Backspin: EQT acquires pipeline business spun off in 2018

In a reversal of recent history, on Monday (Mar. 11) Pittsburgh-based natural gas producer EQT announced it is buying back gas pipeline giant Equitrans Midstream Corp. in a $5.5 billion, all-stock deal. EQT spun off Equitrans (ETRN:NYSE) in 2018. The reunion will create a $35 billion company that EQT describes as “a premier vertically integrated natural gas business.”

The deal means that EQT will now control the controversial, under-construction Mountain Valley gas pipeline, a $7.6 billion project to move gas from Appalachia’s Marcellus and Utica shale region some 300 miles across West Virginia to Virginia and North Carolina and potentially to a terminal for export of liquified natural gas.

In recounting the deal, the Financial Times of London said EQT “spun off Equitrans Midstream in 2018 owing to pressure from activist investor JANA Partners. That left the former with the upstream business focused on gas exploration and production and the latter on storage and transport.”

JANA Partners is a New York activist hedge fund founded in 2001 by Barry Rosenstein with an investment philosophy that includes socially responsible investing. Speaking to reporters announcing the deal, EQT CEO Toby Rice said Mountain Valley “is critically important for the energy security of that region and the U.S.” EQT believes Mountain Valley will not only enable LNG exports but will capitalize on a growing need for electricity to power a regional boom in computing-heavy artificial intelligence companies.

In a company news release, Rice said, “As we enter the global era of natural gas, it is imperative for U.S. natural gas companies to evolve their business models to compete on the global stage against vertically integrated rivals. We have identified multiple, high confidence near-term synergies, with significant upside from future infrastructure optimization projects that we believe will drive material value creation for shareholders over time.”

Bloomberg commented that the EQT consolidation “is the latest sign that the US fossil fuel sector may be moving back toward favoring the vertical integration of so-called upstream (production), midstream (pipeline and storage) and downstream (refining) assets. In January, gas-station owner Sunoco LP agreed to buy midstream operator NuStar Energy LP for about $6.5 billion.”

The Bloomberg analysis continued, “Monday’s deal also adds to a string of recent transactions between midstream companies announced in North America, including ONEOK Inc.’s purchase of Magellan Midstream Partners LP in September and Energy Transfer LP’s takeover of Crestwood Equity Partners LP in November.”

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