EQT Corp

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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…
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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…
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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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    Supersize Me! Marcellus/Utica Well Pads Now Host Up to 40 Wells

    The Marcellus/Utica Shale industry is changing underneath our feet–literally! Last time we checked, most well pads in the Marcellus/Utica sported an average of maybe 3-4 wells–with a dozen wells on a pad being “big.” Something has changed, dramatically, in the gas fields of PA, OH and WV. The “new normal” are supersized well pads–holding as many as (gasp) 40 wells! We hasten to add no such pad yet exists–a pad with 40 wells drilled from it. However, there is an EQT well pad in Allegheny County (near Pittsburgh) with 38 wells permitted (9 of which have been drilled so far). EQT says it now averages drilling 17-18 wells per pad. Antero Resources is drilling an average of 10 wells per pad–up from 3-4 “just a few years ago.” The trend now is more wells per pad, and longer laterals–meaning fewer well pads overall. That’s good for the environment, and good for the bottom line (less money spent pushing dirt around developing pads). Here’s an update on the trend to supersize well pads in the Marcellus/Utica…
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    EQT Bd Member Continues to Stir Controversy in WV Gov Office Role

    Bray Cary

    This is a story that won’t go away. Last week MDN told you about the kerfuffle over EQT board member Bray Cary and his work as an unpaid, “informal” adviser to WV Gov. Jim Justice (see EQT Board Member Unofficial Adviser to WV Gov Justice and More on EQT Board Member Serving in WV Gov’s Office). Cary has his own “swipe card” giving him 24/7 access to the Capitol. Cary has been “taking part in policy-oriented meetings.” He’s not on the payroll and he doesn’t answer to anyone. He’s also not subject to the state Ethics Act. Because Cary sits on the EQT board, and EQT has big assets in WV, critics see a conflict of interest. In our own simple words, Bray Cary has become a problem for EQT–a problem that needs to get fixed, fast. He either needs to end his role as unpaid adviser to West Virginia Gov. Jim Justice, or resign from EQT’s board of directors. Continuing to function in both roles is clearly a distraction EQT doesn’t need–and doesn’t want…
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    EQT Drills Longest Marcellus Well Ever, Reveals 2018 Plans

    EQT, the country’s largest natural gas producer after buying out Rice Energy, announced yesterday their plans for 2018. The company will spend a massive $2.4 billion on exploration & production (drilling)–all of it in the Marcellus/Utica region. EQT is spending 60% more money spent on drilling in 2018 than they did in 2017. What will $2.4 billion buy you? In the Marcellus, EQT will drill 139 wells (111 in PA and 28 in WV). In the OH Utica, EQT will drill 38 wells. And in the Upper Devonian (in PA), EQT will drill 19 wells. EQT plans to bring online 160-170 wells in the Marcellus, 40-50 wells in the Utica, and 20-25 in the Upper Devonian. However, all of the reporting we’ve seen on yesterday’s announcement from EQT fails to highlight what we consider to be some of the biggest news of the day: EQT has become the reigning champ for drilling the longest Marcellus Shale well. The previous reigning champ was Range Resources, drilling a Marcellus well 15,000 feet long (see Range Resources Drills Longest Marcellus Well Ever – in Washington Co.). EQT has sailed far beyond the Range well by drilling a well 17,400 feet long in Washington County, PA (as was Range’s monster Marcellus well.) The EQT well, called Haywood H18, was brought online earlier this week. And that’s not all. EQT plans to drill 27 more monster Marcellus wells with laterals longer than 17,000 feet in 2018! Congrats to the biggest producer in the U.S., who now has the biggest Marcellus well ever drilled!…
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    EQT Begins Process of Separating Midstream…into New Company?

    Yesterday EQT released details about their plans for 2018 (see our lead story today, EQT Drills Longest Marcellus Well Ever, Reveals 2018 Plans). Plenty of news sources covered that news. However, EQT Midstream, the pipeline subsidiary of EQT, also released an announcement, which received almost no media coverage. And yet there is, for us, some big news in the EQT Midstream announcement. As you know by now, EQT recently bought and merged in Rice Energy, creating the largest onshore natural gas producing company in the United States (see EQT Buys Rice Energy in $8.2B Deal, Becomes #1 Gas Producer in US). EQT bought not only Rice the driller, but Rice the midstream company too. EQT has it’s own EQT Midstream subsidiary. And yet, EQT (the driller) still owns a number of midstream/pipeline assets, on paper, separate from EQT Midstream. Same with Rice Energy–they had Rice Midstream Partners as a subsidiary. It’s all kind of a mish mash–with pipeline assets spread around four (or more) different entities on paper. Yesterday’s announcement by EQT Midstream said (a) the EQT parent company is considering “dropping down” (shifting ownership on paper) for all remaining midstream assets to EQT Midstream, and (b) EQT is also considering combining EQT Midstream and Rice Midstream Partners into one single entity–one division for all midstream assets. Which certainly makes sense. Why not tidy up the operations and get everything under one umbrella? Except we think there may be another reason for combining all of the midstream assets into one, neat, lovable bundle: spinning off the midstream division into its own standalone company, completely separate from the EQT parent…
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    More on EQT Board Member Serving in WV Gov’s Office

    Yesterday MDN told you about EQT board member Bray Cary and his work as an unpaid, “informal” adviser to WV Gov. Jim Justice (see EQT Board Member Unofficial Adviser to WV Gov Justice). WV media continues to track (hound) this story. The bone of contention is that Cary, who is a long-time WV resident (lives in Charleston) appears to have unfettered access to Justice. Cary has his own “swipe card” giving him 24/7 access to the Capitol. Cary has been “taking part in policy-oriented meetings.” He’s not on the payroll and he doesn’t answer to anyone. He’s also not subject to the state Ethics Act. And because Cary sits on the EQT board, and EQT has big assets in WV (and a big interest in pushing for a forced pooling law), critics see a conflict of interest. But is there? Yes, Cary sits on the EQT board, but that’s just one small piece of Cary’s background and active life. Cary is “best known for his former role as an executive with West Virginia Media.” He’s a player. He’s connected. An important guy. And Gov. Jim Justice wants to bend his ear on occasion, to get Cary’s advice and feedback. The real issue is not will/does Cary’s presence give EQT some sort of unfair advantage in the highest levels of WV state government. The real issue is the *appearance* of a conflict of interest–whether there actually is one or not…
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    EQT Board Member Unofficial Adviser to WV Gov Justice

    EQT, now the largest natural gas producer in the United States since adding Rice Energy to the fold, has major assets in West Virginia–wells and leased acreage. The company also has a lot of influence in the state–in the judiciary (see WV Supreme Court Reverses Itself, Post-Production Deductions OK), the legislature (see WVONGA Makes Plans to Push Forced Pooling Lite in 2018), and now in the executive branch. News has just broken that EQT board member Bray Cary is an unpaid, “informal” adviser to Gov. Jim Justice–a situation that’s raising some eyebrows…
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    Fire at EQT Well Pad in Marshall County, WV

    Yesterday, gas processing equipment at a Trans Energy well pad (now owned by EQT) in Marshall County, WV caught fire. The important things to know: (1) The fire was quickly extinguished, (2) nobody was injured, (3) this was not a well fire and was not related to drilling or fracking. There is a single operating Marcellus well at that location–drilled back in 2011. The well has been producing natural gas and other hydrocarbons since that time. As is common, some of the hydrocarbons (like condensate) are separated right at the well location, by equipment located near the pad. The fire began in that processing equipment. No residents were evacuated and the fire was out within a few hours. However, workers at the nearby Williams Fort Beeler natural gas processing plant were evacuated for a brief time, out of “an abundance of caution”…
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    U.S. Supreme Court Rejects Appeal of WV EQT Royalty Case

    The United States Supreme Court has refused to hear an appeal of an important West Virginia case, which means the current ruling stands that allows EQT and other drillers to deduct “reasonable” post-production expenses from landowner royalty checks. It is a victory for drillers and a blow to some landowners. How did we get here? A brief history: Last December 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 this year, 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 the WV Supreme Court ruled on the reheard case, overturning its previous decision from last December. 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 in September (see Lawyers ask US Supreme Court to Hear WV EQT Royalty Case). On Monday, with no explanation, the Supremes denied the request for an appeal…
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    PA Supreme Court Hears Arguments in EQT Wastewater Leak Case

    Buckle up while we explain the background for this story. In October 2014, the DEP fined EQT a whopping $4.53 million for a leaky wastewater impoundment in Tioga County, PA (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 is 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 matter–that is, sour grapes. EQT appealed the fine and the case all the way to the PA Supreme Court. In December 2015, the high court handed EQT a “procedural victory” by saying EQT has a point about the manner in which the DEP is calculating the fine (see PA Supreme Court Gives EQT “Procedural Victory” in $4.5M Fine Case). The Supreme Court sent the case back to a lower court, PA Commonwealth Court, for follow up work, and in January 2017, a three-judge panel ruled that the method the DEP currently uses to assess fines–by how many days pollution lingers, instead of by how many days the initial release of pollution lasted–is not legal nor common sense (see EQT Wins Court Case Against PA DEP re $4.5M Wastewater Leak Fine). The judges said such a method in fining, “would result in potentially limitless continuing violations.” Under the old way of calculating fines, the DEP was considering upping the fine on EQT to an insane $157 million. Calculating it under the new way will mean a fine of around $120,000. Not long after that ruling, the Environmental Hearing Board, a special “court” set up to hear appeals of DEP decisions, decided to reduce the original $4.5 million fine down to $1.1 million (see PA Hearing Board Reduces EQT Fine from $4.5M to $1.1M). We thought that would be the end of it. But no! Both the DEP and EQT appealed the matter back up to the PA Supreme Court and yesterday the Supremes heard the case once again…
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    Rice Energy CEO Dan Rice Gets $2.6M Golden Parachute from EQT

    The golden parachute has popped open for Rice Energy’s former CEO, Dan Rice IV. And it’s worth $2.6 million. EQT filed paperwork with the Securities and Exchange Commission last week to say that Dan Rice IV has been terminated (as an employee) as of the day the two companies merged. In a deal worked out prior to the merger, Dan is getting a check for $2.6 million–$1.91 million as a severance payment and $704,000 in lieu of his annual bonus. Which frankly doesn’t sound like a whole lot, given Dan was one of the shareholding owners of Rice Energy. His salary in 2016 was $3.35 million. But don’t shed any tears for Dan. We suspect his stock in the newly-merged EQT is worth a fortune. And Dan gets a seat on the EQT board of directors, a gig that will pay him. What’s next for Dan and the other Rice boys? We don’t have the particulars for all of the Rice boys, but we do know (from the SEC filing) that Dan signed a 3-year non-compete agreement, so we won’t see Rice Energy II in the northeast for at least three years. Other than that, we suspect the boys already have something up their proverbial sleeve. The Rice boys don’t strike us as the lounge-around-the-pool types…
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    Out with the Old – Part 2: EQT Sign Replaces Rice at HQ Building

    On Monday, Rice Energy was merged into EQT, creating the largest onshore natural gas producing company in these United States (see Out with the Old: Rice Energy Sign Comes Down Day of EQT Merger). In that post we shared with you a short video taken by an MDN friend that showed a pair of cranes taking down the Rice Energy name from Rice’s (now former) headquarters building in Canonsburg, PA (just outside Pittsburgh). Another MDN friend sent us a pair of pictures (below), taken the following day, which show an EQT sign now fixed over top of where the Rice Energy sign once stood. Our second MDN friend also told us that all the parking lot signs at the facility have EQT stickers on them, covering over the Rice Energy name. As we said in our Tuesday post, EQT isn’t wasting any time making a statement: Out with the old, in with the new. EQT is firmly large and in charge. A few days after the merger and Rice is already a memory, starting to fade away…
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    Corp Raider Slinks Away After Losing EQT Fight; Selling Stock

    On Monday, Rice Energy was merged into EQT, creating the largest onshore natural gas producing company these United States (see Out with the Old: Rice Energy Sign Comes Down Day of EQT Merger). The $8.2 billion deal was first announced back in June (see EQT Buys Rice Energy in $8.2B Deal, Becomes #1 Gas Producer in US). There was plenty of drama along the way to the deal getting done–primarily opposition by evil corporate raider Jana Partners, in collusion with Atlas Energy (see Proxy Fight: Jana Partners, Atlas Tries to Stop EQT/Rice Deal). Jana was fresh off from helping Amazon take over the Whole Foods grocery store chain. Yet somehow EQT was able to vanquish Jana’s efforts to stop the merger. How did EQT do it? We went behind the curtain yesterday to share EQT’s winning strategy in defeating Jana (see EQT’s 4-Pronged Strategy for Defeating Corp Raider Jana in Rice Deal). They way corporate raiders work, as we’ve explained many times before, is to buy enough stock in a company to get a board seat, then agitate in the board room, forcing the company to layoff people and sell assets–all in a bid to make the stock price pop so the raider can sell their shares at a handsome profit and move on to the next victim. Disgusting organizations. Since Jana lost face and reputation by not stopping the EQT/Rice merger, they’ve decided to slink away, back into the darkness. We spotted a story that says Jana has already sold a portion of their EQT stock–and they continue shop more of it. They’ve thrown in the towel on EQT and will now go pick on someone else to destroy…
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