Oil report

UPDATE 2-EQT Corp sells half its stake in pipeline operator, strikes rate relief deal

(Recasts throughout, adds analyst and CFO comments, shares)

Feb 27 (Reuters) - EQT Corp said on Thursday it renegotiated its gas transportation rates and sold half its stake in pipeline company Equitrans Midstream Corp as the largest U.S. natural gas producer tries to cope with low fuel prices.

U.S. natural gas prices are trading at their lowest in nearly two decades, hurting producers, many of whom have disclosed asset writedowns in the last few months. EQT recorded $1.6 billion non-cash impairment charge in the fourth quarter.

Shares of EQT were down 3.3% at $4.79 amid a broader 4% drop in the S&P Energy index.

The Pittsburgh-based company has been looking to sell assets to pay down debt and said on Thursday that it had refined its hedging strategy and cut annual capital expenditure.

The company expects 2020 capital expenditure between $1.15 billion and $1.25 billion, compared with a prior outlook of between $1.25 billion and $1.35 billion. It has hedged 87% for 2020 and 26% for 2021, assuming flat production.

The company, which focuses on production from the Marcellus and Utica shale basins in Pennsylvania, Ohio and West Virginia, said it expects 2020 sales volumes in the range of 1,450-1,500 billion cubic feet equivalent (bcfe).

But it could curtail production if commodity prices fail to give returns, Chief Financial Officer David Khani said on the post-earnings call.

The company said under the new gas gathering agreement with EQM Midstream Partners LP, EQT will get a gathering and compression fee relief and increase its minimum volume commitments, effective upon the Mountain Valley Pipeline kicking into service.

In addition, EQT also exchanged half of its equity stake in Equitrans Midstream for a combination of $52 million in cash and incremental fee relief.

These deals are expected to give EQT about $535 million in total fee relief over a three-year period, starting 2021, and cost savings that would improve its EBITDA and leverage.

“The announced rate reduction should provide meaningful rate relief but puts a higher burden on executing asset monetization plans to fund upcoming 2021 maturities,” said RBC Capital Markets analyst Scott Hanold.

EQT also reported a 5.2% fall in fourth-quarter sales volumes and posted a smaller-than-expected loss.

Excluding items, the company posted a loss of 3 cents per share, smaller than analysts’ average estimate of 21 cents, according to Refinitiv IBES. (Reporting by Arunima Kumar in Bengaluru; Editing by Anil D’Silva and Ramakrishnan M.)