EQGP Holdings, LP - FORM 10-Q - July 28, 2016

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EX-32 - EXHIBIT 32 - EQGP Holdings, LPeqgp6302016ex32.htm
EX-31.2 - EXHIBIT 31.2 - EQGP Holdings, LPeqgp6302016ex312.htm
EX-31.1 - EXHIBIT 31.1 - EQGP Holdings, LPeqgp6302016ex311.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2016
or
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   
 
 
 
FOR THE TRANSITION PERIOD FROM                TO               
 
 
 
COMMISSION FILE NUMBER 001-37380
 
EQT GP Holdings, LP
(Exact name of registrant as specified in its charter)
 
DELAWARE
 
30-0855134
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification No.)
 
625 Liberty Avenue, Suite 1700, Pittsburgh, Pennsylvania
15222
(Address of principal executive offices)
(Zip code)
(412) 553-5700
(Registrant’s 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 x  No  ¨
 
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  x  No  ¨
 
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.
 
Large Accelerated Filer
¨
 
 
Accelerated Filer
¨
 
 
Non-Accelerated Filer
x
 
 
Smaller reporting company
¨
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).        Yes  ¨  No  x
 
As of June 30, 2016, there were 266,165,000 Common Units outstanding.


EQT GP HOLDINGS, LP AND SUBSIDIARIES
 
Index
 
 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2

Glossary of Commonly Used Terms, Abbreviations and Measurements

adjusted EBITDA – a supplemental non-GAAP financial measure defined by EQT Midstream Partners, LP and subsidiaries (collectively, EQM) as EQM's net income plus interest expense, depreciation and amortization expense,  income tax expense (if applicable) and non-cash long-term compensation expense less equity income, AFUDC – equity, capital lease payments and NWV Gathering adjusted EBITDA prior to the NWV Gathering Acquisition.
 
AFUDC (Allowance for Funds Used During Construction) – carrying costs for the construction of certain long-lived regulated 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.

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 EQM as EQM's adjusted EBITDA less interest expense excluding capital lease interest, capitalized interest and AFUDC - debt, and ongoing maintenance capital expenditures net of expected reimbursements.

EQGP omnibus agreement – the agreement entered into among EQT GP Holdings, LP and subsidiaries (collectively, EQGP), its general partner and EQT Corporation and subsidiaries (collectively, EQT) in connection with EQGP’s initial public offering, pursuant to which EQT agreed to provide EQGP with, and EQGP agreed to reimburse EQT for, certain general and administrative services, and a license to use the name “EQT” and related marks in connection with EQGP’s business.

EQM omnibus agreement – the agreement, as amended, entered into among EQM, its general partner, and EQT in connection with EQM's initial public offering, pursuant to which EQT agreed to provide EQM with, and EQM agreed to reimburse EQT for, certain general and administrative services and a license to use the name “EQT” and related marks in connection with EQM’s business. The EQM omnibus agreement also provides for certain indemnification obligations between EQM and EQT.

firm contracts – contracts for transmission, storage or gathering services that generally obligate customers to pay a fixed monthly charge to reserve an agreed upon amount of pipeline or storage capacity regardless of the actual capacity used by a customer during each month.

gas – all references to “gas” refer to natural gas.

local distribution company or LDC – LDCs are companies involved in the delivery of natural gas to consumers within a specific geographic area.

MVP Interest Acquisition – On March 30, 2015, EQM assumed from EQT the membership interests in MVP Holdco, LLC (MVP Holdco), the owner of an interest (the MVP Interest) in Mountain Valley Pipeline, LLC (MVP Joint Venture), which at the time was an indirect wholly owned subsidiary of EQT.

NWV Gathering Acquisition – On March 17, 2015, EQT contributed the Northern West Virginia Marcellus gathering system (NWV Gathering) to EQM Gathering Opco, LLC (EQM Gathering), an indirect wholly owned subsidiary of EQM.

Preferred Interest Acquisition – On April 15, 2015, pursuant to the NWV Gathering Acquisition contribution and sale agreement, EQM acquired a preferred interest (the Preferred Interest) in EQT Energy Supply, LLC (EES), which at the time was an indirect wholly owned subsidiary of EQT.

throughput – the volume of natural gas transported or passing through a pipeline, plant, terminal or other facility during a particular period.
Abbreviations
Measurements
FASB – Financial Accounting Standards Board
Btu  = one British thermal unit
FERC – Federal Energy Regulatory Commission
BBtu = billion British thermal units
GAAP – United States Generally Accepted Accounting Principles
Bcf   = billion cubic feet
IPO – Initial Public Offering
Dth  =  dekatherm or million British thermal units
IRS – Internal Revenue Service
MMBtu  = million British thermal units
SEC – Securities and Exchange Commission
Mcf = thousand cubic feet
 
MMcf  = million cubic feet

3

PART I.  FINANCIAL INFORMATION
 
Item 1.   Financial Statements
 
EQT GP HOLDINGS, LP AND SUBSIDIARIES
Statements of Consolidated Operations (Unaudited) (1) 
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
 
(Thousands, except per unit amounts)
Operating revenues (2)
$
172,004

 
$
144,613

 
$
352,605

 
$
299,424

Operating expenses:
 

 
 

 
 

 
 

Operating and maintenance (3)
15,807

 
17,232

 
32,452

 
31,711

Selling, general and administrative (3)
17,565

 
14,765

 
34,814

 
30,418

Depreciation and amortization
15,111

 
12,258

 
30,589

 
24,185

Total operating expenses
48,483

 
44,255

 
97,855

 
86,314

Operating income
123,521

 
100,358

 
254,750

 
213,110

Other income (4)
9,858

 
1,563

 
16,995

 
2,277

Interest expense (5)
9,389

 
11,640

 
19,646

 
23,097

Income before income taxes
123,990

 
90,281

 
252,099

 
192,290

Income tax expense
—

 
5,436

 
—

 
25,770

Net income
123,990

 
84,845

 
252,099

 
166,520

Net income attributable to noncontrolling interests
72,744

 
56,189

 
150,531

 
103,929

Net income attributable to EQT GP Holdings, LP
$
51,246

 
$
28,656

 
$
101,568

 
$
62,591

 
 
 
 
 
 
 
 
Calculation of limited partners' interest in net income:
 
 
 
 
 
 
 
Net income attributable to EQT GP Holdings, LP
$
51,246

 
$
28,656

 
$
101,568

 
$
62,591

Less: results attributable to the pre-IPO period
—

 
(8,303
)
 
—

 
(42,238
)
Limited partners' interest in net income
$
51,246

 
$
20,353

 
101,568

 
$
20,353

 
 
 
 
 
 
 
 
Net income per limited partner unit – basic and diluted
$
0.19

 
$
0.08

 
$
0.38

 
$
0.08

Weighted average number of common units outstanding – basic and diluted
266,176

 
266,167

 
266,174

 
266,167

 
 
 
 
 
 
 
 
Cash distributions declared per unit (6)
$
0.15

 
$
0.04739

 
$
0.284

 
$
0.04739


(1)
Financial statements for the six months ended June 30, 2015 included the results of NWV Gathering for the entire period presented as a result of the NWV Gathering Acquisition on March 17, 2015. See Note B.
(2)
Operating revenues included affiliate revenues from EQT of $132.2 million and $107.7 million for the three months ended June 30, 2016 and 2015, respectively, and $263.6 million and $214.3 million for the six months ended June 30, 2016 and 2015, respectively. See Note E.
(3)
Operating and maintenance expense included charges from EQT of $8.4 million and $9.0 million for the three months ended June 30, 2016 and 2015, respectively, and $16.4 million and $16.6 million for the six months ended June 30, 2016 and 2015, respectively. Selling, general and administrative expense included charges from EQT of $15.7 million and $12.9 million for the three months ended June 30, 2016 and 2015, respectively, and $30.7 million and $25.7 million for the six months ended June 30, 2016 and 2015, respectively. See Note E.
(4)
For the three and six months ended June 30, 2016, other income included distributions received from EES of $2.8 million and $5.5 million, respectively, and equity income from the MVP Joint Venture of $1.9 million and $3.4 million, respectively. For the three and six months ended June 30, 2015, other income included equity income from the MVP Joint Venture of $0.4 million. See Note F.
(5)
Interest expense included interest on a capital lease with an affiliate of $5.2 million and $5.9 million for the three months ended June 30, 2016 and 2015, respectively, and $10.6 million and $11.8 million for the six months ended June 30, 2016 and 2015, respectively.
(6)
Represents the cash distributions declared related to the period presented. The distribution related to the second quarter of 2015 was pro-rated for the 47-day period from the date of closing of EQGP's IPO on May 15, 2015 to June 30, 2015. See Note K.

The accompanying notes are an integral part of these consolidated financial statements.

4

EQT GP HOLDINGS, LP AND SUBSIDIARIES
Statements of Consolidated Cash Flows (Unaudited) (1) 
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
(Thousands)
Cash flows from operating activities:
 

 
 

Net income
$
252,099

 
$
166,520

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation and amortization
30,589

 
24,185

Deferred income taxes
—

 
(185,456
)
Equity income
(3,439
)
 
(394
)
AFUDC – equity
(7,714
)
 
(1,883
)
Non-cash long-term compensation expense
373

 
888

Changes in other assets and liabilities:
 
 
 
Accounts receivable
1,382

 
2,551

Accounts payable
4,911

 
4,639

Due to/from EQT affiliates
(14,555
)
 
224,827

Other assets and other liabilities
3,780

 
3,225

Net cash provided by operating activities
267,426

 
239,102

Cash flows from investing activities:
 

 
 

Capital expenditures
(275,828
)
 
(208,890
)
MVP Interest Acquisition and capital contributions to the MVP Joint Venture
(40,663
)
 
(54,229
)
Sales of interests in the MVP Joint Venture
12,533

 
8,344

Acquisitions – net assets from EQT
—

 
(386,791
)
Preferred Interest Acquisition
—

 
(124,317
)
Net cash used in investing activities
(303,958
)
 
(765,883
)
Cash flows from financing activities:
 

 
 

Proceeds from the issuance of EQM common units, net of offering costs
217,102

 
696,582

Acquisitions – purchase price in excess of net assets from EQT
—

 
(486,392
)
Proceeds from EQM credit facility borrowings
260,000

 
434,000

Payments of EQM credit facility borrowings
(559,000
)
 
(122,000
)
Proceeds from the EQGP Working Capital Facility loan, net of payments
125

 
—

Distributions paid to noncontrolling interest owners of EQM
(81,140
)
 
(52,672
)
Capital contributions
5,884

 
213

Net distributions to EQT
—

 
(107,759
)
Capital lease principal payments
(4,760
)
 
(5,472
)
Distributions to EQGP unitholders
(68,138
)
 
—

Net cash (used in) provided by financing activities
(229,927
)
 
356,500

 
 
 
 
Net change in cash and cash equivalents
(266,459
)
 
(170,281
)
Cash and cash equivalents at beginning of period
350,815

 
171,291

Cash and cash equivalents at end of period
$
84,356

 
$
1,010

 
 
 
 
Cash paid during the period for:
 

 
 

Interest, net of amount capitalized
$
20,134

 
$
23,871

Non-cash activity during the period for:
 

 
 

Increase in capital lease asset/obligation
$
24,797

 
$
8,235

Elimination of net current and deferred taxes at IPO
—

 
(164,586
)
Increase in MVP Joint Venture investment/payable for capital contributions (see Note F)
27,052

 
—

Limited partner and general partner units issued for acquisitions
—

 
52,500

Net settlement of current income taxes payable with EQT
$
—

 
$
380,316


(1)
Financial statements for the six months ended June 30, 2015 included the results of NWV Gathering for the entire period presented as a result of the NWV Gathering Acquisition on March 17, 2015. See Note B.
The accompanying notes are an integral part of these consolidated financial statements.

5

EQT GP HOLDINGS, LP AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
 
 
June 30,
2016
 
December 31, 2015
ASSETS
(Thousands, except number of units)
Current assets:
 

 
 

Cash and cash equivalents
$
84,356

 
$
350,815

Accounts receivable (net of allowance for doubtful accounts of $232 as of June 30, 2016 and $238 as of December 31, 2015)
15,749

 
17,131

Accounts receivable – affiliate
74,600

 
77,925

Other current assets
2,341

 
2,111

Total current assets
177,046

 
447,982

 
 
 
 
Property, plant and equipment
2,564,585

 
2,228,967

Less: accumulated depreciation
(288,111
)
 
(258,974
)
Net property, plant and equipment
2,276,474

 
1,969,993

 
 
 
 
Investments in unconsolidated entities
260,266

 
201,342

Other assets
20,084

 
14,950

Total assets
$
2,733,870

 
$
2,634,267

 
 
 
 
LIABILITIES AND EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
71,818

 
$
35,909

Due to related party
27,313

 
34,196

EQM credit facility borrowings
—

 
299,000

Capital contribution payable to MVP Joint Venture
27,052

 
—

Accrued interest
8,338

 
8,753

Accrued liabilities
18,177

 
12,465

Total current liabilities
152,698

 
390,323

 
 
 
 
Long-term debt
493,786

 
493,401

Lease obligation
190,546

 
175,660

Other long-term liabilities
9,333

 
7,834

Total liabilities
846,363

 
1,067,218

 
 
 
 
Equity:
 

 
 

Partners' capital (266,165,000 common units issued and outstanding at June 30, 2016 and December 31, 2015)
(1,125,769
)
 
(1,204,509
)
Noncontrolling interests
3,013,276

 
2,771,558

Total equity
1,887,507

 
1,567,049

Total liabilities and equity

$
2,733,870

 
$
2,634,267

 
 
The accompanying notes are an integral part of these consolidated financial statements.


6

EQT GP HOLDINGS, LP AND SUBSIDIARIES
Statements of Consolidated Equity (Unaudited) (1) 

 
Partners' Capital
 
Noncontrolling Interests in
 Consolidated Subsidiaries
 
 Total Equity
 
Parent Net
Investment
 
Common Units
 
 
 
(Thousands)
Balance at January 1, 2015
$
(775,342
)
 
$
—

 
$
1,787,340

 
$
1,011,998

Net income
42,238

 
20,353

 
103,929

 
166,520

Capital contributions
1,748

 
—

 
—

 
1,748

Equity-based compensation plans
247

 
118

 
549

 
914

Distributions to noncontrolling interest owners of EQM
—

 
—

 
(52,672
)
 
(52,672
)
Acquisitions from affiliates
(925,683
)
 
—

 
—

 
(925,683
)
Net distributions to EQT
272,557

 
—

 
—

 
272,557

EQM equity transactions (2)
52,500

 
—

 
696,582

 
749,082

Changes in ownership of EQM, net
119,926

 
—

 
(192,880
)
 
(72,954
)
Elimination of net current and deferred taxes upon IPO
(164,586
)
 
—

 
—

 
(164,586
)
Conversion of parent net investment to limited partner interest upon IPO
1,376,395

 
(1,376,395
)
 
—

 
—

Balance at June 30, 2015
$
—

 
$
(1,355,924
)
 
$
2,342,848

 
$
986,924

 
 
 
 
 
 
 
 
Balance at January 1, 2016
$
—

 
$
(1,204,509
)
 
$
2,771,558

 
$
1,567,049

Net income
—

 
101,568

 
150,531

 
252,099

Capital contributions
—

 
162

 
—

 
162

Equity-based compensation plans
—

 
212

 
161

 
373

Distributions to noncontrolling interest owners of EQM
—

 
—

 
(81,140
)
 
(81,140
)
EQM equity transactions (2)
—

 
—

 
217,102

 
217,102

Distributions to EQGP unitholders
—

 
(68,138
)
 
—

 
(68,138
)
Changes in ownership of EQM, net
—

 
44,936

 
(44,936
)
 
—

Balance at June 30, 2016
$
—

 
$
(1,125,769
)
 
$
3,013,276

 
$
1,887,507


(1)
Financial statements for the six months ended June 30, 2015 included the results of NWV Gathering for the entire period presented as a result of the NWV Gathering Acquisition on March 17, 2015. See Note B.

(2)
Includes the impact of EQM's public equity offerings and units issued in connection with acquisitions from EQT as described in Note B.

The accompanying notes are an integral part of these consolidated financial statements.


7

EQT GP Holdings, LP and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)

A.    Financial Statements
 
Organization

On May 15, 2015, EQGP completed its IPO. EQGP was formed in January 2015 as a Delaware limited partnership and wholly owned subsidiary of EQT Gathering Holdings, LLC (EQT Gathering Holdings), which is a Delaware limited liability company and wholly owned subsidiary of EQT. EQGP was formed to own EQT's partnership interests in EQM, a growth-oriented Delaware limited partnership formed by EQT to own, operate, acquire and develop midstream assets in the Appalachian Basin. EQT Midstream Services, LLC (EQM General Partner) is a direct wholly owned subsidiary of EQGP and is EQM's general partner. EQT GP Services, LLC (EQGP General Partner) is a wholly owned subsidiary of EQT and is EQGP's general partner.

For accounting purposes, the historical financial statements of EQGP for the time periods prior to the completion of the IPO (the Predecessor) include the assets, liabilities and results of operations of EQM. Prior to the IPO, EQT directly held partnership interests in EQM through wholly owned subsidiaries, including the EQM General Partner. Prior to the closing of the IPO, those subsidiaries merged with and into EQGP and EQT contributed 100% of the outstanding limited liability company interests in the EQM General Partner to EQGP.

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 adjustments, unless otherwise disclosed in this Form 10-Q) necessary for a fair presentation of the financial position of EQGP as of June 30, 2016 and December 31, 2015, the results of its operations for the three and six months ended June 30, 2016 and 2015 and its cash flows and equity for the six months ended June 30, 2016 and 2015. Certain previously reported amounts have been reclassified to conform to the current year presentation. The balance sheet at December 31, 2015 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.

EQGP has no independent operations and EQGP's only cash-generating assets consist of its partnership interests in EQM. EQGP’s financial statements differ from those of EQM primarily as a result of noncontrolling interest ownership attributable to the publicly held limited partner interests in EQM, additional expenses incurred by EQGP which include selling, general and administrative expenses, interest expense net of interest income and incremental income tax expense for the period prior to the EQGP IPO. Because the EQM General Partner is a wholly owned subsidiary of EQGP and controls EQM through its general partner interest, EQM is consolidated by EQGP.

NWV Gathering was a business and the NWV Gathering Acquisition was a transaction between entities under common control; therefore, EQM recorded the assets and liabilities of NWV Gathering at their carrying amounts to EQT on the date of the transaction. The difference between EQT’s 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. EQM recast its consolidated financial statements to retrospectively reflect the NWV Gathering Acquisition as if the business was owned for all periods presented; however, the consolidated financial statements are not necessarily indicative of the results of operations that would have occurred if EQM had owned it during the periods reported. 

Due to the seasonal nature of EQM’s utility customer contracts, the interim statements for the three and six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016.

For further information, refer to the consolidated financial statements and footnotes thereto included in EQGP's Annual Report on Form 10-K for the year ended December 31, 2015 as well as “Management's Discussion and Analysis of Financial Condition and Results of Operations” contained therein.

Recently Issued Accounting Standards
 
In May 2014, the 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

8

an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 will supersede most of the existing revenue recognition requirements in GAAP when it becomes effective and is required to be adopted using one of two retrospective application methods. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers - Deferral of the Effective Date which approved a one year deferral of ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is permitted as of the original effective date for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. EQGP is currently evaluating the method of adoption and impact this standard will have on its financial statements and related disclosures.

In February 2015, the FASB issued ASU No. 2015-02, Consolidation. The standard changes the analysis that a reporting entity
must perform to determine whether it should consolidate certain types of legal entities. EQGP adopted this standard in the first quarter of 2016 which had no significant impact on reported results. See Note J for additional disclosures required as a result of the adoption of this standard.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The changes primarily affect the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. This standard will eliminate the cost method of accounting for equity investments. The ASU will be effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period, with early adoption of certain provisions permitted. EQGP is currently evaluating the impact this standard will have on its financial statements and related disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The ASU requires, among other things, that lessees recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Lessees and lessors must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The ASU will be effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early adoption permitted. EQGP is currently evaluating the impact this standard will have on its financial statements and related disclosures.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments. This ASU amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, this ASU eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. EQGP is currently evaluating the impact this standard will have on its financial statements and related disclosures.

B.    Acquisitions

NWV Gathering Acquisition

On March 17, 2015, EQT contributed NWV Gathering to EQM Gathering. EQM paid total consideration of approximately $925.7 million to EQT, consisting of approximately $873.2 million in cash, 511,973 EQM common units and 178,816 EQM general partner units.

MVP Interest Acquisition

On March 30, 2015, EQM assumed from EQT 100% of the membership interests in MVP Holdco, the owner of the MVP Interest in the MVP Joint Venture, for approximately $54.2 million. The cash payment represented EQM's reimbursement to EQT for 100% of the capital contributions made by EQT to the MVP Joint Venture as of March 30, 2015. See Note F.

Preferred Interest Acquisition

On April 15, 2015, pursuant to the NWV Gathering Acquisition contribution and sale agreement, EQM acquired the Preferred Interest in EES from EQT for approximately $124.3 million. EES generates revenue from services provided to a local distribution company. See Note F.

9


C.     Equity

Holdings of EQGP Equity

On May 15, 2015, EQGP completed its IPO of 26,450,000 common units representing limited partner interests. All of the common units sold in the IPO were sold by EQT Gathering Holdings. EQGP did not receive any proceeds from, or incur any expenses in connection with, the completion of the IPO.

As of June 30, 2016, EQT indirectly held 239,715,000 EQGP common units, representing a 90.1% limited partner interest, and the entire non-economic general partner interest in EQGP, while the public held 26,450,000 EQGP common units, representing a 9.9% limited partner interest in EQGP.

Net Income Per Limited Partner Unit

Net income attributable to periods prior to the closing of EQGP's IPO is attributable to subsidiaries of EQT and has been excluded from the limited partners' interest in net income. The weighted average phantom unit awards included in the calculations of both basic and diluted weighted average limited partner units outstanding was 10,777 and 2,310 for the three months ended June 30, 2016 and 2015, respectively, and 9,214 and 2,310 for the six months ended June 30, 2016 and 2015, respectively.

Holdings of EQM Equity

As of June 30, 2016, EQGP and its subsidiaries owned 21,811,643 EQM common units, representing a 26.6% limited partner interest, 1,443,015 EQM general partner units, representing the 1.8% general partner interest, and all of the incentive distribution rights (IDRs) in EQM. As of June 30, 2016, the public held 58,770,115 EQM common units, representing a 71.6% limited partner interest in EQM.

The following table summarizes EQM's common, subordinated and general partner units issued from January 1, 2015 through June 30, 2016.
 
EQM Limited Partner Units
 
EQM General
Partner Units
 
 
 
Common
 
Subordinated
 
 
Total
Balance at January 1, 2015
43,347,452

 
17,339,718

 
1,238,514

 
61,925,684

Conversion of subordinated units to common units
17,339,718

 
(17,339,718
)
 
—

 
—

2014 EQM VDA issuance
21,063

 
—

 
430

 
21,493

March 2015 equity offering
9,487,500

 
—

 
25,255

 
9,512,755

NWV Gathering Acquisition consideration
511,973

 
—

 
178,816

 
690,789

$750 million "At the Market" (ATM) Program
1,162,475

 
—

 
—

 
1,162,475

November 2015 equity offering
5,650,000

 
—

 
—

 
5,650,000

Balance at December 31, 2015
77,520,181

 
—

 
1,443,015

 
78,963,196

2014 EQM VDA issuance
19,796

 
—

 
—

 
19,796

EQM Total Return Program issuance
92,472

 
—

 
—

 
92,472

$750 million ATM Program
2,949,309

 
—

 
—

 
2,949,309

Balance at June 30, 2016
80,581,758

 
—

 
1,443,015

 
82,024,773


In February 2016, EQM issued 19,796 common units under the 2014 EQM Value Driver Award (2014 EQM VDA) and 92,472 common units under the EQM Total Return Program, which were compensation programs for EQT employees performing work for EQM. The awards were granted in January 2014 and July 2012, respectively.

During the three months ended June 30, 2016, EQM issued 2,949,309 common units at an average price per unit of $74.42 under the $750 million ATM Program. EQM received net proceeds of approximately $217.1 million after deducting commissions of approximately $2.2 million and other offering expenses of approximately $0.2 million. EQM intends to use the net proceeds from the sales for general partnership purposes, including but not limited to, funding the expected asset

10

acquisition from EQT. EQGP recorded a $44.9 million increase to common units and a corresponding decrease in noncontrolling interest of EQM as a result of the EQM common units issued under the $750 million ATM Program.

D.    Financial Information by Business Segment
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
 
(Thousands)
Revenues from external customers (including affiliates):
 

 
 

 
 

 
 

Gathering
$
94,281

 
$
76,473

 
$
187,597

 
$
151,923

Transmission and storage
77,723

 
68,140

 
165,008

 
147,501

Total
$
172,004

 
$
144,613

 
$
352,605

 
$
299,424

 
 
 
 
 
 
 
 
Operating income:
 

 
 

 
 

 
 

Gathering
$
69,858

 
$
55,479

 
$
139,913

 
$
110,941

Transmission and storage
54,437

 
45,917

 
116,568

 
103,207

Headquarters
(774
)
 
(1,038
)
 
(1,731
)
 
(1,038
)
Total operating income
$
123,521

 
$
100,358

 
$
254,750

 
$
213,110

 
 
 
 
 
 
 
 
Reconciliation of operating income to net income:
 
 
 

 
 

 
 

Other income
9,858

 
1,563

 
16,995

 
2,277

Interest expense
9,389

 
11,640

 
19,646

 
23,097

Income tax expense
—

 
5,436

 
—

 
25,770

Net income
$
123,990

 
$
84,845

 
$
252,099

 
$
166,520

 
June 30, 2016
 
December 31, 2015
 
(Thousands)
Segment assets:
 

 
 

Gathering
$
1,105,115

 
$
963,877

Transmission and storage
1,282,128

 
1,110,027

Total operating segments
2,387,243

 
2,073,904

Headquarters, including cash
346,627

 
560,363

Total assets
$
2,733,870

 
$
2,634,267

 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
 
(Thousands)
Depreciation and amortization:
 

 
 

 
 

 
 

Gathering
$
6,865

 
$
5,241

 
$
13,634

 
$
10,400

Transmission and storage
8,246

 
7,017

 
16,955

 
13,785

Total
$
15,111

 
$
12,258

 
$
30,589

 
$
24,185

 
 
 
 
 
 
 
 
Expenditures for segment assets:
 
 
 
 
 
 
 
Gathering
$
82,279

 
$
69,029

 
$
151,710

 
$
105,298

Transmission and storage
108,709

 
58,020

 
155,116

 
79,482

Total (1)
$
190,988

 
$
127,049

 
$
306,826

 
$
184,780


 (1)  EQM accrues capital expenditures when work has been completed but the associated bills have not yet been paid.  These accrued amounts are excluded from capital expenditures on the statements of consolidated cash flows until they are paid in a subsequent period. Accrued capital expenditures were approximately $49.3 million, $29.4 million and $18.3 million at June 30, 2016, March 31, 2016 and December 31, 2015, respectively. Accrued capital expenditures were approximately $27.0 million, $17.4 million and $51.1 million at June 30, 2015, March 31, 2015 and December 31, 2014, respectively.

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E.    Related Party Transactions 

In the ordinary course of business, EQGP and EQM have transactions with EQT and its affiliates. EQM has various contracts with affiliates including, but not limited to, transportation service and precedent agreements, storage agreements and gas gathering agreements. EQGP and EQM each have an omnibus agreement with EQT. Pursuant to the omnibus agreements, EQT performs centralized corporate, general and administrative services for EQGP and EQM. In exchange, EQGP and EQM reimburse EQT for the expenses incurred in providing these services, including direct and indirect costs and expenses attributable to EQT's long-term incentive programs. Pursuant to an operation and management services agreement, EQT Gathering, LLC (EQT Gathering), an indirect wholly owned subsidiary of EQT, provides EQM’s pipelines and storage facilities with certain operational and management services.  EQM reimburses EQT Gathering for such services pursuant to the terms of the omnibus agreement.  The expenses for which EQGP and EQM reimburse EQT and its subsidiaries may not necessarily reflect the actual expenses that EQGP and EQM would incur on a stand-alone basis and EQGP and EQM are unable to estimate what those expenses would be on a stand-alone basis. See also Note B, Note C, Note F and Note G for further discussion of related party transactions.

EQT terminated the EQT Corporation Retirement Plan for Employees (the Retirement Plan) effective December 31, 2014. On March 2, 2016, the IRS issued a favorable determination letter for the termination of the Retirement Plan. On June 28, 2016, EQT purchased annuities from and transferred the Retirement Plan assets and liabilities to American General Life Insurance Company. As a result, in the third quarter of 2016 EQM will reimburse EQT for its proportionate share of such funding, approximately $5.2 million, related to retirees of Equitrans, L.P. (Equitrans), an indirect wholly owned subsidiary of EQM and the owner of the FERC-regulated transmission, storage and gathering system. The settlement charge is expected to be recoverable in FERC approved rates and thus was recorded as a regulatory asset that will be amortized for rate recovery purposes over a period of 16 years.

F.    Investments in Unconsolidated Entities

MVP Joint Venture

The MVP Joint Venture plans to construct the Mountain Valley Pipeline (MVP), an estimated 300-mile natural gas interstate pipeline spanning from northern West Virginia to southern Virginia. EQM is the operator of the MVP and owned a 45.5% interest in the MVP Joint Venture as of June 30, 2016. The MVP Joint Venture has been determined to be a variable interest entity because the MVP Joint Venture has insufficient equity to finance activities during the construction stage of the project. EQM is not the primary beneficiary because it does not have the power to direct the activities of the MVP Joint Venture that most significantly impact its economic performance. Certain business decisions require the approval of owners holding more than a 66 2/3% interest in the joint venture and no one member owns more than a 66 2/3% interest. EQM accounted for the MVP Interest as an equity method investment as EQM has the ability to exercise significant influence over operating and financial policies of the MVP Joint Venture.

The value of the equity method investment recorded on the consolidated balance sheets was approximately $135.9 million and $77.0 million as of June 30, 2016 and December 31, 2015, respectively. On July 15, 2016, MVP Holdco paid capital contributions of $27.1 million to the MVP Joint Venture. The capital contribution payable has been reflected on the consolidated balance sheet as of June 30, 2016 with a corresponding increase to EQM's investment in the MVP Joint Venture.

Equity income related to EQM's portion of the MVP Joint Venture's AFUDC on construction of the MVP is reported in other income in the statements of consolidated operations and was $1.9 million and $0.4 million for the three months ended June 30, 2016 and 2015, respectively, and $3.4 million and $0.4 million for the six months ended June 30, 2016 and 2015, respectively.

On January 21, 2016, an affiliate of Consolidated Edison, Inc. (ConEd) acquired a 12.5% interest in the MVP Joint Venture, 8.5% of which was purchased from EQM. EQM received a cash payment of approximately $12.5 million which represented EQM's proportional capital contributions to the MVP Joint Venture through the date of the transaction. ConEd has the right to terminate its purchase of the interest in the MVP Joint Venture and be reimbursed for the purchase price and all capital contributions it makes to the MVP Joint Venture for a period ending no later than December 31, 2016.

As of June 30, 2016, EQM had issued a $91 million performance guarantee in favor of the MVP Joint Venture to provide performance assurances for MVP Holdco's obligations to fund its proportionate share of the construction budget for the MVP. Upon the FERC’s initial release to begin construction of the MVP, EQM's guarantee will terminate and EQM will be obligated to issue a new guarantee in an amount equal to 33% of MVP Holdco’s remaining obligations to make capital contributions to

12

the MVP Joint Venture in connection with the then remaining construction budget, less, subject to certain limits, any credit assurances issued by any affiliate of EQM under such affiliate's precedent agreement with the MVP Joint Venture.

As of June 30, 2016, EQM's maximum financial statement exposure related to the MVP Joint Venture was approximately $227 million, which included the investment balance on the consolidated balance sheet as of June 30, 2016 and amounts which could have become due under the performance guarantee as of that date.

Preferred Interest

EES was determined to be a variable interest entity because it has insufficient equity to finance its activities. EQM is not the primary beneficiary because it does not have the power to direct the activities of EES that most significantly impact its economic performance. The Preferred Interest in EES was determined to be a cost method investment as EQM does not have the ability to exercise significant influence over operating and financial policies of EES.

During the three and six months ended June 30, 2016, EQM received cash distributions from EES of $2.8 million and $5.5 million, respectively, which were included in other income in the accompanying statements of consolidated operations. EQM expects to receive cash distributions of approximately $11 million during the year ended December 31, 2016. As of June 30, 2016 and December 31, 2015, the estimated fair value of EQM's Preferred Interest in EES was approximately $150 million and $140 million, respectively, and the carrying value of EQM's Preferred Interest in EES was $124.3 million at both dates. The fair value of EQM's Preferred Interest in EES is a Level 3 fair value measurement. As of June 30, 2016, the carrying value represents EQM's maximum exposure to loss.

G.     Credit Facility Borrowings
 
EQGP Working Capital Facility

On May 15, 2015, in connection with the closing of EQGP's IPO, EQGP entered into a Working Capital Loan Agreement with EQT (the Working Capital Facility). The Working Capital Facility provides for interest bearing loans of up to $50 million outstanding at any one time and matures on the earlier of February 18, 2019 or at least 90 days after EQT gives notice of termination.

As of June 30, 2016 and December 31, 2015, EQGP had approximately $0.2 million and $0.1 million, respectively, outstanding under the Working Capital Facility which is included in due to related party on the consolidated balance sheets. The maximum amount of EQGP’s outstanding credit facility borrowings at any time during the three and six months ended June 30, 2016 was approximately $0.2 million. The average daily balance of EQGP’s outstanding credit facility borrowings was approximately $0.2 million for the three and six months ended June 30, 2016 and interest was incurred at a weighted average annual interest rate of approximately 1.9% for the three and six months ended June 30, 2016. EQGP had no borrowings at any time during the six months ended June 30, 2015.

EQM Credit Facility

EQM has a $750 million credit facility that expires 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.

EQM had no borrowings outstanding on its credit facility as of June 30, 2016 and had $299 million outstanding as of December 31, 2015. The maximum amount of EQM’s outstanding credit facility borrowings was $128 million and $323 million at any time during the three months ended June 30, 2016 and 2015, respectively, and $299 million and $390 million at any time during the six months ended June 30, 2016 and 2015, respectively. The average daily balance of credit facility borrowings outstanding was approximately $33 million and $302 million for the three months ended June 30, 2016 and 2015, respectively, and approximately $83 million and $182 million for the six months ended June 30, 2016 and 2015, respectively. Interest was incurred on the credit facility borrowings at a weighted average annual interest rate of approximately 1.9% for the three and six months ended June 30, 2016 and approximately 1.7% for the three and six months ended June 30, 2015.

13


H.    Fair Value Measurements

The carrying value of cash and cash equivalents, accounts receivable, amounts due to/from related parties and accounts payable approximate fair value due to the short maturity of the instruments; these are considered Level 1 fair values. The carrying value of credit facility borrowings approximates fair value as the interest rates are based on prevailing market rates; this is considered a Level 1 fair value. As of June 30, 2016 and December 31, 2015, the estimated fair value of EQM's long-term debt was approximately $481 million and $414 million, respectively, and the carrying value of EQM's long-term debt was approximately $494 million and $493 million, respectively. The fair value of EQM's long-term debt is a Level 2 fair value measurement. See Note F for the fair value of EQM's Preferred Interest in EES.

I.     Income Taxes

The Predecessor's financial statements for the period prior to EQGP's IPO include U.S. federal and state income tax as its income was included as part of EQT's consolidated return for federal and state income tax purposes. The consolidated federal income tax was allocated among the group’s members on a separate return basis with tax credits allocated to the members generating the credits. Federal tax obligations of all subsidiary companies were settled through EQT. As a result of its limited partnership structure following EQGP's IPO, EQGP is not subject to federal and state income taxes. Subsequent to May 15, 2015, for federal and state income tax purposes, all income, expenses, gains, losses and tax credits generated by EQGP flow through to the unitholders; accordingly, EQGP does not record a provision for income taxes. In the second quarter of 2015, approximately $164.6 million of net current and deferred income taxes, including those associated with the operations of NWV Gathering, were eliminated through equity related to EQGP's IPO.

For the period prior to EQGP's IPO, EQGP estimated an annual effective tax rate based on projected results for the year and applied this rate to income before taxes to calculate income tax expense. All of EQM's earnings were included in EQGP's net income. However, EQGP was not required to record income tax expense with respect to the portion of EQM's earnings allocated to its noncontrolling public limited partners, which reduced EQGP's effective tax rate.

As discussed in Note B, EQM completed the NWV Gathering Acquisition on March 17, 2015, which was a transaction between entities under common control. Prior to this transaction, the income from NWV Gathering was included in EQT’s consolidated federal tax return; therefore, the NWV Gathering operations were subject to income taxes. Accordingly, the income tax effects associated with the operations of NWV Gathering prior to the NWV Gathering Acquisition were reflected in EQM’s consolidated financial statements.

14


J.     Consolidated Variable Interest Entity

EQGP adopted ASU No. 2015-02, Consolidation, in the first quarter of 2016 and, as a result, EQGP determined EQM to be a variable interest entity. Through EQGP's ownership and control of the EQM General Partner, EQGP has the power to direct the activities that most significantly impact EQM's economic performance. In addition, through EQGP's general partner interest, IDRs and limited partner interest in EQM, EQGP has the obligation to absorb EQM's losses and the right to receive benefits from EQM in accordance with its general partner and limited partner ownership percentages and IDRs. Therefore, EQGP has a controlling financial interest in EQM, is the primary beneficiary of EQM and consolidates EQM.

EQGP's only cash-generating assets consist of its partnership interests in EQM. As a result, EQGP's results of operations do not differ materially from the results of operations of EQM. The risks associated with EQM's operations are discussed in EQGP's Annual Report on Form 10-K for the year ended December 31, 2015 and this Quarterly Report on Form 10-Q. See further discussion of the impact that EQGP's involvement in EQM has on EQGP's financial position, results of operations and cash flows included in EQGP's Annual Report on Form 10-K for the year ended December 31, 2015, including in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained therein. For a discussion of related party transactions, see Note 5 of Item 8 in EQGP's Annual Report on Form 10-K for the year ended December 31, 2015.

The following table presents amounts included in EQGP's consolidated balance sheets that were for the use or obligation of EQM as of June 30, 2016 and December 31, 2015.
Classification
June 30, 2016
 
December 31, 2015
 
(Thousands)
Assets:
 

 
 

Cash and cash equivalents
$
84,094

 
$
350,814

Accounts receivable
15,749

 
17,131

Accounts receivable – affiliate
74,600

 
77,925

Other current assets
2,341

 
1,680

Net property, plant and equipment
2,276,474

 
1,969,993

Investments in unconsolidated entities
260,266

 
201,342

Other assets
19,804

 
14,950

Liabilities:
 
 
 
Accounts payable
71,791

 
35,868

Due to related party
26,002

 
33,413

EQM credit facility borrowings
—

 
299,000

Capital contribution payable to MVP Joint Venture
27,052

 
—

Accrued interest
8,338

 
8,753

Accrued liabilities
18,150

 
12,194

Long-term debt
493,786

 
493,401

Lease obligation
190,546

 
175,660

Other long-term liabilities
$
9,333

 
$
7,834


15


K.     Distributions

EQM and EQGP declared the following cash distributions to their respective unitholders for the periods presented:
Quarters Ended
 
EQM Total Quarterly Distribution per Common Unit
 
EQM Total Quarterly Cash Distribution
 
EQM Quarterly Distribution to Noncontrolling Interests
 
EQGP Total Quarterly Distribution
per Common Unit
 
Date of Distribution
 
 
(Thousands, except per unit amounts)
2015
 
 
 
 
 
 
 
 
 
 
March 31
 
$
0.61

 
$
52,222

 
$
29,827

 
N/A

 
May 2015
June 30 (1)
 
0.64

 
56,464

 
31,293

 
$
0.04739

 
August 2015
September 30
 
0.675

 
62,396

 
33,790

 
0.104

 
November 2015
December 31
 
$
0.71

 
$
72,575

 
$
39,553

 
$
0.122

 
February 2016
2016
 
 
 
 
 
 
 
 
 
 
March 31
 
$
0.745

 
$
78,093

 
$
41,587

 
$
0.134

 
May 2016
June 30 (2)
 
$
0.78

 
$
86,595

 
$
45,841

 
$
0.15

 
August 2016

(1)
The cash distribution to EQGP’s unitholders for the second quarter of 2015 of $0.04739 per common unit was pro-rated for the 47-day period from the date of the closing of EQGP's IPO on May 15, 2015 through June 30, 2015.

(2)
On July 26, 2016, the Board of Directors of the EQM General Partner declared a cash distribution to EQM's unitholders for the second quarter of 2016 of $0.78 per common unit. The cash distribution will be paid on August 12, 2016 to unitholders of record, including EQGP, at the close of business on August 5, 2016. Based on the 80,581,758 EQM common units outstanding on July 28, 2016, cash distributions to EQGP will be approximately $40.8 million consisting of: $17.0 million related to its limited partner interest, $1.6 million related to its general partner interest and $22.2 million related to its IDRs in EQM. These distribution amounts to EQGP are subject to change if EQM issues additional common units on or prior to the record date for the second quarter 2016 distribution.

On July 26, 2016, the Board of Directors of the EQGP General Partner declared a cash distribution to EQGP’s unitholders for the second quarter of 2016 of $0.15 per common unit, or approximately $39.9 million. The distribution will be paid on August 22, 2016 to unitholders of record at the close of business on August 5, 2016.

16


EQT GP Holdings, LP and Subsidiaries
Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
EQGP, which completed its IPO on May 15, 2015, is a Delaware limited partnership formed in January 2015 to own EQT's partnership interests in EQM. References in the following discussion to EQGP, when used for periods prior to the completion of the IPO, refer to EQGP's Predecessor which includes the assets, liabilities and results of operations of the EQM General Partner and EQT Midstream Investments, LLC (EQM LP). Prior to the IPO, the EQM General Partner and EQM LP were wholly owned subsidiaries of EQT and directly held EQT's partnership interests in EQM. EQM's consolidated financial statements for all periods presented include the historical results of NWV Gathering, which was acquired on March 17, 2015, as NWV Gathering was a business and the transaction was 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.

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 “Management’s 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 EQGP, including guidance regarding EQM's gathering and transmission and storage revenue and volume growth; revenue projections; infrastructure programs (including the timing, cost, capacity and sources of funding with respect to gathering and transmission expansion projects); the timing, cost, capacity and expected interconnections with facilities and pipelines of the Ohio Valley Connector (OVC) and MVP projects; the ultimate terms, partners and structure of the MVP Joint Venture; natural gas production growth in EQM's operating areas for EQT and third parties; asset acquisitions, including EQM's ability to complete asset acquisitions from EQT or third parties; the amount and timing of distributions, including expected increases; the expected cash distributions from EES; projected capital contributions and operating and capital expenditures, including the amount of capital expenditures reimbursable by EQT; the impact of commodity prices on EQM's business; liquidity and financing requirements, including sources and availability and the use of proceeds from common units sold under the ATM Program; EQM's reimbursement of EQT for its proportionate share of the funding for the Retirement Plan termination; 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.  EQGP has based these forward-looking statements on current expectations and assumptions about future events. While EQGP considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks and uncertainties, many of which are difficult to predict and are beyond EQGP's control. The risks and uncertainties that may affect the operations, performance and results of EQGP's and EQM's business and forward-looking statements include, but are not limited to, those set forth under Item 1A, “Risk Factors” in EQGP’s Annual Report on Form 10-K for the year ended December 31, 2015, as updated by Part II, Item 1A, "Risk Factors" in this Quarterly Report on Form 10-Q.
 
Any forward-looking statement speaks only as of the date on which such statement is made and EQGP 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 EQGP or EQM. The agreements may contain representations and warranties by EQGP or EQM, 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 EQGP or its affiliates as of the date they were made or at any other time.

17


EXECUTIVE OVERVIEW

For the three months ended June 30, 2016, EQM reported net income of $124.8 million compared to $91.3 million for the three months ended June 30, 2015. The increase resulted from higher gathering and transmission and storage revenues, both of which were primarily driven by affiliate production development in the Marcellus Shale, and higher other income. These items were partly offset by an increase in operating expenses.

For the six months ended June 30, 2016, EQM reported net income of $253.8 million compared to $186.6 million for the six months ended June 30, 2015. The increase resulted from higher gathering and transmission and storage revenues, both of which were primarily driven by affiliate production development in the Marcellus Shale, higher other income and lower income tax expense. These items were partly offset by an increase in operating expenses.

During the second quarter of 2016, EQM issued 2,949,309 common units at an average price per unit of $74.42 under the $750 million ATM Program. EQM received net proceeds of approximately $217.1 million.

EQM declared a cash distribution to EQM unitholders of $0.78 per unit on July 26, 2016, which was 5% higher than the first quarter 2016 distribution of $0.745 per unit and 22% higher than the second quarter 2015 distribution of $0.64 per unit.

EQGP declared a cash distribution to EQGP unitholders of $0.15 per unit on July 26, 2016, which was 12% higher than the first quarter 2016 distribution of $0.134 per unit.

Items Affecting the Comparability of EQGP's Financial Results to Those of EQM

The following is a summary of the primary items which may result in differences between EQGP's and EQM's results of operations:

Reconciliation of Net Income Attributable to EQM to Net Income Attributable to EQGP.

The difference between EQM net income as reported in EQM's Quarterly Report on Form 10-Q for the three and six months ended June 30, 2016 and 2015 and net income attributable to EQGP for the same periods is:
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
 
(Thousands)
Net income attributable to EQM
$
124,762

 
$
91,319

 
$
253,827

 
$
186,625

Less:
 
 
 
 
 
 
 
Net income attributable to EQM noncontrolling interests
72,744

 
56,189

 
150,531

 
103,929

Income tax expense
—

 
5,436

 
—

 
19,067

Additional expenses
772

 
1,038

 
1,728

 
1,038

Net income attributable to EQGP
$
51,246

 
$
28,656

 
$
101,568

 
$
62,591


Noncontrolling Interests. The common units in EQM not held by EQGP are reflected as noncontrolling interests in the consolidated financial statements. These amounts will fluctuate based on EQM's net income and future changes in the public ownership percentage of EQM. Net income attributable to noncontrolling interests of EQM increased by $16.6 million and $46.6 million for the three and six months ended June 30, 2016 compared to the three and six months ended June 30, 2015, respectively, due to higher EQM net income as well as additional noncontrolling interests outstanding as a result of EQM equity offerings during the periods.

Income Taxes. EQGP's Predecessor was included in EQT's consolidated income tax return for federal and state tax purposes for the period prior to the EQGP IPO. As a result, in addition to EQM's historic income tax provision, the accompanying consolidated financial statements also include the income taxes incurred by the Predecessor computed on a separate return basis. Subsequent to the IPO, EQGP is a limited partnership for U.S. federal and state income tax purposes and is not subject to U.S. federal or state income taxes.


18

Additional Expenses. Subsequent to its IPO, EQGP incurs selling, general and administrative expenses as a result of being a publicly traded partnership. These expenses are separate from and in addition to similar costs incurred by EQM. These expenses include expenses allocated from EQT for compensation and centralized general and administrative services, and independent director compensation, auditing, legal and regulatory costs. EQGP also incurs interest expense under its Working Capital Facility and earns interest income on cash on hand.

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. Other income and interest are managed on a consolidated basis. EQGP has presented each segment's operating income and various operational measures in the following sections. Management believes that the presentation of this information provides useful information to management and investors regarding the financial condition, results of operations and trends of segments. EQGP's two segments are the same as those of EQM as EQGP does not have any operating activities separate from those of EQM. EQGP has reconciled each segment's operating income to EQGP's consolidated operating income and net income in Note D to the consolidated financial statements.

GATHERING

RESULTS OF OPERATIONS
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
% Change
 
2016
 
2015
 
% Change
FINANCIAL DATA
(Thousands, other than per day amounts)
Firm reservation fee revenues
$
80,735

 
$
64,091

 
26.0

 
$
159,917

 
$
118,349

 
35.1

Volumetric based fee revenues:
 
 
 
 
 
 
 
 
 
 
 
Usage fees under firm contracts(1)
11,025

 
7,182

 
53.5

 
21,492

 
16,614

 
29.4

Usage fees under interruptible contracts
2,521

 
5,200

 
(51.5
)
 
6,188

 
16,960

 
(63.5
)
Total volumetric based fee revenues
13,546

 
12,382

 
9.4

 
27,680

 
33,574

 
(17.6
)
Total operating revenues
94,281

 
76,473

 
23.3

 
187,597

 
151,923

 
23.5

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Operating and maintenance
8,601

 
9,794

 
(12.2
)
 
17,079

 
17,017

 
0.4

Selling, general and administrative
8,957

 
5,959

 
50.3

 
16,971

 
13,565

 
25.1

Depreciation and amortization
6,865

 
5,241

 
31.0

 
13,634

 
10,400

 
31.1

Total operating expenses
24,423

 
20,994

 
16.3

 
47,684

 
40,982

 
16.4

Operating income
$
69,858

 
$
55,479

 
25.9

 
$
139,913

 
$
110,941

 
26.1

 
 
 
 
 
 
 
 
 
 
 
 
OPERATIONAL DATA
 

 
 

 
 

 
 

 
 

 
 

Gathering volumes (BBtu per day)
 
 
 
 
 
 
 
 
 
 
 
Firm reservation
1,486

 
1,102

 
34.8

 
1,433

 
1,027

 
39.5

Volumetric based services(2)
352

 
319

 
10.3

 
429

 
422

 
1.7

Total gathered volumes
1,838

 
1,421

 
29.3

 
1,862

 
1,449

 
28.5

 
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
$
82,279

 
$
69,029

 
19.2

 
$
151,710

 
$
105,298

 
44.1


(1)    Includes fees on volumes gathered in excess of firm contracted capacity.
(2)    Includes volumes gathered under interruptible contracts and volumes in excess of firm contracted capacity.

Three Months Ended June 30, 2016 Compared to Three Months Ended June 30, 2015
 
Gathering revenues increased by $17.8 million primarily as a result of higher affiliate volumes gathered for the three months ended June 30, 2016 compared to the three months ended June 30, 2015, driven by production development in the Marcellus Shale. EQM increased firm reservation fee revenues as a result of affiliates and third parties contracting for additional capacity under firm contracts. EQM increased firm gathering capacity by approximately 300 MMcf per day as a result of the NWV Gathering and Jupiter expansion projects completed in the fourth quarter of 2015. The decrease in usage fees under interruptible contracts was primarily due to these additional contracts for firm capacity.

19

Operating expenses increased by $3.4 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015. Operating and maintenance expense decreased primarily as a result of the timing of repairs and maintenance expenses. Selling, general and administrative expense increased primarily as a result of higher allocations and personnel costs from EQT, including incentive compensation. The increase in depreciation and amortization expense resulted from additional assets placed in-service including those associated with the NWV Gathering and Jupiter expansion projects.

Six Months Ended June 30, 2016 Compared to Six Months Ended June 30, 2015

Gathering revenues increased by $35.7 million primarily as a result of higher affiliate volumes gathered for the six months ended June 30, 2016 compared to the six months ended June 30, 2015, driven by production development in the Marcellus Shale. EQM increased firm reservation fee revenues as a result of affiliates and third parties contracting for additional capacity under firm contracts. The decrease in usage fees under interruptible contracts was primarily due to these additional contracts for firm capacity.

Operating expenses increased by $6.7 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. Selling, general and administrative expense increased primarily as a result of higher allocations and personnel costs from EQT, including incentive compensation. The increase in depreciation and amortization expense resulted from additional assets placed in-service including those associated with the NWV Gathering and Jupiter expansion projects. 

TRANSMISSION AND STORAGE

Operating revenues and operating expenses related to the Allegheny Valley Connector (AVC) facilities do not have an impact on EQM's 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.

RESULTS OF OPERATIONS
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
% Change
 
2016
 
2015
 
% Change
FINANCIAL DATA
(Thousands, other than per day amounts)
Firm reservation fee revenues
$
60,284

 
$
56,671

 
6.4

 
$
130,393

 
$
124,854

 
4.4

Volumetric based fee revenues:
 
 
 
 
 
 
 
 
 
 
 
Usage fees under firm contracts(1)
14,245

 
10,084

 
41.3

 
27,674

 
19,017

 
45.5

Usage fees under interruptible contracts
3,194

 
1,385

 
130.6

 
6,941

 
3,630

 
91.2

Total volumetric based fee revenues
17,439

 
11,469

 
52.1

 
34,615

 
22,647

 
52.8

Total operating revenues
77,723

 
68,140

 
14.1

 
165,008

 
147,501

 
11.9

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Operating and maintenance
7,206

 
7,438

 
(3.1
)
 
15,373

 
14,694

 
4.6

Selling, general and administrative
7,834

 
7,768

 
0.8

 
16,112

 
15,815

 
1.9

Depreciation and amortization
8,246

 
7,017

 
17.5

 
16,955

 
13,785

 
23.0

Total operating expenses
23,286

 
22,223

 
4.8

 
48,440

 
44,294

 
9.4

Operating income
$
54,437

 
$
45,917

 
18.6

 
$
116,568

 
$
103,207

 
12.9

 
 
 
 
 
 
 
 
 
 
 
 
OPERATIONAL DATA
 

 
 

 
 

 
 

 
 

 
 

Transmission pipeline throughput (BBtu per day)
 
 
 
 
 
 
 
 
 
 
 
Firm capacity reservation
1,486

 
1,825

 
(18.6
)
 
1,554

 
1,924

 
(19.2
)
Volumetric based services(2)
570

 
257

 
121.8

 
528

 
236

 
123.7

Total transmission pipeline throughput
2,056

 
2,082

 
(1.2
)
 
2,082

 
2,160

 
(3.6
)
 
 
 
 
 
 
 
 
 
 
 
 
Average contracted firm transmission reservation commitments (BBtu per day)
2,386

 
2,362

 
1.0

 
2,703

 
2,655

 
1.8

 
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures
$
108,709

 
$
58,020

 
87.4

 
$
155,116

 
$
79,482

 
95.2


(1)    Includes commodity charges and fees on volumes transported in excess of firm contracted capacity.
(2)    Includes volumes transported under interruptible contracts and volumes in excess of firm contracted capacity.

20

Three Months Ended June 30, 2016 Compared to Three Months Ended June 30, 2015

Transmission and storage revenues increased by $9.6 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015, driven by production development in the Marcellus Shale by affiliate and third party producers which resulted in higher usage fees under firm and interruptible contracts and higher contracted firm capacity. Reduced firm capacity reservation throughput for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 reflected reduced volumes from third party producers. This reduction did not have a significant impact on firm reservation fee revenues.

Operating expenses increased by $1.1 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 as a result of higher depreciation and amortization expense primarily related to the increased investment in the AVC facilities.

Six Months Ended June 30, 2016 Compared to Six Months Ended June 30, 2015

Transmission and storage revenues increased by $17.5 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015, driven by production development in the Marcellus Shale by affiliate and third party producers which resulted in higher usage fees under firm and interruptible contracts and higher contracted firm capacity. Reduced firm capacity reservation throughput for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 reflected reduced volumes from third party producers and warmer weather during the first quarter of 2016. This reduction did not have a significant impact on firm reservation fee revenues.

Operating expenses increased by $4.1 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 primarily as a result of higher depreciation and amortization expense related to the increased investment in the AVC facilities and additional assets placed in-service.

Other Income Statement Items
 
Other income increased by $8.3 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 primarily driven by increased AFUDC - equity of $4.1 million mainly attributable to increased spending on the OVC project, distributions received from EES of $2.8 million which began in January 2016 and higher equity income related to EQM's portion of the MVP Joint Venture's AFUDC on the MVP. Other income increased by $14.7 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 primarily driven by increased AFUDC - equity of $5.8 million mainly attributable to increased spending on the OVC project, distributions received from EES of $5.5 million and higher equity income related to EQM's portion of the MVP Joint Venture's AFUDC on the MVP.

Interest expense decreased by $2.2 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 primarily driven by decreased interest expense of $1.0 million on lower EQM credit facility borrowings, lower capital lease interest expense of $0.7 million and higher capitalized interest and AFUDC - debt associated with increased spending on regulated projects. Interest expense decreased by $3.4 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 primarily driven by higher capitalized interest and AFUDC - debt of $1.6 million associated with increased spending on regulated projects, lower capital lease interest expense of $1.2 million and decreased interest expense on lower EQM credit facility borrowings.

EQGP and EQM are not subject to U.S. federal and state income taxes. As previously noted, the NWV Gathering Acquisition, which closed on March 17, 2015, was a transaction between entities under common control for which the consolidated financial statements of EQM were retrospectively recast to reflect the combined entities.  Accordingly, the income tax effects associated with NWV Gathering's operations prior to the NWV Gathering Acquisition were reflected in the consolidated financial statements as NWV Gathering was previously part of EQT’s consolidated federal tax return. EQGP's Predecessor was also included in EQT's consolidated income tax return for federal and state tax purposes.  As a result, in addition to EQM's historic income tax provision, the accompanying consolidated financial statements also include the income taxes incurred by the EQGP Predecessor computed on a separate return basis for the period prior to EQGP's IPO.

See “Investing Activities” and “Capital Requirements” in the “Capital Resources and Liquidity” section below for a discussion of capital expenditures.

21


EQM's Non-GAAP Financial Measures
 
EQM defines adjusted EBITDA as EQM's net income plus interest expense, depreciation and amortization expense, income tax expense (if applicable) and non-cash long-term compensation expense less equity income, AFUDC - equity, capital lease payments and NWV Gathering adjusted EBITDA prior to the NWV Gathering Acquisition. EQM defines distributable cash flow as adjusted EBITDA less interest expense excluding capital lease interest, capitalized interest and AFUDC - debt, 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 EQM’s consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, use to assess:

•
EQM’s 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 EQM's assets to generate sufficient cash flow to make distributions to EQM's unitholders;
•
EQM's 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.

EQM believes that adjusted EBITDA and distributable cash flow provide useful information to investors in assessing its 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, EQM’s adjusted EBITDA and distributable cash flow may not be comparable to similarly titled measures of other companies, thereby diminishing the utility of the measures. Distributable cash flow should not be viewed as indicative of the actual amount of cash that EQM has available for distributions from operating surplus or that EQM plans to distribute.

22

Reconciliation of EQM Non-GAAP Financial Measures
 
The following table presents a reconciliation of the EQM non-GAAP financial measures adjusted EBITDA and distributable cash flow with the most directly comparable EQM GAAP financial measures of net income and net cash provided by operating activities as derived from EQM's Quarterly Reports on Form 10-Q for the quarters ended June 30, 2016 and March 31, 2016.
 
Three Months Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
2016
 
2015
 
2016
 
2015
 
(Thousands)
Net income
$
124,762

 
$
91,319

 
$
253,827

 
$
186,625

Add:
 
 
 
 
 
 
 
Interest expense
9,391

 
11,640

 
19,649

 
23,097

Depreciation and amortization expense
15,111

 
12,258

 
30,589

 
24,185

Income tax expense
—

 
—

 
—

 
6,703

Non-cash long-term compensation expense
—

 
239

 
195

 
805

Less:
 
 
 
 
 
 
 
Equity income
(1,850
)
 
(394
)
 
(3,439
)
 
(394
)
AFUDC – equity
(5,242
)
 
(1,169
)
 
(7,714
)
 
(1,883
)
Capital lease payments for AVC (1)
(4,036
)
 
(3,427
)
 
(13,400
)
 
(12,271
)
Adjusted EBITDA attributable to NWV Gathering prior to acquisition (2)
—

 
—

 
—

 
(19,841
)
Adjusted EBITDA
$
138,136

 
$
110,466

 
$
279,707

 
$
207,026

Less:
 
 
 
 
 
 
 
Interest expense excluding capital lease interest
(4,196
)
 
(5,742
)
 
(9,053
)
 
(11,274
)
Capitalized interest and AFUDC - debt (3)
(1,706
)
 
—

 
(3,136
)
 
—

Ongoing maintenance capital expenditures net of expected reimbursements (4)
(3,161
)
 
(1,878
)
 
(5,130
)
 
(2,925
)
Distributable cash flow
$
129,073

 
$
102,846

 
$
262,388

 
$
192,827

 
 
 
 
 
 
 
 
Net cash provided by operating activities
$
150,426

 
$
124,443

 
$
268,680

 
$
239,102

Adjustments:
 
 
 
 
 
 
 
Capital lease payments for AVC (1)
(4,036
)
 
(3,427
)
 
(13,400
)
 
(12,271
)
Capital lease interest expense
5,195

 
5,898

 
10,596

 
11,823

Capitalized interest and AFUDC - debt (3)
(1,706
)
 
—

 
(3,136
)
 
—

Ongoing maintenance capital expenditures, net of expected reimbursements (4)
(3,161
)
 
(1,878
)
 
(5,130
)
 
(2,925
)
Current tax expense (benefit)
—

 
—

 
—

 
3,705

Adjusted EBITDA attributable to NWV Gathering prior to acquisition (2)
—

 
—

 
—

 
(19,841
)
Other, including changes in working capital
(17,645
)
 
(22,190
)
 
4,778

 
(26,766
)
Distributable cash flow
$
129,073

 
$
102,846

 
$
262,388

 
$
192,827

 
(1)
Reflects capital lease payments due under the lease. These lease payments are generally made monthly on a one month lag.

(2)
Adjusted EBITDA attributable to NWV Gathering prior to acquisition for the periods presented was excluded from EQM’s adjusted EBITDA calculations as these amounts were generated by NWV Gathering prior to EQM’s acquisition; therefore, they were not amounts that could have been distributed to EQM’s unitholders. Adjusted EBITDA attributable to NWV Gathering for the six months ended June 30, 2015 was calculated as net income of $11.1 million plus depreciation and amortization expense of $2.0 million plus income tax expense of $6.7 million.

(3)
As a result of the increased significance of capitalized interest and AFUDC - debt in 2016, this line item was added as an adjustment to the calculation of distributable cash flow for the three and six months ended June 30, 2016. Had distributable cash flow been calculated on a consistent basis, it would have been $1.1 million and $1.6 million lower for the three and six months ended June 30, 2015, respectively, than the numbers presented herein.

23

(4)
Ongoing maintenance capital expenditures, net of expected reimbursements excludes ongoing maintenance that EQM expects to be reimbursed or that was reimbursed by EQT under the terms of EQM's omnibus agreement of zero and $1.5 million for the three months ended June 30, 2016 and 2015, respectively, and $0.2 million and $1.7 million for the six months ended June 30, 2016 and 2015, respectively. Additionally, it excludes ongoing maintenance attributable to NWV Gathering prior to acquisition of $0.3 million for the six months ended June 30, 2015.
 
See "Executive Overview" above for a discussion of EQM's net income, the GAAP financial measure most directly comparable to adjusted EBITDA. EQM's adjusted EBITDA increased by $27.7 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 and $72.7 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 primarily as a result of higher operating income on increased revenues driven by production development in the Marcellus Shale and the NWV Gathering Acquisition, which resulted in EBITDA subsequent to the transaction being reflected in adjusted EBITDA.

EQM's net cash provided by operating activities, the GAAP financial measure most directly comparable to distributable cash flow, increased by $29.6 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 as discussed in the “Capital Resources and Liquidity" section in EQM's Quarterly Report on Form 10-Q for the quarter ended June 30, 2016. Distributable cash flow increased by $26.2 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 and $69.6 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 mainly attributable to the increase in adjusted EBITDA.

Outlook
 
EQGP's principal business objective is to increase the quarterly cash distribution it pays to its unitholders over time through its ownership interests in EQM. EQM's 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. EQM 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 and Utica Shales that lack substantial natural gas pipeline infrastructure. EQM believes it has a competitive advantage in pursuing economically attractive organic expansion projects in its areas of operations, which EQM believes will be a key driver of growth in the future. EQM is also currently pursuing organic growth projects that are expected to provide access to markets in the Midwest, Gulf Coast and Southeast regions. Additionally, EQM 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 EQM.

EQM expects that the following expansion projects will allow it to capitalize on drilling activity by EQT and third party producers:

•
Ohio Valley Connector. The OVC is a 37-mile pipeline that will extend EQM's transmission and storage system from northern West Virginia to Clarington, Ohio, at which point it will interconnect with the Rockies Express Pipeline and may interconnect with other pipelines and liquidity points. The OVC will provide approximately 850 BBtu per day of transmission capacity with an aggregate compression of approximately 38,000 horsepower and is estimated to cost $350 million to $380 million, of which $210 million to $220 million is expected to be spent in 2016. EQT has entered into a 20-year transportation service agreement with EQM for a total of 650 BBtu per day of firm transmission capacity on the OVC. EQM received its FERC certificate to construct and operate the OVC on December 30, 2015 and construction began in January 2016. EQM expects the OVC to be in-service by year-end 2016.

•
Range Resources Header Pipeline Project. EQM is constructing a natural gas header pipeline for a subsidiary of Range Resources Corporation (Range Resources) in southwestern Pennsylvania to support Marcellus and Utica development. The pipeline is expected to cost approximately $250 million and is contracted to provide 600 MMcf per day of firm capacity backed by a ten-year firm capacity reservation commitment. EQM plans to complete the project in two phases, with phase one expected to be in-service during the second half of 2016 and phase two during the first half of 2017. EQM expects to invest approximately $195 million to $205 million on the project in 2016.

•
NWV Gathering and Jupiter Development Areas. EQM expects to invest a total of approximately $370 million, of which approximately $95 million to $105 million is expected to be spent during 2016, related to expansion in the NWV Gathering development area. These expenditures are part of a fully subscribed expansion project expected to raise total firm gathering capacity in the NWV Gathering development area to 640 MMcf per day by mid-year 2017. EQM also plans to invest approximately $20 million in the Jupiter development area to install a gathering pipeline that will extend the gathering system to include additional EQT Production development areas in Greene County, Pennsylvania.


24

•
Transmission Expansion Projects. EQM is evaluating several multi-year transmission capacity expansion projects to support production growth in the Marcellus and Utica Shales that could total an additional 1.5 Bcf per day of capacity by year-end 2018. The projects may include additional compression, pipeline looping and new header pipelines. EQM expects to spend approximately $25 million on these expansion projects during 2016.

•
Mountain Valley Pipeline. The MVP Joint Venture is a joint venture with affiliates of each of NextEra Energy, Inc., Consolidated Edison, Inc., WGL Holdings, Inc.,Vega Energy Partners, Ltd. and RGC Resources, Inc. EQM is the operator of the MVP and owned a 45.5% interest in the MVP Joint Venture as of July 28, 2016. The 42 inch diameter MVP has a targeted initial capacity of 2.0 Bcf per day and is estimated to span 300-miles extending from EQM's existing transmission and storage system in Wetzel County, West Virginia to Pittsylvania County, Virginia. As currently designed, the MVP is estimated to cost a total of $3.0 billion to $3.5 billion, excluding AFUDC, with EQM funding its proportionate share through capital contributions made to the joint venture. In 2016, EQM expects to provide capital contributions of approximately $150 million to the MVP Joint Venture, primarily in support of material orders, environmental and land assessments and engineering design work. Expenditures are expected to increase substantially as construction commences, with the bulk of the expenditures expected to be made in 2017 and 2018. The MVP Joint Venture has secured a total of 2.0 Bcf per day of 20-year firm capacity commitments, including a 1.29 Bcf per day firm capacity commitment by EQT, and is currently in negotiation with additional shippers who have expressed interest in the MVP project. The MVP Joint Venture submitted the MVP certificate application to the FERC in October 2015, and the FERC issued the Notice of Schedule for Environmental Review (NOS) on June 28, 2016. Based on the schedule provided in the NOS, the MVP Joint Venture anticipates receiving the certificate and commencing construction in mid-year 2017. The pipeline is expected to be in-service during the fourth quarter of 2018.

See further discussion of capital expenditures in the “EQM Capital Requirements” section below.

Commodity Prices

EQM’s business is dependent on the continued availability of natural gas production and reserves in its areas of operation. Low prices for natural gas, including those resulting from regional basis differentials, could adversely affect development of additional reserves and production that is accessible by EQM’s pipeline and storage assets. The market prices for natural gas were depressed throughout 2015 and the first half of 2016 and continue to be volatile. Lower regional natural gas prices could cause producers to determine in the future that drilling activities in areas outside of EQM’s current areas of operation are strategically more attractive to them. In response to the depressed commodity price environment, a number of large natural gas producers announced their intention to re-evaluate and/or reduce their drilling programs in certain areas, including the Appalachian Basin. EQT's 2016 capital expenditure forecast is significantly lower than EQT's 2015 capital expenditures. EQT, or third party customers on EQM's systems, may reduce capital spending in the future based on commodity prices or other factors. Unless EQM is successful in attracting and retaining unaffiliated third party customers, which accounted for 50% of transmission and storage revenues and 3% of gathering revenues for the six months ended June 30, 2016, its ability to maintain or increase the capacity subscribed and volumes transported under service arrangements on its transmission and storage system as well as the volumes gathered on its gathering systems will be dependent on receiving consistent or increasing commitments from EQT. While EQT has dedicated acreage to EQM, and has entered into long-term firm transmission and gathering contracts on EQM's systems, EQT may determine in the future that drilling in areas outside of EQM's current areas of operations is strategically more attractive to it, and it is under no contractual obligation to continue to develop its acreage dedicated to EQM.

EQGP and EQM believe the high percentage of EQM's revenues derived from reservation charges under long-term, firm contracts will mitigate the risk of revenue fluctuations due to changes in near-term supply and demand conditions and commodity prices. For more information see “Risks Inherent in EQM’s Business - Any significant decrease in production of natural gas in EQM’s areas of operation could adversely affect its business and operating results and reduce its distributable cash flow" included in Item 1A, "Risk Factors" of EQGP's Annual Report on Form 10-K for the year ended December 31, 2015.

Capital Resources and Liquidity
 
Other than the cash required to maintain the EQM General Partner's general partner interest in EQM, EQGP did not have material capital requirements separate from those of EQM prior to its IPO. Going forward, EQGP expects its only capital requirements separate from EQM will be to provide funds for distributions or for the purchase of EQM general partner units if EQGP elects to maintain its existing general partner interest in EQM.

EQM’s principal liquidity requirements are to finance its operations, fund capital expenditures and potential acquisitions, make cash distributions and satisfy any indebtedness obligations. EQM’s ability to meet these liquidity requirements will depend on its ability to generate cash in the future as well as its ability to raise capital in banking, capital and other markets. EQM’s

25

available sources of liquidity include cash generated from operations, borrowing under EQM's credit facility, cash on hand, debt offerings and issuances of additional EQM partnership units. EQM expects to fund its remaining 2016 capital expenditures and the expected asset acquisition from EQT with cash on hand and available debt capacity.

EQGP has a Working Capital Facility with EQT as discussed in Note G. As of June 30, 2016, EQGP had approximately $0.2 million outstanding under the Working Capital Facility.

Operating Activities
 
Net cash flows provided by operating activities totaled $267.4 million for the six months ended June 30, 2016 compared to $239.1 million for the six months ended June 30, 2015. The $28.3 million increase was driven by higher operating income for which contributing factors are discussed in the “Executive Overview” and "Business Segment Results of Operations" sections herein, distributions received from EES of $5.5 million and the timing of payments between the two periods.

Investing Activities
 
Net cash flows used in investing activities totaled $304.0 million for the six months ended June 30, 2016 compared to $765.9 million for the six months ended June 30, 2015. The $461.9 million decrease was primarily attributable to the acquisition of the NWV Gathering net assets from EQT and the Preferred Interest Acquisition, both of which occurred during the six months ended June 30, 2015. These decreases were partly offset by increased capital expenditures as further described in the "Capital Requirements" section herein.
 
Financing Activities
 
Net cash used in financing activities totaled $229.9 million for the six months ended June 30, 2016 compared to net cash provided by financing activities of $356.5 million for the six months ended June 30, 2015. Net EQM credit facility repayments and distributions to EQM's noncontrolling interest unitholders and EQGP unitholders (including EQT) in the first six months of 2016 were partly offset by cash received from the sale of common units under the $750 million ATM Program. Cash inflows for the first six months of 2015 from EQM's March 2015 equity offering and net credit facility borrowings were partly offset by cash payments for the NWV Gathering Acquisition in excess of net assets acquired and distributions to EQT and EQM's noncontrolling interest unitholders.

EQM Capital Requirements

The gathering, transmission and storage businesses are capital intensive, requiring significant investment to develop new facilities and to maintain and upgrade existing operations. The following table presents EQM's capital expenditures for the three and six months ended June 30, 2016 and 2015.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(Thousands)
Expansion capital expenditures (1)
$
187,726

 
$
122,360

 
$
301,258

 
$
177,854

Maintenance capital expenditures:
 
 
 
 
 
 
 
Ongoing maintenance
3,161

 
3,413

 
5,292

 
5,010

Funded regulatory compliance
101

 
1,276

 
276

 
1,916

Total maintenance capital expenditures
3,262

 
4,689

 
5,568

 
6,926

Total capital expenditures (2)
$
190,988

 
$
127,049

 
$
306,826

 
$
184,780

 

(1) Expansion capital expenditures do not include capital contributions made to the MVP Joint Venture. Capital contributions to the MVP Joint Venture were $29.2 million and $40.7 million for the three and six months ended June 30, 2016, respectively. In the first quarter of 2015, EQM paid approximately $54.2 million for its acquisition of EQT's ownership interest in the MVP Joint Venture as described in Note B.

(2)
EQM accrues capital expenditures when work has been completed but the associated bills have not yet been paid. These accrued amounts are excluded from capital expenditures on the statements of consolidated cash flows until they are paid in a subsequent period. Accrued capital expenditures were approximately $49.3 million, $29.4 million and $18.3 million at June 30, 2016, March 31, 2016 and December 31, 2015, respectively. Accrued capital expenditures were approximately $27.0 million, $17.4 million and $51.1 million at June 30, 2015, March 31, 2015 and December 31, 2014, respectively.

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Expansion capital expenditures increased by $65.4 million for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 as a result of the timing of spending on projects. In the second quarter of 2016, expansion capital expenditures primarily related to the OVC, the Range Resources Header Pipeline project and the NWV Gathering expansion. In the second quarter of 2015, expansion capital expenditures primarily related to the OVC, the NWV Gathering and Jupiter expansions and a transmission project for Antero Resources Corporation (Antero). EQM completed the Antero transmission project in the second quarter of 2015 and the Jupiter gathering expansion in the fourth quarter of 2015.

Expansion capital expenditures increased by $123.4 million for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 as a result of the timing of spending on projects. In 2016, expansion capital expenditures primarily related to the OVC, the Range Resources Header Pipeline project and the NWV Gathering expansion. In 2015, expansion capital expenditures primarily related to the Jupiter and NWV Gathering expansions, the OVC and the Antero transmission project.

In 2016, expansion capital expenditures and capital contributions to the MVP Joint Venture are expected to be $695 million to $725 million and ongoing maintenance capital expenditures are expected to be approximately $25 million, net of reimbursements. EQM’s future capital investments may vary significantly from period to period based on the available investment opportunities and are expected to grow substantially in future periods for the OVC project, the Range Resources Header Pipeline project, the NWV Gathering expansion and capital contributions to the MVP Joint Venture. Maintenance related capital expenditures are also expected to vary quarter to quarter. EQM expects to fund future capital expenditures primarily through cash on hand, cash generated from operations, availability under its credit facility, debt offerings and issuances of additional EQM partnership units. EQM does not forecast capital expenditures associated with potential midstream projects not committed as of the filing of this Quarterly Report on Form 10-Q.

EQM Credit Facility Borrowings
 
EQM has a $750 million credit facility that expires in February 2019 on which there were no borrowings outstanding as of June 30, 2016. 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. Subject to certain terms and conditions, the credit facility has an accordion feature that allows EQM 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. EQM 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. EQM’s obligations under the revolving portion of the credit facility are unsecured.

EQM’s 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 covenants and events of default under the credit facility relate to maintenance of permitted leverage ratio, limitations on transactions with affiliates, limitations on restricted payments, insolvency events, nonpayment of scheduled principal or interest payments, acceleration of and certain other defaults under other financial obligations and change of control provisions. Under the credit facility, EQM is required to maintain a consolidated leverage ratio of not more than 5.00 to 1.00 (or not more than 5.50 to 1.00 for certain measurement periods following the consummation of certain acquisitions). As of June 30, 2016, EQM was in compliance with all debt provisions and covenants.

EQM Security Ratings

The table below sets forth the credit ratings for debt instruments of EQM at June 30, 2016.
Rating Service
 
Senior Notes
 
Outlook
Moody’s Investors Service (Moody's)
 
Ba1
 
Stable
Standard & Poor’s Ratings Services (S&P)
 
BBB-
 
Stable
Fitch Ratings (Fitch)
 
BBB-
 
Stable

EQM’s credit ratings are subject to revision or withdrawal at any time by the assigning rating organization and each rating should be evaluated independently of any other rating. EQM cannot ensure that a rating will remain in effect for any given period of time or that a rating will not be lowered or withdrawn entirely by a credit rating agency if, in its judgment, circumstances so warrant. If any credit rating agency downgrades EQM’s ratings, EQM’s access to the capital markets may be limited, borrowing costs could increase, EQM may be required to provide additional credit assurances in support of commercial agreements such as joint venture agreements and construction contracts, the amount of which may be substantial, and the

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potential pool of investors and funding sources may decrease. In order to be considered investment grade, a company must be rated Baa3 or higher by Moody’s, BBB- or higher by S&P, or BBB- or higher by Fitch. Anything below these ratings, including EQM's current credit rating of Ba1 by Moody's, is considered non-investment grade.

EQM $750 million ATM Program

As of July 28, 2016, EQM had approximately $443 million in remaining capacity under the $750 million ATM Program.

Distributions
 
On July 26, 2016, the Board of Directors of the EQGP General Partner declared a cash distribution to EQGP’s unitholders for the second quarter of 2016 of $0.15 per common unit, or approximately $39.9 million. The distribution will be paid on August 22, 2016 to unitholders of record at the close of business on August 5, 2016.

On July 26, 2016, the Board of Directors of the EQM General Partner declared a cash distribution to EQM's unitholders for the second quarter of 2016 of $0.78 per common unit. The cash distribution will be paid on August 12, 2016 to unitholders of record, including EQGP, at the close of business on August 5, 2016. Based on the 80,581,758 EQM common units outstanding on July 28, 2016, cash distributions to EQGP will be approximately $40.8 million consisting of: $17.0 million related to its limited partner interest, $1.6 million related to its general partner interest and $22.2 million related to its IDRs in EQM. These distribution amounts to EQGP are subject to change if EQM issues additional common units on or prior to the record date for the second quarter 2016 distribution.

Commitments and Contingencies

As of June 30, 2016, no legal or regulatory claims and proceedings were pending or, to EQGP's knowledge, threatened against EQGP.

In the ordinary course of business, various legal and regulatory claims and proceedings are pending or threatened against EQM.  While the amounts claimed may be substantial, EQM is unable to predict with certainty the ultimate outcome of such claims and proceedings. EQM accrues legal and other direct costs related to loss contingencies when actually incurred. EQM has established reserves it believes to be appropriate for pending matters, and after consultation with counsel and giving appropriate consideration to available insurance, EQM believes that the ultimate outcome of any matter currently pending against it will not materially affect its business, financial condition, results of operations, liquidity or ability to make distributions.

Off-Balance Sheet Arrangements

As of June 30, 2016, EQM had issued a $91 million performance guarantee in favor of the MVP Joint Venture to provide performance assurances for MVP Holdco's obligations to fund its proportionate share of the construction budget for the MVP. Upon the FERC’s initial release to begin construction of the MVP, EQM's guarantee will terminate and EQM will be obligated to issue a new guarantee in an amount equal to 33% of MVP Holdco’s remaining obligations to make capital contributions to the MVP Joint Venture in connection with the then remaining construction budget, less, subject to certain limits, any credit assurances issued by any affiliate of EQM under such affiliate's precedent agreement with the MVP Joint Venture.
 
Critical Accounting Policies
 
EQGP’s critical accounting policies are described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in EQGP’s Annual Report on Form 10-K for the year ended December 31, 2015.  Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been included in the notes to EQGP’s consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for the period ended June 30, 2016. The application of EQGP’s 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.

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Changes in interest rates affect the amount of interest EQGP and EQM earn on cash, cash equivalents and short-term investments and the interest rates EQGP and EQM pay on borrowings on their credit facilities. EQM's long-term borrowings are fixed rate and thus do not expose EQM to fluctuations in its results of operations or liquidity from changes in market interest rates. Changes in interest rates do affect the fair value of EQM's fixed rate debt. See Note G to the consolidated financial statements for further discussion of EQGP's and EQM's borrowings and Note H to the consolidated financial statements for a discussion of fair value measurements. EQGP or EQM may from time to time hedge the interest on portions of their borrowings under their credit facilities in order to manage risks associated with floating interest rates.
 
Credit Risk

EQGP is exposed to credit risk through EQM. Credit risk is the risk that EQM may incur a loss if a counterparty fails to perform under a contract. EQM manages its exposure to credit risk associated with customers through credit analysis, credit approval, credit limits and monitoring procedures. For certain transactions, EQM may request letters of credit, cash collateral, prepayments or guarantees as forms of credit support. EQM’s FERC tariff requires tariff customers that do not meet specified credit standards to provide three months of credit support; however, EQM 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 EQM’s 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. EQM has historically experienced only minimal credit losses in connection with its receivables. For the six months ended June 30, 2016, approximately 90% of revenues were from investment grade counterparties. EQM is exposed to the credit risk of EQT, its largest customer. In connection with EQM's IPO in 2012, 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, 2016, EQT’s public senior debt had an investment grade credit rating. 

Other Market Risks
 
EQM's 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 EQM. No one lender of the 18 financial institutions in the syndicate holds more than 10% of the facility. EQM’s large syndicate group and relatively low percentage of participation by each lender is expected to limit EQM’s 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 EQGP General Partner, including the EQGP General Partner’s Principal Executive Officer and Principal Financial Officer, an evaluation of EQGP’s disclosure controls and procedures (as defined in Rule 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 EQGP General Partner concluded that EQGP’s 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 Rule 13a-15(f) under the Exchange Act) that occurred during the second quarter of 2016 that have materially affected, or are reasonably likely to materially affect, EQGP's internal control over financial reporting.

PART II.  OTHER INFORMATION
 
Item 1. Legal Proceedings
 
As of June 30, 2016, no legal and regulatory claims and proceedings were pending or, to EQGP's knowledge, threatened against EQGP.

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In the ordinary course of business, various legal and regulatory claims and proceedings are pending or threatened against EQM. While the amounts claimed may be substantial, EQM is unable to predict with certainty the ultimate outcome of such claims and proceedings. EQM accrues legal and other direct costs related to loss contingencies when actually incurred. EQM has established reserves it believes to be appropriate for pending matters and, after consultation with counsel and giving appropriate consideration to available insurance, EQM believes that the ultimate outcome of any matter currently pending against it will not materially affect its business, financial condition, results of operations, liquidity or ability to make distributions.

Environmental Proceedings

Between September 2015 and February 2016, EQM, as the operator of the AVC facilities that are owned by EQT, received eight Notices of Violation (NOVs) from the Pennsylvania Department of Environmental Protection (PADEP).  The NOVs alleged violations of the Pennsylvania Clean Streams Law in connection with inadvertent releases of sediment and bentonite to water that occurred while drilling for a pipeline replacement project in Cambria County, Pennsylvania.  EQT and EQM immediately addressed the releases and fully cooperated with the PADEP. In April 2016, EQM received a proposed consent assessment of civil penalty from the PADEP that proposed a civil penalty related to the NOVs.  EQM is currently discussing the proposed civil penalty with the PADEP.  While the PADEP’s claims may result in penalties that exceed $100,000, EQGP expects that the resolution of this matter will not have a material impact on its financial position, results of operations, liquidity or ability to make distributions.
 
Item 1A. Risk Factors

On April 8, 2016, the Pipeline and Hazardous Materials Safety Administration (PHMSA) published a notice of proposed rulemaking (NPRM) proposing new requirements applicable to natural gas transmission and gathering lines. As a result of the publication of the NPRM, EQGP determined to replace in its entirety the second paragraph of the risk factor entitled “EQM may incur significant costs and liabilities as a result of pipeline integrity management program testing and related repairs” in Item 1A, “Risk Factors” of EQGP’s Annual Report on Form 10-K for the year ended December 31, 2015, as follows:

Changes to pipeline safety laws and regulations that result in more stringent or costly safety standards could have a significant adverse effect on EQM and similarly situated midstream operators.  For example, in August 2011, PHMSA published an advance notice of proposed rulemaking (2011 Notice) in which the agency was seeking public comment on a number of changes to regulations governing the safety of gas transmission pipelines and gathering lines, including, for example, revising the definitions of “high consequence areas” and “gathering lines” and strengthening integrity management requirements as they apply to existing regulated operators and to currently exempt operators should certain exemptions be removed. In April 2016, PHMSA published a notice of proposed rulemaking responding to several of the integrity management topics raised in the 2011 Notice and proposing new requirements to address safety issues for natural gas transmission and gathering lines that have arisen since the issuance of the 2011 Notice.  The proposed rule, which is subject to a public comment period, would strengthen existing integrity management requirements, expand assessment and repair requirements to pipelines in areas with medium population densities and extend regulatory requirements to onshore gas gathering lines that are currently exempt. We are monitoring and evaluating the effect of these proposed requirements on EQM’s operations.

Except as set forth above, as of the date of this report, EQGP's risk factors have not changed materially from those discussed in Item 1A, “Risk Factors” of EQGP’s Annual Report on Form 10-K for the year ended December 31, 2015.

Item 6. Exhibits
31.1

Rule 13(a)-14(a) Certification of Principal Executive Officer.
31.2

Rule 13(a)-14(a) Certification of Principal Financial Officer.
32

Section 1350 Certification of Principal Executive Officer and Principal Financial Officer.
101

Interactive Data File.

30

Signature
 
 
 
 
 
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.
 
 
 
 
 
 
 
 
EQT GP Holdings, LP
 
 
(Registrant)
 
By:
EQT GP Services, LLC, its General Partner
 
 
 
 
 
 
 
 
 
 
By:
/s/ Robert J. McNally
 
 
Robert J. McNally
 
 
Senior Vice President and Chief Financial Officer
 
 
 
 
 
 
 
 
 
 
 
 
 
Date:  July 28, 2016


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INDEX TO EXHIBITS

Exhibit No.

 
Document Description
 
Method of Filing
31.1

 
Rule 13(a)-14(a) Certification of Principal Executive Officer.
 
Filed herewith as Exhibit 31.1.
31.2

 
Rule 13(a)-14(a) Certification of Principal Financial Officer.
 
Filed herewith as Exhibit 31.2.
32

 
Section 1350 Certification of Principal Executive Officer and Principal Financial Officer.
 
Furnished herewith as Exhibit 32.
101

 
Interactive Data File.
 
Filed herewith as Exhibit 101.




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EQGP Holdings, LP Reports