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Summary

  • EQT and partner NextEra announced the decision to move ahead with a binding open season for their 2 Bcf/d Mountain Valley Pipeline project.
  • The development reinforces my initial thesis with regard to EQT's differentiated ability to support its upstream growth by direct participation in strategic midstream projects.
  • The project status was discussed in detail in my earlier article.

In my earlier note (SA Top Idea EQT Corporation: The Midstream Advantage), I wrote about the importance of EQT Corporation's (NYSE:EQT) two major take-away projects to the company's upstream growth and valuation. EQT had already made the decision to proceed with the first project, the 1 Bcf/d Ohio Valley Connector, and was evaluating potential customer demand for its second - much larger - project, the 2 Bcf/d Mountain Valley Pipeline.

Mountain Valley Pipeline Is A "Go Ahead"

EQT announced yesterday that it is moving ahead with the Mountain Valley Pipeline. The project is designed to provide an outlet for at least 2 Bcf/d of natural gas produced in the Marcellus South area and is an important element of EQT's natural gas production growth strategy. The decision comes on the heels of a positive non-binding open season that EQT and its partner in the project, NextEra Energy (NYSE:NEE), had conducted to explore potential customer interest. The 0.5 Bcf/d of third party customer commitments have been received to date, adding to the 1 Bcf/d commitment from the project's sponsors. According to EQT, firm commitments received to date make the project economically viable.

The Mountain Valley Pipeline Project

As a reminder, the Mountain Valley Pipeline is expected to transport natural gas from delivery points in the South Marcellus/Utica region to attractive demand markets in the Mid- and South Atlantic regions of the United States. The 330-mile FERC-regulated pipeline will connect EQT's existing Equitrans transmission system in West Virginia to Transcontinental Gas Pipeline Company's (Transco) Zone 5 compressor station 165 in Virginia, which is a highly liquid trading area for the southeast region.

(click to enlarge)

(Source: EQT Midstream Partners, August 2014)

EQT and a subsidiary of NextEra are forming a joint venture, Mountain Valley Pipeline, LLC, that will construct and own the Mountain Valley Pipeline. EQT or its MLP affiliate, EQT Midstream Partners, LP (NYSE:EQM), will own a majority interest in the joint venture and will operate the pipeline.

The joint venture is launching a binding open season for the pipeline which is scheduled to end on September 29, 2014, at which time the final project scope will be determined. To date, in the course of a non-binding open season that just ended, the joint venture has firm capacity commitments that total 1.5 Bcf per day.

The initial operator of the pipeline will be a subsidiary of EQT Corporation.

The pipeline is expected to be in-service during the fourth quarter of 2018, subject to FERC approval.

Attractive Economics

Given the tremendous unsatisfied demand for transportation capacity from the Marcellus and Utica area and the proposed pipeline's access to premium markets, the project promises to make excellent profits for the sponsors on third party volumes. At the same time, EQT and NextEra will be able to internalize the transportation cost for their own volumes.

According to the binding open season documents filed, the anticipated negotiated rate range for the pipeline is $0.70 - $0.75 per Dth for receipts from the Mobley processing plant with deliveries to Transco Zone 5 Station 165. Shippers will also pay any required fuel charges.

Conforming requests for capacity in the binding open season must be for a minimum initial contract term of 20 years.

The following is an extract from the binding open season document. The full document can be found on EQT's website.

(Source: EQT Corporation, September 2014)

Disclaimer: Opinions expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisor capacity. This is not an investment research report. The author's opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies' SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author's best judgment as of the date of publication, and are subject to change without notice.

Source: EQT Corporation: Moving Ahead With A 2 Bcf/D Pipeline Project