EQT Midstream Keeps Hitting The Gas With Marcellus Play

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After only a little more than a year in business,EQT Midstream Partners ( EQM ) is already making a splash on Wall Street.

The company is a master limited partnership that provides natural gas transmission, storage and gathering services in Pennsylvania and West Virginia. It owns, operates, buys and develops midstream assets in the Appalachian Basin's Marcellus Shale.

EQT Midstream was spun off as a public company last year byEQT Corp. ( EQT ), an integrated energy company engaged in in the exploration, development and production of natural gas, natural gas liquids and crude oil in the Appalachian Basin.

EQT Midstream had its initial public offering in late June 2012 at an opening price of 29. Since then, the stock price has risen more than 50% and currently trades near 48.

During its first four quarters as a publicly traded company, EQT Midstream has grown revenue at least 26%. Revenue growth has accelerated each quarter during that span.

Productive Region

Part of its growth is due to the fact that the company does its business in a very productive region. It operates a 700-mile pipeline system to transmit natural gas from the Appalachian basin. It also has more than 2,000 miles of low-pressure gathering lines.

EQT Midstream serves natural gas producers, local distribution companies, marketers and commercial and industrial users.

"EQM is among a select group of midstream MLPs and general partners (GPs) delivering more than 15% to 20% annual distribution growth over a multiyear period," RBC Capital Markets analyst T.J. Schultz noted following EQT Midstream's July 25 second-quarter earnings report.

He added the company has a "premier infrastructure footprint in the heart of the Marcellus Shale, and we believe this footprint will also allow for organic growth opportunities as producers around the system look for optionality and the best end-user markets."

EQT Midstream reported second-quarter earnings of 50 cents a share. That was up from 21 cents the previous year and in line with consensus estimates.

Adjusted EBITDA for the quarter came in at $23.4 million, slightly ahead of estimates. Revenue rose 51% to $44.8 million, above views for $42.44 million.

In a note following EQT Midstream's Q2 report, JPMorgan analyst Jeremy Tonet said the revenue beat was "due to higher system throughput related to the Marcellus development" as well as increased contracted transmission associated with the company's Blacksville Compressor Station expansion project in West Virginia.

Tonet also sounds bullish about EQT Midstream's future growth prospects, saying the company's Equitrans pipeline system "possesses a premier footprint that positions EQT Midstream to capitalize on the play's expected robust production growth."

"While Marcellus midstream opportunities alone could support strong distribution growth, EQT's sizable portfolio of drop-down candidates reinforces our belief that EQT Midstream will achieve top-tier growth," he added.

Analysts polled by Thomson Reuters expect EQT Midstream to post full-year EPS of $2.21, a gain of 45% from the prior year. Annual earnings are seen rising 10% in 2014 and 18% in 2015.

EQT Midstream expanded its operation July 22, when it acquired Sunrise Pipeline from EQT. The Sunrise assets consist of 41.5 miles of 24-inch diameter Federal Energy Regulatory Commission-regulated pipeline.

Under terms of the deal, EQT Midstream paid $507.5 million in cash and $32.5 million of common and general partner units, with an additional $110 million of consideration to be paid to EQT if an additional third-party transportation agreement becomes effective.

Sunrise parallels and interconnects with a segment of EQT Midstream's transmission and storage system from Wetzel County, W.Va., to Greene County, Pa. It also connects to the Jefferson compressor station in Greene County and with the Texas Eastern pipeline in Greene County.

Throughput Capacity

Citigroup analyst John Tysseland said the deal "came slightly earlier than expected and was also larger and more accretive."

Sunrise has existing throughput capacity of approximately 400 billion British Thermal Units ( BTU ) per day.

With a $30 million compressor expansion, Sunrise is expected to reach 950 billion BTU per day of total capacity in the third quarter of 2014.

On a second-quarter conference call with analysts, EQT Midstream Senior Vice President Randall Crawford called the Sunrise Pipeline "a strategic addition.

"It links natural gas liquids processing with downstream transportations, providing the critical infrastructure solution to facilitate the development of both liquids-rich and dry Marcellus acreage in West Virginia and Western Pennsylvania," said Crawford, who also serves as president of the company's Midstream, Distribution & Commercial unit.

The transaction is immediately accretive to cash flows and "is expected to be significantly accretive in years two and three as the compressor expansion comes online," he added.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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