filings.toolsItem 1. Financial Statements
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Item 1. Financial Statements
EQT CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS (UNAUDITED)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (Thousands, except per share amounts) | |||||||||||||||||||||||
| Operating revenues: | |||||||||||||||||||||||
| Sales of natural gas, natural gas liquids and oil | $ | 889,517 | $ | 848,325 | $ | 2,193,422 | $ | 2,678,683 | |||||||||||||||
| Gain on derivatives | 61,333 | 164,386 | 167,844 | 989,238 | |||||||||||||||||||
| Net marketing services and other | 1,662 | 6,040 | 3,514 | 11,901 | |||||||||||||||||||
| Total operating revenues | 952,512 | 1,018,751 | 2,364,780 | 3,679,822 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Transportation and processing | 543,067 | 523,162 | 1,088,248 | 1,038,146 | |||||||||||||||||||
| Production | 102,187 | 55,038 | 204,506 | 102,978 | |||||||||||||||||||
| Exploration | 1,378 | 1,203 | 2,294 | 2,155 | |||||||||||||||||||
| Selling, general and administrative | 67,207 | 60,163 | 140,260 | 112,057 | |||||||||||||||||||
| Depreciation and depletion | 465,982 | 395,684 | 952,732 | 783,369 | |||||||||||||||||||
| (Gain) loss on sale/exchange of long-lived assets | (320,129) | (225) | (319,982) | 16,303 | |||||||||||||||||||
| Impairment and expiration of leases | 37,659 | 5,325 | 46,868 | 15,871 | |||||||||||||||||||
| Other operating expenses | 52,190 | 13,394 | 64,163 | 33,056 | |||||||||||||||||||
| Total operating expenses | 949,541 | 1,053,744 | 2,179,089 | 2,103,935 | |||||||||||||||||||
| Operating income (loss) | 2,971 | (34,993) | 185,691 | 1,575,887 | |||||||||||||||||||
| Income from investments | (172) | (1,092) | (2,432) | (5,856) | |||||||||||||||||||
| Other income | (19,431) | (562) | (19,636) | (737) | |||||||||||||||||||
| Loss (gain) on debt extinguishment | 1,837 | 5,462 | 5,286 | (1,144) | |||||||||||||||||||
| Interest expense, net | 55,720 | 39,883 | 110,091 | 86,429 | |||||||||||||||||||
| (Loss) income before income taxes | (34,983) | (78,684) | 92,382 | 1,497,195 | |||||||||||||||||||
| Income tax (benefit) expense | (44,222) | (11,818) | (19,920) | 344,828 | |||||||||||||||||||
| Net income (loss) | 9,239 | (66,866) | 112,302 | 1,152,367 | |||||||||||||||||||
| Less: Net (loss) income attributable to noncontrolling interests | (278) | (240) | (703) | 445 | |||||||||||||||||||
| Net income (loss) attributable to EQT Corporation | $ | 9,517 | $ | (66,626) | $ | 113,005 | $ | 1,151,922 | |||||||||||||||
| Income (loss) per share of common stock attributable to EQT Corporation: | |||||||||||||||||||||||
| Basic: | |||||||||||||||||||||||
| Weighted average common stock outstanding | 441,968 | 361,982 | 440,714 | 361,721 | |||||||||||||||||||
| Net income (loss) attributable to EQT Corporation | $ | 0.02 | $ | (0.18) | $ | 0.26 | $ | 3.18 | |||||||||||||||
| Diluted (Note 7): | |||||||||||||||||||||||
| Weighted average common stock outstanding | 444,921 | 361,982 | 444,893 | 393,435 | |||||||||||||||||||
| Net income (loss) attributable to EQT Corporation | $ | 0.02 | $ | (0.18) | $ | 0.25 | $ | 2.94 |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
EQT CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONDENSED CONSOLIDATED COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (Thousands) | |||||||||||||||||||||||
| Net income (loss) | $ | 9,239 | $ | (66,866) | $ | 112,302 | $ | 1,152,367 | |||||||||||||||
| Other comprehensive income, net of tax: | |||||||||||||||||||||||
| Other postretirement benefits liability adjustment, net of tax: $13, $14, $26 and $29 | 43 | 49 | 86 | 213 | |||||||||||||||||||
| Comprehensive income (loss) | 9,282 | (66,817) | 112,388 | 1,152,580 | |||||||||||||||||||
| Less: Comprehensive (loss) income attributable to noncontrolling interests | (278) | (240) | (703) | 445 | |||||||||||||||||||
| Comprehensive income (loss) attributable to EQT Corporation | $ | 9,560 | $ | (66,577) | $ | 113,091 | $ | 1,152,135 |
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
EQT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| June 30, 2024 | December 31, 2023 | ||||||||||
| (Thousands) | |||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 29,974 | $ | 80,977 | |||||||
| Accounts receivable (less provision for doubtful accounts: $354 and $663) | 586,995 | 823,695 | |||||||||
| Derivative instruments, at fair value | 424,362 | 978,634 | |||||||||
| Income tax receivable | 89,690 | 91,414 | |||||||||
| Prepaid expenses and other | 98,806 | 38,255 | |||||||||
| Total current assets | 1,229,827 | 2,012,975 | |||||||||
| Property, plant and equipment | 34,953,757 | 33,817,169 | |||||||||
| Less: Accumulated depreciation and depletion | 11,777,471 | 10,866,999 | |||||||||
| Net property, plant and equipment | 23,176,286 | 22,950,170 | |||||||||
| Other assets | 300,356 | 321,953 | |||||||||
| Total assets | $ | 24,706,469 | $ | 25,285,098 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Current portion of debt | $ | 6,388 | $ | 292,432 | |||||||
| Accounts payable | 1,198,215 | 1,272,522 | |||||||||
| Derivative instruments, at fair value | 175,960 | 186,363 | |||||||||
| Other current liabilities | 305,005 | 285,523 | |||||||||
| Total current liabilities | 1,685,568 | 2,036,840 | |||||||||
| Revolving credit facility borrowings | 47,000 | — | |||||||||
| Term Loan Facility borrowings | 497,680 | 1,244,265 | |||||||||
| Senior notes | 4,321,702 | 4,176,180 | |||||||||
| Note payable to EQM Midstream Partners, LP | 79,016 | 82,236 | |||||||||
| Deferred income taxes | 1,882,264 | 1,904,821 | |||||||||
| Other liabilities and credits | 1,068,491 | 1,059,939 | |||||||||
| Total liabilities | 9,581,721 | 10,504,281 | |||||||||
| Equity: | |||||||||||
| Common stock, no par value, shares authorized: 640,000, shares issued: 441,597 and 419,896 | 12,464,492 | 12,093,986 | |||||||||
| Retained earnings | 2,655,940 | 2,681,898 | |||||||||
| Accumulated other comprehensive loss | (2,598) | (2,684) | |||||||||
| Total common shareholders' equity | 15,117,834 | 14,773,200 | |||||||||
| Noncontrolling interest in consolidated subsidiaries | 6,914 | 7,617 | |||||||||
| Total equity | 15,124,748 | 14,780,817 | |||||||||
| Total liabilities and equity | $ | 24,706,469 | $ | 25,285,098 |
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, | |||||||||||
| 2024 | 2023 | ||||||||||
| (Thousands) | |||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 112,302 | $ | 1,152,367 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Deferred income tax (benefit) expense | (22,583) | 353,912 | |||||||||
| Depreciation and depletion | 952,732 | 783,369 | |||||||||
| Gain/loss on sale/exchange of long-lived assets and impairments | (273,114) | 32,174 | |||||||||
| Income from investments | (2,432) | (5,856) | |||||||||
| Loss (gain) on debt extinguishment | 5,286 | (1,144) | |||||||||
| Share-based compensation expense | 22,650 | 23,333 | |||||||||
| Distribution of earnings from equity method investment | 8,975 | 16,616 | |||||||||
| Amortization, accretion and other | 8,317 | 7,941 | |||||||||
| Gain on derivatives | (167,844) | (989,238) | |||||||||
| Net cash settlements received on derivatives | 749,185 | 369,247 | |||||||||
| Net premiums paid on derivatives | (37,893) | (164,843) | |||||||||
| Changes in other assets and liabilities: | |||||||||||
| Accounts receivable | 238,579 | 1,128,033 | |||||||||
| Accounts payable | (47,115) | (532,223) | |||||||||
| Other current assets | (59,419) | 84,082 | |||||||||
| Other items, net | (9,918) | (157,889) | |||||||||
| Net cash provided by operating activities | 1,477,708 | 2,099,881 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | (1,092,633) | (981,795) | |||||||||
| Cash paid for acquisitions | (237,755) | — | |||||||||
| Proceeds from sale of assets | 453,864 | — | |||||||||
| Other investing activities | (2,688) | (2,036) | |||||||||
| Net cash used in investing activities | (879,212) | (983,831) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from revolving credit facility borrowings | 314,000 | — | |||||||||
| Repayment of revolving credit facility borrowings | (267,000) | — | |||||||||
| Proceeds from issuance of debt | 750,000 | — | |||||||||
| Proceeds from net settlement of Capped Call Transactions (Note 6) | 93,290 | — | |||||||||
| Debt issuance costs | (8,511) | (3,557) | |||||||||
| Repayment and retirement of debt | (1,355,183) | (1,012,877) | |||||||||
| (Premiums paid) discounts received on debt extinguishment | (1,178) | 6,402 | |||||||||
| Dividends paid | (138,963) | (108,318) | |||||||||
| Repurchase and retirement of common stock | — | (201,029) | |||||||||
| Net distribution to noncontrolling interest | — | (2,043) | |||||||||
| Other financing activities | (35,954) | (37,780) | |||||||||
| Net cash used in financing activities | (649,499) | (1,359,202) | |||||||||
| Net change in cash and cash equivalents | (51,003) | (243,152) | |||||||||
| Cash and cash equivalents at beginning of period | 80,977 | 1,458,644 | |||||||||
| Cash and cash equivalents at end of period | $ | 29,974 | $ | 1,215,492 |
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 | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Retained Earnings | Accumulated Other Comprehensive Loss (a) | Noncontrolling Interest in Consolidated Subsidiaries | Total Equity | ||||||||||||||||||||||||||||||
| (Thousands, except per share amounts) | |||||||||||||||||||||||||||||||||||
| Balance at April 1, 2023 | 361,586 | $ | 9,776,392 | $ | 2,338,572 | $ | (2,830) | $ | 41,454 | $ | 12,153,588 | ||||||||||||||||||||||||
| Comprehensive loss, net of tax: | |||||||||||||||||||||||||||||||||||
| Net loss | (66,626) | (240) | (66,866) | ||||||||||||||||||||||||||||||||
| Other postretirement benefits liability adjustment, net of tax: $14 | 49 | 49 | |||||||||||||||||||||||||||||||||
| Dividends ($0.15 per share) | (54,248) | (54,248) | |||||||||||||||||||||||||||||||||
| Share-based compensation plans | 64 | 14,451 | 14,451 | ||||||||||||||||||||||||||||||||
| Convertible Notes settlements | 4 | 12 | 12 | ||||||||||||||||||||||||||||||||
| Distribution to noncontrolling interest | (1,958) | (1,958) | |||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | 361,654 | $ | 9,790,855 | $ | 2,217,698 | $ | (2,781) | $ | 39,256 | $ | 12,045,028 | ||||||||||||||||||||||||
| Balance at April 1, 2024 | 441,558 | $ | 12,450,876 | $ | 2,715,974 | $ | (2,641) | $ | 7,192 | $ | 15,171,401 | ||||||||||||||||||||||||
| Comprehensive income, net of tax: | |||||||||||||||||||||||||||||||||||
| Net income (loss) | 9,517 | (278) | 9,239 | ||||||||||||||||||||||||||||||||
| Other postretirement benefits liability adjustment, net of tax: $13 | 43 | 43 | |||||||||||||||||||||||||||||||||
| Dividends ($0.1575 per share) | (69,551) | (69,551) | |||||||||||||||||||||||||||||||||
| Share-based compensation plans | 39 | 13,616 | 13,616 | ||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | 441,597 | $ | 12,464,492 | $ | 2,655,940 | $ | (2,598) | $ | 6,914 | $ | 15,124,748 |
Common shares authorized (in thousands): 640,000. Preferred shares authorized (in thousands): 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 | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Retained Earnings | Accumulated Other Comprehensive Loss (a) | Noncontrolling Interest in Consolidated Subsidiaries | Total Equity | ||||||||||||||||||||||||||||||
| (Thousands, except per share amounts) | |||||||||||||||||||||||||||||||||||
| Balance at January 1, 2023 | 365,363 | $ | 9,891,890 | $ | 1,283,578 | $ | (2,994) | $ | 40,854 | $ | 11,213,328 | ||||||||||||||||||||||||
| Comprehensive income, net of tax: | |||||||||||||||||||||||||||||||||||
| Net income | 1,151,922 | 445 | 1,152,367 | ||||||||||||||||||||||||||||||||
| Other postretirement benefits liability adjustment, net of tax: $29 | 213 | 213 | |||||||||||||||||||||||||||||||||
| Dividends ($0.30 per share) | (108,318) | (108,318) | |||||||||||||||||||||||||||||||||
| Share-based compensation plans | 2,191 | (9,572) | (9,572) | ||||||||||||||||||||||||||||||||
| Convertible Notes settlements | 6 | 82 | 82 | ||||||||||||||||||||||||||||||||
| Repurchase and retirement of common stock | (5,906) | (91,545) | (109,484) | (201,029) | |||||||||||||||||||||||||||||||
| Distribution to noncontrolling interest | (5,793) | (5,793) | |||||||||||||||||||||||||||||||||
| Contribution from noncontrolling interest | 3,750 | 3,750 | |||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | 361,654 | $ | 9,790,855 | $ | 2,217,698 | $ | (2,781) | $ | 39,256 | $ | 12,045,028 | ||||||||||||||||||||||||
| Balance at January 1, 2024 | 419,896 | $ | 12,093,986 | $ | 2,681,898 | $ | (2,684) | $ | 7,617 | $ | 14,780,817 | ||||||||||||||||||||||||
| Comprehensive income, net of tax: | |||||||||||||||||||||||||||||||||||
| Net income (loss) | 113,005 | (703) | 112,302 | ||||||||||||||||||||||||||||||||
| Other postretirement benefits liability adjustment, net of tax: $26 | 86 | 86 | |||||||||||||||||||||||||||||||||
| Dividends ($0.315 per share) | (138,963) | (138,963) | |||||||||||||||||||||||||||||||||
| Share-based compensation plans | 1,709 | (8,392) | (8,392) | ||||||||||||||||||||||||||||||||
| Convertible Notes settlements | 19,992 | 285,608 | 285,608 | ||||||||||||||||||||||||||||||||
| Net settlement of Capped Call Transactions | 93,290 | 93,290 | |||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | 441,597 | $ | 12,464,492 | $ | 2,655,940 | $ | (2,598) | $ | 6,914 | $ | 15,124,748 |
Common shares authorized (in thousands): 640,000. Preferred shares authorized (in thousands): 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, 2024 and December 31, 2023, the results of its operations and equity for the three and six month periods ended June 30, 2024 and 2023 and its cash flows for the six month periods ended June 30, 2024 and 2023. 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" and the "Company" refer collectively to EQT Corporation and its consolidated subsidiaries unless otherwise noted.
The Condensed Consolidated Balance Sheet at December 31, 2023 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, 2023.
Supplemental Cash Flow Information. The following table summarizes net cash paid for interest and income taxes and non-cash activity included in the Statements of Condensed Consolidated Cash Flows.
| Six Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| (Thousands) | |||||||||||
| Cash paid during the period for: | |||||||||||
| Interest, net of amount capitalized | $ | 104,940 | $ | 95,316 | |||||||
| Income taxes, net | 4,850 | 13,619 | |||||||||
| Non-cash activity during the period for: | |||||||||||
| Issuance of EQT Corporation common stock for Convertible Notes settlement | $ | 285,608 | $ | 82 | |||||||
| NEPA Non-Operated Asset Divestiture (Note 9) | 155,383 | — | |||||||||
| Increase in right-of-use assets and lease liabilities, net | 8,283 | 507 | |||||||||
| Capitalization of non-cash equity share-based compensation | 3,371 | 2,997 | |||||||||
| Increase in asset retirement costs and obligations | 3,313 | 3,631 | |||||||||
| Investment in nonconsolidated entity | 2,375 | — |
Common Stock. On July 18, 2024, following approval by the shareholders of EQT Corporation, the Company amended its Restated Articles of Incorporation to increase the authorized number of shares of EQT Corporation common stock from 640,000,000 shares to 1,280,000,000 shares.
Recently Issued Accounting Standards
In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures to improve reportable segment disclosure requirements, primarily through the requirement of enhanced disclosure of significant segment expenses. In addition, this ASU enhances interim disclosure requirements, clarifies circumstances in which an entity can disclose multiple segment measures of profit or loss and provides new segment disclosure requirements for entities with a single reportable segment. This ASU is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is evaluating the effect its adoption of ASU 2023-07 will have on its financial statements and related disclosures.
EQT CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
In December 2023, the FASB issued ASU 2023-09, Income Taxes: Improvements to Income Tax Disclosures to improve its income tax disclosure requirements. Under this ASU, public business entities must annually (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold. This ASU is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company does not expect adoption of ASU 2023-09 to have a material impact on its financial statements and related disclosures.
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 (million British thermal units (MMBtu) or barrel (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 $446.8 million and $584.8 million in accounts receivable in the Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023, respectively.
The table below provides disaggregated information on the Company's revenues. Certain other revenue contracts are outside the scope of ASU 2014-09, Revenue from Contracts with Customers. These contracts 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, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (Thousands) | |||||||||||||||||||||||
| Revenues from contracts with customers: | |||||||||||||||||||||||
| Natural gas sales | $ | 730,705 | $ | 765,856 | $ | 1,852,279 | $ | 2,478,088 | |||||||||||||||
| NGLs sales | 139,734 | 67,899 | 295,884 | 166,727 | |||||||||||||||||||
| Oil sales | 19,078 | 14,570 | 45,259 | 33,868 | |||||||||||||||||||
| Total revenues from contracts with customers | $ | 889,517 | $ | 848,325 | $ | 2,193,422 | $ | 2,678,683 | |||||||||||||||
| Other sources of revenue: | |||||||||||||||||||||||
| Gain on derivatives | 61,333 | 164,386 | 167,844 | 989,238 | |||||||||||||||||||
| Net marketing services and other | 1,662 | 6,040 | 3,514 | 11,901 | |||||||||||||||||||
| Total operating revenues | $ | 952,512 | $ | 1,018,751 | $ | 2,364,780 | $ | 3,679,822 |
As of June 30, 2024, the Company had no remaining performance obligations on its natural gas sales contracts with fixed consideration.
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 result in 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 gain on derivatives 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 its expected sales of production and portions of its basis exposure covering approximately 2,402 billion cubic feet (Bcf) of natural gas and 2,568 thousand barrels (Mbbl) of NGLs as of June 30, 2024 and 2,045 Bcf of natural gas and 1,049 Mbbl of NGLs as of December 31, 2023. The open positions at both June 30, 2024 and December 31, 2023 had maturities extending through December 2027.
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), S&P Global Ratings (S&P) or Fitch Ratings Service (Fitch) 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, S&P or Fitch 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. Anything below these ratings is considered non-investment grade. As of June 30, 2024, the Company's senior notes were rated "Baa3" by Moody's, "BBB–" by S&P and "BBB–" by Fitch.
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, 2024 and December 31, 2023, the aggregate fair value of the Company's OTC derivative instruments with credit rating risk-related contingent features that were in a net liability position was $0.2 million and $6.4 million, respectively, for which no deposits were required or recorded in the Condensed Consolidated Balance Sheets.
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, 2024 and December 31, 2023, 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, 2024 and December 31, 2023, the Company recorded $67.6 million and $13.0 million, respectively, of such deposits as current assets in the Condensed Consolidated Balance Sheets.
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, 2024 | |||||||||||||||||||||||
| Asset derivative instruments, at fair value | $ | 424,362 | $ | (135,133) | $ | — | $ | 289,229 | |||||||||||||||
| Liability derivative instruments, at fair value | 175,960 | (135,133) | (67,643) | (26,816) | |||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||
| Asset derivative instruments, at fair value | $ | 978,634 | $ | (112,203) | $ | — | $ | 866,431 | |||||||||||||||
| Liability derivative instruments, at fair value | 186,363 | (112,203) | (13,017) | 61,143 |
Henry Hub Cash Bonus. The consolidated gas gathering and compression agreement, dated February 26, 2020 (the Consolidated GGA), between the Company and an affiliate of Equitrans Midstream Corporation (Equitrans Midstream) provides for cash bonus payments (the Henry Hub Cash Bonus) payable by the Company during each quarter beginning with the first day of the quarter in which the MVP In-Service Date (as defined within the Consolidated GGA) occurs 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. Following receipt of authorization from the Federal Energy Regulatory Commission, the Mountain Valley Pipeline entered into service on June 14, 2024. Upon commencement of long-term firm capacity obligations, the MVP In-Service Date occurred on July 1, 2024.
As of June 30, 2024 and December 31, 2023, the derivative liability related to the Henry Hub Cash Bonus had a fair value of approximately $33 million and $48 million, respectively. The fair value of the derivative liability related to the Henry Hub Cash Bonus 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.
EQT CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
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.
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, SOFR-based discount rates, basis forward curves and NGLs 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 SOFR-based discount rates.
The table below summarizes assets and liabilities measured at fair value on a recurring basis.
| Fair value measurements at reporting date using: | |||||||||||||||||||||||
| Gross derivative instruments recorded in the Condensed Consolidated Balance Sheets | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||||||||||||||||
| (Thousands) | |||||||||||||||||||||||
| June 30, 2024 | |||||||||||||||||||||||
| Asset derivative instruments, at fair value | $ | 424,362 | $ | 41,942 | $ | 382,420 | $ | — | |||||||||||||||
| Liability derivative instruments, at fair value | 175,960 | 33,026 | 142,934 | — | |||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||
| Asset derivative instruments, at fair value | $ | 978,634 | $ | 66,302 | $ | 912,332 | $ | — | |||||||||||||||
| Liability derivative instruments, at fair value | 186,363 | 42,218 | 144,145 | — |
The carrying values of cash equivalents, accounts receivable and accounts payable approximate fair value due to their short-term maturities. The carrying value of borrowings under the Company's revolving credit facility and the Term Loan Facility (defined in Note 6) approximates fair value as their interest rates are based on prevailing market rates. The Company considers all of these fair values to be Level 1 fair value measurements.
The Company has an investment in a fund (the Investment Fund) that invests in companies developing technology and operating solutions for exploration and production companies. The Company values the Investment Fund using, as a practical expedient, the net asset value provided in the financial statements received from fund managers.
EQT CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
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, 2024 and December 31, 2023, the Company's senior notes had a fair value of approximately $4.3 billion and $4.9 billion, respectively, and a carrying value of approximately $4.3 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), a wholly-owned subsidiary of Equitrans Midstream as of June 30, 2024 and December 31, 2023, 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, 2024 and December 31, 2023, the Company's note payable to EQM had a fair value of approximately $86 million and $91 million, respectively, and a carrying value of approximately $85 million and $88 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 3 for a discussion of the fair value measurement of the Henry Hub Cash Bonus. See Note 9 for a discussion of the fair value measurement of the NEPA Non-Operated Asset Divestiture (defined therein). See Note 1 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 for a discussion of the fair value measurement and any subsequent impairments of the Company's oil and gas properties and other long-lived assets, including impairment and expiration of leases.
5. Income Taxes
Historically, the Company has 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. However, because fluctuations in estimated ordinary income can result in significant changes in the estimated annual effective tax rate, the Company determined that this method does not provide a reliable estimate for the six months ended June 30, 2024. As such, the Company instead used a discrete effective tax rate method to calculate taxes for the six months ended June 30, 2024. There were no material changes to the Company's methodology for determining unrecognized tax benefits during the six months ended June 30, 2024.
For the six months ended June 30, 2023, the Company calculated the provision for income taxes by applying an estimate of the annual effective tax rate for the full fiscal year to ordinary income for the period.
For the six months ended June 30, 2024 and 2023, the Company recorded income tax (benefit) expense at an effective tax rate of (21.6)% and 23.0%, respectively. The Company's effective tax rate for the six months ended June 30, 2024 was lower compared to the U.S. federal statutory rate primarily as a result of the Company's utilization of some of its capital loss carryforwards with the capital gain generated from the NEPA Non-Operated Asset Divestiture, which results in the release of the associated valuation allowance, as well as from excess tax benefits from share-based payments. The Company's effective tax rate for the six months ended June 30, 2023 was higher compared to the U.S. federal statutory rate due primarily to state taxes, including valuation allowances limiting certain state tax benefits.
EQT CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
6. Debt
The table below summarizes the Company's outstanding debt.
| June 30, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Principal Value | Carrying Value (a) | Principal Value | Carrying Value (a) | ||||||||||||||||||||
| (Thousands) | |||||||||||||||||||||||
| Revolving credit facility maturing July 23, 2029 | $ | 47,000 | $ | 47,000 | $ | — | $ | — | |||||||||||||||
| Term Loan Facility due June 30, 2026 (b) | 500,000 | 497,680 | 1,250,000 | 1,244,265 | |||||||||||||||||||
| Senior notes: | |||||||||||||||||||||||
| 6.125% notes due February 1, 2025 (b) | — | — | 601,521 | 600,389 | |||||||||||||||||||
| 1.75% convertible notes due May 1, 2026 (c) | — | — | 290,177 | 286,185 | |||||||||||||||||||
| 3.125% notes due May 15, 2026 | 392,915 | 390,585 | 392,915 | 389,978 | |||||||||||||||||||
| 7.75% debentures due July 15, 2026 | 115,000 | 113,964 | 115,000 | 113,716 | |||||||||||||||||||
| 3.90% notes due October 1, 2027 | 1,169,503 | 1,165,981 | 1,169,503 | 1,165,439 | |||||||||||||||||||
| 5.700% notes due April 1, 2028 | 500,000 | 491,508 | 500,000 | 490,376 | |||||||||||||||||||
| 5.00% notes due January 15, 2029 | 318,494 | 315,453 | 318,494 | 315,121 | |||||||||||||||||||
| 7.000% notes due February 1, 2030 (b) | 674,800 | 671,331 | 674,800 | 671,020 | |||||||||||||||||||
| 3.625% notes due May 15, 2031 | 435,165 | 430,480 | 435,165 | 430,141 | |||||||||||||||||||
| 5.750% notes due February 1, 2034 | 750,000 | 742,400 | — | — | |||||||||||||||||||
| Note payable to EQM | 85,404 | 85,404 | 88,483 | 88,483 | |||||||||||||||||||
| Total debt | 4,988,281 | 4,951,786 | 5,836,058 | 5,795,113 | |||||||||||||||||||
| Less: Current portion of debt (d) | 6,388 | 6,388 | 296,424 | 292,432 | |||||||||||||||||||
| Long-term debt | $ | 4,981,893 | $ | 4,945,398 | $ | 5,539,634 | $ | 5,502,681 |
(a)For the Company's revolving credit facility and note payable to EQM, the principal value represents the carrying value. For all other debt, the principal value less the unamortized debt issuance costs and debt discounts represents the carrying value.
(b)Interest rates for the Term Loan Facility and the Company's 7.000% senior notes fluctuate based on changes to the credit ratings assigned to the Company's senior notes by Moody's, S&P and Fitch. Prior to the Company's redemption of all of its outstanding 6.125% senior notes, interest rates for the Company's 6.125% senior notes fluctuated based on changes to the credit ratings assigned to the Company's senior notes by Moody's, S&P and Fitch. Interest rates for the Company's other outstanding debt do not fluctuate.
(c)As of December 31, 2023, the fair value of the Company's 1.75% convertible notes was $768.6 million and was a Level 2 fair value measurement. See Note 4.
(d)As of June 30, 2024, the current portion of debt included a portion of the note payable to EQM. As of December 31, 2023, the current portion of debt included the Company's 1.75% convertible notes and a portion of the note payable to EQM.
Debt Repayments. The Company repaid, redeemed or repurchased the following debt during the six months ended June 30, 2024.
| Debt Tranche | Principal | Premiums (a) | Accrued but Unpaid Interest | Total Cost | ||||||||||||||||||||||
| (Thousands) | ||||||||||||||||||||||||||
| 6.125% notes due February 1, 2025 | $ | 601,521 | $ | 1,178 | $ | 13,612 | $ | 616,311 | ||||||||||||||||||
| Term Loan Facility due June 30, 2026 | 750,000 | — | — | 750,000 | ||||||||||||||||||||||
| 1.75% convertible notes due May 1, 2026 | 583 | — | — | 583 | ||||||||||||||||||||||
| Total | $ | 1,352,104 | $ | 1,178 | $ | 13,612 | $ | 1,366,894 |
(a)Includes third-party costs and fees paid to dealer managers and brokers.
EQT CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
Revolving Credit Facility. As of June 30, 2024, the Company had a $2.5 billion revolving credit facility. On July 22, 2024, the Company entered into the Fourth Amended and Restated Credit Agreement (the Fourth A&R Credit Agreement) with PNC Bank National Association, as administrative agent, swing line lender and L/C Issuer, and the other lenders party thereto, amending and restating the Third Amended and Restated Credit Agreement, dated June 28, 2022 (the Credit Agreement), under which such lenders agreed to make to the Company unsecured revolving loans in an aggregate principal amount of up to $3.5 billion. The Fourth A&R Credit Agreement, among other things, (i) extends the maturity date of the commitments and loans under the Credit Agreement to July 23, 2029 and provides, at the Company's option, two one-year extensions thereafter, subject to satisfaction of certain conditions, and (ii) allows for additional commitment increases up to $1 billion, subject to the agreement of the Company and new or existing lenders. The Company can obtain Base Rate Loans (as defined in the Fourth A&R Credit Agreement) or Term SOFR Rate Loans (as defined in the Fourth A&R Credit Agreement). Base Rate Loans are denominated in dollars and bear interest at a Base Rate (as defined in the Fourth A&R Credit Agreement) plus a margin ranging from 12.5 basis points to 100 basis points determined on the basis of the Company's then current credit ratings. Term SOFR Rate Loans bear interest at a Term SOFR Rate (as defined in the Fourth A&R Credit Agreement) plus an additional 10 basis point credit spread adjustment plus a margin ranging from 112.5 basis points to 200 basis points determined on the basis of the Company's then current credit ratings.
As of June 30, 2024, the Company had no letters of credit outstanding under its revolving credit facility. As of December 31, 2023, the Company had approximately $15 million letters of credit outstanding under its revolving credit facility.
Under the Company's revolving credit facility, for both the three and six months ended June 30, 2024, the maximum amount of outstanding borrowings was $207 million and interest was incurred at a weighted average annual interest rate of 6.9%. For the three and six months ended June 30, 2024, the average daily balance was approximately $24 million and $17 million, respectively.
For the three and six months ended June 30, 2023, there were no borrowings under the Company's revolving credit facility.
Term Loan Facility. On November 9, 2022, the Company entered into a Credit Agreement (as amended on December 23, 2022, April 25, 2023, January 16, 2024 and July 22, 2024, the Term Loan Agreement) with PNC Bank, National Association, as administrative agent, and the other lenders party thereto, under which such lenders agreed to make to the Company unsecured term loans in a single draw in an aggregate principal amount of up to $1.25 billion (the Term Loan Facility) to partly fund the Tug Hill and XcL Midstream Acquisition (defined in Note 9). On August 21, 2023, the Company borrowed $1.25 billion under the Term Loan Facility, receiving net proceeds of $1,242.9 million.
On January 16, 2024, the Company entered into a third amendment to the Term Loan Agreement to, among other things, extend the maturity date of the Term Loan Agreement from June 30, 2025 to June 30, 2026. The third amendment to the Term Loan Agreement became effective on January 19, 2024 upon the Company's prepayment of $750 million principal amount of the term loans outstanding under the Term Loan Facility (funded with the net proceeds from the issuance of the Company's 5.750% senior notes and cash on hand) and the satisfaction of other closing conditions. On July 22, 2024, the Company entered into a fourth amendment to the Term Loan Agreement to, among other things, make certain conforming changes to the Term Loan Agreement in alignment with the Fourth A&R Credit Agreement. Pursuant to the Term Loan Agreement, the Company may voluntarily prepay, in whole or in part, borrowings under the Term Loan Facility without premium or penalty but subject to reimbursement of funding losses with respect to prepayment of loans that bear interest based on the Term SOFR Rate (as defined in the Term Loan Agreement). Borrowings under the Term Loan Facility that are repaid may not be re-borrowed.
At the Company's election, the term loans outstanding under the Term Loan Facility bear interest at a Term SOFR Rate plus the SOFR Adjustment or Base Rate (all terms defined in the Term Loan Agreement), each plus a margin based on the Company's credit ratings. For both the three and six months ended June 30, 2024, interest was incurred under the Term Loan Facility at a weighted average annual interest rate of 6.9%.
5.750% Senior Notes. On January 19, 2024, the Company issued $750 million aggregate principal amount of 5.750% senior notes due February 1, 2034. The Company used net proceeds of $742.0 million, composed of the principal amount of $750 million net of capitalized debt issuance costs and underwriters' discount of $8.0 million, and cash on hand to prepay $750 million principal amount of the term loans outstanding under the Term Loan Facility. The covenants of the 5.750% senior notes are consistent with the Company's existing senior unsecured notes.
Convertible Notes. In April 2020, the Company issued $500 million aggregate principal amount of 1.75% convertible senior notes (the Convertible Notes). The effective interest rate for the Convertible Notes was 2.4%.
EQT CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
On January 2, 2024, in accordance with the indenture governing the Convertible Notes (the Convertible Notes Indenture), the Company issued an irrevocable notice of redemption for all of the outstanding Convertible Notes and announced that the Company would redeem any of the Convertible Notes outstanding on January 17, 2024 in cash for 100% of the principal amount, plus accrued and unpaid interest on such Convertible Notes to, but excluding, such redemption date (the Redemption Price).
Pursuant to the Convertible Notes Indenture, between January 2, 2024 and the conversion deadline of 5:00 p.m., New York City time, on January 12, 2024, certain holders of the Convertible Notes exercised their right to convert their Convertible Notes prior to the redemption and validly surrendered an aggregate principal amount of $289.6 million of Convertible Notes. Based on a conversion rate of 69.0364 shares of EQT Corporation common stock per $1,000 principal amount of Convertible Notes, the Company issued to such holders an aggregate 19,992,482 shares of EQT Corporation common stock. Settlement of such Convertible Note conversion right exercises net of unamortized deferred issuance costs increased shareholder's equity by $285.6 million.
The remaining $0.6 million in outstanding principal amount of Convertible Notes was redeemed on January 17, 2024 in cash for the Redemption Price.
Inclusive of January 2024 settlements of Convertible Notes conversion right exercises that were exercised in December 2023, during January 2024, the Company settled $290.2 million aggregate principal amount of Convertible Notes conversion right exercises by issuing an aggregate 20,036,639 shares of EQT Corporation common stock to the converting holders at an average conversion price of $38.03.
Settlement and Termination of Capped Call Transactions. In connection with, but separate from, the issuance of the Convertible Notes, in 2020, the Company entered into capped call transactions (the Capped Call Transactions) with certain financial institutions (the Capped Call Counterparties) to reduce the potential dilution to EQT Corporation common stock upon any conversion of Convertible Notes at maturity and/or offset any cash payments that the Company is required to make in excess of the principal amount of such converted notes. The Capped Call Transactions had an initial strike price of $15.00 per share of EQT Corporation common stock and an initial cap price of $18.75 per share of EQT Corporation common stock, each of which were subject to certain customary adjustments, including adjustments as a result of the Company paying dividends on its common stock, and were set to expire in April 2026. The Company recorded the cost to purchase the Capped Call Transactions of $32.5 million as a reduction to shareholders' equity.
On January 18, 2024, the Company entered into separate termination agreements with each of the Capped Call Counterparties, pursuant to which the Capped Call Counterparties paid the Company an aggregate $93.3 million (the Termination Payments), and the Capped Call Transactions were terminated. The Company received the Termination Payments on January 22, 2024. The Termination Payments were recorded as an increase to shareholders' equity.
EQT CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
7. Income (Loss) Per Share
The table below provides the computation for basic and diluted income (loss) per share.
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (Thousands, except per share amounts) | |||||||||||||||||||||||
| Net income (loss) attributable to EQT Corporation – Basic income (loss) available to shareholders | $ | 9,517 | $ | (66,626) | $ | 113,005 | $ | 1,151,922 | |||||||||||||||
| Add back: Interest expense on Convertible Notes, net of tax (a) | — | — | 114 | 3,691 | |||||||||||||||||||
| Diluted income (loss) available to shareholders | $ | 9,517 | $ | (66,626) | $ | 113,119 | $ | 1,155,613 | |||||||||||||||
| Weighted average common stock outstanding – Basic | 441,968 | 361,982 | 440,714 | 361,721 | |||||||||||||||||||
| Options, restricted stock, performance awards and stock appreciation rights (a) | 2,953 | — | 3,438 | 3,455 | |||||||||||||||||||
| Convertible Notes (a) | — | — | 741 | 28,259 | |||||||||||||||||||
| Weighted average common stock outstanding – Diluted | 444,921 | 361,982 | 444,893 | 393,435 | |||||||||||||||||||
| Income (loss) per share of common stock attributable to EQT Corporation: | |||||||||||||||||||||||
| Basic | $ | 0.02 | $ | (0.18) | $ | 0.26 | $ | 3.18 | |||||||||||||||
| Diluted | $ | 0.02 | $ | (0.18) | $ | 0.25 | $ | 2.94 |
(a)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 months ended June 30, 2023, all such securities of 4.7 million were excluded from potentially dilutive securities because of their anti-dilutive effect on loss per share.
In addition, prior to the Company's redemption of the Convertible Notes, the Company used the if-converted method to calculate the impact of the Convertible Notes on diluted income (loss) per share. For the three months ended June 30, 2023, such if-converted securities of approximately 28.3 million as well as the related add back of interest expense on the Convertible Notes, net of tax, were excluded from potentially dilutive securities because of their anti-dilutive effect on loss per share.
8. Stock-based Compensation
In 2024, the Management Development and Compensation Committee of the Company's Board of Directors (the Compensation Committee) adopted the 2024 Incentive Performance Share Unit Program (2024 Incentive PSU Program) under the 2020 Long-Term Incentive Plan. During the six months ended June 30, 2024, a total of 371,500 share units were granted under the 2024 Incentive PSU Program. The payout of the share units will vary between zero and 200% of the number of outstanding units contingent upon the Company's absolute total shareholder return and total shareholder return relative to a predefined peer group over the period of January 1, 2024 through December 31, 2026.
During the six months ended June 30, 2024, the Compensation Committee granted 982,990 restricted stock unit equity awards that will follow a three-year graded vesting schedule commencing with the date of grant, assuming continued employment through each vesting date. The share total includes the Company's "equity-for-all" program, instituted in 2021, pursuant to which the Company grants equity awards to all permanent employees.
EQT CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
9. Acquisitions and Divestiture
Tug Hill and XcL Midstream Acquisition. On August 22, 2023, the Company completed its acquisition (the Tug Hill and XcL Midstream Acquisition) of the upstream assets from THQ Appalachia I, LLC and the gathering and processing assets from THQ-XcL Holdings I, LLC through the acquisition of all of the issued and outstanding membership interests of each of THQ Appalachia I Midco, LLC and THQ-XcL Holdings I Midco, LLC. The purchase price for the Tug Hill and XcL Midstream Acquisition consisted of 49,599,796 shares of EQT Corporation common stock and approximately $2.4 billion in cash, subject to customary post-closing adjustments.
The Company accounted for the Tug Hill and XcL Midstream Acquisition as a business combination using the acquisition method. The Company completed the purchase price allocation for the Tug Hill and XcL Midstream Acquisition during the first quarter of 2024. The purchase accounting adjustments recorded in 2024 were not material.
NEPA Gathering System Acquisition. The Company operates and has historically owned a 50% interest in gathering assets located in northeast Pennsylvania (collectively, the NEPA Gathering System). On April 11, 2024, the Company completed its acquisition of a minority equity partner's 33.75% interest in the NEPA Gathering System for a purchase price of approximately $205 million (the NEPA Gathering System Acquisition), subject to customary post-closing adjustments. The NEPA Gathering System Acquisition was accounted for as an asset acquisition and, as such, its purchase price was allocated to property, plant and equipment.
NEPA Non-Operated Asset Divestiture. On May 31, 2024, the Company completed the divestiture (the NEPA Non-Operated Asset Divestiture) of an undivided 40% interest in the Company's non-operated natural gas assets in northeast Pennsylvania with a carrying amount of approximately $522 million to Equinor USA Onshore Properties Inc. and its affiliates (collectively, the Equinor Parties). The carrying value was composed of approximately $549 million of property, plant and equipment, approximately $7 million of other current liabilities and approximately $20 million of other liabilities and credits. In exchange, as consideration, the Company received from the Equinor Parties cash of $500 million, subject to customary post-closing purchase price adjustments, certain upstream assets and the remaining 16.25% equity interest in the NEPA Gathering System. The total fair value of consideration received, net of liabilities assumed, was approximately $851 million, subject to customary post-closing purchase price adjustments, and included $412 million of property, plant and equipment.
As a result of the NEPA Non-Operated Asset Divestiture, the Company recognized a gain of approximately $320 million in (gain) loss on sale/exchange of long-lived assets in the Statements of Condensed Consolidated Operations, which was calculated as the carrying value of divested assets less the fair value of consideration received, net of liabilities assumed and divestiture costs incurred of approximately $9 million. Cash proceeds from the NEPA Non-Operated Asset Divestiture were used to partly fund the Company's redemption of its 6.125% senior notes.
The fair values of the natural gas properties received as consideration for the NEPA Non-Operated Asset Divestiture were measured using discounted cash flow valuation techniques based on inputs that are not observable in the market and, as such, is a Level 3 fair value measurement. Significant inputs include future commodity prices, projections of estimated quantities of reserves, estimated future rates of production, projected reserve recovery factors, timing and amount of future development and operating costs and a weighted average cost of capital.
The fair value of the undeveloped properties received as consideration for the NEPA Non-Operated Asset Divestiture were measured using the guideline transaction method based on inputs that are not observable in the market and, as such, is a Level 3 fair value measurement. Significant inputs include future development plans from a market participant perspective.
The fair value of the interest in the NEPA Gathering System received as consideration for the NEPA Non-Operated Asset Divestiture was measured using the cost approach based on inputs that are not observable in the market and, as such, is a Level 3 fair value measurement. Significant inputs include replacement cost for similar assets, relative age of the assets and potential economic or functional obsolescence.
See Note 4 for a description of the fair value hierarchy.
In addition, subsequent to the completion of the NEPA Non-Operated Asset Divestiture, the Company and the Equinor Parties entered into a gas buy-back agreement with respect to the assets received by the Company as consideration for the NEPA Non-Operated Asset Divestiture, whereby the Equinor Parties agreed to purchase a specified amount of natural gas from the Company through the first quarter of 2028.
EQT CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
10. Equitrans Midstream Merger
On July 22, 2024, the Company completed the Equitrans Midstream Merger pursuant to the agreement and plan of merger dated March 10, 2024 (the Merger Agreement) entered into by EQT Corporation, Humpty Merger Sub Inc., an indirect wholly owned subsidiary of EQT Corporation (Merger Sub), and Humpty Merger Sub LLC, an indirect wholly owned subsidiary of EQT Corporation (LLC Sub) with Equitrans Midstream.
Upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub merged with and into Equitrans Midstream (the First Merger), with Equitrans Midstream surviving as an indirect wholly owned subsidiary of EQT Corporation (the First Step Surviving Corporation), and, as the second step in a single integrated transaction with the First Merger, the First Step Surviving Corporation merged with and into LLC Sub (the Second Merger and, together with the First Merger, the Equitrans Midstream Merger), with LLC Sub surviving the Second Merger as an indirect wholly owned subsidiary of EQT Corporation.
Upon closing of the Equitrans Midstream Merger, each share of common stock, no par value, of Equitrans Midstream (Equitrans Midstream common stock) that was issued and outstanding immediately prior to the effective time of the First Merger (other than shares of Equitrans Midstream common stock owned by Equitrans Midstream or its subsidiaries or by the Company) was converted into the right to receive, without interest, 0.3504 shares of EQT Corporation common stock, with cash in lieu of fractional shares. Upon closing of the Equitrans Midstream Merger, EQT Corporation's preexisting shareholders owned approximately 74% of the combined company and Equitrans Midstream's common shareholders owned approximately 26% of the combined company. Also upon closing of the Equitrans Midstream Merger, three representatives from Equitrans Midstream joined EQT Corporation's Board of Directors.
In addition, on June 25, 2024, the Company delivered to Equitrans Midstream a written election exercising the Company's right under the Merger Agreement to cause Equitrans Midstream to purchase and redeem, prior to the completion of the Equitrans Midstream Merger, all of the issued and outstanding Series A Perpetual Convertible Preferred Shares, no par value, of Equitrans Midstream (the Equitrans Midstream Preferred Stock). On July 22, 2024, prior to the closing of the Equitrans Midstream Merger, using borrowings under the Company's revolving credit facility, the Company paid $685.3 million to effect such purchase and redemption.
Immediately following the closing of the Equitrans Midstream Merger, on July 22, 2024, EQM, which became an indirect wholly-owned subsidiary of the Company upon closing of the Equitrans Midstream Merger, repaid outstanding obligations under that certain Third Amended and Restated Credit Agreement, dated October 31, 2018, by and among EQM, Wells Fargo Bank, National Association, as administrative agent, swing line lender and L/C issuer, and the other financial institutions from time to time party thereto (as amended, supplemented or otherwise modified, the EQM Facility) for principal of $705 million and interest and fees of $4.5 million using cash on hand and borrowings under the Company's revolving credit facility and thereafter terminated the EQM Credit Facility.
11. Commitments and Contingencies
Legal and Regulatory 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 evaluates its legal proceedings, including litigation and regulatory and governmental investigations and inquiries, on a regular basis and accrues a loss for such matters when the Company believes that it is probable a liability has been incurred and the amount of the loss can be reasonably estimated. In such cases, if some amount within a range of loss appears to be a better estimate than any other amount within the range, that amount is accrued; however, when no amount within the range is a better estimate than any other amount, the minimum amount in the range is accrued. Any such accruals are adjusted thereafter as appropriate to reflect changed circumstances. In the event the Company determines that (i) it is probable a liability has been incurred but the amount of the loss cannot be reasonably estimated, or (ii) it less likely than probable but is reasonably possible that a liability has been incurred, then the Company is required to disclose the matter in its Annual Report on Form 10-K with any update thereto in this Quarterly Report on Form 10-Q, as applicable, although the Company is not required to accrue such loss.
EQT CORPORATION AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements (Unaudited)
When able, the Company determines an estimate of reasonably possible losses or ranges of reasonably possible losses, whether in excess of any related accrued loss or where there is no accrued loss, for legal proceedings. In instances where such estimates can be made, any such estimates are based on the Company's analysis of currently available information and are subject to significant judgment and a variety of assumptions and uncertainties and may change as new information is obtained.
The ultimate outcome of the matters described below is inherently uncertain. Furthermore, due to the inherent subjectivity of the assessments and unpredictability of outcomes of legal proceedings, any amounts accrued or estimated as possible losses may not represent the ultimate loss to the Company from the legal proceedings in question and the Company's exposure and ultimate losses may be higher, and possibly significantly so, than the amounts accrued or estimated.
Securities Class Action Litigation. On December 6, 2019, an amended putative class action complaint was filed in the United States District Court for the Western District of Pennsylvania by Cambridge Retirement System, Government of Guam Retirement Fund, Northeast Carpenters Annuity Fund, and Northeast Carpenters Pension Fund, on behalf of themselves and all those similarly situated, against EQT Corporation, and certain former executives and current and former board members of EQT Corporation (the Securities Class Action). The complaint alleges that certain statements made by EQT Corporation regarding its merger with Rice Energy Inc. in 2017 were materially false and violated various federal securities laws. Pursuant to the complaint, the plaintiffs seek compensatory or rescissory damages in an unspecified amount for all damages allegedly sustained by the class as a result of alleged negative impacts to EQT Corporation's stock price in 2018 and 2019.
Additionally, following the filing of the Securities Class Action complaint, several other lawsuits were filed in the United States District Court for the Western District of Pennsylvania and the Court of Common Pleas of Allegheny County, Pennsylvania by certain shareholders of EQT Corporation against EQT Corporation and certain former executives and current and former board members of EQT Corporation asserting substantially the same allegations as those raised in the Securities Class Action. These matters are currently pending, the majority of which have been stayed pending a ruling on dispositive motions in the Securities Class Action.
Following the commencement of the Securities Class Action, the parties engaged in fact and expert discovery. In June 2024, the discovery phase of the Securities Class Action was completed. On June 27, 2024, the parties to the Securities Class Action participated in a mediation (the Mediation), which did not result in resolution. A trial date for the Securities Class Action has not been determined.
In the second quarter of 2024, the Company recorded an accrual for estimated loss contingencies associated with the Securities Class Action in an amount equal to the settlement offer the Company tendered at the Mediation. Due to the inherent subjectivity of the assessments and unpredictability of outcomes of legal proceedings, the amount accrued for estimated losses associated with the Securities Class Action may not represent the ultimate loss to the Company, and the Company's exposure and ultimate losses may be higher, and possibly significantly so, than the amounts accrued or estimated. The amount accrued for such estimated losses is based on the Company's analysis of currently available information and is subject to significant judgment and a variety of assumptions and uncertainties and may change as new information is obtained. While the parties have completed discovery, various motions, including dispositive motions, have not yet been presented or heard, the matters present meaningful legal uncertainties, and predicting the outcome depends on making assumptions about future decisions of courts and the behavior of other parties for which the Company does not currently have sufficient information. Given these uncertainties, the Company is unable at this time to reasonably estimate the range of possible additional losses above the amount accrued. The Company disputes the claims asserted in the Securities Class Action and related litigation and believes it has meritorious defenses, but unpredictability is inherent in litigation and the Company cannot predict the outcomes with any certainty.
See Note 11 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 for additional discussion of the Company's commitments and contingencies, including certain other pending legal and regulatory proceedings and other contingent matters. As of June 30, 2024, except as disclosed herein, there have been no material changes to such matters disclose therein.
EQT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations
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