EQT : Reports Third Quarter 2014 Earnings

EQT Corporation (NYSE: EQT) today announced third quarter 2014 net income attributable to EQT of $98.6 million, or $0.65 per diluted share (EPS), 12% higher than the third quarter 2013 earnings of $88.3 million, or $0.58 per diluted share. EQT’s reported results were negatively impacted by a $19.4 million increase in net income attributable to noncontrolling interests totaling $33.7 million in the third quarter 2014, which represents earnings attributable to EQT Midstream Partners’ noncontrolling unit holders. This increase was primarily as a result of the sale of the Jupiter natural gas gathering system to EQT Midstream Partners, LP in May 2014. When adjusted for certain items, including a $34.3 million gain associated with a reduction in hedge ineffectiveness, adjusted EPS attributable to EQT was $0.51 in the third quarter 2014, down 7% year-over-year. The non-GAAP financial measures are detailed and reconciled in the Non-GAAP Disclosures section below.

Highlights for Third Quarter 2014 vs. 2013:

• Production sales volume was 25% higher
• Midstream gathered volume was 24% higher
• Midstream gathering and compression expense per unit was 18% lower
• MLP distribution exceeded the 50% GP incentive distribution threshold of $0.525

Operating cash flow was $335.3 million in the third quarter 2014, 42% higher than the third quarter 2013, while adjusted operating cash flow attributable to EQT was $291.3 million, or 5% higher. Operational results were higher due to increased production sales volume, increased gathered volume, and increased firm transmission capacity sales and throughput, partially offset by lower realized commodity prices. Net operating revenues, excluding a $34.3 million gain associated with a reduction in hedge ineffectiveness, increased 12% to $495.3 million, while net operating expenses increased 8%, to $298.1 million, in support of the Company’s growth.

RESULTS BY BUSINESS
EQT PRODUCTION
For the third quarter 2014, EQT Production had sales volume of 123.3 Bcfe, which was a 25% increase over the third quarter 2013, primarily driven by increased production from the Marcellus/Upper Devonian plays. Natural gas liquids (NGL) volume totaled 2,008 Mbbls, an 87% increase over the same period last year, due to increased liquids production in the Marcellus and Permian. Operating income for the Production business in the third quarter 2014 was $140.0 million, $42.4 million higher than the third quarter 2013; while total net operating revenues were $363.1 million, or $58.9 million higher, including the gain associated with a reduction in hedge ineffectiveness.

The average effective sales price to EQT was 6% lower at $3.88 per Mcfe, with $2.94 per Mcfe allocated to EQT Production; and $0.94 per Mcfe allocated to EQT Midstream. While the NYMEX natural gas price was $0.48 per Mcfe higher, the realized price was impacted by negative basis, which was only partially offset by third-party gathering and transmission recoveries. These recoveries primarily represent the price uplift received by selling some natural gas to higher-priced markets, and resale of unused capacity. Basis plus recoveries averaged a negative $0.68 per Mcfe during the quarter compared to a positive $0.12 per Mcfe in the third quarter 2013.

Operating expenses for EQT Production for the third quarter 2014 were $223.1 million, $16.5 million higher than the same quarter last year. Selling, general and administrative expense (SG&A) was $9.0 million higher, including a $3.9 million charge for legal and other reserves; production taxes were $3.4 million higher; depreciation, depletion and amortization expenses (DD&A) was $3.4 million higher; and lease operating expenses (LOE), excluding production taxes, were $2.4 million higher, all related to sales volume growth. Exploration expense was $1.7 million lower.

During the quarter, EQT spud 42 gross wells in the Marcellus, 13 Upper Devonian wells, and 36 Huron wells.

The Company’s 2014 sales volume guidance is 465 - 470 Bcfe; and its 2014 NGL volume guidance is 6,650 - 6,750 Mbbls. Sales volume for the remainder of 2014 is projected to be at the low end of previous guidance, primarily as a result of executing longer laterals, which have been 5,800 feet on average vs. 4,800 feet planned for Marcellus wells; and 6,800 feet vs. 3,800 feet planned for Upper Devonian wells. EQT began substantially increasing lateral lengths earlier this year after acquiring acreage adjacent to planned pads in its key operating areas. Drilling longer laterals results in improved economic returns by reducing cost per-foot-of-pay by 6%; however, it also increases the time needed to drill, complete, and have the wells turned in-line.

For the fourth quarter of 2014, based on current market conditions, EQT is forecasting basis to average negative $1.40 - $1.45 per Mcfe, and third-party gathering and transmission recoveries to average positive $1.20 - $1.25 per Mcfe.

EQT MIDSTREAM
EQT Midstream’s third quarter 2014 operating income was $93.6 million; 19% higher than the third quarter of 2013. Net gathering revenue was $102.4 million, a 12% increase, primarily due to a 24% increase in gathered volume, partly offset by lower average gathering rates. Net transmission revenue totaled $55.8 million, a 40% increase, primarily due to sales of new capacity, as well as higher throughput. Operating expenses for the quarter were $72.9 million, which was an $11.5 million increase, consistent with the growth of the business. Per-unit gathering and compression expense decreased by 18%.

OTHER BUSINESS
EQT Midstream Partners, LP (NYSE:EQM)
As of September 30, 2014, EQT had a 34.4% limited partner interest and a 2% general partner (GP) interest in EQT Midstream Partners whose results are consolidated in EQT’s results. For the third quarter 2014, EQT Corporation recorded $33.7 million of earnings, or $0.22 per diluted share, attributable to noncontrolling interests. EQT Midstream Partners’ results were released today and are available at www.eqtmidstreampartners.com.

On October 21, 2014, EQT Midstream Partners announced a cash distribution to its unit holders of $0.55 per unit for the third quarter of 2014. EQT will receive $15.9 million including $4.2 million related to its GP interest. The GP is entitled to 50% of distributed cash above $0.525 per unit, with the third quarter distribution being the first to exceed that threshold.

Mountain Valley Pipeline
EQT Midstream Partners will assume EQT’s interest in Mountain Valley Pipeline, LLC, a joint venture with a subsidiary of NextEra Energy, Inc. The Mountain Valley Pipeline (MVP) will extend from EQT Midstream Partners’ existing transmission and storage system in Wetzel County, West Virginia to Pittsylvania County, Virginia. EQT Midstream Partners expects to own a majority interest in the joint venture and will operate the estimated 300-mile pipeline.

The joint venture has secured a total of 2 Bcf per day of firm capacity commitments at 20-year terms, and is currently in negotiation with additional shippers who have expressed interest in the MVP project. As a result, the final project scope, including pipe diameter and total capacity, is not yet determined.

The pipeline, which is subject to Federal Energy Regulatory Commission (FERC) approval, will provide Marcellus and Utica natural gas supply to the growing demand markets in the southeast region. The pre-filing process with FERC is expected to begin this month; and the pipeline is expected to be in-service during the fourth quarter of 2018. For more information on the project please visit www.mountainvalleypipeline.info.

Hedging
The Company’s total natural gas production hedge positions through December 2016 are:

* The average price is based on a conversion rate of 1.05 MMBtu/Mcf
** October through December
*** The Company also has a natural gas sales agreement for 35 Bcf that includes a NYMEX ceiling price of $4.88/Mcf. The Company also granted swaptions for 17 Bcf in calendar year 2016 at a strike price of $4.73/Mcf.

Operating Income
The Company reports operating income by segment in this news release. Interest, income taxes and unallocated expense are controlled on a consolidated, corporate-wide basis and are not allocated to the segments. The Company’s management reviews and reports segment results for operating revenues and purchased gas costs, net of third-party transportation and processing costs.

The following table reconciles operating income by segment, as reported in this news release, to the consolidated operating income reported in the Company’s financial statements:

Unallocated expense is primarily due to certain incentive compensation and administrative costs in excess of budget that are not allocated to the operating segments.

Marcellus Horizontal Well Status (cumulative since inception)

NON-GAAP DISCLOSURES
Adjusted Net Income and Adjusted Earnings per Diluted Share
Adjusted net income and adjusted earnings per diluted share are non-GAAP supplemental financial measures that are presented because they are important measures used by management to evaluate period-to-period comparisons of earnings trends. Adjusted net income and adjusted earnings per diluted share should not be considered as alternatives to net income or earnings per diluted share presented in accordance with GAAP.

The table below reconciles adjusted net income and adjusted earnings per diluted share with net income and earnings per diluted share, as derived from the statements of consolidated income to be included in EQT’s quarterly report on Form 10-Q for the quarter ended September 30, 2014.

Reconciliation of Adjusted Net Income and Adjusted Earnings per Diluted Share:

Operating Cash Flow
Operating cash flow is a non-GAAP supplemental financial measure that is presented 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. EQT includes this information because management believes that changes in operating assets and liabilities relate to the timing of cash receipts and disbursements, and therefore, may not relate to the period in which the operating activities occurred. Operating cash flow should not be considered as an alternative to net cash provided by operating activities presented in accordance with GAAP. The table below reconciles operating cash flow with net cash provided by operating activities, as derived from the statements of consolidated cash flows to be included in EQT’s quarterly report on Form 10-Q for the quarter ended September 30, 2014.

Adjusted Operating Cash Flow Attributable to EQT
Adjusted operating cash flow attributable to EQT is a non-GAAP supplemental financial measure that is presented 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. EQT also includes this information because management believes that changes in operating assets and liabilities relate to the timing of cash receipts and disbursements, and therefore, may not relate to the period in which the operating activities occurred. Adjusted operating cash flow attributable to EQT should not be considered as an alternative to net cash provided by operating activities presented in accordance with GAAP. The table below provides the calculation for adjusted operating cash flow attributable to EQT, as derived from the financial statements to be included in EQT’s quarterly report on Form 10-Q for the quarter ended September 30, 2014.

Derivative Gain (Loss), Less Net Cash from Settlements
The Company reports gain (loss) for hedging ineffectiveness and gain (loss) on derivatives not designated as hedges within operating revenues. The tables below reconcile derivative gain (loss), less net cash from settlements, a non-GAAP supplemental financial measure, to gain (loss) on derivatives not designated as hedges, presented in accordance with GAAP, as derived from the financial statements to be included in EQT’s quarterly report on Form 10-Q for the quarter ended September 30, 2014. Derivative gains (losses), less net cash from settlements is presented because it is an important measure used by management, analysts and investors to evaluate period-to-period comparisons of earnings and cash flow trends. Derivative gains (losses), less net cash from settlements, should not be considered as an alternative to gains (losses) on derivatives not designated as hedges presented in accordance with GAAP.

Net Operating Revenues and Net Operating Expenses
Net operating revenues and net operating expenses are non-GAAP supplemental financial measures that exclude transportation and processing costs, but are presented because they are important analytical measures used by management to evaluate period-to-period comparisons of revenue and operating expenses. Transportation and processing costs are typically excluded by management in such analysis because more emphasis is placed on the net price impact to revenues and expenses. Net operating revenues and net operating expenses should not be considered as alternatives to operating revenues or total operating expenses presented in accordance with GAAP. The table below reconciles net operating revenues to operating revenues, and net operating expenses to total operating expenses, as derived from the statements of consolidated income to be included in EQT’s quarterly report on Form 10-Q for the quarter ended September 30, 2014.

Adjusted EQT Midstream Partners EBITDA and Noncontrolling Interest Portion of Adjusted EQT Midstream Partners EBITDA
As used in this news release, adjusted EQT Midstream Partners EBITDA means the Partnership’s net income plus the Partnership’s net interest expense, depreciation and amortization expense, income tax expense (if applicable), non-cash long-term compensation expense and other non-cash adjustments (if applicable), less the Partnership’s other income, capital lease payments and Jupiter adjusted EBITDA prior to acquisition (if applicable). As used in this news release, noncontrolling interest portion of adjusted EQT Midstream Partners EBITDA means the portion of adjusted EQT Midstream Partners EBITDA attributable to the noncontrolling interest unit holders of the Partnership. Adjusted EQT Midstream Partners EBITDA and noncontrolling interest portion of adjusted EQT Midstream Partners EBITDA are non-GAAP supplemental financial measures that management and external users of the Company’s consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, use to assess the effects of the noncontrolling interests in the Partnership in relation to:

• the Company’s performance vs. prior periods;
• the Company’s operating performance as compared to other companies in its industry;
• the ability of the Company’s assets to generate sufficient cash flow to make distributions to its investors; and
• the Company’s ability to incur and service debt and fund capital expenditures.

The Company believes that adjusted EQT Midstream Partners EBITDA and noncontrolling interest portion of adjusted EQT Midstream Partners EBITDA provide useful information to investors in assessing the Company’s financial condition and results of operations. Adjusted EQT Midstream Partners EBITDA and noncontrolling interest portion of adjusted EQT Midstream Partners EBITDA should not be considered as alternatives to the Partnership’s net income, operating income, or any other measure of financial performance or liquidity presented in accordance with GAAP. Adjusted EQT Midstream Partners EBITDA and noncontrolling interest portion of adjusted EQT Midstream Partners EBITDA have important limitations as analytical tools because they exclude some, but not all, items that affect the Partnership’s net income. Additionally, because adjusted EQT Midstream Partners EBITDA and noncontrolling interest portion of adjusted EQT Midstream Partners EBITDA may be defined differently by other companies in the Company’s or the Partnership’s industry, the definitions of adjusted EQT Midstream Partners EBITDA and noncontrolling interest portion of adjusted EQT Midstream Partners EBITDA may not be comparable to similarly titled measures of other companies, thereby diminishing their utility. The table below reconciles adjusted EQT Midstream Partners EBITDA and noncontrolling interest portion of adjusted EQT Midstream Partners EBITDA to the Partnership’s net income, as derived from the statements of consolidated operations to be included in the Partnership’s quarterly report on Form 10-Q for the quarter ended September 30, 2014.

Adjusted EQT Midstream Partners’ EBITDA and Noncontrolling Interest Portion of Adjusted EQT Midstream Partners EBITDA

Q3 2014 Webcast Information
The Company's conference call with securities analysts, which begins at 10:30 a.m. ET today, will be broadcast live via the Company's web site at http://www.eqt.com, and on the investor information page of the Company’s web site at http://ir.eqt.com, with a replay available for seven days following the call.

EQT Midstream Partners, LP (NYSE:EQM), for which EQT Corporation is the general partner and a significant equity owner, will host a conference call with security analysts today, beginning at 11:30 a.m. ET. The call will be broadcast live via http://www.eqtmidstreampartners.com, with a replay available for seven days following the call.

About EQT Corporation:
EQT Corporation is an integrated energy company with emphasis on Appalachian area natural gas production, gathering, and transmission. EQT is the general partner and significant equity owner of EQT Midstream Partners, LP. With more than 125 years of experience, EQT continues to be a leader in the use of advanced horizontal drilling technology – designed to minimize the potential impact of drilling-related activities and reduce the overall environmental footprint. Through safe and responsible operations, the Company is committed to meeting the country’s growing demand for clean-burning energy, while continuing to provide a rewarding workplace and enrich the communities where its employees live and work. Company shares are traded on the New York Stock Exchange as EQT.

Visit EQT Corporation at www.EQT.com.

EQT Management speaks to investors from time-to-time and the analyst presentation for these discussions, which is updated periodically, and is available via the Company’s investor relations website at http://ir.eqt.com.

Cautionary Statements
The United States Securities and Exchange Commission (SEC) permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable and possible reserves that a company anticipates as of a given date to be economically and legally producible and deliverable by application of development projects to known accumulations. We use certain terms, such as “EUR” (estimated ultimate recovery) and “3P” (proved, probable and possible), that the SEC’s guidelines prohibit us from including in filings with the SEC. These measures are by their nature more speculative than estimates of reserves prepared in accordance with SEC definitions and guidelines and accordingly are less certain.

Total sales volume per day (or daily production) is an operational estimate of the daily production or sales volume on a typical day (excluding curtailments).

EBITDA is defined as earnings before interest, taxes, depreciation, and amortization and is not a financial measure calculated in accordance with GAAP. EBITDA is a non-GAAP supplemental financial measure that the Company’s management and external users of the Company’s financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess: (i) the Company’s performance versus prior periods; (ii) the Company’s operating performance as compared to other companies in its industry; (iii) the ability of the Company’s assets to generate sufficient cash flow to make distributions to its investors; (iv) the Company’s ability to incur and service debt and fund capital expenditures; and (v) the viability of acquisitions and other capital expenditure projects and the returns on investment of various investment opportunities.

The Company is unable to provide a reconciliation of projected EBITDA to projected operating income, the most comparable financial measure calculated in accordance with GAAP, due to the unknown effect, timing and potential significance of certain income statement items.

Similarly, the Company is unable to provide a reconciliation of its projected operating cash flow to projected net cash provided by operating activities, the most comparable financial measure calculated in accordance with GAAP, because of uncertainties associated with projecting future net income and changes in assets and liabilities.

Disclosures in this news release contain certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. 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 news 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 strategy to develop its Marcellus and other reserves; drilling plans and programs (including the number, type, feet of pay and location of wells to be drilled); projected natural gas prices and changes in basis; total resource potential, reserves, EUR, expected decline curve and reserve replacement ratio; projected production sales volume and growth rates (including liquids sales volume and growth rates); projected finding and development costs, operating costs, unit costs, well costs, midstream revenue deductions and third-party gathering and transmission recoveries; projected gathering and transmission volume and growth rates; projected firm pipeline capacity and sales; the Company’s access to, and timing of, capacity on third-party pipelines; infrastructure programs (including the timing, cost and capacity of the transmission and gathering expansion projects); the timing, cost, capacity and expected interconnects with facilities and pipelines of the Ohio Valley Connector (OVC) and Mountain Valley Pipeline (MVP) projects; the ultimate terms, partners and structure of the MVP joint venture; technology (including drilling and completion techniques); projected EQT Midstream and EQT Midstream Partners, LP (Partnership) EBITDA; monetization transactions, including asset sales (dropdowns) to the Partnership and other asset sales, joint ventures or other transactions involving the Company’s assets; the projected cash flows resulting from, and the value of, the Company’s general partner and limited partner interests and incentive distribution rights in the Partnership, including the assumptions used in making such projections; internal rate of return (IRR) and returns per well; projected capital expenditures; the amount and timing of any repurchases under the Company’s share repurchase authorization; liquidity and financing requirements, including funding sources and availability; projected operating revenues, cash flows and cash-on-hand; hedging strategy; the effects of government regulation and litigation; the Company dividend and Partnership distribution amounts and rates; and tax position. These forward-looking 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. With respect to the proposed OVC and MVP projects, these risks and uncertainties include, among others, the ability to obtain regulatory permits and approvals, the ability to secure customer contracts, and the availability of skilled labor, equipment and materials. Additional 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, 2013, as updated by any subsequent Form 10-Qs.

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.

Information in this news release regarding the Partnership and its subsidiaries is derived from publicly available information published by the Partnership.