<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) FEBRUARY 15, 2000
- --------------------------------------------------------------------------------
EQUITABLE RESOURCES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 1-3551 25-0464690
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
ONE OXFORD CENTRE, SUITE 3300, 301 GRANT STREET, PITTSBURGH, PENNSYLVANIA 15219
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (412) 553-5700
-----------------------------
NONE
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 2. ACQUISITION OF ASSETS
On February 15, 2000, Equitable Resources, Inc. (the Registrant; NYSE:
EQT), through its subsidiary ERI Investments, Inc., completed the
previously announced acquisition of the Appalachian oil and gas
properties of Statoil Energy, Inc. for $630 million, subject to
customary closing adjustments.
Under the terms of the stock purchase agreement by and among the
Registrant, Statoil Energy, Inc., Statoil Energy Holdings, Inc. and
Statoil North America, Inc. dated as of December 31, 1999, the
Registrant acquired all of the issued and outstanding shares and
interests of Eastern States Oil & Gas, Inc. and Eastern States
Exploration Co., subsidiaries of Statoil Energy, Inc.
The assets acquired are contiguous to the Registrant's Appalachian
properties and consist of approximately 1.2 Tcfe (trillion cubic feet
equivalent) of proven natural gas reserves and 6,500 natural gas wells
in West Virginia, Kentucky, Pennsylvania and Ohio.
The acquisition, which is accounted for as a purchase, has been funded
initially through commercial paper, to be replaced by a combination of
financings and cash from asset sales.
ITEM 7. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. PAGE
<S> <C>
Report of Independent Auditors F-1
Statements of Combined Operations for the years ended
December 31, 1999 and 1998 F-2
Combined Balance Sheets - December 31, 1999 and 1998 F-3
Statements of Combined Cash Flows for the years ended
December 31, 1999 and 1998 F-4
Statements of Common Stockholder's Equity for the years
ended December 31, 1999 and 1998 F-5
Notes to Combined Financial Statements F-6 to F-15
</TABLE>
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
(b) PRO FORMA FINANCIAL INFORMATION. PAGE
<S> <C>
Unaudited Pro Forma Consolidated Condensed Financial
Statements F-16
Unaudited Pro Forma Consolidated Condensed Statement of
Operations for the Year Ended December 31, 1999 F-17
Unaudited Pro Forma Consolidated Condensed Balance Sheet
as of December 31, 1999 F-18
Notes to Unaudited Pro Forma Consolidated Condensed
Financial Statements F-19
Unaudited Pro Forma Supplemental Oil and Gas Disclosure
as of December 31, 1999 F-20 to F-21
</TABLE>
(c) EXHIBITS.
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
Exhibit 2 Stock Purchase Agreement by and among Equitable
Resources, Inc., Statoil Energy, Inc., Statoil
Energy Holdings, Inc. and Statoil North America,
Inc. dated as of December 31, 1999. (Incorporated
by reference to Exhibit 2 of the Registrant's
current report on Form 8-K filed with the
Commission on February 17, 2000.)
Exhibit 23.1 Consent of Ernst & Young LLP, filed herewith.
Exhibit 99 Equitable Resources, Inc., press release announcing
the completion of the acquisition of the
Appalachian production assets of Statoil Energy,
Inc. (Incorporated by reference to Exhibit 99 of
the Registrant's current report on Form 8-K filed
with the Commission on February 17, 2000.)
</TABLE>
<PAGE> 4
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
To the Shareholder
Eastern States Exploration Co.
Eastern States Oil & Gas, Inc.
We have audited the accompanying combined balance sheets of Eastern States
Exploration Co. and Eastern States Oil & Gas, Inc. ("Company") at December 31,
1999 and 1998, and the related combined statements of operations, stockholder's
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Company at
December 31, 1999 and 1998, and the combined results of operations and cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States.
/s/ ERNST & YOUNG LLP
---------------------
Ernst & Young LLP
April 26, 2000
Pittsburgh, Pennsylvania
F-1
<PAGE> 5
EASTERN STATES EXPLORATION CO. AND
EASTERN STATES OIL & GAS, INC.
STATEMENTS OF COMBINED OPERATIONS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998
--------------------------
(Thousands)
<S> <C> <C>
Operating revenues $120,882 $110,640
Operating expenses:
Exploration 1,657 1,709
Production 17,273 14,628
Selling, general and administrative 9,367 10,821
Depreciation, depletion and amortization 29,464 27,671
-------- --------
Total operating expenses 57,761 54,829
-------- --------
Operating income 63,121 55,811
Interest charges 43,240 40,189
-------- --------
Income before income taxes 19,881 15,622
Income taxes 7,734 6,077
-------- --------
Net income $ 12,147 $ 9,545
======== ========
</TABLE>
SEE NOTES TO COMBINED FINANCIAL STATEMENTS.
F-2
<PAGE> 6
EASTERN STATES EXPLORATION CO. AND
EASTERN STATES OIL & GAS, INC.
COMBINED BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998
--------------------------
(Thousands)
ASSETS
<S> <C> <C>
Current assets:
Accounts receivable - trade $ 4,873 $ 11,537
Accounts receivable - affiliate 23,817 28,696
Inventory 2,855 1,610
Deferred income taxes 11,737 7,847
Prepaid expenses and other 333 231
-------- --------
Total current assets 43,615 49,921
Property and equipment - net 682,929 643,069
Other assets 586 291
-------- --------
Total assets $727,130 $693,281
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 13,372 $ 8,251
Accounts payable to affiliated companies 85,861 70,920
Other current liabilities 3,075 17,597
-------- --------
Total current liabilities 102,308 96,768
Long-term debt to affiliated companies 521,214 518,495
Deferred income taxes 23,987 12,402
Other liabilities 4,093 2,235
Common stockholder's equity 75,528 63,381
-------- --------
Total liabilities and stockholder's equity $727,130 $693,281
======== ========
</TABLE>
SEE NOTES TO COMBINED FINANCIAL STATEMENTS.
F-3
<PAGE> 7
EASTERN STATES EXPLORATION CO. AND
EASTERN STATES OIL & GAS, INC.
STATEMENTS OF COMBINED CASH FLOWS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1999 1998
---------------------------
(Thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 12,147 $ 9,545
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and depletion 29,464 27,671
Deferred income taxes 7,695 5,952
Exploration expense 1,657 1,709
Gain on sale of property (13) --
Changes in other assets and liabilities:
Accounts receivable 11,543 (14,924)
Inventory (1,245) 2,536
Accounts payable and accrued expenses (9,402) 5,214
Accounts payable to affiliated companies 14,941 11,376
Other - net 1,706 1,165
-------- --------
Total adjustments 56,346 40,699
-------- --------
Net cash provided by operating activities 68,493 50,244
Cash flows from investing activities:
Capital expenditures (71,308) (76,686)
Proceeds from sale of property 96 23,957
-------- --------
Net cash used in investing activities (71,212) (52,729)
-------- --------
Cash flows from financing activities:
Increase in long-term debt to affiliated companies 2,719 2,485
-------- --------
Net cash provided by financing activities 2,719 2,485
-------- --------
Net change in cash and cash equivalents -- --
Cash and cash equivalents - beginning of year -- --
-------- --------
Cash and cash equivalents - end of year $ -- $ --
======== ========
Cash paid during the year for:
Interest $ 43,200 $ 40,200
======== ========
</TABLE>
SEE NOTES TO COMBINED FINANCIAL STATEMENTS.
F-4
<PAGE> 8
EASTERN STATES EXPLORATION CO. AND
EASTERN STATES OIL & GAS, INC.
STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Additional Total
Common Paid - In Retained Stockholder's
Stock (a) Capital Earnings Equity
-------------------------------------------------------------
(Thousands)
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 $ 1 $52,677 $ 1,158 $53,836
Net income for the year 1998 -- -- 9,545 9,545
------- ------- ------- -------
BALANCE, DECEMBER 31, 1998 1 52,677 10,703 63,381
Net income for the year 1999 -- -- 12,147 12,147
------- ------- ------- -------
BALANCE, DECEMBER 31, 1999 $ 1 $52,677 $22,850 $75,528
======= ======= ======= =======
</TABLE>
(a) Common shares authorized: 16,000 shares; issued: 1,100 shares outstanding
SEE NOTES TO COMBINED FINANCIAL STATEMENTS.
F-5
<PAGE> 9
EASTERN STATES EXPLORATION CO. AND
EASTERN STATES OIL & GAS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1999
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY: For the years ended December 31, 1999 and 1998, Eastern
States Exploration Co. and Eastern States Oil & Gas, Inc. ("Company") were
wholly-owned subsidiaries of Statoil Energy Holdings, Inc. ("SEH"). The Company
is engaged in natural gas and oil exploration and production in the states of
Ohio, Pennsylvania, West Virginia and Kentucky. SEH is a wholly-owned subsidiary
of Statoil Energy, Inc. ("STEN") and holds STEN's interests in various operating
entities engaged in energy related activities.
PRINCIPLES OF CONSOLIDATION: The combined financial statements include
the accounts of the Company, its wholly-owned subsidiaries and its proportionate
share of the assets, liabilities, revenue and expenses of various oil and gas
ventures. All intercompany accounts and transactions have been eliminated.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect certain reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements. These estimates and assumptions also affect certain
amounts of reported revenues and expenses. Actual results could differ from
those estimates.
The financial statements include allocations of interest expense,
income taxes and direct and indirect corporate administrative costs attributable
to the Company. The methods by which such amounts are attributed and allocated
are deemed reasonable by management. All intercompany transactions including
allocated expenses are deemed to be paid in the period recorded.
ACCOUNTS RECEIVABLE: Accounts receivable arise primarily from the sale
of natural gas. The Company performs ongoing credit evaluations of its customers
to minimize its exposure to credit risk. The Company's allowance for doubtful
accounts, which is reflected in the combined balance sheets as a reduction in
accounts receivable, was $0.1 million and $0.3 million at December 31, 1999 and
1998, respectively.
CONCENTRATION OF CREDIT RISK: In 1999 and 1998, sales to Statoil Energy
Services, Inc. ("SES"), an affiliated company, were 53% and 48%, respectively,
of total revenues. Sales to an unaffiliated purchaser were 22% and 23% in 1999
and 1998, respectively. There were no other customers with purchases of greater
than 10% of total revenues for 1999 and 1998.
REVENUE RECOGNITION: Revenues are recognized when title passes to the
customer. The Company records estimated amounts for natural gas and oil revenues
based on volumetric calculations under its natural gas sales contracts. The
quantity and dollar amount of gas balancing arrangements were not material.
F-6
<PAGE> 10
EASTERN STATES EXPLORATION CO. AND
EASTERN STATES OIL & GAS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1999
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OIL AND GAS PROPERTIES: The Company uses the successful efforts method
of accounting for exploration and production activities. Under this method, the
cost of productive wells and development dry holes, as well as productive
acreage, are capitalized and depleted on the unit-of-production method.
Gathering systems are depreciated using the straight-line method over
the useful lives of assets (20 to 25 years).
Other property and equipment is stated at original cost and long-lived
assets are reviewed annually for impairment in accordance with current
accounting standards. Depreciation of other property and equipment is provided
on a straight-line basis over the useful lives of the assets (5 to 10 years for
equipment). Repairs of property and equipment are charged to expense as
incurred.
INVENTORIES: Inventories, which consist of materials and supplies, are
stated at the lower of cost, determined using the first-in, first-out method, or
market.
INCOME TAXES: The current provision for income taxes represents amounts
estimated to be payable. Deferred income tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities. Under this method, the effect of a change in income tax
rates on deferred tax assets and liabilities is recognized as an element of
income in the period the rate change is enacted.
The Company and all Statoil Group-Norway ("Statoil") affiliated
companies located in the United States, participate in a tax sharing
arrangement, whereby federal income tax returns would be filed on a consolidated
basis. For financial reporting purposes, each company accounts for its income
taxes on a separate company basis.
SEGMENT REPORTING: In accordance with Statement of Financial Accounting
Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and
Related Information," the Company has identified only one operating segment,
which is the exploration and production of oil and gas. All the Company's assets
are located in the United States and all of its revenues are attributable to the
United States customers.
COMPREHENSIVE INCOME: The Company has adopted the provisions of SFAS
No. 130, "Reporting Comprehensive Income". Comprehensive income includes net
income and other changes to stockholders' equity in the current period. SFAS No.
130 does not impact amounts previously reported for net income. Because the
Company does not have material items accounted for as other comprehensive
income, the adoption of SFAS NO. 130 did not have a significant impact on the
Company's financial statements.
F-7
<PAGE> 11
EASTERN STATES EXPLORATION CO. AND
EASTERN STATES OIL & GAS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1999
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE COMMODITY INSTRUMENTS: The Company uses exchange-traded
natural gas futures contracts and options and over-the-counter (OTC) natural gas
swap agreements and options to hedge exposures to fluctuations in natural gas
prices.
At contract inception, the Company designates derivative commodity
instruments as hedging activities. The Company uses the deferral accounting
method to account for exchange-traded derivative commodity instruments
designated and effective as hedges. Under this method, changes in the market
value of these hedge positions are deferred and included in other current assets
and other current liabilities. These deferred realized and unrealized gains and
losses are included in operating revenues when the hedged transactions occur. In
the event a hedge contract is terminated early, the deferred gain or loss
realized on early termination of the contract will be recognized as the hedged
production occurs. The Company uses the settlement method to account for OTC
swap agreements and options designated and effective as hedges. Under this
method, gains or losses associated with the contract are recognized at the time
the hedged production occurs. Premiums on option contracts are deferred in other
current assets and recognized in operating revenues over the option term. Cash
flows from derivative contracts are considered operating activities.
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." 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 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. Any 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.
The Company has not yet determined what the effect of SFAS No. 133 will
be on the earnings and financial position of the Company.
B. DERIVATIVE COMMODITY INSTRUMENTS
The Company is exposed to risk from fluctuations in energy prices in
the normal course of business. The Company uses derivative contracts to hedge
exposures to natural gas price changes.
F-8
<PAGE> 12
EASTERN STATES EXPLORATION CO. AND
EASTERN STATES OIL & GAS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1999
B. DERIVATIVE COMMODITY INSTRUMENTS (CONTINUED)
The following table summarizes the absolute notional quantities of the
derivative contracts held for purposes other than trading at December 31, 1999
and 1998. The swap agreements at year-end 1999 have maturities extending through
December 2009. At December 31, 1998, the open futures and options contracts had
maturities extending through November 1999 and October 2003, respectively, while
the swap agreements had maturities extending through December 2009.
<TABLE>
<CAPTION>
ABSOLUTE NOTIONAL QUANTITY DEFERRED GAIN (LOSS)
--------------------------------------------------------------
1999 1998 1999 1998
--------------------------------------------------------------
(Bcf EQUIVALENT) (MILLIONS)
<S> <C> <C> <C> <C>
NATURAL GAS
Futures -- 3.4 $ -- $ 2.0
Swaps 63.7 108.1 (18.8) 10.8
Options -- 20.5 -- (0.8)
---- ----- ------ -----
Totals 63.7 132.0 $(18.8) $12.0
==== ===== ====== =====
(MBLs EQUIVALENT) (MILLIONS)
CRUDE OIL
Futures -- -- $ -- $ --
Swaps 120 -- (0.8) --
Options -- -- -- --
---- ----- ------ -----
Totals 120 -- $ (0.8) $ --
==== ===== ====== =====
</TABLE>
There were no deferred realized amounts from hedge transactions at
December 31, 1998. The Company recognized net gains on its hedging activities of
$1.1 million and $7.4 million in 1999 and 1998, respectively. These gains are
offset when the underlying products are sold.
The Company is exposed to credit loss in the event of nonperformance by
counterparties to derivative contracts. This credit exposure is limited to
derivative contracts with a positive fair value. Futures contracts have minimal
credit risk because futures exchanges are the counterparties. The Company
manages the credit risk of the other derivative contracts by limiting dealings
to those counterparties who meet the Company's criteria for credit and liquidity
strength.
F-9
<PAGE> 13
EASTERN STATES EXPLORATION CO. AND
EASTERN STATES OIL & GAS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1999
C. PROPERTY AND EQUIPMENT
Investments in property and equipment comprise the following:
<TABLE>
<CAPTION>
December 31,
1999 1998
--------------------------
(Thousands)
<S> <C> <C>
Natural gas and oil properties $698,130 $637,750
Gathering systems 76,517 68,203
Other 7,852 7,308
-------- --------
Total 782,499 713,261
Less accumulated depreciation, depletion and amortization 99,570 70,192
-------- --------
Property and equipment, net $682,929 $643,069
======== ========
</TABLE>
D. INCOME TAXES
The following table summarizes the source and tax effects of temporary
differences between financial reporting and tax bases of assets and liabilities:
<TABLE>
<CAPTION>
1999 1998
---------------------------
(Thousands)
<S> <C> <C>
DEFERRED TAX LIABILITIES (ASSETS):
Oil and gas property cost in excess of tax basis $ 24,570 $ 12,985
Net operating loss (10,524) (7,065)
Alternative minimum tax (1,050) (657)
Other (746) (708)
-------- --------
Total (including amounts classified as current assets of
$11,737 for 1999 and $7,847 for 1998) $ 12,250 $ 4,555
======== ========
</TABLE>
F-10
<PAGE> 14
EASTERN STATES EXPLORATION CO. AND
EASTERN STATES OIL & GAS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1999
D. INCOME TAXES (CONTINUED)
Income tax expense (benefit) is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------
(Thousands)
<S> <C> <C>
Deferred:
Federal $7,166 $5,822
State 568 255
------ ------
Total $7,734 $6,077
====== ======
</TABLE>
Provisions for income taxes differ from amounts computed at the federal
statutory rate of 35% due primarily to the recording of state income taxes. As
of December 31, 1999, the Company has available, for income tax purposes,
minimum tax credit carryforwards of approximately $1.1 million, which do not
expire, and net operating loss carryforwards of approximately $27.1 million,
which expire in 2006 through 2019.
E. TRANSACTIONS WITH AFFILIATED COMPANIES
The Company, in the ordinary course of business, has transactions with
affiliated companies as follows:
During 1999 and 1998, the Company's revenues include gas sold to
affiliates of $63.9 million and $53.2 million, respectively.
STEN provided certain administrative services for the Company. The cost
for such services billed to the Company amounted to $3.9 million and $2.3
million during 1999 and 1998, respectively.
F. PROFIT SHARING PLAN
Substantially all full-time employees of the Company participate in a
STEN-sponsored profit sharing plan that includes an employee savings feature
under Section 401(k) of the Internal Revenue Code. Participants can elect to
defer up to 15% of their total compensation through contributions to the plan
and STEN matches 50% of employee contributions up to 6% of an employee's total
compensation. Effective January 1, 1997, the vesting schedule for STEN's
contributions was shortened from seven to five years.
For the years ended December 31, 1999 and 1998, charges to income for
the Company's share of contributions to the plan aggregated $0.3 million and
$0.3 million, respectively.
F-11
<PAGE> 15
EASTERN STATES EXPLORATION CO. AND
EASTERN STATES OIL & GAS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1999
G. LONG-TERM DEBT
In August 1999, the Company and SEH agreed to aggregate and extend to
December 31, 2001 the final repayment dates of various notes payable to SEH
totaling $521.2 million. These notes have an 8% annual rate of interest, payable
semi-annually on January 1 and July 1 each year; such terms being consistent
with all years presented.
During the years ended December 31, 1999 and 1998, the Company recorded
interest expense due to SEH of $43.2 million and $40.2 million, respectively.
H. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of long-term debt at December 31, 1999 and
1998, would be $521.2 million and $518.5 million, respectively. The fair value
was estimated based on quoted market prices for equivalent third-party
investments, as well as the discounted values using a current discount rate
reflective of the remaining maturity.
I. COMMITMENTS AND CONTINGENCIES
There are various claims and legal proceedings against the Company
arising from the normal course of business. Although counsel is unable to
predict with certainty the ultimate outcome, management and counsel believe the
Company has significant and meritorious defenses to any claims and intend to
pursue them vigorously.
Management believes that the ultimate outcome of any matter currently
pending against the Company will not materially affect the financial position of
the Company although they could be material to the reported results of
operations for the period in which they occur.
The Company is subject to federal, state and local environmental laws
and regulations. These laws and regulations, which are constantly changing, can
require expenditures for remediation and may in certain instances result in
assessment of fines. The Company has established procedures for ongoing
evaluation of its operations to identify potential environmental exposures and
assure compliance with regulatory policies and procedures. The estimated costs
associated with identified situations that require remedial action are accrued.
Ongoing expenditures for compliance with environmental laws and regulations,
including investments in plant and facilities to meet environmental
requirements, have not been material. Management believes that any such required
expenditures will not be significantly different in either their nature or
amount in the future and does not know of any environmental liabilities that
will have a material effect on the Company's financial position, results of
operations or cash flows.
J. SUBSEQUENT EVENT
On October 13, 1999, Statoil announced plans to seek a buyer for its
U.S. natural gas and electric power production and marketing unit, Statoil
Energy, Inc. ("STEN") in connection with a corporate restructuring process. In
February 2000, Equitable Resources, Inc. acquired the Appalachian production
assets of the Company for $630 million, subject to customary closing
adjustments.
F-12
<PAGE> 16
EASTERN STATES EXPLORATION CO. AND
EASTERN STATES OIL & GAS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1999
K. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED)
The supplementary information summarized below presents the results of
natural gas and oil activities in accordance with SFAS No. 69, "Disclosures
About Oil and Gas Producing Activities."
(1) Production Costs
The following table presents the costs incurred relating to natural gas
and oil production activities:
<TABLE>
<CAPTION>
December 31,
1999 1998
-----------------------------
(Thousands)
<S> <C> <C>
Capitalized costs $ 698,130 $ 637,750
Accumulated depreciation and depletion (85,428) (58,141)
--------- ---------
Net capitalized costs $ 612,702 $ 579,609
========= =========
Costs incurred:
Property acquisitions:
Proved properties $ 892 $ 1,282
Unproved properties -- 6,493
Exploration 2,768 3,340
Development 65,296 62,147
</TABLE>
(2) Results of Operations for Producing Activities
The following table presents the results of operations related to
natural gas and oil production:
<TABLE>
<CAPTION>
December 31,
1999 1998
---------------------------
(Thousands)
<S> <C> <C>
REVENUES:
Affiliated $ 63,862 $ 53,230
Nonaffiliated 57,020 57,410
Production costs (17,120) (15,044)
Exploration expenses (1,657) (1,709)
Depreciation and depletion (23,906) (23,654)
Income tax expense (30,419) (27,321)
-------- --------
Results of operations from producing activities
(excluding corporate overhead) $ 47,780 $ 42,912
======== ========
</TABLE>
F-13
<PAGE> 17
EASTERN STATES EXPLORATION CO. AND
EASTERN STATES OIL & GAS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1999
K. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED)
(3) Reserve Information
The information presented below represents estimates of proved gas
reserves prepared by Company engineers. Proved developed reserves represent only
those reserves expected to be recovered from existing wells and support
equipment. Proved undeveloped reserves represent proved reserves expected to be
recovered from new wells after substantial development costs are incurred. As of
December 31, 1999 and 1998, all of the Company's proved reserves are in the
United States. The oil reserves are included at their millions of cubic feet
equivalent and are not material.
<TABLE>
<CAPTION>
December 31,
1999 1998
-----------------------------------
(Millions of cubic feet equivalent)
<S> <C> <C>
Proved developed and undeveloped reserves:
Beginning of year 1,100,690 1,062,894
Revision of previous estimates 23,018 2,544
Purchase of developed reserves in place 8,834 2,141
Dispositions of reserves in place (180) (22,356)
Extensions, discoveries and other additions 126,038 96,375
Production (43,376) (40,908)
---------- ----------
End of year 1,215,024 1,100,690
========== ==========
Proved developed reserves:
Beginning of year 741,398 745,974
End of year 812,271 741,398
</TABLE>
F-14
<PAGE> 18
EASTERN STATES EXPLORATION CO. AND
EASTERN STATES OIL & GAS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1999
K. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED)
(4) Standard Measure of Discounted Future Cash Flows
Management cautions that the standard measure of discounted future cash
flows should not be viewed as an indication of the fair market value of gas and
oil producing properties, nor of the future cash flows expected to be generated
therefrom. The information presented does not give recognition to future changes
in estimated reserves, selling prices or costs and has been discounted at an
arbitrary rate of 10%. Estimated future net cash flows from natural gas and oil
reserves based on selling prices and costs at year-end price levels are as
follows:
<TABLE>
<CAPTION>
December 31,
1999 1998
---------------------------------
(Thousands)
<S> <C> <C>
Future cash inflows $ 3,405,763 $ 2,998,485
Future production costs (643,462) (579,189)
Future development costs (228,361) (199,605)
----------- -----------
Future net cash flow before income taxes 2,533,940 2,219,691
10% annual discount for estimated timing of cash flows (1,716,010) (1,491,179)
----------- -----------
Discounted future net cash flows before income taxes 817,930 728,512
Future income tax expenses, discounted 10% annually (194,197) (163,444)
----------- -----------
Standardized measure of discounted future net cash flows $ 623,733 $ 565,068
=========== ===========
</TABLE>
Summary of changes in the standardized measure of discounted future net
cash flows:
<TABLE>
<CAPTION>
December 31,
1999 1998
---------------------------------
(Thousands)
<S> <C> <C>
Sales and transfers of gas and oil produced - net $ (97,365) $ (83,291)
Net changes in prices, production and development costs 27,095 10,735
Extensions, discoveries and improved recovery, less related costs 87,372 76,552
Development costs incurred 24,263 17,995
Purchase (sale) of minerals in place - net 5,604 1,163
Revisions of previous quantity estimates 53,097 5,412
Accretion of discount 69,069 68,855
Net change in income taxes (30,752) 14,665
Other (79,718) (105,352)
----------- -----------
Net increase 58,665 6,734
Beginning of year 565,068 558,334
----------- -----------
End of year $ 623,733 $ 565,068
=========== ===========
</TABLE>
F-15
<PAGE> 19
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
The following unaudited pro forma consolidated condensed financial
statements and related notes are presented to show the pro forma effects of the
Acquisition of Eastern States Exploration Co. and Eastern States Oil & Gas, Inc.
(collectively, Eastern States) with and into a wholly-owned subsidiary of
Equitable Resources, Inc. (EQT). The Eastern States transaction, hereinafter
referred to as the "Acquisition," was completed February 15, 2000.
The condensed statement of operations is presented to show income from
continuing operations as if the Acquisition occurred as of the beginning of the
period. The pro forma condensed balance sheet is based on the assumption that
the Acquisition occurred on December 31, 1999.
EQT will account for the Acquisition of Eastern States using the
purchase method of accounting for business combinations.
Pro forma data is based on assumptions and includes adjustments as
explained in the notes to the unaudited pro forma consolidated condensed
financial statements. The pro forma data is not necessarily indicative of the
financial results that would have occurred had the Acquisition been effective on
and as of the dates referenced above, and should not be viewed as indicative of
operations in future periods. The unaudited pro forma consolidated condensed
financial statements should be read in conjunction with the notes thereto and
EQT's Annual Report on Form 10-K for the fiscal year ended December 31, 1999.
F-16
<PAGE> 20
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Eastern Acquisition
EQT States Pro Forma
Historical Historical Adjustments Pro Forma
-----------------------------------------------------------------------
(Thousands except per share amounts)
<S> <C> <C> <C> <C>
Operating revenues $1,062,738 $ 120,882 $ 4,084 (a) $1,187,704
Cost of sales 610,659 -- -- 610,659
---------- ---------- ---------- ----------
Net operating revenues 452,079 120,882 4,084 577,045
---------- ---------- ---------- ----------
Operating expenses:
Operation and maintenance 80,879 -- 2,700 (a) 83,579
Exploration 9,288 1,657 -- 10,945
Production 26,206 17,273 1,384 (a) 44,863
Selling, general and administrative 92,229 9,367 (3,904)(b) 97,692
Depreciation, depletion and amortization 100,722 29,464 3,915 (c) 134,101
---------- ---------- ---------- ----------
Total operating expenses 309,324 57,761 4,095 371,180
---------- ---------- ---------- ----------
Operating income (loss) 142,755 63,121 (11) 205,865
Other 2,863 -- -- 2,863
---------- ---------- ---------- ----------
Earnings before interest and taxes 145,618 63,121 (11) 208,728
Interest charges 37,132 43,240 7,831 (d) 88,203
---------- ---------- ---------- ----------
Income (loss) before income taxes 108,486 19,881 (7,842) 120,525
Income taxes (benefits) 39,356 7,734 (3,051)(e) 44,039
---------- ---------- ---------- ----------
Pro forma net income (loss) $ 69,130 $ 12,147 $ (4,791) $ 76,486
========== ========== ========== ==========
Basic:
Weighted average common shares outstanding 34,044 34,044
Pro forma net income per common share $ 2.03 $ 2.25
========== ==========
Diluted:
Weighted average common shares outstanding 34,337 34,337
Pro forma net income per common share $ 2.01 $ 2.23
========== ==========
</TABLE>
THE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
F-17
<PAGE> 21
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
BALANCE SHEET
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
Eastern Acquisition
EQT States Pro Forma
ASSETS Historical Historical Adjustments Pro Forma
-----------------------------------------------------------------------
(Thousands)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 18,031 $ -- $ -- $ 18,031
Accounts receivable - trade 194,789 4,873 23,817 (f) 223,479
Accounts receivable - affiliate -- 23,817 (23,817)(f) --
Inventory 40,859 2,855 (200)(g) 43,514
Deferred purchased gas cost 29,075 -- -- 29,075
Prepaid expenses and other 44,084 12,070 -- 56,154
---------- ---------- ---------- ----------
Total current assets 326,838 43,615 (200) 370,253
INVESTMENT IN NONCONSOLIDATED SUBSIDIARY 40,873 -- -- 40,873
PROPERTY, PLANT AND EQUIPMENT 2,052,528 782,499 25,505 (g) 2,860,532
Less accumulated depreciation 831,097 99,570 -- 930,667
---------- ---------- ---------- ----------
Net property, plant and equipment 1,221,431 682,929 25,505 1,929,865
OTHER ASSETS 200,432 586 -- 201,018
---------- ---------- ---------- ----------
Total assets $1,789,574 $ 727,130 $ 25,305 $2,542,009
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term loans $ 207,486 $ -- $ 656,985 (h) $ 864,471
Accounts payable and other current liabilities 222,044 16,447 41,216 (g) 279,707
Accounts payable to affiliated companies -- 85,861 (85,861)(i) --
---------- ---------- ---------- ----------
Total current liabilities 429,530 102,308 612,340 1,144,178
LONG-TERM DEBT 298,350 -- -- 298,350
LONG-TERM DEBT - AFFILIATE -- 521,214 (521,214)(i) --
DEFERRED INCOME TAXES 183,896 23,987 9,707 (j) 217,590
DEFERRED REVENUE AND OTHER DEFERRED CREDITS 109,988 4,093 -- 114,081
PREFERRED TRUST SECURITIES 125,000 -- -- 125,000
COMMON STOCKHOLDERS' EQUITY 642,810 75,528 (75,528)(k) 642,810
---------- ---------- ---------- ----------
Total liabilities and stockholders' equity $1,789,574 $ 727,130 $ 25,305 $2,542,009
========== ========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS ARE AN
INTEGRAL PART OF THESE STATEMENTS.
F-18
<PAGE> 22
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The unaudited pro forma consolidated condensed statement of operations
relative to the Acquisition is based on the audited historical financial
statements of EQT and Eastern States for the year ended December 31, 1999. The
pro forma information relating to the Acquisition reflects the combination of
EQT's and Eastern States' historical results of operations. Differences in
accounting policies and methods between EQT and Eastern States were reviewed and
considered to have an immaterial impact on the combined pro forma financial
results.
PRO FORMA ADJUSTMENTS
The Unaudited Pro Forma Statements of Operations reflect the following
adjustments:
(a) Reclass Eastern States historical to conform with EQT presentation.
(b) Adjust Eastern States historical to eliminate SG&A expenses
allocated by its former parent.
(c) Record DD&A expense resulting from the step-up in property, plant
and equipment.
(d) Record pro forma interest on incremental debt in connection with
the Acquisition using an assumed interest rate of 5.26% (EQT
commercial paper rate).
Assumes continuation of Eastern States' $520 million long-term debt
level at 8%.
(e) Record pro forma income tax provision (benefit) relating to the pro
forma adjustments assuming an effective federal and state rate of
38.9% which approximates EQT's rate.
The Unaudited Pro Forma Balance Sheet reflects the following adjustments:
(f) Reclassify accounts receivable - affiliate from seller to accounts
receivable - trade.
(g) Record purchase price allocation related to assets and liabilities
acquired.
(h) Record short-term debt reflecting cash paid in connection with the
purchase of Eastern States' common stock, adjusted to reflect
December 31, 1999 working capital.
(i) Record elimination of seller intercompany debt and payables at
closing.
(j) Record deferred tax liability assumed in connection with the
Acquisition.
(k) Record elimination of Eastern States historical common
stockholders' equity.
F-19
<PAGE> 23
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA SUPPLEMENTAL OIL AND GAS DISCLOSURE
The following table sets forth certain unaudited pro forma information
concerning EQT proved oil and gas reserves at December 31, 1999, giving effect
to the Acquisition as if the Acquisition had occurred on January 1, 1999. There
are numerous uncertainties inherent in estimating the quantities of proved
reserves and projecting future rates of production and timing of development
expenditures. The following reserve data represents estimates only and should
not be construed as being exact.
<TABLE>
<CAPTION>
Eastern
EQT States Pro Forma
---------- ---------- ----------
<S> <C> <C> <C>
NATURAL GAS
(Millions of cubic feet)
Proved developed and undeveloped reserves:
Beginning of year 899,881 1,088,667 1,988,548
Revision of previous estimates 134,576 22,035 156,611
Purchase of developed reserves in place 46,124 8,834 54,958
Disposition of reserves in place -- (180) (180)
Extensions, discoveries and other additions 132,180 126,038 258,218
Production (66,328) (41,601) (107,929)
---------- ---------- ----------
End of year 1,146,433 1,203,793 2,350,226
========== ========== ==========
Proved developed reserves:
Beginning of year 780,817 729,567 1,510,384
End of year 965,969 801,039 1,767,008
OIL
(Thousands of barrels)
Proved developed and undeveloped reserves:
Beginning of year 9,826 2,004 11,830
Revision of previous estimates (23) 164 141
Purchase of developed reserves in place 44 -- 44
Disposition of reserves in place -- -- --
Extensions, discoveries and other additions 1,155 -- 1,155
Production (1,070) (296) (1,366)
---------- ---------- ----------
End of year 9,932 1,872 11,804
========== ========== ==========
Proved developed reserves:
Beginning of year 8,331 1,972 10,303
End of year 7,996 1,872 9,868
</TABLE>
F-20
<PAGE> 24
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA SUPPLEMENTAL OIL AND GAS DISCLOSURE (CONTINUED)
The following table sets forth certain unaudited pro forma information
concerning the discounted future net cash flows from proved oil and gas reserves
of EQT as of December 31, 1999, net of income tax expense, and giving effect to
the Acquisition as if the Acquisition had occurred on January 1, 1999. Income
tax expense has been computed using assumptions relating to the future tax rates
and the permanent differences and credits under the tax laws relating to oil and
gas activities at December 31, 1999, and do not take into account subsequent
changes in tax laws. The information should be viewed only as a form of
standardized disclosure concerning possible future cash flows that would result
under the assumptions used, and should not be viewed as indicative of fair
market value.
<TABLE>
<CAPTION>
Standard measure of discounted future cash flows relating to proved reserves,
net of income tax expense as of December 31, 1999:
Eastern
EQT States Pro Forma
----------- ----------- -----------
(Thousands)
<S> <C> <C> <C>
Future cash inflows $ 2,877,829 $ 3,405,763 $ 6,283,592
Future production costs (808,115) (643,462) (1,451,577)
Future development costs (139,626) (228,361) (367,987)
----------- ----------- -----------
Future net cash flow before income taxes 1,930,088 2,533,940 4,464,028
10% annual discount for estimated timing of cash flows (1,098,185) (1,716,010) (2,814,195)
----------- ----------- -----------
Discounted future net cash flows before income taxes 831,903 817,930 1,649,833
Future income tax expenses, discounted 10% annually (251,467) (194,197) (445,664)
----------- ----------- -----------
Standardized measure of discounted future net cash flows $ 580,436 $ 623,733 $ 1,204,169
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Change in standardized measure of discounted future net cash flows relating to
proved reserves, net of income tax expense as of December 31, 1999:
Eastern
EQT States Pro Forma
----------- ----------- -----------
(Thousands)
<S> <C> <C> <C>
Sales and transfers of gas and oil produced - net $ (146,230) $ (97,365) $ (243,595)
Net changes in prices, production and development costs 156,020 27,095 183,115
Extensions, discoveries and improved recovery, less
related costs 140,402 87,372 227,774
Development costs incurred 30,479 24,263 54,742
Purchase (sale) of minerals in place - net 26,152 5,604 31,756
Revisions of previous quantity estimates 101,778 53,097 154,875
Accretion of discount 42,487 69,069 111,556
Net change in income taxes (128,301) (30,752) (159,053)
Other (67,224) (79,718) (146,942)
----------- ----------- -----------
Net increase 155,563 58,665 214,228
Beginning of year 424,873 565,068 989,941
----------- ----------- -----------
End of year $ 580,436 $ 623,733 $ 1,204,169
=========== =========== ===========
</TABLE>
F-21
<PAGE> 25
SIGNATURES
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, hereunto duly authorized.
EQUITABLE RESOURCES, INC.
-----------------------------
(Registrant)
By /s/ David L. Porges
-----------------------------
David L. Porges
Executive Vice President and
Chief Financial Officer
April 28, 2000
- -----------------------
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Document Description Sequential Page No.
----------- -------------------- -------------------
<S> <C> <C>
2 Stock Purchase Agreement by and among Equitable N/A
Resources, Inc., Statoil Energy, Inc., Statoil
Energy Holdings, Inc. and Statoil North
America, Inc. dated as of December 31, 1999.
(Incorporated by reference to Exhibit 2 of the
Registrant's current report on Form 8-K filed
with the Commission on February 17, 2000.)
23.1 Consent of Ernst & Young LLP, filed herewith. 26
99 Equitable Resources, Inc., press release N/A
announcing the completion of the acquisition of
the Appalachian production assets of Statoil
Energy, Inc. (Incorporated by reference to
Exhibit 99 of the Registrant's current report
on Form 8-K filed with the Commission on
February 17, 2000.)
</TABLE>
F-23
<PAGE> 1
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
We consent to the incorporation by reference of our report dated April
26, 2000, with respect to the combined financial statements of Eastern States
Oil & Gas, Inc. and Eastern States Exploration Co. included in this Form 8-K/A
for the years ended December 31, 1999 and 1998 and in the Prospectus part of the
following Registration Statements:
o Registration Statement No. 33-52151 on Form S-8 pertaining to the 1994
Equitable Resources, Inc. Long-Term Incentive Plan;
o Registration Statement No. 33-52137 on Form S-8 pertaining to the 1994
Equitable Resources, Inc. Non-Employee Directors' Stock Incentive
Plan;
o Registration Statement No. 33-53703 on Form S-3 pertaining to the
registration of $100,000,000 Medium-Term Notes, Series C of Equitable
Resources, Inc.;
o Posteffective Amendment No. 1 to Registration Statement No. 33-00252
on Form S-8 pertaining to the Equitable Resources, Inc. Employee
Savings Plan;
o Registration Statement No. 333-01879 on Form S-8 pertaining to the
Equitable Resources, Inc. Employee Stock Purchase Plan;
o Registration Statement No. 333-22529 on Form S-8 pertaining to the
Equitable Resources, Inc. Employee Savings and Protection Plan;
o Registration Statement No. 333-20323 on Form S-3 pertaining to the
registration of 164-345 shares of Equitable Resources, Inc. common
stock;
o Registration Statement No. 333-32197 on Form S-8 pertaining to the
Equitable Resources, Inc. Nonstatutory Stock Option Plan;
o Registration Statement No. 333-06839 on Form S-3 pertaining to the
registration of $168,000,000 of debt securities of Equitable
Resources, Inc.;
o Registration Statement No. 333-82193 on Form S-8 pertaining to the
1999 Equitable Resources, Inc. Non-Employee Directors' Stock Incentive
Plan;
o Registration Statement No. 333-82189 on Form S-8 pertaining to the
1999 Equitable Resources, Inc. Long-Term Incentive Plan; and
o Registration Statement No. 333-32410 on Form S-8 pertaining to the
Equitable Resources, Inc. Deferred Compensation Plan and Equitable
Resources, Inc. Directors' Deferred Compensation Plan.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
April 26, 2000
