Analyst Note| Stephen Ellis |
Equitrans’ second-quarter results were solid, and the additional clarity around the next steps for the Mountain Valley Pipeline improves our visibility on the pipe entering service in mid-2022. After updating our model, we maintain our $15 fair value estimate and narrow-moat rating. We continue to think Equitrans is quite undervalued, as our fair value estimate would fall to around $10 per share if the MVP is canceled. The stock is currently below $9 per share, implying the market has already assumed MVP is not viable, and not pricing in any upside for when the pipe does make it into service.
Equitrans provided some additional details around the next steps on the permits for MVP. The Federal Energy Regulatory Commission is expected to publish the environment assessment in mid-August. Next, the West Virginia and Virginia agencies have been granted additional time to evaluate their water quality certificate reviews (401 permits), which are expected to be complete by the end of November and December, respectively. These dates have also been agreed to in consultation with the U.S. Army Corps of Engineers. This plan maintains the mid-2022 in service date for the MVP and the current $6.2 billion cost estimate.
We think it is smart that Equitrans announced that the MVP will become carbon neutral for its first 10 years of operations primarily by purchasing carbon emissions offsets. Carbon emissions offset purchases are expected to total more than $150 million over the decade and be verified and registered annually with the American Carbon Registry. Equitrans will also pursue methane reductions, as well as work to reduce carbon emissions from orphaned and abandoned oil and gas wells as part of the overall effort. Given the obstacles that the MVP has faced, we wouldn’t expect the legal challenges to end immediately after the pipe enters service. As a result, this move provides an important data point for Equitrans to use for those stakeholder discussions.