Edgar Filing: EQT Corp

Document

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 SEPTEMBER 30, 2018



¨	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 001-03551

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 x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes x No ¨

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



Large Accelerated Filer x	Accelerated Filer ¨	Emerging Growth Company ¨
Non-Accelerated Filer ¨	Smaller Reporting Company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

As of September 30, 2018, 254,426 (in thousands) shares of common stock, no par value, of the registrant were outstanding.

Table of Contents

EQT CORPORATION AND SUBSIDIARIES

Index



		Page No.
Part I. Financial Information:

Item 1.	Financial Statements (Unaudited):

	Statements of Consolidated Operations for the Three and Nine Months Ended September 30, 2018 and 2017	3

	Statements of Consolidated Comprehensive Income for the Three and Nine Months Ended September 30, 2018 and 2017	4

	Statements of Condensed Consolidated Cash Flows for the Nine Months Ended September 30, 2018 and 2017	5

	Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017	6

	Statements of Condensed Consolidated Equity for the Nine Months Ended September 30, 2018 and 2017	8

	Notes to the Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49

Item 4.	Controls and Procedures	51

Part II. Other Information:

Item 1.	Legal Proceedings	52

Item 1A.	Risk Factors	53

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56

Item 6.	Exhibits	57

Signature		58

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EQT CORPORATION AND SUBSIDIARIES

Statements of Consolidated Operations (Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
	(Thousands, except per share amounts)
Revenues:
Sales of natural gas, oil and NGLs	$	1,046,989		$	552,953		$	3,264,728		$	1,803,132
Pipeline, water and net marketing services	114,956			70,835			376,776			216,499
(Loss) gain on derivatives not designated as hedges	(3,075		)	35,625			5,620			222,693
Total operating revenues	1,158,870			659,413			3,647,124			2,242,324

Operating expenses:
Transportation and processing	186,407			136,219			576,597			404,743
Operation and maintenance	29,892			19,589			82,218			54,721
Production	42,751			39,513			149,471			129,461
Exploration	15,772			2,436			42,058			9,039
Selling, general and administrative	65,400			66,263			195,828			190,891
Depreciation and depletion	435,311			246,560			1,290,876			719,295
Impairment/loss on sale of long-lived assets	259,279			—			2,706,438			—
Transaction costs	31,506			10,806			93,176			15,044
Amortization of intangible assets	20,728			—			62,185			—
Total operating expenses	1,087,046			521,386			5,198,847			1,523,194

Operating income (loss)	71,824			138,027			(1,551,723		)	719,130

Other income	21,755			6,526			43,092			15,880
Interest expense	93,042			50,377			240,059			137,110
Income (loss) before income taxes	537			94,176			(1,748,690		)	597,900
Income tax (benefit) expense	(62,911		)	(11,281		)	(503,505		)	119,093
Net income (loss)	63,448			105,457			(1,245,185		)	478,807
Less: Net income attributable to noncontrolling interests	103,141			82,117			362,696			250,349
Net (loss) income attributable to EQT Corporation	$	(39,693	)	$	23,340		$	(1,607,881	)	$	228,458

Earnings per share of common stock attributable to EQT Corporation:
Basic:
Weighted average common stock outstanding	259,560			173,476			262,816			173,368
Net (loss) income	$	(0.15	)	$	0.13		$	(6.12	)	$	1.32
Diluted:
Weighted average common stock outstanding	259,560			173,675			262,816			173,572
Net (loss) income	$	(0.15	)	$	0.13		$	(6.12	)	$	1.32
Dividends declared per common share	$	0.03		$	0.03		$	0.09		$	0.09

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 (Loss) Income (Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
	(Thousands)
Net income (loss)	$	63,448		$	105,457		$	(1,245,185	)	$	478,807

Other comprehensive income (loss), net of tax:
Net change in cash flow hedges:
Natural gas, net of tax benefit of $(150), $(955), $(413), and $(2,640)	(430		)	(1,451		)	(1,183		)	(4,011		)
Interest rate, net of tax expense of $10, $26, $54, and $78	52			36			132			108
Other post-retirement benefits liability adjustment, net of tax expense of $29, $49, $89, and $148	86			77			258			230
Other comprehensive loss	(292		)	(1,338		)	(793		)	(3,673		)
Comprehensive income (loss)	63,156			104,119			(1,245,978		)	475,134
Less: Comprehensive income attributable to noncontrolling interests	103,141			82,117			362,696			250,349
Comprehensive (loss) income attributable to EQT Corporation	$	(39,985	)	$	22,002		$	(1,608,674	)	$	224,785

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)



	Nine Months Ended September 30,
	2018			2017
	(Thousands)
Cash flows from operating activities:
Net (loss) income	$	(1,245,185	)	$	478,807
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Deferred income taxes	(502,853		)	121,704
Depreciation and depletion	1,290,876			719,295
Amortization of intangibles	62,185			—
Amortization of financing costs	9,591			—
Asset and lease impairments	2,742,022			5,053
Provision for (recoveries of) losses on accounts receivable	9			(1,230		)
Other income	(43,092		)	(15,880		)
Stock-based compensation expense	23,137			27,894
Gain on derivatives not designated as hedges	(5,620		)	(222,693		)
Cash settlements paid on derivatives not designated as hedges	(27,401		)	(6,837		)
Changes in other assets and liabilities:
Accounts receivable	(7,713		)	64,057
Accounts payable	205,360			(15,446		)
Other items, net	(55,926		)	56,648
Net cash provided by operating activities	2,445,390			1,211,372

Cash flows from investing activities:
Capital expenditures	(2,854,670		)	(1,152,865		)
Capital expenditures for acquisitions	—			(818,957		)
Proceeds from Huron Divestiture (see Note Q)	523,595			—
Sales of investments in trading securities	—			283,758
Capital contributions to Mountain Valley Pipeline, LLC	(446,049		)	(103,448		)
Proceeds from sale of Permian Basin assets	57,664			—
Net cash used in investing activities	(2,719,460		)	(1,791,512		)

Cash flows from financing activities:
Proceeds from issuance of EQM Midstream Partners, LP (formerly known as EQT Midstream Partners, LP) Senior Notes	2,500,000			—
Increase in borrowings on credit facilities	6,219,500			334,000
Repayment of borrowings on credit facilities	(7,508,500		)	(229,000		)
Dividends paid	(23,736		)	(15,620		)
Distributions to noncontrolling interests	(279,539		)	(172,498		)
Repayments and retirements of Senior Notes	(7,999		)	—
Proceeds from awards under employee compensation plans	1,946			—
Cash paid for taxes related to net settlement of share-based incentive awards	(21,910		)	(18,030		)
Debt discount and issuance costs and revolving credit facility origination fees	(34,249		)	(13,679		)
Acquisition of 25% of Strike Force Midstream LLC	(175,000		)	—
Repurchase and retirement of common stock	(538,876		)	—
Repurchase of common stock	(27		)	(15		)
Net cash provided by (used in) financing activities	131,610			(114,842		)
Net change in cash, cash equivalents and restricted cash	(142,460		)	(694,982		)
Cash, cash equivalents and restricted cash at beginning of period	147,315			1,178,540
Cash and cash equivalents at end of period	$	4,855		$	483,558

Cash paid during the period for:
Interest, net of amount capitalized	$	163,688		$	113,618
Income taxes, net	$	193		$	9,702

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)



	September 30, 2018		December 31, 2017
	(Thousands)
Assets

Current assets:
Cash and cash equivalents	$	4,855	$	147,315
Accounts receivable (less accumulated provision for doubtful accounts: $8,235 at September 30, 2018 and $8,226 at December 31, 2017)	882,386		725,236
Derivative instruments, at fair value	315,564		241,952
Prepaid expenses and other	31,853		48,552
Total current assets	1,234,658		1,163,055

Property, plant and equipment	28,022,769		30,990,309
Less: accumulated depreciation and depletion	4,892,875		6,105,294
Net property, plant and equipment	23,129,894		24,885,015

Intangible assets, net	674,175		736,360
Goodwill	1,998,726		1,998,726
Investment in nonconsolidated entity	1,300,430		460,546
Other assets	323,446		278,902
Total assets	$	28,661,329	$	29,522,604

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)



	September 30, 2018			December 31, 2017
	(Thousands)
Liabilities and Shareholders’ Equity

Current liabilities:
Current portion of Senior Notes	$	699,527		$	7,999
Accounts payable	978,757			654,624
Derivative instruments, at fair value	183,677			139,089
Other current liabilities	784,115			430,525
Total current liabilities	2,646,076			1,232,237

Credit facility borrowings	472,000			1,761,000
Senior Notes	7,336,570			5,562,555
Deferred income taxes	1,212,867			1,768,900
Other liabilities and credits	776,424			783,299
Total liabilities	12,443,937			11,107,991

Equity:
Shareholders’ equity:
Common stock, no par value, authorized 320,000 shares, shares issued: 257,225 at September 30, 2018 and 267,871 at December 31, 2017	8,684,169			9,388,903
Treasury stock, shares at cost: 2,799 at September 30, 2018 (including 299 held in rabbi trust) and 3,551 at December 31, 2017 (including 253 held in rabbi trust)	(50,014		)	(63,602		)
Retained earnings	2,369,271			3,996,775
Accumulated other comprehensive loss	(3,251		)	(2,458		)
Total common shareholders’ equity	11,000,175			13,319,618
Noncontrolling interests in consolidated subsidiaries	5,217,217			5,094,995
Total equity	16,217,392			18,414,613
Total liabilities and equity	$	28,661,329		$	29,522,604

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 Comprehensive Income (Loss)			Noncontrolling Interests in Consolidated Subsidiaries
	Shares Outstanding		No Par Value			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interests in Consolidated Subsidiaries			Total Equity
	(Thousands)
Balance, January 1, 2017	172,827		$	3,349,166		$	2,509,073		$	2,042		$	3,258,966		$	9,119,247
Comprehensive income (net of tax):
Net income						228,458						250,349			478,807
Net change in cash flow hedges:
Natural gas, net of tax benefit of $(2,640)									(4,011		)				(4,011		)
Interest rate, net of tax expense of $78									108						108
Other post-retirement benefits liability adjustment, net of tax expense of $148									230						230
Dividends ($0.09 per share)						(15,620		)							(15,620		)
Stock-based compensation plans, net	516		18,224									190			18,414
Distributions to noncontrolling interests ($2.675 and $0.578 per common unit from EQM Midstream Partners, LP and EQGP Holdings, LP (formerly known as EQT GP Holdings, LP), respectively)												(172,498		)	(172,498		)
Balance, September 30, 2017	173,343		$	3,367,390		$	2,721,911		$	(1,631	)	$	3,337,007		$	9,424,677

Balance, January 1, 2018	264,320		$	9,325,301		$	3,996,775		$	(2,458	)	$	5,094,995		$	18,414,613
Comprehensive income (net of tax):
Net (loss) income						(1,607,881		)				362,696			(1,245,185		)
Net change in cash flow hedges:
Natural gas, net of tax benefit of $(413)									(1,183		)				(1,183		)
Interest rate, net of tax expense of $54									132						132
Other post-retirement benefit liability adjustment, net of tax expense of $89									258						258
Dividends ($0.09 per share)						(23,736		)							(23,736		)
Stock-based compensation plans, net	752		4,472									953			5,425
Distributions to noncontrolling interests ($3.18, $0.808 and $0.5966 per common unit from EQM Midstream Partners, LP, EQGP Holdings, LP, and RM Partners LP (formerly known as Rice Midstream Partners LP), respectively)												(279,539		)	(279,539		)
Change in accounting principle (a)						4,113									4,113
Repurchase and retirement of common stock	(10,646	)	(538,876		)										(538,876		)
Purchase of Strike Force Midstream LLC noncontrolling interests			1,818									(176,818		)	(175,000		)
Change in ownership of consolidated subsidiaries			(158,560		)							214,930			56,370
Balance, September 30, 2018	254,426		$	8,634,155		$	2,369,271		$	(3,251	)	$	5,217,217		$	16,217,392

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

(a) Related to adoption of ASU No. 2016-01. See Notes K and S for additional information.

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EQT Corporation and Subsidiaries

Notes to the 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 statements include all adjustments (consisting of only normal recurring accruals, unless otherwise disclosed in this Quarterly Report on Form 10-Q) necessary for a fair presentation of the financial position of EQT Corporation and subsidiaries as of September 30, 2018 and December 31, 2017, the results of its operations for the three and nine month periods ended September 30, 2018 and 2017 and its cash flows and equity for the nine month periods ended September 30, 2018 and 2017. Certain previously reported amounts have been reclassified to conform to the current year presentation. 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.

The balance sheet at December 31, 2017 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements.

For further information, refer to the consolidated financial statements and related footnotes as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

During the third quarter of 2018, the Company repurchased 9,946,382 shares at an average price of $50.29 pursuant to the Company's previously announced $500 million share repurchase program. This exhausted the Company's share repurchase authorization under such program.

On November 13, 2017, the Company completed its previously announced acquisition of Rice Energy Inc. (Rice) pursuant to the Agreement and Plan of Merger, dated June 19, 2017 (as amended, the Rice Merger Agreement), by and among the Company, Rice and a wholly owned indirect subsidiary of the Company (RE Merger Sub). Pursuant to the terms of the Rice Merger Agreement, on November 13, 2017, RE Merger Sub merged with and into Rice (the Rice Merger) with Rice continuing as the surviving corporation and a wholly owned indirect subsidiary of the Company. Immediately thereafter, Rice merged with and into another wholly owned indirect subsidiary of the Company. As a result of the Rice Merger, the Company also acquired Rice's interests in RM Partners LP (formerly known as Rice Midstream Partners LP) (RMP). See Note E. The purchase price allocation for the Rice Merger remains preliminary as of September 30, 2018.

Unaudited Pro Forma Information

The following unaudited pro forma combined financial information presents the Company’s results as though the Rice Merger had been completed at January 1, 2017. The pro forma combined financial information has been included for comparative purposes and is not necessarily indicative of the results that might have actually occurred had the Rice Merger taken place on January 1, 2017; furthermore, the financial information is not intended to be a projection of future results.



(in thousands, except per share data) (unaudited)	Three Months Ended September 30, 2017			Nine Months Ended September 30, 2017
Pro forma operating revenues	$	1,042,363		$	3,491,790
Pro forma net income	$	120,301		$	602,684
Pro forma net income attributable to noncontrolling interests	$	(118,353	)	$	(338,546	)
Pro forma net income attributable to EQT	$	1,948		$	264,138
Pro forma income per share (basic)	$	0.01		$	1.00
Pro forma income per share (diluted)	$	—		$	0.99

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EQT Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

B. Midstream Streamlining Transactions and Financing

In February 2018, the Company's Board of Directors unanimously approved a plan to separate its upstream and midstream businesses, creating a standalone publicly traded corporation, Equitrans Midstream Corporation (Equitrans Midstream), which will focus on midstream operations (the Separation). Equitrans Midstream will own the midstream interests held by EQT. The Separation is intended to qualify as tax-free to EQT shareholders for U.S. federal income tax purposes. Under the Separation plan, EQT shareholders will retain their shares of the Company's stock and receive a pro-rata distribution of 80.1% of the outstanding shares of Equitrans Midstream common stock. In connection with announcing the planned Separation, the Company also announced its plans to pursue (i) a sale of Rice retained midstream assets acquired by EQT in connection with the Rice Merger to EQM Midstream Partners, LP (formerly known as EQT Midstream Partners, LP) (EQM) (NYSE: EQM), (ii) a merger of EQM and RMP, and (iii) a sale of RMP’s incentive distribution rights (RMP IDRs) to EQGP Holdings, LP (formerly known as EQT GP Holdings, LP) (EQGP) (NYSE: EQGP)((i), (ii) and (iii) collectively, the Midstream Streamlining Transactions).

On April 25, 2018, EQT, Rice Midstream Holdings LLC (Rice Midstream), a wholly owned subsidiary of the Company, EQM and EQM Gathering Holdings, LLC (EQM Gathering), a wholly owned subsidiary of EQM, entered into a contribution and sale agreement pursuant to which EQM Gathering agreed to acquire all the outstanding limited liability company interests in each of (i) EQM West Virginia Midstream Holdings LLC (formerly known as Rice West Virginia Midstream LLC) (Rice West Virginia), (ii) EQM Olympus Midstream LLC (formerly known as Rice Olympus Midstream LLC) (Rice Olympus) and (iii) Strike Force Midstream Holdings LLC (Strike Force Holdings), which owns a 75% limited liability company interest in Strike Force Midstream LLC (Strike Force Midstream), in exchange for an aggregate of 5,889,282 EQM common units and cash consideration of $1.15 billion, plus working capital adjustments (the Drop-Down Transaction). The Drop-Down Transaction was completed on May 22, 2018 with an effective date of May 1, 2018. In connection with the Drop-Down Transaction, the Company recorded a $15.5 million gain to additional paid-in-capital, a decrease in noncontrolling interest in consolidated subsidiary of $20.3 million and an increase to deferred tax liability of $4.8 million.

On May 1, 2018, pursuant to the Purchase and Sale Agreement dated April 25, 2018, by and among EQM, EQM Gathering, Gulfport Energy Corporation (Gulfport) and an affiliate of Gulfport, EQM Gathering acquired the remaining 25% limited liability company interest in Strike Force Midstream not owned by Strike Force Holdings for $175 million (the Gulfport Transaction). As a result, EQM has owned 100% of Strike Force Midstream since May 1, 2018.

On May 22, 2018, pursuant to an Incentive Distribution Rights Purchase and Sale Agreement dated April 25, 2018, by and among the Company, Rice Midstream GP Holdings LP (Rice Midstream GP Holdings), a wholly owned subsidiary of the Company that owned the RMP IDRs, and EQGP, EQGP acquired all of the issued and outstanding RMP IDRs in exchange for 36,293,766 EQGP common units (the RMP IDR Purchase). As a result of the RMP IDR Purchase, EQT's percentage ownership of the outstanding EQGP common units increased from approximately 90.1% to approximately 91.3%. In connection with the RMP IDR Purchase, the Company recorded a $35.1 million loss to additional paid-in-capital, an increase in noncontrolling interest in consolidated subsidiary of $46.1 million and a decrease to deferred tax liability of $11.0 million.

On April 25, 2018, EQM entered into an Agreement and Plan of Merger (the Midstream Merger Agreement) with RMP, EQM Midstream Management LLC (formerly known as Rice Midstream Management LLC), the general partner of RMP (the RMP General Partner), EQM Midstream Services, LLC (formerly known as EQT Midstream Services, LLC), the general partner of EQM (the EQM General Partner), EQM Acquisition Sub, LLC, a wholly owned subsidiary of EQM (Merger Sub), EQM GP Acquisition Sub, LLC, a wholly owned subsidiary of EQM (GP Merger Sub), and, solely for certain limited purposes set forth therein, the Company. Pursuant to the Midstream Merger Agreement, on July 23, 2018, Merger Sub and GP Merger Sub merged with and into RMP and the RMP General Partner, respectively, with RMP and the RMP General Partner surviving as wholly owned subsidiaries of EQM (the Midstream Mergers). Pursuant to the Midstream Merger Agreement, each of the RMP common units issued and outstanding immediately prior to the effective time of the Midstream Mergers was converted into the right to receive 0.3319 EQM common units (the Midstream Mergers Consideration), the issued and outstanding RMP IDRs were canceled and each outstanding award of phantom units in respect of RMP common units fully vested and converted into the right to receive the Midstream Mergers Consideration, less applicable tax withholding, in respect of each RMP common unit subject thereto. The aggregate Midstream Mergers Consideration consisted of approximately 34 million EQM common units. Following completion of the Midstream Mergers, RMP's common units ceased to be publicly traded. An indirect wholly owned subsidiary of the Company received 9,554,530 EQM common units as Midstream Mergers Consideration. In connection with the Midstream Mergers, the Company recorded a $138.8 million loss to additional paid-in capital, an increase in noncontrolling interest in consolidated subsidiary of $189.1 million and a decrease to deferred tax liability of approximately $50.3 million.

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EQT Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Also in connection with the completion of the Midstream Mergers, on July 23, 2018, EQM repaid approximately $260 million of borrowings outstanding under the Credit Agreement, dated as of December 22, 2014, by and among RMP, as parent guarantor, RM Operating LLC (formerly known as Rice Midstream OpCo LLC), a wholly owned subsidiary of RMP (RMP OpCo), as borrower, Wells Fargo Bank, N.A., as administrative agent, and the lenders and other parties from time to time party thereto (the RMP Credit Agreement), and the RMP Credit Agreement was terminated.

On April 25, 2018, EQM entered a $2.5 billion unsecured multi-draw 364-day term loan facility with a syndicate of lenders (the EQM Term Loan Facility). The EQM Term Loan Facility was used to fund the cash consideration for the Drop-Down Transaction, to repay borrowings under EQM’s $1 billion credit facility, and for other general partnership purposes. During the second quarter of 2018, the balance outstanding under the EQM Term Loan Facility was repaid, and the EQM Term Loan Facility was terminated on June 25, 2018 in connection with EQM's issuance of the EQM 2018 Senior Notes (described in the following section).

During the second quarter of 2018, EQM issued 4.75% senior notes due July 15, 2023 in the aggregate principal amount of $1.1 billion, 5.50% senior notes due July 15, 2028 in the aggregate principal amount of $850 million and 6.50% senior notes due July 15, 2048 in the aggregate principal amount of $550 million (collectively, the EQM 2018 Senior Notes). The offering of the EQM 2018 Senior Notes resulted in net proceeds of approximately $2,465.8 million, inclusive of a discount of $11.8 million and estimated debt issuance costs of $22.4 million. The net proceeds were used to repay the balance outstanding under the EQM Term Loan Facility and the RMP Credit Agreement and the remainder is expected to be used for general partnership purposes. The EQM 2018 Senior Notes were issued pursuant to new supplemental indentures to EQM's existing indenture dated August 1, 2014. The EQM 2018 Senior Notes contain covenants that limit EQM's ability to, among other things, incur certain liens securing indebtedness, engage in certain sale and leaseback transactions, and enter into certain consolidations, mergers, conveyances, transfers or leases of substantially all of EQM's assets.

C. EQGP Holdings, LP

In January 2015, the Company formed EQGP to own the Company's partnership interests in EQM. As of September 30, 2018, EQT owns 276,008,766 EQGP common units, which represent a 91.3% limited partner interest, and the entire non-economic general partner interest in EQGP. EQGP owned the following EQM partnership interests as of September 30, 2018, which represent EQGP’s only cash-generating assets: 21,811,643 EQM common units, representing a 17.9% limited partner interest in EQM; 1,443,015 EQM general partner units, representing a 1.2% general partner interest in EQM; and all of EQM’s incentive distribution rights (IDRs), which entitle EQGP to receive up to 48.0% of all incremental cash distributed in a quarter after $0.5250 has been distributed in respect of each common unit and general partner unit of EQM for that quarter. Through EQGP's general partner interest, limited partner interest and IDRs in EQM, EQGP has a controlling financial interest in EQM; therefore, EQGP consolidates EQM. The Company is the ultimate parent company of EQGP and EQM.

On October 23, 2018, the Board of Directors of EQGP's general partner declared a cash distribution to EQGP’s unitholders for the third quarter of 2018 of $0.315 per common unit, or approximately $95.3 million. The distribution will be paid on November 14, 2018 to unitholders of record, including the Company, at the close of business on November 2, 2018. Based on the EQGP common units outstanding on October 25, 2018, the cash distributions by EQGP to EQT for the third quarter 2018 will be approximately $87.0 million.

D. EQM Midstream Partners, LP

In January 2012, the Company formed EQM to own, operate, acquire and develop midstream assets in the Appalachian Basin. EQM provides midstream services to the Company and third parties. EQM is consolidated in the Company’s financial statements. The Company records the noncontrolling interest of the EQM public limited partners in its financial statements.

In addition to the EQM common units owned by EQGP, as of September 30, 2018, EQT owned 5,889,282 EQM common units representing an additional 6.7% limited partner interest in EQM.

On October 23, 2018, the Board of Directors of EQM's general partner declared a cash distribution to EQM’s unitholders for the third quarter of 2018 of $1.115 per common unit. The cash distribution will be paid on November 14, 2018 to unitholders of record, including EQGP, as of the close of business on November 2, 2018. Based on the EQM common units outstanding on October 25, 2018, the cash distributions by EQM to EQGP for the third quarter 2018 will be approximately $97.8 million consisting of: $24.3 million in respect of its limited partner interest, $2.5 million in respect of its general partner interest and $71.0 million in respect of its IDRs. The distribution amounts to EQGP related to its general partner interest and IDRs in EQM are subject to change if EQM issues additional common units on or prior to the record date for the third quarter 2018 distribution. Based on the EQM

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Notes to the Condensed Consolidated Financial Statements (Unaudited)

common units outstanding on October 25, 2018, the cash distributions by EQM to EQT for the third quarter 2018 will be approximately $17.2 million.

E. RM Partners LP

In connection with the Rice Merger, the Company acquired a 28.1% limited partner interest, all of the IDRs and the entire non-economic general partner interest in RMP. RMP's common units ceased to be publicly traded as a result of the Midstream Mergers. See the discussion of the RMP IDR Purchase and Midstream Mergers in Note B.

F. Revenue from Contracts with Customers

As discussed in Note S, the Company adopted Accounting Standard Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), on January 1, 2018 using the modified retrospective method of adoption. Adoption of the ASU did not require an adjustment to the opening balance of equity and did not materially change the Company's amount and timing of revenues. The Company applied the ASU only to contracts that were not completed as of January 1, 2018. The Company has elected to exclude all taxes from the measurement of transaction price.

For the sale of natural gas, oil and natural gas liquids (NGLs), the Company generally considers the delivery of each unit (MMBtu or Bbl) to be a separate performance obligation that is satisfied upon delivery. These contracts typically require payment within 25 days of the end of the calendar month in which the gas is delivered. A significant number of these contracts contain variable consideration because the payment terms refer to market prices at future delivery dates. In these situations, the Company has not identified a standalone selling price because the terms of the variable payments relate specifically to the Company’s efforts to satisfy the performance obligations. Other contracts contain fixed consideration (i.e. fixed price contracts or contracts with a fixed differential to New York Mercantile Exchange (NYMEX) or index prices). The fixed consideration is allocated to each performance obligation on a relative standalone selling price basis, which requires judgment from management. For these contracts, the Company generally concludes that the fixed price or fixed differentials in the contracts are representative of the standalone selling price.

Based on management’s judgment, the performance obligations for the sale of natural gas, oil and NGLs are satisfied at a point in time because the customer obtains control and legal title of the asset when the natural gas, oil or NGL is delivered to the designated sales point.

The sales of natural gas, oil and NGLs as presented on the Statements of Consolidated Operations represent the Company’s share of revenues net of royalties and excluding revenue interests owned by others. When selling natural gas, oil and NGLs on behalf of royalty owners or working interest owners, the Company is acting as an agent and thus reports the revenue on a net basis.

The Company provides gathering, transmission and storage services in two manners: firm service and interruptible service. Firm service contracts are typically long term and include firm reservation fees, which are fixed, monthly charges for the guaranteed reservation of pipeline or storage capacity. Volumetric based fees under firm contracts include usage fees and charges for actual volumes transported, gathered or stored in excess of firm contracted volume. Interruptible service contracts include volumetric based fees, which are charges for the volume of gas actually gathered, transported or stored and do not guarantee access to the pipeline or storage facility. These contracts can be short or long term. Firm and interruptible contracts are billed at the end of each calendar month, with payment typically due within 21 days.

Based on total projected contractual revenues and including contracts associated with expected future capacity from expansion projects that are not yet fully constructed but for which EQM has entered into firm contracts, EQM's firm gathering contracts and firm transmission and storage contracts had weighted average remaining terms of approximately 8 and 15 years, respectively, as of December 31, 2017.

Under a firm contract, the Company has a stand-ready obligation to provide the service over the life of the contract. The performance obligation for firm reservation fee revenue is satisfied over time as the pipeline capacity is made available to the customer. As such, the Company recognizes firm reservation fee revenue evenly over the contract period, using a time-elapsed output method to measure progress. The performance obligation for volumetric based fees under firm and interruptible contracts is generally satisfied upon the Company's monthly billing to the customer for actual volumes gathered, transported or stored during the month. The amount billed corresponds directly to the value of the Company’s performance to date as the customer obtains value as each volume is gathered, transported or stored.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

Certain of EQM's gas gathering agreements are structured with minimum volume commitments (MVC), which specify minimum quantities for which a customer will be charged regardless of actual quantities gathered under the contract. Revenue is recognized for MVCs when the performance obligation has been met, which is the earlier of when the gas is gathered or when it is remote that the producer will be able to meet its MVC.

Water services revenues primarily represent fees charged by EQM for the delivery of fresh water to a customer at a specified delivery point. All of EQM’s water services revenues are generated pursuant to variable price per volume contracts with customers in the Appalachian Basin. For water services contracts, the only performance obligation in each contract is for EQM to provide water (usually a minimum daily volume) to the customer at any designated delivery point. This performance obligation is generally satisfied upon EQM’s monthly billing to the customer for the volume of water provided during the month. For water services arrangements, the customer is typically invoiced on a monthly basis with payment due 21 days after the receipt of the invoice.

Because the Company's performance obligations have been satisfied and an unconditional right to consideration exists as of the balance sheet date, the Company has recognized amounts due from contracts with customers of $488.7 million as accounts receivable within the Condensed Consolidated Balance Sheet.

The table below provides disaggregated information regarding the Company’s revenues, presented consistently with the Company’s segment reporting. Certain contracts that provide for the release of capacity that is not used to transport the Company’s produced volumes were deemed to be outside the scope of Revenue from Contracts with Customers. The cost of, and recoveries on, that capacity are reported within pipeline and net marketing services at EQT Production. Derivative contracts are also outside the scope of Revenue from Contracts with Customers.



Three Months Ended September 30, 2018	Revenues from contracts with customers			Other sources of revenue			Total
	(Thousands)
Natural gas sales	$	931,976		$	—		$	931,976
NGLs sales	106,621			—			106,621
Oil sales	8,392			—			8,392
Sales of natural gas, oil and NGLs	$	1,046,989		$	—		$	1,046,989

Pipeline and net marketing services at EQT Production	$	2,605		$	3,527		$	6,132
EQM Gathering:
Firm reservation fee revenues	112,598			—			112,598
Volumetric based fee revenues:
Usage fees under firm contracts	8,661			—			8,661
Usage fees under interruptible contracts	131,602			—			131,602
EQM Transmission:
Firm reservation fee revenues	82,669			—			82,669
Volumetric based fee revenues:
Usage fees under firm contracts	5,331			—			5,331
Usage fees under interruptible contracts	1,350			—			1,350
Water services at EQM Water	22,373			—			22,373
Intersegment eliminations	(255,760		)	—			(255,760		)
Pipeline, water and net marketing services	$	111,429		$	3,527		$	114,956

Loss on derivatives not designated as hedges	$	—		$	(3,075	)	$	(3,075	)

Total operating revenues	$	1,158,418		$	452		$	1,158,870

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Notes to Condensed Consolidated Financial Statements (Unaudited)



Nine Months Ended September 30, 2018	Revenues from contracts with customers			Other sources of revenue		Total
	(Thousands)
Natural gas sales	$	2,877,660		$	—	$	2,877,660
NGLs sales	357,746			—		357,746
Oil sales	29,322			—		29,322
Sales of natural gas, oil and NGLs	$	3,264,728		$	—	$	3,264,728

Pipeline and net marketing services at EQT Production	$	14,273		$	28,109	$	42,382
EQM Gathering:
Firm reservation fee revenues	334,233			—		334,233
Volumetric based fee revenues:
Usage fees under firm contracts	30,725			—		30,725
Usage fees under interruptible contracts	366,482			—		366,482
EQM Transmission:
Firm reservation fee revenues	262,666			—		262,666
Volumetric based fee revenues:
Usage fees under firm contracts	13,981			—		13,981
Usage fees under interruptible contracts	8,782			—		8,782
Water services at EQM Water	93,438			—		93,438
Intersegment eliminations	(775,913		)	—		(775,913		)
Pipeline, water and net marketing services	$	348,667		$	28,109	$	376,776

Gain on derivatives not designated as hedges	$	—		$	5,620	$	5,620

Total operating revenues	$	3,613,395		$	33,729	$	3,647,124

The following table includes the transaction price allocated to the Company's remaining performance obligations on all contracts with fixed consideration. The table excludes all contracts that qualified for the exception to the relative standalone selling price method. Gathering firm reservation fees and transmission and storage firm reservation fees include amounts related to affiliate contracts.



	2018 (a)		2019		2020		2021		2022		Thereafter		Total
	(Thousands)
Natural gas sales	$	20,173	$	32,322	$	1,237	$	—	$	—	$	—	$	53,732
Gathering firm reservation fees	$	114,771	$	481,425	$	557,352	$	567,351	$	566,062	$	2,834,111	$	5,121,072
Gathering revenues supported by MVCs	$	—	$	65,700	$	71,370	$	71,175	$	71,175	$	136,875	$	416,295
Transmission and storage firm reservation fees	$	94,077	$	346,893	$	344,328	$	339,588	$	334,522	$	2,477,808	$	3,937,216

(a) October 1 through December 31.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

G. Investment in Nonconsolidated Entity

The Mountain Valley Pipeline, LLC (MVP Joint Venture) is constructing the Mountain Valley Pipeline (MVP), an estimated 300-mile natural gas interstate pipeline spanning from northern West Virginia to southern Virginia. EQM is the operator of the MVP and owned a 45.5% interest in the MVP Joint Venture as of September 30, 2018. The MVP Joint Venture is a variable interest entity because it has insufficient equity to finance its activities during the construction stage of the project. EQM is not the primary beneficiary because it does not have the power to direct the activities of the MVP Joint Venture that most significantly impact its economic performance. Certain business decisions require the approval of owners holding more than a 66 2/3% interest in the MVP Joint Venture and no one member owns more than a 66 2/3% interest. The MVP Joint Venture is an equity method investment for accounting purposes as EQM has the ability to exercise significant influence over operating and financial policies of the MVP Joint Venture. As currently designed, the MVP is estimated to cost a total of approximately $4.6 billion, excluding Allowance for Funds Used During Construction (AFUDC), with EQM funding approximately $2.2 billion through capital contributions made to the MVP Joint Venture, which includes approximately $65 million in excess of EQM's ownership interest. In 2018, EQM expects to provide capital contributions of $0.8 billion to $1.0 billion to the MVP Joint Venture.

In September 2018, the MVP Joint Venture issued a capital call notice to MVP Holdco, LLC (MVP Holdco), a direct wholly owned subsidiary of EQM, for $456.0 million, of which $175.2 million was paid as of October 2018, and $280.8 million is expected to be paid in the fourth quarter of 2018. In addition, in September 2018, the MVP Joint Venture issued a capital call notice to MVP Holdco for $7.7 million for funding of the MVP Southgate project that is expected to be paid in the fourth quarter of 2018. The capital contribution payables have been reflected on the Condensed Consolidated Balance Sheet as of September 30, 2018 with corresponding increases to the Company's investment in the MVP Joint Venture.

Equity income is EQM's portion of the MVP Joint Venture's AFUDC on construction of the MVP.

As of September 30, 2018, EQM had issued a $91 million performance guarantee in favor of the MVP Joint Venture. The guarantee provides performance assurances of MVP Holdco's obligations to fund its proportionate share of the MVP construction budget. As of September 30, 2018, EQM's maximum financial statement exposure related to the MVP Joint Venture was approximately $1,391 million, which consists of the investment in nonconsolidated entity balance on the Condensed Consolidated Balance Sheet as of September 30, 2018 and amounts that could have become due under EQM's performance guarantee as of that date. Following the completion of the Separation, EQM expects the MVP Joint Venture guarantee will be approximately $345 million based on MVP Holdco's share of the estimated remaining MVP construction budget and terms of the agreement.

In April 2018, the MVP Joint Venture announced the MVP Southgate project, a proposed 70-mile interstate pipeline that will extend from the MVP at Pittsylvania County, Virginia to new delivery points in Rockingham and Alamance Counties, North Carolina. This MVP Southgate project is anchored by a firm capacity commitment from PSNC Energy. The preliminary MVP Southgate project cost estimate is $350 million to $500 million, which is expected to be spent in 2019 and 2020. As of September 30, 2018, EQM had a 32.7% ownership interest in the MVP Southgate project and will operate the pipeline. Subject to approval by the FERC, the MVP Southgate project has a targeted in-service date of the fourth quarter 2020.

H. Consolidated Variable Interest Entities

As of September 30, 2018, the Company determined EQGP and EQM to be variable interest entities. In addition, as of December 31, 2017, RMP was also a variable interest entity. As discussed in Note B, on July 23, 2018, pursuant to the Midstream Merger Agreement, RMP and RMP's general partner were acquired by EQM and became wholly owned subsidiaries of EQM. Through EQT's ownership and control of EQGP's general partner, EQM's general partner and RMP's general partner, EQT has or had the power to direct the activities that most significantly impact the economic performance of EQGP, EQM and RMP. In addition, through EQT's limited partner interest in EQGP and EQGP's general partner interest, limited partner interest and IDRs in EQM, EQT has the obligation to absorb the losses of EQGP and EQM and the right to receive benefits from EQGP and EQM, in accordance with such interests. Furthermore, through EQT's limited partner interest and IDRs in RMP, EQT had the obligation to absorb the losses of RMP and the right to receive benefits from RMP, in accordance with such interests. As EQT has or had a controlling financial interest in, and is the primary beneficiary of, EQGP, EQM and RMP, EQT consolidates EQGP, EQM and did consolidate RMP. See Note 13 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 for additional information related to the consolidated variable interest entities.

The risks associated with the operations of EQGP, EQM and RMP are discussed in their respective Annual Reports on Form 10-K for the year ended December 31, 2017, as updated by any Quarterly Reports on Form 10-Q. See further discussion of the impact that EQT's ownership and control of EQGP, EQM and RMP have or had on EQT's financial position, results of operations and

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Notes to Condensed Consolidated Financial Statements (Unaudited)

cash flows included in EQT's Annual Report on Form 10-K for the year ended December 31, 2017, including in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations." See Notes C, D and E for further discussion of EQGP, EQM and RMP, respectively.

The following table presents amounts included in the Company's Condensed Consolidated Balance Sheets that were for the use or obligation of EQGP or EQM as of September 30, 2018 and December 31, 2017.



Classification	September 30, 2018		December 31, 2017
	(Thousands)
Assets:
Cash and cash equivalents	$	6,062	$	2,857
Accounts receivable	58,358		28,804
Prepaid expenses and other	4,798		8,470
Property, plant and equipment, net	5,608,358		2,804,059
Goodwill	1,384,872		—
Intangible assets, net	586,500		—
Investment in nonconsolidated entity	1,300,430		460,546
Other assets	23,599		22,458
Liabilities:
Accounts payable	$	134,027	$	47,042
Other current liabilities	526,299		133,531
Credit facility borrowings	22,000		180,000
Senior Notes	3,455,296		987,352
Other liabilities and credits	31,010		20,273

The following table summarizes EQGP's Statements of Consolidated Operations and Cash Flows for the three and nine months ended September 30, 2018 and 2017.



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
	(Thousands)
Operating revenues	$	364,584		$	207,193		$	1,110,307		$	609,585
Operating expenses	133,665			62,230			370,880			180,218
Other expenses	23,534			2,556			37,632			6,418
Net income	$	207,385		$	142,407		$	701,795		$	422,949

Net cash provided by operating activities	$	422,938		$	159,911		$	863,009		$	479,566
Net cash used in investing activities	(575,624		)	(117,637		)	(2,252,293		)	(324,936		)
Net cash (used in) provided by financing activities	(536,246		)	(48,128		)	1,340,446			(208,150		)

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Notes to Condensed Consolidated Financial Statements (Unaudited)

The following table presents amounts included in the Company’s Condensed Consolidated Balance Sheet that is for the use or obligation of RMP as of December 31, 2017.



Classification	December 31, 2017
	(Thousands)
Assets:
Cash and cash equivalents	$	10,538
Accounts receivable	12,246
Prepaid expenses and other	1,327
Property, plant and equipment, net	1,431,802
Goodwill	1,346,918
Liabilities:
Accounts payable	$	24,634
Other current liabilities	4,200
Credit facility borrowings	286,000
Other liabilities and credits	9,360

I. Financial Information by Business Segment

Prior to the Rice Merger, the Company reported its results of operations through three business segments: EQT Production, EQT Gathering and EQT Transmission. These reporting segments reflected the Company's lines of business and were reported in the same manner in which the Company evaluated its operating performance through September 30, 2017. Following the Rice Merger, the Company adjusted its internal reporting structure to incorporate the newly acquired assets. The Company conducted its business through five business segments: EQT Production, EQM Gathering (formerly known as EQT Gathering), EQM Transmission (formerly known as EQT Transmission), RMP Gathering and RMP Water. On July 23, 2018, pursuant to the Midstream Merger Agreement, RMP and the RMP General Partner each became wholly owned subsidiaries of EQM as a result of the Midstream Mergers. The Company now conducts its business through four business segments: EQT Production, EQM Gathering, EQM Transmission and EQM Water.

Rice Olympus, Strike Force Holdings and Rice West Virginia were businesses and the Drop-Down Transaction was a transaction between entities under common control; therefore, EQM recorded the assets and liabilities of these entities at their carrying amounts to EQT on the effective date of the transaction. EQM also recast its consolidated financial statements to retrospectively reflect the pre-acquisition results as if the entities were owned by EQM from the date of the Rice Merger, November 13, 2017, as that is the date those entities came under the common control of EQT.

In addition, the assets associated with the investment in the MVP Joint Venture were included within the headquarters segment assets balance prior to June 30, 2018. The investment in the MVP Joint Venture is now included in the transmission segment as this segment classification better aligns with the ultimate operations of the MVP. Segment asset balances at December 31, 2017 have been reclassified to conform to this presentation.



Three Months Ended September 30, 2018	EQT Production			EQM Gathering		EQM Transmission		EQM Water		Intersegment Eliminations			EQT Corporation
Revenues:	(Thousands)
Sales of natural gas, oil and NGLs	$	1,046,989		$	—	$	—	$	—	$	—		$	1,046,989
Pipeline, water and net marketing services	6,132			252,861		89,350		22,373		(255,760		)	114,956
Loss on derivatives not designated as hedges	(3,075		)	—		—		—		—			(3,075		)
Total operating revenues	$	1,050,046		$	252,861	$	89,350	$	22,373	$	(255,760	)	$	1,158,870

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Notes to the Condensed Consolidated Financial Statements (Unaudited)



Three Months Ended September 30, 2017	EQT Production		EQM Gathering		EQM Transmission		Intersegment Eliminations			EQT Corporation
Revenues:	(Thousands)
Sales of natural gas, oil and NGLs	$	552,953	$	—	$	—	$	—		$	552,953
Pipeline and net marketing services	9,140		116,522		89,771		(144,598		)	70,835
Gain on derivatives not designated as hedges	35,625		—		—		—			35,625
Total operating revenues	$	597,718	$	116,522	$	89,771	$	(144,598	)	$	659,413




Nine Months Ended September 30, 2018	EQT Production		EQM Gathering		EQM Transmission		EQM Water		Intersegment Eliminations			EQT Corporation
Revenues:	(Thousands)
Sales of natural gas, oil and NGLs	$	3,264,728	$	—	$	—	$	—	$	—		$	3,264,728
Pipeline and net marketing services	42,382		731,440		285,429		93,438		(775,913		)	376,776
Gain on derivatives not designated as hedges	5,620		—		—		—		—			5,620
Total operating revenues	$	3,312,730	$	731,440	$	285,429	$	93,438	$	(775,913	)	$	3,647,124




Nine Months Ended September 30, 2017	EQT Production		EQM Gathering		EQM Transmission		Intersegment Eliminations			EQT Corporation
Revenues:	(Thousands)
Sales of natural gas, oil and NGLs	$	1,803,132	$	—	$	—	$	—		$	1,803,132
Pipeline and net marketing services	31,656		330,996		272,184		(418,337		)	216,499
Gain on derivatives not designated as hedges	222,693		—		—		—			222,693
Total operating revenues	$	2,057,481	$	330,996	$	272,184	$	(418,337	)	$	2,242,324



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
	(Thousands)
Operating income (loss):
EQT Production (a)	$	(121,678	)	$	12,201		$	(2,127,323	)	$	322,634
EQM Gathering	177,902			85,932			510,755			243,061
EQM Transmission	58,691			59,770			198,784			189,237
EQM Water	(3,093		)	—			35,627			—
Unallocated expenses and intersegment eliminations (b)	(39,998		)	(19,876		)	(169,566		)	(35,802		)
Total operating income (loss)	$	71,824		$	138,027		$	(1,551,723	)	$	719,130


(a)	Impairment of long-lived assets of $0.3 billion and $2.7 billion are included in EQT Production operating income for the three and nine months ended September 30, 2018, respectively. See Note Q.

(b)

Unallocated expenses consist of compensation expense, administrative costs and the amortization expense related to non-compete agreements with former Rice executives. Administrative costs include transaction costs of $29.3 million and $85.7 million for the three and nine months ended September 30, 2018, respectively. Amortization expense related to non-compete agreements with former Rice executives was $10.4 million and $31.0 million for the three and nine months ended September 30, 2018, respectively.

Intersegment eliminations include the elimination of profit on water services that are provided to EQT Production and capitalized as part of development costs of $3.2 million and $50.7 million for the three and nine months ended September 30, 2018, respectively.

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Notes to the Condensed Consolidated Financial Statements (Unaudited)

Reconciliation of operating income (loss) to net income (loss):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
	(Thousands)
Total operating income (loss)	$	71,824		$	138,027		$	(1,551,723	)	$	719,130
Other income	21,755			6,526			43,092			15,880
Interest expense	93,042			50,377			240,059			137,110
Income tax (benefit) expense	(62,911		)	(11,281		)	(503,505		)	119,093
Net income (loss)	$	63,448		$	105,457		$	(1,245,185	)	$	478,807



	September 30, 2018		December 31, 2017
	(Thousands)
Segment assets:
EQT Production	$	19,278,308	$	21,015,132
EQM Gathering	5,994,891		5,681,404
EQM Transmission	2,813,644		1,923,427
EQM Water	141,403		185,079
Total operating segments	28,228,246		28,805,042
Headquarters assets, including cash and short-term investments	433,083		717,562
Total assets	$	28,661,329	$	29,522,604



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018			2017
	(Thousands)
Depreciation and depletion: (c)
EQT Production	$	391,083	$	224,103	$	1,161,718		$	654,411
EQM Gathering	25,359		9,983		72,309			28,398
EQM Transmission	12,357		12,261		37,228			35,793
EQM Water	5,851		—		17,420			—
Other	661		213		2,201			693
Total	$	435,311	$	246,560	$	1,290,876		$	719,295

Expenditures for segment assets: (d)
EQT Production (e)	$	855,494	$	449,303	$	2,225,435		$	1,850,482
EQM Gathering	194,477		48,182		515,072			150,728
EQM Transmission	37,626		22,312		84,517			73,679
EQM Water	7,981		—		17,358			—
Other and intersegment eliminations (f)	10,284		2,502		(32,864		)	7,097
Total	$	1,105,862	$	522,299	$	2,809,518		$	2,081,986


(c)	Excludes amortization of intangible assets.

(d)

Includes the capitalized portion of non-cash stock-based compensation costs, non-cash acquisitions and the impact of capital accruals. The impact of accrued capital expenditures includes the reversal of the prior period accrual as well as the current period estimate, both of which are non-cash items. The net impact of these non-cash items was $(51.8) million and $44.3 million for the three months ended September 30, 2018 and 2017, respectively, and $(45.2) million and $102.7 million for the nine months ended September 30, 2018 and 2017, respectively. These non-cash items are excluded from capital expenditures on the Statements of Condensed Consolidated Cash Flows. Expenditures for segment assets does not include consideration for the Rice Merger.

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EQT Corporation and Subsidiaries

Notes to the Condensed Consolidated Financial Statements (Unaudited)


(e)	The three and nine months ended September 30, 2017 included $7.8 million and $819.0 million of cash capital expenditures, respectively, and the nine months ended September 30, 2017 included $7.5 million of non-cash capital expenditures for the acquisitions discussed in Note P.


(f)	Intersegment eliminations include profit on water services that are provided to EQT Production and capitalized as part of development costs.

J. 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. 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 primarily uses over the counter (OTC) derivative commodity instruments, primarily swap, collar and option agreements that are typically placed with financial institutions. The creditworthiness of all counterparties is regularly monitored. 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 sells call options that require the Company to pay the counterparty if the index price rises above the strike price and purchases call options that require the counterparty to pay the Company if the index price rises above the strike price. The Company engages in 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 fluctuations in interest rates. The Company also engages in a limited number of swaptions.

The Company recognizes all derivative instruments as either assets or liabilities at fair value on a gross basis. 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 Company discontinued cash flow hedge accounting in 2014; therefore, all changes in fair value of the Company’s derivative instruments are recognized within operating revenues in the Statements of Consolidated Operations.

In connection with the Rice Merger, the Company assumed all outstanding derivative commodity instruments held by Rice. The assets and liabilities assumed were recognized at fair value at the closing date and subsequent changes in fair value were recognized within operating revenues in the Statements of Consolidated Operations. The derivative commodity instruments assumed were substantially similar to instruments previously held by the Company.

Contracts which result in physical delivery of a commodity expected to be used or sold by the Company in the normal course of business are designated as normal purchases and sales and are exempt from derivative accounting.

OTC arrangements require settlement in cash. The Company also enters into exchange traded derivative commodity instruments that are generally settled with offsetting positions. Settlements of derivative commodity instruments are reported as a component of cash flows from operations in the accompanying Statements of Condensed Consolidated Cash Flows.

With respect to the derivative commodity instruments held by the Company, the Company hedged portions of expected sales of equity production and portions of its basis exposure covering approximately 3,005 Bcf of natural gas and 2,058 Mbbls of NGLs as of September 30, 2018, and 2,148 Bcf of natural gas and 1,460 Mbbls of NGLs as of December 31, 2017. The open positions at September 30, 2018 and December 31, 2017 had maturities extending through December 2024 and December 2022, respectively.

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 September 30, 2018 and December 31, 2017. The margin deposit within the table as of September 30, 2018 represents funds remitted to a broker for exchange traded derivative commodity instruments.

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EQT Corporation and Subsidiaries

Notes to the Condensed Consolidated Financial Statements (Unaudited)



As of September 30, 2018	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	$	315,564	$	(104,559	)	$	—		$	211,005
Liability derivatives:
Derivative instruments, at fair value	$	183,677	$	(104,559	)	$	(11,110	)	$	68,008



As of December 31, 2017	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	$	241,952	$	(86,856	)	$	—	$	155,096
Liability derivatives:
Derivative instruments, at fair value	$	139,089	$	(86,856	)	$	—	$	52,233

Certain of the Company’s OTC derivative instrument contracts provide that if the Company’s credit ratings by Standard & Poor’s Rating Service (S&P) or Moody’s Investors Service (Moody’s) are lowered below investment grade, additional collateral must be deposited with the counterparty if the amounts outstanding on those contracts exceed certain thresholds. The additional collateral can be up to 100% of the derivative liability. As of September 30, 2018, the aggregate fair value of all derivative instruments with credit risk-related contingent features that were in a net liability position was $109.2 million, for which the Company had no collateral posted on September 30, 2018. If the Company’s credit rating by S&P or Moody’s had been downgraded below investment grade on September 30, 2018, the Company would not have been required to post any additional collateral under the agreements with the respective counterparties. The required margin on the Company’s derivative instruments is subject to significant change as a result of factors other than credit rating, such as gas prices and credit thresholds set forth in agreements between the hedging counterparties and the Company. 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 September 30, 2018. 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. See also "Security Ratings and Financing Triggers" under Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations."

K. Fair Value Measurements

The Company records its financial instruments, principally derivative instruments, at fair value in its Condensed Consolidated Balance Sheets. The Company estimates the fair value using quoted market prices, where available. If quoted market prices are not available, fair value is based upon models that use market-based parameters as inputs, including 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 and credit default swaps rates where available.

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 in Level 2 primarily include the Company’s swap, collar and option agreements.

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EQT Corporation and Subsidiaries

Notes to the Condensed Consolidated Financial Statements (Unaudited)

Exchange traded commodity swaps are included in Level 1. The fair value of the commodity swaps included in Level 2 is based on standard industry income approach models that use significant observable inputs, including but not limited to NYMEX natural gas forward curves, LIBOR-based discount rates, basis forward curves and natural gas liquids forward curves. The Company’s collars, options and swaptions are valued using standard industry income approach option models. The significant observable inputs utilized by the option pricing models include NYMEX forward curves, natural gas volatilities and LIBOR-based discount rates. The NYMEX natural gas forward curves, LIBOR-based discount rates, natural gas volatilities, basis forward curves and NGLs 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 applicable period:



			Fair value measurements at reporting date using
Description	As of September 30, 2018		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	$	315,564	$	7,661	$	307,903	$	—
Liabilities
Derivative instruments, at fair value	$	183,677	$	12,058	$	171,619	$	—



			Fair value measurements at reporting date using
Description	As of December 31, 2017		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	$	241,952	$	—	$	241,952	$	—
Liabilities
Derivative instruments, at fair value	$	139,089	$	—	$	139,089	$	—

The carrying values of cash equivalents, accounts receivable and accounts payable approximate fair value due to the short-term maturity of the instruments. The carrying values of borrowings under the Company's various credit facilities approximate fair value as the interest rates are based on prevailing market rates.

The Company also has an immaterial investment in a fund that invests in companies developing technology and operating solutions for exploration and production companies for which it recognized a cumulative effect of accounting change in the first quarter 2018. The investment is valued using the net asset value as a practical expedient as provided in the financial statements received from fund managers.

The Company estimates the fair value of its Senior Notes using its established fair value methodology. Because not all of the Company’s Senior Notes are actively traded, the fair value of the Company's Senior Notes are a Level 2 fair value measurement. Fair value for the Company's non-traded Senior Notes are estimated using a standard industry income approach model that utilizes a discount rate based on market rates for debt with similar remaining time to maturity and credit risk. The estimated fair value of Senior Notes (including EQM’s Senior Notes) on the Condensed Consolidated Balance Sheets was approximately $8.1 billion at September 30, 2018 and $5.7 billion at December 31, 2017.

The Company recognizes transfers between Levels as of the actual date of the event or change in circumstances that caused the transfer. There were no transfers between Levels 1, 2 and 3 during the periods presented.

For information on the fair values of assets related to the impairments of proved and unproved oil and gas properties and of other long-lived assets, see Note Q and Note 1 in EQT's Annual Report on Form 10-K for the year ended December 31, 2017. For information on the assets acquired in the Rice Merger and the assets acquired in other acquisition transactions, see Notes A and P.

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EQT Corporation and Subsidiaries

Notes to the Condensed Consolidated Financial Statements (Unaudited)

L. Income Taxes

On December 22, 2017, the U.S. Congress enacted the law known as the Tax Cuts and Jobs Act of 2017 (Tax Reform Legislation), which made significant changes to U.S. federal income tax law, including lowering the federal corporate tax rate to 21% from 35% beginning January 1, 2018. The Company is still analyzing certain aspects of the Tax Reform Legislation and refining calculations, which could potentially impact the measurement of deferred tax balances or potentially give rise to new deferred tax amounts. The Company will refine its estimates to incorporate new or better information as it comes available through the filing date of its 2017 U.S. income tax returns in the fourth quarter of 2018.

For the nine months ended September 30, 2018 and 2017, the Company calculated the provision for income taxes by applying the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pre-tax income or loss excluding unusual or infrequently occurring items) for the quarter.

All of EQGP's, RMP’s and Strike Force Midstream’s income is included in the Company's pre-tax income (loss). However, the Company is not required to record income tax expense on income allocated to the noncontrolling public limited partners of EQGP and EQM, or to the noncontrolling public limited partners of RMP prior to the Midstream Mergers or to the portion of Strike Force Midstream’s income allocated to the minority owner prior to the closing of the Gulfport Transaction. The exclusion of this income is allocated to noncontrolling interest from the Company's taxable income which reduces the Company's effective tax rate in periods when the Company has consolidated pre-tax income and increases the Company's effective tax rate in periods when the Company has consolidated pre-tax loss.

The Company recorded income tax benefit at an effective tax rate of 28.8% for the nine months ended September 30, 2018 and income tax expense at an effective tax rate of 19.9% for the nine months ended September 30, 2017. The Company’s forecasted annual effective tax rate for 2018 was higher than the statutory rate due to the impact of income allocated to non-controlling limited partners on a forecasted consolidated pre-tax loss and the impact of state taxes. The state taxes increased the forecasted annual effective tax rate as compared to the statutory rate as a result of the pre-tax loss on entities with higher state applicable rates and pre-tax income on entities with lower state applicable rates. The Company’s effective tax rate for the nine months ended September 30, 2018 was lower because the amount of benefit recorded for the year-to-date is limited to the amount of benefit forecasted for the entire year.

There were no material changes to the Company’s methodology for determining unrecognized tax benefits during the three months ended September 30, 2018.

M. Revolving Credit Facilities

The Company has a $2.5 billion revolving credit facility that expires in July 2022. The Company had $0.5 billion in borrowings and no letters of credit outstanding under the credit facility as of September 30, 2018. The Company had $1.3 billion in borrowings and $159.4 million of letters of credit outstanding under the credit facility as of December 31, 2017. The maximum amount of outstanding borrowings at any time under the credit facility during the three and nine months ended September 30, 2018 was $0.7 billion and $1.6 billion, respectively, and the average daily balance of borrowings outstanding was approximately $0.3 billion and $0.9 billion, respectively, at a weighted average annual interest rate of approximately 3.6% and 3.3%, respectively. The Company had no borrowings or letters of credit outstanding under its credit facility at any time during the three and nine months ended September 30, 2017.

EQM has a $1 billion revolving credit facility that expires in July 2022. EQM had $22 million in borrowings and $1 million of letters of credit outstanding under