Quarterly / Earnings Reports | Third Quarter (3Q) Update | Capital Markets | Capital Expenditure - 2020 | 2020 Guidance

EQT Corp. Talks 2020 Plans; Reports Q3 2019 Results

Share Print Bookmark    |    Thursday,October 31,2019

EQT Corp. reported its Q3 results as well as its preliminary plans for 2020.

2020 Plan Highlights:

• Sales volumes of 1,450 - 1,500 Bcfe, roughly flat to 2019 expected sales volumes
• Capital expenditures of $1.30 - $1.40 billion, a $525 million year-over-year reduction, compared to prior 2019 guidance²
• Adjusted free cash flow (a non-GAAP measure)³ of $200 - $300 million; 7-11% free cash flow yield (a non-GAAP measure)^3,4
• Expect to reduce well costs, overhead, land and other capital expenditures by 25% relative to legacy costs
• Executing large-scale combo development: 50% of wells turned-in-line and 80% of wells spud
• Committed to reducing debt by at least $1.5 billion by mid-year
• 87% of 2020 gas production hedged at a weighted average floor price of $2.71 per Dth

Third Quarter Highlights:

• Achieved sales volumes of 381 Bcfe or 4.14 Bcfe/d
• Received an average realized price of $2.47 per Mcfe
• Capital expenditures of $475 million; full-year 2019 guidance reduced by $115 million, while maintaining full-year production guidance
• Executed an asset exchange transaction for 16,000 net mineral acres in West Virginia, solidifying core position for future large-scale development
• Step change in Marcellus horizontal drilling performance, improving rate of penetration by 50% over the second quarter of 2019

100-Day Plan Highlights:

• Hired all evolution leaders, adding proven leadership to the organization
• Migrated the workforce into a simplified organizational structure to enhance accountability
• Streamlined the organization, reducing overhead costs by approximately $65 million per year
• Successfully implemented digital work environment to align workforce with operational targets
• Standardized well designs across entire leasehold position to increase development consistency
• Established stable operations schedule through year-end 2020 to drive efficiencies

President and CEO Toby Rice stated: "We are on track to transform EQT into a modern, digitally-enabled, efficient and values-driven natural gas producer. Over the past 100 days, our actions have been focused on delivering the foundational elements necessary for EQT's transition toward efficiently executing large-scale development projects across our sizable undeveloped core inventory. The team has made significant progress, and the execution of our planned initiatives is expected to reduce capital expenditures by approximately $525 million in 2020, as compared to prior full-year 2019 guidance."

Rice continued, "As such, I am pleased to share that our preliminary 2020 forecast will generate between $200 and $300 million of adjusted free cash flow, which highlights the durability of our business at cyclically low natural gas prices. Further, we are committed to allocating our capital responsibly and effectively, with the intent to reduce absolute debt by at least $1.5 billion by mid-year 2020 to maintain Investment Grade metrics.

Well Statistics

Net Wells Drilled (spud)

• Q3 2019 average lateral lengths: PA Marcellus 12,200'; Ohio Utica 10,400'
• Q4 2019 forecasted average lateral lengths: PA Marcellus 10,800'

Net Wells Turned-in-line (TIL)

• Q3 2019 average lateral lengths: PA Marcellus 9,100'; Ohio Utica 13,600'
• Q4 2019 forecasted average lateral lengths: PA Marcellus 9,500'; Ohio Utica 11,400'

Operational Update

EQT has undergone a significant operational transformation during the third quarter. New leadership was added to the organization to drive cultural change, implement the digital work environment, establish a stable master operations schedule and execute a proven well design. These initiatives have driven enhanced operational performance and efficiencies during the quarter, while maintaining industry leading safety and regulatory protocols.

During the quarter, EQT horizontally drilled 15 Marcellus wells in Pennsylvania with an average lateral length of 12,820', four Marcellus wells in West Virginia with an average lateral length of 7,100', and three Utica wells in Ohio with an average lateral length of 8,650'. With a fresh perspective from a new management team, drilling speeds improved by 50% in the Marcellus and 20% in the Utica, as compared to the prior quarter. EQT is currently running three horizontal rigs and plans to remain at that level through the end of the year.

The Company also completed 27 Marcellus wells in Pennsylvania with an average lateral length of 11,300' and four Utica wells in Ohio with an average lateral length of 11,340'. Water usage for the period was composed of 75% fresh water and 25% recycled produced water. EQT is currently running 3 frac crews and plans to remain at that level through the end of the year.

With the establishment of a stable operations schedule and improved visibility into future development, EQT is rebuilding its procurement management tools to better align with future development planning and end-state well cost targets. The Company also is renegotiating key service contracts and anticipates executing new agreements in the current favorable service cost environment.

Additionally, EQT executed an acreage exchange transaction in West Virginia for 16,000 net mineral acres with another large-scale operator. The transaction significantly enhances the continuity of EQT's Wetzel and Marion County acreage position. Ultimately, this strategic trade will drive longer lateral lengths and ready this core acreage position for future combo development. As a result of this transaction, the Company placed a 25-well combo development run on the operations schedule in 2021, planned to develop approximately 315,000 horizontal feet. This project is a first-of-its-kind for EQT in West Virginia and is expected to deliver production and well costs in-line with the Company's core Greene County Pennsylvania assets.

Financials

In the third quarter 2019, the Company reported a loss from continuing operations of $361 million, or $1.41 per diluted share, compared to a loss from continuing operations for the same period 2018 of $127 million, or a loss of $0.49 per diluted share. The increase in the reported loss was attributable primarily to the unrealized loss on the investment in Equitrans Midstream Corporation (Equitrans Midstream), lower operating revenues and higher proxy, transaction and reorganization and other selling, general and administrative (SG&A) costs, partly offset by lower impairment costs as a result of the Company's divestitures of its Permian and Huron assets in 2018 (the 2018 Divestitures).

Compared to the same quarter last year, average realized price was 11% lower at $2.47 per Mcfe, due primarily to lower NYMEX prices and liquids sales, partly offset by cash settled derivatives and favorable average differential.

Net cash provided by operating activities decreased by 65% and adjusted free cash flow increased 41%. Adjusted free cash flow for the third quarter 2019 of $(178) million includes the impact of an increase in the royalty and litigation reserve of $37 million and $77 million of proxy, transaction and reorganization costs.

During the nine months ended September 30, 2019, the Company reported a loss from continuing operations of $45 million, or $0.18 per diluted share, compared to a loss from continuing operations for the same period 2018 of $1.8 billion, or $6.79 per diluted share. The decrease in the reported loss was attributable primarily to lower impairment costs as a result of the 2018 Divestitures, higher operating revenues and dividends received on the investment in Equitrans Midstream, partly offset by decreased income tax benefit, the unrealized loss on investment in Equitrans Midstream and increased proxy, transaction and reorganization and other SG&A costs.

Compared to the same period last year, average realized price was 7% lower at $2.74 per Mcfe, due primarily to lower NYMEX and liquids prices and, as a result of the 2018 Divestitures, lower liquids volumes and Btu uplift, partly offset by cash settled derivatives and favorable average differential. Excluding sales volumes related to the 2018 Divestitures, sales volumes of natural gas, oil and NGLs increased 8% in 2019.

Net cash provided by operating activities decreased by 33% and adjusted free cash flow increased 78%. Adjusted free cash flow for the nine months ended September 30, 2019 of $(88) million includes the impact of an increase in the royalty and litigation reserve of $82 million and $102 million of proxy, transaction and reorganization costs.

The Non-GAAP Disclosures section of this news release provides reconciliations of non-GAAP financial measures to the most comparable GAAP financial measures, as well as important disclosures regarding certain projected non-GAAP financial measures.

Capital Expenditures

Operating Expenses Per Unit

The following presents certain of the Company's operating expenses on a per unit basis.

During the nine months ended September 30, 2019, per Mcfe processing expense, lease operating expense (LOE) and production taxes were lower due to the 2018 Divestitures. Excluding the sales volumes related to the 2018 Divestitures, gathering expense per Mcfe was $0.56 during the nine months ended September 30, 2018. SG&A expense per Mcfe during the three and nine months ended September 30, 2019 was higher than the three and nine months ended September 30, 2018 as a result of $37 million and $82 million of royalty and litigation reserves, respectively.

Liquidity

As of September 30, 2019, the Company had credit facility borrowings of $161 million and no letters of credit outstanding under its $2.5 billion credit facility and $1 billion in borrowings under its unsecured term loan facility. Net debt (a non-GAAP measure) was $5,152 million as of September 30, 2019 compared to $5,494 million as of December 31, 2018.

Hedges

During the third quarter of 2019, the Company terminated certain over the counter hedge positions related to years 2021 and onward. The value associated with these terminated positions was rolled into new hedge positions with the same counterparties for 2020. No cash was exchanged related to these terminations or the associated execution of new hedge positions.

The Company's total natural gas production NYMEX hedge positions through 2023 are:

2019 Guidance

Based on average NYMEX natural gas price (October to December) of $2.42 per MMbtu as of September 30, 2019.