Edgar Filing: EQT Corp

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

	FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2014

or

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, Suite 1700, 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 March 31, 2014, 151,751 (in thousands) 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 Months Ended March 31, 2014 and 2013	3

	Statements of Consolidated Comprehensive Income for the Three Months Ended March 31, 2014 and 2013	4

	Statements of Condensed Consolidated Cash Flows for the Three Months Ended March 31, 2014 and 2013	5

	Condensed Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013	6 – 7

	Statements of Condensed Consolidated Equity for the Three Months Ended March 31, 2014 and 2013	8

	Notes to Condensed Consolidated Financial Statements	9 – 19

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20 – 30

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31 – 33

Item 4.	Controls and Procedures	33

Part II. Other Information:

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34

Item 6.	Exhibits	35

Signature		36

Index to Exhibits		37

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EQT CORPORATION AND SUBSIDIARIES

Statements of Consolidated Income (Unaudited)

	Three Months Ended

	March 31,
	2014			2013
	(Thousands, except per share amounts)
Operating revenues		$	661,625		$	415,883

Operating expenses:
Purchased gas costs		45,175			36,731
Operation and maintenance		25,221			23,233
Production		31,940			24,889
Exploration		1,419			3,730
Selling, general and administrative		48,968			39,785
Depreciation, depletion and amortization		152,111			143,036
Total operating expenses		304,834			271,404

Operating income		356,791			144,479
Other income		2,551			2,281
Interest expense		31,968			37,752
Income before income taxes		327,374			109,008
Income taxes		116,335			34,768
Income from continuing operations		211,039			74,240
(Loss) income from discontinued operations, net of tax		(104)			35,041
Net income		210,935			109,281
Less: Net income attributable to noncontrolling interests		18,742			9,026
Net income attributable to EQT Corporation		$	192,193		$	100,255

Amounts attributable to EQT Corporation:
Income from continuing operations		$	192,297		$	65,214
(Loss) income from discontinued operations		(104)			35,041
Net income		$	192,193		$	100,255

Earnings per share of common stock attributable to EQT Corporation:
Basic:
Weighted average common shares outstanding		151,371			150,327
Income from continuing operations		$	1.27		$	0.44
(Loss) income from discontinued operations		–			0.23
Net income		$	1.27		$	0.67

Diluted:
Weighted average common shares outstanding		152,759			150,949
Income from continuing operations		$	1.26		$	0.43
(Loss) income from discontinued operations		–			0.23
Net income		$	1.26		$	0.66
Dividends declared per common share		$	0.03		$	0.03

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
	March 31,
	2014			2013
	(Thousands)

Net income		$	210,935		$	109,281

Other comprehensive (loss) income, net of tax:
Net change in cash flow hedges:
Natural gas, net of tax (benefit) of $(14,896) and $(51,583)		(21,931)			(78,434)
Interest rate, net of tax expense of $25 and $25		36			36
Pension and other post-retirement benefits liability adjustment, net of tax expense of $114 and $307		176			433
Other comprehensive loss		(21,719)			(77,965)
Comprehensive income		189,216			31,316
Less: Comprehensive income attributable to noncontrolling interests		18,742			9,026
Comprehensive income attributable to EQT Corporation		$	170,474		$	22,290

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

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EQT CORPORATION AND SUBSIDIARIES

Statements of Condensed Consolidated Cash Flows (Unaudited)

	Three Months Ended
	March 31,
	2014			2013
	(Thousands)
Cash flows from operating activities:
Net income		$	210,935		$	109,281
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes		85,878			34,347
Depreciation, depletion, and amortization		152,111			149,116
Provision for losses on accounts receivable		1,686			1,962
Other income		(2,551)			(2,330)
Stock-based compensation expense		11,317			10,334
Loss recognized in operating revenues for hedging ineffectiveness		22,260			481
Lease impairment		275			2,980
Changes in other assets and liabilities:
Dividend from Nora Gathering, LLC		7,000			–
Accounts receivable and unbilled revenues		(95,282)			(8,825)
Inventory		9,728			37,789
Accounts payable		89,693			(18,025)
Other items, net		(31,489)			(17,855)
Net cash provided by operating activities		461,561			299,255

Cash flows from investing activities:
Capital expenditures from continuing operations		(492,104)			(292,667)
Capital expenditures from discontinued operations		–			(5,605)
Net cash used in investing activities		(492,104)			(298,272)

Cash flows from financing activities:
Increase in short-term loans		110,000			–
Dividends paid		(4,542)			(4,516)
Distributions to noncontrolling interests		(12,432)			(5,031)
Repayments and retirements of long-term debt		(3,169)			(20,161)
Proceeds and tax benefits from exercises under employee compensation plans		9,824			6,995
Revolving credit facility origination fees		(4,975)			–
Net cash provided by (used in) financing activities		94,706			(22,713)

Net change in cash and cash equivalents		64,163			(21,730)
Cash and cash equivalents at beginning of period		845,641			182,055
Cash and cash equivalents at end of period		$	909,804		$	160,325

Cash paid during the period for:
Interest, net of amount capitalized		$	3,995		$	10,446
Income taxes, net		$	4,000		$	3,661

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)

	March 31,			December 31,
	2014			2013
Assets	(Thousands)

Current assets:
Cash and cash equivalents		$	909,804		$	845,641
Accounts receivable (less accumulated provision for doubtful accounts: $6,865 at March 31, 2014 and $5,171 at December 31, 2013)		329,377			235,781
Inventory		9,928			19,656
Derivative instruments, at fair value		79,821			107,647
Prepaid expenses and other		41,243			46,700
Total current assets		1,370,173			1,255,425

Equity in nonconsolidated investments		123,740			128,983

Property, plant and equipment		11,552,676			11,062,136
Less: accumulated depreciation and depletion		2,876,431			2,728,374
Net property, plant and equipment		8,676,245			8,333,762

Other assets		76,148			73,883
Total assets		$	10,246,306		$	9,792,053

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)

	March 31,			December 31,
	2014			2013
	(Thousands)
Liabilities and Stockholders’ Equity

Current liabilities:
Current portion of long-term debt		$	11,086		$	11,162
Short-term loans		110,000			–
Accounts payable		420,022			330,329
Derivative instruments, at fair value		59,333			29,651
Other current liabilities		157,940			152,268
Total current liabilities		758,381			523,410

Long-term debt		2,486,897			2,490,354
Deferred income taxes		1,726,660			1,655,765
Other liabilities and credits		259,862			258,396
Total liabilities		5,231,800			4,927,925

Equity:
Stockholders’ equity:
Common stock, no par value, authorized 320,000 shares, shares issued: 175,684 at March 31, 2014 and December 31, 2013		1,831,731			1,869,843
Treasury stock, shares at cost: 23,933 at March 31, 2014 and 24,800 at December 31, 2013		(432,076)			(447,738)
Retained earnings		2,755,631			2,567,980
Accumulated other comprehensive income		22,984			44,703
Total common stockholders’ equity		4,178,270			4,034,788
Noncontrolling interests in consolidated subsidiaries		836,236			829,340
Total equity		5,014,506			4,864,128
Total liabilities and equity		$	10,246,306		$	9,792,053

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

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EQT CORPORATION AND SUBSIDIARIES

Statements of Condensed Consolidated Equity (Unaudited)

	Common Stock					Accumulated Other		Noncontrolling Interests in
	Shares Outstanding	No Par Value		Retained Earnings		Comprehensive Income		Consolidated Subsidiaries		Total Equity
	(Thousands)
Balance, January 1, 2013	150,109	$	1,308,771	$	2,195,502	$	99,547	$	284,982	$	3,888,802
Net income				100,255				9,026		109,281
Other comprehensive loss						(77,965)				(77,965)
Dividends ($0.03 per share)				(4,516)						(4,516)
Stock-based compensation plans, net	326	16,323						142		16,465
Distributions to noncontrolling interests ($0.35 per common unit)								(5,031)		(5,031)
Balance, March 31, 2013	150,435	$	1,325,094	$	2,291,241	$	21,582	$	289,119	$	3,927,036


Balance, January 1, 2014	150,884	$	1,422,105	$	2,567,980	$	44,703	$	829,340	$	4,864,128
Net income				192,193				18,742		210,935
Other comprehensive loss						(21,719)				(21,719)
Dividends ($0.03 per share)				(4,542)						(4,542)
Stock-based compensation plans, net	867	(22,450)						586		(21,864)
Distributions to noncontrolling interests ($0.46 per common unit)								(12,432)		(12,432)
Balance, March 31, 2014	151,751	$	1,399,655	$	2,755,631	$	22,984	$	836,236	$	5,014,506

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 (GAAP) 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 GAAP for complete financial statements. In the opinion of management, these financial 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 March 31, 2014 and December 31, 2013 and the results of its operations and cash flows for the three month periods ended March 31, 2014 and 2013. In this Quarterly Report on Form 10-Q, references to “we,” “us,” “our,” “EQT,” “EQT Corporation,” and the “Company” refer collectively to EQT Corporation and its consolidated subsidiaries.

Certain previously reported amounts have been reclassified to conform to the current year presentation. Additionally, financial statements and notes to the financial statements previously reported in prior periods have been recast to reflect the presentation of discontinued operations as a result of the Equitable Gas Transaction. Refer to Note B for additional information regarding discontinued operations.

The balance sheet at December 31, 2013 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 GAAP for complete financial statements.

Due to the volatility of commodity prices and the seasonal nature of the Company’s storage business, the interim financial statements for the three month period ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

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, 2013 as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on page 20 of this Quarterly Report on Form 10-Q.

B. Discontinued Operations

On December 17, 2013, the Company and its wholly-owned subsidiary Distribution Holdco, LLC (Holdco) completed the disposition of their ownership interests in Equitable Gas Company, LLC (Equitable Gas) and Equitable Homeworks, LLC (Homeworks) to PNG Companies LLC (the Equitable Gas Transaction). The transaction remains subject to certain post-closing adjustments. Equitable Gas and Homeworks comprised substantially all of the Company’s previously reported Distribution segment. The financial information of Equitable Gas and Homeworks is reflected as discontinued operations for all periods presented in these financial statements. Prior periods have been recast to reflect this presentation.

The following table summarizes the components of discontinued operations activity:

	Three Months Ended
	March 31,
	2014		2013
	(Thousands)

Operating revenues	$	–	$	154,046

(Loss) income from discontinued operations before income taxes	(181)		54,206
Income tax (benefit) expense	(77)		19,165
(Loss) income from discontinued operations, net of tax	$	(104)	$	35,041

The Company incurred $2.1 million of transaction costs related to the Equitable Gas Transaction during the three months ended March 31, 2013, which are included in the results of discontinued operations.

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EQT Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

C. EQT Midstream Partners, LP

In 2012, the Company formed EQT Midstream Partners, LP (the Partnership) (NYSE: EQM) to own, operate, acquire and develop midstream assets in the Appalachian Basin. The Partnership provides midstream services to the Company and other third parties. As of March 31, 2014, the Company held a 2.0% general partner interest, all incentive distribution rights and a 42.6% limited partner interest in the Partnership. The Company’s interest in the Partnership includes 3,443,902 common units and 17,339,718 subordinated units. The Partnership is consolidated in the Company’s consolidated financial statements. The Company records the noncontrolling interest of the public limited partners in its financial statements.

D. Financial Information by Business Segment

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 two 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, including ownership and operation of the Partnership.

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 an allocation of the headquarters’ annual operating budget. Differences between budget and actual headquarters’ expenses are not allocated to the operating segments.

The Company’s management reviews and reports the EQT Production segment results with third-party transportation costs reflected as a deduction from operating revenues. Third-party transportation costs are recorded as a portion of purchased gas costs in the Statements of Consolidated Income.

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

	Three Months Ended
	March 31,
	2014		2013
	(Thousands)
Revenues from external customers:
EQT Production	$	467,745	$	250,511
EQT Midstream	166,226		146,688
Third-party transportation costs (a)	44,629		35,741
Less intersegment revenues, net (b)	(16,975)		(17,057)
Total	$	661,625	$	415,883

Operating income:
EQT Production	$	277,205	$	74,097
EQT Midstream	83,069		74,214
Unallocated expenses (c)	(3,483)		(3,832)
Total operating income	$	356,791	$	144,479

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EQT Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Reconciliation of operating income to income from continuing operations:

Other income	$		2,551	$	2,281
Interest expense	31,968			37,752
Income taxes	116,335			34,768
Income from continuing operations	$		211,039	$	74,240

	As of March 31,			As of December 31,
	2014			2013
	(Thousands)
Segment assets:
EQT Production	$	6,706,590		$	6,359,065
EQT Midstream	2,532,559			2,514,429
Total operating segments	9,239,149			8,873,494
Headquarters assets, including cash and short-term investments	1,007,157			918,559
Total assets	$	10,246,306		$	9,792,053

(a) This amount reflects the reclassification of third-party transportation costs from operating revenues to purchased gas costs at the consolidated level.

(b) Includes entries to eliminate intercompany natural gas sales from EQT Production to EQT Midstream. The Company also had $10.9 million for the three months ended March 31, 2013 of intercompany eliminations for transmission and storage services between EQT Midstream and the Company’s previously reported Distribution segment that were recast to discontinued operations as a result of the Equitable Gas Transaction. These recast adjustments had no impact on the Company’s net income for the three months ended March 31, 2013.

(c) Unallocated expenses consist primarily of incentive compensation expense, administrative costs and, for the three months ended March 31, 2013, corporate overhead charges previously allocated to the Distribution segment that were reclassified to Headquarters as part of the recast of the 2013 financial information in this Quarterly Report on Form 10-Q.

	Three Months Ended
	March 31,
	2014		2013
	(Thousands)
Depreciation, depletion and amortization:
EQT Production	$	131,239	$	124,909
EQT Midstream	21,009		18,219
Other	(137)		(92)
Total	$	152,111	$	143,036

Expenditures for segment assets (d):
EQT Production (e)	$	408,331	$	243,175
EQT Midstream	83,213		49,144
Other	560		348
Total	$	492,104	$	292,667

(d) Excludes non-cash capital expenditures of $4.5 million and $6.0 million for the three months ended March 31, 2014 and 2013, respectively. The Company capitalizes certain labor overhead costs including a portion of non-cash stock-based compensation expense.

(e) Expenditures for segment assets in the EQT Production segment include $59.2 million and $12.7 million for property acquisitions during the three months ended March 31, 2014 and 2013, respectively.

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EQT Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

E. Derivative 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 at 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 over the counter (OTC) derivative commodity instruments that are primarily placed with financial institutions, and the creditworthiness of these institutions is regularly monitored. The Company also uses exchange traded futures contracts that 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 two prices 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 may also engage 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 potential debt issuances.

The Company recognizes all derivative instruments as either assets or liabilities at fair value on a gross basis. These 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.

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 OCI, 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 designated and qualified 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) was recognized as a portion of operating revenues in the Statements of Consolidated Income. The Company elected to exclude the spot/forward differential for the assessment of effectiveness of the fair value hedges.

Most 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. Historically, 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 were designated and qualified as fair value hedges. These positions were de-designated effective October 1, 2013. Any hedging ineffectiveness 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.

The Company also enters into fixed price natural gas sales agreements that are satisfied by physical delivery. These physical commodity contracts qualify for the normal purchases and sales exception and are not subject to derivative instrument accounting.

Exchange-traded instruments are generally settled with offsetting positions. 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.

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EQT Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

	Three Months Ended
	March 31,
	2014		2013
	(Thousands)
Commodity derivatives designated as cash flow hedges
Amount of loss recognized in OCI (effective portion), net of tax	$	(39,194)	$	(52,601)
Amount of (loss) gain reclassified from accumulated OCI into operating revenues (effective portion), net of tax	(17,263)		25,833
Amount of loss recognized in operating revenues (ineffective portion) (a)	(22,260)		(481)

Interest rate derivatives designated as cash flow hedges
Amount of gain recognized in OCI (effective portion), net of tax	$	–	$	–
Amount of loss reclassified from accumulated OCI, net of tax, into interest expense (effective portion)	(36)		(36)

Commodity derivatives designated as fair value hedges (b)
Amount of loss recognized in operating revenues for fair value commodity contracts	$	–	$	(3,539)
Fair value gain recognized in operating revenues for inventory designated as hedged item	–		4,537

Derivatives not designated as hedging instruments
Amount of loss recognized in operating revenues	$	(9,354)	$	(262)

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

(b) For the three months ended March 31, 2013, the net impact on operating revenues consisted of a $1.3 million gain due to the exclusion the spot/forward differential from the assessment of effectiveness of fair value hedges and a $0.3 million loss due to changes in basis.

	As of March 31,		As of December 31,
	2014		2013
	(Thousands)
Asset derivatives
Commodity derivatives designated as hedging instruments	$	74,953	$	104,430
Commodity derivatives not designated as hedging instruments	4,868		3,217
Total asset derivatives	$	79,821	$	107,647

Liability derivatives
Commodity derivatives designated as hedging instruments	$	57,426	$	27,618
Commodity derivatives not designated as hedging instruments	1,907		2,033
Total liability derivatives	$	59,333	$	29,651

The net fair value of derivative commodity instruments changed during the three months ended March 31, 2014 primarily as a result of increased New York Mercantile Exchange (NYMEX) forward prices and settlements. The absolute quantities of the Company’s derivative commodity instruments that have been designated and qualify as cash flow hedges totaled 352 Bcf and 398 Bcf as of March 31, 2014 and December 31, 2013, respectively, and are primarily related to natural gas swaps and collars. The open positions at March 31, 2014 and December 31, 2013 had maturities extending through December 2017.

The Company deferred net gains of $39.8 million and $61.7 million in accumulated OCI, net of tax, as of March 31, 2014 and December 31, 2013, 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 $11.1 million of net unrealized gains on its derivative

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EQT Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

commodity instruments reflected in accumulated OCI, net of tax, as of March 31, 2014 will be recognized in earnings during the next twelve months due to the settlement of hedged transactions.

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 NYMEX traded futures contracts have limited 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 placed with financial institutions and thus are subject to events that would impact those companies individually as well as that industry as a whole.

The Company utilizes various processes and analyses to monitor and evaluate its credit risk exposures. These include closely monitoring current market conditions, counterparty credit fundamentals and credit default swap rates. Credit exposure is controlled through credit approvals and limits based on counterparty credit fundamentals. To manage the level of credit risk, the Company enters into transactions with financial counterparties that are of investment grade or better, enters into netting agreements whenever possible and may obtain collateral or other security.

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 deposits 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 March 31, 2014 or December 31, 2013.

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. The Company 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. The margin requirements are subject to change at the exchanges’ discretion. The Company recorded current assets of $0.1 million and $0.3 million as of March 31, 2014 and December 31, 2013, respectively, for such deposits in its Condensed Consolidated Balance Sheets.

The Company recognizes all derivative instruments as either assets or liabilities at fair value on a gross basis. Margin deposits remitted to financial counterparties or received from financial counterparties related to OTC natural gas swap agreements and options and any funds remitted to or deposits received from the Company’s brokers are recorded on a gross basis. The Company has netting agreements with financial institutions and its brokers that permit net settlement of gross commodity derivative assets against gross commodity derivative liabilities. The table below reflects the impact of netting agreements and margin deposits on gross derivative assets and liabilities as of March 31, 2014 and December 31, 2013.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

As of March 31, 2014	Derivative instruments, recorded in the Condensed Consolidated Balance Sheet, gross		Derivative instruments subject to master netting agreements		Margin deposits remitted to counterparties		Derivative instruments, net
			(Thousands)
Asset derivatives:
Derivative instruments, at fair value	$	79,821	$	(26,095)	$	–	$	53,726

Liability derivatives:
Derivative instruments, at fair value	$	59,333	$	(26,095)	$	(53)	$	33,185

As of December 31, 2013	Derivative instruments, recorded in the Condensed Consolidated Balance Sheet, gross		Derivative instruments subject to master netting agreements		Margin deposits remitted to counterparties		Derivative instruments, net
			(Thousands)
Asset derivatives:
Derivative instruments, at fair value	$	107,647	$	(20,843)	$	–	$	86,804

Liability derivatives:
Derivative instruments, at fair value	$	29,651	$	(20,843)	$	(266)	$	8,542

Certain of the Company’s derivative instrument contracts provide that if the Company’s credit ratings by Standard & Poor’s Rating Services (S&P) or Moody’s Investor Services (Moody’s) are lowered below investment grade, additional collateral must be deposited with the counterparty. The additional collateral can be up to 100% of the derivative liability. As of March 31, 2014, the aggregate fair value of all derivative instruments with credit risk-related contingent features that were in a net liability position was $33.5 million, for which the Company had no collateral posted on March 31, 2014. If the Company’s credit rating by S&P or Moody’s had been downgraded below investment grade on March 31, 2014, the Company would not have been required to post additional collateral under the agreements with the respective counterparties. Investment grade refers to the quality of the Company’s credit as assessed by one or more credit rating agencies. The Company’s senior unsecured debt was rated BBB by S&P and Baa3 by Moody’s at March 31, 2014. In order to be considered investment grade, the Company must be rated BBB- or higher by S&P and Baa3 or higher by Moody’s. Anything below these ratings is considered non-investment grade.

F. 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 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

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EQT Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

liabilities in Level 2 include the Company’s swap and collar agreements. As of December 31, 2013, the Company transferred $54.4 million of derivative instruments, primarily its collars, from Level 3 into Level 2.

The fair value of the assets and liabilities included in Level 2 is based on standard industry income approach models that use significant observable inputs, including NYMEX forward curves and LIBOR-based discount rates. The Company’s collars are valued using standard industry income approach models and were historically classified in Level 3 because the volatility assumption in the option pricing model was not observable over the full duration of the collars. Effective December 31, 2013, the volatility assumption in the option pricing model is observable for the duration of the term of the collars outstanding. This change did not have a significant impact on the fair value of the derivative instruments previously included in Level 3. The significant observable inputs utilized by the option pricing model include NYMEX forward curves, natural gas volatilities and LIBOR-based discount rates.

The Company uses NYMEX forward curves to value futures, commodity swaps and collars. The NYMEX forward curves and LIBOR-based discount rates are validated to external sources at least monthly.

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

			Fair value measurements at reporting date using
Description	As of March 31, 2014		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	$	79,821	$	246	$	79,575	$	–

Liabilities
Derivative instruments, at fair value	$	59,333	$	–	$	59,333	$	–

			Fair value measurements at reporting date using
Description	As of December 31, 2013		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	$	107,647	$	240	$	107,407	$	–

Liabilities
Derivative instruments, at fair value	$	29,651	$	315	$	29,336	$	–

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Notes to Condensed Consolidated Financial Statements (Unaudited)

	Fair value measurements using significant unobservable inputs (Level 3)
	Derivative instruments, at fair value, net Three Months Ended March 31,
	2014		2013
	(Thousands)
Balance as of January 1	$	–	$	90,714
Total gains or losses:
Included in earnings	–		423
Included in OCI	–		(11,733)
Purchases	–		72
Settlements	–		(9,611)
Transfers in and/or out of Level 3	–		–
Balance as of March 31	$	–	$	69,865

Gains of $0.5 million were included in earnings for the three months ended March 31, 2013 in the table above attributable to the change in unrealized gains or losses relating to assets held as of March 31, 2013.

The carrying value of cash equivalents approximates fair value due to the short-term 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 measurement. Fair value for non-traded debt obligations is estimated using a standard industry income approach model which utilizes 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 March 31, 2014 and December 31, 2013 was approximately $2.8 billion.

G. 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. However, while all of the Partnership’s earnings are included in the Company’s net income, the Company is not required to record income tax expense with respect to the portion of the Partnership’s earnings allocated to its noncontrolling public limited partners, which reduces the Company’s effective tax rate. Any refinements made due to subsequent information that affects the estimated annual effective income tax rate are reflected as adjustments in the current period.

The Company’s effective income tax rate for the three months ended March 31, 2014 was 35.5%, compared to 31.9% for the three months ended March 31, 2013. The increase in the effective income tax rate from the first quarter of 2013 is primarily attributable to an increase in state tax expense due to increased earnings in states with higher tax rates as well as an increase in tax reserves recorded in certain states as a result of changes in the corporate organization.

There were no material changes to the Company’s methodology for determining unrecognized tax benefits during the three months ended March 31, 2014. The Company believes that it is appropriately reserved for uncertain tax positions.

H. Revolving Credit Facilities

On February 18, 2014, the Company amended and restated its $1.5 billion revolving credit facility by extending the term to February 18, 2019. As of March 31, 2014 and December 31, 2013, the Company had no loans or letters of credit outstanding under its revolving credit facility. The Company did not have any short-term loans outstanding at any time during the three months ended March 31, 2014 and 2013 under its revolving credit facility.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

On February 18, 2014, the Partnership amended and restated its revolving credit facility by, among other things, increasing the borrowing capacity under the facility from $350 million to $750 million and extending the term to February 18, 2019. As of March 31, 2014, the Partnership had $110 million of loans and no letters of credit outstanding under its revolving credit facility. As of December 31, 2013, the Partnership had no loans or letters of credit outstanding under its revolving credit facility. The maximum amount of outstanding short-term loans at any time under the Partnership’s credit facility was $110 million during the three months ended March 31, 2014. The average daily balance of short-term loans outstanding for the Partnership was approximately $92.9 million at a weighted average annual interest rate of 1.72% during the three months ended March 31, 2014. The Partnership had no short-term loans outstanding at any time during the three months ended March 31, 2013.

The Company incurred commitment fees averaging approximately 6 basis points and 5 basis points for the three months ended March 31, 2014 and 2013, respectively, to maintain credit availability under its revolving credit facility. The Partnership incurred commitment fees averaging approximately 6 basis points for the three months ended March 31, 2014 and 2013 to maintain credit availability under its revolving credit facility.

I. 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 1,387,667 and 622,006 for the three months ended March 31, 2014 and 2013, respectively. There were no options to purchase common stock which were excluded from potentially dilutive securities because they were anti-dilutive for the three months ended March 31, 2014 and 2013. The impact of the Partnership’s dilutive units did not have a material impact on the Company’s earnings per share calculations for either of the periods presented.

J. Changes in Accumulated Other Comprehensive Income by Component

The following tables explain the changes in accumulated OCI by component during the applicable period:

	Three Months Ended March 31, 2014
	Natural gas cash flow hedges, net of tax			Interest rate cash flow hedges, net of tax			Pension and other post- retirement benefits liability adjustment, net of tax			Accumulated OCI (loss), net of tax
	(Thousands)
Accumulated OCI (loss), net of tax, as of January 1, 2014	$	61,699		$	(1,132)		$	(15,864)		$	44,703
Losses recognized in accumulated OCI, net of tax	(39,194)		(a)	–			–			(39,194)
Amounts reclassified from accumulated OCI into realized expense, net of tax	17,263		(a)	36		(a)	176		(b)	17,475
Change in accumulated other comprehensive (loss) income, net of tax	(21,931)			36			176			(21,719)
Accumulated OCI (loss), net of tax, as of March 31, 2014	$	39,768		$	(1,096)		$	(15,688)		$	22,984

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Notes to Condensed Consolidated Financial Statements (Unaudited)

	Three Months Ended March 31, 2013
	Natural gas cash flow hedges, net of tax			Interest rate cash flow hedges, net of tax			Pension and other post- retirement benefits liability adjustment, net of tax			Accumulated OCI (loss), net of tax
	(Thousands)
Accumulated OCI (loss), net of tax, as of January 1, 2013	$	138,188		$	(1,276)		$	(37,365)		$	99,547
Losses recognized in accumulated OCI, net of tax	(52,601)		(a)	–			–			(52,601		)
Amounts reclassified from accumulated OCI into realized (income) expense, net of tax	(25,833)		(a)	36		(a)	433		(b)	(25,364		)
Change in accumulated other comprehensive (loss) income, net of tax	(78,434)			36			433			(77,965		)
Accumulated OCI (loss), net of tax, as of March 31, 2013	$	59,754		$	(1,240)		$	(36,932)		$	21,582

(a)	See Note E for additional information.

(b)	This accumulated OCI reclassification is attributable to the net actuarial loss and net prior service cost related to the Company’s defined benefit pension plans and other post-retirement benefit plans. See Note 13 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 for additional information.

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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,” “forecast,” “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 Quarterly Report on Form 10-Q include the matters discussed in the section captioned “Outlook” in Item 2, “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, feet of pay and location of wells to be drilled and the availability of capital to complete these plans and programs); production sales volumes (including liquids volumes) and growth rates; gathering and transmission volumes; infrastructure programs (including the timing, cost and capacity of the transmission and gathering expansion projects); technology (including drilling techniques); monetization transactions, including midstream asset sales (dropdowns) to EQT Midstream Partners, LP (the Partnership) and other asset sales, joint ventures or other transactions involving the Company’s assets; natural gas prices and changes in basis; reserves; projected capital expenditures; liquidity and financing requirements, including funding sources and availability; hedging strategy; the effects of government regulation and litigation; and tax position. The forward-looking statements included 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 Annual Report on Form 10-K for the year ended December 31, 2013.

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 statement, whether as a result of new information, future events or otherwise.

In reviewing any agreements incorporated by reference in or filed with this Quarterly Report on 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 to such agreements 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 of the Company or its affiliates as of the date they were made or at any other time.

CORPORATE OVERVIEW

Three Months Ended March 31, 2014 vs. Three Months Ended March 31, 2013

Income from continuing operations attributable to EQT Corporation for the three months ended March 31, 2014 was $192.3 million, $1.26 per diluted share, compared with $65.2 million, $0.43 per diluted share, for the three months ended March 31, 2013. The $127.1 million increase in income from continuing operations attributable to EQT Corporation between periods was primarily attributable to a 28% higher average effective sales price for natural gas and natural gas liquids (NGLs), a 30% increase in natural gas and NGL volumes sold, increases in gathered volumes and contracted transmission capacity and lower interest expense. These factors were partially offset by higher income tax expense, higher selling, general and administrative (SG&A) expenses and higher depreciation, depletion and amortization (DD&A) expense.

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

The average effective sales price to EQT Corporation for production sales volumes was $5.34 per Mcfe for the three months ended March 31, 2014 compared to $4.16 per Mcfe for the three months ended March 31, 2013. The average New York Mercantile Exchange (NYMEX) natural gas index price averaged $4.94 per MMBtu during the first quarter of 2014, 48% higher than the average index price of $3.34 per MMBtu during the first quarter of 2013. The Company’s average effective sales price varies from NYMEX due to revenue deductions for the net cost of gathering, transporting and processing its gas, regional basis and hedging. In addition, during the first quarter of 2014, EQT utilized its firm capacity to move gas to sales points where demand was high due to the unusually cold winter. The sale of gas at these sales points at high prices resulted in gains that more than offset the cost of third-party gathering and transmission in the first quarter of 2014, resulting in a positive $0.64 per Mcfe for net third-party gathering and transmission. This is a significant improvement compared to the first quarter of 2013 when the Company realized a net cost of $0.26 per Mcfe for third-party gathering and transmission. The favorable impact of net third-party gathering and transmission charges was partially offset by an unfavorable hedge impact and lower Appalachian Basin basis in the first quarter of 2014 compared to the first quarter of 2013.

Interest expense decreased $5.8 million in the three months ended March 31, 2014 compared to the three months ended March 31, 2013 primarily as a result of higher capitalized interest of $10.1 million on increased Marcellus well development in the first quarter of 2014 compared to $4.9 million in the first quarter of 2013.

Income tax expense increased $81.6 million in the three months ended March 31, 2014 compared to the three months ended March 31, 2013 primarily as a result of higher pre-tax income as well as a higher effective tax rate. The Company’s effective income tax rate increased to 35.5% from 31.9%. The increase in the effective income tax rate from the first quarter of 2013 is primarily attributable to an increase in state tax due to increased earnings in states with higher tax rates as well as increased tax reserves recorded in certain states in 2014. The overall rate was lower for both periods as the Company consolidates 100% of the pre-tax income related to the noncontrolling public limited partners’ share of partnership earnings, but does not record an income tax provision with respect to the portion of the Partnership’s earnings allocated to its noncontrolling public limited partners.

Loss from discontinued operations, net of tax, was $0.1 million for the three months ended March 31, 2014 compared to income from discontinued operations, net of tax, of $35.0 million for the three months ended March 31, 2013. On December 17, 2013, the Company and its wholly-owned subsidiary, Distribution Holdco, LLC, transferred 100% of their ownership interests in Equitable Gas Company, LLC and Equitable Homeworks, LLC to PNG Companies LLC.

Net income attributable to noncontrolling interests of the Partnership was $18.7 million for the three months ended March 31, 2014 compared to $9.0 million for the three months ended March 31, 2013. The $9.7 million increase was primarily a result of higher capacity reservation revenues in the Partnership and increased noncontrolling interests as a result of the underwritten public offering of additional common units representing limited partner interests in the Partnership in July 2013.

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

Consolidated Operational Data

Revenues earned by the Company at the wellhead from the sale of natural gas are split between EQT Production and EQT Midstream. The split is reflected in the calculation of EQT Production’s average effective sales price. The following operational information presents detailed gross liquid and natural gas operational information as well as midstream deductions to assist in the understanding of the Company’s consolidated operations.

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EQT Corporation and Subsidiaries

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

	Three Months Ended March 31,
in thousands (unless noted)	2014			2013			%
LIQUIDS
*NGLs:*
Sales Volume (MMcfe) (a)		7,767			6,692			16.1
Sales Volume (Mbbls)		1,295			1,115			16.1
Gross Price ($/Bbl)		$	55.71		$	46.11		20.8
Gross NGL Revenue		$	72,114		$	51,423		40.2
*Oil:*
Sales Volume (MMcfe) (a)		304			368			(17.4)
Sales Volume (Mbbls)		51			61			(16.4)
Net Price ($/Bbl)		$	83.11		$	81.74		1.7
Net Oil Revenue		$	4,214		$	4,986		(15.5)

Total Liquids Revenue		$	76,328		$	56,409		35.3

GAS
Sales Volume – Natural Gas (MMBtu)		98,052			74,654			31.3
Sales Volume – Ethane sold as natural gas (MMBtu)		6,931			6,417			8.0
Sales Volume (MMBtu)		104,983			81,071			29.5
NYMEX Price ($/MMBtu) (b)		$	4.92		$	3.34		47.3
Gas Revenue		$	516,636		$	270,427		91.0
Basis		(23,669)			(193)			12,163.7
Gross Gas Revenue (unhedged)		$	492,967		$	270,234		82.4
Sales Volume (MMcf)		98,052			74,654			31.3
Gas Price ($/Mcf) (unhedged)		$	5.03		$	3.62		39.0

Total Gross Gas & Liquids Revenue (unhedged)		$	569,295		$	326,643		74.3
Hedge impact (c)		(59,220)			43,498			(236.1)
Total Gross Gas & Liquids Revenue		$	510,075		$	370,141		37.8
Total Sales Volume (MMcfe)		106,123			81,714			29.9
Average hedge adjusted price ($/Mcfe)		$	4.81		$	4.53		6.2

Midstream Revenue Deductions ($ / Mcfe)
Gathering to EQT Midstream		$	(0.73)		$	(0.88)		(17.0)
Transmission to EQT Midstream		(0.21)			(0.23)			(8.7)
Net third-party gathering and transmission		0.64			(0.26)			(346.2)
Third-party processing		(0.11)			(0.11)			–
Total midstream revenue deductions		(0.41)			(1.48)			(72.3)
Average effective sales price to EQT Production		$	4.40		$	3.05		44.3

EQT Revenue ($ / Mcfe)
Revenues to EQT Midstream		$	0.94		$	1.11		(15.3)
Revenues to EQT Production		4.40			3.05			44.3
Average effective sales price to EQT Corporation		$	5.34		$	4.16		28.4

(a) NGLs and crude oil were converted to Mcfe at the rate of six Mcfe per barrel for all periods. Information for the three months ended March 31, 2013 has been recast to reflect this conversion rate.

(b) The Company’s volume weighted NYMEX natural gas price (actual average NYMEX natural gas price ($/MMBtu) was $4.94 and $3.34 for the three months ended March 31, 2014 and 2013, respectively).

(c) Includes gains or losses related to the sale of fixed price natural gas. The hedge impact also included a loss for hedging ineffectiveness of $22.4 million, $0.21 per Mcfe, and $0.5 million, $0.01 per Mcfe, for the three months ended March 31, 2014 and 2013, respectively.

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EQT Corporation and Subsidiaries

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

Business Segment Results of Operations

The Company has reported the components of each segment’s operating income from continuing operations 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 business 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 effective sales 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 D to the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

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

EQT PRODUCTION

RESULTS OF OPERATIONS

	Three Months Ended March 31,
	2014			2013			%
OPERATIONAL DATA

Sales volume detail (MMcfe):
Horizontal Marcellus Play (a)		83,126			55,452			49.9
Horizontal Huron Play		7,119			9,413			(24.4)
CBM Play		2,914			3,116			(6.5)
Other		12,964			13,733			(5.6)
Total production sales volumes (b)		106,123			81,714			29.9

Average daily sales volumes (MMcfe/d)		1,179			908			29.8

Average effective sales price to EQT Production ($/Mcfe)		$	4.40		$	3.05		44.3

Lease operating expenses (LOE), excluding production taxes ($/Mcfe)		$	0.14		$	0.16		(12.5)
Production taxes ($/Mcfe)		$	0.16		$	0.15		6.7
Production depletion ($/Mcfe)		$	1.21		$	1.50		(19.3)

DD&A (thousands):
Production depletion		$	128,557		$	122,491		5.0
Other DD&A		2,682			2,418			10.9
Total DD&A (thousands)		$	131,239		$	124,909		5.1

Capital expenditures (thousands)		$	408,331		$	243,175		67.9

FINANCIAL DATA (thousands)

Total net operating revenues		$	467,745		$	250,511		86.7

Operating expenses:
LOE, excluding production taxes		14,847			13,039			13.9
Production taxes		17,093			11,851			44.2
Exploration expense		1,412			3,730			(62.1)
SG&A		25,949			22,885			13.4
DD&A		131,239			124,909			5.1
Total operating expenses		190,540			176,414			8.0
Operating income		$	277,205		$	74,097		274.1

(a) Includes Upper Devonian wells.

(b) NGLs and crude oil were converted to Mcfe at the rate of six Mcfe per barrel for all periods. Information for the three months ended March 31, 2013 has been recast to reflect this conversion rate.

Three Months Ended March 31, 2014 vs. Three Months Ended March 31, 2013

EQT Production’s operating income totaled $277.2 million for the three months ended March 31, 2014 compared to $74.1 million for the three months ended March 31, 2013. The $203.1 million increase in operating income was primarily due to a higher average effective sale price and increased sales of produced natural gas and NGLs partially offset by an increase in operating expenses.

Total operating revenues were $467.7 million for the three months ended March 31, 2014 compared to $250.5 million for the three months ended March 31, 2013. The $217.2 million increase in operating revenues was

Table of Contents

EQT Corporation and Subsidiaries

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

primarily due to a 44% increase in the average effective sales price to EQT Production and a 30% increase in production sales volumes. The increase in production sales volumes was the result of increased production from the 2012 and 2013 drilling programs, primarily in the Marcellus play. This increase was partially offset by the normal production decline in the Company’s producing wells.

The $1.35 per Mcfe increase in the average effective sales price to EQT Production was the net result of a $0.90 per Mcfe benefit from the utilization of existing and new third-party transportation capacity to reach higher priced markets during the unusually cold winter, combined with a 48% increase in the average NYMEX natural gas price, partly offset by an unfavorable hedge impact and lower Appalachian Basin basis compared to the first quarter of 2013. The net impact of third-party gathering and transmission was a positive $0.64 per Mcfe for the three months ended March 31, 2014 compared to a cost of $0.26 per Mcfe for the same period in 2013. Net third-party gathering and transportation charges represent the net cost of third-party gathering and transportation after deducting capacity releases and differences in natural gas prices between the Appalachian Basin and the sales points of other markets reached by utilizing this capacity. As a result of the unusually cold weather in the first quarter of 2014, market prices in the United States Northeast region were significantly higher than Appalachian Basin prices, and the Company realized approximately $96 million of higher revenues compared to the same period in 2013 by using capacity to sell gas in these higher priced markets. Much of these higher revenues resulted from sales off of the Company’s Texas Eastern Transmission (TETCO) and Tennessee Gas Pipeline capacity, including additional TETCO capacity which the Company acquired effective February 2014. This new capacity of 245,000 MMBtu per day enables the Company to reach markets in eastern Pennsylvania. The average effective sales price was impacted unfavorably in the first quarter of 2014 by $0.21 per Mcfe as a result of a loss on ineffectiveness of financial hedges of $22.4 million. This ineffectiveness was caused by the change in Appalachian basis since inception of the hedges and is included in the hedge impact for the first quarter of 2014.

Operating expenses totaled $190.5 million for the three months ended March 31, 2014 compared to $176.4 million for the three months ended March 31, 2013. The increase in operating expenses was the result of increases in DD&A, production taxes, SG&A and LOE partially offset by a decrease in exploration expense. DD&A expense increased as a result of higher produced volumes in the current year partially offset by a lower overall depletion rate. Production taxes increased in the first quarter of 2014 compared to the first quarter of 2013, primarily due to a $3.7 million increase in severance taxes due to higher market sales prices and higher production sales volumes in certain jurisdictions subject to these taxes. Production taxes also increased in the first quarter of 2014 compared to the first quarter of 2013 due to a $1.1 million increase in the Pennsylvania impact fee, primarily as a result of an increase in the number of wells drilled in Pennsylvania. The increase in SG&A expense was primarily a result of higher personnel costs of $3.0 million, including incentive compensation expenses, and a higher allowance for doubtful accounts of $1.5 million, partially offset by lower environmental reserves for remediation. The increase in LOE was mainly due to increased Marcellus activity. The decrease in exploration expense was due to decreased impairments of unproved lease acreage of $2.7 million resulting from fewer lease expirations during the first quarter of 2014 compared to the first quarter of 2013.

Table of Contents

EQT Corporation and Subsidiaries

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

EQT MIDSTREAM

RESULTS OF OPERATIONS

	Three Months Ended March 31,
	2014		2013		%
OPERATIONAL DATA

Gathered volumes (BBtu)	126,164		101,231		24.6
Average gathering fee ($/MMBtu)	$	0.71	$	0.81	(12.3	)
Gathering and compression expense ($/MMBtu)	$	0.16	$	0.19	(15.8	)
Transmission pipeline throughput (BBtu)	144,362		80,971		78.3

Net operating revenues (thousands):
Gathering	$	89,376	$	81,814	9.2
Transmission	52,109		37,307		39.7
Storage, marketing and other	7,220		9,759		(26.0	)
Total net operating revenues	$	148,705	$	128,880	15.4

Capital expenditures (thousands)	$	83,213	$	49,144	69.3

FINANCIAL DATA (thousands)