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EQT Plans to Collect on Mountain Valley Pipeline in 2021, One Way or Another

Credit: — Bill Holland, S&P Global Market Intelligence

Appalachian shale gas producer EQT Corp. will make money off its 1.29 Bcf/d of natural gas transportation capacity on the still-under construction Mountain Valley Pipeline LLC project whether gas flows or not, EQT executives said on a fourth-quarter 2020 earnings call. The 303-mile, 2-Bcf/d, Mountain Valley line is designed to carry Appalachian shale gas south out of West Virginia. EQT has been trying to sell its transportation capacity on the project to affiliates of Dominion and Duke after the cancellation of the competing Atlantic Coast Pipeline LLC. In the fourth quarter, EQT sold 125 MMcf/d of that capacity with hopes of selling more, although discussions are clouded by doubts that the project will be finished in 2021, executives said on the Feb. 17 call.

If Mountain Valley pipeline is not ready by the end of this year, EQT will collect a payment from the developer and use the cash to pay down debt or lower its cost basis, EQT President and CEO Toby Rice told analysts. Rice planned for EQT to pay off enough debt to regain its investment grade credit rating before sending any cash the shareholders in the form of a dividend or share buyback.

"The company had expected to announce an offloading of some or all of its Mountain Valley pipeline firm takeaway by the 4Q20 conference call," Siebert Williams Shank & Co. analyst Gabriele Sorbara told his clients before the call. "We thought the odds were very low given the legal challenges continuing on MVP. Equitrans Midstream Corp. is now targeting a year-end 2021 in-service date, which could now be a strategy, because EQT has a call option on a $196 million cash payment if it does not come online before 2021."

Fresh off its own purchase of most of Chevron's operations in Appalachia, EQT expected continued low natural gas prices to force more mergers and acquisitions activity in Appalachia in 2021 as drillers struggle, Rice said. "Low commodity prices and the need for scale is going to be critical," Rice said. "EQT is not unique in the fact that we've made significant improvement in pulling a lot of costs out of our business ... a lot of guys have done that. But when you step back and you realize that in Appalachia we've got 30 teams running around 30 rigs — you may have very efficient companies but when you look at that, it could be more efficient."

Although it plans to build a $50 million water system to support an expansion of drilling activity on its West Virginia Marcellus Shale leases, EQT said it would keep its 2021 spending flat with 2020 at $1.2 billion, with hopes of raking in $500 million to $600 million in free cash flows as its cost-cutting measures take effect, executives said. In the fourth quarter of 2020, the company posted $109 million of free cash.

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