EQT Corp. (NYSE: EQT) said June 29 it will sell its noncore Huron position in Southern Appalachia for $575 million cash in a move that will relieve the Pittsburgh-based company of millions of dollars’ worth of plugging and other liabilities.

The buyer, Diversified Gas & Oil Plc (DGO), had announced the transaction earlier this month saying June 14 that it signed a non-binding letter of intent to acquire the assets from an undisclosed seller. DGO also agreed to assume roughly $200 million worth of plugging and other liabilities associated with the assets, which brings the total transaction value to $775 million.

The assets comprise a 92% net revenue interest in roughly 2.5 million net acres in Kentucky, Virginia and southern West Virginia with 1.6 Tcfe total net proved developed reserves. The acreage also includes about 12,000 wells with current net production of roughly 200 MMcfe/d.

EQT will retain the deep drilling rights across the acreage while eliminating the plugging and other liabilities associated with the assets.

Analysts with Tudor, Pickering, Holt & Co. (TPH) said EQT’s Huron sale is a positive and will likely provide a bump to the company’s corporate margins.

“Given that EQT has invested little to no capital in the asset over the past several years given the challenged commodity price environment, we view the sale as a positive and expect corporate-wide margins to increase when management provides updated guidance on the second-quarter call,” TPH analysts said in a June 29 note. “Proceeds will be used to improve the balance sheet but depending on standalone upstream leverage following the midstream separation, we wouldn’t be surprised to see an accelerated shareholder return program.”

DGO is a Birmingham, Ala.-based company traded on the London stock exchange that targets conventional legacy Appalachian wells to increase production and lower overhead, Rusty Hutson Jr., the company’s founder and CEO, told Hart Energy earlier this year.

“Our model is a contrarian model,” Hutson said. “We’re looking at assets no one else is looking at.”

Diversified Gas & Oil Recent Acquisitions (Source: DGO)

In total, DGO holds a position of 4 million HBP acres in the Appalachian Basin with current proven developed producing reserves of 163 million boe.

Upon completion of its proposed acquisition, DGO expects its total net acreage under lease in the Appalachian Basin to increase to 6.5 million acres. The company’s proven developed producing reserves will also increase by 142% to 393 million boe.

Additionally, DGO will acquire a significant extension to the company’s existing pipelines and network of compression stations from EQT. The deal includes 6,400 miles of low-pressure gathering lines and 59 compression stations.

The transaction also includes eight EQT field locations, as well as the transfer of about 250 employees who work in or support production, pipeline, compression, and measurement operations.

DGO plans to fund the acquisition using a $1 billion debt facility, of which the company said it will draw roughly $376 million of the $600 million borrowing base for the deal. In addition, DGO proposes to raise up to $225 million from a placement of new ordinary shares.

The company also expects the acquisition to be immediately earnings accretive with a pro forma uplift in 2017 EBITDA of about 289%, according to a DGO press release on June 14.

EQT said the transaction is subject to customary closing conditions and is expected to close in late July.

Emily Patsy can be reached at epatsy@hartenergy.com.