Executive Chairman, EQUITRANS MID CORP
Equitrans CEO on EQT Spinoff, M&A, U.S. Natural Gas Demand
Nov.13 -- Thomas Karam, chief executive officer at Equitrans Midstream Corporation, discusses the spinoff from EQT Corp., his ...
About Thomas Kar
Thomas Karam, executive chairman of Equitrans Midstream, has spoken publicly about the company's efforts to complete the Mountain Valley Pipeline (MVP) and the broader need for permitting reform. In a September 2023 interview, Karam stated that the company expected full mobilization on the pipeline by early July after receiving approval to complete it, and he expressed gratitude that the project was included in the Fiscal Responsibility Act. He said that "it should not take an act of Congress to construct infrastructure in this country that's necessary for energy security and reliability." Karam credited Senator Joe Manchin and others for advancing the project, and described a letter from Energy Secretary Jennifer Granholm deeming the pipeline in the national security interest as a "watershed event." He argued that without comprehensive permitting reform, the U.S. would not be able to meet projected increases in natural gas and electricity demand over the next 25 years. In earlier comments from 2019, following Equitrans Midstream's spinoff from EQT Corporation, Karam expressed a bullish long-term view on natural gas prices and emphasized the company's reliance on long-term fixed contracts to reduce exposure to price fluctuations. He said the company's strategy was an "execution story" and that it did not require mergers and acquisitions to succeed, though it would evaluate opportunities. Karam also reaffirmed a 2019 target for completing the Mountain Valley Pipeline at a cost of $4.6 billion.
Transcript (18 segments)
I
Interviewer0:00
Congratulations on the spinoff, Tom. Curious as to your thoughts on natural gas prices. We've seen a nice bump on low inventories. Where do they go?
T
Thomas Kar0:10
Yeah, Bonnie, good morning. Good morning to you guys as well. Look, we're bullish on the long-term price of the natural gas strip. We think it was oversold for a while, and we think the bounce back is warranted. You've seen oil drop a little bit, so we think we're reaching an equilibrium, and that means good things for the midstream sector.
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Interviewer0:27
Right. The front month is 21% more expensive than a year out. I mean, does that come into balance at some point? Can you give us some kind of forecast?
T
Thomas Kar0:38
I'm not really good at giving forecasts. My crystal ball is kind of cloudy. But what we know is, from our perspective, our mission at Equitrans Midstream is to make sure that we've got long-term fixed contracts so that we're not as vulnerable to the interim trading fluctuations of the strip.
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Interviewer0:54
It's almost... Let's talk a little bit about the spinouts and why it happens. Some shareholders certainly putting pressure on the company to make this happen. They like the idea maybe that you end up with a cleaner structure as a result of separating the businesses. Is everybody happy now, or are all the shareholders on board with this as a concept?
T
Thomas Kar1:13
Well, I hope so. I think the decision to split the company was based on the sum-of-the-parts discount that had appeared post the Rice Energy acquisition by EQT. And we can only speak correct with Equitrans Midstream, but we're very happy and we see a very bright future, and we think we're going to end up being a really strong top-tier midstream company. So our balance sheet is strong, our contract structure is strong, our largest customer is the largest natural gas producer in the United States. So I think we're starting our journey as an independent company with some pretty strong fundamentals.
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Interviewer1:46
A lot of M&A normally in this kind of space. Now that you've been separated out, do you see yourself going on something like an acquisition spree? Maybe pushing it too far, but do you see yourself growing through acquisitions?
T
Thomas Kar1:59
Well, we try never to push things too far. And Guy, our story is strong enough that it's an execution story, so that we just need to execute on the transactions in front of us in order to be successful. We don't need M&A to be successful in our strategy. But clearly, as any company would, we'll look at any opportunities that come available and we'll try to fit that in with our overall strategy.
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Interviewer2:22
Well, in fact, Jeffries says that ETR itself will peak M&A interest. Would you be open, Tom, to getting a card in some way?
T
Thomas Kar2:31
Well, Bonnie, we're always going to do what's in the best interest of our shareholders. And we think right now the strategy that we've laid out and the really strong contracts that we have and the projects in front of us, we're an execution story that we think is going to be able to deliver for our shareholders simply by executing on our strategy.
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Interviewer2:49
Is an MLP merger likely? Will you absorb the MLP at some point? When might that be?
T
Thomas Kar2:55
Well, we can't speak about anything to do with the EQT stock for a period of two years because of the safe harbor after the spin. But clearly, it's been a focus of interest as it relates to the IDRs and simplification aspects of our structure. And now that we're a standalone company, we're going to be evaluating that pretty quickly here.
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Interviewer3:14
Thomas, can I take you back to where Vani started the conversation, which is about the price of nat gas clearly being driven higher at the moment by what is happening with the weather. Nevertheless, a little like Australia, America has built a lot of export capability, and I'm now wondering whether or not that's going to lead to increased volatility in the gas price because of the fact you've got that export market, because of the fact that we have to deal with weather, etc. So we get through that, we get through the winter, and then we end up with a significant price drop because suddenly that's not required anymore. How do you see the dynamics of the market between exports and the domestic market?
T
Thomas Kar3:56
Yes, okay, that's a good question. Look, I've been in the business long enough to realize that I can never predict what the strip is going to be too far out into the future. But I like the fact that we're now getting a more robust LNG export business, and the demand is still strong in the United States for natural gas. So they'll always be absent flows. But as it relates to where the long-term equilibrium is going to be on the price of natural gas, I'll leave that to better prognosticators than me.
I
Interviewer4:22
But in terms of your expectation, I got to manage a business around this, and I'm assuming you probably hedge out some of that risk, and as a result of which it doesn't affect you on a day-to-day basis. But nevertheless, how does the market develop from here given that kind of scenario? How easy is it to invest? How easy is it to look at a capex cycle that you've got to work with, whether you are going to see these price swings moving around?
T
Thomas Kar4:48
Yeah, so it's not so much the swings, Guy. But if you're talking about a strip that's roughly around three dollars, then you have to make long-term investment decisions based on the ability to construct these projects and still have a transportation cost that will allow the shippers and producers to have a really good net back on their commodity. So in that respect, it absolutely affects our sector. But the decisions we make are not short-term in nature; they're longer-term in nature.
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Interviewer5:17
Tom, you've said you hope to lock down the Mountain Valley Pipeline expansion in the first half of next year, and you're also looking for a dividend of 8 to 10 percent. Have either of those forecasts changed? Would that all be attractive?
T
Thomas Kar5:31
No, I think that everything that we've signaled to the market stands today, and we'll be able to refine those numbers in the coming weeks and months. But we're pretty stable on where we think we're going to shake out in all this, which is pretty strong. Our distribution growth and dividend growth is going to be governed by ensuring that we have a strong balance sheet. As it relates to MVP, that's an execution story for us now. We think we've really narrowed the bands as to what the variations could be, and we're sticking with our fourth quarter of 2019 and a cost of 4.6 billion dollars. And we are hopeful and expecting to be able to announce an expansion of MVP early in 2019.