With Rice Merger, EQT Gets to Bore Longer Wells in the Gas Patch

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  • Longer laterals mean natural gas output rises at lower costs
  • Well returns seen climbing to 70 percent from 52 percent

Sure, in buying rival energy explorer Rice Energy Inc. for $6.7 billion, EQT Corp. may earn the title of America’s biggest natural gas producer. But there’s something else it’s after: longer wells.

The acquisition expands EQT’s footprint in the Marcellus reservoir -- America’s most prolific gas basin -- allowing the company to increase output by boring longer, horizontal well segments known as laterals into layers of rock. That’ll boost well returns to 70 percent from 52 percent, assuming a gas price of about $3 per million British thermal units, according to a company presentation released after the deal was announced Monday.

Gas production from the Marcellus has surged to a record as explorers cut costs, using techniques like drilling longer laterals and lining up 10 or more wells at a single location. The drive by explorers to expand their reach and reduce expenses has stoked deal activity, from acreage acquisitions to land swaps in the Permian oil basin of West Texas. It has also contributed to a glut of gas in storage caverns, keeping prices for the fuel under pressure.

“Longer laterals dramatically improve our returns,” Steven Schlotterbeck, EQT’s chief executive officer, said on a conference call Monday. “This acquisition enables us to differentiate EQT as a premier natural gas company in the U.S., focused in the most economic basin.”

That didn’t stop EQT from falling 9 percent to $53.51 in New York on Monday, the result of both a decline in gas and oil futures and the typical drag associated with being the buyer in a multibillion-dollar merger. Rice Energy jumped 25 percent to $24.57.

The Rice acquisition will allow EQT to expand its well laterals in Pennsylvania’s Greene and Washington counties to 12,000 from 8,000 feet (3,657 from 2,438 meters), the company said.

“When you put contiguous acreage together and you lengthen laterals, your well economics go up,” said Barnes Hauptfuhrer, founder of Chapter IV Investors LLC, who in January publicly urged EQT to merge with another Appalachian producer. “When you put two companies together and you eliminate a sizable chuck of general and administrative expense, those are just obvious synergies.”

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