EQT Top Bidder In Stone Energy Bankruptcy Sale

EQT Corp.’s (NYSE: EQT) $527 million bid was the winner in a bankruptcy auction to buy Stone Energy Corp.’s Marcellus and Utica acreage, the companies said Feb. 9.

EQT outbid its nearest rival by $16 million and will pay 46% more than stalking horse bidder Tug Hill’s initial $360 million offer submitted in October.

Including noncore areas, EQT will add 86,000 net acres in Pennsylvania and West Virginia. The deal includes 53,400 net Marcellus acres and 44,100 Utica acres, the company said. Production averages 80 million cubic feet equivalent per day.

The deal requires bankruptcy court approval and a hearing is set for Feb. 10. EQT said it expects to close the deal by the end of February.

The acquisition follows a smaller bolt-on, announced Feb. 2, in which EQT said it will buy 14,000 net acres in Monongalia and Marion counties, W.Va., for $130 million.

EQT plans to focus A&D efforts on smaller deals that enable longer laterals in 2017 after spending more than $1 billion on leasehold in 2016. But EQT’s strategy of smaller-for-longer clearly doesn’t exclude opportunistic deals and, so far in the first quarter, the company’s A&D tally is $657 million.

The Stone Energy acreage is within EQT’s core liquids-rich development areas in Wetzel, Marshall, Tyler and Marion counties, W.Va., and adjacent to its operations.

EQT will add 173 new Marcellus locations with an average 85% net revenue interest that is 86% HBP or has leases that run out beyond 2019, the company said.

EQT additionally will acquire:

• 174 Marcellus wells, with 123 developed and 51 in-progress;
• 20 miles of gathering pipeline; and
• 32,000 acres outside the company’s core development area.

EQT, based in Pittsburgh, also outbid American Petroleum Partners Operating LLC on the asset, Stone Energy said.

David H. Welch, Stone Energy chairman, president and CEO, said that with the successful conclusion of the auction the company is poised to move forward with its restructuring.

“This should allow Stone to emerge as a much stronger, healthier company with significant debt reduction, a solid balance sheet, and a focused portfolio of deepwater producing assets and near-term drilling opportunities,” Welch said.

Stone, based in Lafayette, La., explores and develops properties in the Gulf of Mexico and Appalachian Basin.

Even More Marcellus

On Feb. 2, EQT president Steven T. Schlotterbeck said the company had added 14,000 net acres in a deal engineered to extend 64 well locations to an average of 5,700 ft from 1,900 ft. The $130 million deal was valued at about $9,300 per acre.

Acreage consolidation remains an important part of the company’s strategic plan, said Scott Hanold, an analyst at RBC Capital Markets LLC.

“The strategy is not predicated on acquiring assets solely to ‘get bigger.’ We think management's approach is more thoughtful, seeking to block up acreage to allow for long lateral development,” Hanold said. “This should help economics.”

The more tactical mindset comes as CEO David Porges prepares to retire in first-quarter 2017. He will be succeeded by Schlotterbeck.

“We think the ascension of Steve Schlotterbeck is timely for a more development focus,” Hanold said. “Given his background, we anticipate an incremental focus on operations going forward.”

Porges’ tenure was marked by shifting the company’s focus to the Marcellus, divesting noncore business units and restructuring the midstream and upstream segments, Hanold said.

Since 2013, EQT has added 244,000 net core acres in the Marcellus. In the second half of 2016 alone, the company increased its position by more than 122,000 acres with deals in West Virginia and Pennsylvania.

Darren Barbee can be reached at dbarbee@hartenergy.com.