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EQT Prepping Midstream MLP

As promised, EQT Corp. is restructuring its midstream operations to bring in more money for upstream developments in the Marcellus Shale (see Shale Daily, Nov. 1).

The Pittsburgh-based company announced plans on Thursday to create a master limited partnership (MLP) next year that would own portions of Equitrans LP, its interstate pipeline subsidiary. EQT would own the general partner interest in the MLP, but when the company conducts an initial public offering in the first quarter, it might also sell a limited partner interest, depending on market conditions.

The move is an attempt by EQT to balance its upstream and midstream assets. The company said it was increasingly reluctant to spend money on pipelines that could go toward rapid development of the Marcellus, but also felt that owning pipelines allowed it to avoid many of the infrastructure bottlenecks plaguing other operators.

Those priorities are evident in the 2012 capital budget EQT also announced on Thursday. Of the $1.6 billion the company is setting aside for next year, nearly $1.2 billion is for EQT Production and only $365 million is for EQT Midstream.

EQT expects to produce between 255 Bcfe and 260 Bcfe in 2012, up from its original estimate of "more than 250 Bcfe," and 32% over its projections for 2011. The company plans to drill 132 wells into the Marcellus in 2012, with 17 in northeastern Pennsylvania, 74 in southwestern Pennsylvania and 41 in northern West Virginia.

As the company drills, it also plans to expand the use of an experimental completion technique that improved production by 60% in initial tests earlier this year. The process involves pumping hydraulic fracturing fluids at a higher rate into smaller stages in an attempt to create a denser network of fractures (see Shale Daily, Aug. 1). The technique adds about $1.8 million to the cost of each well, and the company currently plans to use the technique on about 49 wells in the coming year.

In addition to the Marcellus, EQT also operates in the liquids-rich Huron Shale of eastern Kentucky, where it plans to drill 120 wells on its 2.7 million acres in 2012.

"While the announcement of a definitive plan after publicly contemplating alternatives for months may be seen positively, we remain skeptical of the idea that EQT can garner a higher valuation for its midstream assets in an MLP as opposed to the current structure," Canaccord Genuity Energy Research analysts wrote in a note.

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