filings.toolsItem 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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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" are to EQT Corporation and all references in this report to the "Company," "we," "us," or "our" are to EQT Corporation and its consolidated subsidiaries, collectively. For certain industry specific terms used in this Quarterly Report on Form 10-Q, please see "Glossary of Commonly Used Terms, Abbreviations and Measurements" in our Annual Report on Form 10-K for the year ended December 31, 2023.
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 (the Exchange Act), and Section 27A of the Securities Act of 1933, as amended (the Securities Act). 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. Without limiting the generality of the foregoing, forward-looking statements contained in this Quarterly Report on Form 10-Q include the matters discussed in the section "Trends and Uncertainties" and 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; total resource potential and drilling inventory duration; projected production and sales volume, including liquified natural gas (LNG) volumes and sales; natural gas prices; changes in basis and the impact of commodity prices on our business; potential future impairments of our assets; projected well costs and capital expenditures; infrastructure programs; the cost, capacity and timing of obtaining regulatory approvals; our ability to successfully implement and execute our operational, organizational, technological and environmental, social and governance (ESG) initiatives, and achieve the anticipated results of such initiatives; projected gathering and compression rates; potential divestitures, acquisitions or other strategic transactions, the timing thereof and our ability to achieve the intended operational, financial and strategic benefits from any such transactions or from any recently completed strategic transactions, including the Equitrans Midstream Merger (defined and discussed in Note 12 to the Condensed Consolidated Financial Statements); the amount and timing of any repayments, redemptions or repurchases of our common stock, outstanding debt securities or other debt instruments; our ability to retire our debt and the timing of such retirements, if any; the projected amount and timing of dividends; projected cash flows and free cash flow, and the timing thereof; 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 and projected margin posting obligations; 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; 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 other resources among our strategic opportunities; access to and cost of capital; our hedging and other financial contracts; inherent hazards and risks normally incidental to drilling for, producing, transporting and storing natural gas, natural gas liquids (NGLs) and oil; operational risks and hazards incidental to the gathering, transmission and storage of natural gas as well as unforeseen interruptions; cyber security risks and acts of sabotage; availability and cost of drilling rigs, completion services, equipment, supplies, personnel, oilfield services and sand and water required to execute our exploration and development plans, including as a result of inflationary pressures; risks associated with operating primarily in the Appalachian Basin; the ability to obtain environmental and other permits and the timing thereof; construction, business, economic, competitive, regulatory, judicial, environmental, political and legal uncertainties related to the development and construction by us or our joint ventures of pipeline and storage facilities and transmission assets and the optimization of such assets; our ability to renew or replace expiring gathering, transmission or storage contracts at favorable rates on a long-term basis or at all; risks relating to our joint venture arrangements; government regulation or action, including regulations pertaining to methane and other greenhouse gas emissions; negative public perception of the fossil fuels industry; increased consumer demand for alternatives to natural gas; environmental and weather risks, including the possible impacts of climate change; risks related to our ability to integrate the operations of Equitrans Midstream Corporation
EQT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations
(Equitrans Midstream) in a successful manner and in the expected time period and the possibility that any of the anticipated benefits and projected synergies of the Equitrans Midstream Merger will not be realized or will not be realized within the expected time period; and disruptions to our business due to recently completed acquisitions and other significant transactions, including the Equitrans Midstream Merger. These and other risks and uncertainties are described under the "Risk Factors" section in this Quarterly Report on Form 10-Q and under the "Risk Factors" section and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2023, and may be updated by other documents we subsequently file from time to time with the Securities and Exchange Commission (the SEC).
Any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by law, we do not intend to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise.
Recent Events
On July 22, 2024, we completed the Equitrans Midstream Merger. As a result of the Equitrans Midstream Merger, we acquired over 2,000 miles of pipeline infrastructure that have extensive overlap and connectivity in our core area of operations, and we became the first large-scale, integrated natural gas producer in the United States. Refer to Note 12 to the Condensed Consolidated Financial Statements.
During the second quarter of 2024, we divested a portion of our non-operated assets in Northeast Pennsylvania (the NEPA Non-Operated Asset Divestiture), as discussed in Note 11 to the Condensed Consolidated Financial Statements. On October 29, 2024, we entered into an agreement to divest the remaining interest in our non-operated assets in Northeast Pennsylvania in exchange for $1.25 billion of cash (the Remaining NEPA Non-Operated Assets Divestiture). We intend to use the proceeds from the Remaining NEPA Non-Operated Assets Divestiture for repayment of our debt. The Remaining NEPA Non-Operated Assets Divestiture is subject to customary closing adjustments, required regulatory approvals and clearances.
Trends and Uncertainties
The Mountain Valley Pipeline
Following receipt of authorization from the Federal Energy Regulatory Commission (the FERC), the Mountain Valley Pipeline (the MVP) entered into service on June 14, 2024. Upon commencement of long-term firm capacity obligations, the MVP In-Service Date (defined in Note 8 to the Condensed Consolidated Financial Statements) occurred on July 1, 2024. Our Production segment is committed to an initial 1.29 billion cubic feet (Bcf) per day of firm capacity on the MVP through June 30, 2044. Accordingly, as a result of the occurrence of the MVP In-Service Date, we expect our Production segment's future (i) transmission expense to increase as a result of the additional contracted capacity and (ii) gathering expense to decrease pursuant to the terms of the Consolidated GGA (defined in Note 2 to the Condensed Consolidated Financial Statements).
The MVP Joint Venture (defined in Note 1 to the Condensed Consolidated Financial Statements) has continued to make restoration efforts with respect to the MVP. Estimated total project cost of the MVP is approximately $8.1 billion, excluding allowance for funds used during construction. Of this amount, $100.4 million was contributed by us following our closing of the Equitrans Midstream Merger, including the $15.2 million payable as of September 30, 2024, which was paid in October 2024.
Curtailments and Commodity Prices
On March 4, 2024, we announced our decision to strategically curtail approximately 1.0 Bcf per day of gross production (the Strategic Curtailment) beginning on February 24, 2024 in response to the low natural gas price environment resulting from warm winter weather and elevated storage inventories. The Strategic Curtailment resulted in total decreased sales volume of 82 billion cubic feet of natural gas equivalents (Bcfe) during the period beginning on February 24, 2024 and ending on June 19, 2024 and 25 Bcfe during the period beginning July 4, 2024 and ending on September 30, 2024. In response to market fundamentals, we expect to continue to strategically curtail our production. Our sales volume guidance assumes 10 to 15 Bcfe of curtailments during the fourth quarter of 2024.
EQT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations
Continued low natural gas prices may result in further adjustments to our 2024 planned development schedule or the development schedule of non-operated wells in which we have a working interest. Further, we cannot control or otherwise influence the development schedule of non-operated wells in which we have a working interest. Certain operators of wells in which we have a non-operating working interest also curtailed production in 2024. For the three months ended September 30, 2024, we estimate that our total expected sales volume was negatively impacted by approximately 35 Bcfe of curtailments, including our Strategic Curtailment of 25 Bcfe and curtailments by certain operators of wells in which we have a non-operating working interest. For the nine months ended September 30, 2024, we estimate that our total expected sales volume was negatively impacted by approximately 125 to 130 Bcfe of curtailments, including our Strategic Curtailment of 107 Bcfe and curtailments by certain operators of wells in which we have a non-operating working interest. Adjustments to our 2024 planned development schedule or the development schedule of non-operated wells in which we have a working interest, including due to declines in natural gas prices, the pace of well completions, access to sand and water to conduct drilling operations, access to sufficient pipeline takeaway capacity, unscheduled downtime at processing facilities or otherwise, could impact our future sales volume, operating revenues and expenses, per unit metrics and capital expenditures.
The annual inflation rate in the United States remains elevated compared to the rate of inflation over the prior five years. Inflationary pressures have multiple impacts on our business, including increasing our operating expenses and our cost of capital. While the prices for certain of the raw materials and services we use in our operations have generally decreased from the peak prices experienced during 2022, we will not fully realize the benefit of such reduced prices until we enter into new contracts for such materials and services, and inflationary pressures may cause prices to fluctuate. Additionally, certain of our commitments for demand charges under our existing long-term contracts and processing capacity are subject to consumer price index adjustments. Although we believe our scale and supply chain contracting strategy of using multi-year sand and frac crew contracts allows us to maximize capital and operating efficiencies, future increases in the inflation rate will negatively impact our long-term contracts with consumer price index adjustments.
We expect commodity prices to be volatile through 2024 due to macroeconomic uncertainty and geopolitical tensions, including developments pertaining to Russia's invasion of Ukraine and conflicts in the Middle East. Our revenue, profitability, liquidity and financial position will continue to be impacted in the future by the market prices for natural gas and, to a lesser extent, NGLs and oil.
Consolidated Results of Operations
Net loss attributable to EQT Corporation for the three months ended September 30, 2024 was $300.8 million, $0.54 per diluted share, compared to net income attributable to EQT Corporation of $81.3 million, $0.20 per diluted share, for the same period in 2023. The change was attributable primarily to increased other operating expenses, increased depreciation, depletion and amortization, a lower gain on derivatives and increased net interest expense, partly offset by decreased transportation and processing expense and increased cash operating revenues, including pipeline revenues, which increased as a result of our operation of assets acquired in the Equitrans Midstream Merger.
Net loss attributable to EQT Corporation for the nine months ended September 30, 2024 was $187.8 million, $0.39 per diluted share, compared to net income attributable to EQT Corporation of $1,233.2 million, $3.08 per diluted share, for the same period in 2023. The change was attributable primarily to lower gain on derivatives, decreased sales of natural gas, NGLs and oil, increased depreciation, depletion and amortization expense, increased other operating expenses, increased net interest expense and increased production expense, partly offset by recognition of an income tax benefit in 2024 compared to an income tax expense in 2023, the gain on the NEPA Non-Operated Asset Divestiture and increased pipeline revenues, which increased as a result of our operation of assets acquired in the Equitrans Midstream Merger.
Results of operations for the three and nine months ended September 30, 2024 include the results of our operation of assets acquired in the Equitrans Midstream Merger, which closed on July 22, 2024. See Note 12 to the Condensed Consolidated Financial Statements.
Results of operations for the nine months ended September 30, 2024 include the results of our operation of assets received as consideration for the NEPA Non-Operated Asset Divestiture, which closed on May 31, 2024. Such assets received included the remaining 16.25% equity interest in the NEPA Gathering System (defined in Note 11 to the Condensed Consolidated Financial Statements) (which was the sole remaining minority interest following our acquisition of a 33.75% equity interest in the NEPA Gathering System Acquisition (defined in Note 11 to the Condensed Consolidated Financial Statements) on April 11, 2024), resulting in our 100% ownership of the NEPA Gathering System. See Note 11 to the Condensed Consolidated Financial Statements.
EQT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations
In addition, results of operations for the nine months ended September 30, 2024 include the results of our operation of assets acquired in the Tug Hill and XcL Midstream Acquisition (defined in Note 11 to the Condensed Consolidated Financial Statements), which closed on August 22, 2023.
See "Average Realized Price Reconciliation" for a discussion and calculation of our average realized price, which is based on Production adjusted operating revenues, a non-GAAP supplemental financial measure that has been reconciled from total operating revenues in "Non-GAAP Financial Measures Reconciliation."
See "Business Segment Results of Operations" for a discussion of segment operating revenues and expenses and "Unallocated and Other Income Statement Items" for a discussion of other, unallocated income statement items.
See "Investing Activities" under "Capital Resources and Liquidity" for a discussion of capital expenditures, including by business segment.
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 Production adjusted operating revenues, a non-GAAP supplemental financial measure. Production adjusted operating revenues is presented because it is an important measure we use to evaluate period-to-period comparisons of earnings trends. Production adjusted operating revenues should not be considered as an alternative to total operating revenues. See "Non-GAAP Financial Measures Reconciliation" for a reconciliation of Production adjusted operating revenues from total operating revenues, the most directly comparable financial measure calculated in accordance with United States generally accepted accounting principles (GAAP).
EQT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (Thousands, unless otherwise noted) | |||||||||||||||||||||||
| NATURAL GAS | |||||||||||||||||||||||
| Sales volume (MMcf) | 547,225 | 491,472 | 1,520,574 | 1,374,527 | |||||||||||||||||||
| NYMEX price ($/MMBtu) | $ | 2.15 | $ | 2.55 | $ | 2.12 | $ | 2.68 | |||||||||||||||
| Btu uplift | 0.12 | 0.13 | 0.12 | 0.14 | |||||||||||||||||||
| Natural gas price ($/Mcf) | $ | 2.27 | $ | 2.68 | $ | 2.24 | $ | 2.82 | |||||||||||||||
| Basis ($/Mcf) (a) | $ | (0.56) | $ | (0.93) | $ | (0.40) | $ | (0.39) | |||||||||||||||
| Cash settled basis swaps ($/Mcf) | (0.09) | 0.12 | (0.10) | (0.08) | |||||||||||||||||||
| Average differential, including cash settled basis swaps ($/Mcf) | $ | (0.65) | $ | (0.81) | $ | (0.50) | $ | (0.47) | |||||||||||||||
| Average adjusted price ($/Mcf) | $ | 1.62 | $ | 1.87 | $ | 1.74 | $ | 2.35 | |||||||||||||||
| Cash settled derivatives ($/Mcf) | 0.61 | 0.27 | 0.75 | 0.37 | |||||||||||||||||||
| Average natural gas price, including cash settled derivatives ($/Mcf) | $ | 2.23 | $ | 2.14 | $ | 2.49 | $ | 2.72 | |||||||||||||||
| Natural gas sales, including cash settled derivatives | $ | 1,222,498 | $ | 1,053,146 | $ | 3,786,058 | $ | 3,741,247 | |||||||||||||||
| LIQUIDS | |||||||||||||||||||||||
| NGLs, excluding ethane: | |||||||||||||||||||||||
| Sales volume (MMcfe) (b) | 22,253 | 16,629 | 63,393 | 41,805 | |||||||||||||||||||
| Sales volume (Mbbl) | 3,710 | 2,772 | 10,566 | 6,968 | |||||||||||||||||||
| NGLs price ($/Bbl) | $ | 35.20 | $ | 35.42 | $ | 38.18 | $ | 35.34 | |||||||||||||||
| Cash settled derivatives ($/Bbl) | (0.11) | (1.10) | (0.20) | (1.54) | |||||||||||||||||||
| Average NGLs price, including cash settled derivatives ($/Bbl) | $ | 35.09 | $ | 34.32 | $ | 37.98 | $ | 33.80 | |||||||||||||||
| NGLs sales, including cash settled derivatives | $ | 130,140 | $ | 95,120 | $ | 401,232 | $ | 235,509 | |||||||||||||||
| Ethane: | |||||||||||||||||||||||
| Sales volume (MMcfe) (b) | 9,864 | 11,528 | 32,416 | 29,198 | |||||||||||||||||||
| Sales volume (Mbbl) | 1,644 | 1,921 | 5,403 | 4,866 | |||||||||||||||||||
| Ethane price ($/Bbl) | $ | 5.56 | $ | 5.23 | $ | 5.97 | $ | 5.90 | |||||||||||||||
| Ethane sales | $ | 9,135 | $ | 10,039 | $ | 32,237 | $ | 28,699 | |||||||||||||||
| Oil: | |||||||||||||||||||||||
| Sales volume (MMcfe) (b) | 2,072 | 3,071 | 6,593 | 6,814 | |||||||||||||||||||
| Sales volume (Mbbl) | 345 | 512 | 1,099 | 1,136 | |||||||||||||||||||
| Oil price ($/Bbl) | $ | 61.25 | $ | 66.75 | $ | 60.43 | $ | 59.91 | |||||||||||||||
| Oil sales | $ | 21,144 | $ | 34,166 | $ | 66,403 | $ | 68,034 | |||||||||||||||
| Total liquids sales volume (MMcfe) (b) | 34,189 | 31,228 | 102,402 | 77,817 | |||||||||||||||||||
| Total liquids sales volume (Mbbl) | 5,699 | 5,205 | 17,068 | 12,970 | |||||||||||||||||||
| Total liquids sales | $ | 160,419 | $ | 139,325 | $ | 499,872 | $ | 332,242 | |||||||||||||||
| TOTAL | |||||||||||||||||||||||
| Total natural gas and liquids sales, including cash settled derivatives (c) | $ | 1,382,917 | $ | 1,192,471 | $ | 4,285,930 | $ | 4,073,489 | |||||||||||||||
| Total sales volume (MMcfe) | 581,414 | 522,700 | 1,622,976 | 1,452,344 | |||||||||||||||||||
| Average realized price ($/Mcfe) | $ | 2.38 | $ | 2.28 | $ | 2.64 | $ | 2.80 |
(a)Basis represents the difference between the ultimate sales price for natural gas, including the effects of delivered price benefit or deficit associated with our firm transportation agreements, and the New York Mercantile Exchange (NYMEX) natural gas price.
(b)NGLs, ethane and oil were converted to thousand cubic feet of natural gas equivalents (Mcfe) at a rate of six Mcfe per barrel.
(c)Also referred to in this report as Production adjusted operating revenues, a non-GAAP supplemental financial measure.
EQT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations
Non-GAAP Financial Measures Reconciliation
The table below reconciles Production adjusted operating revenues, a non-GAAP supplemental financial measure, from total operating revenues, the most comparable financial measure calculated in accordance with GAAP. See Note 2 to the Condensed Consolidated Financial Statements for a reconciliation of total operating revenues to EQT Corporation operating revenues as reported in the Statements of Condensed Consolidated Operations.
Production adjusted operating revenues (also referred to in this report as total natural gas and liquids sales, including cash settled derivatives) is presented because it is an important measure we use to evaluate period-to-period comparisons of earnings trends. Production adjusted operating revenues is defined as total operating revenues, less the revenue impact of changes in the fair value of derivative instruments prior to settlement and pipeline, net marketing services and other revenues. We believe that Production adjusted operating revenues provides useful information to investors regarding our financial condition and results of operations because it helps facilitate comparisons of operating performance and earnings trends across periods. Production adjusted operating revenues reflects only the impact of settled derivative contracts; thus, the measure excludes the often-volatile revenue impact of changes in the fair value of derivative instruments prior to settlement. The measure also excludes pipeline, net marketing services and other revenues, which consists of costs of, and recoveries on, pipeline capacity releases and other revenues, because it is unrelated to the revenue from our natural gas and liquids production.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (Thousands, unless otherwise noted) | |||||||||||||||||||||||
| Total operating revenues | $ | 1,283,802 | $ | 1,186,102 | $ | 3,648,582 | $ | 4,865,924 | |||||||||||||||
| (Deduct) add: | |||||||||||||||||||||||
| Gain on derivatives | (66,816) | (177,906) | (234,660) | (1,167,144) | |||||||||||||||||||
| Net cash settlements received on derivatives | 288,136 | 255,804 | 1,037,321 | 625,051 | |||||||||||||||||||
| Premiums paid for derivatives that settled during the period | (4,971) | (65,216) | (44,565) | (232,128) | |||||||||||||||||||
| Pipeline, net marketing services and other | (117,234) | (6,313) | (120,748) | (18,214) | |||||||||||||||||||
| Production adjusted operating revenues, a non-GAAP financial measure | $ | 1,382,917 | $ | 1,192,471 | $ | 4,285,930 | $ | 4,073,489 | |||||||||||||||
| Total sales volume (MMcfe) | 581,414 | 522,700 | 1,622,976 | 1,452,344 | |||||||||||||||||||
| Average realized price ($/Mcfe) | $ | 2.38 | $ | 2.28 | $ | 2.64 | $ | 2.80 |
Business Segment Results of Operations
Operating segments are revenue-producing components of an entity for which separate financial information is produced internally and reviewed by the chief operating decision maker to allocate resources and measure financial performance.
Prior to the completion of the Equitrans Midstream Merger, we reported our results of operations as a single consolidated segment. As a result of the completion of the Equitrans Midstream Merger, we adjusted our internal reporting structure and our chief operating decision maker changed the manner in which he allocates resources and measures financial performance to incorporate the gathering and transmission assets we acquired in the Equitrans Midstream Merger. Hence, our operations expanded to comprise three discrete segments reflective of our three lines of business of Production, Gathering and Transmission. Accordingly, the manner in which we report our operations has been changed retrospectively, with certain prior period amounts recast between Production and Gathering.
The following sections summarize operating income and certain operational measures by our three reportable segments. We believe this information is useful to investors for evaluating our financial condition, results of operations and trends and uncertainties of our segments. See Note 2 to the Condensed Consolidated Financial Statements for financial information by business segment.
EQT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations
Certain amounts, including cash and cash equivalents, debt, income taxes and other amounts related to our headquarters function as well as amounts related to our energy transition initiatives, are managed on a consolidated basis and, as such, have not been allocated to our reportable segments. Changes to these amounts are discussed under "Other Income Statement Items."
PRODUCTION
Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2024 | 2023 | Change | % Change | ||||||||||||||||||||
| (Thousands, unless otherwise noted) | |||||||||||||||||||||||
| Total sales volume (MMcfe) | 581,414 | 522,700 | 58,714 | 11.2 | |||||||||||||||||||
| Average daily sales volume (MMcfe/d) | 6,320 | 5,682 | 638 | 11.2 | |||||||||||||||||||
| Operating revenues: | |||||||||||||||||||||||
| Sales of natural gas, NGLs and oil | $ | 1,099,752 | $ | 1,001,883 | $ | 97,869 | 9.8 | ||||||||||||||||
| Gain on derivatives | 72,489 | 177,906 | (105,417) | (59.3) | |||||||||||||||||||
| Pipeline, net marketing services and other | 5,826 | 3,456 | 2,370 | 68.6 | |||||||||||||||||||
| Total operating revenues | 1,178,067 | 1,183,245 | (5,178) | (0.4) | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Gathering | 115,599 | 328,549 | (212,950) | (64.8) | |||||||||||||||||||
| Transmission | 250,757 | 166,572 | 84,185 | 50.5 | |||||||||||||||||||
| Processing | 74,489 | 59,667 | 14,822 | 24.8 | |||||||||||||||||||
| Transportation and processing to affiliate | 252,825 | 39,200 | 213,625 | 545.0 | |||||||||||||||||||
| Lease operating expense (LOE) | 54,199 | 40,083 | 14,116 | 35.2 | |||||||||||||||||||
| Production taxes | 39,643 | 22,775 | 16,868 | 74.1 | |||||||||||||||||||
| Exploration | 282 | 447 | (165) | (36.9) | |||||||||||||||||||
| Selling, general and administrative (a) | 62,952 | 56,942 | 6,010 | 10.6 | |||||||||||||||||||
| Production depletion | 529,785 | 439,613 | 90,172 | 20.5 | |||||||||||||||||||
| Other depreciation and depletion | 960 | 747 | 213 | 28.5 | |||||||||||||||||||
| Loss on sale/exchange of long-lived assets | 9,708 | 1,511 | 8,197 | 542.5 | |||||||||||||||||||
| Impairment and expiration of leases | 12,095 | 6,419 | 5,676 | 88.4 | |||||||||||||||||||
| Other operating expenses | 10,206 | (621) | 10,827 | (1,743.5) | |||||||||||||||||||
| Total operating expenses | 1,413,500 | 1,161,904 | 251,596 | 21.7 | |||||||||||||||||||
| Operating (loss) income | $ | (235,433) | $ | 21,341 | $ | (256,774) | (1,203.2) | ||||||||||||||||
| Per Unit ($/Mcfe): | |||||||||||||||||||||||
| Gathering | $ | 0.20 | $ | 0.63 | $ | (0.43) | (68.3) | ||||||||||||||||
| Transmission | 0.43 | 0.32 | 0.11 | 34.4 | |||||||||||||||||||
| Processing | 0.13 | 0.11 | 0.02 | 18.2 | |||||||||||||||||||
| Transportation and processing to affiliate | 0.43 | 0.07 | 0.36 | 514.3 | |||||||||||||||||||
| LOE | 0.09 | 0.08 | 0.01 | 12.5 | |||||||||||||||||||
| Production taxes | 0.07 | 0.04 | 0.03 | 75.0 | |||||||||||||||||||
| Selling, general and administrative | 0.11 | 0.11 | — | — | |||||||||||||||||||
| Production depletion | 0.91 | 0.84 | 0.07 | 8.3 |
(a)Prior period selling, general and administrative expense was not recast as the necessary information is not available and the cost to develop such information would be excessive.
EQT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations
Sales volume. Sales volume increased for the three months ended September 30, 2024 compared to the same period in 2023 primarily as a result of sales volume increases of 31 Bcfe from the assets acquired in the Tug Hill and XcL Midstream Acquisition and increases from wells turned-in-line, partly offset by sales volume decreases of 25 Bcfe due to the Strategic Curtailment and decreases of 12 Bcfe due to the NEPA Non-Operated Asset Divestiture.
Sales of natural gas, NGLs and oil. Sales of natural gas, NGLs and oil increased for the three months ended September 30, 2024 compared to the same period in 2023 due to increased sales volume and higher average realized price.
Average realized price increased for the three months ended September 30, 2024 compared to the same period in 2023 due to favorable cash settled NYMEX derivatives and favorable average differential, partly offset by lower NYMEX price. The following table presents the composition of net cash settlements received on derivatives.
| Three Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| (Thousands) | |||||||||||
| Net cash settlements received on NYMEX natural gas hedge positions | $ | 339,283 | $ | 199,042 | |||||||
| Net cash settlements (paid) received on basis and liquids hedge positions | (51,147) | 56,762 | |||||||||
| Net cash settlements received on derivatives | $ | 288,136 | $ | 255,804 |
Net cash settlements received on derivatives are included in average realized price but may not be included in operating revenues.
For the three months ended September 30, 2024 and 2023, we paid premiums of $5.0 million and $65.2 million, respectively, for derivatives that settled during the period.
Gain on derivatives. For the three months ended September 30, 2024 and 2023, we recognized a gain on derivatives of $72.5 million and $177.9 million related primarily to increases in the fair market value of our NYMEX swaps and options due to decreases in NYMEX forward prices.
Gathering. Gathering expense decreased on an absolute and per Mcfe basis for the three months ended September 30, 2024 compared to the same period in 2023 due primarily to our Gathering segment's ownership of the gathering assets acquired in the Equitrans Midstream Merger, our Transmission segment's ownership of the transmission and storage assets acquired in the Equitrans Midstream Merger and our Gathering segment's ownership of the additional interest in the NEPA Gathering System acquired in the NEPA Gathering System Acquisition and as consideration for the NEPA Non-Operated Asset Divestiture.
Transmission. Transmission expense increased on an absolute and per Mcfe basis for the three months ended September 30, 2024 compared to the same period in 2023 due primarily to additional contracted capacity, including on the MVP, which commenced long-term firm capacity obligations on July 1, 2024.
Processing. Processing expense increased on an absolute and per Mcfe basis for the three months ended September 30, 2024 compared to the same period in 2023 due primarily to increased volumes from the development of liquids-rich areas and increased processing expense from the liquids-rich assets acquired in the Tug Hill and XcL Midstream Acquisition.
Transportation and processing to affiliate. Affiliate transportation and processing expense increased on an absolute and per Mcfe basis for the three months ended September 30, 2024 compared to the same period in 2023 due primarily to our Gathering segment's ownership of the gathering assets acquired in the Equitrans Midstream Merger, our Transmission segment's ownership of the transmission and storage assets acquired in the Equitrans Midstream Merger and our Gathering segment's ownership of the additional interest in the NEPA Gathering System acquired in the NEPA Gathering System Acquisition and as consideration for the NEPA Non-Operated Asset Divestiture. In addition, affiliate transportation and processing expense increased on a per Mcfe basis for the three months ended September 30, 2024 compared to the same period in 2023 due to our Gathering segment's ownership of the gathering assets acquired in the Tug Hill and XcL Midstream Acquisition during the third quarter of 2023.
LOE. LOE increased on an absolute and per Mcfe basis for the three months ended September 30, 2024 compared to the same period in 2023 due primarily to increased LOE from the water assets acquired in the Equitrans Midstream Merger and the assets acquired in the Tug Hill and XcL Midstream Acquisition.
EQT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations
Production taxes. Production taxes increased on an absolute and per Mcfe basis for the three months ended September 30, 2024 compared to the same period in 2023 due primarily to increased West Virginia property tax expense from the assets acquired in the Tug Hill and XcL Midstream Acquisition as well as increased severance tax expense from increased sales volume.
Selling, general and administrative. Selling, general and administrative expense increased on an absolute basis for the three months ended September 30, 2024 compared to the same period in 2023 due primarily to higher personnel costs due to increased workforce headcount, including as a result of the Equitrans Midstream Merger.
Depreciation and depletion. Production depletion expense increased on an absolute and per Mcfe basis for the three months ended September 30, 2024 compared to the same period in 2023 due to increased sales volume and higher annual depletion rate.
Loss (gain) on sale/exchange of long-lived assets. During the three months ended September 30, 2024, we recognized a loss on the NEPA Non-Operated Asset Divestiture of approximately $8.0 million. See Note 11 to the Condensed Consolidated Financial Statements.
Impairment and expiration of leases. During the three months ended September 30, 2024 and 2023, we recognized impairment and expiration of leases related to leases that we no longer expect to extend or develop prior to their expiration based on our development plan.
Other operating expenses. Other operating expenses increased for the three months ended September 30, 2024 compared to the same period in 2023 due primarily to increased legal and environmental reserves.
EQT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations
Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023
| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2024 | 2023 | Change | % Change | ||||||||||||||||||||
| (Thousands, unless otherwise noted) | |||||||||||||||||||||||
| Total sales volume (MMcfe) | 1,622,976 | 1,452,344 | 170,632 | 11.7 | |||||||||||||||||||
| Average daily sales volume (MMcfe/d) | 5,923 | 5,320 | 603 | 11.3 | |||||||||||||||||||
| Operating revenues: | |||||||||||||||||||||||
| Sales of natural gas, NGLs and oil | $ | 3,293,174 | $ | 3,680,566 | $ | (387,392) | (10.5) | ||||||||||||||||
| Gain on derivatives | 240,333 | 1,167,144 | (926,811) | (79.4) | |||||||||||||||||||
| Pipeline, net marketing services and other | 2,757 | 9,675 | (6,918) | (71.5) | |||||||||||||||||||
| Total operating revenues | 3,536,264 | 4,857,385 | (1,321,121) | (27.2) | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Gathering | 721,891 | 954,304 | (232,413) | (24.4) | |||||||||||||||||||
| Transmission | 597,578 | 473,651 | 123,927 | 26.2 | |||||||||||||||||||
| Processing | 209,624 | 164,979 | 44,645 | 27.1 | |||||||||||||||||||
| Transportation and processing to affiliate | 384,917 | 87,075 | 297,842 | 342.1 | |||||||||||||||||||
| LOE | 144,956 | 102,226 | 42,730 | 41.8 | |||||||||||||||||||
| Production taxes | 128,086 | 61,737 | 66,349 | 107.5 | |||||||||||||||||||
| Exploration | 2,576 | 2,602 | (26) | (1.0) | |||||||||||||||||||
| Selling, general and administrative (a) | 180,767 | 168,999 | 11,768 | 7.0 | |||||||||||||||||||
| Production depletion | 1,468,644 | 1,212,498 | 256,146 | 21.1 | |||||||||||||||||||
| Other depreciation and depletion | 2,322 | 2,384 | (62) | (2.6) | |||||||||||||||||||
| (Gain) loss on sale/exchange of long-lived assets | (310,252) | 17,814 | (328,066) | (1,841.6) | |||||||||||||||||||
| Impairment and expiration of leases | 58,963 | 22,290 | 36,673 | 164.5 | |||||||||||||||||||
| Other operating expenses | 23,650 | 7,645 | 16,005 | 209.4 | |||||||||||||||||||
| Total operating expenses | 3,613,722 | 3,278,204 | 335,518 | 10.2 | |||||||||||||||||||
| Operating (loss) income | $ | (77,458) | $ | 1,579,181 | $ | (1,656,639) | (104.9) | ||||||||||||||||
| Per Unit ($/Mcfe): | |||||||||||||||||||||||
| Gathering | $ | 0.44 | $ | 0.66 | $ | (0.22) | (33.3) | ||||||||||||||||
| Transmission | 0.37 | 0.33 | 0.04 | 12.1 | |||||||||||||||||||
| Processing | 0.13 | 0.11 | 0.02 | 18.2 | |||||||||||||||||||
| Transportation and processing to affiliate | 0.24 | 0.06 | 0.18 | 300.0 | |||||||||||||||||||
| LOE | 0.09 | 0.07 | 0.02 | 28.6 | |||||||||||||||||||
| Production taxes | 0.08 | 0.04 | 0.04 | 100.0 | |||||||||||||||||||
| Selling, general and administrative | 0.11 | 0.12 | (0.01) | (8.3) | |||||||||||||||||||
| Production depletion | 0.90 | 0.83 | 0.07 | 8.4 |
(a)Prior period selling, general and administrative expense was not recast as the necessary information is not available and the cost to develop such information would be excessive.
Sales volume. Sales volume increased for the nine months ended September 30, 2024 compared to the same period in 2023 primarily as a result of sales volume increases of 155 Bcfe from the assets acquired in the Tug Hill and XcL Midstream Acquisition and increases from wells turned-in-line, partly offset by sales volume decreases of 107 Bcfe due to the Strategic Curtailment and decreases of 17 Bcfe due to the NEPA Non-Operated Asset Divestiture.
EQT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations
Sales of natural gas, NGLs and oil. Sales of natural gas, NGLs and oil decreased for the nine months ended September 30, 2024 compared to the same period in 2023 due to lower average realized price, partly offset by increased sales volume.
Average realized price decreased for the nine months ended September 30, 2024 compared to the same period in 2023 due to lower NYMEX price and lower East Coast basis spreads, partly offset by favorable cash settled NYMEX derivatives and higher NGLs price. The following table presents the composition of net cash settlements received on derivatives.
| Nine Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| (Thousands) | |||||||||||
| Net cash settlements received on NYMEX natural gas hedge positions | $ | 1,195,411 | $ | 738,047 | |||||||
| Net cash settlements paid on basis and liquids hedge positions | (158,090) | (112,996) | |||||||||
| Net cash settlements received on derivatives | $ | 1,037,321 | $ | 625,051 |
Net cash settlements received on derivatives are included in average realized price but may not be included in operating revenues.
For the nine months ended September 30, 2024 and 2023, we paid premiums of $44.6 million and $232.1 million, respectively, for derivatives that settled during the period.
Gain on derivatives. For the nine months ended September 30, 2024, we recognized a gain on derivatives of $240.3 million related primarily to increases in the fair market value of our NYMEX swaps and options due to decreases in NYMEX forward prices. For the nine months ended September 30, 2023, we recognized a gain on derivatives of $1,167.1 million related primarily to increases in the fair market value of our NYMEX swaps and options due to decreases in NYMEX forward prices, partly offset by a loss on our Production segment's derivative liability related to the Henry Hub Cash Bonus (defined in Note 2 to the Condensed Consolidated Financial Statements).
Gathering. Gathering expense decreased on an absolute and per Mcfe basis for the nine months ended September 30, 2024 compared to the same period in 2023 due primarily to our Gathering segment's ownership of the gathering assets acquired in the Equitrans Midstream Merger, our Transmission segment's ownership of the transmission and storage assets acquired in the Equitrans Midstream Merger and our Gathering segment's ownership of the additional interest in the NEPA Gathering System acquired in the NEPA Gathering System Acquisition and as consideration for the NEPA Non-Operated Asset Divestiture.
Transmission. Transmission expense increased on an absolute and per Mcfe basis for the nine months ended September 30, 2024 compared to the same period in 2023 due primarily to additional contracted capacity, including on the MVP, which commenced long-term firm capacity obligations on July 1, 2024, as well as credits received in 2023 from the Texas Eastern Transmission pipeline.
Processing. Processing expense increased on an absolute and per Mcfe basis for the nine months ended September 30, 2024 compared to the same period in 2023 due primarily to increased processing expense from the liquids-rich assets acquired in the Tug Hill and XcL Midstream Acquisition.
Transportation and processing to affiliate. Affiliate transportation and processing expense increased on an absolute and per Mcfe basis for the nine months ended September 30, 2024 compared to the same period in 2023 due primarily to our Gathering segment's ownership of the gathering assets acquired in the Equitrans Midstream Merger, our Transmission segment's ownership of the transmission and storage assets acquired in the Equitrans Midstream Merger and our Gathering segment's ownership of the additional interest in the NEPA Gathering System acquired in the NEPA Gathering System Acquisition and as consideration for the NEPA Non-Operated Asset Divestiture. In addition, affiliate transportation and processing expense also increased on a per Mcfe basis for the nine months ended September 30, 2024 compared to the same period in 2023 due to our Gathering segment's ownership of the gathering assets acquired in the Tug Hill and XcL Midstream Acquisition during the third quarter of 2023.
LOE. LOE increased on an absolute and per Mcfe basis for the nine months ended September 30, 2024 compared to the same period in 2023 due primarily to increased LOE from the assets acquired in the Tug Hill and XcL Midstream Acquisition.
EQT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations
Production taxes. Production taxes increased on an absolute and per Mcfe basis for the nine months ended September 30, 2024 compared to the same period in 2023 due primarily to increased West Virginia property tax expense from the assets acquired in the Tug Hill and XcL Midstream Acquisition and higher price as well as increased severance tax expense from increased sales volume.
Selling, general and administrative. Selling, general and administrative expense increased on an absolute basis for the nine months ended September 30, 2024 compared to the same period in 2023 due primarily to higher personnel costs due to increased workforce headcount, including as a result of the Equitrans Midstream Merger, and higher legal and professional services costs.
Depreciation and depletion. Production depletion expense increased on an absolute and per Mcfe basis for the nine months ended September 30, 2024 compared to the same period in 2023 due to increased sales volume and higher annual depletion rate.
Loss (gain) on sale/exchange of long-lived assets. During the nine months ended September 30, 2024, we recognized a gain on the NEPA Non-Operated Asset Divestiture of approximately $312 million. See Note 11 to the Condensed Consolidated Financial Statements. During the nine months ended September 30, 2023, we recognized a loss on exchange of long-lived assets of $17.8 million related to acreage trade agreements where the carrying value of the acres traded exceeded the fair value of the acres received.
Impairment and expiration of leases. During the nine months ended September 30, 2024 and 2023, we recognized impairment and expiration of leases related to leases that we no longer expect to extend or develop prior to their expiration based on our development plan.
Other operating expenses. Other operating expenses increased for the nine months ended September 30, 2024 compared to the same period in 2023 due primarily to increased rig release expense and increased legal and environmental reserves.
EQT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations
GATHERING
Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2024 | 2023 | Change | % Change | ||||||||||||||||||||
| (Thousands, unless otherwise noted) | |||||||||||||||||||||||
| Gathered volume (British thermal unit (BBtu)/d): | |||||||||||||||||||||||
| Firm capacity | 5,450 | — | 5,450 | 100 | |||||||||||||||||||
| Volumetric-based services | 4,293 | 666 | 3,627 | 545 | |||||||||||||||||||
| Total gathered volume | 9,743 | 666 | 9,077 | 1,363 | |||||||||||||||||||
| Operating revenues: | |||||||||||||||||||||||
| Loss on derivatives | $ | (5,673) | $ | — | $ | (5,673) | 100 | ||||||||||||||||
| Firm reservation fee revenues (a) | 136,752 | — | 136,752 | 100 | |||||||||||||||||||
| Volumetric-based fee revenues (b) | 140,077 | 42,057 | 98,020 | 233 | |||||||||||||||||||
| Total operating revenues | 271,156 | 42,057 | 229,099 | 545 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Operating and maintenance | 30,712 | 4,235 | 26,477 | 625 | |||||||||||||||||||
| Selling, general and administrative (c) | 11,366 | — | 11,366 | 100 | |||||||||||||||||||
| Depreciation | 37,773 | 4,054 | 33,719 | 832 | |||||||||||||||||||
| Total operating expenses | 79,851 | 8,289 | 71,562 | 863 | |||||||||||||||||||
| Operating income | $ | 191,305 | $ | 33,768 | $ | 157,537 | 467 |
(a)Firm reservation fee revenues for the three months ended September 30, 2024 included unbilled revenues supported by minimum volume commitments (MVCs) of approximately $1.8 million.
(b)For agreements structured with MVCs, includes volumes up to the contractual MVC; volumes in excess of the contractual MVC are reported under volumetric-based services.
(c)Prior period selling, general and administrative expense was not recast as the necessary information is not available and the cost to develop such information would be excessive.
Gathering revenues and expenses increased for the three months ended September 30, 2024 compared to the same period in 2023 primarily from the gathering assets acquired in the Equitrans Midstream Merger during the third quarter of 2024 and in the Tug Hill and XcL Midstream Acquisition during the third quarter of 2023. Prior to the close of the Equitrans Midstream Merger, we did not own gathering assets that provided firm gathering services.
EQT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations
Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023
| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2024 | 2023 | Change | % Change | ||||||||||||||||||||
| (Thousands, unless otherwise noted) | |||||||||||||||||||||||
| Gathered volume (BBtu/d): | |||||||||||||||||||||||
| Firm capacity | 5,450 | — | 5,450 | 100 | |||||||||||||||||||
| Volumetric-based services | 4,059 | 654 | 3,405 | 521 | |||||||||||||||||||
| Total gathered volume | 9,509 | 654 | 8,855 | 1,354 | |||||||||||||||||||
| Operating revenues: | |||||||||||||||||||||||
| Loss on derivatives | $ | (5,673) | $ | — | $ | (5,673) | 100 | ||||||||||||||||
| Firm reservation fee revenues (a) | 136,752 | — | 136,752 | 100 | |||||||||||||||||||
| Volumetric-based fee revenues (b) | 278,739 | 95,753 | 182,986 | 191 | |||||||||||||||||||
| Total operating revenues | 409,818 | 95,753 | 314,065 | 328 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Operating and maintenance | 56,018 | 6,108 | 49,910 | 817 | |||||||||||||||||||
| Selling, general and administrative (c) | 11,366 | — | 11,366 | 100 | |||||||||||||||||||
| Depreciation | 45,282 | 8,077 | 37,205 | 461 | |||||||||||||||||||
| Gain on sale/exchange of long-lived assets | (22) | — | (22) | 100 | |||||||||||||||||||
| Total operating expenses | 112,644 | 14,185 | 98,459 | 694 | |||||||||||||||||||
| Operating income | $ | 297,174 | $ | 81,568 | $ | 215,606 | 264 |
(a)Firm reservation fee revenues for the nine months ended September 30, 2024 included unbilled revenues supported by MVCs of approximately $1.8 million.
(b)For agreements structured with MVCs, includes volumes up to the contractual MVC; volumes in excess of the contractual MVC are reported under volumetric-based services.
(c)Prior period selling, general and administrative expense was not recast as the necessary information is not available and the cost to develop such information would be excessive.
Gathering revenues and expenses increased for the nine months ended September 30, 2024 compared to the same period in 2023 primarily from the gathering assets acquired in the Equitrans Midstream Merger during the third quarter of 2024 and in the Tug Hill and XcL Midstream Acquisition during the third quarter of 2023. Prior to the close of the Equitrans Midstream Merger, we did not own gathering assets that provided firm gathering services.
EQT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations
TRANSMISSION
Prior to the close of the Equitrans Midstream Merger on July 22, 2024, we did not have transmission or storage assets.
Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023
| Three Months Ended September 30, 2024 | |||||
| (Thousands, unless otherwise noted) | |||||
| Transmission pipeline throughput (BBtu/d): | |||||
| Firm capacity (a) | 3,595 | ||||
| Interruptible capacity | 12 | ||||
| Total transmission pipeline throughput | 3,607 | ||||
| Average contracted firm transmission reservation commitments (BBtu/d) | 4,454 | ||||
| Operating revenues: | |||||
| Firm reservation fee revenues | $ | 73,034 | |||
| Volumetric-based fee revenues: | 14,226 | ||||
| Other revenues | 124 | ||||
| Total operating revenues | 87,384 | ||||
| Operating expenses: | |||||
| Operating and maintenance | 9,806 | ||||
| Selling, general and administrative | 5,492 | ||||
| Depreciation | 13,900 | ||||
| Amortization of intangible assets | 3,209 | ||||
| Loss on sale/exchange of long-lived assets | 409 | ||||
| Total operating expenses | 32,816 | ||||
| Operating income | $ | 54,568 |
(a)Includes all volumes associated with firm capacity contracts, including volumes in excess of firm capacity.
Other Income Statement Items
Other operating expenses. Corporate other operating expenses increased for both the three and nine months ended September 30, 2024 compared to the same periods in 2023 due primarily to transaction costs related to the Equitrans Midstream Merger of $274.6 million and $298.7 million for the three and nine months ended September 30, 2024, respectively, partly offset by lower transaction costs related to the Tug Hill and XcL Midstream Acquisition. In addition, during the nine months ended September 30, 2024, litigation reserves increased compared to the same period in 2023.
Total transaction costs related to the Equitrans Midstream Merger recognized during the three months ended September 30, 2024 included severance and other termination benefits and stock-based compensation costs of $161.0 million, of which $58.6 million was cash and $102.4 million was non-cash.
(Income) loss from investments. Income from investments increased for both the three and nine months ended September 30, 2024 compared to the same period in 2023 due primarily to equity earnings from our investment in the MVP Joint Venture, partly offset by a decrease in the fair value of our investment in the Investment Fund (defined in Note 5 to the Condensed Consolidated Financial Statements).
EQT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations
Other income. Other income increased during the three months ended September 30, 2024 due to dividends received from our investment in the Investment Fund. During the nine months ended September 30, 2024, we received proceeds from insurance claim recoveries of $19.1 million related to the assets acquired in the Tug Hill and XcL Midstream Acquisition.
Loss (gain) on debt extinguishment. During the nine months ended September 30, 2024, we recognized a loss on debt extinguishment of $5.7 million primarily as a result of our prepayment of a portion of the Term Loan Facility (defined in Note 7 to the Condensed Consolidated Financial Statements) as well as our redemption of EQT's 6.125% senior notes.
Interest expense, net. Interest expense, net increased for the three months ended September 30, 2024 compared to the same periods in 2023 due primarily to interest expense on EQM Midstream Partners, LP's (EQM) senior notes (which we consolidate as a result of the Equitrans Midstream Merger), increased interest expense on our borrowings under EQT's revolving credit facility, interest expense on EQT's 5.750% senior notes issued in January 2024 and lower interest income earned on cash on hand, partly offset by decreased interest expense from our repayment and repurchase of certain of our senior notes, decreased interest expense on the Term Loan Facility due to our partial prepayment in January 2024 as well as higher capitalized interest from the assets acquired in the Tug Hill and XcL Midstream Acquisition.
Interest expense, net increased for the nine months ended September 30, 2024 compared to the same periods in 2023 due primarily to interest expense on EQM's senior notes, lower interest income earned on cash on hand, interest expense on EQT's 5.750% senior notes issued in January 2024, increased interest expense on our borrowings under EQT's revolving credit facility and increased interest expense on our borrowings under the Term Loan Facility, partly offset by decreased interest expense from our repayment and repurchase of certain of our senior notes as well as higher capitalized interest from the assets acquired in the Tug Hill and XcL Midstream Acquisition.
See Note 7 to the Condensed Consolidated Financial Statements.
Income tax (benefit) expense. See Note 6 to the Condensed Consolidated Financial Statements.
Net income (loss) attributable to noncontrolling interests. During the three and nine months ended September 30, 2024, we recognized net income attributable to noncontrolling interests of Eureka Midstream Holdings, LLC (Eureka Midstream Holdings), a consolidated joint venture in which we acquired an equity interest as a result of the Equitrans Midstream Merger. See Note 1 to the Condensed Consolidated Financial Statements.
Capital Resources and Liquidity
Although we cannot provide any assurance, we believe cash flows from operating activities and availability under EQT's revolving credit facility should be sufficient to meet our cash requirements inclusive of, but not limited to, normal operating needs, debt service obligations, planned capital expenditures and commitments for at least the next twelve months and, based on current expectations, for the long term.
Planned Capital Expenditures and Sales Volume. Following the completion of the Equitrans Midstream Merger, we revised our estimated total capital expenditures for the fourth quarter of 2024 to $630 million to $730 million. We expect to fund our capital expenditures with cash generated from operations and, if required, borrowings under EQT's revolving credit facility. Because we are the operator of a high percentage of our developed acreage, the amount and timing of certain of our capital expenditures is largely discretionary. We could choose to defer a portion of our planned 2024 capital expenditures depending on a variety of factors, including prevailing and anticipated prices for natural gas, NGLs and oil; the availability of necessary equipment, infrastructure and capital; the receipt and timing of required regulatory permits and approvals; and drilling, completion and acquisition costs. In addition, our gathering and transmission businesses are capital intensive, requiring significant investment to develop new facilities and maintain and upgrade existing operations.
We expect our sales volume, including expected curtailments, to be 555 Bcfe to 605 Bcfe for the fourth quarter of 2024.
Material Cash Requirements. We have contractual commitments under our debt agreements, including interest payments and principal repayments. As a result of the Equitrans Midstream Merger, EQM became an indirect wholly-owned subsidiary of EQT. See Note 7 to the Condensed Consolidated Financial Statements for further discussion of EQM's senior notes.
In addition, we expect to make total capital contributions to the MVP Joint Venture in the fourth quarter of 2024 of approximately $70 million to $80 million.
EQT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations
Operating Activities. Net cash provided by operating activities was $2,071 million for the nine months ended September 30, 2024 compared to $2,554 million for the same period in 2023. The decrease was due primarily to higher cash operating expenses (including increased transaction costs related to the Equitrans Midstream Merger), unfavorable timing of working capital payments, lower cash operating revenues and higher net interest expense, partly offset by higher net cash settlements received on derivatives and lower net premiums paid on derivatives.
Our cash flows from operating activities are affected by movements in the market price for commodities. We are unable to predict such movements outside of the current market view as reflected in forward strip pricing. For a discussion of potential commodity market risks, refer to "Risk Factors – Natural gas, NGLs and oil price volatility, or a prolonged period of low natural gas, NGLs and oil prices, may have an adverse effect on our revenue, profitability, future rate of growth, liquidity and financial position" in our Annual Report on Form 10-K for the year ended December 31, 2023.
Investing Activities. Net cash used in investing activities was $2,162 million for the nine months ended September 30, 2024 compared to $3,774 million for the same period in 2023. The decrease was attributable primarily to lower cash paid for the Equitrans Midstream Merger and the NEPA Gathering System Acquisition in 2024 compared to cash paid for the Tug Hill and XcL Midstream Acquisition in 2023 as well as the proceeds received from the NEPA Non-Operated Asset Divestiture, partly offset by increased capital expenditures.
The following tables summarize our capital expenditures.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (Millions) | |||||||||||||||||||||||
| Production: | |||||||||||||||||||||||
| Reserve development (a) | $ | 371 | $ | 355 | $ | 1,283 | $ | 1,147 | |||||||||||||||
| Land and lease (b) | 37 | 41 | 105 | 101 | |||||||||||||||||||
| Other production infrastructure | 16 | 17 | 57 | 49 | |||||||||||||||||||
| Capitalized interest, capitalized overhead and other | 31 | 23 | 95 | 70 | |||||||||||||||||||
| Total Production | 455 | 436 | 1,540 | 1,367 | |||||||||||||||||||
| Gathering (c) | 80 | 7 | 112 | 12 | |||||||||||||||||||
| Transmission | 10 | — | 10 | — | |||||||||||||||||||
| Other corporate items | 13 | 2 | 21 | 8 | |||||||||||||||||||
| Total capital expenditures | 558 | 445 | 1,683 | 1,387 | |||||||||||||||||||
| Add (deduct): Non-cash items (d) | 11 | 59 | (21) | 99 | |||||||||||||||||||
| Total cash capital expenditures | $ | 569 | $ | 504 | $ | 1,662 | $ | 1,486 |
(a)Capital expenditures for reserve development included capital expenditures for water infrastructure of $28.9 million and $7.7 million for the three months ended September 30, 2024 and 2023, respectively, and $58.7 million and $26.4 million for the nine months ended September 30, 2024 and 2023, respectively.
(b)Capital expenditures for land and lease included capital expenditures attributable to noncontrolling interest in The Mineral Company LLC of approximately $8.5 million for the nine months ended September 30, 2023. The Mineral Company LLC was dissolved in the third quarter of 2023.
(c)Gathering capital expenditures included capital expenditures attributable to noncontrolling interest in Eureka Midstream Holdings of approximately $1.6 million for both the three and nine months ended September 30, 2024.
(d)Represents the net impact of non-cash capital expenditures, including the effect of timing of receivables from working interest partners, accrued capital expenditures, transfers to or from inventory as assets are completed or assigned to a project and capitalized share-based compensation costs. The impact of accrued capital expenditures includes the current period estimate, net of the reversal of the prior period accrual.
EQT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations
Financing Activities. Net cash provided by financing activities was $100 million for the nine months ended September 30, 2024 compared to net cash used in financing activities of $174 million for the same period in 2023. For the nine months ended September 30, 2024, the primary sources of financing cash flows were our net borrowings under EQT's revolving credit facility, proceeds from the issuance of EQT's 5.750% senior notes and proceeds from the net settlement of the Capped Call Transactions (defined in Note 7 to the Condensed Consolidated Financial Statements), and the primary uses of financing cash flows were our repayment and retirement of debt, repayment of EQM's revolving credit facility and payment of dividends. For the nine months ended September 30, 2023, the primary source of financing cash flows was proceeds from the Term Loan Facility borrowings, and the primary uses of financing cash flows were our repayment and retirement of debt, repurchase and retirement of EQT common stock and payment of dividends.
See Note 7 to the Condensed Consolidated Financial Statements for further discussion of our debt and borrowings under EQT's revolving credit facility and the Term Loan Facility. See Notes 1 and 7 to the Condensed Consolidated Financial Statements for discussion of borrowings under the revolving credit facility of Eureka Midstream, LLC (Eureka), a wholly-owned subsidiary of Eureka Midstream Holdings.
On October 10, 2024, our Board of Directors declared a quarterly cash dividend of $0.1575 per share of EQT common stock, payable on December 2, 2024, to shareholders of record at the close of business on November 6, 2024.
Depending on our actual and anticipated sources and uses of liquidity, prevailing market conditions and other factors, we may from time to time seek to redeem or repurchase our outstanding debt or equity securities through tender offers or other cash purchases in the open market or privately negotiated transactions. The amounts involved in any such transactions may be material. See Note 7 to the Condensed Consolidated Financial Statements for discussion of redemptions and repurchases of debt.
Security Ratings and Financing Triggers
Our credit ratings and rating outlooks are subject to revision or withdrawal at any time by the assigning rating agency, and each rating should be evaluated independently from any other rating. We cannot ensure that a rating will remain in effect for any given period of time or that a rating will not be lowered or withdrawn by a rating agency if, in the rating agency's judgment, circumstances so warrant. See Note 4 to the Condensed Consolidated Financial Statements for a description of what is deemed investment grade.
The table below reflects the credit ratings and rating outlooks assigned to EQT's debt instruments as of September 30, 2024.
| Rating agency | Senior notes | Outlook | ||||||||||||
| Moody's Investor Service (Moody's) | Baa3 | Negative | ||||||||||||
| Standard and Poor's Ratings Service (S&P) | BBB– | Negative | ||||||||||||
| Fitch Ratings Service (Fitch) | BBB– | Stable |
The table below reflects the credit ratings and rating outlooks assigned to EQM's debt instruments as of September 30, 2024.
| Rating agency | Senior notes | Outlook | ||||||||||||
| Moody's Investor Service (Moody's) | Ba2 | Stable | ||||||||||||
| Standard and Poor's Ratings Service (S&P) | BBB– | Negative | ||||||||||||
| Fitch Ratings Service (Fitch) | BB+ | Stable |
Changes in credit ratings may affect our access to the capital markets, the cost of short-term debt through interest rates and fees under EQT's and Eureka's revolving credit facilities, the interest rate on the Term Loan Facility, the interest rate on EQT's senior notes with adjustable rates, the rates available on new long-term debt, our pool of investors and funding sources, the borrowing costs and margin deposit requirements on our over the counter (OTC) derivative instruments and credit assurance requirements, including collateral, in support of our midstream service contracts, joint venture arrangements or construction contracts. Margin deposits on our OTC derivative instruments are also subject to factors other than credit rating, such as natural gas prices and credit thresholds set forth in the agreements between us and our hedging counterparties.
EQT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations
Our debt agreements and other financial obligations contain various provisions that, if not complied with, could result in default or event of default under EQT's revolving credit facility, Eureka's revolving credit facility and the Term Loan Facility, mandatory partial or full repayment of amounts outstanding, reduced loan capacity or other similar actions. The most significant covenants and events of default under our debt agreements relate to maintenance of a debt-to-total capitalization ratio, limitations on transactions with affiliates, insolvency events, nonpayment of scheduled principal or interest payments, acceleration of other financial obligations and change of control provisions. EQT's revolving credit facility and the Term Loan Facility contain financial covenants that require us to have a total debt to total capitalization ratio no greater than 65%. As of September 30, 2024, we were in compliance with all EQT, Eureka and EQM debt provisions and covenants under our debt agreements.
See Note 7 to the Condensed Consolidated Financial Statements for a discussion of borrowings under EQT's revolving credit facility, Eureka's revolving credit facility and the Term Loan Facility.
Commodity Risk Management
The substantial majority of our commodity risk management program is related to hedging sales of our produced natural gas. The overall objective of our hedging program is to protect cash flows from undue exposure to the risk of changing commodity prices. The derivative commodity instruments that we use are primarily swap, collar and option agreements. The following table summarizes the approximate volume and prices of our NYMEX hedge positions as of October 25, 2024. The difference between the fixed price and NYMEX price is included in average differential presented in our price reconciliation in "Average Realized Price Reconciliation." The fixed price natural gas sales agreements can be physically or financially settled.
| Q4 2024 (a) | Q1 2025 | Q2 2025 | Q3 2025 | Q4 2025 | |||||||||||||||||||||||||||||||
| Hedged Volume (MMDth) | 377 | 332 | 336 | 281 | 281 | ||||||||||||||||||||||||||||||
| Hedged Volume (MMDth/d) | 4.1 | 3.7 | 3.7 | 3.1 | 3.1 | ||||||||||||||||||||||||||||||
| Swaps – Short | |||||||||||||||||||||||||||||||||||
| Volume (MMDth) | 304 | 250 | 290 | 281 | 95 | ||||||||||||||||||||||||||||||
| Avg. Price ($/Dth) | $ | 3.18 | $ | 3.49 | $ | 3.11 | $ | 3.26 | $ | 3.27 | |||||||||||||||||||||||||
| Calls – Long | |||||||||||||||||||||||||||||||||||
| Volume (MMDth) | 13 | — | — | — | — | ||||||||||||||||||||||||||||||
| Avg. Strike ($/Dth) | $ | 3.20 | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||
| Calls – Short | |||||||||||||||||||||||||||||||||||
| Volume (MMDth) | 91 | 188 | 46 | — | 137 | ||||||||||||||||||||||||||||||
| Avg. Strike ($/Dth) | $ | 4.23 | $ | 4.19 | $ | 3.48 | $ | — | $ | 5.49 | |||||||||||||||||||||||||
| Puts – Long | |||||||||||||||||||||||||||||||||||
| Volume (MMDth) | 73 | 82 | 46 | — | 186 | ||||||||||||||||||||||||||||||
| Avg. Strike ($/Dth) | $ | 3.54 | $ | 3.19 | $ | 2.83 | $ | — | $ | 3.30 | |||||||||||||||||||||||||
| Option Premiums | |||||||||||||||||||||||||||||||||||
| Cash Settlement of Deferred Premiums (millions) | $ | — | $ | — | $ | — | $ | — | $ | (45) |
(a)October 1 through December 31.
We have also entered into derivative instruments to hedge basis. We may use other contractual agreements to implement our commodity hedging strategy from time to time.
See "Quantitative and Qualitative Disclosures About Market Risk" and Note 4 to the Condensed Consolidated Financial Statements for further discussion of our hedging program.
EQT CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and Results of Operations
Commitments and Contingencies
In the ordinary course of business, various legal and regulatory claims and proceedings are pending or threatened against us. While the amounts claimed may be substantial, we are unable to predict with certainty the ultimate outcome of such claims and proceedings. We evaluate our legal proceedings, including litigation and regulatory and governmental investigations and inquiries, on a regular basis and accrue a liability for such matters when we believe that a loss is probable and the amount of the loss can be reasonably estimated. Any such accruals are adjusted thereafter as appropriate to reflect changed circumstances. In the event we determine that (i) a loss is probable but the amount of the loss cannot be reasonably estimated, or (ii) a loss is less likely than probable but is reasonably possible, then we are required to disclose the matter in our Annual Report on Form 10-K with any update thereto in this Quarterly Report on Form 10-Q, as applicable, although we are not required to accrue such loss.
When able, we determine an estimate of reasonably possible losses or ranges of reasonably possible losses, whether in excess of any related accrued liability or where there is no accrued liability, for legal proceedings. In instances where such estimates can be made, any such estimates are based on our 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.
See Note 13 to the Condensed Consolidated Financial Statements herein and Note 11 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2023 for discussions of our commitments and contingencies, including certain pending legal and regulatory proceedings and other contingent matters.
Additionally, in the normal course of business, we are subject to various other pending and threatened legal proceedings in which claims for monetary damages or other relief are asserted. We do not anticipate, at the present time, that the ultimate aggregate liability, if any, arising out of such other legal proceedings will have a material adverse effect on our financial position, results of operations or liquidity.
Critical Accounting Estimates
Our critical accounting estimates, including a discussion regarding the estimation uncertainty and the impact that our critical accounting estimates have had, or are reasonably likely to have, on our financial condition or results of operations, are described in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of our Annual Report on Form 10-K for the year ended December 31, 2023 and have been updated below. The application of our critical accounting estimates may require us to make judgments and estimates about the amounts reflected in the Condensed Consolidated Financial Statements. We use historical experience and all available information to make these estimates and judgments. Different amounts could be reported using different assumptions and estimates.
Goodwill. Goodwill is the cost of an acquisition less the fair value of the identifiable net assets of the acquired business.
Goodwill is evaluated for impairment at least annually or whenever events or changes in circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. We use a combination of an income and market approach to estimate the fair value of our reporting units.
We believe goodwill is a "critical accounting estimate" because the valuation of a reporting unit involves significant judgment and is sensitive to changes in assumptions, including changes in our stock price, weighted-average cost of capital, terminal growth rates and industry multiples. Changes to assumptions could materially affect the estimated fair value of our reporting units and the resulting conclusion on impairment could materially affect our results of operations and financial position. In addition, future assumptions and estimates may materially differ from current assumptions and estimates.
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