10-QPeriod: Q1 FY2005

EQT Corp Quarterly Report for Q1 Ended Mar 31, 2005

Filed April 28, 2005For Securities:EQT

Summary

EQT Corporation (EQT) reported a solid first quarter for 2005, with net income increasing by 9% to $76.4 million compared to the same period in 2004. This growth was driven by increased margins in the Equitable Utilities segment's Energy Marketing group due to higher natural gas price volatility, and by increased sales volumes from the recent acquisition of Eastern Seven Partners L.P. (ESP) and higher average natural gas prices. Diluted earnings per share rose to $1.23 from $1.10. The company also saw increased operating income in its Equitable Supply segment, primarily from production revenues bolstered by the ESP acquisition and higher wellhead sales prices. Conversely, operating expenses across the company saw increases due to higher natural gas prices impacting various costs. EQT continues to manage market risk through its comprehensive hedging program, though the net liability on derivative commodity instruments increased due to rising natural gas prices.

Key Highlights

  • 1Net income for the first quarter of 2005 increased 9% year-over-year to $76.4 million, with diluted EPS rising to $1.23 from $1.10.
  • 2The acquisition of Eastern Seven Partners L.P. (ESP) contributed to increased sales volumes and production revenues in the Equitable Supply segment.
  • 3Equitable Utilities' Energy Marketing group benefited from increased price volatility in the natural gas market, leading to improved storage asset optimization opportunities and higher margins.
  • 4The company's operating expenses increased overall, largely due to higher natural gas prices impacting purchased gas costs, lease operating expenses, and production taxes.
  • 5EQT's cash flows from operating activities decreased significantly compared to the prior year, primarily due to a larger increase in accounts receivable and unbilled revenues related to margin deposit requirements for natural gas swap agreements.
  • 6Investing activities saw a substantial increase in cash used, driven by the $57.5 million acquisition of the ESP interest.
  • 7The company declared a regular quarterly cash dividend of $0.42 per share, an 11% increase, and announced its target for dividend growth to align with earnings per share growth.

Frequently Asked Questions

Revenue growth was primarily driven by increased margins in the Equitable Utilities' Energy Marketing group due to higher natural gas price volatility, and by increased sales volumes from the acquisition of Eastern Seven Partners L.P. (ESP) and higher average natural gas prices in the Equitable Supply segment.

The acquisition of ESP contributed to increased sales volumes and production revenues in the Equitable Supply segment. It also led to higher operating expenses due to additional costs associated with its operations.

EQT employs a comprehensive risk management program that includes the use of exchange-traded natural gas futures contracts, options, and over-the-counter (OTC) swap agreements. This strategy aims to protect earnings from undue exposure to price fluctuations, though it also resulted in an increased net liability on derivative commodity instruments due to rising natural gas prices.

The decrease was mainly due to a larger increase in accounts receivable and unbilled revenues. This was largely driven by increased cash remittances to financial institutions for margin deposit requirements on the company's natural gas swap agreements, a consequence of rising natural gas prices.