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Equitable Turns Into Prime Purchase Target after Banner 1Q

Equitable Turns Into Prime Purchase Target after Banner 1Q

Equitable Resources said its aggressive M&A strategy is beginning to pay off, as the company revealed a 40% jump in first quarter 2000 earnings to $39.1 million compared to the same period last year. The earnings were higher than Wall Street estimates and may trigger purchase offers for the company, according to some analysts.

"In this first quarter we are beginning to realize the earnings benefits of the Carnegie Natural Gas and Statoil E&P property acquisitions. We anticipate that over the next several months we will realize additional costs savings and operational improvements as we complete the integration process of the Statoil oil operations," said Murry S. Gerber, Equitable's CEO.

The lofty financials were not expected by PaineWebber analyst Ron Barone, who raised his earnings per share estimate for Equitable this year, as a result. Equitable's earnings per share for the quarter was $1.23, 15 cents higher than barone's estimate. "With a well-focused management team consistently delivering solid earnings growth, Equitable Resources remains one of the top growth and income plays...In addition, as the leading producer of natural gas in the Northeast, Equitable has evolved into a prime acquisition candidate."

Barone added that the location of Equitable's reserves is the key ingredient that will attract buyers. "[The company's attractiveness as an acquisition candidate] is particularly true given that unregulated power generators are increasingly seeking access to strategically located natural gas reserves, pipelines and storage."

The earnings improvement, Equitable said, was primarily attributable to increased natural gas production relating to the Statoil Appalachian property acquisition, improved natural gas and crude oil prices, continuing benefit from cost structure improvements, and increased industrial distribution throughput resulting from the Carnegie acquisition. These earnings increases were partially offset by weather that was 15% warmer than the historical average, higher accruals relating to provisions for incentive compensation, and costs related to a strategic refocusing of the NORESCO unit.

The Statoil purchase was announced last February. Equitable bought all of Statoil's Appalachia assets for $630 million. Once complete, the move will vault Equitable to the top of the list of Appalachia producers in terms of size of reserves with more than 2 Tcf.

Eqitable bought Carnegie Natural from USX-Marathon in June of 1999. The purchase increased Equitable's natural gas throughput 27% and increased its production in Appalachia 9%.

The company's M&A activities have not stopped with these two moves. "We also recently announced the combination of our Gulf operations with Westport Oil and Gas for cash and a significant minority interest. This transaction gives us a market valuation, earnings recognition, and limits our Gulf of Mexico exposure. Equitable Resources has never enjoyed such significant growth opportunities on such a low risk business model," Gerber added.

Equitable Production had earnings before interest and taxes (EBIT) for the first quarter of $31.5 million compared to $8.5 million for the 1999 quarter. Volume of produced natural gas and crude oil that was sold increased to 23.2 Bcfe, as compared to 16.9 Bcfe for the same period last year.

John Norris

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