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The company posted lackluster numbers in the first quarter due to an 11% reduction in the average wellhead sales price and unseasonably warm weather in the Distribution segment’s service area.
EQT Corp. expects 2012 production sales volume in the range of 250 to 255 billion cubic feet equivalents (Bcfe), 30% higher than the 2011 level. We expect EQT to exceed its guidance, aided by the low-risk and high-growth drilling locations in the Marcellus Shale, where sales volume increased 68% year over year in the first quarter of 2012 due to a higher number of wells being drilled.
With an increasing reserve structure and a projected higher number of Marcellus wells to be drilled in the coming five years (around 132 wells are expected to be drilled in 2012), we believe that the company will exhibit industry-leading organic growth momentum. Moreover, management’s continuous efforts to derive value by monetizing midstream assets will likely accelerate exploration and production growth.
We remain optimistic on EQT’s strategy of divesting the expensive yet less profitable assets and concentrate on more cost-effective and lucrative investment opportunities. Management remains focused on the natural gas production in the Appalachian Basin with a planned investment of almost $1.0 billion. EQT also plans to execute exploration activities across the vast acreage covering Kentucky, West Virginia, Virginia and Pennsylvania.
However, the company lacks a geographically diversified asset base, as its resources are concentrated in the Appalachian Basin. Any potential disruption in the region will adversely affect the company’s results.
Further, EQT’s various multilateral drilling programs across its oil and gas fields face operational headwinds, such as rising service costs, completion delays and equipment failures. We believe that the company’s balance sheet is more leveraged than other players, which is a major hindrance in the current environment of restricted credit. Moreover, EQT’s dividend yield does not compare favorably with its peer group.
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