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Appalachia-Focused EQT’s Output Climbs, Profits Accelerate

EQT Corp., whose tentacles in the Appalachian Basin stretch into exploration and production (E&P), midstream operations and commercial applications, said Thursday oil and natural gas production in 3Q2013 rose 42% year/year, with Marcellus Shale output up by almost three-quarters.

Profits overall were 177% higher at $88.3 million (58 cents/share) from $31.9 million (21 cents). Operating cash flow increased 36% to $232.8 million, and operating income almost doubled to $170.5 million. Net operating revenue rose 42% to $469.3 million, while net operating expenses were 23% higher at $298.8 million.

Management discussed the solid quarterly performance during a conference call. The gains, as many of its peers continue to affirm, center around the Northeast growth, and more to the point, the Marcellus, CFO Phil Conti told analysts.

Midstream results, he said, were up 54% from 3Q2012, "consistent with the result, and net gathering was 19% higher. There also was a 43% increase in gathering volumes. Marcellus production continues to grow. Average revenue for midstream should continue to grow as the Marcellus business expands." It puts EQT and its units in a "great position from a liquidity standpoint," said Conti.

"Operationally, EQT is coming off another record quarter," CEO Dave Porges said. "We have discussed the lumpiness of volume growth that resulted from turning these big multi-well pads inline...That was evident in the third quarter. Some of our projected fourth quarter volumes accelerated into the third quarter," which in turn flowed into the pipeline systems where there was an uptick as well.

Beyond the Marcellus, EQT also has moved ahead in Ohio, where it has three Utica Shale wells and is planning to complete five more before the end of the year.

"From a volume perspective, the wells are not eye popping," said Porges, "but we still find them attractive because we see a significantly high amount of oil and a very high BTU gas. They average 42% oil, 28% natural gas liquids, mostly ethane, and 30% gas.

"When processing is available, we'll be able to receive a premium price by stripping out the gas and selling it...When you use today's prices for average 30-day rates for the Utica wells, the average gas rate would be 9 MMcf/d...We're on track to drill eight this year."

However, don't look for EQT to add to its Utica position, which today is all in Ohio. There are so many operators scrambling to the Utica that the price of land has risen. And the acreage being offered isn't worth the price, at least to EQT, Porges said.

From July through September, EQT Production's sales volumes totaled 96.9 Bcfe, an average of 1.0 Bcfe/d, driven by the Marcellus, which averaged 787 MMcfe/d.

EQT spud 32 gross wells in the Marcellus during the quarter, with an average length-of-pay of 4,880 feet; eight Upper Devonian wells, with an average pay of 4,800 feet; and two Utica wells, with an average pay of 4,890 feet.

The three Utica wells had 30-day initial production oil rates of 241, 268 and 286 b/d. If processing had been available, EQT said the wells would have produced NGL rates of 41, 42 and 58 b/d; and natural gas rates of 755, 771 and 1,082 MMcf/d. Regional pricing was realized for the natural gas; while the realized oil price was about $101/bbl.

At the end of September, EQT had a 42.6% limited partner interest and a 2% general partner interest in EQT Midstream Partners, whose results were consolidated in EQT's results.

In the first quarter of 2009, the Marcellus made up 1.3% of EQT’s total sales, while the Huron/Berea formation was 23.9%. In 3Q2013, the Marcellus was 74.6% of total sales, with the Huron/Berea falling to 7.5%. EQT suspended its Huron Shale program “indefinitely” in early 2012 in light of low commodity prices (see Shale Daily, Jan. 24, 2012).

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