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Ohio Utica Shale

Pittsburgh-based EQT Corp. reports big Marcellus numbers

By Bob Downing Published: April 30, 2013

From the Marcellus Drilling News:

EQT has turned in a report on the first quarter of 2013 and the numbers are excellent. Marcellus Shale production for the company rose 103% over the same period last year. Midstream volumes are up, revenue is up, profits are up. Hey, it’s all looking up for EQT!

EQT had 79.4 billion cubic feet of natural gas production in the Marcellus Shale for 1Q13–they’re closing in and will soon become the second member of the 1 Bcf/Day Club (Cabot is already in the club). Here’s the EQT report issued this morning:

 

EQT Corporation today announced first quarter 2013 earnings of $100.3 million, or $0.66 per diluted share; compared to first quarter 2012 earnings of $72.0 million, or $0.48 per diluted share. Operating cash flow was $304.4 million, compared to first quarter 2012 operating cash flow of $227.8 million, and adjusted cash flow per share was $2.01 in the first quarter 2013, compared to $1.52 in the first quarter 2012. The non-GAAP financial measures are detailed and reconciled in the Non-GAAP Disclosures section below.

Highlights for the first quarter 2013 vs. first quarter 2012 include:

  • Production sales volumes were 47% higher
  • Marcellus production sales volumes were 103% higher
  • Production LOE per Mcfe were 20% lower
  • Production SG&A per Mcfe were 26% lower
  • Midstream gathered volumes were 42% higher
  • Midstream per unit gathering and compression expenses were 32% lower

Additional Highlights:

  • Initiating 2014 production sales volume guidance of a minimum 445 Bcfe
  • Increasing 2013 production sales volume guidance to between 340 and 350 Bcfe
  • Increasing 2013 midstream EBITDA guidance to between $350 and $355 million

EQT’s first quarter 2013 operating income was $198.6 million, a 31% increase from the same quarter in 2012. Earnings per share and adjusted cash flow per share were higher due to increased production sales, increased gathered volumes and transmission throughput, and higher sales at distribution, which were partially offset by lower realized commodity prices. Net operating revenues increased $92.2 million, or 25%, to $458.1 million in the quarter; while net operating expenses rose by $45.7 million, or 21%, to $259.5 million.

RESULTS BY BUSINESS

 

EQT Production

With a focus on drilling in the Marcellus Shale, EQT Production achieved sales volumes of 79.4 Bcfe in the first quarter 2013, a 47% increase over the first quarter 2012. Sales volumes from the Marcellus averaged 606 MMcfe per day for the first quarter 2013, up from 295 MMcfe per day in the first quarter 2012. Natural gas liquids (NGL) volumes totaled 1,194 Mbbls, a 52% increase over the same period last year. Sales volumes for 2013 are now projected to be between 340 and 350 Bcfe, approximately 33% higher than in 2012; while 2013 NGL volumes are projected to be between 4,500 and 4,700 Mbbls.

Operating income for the first quarter of 2013 was $74.1 million, compared to $59.0 million in the same period last year — while net operating revenues for the quarter were $250.5 million, 28% higher than the first quarter 2012. The revenue growth was due to a 47% increase in sales volumes, which was partially offset by a lower average realized price. The average effective sales price to EQT was 12% lower than last year at $4.27 per Mcfe, with $3.14 per Mcfe allocated to EQT Production; and $1.13 per Mcfe allocated to EQT Midstream. During the quarter, the average NYMEX natural gas price was 22% higher than last year; however, this increase was more than offset by a smaller hedge gain and lower NGL prices.

Operating expenses for EQT Production for the first quarter 2013 were $176.4 million, $40.1 million higher than the same quarter last year. Depreciation, depletion and amortization expenses (DD&A) were $38.3 million higher, primarily due to an increase in produced volumes. Consistent with the sales volume growth, lease operating expenses (LOE) were $2.1 million higher; production taxes were $2.0 million higher, excluding a $6.2 million Pennsylvania impact fee recorded in the first quarter of 2012 for wells drilled prior to 2012; and selling, general and administrative expenses (SG&A) were $1.9 million higher. Per unit SG&A decreased 26% to $0.29 per Mcfe and per unit LOE decreased 20% to $0.16 per Mcfe, as volume growth dramatically outpaced higher costs.

With plans for 153 Marcellus wells in 2013, EQT drilled (spud) 33 gross wells in the Marcellus during the first quarter, with an average length of pay of 4,898 feet. EQT also drilled two Utica wells and six Upper Devonian wells in the quarter.

EQT Midstream

EQT Midstream’s first quarter 2013 operating income was $74.2 million; $18.1 million higher than the first quarter of 2012. Net gathering revenues increased 18% to $81.8 million, primarily due to a 42% increase in gathered volumes; however, at lower average gathering rates. Net transmission revenues totaled $37.3 million, a 63% increase over this quarter last year, primarily due to sales of new capacity associated with the Sunrise and Marcellus expansion projects, as well as higher volumes. Net storage, marketing and other revenues totaled $9.8 million, which was a $5.2 million decrease over last year, due to lower margins and reduced activity resulting from lower seasonal price spreads. Operating expenses for the quarter were $54.7 million, $3.7 million higher than the same quarter last year, primarily due to increased DD&A, which is consistent with the growth of the business. Per unit gathering and compression expense decreased by 32%.

The Company is increasing its projected 2013 midstream earnings before interest, taxes, depreciation, and amortization (EBITDA) guidance from $335 million to between $350 and $355 million.

Distribution

Distribution’s first quarter 2013 operating income totaled $52.3 million, compared to $36.8 million for the same period in 2012. Total net operating revenues for the first quarter 2013 were $78.7 million; $15.3 million higher than the first quarter 2012, which was primarily attributed to $11.9 million from increased usage due to a colder winter season and $5.0 million from adjustments due to the completion of the purchased gas cost audit related to prior years. Operating expenses were $26.4 million, essentially unchanged.

OTHER BUSINESS

 

EQT Midstream Partners, LP

EQT has a 57.4% limited partner interest and a 2% general partner interest in EQT Midstream Partners, LP, whose results are consolidated in EQT’s results. For the first quarter 2013, EQT Corporation recorded $9.0 million, or $0.06 of earnings per diluted share, attributable to non-controlling interests. EQT Midstream Partners’ results were released today and are available at www.eqtmidstreampartners.com.

Utility Sale

On December 20, 2012, the Company announced that it has entered into a definitive agreement for the transfer of its natural gas distribution segment, Equitable Gas Company, to Peoples Natural Gas, subject to receipt of regulatory approvals. The Company recorded a $2.1 million unallocated SG&A expense in the first 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, and the Federal Energy Regulatory Commission; and will soon file with the Kentucky Public Service Commission — each must approve the transaction as part of the regulatory process. The Company expects to receive all necessary approvals by year end.*

Click the link below to see detailed financial statements, including information on their hedging positions.

*EQT Corporation (Apr 25, 2013) – EQT Reports First Quarter 2013 Earnings

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