The CEO of Appalachian shale gas producer CNX Resources Corp. would not comment on a report that his company's neighbor, gas giant EQT Corp., is interested in buying his company. But the executive said he is enjoying the attention the smaller firm is getting after years of cost-cutting and transforming itself from a coal company into a shale player.
"I'm not surprised," CNX CEO Nick DeIuliis told S&P Global Market Intelligence on Oct. 23. "I'm glad to see others recognizing our potential."
EQT declined to comment Oct. 23 on a report from Bloomberg that EQT had made an offer to buy CNX in an all-stock deal. In July, EQT doubled its share count to 640 million, and EQT executives told analysts on the company's Oct. 22 earnings conference call that the Appalachian Basin was ripe for consolidation. EQT, the nation's largest natural gas producer by volume, was open to increasing its size and scale if it could find assets that would immediately add to the company's bottom line, they said.
"On the M&A front, yes, we're not going to speak about specific deals, but continue to believe that anything we would ever look at would have to be a good strategic fit at the right value and accretive under free cash flow per share and [net asset value] basis," EQT CFO David Khani said. Previously, Khani was CFO at CNX and at Consol Energy Inc., the coal and gas company that spawned CNX.
Based on Oct. 22 closing prices, EQT would need to pay $2.6 billion for CNX's stock and assume $2.7 billion in CNX debt, in addition to any premium built into a deal.
"We suspect some CNX shareholders could resist an EQT acquisition," Stifel Nicolaus & Co. oil and gas analyst Michael Scialla said Oct. 22 after the deal rumor surfaced. "Based on our estimates, the transaction would be free cash flow dilutive for CNX shareholders. CNX also has a lower cash cost structure than EQT, in part due to lower gathering, processing and transportation costs. The trade-off for CNX holders would be greater scale and an investment-grade balance sheet."
On Sept. 16, Reuters reported that EQT placed a $750 million bid for the Appalachian shale gas properties being marketed by oil major Chevron Corp. The company, however, provided no acquisition news during its third-quarter earnings report.
"Although the great day (Oct. 22) for the drillers was widespread, it was slanted towards the natural-gas drillers as rumors swirled that the rapid consolidation seen in the Permian is making its way towards Appalachia," Raymond James & Associates analyst John Freeman said in his Oct. 23 morning note.