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Derivative Instruments
 6 Months Ended
Jun. 30, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments
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. The creditworthiness of all counterparties is regularly monitored. 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 sells call options that require the Company to pay the counterparty if the index price rises above the strike price. The Company 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 recognizes all derivative instruments as either assets or liabilities at fair value on a gross basis. 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 (Loss) Income in the same period or periods during which the forecasted transaction affects earnings. 

In prior periods, 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 EQT Production's produced volumes and forecasted natural gas purchases and sales were designated and qualified as cash flow hedges. As of June 30, 2016 and December 31, 2015, the Company deferred net gains of $36.4 million and $64.8 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 flow hedges and discontinue the use of cash flow hedge accounting. As of June 30, 2016 and December 31, 2015, the forecasted transactions that were hedged as of December 31, 2014 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 forecasted transactions extend through December 2018. The Company estimates that approximately $28.9 million of net gains on its derivative commodity instruments reflected in accumulated OCI, net of tax, as of June 30, 2016 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, beginning in 2015, all changes in fair value of the Company’s derivative instruments are recognized within operating revenues in the Statements of Consolidated (Loss) Income.

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.
 
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,
 
2016
 
2015
 
2016
 
2015
 
(Thousands)
Commodity derivatives designated as cash flow hedges
 
Amount of gain reclassified from accumulated OCI, net of tax, into sales of natural gas, oil and NGLs (effective portion)
$
15,940

 
$
42,581

 
$
28,364

 
$
83,332

 
 
 
 
 
 
 
 
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 recognized in (loss) gain on derivatives not designated as hedges
$
(234,693
)
 
$
4,259

 
$
(125,698
)
 
$
47,851



The absolute quantities of the Company’s derivative commodity instruments totaled 665 Bcf and 676 Bcf as of June 30, 2016 and December 31, 2015, respectively, and were primarily related to natural gas swaps, basis swaps and collars. The open natural gas positions at June 30, 2016 and December 31, 2015 had maturities extending through December 2020 and December 2019, respectively. The Company also had 548 Mbbls of propane swaps as of June 30, 2016, which had maturities extending through December 2017.

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, 2016 and December 31, 2015. 
As of June 30, 2016
 
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
 
$
136,591

 
$
(70,234
)
 
$
—

 
$
66,357

 
 
 
 
 
 
 
 
 
Liability derivatives:
 
 

 
 

 
 

 
 

Derivative instruments, at fair value
 
$
110,960

 
$
(70,234
)
 
$
—

 
$
40,726

As of December 31, 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
 
$
417,397

 
$
(19,909
)
 
$
—

 
$
397,488

 
 
 
 
 
 
 
 
 
Liability derivatives:
 
 

 
 

 
 

 
 

Derivative instruments, at fair value
 
$
23,434

 
$
(19,909
)
 
$
—

 
$
3,525


 
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, 2016, the aggregate fair value of all derivative instruments with credit risk-related contingent features that were in a net liability position was $42.0 million, for which the Company had no collateral posted on June 30, 2016.  If the Company’s credit rating by S&P or Moody’s had been downgraded below investment grade on June 30, 2016, 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, 2016.  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 would result in greater borrowing costs and collateral requirements than would be available if all credit ratings were investment grade. See also "Security Ratings and Financing Triggers" under Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations."