EQT Corp. said last month it 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 on Oct. 27.

“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. While owning midstream assets won’t eliminate all bottlenecks, especially in fragmented leaseholds, he said it would help.

EQT is holding out the possibility of selling its assets in the future, but 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. Its subsidiary Equitrans LP also got approval for a new Pennsylvania and West Virginia Marcellus pipeline (see NGI, Sept. 26).

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 (MLP), a joint venture or a combination of the two — sometime in the coming year.

Moody’s Investors Service changed its rating outlook for EQT to “negative” after the earnings call, though, questioning how the company would fund its growth and noting that an MLP would “be a source of equity,” but would add “structural complexity.” Moody’s Vice President Pete Speer said the “negative outlook points to EQT’s rising debt levels to meet its aggressive natural gas production growth objectives. We also are concerned about EQT’s future corporate structure as the company evaluates various options to fund its growth.”

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