EQT’s gas production grows, but prices shrink

The supply and demand imbalance that has depressed natural gas prices in northeastern Pennsylvania has begun to cause pain in this part of the state, and EQT Corp.’s gas prices have suffered because of it.

The Downtown-based oil and gas company said its realized prices during the second quarter were 18 percent below the benchmark price at the Henry Hub. Part of that is a reflection of how much lower the local price of gas is than the national.

“It’s just too much gas and not enough takeaway,” said Amir Arif, an analyst with Stifel Nicolaus. “That won’t be fixed until you get new pipe into the region.”

When oil and gas companies compete with each other for space in limited pipelines, they’re forced to take a lower price just to keep the product flowing.

The difference between the local and national price hubs is exacerbated in the spring and summer months, Mr. Arif said, when there isn’t enough local demand for natural gas as a heating fuel.

EQT is among the first oil and gas companies to report second-quarter results, but Mr. Arif expects to see similar price issues with other operators in the southwestern Marcellus and Utica.

For the rest of the year, EQT expects its gas prices to be below the national benchmark by about $1 per thousand cubic feet.

Getting gas to hungry markets was a major consideration in EQT’s joint venture with NextEra Energy to build the Mountain Valley Pipeline, which will funnel Appalachian gas through West Virginia and Virginia to customers in southeastern United States.

“The Southeast offers one of, if not the most attractive market for future natural gas growth as well as attractive price environment,” EQT’s CEO David Porges said during the company’s earnings call Thursday morning.

EQT reported net income of $111 million, or 73 cents per share, during the past three months, up from $87 million, or 57 cents per share, during the same quarter last year.

Net operating revenue was $474 million during the second quarter, also up from $437 million a year ago, the company reported.

During the past quarter, EQT began drilling 55 Marcellus shale wells, 22 wells in the Huron basin in Kentucky and 11 wells in the Upper Devonian, a group of shale layers above the Marcellus. One well was drilled into the Wolfcamp formation in Texas, an area EQT acquired earlier this year in an asset swap with Range Resources.

The company also is readying to drill its first Utica Shale well in southwestern Pennsylvania. The Greene County well, which is expected to be started before the end of the year, will likely cost the company $15 million, according to Steve Schlotterbeck, EQT’s president of exploration and production, who said it would be the deepest well drilled by the company and possibly the deepest drilled into the Utica by any company.

“We realize that this well is an experiment and could result in a $15 million dry hole,” he said.

EQT’s foray into the Utica in Ohio, which underwhelmed the company into pausing its drilling program there, remains stalled.

EQT Midstream Partners, or EQM, also reported earnings Thursday morning. The master limited partnership that spun out from EQT in 2012, posted net income of $52 million, or 81 cents per share during the past quarter, up from $41 million, or 59 cents per share last year.

The company operates about 2,500 miles of pipelines and services mostly EQT, but also other oil and gas producers in Appalachia.

Mr. Porges said EQT, which is a general partner in EQM, is considering what it could do to squeeze more value from its interest in EQM. Analysts believe the most likely option would be to spin out the general partnership as its own public company.

Anya Litvak: alitvak@post-gazette.com or 412-263-1455 First Published July 24, 2014 8:00 PM

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