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EQT buys Marcellus, Utica acreage in Stone Energy bankruptcy auction

Houston (Platts)--9 Feb 2017 524 pm EST/2224 GMT


EQT on Thursday said it won a bankruptcy auction that would see the Pittsburgh-based producer expand its Appalachian Basin footprint in West Virginia through the purchase of 85,400 net acres, including 53,400 net acres in the core of the Marcellus Shale play, as well as drilling rights on 44,100 net acres in the Utica Shale.

Under the deal, which a bankruptcy court is expected to approve Friday, the independent exploration-and-production company will acquire acreage with production of about 80 MMcf of natural gas equivalent per day from Stone Energy for $527 million.

The acquired acreage -- primarily located in West Virginia's Wetzel, Marshall, Tyler and Marion counties -- is within the core of EQT's liquids-rich development areas and complements the company's adjacent operations, it said in a statement.

EQT said the assets include 174 Marcellus wells -- of which 123 are developed and 51 are in-progress -- as well as 20 miles of gathering pipeline and 32,000 acres outside the company's core development area.

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The acreage has an average 85% net revenue interest and 86% is either held by production or has lease expiration terms that extend beyond 2019, which means the producer will be able to take its time before it begins developing the acreage.

In December, Stone and its domestic subsidiaries filed voluntary petitions under Chapter 11 of the US Bankruptcy Code in the Bankruptcy Court for the Southern District of Texas.

As part of its pre-packaged bankruptcy filing, the court oversaw an auction that allowed Stone to put its Appalachian Basin assets up for sale to raise additional capital as part of its pre-arranged plan of reorganization. Prior to the bankruptcy filing, in October, Stone had entered into an agreement with TH Exploration III, LLC, an affiliate of Tug Hill, to sell the assets for $360 million in cash. Pursuant to bankruptcy court orders, the auction was held on Wednesday, with the initial Tug Hill bid serving as the stalking horse bid.

Stone agreed to use a portion of the $527 million purchase price to pay for the break-up fee and expense reimbursement involved in the rejection of the Tug Hill bid.

The completion of the auction process should allow Stone to emerge from the protection of the bankruptcy court as early as Friday, a Stone spokeswoman said in an interview Thursday.

"With the successful conclusion of the auction, we are now poised to move forward with our pre-packaged plan, with Stone, its noteholders and the bank group all in agreement on a plan of action," Stone Chairman, President and CEO David Welch said in a statement.

EQT's acquisition of the Stone assets marks a continuation of a strategy of filling in acreage within its core footprint in the Marcellus and Utica plays outlined by company President Steve Schlotterbeck in a conference call on the producer's fourth-quarter and full-year earnings earlier this month.

In May, EQT announced it had signed an agreement to acquire 62,500 net acres in Wetzel, Tyler and Harrison counties in West Virginia for $407 million from Statoil USA Onshore Properties. The acreage, which at the time of the announced deal was producing 50 MMcf/d, expanded the producer's Marcellus footprint by 29%.

EQT's bid to lock up acreage in the Marcellus and Utica plays reflects moves by its rivals last year to acquire assets in the Appalachian Basin.

In September, Canonsburg, Pennsylvania-based Rice Energy said it would acquire rival Appalachian producer Vantage Energy in a deal valued at $2.7 billion, including the assumption of debt. The deal gave Rice about 85,000 net core Marcellus acres in Greene County, Pennsylvania, with rights to the deeper Utica Shale on about 52,000 net acres, as well as 37,000 net acres in the Barnett Shale of North Texas.

In June, Antero Resources agreed to acquire from Southwestern Energy about 55,000 net acres in the core of the Marcellus Shale for $450 million. About 75% of the 55,000 net acres contained dry Utica rights.

Scott Hanold, an analyst with RBC Capital Markets, estimated the EQT deal equates to about $5,400/acre, adjusted for proved developed producing reserves when evaluating only the core Marcellus acreage.

"There are two goals in EQT's recent acquisitions: blocking up acreage to enable longer laterals and adding new inventory. This transaction falls mostly into the second bucket," Hanold said. "The company likely continues to pursue smaller deals that fit into these categories but only in its core focus area."

--Jim Magill, jim.magill@spglobal.com

--Edited by Keiron Greenhalgh, keiron.greenhalgh@spglobal.com

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