North Carolina-based investment firm Chapter IV has urged EQT Corp (EQT) to explore a merger with either Antero Resources (AR) or Range Resources (RRC), arguing in a letter published Tuesday that the energy company should lead "much needed" consolidation in the Appalachian Basin. Weighing in on the event, research firm RBC said it expects the letter to drive new conversation on the topic, adding that it expects "some" consolidation over time.

INVESTOR URGES MERGER EXPLORATION: Chapter IV, identifying itself as a six-year shareholder of EQT, published a letter delivered to EQT Corp's board on December 28, arguing that the energy company should explore a stock-for-stock merger with either Antero Resources or Range Resources. Explaining its call, the firm wrote, "We strongly believe that EQT has a phenomenal opportunity to lead much needed, large-scale consolidation in the Appalachian Basin, and the timing is right for EQT to explore that opportunity in 2017." Chapter IV said either transaction "would unlock a multi-billion dollar value creation opportunity" and "provide cash flow stability and funding to accelerate its high-return E&P business," while emphasizing that it isn't advocating for one of the proposed merger partners over the other.

RANGE SAYS WOULD EVALUATE MERGER APPROACH: In response to the news, Range Resources issued a statement, saying "it has not been contacted by EQT Corp regarding a potential merger of the two companies nor does Range plan to initiate any such discussions. If EQT or any other entity were to contact Range regarding a potential transaction, Range's board will evaluate any such potential transaction considering the best interests of its stockholders."

RBC EXPECTS SOME CONSOLIDATION: Weighing in on the event, RBC analyst Scott Hanold said he expects Chapter IV's letter to "spur some conversations on the merits of consolidation" in the area. The Marcellus and liquid-heavy Utica formations "are at a maturation point where consolidation can make sense," but Hanold conceded that the value of dry-gas Utica can be debated, making certain combinations "a bit more challenging." That said, the analyst expects "some" consolidation "over time" as natural gas prices stabilize higher, which he says could occur over the next 12-18 months. Hanold kept an Outperform rating and $88 target on EQT Corp.

PRICE ACTION: Shares of EQT are down nearly 4% to $62.88 in afternoon trading, while EQT Midstream Partners (EQM) is down 0.35%. Antero and Range are down 1.4% and 6.9%, respectively.