EQT Reports Second Quarter 2013 Earnings
EQT Reports Second Quarter 2013 Earnings
Production volume averaged over 1 Bcf per day; Marcellus sales volume more than doubled
PITTSBURGH--(BUSINESS WIRE)-- EQT Corporation (NYS: EQT) today announced second quarter 2013 earnings of $86.9 million, or $0.57 per diluted share; compared to second quarter 2012 earnings of $31.4 million, or $0.21 per diluted share. Operating cash flow was $316.7 million, compared to second quarter 2012 operating cash flow of $166.0 million; and adjusted cash flow per share was $2.10 in the second quarter 2013, compared to $1.12 in the second quarter 2012. EQT's second quarter 2013 operating income was $171.3 million, a 110% increase from the same quarter in 2012. The non-GAAP financial measures are detailed and reconciled in the Non-GAAP Disclosures section below.
Second Quarter Highlights 2013 vs. 2012:
Production sales volume was 54% higher
Marcellus production sales volume was 111% higher
Production LOE per Mcfe was 20% lower
Production SG&A per Mcfe was 32% lower
Midstream gathered volume was 50% higher
Midstream gathering and compression expense per unit was 37% lower
Additional Highlights:
EQT sold its Sunrise Pipeline to EQT Midstream Partners, LP (NYS: EQM)
Increased 2013 Production sales guidance to 360-365 Bcfe
Increased Marcellus EUR's and drilling locations in its core development areas
Earnings per share, adjusted cash flow per share, and operating income were higher due to increased production sales, higher prices, increased gathered volumes, and increased transmission capacity sales and throughput. The higher revenues were partially offset by higher non-cash compensation expenses, which were $6.7 million higher than last year. Net operating revenues increased 58% to $469.7 million; while net operating expenses rose by $81.7 million, to $298.4 million.
RESULTS BY BUSINESS
EQT Production
For the second quarter 2013, EQT Production had sales volume of 92.4 Bcfe, an average of 1.0 Bcfe per day, which was a 54% increase over the second quarter 2012. This increase was driven by the Marcellus, which averaged 748 MMcfe per day, 111% over last year. Natural gas liquids (NGL) volume totaled 1,234 Mbbls, a 45% increase over the same period last year. The Company is increasing its full-year 2013 sales volume guidance to 360 - 365 Bcfe, which is approximately 40% higher than 2012; and its NGL volume guidance to 4,800 - 5,000 Mbbls.
Operating income for the Production business in the second quarter 2013 was $105.1 million, compared to $17.7 million in the same period last year - while total operating revenues were $306.1 million, 93% higher than the second quarter 2012. The revenue growth was due to a 54% increase in sales volume and a higher average effective price, partially offset by an increase in operating expenses. The average effective sales price to EQT was 14% higher than last year at $4.37 per Mcfe, with $3.30 per Mcfe allocated to EQT Production; and $1.07 per Mcfe allocated to EQT Midstream.
Operating expenses for EQT Production for the second quarter 2013 were $201.1 million, $60.1 million higher than the same quarter last year. Depreciation, depletion and amortization expenses (DD&A) were $49.7 million higher, due to an increase in produced volume. Exploration expense was $4.3 million higher. Lease operating expenses (LOE), excluding production taxes, were $2.8 million higher; production taxes were $2.4 million higher; and selling, general and administrative expenses (SG&A) were $1.0 million higher. Per unit SG&A decreased 32% to $0.25 per Mcfe, and per unit LOE decreased 20% to $0.16 per Mcfe, as volume growth dramatically outpaced higher costs.
EQT spud 41 gross wells in the Marcellus during the quarter, with an average length-of-pay of 4,295 feet; and also spud eight Upper Devonian wells. Three Utica wells have been completed - with the first well turned-in-line on July 22, 2013; and the second and third wells expected to be turned-in-line in early August 2013.
On May 31, the Company increased estimated ultimate recovery (EUR), and updated its estimated drilling locations and projected type curves, for its core Marcellus acreage in southwestern and central Pennsylvania, and northern West Virginia. Details for each of the three core geographic areas can be found in its investor presentation, available electronically via www.eqt.com.
EQT Midstream
EQT Midstream's second quarter 2013 operating income was $72.2 million; $12.5 million higher than the second quarter of 2012. Net gathering revenues increased 21% to $87.0 million, primarily due to a 50% increase in gathered volume, partly offset by lower average gathering rates. Net transmission revenues totaled $38.8 million, an 81% increase over this quarter last year, primarily due to sales of new capacity, as well as higher throughput. Net storage, marketing and other revenues were $9.2 million lower than last year due to lower margins and reduced activity. Operating expenses for the quarter were $59.1 million, $10.5 million higher than last year, which is consistent with the growth of the business. Per unit gathering and compression expense decreased by 37%.
The Company is increasing its projected 2013 Midstream earnings before interest, taxes, depreciation, and amortization (EBITDA) guidance to $365 - $370 million.
Distribution
Distribution's second quarter 2013 operating income totaled $6.2 million, compared to $6.4 million for the same period in 2012. Total net operating revenues were $32.3 million, $1.1 million higher than last year; while operating expenses were $26.1 million, up $1.3 million from 2012.
OTHER BUSINESS
EQT Midstream Partners, LP
In the second quarter, EQT had a 57.4% limited partner interest and a 2% general partner interest in EQT Midstream Partners, whose results are consolidated in EQT's results. EQT Midstream Partners' second quarter 2013 net cash provided by operating activities was $26.1 million. For the second quarter 2013, EQT Corporation recorded $7.3 million, or $0.05 of earnings per diluted share, attributable to non-controlling interests. EQT Midstream Partners' results were released today and are available at www.eqtmidstreampartners.com.
Marcellus Processing Capacity
On July 23, EQT contracted with MarkWest for an additional 145 MMcf per day of processing capacity, which will bring total capacity to 365 MMcf per day by the end of 2014. EQT currently has capacity of 120 MMcf per day and as previously announced will add 100 MMcf per day in 2013. The most recent contracted capacity will provide an incremental 95 MMcf per day by year-end 2013; and 50 MMcf per day is expected by year-end 2014.
Sunrise Pipeline Sale
On July 22, EQT sold its Sunrise Pipeline to EQT Midstream Partners, LP for $507.5 million cash and $32.5 million of common and general partners units. EQT Midstream Partners also agreed to pay additional consideration of $110 million to EQT upon the execution of a third-party transportation agreement contingent upon completion of the Utility sale. EQT Midstream Partners also completed an offering of 12,650,000 common units representing limited partner interests. Proceeds were used to fund the purchase of the Sunrise Pipeline. With the transaction closing, EQT has a 42.6% limited partner interest and a 2% general partner interest in EQT Midstream Partners. As EQT controls EQT Midstream Partners through its general partner interest, EQT Midstream Partners continues to be consolidated in EQT's consolidated financial statements.
Acreage Acquisition
On June 3, EQT purchased approximately 99,000 net acres in southwestern Pennsylvania and ten horizontal Marcellus wells, located in Washington County, from Chesapeake Energy Corporation for approximately $112.5 million. The acreage includes 67,000 Marcellus acres, 25,000 of which are within EQT's core Marcellus development areas of Washington, Greene, and Allegheny counties; and 32,000 Utica acres.
Utility Sale
On December 20, 2012, the Company announced that it entered into a definitive agreement for the transfer of its natural gas distribution business, Equitable Gas Company, to Peoples Natural Gas, subject to receipt of regulatory approvals. The Company recorded a $0.8 million unallocated SG&A expense in the second quarter of 2013 related to the transaction.
The waiting period under the Hart-Scott-Rodino Antitrust Improvements Act for the pending transaction expired on April 22, 2013, without a request for additional information. This expiration indicates that the Federal Trade Commission has not objected to the transaction and that the parties may proceed. EQT has also submitted filings with the Pennsylvania Public Utility Commission, West Virginia Public Service Commission, Kentucky Public Service Commission, and the Federal Energy Regulatory Commission - each must approve the transaction as part of the regulatory process. The Company expects to receive all necessary approvals by year-end.
Hedging
As of July 24, 2013, the Company has hedged approximately 60% of its expected production sales volume for the remainder of 2013. The Company's total natural gas hedge positions for July 2013 through December 2015 production are:
2013** | 2014 | 2015 | |||||||
Fixed Price | |||||||||
Total Volume (Bcf) | 102 | 138 | 69 | ||||||
Average Price per Mcf (NYMEX)* | $ | 4.55 | $ | 4.47 | $ | 4.59 | |||
Collars | |||||||||
Total Volume (Bcf) | 13 | 24 | 23 | ||||||
Average Floor Price per Mcf (NYMEX)* | $ | 4.95 | $ | 5.05 | $ | 5.03 | |||
Average Cap Price per Mcf (NYMEX)* | $ | 9.09 | $ | 8.85 | $ | 8.97 | |||
* The average price is based on a conversion rate of 1.05 MMBtu/Mcf
** July through December
Operating Income
The Company reports operating income by segment in this news release. Interest, income taxes and unallocated income/(expense) are controlled on a consolidated, corporate-wide basis and are not allocated to the segments. The Company's management reviews and reports segment results for operating revenues and purchased gas costs, net of third-party transportation costs.
The following table reconciles operating income by segment to the consolidated operating income reported in the Company's financial statements:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Operating income (thousands): | ||||||||||||||||
EQT Production | $ | 105,056 | $ | 17,704 | $ | 179,153 | $ | 76,742 | ||||||||
EQT Midstream | 72,246 | 59,750 | 146,460 | 115,886 | ||||||||||||
Distribution | 6,170 | 6,376 | 58,446 | 43,146 | ||||||||||||
Unallocated expenses | (12,177 | ) | (2,426 | ) | (14,129 | ) | (2,184 | ) | ||||||||
Operating income | $ | 171,295 | $ | 81,404 | $ | 369,930 | $ | 233,590 | ||||||||
For the second quarter 2013, unallocated expense is primarily due to higher non-cash incentive compensation expense.
Marcellus Horizontal Well Status (cumulative since inception)
As of | As of | As of | As of | As of | ||||||
Wells spud | 445 | 404 | 371 | 344 | 317 | |||||
Wells online | 321 | 276 | 258 | 229 | 211 | |||||
Wells complete, not online | 11 | 30 | 17 | 27 | 21 | |||||
Frac stages (spud wells)* | 9,754 | 8,327 | 7,230 | 6,331 | 5,352 | |||||
Frac stages online | 6,297 | 4,788 | 4,366 | 3,545 | 3,188 | |||||
Frac stages complete, not online | 224 | 925 | 462 | 622 | 391 |
*Includes planned stages for spud wells that have not yet been hydraulically fractured.
NON-GAAP DISCLOSURES
Adjusted Net Income and Adjusted Earnings Per Diluted Share
Adjusted net income and adjusted earnings per diluted share are non-GAAP financial measures that are presented because they are important measures used by management to evaluate period-to-period comparisons of earnings trends. Adjusted net income and adjusted earnings per diluted share should not be considered in isolation or as a substitute for the most comparable GAAP financial measures of net income or earnings per diluted share.
The table below reconciles adjusted net income and adjusted earnings per diluted share with net income and earnings per diluted share, as derived from the statement of consolidated income to be included in the Company's Form 10-Q for the three months ended June 30, 2013 and 2012.
Reconciliation of Adjusted Net Income and Adjusted Earnings Per Diluted Share:
Three Months Ended June 30, | |||||||
2013 | 2012 | ||||||
Net income attributable to EQT, as reported | $ | 86,856 | $ | 31,446 | |||
(Deduct) / add back: | |||||||
Non-cash financial instrument put premium | − | 8,227 | |||||
Tax impact | − | (2,608 | ) | ||||
Adjusted Net Income | $ | 86,856 | $ | 37,065 | |||
Diluted weighted average common shares outstanding | 151,393 | 150,149 | |||||
Diluted EPS, as adjusted | $ | 0.57 | $ | 0.25 | |||
Operating Cash Flow:
Operating cash flow is a non-GAAP financial measure that is presented as an accepted 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. EQT has also included this information because management believes that changes in operating assets and liabilities relate to the timing of cash receipts and disbursements, which the Company may not control; and therefore, 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 the most comparable GAAP financial measure of net cash provided by operating activities. The table below reconciles operating cash flow with net cash provided by operating activities, as derived from the statement of cash flows to be included in EQT's quarterly report on Form 10-Q for the three and six months ended June 30, 2013 and 2012.
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
(thousands) | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Net Income | $ | 94,118 | $ | 31,446 | $ | 203,399 | $ | 103,481 | ||||||||
(Deduct) / add back: | ||||||||||||||||
Deferred income taxes | 28,905 | 13,694 | 63,252 | 53,057 | ||||||||||||
Depreciation, depletion, and amortization | 168,577 | 115,681 | 317,693 | 223,206 | ||||||||||||
Non-cash incentive compensation | 15,642 | 8,979 | 27,480 | 17,235 | ||||||||||||
Non-cash financial instrument put premium | - | 8,227 | - | 8,227 | ||||||||||||
Other items | 9,408 | (12,046 | ) | 10,694 | (11,465 | ) | ||||||||||
Operating cash flow: | $ | 316,650 | $ | 165,981 | $ | 622,518 | $ | 393,741 | ||||||||
(Deduct) / add back: | ||||||||||||||||
Changes in other assets and liabilities | (13,064 | ) | 30,334 | (13,692 | ) | 24,698 | ||||||||||
Net cash provided by operating activities | $ | 303,586 | $ | 196,315 | $ | 608,826 | $ | 418,439 | ||||||||
Adjusted Cash Flow Per Share
Adjusted cash flow per share is a non-GAAP financial measure that is presented because it is a capital efficiency metric used by investors and analysts to evaluate oil and gas companies. Adjusted cash flow per share should not be considered in isolation or as a substitute for the most comparable GAAP financial measure of net cash provided by operating activities or net income per share or as a measure of liquidity.
The table below provides the calculation for adjusted cash flow per share, as derived from the financial statements to be included in EQT's Form 10-Q for the three and six months ended June 30, 2013 and 2012.
Three Months Ended | Six Months Ended June 30, | ||||||||||||
(thousands) | 2013 | 2012 | 2013 | 2012 | |||||||||
Operating cash flow (a non-GAAP measure reconciled above) | $ | 316,650 | $ | 165,981 | $ | 622,518 | $ | 393,741 | |||||
(Deduct) / add back: | |||||||||||||
Exploration expense (cash) | 985 | 1,484 | 1,735 | 2,620 | |||||||||
Purchased gas cost audit adjustment | - | - | (4,992 | ) | - | ||||||||
Adjusted operating cash flow | $ | 317,635 | $ | 167,465 | $ | 619,261 | $ | 396,361 | |||||
Diluted weighted average common shares outstanding | 151,393 | 150,149 | 151,191 | 150,200 | |||||||||
Adjusted cash flow per share | $ | 2.10 | $ | 1.12 | $ | 4.10 | $ | 2.64 | |||||
Net Operating Revenues and Net Operating Expenses
Net operating revenues and net operating expenses are non-GAAP financial measures that exclude purchased gas costs, but are presented because they are important analytical measures used by management to evaluate period-to-period comparisons of revenue and operating expenses. Purchased gas cost is typically excluded by management in such analysis because, although subject to commodity price volatility, purchased gas cost is mostly passed on to customers and does not have a significant impact on EQT's earnings. Net operating revenues and net operating expenses should not be considered in isolation or as a substitute for the most comparable GAAP financial measures of operating revenues or total operating expenses. The table below reconciles net operating revenues to operating revenues and net operating expenses to total operating expenses for the three and six months ended June 30, 2013 and 2012:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
(thousands) | 2013 | 2012 | 2013 | 2012 | ||||||||
Net operating revenues | $ | 469,727 | $ | 298,137 | $ | 927,818 | $ | 664,031 | ||||
Plus: purchased gas cost | 50,365 | 39,667 | 150,934 | 123,733 | ||||||||
Operating revenues | $ | 520,092 | $ | 337,804 | $ | 1,078,752 | $ | 787,764 | ||||
Net operating expenses | $ | 298,432 | $ | 216,733 | $ | 557,888 | $ | 430,441 | ||||
Plus: purchased gas cost | 50,365 | 39,667 | 150,934 | 123,733 | ||||||||
Total operating expenses | $ | 348,797 | $ | 256,400 | $ | 708,822 | $ | 554,174 | ||||
Q2 2013 Earnings Webcast Information
The Company's conference call with securities analysts, which begins at 10:30 a.m. ET today, will be broadcast live via the Company's website at www.eqt.com, and on the investor information page of the Company's web site at http://ir.eqt.com, with a replay available for seven days following the call.
EQT Midstream Partners, LP, for which EQT Corporation is the general partner and a significant quity owner, will host a conference call with security analysts today, beginning at 11:30 a.m. ET. The call will be broadcast live via www.eqtmidstreampartners.com, with a replay available for seven days following the call.
About EQT Corporation:
EQT Corporation is an integrated energy company with emphasis on Appalachian area natural gas production, gathering, transmission, and distribution. EQT is the general partner, and a significant equity owner, of EQT Midstream Partners, LP. With more than 120 years of experience, EQT is a technology-driven leader in the integration of air and horizontal drilling. Through safe and responsible operations, the Company is committed to meeting the country's growing demand for clean-burning energy, while continuing to provide a rewarding workplace and enrich the communities where its employees live and work. Company shares are traded on the New York Stock Exchange as EQT.
Visit EQT Corporation on the Internet at www.EQT.com.
Cautionary Statements
The United States Securities and Exchange Commission (SEC) permits oil and gas companies, in
