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Equitable's 2009: Drill More, Spend Less

Equitable Resources Inc. plans capital spending of about $1 billion next year, a marked decrease from 2008 spending in acknowledgment of declining commodity prices and challenges in the capital markets. Efforts will be focused on development drilling in pursuit of production growth, the company said Thursday.

"Our board approved a capital plan which provides for expansion of our successful growth platform, while maintaining financial flexibility in an uncertain market place," Equitable CEO Murry Gerber said Thursday.

The capital expenditure (capex) budget for 2009 includes $600 million for well development, $360 million for midstream projects and $40 million for distribution infrastructure projects and other corporate items. Capex is expected to be funded by cash from operations and the company's credit facility.

Well development capital will be focused on drilling in areas that already benefit from the Equitable's Appalachian midstream infrastructure and will involve about 675 new wells, including 375 horizontal wells. Midstream capital includes $65 million to support Marcellus Shale development.

The spending is expected to result in 2009 gas sales of 96-97 Bcfe, approximately 15% more than the 2008 estimate of 84 Bcfe. The company is currently selling 255 MMcfe/d and is forecasting a year-end gas sales rate near the high end of the previous estimate of 255-260 MMcfe/d.

In October the company said it was on track to spend about $1.4 billion in 2008, but Equitable noted then it was planning to scale back in spite of a third quarter that saw a near tripling of earnings from the year-ago period (see NGI, Oct. 27). "Should the capital markets return to some level of normalcy over that period, it is clearly in the best interest of the shareholders that we raise additional capital, bolster our liquidity and move toward the 20% plus growth potential in the asset base," said CFO Philip Conti in October.

During a third quarter conference call Gerber told analysts, "...at this point, given the uncertainty in the capital markets we are making plans to slow down midstream development somewhat and focus our capital spending as much as possible in the drilling wells where pipeline capacity already exists. This is being done to achieve the highest possible near term growth rates without having to access the capital markets. Essentially, we're currently in the mode of filling what we build. As you know, we've always prided ourselves around here being a low cost producer..."

Last month Banc of America Securities and Credit Suisse initiated coverage of Equitable, ranking its shares "buy" and "outperform," respectively.

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