10-QPeriod: Q2 FY2012

EQT Corp Quarterly Report for Q2 Ended Jun 30, 2012

Filed July 26, 2012For Securities:EQT

Summary

EQT Corporation's second quarter 2012 filing shows a significant decrease in net income compared to the prior year, primarily driven by lower natural gas prices and higher operating expenses. While production volumes increased, the sharp decline in realized sales prices significantly impacted revenue. The company also experienced an increase in depreciation, depletion, and amortization, along with higher interest expenses due to recent debt issuance. A notable event during the quarter was the successful initial public offering (IPO) of EQT Midstream Partners, LP, which provided a cash infusion to EQT Corporation. Despite the challenging revenue environment, the company continued its investment in production and midstream infrastructure development, particularly within the Marcellus play. Management remains focused on operational efficiency and developing its core assets.

Financial Highlights

42 data points
Beta

Net Income

$31.45M

EPS (Diluted)

$0.21

Total Assets

$8.75B

Cash & Equivalents

$515.04M

Free Cash Flow

-$196.42M

Financial Statements
Beta
SG&A Expenses$41.78M
Operating Expenses$256.40M
Operating Income$70.82M
Interest Expense$40.63M
Net Income$31.45M
EPS (Basic)$0.21
EPS (Diluted)$0.21
Shares Outstanding (Basic)149.58M
Shares Outstanding (Diluted)150.15M

Key Highlights

  • 1Net income for the three months ended June 30, 2012, was $31.4 million ($0.21 per diluted share), a substantial decrease from $87.8 million ($0.58 per diluted share) in the same period of 2011.
  • 2Average realized sales prices for production decreased significantly, with natural gas falling from $4.58/Mcf in Q2 2011 to $1.93/Mcf in Q2 2012 (excluding hedges).
  • 3Production sales volumes increased by 28.6% year-over-year for the quarter, driven by expanded drilling programs, particularly in the Marcellus play.
  • 4The company completed the initial public offering (IPO) of its subsidiary, EQT Midstream Partners, LP, on July 2, 2012, raising approximately $278 million, with EQT Corporation receiving about $232 million.
  • 5Capital expenditures for the quarter were $392.7 million, an increase of 5.0% compared to $374.1 million in the prior year, with significant investment in EQT Production and EQT Midstream.
  • 6Operating expenses increased due to higher depreciation, depletion and amortization (DD&A), selling, general and administrative (SG&A) costs, and lease operating expenses (LOE).

Frequently Asked Questions

The primary reason for the decline in net income is the significant decrease in the average realized sales price of natural gas and other commodities, which more than offset the increase in production volumes. Higher operating expenses, including depreciation, depletion, and amortization, also contributed to the lower profitability.

The IPO of EQT Midstream Partners, LP, on July 2, 2012, provided EQT Corporation with a significant cash infusion of approximately $232 million. This cash is expected to help fund ongoing capital expenditures and operations. EQT Corporation retains a majority equity interest in the newly formed partnership.

The company's hedging activities provided a significant benefit, increasing the realized price of natural gas production by $1.52 per Mcf in Q2 2012, compared to $0.41 per Mcf in Q2 2011. This helped to partially offset the sharp decline in unhedged natural gas prices.

EQT Corporation plans to invest approximately $900 million in well development (primarily drilling) and $365 million in midstream infrastructure in 2012. The company anticipates production sales volume growth of approximately 30% for 2012, driven by continued drilling in the Marcellus play.