We maintain our Neutral recommendation on
), an integrated energy company with an emphasis on natural gas
supply activities in the Appalachian area.
The company posted lackluster numbers in the first quarter due
to an 11% reduction in the average wellhead sales price and
unseasonably warm weather in the Distribution segment's service
EQT Corp. expects 2012 production sales volume in the range of
250 to 255 billion cubic feet equivalents (Bcfe), 30% higher than
the 2011 level. We expect EQT to exceed its guidance, aided by the
low-risk and high-growth drilling locations in the Marcellus Shale,
where sales volume increased 68% year over year in the first
quarter of 2012 due to a higher number of wells being drilled.
With an increasing reserve structure and a projected higher
number of Marcellus wells to be drilled in the coming five years
(around 132 wells are expected to be drilled in 2012), we believe
that the company will exhibit industry-leading organic growth
momentum. Moreover, management's continuous efforts to derive value
by monetizing midstream assets will likely accelerate exploration
and production growth.
We remain optimistic on EQT's strategy of divesting the
expensive yet less profitable assets and concentrate on more
cost-effective and lucrative investment opportunities. Management
remains focused on the natural gas production in the Appalachian
Basin with a planned investment of almost $1.0 billion. EQT also
plans to execute exploration activities across the vast acreage
covering Kentucky, West Virginia, Virginia and Pennsylvania.
However, the company lacks a geographically diversified asset
base, as its resources are concentrated in the Appalachian Basin.
Any potential disruption in the region will adversely affect the
Further, EQT's various multilateral drilling programs across its
oil and gas fields face operational headwinds, such as rising
service costs, completion delays and equipment failures. We believe
that the company's balance sheet is more leveraged than other
players, which is a major hindrance in the current environment of
restricted credit. Moreover, EQT's dividend yield does not compare
favorably with its peer group.
EQT - which faces competition from
Southwest Gas Corporation
) - holds a Zacks #4 Rank, equivalent to a Sell rating for a period
of one to three months..
EQT CORP (EQT): Free Stock Analysis Report
SOUTHWEST GAS (SWX): Free Stock Analysis Report
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