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Highlights

Spin-off completion 'first order of business'

Extended laterals key to cost savings

Pittsburgh — Robert McNally, who was named on Thursday to take over the reins at EQT, said he is focused on guiding the company's transition into becoming a pure-play exploration-and-production company while retaining its position as the largest North American natural gas producer.

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EQT on Thursday said McNally, who currently serves as the producer's chief financial officer, will become president and CEO upon completion of the company's separation of its upstream and midstream businesses, which is expected to be completed in the fourth quarter.

"The first order of business is to actually get the spin-off done," McNally said in an interview with Platts. He said the company has completed all the necessary preliminary transactions and was expected to file as early as Thursday the disclosure documents with the US Securities and Exchange Commission to create the spun-off midstream company, which will be named Equitrans Midstream Corp.

McNally will replace as EQT's leader David Porges, who was named as interim president and CEO following the unexpected departure of former President and CEO Steven Schlotterbeck, who resigned from EQT in March in a dispute over his compensation.

As part of the spin-off process, Porges will also step down from the EQT board of directors and will become chairman of the board of Equitrans Midstream.

Upon completion of the spin-off EQT will become a pure-play E&P company, focused almost entirely on producing gas in the Marcellus and Utica shales of the Appalachian Basin, McNally said.

"We will continue to be the largest gas producer in North America," he said. With transactions EQT has done over the past several years, in particular the acquisition of Rice Energy, which closed last November, EQT holds the largest contiguous acreage position in the core of the Marcellus, he said.

This position allows EQT to drill extended lateral length wells, which helps drive its drilling costs down, McNally said.

COST STRUCTURE

"We have an industry-leading cost structure," he said. "That puts us in a position where we'll be able to grow at a moderate pace and to generate free cash and to continue to be one of the industry's leading gas producers."

In its recent Q2 2018 earnings release, EQT reported producing 320.54 Bcf of gas equivalent (3.52 Bcfe/d). The lion's share of this production came from the Marcellus, where it produced 294.13 Bcfe (3.23 Bcfe/d).

"I'm very excited about the future we have in front of us as a pure-play gas producer in the Marcellus," McNally said.

In the Ohio Utica, EQT holds a position of about 65,000 acres, which it acquired in the merger with Rice. "That is also a contiguous position where we're drilling long laterals, almost 12,000 feet," he said.

McNally said EQT would work to continue to increase its average lateral lengths, "because that is the best way to drive good economics in drilling." The company has seen its average lateral length go from 8,000 feet just a couple of years ago to now approaching 14,000 feet in 2018.

"We've drilled some wells this year with 18,000- to 20,000-foot laterals. In that range you start reach the technical limitation of the rigs and the fracking horsepower," McNally said.

Other than the technical limitations on extended laterals, McNally sees few limitations to EQT's continued growth.

APPALACHIAN PIPELINES

Despite recent roadblocks that have been thrown up in the path of pipeline projects designed to carry gas from the Appalachian Basin to markets beyond, "I'm confident that these pipelines will ultimately get built," he said. "The timeline could slip a little bit, but I think they're moving forward in a way that is meeting expectations."

In the meantime, "we always have to maintain our social license to operate," he said. "We have to be good stewards of the environment, we have to make sure that we manage safety appropriately and we have to minimize the impact to the communities in which we work. Frankly that's something that we do a really good job of."

--Jim Magill, jim.magill@spglobal.com

--Edited by Rocco Canonica, newsdesk@spglobal.com