10-QPeriod: Q3 FY2002

EQT Corp Quarterly Report for Q3 Ended Sep 30, 2002

Filed November 6, 2002For Securities:EQT

Summary

Equitable Resources, Inc. (EQT) reported net income of $26.7 million, or $0.42 per diluted share, for the third quarter of 2002, a modest increase from $24.8 million, or $0.38 per diluted share, in the same period of 2001. This improvement was driven by increased segment earnings, particularly from Equitable Production and NORESCO, and a reduction in interest expense. The company continues to focus on its core natural gas business, having divested its oil-dominated fields in late 2001. Investments in capital expenditures remain significant, primarily directed towards growth projects in the Equitable Production segment and infrastructure upgrades in Equitable Utilities. Financially, EQT reported total assets of $2.34 billion and total equity of $788.8 million as of September 30, 2002. The company maintains a solid liquidity position with $6.65 million in cash and cash equivalents and significant available credit. EQT is also actively managing its market risk through various derivative instruments, aiming to hedge against natural gas price volatility. Looking ahead, EQT plans to issue between $150 million and $200 million in long-term debt in the fourth quarter of 2002 to pay down commercial paper.

Key Highlights

  • 1Net income increased to $26.7 million ($0.42/diluted share) for Q3 2002, up from $24.8 million ($0.38/diluted share) in Q3 2001.
  • 2EBITDA increased across most segments, with notable growth in Equitable Production and NORESCO.
  • 3Capital expenditures for the first nine months of 2002 totaled $155.2 million, primarily for growth in the Production segment.
  • 4The company is pursuing a strategic focus on its core natural gas business, having divested oil-dominated fields.
  • 5EQT entered into interest rate swap agreements for $150 million to hedge against interest rate movements related to planned long-term debt issuance.
  • 6A significant $270 million jury verdict for pain and suffering and punitive damages was rendered against the company in a Kentucky civil lawsuit, which EQT intends to contest.
  • 7The company is exploring strategic alternatives for its Jamaica power plant, which incurred a $5.3 million impairment charge.

Frequently Asked Questions

Earnings growth was primarily driven by an increase in segment earnings, particularly from the Equitable Production and NORESCO segments, and a reduction in interest expense. Specific factors included increased volumes and improved marketing margins in Equitable Production, and increased operations and construction revenue, along with the elimination of goodwill amortization due to Statement No. 142, in NORESCO.

EQT employs a hedging strategy using derivative instruments, including price swaps, costless collars, and straight floors, to protect against fluctuations in natural gas commodity prices. The company aims to provide price protection for a majority of its expected production from 2002 through 2005 and for a significant portion of its equity production for subsequent years. They also use basis swaps to mitigate risks associated with firm capacity commodity commitments.

A jury awarded $270 million for pain and suffering and punitive damages in a lawsuit alleging injury from a well pump house accident. While the company is insured and considers the claim without merit, it is pursuing post-verdict motions and appeals. This represents a significant contingent liability that could impact future financial results depending on the outcome of legal proceedings.

Equitable Resources intends to issue between $150 million and $200 million of long-term debt in the fourth quarter of 2002. The primary purpose of this issuance is to pay down existing commercial paper, which has a short maturity period. The company has also entered into interest rate swap agreements to hedge against potential increases in interest rates prior to the debt issuance.