-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DGiYru02iE6/n/hhHAh55V58TDWJFpnUeTRq1HxgpSVaby0dQXGuoGuQKK+rKMyv i28ej2/c71IiV8xa08DoFQ== 0000950128-00-000795.txt : 20000515 0000950128-00-000795.hdr.sgml : 20000515 ACCESSION NUMBER: 0000950128-00-000795 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EQUITABLE RESOURCES INC /PA/ CENTRAL INDEX KEY: 0000033213 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION & DISTRIBUTION [4923] IRS NUMBER: 250464690 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03551 FILM NUMBER: 628649 BUSINESS ADDRESS: STREET 1: ONE OXFORD CENTRE STREET 2: 301 GRANT ST SUITE 3300 CITY: PITTSBURGH STATE: PA ZIP: 15219 BUSINESS PHONE: 4125535700 MAIL ADDRESS: STREET 1: 301 GRANT ST SUITE 3300 CITY: PITTSBURGH STATE: PA ZIP: 15219 FORMER COMPANY: FORMER CONFORMED NAME: EQUITABLE GAS CO DATE OF NAME CHANGE: 19841120 10-Q 1 EQUITABLE RESOURCES, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______ COMMISSION FILE NUMBER 1-3551 EQUITABLE RESOURCES, INC. (Exact name of registrant as specified in its charter) PENNSYLVANIA 25-0464690 (State of incorporation or organization) (IRS Employer Identification No.) ONE OXFORD CENTRE, SUITE 3300, 301 GRANT STREET, PITTSBURGH, PENNSYLVANIA 15219 (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (412) 553-5700 ------------ NONE (Former name, former address and former fiscal year, if changed since last report) ------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of issuer's classes of common stock, as of the latest practicable date. Outstanding at Class April 30, 2000 ----- -------------- Common stock, no par value 32,871,000 shares 2 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES INDEX
Page No. -------- PART I. FINANCIAL INFORMATION: Item 1. Financial Statements (Unaudited): Statements of Consolidated Income for the Three Months Ended March 31, 2000 and 1999 1 Statements of Condensed Consolidated Cash Flows for the Three Months Ended March 31, 2000 and 1999 2 Condensed Consolidated Balance Sheets, March 31, 2000, and December 31, 1999 3 - 4 Notes to Condensed Consolidated Financial Statements 5 - 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 21 Item 3. Quantitative and Qualitative Disclosures About Market Risk 21 PART II. OTHER INFORMATION: Item 6. Exhibits and Reports on Form 8-K 22 SIGNATURE 23 INDEX TO EXHIBITS 24
3 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
Three Months Ended March 31, 2000 1999 ------------------------------------ (Thousands except per share amounts) Operating revenues $379,099 $417,534 Cost of sales 214,756 291,106 -------- -------- Net operating revenues 164,343 126,428 -------- -------- OPERATING EXPENSES: Operation and maintenance 21,814 21,874 Exploration 1,011 502 Production 9,468 6,074 Selling, general and administrative 26,518 20,579 Depreciation, depletion and amortization 29,784 21,175 -------- -------- Total operating expenses 88,595 70,204 -------- -------- Operating income 75,748 56,224 Equity in nonconsolidated subsidiaries 1,434 673 -------- -------- EARNINGS BEFORE INTEREST AND TAXES 77,182 56,897 Interest charges 15,795 9,263 -------- -------- Income before income taxes 61,387 47,634 Income taxes 22,284 17,895 -------- -------- NET INCOME $ 39,103 $ 29,739 ======== ======== EARNINGS PER SHARE OF COMMON STOCK: Basic: Weighted average common shares outstanding 32,660 35,258 Net income $ 1.20 $ .84 ======== ======== Diluted: Weighted average common shares outstanding 33,110 35,317 Net income $ 1.18 $ .84 ======== ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 1 4 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, 2000 1999 ----------------------------- (Thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income from continuing operations $ 39,103 $ 29,739 Adjustments to reconcile net income to net cash provided by operating activities: Exploration expense 1,011 502 Depreciation, depletion, and amortization 29,784 21,175 Deferred income benefits (1,097) (33) Changes in other assets and liabilities 6,360 (16,408) --------- -------- Total adjustments 36,058 5,236 Net cash provided by operating activities 75,161 34,975 --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (45,529) (21,489) Acquisition of Statoil production assets (672,022) -- Increase in investment in nonconsolidated subsidiaries (3,385) (15,540) --------- -------- Net cash used in investing activities (720,936) (37,029) --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Sale (purchase) of treasury stock 3,960 (44,603) Dividends paid (9,673) (10,544) Increase in short-term loans 636,160 57,996 --------- -------- Net cash provided by financing activities 630,447 2,849 --------- -------- Net increase (decrease) in cash and cash equivalents (15,328) 795 Cash and cash equivalents at beginning of period 18,031 8,973 --------- -------- Cash and cash equivalents at end of period $ 2,703 $ 9,768 ========= ======== CASH PAID DURING THE PERIOD FOR: Interest (net of amount capitalized) $ 20,855 $ 11,682 ========= ======== Income taxes $ 4,304 $ (716) ========= ========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 2 5 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS March 31, December 31, 2000 1999 -------------------------------- (Thousands) CURRENT ASSETS: Cash and cash equivalents $ 2,703 $ 18,031 Accounts receivable 206,069 148,103 Unbilled revenues 42,599 46,686 Inventory 23,211 40,859 Deferred purchased gas cost 24,721 29,075 Prepaid expenses and other 41,000 44,084 ---------- ---------- Total current assets 340,303 326,838 ---------- ---------- INVESTMENT IN NONCONSOLIDATED SUBSIDIARIES 44,258 40,873 PROPERTY, PLANT AND EQUIPMENT 2,782,689 2,052,528 Less accumulated depreciation and depletion 866,121 831,097 ---------- ---------- Net property, plant and equipment 1,916,568 1,221,431 ---------- ---------- OTHER ASSETS 202,671 200,432 ---------- ---------- Total $2,503,800 $1,789,574 ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 3 6 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY March 31, December 31, 2000 1999 -------------------------------- (Thousands) CURRENT LIABILITIES: Short-term loans $ 843,646 $ 207,486 Accounts payable 91,765 81,444 Other current liabilities 173,067 140,600 ---------- ---------- Total current liabilities 1,108,478 429,530 ---------- ---------- LONG-TERM DEBT: Debentures and medium-term notes 281,350 281,350 Nonrecourse project financing 17,000 17,000 ---------- ---------- Total long-term debt 298,350 298,350 Deferred and other credits 296,063 293,884 Commitments and contingencies -- -- Preferred trust securities 125,000 125,000 CAPITALIZATION: Common stockholders' equity Common stock, no par value, authorized 80,000 shares; shares issued March 31, 2000 and December 31, 1999, 37,252 280,325 280,617 Treasury stock, shares at cost March 31, 2000, 4,390; December 31, 1999, 4,522 (129,953) (133,913) Retained earnings 525,503 496,072 Accumulated other comprehensive income 34 34 ---------- ---------- Total common stockholders' equity 675,909 642,810 ---------- ---------- Total $2,503,800 $1,789,574 ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 4 7 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) A. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three- month period ended March 31, 2000 are not necessarily indicative of the results that may be expected for the year ended December 31, 2000. The balance sheet at December 31, 1999 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Equitable Resources' annual report on Form 10-K for the year ended December 31, 1999. B. Business Combinations - On February 15, 2000, Equitable Resources, Inc. (Equitable or the Company), through its subsidiary, ERI Investments, Inc., acquired the Appalachian oil and gas properties of Statoil Energy, Inc. for $630 million plus working capital adjustments. The Company acquired all of the issued and outstanding shares and interests of Eastern States Oil & Gas, Inc. and Eastern States Exploration Co. (collectively "Statoil"), subsidiaries of Statoil Energy, Inc. The acquisition has been initially funded through commercial paper, to be replaced by a combination of financings and cash from asset sales. This transaction has been accounted for under the purchase method of accounting. Accordingly, the allocation of the cost of the acquired assets and liabilities assumed has been made on the basis of the estimated fair value. The consolidated financial statements include the operating results of Statoil from the date of acquisition. The following summarized unaudited pro forma financial information assumes that the Statoil acquisition occurred on January 1, 1999. Adjustments have been made for DD&A and certain other adjustments together with related income tax effects.
Three Months Ended March 31, 2000 1999 ------------------------------------- (Thousands, except per share amounts) Revenue $396,371 $451,926 ======== ======== Net income $ 40,126 $ 33,976 ======== ======== Earnings per share: Basic $ 1.23 $ .96 ======== ======== Diluted $ 1.21 $ .96 ======== ========
This information is not necessarily indicative of the results the Company would have obtained had these events actually occurred on January 1, 1999, or of the Company's actual or future results of operations of the combined companies. 5 8 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) C. Segment Disclosure - The Company reports operations in three segments which reflect its lines of business. The Equitable Utilities segment's activities are comprised of the operations of the Company's state-regulated local distribution company, natural gas transportation, storage and marketing activities involving the Company's interstate natural gas pipelines, and supply and transportation services for the natural gas market. The Equitable Production segment's activities are comprised of the exploration, development, production, gathering and sale of natural gas and oil, and the extraction and sale of natural gas liquids. The NORESCO segment's activities are comprised of cogeneration and power plant development, the development and implementation of energy and water efficiency programs, performance contracting and central facility plant operations. During 1999, the structure of the Company's internal organization changed, causing the composition of the reportable segments to change. Segment information for prior periods has been restated to conform to this change. Operating segments are evaluated on their contribution to the Company's consolidated results, based on earnings before interest and taxes. Interest charges and income taxes are managed on a consolidated basis and allocated pro forma to operating segments. Headquarters costs are billed to operating segments based on a fixed allocation of the annual headquarters' operating budget. Differences between budget and actual headquarters expenses are not allocated to operating segments, but included as a reconciling item to consolidated earnings from continuing operations.
Three Months Ended March 31, 2000 1999 -------------------------- REVENUES FROM EXTERNAL CUSTOMERS: Equitable Utilities $277,711 $340,332 Equitable Production 70,788 39,225 NORESCO 30,600 37,977 -------- -------- Total $379,099 $417,534 ======== ======== INTERSEGMENT REVENUES: Equitable Utilities $ 30,671 $ 18,392 Equitable Production 7,375 3,036 -------- -------- Total $ 38,046 $ 21,428 ======== ======== SEGMENT EARNINGS BEFORE INTEREST AND TAXES: Equitable Utilities $ 47,160 $ 45,255 Equitable Production 31,461 8,482 NORESCO 296 3,349 -------- -------- Total operating segments $ 78,917 $ 57,086 ======== ======== LESS: RECONCILING ITEMS Headquarters operating expenses $ 1,735 $ 189 Interest expense 15,795 9,263 Income tax expenses 22,284 17,895 -------- -------- Net income $ 39,103 $ 29,739 ======== ========
6 9 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) C. Segment Disclosure (Continued)
March 31, December 31, 2000 1999 ------------------------------- (Thousands) SEGMENT ASSETS: Equitable Utilities $ 959,532 $ 914,630 Equitable Production 1,398,868 670,828 NORESCO 133,250 145,925 ---------- ---------- Total operating segments 2,491,650 1,731,383 Headquarters assets, including cash and short-term investments and net intercompany accounts receivable 12,150 58,191 ---------- ---------- Total $2,503,800 $1,789,574 ========== ==========
D. Derivative Instruments and Hedging Activities - In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The Company has not yet determined when it will adopt the provisions of this statement, which may be implemented at the beginning of any fiscal quarter. SFAS No. 133 will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133." This statement delays the required implementation for the Company until 2001. The Company has not yet determined what the effect of SFAS No. 133 will be on the earnings and financial position of the Company. E. Reclassification - Certain previously reported amounts have been reclassified to conform with the 2000 presentation. F. Subsequent Event - On April 10, 2000, Equitable combined its Gulf of Mexico assets with Westport Oil and Gas Company for approximately $50 million in cash and a significant minority interest in the combined company. 7 10 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Equitable's consolidated net income for the quarter ended March 31, 2000, was $39.1 million, or $1.18 per diluted share, compared with net income of $29.7 million, or $.84 per share, for the quarter ended March 31, 1999. This represents a 40% increase in earnings per share versus the same period one year ago. The earnings improvement for the March 2000 quarter is primarily attributable to improved natural gas and crude oil prices, continuing benefit from cost structure improvements, increased natural gas and crude oil production related to the Statoil acquisition, 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. RESULTS OF OPERATIONS EQUITABLE UTILITIES Equitable Utilities' operations are comprised of the sale and transportation of natural gas to retail customers at state-regulated rates, interstate transportation and storage of natural gas subject to federal regulation, and the unregulated marketing of natural gas. On December 15, 1999, the Company acquired the distribution, transmission and production operations of Carnegie Natural Gas. The Carnegie Natural Gas acquisition is complementary to Equitable's plans to grow its core business and increase utilization and operational efficiencies of its local distribution and interstate pipeline operations. The acquisition of Carnegie added approximately 8,000 new distribution customers, 670 miles of transmission and gathering pipeline and approximately 3.6 billion cubic feet (Bcf) of throughput for the three months ended March 31, 2000. This acquisition is not considered material; therefore, pro forma disclosures have not been provided. 8 11 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) EQUITABLE UTILITIES (CONTINUED)
Three Months Ended March 31, 2000 1999 --------------------------- FINANCIAL RESULTS (THOUSANDS) Utility revenues $135,366 $141,029 Marketing revenues 173,016 217,695 -------- -------- Total operating revenues 308,382 358,724 Purchased gas costs and revenue related taxes 223,180 278,105 -------- -------- Net operating revenues 85,202 80,619 Operating and maintenance expense 18,657 18,769 Selling, general and administrative expense 11,709 10,443 Depreciation, depletion and amortization 7,676 6,152 -------- -------- Total expenses 38,042 35,364 -------- -------- Earnings before interest and taxes $ 47,160 $ 45,255 ======== ======== Capital expenditures $ 5,390 $ 5,383 VALUE DRIVERS Operating expenses/net revenues (%) 44.65% 43.87% Earnings before interest and taxes Distribution $ 34,433 $ 34,721 Pipeline $ 9,017 $ 8,295 Marketing $ 3,710 $ 2,239
9 12 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) EQUITABLE UTILITIES (CONTINUED) THREE MONTHS ENDED MARCH 31, 2000 VS. THREE MONTHS ENDED MARCH 31, 1999 Earnings before interest and taxes increased 4% to $47.2 million for the current period compared to $45.3 million for the same period in 1999. The increase is due to higher net operating revenues resulting from the acquisition of Carnegie Natural Gas and increased margins from energy marketing activities. Operating results improved despite warmer than normal weather (normal is based on the 30-year average determined by the National Oceanic and Atmospheric Administration). DISTRIBUTION OPERATIONS
Three Months Ended March 31, 2000 1999 ------------------------ FINANCIAL RESULTS (THOUSANDS) Net operating revenues $60,403 $60,161 Operating costs 21,544 21,197 Depreciation and amortization 4,426 4,243 ------- ------- Earnings before interest and taxes $34,433 $34,721 ======= ======= OPERATING INFORMATION Degree days (normal = 3,016) 2,572 2,914 O & M per customer $ 74.65 $ 75.93 Volumes (MMcf) Residential 11,733 12,466 Commercial industrial 11,541 8,746 ------- ------- Total gas sales and transportation 23,274 21,212 ======= =======
THREE MONTHS ENDED MARCH 31, 2000 VS. THREE MONTHS ENDED MARCH 31, 1999 Weather in the distribution service territory during the current period was 15% warmer than normal and 12% warmer than last year. However, total system throughput actually increased 2.1 Bcf, versus the same period last year, primarily as a result of the acquisition of Carnegie Natural Gas. 10 13 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) EQUITABLE UTILITIES (CONTINUED) Net operating revenues increased $0.2 million from the same period last year. This increase is primarily due to the increased throughput mentioned above, and increased natural gas transportation margins, offset in part by the warmer than normal weather. Total operating expenses for the current period increased $0.5 million from the same period in 1999. The increase is due principally to the acquisition of Carnegie Natural Gas and increased provision for performance related bonuses. These increases were partially offset by the benefit of continued Utility process improvement initiatives. PIPELINE OPERATIONS
Three Months Ended March 31, 2000 1999 ------------------------ (Thousands of Dollars) FINANCIAL RESULTS (THOUSANDS) Net operating revenues $19,274 $16,457 Operating costs 7,053 6,302 Depreciation and amortization 3,204 1,860 ------- ------- Earnings before interest and taxes $ 9,017 $ 8,295 ======= ======= OPERATING INFORMATION Transportation throughput (MMbtu) 23,233 20,444
THREE MONTHS ENDED MARCH 31, 2000 VS. THREE MONTHS ENDED MARCH 31, 1999 Net operating revenues increased $2.8 million, or 17%, over the 1999 quarter. Pipeline revenues for 2000 include $1.6 million related to the recovery of stranded costs in rates. Net operating revenues of $17.7 million for the current period, excluding the impact of the rate settlement, increased $1.2 million over 1999. This increase was due primarily to the acquisition of Carnegie Interstate Pipeline and improved margins on gathering throughput. Total operating expenses were $10.3 million for the 2000 quarter compared with operating expenses of $8.1 million for the 1999 quarter, an increase of 26%. The operating expenses include $1.3 million of amortization expense related to the recovery of stranded costs in rates. Operating expenses of $9.0 million, excluding the impact of the rate settlement, increased $0.9 million, versus the same period last year, due primarily to the acquisition of Carnegie Interstate pipeline and an increased provision for performance- related bonuses. 11 14 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) EQUITABLE UTILITIES (CONTINUED) Earnings before interest and taxes for the current period increased $.7 million, or 9%, from 1999. This increase is due primarily to increased revenues from the acquisition of Carnegie Interstate Pipeline operations and pipeline gathering. ENERGY MARKETING
Three Months Ended March 31, 2000 1999 ------------------------ FINANCIAL RESULTS (THOUSANDS) Net operating revenues $ 5,525 $ 4,001 Operating costs 1,769 1,713 Depreciation and amortization 46 49 ------- ------- Earnings before interest and taxes $ 3,710 $ 2,239 ======= ======= Marketed gas sales (MMBtu) 60,469 92,761 Net operating revenues/MMBtu $0.0914 $0.0431
THREE MONTHS ENDED MARCH 31, 2000 VS. THREE MONTHS ENDED MARCH 31, 1999 The $1.5 million increase in net operating revenues is attributable to higher unit margins. The sale of gas in storage allowed the Company to benefit from the increasing natural gas prices. The decrease in throughput is a result of the expiration of low margin contracts during the first quarter of 1999 related to the discontinued supply and trading group. Total operating expenses of $1.8 million for the 2000 quarter were substantially unchanged from 1999. 12 15 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) EQUITABLE PRODUCTION Production operations comprise the production and sale of natural gas, natural gas liquids and crude oil through Equitable Production Company (Equitable Production). In 1999, the exploration and production operations conducted by Equitrans were transferred to Equitable Production-East from Equitable Utilities. The financial results of both segments have been restated to reflect the new structure for all periods presented.
Three Months Ended March 31, 2000 1999 -------------------------- FINANCIAL RESULTS (THOUSANDS) Operating revenues $ 78,163 $ 42,261 Cost of energy purchased 5,818 4,927 -------- -------- Net operating revenues 72,345 37,334 Operating expenses: Operation and maintenance 3,158 3,104 Lease operating expense 9,468 6,074 Dry hole 3 30 Other exploration 1,008 472 Selling, general and administrative 6,489 5,276 Depreciation, depletion and amortization 20,758 13,896 -------- -------- Total operating expenses 40,884 28,852 -------- -------- Earnings before interest and taxes $ 31,461 $ 8,482 ======== ======== Capital expenditures $711,171 $ 19,605 VALUE DRIVERS Natural gas sales (MMcf) 21,984 15,883 Crude oil sales (MBbls) 204 167 Natural gas liquids sales (MGals) 10,196 18,774 Produced natural gas and oil (MMcfe) 24,428 17,294 Average selling prices: Natural gas (per Mcf) $ 2.48 $ 1.75 Crude oil (per barrel) $ 16.82 $ 10.19 Natural gas liquids (per gallon) $ 0.44 $ 0.21
13 16 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) EQUITABLE PRODUCTION (CONTINUED) THREE MONTHS ENDED MARCH 31, 2000 VS. THREE MONTHS ENDED MARCH 31, 1999 Equitable Production had earnings before interest and taxes for the March 2000 quarter of $31.5 million compared to $8.5 million for the 1999 quarter. The segment's positive results were primarily due to increased natural gas and crude oil production related to the Statoil acquisition completed February 15, 2000, as described in Note B. The positive results also reflect higher commodity prices during the quarter. These results were partially offset by a per Mcfe increase in lease operating expense (LOE) and depletion primarily due to the Statoil acquisition. The 1999 first quarter earnings before interest and taxes of $8.5 million has been restated to reflect the previously announced transfer of Equitrans production from the Utility segment. Net operating revenues for the first quarter 2000 increased 94% to $72.3 million compared to $37.3 million in 1999. The increase was primarily due to increased sales volumes related to the Statoil acquisition and higher effective commodity prices. The Statoil acquisition added 5.6 billion cubic feet equivalent (Bcfe) of production in the current quarter and accounted for $18.6 million , or 53%, of the increase in net operating revenues. Equitable Production's average selling prices for natural gas, crude oil and natural gas liquids increased 42%, 65% and 110%, respectively, over first quarter 1999's average selling prices. The increase in average prices resulted in a $17.6 million increase in net operating revenues from prior year. These increases were slightly offset by a $3.7 million decrease in natural gas liquids volumes due to downtime associated with the new processing facility in the Appalachian operations. Operating expenses for the first quarter of 2000 totaled $40.9 million, an increase of $12.0 million from the same period in 1999. The 2000 operating expenses include approximately $8.7 million associated with the Statoil acquisition. Excluding the results from the acquisition, current quarter depreciation, depletion and amortization (DD&A) increased $2.3 million due to higher production, an increase in the depletion rate and a $1.5 million writedown of certain processing plant assets. On a per unit basis, SG&A has decreased 10% to $0.28 per thousand cubic feet equivalent (Mcfe) compared to $0.31 per Mcfe in 1999 as a result of ongoing process improvements. This decrease was offset by an increase in LOE per Mcfe of 14% to $0.41 compared to $0.36 per Mcfe in 1999. The increase in unit LOE reflects increased severance taxes due to higher sales prices and certain one-time costs incurred related to the Statoil acquisition. 14 17 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) PRODUCTION - EAST OPERATIONS
Three Months Ended March 31, 2000 1999 ------------------------ FINANCIAL RESULTS (THOUSANDS) Net operating revenues $55,390 $26,282 Operating costs 16,487 11,620 Depreciation, depletion and amortization 13,868 7,178 ------- ------- Earnings before interest and taxes $25,035 $ 7,484 ======= ======= VALUE DRIVERS Natural gas sales (MMcf) 16,450 10,301 Crude oil sales (MBbls) 129 110 Natural gas liquids sales (MGals) 8,683 16,418 Average selling prices: Natural gas (per Mcf) $ 2.48 $ 1.80 Crude oil (per barrel) $ 18.03 $ 9.78 Natural gas liquids (per gallon) $ 0.43 $ 0.22 LOE/Mcfe sales $ 0.465 $ 0.406 G&A/Mcfe sales $ 0.281 $ 0.343 Depletion/Mcfe produced $ 0.555 $ 0.446
THREE MONTHS ENDED MARCH 31, 2000 VS. THREE MONTHS ENDED MARCH 31, 1999 Equitable Production - East's earnings before interest and taxes for the three months ended March 31, 2000 was $25.0 million compared to $7.5 million for same period in 1999. The segment's results were favorably affected by higher market prices for natural gas, crude oil and natural gas liquids and the Statoil acquisition discussed in the consolidated Equitable Production results. Net operating revenues for the three months ended March 31, 2000 increased $29.1 million compared to the first quarter of 1999. Of this 111% increase, approximately $18.6 million, or 64%, of the increase is associated with the Statoil acquisition. The remaining increase is due primarily to increases of 38%, 84% and 96% in the East operations' average prices for natural gas, crude oil and natural gas liquids, respectively. These increases were slightly offset by a $3.7 million decrease in natural gas liquids volumes due to downtime associated with the new processing facility in the Appalachian operations. Total operating costs for the current quarter increased $11.6 million compared to the same period in 1999. The increase in operating costs in the current quarter is associated primarily with the Statoil acquisition. In addition, current quarter operating costs include a $1.5 million writedown of certain processing plant assets. On a per unit basis, LOE per Mcfe increased $.06 for the current quarter from $.41 per Mcfe for the same period in 1999 due to higher severance taxes resulting from higher average sales prices and certain one-time costs incurred related to the Statoil acquisition. The East operations' depletion rate increased $0.11 per Mcfe to $0.56 per Mcfe due to a higher depletable basis resulting from the Statoil acquisition. SG&A per Mcfe decreased $.06 to $.28 per Mcfe due to ongoing process improvements. 15 18 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) PRODUCTION - GULF OPERATIONS
Three Months Ended March 31, 2000 1999 ------------------------ FINANCIAL RESULTS (THOUSANDS) Net operating revenues $16,955 $11,052 Operating costs 3,639 3,336 Depreciation, depletion and amortization 6,890 6,718 ------- ------- Earnings before interest and taxes $ 6,426 $ 998 ======= ======= VALUE DRIVERS Natural gas sales (MMcf) 5,535 5,583 Crude oil sales (MBbls) 75 57 Natural gas liquids sales (MGals) 1,513 2,356 Average selling prices: Natural gas (per Mcf) $ 2.51 $ 1.66 Crude oil (per barrel) $ 14.74 $ 10.98 Natural gas liquids (per gallon) $ 0.49 $ 0.15 LOE/Mcfe sales $ 0.243 $ 0.275 G&A/Mcfe sales $ 0.275 $ 0.256 Depletion/Mcfe produced $ 1.128 $ 1.112
THREE MONTHS ENDED MARCH 31, 2000 VS. THREE MONTHS ENDED MARCH 31, 1999 The Gulf operations had earnings before interest and taxes of $6.4 million for first quarter 2000 compared with $1.0 million for the same quarter last year. This $5.4 million increase was primarily due to higher commodity prices. Net operating revenues were up 53%, or $5.9 million, for the March 2000 quarter compared with the same period last year. Increases in the Gulf operations' average selling prices of 51%, 34% and 227% for natural gas, oil and natural gas liquids, respectively, accounted for the rise in net operating revenues. Lower liquids volumes and a reduction in other revenues offset the favorable impact of higher natural gas and oil volumes. Operating expenses totaled $10.5 million for the current quarter, which is a $.5 million increase over the same period in 1999. The increase is primarily due to seismic data purchased in conjunction with the March 2000 offshore lease sale. The Gulf operations did not participate in the 1999 offshore lease sale. The remaining variance reflects per Mcfe increases in G&A and depletion of $.02 and $.02, respectively, partially offset by a decrease in LOE per Mcfe of $.03. On April 10, 2000, Equitable completed the previously announced combination of its Gulf operations with Westport Oil and Gas Company. In the transaction, Equitable received approximately $50 million in cash and a significant minority interest in the combined company. Equitable will account for its interest in Westport on the equity method beginning in the second quarter of 2000. This transaction is not considered a significant disposition of assets, and no pro forma disclosures have been provided. 16 19 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) NORESCO NORESCO provides energy and energy related products and services that are designed to reduce its customers' operating costs and improve their productivity. NORESCO's customers include commercial, governmental, institutional and industrial end-users. The majority of NORESCO's revenue and earnings comes from energy saving performance contracting services. NORESCO provides the following integrated energy management services: project development and engineering analysis; construction; management; financing; equipment operation and maintenance; and energy savings metering, monitoring and verification. NORESCO also manages the segment's facilities management division, which develops and operates private power, cogeneration and central plant facilities in the U.S. and selected international markets. During the first quarter of 2000, NORESCO decided to exit the international project development business. The risk profile of that market sector is changing, requiring both skills and scale that are not consistent with NORESCO's and the rest of the corporation's core strengths. This decision does not impact the existing completed projects owned by NORESCO.
Three Months Ended March 31, 2000 1999 -------------------------- OPERATIONAL DATA (THOUSANDS) Construction backlog, end of period $56,176 $109,595 Construction completed $19,991 $ 35,512 FINANCIAL RESULTS (THOUSANDS) Total operating revenues $30,600 $ 37,977 Contract costs 23,804 29,502 ------- -------- Net operating revenues 6,796 8,475 ------- -------- Selling, general and administrative expenses 6,640 4,689 Amortization of goodwill 937 937 Depreciation and depletion 357 173 ------- -------- Total expenses 7,934 5,799 Equity earnings of non-consolidated subsidiaries 1,434 673 ------- -------- Earnings before interest and taxes $ 296 $ 3,349 ======= ======== Capital expenditures $ 341 $ 252 VALUE DRIVERS Gross profit margin 22.2% 22.3% SG&A as a % of revenue 21.7% 12.3% Development expenses as a % of revenue 5.4% 1.7%
17 20 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) NORESCO (CONTINUED) THREE MONTHS ENDED MARCH 31, 2000 VS. THREE MONTHS ENDED MARCH 31, 1999 The NORESCO segment's earnings before interest and taxes decreased $3.1 million to $.3 million from the same period last year. This decline was caused primarily by a $1.0 million charge in the current quarter related to the decision to exit the international project development business, $0.5 million of income recognized in the prior year quarter for receivables that were sold, and the margin on a $7.4 million, or 19%, decrease in current year revenue, which resulted from reduced construction activity. The increase in operating expenses of $2.1 million, or 37%, from $5.8 million incurred during the same period last year, includes the aforementioned $1.0 million charge. The remaining $1.1 million increase is due primarily to an increase in project development costs. Construction backlog in the current year decreased to $56.2 million, a $53.4 million decline from the same period in 1999. Included in this decrease is $28 million related to international projects in the 1999 backlog. At March 31, 2000, the backlog attributable to international projects is $0. 18 21 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CAPITAL RESOURCES AND LIQUIDITY WORKING CAPITAL The results of operations of Equitable is primarily impacted by the seasonal nature of Equitable Utilities' distribution operations and the volatility of oil and gas commodity prices. The distribution segment's increase in net accounts receivable of $44 million, the $13 million decrease in customer credit balances and the decrease of $16 million in inventory for the current period is directly attributable to the colder temperatures of the winter season and the increased number of customers acquired with Carnegie Natural Gas. Accounts payable for the marketing segment increased $14 million as a result of increased volumes of gas sales. The production segment recognized a $17.6 million increase in revenues in the first quarter of 2000 due to the higher commodity prices experienced in the current year. Working capital increased an additional $42 million as a result of the Statoil acquisition. HEDGING The Company's overall objective in its hedging program is to protect earnings from undue exposure to the risk of changing commodity prices. Since it is primarily a natural gas company, this leads to different approaches to hedging natural gas than for crude oil and natural gas liquids. With respect to hedging the Company's exposure to changes in natural gas commodity prices, management's objective is to provide price protection for the majority of expected production for the year 2000 and a smaller portion for 2001. Its preference is to use derivative instruments that create a price floor, in order to provide downside protection while allowing the Company to participate in upward price movements. This is accomplished with the use of a mix of costless collars, straight floors and some fixed price swaps. This mix allows the Company to participate in a range of prices, while protecting shareholders from significant price deterioration. Crude oil and natural gas liquids prices are currently at relatively high levels compared to historical averages. As a result, the Company has used swaps and other derivative instruments to lock in current prices for the majority of expected production of crude oil and of natural gas liquids for the year 2000 and a smaller portion for 2001. CAPITAL EXPENDITURES The Company expended approximately $46 million in the three months ended March 31, 2000, compared to $21 million spent in the same period one year ago. Expenditures in both years represented growth projects in the Equitable Production segment, and replacements, improvements and additions to plant assets in the Equitable Utility segment. Production accounted for $40 million of the expenditures and Utility approximately $6 million. 19 22 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CAPITAL RESOURCES AND LIQUIDITY (CONTINUED) INVESTMENTS IN NON-CONSOLIDATED SUBSIDIARIES The NORESCO segment has equity ownership interests in independent power plant (IPP) projects located domestically and in select international countries. Long-term power purchase agreements (PPA's) are signed with the customer whereby they agree to purchase the energy generated by the plant. The length of these contracts range from 5 to 30 years. These projects generally are financed on a project basis with non-recourse financings established at the foreign subsidiary level. ACQUISITIONS AND DISPOSITIONS In February 2000, the Company acquired the Appalachian production assets of Statoil Energy Inc. for $630 million plus working capital. The Company initially funded this acquisition through short-term debt, to be replaced by a combination of financings and cash from asset sales. In March 2000, the Company announced the combination of its Production - - Gulf assets with Westport Oil and Gas Company, a private oil and gas exploration company based in Denver. The transaction was completed on April 10, 2000. The Company received $50 million in cash and a significant minority interest in the combined company. SHORT-TERM BORROWINGS Cash required for operations is affected primarily by the seasonal nature of the Company's natural gas distribution operations and the volatility of oil and gas commodity prices. Short-term loans are used to support working capital requirements during the summer months and are repaid as gas is sold during the heating season. Bank loans and commercial paper, supported by available credit, are used to meet short-term financing requirements. Interest rates on these short-term loans averaged 5.90% during the three months ended March 31, 2000. The Company maintains a revolving credit agreement with a group of banks providing $500 million of available credit, which expires in 2001. In addition, in January 2000, the Company obtained an additional $500 million, 364 day revolving credit agreement to back the issuance of commercial paper. Effective February 1, 2000, the Company has the authority and credit backing to support a $1 billion commercial paper program. This program is being used to temporarily finance the acquisition of the Appalachian oil and gas properties of Statoil Energy described above, as well as on-going working capital and other short-term financing requirements. FINANCING The Company has adequate borrowing capacity to meet its financing requirements. 20 23 EQUITABLE RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CAPITAL RESOURCES AND LIQUIDITY (CONTINUED) IMPACT OF YEAR 2000 In prior years, the Company discussed the nature and progress of its plans to become Year 2000 ready. The company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The Company is not aware of any material problems resulting from Year 2000 issues, either with its products, its internal systems, or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly. INFORMATION REGARDING FORWARD LOOKING STATEMENTS Disclosures in this report may include forward-looking statements related to projected Company plans and expected results of operations. The Company notes that a variety of factors could cause the Company's actual results to differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company business include, but are not limited to, the following: weather conditions, the pace of deregulation of retail natural gas and electricity markets, the timing and extent of changes in commodity prices for natural gas and crude oil, changes in interest rates, availability of financing, the timing and extent of the Company's success in acquiring natural gas and crude oil properties and in discovering, developing and producing reserves, delays in obtaining necessary governmental approvals, the impact of competitive factors on profit margins in various markets in which the Company competes, and the successful integration of acquired companies. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have not been any material changes regarding quantitative and qualitative disclosures about market risk regarding the volatility of future prices for natural gas, crude oil and propane from the information reported in the Company's 1998 Annual Report on Form 10-K. This Company's amount of short-term debt has increased dramatically in 2000 due to the acquisition of Statoil, as described in Note B. As such, there is some limited exposure to future earnings due to changes in interest rates. However, as previously disclosed, the Company plans to reduce short-term debt by alternative financing and sale of assets. 21 24 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: None. (b) Reports on Form 8-K during the quarter ended March 31, 2000: Form 8-K Current report dated January 3, 2000, announcing agreement between the Registrant, Equitable Resources, Inc., and Statoil Energy, Inc., wherein EQT and/or its subsidiaries with acquire from Statoil the stock of Eastern States Oil & Gas Corp. and Eastern States Exploration Co., subsidiaries of Statoil. Form 8-K Current report dated February 9, 2000, announcing the appointments of David L. Porges as the Company's executive vice president and chief financial officer and Carl M. Rizzo as chief information officer effective February 9, 2000. Form 8-K Current report dated February 15, 2000, announcing completion of acquisition of Appalachian oil and gas properties of Statoil Energy, Inc. Form 8-K Current report dated February 16, 2000, announcing earnings for the fourth quarter and year ended December 31, 1999. Form 8-K Current report dated March 10, 2000, announcing combination of the Gulf of Mexico exploration and production unit of the Registrant, Equitable Resources, Inc., with Westport Oil and Gas Company, for cash and a large minority interest in Westport. 22 25 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EQUITABLE RESOURCES, INC. --------------------------- (Registrant) /s/ David L. Porges --------------------------- David L. Porges Senior Vice President and Chief Financial Officer Date: May 11, 2000 ----------------------- 23 26 INDEX TO EXHIBITS
Exhibit No. Document Description - ---------------------------------------------------------------------------------------------------------- 27 Financial Data Schedule for the Period Filed Herewith Ended March 31, 2000
24 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 2,703 0 222,476 16,407 23,211 340,303 2,782,689 866,121 2,503,800 1,108,478 298,350 0 0 150,372 525,537 2,503,800 0 379,099 0 214,756 84,699 3,896 15,795 61,387 22,284 39,103 0 0 0 39,103 1.20 1.18
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