Equitrans Midstream Corp  (NYSE: ETRN) Q1 2020 Earnings Call Transcript

Equitrans Midstream Corp  (ETRN) Q1 2020 earnings call dated May 14, 2020

Corporate Participants:

Nate Tetlow — Vice President, Corporate Development and Investor Relations

Thomas F. Karam — Chairman of the Board and Chief Executive Officer

Diana Charletta — President and Chief Operating Officer

Kirk Oliver — Senior Vice President and Chief Financial Officer

Analysts:

Jeremy Tonet — JPMorgan — Analyst

Shneur Gershuni — UBS — Analyst

Spiro Dounis — Credit Suisse — Analyst

Justin Macken — Senior Vice President – Gas Systems Planning and Engineering,

Chris Tillett — Equity Research — Analyst

Derek Walker — BofA Securities — Analyst

Vikram Bagri — Jefferies — Analyst

Michael Blum — Wells Fargo — Analyst

Becca Followill — U.S. Capital Advisors — Analyst

T.J. Schultz — RBC Capital Markets — Analyst

Presentation:

Operator

Good morning, everyone, and welcome to the Equitrans Midstream Corporation and EQM Midstream Partners First Quarter 2020 Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions].

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

Nate Tetlow — Vice President, Corporate Development and Investor Relations

Thank you. Good morning and welcome to the first quarter 2020 earnings call for Equitrans Midstream and EQM Midstream Partners. A replay of this call will be available for 14 days beginning this evening. The phone number for the replay is 800-585-8367 or 416-621-4642. The conference ID is 5710108.

Today’s call may contain forward-looking statements related to future events and expectations. Factors that could cause the actual results to differ materially from these forward-looking statements are listed in today’s news release and under risk factors in both ETRNs and EQMs Form 10-Ks for the year-ended December 31, 2019, both of which are filed with the SEC and as updated by any subsequent Form 10-Qs.

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

On the call today are Tom Karam, Chairman and CEO; Diana Charletta, President and Chief Operating Officer; Kirk Oliver, Senior Vice President and Chief Financial Officer; Justin Macken, Senior Vice President, Gas Systems Planning and Engineering; and Brian Pietrandrea, Vice President and Chief Accounting Officer. After the prepared remarks we will open the call to questions.

With that, I’ll turn it over to Tom.

Thomas F. Karam — Chairman of the Board and Chief Executive Officer

Thanks, Nate. Good morning, everyone. First, let me take a moment to acknowledge the dedication and professionalism of our workforce. Since the onset of COVID-19, our field teams have never missed a beat in continuing to safely operate and maintain our assets. And we continue to move over 8 Bcf per day of indispensable natural gas to the nation.

Our management team and functional departments transitioned to remote work in early March. Since that time, the team’s productivity and connectivity have remained high and our new technology platforms have been able to scale up with only a few minor temporary hiccups. We were fortunate to have implemented a telecommuting policy last year, which gave us a head start to transition to remote working conditions.

While, we were among the first to go remote, we will be very thoughtful about how and when to change this policy. The silver lining in all of this is what we’re learning about how we can evolve our work environment and still be productive and remain connected. That information will inform us as we plan for the future.

Beyond our own workforce, as members of the community, we are forever grateful to the frontline healthcare and essential workers for the great service they are doing for our country, risking their own health to keep us healthy. All of us, our companies, neighbors, friends and members of the communities have an obligation to support those who are suffering as a result of this pandemic, and to alleviate the stress and anxiety that surrounds us as much as possible.

Donations from our E-Train foundation, as well as directly from our corporate local giving programs, we have acted and will continue to act in support of many of these efforts to help. We encourage all of our employees and all of you listening to do all you can to help as well.

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

In late February, we announced four transformational actions which allow E-train to be a strong C-Corp, able to thrive in this or any environment.

First, we executed a 15-year “blend, broaden and extend” agreement with EQT, strengthening both companies and allowing for the most capital-efficient development plans. The new agreement enhances our stable cash flow profile as over 70% of our revenue will be generated from take-or-pay contracts, once MVP is placed in service. And the new agreement provides us with long-term meaningful capital efficiencies. Diana will discuss this in more detail in a few minutes.

Second, E-Train purchased 25.3 million of its shares from EQT in exchange for future rate relief. These shares were retired in early March.

Third, we established an industrial style dividend and capital allocation policy, focused on achieving positive retained free cash flow, quickly delevering and shoring up our liquidity.

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

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

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

Diana Charletta — President and Chief Operating Officer

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

I’ll begin by briefly emphasizing the significant future capital savings from our new gathering agreement with EQT. By creating a comprehensive gathering agreement with single MVC, EQT can execute its condo development drilling strategy without contractual constraints. This creates two significant benefits for us.

First, we can reduce the amount of required gathering pipeline as a result of the compact geographic development approach. We estimate that this saves us approximately $250 million over the next few years.

And second, EQT’s return to pad drilling plan will result in substantial future capital avoidance. When EQT returns to the pad, which we estimate will start in about four years, the existing midstream infrastructure installed for Phase I development will be utilized again for Phase II development. This means that our future gathering capital will be greatly reduced, enhancing E-Train’s ability to generate meaningful and sustainable free cash flow.

Now, moving on to MVP. On the Appalachian Trail crossing, we were encouraged by the tone of oral arguments at the Supreme Court on the Atlantic Coast pipelines case and remain hopeful that the Fourth Circuit Court’s original decision will be overturned.

Regarding MVP’s biological opinion, the U.S. Fish and Wildlife recently requested an extension to continue its review of MVP’s information. We respect and endorse this extension as it is far more important that the agency is focused on an accurate, thorough and comprehensive biological opinion, which MVP expects to receive in early July.

Finally, with regard to the recent Montana federal court decision impacting the Nationwide 12 program, we were perplexed by the judge’s decision this week to narrow the ruling to apply only to oil and gas pipeline projects. We will continue to monitor this case, including any appeal to the Ninth Circuit.

Provided we receive the biological opinion in July and FERC lists the stop work order, our construction plan incorporates sufficient high-end work connectivity to get us into the fall without the Nationwide 12. This keeps us on-track with the existing schedule and budget. Putting all that together, means we still have a narrow path to achieve the targeted full in-service date of late 2020 and an overall project cost of approximately $5.4 billion.

Lastly, we completed a review of our capital requirements for 2020 and were able to reduce estimated capital expenditures and capital contributions by approximately $150 million. The reduction is driven by $75 million of capital pushed into 2021, largely related to Southgate capital and MVP reclamation capital and $75 million in reductions, based on development scope changes and efficiency gains related to the new EQT gathering agreement.

We continue to be actively engaged with our customers and remain focused on deploying capital efficiently.

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

Kirk Oliver — Senior Vice President and Chief Financial Officer

Thanks, Diana. This morning we reported net income attributable to E-Train of approximately $70 million and earnings per diluted share of $0.28 for the first quarter. After adjusting for certain non-recurring items and a gain on derivative, we reported adjusted net income attributable to E-train of approximately $118 million and adjusted earnings per diluted share of $0.46.

E-Train also reported net cash from operating activities of $249 million, free cash flow of $31 million. We reported net income attributable to EQM of $252 million. EQM adjusted EBITDA was $381 million, net cash provided by operating activities was $285 million and distributable cash flow was $283 million.

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

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

EQM operating expense increased by $80 million compared to the first quarter of 2019. $56 million was related to the impairment charges and the remainder was primarily from the addition of Eureka and Hornet assets. Today, we also announced an increase in our full year earnings and cash flow guidance for E-Train, primarily based on the strong first quarter results.

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

In terms of the water business, our first quarter water EBITDA of $25 million was driven by our customers completion schedules. For the year 2020 we are forecasting water EBITDA of $60 million to $65 million.

I will also note that we intended to discontinue reporting DCF and ongoing maintenance capex, following the close of the EQM acquisition. These measures are common in the MLP space, but we believe free cash flow and retained free cash flow will provide C-Corp investors with more useful information.

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

As a reminder, the actions we announced in February creates some accounting items important to our financial reporting. First, the gas gathering agreement with EQT has a gathering rate profile that gradually reduces over time before plateauing for the remaining term.

Under GAAP, we will recognize revenue using an average gathering rate for the MVCs over the 15-year contract. This creates deferred revenue over the next several years as the cash received will be higher than the revenue recognized. This dynamic did not impact first quarter results as the contract rate structure commenced on April 1. So, you’ll start to see the deferred revenue impacts in the second quarter.

For the second quarter we estimate deferred revenue of approximately $75 million. Second, the agreement with EQT includes a provision, entitling E-Train to receive cash payments from EQT. This is conditioned on specific NYMEX Henry Hub index prices exceeding certain thresholds. This provision applies during the three years following MVP’s and service date, but does not extend beyond December 2024.

The agreement is accounted for as a derivative at fair value and mark-to-market at each quarter-end. Subsequent changes in the mark-to-market value will be recognized through the income statement.

At quarter end, the derivative fair value of the asset was $56 million. In terms of liquidity, we had about $1.3 billion available on our $3 billion EQM revolver at quarter end. While we have ample liquidity on the revolver, we will continue to monitor the debt capital markets.

We’re also planning to secure MVP JV level debt financing when the project is in service. We are committed to the delevering plan and continue to target a sub 4.0 times leverage ratio.

I’ll now turn the call back to Tom.

Thomas F. Karam — Chairman of the Board and Chief Executive Officer

Thanks, Kirk. Despite this truly challenging time, these E’s appear to have stabilized in the natural gas space and specifically for those operating in A-Basin. We are increasingly bullish about natural gas forward prices as we see the oil and gas rig count dropping each week. And we also see the relative resilience of natural gas demand. There is not much doubt that the supply and demand dynamics are good for gas near term. The real questions are how good and for how long?

E-Train has great assets, long-term contracts, very limited exposure to NGLs and customers that are positioned to take advantage of the improvement in the Northeast gas environment. We’ve not seen any material pull back in producer activity around our assets and expect that the improving natural gas strip will allow our customers to maintain and eventually increase activity.

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

Stay safe, wash your hands. Please continue supporting our healthcare workers and our other first responders, and we’re happy to take your questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from Jeremy Tonet from JPMorgan. Your line is open.

Jeremy Tonet — JPMorgan — Analyst

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

Thomas F. Karam — Chairman of the Board and Chief Executive Officer

Thank you, Jeremy. This is Tom. I can give you a high level and then maybe Kirk can fill in some of the details for you. I mean clearly, we have more confidence given that we printed the first quarter and it was pretty strong and volumes are as we had anticipated.

The water revenue was frontloaded a little bit in our yearly guidance, but still puts us ahead of plan a little bit. So, I think that the movement we’ve made in our guidance, this reflects the fact that we have one quarter behind us and we have more certainty about the trajectory of our business.

Kirk, you want to add anything to that?

Kirk Oliver — Senior Vice President and Chief Financial Officer

I think that pretty much captures it Tom.

Jeremy Tonet — JPMorgan — Analyst

Okay, thanks for that. And then I guess just on the MVP side, just want to clarify a little bit more I guess. With Nationwide 12 permit kind of being uncertain at this point, can you just walk us through I guess how you’re able to kind of complete construction here with the pipe move forward even with that — even if NWP 12 is kind of delayed here?

Thomas F. Karam — Chairman of the Board and Chief Executive Officer

Yes, Jeremy. So, that’s a good question. And again, I’ll speak to the high level and then maybe Diana can fill in any gaps to what I say here. But the Nationwide 12 permit specifically speaks to bodies of water and stream crossings.

The vast majority of the remaining work we have on the project is upland work. So, if we receive the biological opinion in July, as we expect, and FERC releases or lifts the stop-work order, we will be able to modify our work streams and have sufficient work to complete substantially all of the upland work to take us right through fall. And that’s why we still believe that while we describe it as a narrow path, we’re still on that path to complete by the end of the year at $5.4 billion and that’s why we still have confidence in that.

Diana, did I miss anything?

Diana Charletta — President and Chief Operating Officer

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

Jeremy Tonet — JPMorgan — Analyst

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

Thomas F. Karam — Chairman of the Board and Chief Executive Officer

Yes. So, that’s a great question. I think that goes back to what I said in the script as to, we know that the macro environment is getting better. We don’t know how good or for how long. I think most of our customers have 2020 pretty well hedged and have — I don’t want to say they’re are on a glide path, but they’re certainly on a path where those volumes are more visible to us.

I think it might be later in the year before we start to see movement on the forward strip. Certainly, the closer you get to $3 and that strip, I think the more confidence producers may have in modifying their plans and still be able to drill and generate free cash flow. But to be any more specific in that, Jeremy, I think I’d be getting too far out over my skis. So, I’ll leave with that the closer you get to the $3 bucks, the better the environment is.

Jeremy Tonet — JPMorgan — Analyst

Got it. I’ll stop there. Thanks for taking my questions.

Thomas F. Karam — Chairman of the Board and Chief Executive Officer

Thanks, Jeremy.

Operator

Your next question comes from Shneur Gershuni from UBS. Your line is open.

Shneur Gershuni — UBS — Analyst

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

Diana Charletta — President and Chief Operating Officer

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

Shneur Gershuni — UBS — Analyst

Got it, okay. And then kind of two questions here; one, to expand on the — your views on how the higher natural gas environment that we have today sort of impacts everything. I’m kind of wondering if it’s not one dimensional or two-dimensional answer of, I think it’s $3 and so forth. But I’m kind of wondering is, when I sort of think about the balance sheets of the Northeast producers, is it really about a certain price level or does a certain amount of time have to occur? Is it more of a quantum look at how everything is because you have to repair the balance sheets of the Northeast before they can actually get capital to drill and where do — where does the decline rates become a risk against that if they just sort of sit back, collect cash, repair their balance sheets and decide not to increase drilling activity for let’s say 18 months, where does that impact new versus how that all ties together? I’m kind of wondering if we can sort of have that discussion in a more multi-dimensional level than just specifically on price?

Thomas F. Karam — Chairman of the Board and Chief Executive Officer

Good morning, Shneur. That’s a pretty full slate of questions. I think you do have a point that there is a requirement that each of our producers and quite frankly, every producer that’s operating in shale be very sensitive to their balance sheet. When you talk about improving natural gas prices, clearly, you’re able to drill more and generate more free cash flow at a certain inflection point of price.

So, it’s more than two dimensional. It’s probably three dimensional because the current prices is the weakest that we see over the next couple of years. And if they can generate sufficient free cash flow now moving into an improving price environment, I think that activity will firm up, and the decline rate issue that you raise, we don’t see that as being impacting our business at all because we see everybody drilling at least at maintenance levels or slightly above.

But you’re right, it’s not a switch on or switch off move. It will be something that will take time and it will depend on the opportunity and success that producers have in hedging their production and then their access to capital to drill.

I don’t want to say we view it as asymmetric. But we are less sensitive to decline rates, where we are in the Appalachian Basin than others might be in the more oily basins around the country.

Shneur Gershuni — UBS — Analyst

That makes perfect sense and really appreciate the thoughtful answer there. And maybe as one last follow-up here, in the restructuring that was announced earlier this year, you do have some color on it in a slide that you put out today. With the new gas gathering agreement, I recall that there are some material capex benefits you sort of talk about, some real efficiencies there and so forth.

I’m just trying to understand the full impact to Equitrans. It’s a straight up, we’re more efficient, less capex, more free cash flow, and it’s really kind of an operating leverage benefit, or is there something in the agreement that would cause some of it back because there’s less spend because of how our typical cost of service type of agreement works? Just trying to understand, is it — are there any reset, clauses that would cause some of that benefit back or is it truly an optimization plan?

Thomas F. Karam — Chairman of the Board and Chief Executive Officer

Yes, it’s a 15-year optimization plan where the agreement was constructed based on the drilling philosophy of EQT and thereby directly move into the capital efficiency benefit to E-Train. I mean, that was really — they are the two barbells of the deals. So, there is no clawback provision. That’s the permanent state of play.

Shneur Gershuni — UBS — Analyst

Perfect. Thank you very much. Appreciate the color today and stay safe and stay same.

Thomas F. Karam — Chairman of the Board and Chief Executive Officer

Thanks, Shneur.

Operator

Your next question comes from Spiro Dounis from Credit Suisse. Your line is open.

Spiro Dounis — Credit Suisse — Analyst

Hey, good morning, everyone. Want to go back to nationwide permit. Got kind of a multi-part question here, so bear with me. But is there a good way to think about the increases on MVP or cost increases for each quarter to the extent you do start to see delays? Obviously, pipeline is substantially complete at this point. Just curious what sort of cost sort of linger each quarter, each month that there is a delay, should it happen? And when — I guess thinking around timing, when do you think you’ll be in a position to, I guess update us on whether or not you can still hit that target? And then finally, along those lines, thinking around alternatives to Nationwide 12, does that only relate to the four remaining water crossings or is there an alternative to just permit each water crossing individually? Thanks.

Thomas F. Karam — Chairman of the Board and Chief Executive Officer

Good morning, Spiro. I’ll take a crack at answering some of those points and then maybe Diana can give me an assist here. You’re correct, MVP is substantially complete over 90%. And as Diana said, we have 30 plus miles of upland work that we can do.

Where we sit today, we’re not in a position where we have enough information to even attempt to quantify what delayed costs maybe if there are delays. So, I’m just going to leave that there for now.

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

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

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

Diana Charletta — President and Chief Operating Officer

I think that was quite intelligent. But as far as delayed cost, the more and more we get done, the less and less delay we have. Just like the less risk for versus delayed costs.

So, as we continue building and we continue doing the upland work and getting things into reclamation, then, as we delay, that’s less substantial to us because we don’t have to keep all of those environmental protection and controls in place. So, I would say that on the delay.

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

Spiro Dounis — Credit Suisse — Analyst

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

Thomas F. Karam — Chairman of the Board and Chief Executive Officer

I think you nailed it.

Spiro Dounis — Credit Suisse — Analyst

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

Diana Charletta — President and Chief Operating Officer

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

So, that is the main part on that. And then going forward, again, we will continue to be able to tie things together and utilize efficiencies in compression, and now all of the systems. It doesn’t matter which one we tie to. We can tie to the closest one, so that’s helpful them being compact and drilling all in one place, again, helpful. And then the return to pad will even help our future more than what we have out there right now.

Justin Macken — Senior Vice President – Gas Systems Planning and Engineering,

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

Spiro Dounis — Credit Suisse — Analyst

Understood. Thanks for the color, everyone. Be well.

Operator

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

Chris Tillett — Equity Research — Analyst

[Technical Issues] water crossings, how many water crossings do you guys have left that are affected by the Nationwide 12 this year. Is it just a matter of sort of what’s left to build or could this potentially impact all the crossing through the entire pipeline.

Thomas F. Karam — Chairman of the Board and Chief Executive Officer

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

Chris Tillett — Equity Research — Analyst

Sure. Sorry about that. I guess my question was on the Nationwide 12 permit and as it relates to the water crossings. Just how many of the crossing does the permit effect. Is it a matter of what you have left to build or is it — would it potentially impact all of the water crossings throughout the course of the pipeline?

Thomas F. Karam — Chairman of the Board and Chief Executive Officer

Go ahead, Diana.

Diana Charletta — President and Chief Operating Officer

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

Chris Tillett — Equity Research — Analyst

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

Diana Charletta — President and Chief Operating Officer

Not at the moment.

Chris Tillett — Equity Research — Analyst

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

Thomas F. Karam — Chairman of the Board and Chief Executive Officer

Well, I think the DOJ is taking the lead of seeking to have an appeal of the judge’s ruling on the Nationwide 12. And I believe that will go through the Ninth Circuit. And our expectation and what we’ve seen and read so far is that they’re attempting to fast track the process as best they can.

So, rather than just taking many months, the hope is that it will be a much more truncated process. And that’s why, as Diana said, once we get the biological opinion and the release from the stop-work order, we will fully mobilize and get upwards of 4,000 people right way to start doing all of that upland work as the Nationwide 12 issue works its way through the courts.

Chris Tillett — Equity Research — Analyst

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

Thomas F. Karam — Chairman of the Board and Chief Executive Officer

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

Chris Tillett — Equity Research — Analyst

Okay. Yes, that’s helpful and thanks for clarifying that. That’s it from me.

Thomas F. Karam — Chairman of the Board and Chief Executive Officer

Thanks, Chris.

Operator

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

Derek Walker — BofA Securities — Analyst

[Technical Issues] numerous times and now expected to be in July. Have you been in touch with the Fish and Wildlife? Is there anything in particular there that they are still working on or is it — it’s kind of delays associated with perhaps COVID-19 and is there any sort of thoughts on what’s really driving the extensions and is it tied to perhaps the Nationwide 12 permit? Thanks.

Diana Charletta — President and Chief Operating Officer

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

Thomas F. Karam — Chairman of the Board and Chief Executive Officer

Yes, that’s what I was going to say.

Derek Walker — BofA Securities — Analyst

Yes, just on — can you hear me now?

Diana Charletta — President and Chief Operating Officer

Yes.

Derek Walker — BofA Securities — Analyst

Okay. Just on the biological opinion, it’s obviously been extended multiple times. I just want to get a sense on the latest extension towards that. Did you have any conversations with the Fish and Wildlife? Is there anything particular that they’re looking for or was the extension just related to kind of COVID-19 issues and getting people out to evaluations, just any thought there?

Diana Charletta — President and Chief Operating Officer

So, Tom, I’ll go for that one. We know that they are very focused on being accurate and thorough and comprehensive and that is really important to us, we want that to happen. So, it really is more or less them wanting to make sure they have all of the data and they’ve gone through all the data and they’ve done a really comprehensive. I think we’re seeing an impact from COVID. They’ve been engaged in the last couple of months and working very hard on it actually, we’re encouraged by the back and forth with them.

Derek Walker — BofA Securities — Analyst

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

Thomas F. Karam — Chairman of the Board and Chief Executive Officer

The stay being granted? No, we can’t handicap that. Look, we think that the judge’s decision was wrong. It doesn’t make sense. Certainly, doesn’t make sense that they could issue an opinion like that and only have applied to oil and gas pipeline.

So again, it’s going to work its way through the courts. We’re hopeful that it will be a truncated and quick process in legal terms. But handicapping to say or not, that’s above our pay grade here, Derek.

Derek Walker — BofA Securities — Analyst

Okay, thanks guys. That’s it from me. Appreciate it.

Thomas F. Karam — Chairman of the Board and Chief Executive Officer

Thank you.

Operator

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

Vikram Bagri — Jefferies — Analyst

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

Diana Charletta — President and Chief Operating Officer

So, I’m just trying not to talk over Tom. I would say that it wouldn’t be an accurate calculation to just have the percentage of the pipeline that are done, assume that that’s how many crossings are done. We’ve been back and forth and moved around a bit on that project.

So, I wouldn’t say it’s that. But all of the work is done for the crossings as far as regulatory data that’s been gathered, so whether it was gathered to do one Nationwide 12 permit or you needed to take that data and divide it up to get individual ones. The work is all done. It’s just the process in which we need to do it.

So, I’m not super concerned about which way. Of course, we would love to go the Nationwide 12 way, but we can work through it at the other if we need to. The work is done.

Vikram Bagri — Jefferies — Analyst

Okay. And I wanted to ask Spiro’s question slightly differently. Can you identify the biggest components of cost increases in case the pipeline is delayed? How much do you need to spend to hold the right of ways on MVP on a monthly basis and how much do you need to spend on just holding the construction contract? I believe, those are the largest components and the — you need to spend hold the construction contracts as much smaller now than it was prior to your construction contract renegotiation; is it possible to quantify those two components of potential cost increases?

Diana Charletta — President and Chief Operating Officer

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

Thomas F. Karam — Chairman of the Board and Chief Executive Officer

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

Vikram Bagri — Jefferies — Analyst

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

Diana Charletta — President and Chief Operating Officer

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

Vikram Bagri — Jefferies — Analyst

Okay and then just a last one for me, if I may. On capacity volumes in gathering segment step down in 1Q relative to 4Q of ’19, is that — are those declining EQT’s volume, so they are focusing drilling on areas, most profitable area that are not focused on areas where they were under MVCs already right ahead of either combining all their MVC areas or is that due to — is it being driven by any other producer? I was just trying to understand the cause of decrease in firm capacity reservation volumes and gathering segments.

Diana Charletta — President and Chief Operating Officer

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

Vikram Bagri — Jefferies — Analyst

Okay. Looking differently, is any other producer below MVP — MVCs or large producer below MVCs besides the EQT?

Diana Charletta — President and Chief Operating Officer

I think there’s probably one other producer that is below MVC. Justin?

Justin Macken — Senior Vice President – Gas Systems Planning and Engineering,

Yes, not in a material way. But yes, you’re right.

Vikram Bagri — Jefferies — Analyst

Okay, great, thanks for all the color. Thank you very much.

Operator

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

Michael Blum — Wells Fargo — Analyst

Hey, good morning, everyone. Can you hear me?

Diana Charletta — President and Chief Operating Officer

Yes.

Thomas F. Karam — Chairman of the Board and Chief Executive Officer

Yes, Michael, thank you.

Michael Blum — Wells Fargo — Analyst

Great. I just want to make sure. Yes, just two quick ones from me. One, I’m just curious if any of your current producer customers are behind on payments or is everyone sort of current and is there anything you’re doing proactively to sort of protect yourself on that front to the extent any of your customers do run into some trouble here?

Thomas F. Karam — Chairman of the Board and Chief Executive Officer

So, I believe all of our customers are current. I think that, your question is a good one in the sense that the renegotiated contract with EQT is state-of-the-art as it relates to language and surviving bankruptcy and we feel really good about that.

All of our other contracts are at-market and quite frankly the producers, even if they run into trouble only have one outlet to generate revenue for themselves. So, we feel pretty good about all of our contracts, in that regard.

Michael Blum — Wells Fargo — Analyst

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

Kirk Oliver — Senior Vice President and Chief Financial Officer

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

Michael Blum — Wells Fargo — Analyst

Great. Thank you very much, everyone.

Thomas F. Karam — Chairman of the Board and Chief Executive Officer

Thanks, Michael.

Operator

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

Becca Followill — U.S. Capital Advisors — Analyst

Can you hear me guys?

Thomas F. Karam — Chairman of the Board and Chief Executive Officer

Yes, Becca.

Becca Followill — U.S. Capital Advisors — Analyst

Thanks. Good, thanks. It looks like deferred revenue went down from 450 to 227. So, did that help drive the increase in EBITDA?

Kirk Oliver — Senior Vice President and Chief Financial Officer

Yes, I’ll take it. So, the deferred revenue number, it can change as we go forward in time. The big driver there was the change in the stock that we acquired as a part of the transaction with the repurchase of our stock and the estimate at the time we did the transaction versus what the stock price was when we closed on the purchase of the shares. So, that will change over time and really what it does is it changes the amount of revenue that we can recognize, so it doesn’t really impact the economic EBITDA of the company, if you will.

So, I think what a lot of investors do is add the deferred revenue to whatever the EBITDA is to come up with what they’re sort of calling a cash EBITDA number. And we’ll continue to provide everyone with the deferred revenue and EBITDA as we go forward.

Becca Followill — U.S. Capital Advisors — Analyst

So just to clarify, on the prior numbers, you guys had deferred revenue of 450 and E-Train adjusted EBITDA of 920 to get to the 138. And so, here you combine the 1,175 and 227 to hit 214 [Phonetic]? And so, that’s kind of your delta?

Kirk Oliver — Senior Vice President and Chief Financial Officer

Yes.

Becca Followill — U.S. Capital Advisors — Analyst

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

Kirk Oliver — Senior Vice President and Chief Financial Officer

Yes, that’s correct.

Becca Followill — U.S. Capital Advisors — Analyst

Okay. Wanted to make sure of that. Okay. And then second, beyond this you’re spending on Mountain Valley, how much more do you have left in 2021?

Thomas F. Karam — Chairman of the Board and Chief Executive Officer

On MVP, Becca?

Becca Followill — U.S. Capital Advisors — Analyst

Yes.

Diana Charletta — President and Chief Operating Officer

So, we’ve spent 2.1 to date and our spend is 2.7 total. Help me Nate –?

Nate Tetlow — Vice President, Corporate Development and Investor Relations

There’ll be about $50 million left in the next year.

Becca Followill — U.S. Capital Advisors — Analyst

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

Thomas F. Karam — Chairman of the Board and Chief Executive Officer

The plan B as Diana talked about is, we always have the right to go get individual permits for those stream crossings.

Becca Followill — U.S. Capital Advisors — Analyst

Okay, perfect. Thank you.

Operator

[Operator Instructions] Our next question comes from the line of TJ Schultz from RBC. Your line is open.

T.J. Schultz — RBC Capital Markets — Analyst

Great, thanks. Just one from me. And as you move to free cash flow — and retained free cash flow is a focus point for investors — what’s your long-term view once MVP is online, just on an optimal payout ratio for you, and/or just how should we think about the priority to increase the dividend? Thanks.

Kirk Oliver — Senior Vice President and Chief Financial Officer

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

Thomas F. Karam — Chairman of the Board and Chief Executive Officer

Yes, I think that’s right.

Kirk Oliver — Senior Vice President and Chief Financial Officer

Yes, I guess we’re expecting retained free cash flow to be positive ’21 and we’re looking at — we’ve given this before, we aren’t updating guidance or anything, but certainly what we’ve said before is positive retained free cash flow in 2021 and below four times in 2022.

T.J. Schultz — RBC Capital Markets — Analyst

Okay, thank you.

Operator

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

T.J. Schultz — RBC Capital Markets — Analyst

Well, thank you everybody for joining us today. As we said at the outset, we are gaining confidence in the macro. We believe that there could be some strengthening in the A basin certainly that we’re seeing, and hopefully everybody will stay safe and we’ll get through this.

Thank you. Have a good day.

Operator

[Operator Closing Remarks]