Pittsburgh-based EQT Corp. released 2011 results yesterday. Because of the prolific gas volumes in the Marcellus Shale, EQT reports production for natural gas was up an astonishing 44 percent over 2010. Some 42 percent of EQT’s production is from the Marcellus, which was up 18.9 percent last year.
EQT reports drilling 222 gross wells in 2011, 105 of them in the Marcellus Shale and 115 in the Huron Shale. The Huron is located mostly in western West Virginia, with very small slices in Ohio, Kentucky and Virginia. Because of slumping prices for natural gas, EQT has announced they are suspending drilling in the Huron and instead will concentrate on the liquids-rich portion of the Marcellus.
From the EQT press release:
Driven by horizontal drilling in the Marcellus shale play, EQT Production achieved production sales volumes of 194.4 Bcfe for 2011, representing a 44.4% increase over 2010. Approximately 42.0% of EQT’s 2011 production sales volumes came from Marcellus wells, up from 18.9% last year. Production sales volumes totaled 53.0 Bcfe in the fourth quarter 2011, 37.0% higher than the fourth quarter 2010, and 3.4% higher sequentially. The 2012 production sales volume forecast was reduced by 5 Bcfe to reflect the decision to suspend drilling in the Huron play, in the current price environment. Production sales volumes in 2012 are now projected to be between 250 and 255 Bcfe, 30% higher than in 2011.
Production operating income totaled $387.1 million in 2011, $163.6 million higher than 2010. Operating revenue was $791.3 million, 47% higher than in 2010. Increased revenue and operating income resulted from the growth in produced natural gas sales, as well as a higher average wellhead sales price to EQT Production. The average wellhead sales price to EQT Corporation was $5.37 per Mcfe, with $4.04 per Mcfe allocated to EQT Production and $1.33 per Mcfe allocated to EQT Midstream.
EQT Corporation realized an average premium over the NYMEX natural gas price of $1.11 per Mcfe as a result of its liquids rich production. EQT Production‘s production sales volume consisted of approximately 7% NGLs and oil, excluding ethane.
Consistent with EQT Production’s growth, operating expenses rose to $404.2 million, a $90.0 million increase over 2010. DD&A was $73.4 million higher; LOE was $6.6 million higher; production taxes were $6.9 million higher; and SG&A was $3.5 million higher than 2010, primarily as a result of increases in produced volumes. Per unit LOE was 17% lower year-over-year at $0.20 per Mcfe, resulting from production sales volumes growing significantly faster than operating costs. LOE including production taxes totaled $0.40 per Mcfe.
Operating income for the fourth quarter of 2011 was $106.1 million, compared to $53.7 million in the same period last year. Production operating revenues for the quarter were $213.9 million, 50% higher, driven by a 37% increase in production sales volumes and a higher average wellhead sales price to EQT Production. Operating expenses for the quarter were $107.9 million, $19.1 million higher, consistent with the increase in produced volumes.
The company drilled (spud) 222 gross wells during 2011; 105 targeted the Marcellus play with an average length of pay of 4,730 feet; and 115 targeted the Huron play with an average length of pay of 4,750 feet. As detailed in a separate press release issued today, proved reserves increased by 145 Bcfe to 5.4 Tcfe for 2011, resulting in a reserve to production (R/P) ratio of 27 years.
EQT Midstream’s operating income totaled $416.6 million and included a $202.9 million gain on dispositions of Big Sandy and Langley; compared to operating income of $178.9 million in 2010. In addition to the gains on the dispositions, the company realized higher gathered volumes and an increase in firm transportation revenues. Net operating revenues for 2011 totaled $404.6 million, representing an $8.2 million increase over 2010. Net gathering revenues were $249.6 million in 2011, up 18% from 2010, as a result of a 32% increase in gathered volumes, partially offset by lower gathering rates. Net transmission revenues increased by $6.2 million to $90.4 million in 2011, mainly driven by increased capacity associated with the Equitrans Marcellus expansion project; partially offset by the absence of revenues from the recently sold Big Sandy pipeline. Net storage, marketing and other net revenues totaled $64.6 million in 2011, down 35% from 2010, as a result of lower marketed volumes and lower seasonal price spread, combined with the loss of processing revenues from the now sold Langley natural gas processing plant.
Operating expenses for 2011 totaled $190.9 million, down 12% from 2010. The decrease was mainly attributable to a $23.7 million decrease in O&M and a $4.7 million decrease in DD&A. The decreases in O&M and DD&A were primarily due to the absence of expenses associated with the Big Sandy and Langley assets and reductions to non-income tax reserves, offset by higher costs from the growth in the EQT Midstream business, including Marcellus compressor O&M and labor to operate the expanded gathering and transmission infrastructure. On a per unit basis, gathering and compression expenses were 19% lower than last year.
EQT Midstream had fourth quarter 2011 operating income of $53.1 million, a 9% increase over the same period in 2010. Net gathering revenues increased 13% to $66.1 million in the fourth quarter 2011, primarily as a result of a 30% increase in gathered volumes. Net transmission revenues totaled $21.1 million, a 16% decrease from the same quarter of 2010, mainly due to the sale of Big Sandy, partially offset by increased sales associated with the Equitrans Marcellus expansion project. Net storage, marketing and other revenues totaled $19.1 million, a 26% decrease from the fourth quarter 2010. Operating expenses for the quarter were $53.1 million, or 12% lower than in the fourth quarter of 2010, as a result of the absence of expenses to operate Big Sandy and Langley, partially offset by increases in growth-related operating expenses.
Distribution’s operating income totaled $86.9 million in 2011, 4% higher than reported in 2010. Net operating revenues for the year were $187.6 million, essentially unchanged from 2010. Operating expenses for the year decreased to $100.7 million in 2011, from $104.2 million in 2010, resulting from lower bad debt expense.
Distribution’s fourth quarter 2011 operating income totaled $22.1 million, compared to $30.8 million for the same period in 2010. Total net operating revenues for the fourth quarter 2011 were $49.8 million, 13% lower than last year, primarily as a result of warmer weather.*
*EQT Corporation (Jan 26, 2012) – EQT Reports 2011 Full-Year Earnings; 2011 Production Sales Growth of 44% (PDF)