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EQT Corp. First Quarter 2020 Results

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   |    Thursday,May 07,2020

EQT Corp. announced financial and operational performance results for the first quarter 2020.

First Quarter Highlights:

  • Delivered sales volumes of 385 Bcfe or 4.2 Bcfe per day, 20 Bcfe above midpoint of first quarter guidance
  • Total operating revenues of $1.1 billion; received average realized price of $2.49 per Mcfe, a $0.44 premium to NYMEX pricing
  • Total per unit operating costs of $1.33 per Mcfe, $0.07 per Mcfe below midpoint of full-year 2020 guidance
  • Capital expenditures of $262 million, $93 million lower than the fourth quarter 2019
  • Well costs of $745 per foot in the Pennsylvania Marcellus, accelerating progress towards target well costs
  • Net cash provided by operating activities of $500 million; free cash flow(1) of $251 million
  • Successfully issued $1.75 billion in senior notes to address near-term maturities
  • Reduced total debt by $256 million and net debt(1) by $270 million
  • Executed gas gathering agreement with EQM Midstream Partners, LP and exchanged half of equity stake in Equitrans Midstream Corporation, substantially reducing fee structure

Post Quarter Highlights:

  • Successfully issued $500 million in convertible senior notes to address near-term maturities
  • In advanced discussions to divest certain non-strategic assets for approximately $125 million, expected to close during the second quarter 2020

President and CEO Toby Rice stated, "Our team continues to deliver results that validate the transformation strategy set in motion in July 2019. Our first quarter results represent an acceleration towards achieving the well cost targets that underpinned our campaign last year, as we delivered more volumes for significantly less capital and benefited from improved operating costs. Proving out our thesis on the operational front has also allowed us to generate value for our stakeholders on the strategic front, both through negotiating a successful gas gathering arrangement with Equitrans Midstream and by de-risking our near-term maturities.

Rice continued, "Looking forward, our focus will continue to be on the execution of our plan to further enhance our balance sheet and cost structure. We are excited about having addressed the legacy governors on our business in time to capitalize on an improving natural gas macro, allowing us to optimize our deleveraging strategy in a manner that enhances long-term shareholder value."

Financials

Net loss for the three months ended March 31, 2020 was $167 million, $0.65 per diluted share, compared to net income for the same period in 2019 of $191 million, $0.75 per diluted share. The decrease was attributable primarily to the loss on investment in Equitrans Midstream Corporation (Equitrans Midstream), the loss on exchange of long-lived assets, decreased operating revenues, increased impairment and expiration of leases and the loss on debt extinguishment, partly offset by a gain recognized on the agreements signed with Equitrans Midstream during the quarter and decreased depreciation and depletion and selling, general and administrative expenses.

Compared to the same quarter last year, average realized price was 21% lower at $2.49 per Mcfe, due to lower NYMEX prices and lower liquids prices, partly offset by higher cash settled derivatives.

Net cash provided by operating activities decreased by $371 million and free cash flow increased by $80 million compared to the same quarter last year. Free cash flow was positively impacted by $95 million of accrued income tax refunds as a result of the Coronavirus Aid, Relief and Economic Security Act (the CARES Act) which was passed on March 27, 2020 by the U.S. Congress and accelerated the Company's ability to claim federal refunds of alternative minimum tax credits. In addition, free cash flow increased as a result of lower capital expenditures, partly offset by the 21% lower average realized price.

Per Unit Operating Costs

The following presents certain of the Company's production-related operating costs on a per unit basis.

 

Three Months Ended
March 31,

Per Unit ($/Mcfe)

2020

 

2019

Gathering

$

0.68

   

$

0.69

 

Transmission

0.38

   

0.37

 

Processing

0.08

   

0.08

 

Lease operating expense (LOE), excluding production taxes

0.07

   

0.06

 

Production taxes

0.03

   

0.05

 

SG&A

0.09

   

0.13

 

Total per unit operating costs

$

1.33

   

$

1.38

 
       

Production depletion

$

0.92

   

$

1.01

 

Adjusted SG&A per unit (a)

$

0.09

   

$

0.11

 
 

(a) A non-GAAP financial measure. See the Non-GAAP Disclosures section of this news release for the definition of, and other important information regarding, this non-GAAP financial measure.

Liquidity

As of March 31, 2020, the Company had no credit facility borrowings and $0.7 billion of letters of credit outstanding under its $2.5 billion credit facility and $0.8 billion in borrowings under its unsecured term loan facility. As of March 31, 2020, total debt was $5,037 million and net debt (1) was $5,018 million compared to $5,293 million and $5,288 million, respectively, as of December 31, 2019.

Pursuant to the Company's updated deleveraging plan, the Company anticipates that it will have sufficient funds to repay its debt maturing in 2021 by the end of 2020, through a combination of $125 million of projected proceeds from the sale of certain non-core assets which are currently in advanced negotiations, proceeds from the monetization of its remaining equity interest in Equitrans Midstream, expected income tax refunds of approximately $390 million and free cash flow generation. Until leverage targets are achieved, all free cash flow and divestiture proceeds are expected to be used to reduce the Company's debt.

As of May 1, 2020, the Company had sufficient unused borrowing capacity under its credit facility, net of letters of credit, to satisfy any collateral requests that its counterparties would be permitted to seek. As of May 1, 2020, such amounts could be up to approximately $1.1 billion, inclusive of assurances posted of approximately $0.9 billion in the aggregate.

Ops Update

The energy industry is currently experiencing two significant external stimuli, COVID-19 and the OPEC oil price war, that are impacting both day-to-day operations and the macro environment. To date, the Company has experienced limited operational impacts as a result of the COVID-19 work from home restrictions or COVID-19 directly. Similarly, the Company expects to have limited direct operational impacts from the OPEC oil price war. The oversupply of oil and NGLs resulting from the demand destruction attributable to COVID-19 is anticipated by some market participants to result in a lack of storage capacity and ultimately the shutting in of certain of the industry's oil and NGLs production. The Company has limited direct oil and NGLs exposure, with approximately 95% of its production being natural gas.

During the first quarter 2020, the Company continued to deliver results that validate the transformation strategy set in motion in July 2019. The management team's acute focus on cost performance, schedule design, well design and operational cadence, has accelerated the path towards delivering on its Pennsylvania Marcellus well cost target of $730 per foot. During the first quarter, well costs in the Company's Pennsylvania Marcellus operations averaged $745 per foot, a 7% improvement over prior quarter well costs of $800 per foot.

By continuing to leverage its digital work environment to turn business insights into value enhancing actions, and keeping at the forefront of science and innovation, the Company will continue driving incremental financial and operational efficiencies to become the clear low-cost operator of choice.

Wells Drilled (SPUD)

 

PA Marcellus

 

WV Marcellus

 

OH Utica

 

1Q20A

 

2Q20E

 

FY20E

 

1Q20A

 

2Q20E

 

FY20E

 

1Q20A

 

2Q20E

 

FY20E

Net Wells

21

 

22

 

75

 

-

 

-

 

21

 

1

 

1

 

2

Net Avg. Lateral (ft.)

12,510

 

12,590

 

12,660

 

-

 

-

 

11,670

 

14,760

 

12,810

 

13,890

                                   

Wells Horizontally Drilled

 

PA Marcellus

 

WV Marcellus

 

OH Utica

 

1Q20A

 

2Q20E

 

FY20E

 

1Q20A

 

2Q20E

 

FY20E

 

1Q20A

 

2Q20E

 

FY20E

Net Wells

19

 

17

 

74

 

-

 

-

 

9

 

3

 

2

 

6

Net Avg. Lateral (ft.)

10,810

 

11,710

 

12,200

 

-

 

-

 

10,030

 

12,290

 

12,540

 

12,350

 

Wells Completed (Frac)

 

PA Marcellus

 

WV Marcellus

 

OH Utica

 

1Q20A

 

2Q20E

 

FY20E

 

1Q20A

 

2Q20E

 

FY20E

 

1Q20A

 

2Q20E

 

FY20E

Net Wells

13

 

24

 

68

 

-

 

3

 

6

 

-

 

7

 

10

Net Avg. Lateral (ft.)

11,050

 

11,020

 

11,600

 

-

 

4,280

 

6,020

 

-

 

10,460

 

10,820

                                   

Wells Turned-in-Line (TIL)

 

PA Marcellus

 

WV Marcellus

 

OH Utica

 

1Q20A

 

2Q20E

 

FY20E

 

1Q20A

 

2Q20E

 

FY20E

 

1Q20A

 

2Q20E

 

FY20E

Net Wells

27

 

20

 

83

 

4

 

3

 

7

 

-

 

6

 

10

Net Avg. Lateral (ft.)

11,620

 

10,500

 

11,390

 

10,390

 

4,280

 

7,770

 

-

 

8,960

 

9,950

2020 Guidance

         

Production

 

Q2 2020

 

Full-Year 2020

Total sales volume (Bcfe)

 

360 - 380

 

1,450 - 1,500

Liquids sales volume, excluding ethane (Mbbls)

 

1,675 - 1,775

 

7,300 - 7,400

Ethane sales volume (Mbbls)

 

1,225 - 1,325

 

4,400 - 4,500

Total liquids sales volume (Mbbls)

 

2,900 - 3,100

 

11,700 - 11,900

         

Btu uplift (MMbtu / Mcf)

     

1.045 - 1.055

         

Average differential ($ / Mcf)

 

$(0.45) - $(0.25)

 

$(0.40) - $(0.20)

         

Resource Counts

       

Top-hole Rigs

     

2 - 3

Horizontal Rigs

     

3 - 4

Frac Crews

     

3 - 4

         

Operating Costs ($ / Mcfe)

       

Gathering (a)

     

$0.71 - $0.73

Transmission (a)

     

$0.37 - $0.39

Processing

     

$0.07 - $0.09

LOE, excluding production taxes

     

$0.07 - $0.09

Production taxes

     

$0.03 - $0.05

SG&A

     

$0.09 - $0.11

Total per unit operating costs

     

$1.34 - $1.46

         

Interest expense

     

$0.16 - $0.18

         

Financial ($ Billions)

       

Adjusted EBITDA (b)

     

$1.475 - $1.575

Adjusted operating cash flow (b)

     

$1.325 - $1.425

Capital expenditures

     

$1.075 - $1.175

Free cash flow (b)

     

$0.225 - $0.325

 

Based on NYMEX natural gas price of $2.17 per MMbtu as of April 30,2020.

 

(a) Certain in-basin transportation expenses previously recorded in Transmission have been reclassified to Gathering to provide additional clarity into costs associated with transporting EQT's gas outside of the Appalachian Basin and to align with the reporting of such expenses in EQT's financial statement disclosures.

(b) Non-GAAP financial measure. See the Non-GAAP Disclosures section for the definition of, and other important information regarding, the non-GAAP financial measures included in this news release, including reasons why EQT is unable to provide a projection of its 2020 net cash provided by operating activities, the most comparable financial measure calculated in accordance with GAAP, to projected adjusted operating cash flow and free cash flow, or a projection of its 2020 net income, the most comparable financial measure calculated in accordance with GAAP, to projected adjusted EBITDA.

 


US Frac Crews Tracking

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