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EQT leaks some Q4 results in bond prospectus, fails to impress rating agencies

Investors and lenders got an early peek at EQT Corp.'s fourth-quarter 2019 results Jan. 13, and they did not like what they saw despite production and pricing numbers within expectations.

The nation's largest natural gas producer put some of its fourth-quarter 2019 results into the prospectus for two new bond offerings designed to refinance some of the company's debt out to 2025 and 2030. That gave the credit rating agencies a chance to chime in, and Moody's took away EQT's investment-grade status with a one-notch cut.

EQT roughly met analysts' expectations for production volumes expected to be just over 4 Bcfe/d, with average realized prices between $2.51 per Mcfe and $2.56 per Mcfe, while keeping fourth-quarter capital spending of $350 million in line with expectations.

The numbers were not enough to halt the slide of EQT's stock Jan. 13. Off 19% year-to-date at the Jan. 10 close, EQT shares fell another 6% by early afternoon Jan. 13 in heavy trading. At the same time, Moody's dropped EQT's credit rating from investment-grade to speculative on worries about the driller's ability to generate cash at current and future low natural gas prices. Credit rating agencies Fitch and S&P Global Ratings both affirmed EQT as investment-grade Jan. 13. All three rating agencies said they had a negative outlook on EQT's credit and debt due to low gas prices.

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"EQT's significantly weakening cash flow metrics in light of the persistent weak natural gas price environment and the company's intent to refinance its 2020 maturities in lieu of debt reduction through repayment drives the ratings downgrade," Moody's senior analyst Sreedhar Kona said in a statement. "Although the company is pursuing several avenues to reduce debt and enhance its cash flow, the execution risk involved in those initiatives is reflected in the negative outlook."

EQT reiterated that it plans to eliminate $1.5 billion, or about 30%, of its debt by the middle of 2020 by selling leases it will not be able to drill under its new well design and drilling strategy brought on board with the arrival of new CEO Toby Rice. The largest chunk will be its nearly 20% stake in Equitrans Midstream Corp., worth $617 million at the Jan. 10 close. "We expect S&P and Fitch are providing time for EQT to execute on their $1.5 billion debt reduction plan and are awaiting additional details on asset sales," Charles Johnston, a senior research analyst at credit research firm CreditSights, said in a Jan. 13 note.

The Appalachian shale gas driller also said it would take a noncash charge of between $1.4 billion and $1.8 billion against the value of its leases that are not profitable to drill at current low prices or are to be sidelined with the change in drilling strategies since Rice took over.

EQT said its planned $1.3 billion capital spending budget for 2020 includes $1 billion for reserve development. Its drilling plan calls for spending 20% of the development capex in Ohio's Utica Shale, 65% in Pennsylvania's Marcellus Shale and the remainder in West Virginia's Marcellus Shale. EQT's Utica efforts were hit or miss in 2019, a year that found the company preoccupied with a shareholder revolt led by Rice, who had hinted EQT might sell its entire Ohio operation.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.