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EQT Interested in Midstream Partnership

EQT Corp. plans to stay in the midstream business, but not on its own.

The Pittsburgh-based company flirted with the idea of selling its midstream assets to focus more money on its upstream operations, but decided it didn't want to lose the freedom to expand natural gas production at will without running into bottlenecks, CEO David Porges said during a third quarter conference call Thursday.

"We have concluded that the operational benefits of controlling the timing, location and size of incremental gathering and Equitrans expansions provide value to EQT Corp. beyond the direct returns made from these investments," Porges said.

EQT produced 51.3 Bcfe during the third quarter, up 51% from the third quarter of 2010, because of a 252% year-over-year increase in Marcellus Shale production. The 243 MMcfe/d EQT produced in the Marcellus during the third quarter accounts for 44% of company production, up from 19% in the third quarter of 2010.

That extreme growth, common among major producers in the region, is putting "a lot of stress on infrastructure," Porges said (see Shale Daily, Aug. 17). While owning midstream assets won't eliminate all bottlenecks, he said it definitely helps.

As EQT expands its development into areas where leaseholds are fragmented among multiple players, Porges said EQT will "clearly" have to use third-party midstream operators, but he added that owning facilities gives the company alternatives.

While EQT is still holding out the possibility of selling its assets in the future, the company doesn't have any plans to market them in the "near to medium term."

Earlier this year EQT sold its Big Sandy pipeline to focus on shale development (see Daily GPI, May 13). Its subsidiary Equitrans LP also got approval for a new Pennsylvania and West Virginia Marcellus pipeline (see Shale Daily, Sept. 23).

That said, the company is reluctant to spend money on midstream operations that could go toward developing its shale reserves. EQT drilled 66 gross horizontal wells in the third quarter of the year, 36 into the Marcellus and 30 into the Huron Shale.

Currently, the company solves that problem through a strategy it calls "build, fill, sell," where it builds infrastructure projects to meet demand and offer itself some control, and sells older projects to raise capital. Porges doesn't believe this strategy works well in the Marcellus, though, because of the complications that can arise when separate gathering systems that interconnect are owned by different companies.

So EQT now plans to create a "separate entity" -- a master limited partnership, a joint venture or a combination of the two -- sometime in the coming year.

Because of higher service costs coming as EQT finalizes contracts for 2012, the company upped its average Marcellus well cost to $6.7 million, from $6 million.

EQT recently unveiled a new completion strategy called the "30-foot cluster spacing test" that is more expensive than the standard, but the company is still analyzing results and finalizing its annual budget and therefore doesn't yet know how many wells it plans to use that strategy on in the coming year (see Shale Daily, Aug. 1).

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