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Marcellus Shale Was Star of EQT 2010 Results

EQT Corp. grew its proved natural gas reserves by 28% in 2010, ending the year with 5,220 Bcfe. The growth came due to drilling in the Marcellus Shale, continuing improvement in the estimated ultimate recovery of Marcellus wells, as well as an increase in the projected number of wells to be drilled in the Marcellus over the next five years, EQT said.

The net increase in reserves before production was 1,291 Bcfe, representing a 928% reserve replacement ratio, which resulted from investments of $902 million, for a finding and development cost of 70 cents/Mcfe, the company said.

EQT estimates year-end 2010 total natural gas reserves, including proved, probable and possible categories (3P), at 21.2 Tcfe, a 70% net increase over the 2009 year-end level driven mainly by the success of the company's Marcellus and, to a lesser extent, Huron Shale horizontal drilling programs. Probable reserves increased by 52% to 8.5 Tcfe.

The only problem on the production front is the company doesn't have enough money to get the gas and liquids out of the ground as fast as it would like, CEO David Porges conceded during a conference call with financial analysts Thursday. To raise capital that can be turned to drilling, EQT recently announced the sale of its Langley, KY, gas processing complex to MarkWest Energy Partners LP (see Shale Daily, Jan. 5).

Porges said the company will continue to look at opportunities to monetize noncore assets, including the possible sale of its utility unit, although the potential for that move is not at the top of the list, he said.

Last year "was a record year for EQT in that operating cash flow, sales volumes, midstream throughput and natural gas reserves were all higher than ever before," Porges said. "At EQT Production we posted our fourth consecutive quarter of over 30% year-on-year growth in sales of produced natural gas and our first-ever quarter over 40%.

"The Marcellus continues to be our fastest growing and most important play as well as our most profitable one. Marcellus production accounted for 27% of our sales of produced natural gas in the fourth quarter. Our success in the Marcellus in 2010 also drove a 28% increase in proved reserves and a 70% increase in proved probable and possible...reserves.

"Marcellus proved reserves increased 270% to nearly 2.9 Tcfe. However, as we said throughout most of 2010, we do not have enough capital available to us to pursue all of our above-hurdle-rate investment opportunities. This has necessitated tougher capital allocation decisions than we have faced in the past, including a 2011 plan that scales back development in the Huron and CBM plays."

Pittsburgh-based EQT reported improved earnings for 2010: $227.7 million, a 45% increase from the $156.9 million earned in 2009. Earnings per share were $1.57 last year, up from $1.19 in 2009. Operating income was $470.5 million, representing a 32% increase from 2009. The company realized higher revenues from increased production, gathering and processing volumes and natural gas liquids (NGL) prices, which were partially offset by lower realized natural gas prices and lower storage and marketing margins.

Driven by horizontal drilling in the Marcellus and Huron shale plays, EQT's production unit achieved sales of produced natural gas of 134.6 Bcfe for 2010; representing a 34.5% increase over 2009. Approximately 48% of 2010 sales of produced gas came from horizontal shale wells, up from 30% last year.

Sales of produced gas this year are projected to be 175 Bcfe, 30% more than in 2010. Daily sales from Marcellus wells were 142 MMcf/d at the end of the 2010 and are expected to exceed 250 MMcf/d by year-end 2011.

The average wellhead sales price to EQT was $5.62/Mcfe, with $3.93/Mcfe allocated to EQT Production and $1.69/Mcfe allocated to EQT Midstream. Realized natural gas prices for unhedged volumes were higher, while the hedged volumes and prices were lower in 2010.

EQT Production sales consisted of approximately 8% NGLs, excluding ethane. EQT Corp. realized an average premium over the New York Mercantile Exchange natural gas price of $1.02/Mcfe as a result of its liquids-rich production.

The company drilled 489 gross wells during 2010. Of these, 326 were horizontal wells, 236 targeting the Huron play with a typical length of pay of 3,850 feet; and 90 targeting the Marcellus play with a typical length of pay of 3,735 feet. The company also drilled 95 vertical wells in the coalbed methane play, mostly in the Nora Field.

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