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 position, results of operations or liquidity of the Company.

Environmental Proceedings

Erosion and Sedimentation Release, Greene County, Pennsylvania. Between September 2018 and December 2018, the Company received multiple Notices of Violation (NOVs) from the PADEP relating to the Don Flamenco Pad in Greene County, Pennsylvania. The NOVs alleged violations of the Oil and Gas Act and The Clean Streams Law in connection with erosion and sedimentation controls and an unstabilized fill slope. The Company cooperated fully with the PADEP to take appropriate actions to address the erosion and sedimentation control issues and the unstabilized fill slope. The Company entered into a Consent Order and Agreement with the PADEP on January 10, 2020 and under the terms of the agreement, the Company paid a civil penalty of $151,415 in January 2020 to resolve this matter. The payment of the civil penalty did not have a material impact on the financial position, results of operations or liquidity of the Company.

Produced Water Release, Marshall County, West Virginia. On November 12, 2019, the Company received an NOV from the West Virginia Department of Environmental Protection (the WVDEP) relating to the Goshorn Pad in Marshall County, West Virginia. The NOV alleged violations of Water Pollution Control Rules in connection with a release of produced water from secondary containment at a Goshorn Pad tank battery. The Company cooperated fully with the WVDEP to take appropriate actions to address the secondary containment issues and remediation of the release. While the Company expects the WVDEP'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 position, results of operations or liquidity of the Company.

Other Legal Proceedings

Mary Farr Secrist, et al. v. EQT Production Company, et al., Circuit Court of Doddridge County, West Virginia. On May 2, 2014, royalty owners whose predecessors had entered into a 960-acre lease (the Stout Lease) and several additional leases comprising 6,356-acres (the Cities Services Lease) with EQT Production Company's predecessor, each covering acreage in Doddridge County, West Virginia, filed a complaint in the Circuit Court of Doddridge County, West Virginia. The complaint alleged that EQT Production Company and a number of related companies, including the Company, EQT Gathering, LLC, EQT Energy, LLC, and EQM Midstream Services, LLC (formerly known as EQT Midstream Services, LLC, the general partner of the Company's former midstream affiliate), underpaid on royalties for gas produced under the leases and took improper post-production deductions from the royalties paid. With respect to the Stout Lease, the plaintiffs also asserted that the Company committed a trespass by drilling on the leased property, claiming that the Company had no right under the lease to drill in the Marcellus shale formation. The plaintiffs also asserted claims for fraud, slander of title, punitive damages, pre-judgment interest and attorneys' fees. The plaintiffs sought more than $100 million in compensatory damages for the trespass claim under the Stout Lease, and approximately $20 million for insufficient royalties under both the Stout Lease and the Cities Services Lease, in addition to punitive damages and other relief. On June 27, 2018, the Court held that EQT Production Company and its marketing affiliate EQT Energy, LLC are alter egos of one another and that royalties paid under the leases should have been based on the price of gas produced under the leases when sold to unaffiliated third parties, and not on the price when the gas was sold from EQT Production Company to EQT Energy, LLC. Further, on January 14, 2019, the Court entered an Order granting the plaintiffs' motion for summary judgment and declaring that the Company did not have the right to drill in the Marcellus shale formation under the Stout Lease. The Court also ruled that seven of the Company's wells that have been producing gas under the Stout Lease are trespassing, and that a jury will determine whether the trespass was willful or innocent. On February 27, 2019, the Company filed a motion seeking permission to immediately appeal the trespass Order to the West Virginia Supreme Court; however, the motion was denied on March 25, 2019, and the Court continued the trial to September 2019. On May 28, 2019, the Court entered an Order excluding certain of the Company's costs that could have otherwise offset any damages for innocent trespass under the Stout Lease. On August 8, 2019,

the Company reached a settlement with the plaintiffs to resolve all claims under the Stout Lease and the Cities Services Lease for $54 million plus lease modifications to address the trespass issue and the calculation of future royalty payments under the leases. The Company paid $51 million of the settlement in October 2019 and the remaining $3 million of the settlement in January 2020. Amendments to modify the terms of the Stout Lease are in process and, when finalized, an Order to dismiss the case will be filed with the Court to formally close this matter.