EQT Corporation (NYSE:EQT) continued to focus capital on the development of its Marcellus Shale properties during the first quarter of 2012, as the company ignored the industry trend towards crude oil development.

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First Quarter of 2012
EQT Corporation reported strong production growth during the quarter, with total sales volume of 54.1 Bcfe, or 594 million cubic feet of natural gas equivalents per day, up 26% on a year over year basis from the first quarter of 2011.

This production stream was dominated by output from the Marcellus Shale, where the company produced an average of 295 million cubic feet of natural gas equivalents per day during the quarter. This represented growth of 66% over the first quarter of 2011.

SEE: Natural Gas Industry: An Investment Guide

Damn the Torpedoes, Full Speed Ahead
EQT Corporation is one of the few energy companies that have not tripped over itself rushing from natural gas to crude oil plays over the last year. The company spud 40 gross wells during the most recent quarter and expects to drill about 132 Marcellus Shale wells in 2012.

EQT doesn't feel the need to shift to crude oil development, because the company's economics in the Marcellus Shale still work despite the drop in natural gas prices. The company reports an after tax return of approximately 25%, assuming a $3.00 NYMEX gas price.

Other operators have reduced drilling in the Marcellus Shale due to low natural gas prices. In January 2012, CONSOL Energy (NYSE:CNX) cut projected capital spending here in 2012 by $130 million, as the company decided to defer the drilling of 23 gross wells. The company is involved in a joint venture in the Marcellus Shale with Noble Energy (NYSE:NBL) and also operates its own acreage.

SEE: Accounting For Differences In Oil And Gas Accounting

Wet Gas
EQT Corporation is shifting development within the Marcellus Shale to wet gas areas that produce natural gas liquids along with the natural gas stream. The company estimates that 35% of its properties are in the wet gas area of the Marcellus Shale.

Goodbye to the Huron
In January 2012, EQT Corporation did suspend the company's development of the Huron play, another natural gas formation on its properties. The company took the action in response to low natural gas prices.

One company that is still developing the Huron play is Range Resources (NYSE:RRC), which reported the completion of four horizontal Huron wells during the first quarter of 2012.

SEE: Become An Oil And Futures Detective

The Bottom Line
EQT Corporation is maintaining a disciplined and long-term approach to developing the company's oil and gas properties and is not paying exorbitant prices for undeveloped acreage in crude oil and liquid plays. It might be best if other operators followed the same strategy.

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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

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