EQT Corporation Q2 2010 Earnings Call Transcript

EQT Corporation Q2 2010 Earnings Call Transcript
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EQT Corporation (EQT)

Q2 2010 Earnings Call

July 29, 2010 10:30 am ET

Executives

Pat Kane - Chief of IR

Phil Conti - SVP & CFO

Dave Porges - President & CEO

Steve Schlotterbeck - SVP & President, Exploration and Production

Randy Crawford - SVP and President, Midstream, Distribution and Commercial

Analysts

Scott Hanold - RBC Capital Markets

Amir Arif - Stifel Nicolaus

Ray Deacon - Pritchard Capital Partners, LLC

Tim Schneider - Citigroup

Michael Hall - Wells Fargo

Josh Silverstein - FIG Partners

Phillip Jungwirth - BMO Capital Markets

Presentation

Operator

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Previous Statements by EQT
» EQT Corporation Q1 2010 Earnings Transcript
» EQT Corporation. Q4 2009 Earnings Call Transcript
» EQT Corporation. Q3 2009 Earnings Call Transcript

Good morning and welcome to the EQT Corporation second quarter 2010 earnings conference call. All participants will be in a listen-only mode. (Operator Instructions) 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 Mr. Pat Kane, Chief Investor Relations Officer. Sir, the floor is yours.

Pat Kane

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

In just a moment Phil will briefly review a few topics related to our financial results for the second quarter 2010 which we released earlier this morning then Dave will provide an update on our drilling and infrastructure development programs and other operational matters.

Following Dave's remarks, Dave, Phil, Steve and Randy will all be available to answer your questions. First I'd like to remind you that today's call may contain forward-looking statements related to such matters as our well drilling and infrastructure development initiatives including Equitrans and the potential natural gas liquids joint venture, production, sales volumes, rates of return, operating cost, operating cash flow, growth rates and other financial and operational matters.

It should be noted that 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 the year ended December 31, 2009 under risk factors, as updated by any subsequent Form 10-Qs, which are on file with the Securities and Exchange Commission and available on our website.

Finally this morning's call may contain certain non-GAAP financial measures which are in this morning's press release. The reconciliations are in this morning's press release. And before introducing Phil, I would like to inform you that we posted our Marcellus decline curve to our website this morning. So now I'll turn the call over to Philip Conti.

Phil

Conti

Thanks Pat and good morning everyone. As you read in the press release this morning EQT announced second quarter 2010 earnings of $0.20 per diluted share, which was unchanged from the second quarter of 2009. Operating cash flow however increased by 17% over the prior year quarter as a result of another outstanding operation of quarter at the EQT Production and Midstream.

Sales of produced of natural gas production increased by 31% for the second quarter in a row while gathered volumes at EQT Midstream increased by 20%. On the downside, realized gas price were lower than last year, primarily as a result of having fewer hedges in place at a lower average heads price.

As we show on the table on this morning release, the EQT average wellhead sales price, which is our realized natural gas price was $5.49 per Mcf in the quarter. We were only slightly lower than the $5.57 per Mcf we realized last year, as some of the negative impact of the hedge position was offset by higher liquids prices.

Just to remind you, for segment reporting purposes that $5.49 of revenue realized by EQT Corp. is allocated as $3.10 per Mcfe to EQT production and $2.39 per Mcfe to Midstream.

Overall, absolute costs increased as expected to support our outstanding growth rate put on our per Mcfe basis cost related to EQT's produced natural gas and NGLs were down about 8% versus the same quarter last year after adjusting for the water treatment capacity charge mentioned in the release.

I will go into a bit more detail on all of that as I briefly discuss results by business units starting from EQT production. And there as has been the case for two years now, the big story in the quarter was the growth in sales of produced natural gas. As I mentioned the growth rate was north of 30% for the second 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 45% of the volumes in the quarter, far exceeding the 28% contribution in the quarter a year ago.

Contribution from Marcellus shale play alone is growing rapidly and represented over 16% of our volume this quarter, and that was up from less than 2% in the second quarter of 2009 and 13% in the first quarter of this year.

A moment on expenses of production. Total operating expenses were higher quarter-over-quarter again consisting with the significant production growth. SG&A costs were $7 million higher than last year with the biggest cause of the increase being a $4.5 million charge to write-off approximately three years of contracted capacity for treatment and disposal of recovered frac water that we no longer need.

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