EQT To Be Largest Natural Gas Producer On Rice Energy Deal

In a landmark deal, upstream energy player EQT Corporation (NYSE:EQT) has decided to acquire rival Rice Energy Inc. (NYSE:RICE) for a total consideration of $6.7 billion. This is the largest accord signed in the upstream industry of U.S in around three years.

The last big transaction was when Calgary, Alberta-based firm Encana Corporation (NYSE:ECA) purchased exploration and production company Athlon Energy for $6.8 billion in Sep 2014.

Terms of the Deal

Per the agreement, for every share, stockholders of Rice Energy will get 0.37 EQT shares and $5.30 in cash. On top of that, EQT Corp. will refinance Rice Energy’s $1.5 billion in long-term debt.

It is to be noted that the transaction will likely close by fourth-quarter 2017. In the combined entity, the shareholders of EQT Corp. will hold around 65%.

Benefits

EQT Corp. and Rice Energy are among the leading producers of natural gas in the Marcellus and Utica shale plays. Hence, with the deal completion, both the upstream companies will create the largest natural gas producer in the country. Most importantly, the acquisition will significantly raise EQT Corp.’s core acreage positions in the Marcellus and Utica shale plays.

Higher Foot Print in Marcellus & Utica Shales

According to EQT Corp., the acquisition will likely increase the footprint of Marcellus shale play to 670,000 net acres from 187,000 net acres. Also, total undeveloped locations in the region will jump to 3,700 from the prior count of 980.

In the Pennsylvania & West Virginia Utica resources, the acquisition is anticipated to raise the core presence of EQT Corp. from 105,000 net acres to 616,000 net acres. Moreover, undeveloped areas will increase to 3,680 from 630.

Eventually, post acquisition, the average sales volumes of natural gas for EQT Corp. will surge to 3.6 billion cubic feet equivalent per day (Bcfe/D) from 1.3 Bcfe.

Cost Synergy

EQT Corp. and Rice Energy are among the low-cost producers of natural gas in the U.S shale resources. The acquisition will probably help the combined entity further lower operating cost and might also realize cost synergy of $2.5 billion.

About the Companies

Based in Pittsburgh, PA, EQT Corp. is primarily involved in the production of natural gas, natural gas liquid and oil in the Appalachian Basin. The company is also engaged in the gathering and transmission of commodities.

Rice Energy – Based in Canonsburg, PA – also exploits oil and natural gas resources in the Appalachian Basin.

Price Performances

Over the last one year, EQT Corp. fell 32% as compared with the 21.8% decline of the Zacks categorized Oil & Gas-U.S Exploration & Production industry. Meanwhile, Rice Energy, belonging to the same industry, gained almost 8%.

Zacks Rank & A Key Pick

Both EQT Corp. and Rice Energy carry a Zacks Rank #3 (Hold). A better-ranked player in the energy sector is W&T Offshore Inc. (NYSE:WTI) with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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