EQT Corporation is a pure natural gas play in the Marcellus Shale. EQT holds 3.4 million acres in the Appalachian region including 500,000 acres that have potential for the Marcellus Shale.
The Marcellus shale is the hottest gas play because it combines excellent production with nearness to the eastern market. Do not underestimate the importance of Marcellus to America’s energy security.
EQT is Appalachia’s second largest natural gas producer behind coal giant CONSOL whose $3.5 billion purchase of Dominion Resources on 16 March 2010 made CONSOL number one. EQT has an established natural gas processing and pipeline system connecting it to the Pittsburg market and to several key interstate pipelines.
EQT is very aggressive. In 2010, it will drill up to 278 new wells and expand its pipeline system to move new production to market.
EQT’s market capitalization is $5.5 billion, which is a little large, but competing in the Marcellus shale is requires investment in processing plants and pipelines as well as in drilling new wells.
EQT is a low cost operator with both low finding and development costs and low operating costs. For its new Marcellus wells EQT claims: “At an average cost of $3.0 million per well, EQT's development cost is estimated to be less than 75¢ per MCF, which is among the lowest in the industry. The 30-day-average initial production rate for the company's seven wells completed in 2010, averaged 7.0 MMCFE (million cubic feet equivalent) per day; ranging between 2.7 MMCFE and 15.8 MMCFE per day.” [Those are great numbers.]
A small negative is the EQT, which was once called Equitable Gas, owns a gas utility that sells gas to homes, businesses, and industry. The utility business essentially requires no new capital commitment.
EQT’s Recent Capital Events
Marcellus Shale Purchase: On 2 March 2010, EQT bought 58,000 net acres in the Marcellus Shale from a group of private operators and landowners. The acreage is located primarily in Cameron, Clearfield, Elk, and Jefferson counties in Pennsylvania. The purchase includes a 200 mile gathering system and approximately 100 producing vertical wells.
EQT will pay approximately $280 million, 90% with EQT stock and 10% with cash.
New Shares Offered: On 10 March 2010, EQT offered 12,500,000 shares at $44 and gave underwriters a 30-day option to purchase 1,875,000 additional shares.
Dilution of EQT Common: Total dilution for the new stock offering and for the above purchase of Marcellus acreage with stock is about 15%.
Recommendation: I bought some EQT yesterday at $42.56. I’m still expecting a major decline in E&P stocks; so proceed with caution.
Other Buys Yesterday: Prices of E&P stocks, especially natural gas stocks, declined sharply after morning inventory figures showed more gas surplus than expected. I bought Brigham Exploration @ $16.18, and Petrohawk @ $20.62. EQT and Petrohawk are natural gas E&Ps, while BEXP is an oil E&P.
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