EQT CORPORATION The following discussion and analysis of financial condition and results of operations should be read in conjunction with the Condensed Consolidated Financial Statements and the notes thereto included in this report. Unless the context otherwise indicates, all references in this report to "EQT," the "Company," "we," "us," or "our" are toEQT Corporation and its subsidiaries, collectively. CAUTIONARY STATEMENTS This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), and Section 27A of the Securities Act of 1933, as amended (the Securities Act). Statements that do not relate strictly to historical or current facts are forward-looking and are usually identified by the use of words such as "anticipate," "estimate," "could," "would," "will," "may," "forecast," "approximate," "expect," "project," "intend," "plan," "believe" and other words of similar meaning, or the negative thereof, in connection with any discussion of future operating or financial matters. Without limiting the generality of the foregoing, forward-looking statements contained in this Quarterly Report on Form 10-Q include the expectations of our plans, strategies, objectives and growth and anticipated financial and operational performance, including guidance regarding our strategy to develop our reserves; drilling plans and programs, including availability of capital to complete these plans and programs; total resource potential and drilling inventory duration; projected production and sales volume and growth rates; natural gas prices; changes in basis and the impact of commodity prices on our business; potential future impairments of our assets; projected well costs and capital expenditures; infrastructure programs; the cost, capacity, and timing of obtaining regulatory approvals; our ability to successfully implement and execute our operational, organizational, technological and environmental, social and governance (ESG) initiatives, and achieve the anticipated results of such initiatives; projected gathering and compression rates; monetization transactions, including asset sales, joint ventures or other transactions involving our assets, and our planned use of the proceeds from such monetization transactions; potential or pending acquisition transactions, including the Tug Hill and XcL Midstream Acquisition (defined in Note 9 to the Condensed Consolidated Financial Statements), or other strategic transactions, the timing thereof and our ability to achieve the intended operational, financial and strategic benefits from any such transactions; the amount and timing of any repayments, redemptions or repurchases of our common stock, outstanding debt securities or other debt instruments; our ability to reduce our debt and the timing of such reductions, if any; the projected amount and timing of dividends; projected cash flows and free cash flow and the timing thereof; liquidity and financing requirements, including funding sources and availability; our ability to maintain or improve our credit ratings, leverage levels and financial profile; our hedging strategy and projected margin posting obligations; the effects of litigation, government regulation and tax position; and the expected impact of changes to tax laws. The forward-looking statements included in this Quarterly Report on Form 10-Q involve risks and uncertainties that could cause actual results to differ materially from projected results. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. We have based these forward-looking statements on current expectations and assumptions about future events, taking into account all information currently known by us. While we consider these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks and uncertainties, many of which are difficult to predict and beyond our control. These risks and uncertainties include, but are not limited to, volatility of commodity prices; the costs and results of drilling and operations; uncertainties about estimates of reserves, identification of drilling locations and the ability to add proved reserves in the future; the assumptions underlying production forecasts; the quality of technical data; our ability to appropriately allocate capital and resources among our strategic opportunities; access to and cost of capital, including rising interest rates; our hedging and other financial contracts; inherent hazards and risks normally incidental to drilling for, producing, transporting and storing natural gas, natural gas liquids (NGLs) and oil; cyber security risks; availability and cost of drilling rigs, completion services, equipment, supplies, personnel, oilfield services and water required to execute our exploration and development plans, including as a result of inflationary pressures, the COVID-19 pandemic or otherwise; risks associated with operating primarily in theAppalachian Basin and obtaining a substantial amount of our midstream services from Equitrans Midstream Corporation (Equitrans Midstream); the ability to obtain environmental and other permits and the timing thereof; government regulation or action, including regulations pertaining to methane and other greenhouse gas emissions; negative public perception of the fossil fuels industry; increased consumer demand for alternatives to natural gas; environmental and weather risks, including the possible impacts of climate change; and disruptions to our business due to acquisitions and other significant transactions, including the Tug Hill and XcL Midstream Acquisition. These and other risks and uncertainties are described under Item 1A., "Risk Factors" and elsewhere in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , as updated by Part II, Item 1A., "Risk Factors" in this Quarterly Report on Form 10-Q and other documents we file from time to time with theSecurities and Exchange Commission . Any forward-looking statement speaks only as of the date on which such statement is made, and we do not intend to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. 24
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EQT CORPORATION AND SUBSIDIARIESManagement's Discussion and Analysis of Financial Condition and Results of
OperationsConsolidated Results of Operations
Net income attributable toEQT Corporation for the three months endedSeptember 30, 2022 was$683.7 million ,$1.69 per diluted share, compared to net loss attributable toEQT Corporation for the same period in 2021 of$1,976.8 million ,$5.54 per diluted share. The change was attributable primarily to increased sales of natural gas, NGLs and oil and a smaller loss on derivatives, partly offset by income tax expense, increased transportation and processing expense and decreased income from investments. Net income attributable toEQT Corporation for the nine months endedSeptember 30, 2022 was$59.0 million ,$0.16 per diluted share, compared to net loss attributable toEQT Corporation for the same period in 2021 of$2,947.5 million ,$9.67 per diluted share. The change was attributable primarily to increased sales of natural gas, NGLs and oil, partly offset by decreased income tax benefit, a greater loss on derivatives, increased transportation and processing expense, the impairment of our contract asset (discussed in Note 8 to the Condensed Consolidated Financial Statements) and increased loss on debt extinguishment.
Results of operations for 2022 and for the period beginning
See "Sales Volume and Revenues" and "Operating Expenses" for discussions of items affecting operating income and "Other Income Statement Items" for a discussion of other income statement items. See "Investing Activities" under "Capital Resources and Liquidity" for a discussion of capital expenditures.
Average Realized Price Reconciliation
The following table presents detailed natural gas and liquids operational
information to assist in the understanding of our consolidated operations,
including the calculation of our average realized price ($/Mcfe), which is based
on adjusted operating revenues, a non-GAAP supplemental financial measure.
Adjusted operating revenues is presented because it is an important measure we
use to evaluate period-to-period comparisons of earnings trends. Adjusted
operating revenues should not be considered as an alternative to total operating
revenues. See "Non-GAAP Financial Measures Reconciliation" for a reconciliation
of adjusted operating revenues with total operating revenues, the most directly
comparable financial measure calculated in accordance with GAAP.
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EQT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
(Thousands, unless otherwise noted)
NATURAL GAS
Sales volume (MMcf) 463,856 464,574 1,406,715 1,249,140
NYMEX price ($/MMBtu) $ 8.18 $ 4.02 $ 6.75 $ 3.23
Btu uplift 0.44 0.19 0.35 0.17
Natural gas price ($/Mcf) $ 8.62 $ 4.21 $ 7.10 $ 3.40
Basis ($/Mcf) (a) $ (0.97) $ (0.76) $ (0.70) $ (0.54)
Cash settled basis swaps ($/Mcf) (0.05) (0.05) (0.08) (0.05)
Average differential, including cash settled
basis swaps ($/Mcf) $ (1.02) $ (0.81) $ (0.78) $ (0.59)
Average adjusted price ($/Mcf) $ 7.60 $ 3.40 $ 6.32 $ 2.81
Cash settled derivatives ($/Mcf) (4.32) (1.20) (3.24) (0.49)
Average natural gas price, including cash
settled derivatives ($/Mcf) $ 3.28 $ 2.20 $ 3.08 $ 2.32
Natural gas sales, including cash settled
derivatives $ 1,519,597 $
1,021,529
LIQUIDS NGLs, excluding ethane: Sales volume (MMcfe) (b) 13,841 16,504 43,043 47,262 Sales volume (Mbbl) 2,307 2,751 7,174 7,877 NGLs price ($/Bbl)$ 48.77 $ 49.39 $ 57.25 $ 40.67 Cash settled derivatives ($/Bbl) (3.78) (16.35) (4.45) (9.82) Average NGLs price, including cash settled derivatives ($/Bbl)$ 44.99 $ 33.04 $ 52.80 $ 30.85 NGLs sales, including cash settled derivatives$ 103,789 $ 90,877 $ 378,811 $ 243,057 Ethane: Sales volume (MMcfe) (b) 8,464 10,546 27,071 26,936 Sales volume (Mbbl) 1,411 1,758 4,512 4,490 Ethane price ($/Bbl)$ 15.68 $ 9.22 $ 14.47 $ 7.64 Ethane sales$ 22,123 $ 16,202 $ 65,276 $ 34,296 Oil: Sales volume (MMcfe) (b) 1,505 3,389 4,629 7,460 Sales volume (Mbbl) 251 565 772 1,243 Oil price ($/Bbl)$ 63.20 $ 46.79 $ 80.12 $ 53.24 Oil sales$ 15,852 $ 26,423 $ 61,815 $ 66,195 Total liquids sales volume (MMcfe) (b) 23,810 30,439 74,743 81,658 Total liquids sales volume (Mbbl) 3,969 5,074 12,458 13,610 Total liquids sales$ 141,764 $
133,502
TOTAL
Total natural gas and liquids sales, including cash settled derivatives (c)$ 1,661,361 $
1,155,031
487,666 495,013 1,481,458 1,330,798
Average realized price ($/Mcfe) $ 3.41 $
2.33
(a)Basis represents the difference between the ultimate sales price for natural gas, including the effects of delivered price benefit or deficit associated with our firm transportation agreements, and theNew York Mercantile Exchange (NYMEX) natural gas price. (b)NGLs, ethane and oil were converted to Mcfe at a rate of six Mcfe per barrel. (c)Total natural gas and liquids sales, including cash settled derivatives, is also referred to in this report as adjusted operating revenues, a non-GAAP supplemental financial measure. 26
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EQT CORPORATION AND SUBSIDIARIESManagement's Discussion and Analysis of Financial Condition and Results of
OperationsNon-GAAP Financial Measures Reconciliation
The table below reconciles adjusted operating revenues, a non-GAAP supplemental
financial measure, with total operating revenues, its most directly comparable
financial measure calculated in accordance with GAAP. Adjusted operating
revenues (also referred to in this report as total natural gas and liquids
sales, including cash settled derivatives) is presented because it is an
important measure we use to evaluate period-to-period comparisons of earnings
trends. Adjusted operating revenues excludes the revenue impacts of changes in
the fair value of derivative instruments prior to settlement and net marketing
services and other. We use adjusted operating revenues to evaluate earnings
trends because, as a result of the measure's exclusion of the often-volatile
changes in the fair value of derivative instruments prior to settlement, the
measure reflects only the impact of settled derivative contracts. Net marketing
services and other consists of the costs of, and recoveries on, pipeline
capacity releases, revenues for gathering services provided to third parties and
other revenues. Because we consider net marketing services and other to be
unrelated to our natural gas and liquids production activities, adjusted
operating revenues excludes net marketing services and other. We believe that
adjusted operating revenues provides useful information to investors for
evaluating period-to-period comparisons of earnings trends.
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
(Thousands, unless otherwise noted)
Total operating revenues $ 2,069,463 $ (1,464,838) $ 4,017,861 $ (775,031)
Add (deduct):
Loss on derivatives 1,627,296 3,257,237 5,550,028 4,791,582
Net cash settlements paid on derivatives (2,033,727) (619,864) (4,672,998) (729,445)
Premiums received (paid) for derivatives
that settled during the period 894 (9,155) (31,318) (28,460)
Net marketing services and other (2,565) (8,349) (21,860) (23,646)
Adjusted operating revenues, a non-GAAP
financial measure $ 1,661,361 $ 1,155,031 $ 4,841,713 $ 3,235,000
Total sales volume (MMcfe) 487,666 495,013 1,481,458 1,330,798
Average realized price ($/Mcfe)
$ 3.27 $ 2.43 Sales Volume and Revenues Three Months EndedSeptember 30, 2022 Compared to Three Months EndedSeptember 30, 2021 Three Months Ended September 30, 2022 2021 Change % Change (Thousands, unless otherwise noted) Sales volume by shale (MMcfe): Marcellus 456,495 449,650 6,845 1.5 Ohio Utica 30,531 41,226 (10,695) (25.9) Other 640 4,137 (3,497) (84.5) Total sales volume 487,666 495,013 (7,347) (1.5) Average daily sales volume (MMcfe/d) 5,301 5,381 (80) (1.5) Operating revenues: Sales of natural gas, NGLs and oil$ 3,694,194 $ 1,784,050 $ 1,910,144 107.1 Loss on derivatives (1,627,296) (3,257,237) 1,629,941 (50.0) Net marketing services and other 2,565 8,349 (5,784) (69.3) Total operating revenues$ 2,069,463 $ (1,464,838) $ 3,534,301 (241.3) 27
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EQT CORPORATION AND SUBSIDIARIESManagement's Discussion and Analysis of Financial Condition and Results of
Operations
Sales of natural gas, NGLs and oil. Sales of natural gas, NGLs and oil increased
for the three months ended September 30, 2022 compared to the same period in
2021 due to a higher average realized price, partly offset by decreased sales
volume.
Average realized price for the three months ended September 30, 2022 compared to
the same period in 2021 increased due to higher NYMEX prices, partly offset by
unfavorable cash settled derivatives and unfavorable differential. For the three
months ended September 30, 2022 and 2021, we paid $2,033.7 million and $619.9
million , respectively, of net cash settlements on derivatives, which are
included in average realized price but may not be included in operating
revenues.
Sales volume decreased primarily as a result of sales volume decreases from
natural decline of producing wells and fewer wells turned-in-line, partly offset
by sales volume increases from the assets acquired in the Alta Acquisition.
Sales volume for the three months ended September 30, 2022 was negatively
impacted by fewer wells turned-in-line as a result of third-party supply chain
constraints. Supply chain constraints may continue to impact our future
operating revenues. The pending Tug Hill and XcL Midstream Acquisition, which is
expected to close in the fourth quarter of 2022, subject to regulatory
approvals, is expected to add approximately 800 MMcfe per day of sales volume,
20% of which is liquids sales volume.
Loss on derivatives. For the three months ended September 30, 2022 and 2021, we
recognized a loss on derivatives of $1,627.3 million and $3,257.2 million ,
respectively, related primarily to decreases in the fair market value of our
NYMEX swaps and options due to increases in NYMEX forward prices.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30,
2021
Nine Months Ended September 30,
2022 2021 Change % Change
(Thousands, unless otherwise noted)
Sales volume by shale (MMcfe):
Marcellus 1,377,637 1,198,707 178,930 14.9
Ohio Utica 98,206 125,189 (26,983) (21.6)
Other 5,615 6,902 (1,287) (18.6)
Total sales volume 1,481,458 1,330,798 150,660 11.3
Average daily sales volume (MMcfe/d) 5,427 4,875 552 11.3
Operating revenues:
Sales of natural gas, NGLs and oil $ 9,546,029 $ 3,992,905 $ 5,553,124 139.1
Loss on derivatives (5,550,028) (4,791,582) (758,446) 15.8
Net marketing services and other 21,860 23,646 (1,786) (7.6)
Total operating revenues $ 4,017,861 $ (775,031) $ 4,792,892 (618.4)
Sales of natural gas, NGLs and oil. Sales of natural gas, NGLs and oil increased
for the nine months ended September 30, 2022 compared to the same period in 2021
due to a higher average realized price and increased sales volume.
Average realized price for the nine months ended September 30, 2022 compared to
the same period in 2021 increased due to higher NYMEX prices and higher liquids
prices, partly offset by unfavorable cash settled derivatives and unfavorable
differential. For the nine months ended September 30, 2022 and 2021, we paid
$4,673.0 million and $729.4 million , respectively, of net cash settlements on
derivatives, which are included in average realized price but may not be
included in operating revenues.
Sales volume increased primarily as a result of sales volume increases from the
assets acquired in the Alta Acquisition, partly offset by natural decline of
producing wells and fewer wells turned-in-line. The pending Tug Hill and XcL
Midstream Acquisition, which is expected to close in the fourth quarter of 2022,
subject to regulatory approvals, is expected to add approximately 800 MMcfe per
day of sales volume, 20% of which is liquids sales volume.
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Operations
Loss on derivatives. For the nine months ended September 30, 2022 and 2021, we
recognized a loss on derivatives of $5,550.0 million and $4,791.6 million ,
respectively, related primarily to decreases in the fair market value of our
NYMEX swaps and options due to increases in NYMEX forward prices.
Operating Expenses
Three Months EndedSeptember 30, 2022 Compared to Three Months EndedSeptember 30, 2021 Three Months Ended September 30, 2022 2021 Change % Change (Thousands, unless otherwise noted) Operating expenses: Gathering$ 337,532 $ 316,612 $ 20,920 6.6 Transmission 151,425 129,402 22,023 17.0 Processing 52,135 48,883 3,252 6.7 Lease operating expenses (LOE) 39,934 32,141 7,793 24.2 Production taxes 41,851 25,682 16,169 63.0 Exploration 357 20,495 (20,138) (98.3) Selling, general and administrative 67,231 49,113 18,118 36.9 Production depletion$ 413,706 $ 437,367 $ (23,661) (5.4) Other depreciation and depletion 4,989 5,509 (520) (9.4) Total depreciation and depletion$ 418,695 $ 442,876 $ (24,181) (5.5) Per Unit ($/Mcfe): Gathering$ 0.69 $ 0.64 $ 0.05 7.8 Transmission 0.31 0.26 0.05 19.2 Processing 0.11 0.10 0.01 10.0 LOE 0.08 0.06 0.02 33.3 Production taxes 0.09 0.05 0.04 80.0 Exploration - 0.04 (0.04) (100.0) Selling, general and administrative 0.14 0.10 0.04 40.0 Production depletion 0.85 0.88 (0.03) (3.4) Operating expenses on a per Mcfe basis for the three months endedSeptember 30, 2022 compared to the same period in 2021 were negatively impacted by lower sales volume unless otherwise noted. Sales volume for the three months endedSeptember 30, 2022 was negatively impacted by fewer wells turned-in-line as a result of third-party supply chain constraints. Supply chain constraints and inflationary pressures may continue to impact our future operating expenses. Gathering. Gathering expense increased on an absolute and per Mcfe basis for the three months endedSeptember 30, 2022 compared to the same period in 2021 due primarily to higher gathering rates on certain contracts indexed to price. Transmission. Transmission expense increased on an absolute and per Mcfe basis for the three months endedSeptember 30, 2022 compared to the same period in 2021 due primarily to higher rates on and lower credits received from theTexas Eastern Transmission Pipeline and additional capacity acquired on theRockies Express Pipeline inSeptember 2021 . LOE. LOE increased on an absolute and per Mcfe basis for the three months endedSeptember 30, 2022 compared to the same period in 2021 due primarily to higher salt water disposal costs. Production taxes. Production taxes increased on an absolute and per Mcfe basis for the three months endedSeptember 30, 2022 compared to the same period in 2021 due to increasedWest Virginia severance taxes, which resulted primarily from higher prices. 29
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EQT CORPORATION AND SUBSIDIARIESManagement's Discussion and Analysis of Financial Condition and Results of
Operations
Exploration. Exploration decreased on an absolute and per Mcfe basis for the
three months ended September 30, 2022 compared to the same period in 2021 due
primarily to our prior year purchase of seismic data following the completion of
the Alta Acquisition.
Selling, general and administrative. Selling, general and administrative expense
increased on an absolute and 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.
Long-term incentive compensation may fluctuate with changes in our stock price
and performance conditions.
Depreciation and depletion. Production depletion expense decreased on an
absolute and per Mcfe basis for the three months ended
Impairment and expiration of leases. During the three months ended
Other operating expenses. Other operating expenses for the three months endedSeptember 30, 2022 of$15.5 million were attributable primarily to changes in legal reserves as well as transaction costs associated with the Tug Hill and XcL Midstream Acquisition. Other operating expenses for the three months endedSeptember 30, 2021 of$38.8 million were attributable primarily to transaction costs associated with the Alta Acquisition. 30
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EQT CORPORATION AND SUBSIDIARIESManagement's Discussion and Analysis of Financial Condition and Results of
Operations
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30,
2021
Nine Months Ended September 30,
2022 2021 Change % Change
(Thousands, unless otherwise noted)
Operating expenses:
Gathering $ 997,161 $ 883,378 $ 113,783 12.9
Transmission 447,914 384,509 63,405 16.5
Processing 151,825 136,810 15,015 11.0
LOE 122,577 84,707 37,870 44.7
Production taxes 112,776 67,892 44,884 66.1
Exploration 2,870 23,223 (20,353) (87.6) Selling, general and administrative 195,603 143,972 51,631 35.9
Production depletion$ 1,254,566 $ 1,187,188 $ 67,378 5.7 Other depreciation and depletion 15,370 13,092 2,278 17.4 Total depreciation and depletion$ 1,269,936 $ 1,200,280 $ 69,656 5.8 Per Unit ($/Mcfe): Gathering$ 0.67 $ 0.66 $ 0.01 1.5 Transmission 0.30 0.29 0.01 3.4 Processing 0.10 0.10 - - LOE 0.08 0.06 0.02 33.3 Production taxes 0.08 0.05 0.03 60.0 Exploration - 0.02 (0.02) (100.0) Selling, general and administrative 0.13 0.11 0.02 18.2 Production depletion 0.85 0.89 (0.04) (4.5) Gathering. Gathering expense increased on an absolute and per Mcfe basis for the nine months endedSeptember 30, 2022 compared to the same period in 2021 due primarily to increased sales volume from the assets acquired in the Alta Acquisition and higher gathering rates on certain contracts indexed to price, partly offset by the lower gathering rate structure on the assets acquired in the Alta Acquisition. Transmission. Transmission expense increased on an absolute and per Mcfe basis for the nine months endedSeptember 30, 2022 compared to the same period in 2021 due primarily to higher rates on and lower credits received from theTexas Eastern Transmission Pipeline, additional capacity acquired as part of the Alta Acquisition and additional capacity acquired on theRockies Express Pipeline inSeptember 2021 .
Processing. Processing expense increased on an absolute basis for the nine
months ended
LOE. LOE increased on an absolute and per Mcfe basis for the nine months endedSeptember 30, 2022 compared to the same period in 2021 due primarily to higher salt water disposal costs and additional lease operating costs as a result of the Alta Acquisition. Production taxes. Production taxes increased on an absolute and per Mcfe basis for the nine months endedSeptember 30, 2022 compared to the same period in 2021 due to increasedWest Virginia severance taxes, which resulted primarily from higher prices, and increasedPennsylvania impact fees, which resulted from the additional wells acquired in the Alta Acquisition, higher prices and inflation. 31
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EQT CORPORATION AND SUBSIDIARIESManagement's Discussion and Analysis of Financial Condition and Results of
Operations
Exploration. Exploration decreased on an absolute and per Mcfe basis for the
nine months ended September 30, 2022 compared to the same period in 2021 due
primarily to our prior year purchase of seismic data following the completion of
the Alta Acquisition.
Selling, general and administrative. Selling, general and administrative expense
increased on an absolute and per Mcfe basis for the nine 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.
Long-term incentive compensation may fluctuate with changes in our stock price
and performance conditions.
Depreciation and depletion. Production depletion expense increased on an
absolute basis for the nine months ended September 30, 2022 compared to the same
period in 2021 due to increased sales volume, partly offset by a lower annual
depletion rate. Production depletion expense decreased on a per Mcfe basis for
the nine months ended September 30, 2022 compared to the same period in 2021 due
to a lower annual depletion rate.
Gain on sale/exchange of long-lived assets. During the nine months ended
September 30, 2022 and 2021, we recognized a gain on sale of long-lived assets
of $2.5 million and $18.4 million , respectively, related primarily to changes in
the fair value of the Contingent Consideration (defined in Note 3 to the
Condensed Consolidated Financial Statements).
Impairment of contract asset. During the nine months ended September 30, 2022 ,
we recognized impairment of our contract asset of $184.9 million . See Note 8 to
the Condensed Consolidated Financial Statements.
Impairment and expiration of leases. During the nine months ended September 30,
2022 and 2021, we recognized impairment and expiration of leases of $97.5
million and $83.5 million , respectively, related to leases that we no longer
expect to extend or develop prior to their expiration based on our development
plan.
Other operating expenses. Other operating expenses for the nine months ended
September 30, 2022 of $39.0 million were attributable primarily to changes in
legal and environmental reserves as well as transaction costs associated with
the Tug Hill and XcL Midstream Acquisition. Other operating expenses for the
nine months ended September 30, 2021 of $53.4 million were attributable
primarily to transaction costs associated with the Alta Acquisition and our
acquisition of upstream assets from Chevron U.S.A. Inc. in November 2020 .
Other Income Statement Items
(Income) loss from investments. For the three months endedSeptember 30, 2022 , we recognized income from investments due to equity earnings on our equity method investments, partly offset by a loss on our investment in the Investment Fund (defined in Note 4 to the Condensed Consolidated Financial Statements). For the three months endedSeptember 30, 2021 , we recognized income from investments due primarily to a gain on our investment in Equitrans Midstream. For the nine months endedSeptember 30, 2022 , we recognized a loss from investments due to a loss on the sale of our investment in Equitrans Midstream, which resulted from a decrease in Equitrans Midstream's stock price to$8.65 as ofApril 20, 2022 , the date of the final sale of our investment, from$10.34 as ofDecember 31, 2021 , partly offset by equity earnings on our equity method investments and a gain on our investment in the Investment Fund. For the nine months endedSeptember 30, 2021 , we recognized income from investments due primarily to a gain on our investments in Equitrans Midstream and the Investment Fund.
Dividend and other income. Dividend and other income decreased for the three
months ended
Loss on debt extinguishment. During the three and nine months endedSeptember 30, 2022 , we recognized a loss on debt extinguishment of$27.8 million and$139.1 million , respectively, due to the debt repayment and repurchases discussed in Note 6 to the Condensed Consolidated Financial Statements. During the nine months endedSeptember 30, 2021 , we recognized a loss on debt extinguishment of$9.8 million due to fees incurred for a bridge-loan commitment related to the Alta Acquisition and the repayment of our 4.875% senior notes. 32
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Operations
Interest expense. Interest expense decreased for the three months ended
September 30, 2022 compared to the same period in 2021 due primarily to reduced
interest expense on our senior notes driven by lower balances and lower interest
rates as well as reduced interest expense due to a reduction of letters of
credit balances, partly offset by increased interest expense due primarily to
increased interest rates on borrowings under our credit facility. Interest
expense decreased for the nine months ended September 30, 2022 compared to the
same period in 2021 due primarily to reduced interest expense on our senior
notes driven by lower interest rates and lower balances as well as reduced
interest expense due to a reduction of letters of credit balances, partly offset
by increased interest expense due primarily to increased interest rates and
higher borrowings under our credit facility. See Note 6 to the Condensed
Consolidated Financial Statements.
Income tax expense (benefit). See Note 5 to the Condensed Consolidated Financial Statements.
Capital Resources and Liquidity
Although we cannot provide any assurance, we believe cash flows from operating activities and availability under our credit facility should be sufficient to meet our cash requirements inclusive of, but not limited to, normal operating needs, debt service obligations, planned capital expenditures and commitments for at least the next twelve months and, based on current expectations, for the long term. Planned Capital Expenditures and Sales Volume. In 2022, we expect to spend approximately$1.400 billion to$1.475 billion in total capital expenditures, excluding amounts attributable to noncontrolling interest and amounts attributable to the assets expected to be acquired in the Tug Hill and XcL Midstream Acquisition. We expect to fund our capital expenditures with cash generated from operations and, if required, borrowings under our credit facility. Because we are the operator of a high percentage of our developed acreage, the amount and timing of these capital expenditures are largely discretionary. We could choose to defer a portion of these planned 2022 capital expenditures depending on a variety of factors, including prevailing and anticipated prices for natural gas, NGLs and oil; the availability of necessary equipment, infrastructure and capital; the receipt and timing of required regulatory permits and approvals; and drilling, completion and acquisition costs. In 2022, we expect our sales volume to be 1,925 Bcfe to 1,975 Bcfe, excluding amounts attributable to the assets expected to be acquired in the Tug Hill and XcL Midstream Acquisition. Operating Activities. Net cash provided by operating activities was$2,402 million for the nine months endedSeptember 30, 2022 compared to$492 million for the same period in 2021. The increase was due primarily to higher cash operating revenues and favorable changes in working capital, partly offset by higher net cash settlements paid on derivatives and higher cash operating expenses. During the third quarter of 2022, we elected to exercise the Cash Payment Option pursuant to the Consolidated GGA (each defined and discussed in Note 8 to the Condensed Consolidated Financial Statements), and, onOctober 4, 2022 , we received the cash proceeds from the Cash Payment Option. Our cash flows from operating activities are affected by movements in the market price for commodities. We are unable to predict such movements outside of the current market view as reflected in forward strip pricing. Refer to Item 1A., "Risk Factors - Natural gas, NGLs and oil price volatility, or a prolonged period of low natural gas, NGLs and oil prices, may have an adverse effect on our revenue, profitability, future rate of growth, liquidity and financial position" in our Annual Report on Form 10-K for the year ended December 31, 2021. Investing Activities. Net cash used in investing activities was$1,017 million for the nine months endedSeptember 30, 2022 compared to$1,715 million for the same period in 2021. The decrease was due to cash paid for acquisitions in 2021 and proceeds from the sale of our remaining investment in Equitrans Midstream common stock in 2022, partly offset by increased capital expenditures and a deposit on acquisition in 2022. 33
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EQT CORPORATION AND SUBSIDIARIESManagement's Discussion and Analysis of Financial Condition and Results of
OperationsThe following table summarizes our capital expenditures.
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
(Millions)
Reserve development $ 271 $ 242 $ 797 $ 609
Land and lease (a) 34 27 122 81
Capitalized overhead 14 15 39 42
Capitalized interest 7 5 19 13
Other production infrastructure 27 7 59 31
Other 3 1 6 5
Total capital expenditures 356 297 1,042 781
Add (deduct): Non-cash items (b) 6 (60) 5 (74)
Total cash capital expenditures $ 362 $ 237 $ 1,047 $ 707
(a)Capital expenditures attributable to noncontrolling interest were $6.6
million and $0.7 million for the three months ended September 30, 2022 and 2021,
respectively, and $11.0 million and $5.7 million for the nine months ended
September 30, 2022 and 2021, respectively.
(b)Represents the net impact of non-cash capital expenditures, including the
effect of timing of receivables from working interest partners, accrued capital
expenditures and capitalized share-based compensation costs. The impact of
accrued capital expenditures includes the current period estimate, net of the
reversal of the prior period accrual.
Financing Activities. Net cash used in financing activities was $1,411 million
for the nine months ended September 30, 2022 compared to net cash provided by
financing activities of $1,228 million for the same period in 2021. For the nine
months ended September 30, 2022 , the primary uses of financing cash flows were
repayment and retirement of debt, repurchase and retirement of EQT common stock
and payment of dividends. For the nine months ended September 30, 2021 , the
primary sources of financing cash flows were net proceeds from the issuance of
debt and credit facility borrowings, and the primary use of financing cash flows
was net repayments of debt.
See Note 6 to the Condensed Consolidated Financial Statements for further discussion of our debt and borrowings under our credit facility.
On
Depending on our actual and anticipated sources and uses of liquidity, prevailing market conditions and other factors, we may from time to time seek to redeem or repurchase our outstanding debt or equity securities through tender offers or other cash purchases in the open market or privately negotiated transactions. The amounts involved in any such transactions may be material. See Note 6 to the Condensed Consolidated Financial Statements for discussion of redemptions and repurchases of debt. Material Cash Requirements. OnSeptember 6, 2022 , we entered into the Tug Hill and XcL Midstream Purchase Agreement (defined in Note 9 to the Condensed Consolidated Financial Statements), pursuant to which we agreed to acquireTHQ Appalachia I, LLC's upstream assets andTHQ-XcL Holdings I, LLC's gathering and processing assets through the acquisition of all of the issued and outstanding membership interests of each ofTHQ Appalachia I Midco, LLC andTHQ-XcL Holdings I Midco, LLC for consideration of approximately$2.6 billion in cash and 55.0 million shares of EQT common stock, as adjusted pursuant to customary closing purchase price adjustments. Upon execution of the Tug Hill and XcL Midstream Purchase Agreement, we deposited$150 million into an escrow account, which will be credited toward the cash consideration upon closing of the Tug Hill and XcL Midstream Acquisition. OnOctober 4, 2022 , we issued$500 million aggregate principal amount of 5.678% senior notes dueOctober 1, 2025 and$500 million aggregate principal amount of 5.700% senior notes dueApril 1, 2028 . We intend to use the net proceeds from the sale of the notes, together with borrowings under the Term Loan Facility (defined in Note 6 to the Condensed Consolidated Financial Statements), cash on hand and/or borrowings under our credit facility, to fund the cash consideration for the Tug Hill and XcL Midstream Acquisition. The Tug Hill and XcL Midstream Acquisition is expected to close in the fourth quarter of 2022, subject to regulatory approvals. 34
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EQT CORPORATION AND SUBSIDIARIESManagement's Discussion and Analysis of Financial Condition and Results of
OperationsSecurity Ratings and Financing Triggers
The table below reflects the credit ratings and rating outlooks assigned to our debt instruments as ofOctober 21, 2022 . Our credit ratings and rating outlooks are subject to revision or withdrawal at any time by the assigning rating agency, and each rating should be evaluated independent from any other rating. We cannot ensure that a rating will remain in effect for any given period of time or that a rating will not be lowered or withdrawn by a rating agency if, in the rating agency's judgment, circumstances so warrant. See Note 3 to the Condensed Consolidated Financial Statements for a description of what is deemed investment grade. Rating agency Senior notes Outlook Moody's Investors Service (Moody's) Ba1 Positive Standard & Poor's Ratings Service (S&P) BBB- Stable Fitch Ratings Service (Fitch) BBB- Stable Changes in credit ratings may affect our access to the capital markets, the cost of short-term debt through interest rates and fees under our credit facility, the interest rate on our senior notes with adjustable rates, the rates available on new long-term debt, our pool of investors and funding sources, the borrowing costs and margin deposit requirements on our over the counter (OTC) derivative instruments and credit assurance requirements, including collateral, in support of our midstream service contracts, joint venture arrangements or construction contracts. Margin deposits on our OTC derivative instruments are also subject to factors other than credit rating, such as natural gas prices and credit thresholds set forth in the agreements between us and our hedging counterparties. As ofOctober 21, 2022 , we had sufficient unused borrowing capacity, net of letters of credit, under our credit facility to satisfy any requests for margin deposit or other collateral that our counterparties are permitted to request of us pursuant to our OTC derivative instruments, midstream services contracts and other contracts. As ofOctober 21, 2022 , such assurances could be up to approximately$0.7 billion , inclusive of letters of credit, OTC derivative instrument margin deposits and other collateral posted of approximately$0.3 billion in the aggregate. See Notes 3 and 6 to the Condensed Consolidated Financial Statements for further information. Our debt agreements and other financial obligations contain various provisions that, if not complied with, could result in default or event of default under our credit facility, mandatory partial or full repayment of amounts outstanding, reduced loan capacity or other similar actions. The most significant covenants and events of default under the debt agreements relate to maintenance of a debt-to-total capitalization ratio, limitations on transactions with affiliates, insolvency events, nonpayment of scheduled principal or interest payments, acceleration of other financial obligations and change of control provisions. Our credit facility contains financial covenants that require us to have a total debt to total capitalization ratio no greater than 65%. As ofSeptember 30, 2022 , we were in compliance with all debt provisions and covenants under our debt agreements.
See Note 6 to the Condensed Consolidated Financial Statements for a discussion of borrowings under our credit facility.
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EQT CORPORATION AND SUBSIDIARIESManagement's Discussion and Analysis of Financial Condition and Results of
OperationsCommodity Risk Management
The substantial majority of our commodity risk management program is related to hedging sales of our produced natural gas. The overall objective of our hedging program is to protect cash flows from undue exposure to the risk of changing commodity prices. The derivative commodity instruments that we use are primarily swap, collar and option agreements. The following table summarizes the approximate volume and prices of our NYMEX hedge positions as ofOctober 21, 2022 . The difference between the fixed price and NYMEX price is included in average differential presented in our price reconciliation in "Average Realized Price Reconciliation." The fixed price natural gas sales agreements can be physically or financially settled. Q4 2022 (a) Q1 2023 Q2 2023 Q3 2023 Q4 2023 2024 Hedged Volume (MMDth) 290 300 353 356 283 17 Hedged Volume (MMDth/d) 3.2 3.3 3.9 3.9 3.1 - Swaps - Long Volume (MMDth) 203 44 41 42 14 - Avg. Price ($/Dth)$ 6.07 $ 6.19 $ 4.77 $ 4.75 $ 4.77 $ - Swaps - Short Volume (MMDth) 354 44 41 42 42 2 Avg. Price ($/Dth)$ 3.14 $ 2.88 $ 2.53 $ 2.53 $ 2.53 $ 2.67 Calls - Long Volume (MMDth) 54 40 40 40 40 51 Avg. Strike ($/Dth)$ 4.88 $ 2.79 $ 2.72 $ 2.72 $ 2.72 $ 3.20 Calls - Short Volume (MMDth) 239 233 300 303 197 66 Avg. Strike ($/Dth)$ 6.32 $ 9.46 $ 4.85 $ 4.85 $ 4.69 $ 3.11 Puts - Long Volume (MMDth) 155 299 352 355 255 15 Avg. Strike ($/Dth)$ 5.33 $ 4.50 $ 3.30 $ 3.30 $ 3.35 $ 2.45 Puts - Short Volume (MMDth) 17 - - - - - Avg. Strike ($/Dth)$ 4.40 $ - $ - $ - $ - $ - Fixed Price Sales Volume (MMDth) 1 1 1 1 - - Avg. Price ($/Dth)$ 3.37 $ 4.00 $
2.24
Option Premiums Cash Settlement of Deferred Premiums (millions) $ -$ (107) $ (81) $ (82) $ (75) $ -
(a)
For 2022 (October 1 through December 31 ), 2023 and 2024, we have natural gas sales agreements for approximately 5 MMDth, 88 MMDth and 11 MMDth, respectively, that include average NYMEX ceiling prices of$3.17 ,$2.84 and$3.21 , respectively. 36
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EQT CORPORATION AND SUBSIDIARIESManagement's Discussion and Analysis of Financial Condition and Results of
OperationsWe have also entered into derivative instruments to hedge basis. We may use other contractual agreements to implement our commodity hedging strategy from time to time.
See Item 3., "Quantitative and Qualitative Disclosures About Market Risk" and Note 3 to the Condensed Consolidated Financial Statements for further discussion of our hedging program. Commitments and Contingencies In the ordinary course of business, various legal and regulatory claims and proceedings are pending or threatened against us. While the amounts claimed may be substantial, we are unable to predict with certainty the ultimate outcome of such claims and proceedings. We accrue legal and other direct costs related to loss contingencies when actually incurred. We have established reserves that we believe to be appropriate for pending matters and, after consultation with counsel and giving appropriate consideration to available insurance, we believe that the ultimate outcome of any pending matter involving us will not materially affect our financial condition, results of operations or liquidity. See Note 16 to the Consolidated Financial Statements and Part I, Item 3., "Legal Proceedings" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 for a discussion of our commitments and contingencies.
Recently Issued Accounting Standards
Our recently issued accounting standards are described in Note 1 to the Condensed Consolidated Financial Statements.
Critical Accounting Policies and Estimates
Our critical accounting policies, including a discussion regarding the estimation uncertainty and the impact that our critical accounting estimates have had, or are reasonably likely to have, on our financial condition or results of operations, are described in Item 7., "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2021. The application of our critical accounting policies may require us to make judgments and estimates about the amounts reflected in the Condensed Consolidated Financial Statements. We use historical experience and all available information to make these estimates and judgments. Different amounts could be reported using different assumptions and estimates.
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