10-QPeriod: Q2 FY2021

EQT Corp Quarterly Report for Q2 Ended Jun 30, 2021

Filed July 29, 2021For Securities:EQT

Summary

EQT Corporation's financial results for the quarter and six months ended June 30, 2021, indicate a significant increase in operating revenues compared to the prior year, primarily driven by higher commodity prices and increased sales volumes. However, the company reported a substantial net loss for both periods, largely attributable to significant unrealized losses on derivatives not designated as hedges. While operational performance shows improvement, the volatile nature of derivative accounting heavily impacted the bottom line. The company's balance sheet shows growth in current assets, including cash and derivative instruments, alongside an increase in total liabilities, particularly senior notes and current liabilities. This reflects a complex financial position influenced by commodity price hedging activities and debt management. Investors should note the considerable negative equity and net loss per share, underscoring the impact of derivative valuation on reported earnings. Cash flow from operations declined year-over-year, influenced by derivative settlements and working capital changes, despite improved operational revenues. Investing activities showed a significant outflow, mainly due to acquisitions. Financing activities provided a net inflow, driven by debt issuances and managed credit facility movements. The company's liquidity appears adequate, with sufficient operating cash flow and credit facility availability expected to cover obligations, but the substantial net losses and ongoing derivative impacts warrant close investor attention.

Financial Highlights

51 data points
Beta

Revenue

$1.08B

57.0% Gross Margin

Net Income

-$933.26M

-86.6% Net Margin

EPS (Diluted)

$-3.34

Total Assets

$18.99B

Cash & Equivalents

$330.77M

Free Cash Flow

-$175.50M

Financial Statements
Beta
Revenue$1.08B
Cost of Revenue$464.02M
Gross Profit$613.89M
SG&A Expenses$49.85M
Operating Expenses$957.52M
Operating Income-$1.22B
Interest Expense$72.25M
Net Income-$933.26M
EPS (Basic)$-3.34
EPS (Diluted)$-3.34
Shares Outstanding (Basic)279.16M
Shares Outstanding (Diluted)279.16M

Key Highlights

  • 1Significant increase in total operating revenues by 116.1% for the three months and 82.0% for the six months ended June 30, 2021, compared to the prior year, driven by higher natural gas, NGLs, and oil prices and increased sales volumes.
  • 2A substantial net loss attributable to EQT Corporation was reported for both the three months ($936.5 million, or $3.35 per diluted share) and six months ($977.0 million, or $3.50 per diluted share) ended June 30, 2021.
  • 3The large net losses were primarily driven by significant unrealized losses on derivatives not designated as hedges, totaling $1,345.5 million for the quarter and $1,534.3 million for the six months.
  • 4Cash flow from operating activities decreased significantly to $443.4 million for the six months ended June 30, 2021, from $947.1 million in the prior year, due to lower net cash settlements from derivatives and working capital timing.
  • 5Total assets increased to $18.99 billion as of June 30, 2021, with a notable rise in cash and cash equivalents to $330.8 million from $18.2 million at the end of 2020.
  • 6Total liabilities also increased to $10.68 billion, with senior notes rising to $5.00 billion, reflecting debt issuances during the period.
  • 7The company issued $1.0 billion in senior notes in May 2021 to partially fund the Alta Acquisition.

Frequently Asked Questions

The primary reason for the substantial net loss is the significant unrealized losses recorded on derivative instruments not designated as hedges. While revenues from sales of natural gas, NGLs, and oil increased due to higher prices and volumes, the changes in fair value of these derivatives, which are recognized in operating revenue, resulted in substantial negative impacts on the net income.

EQT Corporation issued $1.0 billion in senior notes in May 2021 to partly fund its acquisition of Alta Resources Development, LLC. The company also amended its credit facility to extend the maturity date. Total liabilities increased to $10.68 billion, with senior notes comprising $5.0 billion of this amount. The company's balance sheet shows a substantial increase in both debt and derivative liabilities compared to the previous year.

Cash flow from operating activities decreased year-over-year, impacted by the timing of derivative settlements and working capital changes. The company expects operating cash flows, along with its credit facility, to be sufficient to meet its cash requirements for at least the next twelve months and the long term, though significant fluctuations can occur due to commodity price volatility and derivative accounting.

Derivative instruments not designated as hedges are used by EQT Corporation to hedge against commodity price volatility. However, under accounting rules, changes in their fair value are recognized in earnings each period, even if the derivatives have not yet settled. This can lead to significant fluctuations in reported net income, as seen in the large unrealized losses recorded in this reporting period, which do not necessarily reflect the company's underlying operational cash flow performance.