EQT senior executives on Oct. 22 said that they anticipate a conclusion to the negotiated sale of potentially all the company's capacity on Mountain Valley Pipeline before year-end 2020.
On the company's third-quarter 2020 earnings call, executives appeared to brace investors and analysts for a major upcoming sale of its capacity on what could be Appalachia's last production-takeaway expansion to go forward.
"This is a very important financial catalyst for the company" Chief Financial Officer David M. Khani said in prepared remarks. "We don't believe that striking a deal is dependent upon MVP being in service."
Downplaying any risk to the full monetization of its capacity, Khani urged investors to view Appalachia's wide basis-price discounts this year as something of an anomaly, pointing to last winter's mild weather and subsequent disruptions to demand caused by the coronavirus pandemic. Khani also pointed to a possible sales agreement that would offer EQT access to MVP capacity, without ownership.
Lengthy negotiations with some four to five potential buyers have dragged out this year as interested buyers weigh their requirements for long-term capacity contracts on MVP.
"Everybody wants to make sure they understand their needs," CEO Toby Rice said. "[For] some of the parties who were part of ACP, this was kind of a shock to the system."
Shippers impacted by the cancellation of ACP, or Atlantic Coast Pipeline, include Virginia Power Services Energy Corp., Public Service Co. of North Carolina and several affiliates of Duke Energy.
For EQT, a decision to fully monetize its capacity would complement the company's approach to capital spending and production growth, both of which it expects to keep flat through the early 2020s.
Markets, investors
Despite continued optimism for US natural gas prices, executives at EQT appeared to describe what they see as a consolidating US natural gas industry, under siege from both market forces and investors.
During the third quarter, EQT boosted its share of hedged 2021 production to over 70% with the addition of some 350 MMcf/d at a Henry Hub swap price of $2.90/MMBtu. The company says it's cautiously encouraged by a 2021 forward curve currently priced at over $3 and a 2022 curve valued in the low $2.70s/MMBtu.
"Although important indicators, this will not cause EQT to add growth in 2021 as the curve is still too low and backwardated," Rice said, pointing to forward-curve averages closer to $2.50 for 2023 and 2024.
Speaking more broadly about the industry, Rice said that most operators are now looking to organically deleverage their balance sheets by reducing debt, rather than increasing EBITDA through growth.
"Any production growth you get is offset by a decline in commodity price. I think the industry gets that right now," he said.
For smaller producers, both market and investor pressures are perhaps greater now than they've ever been. With both factors making balance-sheet metrics increasingly important for survival, the ability to scale technology, infrastructure, end-user market optionality and credit access are critical. With ESG metrics becoming increasingly important to investors too, the ability to lower carbon emissions and engage meaningfully with communities is becoming another potential barrier for smaller players.
"Investors have an appetite for companies that can operate at a larger scale and can take advantage of that to create value for shareholders," Rice said.
In the third quarter, EQT reported an adjusted net loss of $38.1 million, or 15 cents per share, compared with a loss of $14.3 million, or a loss of 6 cents per share, in the year-ago period.
