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Key Points
EQT missed on revenues and earnings.
However, management forecasts increased production, even while lowering its capital expenditures.
Lower costs and new long-term supply agreements seem to have de-risked EQT's story, which turned upwards following a year-to-date decline.
Shares of natural gas driller EQT Corporation (NYSE: EQT) rallied 8.5% in Wednesday's trading.
EQT reported second-quarter earnings today. While revenue and earnings per share actually came in lower than Wall Street analysts expected, the company also increased its production targets for the year while lowering costs. Meanwhile, management also announced big new supply deals that more than offset the earnings shortfall.
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EQT is controlling what it can
In the second quarter, EQT's revenue plunged 29% to $1.81 billion, missing estimates by $30 million, while adjusted (non-GAAP) earnings per share fell a more modest 13% to $0.39. The bulk of the big decline in revenues was due to a much lower gain on derivative contracts, or hedges on natural gas prices. On top of that, the average realized price of natural gas also fell year over year by about 6% to $2.65 per thousand cubic feet (Mcfe).
Despite the headline "miss," EQT also announced several positives. For one, the company increased its full-year natural gas production guidance to 2.38 to 2.45 trillion cubic feet (Tcfe), up from prior guidance of 2.28 to 2.38 Tcfe. What's impressive is that EQT is raising production guidance while lowering capital expenditure guidance by $25 million.
Additionally, management announced a new 10-year offtake agreement to supply natural gas to Competitive Power Ventures' Shay Energy Center in West Virginia. EQT also announced a liquefied natural gas (LNG) offtake agreement with an unnamed large and diversified Asian power company for 500,000 metric tons/year over five years.
Those long-term supply agreements, along with lower production costs-per cubic foot, seemed to de-risk a lot of the forward picture and protect against further downside in natural gas prices, so investors sent shares higher today.
EQT is a unique natural gas play
EQT has the largest acreage and lowest-cost natural gas supply in the U.S. Appalachian Basin, making it a core way to play the rise in natural gas demand driven by the AI data center build-out.
Of course, natural gas is a commodity, and all commodities are subject to significant price swings driven by global supply and demand. So even though natural gas prices have fallen this year due to a variety of factors, should we eventually get a big price spike due to the energy-hungry data center build-out, EQT is a well-executing stock to play that theme.
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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends EQT. The Motley Fool has a disclosure policy.
