Exhibit 99.1
Contact: | Patrick Kane |
| 412-553-7833 |
Equitable Resources Reports Third Quarter Earnings
PITTSBURGH, October 26, 2006/ PRNewswire-FirstCall/ — Equitable Resources, Inc. (NYSE: EQT) today announced third quarter 2006 earnings of $0.26 per diluted share on net income of $31.8 million. This compares with diluted earnings of $0.38 per share on net income of $46.5 million in the third quarter of 2005. The third quarter of last year contained several unusual items, the largest of which was a $19.4 million gain from the sale of Kerr McGee shares. In addition, a one-time pension settlement charge at Equitable Utilities and higher than normal incentive compensation expenses resulted in higher expenses in the third quarter of 2005. In 2006, there are also several unusual items including a charge related to a royalty dispute in West Virginia and transition expenses as the Company prepares for the acquisition of The Peoples Natural Gas Company and Hope Gas, Inc.
Operationally, Equitable Supply continues to increase sales volumes and is on track to exceed its drilling target of 550 wells for the year. Equitable also made progress on the horizontal and down-spacing pilot programs. However, from an earnings perspective, significantly lower effective well-head natural gas prices and the unusual costs, noted above, more than offset this progress in the current quarter.
Quarterly Results by Business
Equitable Utilities
Equitable Utilities had operating income for the third quarter of $4.0 million compared to a $7.5 million operating loss in the same period last year. Net operating revenues for the three months ended September 30, 2006, were $39.7 million compared to $36.2 million for the same period last year; the increase was attributable to higher pipeline revenues resulting from Equitrans’ 2006 rate case settlement and increased commercial and other distribution revenues, which were partially offset by lower marketing net revenues. The decrease in marketing net revenues is a result of lower commodity prices in the current year quarter, leading to fewer opportunities for storage asset optimization and smaller margin spreads on approximately the same volume of sales activity.
Total operating expenses for the quarter were $35.7 million, $7.9 million lower than the $43.6 million reported during the same period last year. The decrease in expenses primarily resulted from the absence of a $12.7 million charge related to the settlement of pension benefits recognized in the third quarter 2005. Partially offsetting these savings, Equitable incurred $3.7 million of costs associated with planning for the integration of Peoples Gas and Hope Gas and $1.2 million of increased pipeline expenses primarily related to the new rates and services provided under the March 2006 rate case settlement.
Equitable Supply
Equitable Supply had operating income for the quarter of $63.2 million, 21% lower than the $79.9 million earned in the same period last year. Production revenues for the three months ended September 30, 2006, were $92.9 million, 10% lower than the third quarter 2005. The weighted average well-head sales price was $4.66 per Mcfe, 14% lower than the third quarter 2005 average of $5.43. Production sales volumes increased by 0.7 Bcfe to 19.4 Bcfe.
1
Gathering revenues were $28.0 million, $4.2 million higher than the third quarter 2005 as the average gathering fee increased by 30% to $1.05 per Mcfe. Gathered volumes declined by 2.5 Bcfe or 9%, primarily due to the transfer of certain regulated gathering facilities to Equitable Utilities, partially offset by increased gathered volumes for Equitable Supply.
Total operating expenses for the 2006 third quarter totaled $57.8 million compared to $47.4 million in the 2005 third quarter. Selling, general and administrative expenses were $5.1 million higher as the Company recorded reserves for a royalty dispute in West Virginia and increased legal and bad debt costs, all totaling $7.3 million. In June 2006, the West Virginia Supreme Court of Appeals issued its decision in favor of royalty owners in a case against an unrelated production company. The court concluded that the producer had underpaid royalties by improperly deducting certain post-production costs. Since the ruling, suit has been filed against a number of companies, including Equitable, for similar claims. Gathering and compression expense and depreciation, depletion and amortization expense were higher consistent with higher overall operating activity levels combined with oil field inflation.
The Company drilled 174 developmental wells in the third quarter for a total of 449 wells in the first nine months of 2006, and is on track to exceed the 550 well drilling plan. The Company is also on track to drill 5 horizontal shale wells and 17 coal bed methane wells on 30-acre spacing this year.
Other Business
Hedging
There was no change to the Company’s hedge position during the quarter. The approximate volumes and prices of Equitable’s hedges for 2007 through 2009 are:
Swaps | | 2007 | | 2008 | | 2009 | |
Total Volume (Bcf) | | 56 | | 54 | | 38 | |
Average Price per Mcf (NYMEX)* | | $ | 4.74 | | $ | 4.64 | | $ | 5.90 | |
| | | | | | | | | | |
Collars | | 2007 | | 2008 | | 2009 | |
Total Volume (Bcf) | | 10 | | 10 | | 10 | |
Average Floor Price per Mcf (NYMEX)* | | $ | 7.61 | | $ | 7.61 | | $ | 7.61 | |
Average Cap Price per Mcf (NYMEX)* | | $ | 11.27 | | $ | 11.27 | | $ | 11.27 | |
* The above price is based on a conversion rate of 1.05 MMbtu/Mcf
Incentive Compensation
The Company’s executive performance incentive programs are designed to align management’s long-term incentive compensation to the absolute and relative returns earned by the Company’s shareholders. The Company recognized a $5.5 million expense for these programs, $9.3 million less than the $14.8 million expense recorded last year.
2
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
September 30, | | Nine Months Ended
September 30, | |
| | 2006 | | 2005 | | 2006 | | 2005 | |
Operating income (thousands): | | | | | | | | | |
Equitable Utilities | | $ | 3,969 | | $ | (7,477 | ) | $ | 78,858 | | $ | 60,582 | |
Equitable Supply | | 63,230 | | 79,901 | | 200,656 | | 208,424 | |
Unallocated expenses | | (6,064 | ) | (17,735 | ) | (16,603 | ) | (33,662 | ) |
Operating Income | | $ | 61,135 | | $ | 54,689 | | $ | 262,911 | | $ | 235,344 | |
Other segment financial measures identified in this press release are reconciled to the most comparable financial measures calculated in accordance with GAAP on the attached operational and financial reports.
Equitable’s teleconference 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 replay for a seven day period.
Equitable Resources is an integrated energy company with emphasis on Appalachian area natural-gas supply, transmission and distribution. For information please visit www.eqt.com.
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.
Forward-Looking Statements
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, objectives and growth and anticipated financial and operational performance of the Company and its subsidiaries, including guidance regarding the Company’s drilling program, production volumes, sales volumes, and capital expenditures and the pending acquisition of Peoples Gas and Hope Gas and the financing of that acquisition. A variety of factors could cause the Company’s actual results to differ materially from the anticipated results or other expectations expressed in the Company’s forward-looking statements. 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 Form 10-K for the year ended December 31, 2005.
Any forward-looking statement speaks only as of the date on which such statement is made and the Company undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise.
3
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
(Thousands, except per share amounts)
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2006 | | 2005 | | 2006 | | 2005 | |
| | | | | | | | | |
Operating revenues | | $ | 232,801 | | $ | 229,372 | | $ | 914,127 | | $ | 860,842 | |
Cost of sales | | 72,155 | | 65,956 | | 367,085 | | 330,604 | |
Net operating revenues | | 160,646 | | 163,416 | | 547,042 | | 530,238 | |
| | | | | | | | | |
Operating expenses: | | | | | | | | | |
Operation and maintenance | | 25,282 | | 22,891 | | 74,252 | | 71,599 | |
Production | | 16,176 | | 15,327 | | 47,965 | | 44,523 | |
Selling, general and administrative | | 32,904 | | 47,245 | | 90,659 | | 101,364 | |
Office consolidation impairment charges | | — | | — | | (2,908 | ) | 7,835 | |
Depreciation, depletion and amortization | | 25,149 | | 23,264 | | 74,163 | | 69,573 | |
Total operating expenses | | 99,511 | | 108,727 | | 284,131 | | 294,894 | |
| | | | | | | | | |
Operating income | | 61,135 | | 54,689 | | 262,911 | | 235,344 | |
| | | | | | | | | |
Gain on sale and tender of available-for-sale securities, net | | — | | 19,438 | | — | | 80,257 | |
| | | | | | | | | |
Equity in earnings of nonconsolidated investments | | 70 | | 216 | | 120 | | 413 | |
| | | | | | | | | |
Other income, net | | — | | — | | — | | 1,195 | |
| | | | | | | | | |
Interest expense | | 12,290 | | 10,932 | | 35,242 | | 33,107 | |
Income from continuing operations before income taxes | | 48,915 | | 63,411 | | 227,789 | | 284,102 | |
Income taxes | | 17,120 | | 17,600 | | 79,726 | | 105,547 | |
Income from continuing operations | | 31,795 | | 45,811 | | 148,063 | | 178,555 | |
Income from discontinued operations, net of tax of $2,971 and $5,456 for the three and nine months ended September 30, 2005, respectively | | — | | 680 | | — | | 8,661 | |
| | | | | | | | | |
Net income | | $ | 31,795 | | $ | 46,491 | | $ | 148,063 | | $ | 187,216 | |
| | | | | | | | | |
Earnings per share of common stock: | | | | | | | | | |
Basic: | | | | | | | | | |
Weighted average common shares outstanding | | 120,172 | | 121,181 | | 119,929 | | 121,359 | |
Income from continuing operations | | $ | 0.26 | | $ | 0.37 | | $ | 1.23 | | $ | 1.47 | |
Income from discontinued operations | | — | | 0.01 | | — | | 0.07 | |
Net income | | $ | 0.26 | | $ | 0.38 | | $ | 1.23 | | $ | 1.54 | |
| | | | | | | | | |
Diluted: | | | | | | | | | |
Weighted average common shares outstanding | | 122,103 | | 123,576 | | 121,961 | | 124,016 | |
Income from continuing operations | | $ | 0.26 | | $ | 0.37 | | $ | 1.21 | | $ | 1.44 | |
Income from discontinued operations | | — | | 0.01 | | — | | 0.07 | |
Net income | | $ | 0.26 | | $ | 0.38 | | $ | 1.21 | | $ | 1.51 | |
(A) Due to the seasonal nature of the Company’s natural gas distribution and energy marketing business, and the volatility of gas and oil commodity prices, the interim statements for the three and nine month periods are not indicative of results for a full year.
4
EQUITABLE UTILITIES
OPERATIONAL AND FINANCIAL REPORT
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2006 | | 2005 | | 2006 | | 2005 | |
| | | | | | | | | |
OPERATIONAL DATA | | | | | | | | | |
Heating degree days (30-year average: Qtr - 124; YTD - 3,759) | | 123 | | 34 | | 3,226 | | 3,465 | |
| | | | | | | | | |
Residential sales and transportation volume (MMcf) | | 1,307 | | 1,292 | | 14,168 | | 16,838 | |
Commercial and industrial volume (MMcf) | | 4,109 | | 3,153 | | 17,859 | | 18,258 | |
Total throughput (MMcf) - Distribution | | 5,416 | | 4,445 | | 32,027 | | 35,096 | |
| | | | | | | | | |
Net Operating revenues (thousands): | | | | | | | | | |
Distribution (regulated) | | | | | | | | | |
Residential | | $ | 11,887 | | $ | 11,856 | | $ | 65,054 | | $ | 72,771 | |
Commercial & industrial | | 7,026 | | 4,903 | | 29,694 | | 33,553 | |
Other | | 2,487 | | 1,519 | | 5,691 | | 6,036 | |
Total distribution operations | | 21,400 | | 18,278 | | 100,439 | | 112,360 | |
Pipeline (regulated) | | 15,377 | | 10,311 | | 54,314 | | 37,275 | |
Marketing | | 2,878 | | 7,575 | | 29,522 | | 27,867 | |
Total | | $ | 39,655 | | $ | 36,164 | | $ | 184,275 | | $ | 177,502 | |
| | | | | | | | | |
Operating expenses as a % of net operating revenues | | 89.99 | % | 120.68 | % | 57.21 | % | 65.87 | % |
| | | | | | | | | |
Operating income (thousands): | | | | | | | | | |
Distribution (regulated) | | $ | (4,043 | ) | $ | (16,362 | ) | $ | 25,528 | | $ | 22,898 | |
Pipeline (regulated) | | 5,595 | | 1,811 | | 24,943 | | 11,065 | |
Marketing | | 2,417 | | 7,074 | | 28,387 | | 26,619 | |
Total | | $ | 3,969 | | $ | (7,477 | ) | $ | 78,858 | | $ | 60,582 | |
| | | | | | | | | |
Capital expenditures (thousands) | | $ | 16,463 | | $ | 18,710 | | $ | 45,543 | | $ | 40,283 | |
| | | | | | | | | |
FINANCIAL DATA (Thousands) | | | | | | | | | |
Distribution revenues (regulated) | | $ | 39,330 | | $ | 34,642 | | $ | 322,633 | | $ | 304,513 | |
Pipeline revenues (regulated) | | 15,782 | | 10,311 | | 55,418 | | 37,275 | |
Marketing revenues | | 81,477 | | 78,532 | | 262,714 | | 245,880 | |
Less: intrasegment revenues | | (10,986 | ) | (9,773 | ) | (41,437 | ) | (36,984 | ) |
Total operating revenues | | 125,603 | | 113,712 | | 599,328 | | 550,684 | |
| | | | | | | | | |
Purchased gas costs | | 85,948 | | 77,548 | | 415,053 | | 373,182 | |
Net operating revenues | | 39,655 | | 36,164 | | 184,275 | | 177,502 | |
| | | | | | | | | |
Operating expenses: | | | | | | | | | |
Operating and maintenance | | 14,037 | | 14,465 | | 42,294 | | 42,982 | |
Selling, general and administrative | | 14,494 | | 22,174 | | 44,039 | | 49,723 | |
Office consolidation impairment charges | | — | | — | | (2,396 | ) | 3,841 | |
Depreciation, depletion and amortization | | 7,155 | | 7,002 | | 21,480 | | 20,374 | |
Total operating expenses | | 35,686 | | 43,641 | | 105,417 | | 116,920 | |
| | | | | | | | | |
Operating income | | $ | 3,969 | | $ | (7,477 | ) | $ | 78,858 | | $ | 60,582 | |
5
EQUITABLE SUPPLY
OPERATIONAL AND FINANCIAL REPORT
| | Three Months Ended | | Nine Months Ended | |
| | September 30, | | September 30, | |
| | 2006 | | 2005 | | 2006 | | 2005 | |
| | | | | | | | | |
OPERATIONAL DATA | | | | | | | | | |
Capital expenditures (thousands) | | $ | 82,871 | | $ | 53,535 | | $ | 205,398 | | $ | 201,348 | |
| | | | | | | | | |
Production: | | | | | | | | | |
Total sales volumes (MMcfe) | | 19,442 | | 18,670 | | 56,886 | | 55,492 | |
Average (well-head) sales price ($/Mcfe) | | $ | 4.66 | | $ | 5.43 | | $ | 4.82 | | $ | 4.98 | |
| | | | | | | | | |
Company usage, line loss (MMcfe) | | 1,410 | | 1,334 | | 3,929 | | 3,681 | |
| | | | | | | | | |
Natural gas inventory usage, net (MMcfe) | | — | | — | | — | | (51 | ) |
| | | | | | | | | |
Natural gas and oil production (MMcfe) | | 20,852 | | 20,004 | | 60,815 | | 59,122 | |
| | | | | | | | | |
Lease operating expense excluding production taxes ($/Mcfe) | | $ | 0.32 | | $ | 0.29 | | $ | 0.30 | | $ | 0.31 | |
Production taxes ($/Mcfe) | | $ | 0.45 | | $ | 0.48 | | $ | 0.48 | | $ | 0.44 | |
Production depletion ($/Mcfe) | | $ | 0.62 | | $ | 0.58 | | $ | 0.62 | | $ | 0.60 | |
| | | | | | | | | |
Gathering: | | | | | | | | | |
Gathered volumes (MMcfe) | | 26,723 | | 29,227 | | 80,273 | | 91,339 | |
Average gathering fee ($/Mcfe) | | $ | 1.05 | | $ | 0.81 | | $ | 1.02 | | $ | 0.77 | |
Gathering and compression expense ($/Mcfe) | | $ | 0.42 | | $ | 0.29 | | $ | 0.39 | | $ | 0.31 | |
Gathering and compression depreciation ($/Mcfe) | | $ | 0.14 | | $ | 0.13 | | $ | 0.14 | | $ | 0.11 | |
| | | | | | | | | |
(in thousands) | | | | | | | | | |
Production operating income | | $ | 53,690 | | $ | 71,642 | | $ | 172,357 | | $ | 187,079 | |
Gathering operating income | | 9,540 | | 8,259 | | 28,299 | | 21,345 | |
Total | | $ | 63,230 | | $ | 79,901 | | $ | 200,656 | | $ | 208,424 | |
| | | | | | | | | |
Production depletion | | $ | 12,888 | | $ | 11,526 | | $ | 37,619 | | $ | 35,425 | |
Gathering and compression depreciation | | 3,811 | | 3,760 | | 11,399 | | 10,485 | |
Other depreciation, depletion and amortization | | 1,083 | | 779 | | 3,059 | | 2,731 | |
Total depreciation, depletion and amortization | | $ | 17,782 | | $ | 16,065 | | $ | 52,077 | | $ | 48,641 | |
| | | | | | | | | |
FINANCIAL DATA (Thousands) | | | | | | | | | |
Production revenues | | $ | 92,949 | | $ | 103,450 | | $ | 281,141 | | $ | 282,266 | |
Gathering revenues | | 28,042 | | 23,802 | | 81,626 | | 70,470 | |
Total revenues | | 120,991 | | 127,252 | | 362,767 | | 352,736 | |
| | | | | | | | | |
Operating expenses: | | | | | | | | | |
Lease operating expense excluding production taxes | | 6,753 | | 5,784 | | 18,543 | | 18,500 | |
Production taxes | | 9,423 | | 9,543 | | 29,422 | | 26,023 | |
Gathering and compression | | 11,123 | | 8,425 | | 31,547 | | 28,622 | |
Selling, general and administrative | | 12,680 | | 7,534 | | 30,522 | | 22,007 | |
Office consolidation impairment charges | | — | | — | | — | | 519 | |
Depreciation, depletion and amortization | | 17,782 | | 16,065 | | 52,077 | | 48,641 | |
Total operating expenses | | 57,761 | | 47,351 | | 162,111 | | 144,312 | |
| | | | | | | | | |
Operating income | | $ | 63,230 | | $ | 79,901 | | $ | 200,656 | | $ | 208,424 | |
6
