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Natural gas production to be flat, but greener, higher value: EQT

Highlights

Q2 gas production averaged around 5.6 Bcfe/d

Investment in emissions reduction, RSG certification

Executives at EQT, the largest natural gas producer in the US, plan to capture value by producing greener gas, not necessarily more gas, they said during a second quarter earnings call July 29.

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EQT CEO Toby Rice confirmed in analyst Q&A that the company will keep production volumes flat for the next three to four years, caveating that the establishment of a long-term forward curve above $3/MMBtu could bring about some minor production increases. The company produced approximately 5.6 Bcfe/d of natural gas and liquids in the second quarter, according to a July 28 investor presentation deck.

"I think you compare [chasing shorter-term price signals] versus the long-term value opportunity that is getting our assets valued at a gas price that's north of $3," Rice said.

"When you compare the short-term gains you can get from accelerated activity or the alternative, we'll choose the alternative," Rice added.

The company seeks to position itself to benefit from a lower-carbon future, with planned investments in emissions reduction technology and responsibly sourced gas certification expected to increase its competitiveness.

EQT has already inked several deals to sell its certified low methane emissions gas, also known as RSG, at a premium, according to CFO David Khani.

RSG remains a nascent market and has yet to trade formally on an exchange, with all deals so far transacted bilaterally.

Rice said that while premiums for RSG are "in the single digits", the company expects the value to increase as the market matures.

One barrier to greater demand for this new product has been the lack of standardization in both definition and technology. EQT's recent decision to join the United Nations' multilateral initiative, Oil and Gas Methane Partnership 2.0, was cited by executives as part of the company's efforts to drive standardization and increase transparency for potential buyers.

ESG investment

On June 30, EQT announced $75 million in ESG and new venture spending to be spread over the next 5 years. One of the budget's key initiatives is a $20 million project to replace the company's natural gas-powered pneumatic devices by 2023, which is expected to cut GHG emissions by half.

EQT has contracted with multiple emissions monitoring and certification firms during the first half of the year to certify the company's Appalachia gas production, including Project Canary, MiQ and Equitable Origin.

Beyond the anticipated monetization of the company's lower emissions production profile, executives highlighted the cost-savings benefits to its ESG initiatives.

By moving to electrically powered hydraulic fracturing equipment (also known as e-fleets), eliminating an estimated 25 million gallons of diesel consumption annually, Rice said the company insulates itself from both the cost of diesel and associated risk of higher diesel prices.

Consolidation

Part of EQT's strategic bet on RSG has been its voracious acquisition of Appalachia acreage.

EQT has had an active last year of M&A activity, most recently acquiring gas producer Alta Resources. The Alta acquisition added around 300,000 acres of Marcellus production to EQT's portfolio, 300 miles of midstream gathering systems, and around 1 Bcf/d of dry gas production.

EQT also acquired Chevron's Appalachia assets in late 2020, which added acreage in southwest Pennsylvania, the West Virginia Panhandle, and Ohio.

Appalachia has the lowest methane intensity profile nationally, according to US Environmental Protection Agency data.