01—Abstract
Summary
Summary of the 10-K filed March 19, 2002. Cited figures are marked; the original filing is the authoritative source.
Equitable Resources, Inc. (EQT) reported a strong fiscal 2001, with net income from continuing operations rising 43% to $151.8 milliona ($2.30 per diluted share) from $106.2 million ($1.60) in 2000.
Operating revenues grew 7% to $1.76 billionb. The improvement was driven by higher realized natural gas prices (average Equitable Production sales price up 28%), a full year of production from the Statoil Appalachian acquisition, and lower operating expenses from process-improvement programs. Results were partly offset by unusually warm 2001 weather, which cut heating degree-days 10% year over year and reduced utility net revenues by roughly $7.8 million.
The company is an Appalachian-focused natural gas producer, gatherer, and distributor with three segments: Equitable Utilities (41% of net operating revenues), Equitable Production (53%), and NORESCO (6%). Equitable Production holds 2,082 Bcfe of proved reserves, 583 Bcfe of which are undeveloped. Management is also reducing commodity exposure: it hedged 196.4 Bcf through 2008, sold its oil-dominated fields for about $60 millionc, and has relied on monetizations and prepaid forward sales.
Long-term debt fell to $271 million, and short-term loans dropped to $275 milliond, while cash flow from operations was $129.9 million, down from $361.2 million in 2000 because the prior year included $209 million of prepaid gas proceeds. Investors should weigh several risks. Equitable's earnings are highly sensitive to natural gas prices: management estimates each $0.10 change in NYMEX gas prices moves 2002 diluted EPS by about $0.01 after hedging.
The company's NORESCO subsidiary carries nonrecourse project debt, including a Jamaican project in default that was reclassified to current liabilities, and the Westport Resources stake (27%, carried at $148.1 million book value versus $241.3 million market value) adds exposure to an independent E&P company. Capital spending is planned at $166 million for 2002, to be funded mainly by operating cash flow and short-term borrowings. Dividends were $0.63 per share, and the company had $436 million of retained earnings available for distribution under debt covenants.
02—Key points
Key Highlights
- Net income from continuing operations rose 43% to $151.8 million, or $2.30 per diluted share, versus $1.60 in 2000.
- Operating revenues reached $1.76 billion, up 6.8% from $1.65 billion in 2000.
- Equitable Production's average well-head gas price rose to $3.67/Mcfe, up 20% from $3.06, supporting earnings.
- Proved reserves totaled 2,082 Bcfe at year-end 2001, of which 583 Bcfe were undeveloped across roughly 1,800 locations.
- Operating cash flow fell to $129.9 million from $361.2 million, which included $209.3 million of prepaid gas sale proceeds received in December 2000.
- Short-term debt declined substantially, with commercial paper falling to $275.4 million from $302.3 million and average short-term debt down $472 million year over year.
- Westport Resources stake (27%) carried at $148.1 million, with a $241.3 million fair market value at year-end 2001.
03—Questions
Frequently Asked Questions
How did Equitable Resources perform financially in 2001?
Net income from continuing operations was $151.8 million, or $2.30 per diluted share, up from $106.2 million, or $1.60, in 2000. Gains came from higher realized gas prices, a full year of Statoil Appalachian production, and lower operating costs, partly offset by warm weather that reduced utility volumes.
How exposed is the company to natural gas price movements?
Equitable is primarily a natural gas company and hedges with fixed-price swaps covering 196.4 Bcf through 2008. Management targets earnings sensitivity of about $0.01 per diluted share for each $0.10 move in NYMEX gas prices in 2002. A 10% price decline would raise the fair value of its hedges by about $69.3 million, offsetting lower physical sales.
What are the main risks in the NORESCO and investment portfolio?
A Jamaican energy project defaulted on loan covenants, so its $16.7 million nonrecourse debt was reclassified to current liabilities while the company pursues refinancing or a sale. A Panamanian plant also faces environmental retrofit deadlines extended to 2002. Equitable's Westport stake and its equity-method investments in the Appalachian partnership and trust are carried at book value below fair value, and their performance depends on those entities' results.
How does the company plan to fund its 2002 capital program?
The company authorized $166 million for 2002, including about $107 million for Equitable Production, $80 million for Equitable Utilities, and $0.3 million for NORESCO, though the segment figures sum to more than the total. It expects to fund the program with operating cash flow and short-term loans, backed by a $325 million revolver, a $325 million 364-day facility, and a $650 million commercial paper program.
Are dividends secure, and are there constraints on share repurchases?
Dividends were $0.63 per share in 2001, up from $0.59, and management expects quarterly payments to continue. Indentures governing long-term debt restrict dividends and buybacks, and as of year-end $436 million of retained earnings was available for those purposes. The company repurchased 1.8 million shares for $61.2 million in 2001.
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