Appalachian natural gas company EQT Corporation (EQT) has agreed to sell its natural gas distribution business, Equitable Gas Company, LLC, to Peoples Natural Gas – a regulated natural gas distribution company managed by an affiliate of investment fund SteelRiver Infrastructure Partners LP. The transfer will raise about $720 million in cash and EQT Corp will acquire certain midstream assets. The proceeds are likely to be allocated towards its pipeline business and production growth.
As a part of the deal, EQT Corp will acquire various pipeline assets, located in Pennsylvania's Marcellus shale field, as well as commercial arrangements. These assets are projected to yield annual earnings before interest, taxes, depreciation and amortization (:EBITDA) of about $40 million. They are connected to the company’s existing transmission assets and will enhance its transportation and storage operations. About 200 miles of regulated transmission pipelines as well as four storage pools, which have a total capacity of 15.1 billion cubic feet of gas, comprise the Marcellus assets. EQT Corp has also inked a long-term contract with Peoples Gas for the supply, transportation and storage functions of gas. These agreements assure Peoples Gas the delivery of local Marcellus gas of around 35 billion cubic feet per year.
The transaction is subject to the approvals of the Federal Energy Regulatory Commission and regulators in Pennsylvania, West Virginia, and Kentucky areas served by the gas utility. It will also be reviewed under the Hart-Scott-Rodino Act. EQT anticipates receiving the approvals by the end of 2013.
Equitable Gas owns 4,000 miles of pipelines and delivers natural gas distribution services to about 275,000 customers.
In a separate development, the company has announced a cut in its annual dividend to 12 cents per share from 22 cents per share, effective January 2013.
EQT Corp, which recently formed a master limited partnership − EQT Midstream Partners, L.P. (EQM) − in order to own selective interstate pipeline assets, holds a Zacks #3 Rank (short-term Hold rating). Longer term, we maintain our Neutral recommendation.
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