EQT separates midstream, upstream units for investor clarity

By Luke Geiver | February 26, 2018

The largest natural gas producer in the U.S. is spinning off its midstream team and assets. EQT Corp., based in Pittsburgh, will create a new publicly traded company that will own and operate midstream assets in the Appalachian Basin. EQT’s executive team believes the spin-off will give pure-play upstream or midstream investors a stronger and more clear investment thesis. Separate entities will give investors a better long-term option, the company also said.

The assets currently include takeaway capacity of shale gas from 246,000 acres in the Marcellus and another 166,000 acres in the core Ohio Utica. Over the next five years, the midstream assets are projected to generate $4.8 billion in organic growth capital.

After the transaction is complete later this year, the midstream company will generate 60 percent of its revenue from long-term contracts, 85 percent of which will come from investment grade companies.

For EQT, the separation will be a benefit to current shareholders and generate a cash flow breakeven threshold in 2019. In 2020, EQT believes it will return cash.

“The decision to build our midstream business in parallel with upstream growth has created one of the strongest midstream companies in the Appalachian Basin,” said James Rohr, EQT’s lead independent director. “This transaction represents a new chapter for our business as we unlock the value created during the past 10 years.”

In June last year, EQT made a $6.7 billion purchase of rival Appalachian Basin producer Rice Energy. Steve Schlotterbeck, EQT CEO, said the Rice transaction accelerated the maturation of both businesses, provided scale that enhanced the upstream and midstream assets and positioned the company to enhance itself by separating.