EQT Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; the supplied text does not provide standalone fourth-quarter results. EQT is a natural gas producer focused on the Marcellus and Utica Shales, with substantially all operations in the Appalachian Basin.
Financial and operating performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| GAAP operating revenues | $3.065 billion | $3.059 billion |
| Natural gas, NGL and oil sales, before derivative mark-to-market | $6.804 billion | $2.650 billion |
| Loss (gain) on derivatives not designated as hedges | $(3.775) billion | $0.400 billion |
| Net loss attributable to EQT | $(1.156) billion; $(3.58) per diluted share | $(0.967) billion; $(3.71) per diluted share |
| Cash from operating activities | $1.662 billion | $1.538 billion |
| Cash capital expenditures | $1.055 billion | $1.042 billion |
| Sales volume | 1,858 Bcfe; 5.09 Bcfe/day | 1,498 Bcfe; 4.09 Bcfe/day |
| Average realized price, including cash-settled derivatives | $2.50/Mcfe | $2.37/Mcfe |
- GAAP revenue was nearly flat despite higher commodity sales: the large 2021 derivative loss offset much of the increase. EQT paid $2.091 billion in net cash settlements on non-hedge-designated derivatives in 2021, versus receiving $897 million in 2020. The filing’s non-GAAP adjusted operating revenues, which include settled derivative effects but exclude pre-settlement fair-value changes and marketing revenue, were $4.645 billion versus $3.549 billion.
- Operating loss was $1.361 billion, compared with $878 million in 2020. Operating expenses included $1.677 billion of depreciation and depletion and $312 million of lease impairment and expiration charges. Gathering and transmission costs per Mcfe declined by $0.05 and $0.06, respectively; production taxes rose with prices and acquired wells.
- Net cash used in investing activities was $2.073 billion, including acquisition spending; net cash provided by financing activities was $506 million. Cash and cash equivalents were $114 million at year-end.
- Year-end debt was $5.643 billion principal value ($5.485 billion carrying value), versus $5.098 billion principal value at year-end 2020. Current debt carrying value was $955 million. The $2.5 billion credit facility had no borrowings outstanding at year-end, with $440 million of letters of credit outstanding. EQT reported compliance with debt covenants.
- Proved reserves increased 26% to 24.962 Tcfe. The standardized measure of discounted future net cash flows was $17.281 billion, up from $3.366 billion, using SEC-prescribed pricing and assumptions; the filing cautions this is not market value.
Material changes and notable items
- The July 2021 Alta Acquisition added upstream and midstream assets for approximately $2.925 billion in total consideration: $1.0 billion cash and 98.8 million EQT shares. It contributed approximately six months of results. EQT also completed the $69 million Reliance asset acquisition in April.
- Sales volume increased 24%, driven primarily by acquired assets and wells brought online. Proved reserves additions included 4.187 Tcfe acquired and 3.104 Tcfe of extensions, discoveries and other additions; production was 1.858 Tcfe.
- Equity issuance for Alta materially increased shares outstanding. EQT also began a buyback program; it repurchased $29.4 million of shares in December under the $1 billion authorization.
- The 2021 net loss included a $434 million income tax benefit. The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting.
Outlook, risks and contingencies
- For 2022, management expected capital expenditures of $1.30–$1.45 billion and sales volume of 1,950–2,050 Bcfe. Capital spending is discretionary and may change with prices, costs, infrastructure, permitting and capital availability.
- EQT targeted reducing total debt by at least $1.5 billion by the end of 2023, funded principally by free cash flow. It also authorized up to $1 billion of share repurchases through 2023 and reinstated a quarterly dividend at an annualized rate of $0.50 per share, beginning in Q1 2022. Execution depends on cash generation and market conditions.
- Commodity prices, basis differentials and derivative values materially affect results and liquidity. Hedges can limit upside in rising markets, incur losses and require collateral. Senior-note ratings remained below investment grade at year-end: Moody’s Ba1, S&P BB+ and Fitch BB+.
- Long-term pipeline demand and processing commitments totaled $23.8 billion, including $15.0 billion thereafter. Some are payable even if capacity is underused. EQT depends heavily on Equitrans Midstream subsidiaries for midstream and water services; the Mountain Valley Pipeline’s delayed in-service date could delay contract rate relief. A related $410 million contract asset depends in part on that project’s completion.
- Environmental, permitting, methane and climate rules, hydraulic-fracturing restrictions, cyber incidents, weather, supply-chain constraints and concentration in Appalachia are material risks. EQT reported a produced-water release discovered in December 2021 in Washington County, Pennsylvania; remediation was ongoing, and anticipated penalties exceeded $300,000, though the company expected no material financial impact. A previously settled West Virginia royalty and trespass case had pending motions concerning enforcement of the settlement.
- Management said operating cash flow and credit-facility availability should cover expected cash requirements for at least the next 12 months, while noting uncertainty from commodity prices and other risks.
Important facts for investors to verify
- Reconcile GAAP revenue and the reported loss with sales prices, derivative fair-value movements and cash settlements; assess how the hedge portfolio affects future cash flow and collateral needs.
- Track Alta integration, the resulting share dilution, acquisition accounting and whether expected production and cost efficiencies materialize.
- Evaluate debt-reduction progress against the $1.5 billion target, debt maturities and the funding trade-off between debt repayment, capital spending, buybacks and dividends.
- Monitor Mountain Valley Pipeline timing, the $410 million contract asset and EQT’s large firm transportation and processing commitments.
- Review reserve revisions, development timing, lease expirations and sensitivity of reserve value to commodity prices; check status of the produced-water remediation and pending legal matters.