UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2012
Or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-3551
EQT CORPORATION
(Exact name of registrant as specified in its charter)
|
PENNSYLVANIA |
|
25-0464690 |
|
(State or other jurisdiction of incorporation or organization) |
|
(IRS Employer Identification No.) |
|
625 Liberty Avenue, Pittsburgh, Pennsylvania |
|
15222 |
|
(Address of principal executive offices) |
|
(Zip code) |
(412) 553-5700
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
Large Accelerated Filer x |
|
Accelerated Filer o |
|
|
|
|
|
Non-Accelerated Filer o |
|
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of September 30, 2012, 149,613,335 shares of common stock, no par value, of the registrant were outstanding.
EQT CORPORATION AND SUBSIDIARIES
EQT CORPORATION AND SUBSIDIARIES
Statements of Consolidated Income (Unaudited)
|
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
|
(Thousands, except per share amounts) |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Operating revenues |
|
$ |
364,057 |
|
$ |
362,644 |
|
$ |
1,151,821 |
|
$ |
1,203,130 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Operating expenses: |
|
|
|
|
|
|
|
|
| ||||
|
Purchased gas costs |
|
34,394 |
|
34,121 |
|
158,127 |
|
189,609 |
| ||||
|
Operation and maintenance |
|
36,259 |
|
35,872 |
|
105,464 |
|
91,513 |
| ||||
|
Production |
|
23,201 |
|
24,908 |
|
72,796 |
|
60,784 |
| ||||
|
Exploration |
|
1,163 |
|
814 |
|
4,878 |
|
3,387 |
| ||||
|
Selling, general and administrative |
|
51,481 |
|
44,745 |
|
136,201 |
|
124,572 |
| ||||
|
Depreciation, depletion and amortization |
|
131,611 |
|
87,343 |
|
354,817 |
|
247,627 |
| ||||
|
Total operating expenses |
|
278,109 |
|
227,803 |
|
832,283 |
|
717,492 |
| ||||
|
(Loss) gain on dispositions |
|
(187 |
) |
180,143 |
|
923 |
|
202,928 |
| ||||
|
Operating income |
|
85,761 |
|
314,984 |
|
320,461 |
|
688,566 |
| ||||
|
Other income |
|
2,988 |
|
3,098 |
|
12,918 |
|
27,948 |
| ||||
|
Interest expense |
|
40,460 |
|
32,503 |
|
122,341 |
|
98,642 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Income before income taxes |
|
48,289 |
|
285,579 |
|
211,038 |
|
617,872 |
| ||||
|
Income taxes |
|
11,585 |
|
106,665 |
|
70,853 |
|
228,949 |
| ||||
|
Net income |
|
36,704 |
|
178,914 |
|
140,185 |
|
388,923 |
| ||||
|
Less: Net income attributable to noncontrolling interests |
|
4,831 |
|
— |
|
4,831 |
|
— |
| ||||
|
Net income attributable to EQT Corporation |
|
$ |
31,873 |
|
$ |
178,914 |
|
$ |
135,354 |
|
$ |
388,923 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Earnings per share of common stock attributable to EQT Corporation: |
|
|
|
|
|
|
|
|
| ||||
|
Basic: |
|
|
|
|
|
|
|
|
| ||||
|
Weighted average common shares outstanding |
|
149,604 |
|
149,441 |
|
149,555 |
|
149,373 |
| ||||
|
Net income |
|
$ |
0.21 |
|
$ |
1.20 |
|
$ |
0.91 |
|
$ |
2.60 |
|
|
Diluted: |
|
|
|
|
|
|
|
|
| ||||
|
Weighted average common shares outstanding |
|
150,388 |
|
150,301 |
|
150,270 |
|
150,144 |
| ||||
|
Net income |
|
$ |
0.21 |
|
$ |
1.19 |
|
$ |
0.90 |
|
$ |
2.59 |
|
|
Dividends declared per common share |
|
$ |
0.22 |
|
$ |
0.22 |
|
$ |
0.66 |
|
$ |
0.66 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
EQT CORPORATION AND SUBSIDIARIES
Statements of Consolidated Comprehensive Income (Unaudited)
|
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
|
(Thousands) |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net income attributable to EQT Corporation |
|
$ |
31,873 |
|
$ |
178,914 |
|
$ |
135,354 |
|
$ |
388,923 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Other comprehensive (loss) income, net of tax: |
|
|
|
|
|
|
|
|
| ||||
|
Net change in cash flow hedges: |
|
|
|
|
|
|
|
|
| ||||
|
Natural gas, net of tax (benefit) expense of ($62,383), $29,591, ($65,488) and $36,042 (see Note D) |
|
(96,680 |
) |
53,949 |
|
(101,394 |
) |
64,579 |
| ||||
|
Interest rate, net of tax (benefit) of ($1,322), ($3,249), ($4,487) and ($3,249) (see Note D) |
|
(1,734 |
) |
(4,645 |
) |
(5,902 |
) |
(4,587 |
) | ||||
|
Unrealized loss on available-for-sale securities, net of tax of $2,636 |
|
— |
|
— |
|
— |
|
(4,896 |
) | ||||
|
Pension and other post-retirement benefits liability adjustment, net of tax of $369, $282, $583 and $845 |
|
455 |
|
412 |
|
1,891 |
|
1,236 |
| ||||
|
Other comprehensive (loss) income |
|
(97,959 |
) |
49,716 |
|
(105,405 |
) |
56,332 |
| ||||
|
Comprehensive (loss) income |
|
(66,086 |
) |
228,630 |
|
29,949 |
|
445,255 |
| ||||
|
Less: Comprehensive (loss) income attributable to noncontrolling interests |
|
— |
|
— |
|
— |
|
— |
| ||||
|
Comprehensive (loss) income attributable to EQT Corporation |
|
$ |
(66,086 |
) |
$ |
228,630 |
|
$ |
29,949 |
|
$ |
445,255 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
EQT CORPORATION AND SUBSIDIARIES
Statements of Condensed Consolidated Cash Flows (Unaudited)
|
|
|
Nine Months Ended |
| ||||
|
|
|
September 30, |
| ||||
|
|
|
2012 |
|
2011 |
| ||
|
|
|
(Thousands) |
| ||||
|
Cash flows from operating activities: |
|
|
|
|
| ||
|
Net income |
|
$ |
140,185 |
|
$ |
388,923 |
|
|
Adjustments to reconcile net income to cash provided by operating activities: |
|
|
|
|
| ||
|
Recovery for losses on accounts receivable |
|
(3,187 |
) |
(176 |
) | ||
|
Depreciation, depletion and amortization |
|
354,817 |
|
247,627 |
| ||
|
Unrealized losses (gains) on derivatives and inventory |
|
2,897 |
|
(3,905 |
) | ||
|
Other income |
|
(12,918 |
) |
(27,948 |
) | ||
|
Gain on dispositions |
|
(923 |
) |
(202,928 |
) | ||
|
Equity award expense |
|
28,752 |
|
15,118 |
| ||
|
Deferred income taxes |
|
45,473 |
|
190,330 |
| ||
|
Noncash financial instrument put premiums |
|
8,227 |
|
— |
| ||
|
|
|
|
|
|
| ||
|
Changes in other assets and liabilities: |
|
|
|
|
| ||
|
Dividend from Nora Gathering LLC |
|
7,750 |
|
23,500 |
| ||
|
Inventory |
|
35,981 |
|
467 |
| ||
|
Accounts receivable and unbilled revenues |
|
50,870 |
|
66,952 |
| ||
|
Accounts payable |
|
(10,001 |
) |
37,535 |
| ||
|
Other assets and liabilities |
|
22,047 |
|
1,340 |
| ||
|
Net cash provided by operating activities |
|
669,970 |
|
736,835 |
| ||
|
|
|
|
|
|
| ||
|
Cash flows from investing activities: |
|
|
|
|
| ||
|
Capital expenditures |
|
(1,023,503 |
) |
(892,557 |
) | ||
|
Proceeds from sale of available-for-sale investments |
|
— |
|
29,947 |
| ||
|
Proceeds from sale of assets |
|
4,842 |
|
619,999 |
| ||
|
Net cash used in investing activities |
|
(1,018,661 |
) |
(242,611 |
) | ||
|
|
|
|
|
|
| ||
|
Cash flows from financing activities: |
|
|
|
|
| ||
|
Proceeds from the issuance of common units of EQT Midstream Partners, LP, net of issuance costs |
|
276,780 |
|
— |
| ||
|
Dividends paid |
|
(98,840 |
) |
(98,709 |
) | ||
|
Decrease in short-term loans |
|
— |
|
(53,650 |
) | ||
|
Repayments and retirements of long-term debt |
|
(19,315 |
) |
(9,457 |
) | ||
|
Proceeds and tax benefits from exercises under employee compensation plans |
|
1,831 |
|
2,504 |
| ||
|
Revolving credit facility origination fees |
|
(4,022 |
) |
— |
| ||
|
Net cash provided by (used in) financing activities |
|
156,434 |
|
(159,312 |
) | ||
|
|
|
|
|
|
| ||
|
Net (decrease) increase in cash and cash equivalents |
|
(192,257 |
) |
334,912 |
| ||
|
Cash and cash equivalents at beginning of period |
|
831,251 |
|
— |
| ||
|
Cash and cash equivalents at end of period |
|
$ |
638,994 |
|
$ |
334,912 |
|
|
|
|
|
|
|
| ||
|
Cash paid during the period for: |
|
|
|
|
| ||
|
Interest, net of amount capitalized |
|
$ |
93,872 |
|
$ |
76,934 |
|
|
Income taxes, net |
|
$ |
17,193 |
|
$ |
35,628 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
EQT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
|
|
|
September 30, |
|
December 31, |
| ||
|
|
|
2012 |
|
2011 |
| ||
|
|
|
(Thousands) |
| ||||
|
ASSETS |
|
|
|
|
| ||
|
|
|
|
|
|
| ||
|
Current assets: |
|
|
|
|
| ||
|
Cash and cash equivalents |
|
$ |
638,994 |
|
$ |
831,251 |
|
|
Accounts receivable (less accumulated provision for doubtful accounts September 30, 2012 and December 31, 2011: $10,684 and $16,371) |
|
126,022 |
|
153,321 |
| ||
|
Unbilled revenues |
|
9,874 |
|
30,257 |
| ||
|
Inventory |
|
88,171 |
|
123,960 |
| ||
|
Derivative instruments, at fair value |
|
319,203 |
|
512,161 |
| ||
|
Prepaid expenses and other |
|
45,663 |
|
39,184 |
| ||
|
Total current assets |
|
1,227,927 |
|
1,690,134 |
| ||
|
|
|
|
|
|
| ||
|
Equity in nonconsolidated investments |
|
133,861 |
|
136,972 |
| ||
|
|
|
|
|
|
| ||
|
Property, plant and equipment |
|
9,781,025 |
|
8,768,713 |
| ||
|
Less: accumulated depreciation and depletion |
|
2,288,586 |
|
1,962,404 |
| ||
|
Net property, plant and equipment |
|
7,492,439 |
|
6,806,309 |
| ||
|
|
|
|
|
|
| ||
|
Regulatory assets |
|
102,774 |
|
94,095 |
| ||
|
Other assets |
|
40,699 |
|
45,209 |
| ||
|
Total assets |
|
$ |
8,997,700 |
|
$ |
8,772,719 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
EQT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
|
|
|
September 30, |
|
December 31, |
| ||
|
|
|
2012 |
|
2011 |
| ||
|
|
|
(Thousands) |
| ||||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
| ||
|
|
|
|
|
|
| ||
|
Current liabilities: |
|
|
|
|
| ||
|
Current portion of long-term debt |
|
$ |
223,204 |
|
$ |
219,315 |
|
|
Accounts payable |
|
246,756 |
|
256,757 |
| ||
|
Derivative instruments, at fair value |
|
125,452 |
|
123,306 |
| ||
|
Other current liabilities |
|
223,526 |
|
205,532 |
| ||
|
Total current liabilities |
|
818,938 |
|
804,910 |
| ||
|
|
|
|
|
|
| ||
|
Long-term debt |
|
2,503,333 |
|
2,527,627 |
| ||
|
Deferred income taxes and investment tax credits |
|
1,599,097 |
|
1,618,944 |
| ||
|
Other credits |
|
228,561 |
|
227,408 |
| ||
|
Total liabilities |
|
5,149,929 |
|
5,178,889 |
| ||
|
|
|
|
|
|
| ||
|
Equity: |
|
|
|
|
| ||
|
Stockholders’ equity |
|
|
|
|
| ||
|
Common stock, no par value, authorized 320,000 shares; shares issued September 30, 2012 and December 31, 2011: 175,684 and 175,684 |
|
1,773,570 |
|
1,734,994 |
| ||
|
Treasury stock, shares at cost: September 30, 2012 and December 31, 2011: 26,071 and 26,207 |
|
(470,732 |
) |
(473,215 |
) | ||
|
Retained earnings |
|
2,180,424 |
|
2,143,910 |
| ||
|
Accumulated other comprehensive income |
|
82,736 |
|
188,141 |
| ||
|
Total common stockholders’ equity |
|
3,565,998 |
|
3,593,830 |
| ||
|
Noncontrolling interests in consolidated subsidiaries |
|
281,773 |
|
— |
| ||
|
Total equity |
|
3,847,771 |
|
3,593,830 |
| ||
|
Total liabilities and equity |
|
$ |
8,997,700 |
|
$ |
8,772,719 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
EQT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Equity (Unaudited)
|
|
|
Common Stock |
|
|
|
Accumulated |
|
Noncontrolling |
|
Total |
| |||||||
|
|
|
Shares |
|
No |
|
Retained |
|
Comprehensive |
|
Consolidated |
|
Stockholders’ |
| |||||
|
|
|
(Thousands) |
| |||||||||||||||
|
Balance, January 1, 2011 |
|
149,153 |
|
$ |
1,244,826 |
|
$ |
1,795,766 |
|
$ |
38,104 |
|
$ |
— |
|
$ |
3,078,696 |
|
|
Net income |
|
|
|
|
|
388,923 |
|
|
|
|
|
388,923 |
| |||||
|
Other comprehensive income |
|
|
|
|
|
|
|
56,332 |
|
|
|
56,332 |
| |||||
|
Dividends on common stock |
|
|
|
|
|
(98,709 |
) |
|
|
|
|
(98,709 |
) | |||||
|
Stock-based compensation plans, net |
|
285 |
|
12,495 |
|
|
|
|
|
|
|
12,495 |
| |||||
|
Balance, September 30, 2011 |
|
149,438 |
|
$ |
1,257,321 |
|
$ |
2,085,980 |
|
$ |
94,436 |
|
$ |
— |
|
$ |
3,437,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
Balance, January 1, 2012 |
|
149,477 |
|
$ |
1,261,779 |
|
$ |
2,143,910 |
|
$ |
188,141 |
|
$ |
— |
|
$ |
3,593,830 |
|
|
Net income |
|
|
|
|
|
135,354 |
|
|
|
4,831 |
|
140,185 |
| |||||
|
Other comprehensive (loss) |
|
|
|
|
|
|
|
(105,405 |
) |
|
|
(105,405 |
) | |||||
|
Dividends on common stock |
|
|
|
|
|
(98,840 |
) |
|
|
|
|
(98,840 |
) | |||||
|
Stock-based compensation plans, net |
|
136 |
|
35,688 |
|
|
|
|
|
162 |
|
35,850 |
| |||||
|
Issuance of common units of EQT Midstream Partners, LP |
|
|
|
|
|
|
|
|
|
276,780 |
|
276,780 |
| |||||
|
Deferred taxes related to IPO of EQT Midstream Partners, LP |
|
|
|
5,371 |
|
|
|
|
|
|
|
5,371 |
| |||||
|
Balance, September 30, 2012 |
|
149,613 |
|
$ |
1,302,838 |
|
$ |
2,180,424 |
|
$ |
82,736 |
|
$ |
281,773 |
|
$ |
3,847,771 |
|
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
EQT Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
A. Financial Statements
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the requirements of Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements. In the opinion of management, these statements include all adjustments (consisting of only normal recurring accruals, unless otherwise disclosed in this Form 10-Q) necessary for a fair presentation of the financial position of EQT Corporation and subsidiaries as of September 30, 2012 and December 31, 2011, the results of its operations for the three and nine month periods ended September 30, 2012 and 2011 and its cash flows for the nine month periods ended September 30, 2012 and 2011. Certain previously reported amounts have been reclassified to conform to the current year presentation. In this Form 10-Q, references to “we,” “us,” “our,” “EQT,” “EQT Corporation,” and the “Company” refer collectively to EQT Corporation and its consolidated subsidiaries.
The balance sheet at December 31, 2011 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by United States generally accepted accounting principles for complete financial statements.
Due to the seasonal nature of the Company’s natural gas distribution and storage businesses and the volatility of commodity prices, the interim statements for the three and nine month periods ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.
For further information, refer to the consolidated financial statements and footnotes thereto included in EQT Corporation’s Annual Report on Form 10-K for the year ended December 31, 2011 as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 21 of this document.
B. EQT Midstream Partners, LP
On July 2, 2012, EQT Midstream Partners, LP (the Partnership), a subsidiary of the Company, completed an underwritten initial public offering (IPO) of 14,375,000 common units representing limited partner interests in the Partnership, which represented 40.6% of the Partnership’s outstanding equity. The Company retained a 59.4% equity interest in the Partnership, including 2,964,718 common units, 17,339,718 subordinated units and a 2% general partner interest. Prior to the IPO, the Company contributed to the Partnership 100% of Equitrans, LP, (Equitrans, the Company’s Federal Energy Regulatory Commission (FERC) regulated transmission, storage and gathering subsidiary). A wholly-owned subsidiary of EQT serves as the general partner of the Partnership, and the Company continues to operate the Equitrans business pursuant to the contractual arrangements set forth below. The Company continues to consolidate the results of the Partnership but records an income tax provision only as to its ownership percentage. EQT records the noncontrolling interest of the public limited partners in EQT’s financial statements.
Also, in connection with the closing of the IPO:
· The Partnership, its general partner and EQT entered into an Omnibus Agreement (Omnibus Agreement), pursuant to which, among other things, EQT agreed to provide the Partnership with general and administrative services and a license to use the name “EQT” and related marks in connection with the Partnership’s business. The Omnibus Agreement also provides for certain indemnification and reimbursement obligations between EQT and the Partnership.
· EQT’s subsidiary EQT Gathering, LLC (EQT Gathering) and the Partnership entered into an operation and management services agreement (Services Agreement), pursuant to which EQT Gathering will provide the Partnership’s pipelines and storage facilities with certain operational and management services. The Services Agreement also provides for certain indemnification and reimbursement obligations between the Partnership and EQT Gathering.
EQT Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
· The Partnership entered into a $350 million revolving credit facility with Wells Fargo Bank, National Association, as administrative agent, and a syndicate of lenders, which will mature on July 2, 2017. The credit facility is available to fund working capital requirements and capital expenditures, to purchase assets, to pay distributions and repurchase units and for general partnership purposes. The Company is not a guarantor of the Partnership’s obligations under the credit facility.
· As a result of the IPO, the Company reversed $5.4 million of net deferred tax liability related to temporary differences between book and tax basis that will no longer impact the Company.
· The Company and the Partnership granted certain EQT employees, including executive officers of both entities, performance awards representing 146,490 common units. The Company accounted for these awards as equity awards using the grant date fair value. Additionally, the Partnership granted 4,780 share-based phantom units to each of the independent directors of its general partner, which units vested upon grant. The value of the phantom units will be paid in common units on the earlier of the director’s death or retirement from the general partner’s Board of Directors. The Company accounts for these awards as equity awards and as such, recorded compensation expense for the fair value of the awards at the grant date fair value.
The Partnership received cash proceeds, net of issuance costs, of approximately $277 million upon closing of the IPO which increased the noncontrolling interest component of total equity. Approximately $231 million of the proceeds were distributed to EQT, $12 million was retained by the Partnership to replenish amounts distributed by Equitrans to EQT prior to the IPO, $32 million was retained by the Partnership to pre-fund certain maintenance capital expenditures and $2 million was used by the Partnership to pay revolving credit facility origination fees associated with the revolving credit agreement entered into by the Partnership at the closing of the IPO.
C. Segment Information
Operating segments are revenue-producing components of the enterprise for which separate financial information is produced internally and which are subject to evaluation by the Company’s chief operating decision maker in deciding how to allocate resources.
The Company reports its operations in three segments, which reflect its lines of business. The EQT Production segment includes the Company’s exploration for, and development and production of, natural gas, natural gas liquids (NGLs) and a limited amount of crude oil in the Appalachian Basin. EQT Midstream’s operations include the natural gas gathering, transportation, storage and marketing activities of the Company, including ownership and operation of the Partnership. Distribution’s operations primarily comprise the state-regulated natural gas distribution activities of the Company.
Operating segments are evaluated on their contribution to the Company’s consolidated results based on operating income. Other income, interest and income taxes are managed on a consolidated basis. Headquarters’ costs are billed to the operating segments based upon a fixed allocation of the headquarters’ annual operating budget. Differences between budget and actual headquarters’ expenses are not allocated to the operating segments. As part of the 2012 budgeting process, the Company allocated additional corporate overhead charges to the operating segments. Current period corporate overhead costs have stayed relatively consistent with budgeted amounts; thus, unallocated expenses presented in the segment tables below have decreased for the three and nine month periods ended September 30, 2012.
The Company’s management reviews and reports the EQT Production segment results with third party transportation costs reflected as a deduction from operating revenues. During 2011, because of increased materiality of these costs, the Company determined that consolidated results are required to be reported on a gross basis with third-party transportation costs recorded as a portion of purchased gas costs. The consolidated operating revenues, purchased gas costs and total operating expenses for all periods presented have been adjusted to reflect this gross presentation. This adjustment had no impact on consolidated net income, consolidated operating income or on the segment results for any period presented. Management believes this adjustment is not material to the overall financial statement presentation.
EQT Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Substantially all of the Company’s operating revenues, income from operations and assets are generated or located in the United States.
|
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
|
(Thousands) |
| ||||||||||
|
Revenues from external customers: |
|
|
|
|
|
|
|
|
| ||||
|
EQT Production |
|
$ |
195,289 |
|
$ |
207,500 |
|
$ |
549,334 |
|
$ |
577,352 |
|
|
EQT Midstream |
|
120,484 |
|
122,614 |
|
362,630 |
|
395,477 |
| ||||
|
Distribution |
|
35,649 |
|
49,175 |
|
219,343 |
|
313,366 |
| ||||
|
Other (a) |
|
12,635 |
|
(16,645 |
) |
20,514 |
|
(83,065 |
) | ||||
|
Total |
|
$ |
364,057 |
|
$ |
362,644 |
|
$ |
1,151,821 |
|
$ |
1,203,130 |
|
|
Operating income: |
|
|
|
|
|
|
|
|
| ||||
|
EQT Production (b) |
|
$ |
38,341 |
|
$ |
98,936 |
|
$ |
116,193 |
|
$ |
281,024 |
|
|
EQT Midstream (b) |
|
51,021 |
|
221,816 |
|
166,907 |
|
363,477 |
| ||||
|
Distribution |
|
685 |
|
2,463 |
|
43,831 |
|
64,758 |
| ||||
|
Unallocated expenses |
|
(4,286 |
) |
(8,231 |
) |
(6,470 |
) |
(20,693 |
) | ||||
|
Total |
|
$ |
85,761 |
|
$ |
314,984 |
|
$ |
320,461 |
|
$ |
688,566 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Reconciliation of operating income to net income: |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Other income |
|
$ |
2,988 |
|
$ |
3,098 |
|
$ |
12,918 |
|
$ |
27,948 |
|
|
Interest expense |
|
40,460 |
|
32,503 |
|
122,341 |
|
98,642 |
| ||||
|
Income taxes |
|
11,585 |
|
106,665 |
|
70,853 |
|
228,949 |
| ||||
|
Total |
|
$ |
36,704 |
|
$ |
178,914 |
|
$ |
140,185 |
|
$ |
388,923 |
|
|
|
|
September 30, |
|
December 31, |
| ||
|
|
|
2012 |
|
2011 |
| ||
|
|
|
(Thousands) |
| ||||
|
Segment Assets: |
|
|
|
|
| ||
|
EQT Production |
|
$ |
5,458,646 |
|
$ |
5,256,645 |
|
|
EQT Midstream |
|
1,990,056 |
|
1,785,089 |
| ||
|
Distribution |
|
818,790 |
|
850,414 |
| ||
|
Total operating segments |
|
8,267,492 |
|
7,892,148 |
| ||
|
Headquarters assets, including cash and short-term investments |
|
730,208 |
|
880,571 |
| ||
|
Total assets |
|
$ |
8,997,700 |
|
$ |
8,772,719 |
|
(a) Includes entries to eliminate intercompany natural gas sales from EQT Production to EQT Midstream and transportation activities between EQT Midstream and both EQT Production and Distribution. In addition, this amount reflects the reclassification of third party transportation costs from operating revenues to purchased gas costs at the consolidated level. Reduced activity between segments, lower prices and increased third-party transportation costs caused the change for the three and nine month periods presented.
(b) Losses on dispositions of $0.2 million and gains on dispositions of $0.9 million are included in EQT Production operating income for the three and nine month periods ended September 30, 2012 and gains on dispositions of $180.1 million and $202.9 million are included in EQT Midstream operating income for the three and nine month periods ended September 30, 2011. See Note K.
EQT Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
|
(Thousands) |
| ||||||||||
|
Depreciation, depletion and amortization: |
|
|
|
|
|
|
|
|
| ||||
|
EQT Production |
|
$ |
108,204 |
|
$ |
66,947 |
|
$ |
289,176 |
|
$ |
186,680 |
|
|
EQT Midstream |
|
17,172 |
|
14,093 |
|
46,864 |
|
43,097 |
| ||||
|
Distribution |
|
6,237 |
|
6,534 |
|
18,767 |
|
18,414 |
| ||||
|
Other |
|
(2 |
) |
(231 |
) |
10 |
|
(564 |
) | ||||
|
Total |
|
$ |
131,611 |
|
$ |
87,343 |
|
$ |
354,817 |
|
$ |
247,627 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Expenditures for segment assets: |
|
|
|
|
|
|
|
|
| ||||
|
EQT Production (c) |
|
$ |
255,223 |
|
$ |
255,151 |
|
$ |
703,834 |
|
$ |
800,029 |
|
|
EQT Midstream |
|
97,135 |
|
81,227 |
|
296,698 |
|
156,832 |
| ||||
|
Distribution |
|
8,164 |
|
10,149 |
|
21,066 |
|
25,179 |
| ||||
|
Other |
|
661 |
|
1,118 |
|
1,905 |
|
3,131 |
| ||||
|
Total |
|
$ |
361,183 |
|
$ |
347,645 |
|
$ |
1,023,503 |
|
$ |
985,171 |
|
(c) Capital expenditures at EQT Production for the nine month period ended 2011 include $92.6 million of liabilities assumed in exchange for producing properties as part of the ANPI transaction discussed in Note J.
D. Derivative Instruments
Natural Gas Hedging Instruments
The Company’s primary market risk exposure is the volatility of future prices for natural gas and NGLs, which can affect the operating results of the Company primarily through EQT Production and the storage, marketing and other activities at EQT Midstream. The Company’s overall objective in its hedging program is to protect cash flows from undue exposure to the risk of changing commodity prices.
The Company uses derivative commodity instruments that are purchased from or placed with major financial institutions whose creditworthiness is regularly monitored. Futures contracts obligate the Company to buy or sell a designated commodity at a future date for a specified price and quantity at a specified location. Swap agreements involve payments to or receipts from counterparties based on the differential between a fixed and a variable price for the commodity. Collar agreements require the counterparty to pay the Company if the index price falls below the floor price and the Company to pay the counterparty if the index price rises above the cap price. The Company also engages in a limited number of basis swaps to protect earnings from undue exposure to the risk of geographic disparities in commodity prices and interest rate swaps to hedge exposure to interest rate fluctuations on short- or long-term debt.
The Company recognizes all derivative instruments as either assets or liabilities at fair value on a gross basis. The accounting for the changes in fair value of the Company’s derivative instruments depends on the use of the derivative instruments. To the extent that a derivative instrument has been designated and qualifies as a cash flow hedge, the effective portion of the change in fair value of the derivative instrument is reported as a component of accumulated other comprehensive income, net of tax, and is subsequently reclassified into the Statements of Consolidated Income in the same period or periods during which the forecasted transaction affects earnings.
For a derivative instrument that has been designated and qualifies as a fair value hedge, the change in the fair value of the instrument is recognized as a portion of operating revenues in the Statements of Consolidated Income each period. In addition, the change in the fair value of the hedged item (natural gas inventory) is recognized as a portion of operating revenues in the Statements of Consolidated Income. The Company has elected to exclude the spot/forward differential for the assessment of effectiveness of the fair value hedges. Any hedging ineffectiveness and any change in fair value of derivative instruments that have not been designated as hedges are recognized in the Statements of Consolidated Income each period.
EQT Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Exchange-traded instruments are generally settled with offsetting positions. Over the counter (OTC) arrangements require settlement in cash. Settlements of derivative commodity instruments are reported as a component of cash flows from operations in the accompanying Statements of Condensed Consolidated Cash Flows.
Some of the derivative commodity instruments used by the Company to hedge its exposure to variability in expected future cash flows associated with the fluctuations in the price of natural gas related to the Company’s forecasted sale of equity production and forecasted natural gas purchases and sales have been designated and qualify as cash flow hedges. Some of the derivative commodity instruments used by the Company to hedge its exposure to adverse changes in the market price of natural gas stored in the ground have been designated and qualify as fair value hedges.
In addition, the Company enters into a limited number of energy trading contracts to leverage its assets and limit its exposure to shifts in market prices and has a limited number of other derivative instruments not designated as hedges. In 2008 and 2011, the Company effectively settled certain derivative commodity swaps scheduled to mature during the period 2010 through 2013 by de-designating the instruments and entering into directly counteractive instruments. These transactions result in offsetting positions which are the majority of the derivative asset and liability balances not designated as hedging instruments.
All derivative instrument assets and liabilities are reported in the Condensed Consolidated Balance Sheets as derivative instruments, at fair value. These derivative instruments are reported as either current assets or current liabilities due to their highly liquid nature. The Company can net settle its derivative instruments at any time.
|
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
|
September 30, |
|
September 30, |
| ||||||||
|
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
|
(Thousands) |
| ||||||||||
|
Commodity derivatives designated as cash flow hedges |
|
|
|
|
|
|
|
|
| ||||
|
Amount of (loss) gain recognized in other comprehensive income (OCI) (effective portion), net of tax |
|
$ |
(51,397 |
) |
$ |
69,204 |
|
$ |
47,159 |
|
$ |
106,657 |
|
|
Amount of (loss) gain reclassified from accumulated OCI into operating revenues (effective portion), net of tax |
|
$ |
45,283 |
|
$ |
15,255 |
|
$ |
148,553 |
|
$ |
42,078 |
|
|
Amount of gain (loss) recognized in operating revenues (ineffective portion) (a) |
|
$ |
166 |
|
$ |
(352 |
) |
$ |
(76 |
) |
$ |
(613 |
) |
|
|
|
|
|
|
|
|
|
|
| ||||
|
Interest rate derivatives designated as cash flow hedges |
|
|
|
|
|
|
|
|
| ||||
|
Amount of (loss) recognized in OCI (effective portion), net of tax |
|
$ |
(1,800 |
) |
$ |
(4,674 |
) |
$ |
(6,097 |
) |
$ |
(4,674 |
) |
|
Amount of (loss) reclassified from accumulated OCI into interest expense (effective portion), net of tax |
|
$ |
(66 |
) |
$ |
(29 |
) |
$ |
(195 |
) |
$ |
(87 |
) |
|
|
|
|
|
|
|
|
|
|
| ||||
|
Commodity derivatives designated as fair value hedges (b) |
|
|
|
|
|
|
|
|
| ||||
|
Amount of (loss) gain recognized in operating revenues for fair value commodity contracts |
|
$ |
(3,051 |
) |
$ |
4,261 |
|
$ |
1,644 |
|
$ |
3,728 |
|
|
Fair value gain (loss) recognized in operating revenues for inventory designated as hedged item |
|
$ |
1,491 |
|
$ |
(3,781 |
) |
$ |
(52 |
) |
$ |
(2,088 |
) |
|
|
|
|
|
|
|
|
|
|
| ||||
|
Derivatives not designated as hedging instruments |
|
|
|
|
|
|
|
|
| ||||
|
Amount of (loss) gain recognized in operating revenues |
|
$ |
(632 |
) |
$ |
2,663 |
|
$ |
1,041 |
|
$ |
1,840 |
|
(a) No amounts have been excluded from effectiveness testing of cash flow hedges.
(b) For the three months ended September 30, 2012, the net impact on operating revenues consisted of a $1.1 million loss related to the exclusion of the spot/forward differential from the assessment of effectiveness and a $0.5 million loss due to changes in basis. For the three months ended September 30, 2011, the net impact on operating revenues consisted of a $0.8 million gain related to the exclusion of the spot/forward differential from the assessment of effectiveness and a $0.3 million loss due to changes in basis. For the nine months ended September 30, 2012, the net impact on operating revenues consisted of a $1.6 million
EQT Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
gain due to the exclusion of the spot/forward differential from the assessment of effectiveness and a $0.1 million gain due to changes in basis. For the nine months ended September 30, 2011, the net impact on operating revenues consisted of a $2.3 million gain related to the exclusion of the spot/forward differential from the assessment of effectiveness and a $0.7 million loss due to changes in basis.
|
|
|
September 30, |
|
December 31, |
| ||
|
|
|
2012 |
|
2011 |
| ||
|
|
|
(Thousands) |
| ||||
|
Asset derivatives |
|
|
|
|
| ||
|
Commodity derivatives designated as hedging instruments |
|
$ |
263,141 |
|
$ |
412,626 |
|
|
Commodity derivatives not designated as hedging instruments |
|
56,062 |
|
99,535 |
| ||
|
Total asset derivatives |
|
$ |
319,203 |
|
$ |
512,161 |
|
|
|
|
|
|
|
| ||
|
Liability derivatives |
|
|
|
|
| ||
|
Commodity derivatives designated as hedging instruments |
|
$ |
42,043 |
|
$ |
3,681 |
|
|
Interest rate derivatives designated as hedging instruments |
|
21,520 |
|
10,861 |
| ||
|
Commodity derivatives not designated as hedging instruments |
|
61,889 |
|
108,764 |
| ||
|
Total liability derivatives |
|
$ |
125,452 |
|
$ |
123,306 |
|
In August 2011, the Company entered into a forward-starting interest rate swap to mitigate the risk of rising interest rates. The forward-starting interest rate swap was designated as a cash flow hedge of forecasted future interest payments. The Company recorded deferred losses of $13.5 million and $7.6 million in accumulated other comprehensive income, net of tax, as of September 30, 2012 and December 31, 2011, respectively, associated with the change in fair value of interest rate swaps.
The net fair value of commodity derivative instruments decreased during the first nine months of 2012 as a result of settlements and increased commodity prices. The absolute quantities of the Company’s derivative commodity instruments that have been designated and qualify as cash flow hedges totaled 361 Bcf and 349 Bcf as of September 30, 2012 and December 31, 2011, respectively, and are primarily related to natural gas swaps and collars. The open positions at September 30, 2012 had maturities extending through December 2017. The absolute quantities of the Company’s derivative commodity instruments that have been designated and qualify as fair value hedges totaled 9 Bcf as of September 30, 2012 and December 31, 2011.
The Company deferred net gains of $130.7 million and $232.1 million in accumulated other comprehensive income, net of tax, as of September 30, 2012 and December 31, 2011, respectively, associated with the effective portion of the change in fair value of its derivative commodity instruments designated as cash flow hedges. Assuming no change in price or new transactions, the Company estimates that approximately $91 million of net unrealized gains on its derivative commodity instruments reflected in accumulated other comprehensive income, net of tax, as of September 30, 2012 will be recognized in earnings during the next twelve months due to the settlement of hedged transactions.
The Company is exposed to credit loss in the event of nonperformance by counterparties to derivative contracts. This credit exposure is limited to derivative contracts with a positive fair value, which may change as market prices change. The Company believes that New York Mercantile Exchange (NYMEX) traded futures contracts have reduced credit risk because Commodity Futures Trading Commission regulations are in place to protect exchange participants, including the Company, from potential financial instability of the exchange members. The Company’s OTC swap and collar derivative instruments are primarily with financial institutions and thus are subject to events that would impact those companies individually as well as that industry as a whole.
The Company utilizes various processes and analysis to monitor and evaluate its credit risk exposures. These include closely monitoring current market conditions and credit default swap rates. Credit exposure is controlled through credit approvals and limits. To manage the level of credit risk, the Company deals with financial counterparties that are of investment grade or better, enters into netting agreements whenever possible and may obtain collateral or other security. As of September 30, 2012, all derivative contracts outstanding were with counterparties having a Standard & Poor’s Rating Services (S&P) rating of A- or higher and a Moody’s Investor Services (Moody’s) rating of Baa2 or higher.
EQT Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
When the net fair value of any of the Company’s swap agreements represents a liability to the Company which is in excess of the agreed-upon threshold between the Company and the financial institution acting as the counterparty, the counterparty requires the Company to remit funds to the counterparty as a margin deposit for the derivative liability which is in excess of the threshold amount. The Company records these deposits as a current asset. When the net fair value of any of the Company’s swap agreements represents an asset to the Company which is in excess of the agreed-upon threshold between the Company and the financial institution acting as counterparty, the Company requires the counterparty to remit funds as margin deposit in an amount equal to the portion of the derivative asset which is in excess of the threshold amount. The Company records a current liability for such amounts received. The Company had no such deposits in its Condensed Consolidated Balance Sheets as of September 30, 2012 and December 31, 2011.
When the Company enters into exchange-traded natural gas contracts, exchanges may require the Company to remit funds to the corresponding broker as good-faith deposits to guard against the risks associated with changing market conditions. Participants must make such deposits based on an established initial margin requirement as well as the net liability position, if any, of the fair value of the associated contracts. The Company records these deposits as a current asset in the Condensed Consolidated Balance Sheets. In the case where the fair value of such contracts is in a net asset position, the broker may remit funds to the Company, in which case the Company records a current liability for such amounts received. The initial margin requirements are established by the exchanges based on the price, volatility and the time to expiration of the related contract and are subject to change at the exchanges’ discretion. The Company recorded a current asset of $0.6 million and $0.1 million as of September 30, 2012 and December 31, 2011, respectively, for such deposits in its Condensed Consolidated Balance Sheets.
Certain of the Company’s derivative instrument contracts provide that if the Company’s credit ratings by S&P or Moody’s are lowered below investment grade, additional collateral must be deposited with the counterparty. This additional collateral can be up to 100% of the derivative liability. As of September 30, 2012, the aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a net liability position was $8.7 million, for which the Company had no collateral posted. If the Company’s credit rating by S&P or Moody’s had been downgraded below investment grade on September 30, 2012, the Company would have been required to post additional collateral of $1.5 million in respect of the liability position. Investment grade refers to the quality of the Company’s credit as assessed by one or more credit rating agencies. The Company’s unsecured long-term debt was rated BBB by S&P and Baa2 by Moody’s at September 30, 2012. In order to be considered investment grade, the Company must be rated BBB- or higher by S&P and Baa3 or higher by Moody’s. Anything below these ratings is considered to be non-investment grade.
E. Investments, Available-For-Sale
During the three and nine month periods ended September 30, 2012 and 2011, the Company did not purchase any investment securities.
During the nine month period ended September 30, 2011, the Company sold all of its available-for-sale securities for proceeds of $29.9 million which resulted in gross realized gains recorded as other income in the accompanying statements of consolidated income of $8.5 million, $4.9 million of which was reclassified from accumulated other comprehensive income. The Company uses the average cost method to determine the cost of securities sold.
F. Fair Value Measurements
The Company records its financial instruments, principally derivative instruments, at fair value in its Condensed Consolidated Balance Sheets. The Company has an established process for determining fair value which is based on quoted market prices, where available. If quoted market prices are not available, fair value is based upon models that use as inputs market-based parameters, including but not limited to forward curves, discount rates, volatilities and nonperformance risk. Nonperformance risk considers the effect of the Company’s credit standing on the fair value of liabilities and the effect of the counterparty’s credit standing on the fair value of assets. The Company estimates nonperformance risk by analyzing publicly available market information, including a comparison of the yield on debt instruments with credit ratings similar to the Company’s or counterparty’s credit rating and the yield of a risk free instrument. The Company also considers credit default swaps rates where applicable.
EQT Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
The Company has categorized its assets and liabilities recorded at fair value into a three-level fair value hierarchy, based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). Assets and liabilities included in Level 1 include the Company’s futures contracts. Assets and liabilities in Level 2 include the majority of the Company’s swap agreements, including the forward-starting interest rate swap, and assets and liabilities in Level 3 include the Company’s collars and a limited number of the Company’s swap agreements. Since the adoption of fair value accounting, the Company has not made any changes to its classification of assets and liabilities in each category.
The fair value of assets and liabilities included in Level 2 is based on standard industry income approach models that use significant observable inputs, including NYMEX and LIBOR forward curves and LIBOR-based discount rates. Collars included in Level 3 are valued using standard industry income approach models. The primary significant unobservable input to the valuation of assets and liabilities in Level 3 is the volatility assumption to the option pricing model used to value commodity collars. The Corporate Risk Control Group (CRCG), which reports to the Chief Financial Officer, is responsible for calculating the volatilities. The CRCG considers current market information about option trading and historical averages. The Company prepares an analytical review of all derivative instruments for reasonableness on at least a quarterly basis. At September 30, 2012, the range of Company derived market volatilities used to value Level 3 assets and liabilities was 25-54%. The fair value of the collar agreements is sensitive to changes in the volatility assumption. Significant changes in this assumption might result in significantly higher or lower fair values for these assets and liabilities. As of September 30, 2012, an increase in the volatility assumption would increase the value of the derivative asset and a decrease in the volatility assumption would decrease the value of the derivative asset. The Company uses NYMEX forward curves to value futures, commodity swaps and collars. The Company uses LIBOR forward curves to value interest rate swaps. The NYMEX and LIBOR forward curves are validated to external sources at least monthly.
The following assets and liabilities were measured at fair value on a recurring basis during the period:
|
|
|
|
|
Fair value measurements at reporting date using |
| ||||||||
|
Description |
|
September 30, |
|
Quoted |
|
Significant |
|
Significant |
| ||||
|
|
|
(Thousands) |
| ||||||||||
|
Assets |
|
|
|
|
|
|
|
|
| ||||
|
Derivative instruments, at fair value |
|
$ |
319,203 |
|
$ |
2,153 |
|
$ |
209,506 |
|
$ |
107,544 |
|
|
Total assets |
|
$ |
319,203 |
|
$ |
2,153 |
|
$ |
209,506 |
|
$ |
107,544 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Liabilities |
|
|
|
|
|
|
|
|
| ||||
|
Derivative instruments, at fair value |
|
$ |
125,452 |
|
$ |
2,529 |
|
$ |
112,350 |
|
$ |
10,573 |
|
|
Total liabilities |
|
$ |
125,452 |
|
$ |
2,529 |
|
$ |
112,350 |
|
$ |
10,573 |
|
EQT Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
|
|
|
|
Fair value measurements at reporting date using |
| ||||||||
|
Description |
|
December 31, |
|
Quoted |
|
Significant |
|
Significant |
| ||||
|
|
|
(Thousands) |
| ||||||||||
|
Assets |
|
|
|
|
|
|
|
|
| ||||
|
Derivative instruments, at fair value |
|
$ |
512,161 |
|
$ |
3,612 |
|
$ |
365,238 |
|
$ |
143,311 |
|
|
Total assets |
|
$ |
512,161 |
|
$ |
3,612 |
|
$ |
365,238 |
|
$ |
143,311 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Liabilities |
|
|
|
|
|
|
|
|
| ||||
|
Derivative instruments, at fair value |
|
$ |
123,306 |
|
$ |
2,727 |
|
$ |
120,528 |
|
$ |
51 |
|
|
Total liabilities |
|
$ |
123,306 |
|
$ |
2,727 |
|
$ |
120,528 |
|
$ |
51 |
|
|
|
|
Fair value measurements using significant unobservable inputs |
| ||||||||||
|
|
|
Derivative instruments, |
|
Derivative instruments, |
| ||||||||
|
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
| ||||
|
|
|
(Thousands) |
| ||||||||||
|
Beginning of period |
|
$ |
129,436 |
|
$ |
101,972 |
|
$ |
143,260 |
|
$ |
116,672 |
|
|
Total gains or losses: |
|
|
|
|
|
|
|
|
| ||||
|
Included in earnings |
|
(90 |
) |
— |
|
(90 |
) |
14 |
| ||||
|
Included in other comprehensive income |
|
(13,839 |
) |
24,101 |
|
13,554 |
|
35,121 |
| ||||
|
Purchases |
|
22 |
|
— |
|
(994 |
) |
— |
| ||||
|
Settlements |
|
(18,558 |
) |
(12,989 |
) |
(58,759 |
) |
(38,723 |
) | ||||
|
Transfers in and/or out of Level 3 |
|
— |
|
— |
|
— |
|
— |
| ||||
|
End of period |
|
$ |
96,971 |
|
$ |
113,084 |
|
$ |
96,971 |
|
$ |
113,084 |
|
There are no material gains or losses included in earnings for the periods in the table above attributable to the change in unrealized gains or losses relating to assets and liabilities still held as of September 30, 2012 and 2011.
The carrying value of cash equivalents approximates fair value due to the short-term maturity of the instruments; these are considered Level 1 fair values.
The Company estimates the fair value of its debt using its established fair value methodology. Because not all of the Company’s debt is actively traded, the fair value of the debt is a Level 2 fair value. Fair value for non-traded debt obligations is estimated using a standard industry income approach model which utilizes a discount rate based on market rates for debt with similar remaining time to maturity and credit risk. The estimated fair value of long-term debt on the Condensed Consolidated Balance Sheets at September 30, 2012 and December 31, 2011 was approximately $3.1 billion and $3 billion, respectively.
G. Income Taxes
The Company estimates an annual effective income tax rate based on projected results for the year and applies this rate to income before taxes to calculate income tax expense. Any refinements made due to subsequent information that affects the estimated annual effective income tax rate are reflected as adjustments in the current period.
EQT Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
The Company’s effective income tax rate for the nine months ending September 30, 2012 was 33.6%. The effective income tax rate for the nine months ended September 30, 2011 was 37.1%. The decrease in the effective tax rate from 2011 was attributable to a decrease in state taxes primarily as a result of lower pre-tax income on state tax paying entities in 2012, higher taxes on the sale of Big Sandy in 2011 and the impact of the Partnership IPO. As a result of the IPO, the Company records an income tax provision on its unit ownership percentage, which is currently 59.4% of the pre-tax income for the Partnership reported during each period.
As a result of the IPO, the Company reversed $5.4 million of net deferred tax liability because those temporary differences between book and tax basis that will no longer impact the Company.
During the second quarter of 2012 and 2011, the Company finalized settlements with the Internal Revenue Service (IRS) relating to its research and experimentation tax credits claimed from 2006 through 2009 and from 2001 through 2005, respectively. Except for refund claims from 2004 and 2005 related to tax losses carried back to those years, the consolidated federal income tax liability of the Company has been settled with the IRS through 2005. The Company is currently under audit for the 2006 through 2009 periods. The examination of these periods began in the second quarter of 2010. The Company is also subject to various state income tax examinations. The Company believes that it is appropriately reserved for any uncertain tax positions.
H. Short-Term Loans
As of September 30, 2012 and December 31, 2011, neither the Company nor the Partnership had loans or letters of credit outstanding under their respective revolving credit facilities. Commitment fees averaging approximately 5 basis points in the third quarter of 2012 and 7.5 basis points in the third quarter of 2011 were incurred to maintain credit availability under the Company’s revolving credit facility. The Partnership incurred commitment fees averaging approximately 25 basis points in the third quarter of 2012 to maintain credit availability under its revolving credit facility.
Neither the Company nor the Partnership had any short-term loans outstanding at any time during the nine months ended September 30, 2012. The maximum amount of outstanding short-term loans at any time for the Company during the nine months ended September 30, 2011 was $104.0 million. The average daily balance of short-term loans outstanding for the Company during the nine months ended September 30, 2011 was approximately $7.3 million at a weighted average annual interest rate of 1.81%.
I. Long-Term Debt
|
|
|
September 30, |
|
December 31, |
| ||
|
|
|
2012 |
|
2011 |
| ||
|
|
|
(Thousands) |
| ||||
|
7.76% notes, due 2012 thru 2016 |
|
$ |
33,337 |
|
$ |
53,742 |
|
|
5.15% notes, due November 15, 2012 |
|
200,000 |
|
200,000 |
| ||
|
5.00% notes, due October 1, 2015 |
|
150,000 |
|
150,000 |
| ||
|
5.15% notes, due March 1, 2018 |
|
200,000 |
|
200,000 |
| ||
|
6.50% notes, due April 1, 2018 |
|
500,000 |
|
500,000 |
| ||
|
8.13% notes, due June 1, 2019 |
|
700,000 |
|
700,000 |
| ||
|
4.88% notes, due November 15, 2021 |
|
750,000 |
|
750,000 |
| ||
|
7.75% debentures, due July 15, 2026 |
|
115,000 |
|
115,000 |
| ||
|
Medium-term notes: |
|
|
|
|
| ||
|
8.7% to 9.0% Series A, due 2014 thru 2021 |
|
40,200 |
|
40,200 |
| ||
|
7.3% to 7.6% Series B, due 2013 thru 2023 |
|
30,000 |
|
30,000 |
| ||
|
7.6% Series C, due 2018 |
|
8,000 |
|
8,000 |
| ||
|
|
|
2,726,537 |
|
2,746,942 |
| ||
|
Less debt payable within one year |
|
223,204 |
|
219,315 |
| ||
|
Total long-term debt |
|
$ |
2,503,333 |
|
$ |
2,527,627 |
|
The indentures and other agreements governing the Company’s indebtedness contain certain restrictive financial and operating covenants including covenants that restrict the Company’s ability to incur indebtedness, incur liens, enter
EQT Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
into sale and leaseback transactions, complete acquisitions, merge, sell assets and perform certain other corporate actions. The covenants do not contain a ratings trigger. Therefore, a change in the Company’s debt rating would not trigger a default under the indentures and other agreements governing the Company’s long-term indebtedness.
Aggregate maturities of long-term debt are $200.0 million in 2012, $23.2 million in 2013, $11.2 million in 2014, $166.0 million in 2015 and $3.0 million in 2016.
J. Acquisition
In December 2000, the Company sold a net profits interest (NPI) in certain producing properties located in the Appalachian Basin to a trust in exchange for approximately $298 million. The NPI entitled the trust to receive 100% of the net profits received from the sale of natural gas and oil from the producing properties until cumulative production from such properties reached a specified amount. The Company owned the Class B interest in the trust, entitling it to specified percentages of any available cash from the trust over time. An unrelated party, Appalachian NPI, LLC (ANPI), owned the Class A interest in the trust.
Effective May 4, 2011, the Company, through EQT Production Company, acquired the Class A interest in the trust thereby acquiring 100% of the NPI associated with the producing properties (the ANPI transaction). As part of the consideration for the acquired assets, the Company entered into a discounted natural gas sales agreement with ANPI and assumed a swap held by ANPI on the trust’s sales of natural gas.
In addition, the Company assumed 7.76% Guaranteed Senior Notes due August 31, 2011 through February 28, 2016 in the aggregate principal amount of $57.1 million. At the time of the transaction, the notes had a fair value of $64.2 million.
Under U.S. generally accepted accounting principles (GAAP), the ANPI transaction was a business combination achieved in stages because EQT owned an equity interest in the trust prior to the transaction. As required by the relevant accounting standard, the Company revalued its existing equity investment in the trust at fair value on the date of the acquisition and recorded a pre-tax gain of $10.1 million which was included in other income in the second quarter of 2011 on the Statements of Consolidated Income. The fair value was determined using an internal model; significant inputs to the calculation included publicly available forward price curves, expected production volumes and operating costs, as well as Company-determined risk adjusted discount rates which were based on publicly available debt and equity risk premiums.
As a result of this transaction, the Company recorded an increase in oil and gas properties of $140.6 million resulting from the removal of the post-revaluation $48.0 million equity investment in the trust from its books and a net $92.6 million increase in liabilities consisting of: $64.2 million of long-term debt, a $16.4 million discounted sales agreement and a $12.7 million swap liability offset by various working capital balances.
This transaction also resulted in the elimination of certain previously disclosed relationships including the Company’s non-controlling interest in the trust, the Company’s liquidity reserve guarantee to ANPI, the Company’s agreement with the trust to provide gathering and operating services to deliver its gas to market and the marketing fee the Company received for the sale of the trust’s gas based on the net revenue for gas delivered.
K. Dispositions
On July 1, 2011, the Company sold the Big Sandy Pipeline to Spectra Energy Partners, LP for $390 million. Big Sandy is a natural gas pipeline regulated by the FERC. Big Sandy transports natural gas from the natural gas processing complex in Langley, Kentucky to interconnections with unaffiliated pipelines leading to the mid-Atlantic and Northeast markets. In conjunction with this transaction, the Company realized a pre-tax gain of $180.1 million in the third quarter of 2011.
On February 1, 2011, the Company sold its natural gas processing complex in Langley, Kentucky and the associated natural gas liquids pipeline for $230 million. In conjunction with this transaction, the Company realized a pre-tax gain of $22.8 million.
EQT Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
L. Recently Issued Accounting Standards
Disclosure about Offsetting Assets and Liabilities
In December 2011, the FASB issued a standards update intended to enhance disclosures by requiring additional information about financial instruments and derivative instruments that are either offset in the statement of financial position or subject to an enforceable master netting arrangement or similar agreement. The update is to be applied prospectively and is effective for annual reporting periods beginning on or after January 1, 2013. The Company is currently evaluating the impact this standard will have on its financial statement disclosures.
M. Earnings Per Share
Potentially dilutive securities, consisting of options and restricted stock awards, which were included in the calculation of diluted earnings per share totaled 784,079 and 860,759 for the three months ended September 30, 2012 and 2011, respectively, and 715,512 and 771,035 for the nine months ended September 30, 2012 and 2011, respectively. Options to purchase common stock which were not included in potentially dilutive securities because they were anti-dilutive totaled 3,228 and 0 for the three months ended September 30, 2012 and 2011, respectively, and 281,528 and 6,480 for the nine months ended September 30, 2012 and 2011, respectively. The impact of the Partnership’s diluted units did not have a material impact to the Company’s earnings per share calculations for any of the periods presented.
EQT Corporation and Subsidiaries
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
CAUTIONARY STATEMENTS
Disclosures in this Quarterly Report on Form 10-Q contain certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Statements that do not relate strictly to historical or current facts are forward-looking and usually identified by the use of words such as “anticipate,” “estimate,” “could,” “would,” “will,” “may,” “forecasts,” “approximate,” “expect,” “project,” “intend,” “plan,” “believe” and other words of similar meaning in connection with any discussion of future operating or financial matters. Without limiting the generality of the foregoing, forward-looking statements contained in this report include the matters discussed in the section captioned “Outlook” in Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the expectations of plans, strategies, objectives, and growth and anticipated financial and operational performance of the Company and its subsidiaries, including guidance regarding the Company’s strategy to develop its Marcellus and other reserves; drilling plans and programs (including the number, type, and location of wells to be drilled and the availability of capital to complete these plans and programs); production and sales volumes; gathering and transmission growth and volumes; infrastructure programs (including the transmission and gathering expansion projects); technology (including drilling techniques); monetization transactions, including asset sales, joint ventures or other transactions involving the Company’s assets; natural gas prices; reserves; capital expenditures, including funding sources and availability; financing requirements and availability; hedging strategy; the effects of government regulation and tax position. The forward-looking statements in this Quarterly Report on Form 10-Q involve risks and uncertainties that could cause actual results to differ materially from projected results. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. The Company has based these forward-looking statements on current expectations and assumptions about future events. While the Company considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks and uncertainties, most of which are difficult to predict and many of which are beyond the Company’s control. The risks and uncertainties that may affect the operations, performance and results of the Company’s business and forward-looking statements include, but are not limited to, those set forth under Item 1A, “Risk Factors” in the Company’s Form 10-K for the year ended December 31, 2011.
Any forward-looking statement speaks only as of the date on which such statement is made and the Company does not intend to correct or update any forward-looking statements, whether as a result of new information, future events or otherwise.
In reviewing any agreements incorporated by reference in or filed in this Form 10-Q, please remember such agreements are included to provide information regarding the terms of such agreements and are not intended to provide any other factual or disclosure information about the Company. The agreements may contain representations and warranties by the Company, which should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties should those statements prove to be inaccurate. The representations and warranties were made only as of the date of the relevant agreement or such other date or dates as may be specified in such agreement and are subject to more recent developments. Accordingly, these representations and warranties alone may not describe the actual state of affairs as of the date they were made or at any other time.
CORPORATE OVERVIEW
Three Months Ended September 30, 2012 vs. Three Months Ended September 30, 2011
Net income attributable to EQT Corporation for the three months ended September 30, 2012 was $31.9 million, $0.21 per diluted share, compared with $178.9 million, $1.19 per diluted share, for the period ended September 30, 2011. The $147.0 million decrease in net income was primarily attributable to the $180.1 million pre-tax gain realized in 2011 on the sale of the Big Sandy Pipeline, lower gas prices, higher depreciation, depletion and amortization and higher interest expense, partially offset by higher production and gathering volumes and lower income tax expense.
The average realized sales price to EQT Corporation for production sales volumes was $4.04 per Mcfe during the third quarter of 2012 compared to $5.25 per Mcfe in the same period of the prior year. The average NYMEX natural gas price decreased to $2.81 in 2012 from $4.19 in 2011. Hedging activities resulted in an increase in the price of production sales volumes of $1.16 per Mcf in 2012 compared to $0.47 per Mcf in 2011 as a result of higher volumes being hedged and decreases in NYMEX natural gas prices in the current year.
Interest expense was $40.5 million for the three months ended September 30, 2012, an increase of $8.0 million from $32.5 million for the three months ended September 30, 2011. This increase was primarily a result of the Company’s November 2011 issuance of $750 million 4.875% notes due in 2021, partially offset by the maturity of medium-term notes during the fourth quarter of 2011 and higher capitalized interest on increased Marcellus well development in 2012. The Company continues to use the net proceeds of the recently issued notes to invest in drilling and midstream infrastructure to develop the Marcellus play.
Income tax expense was $95.1 million lower in 2012 compared to 2011, primarily as a result of lower pre-tax income in 2012 coupled with an overall lower effective tax rate as a result of less income on state tax paying entities in 2012, higher taxes on the Big Sandy sale in 2011 and the impact of the Partnership IPO. Taken together, these factors resulted in a third quarter effective tax rate of 24.0%.
As a result of the Partnership’s IPO, net income attributable to noncontrolling interests was $4.8 million for the three months ended September 30, 2012.
Nine Months Ended September 30, 2012 vs. Nine Months Ended September 30, 2011
Net income attributable to EQT Corporation for the nine months ended September 30, 2012 was $135.4 million, $0.90 per diluted share, compared with $388.9 million, $2.59 per diluted share, for the period ended September 30, 2011. The $253.5 million decrease in net income was primarily attributable to the $202.9 million pre-tax gain realized by the Company in 2011 on the sales of the Big Sandy Pipeline and the Langley natural gas processing complex, a decrease in production revenues due to lower realized sales prices, higher depreciation, depletion and amortization expenses, warmer weather during the current period and higher interest expense, partially offset by increased production and gathering volumes and lower income tax expense.
The average realized sales price to EQT Corporation for production sales volumes was $4.21 per Mcfe during the nine months ended September 30, 2012 compared to $5.42 per Mcfe in the same period of the prior year. The average NYMEX natural gas price decreased to $2.59 in 2012 from $4.21 in 2011. Hedging activities resulted in an increase in the price of production sales volumes of $1.38 per Mcf in 2012 compared to $0.46 per Mcf in 2011 as a result of higher volumes being hedged and lower NYMEX natural gas prices in the current year.
Other income was $12.9 million for the first nine months of 2012 compared to $27.9 million in the same period in 2011. This $15.0 million decrease was a result of sales of available-for-sale securities in 2011 yielding a gain of $8.5 million, as well as a $10.1 million gain recognized on the ANPI transaction in 2011.
Interest expense increased by $23.7 million from the nine months ended September 30, 2011 compared to the nine months ended September 30, 2012, as a result of the Company’s November 2011 issuance of $750 million 4.875% notes due in 2021. This increase was partially offset by the maturity of medium-term notes during the fourth quarter of 2011 and higher capitalized interest on increased Marcellus well development in 2012.
Income tax expense was $158.1 million lower in 2012 compared to 2011, primarily as a result of lower pre-tax income.
As a result of the Partnership’s IPO, net income attributable to noncontrolling interests was $4.8 million for the nine months ended September 30, 2012.
See Investing Activities under the caption Capital Resources and Liquidity for a discussion of capital expenditures.
EQT CORPORATION
|
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||||||
|
|
|
September 30, |
|
September 30, |
| ||||||||||||
|
|
|
2012 |
|
2011 |
|
% |
|
2012 |
|
2011 |
|
% |
| ||||
|
OPERATIONAL DATA |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Average wellhead sales price to EQT Corporation: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Natural gas excluding hedges ($/Mcf) |
|
$ |
2.61 |
|
$ |
4.21 |
|
(38.0 |
) |
$ |
2.44 |
|
$ |
4.37 |
|
(44.2 |
) |
|
Hedge impact ($/Mcf of natural gas) (a) |
|
$ |
1.16 |
|
$ |
0.47 |
|
146.8 |
|
$ |
1.38 |
|
$ |
0.46 |
|
200.0 |
|
|
Natural gas including hedges ($/Mcf) |
|
$ |
3.77 |
|
$ |
4.68 |
|
(19.4 |
) |
$ |
3.82 |
|
$ |
4.83 |
|
(20.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
NGLs ($/Bbl) |
|
$ |
31.67 |
|
$ |
52.56 |
|
(39.7 |
) |
$ |
37.97 |
|
$ |
52.12 |
|
(27.1 |
) |
|
Crude oil ($/Bbl) |
|
$ |
80.25 |
|
$ |
81.66 |
|
(1.7 |
) |
$ |
83.44 |
|
$ |
83.52 |
|
(0.1 |
) |
|
Total ($/Mcfe) |
|
$ |
4.04 |
|
$ |
5.25 |
|
(23.0 |
) |
$ |
4.21 |
|
$ |
5.42 |
|
(22.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Less revenues to EQT Midstream ($/Mcfe) |
|
$ |
1.19 |
|
$ |
1.23 |
|
(3.3 |
) |
$ |
1.22 |
|
$ |
1.37 |
|
(10.9 |
) |
|
Average wellhead sales price to EQT Production ($/Mcfe) |
|
$ |
2.85 |
|
$ |
4.02 |
|
(29.1 |
) |
$ |
2.99 |
|
$ |
4.05 |
|
(26.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Average NYMEX natural gas ($/Mcf) |
|
$ |
2.81 |
|
$ |
4.19 |
|
(32.9 |
) |
$ |
2.59 |
|
$ |
4.21 |
|
(38.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Natural gas sales volumes (MMcf) |
|
64,637 |
|
48,070 |
|
34.5 |
|
171,763 |
|
132,035 |
|
30.1 |
| ||||
|
NGL sales volumes (Mbbls) |
|
853 |
|
759 |
|
12.4 |
|
2,490 |
|
2,259 |
|
10.2 |
| ||||
|
Crude oil sales volumes (Mbbls) |
|
64 |
|
61 |
|
4.9 |
|
192 |
|
141 |
|
36.2 |
| ||||
|
Total produced sales volumes (MMcfe) (b) |
|
68,213 |
|
51,298 |
|
33.0 |
|
182,280 |
|
141,375 |
|
28.9 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Capital expenditures (thousands) (c) |
|
$ |
361,183 |
|
$ |
347,645 |
|
3.9 |
|
$ |
1,023,503 |
|
$ |
985,171 |
|
3.9 |
|
(a) All hedges are related to natural gas.
(b) NGLs were converted to Mcfe at the rates of 3.74 Mcfe per barrel and 3.76 Mcfe per barrel based on the liquids content for the three months ended September 30, 2012 and 2011, respectively, and 3.76 Mcfe per barrel based on the liquids content for both the nine months ended September 30, 2012 and 2011. Crude oil was converted to Mcfe at the rate of six Mcfe per barrel for all periods.
(c) Capital expenditures in the EQT Production segment for the nine month period ended 2011 include $92.6 million of liabilities assumed in exchange for producing properties as part of the ANPI transaction discussed in Note J.
Business Segment Results
The Company has reported the components of each segment’s operating income and various operational measures in the sections below, and where appropriate, has provided information describing how a measure was derived. EQT’s management believes that presentation of this information provides useful information to management and investors regarding the financial condition, operations and trends of each of EQT’s segments without being obscured by the financial condition, operations and trends for the other segments or by the effects of corporate allocations of interest, income taxes and other income. In addition, management uses these measures for budget planning purposes. The Company’s management reviews and reports the EQT Production segment results for operating revenues and purchased gas costs with transportation costs reflected as a deduction from operating revenues as management believes this presentation provides a more useful view of net wellhead price and is consistent with industry practices. Third party transportation costs are reported as a component of purchased gas costs in the consolidated results. The Company has reconciled each segment’s operating income to the Company’s consolidated operating income and net income in Note C to the Condensed Consolidated Financial Statements. As part of the 2012 budgeting process, the Company allocated additional corporate overhead charges to the operating segments. As current period corporate overhead costs have stayed relatively consistent with budgeted amounts, unallocated expenses have decreased for the three and nine month periods ended September 30, 2012.
EQT PRODUCTION
RESULTS OF OPERATIONS
|
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||||||
|
|
|
September 30, |
|
September 30, |
| ||||||||||||
|
|
|
2012 |
|
2011 |
|
% |
|
2012 |
|
2011 |
|
% |
| ||||
|
OPERATIONAL DATA |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Natural gas, NGL and crude oil production (MMcfe) (a) |
|
68,957 |
|
52,456 |
|
31.5 |
|
184,383 |
|
145,021 |
|
27.1 |
| ||||
|
Company usage, line loss (MMcfe) |
|
(744 |
) |
(1,158 |
) |
(35.8 |
) |
(2,103 |
) |
(3,646 |
) |
(42.3 |
) | ||||
|
Total sales volumes (MMcfe) |
|
68,213 |
|
51,298 |
|
33.0 |
|
182,280 |
|
141,375 |
|
28.9 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Average daily sales volumes (MMcfe/d) |
|
741 |
|
558 |
|
32.8 |
|
665 |
|
518 |
|
28.4 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Sales volume detail (MMcfe): |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Horizontal Marcellus Play |
|
41,486 |
|
22,401 |
|
85.2 |
|
100,551 |
|
56,896 |
|
76.7 |
| ||||
|
Horizontal Huron Play |
|
8,934 |
|
9,815 |
|
(9.0 |
) |
28,452 |
|
30,175 |
|
(5.7 |
) | ||||
|
CBM Play |
|
3,282 |
|
3,479 |
|
(5.7 |
) |
9,868 |
|
10,254 |
|
(3.8 |
) | ||||
|
Other (vertical non-CBM) |
|
14,511 |
|
15,603 |
|
(7.0 |
) |
43,409 |
|
44,050 |
|
(1.5 |
) | ||||
|
Total production sales volumes |
|
68,213 |
|
51,298 |
|
33.0 |
|
182,280 |
|
141,375 |
|
28.9 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Average wellhead sales price to EQT Production ($/Mcfe) |
|
$ |
2.85 |
|
$ |
4.02 |
|
(29.1 |
) |
$ |
2.99 |
|
$ |
4.05 |
|
(26.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Lease operating expenses (LOE), excluding production taxes ($/Mcfe) |
|
$ |
0.18 |
|
$ |
0.22 |
|
(18.2 |
) |
$ |
0.19 |
|
$ |
0.21 |
|
(9.5 |
) |
|
Production taxes ($/Mcfe) (b) |
|
$ |
0.16 |
|
$ |
0.25 |
|
(36.0 |
) |
$ |
0.17 |
|
$ |
0.21 |
|
(19.0 |
) |
|
Production depletion ($/Mcfe) |
|
$ |
1.54 |
|
$ |
1.23 |
|
25.2 |
|
$ |
1.54 |
|
$ |
1.24 |
|
24.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Depreciation, depletion and amortization (DD&A) (thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Production depletion |
|
$ |
106,196 |
|
$ |
64,742 |
|
64.0 |
|
$ |
283,152 |
|
$ |
180,063 |
|
57.3 |
|
|
Other DD&A |
|
2,008 |
|
2,205 |
|
(8.9 |
) |
6,024 |
|
6,617 |
|
(9.0 |
) | ||||
|
Total DD&A (thousands) |
|
$ |
108,204 |
|
$ |
66,947 |
|
61.6 |
|
$ |
289,176 |
|
$ |
186,680 |
|
54.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Capital expenditures (thousands) (c) |
|
$ |
255,223 |
|
$ |
255,151 |
|
0.0 |
|
$ |
703,834 |
|
$ |
800,029 |
|
(12.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
FINANCIAL DATA (Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Total net operating revenues |
|
$ |
195,289 |
|
$ |
207,500 |
|
(5.9 |
) |
$ |
549,334 |
|
$ |
577,352 |
|
(4.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
LOE, excluding production taxes |
|
12,257 |
|
11,612 |
|
5.6 |
|
34,991 |
|
29,760 |
|
17.6 |
| ||||
|
Production taxes (b) |
|
10,944 |
|
13,296 |
|
(17.7 |
) |
37,805 |
|
31,024 |
|
21.9 |
| ||||
|
Exploration expense |
|
1,163 |
|
814 |
|
42.9 |
|
4,878 |
|
3,387 |
|
44.0 |
| ||||
|
Selling, general and administrative (SG&A) |
|
24,193 |
|
15,895 |
|
52.2 |
|
67,214 |
|
45,477 |
|
47.8 |
| ||||
|
DD&A |
|
108,204 |
|
66,947 |
|
61.6 |
|
289,176 |
|
186,680 |
|
54.9 |
| ||||
|
Total operating expenses |
|||||||||||||||||