Tax-free separation creates two premier and independently
focused Appalachian-based energy companies
EQT Corporation (NYSE: EQT) today announced that its Board of
Directors has unanimously approved a plan to separate its upstream
and midstream businesses, creating a standalone publicly traded
corporation (NewCo) that will focus on midstream operations. The
separation is intended to qualify as tax-free to EQT shareholders
for U.S. federal income tax purposes; and is expected to be
completed by the end of the third quarter 2018. Under the
separation plan, EQT shareholders will retain their shares of EQT
stock and receive a pro-rata share of the new independent midstream
company. Both companies will remain headquartered in Pittsburgh,
PA.
"The decision to build our midstream business in parallel with
upstream growth has created one of the strongest midstream
companies in the Appalachian Basin," said James Rohr, EQT’s lead
independent director. "We have taken many steps to highlight the
value of our midstream assets through a series of transactions
including, the initial public offering of EQM, midstream asset
dropdowns to EQM, and the initial public offering of EQGP. This
transaction represents a new chapter for our business as we unlock
the value created during the past 10 years."
Steve Schlotterbeck, EQT’s president and chief executive
officer, said, “When we announced the Rice Energy acquisition, we
committed to addressing the sum-of-the-parts discount in our
shares. The Rice transaction accelerated the maturation of both our
businesses, provided scale that significantly enhanced the
standalone prospects of both companies, and positioned us to
further enhance value through separation. We are now the largest
natural gas producer in the U.S. – with a strong and strategic
midstream system in the best natural gas basin in the country. We
will complete the separation with urgency, consistent with our
commitment to shareholders.”
Benefits of Separation
EQT believes that creating an independent midstream public
company offers a number of benefits to the standalone businesses,
including:
- Pure-play companies providing a clear
investment thesis
- Visibility to attract a long-term
investor base suited to each business
- Capital structures aligned with cash
flow risk/reward profiles
- Dedicated management and boards focused
on distinct strategic visions
- Simpler and easier to understand
financial reporting
- More efficient allocation of
capital
- Enhanced potential for customer base
expansion and organic growth
- Investment grade ratings expected for
both companies
- More attractive equity currency and
access to capital
Midstream plan of action prior to separation
EQT plans to pursue the following:
- A drop-down of the retained midstream
assets in an accretive transaction to EQT Midstream Partners, LP
(NYSE: EQM)
- A merger of EQM and Rice Midstream
Partners LP (NYSE: RMP) in an accretive transaction
- A sale of the RMP Incentive
Distribution Rights (IDRs) to EQT GP Holdings, LP (NYSE: EQGP)
Under EQT’s plan, EQGP will retain the EQM IDRs, and EQGP and
EQM will remain separate publicly traded entities after separation.
EQT does not intend to modify its existing gathering and
transmission contracts with EQM in connection with the separation.
Additional details concerning the midstream transactions will be
provided in the near future. Completion of the midstream related
transactions will not be a condition to completion of the
separation.
Competitive Strengths of EQT and NewCo
EQT:
- Largest natural gas producer in the
United States
- Industry leading cost structure
- 680,000 core Marcellus acres &
65,000 core Ohio Utica acres
- Inventory depth for sustained 10%-15%
production growth
- Averaging 13,600 foot laterals in
southwestern PA in 2018
- $2.3 - $2.8 billion of free cash flow
over 2019 - 2023 (10% - 15% annual production growth)
- Expect to be cash flow breakeven in
2019, with a focus on returning cash in 2020+
NewCo:
- Natural gas gathering is third largest
in the United States
- Premier asset footprint in the
Appalachian Basin
- Stable and predictable cash flow
profile
- 16-year weighted average contract
life
- 60% of revenue generated from long-term
firm reservation charges
- 85% of revenue from investment grade
counterparties
- $4.8 billion 5-year projected organic
growth capital
- 246,000 acreage dedication in core
Marcellus and 166,000 in core Ohio Utica
- Mountain Valley Pipeline extends
pipeline network into the southeast markets
Leadership Team
Upon completion of the separation, Steve Schlotterbeck will
remain CEO of EQT and Jerry Ashcroft, senior vice president and
president, midstream for EQT; and senior vice president and chief
operating officer of EQM, will lead NewCo as chief executive
officer.
Transaction Details
The proposed spin-off is subject to customary conditions,
including receipt of a favorable opinion of legal counsel and/or a
private letter ruling from the Internal Revenue Service with
respect to the tax treatment of the transaction for U.S. federal
income tax purposes, the effectiveness of a Form 10 registration
statement to be filed with the Securities and Exchange Commission
(SEC) for the shares of NewCo, and final approval and declaration
of the spin-off dividend by the EQT Board of Directors.
Financial and Legal Advisors
In reaching its separation decision, the Board of Directors was
advised by Guggenheim Securities, LLC, Tudor, Pickering, Holt &
Co., and Wachtell, Lipton, Rosen & Katz.
2018 Annual Meeting
EQT will hold its 2018 annual meeting of shareholders on June
21, 2018 in Pittsburgh, PA. Accordingly, the window in which
eligible EQT shareholders may nominate directors and/or propose
other business in accordance with EQT’s bylaws will extend from
February 21, 2018 until March 23, 2018. Any nominations or
proposals must be made in compliance with EQT’s bylaws and
applicable law.
Webcast Information
EQT will host a conference call with security analysts at 10:30
a.m. Eastern Time today. A brief Q&A session for security
analysts will immediately follow the transaction discussion. Slides
accompanying the prepared remarks are available on our website at
ir.eqt.com. The conference call will be broadcast live via the EQT
investor information page at ir.eqt.com, with a replay available
for seven days following the call.
About Jerry Ashcroft
Jeremiah “Jerry” Ashcroft was appointed senior vice president,
EQT Corporation; and president, midstream; and also senior vice
president and chief operating officer for the general partner of
EQM in August 2017. He was also elected as a member of the board of
directors of the general partner of EQM.
Ashcroft has more than 15 years of experience in the oil, gas,
and pipeline industries – and before joining EQT, he was chief
executive officer of Gulf Oil L.P. Ashcroft has a distinguished
military career with the United States Marine Corps and received a
Bachelor of Science degree from the United States Naval Academy.
Ashcroft has also held various roles of increasing responsibility
at JP Energy Partners, Buckeye Partners, L.P., and Colonial
Pipeline Company, L.P.
About EQT Corporation:
EQT Corporation is an integrated energy company with emphasis on
Appalachian area natural gas production, gathering, and
transmission. With nearly 130 years of experience and a
long-standing history of good corporate citizenship, EQT is the
largest producer of natural gas in the United States. As a leader
in the use of advanced horizontal drilling technology, EQT is
committed to minimizing the impact of drilling-related activities
and reducing its overall environmental footprint. Through safe and
responsible operations, EQT is helping to meet our nation’s growing
demand for clean-burning energy, while continuing to provide a
rewarding workplace and enrich the communities where its employees
live and work. EQT owns the general partner interest and a 90%
limited partner interest in EQT GP Holdings, LP, which owns the
general partner interest, all of the incentive distribution rights,
and a portion of the limited partner interest in EQT Midstream
Partners, LP. EQT also owns the general partner interest, all of
the incentive distribution rights, and a 28% limited partner
interest in Rice Midstream Partners LP.
Visit EQT Corporation at www.EQT.com; and to learn more about
EQT’s sustainability efforts, please visit https://csr.eqt.com.
About EQT Midstream
Partners:
EQT Midstream Partners, LP is a growth-oriented limited
partnership formed by EQT Corporation to own, operate, acquire, and
develop midstream assets in the Appalachian Basin. The Partnership
provides midstream services to EQT Corporation and third-party
companies through its strategically located transmission, storage,
and gathering systems that service the Marcellus and Utica regions.
The Partnership owns approximately 950 miles of FERC-regulated
interstate pipelines; and also owns approximately 1,800 miles of
high-and low-pressure gathering lines.
Visit EQT Midstream Partners, LP at
www.eqtmidstreampartners.com.
About EQT GP Holdings:
EQT GP Holdings, LP is a limited partnership that owns the
general partner interest, all of the incentive distribution rights,
and a portion of the limited partner interests in EQT Midstream
Partners, LP. EQT Corporation owns the general partner interest and
a 90% limited partner interest in EQT GP Holdings, LP.
Visit EQT GP Holdings, LP at www.eqtmidstreampartners.com.
About Rice Midstream
Partners:
Rice Midstream Partners LP is a fee-based, growth-oriented
limited partnership formed to own, operate, develop and acquire
midstream assets in the Appalachian basin. RMP provides midstream
services to EQT Corporation and third-party companies through its
natural gas gathering, compression, and water assets in the rapidly
developing dry gas cores of the Marcellus and Utica Shales.
Visit Rice Midstream Partners LP at www.ricemidstream.com.
Non-GAAP Financial Measure
As used in this news release, free cash flow is defined as EQT’s
net cash provided by operating activities plus changes in other
assets and liabilities less capital expenditures pro forma for the
announced separation and other midstream transactions. Free cash
flow is a non-GAAP supplemental financial measure that management
and external users of EQT’s consolidated financial statements, such
as industry analysts, lenders and rating agencies, use to assess
EQT’s liquidity on a consolidated pro forma basis for the announced
separation and transactions.
EQT believes that consolidated pro forma free cash flow provides
useful information to investors in assessing the impact of the
separation and other transactions on EQT’s ability to generate cash
flow in excess of capital requirements and return cash to
shareholders. Free cash flow should not be considered an
alternative to net cash provided by operating activities or any
other measure of liquidity presented in accordance with GAAP.
Cautionary Statements
Disclosures in this news release contain certain forward-looking
statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, and Section 27A of the Securities
Act of 1933, as amended. Statements that do not relate strictly to
historical or current facts are forward-looking. Without limiting
the generality of the foregoing, forward- looking statements
contained in this news release specifically include the
expectations of plans, strategies, objectives and growth and
anticipated financial and operational performance of the Company
and its subsidiaries, including whether the separation of the
midstream business and the other transactions involving the
midstream business are completed, as expected or at all, and the
timing of any such separation and/or transactions; whether the
conditions to the separation and the other transactions involving
the midstream business can be satisfied; whether the operational,
financial and strategic benefits of the separation and the other
transactions involving the midstream business can be achieved;
whether the costs and expenses of the separation and the other
transactions involving the midstream business can be controlled
within expectations; guidance regarding the Company's strategy to
develop its Marcellus, Ohio Utica, Upper Devonian and other
reserves; drilling plans and programs (including the number, type,
average lateral length and location of wells to be drilled or
turned-in-line, the number and type of drilling rigs, the number of
frac crews and the number of multi-pad wells); projected production
sales volume and growth rates (including liquids sales volume and
growth rates); projected unit costs, general and administrative
expenses, expense reductions, average differential and net
marketing services revenue; projected adjusted operating cash flow
attributable to EQT and projected adjusted operating cash flow
attributable to EQT Production; projected capital expenditures,
capital budget, and sources of funds for capital expenditures;
return on capital; and projected cash flows, including the ability
to fund the 2018 drilling program through cash from operations, and
projected cash flows resulting from the Company’s partnership
interests in EQGP and RMP. These statements involve risks and
uncertainties that could cause actual results to differ materially
from projected results. Accordingly, investors should not place
undue reliance on forward-looking statements as a prediction of
actual results. The Company has based these forward-looking
statements on current expectations and assumptions about future
events. While the Company considers these expectations and
assumptions to be reasonable, they are inherently subject to
significant business, economic, competitive, regulatory and other
risks and uncertainties, many of which are difficult to predict and
beyond the Company's control. The risks and uncertainties that may
affect the operations, performance and results of the Company's
business and forward-looking statements include, but are not
limited to, those set forth under Item 1A, "Risk Factors" of the
Company's Form 10-K for the year ended December 31, 2017, as
updated by any subsequent Form 10-Qs.
Any forward-looking statement speaks only as of the date on
which such statement is made and the Company does not intend to
correct or update any forward-looking statement, whether as a
result of new information, future events or otherwise.
Information in this news release regarding EQGP and its
subsidiaries, including EQM, and RMP and its subsidiaries, is
derived from publicly available information published by the
partnerships.
Important Additional Information
This communication relates to, among other things, a potential
proposal that may be made regarding a business combination
transaction involving EQM and RMP. In connection with the potential
transaction with RMP and subject to future events, EQM may file a
registration statement on Form S-4 with the SEC which will include
a document that serves as a prospectus of EQM and a proxy statement
of RMP (the “proxy statement/prospectus”), and each party will file
other documents regarding the proposed transaction with the SEC.
Investors and security holders are urged to carefully read the
entire registration statement and proxy statement/prospectus and
other relevant documents filed with the SEC if and when they become
available, because they will contain important information. Subject
to future events, a definitive proxy statement/prospectus will be
sent to RMP’s unitholders, in which case investors and security
holders will be able to obtain the registration statement and the
proxy statement/prospectus free of charge from the SEC’s website or
from EQM or RMP as described in the paragraphs below.
The documents filed by EQM with the SEC may be obtained free of
charge at EQM’s website at www.eqtmidstreampartners.com or at the
SEC’s website at www.sec.gov. These documents may also be obtained
free of charge from EQM by requesting them by mail at EQT Midstream
Partners, LP, 625 Liberty Avenue, Suite 1700, Pittsburgh, PA 15222,
Attention Investor Relations, or by telephone at (412)
553-5700.
The documents filed by RMP with the SEC may be obtained free of
charge at RMP’s website at www.ricemidstream.com or at the SEC’s
website at www.sec.gov. These documents may also be obtained free
of charge from RMP by requesting them by mail at Rice Midstream
Partners LP, 625 Liberty Avenue, Suite 1700, Pittsburgh, PA 15222,
Attention Investor Relations, or by telephone at (412)
553-5700.
Participants in the Solicitation
EQM, RMP and certain of their directors, executive officers and
employees may be deemed participants in the solicitation of proxies
from RMP unitholders in connection with the potential transaction.
Information regarding the persons who may, under the rules of the
SEC, be deemed participants in the solicitation of the unitholders
of RMP in connection with the potential transaction, including a
description of their direct or indirect interests, by security
holdings or otherwise, will be set forth in the proxy
statement/prospectus if and when it is filed with the SEC.
Information about the directors and executive officers of EQM is
set forth in EQM’s 2017 Annual Report on Form 10-K, as previously
filed with the SEC on February 15, 2018. Information about the
directors and executive officers of RMP and their ownership of RMP
common units is set forth in RMP’s 2017 Annual Report on Form 10-K,
as previously filed with the SEC on February 15, 2018. Free copies
of these documents may be obtained as described in the paragraphs
above.
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version on businesswire.com: http://www.businesswire.com/news/home/20180221005615/en/
EQT analyst inquiries:Patrick Kane, 412-553-7833Chief
Investor Relations Officerpkane@eqt.comorEQM/EQGP/RMP analyst
inquiries:Nate Tetlow, 412-553-5834Investor Relations
Directorntetlow@eqt.comorMedia inquiries:Natalie Cox,
412-395-3941Corporate Director, Communicationsncox@eqt.com
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