Business Overview
EQT Corporation (NYSE:EQT) is the largest pure-play natural gas producer in the Appalachian Basin, with a focus on the Marcellus and Utica shale formations. The company has a rich history spanning over a century, having been founded in 1130 as the Equitable Gas Company. Over the decades, EQT has transformed itself from a regional utility into a leading North American natural gas producer and midstream operator.
EQT Corporation, originally founded in 1888 as Equitable Gas Company, has undergone significant transformations throughout its history. In 2017, the company made a major acquisition of Rice Energy for $6.7 billion, which substantially expanded its upstream operations and natural gas production capabilities. However, this merger presented challenges, including increased costs and operational difficulties.
A pivotal moment came in 2019 when Toby Rice and his family, former executives of Rice Energy, took control of EQT through a proxy battle. Under this new leadership, EQT embarked on a transformation journey, focusing on operational efficiency, cost reduction, and asset base optimization. The company implemented innovative technologies and strategies, such as combo development and emissions reduction initiatives, to enhance its performance.
EQT faced significant challenges during the COVID-19 pandemic in 2020, which led to a decline in natural gas prices and reduced demand. The company responded by implementing cost-cutting measures and adjusting its operations to navigate the difficult economic environment.
In 2024, EQT made a transformative move by acquiring Equitrans Midstream Corporation, creating the first large-scale, vertically integrated natural gas company in the United States. This strategic acquisition has significantly strengthened EQT's position, allowing the company to capture additional value across the natural gas value chain.
EQT's operations are focused in the Appalachian Basin, which is renowned for its prolific natural gas reserves. The company's acreage position in the region is unparalleled, with over 21 million net acres under lease as of the end of 2023. This extensive asset base, combined with EQT's industry-leading operational expertise, has enabled the company to become one of the lowest-cost natural gas producers in North America.
EQT operates through three reportable business segments: Production, Gathering, and Transmission. The Production segment is responsible for the exploration, development, and production of natural gas, natural gas liquids (NGLs), and oil. The Gathering segment handles the gathering and compression of natural gas produced by the Production segment and third parties. The Transmission segment is responsible for the transmission and storage of natural gas.
In the Production segment, for the three months ended September 30, 2024, EQT reported total sales volume of 581.41 MMcfe (million cubic feet of natural gas equivalent), an average daily sales volume of 6.32 MMcfed (million cubic feet of natural gas equivalent per day), and an average realized price of $2.38 per Mcfe. Operating expenses for this segment included gathering ($0.20/Mcfe), transmission ($0.43/Mcfe), processing ($0.13/Mcfe), transportation and processing to affiliate ($0.43/Mcfe), lease operating expense ($0.09/Mcfe), and production taxes ($0.07/Mcfe).
The Gathering segment reported a total gathered volume of 9.74 BBtud (billion British thermal units per day) for the same period, with 5.45 BBtud of firm capacity and 4.29 BBtud of volumetric-based services. The Transmission segment had a total transmission pipeline throughput of 3.61 BBtud, with 3.60 BBtud of firm capacity and 12 BBtud of interruptible capacity. The average contracted firm transmission reservation commitments were 4.45 BBtud.
Financials
From a financial perspective, EQT has demonstrated impressive performance in recent years. In 2023, the company reported annual revenue of $5.07 billion, net income of $1.74 billion, operating cash flow of $3.18 billion, and free cash flow of $1.16 billion. This strong performance has continued into 2024, with the company reporting revenue of $3.65 billion for the third quarter, representing a 9.8% year-over-year increase driven by higher sales volumes and improved price realizations.
However, the third quarter of 2024 also saw some challenges, with net income decreasing to -$185.24 million due to higher operating expenses, including $274.6 million in transaction costs related to the Equitrans Midstream acquisition, as well as lower gain on derivatives. Operating cash flow decreased to $592.99 million from the prior year quarter due to higher cash operating expenses and unfavorable timing of working capital payments, partially offset by higher net cash settlements received on derivatives. Free cash flow also decreased to $23.51 million due to the factors impacting operating cash flow.
Liquidity
EQT maintains a strong liquidity position, with a debt-to-equity ratio of 0.55 as of September 30, 2024. The company had $88.98 million in cash and a $3.5 billion revolving credit facility with only $1.00 million of letters of credit outstanding. EQT's current ratio and quick ratio both stood at 0.51 as of the same date.
Looking ahead, EQT is well-positioned to capitalize on several secular trends in the energy industry. First, the ongoing transition towards cleaner energy sources is expected to drive sustained demand for natural gas, which is a relatively lower-emission fossil fuel compared to coal. EQT's net-zero Scope 1 and 2 emissions across its upstream operations further enhance the company's ESG credentials.
Second, the retirement of aging coal-fired power plants in the United States is creating significant opportunities for natural gas-fired electricity generation. EQT's strategic positioning in the Appalachian Basin, with access to major power markets like the Southeast and PJM, positions the company to benefit from this trend.
Third, the growth of data centers and other technology infrastructure is driving incremental natural gas demand, as these facilities require reliable and abundant power supply. EQT's integrated business model, which includes both upstream production and midstream gathering and transmission assets, enables the company to better serve these customers.
EQT has also been proactive in managing commodity price volatility through its hedging program. As of the end of the third quarter of 2024, the company was approximately 60% hedged for the calendar year 2025 at an average floor price of $3.25 per MMBtu. This disciplined approach to risk management helps to protect EQT's cash flows and supports the company's deleveraging efforts.
Despite the recent challenges faced by the natural gas industry, such as the COVID-19 pandemic and geopolitical tensions, EQT has demonstrated its resilience and ability to adapt. The company's strategic initiatives, including the Equitrans Midstream acquisition and its focus on operational efficiency, have strengthened its competitive position and positioned EQT as a premier natural gas company capable of navigating the evolving energy landscape.
EQT has consistently outperformed its guidance in recent quarters. In Q3 2024, the company's sales volumes exceeded the high end of their guidance range by 4%, and operating costs came in $0.05 per Mcfe below the low end of their guidance range. Capital expenditures were nearly $100 million below the midpoint of their guidance range.
For Q4 2024, EQT has provided updated guidance, expecting production to range from 555 to 605 Bcfe, up 7% from their prior outlook. The company has tightened its Q4 2024 basis differential guidance range to $0.50 to $0.60 per Mcf and lowered the midpoint of its Q4 2024 operating expense guidance by $0.05 per Mcfe. While EQT is increasing its Q4 2024 CapEx guidance by $50 million, the total H2 2024 CapEx is still trending below the midpoint of the prior guidance.
Looking further ahead, EQT expects to maintain flat year-over-year sales volumes around 2,100 Bcfe for the full year 2025. At recent strip pricing and pro forma the non-op sale, the company forecasts cumulative free cash flow of approximately $14.5 billion from 2025 to 2029 at an average natural gas price of roughly $3.50 per MMBtu.
Conclusion
In conclusion, EQT Corporation is a well-capitalized, vertically integrated natural gas producer with a strong balance sheet, industry-leading operational capabilities, and a favorable strategic positioning to capitalize on key trends in the energy sector. The company's robust asset base, disciplined financial management, and commitment to sustainability make it an attractive investment opportunity for those seeking exposure to the natural gas industry. With its strong performance against guidance and positive outlook for the coming years, EQT is well-positioned to navigate the cyclical nature of the industry and deliver value to its shareholders.