Item 3. Legal Proceedings

In the ordinary course of business, various legal and regulatory claims and proceedings are pending or threatened against the Company. While the amounts claimed may be substantial, the Company is unable to predict with certainty the ultimate outcome of such claims and proceedings. The Company accrues legal and other direct costs related to loss contingencies when actually incurred. The Company has established reserves it believes to be appropriate for pending matters and, after consultation with counsel and giving appropriate consideration to available insurance, the Company believes that the ultimate outcome of any matter currently pending against the Company will not materially affect the financial condition, results of operations or liquidity of the Company.

Environmental Proceedings

Phoenix S Impoundment, Tioga County, Pennsylvania

In June and August 2012, the Company received three Notices of Violation (NOVs) from the PADEP. The NOVs alleged violations of the Pennsylvania Oil and Gas Act and Clean Streams Law in connection with the unintentional release in May 2012, by a Company vendor, of water from an impaired water pit at a Company well location in Tioga County, Pennsylvania. Since confirming a release, the Company has cooperated with the PADEP in remediating the affected areas.

During the second quarter of 2014, the Company received a proposed consent assessment of civil penalty from the PADEP that proposed a civil penalty related to the NOVs. On September 19, 2014, the Company filed a declaratory judgment action in the Commonwealth Court of Pennsylvania against the PADEP seeking a court ruling on the PADEP’s legal interpretation of the penalty provisions of the Clean Streams Law, which interpretation the Company believed was legally flawed and unsupportable. On October 7, 2014, based on its interpretation of the penalty provisions, the PADEP filed a complaint against the Company before the Pennsylvania Environmental Hearing Board (the EHB) seeking $4.53 million in civil penalties. In January 2017, the Commonwealth Court ruled in favor of the Company, finding the PADEP’s interpretation of the penalty provisions of the Clean Streams Law erroneous. The PADEP appealed that decision to the Pennsylvania Supreme Court, and the parties made oral arguments in front of the Pennsylvania Supreme Court on November 28, 2017. Following a July 2016 hearing before the EHB, in May 2017, the EHB ruled that the Company should pay $1.1 million in civil penalties. In June 2017, both the Company and the PADEP appealed the EHB’s decision to the Commonwealth Court. In September 2018, the Commonwealth Court upheld the $1.1 million civil penalty, which the Company paid in November 2018. The payment of the civil penalty did not have a material impact on the financial condition, results of operations or liquidity of the Company.

Fresh Water Pipeline Bore Release, Allegheny County, Pennsylvania

On February 24, 2017, the Company received an NOV from the PADEP. The NOV alleged violations of the Pennsylvania Oil and Gas Act and Clean Streams Law related to an unintentional release, by a Company vendor, of mine water into the Monongahela River in January 2017 from a mine void that was pierced while boring under a road for the installation of a fresh water pipeline in Allegheny County, Pennsylvania. The Company cooperated with the PADEP to take appropriate actions to stop the release. On February 15, 2017, the Company entered into a civil penalty settlement related to the release with the Pennsylvania Fish and Boat Commission for $4,555 for alleged violations of the Pennsylvania Fish and Boat Code. In November 2018, the Company and the PADEP entered into a settlement agreement related to the release. Under the terms of the agreement, the Company paid a civil penalty of $294,000 and provided $100,000 in trust for future maintenance of a mine water drain. The payments did not have a material impact on the financial condition, results of operations or liquidity of the Company.

Wilson Creek Water Withdrawals, Tioga County, Pennsylvania

On June 7, 2018, the Company received an NOV from the Susquehanna River Basin Commission (the SRBC). The NOV alleged violations of the Company’s Water Management Plan and its Wilson Creek Docket related to the withdrawal of water from Wilson Creek between March 14, 2018 and April 3, 2018, when the stream flow was below the required flow protection threshold. The Company cooperated fully with the SRBC to address the matter. On December 18, 2018, the Company and the SRBC agreed to settle this matter and the Company paid a civil penalty of $120,000. The payment of the civil penalty did not have a material impact on the financial condition, results of operations or liquidity of the Company.

Erosion and Sedimentation Releases, Allegheny County, Pennsylvania

Between November 2017 and March 2018, the Company received multiple NOVs from the PADEP relating to four of the Company’s well pads in Allegheny County, Pennsylvania. During this time period, Pennsylvania experienced unprecedented amounts of rainfall. The NOVs alleged violations of the Oil and Gas Act, and Clean Streams Law in connection with the effects

of the rainfall on erosion and sedimentation controls at the Prentice, Fetchen, Oliver East, and Oliver West well pads. The Company cooperated fully with the PADEP to take appropriate actions to address the erosion and sedimentation control issues. The Company and the PADEP are currently negotiating a civil penalty settlement. While the Company expects the PADEP’s claims to result in penalties that exceed $100,000, the Company expects that the resolution of this matter will not have a material impact on the financial condition, results of operations or liquidity of the Company.

Phoenix S Pad Well Control Incident, Tioga County, Pennsylvania

On December 1, 2017 and May 1, 2018, the Company received NOVs from the PADEP relating to a well control incident that occurred at a Phoenix S well on November 12, 2017. The well was brought back under control, but in the interim natural gas was vented to the atmosphere and flowback water was released to the ground water and a stream. The Company fully cooperated with the PADEP and took appropriate actions to address the environmental impacts from the incident. On January 22, 2019, the Company and the PADEP agreed to settle this matter and the Company agreed to pay a civil penalty of $138,000 to resolve the matter. The payment of the civil penalty did not have a material impact on the financial condition, results of operations or liquidity of the Company.

Other Legal Proceedings

Kay Company, LLC, et al. v. EQT Production Company, et al., United States District Court for the Northern District of West Virginia

On January 16, 2013, several royalty owners who had entered into leases with EQT Production Company, a subsidiary of the Company, filed a gas royalty class action lawsuit in the Circuit Court of Doddridge County, West Virginia. The suit alleged that EQT Production Company and a number of related companies, including the Company, EQT Energy, LLC, EQT Investments Holdings, LLC, EQM (the Company’s former midstream affiliate) and Equitrans Gathering Holdings, LLC (formerly known as EQT Gathering Holdings, LLC, and a former subsidiary of the Company), failed to pay royalties on the fair value of the gas produced from the leases and took improper post-production deductions from the royalties paid. The plaintiffs sought more than $100 million (according to expert reports) in compensatory damages, punitive damages, and other relief. On May 31, 2013, the defendants removed the lawsuit to federal court. On September 6, 2017, the district court granted the plaintiffs’ motion to certify the class and granted the plaintiffs’ motion for summary judgment, finding that EQT Production Company and its marketing affiliate EQT Energy, LLC are alter egos of one another. The defendants sought immediate appeal of the class certification. On November 30, 2017, the Court of Appeals declined the request for an immediate review. On February 13, 2019, the Company announced that it and the other defendants reached a tentative settlement agreement with the class representatives. Pursuant to the terms of the proposed settlement agreement, the Company agreed to pay $53.5 million into a settlement fund that will be established to disburse payments to class participants, and stop taking future post production deductions on leases that are determined by the Court to not permit deductions. The Company and the class representatives also agreed that future royalty payments will be based on a clearly defined index pricing methodology. The tentative settlement agreement is subject to Court approval and achieving a threshold minimum percentage of participation by the class members. Each class member will have the opportunity to opt out of the settlement. If approved, the settlement will resolve the royalty claims for the class period, which spans from 2009 through 2017.