Why did Equitable Resources' earnings fall so sharply in 1995?

The primary cause was a $121.1 million pre-tax ($74.2 million after-tax, or $2.12 per share) impairment write-down required by SFAS No. 121, triggered by sustained declines in gas and oil prices. Excluding this charge and nonrecurring gains, earnings still declined due to a 19% drop in average wellhead gas prices, higher operating expenses, and increased interest costs.

Were there any one-time items that boosted 1995 results?

Yes. The company recorded a $29.1 million after-tax gain from the Columbia Gas Transmission bankruptcy settlement and $6.6 million from regulatory approval for accelerated recovery of future gas costs. Revenue also included $40.2 million of Columbia settlement amounts in the exploration and production segment, so the underlying business performed weaker than reported totals suggest.

Is the company's balance sheet and liquidity in good shape?

Liquidity improved during 1995. Short-term loans dropped to $135.0 million from $269.3 million after asset sale and settlement proceeds were applied to debt repayment. The company has a $500 million five-year revolving credit facility, and it expects to refinance its 1996 maturities with a planned $250 million long-term debt issuance. Long-term debt rose slightly to $415.5 million, and equity declined to $715.1 million.

Will the dividend be maintained?

Management anticipates continuing quarterly dividends. The annual dividend was $1.18 per share in 1995, up from $1.15, and cash dividends paid totaled $41.1 million, which exceeded 1995 net income. Retained earnings of $369.4 million are available for dividends under debt indenture restrictions, so the dividend is supported by the balance sheet but not by 1995 earnings.

What is the outlook for the company's growth and reserves?

Management describes the long-range gas supply outlook as very favorable, with supply expected to exceed demand for at least the next decade. The company's 1996 capital budget includes $63.8 million for exploration and production, notably $29.2 million for Gulf of Mexico offshore drilling, and $30.7 million for marketing. Future activity will depend heavily on energy prices, which management identifies as the key driver of drilling economics.

EQT 10-K FY1995 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 26, 1996. Cited figures are marked; the original filing is the authoritative source.

Equitable Resources, Inc. (EQT) reported a near-breakeven 1995 with net income of just $1.5 million^a, or $0.04 per share, down from $60.7 million ($1.76 per share) in 1994.

The result was driven by a $121.1 million^b pre-tax ($74.2 million after-tax, or $2.12 per share) impairment charge under SFAS No. 121, reflecting the sustained decline in gas and oil prices. Excluding the charge and nonrecurring items, earnings declined on a 19% drop in average wellhead natural gas prices, higher operating expenses, and higher interest costs. Operating revenues were essentially flat at $1.43 billion, as record gas production and the Columbia bankruptcy settlement offset lower prices.

The balance sheet improved meaningfully during the year. Short-term loans fell from $269.3 million to $135.0 million^c, aided by $133.5 million from the sale of a non-conventional fuels-producing interest and $45.0 million from the Columbia settlement. Total assets declined to $1.96 billion, and common equity fell to $715.1 million.

Management plans to issue $250 million^d of new long-term debt in 1996 to retire the 8 1/4% debentures due July 1996. Dividends were maintained at $1.18 per share, although the 1995 dividend payout of $41.1 million far exceeded net income.

Looking ahead, management expects the long-range gas supply outlook to remain favorable and has budgeted $129.5 million in 1996 capital expenditures, including $63.8 million for exploration and production, with a notable step-up in Gulf of Mexico offshore drilling. Investors should weigh the strength of the 845.8 Bcf proved gas reserve base and integrated model against the weak 1995 earnings, the sensitivity of results to commodity prices, and the one-time nature of the 1995 gains that flattered operating results.

02—Key points

Key Highlights

Net income collapsed to $1.5 million ($0.04/share) from $60.7 million ($1.76/share) in 1994, driven by a $121.1 million pre-tax impairment charge under SFAS No. 121.
Average wellhead natural gas prices fell 19% in 1995, while natural gas production reached a record 64,984 MMcf, up roughly 4%.
Nonrecurring 1995 gains included a $29.1 million after-tax Columbia Gas bankruptcy settlement and $6.6 million from accelerated recovery of gas costs, partially masking underlying weakness.
Short-term debt was reduced sharply to $135.0 million from $269.3 million, funded by $133.5 million of deferred-revenue proceeds from a non-conventional fuels property sale and the Columbia settlement.
Proved reserves stood at 845.8 Bcf of natural gas and 18.2 million barrels of oil at year-end 1995, with 79% of gas reserves located in Appalachia.
The company plans a $250 million long-term debt issuance in 1996 to refinance $75 million of 8 1/4% debentures due July 1996, and a total 1996 capital budget of $129.5 million.
Quarterly results are highly seasonal, with the fourth quarter posting an operating loss of $45.9 million, and about 65% of distribution revenue recorded in the November-March heating season.

03—Questions

Frequently Asked Questions

Why did Equitable Resources' earnings fall so sharply in 1995?
The primary cause was a $121.1 million pre-tax ($74.2 million after-tax, or $2.12 per share) impairment write-down required by SFAS No. 121, triggered by sustained declines in gas and oil prices. Excluding this charge and nonrecurring gains, earnings still declined due to a 19% drop in average wellhead gas prices, higher operating expenses, and increased interest costs.
Were there any one-time items that boosted 1995 results?
Yes. The company recorded a $29.1 million after-tax gain from the Columbia Gas Transmission bankruptcy settlement and $6.6 million from regulatory approval for accelerated recovery of future gas costs. Revenue also included $40.2 million of Columbia settlement amounts in the exploration and production segment, so the underlying business performed weaker than reported totals suggest.
Is the company's balance sheet and liquidity in good shape?
Liquidity improved during 1995. Short-term loans dropped to $135.0 million from $269.3 million after asset sale and settlement proceeds were applied to debt repayment. The company has a $500 million five-year revolving credit facility, and it expects to refinance its 1996 maturities with a planned $250 million long-term debt issuance. Long-term debt rose slightly to $415.5 million, and equity declined to $715.1 million.
Will the dividend be maintained?
Management anticipates continuing quarterly dividends. The annual dividend was $1.18 per share in 1995, up from $1.15, and cash dividends paid totaled $41.1 million, which exceeded 1995 net income. Retained earnings of $369.4 million are available for dividends under debt indenture restrictions, so the dividend is supported by the balance sheet but not by 1995 earnings.
What is the outlook for the company's growth and reserves?
Management describes the long-range gas supply outlook as very favorable, with supply expected to exceed demand for at least the next decade. The company's 1996 capital budget includes $63.8 million for exploration and production, notably $29.2 million for Gulf of Mexico offshore drilling, and $30.7 million for marketing. Future activity will depend heavily on energy prices, which management identifies as the key driver of drilling economics.

04—Continue

← View all 10-K filings