10-QPeriod: Q2 FY2011

EQT Corp Quarterly Report for Q2 Ended Jun 30, 2011

Filed July 28, 2011For Securities:EQT

Summary

EQT Corporation's second quarter and first half of 2011 results demonstrate significant operational growth and strategic asset management. The company reported a substantial increase in net income for both the three and six-month periods, driven by a notable surge in production sales volumes across its EQT Production segment, particularly from the Marcellus and Huron plays. This growth was further bolstered by higher average wellhead sales prices for natural gas, NGLs, and crude oil, and improved gathering and transmission revenues from EQT Midstream. The company also benefited from strategic asset dispositions, including the sale of the Langley natural gas processing complex and pipeline, and the ANPI transaction, which generated significant gains and are expected to fuel future development. Financially, EQT Corporation maintained a strong liquidity position, with operating activities providing substantial cash flow, though slightly lower than the prior year due to a significant tax refund in 2010. Capital expenditures remained robust, focused on expanding production and midstream infrastructure, particularly in the Marcellus shale. The company also successfully managed its debt, with no outstanding loans under its revolving credit facility at the end of the quarter, and received positive credit rating affirmations, albeit with some outlook concerns, reflecting the company's strategic shift towards upstream operations. The announced sale of the Big Sandy Pipeline, expected to close in the third quarter, promises further cash inflow to support ongoing strategic initiatives.

Financial Highlights

42 data points
Beta

Net Income

$87.75M

EPS (Diluted)

$0.58

Total Assets

$7.29B

Cash & Equivalents

$79.22M

Free Cash Flow

-$42.91M

Financial Statements
Beta
SG&A Expenses$40.94M
Operating Expenses$214.62M
Operating Income$153.17M
Interest Expense$33.29M
Net Income$87.75M
EPS (Basic)$0.59
EPS (Diluted)$0.58
Shares Outstanding (Basic)149.44M
Shares Outstanding (Diluted)150.11M

Key Highlights

  • 1Net income significantly increased by $57.8 million to $87.8 million for the three months ended June 30, 2011, and by $91.9 million to $210.0 million for the six months ended June 30, 2011.
  • 2Total production sales volumes increased by 47.4% for the six months ended June 30, 2011, reaching 90,077 MMcfe.
  • 3EQT Production saw a 65.3% increase in total operating revenues to $196.8 million for the three months ended June 30, 2011, driven by higher volumes and prices.
  • 4EQT Midstream's operating income increased by 25.2% to $52.2 million for the three months ended June 30, 2011, due to higher gathering and transmission revenues and lower operating expenses.
  • 5The company completed the sale of the Langley natural gas processing complex and associated pipeline for $230.5 million in February 2011, recognizing a pre-tax gain of $22.8 million.
  • 6Announced the sale of the Big Sandy Pipeline for $390 million, expected to result in a pre-tax gain of $170-$180 million in Q3 2011.
  • 7Capital expenditures for the six months ended June 30, 2011, were $637.5 million, with a significant portion allocated to EQT Production's drilling and development programs.

Frequently Asked Questions

The significant increase in profitability was primarily driven by a 47% rise in production sales volumes from the EQT Production segment, boosted by increased output from the Marcellus and Huron plays and the ANPI transaction. Higher average wellhead sales prices for natural gas, NGLs, and crude oil also contributed positively. Additionally, improved gathering and transmission revenues from EQT Midstream and gains from strategic asset sales, such as the Langley processing complex, further bolstered net income.

The sale of the Langley natural gas processing complex and NGL pipeline for $230.5 million in February 2011 generated a pre-tax gain of $22.8 million and provided cash flow. Furthermore, the announced sale of the Big Sandy Pipeline for $390 million, expected to close in Q3 2011, is anticipated to yield a substantial pre-tax gain of $170-$180 million, with proceeds earmarked for developing its Marcellus and Huron reserves and associated midstream assets. These dispositions enhance financial flexibility and fund future growth.

EQT Corporation is focusing on expanding its production and developing its reserves through horizontal drilling in shale formations, particularly in Pennsylvania, West Virginia, and Kentucky. The company anticipates adding incremental Marcellus gathering capacity and plans to invest the proceeds from asset sales into developing its Marcellus and Huron acreage. The outlook includes projected natural gas sales volumes of 190-195 Bcfe for the full year 2011, representing significant growth over 2010.

EQT Corporation employs a comprehensive hedging program primarily focused on natural gas sales to protect cash flow from price volatility. The company utilizes derivative instruments such as futures contracts, swap agreements, and collar agreements. As of June 30, 2011, the company had hedged significant volumes of its expected production through 2013, with open positions extending through December 2015. The fair value of these derivative instruments is sensitive to natural gas price fluctuations, and the company actively monitors its hedge position to manage risk.