PITTSBURGH, Jan. 29 / PRNewswire-FirstCall/ -- Equitable Resources, Inc. (NYSE: EQT) today announced 2008 annual earnings per diluted share (EPS) of $2.00, on net income of $255.6 million. This compares with EPS of $2.10 on net income of $257.5 million in 2007.
2008 highlights include:
- Fourth quarter production growth of 19.4% versus 2007;
- Operating revenues of $1.6 billion, a 16% increase from the $1.4 billion recorded in 2007;
- Operating cash flow of $644.9 million, 161% higher than the $247.1 million reported in 2007;
- LOE plus production taxes of $0.87/Mcfe - one of the lowest rates in the oil and gas production business;
- 668 gross wells drilled, 389 of which were horizontal;
- Attained a drill bit reserve replacement ratio of 646% at a cost of $1.05/Mcfe; and
- Completed the Big Sandy pipeline, Mayking corridor and Langley hydrocarbon processing plant.
Several non-operational factors should be considered when comparing 2008 and 2007 results, including a $126.1 million gain on the sale of reserves in the second quarter 2007, an $85.6 million reduction in incentive compensation expenses in 2008, and $21.0 million of expenses incurred in 2007 in connection with the terminated acquisition of The Peoples Natural Gas Company and Hope Gas, Inc.
RESULTS BY SEGMENT
Equitable Production
Equitable Production achieved the high end of its 2008 natural gas sales guidance of 84.0 Bcfe, 12% higher than 2007 sales, excluding volumes from properties sold during 2007. Fourth quarter 2008 natural gas sales totaled 23.1 Bcfe, 19.4% higher than the fourth quarter 2007, excluding volumes from properties sold. The natural gas sales growth was primarily the result of successful implementation of horizontal air drilling technology.
The company drilled 668 gross wells during 2008. Of these wells, 389 were horizontal wells; 357 of which were development wells targeting the Huron shale. The company was successful on 100% of the wells drilled in 2009.
Equitable Production's operating income totaled $252.8 million for 2008, a 25% increase compared to $202.0 million reported in 2007. Total operating revenues were $457.1 million for 2008, $92.7 million higher than last year, resulting from both a higher average well-head sales price and higher natural gas sales volumes.
Operating expenses totaled $204.4 million for 2008 compared to $162.4 million in 2007. The $42.0 million increase in operating expenses included increases in depreciation, depletion and amortization, production taxes and lease operating expenses, all resulting from the increase in drilling activity and production, and an $8.2 million increase in exploration expense resulting from the company's initiative to explore reserve opportunities in unproved deep zones.
Operating income for the quarter was $51.0 million, 11% lower than the $57.2 million earned in the same period last year. Operating revenues for the quarter increased 10% year over year to $105.0 million, as a result of a 19% increase in natural gas sales volumes, partially offset by a 7% decrease in average well-head sales price. Operating expenses for the quarter were $54.1 million, $15.8 million higher than the $38.3 million reported in 2007, and included $4.2 million of exploration expense. Excluding the cost of these exploration activities, higher expenses were a result of the company's ramp-up in drilling and production.
Equitable Midstream
During 2008, Equitable Midstream completed three major projects: the Big Sandy pipeline, the Mayking corridor and the Langley hydrocarbon processing plant. These projects provide the platform for significant Production natural gas sales volume growth, starting in the 2008 fourth quarter.
Equitable Midstream's operating income totaled $134.8 million for 2008 compared to $140.4 million for 2007, a decrease of $5.6 million. An increase in net operating revenues of $41.4 million was more than offset by increased operating expenses of $47.1 million.
Total net operating revenues were $303.3 million for 2008 compared to the $261.9 million reported in 2007. Gathering and processing net revenues increased by 17% as a result of higher gathering rates, increased processing volumes from the Langley hydrocarbon expansion and higher natural gas liquids prices. Transmission and storage net revenues increased by 14% driven by throughput from the Big Sandy pipeline and increased third party marketing utilizing Big Sandy pipeline capacity offset somewhat by lower seasonal price spreads.
Operating expenses for 2008 were $168.6 million compared to the $121.5 million reported in 2007. The higher operating expenses were due to a $10.7 million charge for settlements of pension and other post-retirement benefits, in addition to increased electricity charges, labor, property tax and compressor maintenance resulting from growth in the Midstream business. Selling, general and administrative expenses included $5.2 million in Lehman bad debt recorded in the third quarter. The increase in depreciation, depletion and amortization resulted from the company's investment in infrastructure.
Equitable Midstream had fourth quarter operating income of $20.5 million, a $24.2 million decrease over the $44.7 million reported for the same period last year. Gathering and processing net revenues totaling $40.1 million, approximated last year's total of $39.9 million. Higher gathering rates and higher gathering and processing volumes were offset by lower natural gas liquids prices. Transmission and storage net revenues totaling $38.0 million, were essentially the same as the fourth quarter of last year. Big Sandy throughput revenues were offset by a reduction in commercial net revenues as a result of lower seasonal spreads. Operating expenses for the quarter were $57.6 million, $24.6 million higher than the $33.0 million reported last year; $10.7 million of the increase was pension related, the balance of the increase was growth related, resulting in higher DD&A, electricity, labor, compressor maintenance and property tax expenses.
During the third quarter 2008, Equitable Midstream entered into a binding precedent agreement with El Paso's Tennessee Gas Pipeline for a 15-year term, 300,000 Dth per day capacity on its 128 mile expansion project to northeast markets through Pennsylvania and New Jersey. When completed, 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 had operating income of $59.9 million in 2008, 74% higher than the $34.5 million reported in 2007 mainly resulting from colder weather and decreased operating expenses. Operating expenses for the year decreased from $126.1 million last year to $111.0 million, a $15.1 million decrease primarily attributable to the absence of transaction and transition planning costs related to the now terminated Peoples and Hope acquisition, partially offset by an increase in customer assistance program (CAP) expenses. These increased CAP costs were recovered through an increase in CAP surcharge revenue.
Equitable Distribution's fourth quarter of 2008 operating income totaled $21.7 million compared to $2.8 million for the same period last year. Total net operating revenues for the fourth quarter of 2008 were $52.3 million, 22% higher than $42.9 million in 2007, again resulting from colder weather and increased CAP revenue. Operating expenses during the quarter decreased from $40.1 million last year to $30.6 million, a $9.5 million decrease primarily resulting from the absence of $10.5 million in transition planning costs in the fourth quarter of 2007 in anticipation of the Peoples and Hope acquisition.
In November 2008, Equitable Gas Company reached a settlement of its Pennsylvania rate case with the active parties that is expected to result in a $38 million annual revenue increase. On January 20, 2009, a Pennsylvania Public Utility Commission (PA PUC) Administrative Law Judge issued an order recommending the rate case settlement. The settlement is subject to the approval of the PA PUC, which is expected before March 31, 2009.
Other Business
2008 Capital Expenditures
Equitable invested $1,344 million in capital projects during 2008. This included $701 million for well development, $594 million for midstream projects and $49 million for distribution infrastructure projects and other corporate items.
2009 Capital Budget
Equitable forecasts approximately $1.0 billion of capital expenditures for 2009. This forecast includes $600 million for well development, $360 million for midstream projects and $40 million for distribution infrastructure projects and other corporate items. The company affirms its natural gas sales forecast of 15% volume growth in 2009.
Equity Issuance
On May 12, 2008, the company completed a public offering of 8,625,000 shares of its common stock at an offering price to the public of $67.75 per share. The proceeds from the offering were used to fund the drilling program and infrastructure projects.
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 reduction in stock price in 2008 resulted in a reversal of previously recorded compensation expense. Executive incentive compensation expenses, including the reversal, totaled ($5.3) million; $85.6 million less than the $80.3 million recorded in 2007. Fourth quarter incentive compensation expenses totaled $15.0 million; $3.1 million less than the $18.1 million reported last year. Higher short-term incentive compensation partially offset the decrease in long-term incentive compensation in the quarter.
Loss on Investments
The company maintains funds to safely plug wells at the end of their useful lives. The funds are invested in equity and fixed income mutual funds. In the fourth quarter 2008, a $7.8 million loss was recognized, classified as an "other than temporary impairment of available for-sale securities," to reflect the decline in value of these investments.
Hedging
The company reduced its net hedge position for 2010 - 2013 to reduce counterparty risk and working capital reserves for potential margin posting requirements. The approximate volumes and prices of the company's hedge position for 2009 through 2011 production are:
Swaps 2009 2010 2011
Total Volume (Bcf) 37 23 19
Average Price per Mcf (NYMEX)* $5.91 $5.12 $5.10
Collars 2009 2010 2011
Total Volume (Bcf) 23 21 18
Average Floor Price per Mcf (NYMEX)* $7.34 $7.29 $7.16
Average Cap Price per Mcf (NYMEX)* $13.68 $13.51 $13.48
*The above price is based on a conversion rate of 1.05 MMbtu/Mcf
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 Year Ended
December 31, December 31,
2008 2007 2008 2007
Operating income (thousands):
Equitable Production $50,979 $57,163 $252,784 $202,019
Equitable Midstream 20,518 44,656 134,772 140,432
Equitable
Distribution 21,652 2,785 59,859 34,541
Unallocated (expense) income (11,625) (10,672) 17,391 (65,319)
Operating income $81,524 $93,932 $464,806 $311,673
Unallocated (expense) income 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 Year Ended
December 31, December 31,
2008 2007 2008 2007
Net Income (thousands): $33,495 $60,597 $255,604 $257,483
Add back (deduct):
Deferred income taxes 50,420 (38,365) 245,801 33,020
Depreciation, depletion,
and amortization 39,731 27,876 136,816 109,802
Other items, net 9,481 (13,337) 6,686 (27,120)
Gain on sale of assets, net - (6,687) - (126,088)
Operating cash flow
(thousands): $133,127 $30,084 $644,907 $247,097
Add back (deduct):
Changes in margin deposits 26,238 1,340 $1,496 $(5,919)
Other changes in operating
assets and liabilities 22,921 53,444 (137,246) 185,542
Net cash provided by operating
activities (thousands) $182,286 $84,868 $509,157 $426,720
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 an integrated energy company with emphasis on Appalachian area natural gas production, gathering, processing, transmission and distribution. Additional information about the company can be obtained through the company's web site, http://www.eqt.com; Investor information is available on that site at http://ir.eqt.com. Equitable Resources uses its web site as a channel of distribution of important information about the company, and routinely posts financial and other important information regarding the company and its financial condition and operations on the Investors web pages.
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.
Reserve Details
The company released 2008 reserve estimates in a separate press release today, which contains estimates of proved, probable and possible reserves, as well as details regarding replacement costs and replacement ratios.
Cautionary Statements
At this time, 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 filed with the SEC, and in the company's 2008 Form 10-K to be filed with the SEC, copies of which may be obtained 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.
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, 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, sales volumes, the rate case settlement, capital commitments and capital expenditures. 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 2007 filed Form 10-K filed with the SEC.
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 Year Ended
December 31, December 31,
2008 2007 2008 2007
---- ---- ---- ----
Operating revenues $408,878 $384,814 $1,576,488 $1,361,406
Cost of sales 173,492 168,779 645,136 574,466
------- ------- ------- -------
Net operating revenues 235,386 216,035 931,352 786,940
------- ------- ------- -------
Operating expenses:
Operation and maintenance 44,965 28,351 129,502 106,965
Production 20,103 14,189 80,068 62,273
Exploration 4,163 300 9,064 862
Selling, general and
administrative 44,900 51,387 111,096 195,365
Depreciation, depletion and
amortization 39,731 27,876 136,816 109,802
------ ------ ------- -------
Total operating expenses 153,862 122,103 466,546 475,267
------- ------- ------- -------
Operating income 81,524 93,932 464,806 311,673
Other than temporary
impairment of available-for-
sale securities (7,835) - (7,835) -
Gain on sale of assets, net - 6,687 - 126,088
Gain on sale of available-for-
sale securities - - - 1,042
Other income 524 3,157 6,233 7,645
Equity in earnings of
nonconsolidated investments 1,166 901 5,714 3,099
Interest expense 17,402 12,065 58,394 47,669
------ ------ ------ ------
Income before income taxes 57,977 92,612 410,524 401,878
Income taxes 24,482 32,015 154,920 144,395
------ ------ ------- -------
Net income $33,495 $60,597 $255,604 $257,483
======= ======= ======== ========
Earnings per share of common stock:
Basic:
Weighted average common shares
outstanding 130,595 121,535 127,234 121,381
Net income $0.26 $0.50 $2.01 $2.12
===== ===== ===== =====
Diluted:
Weighted average common shares
outstanding 131,298 122,884 128,106 122,839
Net income $0.26 $0.49 $2.00 $2.10
===== ===== ===== =====
EQUITABLE PRODUCTION
OPERATIONAL AND FINANCIAL REPORT
Three Months Ended Year Ended
December 31, December 31,
2008 2007 2008 2007
---- ---- ---- ----
OPERATIONAL DATA
Natural gas and oil production
(MMcfe) 24,772 21,038 90,585 83,114
Company usage, line loss
(MMcfe) (1,672) (1,652) (6,577) (6,035)
------ ------ ------ ------
Total sales volumes (MMcfe) 23,100 19,386 84,008 77,079
Average (well-head) sales price
($/Mcfe) $4.44 $4.77 $5.32 $4.59
Lease operating expenses,
excluding production taxes
($/Mcfe) $0.42 $0.27 $0.35 $0.31
Production taxes ($/Mcfe) $0.38 $0.39 $0.52 $0.43
Production depletion ($/Mcfe) $0.81 $0.70 $0.81 $0.70
Production depletion $19,973 $14,755 $73,362 $58,264
Other depreciation,
depletion and amortization 1,504 1,057 4,872 3,820
----- ----- ----- -----
Total depreciation,
depletion and amortization $21,477 $15,812 $78,234 $62,084
Capital expenditures
(thousands) $207,811 $112,988 $700,745 $328,080
FINANCIAL DATA (Thousands)
Total operating revenues $105,035 $95,447 $457,144 $364,396
Operating expenses:
Lease operating expense
excluding production taxes 10,324 5,687 31,719 25,361
Production taxes 9,434 8,179 47,158 36,123
Exploration expense 4,163 301 9,064 862
Selling, general and
administrative 8,658 8,305 38,185 37,947
Depreciation, depletion and
amortization 21,477 15,812 78,234 62,084
------ ------ ------ ------
Total operating expenses 54,056 38,284 204,360 162,377
Operating income $50,979 $57,163 $252,784 $202,019
EQUITABLE MIDSTREAM
OPERATIONAL AND FINANCIAL REPORT
Three Months Ended Year Ended
December 31, December 31,
2008 2007 2008 2007
---- ---- ---- ----
OPERATIONAL DATA
Gathering and processing:
Gathered volumes (BBtu) 39,899 32,786 145,031 143,338
Average gathering fee ($/MMBtu) $0.96 $0.85 $0.98 $0.84
Gathering and compression
expense ($/MMBtu) $0.39 $0.37 $0.37 $0.35
NGLs Sold (Mgal) 26,366 17,956 81,856 72,430
Average NGL sales price ($/gal) $0.72 $1.30 $1.24 $1.07
Net operating revenues (thousands):
Gathering and processing $40,057 $39,858 $175,641 $149,590
Transmission and storage 38,022 37,837 127,699 112,325
------ ------ ------- -------
Total net operating revenues $78,079 $77,695 $303,340 $261,915
Operating income (thousands):
Gathering and processing $(4,025) $19,196 $58,575 $65,003
Transmission and storage 24,543 25,460 76,197 75,429
------ ------ ------ ------
Total operating income $20,518 $44,656 $134,772 $140,432
Depreciation and amortization
(thousands):
Gathering and processing $8,480 $4,949 $25,575 $19,230
Transmission and storage 2,654 1,751 9,227 7,103
----- ----- ----- -----
Total depreciation and
amortization $11,134 $6,700 $34,802 $26,333
Capital expenditures (thousands) $161,046 $149,122 $593,564 $433,719
FINANCIAL DATA (Thousands)
Total operating revenues $120,259 $176,372 $681,475 $591,608
Purchased gas costs 42,180 98,677 378,135 329,693
------ ------ ------- -------
Total net operating revenues 78,079 77,695 303,340 261,915
Operating expenses:
Operating and maintenance 32,008 17,205 84,558 66,155
Selling, general and administrative 14,419 9,134 49,208 28,995
Depreciation and amortization 11,134 6,700 34,802 26,333
------ ----- ------ ------
Total operating expenses 57,561 33,039 168,568 121,483
------ ------ ------- -------
Operating income $20,518 $44,656 $134,772 $140,432
Other income $371 $3,025 $5,678 $7,253
Equity in earnings of nonconsolidated
investments $1,064 $791 $5,053 $2,648
EQUITABLE DISTRIBUTION
OPERATIONAL AND FINANCIAL REPORT
Three Months Ended Year Ended
December 31, December 31,
2008 2007 2008 2007
---- ---- ---- ----
OPERATIONAL DATA
Heating degree days (30 year
average: Qtr -2,070; YTD - 5,829) 2,120 1,802 5,622 5,332
Residential sales and
transportation volume (MMcf) 7,836 6,959 23,824 23,494
Commercial and industrial
volume (MMcf) 6,676 6,430 27,503 25,971
----- ----- ------ ------
Total throughput (MMcf) -
Distribution 14,512 13,389 51,327 49,465
Net operating revenues (thousands):
Residential $33,343 $26,765 $105,059 $99,050
Commercial & industrial 13,176 11,355 46,394 42,558
Off-system and energy services 5,753 4,773 19,415 19,021
----- ----- ------ ------
Total net operating revenues $52,272 $42,893 $170,868 $160,629
Capital expenditures (thousands) $13,608 $9,783 $45,770 $41,684
FINANCIAL DATA (Thousands)
Total operating revenues $238,903 $168,578 $698,385 $624,744
Purchased gas costs 186,631 125,685 527,517 464,115
------- ------- ------- -------
Net operating revenues 52,272 42,893 170,868 160,629
Operating expenses:
Operating and maintenance 11,768 11,348 44,161 41,613
Selling, general and administrative 12,212 23,773 44,793 64,454
Depreciation and amortization 6,640 4,987 22,055 20,021
----- ----- ------ ------
Total operating expenses 30,620 40,108 111,009 126,088
------ ------ ------- -------
Operating income $21,652 $2,785 $59,859 $34,541
