Just days after executives told analysts they were kickingthe tires on a few bolt-on packages that could be serviced by the affiliate, EQT Corp. announcedthat it is buying 62,500 net Marcellus and Utica shale acres in West Virginiafor $407 million from Norway's Statoil.
The implied $6,512-per-acre price for leases in Wetzel,Tyler and Harrison counties is in line with previous West VirginiaMarcellus/Utica deals. EQT estimated that the land has potential to produce 9.2Tcf, with 87% held by production or lease past 2018. The purchase includes53,000 acres prospective for the Utica Shale, where EQT has devoted rig time toexploration in the past year, but the immediate effect will be to allow EQT toextend the laterals of existing wells.
"Much of this acreage is contiguous with EQT's existingdevelopment area; therefore, the lateral length of 106 existing EQT locationscan now be extended from 3,000 to 6,500 feet, which will reduce overall costsand deliver stronger well economics," the company said in a statement.
To pay for the purchase, EQT is offering 9,500,000 shares,with an additional 1,425,000 shares available to the underwriters. CreditSuisse and J.P. Morgan will act as book runners for the offering. At the shares'May 2 closing price of $69.21, the offering would raise $645.5 million beforethe underwriter allotment.
On its April 28 earnings call, EQT executives said they weretalking directly to sellers but gave no hint that a deal was in the offing.
"We have a very narrow core area we think isinteresting," E&P President Steven Schlotterbeck told analysts. "Sothe things that are interesting to us are asset packages that fit nicely withour existing upstream and midstream assets where, as [CEO David Porges] said,we get those true synergies. And I think there's a number of those packages outthere right now — some are on the market, some we're just in discussions …directly with companies. So we're looking at a lot of stuff. We're reallyhoping to find things where we have more synergies than our competitors, whichallows us to be competitive on price yet get it at a price that still leaves alot of value for our shareholders."
Statoil bought 70,000 acres in northern West Virginia andOhio for $590 million in 2012 as it branched out from its Marcellus Shale jointventure with Chesapeake EnergyCorp. and became an operator in its own right.
Also included in the deal are 31 Marcellus wells, 24 ofwhich are producing, three of which are awaiting pipeline connections, and fourof which are drilled but uncompleted, EQT said.
Wolfe Research analyst Bob Parija predicted a deal combiningsomeone else's acreage inside EQT Midstream's footprint in an April 29 note tohis clients after EQT's earningswere announced. "We believe EQT may be the only company that hasboth the financial resources and domain expertise around both resourceappraisal and a separate midstream solution.
"As we've said, we think EQT gets a smartasset deal done in '16," Parija said.
A Statoil spokesman said the acreage in the deal was nolonger central to Statoil's strategy for the future.