8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported): May 3, 2023

EQT CORPORATION

(Exact name of registrant as specified in its charter)

Pennsylvania	001-3551	25-0464690
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification Number)

625 Liberty Avenue, Suite 1700, Pittsburgh, Pennsylvania 15222

(Address of principal executive offices, including zip code)

(412) 553-5700

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	EQT	New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Item 8.01.  Other Events.

On May 3, 2023, EQT Corporation (“EQT”) issued a news release announcing its commencement of a solicitation of consents (the “Consent Solicitation”) from holders of its outstanding 5.700% Senior Notes due 2028 (the “Notes”) to amend the indenture governing the Notes to extend the Outside Date (as defined below) for the special mandatory redemption provision from June 30, 2023 to December 29, 2023. In October 2022, the Notes were issued by EQT to partially fund the cash consideration for the pending acquisition (the “Acquisition”) by EQT and EQT Production Company (the “Buyer”) of THQ Appalachia I Midco, LLC and THQ-XcL Holdings I Midco, LLC from THQ Appalachia I, LLC (the “Upstream Seller”) and THQ-XcL Holdings I, LLC (the “Midstream Seller” and, together with the Upstream Seller, the “Sellers”). Under the indenture governing the Notes, EQT is required to redeem the outstanding Notes at a redemption price equal to 101% of the principal amount of the Notes plus accrued and unpaid interest, if any, to, but excluding, the date of such mandatory redemption if (i) the Acquisition is not consummated on or before June 30, 2023 (the “Outside Date”) or (ii) EQT notifies the trustee of the Notes that it will not pursue the consummation of the Acquisition.

The extension of the Outside Date from June 30, 2023 to December 29, 2023 would align such date with (i) the date on which the Buyer or the Sellers have the right to terminate the purchase agreement relating to the Acquisition and (ii) the termination date for lender commitments under EQT’s term loan credit agreement. The Acquisition is not conditioned upon the receipt of the requisite consents from the holders of the Notes to amend the Outside Date.

A copy of the news release announcing the Consent Solicitation is attached hereto as Exhibit 99.1 and incorporated by reference herein.

In addition, the following exhibits relating to the Acquisition or the Sellers are attached to this Current Report on Form 8-K and incorporated herein by reference:

· Exhibit 99.2: Audited consolidated financial statements of the Upstream Seller and subsidiaries as of December 31, 2022 and 2021 and for the years then ended, and the notes related thereto;

· Exhibit 99.3: Audited consolidated financial statements of the Midstream Seller and subsidiaries as of December 31, 2022 and 2021 and for the years then ended, and the notes related thereto;

· Exhibit 99.4: Preliminary unaudited pro forma condensed combined balance sheet of EQT and subsidiaries as of December 31, 2022 and preliminary unaudited pro forma condensed combined statements of operations of EQT and subsidiaries for the year ended December 31, 2022, and the notes related thereto; and

· Exhibit 99.5: Audit report prepared by Cawley, Gillespie & Associates, Inc., independent petroleum engineers, relating to the Upstream Seller’s estimated quantities of its proved natural gas, natural gas liquids and crude oil reserves as of December 31, 2022.

Item 9.01.  Financial Statements and Exhibits.

(d)        Exhibits.

Exhibit No.	Description
23.1	Consent of KPMG LLP (independent auditors of THQ Appalachia I, LLC).
23.2	Consent of KPMG LLP (independent auditors of THQ-XcL Holdings I, LLC).
23.3	Consent of Cawley, Gillespie & Associates, Inc.
99.1	News release dated May 3, 2023 issued by EQT Corporation.
99.2	Audited consolidated financial statements of THQ Appalachia I, LLC and subsidiaries as of December 31, 2022 and 2021 and for the years then ended, and the notes related thereto.

Exhibit No.	Description
99.3	Audited consolidated financial statements of THQ-XcL Holdings I, LLC and subsidiaries as of December 31, 2022 and 2021 and for the years then ended, and the notes related thereto.
99.4	Preliminary unaudited pro forma condensed combined balance sheet of EQT Corporation and subsidiaries as of December 31, 2022 and preliminary unaudited pro forma condensed combined statements of operations of EQT Corporation and subsidiaries for the year ended December 31, 2022, and the notes related thereto.
99.5	Audit report prepared by Cawley, Gillespie & Associates, Inc., dated February 8, 2023, with respect to estimates of reserves and future net revenue of THQ Appalachia I, LLC as of December 31, 2022.
104	Cover Page Interactive Data File (embedded within the Inline XBRL document).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	EQT CORPORATION
Date:  May 3, 2023	By:	/s/ David M. Khani
	Name:	David M. Khani
	Title:	Chief Financial Officer

EX-23.1

Exhibit 23.1

Consent of Independent Auditors

We consent to the incorporation by reference in the following registration statements on Form S-3 (333-267475, 333-258135 and 333-158198) and on Form S-8 (333-264424, 333-264423, 333-219508, 333-221529, 333-82193, 333-32410, 333-122382, 333-152044, 333-158682, 333-195625, 333-232657, 333-237953 and 333-230969) of EQT Corporation of our report dated March 29, 2023, with respect to the consolidated financial statements of THQ Appalachia I, LLC, which report appears in the Form 8-K of EQT Corporation dated May 3, 2023.

/s/ KPMG LLP

Dallas, Texas

May 3, 2023

EX-23.2

Exhibit 23.2

Consent of Independent Auditors

We consent to the incorporation by reference in the following registration statements on Form S-3 (333-267475, 333-258135 and 333-158198) and on Form S-8 (333-264424, 333-264423, 333-219508, 333-221529, 333-82193, 333-32410, 333-122382, 333-152044, 333-158682, 333-195625, 333-232657, 333-237953 and 333-230969) of EQT Corporation of our report dated March 29, 2023, with respect to the consolidated financial statements of THQ-XcL Holdings I, LLC, which report appears in the Form 8-K of EQT Corporation dated May 3, 2023.

/s/ KPMG LLP

Dallas, Texas

May 3, 2023

EX-23.3

Exhibit 23.3

Consent of Independent Petroleum Engineers

As independent petroleum engineers, we hereby consent to the references to our firm, in the context in which they appear, and to the references to, and the inclusion of, our reserve report and oil, natural gas and NGL reserves estimates and forecasts of economics as of December 31, 2022, included in or made part of the registration statements on Form S-3 (Nos. 333-267475, 333-258135 and 333-158198) and on Form S-8 (Nos. 333-264424, 333-264423, 333-219508, 333-221529, 333-82193, 333-32410, 333-122382, 333-152044, 333-158682, 333-195625, 333-232657, 333-237953 and 333-230969) of EQT Corporation, which appears in this Current Report on Form 8-K of EQT Corporation.

CAWLEY, GILLESPIE & ASSOCIATES, INC.

Texas Registered Engineering Firm

/s/ W. Todd Brooker, P.E. .

W. Todd Brooker, P.E.

President

Austin, Texas

May 3, 2023

EX-99.1

Exhibit 99.1

 

EQT Announces Consent Solicitation for Senior Notes due
2028 to Extend Special Mandatory Redemption Outside Date

PITTSBURGH, May 3, 2023 -- EQT Corporation (NYSE: EQT) (“EQT”) today announced that it has commenced a consent solicitation to amend the indenture (the “Indenture”) governing its outstanding 5.700% Senior Notes due 2028 (the “Notes”) to extend the Outside Date (as defined below) for the special mandatory redemption provision from June 30, 2023 to December 29, 2023 (the “Consent Solicitation”).

 

The following table sets forth some of the terms of the Consent Solicitation:

Title of Notes	CUSIP Number	Aggregate Principal Amount Outstanding		Initial Consent Fee(1)		Additional Consent Fee(1)(2)
5.700% Senior Notes due 2028	26884L AQ2	$	500,000,000	$	7.50	$	3.75

(1) For each $1,000 principal amount of Notes.

(2) Each holder of Notes who validly delivered a consent prior to the Expiration Time (as defined below), and who received an Initial Consent Fee in respect of such consent, will be paid the Additional Consent Fee in respect of the same Notes for which such holder was paid an Initial Consent Fee only if, as of 11:59 p.m., New York City time, on June 30, 2023, (a) the Acquisition (as defined below) has not yet been consummated and (b) EQT has not become obligated under the special mandatory redemption provision of the Indenture to redeem the Notes.

In October 2022, the Notes were issued to partially fund the cash consideration for EQT’s pending acquisition of THQ Appalachia I Midco, LLC and THQ-XcL Holdings I Midco, LLC (the “Acquisition”). Under the Indenture, EQT is required to redeem the outstanding Notes at a redemption price equal to 101% of the principal amount of the Notes plus accrued and unpaid interest, if any, to, but excluding, the date of such mandatory redemption if (i) the Acquisition is not consummated on or before June 30, 2023 (the “Outside Date”) or (ii) EQT notifies the trustee of the Notes that it will not pursue the consummation of the Acquisition.

Upon the terms and subject to the conditions described in the consent solicitation statement dated May 3, 2023 (as may be amended or supplemented from time to time, the “Consent Solicitation Statement”), EQT is seeking the Requisite Consents (as defined below) from the holders of the Notes as of the Record Date (as defined below) to amend the Indenture to extend the Outside Date from June 30, 2023 to December 29, 2023 (the “Proposed Amendment”). The extension of the Outside Date to December 29, 2023 would align such date with (i) the date on which the purchase agreement relating to the Acquisition may be terminated by the parties thereto and (ii) the termination date for lender commitments under EQT’s term loan credit agreement.

The adoption of the Proposed Amendment will require the consent of holders of a majority of the aggregate principal amount of the Notes as of the Record Date (the “Requisite Consents”). The Acquisition is not conditioned upon the receipt of the Requisite Consents with respect to the Proposed Amendment, and EQT currently believes that it has sufficient funding from cash on hand and commitments under its term loan credit agreement to fund the cash consideration portion of the Acquisition if it is not able to obtain the Requisite Consents.

The Consent Solicitation will expire at 5:00 p.m., New York City time, on May 9, 2023 unless extended by EQT (such date and time, as may be extended by EQT from time to time in its sole discretion, the “Expiration Time”). Only holders of record of the Notes as of 5:00 p.m., New York City time, on May 2, 2023 (the “Record Date”) are eligible to deliver consents to the Proposed Amendment in the Consent Solicitation. EQT may, in its sole discretion, terminate, extend or amend the Consent Solicitation at any time as described in the Consent Solicitation Statement.

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Only holders of Notes as of the Record Date who deliver a valid consent prior to the Expiration Time (and do not validly revoke such consent prior to the Consent Revocation Deadline (as defined below)) will be eligible to receive consideration for delivering their consent, subject to the terms and conditions set forth in the Consent Solicitation Statement. The “Consent Revocation Deadline” is the earlier of (i) the receipt of the Requisite Consents and (ii) 5:00 p.m., New York City time, on May 9, 2023.

The initial consent fee for each $1,000 principal amount of Notes for which a valid consent is delivered prior to the Expiration Time, and not validly revoked prior to the Consent Revocation Deadline, will be a cash payment of $7.50 (the “Initial Consent Fee”). Subject to receipt of the Requisite Consents and satisfaction or waiver of the other conditions set forth in the Consent Solicitation Statement, the Initial Consent Fee will be paid on the second business day following the Expiration Time, which is expected to be May 11, 2023.

In addition, each holder of Notes who delivered a valid consent prior to the Expiration Time (and received an Initial Consent Fee in respect of such consent) will also receive a cash payment of $3.75 per $1,000 principal amount of Notes (the “Additional Consent Fee”) for which such holder was paid an Initial Consent Fee if (and only if), as of 11:59 p.m., New York City time, on June 30, 2023, (i) the Acquisition has not yet been consummated and (ii) EQT has not become obligated under the special mandatory redemption provision of the Indenture to redeem the Notes (collectively, the “Additional Consent Fee Requirements”). In the event the Additional Consent Fee Requirements are satisfied, the Additional Consent Fee will be paid to the applicable holders on July 5, 2023. There can be no assurance that the Additional Consent Fee Requirements will be satisfied and, as a result, there can be no assurance that any holder will receive any Additional Consent Fee.

No Initial Consent Fee (or Additional Consent Fee) will be paid with respect to the Notes if the Requisite Consents are not received prior to the Expiration Time.

EQT intends to execute the supplemental indenture to the Indenture containing the Proposed Amendment (the “Supplemental Indenture”) promptly after the receipt of the Requisite Consents. The Supplemental Indenture will become effective upon execution thereof; however, the Proposed Amendment will not become operative until the payment in full of the Initial Consent Fee. If the Proposed Amendment becomes operative, any holder of Notes that does not provide a consent to the Proposed Amendment prior to the Expiration Time will not receive any Initial Consent Fee (or any Additional Consent Fee) and the Outside Date for the special mandatory redemption provision in the Indenture will be extended to December 29, 2023.

This news release is for informational purposes only and the Consent Solicitation is being made solely on the terms and subject to the conditions set forth in the Consent Solicitation Statement. Further, this news release does not constitute an offer to sell or the solicitation of an offer to buy the Notes or any other securities. The Consent Solicitation Statement does not constitute a solicitation of consents in any jurisdiction in which, or to or from any person to or from whom, it is unlawful to make such solicitation under applicable securities laws. Holders of the Notes are urged to review the Consent Solicitation Statement for the detailed terms of the Consent Solicitation and the procedures for consenting to the Proposed Amendment.

J.P. Morgan Securities LLC is acting as the Lead Solicitation Agent for the Consent Solicitation. Any persons with questions regarding the Consent Solicitation should contact J.P. Morgan Securities LLC by calling (866) 834-4666 (toll-free) or (212) 834-2064 (collect).

The Information and Tabulation Agent for the Consent Solicitation is Global Bondholder Services Corporation. Copies of the Consent Solicitation Statement may be obtained from Global Bondholder Services Corporation by calling (212) 430-3774 (banks and brokers) or (855) 654-2015 (all others, toll-free) or by emailing contact@gbsc-usa.com.

Investor Contact:

Cameron Horwitz

Managing Director, Investor Relations & Strategy

412.395.2555

cameron.horwitz@eqt.com

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About EQT Corporation

EQT Corporation is a leading independent natural gas production company with operations focused in the cores of the Marcellus and Utica Shales in the Appalachian Basin. We are dedicated to responsibly developing our world-class asset base and being the operator of choice for our stakeholders. By leveraging a culture that prioritizes operational efficiency, technology and sustainability, we seek to continuously improve the way we produce environmentally responsible, reliable and low-cost energy. We have a longstanding commitment to the safety of our employees, contractors, and communities, and to the reduction of our overall environmental footprint. Our values are evident in the way we operate and in how we interact each day – trust, teamwork, heart, and evolution are at the center of all we do.

Cautionary Statements

This news release contains certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Statements that do not relate strictly to historical or current facts are forward-looking. Without limiting the generality of the foregoing, forward-looking statements contained in this news release specifically include statements regarding EQT's plans and expected timing with respect to the Consent Solicitation.

The forward-looking statements included in this news release involve risks and uncertainties that could cause actual results to differ materially from projected results. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. EQT has based these forward-looking statements on current expectations and assumptions about future events, taking into account all information currently known by EQT. While EQT considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks and uncertainties, many of which are difficult to predict and beyond EQT’s control. These risks and uncertainties include, but are not limited to, volatility of commodity prices; the costs and results of drilling and operations; uncertainties about estimates of reserves, identification of drilling locations and the ability to add proved reserves in the future; the assumptions underlying production forecasts; the quality of technical data; EQT’s ability to appropriately allocate capital and resources among its strategic opportunities; access to and cost of capital, including as a result of rising interest rates and other economic uncertainties; EQT’s hedging and other financial contracts; inherent hazards and risks normally incidental to drilling for, producing, transporting and storing natural gas, natural gas liquids and oil; cyber security risks and acts of sabotage; availability and cost of drilling rigs, completion services, equipment, supplies, personnel, oilfield services and sand and water required to execute EQT's exploration and development plans, including as a result of inflationary pressures; risks associated with operating primarily in the Appalachian Basin and obtaining a substantial amount of EQT’s midstream services from Equitrans Midstream Corporation; the ability to obtain environmental and other permits and the timing thereof; government regulation or action, including regulations pertaining to methane and other greenhouse gas emissions; negative public perception of the fossil fuels industry; increased consumer demand for alternatives to natural gas; environmental and weather risks, including the possible impacts of climate change; and disruptions to EQT’s business due to acquisitions and other significant transactions, including the Acquisition. These and other risks and uncertainties are described under Item 1A, “Risk Factors,” and elsewhere in EQT's Annual Report on Form 10-K for the year ended December 31, 2022 and may be updated by Part II, Item 1A., "Risk Factors" in subsequent Quarterly Reports on Form 10-Q and other documents EQT subsequently files from time to time with the Securities and Exchange Commission. In addition, EQT may be subject to currently unforeseen risks that may have a materially adverse impact on it.

Any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by law, EQT does not intend to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise.

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EX-99.2

Exhibit 99.2

Independent Auditors’ Report

The Members
THQ Appalachia I, LLC:

Opinion

We have audited the consolidated financial statements of THQ Appalachia I, LLC and its subsidiaries (the Company), which comprise the consolidated balance sheets as of December 31, 2022 and 2021, and the related consolidated statements of income, changes in members’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended in accordance with U.S. generally accepted accounting principles.

Basis for Opinion

We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Responsibilities of Management for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that the consolidated financial statements are available to be issued.

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statements.

In performing an audit in accordance with GAAS, we:

· Exercise professional judgment and maintain professional skepticism throughout the audit.

· Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

· Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed.

· Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements.

· Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.

Required Supplementary Information

U.S. generally accepted accounting principles require that the supplemental information relating to oil and natural gas producing activities on pages 29-33 be presented to supplement the basic consolidated financial statements. Such information is the responsibility of management and, although not a part of the basic consolidated financial statements, is required by United States Financial Accounting Standards Board who, as described in Accounting Standards Codification Topic 932-235-50, considers it to be an essential part of financial reporting for placing the basic consolidated financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with GAAS, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic consolidated financial statements, and other knowledge we obtained during our audit of the basic consolidated financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

    /s/ KPMG LLP    

Dallas, Texas
March 29, 2023

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THQ APPALACHIA I, LLC AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2022 and 2021

	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	30,103,726		20,253,529
Accounts receivable – oil and gas sales		200,656,364		211,213,561
Accounts receivable		—		1,686,081
Affiliate receivable		1,999,040		3,919,596
Accounts receivable other		902,880		—
Fair market value of derivatives		237,236,712		18,655,632
Prepaid expenses		732,673		660,523
Gas imbalances		198,781		2,717,387
Total current assets		471,830,176		259,106,309
Property and equipment:
Oil and natural gas properties, at cost, using the successful efforts method, net		1,851,271,986		1,545,025,438
Gathering facilities, net		19,455,911		14,163,514
Other property and equipment, net		369,223		352,603
Total property and equipment, net		1,871,097,120		1,559,541,555
Other noncurrent assets:
Restricted cash		13,813,919		13,751,009
Long-term deposits		87,558		87,558
Right-of-use assets		3,821,158		—
Fair market value of derivatives		56,348,640		30,957,358
Total other noncurrent assets		74,071,275		44,795,925
Total assets	$	2,416,998,571		1,863,443,789
Liabilities and Members’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	80,012,797		84,912,966
Affiliate payables		114,100,666		133,412,101
Litigation reserve		250,000		400,000
Revenues payable		899,439		1,174,466
Fair market value of derivatives		447,299,358		250,177,807
Gas imbalances		73,441		—
Lease liabilities		1,833,168		—
Contingent subordinated loan		150,017,055		—
Total current liabilities		794,485,924		470,077,340
Revolving credit facility		508,773,419		547,658,181
Fair market value of derivatives		112,847,733		66,297,141
Long-term lease liabilities		1,937,663		—
Asset retirement obligations		17,217,634		6,940,400
Total liabilities		1,435,262,373		1,090,973,062
Commitments and contingencies (notes 9 and 10)
Members’ equity:
Members’ equity		592,925,823		592,925,823
Retained earnings		388,810,375		179,544,904
Total members’ equity		981,736,198		772,470,727
Total liabilities and members’ equity	$	2,416,998,571		1,863,443,789

See accompanying notes to consolidated financial statements.

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THQ APPALACHIA I, LLC AND SUBSIDIARIES

Consolidated Statements of Income

Years ended December 31, 2022 and 2021

	2022			2021
Revenues:
Oil sales	$	162,265,828			120,545,949
Natural gas sales		1,183,340,957			567,509,235
Natural gas liquids sales		343,058,122			277,814,828
Net loss on derivative instruments		(880,110,781	)		(489,443,915	)
Other revenue (note 11)		1,312,814			4,570,883
Total revenues		809,866,940			480,996,980
Operating expenses:
Lease operating expenses		38,563,764			20,341,051
Production taxes		93,786,628			48,988,200
Gathering, processing and transportation		192,890,237			170,708,648
Exploration expense		16,454,541			9,115,394
Depreciation, depletion and amortization		206,738,193			166,225,087
General and administrative		19,960,693			19,184,804
Loss on sale of other property and equipment		228,658			4,256,119
Total operating expenses		568,622,714			438,819,303
Income from operations		241,244,226			42,177,677
Other income (expenses):
Interest expense		(32,324,531	)		(23,863,454	)
Interest income		326,876			29,579
Other income		18,900			—
Total other expense		(31,978,755	)		(23,833,875	)
Net income	$	209,265,471			18,343,802

See accompanying notes to consolidated financial statements.

4

THQ APPALACHIA I, LLC AND SUBSIDIARIES

Consolidated Statements of Changes in Members’ Equity

Years ended December 31, 2022 and 2021

					Total
	Members’		Retained		members’
	equity		earnings		equity
Balance, December 31, 2020	$	591,925,651		161,201,102		753,126,753
Contributions of capital (note 12)		1,000,172		—		1,000,172
Net income		—		18,343,802		18,343,802
Balance, December 31, 2021		592,925,823		179,544,904		772,470,727
Net income		—		209,265,471		209,265,471
Balance, December 31, 2022	$	592,925,823		388,810,375		981,736,198

See accompanying notes to consolidated financial statements.

5

THQ APPALACHIA I, LLC AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended December 31, 2022 and 2021

	2022			2021
Cash flows from operating activities:
Net income	$	209,265,471			18,343,802
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization		206,738,193			166,225,087
Amortization of deferred financing costs		1,431,265			1,057,312
Amortization of right-of-use assets		(50,327	)		—
Exploration expense		16,454,541			9,115,394
Net loss on derivative instruments		880,110,781			489,443,915
Net cash paid to derivative counterparties		(880,411,001	)		(244,392,536	)
Accrued interest on senior note – affiliate		—			(1,393,787	)
Loss on sale of other property and equipment		228,658			4,256,119
Change in operating assets and liabilities:
Accounts receivable		11,340,398			(140,904,262	)
Accounts receivable – affiliate		1,931,012			(2,445,603	)
Prepaid expenses		(72,151	)		(251,838	)
Accounts payable and accrued expenses		233,002			6,786,748
Affiliate payables		(17,404,197	)		77,849,509
Litigation reserve		(150,000	)		(200,000	)
Revenues payable		(275,027	)		—
Gas imbalance		2,592,047			(3,954,245	)
Net cash provided by operating activities		431,962,665			379,535,615
Cash flows from investing activities:
Net cash paid for acquisition of oil and natural gas properties		(47,524,768	)		(22,314,350	)
Additions to oil and natural gas properties		(484,290,527	)		(295,620,728	)
Acquisition of High Road Resources, LLC		—			(22,664,186	)
Proceeds from sale of other property and equipment		64,709			524,098
Net cash used in investing activities		(531,750,586	)		(340,075,166	)
Cash flows from financing activities:
Proceeds from revolving credit facility		160,000,000			70,000,000
Payments on revolving credit facility		(200,000,000	)		(58,000,000	)
Proceeds from contingent subordinated loan		150,017,055			—
Repayment on note payable - affiliate		—			(35,000,000	)
Deferred financing costs		(316,027	)		(603,349	)
Net cash provided by (used in) financing activities		109,701,028			(23,603,349	)
Net increase in cash, cash equivalents, and restricted cash		9,913,107			15,857,100
Cash, cash equivalents, and restricted cash, beginning of period		34,004,538			18,147,438
Cash, cash equivalents, and restricted cash, end of period	$	43,917,645			34,004,538
Supplemental disclosure of cash flow information:
Cash paid for interest	$	30,418,377			20,754,120
Cash paid for interest - affiliate		—			4,512,875
Noncash investing activities:
Noncash additions to oil and natural gas properties	$	69,904,741			75,037,911
Noncash financing activities:
Contribution of assets by affiliate (note 12)	$	—			1,000,172

See accompanying notes to consolidated financial statements.

6

THQ APPALACHIA I, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

(1) Organization and Description of Business

THQ Appalachia I, LLC (the Company) is an energy company engaged in the acquisition, development and exploitation of conventional and unconventional oil and natural gas assets in the Appalachia Basin in the Northeastern United States and focused on the Marcellus and Point Pleasant shale formations. Its executive offices are located in Fort Worth, Texas.

The operations of the Company are governed by the provisions of a Limited Liability Company Agreement (the Agreement) dated July 23, 2014, as amended and as executed by and among its members. The Company’s majority member is Q-TH Appalachia (VI) Investment Partners, LLC (Quantum), with Radler 2000, LP (R2K) and certain members of management comprising the remaining capital members. The Agreement includes specific provisions with respect to the maintenance of the capital accounts of each of the Company’s members (see footnote 13).

On September 6, 2022, the Company entered into a purchase agreement with EQT Corporation to sell the Company’s upstream assets along with the gathering and processing assets of affiliate company THQ-XCL Holdings I, LLC for total consideration of $2.6 billion of cash and 55 million shares of common stock of EQT Corporation (EQT). The Company will be selling 100% of its membership interests in THQ Appalachia I Midco, LLC (“THQA Midco”) along with the 100% membership interests of the subsidiaries of THQA Midco (“EQT Acquisition”). On December 23, 2022, the parties entered into an amended and restated purchase agreement to extend the right to terminate the agreement to December 31, 2023, from the original termination date of December 31, 2022. This transaction has an effective date of July 1, 2022. The close of the transaction remains subject to regulatory approval.

(2) Summary of Significant Accounting Policies

(a) Basis of Accounting and Presentation

The accounts are maintained using the accrual basis of accounting and the consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and are stated in United States dollars.

The accompanying consolidated financial statements include the accounts of THQ Appalachia I, LLC and its wholly owned subsidiaries THQ Appalachia I Midco, LLC, TH Exploration, LLC, TH Exploration II, LLC, TH Exploration III, LLC, TH Exploration IV, LLC, CLR Exploration, LLC, and THQ Marketing, LLC. CLR Exploration, LLC was dissolved on May 17, 2022. All significant intercompany balances and transactions have been eliminated in consolidation.

(b) Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect certain reported amounts in the consolidated financial statements and accompanying notes. The estimates that are and will be particularly significant to the consolidated financial statements include estimates of the Company’s reserves of oil, natural gas and natural gas liquids (NGLs), future cash flows from oil and natural gas properties, depreciation, depletion and amortization, asset retirement obligations, and fair values of assets acquired and liabilities assumed. As future events and their effects cannot be determined with precision, actual results could differ from these estimates and assumptions. These disclosures are material to the Company’s consolidated financial statements.

7  (Continued)

THQ APPALACHIA I, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

(c) Risks and Uncertainties

Historically, the markets for natural gas, NGLs, and oil have experienced significant price fluctuations. Price fluctuations can result from variations in weather, levels of production in the region, availability of transportation capacity to other regions of the country, and various other factors. Increases or decreases in the prices the Company receives for its production could have a significant impact on the Company’s future results of operations and reserve quantities.

The borrowing base under the Revolving Credit Facility discussed in footnote 7 may be reduced if commodity prices decline, which could hinder or prevent the Company from meeting future capital needs. The borrowing base under the Revolving Credit Facility was $850 million as of December 31, 2022. The borrowing base is subject to potential reductions based on a variety of factors such as commodity prices, operating difficulties, decline in reserves, lending requirements or regulations, or for any other reasons. The Company cannot be certain that funding will be available if needed, and to the extent required, on acceptable terms. In the event of a decrease in the borrowing base due to declines in commodity prices or otherwise, the Company may be unable to meet obligations as they come due and could be required to repay any indebtedness in excess of the redetermined borrowing base. As a result, the Company may be unable to implement the drilling and development plan, make acquisitions or otherwise carry out the Company’s business plan, which could have a material adverse effect on the financial condition and results of operations and impair the Company’s ability to service the indebtedness. The borrowing base is redetermined bi-annually by the lenders each May and October based on certain factors, including the Company’s reserves and hedge position. The borrowing base was redetermined in May 2022 to be $850 million. The next redetermination of the borrowing base is pending the close of the sale to EQT disclosed in footnote 1.

The Company relies on IT systems to conduct business, as well as systems of third-party vendors. These systems are subject to possible security breaches and cyber-attacks. Cyber-attacks are becoming more sophisticated, and U.S. government warnings have indicated that infrastructure assets, including pipelines, may be specifically targeted by certain groups. These attacks include, without limitation, malicious software, attempts to gain unauthorized access to data, and other electronic security breaches. These attacks may be perpetrated by state-sponsored groups, criminal organizations, or private individuals. These cybersecurity risks include cyber-attacks on the Company and third parties who provide material services. In addition to disrupting operations, cybersecurity breaches could also affect the Company’s ability to operate or control facilities, render data or systems unusable, or result in the theft of sensitive, confidential or customer information. These events could also damage the Company’s reputation, and result in losses from remedial actions, loss of business or potential liability to third parties. The Company carries insurance specifically for cybersecurity events. However, the proceeds of any such insurance may not be paid in a timely manner and may be insufficient if such an event were to occur. Increasing scrutiny and changing expectations from stakeholders with respect to our environment, social, and governance practices may impose additional costs on us or expose us to new or additional risks.

8  (Continued)

THQ APPALACHIA I, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

(d) Cash and Cash Equivalents

The Company considers all cash and highly liquid investments with original maturities of three months or less when purchased to be cash equivalents.

(e) Restricted Cash

The amount of restricted cash reflected in long-term assets represents the amount of cash collateral the Company has posted in support of a letter of credit on the Company’s behalf to the pipeline company with which the Company has a firm transportation commitment shown in footnote 9.

(f) Accounts Receivable

The Company’s accounts receivable are primarily from purchasers of oil and natural gas. The Company extends credit as part of normal business procedures based on management’s assessment of credit worthiness. The Company records an allowance for doubtful accounts based on the age of accounts receivables and historical trends, as well as by specifically identifying receivables that may be uncollectible based upon the financial condition of the counterparty and other relevant facts and circumstances. The Company had no reserve as of December 31, 2022 or 2021, and has experienced no losses since 2016.

(g) Oil and Natural Gas Properties

The Company follows the successful efforts method of accounting for its oil and natural gas properties, whereby costs of productive wells, developmental dry holes and productive leases are capitalized into appropriate groups of properties based on geographical and geological similarities. These capitalized costs are amortized using the unit-of-production method based on estimated proved reserves. Proceeds from sales of properties will be credited to property costs, and a gain or loss will be recognized when a significant portion of an amortization base is sold or abandoned.

Exploration expense, including geological and geophysical expenses and delay rentals, are charged to expense as incurred. Exploratory drilling costs, including the cost of stratigraphic test wells, are initially capitalized but charged to exploration expense if and when the well is determined to be nonproductive. The acquisition costs of unproved acreage are initially capitalized and are carried at cost, net of accumulated impairment provisions, until such leases are transferred to proved properties or charged to exploration expense as impairments of unproved properties. The Company had no significant costs which had been deferred for longer than one year at December 31, 2021. The Company charged $16.5 million and $9.1 million to exploration expense in 2022 and 2021, respectively. The 2022 exploration expense includes $16.5 million due to the expiration of certain oil and natural gas leases. The 2021 exploration expense includes $6.0 due to dry hole expenses and $3.1 million is due to the expiration of certain oil and natural gas leases.

9  (Continued)

THQ APPALACHIA I, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

The Company evaluates the carrying amount of its proved natural gas, NGLs, and oil properties for impairment on a geological reservoir basis whenever events or changes in circumstances indicate that a property’s carrying amount may not be recoverable. If the carrying amount exceeds the estimated undiscounted future cash flows, the Company would estimate the fair value of its properties and record an impairment charge for any excess of the carrying amount of the properties over the estimated fair value of the properties. Factors used to determine fair value may include estimates of proved reserves, future commodity prices, future production estimates, anticipated capital expenditures, and a commensurate discount rate. Because estimated undiscounted future cash flows exceeded the carrying value of the Company’s proved properties, it has not been necessary for the Company to determine the fair value of its properties under GAAP for successful efforts accounting. As a result, the Company has not recorded any impairment expenses associated with its proved properties during the years ended December 31, 2022 and 2021.

(h) Gathering Facilities

Expenditures for construction, installation, major additions, and improvements to property, plant, and equipment that is not directly related to production are capitalized, whereas minor replacements, maintenance, and repairs are expensed as incurred. Gathering pipelines and compressor stations are depreciated using the straight-line method over their estimated useful lives of 20 years. Depreciation expense for gathering pipelines, compressor stations, and water handling and treatment systems was $0.9 million and $0.8 million in 2022 and 2021, respectively. A gain or loss is recognized upon the sale or disposal of property and equipment.

(i) Other Property and Equipment

Other property and equipment consists primarily of field equipment, facilities, and office equipment and are recorded at cost. Major renewals and betterments are capitalized while repairs and maintenance are charged to expense as incurred. The costs of assets retired or otherwise disposed of and the applicable accumulated depreciation are removed from the accounts, and any gain or loss is included in operating income in the accompanying statements of operations.

Other property and equipment, including major replacements and improvements, are capitalized and are depreciated using the straight-line method over the estimated useful lives of 3 to 7 years. Depreciation expense for the other property and equipment was $0.3 million in 2022 and 2021.

(j) Provision for Depreciation, Depletion & Amortization (DD&A)

The Company computes its provision for DD&A on a unit-of-production method. Each quarter, the Company uses the following formulas to compute the provision for DD&A for each of its producing properties (or appropriate groups of properties based on geographical and geological similarities):

DD&A Rate = Unamortized Cost / Beginning of Period Reserves
Provision for DD&A = DD&A Rate x Current Period Production

Reserve estimates have a significant impact on the DD&A rate. If reserve estimates for a property or group of properties are revised downward in future periods, the DD&A rate for that property or group of properties will increase as a result of the revision. Alternatively, if reserve estimates are revised upward, the DD&A rate will decrease.

10  (Continued)

THQ APPALACHIA I, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

(k) Impairment of Unproved Properties

At each year end, the Company reviews its unproved oil and natural gas properties to determine if there has been, in the Company’s judgment, impairment in value of each prospect that the Company considers individually significant. To the extent that the carrying cost of a prospect exceeds its estimated fair value, the Company makes a provision for impairment of unproved properties, and records the provision as abandonments and impairments within exploration expense on its statement of income. If the value is revised upward in a future period, the Company does not reverse the prior provision and continues to carry the prospect at a net cost that is lower than its estimated value. If the value is revised downward in a future period, an additional provision for impairment is made in that period. As stated in footnote 2(g), the Company charged $16.5 million and $9.1 million to exploration expense in 2022 and 2021, respectively. The 2022 exploration expense includes $16.5 million due to the expiration of certain oil and natural gas leases. The 2021 exploration expense includes $6.0 million for dry hole expenses and $3.1 million due to the expiration of certain oil and natural gas leases.

(l) Oil and Natural Gas Reserves

Reserve engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact manner. The accuracy of a reserve estimate depends on the quality of available geological and engineering data, the precision of and the interpretation of that data, and judgment based on experience and training. Annually, the Company engages independent petroleum engineering firms to independently prepare estimates of its oil and natural gas reserves.

(m) Deferred Financing Costs

Deferred financing costs represent loan origination fees and are offset against the related debt instrument in the consolidated balance sheets. These costs are amortized over the term of the related debt instrument using the effective interest method. The Company charges expense for unamortized deferred financing costs if credit facilities are retired prior to their maturity date. At December 31, 2022 and 2021, respectively, the Company had $1.2 million and $2.3 million of unamortized deferred financing costs that are netted against the Company’s debt balances. The amounts amortized were $1.4 million and $1.1 million for the years ended December 31, 2022 and 2021, respectively.

(n) Derivative Financial Instruments

In order to manage its exposure to natural gas, NGLs, and oil price volatility, the Company enters into derivative transactions from time to time, including commodity swap agreements, basis swap agreements, collar agreements, and other similar agreements relating to the price risk associated with a portion of its production. To the extent legal right of offset exists with a counterparty, the Company reports derivative assets and liabilities on a net basis. The Company has exposure to credit risk to the extent that the counterparty is unable to satisfy its settlement obligations. The Company actively monitors the creditworthiness of counterparties and assesses the impact, if any, on its derivative position.

11  (Continued)

THQ APPALACHIA I, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

The Company records derivative instruments on the consolidated balance sheets as either an asset or liability measured at fair value and records changes in the fair value of derivatives in current earnings as they occur. Cash settlements for derivatives and changes in the fair value of commodity derivatives are reflected in gain (loss) on derivative instruments on the Company’s consolidated statements of income. The Company’s derivatives have not been designated as hedges for financial accounting purposes.

(o) Asset Retirement Obligations

The Company estimates the present value of the amount it will incur to plug, abandon and remediate its producing properties at the end of their productive lives in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 410, Asset Retirement and Environmental Obligation. The Company will compute its liability for asset retirement obligations by calculating the present value of estimated future cash flows related to each property. This will require the Company to use significant assumptions, including current estimates of plugging and abandonment costs, annual inflation of these costs, the productive lives of wells and its risk-adjusted interest rate. Changes in any of these assumptions can result in significant revisions to the estimated asset retirement obligations.

In accordance with FASB ASC 410, an asset retirement obligation is recorded as a liability at its estimated present value at the asset’s inception, with an offsetting increase to producing properties in the accompanying balance sheets which is allocated to expense over the useful life of the asset. Periodic accretion of the discount on asset retirement obligations is recorded as an expense in depreciation, depletion, and amortization in the accompanying consolidated statement of income.

Removal and restoration costs associated on the retirement of gathering facilities and water delivery pipelines are undeterminable as the Company cannot predict when these facilities would be decommissioned or become obsolete. As such, no asset retirement obligation has been recorded related to gathering facilities as of December 31, 2022 or 2021.

(p) Revenue Recognition

The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. The ASC 606 core principle is that a company will recognize revenue when it transfers promised goods or services to customers and in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.

Our revenues are primarily derived from the sale of natural gas and oil production, as well as the sale of NGLs that are extracted from our natural gas. Sales of natural gas, NGLs, and oil are recognized when we satisfy a performance obligation by transferring control of a product to a customer. Payment is generally received in the month following the sale.

Under our natural gas sales contracts, we deliver natural gas to the purchaser at an agreed upon delivery point where title to the product passes to the purchaser. Natural gas is transported from our wellheads to delivery points specified under sales contracts. Our sales contracts provide that we receive a specific index price adjusted for pricing differentials. We transfer control of the product at the delivery point and recognize revenue based on the contract price. A receivable or liability is recognized only to the extent that the Company has an imbalance on a specific property greater than the expected remaining proved reserves.

12  (Continued)

THQ APPALACHIA I, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

NGLs, which are extracted from natural gas through processing, are either sold by a third party marketing firm or by the processor under processing contracts. For NGLs sold on behalf of us by a third party marketing firm, our sales contracts provide that we deliver the product to the purchaser at an agreed upon delivery point and that we receive a specific index price adjusted for pricing differentials. We transfer control of the product to the purchaser at the delivery point and recognize revenue based on the contract price. For NGLs sold by the processor, our processing contracts provide that we transfer control to the processor at the tailgate of the processing plant and we recognize revenue based on the price received from the processor.

Under our oil sales contracts, we generally sell oil to purchasers and collect a contractually agreed upon index price, net of pricing differentials. We recognize revenue based on the contract price when we transfer control of the product to a purchaser.

(q) Concentrations of Credit Risk

The Company’s revenues are derived principally from uncollateralized sales to purchasers in the oil and natural gas industry. The concentration of credit risk in a single industry affects the Company’s overall exposure to credit risk because purchasers may be similarly affected by changes in economic and other conditions. The Company has a large, investment-grade purchaser who has served as the Company’s major customer accounting for approximately 41% of total revenue in 2022 and approximately 33% of total revenue in 2021. Five other large, investment-grade companies comprise an additional 32% of total revenue in 2022 and 27% of total revenue in 2021. The Company has not experienced any losses on its receivables from the purchasers and believes its counterparties represent acceptable credit risk.

The Company is also exposed to credit risk on its commodity derivative portfolio. Any default by the counterparty to these derivative contracts when they become due could have a material adverse effect on the Company’s financial condition and results of operations. The Company has economic hedges in place with several of its lenders under the Company’s Credit Facility. The fair value of the Company’s commodity derivative contracts was a net liability of $266.6 million at December 31, 2022, and a net liability of $266.9 million at December 31, 2021. The Company believes that its lenders represent acceptable credit risk.

The Company maintains deposits primarily in two financial institutions, which may at times exceed amounts covered by insurance provided by the U.S. Federal Deposit Insurance Corporation (FDIC). The Company has not experienced any losses related to amounts in excess of FDIC limits.

13  (Continued)

THQ APPALACHIA I, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

(r) Fair Value Measurement

FASB ASC 820, Fair Value Measurements and Disclosures, establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC 820 are described below:

Level 1:  Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.

Level 2:  Inputs to the valuation methodology include:

• Quoted prices for similar assets or liabilities in active markets;

• Quoted prices for identical or similar assets or liabilities in inactive markets;

• Inputs other than quoted prices that are observable for the asset or liability;

• Inputs that are derived principally from or corroborated by observable market data by correlation or other means;

• If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurements.

(s) Fair Value of Financial Instruments

In accordance with the reporting requirements of FASB ASC 825, Financial Instruments, the Company calculates the fair value of its assets and liabilities which qualify as financial instruments under this statement and includes this additional information in the notes to consolidated financial statements when the fair value is different than the carrying value of those financial instruments. The estimated fair value of accounts receivable, accounts payable, and revolving credit facility approximates the carrying amount due to the relatively short maturity of these instruments. None of these instruments are held for trading purposes.

(t) Fair Value on a Non-Recurring Basis

The Company follows the provisions of ASC Topic 820, Fair Value Measurement, for nonfinancial assets and liabilities measured at fair value on a nonrecurring basis. As it relates to the Company, ASC Topic 820 applies to the initial recognition of AROs, for which fair value is used.

14  (Continued)

THQ APPALACHIA I, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

(u) Relationship with Affiliate

The Company has an ongoing business relationship with an affiliate, Tug Hill Operating, LLC (THO). THO is responsible for acquisitions, drilling and operation of wells owned by the Company. As it incurs costs on behalf of the Company for these operations, THO bills the Company through its joint interest billing (JIB) process; and the Company reimburses THO for these costs at least monthly. THO is also responsible for the administration of the Company’s business. In exchange for these services, the Company pays a quarterly fee that includes (a) THO employees’ time and related expenses charged to the Company for the operation of its oil and natural gas properties, (b) an allocated amount of THO overhead expense calculated based on the number of hours THO employees spend working on Company projects, and (c) an additional percentage markup of the overall total of (a) and (b) to cover benefits and other employee-related costs and any unforeseen or difficult to allocate costs. The Company’s board approves the operating budgets. For years ended December 31, 2022 and 2021, THO billed the Company $720.1 million and $429.7 million through the JIB process. The amounts due to THO for these services, which are included in the Company’s affiliate payables balance were $99.8 million and $111.4 million as of December 31, 2022 and 2021, respectively. Allocations consist of $47.7 million and $23.7 million relating to acquisition of oil and natural gas properties, $43.0 million and $19.6 million of lease operating expenses, $12.7 million and $11.6 million in salaries and bonus for the operation of its oil and natural gas properties, $0.8 million and $1.0 million for overhead expenses, $11.7 million and $6.5 million of direct general and administrative expenses, and $604.2 million and $367.3 million of capital expenditures for the periods ended December 31, 2022 and 2021, respectively.

THO collects certain revenues from customers on behalf of the Company. The amounts due from THO, which are included in the Company’s oil and gas accounts receivable balance were $84.6 million and $112.8 million as of December 31, 2022 and 2021, respectively.

The Company incurred $82.2 million and $75.2 million in gathering, processing and transportation for the periods ended December 31, 2022 and 2021, respectively, payable to an affiliate, THQ-XCL Holdings I, LLC (XCL), a Quantum and R2K controlled entity.

For the year ended December 31, 2022, the Company paid $3.1 million and $58.4 million in lease bonuses income and royalties, respectively, to an affiliate, Stone Hill Minerals Holdings I, LLC (SHMH), a Quantum and R2K controlled entity. For the year ended December 31, 2021, the Company paid $4.6 million and $26.3 million in lease bonuses income and royalties, respectively, to SHMH. Additionally, the Company had a affiliate note payable to SHMH as of December 31, 2020 in the amount of $35 million as discussed in footnote 7 herein. On December 3, 2021, the Company paid the $39.5 million in principal and interest. As of December 31, 2022, the Company has no remaining balance under this affiliate note payable.

(v) Income Taxes

The Company is a limited liability company and, therefore, is treated as a flow through entity for federal income tax purposes. As a result, the net taxable income of the Company and any related tax credits, for federal income tax purposes, are allocated to the members and are included in the members’ tax returns even though such net taxable income or tax credits may not have actually been distributed. Accordingly, no federal tax provision has been made in the financial statements of the Company. However, Texas imposes an entity-level tax on all forms of business regardless of federal entity classification. At December 31, 2022 and 2021, the Company had not accrued a liability for the Texas franchise tax as the liability, if any, is not expected to be material. The Company applies the provisions of ASC Topic 740, Income Taxes (“ASC 740”), which clarifies the accounting and disclosure for uncertainty in tax positions. The Company analyzed its tax filing positions in the U.S. federal, state and local jurisdictions where it is required to file income tax returns, for all open tax years. Based on this review, no liabilities for uncertain income tax positions were required to have been recorded pursuant to ASC 740. The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by U.S. federal and certain state and local tax regulators. As of December 31, 2022 and 2021, the Company's U.S. federal income tax returns and state and local returns are open under the normal three-year statute of limitations and therefore subject to examination.

15  (Continued)

THQ APPALACHIA I, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

(w) Leases

Effective with the adoption of ASC 842, contracts are reviewed to determine whether the arrangement contains a lease. To the extent an arrangement is determined to include a lease, it is classified as either an operating or a finance lease, which dictates the pattern of expense recognition in the income statement. Operating leases are reflected as “Right-of-use assets”, “Lease liabilities” and “Long-term lease liabilities” on the consolidated balance sheets. The Company does not have any finance leases.

A right-of-use (“ROU”) asset representing our right to use an underlying asset for the lease term and a lease liability representing our obligation to make lease payments arising from the lease are recognized on the consolidated balance sheets for all leases with a lease term greater than one year, regardless of operating or finance lease classification. The ROU asset is initially measured as the present value of the lease liability adjusted for any payments made prior to lease commencement, including any initial direct costs incurred and incentives received. Lease liabilities are initially measured at the present value of future minimum lease payments, excluding variable lease payments, over the lease term. Given that the Company’s leases do not provide an implicit rate in the contract, the Company uses an incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date.

The Company has elected, as an accounting policy, not to record short-term leases with terms of twelve months or less on the consolidated balance sheets. In determining the lease term, the Company only includes contractual options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

The Company has also elected to account for lease and non-lease components in its contracts as a single lease component for all asset classes.

See Note 5 — Leases for additional information.

16  (Continued)

THQ APPALACHIA I, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

(3) Property and Equipment

(a) Oil and Natural Gas Properties

Since inception, the Company has been involved in acquiring and leasing oil and natural gas properties in the southwest Appalachian Basin in the Northeastern United States.

Oil and natural gas properties consist of the following at December 31:

	2022			2021
Proved properties	$	2,220,751,648			1,703,448,017
Accumulated depreciation, depletion and amortization		(592,534,930	)		(388,185,831	)
Net		1,628,216,718			1,315,262,186
Unproved properties		239,509,809			238,878,646
Exploration and impairment		(16,454,541	)		(9,115,394	)
Net		223,055,268			229,763,252
Total oil and natural gas properties, at cost, using the successful efforts method, net	$	1,851,271,986			1,545,025,438

Depreciation, depletion, and amortization expense for proved oil and natural gas properties was $204.3 million and $164.7 million for the years ended December 31, 2022 and 2021, respectively. Exploration and abandonment and write off was $16.5 million and $9.1 million for the years ended December 31, 2022 and 2021, respectively. Additions to capitalized exploratory well costs that are pending the determination of proved reserves were $64.3 million and $68.8 million for the years ended and as of December 31, 2022 and 2021, respectively. Capitalized exploratory well costs that were reclassified to wells, equipment and facilities based on the determination of proved reserves were $59.1 million and $42.9 million for the years ended December 31, 2022 and 2021, respectively which excludes costs that were incurred in the current year. The Company had no significant costs which had been deferred for longer than one year as of December 31, 2022.

On April 30, 2020, the Company acquired an 80% working interest in CLR Exploration, LLC for approximately $7.0 million from R2K as discussed in footnote 12. The assets are located in Schleicher and Sutton Counties, Texas. This transaction was considered a purchase of assets. On June 1, 2021, the Company sold the 80% working interest in CLR Exploration, LLC to a third party for approximately $0.1 million, which resulted in a loss of $4.7 million on the sale.

On April 1, 2021, THQA settled a claim regarding disputed royalty payments.  The total settlement was for $6.5 million which consisted of a payment of $5.2 million to purchase the mineral rights owned by the plaintiffs as well as a settlement payment of $1.3 million for alleged damages.  The majority of mineral rights purchased are included in THQA proved properties and the payment for damages is included in general and administrative expenses.

17  (Continued)

THQ APPALACHIA I, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

On July 9, 2021, the Company and XcL Midstream Operating, LLC (“XcLM”), entities under common control, acquired the 100% interest in High Road Minerals, LLC, High Road Operating, LLC, and High Road Midstream, LLC from High Road Resources Holdings, LLC, for $27.8 million in cash consideration. The assets are located in Marshall and Wetzel Counties, West Virginia, Harrison and Jefferson Counties, Ohio, and Greene County, Pennsylvania. The Company purchased the assets associated with High Road Operating, LLC and High Road Minerals, LLC for $22.7 million cash consideration. On behalf of XcLM, the Company purchased the assets of High Road Midstream, LLC for $5.1 million. The payment of $5.1 million was reimbursed by XcLM in August 2021.

(b) Gathering Facilities and Other Property and Equipment

Gathering facilities and other property and equipment consists of the following at December 31:

	2022			2021
Gathering facilities	$	20,674,204			14,456,790
Other property and equipment		2,146,045			1,868,753
Total capitalized costs		22,820,249			16,325,543
Accumulated depreciation		(2,995,115	)		(1,809,426	)
Total net capitalized costs	$	19,825,134			14,516,117

On December 10, 2021, the Company’s board approved the purchase of the water pipelines, water pipeline systems, and all associated water infrastructure, including the corresponding rights-of-way in Marshall and Wetzel Counties, WV, Belmont and Monroe Counties, OH and Greene County, PA, (the “XcL Water System”), from XcL Midstream Operating, LLC (“XcLM”) in return for the sale of all gas and condensate gathering assets, including the corresponding rights-of-way, (the “The Legacy Gathering System”) to XcLM. This transaction was treated as an exchange of assets between entities under common control. The net book value of the XcL Water System was approximately $1.0 million in excess of the Legacy Gathering System’s carrying value; this excess amount was treated as a capital contribution to the Company.

Depreciation expense for gathering facilities and other property and equipment was $1.3 million and $1.1 million for the years ended December 31, 2022 and 2021, respectively.

18  (Continued)

THQ APPALACHIA I, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

(4) Asset Retirement Obligation

The Company will recognize the fair value of its asset retirement obligations related to the plugging, abandonment, and remediation of oil and natural gas producing properties. The present value of the estimated asset retirement costs will be capitalized as part of the carrying amount of the related long-lived assets. The following is a reconciliation of the Company’s asset retirement obligations for the year ended December 31:

	2022		2021
Balance, beginning of period	$	6,940,400		3,665,219
Obligations incurred from wells drilled and assets acquired		2,193,316		1,425,709
Revisions to prior estimates		6,957,292		1,994,235
Dispositions		—		(611,170	)
Accretion expense		1,126,626		466,407
Balance, end of period	$	17,217,634		6,940,400

(5) Leases

The Company adopted Accounting Standards Codification Topic 842, Leases, (“ASC 842”) for the annual period beginning January 1, 2022. The Company elected the package of practical expedients at transition that allowed the Company not to reassess the following at the transition date: (i) whether any expired or existing contracts are or contain leases; (ii) lease classification for any expired or existing leases; and (iii) whether unamortized initial direct costs for existing leases meet the definition of initial direct costs under the new guidance. In addition, at transition, the Company elected the practical expedient for land easements; accordingly, the Company was not required to evaluate under ASC 842 land easements that existed or expired before the entity’s adoption of ASC 842 and that were not previously accounted for as leases under legacy lease accounting guidance.

The Company has operating leases for office space and compressors. These leases have initial terms ranging from 1 to 5.5 years and include renewal options ranging from 0 to 1 year. The Company does not include the renewal options in the lease term, as it is not reasonably certain such options will be exercised. Payments are for fixed amounts as contractually designated in the lease agreements.

19  (Continued)

THQ APPALACHIA I, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

The table below presents the lease related assets and liabilities recorded on our consolidated balance sheet:

	As of
	December 31, 2022
Assets
Right-of-use assets	$	3,821,158
Total lease assets		3,821,158
Liabilities
Current lease liabilities		1,833,168
Long-term lease liabilities		1,937,663
Total lease liabilities	$	3,770,831

The components of the Company’s lease costs are set forth in the table below:

	2022
Operating lease costs, excluding short-term leases (a)	$	2,011,663
Short-term lease costs (b)		28,258,586
Variable lease costs (c)		87,695
Total lease costs	$	30,357,944

(a) Operating lease expense reflects a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a straight-line basis. The operating lease costs are net of reimbursements from affiliates of $0.2 million related to office leases.

(b) Short-term lease costs are reported at gross amounts and primarily represent costs incurred for the Company’s compressors, drilling rigs, and office equipment. These short-term contracts are not recognized as ROU assets and lease liabilities on the consolidated balance sheets. The included drilling rig costs of $27.9 million are capitalized to property and equipment.

(c) Variable lease expenses primarily represent (i) differences between minimum payment obligations and actual operating charges incurred by the Company related to its long-term leases and (ii) variable expenses related to the Company’s office spaces, which include taxes, insurance and other utility and maintenance costs. Variable lease expenses are not included in the calculation of the Company’s ROU assets and lease liabilities on the consolidated balance sheets.

20  (Continued)

THQ APPALACHIA I, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

A maturity analysis of lease payments under the Company’s long-term operating leases is presented as follows:

	As of
	December 31, 2022
2023	$	1,935,584
2024		981,800
2025		596,550
2026		300,000
2027		150,000
Total future minimum lease payments (undiscounted)		3,963,934
Less: interest		193,104
Present value of lease liability	$	3,770,830

As of December 31, 2022, the weighted average lease term was 2.7 years and the weighted average discount rate was 3.61%.

The table below presents other supplemental lease information about the Company’s operating leases for the period presented:

	For the year ended
	December 31, 2022
Operating cash outflows from operating leases	$	2,462,307
Right-of-use assets obtained in exchange for new operating lease liabilties		6,095,406

(6) Contingent Subordinated Loan

On December 23, 2022, the Company entered into a senior unsecured promissory note with EQT Production Company under the amended and restated purchase agreement referenced in footnote 1. Per the agreement, the escrow funds of $150 million plus accrued interest were released to the Company with the stipulation that the funds would be exclusively used to pay down the current credit facility. The maturity date of the note is one year after the Termination Date, as defined in the amended and restated purchase agreement. Before the termination date, interest on the note will accrue on the outstanding principal at 0% per year; thereafter, interest will accrue on the outstanding principle at a rate of 10% per year, with the rate increasing in increments of 0.50% each quarter. Upon the successful close of the acquisition, the note will be applied towards the cash consideration to be paid by EQT and extinguish the note. As defined in the amended agreement, if the purchase agreement is terminated and the Company is entitled to retain the escrow funds, the outstanding balance would be applied towards releasing the escrow and extinguishing the note.

21  (Continued)

THQ APPALACHIA I, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

(7) Long-Term Debt

Senior Secured Revolving Credit Facility

The Company has a senior secured revolving bank credit facility (the Credit Facility) with a group of large, commercial lenders. Borrowings under the Credit Facility are subject to borrowing base limitations based on the collateral value of the Company’s proved properties and commodity hedge positions and are subject to regular semiannual redeterminations or more frequently if requested by the Company. The borrowing base was redetermined in May 2022 to be $850 million. As of December 31, 2022 and 2021, the Company had an outstanding balance under the Credit Facility of $510 million and $550 million, respectively, with a weighted average interest rate of approximately 7.64% and 3.61%, respectively. The amounts reflected in the Company’s December 31, 2022 and 2021 consolidated balance sheets are shown net of the debt issuance costs of $1.2 million and $2.3 million, respectively. The maturity date of the Credit Facility is January 1, 2025.

The Credit Facility is secured by liens on substantially all of the Company’s properties and guarantees from the Company’s restricted subsidiaries, as applicable. The Credit Facility contains certain covenants, including restrictions on indebtedness and dividends and requirements with respect to working capital and leverage coverage ratios. Interest is payable at a variable rate based on LIBOR or the prime rate, determined by the Company’s election at the time of borrowing. The Company was in compliance with all of the financial covenants under the Credit Facility as of December 31, 2022.

Commitment fees on the unused portion of the Credit Facility are due quarterly at a rate of 0.50% of the unused portion, based on utilization.

Senior Note

On July 31, 2020, as required under the Twelfth Amendment to the Credit Facility, the Company entered into a Subordinated Promissory Note (the Senior Note) with Stone Hill Minerals Holdings, LLC for the principal capacity amount of $50 million. The Senior Note had a stated interest rate of 9.0%, compounding annually. On December 3, 2021, the Company paid the outstanding balance of $39.5 million in principal and interest. As of December 31, 2022, the Company has no remaining balance under the Senior Note.

(8) Derivative Instruments

The Company periodically enters into natural gas, NGLs, and oil derivative contracts with counterparties to hedge the price risk associated with a portion of its production. These derivatives are not held for trading purposes. To the extent that changes occur in the market prices of natural gas, NGLs, and oil, the Company is exposed to market risk on these open contracts. This market risk exposure is generally offset by the change in market prices of natural gas, NGLs, and oil recognized upon the ultimate sale of the Company’s production.

During the years ended December 31, 2022 and 2021, the Company was party to various natural gas fixed price swap contracts and costless collars. When actual commodity prices exceed the fixed price provided by the swap contracts, the Company pays the excess to the counterparty. When actual commodity prices are below the contractually provided fixed price, the Company receives the difference from the counterparty. When actual commodity prices fall within the band provided by the costless collars, the Company receives the actual prices from the counterparty. When actual commodity prices fall outside the band provided by the costless collars, the Company receives the price provided by the collar from the counterparty and pays the actual price to the counterparty.

22  (Continued)

THQ APPALACHIA I, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

In addition, the Company has entered into basis swap contracts in order to hedge the difference between the New York Mercantile Exchange (NYMEX) index price and a local index price. The Company’s derivative swap contracts have not been designated as hedges for accounting purposes; therefore, all gains and losses are recognized in the Company’s statements of operations.

As of December 31, 2022, the Company’s fixed price natural gas collar and swap positions were as follows:

	2023			2024
NYMEX Henry Hub Long Puts:
Volume (MMbtu/day)		322,500			—
Average price ($/MMBtu)	$	5.00			—
NYMEX Henry Hub Short Calls:
Volume (MMbtu/day)		322,500			—
Average price ($/MMBtu)	$	6.26			—
Dominion South Basis Swaps:
Volume (MMbtu/day)		215,801			100,000
Average price ($/MMBtu)	$	(0.88	)		(0.72	)

The following is a summary of derivative fair value gains which are recorded in the consolidated statements of operations included in net gain on derivative instruments for the years ended December 31:

	Year ended December 31,
	2022			2021
Cash settlement of derivative contracts	$	(880,411,001	)		(244,392,536	)
Noncash change in derivative fair value		300,220			(245,051,379	)
Net loss on derivative instruments	$	(880,110,781	)		(489,443,915	)

23  (Continued)

THQ APPALACHIA I, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

The following is a summary of the fair values of the Company’s derivative instruments and where such values are recorded in the consolidated balance sheets as of December 31:

		Fair value
	Balance sheet	December 31,			December 31,
	location	2022			2021
Commodity derivatives:
Commodity contracts	Current assets	$	237,236,712			18,655,632
Commodity contracts	Long-term assets		56,348,640			30,957,358
Total derivative assets			293,585,352			49,612,990
Commodity contracts	Current liabilities		447,299,358			250,177,807
Commodity contracts	Long-term liabilities		112,847,733			66,297,141
Total derivative liabilities			560,147,091			316,474,948
Net derivatives		$	(266,561,739	)		(266,861,958	)

The fair value of commodity derivative instruments was determined using Level 2 inputs. The Company classifies the fair value amounts of derivative financial instruments by commodity contract as net current or noncurrent assets or liabilities.

The Company entered into contracts to offset the mark to market variability of swaps and costless collar contracts in the third quarter of 2022, resulting in deferred premiums and fixed settlements with the counterparties. The premiums and fixed settlements are included in the fair market value reported on the balance sheet.

The following is a schedule of settlements as of December 31, 2022:

	2023			2024			Total
Deferred premiums payments	$	207,133,850			61,930,860			269,064,710
Fixed swap settlement payments		210,167,072			50,468,603			260,635,675
Fixed swap settlement receipts		(90,994,359	)		(45,990,505	)		(136,984,864	)
Net settlements due to counterparties	$	326,306,563			66,408,958			392,715,521

24  (Continued)

THQ APPALACHIA I, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

(9) Commitments

The following is a schedule of future minimum payments for firm transportation, drilling rig and processing, gathering and compression agreements as of December 31, 2022.

			Processing,
			gathering		Drilling
	Firm		and		rigs and
	transportation		transportation		frac services
	(a)		(b)		(c)		Total
Year ending December 31:
2023	$	36,500,000		1,017,559		18,388,950		55,906,509
2024		36,600,000		—		—		36,600,000
2025		36,500,000		—		—		36,500,000
2026		36,500,000		—		—		36,500,000
2027		36,500,000		—		—		36,500,000
Thereafter		222,300,000		—		—		222,300,000
Total	$	404,900,000		1,017,559		18,388,950		424,306,509

(a) Firm Transportation

The Company has entered into firm transportation agreements with a pipeline in order to facilitate the delivery of its production to market. This contract commits the Company to transport minimum daily natural gas volumes at negotiated rates, or pay for any deficiencies at specified reservation fee rates once the pipeline goes into service. The amounts in this table represent the Company’s minimum daily volumes at the reservation fee rate. The values in the table represent the gross amounts that the Company is committed to pay; however, the Company will record in the consolidated financial statements its proportionate share of costs based on its net revenue interest.

(b) Processing, Gathering, and Compression Service Commitments

The Company has entered into various long-term gas gathering and processing agreements for certain of its production that will allow it to realize the value of its NGLs. The minimum payment obligations under the agreements are presented in the table. Actual payments under these agreements will differ from the amounts shown in the table above as the Company expects to deliver volumes in excess of the minimum commitment. These commitments have varying fees with escalation clauses based on annual percentage change in Oil Producer Price Index.

(c) Drilling Rig and Completion Service Commitments

The Company has obligations under agreements with service providers to procure drilling and completion services. The values in the table represent the gross amounts that the Company is committed to pay; however, the Company will record in the consolidated financial statements its proportionate share of costs based on its working interest.

25  (Continued)

THQ APPALACHIA I, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

(10) Contingencies

Litigation

The Company is subject to a lawsuit wherein plaintiffs allege that the Company breached its contract by improperly deducting production and post-production costs from the royalties to which plaintiffs claim they are entitled. The Company has a litigation reserve of $0.3 million at December 31, 2022 for these claims.

As part of the High Road acquisition (see footnote 3a), the purchase price included a $0.7 million litigation reserve for litigation involving alleged non-payment of lease bonuses and disputes over ownership rights. The Company has successfully defended and settled the claims for a total of $0.3 million, including payments of $0.2 million and $0.1 million in 2021 and 2022, respectively. In December 2021, a purchase price adjustment of $0.1 million was made to reduce the estimated ligation reserve. The remaining litigation reserve of $0.3 million was released as a credit to general and administrative expense in 2022.

On April 1, 2021, THQA settled a claim regarding disputed royalty payments.  The total settlement was for $6.5 million which consisted of a payment of $5.2 million to purchase the mineral rights owned by the plaintiffs as well as a settlement payment of $1.3 million for alleged damages. The Company received a reimbursement of $0.6 million, a release from the escrow account related to the acquisition of related parties. The majority of mineral rights purchased are included in THQA proved properties and the payment for damages is included in general and administrative expenses.

On April 22, 2021, THQA settled a claim which involved overriding royalty interests on leases that THQA had acquired from another energy company. The settlement paid to the plaintiff to fully resolve this matter was $4 million and is included in general and administrative expenses.

On August 30, 2022, THQA settled a claim regarding disputed royalty payments and interest on certain suspended royalty amounts. The settlement paid to the plaintiff to fully resolve this matter was $1.3 million and is included in general and administrative expenses.

The Company is subject to certain other claims and litigation arising in the normal course of business. In the opinion of management, the outcome of such matters will not have a material adverse effect on the results of operations or financial position of the Company.

Environmental Remediation

Various federal, state, and local laws and regulations covering the discharge of materials into the environment, or otherwise relating to the protection of the environment, may affect the Company’s operations and the costs of its crude oil and gas natural exploration, development, and production operations. The Company does not anticipate that it will be required in the near future to expend significant amounts due to environmental laws and regulations, and accordingly no reserves have been recorded.

26  (Continued)

THQ APPALACHIA I, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

(11) Other Revenue

During 2022 and 2021, the Company experienced gas imbalance losses of $0.7 million and $4.0 million, respectively, which are reflected in other revenues in the Company’s consolidated statements of income.

The Company also received fees from third parties for road and other asset use agreements during 2021 and 2022.

(12) Related Party Transactions and Other Income

On April 30, 2020, the Company acquired an 80% working interest in CLR Exploration, LLC for approximately $7.0 million from R2K. The assets are located in Schleicher and Sutton Counties, Texas. This transaction is considered a purchase of assets. The assets were subsequently sold in 2021 as discussed in footnote 3 (a).

On December 10, 2021, the Company’s board approved the purchase of the water pipelines, water pipeline systems, and all associated water infrastructure, including the corresponding rights-of-way in Marshall and Wetzel Counties, WV, Belmont and Monroe Counties, OH and Greene County, PA, (the “XcL Water System”), from XcL Midstream Operating, LLC (“XcLM”) for the sale of all gas and condensate gathering assets, including the corresponding rights-of-way, (the “The Legacy Gathering System”) to XcLM. This transaction was treated as an exchange of assets between entities under common control. The net book value of the XcL Water System was approximately $1.0 million in excess of the Legacy Gathering System’s carrying value; this excess amount was treated as a capital contribution to the Company. The Company will reimburse XcLM for all costs associated with in process construction projects on the XcL Water System.

(13) Membership Interests

There are two classes of membership interest – capital interests and management incentive interests. Capital interests held by Quantum, R2K and members of management have full voting rights and rights to share in the distributions of the Company. As described more fully in footnote 14, management incentive interests can be issued under the Incentive Pool Plan and are nonvoting with no rights to share in distributions until the capital contributed interests have earned the full base return.

The members have no liability for the debts, obligations and liabilities of the Company, except as expressly required in the agreement. The Company shall dissolve and its affairs shall be wound up upon the earliest to occur of (a) the expiration of its term on December 20, 2025, if not extended by the members, (b) election by the Board of Directors by majority approval at any time or (c) entry of a decree of judicial dissolution of the Company under the Delaware Limited Liability Company Act.

27  (Continued)

THQ APPALACHIA I, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

The timing and amounts of distributions, other than tax advances, are determined by the Board of Directors. Capital contributions will receive a base return of 8% on their contributions (base return) which continues accruing until distributions exceed the total capital contributions plus the 8% base return. The first 10% of R2K’s Capital Interest will be treated as un-promoted capital (R2K’s Un-promoted Capital Interest). Distributions to members’ capital that is promoted is subject to certain distribution flips, whereby, distributions will be made in proportion to the agreed upon sharing ratios. Tax advances may be made quarterly based on projections of the entity’s taxable income for the year.

On December 10, 2021, the Company’s board approved the exchange of assets between TH Exploration II, LLC and XcLM, which are entities under common control. The net book value of the XcL Water System was approximately $1.0 million in excess of the Legacy Gathering System’s carrying value; this excess amount was treated as a capital contribution to the Company. There were no capital contributions in 2022.

(14) Management Incentive Unit Plan

Effective with the formation of the Company on July 23, 2014, the Company adopted an incentive unit plan, THQ (Appalachia I) Employee Holdings, LLC, (the Plan) to provide profit awards to employees (management incentive units). All of the incentive units are subject to vesting over five years, forfeiture, and termination. The management incentive units have no voting rights, do not have an exercise price and are automatically forfeited except in extenuating circumstances if and when such person’s status as an employee is terminated.

Compensation expense for these awards will be recognized when all performance, market, and service conditions are probable of being satisfied in general upon a vesting event, which is defined as (i) the sale of all or substantially all of the outstanding capital interests or assets of the Company, (ii) the time of any distribution by the Company after capital contributions of substantially all of the capital commitments have been made by the capital members, and the Board has determined that the Company will not raise additional capital, (iii) one year after the expiration of a lockup period in the event of a transfer of all or substantially all of the outstanding capital interests or assets of the Company to an individual, estate or a corporation, partnership, joint venture, limited partnership, limited liability company, trust, unincorporated organization, association or any other entity (Person) in exchange for publicly tradable securities of such Person; or two years after the expiration of a lockup period in the event that securities received in connection with the transfer constitute 15% or more of the total shares of such Person then outstanding.

28  (Continued)

THQ APPALACHIA I, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

(15) Oil and Gas Reserves Information (Unaudited)

The following supplementary information summarized presents the results of natural gas and oil activities in accordance with the successful efforts method of accounting for production activities.

(a) Production Costs

The following tables present total aggregate capitalized costs and costs incurred related to natural gas, NGLs and oil production activities at December 31:

Capitalized costs

		2022			2021
Proved properties	$	2,220,751,648		$	1,703,448,017
Accumulated depreciation, depletion and amortization		(592,534,930	)		(388,185,831	)
Net		1,628,216,718			1,315,262,186
Unproved properties		239,509,809			238,878,646
Exploration and impairment		(16,454,541	)		(9,115,394	)
Net		223,055,268			229,763,252
Total oil and natural gas properties, at cost, using the successful efforts method, net	$	1,851,271,986		$	1,545,025,438

Costs incurred (i)

		2022		2021
Property acquisition costs:
Proved properties (ii)	$	—	$	16,369,921
Unproved properties (iii)		49,294,333		29,958,976
Development costs		478,049,222		344,529,505
Total costs incurred	$	527,343,555	$	390,858,402

(i) Amounts exclude capital expenditures for gathering systems and other corporate assets as well as $293,367 and $5,953,437 of asset dispositions in 2022 and 2021, respectively. The amounts exclude $39.3 million in net transfers from unproved to proved in 2022 and $1.8 million from proved to unproved in 2021.

(ii) The 2021 amount includes $16,126,958 of wells acquired in the High Road acquisition as referenced in note 3(a).

(iii) The 2021 amount includes $7,670,870 of leases acquired in High Road acquisition as referenced in note 3(a).

29  (Continued)

THQ APPALACHIA I, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

(b) Results of Operations for Production Activities

The following table presents the results of operations related to natural gas, NGLs and oil production for the years ended December 31:

	2022			2021
Sales of natural gas, NGLs and oil	$	1,688,664,907		$	965,870,012
Gathering, processing and transportation		(192,890,237	)		(170,708,648	)
Production taxes		(93,786,628	)		(48,988,200	)
Lease operating expenses		(38,614,092	)		(20,341,051	)
Exploration		(16,454,541	)		(9,115,394	)
Depreciation, depletion and amortization		(206,738,193	)		(166,225,087	)
Loss on sale of other property and equipment		(228,658	)		(4,256,119	)
Results of operation from producing activities	$	1,139,952,558		$	546,235,513

(c) Reserves Information

Proved developed reserves represent only those reserves expected to be recovered from existing wells and support equipment. Proved undeveloped reserves represent proved reserves expected to be recovered from new wells after substantial development costs are incurred.

The Company’s estimate of proved natural gas, NGLs and crude oil reserves was prepared by Cawley, Gillespie & Associates, Inc. (“Cawley”), an independent consulting firm hired by management. Cawley, Gillespie & Associates, Inc. is a Texas Registered Engineering Firm (F-693), made up of independent registered professional engineers and geologists that have provided petroleum consulting services to the oil and gas industry for over 60 years. Cawley has estimated 100% of the total net natural gas proved reserves attributable to the Company’s interests as December 31, 2022 in accordance with the definitions and regulations of the U.S. Securities and Exchange Commission and, with the exclusion of future income taxes, conform to the FASB ASC No 932, Extractive Activities – Oil & Gas. Standard engineering and geoscience methods, or a combination of methods, including performance analysis, volumetric analysis, analogy, and material balance were utilized in the evaluation of reserves. All of the Company’s proved reserves are located in the United States.

The engineer primarily responsible for providing Company data necessary for the preparation of the reserves estimate holds a Bachelor of Science degree in Petroleum Engineering from Texas A&M University and has 18 years of experience in the oil and gas industry. To support the accurate and timely preparation and disclosure of its reserve estimates, the Company established internal controls over its reserve estimation processes and procedures, including the following: the price, heat content conversion rate and cost assumptions used in the economic model to determine the reserves are reviewed by management; division of interest and production volumes are reconciled between the system used to calculate the reserves and other accounting/measurement systems; and the reserves reconciliation between prior year reserves and current year reserves is reviewed by senior management.

30  (Continued)

THQ APPALACHIA I, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

The following provides a roll forward of the total proved reserves, as well as proved developed and proved undeveloped reserves for the years ended December 31, 2022 and 2021:

		Year Ended December 31, 2022
	Oil (Mbbls)			Gas (MMcf)			NGLs (Mbbls)			Mmcfe (i)
Proved developed and undeveloped reserves:
Beginning of period		13,979			2,834,315			113,760			3,361,850
Revisions of previous estimates		(3,268	)		(331,093	)		(2,906	)		(362,035	)
Extensions and discoveries		—			231,535			—			231,535
Production		(1,825	)		(204,485	)		(7,739	)		(245,614	)
End of period		8,886			2,530,272			103,115			2,985,736
Proved developed reserves:
Beginning of period		8,462			1,166,269			56,961			1,439,185
End of period		5,033			1,303,982			54,807			1,547,925
Proved undeveloped reserves:
Beginning of period		5,517			1,668,046			56,799			1,922,665
End of period		3,853			1,226,290			48,308			1,437,810

		Year Ended December 31, 2021
	Oil (Mbbls)			Gas (MMcf)			NGLs (Mbbls)			Mmcfe (i)
Proved developed and undeveloped reserves:
Beginning of period		22,166			2,130,866			125,690			2,754,049
Revisions of previous estimates		(7,153	)		199,427			(11,655	)		111,055
Extensions and discoveries		841			584,643			5,534			611,272
Acquisition of reserves		135			96,773			1,951			105,188
Production		(2,010	)		(177,393	)		(7,760	)		(219,714	)
End of period		13,979			2,834,316			113,760			3,361,850
Proved developed reserves:
Beginning of period		7,102			915,645			45,872			1,137,160
End of period		8,462			1,166,269			56,961			1,439,185
Proved undeveloped reserves:
Beginning of period		15,063			1,215,221			79,817			1,616,889
End of period		5,517			1,668,046			56,799			1,922,665

(i) NGLs were converted at a rate of one Mbbl to approximately 3.9 million cubic feet (MMcf) and oil was converted at a rate of one Mbbl to approximately 6 million cubic feet (MMcf).

31  (Continued)

THQ APPALACHIA I, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

The change in reserves during the year ended December 31, 2022 resulted from the following:

- Revisions of previous estimates were primarily related to negative curve revisions and changes in locations that are no longer expected to be developed as proved reserves within five years due to development schedule changes.

- Extensions and discoveries consist of adding proved undeveloped reserves to locations classified as unproved at year-end and adding proved developed reserves from successful development wells drilled on locations outside the areas classified as proved at the previous year-end.

The change in reserves during the year ended December 31, 2021 resulted from the following:

- Revisions of previous estimates were primarily related to changes in oil and natural gas prices.

- Extensions and discoveries consist of adding proved undeveloped reserves to locations classified as unproved at year-end and adding proved developed reserves from successful development wells drilled on locations outside the areas classified as proved at the previous year-end.

- Acquisition of reserves includes additions related to the High Road acquisition reference in note 3(a).

(d) Standardized Measure of Discounted Future Net Cash Flow

The following table sets forth the standardized measure of discounted future net cash flows relating to proved reserves as of December 31:

	2022			2021
Future cash inflows	$	17,952,070,828			11,618,602,619
Future production costs		(2,146,557,089	)		(1,398,518,389	)
Future development costs		(921,564,814	)		(910,432,297	)
Future net cash flow		14,883,948,925			9,309,651,933
10% annual discount for esimated timing of cash flows		(7,524,244,983	)		(4,875,918,467	)
Standardized measure of discounted future net cash flows	$	7,359,703,942			4,433,733,466

Future cash inflows, production and development costs were computed using the same assumptions for prices and costs used to estimate the Company’s proved oil and gas reserves at December 31, 2022.

32  (Continued)

THQ APPALACHIA I, LLC AND SUBSIDIARIES

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

The following table summarizes the changes in the standardized measure of discounted future net cash flows for the years ended December 31:

	2022			2021
Beginning balance	$	4,433,733,466			946,974,194
Net change in price and production costs		3,778,064,363			2,941,733,050
Net change in future development		(121,068,217	)		125,920,584
Oil and gas sales		(1,346,919,409	)		(725,832,113	)
Extensions		589,032,843			536,703,238
Acquisition of reserves		—			94,683,959
Revisions of previous estimates		(260,831,136	)		403,477,499
Net changes in taxes and other		(155,681,315	)		15,375,636
Accretion of discount		443,373,347			94,697,419
Ending balance	$	7,359,703,942			4,433,733,466

For 2022 and 2021, the reserves were computed using average first-day-of-the-month closing prices for the prior twelve months of $99.14 and $66.55 per Bbl for West Texas Intermediate and $6.357 and $3.598 per MMBtu for NYMEX, respectively. For 2022 and 2021, the Company’s future realized prices were assumed to be $83.46 and $56.81 per Bbl of oil, $4.86 and $2.22 per Mcf of gas, and $47.56 and $39.77 per Bbl of NGLs, respectively. NGL pricing was based on the Company’s historical NGL composition by component applied to historical WTI pricing.

(16) Subsequent Events

In preparing the consolidated financial statements, management has evaluated all subsequent events and transactions for potential recognition or disclosure through March 29, 2023, the date the consolidated financial statements were available for issuance and no other items requiring disclosure were identified.

33

EX-99.3

Exhibit 99.3

Independent Auditors’ Report

The Members
THQ - XcL Holdings I, LLC:

Opinion

We have audited the consolidated financial statements of THQ - XcL Holdings I, LLC and its subsidiaries (the Company), which comprise the consolidated balance sheets as of December 31, 2022 and 2021, and the related consolidated statements of income, changes in members’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended in accordance with U.S. generally accepted accounting principles.

Basis for Opinion

We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Responsibilities of Management for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that the consolidated financial statements are available to be issued.

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statements.

In performing an audit in accordance with GAAS, we:

· Exercise professional judgment and maintain professional skepticism throughout the audit.

· Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

· Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed.

· Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements.

· Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.

    /s/ KPMG LLP    

Dallas, Texas
March 29, 2023

2

THQ-XCL HOLDINGS I, LLC AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2022 and 2021

	2022			2021
Assets
Current assets:
Cash and cash equivalents	$	3,483,637			15,540,976
Affiliate receivables		14,552,847			24,389,628
Accounts receivable		7,128,464			7,256,719
Prepaid expenditures		376,891			1,049,231
Other current assets		1,872,837			—
Total current assets		27,414,676			48,236,554
Property and equipment:
Land and rights-of-way		49,139,616			39,020,896
Gathering and water pipelines and facilities		505,144,701			434,005,281
Processing plant and facilities		148,312,418			148,312,418
Other property and equipment		1,377,407			1,101,372
Accumulated depreciation, depletion, and amortization		(93,707,282	)		(62,386,464	)
Property and equipment, net		610,266,860			560,053,503
Right-of-use assets		2,089,536			—
Total assets	$	639,771,072			608,290,057
Liabilities and Members’ Equity
Current liabilities:
Accounts payable and accrued expenses	$	21,314,518			12,167,821
Affiliate payables		7,578,850			8,578,976
Lease liabilites		715,074			—
Total current liabilities		29,608,442			20,746,797
Revolving credit facility, net of deferred financing costs		157,250,782			179,629,688
Long-term lease liabilities		1,374,462			—
Total liabilities		188,233,686			200,376,485
Commitments and contingencies (notes 6 and 7)
Members’ equity:
Members’ equity (note 9)		344,936,063			347,520,988
Retained earnings		106,601,323			60,392,584
Total members’ equity		451,537,386			407,913,572
Total liabilities and members’ equity	$	639,771,072			608,290,057

See accompanying notes to consolidated financial statements.

3

THQ-XCL HOLDINGS I, LLC AND SUBSIDIARIES

Consolidated Statements of Income

Years ended December 31, 2022 and 2021

	2022			2021
Revenues:
Midstream revenue	$	2,447,859			2,469,093
Midstream revenue – affiliate		87,420,628			80,183,024
Water transportation revenue – affiliate		—			6,206,897
Processing revenue		31,871,835			27,945,553
Other revenue		1,712			—
Total revenues		121,742,034			116,804,567
Operating expenses:
Midstream operating expenses		18,202,012			15,398,060
Processing operating expenses		4,795,497			3,747,784
General and administrative		12,594,715			9,387,273
Depreciation, depletion, and amortization		31,320,818			30,430,740
Total operating expenses		66,913,042			58,963,857
Income from operations		54,828,992			57,840,710
Other expenses:
Loss on sale of assets		—			(307,179	)
Interest expense		(8,620,253	)		(6,734,774	)
Total other expense, net		(8,620,253	)		(7,041,953	)
Net income	$	46,208,739			50,798,757

See accompanying notes to consolidated financial statements.

4

THQ-XCL HOLDINGS I, LLC AND SUBSIDIARIES

Consolidated Statements of Changes in Members’ Equity

Years ended December 31, 2022 and 2021

				Retained
				earnings		Total
	Members’			(accumulated		members’
	equity			deficit)		equity
Balance, December 31, 2020		348,521,160			9,593,827		358,114,987
Transfer of assets to affiliate (note 8)		(1,000,172	)		—		(1,000,172	)
Net income		—			50,798,757		50,798,757
Balance, December 31, 2021		347,520,988			60,392,584		407,913,572
Distributions of capital		(2,584,925	)		—		(2,584,925	)
Net income		—			46,208,739		46,208,739
Balance, December 31, 2022	$	344,936,063			106,601,323		451,537,386

See accompanying notes to consolidated financial statements.        

5

THQ-XCL HOLDINGS I, LLC AND SUBSIDIARIES

Consolidated Statements of Cash Flows

Years ended December 31, 2022 and 2021

	2022			2021
Cash flows from operating activities:
Net income	$	46,208,739			50,798,757
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization		31,320,818			30,430,740
Amortization of debt issuance cost		621,094			777,385
Loss on sale of assets		—			307,179
Changes in operating assets and liabilities:
Affiliate receivables		9,836,780			(2,294,736	)
Accounts receivable		128,255			674,165
Prepaid expenditures		672,340			(50,875	)
Other current assets		(1,872,837	)		—
Accounts payable and accrued expenses		(1,314,107	)		2,643,175
Affiliate payables		(1,010,582	)		2,156,578
Net cash provided by operating activities		84,590,500			85,442,368
Cash flows from investing activities:
Acquisition of land and rights of way		(10,134,138	)		(5,332,701	)
Capital expenditures		(60,928,776	)		(45,643,480	)
Acquisition of High Road Midstream, LLC		—			(5,304,580	)
Sale of assets		—			135,000
Net cash used in investing activities		(71,062,914	)		(56,145,761	)
Cash flows from financing activity:
Distribution to members		(2,584,925	)		—
Payments on revolving credit facility		(23,000,000	)		(18,000,000	)
Deferred financing costs		—			(2,041,919	)
Net cash used in financing activity		(25,584,925	)		(20,041,919	)
Net (decrease) increase in cash and cash equivalents		(12,057,339	)		9,254,688
Cash and cash equivalents, beginning of period		15,540,976			6,286,288
Cash and cash equivalents, end of period	$	3,483,637			15,540,976
Supplemental disclosure of cash flow information:
Cash paid for interest	$	7,844,235			5,992,323
Noncash investing activities:
Noncash additions to property	$	12,095,039			1,536,523
Noncash financing activities:
Transfer of assets to affiliates (note 8)	$	—			(1,000,172	)

See accompanying notes to consolidated financial statements.        

6

THQ-XCL HOLDINgS I, LLC and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

(1) Organization and Description of Business

THQ-XcL Holdings I, LLC (the Company) is a midstream energy company engaged in the acquisition, development and operation of oil, natural gas, natural gas liquids, and processing assets in the Appalachia Basin, namely the Marcellus and Point Pleasant shale trends in the Northeastern United States. Its executive offices are located in Fort Worth, Texas.

The operations of the Company are governed by the provisions of a Limited Liability Company Agreement (the Agreement) dated December 20, 2017, as executed by and among its members. The Company’s majority member is Q-XcL Holdings I (VI) Investment Partners, LLC (Quantum), with Radler 2000, LP (R2K) and certain members of management comprising the remaining capital members. The Agreement includes specific provisions with respect to the maintenance of the capital accounts of each of the Company’s members (see footnote 9).

On September 6, 2022, the Company entered into a purchase agreement with EQT Corporation to sell the Company’s gathering and processing assets along with the upstream assets of affiliate company THQ Appalachia I, LLC for total consideration of $2.6 billion of cash and 55 million shares of common stock of EQT Corporation (EQT). The Company will be selling 100% of its membership interests in THQ-XCL Holdings I Midco, LLC (“THQ-XcL Midco”) along with the 100% membership interests of the subsidiaries of THQ-XcL Midco (“EQT Acquisition”). On December 23, 2022, the parties entered into an amended and restated purchase agreement to extend the right to terminate the agreement to December 31, 2023, from the original termination date of December 31, 2022. This transaction has an effective date of July 1, 2022. The close of the transaction remains subject to regulatory approval.

(2) Summary of Significant Accounting Policies

(a) Basis of Accounting and Presentation

The accounts are maintained using the accrual basis of accounting and the consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and are stated in United States dollars.

The accompanying consolidated financial statements include the accounts of THQ-XcL Holdings I, LLC and its wholly owned subsidiaries THQ-XcL Holdings I Midco, LLC, XcL Holdings Corporation, XcL Midstream, LLC, XcL Midstream Operating, LLC, XcL Processing, LLC, and XcL Processing Operating, LLC. XcL Holdings Corporation was dissolved on May 17, 2022. All significant intercompany balances and transactions have been eliminated in consolidation.

(b) Use of Estimates

The preparation of the consolidated financial statements and notes in conformity with U.S. GAAP requires that management formulate estimates and assumptions that affect revenues, expenses, assets, liabilities and the disclosure of contingent assets and liabilities. Items subject to estimates and assumptions include the useful lives of property and equipment and valuation of accrued liabilities, among others. Although management believes these estimates are reasonable, actual results could differ from these estimates.

7 (Continued)

THQ-XCL HOLDINgS I, LLC and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

(c) Cash and Cash Equivalents

The Company considers all cash and highly liquid investments with original maturities of three months or less when purchased to be cash equivalents.

(d) Property and Equipment

Property and equipment primarily consists of gathering pipelines, processing plant, fresh water delivery pipelines, and facilities stated at historical cost less accumulated depreciation. The Company capitalizes construction-related direct labor and material costs. Maintenance and repair costs are expensed as incurred.

(e) Provision for Depreciation

Depreciation is computed using the straight-line method over the estimated useful lives and considering the estimated salvage values of assets. Uncertainties that may impact these estimates of useful lives include, among others, changes in laws and regulations relating to environmental matters, including air and water quality, restoration and abandonment requirements, economic conditions, and supply and demand for the Company’s services in the areas in which the Company operates. When assets are placed into service, management makes estimates with respect to useful lives and salvage values that management believes are reasonable. However, subsequent events could cause a change in estimates, thereby impacting future depreciation amounts.

(f) Impairment of Long-Lived Assets

The Company evaluates long-lived assets for impairment when events or changes in circumstances indicate that the related carrying values of the assets may not be recoverable. Generally, the basis for making such assessments are undiscounted future cash flow projections for the asset group being assessed. If the carrying values of the assets are deemed not recoverable, the carrying values are reduced to the estimated fair values, which are based on discounted future cash flows using assumptions as to revenues, costs and discount rates typical of third party market participants, which is a Level 3 fair value measurement.

(g) Asset Retirement Obligations

Under FASB ASC 410, an asset retirement obligation is recorded as a liability at its estimated present value at the asset’s inception, with an offsetting increase to producing properties in the accompanying balance sheets which is allocated to expense over the useful life of the asset. Periodic accretion of the discount on asset retirement obligations is recorded as an expense in depreciation, depletion, and amortization in the accompanying consolidated statement of income.

The Company’s gathering pipelines, processing plant, compressor stations and fresh water delivery pipelines and facilities have an indeterminate life, if properly maintained. Accordingly, the Company is not able to make a reasonable estimate of when future dismantlement and removal dates of the Company’s pipelines, processing plant, compressor stations and facilities will occur. The Company is under no legal obligations, neither contractually nor under the doctrine of promissory estoppel, to restore or dismantle the Company’s gathering pipelines, processing plant, compressor stations, water delivery pipelines and water treatment facility upon abandonment. It has been determined by the Company’s operational management team that abandoning all other ancillary equipment, outside of the assets stated above, would require minimal costs. For the reasons stated above, the Company has not recorded asset retirement obligations on the gathering pipelines, processing plant, compressor stations, water delivery pipelines and water treatment facilities at December 31, 2022 or 2021.

8 (Continued)

THQ-XCL HOLDINgS I, LLC and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

(h) Revenue Recognition

The Company recognizes revenue in accordance with ASC 606. The ASC 606 core principle is that a company will recognize revenue when it transfers promised goods or services to customers and in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.

The Company provides gathering, processing, compression, and water handling and treatment services under fee-based contracts primarily based on throughput. Under these arrangements, the Company receives fees for gathering and processing oil and gas products, compression services, and water handling and treatment services. The revenue the Company earns from these arrangements is directly related to (1) in the case of natural gas gathering, processing and compression, the volumes of metered natural gas that the Company gathers, processes, compresses and delivers to natural gas compression sites or other transmission delivery points, (2) in the case of oil gathering, the volumes of metered oil that the Company gathers and delivers to other transmission delivery points, (3) in the case of fresh water services, the quantities of fresh water delivered to the Company’s customers for use in their well completion operations, or (4) in the case of flowback and produced water, the quantities of flowback and produced water treated for the Company’s customers.

For midstream service contracts in which there is no commodity purchase, control of the commodity never passes to the Company; and the Company simply earns a fee for services. The Company considers these contracts to contain performance obligations for the Company’s services. Accordingly, the satisfaction of these performance obligations are considered to be revenue-generating, and the Company recognizes the fees received for satisfying these performance obligations as midstream service revenue over time as the Company satisfies the performance obligations.

Effective October 1, 2021, the Company no longer provides water handling and treatment services. The Company sold the water delivery assets to TH Exploration II, LLC (“TH Exploration II”) in exchange for the gas and condensate gathering assets owned by TH Exploration II (see footnote 8).

(i) Risks and Uncertainties

The Company’s revenues are derived principally from providing gathering, processing, compression, and water handling services to operators in the oil and natural gas industry. The concentration of credit risk in a single industry affects the Company’s overall exposure to credit risk because purchasers may be similarly affected by changes in economic and other conditions. Additionally, as the Company operates in the oil and gas industry, this concentration may impact the Company’s business risk, either positively or negatively, in that commodity prices, customers and suppliers may be similarly affected by changes in economic, political or other conditions related to the industry.

The Company’s main customer is its affiliate, THQA Appalachia I, LLC (“THQA”). THQA comprised approximately 72% and 74% of the Company’s revenue in twelve months ended December 31, 2022 and 2021, respectively.

9 (Continued)

THQ-XCL HOLDINgS I, LLC and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

The Company maintains deposits primarily in one financial institution, which may at times exceed amounts covered by insurance provided by the U.S. Federal Deposit Insurance Corporation (FDIC). The Company has not experienced any losses related to amounts in excess of FDIC limits.

The Company relies on IT systems to conduct business, as well as systems of third-party vendors. These systems are subject to possible security breaches and cyber-attacks. Cyber-attacks are becoming more sophisticated, and U.S. government warnings have indicated that infrastructure assets, including pipelines, may be specifically targeted by certain groups. These attacks include, without limitation, malicious software, attempts to gain unauthorized access to data, and other electronic security breaches. These attacks may be perpetrated by state-sponsored groups, criminal organizations, or private individuals. These cybersecurity risks include cyber-attacks on the Company and third parties who provide material services. In addition to disrupting operations, cybersecurity breaches could also affect the Company’s ability to operate or control facilities, render data or systems unusable, or result in the theft of sensitive, confidential or customer information. These events could also damage the Company’s reputation, and result in losses from remedial actions, loss of business or potential liability to third parties. The Company carries insurance specifically for cybersecurity events. However, the proceeds of any such insurance may not be paid in a timely manner and may be insufficient if such an event were to occur. Increasing scrutiny and changing expectations from stakeholders with respect to the environment, social, and governance practices may impose additional costs on the Company or expose the Company to new or additional risks.

(j) Fair Value Measurement

FASB ASC 820, Fair Value Measurements and Disclosures, establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under FASB ASC 820 are described below:

Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.

Level 2: Inputs to the valuation methodology include:

• Quoted prices for similar assets or liabilities in active markets;

• Quoted prices for identical or similar assets or liabilities in inactive markets;

• Inputs other than quoted prices that are observable for the asset or liability;

• Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

• If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurements.

10 (Continued)

THQ-XCL HOLDINgS I, LLC and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

(k) Fair Value on a Non-Recurring Basis

The Company follows the provisions of ASC Topic 820, Fair Value Measurement, for nonfinancial assets and liabilities measured at fair value on a nonrecurring basis. As it relates to the Company, ASC Topic 820 applies to the measurement of property impairments.

(l) Relationship with Affiliate

The Company has an ongoing business relationship with an affiliate, Tug Hill Operating, LLC (THO). THO is responsible for acquisitions, construction and operation of gathering systems and related facilities owned by the Company. As it incurs costs on behalf of the Company for these operations, THO bills the Company through its joint interest billing (JIB) process; and the Company reimburses THO for these costs at least monthly. THO is also responsible for the administration of the Company’s business. In exchange for these services, the Company pays a quarterly fee that includes (a) THO employees’ time and related expenses charged to the Company for the operation of its oil and natural gas properties, (b) an allocated amount of THO overhead expense calculated based on the number of hours THO employees spend working on Company projects, and (c) an additional percentage markup of the overall total of (a) and (b) to cover benefits and other employee-related costs and any unforeseen or difficult to allocate costs. The Company’s board approves the operating budgets. For years ended December 31, 2022 and 2021, THO billed the Company $18.6 million and $16.1 million, respectively through the JIB process. The amounts due to THO for these services, which are included in the Company’s affiliate payables balance were $5.7 million and $6.5 million as of December 31, 2022 and 2021, respectively. The remaining affiliate payable balance of $1.9 million as of December 31, 2022 is for revenues received by the Company that were due to THQA. Allocations consist of $0.0 million and $0.1 million relating to acquisition of surface use agreements and rights-of-way, $2.1 million and $2.4 million of construction expenditures and operating expenses, $11.9 million and $11.1 million in salaries and bonus for the operation of its business, $0.6 million and $0.8 million for overhead expenses, and $4.0 million and $1.7 million of direct general and administrative expenses for the periods ended December 31, 2022 and 2021, respectively.

The Company’s most significant customer is THQA. The Company provides condensate gathering and stabilization, and gas gathering and processing, and related services to THQA and receives fees from THQA based on the volumes transported by the Company. On December 10, 2021, the Company sold the water delivery assets to TH Exploration II, a subsidiary of THQA, in exchange for the gas and condensate gathering assets owned by TH Exploration II (see footnote 8).

(m) Income Taxes

The Company is a limited liability company and, therefore, is treated as a flow through entity for federal income tax purposes. As a result, the net taxable income of the Company and any related tax credits, for federal income tax purposes, are allocated to the members and are included in the members’ tax returns even though such net taxable income or tax credits may not have actually been distributed. Accordingly, no federal tax provision has been made in the financial statements of the Company. However, Texas imposes an entity-level tax on all forms of business regardless of federal entity classification. At December 31, 2022 and 2021, the Company had not accrued a liability for the Texas franchise tax as the liability, if any, is not expected to be material. The Company applies the provisions of ASC Topic 740, Income Taxes (“ASC 740”), which clarifies the accounting and disclosure for uncertainty in tax positions. The Company analyzed its tax filing positions in the U.S. federal, state and local jurisdictions where it is required to file income tax returns, for all open tax years. Based on this review, no liabilities for uncertain income tax positions were required to have been recorded pursuant to ASC 740. The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by U.S. federal and certain state and local tax regulators. As of December 31, 2022 and 2021, the Company's U.S. federal income tax returns and state and local returns are open under the normal three-year statute of limitations and therefore subject to examination.

11 (Continued)

THQ-XCL HOLDINgS I, LLC and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

(n) Leases

Upon execution, contracts are reviewed to determine whether the arrangement contains a lease. To the extent an arrangement is determined to include a lease, it is classified as either an operating or a finance lease, which dictates the pattern of expense recognition in the income statement. Operating leases are reflected as “Right-of-use assets”, “Lease liabilities” and “Long-term lease liabilities” on the consolidated balance sheets. The Company does not have any finance leases.

A right-of-use (“ROU”) asset representing our right to use an underlying asset for the lease term and a lease liability representing our obligation to make lease payments arising from the lease are recognized on the consolidated balance sheets for all leases with a lease term greater than one year, regardless of operating or finance lease classification. The ROU asset is initially measured as the present value of the lease liability adjusted for any payments made prior to lease commencement, including any initial direct costs incurred and incentives received. Lease liabilities are initially measured at the present value of future minimum lease payments, excluding variable lease payments, over the lease term. Given that the Company’s leases do not provide an implicit rate in the contract, the Company uses an incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date.

The Company has elected, as an accounting policy, not to record short-term leases with terms of twelve months or less on the consolidated balance sheets. In determining the lease term, the Company only includes contractual options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

The Company has also elected to account for lease and non-lease components in its contracts as a single lease component for all asset classes.

See Note 4 — Leases for additional information.

12 (Continued)

THQ-XCL HOLDINgS I, LLC and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

(3) Property and Equipment

The Company began constructing gathering pipelines, fresh water delivery pipelines, and facilities in 2017 and a natural gas processing plant in 2019. A portion of the gathering pipelines, fresh water delivery pipelines, and facilities were placed into service in 2022 and 2021, while some of the gathering pipelines and facilities projects are still in the construction phase. In 2021, the fresh water delivery pipelines and water infrastructure assets were sold in exchange for the gas and condensate gathering assets owned by TH Exploration II (see footnote 8). The processing plant was placed into service in the third quarter of 2020. Property and equipment consists of the following at December 31:

	2022			2021
Gathering and water pipelines and facilities	$	505,144,701			434,005,281
Land and rights-of-way		49,139,616			39,020,896
Processing plant and facilities		148,312,418			148,312,418
Other property and equipment		1,377,407			1,101,372
Total capitalized costs		703,974,142			622,439,967
Accumulated depreciation		(93,707,282	)		(62,386,464	)
Total net capitalized costs	$	610,266,860			560,053,503

Depreciation expense was recorded on certain pipelines, facilities, and the processing plant that were placed into service as of December 31, 2021 and 2022, using a 20-year life. For those pipelines and facilities that were still in the construction phase, no depreciation was recorded in 2021 or 2022.

At the end of 2020, the Company began work to build a second processing plant. Effective September 1, 2021, the Company decided to cease construction on the new plant. This resulted in a $0.9 million impairment in 2021 which was recorded to depreciation.

On July 9, 2021, the Company closed on the purchase of High Road Midstream, LLC for $5.2 million cash consideration. The assets were purchased by THQA, an entity under common control, on behalf of the Company for $5.1 million. The Company reimbursed THQA $5.1 million in August 2021 and incurred an additional $0.1 million in transaction costs. The assets include all equipment and associated agreements necessary to operate the midstream system including, but not limited to: all gas and water pipelines, taps, interconnect agreements, gas gathering agreements, right-of-way, easements, surface sites, withdrawal sites and licenses.

(4) Leases

The Company adopted Accounting Standards Codification Topic 842, Leases, (“ASC 842”) for the annual period beginning January 1, 2022. The Company elected the package of practical expedients at transition that allowed the Company not to reassess the following at the transition date: (i) whether any expired or existing contracts are or contain leases; (ii) lease classification for any expired or existing leases; and (iii) whether unamortized initial direct costs for existing leases meet the definition of initial direct costs under the new guidance. In addition, at transition, the Company elected the practical expedient for land easements; accordingly, the Company was not required to evaluate under ASC 842 land easements that existed or expired before the entity’s adoption of ASC 842 and that were not previously accounted for as leases under legacy lease accounting guidance.

13 (Continued)

THQ-XCL HOLDINgS I, LLC and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

The Company has operating leases for compressors and storage space. These leases have initial terms ranging from 1 to 5 years and include renewal options ranging from 0 to 5 years. The Company does not include the renewal options in the lease term, as it is not reasonably certain such options will be exercised. Payments are for fixed amounts as contractually designated in the lease agreements.

The table below presents the lease related assets and liabilities recorded on our consolidated balance sheet:

	As of
	December 31, 2022
Assets
Right-of-use assets	$	2,089,536
Total lease assets		2,089,536
Liabilities
Current lease liabilities		715,074
Long-term lease liabilities		1,374,462
Total lease liabilities	$	2,089,536

The components of the Company’s lease costs are set forth in the table below:

	2022
Operating lease costs, excluding short-term leases (a)	$	1,218,000
Short-term lease costs (b)		198,173
Variable lease costs (c)		139,716
Total lease costs	$	1,555,889

(a) Operating lease expense reflects a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a straight-line basis. The operating lease costs of $1.2 million includes $1.1 million of midstream operating expenses related to compressors and $0.1 million of costs capitalized to property and equipment for storage space.

(b) Short-term lease costs are reported at gross amounts and primarily represent costs incurred for the Company’s additional compressors and office equipment. These short-term contracts are not recognized as ROU assets and lease liabilities on the consolidated balance sheets.

(c) Variable lease expenses primarily represent (i) differences between minimum payment obligations and actual operating charges incurred by the Company related to its long-term leases and (ii) variable expenses related to the Company’s office spaces, which include taxes, insurance and other utility and maintenance costs. Variable lease expenses are not included in the calculation of the Company’s ROU assets and lease liabilities on the consolidated balance sheets.

14 (Continued)

THQ-XCL HOLDINgS I, LLC and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

A maturity analysis of lease payments under the Company’s long-term operating leases is presented as follows:

	As of
	December 31, 2022
2023	$	768,000
2024		618,000
2025		618,000
2026		181,500
2027		9,000
Total future minimum lease payments (undiscounted)		2,194,500
Less: interest		104,964
Present value of lease liability	$	2,089,536

As of December 31, 2022, the weighted average lease term was 3.11 years and the weighted average discount rate was 3.10%.

The table below presents other supplemental lease information about the Company’s operating leases for the period presented:

	For the year ended
	December 31, 2022
Operating cash outflows from operating leases	$	1,182,000
Investing cash outflows from operating leases		36,000
Right-of-use assets obtained in exchange for new operating lease liabilities		3,223,627

As referenced in footnote 2(l), the Company is billed by THO for an allocated amount of overhead expenses. For the year ended December 31, 2022, THO billed the Company $4.0 million of direct general and administrative, of which $0.4 million of expenses related to operating leases and short-term lease obligations held by THO.

15 (Continued)

THQ-XCL HOLDINgS I, LLC and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

(5) Long-Term Debt

Senior Secured Revolving Credit Facility

The Company has a $250 million senior secured revolving bank credit facility (the Credit Facility) with a group of large, commercial lenders, with a maturity date of May 2, 2025. Borrowings under the Credit Facility are limited based on meeting quarterly interest and leverage coverage ratios. The amounts outstanding were $158.7 million and $181.7 million at December 31, 2022 and 2021, respectively, with a weighted average interest rate of approximately 7.29% and 3.10%, respectively. The amount reflected in the Company’s December 31, 2022, balance sheet is shown net of the debt issuance costs of $1.5 million and $2.1 million, respectively.

The Credit Facility is secured by liens on substantially all of the Company’s properties and guarantees from the Company’s restricted subsidiaries, as applicable. The Credit Facility contains certain other covenants, including restrictions on indebtedness and dividends. Interest is payable at a variable rate based on LIBOR or the prime rate, determined by the Company’s election at the time of borrowing. The Company was in compliance with all of the financial covenants under the Credit Facility as of December 31, 2022.

(6) Commitments

The following is a schedule of future minimum payments for fractionation services and purchase orders for cryogenic processing facilities, pipelines, and interconnections as of December 31, 2022.

			Processing		Pipelines
	Fractionation		Facilities		and Meters
	(a)		(b)		(c)		Total
Year ending December 31:
2023		5,748,750		195,760		1,437,545		7,382,055
2024		5,764,500		—		—		5,764,500
2025		5,748,750		—		—		5,748,750
2026		5,748,750		—		—		5,748,750
2027		3,827,250		—		—		3,827,250
Thereafter		—		—		—		—
Totals	$	26,838,000		195,760		1,437,545		28,471,305

(a) Fractionation

The Company has entered into a firm fractionation agreement in order to facilitate the fractionation of natural gas liquids into purity products. This contract commits the Company to transport minimum daily natural gas liquids volumes at negotiated rates, or pay for any deficiencies at a specified fee beginning in the third quarter of 2021. Actual payments under this agreement will differ from the amounts shown in the table above as the Company expects to deliver volumes in excess of the minimum commitment. This commitment has varying terms, renewal rights and an escalation clause. The fractionation fee is escalated annually and is adjusted up or down in proportion to the lesser of 55% of the annual percentage change in the Oil Producer Price Index ended June of the year preceding the date of adjustment or 2%; provided, however, that in no event shall the adjustment fee ever be less than the initial fee.

16 (Continued)

THQ-XCL HOLDINgS I, LLC and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

(b) Processing Facilities

The Company is committed to regular maintenance services and repairs on the cryogenic processing facility.

(c) Pipelines and Meters

The Company is committed to purchases of steel pipe, metering, and related materials during 2022.

(7) Contingencies

The Company is subject to certain claims and litigation arising in the normal course of business. In the opinion of management, the outcome of such matters will not have a material adverse effect on the results of operations or financial position of the Company.

(8) Related Party Transaction

On December 10, 2021, the Company’s board approved the purchase of the gas and condensate gathering assets, including the corresponding rights-of-way (the “Legacy Gathering System”), from TH Exploration II for the sale of all water pipelines, water pipeline systems, and all associated water infrastructure, including the corresponding rights-of-way, in Marshall and Wetzel Counties, WV, Belmont and Monroe Counties, OH and Greene County, PA, (the “XcL Water System”) to TH Exploration II. This transaction was treated as an exchange of assets between entities under common control. The net book value of the XcL Water System was approximately $1.0 million in excess of the Legacy Gathering System’s carrying value; this excess amount was treated as a distribution from the Company. TH Exploration II will reimburse the Company for all costs associated with in process construction projects on the XcL Water System.

(9) Membership Interests

There are two classes of membership interest – capital interests and management incentive interests. Capital interests held by Quantum, R2K and members of management have full voting rights and rights to share in the distributions of the Company. As described more fully in footnote 10, management incentive interests can be issued under the Incentive Pool Plan and are non-voting with no rights to share in distributions until the capital contributed interests have earned the full base return.

The members have no liability for the debts, obligations and liabilities of the Company, except as expressly required in the agreement. The Company shall dissolve and its affairs shall be wound up upon the earliest to occur of (a) the expiration of its term on December 20, 2025, if not extended by the members, (b) election by the Board of Directors by majority approval at any time or (c) entry of a decree of judicial dissolution of the Company under the Delaware Limited Liability Company Act.

The timing and amounts of distributions, other than tax advances, are determined by the Board of Directors. Capital contributions will receive a base return of 8% on their contributions (base return) which continues accruing until distributions exceed the total capital contributions plus the 8% base return. The first 10% of R2K’s Capital Interest will be treated as un-promoted capital (R2K’s Un-promoted Capital Interest). Distributions to members’ capital that is promoted is subject to certain distribution flips, whereby, distributions will be made in proportion to the agreed upon sharing ratios. Tax advances may be made quarterly based on projections of the entity’s taxable income for the year.

17 (Continued)

THQ-XCL HOLDINgS I, LLC and Subsidiaries

Notes to Consolidated Financial Statements

December 31, 2022 and 2021

On December 10, 2021, the Company’s board approved the purchase of the Legacy Gathering System from TH Exploration II for the sale of the XcL Water System to TH Exploration II (footnote 8). This transaction was treated as an exchange of assets between entities under common control. The net book value of the XcL Water System was approximately $1.0 million in excess of the Legacy Gathering System’s carrying value; this excess amount was treated as a distribution from the Company.

On March 15, 2022, the Company paid $2.6 million of West Virginia withholding taxes on behalf of the members. This payment was treated as a distribution.

Total equity commitments from the members is $457 million, of which $358 million was funded as of December 31, 2022, leaving $99 million in available equity should the Company need additional funding.

(10) Management Incentive Unit Plan

Effective with the formation of the Company on December 20, 2017, the Company adopted an incentive unit plan, THQ-XcL Employee Holdings I, LLC, (the Plan) to provide profit awards to employees (management incentive units). The Company can issue up to 2,000,000 units to certain employees in consideration of services rendered and to be rendered by the holders, for the benefit of the Company in their capacities as employees. All of the incentive units will be subject to vesting over five years, forfeiture, and termination. The management incentive units have no voting rights, do not have an exercise price and are automatically forfeited except in extenuating circumstances if and when such person’s status as an employee is terminated.

Compensation expense for these awards will be recognized when all performance, market, and service conditions are probable of being satisfied in general upon a vesting event, which is defined as (i) the sale of all or substantially all of the outstanding capital interests or assets of the Company, (ii) the time of any distribution by the Company after capital contributions of substantially all of the capital commitments have been made by the capital members, and the Board has determined that the Company will not raise additional capital, (iii) one year after the expiration of a lockup period in the event of a transfer of all or substantially all of the outstanding capital interests or assets of the Company to an individual, estate or a corporation, partnership, joint venture, limited partnership, limited liability company, trust, unincorporated organization, association or any other entity (Person) in exchange for publicly tradable securities of such Person; or two years after the expiration of a lockup period in the event that securities received in connection with the transfer constitute 15% or more of the total shares of such Person then outstanding.

(11) Subsequent Events

In preparing the consolidated financial statements, management has evaluated all subsequent events and transactions for potential recognition or disclosure through March 29, 2023, the date the consolidated financial statements were available for issuance, and no other items requiring disclosure were identified.

18

EX-99.4

Exhibit 99.4

EQT CORPORATION AND SUBSIDIARIES

PRELIMINARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following preliminary unaudited pro forma condensed combined financial statements (the preliminary pro forma financial statements) are derived from:

• the historical audited financial statements of EQT Corporation and subsidiaries (EQT or the Company);

• the historical audited financial statements of THQ Appalachia I, LLC (Upstream Seller), which includes the accounts of the subsidiaries for which equity interests will be acquired by the Company in the Acquisition (as defined below) (the Upstream Companies); and

• the historical audited financial statements of THQ-XcL Holdings I, LLC (Midstream Seller) which includes the accounts of the subsidiaries for which equity interests will be acquired by the Company in the Acquisition (the Midstream Companies).

The preliminary pro forma financial statements have been prepared to reflect the effect of the draw of the term loan and the proposed acquisition by EQT of the Upstream Companies and the Midstream Companies (the Acquisition), pursuant to the Purchase Agreement (the Purchase Agreement), dated September 6, 2022 as amended and restated on December 23, 2022, for expected consideration consisting of (i) $2.6 billion in cash and (ii) approximately 55.0 million shares of EQT common stock, plus or minus certain purchase price adjustments as defined in the Purchase Agreement.

The preliminary pro forma financial statements are provided for informational purposes only and do not purport to represent what the actual consolidated results of operations or the consolidated financial position of EQT would have been had the Acquisition occurred on the dates assumed, nor are they necessarily indicative of future consolidated results of operations or consolidated financial position. The preliminary pro forma financial statements should be read in conjunction with:

• the accompanying notes to the preliminary pro forma financial statements;

• the audited consolidated financial statements and accompanying notes of EQT contained in EQT's Annual Report on Form 10-K for the year ended December 31, 2022;

• the audited consolidated financial statements and accompanying notes of THQ Appalachia I, LLC and THQ-XcL Holdings I, LLC for the year ended December 31, 2022 filed as an exhibit to the Current Report on Form 8-K to which this exhibit also forms a part (the Form 8-K).

EQT Corporation and Subsidiaries

Preliminary Unaudited Pro Forma Condensed Combined Balance Sheet

December 31, 2022

	EQT Historical		Upstream Seller Historical		Midstream Seller Historical		Pro Forma Adjustments				Pro Forma Combined
	(Thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	1,458,644	$	30,104	$	3,484	$	(2,391,729	)	(a)	$	464,755
								(30,141	)	(c)
								150,017		(f)
								1,244,375		(l)
Accounts receivable, net		1,608,089		203,558		21,681		(15,540	)	(f)		1,801,526
								(16,262	)	(g)
Derivative instruments, at fair value		812,371		237,237		—		10,358		(b)		968,972
								(90,994	)	(c)
Prepaid expenses and other		135,337		931		2,250		—				138,518
Total current assets		4,014,441		471,830		27,415		(1,139,916	)			3,373,771
Property, plant and equipment		27,393,919		2,466,627		703,974		844,861		(a)		31,409,381
Less: Accumulated depreciation and depletion		9,226,586		595,530		93,707		(689,237	)	(a)		9,226,586
Net property, plant and equipment		18,167,333		1,871,097		610,267		1,534,098				22,182,795
Other assets		488,152		74,071		2,090		(10,358	)	(b)		337,034
								(45,990	)	(c)
								(13,814	)	(c)
								(150,017	)	(f)
								(7,100	)	(l)
Total assets	$	22,669,926	$	2,416,998	$	639,772	$	166,904			$	25,893,600

	EQT Historical		Upstream Seller Historical		Midstream Seller Historical		Pro Forma Adjustments				Pro Forma Combined
	(Thousands)
LIABILITIES AND EQUITY
Current liabilities:
Current portion of debt	$	422,632	$	—	$	—	$	—			$	422,632
Accounts payable		1,574,610		194,114		28,895		22,736		(a)		1,779,587
								899		(b)
								(9,865	)	(c)
								(15,540	)	(f)
								(16,262	)	(g)
Derivative instruments, at fair value		1,393,487		447,299		—		448		(b)		1,423,933
								(417,301	)	(c)
Other current liabilities		341,491		153,072		715		(1,149	)	(b)		393,734
								(150,017	)	(c)
								49,622		(h)
Total current liabilities		3,732,220		794,485		29,610		(536,429	)			4,019,886
Credit facility borrowings		—		508,773		157,251		(666,024	)	(c)		—
Senior notes		5,167,849		—		—		1,237,275		(l)		6,405,124
Note payable to EQM Midstream Partners, LP		88,484		—		—		—				88,484
Deferred income taxes		1,442,406		—		—		(293	)	(k)		1,442,113
Other liabilities and credits		1,025,639		132,004		1,374		28,006		(a)		1,074,426
								(448	)	(b)
								250		(b)
								(112,399	)	(c)
Total liabilities		11,456,598		1,435,262		188,235		(50,062	)			13,030,033
Equity:
Total common shareholders' equity		11,172,474		981,736		451,537		1,699,564		(a)		12,822,713
								(1,482,602	)	(i)
Noncontrolling interest in consolidated subsidiaries		40,854		—		—		—				40,854
Total equity		11,213,328		981,736		451,537		216,966				12,863,567
Total liabilities and equity	$	22,669,926	$	2,416,998	$	639,772	$	166,904			$	25,893,600

See accompanying notes to the unaudited preliminary pro forma condensed combined financial information.

EQT Corporation and Subsidiaries

Preliminary Unaudited Pro Forma Condensed Combined Statement of Operations

Year Ended December 31, 2022

	EQT Historical			Upstream Seller Historical			Midstream Seller Historical		Pro Forma Adjustments				Pro Forma Combined
	(Thousands, except per share amounts)
Operating revenues:
Sales of natural gas, natural gas liquids and oil	$	12,114,168		$	1,688,665		$	—	$	—			$	13,802,833
Loss on derivatives		(4,642,932	)		(880,111	)		—		994,222		(c)		(4,528,821	)
Net marketing services and other		26,453			1,313			2		121,740		(b)		67,344
										(82,164	)	(g)
Midstream		—			—			89,868		(89,868	)	(b)		—
Processing		—			—			31,872		(31,872	)	(b)		—
Total operating revenues		7,497,689			809,867			121,742		912,058				9,341,356
Operating expenses:
Transportation and processing		2,116,976			192,890			—		(82,164	)	(g)		2,227,702
Production		300,985			132,350			—		22,997		(b)		449,804
										(6,528	)	(d)
Exploration		3,438			16,455			—		(16,455	)	(b)		3,438
Selling, general and administrative		252,645			19,961			12,595		(1,875	)	(b)		282,349
										(977	)	(c)
Depreciation and depletion		1,665,962			206,738			31,321		139,870		(e)		2,043,891
(Gain) loss on sale/exchange of long-lived assets		(8,446	)		229			—		—				(8,217	)
Impairment of contract asset		214,195			—			—		—				214,195
Impairment and expiration of leases		176,606			—			—		16,455		(b)		193,061
Other operating expenses		57,331			—			—		1,875		(b)		108,828
										49,622		(h)
Midstream operating		—			—			18,202		(18,202	)	(b)		—
Processing operating		—			—			4,795		(4,795	)	(b)		—
Total operating expenses		4,779,692			568,623			66,913		99,823				5,515,051
Operating income		2,717,997			241,244			54,829		812,235				3,826,305
Loss from investments		4,931			—			—		—				4,931
Dividend and other income		(11,280	)		(19	)		—		—				(11,299	)
Loss on debt extinguishment		140,029			—			—		—				140,029
Interest expense		249,655			31,998			8,620		(33,976	)	(c)		351,956
										(6,642	)	(j)
										102,301		(l)
Income before income taxes		2,334,662			209,265			46,209		750,552				3,340,688
Income tax expense		553,720			—			—		259,688		(k)		813,408
Net income		1,780,942			209,265			46,209		490,864				2,527,280
Less: Net income attributable to noncontrolling interests		9,977			—			—		—				9,977
Net income attributable to EQT Corporation	$	1,770,965		$	209,265		$	46,209	$	490,864			$	2,517,303
Income per share of common stock attributable to EQT Corporation:
Basic:
Weighted average common stock outstanding		370,048												370,048
Net income	$	4.79											$	6.80
Diluted:
Weighted average common stock outstanding		406,495												406,495
Net income	$	4.38											$	6.21

See accompanying notes to the preliminary unaudited pro forma condensed combined financial information.

EQT Corporation and Subsidiaries

Notes to the Preliminary Unaudited Pro Forma Condensed Combined Financial Information

1.       Basis of Presentation

The preliminary pro forma financial statements have been prepared to reflect the effect of the Acquisition on the consolidated financial statements of EQT. The preliminary unaudited pro forma condensed combined balance sheet (the preliminary pro forma balance sheet) is presented as if the Acquisition had occurred on December 31, 2022. The preliminary unaudited pro forma condensed combined statement of operations (the preliminary pro forma statement of operations) for the year ended December 31, 2022 is presented as if the Acquisition had occurred on January 1, 2022. The historical consolidated financial information has been adjusted to reflect factually supportable items that are directly attributable to the Acquisition.

The preliminary pro forma financial statements have been prepared using the acquisition method of accounting using the accounting guidance in Accounting Standards Codification (ASC) 805, with EQT treated as the acquirer. The acquisition method of accounting is dependent upon certain valuations and other studies that have yet to commence or progress to a stage where there is sufficient information for a definitive measure. Accordingly, the pro forma adjustments are preliminary, have been made solely for the purpose of providing preliminary pro forma financial information, and are subject to revision based on a final determination of fair value as of the closing date of the Acquisition. Differences between these preliminary estimates and the final purchase price allocation may have a material impact on the accompanying preliminary pro forma financial statements.

The Upstream Seller and Midstream Seller historical amounts have been derived from the audited financial statements filed as an exhibit to the Form 8-K. Certain of the historical amounts of the Upstream Seller and the Midstream Seller have been reclassified to conform to the financial presentation of EQT. The preliminary pro forma adjustments include the removal of certain accounts of Upstream Seller and Midstream Seller, respectively, to present the accounts of the Upstream Companies and the Midstream Companies given that these accounts are not included in the Acquisition. The preliminary pro forma financial statements are provided for informational purposes only and do not purport to represent what the actual consolidated results of operations or the consolidated financial position of EQT would have been had the Acquisition occurred on the dates assumed, nor are they necessarily indicative of future consolidated results of operations or consolidated financial position.

2.       Pro Forma Adjustments and Assumptions

The pro forma adjustments are based on currently available information and certain estimates and assumptions that EQT believes are reasonable. The actual effects of the Acquisition will differ from the pro forma adjustments. A general description of the pro forma adjustments are provided below.

(a) Pro forma adjustments to reflect the estimated value of net consideration to be paid by EQT in the Acquisition and the adjustment of the historical book values of the assets and liabilities of the Upstream Companies and the Midstream Companies as of December 31, 2022 to their estimated fair values. The following table represents the preliminary purchase price allocation to the assets acquired and liabilities assumed from the Upstream Companies and the Midstream Companies. This preliminary purchase price allocation has been used to prepare pro forma adjustments in the preliminary pro forma balance sheet and the preliminary pro forma statement of operations. The final purchase price allocation will be determined when EQT has completed the detailed valuations and necessary calculations subsequent to closing the Acquisition. The final purchase price allocation will differ from these estimates and could differ materially from the preliminary allocation used in the pro forma adjustments.

Pursuant to the Purchase Agreement, consideration for the Acquisition will consist of a base amount of (i) $2.6 billion in cash and (ii) 55 million shares of EQT common stock, plus or minus certain purchase price adjustments as defined in the Purchase Agreement. The purchase price adjustments, with the exception of the purchase price adjustments specifically related to the value of the acquired derivative instruments which will be applied 100% to the cash consideration, will be applied evenly to the cash and stock consideration, with the adjustments to the stock consideration being determined by dividing 50% of the purchase price adjustments by $48.01. As of December 31, 2022, the calculation would result in the issuance of approximately 50.2 million shares of EQT common stock valued at $1,700 million (based on the closing stock price as of December 31, 2022 of $33.83) and cash paid of $2,392 million after giving effect of approximately $437 million of certain net purchase price adjustments. The effective date of the Acquisition is July 1, 2022.

The preliminary purchase price allocation is subject to change as a result of several factors, including but not limited to:

• changes in the market value of the shares of EQT common stock issued as consideration;

• changes in the purchase price adjustments defined in the Purchase Agreement increasing or decreasing the consideration, including increasing or decreasing the number of shares issued as consideration;

• changes in the estimated fair value of the assets acquired and liabilities assumed of the Upstream Companies and the Midstream Companies as of the closing date of the Acquisition, which could result from changes in future commodity prices, reserve estimates, cost assumptions, interest rates and other facts and circumstances existing as of the closing date of the Acquisition compared to the preliminary pro forma financial statements included herein; and

• the tax basis of the assets and liabilities of the Upstream Companies and the Midstream Companies as of the closing date of the Acquisition.

	Preliminary Purchase Price Allocation
	(Thousands)
Consideration:
Equity	$	1,699,564
Cash		2,391,729
Settlement of pre-existing relationships		(15,540	)
Total consideration	$	4,075,753
Fair value of assets acquired:
Cash and cash equivalents	$	3,447
Accounts receivable, net		193,437
Derivative instruments, at fair value		156,601
Prepaid expenses and other		3,181
Property, plant and equipment		4,015,459
Other assets		5,999
Amount attributable to assets acquired	$	4,378,124
Fair value of liabilities assumed:
Accounts payable	$	220,517
Derivative instruments, at fair value		30,446
Other current liabilities		2,621
Other liabilities and credits		48,787
Amount attributable to liabilities assumed	$	302,371

The final value of total consideration paid by EQT will be determined based on the aggregate amount of purchase price adjustments calculated in accordance with the Purchase Agreement, the resulting number of EQT shares issued based on said purchase price adjustments and the market price of EQT's common stock at the closing date of the Acquisition. A 10% increase or decrease in the closing price of EQT common stock, as compared to the December 31, 2022 closing price of $33.83, would increase or decrease the total consideration by approximately $170.0 million, assuming all other factors held constant.

The estimated fair value of property, plant and equipment to be acquired based on information available as of the preparation of the preliminary pro forma financial statements included the following:

	Preliminary Purchase Price Allocation
		(Thousands)
Natural gas and oil proved properties	$	2,990,859
Natural gas and oil unproved properties		325,613
Other property, plant and equipment		698,987
Preliminary pro forma fair value of property, plant & equipment	$	4,015,459

The preliminary pro forma fair value of natural gas properties acquired from the Upstream Companies was measured using valuation techniques that convert future cash flows into a single discounted amount. Significant inputs to the valuation of natural gas and oil properties include estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices; and (v) a market-based weighted average cost of capital. NYMEX strip pricing as of December 31, 2022, adjusted for forward basis differentials, was utilized in determining the pro forma fair value of reserves at a discount rate of 12.2%, after adjustment for expenses and basis differential. An increase or decrease in commodity prices, recoverable reserves, future operating or development costs or any of the other inputs noted above, as of the closing date, will result in a corresponding increase or decrease in the fair value of natural gas properties.

The preliminary pro forma fair value of acquired midstream gathering systems acquired from the Midstream Companies, including the related compression assets, and the acquired processing facilities (collectively the Midstream Assets) was measured primarily using the cost approach. Significant inputs to the valuation of the Midstream Assets include replacement costs for similar assets, relative age of the acquired Midstream Assets and any potential economic or functional obsolescence associated with the acquired Midstream Assets.

(b) Pro forma reclassifications were made to conform to EQT's presentation, including:

i. the reclassification of $10.4 million of other assets to derivative instruments, at fair value, and $0.4 million of other liabilities and credits to derivative instruments, at fair value;

ii. the reclassification of $1.1 million of other current liabilities to accounts payable ($0.9 million) and other liabilities and credits ($0.3 million);

iii. the reclassification of lease abandonment expense of $16.5 million for the year ended December 31, 2022 from exploration expense to impairment and expiration of leases;

iv. the reclassification of $1.2 million and $0.6 million for the year ended December 31, 2022 from selling, general and administrative expense to other operating expenses from Upstream Seller and from Midstream Seller, respectively;

v. the reclassification of midstream and processing revenues to net marketing and other revenues; and

vi. the reclassification of midstream operating and processing operating expenses to production expense.

(c) Pro forma adjustments to eliminate certain accounts attributable to the Upstream Seller and the Midstream Seller, which EQT is not acquiring or assuming including:

i.	Elimination of $30.1 million of cash and cash equivalents from Upstream Seller;
ii.	Elimination of $91.0 million of current derivative instruments, at fair value, $46.0 million of non-current derivative instruments, at fair value (included in other assets), $417.3 million of current derivative instruments, at fair value and $112.4 million of non-current derivative instruments, at fair value (included in other liabilities and credits) from Upstream Seller;

iii.	Elimination of $13.8 million of restricted cash (included in other assets) from Upstream Seller;
iv.	Elimination of $8.9 million and $1.0 million of accounts payable from Upstream Seller and from Midstream Seller, respectively;
v.	Elimination of $150.0 million of other current liabilities from Upstream Seller;
vi.	Elimination of $508.8 million and $157.3 million of credit facility borrowings from Upstream Seller and from Midstream Seller, respectively;
vii.	Elimination of $994.2 million for the year ended December 31, 2022 of loss on derivatives from Upstream Seller;
viii.	Elimination of $1.0 million of selling, general and administrative from Midstream Seller for the year ended December 31, 2022; and
ix.	Elimination of interest expense of $32.0 million and $2.0 million for the year ended December 31, 2022 from Upstream Seller and from Midstream Seller, respectively.

(d) Pro forma adjustments to conform to EQT's accounting policies, including:

i. the elimination of certain water-related lease operating expenses from production expense.

(e) Pro forma adjustments to increase or decrease depreciation and depletion expense due to the following:

i. The increase in the estimated fair value of property, plant and equipment.

ii. The depreciation of gathering and water pipelines over a 50-year useful life and the depreciation of compression, measurement and processing assets over a 25-year useful life separate from the upstream oil and gas assets.

iii. The increase in accretion expense related to the higher asset retirement obligation liability which was adjusted to reflect EQT's internal plugging cost estimates, discount rate, and useful life estimates.

(f) Pro forma adjustments to eliminate historical transactions between EQT and the Upstream Companies that would be treated as intercompany transactions on a consolidated basis, including:

i.	Elimination of $15.5 million of accounts payable by EQT to the Upstream Companies for natural gas liquids sales as of December 31, 2022; and
ii.	Elimination of $15.5 million of accounts receivable, net from EQT to the Upstream Companies for natural gas liquids sales as of December 31, 2022; and
iii.	Giving effect to the $150.0 million of other assets which represents EQT's deposit for the Acquisition, which was previously paid pursuant to the Purchase Agreement but is included as part of cash consideration within the preliminary purchase price allocation described in (a) above.

(g) Pro forma adjustments to eliminate historical transactions between the Upstream Companies and the Midstream Companies that would be treated as intercompany transactions on a consolidated basis by EQT, including:

i.	Elimination of $82.2 million of transportation and processing expenses of the Upstream Companies for the year ended December 31, 2022 related to volumes gathered by the Midstream Companies, including $16.3 million of accounts payable as of December 31, 2022; and
ii.	Elimination of $82.2 million of net marketing services and other revenues of the Midstream Companies for the year ended December 31, 2022 related to volumes gathered on behalf of the Upstream Companies including $16.3 million of accounts receivable, net as of December 31, 2022.

(h) Pro forma adjustment for estimated transaction costs of $49.6 million related to the Acquisition, including underwriting, banking, accounting and legal fees, including the legal fees related to complying with regulatory requirements from the U.S. Federal Trade Commission.

(i) Pro forma adjustment to:

i. Eliminate $981.7 million and $451.5 million of historical equity amounts of the Upstream Seller and the Midstream Seller, respectively;

ii.	Give effect to the $49.6 million of transaction related adjustments described in (h) above to retained earnings; and
iii.	Give effect to the $0.4 million and $(0.2) million of deferred income tax adjustments of the Upstream Seller and the Midstream Seller, respectively, described in (k) below to retained earnings.

(j) Pro forma adjustments to eliminate historical interest expense on the Midstream Companies that was paid to the Midstream Seller for intercompany debt that is not being assumed by EQT in the Acquisition.

(k) Pro forma income tax adjustments included in the preliminary pro forma statement of operations and preliminary pro forma balance sheet reflect the income tax effects of the historical information of the Upstream Companies and the Midstream Companies as well as the income tax effects of the pro forma adjustments presented herein. The pro forma income tax adjustments related to such historical information is to conform the Upstream Companies and the Midstream Companies historical information, which is derived based on a non-taxable flow through structure, with EQT's taxable corporate structure. The tax rate applied to the pro forma adjustments was the statutory federal and apportioned statutory state tax rate, net of the federal benefit of state taxes, applied to pre-tax income. The preliminary pro forma statement of operations also reflect the following nonrecurring adjustments to arrive at a deferred income taxes balance of $1,442.1 million for the preliminary pro forma balance sheet:

i.

Income tax expense of $20.9 million due to remeasurement of deferred income taxes to reflect the combined state apportionment rates; and

ii.

Income tax benefit of $9.5 million due to a reduction of EQT's deferred tax valuation allowance. Since the Upstream Companies and the Midstream Companies will be included in EQT's consolidated tax return following the Acquisition, the resulting reversal of temporary differences included in deferred income taxes related to the Acquisition allows EQT to realize a portion of its state deferred tax assets that previously had a valuation allowance.

(l) Pro forma adjustments to reflect the impact of the draw down of the term loan facility, the proceeds of which will be used to fund a portion of the cash consideration of the Acquisition:

i.	Increase in cash and cash equivalents of $1,244.4 million and senior notes of $1,237.3 million for the draw down of $1,250.0 million principal from our undrawn term loan, net of $12.7 million of debt issuance costs, inclusive of $7.1 million of debt issuance costs that were previously paid in connection with the original issuance of the term loan agreement and are currently recorded within other assets;
ii.	Increase in interest expense of $102.3 million for the year ended December 31, 2022 reflecting the additional interest that would have been incurred if the draw of the term loan was completed on January 1, 2022; and
iii.	Decrease in other assets for offering costs and deferred financing costs paid as of December 31, 2022 of $7.1 million.

The preliminary pro forma financial statements do not reflect any compensation related adjustments as certain personnel matters are evolving and any recurring impact from compensation adjustments would not be factually supportable.

3.       Supplemental Preliminary Pro Forma Natural Gas, NGLs and Crude Oil Reserves Information

The following tables present the estimated preliminary pro forma combined net proved developed and undeveloped, natural gas, natural gas liquids (NGLs) and crude oil reserves as of December 31, 2022, along with a summary of changes in quantities of net remaining proved reserves during the year ended December 31, 2022. The preliminary pro forma reserve information set forth below gives effect to the Acquisition as if it had occurred on January 1, 2022.

The following estimated preliminary pro forma reserve information is not necessarily indicative of the results that might have occurred had the Acquisition taken place on January 1, 2022 and is not intended to be a projection of future results. Future results may vary significantly from the results reflected because of various factors, including those discussed in the “Risk Factors” section in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

For all tables presented, NGLs and crude oil were converted at a rate of one million barrels (MMbbl) to approximately six billion cubic feet (Bcf), except in the case of the Upstream Seller Historical NGLs, which were converted at a rate of one MMbbl to 3.9 Bcf.

	EQT Historical			Upstream Seller Historical			Pro Forma Combined
Natural gas, NGLs and oil	(Bcfe)
Proved developed and undeveloped reserves:
Balance at January 1, 2022		24,961			3,362			28,323
Revision of previous estimates		(655	)		(362	)		(1,017	)
Purchase of hydrocarbons in place		141			—			141
Extensions, discoveries and other additions		2,495			232			2,727
Production		(1,940	)		(246	)		(2,186	)
Balance at December 31, 2022		25,002			2,986			27,988
Proved developed reserves:
Balance at January 1, 2022		17,218			1,439			18,657
Balance at December 31, 2022		17,513			1,548			19,061
Proved undeveloped reserves:
Balance at January 1, 2022		7,743			1,923			9,666
Balance at December 31, 2022		7,489			1,438			8,927

	EQT Historical			Upstream Seller Historical			Pro Forma Combined
Natural gas	(Bcf)
Proved developed and undeveloped reserves:
Balance at January 1, 2022		23,524			2,834			26,358
Revision of previous estimates		(432	)		(331	)		(763	)
Purchase of natural gas in place		141			—			141
Extensions, discoveries and other additions		2,434			232			2,666
Production		(1,842	)		(205	)		(2,047	)
Balance at December 31, 2022		23,825			2,530			26,355
Proved developed reserves:
Balance at January 1, 2022		16,152			1,166			17,318
Balance at December 31, 2022		16,541			1,304			17,845
Proved undeveloped reserves:
Balance at January 1, 2022		7,372			1,668			9,040
Balance at December 31, 2022		7,284			1,226			8,510

	EQT Historical			Upstream Seller Historical			Pro Forma Combined
NGLs	(MMbbl)
Proved developed and undeveloped reserves:
Balance at January 1, 2022		226			114			340
Revision of previous estimates		(34	)		(3	)		(37	)
Purchase of NGLs in place		—			—			—
Extensions, discoveries and other additions		10			—			10
Production		(15	)		(8	)		(23	)
Balance at December 31, 2022		187			103			290
Proved developed reserves:
Balance at January 1, 2022		170			57			227
Balance at December 31, 2022		155			55			210
Proved undeveloped reserves:
Balance at January 1, 2022		56			57			113
Balance at December 31, 2022		32			48			80

	EQT Historical			Upstream Seller Historical			Pro Forma Combined
Oil	(MMbbl)
Proved developed and undeveloped reserves:
Balance at January 1, 2022		14			14			28
Revision of previous estimates		(3	)		(3	)		(6	)
Purchase of oil in place		—			—			—
Extensions, discoveries and other additions		—			—			—
Production		(1	)		(2	)		(3	)
Balance at December 31, 2022		10			9			19
Proved developed reserves:
Balance at January 1, 2022		8			8			16
Balance at December 31, 2022		7			5			12
Proved undeveloped reserves:
Balance at January 1, 2022		6			6			12
Balance at December 31, 2022		3			4			7

The following table summarizes the preliminary pro forma standard measure of discounted future net cash flows from natural gas and crude oil reserves as of December 31, 2022:

	EQT Historical			Upstream Seller Historical			Pro Forma Adjustments			Pro Forma Combined
	(Thousands)
Future cash inflows	$	140,032,653		$	17,952,071		$	—		$	157,984,724
Future production costs		(22,801,652	)		(2,146,557	)		—			(24,948,209	)
Future development costs		(3,244,211	)		(921,565	)		—			(4,165,776	)
Future income tax expenses		(26,375,241	)		—			(2,901,143	)		(29,276,384	)
Future net cash flow		87,611,549			14,883,949			(2,901,143	)		99,594,355
10% annual discount for estimated timing of cash flows		(47,547,025	)		(7,524,245	)		1,450,690			(53,620,580	)
Standardized measure of discounted future net cash flows	$	40,064,524		$	7,359,704		$	(1,450,453	)	$	45,973,775

The following table summarizes the changes in the preliminary pro forma standard measure of discounted future net cash flows from natural gas and crude oil reserves for the year ended December 31, 2022:

	EQT Historical			Upstream Seller Historical			Pro Forma Adjustments			Pro Forma Combined
	(Thousands)
Net sales and transfers of natural gas and oil produced	$	(9,696,207	)	$	(1,346,919	)	$	—		$	(11,043,126	)
Net changes in prices, production and development costs		35,353,172			3,656,996			—			39,010,168
Extensions, discoveries and improved recovery, net of related costs		1,798,851			—			—			1,798,851
Development costs incurred		902,925			589,033			—			1,491,958
Net purchase of minerals in place		280,233			—			—			280,233
Revisions of previous quantity estimates		(299,423	)		(260,831	)		—			(560,254	)
Accretion of discount		1,728,112			443,373			—			2,171,485
Net change in income taxes		(7,233,051	)		—			(1,450,453	)		(8,683,504	)
Timing and other		(51,212	)		(155,681	)		—			(206,893	)
Net (decrease) increase		22,783,400			2,925,971			(1,450,453	)		24,258,918
Balance at January 1, 2022		17,281,124			4,433,733			—			21,714,857
Balance at December 31, 2022	$	40,064,524		$	7,359,704		$	(1,450,453	)	$	45,973,775

EX-99.5

Exhibit 99.5

Cawley, Gillespie & Associates, Inc.

petroleum consultants

13640 BRIARWICK DRIVE, SUITE 100	306 WEST SEVENTH STREET, SUITE 302	1000 LOUISIANA STREET, SUITE 1900
AUSTIN, TEXAS 78729-1707	FORT WORTH, TEXAS 76102-4987	HOUSTON, TEXAS 77002-5008
512-249-7000	817- 336-2461	713-651-9944

www.cgaus.com

February 8, 2023

Mr. Sean Willis

President & Chief Operating Officer

Tug Hill Operating

1320 S. University Drive, Suite 500

Fort Worth, Texas 76107

Re:	Evaluation Summary – SEC Price Case
	Tug Hill Operating Interests
	Total Proved Reserves
	Certain Properties in Pennsylvania and West Virginia
	As of December 31, 2022
	Pursuant to the Guidelines of the Securities and
	Exchange Commission for Reporting Corporate
	Reserves and Future Net Revenue

Dear Mr. Willis:

As requested, this report was completed on February 8, 2023 for the purpose of submitting our estimates of proved reserves and forecasts of economics attributable to the Tug Hill Operating (“THQA”) interests for inclusion as an exhibit in a filing made with the U.S Securities and Exchange Commission (“SEC”). This report includes 100% of THQA’s proved reserves which are made up of certain oil and gas properties in Pennsylvania and West Virginia. This report utilized an effective date of December 31, 2022 and was prepared using constant prices and costs and conforms to Item 1202(a)(8) of Regulation S-K and other rules of the SEC. The results of this evaluation are presented in the accompanying tabulations, with a composite summary of the values presented below:

		Proved		Proved		Proved
		Developed		Developed		Developed		Proved		Proved		Total
		Producing		Shut-In		Non-Producing		Developed		Undeveloped		Proved
Net Reserves
Oil	- Mbbl		3,670.7		179.9		1,182.5		5,033.1		3,853.1		8,886.1
Gas	- MMcf		1,164,282.3		48,142.4		91,556.8		1,303,981.5		1,226,290.2		2,530,271.7
NGL	- Mbbl		49,092.5		968.2		4,745.8		54,806.6		48,308.1		103,114.7
Net Revenue
Oil	- M$		304,531.9		14,937.8		97,604.3		417,074.0		324,543.5		741,617.5
Gas	- M$		5,668,618.8		233,553.9		441,206.8		6,343,379.5		5,962,976.1		12,306,355.6
NGL	- M$		2,295,094.5		46,502.4		227,689.6		2,569,286.4		2,334,811.3		4,904,097.7
Severance Taxes	- M$		411,296.8		14,749.7		38,325.0		464,371.5		431,116.5		895,488.1
Ad Valorem Taxes	- M$		80,881.3		2,926.7		7,551.2		91,359.1		85,055.9		176,415.0
Operating Expenses	- M$		661,357.8		18,469.2		21,310.3		701,137.4		270,065.2		971,202.5
Other Deductions	- M$		56,214.7		1,405.9		3,540.2		61,160.9		42,290.6		103,451.5
Future Development Cost	- M$		18,310.4		1,152.2		4,778.5		24,241.1		897,323.8		921,564.8
Net Oper. Income (BFIT)	- M$		7,040,184.2		256,290.3		690,995.5		7,987,470.0		6,896,478.9		14,883,948.9
Discounted @ 10%	- M$		3,676,349.4		128,709.5		394,710.1		4,199,769.0		3,159,935.0		7,359,703.9

Tug Hill Operating Interests – SEC Price Case

February 8, 2023

Page 2

Proved Developed (“PD”) reserves are the summation of the Proved Developed Producing (“PDP”), Proved Developed Non-Producing (“PDNP”) and Proved Developed Shut-In (“PDSI”) reserve estimates. Proved Developed reserves were estimated at 5,033.1 Mbbl oil, 1,303.981.5 MMcf gas and 54,806.6 Mbbl NGLs (or 1,547,925.47 MMCFE6). Of the Proved Developed reserves, 1,430,765.0 MMCFE6 were attributed to producing zones in existing wells and 117,160.5 MMCFE6 were attributed to zones in existing wells not producing.

Future net revenue is prior to deducting state production taxes and ad valorem taxes. Future net cash flow (future net operating income) is after deducting these taxes, future capital costs and operating expenses, but before consideration of federal income taxes. The future net cash flow has been discounted at an annual rate of ten percent to determine its “present worth.” The present worth is shown to indicate the effect of time on the value of money and should not be construed as being the fair market value of the properties by Cawley, Gillespie & Associates, Inc. (“CG&A”).

The oil reserves, which include oil and condensate volumes, and natural gas liquid (NGL) volumes are expressed in barrels (42 U.S. gallons). Gas volumes are expressed in thousands of standard cubic feet (Mcf) at contract temperature and pressure base. Mcf equivalent (“MCFE”) is calculated by natural gas reserves plus oil volumes multiplied by six (6) MCF/BBL and NGL volume multiplied by 3.9 MCF/BBL.

Presentation

This report is divided into a Summary section containing Total Proved (“TP”) and Proved Developed (“PD”), and four reserve category sections: Proved Developed Producing (“PDP”), Proved Developed Shut-In (“PDSI”), Proved Developed Non-Producing (“PDNP”), and Proved Undeveloped (“PUD”). Within each reserve category section is a Table I. The Table I presents composite reserve estimates and economic forecasts for the particular reserve category. Within the PDP, PDSI, PDNP, and PUD reserve category sections are Tables II, which follow each Table I. Table II is a “oneline” summary that presents estimates of ultimate recovery, gross and net reserves, ownership, net revenue, taxes, expenses, investments, net income and discounted cash flow for the individual properties that make up the corresponding Table I.

For a more detailed explanation of the report layout, please refer to the Table of Contents following this letter. The data presented in each Table I is explained in page 1of the Appendix.

Hydrocarbon Pricing

As requested for the SEC price scenario, the base oil and gas prices calculated for December 31, 2022, were $94.14/BBL and $6.357/MMBTU, respectively. A 12-month average price, calculated as the unweighted arithmetic average of the first-day-of-the-month price for each month within the 12-month period prior to the end of the reporting period, was used. The base oil price is based upon WTI Cushing spot prices (Thomson Reuters) during January 2022 through December 2022 and the base gas price is based upon Henry Hub spot prices (Platts Gas Daily) during January 2022 through December 2022. Prices were not escalated in the SEC pricing scenario. NGL prices were based on THQA’s historical NGL composition by component applied to historical WTI spot pricing and are on average at 50.5% of WTI Cushing oil prices.

In the SEC price scenario, pricing adjustments take into account the gatherer on current and planned wells and the associated contractual agreements for gathering, processing and transportation fees. Other adjustments may include local basis differential, treating cost, gas shrinkage, gas heating value (BTU content) and/or crude quality and gravity corrections. After these adjustments, the net realized prices for the SEC price case over the life of the proved properties was estimated to be $83.46 per barrel for oil, $4.86 per MCF for natural gas and $47.56 per barrel for NGL. Economic factors were held constant in accordance with SEC guidelines.

Tug Hill Operating Interests – SEC Price Case

February 8, 2023

Page 3

Future Development Costs, Expenses and Taxes

Capital expenditures (future development costs) and lease operating expenses (LOE) were forecast as furnished by your office. As explained, the capital costs were based on the most current estimates and lease operating expenses (excluding certain midstream fees deducted from revenue as outlined above) were based on the analysis of historical expenses as provided. Severance tax values were determined by applying normal state severance tax rates. Ad valorem tax rates were forecast as provided by your office. Lease operating expenses are applied on a per-property or per-unit basis and appear reasonable and appropriate for this evaluation. Capital costs and LOE were held constant in accordance with SEC guidelines.

Capital on non-producing locations represents drilling, completion and / or facilities investment plus abandonment costs. Capital on PDP represents abandonment costs.

SEC Conformance and Regulations

The reserve classifications and the economic considerations used herein conform to the criteria of the SEC as defined in pages 3 and 4 of the Appendix. The reserves and economics are predicated on regulatory agency classifications, rules, policies, laws, taxes and royalties currently in effect except as noted herein. Federal, state, and local laws and regulations, which are currently in effect and that govern the development and production of oil and natural gas, have been considered in the evaluation of proved reserves for this report. The possible effects of changes in legislation or other Federal or State restrictive actions which could affect the reserves and economics have not been considered. These possible changes could have an effect on the reserves and economics. However, we do not anticipate nor are we aware of any legislative changes or restrictive regulatory actions that may impact the recovery of reserves.

This evaluation includes seven shut-in wells expected to return to production in 2023 and nine PDNP wells turned to production in January 2023. This evaluation also includes 93 commercial proved undeveloped locations. Each of these drilling locations proposed as part of THQA’s development plans conforms to the proved undeveloped standards as set forth by the SEC. In our opinion, THQA has indicated they have every intent to complete this development plan as scheduled. Furthermore, THQA has demonstrated that they have adequate company staffing, financial backing and prior development success to ensure this development plan will be executed.

Reserve Estimation Methods

The methods employed in estimating reserves are described on page 2 of the Appendix. Reserves for proved developed producing wells were estimated using production performance methods for the vast majority of properties. Certain new producing properties with very little production history were forecast using a combination of production performance and analogy to similar production, both of which are considered to provide a relatively high degree of accuracy. We evaluated 271 PDP properties as part of this review, with operated production volumes updated through November 2022 as provided by THQA.

Non-producing reserve estimates, including developed and undeveloped properties, were forecast using either volumetric or analogy methods, or a combination of both. These methods provide a relatively high degree of accuracy for predicting proved developed non-producing and proved undeveloped reserves. The assumptions, data, methods and procedures used herein are appropriate for the purpose served by this report.

Tug Hill Operating Interests – SEC Price Case

February 8, 2023

Page 4

General Discussion

An on-site field inspection of the properties has not been performed nor has the mechanical operation or condition of the wells and their related facilities been examined, nor have the wells been tested by Cawley, Gillespie & Associates, Inc. Possible environmental liability related to the properties has not been investigated or considered. The cost of plugging and the salvage value of equipment at abandonment have been included.

The reserve estimates were based on interpretations of factual data furnished by Tug Hill Operating. Gas and oil prices, pricing differentials, expense data, heating values, gas shrinkage, tax values, investments and ownership interests were also supplied by your office and were accepted as furnished. To some extent information from public records has been used to check and/or supplement these data. The basic engineering and geological data were subject to third party reservations and qualifications. Nothing has come to our attention, however, that would cause us to believe that we are not justified in relying on such data. All estimates represent our best judgment based on the data available at the time of preparation, and assumptions as to future economic and regulatory conditions. Due to inherent uncertainties in future production rates, commodity prices and geologic conditions, it should be realized that the reserve estimates, the reserves actually recovered, the revenue derived therefrom and the actual cost incurred could be more or less than the estimated amounts.

Closing

Cawley, Gillespie & Associates, Inc. is a Texas Registered Engineering Firm (F-693), made up of independent registered professional engineers and geologists that have provided petroleum consulting services to the oil and gas industry for over 60 years. This evaluation was supervised by W. Todd Brooker, President at Cawley, Gillespie & Associates, Inc. and a State of Texas Licensed Professional Engineer (License #83462). We do not own an interest in the properties or Tug Hill Operating and are not employed on a contingent basis. We have used all methods and procedures that we consider necessary under the circumstances to prepare this report. Our work-papers and related data utilized in the preparation of these estimates are available in our office.

Yours very truly,

CAWLEY, GILLESPIE & ASSOCIATES, INC.

Texas Registered Engineering Firm F-693

/s/ W. Todd Brooker, P.E.

President

/s/ Tiffany H. Flanagan

Reservoir Engineer

XML

Cover	May 03, 2023
Cover [Abstract]
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Document Period End Date	May 03, 2023
Entity File Number	001-3551
Entity Registrant Name	EQT CORPORATION
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Entity Tax Identification Number	25-0464690
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Entity Address, Address Line One	625 Liberty Avenue
Entity Address, Address Line Two	Suite 1700
Entity Address, City or Town	Pittsburgh
Entity Address, State or Province	PA
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