EQT Corporation (NYSE: EQT) today announced third quarter 2014 net income attributable to EQT of $98.6 million, or $0.65 per diluted share (EPS), 12% higher than the third quarter 2013 earnings of $88.3 million, or $0.58 per diluted share. EQT’s reported results were negatively impacted by a $19.4 million increase in net income attributable to noncontrolling interests totaling $33.7 million in the third quarter 2014, which represents earnings attributable to EQT Midstream Partners’ noncontrolling unit holders. This increase was primarily as a result of the sale of the Jupiter natural gas gathering system to EQT Midstream Partners, LP in May 2014. When adjusted for certain items, including a $34.3 million gain associated with a reduction in hedge ineffectiveness, adjusted EPS attributable to EQT was $0.51 in the third quarter 2014, down 7% year-over-year. The non-GAAP financial measures are detailed and reconciled in the Non-GAAP Disclosures section below.
Highlights for Third Quarter 2014 vs. 2013:
- Production sales volume was 25% higher
- Midstream gathered volume was 24% higher
- Midstream gathering and compression expense per unit was 18% lower
- MLP distribution exceeded the 50% GP incentive distribution threshold of $0.525
Operating cash flow was $335.3 million in the third quarter 2014, 42% higher than the third quarter 2013, while adjusted operating cash flow attributable to EQT was $291.3 million, or 5% higher. Operational results were higher due to increased production sales volume, increased gathered volume, and increased firm transmission capacity sales and throughput, partially offset by lower realized commodity prices. Net operating revenues, excluding a $34.3 million gain associated with a reduction in hedge ineffectiveness, increased 12% to $495.3 million, while net operating expenses increased 8%, to $298.1 million, in support of the Company’s growth.
RESULTS BY BUSINESS
For the third quarter 2014, EQT Production had sales volume of 123.3 Bcfe, which was a 25% increase over the third quarter 2013, primarily driven by increased production from the Marcellus/Upper Devonian plays. Natural gas liquids (NGL) volume totaled 2,008 Mbbls, an 87% increase over the same period last year, due to increased liquids production in the Marcellus and Permian. Operating income for the Production business in the third quarter 2014 was $140.0 million, $42.4 million higher than the third quarter 2013; while total net operating revenues were $363.1 million, or $58.9 million higher, including the gain associated with a reduction in hedge ineffectiveness.
The average effective sales price to EQT was 6% lower at $3.88 per Mcfe, with $2.94 per Mcfe allocated to EQT Production; and $0.94 per Mcfe allocated to EQT Midstream. While the NYMEX natural gas price was $0.48 per Mcfe higher, the realized price was impacted by negative basis, which was only partially offset by third-party gathering and transmission recoveries. These recoveries primarily represent the price uplift received by selling some natural gas to higher-priced markets, and resale of unused capacity. Basis plus recoveries averaged a negative $0.68 per Mcfe during the quarter compared to a positive $0.12 per Mcfe in the third quarter 2013.
Operating expenses for EQT Production for the third quarter 2014 were $223.1 million, $16.5 million higher than the same quarter last year. Selling, general and administrative expense (SG&A) was $9.0 million higher, including a $3.9 million charge for legal and other reserves; production taxes were $3.4 million higher; depreciation, depletion and amortization expenses (DD&A) was $3.4 million higher; and lease operating expenses (LOE), excluding production taxes, were $2.4 million higher, all related to sales volume growth. Exploration expense was $1.7 million lower.
During the quarter, EQT spud 42 gross wells in the Marcellus, 13 Upper Devonian wells, and 36 Huron wells.
The Company’s 2014 sales volume guidance is 465 – 470 Bcfe; and its 2014 NGL volume guidance is 6,650 – 6,750 Mbbls. Sales volume for the remainder of 2014 is projected to be at the low end of previous guidance, primarily as a result of executing longer laterals, which have been 5,800 feet on average vs. 4,800 feet planned for Marcellus wells; and 6,800 feet vs. 3,800 feet planned for Upper Devonian wells. EQT began substantially increasing lateral lengths earlier this year after acquiring acreage adjacent to planned pads in its key operating areas. Drilling longer laterals results in improved economic returns by reducing cost per-foot-of-pay by 6%; however, it also increases the time needed to drill, complete, and have the wells turned in-line.
For the fourth quarter of 2014, based on current market conditions, EQT is forecasting basis to average negative $1.40 – $1.45 per Mcfe, and third-party gathering and transmission recoveries to average positive $1.20 – $1.25 per Mcfe.
EQT Midstream’s third quarter 2014 operating income was $93.6 million; 19% higher than the third quarter of 2013. Net gathering revenue was $102.4 million, a 12% increase, primarily due to a 24% increase in gathered volume, partly offset by lower average gathering rates. Net transmission revenue totaled $55.8 million, a 40% increase, primarily due to sales of new capacity, as well as higher throughput. Operating expenses for the quarter were $72.9 million, which was an $11.5 million increase, consistent with the growth of the business. Per-unit gathering and compression expense decreased by 18%.
EQT Midstream Partners, LP (EQM)
As of September 30, 2014, EQT had a 34.4% limited partner interest and a 2% general partner (GP) interest in EQT Midstream Partners whose results are consolidated in EQT’s results. For the third quarter 2014, EQT Corporation recorded $33.7 million of earnings, or $0.22 per diluted share, attributable to noncontrolling interests. EQT Midstream Partners’ results were released today and are available at www.eqtmidstreampartners.com.
On October 21, 2014, EQT Midstream Partners announced a cash distribution to its unit holders of $0.55 per unit for the third quarter of 2014. EQT will receive $15.9 million including $4.2 million related to its GP interest. The GP is entitled to 50% of distributed cash above $0.525 per unit, with the third quarter distribution being the first to exceed that threshold.
Mountain Valley Pipeline
EQT Midstream Partners will assume EQT’s interest in Mountain Valley Pipeline, LLC, a joint venture with a subsidiary of NextEra Energy, Inc. The Mountain Valley Pipeline (MVP) will extend from EQT Midstream Partners’ existing transmission and storage system in Wetzel County, West Virginia to Pittsylvania County, Virginia. EQT Midstream Partners expects to own a majority interest in the joint venture and will operate the estimated 300-mile pipeline.
The joint venture has secured a total of 2 Bcf per day of firm capacity commitments at 20-year terms, and is currently in negotiation with additional shippers who have expressed interest in the MVP project. As a result, the final project scope, including pipe diameter and total capacity, is not yet determined.
The pipeline, which is subject to Federal Energy Regulatory Commission (FERC) approval, will provide Marcellus and Utica natural gas supply to the growing demand markets in the southeast region. The pre-filing process with FERC is expected to begin this month; and the pipeline is expected to be in-service during the fourth quarter of 2018. For more information on the project please visit www.mountainvalleypipeline.info.
Source: EQT CORPORATION