In a reversal of recent history, on Monday (Mar. 11) Pittsburgh-based natural gas producer EQT announced it is buying back gas pipeline giant Equitrans Midstream Corp. in a $5.5 billion, all-stock deal. EQT spun off Equitrans (ETRN:NYSE) in 2018. The reunion will create a $35 billion company that EQT describes as “a premier vertically integrated natural gas business.”
The deal means that EQT will now control the controversial, under-construction Mountain Valley gas pipeline, a $7.6 billion project to move gas from Appalachia’s Marcellus and Utica shale region some 300 miles across West Virginia to Virginia and North Carolina and potentially to a terminal for export of liquified natural gas.
In recounting the deal, the Financial Times of London said EQT “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.”
JANA Partners is a New York activist hedge fund founded in 2001 by Barry Rosenstein with an investment philosophy that includes socially responsible investing. Speaking to reporters announcing the deal, EQT CEO Toby Rice said Mountain Valley “is critically important for the energy security of that region and the U.S.” EQT believes Mountain Valley will not only enable LNG exports but will capitalize on a growing need for electricity to power a regional boom in computing-heavy artificial intelligence companies.
In a company news release, Rice said, “As we enter the global era of natural gas, it is imperative for U.S. natural gas companies to evolve their business models to compete on the global stage against vertically integrated rivals. We have identified multiple, high confidence near-term synergies, with significant upside from future infrastructure optimization projects that we believe will drive material value creation for shareholders over time.”
Bloomberg commented that the EQT consolidation “is the latest sign that the US fossil fuel sector may be moving back toward favoring the vertical integration of so-called upstream (production), midstream (pipeline and storage) and downstream (refining) assets. In January, gas-station owner Sunoco LP agreed to buy midstream operator NuStar Energy LP for about $6.5 billion.”
The Bloomberg analysis continued, “Monday’s deal also adds to a string of recent transactions between midstream companies announced in North America, including ONEOK Inc.’s purchase of Magellan Midstream Partners LP in September and Energy Transfer LP’s takeover of Crestwood Equity Partners LP in November.”
EQT’s history began in 1878 with the first commercial natural gas basin in the Appalachians, near Murraysville, Pa., outside of Pittsburgh. After passing through multiple owners, in 1888 The Philadelphia Co., formed by George Westinghouse, which had acquired the property, created a subsidiary named Equitable Gas. The owners spun it off in 1950, where it became listed on the New York Stock Exchange as “EQT.” The company was fully vertically integrated, with production, pipes, and local retail distribution.
The company’s official history picks up the story: “As the years went on, the company began to transition into other areas of the natural gas industry – and in 2009 Equitable Gas rebranded to become EQT Corporation. In 2013, EQT sold its local distribution utility assets and became an exploration and production company with integrated midstream assets.”
In November 2017, EQT bought fracking pioneer Rice Energy, owned by three young Rice Brothers and a key producer in the Marcellus, for $8.2 billion. The brothers started the Western Pennsylvania company with $30 million in 2007. According to Bloomberg, “Their father, former BlackRock Inc. fund manager Daniel Rice III, was a key investor in the company.”
In July 2019, EQT named Toby Rice, then 37, as CEO. A third-team All America baseball player as an undergraduate (class of 2004) at Rollins College in Winter Park, Fla., Rice was CEO of his eponymous gas firm at the time of the merger. He is a member of the board of the Bipartisan Policy Center’s American Energy Innovation Council.
–Kennedy Maize