EQT Reports Second Quarter 2019 Results
Company already executing its 100-day plan to transform EQT and deliver significant shareholder value
PITTSBURGH–(BUSINESS WIRE)–EQT Corporation (NYSE: EQT) today announced financial and operational performance results for the second quarter 2019.
Second Quarter Highlights:
- Achieved sales volumes of 370 Bcfe, at the high end of guidance (355-375 Bcfe), and received an average realized price of $2.59 per Mcfe
- Generated $444 million net cash provided by operating activities and $(81) million of adjusted free cash flow*
- Exited the quarter with $4,968 million of net debt, $39 million lower than first quarter 2019
*Non-GAAP measure. Please see the Non-GAAP Disclosures section of this news release for important disclosures.
Organizational Update
Since the reconstitution of the Board of Directors on July 10, 2019, the Company has taken the following initial steps in executing its turnaround plan:
- Appointed Toby Z. Rice President and Chief Executive Officer (CEO);
- Appointed William Jordan General Counsel, Tony Duran Chief Information Officer, and Lesley Evancho Chief Human Resources Officer;
- Established an Evolution Committee to oversee operational, technological and organizational initiatives outlined in EQT’s 100-Day Plan; and
- Hired all eight “evolution leaders” to execute 100-Day Plan initiatives.
President and CEO Toby Rice commented, “We’ve spent our first two weeks assessing the entire EQT organization, and I’m extremely pleased to report that the Rice team had accurately diagnosed the issues that have long prevented the Company from realizing its full potential. Our key evolution leaders are already in place and working closely with EQT’s talented, dedicated and hardworking employees. We’ve quickly begun the process of transforming EQT to deliver significant value to our shareholders and to become a great place to work.”
|
SECOND QUARTER 2019 FINANCIAL AND OPERATIONAL PERFORMANCE |
||||||||||||||
|
|
Three Months Ended |
|
|
|
% |
|||||||||
|
($ millions, except EPS) |
2019 |
|
2018 |
|
Change |
|
Change |
|||||||
|
Total sales volume (Bcfe) |
370 |
|
|
363 |
|
|
7 |
|
|
2 |
% |
|||
|
Income (loss) from continuing operations |
$ |
126 |
|
|
$ |
(77 |
) |
|
$ |
203 |
|
|
264 |
% |
|
Adjusted net income from continuing operations (a non-GAAP measure) |
$ |
22 |
|
|
$ |
34 |
|
|
$ |
(12 |
) |
|
(35 |
)% |
|
Adjusted EBITDA from continuing operations (a non-GAAP measure) |
$ |
461 |
|
|
$ |
490 |
|
|
$ |
(29 |
) |
|
(6 |
)% |
|
Diluted earnings per share (EPS) from continuing operations |
$ |
0.49 |
|
|
$ |
(0.29 |
) |
|
$ |
0.78 |
|
|
269 |
% |
|
Adjusted EPS from continuing operations (a non-GAAP measure) |
$ |
0.09 |
|
|
$ |
0.13 |
|
|
$ |
(0.04 |
) |
|
(31 |
)% |
|
Net cash provided by operating activities |
$ |
444 |
|
|
$ |
637 |
|
|
$ |
(193 |
) |
|
(30 |
)% |
|
Adjusted free cash flow (a non-GAAP measure) |
$ |
(81 |
) |
|
$ |
(187 |
) |
|
$ |
106 |
|
|
57 |
% |
In the second quarter 2019, the Company reported income from continuing operations of $126 million, or $0.49 per diluted share, compared to a loss from continuing operations of $77 million, or a loss of $0.29 per diluted share, for the second quarter 2018. The increase was primarily attributable to a gain on derivatives not designated as hedges in 2019 compared to a loss in the second quarter 2018, partly offset by increased income tax expense. Adjusted net income from continuing operations, which excludes impairment charges, non-cash derivatives and other items impacting comparability between periods, was $12 million lower than the same quarter last year.
Compared to the same quarter last year, average realized price was 8% lower at $2.59 per Mcfe, primarily due to lower liquids sales and Btu uplift as a result of the Company’s divestitures of its Permian and Huron assets in 2018 (the 2018 Divestitures) and lower NYMEX net of hedging. Excluding sales volumes related to the 2018 Divestitures, sales volumes of natural gas, oil and NGLs increased 8% for the second quarter 2019.
Net cash provided by operating activities decreased by 30% and adjusted free cash flow increased 57%. Adjusted free cash flow for the second quarter 2019 of $(81) million includes the impact of $38 million of royalty and litigation reserves and $22 million of proxy, transaction and reorganization costs.
|
|
Six Months Ended |
|
|
|
% |
|||||||||
|
($ millions, except EPS) |
2019 |
|
2018 |
|
Change |
|
Change |
|||||||
|
Total sales volume (Bcfe) |
754 |
|
|
720 |
|
|
34 |
|
|
5 |
% |
|||
|
Income (loss) from continuing operations |
$ |
316 |
|
|
$ |
(1,656 |
) |
|
$ |
1,972 |
|
|
119 |
% |
|
Adjusted net income from continuing operations (a non-GAAP measure) |
$ |
234 |
|
|
$ |
212 |
|
|
$ |
22 |
|
|
10 |
% |
|
Adjusted EBITDA from continuing operations (a non-GAAP measure) |
$ |
1,171 |
|
|
$ |
1,184 |
|
|
$ |
(13 |
) |
|
(1 |
)% |
|
Diluted EPS from continuing operations |
$ |
1.24 |
|
|
$ |
(6.25 |
) |
|
$ |
7.49 |
|
|
120 |
% |
|
Adjusted EPS from continuing operations (a non-GAAP measure) |
$ |
0.92 |
|
|
$ |
0.80 |
|
|
$ |
0.12 |
|
|
15 |
% |
|
Net cash provided by operating activities |
$ |
1,315 |
|
|
$ |
1,541 |
|
|
$ |
(226 |
) |
|
(15 |
)% |
|
Adjusted free cash flow (a non-GAAP measure) |
$ |
91 |
|
|
$ |
(98 |
) |
|
$ |
189 |
|
|
193 |
% |
In the first six months of 2019, the Company reported income from continuing operations of $316 million, or $1.24 per diluted share, compared to a loss from continuing operations of $1.7 billion, or $6.25 per diluted share, for the first six months of 2018. The increase was primarily attributable to an impairment charge recorded in 2018.
Compared to the same period last year, average realized price was 6% lower at $2.88 per Mcfe, primarily due to lower liquids sales and Btu uplift as a result of the 2018 Divestitures and lower average differential. Excluding sales volumes related to the 2018 Divestitures, sales volumes of natural gas, oil and NGLs increased 10% in 2019.
Net cash provided by operating activities decreased by 15% and adjusted free cash flow increased 193%. Adjusted free cash flow for the first six months of 2019 of $91 million includes the impact of $46 million of royalty and litigation reserves and $26 million of proxy, transaction and reorganization costs.
The Non-GAAP Disclosures section of this news release provides reconciliations of non-GAAP financial measures to the most comparable GAAP financial measures, as well as important disclosures regarding certain projected non-GAAP financial measures.
|
Capital Expenditures |
|||||||||||||||
|
|
Three Months Ended |
|
Six Months Ended |
||||||||||||
|
(millions) |
2019 |
|
2018 |
|
2019 |
|
2018 |
||||||||
|
Reserve development |
$ |
374 |
|
|
$ |
603 |
|
|
$ |
775 |
|
|
$ |
1,093 |
|
|
Land and lease |
50 |
|
|
43 |
|
|
95 |
|
|
103 |
|
||||
|
Capitalized overhead |
24 |
|
|
36 |
|
|
41 |
|
|
65 |
|
||||
|
Capitalized interest |
6 |
|
|
9 |
|
|
13 |
|
|
16 |
|
||||
|
Other production infrastructure |
5 |
|
|
16 |
|
|
11 |
|
|
26 |
|
||||
|
Property acquisitions |
6 |
|
|
5 |
|
|
6 |
|
|
19 |
|
||||
|
Other corporate items |
1 |
|
|
4 |
|
|
1 |
|
|
4 |
|
||||
|
Total capital expenditures from continuing operations |
$ |
466 |
|
|
$ |
716 |
|
|
$ |
942 |
|
|
$ |
1,326 |
|
The Company horizontally drilled approximately 410,000 net feet of pay and completed approximately 480,000 net feet of pay during the second quarter 2019 compared to drilling approximately 470,000 net feet of pay and completing approximately 600,000 net feet of pay in the second quarter 2018. The Company also spent approximately $40 million on pad construction and pad facility costs during the second quarter 2019 compared to approximately $55 million in the second quarter 2018.
|
Operating Expenses Per Unit The following presents certain of the Company’s operating expenses on a per unit basis. |
|||||||||||||||
|
|
Three Months Ended |
|
Six Months Ended |
||||||||||||
|
($/Mcfe) |
2019 |
|
2018 |
|
2019 |
|
2018 |
||||||||
|
Gathering |
$ |
0.55 |
|
|
$ |
0.54 |
|
|
$ |
0.56 |
|
|
$ |
0.54 |
|
|
Transmission |
0.54 |
|
|
0.52 |
|
|
0.52 |
|
|
0.51 |
|
||||
|
Processing |
0.09 |
|
|
0.13 |
|
|
0.09 |
|
|
0.13 |
|
||||
|
LOE, excluding production taxes |
0.05 |
|
|
0.08 |
|
|
0.05 |
|
|
0.09 |
|
||||
|
Production taxes |
0.05 |
|
|
0.06 |
|
|
0.05 |
|
|
0.06 |
|
||||
|
Exploration |
0.01 |
|
|
— |
|
|
— |
|
|
— |
|
||||
|
SG&A |
0.23 |
|
|
0.17 |
|
|
0.18 |
|
|
0.14 |
|
||||
|
Total selected operating costs per unit |
$ |
1.52 |
|
|
$ |
1.50 |
|
|
$ |
1.45 |
|
|
$ |
1.47 |
|
|
|
|
|
|
|
|
|
|
||||||||
|
Production depletion |
$ |
1.00 |
|
|
$ |
1.00 |
|
|
$ |
1.00 |
|
|
$ |
1.03 |
|
|
Adjusted SG&A per unit (a non-GAAP measure) |
$ |
0.13 |
|
|
$ |
0.14 |
|
|
$ |
0.12 |
|
|
$ |
0.10 |
|
During the three and six months ended June 30, 2019, per Mcfe processing expense, lease operating expense (LOE) and production taxes were lower due to the 2018 Divestitures. Excluding the sales volumes related to the 2018 Divestitures, gathering expense per Mcfe was $0.57 during the three and six months ended June 30, 2018. Selling, general and administrative expense per Mcfe during the three and six months ended June 30, 2019 was higher as a result of $38 million and $46 million of royalty and litigation reserves, respectively.
Liquidity
As of June 30, 2019, the Company had no credit facility borrowings and no letters of credit outstanding under its $2.5 billion credit facility.
On May 31, 2019, the Company entered into a Term Loan Agreement providing for a $1.0 billion unsecured term loan facility (Term Loan Facility) and borrowed $1.0 billion under the Term Loan Facility. The Company used the net proceeds to repay the $700 million in aggregate principal amount of the Company’s 8.125% Senior Notes, which matured on June 1, 2019, to repay outstanding borrowings under the Company’s $2.5 billion credit facility and to pay accrued interest and fees and expenses related to the foregoing and the Term Loan Agreement.
Net debt was reduced by $39 million to $4,968 million in the second quarter 2019, compared to $5,007 million in the first quarter 2019.
HEDGING (as of July 22, 2019)
|
The Company’s total natural gas production NYMEX hedge positions through 2023 are: |
||||||||||||||||||||
|
|
|
2019 (a) |
|
2020 |
|
2021 |
|
2022 |
|
2023 |
||||||||||
|
Swaps |
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Volume (MMDth) |
|
441 |
|
|
580 |
|
|
314 |
|
|
138 |
|
|
70 |
|
|||||
|
Average Price($/Dth) |
|
$ |
2.85 |
|
|
$ |
2.81 |
|
|
$ |
2.78 |
|
|
$ |
2.75 |
|
|
$ |
2.73 |
|
|
Calls – Net Short |
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Volume (MMDth) |
|
197 |
|
|
248 |
|
|
58 |
|
|
22 |
|
|
7 |
|
|||||
|
Average Short Strike Price ($/Dth) |
|
$ |
3.02 |
|
|
$ |
3.07 |
|
|
$ |
3.14 |
|
|
$ |
3.20 |
|
|
$ |
3.18 |
|
|
Puts – Net Long |
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Volume (MMDth) |
|
4 |
|
|
10 |
|
|
10 |
|
|
— |
|
|
— |
|
|||||
|
Average Long Strike Price ($/Dth) |
|
$ |
2.60 |
|
|
$ |
2.25 |
|
|
$ |
2.71 |
|
|
$ |
— |
|
|
$ |
— |
|
|
Fixed Price Sales (b) |
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Volume (MMDth) |
|
47 |
|
|
14 |
|
|
4 |
|
|
— |
|
|
— |
|
|||||
|
Average Price ($/Dth) |
|
$ |
2.82 |
|
|
$ |
2.79 |
|
|
$ |
2.72 |
|
|
$ |
— |
|
|
$ |
— |
|
|
(a) |
July 1 – December 31, 2019 |
|
(b) |
The difference between the fixed price and NYMEX is included in average differential on the Company’s price reconciliation. |
Second Quarter 2019 Conference Call Webcast Information
The Company’s conference call with securities analysts begins at 10:30 a.m. ET today and will be broadcast live via the Company’s web site at www.eqt.com, and on the investor information page of the Company’s web site at ir.eqt.com, with a replay available for seven days following the call.
WELL STATISTICS
|
Net Wells Drilled (spud) |
|||||
|
|
PA Marcellus |
|
WV Marcellus |
|
Ohio Utica |
|
Q2 2019 |
18 |
|
4 |
|
4 |
|
Q3 2019 Forecast |
20 |
|
4 |
|
8 |
|
2019 Forecast |
85 |
|
11 |
|
16 |
- Q2 2019 average lateral lengths: PA Marcellus 12,100′; WV Marcellus 6,700′; Ohio Utica 11,400′
- 2019 forecasted average lateral lengths: PA Marcellus 13,300′; WV Marcellus 6,600′; Ohio Utica 10,400′
|
Net Wells Turned-in-line (TIL) |
|||||
|
|
PA Marcellus |
|
WV Marcellus |
|
Ohio Utica |
|
Q2 2019* |
30 |
|
10 |
|
3 |
|
Q3 2019 Forecast |
38 |
|
0 |
|
11 |
|
2019 Forecast* |
112 |
|
13 |
|
19 |
- Q2 2019 average lateral lengths: PA Marcellus 11,300′; WV Marcellus 4,600′; Ohio Utica 13,700′
- 2019 forecasted average lateral lengths: PA Marcellus 10,400′; WV Marcellus 4,600′; Ohio Utica 11,700′
*Q2 PA Marcellus includes 2 Upper Devonian wells. Forecasted full-year 2019 PA Marcellus includes 9 Upper Devonian wells.
|
Marcellus Horizontal Gross Well Status (cumulative since inception) * |
|||||
|
|
As of 6/30/19 |
|
As of 3/31/19 |
|
As of 12/31/18 |
|
Wells drilled (spud) |
1,873 |
|
1,848 |
|
1,819 |
|
Wells online |
1,628 |
|
1,588 |
|
1,570 |
|
Wells complete, not online |
36 |
|
33 |
|
19 |
|
Wells drilled, uncompleted** |
209 |
|
227 |
|
230 |
*These totals may differ from previous presentations to account for purchases, dispositions, wells plugged, or wells that have had a change in target formation to/from Marcellus. Well counts include non-operated wells.
** Wells drilled, uncompleted as of June 30, 2019, include 94 wells drilled to total depth.
|
Ohio Utica Horizontal Gross Well Status* |
|||||
|
|
As of 6/30/19 |
|
As of 3/30/18 |
|
As of 12/31/18 |
|
Wells drilled (spud) |
264 |
|
258 |
|
254 |
|
Wells online |
234 |
|
229 |
|
221 |
|
Wells complete, not online |
18 |
|
3 |
|
8 |
|
Wells drilled, uncompleted** |
12 |
|
26 |
|
25 |
*These totals may differ from previous presentations to account for acquisitions, dispositions, or wells plugged. Well counts include non-operated wells.
** Wells drilled, uncompleted as of June 30, 2019, include 10 wells drilled to total depth.
2019 GUIDANCE
See the Non-GAAP Disclosures section for important information regarding the non-GAAP financial measures included in this news release, including reasons why the Company is unable to provide a projection of its 2019 net cash provided by operating activities, the most comparable financial measure calculated in accordance with GAAP, to projected adjusted operating cash flow and adjusted free cash flow, a projection of its 2019 net income, the most comparable financial measure calculated in accordance with GAAP, to projected adjusted EBITDA, or a projection of its 2019 SG&A, the most comparable financial measure calculated in accordance with GAAP, to projected adjusted SG&A per unit.
|
Production |
|
Q3 2019 |
|
Full-Year 2019 |
|
Total sales volume (Bcfe) |
|
365 – 385 |
|
1,480 – 1,520 |
|
Liquids sales volume, excluding ethane (Mbbls) |
|
2,075 – 2,175 |
|
8,330 – 8,530 |
|
Ethane sales volume (Mbbls) |
|
1,065 – 1,165 |
|
4,255 – 4,455 |
|
Total liquids sales volume (Mbbls) |
|
3,140 – 3,340 |
|
12,585 – 12,985 |
|
|
|
|
|
|
|
Resource Counts |
|
|
|
2nd Half 2019 |
|
Marcellus / Utica Rigs |
|
|
|
5 – 7 |
|
Top-hole Rigs |
|
|
|
1 – 2 |
|
Frac Crews |
|
|
|
3 – 5 |
|
|
|
|
|
|
|
Unit Costs ($ / Mcfe) |
|
|
|
Full-Year 2019 |
|
Gathering |
|
|
|
$0.54 – 0.56 |
|
Transmission |
|
|
|
$0.51 – 0.53 |
|
Processing |
|
|
|
$0.08 – 0.10 |
|
LOE, excluding production taxes |
|
|
|
$0.05 – 0.07 |
|
Production taxes |
|
|
|
$0.04 – 0.06 |
|
Adjusted SG&A (a non-GAAP measure) |
|
|
|
$0.11 – 0.13 |
|
|
|
|
|
|
|
Average differential ($ / Mcf) |
|
$(0.55) – $(0.35) |
|
$(0.40) – (0.20) |
|
|
|
|
|
|
|
($ Billions) |
|
|
|
Full-Year 2019 |
|
Adjusted EBITDA (a non-GAAP measure) |
|
|
|
$2.025 – 2.125 |
|
Adjusted operating cash flow (a non-GAAP measure) |
|
|
|
$1.875 – 1.975 |
|
Capital expenditures |
|
|
|
$1.825 – 1.925 |
|
Adjusted free cash flow (a non-GAAP measure) |
|
|
|
$0.025 – 0.125 |
Based on average NYMEX natural gas price (July to December) of $2.36 per MMbtu as of June 30, 2019.
NON-GAAP DISCLOSURES
Adjusted Net Income from Continuing Operations and Adjusted Earnings per Diluted Share (Adjusted EPS) from Continuing Operations
Adjusted net income from continuing operations and adjusted EPS from continuing operations are non-GAAP supplemental financial measures that are presented because they are important measures used by the Company’s management to evaluate period-to-period comparisons of earnings trends. Adjusted net income from continuing operations and adjusted EPS from continuing operations should not be considered as alternatives to income (loss) from continuing operations or diluted EPS from continuing operations presented in accordance with GAAP. Adjusted net income from continuing operations as presented excludes the revenue impact of changes in the fair value of derivative instruments prior to settlement, impairment/loss on the sale of long-lived assets, lease impairments and expirations, proxy, transaction and reorganization costs and certain other items that impact comparability between periods. Management utilizes adjusted net income from continuing operations to evaluate earnings trends because the measure reflects only the impact of settled derivative contracts; thus, the income from natural gas sales is not impacted by the often-volatile fluctuations in the fair value of derivatives prior to settlement. The measure also excludes other items that affect the comparability of results or that are not indicative of trends in the ongoing business. Management believes that adjusted net income from continuing operations as presented provides useful information for investors for evaluating period-over-period earnings.
The table below reconciles adjusted net income from continuing operations and adjusted EPS from continuing operations with income (loss) from continuing operations and diluted EPS from continuing operations, respectively, the most comparable financial measures calculated in accordance with GAAP, each as derived from the Statements of Condensed Consolidated Operations to be included in the Company’s report on Form 10-Q for the quarter ended June 30, 2019.
|
|
Three Months Ended |
|
Six Months Ended |
||||||||||||
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
||||||||
|
|
(Thousands, except per share information) |
||||||||||||||
|
Income (loss) from continuing operations |
$ |
125,566 |
|
|
$ |
(76,978 |
) |
|
$ |
316,257 |
|
|
$ |
(1,655,511 |
) |
|
Add back / (deduct): |
|
|
|
|
|
|
|
||||||||
|
Impairment/loss on sale of long-lived assets |
— |
|
|
118,114 |
|
|
— |
|
|
2,447,159 |
|
||||
|
Lease impairments and expirations |
48,584 |
|
|
19,529 |
|
|
78,118 |
|
|
23,408 |
|
||||
|
Proxy, transaction and reorganization |
21,518 |
|
|
5,060 |
|
|
25,607 |
|
|
15,138 |
|
||||
|
(Gain) loss on derivatives not designated as hedges |
(407,635 |
) |
|
53,897 |
|
|
(275,639 |
) |
|
(8,695 |
) |
||||
|
Net cash settlements received (paid) on derivatives not designated as hedges |
53,144 |
|
|
25,513 |
|
|
(10,490 |
) |
|
(13,116 |
) |
||||
|
Premiums received for derivatives that settled during the period |
4,769 |
|
|
237 |
|
|
7,206 |
|
|
471 |
|
||||
|
Royalty and litigation reserves |
37,786 |
|
|
— |
|
|
45,786 |
|
|
— |
|
||||
|
Unrealized loss on investment in Equitrans Midstream Corporation |
104,741 |
|
|
— |
|
|
15,686 |
|
|
— |
|
||||
|
Tax impact of non-GAAP items (a) |
33,524 |
|
|
(111,798 |
) |
|
31,339 |
|
|
(596,728 |
) |
||||
|
Adjusted net income from continuing operations |
$ |
21,997 |
|
|
$ |
33,574 |
|
|
$ |
233,870 |
|
|
$ |
212,126 |
|
|
Diluted weighted average common shares outstanding |
255,223 |
|
|
265,154 |
|
|
255,211 |
|
|
265,128 |
|
||||
|
Diluted EPS from continuing operations |
$ |
0.49 |
|
|
$ |
(0.29 |
) |
|
$ |
1.24 |
|
|
$ |
(6.25 |
) |
|
Adjusted EPS from continuing operations |
$ |
0.09 |
|
|
$ |
0.13 |
|
|
$ |
0.92 |
|
|
$ |
0.80 |
|
| (a) |
The tax impact of non-GAAP items represents the incremental tax expense that would have been incurred had these items been excluded from income (loss) from continuing operations, which resulted in blended tax rates of 23.5% and 50.3% for the three months ended June 30, 2019 and 2018, respectively, and 26.2% and 24.2% for the six months ended June 30, 2019 and 2018, respectively. These rates differ from the Company’s statutory tax rate primarily due to the impact of items specific to each respective quarter. In addition, the tax benefit that may be recorded in any quarter is limited to the amount of benefit expected for the entire year. As a result, the tax benefit recorded in the first quarter 2018 was the entire benefit forecast for the year at March 31, 2018. At June 30, 2018 the forecast tax benefit for year was higher than at March 31, 2018, primarily as a result of lower commodity price forecasts for the second half of the year. As a result, the Company recorded an additional tax benefit in the second quarter 2018. |
Adjusted EBITDA
Adjusted EBITDA is defined as income (loss) from continuing operations, plus interest expense, income tax expense (benefit), depreciation and depletion, amortization of intangible assets, long-lived asset impairments, lease impairments and expirations, proxy, transaction and reorganization costs, the revenue impact of changes in the fair value of derivative instruments prior to settlement, unrealized (gain) loss on investment in Equitrans Midstream Corporation and certain other items that impact comparability between periods. Adjusted EBITDA is a non-GAAP supplemental financial measure that management and external users of the Company’s consolidated financial statements, such as industry analysts, lenders and ratings agencies use to assess the Company’s earnings trends. The Company believes that adjusted EBITDA is an important measure used by the Company’s management and investors in evaluating period-over-period comparisons of earnings trends. Adjusted EBITDA should not be considered as an alternative to the Company’s net income presented in accordance with GAAP. Adjusted EBITDA excludes the revenue impact of changes in the fair value of derivative instruments prior to settlement and other items that affect the comparability of results and are not trends in the ongoing business. Management utilizes adjusted EBITDA to evaluate earnings trends because the measure reflects only the impact of settled derivative contracts and thus the income from natural gas is not impacted by the often-volatile fluctuations in fair value of derivatives prior to settlement.
The table below reconciles adjusted EBITDA with income (loss) from continuing operations, the most comparable financial measure as calculated in accordance with GAAP, as reported in the Statements of Condensed Consolidated Operations to be included in the Company’s report on Form 10-Q for the quarter ended June 30, 2019.
|
|
Three Months Ended |
|
Six Months Ended |
||||||||||||
|
|
2019 |
|
2018 |
|
2019 |
|
2018 |
||||||||
|
|
(Thousands) |
||||||||||||||
|
Income (loss) from continuing operations |
$ |
125,566 |
|
|
$ |
(76,978 |
) |
|
$ |
316,257 |
|
|
$ |
(1,655,511 |
) |
|
Add back / (deduct): |
|
|
|
|
|
|
|
||||||||
|
Interest expense |
50,503 |
|
|
57,120 |
|
|
107,076 |
|
|
115,031 |
|
||||
|
Income tax expense (benefit) |
38,865 |
|
|
(94,922 |
) |
|
77,099 |
|
|
(524,762 |
) |
||||
|
Depreciation and depletion |
372,413 |
|
|
371,709 |
|
|
763,526 |
|
|
764,402 |
|
||||
|
Amortization of intangible assets |
10,342 |
|
|
10,342 |
|
|
20,684 |
|
|
20,684 |
|
||||
|
Impairment/loss on sale of long-lived assets |
— |
|
|
118,114 |
|
|
— |
|
|
2,447,159 |
|
||||
|
Lease impairments and expirations |
48,584 |
|
|
19,529 |
|
|
78,118 |
|
|
23,408 |
|
||||
|
Proxy, transaction and reorganization |
21,518 |
|
|
5,060 |
|
|
25,607 |
|
|
15,138 |
|
||||
|
(Gain) loss on derivatives not designated as hedges |
(407,635 |
) |
|
53,897 |
|
|
(275,639 |
) |
|
(8,695 |
) |
||||
|
Net cash settlements received (paid) on derivatives not designated as hedges |
53,144 |
|
|
25,513 |
|
|
(10,490 |
) |
|
(13,116 |
) |
||||
|
Premiums received for derivatives that settled during the period |
4,769 |
|
|
237 |
|
|
7,206 |
|
|
471 |
|
||||
|
Royalty and litigation reserves |
37,786 |
|
|
— |
|
|
45,786 |
|
|
— |
|
||||
|
Unrealized loss on investment in Equitrans Midstream Corporation |
104,741 |
|
|
— |
|
|
15,686 |
|
|
— |
|
||||
|
Adjusted EBITDA |
$ |
460,596 |
|
|
$ |
489,621 |
|
|
$ |
1,170,916 |
|
|
$ |
1,184,209 |
|
The Company has not provided projected net income or a reconciliation of projected adjusted EBITDA to projected net income, the most comparable financial measure calculated in accordance with GAAP, because the Company does not provide guidance with respect to depletion and depreciation expense, income tax expense, the revenue impact of changes in the projected fair value of derivative instruments prior to settlement or unrealized gains and losses on its investments in equity securities. Therefore, projected net income and a reconciliation of projected adjusted EBITDA to projected net income, are not available without unreasonable effort.
Adjusted Operating Cash Flow and Adjusted Free Cash Flow
Adjusted operating cash flow is defined as the Company’s net cash provided by operating activities less changes in other assets and liabilities, less EBITDA attributable to discontinued operations (a non-GAAP supplemental financial measure defined below), plus interest expense attributable to discontinued operations and cash distributions from discontinued operations. Adjusted free cash flow is defined as adjusted operating cash flow less accrual-based capital expenditures attributable to continuing operations. Adjusted operating cash flow and adjusted free cash flow are non-GAAP supplemental financial measures that the Company’s management and external users of its consolidated financial statements, such as industry analysts, lenders and ratings agencies use to assess the Company’s liquidity. The Company believes that adjusted operating cash flow and adjusted free cash flow provide useful information to management and investors in assessing the Company’s ability to generate cash flow in excess of capital requirements and return cash to shareholders. Adjusted operating cash flow and adjusted free cash flow should not be considered as alternatives to net cash provided by operating activities or any other measure of liquidity presented in accordance with GAAP.
The table below reconciles adjusted operating cash flow and adjusted free cash flow with net cash provided by operating activities, the most comparable financial measure calculated in accordance with GAAP, as derived from the Statements of Condensed Consolidated Cash Flows to be included in the Company’s report on Form 10-Q for the quarter ended June 30, 2019.
Contacts
Analyst inquiries please contact:
Kyle Derham
[email protected]
Media inquiries please contact:
Mike Laffin
[email protected]
412.395.2069
