Table of Contents

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 


 

FORM 10-Q

 

(Mark One)

 

ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2013

 

 

or

 

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

FOR THE TRANSITION PERIOD FROM                TO

 

 

 

COMMISSION FILE NUMBER 1-3551

 

EQT CORPORATION

(Exact name of registrant as specified in its charter)

 

 

PENNSYLVANIA

25-0464690

(State or other jurisdiction of incorporation or organization)

(IRS Employer Identification No.)

 

625 Liberty Avenue, Suite 1700, Pittsburgh, Pennsylvania

15222

(Address of principal executive offices)

(Zip code)

 

(412) 553-5700

(Registrant’s telephone number, including area code)

 

 

 

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý  No  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý  No  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

ý

Accelerated Filer

o

Non-Accelerated Filer

o

Smaller reporting company

o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).        Yes  o  No  ý

 

As of September 30, 2013, 150,716,288 shares of common stock, no par value, of the registrant were outstanding.

 



Table of Contents

 

EQT CORPORATION AND SUBSIDIARIES

 

Index

 

 

 

 

Page No.

 

 

 

 

Part I.

Financial Information:

 

 

 

 

 

 

Item 1.

Financial Statements (Unaudited):

 

 

 

 

 

 

 

Statements of Consolidated Income for the Three and Nine Months Ended September 30, 2013 and 2012

 

3

 

 

 

 

 

Statements of Consolidated Comprehensive Income for the Three and Nine Months Ended September 30, 2013 and 2012

 

4

 

 

 

 

 

Statements of Condensed Consolidated Cash Flows for the Nine Months Ended September 30, 2013 and 2012

 

5

 

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012

 

6 – 7

 

 

 

 

 

Statements of Condensed Consolidated Equity for the Nine Months Ended September 30, 2013 and 2012

 

8

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

9 – 21

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

22 – 36

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

37 – 39

 

 

 

 

Item 4.

Controls and Procedures

 

39

 

 

 

 

Part II.

Other Information:

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

40

 

 

 

 

Item 1A.

Risk Factors

 

40

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

40

 

 

 

 

Item 6.

Exhibits

 

41

 

 

 

 

Signature

 

 

42

 

 

 

 

Index to Exhibits

 

43

 

2



Table of Contents

 

PART I.  FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

EQT CORPORATION AND SUBSIDIARIES

 

Statements of Consolidated Income (Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

(Thousands, except per share amounts)

 

Operating revenues

 

  $

506,598

 

  $

364,057

 

  $

1,585,350

 

$

1,151,821

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Purchased gas costs

 

37,265

 

34,394

 

188,199

 

158,127

 

Operation and maintenance

 

36,861

 

36,259

 

105,124

 

105,464

 

Production

 

28,076

 

23,201

 

80,712

 

72,796

 

Exploration

 

5,256

 

1,163

 

15,124

 

4,878

 

Selling, general and administrative

 

52,944

 

51,481

 

162,372

 

136,201

 

Depreciation, depletion and amortization

 

175,648

 

131,611

 

493,341

 

354,817

 

Total operating expenses

 

336,050

 

278,109

 

1,044,872

 

832,283

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

170,548

 

85,948

 

540,478

 

319,538

 

Other income

 

2,405

 

2,801

 

6,846

 

13,841

 

Interest expense

 

35,554

 

40,460

 

110,690

 

122,341

 

Income before income taxes

 

137,399

 

48,289

 

436,634

 

211,038

 

Income taxes

 

34,789

 

11,585

 

130,625

 

70,853

 

Net income

 

102,610

 

36,704

 

306,009

 

140,185

 

Less: Net income attributable to noncontrolling interests

 

14,354

 

4,831

 

30,642

 

4,831

 

Net income attributable to EQT Corporation

 

  $

88,256

 

  $

31,873

 

  $

275,367

 

$

135,354

 

 

 

 

 

 

 

 

 

 

 

Earnings per share of common stock attributable to EQT Corporation:

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

150,679

 

149,604

 

150,509

 

149,555

 

Net income

 

  $

0.59

 

  $

0.21

 

  $

1.83

 

$

0.91

 

Diluted:

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

151,663

 

150,388

 

151,365

 

150,270

 

Net income

 

  $

0.58

 

  $

0.21

 

  $

1.82

 

$

0.90

 

Dividends declared per common share

 

  $

0.03

 

  $

0.22

 

  $

0.09

 

$

0.66

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

3



Table of Contents

 

EQT CORPORATION AND SUBSIDIARIES

 

Statements of Consolidated Comprehensive Income (Unaudited)

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2013

 

 

2012

 

 

2013

 

 

2012

 

 

 

(Thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

102,610

 

 

$

36,704

 

 

$

306,009

 

 

$

140,185

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Net change in cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas, net of tax benefit of ($5,448), $(62,383), $(15,595) and $(65,488)

 

(8,287

)

 

(96,680

)

 

(23,782

)

 

(101,394

)

Interest rate, net of tax expense (benefit) of $25, ($1,322), $75 and ($4,487)

 

36

 

 

(1,734

)

 

108

 

 

(5,902

)

Pension and other post-retirement benefits liability adjustment, net of tax expense of $307, $369, $920 and $583

 

433

 

 

455

 

 

1,302

 

 

1,891

 

Other comprehensive loss

 

(7,818

)

 

(97,959

)

 

(22,372

)

 

(105,405

)

Comprehensive income (loss)

 

94,792

 

 

(61,255

)

 

283,637

 

 

34,780

 

Less: Comprehensive income attributable to noncontrolling interests

 

14,354

 

 

4,831

 

 

30,642

 

 

4,831

 

Comprehensive income (loss) attributable to EQT Corporation

 

$

80,438

 

 

$

(66,086

)

 

$

252,995

 

 

$

29,949

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

4



Table of Contents

 

EQT CORPORATION AND SUBSIDIARIES

 

Statements of Condensed Consolidated Cash Flows (Unaudited)

 

 

 

Nine Months Ended
September 30,

 

 

 

2013

 

 

2012

 

 

 

(Thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

306,009

 

 

$

140,185

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Deferred income taxes

 

14,869

 

 

45,473

 

Depreciation, depletion, and amortization

 

493,341

 

 

354,817

 

Provision for (recovery of) losses on accounts receivable

 

986

 

 

(3,187

)

Other income

 

(6,846

)

 

(13,841

)

Stock-based compensation expense

 

37,108

 

 

28,752

 

Unrealized (gains) losses on derivatives and inventory

 

(2,310

)

 

3,140

 

Lease impairment

 

12,132

 

 

1,159

 

Noncash financial instrument put premiums

 

 

 

8,227

 

Changes in other assets and liabilities:

 

 

 

 

 

 

Dividend from Nora Gathering, LLC

 

9,000

 

 

7,750

 

Accounts receivable and unbilled revenues

 

37,826

 

 

50,870

 

Inventory

 

13,014

 

 

35,981

 

Prepaid expenses and other

 

12,473

 

 

(6,479

)

Accounts payable

 

17,168

 

 

(10,001

)

Accrued interest

 

27,030

 

 

28,285

 

Other items, net

 

35,300

 

 

(1,161

)

Net cash provided by operating activities

 

1,007,100

 

 

669,970

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Capital expenditures

 

(1,259,634

)

 

(1,023,503

)

Proceeds from sale of assets

 

 

 

4,842

 

Net cash used in investing activities

 

(1,259,634

)

 

(1,018,661

)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from the issuance of common units of EQT Midstream Partners, LP, net of issuance costs

 

529,442

 

 

276,780

 

Dividends paid

 

(13,565

)

 

(98,840

)

Distributions to noncontrolling interests

 

(21,160

)

 

 

Repayments and retirements of long-term debt

 

(23,204

)

 

(19,315

)

Proceeds and tax benefits from exercises under employee compensation plans

 

22,863

 

 

1,831

 

Revolving credit facility origination fees

 

 

 

(4,022

)

Net cash provided by financing activities

 

494,376

 

 

156,434

 

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

241,842

 

 

(192,257

)

Cash and cash equivalents at beginning of period

 

182,055

 

 

831,251

 

Cash and cash equivalents at end of period

 

$

423,897

 

 

$

638,994

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest, net of amount capitalized

 

$

83,660

 

 

$

93,872

 

Income taxes, net

 

$

76,669

 

 

$

17,193

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

5



Table of Contents

 

EQT CORPORATION AND SUBSIDIARIES

 

Condensed Consolidated Balance Sheets (Unaudited)

 

 

 

September 30,

 

December 31,

 

 

 

2013

 

2012

 

 

 

(Thousands)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

423,897

 

$

182,055

 

Accounts receivable (less accumulated provision for doubtful accounts of $10,104 at September 30, 2013 and $12,586 at December 31, 2012)

 

186,061

 

205,479

 

Unbilled revenues

 

8,305

 

27,699

 

Inventory

 

67,911

 

76,787

 

Derivative instruments, at fair value

 

203,002

 

304,237

 

Prepaid expenses and other

 

44,115

 

56,588

 

Total current assets

 

933,291

 

852,845

 

 

 

 

 

 

 

Equity in nonconsolidated investments

 

127,185

 

130,368

 

 

 

 

 

 

 

Property, plant and equipment

 

11,374,145

 

10,139,903

 

Less: accumulated depreciation and depletion

 

2,897,981

 

2,424,605

 

Net property, plant and equipment

 

8,476,164

 

7,715,298

 

 

 

 

 

 

 

Regulatory assets

 

113,475

 

111,915

 

Other assets

 

32,137

 

39,436

 

Total assets

 

$

9,682,252

 

$

8,849,862

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

6



Table of Contents

 

EQT CORPORATION AND SUBSIDIARIES

 

Condensed Consolidated Balance Sheets (Unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2013

 

 

2012

 

 

 

(Thousands)

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Current portion of long-term debt

 

$

6,162

 

 

$

23,204

 

Accounts payable

 

306,200

 

 

289,032

 

Derivative instruments, at fair value

 

18,353

 

 

75,562

 

Other current liabilities

 

209,967

 

 

182,667

 

Total current liabilities

 

540,682

 

 

570,465

 

 

 

 

 

 

 

 

Long-term debt

 

2,495,717

 

 

2,502,969

 

Deferred income taxes and investment tax credits

 

1,670,562

 

 

1,666,029

 

Other credits

 

239,968

 

 

221,597

 

Total liabilities

 

4,946,929

 

 

4,961,060

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, no par value, authorized 320,000 shares, shares issued: 175,684 at September 30, 2013 and December 31, 2012

 

1,827,413

 

 

1,770,545

 

Treasury stock, shares at cost: 24,968 at September 30, 2013 and 25,575 at December 31, 2012

 

(450,786

)

 

(461,774

)

Retained earnings

 

2,457,304

 

 

2,195,502

 

Accumulated other comprehensive income

 

77,175

 

 

99,547

 

Total common stockholders’ equity

 

3,911,106

 

 

3,603,820

 

Noncontrolling interests in consolidated subsidiaries

 

824,217

 

 

284,982

 

Total equity

 

4,735,323

 

 

3,888,802

 

Total liabilities and equity

 

$

9,682,252

 

 

$

8,849,862

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

7



Table of Contents

 

EQT CORPORATION AND SUBSIDIARIES

 

Statements of Condensed Consolidated Equity (Unaudited)

 

 

 

 

 

 

 

 

 

Accumulated

 

Noncontrolling

 

 

 

 

 

 

Common Stock

 

 

 

 

Other

 

Interests in

 

 

 

 

 

 

Shares

 

No

 

Retained

 

Comprehensive

 

Consolidated

 

 

Total

 

 

 

Outstanding

 

Par Value

 

Earnings

 

Income

 

Subsidiaries

 

 

Equity

 

 

 

(Thousands)

 

Balance, January 1, 2012

 

149,477

 

 

$

1,261,779

 

 

$

2,143,910

 

 

$

188,141

 

 

$

 

 

$

3,593,830

 

Net income

 

 

 

 

 

 

 

135,354

 

 

 

 

 

4,831

 

 

140,185

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

(105,405

)

 

 

 

 

(105,405

)

Dividends on common stock ($0.66 per share)

 

 

 

 

 

 

 

(98,840

)

 

 

 

 

 

 

 

(98,840

)

Stock-based compensation plans, net

 

136

 

 

35,688

 

 

 

 

 

 

 

 

162

 

 

35,850

 

Issuance of common units of EQT Midstream Partners, LP

 

 

 

 

 

 

 

 

 

 

 

 

 

276,780

 

 

276,780

 

Deferred taxes related to initial public offering of EQT Midstream Partners, LP

 

 

 

 

5,371

 

 

 

 

 

 

 

 

 

 

 

5,371

 

Balance, September 30, 2012

 

149,613

 

 

$

1,302,838

 

 

$

2,180,424

 

 

$

82,736

 

 

$

281,773

 

 

$

3,847,771

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 1, 2013

 

150,109

 

 

$

1,308,771

 

 

$

2,195,502

 

 

$

99,547

 

 

$

284,982

 

 

$

3,888,802

 

Net income

 

 

 

 

 

 

 

275,367

 

 

 

 

 

30,642

 

 

306,009

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

(22,372

)

 

 

 

 

(22,372

)

Dividends on common stock ($0.09 per share)

 

 

 

 

 

 

 

(13,565

)

 

 

 

 

 

 

 

(13,565

)

Stock-based compensation plans, net

 

607

 

 

69,497

 

 

 

 

 

 

 

 

311

 

 

69,808

 

Distributions to noncontrolling interests ($1.12 per common unit)

 

 

 

 

 

 

 

 

 

 

 

 

 

(21,160

)

 

(21,160

)

Issuance of common units of EQT Midstream Partners, LP

 

 

 

 

 

 

 

 

 

 

 

 

 

529,442

 

 

529,442

 

Deferred taxes related to public offering of common units of EQT Midstream Partners, LP

 

 

 

 

(1,641

)

 

 

 

 

 

 

 

 

 

 

(1,641

)

Balance, September 30, 2013

 

150,716

 

 

$

1,376,627

 

 

$

2,457,304

 

 

$

77,175

 

 

$

824,217

 

 

$

4,735,323

 

 

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 

8



Table of Contents

 

EQT Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

A.        Financial Statements

 

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with United States generally accepted accounting principles (GAAP) for interim financial information and with the requirements of Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by United States GAAP for complete financial statements.  In the opinion of management, these statements include all adjustments (consisting of only normal recurring accruals, unless otherwise disclosed in this Form 10-Q) necessary for a fair presentation of the financial position of EQT Corporation and subsidiaries as of September 30, 2013 and December 31, 2012, the results of its operations for the three and nine month periods ended September 30, 2013 and 2012 and its cash flows for the nine month periods ended September 30, 2013 and 2012. In this Form 10-Q, references to “we,” “us,” “our,” “EQT,” “EQT Corporation,” and the “Company” refer collectively to EQT Corporation and its consolidated subsidiaries.

 

The balance sheet at December 31, 2012 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by United States GAAP for complete financial statements.

 

Due to the seasonal nature of the Company’s natural gas distribution and storage businesses and the volatility of commodity prices, the interim financial statements for the three and nine month periods ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.

 

For further information, refer to the consolidated financial statements and footnotes thereto included in EQT Corporation’s Annual Report on Form 10-K for the year ended December 31, 2012 as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q.

 

B.                        EQT Midstream Partners, LP

 

On July 2, 2012, EQT Midstream Partners, LP (the Partnership), a subsidiary of the Company, completed an underwritten initial public offering (IPO) of 14,375,000 common units representing limited partner interests in the Partnership, which represented 40.6% of the Partnership’s outstanding equity. The Company retained a 59.4% equity interest in the Partnership, including 2,964,718 common units, 17,339,718 subordinated units and a 2% general partner interest. Prior to the IPO, the Company contributed to the Partnership 100% of Equitrans, L.P. (Equitrans, the Company’s Federal Energy Regulatory Commission regulated transmission, storage and gathering subsidiary).  An indirect wholly-owned subsidiary of the Company serves as the general partner of the Partnership, and the Company continues to operate the Equitrans business pursuant to contractual arrangements entered into in connection with the closing of the IPO.  The Company continues to consolidate the results of the Partnership but records an income tax provision only as to the Company’s ownership percentage.  The Company records the noncontrolling interest of the public limited partners in the Company’s financial statements.

 

On July 15, 2013, the Company and Sunrise Pipeline, LLC (Sunrise), a subsidiary of the Company, entered into an Agreement and Plan of Merger with the Partnership and Equitrans. Effective July 22, 2013, Sunrise merged with and into Equitrans, with Equitrans continuing as the surviving company. The Company received consideration consisting of a $507.5 million cash payment, 479,184 common units of the Partnership and 267,942 general partner units of the Partnership. Prior to the merger, Sunrise entered into a precedent agreement with a third party for firm transportation service over a twenty-year term. If a transportation agreement pursuant to this precedent agreement becomes effective on its current terms by December 31, 2014, the Partnership will make an additional payment of approximately $110 million to the Company. The transportation agreement is subject to review by regulatory authorities, which is expected to be completed by the end of 2013. The Partnership will also pay the Company additional consideration in the event certain other transportation agreements on the Sunrise system become effective prior to December 31, 2014. While the Company did not record a gain for accounting purposes as a result of the Sunrise transaction, the Company recognized a taxable gain for federal income tax purposes of approximately $475 million in 2013. After offsetting the federal income tax gain with intangible drilling cost deductions and accelerated tax depreciation from 2013 and net operating losses from prior years, the Company’s cash taxes will increase by approximately $57 million in 2013 as a result of the transaction.

 

On July 22, 2013, the Partnership completed an underwritten public offering of 12,650,000 common units representing limited partner interests in the Partnership. Following the offering and the closing of the merger, the

 

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Table of Contents

 

EQT Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Company retained a 44.6% equity interest in the Partnership, which includes 3,443,902 common units, 17,339,718 subordinated units and a 2% general partner interest. The Partnership received net proceeds of $529.4 million from the offering, after deducting the underwriters’ discount and offering expenses of approximately $21 million.

 

Net income to noncontrolling interests, (i.e. the limited partnership units not owned by the Company) was $14.4 million and $30.6 million for the three and nine month periods ended September 30, 2013, respectively, and $4.8 million for the three and nine month periods ended September 30, 2012. The Partnership paid distributions of $10.8 million to noncontrolling interests of $0.40 per common unit and $21.2 million to noncontrolling interests of $1.12 per common unit during the three and nine month periods ended September 30, 2013, respectively.

 

C.                        Segment Information

 

Operating segments are revenue-producing components of the enterprise for which separate financial information is produced internally and which are subject to evaluation by the Company’s chief operating decision maker in deciding how to allocate resources.

 

The Company reports its operations in three segments, which reflect its lines of business.  The EQT Production segment includes the Company’s exploration for, and development and production of, natural gas, natural gas liquids (NGLs) and a limited amount of crude oil in the Appalachian Basin.  EQT Midstream’s operations include the natural gas gathering, transportation, storage and marketing activities of the Company, including ownership and operation of the Partnership. Distribution’s operations primarily comprise the state-regulated natural gas distribution activities of the Company.

 

Operating segments are evaluated on their contribution to the Company’s consolidated results based on operating income. Other income, interest and income taxes are managed on a consolidated basis. Headquarters’ costs are billed to the operating segments based on a fixed allocation of the headquarters’ annual operating budget.  Differences between budget and actual headquarter expenses are not allocated to the operating segments.

 

As described in Note I, the Company and its direct wholly-owned subsidiary, Distribution Holdco, LLC (Holdco), executed a definitive agreement (the Master Purchase Agreement) with PNG Companies LLC (PNG Companies), the parent company of Peoples Natural Gas Company LLC (Peoples), pursuant to which the Company and Holdco will transfer 100% of their ownership interests of Equitable Gas Company, LLC (Equitable Gas) and Equitable Homeworks, LLC (Homeworks) to PNG Companies in exchange for cash and other assets of, and new commercial arrangements with, PNG Companies and its affiliates.  Homeworks and Equitable Gas are direct wholly-owned subsidiaries of Holdco and comprise substantially all of the Distribution segment.  The transaction is subject to approval by a number of federal and state regulatory agencies.  Once the Company makes satisfactory progress in the regulatory process, the Distribution operating segment is expected to be classified as a discontinued operation in the Company’s financial statements.

 

Substantially all of the Company’s operating revenues, income from operations and assets are generated or located in the United States.

 

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Notes to Condensed Consolidated Financial Statements (Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

(Thousands)

 

Revenues from external customers:

 

 

 

 

 

 

 

 

 

EQT Production

 

$

304,231

 

$

195,289

 

$

860,874

 

$

549,334

 

EQT Midstream

 

155,677

 

120,484

 

452,731

 

362,630

 

Distribution

 

36,118

 

35,649

 

246,281

 

219,343

 

Third-party transportation costs (a)

 

34,316

 

33,947

 

104,884

 

91,624

 

Less intersegment revenues, net (b)

 

(23,744)

 

(21,312)

 

(79,420)

 

(71,110

)

Total

 

$

506,598

 

$

364,057

 

$

1,585,350

 

$

1,151,821

 

 

 

 

 

 

 

 

 

 

 

Operating income:

 

 

 

 

 

 

 

 

 

EQT Production

 

$

97,600

 

$

38,528

 

$

276,753

 

$

115,270

 

EQT Midstream

 

78,533

 

51,021

 

224,993

 

166,907

 

Distribution

 

(87)

 

685

 

58,359

 

43,831

 

Unallocated expenses (c)

 

(5,498)

 

(4,286)

 

(19,627)

 

(6,470

)

Total operating income

 

$

170,548

 

$

85,948

 

$

540,478

 

$

319,538

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of operating income to net income:

 

 

 

 

 

 

 

 

 

Other income

 

$

2,405

 

$

2,801

 

$

6,846

 

$

13,841

 

Interest expense

 

35,554

 

40,460

 

110,690

 

122,341

 

Income taxes

 

34,789

 

11,585

 

130,625

 

70,853

 

Net income

 

$

102,610

 

$

36,704

 

$

306,009

 

$

140,185

 

 

 

 

As of
September 30,

 

As of
December 31,

 

 

 

2013

 

2012

 

 

 

(Thousands)

 

Segment assets:

 

 

 

 

 

EQT Production

 

  $

6,123,994

 

  $

5,675,534

 

EQT Midstream

 

2,210,574

 

2,046,558

 

Distribution

 

857,421

 

860,029

 

Total operating segments

 

9,191,989

 

8,582,121

 

Headquarters assets, including cash and short-term investments

 

490,263

 

267,741

 

Total assets

 

  $

9,682,252

 

  $

8,849,862

 

 

(a)        EQT Production’s segment results are reported with third-party transportation costs reflected as a deduction from operating revenues.  Third-party transportation costs are reported as a component of purchased gas costs in the consolidated results.  This amount reflects the reclassification of third-party transportation costs from operating revenues to purchased gas costs at the consolidation level.

 

(b)        Includes entries to eliminate intercompany natural gas sales from EQT Production to EQT Midstream and transportation activities between EQT Midstream and both EQT Production and Distribution.

 

(c)         Unallocated expenses consist primarily of incentive compensation expenses, general and administrative costs and expenses related to the pending sale of Equitable Gas and Homeworks for the three and nine months ended September 30, 2013.

 

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EQT Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

(Thousands)

 

Depreciation, depletion and amortization:

 

 

 

 

 

 

 

 

 

EQT Production

 

$

150,637

 

$

108,204

 

$

419,619

 

$

289,176

 

EQT Midstream

 

18,930

 

17,172

 

55,601

 

46,864

 

Distribution

 

6,096

 

6,237

 

18,216

 

18,767

 

Other

 

(15)

 

(2)

 

(95)

 

10

 

Total

 

$

175,648

 

$

131,611

 

$

493,341

 

$

354,817

 

 

 

 

 

 

 

 

 

 

 

Expenditures for segment assets:

 

 

 

 

 

 

 

 

 

EQT Production (d)

 

$

332,370

 

$

255,223

 

$

977,394

 

$

703,834

 

EQT Midstream

 

111,593

 

97,135

 

254,205

 

296,698

 

Distribution

 

9,710

 

8,164

 

24,873

 

21,066

 

Other

 

942

 

661

 

3,162

 

1,905

 

Total

 

$

454,615

 

$

361,183

 

$

1,259,634

 

$

1,023,503

 

 

(d)        Expenditures for segment assets in the EQT Production segment include $20.5 million and $20.6 million for property acquisitions during the three months ended September 30, 2013 and 2012, respectively, and $162.1 million and $95.2 million for property acquisitions during the nine months ended September 30, 2013 and 2012, respectively.

 

D.        Derivative Instruments

 

The Company’s primary market risk exposure is the volatility of future prices for natural gas and NGLs, which can affect the operating results of the Company primarily at EQT Production and the storage, marketing and other activities at EQT Midstream. The Company’s overall objective in its hedging program is to protect cash flows from undue exposure to the risk of changing commodity prices.

 

The Company uses over the counter (OTC) derivative commodity instruments that are primarily placed with major financial institutions whose creditworthiness is regularly monitored. The Company also uses exchange traded futures contracts that obligate the Company to buy or sell a designated commodity at a future date for a specified price and quantity at a specified location. Swap agreements involve payments to or receipts from counterparties based on the differential between two prices for the commodity. Collar agreements require the counterparty to pay the Company if the index price falls below the floor price and the Company to pay the counterparty if the index price rises above the cap price. The Company may also engage in a limited number of basis swaps to protect earnings from undue exposure to the risk of geographic disparities in commodity prices and interest rate swaps to hedge exposure to interest rate fluctuations on potential debt issuances.

 

The Company recognizes all derivative instruments as either assets or liabilities at fair value on a gross basis. The accounting for the changes in fair value of the Company’s derivative instruments depends on the use of the derivative instruments.  To the extent that a derivative instrument has been designated and qualifies as a cash flow hedge, the effective portion of the change in fair value of the derivative instrument is reported as a component of accumulated other comprehensive income (OCI), net of tax, and is subsequently reclassified into the Statements of Consolidated Income in the same period or periods during which the forecasted transaction affects earnings.

 

Most of the derivative commodity instruments used by the Company to hedge its exposure to variability in expected future cash flows associated with the fluctuations in the price of natural gas related to the Company’s forecasted sale of equity production and forecasted natural gas purchases and sales have been designated and qualify as cash flow hedges. Some of the derivative commodity instruments used by the Company to hedge its exposure to adverse changes in the market price of natural gas stored in the ground have been designated and qualify as fair value hedges.

 

For a derivative instrument that has been designated and qualifies as a fair value hedge, the change in the fair value of the instrument is recognized as a portion of operating revenues in the Statements of Consolidated Income each period.  In addition, the change in the fair value of the hedged item (natural gas inventory) is recognized as a portion

 

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EQT Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

of operating revenues in the Statements of Consolidated Income. The Company has elected to exclude the spot/forward differential for the assessment of effectiveness of the fair value hedges. Any hedging ineffectiveness and any change in fair value of derivative instruments that have not been designated as hedges are recognized in the Statements of Consolidated Income each period.

 

The Company also enters into fixed price natural gas sales agreements that are satisfied by physical delivery.  These physical commodity contracts qualify for the normal purchases and sales exception and are not accounted for as derivative instruments.

 

Exchange-traded instruments are generally settled with offsetting positions. OTC arrangements require settlement in cash. Settlements of derivative commodity instruments are reported as a component of cash flows from operations in the accompanying Statements of Condensed Consolidated Cash Flows.

 

In addition, the Company enters into a limited number of energy trading contracts to leverage its assets and limit its exposure to shifts in market prices and has a limited number of other derivative instruments not designated as hedges. In 2008, the Company effectively settled certain derivative commodity swaps scheduled to mature during the period 2010 through 2013 by de-designating the instruments and entering into directly counteractive instruments. These transactions resulted in offsetting positions which are the majority of the derivative asset and liability balances not designated as hedging instruments.

 

All derivative instrument assets and liabilities are reported in the Condensed Consolidated Balance Sheets as derivative instruments at fair value. These derivative instruments are reported as either current assets or current liabilities due to their highly liquid nature. The Company can net settle its derivative instruments at any time.

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2013

 

 

2012

 

 

2013

 

 

2012

 

 

 

(Thousands)

 

Commodity derivatives designated as cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

Amount of gain (loss) recognized in OCI (effective portion), net of tax

 

  $

17,733

 

 

  $

(51,397

)

 

  $

38,561

 

 

  $

47,159

 

Amount of gain reclassified from accumulated OCI into operating revenues (effective portion), net of tax

 

  $

26,020

 

 

  $

45,283

 

 

  $

62,343

 

 

  $

148,553

 

Amount of gain (loss) recognized in operating revenues (ineffective portion) (a)

 

  $

3,436

 

 

  $

166

 

 

  $

(4,518

)

 

  $

(76

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate derivatives designated as cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

Amount of loss recognized in OCI (effective portion), net of tax

 

  $

 

 

  $

(1,800

)

 

  $

 

 

  $

(6,097

)

Amount of loss reclassified from accumulated OCI, net of tax, into interest expense (effective portion)

 

  $

(36

)

 

  $

(66

)

 

  $

(108

)

 

  $

(195

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity derivatives designated as fair value hedges (b)

 

 

 

 

 

 

 

 

 

 

 

 

Amount of (loss) gain recognized in operating revenues for fair value commodity contracts

 

  $

(502

)

 

  $

(3,051

)

 

  $

(1,341

)

 

  $

1,644

 

Fair value (loss) gain recognized in operating revenues for inventory designated as hedged item

 

  $

(76

)

 

  $

1,491

 

 

  $

386

 

 

  $

(52

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

Amount of (loss) gain recognized in operating revenues

 

  $

(943

)

 

  $

(632

)

 

  $

307

 

 

  $

1,041

 

 

(a)         No amounts have been excluded from effectiveness testing of cash flow hedges.

 

(b)         For the three months ended September 30, 2013, the net impact on operating revenues associated with commodity derivatives designated as fair value hedges was a $1.6 million loss which resulted from the Company’s election to exclude the spot/forward differential from the assessment of effectiveness of the fair value hedges and a $1.0 million gain due to changes in basis. For the three months ended September 30, 2012, the net impact on operating revenues associated with commodity derivatives designated as fair value

 

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EQT Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

hedges was a $1.1 million loss which resulted from the Company’s election to exclude the spot/forward differential from the assessment of effectiveness of the fair value hedges and a $0.5 million loss due to changes in basis. For the nine months ended September 30, 2013, the net impact on operating revenues associated with commodity derivatives designated as fair value hedges was a $0.5 million gain which resulted from the Company’s election to exclude the spot/forward differential from the assessment of effectiveness of the fair value hedges and a $1.5 million loss due to changes in basis. For the nine months ended September 30, 2012, the net impact on operating revenues associated with commodity derivatives designated as fair value hedges was a $1.6 million gain which resulted from the Company’s election to exclude the spot/forward differential from the assessment of effectiveness of the fair value hedges and a $0.1 million gain due to changes in basis.

 

 

 

As of
September 30,

 

As of
December 31,

 

 

2013

 

2012

 

 

(Thousands)

 

Asset derivatives

 

 

 

 

 

 

Commodity derivatives designated as hedging instruments

 

$

190,053

 

 

$

259,459

 

Commodity derivatives not designated as hedging instruments

 

12,949

 

 

44,778

 

Total asset derivatives

 

$

203,002

 

 

$

304,237

 

 

 

 

 

 

 

 

Liability derivatives

 

 

 

 

 

 

Commodity derivatives designated as hedging instruments

 

$

6,655

 

 

$

27,946

 

Commodity derivatives not designated as hedging instruments

 

11,698

 

 

47,616

 

Total liability derivatives

 

$

18,353

 

 

$

75,562

 

 

The net fair value of commodity derivative instruments changed during the first nine months of 2013 primarily as a result of settlements.  The absolute quantities of the Company’s derivative commodity instruments that have been designated and qualify as cash flow hedges totaled 380 Bcf and 365 Bcf as of September 30, 2013 and December 31, 2012, respectively, and are primarily related to natural gas swaps and collars. The open positions at September 30, 2013 and December 31, 2012 had maturities extending through December 2017. The absolute quantities of the Company’s derivative commodity instruments that have been designated and qualify as fair value hedges totaled 3 Bcf and 8 Bcf as of September 30, 2013 and December 31, 2012, respectively. The open positions at September 30, 2013 had maturities extending through August 2014, and the open positions at December 31, 2012 had maturities extending through January 2014.

 

The Company deferred net gains of $114.4 million and $138.2 million in accumulated OCI, net of tax, as of September 30, 2013 and December 31, 2012, respectively, associated with the effective portion of the change in fair value of its derivative commodity instruments designated as cash flow hedges. Assuming no change in price or new transactions, the Company estimates that approximately $67.4 million of net unrealized gains on its derivative commodity instruments reflected in accumulated OCI, net of tax, as of September 30, 2013 will be recognized in earnings during the next twelve months due to the settlement of hedged transactions.

 

The Company is exposed to credit loss in the event of nonperformance by counterparties to derivative contracts.  This credit exposure is limited to derivative contracts with a positive fair value, which may change as market prices change. The Company believes that New York Mercantile Exchange (NYMEX) traded futures contracts have limited credit risk because Commodity Futures Trading Commission regulations are in place to protect exchange participants, including the Company, from potential financial instability of the exchange members.  The Company’s OTC swap and collar derivative instruments are primarily with financial institutions and thus are subject to events that would impact those companies individually as well as that industry as a whole.

 

The Company utilizes various processes and analyses to monitor and evaluate its credit risk exposures.  These include closely monitoring current market conditions, counterparty credit fundamentals and credit default swap rates.  Credit exposure is controlled through credit approvals and limits based on counterparty credit fundamentals. To manage the level of credit risk, the Company enters into transactions with financial counterparties that are of investment grade or better, enters into netting agreements whenever possible and may obtain collateral or other security.

 

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EQT Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

When the net fair value of any of the Company’s swap agreements represents a liability to the Company which is in excess of the agreed-upon threshold between the Company and the financial institution acting as counterparty, the counterparty requires the Company to remit funds to the counterparty as a margin deposit for the derivative liability which is in excess of the threshold amount.  The Company records these deposits as a current asset.  When the net fair value of any of the Company’s swap agreements represents an asset to the Company which is in excess of the agreed-upon threshold between the Company and the financial institution acting as counterparty, the Company requires the counterparty to remit funds as margin deposits in an amount equal to the portion of the derivative asset which is in excess of the threshold amount. The Company records a current liability for such amounts received.  The Company had no such deposits in its Condensed Consolidated Balance Sheets as of September 30, 2013 or December 31, 2012.

 

When the Company enters into exchange-traded natural gas contracts, exchanges may require the Company to remit funds to the corresponding broker as good-faith deposits to guard against the risks associated with changing market conditions.  The Company must make such deposits based on an established initial margin requirement as well as the net liability position, if any, of the fair value of the associated contracts.  The Company records these deposits as a current asset in the Condensed Consolidated Balance Sheets.  In the case where the fair value of such contracts is in a net asset position, the broker may remit funds to the Company, in which case the Company records a current liability for such amounts received. The initial margin requirements are established by the exchanges based on the price, volatility and the time to expiration of the related contract.  The margin requirements are subject to change at the exchanges’ discretion.  The Company recorded a current asset of $0.4 million as of September 30, 2013 and a current asset of $0.7 million as of December 31, 2012 for such deposits in its Condensed Consolidated Balance Sheets.

 

The Company recognizes all derivative instruments as either assets or liabilities at fair value on a gross basis.  Margin deposits remitted to financial counterparties or received from financial counterparties related to OTC natural gas swap agreements and options and any funds remitted to or deposits received from the Company’s brokers related to exchange-traded natural gas contracts are also recorded on a gross basis.  The Company has netting agreements with financial institutions and its brokers that permit net settlement of gross commodity derivative assets against gross commodity derivative liabilities. The table below reflects the impact of netting agreements and margin deposits on gross derivative assets and liabilities as of September 30, 2013 and December 31, 2012.

 

As of September 30, 2013

 

Derivative
instruments,
recorded in the
Condensed
Consolidated
Balance

Sheet, gross

 

Derivative
instruments
subject to
master
netting
agreements

 

Margin
deposits
remitted to
counterparties

 

Derivative
instruments,
net

 

 

 

(Thousands)

 

Asset derivatives:

 

 

 

 

 

 

 

 

 

Derivative instruments, at fair value

 

  $

203,002

 

  $

(17,824)

 

  $

– 

 

  $

185,178

 

 

 

 

 

 

 

 

 

 

 

Liability derivatives:

 

 

 

 

 

 

 

 

 

Derivative instruments, at fair value

 

  $

18,353

 

  $

(17,824)

 

  $

(428)

 

  $

101

 

 

As of December 31, 2012

 

Derivative
instruments,
recorded in the
Condensed
Consolidated
Balance

Sheet, gross

 

Derivative
instruments
subject to
master
netting 
agreements

 

Margin
deposits
remitted to
counterparties

 

Derivative
instruments,
net

 

 

 

(Thousands)

 

Asset derivatives:

 

 

 

 

 

 

 

 

 

Derivative instruments, at fair value

 

  $

304,237

 

  $

(73,753)

 

  $

– 

 

  $

230,484

 

 

 

 

 

 

 

 

 

 

 

Liability derivatives:

 

 

 

 

 

 

 

 

 

Derivative instruments, at fair value

 

  $

75,562

 

  $

(73,753)

 

  $

(736)

 

  $

1,073

 

 

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EQT Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Certain of the Company’s derivative instrument contracts provide that if the Company’s credit ratings by Standard & Poor’s Rating Services (S&P) or Moody’s Investor Services (Moody’s) are lowered below investment grade, additional collateral must be deposited with the counterparty.  The additional collateral can be up to 100% of the derivative liability.  As of September 30, 2013, the aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position was $0.4 million, for which the Company had no collateral posted on September 30, 2013.  If the Company’s credit rating by S&P or Moody’s had been downgraded below investment grade on September 30, 2013, the Company would have been required to post additional collateral of $0.3 million in respect of the liability position.  Investment grade refers to the quality of the Company’s credit as assessed by one or more credit rating agencies. The Company’s senior unsecured debt was rated BBB by S&P and Baa3 by Moody’s at September 30, 2013.  In order to be considered investment grade, the Company must be rated BBB- or higher by S&P and Baa3 or higher by Moody’s.  Anything below these ratings is considered non-investment grade.

 

E.        Fair Value Measurements

 

The Company records its financial instruments, principally derivative instruments, at fair value in its Condensed Consolidated Balance Sheets.  The Company has an established process for determining fair value which is based on quoted market prices, where available.  If quoted market prices are not available, fair value is based upon models that use as inputs market-based parameters, including but not limited to forward curves, discount rates, volatilities and nonperformance risk.  Nonperformance risk considers the effect of the Company’s credit standing on the fair value of liabilities and the effect of the counterparty’s credit standing on the fair value of assets.  The Company estimates nonperformance risk by analyzing publicly available market information, including a comparison of the yield on debt instruments with credit ratings similar to the Company’s or counterparty’s credit rating and the yield of a risk-free instrument.  The Company also considers credit default swaps rates where applicable.

 

The Company has categorized its assets and liabilities recorded at fair value into a three-level fair value hierarchy, based on the priority of the inputs to the valuation technique.  The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).  Assets and liabilities included in Level 1 include the Company’s futures contracts.  Assets and liabilities in Level 2 include the majority of the Company’s swap agreements. Assets and liabilities in Level 3 include the Company’s collars and a limited number of the Company’s swap agreements.  Since the adoption of fair value accounting, the Company has not made any changes to its classification of assets and liabilities in each category.

 

The fair value of assets and liabilities included in Level 2 is based on standard industry income approach models that use significant observable inputs, including NYMEX forward curves and LIBOR-based discount rates.  Collars included in Level 3 are valued using standard industry income approach models. The primary significant unobservable input to the valuation of assets and liabilities in Level 3 is the volatility assumption to the option pricing model used to value commodity collars.  The Company’s Corporate Risk Control Group (CRCG), which reports to the Chief Financial Officer, is responsible for calculating the volatilities. The CRCG considers current market information about option trading and historical averages.  The Company prepares an analytical review of all derivative instruments for reasonableness on at least a quarterly basis.  At September 30, 2013, derived market volatilities used to value Level 3 assets and liabilities ranged from 21% to 30%.  The fair value of the collar agreements is sensitive to changes in the volatility assumption. Significant changes in this assumption might result in significantly higher or lower fair values for these assets and liabilities. As of September 30, 2013, an increase in the volatility assumption would increase the value of the derivative asset and a decrease in the volatility assumption would decrease the value of the derivative asset.

 

The Company uses NYMEX forward curves to value futures, commodity swaps and collars. The NYMEX forward curves and LIBOR-based discount rates are validated to external sources at least monthly.

 

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EQT Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

The following derivative instrument assets and liabilities were measured at fair value on a recurring basis during the applicable period:

 

 

 

 

 

Fair value measurements at reporting date using

 

Description

 

September 30,
2013

 

Quoted
prices in
active
markets for
identical
assets

(Level 1)

 

Significant
other
observable
inputs

(Level 2)

 

Significant
unobservable
inputs

(Level 3)

 

 

 

(Thousands)

 

Assets

 

 

 

 

 

 

 

 

 

Derivative instruments, at fair value

 

  $

203,002

 

  $

453

 

  $

133,413

 

  $

69,136

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Derivative instruments, at fair value

 

  $

18,353

 

  $

647

 

  $

16,891

 

  $

815

 

 

 

 

 

 

Fair value measurements at reporting date using

 

Description

 

December 31, 2012

 

Quoted
prices in
active
markets for
identical
assets

(Level 1)

 

Significant
other
observable
inputs

(Level 2)

 

Significant
unobservable
inputs

(Level 3)

 

 

 

(Thousands)

 

Assets

 

 

 

 

 

 

 

 

 

Derivative instruments, at fair value

 

  $

304,237

 

  $

1,228

 

  $

204,592

 

  $

98,417

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Derivative instruments, at fair value

 

  $

75,562

 

  $

1,609

 

  $

66,250

 

  $

7,703

 

 

 

 

Fair value measurements using significant unobservable
inputs

(Level 3)

 

 

 

 

 

 

 

Derivative instruments,
at fair value, net
Three Months Ended September 30,

 

Derivative instruments,
at fair value, net
Nine Months Ended September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

(Thousands)

 

Beginning of period

 

  $

74,688

 

  $

129,436

 

  $

90,714

 

  $

143,260

 

Total gains or losses:

 

 

 

 

 

 

 

 

 

Included in earnings

 

414

 

(90)

 

(341)

 

(90

)

Included in OCI

 

2,067

 

(13,839)

 

3,459

 

13,554

 

Purchases

 

(79

)

22

 

(7)

 

(994

)

Settlements

 

(8,769

)

(18,558)

 

(25,504)

 

(58,759

)

Transfers in and/or out of Level 3

 

 

 

 

 

End of period

 

  $

68,321

 

  $

96,971

 

  $

68,321

 

  $

96,971

 

 

Gains of $0.4 million and losses of $0.8 million are included in earnings in the table above for the three and nine months ended September 30, 2013, respectively, attributable to the change in unrealized gains or losses relating to assets held as of September 30, 2013. There were no gains or losses included in earnings in the table above for the

 

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EQT Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

three and nine months ended September 30, 2012 attributable to the change in unrealized gains or losses relating to assets and liabilities held as of September 30, 2012.

 

The carrying value of cash equivalents approximates fair value due to the short maturity of the instruments; these are considered Level 1 fair values.

 

The Company estimates the fair value of its debt using its established fair value methodology.  Because not all of the Company’s debt is actively traded, the fair value of the debt is a Level 2 fair value measurement.  Fair value for non-traded debt obligations is estimated using a standard industry income approach model which utilizes a discount rate based on market rates for debt with similar remaining time to maturity and credit risk.  The estimated fair value of long-term debt on the Condensed Consolidated Balance Sheets at September 30, 2013 and December 31, 2012 was approximately $2.8 billion and $2.9 billion, respectively.

 

F.        Income Taxes

 

The Company estimates an annual effective income tax rate based on projected results for the year and applies this rate to income before taxes to calculate income tax expense.  However, while all of the Partnership’s earnings are included in the Company’s net income, the Company is not required to record income tax expense with respect to the portion of the Partnership’s earnings allocated to its noncontrolling public limited partners, which reduces the Company’s effective tax rate for periods following the IPO. Any refinements made due to subsequent information that affects the estimated annual effective income tax rate are reflected as adjustments in the current period.

 

The Company’s effective income tax rate for the nine months ended September 30, 2013 was 29.9%, compared to 33.6% for the nine months ended September 30, 2012.  The decrease in the first nine months of 2013 was primarily attributable to unfavorable state net operating loss adjustments recorded in 2012, a reduction in a state net operating loss valuation allowance related to bonus depreciation recorded in 2013 and the impact of the Partnership’s ownership structure, partially offset by increased state tax expense in 2013 due to higher natural gas prices and production sales volumes.

 

During the third quarter of 2013, as a result of the Sunrise transaction described in Note B, the Company reversed $1.6 million of net deferred tax assets to account for the related temporary differences between book and tax basis that will no longer impact the Company.

 

There were no material changes to the Company’s methodology for determining unrecognized tax benefits during the three months ended September 30, 2013. The Company’s consolidated federal income tax liability has been settled with the Internal Revenue Service (IRS) through 2009. During the second quarter of 2013, the IRS began its examination of the Company’s 2010 and 2011 tax years.  The Company believes that it is appropriately reserved for any federal and state uncertain tax positions.

 

On July 9, 2013, Pennsylvania House Bill 465 was signed into law by the Governor of the Commonwealth of Pennsylvania (the Commonwealth).  This legislation adopted multiple changes to the Commonwealth’s tax code, including an intangible expense addback provision effective in 2015, an increase of the cap on the net operating loss deduction in 2014 and 2015 and an extension of the franchise tax through 2015.  This law change did not have a material impact on the Company’s financial statements.

 

In September 2013, the United States Treasury Department issued final tax regulations regarding the deduction and capitalization of expenditures related to tangible property and proposed regulations addressing the disposition of tangible property.  The regulations do not address the tax treatment for network assets such as natural gas pipelines.  The final regulations are effective for tax years beginning January 1, 2014, with optional adoption in 2013, and replace previously issued temporary regulations.  The Company performed an initial analysis of the final and proposed regulations and believes that they will not have a material impact on its financial statements.

 

G.        Revolving Credit Facilities

 

As of September 30, 2013 and December 31, 2012, the Company did not have any loans or letters of credit outstanding under its $1.5 billion revolving credit facility. The Company incurred commitment fees averaging

 

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Notes to Condensed Consolidated Financial Statements (Unaudited)

 

approximately 6 basis points and 18 basis points in the three and nine months ended September 30, 2013, respectively, and approximately 5 basis points and 19 basis points in the three and nine months ended September 30, 2012, respectively, to maintain credit availability under its revolving credit facility.

 

The maximum amount of the Company’s outstanding short-term loans at any time was $140.5 million and $178.5 million during the three and nine months ended September 30, 2013, respectively. The average daily balance of short-term loans outstanding was approximately $21.5 million and $16.1 million during the three and nine months ended September 30, 2013, respectively, at weighted average interest rates of 0.60% and 0.70%, respectively.

 

As of September 30, 2013 and December 31, 2012, the Partnership had no loans or letters of credit outstanding under its $350 million revolving credit facility. The Partnership incurred commitment fees averaging approximately 6 basis points and 19 basis points in the three and nine months ended September 30, 2013, respectively, and approximately 6 basis points in the three months ended September 30, 2012, to maintain credit availability under its revolving credit facility. The Partnership did not have any short-term loans outstanding at any time during the three and nine months ended September 30, 2013 and 2012.

 

H.        Long-Term Debt

 

 

 

September 30,
2013

 

December 31,

2012

 

 

 

(Thousands)

 

7.76% notes, due 2013 thru 2016

 

  $

18,679

 

  $

32,973

 

5.00% notes, due October 1, 2015

 

150,000

 

150,000

 

5.15% notes, due March 1, 2018

 

200,000

 

200,000

 

6.50% notes, due April 1, 2018

 

500,000

 

500,000

 

8.13% notes, due June 1, 2019

 

700,000

 

700,000

 

4.88% notes, due November 15, 2021

 

750,000

 

750,000

 

7.75% debentures, due July 15, 2026

 

115,000

 

115,000

 

Medium-term notes:

 

 

 

 

 

7.3% to 7.6% Series B, due 2013 thru 2023

 

20,000

 

30,000

 

8.7% to 9.0% Series A, due 2014 thru 2021

 

40,200

 

40,200

 

7.6% Series C, due 2018

 

8,000

 

8,000

 

 

 

2,501,879

 

2,526,173

 

Less debt payable within one year

 

6,162

 

23,204

 

Total long-term debt

 

  $

2,495,717

 

  $

2,502,969

 

 

The indentures and other agreements governing the Company’s indebtedness contain certain restrictive financial and operating covenants, including covenants that restrict the Company’s ability to incur indebtedness, incur liens, enter into sale and leaseback transactions, complete acquisitions, merge, sell assets and perform certain other corporate actions.  The covenants do not contain a rating trigger.  Therefore, a change in the Company’s debt rating would not trigger a default under the indentures and other agreements governing the Company’s indebtedness.

 

Aggregate maturities of long-term debt are zero for the remainder of 2013, $11.2 million in 2014, $166.0 million in 2015, $3.0 million in 2016 and zero in 2017.

 

I.         Proposed Sale of Properties

 

On December 19, 2012, the Company and its direct wholly-owned subsidiary, Holdco, executed the Master Purchase Agreement with PNG Companies, the parent company of Peoples, pursuant to which the Company and Holdco will transfer 100% of their ownership interests of Equitable Gas and Homeworks to PNG Companies in exchange for cash and other assets of, and new commercial arrangements with, PNG Companies and its affiliates.  Peoples is a portfolio company of SteelRiver Infrastructure Fund North America LP.

 

The Company has submitted filings with the Pennsylvania Public Utility Commission (PA PUC), the West Virginia Public Service Commission (WV PSC) and the Federal Energy Regulatory Commission (FERC) – each must approve the transaction in whole or in part as part of the regulatory process. The Company expects to complete the regulatory review process by the end of 2013.  The Company also submitted a filing with the Kentucky Public Service

 

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Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Commission (KY PSC), which issued a ruling that it is not asserting jurisdiction with regard to the assets being conveyed. Therefore, approval by the KY PSC is not required.  The transaction was also subject to review by the Federal Trade Commission (FTC) under the Hart-Scott Rodino Antitrust Improvements Act (HSR Act).  The waiting period under the HSR Act expired on April 22, 2013, without a request for additional information.  This expiration indicates that the FTC has not objected to the transaction and that, from an HSR Act perspective, the parties may complete the transaction. As the transaction is still subject to approval by the PA PUC, the WV PSC and, in some respects, the FERC, the Company has not classified Equitable Gas and Homeworks as held for sale in its financial statements as of September 30, 2013 and will not do so until the Company makes satisfactory progress in the regulatory process.

 

The Company incurred $0.4 million and $3.3 million in expenses during the three and nine months ended September 30, 2013, respectively, related to the proposed sale of Equitable Gas and Homeworks, which expenses are reported in selling, general and administrative expenses in the Statements of Consolidated Income.

 

J.         Earnings Per Share

 

Potentially dilutive securities, consisting of options and restricted stock awards, which were included in the calculation of diluted earnings per share, totaled 984,388 and 784,079 for the three months ended September 30, 2013 and 2012, respectively, and 856,112 and 715,512 for the nine months ended September 30, 2013 and 2012, respectively. There were no options to purchase common stock which were excluded from potentially dilutive securities because they were anti-dilutive for the three and nine months ended September 30, 2013.  Options to purchase common stock which were excluded from potentially dilutive securities because they were anti-dilutive totaled 3,228 and 281,528 for the three and nine months ended September 30, 2012, respectively.

 

The Partnership’s dilutive units did not have a material impact on the Company’s earnings per share calculation for any of the periods presented.

 

K.        Changes in Accumulated Other Comprehensive Income by Component

 

The following tables explain the changes in accumulated OCI by component for the three and nine months ended September 30, 2013:

 

 

 

Three Months Ended September 30, 2013

 

 

 

Natural gas cash
flow hedges, net

of tax

 

Interest rate
cash flow
hedges, net

of tax

 

Pension and
other post-retirement
benefits
liability
adjustment,
net of tax

 

Accumulated
OCI (loss), net
of tax

 

 

 

(Thousands)

 

Accumulated OCI (loss), net of tax, as of July 1, 2013

 

  $

122,693

 

  $

(1,204)

 

  $

(36,496)

 

  $

84,993

 

Gains recognized in accumulated OCI, net of tax

 

17,733

(a)

– 

 

– 

 

17,733

 

Amounts reclassified from accumulated OCI into realized (income) expense, net of tax

 

(26,020)

(a)

36

(a)

433

(b)

(25,551

)

Change in accumulated OCI, net of tax

 

(8,287)

 

36

 

433

 

(7,818

)

Accumulated OCI (loss), net of tax, as of September 30, 2013

 

  $

114,406

 

  $

(1,168)

 

  $

(36,063)

 

  $

77,175

 

 

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Notes to Condensed Consolidated Financial Statements (Unaudited)

 

 

 

Nine Months Ended September 30, 2013

 

 

 

Natural gas cash
flow hedges, net
of tax

 

Interest rate
cash flow
hedges, net
of tax

 

Pension and
other post-
retirement
benefits
liability
adjustment,
net of tax

 

Accumulated
OCI (loss), net
of tax

 

 

 

(Thousands)

 

Accumulated OCI (loss), net of tax, as of January 1, 2013

 

$

138,188

 

$

(1,276)

 

$

(37,365)

 

$

99,547

 

Gains recognized in accumulated OCI, net of tax

 

38,561

(a)

 

 

38,561

 

Amounts reclassified from accumulated OCI into realized (income) expense, net of tax

 

(62,343)

(a)

108

(a)

1,302

(b)

(60,933)

 

Change in accumulated other comprehensive (loss) income, net of tax

 

(23,782)

 

108

 

1,302

 

(22,372)

 

Accumulated OCI (loss), net of tax, as of September 30, 2013

 

$

114,406

 

$

(1,168)

 

$

(36,063)

 

$

77,175

 

 

(a)         See Note D for additional information.

 

(b)         This accumulated OCI reclassification is attributable to the net actuarial loss and net prior service cost related to the Company’s defined benefit pension plans and other post-retirement benefit plans.  See Note 14 to the Consolidated Financial Statements in the Company’s Form 10-K for the year ended December 31, 2012 for additional information.

 

L.        Acquisitions

 

On June 3, 2013, the Company acquired approximately 99,000 net acres in southwestern Pennsylvania and ten horizontal Marcellus wells, located in Washington County, Pennsylvania, from Chesapeake Energy Corporation and its partners (Chesapeake) for approximately $114.6 million. The acreage includes 67,000 Marcellus acres, of which 42,000 acres are unlikely to be developed due to near-term lease expirations or a scattered footprint. Of the total purchase price, $56.7 million was allocated to the undeveloped acreage and $57.9 million was allocated to the acquired Marcellus wells. The Marcellus wells are expected to add approximately 2.0 Bcfe of production sales volumes in 2013 and represent approximately 54.0 Bcfe of proved developed reserves.

 

As the transaction qualifies as a business combination under United States GAAP, the fair value of the acquired assets was determined using a market approach for the undeveloped acreage and a discounted cash flow model under the income approach for the wells. Significant unobservable inputs used in the analysis included the determination of estimated developed reserves and NYMEX forward pricing, which classify the acquired assets as a Level 3 measurement.

 

M.       Recently Issued Accounting Standards

 

In July 2013, the Financial Accounting Standards Board issued a standard update on the presentation of certain unrecognized tax benefits in the financial statements.  The standard requires unrecognized tax benefits to be offset against deferred tax assets for a net operating loss carryforward, similar tax loss or tax credit carryforward in certain situations.  The Company early adopted this standard in its financial statements during the quarter ended September 30, 2013.  The standard did not have a material impact on the Company’s financial statements.

 

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

CAUTIONARY STATEMENTS

 

Disclosures in this Quarterly Report on Form 10-Q 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 and usually identified by the use of words such as “anticipate,” “estimate,” “could,” “would,” “will,” “may,” “forecast,” “approximate,” “expect,” “project,” “intend,” “plan,” “believe” and other words of similar meaning in connection with any discussion of future operating or financial matters.  Without limiting the generality of the foregoing, forward-looking statements contained in this Quarterly Report on Form 10-Q include the matters discussed in the section captioned “Outlook” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and 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 spud and the availability of capital to complete these plans and programs); production and sales volumes and growth rates (including liquids sales volumes and the projected additional production sales volumes attributable to the Marcellus wells acquired in the second quarter of 2013); gathering and transmission growth and volumes; infrastructure programs (including the timing, cost and capacity of the transmission and gathering expansion projects); technology (including drilling techniques); monetization transactions, including midstream asset sales (dropdowns) to EQT Midstream Partners, LP, the Company’s publicly-traded master limited partnership formed in 2012 (the Partnership), and other asset sales, and joint ventures or other transactions involving the Company’s assets (including the timing of receipt, if at all, of any additional consideration from the Partnership for new transportation agreements entered into by the Partnership in connection with the Company’s sale of its Sunrise Pipeline); the proposed transfer of Equitable Gas Company, LLC (Equitable Gas) to PNG Companies LLC; the timing of receipt of required approvals for the proposed Equitable Gas transaction; natural gas prices; reserves; projected capital expenditures; liquidity and financing requirements, including funding sources and availability; hedging strategy; the effects of government regulation and litigation; and tax position (including the Company’s ability to complete like-kind exchanges).  The forward-looking statements in this Quarterly Report on Form 10-Q 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 Equitable Gas transaction, these risks and uncertainties include, among others, the ability to obtain regulatory approvals for the transaction on the proposed terms and schedule; disruption to the Company’s business, including customer, employee and supplier relationships resulting from the transaction; and risks that the conditions to closing may not be satisfied.  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” in the Company’s Form 10-K for the year ended December 31, 2012.

 

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.

 

In reviewing any agreements incorporated by reference in or filed with this Quarterly Report on Form 10-Q, please remember such agreements are included to provide information regarding the terms of such agreements and are not intended to provide any other factual or disclosure information about the Company. The agreements may contain representations and warranties by the Company, which should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties should those statements prove to be inaccurate. The representations and warranties were made only as of the date of the relevant agreement or such other date or dates as may be specified in such agreement and are subject to more recent developments.  Accordingly, these representations and warranties alone may not describe the actual state of affairs as of the date they were made or at any other time.

 

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

CORPORATE OVERVIEW

 

Three Months Ended September 30, 2013 vs. Three Months Ended September 30, 2012

 

Net income attributable to EQT Corporation for the three months ended September 30, 2013 was $88.3 million, $0.58 per diluted share, compared with $31.9 million, $0.21 per diluted share, for the three months ended September 30, 2012. The $56.4 million increase in net income attributable to EQT Corporation between periods resulted primarily from a 42% increase in natural gas volumes sold, a 4% increase in the average effective sales price for natural gas and natural gas liquids (NGLs) and increases in transmission pipeline throughput and gathered volumes. These increases were partially offset by higher depreciation, depletion and amortization (DD&A) expense and higher income tax expense.

 

The average effective sales price to EQT Corporation for production sales volumes was $4.20 per Mcfe during the three months ended September 30, 2013 compared to $4.04 per Mcfe in the same period of 2012.  The Company’s average New York Mercantile Exchange (NYMEX) natural gas sales price increased to $3.58 per Mcf for the three months ended September 30, 2013 compared to $2.81 per Mcf for the three months ended September 30, 2012.  Hedging activities resulted in an increase in the effective sales price of $0.55 per Mcfe in the third quarter of 2013 compared to an increase of $1.10 per Mcfe in the third quarter of 2012. The $0.55 per Mcfe decrease in the impact of hedging activities from 2012 to 2013 was the result of the differential in the NYMEX natural gas sales prices between periods and lower average hedge prices in 2013. Due to the increased supply of natural gas in the Northeast region, average basis was negative $0.26 per Mcfe during the three months ended September 30, 2013, a decrease of $0.23 per Mcfe compared to the three months ended September 30, 2012.

 

Interest expense was $4.9 million lower during the three months ended September 30, 2013 compared to the three months ended September 30, 2012, primarily as a result of the Company’s repayment of $200 million of 5.15% senior notes that matured in the fourth quarter of 2012 and $23.2 million of debentures that matured in the first nine months of 2013.  The Company also had higher capitalized interest during the third quarter of 2013 from increased Marcellus well development.

 

Income tax expense increased $23.2 million during the three months ended September 30, 2013 compared to the three months ended September 30, 2012, primarily as a result of higher pre-tax income and a higher effective tax rate in the third quarter of 2013. The Company’s effective tax rate was 25.3% and 24.0% for the three month periods ended September 30, 2013 and 2012, respectively.  The overall rates were favorably impacted by the Partnership’s ownership structure. While all of the Partnership’s earnings are included in the Company’s net income for both periods, the Company was not required to record income tax expense with respect to the portion of the Partnership’s earnings allocated to its noncontrolling public limited partners. The effective income tax rate was also favorably impacted in 2013 by the reversal of state tax reserves. In 2012, the effective income tax rate was favorably impacted by lower income on state tax paying entities and a tax benefit recorded to reflect a 2011 tax return that was filed during the third quarter of 2012.

 

Net income attributable to noncontrolling interests of the Partnership was $14.4 million for the three months ended September 30, 2013 compared to $4.8 million for the three months ended September 30, 2012. The increase resulted from increased capacity reservation revenues, as well as increased noncontrolling interests. Noncontrolling interests in the Partnership increased from 40.6% to 55.4% during the three months ended September 30, 2013 as a result of the public offering of additional commons units representing limited partnership interests in the Partnership in July 2013.

 

Nine Months Ended September 30, 2013 vs. Nine Months Ended September 30, 2012

 

Net income attributable to EQT Corporation for the nine months ended September 30, 2013 was $275.4 million, $1.82 per diluted share, compared with $135.4 million, $0.90 per diluted share, for the nine months ended September 30, 2012. The $140.0 million increase in net income attributable to EQT Corporation between periods was primarily attributable to a 47% increase in natural gas volumes sold, increases in transmission pipeline throughput and gathered volumes and colder weather.  The increases were partially offset by higher DD&A expense, higher income tax expense and higher selling, general and administrative (SG&A) expense due to higher compensation expenses.

 

The average effective sales price to EQT Corporation for production sales volumes was $4.28 per Mcfe during the nine months ended September 30, 2013 compared to $4.21 per Mcfe in the same period of 2012.  The Company’s

 

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average NYMEX natural gas sales price increased to $3.67 per Mcf for the nine months ended September 30, 2013 from $2.59 per Mcf for the nine months ended September 30, 2012.  Hedging activities resulted in an increase in the effective sales price of $0.40 per Mcfe in the first nine months of 2013 compared to an increase of $1.30 per Mcfe in the first nine months of 2012. The $0.90 per Mcfe decrease in the impact of hedging activities from 2012 to 2013 was the result of the differential in the NYMEX natural gas sales prices between periods and the lower average hedge prices in 2013.

 

Other income was $6.8 million for the nine months ended September 30, 2013 compared to $13.8 million for the nine months ended September 30, 2012. The $7.0 million decrease is primarily attributable to a decrease in the allowance for funds used during construction, as a result of the Sunrise Pipeline being placed into service during the third quarter of 2012, and a gain recognized on the sale of leases in the nine months ended September 30, 2012.

 

Interest expense was $11.7 million lower in the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012, primarily as a result of the Company’s repayment of $200 million of 5.15% senior notes that matured in the fourth quarter of 2012 and $23.2 million of debentures that matured in the first nine months of 2013.  The Company also had higher capitalized interest during the first nine months of 2013 from increased Marcellus well development.

 

Income tax expense increased $59.8 million during the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012, primarily as a result of higher pre-tax income.  The Company’s effective income tax rate also decreased to 29.9% from 33.6%. This decrease in the first nine months of 2013 was primarily attributable to unfavorable state net operating loss adjustments recorded in 2012, a reduction in a state net operating loss valuation allowance related to bonus depreciation recorded in 2013 and the impact of the Partnership’s ownership structure, partially offset by increased state tax expense in 2013 due to higher production sales volumes and natural gas prices.

 

Net income attributable to noncontrolling interests of the Partnership, which completed its initial public offering (IPO) in the third quarter of 2012, was $30.6 million for the nine months ended September 30, 2013 compared to $4.8 million for the nine months ended September 30, 2012. The increase resulted from increased capacity reservation revenues during the nine months ended September 30, 2013, as well as increased noncontrolling interests. Noncontrolling interests in the Partnership increased from 40.6% to 55.4% during the nine months ended September 30, 2013 as a result of the public offering of additional common units representing limited partnership interests in the Partnership in July 2013.

 

See “Investing Activities” under the caption “Capital Resources and Liquidity” for a discussion of capital expenditures.

 

Consolidated Operational Data

 

Revenues earned by the Company at the wellhead from the sale of natural gas are split between EQT Production and EQT Midstream. The split is reflected in the calculation of EQT Production’s average effective sales price. The following operational information presents detailed gross liquid and natural gas operational information as well as midstream deductions to assist the understanding of the Company’s consolidated operations.

 

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Table of Contents

 

EQT Corporation and Subsidiaries

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 

<

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2013

 

2012

 

%

 

2013

 

2012

 

%

 in thousands (unless noted)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 LIQUIDS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NGLs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales Volume (MMcfe) (a)

 

4,391

 

 

3,190

 

 

37.6

 

 

13,623

 

 

9,364

 

 

45.5

 

Sales Volume (Mbbls)

 

1,150

 

 

853

 

 

34.8

 

 

3,578

 

 

2,490

 

 

43.7

 

Gross Price ($/Bbl)

 

$

38.06

 

 

$

39.33

 

 

(3.2

)

 

$

40.38

 

 

$

45.30

 

 

(10.9

)

 Gross NGL Revenue

 

$

43,786

 

 

$

33,545

 

 

30.5

 

 

$

144,469

 

 

$

112,807

 

 

28.1

 

BTU Premium (Ethane sold as natural gas):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales Volume (MMbtu)

 

8,244

 

 

5,889

 

 

40.0

 

 

21,364

 

 

15,602

 

 

36.9

 

Price ($/MMbtu)

 

$

3.58

 

 

$

2.81

 

 

27.4

 

 

$

3.69

 

 

$