Equitable Resources Inc. announced last Thursday it is planning construction of a 60-mile, 20-inch Big Sandy Pipeline in Eastern Kentucky to increase takeaway capacity for growing Appalachian production, both its own and that of third parties. And that is just the beginning. The project is part of the production, marketing and utility company's plan to significantly increase midstream investment.
Equitable has begun the project approval process with the Federal Energy Regulatory Commission for the new pipeline, which is expected to connect with Tennessee Gas Pipeline in Carter County, KY, in the latter part of 2007. Starting at the Kentucky Hydrocarbon processing plant in Langley, KY, the line initially will carry 70 MMcf/d, with potential to expand to 280 MMcf/d.
The largest portion of Equitable's $497 million in capital expenditures this year, or $222 million, will go toward midstream projects. Besides the Big Sandy there are some other large projects being planned, Murry S. Gerber, Equitable CEO, told an earnings conference call. The other projects, which Equitable will reveal at a late February analyst conference along with more details about the Big Sandy Pipeline, are part of a new strategy.
"We are expanding the installation of our infrastructure ahead of the drilling." In the past Equitable followed more of a "just-in-time" approach, but "we think that may not be the best way to maximize value....In our plan is a significant amount of money to expand infrastructure to support our drilling and our future drilling plans." This is not speculative. "One of the advantages in having all the wells and all of the production that we have is that we can make commitments to infrastructure wherein we can get most, if not all of our return just from the gas that we produce. We're strategically positioned to make these investments."
Equitable's capital expenditures for 2006 also include $194 million for well development, $78 million for Equitable Utilities and $3 million for its headquarters. The company completed 455 wells last year and is targeting 550 this year. Its production was 73.9 Bcf, slightly more than the 73 Bcf it had forecast for 2005. The company projects production of 76-77 Bcf this year.
The company announced 2005 annual earnings per diluted share (EPS) of $2.10. This compares with EPS of $2.22 in 2004. Fourth quarter 2005 EPS was $0.59 as compared to fourth quarter 2004 EPS of $0.35. Several non-operational factors affected 2005 and 2004 results, including the gain resulting from the Westport Resources Corp. merger with Kerr-McGee Corp. (KMG) in 2004, the gains on the sale of KMG shares in both years, pension settlement charges in both years, and the sale of NORESCO, Equitable's energy management and performance contracting services firm, in the fourth quarter 2005.
The production and gathering unit, Equitable Supply, had operating income of $293.6 million in 2005, 29% higher than the $227.4 million in 2004. Total revenues for 2005 were $489.2 million, 25% higher than 2004 revenues of $390.4 million. The increase in total revenues was primarily the result of a 16% increase in the average well-head sales price, a 9% increase in sales volumes, and a 33% increase in gathering revenues.
Equitable Utilities had operating income of $98.3 million for 2005, compared with $108.1 million for 2004, a 9% decrease. In the utilities segment 2005 net revenues increased $10.7 million or 4.4% over the previous year. Distribution net revenues were 1.4% lower due to a decline in use per heating degree-day. Heating degree-days totaled 5,543 for 2005, or 3.4% colder than the 5,360 degree-days recorded in 2004, but 4.9% warmer than the 30-year normal of 5,829 degree-days. Marketing net revenues were $14.3 million higher than in 2004, benefiting from storage asset optimization opportunities and more than offsetting the lower distribution net revenues.
Utility segment operating expenses for 2005 were 15% higher at $155.1 million, compared to $134.6 million in 2004. The biggest increase resulted from settlement charges primarily for the conversion from a defined benefit pension plan to a defined contribution plan for 229 employees, totaling $16.0 million for 2005 and $2.2 million in the fourth quarter.
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