It’s hard to think of a $5.2 billion acquisition as a “bolt-on,” but that’s what EQT Corp. — the U.S.’s #1 natural gas producer — is calling its recently announced purchase of Tug Hill’s gas production assets and XcL Midstream’s pipeline and processing assets in northern West Virginia. The deal, which represents the largest acquisition in the Marcellus/Utica Shale in five years, will not only give EQT even more scale in the nation’s leading gas-and-NGLs production region, it also will lower EQT’s breakeven gas price and its emissions intensity. Oh, and with the deal, EQT is doubling its share-repurchase authorization and increasing its year-end-2023 debt-reduction goal by 60%. In today’s RBN blog, we examine and assess these and other aspects of the agreement.
Several factors have been driving the frenzy of M&A activity in the U.S. oil and gas space, including (1) renewed confidence that, despite the likelihood of a near-term recession, hydrocarbon demand — and prices — will remain strong for years to come; (2) a preference among many larger E&Ps to grow production and free cash flow through acquisition, not aggressive capital spending; and (3) a desire by many smaller, privately held producers (and midstreamers) to cash in now and reap big gains as they do.
As we said in Buy, Buy, Buy, most of the major deals announced since COVID arrived in early 2020 have involved one big, publicly traded E&P buying another, typically via all-stock transactions — these include ConocoPhillips’s $13.3 billion acquisition of Concho Resources, Chevron’s $13 billion purchase of Noble Energy, Cabot Oil & Gas’s $9.3 billion buy of Cimarex Energy (the combined company is now known as Coterra Energy), and Pioneer Natural Resources’s $7.6 billion acquisition of Parsley Energy. There also were a number of public-buys-private deals, however, exemplified by Pioneer’s agreement to buy DoublePoint Energy for $6.4 billion, as well as many mergers and acquisitions involving smaller producers, which we focused on in Baby I’m-A Want You.
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