EQT acquisition of Equitrans increases natural gas company’s dominant footprint in the Northeast, says Wood Mackenzie

Addressing EQT Corporation’s (EQT) acquisition of Equitrans Midstream Corporation (ETRN), which it previously owned and spun off in 2018, Eunji Oh, senior research analyst for Wood Mackenzie said, “The Northeast region has increasingly faced difficulties building new infrastructure projects and this transaction would give EQT ownership of midstream assets that should increase in value over time if the basin remains constrained.”

Under the combined business, which will create a vertically integrated natural gas business with an initial enterprise value of more than $35 billion, the midstream footprint of EQT will encompass extensive overlap and direct connectivity in core operating areas. 

“The transaction would give EQT operatorship and ~49% ownership of one of the most publicized pipelines – Mountain Valley Pipeline (MVP), which EQT already holds ~1.5 bcfd of firm capacity,” said Oh. “However, we see greater value in Equitrans’ assets outside of MVP that might be divested to reduce debt.”

According to Oh, while a vertically integrated company would further increase EQT’s dominant footprint in the Northeast, scrutiny from federal regulators may arise, especially as the Equitrans system serves third-party producers who could be EQT competitors.

Added Oh, “In our view, the core value of this transaction is the integration of gathering and transmission assets across EQT’s Marcellus and Utica development areas. The gathering and processing capacity fees can be substantial in a depressed price environment, and the acquisition could free up capital commitment for EQT and provide more operational flexibility for the upstream business in terms of production strategies. The cost reduction in today’s depressed market provides a structural hedge that is imminent and impactful with the synergy between midstream and upstream to increase cost competitiveness for delivered supply.”

However, initial market reaction to the deal was negative, with EQT down nearly 10% intraday despite Henry Hub down by only 2%.

“Investors are likely skeptical of EQT’s ability to extract additional value via a re-integrated model," said Scott Norlin, research manager at Wood Mackenzie. “The acquired ETRN debt will re-stretch the balance sheet and raise EQT’s gearing from about 28% to around 40%. The company has worked hard to improve its debt since 2021 and has identified US$3.5 billion in non-core assets to pay down debt. We model about US$2 billion of post-dividend free cash flow in 2025 at our base case commodity price assumptions. With the divestitures, EQT could reach its new debt target of US$7.5 billion by the end of 2025 or early 2026.”

Wood Mackenzie’s Oh added that the transaction will create enhanced market connectivity, as Equitrans system is one of the most connected pipelines in the Northeast region with interconnections to seven interstate pipelines and numerous gathering systems and demand centers.

“With the North America gas markets set to expand significantly, the pace of infrastructure development is continuing to face headwinds,” said Oh. “The value of owning or having access to both pipelines and storage to connect with markets and improve operational flexibility is growing. A wave of infrastructure acquisitions has already started and is expected to continue.”