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Item 7. Management’s Discussion and Analysis

2021-02-17 compared with 2020-02-27 · 286 added, 274 removed, 121 unchanged (82% of the section changed)

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 Consolidated Financial Statements and the notes thereto included in Item 8., "Financial Statements and Supplementary Data." For all periods prior to the Separation and Distribution, the results of operations of Equitrans Midstream are reflected as discontinued operations.

The Statements of Consolidated Operations for the years ended December 31, 2018 and 2017 have been recast to reflect discontinued operations and include certain transportation and processing expenses in continuing operations that had previously been eliminated in consolidation.

Cash flows related to Equitrans Midstream are included in the Statements of Consolidated Cash Flows for all periods prior to the Separation and Distribution.

See Note 2 to the Consolidated Financial Statements for amounts attributable to discontinued operations included in the Statements of Consolidated Cash Flows and Statements of Consolidated Operations.

Consolidated Results of Operations

Loss from continuing operations for 2019 was $1,222 million , $4.79 per diluted share, an improvement of $1,159 million compared to loss from continuing operations for 2018 of $2,381 million , $9.12 per diluted share.

The variance was attributable primarily to lower impairments of long-lived assets and goodwill and higher dividends received on the Company's investment in Equitrans Midstream, partly offset by lower income tax benefit and higher impairment and expiration of leases, unrealized loss on the Company's investment in Equitrans Midstream and operating revenues.

See Item 7., "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018, which is incorporated herein by reference, for discussion and analysis of consolidated results of operations for the year ended December 31, 2017 .

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.

Net loss for 2020 was $967 million, $3.71 per diluted share, an improvement of $255 million compared to net loss for 2019 of $1,222 million, $4.79 per diluted share.

The variance was attributable primarily to decreased impairments, the gain on the Equitrans Share Exchange (defined and discussed in Note 5 to the Consolidated Financial Statements), decreased other operating expenses, decreased depreciation and depletion expense and decreased transportation and processing expense, partly offset by decreased operating revenues, increased interest expense and decreased dividend and other income.

See Item 7., "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year ended December 31, 2019, which is incorporated herein by reference, for discussion and analysis of consolidated results of operations for the year ended December 31, 2018.

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

See "Investing Activities" under "Capital Resources and Liquidity" for a discussion of capital expenditures.

Average Realized Price Reconciliation

The following table presents detailed natural gas and liquids operational information to assist in the understanding of the Company's consolidated operations, including the calculation of the Company's average realized price ($/Mcfe), which is based on adjusted operating revenues, a non-GAAP supplemental financial measure.

Adjusted operating revenues is presented because it is an important measure used by the Company's management to evaluate period-to-period comparisons of earnings trends.

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 adjusted operating revenues, a non-GAAP supplemental financial measure.

Adjusted operating revenues is presented because it is an important measure we use to evaluate period-to-period comparisons of earnings trends.

Adjusted operating revenues should not be considered as an alternative to total operating revenues.

See "Reconciliation of Non-GAAP Financial Measures" for a reconciliation of adjusted operating revenues with total operating revenues, the most directly comparable financial measure calculated in accordance with GAAP.

See "Non-GAAP Financial Measures Reconciliation" for a reconciliation of adjusted operating revenues with total operating revenues, the most directly comparable financial measure calculated in accordance with GAAP.

Years Ended December 31,

2 unchanged sentences

NYMEX price ($/MMBtu) (a) $ 2.09 $ 2.63

Btu uplift 0.11 0.13

Natural gas price ($/Mcf) $ 2.20 $ 2.76

6 unchanged sentences

Natural gas sales, including cash settled derivatives $ 3,359,583 $ 3,805,977

NGLs, excluding ethane:

Natural gas liquids (NGLs), excluding ethane:

Sales volume (MMcfe) (c) 44,702 44,082

3 unchanged sentences

Average NGLs price, including cash settled derivatives ($/Bbl) $ 20.39 $ 25.82

NGLs sales $ 151,877 $ 189,718

Sales volume (MMcfe) (c) 29,489 23,748

3 unchanged sentences

Average Ethane price, including cash settled derivatives ($/Bbl) $ 3.48 $ 7.18

Ethane sales $ 17,085 $ 28,414

Sales volume (MMcfe) (c) 4,827 4,932

1 unchanged sentence

Price ($/Bbl) $ 25.57 $ 40.90

Oil sales $ 20,574 $ 33,620

Total liquids sales volume (MMcfe) (c) 79,018 72,762

4 unchanged sentences

Average realized price ($/Mcfe) $ 2.37 $ 2.69

The Company's volume weighted NYMEX natural gas price (actual average NYMEX natural gas price ($/MMBtu)) was $2.63 and $3.09 for the years ended December 31, 2019 and 2018 , respectively.

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

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

Total natural gas and liquids sales, including cash settled derivatives, is also referred to in this report as adjusted operating revenues, a non-GAAP supplemental financial measure.

(a) Our volume weighted NYMEX natural gas price (actual average NYMEX natural gas price ($/MMBtu)) was $2.08 and $2.63 for the years ended December 31, 2020 and 2019, respectively.

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

(d) Total natural gas and liquids sales, including cash settled derivatives, is also referred to in this report as adjusted operating revenues, a non-GAAP supplemental financial measure.

Non-GAAP Financial Measures Reconciliation

The table below reconciles adjusted operating revenues, a non-GAAP supplemental financial measure, with total operating revenues, its most directly comparable financial measure calculated in accordance with GAAP.

Adjusted operating revenues (also referred to as total natural gas and liquids sales, including cash settled derivatives) is presented because it is an important measure used by the Company's management to evaluate period-to-period comparisons of earnings trends.

Adjusted operating revenues as presented excludes the revenue impact of changes in the fair value of derivative instruments prior to settlement and the revenue impact of net marketing services and other.

Management uses adjusted operating revenues to evaluate earnings trends because the measure reflects only the impact of settled derivative contracts and, thus, excludes the impact of the often-volatile fluctuations in the fair value of derivatives prior to settlement.

Adjusted operating revenues also excludes net marketing services and other because management considers these revenues to be unrelated to revenues from its natural gas and liquids production.

Net marketing services and other primarily includes the cost of, and recoveries on, pipeline capacity releases and revenues for gathering services.

Management further believes that adjusted operating revenues as presented provides useful information to investors for evaluating period-to-period earnings trends.

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.

Adjusted operating revenues excludes the revenue impacts of changes in the fair value of derivative instruments prior to settlement and net marketing services and other.

We use adjusted operating revenues to evaluate earnings trends because, as a result of the measure's exclusion of the often-volatile changes in the fair value of derivative instruments prior to settlement, the measure reflects only the impact of settled derivative contracts.

Net marketing services and other primarily includes the costs of, and recoveries on, pipeline capacity releases.

Because we consider net marketing services and other to be unrelated to our natural gas and liquids production activities, adjusted operating revenues excludes net marketing services and other.

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

Years Ended December 31,

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Add (deduct):

(Gain) loss on derivatives not designated as hedges

Net cash settlements received (paid) on derivatives not designated as hedges

Gain on derivatives not designated as hedges (400,214) (616,634)

Net cash settlements received on derivatives not designated as hedges 897,190 246,639

Premiums received for derivatives that settled during the period 1,630 19,676

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(Thousands, unless otherwise noted)

Sales volume detail (MMcfe):

Sales volume by shale (MMcfe):

Marcellus (a) 1,314,801 1,270,352 3.5

Ohio Utica 177,864 231,545 (23.2)

Other 5,127 5,999 (14.5)

Total sales volumes (b) 1,497,792 1,507,896 (0.7)

2 unchanged sentences

Sales of natural gas, NGLs and oil $ 2,650,299 $ 3,791,414 (30.1)

Gain (loss) on derivatives not designated as hedges

Gain on derivatives not designated as hedges 400,214 616,634 (35.1)

Net marketing services and other 8,330 8,436 (1.3)

Total operating revenues $ 3,058,843 $ 4,416,484 (30.7)

Includes Upper Devonian wells.

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

Sales of natural gas, NGLs and oil decreased for 2019 compared to 2018 due to a lower average realized price, partly offset by a 1.4% increase in sales volumes.

Excluding 2018 sales volumes related to the 2018 Divestitures (discussed in Note 7 to the

Consolidated Financial Statements), sales volumes increased by 4.2% in 2019 .

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

For 2019 and 2018 , the Company received $266.3 million and paid $224.8 million , respectively, of net cash settlements, including net premiums received, on derivatives not designated as hedges, which are included in average realized price but may not be included in operating revenues.

For 2019 the Company recognized a gain on derivatives not designated as hedges of $616.6 million compared to a loss of $178.6 million for 2018 .

The gain for 2019 was related 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 2018 was related primarily to settlements of NYMEX swaps and options and basis swaps, partly offset by decreases in NYMEX forward prices.

Net marketing services and other decreased for 2019 compared to 2018 as a result of fewer capacity releases at lower capacity release rates on the Tennessee Gas Pipeline and lower revenues from gathering services following the 2018 Divestitures.

Production-Related Operating Expenses

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

(a) Includes Upper Devonian wells.

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

Sales of natural gas, NGLs and oil.

Sales of natural gas, NGLs and oil decreased for 2020 compared to 2019 due to a lower average realized price and lower sales volumes.

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

For 2020 and 2019, we received $898.8 million and $266.3 million, respectively, of net cash settlements, including net premiums received, on derivatives not designated as hedges, which are included in average realized price but may not be included in operating revenues.

Sales volumes for 2020 decreased compared

to 2019 due primarily to our strategic decisions to temporarily curtail production beginning in May 2020 and ending in November 2020 (the Strategic Production Curtailments) which resulted in a decrease to sales volumes of approximately 46 Bcfe.

Sales volumes for 2020 also decreased compared to 2019 by 16 Bcfe as a result of the 2020 Divestitures (defined in Note 7 to the Consolidated Financial Statements).

These decreases were partly offset by operational efficiencies realized throughout the year from increased production up-time and positively impacted sales volumes as well as an increase of approximately 12 Bcfe due to the Chevron Acquisition.

Gain on derivatives not designated as hedges.

For 2020, we recognized a gain on derivatives not designated as hedges of $400.2 million compared to $616.6 million for 2019.

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

Operating Expenses

The following table presents information on our production-related operating expenses.

Years Ended December 31,

(Thousands, unless otherwise noted)

Per Unit ($/Mcfe):

Operating expenses:

Gathering $ 1,068,590 $ 1,038,646 2.9

Transmission 506,668 588,302 (13.9)

Processing 135,476 125,804 7.7

Lease operating expenses (LOE), excluding production taxes 109,027 84,501 29.0

Production taxes 46,376 69,284 (33.1)

Exploration 5,484 7,223 (24.1)

Selling, general and administrative 174,769 170,611 2.4

Production depletion $ 1,375,542 $ 1,524,112 (9.7)

Operating expenses:

Other depreciation and depletion 17,923 14,633 22.5

Total depreciation and depletion $ 1,393,465 $ 1,538,745 (9.4)

Per Unit ($/Mcfe):

Gathering $ 0.71 $ 0.69 2.9

Transmission 0.34 0.39 (12.8)

Processing 0.09 0.08 12.5

LOE, excluding production taxes 0.07 0.06 16.7

Production taxes 0.03 0.05 (40.0)

Exploration — — —

Selling, general and administrative 0.12 0.11 9.1

Production depletion 0.92 1.01 (8.9)

Other depreciation and depletion

Total depreciation and depletion

Transportation and processing.

Gathering expense increased on an absolute and per Mcfe basis for 2019 compared to 2018 due primarily to the sales volume mix between firm and volumetric gathering contracts.

Transmission expense increased on an absolute and per Mcfe basis for 2019 compared to 2018 due primarily to higher costs associated with unreleased capacity on the Tennessee Gas Pipeline, increased transmission capacity and rates contracted to move the Company's natural gas out of the Appalachian Basin and higher volumetric charges, partly offset by lower firm capacity charges following the 2018 Divestitures.

Processing expense decreased on an absolute and per Mcfe basis for 2019 compared to 2018 due primarily to lower liquids sales volumes, which were driven by the 2018 Divestitures, and decreased West Virginia production.

LOE decreased on an absolute and per Mcfe basis for 2019 compared to 2018 primarily as a result of the 2018 Divestitures, partly offset by higher salt water disposal costs.

Excluding costs related to the 2018 Divestitures, LOE per Mcfe was $0.05 in 2018.

Production taxes decreased on an absolute and per Mcfe basis for 2019 compared to 2018 due primarily to (i) lower

Pennsylvania impact fees as a result of less wells spud and lower pricing, (ii) lower severance taxes as a result of decreased West Virginia production and lower pricing and (iii) lower property taxes as a result of the 2018 Divestitures.

Selling, general and administrative.

Selling, general and administrative expense decreased on an absolute and per Mcfe basis for 2019 compared to 2018 primarily as a result of lower personnel costs due to reductions in workforce, the $15 million charitable contribution made to the EQT Foundation in 2018 and decreased long-term incentive compensation due to changes in the fair value of awards, partly offset by increased litigation expenses.

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

Gathering expense increased on an absolute and per Mcfe basis for 2020 compared to 2019 due to a higher gathering rate structure as a result of the Consolidated GGA (defined in Note 5 to the Consolidated Financial Statements ) , partly offset by lower gathered volumes as a result of the Strategic Production Curtailments.

We expect to realize fee relief and a lower gathering rate structure from the Consolidated GGA beginning on the Mountain Valley Pipeline in-service date.

Transmission.

Transmission expense decreased on an absolute and per Mcfe basis for 2020 compared to 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 2020 compared to 2019 due primarily to higher repairs and maintenance costs as a result of our increased focus on optimizing production from currently producing wells as well as higher salt water disposal costs.

Production taxes.

Production taxes decreased on an absolute and per Mcfe basis for 2020 compared to 2019 due primarily to lower severance taxes and Pennsylvania impact fees as a result of lower commodity prices.

Depreciation and depletion.

Production depletion decreased on an absolute and per Mcfe basis for 2019 compared to 2018 due primarily to a lower depletion rate, partly offset by higher sales volumes.

Other depreciation and depletion decreased as a result of the 2018 Divestitures.

Other Operating Expenses

Production depletion decreased on an absolute and per Mcfe basis for 2020 compared to 2019 due primarily to a lower annual depletion rate and lower volumes.

Amortization of intangible assets.

Amortization of intangible assets for 2020 was $26.0 million compared to $35.9 million for 2019.

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

The intangible assets were fully amortized in November 2020.

Impairment/loss on sale/exchange of long-lived assets .

During the fourth quarter of 2019 the Company recorded impairment of long-lived assets of $1,124.4 million , of which $1,035.7 million was associated with the Company's non-strategic assets located in Ohio Utica and $88.7 million was associated with the Company's Pennsylvania and West Virginia Utica assets.

The impairment was due primarily to depressed natural gas prices and changes in the Company's development strategy, including the Company's contemplation of a potential asset divestiture of certain of its non-strategic exploration and production assets .

During the third quarter of 2019, the Company recorded a loss on exchange of long-lived assets of $13.9 million related to the Asset Exchange Transaction (defined and discussed in Note 6 to the Consolidated Financial Statements).

For 2018 , the Company recorded impairment/ loss on sale of long-lived assets of $2.7 billion related to the 2018 Divestitures.

See Note 1 to the Consolidated Financial Statements for a discussion of 2019 and 2018 impairment tests and Note 7 to the Consolidated Financial Statements for a discussion of the 2018 Divestitures.

Amortization and impairment of intangible assets.

During the third quarter of 2019, the Company recognized impairment of intangible assets associated with non-compete agreements for former Rice Energy Inc.

executives who are now employees of the Company.

The impairment resulted in decreased amortization in the second half of 2019.

Impairment of goodwill.

During the fourth quarter of 2018, the Company recognized impairment of goodwill because the Company's single reporting unit's fair value was below its carrying value.

See Note 1 to the Consolidated Financial Statements for further discussion of the 2018 goodwill impairment test.

During 2020, we recognized a loss on sale/exchange of long-lived assets of $100.7 million, of which $61.6 million related to the 2020 Asset Exchange Transactions (defined and discussed in Note 6 to the Consolidated Financial Statements) and $39.1 million related to asset sales (described in Note 7 to the Consolidated Financial Statements).

During the fourth quarter of 2019, we recorded impairment of long-lived assets of $1,124.4 million, of which $1,035.7 million was associated with our non-strategic assets located in the Ohio Utica and $88.7 million was associated with our Pennsylvania and West Virginia Utica assets.

The impairment was due primarily to depressed natural gas prices and changes in our development strategy.

During the third quarter of 2019, we recorded a loss on exchange of long-lived assets of $13.9 million related to the 2019 Asset Exchange Transaction (defined and discussed in Note 6 to the Consolidated Financial Statements).

See Note 1 to the Consolidated Financial Statements for a discussion of the 2019 impairment test.

Impairment of intangible and other assets.

During the fourth quarter of 2020, we recognized impairment of $34.7 million, of which $22.8 million related to our assessment that the fair values of certain of our right-of-use lease assets were less than their carrying values and $11.9 million related to impairments of certain non-operating receivables as a result of expected credit losses.

During the third quarter of 2019, we recognized impairment of $15.4 million of intangible assets associated with non-compete agreements for former Rice Energy Inc.

executives who are now our employees.

Impairment and expiration of leases.

Impairment and expiration of leases increased from $556.4 million for 2019 compared to $279.7 million for 2018 due primarily to impairment of leases located in non-strategic development areas that are not expected to be developed due to changes in the Company's development strategy, which includes a renewed focus on a refined core operating footprint.

To a lesser extent, impairment increased due to lease expirations, a majority of which were related to leases acquired in 2017 and 2016.

Proxy, transaction and reorganization.

Proxy, transaction and reorganization expense increased for 2019 compared to 2018 due primarily to reductions in workforce and other strategic alignment initiatives, which resulted in severance and other termination benefits of $74.1 million and contract termination fees of $22.1 million , as well as proxy costs recognized in the first half of 2019 of $19.3 million .

Prior period transaction costs were related to the Rice Merger (discussed in Note 8 to the Consolidated Financial Statements).

Impairment and expiration of leases for 2020 was $306.7 million compared to $556.4 million for 2019.

The decrease was driven by increased lease expirations in 2019 due to our change in strategic focus to core development opportunities as well as changes in market conditions.

Other operating expenses.

Other operating expenses of $28.5 million in 2020 were related primarily to transactions, changes in legal reserves, including settlements and reorganization.

Other operating expenses of $199.4 million in 2019 were related primarily to reorganization, due to reductions in workforce, which resulted in the recognition of severance and other termination benefits, changes in legal reserves, including settlements, contract terminations and the proxy contest.

See Note 1 to the Consolidated Financial Statements.

Other Income Statement Items

The Company's investment in Equitrans Midstream is recorded at fair value, which is calculated 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 unrealized loss on investment in Equitrans Midstream Corporation in the Statements of Consolidated Operations.

The Company's investment in Equitrans Midstream fluctuates with changes in Equitrans Midstream's stock price, which was $13.36 and $20.02 as of December 31, 2019 and 2018 , respectively.

Dividend and other income increased due to dividends received on the Company's investment in Equitrans Midstream during the year ended December 31, 2019.

Interest expense decreased for 2019 compared to 2018 due to repayment of the $700 million aggregate principal amount of the Company's 8.125% senior notes that matured on June 1, 2019 and decreased borrowings under the Company's credit facility, partly offset by interest incurred on borrowings under the Term Loan Facility.

See Note 9 to the Consolidated Financial Statements for a discussion of income tax benefit.

See Item 1., "Business."

Gain on Equitrans Share Exchange.

During the first quarter of 2020, we recognized a gain on the Equitrans Share Exchange as described in Note 5 to the Consolidated Financial Statements.

Loss on investment in Equitrans Midstream Corporation.

Our 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 that we own.

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

Our investment in Equitrans Midstream fluctuates with changes in Equitrans Midstream's stock price, which was $8.04 and $13.36 as of December 31, 2020 and 2019, respectively.

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

See Note 5 to the Consolidated Financial Statements.

Dividend and other income.

The decrease in 2020 as compared to 2019 is due primarily to lower dividends received from our investment in Equitrans Midstream driven by the decrease in the number of shares of Equitrans Midstream's common stock that we own.

Loss on debt extinguishment.

During 2020, we recognized a loss on debt extinguishment related to the repayment of all or a portion of our 4.875% senior notes, 2.50% senior notes, 3.00% senior notes, floating rate notes and Term Loan Facility (defined and discussed in Note 10 to the Consolidated Financial Statements).

See Note 10 to the Consolidated Financial Statements.

Interest expense.

Interest expense increased for 2020 compared to 2019 due to increased interest incurred on new debt issued in 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 all or a portion of our 8.125% senior notes, 4.875% senior notes, floating rate notes and 2.50% senior notes and decreased borrowings on our credit facility.

See Note 10 to the Consolidated Financial Statements.

The adjusted interest rate under the Adjustable Rate Notes (defined and discussed in Note 10 to the Consolidated Financial Statements) cannot exceed 2% of the original interest rate first set forth on the face of the Adjustable Rate Notes;

however, if our credit ratings improve, the interest rate under the Adjustable Rate Notes could be reduced to as low as the original interest rate set forth on the face of the Adjustable Rate Notes.

Income tax benefit.

See Note 9 to the Consolidated Financial Statements.

Impairment of Oil and Gas Properties

See "Critical Accounting Policies and Estimates" and Note 1 to the Consolidated Financial Statements for a discussion of the Company's accounting policies and significant assumptions related to impairment of the Company's oil and gas properties.

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.

See "Critical Accounting Policies and Estimates" and Note 1 to the Consolidated Financial Statements for a discussion of our accounting policies and significant assumptions related to impairment of our oil and gas properties.

See also 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.

Future declines in commodity prices, increases in operating costs or adverse changes in well performance or additional changes in our development strategy may result in additional write-downs of the carrying amounts of our assets, including long-lived intangible assets, which could materially and adversely affect our results of operations in future periods."

Capital Resources and Liquidity

The Statements of Consolidated Cash Flows for the years ended December 31, 2018 and 2017 have not been restated for discontinued operations;

therefore, the following discussion of operating, investing and financing activities includes cash flows of both continuing and discontinued operations through the Separation and Distribution.

See Note 2 to the Consolidated Financial Statements for amounts attributable to discontinued operations included in the Statements of Consolidated Cash Flows.

Although the Company cannot provide any assurance, it believes cash flows from operating activities and availability under the revolving credit facility should be sufficient to meet the Company's 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.

See Item 7., "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018, which is incorporated herein by reference, for discussion and analysis of operating, investing and financing activities for the year ended December 31, 2017 .

Although we cannot provide any assurance, we believe cash flows from operating activities and availability under our 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.

Credit Facility

We primarily use borrowings under our credit facility to fund working capital needs, timing differences between capital expenditures and other cash uses and cash flows from operating activities, margin deposit requirements on our derivative instruments and credit assurance requirements, including collateral, in support of our midstream service contracts, joint venture arrangements or construction contracts.

See Note 10 to the Consolidated Financial Statements for further discussion of our credit facility.

Known Contractual and Other Obligations;

Planned Capital Expenditures

Purchase obligations.

We have 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.

We have entered into agreements to release some of our capacity under these long-term contracts.

We also have commitments for processing capacity in order to extract heavier liquid hydrocarbons from the natural gas stream.

Aggregate future payments for these items as of December 31, 2020 were $24.8 billion, composed of $1.3 billion in 2021, $1.7 billion in 2022, $1.8 billion in 2023, $1.9 billion in 2024, $1.8 billion in 2025 and $16.3 billion primarily in 2026 through 2042.

We also have commitments to purchase equipment, materials, frac sand for use as a proppant in our hydraulic fracturing operations and minimum volume commitments associated with certain water agreements.

As of December 31, 2020, future commitments under these contracts were $96.5 million in 2021 and $14.3 million in 2022.

Contractual Commitments.

We have contractual commitments under our debt agreements including interest payments and principal repayments.

See Note 10 to the Consolidated Financial Statements for further discussion including the timing of principal repayments.

Unrecognized Tax Benefits.

As discussed in Note 9 to the Consolidated Financial Statements, we had a total reserve for unrecognized tax benefits at December 31, 2020 of $181.2 million, of which $90.3 million is offset against deferred tax assets for general business tax credit carryforwards and NOLs.

We are currently unable to make reasonably reliable estimates of the period of cash settlement of these potential liabilities with taxing authorities.

Planned Capital Expenditures.

In 2021, we expect to spend approximately $1.1 to $1.2 billion in total capital expenditures, excluding amounts attributable to noncontrolling interests.

Because we are the operator of a high percentage of our acreage, the amount and timing of these capital expenditures are largely discretionary.

We could choose to defer a portion of these planned 2021 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.

Operating Activities

Net cash flows provided by operating activities were $1,852 million for 2019 compared to $2,976 million for 2018 .

The decrease was driven by cash provided by discontinued operations included in 2018 and lower cash operating revenues, partly offset by favorable timing of working capital payments and dividends received on the Company's investment in Equitrans Midstream.

The Company's cash flows from operating activities will be 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.

Refer to Item 1A., "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 upon our revenue, profitability, future rate of growth, liquidity and financial position.

" for further information.

Net cash provided by operating activities was $1,538 million for 2020 compared to $1,852 million for 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, income tax refunds, plus interest, received of $440 million during 2020 and lower cash operating expenses.

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.

Refer to Item 1A., "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." for further information.

Investing Activities

Net cash flows used in investing activities were $1,601 million for 2019 compared to $3,979 million for 2018 .

The decrease was due primarily to lower capital expenditures as a result of the Company's change in strategic focus from production growth to capital efficiency and cash used for capital expenditures and capital contributions by discontinued operations included in 2018, partly offset by proceeds received from asset sales in 2018.

Capital Expenditures

Net cash used in investing activities was $1,556 million for 2020 compared to $1,601 million for 2019.

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

The decrease was partly offset by cash paid for acquisitions as described in Note 6 .

The following table summarizes our capital expenditures.

Years Ended December 31,

Reserve development $ 839 $ 1,377

Land and lease

Land and lease (a) 121 195

Capitalized overhead 51 77

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Other corporate items 11 3

Total capital expenditures from continuing operations

Midstream infrastructure (a)

Total capital expenditures 1,079 1,773

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Total cash capital expenditures $ 1,042 $ 1,602

Midstream infrastructure capital expenditures are presented as discontinued operations.

See Note 2 to the Consolidated Financial Statements.

Represents the net impact of non-cash capital expenditures, including capitalized share-based compensation costs and the effect of timing of receivables from working interest partners and accrued capital expenditures.

(a) Capital expenditures attributable to noncontrolling interests were $4.9 million for the year ended December 31, 2020.

(b) Represents the net impact of non-cash capital expenditures, including capitalized share-based compensation costs, the effect of timing of receivables from working interest partners and accrued capital expenditures.

The impact of accrued capital expenditures includes the reversal of the prior period accrual as well as the current period estimate.

The year ended December 31, 2018 included $14.4 million of measurement period adjustments for 2017 acquisitions.

Financing Activities

Net cash flows used in financing activities were $249 million for 2019 compared to net cash flows provided by financing activities of $859 million for 2018 .

Net cash provided by financing activities was $32 million for 2020 compared to net cash used in financing activities of $249 million for 2019.

For 2020, the primary source of financing cash flows was net proceeds from the issuance of debt and equity and the primary use of financing cash flows was net repayments of debt.

For 2019, 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 borrowings on the Term Loan Facility.

For 2018, the primary source of financing cash flows was net proceeds from a debt offering by EQM Midstream Partners, LP (EQM), the Company's former midstream affiliate, and the primary uses of financing cash flows were the repurchase and retirement of common stock, distributions to noncontrolling interests, net repayments of credit facility borrowings, EQM's acquisition of 25% ownership interest in Strike Force Midstream LLC, net cash transferred in connection with the Separation and Distribution, cash paid for dividends and taxes on share-based incentive awards.

On February 4, 2020, the Company's Board of Directors declared a quarterly cash dividend of three cents per share, payable March 1, 2020 to the Company's shareholders of record at the close of business on February 14, 2020.

On January 21, 2020, the Company issued $1.0 billion aggregate principal amount of 6.125% senior notes due February 1, 2025 and $750 million aggregate principal amount of 7.000% senior notes due February 1, 2030 (together, the Adjustable Rate Notes).

The Company used the net proceeds from the Adjustable Rate Notes to repay $500 million aggregate principal amount of the Company's floating rate notes and $500 million aggregate principal amount of the Company's 2.50% senior notes and expects to use the remaining proceeds to repay or redeem other outstanding indebtedness , which may include all or a portion of the Company's outstanding 4.875% senior notes due November 15, 2021.

The Adjustable Rate Notes have covenants that are consistent with the Company's existing senior unsecured notes, with an additional interest rate adjustment provision that provides for adjustments to its interest rates based on credit ratings assigned by Moody's, S&P and Fitch to the Adjustable Rate Notes.

As a result of the S&P and Fitch downgrades of the Company's senior notes credit rating (discussed in section "Security Ratings and Financing Triggers"), the interest rate on the 6.125% senior notes increased to 6.875% and the interest rate on the 7.000% senior notes increased to 7.750% .

On February 3, 2020, the Company's 2.50% senior notes and floating rate notes, each due October 1, 2020, were fully redeemed by the Company at a redemption price of 100.446% and 100% , respectively, plus accrued but unpaid interest of $4.2 million and $1.2 million , respectively.

This resulted in the payment of make whole call premiums of $2.2 million related to the 2.50% senior notes.

On February 12, 2020, the Company announced its commencement of a cash tender offer (the Tender Offer) for up to $400 million aggregate principal amount of its 4.875% senior notes due 2021 (the 4.875% Notes).

Consideration paid in the Tender Offer for

the 4.875% Notes that are validly tendered on or prior to March 2, 2020, and accepted for purchase by the Company, will be $1,020 per $1,000 principal amount, including an early tender premium of $30 per $1,000 principal amount.

The settlement date for such notes is expected to be March 4, 2020.

Consideration paid in the Tender Offer for the 4.875% Notes that are validly tendered after March 2, 2020 and on or prior to March 16, 2020, and accepted for purchase by the Company, will be $990 per $1,000 principal amount.

The settlement date for such notes is expected to be March 18, 2020.

Payments for the 4.875% Notes purchased will also include accrued and unpaid interest from, and including, the last interest payment date on the 4.875% Notes up to, but not including, the applicable settlement date for such 4.875% Notes accepted for purchase by the Company.

The Company may from time to time seek to repurchase its outstanding debt securities.

Such repurchases, if any, will depend on prevailing market conditions, the Company's liquidity requirements, contractual and legal restrictions and other factors.

Additionally, the Company plans to dispose of its remaining retained shares of Equitrans Midstream's common stock and use the proceeds to reduce the Company's debt.

Revolving Credit Facility

The Company primarily uses borrowings under its revolving credit facility to fund working capital needs, timing differences between capital expenditures and other cash uses and cash flows from operating activities, margin deposits on derivative instruments and collateral requirements on midstream services contracts.

See section "Security Ratings and Financing Triggers" for further discussion of margin deposits and collateral requirements on the Company's derivative instruments and midstream services contracts.

See Note 10 to the Consolidated Financial Statements for further discussion of the Company's credit facility.

See Note 10 to the Consolidated Financial Statements for further discussion of our debt.

On March 26, 2020, we announced the suspension of our quarterly cash dividend on our common stock for purposes of accelerating cash flow to be used for our Deleveraging Plan.

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 retire or repurchase our outstanding debt or equity securities through cash purchases in the open market or privately negotiated transactions.

The amounts involved in any such transactions may be material.

Additionally, we plan to dispose of our remaining retained shares of Equitrans Midstream's common stock and use the proceeds to reduce our debt.

See Item 7., "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year ended December 31, 2019, which is incorporated herein by reference, for discussion and analysis of operating, investing and financing activities for the year ended December 31, 2018.

Security Ratings and Financing Triggers

The table below reflects the credit ratings and rating outlooks assigned to the Company's debt instruments at February 26, 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.

The Company 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 its judgment, circumstances so warrant.

The table below reflects the credit ratings and rating outlooks assigned to our debt instruments at February 12, 2021.

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 independent 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 3 to the Consolidated Financial Statements for further discussion of what is deemed investment grade.

Rating Service

Moody's Investors Service (Moody's)

Standard & Poor's Ratings Service (S&P)

Fitch Ratings Service (Fitch)

As of December 31, 2019 , the Company's senior notes were rated "Baa3" by Moody's, "BBB–" by S&P and "BBB–" by Fitch, each with a "Negative" outlook.

In January 2020, Moody's downgraded the Company's senior notes credit rating to "Ba1," and, in February 2020, S&P and Fitch downgraded the Company's senior notes rating to "BB+" and "BB," respectively.

The Company is not aware of any current plans of Moody's, S&P or Fitch to further downgrade its rating of the Company's senior notes.

Further 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 Adjustable Rate Notes, 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 February 26, 2020 , the Company had sufficient unused borrowing capacity under its credit facility, net of letters of credit, to satisfy any requests for margin deposit or other collateral that its counterparties would be permitted to request of the Company pursuant to the Company's derivative instruments and midstream services contracts in the event that Moody's and S&P downgrade the Company's credit rating two categories further.

As of February 26, 2020 , such margin deposit or other collateral amounts could be up to approximately $1.4 billion , inclusive of assurances posted of approximately $0.6 billion in the aggregate.

Rating agency Senior notes Outlook

Moody's Investors Service (Moody's) Ba2 Stable

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

Fitch Ratings Service (Fitch) BB Positive

Changes in credit ratings may affect our access to the capital markets, the cost of short-term debt through interest rates and fees under our lines of credit, the interest rate on the Adjustable Rate Notes, the rates available on new long-term debt, our pool of investors and funding sources, the borrowing costs and margin deposit requirements on our 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 hedging counterparties.

As of February 12, 2021, we had sufficient unused borrowing capacity, net of letters of credit, under our credit facility to satisfy any requests for margin deposit or other collateral that our counterparties are permitted to request of us pursuant to our OTC derivative instruments, midstream services contracts and other contracts.

As of February 12, 2021, such assurances could be up to approximately $1.0 billion, inclusive of letters of credit, OTC derivative instrument margin deposits and other collateral posted of approximately $0.9 billion in the aggregate.

See Notes 3 and 10 to the Consolidated Financial Statements for further information.

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 the 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%.

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

Our credit facility contains financial covenants that require us 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 December 31, 2019 , the Company was in compliance with all debt provisions and covenants.

See Note 10 to the Consolidated Financial Statements for a discussion of the borrowings under the Company's credit facility and Term Loan Facility.

As of December 31, 2020, we were in compliance with all debt provisions and covenants.

See Note 10 to the Consolidated Financial Statements for a discussion of the borrowings under our credit facility.

Commodity Risk Management

The substantial majority of the Company's commodity risk management program is related to hedging sales of the Company's produced natural gas.

The Company's overall objective in its hedging program is to protect cash flows from undue exposure to the risk of changing commodity prices.

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

During the third quarter of 2019, the Company terminated certain OTC hedge positions related to years 2021 and onward.

The value associated with these terminated positions was rolled into new hedge positions with the same counterparties for 2020.

No cash was exchanged related to these terminations or the associated execution of new hedge positions.

The following table summarizes the approximate volumes and prices of the Company's NYMEX hedge positions through 2023 as of February 25, 2020 .

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.

following table summarizes the approximate volumes and prices of our NYMEX hedge positions through 2024 as of February 12, 2021.

2021 (a) 2022 2023 2024

Volume (MMDth) 1,082 455 69 2

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

Full year 2020 .

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

For 2020 , 2021 , 2022 , 2023 and 2024 , the Company has natural gas sales agreements for approximately 13 MMDth, 18 MMDth, 18 MMDth, 79 MMDth and 11 MMDth, respectively, that include average NYMEX ceiling prices of $3.68 , $3.17 , $3.17 , $2.84 and $3.21 , respectively.

The Company also has derivative instruments to hedge basis.

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

See Item 7A., "Quantitative and Qualitative Disclosures About Market Risk" and Note 4 to the Consolidated Financial Statements for further discussion of the Company's hedging program.

(a) Full year 2021.

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

For 2021, 2022, 2023 and 2024, we have natural gas sales agreements for approximately 18 MMDth, 18 MMDth, 88 MMDth and 11 MMDth, respectively, that include average NYMEX ceiling prices of $3.17, $3.17, $2.84 and $3.21, respectively.

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.

During 2020, we purchased $47 million of net 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 5 to the Consolidated Financial Statements) provided for by the Consolidated GGA.

See Item 7A., "Quantitative and Qualitative Disclosures About Market Risk" and Note 3 to the Consolidated Financial Statements for further discussion of our hedging program.

Off-Balance Sheet Arrangements

See Note 17 to the Consolidated Financial Statements for a discussion of the Company's guarantees.

Schedule of Contractual Obligations

The following table presents the Company's long-term contractual obligations as of December 31, 2019 .

Purchase obligations (a)

Long-term debt, including current portion (b)

Interest payments on debt (c)

Term Loan Facility borrowings (d)

Credit facility borrowings (d)

Operating lease obligations (e)

Other liabilities (f)

Total contractual obligations

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.

The Company has entered into agreements to release some of its capacity.

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

Purchase obligations excludes the New EQM Gathering Agreement signed on February 26, 2020.

See Note 10 to the Consolidated Financial Statements for a discussion of the Company's January 2020 senior notes issuance and February 2020 repayment of the Company's 2.50% senior notes and floating rate notes, which were both due in 2020.

Interest payments exclude interest related to the Term Loan Facility borrowings , credit facility borrowings and the floating rate notes as their interest rates are variable.

Term Loan Facility borrowings and credit facility borrowings were classified based on their termination dates.

See Note 15 to the Consolidated Financial Statements for a discussion of the Company's operating lease obligations.

Other liabilities are primarily commitments for estimated payouts for various liability stock award plans as of December 31, 2019 .

See "Critical Accounting Policies and Estimates" and Note 13 to the Consolidated Financial Statements for further discussion of factors that affect the ultimate amount of the payout of these obligations.

As discussed in Note 9 to the Consolidated Financial Statements, the Company had a total reserve for unrecognized tax benefits at December 31, 2019 of $259.6 million , of which $113.7 million is offset against deferred tax assets for alternative minimum tax (AMT) and general business tax credit carryforwards and net operating losses (NOLs).

The Company is currently unable to make reasonably reliable estimates of the period of cash settlement of these potential liabilities with taxing authorities;

therefore, this amount has been excluded from the schedule of contractual obligations.

See Note 17 to the Consolidated Financial Statements for a discussion of our guarantees.

Commitments and Contingencies

In the ordinary course of business, various legal and regulatory claims and proceedings are pending or threatened against the Company.

While the amounts claimed may be substantial, the Company is unable to predict with certainty the ultimate outcome of such claims and proceedings.

The Company accrues legal and other direct costs related to loss contingencies when actually incurred.

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

See Note 16 to the Consolidated Financial Statements for a discussion of the Company's 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 accrue legal and other direct costs related to loss contingencies when actually incurred.

We have established reserves that we believe to be appropriate for pending matters and, after consultation with counsel and giving appropriate consideration to available insurance, we believe that the ultimate outcome of any matter currently pending against us will not materially affect our financial condition, results of operations or liquidity.

See Note 16 to the Consolidated Financial Statements for a discussion of our commitments and contingencies.

See Item 3., "Legal Proceedings."

Recently Issued Accounting Standards

The Company's recently issued accounting standards are described in Note 1 to the Consolidated Financial Statements.

Our recently issued accounting standards are described in Note 1 to the Consolidated Financial Statements.

Critical Accounting Policies and Estimates

The Company's significant accounting policies are described in Note 1 to the Consolidated Financial Statements.

Management's discussion and analysis of the Consolidated Financial Statements and results of operations are based on the Company's Consolidated Financial Statements, which have been prepared in accordance with GAAP.

The preparation of the Consolidated Financial Statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities.

The following critical accounting policies, which were

reviewed by the Audit Committee of the Company's Board of Directors (the Audit Committee), relate to the Company's more significant judgments and estimates used in the preparation of its Consolidated Financial Statements.

Actual results could differ from those estimates.

Accounting for Oil and Gas Producing Activities.

The Company uses the successful efforts method of accounting for its oil and gas producing activities.

The carrying values of the Company's proved oil and gas properties are reviewed for impairment when events or circumstances indicate that the remaining carrying value may not be recoverable.

To determine whether impairment has occurred, the Company compares estimated expected undiscounted future cash flows from its oil and gas properties to the carrying values of those properties.

The estimated future cash flows used in the recoverability test are based on proved and, if determined reasonable by management, risk-adjusted probable reserves and assumptions generally consistent with the assumptions used by the Company for internal planning and budgeting purposes, including, among other things, the intended use of the asset, anticipated production from reserves, future market prices for natural gas, NGLs and oil adjusted for basis differentials, future operating costs and inflation.

Our significant accounting policies are described in Note 1 to the Consolidated Financial Statements.

Management's discussion and analysis of the Consolidated Financial Statements and results of operations are based on our Consolidated Financial Statements, which have been prepared in accordance with GAAP.

The preparation of the Consolidated Financial Statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and

expenses and the related disclosure of contingent assets and liabilities.

The following critical accounting policies, which were reviewed by the Audit Committee of our Board of Directors (the Audit Committee), relate to our more significant judgments and estimates used in the preparation of our Consolidated Financial Statements.

Actual results could differ from our estimates.

Accounting for Gas, NGL and Oil Producing Activities.

We use the successful efforts method of accounting for our oil and gas producing activities.

The carrying values of our proved oil and gas properties are reviewed for impairment when events or circumstances indicate that the remaining carrying value may not be recoverable.

To determine whether impairment of our oil and gas properties has occurred, we compare the estimated expected undiscounted future cash flows to the carrying values of those properties.

Estimated future cash flows are based on proved and, if determined reasonable by management, risk-adjusted probable reserves and assumptions generally consistent with the assumptions used by us for internal planning and budgeting purposes, including, among other things, the intended use of the asset, anticipated production from reserves, future market prices for natural gas, NGLs and oil adjusted for basis differentials, future operating costs and inflation.

Proved oil and gas properties that have carrying amounts in excess of estimated future undiscounted cash flows are written down to fair value, which is estimated by discounting the estimated future cash flows using discount rates and other assumptions that marketplace participants would use in their fair value estimates.

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The likelihood of an impairment of unproved oil and gas properties increases as the expiration of a lease term approaches and drilling activity has not commenced.

If the Company does not intend to drill on the property prior to expiration of the lease or does not have the intent and ability to extend, renew, trade or sell the lease prior to expiration, impairment expense is recorded.

The Company believes that the accounting estimate related to the accounting for oil and gas producing activities is a "critical accounting estimate" because the evaluations of impairment of proved properties involve significant judgment about future events, such as future sales prices of natural gas and NGLs, future production costs, estimates of the amount of natural gas and NGLs recorded and the timing of recoveries.

See "Impairment of Oil and Gas Properties" and Note 1 to the Consolidated Financial Statements for additional information on the Company's impairments of proved and unproved oil and gas properties.

If we do not intend to drill on the property prior to expiration of the lease or do not have the intent and ability to extend, renew, trade or sell the lease prior to expiration, impairment expense is recorded.

We believe accounting for gas, NGL and oil producing activities is a "critical accounting estimate" because the evaluations of impairment of proved properties involve significant judgment about future events, such as future sales prices of natural gas and NGLs and future production costs, as well as the amount of natural gas and NGLs recorded and timing of recoveries.

Significant changes in these estimates could result in the costs of our proved and unproved properties not being recoverable;

therefore, we would be required to recognize impairment.

See "Impairment of Oil and Gas Properties" and Note 1 to the Consolidated Financial Statements for additional information on our impairments of proved and unproved oil and gas properties.

Oil and Gas Reserves.

Proved oil and gas reserves, as defined by SEC Regulation S-X Rule 4-10, are those quantities of oil and gas that, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward from known reservoirs and under existing economic conditions, operating methods and government regulations prior to the time at which contracts providing the right to operate expire unless evidence indicates that renewal is reasonably certain regardless of whether deterministic or probabilistic methods are used for the estimation.

The Company's estimates of proved reserves are reassessed annually using geological, reservoir and production performance data.

Reserve estimates are prepared by the Company's engineers and audited by the Company's independent engineers.

Our estimates of proved reserves are reassessed annually using geological, reservoir and production performance data.

Reserve estimates are prepared by our engineers and audited by independent engineers.

Revisions may result from changes in, among other things, reservoir performance, development plans, prices, operating costs, economic conditions and governmental restrictions.

Decreases in prices, for example, may cause a reduction in some proved reserves due to reaching economic limits sooner.

A material change in the estimated volumes of reserves could have an impact on the depletion rate calculation and the Company's Consolidated Financial Statements.

The Company estimates future net cash flows from natural gas, NGLs and crude oil reserves based on selling prices and costs using a twelve-month average price, which is calculated as the unweighted arithmetic average of the first-day-of-the-month price for each month within the twelve-month period and, as such, is subject to change in subsequent periods.

Decreases in prices, for example, may cause a reduction in certain proved reserves due to reaching economic limits sooner.

A material change in the estimated volumes of reserves could have an impact on the depletion rate calculation and our Consolidated Financial Statements.

We estimate future net cash flows from natural gas, NGLs and crude oil reserves based on selling prices and costs using a twelve-month average price, which is calculated as the unweighted arithmetic average of the first-day-of-the-month price for each month within the twelve-month period and, as such, is subject to change in subsequent periods.

Operating costs, production and ad valorem taxes and future development costs are based on current costs with no escalation.

Income tax expense is computed using future statutory tax rates and giving effect to tax deductions and credits available under current laws related to oil and gas producing activities.

The Company believes that the accounting estimate related to oil and gas reserves is a "critical accounting estimate" because the Company must periodically reevaluate proved reserves along with estimates of future production rates, production costs and the timing of development expenditures.

Future results of operations and the strength of the Company's Consolidated Balance Sheet for any quarterly or annual period could be materially affected by changes in the Company's assumptions.

See "Impairment of Oil and Gas Properties" for additional information on the Company's oil and gas reserves.

Income tax expense is based on future statutory tax rates and tax deductions and credits available under current laws.

We believe oil and gas reserves is a "critical accounting estimate" because we must periodically reevaluate proved reserves along with estimates of future production rates, production costs and the timing of development expenditures.

Future results of operations and the strength of our Consolidated Balance Sheet for any quarterly or annual period could be materially affected by changes in our assumptions.

Significant changes in these estimates could result in a change to our estimated reserves, which could lead to a material change to our production depletion expense.

See "Impairment of Oil and Gas Properties" for additional information on our oil and gas reserves.

Income Taxes.

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the Company's Consolidated Financial Statements or tax returns.

The Company has recorded deferred tax assets principally resulting from federal and state NOL carryforwards, an AMT credit carryforward, other federal tax credit carryforwards, unrealized capacity contract losses, incentive compensation and investments in securities.

The Company has established a valuation allowance against a portion of its deferred tax assets related to the federal and state NOL carryforwards, the separate company state impact of the interest expense limitation imposed with the Tax Cuts and Jobs Act of 2017 (the Tax Cuts and Jobs Act) and the Company's investment in Equitrans Midstream because the Company believes it is more likely than not that those deferred tax assets will not be completely realized.

The valuation allowance on the Equitrans Midstream investment relates to the state and part of the federal deferred tax asset as the fair value loss is not expected to be fully realized for tax purposes due to capital loss limitations.

In January 2019, the IRS announced that it would no longer subject AMT refunds to sequestration;

as such, the Company reversed the related previously recorded valuation allowance in the first quarter of 2019.

No other significant valuation allowances have been established as the Company believes that future sources of taxable income, reversing temporary differences and other tax planning strategies will be sufficient to realize these deferred tax assets.

Any determination to change the valuation allowance would impact the Company's income tax expense and net income in the period in which such a determination is made.

The Company also estimates the amount of financial statement benefit to record for uncertain tax positions as described in Note 9 to the Company's Consolidated Financial Statements.

The Company believes that accounting estimates related to income taxes are "critical accounting estimates" because the Company must assess the likelihood that deferred tax assets will be recovered from future taxable income and exercise judgment regarding the amount of financial statement benefit to record for uncertain tax positions.

When evaluating whether or not a valuation allowance must be established on deferred tax assets, the Company exercises judgment in determining whether it is more likely than not (a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized.

The Company considers all available evidence, both positive and negative, to determine whether, based on the weight of the evidence, a valuation allowance is needed, including carrybacks, tax planning strategies, reversal of deferred tax assets and liabilities and forecasted future taxable income.

In making the determination related to uncertain tax positions, the Company considers the amounts and probabilities of the outcomes that could be realized upon ultimate settlement of an uncertain tax position using the facts, circumstances and information available at the reporting date to establish the appropriate amount of financial statement benefit.

To the extent that an uncertain tax position or valuation allowance is established or increased or decreased during a period, the Company must include an expense or benefit within tax expense in the income statement.

Future results of operations for any quarterly or annual period could be materially affected by changes in the Company's assumptions.

We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our Consolidated Financial Statements or tax returns.

We have recorded deferred tax assets resulting from federal and state NOL carryforwards, an AMT credit carryforward, other federal tax credit carryforwards, unrealized capacity contract losses, incentive compensation and investments in securities.

We have established a valuation allowance against a portion of the deferred tax assets related primarily to federal and state NOL carryforwards and our investment in Equitrans Midstream because we believe it is more likely than not that those deferred tax assets will not be fully realized.

We established a valuation allowance against the state and part of the federal deferred tax asset related to our investment in Equitrans Midstream because the fair value loss is not expected to be fully realized for tax purposes due to capital loss limitations.

No other significant valuation allowances have been established as we believe that future sources of taxable income, reversing temporary differences and other tax planning strategies will be sufficient to realize the deferred tax assets.

Changes to our valuation allowance would impact our income tax expense and net income in the period in which such a determination is made.

We estimate the amount of financial statement benefit recorded for uncertain tax positions.

See Note 9 to our Consolidated Financial Statements.

We believe income taxes are "critical accounting estimates" because we must assess the likelihood that our deferred tax assets will be recovered from future taxable income and exercise judgment on the amount of financial statement benefit recorded for uncertain tax positions.

When evaluating whether or not a valuation allowance should be established, we exercise judgment on whether it is more likely than not (a likelihood of more than 50%) that a portion or all of the deferred tax assets will not be realized.

To determine whether a valuation allowance is needed, we consider all available evidence, both positive and negative, including carrybacks, tax planning strategies, reversals of deferred tax assets and liabilities and forecasted future taxable income.

To determine the amount of financial statement benefit recorded for uncertain tax positions, we consider the amounts and probabilities of outcomes that could be realized upon ultimate settlement of an uncertain tax position using facts, circumstances and information available at the reporting date.

To the extent that a valuation allowance or uncertain tax position is established or increased or decreased during a period, we record an expense or benefit in income tax expense in our Statements of Consolidated Operations.

Future results of operations for any quarterly or annual period could be materially affected by changes in our assumptions.

A change to future taxable income or tax planning strategies could impact our ability to utilize deferred tax assets, which would increase or decrease our income tax expense and taxes paid.

Derivative Instruments.

The Company enters into derivative commodity instrument contracts primarily to reduce exposure to commodity price risk associated with future sales of natural gas production.

The Company estimates the fair value of its financial instruments using quoted market prices, where available.

If quoted market prices are not available, fair value is based on models that use market-based parameters as inputs, including forward curves, discount rates, volatilities and nonperformance risk.

Nonperformance risk considers the effect of the Company's credit standing on the fair value of liabilities and the effect of the counterparty's credit standing on the fair value of assets.

The Company estimates nonperformance risk by analyzing publicly available market information, including a comparison of the yield on debt instruments with credit ratings similar to the Company's or counterparty's credit rating and the yield on a risk-free instrument.

The values reported in the Consolidated Financial Statements change as these estimates are revised to reflect actual results or as market conditions or other factors, many of which are beyond the Company's control, change.

The Company believes that the accounting estimates related to derivative instruments are "critical accounting estimates" because the Company's financial condition and results of operations can be significantly impacted by changes in the market value of the Company's derivative instruments due to the volatility of both NYMEX natural gas prices and basis.

Future results of operations for any quarterly or annual period could be materially affected by changes in the Company's assumptions.

We enter into derivative commodity instrument contracts primarily to reduce exposure to commodity price risk associated with future sales of natural gas production.

We estimate the fair value of our financial instruments using quoted market prices when available.

If quoted market prices are not available, the fair value is based on models that use market-based parameters, including forward curves, discount rates, volatilities and nonperformance risk, as inputs.

Nonperformance risk considers the effect of our credit standing on the fair value of liabilities and the effect of the counterparty's credit standing on the fair value of assets.

We estimate nonperformance risk by analyzing publicly available market information, including a comparison of the yield on debt instruments with credit ratings similar to our credit rating or the counterparty's credit rating and the yield on a risk-free instrument.

We believe derivative instruments are "critical accounting estimates" because our financial condition and results of operations can be significantly impacted by changes in the market value of our derivative instruments due to the volatility of both NYMEX natural gas prices and basis.

Future results of operations for any quarterly or annual period could be materially affected by changes in our assumptions.

Refer to Item 7A., "Quantitative and Qualitative Disclosures about Market Risk" for discussion of a hypothetical increase or decrease of 10% in the market price of natural gas.

Contingencies and Asset Retirement Obligations.

The Company is involved in various legal and regulatory proceedings that arise in the ordinary course of business.

The Company records a liability for contingencies based on its assessment that a loss is probable and the amount of the loss can be reasonably estimated.

The Company considers many factors in making these assessments, including historical experience and matter specifics.

We are involved in various legal and regulatory proceedings that arise in the ordinary course of business.

We record a liability for contingencies based on our assessment that a loss is probable and the amount of the loss can be reasonably estimated.

We consider many factors in making these assessments, including historical experience and matter specifics.

Estimates are developed in consultation with legal counsel and are based on an analysis of potential results.

The Company accrues a liability for asset retirement obligations based on an estimate of the timing and amount of settlement.

For oil and gas wells, the fair value of the Company's plugging and abandonment obligations is recorded at the time the obligations are incurred, which is typically at the time the wells are spud.

The Company believes that the accounting estimates related to contingencies and asset retirement obligations are "critical accounting estimates" because the Company must assess the probability of loss related to contingencies and the expected amount and timing of asset retirement obligations.

In addition, the Company must determine the estimated present value of future liabilities.

Future results of operations for any quarterly or annual period could be materially affected by changes in the Company's assumptions.

Share-Based Compensation.

The Company awards share-based compensation in connection with specific programs established under the 2009, 2014 and 2019 Long-Term Incentive Plans.

Awards to employees are typically made in the form of performance-based awards, time-based restricted stock, time-based restricted units and stock options.

Beginning in January 2020, awards to directors are typically made in the form of restricted stock units that vest on the date of the Company's annual meeting of shareholders following the date of grant.

Restricted units and performance-based awards that are expected to be satisfied in cash are treated as liability awards.

For liability awards, the Company estimates, on the grant date and on each reporting date thereafter until vesting and payment, the fair value of the ultimate payout based on the expected performance through, and value of the Company's common stock on, the vesting date.

The Company then recognizes a proportionate amount of the expense for each period in the Company's Consolidated Financial Statements over the vesting period of the award.

The Company reviews assumptions regarding performance and common stock value on a quarterly basis and adjusts its accrual when changes to these assumptions result in a material change in the fair value of the ultimate payouts.

Performance-based awards that are expected to be satisfied in Company common stock are treated as equity awards.

For equity awards, the Company determines the grant date fair value of the awards, which is then recognized as expense in the Company's Consolidated Financial Statements over the vesting period of the award.

Determination of the grant date fair value of the awards requires judgments and estimates regarding, among other things, the appropriate methodologies to follow in valuing the awards and the related inputs required by those valuation methodologies.

Most often, the Company is required to obtain a valuation based on assumptions regarding risk-free rates of return, dividend yields, expected volatilities and the expected term of the award.

The risk-free rate is based on the U.S.

Treasury yield curve in effect at the time of grant.

The dividend yield is based on the historical dividend yield of the Company's common stock adjusted for any expected changes and, where applicable, the common stock of the peer group members at the time of grant.

Expected volatilities are based on historical volatility of the Company's common stock and, where applicable, the common stock of the peer group members at the time of grant.

The expected term represents the period of time elapsing during the applicable performance period.

For time-based restricted stock awards, the grant date fair value of the awards is recognized as expense in the Company's Consolidated Financial Statements over the vesting period, which, historically, has been three years.

For director restricted stock units expected to be satisfied in equity, the grant date fair value of the awards is recognized as an expense in the Company's Consolidated Financial Statements in the year of grant.

The grant date fair value, in both cases, is determined based on the closing price of the Company's common stock on the date of the grant.

For non-qualified stock options, the grant date fair value is recognized as expense in the Company's Consolidated Financial Statements over the vesting period, which, historically, has been three years.

The Company uses the Black-Scholes option pricing model to measure the fair value of stock options, which includes assumptions for a risk-free interest rate, dividend yield, volatility factor and expected term.

The risk-free rate for periods within the contractual life of the option is based on the U.S.

Treasury yield curve in effect at the time of grant.

The dividend yield is based on the dividend yield of the Company's common stock at the time of grant.

The expected volatility is based on historical volatility of the Company's common stock at the time of grant.

The expected term represents the period of time that options granted are expected to be outstanding based on historical option exercise experience at the time of grant.

The Company believes that the accounting estimates related to share-based compensation are "critical accounting estimates" because they may change from period-to-period based on changes in assumptions about factors affecting the ultimate payout of awards, including the number of awards to ultimately vest and the market price and volatility of the Company's common stock.

Future results of operations for any quarterly or annual period could be materially affected by changes in the Company's assumptions.

See Note 13 to the Consolidated Financial Statements for additional information on the Company's share-based compensation plans.

We accrue a liability for asset retirement obligations based on an estimate of the amount and timing of settlement.

For oil and gas wells, the fair value of our plugging and abandonment obligations is recorded at the time the obligation is incurred, which is typically at the time the well is spud.

We believe contingencies and asset retirement obligations are "critical accounting estimates" because we must assess the probability of loss related to contingencies and the expected amount and timing of asset retirement obligation settlement.

In addition, we must determine the estimated present value of future liabilities.

Future results of operations for any quarterly or annual period could be materially affected by changes in our assumptions.

If we incur losses related to contingencies that are higher than we expect, we could incur additional costs to settle such obligations.

If the expected amount and timing of our asset retirement obligations change, we will be required to adjust the carrying value of our liabilities in future periods.

Contract Asset.

In the first quarter of 2020, we entered into two share purchase agreements with Equitrans Midstream to sell to Equitrans Midstream 50% of our ownership of Equitrans Midstream's common stock in exchange for a combination of cash and rate relief under certain of our gathering agreements with EQM, an affiliate of Equitrans Midstream.

The rate relief was effected through the execution the Consolidated GGA (defined and discussed in Note 5 to the Consolidated Financial Statements).

We recorded a contract asset representing the estimated fair value of the rate relief provided by the Consolidated GGA.

Key assumptions used in the fair value calculation included an estimated production volume forecast, a market-based discount rate and a probability-weighted estimate of the in-service date of the Mountain Valley Pipeline.

Beginning with the Mountain Valley Pipeline in-service date, we will recognize amortization of the contract asset over a period of approximately four years in a manner consistent with the expected timing of our realization of the economic benefits of the rate relief provided by the Consolidated GGA.

We believe the Consolidated GGA contract asset is a "critical accounting estimate" because the assumptions used in the valuation of the contract asset involved significant judgment.

Future results of operations for any quarterly or annual period could be materially affected by changes in our assumptions.

A change in the estimated production volume forecast, the market-based discount rate or the probability-weighted estimate of the in-service date of the Mountain Valley Pipeline could have resulted in a change in the valuation of the contract asset.

Convertible Notes.

In the second quarter of 2020, we issued the Convertible Notes (defined and discussed in Note 10 to the Consolidated Financial Statements).

At issuance, we separated the Convertible Notes into liability and equity components.

The carrying amount of the liability component was calculated by measuring the fair value of similar debt instruments that do not have associated convertible features.

The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability component from the principal value of the Convertible Notes.

The equity component is not remeasured as long as it continues to meet the condition for equity classification.

The excess of the principal amount of the liability component over its carrying amount (the debt discount) will be amortized to interest expense over the term of the Convertible Notes using the effective interest rate method.

Issuance costs were allocated to the liability and equity components of the Convertible Notes based on their relative fair values.

In connection with the Convertible Notes offering, we entered into the Capped Call Transactions (defined and discussed in Note 10 to the Consolidated Financial Statements).

The Capped Call Transactions are separate from the Convertible Notes.

The Capped Call Transactions were recorded in shareholders' equity and were not accounted for as derivatives.

The cost to purchase the Capped Call Transactions was recorded as a reduction to equity and will not be remeasured.

Upon conversion of the Convertible Notes, we intend to use a combined settlement approach to satisfy our settlement 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.

As such, we used the treasury stock method for the diluted earnings per share (EPS) calculation, and there is no adjustment to the diluted EPS numerator for the cash-settled portion of the instrument.

We believe the accounting complexity of the Convertible Notes is a "critical accounting estimate" because we used judgment to determine the balance sheet classification, to determine the treatment of the Capped Call Transactions and to determine the existence of any derivatives that may require separate accounting under applicable accounting guidance.

Future results of operations for any quarterly or annual period could be materially affected by changes in our assumptions.

Business Combinations.

Accounting for a business combination requires a company to record the identifiable assets and liabilities acquired at fair value.

In the fourth quarter of 2020, we completed the Chevron Acquisition.

The most significant assumptions used in accounting for the Chevron Acquisition include those used to estimate the fair value of the oil and gas properties acquired, the acquired investment in midstream gathering assets and acquired contract liabilities.

We calculated the fair value of the acquired proved oil and gas properties, including in-process wells, using a risk-adjusted after-tax discounted cash flow analysis that was based on the following key assumptions:

future commodity prices, projections of estimated quantities of reserves, estimated future rates of production, projected reserve recovery factors, timing and amount of future development and operating costs and a weighted average cost of capital.

We calculated the fair value of the acquired unproved properties using the guideline transaction method that was based on the following key assumptions:

future development plans from a market participant perspective and value per undeveloped acre.

We calculated the fair value of our investment in the midstream gathering assets primarily using a discounted cash flow analysis that was based on the following key assumptions:

projected revenues, expenses and capital expenditures.

We calculated the fair value of acquired contract liabilities using estimated future volumes and annual contract commitments calculated on a discounted basis that was based on the following key assumptions:

estimated future volumes and market participant cost of debt.

We believe business combinations are "critical accounting estimates" because the valuation of acquired assets and liabilities involves significant judgment about future events.

Future results of operations for any quarterly or annual period could be materially affected by changes in our assumptions.

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-K

Item 7. Management’s Discussion and Analysis