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EQT Corp. Third Quarter 2022 Results

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EQT Corp. announced financial and operational results for the third quarter 2022.

Third Quarter 2022 and Recent Highlights:

• Sales volumes of 488 Bcfe
• Total per unit operating costs of $1.42 per Mcfe
• Capital expenditures, excluding noncontrolling interests, of $349 MM or $0.72 per Mcfe
• Net cash provided by operating activities of $1,150 MM, adjusted operating cash flow⁽¹⁾ of $940 MM and free cash flow⁽¹⁾ of $591 MM
• Announced agreement to acquire Tug Hill and XcL Midstream
• Doubled '22-'23 share repurchase authorization to $2.0 B; repurchased $380 MM of common stock since inception of the repurchase program, reducing share count by approximately 13.5 MM shares
• Raised year-end 2023 debt reduction target from $2.5 B to $4.0 B, maintaining 1.0-1.5x long-term leverage⁽¹⁾ target
• Added to S&P 500 index, joining top companies across all sectors of the U.S. economy
• Announced Appalachian Regional Clean Hydrogen Hub (ARCH2) collaboration with the State of West Virginia and leading energy & technology companies

President and CEO Toby Z. Rice stated, "Third quarter was an active one at EQT as we announced the accretive, bolt-on acquisition of Tug Hill and XcL Midstream. Alongside the announcement, we augmented our capital returns framework, with material increases to both our debt reduction goals and stock buyback authorization. Since last December, we have reduced our fully diluted share count by more than 19 million shares through common equity and convertible note repurchases at an average price of approximately $31 per share."

Rice continued, "We also announced a collaboration with the State of West Virginia and various leading energy and technology companies to form the Appalachian Regional Clean Hydrogen Hub or ARCH2. Appalachia is ideally suited to lead the charge in clean hydrogen production in the United States and use of EQT's extremely low emissions natural gas can act as a strategic foundation for America's transition toward decarbonization. Lastly, we were honored to see EQT added to the S&P 500 earlier this month, which we view as another testament to our premier asset base, the success of our modern, digitally enabled operating model and the overall sustainability of our business."

2022 Guidance

The Company expects to turn-in-line (TIL) 64 to 79 net wells in 2022, approximately 30 percent fewer wells compared to February guidance, driven largely by third-party impacts. Strong underlying well performance and field optimization have reduced the impact to 2022 sales volumes, which are now expected to be 1,925 - 1,975 Bcfe, or roughly in-line with the low end of the prior guidance range. The Company is also lowering its 2022 capital expenditures guidance range to $1.400 - $1.475 billion, or $0.71 - $0.77 per Mcfe, excluding noncontrolling interests and acquisitions.

3Q Financials & Realized Prices

Average realized price increased for the three months ended September 30, 2022 compared to the same period in 2021 due to higher NYMEX prices, partly offset by unfavorable cash settled derivatives and unfavorable differential.

Operating expenses on a per Mcfe basis for the three months ended September 30, 2022 compared to the same period in 2021 were negatively impacted by lower sales volume unless otherwise noted.

Gathering expense increased on a per Mcfe basis for the three months ended September 30, 2022 compared to the same period in 2021 due primarily to higher gathering rates on certain variable rate contracts calculated based on the price of natural gas.

Transmission expense increased on a per Mcfe basis for the three months ended September 30, 2022 compared to the same period in 2021 due primarily to higher rates on and lower credits received from the Texas Eastern Transmission Pipeline and additional capacity acquired on the Rockies Express Pipeline in September 2021.

Production taxes increased on a per Mcfe basis for the three months ended September 30, 2022 compared to the same period in 2021 due to increased West Virginia severance taxes, which resulted primarily from higher prices.

SG&A expense increased on a per Mcfe basis for the three months ended September 30, 2022 compared to the same period in 2021 due primarily to higher long-term incentive compensation costs as a result of changes in the fair value of awards due to the increase in the price per share of the Company's common stock.

Liquidity

As of September 30, 2022, the Company had no credit facility borrowings and $27 million of letters of credit outstanding under its $2.5 billion credit facility. As of September 30, 2022, total debt and net debt⁽¹⁾ were $4.8 billion and $4.7 billion, respectively, compared to $5.6 billion and $5.5 billion, respectively, as of December 31, 2021.

Tug Hill and XcL Midstream Acquisition

EQT previously announced its agreement to acquire Tug Hill's upstream assets and XcL Midstream's gathering and processing assets, for consideration of approximately $2.6 billion in cash and 55.0 million shares of EQT common stock, subject to customary closing adjustments. The transaction is expected to close in the fourth quarter of 2022, with an effective date of July 1, 2022.

The Tug Hill assets are anticipated to add approximately 90,000 core net acres offsetting EQT's existing core leasehold in West Virginia, approximately 800 MMcfe/d of production, and 11 years of inventory at maintenance capital levels. XcL Midstream adds 95-miles of owned and operated midstream gathering systems connected to every major long-haul interstate pipeline in southwest Appalachia. The liquids yields and integrated cost structure improves the durability of EQT's free cash flow generation and is expected to drive average pro forma free cash flow⁽¹⁾ breakeven down approximately $0.15 per MMBtu through 2027.