PITTSBURGH, Oct. 23 /PRNewswire-FirstCall/ -- Equitable Resources, Inc.
(NYSE: EQT) today announced third quarter 2008 earnings per diluted share
(EPS) of $0.73, compared to $0.27 EPS earned in the third quarter 2007.
Operating cash flow was $203.1 million, a 186% increase over the $71.0
million reported in the third quarter 2007. Highlights of the quarter
include:
-- Achieved production growth of 12.7% versus third quarter 2007;
-- Achieved year-end daily natural gas sales target of 235 MMcfe, three
months ahead of schedule. Current daily gas sales rate is 245 MMcfe
per day. The company forecasts exiting 2008 with a gas sales rate
between 255 and 260 MMcfe per day;
-- Increased 2008 gas sales guidance from 80 - 81 Bcfe to 83.5 - 84.0
Bcfe;
-- Drilled 521 gross wells year-to-date, 290 of which were horizontal
wells;
-- Completed construction of the Langley hydrocarbon processing plant and
gas compression facilities in Kentucky. Along with the recently
completed Big Sandy pipeline and Mayking corridor, these three major
projects provide an important platform for the company's growth over
the next several years; and
-- Affirmed the company can achieve greater than 12% gas sales volume
growth through the end of 2010, which does not require access to the
capital markets, and is based on a 2009 capital budget of between $900
million and $1 billion. Funding will be provided by cash flow and from
available liquidity under the company's existing credit facility.
Murry S. Gerber, chairman and chief executive officer of Equitable
Resources commented, "Results from this quarter confirm two inherent
elements of Equitable's growth strategy. First, horizontal air drilling
works. Equitable is the clear industry leader in this drilling approach
which is both efficient in cost and quick to employ. It is now fully
operational and is being extended to multiple formations throughout the
Appalachian basin; including the Marcellus shale. Second, completion of
several key midstream projects has had the intended striking impact on
production levels. Having spent significant capital upfront, critical
infrastructure is now in place to allow market access for our growing
production at a low cash cost. We believe this two prong strategy, applied
to our extensive reserve base, yields annual production growth potential of
well in excess of 20% for the foreseeable future while reducing unit
costs."
Quarterly Results by Business
Equitable Production
Equitable Production achieved its year-end daily gas sales target of
235 MMcfe three months ahead of schedule, and, as a result of the success
of the horizontal shale drilling program, is currently selling 245 MMcfe
per day. The company is increasing its 2008 gas sales guidance to 83.5 -
84.0 Bcfe, from its previous guidance of 80 - 81 Bcfe.
The company drilled 197 gross wells in the third quarter, bringing
total wells drilled for the first nine months of 2008 to 521. Of the wells
drilled in the third quarter, 122 were horizontal wells; 111 of which were
development wells targeting the Lower Huron shale. The company intends to
drill more than 375 horizontal wells in 2008.
Operating income for the quarter was $67.3 million, 40% higher than the
$48.2 million earned in the same period last year. Operating revenues were
$122.1 million, 43% higher than the $85.5 million reported in 2007, as a
result of a 29% increase in average well-head sales price and a 12.1%
increase in gas sales volumes.
Operating expenses for the quarter were $54.8 million, $17.5 million
higher than the $37.3 million reported last year. In the third quarter, the
company began the analysis of seismic data targeting deep zones which
resulted in $3.5 million of exploration expense. Excluding the cost of
these exploration activities, the expense increase is related to the
company's ramp-up in drilling and production, and higher severance taxes
associated with higher natural gas prices.
Emerging Plays
Equitable continues to have encouraging results from several of its
emerging plays, which is likely to result in future additions to reserve
estimates and production. The company's current reserve report does not
reflect any material reserves, proved, probable or possible, in connection
with these emerging plays.
Berea
The company has drilled 15 wells in the Berea sandstone this year;
seven are currently producing. The first month average daily flow rate is
estimated to be approximately 1,500 Mcfe per well. The company is on track
to drill between 25 and 30 Berea wells in 2008, with an anticipated cost of
between $1.4 and $1.5 million per well. Equitable believes there could be
as many as 3,800 additional drilling locations in the Berea.
Re-entry
To date, the company has drilled 113 "re-entry" horizontal wells on
locations previously completed in low pressure Devonian shales with
vertical wells. This is 38 more wells than previously forecasted for the
full year. The purpose of this "re-entry" program is to test whether
horizontal air drilling can be used to profitably extract gas left behind
by previous vertical drilling.
Forty-seven of the new wells have been producing for 30 days or longer
and the decline profiles of these "re-entry" wells are similar to those
observed in horizontal wells where no previous drilling has occurred.
Equitable has 4,700 potential "re-entry" locations which are generally
closer to existing infrastructure than many undrilled locations, and are
therefore expected to realize superior all-in economic returns.
Marcellus
Equitable controls more than 400,000 acres in the high pressure
Marcellus play throughout northern West Virginia and western Pennsylvania.
To date, the company has drilled 13 high pressure Marcellus wells; nine
vertical and four horizontal. Results of these wells are encouraging.
Two of the most recent horizontal Marcellus wells were drilled with
air, a technique the company pioneered in the low pressure Lower
Huron/Devonian shale drilling program. Equitable believes that the
application of horizontal air drilling to the Marcellus play offers the
potential of reducing drilling costs by as much as 25% compared to
conventional drilling methods.
Equitable Midstream
During the quarter, Equitable Midstream completed the construction of
the Langley hydrocarbon processing plant and gas compression facilities in
Kentucky. Combined with the Big Sandy pipeline and Mayking corridor
completed earlier this year, these three important projects provide the
platform for significant Production gas sales volume growth in 2009 and
beyond.
Equitable Midstream had third quarter operating income of $29.8
million, a 27% increase over the $23.5 million reported for the same period
last year. Net operating revenues for the third quarter were $71.2 million,
38% higher than last year's $51.6 million. The increase in net operating
revenues was driven by higher gathering volumes, higher gathering rates,
higher natural gas liquid sales prices and revenues from recently completed
Midstream projects.
Operating expenses increased $13.3 million, to $41.5 million. The
increase is primarily due to a $5.2 million reserve against Lehman Brothers
receivables and higher operating and depreciation costs resulting from the
company's growth, partially offset by a reduction in incentive
compensation. The company has no additional income statement exposure to
Lehman Brothers beyond the reserve recorded this quarter.
During the third quarter, Equitable Midstream entered a binding
precedent agreement with El Paso's Tennessee Gas Pipeline for a 15-year
term, 300,000 Dth per day capacity on its 125 mile expansion project to
northeast markets through Pennsylvania and New Jersey. The project will
provide Equitable with access to the consumer markets from the Gulf Coast
to the Mid-Atlantic and the Northeast.
Equitable Distribution
Equitable Distribution's operating loss totaled $1.8 million for the
third quarter of 2008 compared to an operating loss of $5.4 million for the
same period last year. Net operating revenues were $22.4 million for the
third quarter of 2008, slightly higher than the $21.0 million for 2007.
Operating expenses decreased $2.2 million, to $24.2 million, primarily
attributable to a decrease in incentive compensation costs and the absence
in 2008 of transition planning that was incurred in 2007, partially offset
by increases in operating and maintenance expense and bad debt expense. The
increase in bad debt expense is due to an increased participation in
customer assistance plans.
Other Business
Capital Budget
With the success of Equitable's horizontal drilling program and
completion of several important infrastructure projects, the company
believes that it has a potential long-term gas sales volume growth of well
in excess of 20% per year for the foreseeable future if the capital markets
become less constrained. However, given current market conditions, the
company is developing a plan to reduce capital investments for 2009 to
between $900 million and $1 billion. The plan will not require the company
to access capital markets through at least the end of 2010. Even so,
through concentrating spending on drilling where midstream capacity has
already been built, the company anticipates annual gas sales volume growth
of greater than 12% over that period, even if these constrained capital
market conditions persist. Capital expenditures for 2008 are expected to
total approximately $1.4 billion.
Incentive Compensation Programs
The company has executive performance incentive compensation programs
designed to align management's long-term incentive compensation with the
absolute and relative returns earned by the company's shareholders. The
expense of these programs varies, based mainly on changes in Equitable's
stock price. The recent reduction in stock price resulted in a reversal in
the third quarter 2008 of previously recorded compensation expense.
Executive incentive compensation expenses, including the reversal, totaled
($69.6) million; $79.9 million less than the $10.3 million recorded in the
third quarter 2007. When considered in conjunction with the sizeable
accruals for these plans earlier in 2008, the net reversal through the
first three quarters of 2008 was $20.3 million, versus an accrual of $62.2
million in the first three quarters of 2007.
Hedging
The company's hedge position did not change significantly in the third
quarter 2008. The approximate volumes and prices of the company's hedge
position for 2008 through 2010 production are:
Swaps 2008** 2009 2010
Total Volume (Bcf) 13 37 35
Average Price per Mcf (NYMEX)* $4.62 $5.91 $5.96
Collars 2008** 2009 2010
Total Volume (Bcf) 4 23 21
Average Floor Price per Mcf (NYMEX)* $7.61 $7.34 $7.29
Average Cap Price per Mcf (NYMEX)* $12.59 $13.68 $13.51
* The above price is based on a conversion rate of 1.05 MMbtu/Mcf
**October through December
Operating Income
The company reports operating income 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 Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Operating income (thousands):
Equitable Production $67,296 $48,156 $201,805 $144,856
Equitable Midstream 29,772 23,473 114,254 95,776
Equitable Distribution (1,772) (5,356) 38,207 31,756
Unallocated income (expense) 67,430 (8,905) 29,016 (54,647)
Operating Income $162,726 $57,368 $383,282 $217,741
Unallocated income (expense) consists of differences between budget and
actual headquarters' expenses, including incentive compensation. For each
period presented, the difference between equity in earnings of
nonconsolidated investments as reported on the company's statements of
consolidated income and on Equitable Midstream's operational and financial
report is the earnings from the company's ownership interest in Appalachian
Natural Gas Trust. Other segment financial measures identified in this
press release are reconciled to the most comparable financial measures
calculated in accordance with generally accepted accounting principles on
the attached operational and financial reports. Equitable also provides
certain segment related operating information as additional information for
its operating results in this press release. Equitable's management
believes that the presentation of this segment information provides useful
information to management and investors regarding the financial condition,
operations and trends of each of Equitable's segments without being
obscured by the financial condition and trends for the other segments, or
by the effects of corporate allocations of interest and income taxes. In
addition, management uses these measures for budget planning purposes.
Operating Cash Flow
Operating cash flow is presented because it is typically used as an
indicator of an oil and gas exploration and production company's ability to
internally fund exploration and development activities and to service or
incur additional debt. Net cash provided by operating activities includes
changes in operating assets and liabilities related to the timing of cash
receipts and disbursements which the company may not control. These changes
may not relate to the period in which the operating activities occurred.
Operating cash flow should not be considered in isolation or as a
substitute for net cash provided by operating activities prepared in
accordance with generally accepted accounting principles.
The table below reconciles operating cash flow with net cash provided by
operating activities.
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Net Income (thousands): $96,198 $32,925 $222,109 $196,886
Add back (deduct):
Deferred income taxes 70,166 15,562 195,381 71,385
Depreciation, depletion,
and amortization 34,269 26,907 97,085 81,926
Other items, net 2,496 (4,427) (2,795) (13,783)
Gain on sale of assets, net - - - (119,401)
Operating cash flow (thousands): $203,129 $70,967 $511,780 $217,013
Add back (deduct):
Changes in margin deposits $208,951 $3,674 $(24,742) $(7,259)
Other changes in operating
assets and liabilities (173,953) (44,822) (160,167) 132,098
Net cash provided by
operating activities
(thousands) $238,127 $29,819 $326,871 $341,852
Equitable's conference call 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 seven days.
Equitable Resources is a natural gas-focused energy company, with an
emphasis on Appalachian area natural gas activities, including production,
gathering, processing, transmission, storage and distribution. For
information please visit http://www.eqt.com.
Equitable Resources management speaks to investors from time to time.
Slides for these discussions will be available online via Equitable's
website. The slides may be updated periodically.
Cautionary Statements
The Securities and Exchange Commission (the "SEC") permits oil and gas
companies, in their filings with the SEC, to disclose only proved reserves
that a company has demonstrated by actual production or conclusive
formation tests to be economically and legally producible under existing
economic and operating conditions. The company uses the terms "probable",
"possible", "potential" and other descriptions of volumes of reserves that
may be recoverable through additional drilling or recovery techniques that
the SEC's guidelines would prohibit us from including in filings with the
SEC. These estimates are by their nature more speculative than estimates of
proved reserves and, accordingly, are subject to substantially greater risk
of being actually realized. Investors are urged to consider closely the
disclosure in the company's 2007 Form 10-K, File No. 001-03551 available
from the company at 225 North Shore Drive, Pittsburgh, PA 15212, Attention:
Corporate Secretary. You can also obtain the company's Form 10-K from the
SEC by calling 1-800-SEC-0330.
Daily gas sales volumes is an operational estimate of the daily gas
sales volume on a typical day (excluding curtailments).
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 and
infrastructure programs and initiatives, the expected decline curve,
production and sales volumes, reserves, reserve replacement ratio, capital
expenditures, capital budget, financing plans, operating cash flow, growth
rate and tax position. These statements 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. The company
has based these forward-looking statements on current expectations and
assumptions about future events. While the company considers these
expectations and assumptions to be reasonable, they are inherently subject
to significant business, economic, competitive, regulatory and other risks
and uncertainties, most of which are difficult to predict and many of which
are beyond the company's control. 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, those set
forth under Item 1A, "Risk Factors" of the company's most recently filed
Form 10-K.
The company is unable to provide a reconciliation of its projected
operating cash flow to projected net cash provided by operating activities,
the most comparable financial measure calculated in accordance with
generally accepted accounting principles, because of uncertainties
associated with projecting future net income and changes in assets and
liabilities.
Any forward-looking statement speaks only as of the date on which such
statement is made and the company does not intend 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 Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Operating revenues $297,827 $226,806 $1,167,610 $976,592
Cost of sales 82,114 68,722 471,644 405,687
Net operating
revenues 215,713 158,084 695,966 570,905
Operating expenses:
Operation and
maintenance 30,333 25,602 84,537 78,614
Production 23,076 15,847 59,965 48,085
Exploration 3,508 162 4,901 561
Selling, general
and administrative (38,199) 32,198 66,196 143,978
Depreciation,
depletion and
amortization 34,269 26,907 97,085 81,926
Total operating
expenses 52,987 100,716 312,684 353,164
Operating income 162,726 57,368 383,282 217,741
Gain on sale of
assets, net - - - 119,401
Gain on sale of
available-for-sale
securities, net - - - 1,042
Other income 611 2,204 5,709 4,488
Equity in earnings of
nonconsolidated
investments 1,557 1,423 4,548 2,198
Interest expense 13,012 11,557 40,992 35,604
Income before income
taxes 151,882 49,438 352,547 309,266
Income taxes 55,684 16,513 130,438 112,380
Net income $96,198 $32,925 $222,109 $196,886
Earnings per share
of common stock:
Basic:
Weighted average
common shares
outstanding 130,540 121,380 126,223 121,319
Net income $0.74 $0.27 $1.76 $1.62
Diluted:
Weighted average
common shares
outstanding 131,558 122,838 127,288 122,818
Net income $0.73 $0.27 $1.74 $1.60
(A) Due to the seasonal nature of the Company's natural gas distribution
and storage businesses, and the volatility of commodity prices, the
interim statements for the three and nine month periods are not
indicative of results for a full year.
EQUITABLE PRODUCTION
OPERATIONAL AND FINANCIAL REPORT
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
OPERATIONAL DATA
Natural gas and
oil production (MMcfe) 23,249 20,636 65,813 62,076
Company usage, line
loss (MMcfe) (2,012) (1,684) (4,905) (4,383)
Total sales volumes
(MMcfe) 21,237 18,952 60,908 57,693
Average (well-head)
sales price ($/Mcfe) $5.62 $4.36 $5.66 $4.53
Lease operating
expenses, excluding
production taxes
($/Mcfe) $0.36 $0.33 $0.33 $0.32
Production taxes
($/Mcfe) $0.62 $0.43 $0.57 $0.45
Production depletion
($/Mcfe) $0.81 $0.70 $0.81 $0.70
Production depletion $18,796 $14,440 $53,389 $43,509
Other depreciation,
depletion and
amortization 1,219 872 3,368 2,763
Total depreciation,
depletion and
amortization $20,015 $15,312 $56,757 $46,272
Capital expenditures
(thousands) $250,058 $90,704 $492,934 $215,092
FINANCIAL DATA (Thousands)
Total operating
revenues $122,083 $85,480 $352,109 $268,949
Operating expenses:
Lease operating
expense excluding
production taxes 8,379 6,787 21,395 19,674
Production taxes 14,387 8,841 37,724 27,944
Exploration expense 3,508 162 4,901 561
Selling, general and
administrative 8,498 6,222 29,527 29,642
Depreciation,
depletion and
amortization 20,015 15,312 56,757 46,272
Total operating
expenses 54,787 37,324 150,304 124,093
Operating income $67,296 $48,156 $201,805 $144,856
EQUITABLE MIDSTREAM
OPERATIONAL AND FINANCIAL REPORT
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
OPERATIONAL DATA
Gathering and processing:
Gathered volumes (MMbtu) 37,851 32,757 105,132 110,552
Average gathering fee ($/Mbtu) $0.99 $0.83 $0.99 $0.84
Gathering and compression
expense ($/Mbtu) $0.38 $0.37 $0.37 $0.35
NGLs Sold (Mgal) 19,916 18,091 55,490 54,474
Average NGL sales price ($/gal) $1.51 $1.04 $1.48 $1.00
Net operating revenues (thousands):
Gathering and processing $48,403 $34,728 $135,584 $109,732
Transmission and storage 22,839 16,881 89,677 74,488
Total net operating revenues $71,242 $51,609 $225,261 $184,220
Net operating income (thousands):
Gathering and processing $23,422 $14,801 $62,600 $45,807
Transmission and storage 6,350 8,672 51,654 49,969
Total net operating income $29,772 $23,473 $114,254 $95,776
Depreciation and amortization
(thousands):
Gathering and processing $6,009 $4,434 $17,095 $14,281
Transmission and storage 2,598 1,786 6,573 5,352
Total depreciation and
amortization $8,607 $6,220 $23,668 $19,633
Capital expenditures (thousands) $184,854 $96,570 $432,518 $284,597
FINANCIAL DATA (Thousands)
Total operating revenues $186,114 $122,467 $561,216 $415,236
Purchased gas costs 114,872 70,858 335,955 231,016
Total net operating revenues 71,242 51,609 225,261 184,220
Operating expenses:
Operating and maintenance 19,607 15,729 52,550 48,950
Selling, general and
administrative 13,256 6,187 34,789 19,861
Depreciation and amortization 8,607 6,220 23,668 19,633
Total operating expenses 41,470 28,136 111,007 88,444
Operating income $29,772 $23,473 $114,254 $95,776
Other income $460 $2,090 $5,307 $4,228
Equity in earnings of
nonconsolidated investments $1,363 $1,289 $3,989 $1,857
EQUITABLE DISTRIBUTION
OPERATIONAL AND FINANCIAL REPORT
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
OPERATIONAL DATA
Heating degree days
(30-year average:
Qtr - 124; YTD - 3,759) 41 65 3,502 3,530
Residential sales and
transportation volume (MMcf) 1,278 1,284 15,988 16,535
Commercial and industrial volume
(MMcf) 3,992 3,903 20,827 19,541
Total throughput (MMcf) -
Distribution 5,270 5,187 36,815 36,076
Net operating revenues
(thousands):
Residential $12,090 $12,017 $71,716 $72,285
Commercial & industrial 5,884 5,693 33,218 31,203
Off-system and energy services 4,414 3,285 13,662 14,248
Total net operating revenues $22,388 $20,995 $118,596 $117,736
Capital expenditures (thousands) $12,179 $10,938 $32,162 $31,901
FINANCIAL DATA (Thousands)
Total operating revenues $88,789 $71,686 $459,482 $456,166
Purchased gas costs 66,401 50,691 340,886 338,430
Net operating revenues 22,388 20,995 118,596 117,736
Operating expenses:
Operating and maintenance 11,075 10,133 32,393 30,265
Selling, general and
administrative 7,878 11,224 32,581 40,681
Depreciation and amortization 5,207 4,994 15,415 15,034
Total operating expenses 24,160 26,351 80,389 85,980
Operating (loss) income $(1,772) $(5,356) $38,207 $31,756
SOURCE Equitable Resources, Inc. (EQT-IR)
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Related links:
http://www.eqt.com
CONTACT:
Patrick Kane of Equitable Resources, Inc.
(EQT-IR), +1-412-553-7833
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