Edgar Filing: EQT Corp

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2012

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 1-3551

EQT CORPORATION

(Exact name of registrant as specified in its charter)

PENNSYLVANIA		25-0464690
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

625 Liberty Avenue, Pittsburgh, Pennsylvania		15222
(Address of principal executive offices)		(Zip code)

(412) 553-5700

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ý	Accelerated Filer	o
Non-Accelerated Filer o	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

As of June 30, 2012, 149,594,611 shares of common stock, no par value, of the registrant were outstanding.

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EQT CORPORATION AND SUBSIDIARIES

Index

		Page No.

Part I. Financial Information:

Item 1.	Financial Statements (Unaudited):

	Statements of Consolidated Income for the Three and Six Months Ended June 30, 2012 and 2011	3

	Statements of Consolidated Comprehensive Income for the Three and Six Months Ended June 30, 2012 and 2011	4

	Statements of Condensed Consolidated Cash Flows for the Six Months Ended June 30, 2012 and 2011	5

	Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011	6 – 7

	Notes to Condensed Consolidated Financial Statements	8 – 18

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19 – 32

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33 – 35

Item 4.	Controls and Procedures	36

Part II. Other Information:

Item 1.	Legal Proceedings	37

Item 1A.	Risk Factors	38

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 6.	Exhibits	39

Signature		40

Index to Exhibits		41

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EQT CORPORATION AND SUBSIDIARIES

Statements of Consolidated Income (Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2012		2011		2012		2011
	(Thousands, except per share amounts)

Operating revenues	$	337,804	$	367,791	$	787,764	$	840,486

Operating expenses:
Purchased gas costs	39,667		40,250		123,733		155,488
Operation and maintenance	34,815		30,586		69,205		55,641
Production	22,572		19,765		49,595		35,876
Exploration	1,887		1,198		3,715		2,573
Selling, general and administrative	41,778		40,936		84,720		79,827
Depreciation, depletion and amortization	115,681		81,886		223,206		160,284
Total operating expenses	256,400		214,621		554,174		489,689
Gain on dispositions	—		—		1,110		22,785
Operating income	81,404		153,170		234,700		373,582
Other income	5,249		18,046		9,930		24,850
Interest expense	40,629		33,287		81,881		66,139

Income before income taxes	46,024		137,929		162,749		332,293
Income taxes	14,578		50,175		59,268		122,284
Net income	$	31,446	$	87,754	$	103,481	$	210,009

Earnings per share of common stock:
Basic:
Weighted average common shares outstanding	149,582		149,444		149,532		149,347
Net income	$	0.21	$	0.59	$	0.69	$	1.41
Diluted:
Weighted average common shares outstanding	150,149		150,111		150,200		150,034
Net income	$	0.21	$	0.58	$	0.69	$	1.40
Dividends declared per common share	$	0.22	$	0.22	$	0.44	$	0.44

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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EQT CORPORATION AND SUBSIDIARIES

Statements of Consolidated Comprehensive Income (Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
	(Thousands)

Net income	$	31,446		$	87,754		$	103,481		$	210,009

Other comprehensive income (loss), net of tax:
Net change in cash flow hedges:
Natural gas, net of tax (benefit) expense of $(41,598), $14,240, $(3,105) and $6,451 (see Note C)	(64,216		)	23,334			(4,714		)	10,630
Interest rate, net of tax (benefit) of ($4,966), $0, ($3,165) and $0	(6,606		)	29			(4,168		)	58
Unrealized loss on available-for-sale securities, net of tax of $1,575 and $2,636	—			(2,925		)	—			(4,896		)
Pension and other post-retirement benefits liability adjustment, net of tax of $92, $281, $214 and $563	489			413			1,436			824
Other comprehensive (loss) income	(70,333		)	20,851			(7,446		)	6,616
Comprehensive (loss) income	$	(38,887	)	$	108,605		$	96,035		$	216,625

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EQT CORPORATION AND SUBSIDIARIES

Statements of Condensed Consolidated Cash Flows (Unaudited)

	Six Months Ended
	June 30,
	2012			2011
	(Thousands)
Cash flows from operating activities:
Net income	$	103,481		$	210,009
Adjustments to reconcile net income to cash provided by operating activities:
Provision for losses on accounts receivable	(2,638		)	1,704
Depreciation, depletion, and amortization	223,206			160,284
Unrealized gains on derivatives and inventory	(4,365		)	(2,684		)
Other income	(9,930		)	(24,850		)
Gain on dispositions	(1,110		)	(22,785		)
Equity award expense	17,235			10,868
Deferred income taxes	53,057			103,938
Noncash financial instrument put premiums	8,227			–
Changes in other assets and liabilities:
Dividend from Nora Gathering LLC	7,750			18,500
Inventory	51,004			28,358
Accounts receivable and unbilled revenues	72,790			59,144
Accounts payable	(54,274		)	(27,076		)
Other assets and liabilities	(45,994		)	(34,326		)
Net cash provided by operating activities	418,439			481,084

Cash flows from investing activities:
Capital expenditures	(662,320		)	(544,911		)
Proceeds from sale of available-for-sale investments	–			29,947
Proceeds from sale of assets	3,746			230,525
Net cash used in investing activities	(658,574		)	(284,439		)

Cash flows from financing activities:
Dividends paid	(65,887		)	(65,795		)
Decrease in short-term loans	–			(53,650		)
Repayments and retirements of long-term debt	(9,532		)	–
Proceeds and tax benefits from exercises under employee compensation plans	1,499			2,025
Revolving credit facility origination fees	(2,158		)	–
Net cash used in financing activities	(76,078		)	(117,420		)

Net (decrease) increase in cash and cash equivalents	(316,213		)	79,225
Cash and cash equivalents at beginning of period	831,251			–
Cash and cash equivalents at end of period	$	515,038		$	79,225

Cash paid during the period for:
Interest, net of amount capitalized	$	81,529		$	64,703
Income taxes, net	$	13,193		$	2,505

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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EQT CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)

	June 30,		December 31,
	2012		2011
	(Thousands)
ASSETS

Current assets:
Cash and cash equivalents	$	515,038	$	831,251
Accounts receivable (less accumulated provision for doubtful accounts June 30, 2012 and December 31, 2011: $12,429 and $16,371)	105,800		153,321
Unbilled revenues	7,626		30,257
Inventory	77,907		123,960
Derivative instruments, at fair value	467,587		512,161
Prepaid expenses and other	39,595		39,184
Total current assets	1,213,553		1,690,134

Equity in nonconsolidated investments	132,221		136,972

Property, plant and equipment	9,423,950		8,768,713
Less: accumulated depreciation and depletion	2,167,508		1,962,404
Net property, plant and equipment	7,256,442		6,806,309

Regulatory assets	101,267		94,095
Other assets	44,688		45,209
Total assets	$	8,748,171	$	8,772,719

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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EQT CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)

	June 30,			December 31,
	2012			2011
	(Thousands)
LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Current portion of long-term debt	$	229,944		$	219,315
Accounts payable	202,483			256,757
Derivative instruments, at fair value	109,214			123,306
Other current liabilities	154,969			205,532
Total current liabilities	696,610			804,910

Long-term debt	2,506,739			2,527,627
Deferred income taxes and investment tax credits	1,672,584			1,618,944
Other credits	226,230			227,408
Total liabilities	5,102,163			5,178,889

Common stockholders’ equity:
Common stock, no par value, authorized 320,000 shares; shares issued June 30, 2012 and December 31, 2011: 175,684 and 175,684	1,754,884			1,734,994
Treasury stock, shares at cost: June 30, 2012 and December 31, 2011: 26,089 and 26,207	(471,075		)	(473,215		)
Retained earnings	2,181,504			2,143,910
Accumulated other comprehensive income	180,695			188,141
Total common stockholders’ equity	3,646,008			3,593,830
Total liabilities and stockholders’ equity	$	8,748,171		$	8,772,719

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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EQT Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

A. Financial Statements

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the requirements of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements. In the opinion of management, these statements include all adjustments (consisting of only normal recurring accruals, unless otherwise disclosed in this Form 10-Q) necessary for a fair presentation of the financial position of EQT Corporation and subsidiaries as of June 30, 2012 and December 31, 2011, the results of its operations for the three and six month periods ended June 30, 2012 and 2011 and its cash flows for the six month period ended June 30, 2012 and 2011. Certain previously reported amounts have been reclassified to conform to the current year presentation. In this Form 10-Q, references to “we,” “us,” “our,” “EQT,” “EQT Corporation,” and the “Company” refer collectively to EQT Corporation and its consolidated subsidiaries.

The balance sheet at December 31, 2011 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements.

Due to the seasonal nature of the Company’s natural gas distribution and storage businesses and the volatility of commodity prices, the interim statements for the three and six month periods ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

On July 2, 2012, EQT Midstream Partners, LP (the Partnership), a subsidiary of the Company, completed an underwritten initial public offering (IPO) of 14,375,000 common units representing limited partner interests in the Partnership, which represented 40.6% of the Partnership’s outstanding equity. The Company retained a 59.4% equity interest in the Partnership, including 2,964,718 common units, 17,339,718 subordinated units and a 2% general partner interest. Prior to the IPO, the Company contributed to the Partnership 100% of Equitrans, LP, (Equitrans, the Company’s Federal Energy Regulatory Commission (FERC) regulated transmission, storage and gathering subsidiary). A wholly-owned subsidiary of EQT serves as the general partner of the Partnership, and the Company continues to operate the Equitrans business pursuant to an omnibus agreement and an operation and management services agreement. EQT will continue to consolidate the Partnership results. See Footnote M for additional details.

For further information, refer to the consolidated financial statements and footnotes thereto included in EQT Corporation’s Annual Report on Form 10-K for the year ended December 31, 2011 as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 19 of this document.

B. Segment Information

Operating segments are revenue-producing components of the enterprise for which separate financial information is produced internally and which are subject to evaluation by the Company’s chief operating decision maker in deciding how to allocate resources.

The Company reports its operations in three segments, which reflect its lines of business. The EQT Production segment includes the Company’s exploration for, and development and production of, natural gas, natural gas liquids (NGLs) and a limited amount of crude oil in the Appalachian Basin. EQT Midstream’s operations include the natural gas gathering, transportation, storage and marketing activities of the Company. Following the IPO, EQT Midstream’s operations include ownership and operation of the Partnership. Distribution’s operations primarily comprise the state-regulated natural gas distribution activities of the Company.

Operating segments are evaluated on their contribution to the Company’s consolidated results based on operating income. Other income, interest and income taxes are managed on a consolidated basis. Headquarters’ costs are billed to the operating segments based upon a fixed allocation of the headquarters’ annual operating budget. Differences between budget and actual headquarters’ expenses are not allocated to the operating segments. As part of the 2012 budgeting process, the Company allocated additional corporate overhead charges to the operating segments. Current

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EQT Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

period corporate overhead costs have stayed consistent with budgeted amounts; thus, unallocated expenses presented in the segment table below have decreased for the three and six month periods ended June 30, 2012.

The Company’s management reviews and reports the EQT Production segment results for operating revenues and purchased gas costs, with third party transportation costs reflected as a deduction from operating revenues. During 2011, because of increased materiality of these costs, the Company determined that consolidated results for these line items are required to be reported on a gross basis with third-party transportation costs recorded as a portion of purchased gas costs. The consolidated operating revenues, purchased gas costs and total operating expenses for all periods presented have been adjusted to reflect this gross presentation. This adjustment had no impact on consolidated net income, consolidated operating income or on the segment results for any period presented. Management believes this adjustment is not material to the overall financial statement presentation.

Substantially all of the Company’s operating revenues, income from operations and assets are generated or located in the United States.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
	(Thousands)
Revenues from external customers:
EQT Production	$	158,649		$	196,810		$	354,045		$	369,852
EQT Midstream	120,098			131,201			242,146			272,863
Distribution	48,273			69,100			183,694			264,191
Other (a)	10,784			(29,320		)	7,879			(66,420		)
Total	$	337,804		$	367,791		$	787,764		$	840,486

Operating income:
EQT Production (b)	$	17,704		$	99,759		$	77,852		$	182,088
EQT Midstream (b)	59,750			52,243			115,886			141,661
Distribution	6,376			8,928			43,146			62,295
Unallocated expenses	(2,426		)	(7,760		)	(2,184		)	(12,462		)
Total	$	81,404		$	153,170		$	234,700		$	373,582

Reconciliation of operating income to net income:

Other income	$	5,249		$	18,046		$	9,930		$	24,850
Interest expense	40,629			33,287			81,881			66,139
Income taxes	14,578			50,175			59,268			122,284
Total	$	31,446		$	87,754		$	103,481		$	210,009

	June 30,		December 31,
	2012		2011
	(Thousands)
Segment Assets:
EQT Production	$	5,469,398	$	5,256,645
EQT Midstream	1,918,025		1,785,089
Distribution	795,683		850,414
Total operating segments	8,183,106		7,892,148
Headquarters assets, including cash and short-term investments	565,065		880,571
Total assets	$	8,748,171	$	8,772,719

(a) Includes entries to eliminate intercompany natural gas sales from EQT Production to EQT Midstream and transportation activities between EQT Midstream and both EQT Production and Distribution. In addition, this amount reflects the reclassification of third party transportation costs from purchased gas costs to operating revenues at the consolidated level. Reduced activity between segments, lower prices, and increased third-party transportation costs caused the change for the three and six month periods presented.

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EQT Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(b) Gains on dispositions of $1.1 million are included in EQT Production operating income for the six months ended June 30, 2012 and gains on dispositions of $22.8 million are included in EQT Midstream operating income for the six month period ended June 30, 2011. See Note J.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2012		2011		2012		2011
	(Thousands)
Depreciation, depletion and amortization:
EQT Production	$	94,405	$	61,899	$	180,972	$	119,733
EQT Midstream	14,984		14,296		29,692		29,004
Distribution	6,287		5,923		12,530		11,880
Other	5		(232)		12		(333		)
Total	$	115,681	$	81,886	$	223,206	$	160,284

Expenditures for segment assets:
EQT Production (c)	$	264,926	$	317,906	$	448,611	$	544,878
EQT Midstream	119,925		46,500		199,563		75,605
Distribution	7,439		8,811		12,902		15,030
Other	443		881		1,244		2,013
Total	$	392,733	$	374,098	$	662,320	$	637,526

(c) Capital expenditures at EQT Production for the three and six month periods ended 2011 include $92.6 million of liabilities assumed in exchange for producing properties as part of the ANPI transaction discussed in Note I.

C. Derivative Instruments

Natural Gas Hedging Instruments

The Company’s primary market risk exposure is the volatility of future prices for natural gas and NGLs, which can affect the operating results of the Company primarily through EQT Production and the storage, marketing and other activities at EQT Midstream. The Company’s overall objective in its hedging program is to protect cash flows from undue exposure to the risk of changing commodity prices.

The Company uses derivative commodity instruments that are purchased from or placed with major financial institutions whose creditworthiness is regularly monitored. Futures contracts obligate the Company to buy or sell a designated commodity at a future date for a specified price and quantity at a specified location. Swap agreements involve payments to or receipts from counterparties based on the differential between a fixed and a variable price for the commodity. Collar agreements require the counterparty to pay the Company if the index price falls below the floor price and the Company to pay the counterparty if the index price rises above the cap price. The Company also engages in a limited number of basis swaps to protect earnings from undue exposure to the risk of geographic disparities in commodity prices and interest rate swaps to hedge exposure to interest rate fluctuations on short- or long-term debt.

The Company recognizes all derivative instruments as either assets or liabilities at fair value on a gross basis. The accounting for the changes in fair value of the Company’s derivative instruments depends on the use of the derivative instruments. To the extent that a derivative instrument has been designated and qualifies as a cash flow hedge, the effective portion of the change in fair value of the derivative instrument is reported as a component of accumulated other comprehensive income, net of tax, and is subsequently reclassified into the Statements of Consolidated Income in the same period or periods during which the forecasted transaction affects earnings.

For a derivative instrument that has been designated and qualifies as a fair value hedge, the change in the fair value of the instrument is recognized as a portion of operating revenues in the Statements of Consolidated Income each period. In addition, the change in the fair value of the hedged item (natural gas inventory) is recognized as a portion of operating revenues in the Statements of Consolidated Income. The Company has elected to exclude the spot/forward differential for the assessment of effectiveness of the fair value hedges. Any hedging ineffectiveness

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EQT Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

and any change in fair value of derivative instruments that have not been designated as hedges, are recognized in the Statements of Consolidated Income each period.

Exchange-traded instruments are generally settled with offsetting positions. Over the counter (OTC) arrangements require settlement in cash. Settlements of derivative commodity instruments are reported as a component of cash flows from operations in the accompanying Statements of Condensed Consolidated Cash Flows.

Some of the derivative commodity instruments used by the Company to hedge its exposure to variability in expected future cash flows associated with the fluctuations in the price of natural gas related to the Company’s forecasted sale of equity production and forecasted natural gas purchases and sales have been designated and qualify as cash flow hedges. Some of the derivative commodity instruments used by the Company to hedge its exposure to adverse changes in the market price of natural gas stored in the ground have been designated and qualify as fair value hedges.

In addition, the Company enters into a limited number of energy trading contracts to leverage its assets and limit its exposure to shifts in market prices and has a limited number of other derivative instruments not designated as hedges. In 2008 and 2011, the Company effectively settled certain derivative commodity swaps scheduled to mature during the period 2010 through 2013 by de-designating the instruments and entering into directly counteractive instruments. These transactions result in offsetting positions which are the majority of the derivative asset and liability balances not designated as hedging instruments.

All derivative instrument assets and liabilities are reported in the Condensed Consolidated Balance Sheets as derivative instruments, at fair value. These derivative instruments are reported as either current assets or current liabilities due to their highly liquid nature. The Company can net settle its derivative instruments at any time.

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2012			2011			2012			2011
	(Thousands)
Commodity derivatives designated as cash flow hedges
Amount of (loss) gain recognized in other comprehensive income (OCI) (effective portion), net of tax		$	(8,930	)	$	33,253		$	98,558		$	37,453
Amount of gain reclassified from accumulated OCI into operating revenues (effective portion), net of tax		$	55,286		$	9,919		$	103,272		$	26,823
Amount of (loss) gain recognized in operating revenues (ineffective portion) (a)		$	(212	)	$	364		$	(243	)	$	(261	)

Interest rate derivatives designated as cash flow hedges
Amount of (loss) gain recognized in OCI (effective portion), net of tax		$	(6,670	)	$	—		$	(4,297	)	$	—
Amount of loss reclassified from accumulated OCI into interest expense (effective portion), net of tax		$	(64	)	$	(29	)	$	(129	)	$	(58	)

Commodity derivatives designated as fair value hedges (b)
Amount of (loss) gain recognized in operating revenues for fair value commodity contracts		$	(2,378	)	$	1,363		$	4,694		$	(533	)
Fair value gain (loss) recognized in operating revenues for inventory designated as hedged item		$	8,388		$	60		$	(1,543	)	$	1,693

Derivatives not designated as hedging instruments
Amount of (loss) gain recognized in operating revenues		$	(790	)	$	856		$	1,673		$	(823	)

(a) No amounts have been excluded from effectiveness testing of cash flow hedges.

(b) For the three months ended June 30, 2012, the net impact on operating revenues consisted of a $6.0 million gain related to the exclusion of the spot/forward differential from the assessment of effectiveness. For the

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EQT Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

three months ended June 30, 2011, the net impact on operating revenues consisted of a $2.1 million gain related to the exclusion of the spot/forward differential from the assessment of effectiveness and a $0.7 million loss due to changes in basis. For the six months ended June 30, 2012, the net impact on operating revenues consisted of a $2.8 million gain due to the exclusion of the spot/forward differential from the assessment of effectiveness and a $0.4 million gain due to changes in basis. For the six months ended June 30, 2011, the net impact on operating revenues consisted of a $1.5 million gain related to the exclusion of the spot/forward differential from the assessment of effectiveness and a $0.3 million loss due to changes in basis.

		June 30,		December 31,
		2012		2011
	(Thousands)
Asset derivatives
Commodity derivatives designated as hedging instruments		$	392,437	$	412,626
Commodity derivatives not designated as hedging instruments		75,150		99,535
Total asset derivatives		$	467,587	$	512,161

Liability derivatives
Commodity derivatives designated as hedging instruments		$	8,014	$	3,681
Interest rate derivatives designated as hedging instruments		18,374		10,861
Commodity derivatives not designated as hedging instruments		82,826		108,764
Total liability derivatives		$	109,214	$	123,306

In August 2011, the Company entered into a forward-starting interest rate swap to mitigate the risk of rising interest rates. The forward-starting interest rate swap was designated as a cash flow hedge of forecasted future interest payments. The Company recorded a deferred loss of $11.8 million and $7.6 million in accumulated other comprehensive income, net of tax, as of June 30, 2012 and December 31, 2011, respectively, associated with the change in fair value of the interest rate swap.

The net fair value of commodity derivative instruments changed during the first six months of 2012 primarily as a result of settlements, which were partially offset by a decrease in prices. The absolute quantities of the Company’s derivative commodity instruments that have been designated and qualify as cash flow hedges totaled 343 Bcf and 349 Bcf as of June 30, 2012 and December 31, 2011, respectively, and are primarily related to natural gas swaps and collars. The open positions at June 30, 2012 had maturities extending through December 2016. The absolute quantities of the Company’s derivative commodity instruments that have been designated and qualify as fair value hedges totaled 10 Bcf and 9 Bcf as of June 30, 2012 and December 31, 2011, respectively.

The Company deferred net gains of $227.4 million and $232.1 million in accumulated other comprehensive income, net of tax, as of June 30, 2012 and December 31, 2011, respectively, associated with the effective portion of the change in fair value of its derivative commodity instruments designated as cash flow hedges. Assuming no change in price or new transactions, the Company estimates that approximately $136 million of net unrealized gains on its derivative commodity instruments reflected in accumulated other comprehensive income, net of tax, as of June 30, 2012 will be recognized in earnings during the next twelve months due to the settlement of hedged transactions. During the second quarter of 2012, the Company identified an error related to the accounting for a derivative instrument put premium which should have been recognized over the period January 2010 through December 2011 in conjunction with the settlements of the related financial positions. The Company has evaluated materiality in accordance with SEC Staff Accounting Bulletins Topics 1.M and 1.N and considered relevant qualitative and quantitative factors. Based on this analysis, the Company corrected the error in the second quarter of 2012 through the reduction of EQT Production segment operating revenue by $8.2 million, the increase of accumulated other comprehensive income by $5.1 million and the decrease of deferred tax expense by $3.1 million. The Company concluded that this error is not material to any prior periods, the expected annual results of 2012 or to the trend in earnings over the affected periods. The error had no effect on cash flows or debt covenant compliance.

The Company is exposed to credit loss in the event of nonperformance by counterparties to derivative contracts. This credit exposure is limited to derivative contracts with a positive fair value, which may change as market prices change. The Company believes that New York Mercantile Exchange (NYMEX) traded futures contracts have reduced credit risk because Commodity Futures Trading Commission regulations are in place to protect exchange participants, including the Company, from potential financial instability of the exchange members. The Company’s OTC swap and collar derivative instruments are primarily with financial institutions and thus are subject to events that would impact those companies individually as well as that industry as a whole.

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EQT Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

The Company utilizes various processes and analysis to monitor and evaluate its credit risk exposures. These include closely monitoring current market conditions and credit default swap rates. Credit exposure is controlled through credit approvals and limits. To manage the level of credit risk, the Company deals with financial counterparties that are of investment grade or better, enters into netting agreements whenever possible and may obtain collateral or other security. As of June 30, 2012, all derivative contracts outstanding were with counterparties having a Standard & Poor’s Rating Services (S&P) rating of A- or higher and a Moody’s Investor Services (Moody’s) rating of Baa1 or higher.

When the net fair value of any of the Company’s swap agreements represents a liability to the Company which is in excess of the agreed-upon threshold between the Company and the financial institution acting as counterparty, the counterparty requires the Company to remit funds to the counterparty as a margin deposit for the derivative liability which is in excess of the threshold amount. The Company records these deposits as a current asset. When the net fair value of any of the Company’s swap agreements represents an asset to the Company which is in excess of the agreed-upon threshold between the Company and the financial institution acting as counterparty, the Company requires the counterparty to remit funds as margin deposit in an amount equal to the portion of the derivative asset which is in excess of the threshold amount. The Company records a current liability for such amounts received. The Company had no such deposits in its Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011.

When the Company enters into exchange-traded natural gas contracts, exchanges may require the Company to remit funds to the corresponding broker as good-faith deposits to guard against the risks associated with changing market conditions. Participants must make such deposits based on an established initial margin requirement as well as the net liability position, if any, of the fair value of the associated contracts. The Company records these deposits as a current asset in the Condensed Consolidated Balance Sheets. In the case where the fair value of such contracts is in a net asset position, the broker may remit funds to the Company, in which case the Company records a current liability for such amounts received. The initial margin requirements are established by the exchanges based on the price, volatility and the time to expiration of the related contract and are subject to change at the exchanges’ discretion. The Company recorded a current asset of $0.7 million and $0.1 million as of June 30, 2012 and December 31, 2011, respectively, for such deposits in its Condensed Consolidated Balance Sheets.

Certain of the Company’s derivative instrument contracts provide that if the Company’s credit ratings by S&P or Moody’s are lowered below investment grade, additional collateral must be deposited with the counterparty. This additional collateral can be up to 100% of the derivative liability. As of June 30, 2012, the aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a net liability position was $3.8 million, for which the Company had no collateral posted. If the Company’s credit rating by S&P or Moody’s had been downgraded below investment grade on June 30, 2012, the Company would have been required to post additional collateral of $1.7 million in respect of the liability position. Investment grade refers to the quality of the Company’s credit as assessed by one or more credit rating agencies. The Company’s unsecured medium-term debt was rated BBB by S&P and Baa2 by Moody’s at June 30, 2012. In order to be considered investment grade, the Company must be rated BBB or higher by S&P and Baa2 or higher by Moody’s. Anything below these ratings is considered to be non-investment grade.

D. Investments, Available-For-Sale

During the three and six month periods ended June 30, 2012 and 2011, the Company did not purchase any investment securities.

During the six month period ended June 30, 2011, the Company sold all of its available-for-sale securities for proceeds of $29.9 million which resulted in gross realized gains of $8.5 million, $4.9 million of which was reclassified from accumulated other comprehensive income. The Company uses the average cost method to determine the cost of securities sold.

E. Fair Value Measurements

The Company records its financial instruments, principally derivative instruments, at fair value in its Condensed Consolidated Balance Sheets. The Company has an established process for determining fair value which is based on quoted market prices, where available. If quoted market prices are not available, fair value is based upon models

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EQT Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

that use as inputs market-based parameters, including but not limited to forward curves, discount rates, volatilities and nonperformance risk. Nonperformance risk considers the effect of the Company’s credit standing on the fair value of liabilities and the effect of the counterparty’s credit standing on the fair value of assets. The Company estimates nonperformance risk by analyzing publicly available market information, including a comparison of the yield on debt instruments with credit ratings similar to the Company’s or counterparty’s credit rating and the yield of a risk free instrument. The Company also considers credit default swaps rates where applicable.

The Company has categorized its assets and liabilities recorded at fair value into a three-level fair value hierarchy, based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Assets and liabilities included in Level 1 include the Company’s futures contracts. Assets and liabilities in Level 2 include the majority of the Company’s swap agreements, including the forward-starting interest rate swap, and assets and liabilities in Level 3 include the Company’s collars and a limited number of the Company’s swap agreements. Since the adoption of fair value accounting, the Company has not made any changes to its classification of assets and liabilities in each category.

The fair value of assets and liabilities included in Level 2 is based on industry discounted cash flow models that use significant observable inputs, including NYMEX and LIBOR forward curves and LIBOR-based discount rates. Collars included in Level 3 are valued using industry discounted cash flow models. The primary significant unobservable input to the valuation of assets and liabilities in Level 3 is the volatility assumption to the option pricing model used to value commodity collars. The Company considers current market information about option trading and historical averages in deriving these volatilities. At June 30, 2012 the range of Company derived market volatilities used to value Level 3 assets and liabilities was 25-58%. The fair value of the collar agreements is sensitive to changes in the volatility assumption. Significant changes in this assumption might result in a significantly higher or lower fair values for these assets and liabilities. As of June 30, 2012, an increase in the volatility assumption would increase the value of the derivative asset and a decrease in the volatility assumption would decrease the value of the derivative asset. The Company uses NYMEX forward curves to value futures, commodity swaps and collars. The Company uses LIBOR forward curves to value interest rate swaps. The NYMEX and LIBOR forward curves are validated to external sources at least monthly.

The following assets and liabilities were measured at fair value on a recurring basis during the period:

			Fair value measurements at reporting date using
Description	June 30, 2012		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(Thousands)
Assets
Derivative instruments, at fair value	$	467,587	$	1,688	$	335,352	$	130,547
Total assets	$	467,587	$	1,688	$	335,352	$	130,547

Liabilities
Derivative instruments, at fair value	$	109,214	$	1,534	$	106,569	$	1,111
Total liabilities	$	109,214	$	1,534	$	106,569	$	1,111

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EQT Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

			Fair value measurements at reporting date using
Description	December 31, 2011		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(Thousands)
Assets
Derivative instruments, at fair value	$	512,161	$	3,612	$	365,238	$	143,311
Total assets	$	512,161	$	3,612	$	365,238	$	143,311

Liabilities
Derivative instruments, at fair value	$	123,306	$	2,727	$	120,528	$	51
Total liabilities	$	123,306	$	2,727	$	120,528	$	51

	Fair value measurements using significant unobservable inputs (Level 3)

	Derivative instruments, at fair value, net three months ended June 30,						Derivative instruments, at fair value, net six months ended June 30,
	2012			2011			2012			2011
	(Thousands)
Beginning of period	$	156,066		$	97,364		$	143,260		$	116,672
Total gains or losses:
Included in earnings	—			—			—			14
Included in other comprehensive income	(4,203		)	16,851			27,393			11,020
Purchases	(1,016		)	—			(1,016		)	—
Settlements	(21,411		)	(12,243		)	(40,201		)	(25,734		)
Transfers in and/or out of Level 3	—			—			—			—
End of period	$	129,436		$	101,972		$	129,436		$	101,972

There are no gains or losses included in earnings for the periods in the table above attributable to the change in unrealized gains or losses relating to assets and liabilities still held as of June 30, 2012 and 2011.

The carrying value of cash equivalents approximates fair value due to the short maturity of the instruments; these are considered Level 1 fair values.

The Company estimates the fair value of its debt using its established fair value methodology. Because not all of the Company’s debt is actively traded, the fair value of the debt is a Level 2 fair value. Fair value for non-traded debt obligations is estimated using a discounted cash flow model which estimates a discount rate based on market rates for debt with similar remaining time to maturity and credit risk. The estimated fair value of long-term debt on the Condensed Consolidated Balance Sheets at June 30, 2012 and December 31, 2011 was approximately $3.1 billion and $3 billion, respectively.

F. Income Taxes

The Company estimates an annual effective income tax rate based on projected results for the year and applies this rate to income before taxes to calculate income tax expense. Any refinements made due to subsequent information that affects the estimated annual effective income tax rate are reflected as adjustments in the current period.

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EQT Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

The Company’s effective income tax rate for the six months ending June 30, 2012 was 36.4%. The effective income tax rate for the six months ended June 30, 2011 was 36.8%. The decrease in the effective tax rate from 2011 was attributable to a decrease in state taxes primarily as a result of lower pre-tax income on state tax paying entities in 2012 and an increased benefit related to equity funds of regulated businesses in 2012 partially offset by lower tax reserves recorded in 2011.

During the second quarter of 2012 and 2011, the Company finalized settlements with the Internal Revenue Service (IRS) relating to its research and experimentation tax credits claimed from 2006 through 2009 and from 2001 through 2005, respectively. Except for refund claims from 2004 and 2005 related to tax losses carried back to those years, the consolidated federal income tax liability of the Company has been settled with the IRS through 2005. The Company is currently under audit for the 2006 through 2009 periods. The examination of these periods began in the second quarter of 2010. The Company also is the subject of various state income tax examinations. The Company believes that it is appropriately reserved for any uncertain tax positions.

G. Short-Term Loans

As of June 30, 2012 and December 31, 2011, the Company had no loans or letters of credit outstanding under its revolving credit facility. Commitment fees averaging approximately 6.0 basis points in the second quarter of 2012 and 5.0 basis points in the second quarter of 2011 were incurred to maintain credit availability under the revolving credit facility.

There were no short-term loans outstanding during the six months ended June 30, 2012. The maximum amount of outstanding short-term loans at any time during the six months ended June 30, 2011 was $104.0 million. The average daily balance of short-term loans outstanding during the six months ended June 30, 2011 was approximately $11.1 million at a weighted average annual interest rate of 1.81%.

H. Long-Term Debt

		June 30,		December 31,
		2012		2011
	(Thousands)
7.76% notes, due 2012 thru 2016		$	43,483	$	53,742
5.15% notes, due November 15, 2012		200,000		200,000
5.00% notes, due October 1, 2015		150,000		150,000
5.15% notes, due March 1, 2018		200,000		200,000
6.50% notes, due April 1, 2018		500,000		500,000
8.13% notes, due June 1, 2019		700,000		700,000
4.88% notes, due November 15, 2021		750,000		750,000
7.75% debentures, due July 15, 2026		115,000		115,000
Medium-term notes:
8.7% to 9.0% Series A, due 2014 thru 2021		40,200		40,200
7.3% to 7.6% Series B, due 2013 thru 2023		30,000		30,000
7.6% Series C, due 2018		8,000		8,000
		2,736,683		2,746,942
Less debt payable within one year		229,944		219,315
Total long-term debt		$	2,506,739	$	2,527,627

During the second quarter of 2011, the Company assumed 7.76% Guaranteed Senior Notes due August 31, 2011 through February 28, 2016 in the aggregate principal of $57.1 million in a non-cash transaction. See Note I.

The indentures and other agreements governing the Company’s indebtedness contain certain restrictive financial and operating covenants including covenants that restrict the Company’s ability to incur indebtedness, incur liens, enter into sale and leaseback transactions, complete acquisitions, merge, sell assets and perform certain other corporate actions. The covenants do not contain a rating trigger. Therefore, a change in the Company’s debt rating would not trigger a default under the indentures and other agreements governing the Company’s long-term indebtedness.

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EQT Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Aggregate maturities of long-term debt are $209.8 million in 2012, $23.2 million in 2013, $11.2 million in 2014, $166.0 million in 2015 and $3.0 million in 2016.

I. Acquisition

In December 2000, the Company sold a net profits interest (NPI) in certain producing properties located in the Appalachian Basin to a trust in exchange for approximately $298 million. The NPI entitled the trust to receive 100% of the net profits received from the sale of natural gas and oil from the producing properties until cumulative production from such properties reached a specified amount. The Company owned the Class B interest in the trust, entitling it to specified percentages of any available cash from the trust over time. An unrelated party, Appalachian NPI, LLC (ANPI), owned the Class A interest in the trust.

Effective May 4, 2011, the Company, through EQT Production Company, acquired the Class A interest in the trust thereby acquiring 100% of the NPI associated with the producing properties (the ANPI transaction). As part of the consideration for the acquired assets, the Company entered into a discounted natural gas sales agreement with ANPI and assumed a swap held by ANPI on the trust’s sales of natural gas.

In addition, the Company assumed 7.76% Guaranteed Senior Notes due August 31, 2011 through February 28, 2016 in the aggregate principal amount of $57.1 million. At the time of the transaction, the notes had a fair value of $64.2 million.

Under U.S. generally accepted accounting principles (GAAP), the ANPI transaction was a business combination achieved in stages because EQT owned an equity interest in the trust prior to the transaction. As required by the relevant accounting standard, the Company revalued its existing equity investment in the trust at fair value on the date of the acquisition and recorded a pre-tax gain of $10.1 million which was included in other income in the second quarter of 2011 on the Statements of Consolidated Income. The fair value was determined using an internal model; significant inputs to the calculation included publicly available forward price curves, expected production volumes and operating costs, as well as Company-determined risk adjusted discount rates which were based on publicly available debt and equity risk premiums.

As a result of this transaction, the Company recorded an increase in oil and gas properties of $140.6 million resulting from the removal of the post-revaluation $48.0 million equity investment in the trust from its books and a net $92.6 million increase in liabilities consisting of: $64.2 million of long term debt, a $16.4 million discounted sales agreement and a $12.7 million swap liability offset by various working capital balances.

This transaction also resulted in the elimination of certain previously disclosed relationships including the Company’s non-controlling interest in the trust, the Company’s liquidity reserve guarantee to ANPI, the Company’s agreement with the trust to provide gathering and operating services to deliver its gas to market and the marketing fee the Company received for the sale of the trust’s gas based on the net revenue for gas delivered.

J. Dispositions

On July, 1, 2011, the Company sold the Big Sandy Pipeline to Spectra Energy Partners, LP for $390 million. Big Sandy is a natural gas pipeline regulated by the Federal Energy Regulatory Commission. Big Sandy transports natural gas from the natural gas processing complex in Langley, Kentucky to interconnections with unaffiliated pipelines leading to the mid-Atlantic and Northeast markets. In conjunction with this transaction, the Company realized a pre-tax gain of $180.1 million in the third quarter 2011.

On February 1, 2011, the Company sold its natural gas processing complex in Langley, Kentucky and the associated natural gas liquids pipeline for $230 million. In conjunction with this transaction, the Company realized a pre-tax gain of $22.8 million.

K. Recently Issued Accounting Standards

Disclosure about Offsetting Assets and Liabilities

In December 2011, the FASB issued a standards update intended to enhance disclosures by requiring additional information about financial instruments and derivative instruments that are either offset in the statement of financial position or subject to an enforceable master netting arrangement or similar agreement. The update is to be applied

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EQT Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

prospectively and is effective for annual reporting periods beginning on or after January 1, 2013. The Company is currently evaluating the impact this standard will have on its financial statement disclosures.

L. Earnings Per Share

Potentially dilutive securities, consisting of options and restricted stock awards, which were included in the calculation of diluted earnings per share totaled 560,244 and 667,399 for the three months ended June 30, 2012 and 2011, respectively, and 667,224 and 686,954 for the six months ended June 30, 2012 and 2011, respectively. Options to purchase common stock which were not included in potentially dilutive securities because they were anti-dilutive totaled 1,149,523 and 6,480 for the three months ended June 30, 2012 and 2011, respectively, and 243,398 and 884,497 for the six months ended June 30, 2012 and 2011, respectively.

M. Subsequent Event

On July 2, 2012, the Partnership, a subsidiary of the Company, completed an underwritten initial public offering of 14,375,000 common units representing limited partner interests in the Partnership, which represented 40.6% of the Partnership’s outstanding equity. The Company retained a 59.4% equity interest in the Partnership, including 2,964,718 common units, 17,339,718 subordinated units and a 2% general partner interest. Prior to the IPO, the Company contributed to the Partnership 100% of Equitrans. EQT will continue to consolidate the Partnership results.

Also, on July 2, 2012, in connection with the closing of the IPO:

·	The Partnership, its general partner and EQT entered into an Omnibus Agreement (Omnibus Agreement), pursuant to which, among other things, EQT agreed to provide the Partnership with general and administrative services and a license to use the name “EQT” and related marks in connection with the Partnership’s business. The Omnibus Agreement also provides for certain indemnification and reimbursement obligations between EQT and the Partnership.

·	EQT’s subsidiary EQT Gathering, LLC (EQT Gathering) and the Partnership entered into an operation and management services agreement (Services Agreement), pursuant to which EQT Gathering will provide the Partnership’s pipelines and storage facilities with certain operational and management services. The Services Agreement also provides for certain indemnification and reimbursement obligations between the Partnership and EQT Gathering.

·	The Partnership entered into a $350 million revolving credit facility with Wells Fargo Bank, National Association, as administrative agent, and a syndicate of lenders, which will mature on July 2, 2017. The credit facility is available to fund working capital requirements and capital expenditures, to purchase assets, to pay distributions and repurchase units and for general partnership purposes. The Company is not a guarantor of the Partnership’s obligations under the credit facility.

The Partnership received net cash of approximately $278 million upon closing of the IPO. Approximately $232 million of the proceeds were distributed to EQT, $12 million was retained by the Partnership to replenish amounts distributed by Equitrans to EQT prior to the IPO, $32 million was retained by the Partnership to pre-fund certain maintenance capital expenditures and $2 million was used by the Partnership to pay revolving credit facility origination fees associated with a $350 million revolving credit agreement entered into by the Partnership at the closing of the IPO.

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EQT Corporation and Subsidiaries

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY STATEMENTS

Disclosures in this Quarterly Report on Form 10-Q contain certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Statements that do not relate strictly to historical or current facts are forward-looking and usually identified by the use of words such as “anticipate,” “estimate,” “could,” “would,” “will,” “may,” “forecasts,” “approximate,” “expect,” “project,” “intend,” “plan,” “believe” and other words of similar meaning in connection with any discussion of future operating or financial matters. Without limiting the generality of the foregoing, forward-looking statements contained in this report include the matters discussed in the section captioned “Outlook” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the expectations of plans, strategies, objectives, and growth and anticipated financial and operational performance of the Company and its subsidiaries, including guidance regarding the Company’s strategy to develop its Marcellus and other reserves; drilling plans and programs (including the number, type, and location of wells to be drilled and the availability of capital to complete these plans and programs); production and sales volumes; gathering and transmission growth and volumes; infrastructure programs (including the Sunrise Pipeline and the gathering expansion projects); technology (including drilling techniques); asset sales, joint ventures or other transactions involving the Company’s assets; natural gas prices; reserves; capital expenditures; including funding sources and availability; estimates of cost to develop wells; financing requirements and availability; hedging strategy; the effects of government regulation and tax position. The forward-looking statements in this Quarterly Report on Form 10-Q involve risks and uncertainties that could cause actual results to differ materially from projected results. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. The Company has based these forward-looking statements on current expectations and assumptions about future events. While the Company considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks and uncertainties, most of which are difficult to predict and many of which are beyond the Company’s control. The risks and uncertainties that may affect the operations, performance and results of the Company’s business and forward-looking statements include, but are not limited to, those set forth under Item 1A, “Risk Factors” in the Company’s Form 10-K for the year ended December 31, 2011.

Any forward-looking statement speaks only as of the date on which such statement is made and the Company does not intend to correct or update any forward-looking statements, whether as a result of new information, future events or otherwise.

In reviewing any agreements incorporated by reference in or filed in this Form 10-Q, please remember such agreements are included to provide information regarding the terms of such agreements and are not intended to provide any other factual or disclosure information about the Company. The agreements may contain representations and warranties by the Company, which should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties should those statements prove to be inaccurate. The representations and warranties were made only as of the date of the relevant agreement or such other date or dates as may be specified in such agreement and are subject to more recent developments. Accordingly, these representations and warranties alone may not describe the actual state of affairs as of the date they were made or at any other time.

CORPORATE OVERVIEW

Three Months Ended June 30, 2012 vs. Three Months Ended June 30, 2011

EQT’s consolidated net income for the three months ended June 30, 2012 was $31.4 million, $0.21 per diluted share, compared with $87.8 million, $0.58 per diluted share, for the period ended June 30, 2011. The $56.4 million decrease in net income from 2011 to 2012 was primarily attributable to a decrease in production revenues due to lower realized sales prices, higher depreciation, depletion and amortization, the gain realized in 2011 on the purchase of ANPI, higher interest expense and a decrease in midstream revenues due to the July 2011 sale of the Big Sandy Pipeline, partially offset by increased production volumes and lower income tax expense.

The average realized sales price to EQT Corporation for production sales volumes was $3.83 per Mcfe during the second quarter 2012 compared to $5.60 per Mcfe in the same period of the prior year. The average NYMEX natural gas price decreased from $4.31 in 2011 to $2.22 in 2012. Hedging activities resulted in an increase in the price of production sales volumes of $1.52 per Mcf in 2012 compared to $0.41 per Mcf in 2011 as a result of higher volumes being hedged and decreases in NYMEX natural gas prices in the current year.

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EQT Corporation and Subsidiaries

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Other income decreased $12.8 million from 2011 to 2012 due to sales of securities in 2011 resulting in a $4.5 million gain, a $10.1 million gain recognized in 2011 on the ANPI transaction and a $0.9 million compressor impairment charge on Nora Gathering LLC.

Interest expense increased by $7.3 million from $33.3 million for the three months ended June 30, 2011 to $40.6 million for the three months ended June 30, 2012. This was primarily a result of the Company’s November 2011 issuance of $750 million 4.875% notes due in 2021, partially offset by the maturity of medium-term notes during the fourth quarter of 2011 and higher capitalized interest on increased Marcellus well development in 2012. The Company continues to use the net proceeds of the recently issued notes to invest in drilling and midstream infrastructure to develop the Marcellus play.

Income tax expense decreased by $35.6 million from 2011 to 2012 primarily as a result of lower pre-tax income.

Six Months Ended June 30, 2012 vs. Six Months Ended June 30, 2011

EQT’s consolidated net income for the six months ended June 30, 2012 was $103.5 million, $0.69 per diluted share, compared with $210.0 million, $1.40 per diluted share, for the period ended June 30, 2011. The $106.5 million decrease in net income from 2011 to 2012 was primarily attributable to a decrease in production revenues due to lower realized sales prices, higher operating expenses, the gain realized by the Company in 2011 on the sale of the Langley natural gas processing complex, warmer weather during the current period and higher interest expense, partially offset by increased production volumes and higher gathering net revenues.

The average realized sales price to EQT Corporation for production sales volumes was $4.31 per Mcfe during the six months ended 2012 compared to $5.52 per Mcfe in the same period of the prior year. The average NYMEX natural gas price decreased from $4.21 in 2011 to $2.48 in 2012. Hedging activities resulted in an increase in the price of production sales volumes of $1.52 per Mcf in 2012 compared to $0.44 per Mcf in 2011 as a result of higher volumes being hedged and decreases in NYMEX natural gas prices in the current year.

Other income was $9.9 million for the first six months of 2012 compared to $24.9 million the same period in 2011. This $15.0 million decrease was a result of sales of securities in 2011 resulting in a gain of $8.5 million, as well as a $10.1 million gain recognized on the ANPI transaction in 2011.

Interest expense increased by $15.7 million from the six months ended June 30, 2011 to the six months ended June 30, 2012 as a result of the Company’s November 2011 issuance of $750 million 4.875% notes due in 2021. This increase was partially offset by the maturity of medium-term notes during the fourth quarter of 2011 and higher capitalized interest on increased Marcellus well development in 2012. The Company continues to use the net proceeds of the recently issued notes to invest in drilling and midstream infrastructure to develop the Marcellus play.

Income tax expense decreased by $63.0 million from 2011 to 2012 primarily as a result of lower pre-tax income.

See Investing Activities under the caption Capital Resources and Liquidity for a discussion of capital expenditures.

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EQT Corporation and Subsidiaries

Management’s Discussion and Analysis of Financial Condition and Results of Operations

EQT CORPORATION

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012		2011		%		2012		2011		%
OPERATIONAL DATA


Average wellhead sales price to EQT Corporation:
Natural gas excluding hedges ($/Mcf)	$	1.93	$	4.58	(57.9	)	$	2.34	$	4.47	(47.7	)
Hedge impact ($/Mcf of natural gas) (a)	$	1.52	$	0.41	270.7		$	1.52	$	0.44	245.5
Natural gas including hedges ($/Mcf)	$	3.45	$	4.99	(30.9	)	$	3.86	$	4.91	(21.4	)

NGLs ($/Bbl)	$	34.56	$	51.71	(33.2	)	$	41.24	$	51.86	(20.5	)
Crude oil ($/Bbl)	$	85.99	$	89.08	(3.5	)	$	85.70	$	84.95	0.9
Total ($/Mcfe)	$	3.83	$	5.60	(31.6	)	$	4.31	$	5.52	(21.9	)

Less revenues to EQT Midstream ($/Mcfe)	$	1.21	$	1.44	(16.0	)	$	1.23	$	1.45	(15.2	)
Average wellhead sales price to EQT Production ($/Mcfe)	$	2.62	$	4.16	(37.0	)	$	3.08	$	4.07	(24.3	)

Average NYMEX natural gas ($/Mcf)	$	2.22	$	4.31	(48.5	)	$	2.48	$	4.21	(41.1	)

Natural gas sales volumes (MMcf)	56,353		43,830		28.6		107,126		83,965		27.6
NGL sales volumes (Mbbls)	850		774		9.8		1,637		1,500		9.1
Crude oil sales volumes (Mbbls)	73		49		49.0		127		80		58.8
Total produced sales volumes (MMcfe) (b)	59,997		47,030		27.6		114,067		90,077		26.6

Capital expenditures (thousands) (c)	$	392,733	$	374,098	5.0		$	662,320	$	637,526	3.9

(a) All hedges are related to natural gas.

(b) NGLs were converted to Mcfe at the rates of 3.77 Mcfe per barrel and 3.75 Mcfe per barrel based on the liquids content for the three months ended June 30, 2012 and 2011, respectively, and 3.77 Mcfe per barrel and 3.75 Mcfe per barrel based on the liquids content for the six months ended June 30, 2012 and 2011, respectively. Crude oil was converted to Mcfe at the rate of six Mcfe per barrel for all periods.

(c) Capital expenditures in the EQT Production segment for the three and six month periods ended 2011 include $92.6 million of liabilities assumed in exchange for producing properties as part of the ANPI transaction discussed in Note I.

Business Segment Results

The Company has reported the components of each segment’s operating income and various operational measures in the sections below, and where appropriate, has provided information describing how a measure was derived. EQT’s management believes that presentation of this information provides useful information to management and investors regarding the financial condition, operations and trends of each of EQT’s segments without being obscured by the financial condition, operations and trends for the other segments or by the effects of corporate allocations of interest, income taxes and other income. In addition, management uses these measures for budget planning purposes. The Company’s management reviews and reports the EQT Production segment results for operating revenues and purchased gas costs with transportation costs reflected as a deduction from operating revenues as management believes this presentation provides a more useful view of net wellhead price and is consistent with industry practices. Third party transportation costs are reported as a component of purchased gas costs in the consolidated results. The Company has reconciled each segment’s operating income to the Company’s consolidated operating income and net income in Note B to the Condensed Consolidated Financial Statements. As part of the 2012 budgeting process, the Company allocated additional corporate overhead charges to the operating segments. As current period corporate overhead costs have stayed consistent with budgeted amounts, unallocated expenses have decreased for the three and six month periods ended June 30, 2012.

Table of Contents

EQT Corporation and Subsidiaries

Management’s Discussion and Analysis of Financial Condition and Results of Operations

EQT PRODUCTION

RESULTS OF OPERATIONS

Three Months Ended

Six Months Ended

June 30,