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EQT Corp. boosts profits despite lower gas prices

| Thursday, Oct. 23, 2014, 7:51 a.m.

Faced with a natural gas glut that continues to stifle prices in Appalachia, EQT Corp. plans to cut costs but maintain production by drilling fewer wells and extending their horizontal reach into the Marcellus shale.

“We will drill. We'll develop the same amount of acreage. We'll just do it with less wells because they're longer laterals,” EQT's Executive Vice President Steve Schlotterbeck said Thursday while discussing a successful quarterly earnings report for the Downtown company. “It's just more capital-efficient.”

EQT started lengthening the lateral, or horizontal, stretches of its wells by about 1,000 feet in the 42 Marcellus wells it started drilling in the three months that ended Sept. 30, cutting costs by 6 percent, CEO David Porges said. Combined with a 25 percent increase in gas production, long-term contracts and expansion of its midstream pipeline business, that helped the company increase profits despite depressed prices.

Profit rose to $98.6 million, or 65 cents a share, during the third quarter, an increase over the $88.3 million or 58 cents per share it reported during the same period last year. EQT boosted sales of related liquids by 87 percent, and increased the amount of gas it moved on pipelines and gathering systems, which helped raise revenue to $578.7 million, a 20 percent increase over the $479.6 million it reported last year.

“We continue to drive shareholder value by economically developing our vast resource base and investing in the ever-growing midstream opportunity in our focus areas of Southwestern Pennsylvania and northern West Virginia,” Porges said.

Its stock closed up $4.76 at $87.65, a 5.7 percent increase. But the value remains down since hitting a high of $109.53 on June 20. Plunging gas and oil prices have investors concerned about energy stocks and whether the boom fueled by shale fracking had peaked. The Energy Select Sector Index is down 14 percent since the end of August, compared with 3.8 percent for the Standard & Poor's 500 Index, Bloomberg reported.

EQT, the state's fifth-largest gas producer in the first half of the year, is the first of the locally based gas companies to report results from a summer punctuated by price concerns. Analysts and industry executives blame the low prices on a lack of pipelines to transport the glut of Marcellus gas to markets with high demand, such as New England and the Southeast.

“There's no easy fix for this,” said Stewart Glickman, an energy equity analyst in New York with S&P Capital IQ. EQT has an advantage in being able to sell space on pipelines and gathering systems operated by its spin-off EQT Midstream Partners, he said.

Spot gas prices in Appalachia have lagged more than $2 per million British thermal unit lower here than at Henry Hub in Louisiana, where NYMEX sets its price. EQT said it kept that difference to $1.12 lower on average through the quarter, but predicted the so-called negative basis to average $1.40 to $1.45 per million BTU during the fourth quarter.

EQT hedged against some of that difference with contracts to sell gas above $4 per BTU through 2016, Glickman noted.

“What they're doing seems reasonable,” he said, predicting the price difference won't last too long. “There are efforts to build out more capacity, and so that problem gets resolved.”

The midstream partnership — which the company calls EQM — will play a role in that. It reported $56.5 million in profit during the quarter, an increase from $44 million the previous year, and EQM will take over and control the planned Mountain Valley Pipeline project, one of many transmission lines expected to ease the bottleneck in the next three or four years.

Mountain Valley, a joint Venture with NextEra Energy, will run about 300 miles from EQT Midstream's hub in Wetzel County, W. Va., to Pittsylvania County in Virginia.

“Strategically, we think more and more of the midstream growth projects should be funded at EQM instead of being built at EQT” and sold to the partnership, Porges said.

Beyond the new pipelines, EQT is looking to drill more dry gas wells in part of the Utica shale, which runs beneath the Marcellus. Some companies have reported big production numbers from Utica wells, although they cost more to drill.

“If the wells are more economic than the Marcellus wells, we would shift capital from Marcellus to Utica as we are committed to drilling the most economic wells,” Schlotterbeck said.

Staff writer Katelyn Ferral contributed to this report. David Conti is a staff writer for Trib Total Media. He can be reached at 412-388-5802 or dconti@tribweb.com.

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