EQT Corp. said on Thursday the start of service on the Mountain Valley Pipeline (MVP) would be delayed by three months, as the project’s sponsors work through a pending legal challenge from the Sierra Club and other opponents.
MVP, a joint venture of EQT Midstream Partners LP (EQM), NextEra US Gas Assets LLC, Con Edison Transmission Inc., WGL Midstream and RGC Midstream LLC, had been scheduled to enter service during the fourth quarter. But a federal appeals court’s decision last month to stay a crucial water crossing permit issued by the U.S. Army Corps of Engineers has prevented some work from progressing on the 300-mile pipeline.
The project is now targeting a 1Q2019 in-service date. The Army Corps recently filed a motion to lift the stay of the Nationwide Permit 12, which allows contractors to trench through the bottom of streams and rivers, arguing that it’s addressed the issues involved. EQM said Thursday that it expects briefing to conclude this month, allowing the court to review and rule on the motion.
MVP has said that if the stay were left in place pending a broader legal challenge, it could cost millions and delay the project for nearly one year. EQT CFO Robert McNally said during a conference call on Thursday to discuss second quarter results that the three-month delay would not have much impact on the bottom line or operations.
McNally said the delay would hinder EQT’s ability to access new pricing points. The 2 Bcf/d pipeline would move Appalachian natural gas from West Virginia to Southeast markets. The CFO said, however, that the project’s costs have already increased. The stay “has caused us to jump around a bit, hop over water crossings that just become less efficient and that drives costs up a bit.”
For the upstream business, the second quarter was the most active in the company’s history, said exploration and production President David Schlosser. The company operated as many as 15 rigs and 12 fracturing (fracking) crews during the period. The activity follows the $8 billion acquisition of Rice Energy Inc. last year, which made EQT the nation’s largest natural gas producer.
In EQT’s southwest Pennsylvania core, the acreage additions from Rice and other deals have allowed it to increase lateral lengths by an average of 14,200 feet, or 55% longer than the average in the region last year. Post-acquisition efforts, Schlosser added, also allowed it to lengthen 70 drilled but uncompleted wells by an average of 3,000 feet.
Given the longer laterals, he said, the company now plans to spud 34 fewer wells than it originally had planned for this year.
Halliburton Co. CEO Jeff Miller said Monday upstream activity is expected to soften in Appalachia heading into the second half of the year, as producers have hit production targets earlier than expected.
Schlosser seconded that forecast, saying the second quarter would be EQT’s most capital-intensive. Activity is expected to wind down as the year comes to a close. It’s likely to be running about 13 or 14 rigs and up to seven frack crews during that time, he said.
While Halliburton anticipates an uptick in Appalachian activity early next year as producers again wind up to fill more pipeline capacity, Schlosser said in the meantime, oilfield services costs should come down.
“The pricing environment is different than it was in the first half of 2018, especially on the pressure pumping side, which is where I think we’ve seen the most movement,” he said. “I don’t have an exact number for you, but there’s definitely downward pressure on pricing.”
EQT’s broader plan to simplify its corporate structure by separating the midstream and upstream segments also barreled ahead in the second quarter. McNally said EQT has “essentially completed all of the cleanup transactions that we announced in April and related financing transactions,” including the merger with Rice Midstream Partners LP.
The company still needs to make a key filing with the U.S. Securities and Exchange Commission, and it’s also awaiting action from the Internal Revenue Service. While the timeline is unclear, the separation could be complete before the end of the year, McNally said.
The company also expects to name a new CEO before that happens. Interim chief David Porges took over in March after Steven Schlotterbeck left the company over a disagreement with the board about his compensation.
EQT produced 362.5 Bcfe in the second quarter, up from 198.1 Bcfe in 2Q2017 and 357 Bcfe in 1Q2018. Average realized prices were down slightly to $2.81/Mcfe from $2.86/Mcfe in the year-ago period. But revenue increased from $688.7 million in 2Q2017 to more than $1 billion in the second quarter.
EQT reported net income for the period of $17.8 million (7 cents/share), compared with net income of $41.1 million (24 cents) in 2Q2017.
The quarter’s higher revenues and profit were both impacted by higher expenses, including impairments of “long-lived assets and leases,” transaction-related costs, higher interest and losses on derivatives. EQT recorded a $118.1 million impairment on noncore production assets and retained pipeline assets in the Huron formation and Permian Basin plays, positions that have mostly been sold.
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