EQT Midstream Buys Gas Pipeline System for $1.2B

HOUSTON (The Deal) -- Pittsburgh natural gas storage provider EQT Midstream Partners (EQM) said after the markets closed Wednesday that it agreed to buy the Jupiter natural gas pipeline system from affiliate EQT Corp. (EQT) for $1.18 billion.

The price includes $1.121 billion in cash and $59 million in common and general partner units.

Separately, EQT Midstream Partners said it plans to fund part of the purchase price with an offering of up to 10.05 million units led by Barclays, Bank of America Merrill Lynch, Citigroup, Wells Fargo Securities, Credit Suisse, Deutsche Bank Securities, Goldman, Sachs & Co., JP Morgan and RBC Capital Markets.

EQT Corp. also said it will exchange assets with Range Resources (RRC) of Forth Worth, Texas. EQT will get Range's 73,000 net acres in the Permian Basin, mostly held by production, and 900 producing wells in Glasscock and Sterling Counties, Texas, while Range will get EQT's interest in 138,000 net acres and a gathering system in the Nora Field of Virginia, giving it 100% ownership of Nora, and $145 million in cash. Closing of that deal is expected this quarter.

Range revealed the potential sale in a Securities and Exchange Commission filing in December and said it had hired Bank of America to advise it. It's expected to redirect the proceeds to its prospects in the Marcellus Shale. Scott Van Bergh, Mark Sooby and Ben Lett led the auction.

Analysts at Tudor, Pickering, Holt & Co. Securities Inc. said the structure of Range's Permian sale was not exactly what it was expecting, but the valuation appears to be in the ballpark of the firm's $550 million to $600 million estimate. Simmons & Co. International said the economic value looks to be fair and higher than its expectations.

EQT Midstream Partners went public in 2012 in an offering led by Citigroup and Barclays, raising $263 million. Last year it bought Sunrise Pipeline LLC from EQT Corp. for $507.5 million cash and $32.5 million in common and general partner units.

The Jupiter system was designed and constructed to gather EQT Corp.'s Marcellus natural gas production in parts of Greene and Washington counties, Pennsylvania. The assets include 35 miles of gas gathering pipeline and two compressor stations with 21,300 horsepower of compression.

The Callisto compressor station has 150 million cubic feet per day of compression capacity and the Jupiter compressor station has 75 million cubic feet per day. The Jupiter pipeline has capacity of 970 million cubic feet per day and six interconnects with EQT Midstream Partners' transmission and storage system. The partnership plans to complete several expansion projects at a cost of $106 million this year and $76 million next.

EQT Midstream Partners expects the deal to be immediately accretive to its distributable cash flow per unit.

The assets are supported by a gathering agreement with EQT Corp. that includes 10-year reservation commitments on the available compression capacity, which is expected to grow this year and next. Sales are expected to be $130 million in 2014 and $160 million next year, growing to $173 million per year after the expansion projects are finished.

The partnership forecasts operating expenses associated with assets, excluding depreciation and amortization, to be $20 million for 2014 and $28 million once the expansion is complete. EQT expects ongoing maintenance capital expenditures to be less than $2 million per year.

EQT Corp. holds 48,000 net acres surrounding Jupiter, including 31,000 undeveloped net acres. As of March 31, it had drilled 206 Marcellus wells and 9 Upper Devonian wells in the area, with daily gathered volume reaching 595 million cubic feet per day in the first quarter.

The Jupiter acquisition was approved by the independent conflicts committee of the board of EQT Midstream Services LLC, EQT Midstream Partners' general partner. Advising the committee were Evercore Partners Inc.'s Ray Strong, Eric Bauer, Alex Jeffries and Sol Jin and Richards, Layton & Finger PA's Srini Raju, Greg Ladner and Mark Kurtz.

Baker Botts LLP's Mike Bengtson, Robert Wright, Michael Bresson, James Chenoweth and Robert Montgomery assisted the general partner and its affiliates. In-house counsel included Robert Williams, Jonathan Lushko, Natalie Jefferis and Sean McGinty.

Baker Botts also worked on EQT Corp.'s asset swap with Range, including Bengtson and Chenowith as well as Coleson R. Bruce, Bryan Cory, Christopher Janisch, Aileen Hooks, Scott Looper and Kristen Smith. EQT Corp. in-house counsel included Williams as well as Henry Reich and Leslie Miller-Stover.

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