EQT Corporation
's
(
EQT
) fourth quarter 2011 earnings rose 22.4% year over year to 60
cents, surpassing the Zacks Consensus Estimate of 55 cents. The
outperformance was driven by higher production volume, which
averaged 53 billion cubic feet equivalent/Bcfe in the quarter.
Net operating revenue in the quarter stood at $369.9 million,
exhibiting a 20% year-over-year improvement, mainly attributable to
higher production and gathering and transmission volumes. However,
reported revenue fell short of the Zacks Consensus Estimate $384
million due to lower marketing and other net revenues and higher
costs allied with increased volumes.
Net operating expense in the quarter crept up 13.2% year over
year to $197.2 million. Nevertheless, operating income soared 28.3%
year over year to $172.6 million.
Segment Details
EQT Production
's fourth quarter operating revenue increased a significant 50%
year over year to $213.9 million, reflecting 37% year-over-year
volume expansion and higher average wellhead sales price.
Operating income shot up 97.6% year over year to $106.1
million.
Under the
EQT Midstream
segment, net gathering revenues surged 13% year over year to $66.1
million, owing to a significant 30% growth in gathered volumes. Net
transmission revenues dropped 16% to $21.1 million, mainly due to
the sale of Big Sandy. This positive was partly negated by
increased sales associated with the Equitrans Marcellus expansion
project.
Operating income increased 9% year over year to $53.1 million in
the reported quarter.
EQT Distribution'
s net operating revenue dropped 13% year over year to $49.8 million
in the quarter.
The segment generated an operating income of $22.1 million, down
from the year-ago level of $30.8 million.
Financials
The company's operating cash flow was $242.6 million during the
quarter, reflecting a 24.9% year-over-year improvement.
EQT's capital expenditure totaled 381.7 million in the quarter,
with $287.8 million spent on EQT Production, $86.1 million on EQT
Midstream and $6.1 million on EQT Distribution.
Guidance
The company expects produced natural gas sales between 250 and
255 Bcfe for the year, which is 30% higher than in 2011. The
expectation was reduced by 5 Bcfe from the previous forecast mainly
to reflect the company's decision to suspend drilling in the Huron
play, in the current price environment.
The company also lowered its 2012 capex guidance by $135 million
to $1,465 million.
Our Recommendation
We reiterate our long-term Neutral recommendation for EQT.
EQT Corporation is an integrated energy company with an emphasis
on natural gas supply activities in the Appalachian area, including
production and gathering, natural gas distribution and transmission
and energy efficiency solutions, primarily in the eastern and
western coastal regions of the United States. EQT's year-end 2011
proved natural gas reserves increased 2.8% year over year to 5.365
trillion cubic feet equivalent.
With an increasing reserve structure and stellar Marcellus
results, we believe that the company exhibits industry-leading
organic growth momentum. Moreover, management's continuous efforts
to derive value by monetizing midstream assets will likely
accelerate exploration and production growth. During the year, EQT
completed the sale of its Big Sandy Pipeline to
Spectra Energy Partners, LP
(
SEP
), a master limited partnership of
Spectra Energy Corp.
(
SE
), for $390 million.
Again, the company plans to sell a limited partner interest in
the master limited partnership (
MLP
) that would own portions of the assets of Equitrans, L.P., EQT's
interstate pipeline subsidiary. After the completion of the IPO,
EQT would own the general partner of the MLP that in turn will
provide the company with incentive distribution rights and a
substantial portion of the MLP's common units.
Proceeds of the IPO would be used to finance the further
acceleration of EQT's Marcellus development. The MLP is anticipated
to focus on providing transmission and gathering services to
producers in the Marcellus Shale, including EQT Production
Company.
However, EQT lacks a geographically diversified asset base, as
its resources are concentrated in the Appalachian Basin. Any
potential disruptions in the region will adversely affect the
company's results.
The company holds a Zacks #3 Rank, which translates to a
short-term Hold rating.
EQT CORP (
EQT
): Free Stock Analysis Report
SPECTRA ENERGY (
SE
): Free Stock Analysis Report
SPECTRA EGY PTR (
SEP
): Free Stock Analysis Report
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