10-QPeriod: Q3 FY2011

EQT Corp Quarterly Report for Q3 Ended Sep 30, 2011

Filed October 27, 2011For Securities:EQT

Summary

EQT Corporation reported strong financial results for the nine months ended September 30, 2011, driven significantly by gains from asset divestitures and substantial increases in production sales volumes. Net income for the period surged to $388.9 million, a significant increase from $154.6 million in the prior year, with diluted earnings per share rising to $2.59 from $1.07. This performance was bolstered by the sale of the Big Sandy Pipeline and the Langley natural gas processing complex, which collectively generated pre-tax gains exceeding $200 million. Operationally, EQT Production saw a remarkable 47.4% increase in sales volumes, primarily from its Marcellus Shale play, contributing to a significant rise in segment operating income. EQT Midstream also demonstrated growth, with increased gathering and transmission revenues, though offset by lower storage and marketing activities. The Distribution segment showed moderate improvement, benefiting from colder weather and rate adjustments. Despite increased capital expenditures, the company maintained a strong liquidity position, with cash flows from operations increasing year-over-year.

Financial Highlights

42 data points
Beta

Net Income

$178.91M

EPS (Diluted)

$1.19

Total Assets

$7.72B

Cash & Equivalents

$334.91M

Free Cash Flow

-$91.89M

Financial Statements
Beta
SG&A Expenses$44.74M
Operating Expenses$227.80M
Operating Income$314.98M
Interest Expense$32.50M
Net Income$178.91M
EPS (Basic)$1.20
EPS (Diluted)$1.19
Shares Outstanding (Basic)149.44M
Shares Outstanding (Diluted)150.30M

Key Highlights

  • 1Net income for the first nine months of 2011 was $388.9 million, a substantial increase from $154.6 million in the same period of 2010.
  • 2Diluted earnings per share for the nine months ended September 30, 2011, rose to $2.59, up from $1.07 in the prior year.
  • 3EQT recognized significant pre-tax gains from asset dispositions, including $180.1 million from the sale of the Big Sandy Pipeline and $22.8 million from the sale of the Langley natural gas processing complex.
  • 4EQT Production experienced a 47.4% increase in total production sales volumes (MMcfe), driven by growth in the Marcellus Shale play and acquisitions.
  • 5Cash flow from operating activities increased to $713.3 million for the first nine months of 2011, up from $621.0 million in the prior year.
  • 6Capital expenditures remained high, totaling $985.2 million for the nine months ended September 30, 2011, primarily directed towards EQT Production's drilling and development activities.
  • 7The company's credit ratings were reviewed, with some agencies downgrading EQT's ratings, citing increased business risk from a growing focus on upstream operations, but the outlook remained stable with most.

Frequently Asked Questions

The substantial increase in net income was primarily driven by significant gains from the sale of assets, specifically the Big Sandy Pipeline and the Langley natural gas processing complex. Additionally, strong operational performance, particularly in the EQT Production segment with a notable increase in sales volumes from the Marcellus Shale play, contributed significantly to the improved financial results.

The divestitures of the Big Sandy Pipeline and the Langley natural gas processing complex generated substantial cash proceeds and significant pre-tax gains, contributing over $200 million to pre-tax income. These transactions also allowed EQT to repay short-term loans and provided capital that could be redeployed into other areas of the business, while also potentially reducing the company's overall risk profile by exiting certain infrastructure assets.

EQT expects continued production growth, with 2011 sales of produced natural gas projected at 195 Bcfe, and guidance for 2012 exceeding 250 Bcfe. To support this growth, EQT plans to add significant incremental Marcellus gathering capacity throughout 2011 and is advancing infrastructure projects like the Equitrans Marcellus expansion project to enhance transportation capabilities. The company is also focused on expanding horizontal drilling in its core plays, particularly the Marcellus shale.

EQT employs a comprehensive risk management program, primarily using derivative commodity instruments like futures contracts, swap agreements, and collars to hedge its exposure to natural gas price volatility. For the first nine months of 2011, the average wellhead sales price including hedges remained relatively stable compared to the prior year, indicating the hedging strategy provided a degree of price protection. The company actively monitors its hedged positions, which extend through 2015 for certain contracts.