Item 2. Management’s Discussion and Analysis
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the Condensed Consolidated Financial Statements and the notes thereto included in this report. Unless the context otherwise indicates, all references in this report to "EQT," the "Company," "we," "us," or "our" are to EQT Corporation and its subsidiaries, collectively.
CAUTIONARY STATEMENTS
This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Statements that do not relate strictly to historical or current facts are forward-looking and are usually identified by the use of words such as "anticipate," "estimate," "could," "would," "will," "may," "forecast," "approximate," "expect," "project," "intend," "plan," "believe" and other words of similar meaning, or the negative thereof, in connection with any discussion of future operating or financial matters. Without limiting the generality of the foregoing, forward-looking statements contained in this Quarterly Report on Form 10-Q include the expectations of our plans, strategies, objectives and growth and anticipated financial and operational performance, including guidance regarding our strategy to develop our reserves; drilling plans and programs (including availability of capital to complete these plans and programs); the projected scope and timing of our combo-development projects; estimated reserves, including potential future downward adjustments of reserves and reserve life; total resource potential and drilling inventory duration; projected production and sales volume and growth rates (including liquids production and sales volume and growth rates); natural gas prices; changes in basis and the impact of commodity prices on our business; potential future impairments of our assets; our ability to reduce our well costs and capital expenditures, and the timing of achieving any such reductions; infrastructure programs; the cost, capacity, and timing of obtaining regulatory approvals; our ability to successfully implement and execute our operational, organizational, technological and ESG initiatives, and achieve the anticipated results of such initiatives; projected reductions of our gathering and compression rates resulting from our consolidated gas gathering and compression agreement with Equitrans Midstream Corporation (Equitrans Midstream), and the anticipated cost savings and other strategic benefits associated with the execution of such agreement; monetization transactions, including asset sales, joint ventures or other transactions involving our assets, and our planned use of the proceeds from such monetization transactions; potential acquisition transactions or other strategic transactions, the timing thereof and our ability to achieve the intended operational, financial and strategic benefits from any such transactions; the timing and structure of any dispositions of our remaining retained shares of Equitrans Midstream's common stock, and the planned use of the proceeds from any such dispositions; the amount and timing of any repayments, redemptions or repurchases of our common stock, outstanding debt securities or other debt instruments; our ability to reduce our debt and the timing of such reductions, if any; projected dividends, if any; projected cash flows and free cash flow; projected capital expenditures; liquidity and financing requirements, including funding sources and availability; our ability to maintain or improve our credit ratings, leverage levels and financial profile; our hedging strategy; the effects of litigation, government regulation and tax position; and the expected impact of changes to tax laws.
The forward-looking statements included in this Quarterly Report on Form 10-Q involve risks and uncertainties that could cause actual results to differ materially from projected results. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. We have based these forward-looking statements on current expectations and assumptions about future events, taking into account all information currently known by us. While we consider these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks and uncertainties, many of which are difficult to predict and beyond our control. These risks and uncertainties include, but are not limited to, volatility of commodity prices; the costs and results of drilling and operations; access to and cost of capital; uncertainties about estimates of reserves, identification of drilling locations and the ability to add proved reserves in the future; the assumptions underlying production forecasts; the quality of technical data; our ability to appropriately allocate capital and resources among our strategic opportunities; inherent hazards and risks normally incidental to drilling for, producing, transporting and storing natural gas, natural gas liquids (NGLs) and oil; cyber security risks; availability and cost of drilling rigs, completion services, equipment, supplies, personnel, oilfield services and water required to execute our exploration and development plans; the ability to obtain environmental and other permits and the timing thereof; government regulation or action; environmental and weather risks, including the possible impacts of climate change; and disruptions to our business due to acquisitions and other significant transactions. These and other risks and uncertainties are described under Item 1A., "Risk Factors" and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2020.
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Any forward-looking statement speaks only as of the date on which such statement is made, and we do not intend to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law.
Consolidated Results of Operations
Net loss attributable to EQT Corporation for the three months ended March 31, 2021 was $40.5 million, $0.15 per diluted share, compared to net loss attributable to EQT Corporation for the same period in 2020 of $167.1 million, $0.65 per diluted share. The improvement was attributable primarily to higher sales of natural gas, NGLs and oil, income from investments, lower impairments and an income tax benefit, partly offset by loss on derivatives not designated as hedges, the gain on the Equitrans Share Exchange (defined and discussed in Note 8 to the Condensed Consolidated Financial Statements) in the first quarter of 2020, lower dividends and other income, increased depreciation and depletion and increased selling, general and administrative expense.
See "Sales Volume and Revenues" and "Operating Expenses" for discussions of items affecting operating income and "Other Income Statement Items" for a discussion of other income statement items. See "Investing Activities" under "Capital Resources and Liquidity" for a discussion of capital expenditures.
Average Realized Price Reconciliation
The following table presents detailed natural gas and liquids operational information to assist in the understanding of our consolidated operations, including the calculation of our average realized price ($/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 "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.
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Three Months Ended
March 31,
2021 2020
(Thousands, unless otherwise noted)
NATURAL GAS
Sales volume (MMcf) 390,298 369,742
NYMEX price ($/MMBtu) $ 2.69 $ 1.95
Btu uplift 0.15 0.10
Natural gas price ($/Mcf) $ 2.84 $ 2.05
Basis ($/Mcf) (a) $ (0.25) $ (0.22)
Cash settled basis swaps (not designated as hedges) ($/Mcf) (0.09) 0.05
Average differential, including cash settled basis swaps ($/Mcf) $ (0.34) $ (0.17)
Average adjusted price ($/Mcf) $ 2.50 $ 1.88
Cash settled derivatives (not designated as hedges) ($/Mcf) (0.01) 0.60
Average natural gas price, including cash settled derivatives ($/Mcf) $ 2.49 $ 2.48
Natural gas sales, including cash settled derivatives $ 972,494 $ 915,411
LIQUIDS
Natural gas liquids (NGLs), excluding ethane:
Sales volume (MMcfe) (b) 14,600 10,820
Sales volume (Mbbl) 2,433 1,803
Price ($/Bbl) $ 37.28 $ 18.58
Cash settled derivatives (not designated as hedges) ($/Bbl) (2.99) —
Average NGLs price, including cash settled derivatives ($/Bbl) $ 34.29 $ 18.58
NGLs sales $ 83,443 $ 33,511
Ethane:
Sales volume (MMcfe) (b) 8,587 3,329
Sales volume (Mbbl) 1,431 555
Price ($/Bbl) $ 6.66 $ 4.05
Ethane sales $ 9,534 $ 2,245
Oil:
Sales volume (MMcfe) (b) 1,705 1,179
Sales volume (Mbbl) 284 197
Price ($/Bbl) $ 61.98 $ 31.63
Oil sales $ 17,614 $ 6,215
Total liquids sales volume (MMcfe) (b) 24,892 15,328
Total liquids sales volume (Mbbl) 4,148 2,555
Total liquids sales $ 110,591 $ 41,971
TOTAL
Total natural gas and liquids sales, including cash settled derivatives (c) $ 1,083,085 $ 957,382
Total sales volume (MMcfe) 415,190 385,070
Average realized price ($/Mcfe) $ 2.61 $ 2.49
(a) Basis represents the difference between the ultimate sales price for natural gas and the New York Mercantile Exchange (NYMEX) natural gas price.
(b) NGLs, ethane and oil were converted to Mcfe at a rate of six Mcfe per barrel.
(c) 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.
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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 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.
Three Months Ended
March 31,
2021 2020
(Thousands, unless otherwise noted)
Total operating revenues $ 949,923 $ 1,107,057
Add (deduct):
Loss (gain) on derivatives not designated as hedges 188,813 (389,436)
Net cash settlements (paid) received on derivatives not designated as hedges (38,140) 245,736
Premiums (paid) for derivatives that settled during the period (9,726) (3,555)
Net marketing services and other (7,785) (2,420)
Adjusted operating revenues, a non-GAAP financial measure $ 1,083,085 $ 957,382
Total sales volume (MMcfe) 415,190 385,070
Average realized price ($/Mcfe) $ 2.61 $ 2.49
Sales Volume and Revenues
Three Months Ended March 31,
2021 2020 %
(Thousands, unless otherwise noted)
Sales volume by shale (MMcfe):
Marcellus (a) 373,941 333,751 12.0
Ohio Utica 39,929 49,775 (19.8)
Other 1,320 1,544 (14.5)
Total sales volume (b) 415,190 385,070 7.8
Average daily sales volume (MMcfe/d) 4,613 4,232 9.0
Operating revenues:
Sales of natural gas, NGLs and oil $ 1,130,951 $ 715,201 58.1
(Loss) gain on derivatives not designated as hedges (188,813) 389,436 (148.5)
Net marketing services and other 7,785 2,420 221.7
Total operating revenues $ 949,923 $ 1,107,057 (14.2)
(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 increased for the three months ended March 31, 2021 compared to the same period in 2020 due to higher sales volume and a higher average realized price. Average realized price
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increased due to higher NYMEX prices and higher liquids prices, partly offset by unfavorable cash settled derivatives. For the three months ended March 31, 2021, we paid $38.1 million of net cash settlements on derivatives not designated as hedges and for the same period in 2020, we received $245.7 million of net cash settlements on derivatives not designated as hedges, which are included in average realized price but may not be included in operating revenues. Sales volume increased primarily as a result of sales volume of 34 Bcfe from upstream assets we acquired from Chevron U.S.A. Inc. in the fourth quarter of 2020 (Chevron Acquisition), partly offset by a decrease of 5 Bcfe attributable to assets we divested in the second quarter of 2020.
(Loss) gain on derivatives not designated as hedges. For the three months ended March 31, 2021, we recognized a loss of $188.8 million on derivatives not designated as hedges and for the same period in 2020, we recognized a gain of $389.4 million. The loss for the three months ended March 31, 2021 was related primarily to decreases in the fair market value of our NYMEX swaps and options due to increases in NYMEX forward prices. The gain for the three months ended March 31, 2020 was related primarily to increases in the fair market value of our NYMEX swaps and options due to decreases in NYMEX forward prices.
Operating Expenses
The following table presents information on our production-related operating expenses.
Three Months Ended March 31,
2021 2020 %
(Thousands, unless otherwise noted)
Operating expenses:
Gathering $ 280,361 $ 261,721 7.1
Transmission 124,872 147,162 (15.1)
Processing 40,551 30,951 31.0
Lease operating expenses (LOE), excluding production taxes 27,019 28,023 (3.6)
Production taxes 20,211 12,357 63.6
Exploration 949 923 2.8
Selling, general and administrative 45,006 34,938 28.8
Production depletion $ 373,008 $ 353,077 5.6
Other depreciation and depletion 4,108 4,449 (7.7)
Total depreciation and depletion $ 377,116 $ 357,526 5.5
Per Unit ($/Mcfe):
Gathering
$ 0.68 $ 0.68 —
Transmission
0.30 0.38 (21.1)
Processing
0.10 0.08 25.0
LOE, excluding production taxes 0.07 0.07 —
Production taxes
0.05 0.03 66.7
Exploration — — —
Selling, general and administrative 0.11 0.09 22.2
Production depletion 0.90 0.92 (2.2)
Gathering. Gathering expense increased on an absolute basis for the three months ended March 31, 2021 compared to the same period in 2020 due to increased sales volume and additional gathering capacity acquired as a result of the Chevron Acquisition and a higher gathering rate structure as a result of the Consolidated GGA (defined and discussed in Note 8 to the Condensed Consolidated Financial Statements). We expect to realize fee relief and a lower gathering rate structure from the Consolidated GGA beginning with the Mountain Valley Pipeline (MVP) in-service date.
Transmission. Transmission expense decreased on an absolute and per Mcfe basis for the three months ended March 31, 2021 compared to the same period in 2020 due primarily to released capacity on, and credits received from, the Texas Eastern Transmission Pipeline and the Tennessee Gas Pipeline.
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Processing. Processing expense increased on an absolute and per Mcfe basis for the three months ended March 31, 2021 compared to the same period in 2020 due to higher liquid sales volume due primarily to the Chevron Acquisition and increased development of liquids-rich areas.
Production taxes. Production taxes increased on an absolute and per Mcfe basis for the three months ended March 31, 2021 compared to the same period in 2020 due primarily to increased West Virginia severance taxes as a result of higher prices and sales volume.
Selling, general and administrative. Selling, general and administrative expense increased on an absolute and per Mcfe basis for the three months ended March 31, 2021 compared to the same period in 2020 due primarily to higher long-term incentive compensation costs due to changes in the fair value of awards.
Depreciation and depletion. Production depletion increased on an absolute basis for the three months ended March 31, 2021 compared to the same period in 2020 due to increased sales volume, partly offset by a lower annual depletion rate. Production depletion decreased on a per Mcfe basis for the three months ended March 31, 2021 compared to the same period in 2020 due to a lower annual depletion rate.
Amortization of intangible assets. Amortization of intangible assets for the three months ended March 31, 2020 was $7.5 million. The intangible assets were fully amortized in the fourth quarter of 2020.
(Gain) loss on sale/exchange of long-lived assets. During the first quarter of 2020, we recognized a loss on exchange of long-lived assets of $48.9 million related to the 2020 Asset Exchange Transactions. See Note 9 to the Condensed Consolidated Financial Statements.
Impairment and expiration of leases. Impairment and expiration of leases for the three months ended March 31, 2021 was $16.8 million compared to $53.8 million for the same period in 2020. The decrease was driven by higher lease expirations in 2020 due to changes in market conditions.
Other operating expenses. Other operating expenses for the three months ended March 31, 2021 of $9.4 million were due primarily to certain transaction-related costs associated with the Chevron Acquisition and changes in legal reserves, including settlements.
Other Income Statement Items
Gain on Equitrans Share Exchange. During the first quarter of 2020, we recognized a gain on the Equitrans Share Exchange of $187.2 million. See Note 8 to the Condensed Consolidated Financial Statements.
(Income) loss from investments. For the three months ended March 31, 2021, we recognized a gain on an investment in a fund that invests in companies developing technology and operating solutions for exploration and production companies and a gain on our investment in Equitrans Midstream. Our investment in Equitrans Midstream fluctuates with changes in Equitrans Midstream's stock price, which was $8.16 and $8.04 as of March 31, 2021 and December 31, 2020, respectively. For the three months ended March 31, 2020, we recognized a loss on our investment in Equitrans Midstream, due to a decrease in Equitrans Midstream's stock price during the three months ended March 31, 2020 as well as a decrease in the number of shares of Equitrans Midstream's common stock that we own as a result of the Equitrans Share Exchange.
Dividend and other income. Dividend and other income decreased for the three months ended March 31, 2021 compared to the same period in 2020 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 as well as a decrease in the dividend amount per share.
Loss on debt extinguishment. During the three months ended March 31, 2021, we recognized a loss on debt extinguishment of $4.4 million related to the repayment of our 4.875% senior notes. During the three months ended March 31, 2020, we recognized a loss on debt extinguishment of $16.6 million related to the repayment of all or a portion of our 4.875% senior notes, 2.50% senior notes and floating rate notes.
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Interest expense. Interest expense increased for the three months ended March 31, 2021 compared to the same period in 2020 due to increased interest incurred on new debt and letters of credit issued throughout 2020 as well as higher borrowings under our credit facility. These increases were partly offset by lower interest incurred due to debt repayments throughout 2020 and the first quarter of 2021. See Note 6 to the Condensed Consolidated Financial Statements.
Income tax (benefit) expense. See Note 5 to the Condensed Consolidated Financial Statements.
Capital Resources and Liquidity
Although we cannot provide any assurance, we believe cash flows from operating activities and availability under 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.
Planned Capital Expenditures . In 2021, we expect to spend approximately $1,025 million to $1,125 million in total capital expenditures, excluding amounts attributable to noncontrolling interests, which are expected to be funded by operating cash flow and, if required, borrowings under our credit facility. Sales volume in 2021 is expected to be 1,620 Bcfe to 1,700 Bcfe.
Operating Activities. Net cash provided by operating activities was $400 million for the three months ended March 31, 2021 compared to $500 million for the same period in 2020. The decrease was due primarily to decreased cash settlements received on derivatives not designated as hedges and unfavorable timing of working capital payments, partly offset by higher cash operating revenues.
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" in our Annual Report on Form 10-K for the year ended December 31, 2020.
Investing Activities. Net cash used in investing activities was $248 million for the three months ended March 31, 2021 compared to $204 million for the same period in 2020. The increase was due primarily to cash received during the first quarter of 2020 for the Equitrans Share Exchange, partly offset by lower capital expenditures.
The following table summarizes our capital expenditures.
Three Months Ended
March 31,
2021 2020
(Millions)
Reserve development $ 189 $ 223
Land and lease (a) 23 22
Capitalized overhead 13 11
Capitalized interest 4 4
Other production infrastructure 5 1
Other corporate items 4 1
Total capital expenditures 238 262
Add (deduct) non-cash items (b) 13 (6)
Total cash capital expenditures $ 251 $ 256
(a) Capital expenditures attributable to noncontrolling interests were $1.3 million for the three months ended March 31, 2021.
(b) Represents the net impact of non-cash capital expenditures, including the effect of timing of receivables from working interest partners, accrued capital expenditures and capitalized share-based compensation costs. The impact of accrued capital expenditures includes the reversal of the prior period accrual as well as the current period estimate.
Financing Activities. Net cash used in financing activities was $130 million for the three months ended March 31, 2021 compared to $283 million for the same period in 2020. For the three months ended March 31, 2021, the primary use of financing cash flows
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was net repayments of debt. For the three months ended March 31, 2020, the primary uses of financing cash flows were net repayments of debt and credit facility borrowings, and the primary source of financing cash flows was net proceeds from the issuance of debt.
See Note 6 to the Condensed Consolidated Financial Statements for further discussion of our debt and borrowings under our credit facility.
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.
Security Ratings and Financing Triggers
The table below reflects the credit ratings and rating outlooks assigned to our debt instruments as of April 30, 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 Condensed Consolidated Financial Statements for further discussion of what is deemed investment grade.
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 senior notes with adjustable rates, the rates available on new long-term debt, our pool of investors and funding sources, the borrowing costs and margin deposit requirements on our over the counter (OTC) derivative instruments and credit assurance requirements, including collateral, in support of our midstream service contracts, joint venture arrangements or construction contracts. Margin deposits on our OTC derivative instruments are also subject to factors other than credit rating, such as natural gas prices and credit thresholds set forth in the agreements between us and our hedging counterparties.
As of April 30, 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 April 30, 2021, such assurances could be up to approximately $1.1 billion, inclusive of letters of credit, OTC derivative instrument margin deposits and other collateral posted of approximately $0.9 billion in the aggregate. See Notes 3 and 6 to the Condensed Consolidated Financial Statements for further information.
Our debt agreements and other financial obligations contain various provisions that, if not complied with, could result in default or event of default under our credit facility, mandatory partial or full repayment of amounts outstanding, reduced loan capacity or other similar actions. The most significant covenants and events of default under the debt agreements relate to maintenance of a debt-to-total capitalization ratio, limitations on transactions with affiliates, insolvency events, nonpayment of scheduled principal or interest payments, acceleration of other financial obligations and change of control provisions. Our credit facility contains financial covenants that require us to have a total debt to total capitalization ratio no greater than 65%. The calculation of this ratio excludes the effects of accumulated other comprehensive income. As of March 31, 2021, we were in compliance with all debt provisions and covenants under our debt agreements.
Commodity Risk Management
The substantial majority of our commodity risk management program is related to hedging sales of our produced natural gas. The overall objective of our hedging program is to protect cash flows from undue exposure to the risk of changing commodity prices.
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The derivative commodity instruments that we use are primarily swap, collar and option agreements. The following table summarizes the approximate volumes and prices of our NYMEX hedge positions through 2024 as of April 30, 2021.
2021 (a) 2022 2023 2024
Swaps:
Volume (MMDth) 863 618 115 2
Average Price ($/Dth) $ 2.73 $ 2.67 $ 2.51 $ 2.67
Calls – Net Short:
Volume (MMDth) 269 284 77 15
Average Short Strike Price ($/Dth) $ 2.92 $ 2.89 $ 2.89 $ 3.11
Puts – Net Long:
Volume (MMDth) 158 135 69 15
Average Long Strike Price ($/Dth) $ 2.59 $ 2.35 $ 2.40 $ 2.45
Fixed Price Sales (b):
Volume (MMDth) 54 4 3 —
Average Price ($/Dth) $ 2.49 $ 2.38 $ 2.38 $ —
(a) April 1 through December 31.
(b) The difference between the fixed price and NYMEX price is included in average differential presented in our price reconciliation in "Average Realized Price Reconciliation." The fixed price natural gas sales agreements can be physically or financially settled.
For 2021 (April 1 through December 31), 2022, 2023 and 2024, we have natural gas sales agreements for approximately 14 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.
See Item 3., "Quantitative and Qualitative Disclosures About Market Risk" and Note 3 to the Condensed Consolidated Financial Statements for further discussion of our hedging program.
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 and Part I, Item 3., "Legal Proceedings" in our Annual Report on Form 10-K for the year ended December 31, 2020 for a discussion of our commitments and contingencies.
Recently Issued Accounting Standards
Our recently issued accounting standards are described in Note 1 to the Condensed Consolidated Financial Statements.
Critical Accounting Policies and Estimates
Our critical accounting policies, including a discussion regarding the estimation uncertainty and the impact that our critical accounting estimates have had, or are reasonably likely to have, on our financial condition or results of operations, are described in Item 7., "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2020. The application of our critical accounting policies may require us to make judgments and estimates about the amounts reflected in the Condensed Consolidated Financial Statements. We use historical experience and all available information to make these estimates and judgments. Different amounts could be reported using different assumptions and estimates.
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