EQT to buy gas and pipeline assets from Marcellus for $5 billion

(Bloomberg) – EQT Corp., the largest U.S. natural gas producer, has agreed to acquire a private competitor in a $5.2 billion deal to expand its holdings in the prolific shale of Marcellus.

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The Pittsburgh-based driller will take over THQ Appalachia I LLC, a company operated by Tug Hill and backed by Quantum Energy Partners, in a cash and stock transaction, the company said in a statement Tuesday. The purchase will also include Tug Hill’s XcL Midstream LLC, which owns approximately 95 miles of gas pipelines connecting to interstate systems.

This is the latest in a series of acquisitions made by EQT over the past two years as the company seeks to consolidate its holdings in the Marcellus in the northeastern United States. Led by CEO Toby Rice, the company last year bought assets from Alta Resources Development LLC for about $2.9 billion. It also acquired the assets of Chevron Corp. in Appalachia for $735 million in 2020.

The move largely paid off, as a global supply crisis pushed natural gas prices to the highest levels in more than a decade. While the driller’s ability to profit from the recovery has been hampered by hedging against the possibility of a gas crisis, the company is still poised to generate record amounts of cash from its operations while reducing debt and increasing shareholder returns. Its shares have more than doubled over the past year.

The $5.2 billion purchase of Tug Hill’s assets consists of $2.6 billion in cash and approximately $2.6 billion in EQT common stock, with Quantum to become a “major” shareholder of EQT after closing of the transaction.

EQT also doubled its share buyback authorization to $2 billion and increased its 2023 year-end debt reduction target by 60% to $4 billion “due to even greater confidence in the sustainability of our business,” Rice said in the statement. The transaction will result in increased free cash flow per share, lower costs and reduced business risk, according to the CEO.

The deal is expected to close by the fourth quarter, subject to certain conditions.

RBC Capital Markets served as financial advisor to EQT, and Kirkland & Ellis LLP is EQT’s legal advisor on the transaction, according to the statement. JP Morgan Securities and Wells Fargo Securities served as financial advisors to Tug Hill and XcL Midstream and Vinson & Elkins LLP is legal advisor to Tug Hill and XcL Midstream.

THQ Appalachia produces nearly 800 million cubic feet of gas per day in West Virginia, according to the release. The company has approximately 11 years of inventory at the maintenance capital level. EQT is expected to produce the equivalent of 5.5 billion cubic feet per day this year.

Shares of EQT fell 3.3% at 4:40 p.m. after normal trading hours in New York.

(Updates with offer details beginning in fifth paragraph)

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