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EQT Divests Gas Utility Unit - Analyst Blog

By: Zacks.com
Posted: 12/18/2013 3:17:00 PM
Referenced Stocks: AXAS;C;CWEI;EQT;HNR

Integrated energy player, EQT Corporation ( EQT ) announced that it has divested its natural gas distribution business, Equitable Gas Company, LLC, to Peoples Natural Gas. Per the agreement, EQT received a cash payment of approximately $740 million. The divestment is a smart move by EQT as it has brought home the much-needed capital to continue investing in its core businesses.

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. EQT's move to sell its gas distribution utility sale to privately held Peoples Natural Gas and the transfer of certain pipeline assets owned by Peoples are also in sync with its strategic focus to become a production and pipeline energy company beyond 2013.

EQT is a low-cost producer with a strategic midstream presence. The company's superior cost structure and above-average growth may alleviate concerns related to struggling natural gas prices. With an increasing reserve structure and the projected higher number of Marcellus wells to be drilled in the coming five years, we believe that the company exhibits industry-leading organic growth momentum.

EQT increased its 2013 production sales volume guidance to 366 Bcfe from its earlier guidance of 360-365 Bcfe, representing an estimated 42% rise year over year. The company has also initiated 2014 production expectations at 445 Bcfe, representing an estimated 22% rise year over year, taking the mid-point of the guided range. The Marcellus is expected to remain EQT's esteemed asset and a potential Upper Devonian/Utica program will likely complement its growth.

Based in Pittsburgh, Pennsylvania, EQT Corp. is an integrated energy company with an emphasis on natural gas supply activities in the Appalachian area, including production and gathering, natural gas distribution and transmission and, energy efficiency solutions, primarily in the eastern and western coastal regions of the United States.

However, EQT remains highly exposed to volatile natural gas fundamentals and weak commodity prices, which might result in a lower-than-expected performance. EQT's various multilateral drilling programs across its oil and gas fields face operational headwinds, such as rising service costs, completion delays and equipment failure.

EQT holds a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can consider better-ranked energy sector stocks such as Abraxas Petroleum Corp. ( AXAS ), Clayton Williams Energy, Inc. ( CWEI ) and Harvest Natural Resources Inc. ( HNR ). All these stocks presently sport a Zacks Rank #1 (Strong Buy).



ABRAXAS PETE/NV (AXAS): Free Stock Analysis Report

WILLIAMS(C)ENGY (CWEI): Free Stock Analysis Report

EQT CORP (EQT): Free Stock Analysis Report

HARVEST NATURAL (HNR): Free Stock Analysis Report

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