EQT Reports 4t Quarter & Year-End 2020 Results

Source: www.gulfoilandgas.com 2/17/2021, Location: North America

EQT Corporation announced financial and operational performance results for the fourth quarter and year-end 2020, as well as financial and operational guidance for 2021.

Fourth Quarter Highlights:
- Sales volumes of 401 Bcfe
- Total per unit operating costs of $1.30/Mcfe, $0.14 lower than 3Q20 and below guidance
- Net cash provided by operating activities of $406 MM; free cash flow(1) of $109 MM
- Capital expenditures of $266 MM, in-line with guidance
- Well costs of $695/ft. in the PA Marcellus; second sequential quarter below $735/ft. target
- Received $48 MM in federal income tax refunds
- Extinguished $200 MM in 2021 and 2022 senior notes
- Acquired Chevron's Appalachian assets for $735 MM, subject to standard closing adjustments
- Received credit rating upgrade by S&P Global in October 2020
- Upgraded by Moody's Investor Services in February 2021

Full-Year 2020 Highlights:
- Capital expenditures of $1,079 MM, $694 MM lower than 2019, while delivering flat volumes
- Well costs of $675/ft. in the PA Marcellus, surpassing targets
- Renegotiated gas gathering agreement with Equitrans Midstream Corporation, securing $535 MM of near-term fee relief and substantially reducing long-term fee structure
- Net cash provided by operating activities of $1,538 MM; free cash flow(1) of $325 MM
- Issued $2.25 B in debt instruments to address near-term maturities
- Divested non-strategic assets for $125 MM
- Fully transitioned to e-frac fleets, eliminating over 23 MM gallons of diesel fuel usage annually
- Received $440 MM in accelerated federal income tax refunds

2021 Plan Highlights:
- Sales volumes of 1,620 1,700 Bcfe, roughly flat to pro-forma 2020 level
- Capital expenditures of $1.10 - $1.20 B, comprising a 10% improvement in development capital efficiency
- Enhanced combo-development execution: 75% of new 2021 well development
- Free cash flow(1) of $500 - $600 MM; 10-12% free cash flow yield(1)(2)

President and CEO Toby Rice stated, "2020 was likely the most transformative year in EQT's history, one in which we turned vision into actions. We significantly outperformed the financial and operational plan established at the beginning of the year, positioned the company for the long-term by strengthening our balance sheet, and evolved the organization to sustainably create value in any future environment."

Rice continued, "The extension of our digital evolution across the entire organization will bring greater governance, efficiency, and sustainability to our operational and financial performance as we move into 2021. With a world-class team in place, a clearly defined strategy, and an aligned corporate culture, we are set to take EQT to the next level. As we continue this transformational journey, our commitment to the environment and the communities in which we operate will be the heart of our strategy."

Net income for fourth quarter 2020 was $64 million, $0.23 per diluted share, compared to net loss for fourth quarter 2019 of $1,177 million, $4.61 per diluted share. The increase was attributable primarily to decreased impairments and increased operating revenues, partly offset by a lower income tax benefit.

Total sales volumes increased by approximately 28 Bcfe compared to the same quarter last year due primarily to sales volumes of 12 Bcfe from the Appalachian Basin assets acquired from Chevron U.S.A. Inc. during the fourth quarter 2020 (Chevron Acquisition).

Net cash provided by operating activities increased by $188 million and free cash flow(1) decreased by $39 million compared to the same quarter last year due primarily to a lower average realized price. Average realized price was 9% lower at $2.30 per Mcfe due primarily to unfavorable differential.

Full Year 2020 Financial and Operational Performance
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, a gain on an exchange of Equitrans Midstream Corporation (Equitrans Midstream) common stock, 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.

During 2020, EQT made strategic decisions to temporarily curtail production beginning in May and ending in November (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 asset divestitures in 2020. 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.

Net cash provided by operating activities decreased by $314 million and free cash flow(1) increased by $265 million compared to 2019. Despite the impact of the Strategic Production Curtailments and a lower average realized price, free cash flow increased due to a $694 million decrease in capital expenditures. Average realized price was 12% lower at $2.37 per Mcfe, due to lower NYMEX prices and unfavorable differential, partly offset by higher cash settled derivatives.

Per Unit Operating Costs
The following presents certain of the Company's production-related operating costs on a per unit basis.
Liquidity
As of December 31, 2020, the Company had $300 million of credit facility borrowings and $0.8 billion letters of credit outstanding under its $2.5 billion credit facility.

As of December 31, 2020, total debt was $4,925 million and net debt(1) was $4,907 million compared to $5,293 million and $5,288 million, respectively, as of December 31, 2019.

As of February 12, 2021, the Company had sufficient unused borrowing capacity under its credit facility, net of letters of credit, to satisfy any collateral requests that its counterparties would be permitted to request of the Company pursuant to the Company's over the counter derivative instruments, midstream services contracts and other contracts. As of February 12, 2021, such amounts could be up to approximately $1.0 billion, inclusive of assurances posted of approximately $0.8 billion of letters of credit and $0.1 billion of surety bonds and cash collateral posted.

OPERATIONAL UPDATE
As previously announced, the Company closed the acquisition of Chevron's upstream and midstream assets located in the Appalachian Basin on November 30, 2020. The acquired assets contributed approximately 12 Bcfe of net production to the fourth quarter 2020. Asset integration processes are in advanced stages and ahead of schedule, with all upstream infrastructure being monitored and managed by the Company's technology platform. There have been no operational issues identified to-date and the Company expects to complete all integration and data migration tasks by the end of the first quarter 2021.

During the fourth quarter 2020, the Company continued to validate the sustainability of its well costs, developing it's PA Marcellus wells for approximately $695 per foot, excluding the impact of targeted reservoir testing performed on 4 wells during the period, aimed at further improving future capital efficiencies. For the full year 2020, the Company's PA Marcellus well costs averaged approximately $675 per foot, which is expected to remain relatively constant going forward. During 2021, the Company will be transitioning more activity to its WV Marcellus assets, with the primary objective of drastically reducing well costs, as it did with its PA Marcellus assets during 2020. Part of the WV well cost transformation will be driven by the installation of a 45 mile mixed-use water system that will serve as the backbone for optimal development efficiencies moving forward, while also reducing environmental impacts and improving long-term operating expenses. The water system is expected to service approximately 1.8 million feet of pay currently on the Company's development schedule, with an extensive inventory of future locations to also benefit from this infrastructure.

In January 2021, the Company successfully deployed a modern enterprise resource planning (ERP) system. This foundational system creates a standard data structure that aligns operations with the back office, by eliminating manual processes that otherwise require human intervention. The implementation aligns with the Company's strategy of leveraging modern technology with automation to become a more efficient operator. This implementation is a precursor to unlocking additional efficiencies at EQT. Paired with the Company's robust digital work environment, this modern ERP system is expected to increase transparency, drive more reliable and timely data-driven decisions, enhance cost control, and provide full visibility into operational costs from budget creation to project execution.


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