EQT Corp (EQT) Q1 Results - May 7

[dan_s]

EQT Corporation (NYSE: EQT) announced financial and operational results for the first quarter 2021.

First Quarter Highlights:

Sales volumes of 415 Bcfe, in-line with guidance < 2.5% higher than my Q1 forecast.

Received an average realized price of $2.61/Mcfe

Total per unit operating costs of $1.31/Mcfe, $0.04 below midpoint of annual guidance

Net cash provided by operating activities of $400 MM; free cash flow of $259 MM < "Adjusted Cash Flow" of $495.4 million beat my forecast of $445 million.

Capital expenditures of $238 MM, $42 MM below the low-end of guidance range

Well costs of $635/foot in the PA Marcellus, $40/foot below full-year 2021 well costs target

Reduced 2021 capital expenditure guidance by $75 MM

Increased free cash flow guidance by $75 MM

Announced project to certify approximately 4.0 Bcf/d of gas producing from over 200 pads

Successfully executed one-year extension of $2.5 B revolving credit facility

President and CEO Toby Rice stated, "This team continues to deliver operational and financial results that meet or exceed expectations. The efficiencies being realized across the organization have enabled us to reduce our expected 2021 capital expenditures by $75 million, while still delivering the same volumes. We now expect to generate between $575 and $675 million in free cash flow in 2021, which will strengthen our balance sheet, reduce leverage and accelerate our strategy of returning cash to shareholders."

Rice continued, "Delivering high performance for our investors, environment, communities and every stakeholder group is at the heart of our strategy and we are committed to the highest standard of ESG performance. The gas certification projects we announced during the quarter with Project Canary and Equitable Origin/MiQ are both important steps in our efforts to solidify our position as the ESG leader in our industry. We look forward to sharing other exciting initiatives, as well as our specific emission targets, with our stakeholders in the coming months."

[dan_s]

EQT reported "Adjusted Operating Cash Flow" of $495,438,000
Adjusted operating cash flow is defined as net cash provided by operating activities less changes in other assets and liabilities. Free cash flow is defined as adjusted operating cash flow less accrual-based capital expenditures, excluding capital expenditures attributable to noncontrolling interests. Adjusted operating cash flow and free cash flow are non-GAAP supplemental financial measures used by the Company's management to assess liquidity, including the Company's ability to generate cash flow in excess of its capital requirements and return cash to shareholders. The Company's management believes that these measures provide useful information to external users of the Company's consolidated financial statements, such as industry analysts, lenders and ratings agencies. Adjusted operating cash flow and free cash flow should not be considered as alternatives to net cash provided by operating activities or any other measure of liquidity presented in accordance with GAAP.

[dan_s]

EQT Announces Transformative Transaction with Alta Resources
05/06/21
Highly Economic Assets in the Core of the Northeast Marcellus
PITTSBURGH, May 6, 2021 /PRNewswire/ -- EQT Corporation (NYSE: EQT) today announced that it has entered into a purchase agreement with Alta Resources Development, LLC (Alta), pursuant to which EQT will acquire all of the membership interests in Alta's upstream and midstream subsidiaries for approximately $2.925 billion, subject to customary closing adjustments. The transaction is expected to close in the third quarter of 2021, with an effective date of January 1, 2021.

Transaction Highlights:

Attractive valuation with high-margin and robust free cash flow generation
> Projected annual free cash flow(1) of $300-$400 million
> Projected annual adjusted EBITDA(1) of $550-$600 million
> Purchase price implies an ~18% unlevered free cash flow yield
> Low leverage acquisition accelerates EQT's path back to investment grade metrics
> Immediately reduces leverage; improving 0.3x by year-end 2022
> Establishes a leverage profile comfortably below 2.0x target
> Accretive to free cash flow per share
> Projected to increase free cash flow by 55%, or $2.0 billion, through 2026
> Free cash flow per share improves by more than 15% through 2026
> Adds highly prolific inventory with superior well economics in the core of the Northeast Marcellus
> Integrated midstream assets and mineral ownership drive high margin operated development
> Direct exposure to the geologic core through non-operated position

President and CEO Toby Rice stated, "Today marks another major milestone for EQT as we continue on our path to becoming the operator of choice for all of our stakeholders. The acquisition of Alta's assets represents an attractive entry into the Northeast Marcellus while accelerating our deleveraging path, providing attractive free cash flow per share accretion for our shareholders and adding highly economic inventory to EQT's already robust portfolio. In addition to increasing our long-term optionality, we believe this transaction accelerates both our path back to investment grade metrics and our shareholder return initiatives. We look forward to applying our differentiated modern operating model to maximize the prolific value embedded in these premier assets."

Asset Overview: Expansive Position in the Core Northeast Marcellus

300,000 core net Marcellus acres; 98% held by production
222,000 net acre operated position
78,000 net acre non-operated position
1.0 Bcfe per day of current net production, 100% dry gas
300-miles of owned and operated midstream gathering systems
100-mile freshwater system with 255 million gallons of storage capacity
Attractive firm transportation portfolio to premium demand markets
Existing hedge book covering approximately 35% of production through 2022
Strategic Rationale: Checks all the Boxes for Attractive Consolidation
This acquisition fits firmly within our strategic acquisition framework, while also establishing a significant and strategic position in the core of the Northeast Marcellus. We expect the acquisition to be accretive to both free cash flow per share and net asset value (NAV) per share, while also accelerating our deleveraging strategy and underscoring our commitment to achieving investment grade credit metrics.

Approximately 1.0 Bcfe per day of high-margin net production is expected to bolster our free cash flow profile by adding approximately $300-400 million of annual free cash flow and a total of approximately $2.0 billion of free cash flow through 2026, an improvement of approximately 55% compared to our pre-transaction outlook. As a result, this transaction is projected to accelerate our deleveraging strategy, comfortably pulling near-term leverage below our 2.0x target. We estimate this transaction will improve leverage by 0.3x and 0.5x by year end 2022 and 2023, respectively. Our improved leverage profile provides a compelling case for an investment grade credit rating and is expected to accelerate our strategy to return value to shareholders.

This strong free cash flow contribution is a result of Alta's low-cost structure, driven by low royalty burdens averaging 14%, direct mineral ownership, a premium firm transportation portfolio and an owned and operated midstream gathering system serving the operated acreage position. We expect the transaction to reduce EQT's pro forma annual corporate free cash flow breakeven gas price by at least $0.10 per mmbtu.

Transaction Financing:
The total purchase price for the transaction is $2.925 billion, consisting of $1.0 billion in cash and approximately $1.925 billion in EQT common stock issued directly to Alta's shareholders.

We expect to fund the $1.0 billion of cash consideration with cash on hand, drawings under our revolving credit facility and/or through one or more debt capital markets transactions, subject to market conditions and other factors. Bank of America, N.A. and JPMorgan Chase Bank, N.A. have jointly provided $1.0 billion of committed financing in connection with the transaction and we have access to over $1.4 billion of liquidity under our unsecured credit facility.

The stock consideration consists of approximately 105 million shares of EQT common stock representing $1.925 billion, based on the 30-day volume-weighted average price as of May 5, 2021. The transaction was unanimously approved by our Board of Directors. EQT shares issued as part of the transaction will be distributed directly to Alta shareholders, which represent a diverse set of financial institutions and individuals. No Alta shareholder will receive more than 5% of EQT's pro forma outstanding shares of common stock in connection with the transaction.

The transaction is expected to close in the third quarter of 2021, subject to satisfaction of customary closing conditions, including the approval by EQT's shareholders of the issuance of the common stock consideration. All post effective date purchase price adjustments will be netted against the stock consideration and are expected to result in a reduction of approximately 11 million shares issued at closing.

BofA Securities served as financial advisor to EQT, and Latham & Watkins, LLP is serving as EQT's legal counsel on the transaction. Citi Global Markets Inc. served as exclusive financial advisor to Alta, and Kirkland & Ellis LLP is serving as Alta's legal counsel.

[dan_s]

Wall Street Gang seems to like the Alta Resources Acquistion.
Updated price targets
Morgan Stan 5/7/2021 $24.00 BUY
Tudor Pickering 5/7/2021 $24.00 BUY
S Williams Shank 5/6/201 $21.00 HOLD

I have updated my forecast/valuation model for EQT assuming the acquisition closes in Q3 2021. Closing date really doesn't matter since the Effective Date is January 1, 2021, so EQT will get the results in 1H 2021 as a purchase price adjustment.

I am lowering my valuation by $1 to $25/share. It will take a few months before we know the full impact of the deal and ngas and NGL prices do have a HUGE impact on this one. My 2022 forecast assumes EQT's realized prices will be $2.75/mcf for dry gas and $22.00/bbl for NGLs.

My forecast model will be posted to the EPG website this afternoon.