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, and Section 27A of the Securities Act of 1933, as amended. 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); the projected scope and timing of our combo-development projects; estimated reserves, including potential future downward adjustments of reserves and reserve life; total resource potential and drilling inventory duration; projected production and sales volume and growth rates (including liquids 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; our ability to reduce our well costs and capital expenditures, and the timing of achieving any such reductions; infrastructure programs; the cost, capacity, and timing of obtaining regulatory approvals; our ability to successfully implement and execute our operational, organizational, technological and ESG initiatives, and achieve the anticipated results of such initiatives; projected reductions of our gathering and compression rates resulting from our consolidated gas gathering and compression agreement with Equitrans Midstream Corporation (Equitrans Midstream), and the anticipated cost savings and other strategic benefits associated with the execution of such agreement; 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 acquisition transactions or other strategic transactions, the timing thereof and our ability to achieve the intended operational, financial and strategic benefits from any such transactions, including our acquisition of certain upstream and midstream assets fromAlta Resources Development, LLC ; the timing and structure of any dispositions of our remaining retained shares of Equitrans Midstream's common stock, and the planned use of the proceeds from any such dispositions; 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; projected dividends, if any; projected cash flows and free cash flow; projected capital expenditures; 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; 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; access to and cost of capital; 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; 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; the ability to obtain environmental and other permits and the timing thereof; government regulation or action; environmental and weather risks, including the possible impacts of climate change; and disruptions to our business due to acquisitions and other significant transactions. 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, 2020 . 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. 19
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EQT CORPORATION AND SUBSIDIARIESManagement's Discussion and Analysis of Financial Condition and Results of
OperationsConsolidated Results of Operations
Net loss attributable toEQT Corporation for the three months endedJune 30, 2021 was$936.5 million ,$3.35 per diluted share, compared to net loss attributable toEQT Corporation for the same period in 2020 of$263.1 million ,$1.03 per diluted share. The change was attributable primarily to the loss on derivatives not designated as hedges, lower income from investments, increased transportation and processing expense and increased depreciation and depletion, partly offset by increased sales of natural gas, NGLs and oil, higher income tax benefit, the gain on sale of long-lived assets and decreased impairment and expiration of leases. Net loss attributable toEQT Corporation for the six months endedJune 30, 2021 was$977.0 million ,$3.50 per diluted share, compared to net loss attributable toEQT Corporation for the same period in 2020 of$430.2 million ,$1.68 per diluted share. The change was attributable primarily to the loss on derivatives not designated as hedges, the gain on Equitrans Share Exchange (defined and discussed in Note 8 to the Condensed Consolidated Financial Statements) recognized in the first quarter of 2020, increased depreciation and depletion and increased transportation and processing expense, partly offset by increased sales of natural gas, NGLs and oil, the income from investments, higher income tax benefit, the gain on sale of long-lived assets and decreased impairment and expiration of leases.
See "Sales Volume and Revenues" and "Operating Expenses" for discussions of items affecting operating income and "Other Income Statement Items" for a discussion of other income statement items. See "Investing Activities" under "Capital Resources and Liquidity" for a discussion of capital expenditures.
Average Realized Price Reconciliation
The following table presents detailed natural gas and liquids operational
information to assist in the understanding of our consolidated operations,
including the calculation of our average realized price ($/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 Six Months Ended
June 30, June 30,
2021 2020 2021 2020
(Thousands, unless otherwise noted)
NATURAL GAS
Sales volume (MMcf) 394,268 325,248 784,566 694,990
NYMEX price ($/MMBtu) $ 2.84 $ 1.71 $ 2.76 $ 1.84
Btu uplift 0.16 0.09 0.15 0.09
Natural gas price ($/Mcf) $ 3.00 $ 1.80 $ 2.91 $ 1.93
Basis ($/Mcf) (a) $ (0.57) $ (0.36) $ (0.41) $ (0.29)
Cash settled basis swaps (not designated as
hedges) ($/Mcf) (0.02) (0.02) (0.05) 0.02
Average differential, including cash settled
basis swaps ($/Mcf) $ (0.59) $ (0.38) $ (0.46) $ (0.27)
Average adjusted price ($/Mcf) $ 2.41 $ 1.42 $ 2.45 $ 1.66
Cash settled derivatives (not designated as
hedges) ($/Mcf) (0.13) 1.00 (0.07) 0.79
Average natural gas price, including cash settled
derivatives ($/Mcf) $ 2.28 $ 2.42 $ 2.38 $ 2.45
Natural gas sales, including cash settled
derivatives $ 897,429 $
786,595
LIQUIDS
Natural gas liquids (NGLs), excluding ethane: Sales volume (MMcfe) (b) 16,158 10,572 30,758 21,392 Sales volume (Mbbl) 2,693 1,762 5,126 3,565 Price ($/Bbl)$ 34.83 $ 13.52 $ 36.00 $ 16.08 Cash settled derivatives (not designated as hedges) ($/Bbl) (9.31) (0.52) (6.31) (0.26) Average NGLs price, including cash settled derivatives ($/Bbl)$ 25.52 $ 13.00 $ 29.69 $ 15.82 NGLs sales$ 68,737 $ 22,910 $ 152,180 $ 56,421 Ethane: Sales volume (MMcfe) (b) 7,803 8,769 16,390 12,098 Sales volume (Mbbl) 1,301 1,461 2,732 2,016 Price ($/Bbl)$ 6.58 $ 3.38 $ 6.62 $ 3.56 Ethane sales$ 8,560 $ 4,941 $ 18,094 $ 7,186 Oil: Sales volume (MMcfe) (b) 2,366 1,058 4,071 2,237 Sales volume (Mbbl) 394 176 678 373 Price ($/Bbl)$ 56.18 $ 10.17 $ 58.61 $ 21.48 Oil sales$ 22,158 $ 1,795 $ 39,772 $ 8,010 Total liquids sales volume (MMcfe) (b) 26,327 20,399 51,219 35,727 Total liquids sales volume (Mbbl) 4,388 3,399 8,536 5,954 Total liquids sales$ 99,455 $ 29,646 $ 210,046 $ 71,617 TOTAL Total natural gas and liquids sales, including cash settled derivatives (c)$ 996,884 $ 816,241 $ 2,079,969 $ 1,773,623 Total sales volume (MMcfe) 420,595 345,647 835,785 730,717 Average realized price ($/Mcfe)$ 2.37 $
2.36
(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. 21
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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 primarily includes the costs of, and recoveries on, pipeline
capacity releases. 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 Six Months Ended
June 30, June 30,
2021 2020 2021 2020
(Thousands, unless otherwise noted)
Total operating revenues $ (260,116) $ 527,074 $ 689,807 $ 1,634,131
Add (deduct):
Loss (gain) on derivatives not
designated as hedges 1,345,532 (26,426) 1,534,345 (415,862)
Net cash settlements (paid) received on
derivatives not designated as hedges (71,441) 315,393 (109,581) 561,129
Premiums (paid) received for derivatives
that settled during the period (9,579) 2,076 (19,305) (1,479)
Net marketing services and other (7,512) (1,876) (15,297) (4,296)
Adjusted operating revenues, a non-GAAP
financial measure $ 996,884 $ 816,241 Total sales volume (MMcfe) 420,595 345,647 835,785 730,717
Average realized price ($/Mcfe)
$ 2.49 $ 2.43 Sales Volume and Revenues Three Months Ended June 30, Six Months Ended June 30, 2021 2020 % 2021 2020 % (Thousands, unless otherwise noted) Sales volume by shale (MMcfe): Marcellus (a) 375,116 305,752 22.7 749,057 639,503 17.1 Ohio Utica 44,034 38,430 14.6 83,963 88,205 (4.8) Other 1,445 1,465 (1.4) 2,765 3,009 (8.1) Total sales volume (b) 420,595 345,647 21.7 835,785 730,717 14.4 Average daily sales volume (MMcfe/d) 4,622 3,798 21.7 4,618 4,015 15.0 Operating revenues: Sales of natural gas, NGLs and oil$ 1,077,904 $ 498,772 116.1$ 2,208,855 $ 1,213,973
82.0
(Loss) gain on derivatives not designated as hedges (1,345,532) 26,426 (5,191.7) (1,534,345) 415,862 (469.0) Net marketing services and other 7,512 1,876 300.4 15,297 4,296 256.1 Total operating revenues$ (260,116) $ 527,074 (149.4)$ 689,807 $ 1,634,131 (57.8)
(a)Includes Upper Devonian wells. (b)NGLs, ethane and oil were converted to Mcfe at a rate of six Mcfe per barrel.
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EQT CORPORATION AND SUBSIDIARIESManagement's Discussion and Analysis of Financial Condition and Results of
Operations
Three Months Ended
Sales of natural gas, NGLs and oil. Sales of natural gas, NGLs and oil increased for the three months endedJune 30, 2021 compared to the same period in 2020 due to increased sales volume and a higher average realized price. Average realized price increased due to higher NYMEX prices and higher liquids prices, partly offset by lower cash settled derivatives and unfavorable differential. For the three months endedJune 30, 2021 and 2020, we paid$71.4 million and received$315.4 million , respectively, of net cash settlements on derivatives not designated as hedges, which are included in average realized price but may not be included in operating revenues. Sales volume increased primarily as a result of prior period sales volume decreases of 36 Bcfe from the 2020 Strategic Production Curtailments (defined below) and sales volume increases of 33 Bcfe from the assets acquired from the Chevron Acquisition (defined below). The 2020 Strategic Production Curtailments refers to our strategic decision to temporarily curtail approximately 1.4 Bcfe per day of gross production, equivalent to approximately 1.0 Bcfe per day of net production, beginning inMay 2020 and ending inJuly 2020 , at which time we began a moderated approach to bringing back on-line production that had been curtailed. The Chevron Acquisition refers to our acquisition of upstream assets fromChevron U.S.A. Inc. in the fourth quarter of 2020. (Loss) gain on derivatives not designated as hedges. For the three months endedJune 30, 2021 and 2020, we recognized a loss of$1,345.5 million and a gain of$26.4 million , respectively, on derivatives not designated as hedges. The 2021 loss was related primarily to decreases in the fair market value of our NYMEX swaps and options due to increases in NYMEX forward prices. The 2020 gain was related primarily to increases in the fair market value of our NYMEX swaps and options due to decreases in NYMEX forward prices. Net marketing services and other. Net marketing services and other increased for the three months endedJune 30, 2021 compared to the same period in 2020 due primarily to the liquids uplift realized on gas purchased at the wellhead from other operators.
Six Months Ended
Sales of natural gas, NGLs and oil. Sales of natural gas, NGLs and oil increased for the six months endedJune 30, 2021 compared to the same period in 2020 due to increased sales volume and a higher average realized price. Average realized price increased due to higher NYMEX prices and higher liquids prices, partly offset by lower cash settled derivatives and unfavorable differential. For the six months endedJune 30, 2021 and 2020, we paid$109.6 million and received$561.1 million , respectively, of net cash settlements on derivatives not designated as hedges, 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 of 67 Bcfe from the assets acquired from the Chevron Acquisition and prior period sales volume decreases of 36 Bcfe from the 2020 Strategic Production Curtailments.
(Loss) gain on derivatives not designated as hedges. For the six months endedJune 30, 2021 and 2020, we recognized a loss of$1,534.3 million and a gain of$415.9 million , respectively, on derivatives not designated as hedges. The 2021 loss was related primarily to decreases in the fair market value of our NYMEX swaps and options due to increases in NYMEX forward prices. The 2020 gain was related primarily to increases in the fair market value of our NYMEX swaps and options due to decreases in NYMEX forward prices. Net marketing services and other. Net marketing services and other increased for the six months endedJune 30, 2021 compared to the same period in 2020 due primarily to the liquids uplift realized on gas purchased at the wellhead from other operators. 23
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EQT CORPORATION AND SUBSIDIARIESManagement's Discussion and Analysis of Financial Condition and Results of
OperationsOperating Expenses
The following table presents information on our production-related operating
expenses.
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 % 2021 2020 %
(Thousands, unless otherwise noted)
Operating expenses:
Gathering $ 286,405 $ 252,095 13.6 $ 566,766 $ 513,816 10.3
Transmission 130,235 119,515 9.0 255,107 266,677 (4.3)
Processing 47,376 34,026 39.2 87,927 64,977 35.3
Lease operating expenses (LOE),
excluding production taxes 25,547 25,894 (1.3) 52,566 53,917 (2.5)
Production taxes 21,999 12,435 76.9 42,210 24,792 70.3
Exploration 1,779 876 103.1 2,728 1,799 51.6
Selling, general and
administrative 49,853 43,341 15.0 94,859 78,279 21.2
Production depletion $ 376,813 $ 317,905 18.5 $ 749,821 $ 670,982 11.7
Other depreciation and depletion 3,475 5,191 (33.1) 7,583 9,640 (21.3)
Total depreciation and depletion
17.7$ 757,404 $ 680,622 11.3 Per Unit ($/Mcfe): Gathering $ 0.68$ 0.73 (6.8) $ 0.68$ 0.70 (2.9) Transmission 0.31 0.35 (11.4) 0.31 0.36 (13.9) Processing 0.11 0.10 10.0 0.11 0.09 22.2 LOE, excluding production taxes 0.06 0.07 (14.3) 0.06 0.07 (14.3) Production taxes 0.05 0.04 25.0 0.05 0.03 66.7 Selling, general and administrative 0.12 0.13 (7.7) 0.11 0.11 - Production depletion 0.90 0.92 (2.2) 0.90 0.92 (2.2)
Three Months Ended
Gathering. Gathering expense increased on an absolute basis for the three months endedJune 30, 2021 compared to the same period in 2020 due to increased sales volume, additional gathering capacity acquired from the Chevron Acquisition and a higher gathering rate structure as a result of the Consolidated GGA (defined and discussed in Note 8 to the Condensed Consolidated Financial Statements). We expect to realize fee relief and a lower gathering rate structure from the Consolidated GGA beginning with the Mountain Valley Pipeline (MVP) in-service date. Gathering expense decreased on a per Mcfe basis for the three months endedJune 30, 2021 compared to the same period in 2020 due primarily to increased sales volume, which resulted in utilization of lower overrun rates as part of the Consolidated GGA, and a lower gathering rate structure on the assets acquired from the Chevron Acquisition. Transmission. Transmission expense increased on an absolute basis for the three months endedJune 30, 2021 compared to the same period in 2020 due primarily to released capacity on, and credits received from, theTexas Eastern Transmission Pipeline in 2020. Transmission expense decreased on a per Mcfe basis for the three months endedJune 30, 2021 compared to the same period in 2020 due primarily to increased sales volume, some of which does not have associated transmission expense, such as the assets acquired from the Chevron Acquisition. Processing. Processing expense increased on an absolute and per Mcfe basis for the three months endedJune 30, 2021 compared to the same period in 2020 due to increased liquid sales volume due primarily to increased development of liquids-rich areas and increased processed volume from the Chevron Acquisition. 24
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EQT CORPORATION AND SUBSIDIARIESManagement's Discussion and Analysis of Financial Condition and Results of
Operations
Production taxes. Production taxes increased on an absolute and per Mcfe basis
for the three months ended June 30, 2021 compared to the same period in 2020 due
primarily to increased Pennsylvania impact fees and West Virginia severance
taxes as a result of higher prices.
Selling, general and administrative. Selling, general and administrative expense
increased on an absolute basis for the three months ended June 30, 2021 compared
to the same period in 2020 due primarily to higher long-term incentive
compensation costs due to changes in the fair value of awards.
Depreciation and depletion. Production depletion expense increased on an
absolute basis for the three months ended June 30, 2021 compared to the same
period in 2020 due to increased sales volume, partly offset by a lower annual
depletion rate. Production depletion expense decreased on a per Mcfe basis for
the three months ended June 30, 2021 compared to the same period in 2020 due to
a lower annual depletion rate.
Amortization of intangible assets. Amortization of intangible assets for the
three months ended June 30, 2020 was $7.5 million . Our intangible assets were
fully amortized in the fourth quarter of 2020.
(Gain) loss on sale/exchange of long-lived assets. During the three months ended
June 30, 2021 , we recognized a gain on sale of long-lived assets of
$16.8 million related primarily to changes in the fair value of the Contingent
Consideration from the 2020 Divestiture (defined and discussed in Note 9 to the
Condensed Consolidated Financial Statements). During the three months ended June
30, 2020 , we recognized a loss on sale/exchange of long-lived assets of
$49.2 million , of which $6.7 million related to the 2020 Asset Exchange
Transactions and $42.5 million related to the 2020 Divestiture. See Note 9 to
the Condensed Consolidated Financial Statements.
Impairment and expiration of leases. Impairment and expiration of leases for the
three months ended June 30, 2021 was $25.6 million compared to $41.3 million for
the same period in 2020. The decrease was driven by higher lease expirations in
2020 due to changes in market conditions.
Other operating expenses. Other operating expenses for the three months ended
June 30, 2021 of $5.2 million were attributable primarily to transaction costs
associated with the Chevron Acquisition and Alta Acquisition (defined and
discussed in Note 10 to the Condensed Consolidated Financial Statements). Other
operating expenses for the three months ended June 30, 2020 of $4.7 million were
attributable primarily to transaction and reorganization costs.
Six Months Ended
Gathering. Gathering expense increased on an absolute basis for the six months endedJune 30, 2021 compared to the same period in 2020 due to increased sales volume, additional gathering capacity acquired from the Chevron Acquisition and a higher gathering rate structure as a result of the Consolidated GGA. We expect to realize fee relief and a lower gathering rate structure from the Consolidated GGA beginning with the MVP in-service date. Gathering expense decreased on a per Mcfe basis for the six months endedJune 30, 2021 compared to the same period in 2020 due primarily to increased sales volume, which resulted in utilization of lower overrun rates as part of the Consolidated GGA, and a lower gathering rate structure on the assets acquired from the Chevron Acquisition. Transmission. Transmission expense decreased on an absolute basis for the six months endedJune 30, 2021 compared to the same period in 2020 due primarily to released capacity on, and credits received from, theTexas Eastern Transmission Pipeline in 2020 and released capacity on theTennessee Gas Pipeline . Transmission expense decreased on a per Mcfe basis for the six months endedJune 30, 2021 compared to the same period in 2020 due primarily to increased sales volume, some of which does not have associated transmission expense, such as the assets acquired from the Chevron Acquisition. Processing. Processing expense increased on an absolute and per Mcfe basis for the six months endedJune 30, 2021 compared to the same period in 2020 due to increased liquid sales volume due primarily to increased development of liquids-rich areas and increased processed volume from the Chevron Acquisition. Production taxes. Production taxes increased on an absolute and per Mcfe basis for the six months endedJune 30, 2021 compared to the same period in 2020 due primarily to increasedWest Virginia severance taxes andPennsylvania impact fees as a result of higher prices. 25
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EQT CORPORATION AND SUBSIDIARIESManagement's Discussion and Analysis of Financial Condition and Results of
Operations
Selling, general and administrative. Selling, general and administrative expense
increased on an absolute basis for the six months ended June 30, 2021 compared
to the same period in 2020 due primarily to higher long-term incentive
compensation costs due to changes in the fair value of awards.
Depreciation and depletion. Production depletion expense increased on an
absolute basis for the six months ended June 30, 2021 compared to the same
period in 2020 due to increased sales volume, partly offset by a lower annual
depletion rate. Production depletion expense decreased on a per Mcfe basis for
the six months ended June 30, 2021 compared to the same period in 2020 due to a
lower annual depletion rate.
Amortization of intangible assets. Amortization of intangible assets for the six
months ended June 30, 2021 was $15.0 million . The intangible assets were fully
amortized in the fourth quarter of 2020.
(Gain) loss on sale/exchange of long-lived assets. During the six months ended
June 30, 2021 , we recognized a gain on sale of long-lived assets of
$18.0 million related primarily to changes in the fair value of the Contingent
Consideration from the 2020 Divestiture. During the six months ended June 30,
2020 , we recognized a loss on sale/exchange of long-lived assets of
$98.1 million , of which $55.6 million related to the 2020 Asset Exchange
Transactions and $42.5 million related to the 2020 Divestiture. See Note 9 to
the Condensed Consolidated Financial Statements.
Impairment and expiration of leases. Impairment and expiration of leases for the
six months ended June 30, 2021 was $42.4 million compared to $95.0 million for
the same period in 2020. The decrease was driven by higher lease expirations in
2020 due to changes in market conditions.
Other operating expenses. Other operating expenses for the six months ended
Other Income Statement Items
Gain on Equitrans Share Exchange. During the first quarter of 2020, we
recognized a gain on the Equitrans Share Exchange of
(Income) loss from investments. For the three and six months endedJune 30, 2021 , we recognized income on our investment in Equitrans Midstream and income on our investment in a fund that invests in companies developing technology and operating solutions for exploration and production companies. Our investment in Equitrans Midstream fluctuates with changes in Equitrans Midstream's stock price, which was$8.51 and$8.04 as ofJune 30, 2021 andDecember 31, 2020 , respectively. For the three months endedJune 30, 2020 , we recognized income on our investment in Equitrans Midstream due to an increase in Equitrans Midstream's stock price during the three months endedJune 30, 2020 . For the six months endedJune 30, 2020 , we recognized a loss on our investment in Equitrans Midstream due to a decrease in Equitrans Midstream's stock price during the six months endedJune 30, 2020 as well as a decrease in the number of shares of Equitrans Midstream's common stock that we own as a result of theEquitrans Share Exchange. Dividend and other income. Dividend and other income decreased for the six months endedJune 30, 2021 compared to the same period in 2020 due primarily to lower dividends received from our investment in Equitrans Midstream driven by a decrease in the number of shares of Equitrans Midstream's common stock that we own as well as a decrease in the dividend amount per share. Loss on debt extinguishment. During the three and six months endedJune 30, 2021 , we recognized a loss on debt extinguishment of$5.3 million and$9.8 million , respectively, due to fees incurred for a bridge-loan commitment related to the Alta Acquisition and the repayment of our 4.875% senior notes. During the three and six months endedJune 30, 2020 , we recognized a loss on debt extinguishment of$0.4 million and$17.0 million , respectively, related to the repayment of our 4.875% senior notes, 2.50% senior notes, floating rate notes and term loan facility. See Note 6 to the Condensed Consolidated Financial Statements. Interest expense. Interest expense increased for the three and six months endedJune 30, 2021 compared to the same periods in 2020 due to increased interest incurred on new debt, higher borrowings under our credit facility and increased interest due to letters of credit issued throughout 2020. These increases were partly offset by lower interest incurred due to debt repayments throughout 2020 and the first quarter of 2021. See Note 6 to the Condensed Consolidated Financial Statements. 26
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EQT CORPORATION AND SUBSIDIARIESManagement's Discussion and Analysis of Financial Condition and Results of
OperationsIncome tax 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. In 2021, we expect to spend approximately$1,100 million to$1,175 million in total capital expenditures, excluding amounts attributable to noncontrolling interests, which are expected to be funded by operating cash flow and, if required, borrowings under our credit facility. Sales volume in 2021 is expected to be 1,800 Bcfe to 1,875 Bcfe. The planned capital expenditures and expected sales volume include amounts attributable to the assets acquired from the Alta Acquisition, which closed onJuly 21, 2021 . Operating Activities. Net cash provided by operating activities was$443 million for the six months endedJune 30, 2021 compared to$947 million for the same period in 2020. The decrease was due primarily to decreased cash settlements received on derivatives not designated as hedges and unfavorable timing of working capital payments including increased collateral and margin deposits associated with the Company's over the counter derivative instrument contracts and exchange traded natural gas contracts, partly offset by higher cash operating revenues. 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, 2020. Investing Activities. Net cash used in investing activities was$675 million for the six months endedJune 30, 2021 compared to$349 million for the same period in 2020. The increase was due primarily to cash paid for acquisitions in 2021 and cash received in 2020 from the sale of assets and the Equitrans Share Exchange, partly offset by lower capital expenditures.
The following table summarizes our capital expenditures.
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
(Millions)
Reserve development $ 178 $ 235 $ 367 $ 458
Land and lease (a) 31 28 54 50
Capitalized overhead 14 13 27 24
Capitalized interest 4 4 8 8
Other production infrastructure 19 19 24 20
Other corporate items - 4 4 5
Total capital expenditures 246 303 484 565
Deduct: Non-cash items (b) (27) (47) (14) (53)
Total cash capital expenditures $ 219 $ 256 $ 470 $ 512
(a)Capital expenditures attributable to noncontrolling interests were $3.8
million and $5.1 million for the three and six months ended June 30, 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 reversal of the prior period accrual
as well as the current period estimate.
Financing Activities. Net cash provided by financing activities was $544 million
for the six months ended June 30, 2021 compared to net cash used in financing
activities of $600 million for the same period in 2020. For the six months ended
June 30, 2021 , the primary source of financing cash flows was net proceeds from
the issuance of debt, and the primary uses of financing
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EQT CORPORATION AND SUBSIDIARIESManagement's Discussion and Analysis of Financial Condition and Results of
Operations
cash flows were net repayments of credit facility borrowings and debt. For the
six months ended June 30, 2020 , the primary uses of financing cash flows were
net repayments of debt and credit facility borrowings, and the primary source of
financing cash flows was net proceeds from the issuance of debt.
See Note 6 to the Condensed Consolidated Financial Statements for further discussion of our debt and borrowings under our credit facility.
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 retire or repurchase our outstanding debt or equity securities through cash purchases in the open market or privately negotiated transactions. The amounts involved in any such transactions may be material. Additionally, we plan to dispose of our remaining retained shares of Equitrans Midstream's common stock and use the proceeds to reduce our debt.
Security Ratings and Financing Triggers
The table below reflects the credit ratings and rating outlooks assigned to our debt instruments as ofJuly 27, 2021 . 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 further discussion of what is deemed investment grade. Rating agency Senior notes Outlook Moody's Investors Service (Moody's) Ba1 Stable Standard & Poor's Ratings Service (S&P) BB+ Positive Fitch Ratings Service (Fitch) BB+ 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 lines of credit, the interest rate on the 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 ofJuly 27, 2021 , 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 ofJuly 27, 2021 , such assurances could be up to approximately$1.2 billion , inclusive of letters of credit, OTC derivative instrument margin deposits and other collateral posted of approximately$1.2 billion in the aggregate. See Notes 3 and 6 to the Condensed Consolidated Financial Statements for further information. Our debt agreements and other financial obligations contain various provisions that, if not complied with, could result in default or event of default under our credit facility, mandatory partial or full repayment of amounts outstanding, reduced loan capacity or other similar actions. The most significant covenants and events of default under the debt agreements relate to maintenance of a debt-to-total capitalization ratio, limitations on transactions with affiliates, insolvency events, nonpayment of scheduled principal or interest payments, acceleration of other financial obligations and change of control provisions. Our credit facility contains financial covenants that require us to have a total debt to total capitalization ratio no greater than 65%. The calculation of this ratio excludes the effects of accumulated other comprehensive income. As ofJune 30, 2021 , we were in compliance with all debt provisions and covenants under our debt agreements. 28
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EQT CORPORATION AND SUBSIDIARIESManagement's Discussion and Analysis of Financial Condition and Results of
OperationsCommodity Risk Management
The substantial majority of our commodity risk management program is related to hedging sales of our produced natural gas. The overall objective of our hedging program is to protect cash flows from undue exposure to the risk of changing commodity prices. The derivative commodity instruments that we use are primarily swap, collar and option agreements. The following table summarizes the approximate volume and prices of our NYMEX hedge positions through 2024 as ofJuly 23, 2021 . 2021 (a) 2022 2023 2024 Swaps: Volume (MMDth) 741 1,277 166 2 Average Price ($/Dth)$ 2.77 $ 2.77 $ 2.53 $ 2.67 Calls - Net Short: Volume (MMDth) 180 391 77 15
Average
$ 3.11 Puts -Net Long : Volume (MMDth) 105 169 69
15
Average Long Strike Price ($/Dth)
$ 2.45 Fixed Price Sales (b): Volume (MMDth) 36 4 3 - Average Price ($/Dth)$ 2.49 $ 2.38 $ 2.38 $ - (a)July 1 through December 31 . (b)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. For 2021 (July 1 through December 31 ), 2022, 2023 and 2024, we have natural gas sales agreements for approximately 9 MMDth, 18 MMDth, 88 MMDth and 11 MMDth, respectively, that include average NYMEX ceiling prices of$3.17 ,$3.17 ,$2.84 and$3.21 , respectively. We 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 matter currently pending against 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, 2020 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, 2020. 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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