10-QPeriod: Q2 FY2008

EQT Corp Quarterly Report for Q2 Ended Jun 30, 2008

Filed August 1, 2008For Securities:EQT

Summary

Equitable Resources, Inc. (EQT) reported a significant decrease in net income for the three months ended June 30, 2008, to $55.4 million ($0.44 per diluted share) from $107.3 million ($0.87 per diluted share) in the prior year quarter. This decline was primarily due to the absence of a substantial gain on the sale of assets that boosted the second quarter of 2007 results. Excluding this gain, underlying operational performance showed improvements across most segments. The six-month period ending June 30, 2008, also saw a decrease in net income to $125.9 million ($1.00 per diluted share) compared to $164.0 million ($1.34 per diluted share) in the same period of 2007, again influenced by the prior year's asset sale. Despite the net income drop, the company highlighted revenue growth in its Equitable Production and Equitable Midstream segments, driven by higher natural gas prices and increased sales volumes for production, and higher gathering fees and natural gas liquids (NGL) prices for midstream operations. The company also completed a significant corporate reorganization in June 2008 to separate regulated distribution operations from its unregulated businesses.

Financial Highlights

24 data points
Beta

Net Income

$55.39M

EPS (Diluted)

$0.44

Cash & Equivalents

$168.54M

Free Cash Flow

-$422.39M

Financial Statements
Beta
SG&A Expenses$32.65M
Operating Expenses$232.88M
Operating Income$101.13M
Interest Expense$14.33M
Net Income$55.39M
EPS (Basic)$0.44
EPS (Diluted)$0.44
Shares Outstanding (Basic)126.24M
Shares Outstanding (Diluted)127.32M

Key Highlights

  • 1Net income for the three months ended June 30, 2008, was $55.4 million, a decrease from $107.3 million in the prior year quarter, largely due to the absence of a $119.4 million gain on asset sales in 2007.
  • 2For the six months ended June 30, 2008, net income was $125.9 million, down from $164.0 million in the comparable 2007 period, impacted by the same non-recurring gain in the prior year.
  • 3Equitable Production segment revenues increased by 31% year-over-year for the quarter, driven by a 28% rise in average well-head sales price and a 6% increase in sales volumes.
  • 4Equitable Midstream segment revenues grew by 22% for the quarter, supported by higher gathering fees, increased NGL sales prices, and contributions from the new Big Sandy Pipeline.
  • 5The company completed a significant corporate reorganization on June 30, 2008, establishing a new holding company structure to segregate regulated and unregulated businesses.
  • 6Cash flow from operating activities significantly decreased to $88.7 million in the first six months of 2008 from $312.0 million in the prior year, largely due to increased margin deposit requirements on natural gas hedge agreements.
  • 7Capital expenditures increased notably in the first six months of 2008 to $524.9 million, up from $223.2 million in the prior year, reflecting increased drilling, development, and midstream infrastructure investments.

Frequently Asked Questions

The primary reason for the decrease in net income was the absence of a significant gain on the sale of assets in the Nora area, which contributed $119.4 million to net income in the second quarter of 2007. Excluding this gain, underlying operational performance showed improvements in revenue and operating income for the Production and Midstream segments.

The company uses derivative instruments to hedge against natural gas price volatility. While these hedges aim to ensure adequate returns on investments, they also limit the benefit from significant price increases. The increase in natural gas prices during the first six months of 2008 led to a substantial increase in margin deposit requirements, significantly reducing cash flow from operating activities. As of June 30, 2008, the company had hedged greater than 50% of its expected production through 2010.

On June 30, 2008, Equitable Resources reorganized into a holding company structure. The primary purpose was to separate its state-regulated distribution operations into a new subsidiary, aiming to better segregate regulated and unregulated businesses and improve overall financing flexibility. This reorganization is expected to enhance strategic focus and operational efficiency across its distinct business lines.

The company's strategy focuses on expanding natural gas reserves and production through horizontal drilling in the Appalachian Basin, particularly in shale formations. It is also exploring new development plays and technologies. For midstream operations, the focus is on infrastructure expansion to support production growth. The company forecasts approximately $1.6 billion in capital and exploratory expenditures for 2008, split between well development, midstream infrastructure, and distribution projects.