EQT Corp

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    EQT Midstream Consolidates, Buys Gulfport JV Share for $175M

    As EQT gets ready to split the company into two companies later this year, the midstream (pipeline & processing plants) portion of the company yesterday announced a complicated “drop down” deal to streamline the midstream operation. The short version is this: EQT has midstream assets spread throughout three companies on paper–EQT Midstream Partners, EQT GP Holdings, and Rice Midstream Partners. Yesterday the company announced all three are being merged under one umbrella–EQT Midstream Partners. As you’ll read in the EQT announcement, the entire deal is complex–with various entities buying assets from the others. One of the more interesting aspects of the deal is that EQT Midstream is buying EQT’s (the driller’s) Olympus Gathering System and EQT’s 75% interest in the Strike Force Gathering System. EQT Midstream is also buying out Gulfport Energy’s 25% interest in Strike Force, meaning EQT Midstream will now own 100% of Strike Force–a gathering pipeline system in the dry gas Utica covering 98,000 acres in Belmont and Monroe counties, in Ohio. Here’s the news that EQT is getting its midstream ducks in a row…
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    Some PA Drillers Threaten to Spoil it for All via Royalty Shenanigans

    We’ve written a number of posts over the years about the ongoing, sometimes quiet sometimes not, civil war between Pennsylvania landowners and some (not all) drillers who use inflated post-production deductions to pad their own bottom lines, leaving landowners with peanuts–sometimes with no royalties at all (see Deep Dive: PA Royalties Civil War Between Landowners & Drillers). If we can oversimplify and summarize this complex issue, landowners maintain that a 1979 PA law guarantees landowners a 12.5% royalty regardless of expenses involved in extracting the gas, and drillers say no, landowners must abide by the contracts they’ve signed and if those contracts allow post-production costs to be deducted before calculating a royalty, the rate may go lower than 12.5%–sometimes to zero and below. PA landowners have, for the past six plus years, lobbied for legislation to clarify and protect a 12.5% minimum royalty. Today we have a guest post from the landowner point-of-view. Thad Stevens is a Gaines, PA resident and real estate developer. Thad has negotiated more than 50 oil and gas leases. He sits on the Dept. of Environmental Protection Citizen Advisory Council and is a director with the National Association of Royalty Owners PA chapter. We consider Thad a friend. He’s smart and he’s passionate about the the ongoing issue that some companies take inflated post-production deductions leaving PA landowners with little or nothing. Thad writes that some of PA’s gas drillers are displaying real arrogance in their attitudes toward the very people they need the most–landowners…
    Read More “Some PA Drillers Threaten to Spoil it for All via Royalty Shenanigans”

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    EQT Sues WV for Passing Minimum Royalty Law re Flat Rate Leases

    Earlier this year the West Virginia legislature passed Senate Bill (SB) 360, which Gov. Jim Justice subsequently signed into law (see WV Gov Justice Signs Bill to Guarantee 12.5% Minimum Royalty). SB 360 overturns a ruling by the WV Supreme Court in Leggett v. EQT Production, a case in which the Supremes (in a very unusual move) reversed their own previous decision and allowed EQT to deduct post-production expenses in an old flat rate lease. In essence, SB 360 guarantees rights owners/landowners a 12.5% minimum royalty, regardless of post-production deductions–but only in flat rate leases. A flat rate lease is a lease in which a company pays a regular (in EQT’s case, annual) payment, regardless of how much oil/gas is produced. Traditionally drillers don’t deduct post-production expenses because the payments they make aren’t all that much anyway. But then EQT began to claim deductions, prompting a lawsuit that went all the way to the Supreme Court. The legislature aimed to “fix” what they considered an error in the court’s ruling. EQT claims the new law is unconstitutional and last week filed a lawsuit (copy below) asking a judge to block implementation of the law, set to take effect on May 31…
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    PA Supreme Court Axes DEP $4.5M Fine in EQT Tioga Wastewater Leak

    EQT had to take their case all the way to the Pennsylvania Supreme Court, but in the end, the company was victorious over a wildly overinflated $4.53 million fine levied by the state Dept. of Environmental Protection (DEP) for a leaky wastewater impoundment in Tioga County dating back to 2014 (see PA DEP Levies Biggest Fine Ever, $4.5M Against EQT). While EQT did not say there wasn’t a problem with leaks at the site, they did say the way the DEP calculated the fine was unreasonable and arbitrary. In fact, EQT says the DEP levied the fine and took EQT to court because a few weeks prior EQT had sued the DEP over a different, unrelated matter (i.e., sour grapes on the part of the DEP). EQT appealed the fine and the case all the way to the PA Supreme Court, which heard oral arguments last November (see PA Supreme Court Hears Arguments in EQT Wastewater Leak Case). Last Wednesday the PA Supremes ruled (5-2) in favor of EQT, saying that the DEP’s levied fine was excessive and that the DEP misinterpreted language in the 1937 Clean Streams Law…
    Read More “PA Supreme Court Axes DEP $4.5M Fine in EQT Tioga Wastewater Leak”

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    W Pike Run Antis Want 1000′ Setback to Zone Out EQT Drilling

    A debate is playing out in West Pike Run Township in Washington County, PA (near Pittsburgh) that we find interesting. A quick PA history lesson: Back in 2012 PA passed the Act 13 law to update oil and gas regulations to account for shale drilling. One of the updates was a uniform set of zoning requirements to protect residents and the environment. Unfortunately, seven selfish townships sued and eventually won (at the PA Supreme Court) challenging those regulations. So PA towns won the right to impose restrictions on drilling activities. In West Pike Run, the debate is over “setbacks”–how far does a well have to be from nearby structures, like homes and barns and businesses. State law imposes a minimum of 500 feet from the wellhead to an “occupied” structure–and 300 feet from the well to a body of water. In West Pike Run, antis want to up that number to 1,000 feet, which would effectively prevent any more drilling by EQT, the primary driller in the township. The town recently held a hearing on the proposed 1,000 foot setback, a hearing which has been continued to a future meeting on April 16…
    Read More “W Pike Run Antis Want 1000′ Setback to Zone Out EQT Drilling”

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    EQT Pulls a Chesapeake, New Deductions from PA Leases

    Last Friday MDN editor Jim Willis had the pleasure of speaking at the National Association of Royalty Owners (NARO) Pennsylvania Chapter annual convention in State College, PA. Jim was humbled to present alongside a cast of terrific speakers, including Scott Perry, Deputy Secretary of the Office of Oil and Gas Management at the PA Dept. of Environmental Protection, Tom Murphy, Director of Penn State’s Marcellus Center of Outreach and Research (MCOR), and Scott Kurkoski, a top lawyer and head of the energy practice for Levene, Gouldin & Thompson (thanks for the ride home Scott!). One of the first attendees at the event to stop by the MDN table for a chat asked if we had heard about a letter recently sent by EQT to PA landowners. We had not. He gave us a copy (below). In the letter, EQT claims they have been “subsidizing a portion of the cost to gather the gas” produced by their PA wells, and they intend to begin claiming new deductions from royalty checks beginning this year. The way they position it in the letter is that landowners will begin “sharing” in these post-production costs. Who doesn’t like to share, right? We can tell you, not a single attendee at the event was impressed with EQT’s “sharing” letter. It smacks of the road Chesapeake Energy has gone down in robbing landowners of their royalties…
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    EQT Spends $1.6M to Lease More Land Under Monongahela River

    The Pennsylvania Dept. of Conservation and Natural Resources (DCNR) has just amended an existing lease with EQT that allows EQT to extract natural gas (and other hydrocarbons) from underneath the Monongahela River in Allegheny, Greene, Fayette, Washington and Westmoreland counties. EQT is paying $4,000 per acre for 392 acres ($1.568 million total) in a signing bonus, along with a big 20% royalty on anything produced. However, the announcement raises an important question we’ve asked for more than four years: Is the land under rivers and streams actually owned by the state? PA says yes. We suspect landowners who own land along those rivers and streams would say otherwise. The state grabbing money for land under bodies of water has been going on for years (see PA DCNR Program Leases Under Rivers/Creeks for Marcellus Drilling and PA DCNR Publishes Lease Agreements for Deals Under Rivers/Creeks). Below is the latest lease deal by DCNR to lease more land under the Monongahela River…
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    EQT CEO Steve Schlotterbeck Suddenly Quits, Leaves Company

    Steve Schlotterbeck

    We certainly didn’t see this one coming. The country’s #1 producer of natural gas, EQT, has just lost it’s President & CEO, Steven Schlotterbeck. Steve is the man who guided the company through its acquisition of Rice Energy last year (see EQT Buys Rice Energy in $8.2B Deal, Becomes #1 Gas Producer in US). It was a tough battle against multiple corporate raiders who didn’t want to see the deal happen, but Steve held it together and made it happen. The notice from EQT (below) is short and sweet and says Steve has resigned immediately, due to “personal reasons.” Stepping back in to pilot the ship while the company searches for a new leader is former CEO David Porges (CEO from 2011-2017 until Steve took over). The news of Schlotterbeck’s surprise resignation came as a shock around Pittsburgh (and nationwide). Why did he step down? MDN has the scoop…
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    Top 3 Most Productive Drillers in the Marcellus Shale

    We spotted an intriguing story that summarizes some of the information found in a newly-released report from private equity firm Baird Equity Research. Baird’s report purports to show, using data, “the most productive operators in the Marcellus shale.” What is the criteria used? They use productivity per average well along with how much money the average well is generating for the operator (i.e. driller). We wish we had a copy of the full report. Sadly, we do not. However, we do have the article summarizing it, which shares the top three operators. The top operator stands head and shoulders above the rest. Would it surprise you to learn the top operator in the Marcellus, according to Baird, is Cabot Oil & Gas? No, it didn’t surprise us. What about the other two in the top three? And what about the top Utica operator? Read on…
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    EQT Pulls Trigger to Split Company in Two: Drilling & Pipelines

    After EQT announced its plan to buy/merge in Rice Energy last year, the company got pushback from a couple of so-called activist investors (i.e. corporate raiders). One raider, Jana Partners, tried its best to stop the EQT/Rice deal outright (see Proxy Fight: Jana Partners, Atlas Tries to Stop EQT/Rice Deal). Jana slithered away after the merger happened (see Corp Raider Slinks Away After Losing EQT Fight; Selling Stock). However, a second raider, D.E. Shaw, supported the merger but lobbied hard that once the merger is complete, the company should split itself into two companies: upstream (drilling) and midstream (pipelines). Shaw’s pressure made EQT tap dance to their tune (see Under Pressure, EQT Moves Up Timeline to Explore Splitting Co.). True to their word, once Rice was merged in, EQT then added a couple of new board members and set about exploring how to separate the company into two companies. The theory is that by separating, each company can focus on what it does best (drilling or pipelines), meaning each separately will have a higher valuation/stock price than the two combined. That is, “the sum of the parts” is worth more than the whole. The review process is now done, and EQT’s Board of Directors voted to proceed with a plan to divide the company in two…
    Read More “EQT Pulls Trigger to Split Company in Two: Drilling & Pipelines”

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    WV Royalty Owners Push Bill to Fix Post-Production Deductions

    West Virginia royalty owners (which sometimes means landowners, sometimes not) are pushing Senate Bill (SB) 360 to fix the issue of post-production deductions drillers take from royalty checks. A brief history: In December 2016, MDN reported on the huge WV Supreme Court decision against EQT that disallows EQT from deducting post-production expenses from royalty checks, even with signed contracts in place (see WV Supreme Court Rules EQT Can’t Deduct P-P Costs from Royalties). In February 2017, with a brand new justice on the bench, the WV Supreme Court agreed to rehear the case after an appeal filed by EQT–a rare and unusual step (see EQT Catches Big Break in WV Supreme Court re Royalty Deductions). In May 2017, the WV Supreme Court ruled on the reheard case, overturning its previous decision. The court ruled to allow EQT to deduct “reasonable” post-production expenses (see WV Supreme Court Reverses Itself, Post-Production Deductions OK). Those who won the original case (and lost the reheard case) say newly elected Supreme Court Justice Elizabeth Walker had conflicts of interest and should not have been allowed to vote to rehear the case in the first place (which she did). On that basis, they tried to avoid the rehearing altogether, but that failed. Newly elected Justice Walker, with (according to the losing side) conflicts of interest, voted in favor of EQT. On the basis that Walker should not have been part of the process at all, the case was appealed to the U.S. Supreme Court. However, the Supremes refused to hear the appeal, making post-production deductions the law in WV (see U.S. Supreme Court Rejects Appeal of WV EQT Royalty Case). The only path left to royalty/landowners is to pass a new law. That new law is SB 360…
    Read More “WV Royalty Owners Push Bill to Fix Post-Production Deductions”

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    EQT Big Announcement Coming Within 2 Wks to Split Co. in Two

    Yesterday EQT, now the largest natural gas producing company in the United States following its acquisition of Rice Energy, released 2017 numbers. On an analyst call to discuss the number, CEO Steve Schlotterbeck turned the conversation in the direction of “sum of the parts”–which turned out to be the really big news. What in the world is “sum of the parts?” In October 2017, prior to EQT consummating its deal to buy Rice, Steve Schlotterbeck said following the merger EQT would study a plan to split the newly consolidated company into two pieces–upstream/drilling and midstream/pipelines (see EQT CEO Signals Company Likely to Split in Two After Rice Merger). EQT is considering a split under pressure from a corporate raider (aka “activist investor”). You know what we think of corporate raiders. Scum of the earth. Anywho, in high finance, the theory is that if you split a company in two different lines of business into pieces, with each piece focusing on a different market (drilling vs. pipelines in the case of EQT), the two companies would be worth far more to investors as standalone companies than they are joined together. In other words, the “sum of the parts” is worth more than the whole. EQT honored its word, hiring two new board members following the Rice merger. Their role is specifically to help with reviewing and crafting a plan to split the company. The outcome of the review (and the plan to split the company in two) was due out by the end of March. However, on yesterday’s analyst phone call, Schlotterbeck said the review and a plan will be released by “the end of February”–in less than two weeks. Frankly, there’s no doubt the review will recommend a split, judging by Schlotterbeck’s comments (see below). Schlotterbeck said yesterday, “[W]e intend to implement the plan on an accelerated basis.” Welcome to splitsville…
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    EQT Makes $1.5B in ’17; Drilling Fewer Wells in ’18; Tax Cut Helps

    Yesterday the biggest natural gas producing company in the U.S., EQT, released its fourth quarter and full year 2017 update. As we pointed out in our lead story today, the 800-pound gorilla in the room was talk about an impending announcement to split EQT into two companies (see EQT Big Announcement Coming Within 2 Wks to Split Co. in Two). However, there was plenty of other news coming out of the 2017 update and accompanying analyst phone call. Of course the big news for EQT in 2017 was closing on the deal to buy Rice Energy (see EQT Buys Rice Energy in $8.2B Deal, Becomes #1 Gas Producer in US). Sadly, about half of Rice’s employees were fired as a result. EQT kept 275 out of the roughly 500 employees employed at Rice at the time of the merger. EQT reported a net income of $1.5 billion in 2017, which is up from a loss of $453 million in 2016 (a nearly $2 billion swing in one year!). Contrary to the naysayers, the Trump tax cut is having a huge impact on shale companies (on everyone, actually). EQT will be $1.2 billion richer this year due to “deferred tax liability”–taxes it expected to pay at the old rate of 35% rather than at the new rate of 21%. That’s money not going into the black hole of Washington politicians’ hands but instead getting reinvested right here in the Marcellus/Utica. In 2017, EQT picked up an *additional* 110,000 acres in the West Virginia Marcellus/Utica region–and that’s without including the acreage picked up in the Rice Energy deal. How about some hard numbers for drilling? In 2017, EQT drilled 144 Marcellus wells, 49 Upper Devonian wells, and 4 Utica wells (197 wells drilled, total). In 2018 they plan to drill 134 Marcellus wells, 16 Upper Devonian wells, and 25 Utica wells (175 total). So, their drilling program will slightly decrease, and they will drill less Marcellus/UD wells and more Utica wells. EQT also issued an announcement about proved reserves–the amount of gas (and equivalents) in the ground, under their leased acreage, that they could extract using today’s technology at today’s prices. EQT reports total proved reserves at the end of 2017 were a stupendously high 21.4 trillion cubic feet equivalent of natural gas–59% higher than 2016. Below are the announcements issued yesterday from EQT, along with the latest PowerPoint slide deck and excerpts from the analyst phone call…
    Read More “EQT Makes $1.5B in ’17; Drilling Fewer Wells in ’18; Tax Cut Helps”

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    Impressive 2018 Marcellus Growth Not So Impressive Because of DUCs?

    Our lead story today is about Gulfport Energy which highlights some exciting news: This year (in 2018) Gulfport will fund their entire drilling budget out of the cash flow the company generates from selling gas/oil/NGLs (see Gulfport Energy Continues Focus on Utica for 2018, No Borrowing). Thing is, Gulfport isn’t the only Marcellus/Utica driller to advertise the fact that this year they are “living within their means” and not borrowing. Others include Range Resources, EQT and Antero Resources. Wow! We’re finally profitable!! Or are we? MDN spotted some analysis by a hedge fund manager. Writing on the Seeking Alpha investor’s website, Josh Young says (in our words) “hold on a minute” with respect to M-U drillers appearing to be able to grow production without borrowing. Why is Josh not convinced with this good news? Because when you dig deeper into the numbers, you find that “organic growth within cash flow is further from reach” because drillers are using DUCs to spend less on drilling, and grow production, than they otherwise would be. A DUC is a Drilled but UnCompleted well. Many times drillers will drill the initial hole in the ground, but then not “complete” (or frack) the well. Why do that? For a variety of reasons. The biggest reason is usually because the commodity price of gas (or oil, depending on the well) is not favorable. Rather than lose the lease (an expensive proposition), drillers will begin the process by drilling, and then leaving, the well, returning later to complete it when prices go up again. Josh’s thesis is that by using DUC inventory drillers aren’t really funding the entire budget from current year cash flow, because some of the money was spent in a previous year to drill the well. They are, in essence, still borrowing–from a different year. Josh estimates an average of 20% of the “new” wells coming online are DUCs and not truly new wells funded by current year dollars–meaning these companies aren’t as “profitable” as they may seem. Does he have a point? Is it all just financial mumbo jumbo? You decide…
    Read More “Impressive 2018 Marcellus Growth Not So Impressive Because of DUCs?”

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    PA Supremes to Consider EQT Request to Drill Well in Jefferson Hills

    In December 2015 MDN told you about EQT’s application to drill a single shale well in Jefferson Hills (Allegheny County), PA (see Jefferson Hills, PA Antis Oppose EQT Well Near Future School Site). The well would be drilled “near” where a new school is due to be built, which generated vigorous local opposition. As part of the a conditional use permit, EQT agreed to (a) not use Borough roads during construction, (b) use a pipeline from a local water company instead of trucks for the water needed to drill and frack, greatly reducing the amount of truck traffic, (c) pledged the project would not impact local streams and wetlands, (d) comply with local lighting regulations, and (e) install sound walls if needed. In other words, EQT bent backwards, forwards, sideways, jumped through numerous hoops and turned itself inside out to comply with requests from the town. The Borough Planning Commission unanimously approved the conditional use permit request. But then the town, bowing to pressure from residents, rejected the request in December 2015, saying the proposed project would endanger local health and the environment. EQT sued and won in the Court of Common Pleas of Allegheny County in June 2016. Jefferson Hills appealed and in May 2017, the Commonwealth Court of Pennsylvania upheld the EQT verdict saying the town arbitrarily rejected the permit and EQT should be allowed to drill (see PA Appeals Court Clears Way for EQT to Drill Jefferson Hills Well). Jefferson Hills appealed it all the way the PA Supreme Court and on Monday the court agreed to hear the case…
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