EQT Corporation — Q1 2024 Form 10-Q
Business context and reporting period. EQT is a natural gas-focused producer with related gathering and processing operations. This unaudited report covers the three months ended March 31, 2024, compared with the same period in 2023. Results include assets acquired in the Tug Hill and XcL Midstream transaction, completed in August 2023.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change / context |
|---|---|---|---|
| Total operating revenues | $1.412 billion | $2.661 billion | Down 46.9%; lower commodity sales and derivative gains |
| Sales of natural gas, NGLs and oil | $1.304 billion | $1.830 billion | Down 28.8% |
| Gain on derivatives | $106.5 million | $824.9 million | Down $718.3 million |
| Operating income | $182.7 million | $1.611 billion | Operating margin: 12.9% vs. 60.5% (calculated from reported figures) |
| Net income attributable to EQT | $103.5 million | $1.219 billion | Diluted EPS: $0.23 vs. $3.10 |
| Net cash provided by operating activities | $1.156 billion | $1.663 billion | Down $507.1 million |
| Cash capital expenditures | $534 million | $495 million | Investing cash outflow totaled $567 million |
| Cash and cash equivalents | $648 million | $81 million at Dec. 31, 2023 | Quarter-end balance |
| Total debt, carrying value | $5.505 billion | $5.795 billion at Dec. 31, 2023 | Current portion was $607 million |
Total sales volume increased 16.4% to 534.1 Bcfe, while average realized price, including cash-settled derivatives, fell to $3.22/Mcfe from $4.11/Mcfe. Cash derivative settlements received were $451 million, versus $157 million. The filing does not provide a separate EBITDA figure.
At March 31, EQT had a $2.5 billion revolving credit facility and approximately $15 million of letters of credit outstanding. The filing reports no quarter-end revolver borrowings. EQT stated it was in compliance with debt covenants, including a maximum 65% debt-to-total-capitalization covenant.
Material changes and drivers
- Lower natural gas prices and East Coast basis spreads reduced average realized price; higher NGL prices and favorable cash-settled NYMEX hedges partly offset the decline.
- Sales volume rose primarily from the Tug Hill and XcL assets and new wells, partly offset by a 28 Bcfe strategic production curtailment.
- Operating expenses increased to $1.230 billion from $1.050 billion. Production expense, depreciation and depletion, and SG&A rose; acquired assets contributed to several increases. Gathering expense per Mcfe declined with the acquired lower-cost gathering structure.
- Operating cash flow declined due mainly to lower cash operating revenues, working-capital timing and higher operating expenses, partly offset by higher derivative settlements.
- In January, EQT issued $750 million of 5.75% notes due 2034 and used the proceeds and cash on hand to prepay $750 million of term loans. The term loan maturity was extended to June 2026. Convertible notes were converted primarily into approximately 20.0 million shares; EQT also received $93.3 million from termination of related capped calls.
Outlook, risks and contingencies
- EQT curtailed approximately 1.0 Bcf/d of gross production beginning February 24 in response to low prices and elevated storage. It expected to maintain the curtailment through May and reassess market conditions. Management estimated total Q1 sales-volume impact from company and non-operated curtailments at approximately 30–35 Bcfe.
- For Q2 2024, EQT expected capital expenditures of $545–$620 million and sales volume of 455–505 Bcfe, including expected curtailments and excluding the NEPA divestiture effects. Management said operating cash flow and revolver availability should cover expected needs for at least the next 12 months, subject to stated uncertainties.
- Commodity-price volatility, inflation, operating and infrastructure constraints, and the timing of Mountain Valley Pipeline service may affect revenue, costs, volumes and the Henry Hub Cash Bonus. Ratings at quarter-end were Moody’s Baa3 (negative outlook), S&P BBB− (negative) and Fitch BBB− (stable).
- The proposed Equitrans Midstream merger, announced March 10, is expected to close in Q4 2024, subject to shareholder, regulatory and other conditions, including Mountain Valley Pipeline authorization. Equitrans shareholders would receive 0.3504 EQT shares per share; expected ownership after closing is approximately 74% for existing EQT shareholders and 26% for Equitrans shareholders. Termination fees may be payable in specified circumstances. Integration, transaction costs, delays and failure to realize anticipated benefits are disclosed risks.
- After quarter-end, EQT completed the purchase of an additional 33.75% interest in the NEPA Gathering System for approximately $205 million. It also agreed to sell a 40% interest in certain non-operated Northeast Pennsylvania assets in exchange for $500 million cash, operated upstream assets and the remaining 16.25% gathering-system interest. The transaction was expected to close in Q2, subject to approvals; an associated gas buy-back agreement would run through Q1 2028.
- Legal and regulatory matters are pending in the ordinary course; EQT reported no material updates to previously disclosed matters and did not anticipate other pending proceedings would materially affect its financial position, results or liquidity.
Important facts for investors to verify
- Whether natural gas prices, basis differentials and derivative settlements support realized pricing and cash flow as production curtailments are reassessed.
- Delivery of Q2 sales-volume and capital-spending expectations, and any changes to development plans or operating costs.
- Progress, approvals, closing conditions, transaction costs and expected financing or integration effects of the Equitrans Midstream merger.
- Closing and realized terms of the NEPA transactions, including the cash, asset and gathering-system interests exchanged.
- Debt levels, credit ratings, covenant compliance, liquidity and potential collateral or margin requirements under commodity hedges.