EQT Corporation 2020 Form 10-K Summary
Business context and reporting period
This is EQT Corporation’s annual report for the fiscal year ended December 31, 2020, not a standalone fourth-quarter report. EQT is a natural gas producer focused on the Appalachian Basin and reported one operating segment. It reported 2020 average daily sales of 4.1 Bcfe and proved reserves of 19.8 Tcfe at year-end.
Financial and operating metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Total operating revenues | $3.059 billion | $4.416 billion |
| Sales of natural gas, NGLs and oil | $2.650 billion | $3.791 billion |
| Operating loss | $(878) million | $(1.152) billion |
| Net loss attributable to EQT | $(967) million; $(3.71) per diluted share | $(1.222) billion; $(4.79) per diluted share |
| Operating cash flow | $1.538 billion | $1.852 billion |
| Cash capital expenditures | $1.042 billion | $1.602 billion |
| Debt outstanding, carrying value | $4.925 billion | $5.293 billion |
| Cash and cash equivalents | $18 million | $5 million |
Calculated from reported figures, operating margin was approximately negative 28.7% and net margin approximately negative 31.6%. Operating cash flow less cash capital expenditures—a simple, non-GAAP cash-flow proxy—was approximately $495 million. Current assets were $1.215 billion against current liabilities of $1.762 billion. EQT said operating cash flow and credit-facility availability should meet expected cash requirements for at least the next 12 months.
Average realized price including settled derivatives fell to $2.37/Mcfe from $2.69/Mcfe. Sales volumes were 1,498 Bcfe, down 0.7%; realized price excluding settled derivatives was $1.77/Mcfe. EQT reported a $400 million gain on derivatives in operating revenue, while cash settlements received on derivatives were approximately $897 million.
Changes versus the prior comparable period
- Operating revenues fell 30.7%, primarily reflecting lower commodity prices and slightly lower sales volumes. Production curtailments from May through November reduced sales by about 46 Bcfe; divestitures reduced volumes by another 16 Bcfe, partly offset by the Chevron acquisition and operating efficiencies.
- Net loss improved by $255 million, mainly due to lower impairments and other operating expenses, a $187 million gain on the Equitrans share exchange, and lower depreciation and transportation/processing expense. Lower revenue, higher interest expense and lower dividend income partly offset the improvement.
- Capital expenditures fell 39.1% to $1.079 billion on a reported total-capex basis, while sales volumes remained nearly flat. Debt carrying value declined about $368 million.
- Proved reserves rose 13% to 19.8 Tcfe, including 1.381 Tcfe acquired from Chevron. Extensions and additions exceeded production, partly offset by downward revisions and divestitures. The SEC standardized measure of discounted future net cash flows fell to $3.366 billion from $8.493 billion, largely reflecting lower reserve pricing assumptions.
Outlook, management commentary and risks
- For 2021, EQT expected total capital expenditures of $1.1–$1.2 billion and sales volumes of 1,620–1,700 Bcfe. Management expected the volume increase to be driven primarily by the Chevron assets and planned to fund capex from operating cash flow.
- EQT’s strategy centers on “combo-development”—developing multiple multi-well pads in tandem—to improve capital and operating efficiency. It cited a more than 15-year Marcellus drilling inventory at its then-current pace, based on its stated acreage and spacing assumptions.
- The company suspended its quarterly dividend in March 2020 to direct cash toward deleveraging. It planned to use proceeds from the eventual sale of its remaining Equitrans Midstream shares to reduce debt.
- Commodity prices, Appalachian basis differentials, takeaway capacity, and access to midstream and water services are key exposures. EQT relies heavily on EQM, and long-term transportation, gathering and processing commitments total $24.8 billion, mostly extending beyond 2025. Fee relief under the consolidated gathering agreement depends in part on the Mountain Valley Pipeline’s in-service date; EQT carried a related $410 million contract asset.
- Other material risks include regulatory and environmental changes, hydraulic-fracturing restrictions, climate-related costs and demand shifts, cyber threats, lease expirations, reserve-estimation uncertainty, and COVID-19-related service-provider or supply-chain disruption. EQT said it experienced no material adverse effect from COVID-19 in 2020 but noted operations could be delayed.
- Unusual items included approximately $440 million of federal income-tax refunds, including interest; $306.7 million of lease impairment and expiration expense; and a $100.7 million loss on asset sales and exchanges. The 2020 Chevron acquisition had a stated aggregate purchase price of $735 million; its purchase-price allocation remained preliminary.
- Debt-related developments included issuing $500 million of 1.75% convertible notes and new senior notes, repaying the $1 billion term loan facility in June, and repurchasing or redeeming several notes. Moody’s rated senior notes Ba3 at year-end; EQT reported compliance with debt covenants. In February 2021, it redeemed the remaining $125.1 million principal of its 4.875% notes.
- Legal matters included a previously settled royalty and trespass dispute for $54 million, with later motions pending, and an arbitration with Equitrans Midstream over rights relating to the Hammerhead gathering agreement. EQT stated that pending matters were not expected to materially affect its financial position, results or liquidity.
Important facts for investors to verify
- How much of 2021’s planned production and free cash flow was delivered, and whether the Chevron assets met assumptions used in the 2021 outlook.
- Debt repayment progress, refinancing needs, credit ratings, covenant headroom and available credit after letters of credit and collateral requirements.
- The timing and economics of the Mountain Valley Pipeline, the realization of the $410 million contract asset, and the gathering-fee relief and cash-payment provisions.
- Commodity-price and basis sensitivities, hedge volumes and prices, and the extent to which hedge settlements support reported realized prices and cash flow.
- Reserve revisions, development timing, lease expirations, and changes to the SEC standardized measure under updated prices and costs.
- Resolution and potential financial effects of the Hammerhead arbitration and remaining royalty-dispute motions, as well as the final Chevron purchase-price allocation.