EQT, the largest US natural gas producer, plans to write down the value of its assets by as much as $1.8bn as prices for the fuel slide to the lowest levels in a generation.
The Pittsburgh-based company surpasses energy majors such as ExxonMobil and Chevron in gas volumes, according to the latest Natural Gas Supply Association reports.
Following a proxy campaign backed by activist investors D E Shaw and Elliott Management, EQT last year installed Toby Rice as chief executive and replaced most of its board. Mr Rice and his brother had sold Rice Energy to EQT in 2017.
The company, with an equity value of $2.1bn, is based in the gas-rich Appalachian region in the eastern US. Production there has risen by almost half in the past three years to 33.5bn cubic feet per day, according to the Energy Information Administration.
Robust supply and a balmy winter heating season have driven gas prices at Pennsylvania’s Dominion South hub down to $1.83 per million British thermal units, according to data from Intercontinental Exchange.
EQT is the latest exploration and production company buffeted by poor returns from Appalachia assets. When Chevron took a charge of more than $10bn last month, more than half of it was related to gas resources in Appalachia.
Range Resources, another leading producer in the region, last week suspended its dividend to work on paying down debt. It also offered $550m in bonds to refinance bonds coming due next year.
Lower gas prices and investor pressure have led to a drilling slowdown. Last week, 51 rigs were drilling for gas across the Marcellus and Utica shales — the main hydrocarbon formations in Appalachia — down from 79 a year ago, according to Baker Hughes, the oilfield service company.
If the rig count continued to fall, production growth in Appalachia would correspondingly ease to about 1bn cu ft/d in 2020, said Ira Joseph, head of gas and power analytics at S&P Global Platts.
EQT plans to reduce debt by 30 per cent, or $1.5bn, by selling assets and improving its cash flow under a plan conceived by Mr Rice. The writedown relates to certain properties and “depressed natural gas prices”, the company said.
Moody’s on Monday downgraded EQT’s debt rating to junk after it also announced plans to issue bonds to refinance debt. The rating agency cited “EQT’s significantly weakening cash flow metrics in light of the persistent weak natural gas price environment” and its “intent to refinance its 2020 maturities in lieu of debt reduction through repayment”.
Shares of EQT fell 5.3 per cent to close at $8.37 in New York on Monday.