PITTSBURGH--(BUSINESS WIRE)--EQT Midstream Partners, LP (NYSE: EQM), EQT GP Holdings, LP (NYSE:
EQGP), and Rice Midstream Partners LP (NYSE: RMP), today, announced a
midstream streamlining transaction that includes:
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EQM’s acquisition of EQT Corporation’s (NYSE: EQT) retained midstream
assets and Gulfport Energy’s (NYSE: GPOR) 25% ownership in the Strike
Force Gathering System for $1.69 billion. EQT will receive $1.15
billion in cash and 5.9 million EQM common units and Gulfport Energy
will receive $175 million in cash.
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The merger of EQM and RMP in a unit-for-unit transaction at an
exchange ratio of 0.3319x, which implies a transaction value of $2.4
billion, including the assumption of RMP debt. The RMP debt balance as
of March 31, 2018 was $325 million.
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EQGP’s purchase of RMP’s Incentive Distribution Rights (RMP IDRs) from
EQT for 36.3 million EQGP common units.
This streamlining transaction is expected to be immediately accretive to
both EQM and EQGP’s distributable cash flow per unit.
Transaction Details
EQM has entered into a definitive agreement with EQT to acquire its
Olympus Gathering System and its 75% interest in the Strike Force
Gathering System. EQM has also entered into a definitive agreement with
Gulfport Energy to acquire its 25% interest in the Strike Force
Gathering System. EQT will receive $1.15 billion in cash and 5.9 million
EQM common units and Gulfport Energy will receive $175 million in cash.
Additional details regarding the Olympus Gathering System and the Strike
Force Gathering System (Ohio Gathering Assets), including an adjusted
EBITDA forecast, are provided below. The acquisition is expected to
close in the second quarter of 2018.
EQM and RMP have entered into a definitive merger agreement under which
EQM will acquire RMP in a unit-for-unit transaction. Each holder of a
common unit of RMP will receive 0.3319 units of EQM, representing a 10%
premium to RMP and an equity value of $2.1 billion based on the closing
RMP and EQM unit prices on April 25, 2018. EQM will also assume RMP
debt, which totaled $325 million as of March 31, 2018. The transaction
is expected to close in the third quarter of 2018, subject to customary
closing conditions and the closing of the RMP IDRs purchase.
The merger of EQM and RMP creates significant operational efficiencies
through the optimized buildout of gathering and header pipeline systems
to service the combined EQT and legacy Rice Energy acreage footprint.
The efficiency gains are expected to result in approximately $500
million of capital avoidance, while achieving the same level of gathered
volume growth during the next five years. In addition to the capital
synergies, EQM expects to realize savings of approximately $15 million
per year in operating and maintenance expense and selling, general and
administrative expense.
EQGP has entered into a definitive agreement with EQT to acquire its
ownership of the RMP IDRs for 36.3 million EQGP common units, which
represents $937 million based on the April 25, 2018 EQGP closing unit
price. The transaction is expected to close in the second quarter of
2018. In the event that the EQM/RMP merger is not completed, 8.5 million
EQGP common units that had been issued as consideration would be
cancelled and EQT would pay EQGP the aggregate amount of any
distributions received from EQGP related to the cancelled units in cash.
Ohio Gathering Assets
The Ohio Gathering Assets consist of two dry natural gas gathering
systems, known as Olympus and Strike Force. The Ohio Gathering Assets
were designed and constructed to gather natural gas in the Utica shale
in eastern Ohio, primarily in Belmont and Monroe Counties.
Olympus gathering
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68,000 acres dedicated to system
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1.0 Bcf per day average gathered volume in Q1 2018
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85 miles of natural gas gathering pipeline
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15,000 horsepower compression
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Multiple interstate pipeline connections (TETCO, REX, DEO)
Strike Force gathering
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5-year minimum volume commitment from Gulfport
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98,000 acres dedicated to system
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0.9 Bcf per day average gathered volume in Q1 2018
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67 miles of natural gas gathering pipeline
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17,000 horsepower compression
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Multiple interstate pipeline interconnects (TETCO, ET Ohio River,
Rover, LXP)
Ohio Gathering Assets Projections
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2018*
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2019
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2020
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Gathered Volume (Bcf/day)
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1.8 – 2.0
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2.0 – 2.2
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2.2 – 2.4
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Adjusted EBITDA ($MM)
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$165 - $175
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$245 - $255
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$255 - $265
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Expansion Capex ($MM)
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$210
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$180
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$90
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*Reflects full-year. EQM acquisition of the Ohio Gathering Assets is
expected to be effective May 1, 2018.
See the Non-GAAP Disclosures section of this news release for important
disclosures regarding projected adjusted EBITDA and projected
distributable cash flow.
EQM Financing
EQM has entered into a $2.5 billion 364-day syndicated term loan
facility. EQM expects to borrow under the term loan facility to finance
the cash consideration of the Ohio Gathering Assets acquisition, 2018
expansion capital expenditures, and Mountain Valley Pipeline (MVP)
capital contributions. EQM expects to access the public debt markets
over the coming months to retire amounts outstanding under the term loan
facility and to fund expansion capital expenditures and MVP capital
contributions.
Based on the strength of EQM’s credit metrics and the current organic
growth project backlog, EQM is not forecasting any additional public
equity issuance at least through 2020.
Pro-forma Projections
The projections below assume a May 1, 2018 effective date for the Ohio
Gathering Asset acquisition and a September 1, 2018 closing date for the
EQM/RMP merger.
EQM pro-forma:
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Five-year organic growth capital backlog of approximately $4.8 billion
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Long-term target of 3.5x debt to EBITDA, which is an investment grade
metric
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1.1x - 1.2x target distribution coverage ratio
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Annual distribution per unit growth of 15% to 20% for several years
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2018
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2019
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2020
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EQM
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Net Income ($B)
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$0.70 - $0.80
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$0.95 - $1.05
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$1.00 - $1.10
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Adjusted EBITDA ($B)
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$0.90 - $1.00
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$1.40 - $1.50
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$1.55 - $1.65
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Distributable Cash Flow ($B)
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$0.75 - $0.85
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$1.15 - $1.25
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$1.25 - $1.35
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Distribution per unit (using midpoint of guidance)*
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$4.50
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$5.29
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$6.21
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Expansion Capex + MVP capital contributions ($B)
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$1.6 - $1.8
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$0.9 - $1.1
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$0.5 - $0.7
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EQGP
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Distribution per unit*
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$1.21
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$1.67
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$2.09
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Distribution per unit year-over-year growth*
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39%
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38%
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25%
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*Based on midpoint of 15% - 20% year-over-year distribution growth
rate guidance for EQM.
Approvals
The boards of directors of EQT and each of EQGP, EQM and RMP, as well as
the conflicts committees of EQGP, EQM and RMP, have unanimously approved
these transactions. Completion of the EQM/RMP merger is subject to the
approval of the RMP unitholders, as well as certain customary regulatory
and other closing conditions.
Advisors
Goldman Sachs & Co. LLC acted as financial advisor and Wachtell, Lipton,
Rosen & Katz and Baker Botts L.L.P. acted as legal advisors to EQT.
Evercore acted as financial advisor and Richards, Layton & Finger, P.A.
acted as legal advisor to the Conflicts Committee of EQM. Jefferies LLC
acted as financial advisor and Latham & Watkins LLP acted as legal
advisor to the Conflicts Committee of RMP. Baird acted as financial
advisor and Hunton Andrews Kurth LLP acted as legal advisor to the
Conflicts Committee of EQGP.
About EQT Midstream Partners:
EQT Midstream Partners, LP is a growth-oriented limited partnership
formed by EQT Corporation to own, operate, acquire, and develop
midstream assets in the Appalachian Basin. The Partnership provides
midstream services to EQT Corporation and third-party companies through
its strategically located transmission, storage, and gathering systems
that service the Marcellus and Utica regions. The Partnership owns
approximately 950 miles of FERC-regulated interstate pipelines; and also
owns approximately 1,800 miles of high- and low-pressure gathering lines.
Visit EQT Midstream Partners, LP at www.eqtmidstreampartners.com
.
About EQT GP Holdings:
EQT GP Holdings, LP is a limited partnership that owns the general
partner interest, all of the incentive distribution rights, and a
portion of the limited partner interests in EQT Midstream Partners, LP.
EQT Corporation owns the general partner interest and a 90% limited
partner interest in EQT GP Holdings, L.P.
Visit EQT GP Holdings, LP at www.eqtmidstreampartners.com
.
About Rice Midstream Partners:
Rice Midstream Partners LP is a fee-based, growth-oriented limited
partnership formed to own, operate, develop and acquire midstream assets
in the Appalachian basin. RMP provides midstream services to EQT
Corporation and third-party companies through its natural gas gathering,
compression and water assets in the rapidly developing dry gas cores of
the Marcellus and Utica Shales.
Visit Rice Midstream Partners LP at www.ricemidstream.com.
About EQT Corporation:
EQT Corporation is an integrated energy company with emphasis on
Appalachian area natural gas production, gathering, and transmission.
With nearly 130 years of experience and a long-standing history of good
corporate citizenship, EQT is the largest producer of natural gas in the
United States. As a leader in the use of advanced horizontal drilling
technology, EQT is committed to minimizing the impact of
drilling-related activities and reducing its overall environmental
footprint. Through safe and responsible operations, EQT is helping to
meet our nation’s growing demand for clean-burning energy, while
continuing to provide a rewarding workplace and enrich the communities
where its employees live and work. EQT owns the general partner interest
and a 90% limited partner interest in EQT GP Holdings, LP, which owns
the general partner interest, all of the incentive distribution rights,
and a portion of the limited partner interest in EQT Midstream Partners,
LP. EQT also owns the general partner interest, all of the incentive
distribution rights, and a 28% limited partner interest in Rice
Midstream Partners LP.
Visit EQT Corporation at www.EQT.com;
and to learn more about EQT’s sustainability efforts, please visit https://csr.eqt.com.
NON-GAAP DISCLOSURES
Adjusted EBITDA and Distributable Cash Flow
As used in this news release, adjusted EBITDA means net income plus net
interest expense, depreciation and amortization expense, payments on
EQM's preferred interest in EQT Energy Supply, LLC (Preferred Interest)
received and non-cash long-term compensation expense less equity income
and AFUDC - equity. As used in this news release, distributable cash
flow means EQM adjusted EBITDA less net interest expense excluding
interest income on the Preferred Interest, capitalized interest and
AFUDC - debt, and ongoing maintenance capital expenditures net of
expected reimbursements. 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.
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:
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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;
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the ability of EQM’s assets to generate sufficient cash flow to make
distributions to EQM unitholders;
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EQM’s ability to incur and service debt and fund capital expenditures;
and
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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 EQM’s results of operations
and financial condition. 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 definition
of adjusted EBITDA and distributable cash flow may not be comparable to
similarly titled measures of other companies, thereby diminishing the
utility of the measures.
EQM is unable to project net cash provided by operating activities or
provide the related reconciliation between projected distributable cash
flow and projected net cash provided by operating activities, the most
comparable financial measure calculated in accordance with GAAP, because
net cash provided by operating activities includes the impact of changes
in operating assets and liabilities. Changes in operating assets and
liabilities relate to the timing of EQM’s cash receipts and
disbursements that may not relate to the period in which the operating
activities occurred, and EQM is unable to project these timing
differences with any reasonable degree of accuracy to a specific day,
three or more months in advance. EQM is also unable to provide a
reconciliation of its projected EBITDA to projected net income, the most
comparable financial measure calculated in accordance with GAAP, because
EQM does not provide guidance with respect to the intra-year timing of
its or the Mountain Valley Pipeline, LLC’s capital spending, which
impact AFUDC-debt and equity and equity earnings, among other items,
that are reconciling items between adjusted EBITDA and net income. The
timing of capital expenditures is volatile as it depends on weather,
regulatory approvals, contractor availability, system performance and
various other items. EQM provides a range for the forecasts of net
income, adjusted EBITDA and distributable cash flow to allow for the
variability in the timing of cash receipts and disbursements, capital
spending and the impact on the related reconciling items, many of which
interplay with each other. Therefore, the reconciliations of projected
distributable cash flow and adjusted EBITDA to projected net cash
provided by operating activities and net income are not available
without unreasonable effort.
EQT’s Retained Midstream Assets Adjusted EBITDA
EQT’s Retained Midstream Assets EBITDA means the earnings before
interest, taxes and depreciation of EQT’s retained midstream assets.
EBITDA of these assets is a non-GAAP supplemental financial measure that
management and external users of EQM’s consolidated financial
statements, such as industry analysts, investors, lenders and rating
agencies, use to assess the impact of the potential sale of the retained
midstream assets from EQT to EQM through one or more drop-down
transactions on EQM’s future results of operations.
EQM believes that the projected EBITDA of the retained midstream assets
provides useful information to investors in assessing the impact of the
potential drop-down transactions on EQM’s future results of operations.
EBITDA should not be considered as an alternative to net income,
operating income, or any other measure of financial performance or
liquidity presented in accordance with GAAP. EBITDA has important
limitations as an analytical tool because it excludes some, but not all,
items that affect net income. Additionally, because EBITDA may be
defined differently by other companies in EQM’s industry, the definition
of EBITDA may not be comparable to similarly titled measures of other
companies, thereby diminishing the utility of the measure.
EQM has not provided projected net income from the retained midstream
assets, the most comparable financial measure calculated in accordance
with GAAP, or a reconciliation of projected EBITDA to projected net
income of the assets. The retained midstream assets are operated as part
of EQT’s Production business segment, and EQT does not allocate certain
costs, such as interest and tax expenses, to individual assets within
its business segments. Therefore, the projected net income of the
retained midstream assets and a reconciliation of projected EBITDA of
the assets to projected net income from those assets are not available
without unreasonable effort.
Cautionary Statements
Disclosures in this news release 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. Without limiting the generality of
the foregoing, forward-looking statements contained in this news release
specifically include the expectations of plans, strategies, objectives
and growth and anticipated financial and operational performance of EQT
and its subsidiaries, including EQGP, EQM, and RMP, including whether
the midstream transactions described in this news release are completed,
as expected or at all, and the timing of any such transactions; whether
the conditions to the midstream transactions can be satisfied; whether
the operational, financial and strategic benefits of the midstream
transactions can be achieved; whether the costs and expenses of the
midstream transactions can be controlled within expectations; potential
adverse reactions or changes to business or employee relationships,
including those resulting from the announcement or completion of the
midstream transactions; competitive responses to the transactions; the
possibility that the anticipated benefits of the transactions are not
realized when expected or at all; the possibility that the transactions
may be more expensive to complete than anticipated, including as a
result of unexpected factors or events; diversion of management’s
attention from ongoing business operations and opportunities; potential
adverse reactions or changes to business or employee relationships,
including those resulting from the announcement or completion of the
transactions; litigation relating to the transactions; guidance
regarding EQM’s volumes and related growth; infrastructure programs
(including the timing, cost, capacity and sources of funding with
respect to gathering and transmission projects); the cost, capacity,
timing of regulatory approvals and anticipated in-service date of the
Mountain Valley Pipeline (MVP); the ultimate terms, partners and
structure of the MVP joint venture; internal rate of return (IRR);
compound annual growth rate (CAGR); capital commitments, projected
capital contributions and capital and operating expenditures, including
the amount and timing of capital expenditures reimbursable by EQT,
capital budget and sources of funds for capital expenditures; liquidity
and financing requirements, including funding sources and availability
(including the availability of the 364-day term loan facility described
above); distribution amounts, rates and growth; projected net income,
projected adjusted EBITDA, projected EBITDA for EQT’s retained midstream
assets and projected distributable cash flow; the timing of future debt
or equity issuances; changes in EQM’s credit ratings; the effects of
government regulation and litigation; and tax position. These forward
looking statements 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. EQM and EQGP have based these
forward-looking statements on current expectations and assumptions about
future events. While EQM and EQGP consider 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 beyond the
partnerships’ control. The risks and uncertainties that may affect the
operations, performance and results of EQM’s and EQGP’s business and
forward-looking statements include, but are not limited to, those set
forth under Item 1A, “Risk Factors” of the Form 10-K for the year ended
December 31, 2017 as filed with the Securities and Exchange Commission
(SEC) of each of EQT, EQGP, EQM and RMP, in each case as may be updated
by any subsequent Form 10-Qs. Any forward-looking statement speaks only
as of the date on which such statement is made, and none of EQT, EQGP,
EQM or RMP intends to correct or update any forward-looking statement,
whether as a result of new information, future events or otherwise.
No Offer or Solicitation
This release is for informational purposes only and shall not constitute
an offer to sell or the solicitation of an offer to buy any securities
pursuant to the proposed transactions or otherwise, nor shall there be
any sale of securities in any jurisdiction in which the offer,
solicitation or sale would be unlawful prior to the registration or
qualification under the securities laws of any such jurisdiction. No
offer of securities shall be made except by means of a prospectus
meeting the requirements of Section 10 of the Securities Act of 1933, as
amended.
Additional Information and Where to Find It
In connection with their proposed business combination transaction, EQM
and RMP intend to file a registration statement on Form S-4, containing
a proxy statement/prospectus (the Form S-4) with the SEC. This
communication is not a substitute for the registration statement,
definitive proxy statement/prospectus or any other documents that EQM or
RMP may file with the SEC or send to RMP unitholders in connection with
the proposed transaction. UNITHOLDERS OF RMP ARE URGED TO READ ALL
RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE FORM S-4 AND THE
DEFINITIVE PROXY STATEMENT/PROSPECTUS INCLUDED THEREIN IF AND WHEN
FILED, AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, BECAUSE THEY
WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. When
available, investors and security holders will be able to obtain copies
of these documents, including the proxy statement/prospectus and the
registration statement, and any other documents that may be filed with
the SEC with respect to the proposed transaction free of charge at the
SEC’s website, http://www.sec.gov
or as described in the following paragraph.
The documents filed with the SEC by EQT and its publicly traded
subsidiaries (including EQM, RMP and EQGP) may be obtained free of
charge at the applicable website (www.eqt.com
for EQT, www.eqtmidstreampartners.com
for EQGP and EQM, and www.ricemidstream.com
for RMP) or by requesting them by mail at EQT Corporation, 625 Liberty
Avenue, Suite 1700, Pittsburgh, PA 15222, Attention: Investor Relations,
or by telephone at (412) 553-5700.
Participants in the Solicitation
EQT, EQM, RMP and EQGP (EQM, RMP and EQGP collectively, the
Partnerships) and certain of their respective directors and executive
officers may be deemed to be participants in the solicitation of proxies
from the unitholders of RMP in connection with the proposed transaction.
Information about the directors and executive officers of the general
partners of EQM, RMP and EQGP is set forth, respectively, in the Annual
Report on Form 10-K for the year ended December 31, 2017 filed by such
Partnership with the SEC on February 15, 2018 and certain of the
Partnerships’ respective Current Reports on Form 8-K. Information
regarding EQT’s directors and executive officers is available in its
Annual Report on Form 10-K for the year ended December 31, 2017 filed by
EQT with the SEC on February 15, 2018, EQT’s definitive proxy statement
for its 2017 annual meeting of shareholders filed with the SEC on
February 17, 2017 and certain of EQT’s Current Reports on Form 8-K.
These documents can be obtained free of charge from the sources
indicated above. Other information regarding the participants in the
proxy solicitation and a description of their direct and indirect
interests, by security holdings or otherwise, will be contained in the
proxy statement/prospectus and other relevant materials to be filed with
the SEC when they become available.
Contact:
EQT Midstream Partners / EQT GP Holdings / Rice Midstream Partners analysts:
Nate Tetlow, 412-553-5834
Investor Relations Director
ntetlow@eqtmidstreampartners.com
or
EQT analysts:
Patrick Kane, 412-553-7833
Chief Investor Relations Officer
pkane@eqtmidstreampartners.com
or
Media inquiries:
Natalie Cox, 412-395-3941
Corporate Director, Communications
ncox@eqtmidstreampartners.com