Pittsburgh Business Times

EQT Corp. executives gave investors a wider look at its plans for the next year and beyond, with a commitment to generate $1.5 billion to take a bite out of the driller’s debt with the sale of its equity stake in Equitrans Midstream Corp. and noncore assets out of its vast inventory.

EQT outlines how it will reduce debt - oil and gas 360

Toby Rice, president and CEO of EQT Corp., photographed July 15, 2019.

EQT (NYSE: EQT) said in its third-quarter conference call it would reduce its overall corporate debt by 30 percent by the middle of 2020 through the strategy that will help it maintain investment-grade rating. The biggest stake would come from the sale of its remaining stock in Equitrans Midstream (NYSE: ETRN), the Pittsburgh-based pipeline company that had been spun out of EQT in 2018. Selling its stake in Equitrans, a separately publicly traded company with a different management team, was expected at some time although the deadline is new.

That stake has a value of about $750 million as of the end of September, and it will provide $90 million in dividends, according to a presentation by EQT on Thursday. The majority of the Equitrans sale will be used to pay down debt, which it said is a huge priority. Lower commodity prices are putting pressure on EQT’s debt picture even as it cuts out production growth, reduces drillings and completions of new wells, and cuts other costs.

EQT also said it is shooting for between $275 million and $300 million in asset sales with production of about 600 million cubic feet of natural gas per day. The asset sales would be in southern West Virginia, Ohio and central Pennsylvania. And, for the first time, EQT will also entertain a sale of a percentage of the revenue from some of its natural gas production, a move similar to what Range Resources Corp. (NYSE: RRC) has done over this year.

That would be on about 50,000 core fee acres and a deal could be completed in the next several months, said EQT’s Kyle Derham. Leverage would drop below 2 percent under this plan.

Even after the sale of the stake, EQT and Equitrans will still have a relationship, although not in ownership. Equitrans is the primary transporter, via gathering pipelines and longer pipelines, of EQT’s natural gas to market. That is expected to grow even further when the Mountain Valley Pipeline begins operation. But EQT’s new management team has been negotiating with Equitrans — also known as E-Train — for better rates. Rice said EQT and Equitrans have been making good progress on the talks, but declined to discuss specifics on potential reductions.

“EQT’s goal in this negotiation is straightforward: Simply the structure and reduce gathering fees to enable EQT the ability to grow volumes through Equitrans systems and generate free cash flow in a lower gas price environment,” CEO Toby Z. Rice said.

One solution would have any relief from EQT’s perspective on fees would be tied to the in-service date of the long-delayed MVP, and EQT could provide a longer contract term and larger minimum volume commitments — the amount of gas flowing through ETRN’s pipes — with a ramping up of development in West Virginia where the pipeline begins.

“West Virginia will become a larger part of EQT’s story in the future,” Rice said.

While EQT is a major player in southwestern Pennsylvania, particularly in the gas fields of Greene County, the costs of producing natural gas in northern West Virginia hasn’t been as cheap as it is across the border in western Pennsylvania. But Rice said that it’s changing and the company expects to do more in West Virginia in the future. Its first large-scale combo development, a tightly-choreographed, highly efficient type of development used at Rice Energy and now also at EQT, will be a 21-pad stretch in northern West Virginia.

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