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EQT eyes West Virginia in next phase of drilling program

By Paul J. Gough – Reporter, Pittsburgh Business Times

Feb 18, 2021

EQT Corp. is setting its sights on West Virginia as the next big drilling effort for the country’s largest independent natural gas provider.

Southwestern Pennsylvania — particularly Greene and Washington counties — will remain as 65% of EQT’s capital spend of between $1.1 billion and $1.2 billion in 2021. But it will also see more drilling by EQT (NYSE: EQT) in West Virginia, where the company has built up an extensive amount of acreage. West Virginia’s share of capital spending will grow from 7% in 2020 to 30% in 2021.

“About 40% of our leasehold, of core leasehold, is in West Virginia, so it makes sense for us to start shipping some of our development to that area,” CEO Toby Rice told analysts in a conference call Wednesday. Pennsylvania drilling expenditures will drop from 81% in 2020 to 65% in 2021.

Key to the development program is the building of a 45-mile water system in West Virginia that will allow EQT to have a variety of water sources and have a storage capacity of 250,000 barrels. That will lower costs for EQT all around, including well pad construction and road improvements as well as in the hydraulic fracturing process. And there will be fewer water trucks on the road.

It will cost between $45 million and $55 million to build and will be serving its first well pad in the third quarter.

One of the concerns in the past about development in West Virginia has been the cost to construct with the hills and roads. EQT under Rice has been laser-light focused on well costs, and have driven down the well cost to $675 a foot in its Pennsylvania operations. EQT’s West Virginia Marcellus well costs will be higher than that initially, about $775 a foot.

But keeping costs in check will be the water system that is being built, along with longer wells, and its highly orchestrated combo development system that will be put into place in West Virginia drilling.

“This combo development is one of the things that it does is it lets you spread out those civil (engineering) costs, lower those on a dollar per foot, and also have really streamlined logistics,” Rice said.

A research report from CFRA Research noted EQT’s success in driving down well costs in Pennsylvania and said it will likely be able to do that in West Virginia.

“EQT has proved its ability to be a disciplined capital allocator and we expect this year to follow suit, with further commitments to free cash flow as well as cost reductions in anticipation of better gas fundamentals,” said analyst Andrzej Tomczyk.

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