Welcome to the EQT edition of Energy Markets Daily!
For a bit of clarity, here are some production figures to keep in mind:
- EQT – 4.1 Bcf/d (largest natural gas producers by far)
- CNX – 1.5 Bcf/d
In September, EQT proposed to buy Chevron’s (NYSE:CVX) assets for $750 million. Chevron’s Appalachian assets produced 0.262 Bcf/d of gas. The equivalent barrel per flowing valuation is ~$17k/boe/d.
Now Chevron clearly didn’t agree to it because if they did we would’ve seen them announce that the deal has concluded or whatnot. Something must be amiss because the valuations must not be matching.
So rather than going for bolt-on acquisitions, EQT appears to be going for a real juggernaut play. By acquiring CNX, it will effectively become a producer that controls ~20% of Northeast gas production. EQT already has the ability to influence regional pricing at a whim with production shut-ins, but if it acquires CNX, it will become the largest price setter in the region. Keep in mind that Cabot (NYSE:COG), Antero (NYSE:AR), and Range Resources (NYSE:RRC) have all said that they are not interested in growing production rapidly again. And with new pipelines now at risk, the takeaway capacity for NE will be more constrained.
As a result, we are going to see Lower 48 natural gas production languish for 12-24 months at the minimum.
This means the strategy of getting bigger and more efficient makes a whole lot of sense. We would even go as far as saying if EQT makes this deal happen, it would effectively become the OPEC of North America’s natural gas production.
At 6.6 Bcf/d, it will represent ~7.7% of all-natural gas production in the US.
In addition, EQT’s natural gas trading side of the business will really boom with its ability to control regional gas pricing. If you thought OPEC was good at gaming the market, watch what EQT could do in the Northeast – gas basis.
So in summary, if EQT can pull this deal off at today’s low valuations, the stock’s upside could be even higher than the $25 we are currently envisioning.
We remain bullish and long EQT as we believe it’s the best producer positioned for the incoming natural gas bull market.
HFI Research, #1 Energy Service
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Disclosure: I am/we are long EQT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Read More: EQT’s Acquisition Of CNX Would Make It A Real Juggernaut (NYSE:EQT)