EQT Corporation ( EQT)

Q3 2011 Earnings Conference Call

October 27, 2011 10:30 AM ET


David Porges - Chairman, President and CEO
Philip Conti - SVP and CFO
Randall Crawford - SVP and President, Midstream, Distribution & Commercial
Steven Schlotterbeck - SVP and President, Exploration & Production
Patrick Kane - Chief Investor Relations Officer


Neal Dingmann – SunTrust
Scott Hanold - RBC Capital Markets
Amir Arif - Stifel Nicolaus
Hsulin Peng - Robert W. Baird
Joseph Allman - J.P. Morgan
Mark Crusoe - Millennium Partners
John Abbott - Pritchard Capital Partners
Phillip Jungwirth – BMO Capital Markets
Gil Yang - Bank of America Merrill Lynch
Josh Silverstein - Enerecap Partners
Kim Schneider – Citigroup
Reza Hatefi – Decade Capital Management



Good morning and welcome to the EQT Third 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 Mr. Patrick Kane, Chief Investor Relations Officer. Please go ahead, sir.

Patrick Kane

Thank you Denise [ph]. Good morning everyone and thank you for participating in EQT Corp third quarter 2011 conference call. With me today are Dave Porges, President and CEO; Phil Conti, Senior Vice President and CFO; 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 third quarter, which we released this morning. Then Dave will provide an update on our development programs and strategic operational matters. Following Dave’s remarks, Dave, Phil, Randy and Steve will all be available to answer your questions.

The call will be available for replay for seven-day period beginning at 1:30 PM ET today, that phone number for the replay is 412-317-0088; you will need a confirmation code which is 447032. The call will also be replayed for seven days on our website.

But, first, I’d like to remind you that today’s call may contain forward-looking statements related to the future events and expectations. You can find these factors that could cause the company’s results to differ materially from these forward-looking statements listed in today’s press release under risk factors in the company’s Form 10-K for the year ending December 31st, 2010 which was filed with the SEC and updated in our subsequent Form 10-Qs which are also filed with the SEC.

Today’s call may also contain certain non-GAAP financial measures. Please, refer to the morning’s press release for important disclosures regarding such measures including reconciliations to the most comparable GAAP financial measure.

So, with that I’d 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 third quarter 2011 earnings of $1.19 per diluted share. Adjusting for the gain on the sale of the Big Sandy Pipeline which closed as expected on July 1 st EPS was $0.45 or an 88% increase over EPS in the third quarter of 2010.

The Big Sandy transaction resulted in a $111 million after tax gain. Operating cash flow, excluding the impact of the Big Sandy Pipeline sale, increased to a $190 million for the 2011 quarter, or by 44% compared to the same quarter last year. The increase in cash flow comes as the result of another outstanding operational quarter including record production and midstream volumes and continued low per unit operating cost. As a result of the Big Sandy gain, the gain on the sale of our Langley natural gas processing complex earlier in the year and our growth in volumes and organic operating income, we have become subject to the alternative minimum tax or AMT in 2011 and because of that we have started to pay some cash taxes again in 2011, about $36 million through the first three quarters.

Next year, assuming no additional transactions, we would expect to be back to be following the vast majority of our book income taxes. Other than that, the operating results this quarter are pretty straight forward and therefore my comments would be relatively brief.

EQT production operating results. At EQT production, sales volumes continue to grow at a record pace, the growth rate in the recently completed quarter was 51% over the third quarter of 2010. That growth rate was driven by sales from our Marcellus play, which contributed approximately 44% of the volumes in the quarter, up from only 19% in the quarter a year ago.

Gas prices were lower in the quarter consistent with lower NYMEX prices. At the corporate level, EQT received $5.25 per Mcfe compared $5.52 per Mcfe received last year. However, the realized price that EQT production was $4.02 per Mcfe compared to $3.81 per Mcfe last year. EQT productions realized price was higher in an overall lower price environment, due to the increase in the production mix from the Marcellus.

As we have discussed on recent calls, apart from the gathering rate midstream charges from Marcellus production is approximately half of the gathering rate for year on. That lower rate reflects the significantly lower cost to gather Marcellus gas.

Produce liquid mainly from our liquid-rich Huron accounted for 6% of the volumes and about 21% of the unhedged revenues in the quarter. As a reminder, we do not include ethane in this calculation, as it is currently mostly sold as methane.

Total operating expenses at production were higher quarter-over-quarter as a result of higher DD&A, LOE, and production taxes. However, unit LOE was flat with last year and unit production taxes were slightly higher as a result of recent property tax increases in the state of Virginia. We have also seen an increase in service costs as we finalize our contracts for next year. As a result we are increasing our cost for Marcellus well estimate from $6 million per well to $6.7 million per well. This cost for well, assumes 5300 foot of lateral pay and a standard frac design.

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