© Reuters.
By Mrinalika Roy
(Reuters) -Top U.S. producer EQT Corp (NYSE:) has agreed to buy Equitrans Midstream in an all-stock deal that values its former pipeline unit at about $14 billion including debt, as companies look to navigate decade-low prices for the commodity.
The transaction will help in facilitating lower-cost production and transportation of natural gas, as it adds more than 2,000 miles of pipeline infrastructure, the companies said on Monday.
“Natural gas macro landscape is one characterized by unpredictable volatility for the foreseeable future… the only way to truly thrive in this world is to be at the low end of the cost curve,” EQT CFO Jeremy Knop said on a conference call with analysts following the deal announcement.
The deal comes when an oversupplied market has pummelled natural gas prices, forcing producers to curb output and spending on drilling activity. EQT is curtailing nearly 1 billion cubic feet per day (bcfpd) of natural gas production through March.
“This vertical integration positions EQT as the lowest cost natural gas producer in the United States,” said CEO Toby Rice.
Each outstanding share of Equitrans common stock will be exchanged for 0.3504 shares of EQT, giving the deal an equity value of about $5.5 billion.
Shares of EQT were down about 7%, while Equitrans was up about 2% in early trading.
The deal is expected to close in the fourth quarter. EQT shareholders will own about 74% of the combined company and Equitrans shareholders will own the rest.
The combined company will have an enterprise value of more than $35 billion.
“While operationally we like the combination, the deal adds an equity overhang as midstream holders may have different priorities, and the incremental debt likely directs EQT’s free cash flow to leverage reduction over all other options for the near-term, which we expect to result in the shares trading down,” said Bertrand Donnes, analyst at Truist Securities.
The transaction closely follows rival Chesapeake Energy’s $7.4 billion bid for Southwestern Energy in January.
Equitrans was spun out when EQT in 2018 split into two, separating its midstream operations from the gas production business.
It is the lead partner and operator of the Mountain Valley natural gas pipeline, the only big gas pipeline under construction in the U.S. Northeast. It has encountered numerous regulatory and court fights that have stopped work several times since construction began in 2018.
EQT is focused in the cores of the Marcellus and Utica Shales in the Appalachian Basin.
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