EQT sweeps up US upstream, midstream assets
US gas production giant EQT has entered a $5.2bn cash-and-stock agreement to acquire upstream Appalachia basin assets from holding unit THQ Appalachia I (Tug Hill) and midstream assets from THQ-XcL Holdings I (XcL Midstream).
Tug Hill's portfolio encompasses 800mn ft3/d net production in the core of southwest Appalachia, situated within reach of EQT's existing acreage in West Virginia. The deal consists of $2.6bn in cash and almost $2.6bn in EQT shares and is currently due to close Q4 subject to customary conditions. EQT will own a 96% operated working interest, in the acquired upstream assets.
From THQ-XcL Holdings I, EQT is set to take over 95 miles (152m) of gathering systems which it says will provide connections to all the southwest Appalachia's "major" interstate pipelines. The midstream grid includes a 1.0bn ft3/d rich gas trunkline and 3.5bn ft3/d lean gas trunkline, both with 600mn ft3/d compression capacities.
EQT will also gain a 225mn ft/3 gas processing plant at Clearfork, and a 20mn barrel/day stabilisation facility for lifting wet condensate quantities.
The news suggests EQT is eyeing expansion to capitalise on higher realised sales prices for natural gas. Most observers expect gas benchmarks to remain elevated into next year, particularly compared with the three-year trough of $2.57/mn Btu for Henry Hub spot purchases recorded in 2019.
EQT's deal is projected to cut its free cash flow breakeven price by around $0.15/mn Btu through to 2027. Its debt reduction goal for the year-end 2023 has been increased to $4bn from $2.5bn, reflecting elevated "confidence" in its business operations, based on Tug Hill and XcL Midstream's valuation metrics.
Toby Rice, president and CEO of EQT, said: "The acquisition of Tug Hill and XcL Midstream checks all the boxes of our guiding principles around M&A, including accretion on free cash flow per share, NAV per share, lowering our cost structure and reducing business risk, while maintaining an investment grade balance sheet."
Rice had in February slammed a US Senate campaign to divert export volumes to domestic markets, after 10 senators called for "swift action" to reduce domestic energy prices.
Both Tug Hill and XcL Midstream are backed by equity funding from vehicles managed by private equity firm Quantum Energy Partners. Quantum's founder and CEO, Wil VanLojh, has been asked to join EQT's board of directors. Michael Radler, who acts as CEO of both TugHill and XcL, said Quantum had been a "great partner" in building up the two businesses.
"I am very proud of the Tug Hill and XcL Midstream teams and the amazing job they have done in building premier upstream and midstream companies in the heart of southwest Appalachia," Radler said.