EQT Deal is a Risky Bet on Data Center and LNG Growth — Barrons.com

What happened

EQT announced a merger with Range Resources on Monday, creating a large natural gas producer focused on the Appalachian region. Appalachian gas has at times sold for about 30% less than the Louisiana benchmark, and both companies produce in that basin.

Confirmed

Global impact / market context

The combined company will depend more on low-priced Appalachian gas, which sells at a discount because few pipelines carry it out. EQT also paid a high price, reported at 7.8 times Range's cash flow, which raises risk for EQT investors.

Analyst inference

Analysts called the deal pricey, with Roth analyst Leo Mariani saying it carries the highest multiple on a deal in the exploration and production sector in many years, using a cash flow multiple. Range investors sell at a more than ten-year high.

Analyst inference

What to watch

1. Watch the gap between Appalachian hub prices and the Henry Hub benchmark; recently Appalachian gas was $2.34 per million British Thermal Units versus $2.54 at Henry Hub. Confirmed
2. Watch whether new pipeline capacity is proposed or approved to move more Appalachian gas out of the region, which would reduce the local price discount over time. Proposed
3. Watch EQT's future cash flow against the roughly 7.8 times Range cash flow it paid, since weak Appalachian prices could make it harder to earn back that price. Analyst inference

Evidence

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