Rating Action: Moody's affirms EQT's Ba1 rating in light of Tug Hill acquisition; outlook remains positiveGlobal Credit Research - 07 Sep 2022New York, September 07, 2022 -- Moody's Investors Service (Moody's) affirmed EQT Corporation's (EQT) Ba1 Corporate Family Rating (CFR) and senior notes ratings in light of the company's proposed acquisition of upstream assets from THQ Appalachia I, LLC (Tug Hill) and gathering and processing assets from THQ-XcL Holdings I, LLC (XcL Midstream). The outlook remains positive. The SGL-1 Speculative Grade Liquidity (SGL) rating was unchanged.EQT announced its proposed acquisition of Tug Hill's upstream assets and XcL Midstream's gathering and processing assets, for a total consideration of $5.2 billion. Both Tug Hill and XcL Midstream are currently owned by Quantum Energy Partners, a private equity firm. The transaction is expected to close in the fourth quarter of 2022, subject to regulatory approvals. The transaction adds about 800 MMcfe/day of production to EQT and about 90,000 core net leasehold acres in West Virginia. The transaction also adds gathering and processing assets and gas transportation trunklines to EQT's portfolio. The transaction will be funded with $2.6 billion in cash and approximately $2.6 billion in EQT common stock. The cash consideration will be funded with cash on hand, borrowings under EQT's revolving credit facility and/or through one or more financing or debt capital markets transactions."EQT's positive outlook reflects its strong free cash flow position that benefits from high natural gas prices, improved capital efficiency, and commitment to debt reduction," said Sreedhar Kona, Moody's Vice President - Senior Analyst and Lead Analyst for EQT. "While this transaction substantially increases debt, we expect that the company will prioritize debt reduction under its financial policy framework to achieve its debt target while also gaining the benefits of enhanced scale and improved cost structure from this acquisition."Affirmations:.. Issuer: EQT CorporationÂ . Corporate Family Rating, Affirmed Ba1Â . Probability of Default Rating, Affirmed Ba1-PDÂ . Senior Unsecured Regular Bond/Debenture, Affirmed Ba1 (LGD4)Â . Senior Unsecured Shelf, Affirmed (P)Ba1Â . Senior Unsecured Medium-Term Note Program, Affirmed (P)Ba1 Outlook Actions: ..Issuer: EQT Corporation ....Outlook, Remains Positive RATINGS RATIONALE The Tug Hill transaction substantially increases EQT's absolute debt burden, however the acquired acreage improves the durability of EQT's free cash flow generation and somewhat improves EQT's overall cost structure and lowers EQT's breakeven price. Although the company's debt increases due to the transaction, the weakening of its projected leverage metrics will be mitigated by EQT's prioritization of debt reduction particularly if natural gas prices decline from present high levels. Importantly, the company has increased its debt reduction target reinforcing its focus on aggressively reducing its debt burden. Should the commodity price strength be sustained, the company will be able to reduce a substantial amount of debt through 2023, significantly improving the company's credit profile and rendering its capital structure durable and resilient.EQT's Ba1 CFR reflects the substantial improvement in its organic capital efficiency and improvement in financial leverage metrics. The company's cost structure improvements have allowed EQT to generate meaningful free cash flow while maintaining its production output and to realize improved credit metrics in a volatile natural gas price environment. The company's multi-pronged strategy to efficiently develop its acreage, navigate its hedging strategy, and further reduce its absolute debt level enhance its resilience and support its rating and outlook. EQT's continued focus on absolute debt reduction and managing its commodity hedge book points to increased visibility in free cash flow and enhanced credit metrics that was supported by restrained capital spending in the previous two years.EQT's positive outlook reflects the company's stated position to reduce absolute debt significantly while restraining capital spending to generate free cash flow. Strong commodity price environment and EQT's ability to demonstrate substantial cash flow metrics (including retained cash flow to debt) also contribute to the positive outlook.EQT's stronger business and financial profiles will bolster its ability to withstand negative credit impacts from carbon transition risks. While the financial performance of the company will continue to be impacted by industry cycles, Moody's expects future profitability and cash flow in this sector to be less robust at the cycle peak and worse at the cycle trough compared to the past. Global initiatives to limit the adverse impacts of climate change will constrain the use of hydrocarbons and accelerate the shift to less environmentally damaging and renewable energy sources. EQT's focus on natural gas should help mitigate the impact from carbon-focused policies compared to its more oil focused peers, as natural gas is likely to be used as a transition fuel and demand for natural gas should peak after demand for oil.The company's senior unsecured notes are rated Ba1, which is the same as its CFR, because the debt portion of its capital structure is all unsecured, including its $2.5 billion revolving credit facility.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSEQT's ratings could be upgraded if the company is able to reduce its debt burden substantially towards its stated targets, including the incremental debt from the acquisition, while maintaining its current production levels to generate free cash flow. The company would need to sustain its retained cash flow-to-debt (RCF/Debt) metric above 50% and its leverage full-cycle ratio (LFCR) above 2x.EQT's ratings could be downgraded if the company fails to meaningfully reduce debt or if a substantial decline in reserves and production occurs. The ratings could be downgraded if its retained cash flow-to-debt (RCF/Debt) ratio falls below 30%.EQT Corporation is an independent exploration and production (E&P) company focused on developing natural gas assets in the Appalachian Basin.The principal methodology used in these ratings was Independent Exploration and Production published in August 2021 and available at https://ratings.moodys.com/api/rmc-documents/74836. 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