EQT’s separation plan
EQT (EQT) doesn’t plan to modify its existing gathering and transportation contracts with EQT Midstream Partners (EQM) due to the planned spin-off. EQT also plans to drop down its remaining midstream assets to EQM prior to the separation. After the spin-off, the new midstream C corporation is expected to be the third-largest natural gas gatherer in the United States with a strong footprint in the Appalachian Basin.
About 60% of the new midstream company’s revenues are expected to be generated from long-term firm reservation charges. The new company is expected to spend ~$4.8 billion on growth projects in five years.
EQT expects 17% production growth in 2018. It expects to generate $2.3 billion–$2.8 billion of free cash flow from 2019 to 2023, contributed by 10%–15% annual production growth. It expects to achieve cash flow break-even in 2019.
The above graph shows the performance of EQT, EQT Midstream Partners, and EQT GP Holdings (EQGP) over the last year. As the graph shows, the three stocks underperformed the Energy Select Sector SPDR ETF (XLE) during that period.
EQT, EQM, and EQGP fell 3.1%, 3.3%, and 2.7%, respectively, on the day of spin-off announcement.
For the latest update on EQT’s performance, read EQT Beat Earnings and Revenue Estimates in 4Q17.