EQT CEO Discusses Q3 2010 Results – Earnings Call Transcript

EQT CEO Discusses Q3 2010 Results â¿¿ Earnings Call Transcript
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EQT Corp. (

EQT

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Q3 2010 Earnings Call Transcript

October 28, 2010 10:30 am ET

Executives

Pat Kane – Chief IR Officer

Phil Conti – SVP, CFO

Dave Porges – President & CEO

Steve Schlotterbeck – SVP & President, Exploration and Production

Randy Crawford – SVP & President, Midstream, Distribution and Commercial

Analysts

Scott Hanold – RBC

Amir Arif – Stifel

Phillip Jungwirth – BMO Capital Markets

Ray Deacon – Pritchard Capital

Michael Hall – Wells Fargo

Josh Silverstein – Enerecap Partners

Holly Stewart – Howard Weil

Presentation

Operator

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Previous Statements by EQT
» EQT Corporation Q2 2010 Earnings Call Transcript
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» EQT Corporation. Q3 2009 Earnings Call Transcript

Good morning, and welcome to the EQT Corporation Third Quarter 2010 Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

I would now like to turn the conference over to Pat Kane, Chief Investor Relations Officer. Sir, the floor is yours.

Pat Kane

Thanks, Maureen. Good morning, everyone, and thank you for participating in EQT Corp.’s third quarter 2010 earnings conference call. With me today are Dave Porges, President and Chief Executive Officer; and Phil Conti, Senior Vice President and Chief Financial Officer; Randy Crawford, Senior Vice President and President, Midstream, Distribution and Commercial; and Steven Schlotterbeck, Senior Vice President and President of Exploration and Production.

In just a moment, Phil will summarize our financial results for the third quarter 2010, which were released this morning. And then Dave will provide an update on our development programs and operational matters. Following Dave’s remarks, Dave, Phil, Randy and Steve will be available to answer your questions.

But first I’d like to remind you that today’s call may contain forward-looking statements. It should be noted that a variety of factors could cause the company’s actual results to differ materially from the anticipated results or other expectations expressed in these forward-looking statements. These factors are listed in the company’s Form 10-K for year-end December 31, 2009, under Risk Factors as updated by any subsequent Form 10-Qs, which are on file at the Securities and Exchange Commission, and are available on our Web site.

Today’s call may also contain certain non-GAAP financial measures. Please refer to this morning’s press release for important disclosures regarding such measures and the forward-looking statements discussed on today’s call.

I’d now like to turn the call over to Phil Conti.

Phil Conti

Thanks, Pat, and good morning, everyone. As you read in the press release this morning, EQT announced third quarter 2010 earnings of $0.24 per diluted share compared to $0.02 per diluted share on the third quarter of 2009.

Operating cash flow also increased by $75 million to $137 million in the third quarter 2010. These results were driven by another outstanding operational quarter at EQT Production and EQT Midstream.

You should note that both EPS and cash flow in 2009 were impacted by $24.7 million in higher long-term incentive compensation expense. So to get a better sense for our normalized EPS and operating cash flow adjusting for the reduction in long-term comp by adding $24.7 million to last year’s totals, EPS was 71% higher and operating cash flow was 76% higher than the third quarter ‘09.

Leading the way on the operating performance was a 35% increase in sales of produced natural gas at EQT Production, our highest organic growth rate ever compared to the prior year period.

Because of that outstanding performance we have increased our sales guidance for full year 2010 to 134 Bcf, which represents growth of 34% over 2009 sales volumes.

Gathered volumes and processed liquid volumes at EQT Midstream also increased by 22% and 25% respectively following the higher volumes at Production. On the downside as we show on the table in this morning’s release, the EQT average wellhead sales price, which is our realized natural gas sales price was $5.63 per Mcf in the quarter or about $0.10 lower than we realized in the quarter a year ago.

The drop came as a result of having fewer hedges in place and a slightly lower average hedged price, much of which was offset by higher NYMEX price and higher natural gas liquids prices. And that is important, because approximately 10% of our total production is in the form of liquids.

Just to remind you for segment reporting purposes, of the $5.63 per Mcf of revenue realized by EQT Corp., $3.32 per Mcf has been allocated to EQT Production, with the remaining $2.31 per Mcf allocated to EQT Midstream.

Overall, absolute cost increased as expected, given our outstanding continued growth, but on a unit basis, the total cost to produce, gather, process, and transport EQT’s produced natural gas and NGLs was down about 13%. I will go into a bit more detail on all of that as I briefly discuss the results by business unit starting with EQT Production, and there as has been the case for about two years now, the big story continues to be the growth in sales of produced natural gas.

As I mentioned upfront, the growth rate was 35% and was north of 30% for the third straight quarter. That growth rate was all organic and was driven by sales from our Marcellus and Huron/Berea horizontal shale wells, which together contributed 48% of the volumes in the quarter.

Contribution from the Marcellus shale play alone is growing rapidly and represented nearly 20% of our volumes in this quarter, up from only 2% in the third quarter of 2009. The average daily sales of produced natural gas was just under $370 million cubic feet per day for the third quarter and post quarter end in the month of October, we did reach an important milestone of 400 million cubic feet per day for the first time in the company’s history.

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