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EQT Corp. Third Quarter 2021 Results

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   |    Friday,October 29,2021

EQT Corp. announced financial and operational results for the third quarter 2021.

Third Quarter and Other Highlights:

• Sales volumes of 495 Bcfe, at high end of guidance
• Total per unit operating costs of $1.25/Mcfe, in-line with guidance
• Capital expenditures of $297 MM, in-line with guidance
• Net cash provided by operating activities of $48 MM; free cash flow⁽¹⁾ of $99 MM
• Increased full year 2021 free cash flow guidance by approximately $200 MM
• Successfully executed sell-down of 525,000 Dth per day of MVP capacity
• Secured 205,000 Dth per day of premium Rockies Express Pipeline capacity
• Executed 10-year water service agreement with ETRN covering SWPA operations

President and CEO Toby Rice stated, "Now more than ever we are witnessing how important the role of natural gas is in the world's energy ecosystem. Within the last decade our industry, and specifically Appalachia, has leveraged technology and innovation to provide Americans with a low-cost, low-emissions, and reliable energy source. With increased pipeline and LNG export capacity, we are capable of delivering that same energy source on the world stage."

Rice continued, "We have spent the last two years positioning this company to maximize value creation by lowering our costs and improving price realizations. Today's announcement of our firm-transportation optimization through the sell-down of Mountain Valley Pipeline capacity and the addition of premium capacity to the Midwest is a continuation of these efforts. Improving our outlook further, in the last three months we have seen a structural shift in the natural gas macro-environment, pointing to a sustainable uplift in the forward curve and positioning EQT for robust long-term free cash flow generation from our deep inventory of high return drilling locations. We are excited by the trajectory of our business and the value being created for our shareholders."

Financial Results

Net loss attributable to EQT Corporation for the three months ended September 30, 2021 was $1,980 million, $5.55 per diluted share, compared to net loss attributable to EQT Corporation for the same period in 2020 of $601 million, $2.35 per diluted share. The change was attributable primarily to the loss on derivatives not designated as hedges, increased depreciation and depletion, increased transportation and processing expense and increased other operating expenses, partly offset by increased sales of natural gas, natural gas liquids (NGLs) and oil, higher income tax benefit and higher income from investments.

Sales of natural gas, NGLs and oil were $1,784 million for the three months ended September 30, 2021, an increase of $1,185 million compared to the same period in 2020 due to higher sales volume of 129 Bcfe. Average realized price for the three months ended September 30, 2021 compared to the same period in 2020 remained consistent at $2.33 due to higher New York Mercantile Exchange (NYMEX) prices and higher liquids prices, offset by lower cash settled derivatives and unfavorable differential.

For the three months ended September 30, 2021, the Company recognized a loss of $3.3 billion on derivatives not designated as hedges related primarily to decreases in the fair market value of the Company's NYMEX swaps and options due to increases in forward prices which drove negative total operating revenues.

Sales volume increased primarily as a result of sales volume increases of 74 Bcfe from the assets acquired in the Alta Acquisition (defined below), sales volume increases of 34 Bcfe from the assets acquired in the Chevron Acquisition (defined below) and prior period sales volume decreases of 15 Bcfe from the 2020 Strategic Production Curtailments (defined below).

The Alta Acquisition refers to the Company's acquisition of upstream and midstream assets from Alta Resources Development, LLC, which closed in the third quarter of 2021. The Chevron Acquisition refers to the Company's acquisition of upstream assets from Chevron U.S.A. Inc., which closed in the fourth quarter of 2020. The 2020 Strategic Production Curtailments refers to the Company's strategic decisions to temporarily curtail 2020 production. In May 2020, the Company temporarily curtailed approximately 1.4 Bcf per day of gross production, equivalent to approximately 1.0 Bcf per day of net production. In July 2020, the Company began a moderated approach to bring back on-line the curtailed production. In September 2020, the Company curtailed approximately 0.6 Bcf per day of gross production, equivalent to approximately 0.4 Bcf per day of net production. In October 2020, the Company began a phased approach to bring back on-line the curtailed production, which was completed in November 2020.

Net cash provided by operating activities decreased by $136 million compared to the same quarter last year due primarily to increased collateral and margin deposits associated with the Company's over the counter (OTC) derivative instrument contracts and exchange traded natural gas contracts. Free cash flow⁽¹⁾ increased by $52 million compared to the same quarter last year due primarily to increased revenues from higher sales volume, partly offset by the $57 million purchase of calls and swaptions in the third quarter of 2021 to reposition the Company's 2021 and 2022 hedge portfolio to enable incremental upside participation in rising natural gas prices and to further mitigate potential incremental margin posting requirements.

Gathering expense decreased on a per Mcfe basis for the three months ended September 30, 2021 compared to the same period in 2020 due primarily to a lower gathering rate structure on the assets acquired in the Alta Acquisition and Chevron Acquisition. Transmission expense decreased on a per Mcfe basis for the three months ended September 30, 2021 compared to the same period in 2020 due primarily to increased sales volume, some of which, particularly sales volume from assets acquired in the Alta Acquisition and Chevron Acquisition, has lower transmission expense on a per Mcfe basis as compared to the Company's historical transmission portfolio. Exploration expense increased on a per Mcfe basis for the three months ended September 30, 2021 compared to the same period in 2020 due to the Company's purchase of seismic data following the completion of the Alta Acquisition.

Liquidity

As of September 30, 2021, the Company had $0.7 billion in credit facility borrowings and $0.6 billion of letters of credit outstanding under its $2.5 billion credit facility. The outstanding borrowings under the Company's credit facility were primarily used for collateral and margin deposits associated with the Company's OTC derivative instrument contracts and exchange traded natural gas contracts, which are reported as a current asset on the consolidated balance sheet.

During the third quarter of 2021, the Company amended agreements with six of its largest OTC hedge counterparties to permanently or temporarily reduce or eliminate its margin posting obligations associated with the Company's OTC derivative instrument contracts with such OTC hedge counterparties. The purpose of such amendments was to mitigate the amount of cash collateral that the Company would otherwise have been required to post based on current NYMEX strip pricing. As of October 22, 2021, the Company's margin balance on its existing hedge portfolio, including both OTC and broker margin balances, was approximately $0.4 billion, compared to approximately $0.5 billion as of June 30, 2021, despite a significant increase in natural gas prices between June 30, 2021 and October 22, 2021.

As of October 22, 2021, 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 request of the Company pursuant to the Company's OTC derivative instruments, midstream services contracts and other contracts. As of October 22, 2021, such amounts could be up to approximately $1.1 billion, inclusive of letters of credit, OTC derivative instrument margin deposits and other collateral posted of approximately $0.8 billion in the aggregate.

Strategic Update - Firm Transportation Optimization

The Company entered into several strategic firm transportation (FT) optimization strategies to enhance margins and reduce its FT costs during the third quarter of 2021. As further described below, the Company entered into an Asset Management Agreement (AMA) to sell-down a portion of its Mountain Valley Pipeline (MVP) FT capacity, while also securing additional premium FT capacity to the Midwest. In the aggregate, the Company expects these arrangements to lower its go-forward FT costs by approximately $0.05 per Mcfe, while simultaneously improving realized pricing.

During the third quarter of 2021, the Company and an Investment Grade Entity (IGE) agreed to a new long-term AMA related to the Company's MVP FT. Under the terms of the AMA, the Company has agreed to deliver and sell up to 525,000 Dth per day (45% of remaining MVP FT throughput) to the IGE for a period of up to six years while managing and utilizing the MVP capacity. All volumes sold in conjunction with this AMA will be certified as responsibly sourced gas (RSG) by a third-party independent auditor. The AMA start date will coincide with the first full month of MVP being in service. The IGE will be responsible for all MVP credit, reservation rates, and fees related to this transaction. The AMA is subject to certain conditions precedent being met in a timely manner. This transaction meaningfully reduces the Company's FT costs on an annual basis while retaining a path for its production to access premium Southeast markets.

Additionally, the Company and Rockies Express Pipeline (REX) agreed to a new long-term FT agreement during the third quarter of 2021, that commenced on September 1, 2021, and will be in effect through March 31, 2034. The total firm daily quantity subscribed to in conjunction with this new contract is 205,000 Dth per day. This new capacity will allow the Company to increase physical deliveries to premium Midwest and Rockies markets with a substantial portion of the contract having firm delivery rights as far west as Cheyenne, WY. In addition, the Company and REX agreed to a significantly discounted reservation rate on the covered capacity through March 2025, which is anticipated to allow the Company to realize material pricing uplift during the initial 43 months of the contract. Beginning October 1, 2021, the Company now holds a total of 930,000 Dth per day of FT on REX.

Ops Update

The Company is in the latter stages of integrating the assets it acquired in the Alta Acquisition and is on-track to complete all operational integration tasks by the end of 2021 and fully assimilate all administrative functions during the first quarter of 2022. The Company has leveraged its modern, proven integration framework, to enable it to consistently execute successful integration activities and maximize the full potential of acquired assets.

During the third quarter of 2021, the Company averaged approximately $730 per foot in the southwest PA Marcellus, with year-to-date 2021 well costs averaging approximately $680 per foot. The increase in well cost per foot during the third quarter of 2021 was primarily driven by costs associated with produced water management, whereas the Company's optimization of water logistics resulted in a shift in planned costs out of lease operating expenses and into capital expenditures. On a net basis, these actions were economically beneficial and accretive to free cash flow. The Company expects fourth quarter and full-year 2021 southwest PA Marcellus well costs to average approximately $675 per foot, in-line with its full-year 2021 well cost target.

2024 Development Plan

Category	2023	2024 Est. Initial	Updated 2024 Guidance	%Difference (2023 vs 2024)
Total Capital Expenditure($mm)

Frac / Completion Crew (s)
Wells Completed/Frac(net)

Production Daily Equivalent(mmcfe/d)

 Click here for More Planned 2024 Activity