EQT Corporation (

EQT

)

Q1 2011 Earnings Call

April 28, 2011 10:30 AM ET

Executives

Patrick Kane – Chief Investment Relations Officer

Philip Conti – SVP and CFO

David Porges – President and CEO

Steven Schlotterbeck – SVP, President - Exploration and Production

Analysts

Neal Dingmann – Sun Trust

Scott Hanold – RBC Capital Markets

Michael Hall -Wells Fargo

Becca Followill – US Capital Advisors

Rhett Bruno – Bank of America/Merrill Lynch

Josh Silverstein – Enerecap Partners

Raymond Deacon – Pritchard Capital

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Presentation

Operator

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Good morning and welcome to the EQT Corporation First Quarter 2011 Earnings Conference Call. All participants will be in 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 Patrick Kane, Chief Investment Relations Officer. Please go ahead.

Patrick Kane

Thanks, Andrew. Good morning everyone and thank you for participating in EQT’s first quarter 2011 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 summarize our operational and financial results for the quarter, which we released this morning. Then Dave will provide an update on strategic operational and regulatory matters. And following Dave’s remarks, Dave, Phil, Randy and Steve will all 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 expectations expressed in these forward-looking statements. These factors are listed under risk factors in the company’s Form 10-K for the year-ended December 31st, 2010 that was filed with the SEC as updated by any subsequent Form 10-Qs which are on file with the SEC and are available on our website.

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

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

Philip Conti

Thanks, Pat, and good morning, everyone. As you read in the press release this morning, EQT announced first quarter 2011 earnings of $0.82 per diluted share, a $0.26 increase over EPS in the first quarter of 2010. Three items cumulatively added $40 million to our pre-tax income, or about $017 after tax earnings per share.

The sale of the Kentucky processing complex resulted in a book gain of $22.8 million. There was also an adjustment for non-income tax matters that added about $13 million, and we recognized a $4 million gain on the sales some available for sale securities.

Adjusting for those three items, EPS was flat with last year’s quarter, despite the fact that gas prices were considerably lower in the first quarter of 2011. Operating cash flow, which excludes the impact of gains on sales of the Langley processing complex and the available for sale securities increased by 22% to just short of $250 million for the quarter.

Increase in cash flow comes as a result of another outstanding operational quarter across all three of EQT’s business units, including record produced natural gas sales, and continued low per unit development and operating costs for production, which were already among the best in the industry, another record and gathering in transmission volumes, lower per unit cost in our midstream business, and solid operating income at equitable gas.

The operating results of this quarter were pretty straightforward. And I’ll just talk to them fairly briefly starting with EQT production, where the story in the quarter continues to be the growth in sales of produced natural gas. The growth rate was a little over 43% in the recently completed quarter over the first quarter of 2010, and sequentially a little over 11% versus the fourth quarter of 2010. That growth rate was all again – was driven by sales from our Marcellus Shale play which contributed over 37% of the volumes in the quarter, up from only 13% in the quarter a year ago. As I mentioned, gas prices were lower in the quarter, the realized price at EQT production was just under $4, compared to about $4.74 last year. At the corporate level, EQT received $5.43 per Mcf equivalent, or almost 20% less than the $6.45 per Mcfe received last year.

Produced liquids mainly from our Huron and West Virginia Marcellus play accounts for 7% of the volumes, and 20% of the un-hedged revenues in the quarter. As a reminder, we do not include ethane in our liquids count as ethane is currently sold mostly as natural gas. But just FYI ethane also accounts for about 7% of the total well head stream. Total operating expenses at EQT production were higher quarter-over-quarter as a result of higher DD&A and SG&A although unit cash operating costs were significantly lower consistent with the significant production growth. Production taxes were down a fair amount in the quarter especially on a unit basis where we reported $0.19 per Mcf equivalent versus $0.28 last year.

Since that large of a decrease maybe not be intuitive remember that Pennsylvania does not currently impose production taxes and a big chunk of our growth came from the Marcellus play in Pennsylvania in the quarter. Per unit LOE excluding production taxes was also down by 28% to $0.18. That decrease was as a result of our higher throughput while maintaining the cost structure that again is among the best in the industry. There is some to month-to-month variability in our LOE activities but we do expect to average about $0.20 per Mcfe for the year.

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