EQT Corp. agreed to sell its natural gas utility business to SteelRiver Infrastructure Partners LP for about $720 million in cash, completing its transformation into an exploration and production business.
In addition to the cash, SteelRiver will give EQT pipelines and storage facilities in Pennsylvania and agreed to long-term contracts for transmission, supply and storage services, Pittsburgh-based EQT said in a statement today. The utility, Equitable Gas, has about 275,000 customers in Pennsylvania, West Virginia and Kentucky.
Selling the utility will allow EQT to focus on its core businesses of gas exploration and production, or E&P, as well as the pipeline partnership it controls, Chairman and Chief Executive Officer David Porges said in the statement. The company, among the first this year to slow production when gas prices fell, spun off its pipeline unit in June.
“This is strategically a significant transaction as it positions EQT as a pure-play E&P with a strong cash position that can support 30 percent growth, driven by the high returning Marcellus Shale,” Scott Hanold, a Minneapolis-based analyst for RBC Capital Markets, said in a note today.
EQT may use the proceeds from the sale to buy more gas production in Pennsylvania’s Marcellus Shale, Porges said on a conference call with analysts today. The pipelines it’s acquiring are complementary to EQT’s system in western Pennsylvania, Porges said. It may eventually sell them to its pipeline master-limited partnership, EQT Midstream Partners LP.
EQT rose 3.8 percent to $59.17 at the close in New York, the biggest gain in nine weeks. EQT Midstream climbed 3 cents to $30.68.
Moody’s Investors Service said it may lower EQT’s debt rating, because of the higher risks of exploration.
SteelRiver, a fund formerly part of Babcock & Brown Ltd., owns or controls a railroad operator, a gas pipeline company and a power transmission line that lies beneath San Francisco Bay. The fund bought Peoples Natural Gas from Dominion Resources Inc. in 2010 and today’s deal would bring the total number of customers served by SteelRiver’s gas utilities to 700,000.
“The acquisition of Equitable attests to our appetite for continued capital deployment in regulated utilities,” Dennis Mahoney, senior managing partner of New York-based SteelRiver, said in a separate statement.
The assets from SteelRiver includes 200 miles (322 kilometers) of pipelines and four storage pools with a total of 15.1 billion cubic feet of working gas capacity for EQT. The transaction is expected to close in the second half of next year and must be approved by regulators in Pennsylvania, West Virginia and Kentucky as well as the U.S. Federal Energy Regulatory Commission and the Federal Trade Commission.
EQT will cut its annual dividend to 12 cents next year from 88 cents in 2012.
EQT was advised by Lazard Freres & Co. and the law firms of Skadden, Arps, Slate, Meagher & Flom LLP, Baker Botts LLP and Bracewell & Giuliani LLP.