10-QPeriod: Q2 FY2019

EQT Corp Quarterly Report for Q2 Ended Jun 30, 2019

Filed July 25, 2019For Securities:EQT

Summary

EQT Corporation's Q2 2019 10-Q filing reveals a significant turnaround in profitability, primarily driven by a substantial gain on derivatives not designated as hedges and the absence of large impairment charges that burdened the prior year's results. For the three months ended June 30, 2019, the company reported income from continuing operations of $125.6 million, a stark contrast to the $77.0 million loss in the same period of 2018. This improvement is also reflected in the six-month period, with income from continuing operations of $316.3 million in 2019 versus a $1.7 billion loss in 2018. Operationally, EQT saw a slight increase in sales volumes, though average realized prices for natural gas and liquids were lower compared to the prior year. The company's financial performance was heavily influenced by the gain on derivatives, which significantly boosted revenue in the current quarter. Management also noted ongoing strategic shifts, including a plan to transform the company into a more efficient, digitally-enabled producer, leading to the suspension of 2020 outlook pending further review. Investors should monitor the execution of this new strategy and its impact on cost structure and operational efficiency.

Financial Highlights

50 data points
Beta

Revenue

$900.53M

51.5% Gross Margin

Net Income

$125.57M

13.9% Net Margin

EPS (Diluted)

$0.49

Total Assets

$20.48B

Cash & Equivalents

$30.17M

Free Cash Flow

$48.79M

Financial Statements
Beta
Revenue$900.53M
Cost of Revenue$436.98M
Gross Profit$463.54M
SG&A Expenses$86.21M
Operating Expenses$1.01B
Operating Income$296.03M
Interest Expense$50.50M
Net Income$125.57M
EPS (Basic)$0.49
EPS (Diluted)$0.49
Shares Outstanding (Basic)255.10M
Shares Outstanding (Diluted)255.22M

Key Highlights

  • 1Significant profitability improvement in Q2 2019, with income from continuing operations of $125.6 million compared to a $77.0 million loss in Q2 2018.
  • 2Six-month income from continuing operations reached $316.3 million, a substantial recovery from the $1.7 billion loss in the first six months of 2018.
  • 3A major gain on derivatives not designated as hedges ($407.6 million in Q2 2019) significantly boosted operating revenues, contrasting with a loss in the prior year's quarter.
  • 4Sales volumes saw a modest increase (2.1% for the quarter, 4.7% for the six months), but average realized prices for natural gas and liquids decreased.
  • 5The company is undergoing a strategic transformation under new leadership, focusing on efficiency, technology, and cost reduction, leading to a suspended outlook for 2020.
  • 6Capital expenditures for the six months ended June 30, 2019, were $942 million, down from $1,326 million in the comparable period of 2018, reflecting a shift in strategy.
  • 7The company settled a significant class-action lawsuit related to royalty payments for $53.5 million, resolving claims from 2009-2017.

Frequently Asked Questions

The primary driver for the improved profitability was a substantial gain on derivatives not designated as hedges ($407.6 million in Q2 2019) which significantly boosted operating revenues. This, combined with the absence of large impairment charges that were present in the prior year's second quarter, led to a strong turnaround from a net loss to a net income from continuing operations.

For the first six months of 2019, EQT experienced a modest increase in total sales volumes (4.7%) due to increased production from recent drilling programs. However, the average realized price per Mcfe was lower ($2.88 in H1 2019 vs. $3.06 in H1 2018), primarily due to lower commodity prices and the impact of asset divestitures in 2018.

The company is implementing a broad transformation plan under new leadership, aiming to become a more efficient, digitally-enabled, and lowest-cost producer in the Appalachian Basin. This involves operational changes, focus on large-scale development projects, and disciplined capital allocation. Due to this ongoing review and potential changes, EQT has suspended its outlook for 2020 and beyond pending the completion of the revised plan.

EQT reached a settlement in a class-action royalty lawsuit for $53.5 million, resolving claims from 2009-2017. Additionally, the company is negotiating a civil penalty settlement with the PADEP for a well control event, which is expected to exceed $100,000 but is not anticipated to have a material impact. A separate matter involving a former employee and misappropriation of trade secrets is under review by a special committee.