EQT Corporation's CEO Discusses Q4 2011 Results - Earnings Call Transcript

EQT Corporation ( EQT)

Q4 2011Earnings Call

January 26, 2012, 10:30 a.m. ET

Executives

Patrick Kane - Chief IR Officer

Philip Conti - SVP and CFO

David Porges - Chairman, President and CEO

Randall Crawford - SVP and President, Midstream, Distribution & Commercial

Steven Schlotterbeck - SVP and President, Exploration & Production

Analysts

Neal Dingmann – Suntrust Robinson Humphrey

Anne Cameron – BNP Paribas

Scott Hanold – RBC Capital Markets

Gil Yang – Bank of America/Merrill Lynch

Joseph Allman – JP Morgan

Craig Shere – Tuohy Brothers

Ray Deacon – Brean Murray, Carret & Co.

Steven Richardson - Deutsche Bank

Presentation

Operator

Good morning, and welcome to the EQT Corporation year-end, 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 Laura. Good morning, everyone, and thank you for participating in EQT Corp’s year-end 2011 conference call. With me today are Dave Porges, President and Chief Financial 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 2011 operational and financial results, which were released this morning. Then Dave will provide an update on our development programs, reserve reports, and strategic operational matters. Following Dave’s remarks, Dave, Phil, Randy and Steve will all be available to answer your questions.

This call will be replayed for a seven-day period beginning at 1:30 p.m Eastern Time today, the phone number for the replay is 412-317-0088. The confirmation code for the replay is 447033. 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 relating to the future events and expectations. You can find factors that could cause the company’s actual results to differ materially from these forward-looking statements listed in today’s press release and under risk factors in the company’s Form 10-K for the year ended December 31st, 2010, which was filed with the SEC and is updated by any subsequent Form 10-Qs, which are also on file with the SEC, and available on our website. And in the company’s upcoming 10-K for year ended December 31, 2011, which will be filed with the SEC.

Today’s call may also contain certain non-GAAP financial measures. Please refer to the morning’s press release for information on these non-GAAP financial measures.

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

Philip Conti

Thanks, Pat, and good morning everyone. As you saw in the press release this morning, EQT announced 2011 earnings of $3.19 per diluted share, compared to $1.57 per diluted share in 2010. After adjusting for several items which accumulatively added $148.4 million to our net income, our adjusted EPS was $2.21 in 2011.

The adjustments to net income include the impacts of the sale of Big Sandy Pipeline in the third quarter, the purchase of the outstanding interest in ANPI in the second quarter, the sale of the Langley Natural Gas Processing Complex, and an adjustment for non-income tax matters in the first quarter, and a gain on the sale of some available for-sale securities in the first half of the year.

Operating cash flow, which was not significantly impacted by these items in 2011 also increased by $236 million or by about 36%. These results were driven by another outstanding operational year at each of EQT’s business units.

Leading the way on the annual operating performance was a 44% increase in sales of produced natural gas and liquids at EQT production, which represented our highest annual sales growth rate ever. The other volumes at EQT Midstream also increased by 32%, trending up with the higher volumes at EQT Production.

The EQT average wellhead sales price was $5.37 per Mcf in 2011, or about $0.25 lower than in 2010. The realized price drop resulted from lower NYMEX natural gas prices in ’11 as compared to ’10, partially offset by higher natural gas liquids prices. Approximately 7% of EQT’s total production in 2011 was in the form of liquids.

For segment reporting purposes, of that $5.37 per Mcf of revenue, realized by EQT Corporation, $4.04 per Mcf was allocated to EQT Production, and the remaining $1.33 per Mcf to EQT Midstream.

Overall, absolute cost increase is expected given our outstanding growth rate, but on a unit basis, the total cost to produce, gather, process and transport EQT’s produced natural gas and NGLs was down about 22%.

The fourth quarter results basically mirrored the full year, so I do not intend to discuss them in detail. However, I will point out that the revenue deduction for third-party gathering, processing, and transportation was $0.43 for the full year of 2011 and $0.29 in the fourth quarter, as shown in the table, in this morning’s press release.

The fourth quarter number was positively impacted by the company’s ability to resell it’s unused contractive capacity on the recently completed El Paso 300 line, at unit rates above what we currently pay under the existing agreement with El Paso. The margin from capacity that was sold under short-term contracts, that is contracts with a duration of less than a year, reduced the revenue deduction by about $0.12 per Mcf on gas sold by EQT in the quarter.

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