February 21, 2018 / 12:33 PM / 3 months ago

UPDATE 3-Natgas producer EQT to spin off midstream operations after investor pressure

(Adds quote from fund manager, deal details, analyst quotes)

By Nivedita Bhattacharjee and Ahmed Farhatha

Feb 21 (Reuters) - Oil and gas producer EQT Corp said on Wednesday it would spin off its midstream business to create a standalone publicly traded company, yielding to months of pressure from shareholders.

Hedge funds D.E. Shaw & Co and Jana Partners had pushed for a break-up of the company ever since it bought Rice Energy for $6.7 billion last year, saying a separation of its production and pipeline assets will get better returns for shareholders.

The separation will also narrow EQT’s focus on its exploration and production business, or the upstream assets, at a time when shale production is expected to top a record 11 million barrels per day in late 2018.

Under the deal, designed to be tax-free for its shareholders, EQT will drop its midstream assets into its master limited partnership EQT Midstream. Following this, EQT Midstream and Rice Midstream Partners, Rice’s master limited partnership, will merge to create a standalone midstream focused company.

“By moving ahead with the tax-free spin-off of the midstream business ... we believe the company has put itself on the best path forward for itself and all shareholders,” said Quentin Koffey, a portfolio manager at D.E.Shaw.

EQT had hinted at the break-up last year when it said it would address the “sum-of-the-parts discount” in its share price following the Rice Energy deal.

“Master limited partnerships and exploration and production are such different types of investments that without separation plans like this the discount will always persist, even if investors understand the underlying assets,” SunTrust Robinson Humphrey analyst Welles Fitzpatrick said.

EQT’s shares have fallen 20.4 percent since closing the Rice Energy deal. The stock was up 1 percent by late morning, after paring premarket gains.

Following the spin-off, expected to be completed by the end of the third quarter, EQT said the new midstream company will become the third-largest natural gas gathering hub in the United States, operating in the Appalachian Basin - the heart of U.S. shale gas boom.

Midstream companies transport oil and natural gas through pipelines and store them at gathering stations or hubs, bridging the gap between producers and refiners.

The company expects the separation to complete by end of third quarter this year. Some analysts were expecting the separation of units to take longer, with RBC Capital Markets analyst Scott Hanold saying he expected the break-up by the end of this year.

EQT’s Senior Vice President, Jerry Ashcroft, will become CEO of the new company. (Reporting by Ahmed Farhatha, Nivedita Bhattacharjee in Bengaluru; Editing by Shailesh Kuber and Saumyadeb Chakrabarty)

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