Contract Asset

12 Months Ended

Dec. 31, 2022

Equity Method Investments and Joint Ventures [Abstract]

Contract Asset

Contract AssetDuring the first quarter of 2020, the Company sold to Equitrans Midstream a total of 25,299,752 shares of Equitrans Midstream's common stock in exchange for approximately $52 million in cash and rate relief under certain of the Company's gathering contracts with EQM, an affiliate of Equitrans Midstream (the Equitrans Share Exchange). The rate relief was effected through the execution of a consolidated gas gathering and compression agreement entered into between the Company and an affiliate of EQM (the Consolidated GGA).

The Consolidated GGA provides for additional cash bonus payments (the Henry Hub Cash Bonus) payable by the Company to EQM during the period beginning on the first day of the quarter in which the Mountain Valley Pipeline is placed in service and ending on the earlier of 36 months thereafter or December 31, 2024. Such payments are conditioned upon the quarterly average of the NYMEX Henry Hub natural gas settlement price exceeding certain price thresholds.

In addition, because the Mountain Valley Pipeline was not in service by January 1, 2022, the Consolidated GGA provided the Company the option to forgo a portion of the gathering fee relief that would otherwise be applicable following the Mountain Valley Pipeline in-service date in exchange for a cash payment of approximately $196 million (the Cash Payment Option).

On the closing date of the Equitrans Share Exchange, the Company recorded in the Consolidated Balance Sheet a contract asset of $410 million representing the estimated fair value of the rate relief inclusive of the Cash Payment Option. The Company also recorded a derivative liability related to the Henry Hub Cash Bonus of approximately $117 million and a decrease in the Company's investment in Equitrans Midstream of approximately $158 million. The resulting gain of approximately $187 million was recorded in the Statement of Consolidated Operations.

The carrying value of the Company's contract asset is reviewed for impairment when events or circumstances indicate that the remaining carrying value may not be recoverable. To determine whether impairment of the Company's contract asset has occurred, the Company compares the estimated undiscounted future cash flows to the carrying value. If the contract asset's carrying amount exceeds the estimated future undiscounted cash flows, it is written down to fair value, which is estimated by discounting the estimated future cash flows using discount rates and other assumptions.

The fair value of the contract asset at inception and the estimated future cash flows were based on significant inputs that are not observable in the market and, as such, are a Level 3 fair value measurement. The fair value of the derivative liability related to the Henry Hub Cash Bonus is based on significant inputs that are interpolated from observable market data and, as such, is a Level 2 fair value measurement. See Note 4 for a description of the fair value hierarchy. Key assumptions used in the fair value calculation of the contract asset included the following: (i) a probability-weighted estimate of the in-service date of the Mountain Valley Pipeline, (ii) an estimate of the potential exercise and timing of the Cash Payment Option; (iii) an estimated production volume forecast and (iv) a market-based weighted average cost of capital.

During 2022, the Company identified indicators that the carrying value of the contract asset may not be fully recoverable, including increased uncertainty of the estimated timing of completion of the Mountain Valley Pipeline due to court rulings and public statements from Equitrans Midstream with respect to its completion. As a result of the Company's impairment evaluation, the Company recognized impairment of $214 million in the Statement of Consolidated Operations. During 2022, the Company elected to exercise the Cash Payment Option provided by the Consolidated GGA and received cash proceeds of $196 million as a result of making such election. As of December 31, 2022, the impairment and election of the Cash Payment Option reduced the carrying value of the contract asset to zero. As of December 31, 2022, the Company also reduced the derivative liability related to the Henry Hub Cash Bonus to zero given the uncertainties surrounding the in-service date of the Mountain Valley Pipeline and the Company's belief that achieving an in-service date of the Mountain Valley Pipeline prior to December 31, 2024 is not probable. Future changes in the uncertainties surrounding the in-service date of the Mountain Valley Pipeline could result in future changes to the accounting treatment of the Henry Hub Cash Bonus.

There was no impairment of the contract asset in 2021 or 2020.