EQT's Hedging Shift: A Gamble on Gas Prices or Strategic Risk Management?

Natural gas producers face a perennial balancing act: lock in prices through hedging to secure cash flow or leave positions unhedged to capitalize on price surges. For EQT Corporation (EQT), this calculus has shifted dramatically in 2025. The company is deliberately reducing its hedge coverage, signaling a bold strategic pivot to ride the wave of rising natural gas prices while navigating risks in a volatile market. For investors, this move raises critical questions: Is EQT optimizing its risk-reward profile, or is it overexposing itself to a potential price collapse?

The shift is clear. As detailed in EQT's first-quarter 2025 filings, the company plans to reduce hedge coverage to 40% of production by year-end 2025, down sharply from historical levels. By 2026, EQT aims to eliminate hedges entirely, leaving its cash flow fully exposed to market prices. The rationale is twofold: confidence in a prolonged upward trajectory for natural gas prices and a belief that operational efficiencies and vertical integration can mitigate downside risks.

The Case for Reduced Hedging: Riding the Bull

EQT's decision stems from its rosy outlook for natural gas. U.S. natural gas prices have surged this year, driven by tight storage inventories, robust industrial demand, and European buyers seeking alternatives to Russian supplies. The U.S. Energy Information Administration (EIA) forecasts prices to average $3.50–4.00/MMBtu in 2025, up from $2.80/MMBtu in 2023. EQT's hedging strategy aims to capture this upside.

Meanwhile, EQT's operational improvements have bolstered its resilience. In Q1 2025, the company slashed capital expenditures by 19% below guidance and reduced operating costs to $1.05/Mcfe—a 40% drop from 2020 levels. This cost discipline, paired with its vertically integrated midstream assets (purchased from Equitrans Midstream), allows EQT to respond nimbly to price swings. For instance, during the winter peak, EQT's midstream control let it “open chokes” to boost production and capture higher prices, narrowing differentials by $0.16/Mcf.

The Risk: Volatility's Double-Edged Sword

Yet the strategy carries risks. If natural gas prices collapse—due to a mild winter, a recession, or a supply glut—EQT's unhedged exposure could amplify losses. The company's debt, now at $8.1 billion, remains a vulnerability. While EQT has reduced net debt by $1 billion since year-end 2024, its leverage ratio (net debt/EBITDA) still hovers around 3.4x, a level that could strain cash flow if prices sour.

Moreover, regulatory risks loom large. Methane emissions rules and climate policies could force EQT to invest in compliance, diverting capital from production. The company's Cautionary Statements highlight these risks, noting that “regulatory changes could increase operating costs or restrict production.”

Data Insights: EQT vs. Natural Gas Prices

To assess EQT's stock performance relative to its strategy, investors should track two metrics:

This comparison would reveal whether EQT's stock is indeed moving in tandem with gas prices—a sign that its hedging shift is paying off.

This data would show whether EQT is maintaining financial flexibility despite its debt load.

Investment Considerations

For investors, EQT's hedging shift is a vote of confidence in gas prices—but it's far from a sure bet. Here's how to weigh the risk-reward trade:

1. Bullish on Gas? EQT Could Be a Leveraged Play. If you believe gas prices will stay elevated (or rise further), EQT's unhedged exposure could amplify gains. The company's cost structure and integration give it a margin cushion to outperform peers in a rising market.

2. Beware of Downside Volatility. Investors with a shorter time horizon or lower risk tolerance should proceed cautiously. A price drop could hit EQT harder than hedged peers like Range Resources (RRC) or Cabot Oil & Gas (COG).

3. Monitor Debt and Free Cash Flow. EQT's ability to service debt hinges on maintaining free cash flow, even in a downturn. If prices fall sharply, check if the company can cut costs further or delay capex to stay afloat.

4. Consider the Olympus Acquisition. The $1.8 billion purchase of Olympus Energy's assets adds scale and low-cost reserves. The deal's 15% unlevered free cash flow yield suggests it could improve EQT's breakeven price, reducing sensitivity to price declines.

Conclusion: A High-Reward, High-Risk Bet on Gas

EQT's hedging strategy is a calculated gamble. By shedding hedges, it's betting on sustained gas price strength while relying on its operational and structural advantages to cushion falls. For investors, this makes EQT a pure play on natural gas bulls—rewarding those who call the market right but punishing those who don't.

In a volatile market, EQT's move is as much about confidence as it is about risk. Investors must decide: Is EQT's bet on gas prices a masterstroke, or a leap into the unknown? The answer will hinge on the weather, global demand, and the resilience of one of the shale industry's oldest players.

Final Note: EQT's shift underscores a broader theme in energy investing—companies are increasingly betting on their operational strengths to navigate volatility rather than hedging. For now, the market's direction will decide whether EQT's gamble pays off.