Leading US producer EQT will acquire Equitrans Midstream (ETRN) for $5.5B in stock. The merger will create a vertically integrated Northeast gas player and, for opportunistic industry players, the chance to pick up assets as the merged company seeks to raise cash.
EQT and ETRN announced the all-stock deal last Monday (March 11). The recombination of Equitrans with parent EQT will have an initial enterprise value of over $35B, including midstream assets with more than 8 Bcf/d of gathering throughput.
The acquisition of ETRN carries with it the assumption of significant debt, as the most recent filings from ETRN disclose over $6B in long-term debt, $1.2B in revolving credit facility borrowings, and $1.3B in contract liabilities.
EQT has set a long-term total debt target of $7.5B and identified $5B+ of debt reduction opportunities, including $3.5B from asset sales, organic growth and synergies. This raises the question: which assets might be entering the market?
Prior to the sale, there had been speculation whether ETRN would sell its 48.8% interest in Mountain Valley Pipeline (MVP). In an investor call, management said it was open to a sale of the MVP stake. However, East Daley Analytics expects EQT ultimately to retain its interest in MVP, as the producer has contracted for 1.3 Bcf/d of the 2.0 Bcf/d pipe capacity under a 20-year contract. We suspect this contract makes up a large share of the $11B in future liabilities EQT expects to eliminate through the acquisition.
If EQT were to sell MVP, Williams (WMB) would be the natural suitor due to the pipe’s connectivity to the Transcontinental pipeline system and its proximity to existing WMB gathering operations in the Marcellus and Utica in southwestern Pennsylvania. Once MVP enters service, EDA estimates full-year (2025) annual Adj. EBITDA of $233.7MM (net) in the ETRN Financial Blueprint.
We believe the more likely divestment targets are assets that do not have significant overlap with EQT’s existing gathering footprint. A full list of company assets are available in the ETRN Financial Blueprint. These assets include the 60% interest in Eureka Midstream and ETRN’s full ownership of Hornet Midstream (colored in orange in the map). The Range Resources Header, a 0.6 Bcf/d pipeline fully subscribed by Range Resources (RRC) in SW-PA, is another option. ETRN also owns 100% of Strike Force, an Ohio gathering system used 50% by EQT and 50% by other producers, mainly Gulfport Resources (GPOR) and CNX Resources (CNX).
In the case of Eureka and Hornet, EDA speculates that WMB and MPLX could be potential suitors based on the proximity of their own gathering systems to these assets. The ETRN Financial Blueprint estimates 2024 EBITDA of $58.9 MM (net) for Eureka and $4.2MM for Hornet.
For a deeper look at ETRN’s or other midstream assets, East Daley Consulting provides in-depth review and forecasting for clients to inform better decisions and due diligence. Reach out for more information on our Consulting business. – Zach Krause and Alex Gafford Tickers: CNX, EQT, ETRN, GPOR, MPLX, WMB.
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