The oil and gas market is approaching the end of 2015—which will no doubt go down as a highly tumultuous year for the industry. In spite of the dive in oil prices, some companies have positioned themselves well for capturing the upside through advantageous acquisitions, reliable takeaway capacity, attractive hedges and low-cost production. Or a combination of factors.
Today’s focus is EQT Corporation, a Marcellus/Utica pure play headquartered in Pittsburgh, Pennsylvania. The company has drilling rights to nearly 3.4 million acres across Kentucky, Ohio, Pennsylvania, Virginia and West Virginia, and is established as one of the low-cost providers in the natural-gas rich Appalachia.
Below are some of the strengths of EQT Corporation:
- Three-year finding and development costs of $0.73/Mcf, ranking as the fourth cheapest natural gas producer in EnerCom’s E&P Weekly Benchmarking Report of 89 companies.
- Asset intensity (described as the percentage of every EBITDA dollar required to maintain a flat production profile) of only 35%, ranking the fourth lowest in the Benchmarking Report.
- A 2016 capital expenditure program that will be funded by cash on hand, cash from operations and proceeds from midstream asset sales to its midstream subsidiary.
- A 2016 drilling program focused on its core West Virginia/Pennsylvania wells, which KLR Group believes can provide 45% to 50% rates of return.
- Production guidance in line to provide 17.5% year-over-year growth despite a 40% cut in exploration and production costs.
- Approximately 33% of projected 2016 volumes hedged at $3.88/Mcf, well above the average realized price of $2.12/Mcf in Q3’15.
Some may question EQT’s decision to drill cost intensive deep Utica wells in 2016, but Steven Schlotterbeck, President of Exploration and Production, assured investors of the returns in the company’s Q3’15 conference call. “Using the lowest EUR of our range and assuming the high end of our cost per well target of between $12.5 million and $14 million per well we estimate returns at a $2 wellhead gas price to be north of 20% for a 5,400 foot lateral well,” he said. EQT plans on drilling at least five deep Utica wells in the upcoming year, with the possibility of doubling that amount.
EQT appears to be getting a running start heading into 2016, as the company will work off the inventory from the tail end of its 2015 program. Schlotterbeck explains: “The backlog in terms of frac stages complete but not online grew a bit this quarter. Our expectation is that the fourth quarter will be a pretty big quarter for new TILs. Most of those will be in the back half of the quarter, so it won’t affect volumes in the quarter very much but should be coming on late.”