10-QPeriod: Q1 FY2009

EQT Corp Quarterly Report for Q1 Ended Mar 31, 2009

Filed April 30, 2009For Securities:EQT

Summary

EQT Corporation's first quarter 2009 report shows a slight increase in net income to $72.0 million ($0.55 per diluted share) from $70.5 million ($0.57 per diluted share) in the prior year period, despite a 20% decrease in average well-head natural gas sales prices due to lower commodity prices. This was largely offset by lower selling, general, and administrative (SG&A) expenses, driven by the absence of significant incentive compensation from the prior year, and increased production volumes from EQT's drilling programs. The company's EQT Production segment experienced lower operating income due to depressed commodity prices and higher depletion and exploration expenses, even as production volumes increased. EQT Midstream's operating income also declined, primarily impacted by lower natural gas liquid (NGL) sales prices and reduced storage spreads, although gathering and transmission volumes saw increases. The Distribution segment showed improved operating income, driven by a recent rate increase in Pennsylvania and lower operating expenses. Cash flow from operations significantly improved year-over-year, largely due to changes in working capital, particularly a decrease in accounts receivable and unbilled revenues. The company maintained its capital expenditure program, with a focus on drilling and midstream infrastructure, and anticipates funding these activities through operating cash flow and its credit facility, projecting annual gas sales volume growth of 15% for 2009.

Financial Highlights

24 data points
Beta

Net Income

$71.99M

EPS (Diluted)

$0.55

Cash & Equivalents

$0.00

Free Cash Flow

$4.93M

Financial Statements
Beta
SG&A Expenses$29.75M
Operating Expenses$333.27M
Operating Income$136.14M
Interest Expense$19.24M
Net Income$71.99M
EPS (Basic)$0.55
EPS (Diluted)$0.55
Shares Outstanding (Basic)130.74M
Shares Outstanding (Diluted)131.40M

Key Highlights

  • 1Net income for the quarter was $72.0 million, a slight increase from $70.5 million in the prior year, with diluted EPS of $0.55 compared to $0.57.
  • 2Despite a 20% decrease in average well-head sales prices due to lower commodity prices, production volumes increased, driven by EQT's drilling programs.
  • 3SG&A expenses decreased significantly due to the absence of prior-year incentive compensation, helping to offset lower commodity revenues.
  • 4EQT Production's operating income decreased by 26.4% due to lower commodity prices and higher depletion/exploration expenses.
  • 5EQT Midstream's operating income declined by 19.5% due to unfavorable NGL prices and storage spreads.
  • 6EQT Distribution's operating income increased by 15.6%, supported by new Pennsylvania base rates and lower expenses.
  • 7Cash flow from operating activities saw a substantial increase of $106.6 million, primarily due to favorable changes in working capital.

Frequently Asked Questions

Lower natural gas prices negatively impacted EQT's financial performance, resulting in a 20% decrease in average well-head sales prices. This led to reduced operating income in the EQT Production segment and lower NGL sales prices and storage spreads in the EQT Midstream segment. However, the overall impact on net income was partially mitigated by increased production volumes and reduced SG&A expenses.

EQT Production is focused on organic growth through its drilling program, particularly in the Marcellus and Lower Huron shale formations, and anticipates 15% annual gas sales volume growth for 2009. Capital expenditures remain focused on drilling and midstream infrastructure, with the company expecting to fund these activities through operating cash flow and its credit facility.

EQT utilizes derivative commodity instruments such as futures contracts, swaps, collars, and options to hedge against fluctuations in natural gas prices. The company aims to ensure an adequate level of return for its investments by hedging a significant portion of its expected production. As of March 31, 2009, EQT had price protection for over 65% of expected production in 2009 and over 40% through 2011.

The Distribution segment benefited from a Pennsylvania Public Utility Commission (PA PUC) approved settlement on February 26, 2009, which granted an approximate $38 million annual increase in base rates. This led to an increase in net operating revenues and improved operating income for the segment, along with a new customer assistance program (CAP) surcharge.