(Reuters) - EQT Corp, the largest natural gas producer in the United States, is aiming to raise as much as $1 billion by selling some of its royalty income, people familiar with the matter said on Friday.
EQT has been seeking ways to reduce its swelling debt pile of close to $5 billion as it struggles to cope with lower natural gas prices. Late last year, it tried unsuccessfully to divest its Ohio acreage, two of the sources said.
EQT is in talks to find an investor for a so-called “override” deal, the sources said. The investor would take a 1% royalty interest in the net revenue generated from EQT’s production, the sources added, requesting anonymity because the matter is confidential.
The sources cautioned there was no certainty a deal would be reached.
In 2018, EQT generated operating revenue of $4.7 billion, following its $6.7 billion acquisition of peer Rice Energy. Its production is focused on the Appalachian Basin.
A spokesman for EQT declined to comment.
More U.S. natural gas producers are turning to override deals to raise cash as falling gas prices make it more difficult to sell assets at attractive valuations.
Fellow Appalachian producer Range Resources Corp completed two override deals in the second half of 2019.
EQT said when announcing its third-quarter earnings it wanted to raise $1.5 billion from asset sales by mid-2020 to pay down debt, maintain its investment-grade credit rating, and better equip itself to operate in a lower commodity price environment.
Earlier this month though, Moody’s Investors Service Inc downgraded EQT’s credit rating from Baa3 to Ba1, citing the unlikely prospect of improvement in the company’s cash flow metrics to a level required to support an investment-grade credit profile.
EQT’s 2020 capital budget indicates a more constrained approach to reserves and production growth, enabling the company to generate free cash flow that could be applied toward debt reduction, Moody’s added.
Reporting by David French in New York and Arathy S Nair in Bengaluru; Editing by Tom Brown