Financial Information by Business Segment

Prior to the Rice Merger, the Company reported its results of operations through three business segments: EQT Production, EQT Gathering and EQT Transmission. These reporting segments reflected the Company's lines of business and were reported in the same manner in which the Company evaluated its operating performance through September 30, 2017. Following the Rice Merger, the Company adjusted its internal reporting structure to incorporate the newly acquired assets. The Company conducted its business through five business segments: EQT Production, EQM Gathering (formerly known as EQT Gathering), EQM Transmission (formerly known as EQT Transmission), RMP Gathering and RMP Water. On July 23, 2018, pursuant to the Midstream Merger Agreement, RMP and the RMP General Partner each became wholly owned subsidiaries of EQM as a result of the Midstream Mergers. The Company now conducts its business through four business segments: EQT Production, EQM Gathering, EQM Transmission and EQM Water.

Rice Olympus, Strike Force Holdings and Rice West Virginia were businesses and the Drop-Down Transaction was a transaction between entities under common control; therefore, EQM recorded the assets and liabilities of these entities at their carrying amounts to EQT on the effective date of the transaction. EQM also recast its consolidated financial statements to retrospectively reflect the pre-acquisition results as if the entities were owned by EQM from the date of the Rice Merger, November 13, 2017, as that is the date those entities came under the common control of EQT.

In addition, the assets associated with the investment in the MVP Joint Venture were included within the headquarters segment assets balance prior to June 30, 2018. The investment in the MVP Joint Venture is now included in the transmission segment as this segment classification better aligns with the ultimate operations of the MVP. Segment asset balances at December 31, 2017 have been reclassified to conform to this presentation.



Three Months Ended September 30, 2018	EQT Production			EQM Gathering		EQM Transmission		EQM Water		Intersegment Eliminations			EQT Corporation
Revenues:	(Thousands)
Sales of natural gas, oil and NGLs	$	1,046,989		$	—	$	—	$	—	$	—		$	1,046,989
Pipeline, water and net marketing services	6,132			252,861		89,350		22,373		(255,760		)	114,956
Loss on derivatives not designated as hedges	(3,075		)	—		—		—		—			(3,075		)
Total operating revenues	$	1,050,046		$	252,861	$	89,350	$	22,373	$	(255,760	)	$	1,158,870



Three Months Ended September 30, 2017	EQT Production		EQM Gathering		EQM Transmission		Intersegment Eliminations			EQT Corporation
Revenues:	(Thousands)
Sales of natural gas, oil and NGLs	$	552,953	$	—	$	—	$	—		$	552,953
Pipeline and net marketing services	9,140		116,522		89,771		(144,598		)	70,835
Gain on derivatives not designated as hedges	35,625		—		—		—			35,625
Total operating revenues	$	597,718	$	116,522	$	89,771	$	(144,598	)	$	659,413




Nine Months Ended September 30, 2018	EQT Production		EQM Gathering		EQM Transmission		EQM Water		Intersegment Eliminations			EQT Corporation
Revenues:	(Thousands)
Sales of natural gas, oil and NGLs	$	3,264,728	$	—	$	—	$	—	$	—		$	3,264,728
Pipeline and net marketing services	42,382		731,440		285,429		93,438		(775,913		)	376,776
Gain on derivatives not designated as hedges	5,620		—		—		—		—			5,620
Total operating revenues	$	3,312,730	$	731,440	$	285,429	$	93,438	$	(775,913	)	$	3,647,124




Nine Months Ended September 30, 2017	EQT Production		EQM Gathering		EQM Transmission		Intersegment Eliminations			EQT Corporation
Revenues:	(Thousands)
Sales of natural gas, oil and NGLs	$	1,803,132	$	—	$	—	$	—		$	1,803,132
Pipeline and net marketing services	31,656		330,996		272,184		(418,337		)	216,499
Gain on derivatives not designated as hedges	222,693		—		—		—			222,693
Total operating revenues	$	2,057,481	$	330,996	$	272,184	$	(418,337	)	$	2,242,324



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
	(Thousands)
Operating income (loss):
EQT Production (a)	$	(121,678	)	$	12,201		$	(2,127,323	)	$	322,634
EQM Gathering	177,902			85,932			510,755			243,061
EQM Transmission	58,691			59,770			198,784			189,237
EQM Water	(3,093		)	—			35,627			—
Unallocated expenses and intersegment eliminations (b)	(39,998		)	(19,876		)	(169,566		)	(35,802		)
Total operating income (loss)	$	71,824		$	138,027		$	(1,551,723	)	$	719,130


(a)	Impairment of long-lived assets of $0.3 billion and $2.7 billion are included in EQT Production operating income for the three and nine months ended September 30, 2018, respectively. See Note Q.

(b)

Unallocated expenses consist of compensation expense, administrative costs and the amortization expense related to non-compete agreements with former Rice executives. Administrative costs include transaction costs of $29.3 million and $85.7 million for the three and nine months ended September 30, 2018, respectively. Amortization expense related to non-compete agreements with former Rice executives was $10.4 million and $31.0 million for the three and nine months ended September 30, 2018, respectively.

Intersegment eliminations include the elimination of profit on water services that are provided to EQT Production and capitalized as part of development costs of $3.2 million and $50.7 million for the three and nine months ended September 30, 2018, respectively.

Reconciliation of operating income (loss) to net income (loss):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
	(Thousands)
Total operating income (loss)	$	71,824		$	138,027		$	(1,551,723	)	$	719,130
Other income	21,755			6,526			43,092			15,880
Interest expense	93,042			50,377			240,059			137,110
Income tax (benefit) expense	(62,911		)	(11,281		)	(503,505		)	119,093
Net income (loss)	$	63,448		$	105,457		$	(1,245,185	)	$	478,807



	September 30, 2018		December 31, 2017
	(Thousands)
Segment assets:
EQT Production	$	19,278,308	$	21,015,132
EQM Gathering	5,994,891		5,681,404
EQM Transmission	2,813,644		1,923,427
EQM Water	141,403		185,079
Total operating segments	28,228,246		28,805,042
Headquarters assets, including cash and short-term investments	433,083		717,562
Total assets	$	28,661,329	$	29,522,604



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018			2017
	(Thousands)
Depreciation and depletion: (c)
EQT Production	$	391,083	$	224,103	$	1,161,718		$	654,411
EQM Gathering	25,359		9,983		72,309			28,398
EQM Transmission	12,357		12,261		37,228			35,793
EQM Water	5,851		—		17,420			—
Other	661		213		2,201			693
Total	$	435,311	$	246,560	$	1,290,876		$	719,295

Expenditures for segment assets: (d)
EQT Production (e)	$	855,494	$	449,303	$	2,225,435		$	1,850,482
EQM Gathering	194,477		48,182		515,072			150,728
EQM Transmission	37,626		22,312		84,517			73,679
EQM Water	7,981		—		17,358			—
Other and intersegment eliminations (f)	10,284		2,502		(32,864		)	7,097
Total	$	1,105,862	$	522,299	$	2,809,518		$	2,081,986


(c)	Excludes amortization of intangible assets.

(d)

Includes the capitalized portion of non-cash stock-based compensation costs, non-cash acquisitions and the impact of capital accruals. The impact of accrued capital expenditures includes the reversal of the prior period accrual as well as the current period estimate, both of which are non-cash items. The net impact of these non-cash items was $(51.8) million and $44.3 million for the three months ended September 30, 2018 and 2017, respectively, and $(45.2) million and $102.7 million for the nine months ended September 30, 2018 and 2017, respectively. These non-cash items are excluded from capital expenditures on the Statements of Condensed Consolidated Cash Flows. Expenditures for segment assets does not include consideration for the Rice Merger.


(e)	The three and nine months ended September 30, 2017 included $7.8 million and $819.0 million of cash capital expenditures, respectively, and the nine months ended September 30, 2017 included $7.5 million of non-cash capital expenditures for the acquisitions discussed in Note P.


(f)	Intersegment eliminations include profit on water services that are provided to EQT Production and capitalized as part of development costs.