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EQT Beats Consensus in 4Q

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EQT Corporation’s (EQT - Free Report) fourth quarter 2012 adjusted earnings decreased 18.6% year over year to 48 cents per share but surpassed the Zacks Consensus Estimate of 42 cents. The year-over-year decrease was primarily due to a 15.9% reduction in the average wellhead sales price.

For full-year 2012, adjusted earnings were $1.49, down 32% from the prior year. However, the full-year earnings beat the Zacks Consensus Estimate of $1.40.

Net operating revenue in the quarter was up 13.4% year over year at $419.5 million. However, reported revenues fell short of the Zacks Consensus Estimate of $428.0 million.

Net operating revenue in 2012 was up 2.1% year over year at $1,413.2 million.

Segment Details

EQT Production's fourth quarter operating revenue increased 14.3% year over year to $244.4 million as average daily sales volume rose nearly 44%.

Operating income dropped 31.5% year over year to $72.6 million.

Under the EQT Midstream segment, net gathering revenues surged 26.9% year over year to $83.8 million, owing to 43% growth in gathered volumes. Net transmission revenues increased 58.6%. Net storage, marketing and other operating revenues averaged $7.7 million, representing an $11.3 million decline.

Operating income jumped 32.5% year over year to $70.4 million in the reported quarter.

EQT Distribution’s net operating revenue increased 0.5% year over year to $50.0 million.

The segment generated an operating income of $24.8 million versus the year-ago level of $22.1 million.

During the quarter, net operating expense surged 36.2% year over year to $268.5 million.


The company’s operating cash flow was $268.9 million during the quarter, reflecting an increase of 10.3% year over year.

EQT’s capital expenditure totaled $1,400 million in 2012, with $992 million spent on EQT Production, $376 million on EQT Midstream and $32 million on EQT Distribution.


Earlier, the company had estimated 2013 volume of 335 Bcfe, which is 30% higher than the 2012 forecasted volumes.

Our Recommendation

EQT Corporation is an integrated energy company with an emphasis on natural gas supply activities in the Appalachian area, including production and gathering, natural gas distribution and transmission and energy efficiency solutions, primarily in the eastern and western coastal regions of the United States.

During the quarter, the company entered into an agreement with Peoples Natural Gas – a regulated natural gas distribution company managed by an affiliate of investment fund SteelRiver Infrastructure Partners LP. to sell EQT's gas utility, Equitable Gas.

With an increasing reserve structure and stellar Marcellus results (Marcellus sales volumes were up 85% year over year in 2012), we believe that the company exhibits industry-leading organic growth momentum.

Moreover, management’s continuous efforts to derive value by monetizing midstream assets will likely accelerate exploration and production growth. Recently, EQT also formed a master limited partnership (MLP) − EQT Midstream Partners, L.P. (EQM - Free Report) − that would own selective interstate pipeline assets.

The proceeds of the IPO will likely to be used to finance further acceleration of EQT’s Marcellus development. The MLP is anticipated to focus on providing transmission and gathering services to producers in the Marcellus Shale, including EQT Production Company. This will help the company to focus on other areas of the business.

Again, recently, the company sold its limited partner interest in the MLP to own portions of the assets of Equitrans, L.P., EQT’s interstate pipeline subsidiary. Hence, EQT now owns the general partner of the MLP that will in turn provide the company with incentive distribution rights and a substantial portion of the MLP's common units.

However, EQT lacks a geographically diversified asset base, as its resources are concentrated in the Appalachian Basin. Any potential disruption in the region will adversely affect the company’s results.

The company holds a Zacks Rank #3, which translates to a short-term Hold rating. However, there are other stocks – Clean Energy Fuels Corp. (CLNE - Free Report) and UGI Corp. (UGI - Free Report) – in the oil and gas sector that are expected to perform well in the coming one to three months. Both companies carry a Zacks Rank #2 (Buy).

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