EQT to drill outside Marcellus as gas prices rise
By Timothy Puko
Published: Thursday, Dec. 19, 2013, 12:01 a.m.
EQT Corp. announced a plan to restart some drilling outside its most valuable Marcellus shale land, and its stock price dipped nearly $4 per share on Wednesday before rallying in the afternoon.
The Downtown-based gas driller said it plans to increase capital spending to $2.4 billion in 2014. That's about $700 million more than financial analysts expected, according to Bloomberg. About $1 billion is going into Marcellus shale drilling, but $180 million will go to drill 120 Huron shale wells in Kentucky, operations that stopped in early 2012 as gas prices started to crash.
Natural gas drillers are gradually ramping up in some marginal fields now that gas prices have climbed to $4.29 per million British thermal units, experts said. EQT was one of many companies to curtail drilling as spot prices dropped below $2 in the spring of 2012. If they stay above $4, the company can make at least a 35 percent return on its investment in Huron wells, it said Wednesday in a presentation for analysts.
“If you went back to 15 months ago, the sentiment on gas was terrible. It was the apocalypse,” said Dave Pursell, managing director and head of securities at Tudor, Pickering, Holt & Co. in Houston. “Today, no one's excited about it ... but there are some plays on the margin that work.”
The stock price dip probably came from investors skittish about the big jump in spending and about the diversion of funds away from drilling in Pennsylvania and West Virginia, analysts said. Investors want to see discipline from drilling companies, which have been more likely of late to gain in stock price after announcing a decrease in spending rather than an increase, said Brian Youngberg at Edward Jones. He rated the stock a hold.
The research and consulting firm Wood Mackenzie Limited estimates that natural gas prices need to be about $5 for drillers to break even in the Huron, higher than EQT's estimate. EQT figures show its Marcellus wells do reap nearly double the rate of return on investment as its Huron wells. But producing more gas in Kentucky is part of a long-term strategy to boost assets there and raise money, the company said.
By using the opportunity of a price spike to produce more, it can put more gas through its 3,500 miles of pipe there, the company said. And that will raise the value it can get for potentially selling the system to its sister pipeline company, EQT Midstream Partners LP, EQT CEO Dave Porges said in the announcement.
“You always get a better price for a property that's getting actively drilled and used than for one that's not,” said Amir Arif, an analyst at the brokerage firm Stifel in Washington. “It makes sense long term.”
Arif's firm does buy and sell EQT stock, and it expects to receive or seek compensation from the company for investment banking services sometime within the next three months, according to its disclosure statement.
EQT Corp. has been selling off hundreds of millions of dollars worth of its pipeline assets to EQT Midstream to raise money for drilling. It sold its utility company for $720 million in cash this week, and will use that and other money on hand so it doesn't have to borrow for its capital spending.
It plans to drill 357 wells in all, about half of them in the Marcellus. Its spending there — all in Western Pennsylvania and northern West Virginia — would average about $5.9 million per well, according to company figures. That's up about $500,000 per well from last year, Arif said.
Each Marcellus well will average a reach of about 4,800 feet sideways underground, up about 550 feet from the wells it drilled in 2013, according to company figures.
“The 2014 CAPEX program is designed to profitably accelerate the development of our expansive Marcellus position and will result in significant volume growth in 2015,” Porges said in the announcement.
The stock closed at $84.64 per share, down $1.20 on the day.
Timothy Puko is a staff writer for Trib Total Media. He can be reached at 412-320-7991 or email@example.com.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Samsung introduces free streaming radio service
- Minorities crucial to filling Marcellus shale gas drilling jobs
- Coca-Cola CEO’s pay, bonus drop
- Car only as good as its tires
- Fraud charges stand for Facebook claimant
- Demand grows for digital deal suppliers
- Class-action lawsuits may get a bit tougher
- Encouraging employment report fails to stir much excitement to stock markets
- Cabbies protest ride startups
- U.S. trade deficit rose to $39.1 billion in January
- Consumer borrowing increased by $13.7 billion in January