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Mountain Valley gas pipeline startup pushed to 2019 amid court fight with opponents

Houston — The startup of EQT Midstream Partners' Mountain Valley Pipeline natural gas project will be delayed into next year, and the construction cost is expected to reach a point where it may begin to reduce investment returns, executives said Thursday.

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The market developments, disclosed as No. 1 US gas producer EQT and EQT Midstream released financial results for the April-June quarter, reflect the challenges the 2 Bcf/d natural gas project has faced from poor weather and court battles with environmental groups.

Any delay figured to be a blow for downstream utilities seeking better supply access and for producers awaiting more takeaway capacity out of the US Northeast's prolific Appalachian Basin. The approximately 300-mile pipeline is seen as a key conduit to serve downstream markets, including LNG exports.

"We update our project schedule weekly and it is based on both weather and activism that we see," Jerry Ashcroft, a senior vice president at EQT and operations chief at the company's midstream affiliate, said on a conference call with analysts to discuss EQT Midstream's results.

For the second quarter, EQT reported net income attributable to common shareholders of $17.8 million, or 7 cents a share, an almost 57% drop from profit of $41.1 million, or 24 cents a share, in the year-ago period. While revenue jumped 53%, total operating expenses almost doubled year over year. EQT Midstream's profit rose 24% in the second quarter versus a year earlier.

Despite the difficulties with MVP, officials had previously maintained their expected in-service date of the fourth quarter of this year. That schedule has now been extended to the first quarter of 2019, though executives did not rule out the possibility it could be delayed further depending on the timing and outcome of a federal appeals court case brought by the Sierra Club.

"If the court sits on the decision for a quarter, that obviously puts the timing in jeopardy," Chief Financial Officer Robert McNally said on the call with Ashcroft. "But we don't think they'll sit on it that long."

Expenses have been going up as the operator has had workers going extra hours to complete the construction that is currently allowed. The project also suffered a setback in late June when the operator said it was temporarily suspending pipeline installation work in Virginia to make sure appropriate erosion and sediment controls were in place amid heavy rainfall.

When the project was announced in fall 2015, EQT Midstream had estimated Mountain Valley Pipeline would cost $3 billion to $3.5 billion to build. Its most recent estimate was $3.5 billion. And on Thursday, that estimate was raised to $3.5 billion to $3.7 billion.

McNally said expenditures above $3.5 billion will start to eat into expected investment returns.

MARKET NEED

MVP -- designed to transport gas to markets in Virginia and North Carolina -- is a joint venture of operator EQT Midstream, WGL Midstream, RGC Midstream, Con Edison Transmission and an affiliate of NextEra. Shippers include WGL Midstream, Roanoke Gas and EQT Energy, the marketing unit for gas producer EQT.

In April, EQT Midstream proposed to add an offshoot to MVP that would extend about 70 miles south from the mainline to new delivery points in North Carolina and service customers of utility PSNC Energy with Appalachian Basin natural gas. The company said at the time that MVP Southgate was expected to start up in late 2020. It maintained that schedule on Thursday.

COURT WATCH

The 4th Circuit US Court of Appeals issued a stay June 21 in a case affecting a water permit for a portion of MVP.

At issue in that case is MVP's Clean Water Act Section 404 stream and wetland crossing permit issued by the US Army Corps of Engineers. The Sierra Club and other environmental groups have argued that MVP cannot comply with a permit condition to complete four waterbody crossings within 72 hours, and they sought a stay of the permit while the court considers their objections. The operator has countered that the requirement doesn't apply to the waterbodies involved because of the protective method it plans to use to cross them.

Federal government attorneys recently asked the court to lift the stay, saying a new document from the corps replaced the original authorizations. A decision from the court remains pending.

"We hope to hear something soon." Ashcroft said.

-- Harry Weber, Harry.Weber@spglobal.com -- Edited by Gail Roberts, gail.roberts@spglobal.com