EQT Awaits $1.4-$1.8B Write-Downs, Aims For 30% Deleverage

EQT Corporation (NYSE:EQT) recently provided a guidance update on fourth-quarter 2019 operations and 2020 capital expenditure.

Let’s delve into some key aspects from the company’s regulatory filing.

EQT Corporation envisioned its non-cash impairment charges between $1.4 billion and $1.8 billion for the fourth quarter, primarily due to surplus production and softened natural gas prices inducing asset write-downs of some proved and unproved reserves. The company is America’s largest natural gas producer with attractive acreage in the core of the Appalachian Basin.

Energy Players Write Down Gas Assets Worth of Billions

No major commodity suffered a worse 2019 than natural gas. The fuel endured a torrid year, hitting all-time annual low since 2014. Prices fell more than 25% last year, stooping to multi-year declines of 2.1 per MMBtu in between as buyers fled the market due to growing worries over a record output and the consequent concerns about an ongoing supply glut.

Apart from EQT Corporation, some other industry players are anticipated to have suffered huge write-offs in the fourth quarter. CA-based Chevron Corporation (NYSE:CVX) projects an estimated $10-$11 billion write-down for the fourth quarter while maintaining its capital discipline. This adversity is majorly recorded from the Appalachian natural gas assets due to the commodity’s price plunge. The player is one of the largest publicly-traded oil and gas entities in the world based on proved reserves. In fact, this integrated major is even contemplating the sale of certain natural gas-focused shale projects as well as its Kitimat LNG development in Canada.

Further, Royal Dutch Shell (LON:RDSa) RDS.A, which is deeply involved in all production phases of the petroleum industry from exploration to final processing and delivery, projected its post-tax impairment charges between $1.7 billion and $2.3 billion for the fourth quarter. This write-down is in response to a weak commodity price outlook.

Other Talking Points of EQT’s Filing

Provision of Q419 Preliminary Outlook: EQT Corporation estimates its fourth-quarter net sales volumes in the band of 370-375 billion cubic feet equivalent (Bcfe), indicating a movement toward the upper end of the earlier guided range of 355-375 Bcfe.

The company is likely to have incurred capital expenses between $340 million and $360 million in the fourth quarter, lying within its previously provided estimate of $320-$370 million.

Its average realized price including the impact of cash settled derivatives for the fourth quarter is predicted between $2.51 and $2.56 per thousand cubic feet equivalent.

Proved Reserve Records of 2019: Forecast for total proved reserves of last year are 17.47 trillion cubic feet of oil equivalent (Tcfe) comprising 12.44 Tcfe of developed reserves and 5.02 Tcfe of undeveloped reserves.

Moving on, the company plans to trim its proved reserves by 20% with decrease in gas prices as more marginal wells turn unsuitable for drilling. Therefore, drilling activity for the same needs to be aborted.

New CFO Takes Over: David M. Khani, who doubled up as the former executive vice president and chief financial officer of CONSOL Energy Inc., and served as the former director and chief financial officer of CNX Midstream Partners (NYSE:CNX) as well has been appointed as the CFO of EQT Corporation on Jan 3, 2020.

2020 CapEx View and Plan: EQT Corporation’s 2020 capital expenditure outlook is anticipated in the range of $1.25 -$1.35 billion, indicating $50 million decrease from the company’s earlier view owing to sustained operational efficiencies. The company’s target is to invest nearly $1 billion of its total capex in reserve enhancement with around 65% to be spent on the Pennsylvania Marcellus, 20% on the Utica and 15% on the West Virginia Marcellus.

By the first half of 2020, this Zacks Rank #3 (Hold) company intends to lower debt by almost 30%, which is equivalent to $1.5 billion, as oil and gas entities bear the brunt of investor pressure to focus more on higher returns and debt reduction by cutting back on spending. This goal can be achieved by divesting assets and boosting free cash flows. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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