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EQT touts Rice merger benefits

26 Oct 2017, 5.10 pm GMT

EQT touts Rice merger benefits

Houston, 26 October (Argus) — Natural gas producer EQT today touted its recent $6.7bn acquisition of Rice Energy ahead of a 9 November shareholder vote.

On an earnings call, EQT executives said the Rice purchase will increase its Marcellus shale acreage and allow it to drill longer horizontal wells.

Shareholders will vote to approve the transaction to make EQT the largest natural gas producer in the US with a 2017 combined production of 1.3 Tcf of natural gas equivalent (Tcfe/d) (37bn m³/d). The boards of directors of both companies approved the deal in June, starting off a rare consolidation in a sector that has increasingly seen asset sales in recent years amid weak gas prices. EQT would gain a total of 421,000 acres across the Utica, Marcellus and other gas-producing formations in the northeast US, boosting its total holdings to 1.5mn acres.

EQT's new acreage would allow the producer to raise its average drilling length to 12,000ft laterals in the Marcellus from its current 8,000ft, drilling further into the shale along contiguous acreage in order to boost output, executives said today.

"The primary driver of success is being a low-cost producer, and the most impactful way to drive costs lower is through longer laterals," chief executive Steve Schlotterbeck said. "A dominant footprint of contiguous acreage is a real competitive advantage, and this is what the Rice transaction creates for us."

Schlotterbeck said EQT has had "hundreds of conversations" with shareholders since the company announced the acquisition in June. Shareholder suggestions resulted in the company committing to add two new independent directors to the board with a focus on midstream, among other measures.

Schlotterbeck pointed to Greene County, Pennsylvania, as one example where the combined acreage provides opportunity. The Rice Energy deal will allow EQT to control 212,000 acres there, or 57pc of the total county. Of the acreage that would be under EQT control, 80pc has yet to be drilled at all.

"There's a lot of remaining inventory acreage and a tremendous amount of lease sources in play, and we are very confident in our ability to deliver on that," Schlotterbeck said.

EQT's 1.9 Bcf/d Mountain Valley pipeline (MVP) is one way the producer plans to move its ballooning output out of Appalachia. The line was approved by the US Federal Energy Regulatory Commission (FERC) during the third quarter. MVP still needs approvals from West Virginia and Virginia before FERC will provide notice to proceed with construction, but EQT has been in "constant conversations" with the two states and does not expect any major obstacles, senior vice president of Midstream Jerry Ashcroft said.

The pipeline would ship gas produced in West Virginia to Transcontinental Gas pipeline's compressor station 165 in Pittsylvania County, Virginia. EQT has 80pc of the pipe ready to install and will be ready to begin construction in the beginning of 2018 and place the line into service by the end of that year.

"Station 165 gives us the opportunity to move into the southeast and into the Gulf coast. Petrochemical facilities in Louisiana and Texas are really expanding, and also population growth in the southeast is a big pull," Ashcroft said.

EQT had sales volumes of 2.2 Bcf/d of natural gas equivalent (Bcfe/d) during the third quarter, up by 5pc from a year earlier. EQT's third quarter average realized price was $2.76/1,000 cf, up by 26pc on the year.

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