EQT, Equitrans look to create vertically integrated natural gas business with merger

EQT Corp., Pittsburgh, the largest natural gas producer in the US, has agreed to acquire Equitrans Midstream Corp., its former midstream unit and one of Appalachia’s largest natural gas gatherers, in an all-stock deal valued at about $5.5 billion.

The aim is to create a vertically integrated natural gas business—with an initial enterprise value over $35 billion—to enable lower-cost production and transportation of natural gas as the industry continues to work through low commodity prices. In early March, EQT noted its February decision to cut gross production by about 1 bcfd and maintain the curtailment through the month (OGJ Online, Mar. 4, 2024).

“Natural gas macro landscape is one characterized by unpredictable volatility for the foreseeable future...the only way to truly thrive in this world is to be at the low end of the cost curve,” said EQT chief financial officer Jeremy Knop on an analyst call following the deal announcement.

The companies said the cost structure integration would materially improve the economics of EQT’s remaining 4,000 drilling locations—breakevens below $3/MMbtu with about 3,000 locations below $2.50/MMbtu, according to TD Cowen estimates—and would mitigate operational execution risk with about 90% of operated production flowing through EQT-owned midstream assets on a pro forma basis.

With the newly reported deal, Equitrans would provide over 2,000 miles of pipeline infrastructure that overlaps EQT’s core upstream operations and existing midstream assets. The combine would have 27.6 tcfe of proved reserves across 1.9 million net acres with 6.3 bcfed of net production and about 8.0 bcfed of gathering throughput across 3,000 miles of pipeline.

Annual synergies of $250 million are expected, with upside potential to more than $425 million, the companies said.

In 2018, EQT completed the spin-off of Equitrans Midstream, a company formed to hold EQT’s midstream business in the context of the separation of EQT’s upstream and midstream businesses, all in the Appalachian basin (OGJ Online, Feb. 21, 2018; Nov. 13, 2018).

Mountain Valley Pipeline

The deal to integrate the companies is contingent upon the Federal Energy Regulatory Commission authorizing one of those pipelines, the Mountain Valley Pipeline (MVP), to commence service. Work began on the 42-in OD, 303-mile natural gas pipeline in 2018, but the project has faced multiple legal delays related to its potential environmental impact since construction started. Startup is expected in second-quarter 2025 at a total project cost of $7.57-7.63 billion.

Equitrans holds about 49% of the MVP project set to transport 2-bcfd of natural gas from the Marcellus and Utica shales to mid- and south Atlantic US markets.

To deleverage, however, some Equitrans assets could be sold, TD Cowen analysts said in a note following the deal’s announcement. “With the assumption of over $8 [billion] of debt from [Equitrans], EQT pro forma will hold nearly $14 [billion] of total debt; however, the company has identified a path to more than $5 [billion] of near-term debt repayment via $3.5 [billion] of asset sales including some regulated [Equitrans] assets such as the Mountain Valley Pipeline, as well as organic free cash flow creating a glide path down towards their long-term debt target of $7.5 [billion].”

In addition to the MVP contingency, the deal—expected to close in this year’s fourth quarter—is subject to required regulatory approvals and clearances, approval of the transaction by shareholders of both EQT and Equitrans, and other customary closing conditions.

Upon closing, three representatives from Equitrans will join EQT’s board of directors. EQT’s executive management team will lead the combined company with headquarters remaining in Pittsburgh, Pa.