EQT Corporation — Q3 2023 Form 10-Q
Business context and period. EQT is an Appalachian natural gas producer. This unaudited report covers the three and nine months ended September 30, 2023; comparisons are with the corresponding 2022 periods. Results include about one month of operations from the Tug Hill and XcL Midstream assets, acquired August 22, 2023.
Financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| GAAP operating revenue | $1.186bn | $2.069bn | $4.866bn | $4.018bn |
| Operating income | $15.8m | $924.6m | $1.592bn | $398.2m |
| Net income attributable to EQT | $81.3m | $683.7m | $1.233bn | $59.0m |
| Diluted EPS | $0.20 | $1.69 | $3.08 | $0.16 |
| Operating cash flow | Not separately reported for the quarter | $2.554bn | $2.402bn |
Revenue quality and production. GAAP revenue includes unrealized derivative fair-value changes. Q3 included a $177.9m derivative gain, compared with a $1.627bn loss in Q3 2022; nine-month results included a $1.167bn gain versus a $5.550bn loss. Sales of natural gas, NGLs and oil were $1.002bn in Q3, down 72.9%, and $3.681bn for nine months, down 61.4%. EQT’s non-GAAP adjusted operating revenue, which reflects cash-settled derivatives but excludes pre-settlement fair-value changes and other revenue, was $1.192bn in Q3 and $4.073bn for nine months.
Q3 sales volume rose 7.2% to 522.7 Bcfe, while nine-month volume fell 2.0% to 1,452.3 Bcfe. Average realized price was $2.28/Mcfe in Q3 versus $3.41, and $2.80/Mcfe for nine months versus $3.27. The quarter’s increased volumes reflected acquired production and wells brought online; lower commodity prices drove the decline in sales revenue.
Cash, investment and debt. Nine-month operating cash flow was $2.554bn. Cash capital expenditures were $1.486bn; operating cash flow less cash capital expenditures was approximately $1.069bn, before acquisition spending and other uses. Investing activities used $3.774bn, including $2.288bn of acquisition cash payments. Financing activities used $174m. Cash fell to $64.8m at September 30 from $1.459bn at year-end 2022.
Total debt carrying value was $5.916bn, up from $5.679bn at December 31, 2022. This included a $1.25bn Term Loan Facility drawn in August, bearing a 7.0% weighted-average rate through September 30 and due June 2025. EQT also repaid or retired $1.0bn principal of senior notes during the first nine months. A $2.5bn revolving credit facility matures in June 2027. The company reported compliance with debt covenants; its maximum debt-to-total-capitalization covenant is 65%. Cash and current assets were $1.247bn against current liabilities of $2.119bn.
Material changes and notable items
- Acquisition: EQT paid approximately $2.4bn cash and issued 49.6m shares for the Tug Hill and XcL Midstream assets. The acquired assets include about 90,000 West Virginia net acres, current net production of approximately 800 MMcfe/day, gathering and processing assets, and water infrastructure. Preliminary purchase-price allocation remains subject to completion. From closing through September 30, the acquired assets contributed $58.7m revenue and a $26.6m net loss.
- Profit comparison: Q3 net income fell sharply year over year, principally because commodity sales revenue was much lower, despite the swing from derivative loss to gain and a tax benefit. Nine-month net income rose substantially, primarily reflecting the derivative gain versus the prior-year loss and 2022 contract-asset impairment and debt-extinguishment loss.
- Tax benefit: Q3 included a $126.9m income tax benefit, including a $101m benefit from releasing a valuation allowance on certain state net operating loss deferred tax assets. Nine-month effective tax rate was 15.0%.
- Mountain Valley Pipeline-related item: Following 2023 legislation concerning the pipeline’s permits, EQT reassessed the Henry Hub Cash Bonus and recorded a derivative liability with a fair value of approximately $54.4m at September 30.
- Shareholder returns: EQT paid $162.6m in dividends and repurchased $201.0m of stock during the first nine months. The board declared a $0.1575-per-share dividend payable December 1, 2023. The repurchase authorization had approximately $1.4bn remaining at September 30 and was extended through December 31, 2024.
Outlook, risks and management commentary
For Q4 2023, management expected capital expenditures of approximately $525m–$575m and sales volume of 525–575 Bcfe. It said operating cash flows and revolving-credit availability should be sufficient for anticipated requirements for at least the next twelve months, while noting this is not assured. Planned capital spending may be deferred depending on commodity prices, costs, equipment and infrastructure availability, and regulatory approvals.
Management reported Q3 production had returned to maintenance levels after all Rescheduled Wells were completed and turned to sales by July; however, Q3 volume was reduced by approximately 13 Bcfe of curtailments, principally in response to low Appalachian gas prices. Commodity-price volatility, inflation and contract-linked cost increases, supply-chain or non-operated-well delays, regulatory and permitting uncertainty, operational and cyber risks, and dependence on Appalachian infrastructure and third-party midstream services remain relevant risks. EQT emphasized that lower prices can adversely affect revenue, liquidity and development plans; hedges also limit some upside when market prices rise. The filing reported no material changes to previously disclosed risk factors or legal proceedings. Credit ratings were investment grade with stable outlooks at Moody’s, S&P and Fitch; ratings changes could affect borrowing costs, collateral and market access.
Important facts for investors to verify
- How much reported earnings and revenue reflect derivative fair-value movements versus realized commodity sales and cash settlements.
- The durability of production, realized prices and cash flow, including the impact of curtailments and the acquired assets’ operating results.
- Acquisition integration, final purchase-price allocation, and whether anticipated operating and cost benefits materialize.
- Liquidity and debt trajectory after acquisition spending, including Term Loan repayment plans, refinancing needs and covenant headroom.
- Q4 delivery against management’s stated production and capital-spending ranges, and the timing and financial implications of the Mountain Valley Pipeline-related cash bonus.
- Exposure to hedge settlements, commodity-price changes, margin requirements, inflation, legal contingencies and regulatory developments.