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PITTSBURGH, Oct. 26 /PRNewswire-FirstCall/ -- Equitable Resources, Inc. (NYSE: EQT) today announced third quarter 2006 earnings of $0.26 per diluted share on net income of $31.8 million. This compares with diluted earnings of $0.38 per share on net income of $46.5 million in the third quarter of 2005. The third quarter of last year contained several unusual items, the largest of which was a $19.4 million gain from the sale of Kerr McGee shares. In addition, a one-time pension settlement charge at Equitable Utilities and higher than normal incentive compensation expenses resulted in higher expenses in the third quarter of 2005. In 2006, there are also several unusual items including a charge related to a royalty dispute in West Virginia and transition expenses as the Company prepares for the acquisition of The Peoples Natural Gas Company and Hope Gas, Inc.
Operationally, Equitable Supply continues to increase sales volumes and is on track to exceed its drilling target of 550 wells for the year. Equitable also made progress on the horizontal and down-spacing pilot programs. However, from an earnings perspective, significantly lower effective well-head natural gas prices and the unusual costs, noted above, more than offset this progress in the current quarter.
Quarterly Results by Business
Equitable Utilities
Equitable Utilities had operating income for the third quarter of $4.0 million compared to a $7.5 million operating loss in the same period last year. Net operating revenues for the three months ended September 30, 2006, were $39.7 million compared to $36.2 million for the same period last year; the increase was attributable to higher pipeline revenues resulting from Equitrans' 2006 rate case settlement and increased commercial and other distribution revenues, which were partially offset by lower marketing net revenues. The decrease in marketing net revenues is a result of lower commodity prices in the current year quarter, leading to fewer opportunities for storage asset optimization and smaller margin spreads on approximately the same volume of sales activity.
Total operating expenses for the quarter were $35.7 million, $7.9 million lower than the $43.6 million reported during the same period last year. The decrease in expenses primarily resulted from the absence of a $12.7 million charge related to the settlement of pension benefits recognized in the third quarter 2005. Partially offsetting these savings, Equitable incurred $3.7 million of costs associated with planning for the integration of Peoples Gas and Hope Gas and $1.2 million of increased pipeline expenses primarily related to the new rates and services provided under the March 2006 rate case settlement.
Equitable Supply
Equitable Supply had operating income for the quarter of $63.2 million, 21% lower than the $79.9 million earned in the same period last year. Production revenues for the three months ended September 30, 2006, were $92.9 million, 10% lower than the third quarter 2005. The weighted average well-head sales price was $4.66 per Mcfe, 14% lower than the third quarter 2005 average of $5.43. Production sales volumes increased by 0.7 Bcfe to 19.4 Bcfe.
Gathering revenues were $28.0 million, $4.2 million higher than the third quarter 2005 as the average gathering fee increased by 30% to $1.05 per Mcfe. Gathered volumes declined by 2.5 Bcfe or 9%, primarily due to the transfer of certain regulated gathering facilities to Equitable Utilities, partially offset by increased gathered volumes for Equitable Supply.
Total operating expenses for the 2006 third quarter totaled $57.8 million compared to $47.4 million in the 2005 third quarter. Selling, general and administrative expenses were $5.1 million higher as the Company recorded reserves for a royalty dispute in West Virginia and increased legal and bad debt costs, all totaling $7.3 million. In June 2006, the West Virginia Supreme Court of Appeals issued its decision in favor of royalty owners in a case against an unrelated production company. The court concluded that the producer had underpaid royalties by improperly deducting certain post- production costs. Since the ruling, suit has been filed against a number of companies, including Equitable, for similar claims. Gathering and compression expense and depreciation, depletion and amortization expense were higher consistent with higher overall operating activity levels combined with oil field inflation.
The Company drilled 174 developmental wells in the third quarter for a total of 449 wells in the first nine months of 2006, and is on track to exceed the 550 well drilling plan. The Company is also on track to drill 5 horizontal shale wells and 17 coal bed methane wells on 30-acre spacing this year.
Other Business
Hedging
There was no change to the Company's hedge position during the quarter. The approximate volumes and prices of Equitable's hedges for 2007 through 2009 are:
Swaps 2007 2008 2009
Total Volume (Bcf) 56 54 38
Average Price per Mcf (NYMEX)* $4.74 $4.64 $5.90
Collars 2007 2008 2009
Total Volume (Bcf) 10 10 10
Average Floor Price per Mcf
(NYMEX)* $7.61 $7.61 $7.61
Average Cap Price per Mcf
(NYMEX)* $11.27 $11.27 $11.27
* The above price is based on a conversion rate of 1.05 MMbtu/Mcf
Incentive Compensation
The Company's executive performance incentive programs are designed to align management's long-term incentive compensation to the absolute and relative returns earned by the Company's shareholders. The Company recognized a $5.5 million expense for these programs, $9.3 million less than the $14.8 million expense recorded last year.
Operating Income
The Company reports operating income by segment in this press release. Both interest and income taxes are controlled on a consolidated, corporate- wide basis, and are not allocated to the segments.
The following table reconciles operating income by segment as reported in this press release to the consolidated operating income reported in the Company's financial statements:
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
Operating income (thousands):
Equitable Utilities $3,969 $(7,477) $78,858 $60,582
Equitable Supply 63,230 79,901 200,656 208,424
Unallocated expenses (6,064) (17,735) (16,603) (33,662)
Operating Income $61,135 $54,689 $262,911 $235,344
Other segment financial measures identified in this press release are reconciled to the most comparable financial measures calculated in accordance with GAAP on the attached operational and financial reports.
Equitable's teleconference with securities analysts, which begins at 10:30 a.m. Eastern Time today, will be broadcast live via Equitable's website, http://www.eqt.com and will be available for replay for a seven day period.
Equitable Resources is an integrated energy company with emphasis on Appalachian area natural-gas supply, transmission and distribution. For information please visit www.eqt.com.
Equitable Resources management speaks to investors from time to time. Slides for these discussions will be available online via Equitable's website. The slides may be updated periodically.
Forward-Looking Statements
Disclosures in this press release contain forward-looking statements. Statements that do not relate strictly to historical or current facts are forward-looking. Without limiting the generality of the foregoing, forward- looking statements contained in this press release specifically include 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 drilling program, production volumes, sales volumes, and capital expenditures and the pending acquisition of Peoples Gas and Hope Gas and the financing of that acquisition. A variety of factors could cause the Company's actual results to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. 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" of the Company's Form 10-K for the year ended December 31, 2005.
Any forward-looking statement speaks only as of the date on which such statement is made and the Company undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise.
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED) (Thousands, except per share amounts)
Three Months Ended Nine Months Ended September 30, September 30, 2006 2005 2006 2005
Operating revenues $232,801 $229,372 $914,127 $860,842 Cost of sales 72,155 65,956 367,085 330,604 Net operating revenues 160,646 163,416 547,042 530,238
Operating expenses: Operation and maintenance 25,282 22,891 74,252 71,599 Production 16,176 15,327 47,965 44,523 Selling, general and administrative 32,904 47,245 90,659 101,364 Office consolidation impairment charges - - (2,908) 7,835 Depreciation, depletion and amortization 25,149 23,264 74,163 69,573 Total operating expenses 99,511 108,727 284,131 294,894
Operating income 61,135 54,689 262,911 235,344
Gain on sale and tender of available-for-sale securities, net - 19,438 - 80,257
Equity in earnings of nonconsolidated investments 70 216 120 413
Other income, net - - - 1,195
Interest expense 12,290 10,932 35,242 33,107 Income from continuing operations before income taxes 48,915 63,411 227,789 284,102 Income taxes 17,120 17,600 79,726 105,547 Income from continuing operations 31,795 45,811 148,063 178,555 Income from discontinued operations, net of tax of $2,971 and $5,456 for the three and nine months ended September 30, 2005, respectively - 680 - 8,661
Net income $31,795 $46,491 $148,063 $187,216
Earnings per share of common stock: Basic: Weighted average common shares outstanding 120,172 121,181 119,929 121,359 Income from continuing operations $0.26 $0.37 $1.23 $1.47 Income from discontinued operations - 0.01 - 0.07 Net income $0.26 $0.38 $1.23 $1.54
Diluted: Weighted average common shares outstanding 122,103 123,576 121,961 124,016 Income from continuing operations $0.26 $0.37 $1.21 $1.44 Income from discontinued operations - 0.01 - 0.07 Net income $0.26 $0.38 $1.21 $1.51
(A) Due to the seasonal nature of the Company's natural gas distribution and energy marketing business, and the volatility of gas and oil commodity prices, the interim statements for the three and nine month periods are not indicative of results for a full year.
EQUITABLE UTILITIES OPERATIONAL AND FINANCIAL REPORT
Three Months Ended Nine Months Ended September 30, September 30, 2006 2005 2006 2005 OPERATIONAL DATA Heating degree days (30-year average: Qtr - 124; YTD - 3,759) 123 34 3,226 3,465
Residential sales and transportation volume (MMcf) 1,307 1,292 14,168 16,838 Commercial and industrial volume (MMcf) 4,109 3,153 17,859 18,258 Total throughput (MMcf) - Distribution 5,416 4,445 32,027 35,096
Net Operating revenues (thousands): Distribution (regulated) Residential $11,887 $11,856 $65,054 $72,771 Commercial & industrial 7,026 4,903 29,694 33,553 Other 2,487 1,519 5,691 6,036 Total distribution operations 21,400 18,278 100,439 112,360 Pipeline (regulated) 15,377 10,311 54,314 37,275 Marketing 2,878 7,575 29,522 27,867 Total $39,655 $36,164 $184,275 $177,502
Operating expenses as a % of net operating revenues 89.99% 120.68% 57.21% 65.87%
Operating income (thousands): Distribution (regulated) $(4,043) $(16,362) $25,528 $22,898 Pipeline (regulated) 5,595 1,811 24,943 11,065 Marketing 2,417 7,074 28,387 26,619 Total $3,969 $(7,477) $78,858 $60,582
Capital expenditures (thousands) $16,463 $18,710 $45,543 $40,283
FINANCIAL DATA (Thousands) Distribution revenues (regulated) $39,330 $34,642 $322,633 $304,513 Pipeline revenues (regulated) 15,782 10,311 55,418 37,275 Marketing revenues 81,477 78,532 262,714 245,880 Less: intrasegment revenues (10,986) (9,773) (41,437) (36,984) Total operating revenues 125,603 113,712 599,328 550,684
Purchased gas costs 85,948 77,548 415,053 373,182 Net operating revenues 39,655 36,164 184,275 177,502
Operating expenses: Operating and maintenance 14,037 14,465 42,294 42,982 Selling, general and administrative 14,494 22,174 44,039 49,723 Office consolidation impairment charges - - (2,396) 3,841 Depreciation, depletion and amortization 7,155 7,002 21,480 20,374 Total operating expenses 35,686 43,641 105,417 116,920
Operating income $3,969 $(7,477) $78,858 $60,582
EQUITABLE SUPPLY OPERATIONAL AND FINANCIAL REPORT
Three Months Ended Nine Months Ended September 30, September 30, 2006 2005 2006 2005 OPERATIONAL DATA
Capital expenditures (thousands) $82,871 $53,535 $205,398 $201,348
Production: Total sales volumes (MMcfe) 19,442 18,670 56,886 55,492 Average (well-head) sales price ($/Mcfe) $4.66 $5.43 $4.82 $4.98
Company usage, line loss (MMcfe) 1,410 1,334 3,929 3,681
Natural gas inventory usage, net (MMcfe) - - - (51)
Natural gas and oil production (MMcfe) 20,852 20,004 60,815 59,122
Lease operating expense excluding production taxes ($/Mcfe) $0.32 $0.29 $0.30 $0.31 Production taxes ($/Mcfe) $0.45 $0.48 $0.48 $0.44 Production depletion ($/Mcfe) $0.62 $0.58 $0.62 $0.60
Gathering: Gathered volumes (MMcfe) 26,723 29,227 80,273 91,339 Average gathering fee ($/Mcfe) $1.05 $0.81 $1.02 $0.77 Gathering and compression expense ($/Mcfe) $0.42 $0.29 $0.39 $0.31 Gathering and compression depreciation ($/Mcfe) $0.14 $0.13 $0.14 $0.11
(in thousands) Production operating income $53,690 $71,642 $172,357 $187,079 Gathering operating income 9,540 8,259 28,299 21,345 Total $63,230 $79,901 $200,656 $208,424
Production depletion $12,888 $11,526 $37,619 $35,425 Gathering and compression depreciation 3,811 3,760 11,399 10,485 Other depreciation, depletion and amortization 1,083 779 3,059 2,731 Total depreciation, depletion and amortization $17,782 $16,065 $52,077 $48,641
FINANCIAL DATA (Thousands) Production revenues $92,949 $103,450 $281,141 $282,266 Gathering revenues 28,042 23,802 81,626 70,470 Total revenues 120,991 127,252 362,767 352,736
Operating expenses: Lease operating expense excluding production taxes 6,753 5,784 18,543 18,500 Production taxes 9,423 9,543 29,422 26,023 Gathering and compression 11,123 8,425 31,547 28,622 Selling, general and administrative 12,680 7,534 30,522 22,007 Office consolidation impairment charges - - - 519 Depreciation, depletion and amortization 17,782 16,065 52,077 48,641 Total operating expenses 57,761 47,351 162,111 144,312
Operating income $63,230 $79,901 $200,656 $208,424
SOURCE: Equitable Resources, Inc.
CONTACT: Patrick Kane of Equitable Resources, Inc., +1-412-553-7833/ /Web site: http://www.eqt.com