EQT Corporation — Q1 2023 Form 10-Q
Business context and period. EQT is an Appalachian Basin natural gas producer. This unaudited report covers the three months ended March 31, 2023, compared with the first quarter of 2022; balance-sheet figures are compared with December 31, 2022. Unless noted otherwise, financial amounts below are in millions of dollars.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Natural gas, NGL and oil sales | $1,830 | $2,487; down 26.4% |
| Derivative gain (loss) | $825 | $(3,078) |
| Total operating revenues | $2,661 | $(579) |
| Operating income (loss) | $1,611 | $(1,888) |
| Net income (loss) attributable to EQT | $1,219 | $(1,516) |
| Diluted earnings (loss) per share | $3.10 | $(4.05) |
| Operating cash flow | $1,663 | $1,021 |
| Cash capital expenditures | $495 | $292 |
Total operating revenue and earnings were strongly affected by unrealized derivative fair-value changes recognized in revenue. EQT’s non-GAAP adjusted operating revenues, which include cash derivative settlements but exclude pre-settlement fair-value changes and net marketing revenue, were $1,888 million versus $1,569 million. Average realized price was $4.11/Mcfe versus $3.19/Mcfe, while sales volume fell 6.8% to 458,805 MMcfe. A simple operating-cash-flow-less-cash-capex measure was approximately $1,168 million; this is not a company-defined free-cash-flow measure.
At March 31, cash was $2,127 million, compared with $1,459 million at year-end. Total debt carrying value was $5,472 million, including $413 million current debt; cash less total debt was approximately $(3,345) million. The $2.5 billion revolving credit facility had no borrowings and approximately $25 million of letters of credit outstanding. The separate $1.25 billion term-loan commitment was undrawn. EQT reported compliance with debt covenants.
Changes versus the prior-year quarter
- Net income swung to $1,219 million from a $1,516 million loss, primarily reflecting the derivative result reversal and the absence of the prior-year $185 million contract-asset impairment. Lower commodity sales and higher income-tax expense partly offset these effects.
- Production sales volume decreased 6.8%, primarily due to natural decline and fewer wells brought online after 2022 supply-chain constraints. Lower natural gas and liquids prices contributed to the decline in commodity sales revenue.
- Operating cash flow increased by $642 million, driven mainly by derivative cash settlements (receipts of $157 million versus payments of $886 million), favorable working-capital changes and lower cash operating expenses; lower cash operating revenue was a partial offset.
- Cash capital expenditures rose to $495 million from $292 million, largely reflecting higher reserve-development spending. Debt carrying value declined from $5,679 million to $5,472 million.
Outlook, risks and unusual items
- 2023 outlook: Management expected sales volume of 1,900–2,000 Bcfe and capital expenditures of $1.7–$1.9 billion, excluding the pending Tug Hill and XcL Midstream acquisition. It expected elevated capital spending while completing roughly 30 wells rescheduled from 2022, with those wells projected to be online in the first half of 2023. Plans could change with prices, supply availability, costs and permits.
- Acquisition and financing: The Tug Hill upstream and XcL Midstream acquisition remained pending regulatory approvals. On April 25, 2023, EQT extended the undrawn term-loan commitments to December 29, 2023. These are post-quarter developments.
- Shareholder returns and debt: EQT repurchased $201 million of stock and paid $54 million in dividends in the quarter. The board declared a further $0.15-per-share dividend payable June 1, 2023. EQT repurchased or redeemed $200 million principal of notes for total cost of approximately $195 million. The company extended its share-repurchase program through December 31, 2024, as announced after quarter-end.
- Commodity and operating risks: Management highlighted continued natural-gas price volatility, inflation, third-party supply-chain constraints, and potential effects on drilling, costs, volumes and liquidity. EQT is concentrated in the Appalachian Basin and relies substantially on third-party midstream services. Hedging limits some price exposure but can also limit benefit from rising prices and may require collateral.
- Derivatives and credit: Derivative fair values are recognized in earnings rather than designated as cash-flow hedges, which can make reported revenue and earnings volatile. At March 31, gross current derivative assets were $978 million and liabilities $805 million; netting and margin arrangements affect the net exposure. Credit ratings were Ba1/positive at Moody’s and BBB-/stable at S&P and Fitch.
- Contingencies and prior-period item: EQT reported negotiations with Pennsylvania regulators concerning GPU consent-order inaccuracies, a produced-water release and plugging-report requirements. It expected payments exceeding $300,000 for each matter but anticipated no material financial impact; settlements were not assured. The Mountain Valley Pipeline-related contract asset was fully impaired by year-end 2022 after $185 million of impairment in Q1 2022 and further impairment in Q4 2022.
- Management said disclosure controls were effective and reported no material changes in internal control over financial reporting. It reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- How much Q1 earnings and revenue reflect derivative fair-value gains versus cash settlements and underlying commodity sales; review the company’s non-GAAP reconciliation alongside GAAP results.
- Whether the rescheduled wells were completed as planned, and how supply constraints, production volumes and 2023 capital spending evolved.
- Whether the Tug Hill and XcL Midstream acquisition closed, its financing and purchase economics, and any resulting changes to guidance, debt or production.
- Subsequent debt repayments, share repurchases and dividends, and the company’s liquidity and collateral needs under changing commodity prices and credit ratings.
- Outcomes and costs of the Pennsylvania environmental and regulatory matters, and any developments affecting the Mountain Valley Pipeline or related midstream arrangements.