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 SEPTEMBER 30, 1997
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.)
420 BOULEVARD OF THE ALLIES, PITTSBURGH, PENNSYLVANIA 15219
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (412) 261-3000
------------
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 close of the period covered by this report.
Outstanding at
Class September 30, 1997
Common stock, no par value 36,782,230 shares
<PAGE>
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
Index
Page No.
PART I. FINANCIAL STATEMENTS:
Statements of Consolidated Income for
the Three Months Ended September 30,
1997 and 1996, the Nine Months Ended
September 30, 1997 and 1996, and the
Twelve Months Ended September 30,
1997 and 1996 1
Statements of Condensed Consolidated Cash Flows
for the Three Months Ended September 30, 1997
and 1996, the Nine Months Ended September 30,
1997 and 1996, and the Twelve Months Ended
September 30, 1997 and 1996 2
Consolidated Balance Sheets, September 30, 1997
and 1996 and December 31, 1996 3 - 4
Notes to Consolidated Financial Statements 5 - 6
Gas Produced, Purchased and Sold 7 - 12
Information by Business Segment 13
Management's Discussion and Analysis of
Financial Condition and Results of Operations 14 - 23
PART II. OTHER INFORMATION 24
SIGNATURE 25
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
Statements of Consolidated Income
(Thousands Except Per Share Amounts)
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues......... $ 508,102 $ 357,011 $ 1,461,437 $ 1,389,056 $ 1,934,180 $ 1,822,829
Cost of Energy Purchased .. 378,717 262,943 1,075,784 1,034,786 1,409,154 1,297,261
---------- ---------- ----------- ----------- ----------- -----------
Net operating revenues 129,385 94,068 385,653 354,270 525,026 525,568
---------- ---------- ----------- ----------- ----------- -----------
Operating Expenses:
Operation............... 70,574 54,543 188,078 158,126 251,095 213,325
Maintenance............. 7,668 7,653 22,255 19,920 28,879 26,911
Depreciation, depletion
and amortization ..... 23,624 20,805 63,924 62,463 83,842 82,937
Impairment of assets and
nonrecurring items.. 10,725 - 23,725 - 16,355 121,081
Taxes other than income. 6,843 7,207 30,300 31,515 40,942 44,918
---------- ---------- ----------- ----------- ----------- -----------
Total operating expenses 119,434 90,208 328,282 272,024 421,113 489,172
---------- ---------- ----------- ----------- ----------- -----------
Operating Income .......... 9,951 3,860 57,371 82,246 103,913 36,396
Other Income .............. 27,355 (751) 30,768 4,104 29,662 6,082
Interest Charges........... 11,421 10,311 33,853 30,723 44,955 42,603
---------- ---------- ----------- ----------- ----------- -----------
Income (Loss)
Before Income Taxes .... 25,885 (7,202) 54,286 55,627 88,620 (125)
Income Taxes (Benefits).... 8,898 (3,515) 18,772 19,660 29,694 (9,364)
---------- ---------- ----------- ----------- ----------- -----------
Net Income (Loss).......... $ 16,987 $ (3,687) $ 35,514 $ 35,967 $ 58,926 $ 9,239
========== ========== =========== =========== =========== ===========
Average Common
Shares Outstanding...... 36,185 35,267 35,763 35,143 35,663 35,107
========== ========== =========== =========== ========== ===========
Earnings (Loss) Per Share of
Common Stock............ $.47 $(.10) $.99 $1.02 $1.65 $.26
==== ===== ==== ===== ===== ====
Dividends Per Share of
Common Stock............ $.29 $.29 $.88 $.88 $1.18 $1.18
==== ==== ==== ==== ===== =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
Statements of Condensed Consolidated Cash Flows
(Thousands)
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
-----------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided (used) by
operating activities..................... $ 6,272 $ 20,409 $ 77,762 $ 69,168 $ 74,162 $ 245,846
----------- ----------- ---------- ----------- ----------- -----------
Cash Flows from Investing Activities:
Capital expenditures.................. (71,843) (38,493) (124,015) (81,175) (153,124) (117,343)
Proceeds from sale of property........ 119,679 40 119,992 1,543 122,629 21,932
----------- ----------- ----------- ----------- ---------- -----------
Net cash used in investing
activities................... 47,836 (38,453) (4,023) (79,632) (30,495) (95,411)
----------- ----------- ------------ ----------- ----------- -----------
Cash Flows from Financing Activities:
Issuance of common stock.............. 3,673 496 4,027 1,687 4,646 2,705
Purchase of treasury stock............ (4,845) - (28,596) (8) (28,621) (167)
Dividends paid........................ (10,838) (10,418) (31,486) (31,126) (41,908) (41,450)
Proceeds from issuance of
long-term debt...................... - 144,919 - 144,919 - 144,877
Repayments and retirements of
long-term debt...................... - (65,617) (157) (150,440) (157) (160,440)
Increase in short-term loans.......... 51,458 (38,003) 102,659 54,649 117,910 (86,303)
----------- ----------- ----------- ----------- ---------- -----------
Net cash provided (used) by
financing activities....... 39,448 31,377 46,447 19,681 51,870 (140,778)
----------- ----------- ----------- ----------- ---------- ------------
Increase in cash and cash equivalents.... 93,556 13,333 120,186 9,217 95,537 9,657
Cash and cash equivalents at beginning
of period ............................. 41,367 26,053 14,737 30,169 39,386 29,729
----------- ----------- ----------- ----------- ---------- -----------
Cash and cash equivalents at end
of period.............................. $ 134,923 $ 39,386 $ 134,923 $ 39,386 $ 134,923 $ 39,386
=========== =========== =========== =========== ========== ===========
Cash paid during the period for:
Interest (net of amount capitalized).. $ 21,695 $ 6,659 $ 36,732 $ 31,471 $ 48,286 $ 40,851
=========== =========== =========== =========== ========== ===========
Income taxes.......................... $ 2,489 $ 486 $ 7,762 $ 10,117 $ 8,101 $ 39,123
=========== =========== =========== =========== ========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Thousands)
September 30, December 31,
-------------------------------------------------
1997 1996 1996
------------------------------------------------
ASSETS
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents............................... $ 134,923 $ 39,386 $ 14,737
Accounts receivable (less accumulated
provision for doubtful accounts:
September 30, 1997 $8,117; 1996 $12,966;
December 31, 1996, $10,714)........................... 274,873 186,206 296,175
Unbilled revenues ...................................... 4,924 5,330 24,157
Gas stored underground - current inventory.............. 17,746 18,110 19,497
Material and supplies................................... 14,551 9,071 18,512
Deferred purchased gas cost............................. 49,228 56,859 60,079
Prepaid expenses and other.............................. 55,538 69,906 52,604
------------- ------------ -------------
Total current assets............................... 551,783 384,868 485,761
------------- ------------ -------------
Property, Plant and Equipment:
Supply and Logistics (successful efforts method) ....... 1,114,220 1,202,329 1,220,756
Utilities .............................................. 1,015,732 975,886 988,425
Services................................................ 9,149 1,347 1,810
------------- ------------ -------------
Total property, plant and equipment................ 2,139,101 2,179,562 2,210,991
Less accumulated depreciation and depletion........... 702,015 713,512 731,306
------------- ------------ -------------
Net property, plant and equipment.................. 1,437,086 1,466,050 1,479,685
------------- ------------ -------------
Other Assets:
Regulatory assets....................................... 70,872 72,638 73,150
Goodwill ............................................... 68,738 - 8,396
Other................................................... 78,904 56,156 49,307
------------- ------------ -------------
Total other assets.................................... 218,514 128,794 130,853
------------- ------------ -------------
Total.............................................. $ 2,207,383 $ 1,979,712 $ 2,096,299
============= ============ =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Thousands)
September 30, December 31,
--------------------------------------------------
1997 1996 1996
--------------------------------------------------
CAPITALIZATION AND LIABILITIES
<S> <C> <C> <C>
Current Liabilities:
Long-term debt payable within one year............. $ 5,000 $ - $ -
Short-term loans................................... 307,559 189,649 204,900
Accounts payable................................... 163,355 152,359 231,969
Accrued taxes...................................... 24,925 17,189 20,645
Accrued interest................................... 6,492 6,368 11,852
Refunds due customers.............................. 20,887 16,941 14,889
Deferred income taxes.............................. 13,502 17,354 19,009
Customer credit balances........................... 8,202 6,383 7,051
Other.............................................. 46,569 15,782 10,099
------------ ------------- -------------
Total current liabilities..................... 596,491 422,025 520,414
------------ ------------- -------------
Long--Term Debt ....................................... 417,320 421,920 422,112
------------ ------------- -------------
Deferred and Other Credits:
Deferred income taxes.............................. 272,096 253,178 260,700
Deferred investment tax credits.................... 19,070 20,164 19,892
Deferred revenue................................... 89,611 110,062 107,674
Other.............................................. 26,554 23,519 23,224
------------ ------------- -------------
Total deferred and other credits.............. 407,331 406,923 411,490
------------ ------------- -------------
Common stockholders' equity:
Common stock, no par value, authorized
80,000 shares; shares issued
September 30, 1997, 36,838;
September 30, 1996, 35,492;
December 31, 1996, 35,515 .................... 263,951 227,038 227,660
Retained earnings ............................... 523,894 506,877 519,867
Treasury stock, shares at cost September 30,
1997, 56; September 30, 1996, 168;
December 31, 1996, 169........................ (1,550) (3,998) (4,023)
Foreign currency translation..................... (54) (1,073) (1,221)
------------- ------------- -------------
Total common stockholders' equity............. 786,241 728,844 742,283
------------ ------------- -------------
Total..................................... $ 2,207,383 $ 1,979,712 $ 2,096,299
============ ============= =============
</TABLE>
<PAGE>
Equitable Resources, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
A. The accompanying financial statements should be read in conjunction with the
Company's 1996 Summary Annual Report and Form 10-K.
B. In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly the financial position as of September 30, 1997 and 1996 and
the results of operations for the three, nine and twelve months then ended
and cash flows for the three, nine and twelve months then ended. All
adjustments are of a normal, recurring nature unless otherwise indicated.
C. The results of operations for the three- and nine-month periods ended
September 30, 1997 and 1996 are not indicative of results for a full year
because of the seasonal nature of the Company's operations and volatility of
oil and gas commodity prices.
D. Certain amounts contained in prior period comparative information have been
reclassified to conform with the 1997 presentation.
E. Results for the periods ended September 30, 1997, include a non-recurring
pre-tax charge of $10.7 million related to evaluation and reduction of
corporate office and non-core business functions.
As more fully described in Management's Discussion and Analysis of Financial
Condition and Results of Operations, the Company has an investment in a 25
percent general partnership interest in the Avoca bedded salt, natural gas
storage project. The project has encountered technical difficulties related
to brine disposal which resulted in the discontinuation of the project.
Although alternative methods of disposing of the brine water have been
studied, none have proved to be economically viable. As a result, the
Company has written down its investment resulting in a $13 million charge in
June 1997.
In December 1996, the Company recognized a pre-tax gain of $7.4 million
related to the curtailment of the Company's defined benefit pension plan for
non-utility employees. The above items are reflected as impairment of assets
and non-recurring items in the Statements of Consolidated Income.
F. In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128 - "Earnings per Share"
effective for interim and annual periods ending after December 15, 1997.
This statement replaces primary earnings per share with a newly defined
basic earnings per share and modifies the computation of diluted earnings
per share. The adoption of the new Standard will not have a material effect
on the earnings per share presently disclosed.
SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," were
issued in 1997. These new standards will be adopted by the Company when
required, and are not expected to have a material effect on the consolidated
financial statements.
<PAGE>
G. At September 30, 1997, 9,171,000 shares of Common Stock were reserved as
follows: 566,000 shares for issuance under the Key Employee Restricted
Stock Option and Stock Appreciation Rights Incentive Compensation Plan,
1,726,000 shares for issuance under the Long-Term Incentive Plan, 76,000
shares for issuance under the Non-Employee Directors' Stock Incentive
Plan, 59,000 shares for issuance under the Company's Dividend
Reinvestment and Stock Purchase Plan, and 6,744,000 shares for possible
use in connection with future acquisitions.
H. In July 1997, the Company completed its acquisition of Northeast Energy
Services, Inc. (NORESCO) in exchange for a combination of the Company's
stock, stock options and cash valued at approximately $77 million.
NORESCO is a provider of comprehensive energy efficiency systems and
services for commercial, industrial, government, and institutional
customers. NORESCO's primary assets are accounts receivable from
customers and deferred contract costs which are included in other assets
in the consolidated balance sheets. The transaction is treated as a
purchase for accounting purposes. Based upon a preliminary valuation of
the assets and liabilities of NORESCO, the Company has recorded goodwill
of $57 million which will be amortized over 20 years.
In connection with this acquisition, the Company issued 2,091,407 shares of
common stock. Prior to completing the purchase, the Company repurchased one
million shares of outstanding stock in June and July 1997 at an average
price of $28.54 per share. Proforma financial information is not required as
the acquisition is not material to the financial position or results of
operations of the Company.
I. In July 1997, the Company entered into agreements with five parties for
the sale of the Company's oil and natural gas properties in the Western
United States and Canada. The sales were completed in September and
October for an aggregate cash sales price of approximately $174 million.
The sale resulted in a gain of approximately $50 million of which $25.6
million was recognized in September and is included in other income in
the Statements of Consolidated Income. As part of a tax deferred
like-kind exchange, a portion of the proceeds were placed in escrow.
Amounts held in escrow at September 30, 1997, are included in cash and
cash equivalents in the Consolidated Balance Sheets.
In October 1997, the Company completed an $80 million acquisition of
Louisiana offshore properties from Chevron. The properties, which are in
areas where the Company already has interests, have existing net production
of about 22 million cubic feet of gas and 1,800 barrels of oil per day.
J. In August 1997, the Company completed a $22 million acquisition of a 67-mile
pipeline in Louisiana from the Department of Energy. The pipeline, formerly
used for crude oil transportation, has been converted to natural gas
transmission capable of handling in excess of 500,000 MMBtu per day of
offshore production. The pipeline began transporting natural gas in October.
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 1997
Supply and Intersegment
Logistics Utilities Services Eliminations Consolidated
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gas Produced, Purchased and Sold (MMcf):
Produced 13,976 814 14,790
--------- --------- --------- --------- ---------
Purchased:
Other producers 149,881 9,492 33 159,406
Inter-segment purchases 1,674 597 17,684 (19,955)
--------- --------- --------- --------- ---------
Total purchases 151,555 10,089 17,717 (19,955) 159,406
--------- --------- --------- --------- ---------
Total produced and purchased 165,531 10,903 17,717 (19,955) 174,196
Deduct:
Net increase (decrease) in gas in storage 3,024 3,024
Extracted natural gas liquids
(equivalent gas volumes) 3,461 3,461
System use and unaccounted for 491 (664) (173)
--------- ---------- --------- --------- ---------
Total 161,579 8,543 17,717 (19,955) 167,884
========= ========= ========= ========= =========
Gas Sales (MMcf):
Residential 1,941 1,941
Commercial 162 162
Industrial and Utility 3,545 (1,675) 1,870
Production 13,976 (27) 13,949
Marketing 147,603 2,895 17,717 (18,253) 149,962
--------- --------- --------- ---------- ---------
Total 161,579 8,543 17,717 (19,955) 167,884
========= ========= ========= ========== =========
Natural Gas Transported (MMcf) 21,172 20,444 (10,665) 30,951
========= ========= ========= ========== =========
Oil Produced and Sold (thousands of bls) 361 361
========= =========
Natural Gas Liquids Sold
(thousands of gallons) 75,483 75,483
========= =========
Average Selling Price:
Residential Gas Sales (per Mcf) 12.690
Commercial Gas Sales 12.370
Industrial and Utility Gas Sales 2.384
Produced Natural Gas 2.105
Marketed Natural Gas 2.335 1.629 2.831
Oil (per barrel) 16.222
Natural Gas Liquids (per gallon) 0.333
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 1996
Supply and Intersegment
Logistics Utilities Services Eliminations Consolidated
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gas Produced, Purchased and Sold (MMcf):
Produced 13,696 661 14,357
--------- --------- --------- --------- ---------
Purchased:
Other producers 107,223 15,898 25,408 148,529
Inter-segment purchases (93) 1,187 (1,094)
---------- --------- --------- ---------- ---------
Total purchases 107,130 17,085 25,408 (1,094) 148,529
--------- --------- --------- --------- ---------
Total produced and purchased 120,826 17,746 25,408 (1,094) 162,886
Deduct:
Net increase (decrease) in gas in storage 3,597 3,597
Extracted natural gas liquids
(equivalent gas volumes) 2,436 2,436
System use and unaccounted for 561 861 1,422
--------- --------- --------- --------- ---------
Total 117,829 13,288 25,408 (1,094) 155,431
========= ========= ========= ========= =========
Gas Sales (MMcf):
Residential 2,087 2,087
Commercial 1,012 1,012
Industrial and Utility 9,255 1,512 10,767
Production 13,696 (24) 13,672
Marketing 104,133 934 25,408 (2,582) 127,893
--------- --------- --------- ---------- ---------
Total 117,829 13,288 25,408 1,094 155,431
========= ========= ========= ========= =========
Natural Gas Transported (MMcf) 31,260 15,855 (3,528) 43,587
========= ========= ========= ========= =========
Oil Produced and Sold (thousands of bls) 420 420
========= =========
Natural Gas Liquids Sold
(thousands of gallons) 76,785 76,785
========= =========
Average Selling Price:
Residential Gas Sales (per Mcf) 10.852
Commercial Gas Sales 5.985
Industrial and Utility Gas Sales 2.694
Produced Natural Gas 1.636
Marketed Natural Gas 1.736 3.394 2.462
Oil (per barrel) 14.705
Natural Gas Liquids (per gallon) 0.326
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1997
Supply and Intersegment
Logistics Utilities Services Eliminations Consolidated
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gas Produced, Purchased and Sold (MMcf):
Produced 40,288 1,783 42,071
--------- --------- --------- --------- ---------
Purchased:
Other producers 360,040 34,185 24,292 418,517
Inter-segment purchases 2,114 4,160 51,150 (57,424)
--------- --------- --------- ---------- ---------
Total purchases 362,154 38,345 75,442 (57,424) 418,517
--------- --------- --------- ---------- ---------
Total produced and purchased 402,442 40,128 75,442 (57,424) 460,588
Deduct:
Net increase (decrease) in gas in storage (715) (715)
Extracted natural gas liquids
(equivalent gas volumes) 8,310 8,310
System use and unaccounted for 1,563 (287) 1,276
--------- ---------- --------- --------- ---------
Total 392,569 41,130 75,442 (57,424) 451,717
========= ========= ========= ========== =========
Gas Sales (MMcf):
Residential 19,248 19,248
Commercial 2,279 2,279
Industrial and Utility 13,326 (5,878) 7,448
Production 40,288 (326) 39,962
Marketing 352,281 6,277 75,442 (51,220) 382,780
--------- --------- --------- ---------- ---------
Total 392,569 41,130 75,442 (57,424) 451,717
========= ========= ========= ========== =========
Natural Gas Transported (MMcf) 82,907 62,059 (32,878) 112,088
========= ========= ========= ========== =========
Oil Produced and Sold (thousands of bls) 1,193 1,193
========= =========
Natural Gas Liquids Sold
(thousands of gallons) 218,352 218,352
========= =========
Average Selling Price:
Residential Gas Sales (per Mcf) 10.659
Commercial Gas Sales 10.366
Industrial and Utility Gas Sales 2.663
Produced Natural Gas 2.156
Marketed Natural Gas 2.254 2.485 3.000
Oil (per barrel) 17.248
Natural Gas Liquids (per gallon) 0.352
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1996
Supply and Intersegment
Logistics Utilities Services Eliminations Consolidated
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gas Produced, Purchased and Sold (MMcf):
Produced 43,785 1,876 45,661
--------- --------- --------- --------- ---------
Purchased:
Other producers 367,108 52,609 25,408 445,125
Inter-segment purchases 2,754 8,144 (10,898)
--------- --------- --------- --------- ---------
Total purchases 369,862 60,753 25,408 (10,898) 445,125
--------- --------- --------- --------- ---------
Total produced and purchased 413,647 62,629 25,408 (10,898) 490,786
Deduct:
Net increase (decrease) in gas in storage 1,106 1,106
Extracted natural gas liquids
(equivalent gas volumes) 6,532 6,532
System use and unaccounted for 1,556 3,048 4,604
--------- --------- --------- --------- ---------
Total 405,559 58,475 25,408 (10,898) 478,544
========= ========= ========= ========= =========
Gas Sales (MMcf):
Residential 21,388 21,388
Commercial 9,326 9,326
Industrial and Utility 21,143 (47) 21,096
Production 43,785 (423) 43,362
Marketing 361,774 6,618 25,408 (10,428) 383,372
--------- --------- --------- ---------- ---------
Total 405,559 58,475 25,408 (10,898) 478,544
========= ========= ========= ========== =========
Natural Gas Transported (MMcf) 91,858 45,529 (19,402) 117,985
========= ========= ========= ========= =========
Oil Produced and Sold (thousands of bls) 1,312 1,312
========= =========
Natural Gas Liquids Sold
(thousands of gallons) 202,185 202,185
========= =========
Average Selling Price:
Residential Gas Sales (per Mcf) 8.628
Commercial Gas Sales 6.158
Industrial and Utility Gas Sales 2.958
Produced Natural Gas 1.850
Marketed Natural Gas 2.247 3.445 2.462
Oil (per barrel) 15.663
Natural Gas Liquids (per gallon) 0.329
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Twelve Months Ended September 30, 1997
Supply and Intersegment
Logistics Utilities Services Eliminations Consolidated
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gas Produced, Purchased and Sold (MMcf):
Produced 53,798 2,425 56,223
--------- --------- --------- --------- ---------
Purchased:
Other producers 451,041 47,703 23,073 521,817
Inter-segment purchases 6,283 11,810 82,876 (100,969)
--------- --------- --------- ---------- ---------
Total purchases 457,324 59,513 105,949 (100,969) 521,817
--------- --------- --------- ---------- ---------
Total produced and purchased 511,122 61,938 105,949 (100,969) 578,040
Deduct:
Net increase (decrease) in gas in storage (165) (165)
Extracted natural gas liquids
(equivalent gas volumes) 10,169 10,169
System use and unaccounted for 1,883 1,637 3,520
--------- --------- --------- --------- ---------
Total 499,070 60,466 105,949 (100,969) 564,516
========= ========= ========= ========== =========
Gas Sales (MMcf)
Residential 28,409 28,409
Commercial 3,458 3,458
Industrial and Utility 18,830 (11,265) 7,565
Production 53,798 (34,055) 19,743
Marketing 445,272 9,769 105,949 (55,649) 505,341
--------- --------- --------- ---------- ---------
Total 499,070 60,466 105,949 (100,969) 564,516
========= ========= ========= ========== =========
Natural Gas Transported (MMcf) 111,412 86,875 (50,100) 148,187
========= ========= ========= ========== =========
Oil Produced and Sold (thousands of bls) 1,608 1,608
========= =========
Natural Gas Liquids Sold
(thousands of gallons) 296,746 296,746
========= =========
Average Selling Price:
Residential Gas Sales (per Mcf) 10.288
Commercial Gas Sales 10.005
Industrial and Utility Gas Sales 2.856
Produced Natural Gas 2.142
Marketed Natural Gas 2.247 2.454 3.072
Oil (per barrel) 15.887
Natural Gas Liquids (per gallon) 0.374
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Twelve Months Ended September 30, 1996
Supply and Intersegment
Logistics Utilities Services Eliminations Consolidated
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gas Produced, Purchased and Sold (MMcf):
Produced 59,841 2,787 62,628
--------- --------- --------- --------- ---------
Purchased:
Other producers 483,172 69,608 25,408 578,188
Inter-segment purchases 7,952 12,513 (20,465)
--------- --------- --------- --------- ---------
Total purchases 491,124 82,121 25,408 (20,465) 578,188
--------- --------- --------- --------- ---------
Total produced and purchased 550,965 84,908 25,408 (20,465) 640,816
Deduct:
Net increase (decrease) in gas in storage (628) (628)
Extracted natural gas liquids
(equivalent gas volumes) 8,622 8,622
System use and unaccounted for 2,113 5,749 7,862
--------- --------- --------- --------- ---------
Total 540,230 79,787 25,408 (20,465) 624,960
========= ========= ========= ========= =========
Gas Sales (MMcf):
Residential 31,494 31,494
Commercial 11,064 11,064
Industrial and Utility 26,637 (4,309) 22,328
Production 59,841 (552) 59,289
Marketing 480,389 10,592 25,408 (15,604) 500,785
--------- --------- --------- --------- ---------
Total 540,230 79,787 25,408 (20,465) 624,960
========= ========= ========= ========= =========
Natural Gas Transported (MMcf) 118,570 56,477 (21,523) 153,524
========= ========= ========= ========= =========
Oil Produced and Sold (thousands of bls) 1,751 1,751
========= =========
Natural Gas Liquids Sold
(thousands of gallons) 266,804 266,804
========= =========
Average Selling Price:
Residential Gas Sales (per Mcf) 8.506
Commercial Gas Sales 6.418
Industrial and Utility Gas Sales 2.871
Produced Natural Gas 1.847
Marketed Natural Gas 2.136 2.885 2.462
Oil (per barrel) 15.774
Natural Gas Liquids (per gallon) 0.318
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
Information by Business Segment
(Thousands)
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
-----------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996
-----------------------------------------------------------------------------
(Thousands)
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Supply and logistics. $ 441,355 $ 268,212 $1,034,927 $1,032,523 $1,321,065 $1,348,623
Utilities ........... 54,552 66,639 332,073 362,740 476,774 502,247
Services............. 72,867 63,074 255,565 66,302 361,598 66,745
Sales between segments (60,672) (40,914) (161,128) (72,509) (225,257) (94,786)
--------- --------- ---------- ---------- ---------- ----------
Total...... $ 508,102 $ 357,011 $1,461,437 $1,389,056 $1,934,180 $1,822,829
========= ========= ========== ========== ========== ==========
OPERATING INCOME (LOSS) (A):
Supply and logistics. $ 22,768 $ 11,418 $ 46,016 $ 34,124 $ 63,902 $ (15,865)
Utilities............ (10,893) (2,297) 19,553 60,211 48,662 65,195
Services............. (1,924) (5,261) (8,198) (12,089) (8,651) (12,934)
--------- --------- --------- ---------- ---------- ----------
Total...... $ 9,951 $ 3,860 $ 57,371 $ 82,246 $ 103,913 $ 36,396
========= ========= ========= ========== ========== ==========
CAPITAL EXPENDITURES (B):
Supply and logistics. $ 50,801 $ 28,631 $ 83,732 $ 58,091 $ 98,258 $ 76,798
Utilities............ 16,921 9,062 35,224 22,284 49,771 39,714
Services............. 80,993 800 81,931 800 81,967 831
--------- --------- --------- ---------- ---------- ----------
Total...... $ 148,715 $ 38,493 $ 200,887 $ 81,175 $ 229,996 $ 117,343
========= ========= ========= ========== ========== ==========
(a) Includes impairment of assets and nonrecurring items.
(b) Includes acquisitions.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
THREE MONTHS ENDED SEPTEMBER 30, 1997
VS. THREE MONTHS ENDED SEPTEMBER 30, 1996
Equitable's consolidated net income for the quarter ended September 30,
1997 was $17.0 million, or $.47 per share, compared with net loss of $3.7
million, or $.10 per share, for the quarter ended September 30, 1996. The 1997
results include a pre-tax gain of $25.6 million from completion of a portion of
the sale of the Company's western region oil and gas production properties and a
non-recurring pre-tax charge of $10.7 million related to evaluation and
reduction of corporate office and non-core business functions. The increase in
income, excluding the items detailed above, is due to a 29 percent increase in
the average selling price for produced natural gas and lower exploration
expenses.
NINE MONTHS ENDED SEPTEMBER 30, 1997
VS. NINE MONTHS ENDED SEPTEMBER 30, 1996
Consolidated net income for the nine months ended September 30, 1997 was
$35.5 million or $.99 per share, compared with $36.0 million or $1.02 per share
for the nine months ended September 30, 1996. In addition to the gain on sale of
property and the non-recurring charge described above, the 1997 results include
a pre-tax charge of $13.0 million for an asset write-down related to the
Company's investment in a bedded salt, natural gas storage project in Avoca, New
York. The increase in income, excluding the items discussed above, is due to a
17 percent increase in average selling prices for produced natural gas, higher
margins from sale of natural gas liquids and lower exploration expenses which
were substantially offset by a 3.5 Bcf decrease in natural gas production and
lower margins from gas sales for the utility segment.
TWELVE MONTHS ENDED SEPTEMBER 30, 1997
VS. TWELVE MONTHS ENDED SEPTEMBER 30, 1996
Consolidated net income for the twelve months ended September 30, 1997 was
$58.9 million or $1.65 per share, compared with $9.2 million or $.26 per share
for the twelve months ended September 30, 1996. In addition to the impairment of
assets and nonrecurring items described above, the 1997 period includes a
one-time pre-tax gain of $7.4 million from the curtailment of the Company's
defined benefit pension plan for certain non-utility employees. Earnings for the
twelve months ended September 30, 1996 include a one-time pre-tax charge of
$121.1 million, due to the recognition of impairment of assets pursuant to the
methodology of Statement of Financial Accounting Standards No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." Earnings for the 1996 period also include a non-recurring pre-tax gain of
$45.0 million related to the Columbia Gas Transmission (Columbia) bankruptcy
settlement. The increase in net income, excluding the effect of the items
detailed above, is due to a 16 percent increase in average selling prices for
produced natural gas, higher margins from sale of natural gas liquids and lower
exploration expenses. These increases were partially offset by a 6.0 Bcf
decrease in natural gas production and lower margins from gas sales for the
utility segment.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
SUPPLY AND LOGISTICS
Supply and logistics operations are comprised of the sale of produced
natural gas, oil and natural gas liquids, contract drilling, marketing of
natural gas and electricity, and storage and intrastate transportation of
natural gas in Louisiana.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
<S> <C> <C> <C> <C> <C> <C>
SUPPLY AND LOGISTICS 1997 1996 1997 1996 1997 1996
OPERATING REVENUES (THOUSANDS):
Marketed Natural Gas.... $ 344,635 $180,753 $ 793,922 $ 812,743 $1,000,399 $1,026,259
Produced Natural Gas.... 29,414 22,401 86,857 81,020 115,237 110,531
Produced Natural Gas Liquids 25,110 25,029 76,932 66,544 111,016 84,916
Produced Oil............ 5,856 6,176 20,577 20,550 25,547 27,620
Contract Drilling....... 7,949 6,079 16,686 14,250 21,626 18,599
Marketed Electricity.... 15,858 10,180 19,111 12,701 21,577 15,222
Natural Gas Transportation 1,856 2,955 4,706 6,156 6,220 7,775
Natural Gas Storage..... 731 365 2,346 515 2,930 515
Direct Billing Settlements 7,815 7,815 7,815 7,815 7,815 21,586
Other................... 2,131 6,459 5,975 10,229 8,698 35,600
--------- -------- --------- --------- ---------- ---------
Total Revenues........ 441,355 268,212 1,034,927 1,032,523 1,321,065 1,348,623
COST OF ENERGY PURCHASED 372,070 209,284 854,735 865,298 1,082,376 1,089,603
--------- -------- --------- --------- ---------- ---------
Net Operating Revenues 69,285 58,928 180,192 167,225 238,689 259,020
--------- -------- --------- --------- --------- ---------
OPERATING EXPENSES:
Production.............. 7,897 7,791 25,567 23,729 36,361 31,635
Exploration............. 816 7,420 6,605 12,058 10,261 15,779
Gas Processing.......... 2,789 2,483 8,538 7,686 11,336 11,196
Contract Drilling....... 6,499 4,660 14,021 11,217 18,685 14,745
Other................... 13,985 11,182 38,536 35,757 44,474 49,996
Depreciation, Depletion
and Amortization..... 13,331 13,974 39,709 42,654 52,470 56,457
Impairment of Assets and
Nonrecurring items .. 1,200 1,200 1,200 95,077
--------- -------- --------- --------- --------- ----------
Total Operating Expenses 46,517 47,510 134,176 133,101 174,787 274,885
--------- -------- --------- ---------- --------- ----------
OPERATING INCOME (LOSS)... $ 22,768 $ 11,418 $ 46,016 $ 34,124 $ 63,902 $ (15,865)
========= ======== ========= ========= ========= ==========
SALES QUANTITIES:
Marketed Natural Gas (MMcf) 147,603 104,133 352,281 361,774 445,272 480,389
Produced Natural Gas (MMcf) 13,976 13,696 40,288 43,785 53,798 59,841
Oil (MBls).............. 361 420 1,193 1,312 1,608 1,751
Natural Gas Liquids.....
(thousands of gallons) 75,483 76,785 218,352 202,185 296,746 266,804
Transportation Deliveries (MMcf)(a) 21,172 31,260 82,907 91,858 111,412 118,570
(a)For 1997, deliveries of gas under exchange arrangements are no longer
included as transportation throughput. Prior period amounts have
not been restated.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
THREE MONTHS ENDED SEPTEMBER 30, 1997
VS. THREE MONTHS ENDED SEPTEMBER 30, 1996
Operating revenues were $441.4 million for the quarter ended September 30,
1997 compared with $268.2 million for the quarter ended September 30, 1996. The
increase in operating revenues is due to a 91 percent increase in revenues from
marketed gas sales a 29 percent increase in the average selling price for
produced natural gas, and higher revenues from marketed electricity.
Cost of energy purchased includes natural gas and electricity purchased for
marketing activities and natural gas purchased for the production of natural gas
liquids. The cost of energy purchased amounted to $372.1 million for the quarter
ended September 30, 1997 compared with $209.3 million for the quarter ended
September 30, 1996. The increase for the quarter reflects increased marketed
natural gas sales activity.
Other operating expenses were $45.3 million for the quarter ended September
30, 1997, excluding the nonrecurring charge of $1.2 million, compared to $47.5
million for the quarter ended September 30, 1996. Lower dry hole costs were
partially offset by increased contract drilling costs reflecting higher contract
drilling activity.
NINE MONTHS ENDED SEPTEMBER 30, 1997
VS. NINE MONTHS ENDED SEPTEMBER 30, 1996
Operating revenues of $1,034.9 million for the nine months ended September
30, 1997 were substantially the same as the $1,032.5 million for the nine months
ended September 30, 1996. A 17 percent increase in the average selling price of
produced natural gas, a 16 percent increase in revenues from the sale of natural
gas liquids and increased revenues from marketed electricity were substantially
offset by lower revenues from marketed gas sales and an 8 percent decrease in
natural gas production.
Cost of energy purchased for the nine months ended September 30, 1997
amounted to $854.7 million compared to $865.3 million for the nine months ended
September 30, 1996. The decrease reflects lower marketed natural gas sales
activity.
Other operating expenses of $134.2 million for the nine months ended
September 30, 1997 were substantially unchanged from the $133.1 million for the
nine months ended September 30, 1996. Lower dry hole costs and lower depletion
expense were more than offset by increases in expenses for contract drilling,
for well operations and for the storage operations which began full operations
in the second quarter of 1996.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
TWELVE MONTHS ENDED SEPTEMBER 30, 1997
VS. TWELVE MONTHS ENDED SEPTEMBER 30, 1996
Operating revenues for the twelve months ended September 30, 1997 were
$1,321.1 million compared with $1,348.6 million for the twelve months ended
September 30, 1996. The 1996 revenues include $40.2 million of nonrecurring
amounts from the Columbia bankruptcy settlement. The increase in revenues of
$12.7 million, excluding the Columbia settlement, is due to an increase in both
the average selling price and production of natural gas liquids of 18 percent
and 11 percent, respectively, and a 16 percent increase in the average selling
price for produced natural gas. These increases were partially offset by lower
marketed gas sales and a 10 percent reduction in natural gas production.
Cost of energy purchased for the twelve months ended September 30, 1997
amounted to $1,082.4 million compared to $1,089.6 million for the twelve months
ended September 30, 1996. The decrease in purchased energy for the twelve month
period is due to decreased marketed natural gas requirements, partially offset
by requirements for increased production of natural gas liquids.
Other operating expenses for the twelve months ended September 30, 1997
were $174.8 million compared with $274.9 million for the twelve months ended
September 30, 1996. Other operating expenses for 1996 include a charge of $95.1
million for impairment of assets as described in the Overview section above. The
decrease in operating expenses for the current period, excluding the charge for
impairment of assets in the 1996 period, is due primarily to lower exploration
costs and decreased depreciation and depletion expense, reflecting lower
production and lower depletion rates, which were partially offset by increased
well operating costs and higher expenses from contract drilling activities.
UTILITIES
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
marketing of natural gas.
The results for all 1997 periods discussed below include a charge of $9.3
million related to evaluation and reduction of corporate office and non-core
business functions. The nine-month and twelve-month periods ended September 30,
1997 also include a charge of $13.0 million for an asset write-down on the
Company's investment in a 25 percent general partnership interest in the Avoca,
New York bedded salt natural gas storage project. ET Avoca Company, a special
purpose subsidiary of the Company, filed a petition for relief under Chapter 11
of the United States Bankruptcy Code in the U.S. Bankruptcy Court for the
District of Delaware. The project encountered technical difficulties related to
the proper disposal of the brine water resulting from the leaching process of
the salt formation. Although alternative methods of disposing of the brine water
have been studied, none has proved to be economically viable resulting in
project termination.
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
<S> <C> <C> <C> <C> <C> <C>
UTILITIES 1997 1996 1997 1996 1997 1996
OPERATING REVENUES (THOUSANDS):
Residential Gas Sales.... $ 24,632 $ 22,648 $ 205,161 $ 184,529 $292,268 $ 267,875
Commercial Gas Sales..... 2,004 6,057 23,624 57,433 34,599 71,006
Industrial and Utility
Gas Sales ............. 8,452 24,929 35,492 62,538 53,787 76,471
Marketed Gas Sales....... 4,715 3,170 15,598 22,801 23,969 30,556
Transportation Service... 8,815 5,986 38,106 22,783 53,490 34,550
Storage Service.......... 2,171 1,842 5,957 5,436 7,826 7,230
Other.................... 3,763 2,007 8,135 7,220 10,835 14,559
--------- --------- --------- --------- -------- ---------
Total Revenues......... 54,552 66,639 332,073 362,740 476,774 502,247
COST OF ENERGY PURCHASED... 17,255 31,103 159,259 173,755 231,827 232,539
--------- --------- --------- --------- -------- ---------
Net Operating Revenues. 37,297 35,536 172,814 188,985 244,947 269,708
--------- --------- --------- --------- -------- ---------
OPERATING EXPENSES:
Other.................... 31,953 31,036 110,571 108,999 154,132 152,503
Depreciation, Depletion
and Amortization....... 6,912 6,797 20,365 19,775 27,198 26,446
Impairment of Assets and
Nonrecurring Items..... 9,325 22,325 14,955 25,564
--------- --------- --------- --------- -------- ---------
Total Operating Expenses 48,190 37,833 153,261 128,774 196,285 204,513
--------- --------- --------- --------- ---------- ---------
OPERATING INCOME (LOSS).... $ (10,893) $ (2,297) $ 19,553 $ 60,211 $ 48,662 $ 65,195
========== ========== ========= ========= ======== =========
SALES QUANTITIES (MMCF):
Residential Gas Sales.... 1,941 2,087 19,248 21,388 28,409 31,494
Commercial Gas Sales..... 162 1,012 2,279 9,326 3,458 11,064
Industrial and Utility
Gas Sales.............. 3,545 9,255 13,326 21,143 18,830 26,637
Marketed Gas Sales....... 2,895 934 6,277 6,618 9,769 10,592
Transportation Deliveries 20,444 15,855 62,059 45,529 86,875 68,450
Heating Degree Days...... 23 109 3,665 3,855 5,788 6,073
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1997
VS. THREE MONTHS ENDED SEPTEMBER 30, 1996
Revenues were $54.6 million for the quarter ended September 30, 1997
compared with $66.6 million for the quarter ended September 30, 1996. The
decrease in revenues is due primarily to the effect of commercial and industrial
gas sales customers switching to transportation service partially offset by
higher residential and commercial rates reflecting pass-through of higher
regulatory purchased gas costs to customers.
Cost of energy purchased amounted to $17.3 million for the quarter ended
September 30, 1997 compared with $31.1 million for the quarter ended September
30, 1996. The decrease is a result of reduced gas sales partially offset by the
pass-through of higher regulatory purchased gas costs to retail customers.
Other operating expenses for the quarter ended September 30, 1997 of $38.9
million, excluding the charge of $9.3 million described in the overview section
above, were substantially the same as the $37.7 million for the quarter ended
September 30, 1996.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1997
VS. NINE MONTHS ENDED SEPTEMBER 30, 1996
Operating revenues for the nine months ended September 30, 1997 were $332.1
million compared with $362.7 million for the nine months ended September 30,
1996. The decrease in revenues of $30.6 million is due primarily to the effect
of commercial and industrial customers switching from gas sales to
transportation service, and a 10 percent decrease in residential sales volumes
reflecting customer conservation and weather that was 5 percent warmer than the
prior year. These decreases were partially offset by higher residential and
commercial rates reflecting pass-through of higher regulatory purchased gas
costs to customers.
Cost of energy purchased for the nine months ended September 30, 1997 was
$159.3 million compared with $173.4 million for the nine months ended September
30, 1996. The decrease is due to lower purchased quantities of gas as a result
of reduced gas sales, partially offset by the pass-through of higher regulatory
purchased gas costs to retail customers.
Other operating expenses for the nine months ended September 30, 1997,
excluding the charges described in the overview section above, were $130.9
million compared with $128.8 million for the nine months ended September 30,
1996. The increase in operating expenses is primarily due to increased customer
assistance expenses and higher reserves for doubtful accounts, both reflecting
the impact of higher rates for retail customers.
TWELVE MONTHS ENDED SEPTEMBER 30, 1997
VS. TWELVE MONTHS ENDED SEPTEMBER 30, 1996
Operating revenues for the twelve months ended September 30, 1997 were
$476.8 million compared with $502.2 million for the twelve months ended
September 30, 1996. Operating revenues for the 1996 period include $4.8 million
related to the Columbia bankruptcy settlement. The decrease in revenues,
excluding the effect of the settlement, is due to the effect of commercial and
industrial customers switching to transportation service, lower sales to utility
customers, and lower residential gas sales reflecting warmer weather and
customer conservation. These decreases were partially offset by higher
residential and commercial rates reflecting pass-through of higher regulatory
purchased gas costs to customers.
Cost of energy purchased of $231.8 million for the twelve months ended
September 30, 1997 was substantially unchanged from the $232.5 million for the
twelve months ended September 30, 1996. The lower requirements reflecting lower
gas sales were substantially offset by the pass-through of higher regulatory
purchased gas costs to retail customers.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Other operating expenses for the twelve months ended September 30, 1997,
excluding the impairment of assets and nonrecurring items described in the
overview section above, were $181.3 million compared with $178.9 million,
excluding the impairment of assets, for the twelve months ended September 30,
1996. The increase in operating expenses is primarily due to increased customer
assistance expenses and higher reserves for doubtful accounts, both reflecting
the impact of higher rates for retail customers.
SERVICES
Services operations are comprised of marketing of natural gas,
cogeneration development, water efficiency and program development, performance
contracting, and central facility plant operations. This operation was formed in
mid-1996 by combining certain of the Company's natural gas marketing activities
with the newly acquired operations of Independent Energy Corporation (IEC),
Conogen, Inc. and Pequod Associates, Inc. The Company also acquired Scallop
Thermal Management, Inc. in January, 1997 and Northeast Energy Services, Inc.
(NORESCO) in July, 1997. The variances in the following comparison of operating
results reflects the recent development of this segment.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
<S> <C> <C> <C> <C> <C> <C>
SERVICES 1997 1996 1997 1996 1997 1996
OPERATING REVENUES (THOUSANDS):
Marketed Natural Gas..... $ 50,155 $ 62,544 $ 226,358 $ 62,544 $325,423 $ 62,544
Energy Service Contracting 22,500 506 28,456 1,604 35,276 1,604
Other ................... 212 24 751 2,154 899 2,597
--------- --------- --------- --------- -------- ---------
Total Revenues...... 72,867 63,074 255,565 66,302 361,598 66,745
COST OF ENERGY PURCHASED... 49,383 61,869 220,880 64,145 316,720 64,659
--------- --------- --------- --------- -------- ---------
Net Operating Revenues 23,484 1,205 34,685 2,157 44,878 2,086
--------- --------- --------- --------- -------- ---------
OPERATING EXPENSES:
Energy Service Contract
Costs ................. 16,409 418 20,347 1,019 22,578 1,019
Other.................... 7,645 6,014 20,713 13,193 28,804 13,527
Depreciation, Depletion
and Amortization....... 1,154 34 1,623 34 1,947 34
Impairment of Assets and
Nonrecurring items..... 200 - 200 - 200 440
--------- --------- --------- --------- -------- ---------
Total Operating
Expenses............ 25,408 6,466 42,883 14,246 53,529 15,020
--------- -------- --------- --------- --------- ---------
OPERATING INCOME (LOSS).... $ (1,924) $ (5,261) $ (8,198) $ (12,089)$ (8,651) (12,934)
========= ========== ========= ========= ========= =========
SALES QUANTITIES:
Marketed Natural Gas (MMcf) 17,717 25,408 75,442 25,408 105,949 25,408
</TABLE>
Operating results for the quarter ended September 30, 1997 were a loss of
$1.9 million compared with a loss of $5.3 million for the quarter ended
September 30, 1996. Operating results for the nine months ended September 30,
1997 were a loss of $8.2 million compared with a loss of $12.1 million for the
nine months ended September 30, 1996. Operating results for the twelve months
ended September 30, 1997 were a loss of $8.7 million compared with a loss of
$12.9 million for the twelve months ended September 30, 1996. The losses for the
1996 periods reflect start-up and development costs. The operating losses in
1997 are primarily due to construction project start-ups being delayed in
addition to the inability to initiate new product sales into a slow-to-develop
unregulated marketplace.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
CAPITAL RESOURCES AND LIQUIDITY
OPERATING ACTIVITIES
Cash required for operations is affected primarily by the seasonal nature
of the Company's natural gas distribution operations, the timing of pass-through
of changes in gas costs to retail customers in regulated rates and volatility of
oil and gas commodity prices. Gas purchased for storage during the nonheating
season is financed with short-term loans, which are repaid as gas is withdrawn
from storage and sold during the heating season. The Company's performance
contracting business also requires substantial initial working capital
investment which is recovered in revenues as future energy savings are realized
or when the contract is assigned. In addition, short-term loans are used to
provide other working capital requirements during the nonheating season and as
interim financing for a portion of capital expenditures. The Company expects to
finance its 1997 capital expenditures, excluding acquisitions, with cash
generated from operations and temporarily with short-term loans.
In September 1997, Equitable Gas Company, the local distribution
operations of the Company, received approval from the Pennsylvania Public
Utility Commission for an annual increase in base rates of $15.8 million
effective October 15, 1997.
The Company uses exchange-traded natural gas, crude oil and propane
futures contracts and options and over-the-counter natural gas and crude oil
swap agreements and options to hedge exposures to energy price changes.
INVESTING ACTIVITIES
The Company's business requires major ongoing expenditures for
replacements, improvements, and additions to its utility plant and continuing
development and expansion of its resource production activities. Capital
expenditures, excluding acquisitions that are more fully described below, were
$102.0 million for the nine months ended September 30, 1997.
In July 1997, the Company completed its acquisition of Northeast Energy
Services, Inc. (NORESCO) as more fully described in Note H to the Consolidated
Financial Statements.
In August 1997, the Company completed a $22 million acquisition of a
67-mile pipeline in Louisiana from the Department of Energy. The pipeline,
formerly used for crude oil transportation, has been converted to natural gas
transmission capable of handling in excess of 500,000 MMBtu per day. The
pipeline began transporting natural gas in October.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
In July 1997, the Company entered into agreements with five parties for
the sale of the Company's oil and natural gas properties in the Western United
States and Canada. The properties include proved reserves of 191 billion cubic
feet of natural gas equivalent and over 700,000 undeveloped acres as of December
31, 1996. The sales were completed in September and October for an aggregate
cash sales price of $174 million. The sale resulted in a gain of approximately
$50.0 million of which $25.6 million was recognized in September. As part of a
tax deferred like-kind exchange, a portion of the proceeds were placed in escrow
and are included in cash and cash equivalents in the Consolidated Balance
Sheets.
In October 1997, the Company completed the acquisition of certain Gulf of
Mexico properties from Chevron for approximately $80 million. The acquired
properties have existing net production of about 22 million cubic feet of gas
and 1,800 barrels of oil per day and are situated in areas where the Company
already has interests.
In October 1997, the Company completed the sale of its contract drilling
assets to a private investor group. Proceeds from the sale were $7.0 million.
The Company has begun a 200 million cubic feet per day expansion at its
Plaquemine Louisiana processing plant which is part of the LIG system. The
expansion will provide for the additional production of up to 850,000 gallons of
natural gas liquids per day beginning in late 1998. The cost of the expansion
will be approximately $23.0 million. The Company has entered into an amendment
to its long-term agreement with AMOCO Production Company for increased
processing of their natural gas produced in Louisiana.
The Company is presently upgrading many of its financial systems as part
of an enterprise-wide initiative to integrate systems and enhance operational
efficiencies. These systems are year 2000 compliant. The impact of the year 2000
on other systems is being evaluated. Presently, the estimated costs to convert
other systems is not expected to be material.
FINANCING ACTIVITIES
The Company has adequate borrowing capacity to meet its financing
requirements. Bank loans and commercial paper, supported by available credit,
are used to meet short-term financing requirements. At September 30, 1997,
$264.9 million of commercial paper and $42.7 million of bank loans were
outstanding at an average annual interest rate of 5.74 percent. The Company
maintains a committed, revolving $500 million credit agreement with a group of
banks which expires September 1, 2001. The agreement requires a facility fee of
one-tenth of one percent.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q may include forward looking statements.
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's 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 the Company's success in
acquiring gas and oil properties and in discovering, developing and producing
reserves and the impact of competitive factors on profit margins in various
markets in which the Company competes.
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K during the quarter ended September 30, 1997:
Form 8-K dated July 17, 1997, announcing the completion of
purchase of Northeast Energy Services Company.
Form 8-K dated July 21, 1997, announcing the early retirement of
Company President and Chief Executive Officer, Frederick H.
Abrew, effective July 17, 1997 and appointment of Donald I Moritz
as interim Chief Executive Officer.
Form 8-K dated July 29, 1997, announcing that the Company had
entered into sales agreements with five purchasers covering its
oil and natural gas properties in the western United States and
Canada.
Form 8-K dated August 1, 1997, announcing resignation of A.
Mark Abramovic, Senior Vice President and Chief Financial Officer
effective August 29, 1997.
Form 8-K dated August 1, 1997, announcing that ET Avoca Company,
a special purpose subsidiary of the Company, filed a petition for
relief under Chapter 11 of the United States Bankruptcy Code
related to its partnership interest in the Avoca natural gas
storage project which has been discontinued.
<PAGE>
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/ Jeffrey C. Swoveland
-----------------------------------------
Jeffrey C. Swoveland
Vice President - Finance and Treasurer
and Interim Chief Financial Officer
Date: November 14, 1997
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