EQT Corporation — Q2 2023 Form 10-Q
Business context and reporting period: EQT is a natural gas, natural gas liquids (NGLs) and oil producer operating primarily in the Appalachian Basin. This unaudited filing covers the quarter and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods. Dollar figures below are in U.S. dollars.
Key financial metrics
| Metric | Q2 2023 | Six months 2023 |
|---|---|---|
| Operating revenues | $1.019 billion | $3.680 billion |
| Operating income (loss) | ($35.0 million) | $1.576 billion |
| Net income (loss) attributable to EQT | ($66.6 million) | $1.152 billion |
| Diluted EPS attributable to EQT | ($0.18) | $2.94 |
| Net cash provided by operating activities | Not provided for the quarter | $2.100 billion |
| Cash capital expenditures | $487 million | $982 million |
| Average realized price | $2.11/Mcfe | $3.10/Mcfe |
At June 30, cash and cash equivalents were $1.215 billion, total debt carrying value was $4.672 billion, and working capital was approximately $243 million. EQT had no credit-facility borrowings and approximately $25 million of letters of credit outstanding; its revolving credit facility is $2.5 billion. The company repaid or retired $1.0 billion principal amount of notes during the first half.
Material changes versus the prior comparable periods
- Second-quarter loss versus prior-year profit: EQT reported a $66.6 million attributable net loss, compared with $891.4 million of income in Q2 2022. Commodity sales revenue fell 74.8% to $848.3 million, reflecting lower prices and 6.1% lower sales volume. A $164.4 million derivative gain, versus an $845.1 million loss a year earlier, partly offset the decline.
- First-half profit versus prior-year loss: Attributable net income was $1.152 billion, versus a $624.7 million loss in the first half of 2022. The swing primarily reflects derivative results: a $989.2 million gain in 2023 versus a $3.923 billion loss in 2022, as well as the prior-year contract-asset impairment. The 2023 gain largely reflects changes in derivative fair value and should not be read as cash revenue.
- Underlying sales and realized prices weakened: First-half sales volume declined 6.5% to 929.6 Bcfe. Average realized price was $3.10/Mcfe, compared with $3.20/Mcfe in 2022; Q2 realized price fell to $2.11/Mcfe from $3.21/Mcfe.
- Cash generation and uses: First-half operating cash flow increased to $2.100 billion from $1.252 billion, helped by derivative cash settlements and working-capital movements, including lower receivables and margin postings. Investing cash use rose to $984 million, principally due to higher capital spending. Financing cash use was $1.359 billion, mainly for debt retirement, share repurchases and dividends.
Outlook, management commentary, risks and unusual items
- 2023 expectations: EQT expects capital expenditures of approximately $1.7–$1.9 billion and sales volume of 1,900–2,000 Bcfe, excluding the pending Tug Hill and XcL Midstream acquisition assets. Management believes operating cash flow and available credit should cover requirements for at least the next 12 months, while noting this is not assured.
- Acquisition and infrastructure: The Tug Hill and XcL Midstream acquisition remained pending regulatory approvals. Its assets were described as producing approximately 800 MMcfe per day, about 20% liquids. The company extended related $1.25 billion term-loan commitments through December 29, 2023; they remained undrawn. After June 30, legislation addressed permits for the Mountain Valley Pipeline. EQT consequently recognized a $62.1 million fair-value liability for a related Henry Hub cash bonus.
- Operating and market risks: Management cited natural well decline, 2022 supply-chain constraints, delayed non-operated wells and lower-than-expected liquids volumes due to an ethane cracker outage as factors affecting volumes. Inflation, future supply-chain constraints, commodity-price volatility, permitting, Appalachian Basin concentration and reliance on Equitrans Midstream services are also risks. The company hedges natural gas and NGL exposure; changes in derivative fair value can materially affect reported earnings, and hedging may limit benefit from rising prices.
- Debt, ratings and contingencies: EQT reported compliance with debt covenants. Ratings as of July 21 were Ba1/Positive at Moody’s and BBB-/Stable at S&P and Fitch. Legal and regulatory matters were described as not expected to materially affect financial position, results or liquidity. Two Pennsylvania environmental matters were resolved with agreed payments of $4.7 million and $4.0 million; the latter includes $2.5 million to be paid toward approved community environmental projects.
- Capital returns: First-half dividends were $0.30 per share and share repurchases totaled approximately $201 million. The board declared a further $0.15-per-share dividend, payable September 1, 2023. The $2 billion repurchase authorization was extended through December 31, 2024; approximately $1.4 billion remained available at June 30.
Important facts for investors to verify
- How much of first-half earnings and operating cash flow reflects derivative fair-value movements, cash settlements and working-capital changes, rather than underlying production economics.
- Whether volumes and realized prices recover, and whether the 2023 production and capital-spending expectations remain achievable amid operational, supply-chain and commodity-price risks.
- The status, timing, regulatory conditions and financing implications of the Tug Hill and XcL Midstream acquisition, and the Mountain Valley Pipeline schedule and related cash-bonus exposure.
- Debt reduction plans, convertible-note conversion or settlement effects, liquidity available after collateral requirements, and the company’s ability to sustain dividends and repurchases.
- Future derivative positions and margin requirements, plus developments in environmental remediation, legal proceedings and regulatory obligations.