EQT and Range Resources Are Merging: Is It Time to Buy the New U.S. Natural Gas Titan?

In a huge merger in the natural gas space, EQT (NYSE: EQT) will combine with Range Resources (NYSE: RRC) to form the largest natural gas company in the U.S. with a combined enterprise value exceeding $50 billion. With natural gas demand booming and the added scale of the combined company, now looks like a good time to buy the natural gas stocks, as they are set to merge.

Under the agreement, EQT will acquire Range Resources in an all-stock deal valued at around $13 billion. Range shareholders will receive 0.987 EQT shares and own roughly 27% of the combined company. The deal is expected to close in the first quarter of 2027. The deal must still be approved by shareholders of both companies and pass regulatory approval.

Let's look at why this deal should be a win for shareholders of both natural gas stocks.

A natural gas behemoth

An EQT-Range merger makes a lot of sense. These are the two leading natural gas producers in the Appalachian region, covering the Marcellus and Utica Shales. Combined, they will have over 9 Bcfe/d (billion cubic feet equivalent per day) of net production, of which 88% is natural gas.

Breakeven prices are always important in the energy industry, and the combined company will have an industry-leading unleveraged cash flow breakeven on its natural gas production of under $2 per MMBTu (million British thermal units, a standard thermal unit of measurement).

Range has always been known for its liquids-rich natural gas assets that include valuable natural gas liquids (NGLs), as well as smaller amounts of condensate. This drives down its breakeven, especially during periods when oil prices are high, as NGLs and condensate tend to track the price of oil. The deal gives the combined company more flexibility to shift activity between liquids-rich and dry gas, depending on the pricing environment and its hedges.

Importantly, EQT's and Range's core assets are right next to each other in the core of the Marcellus and Utica, and the combined company will have over 30 years of drilling inventory at natural gas prices at $3 per Mcf. The combined company will hold nearly 3 million net acres and more than 3,700 miles of midstream infrastructure. It will also make it the largest natural gas marketing company in the U.S.

By combining the two companies, EQT will be able to save costs. It expects to save $325 million in annual corporate and operational costs through things like reduced corporate overhead, lower lease operating expenses, and lower capital costs. It is also looking to save more than $300 million a year from post-production activities, including from midstream and marketing optimization, premium supply deals, and new demand creation.

Both EQT and Range have strong balance sheets, and given that this is an all-stock deal, that will continue to be the case. The combined company is expected to have 0.6 times leverage at the end of 2027.

Image source: Getty Images.

A great time to buy the stocks

Natural gas is abundant in the U.S. and, as such, is the primary source of power for U.S. electricity generation. With the AI infrastructure build-out, population growth, the continued shift away from coal-fired plants, and strong overseas LNG (liquefied natural gas) demand, overall demand for natural gas is booming. However, natural gas prices for much of the country have largely remained weak, while U.S. natural gas producers struggle to reach important, higher-priced Northeast markets.

The Trump administration is trying to revive Williams Companies' Constitution Pipeline, which would connect Appalachian natural gas to supply-challenged Northeast markets. It has long been blocked by New York State, but if a federal preemption succeeds or leads to a regulatory path forward, the additional pipeline capacity would directly benefit Marcellus producers like EQT by easing localized price discounts (basis differentials) and creating a direct link to high-demand Northeast markets.

Meanwhile, with the data center build-out set to surge even more next year, at some point, the natural gas supply demand environment should improve and prices should rise.

EQT Free Cash Flow Yield data by YCharts

With EQT stock trading at a roughly 11% free-cash-flow yield, now is the time to own this top energy stock. The Range acquisition will make it stronger with its liquids-rich gas assets, and it should be able to realize meaningful synergies. To get EQT at a slight discount, investors can buy Range instead before the merger, although there is a risk if the deal does fall apart.

Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends EQT. The Motley Fool has a disclosure policy.