Edgar Filing: EQT Corp

EQT 6.30.2015 10Q

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 JUNE 30, 2015



¨	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 x No ¨

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 x No ¨

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 x		Accelerated Filer ¨
Non-Accelerated Filer ¨		Smaller reporting company ¨

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 June 30, 2015, 152,404 (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 Income for the Three and Six Months Ended June 30, 2015 and 2014	3

	Statements of Consolidated Comprehensive Income for the Three and Six Months Ended June 30, 2015 and 2014	4

	Statements of Condensed Consolidated Cash Flows for the Six Months Ended June 30, 2015 and 2014	5

	Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014	6

	Statements of Condensed Consolidated Equity for the Six Months Ended June 30, 2015 and 2014	8

	Notes to the Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37

Item 4.	Controls and Procedures	39

Part II. Other Information:

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	40

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41

Item 6.	Exhibits	42

Signature		43

Index to Exhibits		44

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EQT CORPORATION AND SUBSIDIARIES

Statements of Consolidated Income (Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(Thousands, except per share amounts)
Revenues:
Sales of natural gas, oil and NGLs	$	367,342		$	485,181		$	947,707		$	1,070,373
Pipeline and marketing services	61,573			49,512			146,389			135,299
Gain (loss) on derivatives not designated as hedges	4,259			(8,525		)	47,851			(17,879		)
Total operating revenues	433,174			526,168			1,141,947			1,187,793

Operating expenses:
Transportation and processing	62,942			51,723			122,676			96,898
Operation and maintenance	32,061			27,587			60,308			52,808
Production	31,492			31,882			62,848			63,822
Exploration	11,422			7,452			23,976			8,871
Selling, general and administrative	65,404			63,283			132,782			112,251
Depreciation, depletion and amortization	196,819			157,219			391,564			309,330
Total operating expenses	400,140			339,146			794,154			643,980

Gain on sale / exchange of assets	—			37,749			—			37,749
Operating income	33,034			224,771			347,793			581,562

Other income	2,689			2,579			3,628			5,130
Interest expense	36,833			31,873			74,049			63,841
(Loss) income before income taxes	(1,110		)	195,477			277,372			522,851
Income tax (benefit) expense	(64,857		)	59,089			(7,543		)	175,424
Income from continuing operations	63,747			136,388			284,915			347,427
Income from discontinued operations, net of tax	—			1,876			—			1,772
Net income	63,747			138,264			284,915			349,199
Less: Net income attributable to noncontrolling interests	58,211			27,343			105,952			46,085
Net income attributable to EQT Corporation	$	5,536		$	110,921		$	178,963		$	303,114

Amounts attributable to EQT Corporation:
Income from continuing operations	$	5,536		$	109,045		$	178,963		$	301,342
Income from discontinued operations, net of tax	—			1,876			—			1,772
Net income	$	5,536		$	110,921		$	178,963		$	303,114

Earnings per share of common stock attributable to EQT Corporation:
Basic:
Weighted average common stock outstanding	152,454			151,744			152,220			151,522
Income from continuing operations	$	0.04		$	0.72		$	1.18		$	1.99
Income from discontinued operations, net of tax	—			0.01			—			0.01
Net income	$	0.04		$	0.73		$	1.18		$	2.00
Diluted:
Weighted average common stock outstanding	152,877			152,570			152,751			152,537
Income from continuing operations	$	0.04		$	0.72		$	1.17		$	1.98
Income from discontinued operations, net of tax	—			0.01			—			0.01
Net income	$	0.04		$	0.73		$	1.17		$	1.99
Dividends declared per common share	$	0.03		$	0.03		$	0.06		$	0.06

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 June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(Thousands)
Net income	$	63,747		$	138,264		$	284,915		$	349,199

Other comprehensive loss, net of tax:
Net change in cash flow hedges:
Natural gas, net of tax benefit of $28,211, $12,984, $55,211 and $27,880	(42,581		)	(19,307		)	(83,332		)	(41,238		)
Interest rate, net of tax expense of $25, $25, $50 and $50	36			36			72			72
Pension and other post-retirement benefits liability adjustment, net of tax expense of $128, $113, $255 and $227	202			176			404			352
Other comprehensive loss	(42,343		)	(19,095		)	(82,856		)	(40,814		)
Comprehensive income	21,404			119,169			202,059			308,385
Less: Comprehensive income attributable to noncontrolling interests	58,211			27,343			105,952			46,085
Comprehensive (loss) income attributable to EQT Corporation	$	(36,807	)	$	91,826		$	96,107		$	262,300

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)



	Six Months Ended June 30,
	2015			2014
	(Thousands)
Cash flows from operating activities:
Net income	$	284,915		$	349,199
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income tax (benefit) expense	(195,925		)	54,577
Depreciation, depletion and amortization	391,564			309,330
Asset impairments	28,428			6,519
Gain on sale / exchange of assets	—			(37,749		)
Gain on dispositions	—			(3,598		)
(Recoveries of) provision for losses on accounts receivable	(1,648		)	919
Other income	(3,628		)	(5,130		)
Stock-based compensation expense	28,429			20,810
Loss recognized in operating revenues for hedging ineffectiveness	—			21,273
(Gain) loss on derivatives not designated as hedges	(47,851		)	17,879
Cash settlements received (paid) on derivatives not designated as hedges	38,775			(10,836		)
Changes in other assets and liabilities:
Dividend from Nora Gathering, LLC	—			9,463
Excess tax benefits on stock-based compensation	(21,604		)	(28,497		)
Accounts receivable	157,343			(443		)
Accounts payable	(63,390		)	21,725
Other items, net	60,619			39,979
Net cash provided by operating activities	656,027			765,420

Cash flows from investing activities:
Capital expenditures from continuing operations	(1,321,002		)	(994,520		)
Capital expenditures associated with Range asset exchange	—			(157,256		)
Capital contribution to Mountain Valley Pipeline, LLC	(45,885		)	—
Restricted cash, net	—			(342,744		)
Proceeds from sale of assets	—			7,444
Net cash used in investing activities	(1,366,887		)	(1,487,076		)

Cash flows from financing activities:
Proceeds from the issuance of common units of EQT Midstream Partners, LP, net of issuance costs	696,582			902,451
Proceeds from the sale of common units of EQT GP Holdings, LP, net of sale costs	674,374			—
Increase in short-term loans	434,000			450,000
Decrease in short-term loans	(122,000		)	(120,000		)
Dividends paid	(9,141		)	(9,101		)
Distributions to noncontrolling interests	(52,672		)	(25,674		)
Repayments and retirements of long-term debt	(9,003		)	(3,169		)
Proceeds and excess tax benefits from exercises under employee compensation plans	27,679			42,042
Cash paid for taxes related to net settlement of share-based incentive awards	(44,856		)	(48,826		)
Debt issuance costs and revolving credit facility origination fees	—			(5,075		)
Repurchase and retirement of common stock	(3,375		)	(32,368		)
Net cash provided by financing activities	1,591,588			1,150,280
Net change in cash and cash equivalents	880,728			428,624
Cash and cash equivalents at beginning of period	1,077,429			845,641
Cash and cash equivalents at end of period	$	1,958,157		$	1,274,265

Cash paid during the period for:
Interest, net of amount capitalized	$	74,101		$	62,519
Income taxes, net	$	76,420		$	89,050

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

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EQT CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)



	June 30, 2015		December 31, 2014
	(Thousands)
Assets

Current assets:
Cash and cash equivalents	$	1,958,157	$	1,077,429
Accounts receivable (less accumulated provision for doubtful accounts: $3,658 at June 30, 2015 and $5,311 at December 31, 2014)	150,390		306,085
Derivative instruments, at fair value	349,152		458,460
Prepaid expenses and other	32,608		62,349
Total current assets	2,490,307		1,904,323

Equity in nonconsolidated investments	46,478		—

Property, plant and equipment	14,808,650		13,608,151
Less: accumulated depreciation and depletion	3,906,192		3,531,337
Net property, plant and equipment	10,902,458		10,076,814

Other assets	133,087		83,763
Total assets	$	13,572,330	$	12,064,900

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

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EQT CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)



	June 30, 2015			December 31, 2014
	(Thousands)
Liabilities and Stockholders’ Equity

Current liabilities:
Current portion of long-term debt	$	160,000		$	166,011
Short-term loans	312,000			—
Accounts payable	287,323			444,077
Derivative instruments, at fair value	43,696			22,942
Other current liabilities	228,304			200,449
Total current liabilities	1,031,323			833,479

Long-term debt	2,818,200			2,822,889
Deferred income taxes	1,801,490			1,750,870
Other liabilities and credits	276,076			284,599
Total liabilities	5,927,089			5,691,837

Equity:
Stockholders’ equity:
Common stock, no par value, authorized 320,000 shares, shares issued: 175,347 at June 30, 2015 and 175,384 at December 31, 2014	2,351,616			1,895,632
Treasury stock, shares at cost: 22,943 at June 30, 2015 and 23,788 at December 31, 2014	(414,174		)	(429,440		)
Retained earnings	3,085,173			2,917,129
Accumulated other comprehensive income	116,638			199,494
Total common stockholders’ equity	5,139,253			4,582,815
Noncontrolling interests in consolidated subsidiaries	2,505,988			1,790,248
Total equity	7,645,241			6,373,063
Total liabilities and equity	$	13,572,330		$	12,064,900

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, 2014	150,884		$	1,422,105		$	2,567,980		$	44,703		$	829,340		$	4,864,128
Comprehensive income (net of tax):
Net income						303,114						46,085			349,199
Net change in cash flow hedges:
Natural gas, net of tax benefit of $27,880									(41,238		)				(41,238		)
Interest rate, net of tax of $50									72						72
Pension and other post-retirement benefits liability adjustment, net of tax of $227									352						352
Dividends ($0.06 per share)						(9,101		)							(9,101		)
Stock-based compensation plans, net	918		20,973									1,139			22,112
Distributions to noncontrolling interests ($0.95 per common unit)												(25,674		)	(25,674		)
Issuance of common units of EQT Midstream Partners, LP												902,451			902,451
Repurchase and retirement of common stock	(300	)	(12,759		)	(19,609		)							(32,368		)
Balance, June 30, 2014	151,502		$	1,430,319		$	2,842,384		$	3,889		$	1,753,341		$	6,029,933

Balance, January 1, 2015	151,596		$	1,466,192		$	2,917,129		$	199,494		$	1,790,248		$	6,373,063
Comprehensive income (net of tax):
Net income						178,963						105,952			284,915
Net change in cash flow hedges:
Natural gas, net of tax benefit of $55,211									(83,332		)				(83,332		)
Interest rate, net of tax of $50									72						72
Pension and other post-retirement benefits liability adjustment, net of tax of $255									404						404
Dividends ($0.06 per share)						(9,141		)							(9,141		)
Stock-based compensation plans, net	846		28,006									549			28,555
Distributions to noncontrolling interests ($1.19 per common unit)												(52,672		)	(52,672		)
Issuance of common units of EQT Midstream Partners, LP												696,582			696,582
Sale of common units of EQT GP Holdings, LP												674,374			674,374
Changes in ownership of EQT Midstream Partners, LP			122,833									(195,787		)	(72,954		)
Changes in ownership of EQT GP Holdings, LP			322,008									(513,258		)	(191,250		)
Repurchase and retirement of common stock	(38	)	(1,597		)	(1,778		)							(3,375		)
Balance, June 30, 2015	152,404		$	1,937,442		$	3,085,173		$	116,638		$	2,505,988		$	7,645,241

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

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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 Form 10-Q) necessary for a fair presentation of the financial position of EQT Corporation and subsidiaries as of June 30, 2015 and December 31, 2014, the results of its operations for the three and six month periods ended June 30, 2015 and 2014 and its cash flows for the six month periods ended June 30, 2015 and 2014. 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. The impact of these reclassifications was not material to any of the previously issued financial statements.

Certain prior year amounts in the Statements of Condensed Consolidated Cash Flows have been revised to correctly present changes in accrued liabilities related to the timing of payments for capital expenditures. For the six months ended June 30, 2014, net cash provided by operating activities decreased by approximately $29.2 million with a corresponding decrease in net cash used in investing activities as a result of this correction. The correction had no impact on the Statement of Consolidated Income.

The balance sheet at December 31, 2014 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.

Amounts related to discontinued operations included within the Statements of Consolidated Income for the three and six months ended June 30, 2014 relate to the sale of Equitable Gas Company, LLC and related transactions in 2013.

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, 2014 as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 21 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). 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.

During the second quarter of 2014, the Company received additional cash proceeds of $7.4 million as a result of post-closing purchase price adjustments for the Equitable Gas Transaction. The Company recognized an additional gain of $3.6 million for the three and six months ended June 30, 2014, included in income from discontinued operations, net of tax, in the Statements of Consolidated Income. As consideration for the Equitable Gas Transaction, the Company received total cash proceeds of $748.0 million, select midstream assets (including the Allegheny Valley Connector) with a fair value of $140.9 million and other contractual assets with a fair value of $32.5 million.

Income from discontinued operations before income taxes was $3.3 million and $3.1 million for the three and six months ended June 30, 2014, respectively. Income from discontinued operations was $1.9 million and $1.8 million for the three and six months ended June 30, 2014, respectively, net of tax of $1.4 million and $1.3 million for the three and six months ended June 30, 2014, respectively.

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EQT Corporation and Subsidiaries

Notes to the Condensed Consolidated Financial Statements (Unaudited)

C. EQT GP Holdings, LP

In January 2015, the Company formed EQT GP Holdings, LP (EQGP) (NYSE: EQGP), a Delaware limited partnership, to own partnership interests in EQT Midstream Partners, LP (EQM) (NYSE: EQM). In April 2015, EQT Midstream Investments, LLC, an indirect wholly owned subsidiary of the Company that held EQT’s EQM common units, merged with and into EQGP, and EQT Gathering Holdings, LLC (EQT Gathering Holdings), an indirect wholly owned subsidiary of EQT, contributed 100% of the outstanding limited liability company interests in EQM’s general partner to EQGP. As a result of these restructuring transactions, EQGP owns the following EQM partnership interests, which represent EQGP’s only cash-generating assets: 21,811,643 EQM common units, representing a 30.2% limited partner interest in EQM; 1,443,015 EQM general partner units, representing a 2.0% general partner interest in EQM; and all of EQM’s incentive distribution rights, or 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. The Company is the ultimate parent company of EQGP and EQM.

On May 15, 2015, EQGP completed an underwritten initial public offering (IPO) of 26,450,000 common units representing limited partner interests in EQGP, which represented 9.9% of EQGP’s outstanding limited partner interests. The Company retained 239,715,000 common units, which represented a 90.1% limited partner interest, and a non-economic general partner interest in EQGP. EQT Gathering Holdings, as the selling unitholder, sold all of the EQGP common units in the offering, resulting in net proceeds to the Company of approximately $674.4 million after deducting underwriting discounts and structuring fees. EQGP did not receive any of the proceeds from, or incur any expenses in connection with, EQGP’s IPO.

The Company continues to consolidate the results of EQGP, but records an income tax provision only as to its ownership percentage. The Company records the noncontrolling interest of the EQGP public limited partners in its financial statements. In connection with the May 2015 EQGP IPO, the Company recorded a $322.0 million gain to additional paid-in-capital, a decrease in noncontrolling interest in consolidated subsidiary of $513.3 million and an increase to deferred tax liability of $191.3 million.

On July 21, 2015, the Board of Directors of EQGP’s general partner declared an initial cash distribution to EQGP’s unitholders for the second quarter of 2015 of $0.04739 per common unit, which is a pro-rated distribution for the 47-day period from the date of the closing of EQGP’s IPO to June 30, 2015. The cash distribution will be paid on August 24, 2015 to unitholders of record, including EQT Gathering Holdings, LLC, an indirect wholly owned subsidiary of the Company, at the close of business on August 4, 2015.

Net income attributable to noncontrolling interests (i.e. to the EQGP limited partner interests not owned by the Company and the EQM limited partner interests not owned by EQGP) was $58.2 million and $106.0 million for the three and six months ended June 30, 2015, respectively. Net income attributable to noncontrolling interests (i.e. to the EQM limited partner interests not owned by the Company prior to EQGP’s IPO) was $27.3 million and $46.1 million for the three and six months ended June 30, 2014, respectively.

D. EQT Midstream Partners, LP

In 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 other third parties. EQM is consolidated in the Company’s consolidated financial statements. The Company records the noncontrolling interest of the EQM public limited partners in its financial statements.

In connection with EQM’s IPO in 2012, EQM issued 17,339,718 subordinated units of EQM to the Company. As a result of EQM’s payment of its cash distribution for the fourth quarter of 2014 on February 13, 2015, the subordinated units converted, for no additional consideration, into common units representing limited partner interests in EQM on a one-for-one basis on February 17, 2015 upon satisfaction of certain conditions for termination of the subordination period set forth in EQM’s partnership agreement.

On March 10, 2015, the Company and certain subsidiaries of the Company entered into a contribution and sale agreement (Contribution Agreement) with EQM and EQM Gathering Opco, LLC (EQM Gathering), an indirect wholly owned subsidiary of EQM. Pursuant to the Contribution Agreement, on March 17, 2015, a subsidiary of the Company contributed the Northern West Virginia Marcellus gathering system to EQM Gathering in exchange for total consideration of approximately $925.7 million, consisting of approximately $873.2 million in cash, 511,973 EQM common units and 178,816 EQM general partner units (the NWV Gathering Transaction). EQM Gathering is consolidated by the Company as it is still controlled by the Company.

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EQT Corporation and Subsidiaries

Notes to the Condensed Consolidated Financial Statements (Unaudited)

On March 17, 2015, EQM completed an underwritten public offering of 8,250,000 common units. On March 18, 2015, the underwriters exercised their option to purchase 1,237,500 additional common units on the same terms as the offering. EQM received net proceeds of approximately $696.6 million from the offering, including the full exercise of the underwriters’ overallotment option, after deducting the underwriters’ discount and offering expenses of approximately $24.5 million. As of June 30, 2015, EQGP and its affiliates owned 21,811,643 common units, representing a 30.2% limited partner interest, 1,443,015 general partner units, representing a 2.0% general partner interest, and all of the IDRs in EQM. In connection with the March 2015 underwritten public offering by EQM, the Company recorded a $122.8 million gain to additional paid-in-capital, a decrease in noncontrolling interest in consolidated subsidiary of $195.8 million and an increase to deferred tax liability of $73.0 million.

On March 30, 2015, the Company assigned 100% of the membership interests in MVP Holdco, LLC (MVP Holdco), an indirect wholly owned subsidiary of the Company that owns an approximate 55% interest in Mountain Valley Pipeline, LLC (MVP Joint Venture), to EQM in exchange for approximately $54.2 million, which represented EQM’s reimbursement to the Company for 100% of the capital contributions made by the Company in relation to MVP Joint Venture as of March 30, 2015. MVP Joint Venture is EQM’s joint venture with affiliates of each of NextEra Energy, Inc., WGL Holdings, Inc. and Vega Energy Partners, Ltd. formed to construct, own and operate the Mountain Valley Pipeline, an estimated 300-mile natural gas interstate pipeline spanning from northern West Virginia to southern Virginia. MVP Joint Venture has been determined to be a variable interest entity because MVP Joint Venture has insufficient equity to finance activities during the construction stage of the Mountain Valley Pipeline. EQM is not the primary beneficiary because it does not have the power to direct the activities of MVP Joint Venture that most significantly impact its economic performance. EQM’s investment in MVP Holdco is accounted for as an equity method investment and is reflected in equity in nonconsolidated investments in the accompanying Condensed Consolidated Balance Sheet as of June 30, 2015. On March 11, 2015, MVP Joint Venture announced that WGL Holdings, Inc. and Vega Energy Partners, Ltd. had acquired 7% and 3% ownership interests, respectively, in MVP Joint Venture. As a result, EQM was reimbursed $8.3 million of capital contributions.

On April 15, 2015, pursuant to the Contribution Agreement, the Company transferred a preferred interest in EQT Energy Supply, LLC, an indirect wholly owned subsidiary of the Company that generates revenue from services provided to a local distribution company, to EQM in exchange for total consideration of approximately $124.3 million.

On July 21, 2015, the Board of Directors of EQM’s general partner declared a cash distribution to EQM’s unitholders for the second quarter of 2015 of $0.64 per common unit, $1.1 million to the general partner related to its 2% general partner interest and $10.1 million to the general partner related to the IDRs. The cash distribution will be paid on August 14, 2015 to unitholders of record, including EQGP, at the close of business on August 4, 2015.

E. 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 and Permian Basins. The EQT Midstream segment’s operations include the natural gas gathering, transmission, storage and marketing activities of the Company, including ownership and operation of EQM.

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.

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

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EQT Corporation and Subsidiaries

Notes to the Condensed Consolidated Financial Statements (Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(Thousands)
Revenues from external customers:
EQT Production	$	243,587		$	373,532		$	745,781		$	885,906
EQT Midstream	192,430			162,345			400,656			328,571
Less intersegment revenues, net (a)	(2,843		)	(9,709		)	(4,490		)	(26,684		)
Total	$	433,174		$	526,168		$	1,141,947		$	1,187,793

Operating (loss) income:
EQT Production (b)	$	(66,886	)	$	144,689		$	118,957		$	421,894
EQT Midstream (b)	108,192			88,527			237,931			171,596
Unallocated expenses (c)	(8,272		)	(8,445		)	(9,095		)	(11,928		)
Total operating income	$	33,034		$	224,771		$	347,793		$	581,562

Reconciliation of operating income to income from continuing operations:



Total operating income	$	33,034		$	224,771	$	347,793		$	581,562
Other income	2,689			2,579		3,628			5,130
Interest expense	36,833			31,873		74,049			63,841
Income taxes	(64,857		)	59,089		(7,543		)	175,424
Income from continuing operations	$	63,747		$	136,388	$	284,915		$	347,427



	As of June 30, 2015		As of December 31, 2014
	(Thousands)
Segment assets:
EQT Production	$	8,538,111	$	8,153,199
EQT Midstream	2,989,041		2,709,052
Total operating segments	11,527,152		10,862,251
Headquarters assets, including cash and short-term investments	2,045,178		1,202,649
Total assets	$	13,572,330	$	12,064,900


(a)	Eliminates intercompany natural gas sales from EQT Production to EQT Midstream.


(b)	Gains on sales / exchanges of assets of $31.0 million and $6.8 million are included in EQT Production and EQT Midstream operating income, respectively, for the three and six months ended June 30, 2014.


(c)	Unallocated expenses consist primarily of incentive compensation expense and administrative costs.

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EQT Corporation and Subsidiaries

Notes to the Condensed Consolidated Financial Statements (Unaudited)



	Three Months Ended June 30,					Six Months Ended June 30,
	2015		2014			2015		2014
	(Thousands)
Depreciation, depletion and amortization:
EQT Production	$	173,331	$	136,251		$	344,794	$	267,490
EQT Midstream	23,393		21,130			46,588		42,139
Other	95		(162		)	182		(299		)
Total	$	196,819	$	157,219		$	391,564	$	309,330

Expenditures for segment assets:
EQT Production (d)	$	520,315	$	932,463		$	1,002,289	$	1,343,547
EQT Midstream	164,542		112,305			237,117		197,224
Other	716		802			1,609		1,362
Total	$	685,573	$	1,045,570		$	1,241,015	$	1,542,133

(d) Includes $157.3 million of cash capital expenditures and $353.0 million of non-cash capital expenditures for the exchange of assets with Range Resources Corporation (described in Note L) for the three and six months ended June 30, 2014. Expenditures for segment assets in the EQT Production segment include $88.1 million and $550.5 million for property acquisitions during the three months ended June 30, 2015 and 2014, respectively, and $139.1 million and $609.7 million for property acquisitions during the six months ended June 30, 2015 and 2014, respectively.

F. 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 uses over the counter (OTC) derivative commodity instruments, primarily swap and collar agreements, that are primarily placed with financial institutions and the creditworthiness of all counterparties 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 also 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 interest rate fluctuations on potential debt issuances. The Company has also engaged in a limited number of swaptions and call options.

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 had been designated and qualified as a cash flow hedge, the effective portion of the change in fair value of the derivative instrument is reported as a component of accumulated other comprehensive income (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. In conjunction with the exchange of assets with Range Resources Corporation that closed on June 16, 2014 (see Note L), the Company de-designated certain derivative instruments that were previously designated as cash flow hedges because it was probable that the forecasted transactions would not occur, resulting in a pre-tax gain of $28.0 million recorded within gain on sale / exchange of assets in the Statements of Consolidated Income for the three and six months ended June 30, 2014. Any subsequent changes in fair value of these derivative instruments are recognized within operating revenues in the Statements of Consolidated Income each period.

Historically, 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

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EQT Corporation and Subsidiaries

Notes to the Condensed Consolidated Financial Statements (Unaudited)

forecasted natural gas purchases and sales were designated and qualified as cash flow hedges. As of June 30, 2015 and December 31, 2014, the Company deferred net gains of $133.8 million and $217.1 million, respectively, in accumulated OCI, net of tax, related to the effective portion of the change in fair value of its derivative commodity instruments designated as cash flow hedges. Effective December 31, 2014, the Company elected to de-designate all cash flows hedges and discontinue the use of cash flow hedge accounting. As of June 30, 2015 and December 31, 2014, the forecasted transactions remained probable of occurring and as such, the amounts in accumulated OCI will continue to be reported in accumulated OCI and will be reclassified into earnings in future periods when the underlying hedged transactions occur. The Company estimates that approximately $98.3 million and $153.2 million of net gains on its derivative commodity instruments reflected in accumulated OCI, net of tax, as of June 30, 2015 and December 31, 2014, respectively, will be recognized in earnings during the next twelve months due to the settlement of hedged transactions. As a result of the discontinuance of cash flow hedge accounting, all changes in fair value of the Company’s derivative instruments were recognized in the Statements of Consolidated Income in the first half of 2015 and changes in their value will continue to be recognized in the Statements of Consolidated Income each future 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.



	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Commodity derivatives designated as cash flow hedges	(Thousands)
Amount of loss recognized in OCI (effective portion), net of tax	$	—		$	(13,455	)	$	—		$	(52,649	)
Amount of gain reclassified from accumulated OCI, net of tax, into gain on sale / exchange of assets due to forecasted transactions probable to not occur	—			16,735			—			16,735
Amount of gain (loss) reclassified from accumulated OCI, net of tax, into operating revenues (effective portion)	42,581			(10,883		)	83,332			(28,146		)
Amount of gain (loss) recognized in operating revenues (ineffective portion) (a)	—			987			—			(21,273		)

Interest rate derivatives designated as cash flow hedges
Amount of loss reclassified from accumulated OCI, net of tax, into interest expense (effective portion)	$	(36	)	$	(36	)	$	(72	)	$	(72	)

Derivatives not designated as hedging instruments
Amount of gain (loss) recognized in gain (loss) on derivatives not designated as hedges	$	4,259		$	(8,525	)	$	47,851		$	(17,879	)

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

The absolute quantities of the Company’s derivative commodity instruments totaled 616 Bcf and 624 Bcf as of June 30, 2015 and December 31, 2014, respectively, and were primarily related to natural gas swaps and collars. The open positions at June 30, 2015 and December 31, 2014 had maturities extending through December 2018.

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 June 30, 2015 and December 31, 2014.

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EQT Corporation and Subsidiaries

Notes to the Condensed Consolidated Financial Statements (Unaudited)



As of June 30, 2015	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	$	349,152	$	(27,724	)	$	—	$	321,428

Liability derivatives:
Derivative instruments, at fair value	$	43,696	$	(27,724	)	$	—	$	15,972



As of December 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	$	458,460	$	(22,810	)	$	—		$	435,650

Liability derivatives:
Derivative instruments, at fair value	$	22,942	$	(22,810	)	$	(132	)	$	—

Certain of the Company’s derivative instrument contracts provide that if the Company’s credit ratings by Standard & Poor’s Ratings Services (S&P) or Moody’s Investors Services (Moody’s) are lowered below investment grade, additional collateral may be required to be deposited with the counterparty. The additional collateral can be up to 100% of the derivative liability. As of June 30, 2015, the aggregate fair value of all derivative instruments with credit risk-related contingent features that were in a net liability position was $24.7 million, for which the Company had no collateral posted on June 30, 2015. If the Company’s credit rating by S&P or Moody’s had been downgraded below investment grade on June 30, 2015, the Company would not have been required to post any 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 June 30, 2015. 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. Having a non-investment grade rating may result in greater borrowing costs and collateral requirements than would be available if all credit ratings were investment grade.

G. 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 included in Level 1 include the Company’s futures contracts. Assets and liabilities in Level 2 primarily include the Company’s swap and collar agreements.

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EQT Corporation and Subsidiaries

Notes to the Condensed Consolidated Financial Statements (Unaudited)

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, LIBOR-based discount rates and basis forward curves. The Company’s collars, swaptions and options 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 Company uses NYMEX forward curves to value futures, commodity swaps, collars, swaptions and options. The NYMEX forward curves, LIBOR-based discount rates, natural gas volatilities and basis 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 June 30, 2015		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	$	349,152	$	—	$	349,152	$	—

Liabilities
Derivative instruments, at fair value	$	43,696	$	—	$	43,696	$	—



			Fair value measurements at reporting date using
Description	As of December 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	$	458,460	$	—	$	458,460	$	—

Liabilities
Derivative instruments, at fair value	$	22,942	$	132	$	22,810	$	—

The carrying value of cash and cash equivalents, accounts receivable, amounts due to/from related parties and accounts payable approximate fair value due to the short maturity of the instruments. The carrying value of short-term loans under EQM’s credit facility approximates fair value as the interest rates are based on prevailing market rates.

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 (including EQM’s long-term debt) on the Condensed Consolidated Balance Sheets was approximately $3.2 billion and $3.3 billion at June 30, 2015 and December 31, 2014, respectively. The carrying value of long-term debt (including EQM’s long-term debt) on the Condensed Consolidated Balance Sheets was approximately $3.0 billion at June 30, 2015 and December 31, 2014.

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EQT Corporation and Subsidiaries

Notes to the Condensed Consolidated Financial Statements (Unaudited)

H. 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. All of EQGP’s earnings are included in the Company’s net income. However, the Company is not required to record income tax expense with respect to the portion of EQGP’s earnings allocated to the noncontrolling public limited partners of EQGP and EQM, 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 six months ended June 30, 2015 was (2.7)%, compared to 33.6% for the six months ended June 30, 2014. Excluding the impact of recent IRS guidance received by the Company (discussed below), the effective income tax rate for the six months ended June 30, 2015 was 10.5%. The decrease in the effective income tax rate was primarily attributable to an increase in income allocated to the noncontrolling limited partners of EQGP and EQM and a decrease in state taxes in 2015 as a result of lower pre-tax income on state tax paying entities. The increase to noncontrolling limited partners income was primarily the result of higher net income at EQM and increased noncontrolling interests as a result of EQM’s March 2015 underwritten public offering of common units and EQGP’s May 2015 IPO.

The Company’s income tax expense was lower for the three and six months ended June 30, 2015 due to a realized $35.7 million tax benefit in connection with recent IRS guidance received by the Company regarding the Company’s sale of Equitable Gas Company, LLC, a regulated entity, in 2013. The transaction included a partial like-kind exchange of assets that resulted in tax deferral for the Company. However, in order to be in compliance with the normalization rules of the Internal Revenue Code, the IRS guidance held that the deferred tax liability associated with the exchanged regulatory assets should not be considered for ratemaking purposes. As a result, during the second quarter of 2015, the Company recorded a regulatory asset equal to the taxes deferred from the exchange and an associated income tax benefit. The regulatory asset and deferred taxes will be recognized when the assets are disposed of in a taxable transaction such as a drop down transaction or amortized over the 32-year remaining life of the assets received in the exchange, in either event increasing tax expense at that time.

There were no material changes to the Company’s methodology for determining unrecognized tax benefits during the three months ended June 30, 2015. The Company believes that it is appropriately reserved for uncertain tax positions.

I. Revolving Credit Facilities

The Company had no loans or letters of credit outstanding under its revolving credit facility as of June 30, 2015 or December 31, 2014 or at any time during the three and six months ended June 30, 2015 and 2014.

As of June 30, 2015, EQM had $312.0 million of loans and no letters of credit outstanding under its revolving credit facility. As of December 31, 2014, EQM had no loans or letters of credit outstanding under its revolving credit facility. The maximum amount of outstanding short-term loans under EQM’s revolving credit facility at any time during the three and six months ended June 30, 2015 was $323.0 million and $390.0 million, respectively. The maximum amount of outstanding loans under EQM’s revolving credit facility at any time during the three and six months ended June 30, 2014 was $450 million. The average daily balance of loans outstanding under EQM’s credit facility was approximately $302.1 million and $181.7 million during the three and six months ended June 30, 2015, at a weighted average annual interest rate of 1.69% for both periods. The average daily balance of loans outstanding under EQM’s credit facility was approximately $252.2 million and $173.0 million at a weighted average annual interest rate of 1.66% and 1.68% during the three and six months ended June 30, 2014, respectively.

The Company incurred commitment fees averaging approximately 6 basis points for the three months ended June 30, 2015 and 2014, and 11 basis points and 12 basis points for the six months ended June 30, 2015 and 2014, respectively, to maintain credit availability under its revolving credit facility. EQM incurred commitment fees averaging approximately 6 basis points for the three months ended June 30, 2015 and 2014, and 11 basis points and 13 basis points for the six months ended June 30, 2015 and 2014, respectively, to maintain credit availability under its revolving credit facility.

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EQT Corporation and Subsidiaries

Notes to the Condensed Consolidated Financial Statements (Unaudited)

J. 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 422,170 and 825,907 for the three months ended June 30, 2015 and 2014, respectively and 530,972 and 1,014,746 for the six months ended June 30, 2015 and 2014, respectively. Options to purchase common stock which were excluded from potentially dilutive securities because they were anti-dilutive totaled 133,500 for the three and six months ended June 30, 2015. No options to purchase common stock were excluded from potentially dilutive securities because they were anti-dilutive for the three and six months ended June 30, 2014. The impact of EQM’s and EQGP's dilutive units did not have a material impact on the Company’s earnings per share calculations for either of the periods presented.

K. 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 June 30, 2015
	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, net of tax
	(Thousands)
Accumulated OCI (loss), net of tax, as of April 1, 2015	$	176,370			$	(951	)		$	(16,438	)		$	158,981
(Gains) losses reclassified from accumulated OCI, net of tax	(42,581		)	(a)	36			(a)	202			(b)	(42,343		)
Accumulated OCI (loss), net of tax, as of June 30, 2015	$	133,789			$	(915	)		$	(16,236	)		$	116,638



	Three Months Ended June 30, 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, net of tax
	(Thousands)
Accumulated OCI (loss), net of tax, as of April 1, 2014	$	39,768			$	(1,096	)		$	(15,688	)		$	22,984
Losses recognized in accumulated OCI, net of tax	(13,455		)	(a)	—				—				(13,455		)
Gain reclassified from accumulated OCI, net of tax, into gain on sale / exchange of assets	(16,735		)	(a)	—				—				(16,735		)
Losses reclassified from accumulated OCI, net of tax	10,883			(a)	36			(a)	176			(b)	11,095
Change in accumulated OCI (loss), net of tax	(19,307		)		36				176				(19,095		)
Accumulated OCI (loss), net of tax, as of June 30, 2014	$	20,461			$	(1,060	)		$	(15,512	)		$	3,889

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EQT Corporation and Subsidiaries

Notes to the Condensed Consolidated Financial Statements (Unaudited)



	Six Months Ended June 30, 2015
	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, 2015	$	217,121			$	(987	)		$	(16,640	)		$	199,494
(Gains) losses reclassified from accumulated OCI, net of tax	(83,332		)	(a)	72			(a)	404			(b)	(82,856		)
Accumulated OCI (loss), net of tax, as of June 30, 2015	$	133,789			$	(915	)		$	(16,236	)		$	116,638

	Six Months Ended June 30, 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	(52,649		)	(a)	—				—				(52,649		)
Gain reclassified from accumulated OCI, net of tax, into gain on sale / exchange of assets	(16,735		)	(a)	—				—				(16,735		)
Losses reclassified from accumulated OCI, net of tax	28,146			(a)	72			(a)	352			(b)	28,570
Change in accumulated OCI (loss), net of tax	(41,238		)		72				352				(40,814		)
Accumulated OCI (loss), net of tax, as of June 30, 2014	$	20,461			$	(1,060	)		$	(15,512	)		$	3,889

(a) See Note F 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, 2014 for additional information.

L. Sale and Exchange of Properties

In June 2014, the Company exchanged assets with Range Resources Corporation (Range). The Company received approximately 73,000 net acres and approximately 900 producing wells, most of which are vertical wells, in the Permian Basin of Texas. In exchange, Range received approximately 138,000 net acres in the Company’s Nora field of Virginia (Nora), the Company’s working interest in approximately 2,000 producing vertical wells in Nora, the Company’s 50% ownership interest in Nora Gathering, LLC (Nora LLC), which owns the supporting gathering system in Nora, and $167.3 million in cash. The Company previously recorded its 50% ownership interest in Nora LLC as a nonconsolidated investment in its consolidated financial statements.

The fair value of the assets exchanged by the Company was approximately $516.5 million. Fair value of $318.3 million was allocated to the acquired acreage and $198.2 million was allocated to the acquired wells. The Company recorded a pre-tax gain of $34.1 million, which is included in gain on sale / exchange of assets in the Statements of Consolidated Income. The gain on sale / exchange of assets includes a $28.0 million pre-tax gain related to the de-designation of certain derivative instruments that were previously designated as cash flow hedges because it was probable that the forecasted transactions would not occur.

As the asset exchange qualified as a business combination under United States GAAP, the fair value of the acquired assets was determined using a discounted cash flow model under the market approach. Significant unobservable inputs used in the analysis included the determination of estimated developed reserves, NYMEX forward pricing and comparable sales transactions, which classify the acquired assets as a Level 3 measurement.

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EQT Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

M. Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. The standard requires an entity to recognize revenue in a manner that depicts the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU No. 2014-09 will replace most of the existing revenue recognition requirements in United States GAAP when it becomes effective. In July 2015, the FASB approved the deferral of the effective date of this ASU to annual reporting periods beginning after December 15, 2017, with the option to adopt as early as annual reporting periods beginning after December 15, 2016. The Company is currently evaluating the method of adoption and impact this standard will have on its financial statements and related disclosures.

In February 2015, the FASB issued ASU No. 2015-02, Consolidation. The standard changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The ASU will be effective for public entities for annual reporting periods beginning after December 15, 2015, including interim periods therein. The Company is currently evaluating the method of adoption and impact this standard will have on its financial statements and related disclosures.

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest. The standard requires an entity to present the debt issuance costs related to a recognized debt liability as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The guidance in ASU No. 2015-03 is effective for public entities for annual reporting periods beginning after December 15, 2015, including interim periods therein. Early adoption is permitted. The Company is currently evaluating the method of adoption and impact this standard will have on its financial statements and related disclosures.

In April 2015, the FASB issued ASU No. 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. The ASU adds guidance that will help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The ASU will be effective for annual reporting periods beginning after December 15, 2015. The Company is currently evaluating the impact this standard will have on its financial statements and related disclosures.

Table of Contents

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); the timing, cost, capacity and expected interconnects with facilities and pipelines of the Ohio Valley Connector (OVC) and Mountain Valley Pipeline (MVP) projects; the ultimate terms, partners and structure of the MVP joint venture; technology (including drilling techniques); monetization transactions, including midstream asset sales (dropdowns) to EQT Midstream Partners, LP (EQM) 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; the amount and timing of any repurchases under the Company’s share repurchase authorization; 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, many of which are difficult to predict and 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”, and elsewhere in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

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.

Table of Contents

EQT Corporation and Subsidiaries

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

CORPORATE OVERVIEW

Three Months Ended June 30, 2015 vs. Three Months Ended June 30, 2014

Income from continuing operations attributable to EQT Corporation for the three months ended June 30, 2015 was $5.5 million, $0.04 per diluted share, compared with $109.0 million, $0.72 per diluted share, for the three months ended June 30, 2014. The $103.5 million decrease in income from continuing operations attributable to EQT Corporation between periods was primarily attributable to a 40% decrease in the average realized price for production sales volumes, higher operating expenses and higher net income attributable to noncontrolling interests, partially offset by lower income tax expense, increased production sales volumes, increased gathering and transmission firm reservation revenues and increased gains on derivatives not designated as hedges.

The average realized price to EQT Corporation for production sales volumes was $2.36 per Mcfe for the three months ended June 30, 2015 compared to $3.93 per Mcfe for the three months ended June 30, 2014. The average New York Mercantile Exchange (NYMEX) natural gas index price was $2.64 per MMBtu during the second quarter of 2015, 44% lower than the average index price of $4.67 per MMBtu during the second quarter of 2014. In addition, the average differential decreased $0.23 per Mcf primarily due to lower Appalachian Basin basis, which was partially offset by increased recoveries. Recoveries represent differences in natural gas prices between the Appalachian Basin and the sales points of other markets reached by utilizing transportation capacity, differences in natural gas prices between Appalachian Basin and fixed price sales contracts, term sales with fixed differentials to NYMEX and other marketing activity, including the resale of unused pipeline capacity.

Net income attributable to noncontrolling interests of EQT GP Holdings, LP (EQGP) and EQM was $58.2 million for the three months ended June 30, 2015 compared to $27.3 million for the three months ended June 30, 2014. The $30.9 million increase was primarily the result of increased higher net income at EQM and increased noncontrolling interests as a result of EQM’s March 2015 underwritten public offering of common units and EQGP’s May 2015 initial public offering (IPO). EQM completed an underwritten public offering of additional EQM common units in connection with the NWV Gathering Transaction (as described in Note D to the Condensed Consolidated Financial Statements) in the first quarter of 2015. In May 2015, EQGP completed an IPO of 26,450,000 common units representing limited partner interests in EQGP, which represented 9.9% of EQGP’s outstanding limited partner interests. The Company retained a 90.1% limited partner interest and a non-economic general partner interest in EQGP (as described in Note C to the Condensed Consolidated Financial Statements).

Interest expense increased $5.0 million during the three months ended June 30, 2015 compared to the three months ended June 30, 2014 primarily as a result of EQM’s 4.00% Senior Notes due 2024 issued during the third quarter of 2014.

The Company realized an income tax benefit of $64.9 million for the three months ended June 30, 2015, which represented a $123.9 million decrease in income tax expense from the three months ended June 30, 2014. The decrease in income tax expense resulted from a pre-tax loss in 2015 compared to income in 2014 and a realized $35.7 million tax benefit in connection with recent IRS guidance received by the Company (discussed below). The Company’s effective income tax rate was reduced for both periods as the Company consolidates 100% of the pre-tax income related to the noncontrolling public limited partners’ share of EQGP earnings, but is not required to record an income tax provision with respect to the portion of the earnings allocated to EQGP and EQM noncontrolling public limited partners. Earnings allocated to the EQM and EQGP noncontrolling public limited partners increased in the second quarter 2015 compared to the second quarter 2014 due to higher net income at EQM and increased noncontrolling interests as a result of EQM’s March 2015 underwritten public offering of common units and EQGP’s May 2015 IPO.

For the three months ended June 30, 2015, the Company realized a $35.7 million tax benefit in connection with recent IRS guidance received by the Company regarding the Company’s sale of Equitable Gas Company, LLC, a regulated entity, in 2013. The transaction included a partial like-kind exchange of assets that resulted in tax deferral for the Company. However, in order to be in compliance with the normalization rules of the Internal Revenue Code, the IRS guidance held that the deferred tax liability associated with the exchanged regulatory assets should not be considered for ratemaking purposes. As a result, during the second quarter of 2015, the Company recorded a regulatory asset equal to the taxes deferred from the exchange and an associated income tax benefit. The regulatory asset and deferred taxes will be recognized when the assets are disposed of in a taxable transaction such as a drop down transaction or amortized over the 32-year remaining life of the assets received in the exchange, in either event increasing tax expense at that time.

Table of Contents

EQT Corporation and Subsidiaries

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

Six Months Ended June 30, 2015 vs. Six Months Ended June 30, 2014

Income from continuing operations attributable to EQT Corporation for the six months ended June 30, 2015 was $179.0 million, $1.17 per diluted share, compared with $301.3 million, $1.98 per diluted share, for the six months ended June 30, 2014. The $122.3 million decrease in income from continuing operations attributable to EQT Corporation between periods was primarily attributable to a 36% decrease in the average realized price for production sales volumes, higher operating expenses and higher net income attributable to noncontrolling interests, partially offset by lower income tax expense, increased gains on derivatives not designated as hedges, increased production sales volumes and increased gathering and transmission firm reservation revenues.

The average realized price to EQT Corporation for production sales volumes was $3.02 per Mcfe for the six months ended June 30, 2015 compared to $4.71 per Mcfe for the six months ended June 30, 2014. The average NYMEX natural gas index price was $2.81 per MMBtu during the first half of 2015, 41% lower than the average index price of $4.80 per MMBtu during the first half of 2014. In addition, the average differential decreased $0.34 per Mcf primarily due to lower Appalachian Basin basis, which was partially offset by increased recoveries.

Net income attributable to noncontrolling interests of EQGP and EQM was $106.0 million for the six months ended June 30, 2015 compared to $46.1 million for the six months ended June 30, 2014. The $59.9 million increase was primarily the result of increased noncontrolling interests as a result of EQM’s March 2015 and May 2014 underwritten public offerings of common units, EQGP’s May 2015 IPO, and higher net income at EQM. EQM completed underwritten public offerings of additional EQM common units in connection with the NWV Gathering Transaction (as described in Note D to the Condensed Consolidated Financial Statements) in the first quarter of 2015 and its acquisition of the Jupiter gathering system from the Company in the second quarter of 2014. In May 2015, EQGP completed an IPO of 26,450,000 common units representing limited partner interests in EQGP, which represented 9.9% of EQGP’s outstanding limited partner interests. The Company retained a 90.1% limited partner interest and a non-economic general partner interest in EQGP (as described in Note C to the Condensed Consolidated Financial Statements).

Interest expense increased $10.2 million during the six months ended June 30, 2015 compared to the six months ended June 30, 2014 primarily as a result of EQM’s 4.00% Senior Notes due 2024 issued during the third quarter of 2014.

Income tax expense decreased $183.0 million in the six months ended June 30, 2015 compared to the six months ended June 30, 2014 primarily as a result of lower pre-tax income and a realized $35.7 million tax benefit in connection with recent IRS guidance received by the Company in connection with the Company’s sale of Equitable Gas Company, LLC in 2013 (discussed above). The Company’s effective income tax rate decreased to a slight benefit from a 33.6% expense. The decrease in the effective income tax rate from the first half of 2014 is primarily attributable to the effects of the IRS guidance, an increase in earnings allocated to noncontrolling limited partners of EQGP and EQM and a decrease in state taxes in 2015 as a result of lower pre-tax income on state paying entities. 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 EQGP earnings, but is not required to record an income tax provision with respect to the portion of the earnings allocated to EQM and EQGP noncontrolling public limited partners. Earnings allocated to the EQM and EQGP noncontrolling public limited partners increased in the first half of 2015 compared to the first half of 2014 due to higher net income at EQM and increased noncontrolling interests as a result of EQM’s March 2015 underwritten public offering of common units and EQGP’s May 2015 IPO.

See “Business Segment Results of Operations” for a discussion of production sales volumes and gathering and transmission firm reservation revenues.

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

Table of Contents

EQT Corporation and Subsidiaries

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

Consolidated Operational Data

Revenues earned by the Company from the sale of natural gas, natural gas liquids (NGLs) and oil are split between EQT Production and EQT Midstream. The split is reflected in the calculation of EQT Production’s average realized 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.

The operational information in the table below presents an average realized price ($/Mcfe) to EQT Production and EQT Corporation, which is based on EQT Production adjusted net operating revenues, a non-GAAP supplemental financial measure. EQT Production adjusted net operating revenues are presented because it is an important measure used by the Company’s management to evaluate period-to-period comparisons of earnings. EQT Production adjusted net operating revenues should not be considered as an alternative to EQT Corporation total operating revenues as reported in the Statements of Consolidated Income, the most directly comparable GAAP financial measure. See “Reconciliation of Non-GAAP Measures” for a reconciliation of EQT Production adjusted net operating revenues to EQT Corporation total operating revenues.

Table of Contents

EQT Corporation and Subsidiaries

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



	Three Months Ended June 30,								Six Months Ended June 30,
in thousands (unless noted)	2015			2014			%		2015			2014			%
LIQUIDS
NGLs:
Sales volume (MMcfe) (a)	12,444			7,954			56.4		25,725			15,721			63.6
Sales volume (Mbbls)	2,074			1,326			56.4		4,288			2,620			63.7
Gross price ($/Bbl)	$	15.58		$	43.78		(64.4	)	$	18.97		$	49.67		(61.8	)
Gross NGL sales	$	32,304		$	58,034		(44.3	)	$	81,318		$	130,148		(37.5	)
Third-party processing	(18,733		)	(15,755		)	18.9		(37,114		)	(27,573		)	34.6
Net NGL sales	$	13,571		$	42,279		(67.9	)	$	44,204		$	102,575		(56.9	)
Oil:
Sales volume (MMcfe) (a)	1,138			395			188.1		2,148			699			207.3
Sales volume (Mbbls)	190			66			187.9		358			116			208.6
Net price ($/Bbl)	$	45.91		$	89.75		(48.8	)	$	41.99		$	86.85		(51.7	)
Net oil sales	$	8,706		$	5,903		47.5		$	15,034		$	10,117		48.6

Net liquids sales	$	22,277		$	48,182		(53.8	)	$	59,238		$	112,692		(47.4	)

NATURAL GAS
Sales volume (MMcf)	133,469			101,788			31.1		264,376			199,839			32.3
NYMEX price ($/MMBtu) (b)	$	2.64		$	4.67		(43.5	)	$	2.81		$	4.79		(41.3	)
Btu uplift	$	0.23		$	0.37		(37.8	)	$	0.25		$	0.36		(30.6	)
Gross natural gas price ($/Mcf)	$	2.87		$	5.04		(43.1	)	$	3.06		$	5.15		(40.6	)

Basis ($/Mcf)	$	(1.22	)	$	(0.84	)	45.2		$	(1.11	)	$	(0.55	)	101.8
Recoveries ($/Mcf) (c)	0.50			0.33			51.5		1.00			0.79			26.6
Cash settled basis swaps (not designated as hedges) ($/Mcf)	(0.02		)	—			(100.0	)	(0.04		)	(0.05		)	20.0
Average differential ($/Mcf)	$	(0.74	)	$	(0.51	)	45.1		$	(0.15	)	$	0.19		(178.9	)

Average adjusted price - unhedged ($/Mcf)	$	2.13		$	4.53		(53.0	)	$	2.91		$	5.34		(45.5	)
Cash settled derivatives (cash flow hedges) ($/Mcf)	0.53			(0.18		)	394.4		0.53			(0.24		)	320.8
Cash settled derivatives (not designated as hedges) ($/Mcf)	0.25			0.01			2,400.0		0.17			—			100.0
Average adjusted price, including cash settled derivatives ($/Mcf)	$	2.91		$	4.36		(33.3	)	$	3.61		$