Exploration & Production | Quarterly / Earnings Reports | First Quarter (1Q) Update
EQT Tags 30% Upswing in Production Sales Volume; Ups Income
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EQT Corporation has reported first quarter 2014 net income attributable to EQT of $192.2 million, or $1.26 per diluted share, compared to first quarter 2013 earnings of $100.3 million, or $0.66 per diluted share.
Adjusted earnings, excluding $22.3 million of hedging ineffectiveness, were $206.6 million, or $1.35 per diluted share – which was 214% higher than first quarter 2013 adjusted earnings of $65.5 million, or $0.43 per diluted share, excluding $35.0 million from discontinued operations. Operating cash flow in the quarter was $481.9 million, compared to $306.2 million; and adjusted cash flow per share was $3.16, compared to $2.03.
First Quarter Highlights 2014 vs. 2013:
- Production sales volume was 30% higher
- Production operating expenses per Mcfe were 17% lower
- Midstream transmission revenues were 40% higher
- Midstream gathered volume was 25% higher
EQT’s first quarter 2014 operating income was $356.8 million, a 147% increase from the same quarter 2013. Earnings per share and adjusted cash flow per share were higher due to increases in production sales volume, realized price, contracted transmission capacity, and gathered volume. Net operating revenues increased 63% to $616.5 million in the quarter, while net operating expenses increased only 11% to $259.7 million.
Results by Business
EQT Production
With its continued focus on the Marcellus Shale, EQT Production achieved sales volume of 106.1 Bcfe in the first quarter 2014, representing a 30% increase compared to the first quarter 2013. Sales volume from the Marcellus/Upper Devonian averaged 923.6 MMcfe per day, 50% higher. Natural gas liquids (NGL) volume totaled 1,295 Mbbls, 16% higher.
Production operating income for the first quarter totaled $277.2 million, an increase of 274% from last year. As a result of increases in sales volume and average realized price, net operating revenue for the quarter was $467.7 million, 87% higher.
Consistent with the significant growth in sales volume, EQT Production’s operating expenses for the quarter were $190.5 million, $14.1 million higher than the same period last year. Depreciation, depletion and amortization expense (DD&A) was $6.3 million higher; production taxes were $5.2 million higher; selling, general and administrative expense (SG&A) was $3.1 million higher; lease operating expense (LOE), less production taxes, was $1.8 million higher; and exploration expense was $2.3 million lower. Per unit SG&A decreased 14% to $0.24 per Mcfe; and per unit LOE decreased 13% to $0.14 per Mcfe, as volume growth dramatically outpaced higher costs.
The Company drilled (spud) 64 gross wells during the quarter -- 46 wells targeted the Marcellus with an average length-of-pay of 5,870 feet; 14 wells targeted the Huron with an average length-of-pay of 6,395 feet; and 4 wells targeted the Upper Devonian with an average length-of-pay of 5,460 feet. In 2014, the Company will complete and evaluate 5 Utica wells drilled in 2013 but has decided to delay further drilling on its Ohio Utica acreage until after this year. Alternatively, the Company now expects to drill 8 additional Marcellus wells and 13 additional Upper Devonian wells for a total of 194 Marcellus wells and 43 Upper Devonian wells in 2014. This change will have no net impact to the Company’s 2014 CAPEX budget.
Production sales volume for 2014 is projected to be 465 – 480 Bcfe; and liquids volume is expected to be 6,800 – 6,900 MBBls. Production sales volume for the second quarter 2014 is projected to be 113 - 115 Bcfe; and liquids volume is expected to be 1,600– 1,650 MBBls.
Realized Price
The NYMEX price of natural gas averaged $4.94 per MMBtu in the first quarter 2014, which was 48% higher than the average of $3.34 for the same period last year. EQT’s realized price varies from NYMEX due to revenue deductions for the net cost of gathering, transporting and processing, regional basis, and hedging. In the first quarter, the Company’s average realized price was $5.34 per Mcfe, 28% higher than the $4.16 per Mcfe realized last year – with $4.40 per Mcfe allocated to EQT Production and $0.94 per Mcfe allocated to EQT Midstream. This increase in the realized price includes negative $0.21 per Mcfe related to hedge ineffectiveness. During the first quarter 2014, which was unusually cold, EQT utilized its firm capacity to move gas to higher priced markets. The sale of gas in these markets resulted in gains that more than offset the cost of third-party gathering and transmission, and resulted in positive net revenue of $0.64 per Mcfe. This is a significant improvement over last year when EQT realized a net cost of $0.26 per Mcfe in the first quarter 2013 for third-party gathering and transmission. Basis averaged a negative $0.22 per Mcfe in the first quarter compared to zero in 2013.
Based on current market conditions, EQT is forecasting third-party gathering and transmission to average $0.00 to negative $0.05 per Mcfe; and basis to average negative $0.40 to negative $0.60 per Mcfe for the full-year 2014.
EQT Midstream
EQT Midstream’s first quarter 2014 operating income was $83.1 million, or $8.9 million higher than the first quarter of 2013. Net operating revenue was $148.7 million, 15% higher. Net gathering revenue was $89.4 million, an increase of 9%, which was primarily due to a 25% increase in gathered volume, partly offset by lower gathering rates. Net transmission revenue totaled $52.1 million, a 40% increase over last year as a result of higher contracted capacity. Net storage, marketing and other revenues totaled $7.2 million, $2.5 million lower; and operating expenses for the quarter were $65.6 million, $11.0 million higher, consistent with the volume growth. Per unit gathering and compression expense decreased by 16% as volumes grew faster than expenses.
Other Business
EQT Midstream Partners, LP
EQT has a 42.6% limited partner interest and a 2% general partner interest in EQT Midstream Partners, LP, whose results are consolidated in EQT’s results. For the quarter, EQT Corporation recorded $18.7 million, or $0.12 of earnings per diluted share, attributable to non-controlling interests.
On April 22, 2014, EQT Midstream Partners announced a cash distribution to its unitholders of $0.49 per unit for the first quarter, from which EQT will receive $10.2 million on its limited partner units. In addition, EQT will receive $0.5 million related to its 2% general partner interest, and $1.0 million for its incentive distribution rights as EQT receives 25% of the amount in excess of $0.4375 per unit.