Fitch Expects to Rate EQT's $500MM Notes Due 2021 'BBB'; Outlook Stable

Fitch Ratings expects to rate EQT Corporation's (EQT) new $500 million senior unsecured notes due 2021 'BBB'. The new notes are to rank pari passu with the company's senior unsecured debt. Proceeds are to be used for general corporate purposes.

EQT is currently rated as follows:

--Issuer Default Rating (IDR) 'BBB';

--Senior unsecured debt 'BBB';

--Short-term IDR 'F2'.

The Rating Outlook is Stable. Fitch's ratings apply to approximately $2.5 billion of outstanding debt when accounting for the planned new issuance.

Key rating factors include EQT's integrated natural gas operations, strong performance from production in the Marcellus and Huron shale plays, the relatively predictable cash flows from its midstream and distribution segments, and healthy liquidity. Moreover, Fitch expects natural gas prices will support EQT's planned drilling program.

The ratings also consider concerns regarding EQT's plans for strategic alternatives for the midstream business which may include a joint venture, the creation of a master limited partnership (MLP) or a combination of the two. Fitch will evaluate EQT's strategy when management concludes its decision making process.

Other rating concerns include business risk from EQT's growing focus on upstream operations. Higher natural gas production would increase cash flow volatility. Additional concerns stem from the significant cash required for EQT's drilling program, extended softness in natural gas prices, and a heightened environmental focus on Appalachian shale production.

EQT's Stable Outlook is supported by Fitch's expectation that the company will continue to derive a significant portion of earnings and cash flow from its midstream and distribution businesses. At Sept. 30, 2011, approximately 35% of the last 12 months EBITDA (excludes unallocated costs) were derived from these businesses. It also reflects expectations that the company will continue to fund spending in a prudent manner which preserves the balance sheet.

At the end of the third quarter of 2011, EQT's leverage (defined as debt adjusted for operating leases to EBITDA) was 2.3 times (x) and 2.8x on a pro forma basis (adjusted for the new notes). Leverage remained below 2.9x at the end of 2010 and 3.7x at the end of 2009. The significant driver for reduced leverage has been growth in EBITDA. Despite the increase of debt with the current offering, Fitch expects to see leverage fall in the range of 2.2x to 2.4x by the end of 2012 as contributions from recent expansions pick up. This may change depending on the strategic alternatives for the midstream business.

Liquidity remains significant and should support growth over the near to medium term. At the end of the third quarter of 2011, liquidity was $1.8 billion which includes $335 million of cash and full availability on its $1.5 billion revolver which matures in 2014. Debt maturities are manageable with $200 million due 2012 and nothing after that until $150 million due 2015.

Negative rating actions could occur if there were a significant and prolonged drop in natural gas prices without an appropriate adjustment to spending. Other drivers that could lead to negative action include a significant expansion beyond Fitch's expectations of the upstream business. Positive actions are not viewed as likely but could occur if EQT significantly reduced leverage or scaled back its exploration and production operations.

EQT benefits from its integrated operations in the Appalachian Basin which generate stable, fee-based and regulated cash flows from its midstream and utility operations, respectively. These assets complement the company's low-cost, high-return drilling operations. Upstream results are enhanced by the company's increasing expertise in drilling horizontal wells in shale developments with an emphasis on reducing costs and improving well performance.

The company's competitive cost structure is evident in its low finding and development and lifting costs which gives EQT a low break-even natural gas price. Natural gas realizations also benefit from the proximity to high demand Northeast markets.

Given the predictable nature of EQT's production, the company's principally unregulated gathering operations also generate more stable cash flow streams. The company's pipelines are largely regulated by FERC and the distribution assets by local commissions, both operations of which generate fairly stable and predictable cash flows as well.

In the Marcellus shale play, there is a heightened focus on environmental issues associated with production, most notably water processing and disposal. EQT has taken steps to mitigate this, including recycling nearly 100% of its fracturing fluids. Fitch believes that environmental concerns will continue for producers in the Marcellus; if issues arise, Fitch believes costs could increase and the pace of drilling could be slowed.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Relevant Research:

--'Corporate Rating Methodology' (Aug. 12, 2011);

--'Natural Gas Pipelines: Hot Topics--Long Term Trends Affecting Pipeline Risk (Oct. 13, 2011)

--'Updating Fitch's Oil & Gas Price Deck' (Aug. 10, 2011);

--'Integrated and Upstream Oil & Gas Companies - Sector Credit Factor Compendium' (March 25, 2011);

--'US Oil & Gas Stats Quarterly - First Quarter 2011' (July 27, 2011);

--'Deepwater Drilling Halt: Upstream Impacts' (June 11, 2010);

--'Political Turmoil in North Africa and the Middle East (Implications for North American Upstream Companies)', Feb. 25, 2011.

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229

Natural Gas Pipelines: Hot Topics -- Long-Term Trends Affecting Pipeline Risk

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=652851

Updating Fitch￢ﾀﾙs Oil & Gas Price Deck -- Midyear Update

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648586

Integrated and Upstream Oil and Gas Companies: Sector Credit Factor Compendium

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=610352

Oil & Gas Stats Quarterly -- First-Quarter 2011

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=641509

Deepwater Drilling Halt: Upstream Impacts

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=532009

Political Turmoil in North Africa and the Middle East (Implications for North American Upstream Companies)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=608025

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