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Financially troubled Mountain Valley Pipeline under federal criminal investigation

February 19, 2019

MVP on Bent Mountain.NRDCThe Roanoke Times reported on February 15, 2019 that Mountain Valley Pipeline is under federal criminal investigation for possible violations of the Clean Water Act and other federal laws. All five companies that own the project – including RGC Resources/Roanoke Gas – as well as their contractors, suppliers and other entities involved in the project were notified of the investigation by the U.S. Attorney’s Office for the Western District of Virginia on January 7, 2019. About a month later, they received a federal grand jury subpoena “requesting certain documents related to MVP from August 1, 2018 to the present.”

This is in addition to a lawsuit filed by the Commonwealth of Virginia against MVP for over 300 possible violations of state regulations (water pollution) and the loss of the project’s federal water permits due to a ruling in the U.S. 4th Circuit Court of Appeals.

The key issue: whether MVP and or its agents violated the results of a federal court decision and continued working on streams and wetlands after the permits to do so were withdrawn. Thanks to the incredible work of trained volunteers from Preserve Bent Mountain and Mountain Valley Watch, violations along the length of the pipeline in Virginia and parts of West Virginia have been carefully documented, resulting in this federal investigation as well as the lawsuit by the Commonwealth of Virginia.

All five companies that own the project – including RGC Resources/Roanoke Gas – as well as their contractors, suppliers and other entities involved in the project were notified of the investigation by the U.S. Attorney’s Office for the Western District of Virginia on January 7, 2019. About a month later, they received a federal grand jury subpoena “requesting certain documents related to MVP from August 1, 2018 to the present.”

Here is a timeline of the key events:

  • OCTOBER 2, 2018. The 4th U.S. Circuit Court of Appeals vacated MVP’s U.S. Army Corps of Engineers permit for water crossings in West Virginia.
  • OCTOBER 5, 2018. The Army Corps also vacated the MVP stream crossing permit in Virginia.
  • JANUARY 7, 2019. EQM, the lead company for MVP, received a letter from the U.S. attorney’s office in Roanoke stating that MVP and all of its related companies were under investigation by the Environmental Protection Agency and the U.S. attorney’s office for possible criminal and civil violations related to MVP construction.
  • FEBRUARY 11, 2019. EQM received a subpoena from a federal grand jury f requesting information about EQM and related companies constructing MVP from August 1, 2018 to the present.
  • FEBRUARY 14, 2019. In its required annual filing to the federal Securities and Exchange Commission, EQM reports that it received the letter and the subpoena from the U.S. attorney’s office (p. 52-54).
  • FEBRUARY 14, 2019. On the same day as the SEC filing, EQM failed to mention the criminal investigation in its annual teleconference with financial analysts. Sadly, this is typical of the sugar-coating that occurs when MVP’s owners seek financing for their increasingly expensive project.

The estimated cost of the project has already ballooned from an original estimate of $3.0 to $3.5 billion to $4.6 billion.

For those who have not followed the financial story closely, Mountain Valley Pipeline is a massive shell game being played primarily by hedge fund managers seeking massive profits and fracked natural natural gas producers seeking markets anywhere to avoid bankruptcy.

MVP does not actually exist except on paper. In late 2014, when the project was announced, all of the “employees” were either contractors or employees of EQT, a financially troubled fracked gas company in Pittsburgh. The name of the pipeline is a little joke, referencing the local football team, with all of the highly polluting compressor stations named after Pittsburgh Steeler players who won a Super Bowl MVP award – Harris, Stallworth and Bradshaw. A fourth compressor station was in the original plan, located near the North Fork of the Roanoke River – to be named after Lynn Swann.

An April 2016 study by the Institute for Energy Economics & Financial Analysis detailed the “Risks Associated With Natural Gas Pipeline Expansion Across Appalachia” with MVP and the Atlantic Coast Pipeline. The predicted risks for MVP were

  • High danger of failure and explosion on unsuitable terrain. As reported in SNL Financial, “the push to build new pipelines to transport abundant shale supplies appears to be having a materially adverse impact on pipeline safety.” Data from the Pipeline Safety Trust shows that pipelines built in the 2010s are failing at a rate similar to the failure rate for pipelines constructed pre-1940. Observers speculated that the boom in construction of natural gas pipelines has led contractors to cut corners.
  • Poor financial standing of EQT, the lead company, which was stuck with a glut of natural gas and mounting deficits. According to Moody’s Investor Services, the long-term credit rating of EQT was Baa3 (the lowest investment-grade credit rating). EQT had had negative free cash flow for the past nine years, meaning that the cash generated from drilling operations was not sufficient to finance the ongoing capital expenditures of the company. EQT’s situation was worsening, with free cash flow declining from -$450 million in 2013 to -$1,217 million in 2015.
  • Rules of the Federal Energy Regulatory Commission (FERC) allowed the companies owning the project to treat themselves and their subsidiaries as “customers,” even if there was not real market for their product. In addition to selling the product to third parties, they could collect over 14% net profit for the project. Even better, they could make any existing customers (such as the customers of Roanoke Gas) PAY for the project.
  • Instability of EQT as a partner. Communities along the Mountain Valley Pipeline face the risk that EQT Corporation (which owns the largest stake in that pipeline and has contracted for the largest volume of capacity on the pipeline) will continue to be harmed financially by weak natural gas prices and will not be a long-term, stable partner for these communities.

Predictions of EQT instability have proven true. Hedge fund managers and other institutional investors forced the company to split into two parts in 2018, with former subsidiary EQT Midstream spinning off to form independently-trade EQM. This new company is now the primary owner and operator of MVP and, if the project is completed, will be able to collect over 15% annual net profit for its operation. EQT continues primarily as a fracking company. Stocks of both companies have struggled:

  • EQM has remained far below original analyst predictions of $60 or more per share.

EQM stock 5 yrs

  • EQT continues its downward spiral, with a complete shakeup in management and prices below $20 per share, less than half the value of EQM. Both stocks shared the same EQT label until 2018.

EQT stock 5 years

 

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