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EQT Reports Third Quarter 2015 Earnings

PITTSBURGH--(BUSINESS WIRE)--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.

Guidance

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&index=1&md5=5c9385f641be2ade36e...">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
Total Volume (Bcf) 9 7
Average Floor Price per Mcf (NYMEX)* $ 4.47 $ $ 3.15
Average Cap Price per Mcf (NYMEX)* $ 7.19 $ $ 4.03

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, September 30,
(thousands) 2015 2014 2015 2014
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 As of As of As of As of
9/30/15 6/30/15 3/31/15 12/31/14 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.

Three Months Ended
September 30,
(thousands, except per share information) 2015 2014
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.

Three Months Ended Nine Months Ended
September 30, September 30,
(thousands) 2015 2014 2015 2014
Net Income $ 100,233 $ 132,294 $ 385,148 $ 481,493
Add back / (deduct):
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 6,576 2,210 35,004 8,729
Hedging ineffectiveness gain (34,348 ) (13,075 )
(Gain) loss on derivatives not designated as hedges (161,263 ) (1,821 ) (209,114 ) 16,058
Cash settlements received (paid) on derivatives not designated as hedges 32,099 1,604 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
Three Months Ended Nine Months Ended
September 30, September 30,
(thousands) 2015 2014 2015 2014
Operating cash flow (a non-GAAP measure reconciled above) $ 312,770 $ 335,333 $ 835,829 $ 1,058,526
(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

EQT Production Adjusted Net Operating Revenues

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

EQT reports gain (loss) for hedging ineffectiveness and gain (loss) on derivatives not designated as hedges within total operating revenues in the statements of consolidated income.

EQT Production adjusted net operating revenues is presented because it is an important measure used by EQT’s management to evaluate period-over-period comparisons of earnings trends. EQT Production adjusted net operating revenues should not be considered as an alternative to EQT Corporation total operating revenues presented in accordance with GAAP. EQT Production adjusted net operating revenues as presented excludes the revenue impact of changes in the fair value of derivative instruments prior to settlement and is net of transportation and processing costs. Management utilizes EQT Production adjusted net operating revenues to evaluate earnings trends because the measure reflects only the impact of settled derivative contracts and thus does not burden the revenue from natural gas sales with the often volatile fluctuations in the fair value of derivatives prior to settlement. EQT Production adjusted net operating revenues also reflects third-party transportation and processing costs as deductions from operating revenues because management considers the net price realized for sales of products, after the costs of...


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