January 29, 2009 at 07:01 AM EST
Equitable Resources Reports 2008 Year-End Results

PITTSBURGH, Jan. 29 / PRNewswire-FirstCall/ -- Equitable Resources, Inc. (NYSE: EQT) today announced 2008 annual earnings per diluted share (EPS) of $2.00, on net income of $255.6 million. This compares with EPS of $2.10 on net income of $257.5 million in 2007.

2008 highlights include:

  • Fourth quarter production growth of 19.4% versus 2007;
  • Operating revenues of $1.6 billion, a 16% increase from the $1.4 billion recorded in 2007;
  • Operating cash flow of $644.9 million, 161% higher than the $247.1 million reported in 2007;
  • LOE plus production taxes of $0.87/Mcfe - one of the lowest rates in the oil and gas production business;
  • 668 gross wells drilled, 389 of which were horizontal;
  • Attained a drill bit reserve replacement ratio of 646% at a cost of $1.05/Mcfe; and
  • Completed the Big Sandy pipeline, Mayking corridor and Langley hydrocarbon processing plant.

Several non-operational factors should be considered when comparing 2008 and 2007 results, including a $126.1 million gain on the sale of reserves in the second quarter 2007, an $85.6 million reduction in incentive compensation expenses in 2008, and $21.0 million of expenses incurred in 2007 in connection with the terminated acquisition of The Peoples Natural Gas Company and Hope Gas, Inc.

RESULTS BY SEGMENT

Equitable Production

Equitable Production achieved the high end of its 2008 natural gas sales guidance of 84.0 Bcfe, 12% higher than 2007 sales, excluding volumes from properties sold during 2007. Fourth quarter 2008 natural gas sales totaled 23.1 Bcfe, 19.4% higher than the fourth quarter 2007, excluding volumes from properties sold. The natural gas sales growth was primarily the result of successful implementation of horizontal air drilling technology.

The company drilled 668 gross wells during 2008. Of these wells, 389 were horizontal wells; 357 of which were development wells targeting the Huron shale. The company was successful on 100% of the wells drilled in 2009.

Equitable Production's operating income totaled $252.8 million for 2008, a 25% increase compared to $202.0 million reported in 2007. Total operating revenues were $457.1 million for 2008, $92.7 million higher than last year, resulting from both a higher average well-head sales price and higher natural gas sales volumes.

Operating expenses totaled $204.4 million for 2008 compared to $162.4 million in 2007. The $42.0 million increase in operating expenses included increases in depreciation, depletion and amortization, production taxes and lease operating expenses, all resulting from the increase in drilling activity and production, and an $8.2 million increase in exploration expense resulting from the company's initiative to explore reserve opportunities in unproved deep zones.

Operating income for the quarter was $51.0 million, 11% lower than the $57.2 million earned in the same period last year. Operating revenues for the quarter increased 10% year over year to $105.0 million, as a result of a 19% increase in natural gas sales volumes, partially offset by a 7% decrease in average well-head sales price. Operating expenses for the quarter were $54.1 million, $15.8 million higher than the $38.3 million reported in 2007, and included $4.2 million of exploration expense. Excluding the cost of these exploration activities, higher expenses were a result of the company's ramp-up in drilling and production.

Equitable Midstream

During 2008, Equitable Midstream completed three major projects: the Big Sandy pipeline, the Mayking corridor and the Langley hydrocarbon processing plant. These projects provide the platform for significant Production natural gas sales volume growth, starting in the 2008 fourth quarter.

Equitable Midstream's operating income totaled $134.8 million for 2008 compared to $140.4 million for 2007, a decrease of $5.6 million. An increase in net operating revenues of $41.4 million was more than offset by increased operating expenses of $47.1 million.

Total net operating revenues were $303.3 million for 2008 compared to the $261.9 million reported in 2007. Gathering and processing net revenues increased by 17% as a result of higher gathering rates, increased processing volumes from the Langley hydrocarbon expansion and higher natural gas liquids prices. Transmission and storage net revenues increased by 14% driven by throughput from the Big Sandy pipeline and increased third party marketing utilizing Big Sandy pipeline capacity offset somewhat by lower seasonal price spreads.

Operating expenses for 2008 were $168.6 million compared to the $121.5 million reported in 2007. The higher operating expenses were due to a $10.7 million charge for settlements of pension and other post-retirement benefits, in addition to increased electricity charges, labor, property tax and compressor maintenance resulting from growth in the Midstream business. Selling, general and administrative expenses included $5.2 million in Lehman bad debt recorded in the third quarter. The increase in depreciation, depletion and amortization resulted from the company's investment in infrastructure.

Equitable Midstream had fourth quarter operating income of $20.5 million, a $24.2 million decrease over the $44.7 million reported for the same period last year. Gathering and processing net revenues totaling $40.1 million, approximated last year's total of $39.9 million. Higher gathering rates and higher gathering and processing volumes were offset by lower natural gas liquids prices. Transmission and storage net revenues totaling $38.0 million, were essentially the same as the fourth quarter of last year. Big Sandy throughput revenues were offset by a reduction in commercial net revenues as a result of lower seasonal spreads. Operating expenses for the quarter were $57.6 million, $24.6 million higher than the $33.0 million reported last year; $10.7 million of the increase was pension related, the balance of the increase was growth related, resulting in higher DD&A, electricity, labor, compressor maintenance and property tax expenses.

During the third quarter 2008, Equitable Midstream entered into a binding precedent agreement with El Paso's Tennessee Gas Pipeline for a 15-year term, 300,000 Dth per day capacity on its 128 mile expansion project to northeast markets through Pennsylvania and New Jersey. When completed, the project will provide Equitable with access to the consumer markets from the Gulf Coast to the Mid-Atlantic and the Northeast.

Equitable Distribution

Equitable Distribution had operating income of $59.9 million in 2008, 74% higher than the $34.5 million reported in 2007 mainly resulting from colder weather and decreased operating expenses. Operating expenses for the year decreased from $126.1 million last year to $111.0 million, a $15.1 million decrease primarily attributable to the absence of transaction and transition planning costs related to the now terminated Peoples and Hope acquisition, partially offset by an increase in customer assistance program (CAP) expenses. These increased CAP costs were recovered through an increase in CAP surcharge revenue.

Equitable Distribution's fourth quarter of 2008 operating income totaled $21.7 million compared to $2.8 million for the same period last year. Total net operating revenues for the fourth quarter of 2008 were $52.3 million, 22% higher than $42.9 million in 2007, again resulting from colder weather and increased CAP revenue. Operating expenses during the quarter decreased from $40.1 million last year to $30.6 million, a $9.5 million decrease primarily resulting from the absence of $10.5 million in transition planning costs in the fourth quarter of 2007 in anticipation of the Peoples and Hope acquisition.

In November 2008, Equitable Gas Company reached a settlement of its Pennsylvania rate case with the active parties that is expected to result in a $38 million annual revenue increase. On January 20, 2009, a Pennsylvania Public Utility Commission (PA PUC) Administrative Law Judge issued an order recommending the rate case settlement. The settlement is subject to the approval of the PA PUC, which is expected before March 31, 2009.

Other Business

2008 Capital Expenditures

Equitable invested $1,344 million in capital projects during 2008. This included $701 million for well development, $594 million for midstream projects and $49 million for distribution infrastructure projects and other corporate items.

2009 Capital Budget

Equitable forecasts approximately $1.0 billion of capital expenditures for 2009. This forecast includes $600 million for well development, $360 million for midstream projects and $40 million for distribution infrastructure projects and other corporate items. The company affirms its natural gas sales forecast of 15% volume growth in 2009.

Equity Issuance

On May 12, 2008, the company completed a public offering of 8,625,000 shares of its common stock at an offering price to the public of $67.75 per share. The proceeds from the offering were used to fund the drilling program and infrastructure projects.

Incentive Compensation Programs

The company has executive performance incentive compensation programs designed to align management's long-term incentive compensation with the absolute and relative returns earned by the company's shareholders. The expense of these programs varies, based mainly on changes in Equitable's stock price. The reduction in stock price in 2008 resulted in a reversal of previously recorded compensation expense. Executive incentive compensation expenses, including the reversal, totaled ($5.3) million; $85.6 million less than the $80.3 million recorded in 2007. Fourth quarter incentive compensation expenses totaled $15.0 million; $3.1 million less than the $18.1 million reported last year. Higher short-term incentive compensation partially offset the decrease in long-term incentive compensation in the quarter.

Loss on Investments

The company maintains funds to safely plug wells at the end of their useful lives. The funds are invested in equity and fixed income mutual funds. In the fourth quarter 2008, a $7.8 million loss was recognized, classified as an "other than temporary impairment of available for-sale securities," to reflect the decline in value of these investments.

Hedging

The company reduced its net hedge position for 2010 - 2013 to reduce counterparty risk and working capital reserves for potential margin posting requirements. The approximate volumes and prices of the company's hedge position for 2009 through 2011 production are:

    Swaps                                       2009        2010        2011
      Total Volume (Bcf)                          37          23          19
      Average Price per Mcf (NYMEX)*           $5.91       $5.12       $5.10

    Collars                                     2009        2010        2011
      Total Volume (Bcf)                          23          21          18
      Average Floor Price per Mcf (NYMEX)*     $7.34       $7.29       $7.16
      Average Cap Price per Mcf (NYMEX)*      $13.68      $13.51      $13.48

      *The above price is based on a conversion rate of 1.05 MMbtu/Mcf

Operating Income

The company reports operating income by segment in this press release. Both interest and income taxes are controlled on a consolidated, corporate-wide basis, and are not allocated to the segments.

The following table reconciles operating income by segment as reported in this press release to the consolidated operating income reported in the company's financial statements:

                                       Three Months Ended      Year Ended
                                         December 31,          December 31,
                                        2008      2007      2008      2007
    Operating income (thousands):
      Equitable Production           $50,979   $57,163  $252,784  $202,019
      Equitable Midstream             20,518    44,656   134,772   140,432
      Equitable
       Distribution                   21,652     2,785    59,859    34,541
      Unallocated (expense) income   (11,625)  (10,672)    17,391  (65,319)
      Operating income               $81,524   $93,932  $464,806  $311,673

Unallocated (expense) income consists of differences between budget and actual headquarters' expenses, including incentive compensation. For each period presented, the difference between equity in earnings of nonconsolidated investments as reported on the company's statements of consolidated income and on Equitable Midstream's operational and financial report is the earnings from the company's ownership interest in Appalachian Natural Gas Trust. Other segment financial measures identified in this press release are reconciled to the most comparable financial measures calculated in accordance with generally accepted accounting principles on the attached operational and financial reports. Equitable also provides certain segment related operating information as additional information for its operating results in this press release. Equitable's management believes that the presentation of this segment information provides useful information to management and investors regarding the financial condition, operations and trends of each of Equitable's segments without being obscured by the financial condition and trends for the other segments, or by the effects of corporate allocations of interest and income taxes. In addition, management uses these measures for budget planning purposes.

Operating Cash Flow

Operating cash flow is presented because it is typically used as an indicator of an oil and gas exploration and production company's ability to internally fund exploration and development activities and to service or incur additional debt. Net cash provided by operating activities includes changes in operating assets and liabilities related to the timing of cash receipts and disbursements which the company may not control. These changes may not relate to the period in which the operating activities occurred. Operating cash flow should not be considered in isolation or as a substitute for net cash provided by operating activities prepared in accordance with generally accepted accounting principles.

The table below reconciles operating cash flow with net cash provided by operating activities.

                                      Three Months Ended      Year Ended
                                          December 31,       December 31,
                                        2008      2007      2008      2007
    Net Income (thousands):          $33,495   $60,597  $255,604  $257,483
      Add back (deduct):
      Deferred income taxes           50,420   (38,365)  245,801    33,020
      Depreciation, depletion,
       and amortization               39,731    27,876   136,816   109,802
      Other items, net                 9,481   (13,337)    6,686   (27,120)
      Gain on sale of assets, net          -    (6,687)        -  (126,088)
    Operating cash flow
     (thousands):                   $133,127   $30,084  $644,907  $247,097
      Add back (deduct):
      Changes in margin deposits      26,238     1,340    $1,496   $(5,919)
      Other changes in operating
       assets and liabilities         22,921    53,444  (137,246)  185,542
      Net cash provided by operating
       activities (thousands)       $182,286   $84,868  $509,157  $426,720

Equitable's conference call with securities analysts, which begins at 10:30 a.m. Eastern Time today, will be broadcast live via Equitable's website, http://www.eqt.com and will be available for seven days.

Equitable Resources is an integrated energy company with emphasis on Appalachian area natural gas production, gathering, processing, transmission and distribution. Additional information about the company can be obtained through the company's web site, http://www.eqt.com; Investor information is available on that site at http://ir.eqt.com. Equitable Resources uses its web site as a channel of distribution of important information about the company, and routinely posts financial and other important information regarding the company and its financial condition and operations on the Investors web pages.

Equitable Resources management speaks to investors from time to time. Slides for these discussions will be available online via Equitable's website. The slides may be updated periodically.

Reserve Details

The company released 2008 reserve estimates in a separate press release today, which contains estimates of proved, probable and possible reserves, as well as details regarding replacement costs and replacement ratios.

Cautionary Statements

At this time, the Securities and Exchange Commission (the "SEC") permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. The company uses the terms "probable", "possible", "potential" and other descriptions of volumes of reserves that may be recoverable through additional drilling or recovery techniques that the SEC's guidelines would prohibit us from including in filings with the SEC. These estimates are by their nature more speculative than estimates of proved reserves and, accordingly, are subject to substantially greater risk of being actually realized. Investors are urged to consider closely the disclosure in the company's 2007 Form 10-K filed with the SEC, and in the company's 2008 Form 10-K to be filed with the SEC, copies of which may be obtained from the company at 225 North Shore Drive, Pittsburgh, PA 15212, Attention: Corporate Secretary. You can also obtain the company's Form 10-K from the SEC by calling 1-800-SEC-0330.

Disclosures in this press release contain forward-looking statements. Statements that do not relate strictly to historical or current facts are forward-looking. Without limiting the generality of the foregoing, forward-looking statements contained in this press release specifically include the expectations of plans, strategies, growth and anticipated financial and operational performance of the company and its subsidiaries, including guidance regarding the company's drilling and infrastructure programs and initiatives, sales volumes, the rate case settlement, capital commitments and capital expenditures. These statements involve risks and uncertainties that could cause actual results to differ materially from projected results. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. The company has based these forward-looking statements on current expectations and assumptions about future events. While the company considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks and uncertainties, most of which are difficult to predict and many of which are beyond the company's control. The risks and uncertainties that may affect the operations, performance and results of the company's business and forward-looking statements include, but are not limited to, those set forth under Item 1A, "Risk Factors" of the company's 2007 filed Form 10-K filed with the SEC.

Any forward-looking statement speaks only as of the date on which such statement is made and the company does not intend to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise.

                    EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
                   STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
                       (Thousands except per share amounts)

                                        Three Months Ended      Year Ended
                                          December 31,          December 31,
                                         2008      2007       2008        2007
                                         ----      ----       ----        ----

    Operating revenues               $408,878  $384,814 $1,576,488  $1,361,406
    Cost of sales                     173,492   168,779    645,136     574,466
                                      -------   -------    -------     -------
      Net operating revenues          235,386   216,035    931,352     786,940
                                      -------   -------    -------     -------

    Operating expenses:
      Operation and maintenance        44,965    28,351    129,502     106,965
      Production                       20,103    14,189     80,068      62,273
      Exploration                       4,163       300      9,064         862
      Selling, general and
       administrative                  44,900    51,387    111,096     195,365
      Depreciation, depletion and
       amortization                    39,731    27,876    136,816     109,802
                                       ------    ------    -------     -------
          Total operating expenses    153,862   122,103    466,546     475,267
                                      -------   -------    -------     -------

    Operating income                   81,524    93,932    464,806     311,673

    Other than temporary
     impairment of available-for-
     sale securities                   (7,835)        -     (7,835)          -
    Gain on sale of assets, net             -     6,687          -     126,088
    Gain on sale of available-for-
     sale securities                        -         -          -       1,042
    Other income                          524     3,157      6,233       7,645
    Equity in earnings of
     nonconsolidated investments        1,166       901      5,714       3,099
    Interest expense                   17,402    12,065     58,394      47,669
                                       ------    ------     ------      ------
    Income before income taxes         57,977    92,612    410,524     401,878
    Income taxes                       24,482    32,015    154,920     144,395
                                       ------    ------    -------     -------
    Net income                        $33,495   $60,597   $255,604    $257,483
                                      =======   =======   ========    ========

    Earnings per share of common stock:
    B

SOURCE Equitable Resources, Inc. (EQT-IR)

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