EQT Corporation — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Amounts below are in millions unless stated otherwise. EQT is a natural gas, NGL and oil producer operating primarily in the Appalachian Basin.
Financial results and key metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Commodity sales | $1,784 | $599 | $3,993 | $1,813 |
| GAAP operating revenue | $(1,465) | $172 | $(775) | $1,806 |
| Loss on non-hedge derivatives | $(3,257) | $(427) | $(4,792) | $(11) |
| Net loss attributable to EQT | $(1,980) | $(601) | $(2,957) | $(1,031) |
| Diluted loss per share | $(5.55) | $(2.35) | $(9.70) | $(4.03) |
| Cash from operating activities | Not separately presented for Q3 | $492 | $1,132 | |
| Cash capital expenditures | $237 | $276 | $707 | $788 |
GAAP operating revenue and losses were dominated by changes in fair value of derivatives, which EQT does not designate as accounting hedges. For supplemental analysis, EQT reported non-GAAP adjusted operating revenue of $1,155 million in Q3 and $3,235 million for the nine months, including cash settlements on derivatives. Average realized price was $2.33/Mcfe in Q3, unchanged year over year, and $2.43/Mcfe for nine months versus $2.39/Mcfe.
Q3 sales volume was 495 Bcfe, up 35.2%; nine-month volume was 1,331 Bcfe, up 21.3%. Management attributed much of the increase to the Alta and Chevron acquisitions and comparison with 2020 production curtailments. Higher commodity sales were offset in reported results by derivative losses and higher transportation, depletion and other expenses.
Balance sheet, debt and liquidity
- At September 30, 2021, cash was $23 million, current assets $3,341 million and current liabilities $7,228 million. Current liabilities included $5,716 million of derivative liabilities; the filing reports $1,428 million of derivative assets.
- Debt carrying amounts totaled approximately $6.19 billion: $12 million current debt, $704 million credit-facility borrowings, $5,377 million senior notes and $96 million payable to EQM. This compares with approximately $4.93 billion at December 31, 2020.
- The $2.5 billion credit facility had a July 2023 maturity after an extension. At quarter-end, borrowings were $704 million and letters of credit were approximately $553 million. EQT stated it was in compliance with debt covenants, including the maximum 65% debt-to-total-capitalization ratio.
- Operating cash flow fell to $492 million for nine months, primarily due to derivative cash settlements, collateral and margin needs, working-capital timing and prior-year tax refunds. Investing cash outflow was $1,715 million, including $1,022 million for acquisitions. Financing cash inflow was $1,228 million.
Material changes and transactions
- EQT completed the Alta acquisition on July 21, 2021 for approximately $1.0 billion cash and 98.8 million shares valued at $1.925 billion. Acquired assets included about 300,000 net Marcellus acres, 1.0 Bcfe/day of production and midstream infrastructure. The preliminary purchase-price allocation was subject to revision. Alta contributed $251 million of commodity sales and a $130 million net loss from acquisition through September 30, including derivative effects.
- The acquisition and related financing contributed to higher debt and a substantial increase in shares outstanding. EQT issued $1 billion of senior notes in May 2021, with maturities in 2026 and 2031.
- For the first nine months, sales of natural gas, NGLs and oil rose 120%, while reported total operating revenue turned negative because derivative fair-value losses rose sharply. Cash derivative settlements were also negative: $620 million in Q3 and $729 million for nine months.
- Operating expenses increased in several categories, including production taxes, processing and depletion; acquisition-related transaction costs contributed to higher other operating expenses. Depletion per Mcfe declined as the annual depletion rate fell.
Outlook, risks and contingencies
- For 2021, management expected total capital expenditures of approximately $1.075–$1.125 billion and sales volume of 1,840–1,870 Bcfe. It believed operating cash flow and credit-facility availability would be sufficient for expected needs, while noting this was not assured.
- Management planned to sell its remaining retained Equitrans Midstream shares and use proceeds to reduce debt. As of October 22, EQT reported about $0.4 billion of margin balances and approximately $1.1 billion of potential collateral assurances, including amounts already posted; amendments with six major hedge counterparties reduced margin requirements.
- Commodity prices are a central risk. Rising prices can increase derivative liabilities, margin calls, production taxes and operating costs; existing hedges may also limit participation in price increases. A hypothetical 10% gas-price move was estimated to change derivative fair value by roughly $836–$838 million at September 30, before offsetting physical-sale effects.
- Credit ratings were below investment grade: Moody’s Ba1, S&P BB+ and Fitch BB+ as of October 22. Rating changes may affect borrowing costs, market access and collateral obligations. Senior notes had approximately $6.4 billion fair value versus $5.4 billion carrying value at quarter-end.
- EQT disclosed ordinary-course legal and regulatory matters and stated it did not expect currently pending matters to materially affect its financial condition, results or liquidity. A West Virginia air-permit matter was resolved with a $549,575 penalty. An arbitration ruling on the Hammerhead gathering agreement found force majeure excused delay; EQT was not entitled to terminate, and the $6 million monthly reservation fee was not due until the in-service date.
- Disclosure controls were assessed as effective. EQT was integrating Alta into internal financial controls; no material control change was reported. The filing reported no material changes to previously disclosed risk factors.
Key facts investors should verify
- How derivative positions, settlements and collateral requirements affect cash flow and liquidity as commodity prices move; distinguish GAAP fair-value losses from realized cash settlements.
- Alta’s final purchase-price allocation, post-acquisition operating contribution and integration results, including production and cost synergies.
- Progress toward 2021 production and capital-spending guidance, and whether operating cash flow covers capital needs and debt service.
- Debt reduction plans, refinancing needs, credit ratings, covenant headroom and the amount and timing of any Equitrans Midstream share sales.
- Developments in margin arrangements, hedge exposure and legal or regulatory matters, including the Hammerhead agreement and Mountain Valley Pipeline timing.