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EQT's Appalachian buy may be start of the healthy picking off the sick

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Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

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EQT's Appalachian buy may be start of the healthy picking off the sick

With a war chest of nearly $2 billion, Appalachian producer could still be on the prowlfor more cheap Marcellus and Utica shale leases from its stressed competitors toadd to its Pennsylvania and West Virginia leasehold.

On May 2, EQT announcedthat it agreed to buy 62,500 acres worth of West Virginia leases for $407 millionfrom Norway's Statoil,most of it adjacent to EQT's land position, and is raising roughly $700 millionin an upsized secondary stock offering.The next day, analysts speculated that the Pittsburgh-based producer is still lookingfor assets offered by Appalachian producers ready to say "uncle" in responseto the continued low natural gas and liquids prices.

"Given its enviable [balance sheet], we see EQT as 'cat-birdseat' consolidator in the basin," Wolfe Research analyst Bob Parija told hisclients May 3. "Post the stock offering and net of the purchase, EQT will havenearly $1.85bn in cash and another $1.5bn of an undrawn revolver, peer leading liquidity.Given the number of distressed assets available on the market, we believe EQT maystill be 'kicking' tires. We would not be surprised to see similar transaction announcementsin the [$250 million to $500 million] range, especially if natgas prices stay weak,as the year progresses."

EQT spokeswoman Natalie Cox played EQT's cards close to the chestMay 3. "We are focused on potential transactions that lie within our core operatingareas and remain interested in assets that align with our existing activities,"she said in an email.

Mergers and acquisitionsin the Appalachian shale have been a popular topic among clients, analysts at TudorPickering Holt & Co. said, contending that EQT's Statoil deal is just the firstin a trend that will accelerate.

Tudor Pickering Holt predicted that Antero Resources Corp., Gulfport Energy Corp. and Rice Energy Inc. will be buyers in the southwest Marcellusand Utica, while Cabot Oil & GasCorp. may become a buyer of more leasehold in the northeast Pennsylvaniapart of the play.

Sellers could include stressed drillers such as and or operatorswhose attention is back in Texas now that the boom years have passed, such as and , the analystssaid.

"M&A should be accretive for many buyers as valuationsare reasonable, throughput on existing midstream capacity can be acquired, and strategiccontrol of high volumes may drive long term value," they wrote.

EQT shares slid 1.7%, to $68.03, on heavier-than-normal tradingMay 3, hanging above the $67 offering price.