US gas producer EQT doubles down on Marcellus with Alta Resources acquisition

EQT is further cementing its position as the biggest US natural gas producer by acquiring privately held Appalachian Basin driller Alta Resources' upstream and midstream subsidiaries for almost $3 billion in cash and stock in a transaction announced May 6.

The company leapfrogged ExxonMobil in total US gas output when it acquired Rice Energy in 2017 for $6.7 billion. After a power struggle over the direction of the combined company, former leaders of Rice took over top roles at EQT.

Fast forward a few years and US shale faces an image problem amid the global energy transition to greater use of cleaner burning fuels. EQT believes that shale gas can be a reliable bridge to the transition and, with the Alta deal, is doubling down on the gas-rich Marcellus. The company is at the forefront of an effort to certify gas that is responsibly sourced.

"We're excited about the trajectory of our business and the incremental benefits the Alta assets will have on our portfolio," CEO Toby Rice said during an investor call held to discuss EQT's latest financial results.

The Alta acquisition, which is expected to close in the third quarter subject to approval by EQT shareholders, is 100% dry gas and will add 1 Bcfe/d of production to EQT's quiver for a total of about 5.6 Bcfe/d of output. With the Alta holdings, EQT is moving into the northeast Marcellus, where it will pick up 300,000 net acres.

The transaction also includes 300 miles of owned and operated midstream gathering systems, a 100-mile freshwater system with 255 million gallons of storage capacity, and a portfolio of firm transportation to demand markets. EQT also will pick up hedges covering about 35% of the acquired production through 2022.

The evaluation of the deal started about six months ago, and EQT decided that Alta's assets check off a lot of boxes for EQT's growth goals, Rice said.

"We want to do deals that are accretive to our program," Rice said. "And we're willing to pay a price that will still drive pretty healthy accretion."

The $2.925 billion purchase will be satisfied with $1 billion in cash and about $1.925 billion in EQT stock issued to Alta's shareholders, EQT said.

EQT is currently an anchor shipper on the greenfield, 2-Bcf/d Mountain Valley Pipeline project, which would move Appalachian Basin gas to mid-Atlantic markets. Amid legal hurdles, full startup has been delayed several times, most recently to 2022, and the cost of the project has nearly doubled, to a current estimate of $6.2 billion.

EQT is talking to counterparties about offloading its incremental MVP capacity. In its earnings release, it reported that it narrowed its first-quarter loss.

ESG EFFORTS

Last month, EQT said that most of its Marcellus output will undergo an independent assessment of its environmental impact. At the time, it said that about 4 Bcf/d of production from over 200 well pads in Pennsylvania would be certified based on the environmental, social and governance performance of how it is sourced. Methane emissions also will be quantified.

During the investor call, Rice said the Marcellus assets being acquired from Alta would be integrated into EQT's environmental, social and corporate governance platform.

From detailing their carbon footprint to trying to capture carbon before it is released to identifying supplies that are responsibly sourced, the industry effort is partly about messaging that not all shale is created equal. In EQT 's case, it hopes it can generate a premium for its gas if it can validate that its supplies are more environmentally friendly than supplies from other US basins.

"We are a values-driven organization that continues to perform for our stakeholders," Rice said.