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Eqt Reports Third Quarter 2015 Earnings

The following excerpt is from the company's SEC filing.

Low commodity prices continue to overwhelm strong operational results

PITTSBURGH--(BUSINESS WIRE)--October 22, 2015--EQT Corporation (NYSE: EQT) today announced third quarter 2015 net income attributable to EQT of $40.8 million, or $0.27 per diluted share (EPS), compared to third quarter 2014 earnings of $98.6 million, or $0.65 EPS. The reported results were favorably impacted by the recognition of gains on natural gas hedging contracts for other periods. After excluding the impact of these derivative transactions, the adjusted net loss for the quarter was $50.2 million, or negative $0.33 adjusted EPS, compared to adjusted EPS of $0.50 in the third quarter of 2014. Adjusted operating cash flow attributable to EQT was $156.3 million in the third quarter 2015; $135.0 million lower than the same period last year. The non-GAAP financial measures are detailed and reconciled in the Non-GAAP Disclosures section of this news release.

Highlights:

Production sales volume was 27% higher

Realized natural gas price was 42% lower

Midstream net revenue was 17% higher

Cash balance of $ 1.7 billion

A $1.5 billion undrawn, unsecured revolver

RESULTS BY BUSINESS

EQT Production

EQT Production achieved sales volume of 156.3 Bcfe in the third quarter 2015, 27% higher than the third quarter 2014; however, the increase in revenue from the higher volume was more than offset by a 55% lower average realized sales price compared to the same quarter last year, at $1.21 per Mcfe. Adjusted net operating revenue for the quarter (a non-GAAP financial measure) was $188.5 million, which was 43% lower. Adjusted operating loss for the third quarter (a non-GAAP financial measure) was $72.0 million, compared to adjusted operating income of $107.9 million last year, excluding noncash gains on hedges of $128.3 million applicable to other periods and $32.1 million, respectively.

EQT Production’s total operating expense for the quarter was $325.2 million, which was $53.5 million higher than the same period last year and consistent with the significant growth in sales volume. Depreciation, depletion, and amortization (DD&A) was $30.2 million higher. Transportation and processing expenses were $16.2 million higher; exploration expense was $4.6 million higher; selling, general and administrative (SG&A) was $3.9 million higher and lease operating expense (LOE), excluding production taxes, was $1.6 million higher. Production taxes; however, were $3.0 million lower consistent with the lower average unhedged price.

The Company drilled (spud) 37 gross wells during the third quarter 2015, which included 31 Marcellus wells, with an average length-of-pay of 5,800 feet; four Upper Devonian wells, with an average length-of-pay of 6,900 feet; and two dry Utica wells, with an average length-of-pay of 4,000 feet.

Guidance

The Company reiterates its 2015 guidance for production sales volume of 595 – 605 Bcfe, including liquids volume of 9,000 – 10,000 MBBls. The Company also expects an average differential to the NYMEX natural gas price of negative $0.30 –$0.40 per Mcf for the full year and fourth quarter 2015.

EQT Midstream

EQT Midstream’s third quarter 2015 operating income was $113.0 million, 21% higher than the third quarter of 2014. Net operating revenue was $195.3 million, 17% higher than the same period last year. Gathering revenue was 23% higher at $125.9 million, resulting from an increase in gathered volume. Transmission revenue increased by 12% to $62.7 million. Operating expenses for the quarter were $82.2 million, which was $9.4 million higher than the same period last year, consistent with the growth of the business. Per unit gathering and compression expense decreased by 14%, as volume continued to grow faster than expenses.

The Company is reiterating the 2015 midstream earnings before interest, taxes, depreciation, and amortization (EBITDA) of $555 – $575 million.

Realized Price

In the third quarter, the Company’s average realized price was $2.12 per Mcfe, 42% lower than the $3.63 per Mcfe realized in the third quarter 2014 – with $1.21 per Mcfe allocated to EQT Production and $0.91 per Mcfe allocated to EQT Midstream.

OTHER BUSINESS

EQT Midstream Partners, LP (NYSE: EQM) / EQT GP Holdings, LP (NYSE: EQGP)

On May 15, 2015, EQT GP Holdings, LP, an EQT Corporation company, completed its initial public offering. EQT Corporation owns a 90% limited partner interest in EQGP, which holds EQT’s partnership interests in EQM.

For the third quarter of 2015, EQT recorded earnings of $59.4 million, or $0.39 per diluted share, attributable to the publicly held limited partner interests in EQGP and EQM.

On October 20, 2015, EQM announced a cash distribution to its unitholders of $0.675 per unit for the third quarter of 2015. EQGP also announced a cash distribution to its unitholders of $0.104 per unit for the third quarter of 2015.

The results for EQM and EQGP were released today and are available at

www.eqtmidstreampartners.com

Hedging

During the quarter, the Company added to its hedge position. The Company's total natural gas production hedge position through 2017 is:

2015**

2016***

2017***

Fixed Price

Total Volume (Bcf)

75

248

103

Average Price per Mcf (NYMEX)*

4.04

3.81

3.66

Collars

9

7

Average Floor Price per Mcf (NYMEX)*

4.47

3.15

Average Cap Price per Mcf (NYMEX)*

7.19

4.03

The average price is based on a conversion rate of 1.05 MMBtu/Mcf

October through December

For 2016 and 2017, the Company also has a natural gas sales agreement for approximately 35 Bcf that includes a NYMEX ceiling price of $4.88 per Mcf. The Company also sold calendar year 2016 and 2017 calls for approximately 11 Bcf and 17 Bcf at strike prices of $3.65 per Mcf and $3.79 per Mcf, respectively.

Operating Income

The Company reports operating income by segment in this news release. Interest, income taxes and unallocated expense 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 news release, to the consolidated operating income reported in the Company’s financial statements:

Three Months Ended

Nine Months Ended

September 30,

(thousands)

Operating income:

EQT Production

56,360

140,036

175,317

561,930

EQT Midstream

113,010

93,600

350,942

265,196

Unallocated expense

685

(2,133

(8,411

(14,061

Operating income

170,055

231,503

517,848

813,065

Unallocated expense is primarily due to certain incentive compensation and administrative costs that are not allocated to the operating segments.

Marcellus Horizontal Well Status (cumulative since inception)

As of

9/30/15

6/30/15

3/31/15

9/30/14

Wells spud

828

797

759

722

669

Wells online

642

604

560

533

479

Wells complete, not online

65

60

45

21

31

Frac stages (spud wells)*

22,232

21,045

20,044

18,802

16,591

Frac stages online

15,904

14,664

13,394

12,472

10,653

Frac stages complete, not online

2,075

1,972

1,347

592

1,117

*Includes planned stages for spud wells that have not yet been hydraulically fractured.

NON-GAAP DISCLOSURES

Adjusted Net Income and Adjusted Earnings per Diluted Share

Adjusted net income and adjusted earnings per diluted share are non-GAAP supplemental financial measures that are presented because they are important measures used by management to evaluate period-to-period comparisons of earnings trends. Adjusted net income and adjusted earnings per diluted share should not be considered as alternatives to net income or earnings per diluted share presented in accordance with GAAP.

The table below reconciles adjusted net income and adjusted earnings per diluted share with net income and earnings per diluted share, as derived from the statements of consolidated income to be included in EQT’s report on Form 10-Q for the quarter ended September 30, 2015.

(thousands, except per share information)

Net income attributable to EQT, as reported

40,787

98,555

Add back / (deduct):

Asset impairments

6,576

2,210

Hedging ineffectiveness gain

(34,348

Gain on derivatives not designated as hedges

(161,263

(1,821

Cash settlements received on derivatives not designated as hedges

32,099

1,604

Premiums paid for derivatives that settled during the period

(1,029

Tax impact (26.4% and 32.8% effective tax rate for 2015 and 2014, respectively)

32,623

10,604

Adjusted net (loss) income attributable to EQT

(50,207

76,804

Diluted weighted average common shares outstanding

152,854

152,330

Diluted EPS, as adjusted

(0.33

0.50

Operating Cash Flow and Adjusted Operating Cash Flow Attributable to EQT

Operating cash flow and adjusted operating cash flow attributable to EQT are non-GAAP supplemental financial measures that are presented as indicators of an oil and gas exploration and production company’s ability to internally fund exploration and development activities and to service or incur additional debt. EQT includes this information because management believes that changes in operating assets and liabilities relate to the timing of cash receipts and disbursements, and therefore, may not relate to the period in which the operating activities occurred. Adjusted operating cash flow attributable to EQT excludes the noncontrolling interest portion of adjusted EQT Midstream Partners EBITDA (a non-GAAP supplemental financial measure reconciled below). Management believes that removing the impact on operating cash flows of the public unitholders of EQGP and EQM that is otherwise required to be consolidated in EQT’s results provides useful information to an EQT investor. Operating cash flow and adjusted operating cash flow attributable to EQT should not be considered as alternatives to net cash provided by operating activities presented in accordance with GAAP. The table below reconciles operating cash flow and adjusted operating cash flow attributable to EQT with net cash provided by operating activities,

as derived from the statements of consolidated cash flows to be included in EQT’s report on Form 10-Q for the quarter ended September 30, 2015.

Net Income

100,233

132,294

385,148

481,493

Depreciation, depletion, and amortization

208,227

175,578

599,791

484,908

Deferred income tax expense (benefit)

116,967

47,724

(78,958

102,301

Asset impairments, non-cash

35,004

8,729

(13,075

(Gain) loss on derivatives not designated as hedges

(209,114

16,058

Cash settlements received (paid) on derivatives not designated as hedges

70,874

(9,232

Non-cash gain on Nora asset exchange

(37,749

Non-cash gain on disposition

(3,598

Non-cash incentive compensation

13,193

12,262

41,622

33,072

Other items, net

(3,262

(170

(8,538

(4,381

Operating cash flow:

312,770

335,333

835,829

1,058,526

Add back (deduct) :

Changes in other assets and liabilities

(68,579

41,192

64,389

83,419

Net cash provided by operating activities

244,191

376,525

900,218

1,141,945

Operating cash flow (a non-GAAP measure reconciled above)

(Deduct) add back

Noncontrolling interest portion of adjusted EQT Midstream Partners EBITDA (a)

(80,561

(45,440

(218,981

(101,830

Exploration expense (cash)

1,600

1,396

5,014

3,748

Drilling program reduction charges, cash

3,529

8,697

Current taxes on transactions (b)

150,425

72,788

Non-recurring tax benefits

(81,031

(50,669

Adjusted operating cash flow attributable to EQT

156,307

291,289

730,315

1,033,232

(a)

Adjusted EQT Midstream Partners EBITDA and noncontrolling interest portion of adjusted EQT Midstream Partners EBITDA are non-GAAP supplemental financial measures reconciled below.

(b)

Amount represents current tax expense related to the sale of the Northern West Virginia Marcellus Gathering System (NWV Gathering) and the sale of EQGP units in its initial public offering.

EQT Production Adjusted Net Operating Revenues

The table below reconciles EQT Production adjusted net operating revenues, a non-GAAP supplemental financial measure...


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