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EQT Fourth Quarter, Full Year 2021 Results

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   |    Wednesday,February 09,2022

EQT Corp. announced financial and operational performance results for the fourth quarter and full year 2021.

Full Year 2021 Highlights:

  • Sales volume of 1,858 Bcfe
  • Total per unit operating costs of $1.28/Mcfe, $0.08/Mcfe below 2020
  • Net cash provided by operating activities of $1,662 MM; free cash flow(1) of $935 MM
  • Capital expenditures of $1,104 MM or $0.59/Mcfe
  • Total proved reserves of 25 Tcfe and total discounted future net cash flows of $17.3 B, increases of 5.2 Tcfe and $13.9 B compared to 2020
  • Completed the acquisition and full integration of Alta Resources
  • Received credit rating upgrades from Moody's, S&P and Fitch
  • Announced targets to achieve net zero Scope 1 & Scope 2 GHG emissions by or before 2025(2)

President and CEO Toby Rice stated, "In 2021, we further improved our balance sheet, successfully completed the acquisition and integration of Alta Resources, announced ambitious net zero targets and rewarded shareholders by implementing a comprehensive shareholder return program, consisting of a quarterly cash dividend and authorization to repurchase $1 billion of our common stock."

Rice continued, "We enter 2022 excited about the trajectory of our Company and our role in addressing climate change and supporting global energy equality. Through continued execution of our modern operating model, our Company expects to generate tremendous free cash flow from our deep inventory of core long-lateral inventory, contractually-declining gathering rates and improved capital efficiency. Our share repurchase authorization gives us the opportunity to allocate capital toward an attractive investment opportunity - our own stock. We look forward to advancing our ESG strategy by decreasing our emissions intensity through pneumatic valve replacement and other carbon-negative projects in pursuit of net zero by or before 2025. Lastly, as the benefits of natural gas are recognized both domestically and internationally, we look forward to continuing to demonstrate stewardship and delivering a sustainable energy source that meets the world's growing energy demands with affordable, reliable and clean natural gas."

Fourth Quarter 2021 Summary

Net income attributable to EQT Corporation for the fourth quarter of 2021 was $1,801 million, $4.69 per diluted share, compared to net income attributable to EQT Corporation for the fourth quarter of 2020 of $64 million, $0.23 per diluted share. The increase was attributable primarily to increased operating revenues, partly offset by income tax expense in the fourth quarter of 2021 and higher operating expenses.

Total sales volume increased by 126 Bcfe compared to the same quarter last year due primarily to sales volume increases of 96 Bcfe from the assets acquired from Alta Resources Development, LLC during the third quarter of 2021 (Alta Acquisition) and sales volume increases of 26 Bcfe from the assets acquired from Chevron U.S.A. Inc. during the fourth quarter of 2020 (Chevron Acquisition).

Net cash provided by operating activities increased by $765 million and free cash flow(1) increased by $313 million compared to the same quarter last year due primarily to higher sales volume and average realized price. Average realized price was 17% higher at $2.68 per Mcfe due primarily to higher NYMEX, partly offset by unfavorable differential and unfavorable cash settled derivatives.

Full Year 2021 Financial and Operational Performance

Net loss attributable to EQT Corporation for 2021 was $1,156 million, $3.58 per diluted share, compared to net loss attributable to EQT Corporation for 2020 of $967 million, $3.71 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 and a gain on an exchange of Equitrans Midstream Corporation (Equitrans Midstream) common stock recognized in the first quarter of 2020, partly offset by increased sales of natural gas, NGLs and oil, the income from investments, higher income tax benefit and the gain on sale of long-lived assets.

Sales volume increased primarily as a result of sales volume increases of 170 Bcfe from the assets acquired in the Alta Acquisition, sales volume increases of 127 Bcfe from the assets acquired in the Chevron Acquisition and prior period sales volume decreases of 46 Bcfe from strategic decisions to temporarily curtail 2020 production.

Net cash provided by operating activities increased by $124 million and free cash flow(1) increased by $610 million in 2021 compared to 2020 due primarily to higher sales volume and average realized price. Average realized price was $0.13 higher at $2.50 per Mcfe due primarily to higher NYMEX and liquids prices, partly offset by lower cash settled derivatives and unfavorable differential.

Per Unit Operating Costs

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

 

Three Months Ended

December 31,

 

Years Ended

December 31,

Per Unit ($/Mcfe)

2021

 

2020

 

2021

 

2020

Gathering

$ 0.65

 

$ 0.70

 

$ 0.66

 

$ 0.71

Transmission

0.27

 

0.30

 

0.28

 

0.34

Processing

0.10

 

0.09

 

0.10

 

0.09

Lease operating expenses (LOE)

0.08

 

0.07

 

0.07

 

0.07

Production taxes

0.06

 

0.03

 

0.05

 

0.03

Exploration

-

 

-

 

0.01

 

-

SG&A (a)

0.10

 

0.11

 

0.11

 

0.12

Total per unit operating costs

$ 1.26

 

$ 1.30

 

$ 1.28

 

$ 1.36

               

Production depletion

$ 0.89

 

$ 0.92

 

$ 0.89

 

$ 0.92

Adjusted interest expense per unit (b)

$ 0.13

 

$ 0.17

 

$ 0.15

 

$ 0.17

   

(a)

For the three months ended December 31, 2021 and 2020, non-cash long-term incentive compensation costs of $7.3 million and $4.3 million, respectively, were included in SG&A. For the twelve months ended December 31, 2021 and 2020, non-cash long-term incentive compensation costs of $28.2 million and $19.6 million, respectively, were included in SG&A.

   

(b)

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.

 Gathering expense decreased on a per Mcfe basis for 2021 compared to 2020 due primarily to lower gathering rate structures on the assets acquired in the Chevron Acquisition and Alta Acquisition and increased sales volume, which resulted in the Company's utilization of lower overrun rates.

Transmission expense decreased on a per Mcfe basis for 2021 compared to 2020 due primarily to increased sales volume from the Chevron Acquisition and Alta Acquisition, which have a lower average transmission expense per Mcfe when compared to the Company's historical transmission portfolio.

Production taxes increased on a per Mcfe basis for 2021 compared to 2020 due to increased West Virginia severance taxes, which resulted primarily from higher prices, and increased Pennsylvania impact fees, which resulted from higher prices and additional wells acquired in the Alta Acquisition and Chevron Acquisition.

Exploration expense increased on a per Mcfe basis for 2021 compared to 2020 due to the Company's purchase of seismic data following the completion of the Alta Acquisition.

Selling, general and administrative expense (SG&A) decreased on a per Mcfe basis for 2021 compared to 2020 due primarily to increased sales volume and nominal incremental selling, general and administrative spend with respect to the Alta Acquisition and Chevron Acquisition.

Liquidity

As of December 31, 2021, the Company had no credit facility borrowings and $0.4 billion letters of credit outstanding under its $2.5 billion credit facility. During the fourth quarter of 2021, the Company reduced its collateral and margin deposits associated with the Company's over the counter (OTC) derivative instrument contracts and exchange traded natural gas contracts by approximately $566 million which increased the availability under the Company's credit facility in addition to positively impacting cash provided by operating activities and working capital.

As of February 4, 2022, 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 February 4, 2022, such assurances 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.

Ops Update

Capital expenditures were $323 million, or $0.61 per Mcfe and $1,104 million, or $0.59 per Mcfe, for the fourth quarter and full year of 2021, respectively. Compared to the same periods in 2020, the Company's capital expenditures on a per Mcfe basis improved by 8%, and 18%, respectively. The Company believes that total capital expenditures on a per Mcfe basis is an important measure of capital efficiency under a maintenance program.

During the fourth quarter of 2021, the Company's well costs averaged approximately $745 per foot in the southwest PA Marcellus, with full year 2021 southwest PA Marcellus well costs averaging approximately $690 per foot, compared to full year 2021 target of $675 per foot. The increase in average well costs was due primarily to changes made during the fourth quarter of 2021 to the Company's expected frac pace to mitigate impacts on the Company's produced water position due to system constraints. As of mid-December, the Company has returned to its planned frac pace as the system constraints impacting its produced water position have returned to normal levels.

In the fourth quarter of 2021, the Company turned in-line the first well pad in West Virginia supported by the Big Water Network, the Company's internally-developed water infrastructure project. In the fourth quarter and full year 2021, the Company's well costs averaged approximately $695 per foot and $700 per foot, respectively in the West Virginia Marcellus, inclusive of allocated costs associated with the construction of the Big Water Network. The Big Water Network is expected to result in meaningful well cost and operating expense savings in West Virginia.

In 2022, the Company expects total sales volume of 1,950 - 2,050 Bcfe under a maintenance production program and expects capital expenditures of $1.300 - $1.450 billion, or $0.65 - $0.75 per Mcfe, excluding capital expenditures attributable to noncontrolling interests. During 2022, the Company plans to phase in a next generation well design that has been under development for the past year, which, based on initial results as part of its methodical science program, the Company believes has a high probability of further improving well productivity and rates of return across its asset base. Given the time required to develop wells that are part of the Company's large-scale combo-development model and the planned phased deployment of the new well design, the Company expects to have preliminary results of its investment by the end of 2022 and full visibility by late 2023 into early 2024. For 2022, the Company expects average well costs of approximately $760 per foot in the southwest PA Marcellus including expected cost increases for inflation, and excluding cost increases attributable to the new well design of approximately $90 per foot. The Company believes its differentiated operational strategy utilizing large-scale combo-development maximizes well productivity and minimizes costs, including the effects of inflation, which, in turn, maximizes value for the Company's shareholders.

Proved Reserves

The Company reported 2021 total proved reserves of 25.0 Tcfe, an increase of 5.2 Tcfe or 26% compared to 2020 due primarily to the Alta Acquisition and extensions, discoveries and other additions, partly offset by production. Proved developed producing reserves increased 3.6 Tcfe, or 28%, compared to 2020. Proved undeveloped reserves increased by 1.6 Tcfe, or 26%, compared to 2020.


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