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Can EQM Midstream Gain From $1B Pipeline Asset Purchase?

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EQM Midstream Partners, LP announced its decision to purchase controlling stakes in two key pipelines that are connecting major natural gas producing shale plays like Utica and Marcellus.

The Transaction

For the transaction with Morgan Stanley Infrastructure Partners, EQM Midstream is willing to pay $1.03 billion — comprising cash consideration of $860 million and $170 million of debt assumption.  

The agreement, which is awaiting customary regulatory and several closing conditions, is likely to get consummated on or around Apr 15, 2019.

As part of the accord, EQM Midstream decided to acquire entire stake in Hornet Midstream Holdings and 60% interest in Eureka Midstream Holdings. Notably, Eureka Midstream is a gathering pipeline network, spreading across 190 miles in West Virginia and Ohio that provides midstream services to prolific shale resources like Marcellus and Utica. The Hornet Midstream, linking the Eureka Midstream pipeline, is a high-pressure gathering network that covers roughly 15 miles in West Virginia.

Deal Benefits

There is an increasing demand for fresh pipeline networks in the Appalachian Basin — comprising Marcellus and Utica shale plays. This is because these regions are facing pipeline bottlenecks, owing to surge in production of natural gas volume in the past several years.

Overall, with the recent acquisition — complimenting existing assets, EQM Midstream is likely to capitalize the heightened pipeline demand and expects the agreement to be accretive to distributable cash flow after the first year of providing services.

Zacks Rank & Stocks to Consider

Headquartered in Pittsburgh, PA, EQM Midstream is a leading midstream energy service provider in the Appalachian Basin.

The partnership recently carries a Zacks Rank #3 (Hold). Meanwhile, some better-ranked players in the energy space are Antero Resources Corporation (AR - Free Report) , Jones Energy Inc. and SemGroup Corporation . While Antero Resources currently sports a Zacks Rank #1 (Strong Buy), Jones Energy and SemGroup carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Antero Resources is likely to witness 20% earnings growth in the next five years.

Jones Energy expects year-over-year earnings growth of 19% in 2019.

SemGroup posted average positive earnings surprise of 85.4% for the preceding four quarters.

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