On Jan 9, 2015, we issued an updated research report on the integrated energy company, EQT Corporation (EQT).
EQT is a low-cost producer with a strategic midstream presence. The company's advanced cost structure and above-average growth may ease concerns about struggling natural gas prices. With an increasing reserve structure and a number of Marcellus wells likely to be drilled within the next five years, we believe that the company will exhibit industry-leading organic growth momentum.
We expect EQT to exceed its 2015 guidance, on the back of low-risk and high-growth drilling locations in the Marcellus Shale. The Marcellus is expected to remain EQT's esteemed asset and a potential Upper Devonian will likely complement the company’s growth. The company plans to drill 181 Marcellus and 58 Upper Devonian wells in 2015. These will provide earnings visibility for the year.
EQT Midstream Partners, L.P. – a master limited partnership (“MLP”) of EQT – completed its initial public offering (“IPO”) in Jul 2012, fetching $232 million. EQT retains 57.4% limited partner interest in the MLP and 2% general partner interest. The formation of the MLP has benefited EQT enabling it to transfer lower yielding midstream assets, maintain control over distribution, speed up acreage development and reallocate the capital at EQT to produce superior returns. Thus, the MLP would indirectly act as a funding vehicle for EQT.
However, EQT lacks a geographically diversified asset base, its resources being concentrated in the Appalachian Basin. Any disruptions in the region will adversely affect the company. Additionally, the company remains highly exposed to volatile natural gas fundamentals and weak commodity prices, which might result in it performing below our expectations.
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.
Any delay in forming partnerships or inability to sell non-core assets at a desirable price may considerably weaken the company’s ability to meet growth expectations and lead to various financial obligations.
Other Stocks to Consider
Currently, EQT carries a Zacks Rank #3 (Neutral). Better-ranked stocks in the same industry include Spectra Energy Partners, LP (SEP), Enbridge Energy Management LLC (EEQ) and Seadrill Partners LLC (SDLP). All of these stocks sport a Zacks Rank #1 (Strong Buy).
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