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More on EQT’s Deal to Sell Capacity on MVP, Increase REX
Last week MDN told you the news that EQT Corporation has sold part of its reserve capacity along the Mountain Valley Pipeline (MVP) to “an undisclosed investment-grade entity for six years” (see Divorce: EQT Sells 1/2 Bcf/d of Capacity on Mountain Valley Pipe). EQT also announced an increase in its capacity along the Rockies Express (REX) pipeline to carry more of its gas to Midwestern markets. The news about MVP is not quite as simple as it seems. EQT did NOT give up sending 1/2 a Bcf of its gas along MVP as it may first appear. We need to go deeper…
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EQT, the country’s largest natural gas producer, issued its third quarter update yesterday. There was a LOT of news in the update. Where to start? Three important things to note from yesterday’s update: (1) EQT blew it on hedges, losing $2 billion during 3Q21 compared with losing $600 million in 3Q20. (2) CEO Toby Rice says the company is done, for now, with expanding by buying other companies. No more mergers and acquisitions. (3) EQT produced a whopping 495 Bcfe (billion cubic feet equivalent) during 3Q21, up 35% from the same period last year. That works out to be 5.5 Bcfe per day.
Although three major Marcellus/Utica drillers provided third quarter updates yesterday, we only cover EQT’s update in today’s lineup of stories. Come back Monday for details from both Antero Resources and CNX Resources. S&P Global Platts reviewed all three updates from yesterday and noticed a difference in how each of the three companies is approaching hedging, or preselling production for a specific price up to a year or more in advance. According to S&P, regaining investment-grade ratings for company stock was a stated goal by executives at all three companies during their 3Q earnings calls. They all aim to maximize free cash flows and paying down debt. Hedging programs were touted as the pathway to accomplish these balance-sheet goals.
It’s splitsville for EQT and Equitrans Midstream, the midstream company that was once part of EQT. In releasing details about third quarter performance, EQT announced yesterday it has sold nearly half of its contracted capacity with Equitrans for the Mountain Valley Pipeline (MVP). MVP, when it goes online next year, will ship gas south. It seems EQT is looking West. In the same announcement yesterday, EQT said it has signed a new contract with the Rockies Express (REX) pipeline to ship even more of its gas to markets in the Midwest.
Equitrans Midstream, owner of the 303-mile Mountain Valley Pipeline (MVP) and a related gathering pipeline called Hammerhead designed to feed 1.6 Bcf/d (billion cubic feet per day) of Marcellus/Utica gas into MVP, says an arbitration panel ruled in its favor in a dispute with EQT Corp. over the delayed startup of Hammerhead. According to an 8-K filing, Equitrans said the three-member arbitration panel ruled that the in-service delay beyond October 1, 2020, for Hammerhead was caused by a force majeure, so EQT has no early termination right under the Hammerhead gathering agreement or related right to purchase the Hammerhead project.
Last week Pennsylvania issued 21 permits to drill new shale wells. Most of the permits went to two well pads, one in Butler County drilled by PennEnergy Resources and the other in Tioga County drilled by Repsol. Ohio issued six new permits, three to Encino Energy, two to Utica Resource Operating, and one to Ascent Resources. West Virginia, for the second week in a row, issued just one new permit. Last week’s WV permit went to Tug Hill Operating in Marshall County.
The Gas and Oil Association of West Virginia (GO-WV) released a new report yesterday called “Gas Facts” (full copy below). The report chronicles the impact oil and gas has had on the Mountain State over the past five years. According to Charlie Burd, GO-WV executive director, “Natural gas is the state’s top-paying sector, supporting more than 82,000 jobs and contributing roughly $5.2 billion in wages each year. Clean, abundant natural gas will continue to drive economic growth and opportunities for generations of West Virginians.” It’s an interesting report. One thing in the report caught our eye immediately: Two “top 10” lists for gas and oil production. We’re suckers for a good top 10 list…
Hedging, in the case of natural gas produced by big drillers like EQT Corporation, is when the company presells the production it will make (in the future) under contract at a specific price. Typically companies like EQT will hedge production for up to a year, sometimes more, in advance. It’s a way of protecting revenue from production in case prices sink below a certain level. The problem with hedging is you are locked in when the price goes up and stays up, like the price for natgas has done over the past several months. According to Bloomberg, EQT’s hedges could cost the company “more than $5 billion through the end of next year.” Ouch. CEO Toby Rice openly admits the company guessed wrong on its hedges.
Small investors have a golden opportunity. Oil and gas companies (drillers in particular) are more profitable than ever, yet many large investors are avoiding and will not invest in them. Why? Because they’re idiots? Well, yes, that’s one reason. But the root cause is they have been cowed by loud-mouthed environmental extremists. Threatened by them. Oil and gas companies are still here, still providing a critical service to the world, and still need investors. That’s a great opportunity for small investors–like you.
EQT CEO Toby Rice laid the blame for the developing world energy crisis, particularly Europe’s lack of access to natural gas, at the feet of radical environmentalists. If not for the radicals and their constant frivolous lawsuits blocking pipelines and LNG export facilities, such infrastructure would already have been built and would be providing abundant, cheap, clean-burning Marcellus/Utica natural gas to other regions of the U.S. and to Europe.
Last week MDN was (as far as we can tell) the first to bring you news of a new lawsuit filed in Allegheny County Court of Common Pleas against EQT alleging the company had not made required royalty payments to at least two residents, and likely many more residents (see