addition of compression at the Callisto and Jupiter compressor stations in Greene County, Pennsylvania and is expected to be placed into service in the fourth quarter of 2014. This expansion is expected to add approximately 350 MMcf per day of compression capacity and is estimated to cost approximately $47 million. The 2015 expansion involves the construction of the Europa compressor station in Greene County and is expected to be placed into service in the fourth quarter of 2015. This expansion is expected to add approximately 200 MMcf per day of compression capacity and is estimated to cost
EQT Midstream Partners, LP
Managements Discussion and Analysis of Financial Condition and Results of Operations
approximately $51 million. In addition, the Partnership expects to spend approximately $84 million over 2014 and 2015 to build approximately 20 miles of additional gathering pipelines and for field pressure reduction.
· Ohio Valley Connector. The Partnership announced that it will construct and own the Ohio Valley Connector (OVC) pipeline, which will be regulated by FERC. OVC will connect the Partnerships transmission and storage system in northern West Virginia to Clarington, Ohio. At Clarington, OVC will interconnect with the Rockies Express Pipeline and the Texas Eastern Pipeline. In addition to providing Marcellus producers access to pipelines serving Midwest and Gulf Coast markets, OVC will provide Utica producers, located along the route, direct access to the Partnerships extensive transmission system and is expected to be in-service by mid-year 2016. Subject to FERC approval, the 36 mile pipeline extension will provide approximately 1.0 Bcf per day of transmission capacity and is estimated to cost $300 million. The Partnership has entered into a 20-year precedent agreement with EQT for a total of 650 MMcf per day of firm transmission capacity on OVC.
· Mountain Valley Pipeline. On July 10, 2014, EQT completed a non-binding open season for the proposed Mountain Valley Pipeline project. The open season resulted in significant interest from many potential shippers. EQT is working toward binding precedent agreements with shippers and expects to have an update on the project within the next several months. EQT currently expects the 330-mile project, which is subject to Board and FERC approval, to extend from the Partnerships transmission and storage system in West Virginia to southern Virginia, to provide approximately two billion cubic feet per day of firm transmission capacity and to be in-service by the end of 2018. The pipeline is expected to be constructed and owned by a joint venture between EQT or the Partnership and NextEra Energy, Inc.
On April 30, 2014, EQT entered into a gas gathering agreement with EQT Gathering for gathering services on Jupiter (Jupiter Gas Gathering Agreement). The Jupiter Gas Gathering Agreement has a ten year term (with year-to-year rollovers), beginning May 1, 2014. Under the agreement, EQT has subscribed for all of the approximately 225 MMcf per day of firm compression capacity currently available on Jupiter. The Partnership anticipates future expansion projects which are expected to bring the total Jupiter compression capacity to approximately 775 MMcf per day. EQT has agreed to separate ten year terms (with year-to-year rollovers) for the compression capacity associated with each expansion project. After all of the expansion projects scheduled to be completed in 2014 and 2015 have been placed into service, EQTs firm reservation fee is expected to result in revenue of approximately $173 million annually. EQT also agreed to pay a monthly usage fee for volumes gathered in excess of firm compression capacity. In connection with the closing of the Jupiter Acquisition, the Jupiter Gas Gathering Agreement was assigned to EQM Gathering.
Capital Resources and Liquidity
The Partnerships principal liquidity requirements are to finance its operations, fund capital expenditures and acquisitions, make cash distributions and satisfy any indebtedness obligations. The Partnerships ability to meet these liquidity requirements will depend on its ability to generate cash in the future. The Partnerships available sources of liquidity include cash generated from operations, borrowing under the Partnerships credit facility, cash on hand, debt offerings and issuances of additional partnership units.
Operating Activities
Net cash provided by operating activities totaled $124.2 million for the first six months of 2014 compared to $83.4 million for the first six months of 2013. The increase in net cash provided by operating activities was driven by higher operating income for which contributing factors are discussed in the Executive Overview section herein and timing of payments between the two periods.
EQT Midstream Partners, LP
Managements Discussion and Analysis of Financial Condition and Results of Operations
Investing Activities
Net cash used in investing activities totaled $248.1 million for the first six months of 2014 compared to $41.6 million for the first six months of 2013. The increase was primarily attributable to the acquisition of the Jupiter net assets from EQT as well as the following expansion projects: the Jupiter gathering expansion, the Range Resources project, the Jefferson compressor station expansion project and the Ohio Valley Connector. These increases were partly offset by decreases in maintenance capital expenditures related to timing of the projects.
See further discussion of capital expenditures in the Capital Requirements section below.
Financing Activities
Net cash provided by financing activities totaled $131.4 million for the first six months of 2014 compared to net cash used in financing activities of $67.6 million for the first six months of 2013. Cash inflows for the first six months of 2014 from the equity offering and net borrowings under the Partnerships credit facility totaling $1.2 billion were mostly offset by cash payments for the Jupiter acquisition of approximately $1.0 billion, the Sunrise merger of $110.0 million and distributions to unitholders of $48.0 million. Cash outflows for the first six months of 2013 primarily related to predecessor distributions paid to EQT of $29.0 million and distributions to unitholders of $25.5 million.
Capital Requirements
The transmission, storage and gathering businesses can be capital intensive, requiring significant investment to maintain and upgrade existing operations and pursue expansion projects. Capital expenditures for the three and six months ended June 30, 2014 and 2013 were as follows:
|
|
Three Months Ended |
|
Six Months Ended |
|
||||
|
|
|
|
|
|
||||
|
|
June 30, |
|
June 30, |
|
||||
|
|
|
|
|
|
||||
|
|
2014 |
|
2013 |
|
2014 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands) |
|
||||||
|
|
|
|
||||||
Expansion capital expenditures |
$ |
43,694 |
$ |
12,431 |
$ |
71,695 |
$ |
29,350 |
|
Maintenance capital expenditures: |
|
|
|
|
|
|
|
|
|
Ongoing maintenance |
|
3,723 |
|
2,987 |
|
5,331 |
|
6,139 |
|
Funded regulatory compliance |
|
2,521 |
|
3,790 |
|
3,086 |
|
6,068 |
|
Total maintenance capital expenditures |
|
6,244 |
|
6,777 |
|
8,417 |
|
12,207 |
|
Total capital expenditures (1) |
$ |
49,938 |
$ |
19,208 |
$ |
80,112 |
$ |
41,557 |
|
(1) The Partnership capitalizes certain labor overhead costs which include a portion of non-cash equity-based compensation. These non-cash capital expenditures in the table above were approximately $0.1 million and $0.2 million for the three and six months ended June 30, 2014, respectively.
Expansion capital expenditures increased primarily due to expenditures related to the Jupiter gathering expansion, the Range Resources project, the Jefferson compressor station expansion project and the Ohio Valley Connector.
Ongoing maintenance capital expenditures are all maintenance capital expenditures other than funded regulatory compliance capital expenditures described in this section. The period over period changes primarily relate to the timing of projects. Included in these amounts for the three and six months ended June 30, 2014 were $0.3 million and $0.5 million, respectively, of maintenance capital expenditures that the Partnership expects to be reimbursed by EQT under the terms of the omnibus agreement. Included in these amounts for the three and six months ended June 30, 2013 were $0.8 million and $1.9 million, respectively, of maintenance capital expenditures that the Partnership was reimbursed by EQT under the terms of the omnibus agreement. The reimbursement of maintenance capital expenditures is only applicable to the Partnerships assets owned at the time of the IPO. Amounts reimbursed are recorded as capital contributions when received.
EQT Midstream Partners, LP
Managements Discussion and Analysis of Financial Condition and Results of Operations
Funded regulatory compliance capital expenditures decreased primarily due to the timing of costs associated with a multi-year program to install remote valve and pressure monitoring equipment on the Partnerships transmission and storage system. The Partnership retained approximately $32 million from the net proceeds of its IPO to fund these expenditures. Since the IPO, funded regulatory compliance capital expenditures have totaled $22.0 million.
The Partnership forecasts total capital expenditures of $225 million to $250 million in 2014. The Partnerships future expansion capital expenditures may vary significantly from period to period based on the available investment opportunities. Maintenance related capital expenditures are also expected to vary quarter to quarter. The Partnership expects to fund future capital expenditures primarily through cash on hand, cash generated from operations, availability under the Partnerships credit facility, debt offerings and the issuance of additional partnership units. The Partnership forecasts capital expenditures only for projects it has the authority to complete.
Short-term Borrowings
In February 2014, the Partnership amended its credit facility to increase the borrowing capacity to $750 million. The amended credit facility will expire in February 2019. The credit facility is available to fund working capital requirements and capital expenditures, to purchase assets, to pay distributions and to repurchase units and for general partnership purposes. Subject to certain terms and conditions, the credit facility has an accordion feature that allows the Partnership to increase the available revolving borrowings under the facility by up to an additional $250 million. In addition, the credit facility includes a sublimit up to $75 million for same-day swing line advances and a sublimit up to $150 million for letters of credit. The Partnership has the right to request that one or more lenders make term loans to it under the credit facility subject to the satisfaction of certain conditions, which term loans will be secured by cash and qualifying investment grade securities. The Partnerships obligations under the revolving portion of the credit facility are unsecured.
The Partnerships credit facility contains various provisions that, if not complied with, could result in termination of the credit facility, require early payment of amounts outstanding or similar actions. The most significant covenants and events of default under the credit facility relate to maintenance of permitted leverage ratio, limitations on transactions with affiliates, insolvency events, nonpayment of scheduled principal or interest payments, acceleration of other financial obligations and change of control provisions. Under the credit facility, the Partnership is required to maintain a consolidated leverage ratio of not more than 5.00 to 1.00 (or, if the Partnership has an investment grade rating, not more than 5.50 to 1.00 for certain measurement periods following the consummation of certain acquisitions). As of June 30, 2014, the Partnership was in compliance with all credit facility provisions and covenants.
On May 7, 2014, the Partnership borrowed $340 million on its credit facility for the Jupiter Acquisition. On May 14, 2014, the Partnership made a $120 million payment to reduce its outstanding balance on the credit facility. The Partnership had $330 million outstanding on the credit facility as of June 30, 2014.
Distributions
A cash distribution to unitholders of $0.49 per limited partner unit was paid on May 15, 2014 related to the first quarter of 2014. On July 22, 2014, the Board of Directors of the Partnerships general partner declared a cash distribution to the Partnerships unitholders for the second quarter of 2014 of $0.52 per common and subordinated unit, $0.7 million to the general partner related to its 2% general partner interest and $1.9 million to the general partner related to its incentive distribution rights. The cash distribution will be paid on August 14, 2014 to unitholders of record at the close of business on August 5, 2014.
Commitments and Contingencies
In the ordinary course of business, various legal and regulatory claims and proceedings are pending or threatened against the Partnership. While the amounts claimed may be substantial, the Partnership is unable to predict with certainty the ultimate outcome of such claims and proceedings. The Partnership accrues legal and other direct costs related to loss contingencies when actually incurred. The Partnership has established reserves it believes to be appropriate for pending matters, and after consultation with counsel and giving appropriate consideration to available insurance, the Partnership believes that the ultimate outcome of any matter currently pending against the
EQT Midstream Partners, LP
Managements Discussion and Analysis of Financial Condition and Results of Operations
Partnership will not materially affect its business, financial condition, results of operations, liquidity or ability to make distributions.
Critical Accounting Policies
The Partnerships critical accounting policies are described in Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2013 contained in the Partnerships Current Report on Form 8-K as filed on June 26, 2014. Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been included in the notes to the Partnerships Consolidated Financial Statements in Item 1 on this Quarterly Report on Form 10-Q for the period ended June 30, 2014. The application of the Partnerships critical accounting policies may require management to make judgments and estimates about the amounts reflected in the Consolidated Financial Statements. Management uses historical experience and all available information to make these estimates and judgments. Different amounts could be reported using different assumptions and estimates.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
The Partnership maintains a credit facility. The Partnership may from time to time hedge the interest on portions of its borrowings under the credit facility in order to manage risks associated with floating interest rates.
Credit Risk
The Partnership is exposed to credit risk. Credit risk is the risk that the Partnership may incur a loss if a counterparty fails to perform under a contract. The Partnership manages its exposure to credit risk associated with customers through credit analysis, credit approval, credit limits and monitoring procedures. For certain transactions, the Partnership may request letters of credit, cash collateral, prepayments or guarantees as forms of credit support. The Partnerships FERC tariff requires tariff customers that do not meet specified credit standards to provide three months of credit support; however, the Partnership is exposed to credit risk beyond this three month period when its tariff does not require its customers to provide additional credit support. For some of the Partnerships more recent long-term contracts associated with system expansions, it has entered into negotiated credit agreements that provide for enhanced forms of credit support if certain credit standards are not met. The Partnership has historically experienced only minimal credit losses in connection with its receivables. Approximately 50% and 59% of the Partnerships third party accounts receivable balances as of June 30, 2014 and December 31, 2013, respectively, represent amounts due from marketers. The Partnership is also exposed to the credit risk of EQT, its largest customer. In connection with the IPO, EQT guaranteed all payment obligations, up to a maximum of $50 million, due and payable to Equitrans by EQT Energy, LLC, one of Equitrans largest customers. The EQT guaranty will terminate on November 30, 2023 unless terminated earlier by EQT upon 10 days written notice. At June 30, 2014, EQTs public senior debt had an investment grade credit rating. In order to be considered investment grade, a company must be rated BBB- or higher by S&P and Baa3 or higher by Moodys. Anything below these ratings is considered non-investment grade.
Other market risks
The Partnership has a $750 million revolving credit facility that matures on February 18, 2019. The credit facility is underwritten by a syndicate of financial institutions, each of which is obligated to fund its pro-rata portion of any borrowings by the Partnership. As of June 30, 2014, the Partnership had $330 million of loans outstanding and no letters of credit outstanding under its credit facility. No one lender of the large group of financial institutions in the syndicate holds more than 10% of the facility. The Partnerships large syndicate group and relatively low percentage of participation by each lender is expected to limit the Partnerships exposure to problems or consolidation in the banking industry.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of management of the Partnerships general partner, including the general partners Principal Executive Officer and Principal Financial Officer, an evaluation of the Partnerships disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act)), was conducted as of the end of the period covered by this report. Based on that evaluation, the Principal Executive Officer and Principal Financial Officer of the Partnerships general partner concluded that the Partnerships disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There were no changes in internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act) that occurred during the second quarter of 2014 that have materially affected, or are reasonably likely to materially affect, the Partnerships internal control over financial reporting.
In the ordinary course of business, various legal and regulatory claims and proceedings are pending or threatened against the Partnership. While the amounts claimed may be substantial, the Partnership is unable to predict with certainty the ultimate outcome of such claims and proceedings. The Partnership accrues legal or other direct costs related to loss contingencies when actually incurred. The Partnership has established reserves it believes to be appropriate for pending matters, and after consultation with counsel and giving appropriate consideration to available insurance, the Partnership believes that the ultimate outcome of any matter currently pending against the Partnership will not materially affect its business, financial condition, results of operations, liquidity or ability to make distributions.
Information regarding risk factors is discussed in Item 1A, Risk Factors of the Partnerships Annual Report on Form 10-K for the year ended December 31, 2013. There have been no material changes from the risk factors previously disclosed in the Partnerships Annual Report on Form 10-K.
Amendment to the Partnership Agreement
On July 24, 2014, EQT Midstream Services, LLC, which is the general partner of the Partnership (the General Partner), entered into an amendment to the Partnerships First Amended and Restated Limited Partnership Agreement, dated as of July 2, 2012 (the Partnership Agreement). The amendment, which became effective on July 24, 2014, changes the definition of an eligible taxable holder and gives the General Partner flexibility in making the determination of whether a unitholder is an eligible taxable holder, among other things. Under the previous definition, eligible taxable holders were (a) individuals or entities subject to United States federal income taxation on the Partnerships income or (b) entities not subject to taxation on the Partnerships income, so long as all of the entitys owners are subject to such taxation. Under the new definition, eligible taxable holders are individuals or entities (a) whose, or whose owners, U.S. federal income tax status (or lack of proof thereof) does not have, or is not reasonably likely to have, as determined by the General Partner, a material adverse effect on the rates that can be charged to customers by the Partnership or its subsidiaries with respect to assets that are subject to regulation by the FERC or similar regulatory body or (b) as to whom the General Partner cannot make the determination provided for in clause (a), if the General Partner determines that it is in the best interest of the Partnership to permit such individual or entity (or category thereof) to own interests of the Partnership. The General Partner can change its determination of whether a holder, or category of holders, is eligible at any time. The amendment is filed as Exhibit 3.1 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.
Amendment and Restatement of the Limited Liability Company Agreement of the General Partner
On July 24, 2014, EQT Gathering, LLC, which is a wholly owned subsidiary of EQT and the current sole member of the General Partner, entered into the Second Amended and Restated Limited Liability Company Agreement of the General Partner (the Amended and Restated LLC Agreement). The Amended and Restated LLC Agreement reflects a series of contributions of the General Partners membership interests from EQT Investments Holdings, LLC, the prior sole member of the General Partner, and designates EQT Gathering, LLC as the sole member of the General Partner as a result of such contributions. The Amended and Restated LLC Agreement is filed as Exhibit 3.2 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.
Ohio Valley Connector Precedent Agreement
On July 23, 2014, Equitrans, LP, which is a wholly owned subsidiary of the Partnership (Equitrans), and EQT Energy, LLC (EQT Energy), a wholly owned subsidiary of EQT, entered into a Precedent Agreement for approximately 650 BBtu per day of firm transportation capacity on Equitrans proposed Ohio Valley Connector pipeline (Precedent Agreement) for a term of 20 years commencing in June 2016. The Precedent Agreement is filed as Exhibit 10.2 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.
2.1 |
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Contribution Agreement by and among EQT Midstream Partners, LP, EQT Midstream Services, LLC, EQM Gathering Opco, LLC and EQT Gathering, LLC, dated as of April 30, 2014. The Partnership will furnish supplementally a copy of any omitted schedule and similar attachment to the SEC upon request. |
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3.1 |
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Amendment No. 1 to the First Amended and Restated Agreement of Limited Partnership of EQT Midstream Partners, LP, dated July 24, 2014 |
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3.2 |
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Second Amended and Restated Limited Liability Company Agreement of EQT Midstream Services, LLC, dated July 24, 2014 |
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10.1 |
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Jupiter Gas Gathering Agreement between EQT Production Company, EQT Energy LLC and EQT Gathering, LLC. Specific items in this exhibit have been redacted, as marked by three asterisks (***), because confidential treatment for those terms has been requested. The redacted material has been separately filed with the SEC. |
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10.2 |
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Precedent Agreement for Transportation Services, dated July 23, 2014, between Equitrans, LP and EQT Energy, LLC |
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31.1 |
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Rule 13(a)-14(a) Certification of Principal Executive Officer |
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31.2 |
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Rule 13(a)-14(a) Certification of Principal Financial Officer |
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32 |
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Section 1350 Certification of Principal Executive Officer and Principal Financial Officer |
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101 |
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Interactive Data File |
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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EQT Midstream Partners, LP |
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(Registrant) |
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By: |
EQT Midstream Services, LLC, its General Partner |
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By: |
/s/ Philip P. Conti |
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Philip P. Conti |
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Senior Vice President and Chief Financial Officer |
Date: July 24, 2014
Exhibit No. |
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Document Description |
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Method of Filing |
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2.1 |
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Contribution Agreement by and among EQT Midstream Partners, LP, EQT Midstream Services, LLC, EQM Gathering Opco, LLC and EQT Gathering, LLC, dated as of April 30, 2014. The Partnership will furnish supplementally a copy of any omitted schedule and similar attachment to the SEC upon request. |
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Filed as exhibit 2.1 to Form 8-K (#001-35574) filed April 30, 2014 |
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3.1 |
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Amendment No. 1 to the First Amended and Restated Agreement of Limited Partnership of EQT Midstream Partners, LP, dated July 24, 2014 |
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Filed herewith as Exhibit 3.1 |
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3.2 |
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Second Amended and Restated Limited Liability Company Agreement of EQT Midstream Services, LLC, dated July 24, 2014 |
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Filed herewith as Exhibit 3.2 |
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10.1 |
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Jupiter Gas Gathering Agreement between EQT Production Company, EQT Energy LLC and EQT Gathering, LLC. Specific items in this exhibit have been redacted, as marked by three asterisks (***), because confidential treatment for those terms has been requested. The redacted material has been separately filed with the SEC. |
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Filed herewith as Exhibit 10.1 |
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10.2 |
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Precedent Agreement for Transportation Services, dated July 23, 2014, between Equitrans, LP and EQT Energy, LLC |
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Filed herewith as Exhibit 10.2 |
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31.1 |
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Rule 13(a)-14(a) Certification of Principal Executive Officer |
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Filed herewith as Exhibit 31.1 |
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31.2 |
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Rule 13(a)-14(a) Certification of Principal Financial Officer |
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Filed herewith as Exhibit 31.2 |
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32 |
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Section 1350 Certification of Principal Executive Officer and Principal Financial Officer |
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Filed herewith as Exhibit 32 |
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101 |
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Interactive Data File |
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Filed herewith as Exhibit 101 |
Exhibit 3.1
AMENDMENT NO. 1 TO THE FIRST AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
EQT MIDSTREAM PARTNERS, LP
This Amendment No. 1 (this Amendment ) to the First Amended and Restated Agreement of Limited Partnership of EQT Midstream Partners, LP (the Partnership ), dated as of July 2, 2012 (the Partnership Agreement ), is hereby adopted effective as of July 24, 2014, by EQT Midstream Services, LLC, a Delaware limited liability company (the General Partner ), as general partner of the Partnership.
RECITALS
WHEREAS , the General Partner desires to amend the Partnership Agreement to amend the definition of an Eligible Taxable Holder and related provisions;
WHEREAS , Section 13.1(d)(i) of the Partnership Agreement provides that the General Partner, without the approval of any Partner, may amend any provision of the Partnership Agreement provided such change does not adversely affect the Limited Partners considered as a whole or any particular class of Partnership Interests as compared to other classes of Partnership Interests in any material respect; and
WHEREAS , acting pursuant to the power and authority granted to it under Section 13.1(d)(i) of the Partnership Agreement, the General Partner has determined that the following amendment to the Partnership Agreement does not adversely affect the Limited Partners considered as a whole or any particular class of Partnership Interests as compared to other classes of Partnership Interests in any material respect.
NOW THEREFORE , the General Partner does hereby amend the Partnership Agreement as follows:
1. INTERPRETATION
This Amendment is made and delivered pursuant to the Partnership Agreement. Except as otherwise provided herein, capitalized terms used but not defined in this Amendment have the meanings ascribed to them in the Partnership Agreement.
2. AMENDMENTS TO PARTNERSHIP AGREEMENT
2.1 The definition of Eligible Taxable Holder set forth in Section 1.1 of the Partnership Agreement is hereby amended and restated in its entirety to read as follows:
Eligible Taxable Holder means a Person or type or category of Person (a) whose, or whose owners, U.S. federal income tax status (or lack of proof of U.S. federal income tax status) does not have or is not reasonably likely to have, as determined by the General Partner, a material adverse effect on the rates that can be charged to customers by any Group Member with respect to assets that are subject to regulation by the Federal Energy Regulatory Commission or similar regulatory body or (b) as to whom the General Partner cannot make the determination
Exhibit 3.1
provided for in clause (a), if the General Partner determines that it is in the best interest of the Partnership to permit such Person or type or category of Persons to own Partnership Interests. Schedule I to the Partnership Agreement provides examples of Persons that the General Partner has determined are Eligible Taxable Holders and Persons that the General Partner has determined are not Eligible Taxable Holders. Any such determination may be changed by the General Partner from time to time and such new determination will apply to both existing and additional Limited Partners.
2.2 Section 4.5(d) is hereby amended and restated in its entirety to read as follows:
By acceptance of the transfer of any Limited Partner Interests in accordance with this Section 4.5 and except as provided in Section 4.9, each transferee of a Limited Partner Interest (including any nominee holder or an agent or representative acquiring such Limited Partner Interests for the account of another Person) acknowledges and agrees to the provisions of Section 10.1(b).
2.3 Section 10.1(b) is hereby amended and restated in its entirety to read as follows:
By acceptance of any Limited Partner Interests transferred in accordance with Article IV or acceptance of any Limited Partner Interests issued pursuant to Article V or pursuant to a merger, consolidation or conversion pursuant to Article XIV, and except as provided in Section 4.9, each transferee of, or other such Person acquiring, a Limited Partner Interest (including any nominee, agent or representative acquiring such Limited Partner Interests for the account of another Person or Group, which nominee, agent or representative shall be subject to Section 10.1(c) below) (i) shall be admitted to the Partnership as a Limited Partner with respect to the Limited Partner Interests so transferred or issued to such Person when such Person becomes the Record Holder of the Limited Partner Interests so transferred or acquired, (ii) shall become bound, and shall be deemed to have agreed to be bound, by the terms of this Agreement, (iii) shall be deemed to represent that the transferee or acquirer has the capacity, power and authority to enter into this Agreement and (iv) shall be deemed to make any consents, acknowledgements or waivers contained in this Agreement, all with or without execution of this Agreement by such Person. The transfer of any Limited Partner Interests and the admission of any new Limited Partner shall not constitute an amendment to this Agreement. A Person may become a Limited Partner without the consent or approval of any of the Partners. A Person may not become a Limited Partner without acquiring a Limited Partner Interest and becoming the Record Holder of such Limited Partner Interest. The rights and obligations of a Person who is an Ineligible Holder shall be determined in accordance with Section 4.9.
2.4 Section 13.1 is hereby amended to redesignate clause (k) as clause (l) and to redesignate clause (l) as clause (m) and to add a new clause (k) as follows:
(k) an amendment to Schedule I or an amendment to Section 10.1 providing that any transferee of a Limited Partner Interest (including any nominee holder or an agent or representative acquiring such Limited Partner Interest for the account of another Person) shall be deemed to certify that the transferee is an Eligible Taxable Holder;
(l) a merger, conveyance or conversion pursuant to Section 14.3(c); or
Exhibit 3.1
(m) any other amendments substantially similar to the foregoing.
2.5 Schedule I attached to this Amendment is hereby added as Schedule I to the Partnership Agreement.
3. GENERAL
3.1. Full Force and Effect. Except to the extent specifically amended herein or supplemented hereby, the Partnership Agreement remains unchanged and in full force and effect, and this Amendment will be governed by and subject to the terms of the Partnership Agreement, as amended by this Amendment.
3.2. Governing Law. This Amendment shall be governed by, and interpreted in accordance with, the laws of the State of Delaware, all rights and remedies being governed by such laws without regard to principles of conflicts of laws.
3.3. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Exhibit 3.1
IN WITNESS WHEREOF, the General Partner has caused this Amendment to be duly executed as of the date first written above.
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GENERAL PARTNER: |
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EQT MIDSTREAM SERVICES, LLC |
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By: |
/s/ Philip P. Conti |
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Name: Philip P. Conti |
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Title: Senior Vice President and Chief Financial Officer |
Exhibit 3.1
SCHEDULE I
This schedule sets forth the types or categories of holders that the General Partner has determined are Eligible Taxable Holders and the types or categories of holders that the General Partner has determined are not Eligible Taxable Holders. The General Partner may change these determinations in accordance with the Partnership Agreement.
Eligible Taxable Holders
The following are currently considered to be Eligible Taxable Holders:
· Individuals (U.S. or non-U.S.)
· C corporations (U.S. or non-U.S.)
· Tax exempt organizations subject to tax on unrelated business taxable income or UBTI, including IRAs, 401(k) plans and Keogh accounts
· S corporations whose only shareholders are individuals, trusts or tax exempt organizations subject to tax on UBTI
· Mutual Funds
· Partnerships with no partners that are Ineligible Holders
· Trusts with no beneficiaries that are Ineligible Holders
Not Eligible Taxable Holders
The following are currently not considered to be Eligible Taxable Holders:
· Real estate investment trusts
· Governmental entities and agencies
· S corporations with any shareholders that are employee stock ownership plans
· Partnerships with any partner that is an Ineligible Holder
· Trusts with any beneficiary that is an Ineligible Holder
Exhibit 3.2
SECOND AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
EQT MIDSTREAM SERVICES, LLC
A Delaware Limited Liability Company
Dated as of
July 24, 2014
TABLE OF CONTENTS
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ARTICLE I DEFINITIONS |
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2 |
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Section 1.1 |
Definitions |
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Section 1.2 |
Construction |
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ARTICLE II ORGANIZATION |
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Section 2.1 |
Formation |
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Section 2.2 |
Name |
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Section 2.3 |
Registered Office; Registered Agent; Principal Office; Other Offices |
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Section 2.4 |
Purposes and Powers |
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Section 2.5 |
Term |
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Section 2.6 |
No State Law Partnership |
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ARTICLE III RIGHTS OF SOLE MEMBER |
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Section 3.1 |
Voting |
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Section 3.2 |
Distribution |
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Section 3.3 |
No Liability of the Sole Member |
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ARTICLE IV CAPITAL CONTRIBUTIONS |
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Section 4.1 |
Initial Capital Contributions |
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Section 4.2 |
Additional Capital Contributions |
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Section 4.3 |
Fully Paid and Non-Assessable Nature of Membership Interests |
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ARTICLE V MANAGEMENT |
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Section 5.1 |
Management by Board of Directors |
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Section 5.2 |
Number; Qualification; Tenure |
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Section 5.3 |
Regular Meetings |
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Section 5.4 |
Special Meetings |
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Section 5.5 |
Notice |
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Section 5.6 |
Action by Consent of Board |
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Section 5.7 |
Conference Telephone Meetings |
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Section 5.8 |
Quorum and Action |
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Section 5.9 |
Vacancies; Increases in the Number of Directors |
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Section 5.10 |
Committees |
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Section 5.11 |
Removal |
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Section 5.12 |
Compensation of Directors |
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Section 5.13 |
Responsibility and Authority of the Board |
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Section 5.14 |
Other Business of Sole Member, Directors and Affiliates |
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Section 5.15 |
Reliance by Third Parties |
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ARTICLE VI OFFICERS |
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Section 6.1 |
Officers |
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Section 6.2 |
Election and Term of Office |
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Section 6.3 |
Chief Executive Officer |
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Section 6.4 |
President |
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Section 6.5 |
Vice Presidents |
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Section 6.6 |
Treasurer |
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TABLE OF CONTENTS (Continued)
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Section 6.7 |
Secretary |
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Section 6.8 |
Removal |
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Section 6.9 |
Vacancies |
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ARTICLE VII INDEMNITY AND LIMITATION OF LIABILITY |
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Section 7.1 |
Indemnification |
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Section 7.2 |
Liability of Indemnitees |
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ARTICLE VIII TAXES |
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Section 8.1 |
Taxes |
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ARTICLE IX BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS |
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Section 9.1 |
Maintenance of Books |
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Section 9.2 |
Reports |
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Section 9.3 |
Bank Accounts |
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ARTICLE X DISSOLUTION, WINDING-UP, TERMINATION AND CONVERSION |
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Section 10.1 |
Dissolution |
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Section 10.2 |
Effect of Dissolution |
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Section 10.3 |
Application of Proceeds |
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Section 10.4 |
Certificate of Cancellation |
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ARTICLE XI GENERAL PROVISIONS |
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Section 11.1 |
Offset |
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Section 11.2 |
Notices |
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Section 11.3 |
Entire Agreement; Superseding Effect |
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Section 11.4 |
Effect of Waiver or Consent |
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Section 11.5 |
Amendment or Restatement |
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Section 11.6 |
Binding Effect |
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Section 11.7 |
Governing Law; Severability |
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Section 11.8 |
Venue |
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Section 11.9 |
Further Assurances |
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SECOND AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
EQT MIDSTREAM SERVICES, LLC
This SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (this Agreement ) of EQT Midstream Services, LLC (the Company ), dated July 24, 2014 and effective as of December 31, 2013, is adopted, executed and agreed to by EQT Gathering, LLC, a Delaware limited liability company, as the sole member of the Company (in such capacity, the Sole Member ).
R E C I T A L S :
WHEREAS, the Company was formed as a Delaware limited liability company on January 17, 2012;
WHEREAS, EQT Investments Holdings, LLC, a Delaware limited liability company ( Investments Holdings ), as the initial sole member of the Company, executed the First Amended and Restated Limited Liability Company Agreement of the Company, dated as of July 2, 2012 (the Prior Limited Liability Company Agreement );
WHEREAS, pursuant to the Contribution Agreement, effective as of December 27, 2013, by and between Investments Holdings and EQT Production Company, a Pennsylvania corporation ( EPC ), Investments Holdings contributed 100% of the membership interests in the Company to EPC;
WHEREAS, pursuant to the Contribution Agreement, effective as of December 27, 2013, by and between EPC and EQT Gathering Holdings, LLC, a Delaware limited liability company ( Gathering Holdings ), EPC contributed 100% of the membership interests in the Company to Gathering Holdings;
WHEREAS, pursuant to the Contribution Agreement, effective as of December 31, 2013, by and between Gathering Holdings and the Sole Member, Gathering Holdings contributed 100% of the membership interests in the Company to the Sole Member; and
WHEREAS, the Sole Member of the Company deems it advisable to amend and restate the Prior Limited Liability Company Agreement in its entirety as set forth herein.
NOW THEREFORE, for and in consideration of the premises, the covenants and agreements set forth herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Sole Member hereby amends and restates the Prior Limited Liability Company Agreement in its entirety, effective December 31, 2013, as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions
(a) As used in this Agreement, the following terms have the respective meanings set forth below or set forth in the Sections referred to below:
Act means the Delaware Limited Liability Company Act, 6 Del. C. § 18-101, et seq., as amended, supplemented or restated from time to time, and any successor to such statute.
Affiliate means, with respect to any Person, any other Person that directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with, the Person in question. As used herein, the term control means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise.
Agreement is defined in the introductory paragraph, as the same may be amended, modified, supplemented or restated from time to time.
Audit Committee is defined in Section 5.10(b) .
Audit Committee Independent Director is defined in Section 5.10(b) .
Board is defined in Section 5.1(b) .
Business Day means Monday through Friday of each week, except that a legal holiday recognized as such by the government of the United States of America or the State of Pennsylvania shall not be regarded as a Business Day.
Capital Contribution means any cash, cash equivalents or the net agreed value of any property (other than cash) that the Sole Member contributes to the Company or that is contributed or deemed contributed to the Company on behalf of the Sole Member.
Commission means the United States Securities and Exchange Commission.
Common Units is defined in the Partnership Agreement.
Company is defined in the introductory paragraph.
Conflicts Committee is defined in the Partnership Agreement.
Conflicts Committee Independent Director means a Director who meets the standards set forth in the definition of Conflicts Committee in the Partnership Agreement.
Delaware Certificate is defined in Section 2.1 .
Director or Directors means a member or members of the Board.
EQT Entities means EQT Corporation and its Affiliates (other than the Company and the Partnership Group).
Group Member is defined in the Partnership Agreement.
Indemnitee means any of (a) the Sole Member, (b) any Person who is or was an Affiliate of the Company (other than any Group Member), (c) any Person who is or was a manager, member, partner, director, officer, fiduciary or trustee of the Company or any Affiliate of the Company (other than any Group Member), (d) any Person who is or was serving at the request of the Company or any Affiliate of the Company as an officer, director, member, manager, partner, fiduciary or trustee of another Person; provided, however , that a Person shall not be an Indemnitee by reason of providing, on a fee-for-services basis, trustee, fiduciary or custodial services, and (e) any Person the Board designates as an Indemnitee for purposes of this Agreement.
Investments Holdings is defined in the Recitals.
Limited Partner and Limited Partners are defined in the Partnership Agreement.
Membership Interest means the Sole Members limited liability company interests in the Company, including its share of the income, gain, loss, deduction and credits of, and the right to receive distributions from, the Company.
Notices is defined in Section 11.2 .
Omnibus Agreement is defined in the Partnership Agreement.
Operation and Management Services Agreement is defined in the Partnership Agreement.
Partnership means EQT Midstream Partners, LP, a Delaware limited partnership.
Partnership Agreement means the First Amended and Restated Agreement of Limited Partnership of EQT Midstream Partners, LP, dated as of July 2, 2012, as it may be further amended, supplemented or restated from time to time.
Partnership Group is defined in the Partnership Agreement.
Person means an individual or a corporation, firm, limited liability company, partnership, joint venture, trust, unincorporated organization, association, government agency or political subdivision thereof or other entity.
Prior Limited Liability Company Agreement is defined in the Recitals.
Sole Member is defined in the introductory paragraph.
Special Approval is defined in the Partnership Agreement.
Subsidiary is defined in the Partnership Agreement.
Treasury Regulations means the regulations (including temporary regulations) promulgated by the United States Department of the Treasury pursuant to and in respect of provisions of the Internal Revenue Code of 1986, as amended from time to time. All references herein to sections of the Treasury Regulations shall include any corresponding provision or provisions of succeeding, similar or substitute, temporary or final Treasury Regulations.
(b) Other terms defined herein have the meanings so given them.
Section 1.2 Construction . Unless the context requires otherwise: (a) any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa; (b) references to Articles and Sections refer to Articles and Sections of this Agreement; (c) the terms include, includes, including or words of like import shall be deemed to be followed by the words without limitation; and (d) the terms hereof, herein or hereunder refer to this Agreement as a whole and not to any particular provision of this Agreement. The table of contents and headings contained in this Agreement are for reference purposes only, and shall not affect in any way the meaning or interpretation of this Agreement.
ARTICLE II
ORGANIZATION
Section 2.1 Formation . The Company was formed as a Delaware limited liability company by the filing of a Certificate of Formation (the Delaware Certificate ) on January 17, 2012 with the Secretary of State of the State of Delaware under and pursuant to the Act and by the entering into of the initial limited liability company agreement of the Company, dated as of January 17, 2012. On July 2, 2012, Investments Holdings, as the initial sole member of the Company, executed the Prior Limited Liability Company Agreement. The Sole Member hereby amends and restates the Prior Limited Liability Company Agreement in its entirety and this amendment and restatement shall become effective as of December 31, 2013.
Section 2.2 Name . The name of the Company is EQT Midstream Services, LLC and all Company business must be conducted in that name or such other names that comply with applicable law as the Board or the Sole Member may select.
Section 2.3 Registered Office; Registered Agent; Principal Office; Other Offices . The registered office of the Company required by the Act to be maintained in the State of Delaware shall be the office of the initial registered agent for service of process named in the Delaware Certificate or such other office (which need not be a place of business of the Company) as the Board may designate in the manner provided by applicable law. The registered agent for service of process of the Company in the State of Delaware shall be the initial registered agent for service of process named in the Delaware Certificate or such other Person or Persons as the
Board may designate in the manner provided by applicable law. The principal office of the Company in the United States shall be at such a place as the Board may from time to time designate, which need not be in the State of Delaware, and the Company shall maintain records there. The Company may have such other offices as the Board of Directors may designate.
Section 2.4 Purposes and Powers . The purpose of the Company is to own, acquire, hold, sell, transfer, assign, dispose of or otherwise deal with partnership interests in, and act as the general partner of, the Partnership as described in the Partnership Agreement and to engage in any lawful business or activity ancillary or related thereto. The Company shall possess and may exercise all the powers and privileges granted by the Act, by any other law or by this Agreement, together with any powers incidental thereto, including such powers and privileges as are necessary or appropriate to the conduct, promotion or attainment of the business, purposes or activities of the Company.
Section 2.5 Term . The term of the Company commenced upon the filing of the Delaware Certificate on January 17, 2012 in accordance with the Act and shall continue in existence until the dissolution of the Company in accordance with the provisions of Section 10.4 . The existence of the Company as a separate legal entity shall continue until the cancellation of the Delaware Certificate as provided in the Act.
Section 2.6 No State Law Partnership . The Sole Member intends that the Company shall not be a partnership (whether general, limited or other) or joint venture for any purposes, and this Agreement may not be construed or interpreted to the contrary.
ARTICLE III
RIGHTS OF SOLE MEMBER
Section 3.1 Voting . Unless otherwise granted to the Board by this Agreement, the Sole Member shall possess the entire voting interest and exclusive authority in all matters relating to the Company, including matters relating to the amendment of this Agreement, any merger, consolidation or conversion of the Company, sale of all or substantially all of the assets of the Company and the termination, dissolution and liquidation of the Company.
Section 3.2 Distribution . Distributions by the Company of cash or other property shall be made to the Sole Member at such time as the Sole Member deems appropriate.
Section 3.3 No Liability of the Sole Member . Except as otherwise required by applicable law, the Sole Member shall not have any personal liability whatsoever hereunder in its capacity as the Sole Member, whether to the Company, to the creditors of the Company or to any other third party, for the debts, liabilities, commitments or any other obligations of the Company or for any losses of the Company.
ARTICLE IV
CAPITAL CONTRIBUTIONS
Section 4.1 Initial Capital Contributions . At the time of the formation of the Company, Investments Holdings, as the initial or organizational member of the Company, made
a Capital Contribution in the amount of $1,000 in exchange for all of the Membership Interests in the Company.
Section 4.2 Additional Capital Contributions . The Sole Member shall not be obligated to make additional Capital Contributions to the Company.
Section 4.3 Fully Paid and Non-Assessable Nature of Membership Interests . All Membership Interests issued pursuant to, and in accordance with, the requirements of this Article IV shall be fully paid and non-assessable Membership Interests, except as such non-assessability may be affected by Sections 18-303, 18-607 and 18-804 of the Act.
ARTICLE V
MANAGEMENT
Section 5.1 Management by Board of Directors .
(a) The Sole Member shall have the power and authority to delegate to one or more other persons the rights and power to manage and control the business and affairs, or any portion thereof, of the Company, including to delegate to agents, officers and employees of the Sole Member or the Company, and to delegate by a management agreement with or otherwise to other Persons.
(b) Except to the extent specifically reserved to the Sole Member hereunder, the Sole Member hereby delegates to the Board of Directors of the Company (the Board ) all power and authority related to the Companys management of the business and affairs of the Partnership. The Board, acting as a body pursuant to this Agreement, shall constitute a manager for purposes of the Act.
Section 5.2 Number; Qualification; Tenure .
(a) The number of Directors constituting the Board shall be at least three and no more than nine, and may be fixed from time to time pursuant to a resolution adopted by the Sole Member. Each Director shall be elected or approved by the Sole Member and shall continue in office until the removal of such Director in accordance with the provisions of this Agreement or until the earlier death or resignation of such Director.
(b) The Directors of the Company in office at the date of this Agreement are set forth on Exhibit A hereto.
Section 5.3 Regular Meetings . Regular meetings of the Board shall be held at such time and place as shall be designated from time to time by resolution of the Board.
Section 5.4 Special Meetings . A special meeting of the Board may be called at any time at the request of (a) the Chairman of the Board or (b) a majority of the Directors then in office.
Section 5.5 Notice . Oral, telegraphic or written notice of all meetings of the Board must be given to all Directors at least 24 hours prior to any meeting of the Board. All notices
and other communications to be given to Directors shall be sufficiently given for all purposes hereunder if in writing and delivered by hand, courier or overnight delivery service or three days after being mailed by certified or registered mail, return receipt requested, with appropriate postage prepaid, or when received in the form of an e-mail or facsimile, and shall be directed to the address, e-mail address or facsimile number as such Director shall designate by notice to the Company. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board need be specified in the notice of such meeting as provided herein. A meeting may be held at any time without notice if all the Directors are present or if those not present waive notice of the meeting either before or after such meeting.
Section 5.6 Action by Consent of Board . To the extent permitted by applicable law, the Board, or any committee of the Board, may act without a meeting so long as a majority of the members of the Board or committee shall have executed a written consent with respect to any action taken in lieu of a meeting.
Section 5.7 Conference Telephone Meetings . Directors or members of any committee of the Board may participate in a meeting of the Board or such committee by means of conference telephone or similar communications equipment or by such other means by which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting.
Section 5.8 Quorum and Action . A majority of all Directors, present in person or participating in accordance with Section 5.7 , shall constitute a quorum for the transaction of business, but if at any meeting of the Board there shall be less than a quorum present, a majority of the Directors present may adjourn the meeting from time to time without further notice. Except as otherwise required by applicable law, all decisions of the Board shall require the affirmative vote of at least a majority of the Directors at any meeting at which a quorum is present.
Section 5.9 Vacancies; Increases in the Number of Directors . Vacancies and newly created directorships resulting from any increase in the number of Directors shall be filled by the Sole Member. Any Director so appointed shall hold office until his removal in accordance with the provisions of this Agreement or until his earlier death or resignation.
Section 5.10 Committees.
(a) The Board may establish committees of the Board and may delegate any of its responsibilities to such committees, except as prohibited by applicable law.
(b) The Board shall have an audit committee (the Audit Committee ) comprised of at least three Directors who meet the independence standards required of directors who serve on an audit committee of a board of directors established by the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder and by the New York Stock Exchange or any national securities exchange on which the Common Units are listed (each, an Audit Committee Independent Director ). The Audit Committee shall establish a written audit committee charter in accordance with the rules and regulations of the Commission and the New York Stock Exchange or any national securities exchange on which the Common
Units are listed from time to time, in each case as amended from time to time. Each member of the Audit Committee shall satisfy the rules and regulations of the Commission and the New York Stock Exchange or any national securities exchange on which the Common Units are listed from time to time, in each case as amended from time to time, pertaining to qualification for service on an audit committee.
(c) The Board may, from time to time, establish a Conflicts Committee. The Conflicts Committee shall be composed of at least two Conflicts Committee Independent Directors. The Conflicts Committee shall function in the manner described in the Partnership Agreement. Notwithstanding any duty otherwise existing at law or in equity, any matter approved by the Conflicts Committee in accordance with the provisions, and subject to the limitations, of the Partnership Agreement, shall not be deemed to be a breach of any duties owed by the Board or any Director to the Company or the Sole Member.
(d) A majority of any committee, present in person or participating in accordance with Section 5.7 , shall constitute a quorum for the transaction of business of such committee. Except as otherwise required by law or the Partnership Agreement, all decisions of a committee shall require the affirmative vote of at least a majority of the committee members at any meeting at which a quorum is present.
(e) A majority of any committee may determine its action and fix the time and place of its meetings unless the Board shall otherwise provide. Notice of such meetings shall be given to each member of the committee in the manner provided for in Section 5.5 . The Board shall have power at any time to fill vacancies in, to change the membership of, or to dissolve any such committee.
Section 5.11 Removal . Any Director or the entire Board may be removed at any time, with or without cause, by the Sole Member.
Section 5.12 Compensation of Directors . Except as expressly provided in any written agreement between the Company and a Director or by resolution of the Board, no Director shall receive any compensation from the Company for services provided to the Company in its capacity as a Director, except that each Director shall be compensated for attendance at Board meetings at rates of compensation as from time to time established by the Board or a committee thereof; provided, however, that Directors who are also employees of the Company or any Affiliate thereof shall receive no compensation for their services as Directors or committee members. In addition, the Directors who are not employees of the Company or any Affiliate thereof shall be entitled to be reimbursed for out-of-pocket costs and expenses incurred in connection with attending meetings of the Board or committees thereof.
Section 5.13 Responsibility and Authority of the Board .
(a) General . Except as otherwise provided in this Agreement, the relative authority, duties and functions of the Board, on the one hand, and the officers of the Company, on the other hand, shall be identical to the relative authority, duties and functions of the board of directors and officers, respectively, of a corporation organized under the General Corporation Law of the State of Delaware. The officers shall be vested with such powers and duties as are set
forth in Section 6.1 hereof and as are specified by the Board from time to time. Accordingly, except as otherwise specifically provided in this Agreement, the day-to-day activities of the Company shall be conducted on the Companys behalf by the officers who shall be agents of the Company. In addition to the powers and authorities expressly conferred on the Board by this Agreement, the Board may exercise all such powers of the Company and do all such acts and things as are not restricted by this Agreement, the Partnership Agreement, the Act or applicable law. Notwithstanding any duty otherwise existing at law or in equity, any matter approved by the Board in accordance with the provisions, and subject to the limitations, of the Partnership Agreement, shall not be deemed to be a breach of any duties owed by the Board or any Director to the Company or the Sole Member.
(b) Sole Member Consent Required for Extraordinary Matters . Notwithstanding anything herein to the contrary, the Board will not take any action without approval of the Sole Member with respect to an extraordinary matter that would have, or would reasonably be expected to have, a material effect, directly or indirectly, on the Sole Members interests in the Company. The type of extraordinary matter referred to in the prior sentence which requires approval of the Sole Member shall include, but not be limited to, the following: (i) commencement of any action relating to bankruptcy, insolvency, reorganization or relief of debtors by the Company, the Partnership or a material Subsidiary thereof; (ii) a merger, consolidation, recapitalization or similar transaction involving the Company, the Partnership or a material Subsidiary thereof; (iii) a sale, exchange or other transfer not in the ordinary course of business of a substantial portion of the assets of the Partnership or a material Subsidiary of the Partnership, viewed on a consolidated basis, in one or a series of related transactions; (iv) the issuance or repurchase of any equity interests in the Company, (v) a dissolution or liquidation of the Company or the Partnership; and (vi) a material amendment of the Partnership Agreement. An extraordinary matter will be deemed approved by the Sole Member if the Board receives a written, facsimile or electronic instruction evidencing such approval from the Sole Member. To the fullest extent permitted by law, a Director, acting as such, shall have no duty, responsibility or liability to the Sole Member with respect to any action by the Board approved by the Sole Member.
(c) Sole Member-Managed Decisions . Notwithstanding anything herein to the contrary, the Sole Member shall have exclusive authority over the internal business and affairs of the Company that do not relate to management of the Partnership and its Subsidiaries. For illustrative purposes, the internal business and affairs of the Company where the Sole Member shall have exclusive authority include (i) the amount and timing of distributions paid by the Company, (ii) the prosecution, settlement or management of any claim made directly against the Company and not involving or relating to the Partnership Group, (iii) the decision to sell, convey, transfer or pledge any asset of the Company, (iv) the decision to amend, modify or waive any rights relating to the assets of the Company and (v) the decision to enter into any agreement to incur an obligation of the Company other than an agreement entered into for and on behalf of the Partnership for which the Company is liable exclusively by virtue of the Companys capacity as general partner of the Partnership or of any of its Affiliates.
In addition, the Sole Member delegates the authority to the Board, except as such delegation may be hereafter revoked or restricted by resolution adopted by the Sole Member and subject to Section 5.13(b) , to cause the Company to exercise the rights of the
Company as general partner of the Partnership (or those exercisable after the Company ceases to be the general partner of the Partnership) where (a) the Company makes a determination or takes or declines to take any other action in its individual capacity under the Partnership Agreement or (b) where the Partnership Agreement permits the Company to make a determination or take or decline to take any other action in its sole discretion.
Section 5.14 Other Business of Sole Member, Directors and Affiliates .
(a) Existing Business Ventures . The Sole Member, each Director and their respective Affiliates may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Company or the Partnership, and the Company, the Partnership, the Directors and the Sole Member shall have no rights by virtue of this Agreement in and to such independent ventures or the income or profits derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Company or the Partnership, shall not be deemed wrongful or improper.
(b) Business Opportunities . None of the Sole Member, any Director or any of their respective Affiliates who acquires knowledge of a potential transaction, agreement, arrangement or other matter that may be an opportunity for the Company, shall have any duty to communicate or offer such opportunity to the Company or the Partnership, and such Persons shall not be liable to the Company or the Sole Member for breach of any duty by reason of the fact that such Person pursues or acquires for itself, directs such opportunity to another Person or does not communicate such opportunity or information to the Company; provided such Sole Member, Director or any of their Affiliates do not engage in such business or activity using confidential or proprietary information provided by or on behalf of the Company to such Persons.
Section 5.15 Reliance by Third Parties . Notwithstanding anything to the contrary in this Agreement, any Person dealing with the Company shall be entitled to assume that any officer of the Company authorized by the Board to act on behalf of and in the name of the Company has full power and authority to encumber, sell or otherwise use in any manner any and all assets of the Company and to enter into any authorized contracts on behalf of the Company, and such Person shall be entitled to deal with any such officer as if it were the Companys sole party in interest, both legally and beneficially. The Sole Member hereby waives, to the fullest extent permitted by law, any and all defenses or other remedies that may be available against such Person to contest, negate or disaffirm any action of any such officer in connection with any such dealing. In no event shall any Person dealing with any such officer or its representatives be obligated to ascertain that the terms of this Agreement have been complied with or to inquire into the necessity or expedience of any act or action of any such officer or its representatives. Each and every certificate, document or other instrument executed on behalf of the Company by the officers shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that (a) at the time of the execution and delivery of such certificate, document or instrument, this Agreement was in full force and effect, (b) the Person executing and delivering such certificate, document or instrument was duly authorized and empowered to do so for and on behalf of the Partnership and (c) such certificate, document or instrument was duly executed and delivered in accordance with the terms and provisions of this Agreement and is binding upon the Company.
ARTICLE VI
OFFICERS
Section 6.1 Officers.
(a) The Board shall elect one or more persons to be officers of the Company to assist in carrying out the Boards decisions and the day-to-day activities of the Company in its capacity as the general partner of the Partnership. Officers are not managers as that term is used in the Act. Any individuals who are elected as officers of the Company shall serve at the pleasure of the Board and shall have such titles and the authority and duties specified in this Agreement or otherwise delegated to each of them, respectively, by the Board from time to time.
(b) The officers of the Company may consist of a Chief Executive Officer, a President, one or more Vice Presidents, a Treasurer, a Secretary and such other officers as the Board from time to time may deem proper. The Chairman of the Board, if any, shall be chosen from among the Directors. All officers elected by the Board shall each have such powers and duties as generally pertain to their respective offices, subject to Section 5.13 and the specific provisions of this Article VI . The Board may from time to time elect such other officers or appoint such agents as may be necessary or desirable for the conduct of the business of the Company as the general partner of the Partnership. Such other officers and agents shall have such duties and shall hold their offices for such terms as shall be provided in this Agreement or as may be prescribed by the Board, as the case may be from time to time.
Section 6.2 Election and Term of Office . The officers of the Company shall be elected from time to time by the Board. Each officer shall hold office until such persons successor shall have been duly elected and qualified or until such persons death or until he or she shall resign or be removed pursuant to Section 6.8 .
Section 6.3 Chief Executive Officer . The Chief Executive Officer, who may be the Chairman or Vice Chairman of the Board and/or the President, shall have general and active management authority over the business of the Company and shall see that all orders and resolutions of the Board are carried into effect. The Chief Executive Officer shall also perform all duties and have all powers incident to the office of Chief Executive Officer and perform such other duties and may exercise such other powers as may be assigned by this Agreement or prescribed by the Board from time to time.
Section 6.4 President . The President shall, subject to the control of the Board and the Chief Executive Officer, in general, supervise and control all of the business and affairs of the Company. The President shall perform all duties and have all powers incident to the office of President and perform such other duties and may exercise such other powers as may be delegated by the Chief Executive Officer or as may be prescribed by the Board from time to time.
Section 6.5 Vice Presidents . Any Executive Vice President, Senior Vice President and Vice President, in the order of seniority, unless otherwise determined by the Board, shall, in the absence or disability of the President, perform the duties and exercise the powers of the President. They shall also perform the usual and customary duties and have the powers that
pertain to such office and generally assist the President by executing contracts and agreements and exercising such other powers and performing such other duties as are delegated to them by the Chief Executive Officer or President or as may be prescribed by the Board from time to time.
Section 6.6 Treasurer . The Treasurer shall keep or cause to be kept the books of account of the Company and shall render statements of the financial affairs of the Company in such form and as often as required by this Agreement, the Board or a President. The Treasurer, subject to the order of the Board, shall have the custody of all funds and securities of the Company. The Treasurer shall perform the usual and customary duties and have the powers that pertain to such office and exercise such other powers and perform such other duties as are delegated to him by the Chief Executive Officer or a President or as may be prescribed by the Board from time to time.
Section 6.7 Secretary . The Secretary shall keep or cause to be kept, in one or more books provided for that purpose, the minutes of all meetings of the Board, the committees of the Board and the Limited Partners. The Secretary shall see that all notices are duly given in accordance with the provisions of this Agreement and as required by applicable law; shall be custodian of the records and the seal of the Company (if any) and affix and attest the seal (if any) to all documents to be executed on behalf of the Company under its seal; and shall see that the books, reports, statements, certificates and other documents and records required by applicable law to be kept and filed are properly kept and filed; and in general, shall perform all duties and have all powers incident to the office of Secretary and perform such other duties and may exercise such other powers as may be delegated by the Chief Executive Officer or President or as may be prescribed by the Board from time to time.
Section 6.8 Removal . Any officer elected, or agent appointed, by the Board may be removed, with or without cause, by the Sole Member or the affirmative vote of a majority of the Board whenever, in the Sole Members or such majoritys judgment, as applicable, the best interests of the Company would be served thereby. No officer shall have any contractual rights against the Company for compensation by virtue of such election beyond the date of the election of such persons successor, such persons death, such persons resignation or such persons removal, whichever event shall first occur, except as otherwise provided in an employment contract or under an employee deferred compensation plan.
Section 6.9 Vacancies . A newly created elected office and a vacancy in any elected office because of death, resignation or removal may be filled by the Board for the unexpired portion of the term at any meeting of the Board.
ARTICLE VII
INDEMNITY AND LIMITATION OF LIABILITY
Section 7.1 Indemnification .
(a) To the fullest extent permitted by applicable law but subject to the limitations expressly provided in this Agreement, all Indemnitees shall be indemnified and held harmless by the Company from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including legal fees and expenses), judgments, fines, penalties, interest,
settlements or other amounts arising from any and all threatened, pending or completed claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, and whether formal or informal and including appeals, in which any Indemnitee may be involved, or is threatened to be involved, as a party or otherwise, by reason of its status as an Indemnitee and acting (or refraining to act) in such capacity on behalf of or for the benefit of the Company; provided, however , that the Indemnitee shall not be indemnified and held harmless pursuant to this Agreement if there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that, in respect of the matter for which the Indemnitee is seeking indemnification pursuant to this Agreement, the Indemnitee acted in bad faith or engaged in fraud, willful misconduct or, in the case of a criminal matter, acted with knowledge that the Indemnitees conduct was unlawful. Any indemnification pursuant to this Section 7.1 shall be made only out of the assets of the Company, it being agreed that the Sole Member shall not be personally liable for such indemnification and shall have no obligation to contribute or loan any monies or property to the Company to enable it to effectuate such indemnification.
(b) To the fullest extent permitted by applicable law, expenses (including legal fees and expenses) incurred by an Indemnitee who is indemnified pursuant to Section 7.1(a) in defending any claim, demand, action, suit or proceeding shall, from time to time, be advanced by the Company prior to a final and non-appealable judgment entered by a court of competent jurisdiction determining that, in respect of the matter for which the Indemnitee is seeking indemnification pursuant to this Section 7.1, the Indemnitee is not entitled to be indemnified upon receipt by the Company of any undertaking by or on behalf of the Indemnitee to repay such amount if it shall be ultimately determined that the Indemnitee is not entitled to be indemnified as authorized by this Section 7.1.
(c) The indemnification provided by this Section 7.1 shall be in addition to any other rights to which an Indemnitee may be entitled under any agreement, as a matter of law, in equity or otherwise, both as to actions in the Indemnitees capacity as an Indemnitee and as to actions in any other capacity, and shall continue as to an Indemnitee who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns and administrators of the Indemnitee.
(d) The Company may purchase and maintain (or reimburse its Affiliates for the cost of) insurance on behalf of the Indemnitees, the Company and its Affiliates and such other Persons as the Company shall determine, against any liability that may be asserted against or expense that may be incurred by such Person in connection with the Companys activities or such Persons activities on behalf of the Company, regardless of whether the Company would have the power to indemnify such Person against such liability under the provisions of this Agreement.
(e) For purposes of this Section 7.1, the Company shall be deemed to have requested an Indemnitee to serve as fiduciary of an employee benefit plan whenever the performance by it of its duties to the Company also imposes duties on, or otherwise involves services by, it to the plan or participants or beneficiaries of the plan; excise taxes assessed on an Indemnitee with respect to an employee benefit plan pursuant to applicable law shall constitute fines within the meaning of Section 7.1; and action taken or omitted by it with respect to any
employee benefit plan in the performance of its duties for a purpose reasonably believed by it to be in the best interest of the participants and beneficiaries of the plan shall be deemed to be for a purpose that is in the best interests of the Company.
(f) In no event may an Indemnitee subject the Sole Member to personal liability by reason of the indemnification provisions set forth in this Agreement.
(g) An Indemnitee shall not be denied indemnification in whole or in part under this Section 7.1 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement.
(h) The provisions of this Section 7.1 are for the benefit of the Indemnitees and their heirs, successors, assigns, executors and administrators and shall not be deemed to create any rights for the benefit of any other Persons.
(i) Any amendment, modification or repeal of this Section 7.1 or any provision hereof shall be prospective only and shall not in any way terminate, reduce or impair the right of any past, present or future Indemnitee to be indemnified by the Company, nor the obligations of the Company to indemnify any such Indemnitee under and in accordance with the provisions of this Section 7.1 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.
(j) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, AND SUBJECT TO SECTION 7.1(A), THE PROVISIONS OF THE INDEMNIFICATION PROVIDED IN THIS SECTION 7.1 ARE INTENDED BY THE PARTIES TO APPLY EVEN IF SUCH PROVISIONS HAVE THE EFFECT OF EXCULPATING THE INDEMNITEE FROM LEGAL RESPONSIBILITY FOR THE CONSEQUENCES OF SUCH PERSONS NEGLIGENCE, FAULT OR OTHER CONDUCT.
Section 7.2 Liability of Indemnitees
(a) Notwithstanding anything to the contrary set forth in this Agreement or the Partnership Agreement, no Indemnitee shall be liable for monetary damages to the Company, the Partnership, the Sole Member or any other Person bound by this Agreement, for losses sustained or liabilities incurred as a result of any act or omission of an Indemnitee unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that, in respect of the matter in question, the Indemnitee acted in bad faith or engaged in fraud, willful misconduct or, in the case of a criminal matter, acted with knowledge that the Indemnitees conduct was criminal.
(b) The Board and any committee thereof may exercise any of the powers granted to it by this Agreement and perform any of the duties imposed upon it hereunder either directly or by or through the Companys officers or agents, and neither the Board nor any committee thereof shall be responsible for any misconduct or negligence on the part of any such officer or agent appointed by the Board or any committee thereof in good faith.
(c) To the extent that, at law or in equity, an Indemnitee has duties (including fiduciary duties) and liabilities relating thereto to the Company or to the Sole Member, the Sole Member and any other Indemnitee acting in connection with the Companys business or affairs shall not be liable to the Company or to the Sole Member for its good faith reliance on the provisions of this Agreement, and the provisions of this Agreement, to the extent that they restrict, eliminate or otherwise modify the duties and liabilities, including fiduciary duties, of the Sole Member or any other Indemnitee otherwise existing at law or in equity, are agreed by the Sole Member to replace such other duties and liabilities of the Sole Member and such other Indemnitee.
(d) Any amendment, modification or repeal of this Section 7.2 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the liability of the Indemnitees under this Section 7.2 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.
ARTICLE VIII
TAXES
Section 8.1 Taxes . The Company and the Sole Member acknowledge that for federal income tax purposes, the Company will be disregarded as an entity separate from the Sole Member pursuant to Treasury Regulation § 301.7701-3 as long as all of the Membership Interests in the Company are owned by the Sole Member.
ARTICLE IX
BOOKS, RECORDS, REPORTS, AND BANK ACCOUNTS
Section 9.1 Maintenance of Books
(a) The Board shall keep or cause to be kept at the principal office of the Company or at such other location approved by the Board complete and accurate books and records of the Company, supporting documentation of the transactions with respect to the conduct of the Companys business and minutes of the proceedings of the Board and any other books and records that are required to be maintained by applicable law.
(b) The books of account of the Company shall be maintained on the basis of a fiscal year that is the calendar year and on an accrual basis in accordance with United States generally accepted accounting principles, consistently applied.
Section 9.2 Reports . The Board shall cause to be prepared and delivered to the Sole Member such reports, forecasts, studies, budgets and other information as the Sole Member may reasonably request from time to time.
Section 9.3 Bank Accounts . Funds of the Company shall be deposited in such banks or other depositories as shall be designated from time to time by the Board. All withdrawals from any such depository shall be made only as authorized by the Board and shall be made only by check, wire transfer, debit memorandum or other written instruction.
ARTICLE X
DISSOLUTION, WINDING-UP, TERMINATION AND CONVERSION
Section 10.1 Dissolution . The Company shall be of perpetual duration; however, the Company shall dissolve, and its affairs shall be wound up, upon the election to dissolve the Company by the Sole Member. No other event shall cause a dissolution of the Company.
Section 10.2 Effect of Dissolution . Except as otherwise provided in this Agreement, upon the dissolution of the Company, the Sole Member shall take such actions as may be required pursuant to the Act and shall proceed to wind up, liquidate and terminate the business and affairs of the Company. In connection with such winding up, the Sole Member shall have the authority to liquidate and reduce to cash (to the extent necessary or appropriate) the assets of the Company as promptly as is consistent with obtaining fair value therefor, to apply and distribute the proceeds of such liquidation and any remaining assets in accordance with the provisions of Section 10.3 , and to do any and all acts and things authorized by, and in accordance with, the Act and other applicable laws for the purpose of winding up and liquidation.
Section 10.3 Application of Proceeds . Upon dissolution and liquidation of the Company, the assets of the Company shall be applied and distributed in the following order of priority to the extent permitted by law:
(a) First, to the payment of debts and liabilities of the Company (including to the Sole Member to the extent permitted by applicable law) and the expenses of liquidation;
(b) Second, to the setting up of such reserves as the Sole Member may reasonably deem necessary or appropriate for any disputed, contingent or unforeseen liabilities or obligations of the Company for such period as the Sole Member shall deem advisable for the purpose of applying such reserves to the payment of such liabilities or obligations and, at the expiration of such period, the balance of such reserves, if any, shall be distributed as hereinafter provided; and
(c) Thereafter, the remainder to the Sole Member.
Section 10.4 Certificate of Cancellation . On completion of the winding up of the Company as provided herein and under the Act, the Sole Member (or such other Person or Persons as the Act may require or permit) shall file a certificate of cancellation with the Secretary of State of the State of Delaware and take such other actions as may be necessary to terminate the existence of the Company. Upon the filing of such certificate of cancellation, the existence of the Company shall terminate, except as may be otherwise provided by the Act or by applicable law.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 Offset . Whenever the Company is to pay any sum to the Sole Member, any amounts the Sole Member owes the Company may be deducted from that sum before payment.
Section 11.2 Notices . All notices, demands, requests, consents, approvals or other communications (collectively, Notices ) required or permitted to be given hereunder or which are given with respect to this Agreement shall be in writing and shall be personally served, delivered by reputable air courier service with charges prepaid, or transmitted by hand delivery or facsimile, addressed as set forth below, or to such other address as such party shall have specified most recently by written notice. Notice shall be deemed given on the date of service or transmission if personally served or transmitted by facsimile. Notice otherwise sent as provided herein shall be deemed given upon delivery of such notice:
To the Company:
EQT Midstream Services, LLC
625 Liberty Avenue
Pittsburgh, Pennsylvania 15222
Attn: General Counsel
Fax: (412) 553-5970
To the Sole Member:
EQT Gathering, LLC
c/o EQT Corporation
625 Liberty Avenue
Pittsburgh, Pennsylvania 15222
Attn: General Counsel
Fax: (412) 553-5970
Section 11.3 Entire Agreement; Superseding Effect . This Agreement constitutes the entire agreement of the Sole Member relating to the Company and the transactions contemplated hereby, and supersedes all provisions and concepts contained in all prior contracts or agreements between the Sole Member with respect to the Company, whether oral or written.
Section 11.4 Effect of Waiver or Consent . Except as otherwise provided in this Agreement, a waiver or consent, express or implied, to or of any breach or default by the Sole Member in the performance by the Sole Member of its obligations with respect to the Company is not a consent or waiver to or of any other breach or default in the performance by the Sole Member of the same or any other obligations of the Sole Member with respect to the Company.
Section 11.5 Amendment or Restatement . This Agreement may be amended or restated only by a written instrument executed by the Sole Member.
Section 11.6 Binding Effect . This Agreement is binding on and shall inure to the benefit of the Sole Member and its successors and permitted assigns.
Section 11.7 Governing Law; Severability . THIS AGREEMENT IS GOVERNED BY AND SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE, EXCLUDING ANY CONFLICT-OF-LAWS RULE OR PRINCIPLE THAT MIGHT REFER THE GOVERNANCE OR THE CONSTRUCTION OF THIS AGREEMENT TO THE LAW OF ANOTHER JURISDICTION. In the event of a direct conflict between the
provisions of this Agreement and any mandatory, non-waivable provision of the Act, such provision of the Act shall control. If any provision of the Act may be varied or superseded in a limited liability company agreement (or otherwise by agreement of the members or managers of a limited liability company), such provision shall be deemed superseded and waived in its entirety if this Agreement contains a provision addressing the same issue or subject matter. If any provision of this Agreement or the application thereof to any circumstance is held invalid or unenforceable to any extent, the remainder of this Agreement and the application of that provision to other circumstances is not affected thereby.
Section 11.8 Venue . Any and all claims, suits, actions or proceedings arising out of, in connection with or relating in any way to this Agreement shall be exclusively brought in the Court of Chancery of the State of Delaware. Each party hereto unconditionally and irrevocably submits to the exclusive jurisdiction of the Court of Chancery of the State of Delaware with respect to any such claim, suit, action or proceeding and waives any objection that such party may have to the laying of venue of any claim, suit, action or proceeding in the Court of Chancery of the State of Delaware.
Section 11.9 Further Assurances . In connection with this Agreement and the transactions contemplated hereby, the Sole Member shall execute and deliver any additional documents and instruments and perform any additional acts that may be necessary or appropriate to effectuate and perform the provisions of this Agreement and those transactions.
[ Signature Page Follows ]
IN WITNESS WHEREOF, the Sole Member has executed this Agreement as of the date first set forth above.
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SOLE MEMBER: |
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EQT GATHERING, LLC |
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By: |
/s/ Randall L. Crawford |
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Randall L. Crawford |
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President |
Signature Page to Second Amended and Restated
Limited Liability Company Agreement
Exhibit 10.1
Portions of this Exhibit have been redacted pursuant to a request for confidential treatment under Rule 24b-2 of the General Rules and Regulations under the Securities Exchange Act. Omitted information marked [***] in this Exhibit has been filed with the Securities and Exchange Commission together with such request for confidential treatment.
JUPITER GAS GATHERING AGREEMENT
between
EQT PRODUCTION COMPANY,
EQT ENERGY, LLC
and
EQT GATHERING, LLC
JUPITER GAS GATHERING AGREEMENT
TABLE OF CONTENTS
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Page |
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ARTICLE 1 DEFINITIONS |
1 |
ARTICLE 2 TERM |
9 |
ARTICLE 3 GATHERING SERVICES |
9 |
ARTICLE 4 GATHERING SYSTEM |
12 |
ARTICLE 5 QUALITY AND PRESSURE SPECIFICATIONS |
16 |
ARTICLE 6 MEASUREMENT AND TESTING |
18 |
ARTICLE 7 FEES |
21 |
ARTICLE 8 BILLING AND PAYMENT |
21 |
ARTICLE 9 CREDITWORTHINESS |
22 |
ARTICLE 10 DEFAULT |
22 |
ARTICLE 11 FORCE MAJEURE |
23 |
ARTICLE 12 TAXES |
23 |
ARTICLE 13 TITLE AND CUSTODY |
23 |
ARTICLE 14 INDEMNIFICATION AND INSURANCE |
24 |
ARTICLE 15 ASSIGNMENT |
25 |
ARTICLE 16 MISCELLANEOUS |
26 |
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EXHIBIT A RECEIPT AND DELIVERY POINTS, CONTRACT MDQ AND COMPRESSION MDQ |
A-1 |
EXHIBIT B-1 FEES |
B-1 |
EXHIBIT B-2 INCREMENTAL CAPITAL RIDER |
B-4 |
EXHIBIT C PARTIES ADDRESSES FOR NOTICE PURPOSES |
C-1 |
EXHIBIT D MAP OF GATHERING SYSTEM |
D-1 |
EXHIBIT E INSURANCE |
E-1 |
EXHIBIT F INTERCONNECT TERMS |
F-1 |
JUPITER GAS GATHERING AGREEMENT
This JUPITER GAS GATHERING AGREEMENT (as amended, supplemented or otherwise modified from time to time, this Agreement ) is made and entered into effective as of May 1, 2014 (the Effective Date ) by and between EQT Production Company ( Producer ) and EQT Energy, LLC (collectively with Producer, Shipper ), on the one hand, and EQT Gathering, LLC ( Gatherer ), on the other hand. Producer, Shipper and Gatherer are each sometimes referred to herein as a Party , and collectively as the Parties .
RECITALS
WHEREAS, Shipper owns and/or controls supplies of natural gas and desires that Gatherer provide Gathering Services (defined below) for such natural gas; and
WHEREAS, Gatherer owns and operates or will own and operate the Gathering System (defined below) and is willing to provide the Gathering Services for Shipper on the terms and subject to the conditions in this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements, covenants, and conditions herein contained, the Parties, intending to be legally bound, agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions . The following definitions shall apply in this Agreement:
AAA shall have the meaning set forth in Section 16.4.
Actual Average Receipt Point Pressure shall have the meaning set forth in Section 5.4(b).
Adequate Assurance of Payment means either (i) advance payment for service in a continuing nature; (ii) an irrevocable letter of credit from a Creditworthy financial institution reasonably acceptable to Gatherer; or (iii) a guaranty from a Creditworthy guarantor.
Affiliate means, with respect to any Person, any other Person that directly or indirectly (through one or more intermediaries or otherwise) controls, is controlled by, or is under common control with such Person. For purposes of this definition, control (and the correlative terms controlling, controlled by, and under common control with) means the direct or indirect ownership of fifty percent (50%) or more of the voting rights in a Person or the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities or otherwise. For purposes of this Agreement, neither Producer nor Shipper shall be considered an Affiliate of Gatherer and vice versa.
AGA shall have the meaning set forth in Section 6.1(b).
Agreement shall have the meaning set forth in the Preamble.
API MPMS shall have the meaning set forth in Section 6.1(d).
Assumed Obligations shall have the meaning set forth in Section 15.3.
Balancing shall have the meaning set forth in Section 3.3.
BLS shall have the meaning set forth in the definition of PPI Index.
Btu means the amount of heat required to raise the temperature of one pound of water one degree Fahrenheit (1ºF) at sixty degrees Fahrenheit (60ºF) and at a pressure of 14.696 Psia as determined on a gross, dry basis.
Business Day means any Day other than a Saturday, a Sunday, or a holiday on which commercial banks in Pittsburgh, Pennsylvania are closed.
Claiming Party shall have the meaning set forth in the definition of Force Majeure.
Compression Facilities means Gas compression facilities to be constructed, installed and owned by Gatherer to achieve the Compression MDQ of the Gathering System.
Compression MDQ means the maximum daily quantity of Gas that the Gathering System is capable of compressing, as such quantity is set forth in the table on Exhibit A .
Contract MDQ means the maximum daily quantity of Gas for which Gatherer will provide Firm Service to Shipper on the Gathering System in accordance with Exhibits A and B-1 and the terms and conditions of this Agreement.
Contract Overrun Fee shall have the meaning set forth in Section 1.d of Exhibit B-1 .
Contract Year means the twelve (12) Month period beginning on the first Day of the first Month of any Term and, thereafter, the twelve (12) Month period beginning on each anniversary of such Term until the Term terminates in accordance with this Agreement.
Creditworthy means, in the case of a Person, that the Person has (i) an Investment Grade Rating or (ii) provided a guaranty of performance, in a form reasonably acceptable to the beneficiary of such guaranty, from a Person with an Investment Grade Rating.
Cubic feet or cubic foot shall mean the volume of Gas which occupies one (1) cubic foot of space at a temperature of sixty degrees Fahrenheit (60°F) and an absolute pressure of fourteen and seventy-three hundredths (14.73) Psia.
Cure Period shall have the meaning set forth in Section 10.1.
Curing Facilities shall have the meaning set forth in Section 5.2(b).
Day means a period of twenty-four (24) consecutive hours beginning at 10:00 a.m., Eastern Time. The term Daily shall have a corresponding meaning.
Dekatherm or Dth means one million (1,000,000) Btus; and Dth/d means one million (1,000,000) Btus per Day.
Delivery Point means any point of interconnection of the Gathering System and the facilities of a Downstream Pipeline as set forth on Exhibit A , at which point(s) Gatherer will redeliver Gas to Shipper or for Shippers account. Delivery Point also means Drip Liquids Delivery Point where applicable.
Discounted Cash Flow Calculation means, with respect to an Incremental Expansion, Incremental Capital Project or other similar facilities for which the Parties have agreed to a predetermined rate of return, the method of estimating all future incremental (i) capital expenditures, (ii) expenses and (iii) revenue cash flows incurred during the remainder of the Term applicable to such Incremental Expansion, Incremental Capital Project or other similar facilities, and discounting them using an annual [***] percent ([***]%) discount rate to determine a present value equal to zero.
Downstream Pipeline means any pipeline or other receiving facility downstream of a Delivery Point.
Drip Liquids means all commercially marketable quantities of distillates, condensate, and other hydrocarbon liquids that are collected by Gatherer between the Receipt Point(s) and the Delivery Point(s) on the Gathering System, including all commercially marketable quantities of distillates, condensate, and other hydrocarbon liquids allocated to Shipper in accordance with Section 3.1(d), but excluding non-commercially marketable volumes of liquid and liquefiable hydrocarbons that accumulate under natural conditions.
Drip Liquids Delivery Point shall have the meaning set forth in Exhibit A .
Effective Date shall have the meaning set forth in the Preamble.
Engineering and Technical Design Standards shall have the meaning set forth in Section I.B. of Exhibit F .
ESCGP means Erosion and Sediment Control General Permits.
Event of Default shall have the meaning set forth in Section 10.1.
Expansion means a Planned Expansion or Incremental Expansion.
Expansion Term means, with respect to any Expansion, the period of ten (10) Contract Years beginning on the In-Service Date of the Compression Facilities for such Expansion and continuing Contract Year to Contract Year thereafter subject to termination by either Party on the tenth (10th) anniversary of such In-Service Date or on the last Day of any Contract Year thereafter by giving at least one hundred eighty (180) Days prior written notice to the other Party.
Fees shall have the meaning set forth in Section 7.1.
Firm Service means service that is not subject to curtailment or interruption except in cases of Force Majeure or as otherwise provided in this Agreement.
FL&U means for any Month, the sum of (i) Fuel and (ii) L&U measured or estimated by or on behalf of Gatherer for such Month.
Force Majeure means an event that is not within the reasonable control of the Party claiming suspension (the Claiming Party ), and which by the exercise of due diligence the Claiming Party is unable to avoid or overcome in a commercially reasonable manner. The following is an illustrative list of causes or circumstances that could be considered an event of Force Majeure if such cause or circumstance meets the requirements of Force Majeure as defined above: acts of God; labor disputes; floods; fires; storms; industrial disturbances; acts of the public enemy; sabotage; landslides; lightning; earthquakes; washouts; civil disturbances; explosions; breakage or accidents to machinery or lines of pipe; any inability or refusal by Downstream Pipelines to transport Gas for operational reasons; the inability or delay in obtaining materials, supplies, or labor; an order of any court or Governmental Authority or any change in any Laws affecting the operation of the facilities; inability or delay in obtaining rights of way from any Person or obtaining permits, licenses or approvals from any Governmental Authority. The failure of a Claiming Party to settle or prevent a strike or other labor dispute shall not be considered to be a matter within such Claiming Partys control.
Fuel means the quantity of fuel consumed by the Gathering System.
Gas means any mixture of gaseous hydrocarbons, consisting essentially of methane and heavier hydrocarbons (including liquefiable hydrocarbons), and inert and noncombustible gases associated with production from oil, condensate, or gas reservoirs.
Gatherer shall have the meaning set forth in the Preamble, and includes any assignee of Gatherer following an assignment made in accordance with Article 15 of this Agreement.
Gathering Services means the receipt of Shippers Gas at the Receipt Point(s), the gathering, dehydration and compression of Shippers Gas in the Gathering System and the redelivery, to or for Shippers account, of (i) thermally equivalent volumes of Shippers Gas, less FL&U and Shrinkage, at the Delivery Point(s) and (ii) Drip Liquids at the Drip Liquids Delivery Point(s).
Gathering System means Gatherers existing gathering system and related facilities, with a Compression MDQ of [***] Dth/d as of the Effective Date, together with the Planned Expansion Compression Facilities and Planned Laterals, all as depicted on Exhibit D , and as such gathering system and related facilities may be expanded or modified by the addition of Incremental Expansion Compression Facilities, Incremental Capital Project or otherwise in accordance with the terms and conditions of this Agreement.
Governmental Authority means any national, regional, state, or local government, or governmental agency or instrumentality, or any judicial, legislative, or
administrative body, or any subdivision, agency, commission or authority thereof (including any quasi-governmental agency), having jurisdiction over a Party or any Affiliate of such Party, the Gathering System or Gas while in the custody of Gatherer or Shipper, or over the matter or matters in question, as the case may be, in each case acting within its legal authority.
In-Service Assurances shall have the meaning set forth in Section 4.6(a).
In-Service Date means, with respect to an Expansion, Compression Facilities, Planned Lateral or Incremental Capital Project, the first Day of the Month immediately following the date on which Gatherer places such Expansion, Compression Facilities, Planned Lateral or Incremental Capital Project into service on the Gathering System.
Incremental Capital Fee shall have the meaning set forth in Section 1.c of Exhibit B-1 .
Incremental Capital Project means Gas pipeline and appurtenant facilities, other than the Planned Laterals, and other facilities requested by Producer and to be constructed, installed and owned by Gatherer pursuant to Section 4.2(b) for an expansion or modification of the Gathering System that does not increase the Compression MDQ or Contract MDQ.
Incremental Capital Rider means Exhibit B-2 .
Incremental Expansion means the quantity of increased Compression MDQ added to the Gathering System on the In-Service Date of Compression Facilities constructed pursuant to Section 4.2(b).
Incremental Expansion Reservation Fee shall have the meaning set forth in Section 1.b of Exhibit B-1 .
Initial Contract MDQ shall mean 231,000 Dth/d.
Initial Term means the period of ten (10) Contract Years beginning on the Effective Date and continuing Contract Year to Contract Year thereafter subject to termination by either Party on the tenth (10th) anniversary of the Effective Date or on the last Day of any Contract Year thereafter by giving at least one hundred eighty (180) Days prior written notice to the other Party.
Interconnect Facilities shall have the meaning set forth in Section I.A. of Exhibit F .
Interconnect Terms means Exhibit F .
Interest Rate means an annual rate of interest equal to the lesser of (i) a rate equal to LIBOR plus three hundred (300) basis points and (ii) the maximum rate permitted by applicable Law.
Interruptible means service that may be interrupted or curtailed by Gatherer on all or any relevant portion of the Gathering System at any time.
Investment Grade Rating means a rating of [***] or higher from the Standard & Poors Rating Group or its successor or a rating of [***] or higher from Moodys Investor Services, Inc. or its successor, in either case which has been confirmed within the previous three (3) Months.
Laws means any laws, rules, regulations, and orders of any Governmental Authority, or any stock exchange requirement.
LIBOR means the offered rate per annum for deposits of U.S. dollars for a period of one Month that appears on Reuters Screen LIBOR 01 Page as of 11:00 A.M. (London, England time) and shall be determined as of the first Day of the applicable default period (or the next succeeding Business Day if such first Day is not a Business Day) and shall thereafter be redetermined as of the first Business Day of each succeeding Month during the applicable default period. If no such offered rate exists, such rate will be the rate of interest per annum at which deposits of dollars in immediately available funds are offered by the principal London office of JPMorgan Chase Bank, N.A. (or another bank reasonably acceptable to the Parties if J.P. Morgan Chase Bank, N.A. ceases to offer such rate) at 11:00 A.M. (London, England time), as of the applicable date of determination in the London interbank market for a period of one Month.
Loss or Losses means any actions, claims, liabilities, judgments, liens, losses, damages, fines, penalties, interest, expenses and costs (including reasonable attorneys fees and costs for the defense of any actions or claims).
L&U means the quantity of Gas that is lost and unaccounted for across the Gathering System, other than as a result of Fuel or Shrinkage.
L&U Cap shall have the meaning set forth in Section 3.b of Exhibit B-1 .
Mcf shall mean one thousand (1,000) cubic feet.
MDQ means the maximum daily quantity of Gas for which Gatherer has contracted with any shipper to provide gathering services on the Gathering System.
Month means a period of time beginning at 10:00 a.m. Eastern Time on the first (1st) Day of a calendar Month and ending at 10:00 a.m. Eastern Time on the first Day of the next succeeding calendar Month.
NAESB means the North American Energy Standards Board.
New Firm Capacity shall have the meaning set forth in Section 4.2(c).
New Offer Terms shall have the meaning set forth in Section 4.2(c)(i).
Offer for New Firm Capacity shall have the meaning set forth in Section 4.2(c)(ii).
Overrun Fee means the Contract Overrun Fee or the Pipeline Overrun Fee.
Overrun Quantities means, for any Day, the quantity of Gas Tendered by Shipper at the Receipt Point(s) in excess of Shippers Contract MDQ or Compression MDQ, as applicable.
Party or Parties shall have the meaning set forth in the Preamble of this Agreement.
Person means any individual, firm, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization, Governmental Authority, or any other entity.
Pipeline Overrun Fee shall have the meaning set forth in Section 1.e of Exhibit B-1 .
Planned Expansion means the Planned Expansion (Callisto), Planned Expansion (Halo), Planned Expansion (Jupiter) or Planned Expansion (New Europa).
Planned Expansion (Callisto) means the [***] Dth/d of increased Compression MDQ of the Gathering System on the In-Service Date of the two [***] horsepower Compression Facilities at the Callisto Station, as the Callisto Station is depicted on Exhibit D .
Planned Expansion (Halo) means the [***] Dth/d of increased Compression MDQ of the Gathering System on the In-Service Date of the three [***] horsepower Compression Facilities at the Halo Station, as the Halo Station is depicted on Exhibit D .
Planned Expansion (Jupiter) means the [***] Dth/d of increased Compression MDQ of the Gathering System on the In-Service Date of the two [***] horsepower Compression Facilities at the Jupiter Station, as the Jupiter Station is depicted on Exhibit D .
Planned Expansion (New Europa) means the 204,000 Dth/d of increased Compression MDQ of the Gathering System on the In-Service Date of the four [***] horsepower Compression Facilities at the New Europa Station, as the New Europa Station is depicted on Exhibit D .
Planned Lateral means the approximately twenty six (26) miles of Gas pipeline and appurtenant facilities to be constructed, installed and owned by Gatherer for the expansion or modification of the Gathering System, as such Gas pipeline and appurtenant facilities are depicted on Exhibit D .
[***] means [***].
Primary Measurement Devices means the meter body (which may consist of an orifice meter, positive meter, turbine meter, ultrasonic meter, v-cone, or coriolis meter), tube, orifice plate, connected pipe, tank strapping, and fittings used in the measurement of Gas flow.
Producer shall have the meaning set forth in the Preamble of this Agreement, and includes any assignee of Producer following an assignment made in accordance with Article 15 of this Agreement.
Proposed Receipt Point shall have the meaning set forth in Section 4.3.
Psia means pounds per square inch absolute.
Psig means pounds per square inch gage.
Receipt Point means each point of interconnection between the Gathering System and Shippers facilities as set forth on Exhibit A , at which point Shipper will deliver Gas to Gatherer.
Reservation Fee shall have the meaning set forth in Section 1.a of Exhibit B-1 .
Shipper shall have the meaning set forth in the Preamble of this Agreement, and includes any assignee of Shipper following an assignment made in accordance with Article 15 of this Agreement.
Shrinkage means the reduction in heat content of Gas delivered into the Gathering System due to the removal of Drip Liquids from such Gas. Shippers share of Shrinkage shall equal Shippers allocated share of Drip Liquids, as such share is calculated in accordance with Section 3.1(d).
Target Receipt Point Pressure means, with respect to each Receipt Point, [***] Psig.
Tender means the act of making Gas available by Shipper, or its designee, to the Gathering System at a Receipt Point.
Term means the Initial Term, the Expansion Terms or any additional periods for New Firm Capacity as set forth in the tables in Section 1 of Exhibit B-1 .
Third Party shall mean a Person other than a Party.
Year means a period of time on and after January 1 of a calendar year through and including December 31 of the same calendar year; provided that the first Year shall commence on the Effective Date and run through December 31 of that calendar year, and the last Year shall commence on January 1 of the calendar year and end on the Day on which this Agreement terminates.
1.2 Interpretation.
(a) Use of the word or shall not be interpreted to convey exclusivity.
(b) Use of the words include or including shall in all cases mean include or including without limitation.
(c) Articles or headings are for convenience only and neither limit or amplify the provisions of the Agreement itself.
ARTICLE 2
TERM
2.1 Term . This Agreement shall commence on the Effective Date and shall remain in effect until, (i) as to the Initial Term, such Term terminates, (ii) as to each Expansion Term, such Term terminates, and (iii) as to each Term for New Firm Capacity, such Term terminates.
2.2 Effect of Termination . The termination of this Agreement (or any Term hereunder) shall not relieve any Party from liability for any failure to perform or observe any material warranty, covenant or obligation contained in this Agreement that is to be performed or observed at or prior to the date of termination of this Agreement (or such Term). Except upon the termination of this Agreement, the termination of any Term does not affect the effectiveness of this Agreement for the duration of any other Term hereunder.
ARTICLE 3
GATHERING SERVICES
3.1 Gathering Services . Gatherer shall provide Gathering Services to Shipper on a Firm Service basis for up to the Contract MDQ applicable to each Term of this Agreement for so long as each such Term is effective.
(a) Third Party Gas Delivered by Shipper . [***]
(b) Third Party Gas Not Delivered by Shipper . [***]
(c) Overrun Quantities . Gatherer shall provide Gathering Services for Overrun Quantities on an Interruptible basis.
(d) Drip Liquids . Gatherer shall deliver to the Drip Liquids Delivery Point(s) Shippers allocated share of all Drip Liquids collected by Gatherer. Shipper reserves the right to process Shippers Gas, and shall own, retain and have the sole right to the proceeds from the sale of all Drip Liquids and other liquid hydrocarbons collected from the processing of Shippers Gas.
(e) Commingled Gas . Subject to Section 3.1(b), Gatherer shall have the right to commingle Shippers Gas with Gas of other shippers on the Gathering System.
3.2 Gas Nominations and Scheduling . Each Day Shipper shall Tender to the Gathering System at the Receipt Point(s) the quantities of Shippers Gas nominated by Shipper for such Day to the Delivery Point(s).
(a) Gatherer shall accept Shippers Gas pursuant to nominations timely received from Shipper to the extent that (i) such quantities nominated would not cause Shipper to exceed the Contract MDQ on any Day or (ii) with respect to nominated Overrun Quantities, Gatherer is operationally capable of accepting such Overrun Quantities on the Gathering System.
(b) For purposes of this Agreement, a nomination is an offer by Shipper to deliver specified quantities of Gas to the Receipt Point(s) and take re-delivery of such quantities of Gas at the Delivery Point(s). Each such nomination shall comply with the nominating procedures set forth below:
(i) If required by Gatherer, Shipper shall nominate according to the then effective NAESB standards and any additional Downstream Pipelines additional requirements.
(ii) Nominations may be submitted by telephone, facsimile, or electronically transmitted according to NAESB standards and any additional Downstream Pipelines requirements.
(iii) Should Shipper desire to change the nomination during such Month, such change to the nomination shall be made in accordance with the nomination procedures of the Downstream Pipeline.
(iv) Gas shall be delivered by Gatherer in accordance with confirmation by the Downstream Pipeline of the nomination and/or changes to the nomination.
3.3 Gas Balancing . Subject to Gatherers operating conditions, quantities of Gas delivered by Gatherer to Shipper or for Shippers account at the Delivery Point(s) shall conform as closely as possible to the quantities nominated by Shipper for delivery by Gatherer that Day at the Delivery Point(s), less any deductions for FL&U and Shrinkage, except that Gatherer may conform such quantities to the quantities actually received from Shipper at the Receipt Point(s). Notwithstanding the foregoing sentence, Gatherer may temporarily interrupt or curtail receipts and/or deliveries of Shippers Gas or adjust Shippers nominations at any time in order to resolve any current or anticipated imbalances between such receipts and deliveries on the Gathering System ( Balancing ).
(a) Shipper and Gatherer agree that:
(i) It is the intent of Shipper and Gatherer that Gas be received and redelivered hereunder at the same uniform hourly rates of flow, as nearly as practicable and subject to changes mandated by the Downstream Pipeline(s), and Shipper shall not in any manner utilize the Gathering System for storage or peaking purposes.
(ii) Gas delivered to Gatherer hereunder during any Day shall be delivered at as nearly a uniform hourly rate of flow as operating conditions and relevant Downstream Pipeline(s) will permit.
(iii) In the event interruption or curtailment of service is required, Gatherers dispatcher will advise Shipper (by telephone and confirmed by fax or email) of an interruption or curtailment as soon as practicable.
(iv) Subject to Gatherers adherence to the priority of service and related obligations imposed by this Agreement, nothing contained herein shall preclude Gatherer from taking reasonable actions necessary to adjust physical receipts or deliveries of Shippers Gas or adjust Shippers nominations in order to maintain the operational integrity of the Gathering System.
(b) Gatherer shall maintain a cumulative daily imbalance account for Shipper and each other shipper that reflect the total volumes received, delivered, and retained; previous and new imbalance positions; and any other information deemed necessary and appropriate by Gatherer, all on a total Gathering System basis. Gatherer may provide Shipper with notices of imbalances by email, facsimile transmission, telephone (including voice messages) or other delivery service or any other means reasonable under the circumstances.
(c) Gatherer may direct Shipper to take specific actions to cure imbalances, if deemed necessary by Gatherer, acting in its reasonable discretion. In the event Gatherer requires Shipper to take specific action, Gatherer shall notify Shipper thereof at a time and in a manner that is reasonable under the existing or expected operating conditions of the Gathering System. If Gatherer requests that specific actions be taken and Shipper fails to take such actions as requested by Gatherer, Gatherer shall have the right (acting in its reasonable discretion) to adjust nominations or take other actions, including suspending receipts and deliveries of Gas by Shipper, necessary to correct an existing imbalance or to mitigate an anticipated imbalance.
(d) As between the Parties, each Party shall be responsible and pay for and shall defend, indemnify and hold the other Party harmless and free from all payments, charges and/or penalties imposed or assessed by Downstream Pipelines for imbalances in receipts and/or deliveries caused by such Party.
3.4 Suspension or Curtailment of Service .
(a) Gatherer shall not be required to provide Gathering Services on the Gathering System or any portion thereof: (i) if it would threaten the integrity of the Gathering System; (ii) to the extent operational or capacity constraints arise due to an event of Force Majeure or for safety or environmental reasons that Gatherer, with the exercise of commercially reasonable efforts, is not able to overcome; or (iii) for other reasons as set forth in this Agreement.
(b) Gatherer shall have the right to interrupt or curtail receipts and deliveries on the Gathering System to perform maintenance and rehabilitation operations; provided that Gatherer will exercise commercially reasonable efforts to coordinate its maintenance and rehabilitation operations with those of Shipper and, in any case, to schedule maintenance and rehabilitation operations so as to avoid or minimize service curtailments or interruptions. Gatherer will use commercially reasonable efforts to provide Shipper with sixty (60) Days but in no event fewer than seven (7) Days prior notice of any upcoming normal and routine maintenance and rehabilitation projects that Gatherer has
planned and that would result in an interruption or curtailment of Shippers delivery of Gas to the Gathering System or the Downstream Pipeline(s).
(c) If, on any Day, insufficient capacity exists on all or any portion of the Gathering System such that Gatherer must allocate capacity among all shippers on the Gathering System, receipts or deliveries of Gas will be curtailed in the following priority:
[***]
(d) Except as caused by Shipper or by Force Majeure attributable to a Downstream Pipeline, if Shipper is prevented from delivering or receiving all or a portion of Shippers Firm Service quantities of Gas on [***] Days in any Year, then for each Day thereafter for the remainder of such Year [***]. For purposes of the foregoing sentence, the reference to Downstream Pipeline does not include any pipeline or receiver owned or operated by Equitrans, L.P., EQT Midstream Partners, LP or any of their Affiliates; and for the avoidance of doubt, suspensions or curtailments due to a pipeline or receiver owned or operated by Equitrans, L.P., EQT Midstream Partners, LP or any of their Affiliates are subject to the credit provisions of this Section 3.4(d).
(e) If Shipper is prevented from delivering or receiving all or a portion of Shippers Firm Service quantities of Gas due to Force Majeure attributable to Downstream Pipelines and such Force Majeure occurs for [***], then [***]. For purposes of the foregoing sentence, the reference to Downstream Pipelines does not include any pipeline or receiver owned or operated by Equitrans, L.P., EQT Midstream Partners, LP or any of their Affiliates; and for the avoidance of doubt, suspensions or curtailments due to a pipeline or receiver owned or operated by Equitrans, L.P., EQT Midstream Partners, LP or any of their Affiliates are subject to the credit provisions of Section 3.4(d).
ARTICLE 4
GATHERING SYSTEM
4.1 Receipt Point(s) and Delivery Point(s) . The Receipt Point(s) and the Delivery Point(s) shall be at the locations described in Exhibit A . The Parties will revise Exhibit A from time to time, as necessary, to reflect the addition of any Receipt Point or Delivery Point under this Agreement.
4.2 Gathering System and Expansion Facilities . Gatherer agrees to construct, install, own, and operate the Gathering System, including any and all Expansion Compression Facilities, Planned Laterals and Incremental Capital Projects, in accordance with standards customary in the Appalachian basin Gas pipeline industry, the In-Service Assurances and, to the extent applicable, as set forth in Exhibit D . Gatherer shall amend Exhibit A and Exhibit D to reflect changes in design or actual construction of the Gathering System and any change to the Contract MDQ or Compression MDQ that result from Expansions or otherwise made pursuant to this Section 4.2.
(a) Planned Expansions and Planned Laterals . The following provisions shall apply to the Planned Expansions and/or Planned Laterals:
(i) Gatherer shall be obligated to construct and connect each of the Planned Expansion Compression Facilities and Planned Laterals to the Gathering System and commence the timely provision of Gathering Services in accordance with the In-Service Date for such Planned Expansion as set forth in Section 1.a of Exhibit B-1 . The construction and connection of Expansions other than the Planned Expansions shall be subject to the provisions of Sections 4.2(b).
(ii) Effective upon the In-Service Date of each Planned Expansion, the Compression MDQ and Contract MDQ shall be increased, and Exhibit A amended, as follows:
(A) The total Compression MDQ of the Gathering System shall be increased by an amount equal to the additional Compression MDQ for such Planned Expansion.
(B) The Contract MDQ shall be increased by an amount equal to the additional Compression MDQ for such Planned Expansion for the Expansion Term, as set forth in Section 1.a of Exhibit B-1 .
(b) Incremental Expansions and Incremental Capital Projects . The following provisions shall apply to the Incremental Expansions and/or Incremental Capital Projects:
[***]
(c) New Firm Capacity . If Gatherer intends to offer additional Gathering System capacity on a Firm Service basis ( New Firm Capacity ) other than by way of an Expansion:
[***]
4.3 Gathering System Interconnects . Gatherer shall accept and connect to new points of receipt constructed by Producer in accordance with the Interconnect Terms and this Section 4.3 (each, a Proposed Receipt Point ).
(a) Producer agrees to design, construct, install, own, and operate the wellhead equipment, flow lines, well lines, and other appurtenant facilities required to make Gas available for delivery to Gatherer at the Proposed Receipt Point(s) or other mutually agreed points in accordance with the Interconnect Terms.
(b) Producer shall provide notice as soon as practicable of the expected date of first production for the Proposed Receipt Point(s). Such notice to Gatherer shall include (i) the location of the Proposed Receipt Point(s) and (ii) the projected date of final completion and testing of such well or wells to be connected at such Proposed Receipt Point(s).
(c) Following such notice, Gatherer will help expedite the installation and commissioning of the Proposed Receipt Point(s). Producer and Gatherer shall reasonably
cooperate in good faith to develop and exchange information and data regarding such Proposed Receipt Point(s) and associated wells as reasonably requested by the other Party. The Parties further agree to cooperate in good faith and to communicate regularly regarding their efforts to obtain such permits, authorizations, consents, and rights of way required for the connection of such Proposed Receipt Point(s) to the Gathering System.
4.4 Rights of Way and Access . Each Party is responsible, at its sole cost and expense, for the acquisition of rights of way, surface use, facility and/or surface access agreements, if any, necessary to construct, own, and operate the facilities for which it is responsible. Each Party hereby grants to the other (including to the extent it is able to do so under its agreements with Third Parties and without the incurrence of material expense), an easement and right of way upon the lands on which Gathering Services may be provided, and/or the right of access to such lands, for the purpose of installing, using, maintaining, servicing, inspecting, repairing, operating, replacing, disconnecting, removing and/or abandoning all or any portion of the Gathering System facilities; provided that each Party shall maintain at its expense all lease roads, access roads and other facilities owned by that Party upon such lands as reasonably necessary for the other Party to access the Receipt Point(s) and its facilities located thereon. Neither Party has a duty to maintain the underlying agreements (such as leases, easements, and surface use agreements) upon which such grant of easement or right of way to the other Party is based. Any personal property placed by a Party upon the easements and rights-of-way granted herein shall remain the personal property of that Party and may be disconnected and removed by that Party, at its sole cost, at any time and for any reason, upon notice to the other Party.
4.5 Meetings and Exchange of Information . The Parties shall regularly meet to discuss any and all matters relating to the operations conducted pursuant to this Agreement. Said meeting shall occur at least once every calendar quarter. The Parties shall provide each other the following information relating to the properties covered by the Gathering Services and Gathering System at each such meeting:
(a) Information provided by Gatherer to Shipper :
(i) Rights-of-way acquired and status of targeted rights-of-way;
(ii) Environmental and construction permit status;
(iii) Status of the construction of Expansion facilities;
(iv) Updated In-Service Date(s) of Expansions, Compression Facilities, Planned Laterals and Incremental Capital Project under construction;
(v) Twelve (12)-Month build-out and multi-Year expansion plans;
(vi) Updated Receipt Point pressure profiles;
(vii) Forecasted one (1)-Year and three (3)-Year Compression MDQ;
(viii) Scheduled maintenance or other service interruptions; and
(ix) Proposed amendments to Exhibits A , B-1 , B-2 and D of this Agreement.
(b) Information provided by Shipper to Gatherer :
(i) Rights-of-way acquired and status of targeted rights-of-way;
(ii) Updated drilling and completion schedules;
(iii) Forecasted TIL dates;
(iv) Status of ESCGPs and drilling permits;
(v) Twelve (12)-Month and multi-Year production forecasts;
(vi) Status of the construction of Proposed Receipt Point(s) and Self-Help Facilities, if any; and
(vii) Proposed amendments to Exhibits A , B-1 , B-2 , D and F of this Agreement.
All such information provided and received in accordance with the requirements set forth hereto shall be signed and dated by an appropriate representative of each Party. In addition to the information set forth above, Gatherer and Shipper shall promptly provide additional and updated information upon the reasonable request of the other Party. All information exchanged between the Parties shall be kept confidential.
4.6 In-Service Assurances .
(a) Gatherer shall perform the following In-Service Assurances with respect to any Expansion:
(i) File the necessary permits at the appropriate time in the project life cycle after this Agreement is fully executed or after Producer and Gatherer have agreed on an Expansion as set forth in Exhibit D of this Agreement;
(ii) Begin construction operations within thirty (30) Days (or as otherwise agreed by the Parties) after receiving all necessary permits and continue such construction operations with reasonable diligence; and
(iii) Complete construction of the Gathering System or any expansion thereof in accordance with Exhibit D of this Agreement by the applicable In-Service Dates as agreed on Exhibit B-1 of this Agreement.
(b) For any Planned Expansion, Gatherers failure to strictly comply with the In-Service Assurances shall not be considered an Event of Default.
ARTICLE 5
QUALITY AND PRESSURE SPECIFICATIONS
5.1 Quality Specifications . All Gas delivered by Shipper at the Receipt Point(s) shall be of a quality able to conform to the most restrictive Gas quality standards and provisions of the applicable Downstream Pipelines after dehydration of such Gas by Gatherer; provided, however, that in no event shall Shipper deliver at any Receipt Point Gas that contains free liquids, gum-forming constituents or other foreign substances. Subject to Section 5.2, all Gas redelivered by Gatherer at the Delivery Point(s) shall be able to conform to the most restrictive Gas quality standards and provisions of the applicable Downstream Pipelines.
5.2 Failure to Meet Specifications .
(a) Suspension . If Gas delivered by Shipper fails to conform to the quality specifications set forth in Section 5.1, Gatherer shall use commercially reasonable efforts to blend and commingle such Gas with other Gas to meet the specifications. If Shipper delivers Gas that causes the commingled Gas to fail to meet the quality specifications, Gatherer shall not shut-in or reduce volumes at any Receipt Point and will continue to accept and redeliver such Gas to the Delivery Point(s) that will accept such non-conforming Gas if (i) no actual or threatened harm is done to the Gathering System, (ii) no harm is done to other shippers or their Gas, and (iii) Gatherer is not prevented from delivering other shippers Gas to such other shippers delivery point(s); provided that Shipper will undertake commercially reasonable measures to eliminate the cause of such non-conformance. Without limiting Gatherers obligations under Section 5.2(b), if Gatherer is unable to accept non-conforming Gas pursuant to the previous sentence, Gatherer may shut-in or reduce volumes of such non-conforming Gas at the applicable Receipt Point(s) until the Gas conforms to the quality specifications set forth in Section 5.1.
(b) Curing Facilities . Notwithstanding anything in Section 5.2(a) to the contrary, if Shippers Gas is not in compliance with the quality specifications set forth in Section 5.1 for any reason, including in the event a Downstream Pipeline revises its quality specifications after the Effective Date in a manner that renders such specifications more stringent than those set forth in Section 5.1 as of the Effective Date, Gatherer will, at Producers sole cost and expense pursuant to Section 1.h of Exhibit B-1 , and subject to agreement by the Parties, which agreement shall not be unreasonably withheld, construct, install, operate and maintain in accordance with Gatherers specifications, any additional facilities or equipment necessary to bring the non-conforming Gas within the new quality specifications ( Curing Facilities ).
(c) Periodic Samples . Gatherer may at its cost periodically sample and test the quality of Shippers Gas. If at any time Shippers Gas fails to meet the specifications set forth in Section 5.1, Shipper shall pay for subsequent tests to establish that Shippers Gas meets the specifications.
(d) Indemnity . Shipper shall indemnify, defend and hold harmless Gatherer from all Losses arising out of the failure of Shippers Gas to conform to the Gas quality specifications set forth in Section 5.1.
5.3 Additives . Gatherer may in its sole judgment inject, or approve or reject the injection of, corrosion inhibitors, or other additives in the Gas on the Gathering System. The costs associated with the injection of additives shall be borne by Gatherer if the additives are injected to protect the Gathering System or by Shipper (in Shippers proportionate share relative to other shippers, if applicable) if such additives are injected to enable the Gas to meet the quality specifications set forth in this Agreement, regardless of whether such additives also protect the Gathering System.
5.4 Pressure .
(a) Shipper shall deliver Gas to the Receipt Point at sufficient pressure to enter the Gathering System against the Target Receipt Point Pressure; provided, that Shipper shall not deliver Gas at a pressure that exceeds the maximum allowable operating pressure of the Gathering System. Gatherers obligation to redeliver Gas to a Delivery Point of the Downstream Pipeline shall be subject to the operational limitations of the Downstream Pipeline receiving such Gas, including the Downstream Pipelines capacity, Gas measurement capability, operating pressures and any operational balancing agreements as may be applicable.
(b) Consistent with applicable regulations, sound engineering practice, and safety, Gatherer shall operate and maintain the Gathering System to maintain an Actual Average Receipt Point Pressure that is as low as possible and, except as provided in Section 5.4(c), at a pressure that does not exceed the Target Receipt Point Pressure for each Receipt Point on the Gathering System. The Actual Average Receipt Point Pressure shall be the average Daily suction pressure measured at a static pressure tap at the Receipt Point. The Actual Average Receipt Point Pressure shall be calculated by summing the actual average Daily suction pressure for each included Day in the Month for which pressures were taken, and dividing the resulting sum by the number of Days in that Month for which pressures were taken, and rounding the quotient to the nearest whole number. In the calculation of Actual Average Receipt Point Pressure, Gatherer may exclude any Day when any of the following conditions occurs: (i) Force Majeure; (ii) maintenance and rehabilitation operations are conducted in the zone of the Gathering System where such Receipt Point is located; (iii) when Shippers Gas exceeds the applicable Contract MDQ; or (iv) when Shippers Gas does not meet the Gas quality specifications in Section 5.1.
(c) Shipper and Gatherer shall establish zones on the Gathering System, with assigned MDQs for each such zone. The total of all zones established MDQs may exceed the Contract MDQ. Within each zone, Shipper and Gatherer shall establish MDQs for each Receipt Point; the total of the Receipt Points MDQs can exceed such zones established MDQ. If Shipper exceeds a Receipt Points MDQ, then the zone in which such Receipt Point is located shall be excluded from calculating the Actual
Average Receipt Point Pressure. If Shipper exceeds a zones established MDQ, then Gatherer is relieved of the Target Receipt Point Pressure obligation.
ARTICLE 6
MEASUREMENT AND TESTING
6.1 Gas Measurement
(a) Shipper shall install and own the Primary Measurement Devices located at the Receipt Point(s). Gatherer shall operate the Primary Measurement Devices located at the Receipt Point(s) and shall install, own, operate and maintain the Primary Measurement Devices located at the Delivery Point(s) and any check meters at the Delivery Point(s). Shipper shall have the right, at its sole expense, to install, own, and operate check meters located at the Receipt Point(s); provided, that (i) such equipment is installed so as not to interfere with the Primary Measurement Devices at the Receipt Point(s), and (ii) Shipper shall take steps that are reasonable and customary in the industry to mitigate or prevent any Gas pulsation problems that may interfere with the Primary Measurement Devices at the Receipt Point(s).
(b) The initial measurement unit of Gas received and delivered hereunder is Mcf of Gas, which shall be converted to MMBtu in accordance with this Section 6.1. The actual volume measured shall be corrected to this temperature and pressure using Boyles Law, Charles Law and American Gas Association ( AGA ) Report Number 8 for the measurement of Gas under varying flowing pressures and temperatures.
(c) The unit of volume for purposes of measurement of Gas received and delivered hereunder and for the purposes of determination of equivalent thermal quantities hereunder shall be one cubic foot of Gas.
(d) Primary Measurement Devices used in the measurement of the Gas to be delivered to the Gatherer shall be designed, installed and operated in accordance with specifications of the American Petroleum Institute Manual of Petroleum Measurement Standards ( API MPMS ) Chapter 14 Parts 2 and 3 Concentric, Square-Edged Orifice, in the case of orifice meters, or other applicable industry standards, as amended from time to time.
(e) The volume and the total heating value of the Gas received and delivered hereunder shall be determined as follows:
(i) The unit of volume for all purposes under this Agreement except where otherwise specifically provided shall be one cubic foot of Gas.
(ii) The total heating value of a cubic foot of Gas shall be determined from laboratory analyses of representative samples following the calculation procedures in API MPMS Chapter 14 Section 5 Calculation of Gross Heating Value, Specific Gravity and Compressibility of Natural Gas Mixtures from Compositional Analysis. The standards in Gas Processors Association (GPA) Standard 2261 Analysis for Natural Gas and Similar Gaseous Mixtures by Gas
Chromatograph shall apply if a representative sample is obtained with a continuous sampling device, by on-site, real time chromatographic analysis, or by such other equipment or method specified in API MPMS Chapter 14 Section Collecting and Handling of Natural Gas Samples for Custody Transfer. At a minimum, the total heating value of the Gas shall be determined by the measuring Party at each Point of Measurement at least Monthly. The total heating value of the Gas so determined at each such Point of Measurement shall be deemed to remain constant until the next determination. When a gas chromatograph is used to determine the real time C5+ quantity, the conversion factors required will be determined by an extended analysis as detailed by the GPA.
(iii) The temperature of the Gas passing through the meters shall be determined for any Day in accordance with the procedures and standards in API MPMS Chapter 21 Part 1, or Part 2 - Dynamic Temperature Determination by the continuous use of a recording thermometer so installed that it may properly record the temperature of the Gas flowing through the meters.
(iv) The specific gravity of the Gas passing through each meter utilized hereunder shall be determined in accordance with the procedures and standards in API MPMS Chapter 14 Section 5 Calculation of Gross Heating Value, Specific Gravity and Compressibility of Natural Gas Mixtures From Compositional Analysis and API MPMS Chapter 14 Section 2 and AGA Report Number 8 Compressibility Factors of Natural Gas and Other Related Hydrocarbon Gases by the use of a recording gravimeter, from a continuous proportional-to-flow Gas sampling device installed in accordance with API MPMS Chapter 14 Section 1, or by chromatographic analysis of approved type which shall be checked at least once each Month by the use of any approved method mutually agreed upon. The specific gravity of the Gas so determined shall be used to correct the apparent flowing volume to true flowing volume for the Month or sampling period.
(v) The deviation from ideal gas laws of the Gas delivered hereunder shall be calculated by methods contained in the API MPMS Chapter 14 Section 5 (GPA 2172) Calculation of Gross Heating Value, Specific Gravity and Compressibility of Natural Gas Mixtures From Compositional Analysis, as amended from time to time, including the API MPMS Chapter 14 Section 2 (AGA Report Number 8) Compressibility Factors of Natural Gas and Other Related Hydrocarbon Gases and GPA Standard 2145 Table of Physical Constants for Hydrocarbons and Other Compounds of Interest to the Natural Gas Industry. A sample of Gas shall be analyzed at least Monthly for all the components necessary to correctly calculate the compressibility factor. These values with differential pressure, flowing (static) pressure, flowing temperature, and specific gravity, will be used to calculate the compressibility factors, if appropriate. A complete analysis may be required if the temperature and pressure are outside appropriate value ranges.
6.2 Gas Measurement Testing . The accuracy of Gas measuring equipment shall be tested and verified by the owner of such equipment as follows:
(a) The accuracy of the measuring equipment shall be verified at least quarterly or when an error is suspected and, if so requested, in the presence of representatives of both Parties. In the event either Party shall notify the other Party that it desires a special test of any measuring equipment, the Parties shall cooperate to secure a prompt verification of the accuracy of such equipment. The expense of any such special test, if requested, shall be borne by the Party requesting the test if the measuring equipment tested is found to be in error by not more than two percent (2%).
(b) If, upon testing, any measuring equipment, excluding Gas chromatographs and recording calorimeters, is found to be in error in the aggregate by not more than two percent (2%) for Btus, previous recordings of such equipment shall be considered accurate in computing deliveries of Gas, but such equipment shall be adjusted at once to record accurately. If recording calorimeters are accurate within two percent (2%) to Btus per cubic foot of Gas, the reading will be considered accurate, but the equipment shall be adjusted immediately to record accurately.
(c) If, upon test, any measuring equipment shall be found in the aggregate to be inaccurate by an amount exceeding two percent (2%) for Btus per cubic foot of Gas in the case of Gas chromatographs and recording calorimeters, at a recording corresponding to the average hourly rate of flow for the period since the last preceding test, such equipment shall be adjusted at once to record accurately, and any previous recordings of such equipment shall be corrected to zero error for any period that is known definitely, but in case the period is not known or agreed upon, such correction shall be for a period extending over one-half of the time elapsed since the date of the last test.
6.3 Gas Meter Adjustments . In the event a meter is out of service or registering inaccurately, the quantities of Gas received or delivered during such period shall be determined as follows:
(a) By using the registration of any check meter or meters, if installed and accurately registering; or in the absence of such check meter(s),
(b) By using a meter operating in parallel with the estimated volume corrected for any differences found when the meters are operating properly, by correcting the error if the percentage of error is ascertainable by calibration, tests, or mathematical calculation; or in the absence of check meter(s) and the ability to make corrections under this subparagraph (b), then,
(c) By estimating the quantity received or delivered by receipts or deliveries during periods under similar conditions when the meter was registering accurately.
Each Party shall, upon request of the other, mail or deliver for checking and calculation all volume and temperature meter records in its possession and used in the measurement of Gas delivered hereunder within thirty (30) Days after the last chart for each billing period is removed from the meter. Such data shall be returned within ninety (90) Days after the receipt thereof. If electronic measurement is used for custody transfer of the Gas, it shall include a standard audit
package as described in API MPMS Chapter 21 Part 1 Electronic Gas Measurement supplied by the measuring Party.
Each Party shall preserve or cause to be preserved for mutual use all test data, charts, or other similar records in accordance with the applicable rules and regulations of regulatory bodies having jurisdiction, if any, with respect to the retention of such records, and, in any event, for at least twelve (12) Months.
ARTICLE 7
FEES
7.1 Fees . Subject to the terms and conditions of this Agreement, Shipper shall pay Gatherer each Month the fees set forth in Exhibit B-1 for all Gathering Services provided by Gatherer during such Month ( Fees ), as such Fees may be amended pursuant to the terms and conditions of this Agreement.
7.2 Adjustment of Fees . The Fees for all Gathering Services provided by Gatherer hereunder shall be adjusted in accordance with Section 2 of Exhibit B-1 .
ARTICLE 8
BILLING AND PAYMENT
8.1 Statements . After the end of each Month, Gatherer will invoice Shipper for all amounts owed pursuant to this Agreement.
8.2 Payments . All invoices shall be due and payable on or before ten (10) Days after receipt of the invoice or, if such Day is not a Business Day, then on the next Business Day. All invoices shall be paid in full, but payment of any disputed amount shall not waive a Partys right to dispute the invoice in accordance with Section 8.5. All payments by a Party shall be made by electronic funds transfer to the account designated by the Party to whom payment is due.
8.3 Payment During Force Majeure . Force Majeure shall not relieve a Party from its obligation to pay amounts due and owing.
8.4 Delinquent Payments . Any amounts not paid by the due date will be deemed delinquent and will accrue interest at the Interest Rate. Such interest shall accrue from and including the due date until but excluding the date the delinquent amount is paid in full.
8.5 Payment Disputes . A Party may dispute any invoice or statement by written notice within twelve (12) Months following the Month in which such invoice or statement was rendered. Upon resolution of the dispute, any required payment shall be made within ten (10) Days of such resolution, with interest accrued at the Interest Rate from and including the due date until but excluding the date such payment is paid in full.
8.6 Audit . Each Party may, at its sole expense and during normal working hours, quarterly examine the records of the other Party to the extent necessary to verify the accuracy of any statement, charge or computation twelve (12) Months following the Month in
which such statement, charge or computation was rendered. This provision survives any termination of the Agreement for the later of (i) a period of twelve (12) Months from the end of the Month in which the date of such termination occurred or (ii) until a dispute initiated within the twelve (12) Month period is finally resolved.
ARTICLE 9
CREDITWORTHINESS
9.1 Creditworthiness . If at any time Shipper (or Shippers guarantor, if applicable) fails to be Creditworthy or fails to make payments according to Article 8, Gatherer may request Adequate Assurance of Payment. Shipper may receive or continue to receive service if it provides Adequate Assurance of Payment within seven (7) Business Days after the date Shipper receives written demand by Gatherer. Gatherer may immediately suspend service to Shipper if Shipper fails to provide the Adequate Assurance of Payment within the allotted timeframe.
9.2 Adequate Assurance of Payment . The Adequate Assurance of Payment must be provided in a minimum amount equal to [***] at the time such Adequate Assurance of Payment is requested.
9.3 Payment Default . In the event of a default in payment of any amounts due from Shipper or failure to make up an undisputed negative imbalance within seven (7) Business Days of receiving written demand from Gatherer, Gatherer may liquidate or draw upon the Adequate Assurance of Payment in order to satisfy Shippers obligations and require Shipper to replace the liquidated or drawn-upon funds in order to continue receiving Gathering Services.
9.4 Restoration of Creditworthiness . In the event Shipper (or Shippers Guarantor, if applicable) becomes Creditworthy after providing Adequate Assurance of Payment, Gatherer agrees to return such Adequate Assurance of Payment to Shipper within seven (7) Business Days of receiving written request from Shipper; provided that Gatherer shall only agree to return such Adequate Assurance of Payment if Shipper is current on all amounts due under this Agreement.
ARTICLE 10
DEFAULT
10.1 Except as otherwise provided in this Agreement, the failure by a Party to substantially perform or to substantially comply with any material warranty, covenant, or obligation contained in this Agreement that is not excused by Force Majeure shall be considered an Event of Default . Upon written notice of an Event of Default, a Party shall be allowed thirty (30) Days to cure the Event to Default ( Cure Period ); in addition, so long as the defaulting Party has initiated and is diligently attempting to effect a cure, the Cure Period shall extend for a period reasonably required to effectuate such cure but not to exceed sixty (60) Days. The non-defaulting Party may suspend performance during the Cure Period unless the non-defaulting Party provides adequate security to protect the non-defaulting Party from harm during the Cure Period.
10.2 If, on the expiration of the Cure Period, the Party has not remedied the Default the non-defaulting Party may terminate the Agreement on no less than ten (10) Days written notice; provided that, at the time the non-defaulting Party exercises its rights and remedies under this Section 10.2, such non-defaulting Party is not in default of any material warranty, covenant or obligation contained in this Agreement.
ARTICLE 11
FORCE MAJEURE
If either Gatherer or Shipper is rendered unable by an event of Force Majeure to carry out, in whole or part, its obligations hereunder and such Party gives written notice and reasonably full details of the event to the other Party as soon as practicable after the occurrence of the event, then, during the pendency of such Force Majeure, the obligations of the Party affected by the event shall be suspended (other than the obligation of Shipper to pay the fees owed to Gatherer pursuant to Article 7, as such fees may be adjusted by credits provided by Gatherer pursuant to Section 3.4). The Party affected by Force Majeure shall use commercially reasonable efforts to remedy the Force Majeure condition or event with all reasonable dispatch, shall promptly give written notice to the other Party of the termination of the Force Majeure, and shall resume performance of any suspended obligation promptly after the end of such Force Majeure.
ARTICLE 12
TAXES
Shipper shall be solely responsible for payment of all taxes (other than income taxes) levied, assessed or fixed by any Governmental Authority attributable to the production or sale of Shippers Gas covered by this Agreement or the wells from which the Gas is produced, such as occupation, production, severance, well impact fee, gross receipts, sales, first use, Btu, ad valorem, carbon emission or other taxes of a similar nature arising from the production or sale of Shippers Gas.
ARTICLE 13
TITLE AND CUSTODY
13.1 Title . A nomination of Gas by Shipper shall be deemed a warranty of title of the Gas or a legal right to deliver the Gas, and Shipper agrees to defend, indemnify and hold Gatherer harmless from any and all Losses resulting from any adverse claims to the Gas, except to the extent those claims are caused by Gatherer. Gatherer warrants to Shipper that Gatherer has the legal right to accept and redeliver the Gas free of any adverse claims, and Gatherer agrees to defend, indemnify and hold Shipper harmless from any and all Losses resulting from any adverse claims that arise while the Gas is in Gatherers custody, except to the extent those claims are caused by Shipper.
13.2 Custody . From and after Shippers delivery of Gas to Gatherer at the Receipt Point, and until Gatherers redelivery of such Gas to or for Shippers account at the Delivery Point, as between the Parties Gatherer shall have custody and control of the Gas. In all
other circumstances, as between the Parties Shipper shall be deemed to have custody and control of Shippers Gas.
ARTICLE 14
INDEMNIFICATION AND INSURANCE
14.1 Indemnification .
(a) Shipper shall indemnify, defend and hold harmless Gatherer, its Affiliates, and its and their respective employees, officers, directors, members, managers, partners, agents and representatives from all Losses caused, in whole or in part, by Shippers breach of any obligations in this Agreement or by Shippers negligence or willful misconduct. Gatherer shall indemnify, defend and hold harmless Shipper, its Affiliates, and its and their respective employees, officers, directors, members, managers, partners, agents and representatives from all Losses caused, in whole or in part, by Gatherers breach of any obligations in this Agreement or by Gatherers negligence or willful misconduct.
(b) Each Party represents that no hazardous substance as that term is defined in the Federal Comprehensive Environmental Response Compensation Liability Act (CERCLA), petroleum or petroleum products, asbestos material as that term is defined in 40 CFR 61.41 (1987), polychlorinated biphenyls (PCBs), or solid waste as that term is defined in the Federal Resource Conservation Recovery Act (RCRA), will be leaked, spilled, deposited or otherwise released by either Party on the other Partys property; provided, however, that Gatherer makes no such representation with respect to any Gas or Drip Liquids delivered to the Receipt Point(s) by Shipper. In the event that any of said above referenced materials are discovered on said property, each Party shall immediately notify the other Party of the discovery and existence of said materials. In the event of either Partys breach of the representations contained in this section, the full responsibility for the handling, remediation, treatment, storage or disposal of any such hazardous substance, petroleum or petroleum product, asbestos material, PCBs or solid waste discovered on said property, including the handling of such materials in compliance with all environmental laws including federal, state and local laws, rules and regulations, shall remain with such Party and such Party shall indemnify, defend and hold harmless the other Party, its Affiliates, and its and their respective employees, officers, directors, members, managers, partners, agents and representatives from all Losses, fines, penalties or compliance orders issued by any Governmental Authority relating to pollution or protection of the environment including without limitation laws and regulations relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, waste petroleum, toxic substances and hazardous substances occurring on said property.
14.2 Mutual Waiver of Consequential and Punitive Damages . Except in respect of any Partys indemnification obligations pursuant to this Agreement related to Losses arising out of Third Party claims, neither Party shall be liable to the other Party for any incidental, consequential, special or punitive damages.
14.3 Insurance . The Parties shall maintain no less than the insurance coverage set forth in Exhibit E .
ARTICLE 15
ASSIGNMENT
15.1 Assignment of Rights and Obligations under this Agreement . Except as otherwise set forth in Section 15.2, no Party shall have the right to assign its rights and obligations under this Agreement (in whole or in part) to another Person except with the prior written consent of the other Parties, which consent may be withheld at such Parties sole discretion. The assigning Party shall give the other Parties written notice of any assignment within fifteen (15) Days after the date of execution of such permitted assignment. This Agreement shall be binding upon and inure to the benefit of the permitted successors and assigns of the Parties. Any attempted assignment made without compliance with the provisions set forth in this Section 15.1 shall be void. A Party assigning its rights and obligations under this Agreement shall cause any and all assignees to accept, ratify and agree to be bound by the terms hereof.
15.2 Pre-Approved Assignment .
(a) Any Party shall have the right without the prior consent of the other Parties to: (i) assign its rights and obligations under this Agreement (in whole or in part) to an Affiliate; (ii) mortgage, pledge, encumber, or otherwise impress a lien, create a security interest or otherwise assign as collateral its rights and interests in and to the Agreement to any lender; (iii) make a transfer pursuant to any security interest arrangement described in (ii) above, including any judicial or non-judicial foreclosure and any assignment from the holder of such security interest to another Person; or (iv) assign the Agreement in connection with the sale of all or substantially all of its assets, or in connection with a merger, consolidation, or other reorganization.
(b) Gatherer shall have the right without the prior consent of the other Parties to assign this Agreement to EQT Midstream Partners, LP or any of its Affiliates (including EQM Gathering Opco, LLC).
(c) Producer shall have the right without the prior consent of the other Parties to assign all of its rights and obligations under this Agreement in connection with the sale of all or substantially all of Producers interest in the lands underlying the Gathering System, but only if such purchaser or surviving entity is an experienced and reasonably prudent operator with respect to Producers applicable production assets and agrees to adopt, ratify and be bound by the terms of this Agreement.
(d) Gatherer shall have the right without the prior consent of the other Parties to assign all of its rights and obligations under this Agreement in connection with the sale of all or substantially all of Gatherers interest in the Gathering System, but only if such purchaser or surviving entity is an experienced and reasonably prudent operator with respect to the Gathering System and agrees to adopt, ratify and be bound by the terms of this Agreement.
15.3 Release .
(a) If the assignee under an assignment permitted pursuant to this Article 15 (other than the assignment in Section 15.2(b)) is Creditworthy, then the assigning Party shall be released from the obligations applicable to such assignment (the Assumed Obligations ).
(b) If at the time of an assignment permitted pursuant to this Article 15 (other than the assignment in Section 15.2(b)) the permitted assignee or acquiring Person is not Creditworthy, then such assignee may provide to the other Party a guaranty of such assignees Assumed Obligations from a Person with (at the time of such assignment) a long-term, senior unsecured credit rating equal to or greater than the Investment Grade Rating, which guaranty shall be in a form reasonably acceptable to the other Party. Upon the other Partys receipt of such guaranty, the assigning Party shall be released from the Assumed Obligations.
(c) Upon assignment to EQT Midstream Partners, LP or any of its Affiliates (including EQM Gathering Opco, LLC) of Gatherers rights and obligations under this Agreement, Gatherer shall be released from the Assumed Obligations.
ARTICLE 16
MISCELLANEOUS
16.1 Authorizations . Each Party hereby represents that it has all requisite corporate authorizations to enter into this Agreement.
16.2 Notices . Unless different notice is prescribed or allowed by Exhibit C , any notice, request, demand, statement, or payment provided for in this Agreement shall be confirmed in writing and shall be made as specified below; provided, that (a) notices claiming default shall only be made using overnight mail, certified mail, or courier; (b) notices of interruption or curtailment and similar operating matters may be provided orally or by electronic mail; and (c) nominations may be provided by electronic mail, effective immediately and, upon request, confirmed in writing. A notice sent by facsimile transmission shall be deemed received by the close of the Business Day on which such notice was transmitted, or such earlier time as confirmed by the receiving Party. Notice by overnight mail or courier shall be deemed to have been received two (2) Business Days after it was sent, or such earlier time as confirmed by the receiving Party. The addresses of the Parties for notice purposes are set forth in Exhibit C , but such addresses are subject to change and, if so changed, shall be such other address as a Party shall from time to time furnish in writing to the other Party.
16.3 Merger. This Agreement constitutes the entire agreement between the Parties regarding the subject matter hereof and supersedes all prior agreements, conditions, understandings, representations and warranties between the Parties, whether written or oral.
16.4 Dispute Resolution . If the Parties are unable to settle a dispute arising under this Agreement within thirty (30) Days of notice of such dispute, the Parties agree that resolution of such dispute will be subject to binding arbitration pursuant to the Commercial Dispute Resolution Rules of the American Arbitration Association ( AAA ). Each of Gatherer
and Shipper shall be entitled to nominate one arbitrator, and the third arbitrator shall be selected by the Party-appointed arbitrators by mutual agreement. The arbitral panel is not empowered to (a) issue a determination that requires a full or partial termination of this Agreement or (b) award damages in excess of compensatory damages, and each Party hereby irrevocably waives any right to recover punitive, exemplary, or similar damages with respect to such dispute, except in regard of Third Party claims for which an indemnity is owed under this Agreement. All in-person arbitration proceedings shall be conducted in Pittsburgh, Pennsylvania. The Parties agree that all arbitration proceedings conducted pursuant to this Section 16.4 shall be kept confidential in accordance with Section 16.9.
16.5 Jurisdiction . This Agreement is governed by, subject to and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to any conflict of law rules. Subject to Section 16.4, any action brought in respect of this Agreement must be brought in the state or federal courts sitting in Allegheny County, Pennsylvania. The Parties waive the right to a jury trial.
16.6 Non-Waiver . No waiver by either Party of any one or more defaults by the other in the performance of any of the provisions of this Agreement shall be construed as a waiver of any other default or defaults, whether of a like kind or different nature.
16.7 Severability . If any term of this Agreement is determined to be illegal or unenforceable, the other terms remain in full force and effect.
16.8 Amendments . No amendment, modification, or change to this Agreement shall be enforceable unless reduced to writing and executed by each of the Parties.
16.9 Disclosure . Neither Party shall divulge the terms of this Agreement to any Third Party, without the written consent of the other party, except as (a) required by Laws or Governmental Authority, (b) in a business transaction involving this Agreement, or (c) in the circumstance of an emergency. In the event disclosure is permitted under this Section 16.9, the disclosing party shall take reasonably prudent steps to preserve and maintain confidentiality, including securing the necessary confidentiality/non-disclosure agreements from the parties to whom such information is disclosed.
16.10 Exhibits and Schedules . All Exhibits are part of this Agreement.
16.11 Cumulative Rights and Remedies . Except as expressly provided herein, the rights and remedies created by this Agreement are cumulative and in addition to any other rights or remedies available at law or in equity.
16.12 No Third Party Beneficiary . It is expressly understood that there is no Third Party beneficiary to this Agreement, and that the provisions of this Agreement do not create enforceable rights in anyone who is not a Party or a successor or assignee of a Party hereto, except as provided in Article 15 of this Agreement.
16.13 Survival . The provisions set forth in Sections 2.2, 3.3(d), 5.2(d), Article 8, Article 12, Sections 13.1, 14.1, 14.2, 15.3 and Article 16 of this Agreement, shall survive any termination of this Agreement.
16.14 Execution . This Agreement may be executed in counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument.
[Next page is signature page]
IN WITNESS WHEREOF, the Parties have executed this Agreement in triplicate originals to be effective as of the Effective Date.
EQT PRODUCTION COMPANY |
EQT GATHERING, LLC |
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By: |
/s/ Steven Schlotterbeck |
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By: |
/s/ Randall Crawford |
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Name: |
Steven Schlotterbeck |
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Name: |
Randall Crawford |
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Title: |
President |
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Title: |
President |
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EQT ENERGY, LLC |
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By: |
/s/ Donald Jenkins |
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Name: |
Donald Jenkins |
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Title: |
Senior Vice President Trading and Origination |
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SIGNATURE PAGE
JUPITER GAS GATHERING AGREEMENT
EXHIBIT A
RECEIPT POINTS, DELIVERY POINTS,
CONTRACT MDQ AND COMPRESSION MDQ
Receipt Point(s) |
Receipt Point MDQ
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Zone |
Zone MDQ
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HLB65 |
[***] |
Zone 1 |
[***] |
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West Run |
[***] |
Zone 1 |
[***] |
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Koloski |
[***] |
Zone 1 |
[***] |
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ROG279 |
[***] |
Zone 1 |
[***] |
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Pierce |
[***] |
Zone 1 |
[***] |
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Walker B |
[***] |
Zone 1 |
[***] |
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Moore |
[***] |
Zone 1 |
[***] |
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Phillips |
[***] |
Zone 1 |
[***] |
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Scotts Run |
[***] |
Zone 1 |
[***] |
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Patterson Creek |
[***] |
Zone 1 |
[***] |
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ROG162 |
[***] |
Zone 1 |
[***] |
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ROG79 |
[***] |
Zone 1 |
[***] |
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Moninger |
[***] |
Zone 2 |
[***] |
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Cooper |
[***] |
Zone 2 |
[***] |
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Big Sky |
[***] |
Zone 2 |
[***] |
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Way176 |
[***] |
Zone 2 |
[***] |
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Amity |
[***] |
Zone 2 |
[***] |
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Harden Farm |
[***] |
Zone 2 |
[***] |
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Connors |
[***] |
Zone 2 |
[***] |
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Hughes |
[***] |
Zone 2 |
[***] |
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Roberts |
[***] |
Zone 2 |
[***] |
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Lacko |
[***] |
Zone 3 |
[***] |
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Hildebrand |
[***] |
Zone 3 |
[***] |
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Pyles |
[***] |
Zone 3 |
[***] |
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Beazer |
[***] |
Zone 3 |
[***] |
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Yabolnski |
[***] |
Zone 3 |
[***] |
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Way153 |
[***] |
Zone 3 |
[***] |
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Nicoloff |
[***] |
Zone 3 |
[***] |
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McMillan |
[***] |
Zone 3 |
[***] |
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Robinson |
[***] |
Zone 3 |
[***] |
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Thompson |
[***] |
Zone 3 |
[***] |
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Thistlewaite |
[***] |
Zone 3 |
[***] |
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EXHIBIT A (Continued)
RECEIPT POINTS, DELIVERY POINTS,
CONTRACT MDQ AND COMPRESSION MDQ
Delivery Point(s) |
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Location |
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Ingram |
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[***] |
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Amity |
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[***] |
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Jupiter |
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[***] |
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Callisto |
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[***] |
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Hopewell Ridge |
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[***] |
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Pipers Ridge |
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[***] |
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Drip Liquids
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Location |
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Not applicable |
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Contract MDQ: |
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[***] |
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Compression MDQ: |
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[***] |
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EXHIBIT B-1
FEES
1. Fee . The Fees to be paid by Shipper to Gatherer for Gathering Services shall include the following:
[***] Four (4) pages omitted from this exhibit pursuant to confidential treatment request.
EXHIBIT B-2
INCREMENTAL CAPITAL RIDER
This Incremental Capital Rider shall be used to calculate and set forth the Incremental Capital Fee for each Incremental Capital Project. The Incremental Capital Fee shall be calculated in accordance with the provisions of Paragraph I below. On the In-Service Date of each Incremental Capital Project, this Incremental Capital Rider shall be amended to include the Incremental Capital Fee and applicable Expansion Term for such Incremental Capital Project, all as set forth in the table in Paragraph II below. Shipper shall be assessed each such Incremental Capacity Fee for the duration of the applicable Expansion Term, subject to adjustment in accordance with the annual fee adjustment set forth in Section 2 of Exhibit B-1 .
For purposes of this Incremental Capital Rider, the Expansion Term applicable to an Incremental Capital Project shall be the last Expansion Term to terminate (excluding any extensions thereto) that is effective on the In-Service Date of such Incremental Capital Project.
I. Incremental Capital Fee
a. [***]
II. Table of Incremental Capital Fees
Incremental Capital
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Contract
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Incremental
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In-Service
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Applicable
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EXHIBIT C
PARTIES ADDRESSES FOR NOTICE PURPOSES
Shipper :
EXHIBIT D
DESCRIPTION OF GATHERING SYSTEM
[***] Four (4) pages omitted from this exhibit pursuant to confidential treatment request.
EXHIBIT E
INSURANCE
Gatherer and Shipper shall each purchase and maintain in full force and effect at all times during the term of this Agreement, at each Partys sole cost and expense and from reliable insurance companies, policies providing the types and limits of insurance indicated below, which insurance shall be regarded as a minimum and shall be primary as to any other existing, valid, and collectable insurance maintained by the other Party. Each Partys deductibles shall be borne by that Party. Self-insurance for Commercial General Liability and Workers Compensation shall be allowed.
A. Where applicable, Workers Compensation, in accordance with the statutory requirements of the State in which the work is to be performed, and Employers Liability including Occupational Disease, subject to a limit of liability of not less than $[***] per accident, $[***] for each employee/disease, and a $[***] policy limit.
B. Commercial General Liability Insurance, with limits of liability of not less than the following:
$[***] each occurrence and in the aggregate for Bodily Injury and/or Property Damage combined
Such insurance shall include the following:
1. Premises and Operations coverage;
2. Contractual Liability covering the liabilities assumed under this Agreement;
3. Drip Liquids and Completed Operations; and
4. Sudden and Accidental Pollution coverage.
C. Automobile Liability Insurance, with limits of liability of not less than the following:
$[***] Bodily Injury and/or Property Damage Combined Single Limit each accident.
Such coverage shall include owned, hired and non-owned vehicles.
D. Property Insurance for loss or damage to above-ground equipment and machinery, including loss or damage during loading, unloading, and while in transit. Such coverage shall be on an all-risk basis and property shall be valued at replacement cost.
E. Excess Liability Insurance with limits of liability not less than the following:
Limits of Liability - $[***] per Occurrence and in the aggregate for Bodily Injury and Property Damage in excess of the coverage outlined in Paragraphs A, B, and C.
Each Party shall have the right to acquire, at its own expense, such additional insurance coverage as it desires to further protect itself against any risk or liability with respect to this Agreement and operations and activities thereunder or related thereto. All insurance maintained by either Party shall provide a waiver by the insurance company of all rights of subrogation in favor of the Parties. The policies outlined in Paragraphs B and C shall include the other Party as an Additional Insured. Prior to execution of this Agreement, and at each subsequent renewal, each Party shall provide to the other Party a certificate of insurance evidencing the coverage and limits required by this Exhibit E .
EXHIBIT F
INTERCONNECT TERMS
This Exhibit F establishes the general terms and conditions under which Producer and Gatherer will provide for the proper design, installation, operation, maintenance, ownership and cost responsibility of one or more Interconnect Facilities that receive Gas into the Gathering System. This Exhibit F shall be updated for additional Receipt Point Interconnect Facilities approved in accordance with the terms and conditions of this Agreement. No Party shall flow natural gas through new Receipt Point Interconnect Facilities until such time as this Exhibit F is amended to describe such Interconnect Facilities and all conditions in this Exhibit F are met regarding the installation and commissioning of the Interconnect Facilities.
I. INTERCONNECT FACILITIES
A. Interconnect Facilities . All equipment, piping and appurtenant facilities required at the Receipt Point(s) as set forth in this Exhibit F (the Interconnect Facilities ) as well as ownership and responsibilities for design, installation, ownership, operation and maintenance shall be defined in the Responsibility Matrix in Article III of this Exhibit F . All costs associated with the Interconnect Facilities, including any gross-up for applicable taxes, shall be Producers responsibility, unless waived by Gatherer, and any such costs paid by Gatherer shall be reimbursed by Producer, including any gross-up for applicable taxes.
B. Design . Gatherers current Engineering and Technical Design Standards , which set forth the general guidelines for Interconnect Facilities, can be viewed and downloaded on the Producer Services page of Gatherers website at the following: http://www.eqt.com/docs/pdf/InterconnectRequirementsAppendixB.pdf
1. Producer shall submit to Gatherer complete design drawings for any Proposed Receipt Point prior to construction of any facilities. Producer agrees to make those changes to such design and construction plans as Gatherer, in its reasonable discretion, believes are necessary for the safe and reliable delivery of gas into Gatherers facilities.
2. Once the Proposed Receipt Point is approved, Gatherer shall respond in writing as to the acceptability of the detailed design by returning one set of drawings noted as ACCEPTED; provided that, if Gatherer fails to respond to Producers design drawings with thirty (30) Days after their receipt by Gatherer, such design plans will be deemed ACCEPTED.
3. If the proposed Interconnect design is initially denied but could be approved with modifications to the design of the Interconnect Facilities, Gatherer shall provide recommendations to Producer; provided that, if Gatherer fails to recommend modifications to Producers design drawings within thirty (30) Days after their initial denial by Gatherer, such design plans will be deemed ACCEPTED.
When Producers design drawings are ACCEPTED or deemed ACCEPTED by Gatherer, Producer shall submit the drawings to a fabrication vendor approved by Gatherer and posted on Gatherers website.
C. As-Built Drawings . Producer shall develop an as-built location drawing of the Interconnect Facilities. The as-built drawing shall include all facilities from the inlet side of the gas measurement facilities to the tie-in with Gatherers Gathering System facilities. These detailed drawings shall include centerline measurements, valve, regulator, meter identification, pipe size(s) and type(s), and telemetering details. For new Interconnects, Producer shall provide a copy of this drawing (AutoCAD or PDF format) to Gatherer for review and approval prior to activation of Interconnect Facilities.
D. Pipeline Safety . The Interconnect Facilities shall be installed, operated and maintained in accordance with 49 CFR Part 192. All piping, fittings, and materials associated with Interconnect Facilities shall be consistent with the requirements of 49 CFR Part 192 and industry standards.
E. Debris and Obstructions . Producers facilities shall be cleared of all debris and obstructions before they are connected to Gatherers facilities.
F. Maintenance and Identification . Producer is responsible, and shall assume the initial costs, for landscaping, sign posting, painting, and final, post-construction cleanup at and around the Interconnect Facilities. A meter set identification sign shall be posted at each location. The sign shall, at a minimum, list the name of Producer, the telephone number (including area code) where the Receipt Point operator can be reached at all times, and Producers address. The letters must be at least one inch (1) high with one-quarter inch (¼) stroke. The information must be written legibly on a background of sharply contrasting color.
G. Telemetry . The electronic Gas measurement and communications equipment installed as part of the Interconnect Facilities shall include equipment for monitoring, recording, and transferring data deemed essential by Gatherer. Unless waived by Gatherer, Producer shall acquire, install and pay for the on-going operating expenses for the electronic gas measurement and communications equipment to provide Gatherer, at a minimum, real-time information related to pressure, temperature, Gas flow and Gas quality (i.e., chromatograph). Gatherer shall specify the type of equipment to be provided by Producer.
H. Commencement of Operation . Producer shall notify Gatherer, in writing, when a Proposed Receipt Point is complete, and ready for inspection, testing and activation. Gatherer shall be responsible for the coordination, installation, testing, and physical final tie-in to Gatherers Gathering System. Gatherer shall develop, coordinate, and oversee all operations associated with purging the meter set and piping into service. Under no circumstance shall the inlet pressure from the Producer meter set exceed the MAOP(s) set forth in this Exhibit F.
I. Regulation . Gatherer may require regulation and shall require over-pressure protection at the Receipt Point Interconnect Facilities under this Agreement. Such regulation shall
deliver pressures suitable to pressures in the Gathering System and otherwise consistent with the terms of this Agreement.
J. Compression . Producer shall provide Gatherer with a minimum of thirty (30) Days notice before any new compression is to be installed. Any compression installed by Producer upstream of a Receipt Point shall: (1) not be within 400 feet of any measurement site of the Gathering System; (2) minimize pulsation at the Interconnect Facilities, at a square root error below zero point five percent (0.5%) (based on an industry-accepted square root indicator); (3) have low-pressure shutdown controls on the suction system that prevent drawing air into the system and, to the extent Producer desires to operate the suction system with less than a two (2) psig minimum inlet pressure, an oxygen sensor shall be installed on the inlet of the suction line so as to automatically shut down the Producer Compression when the oxygen is detected at levels above two thousand (2,000) parts per million (0.2%); and (4) be operated such that the discharge/outlet line pressure measured at the compressor cylinder shall not exceed the maximum allowable operating pressure of the Gathering System downstream of the Interconnect Facilities (with Producer responsible for primary pressure cut).
K. [***].
II. GATHERERS FACILITIES
A. Gatherers Facilities . Gatherer shall own, and Gatherer or its designee shall design, install, operate and maintain, a tap and side valve connecting Gatherers facilities to the Interconnect Facilities as more specifically described in Article III. The Interconnect Facilities shall extend to within twenty five feet (25) of Gatherers line unless otherwise approved by Gatherer.
B. Notice of Repairs . Gatherer shall be notified of any and all repairs or changes to Interconnect Facilities or upstream of a Receipt Point. Producer shall advise Gatherer in writing at least fifteen calendar (15) days before taking the Interconnect Facilities out of service for repairs for more than seven (7) days. After Producer has completed all repairs, Producer shall provide reasonable notice to Gatherer that such repairs have been completed and the expected reconnection date of the Interconnect Facilities.
III. SITE SPECIFIC DATA AND FACILITY RESPONSIBILITY MATRIX
A. In addition to the minimum design specification and operating parameters set forth in the Engineering and Technical Design Standards, the following specifications shall be followed:
1. Receipt Point Interconnect Data : The table below provides for the list of meters covered under this Agreement which may be updated from time to time in accordance with the terms and conditions of this Agreement. All meters in the Receipt Point Interconnect table shall conform to the specifications listed in the table under Section III(A)(2).
Meter
|
Meter
|
GPS Coordinates |
MAOP |
MinDQ*
(Mcf /
|
MaxDQ
(Mcf / Day) |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Calculated @ minimum NOP with minimum Beta plate when applicable
2. Responsibility for Interconnect Facility Equipment . The following table establishes the design, construction, operation, maintenance and cost responsibility for certain aspects of the Interconnect Facilities. All of the following design responsibilities designated as Producers responsibility shall be incorporated into the design and construction of the Interconnect Facilities:
[***] STATION
|
REQUIRED |
DESIGN |
INSTALL |
OWNERSHIP |
OPERATE |
MAINTAIN |
SPECIAL PROVISIONS/
|
PIPING |
|
|
|
|
|
|
|
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
GAS CONDITIONING |
|
|
|
|
|
|
|
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
MEASUREMENT |
|
|
|
|
|
|
|
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
GAS QUALITY |
|
|
|
|
|
|
|
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
PRESSURE / FLOW CONTROL |
|
|
|
|
|
|
|
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
|
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
|
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
|
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
|
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
|
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
|
ODORIZATION |
|
|
|
|
|
|
|
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
MISCELLANEOUS |
|
|
|
|
|
|
|
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] |
[***] Eighteen (18) pages omitted from this exhibit pursuant to confidential treatment request.
Exhibit 10.2
PRECEDENT AGREEMENT
This Precedent Agreement is made this 23rd day of July 2014 (Effective Date), by and between Equitrans , L.P. (Transporter) and EQT Energy, LLC (Shipper). Transporter and Shipper are also referred to herein individually as a Party and collectively as the Parties.
RECITALS
WHEREAS , Transporter is a provider of interstate natural gas transmission services; and
WHEREAS, Transporter operates the following interstate natural gas transmission systems: the Mainline System, the Sunrise Transmission System and the Allegheny Valley Connector (hereinafter referred to as Transporters System or System); and
WHEREAS , Transporter proposes to modify, expand and extend certain of its transmission facilities comprising the System in order to provide additional firm transmission service of up to 1,200,000 dekatherms (Dth) per day to Clarington, Ohio (hereinafter referred to as Project); and
WHEREAS , the Project will be subject to the jurisdiction of the Federal Energy Regulatory Commission (FERC) and Transporter will file for the necessary approvals for the construction and operation of the Project and to provide services on the Project facilities; and
WHEREAS , Shipper acknowledges that on January 28, 2014, Transporter initiated an open season (Open Season) in connection with the Project and that Shipper is participating in Transporters Open Season and is requesting Transporter to provide long-term firm natural gas transportation service on the Project facilities; and
WHEREAS , Shipper has indicated an interest in entering into a binding agreement for the transportation of natural gas by Transporter on capacity made available by the Project; and
WHEREAS , upon execution of this Precedent Agreement, Shipper shall qualify as a Foundation Shipper as defined below.
NOW THEREFORE , in consideration of the mutual covenants and agreements contained herein, and intending to be legally bound by the terms herein, Transporter and Shipper agree as follows:
1. Facilities. Transporter agrees, subject to the terms and conditions of this Precedent Agreement, to create additional capacity on its System and to provide access to new delivery points through the modification and expansion of existing natural gas transmission facilities in West Virginia and Pennsylvania and extension of those facilities into Ohio (such additional capacity to be referred to as the Project Capacity).
(a) The Project is expected to provide in aggregate approximately 1,200,000 Dth per day of new firm transportation capacity and is expected to involve installing approximately 30 miles of pipeline in Wetzel and Marshall Counties, West Virginia
and Monroe County, Ohio, and may include installing compression and making other modifications to Transporters System.
(b) The receipt and delivery points available to Shipper from the Project are set forth on Exhibit 1 hereto.
(c) Transporter will be responsible for the acquisition, design, construction, installation, land rights and permitting of the facilities that may be necessary for Transporter to provide the services specified in this Precedent Agreement.
(d) Shipper shall be responsible for making all construction arrangements with, and/or acquiring any services from, upstream and downstream pipelines that may be necessary for Shipper to utilize the Project Capacity and Shippers failure to have in place adequate upstream or downstream facilities or arrangements shall not relieve Shipper of its obligations under this Precedent Agreement, the Credit Agreement or the Service Agreement, as defined below.
2. Upon the Effective Date of this Precedent Agreement, Shipper shall be deemed to be a Foundation Shipper with respect to the Project Capacity. Standard Shippers are shippers that have made long-term capacity commitments for the Project, evidenced by the Shippers execution of this Precedent Agreement, acceptable to Transporter in its sole discretion, which provides for a binding firm transportation commitment for a maximum daily quantity of firm capacity less than 100,000 Dth/day. Anchor Shippers are shippers that have made long-term (20 year minimum term) capacity commitments for the Project, evidenced by the Shippers execution of this Precedent Agreement, acceptable to Transporter in its sole discretion, which provides for a binding firm transportation commitment for a maximum daily quantity of firm capacity equal to or exceeding 100,000 Dth/day but less than 400,000 Dth/day. Foundation Shippers are shippers that have made long-term (20 year minimum term) capacity commitments for the Project, evidenced by the Shippers execution of this Precedent Agreement, acceptable to Transporter in its sole discretion, which provides for a binding firm transportation commitment for a maximum daily quantity of firm capacity equal to or exceeding 400,000 Dth/day.
In accordance with Exhibit 3, the negotiated rates agreed herein are predicated on the Estimated Project Costs (as defined in Exhibit 3) and accordingly the negotiated rates shall be adjusted upward or downward, as applicable, to the extent that Actual Project Costs (as defined in Exhibit 3) deviate from Estimated Project Costs. In no event shall the negotiated rates agreed to herein be adjusted (upward or downward) pursuant to Exhibit 3 by more than fifteen percent (15%); provided that FERC has approved such rate adjustment mechanism, in form and substance acceptable to Transporter in its commercially reasonable discretion. Shipper shall have the right to review Transporters books and records as reasonably necessary to verify Actual Project Costs for purposes of this provision.
Transporter agrees to seek any FERC approval which may be necessary to provide the Anchor Shipper or Foundation Shipper with certain contractual incentives, as further described below in this Section 2. In the event FERC disallows or modifies an Anchor
Shipper or Foundation Shipper contractual incentive provided for in this Section 2, the Parties shall attempt in good faith to negotiate an amendment to preserve the commercial intent of the Parties. Except as expressly provided herein, Transporters failure to obtain the necessary FERC approvals of the qualifications to be an Anchor Shipper or a Foundation Shipper or of these contractual incentives, in form and substance consistent with the terms of this Precedent Agreement (or the Parties failure to reach mutual agreement on an amendment), shall not provide Shipper with any right to terminate or modify this Precedent Agreement, nor shall Transporters rights to terminate this Precedent Agreement pursuant to and in accordance with Section 4 hereof or to request execution and delivery of the agreements identified in Section 7 be affected.
(a) Pre-Service Prorationing . In the event Transporter is required to reallocate capacity as a result of Open Season subscriptions in excess of project capacity, it will be done for each category of shipper in the manner set forth below. Available capacity will be reduced first for Standard Shippers, then for Anchor Shippers and finally for Foundation Shippers. Specifically, the capacity available to Standard Shippers will be reduced to zero (0) prior to any reduction in the capacity available to Anchor Shippers or Foundation Shippers, and the capacity available to Anchor Shippers will be reduced to zero (0) prior to any reduction in capacity available to Foundation Shippers. Available capacity will be reduced among shippers in the same category of shipper (Standard, Anchor or Foundation), if required as a result of over-subscription as provided in this section, based upon the highest net present value (NPV) of each prospective shippers binding firm transportation commitment as determined by Transporter. The NPV is the discounted cash flow of incremental revenues per dekatherm to Transporter produced, lost or affected by the commitment, taking into account the time value of the delay in Transporter receiving revenue pursuant to a given shippers commitment, and shall be based upon objective factors only, such as the term and quantity of each such commitment. The NPV evaluation shall include only revenues generated by the reservation rate. In determining the highest NPV in connection with a shipper paying a negotiated rate higher than the maximum recourse rate, such shipper will be deemed to be paying a rate equal to the maximum recourse rate. In the event an Anchor Shippers total MDQ is reduced to below 100,000 Dth per day as a result of Open Season subscriptions in excess of project capacity in order to comply with the terms of the Open Season or any FERC regulation (or a Foundation Shippers total MDQ is reduced below 400,000 Dth per day as a result of Open Season subscriptions in excess of project capacity for such reasons), Shipper shall continue to be deemed an Anchor Shipper or Foundation Shipper, as appropriate, and shall be eligible for Anchor or Foundation Shipper contractual incentives, provided, however, that any such capacity reallocation that occurs will only be as a result of reallocation with other Anchor or Foundation Shippers after capacity available to Standard Shippers has been reduced. In the event Transporter proposes a pre-service prorationing in accordance with this Section for a Foundation Shipper in which Foundation Shippers total MDQ is reduced below 500,000 Dth per day, the Parties shall promptly meet and work in good faith to attempt to agree upon a negotiated prorationing that is commercially acceptable to both Parties. In the event that Transporter proposes a pre-service prorationing in accordance with this Section
for a Foundation Shipper in which Foundation Shippers total MDQ is reduced below 300,000 Dth per day, and despite the Parties good faith efforts to agree upon a negotiated prorationing that is commercially acceptable in accordance with the previous sentence, the Parties do not so agree within [sixty (60) days] of beginning such negotiation, Shipper shall have the right to terminate this Precedent Agreement upon thirty (30) days written notice to Transporter.
(b) Future Expansions . Should Transporter elect in the future to expand the Project or a lateral directly connected to the Project on a forward haul basis, an Anchor Shipper or a Foundation Shipper shall have a right to participate in that project (OVC Expansion Project). Transporter shall notify such Shipper prior to holding an Open Season for an OVC Expansion Project and, in consideration of Shipper committing to be an Anchor Shipper or Foundation Shipper in this Precedent Agreement, Shipper shall have the right to participate in any OVC Expansion Project as an Anchor or Foundation Shipper, and to receive Anchor or Foundation Shipper benefits, regardless of the level of transportation service capacity Shipper chooses in that project. Notwithstanding the foregoing, Shippers right under this Section 2(b) shall not apply to Transporters separate project to modify, expand, and extend certain of its transmission facilities in order to provide additional firm transportation service from Clarington, Ohio to Lebanon, Ohio and such other locations as Transporter may determine, which is a separate project and not an OVC Expansion Project, and for which an Open Season has already been held. The Parties agree that nothing in this Section prohibits Shipper from requesting firm capacity on similar proposed projects.
3. Level of Service, Term, and Rates for Service.
(a) As of the Service Commencement Date, Transporter commits to provide, and Shipper commits to receive from and pay Transporter for, firm transportation service capacity in the quantity selected by Shipper as set forth below; provided, however, that Shipper may elect to increase its MDQ up to a total of 650,000 Dth/day if such election is made in writing to Transporter within 90 days of the Effective Date of this Precedent Agreement, to the extent that such capacity on the Project remains available:
Capacity Subscription Table |
Rate Schedule FTS
|
Maximum Daily
|
MDQ Term |
|
June 1, 2016 |
Mobley: Applegate: Pluto: Marion:
|
310,000 200,000 40,000 100,000
|
20 Years |
(b) Subject to Section 2 above, Transporter shall have the right to reduce the MDQ specified in Section 3 hereof if a reduction is necessary (a) to comply with the terms of the Open Season including, but not limited to, pro rata allocation of the capacity awarded as a result of the Open Season; or (b) to comply with any FERC regulation, requirement, directive, or order, or with Transporters FERC Gas Tariff. In the event Transporter proposes a reduction in MDQ, the Parties shall promptly meet and work in good faith to attempt to agree upon a negotiated MDQ that is commercially acceptable to both Parties; provided, however, that a reduction in MDQ below 300,000 Dth / day pursuant to this Section 3(b) shall provide Shipper with a right to terminate this Precedent Agreement in accordance with Section 2(a).
(c) The Anticipated Service Date shall be the date by which Transporter anticipates that the Project will be placed into service. The Anticipated Service Date for the Project is June 1, 2016. The Service Commencement Date for the Project shall be the later of (i) June 1, 2016 or (ii) the first day of the month immediately following the date on which Transporter is authorized by FERC to commence service on the Project facilities and Transporter is first able, in its reasonable judgment, to render service to Shipper utilizing the Project Capacity. Transporter agrees to use commercially reasonable efforts to construct the Project facilities and to make the facilities available for service by June 1, 2016.
(d) Within thirty (30) days following the date on which the FERC issues an order granting Transporter a certificate of public convenience and necessity to construct the Project facilities under terms materially consistent with this Precedent Agreement, Shipper agrees to execute and deliver the Transportation Service Agreement applicable to Firm Transportation Service under Rate Schedule FTS (Service Agreement) set forth in Transporters FERC Gas Tariff effective at the time of such execution, with only such modifications as necessary to reflect the rates, terms and conditions of service set forth in this Precedent Agreement.
(i) The Service Agreement shall become effective as set forth in Section 3(c) above.
(ii) The Contract Term for the Service Agreement shall extend from the Service Commencement Date until the end of the first 20 years following the Service Commencement Date (Primary Term).
(iii) Shipper shall have the right of first refusal with respect to the MDQ at the expiration of the Primary Term, for a renewal term of no less than five years, in accordance with Transporters FERC Gas Tariff.
(e) Transporter will only commit, subject to the terms and conditions of this Precedent Agreement, to pursue development of the Project on a negotiated rate basis. The negotiated rate, expressed as a monthly reservation rate shall be as set forth in the table below:
Overrun Rate* |
$0.45/Dth Delivered |
*The above negotiated rates can be modified pursuant to the Negotiated Rate Adjustment mechanism described and attached to this Precedent Agreement as Exhibit 3.
(f) In addition to the fixed Monthly Reservation Rate, Shipper shall pay for all Project service: (1) actual fuel and lost and unaccounted-for gas to recover fuel usage, lost and unaccounted for gas on Transporters System (Retainage Rate), and (2) the applicable FERC ACA surcharge. The Retainage Rate will be considered a negotiated Retainage Rate, subject to FERCs negotiated rate policies, and will only apply to nominations on Transporters System not involving storage injections and withdrawals or on-system non-interstate pipeline delivery points (each, a City-Gate Point). Any storage injection and withdrawal or City-Gate Point nominations will be subject to the posted Tariff Retainage Factors and other applicable surcharges (such as the Pipeline Safety Cost rate). An illustrative calculation using the agreed-upon methodology to determine the Retainage Rate for quantities applicable to Shippers transportation path is attached in Exhibit 4. In addition, subject to FERC approval of relevant provisions in Transporters FERC Gas Tariff, the Service Agreement shall provide that consistent with the provisions of Transporters FERC Gas Tariff, Shipper shall not be entitled to reservation charge credits in the event of a service outage affecting the transportation service to be provided under the Service Agreement.
(g) Shipper shall have most favored nation status with respect to the Service Agreement as described herein. If at any time during the term of this Precedent Agreement or the first five years following the Service Commencement Date Transporter is or becomes a party to any discounted or negotiated rate precedent agreement or service agreement with any third party for firm transportation service with respect to the Project from the Receipt Point of Mobley to the Delivery Point of Clarington for an MDQ that is less than or equal to Shippers MDQ under the Service Agreement for service from the receipt point of Mobley to the Delivery Point of Clarington, and pursuant to such third party precedent agreement for service between the specified points (or service agreement) Transporter is obligated to provide such third party firm service at rates that are lower than the rates for firm service under the Service Agreement as provided for herein for service from such Receipt Point to such Delivery Point, then within five (5) business days of executing such third party discounted or negotiated rate precedent agreement or service agreement, Transporter will notify Shipper of such lower rate (such notice, an MFN Notice). Within thirty (30) business days of receipt of an MFN Notice from Transporter, Shipper shall notify Transporter whether Shipper wishes to amend this Precedent Agreement or the Service Agreement, as applicable, to provide for such lower rate for firm transportation service hereunder or thereunder, only with respect to service between the points specified in this Section.
4. Transporters Conditions Precedent .
(a) Transporters obligations under the Service Agreement are subject in all respects to the satisfaction of the conditions precedent set forth in this Section 4. For the Project, Transporter shall have the sole right to determine whether the following conditions precedent have been satisfied and/or whether to waive any such conditions:
(i) Transporter obtaining, by August 1, 2014, subscription of an acceptable level of service reflected in executed precedent agreements that, in the aggregate, provide economic justification for the Project, as determined by Transporter in its sole discretion;
(ii) Transporters receipt, by July 1, 2016, of all necessary authorizations from the FERC to commence construction of the Project facilities, which authorizations are satisfactory to Transporter in form and substance. Transporter agrees that if all such authorizations from the FERC are consistent with the terms of this Precedent Agreement, they shall be deemed to be satisfactory to Transporter.
(iii) Transporters receipt, by July 1, 2016, of all permits, licenses, authorizations, rights-of-way, regulatory consents (with the exception of necessary FERC authorizations covered by Section 4(a)(ii) above), environmental permits and land use or zoning permits necessary for the construction and operation of the Project, which authorizations are satisfactory in form and substance to Transporter in its sole discretion;
(iv) The execution by Shipper of a Credit Agreement in the form attached as Exhibit 2; and
(v) Transporters receipt, by August 1, 2014, of final approval from its executive officers and/or its Board of Directors, or that of its parent company, or equivalent corporate governance body to proceed with the development of the Project.
(b) If any of the conditions precedent set forth in Section 4(a) are not satisfied or waived by the date set forth therein, or if the obligation stated in Section 7(a) is not met by Shipper, Transporter shall have the right to provide written notice to Shipper of its intention to terminate this Precedent Agreement, the Service Agreement, and the Credit Agreement, as applicable; provided however, that, with respect to each such condition precedent or obligation, unless the right to terminate is exercised by written notice provided within 30 days of the date on which such right to terminate for failure of such condition precedent or obligation first becomes effective, any such right to terminate shall be deemed to have been waived. Such notice shall designate each condition precedent or obligation giving rise to the right to provide such notice of termination. Unless all such conditions or obligations are satisfied within thirty (30) days after the receipt of such notice from Transporter or the Parties mutually agree otherwise in writing, this Precedent Agreement, the Service Agreement and the
Credit Agreement shall terminate effective upon the expiration of said thirty (30) day period, without any liability on the part of Transporter to Shipper. Transporter shall use commercially reasonable efforts to satisfy the conditions precedent applicable to its own actions set forth in Section 4(a) by the deadlines set forth therein.
(c) Transporter shall not be liable in any manner to Shipper due to Transporters failure to complete the construction of the Project within the timeframe contemplated herein, unless Transporter has breached its obligations under Section 6(a) of this Precedent Agreement.
5. Shippers Conditions Precedent .
(a) Shippers obligations under the Service Agreement are subject in all respects to the satisfaction of the condition precedent set forth in this Section 5. Shipper shall have the sole right to determine whether the following condition precedent has been satisfied and/or whether to waive such condition:
(i) Within thirty (30) days following the execution of this Precedent Agreement, Shipper obtaining the approval from its executive officers and/or its Board of Directors or equivalent corporate governance body for the transactions and agreements specified in this Precedent Agreement (and Shipper shall promptly confirm by written notice to Transporter any such approval or disapproval).
(b) Upon failure to obtain approval from Shippers Board of Directors or equivalent corporate governance body by the date that is thirty (30) days after the date of execution of this Precedent Agreement, if Shipper does not decide to waive the condition precedent set forth in Section 5(a)(i), Shipper shall promptly give notice of termination of this Precedent Agreement, the Service Agreement and the Credit Agreement, which shall be effective as provided in Section 5(c) below.
(c) If the condition precedent set forth in Section 5(a) is not satisfied or waived by the date set forth therein, or if the obligation stated in Section 6(a) is not met by Transporter, or if the Service Commencement Date has not occurred by November 1, 2018, Shipper shall have the right to provide written notice to Transporter of its intention to terminate this Precedent Agreement, the Service Agreement and the Credit Agreement, as applicable; provided however, that, with respect to each such condition precedent or obligation, unless the right to terminate is exercised by written notice provided within 30 days of the date on which such right to terminate for failure of such condition precedent or obligation first becomes effective, any such right to terminate shall be deemed to have been waived. Such notice shall designate each condition precedent or obligation giving rise to the right to provide such notice of termination. Unless all such conditions or obligations are satisfied within thirty (30) days after the receipt of such notice from Transporter or the Parties mutually agree otherwise in writing, this Precedent Agreement, the Service Agreement and the Credit Agreement shall terminate effective upon the expiration of said thirty (30) day period, without any liability on the part of Shipper to Transporter.
6. Transporters Obligations.
(a) Transporter agrees to use commercially reasonable efforts to seek and to obtain by the Anticipated Service Date the contractual and property rights, financing arrangements and regulatory approvals, including the necessary authorizations from FERC , as may be necessary to construct and operate the Project so as to provide firm transportation service to Shipper consistent with the terms and conditions agreed to in this Precedent Agreement, and Transporter agrees to use commercially reasonable efforts to construct the Project facilities and to place such facilities into service by the Anticipated Service Date; provided, however, that the Service Commencement Date in no event shall be later than November 1, 2018, except to the extent this obligation is expressly waived by Shipper. Transporter shall have the right to terminate this Precedent Agreement, the Service Agreement and the Credit Agreement if, in Transporters reasonable discretion, the FERC order granting Transporter the authority to construct, modify, own or operate any aspect of the Project includes conditions that (i) are inconsistent with the material commercial terms of this Precedent Agreement, and (ii) have a material adverse effect on the economic viability of the Project from Transporters perspective; provided, Transporter must exercise such right, if ever, no later than thirty (30) days following the date on which Transporter has obtained Natural Gas Act authorization from FERC to construct the Project. In addition, Shipper shall have the right to terminate this Precedent Agreement, the Service Agreement and the Credit Agreement, as applicable, upon the occurrence of either of the following (such right to be exercised, if ever, no later than thirty (30) days following the date specified, or in the case of (iii) below, no later than fifteen (15) days following Transporters receipt of the applicable FERC certificate):
(i) if Transporter has not filed the applicable FERC certificate application by November 1, 2015;
(ii) if Transporter has not received and accepted the applicable FERC certificate by November 1, 2017; or
(iii) if the applicable FERC certificate issued to Transporter for the Project is issued with conditions or terms that are inconsistent with the terms of this Precedent Agreement with respect to the rate to be paid by Shipper or the term of Service Agreement and not in form and substance substantially as requested, such that the terms or conditions therein will have a material adverse effect on Shipper in Shippers reasonable judgement.
(b) Once construction of the Project has commenced, Transporter shall keep Shipper informed regarding the progress of constructing the Project by providing Shipper with updates 120 and 60 days prior to the Anticipated Service Date for such Project. Updates will include Transporters then-estimate of the projected Service Commencement Date.
7. Shippers Obligations .
(a) Shipper shall execute and deliver the Credit Agreement in the form attached hereto as Exhibit 2 contemporaneously with the execution of this Precedent Agreement, and shall meet Transporters creditworthiness requirements as set forth in the Credit Agreement and on a continuous basis commencing on the effective date of the Credit Agreement and continuing through the term of the Service Agreement. If Shipper does not satisfy Transporters creditworthiness requirements by the effective date of the Credit Agreement or at any time thereafter through the term of the Service Agreement, Transporter may terminate this Precedent Agreement, the Service Agreement (if executed) and the Credit Agreement in accordance with Section 4(b).
(b) On the Service Commencement Date Transporter shall provide and Shipper shall if provided accept transportation service and for such service pay the charges set forth in Section 3, above.
(c) Shipper agrees to apply for, and will seek with commercially reasonable diligence to obtain, any regulatory authorizations it deems necessary for it to utilize the Project for the service described herein, including with respect to Shipper facilities upstream or downstream of the Project.
(d) Shipper will cooperate with Transporter to provide, on a timely basis, all information requested by Transporter that Transporter deems reasonably necessary for obtaining approvals to construct the Project, including but not limited to information required to prepare, file and prosecute Transporters application to FERC for the Project. By signing below, Shipper gives consent for filing any non-conforming Service Agreement with the Commission and agrees to support the Project before the Commission and not oppose, obstruct or otherwise interfere in any manner with the efforts of Transporter to obtain those permits, licenses, authorizations, rights-of-way, regulatory consents, environmental permits and land use or zoning permits specified in Sections 4(a)(ii) and (iii).
8. Termination .
Unless terminated sooner pursuant to the terms herein, this Precedent Agreement shall terminate upon the Service Commencement Date.
The Parties agree that if Transporter terminates this Precedent Agreement on the basis of Shippers default, breach, bankruptcy, insolvency, or any other failure to perform by Shipper, Shipper shall pay transporter an amount equal to Shippers pro rata share of expenses actually incurred for development of the completed Project. This payment shall constitute the sole and exclusive remedy for Transporter in the event of such termination.
9. Assignment . This Precedent Agreement may be assigned by either Party with the consent of the other Party, such consent not to be unreasonably conditioned, withheld, or delayed, to any entity, including an entity which may succeed such Party by purchase, merger, joint venture, or consolidation, and any such successor in interest shall have all of the rights and obligations of the assigning Party hereunder. Furthermore, either Party may, as security for its indebtedness, assign, mortgage or pledge any of its rights or obligations under this
Precedent Agreement to any other entity, and the other Party will execute any commercially reasonable consent agreement with such entity and provide such commercially reasonable certificates and other documents as the assigning Party may reasonably request in connection with any such assignment; provided, any such consent agreement shall not contain any provisions that are inconsistent with, or that would modify, the other Partys rights or obligations under this Precedent Agreement. Except as security in accordance with the preceding sentence, any purported assignment by Shipper of its rights and obligations hereunder shall be void ab initio without the prior written consent of Transporter, which consent will not be unreasonably withheld; provided, that any otherwise permitted assignee meets Transporters creditworthiness standards set forth in the Credit Agreement on Exhibit 2 by the Service Commencement Date.
10. Representations and Warranties . Each Party represents and warrants to each other as follows:
(a) Such Party is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is in good standing in each other jurisdiction where the failure to so qualify would have a material adverse effect upon the business or financial condition of such Party.
(b) The execution, delivery and performance of this Precedent Agreement by such Party does not and will not require the consent of any trustee or holder of any indebtedness, or be subject to or inconsistent with other obligations of such Party under any other agreement.
(c) This Precedent Agreement has been duly executed and delivered by such Party. This Precedent Agreement constitutes the legal, valid, binding and enforceable obligation of such Party, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws of general application relating to or affecting creditors rights generally and by general equitable principles.
(d) Except as specified herein, no governmental authorization, approval, order, license, permit, franchise or consent, and no registration, declaration or filing with any governmental authority is required on the part of such Party in connection with the execution and delivery of this Precedent Agreement.
11. Force Majeure .
(a) In the event that either Party is rendered unable wholly or in part by Force Majeure to carry out its obligations under this Precedent Agreement, other than the obligation to make payment of amounts accrued and due hereunder, the obligations of the Party so far as they are affected by such Force Majeure shall be suspended during the continuance of such inability to perform, provided that the affected Party gives proper notice, but for no period longer than the continuation of the inability to perform caused by such Force Majeure, and such cause shall be remedied, to the extent possible, with all reasonable dispatch. Proper notice shall be written notice delivered electronically or otherwise that describes the full particulars of the Force
Majeure event, delivered within sixty (60) calendar days of the date on which the affected Party became aware of such event. Neither Party shall be liable in damages to the other for any act, omission, or circumstance occasioned by or in consequence of Force Majeure, provided that the party claiming the existence of Force Majeure shall use all reasonable efforts to remedy any situation that may interfere with the performance of its obligations hereunder; provided the settlement of strikes or other labor disturbances shall be in a Partys sole discretion. In the event that the achievement of any milestone, the receipt of any approval or right, or the performance of any other obligation hereunder is delayed due to an event of Force Majeure, any applicable deadline, including but not limited to the deadlines set forth in Sections 5(c) and 6(a), shall be extended day for day for each day that the event of Force Majeure is continuing.
(b) The term Force Majeure shall include any act, event or circumstance, or any combination thereof, that is beyond the reasonable control of the party whose performance is affected and which event or circumstance, or any combination thereof, has not been caused by or contributed to by the acts or omissions of the Party whose performance is affected. The term Force Majeure shall include, but shall not be limited to, the following (provided that the act, event or circumstance described is beyond the reasonable control of the affected Party and has not been caused by or contributed to by the acts or omissions of the Party whose performance is affected): acts of God, the public enemy, fire, freezes, floods, storms, accidents, breakdowns of pipeline or equipment, unplanned facility repairs, changes in operational parameters or operational difficulties experienced by any Third Party pipeline transporter to transport Gas, including without limitation any increase or decrease in an interconnected downstream pipelines maximum allowable operating pressure, failures or freezing of wells, strikes, and any other industrial, civil, or public disturbance, the inability to obtain materials, supplies, permits or labor, and any laws, orders, rules, regulations, acts or restraints of any government or governmental body or authority, failure or delay by any governmental body or authority to timely provide requested certificates, permits or approval necessary for completion of projects, refusal of landowners to co-operate in the provision of ROWs necessary for completion of projects, weather related disruptions and delays of the necessary activities for completion of projects, civil or military, and any other cause, whether of the kind herein enumerated or otherwise, that is beyond the reasonable control of the Party whose performance is affected.
12. Modifications or Waivers . No modification or waiver of the terms and provisions of this Precedent Agreement shall be or become effective except by the execution by both Parties of a written amendment.
13. Notices . Notices under this Precedent Agreement shall be sent to:
Transporter :
Equitrans, L.P. Attention: Legal Department 625 Liberty Avenue Pittsburgh, PA 15222 |
Shipper : |
Any notice, request, instruction, correspondence or other document to be given hereunder by either Party shall be in writing and delivered personally or mailed by certified mail, postage prepaid and return receipt requested, by express courier, or by facsimile. Notice given by personal delivery, certified mail, or express courier shall be effective upon actual receipt. In the absence of proof of the actual receipt date, notice by personal delivery or overnight courier shall be deemed to have been received on the next business day after it was sent or such earlier time as is confirmed by the receiving Party, and notice given by certified mail shall be deemed to have been received five (5) business days after it was sent or such earlier time as is confirmed by the receiving Party. Notice given by facsimile shall be effective upon actual receipt if received during the recipients normal business hours or at the beginning of recipients next business day if received after recipients normal business hours. All notices by facsimile shall promptly be confirmed in writing by certified mail or express courier. Any Party may change any address to which notice is to be given to it by providing written notice as provided above of such change in address.
14. Confidentiality . The Parties and their respective agents, employees, affiliates, officers, directors, attorneys, auditors and other representatives shall keep and maintain this Precedent Agreement and the independent provisions hereof in strict confidence, and shall not transmit, reveal, disclose or otherwise communicate any of the provisions of this Precedent Agreement to any person without first obtaining the express written consent of the other Party, which consent shall not be unreasonably withheld; provided, however, that such consent shall not be required to the extent that either Party determines in its reasonable judgment that any such disclosure is required by law, regulation, or order of any governmental authority of competent jurisdiction, including but not limited to the FERC, or that disclosure is necessary to enforce the Partys rights hereunder or to defend itself with respect to litigation.
15. Survival . The Credit Agreement will be incorporated into the Service Agreement to be executed pursuant to this Precedent Agreement and will survive the termination of this Precedent Agreement, and will remain in effect during the term of the Service Agreement.
16. Miscellaneous .
(a) THE PARTIES HERETO AGREE THAT NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY PUNITIVE, SPECIAL, EXEMPLARY, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, LOSS OF PROFITS OR BUSINESS INTERRUPTIONS) ARISING OUT OF OR IN ANY MANNER RELATED TO THIS PRECEDENT AGREEMENT, AND WITHOUT REGARD TO THE CAUSE OR CAUSES THEREOF OR THE SOLE, CONCURRENT OR CONTRIBUTORY NEGLIGENCE, STRICT LIABILITY OR OTHER FAULT OF EITHER PARTY.
(b) All recitals and exhibits attached hereto are incorporated into this Precedent Agreement by reference and shall be deemed part of this Precedent Agreement as though they were in the main body of this Precedent Agreement.
(c) This Precedent Agreement shall not create any rights in third parties, and no provision of this Precedent Agreement shall be construed as creating any obligations for the benefit of, or rights in favor, any person or entity other than Transporter or Shipper, or their successors or permitted assignees.
(d) No waiver of either Party of any default by the other Party in the performance of any provision, condition or requirement herein shall be deemed a waiver of, or in any manner release the other Party from, future performance of any other provision, condition or requirement herein, or shall such waiver be deemed to be a waiver of, or in any manner release the other Party from, future performance of the same provision, condition or requirement. Any delay or omission of either Party to exercise any right hereunder shall not impair the exercise of any such right, or any like right, accruing to it thereafter.
(e) This Precedent Agreement must be executed and delivered by both Parties to create a binding contractual commitment.
(f) This Precedent Agreement, and all of the terms and provisions contained herein, and the respective obligations of the Parties hereunder, are subject to all valid laws, orders, rules and regulations of duly constituted governmental authorities having jurisdiction.
(g) The construction, interpretation, and enforcement of this Precedent Agreement shall be governed by the laws of the Commonwealth of Pennsylvania, excluding any conflict of law rules, which would refer any matter to the laws of a jurisdiction other than the Commonwealth of Pennsylvania.
[Signature page follows]
IN WITNESS WHEREOF , the Parties hereto have caused this Precedent Agreement to be duly executed in several counterparts by their proper officers as of the date indicated in the signature block.
Equitrans, L.P. Signature: |
EQT Energy, LLC Signature: |
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/s/ Randall Crawford |
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s/ Paul Kress |
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Name: Randall Crawford |
Name: Paul Kress |
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Title: President |
Title: Vice President |
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Date: July 23, 2014 |
Date: July 23, 2014 |
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[Signature Page to Precedent Agreement]
EXHIBIT 1
RECEIPT AND DELIVERY POINTS
RATE SCHEDULE FTS ANTICIPATED SERVICE DATE JUNE 1, 2016*
Receipt Point |
MDQ (Dth/Day)** |
Delivery Point |
MDQ (Dth/Day) |
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* The Anticipated Service Date for the Project is June 1, 2016. The Service Commencement Date for the Project shall be the later of (i) June 1, 2016 or (ii) the first day of the month immediately following the date on which Transporter is authorized by FERC to commence service on the Project facilities and Transporter is first able, in its reasonable judgment, to render service to Shipper utilizing the Project Capacity. Transporter agrees to use commercially reasonable efforts to construct the Project facilities and to make the facilities available for service by June 1, 2016.
** Receipt point MDQs do not include quantities required for retainage.
In accordance with Transporters Tariff, Shipper can request to change the Receipt Point Maximum Daily Quantities between the points listed above or to add new Receipt Points to the Service Agreement. In no event shall the combination of Receipt Point Maximum Daily Quantities exceed the Contract Maximum Daily Quantity.
Shipper will elect the level of Delivery Point Maximum Daily Quantities in the Service Agreement. In accordance with Transporters Tariff, Shipper can request to change the Delivery Point Maximum Daily Quantities between the points listed above or to add new Delivery Points to the Service Agreement. In no event will the combination of Delivery Point Maximum Daily Quantities exceed the Contract Maximum Daily Quantity.
Shipper acknowledges that Transporter has the right to reject Shippers request to reallocate between existing Receipt Points or Delivery Points or to add new Receipt Point(s) or Delivery Point(s) if Shippers Negotiated Rate is less than the Tariff rate for the resulting transportation path(s).
EXHIBIT 2
CREDIT AGREEMENT
This Credit Agreement (Agreement) is made and entered into effective this 23rd day of July 2014, by and between EQUITRANS, L.P. (Transporter) and EQT Energy, LLC (Shipper). Each of Transporter and Shipper are sometimes referred to herein individually as Party or collectively as Parties.
WHEREAS , Transporter owns and operates an interstate natural gas transmission and storage pipeline system in West Virginia and Pennsylvania (Transporters System); and
WHEREAS , Transporter proposes to modify, expand and extend certain of its transmission facilities comprising the System in order to provide additional firm transmission service of up to approximately 1,200,000 dekatherms (Dth) per day to Clarington, Ohio (hereinafter referred to as Project); and
WHEREAS , Transporter and Shipper entered into a Precedent Agreement, dated on or about even date herewith, for an aggregate capacity of 650,000 Dth/day of firm transportation capacity on the Project (Precedent Agreement);
WHEREAS , Transporter and Shipper have or will execute a Service Agreement as contemplated by and in accordance with the Precedent Agreement (Service Agreement);
WHEREAS , Transporter will make significant capital expenditures to develop and construct the Project; and
WHEREAS , Transporter desires for Shipper to commit to provide Transporter with assurance of Shippers performance of its financial obligations relating to or arising under the Service Agreement in consideration of Transporters willingness to pursue the Project in accordance with the terms of the Precedent Agreement.
NOW, THEREFORE , in consideration of the premises and mutual covenants and agreements contained herein, Transporter and Shipper hereby agree as follows:
1. Shipper has furnished financial information requested by Transporter in accordance with Section 6.3 of the General Terms and Conditions of Transporters FERC Gas Tariff (the Tariff) and Transporter has conducted a credit evaluation of Shippers current creditworthiness in accordance with Transporters Tariff. Furthermore, for the duration of this Agreement, the Precedent Agreement and any Service Agreement entered pursuant to the Precedent Agreement, Shipper shall deliver to Transporter within 120 days after the close of each fiscal year Shippers financial statements that reflect the operations of Shipper for the most recent fiscal year, including, without limitation, a balance sheet, income statement, and statement of cash flows, with supporting schedules; all on a consolidated and consolidating basis and in reasonable detail; provided, if such financial statements are posted on the website of Shipper or Shippers parent company or are otherwise publicly available on the website of the Securities Exchange Commission or a successor agency, then Shipper shall have no obligation to deliver such financial statements to Transporter.
2. Shipper shall be deemed creditworthy if Shipper (1) has a Credit Rating (as defined below) of BBB- or better from Standard & Poors Rating Group (S&P) or its successor, and Baa3 or better from Moodys Investor Services, Inc. (Moodys) and (2) is not under review by either S&P or Moodys for possible downgrade below the levels of BBB-and Baa3, respectively. If Shipper is rated by more than one rating agency and the existing Credit Ratings are split, then the lowest Credit Rating from the rating agencies mentioned above shall be utilized. Alternatively, Shipper shall be deemed creditworthy if Shipper has a Guarantor (hereinafter referred to as the (Guarantor)) of Shippers obligations under the Precedent Agreement and the Service Agreements that has (1) provided an irrevocable, unconditional guaranty in a dollar amount not to exceed a maximum of twelve (12) months of reservation charges under the Service Agreement and in form and substance reasonably acceptable to Transporter issued by an entity which has a Credit Rating (as defined below) of BBB- or better from S&P and Baa3 or better from Moodys and (2) is not under review by either S&P, or Moodys for possible downgrade below the level of BBB- and Baa3.
3. Notwithstanding the financial information reporting requirements outlined in Section 1, the Parties acknowledge that Shippers and Guarantors credit quality, as applicable, may change over time, and Transporter shall have the right to obtain updated or additional financial information from Shipper and Guarantor, as applicable, at any time to assess its current creditworthiness. If at any time during the period extending from the Effective Date of the Precedent Agreement through the end of the primary term of the Service Agreement, Shipper or Guarantor, as applicable, fail to demonstrate its creditworthiness to Transporter in accordance with Section 2 of this Credit Agreement or Transporters Tariff or if Shipper or Guarantor loses its creditworthy status, then Transporter may require Shipper and Guarantor to provide and maintain credit assurance, in form and substance reasonably acceptable to Transporter in accordance with this Credit Agreement and Transporters Tariff, and, in a dollar amount up to twelve (12) months of reservation charges under the Service Agreement. Transporter agrees any of the following may be proposed by Shipper or Guarantor as an alternate form of credit assurance in an amount at least equal to the Amount of Credit Assurance set forth in the table set forth below in this Section 3, subject to such alternative being reasonably acceptable to Transporter as no less a credit assurance than previously provided and fully satisfactory in form and substance:
(i) an irrevocable letter of credit to Transporter, satisfactory to Transporter, in its reasonable discretion, verifying the Shippers creditworthiness, in a dollar amount not to exceed a maximum of twelve (12) months of reservation charges under the Service Agreement;
(ii) a prepayment, in an amount not to exceed a maximum of twelve (12) months of reservation charges under the Service Agreement, in advance for this service on Transporters System;
(iii) a grant to Transporter of a security interest in collateral, the value of which is mutually agreed upon by Transporter and Shipper, to secure a dollar amount not to exceed a maximum of twelve (12) months of reservation charges under the Service Agreement;
(iv) a guarantee by another person or entity which satisfies Transporters credit appraisal for an amount not to exceed a maximum of twelve (12) months of reservation charges under the Service Agreement; or
(v) other mutually agreeable forms and value of credit assurances to secure payment for an amount not to exceed a maximum of twelve (12) months of reservation charges under the Service Agreement.
Credit Rating is defined to be a partys senior unsecured debt rating as assigned by S&P, and Moodys. In the event, either S&P, or Moodys discontinues its rating services, such that only one of the aforementioned rating agencies exist, Transporter and Shipper agree to discuss possible alternative agencies that rate senior unsecured debt.
If Shippers or Guarantors Credit Rating is rated by S&P, or Moodys, then the amount of credit assurance shall be determined from the following table.
Shippers or Guarantors S&P Credit Rating* |
Shippers or Guarantors Moodys Credit Rating* |
Amount of Credit Assurance |
BBB- or better |
Baa3 or better |
None |
BB+ |
Bal |
Up to 6 months of reservation Charges under the Service Agreement |
BB or below |
Ba2 or below |
Up to 12 months of reservation Charges under the Service Agreement |
* In the event Shipper or Guarantors Credit Rating from S&P, and Moodys is not equivalent, on a relative scale, then the lower Credit Rating shall apply.
Shipper shall provide and maintain such required credit assurance to Transporter, in the amount specified in the table above, for the duration of any Service Agreement entered pursuant to the Precedent Agreement, or until such earlier time when Shippers Credit Rating is equal to a BBB- or better with a stable or positive outlook by S&P and Baa3 or better with a stable or positive outlook by Moodys.
4. If neither S&P, nor Moodys rates Shipper, then the amount of credit assurance required from Shipper shall be no more than twelve (12) months of reservation charges under the Service Agreement.
5. To the extent not inconsistent with any other provision herein, each Party reserves all of its rights pursuant to Transporters Tariff, pursuant to all valid laws, orders, rules and regulations of duly constituted authorities having jurisdiction (including the Federal Energy Regulatory Commission), and pursuant to other contractual arrangements with the other, and pursuant to any other applicable legal or equitable rights. In the event of a conflict or ambiguity as between this Credit Agreement and the creditworthiness provisions of Transporters Tariff, the provisions of this Credit Agreement shall prevail unless such provisions are in conflict with then governing FERC regulations or policies.
6. This Agreement does not, and is not intended to, create a third party beneficiary relationship between or among Transporter, Shipper, and any third party.
7. THE INTERPRETATION AND PERFORMANCE OF THIS AGREEMENT SHALL BE IN ACCORDANCE WITH AND CONTROLLED BY THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, EXCEPT THAT ANY CONFLICT OF LAWS RULE OF THE COMMONWEALTH OF PENNSYLVANIA THAT WOULD REQUIRE REFERENCE TO THE LAWS OF SOME OTHER STATE OR JURISDICTION SHALL BE DISREGARDED. EACH PARTY AGREES TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF AND VENUE IN ANY FEDERAL OR STATE COURT OF COMPETENT JURISDICTION LOCATED IN ALLEGHENY COUNTY, PENNSYLVANIA, FOR ANY ACTION ARISING HEREUNDER.
8. This Agreement shall become effective as of the date first set forth above; provided, notwithstanding any other provision of this Agreement, the credit support requirements set forth in Sections 2, 3 and 4 of this Agreement must be received by Transporter prior to the Service Commencement Date, as such date is defined in the Precedent Agreement. This Agreement may be terminated by either Party upon the later of (1) the date the Precedent Agreement is lawfully terminated and full payment of all outstanding balances and charges has been made by Shipper, (2) the latest date on which any Service Agreement entered pursuant to the Precedent Agreement is lawfully terminated and full payment of all outstanding balances and charges has been made by Shipper, or (3) in the event that the Service Agreement is permanently assigned to a third party, the date that any and all such permanently assigned firm transportation agreement(s) are lawfully terminated and full payment of all outstanding balances and charges for transportation service rendered prior to the effective date of such assignment has been made by any party.
9. Any entity, including any entity that shall succeed by purchase, merger, consolidation, or other transfer to the properties of either Transporter or Shipper, substantially or in entirety, shall be entitled to the rights and shall be subject to the obligations of its predecessor in interest under this Agreement. Other than as set forth in the preceding sentence, no assignment of this Agreement or of any of the rights or obligations hereunder shall be made, unless there first shall have been obtained the written consent thereto of the other Party to this Agreement, which consent shall not be unreasonably withheld. It is agreed, however, that the restrictions on assignment contained in this section shall not in any way prevent either Party to this Agreement from pledging or mortgaging its rights hereunder as security for its indebtedness.
10. This Agreement sets forth all understandings and agreements between the Parties respecting the subject matter hereof, and all prior agreements, understandings, and representations, whether written or oral, respecting the subject matter hereof are merged into and superseded by this Agreement.
11. No presumption shall operate in favor of or against any Party as a result of any responsibility or role that any Party may have had in the drafting of this Agreement.
[Signature Page Follows]
IN WITNESS WHEREOF , the Parties have caused this Agreement to be executed by their duly authorized representatives as of the date first hereinabove written.
EQUITRANS, L.P. |
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By: |
/s/ Randall Crawford |
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Name: |
Randall Crawford |
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Title: |
President |
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EQT Energy, LLC |
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By: |
/s/ Paul Kress |
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Name: |
Paul Kress |
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Title: |
Vice President |
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EXHIBIT 3
NEGOTIATED RATE ADJUSTMENT
Project Cost Adjustment
Shippers base negotiated rate, as set forth in Section 3(e) of the Precedent Agreement, shall be adjusted for any cost overruns as follows:
To the extent Actual Project Costs, as defined below, deviate (upwards or downwards) from the Estimated Project Costs, as defined below, Shippers base negotiated rate shall be multiplied by the Capital Cost Adjustment Factor (CCA Factor). The CCA Factor shall be equal to 1 +/- ((CCA/EPC) x 50%), provided that the CCA Factor shall not exceed 1.15 upwards or downward.
Any such adjustment shall be effective as of the Service Commencement Date and shall be made as soon as practicable, but no later than thirty (30) days after the first anniversary of the Service Commencement Date.
In addition, the base negotiated rate as calculated above will be subject to an annual adjustment (upwards or downwards), to take effect on each anniversary of the Operational Start Date for the initial Contract MDQ, calculated as follows:
OMSGA x (1+D) = ARR, where
OMSGA = The current portion of the Monthly Reservation Rate that accounts for O&M and SG&A
D = the percentage change in the Producer Price Index Support activities for Oil and Gas Operations(PPI-Oil and Gas), as published by the US Department of Labor Bureau of Labor Statistics (BLS), from June 1 of the year that is two (2) years immediately prior to the year for which the adjustment is to be effective (the Adjustment Year) to June 1 of the year immediately preceding the Adjustment Year, based upon the most recent publication of the PPI-Oil and Gas prior to the end of the year immediately preceding the Adjustment Year for each such date. Any such adjustment (upward or downward) shall be capped at two percent (2%).
ARR = the updated OMSGA to be used in annual adjustments.
Definitions
Actual Project Costs shall be an amount in U.S. dollars equal to the sum of all costs actually incurred to complete the Project and to achieve the Service Commencement Date in the manner contemplated by the Precedent Agreement, including but not limited to (a) all costs and expenses actually incurred for the engineering, design, permitting, construction, pipeline and equipment procurement, installation and start-up of the Project Facilities, (b) all costs and expenses actually incurred for environmental, right-of-way, legal, and regulatory activities, (c) all direct and
allocated internal overhead and administrative costs (subject to a cap equal to ten percent of estimated costs excluding AFUDC), and (d) an allowance for funds used during construction (AFUDC) computed in accordance with the regulations of the FERC.
Capital Cost Adjustment or CCA shall be an amount in U.S. dollars equal to the difference (if any) between Actual Project Costs and Estimated Project Costs.
Estimated Project Costs or EPC shall mean all costs and expenses that are projected to be incurred by Transporter to complete the Project and to achieve the Service Commencement Date in the manner contemplated by the Precedent Agreement, including but not limited to (a) all costs and expenses projected to be incurred for the engineering, design, permitting, construction, pipeline and equipment procurement, installation and start-up of the Project Facilities, (b) all costs and expenses projected to be incurred for environmental, right-of-way, legal, and regulatory activities, (c) all direct and allocated internal overhead and administrative costs (subject to a cap equal to ten percent of estimated costs excluding AFUDC), and (d) an allowance for funds used during construction (AFUDC) computed in accordance with the regulations of the FERC. For purposes of determining the adjustment to Shippers base negotiated rate pursuant to this Exhibit 3, the Parties agree that the Estimated Projects Costs shall be equal to three hundered and thirty three million dollars ($333,000,000).
EXHIBIT 4
METHODOLOGY FOR DETERMINING FUEL LOST AND UNACCOUNTED FOR GAS
Transporter will retain 2.0% of Shippers nominated receipts volumes to recover fuel, lost and unaccounted for gas (Estimated Retainage Rate).
Within 60 days after the end of each calendar quarter, Transporter will calculate for each month of the quarter actual fuel and lost and unaccounted for gas rate for Transporters System (Actual Fuel and LUF Rate) by taking the difference between monthly actual measured dekatherms received and monthly actual measured dekatherms delivered (excluding gas used for company use and compressor fuel) and dividing the difference by monthly actual measured dekatherms received. The Estimated Retainage Rate less Actual Fuel and LUF Rate will be multiplied by Shippers monthly nominated volumes during the preceding calendar quarter to determine the monthly volumes owed to either Transporter or Shipper (True-up Volumes). If the True-up Volumes are negative, gas is due to Transporter and if the True-up Volumes are positive, gas is due to Shipper.
Shipper and Transporter agree that payback of the True-up Volumes will take place over the 60 day period following notice by Transporter to Shipper of the True-up Volumes as calculated by the above methodology.
Transporter and Shipper agree that the Estimated Retainage Rate can be adjusted 60 days after the end of the calendar year to reflect actual fuel lost and unaccounted for gas for the most recent annual period.
Exhibit 31.1
CERTIFICATION
I, David L. Porges, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of EQT Midstream Partners, LP;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: July 24, 2014
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EQT Midstream Partners, LP |
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/s/ David L. Porges |
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David L. Porges |
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Chairman, President and Chief Executive Officer, EQT Midstream Services, LLC, the registrants General Partner |
Exhibit 31.2
CERTIFICATION
I, Philip P. Conti, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of EQT Midstream Partners, LP;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: July 24, 2014
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EQT Midstream Partners, LP |
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/s/ Philip P. Conti |
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Philip P. Conti |
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Senior Vice President and Chief Financial Officer, EQT Midstream Services, LLC, the registrants General Partner |
Exhibit 32
CERTIFICATION
In connection with the Quarterly Report of EQT Midstream Partners, LP (the Partnership) on Form 10-Q for the period ended June 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the Report), the undersigned certify pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.
/s/ David L. Porges |
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July 24, 2014 |
David L. Porges
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/s/ Philip P. Conti |
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July 24, 2014 |
Philip P. Conti
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