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US natural gas producer EQT has announced it would acquire a pipeline business it previously owned, creating a $35bn integrated company as a wave of merger and acquisition activity continues to roll through the domestic energy sector.
Pittsburgh-based EQT, one of the largest US natural gas producers, spun off Equitrans Midstream in 2018 owing to pressure from activist investor Jana Partners. That left the former with the upstream business focused on gas exploration and production and the latter on storage and transport.
The all-stock deal for Equitrans, with an equity value of about $5.5bn, represents a rare instance in recent history of an upstream company buying midstream assets. EQT said it will give the company more control in gaining access to markets for gas and could help address the expected jump in power usage by artificial intelligence in the region.
The combined entity, valued at about $35bn including net debt, will have 2,000 miles of pipeline infrastructure added to EQT’s portfolio of more than 4,000 drilling locations in Pennsylvania, West Virginia and Ohio. The region is one of the centres of gas production in the US.
Equitrans is a joint owner and operator of the controversial 303-mile Mountain Valley Pipeline project, which would deliver gas from West Virginia to more populous Virginia.
Construction of the pipeline has been delayed for years due to legal challenges from environmentalists and landowners, but EQT chief executive Toby Rice on Monday talked up its potential to meet an expected rise in power demand stemming from use of AI in the region. Northern Virginia’s “data centre alley” is home to the world’s largest concentration of internet servers.
Rice told analysts on Monday the MVP “is an incredibly important piece of infrastructure . . . because it is critically important for the energy security of that region and the US”.
The Equitrans acquisition should also give EQT “more control in gaining access to markets for its natural gas” to meet demand as appetite for the fuel surges around the world, according to Stratas Advisors president John Paisie. Gas prices in the Appalachian region have been selling at a discount due to logistical constraints.
The US is the world’s largest producer and exporter of natural gas, with production regularly breaking records.
“As we enter the global era of natural gas, it is imperative for US natural gas companies to evolve their business models to compete on the global stage,” Rice said.
However, US gas prices sank to a near-three decade low last month, excluding a handful of days in the Covid-19 pandemic, as surging production and an unusually warm winter depressed demand for the fuel.
EQT’s deal for Equitrans follows a flurry of pipeline deals in the past year, including Oneok’s $19bn acquisition of Magellan Midstream Partners and Energy Transfer’s $7.1bn purchase of Crestwood Equity Partners. It comes amid a broader surge in merger and acquisition activity in the US oil and gas industry, as companies place bets on the future of the energy mix and appetite dwindles to build new pipelines amid a tough legal environment.
While the International Energy Agency expects global demand for fossil fuels to peak this decade, many analysts expect gas to have greater longevity than oil given its reputation as a lower-carbon fuel that will help bridge the transition from coal to renewables.
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