<PAGE> 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
<PAGE> 2
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C> <C>
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
</TABLE>
<PAGE> 3
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
------------------------------------
(Thousands except per share amounts)
<S> <C> <C>
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
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
1
<PAGE> 4
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
-----------------------------
(Thousands)
<S> <C> <C>
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)
========= ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE> 5
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS March 31, December 31,
2000 1999
--------------------------------
(Thousands)
<S> <C> <C>
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
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 6
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY March 31, December 31,
2000 1999
--------------------------------
(Thousands)
<S> <C> <C>
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
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 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.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
-------------------------------------
(Thousands, except per share amounts)
<S> <C> <C>
Revenue $396,371 $451,926
======== ========
Net income $ 40,126 $ 33,976
======== ========
Earnings per share:
Basic $ 1.23 $ .96
======== ========
Diluted $ 1.21 $ .96
======== ========
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
--------------------------
<S> <C> <C>
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
======== ========
</TABLE>
6
<PAGE> 9
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
C. Segment Disclosure (Continued)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------------------------------
(Thousands)
<S> <C> <C>
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
========== ==========
</TABLE>
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
<PAGE> 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
<PAGE> 11
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
EQUITABLE UTILITIES (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
---------------------------
<S> <C> <C>
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
</TABLE>
9
<PAGE> 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
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
------------------------
<S> <C> <C>
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
======= =======
</TABLE>
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
<PAGE> 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
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
------------------------
(Thousands of Dollars)
<S> <C> <C>
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
</TABLE>
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
<PAGE> 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
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
------------------------
<S> <C> <C>
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
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
--------------------------
<S> <C> <C>
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
</TABLE>
13
<PAGE> 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
<PAGE> 17
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
PRODUCTION - EAST OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
------------------------
<S> <C> <C>
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
</TABLE>
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
<PAGE> 18
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
PRODUCTION - GULF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
------------------------
<S> <C> <C>
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
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
--------------------------
<S> <C> <C>
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%
</TABLE>
17
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 26
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Document Description
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
27 Financial Data Schedule for the Period Filed Herewith
Ended March 31, 2000
</TABLE>
24
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,703
<SECURITIES> 0
<RECEIVABLES> 222,476
<ALLOWANCES> 16,407
<INVENTORY> 23,211
<CURRENT-ASSETS> 340,303
<PP&E> 2,782,689
<DEPRECIATION> 866,121
<TOTAL-ASSETS> 2,503,800
<CURRENT-LIABILITIES> 1,108,478
<BONDS> 298,350
0
0
<COMMON> 150,372
<OTHER-SE> 525,537
<TOTAL-LIABILITY-AND-EQUITY> 2,503,800
<SALES> 0
<TOTAL-REVENUES> 379,099
<CGS> 0
<TOTAL-COSTS> 214,756
<OTHER-EXPENSES> 84,699
<LOSS-PROVISION> 3,896
<INTEREST-EXPENSE> 15,795
<INCOME-PRETAX> 61,387
<INCOME-TAX> 22,284
<INCOME-CONTINUING> 39,103
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,103
<EPS-BASIC> 1.20
<EPS-DILUTED> 1.18
</TABLE>
