Back to top

Analyst Blog

Zacks Equity Research

EQT Corp Drops Down Assets Worth $275M to its Partnership

EQT WTI EVA EQM

Trades from $3

EQT Corporation (EQT - Free Report) recently announced that it has divested the Allegheny Valley Connector (“AVC”) transmission and storage system as well as several Marcellus gathering systems to EQT Midstream Partners, LP (EQM - Free Report) for a total cash consideration of $275 million.

Effective from Oct 1, 2016, the drop down excluded a small gathering system that is currently being appraised for potential sale to a third party.

Regulated by the Federal Energy Regulatory Commission (“FERC”), the AVC includes about 209 miles of transmission pipeline and 11 billion cubic feet (Bcf) of working gas storage capacity.

The AVC system, which has a capacity of 450 million cubic feet per day (MMcf/d), is fully contracted for the winter season by Peoples Natural Gas through a firm reservation commitment that gets over in 2034. Peoples Natural Gas is one of Pennsylvania’s largest natural gas distribution companies.

EQT Midstream Partners intends to invest about $50 million in AVC-related growth projects during the remainder of 2016 and also in 2017. EQT Midstream Partners estimates AVC to generate Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) of $31 million in 2017 and $35 million in 2018.

The gathering assets, comprising mainly of the Applegate, McIntosh, and Terra systems in Pennsylvania along with the Taurus system in West Virginia, includes 87 miles of gathering pipeline and a projected 7,000 horsepower (hp) of compression. The properties have 370 MMcf/d of gathering capacity.

Under a 10-year contract, EQT Corp. has committed to a total of 235 MMcf/d of firm capacity on the systems. EQT Midstream Partners expects to invest about $105 million over the next several years to complete the proposed expansion projects. This includes the installation of about 20 miles of gathering pipeline and four compressor units with 20,000 hp of compression.

Upon completion of the expansion projects, EQT Corp.’s total firm capacity will increase to 365 MMcf/d. EQT Midstream Partners anticipates the gathering systems to generate EBITDA of $16 million in 2017 and subsequently increase to $30 million in 2018.

Currently, EQT Corp. carries a Zacks Rank #3 (Hold). Some better-ranked players from the energy sector include Enviva Partners, LP (EVA - Free Report) and W&T Offshore Inc (WTI - Free Report) . All of these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Enviva Partners has a mixed earnings surprise history. The partnership posted positive earnings surprise in two of the last four quarters. It reported a positive earnings surprise of 20.51% in the preceding quarter.

W&T Offshore posted a positive earnings surprise of 29.85% in the preceding quarter. It reported a positive earnings surprise in all of the four preceding quarters.

In the last reported quarter, Pacific Ethanol delivered a positive earnings surprise of 466.67%. Coming to the earnings surprise history, the company beat estimates in two of the last four quarters.

Confidential from Zacks

Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>