EQT Corporation — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. EQT is a natural gas producer whose results are materially affected by commodity prices and derivative contracts. Financial statements are unaudited.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Natural gas, NGL and oil sales | $1.078 billion | $498.8 million | $2.209 billion | $1.214 billion |
| Total operating revenues, including derivative fair-value changes | $(260.1) million | $527.1 million | $689.8 million | $1.634 billion |
| Operating loss | $(1.218) billion | $(386.9) million | $(1.209) billion | $(263.6) million |
| Net loss attributable to EQT | $(936.5) million | $(263.1) million | $(977.0) million | $(430.2) million |
| Loss per diluted share | $(3.35) | $(1.03) | $(3.50) | $(1.68) |
| Net cash from operating activities | Not separately provided for the quarter | $443.4 million | $947.1 million |
Q2 reported operating revenue was negative because EQT recorded a $1.346 billion loss on derivatives not designated as hedges, primarily reflecting higher forward natural gas prices. These fair-value changes are recognized in revenue before settlement; therefore, the reported operating margin is not a useful standalone indicator for the quarter. On a non-GAAP basis that excludes pre-settlement derivative fair-value changes and net marketing services, adjusted operating revenue was $996.9 million in Q2 versus $816.2 million; for the first half it was $2.080 billion versus $1.774 billion. EQT reported average realized prices of $2.37/Mcfe in Q2 and $2.49/Mcfe for the first half.
Balance sheet, liquidity and operations
- At June 30, cash was $330.8 million, up from $18.2 million at year-end 2020. Current assets were $2.169 billion and current liabilities were $3.679 billion.
- Balance-sheet debt components included $399.7 million of current debt, $5.000 billion of senior notes and $97.1 million payable to EQM; credit-facility borrowings were zero. The $2.5 billion credit facility had $670 million of letters of credit outstanding.
- Operating cash flow for the first half fell to $443.4 million from $947.1 million, mainly due to lower derivative cash settlements received and working-capital timing, including higher collateral and margin deposits. Investing cash use was $674.9 million, including $470.3 million of capital expenditures and $209.8 million for acquisitions.
- Sales volume rose 21.7% in Q2 to 420.6 Bcfe and 14.4% in the first half to 835.8 Bcfe. Management attributed growth principally to the Chevron assets and the prior-year production curtailments.
- Transportation and processing expense was $464.0 million in Q2, up from $405.6 million; depreciation and depletion rose to $380.3 million from $323.1 million. Higher volume, acquired capacity and increased processing contributed to expense growth.
Material changes, outlook and risks
- On July 21, 2021, after quarter-end, EQT completed the Alta acquisition for approximately $1.0 billion cash and 98.8 million shares, subject to customary adjustments. Acquired assets included approximately 300,000 net acres, 1.0 Bcfe/day of current production, gathering and freshwater systems, and firm transportation capacity. The filing’s 2021 outlook includes Alta.
- Management expected 2021 capital expenditures of $1.10–$1.175 billion and sales volume of 1,800–1,875 Bcfe. It believed operating cash flow and credit-facility availability would meet requirements for at least the next 12 months, while cautioning that this was not assured.
- The credit facility maturity was extended to July 2023. EQT issued $500 million of 3.125% notes due 2026 and $500 million of 3.625% notes due 2031; proceeds partly funded Alta. The company also redeemed its remaining $125.1 million of 4.875% notes.
- Commodity-price volatility is a central risk. Derivative liabilities were $2.160 billion gross at June 30, and credit-rating or market movements can increase collateral needs. EQT’s notes were rated Ba2/BB in the derivative disclosure; subsequent ratings reported as of July 27 were Ba1 (stable) by Moody’s, BB+ (positive) by S&P and BB+ (stable) by Fitch. The filing says EQT was compliant with debt covenants at quarter-end.
- Management expected gathering-fee relief under its consolidated gathering agreement beginning when the Mountain Valley Pipeline enters service; timing of that benefit is uncertain. The filing cites ordinary-course legal and regulatory matters but says their ultimate outcomes are not expected to materially affect financial condition, results or liquidity. No material risk-factor changes were reported.
Important facts for investors to verify
- How much of reported losses and revenue volatility reflects unsettled derivative fair-value changes versus realized cash settlements, and how hedges affect future production revenue.
- Post-acquisition Alta production, costs, financing, share dilution and integration results compared with the assumptions in 2021 guidance.
- Cash flow, working-capital and collateral requirements as commodity prices and derivative positions change; confirm usable credit-facility capacity after letters of credit and other obligations.
- Mountain Valley Pipeline timing and the resulting gathering-rate relief, as well as any related contingent payments under the EQM agreement.
- Whether actual 2021 capital expenditures and sales volumes align with management’s stated ranges, and whether legal, regulatory or other contingencies materially change.