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Range Can't Copy EQT's Playbook, But It Can Adapt

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We've likely all heard the saying that unconventional scenarios call for unconventional measures. Well,  EQT Corporation's (NYSE: EQT  ) and Range Resources' (NYSE: RRC  ) measures are harvesting great results from their exploration and drilling operations.

A working relationship promoting growth
Even though EQT Corporation owns around 3.5 million gross acres across the Appalachian basin, it focuses primarily within its 356,000 gross acres of the Marcellus shale play. The efforts are proving fruitful. During its third quarter conference call, EQT announced that its Marcellus production sales were 74% higher in the quarter than 2012 while overall production sales volume soared 42% in the same period of time.

The sales growth, coupled with a 10% decline in operating expenses thanks to improved efficiency and cost-cutting measures, led EQT to post earnings of $0.58 per share—177% higher than the third quarter of 2012. And, EQT continues to innovate. For instance, it is expanding its rapidly growing natural gas fueling station, a location where even competitors pay to fill their fleets with the less expensive fuel source.

Additionally, EQT Midstream Partners' (NYSE: EQM  ) , a midstream service provider to EQT and third party companies, increased its quarterly volume by 43% in the same time period. EQT holds a 42.6% limited and a 2% general partnership interest in EQT Midstream Partners, and EQT Midstream Partners' results are consolidated into EQT Corporation's report.

So, with pipeline running throughout the heart of the Marcellus region, EQT Midstream Partners enables EQT to transport its natural gas more cost-effectively and efficiently than competitors who do not own or are not directly affiliated with pipeline companies.

In 2008, for instance, competitor Range Resources partnered with MarkWest Energy Partners LP (UNKNOWN: MWE.DL  ) to begin the initial phases of building a large scale gas processing infrastructure. MarkWest invested over $200 million for the project, and Range also was involved—mostly through future payments to MarkWest for use of the plant.

Because of their unique relationship and ownership structure, EQT and EQT Midstream Partners clearly complement one another well; they specialize and then use one another's resources to maximize value through the natural gas exploration, drilling, and midstream processes. For example, EQT sold its Sunrise Pipeline to the Midstream business, generating about $540 million in cash for the drilling company and extra miles and networks for the partnership.

Even with EQT's synergies, other firms are also capitalizing on the natural gas boom.

Natural gas production growth is not limited
During its third quarter conference call Range Resources announced a 40% year-over-year increase in its Marcellus production, and it shows no signs of stalling. Range estimates that its will grow its production 20%-25% for at least the next three years. Though Range does not own part of a midstream business, its partnership with MarkWest Energy is proving beneficial.

Through what is known as the Mariner West Project, MarkWest Energy and Sunoco Logistics are building a pipeline that will transport the natural gas from the Marcellus region to Michigan and the Canadian border. Range is particularly excited about the system because it will utilize the pipeline to export ethane to Canada later this month.

Further, MarkWest Energy is planning on doubling its natural gas processing capacity in coming years, enabling the company to transport larger quantities of the gas. And, the additional cash from may be invested in another natural gas liquid pipelines, further expanding the footprint of the largest natural gas processor within the Marcellus shale.

The primary objective
Companies operating in the upstream and midstream business segments can and do work together to maximize their resources. Even though they're competitors, working together to accomplish a common goal—more production or transportation, and ideally more profits—seems to be working quite well. And, as long as production continues, expect these type of functional relationships.

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9/29/2016 4:02 PM
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