Potential contingent consideration

[Table of Contents](#ib44c212f2b9b4d609af803980a71c2da_7)EQT CORPORATION AND SUBSIDIARIESNotes to the Condensed Consolidated Financial Statements (Unaudited)The Company has netting agreements with financial institutions and its brokers that permit net settlement of gross commodity derivative assets against gross commodity derivative liabilities. The table below summarizes the impact of netting agreements and margin deposits on gross derivative assets and liabilities.

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Gross derivative instruments recorded in the Condensed Consolidated Balance Sheets |  | Derivative instruments subject to master netting agreements |  | Margin requirements with counterparties |  | Net derivative instruments |
|  |  |  |  |  |  |  |  |
|   | (Thousands) |
| September 30, 2022 |  |  |  |  |  |  |  |
| Asset derivative instruments, at fair value | $ | 1,466,800  |  |  | $ | (1,404,502) |  |  | $ | —  |  |  | $ | 62,298  |  |
| Liability derivative instruments, at fair value | 4,214,888  |  |  | (1,404,502) |  |  | (187,933) |  |  | 2,622,453  |  |
|  |  |  |  |  |  |  |  |
| December 31, 2021 |  |  |  |  |  |  |  |
| Asset derivative instruments, at fair value | $ | 543,337  |  |  | $ | (468,266) |  |  | $ | —  |  |  | $ | 75,071  |  |
| Liability derivative instruments, at fair value | 2,413,608  |  |  | (468,266) |  |  | (147,773) |  |  | 1,797,569  |  |

  
The Consolidated GGA (defined in Note 8) executed in connection with the Equitrans Share Exchange (defined in Note 8) provides for additional cash bonus payments (the Henry Hub Cash Bonus) payable by the Company during the period beginning on the first day of the quarter in which the Mountain Valley Pipeline is placed in service and ending on the earlier of 36 months thereafter or December 31, 2024. Such payments are conditioned upon the quarterly average of the NYMEX Henry Hub natural gas settlement price exceeding certain price thresholds. As of September 30, 2022 and December 31, 2021, the derivative liability related to the Henry Hub Cash Bonus had a fair value of approximately $53 million and $111 million, respectively. The fair value of the derivative liability related to the Henry Hub Cash Bonus is based on significant inputs that are interpolated from observable market data and, as such, is a Level 2 fair value measurement. See Note 4 for a description of the fair value hierarchy.   
During the second quarter of 2020, the Company closed a transaction to sell certain non-strategic assets located in Pennsylvania and West Virginia (the 2020 Divestiture), the purchase and sale agreement for which, among other things, provides for additional cash bonus payments (the Contingent Consideration) payable to the Company of up to $20 million, conditioned upon the three-month average of the NYMEX Henry Hub natural gas settlement price relative to stated floor and target price thresholds beginning on August 31, 2020 and ending on November 30, 2022. As of September 30, 2022 and December 31, 2021, the derivative asset related to the Contingent Consideration had a fair value of approximately $2.0 million and $8.2 million, respectively. During the nine months ended September 30, 2022 and 2021, the Company received cash from the Contingent Consideration of $6.5 million and $5.6 million, respectively. Changes in fair value are recorded in gain on sale/exchange of long-lived assets in the Statements of Condensed Consolidated Operations. The fair value of the derivative asset related to the Contingent Consideration is based on significant inputs that are interpolated from observable market data and, as such, is a Level 2 fair value measurement. See Note 4 for a description of the fair value hierarchy.  
4.    Fair Value Measurements The Company records its financial instruments, which are principally derivative instruments, at fair value in the Condensed Consolidated Balance Sheets. The Company estimates the fair value of its financial instruments using quoted market prices when available. If quoted market prices are not available, the fair value is based on models that use market-based parameters, including forward curves, discount rates, volatilities and nonperformance risk, as inputs. Nonperformance risk considers the effect of the Company's credit standing on the fair value of liabilities and the effect of the counterparty's credit standing on the fair value of assets. The Company estimates nonperformance risk by analyzing publicly available market information, including a comparison of the yield on debt instruments with credit ratings similar to the Company's or counterparty's credit rating and the yield on a risk-free instrument.  
The Company has categorized its assets and liabilities recorded at fair value into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Assets and liabilities that use Level 2 inputs primarily include the Company's swap, collar and option agreements.14
