EQM Midstream Partners

EQM Midstream Partners, LP (formerly traded under the ticker EQM) was a prominent American Master Limited Partnership (MLP) that owned, operated, and developed natural gas gathering, transmission, and storage assets. Its operations were concentrated in the Appalachian Basin, one of the richest natural gas regions in the United States. Think of EQM as a crucial piece of plumbing for the energy industry. It was formed by its General Partner, EQT Corporation, a major natural gas producer, to house these critical “midstream” assets. EQM's primary business was to act like a toll road operator, earning fees for transporting and storing natural gas for its customers. This business model was designed to generate stable, predictable cash flows, which were then passed on to its investors (known as Limited Partners) in the form of high-yield Distributions. In a major corporate simplification, EQM was acquired by Equitrans Midstream Corporation (NYSE: ETRN) in 2020 and ceased to exist as a separate publicly traded entity.

Understanding EQM means understanding the energy supply chain. The energy sector is often split into three parts:

• Upstream: Companies that find and extract oil and gas from the ground.
• Downstream: Companies that refine the resources and sell the final products (like gasoline or utility gas) to consumers.
• Midstream: This was EQM's world. Midstream companies are the vital link in the middle. They don't gamble on finding gas or worry about retail prices. Instead, they operate the transportation and storage infrastructure—the pipelines, processing facilities, and storage terminals.

EQM's revenue was largely fee-based, meaning it was paid based on the volume of gas it moved through its system, not the volatile market price of the gas itself. This created a relatively stable and predictable cash flow stream, much like a toll road collecting fees from every car that passes, regardless of the car's value. This stability is highly prized by income-focused investors. A key asset in its portfolio, and a source of significant challenges, was the long-delayed Mountain Valley Pipeline project, highlighting both the potential rewards and the immense regulatory risks inherent in building major new infrastructure.

For many years, EQM was structured as a Master Limited Partnership, a special type of publicly traded company with unique characteristics that appealed to a specific kind of investor.

• High Yields: The most significant draw was the high payout. MLPs are required by their structure to distribute the vast majority of their available cash to unitholders. This resulted in Yields that often dwarfed those of regular dividend stocks.
• Tax Advantages: MLPs are “pass-through” entities. They don't pay corporate income tax. Instead, profits and losses are “passed through” directly to the partners. A large portion of the distributions was often treated as a “return of capital,” deferring the tax burden for investors until they sold their units.

The MLP structure wasn't without its downsides. The tax benefits came with complexity. Instead of a simple Form 1099-DIV, investors received a complicated Schedule K-1, which could make tax season a headache. Furthermore, these tax benefits were the subject of potential legislative changes, creating a constant low-level risk for the sector.

The corporate history of EQM is a classic lesson in the evolution of MLPs. EQM was initially created by EQT Corporation to monetize its midstream assets while retaining control through its General Partner stake. In 2018, EQT spun off its midstream business into a new public company, Equitrans Midstream Corporation (ETRN), which then became the General Partner of EQM. This created a complex, multi-layered structure. By 2020, management decided to simplify. ETRN acquired all the publicly held units of EQM it didn't already own. For EQM investors, this meant their investment was converted into shares of ETRN. This type of “roll-up” or simplification transaction is common in the MLP world. It often aims to reduce administrative costs, improve access to capital, and appeal to a broader investor base that may be hesitant to deal with the complexities of an MLP. For the investor, it means the nature of their investment can change dramatically based on the strategic decisions of the General Partner.

From a value investor's standpoint, EQM presented a compelling but cautionary tale.

• The Pros: The business had a strong economic “moat.” Pipelines are incredibly expensive and difficult to build due to regulatory and land-use hurdles, meaning existing assets face limited direct competition. The steady, fee-based cash flows were exactly what a value investor looks for when seeking predictable returns and a high margin of safety in cash generation. The goal was to buy these tangible assets at a discount to their Intrinsic Value and collect a hefty distribution while waiting for the market to recognize their worth.
• The Cons: Several risks were always present:
  1. Project Execution Risk: The saga of the Mountain Valley Pipeline showed how a single, massive project could be plagued by delays and budget overruns, tying up capital and destroying value.
  2. Interest Rate Risk: As high-yield instruments, MLPs like EQM often compete with bonds for investor capital. When interest rates rise, the appeal of their distributions can diminish relative to safer fixed-income assets.
  3. Structural Complexity: A key lesson from EQM's history is that when you invest in an MLP, you must analyze the entire corporate family, especially the motivations and financial health of the General Partner. The GP's decisions, like the eventual buyout, ultimately determine the fate of the Limited Partners.