PITTSBURGH, July 28 /PRNewswire-FirstCall/ -- Equitable Resources, Inc.
(NYSE: EQT) today announced second quarter 2005 earnings per diluted share
(EPS) of $1.04 compared with $2.06 reported in the second quarter 2004. The
reported $1.04 EPS includes the impact of several unusual items. The Company
recognized a $60.8 million gain on the sale of approximately 5.9 million
shares of Kerr-McGee, an $11.1 million negative tax impact related to the
American Jobs Creation Act, $7.3 million of office relocation costs, and a
$6.7 million reserve reversal on international projects, as described below.
In the second quarter 2004, there were also several unusual items, most
notably a $217.2 million gain recorded as a result of the Westport/Kerr-McGee
merger, $40.2 million of impairment charges related to the Company's
international investments, and an $18.2 million charitable foundation
contribution, all of which were detailed in Equitable's earnings press release
dated July 15, 2004.
Quarterly Results by Business
Equitable Utilities
Equitable Utilities had operating income for the second quarter of $5.7
million compared to $11.0 million reported for the same period last year. Net
operating revenues were $42.1 million compared to $44.8 million in 2004.
Total operating expenses for the quarter increased by $2.6 million from
$33.8 million in 2004 to $36.4 million in 2005. Expenses for the 2005 quarter
included a $3.8 million charge related to the Company's relocation into a new
office, detailed below, and a $0.8 million charge for an enhanced severance
program for employees whose jobs will be eliminated as a result of the
implementation of a new automated meter reading process. Increases in fringe
benefit rates, insurance premiums, and other operating costs were more than
offset by decreases of $3.7 million in the segment's bad debt expense and $0.7
million in depreciation, depletion and amortization (DD&A) for the quarter.
Of the decrease in bad debt expense, $2 million was attributable to an above
normal reserve rate in the second quarter 2004, with the balance the result of
progress made on collections.
Equitable Supply
Equitable Supply's operating income for the 2005 second quarter totaled
$63.2 million, 20% higher than the $52.7 million earned in the same period
last year. Total operating revenues were $112.2 million, $19.7 million higher
than the previous year's total of $92.5 million. Production revenues
increased $15.1 million quarter over quarter to $89.7 million in 2005 from
$74.6 million in 2004. The increase was primarily due to increased sales
volumes from the Eastern Seven Partners (ESP) acquisition earlier this year
and a higher average well-head sales price. Gathering revenues were $4.6
million higher at $22.5 million, compared with $17.9 million in 2004. The
increase in gathering revenue was primarily due to an increase in gathering
rates, partially offset by a decrease in gathered volumes.
Total operating expenses for the 2005 second quarter totaled $49.0 million
compared to $39.8 million in the 2004 second quarter, of which $4.1 million
resulted from the costs of operating properties purchased from ESP. Excluding
the ESP costs, the increase in operating expenses was due to increases of $1.9
million in gathering expenses, $1.6 million in production taxes, $1.2 million
in DD&A expense, and $1.0 million in selling, general and administrative
expense, offset by a decrease of $0.6 million in lease operating expenses.
NORESCO
NORESCO's net operating revenues decreased in the second quarter 2005 to
$9.4 million, compared to $9.7 million in the second quarter 2004. Operating
income decreased from $3.5 million in the second quarter 2004 to $2.9 million
in 2005. NORESCO's quarter-end backlog was $63 million, compared to $97
million a year earlier.
NORESCO continued to evaluate its future obligations associated with
exiting the international market and as a result reduced these obligations by
$6.7 million. This reduction in obligations is primarily the result of
bringing the Panamanian power plant into compliance with local noise
restrictions without incurring costs that had been previously expected and the
anticipated award of a replacement power sales agreement.
Other Business
Kerr-McGee Corp.
In the second quarter 2005, Equitable terminated forward transactions
entered into in July 2004 with respect to an aggregate of 6.0 million shares
of common stock of Kerr-McGee Corporation (KMG). In connection with the
termination, Equitable incurred termination costs of $95.8 million. Also in
the quarter, Equitable sold approximately 5.9 million KMG shares at an average
price of $76.43 per share. These transactions resulted in a net pre-tax gain
of $60.8 million in the quarter.
Equitable recorded $0.1 million in KMG dividends in the quarter, $1.0
million less than the $1.1 million recorded in the first quarter.
Equitable currently owns approximately 1.1 million KMG shares which are
held for sale.
Sale of Gas Properties
As previously disclosed, during the second quarter 2005, Equitable sold an
estimated 66 Bcf of proved reserves, of which approximately 59 Bcf were
developed, for $147 million. The proceeds were reduced for $5 million of
purchase price adjustments. The Company did not record a gain or loss upon
the closing of this sale.
Office Consolidation
In May 2005, the Company completed the relocation of its corporate
headquarters and other operations to a newly constructed office building
located at the North Shore in Pittsburgh. In the second quarter 2005, the
Company recognized a loss of $7.3 million on the early termination of
operating leases and the impairment of assets related to the move, for a total
year-to-date loss of $7.8 million. Of the $7.3 million in losses in the
second quarter, $3.8 million was related to the Utilities segment and $3.5
million was unallocated.
Executive Performance Incentive Programs
The Company has two Executive Performance Incentive Programs (EPIPs)
linked to shareholder returns; one matures December 31, 2005, the other on
December 31, 2008. The programs are designed to align management's long-term
incentive compensation to the absolute and relative returns earned by the
Company's shareholders. These programs have economic costs similar to stock
option-based programs, but different accounting treatment. Unlike stock
options, the cost of the EPIPs is expensed during the program period, and the
EPIPs do not have the long-term dilutive effect of stock options. The expense
of the program varies based in part on changes in Equitable's stock price.
The significant stock appreciation in the second quarter resulted in EPIP
expense of $11.5 million in the quarter and $14.6 million year-to-date.
Tax
During the second quarter of 2005, the Company completed its review of the
American Jobs Creation Act of 2004 (the Jobs Act), which the President signed
into law on October 22, 2004. The Company has determined that amendment of
certain executive compensation plans is likely before year end in order to
comply with the Jobs Act. The Company anticipates that such amendments will
result in payment during a period when some of the compensation may not be
deductible under Section 162(m) of the Internal Revenue Code. As a result,
the Company recorded an $11.1 million valuation allowance against the deferred
tax benefit associated with the affected compensation programs.
2005 Earnings Guidance
The Company is adjusting its 2005 EPS guidance to $3.90-$3.95 (pre-split)
to reflect the effects of the Kerr-McGee transactions, the Section 162(m) tax
impact, office consolidation expenses, and the international reserve
adjustment. The Company is also reiterating its Production sales volume
forecast of 73 Bcfe.
Hedging
The approximate volumes and prices of Equitable's hedges for the last six
months of 2005 through 2007 are:
2005** 2006 2007
Total Volume (Bcf) 30 59 56
Average Price per Mcf (NYMEX)* $4.89 $4.77 $4.74
* The above price is based on a conversion rate of 1.05 MMbtu/Mcf
** July through December
Stock Split
On July 13, 2005, the Company's Board of Directors approved a 2-for-1
stock split, subject to regulatory approval, payable September 1, 2005, to
shareholders of record as of August 12, 2005.
Stock Buyback
The Company increased its share repurchase authorization by 3.2 million
shares on a pre-split basis to 25.0 million shares on July 13, 2005. During
the quarter, Equitable Resources repurchased 560,100 shares of EQT stock. The
total number of shares repurchased since October 1998 is approximately 19.9
million.
Operating Income and Earnings from Nonconsolidated Investments
The Company reports operating income and earnings (losses) from
nonconsolidated investments by segment in this press release. Both interest
and income taxes are controlled on a consolidated, corporate-wide basis, and
are not allocated to the segments.
The following table reconciles operating income by segment as reported in
this press release to the consolidated operating income reported in the
Company's financial statements:
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
Operating income (thousands):
Equitable Utilities $5,682 $11,040 $68,059 $67,000
Equitable Supply 63,170 52,726 128,523 114,256
NORESCO 2,891 3,467 6,596 7,253
Unallocated expenses (15,393) (20,076) (15,927) (21,825)
Operating Income $56,350 $47,157 $187,251 $166,684
The following table reconciles earnings (losses) from nonconsolidated
investments by segment as reported in this press release to the consolidated
earnings (losses) from nonconsolidated investments reported in the Company's
financial statements:
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
Earnings (losses) from
nonconsolidated investments
(thousands):
Equitable Supply $83 $137 $130 $280
NORESCO 6,696 (39,835) 7,874 (39,115)
Unallocated 25 41 67 79
Total $6,804 $(39,657) $8,071 $(38,756)
Other segment financial measures identified in this press release are
reconciled to the most comparable financial measures calculated in accordance
with GAAP on the attached operational and financial reports.
Equitable's teleconference with securities analysts, which begins at 10:30
a.m. Eastern Time today, will be broadcast live via Equitable's website,
http://www.eqt.com and will be available for replay for a seven day period.
Equitable Resources is an integrated energy company, with emphasis on
Appalachian area natural gas production supply, natural gas transmission and
distribution, and leading-edge energy management services for customers
throughout the United States.
Equitable Resources management speaks to investors from time to time.
Slides for these discussions will be available online on Equitable's website.
The slides may be updated periodically.
Forward Looking Statements
Disclosures in this press release contain forward-looking statements.
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 press release specifically include the
expectations of plans, strategies, objectives and growth and anticipated
financial and operational performance of the Company and its subsidiaries,
including guidance regarding the Company's drilling program, production
volumes, and earnings. A variety of factors could cause the Company's actual
results to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements. The risks
and uncertainties that may affect the operations, performance and results of
the Company's business and forward-looking statements include, but are not
limited to, the following:
- the impact of adverse weather conditions on the Company's Distribution
operations and well drilling program
- the volatility of commodity prices for natural gas and the effect of
changing prices on the Company's hedging and well drilling activities
and the collections experience at the Company's Distribution operations
- the need for, and availability and cost of, financing
- the implementation and execution of operational enhancements and cost
control initiatives
- the effect of curtailments or other disruptions in production
- the substance, timing and availability of regulatory and legislative
actions, initiatives and proceedings
- the Company's success in implementing acquisition or divestiture
activities
- the ability of the Company to develop, produce, gather, and market
reserves, including its ability to substantially increase well drilling
activity
- the inherent uncertainty of gas reserve estimates
- the ability of the Company to acquire and apply technology to its
operations
- the impact of competitive factors, including consolidation in the
utility industry
- the ability of the Company to maintain good working relations with its
represented employees and to retain its key personnel
- changes in the market price of the common stock of EQT and its peer
group, as well as Kerr-McGee Corporation
- changes in accounting rules or their interpretation, and
- other factors discussed in other reports filed by the Company from time
to time.
Any forward-looking statement speaks only as of the date on which such
statement is made and the Company undertakes no obligation to correct or
update any forward-looking statement, whether as a result of new information,
future events or otherwise.
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
(Thousands except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
Operating revenues $269,031 $240,640 $708,798 $641,067
Cost of sales 105,363 93,582 322,656 291,178
Net operating revenues 163,668 147,058 386,142 349,889
Operating expenses:
Operation and maintenance 24,865 20,271 48,708 38,969
Production 15,026 11,389 29,196 21,476
Selling, general and administrative 36,735 46,631 66,337 79,383
Impairment charges 7,316 - 7,835 -
Depreciation, depletion and
amortization 23,376 21,610 46,815 43,377
Total operating expenses 107,318 99,901 198,891 183,205
Operating income 56,350 47,157 187,251 166,684
Gain on sale of available-for-sale
securities, net 60,819 3,024 60,819 3,024
Gain on exchange of Westport for
Kerr-McGee shares - 217,212 - 217,212
Charitable foundation contribution - (18,226) - (18,226)
Earnings (losses) from
nonconsolidated investments:
International investments 6,688 (39,850) 7,847 (39,134)
Other 116 193 224 378
6,804 (39,657) 8,071 (38,756)
Other income, net 57 576 1,195 576
Minority interest (307) (359) (746) (729)
Interest expense 11,468 11,503 25,433 23,762
Income before income taxes 112,255 198,224 231,157 306,023
Income taxes 47,936 67,397 90,432 105,126
Net income $64,319 $130,827 $140,725 $200,897
Earnings per share of common
stock:
Basic:
Weighted average common shares
outstanding 60,736 62,019 60,736 62,137
Net income $1.06 $2.11 $2.32 $3.23
Diluted:
Weighted average common shares
outstanding 61,995 63,380 62,093 63,464
Net income $1.04 $2.06 $2.27 $3.17
(A) Due to the seasonal nature of the Company's natural gas distribution
and energy marketing business, and the volatility of gas and oil
commodity prices, the interim statements for the three and six month
periods are not indicative of results for a full year.
EQUITABLE UTILITIES
OPERATIONAL AND FINANCIAL REPORT
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
OPERATIONAL DATA
Heating degree days (30-year
average: Qtr- 705; YTD- 3,635) 597 520 3,431 3,445
Residential sales and
transportation volume (MMcf) 3,173 3,716 15,546 16,796
Commercial and industrial volume
(MMcf) 4,322 6,089 15,105 17,755
Total throughput (MMcf) -
Distribution 7,495 9,805 30,651 34,551
Total throughput (Bbtu) - Pipeline 16,445 19,673 32,906 38,634
Net Revenues (thousands):
Distribution
Residential $17,754 $18,404 $60,915 $63,370
Commercial & industrial 7,408 9,443 28,650 30,216
Other 2,128 1,721 4,517 3,285
Pipeline 10,498 11,109 26,964 27,127
Marketing 4,280 4,134 20,292 14,579
$42,068 $44,811 $141,338 $138,577
Operating expenses as a % of net
operating revenues 86.49% 75.36% 51.85% 51.65%
Operating income (thousands):
Distribution $933 $3,174 $39,260 $41,093
Pipeline 835 3,660 9,254 12,315
Marketing 3,914 4,206 19,545 13,592
Total $5,682 $11,040 $68,059 $67,000
Capital expenditures (thousands) $11,786 $14,970 $21,573 $29,570
FINANCIAL DATA (Thousands)
Utility revenues $73,632 $68,944 $290,214 $264,633
Marketing revenues 64,272 69,633 146,758 155,318
Total operating revenues 137,904 138,577 436,972 419,951
Utility purchased gas costs 35,844 28,267 169,168 140,635
Marketing purchased gas costs 59,992 65,499 126,466 140,739
Net operating revenues 42,068 44,811 141,338 138,577
Operating expenses:
Operating and maintenance 14,571 12,289 28,517 24,406
Selling, general and administrative 11,234 14,058 27,549 32,421
Impairment charges 3,841 - 3,841 -
Depreciation, depletion and
amortization 6,740 7,424 13,372 14,750
Total operating expenses 36,386 33,771 73,279 71,577
Operating income $5,682 $11,040 $68,059 $67,000
EQUITABLE SUPPLY
OPERATIONAL AND FINANCIAL REPORT
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
OPERATIONAL DATA
Capital expenditures (thousands) $59,182 $29,329 $147,813 $50,382
Production:
Total sales volumes (MMcfe) 18,494 16,798 36,822 33,840
Average (well-head) sales price
($/Mcfe) $4.77 $4.28 $4.76 $4.39
Company usage, line loss (MMcfe) 1,116 1,036 2,347 2,235
Natural gas inventory usage, net
(MMcfe) - 41 (51) (71)
Natural gas and oil production
(MMcfe) 19,610 17,875 39,118 36,004
Lease operating expense excluding
production tax ($/Mcfe) $0.33 $0.31 $0.33 $0.27
Production tax ($/Mcfe) $0.44 $0.33 $0.42 $0.32
Production depletion ($/Mcfe) $0.60 $0.54 $0.61 $0.54
Gathering:
Gathered volumes (MMcfe) 28,960 31,305 62,112 63,873
Average gathering fee ($/Mcfe) $0.78 $0.57 $0.75 $0.59
Gathering and compression expense
($/Mcfe) $0.36 $0.25 $0.33 $0.23
Gathering and compression
depreciation ($/Mcfe) $0.12 $0.10 $0.11 $0.10
(in thousands)
Production operating income $58,154 $48,603 $115,437 $102,931
Gathering operating income 5,016 4,123 13,086 11,325
Total $63,170 $52,726 $128,523 $114,256
Production depletion $11,840 $9,619 $23,899 $19,441
Gathering and compression
depreciation 3,401 3,255 6,725 6,607
Other depreciation, depletion and
amortization 950 915 1,952 1,784
Total depreciation, depletion and
amortization $16,191 $13,789 $32,576 $27,832
FINANCIAL DATA (Thousands)
Production revenues $89,712 $74,586 $178,816 $154,015
Gathering revenues $22,497 $17,923 $46,668 $37,738
Total revenues 112,209 92,509 225,484 191,753
Operating expenses:
Lease operating expense excluding
production taxes 6,481 5,577 12,716 9,831
Production taxes 8,545 5,812 16,480 11,645
Gathering and compression expense 10,301 7,982 20,197 14,569
Selling, general and administrative 7,521 6,623 14,473 13,620
Impairment charges - - 519 -
Depreciation, depletion and
amortization 16,191 13,789 32,576 27,832
Total operating expenses 49,039 39,783 96,961 77,497
Operating income $63,170 $52,726 $128,523 $114,256
Other income $- $576 $- $576
Earnings from nonconsolidated
investments $83 $137 $130 $280
NORESCO
OPERATIONAL AND FINANCIAL REPORT
Three Months Ended Six Months Ended
June 30, June 30,
2005 2004 2005 2004
OPERATIONAL DATA
Revenue backlog, end of period
(thousands) $62,506 $97,163 $62,506 $97,163
Gross profit margin 24.2% 27.3% 25.0% 28.1%
SG&A as a % of revenue 16.1% 16.9% 15.8% 17.0%
Capital expenditures (thousands) $74 $164 $291 $192
FINANCIAL DATA (Thousands)
Energy service contract revenues $38,837 $35,700 $77,328 $69,626
Energy service contract costs 29,446 25,962 58,008 50,067
Net operating revenues (gross
profit margin) 9,391 9,738 19,320 19,559
Operating expenses:
Selling, general and administrative
expenses 6,243 6,021 12,218 11,805
Depreciation and amortization 257 250 506 501
Total operating expenses 6,500 6,271 12,724 12,306
Operating income $2,891 $3,467 $6,596 $7,253
Earnings from nonconsolidated
investments:
International investments 6,688 (39,850) 7,847 (39,134)
Other 8 15 27 19
Minority interest (307) (359) (746) (729)
SOURCE Equitable Resources, Inc.
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Related links:
http://www.eqt.com
CONTACT:
Patrick Kane of Equitable Resources, Inc.,
+1-412-553-7833
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