EQT CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
(Thousands, except per share amounts)
|
Operating revenues:
|
|
|
|
|
|
|
|
Sales of natural gas, natural gas liquids and oil
|
$
|
1,077,904
|
|
|
$
|
498,772
|
|
|
$
|
2,208,855
|
|
|
$
|
1,213,973
|
|
(Loss) gain on derivatives not designated as hedges
|
(1,345,532)
|
|
|
26,426
|
|
|
(1,534,345)
|
|
|
415,862
|
|
Net marketing services and other
|
7,512
|
|
|
1,876
|
|
|
15,297
|
|
|
4,296
|
|
Total operating revenues
|
(260,116)
|
|
|
527,074
|
|
|
689,807
|
|
|
1,634,131
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Transportation and processing
|
464,016
|
|
|
405,636
|
|
|
909,800
|
|
|
845,470
|
|
Production
|
47,546
|
|
|
38,329
|
|
|
94,776
|
|
|
78,709
|
|
Exploration
|
1,779
|
|
|
876
|
|
|
2,728
|
|
|
1,799
|
|
Selling, general and administrative
|
49,853
|
|
|
43,341
|
|
|
94,859
|
|
|
78,279
|
|
Depreciation and depletion
|
380,288
|
|
|
323,096
|
|
|
757,404
|
|
|
680,622
|
|
Amortization of intangible assets
|
—
|
|
|
7,477
|
|
|
—
|
|
|
14,955
|
|
(Gain) loss on sale/exchange of long-lived assets
|
(16,816)
|
|
|
49,207
|
|
|
(18,023)
|
|
|
98,059
|
|
Impairment and expiration of leases
|
25,634
|
|
|
41,279
|
|
|
42,391
|
|
|
95,047
|
|
Other operating expenses
|
5,225
|
|
|
4,745
|
|
|
14,668
|
|
|
4,745
|
|
Total operating expenses
|
957,525
|
|
|
913,986
|
|
|
1,898,603
|
|
|
1,897,685
|
|
Operating loss
|
(1,217,641)
|
|
|
(386,912)
|
|
|
(1,208,796)
|
|
|
(263,554)
|
|
Gain on Equitrans Share Exchange (see Note 8)
|
—
|
|
|
—
|
|
|
—
|
|
|
(187,223)
|
|
(Income) loss from investments
|
(11,829)
|
|
|
(82,983)
|
|
|
(23,677)
|
|
|
307,645
|
|
Dividend and other income
|
(3,765)
|
|
|
(3,590)
|
|
|
(7,069)
|
|
|
(28,304)
|
|
Loss on debt extinguishment
|
5,332
|
|
|
353
|
|
|
9,756
|
|
|
16,963
|
|
Interest expense
|
76,986
|
|
|
65,386
|
|
|
152,085
|
|
|
127,760
|
|
Loss before income taxes
|
(1,284,365)
|
|
|
(366,078)
|
|
|
(1,339,891)
|
|
|
(500,395)
|
|
Income tax benefit
|
(347,846)
|
|
|
(103,003)
|
|
|
(362,340)
|
|
|
(70,181)
|
|
Net loss
|
(936,519)
|
|
|
(263,075)
|
|
|
(977,551)
|
|
|
(430,214)
|
|
Less: Net loss attributable to noncontrolling interest
|
(62)
|
|
|
—
|
|
|
(576)
|
|
|
—
|
|
Net loss attributable to EQT Corporation
|
$
|
(936,457)
|
|
|
$
|
(263,075)
|
|
|
$
|
(976,975)
|
|
|
$
|
(430,214)
|
|
|
|
|
|
|
|
|
|
Loss per share of common stock attributable to EQT Corporation:
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
Weighted average common stock outstanding
|
279,156
|
|
|
255,524
|
|
|
278,996
|
|
|
255,477
|
|
Net loss
|
$
|
(3.35)
|
|
|
$
|
(1.03)
|
|
|
$
|
(3.50)
|
|
|
$
|
(1.68)
|
|
Diluted:
|
|
|
|
|
|
|
|
Weighted average common stock outstanding
|
279,156
|
|
|
255,524
|
|
|
278,996
|
|
|
255,477
|
|
Net loss
|
$
|
(3.35)
|
|
|
$
|
(1.03)
|
|
|
$
|
(3.50)
|
|
|
$
|
(1.68)
|
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
EQT CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED COMPREHENSIVE LOSS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Net loss
|
$
|
(936,519)
|
|
|
$
|
(263,075)
|
|
|
$
|
(977,551)
|
|
|
$
|
(430,214)
|
|
Other comprehensive income, net of tax:
|
|
|
|
|
|
|
|
Other post-retirement benefits liability adjustment, net of tax expense: $27, $24, $54 and $48
|
81
|
|
|
72
|
|
|
161
|
|
|
84
|
|
Comprehensive loss
|
(936,438)
|
|
|
(263,003)
|
|
|
(977,390)
|
|
|
(430,130)
|
|
Less: Comprehensive loss attributable to noncontrolling interests
|
(62)
|
|
|
—
|
|
|
(576)
|
|
|
—
|
|
Comprehensive loss attributable to EQT Corporation
|
$
|
(936,376)
|
|
|
$
|
(263,003)
|
|
|
$
|
(976,814)
|
|
|
$
|
(430,130)
|
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
EQT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
|
|
|
(Thousands)
|
ASSETS
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
330,770
|
|
|
$
|
18,210
|
|
Accounts receivable (less provision for doubtful accounts: $7,049 and $6,239)
|
651,568
|
|
|
566,552
|
|
Derivative instruments, at fair value
|
648,855
|
|
|
527,073
|
|
Prepaid expenses and other
|
537,462
|
|
|
103,615
|
|
Total current assets
|
2,168,655
|
|
|
1,215,450
|
|
|
|
|
|
Property, plant and equipment
|
22,497,579
|
|
|
21,995,249
|
|
Less: Accumulated depreciation and depletion
|
6,678,508
|
|
|
5,940,984
|
|
Net property, plant and equipment
|
15,819,071
|
|
|
16,054,265
|
|
|
|
|
|
Contract asset
|
410,000
|
|
|
410,000
|
|
Other assets
|
587,531
|
|
|
433,754
|
|
Total assets
|
$
|
18,985,257
|
|
|
$
|
18,113,469
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
Current liabilities:
|
|
|
|
Current portion of debt
|
$
|
399,699
|
|
|
$
|
154,161
|
|
Accounts payable
|
820,134
|
|
|
705,461
|
|
Derivative instruments, at fair value
|
2,160,253
|
|
|
600,877
|
|
Other current liabilities
|
299,115
|
|
|
301,911
|
|
Total current liabilities
|
3,679,201
|
|
|
1,762,410
|
|
|
|
|
|
Credit facility borrowings
|
—
|
|
|
300,000
|
|
Senior notes
|
4,999,502
|
|
|
4,371,467
|
|
Note payable to EQM Midstream Partners, LP
|
97,117
|
|
|
99,838
|
|
Deferred income taxes
|
1,009,721
|
|
|
1,371,967
|
|
Other liabilities and credits
|
897,294
|
|
|
945,057
|
|
Total liabilities
|
10,682,835
|
|
|
8,850,739
|
|
|
|
|
|
Equity:
|
|
|
|
Common stock, no par value, shares authorized: 640,000, shares issued: 280,003
|
8,245,752
|
|
|
8,241,684
|
|
Treasury stock, shares at cost: 1,145 and 1,658
|
(20,084)
|
|
|
(29,348)
|
|
Retained earnings
|
71,284
|
|
|
1,048,259
|
|
Accumulated other comprehensive loss
|
(5,194)
|
|
|
(5,355)
|
|
Total common shareholders' equity
|
8,291,758
|
|
|
9,255,240
|
|
Noncontrolling interests in consolidated subsidiaries
|
10,664
|
|
|
7,490
|
|
Total equity
|
8,302,422
|
|
|
9,262,730
|
|
Total liabilities and equity
|
$
|
18,985,257
|
|
|
$
|
18,113,469
|
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
EQT CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
|
|
|
|
(Thousands)
|
Cash flows from operating activities:
|
|
Net loss
|
$
|
(977,551)
|
|
|
$
|
(430,214)
|
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
Deferred income tax (benefit) expense
|
(362,299)
|
|
|
24,987
|
|
Depreciation and depletion
|
757,404
|
|
|
680,622
|
|
Amortization of intangible assets
|
—
|
|
|
14,955
|
|
Gain/loss on sale/exchange of long-lived assets and impairment and expiration of leases
|
24,368
|
|
|
193,106
|
|
Gain on Equitrans Share Exchange
|
—
|
|
|
(187,223)
|
|
(Income) loss from investments
|
(23,677)
|
|
|
307,645
|
|
Loss on debt extinguishment
|
9,756
|
|
|
16,963
|
|
Share-based compensation expense
|
13,515
|
|
|
8,123
|
|
Amortization, accretion and other
|
22,097
|
|
|
12,614
|
|
Loss (gain) on derivatives not designated as hedges
|
1,534,345
|
|
|
(415,862)
|
|
Cash settlements (paid) received on derivatives not designated as hedges
|
(109,581)
|
|
|
561,129
|
|
Net premiums received (paid) on derivative instruments
|
3,654
|
|
|
(53,473)
|
|
Changes in other assets and liabilities:
|
|
|
|
Accounts receivable
|
(99,564)
|
|
|
206,322
|
|
Accounts payable
|
111,191
|
|
|
(85,973)
|
|
Income tax receivable and payable
|
(23,909)
|
|
|
96,920
|
|
Other current assets
|
(422,618)
|
|
|
(2,597)
|
|
Other items, net
|
(13,737)
|
|
|
(923)
|
|
Net cash provided by operating activities
|
443,394
|
|
|
947,121
|
|
Cash flows from investing activities:
|
|
|
|
Capital expenditures
|
(470,259)
|
|
|
(512,095)
|
|
Cash paid for acquisitions
|
(209,764)
|
|
|
—
|
|
Proceeds from sale of assets
|
—
|
|
|
110,937
|
|
Cash received for Equitrans Share Exchange
|
—
|
|
|
52,323
|
|
Other investing activities
|
5,125
|
|
|
(135)
|
|
Net cash used in investing activities
|
(674,898)
|
|
|
(348,970)
|
|
Cash flows from financing activities:
|
|
|
|
Proceeds from credit facility borrowings
|
2,686,000
|
|
|
781,000
|
|
Repayment of credit facility borrowings
|
(2,986,000)
|
|
|
(1,037,000)
|
|
Proceeds from issuance of debt
|
1,000,000
|
|
|
2,250,000
|
|
Debt issuance costs and Capped Call Transactions (See Note 6)
|
(19,713)
|
|
|
(65,102)
|
|
Repayments and retirements of debt
|
(127,691)
|
|
|
(2,507,074)
|
|
Premiums paid on debt extinguishment
|
(9,599)
|
|
|
(13,635)
|
|
Contributions from noncontrolling interests
|
3,750
|
|
|
—
|
|
Dividends paid
|
—
|
|
|
(7,664)
|
|
Cash paid for taxes related to net settlement of share-based incentive awards
|
(2,683)
|
|
|
(304)
|
|
Net cash provided by (used in) financing activities
|
544,064
|
|
|
(599,779)
|
|
Net change in cash and cash equivalents
|
312,560
|
|
|
(1,628)
|
|
Cash and cash equivalents at beginning of period
|
18,210
|
|
|
4,596
|
|
Cash and cash equivalents at end of period
|
$
|
330,770
|
|
|
$
|
2,968
|
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
See Note 1 for supplemental cash flow information.
EQT CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED EQUITY (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
Accumulated Other
Comprehensive Loss (a)
|
|
Noncontrolling Interests in Consolidated Subsidiaries
|
|
|
|
Shares
|
|
No Par
Value
|
|
Treasury Stock
|
|
Retained Earnings
|
|
|
|
Total Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands, except per share amounts)
|
Balance at April 1, 2020
|
255,262
|
|
|
$
|
7,821,631
|
|
|
$
|
(30,852)
|
|
|
$
|
1,848,286
|
|
|
$
|
(5,187)
|
|
|
$
|
—
|
|
|
$
|
9,633,878
|
|
Comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
(263,075)
|
|
|
|
|
|
|
(263,075)
|
|
Other postretirement benefits liability adjustment, net of tax expense: $24
|
|
|
|
|
|
|
|
|
72
|
|
|
|
|
72
|
|
Share-based compensation plans
|
28
|
|
|
3,796
|
|
|
511
|
|
|
|
|
|
|
|
|
4,307
|
|
Equity component of convertible senior notes (See Note 6)
|
|
|
63,645
|
|
|
|
|
|
|
|
|
|
|
63,645
|
|
Balance at June 30, 2020
|
255,290
|
|
|
$
|
7,889,072
|
|
|
$
|
(30,341)
|
|
|
$
|
1,585,211
|
|
|
$
|
(5,115)
|
|
|
$
|
—
|
|
|
$
|
9,438,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 1, 2021
|
278,781
|
|
|
$
|
8,238,643
|
|
|
$
|
(21,469)
|
|
|
$
|
1,007,741
|
|
|
$
|
(5,275)
|
|
|
$
|
10,726
|
|
|
$
|
9,230,366
|
|
Comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
(936,457)
|
|
|
|
|
(62)
|
|
|
(936,519)
|
|
Other postretirement benefits liability adjustment, net of tax expense: $27
|
|
|
|
|
|
|
|
|
81
|
|
|
|
|
81
|
|
Share-based compensation plans
|
77
|
|
|
7,109
|
|
|
1,385
|
|
|
|
|
|
|
|
|
8,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2021
|
278,858
|
|
|
$
|
8,245,752
|
|
|
$
|
(20,084)
|
|
|
$
|
71,284
|
|
|
$
|
(5,194)
|
|
|
$
|
10,664
|
|
|
$
|
8,302,422
|
|
Common shares authorized: 320,000 and 640,000 at June 30, 2020 and 2021, respectively.
Preferred shares authorized: 3,000. There were no preferred shares issued or outstanding.
(a)Amounts included in accumulated other comprehensive loss are related to other postretirement benefits liability adjustments, net of tax, which are attributable to net actuarial losses and net prior service costs.
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
EQT CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED EQUITY (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
Accumulated Other
Comprehensive Loss (a)
|
|
Noncontrolling Interests in Consolidated Subsidiaries
|
|
|
|
Shares
|
|
No Par
Value
|
|
Treasury Stock
|
|
Retained Earnings
|
|
|
|
Total Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands, except per share amounts)
|
Balance at January 1, 2020
|
255,171
|
|
|
$
|
7,818,205
|
|
|
$
|
(32,507)
|
|
|
$
|
2,023,089
|
|
|
$
|
(5,199)
|
|
|
$
|
—
|
|
|
$
|
9,803,588
|
|
Comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
(430,214)
|
|
|
|
|
|
|
(430,214)
|
|
Other postretirement benefit liability adjustment, net of tax expense: $48
|
|
|
|
|
|
|
|
|
84
|
|
|
|
|
84
|
|
Dividends ($0.03 per share)
|
|
|
|
|
|
|
(7,664)
|
|
|
|
|
|
|
(7,664)
|
|
Share-based compensation plans
|
119
|
|
|
7,222
|
|
|
2,166
|
|
|
|
|
|
|
|
|
9,388
|
|
Equity component of convertible senior notes (See Note 6)
|
|
|
63,645
|
|
|
|
|
|
|
|
|
|
|
63,645
|
|
Balance at June 30, 2020
|
255,290
|
|
|
$
|
7,889,072
|
|
|
$
|
(30,341)
|
|
|
$
|
1,585,211
|
|
|
$
|
(5,115)
|
|
|
$
|
—
|
|
|
$
|
9,438,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2021
|
278,345
|
|
|
$
|
8,241,684
|
|
|
$
|
(29,348)
|
|
|
$
|
1,048,259
|
|
|
$
|
(5,355)
|
|
|
$
|
7,490
|
|
|
$
|
9,262,730
|
|
Comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
(976,975)
|
|
|
|
|
(576)
|
|
|
(977,551)
|
|
Other postretirement benefit liability adjustment, net of tax expense: $54
|
|
|
|
|
|
|
|
|
161
|
|
|
|
|
161
|
|
Share-based compensation plans
|
513
|
|
|
4,068
|
|
|
9,264
|
|
|
|
|
|
|
|
|
13,332
|
|
Contributions from noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
3,750
|
|
|
3,750
|
|
Balance at June 30, 2021
|
278,858
|
|
|
$
|
8,245,752
|
|
|
$
|
(20,084)
|
|
|
$
|
71,284
|
|
|
$
|
(5,194)
|
|
|
$
|
10,664
|
|
|
$
|
8,302,422
|
|
Common shares authorized: 320,000 and 640,000 at June 30, 2020 and 2021, respectively.
Preferred shares authorized: 3,000. There were no preferred shares issued or outstanding.
(a)Amounts included in accumulated other comprehensive loss are related to other postretirement benefits liability adjustments, net of tax, which are attributable to net actuarial losses and net prior service costs.
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
EQT CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
1. Financial Statements
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with United States generally accepted accounting principles (GAAP) for interim financial information and with the requirements of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and notes required by GAAP for complete financial statements. In the opinion of management, these statements include all adjustments (consisting of only normal recurring accruals, unless otherwise disclosed in this Quarterly Report on Form 10-Q) necessary for a fair presentation of the financial position of EQT Corporation and subsidiaries as of June 30, 2021 and December 31, 2020, the results of its operations and equity for the three and six month periods ended June 30, 2021 and 2020 and its cash flows for the six month periods ended June 30, 2021 and 2020. Certain previously reported amounts have been reclassified to conform to the current year presentation. In this Quarterly Report on Form 10-Q, references to "EQT," "EQT Corporation" and "the Company" refer collectively to EQT Corporation and its consolidated subsidiaries.
The Condensed Consolidated Balance Sheet at December 31, 2020 has been derived from the audited financial statements at that date. For further information, refer to the Consolidated Financial Statements and accompanying notes in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.
Recently Issued Accounting Standards
In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2019-12, Income Taxes: Simplifying the Accounting for Income Taxes. This ASU simplifies accounting for income taxes by eliminating certain exceptions to Accounting Standards Codification (ASC) 740, Income Taxes, related to the general approach for intraperiod tax allocation, methodology for calculating income taxes in an interim period and recognition of deferred taxes when there are investment ownership changes. In addition, this ASU simplifies aspects of accounting for franchise taxes and interim period effects of enacted changes in tax laws or rates and provides clarification on accounting for transactions that result in a step up in the tax basis of goodwill and allocation of consolidated income tax expense to separate financial statements of entities not subject to income tax. This ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years, and early adoption is permitted. The Company adopted this ASU in the first quarter of 2021 with no material changes to its financial statements or disclosures.
In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options and Derivatives and Hedging: Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. This ASU simplifies accounting for convertible instruments by removing certain separation models for convertible instruments. For convertible instruments with conversion features that are not accounted for as derivatives under ASC 815 or do not result in substantial premiums accounted for as paid-in capital, the convertible instrument's embedded conversion features are no longer separated from the host contract. Consequently, and as long as no other feature requires bifurcation and recognition as a derivative, the convertible instrument is accounted for as a single liability measured at its amortized cost. This ASU also amends the impact of convertible instruments on the calculation of diluted earnings per share (EPS) and adds several new disclosure requirements. This ASU is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The Company plans to adopt this ASU on January 1, 2022 using the full retrospective method of adoption. The Company is evaluating the impact this standard will have on its financial statements and disclosures.
Supplemental Cash Flow Information. The following table summarizes net cash paid (received) for interest and income taxes and non-cash activity included in the Statements of Condensed Consolidated Cash Flows.
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2021
|
|
2020
|
|
|
|
|
|
(Thousands)
|
Cash paid (received) during the period for:
|
|
|
|
Interest, net of amount capitalized
|
$
|
127,082
|
|
|
$
|
74,596
|
|
Income taxes, net
|
21,768
|
|
|
(191,598)
|
|
Non-cash activity during the period for:
|
|
|
|
Increase in right-of-use lease assets and liabilities
|
$
|
1,091
|
|
|
$
|
1,697
|
|
Increase in asset retirement costs and obligations
|
1,943
|
|
|
6,596
|
|
Capitalization of non-cash equity share-based compensation
|
2,499
|
|
|
1,611
|
|
EQT CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
2. Revenue from Contracts with Customers
Under the Company's natural gas, natural gas liquids (NGLs) and oil sales contracts, the Company generally considers the delivery of each unit (MMBtu or Bbl) to be a separate performance obligation that is satisfied upon delivery. These contracts typically require payment within 25 days of the end of the calendar month in which the commodity is delivered. A significant number of these contracts contain variable consideration because the payment terms refer to market prices at future delivery dates. In these situations, the Company has not identified a standalone selling price because the terms of the variable payments relate specifically to the Company's efforts to satisfy the performance obligations. Other contracts, such as fixed price contracts or contracts with a fixed differential to New York Mercantile Exchange (NYMEX) or index prices, contain fixed consideration. The fixed consideration is allocated to each performance obligation on a relative standalone selling price basis, which requires judgment from management. For these contracts, the Company generally concludes that the fixed price or fixed differentials in the contracts are representative of the standalone selling price.
Based on management's judgment, the performance obligations for the sale of natural gas, NGLs and oil are satisfied at a point in time because the customer obtains control and legal title of the asset when the natural gas, NGLs or oil is delivered to the designated sales point.
The sales of natural gas, NGLs and oil presented in the Statements of Condensed Consolidated Operations represent the Company's share of revenues net of royalties and exclude revenue interests owned by others. When selling natural gas, NGLs and oil on behalf of royalty or working interest owners, the Company acts as an agent and, thus, reports the revenue on a net basis.
For contracts with customers where the Company's performance obligations had been satisfied and an unconditional right to consideration existed as of the balance sheet date, the Company recorded amounts due from contracts with customers of $471.5 million and $394.1 million in accounts receivable in the Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020, respectively.
The table below provides disaggregated information on the Company's revenues. Certain contracts that provide for the release of capacity that is not used to transport the Company's produced volume are outside the scope of ASU 2014-09, Revenue from Contracts with Customers. The costs of, and recoveries on, such capacity are reported in net marketing services and other in the Statements of Condensed Consolidated Operations. Derivative contracts are also outside the scope of ASU 2014-09.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Revenues from contracts with customers:
|
|
|
|
|
|
|
|
Natural gas sales
|
$
|
953,385
|
|
|
$
|
468,216
|
|
|
$
|
1,966,465
|
|
|
$
|
1,141,446
|
|
NGLs sales
|
102,361
|
|
|
28,761
|
|
|
202,618
|
|
|
64,517
|
|
Oil sales
|
22,158
|
|
|
1,795
|
|
|
39,772
|
|
|
8,010
|
|
Total revenues from contracts with customers
|
$
|
1,077,904
|
|
|
$
|
498,772
|
|
|
$
|
2,208,855
|
|
|
$
|
1,213,973
|
|
|
|
|
|
|
|
|
|
Other sources of revenue:
|
|
|
|
|
|
|
|
(Loss) gain on derivatives not designated as hedges
|
(1,345,532)
|
|
|
26,426
|
|
|
(1,534,345)
|
|
|
415,862
|
|
Net marketing services and other
|
7,512
|
|
|
1,876
|
|
|
15,297
|
|
|
4,296
|
|
Total operating revenues
|
$
|
(260,116)
|
|
|
$
|
527,074
|
|
|
$
|
689,807
|
|
|
$
|
1,634,131
|
|
The following table summarizes the transaction price allocated to the Company's remaining performance obligations on all contracts with fixed consideration as of June 30, 2021. Amounts shown exclude contracts that qualified for the exception to the relative standalone selling price method as of June 30, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 (a)
|
|
2022
|
|
2023
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Natural gas sales
|
$
|
87,901
|
|
|
$
|
8,158
|
|
|
$
|
6,794
|
|
|
|
|
$
|
102,853
|
|
(a)July 1 through December 31.
EQT CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
3. Derivative Instruments
The Company's primary market risk exposure is the volatility of future prices for natural gas and NGLs, which can affect the Company's operating results. The Company uses derivative commodity instruments to hedge its cash flows from sales of produced natural gas and NGLs. The overall objective of the Company's hedging program is to protect cash flows from undue exposure to the risk of changing commodity prices.
The derivative commodity instruments used by the Company are primarily swap, collar and option agreements. These agreements may require payments to, or receipt of payments from, counterparties based on the differential between two prices for the commodity. The Company uses these agreements to hedge its NYMEX and basis exposure. The Company may also use other contractual agreements when executing its commodity hedging strategy. The Company typically enters into over the counter (OTC) derivative commodity instruments with financial institutions, and the creditworthiness of all counterparties is regularly monitored.
The Company does not designate any of its derivative instruments as cash flow hedges; therefore, all changes in fair value of the Company's derivative instruments are recognized in operating revenues in the Statements of Condensed Consolidated Operations. The Company recognizes all derivative instruments as either assets or liabilities at fair value on a gross basis. These derivative instruments are reported as either current assets or current liabilities due to their highly liquid nature. The Company can net settle its derivative instruments at any time.
Contracts that result in physical delivery of a commodity expected to be sold by the Company in the normal course of business are generally designated as normal sales and are exempt from derivative accounting. Contracts that result in the physical receipt or delivery of a commodity but are not designated or do not meet all of the criteria to qualify for the normal purchase and normal sale scope exception are subject to derivative accounting.
The Company's OTC derivative instruments generally require settlement in cash. The Company also enters into exchange traded derivative commodity instruments that are generally settled with offsetting positions. Settlements of derivative commodity instruments are reported as a component of cash flows from operating activities in the Statements of Condensed Consolidated Cash Flows.
With respect to the derivative commodity instruments held by the Company, the Company hedged portions of expected sales of production and portions of its basis exposure covering approximately 2,773 Bcf of natural gas and 7,687 Mbbl of NGLs as of June 30, 2021 and 1,955 Bcf of natural gas and 3,462 Mbbl of NGLs as of December 31, 2020. The open positions at June 30, 2021 and December 31, 2020 had maturities extending through December 2027 and December 2024, respectively.
Certain of the Company's OTC derivative instrument contracts provide that, if the Company's credit rating assigned by Moody's Investors Service, Inc. (Moody's) or S&P Global Ratings (S&P) is below the agreed-upon credit rating threshold (typically, below investment grade), and if the associated derivative liability exceeds the agreed-upon dollar threshold for such credit rating, the counterparty to such contract can require the Company to deposit collateral. Similarly, if such counterparty's credit rating assigned by Moody's or S&P is below the agreed-upon credit rating threshold, and if the associated derivative liability exceeds the agreed-upon dollar threshold for such credit rating, the Company can require the counterparty to deposit collateral with the Company. Such collateral can be up to 100% of the derivative liability. Investment grade refers to the quality of a company's credit as assessed by one or more credit rating agencies. To be considered investment grade, a company must be rated "Baa3" or higher by Moody's, "BBB–" or higher by S&P and "BBB–" or higher by Fitch Ratings Service (Fitch). Anything below these ratings is considered non-investment grade. As of June 30, 2021, the Company's senior notes were rated "Ba2" by Moody's and "BB" by S&P.
When the net fair value of any of the Company's OTC derivative instrument contracts represents a liability to the Company that is in excess of the agreed-upon dollar threshold for the Company's then-applicable credit rating, the counterparty has the right to require the Company to remit funds as a margin deposit in an amount equal to the portion of the derivative liability that is in excess of the dollar threshold amount. The Company records these deposits as a current asset in the Condensed Consolidated Balance Sheets. As of June 30, 2021 and December 31, 2020, the aggregate fair value of all OTC derivative instruments with credit rating risk-related contingent features that were in a net liability position was $1,166.3 million and $137.7 million, respectively, for which the Company deposited and recorded current assets of $284.4 million and $21.1 million, respectively.
EQT CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
When the net fair value of any of the Company's OTC derivative instrument contracts represents an asset to the Company that is in excess of the agreed-upon dollar threshold for the counterparty's then-applicable credit rating, the Company has the right to require the counterparty to remit funds as a margin deposit in an amount equal to the portion of the derivative asset that is in excess of the dollar threshold amount. The Company records these deposits as a current liability in the Condensed Consolidated Balance Sheets. As of both June 30, 2021 and December 31, 2020, there were no such deposits recorded in the Condensed Consolidated Balance Sheets.
When the Company enters into exchange traded natural gas contracts, exchanges may require the Company to remit funds to the corresponding broker as good-faith deposits to guard against the risks associated with changing market conditions. The Company is required to make such deposits based on an established initial margin requirement and the net liability position, if any, of the fair value of the associated contracts. The Company records these deposits as a current asset in the Condensed Consolidated Balance Sheets. When the fair value of such contracts is in a net asset position, the broker may remit funds to the Company. The Company records these deposits as a current liability in the Condensed Consolidated Balance Sheets. The initial margin requirements are established by the exchanges based on the price, volatility and the time to expiration of the contract. The margin requirements are subject to change at the exchanges' discretion. As of June 30, 2021 and December 31, 2020, the Company recorded $205.7 million and $61.5 million, respectively, of such deposits as current assets in the Condensed Consolidated Balance Sheets.
Refer to Note 8 for a discussion of the derivative liability recorded in connection with the Equitrans Share Exchange (defined in Note 8).
The Company has netting agreements with financial institutions and its brokers that permit net settlement of gross commodity derivative assets against gross commodity derivative liabilities. The table below summarizes the impact of netting agreements and margin deposits on gross derivative assets and liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross derivative instruments recorded in the Condensed Consolidated Balance Sheets
|
|
Derivative instruments subject to
master netting agreements
|
|
Margin requirements with counterparties
|
|
Net derivative instruments
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
June 30, 2021
|
|
|
|
|
|
|
|
|
Asset derivative instruments, at fair value
|
|
$
|
648,855
|
|
|
$
|
(576,429)
|
|
|
$
|
—
|
|
|
$
|
72,426
|
|
Liability derivative instruments, at fair value
|
|
2,160,253
|
|
|
(576,429)
|
|
|
(490,109)
|
|
|
1,093,715
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
Asset derivative instruments, at fair value
|
|
$
|
527,073
|
|
|
$
|
(328,809)
|
|
|
$
|
—
|
|
|
$
|
198,264
|
|
Liability derivative instruments, at fair value
|
|
600,877
|
|
|
(328,809)
|
|
|
(82,552)
|
|
|
189,516
|
|
4. Fair Value Measurements
The Company records its financial instruments, which are principally derivative instruments, at fair value in the Condensed Consolidated Balance Sheets. The Company estimates the fair value of its financial instruments using quoted market prices when available. If quoted market prices are not available, the fair value is based on models that use market-based parameters, including forward curves, discount rates, volatilities and nonperformance risk, as inputs. Nonperformance risk considers the effect of the Company's credit standing on the fair value of liabilities and the effect of the counterparty's credit standing on the fair value of assets. The Company estimates nonperformance risk by analyzing publicly available market information, including a comparison of the yield on debt instruments with credit ratings similar to the Company's or counterparty's credit rating and the yield on a risk-free instrument.
The Company has categorized its assets and liabilities recorded at fair value into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Assets and liabilities that use Level 2 inputs primarily include the Company's swap, collar and option agreements.
EQT CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
Exchange traded commodity swaps have Level 1 inputs. The fair value of the commodity swaps with Level 2 inputs is based on standard industry income approach models that use significant observable inputs, including, but not limited to, NYMEX natural gas forward curves, LIBOR-based discount rates, basis forward curves and natural gas liquids forward curves. The Company's collars and options are valued using standard industry income approach option models. The significant observable inputs used by the option pricing models include NYMEX forward curves, natural gas volatilities and LIBOR-based discount rates.
The table below summarizes assets and liabilities measured at fair value on a recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross derivative instruments recorded in the Condensed Consolidated Balance Sheets
|
|
Fair value measurements at reporting date using:
|
|
|
Quoted prices in active
markets for identical assets
(Level 1)
|
|
Significant other observable inputs
(Level 2)
|
|
Significant unobservable inputs
(Level 3)
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
June 30, 2021
|
|
|
|
|
|
|
|
Asset derivative instruments, at fair value
|
$
|
648,855
|
|
|
$
|
134,691
|
|
|
$
|
514,164
|
|
|
$
|
—
|
|
Liability derivative instruments, at fair value
|
2,160,253
|
|
|
315,372
|
|
|
1,844,881
|
|
|
—
|
|
|
|
|
|
|
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
Asset derivative instruments, at fair value
|
$
|
527,073
|
|
|
$
|
70,603
|
|
|
$
|
456,470
|
|
|
$
|
—
|
|
Liability derivative instruments, at fair value
|
600,877
|
|
|
93,361
|
|
|
507,516
|
|
|
—
|
|
The carrying values of cash equivalents, accounts receivable and accounts payable approximate fair value due to their short-term maturities. The carrying value of the Company's investment in Equitrans Midstream Corporation (Equitrans Midstream) approximates fair value as Equitrans Midstream is a publicly traded company. The carrying value of borrowings under the Company's credit facility approximates fair value as the interest rate is based on prevailing market rates. The Company considered all of these fair values to be Level 1 fair value measurements.
The Company estimates the fair value of its senior notes using established fair value methodology. Because not all of the Company's senior notes are actively traded, their fair value is a Level 2 fair value measurement. As of June 30, 2021 and December 31, 2020, the Company's senior notes had a fair value of approximately $6.5 billion and $5.2 billion, respectively, and a carrying value of approximately $5.4 billion and $4.5 billion, respectively, inclusive of any current portion. The fair value of the Company's note payable to EQM Midstream Partners, LP (EQM) is estimated using an income approach model with a market-based discount rate and is a Level 3 fair value measurement. As of June 30, 2021 and December 31, 2020, the Company's note payable to EQM had a fair value of approximately $123 million and $130 million, respectively, and a carrying value of approximately $102 million and $105 million, respectively, inclusive of any current portion. See Note 6 for further discussion of the Company's debt.
The Company recognizes transfers between Levels as of the actual date of the event or change in circumstances that caused the transfer. There were no transfers between Levels 1, 2 and 3 during the periods presented.
See Note 8 for a discussion of the fair value measurement of the Equitrans Share Exchange and Note 9 for a discussion of the fair value measurement of the 2020 Asset Exchange Transactions and 2020 Divestiture (each defined in Note 9). See Note 1 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2020 for a discussion of the fair value of assets related to the impairment and expiration of leases.
5. Income Taxes
For the six months ended June 30, 2021 and 2020, the Company calculated the provision for income taxes for interim periods by applying an estimate of the annual effective tax rate for the full fiscal year to "ordinary" income or loss (pre-tax income or loss excluding unusual or infrequently occurring items) for the period. There were no material changes to the Company's methodology for determining unrecognized tax benefits during the six months ended June 30, 2021.
EQT CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
The Company recorded income tax benefit at an effective tax rate of 27.0% and 14.0% for the six months ended June 30, 2021 and 2020, respectively. The Company's effective tax rate for the six months ended June 30, 2021 was higher compared to the U.S. federal statutory rate due primarily to state taxes, including valuation allowances limiting certain state tax benefits and West Virginia tax legislation enacted on April 13, 2021 that changed the way taxable income is apportioned to West Virginia for tax years beginning on or after January 1, 2022. The Company's effective tax rate for the six months ended June 30, 2020 was lower compared to the U.S. federal statutory rate due primarily to valuation allowances provided against federal and state deferred tax assets for the additional unrealized losses on the Company's investment in Equitrans Midstream incurred in the first half of 2020 that, if such investment is sold, would become capital losses. The Company believes that it is more likely than not that such additional unrealized losses will not be realized for tax purposes.
6. Debt
Credit facility. The Company has a $2.5 billion credit facility. On April 23, 2021, the Company entered into an Extension Agreement and First Amendment to Second Amended and Restated Credit Agreement (the Extension Agreement and First Amendment), amending the Second Amended and Restated Credit Agreement, dated as of July 31, 2017, among the Company, PNC Bank, National Association, as administrative agent, swing line lender and an L/C issuer, and the other lenders party thereto (the Credit Agreement). The Extension Agreement and First Amendment, among other things, (i) extends the maturity date of the commitments and loans under the Credit Agreement from July 31, 2022 to July 31, 2023, (ii) adds customary provisions to provide for the eventual replacement of LIBOR as a benchmark interest rate and (iii) adds an additional pricing level for the Applicable Rate (as defined in the Credit Agreement).
The Company had approximately $670 million and $791 million of letters of credit outstanding under its credit facility as of June 30, 2021 and December 31, 2020, respectively.
Under the Company's credit facility, for the three months ended June 30, 2021 and 2020, the maximum amounts of outstanding borrowings were $578 million and $173 million, respectively, the average daily balances were approximately $236 million and $35 million, respectively, and interest was incurred at weighted average annual interest rates of 2.1% and 2.4%, respectively. Under the Company's credit facility, for the six months ended June 30, 2021 and 2020, the maximum amounts of outstanding borrowings were $890 million and $356 million, respectively, the average daily balances were approximately $188 million and $60 million, respectively, and interest was incurred at weighted average annual interest rates of 2.1% and 2.9%, respectively.
Term loan facility. The Company had a $1.0 billion term loan facility that was scheduled to mature in May 2021. On June 30, 2020, the Company used proceeds from the offering of its Convertible Notes (see below), cash from its income tax refunds and proceeds from the 2020 Divestiture (see Note 9) to fully repay its term loan facility. Under the Company's term loan facility, for the three and six months ended June 30, 2020, the average daily balances were approximately $431 million and $692 million, respectively, and interest was incurred at weighted average annual interest rates of 2.2% and 2.6%, respectively.
3.125% senior notes and 3.625% senior notes. On May 17, 2021, the Company issued $500 million aggregate principal amount of 3.125% senior notes due May 15, 2026 and $500 million aggregate principal amount of 3.625% senior notes due May 15, 2031. After deducting offering costs of $15.6 million, net proceeds from the sale of the notes of $984.4 million were used to partly fund the Alta Acquisition (defined and described in Note 10). The covenants of the 3.125% senior notes and 3.625% senior notes are consistent with the Company's existing senior unsecured notes. Similar to the 5.00% senior notes due January 2029 issued in November 2020, the 3.125% senior notes and 3.625% senior notes include an offer to repurchase provision applicable upon the occurrence of certain change of control events specified in the applicable indentures.
4.875% senior notes. On February 1, 2021, the Company redeemed the remaining $125.1 million aggregate principal amount of its 4.875% senior notes at a total cost of $130.7 million, inclusive of redemption premiums of $4.3 million and accrued but unpaid interest of $1.3 million.
Convertible Notes. On April 28, 2020, the Company issued $500 million aggregate principal amount of 1.75% convertible senior notes (the Convertible Notes) due May 1, 2026 unless earlier redeemed, repurchased or converted. The Convertible Notes were issued in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. After deducting offering costs of $16.9 million and Capped Call Transactions (defined and described below) costs of $32.5 million, the net proceeds from the offering of $450.6 million were used to repay $450 million of the Company's term loan facility borrowings as well as for general corporate purposes.
EQT CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
Holders of the Convertible Notes may convert their Convertible Notes, at their option, at any time prior to the close of business on January 30, 2026 under the following circumstances:
•during any quarter as long as the last reported price of EQT common stock for at least 20 trading days (consecutive or otherwise) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding quarter is greater than or equal to 130% of the conversion price on each such trading day (the Sale Price Condition);
•during the five-business-day period after any five-consecutive-trading-day period (the measurement period) in which the trading price per $1,000 principal amount of the Convertible Notes for each trading day of the measurement period is less than 98% of the product of the last reported price of EQT common stock and the conversion rate for the Convertible Notes on each such trading day;
•if the Company calls any or all of the Convertible Notes for redemption, at any time prior to the close of business on the second scheduled trading day immediately preceding such redemption date; and
•upon the occurrence of certain corporate events set forth in the Convertible Notes indenture.
On or after February 1, 2026, holders of the Convertible Notes may convert their Convertible Notes, at their option, at any time until the close of business on the second scheduled trading date immediately preceding May 1, 2026.
Pursuant to the terms of the Convertible Notes indenture, the Sale Price Condition for conversion of the Convertible Notes was satisfied as of June 30, 2021, and, accordingly, holders of Convertible Notes may convert any of their Convertible Notes, at their option, at any time during the quarter beginning on July 1, 2021 and ending on September 30, 2021, subject to all terms and conditions set forth in the Convertible Notes indenture. Therefore, as of June 30, 2021, the net carrying value of the liability portion of the Convertible Notes was included in current portion of debt on the Condensed Consolidated Balance Sheet.
Upon conversion of the Convertible Notes, the Company intends to use a combined settlement approach to satisfy its obligation by paying or delivering to holders of the Convertible Notes cash equal to the principal amount of the obligation and EQT common stock for amounts that exceed the principal amount of the obligation.
The Company may not redeem the Convertible Notes prior to May 5, 2023. On or after May 5, 2023 and prior to February 1, 2026, the Company may redeem for cash all or any portion of the Convertible Notes, at its option, at a redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed plus accrued and unpaid interest up to the redemption date as long as the last reported price per share of EQT common stock has been at least 130% of the conversion price in effect for at least 20 trading days (consecutive or otherwise) during any 30-consecutive-trading-day period ending on the trading day immediately preceding the date on which the Company delivers notice of redemption. A sinking fund is not provided for the Convertible Notes.
The initial conversion rate for the Convertible Notes is 66.6667 shares of EQT common stock per $1,000 principal amount of the Convertible Notes, which is equivalent to an initial conversion price of $15.00 per share of EQT common stock. The initial conversion price represents a premium of 20% to the $12.50 per share closing price of EQT common stock on April 23, 2020. The conversion rate is subject to adjustment under certain circumstances. In addition, following certain corporate events that occur prior to May 1, 2026 or if the Company delivers notice of redemption, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Convertible Notes in connection with such corporate event or notice of redemption.
In connection with the Convertible Notes offering, the Company entered into privately negotiated capped call transactions (the Capped Call Transactions), the purpose of which is to reduce the potential dilution to EQT common stock upon conversion of the Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of such obligation, with such reduction and offset subject to a cap. The Capped Call Transactions have an initial strike price of $15.00 per share of EQT common stock and an initial capped price of $18.75 per share of EQT common stock, each of which are subject to certain customary adjustments.
For accounting purposes, the Company separated the Convertible Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of similar debt instruments that do not have associated convertible features. The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability component from the principal value of the Convertible Notes. The equity component is not remeasured as long as it continues to meet the condition for equity classification. The excess of the principal amount of the liability component over its carrying amount (the debt discount) will be amortized to interest expense over the term of the Convertible Notes, which is approximately 6 years, at an effective interest rate of 8.4%. At inception, the Company
EQT CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
recorded the Convertible Notes at fair value of approximately $358.1 million, a net deferred tax liability of $41.0 million and an equity component of $100.9 million.
Issuance costs were allocated to the liability and equity components of the Convertible Notes based on their relative fair values. Issuance costs attributable to the liability component of $12.1 million were recorded as a reduction to the liability component of the Convertible Notes and will be amortized to interest expense over the term of the Convertible Notes at an effective interest rate of 8.4%. Issuance costs attributable to the equity component of $4.8 million, representing the conversion option, were netted with the equity component.
The Capped Call Transactions are separate from the Convertible Notes. The Capped Call Transactions were recorded in shareholders' equity and were not accounted for as derivatives. The cost to purchase the Capped Call Transactions were recorded as a reduction to equity and will not be remeasured.
For the second quarter of 2020, the Convertible Notes had a net shareholders' equity impact of $63.6 million, which consisted of the conversion option equity component of $100.9 million less the Capped Call Transactions costs of $32.5 million and issuance costs attributable to the equity component of $4.8 million.
The table below summarizes the net carrying amount of the Convertible Notes, including the unamortized debt discount and debt issuance costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
|
December 31, 2020
|
|
|
|
|
|
(Thousands)
|
Principal
|
$
|
500,000
|
|
|
$
|
500,000
|
|
Less: Unamortized debt discount
|
119,105
|
|
|
129,103
|
|
Less: Unamortized debt issuance costs
|
10,562
|
|
|
11,263
|
|
Net carrying value of Convertible Notes
|
$
|
370,333
|
|
|
$
|
359,634
|
|
The table below summarizes the components of interest expense related to the Convertible Notes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
Contractual interest expense
|
$
|
2,187
|
|
|
$
|
1,507
|
|
|
$
|
4,375
|
|
|
$
|
1,507
|
|
Amortization of debt discount
|
5,046
|
|
|
3,231
|
|
|
9,998
|
|
|
3,231
|
|
Amortization of issuance costs
|
358
|
|
|
209
|
|
|
701
|
|
|
209
|
|
Total Convertible Notes interest expense
|
$
|
7,591
|
|
|
$
|
4,947
|
|
|
$
|
15,074
|
|
|
$
|
4,947
|
|
Based on the closing stock price of EQT common stock of $22.26 on June 30, 2021 and excluding the impact of the Capped Call Transactions, the if-converted value of the Convertible Notes exceeded the principal amount by $242 million.
7. Earnings Per Share
In periods when the Company reports a net loss, all options, restricted stock, performance awards and stock appreciation rights are excluded from the calculation of diluted weighted average shares outstanding because of their anti-dilutive effect on loss per share. As a result, for the three and six months ended June 30, 2021 and 2020, all such securities were excluded from potentially dilutive securities because of their anti-dilutive effect on EPS. Such securities for the three and six months ended June 30, 2021 were 7,679,584 and 7,712,354, respectively, and such securities for the three and six months ended June 30, 2020 were 6,769,822 and 6,739,305, respectively.
As discussed in Note 6, the Company issued the Convertible Notes during the second quarter of 2020 and, upon conversion of the Convertible Notes, intends to use a combined settlement approach to satisfy its obligation under the Convertible Notes. As such, there is no adjustment to the diluted EPS numerator for the cash-settled portion of the instrument. In addition, for the three and six
EQT CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
months ended June 30, 2021 and for the period of April 28, 2020 through June 30, 2020, the conversion premium of 6,666,670 shares was excluded from potentially dilutive securities because of its anti-dilutive effect on EPS.
8. Equitrans Share Exchange
During the first quarter of 2020, the Company sold to Equitrans Midstream a total of 25,299,752 shares of Equitrans Midstream's common stock in exchange for approximately $52 million in cash and rate relief under certain of the Company's gathering contracts with EQM, an affiliate of Equitrans Midstream (the Equitrans Share Exchange). The rate relief was effected through the execution of a consolidated gas gathering and compression agreement entered into between the Company and an affiliate of EQM (the Consolidated GGA). The Company recorded in the Condensed Consolidated Balance Sheet a contract asset representing the estimated fair value of the rate relief and, beginning on the Mountain Valley Pipeline (MVP) in-service date, expects to recognize amortization of the contract asset over a period of approximately four years in a manner consistent with the expected timing of the Company's realization of the economic benefits of the rate relief.
The Consolidated GGA provides for additional cash bonus payments (the Henry Hub Cash Bonus) payable by the Company to EQM during the period beginning on the first day of the quarter in which the MVP is placed in service and ending on the earlier of 36 months thereafter or December 31, 2024. Such payments are conditioned upon the quarterly average of the NYMEX Henry Hub natural gas settlement price exceeding certain price thresholds. As of June 30, 2021 and December 31, 2020, the derivative liability related to the Henry Hub Cash Bonus was approximately $97 million and $107 million, respectively. In addition, the Consolidated GGA provides a cash payment option that grants the Company the right to receive payments from EQM in the event that the MVP in-service date has not occurred prior to January 1, 2022.
The fair value of the contract asset was based on significant inputs that are not observable in the market and, as such, is a Level 3 fair value measurement. Key assumptions used in the fair value calculation included an estimated production volume forecast, a market-based discount rate and a probability-weighted estimate of the in-service date of the MVP. The fair value of the derivative liability related to the Henry Hub Cash Bonus was based on significant inputs that were interpolated from observable market data and, as such, is a Level 2 fair value measurement. See Note 4 for a description of the fair value hierarchy.
9. Asset Exchange Transactions and Divestiture
2020 Asset Exchange Transactions. During the first and second quarters of 2020, the Company closed on various acreage trade agreements (collectively, the 2020 Asset Exchange Transactions), pursuant to which the Company exchanged approximately 11,700 aggregate net revenue interest acres across Greene, Allegheny and Westmoreland Counties, Pennsylvania and Wetzel and Marshall Counties, West Virginia for approximately 11,700 aggregate net revenue interest acres across Greene and Washington Counties, Pennsylvania and Wetzel County, West Virginia. As a result of the 2020 Asset Exchange Transactions, the Company recognized a loss of $6.7 million and $55.6 million in (gain) loss on sale/exchange of long-lived assets in the Statements of Condensed Consolidated Operations for the three and six months ended June 30, 2020, respectively. The fair value of leases acquired were based on inputs that are not observable in the market and, as such, is a Level 3 fair value measurement. See Note 4 for a description of the fair value hierarchy. Key assumptions used in the fair value calculation included market-based prices for comparable acreage.
2020 Divestiture. On May 11, 2020, the Company closed a transaction to sell certain non-strategic assets located in Pennsylvania and West Virginia (the 2020 Divestiture) for an aggregate purchase price of approximately $125 million in cash, subject to customary purchase price adjustments and the Contingent Consideration defined and discussed below. The Pennsylvania assets sold included 80 Marcellus wells and approximately 33 miles of gathering lines; the West Virginia assets sold included 809 conventional wells and approximately 154 miles of gathering lines. In addition, the 2020 Divestiture relieved the Company of approximately $49 million in asset retirement obligations and other liabilities associated with the sold assets. Proceeds from the sale were used to pay down the Company's term loan facility.
The purchase and sale agreement for the 2020 Divestiture provides for additional cash bonus payments (the Contingent Consideration) payable to the Company of up to $20 million. Such Contingent Consideration is conditioned upon the three-month average of the NYMEX Henry Hub natural gas settlement price relative to stated floor and target price thresholds beginning on August 31, 2020 and ending on November 30, 2022. The Contingent Consideration represents an embedded derivative that is recorded at fair value in the Condensed Consolidated Balance Sheets. The Contingent Consideration had a fair value of $17.5 million and $1.9 million as of June 30, 2021 and December 31, 2020, respectively. Changes in fair value are recorded in (gain) loss on sale/exchange of long-lived assets in the Statements of Condensed Consolidated Operations. The fair value of the
EQT CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
Contingent Consideration is based on significant inputs that are interpolated from observable market data and, as such, is a Level 2 fair value measurement. See Note 4 for a description of the fair value hierarchy.
As a result of the 2020 Divestiture, the Company recognized a loss of $42.5 million in (gain) loss on sale/exchange of long-lived assets in the Statements of Condensed Consolidated Operations during the second quarter of 2020.
10. Acquisitions
Reliance Asset Acquisition. On April 1, 2021, the Company closed on the acquisition of certain oil and gas assets (the Reliance Asset Acquisition) from Reliance Marcellus, LLC (Reliance), pursuant to the Company's exercise of a preferential purchase right that was triggered by Northern Oil and Gas, Inc.'s acquisition of Reliance's Marcellus assets. The total purchase price for the acquisition was approximately $69 million, and the assets acquired consisted of approximately 40 MMcfe per day of current production and 4,100 net acres located in southwest Pennsylvania. The Reliance Asset Acquisition was accounted for as an asset acquisition and not a business combination and, as such, its proceeds were allocated to property, plant and equipment.
Alta Acquisition. On July 21, 2021, the Company completed its previously announced acquisition (the Alta Acquisition) of Alta Marcellus Development, LLC and ARD Operating, LLC and subsidiaries (together, the Alta Target Entities), pursuant to that certain Membership Interest Purchase Agreement, dated May 5, 2021 (the Alta Purchase Agreement), by and among the Company, EQT Acquisition HoldCo LLC (a wholly-owned indirect subsidiary of the Company), Alta Resources Development, LLC (Alta Resources) and the Alta Target Entities. The Alta Target Entities collectively hold all of Alta Resources' upstream and midstream assets and liabilities. The purchase price for the Alta Acquisition consisted of approximately $1.0 billion in cash and 98,789,388 shares of the Company's common stock, as adjusted pursuant to customary closing purchase price adjustments set forth in the Alta Purchase Agreement. The Alta Purchase Agreement contains customary representations and warranties, covenants, indemnification and termination provisions and has an effective date of January 1, 2021.
As a result of the Alta Acquisition, the Company acquired approximately 300,000 net Northeast Marcellus acres, approximately 1.0 Bcfe per day of current net production, approximately 300 miles of midstream gathering systems, approximately 100 miles of a freshwater system and a firm transportation portfolio to premium demand markets. In May 2021, upon execution of the Alta Purchase Agreement, the Company deposited $146.3 million in an escrow account, which was disbursed to Alta Resources at closing. As of June 30, 2021, this deposit was reflected in other assets in the Condensed Consolidated Balance Sheet.
EQT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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 to EQT 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 from Alta 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 ended December 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.
EQT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations
Consolidated Results of Operations
Net loss attributable to EQT Corporation for the three months ended June 30, 2021 was $936.5 million, $3.35 per diluted share, compared to net loss attributable to EQT 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 to EQT Corporation for the six months ended June 30, 2021 was $977.0 million, $3.50 per diluted share, compared to net loss attributable to EQT 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.
EQT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
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
|
|
|
$
|
1,869,923
|
|
|
$
|
1,702,006
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
2.49
|
|
|
$
|
2.43
|
|