What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-07-27 compared with 2020-05-07 · 162 added, 114 removed, 278 unchanged (50% of the section changed)

22 unchanged sentences

potential acquisition transactions;

the projected capital efficiency savings and other operating efficiencies and synergies resulting from the Company's monetization transactions and acquisition transactions, including the Company's ability to achieve the anticipated synergies and efficiencies from its acquisition of Rice Energy Inc.

and the Company's ability to achieve the anticipated operational, financial and strategic benefits of the spin-off of Equitrans Midstream Corporation (Equitrans Midstream) from the Company;

the timing and structure of any dispositions of the Company's remaining retained shares of Equitrans Midstream's common stock, and the planned use of the proceeds from any such dispositions;

the amount and timing of any redemptions or repurchases of EQT common stock or outstanding debt securities;

the projected capital efficiency savings and other operating efficiencies and synergies resulting from the Company's monetization transactions and acquisition transactions;

the timing and structure of any dispositions of the Company's remaining retained shares of Equitrans Midstream Corporation's (Equitrans Midstream) common stock, and the planned use of the proceeds from any such dispositions;

the amount and timing of any repayments, redemptions or repurchases of EQT common stock, outstanding debt securities or other debt instruments;

the Company's ability to reduce its debt and the timing of such reductions, if any;

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Consolidated Results of Operations

Net loss for the three months ended March 31, 2020 was $167.1 million, $0.65 per diluted share, compared to net income for the same period in 2019 of $190.7 million, $0.75 per diluted share.

The decrease was attributable primarily to the loss on investment in Equitrans Midstream, the loss on exchange of long-lived assets, decreased operating revenues, increased impairment and expiration of leases and the loss on debt extinguishment, partly offset by the gain on the Equitrans Share Exchange (defined and discussed in Note 9 to the Condensed Consolidated Financial Statements), decreased depreciation and depletion expense and decreased selling, general and administrative expense.

Net loss for the three months ended June 30, 2020 was $263.1 million, $1.03 per diluted share, compared to net income for the same period in 2019 of $125.6 million, $0.49 per diluted share.

The decrease was attributable primarily to decreased operating revenues, the loss on sale/exchange of long-lived assets, decreased dividend and other income and increased interest expense, partly offset by a gain on investment in Equitrans Midstream, increased income tax benefit, decreased depreciation and depletion expense and decreased selling, general and administrative expense.

Net loss for the six months ended June 30, 2020 was $430.2 million, $1.68 per diluted share, compared to net income for the same period in 2019 of $316.3 million, $1.24 per diluted share.

The decrease was attributable primarily to decreased operating revenues, a loss on investment in Equitrans Midstream and the loss on sale/exchange of long-lived assets, partly offset by the gain on the Equitrans Share Exchange (defined and discussed in Note 9 to the Condensed Consolidated Financial Statements), increased income tax benefit, decreased depreciation and depletion expense and decreased selling, general and administrative expense.

See "Sales Volumes and Revenues," "Production-Related Operating Expenses" and "Other Operating Expenses" for discussions of items affecting operating income and "Other Income Statement Items" for a discussion of other income statement items.

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Management's Discussion and Analysis of Financial Condition and Results of Operations

Three Months Ended March 31,

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

(Thousands, unless otherwise noted)

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Average realized price ($/Mcfe) $ 2.36 $ 2.59 $ 2.43 $ 2.88

(a) The Company's volume weighted New York Mercantile Exchange (NYMEX) natural gas price (actual average NYMEX natural gas price ($/MMBtu)) was $1.95 and $3.15 for the three months ended March 31, 2020 and 2019, respectively.

(a) The Company's volume weighted New York Mercantile Exchange (NYMEX) natural gas price (actual average NYMEX natural gas price ($/MMBtu)) was $1.72 and $2.64 for the three months ended June 30, 2020 and 2019, respectively, and $1.83 and $2.89 for the six months ended June 30, 2020 and 2019, respectively.

(b) Basis represents the difference between the ultimate sales price for natural gas and the NYMEX natural gas price.

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Management believes that adjusted operating revenues provides useful information to investors for evaluating period-to-period comparisons of earnings trends.

Three Months Ended March 31,

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

(Thousands, unless otherwise noted)

Total operating revenues $ 527,074 $ 1,310,252 $ 1,634,131 $ 2,453,425

Add (deduct):

(Gain) loss on derivatives not designated as hedges (389,436) 131,996

Deduct (add):

Gain on derivatives not designated as hedges (26,426) (407,635) (415,862) (275,639)

Net cash settlements received (paid) on derivatives not designated as hedges 315,393 53,144 561,129 (10,490)

Premiums (paid) received for derivatives that settled during the period (3,555) 2,437

Premiums received (paid) for derivatives that settled during the period 2,076 4,769 (1,479) 7,206

Net marketing services and other (1,876) (2,090) (4,296) (5,646)

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Average realized price ($/Mcfe) $ 2.36 $ 2.59 $ 2.43 $ 2.88

EQT Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of Operations

Sales Volumes and Revenues

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 % 2020 2019 %

(Thousands, unless otherwise noted)

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Sales of natural gas, NGLs and oil $ 498,772 $ 900,527 (44.6) $ 1,213,973 $ 2,172,140 (44.1)

Gain (loss) on derivatives not designated as hedges

Gain on derivatives not designated as hedges

26,426 407,635 (93.5) 415,862 275,639 50.9

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(b) NGLs, ethane and oil were converted to Mcfe at a rate of six Mcfe per barrel.

EQT Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of Operations

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

Sales of natural gas, NGLs and oil.

Sales of natural gas, NGLs and oil decreased for the three months ended March 31, 2020 compared to the same period in 2019 due to a lower average realized price and relatively flat sales volume growth.

Sales of natural gas, NGLs and oil decreased for the three months ended June 30, 2020 compared to the same period in 2019 due to a lower average realized price and lower sales volumes.

Average realized price decreased due to lower NYMEX prices and lower liquids prices, partly offset by higher cash settled derivatives.

For the three months ended March 31, 2020 and 2019, the Company received $245.7 million and paid $63.6 million, respectively, of net cash settlements on derivatives not designated as hedges, which are included in average realized price but may not be included in operating revenues.

Gain (loss) on derivatives not designated as hedges.

For the three months ended March 31, 2020 and 2019, the Company recognized a gain of $389.4 million and a loss of $132.0 million, respectively, on derivatives not designated as hedges.

The gain for the three months ended March 31, 2020 was related primarily to increases in the fair market value of the Company's NYMEX swaps and options due to decreases in NYMEX forward prices.

The loss for 2019 was related primarily to decreases in the fair market value of the Company's NYMEX and basis swaps due to increases in NYMEX and basis prices.

For the three months ended June 30, 2020 and 2019, the Company received $315.4 million and $53.1 million, respectively, of net cash settlements on derivatives not designated as hedges, which are included in average realized price but may not be included in operating revenues.

Sales volumes decreased due primarily to the Company's strategic decision to temporarily curtail approximately 1.4 Bcfe per day of gross production, equivalent to approximately 1.0 Bcfe per day of net production, beginning on May 16, 2020 (the Strategic Production Curtailments).

Gain on derivatives not designated as hedges.

For the three months ended June 30, 2020 and 2019, the Company recognized a gain of $26.4 million and $407.6 million, respectively, on derivatives not designated as hedges.

The gains for 2020 and 2019 were related primarily to increases in the fair market value of the Company's NYMEX swaps and options due to decreases in NYMEX forward prices.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

Sales of natural gas, NGLs and oil.

Sales of natural gas, NGLs and oil decreased for the six months ended June 30, 2020 compared to the same period in 2019 due to a lower average realized price and lower sales volumes.

Average realized price decreased due to lower NYMEX prices and lower liquids prices, partly offset by higher cash settled derivatives.

For the six months ended June 30, 2020 and 2019, the Company received $561.1 million and paid $10.5 million, respectively, of net cash settlements on derivatives not designated as hedges, which are included in average realized price but may not be included in operating revenues.

Sales volumes decreased due primarily to the Strategic Production Curtailments.

Gain on derivatives not designated as hedges.

For the six months ended June 30, 2020 and 2019, the Company recognized a gain of $415.9 million and $275.6 million, respectively, on derivatives not designated as hedges.

The gain for 2020 was related primarily to increases in the fair market value of the Company's NYMEX swaps and options due to decreases in NYMEX forward prices.

The gain for 2019 was related primarily to increases in the fair market value of the Company's NYMEX swaps and options due to decreases in NYMEX forward prices, partly offset by decreases in the fair market value of the Company's basis swaps due to increases in basis prices.

EQT Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of Operations

Production-Related Operating Expenses

The following table presents information on the Company's production-related operating expenses.

Three Months Ended March 31,

(Thousands, unless otherwise noted)

Per Unit ($/Mcfe):

$ 0.68 $ 0.69 (1.4)

0.38 0.37 2.7

Lease operating expenses (LOE), excluding production taxes 0.07 0.06 16.7

Production taxes

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 % 2020 2019 %

Selling, general and administrative 0.09 0.13 (30.8)

Production depletion 0.92 1.01 (8.9)

(Thousands, unless otherwise noted)

Operating expenses:

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Processing 34,026 32,735 3.9 64,977 65,074 (0.1)

LOE, excluding production taxes 28,023 23,072 21.5

Lease operating expenses (LOE), excluding production taxes 25,894 17,155 50.9 53,917 40,227 34.0

Production taxes 12,435 19,161 (35.1) 24,792 39,497 (37.2)

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Total depreciation and depletion $ 323,096 $ 372,413 (13.2) $ 680,622 $ 763,526 (10.9)

Per Unit ($/Mcfe):

$ 0.73 $ 0.69 5.8 $ 0.70 $ 0.69 1.4

0.35 0.40 (12.5) 0.36 0.39 (7.7)

0.10 0.09 11.1 0.09 0.09 —

LOE, excluding production taxes 0.07 0.05 40.0 0.07 0.05 40.0

Production taxes

0.04 0.05 (20.0) 0.03 0.05 (40.0)

Exploration — 0.01 (100.0) — — —

Selling, general and administrative 0.13 0.23 (43.5) 0.11 0.18 (38.9)

Production depletion 0.92 1.00 (8.0) 0.92 1.00 (8.0)

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

Transportation and processing.

Gathering expense decreased on an absolute and per Mcfe basis for the three months ended March 31, 2020 compared to the same period in 2019 due to a favorable overall gathering rate, partly offset by increased gathered volumes.

Transmission expense increased on an absolute and per Mcfe basis for the three months ended March 31, 2020 compared to the same period in 2019 due primarily to higher costs associated with unreleased capacity on the Tennessee Gas Pipeline.

Processing expense decreased on an absolute basis for the three months ended March 31, 2020 compared to the same period in 2019 due primarily to decreased processed volumes.

LOE increased on an absolute and per Mcfe basis for the three months ended March 31, 2020 compared to the same period in 2019 due primarily to higher repairs and maintenance costs as a result of the Company's increased focus on optimizing

Gathering expense decreased on an absolute basis for the three months ended June 30, 2020 compared to the same period in 2019 due to decreased volumes as a result of the Strategic Production Curtailments, partly offset by a higher gathering rate structure as a result of the Consolidated GGA (defined and discussed in Note 9 to the Condensed Consolidated Financial Statements).

The Company expects to realize fee relief and a lower gathering rate structure as a result of the Consolidated GGA beginning in 2021.

Gathering expense increased on a per Mcfe basis for the three months ended June 30, 2020 compared to the same period in 2019 due primarily to higher gathering rates for the reasons described above as well as the impact of the Strategic Production Curtailments on the mix of volumes gathered and contracted rate structure.

Transmission expense decreased on an absolute and per Mcfe basis for the three months ended June 30, 2020 compared to the same period in 2019 due primarily to released capacity on, and credits received from, the Texas Eastern Transmission Pipeline, partly offset by higher costs associated with additional capacity on the Tennessee Gas Pipeline.

The decrease in transmission expense per Mcfe was partly offset by the 7% decrease in sales volumes.

Processing expense increased on an absolute and per Mcfe basis for the three months ended June 30, 2020 compared to the same period in 2019 due primarily to higher NGL transportation fees.

LOE increased on an absolute and per Mcfe basis for the three months ended June 30, 2020 compared to the same period in 2019 due primarily to higher salt water disposal costs as well as higher repairs and maintenance costs as a result of the Company's increased focus on optimizing production from currently producing wells.

Production taxes decreased on an absolute and per Mcfe basis for the three months ended June 30, 2020 compared to the same period in 2019 due primarily to lower

EQT Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of Operations

production from currently producing wells.

Production taxes decreased on an absolute and per Mcfe basis for the three months ended March 31, 2020 compared to the same period in 2019 due primarily to lower severance taxes as a result of lower pricing.

severance taxes and Pennsylvania impact fees as a result of lower commodity prices.

LOE and production taxes per Mcfe were unfavorably impacted by the 7% decrease in sales volumes.

Selling, general and administrative.

Selling, general and administrative expense decreased on an absolute and per Mcfe basis for the three months ended March 31, 2020 compared to the same period in 2019 as a result of decreased litigation expenses and decreased long-term incentive compensation due to changes in the fair value of awards.

Long-term incentive compensation may fluctuate with changes in the Company's stock price and performance conditions.

Selling, general and administrative expense decreased on an absolute and per Mcfe basis for the three months ended June 30, 2020 compared to the same period in 2019 as a result of litigation expenses of $37.8 million recognized in 2019 as well as lower personnel costs due to reductions in workforce.

The decrease per Mcfe was partly offset by the 7% decrease in sales volumes.

Depreciation and depletion.

Production depletion decreased on an absolute and per Mcfe basis for the three months ended March 31, 2020 compared to the same period in 2019 due primarily to a lower depletion rate.

Production depletion decreased on an absolute and per Mcfe basis for the three months ended June 30, 2020 compared to the same period in 2019 due primarily to a lower depletion rate and lower volumes.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

Transportation and processing.

Gathering expense decreased on an absolute basis for the six months ended June 30, 2020 compared to the same period in 2019 due to decreased volumes as a result of the Strategic Production Curtailments, partly offset by a higher gathering rate structure as a result of the Consolidated GGA.

The Company expects to realize fee relief and a lower gathering rate structure as a result of the Consolidated GGA beginning in 2021.

Gathering expense increased on a per Mcfe basis for the six months ended June 30, 2020 compared to the same period in 2019 due primarily to higher gathering rates for the reasons described above as well as the impact of the Strategic Production Curtailments on the mix of volumes gathered and contracted rate structure.

Transmission expense decreased on an absolute and per Mcfe basis for the six months ended June 30, 2020 compared to the same period in 2019 due primarily to released capacity on, and credits received from, the Texas Eastern Transmission Pipeline, partly offset by higher costs associated with additional capacity on the Tennessee Gas Pipeline.

LOE increased on an absolute and per Mcfe basis for the six months ended June 30, 2020 compared to the same period in 2019 due primarily to higher salt water disposal costs as well as higher repairs and maintenance costs as a result of the Company's increased focus on optimizing production from currently producing wells.

Production taxes decreased on an absolute and per Mcfe basis for the six months ended June 30, 2020 compared to the same period in 2019 due primarily to lower severance taxes and Pennsylvania impact fees as a result of lower commodity prices.

Selling, general and administrative.

Selling, general and administrative expense decreased on an absolute and per Mcfe basis for the six months ended June 30, 2020 compared to the same period in 2019 as a result of litigation expenses of $45.8 million recognized in 2019 as well as lower personnel costs due to reductions in workforce.

Depreciation and depletion.

Production depletion decreased on an absolute and per Mcfe basis for the six months ended June 30, 2020 compared to the same period in 2019 due primarily to a lower depletion rate and lower volumes.

Other Operating Expenses

Amortization of intangible assets.

Amortization of intangible assets for the three months ended March 31, 2020 was $7.5 million compared to $10.3 million for the same period in 2019.

The decrease was due primarily to the impairment of intangible assets recognized in the third quarter of 2019, which decreased the amortization rate.

Loss on exchange of long-lived assets.

During the first quarter of 2020, the Company recognized a loss on exchange of long-lived assets of $48.9 million related to the 2020 Asset Exchange Transactions.

See Note 10 to the Condensed Consolidated Financial Statements.

Amortization of intangible assets for the three months ended June 30, 2020 was $7.5 million compared to $10.3 million for the same period in 2019.

Amortization of intangible assets for the six months ended June 30, 2020 was $15.0 million compared to $20.7 million for the same period in 2019.

The decreases were due primarily to the impairment of intangible assets recognized in the third quarter of 2019, which decreased the amortization rate.

Loss on sale/exchange of long-lived assets.

During the six months ended June 30, 2020, the Company recognized a loss on sale/exchange of long-lived assets of $98.1 million, of which $48.9 million related to the first quarter 2020 Asset Exchange Transactions, $42.5 million related to the second quarter 2020 Divestiture and $6.7 million related to the second quarter 2020 Asset Exchange Transactions.

The 2020 Asset Exchange Transactions and 2020 Divestiture are defined and discussed in Note 10 to the Condensed Consolidated Financial Statements.

Impairment and expiration of leases.

Impairment and expiration of leases for the three months ended March 31, 2020 was $53.8 million compared to $29.5 million for the same period in 2019.

The increase was driven by increased lease expirations due to the Company's change in strategic focus to core development opportunities as well as changes in market condition.

Proxy, transaction and reorganization.

Proxy, transaction and reorganization expense for the three months ended March 31, 2019 was related to proxy costs.

Impairment and expiration of leases for the three months ended June 30, 2020 was $41.3 million compared to $48.6 million for the same period in 2019.

The decrease was driven by decreased lease expirations.

Impairment and expiration of leases for the six months ended June 30, 2020 was $95.0 million compared to $78.1 million for the same period in 2019.

The increase was driven by increased lease expirations in the first quarter of 2020 due to the Company's change in strategic focus to core development opportunities as well as changes in market condition.

EQT Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of Operations

Transaction, proxy and reorganization.

Transaction, proxy and reorganization expense for the three and six months ended June 30, 2020 were related to transaction and reorganization costs.

Transaction, proxy and reorganization expense for the three and six months ended June 30, 2019 were related to proxy costs.

Other Income Statement Items

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See Note 9 to the Condensed Consolidated Financial Statements.

Loss (gain) on investment in Equitrans Midstream Corporation.

(Gain) loss on investment in Equitrans Midstream Corporation.

The Company's investment in Equitrans Midstream is recorded at fair value by multiplying the closing stock price of Equitrans Midstream's common stock by the number of shares of Equitrans Midstream's common stock owned by the Company.

Changes in fair value are recorded in loss (gain) on investment in Equitrans Midstream Corporation in the Statements of Condensed Consolidated Operations.

The Company's investment in Equitrans Midstream fluctuates with changes in Equitrans Midstream's stock price, which was $5.03 and $13.36 as of March 31, 2020 and December 31, 2019, respectively.

Changes in fair value are recorded in (gain) loss on investment in Equitrans Midstream Corporation in the Statements of Condensed Consolidated Operations.

The Company's investment in Equitrans Midstream fluctuates with changes in Equitrans Midstream's stock price, which was $8.31 and $13.36 as of June 30, 2020 and December 31, 2019, respectively.

Note, the effect of the Company's sale of 50% of its ownership of its retained shares of Equitrans Midstream's common stock was recorded as a reduction to the investment in Equitrans Midstream in conjunction with the Company's recognition of the gain on the Equitrans Share Exchange.

1 unchanged sentence

Dividend and other income.

Dividend and other income increased due primarily to higher dividends received from Equitrans Midstream.

Dividend and other income decreased for the three and six months ended June 30, 2020 compared to the same periods in 2019 due primarily to lower dividends received from the Company's investment in Equitrans Midstream.

Loss on debt extinguishment.

During the first quarter of 2020, the Company recognized a loss on debt extinguishment of $16.6 million related to the repayment of the Company's 4.875% senior notes, 2.50% senior notes and floating rate notes.

During the three and six months ended June 30, 2020, the Company recognized a loss on debt extinguishment of $0.4 million and $17.0 million, respectively, related to the repayment of the Company's 4.875% senior notes, 2.50% senior notes, floating rate notes and term loan facility.

See Note 6 to the Condensed Consolidated Financial Statements.

Interest expense.

Interest expense increased for the three months ended March 31, 2020 compared to the same period in 2019 due to increased interest incurred on new debt, including borrowings on the Company's term loan facility and the senior notes issued in January 2020, as well as interest incurred on letters of credit issued during the first quarter of 2020.

Interest expense increased for the three and six months ended June 30, 2020 compared to the same periods in 2019 due to increased interest incurred on new debt, including the senior notes issued in January 2020, borrowings on the Company's term loan facility and the convertible senior notes issued in April 2020 as well as interest incurred on letters of credit issued in 2020.

These increases were partly offset by lower interest incurred due to the repayment of the Company's 8.125% senior notes, 4.875% senior notes, floating rate notes and 2.50% senior notes and decreased borrowings on the Company's credit facility.

See Note 6 to the Condensed Consolidated Financial Statements.

EQT Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of Operations

Income tax expense.

Income tax (benefit) expense.

See Note 5 to the Condensed Consolidated Financial Statements.

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See "Critical Accounting Policies and Estimates" herein and Note 1 to the Consolidated Financial Statements in the Company's Annual Report on Form 10 -K for the year ended December 31, 2019 for a discussion of the Company's accounting policies and significant assumptions related to impairment of the Company's oil and gas properties.

EQT Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of Operations

See Item 1A., "Risk Factors – Natural gas, NGLs and oil price declines and changes in our development strategy have resulted in impairment of certain of our assets.

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COVID-19 and Oil Price War

The energy industry is currently experiencing two significant external stimuli that are impacting both day-to-day operations and the macro environment.

The novel coronavirus, or COVID-19, outbreak and ensuing "stay at home" mandates throughout the United States and other parts of the world have resulted in decreased demand for natural gas, NGLs and oil.

The energy industry has recently experienced two significant external stimuli that have impacted, and are anticipated to continue impacting, both day-to-day operations and the macro environment.

The novel coronavirus, or COVID-19, outbreak and voluntary and mandatory quarantines, travel restrictions and other restrictions throughout the United States and other parts of the world have resulted in decreased demand for natural gas, NGLs and oil.

Additionally, in March 2020, the group of oil producing nations known as OPEC+ failed to reach an agreement over proposed oil production cuts stemming from the decrease in global demand for oil in light of the COVID-19 pandemic (the oil price war).

Although the members of OPEC+ eventually reached an agreement in April 2020 to reduce their oil production beginning in May 2020 and continuing through April 2022, the OPEC+ members' production of oil in the interim period prior to the commencement of the production cuts has led to significant increases in the supply, and decreases in the price, of oil.

Although the members of OPEC+ eventually reached an agreement to reduce their oil production beginning in May 2020 and continuing through April 2022, there remains significant uncertainty regarding the future actions of OPEC+, its members and other state-controlled oil companies related to oil price and production controls, including anticipated increases in supply from Russia and other members of OPEC+, particularly Saudi Arabia.

Impact of COVID-19 on the Company's Operations.

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As a "life-sustaining" business under the guidelines issued by each of the states in which the Company operates, the Company has been allowed to continue operations, provided that non-essential personnel have been required to work from home.

One of the primary actions taken by the Company's new management team over the past nine months has been the establishment of a digital work environment, which has allowed the Company to maintain the engagement and connectivity of its personnel as well as minimize the number of employees required in the office and field.

One of the primary actions taken by the Company's new management team over the past twelve months has been the establishment of a digital work environment, which has allowed the Company to maintain the engagement and connectivity of its personnel as well as minimize the number of employees required in the office and field.

Impact of Oil Price War on the Company's Operations.

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however, the volatility in the prices for these commodities has substantially increased as a result of recent world developments in 2020.

Oil prices in particular have recently plummeted.

However, strip pricing for natural gas has increased

EQT Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of Operations

meaningfully as a result of the oil price war, with the principal contributing factor believed to be the market expectation that supply decreases in associated natural gas (defined as natural gas produced as a byproduct of principally oil production activities) as a result of reduced or curtailed operations in oil basins will more than offset reduced demand for natural gas as a result of the COVID-19 pandemic.

Oil prices in particular drastically fell in March 2020, and, although prices have since risen from historic lows in April 2020, oil prices continue to be depressed.

However, forward strip pricing for natural gas has increased meaningfully compared to strip prices prior to the COVID-19 pandemic and oil price war, with the principal contributing factor believed to be the market expectation that supply decreases in associated natural gas (defined as natural gas produced as a byproduct of principally oil production activities) as a result of reduced or curtailed operations in oil basins will more than offset reduced demand for natural gas as a result of the COVID-19 pandemic.

The impact of these recent developments on natural gas prices and the Company's business are unpredictable, and there is no assurance that natural gas prices will remain at recently elevated prices or that any positive impact from the oil price war will outweigh the negative impact from reduced demand for natural gas as a result of the COVID-19 pandemic or other factors.

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Deleveraging Plan

In October 2019, the Company announced a plan to reduce its debt by approximately 30%, or approximately $1.5 billion (the Deleveraging Plan), by mid-2020 through asset monetizations and increased free cash flow.

In October 2019, the Company announced a plan to reduce its debt through asset monetizations and increased free cash flow (the Deleveraging Plan).

The Deleveraging Plan contemplates generating targeted proceeds from monetizations of select, non-core exploration and production assets, core mineral assets and/or the Company's retained equity interest in Equitrans Midstream.

The Company continues to actively pursue monetization opportunities for certain of its non-core assets, and it is in advanced stages of negotiations for the sale of certain of its non-core assets principally located in central Pennsylvania for an anticipated sale price of approximately $125 million.

Given current market conditions and the Company's expectation that natural gas prices may improve further starting in the second half of 2020, the Company intends to more selectively explore non-core asset sales and opportunistically assess monetizing its remaining equity interest in Equitrans Midstream in a strategic manner in lieu of attempting to fully achieve the Deleveraging Plan by mid-2020.

The Company believes that the combination of the anticipated proceeds from these asset sales, anticipated income tax refunds of $391.7 million (in part accelerated by the Coronavirus Aid, Relief and Economic Security Act (the CARES Act)) and improved realized free cash flow amounts as a result of accelerated well cost reductions will be sufficient to allow the Company to repay or refinance its debt maturing in 2021 by the end of 2020.

Given current market conditions, the Company intends to more selectively pursue non-core asset sales and opportunistically monetize its remaining equity interest in Equitrans Midstream in a strategic manner.

The Company believes that the combination of the anticipated proceeds from monetization transactions, anticipated remaining income tax refunds of $201.9 million (in part

EQT Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of Operations

accelerated by the Coronavirus Aid, Relief and Economic Security Act (the CARES Act)) and improved realized free cash flow amounts as a result of accelerated well cost reductions will be sufficient to allow the Company to repay or refinance its remaining debt maturing in 2021 by the end of 2020 and begin repaying or refinancing its debt maturing after 2021.

Until the Company's leverage target is achieved, the Company expects to use all free cash flow and divestiture proceeds to reduce its debt.

As discussed in Note 6 to the Condensed Consolidated Financial Statements, the Company issued the Convertible Notes during the second quarter of 2020.

Upon conversion of the Convertible Notes, the Company intends to use a combined settlement approach to satisfy its obligation by paying or delivering to holders of the Convertible Notes cash equal to the principal amount of the obligation and EQT common stock for amounts that exceed the principal amount of the obligation.

By settling its Convertible Notes obligation either partially or wholly in EQT common stock, the Company could favorably affect its leverage levels.

The successful execution of the Deleveraging Plan is based on the Company's current expectations, including with respect to matters beyond its control, and is subject to change.

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Operating Activities

Net cash provided by operating activities was $500 million for the three months ended March 31, 2020 compared to $871 million for the same period in 2019.

EQT Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of Operations

The Company's cash flows from operating activities will be affected by movements in the market price for commodities.

Net cash provided by operating activities was $947 million for the six months ended June 30, 2020 compared to $1,315 million for the same period in 2019.

The decrease was due primarily to lower cash operating revenues and unfavorable timing of working capital payments, partly offset by increased cash settlements received on derivatives not designated as hedges and income tax refunds received of $189.6 million during the six months ended June 30, 2020.

The Company's cash flows from operating activities are affected by movements in the market price for commodities.

The Company is unable to predict such movements outside of the current market view as reflected in forward strip pricing.

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Investing Activities

Net cash used in investing activities was $204 million for the three months ended March 31, 2020 compared to $370 million for the same period in 2019.

The decrease was due to lower capital expenditures as a result of the Company's change in strategic focus from production growth to capital efficiency as well as cash received for the Equitrans Share Exchange.

Net cash used in investing activities was $349 million for the six months ended June 30, 2020 compared to $765 million for the same period in 2019.

The decrease was due to lower capital expenditures as a result of the Company's change in strategic focus from production growth to capital efficiency as well as cash received from asset sales and the Equitrans Share Exchange.

EQT Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following table summarizes the Company's capital expenditures.

Three Months Ended March 31,

Three Months Ended

June 30, Six Months Ended

2020 2019 2020 2019

Reserve development $ 235 $ 374 $ 458 $ 775

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Total capital expenditures 303 466 565 942

Add (deduct) non-cash items (a) (6) (105)

Non-cash items (a) (47) (71) (53) (176)

Total cash capital expenditures $ 256 $ 395 $ 512 $ 766

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Financing Activities

Net cash used in financing activities was $283 million for the three months ended March 31, 2020 compared to $464 million for the same period in 2019.

For the three months ended March 31, 2020, the primary uses of financing cash flows were net repayments of debt and credit facility borrowings, and the primary source of financing cash flows was net proceeds from the issuance of debt.

For the three months ended March 31, 2019, the primary use of financing cash flows was net repayments of credit facility borrowings.

Net cash used in financing activities was $600 million for the six months ended June 30, 2020 compared to $524 million for the same period in 2019.

For the six months ended June 30, 2020, the primary uses of financing cash flows were net repayments of debt and credit facility borrowings, and the primary source of financing cash flows was net proceeds from the issuance of debt.

For the six months ended June 30, 2019, the primary uses of financing cash flows were net repayments of credit facility borrowings and debt, and the primary source of financing cash flows was net proceeds from borrowings under the Company's term loan facility.

See Note 6 to the Condensed Consolidated Financial Statements for further discussion of the Company's debt.

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Income Tax Receivables

As of March 31, 2020, the Company had a tax receivable of $391.7 million in the Condensed Consolidated Balance Sheet.

The tax receivable includes $379.3 million of expected federal refunds of Alternative Minimum Tax credits, $94.8 million of which was accelerated as a result of the CARES Act.

As of June 30, 2020, the Company had a tax receivable of $201.9 million in the Condensed Consolidated Balance Sheet.

The tax receivable includes $189.7 million of expected federal refunds of Alternative Minimum Tax credits, $94.8 million of which was accelerated as a result of the CARES Act, and $12.2 million of expected refunds of 2018 state tax return overpayments.

See Note 5 to the Condensed Consolidated Financial Statements for further discussion of the CARES Act.

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Security Ratings and Financing Triggers

The table below reflects the credit ratings and rating outlooks assigned to the Company's debt instruments as of May 1, 2020.

The table below reflects the credit ratings and rating outlooks assigned to the Company's debt instruments as of July 22, 2020.

The Company's 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 independent from any other rating.

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Standard & Poor's Ratings Service (S&P) BB– Negative

Fitch Ratings Service (Fitch) BB Negative

As of March 31, 2020, the Company's senior notes were rated "Ba1" by Moody's, "BB+" by S&P and "BB" by Fitch, each with a "Negative" outlook.

In April 2020, Moody's and S&P downgraded the Company's senior notes credit rating to "Ba3" and "BB–," respectively.

Changes in credit ratings may affect the Company's access to the capital markets, the cost of short-term debt through interest rates and fees under the Company's lines of credit, the interest rate on the Company's term loan facility and the Adjustable Rate Notes (defined in Note 6 to the Condensed Consolidated Financial Statements), the rates available on new long-term debt, the Company's pool of investors and funding sources, the borrowing costs and margin deposit requirements on the Company's derivative instruments and credit assurance requirements, including collateral, in support of the Company's midstream service contracts, joint venture arrangements or construction contracts.

Fitch Ratings Service (Fitch) BB Positive

Changes in credit ratings may affect the Company's access to the capital markets, the cost of short-term debt through interest rates and fees under the Company's lines of credit, the interest rate on the Adjustable Rate Notes (defined in Note 6 to the Condensed Consolidated Financial Statements), the rates available on new long-term debt, the Company's pool of investors and funding sources, the borrowing costs and margin deposit requirements on the Company's derivative instruments and credit assurance requirements, including collateral, in support of the Company's midstream service contracts, joint venture arrangements or construction contracts.

Margin deposits on the Company's 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 hedging counterparties and the Company.

As of May 1, 2020, the Company had sufficient unused borrowing capacity, net of letters of credit, under its credit facility to satisfy any requests for margin deposit or other collateral that its counterparties are permitted to request of the Company pursuant to the Company's derivative instruments, midstream services contracts and other contracts.

As of May 1, 2020, such assurances could be up to approximately $1.1 billion, inclusive of letters of credit, margin deposits and other collateral posted of approximately $0.9 billion in the aggregate.

The Company's debt agreements and other financial obligations contain various provisions that, if not complied with, could result in default or event of default under the Company's credit facility and term loan facility, mandatory partial or full repayment of amounts outstanding, reduced loan capacity or other similar actions.

As of July 22, 2020, the Company had sufficient unused borrowing capacity, net of letters of credit, under its credit facility to satisfy any requests for margin deposit or other collateral that its counterparties are permitted to request of the Company pursuant to the Company's derivative instruments, midstream services contracts and other contracts.

As of July 22, 2020, such assurances could be up to approximately $1.1 billion, inclusive of letters of credit, margin deposits and other collateral posted of approximately $0.9 billion in the aggregate.

The Company's debt agreements and other financial obligations contain various provisions that, if not complied with, could result in default or event of default under the Company's credit 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 the 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.

The Company's credit facility and term loan facility each contain financial covenants that require the Company to have a total debt-to-total capitalization ratio no greater than 65%.

The Company's credit facility contains financial covenants that require the Company to have a total debt-to-total capitalization ratio no greater than 65%.

The calculation of this ratio excludes the effects of accumulated other comprehensive income.

As of March 31, 2020, the Company was in compliance with all debt provisions and covenants.

See Note 6 to the Condensed Consolidated Financial Statements for a discussion of the borrowings on the Company's credit facility and term loan facility.

As of June 30, 2020, the Company was in compliance with all debt provisions and covenants.

See Note 6 to the Condensed Consolidated Financial Statements for a discussion of the borrowings on the Company's credit facility.

EQT Corporation and Subsidiaries

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The derivative commodity instruments used by the Company are primarily swap, collar and option agreements.

The following table summarizes the approximate volumes and prices of the Company's NYMEX hedge positions through 2024 as of May 1, 2020.

The following table summarizes the approximate volumes and prices of the Company's NYMEX hedge positions through 2024 as of July 22, 2020.

2020 (a) 2021 2022 2023 2024

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Average Price ($/Dth) $ 2.66 $ 2.50 $ 2.52 $ 2.38 $ —

(a) April 1 through December 31.

(a) July 1 through December 31.

(b) The difference between the fixed price and NYMEX price is included in average differential presented in the Company's price reconciliation in "Average Realized Price Reconciliation." The fixed price natural gas sales agreements can be physically or financially settled.

For 2020 (April 1 through December 31), 2021, 2022, 2023 and 2024, the Company has natural gas sales agreements for approximately 10 MMDth, 18 MMDth, 18 MMDth, 88 MMDth and 11 MMDth, respectively, that include average NYMEX ceiling prices of $3.68, $3.17, $3.17, $2.84 and $3.21, respectively.

For 2020 (July 1 through December 31), 2021, 2022, 2023 and 2024, the Company has natural gas sales agreements for approximately 6 MMDth, 18 MMDth, 18 MMDth, 88 MMDth and 11 MMDth, respectively, that include average NYMEX ceiling prices of $3.60, $3.17, $3.17, $2.84 and $3.21, respectively.

The Company has also entered into derivative instruments to hedge basis.

The Company may use other contractual agreements to implement its commodity hedging strategy.

During the three months ended June 30, 2020, the Company purchased $54 million of options with the primary purpose of reducing future NYMEX based payments that could be due in 2021, 2022 and 2023 to Equitrans Midstream related to the Henry Hub Cash Bonus (defined and discussed in Note 9 to the Condensed Consolidated Financial Statements) provided for by the Consolidated GGA.

See Item 3., "Quantitative and Qualitative Disclosures About Market Risk" and Note 3 to the Condensed Consolidated Financial Statements for further discussion of the Company's hedging program.

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Schedule of Contractual Obligations

The following table presents the Company's long-term contractual obligations as of March 31, 2020.

The following table presents the Company's long-term contractual obligations as of June 30, 2020.

Total 2020 (a) 2021 – 2022 2023 – 2024 Thereafter

Purchase obligations (b) $ 25,750,101 $ 1,037,039 $ 3,469,023 $ 3,867,661 $ 17,376,378

Long-term debt, including current portion (c) 4,269,035 14,979 1,034,736 22,083 3,197,237

Interest payments on debt (d) 1,569,624 174,517 468,285 414,159 512,663

Term loan facility borrowings (e) 800,000 — 800,000 — —

Lease obligations (f) 55,257 22,909 17,888 14,432 28

Other liabilities (g) 22,919 1,324 12,159 3,918 5,518

Long-term debt, including current portion 4,763,185 13,737 1,030,129 22,083 3,697,236

Interest payments on debt (c) 1,566,363 124,760 485,589 431,659 524,355

Credit facility borrowings (d) 38,000 — 38,000 — —

Lease obligations (e) 49,101 15,248 18,570 15,255 28

Other liabilities (f) 32,668 965 17,403 8,781 5,519

Total contractual obligations $ 32,199,418 $ 1,191,749 $ 5,058,714 $ 4,345,439 $ 21,603,516

(a) April 1 through December 31.

(a) July 1 through December 31.

(b) Purchase obligations are primarily commitments for demand charges under existing long-term contracts and binding precedent agreements with various pipelines, some of which extend up to 20 years or longer.

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Purchase obligations also include commitments for processing capacity in order to extract heavier liquid hydrocarbons from the natural gas stream.

(c) See Note 6 to the Condensed Consolidated Financial Statements for a discussion of the Company's April 2020 issuance of convertible senior notes.

(d) Interest payments exclude interest related to the Company's term loan facility borrowings as the interest rate is variable.

(e) The Company's term loan facility borrowings were classified based on the term loan facility's termination date.

(f) See Note 15 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 for a discussion of the Company's lease obligations.

(g) Other liabilities are primarily commitments for estimated payouts for various liability stock award plans.

(c) Interest payments exclude interest related to the Company's credit facility borrowings as the interest rate is variable.

(d) The Company's credit facility borrowings were classified based on the credit facility's termination date.

(e) See Note 15 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 for a discussion of the Company's lease obligations.

(f) Other liabilities are primarily commitments for estimated payouts for various liability stock award plans.

See "Critical Accounting Policies and Estimates" herein, Note 11 to the Condensed Consolidated Financial Statements and Note 13 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 for a discussion of factors that affect the ultimate amount of the payout of these obligations.

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The Company has established reserves it believes to be appropriate for pending matters and, after consultation with counsel and giving appropriate consideration to available insurance, the Company believes that the ultimate outcome of any matter currently pending against the Company will not materially affect the Company's financial condition, results of operations or liquidity.

See Note 16 to the Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 for a discussion of the Company's commitments and contingencies.

See Note 16 to the Consolidated Financial Statements and Part I, Item 3., "Legal Proceedings" in the Company's Annual Report on Form 10-K for the year ended December 31, 2019 for a discussion of the Company's commitments and contingencies.

See also Part II, Item 1., "Legal Proceedings."

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The Company's significant accounting policies are described in Item 7., "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been

EQT Corporation and Subsidiaries

Management's Discussion and Analysis of Financial Condition and Results of Operations

new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been included in the notes to the Condensed Consolidated Financial Statements.

included in the notes to the Condensed Consolidated Financial Statements.

The application of the Company's critical accounting policies may require management to make judgments and estimates about the amounts reflected in the Condensed Consolidated Financial Statements.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis