EQT Corporation — Q1 2022 Form 10-Q
Business context and period. EQT is a natural gas-focused producer with operations primarily in the Appalachian Basin. This unaudited filing covers the three months ended March 31, 2022, compared with Q1 2021. Q1 2022 results include assets acquired in the Alta Resources transaction, which closed in July 2021.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Natural gas, NGL and oil sales | $2.487 billion | $1.131 billion |
| GAAP total operating revenues | $(579) million | $950 million |
| Net loss attributable to EQT | $(1.516) billion; $(4.05) per share | $(37) million; $(0.13) per share |
| Cash provided by operating activities | $1.021 billion | $400 million |
| Cash capital expenditures | $292 million | $251 million |
| Sales volume | 492.3 Bcfe; 5.47 Bcfe/day | 415.2 Bcfe; 4.61 Bcfe/day |
| Average realized price | $3.19/Mcfe | $2.61/Mcfe |
Revenue and earnings interpretation. GAAP operating revenue was negative mainly because EQT recorded a $3.078 billion loss on derivatives not designated as hedges. EQT marks these derivatives to fair value through operating revenue. The company also paid $886 million in net cash derivative settlements during the quarter. Its non-GAAP adjusted operating revenues, which exclude pre-settlement fair-value changes and certain other items, were $1.569 billion, up from $1.083 billion. The reported net loss also reflected a $185 million contract-asset impairment, higher operating costs and a loss from investments.
Costs and margins. Total operating expenses were $1.309 billion, compared with $941 million. Transportation and processing expense was $516 million; production expense was $71 million; SG&A was $69 million; and depreciation and depletion was $422 million. The filing does not present a comparable adjusted operating margin. GAAP profitability was substantially affected by derivative fair-value accounting.
Cash, liquidity and debt. Cash was $17 million at March 31, down from $114 million at year-end. Current assets were $3.026 billion and current liabilities $7.605 billion; derivative balances are significant components of both. Carrying debt included about $494 million of current debt, $26 million of credit-facility borrowings, $4.438 billion of senior notes and $93 million payable to EQM. EQT redeemed or repurchased all $569 million principal amount of its remaining 3.00% notes during the quarter. Its $2.5 billion credit facility matures in July 2023; approximately $425 million of letters of credit were outstanding. Management said operating cash flow and facility availability should cover requirements for at least the next 12 months. EQT reported compliance with debt covenants at quarter-end.
Material changes versus Q1 2021
- Sales volume rose 18.6%, primarily due to the Alta acquisition; physical commodity sales increased 119.9%, reflecting higher prices and volume.
- Average realized price increased to $3.19/Mcfe from $2.61/Mcfe, although cash derivative settlements and differentials reduced the benefit of stronger market prices.
- The derivative fair-value loss increased to $3.078 billion from $189 million, driving the much larger GAAP net loss and negative reported operating revenue.
- Operating cash flow increased to $1.021 billion from $400 million, mainly from higher cash operating revenues and favorable working-capital timing, partly offset by derivative settlements and higher cash costs.
- EQT recorded a $185 million impairment of its contract asset related to gathering-fee relief and a Mountain Valley Pipeline (MVP) cash-payment option.
Outlook, risks and unusual items
- 2022 guidance: Sales volume of 1,950–2,050 Bcfe and capital expenditures of approximately $1.30–$1.45 billion, excluding amounts attributable to noncontrolling interest. Spending is discretionary and may be deferred depending on prices, costs, infrastructure, capital availability and permitting.
- MVP uncertainty: EQT cited court rulings and greater uncertainty about the pipeline’s completion timing in impairing the contract asset. The asset’s fair value was reduced to $225 million. EQT may elect a $196 million cash payment under the gathering agreement by December 31, 2022, but had not exercised that option by quarter-end.
- Commodity and hedge exposure: Commodity prices, basis differentials and hedge positions can materially affect cash flows and reported earnings. EQT noted that a hypothetical 10% change in NYMEX gas prices would change the fair value of gas derivatives by roughly $763–$769 million at quarter-end, before considering the offset from physical sales.
- Collateral and credit: At March 31, EQT had $117.7 million of collateral posted for OTC derivative credit-rating provisions and $141.6 million of exchange margin deposits recorded as current assets. The company stated that as of April 22 it had sufficient unused facility capacity for permitted collateral requests of up to approximately $1.0 billion, including about $0.8 billion already posted or outstanding. Moody’s rated senior notes Ba1; S&P and Fitch rated them BBB−, all with stable outlooks.
- Other developments: EQT repurchased approximately 8.53 million shares during the quarter for about $216 million in cash-flow-statement repurchases; $771 million remained under its $1 billion authorization at quarter-end. It paid a $0.125-per-share dividend and declared the same quarterly dividend for payment in June. In April it sold its remaining Equitrans Midstream shares for approximately $189 million net proceeds.
- Management reported no material change to previously disclosed risk factors and no material updates to previously disclosed legal proceedings. Disclosure controls were assessed as effective.
Important facts for investors to verify
- How derivative settlements and future hedge positions compare with realized commodity prices and expected production.
- MVP permitting, litigation and completion developments, and whether EQT exercises the $196 million cash-payment option before its deadline.
- Progress against the 2022 sales-volume and capital-spending ranges, including any cost or infrastructure constraints.
- Available liquidity after derivative margin calls, letters of credit, debt repayments and shareholder returns.
- Convertible-note conversion activity and related potential share dilution; the notes’ conversion feature was exercisable during the first half of 2022 under the stated terms.