EQT
#Thanks, Pat, and good morning, everyone
Before reviewing the second quarter results, I do want to briefly give you an update on the Rice <UNK>nergy acquisition
As a reminder, on June 19, we announced our intent to acquire Rice for 0.37 <UNK>QT shares plus $5.30 per Rice share
As Pat mentioned, the Proxy Statement will be filed later today and will be available on our website, Rice's website or the S<UNK>C website
Steve is going to have further comments on the transaction in a few minutes
I'll provide an overview of the second quarter results
As you read in the press release this morning, <UNK>QT announced second quarter 2017 adjusted earnings per diluted share of $0.06 compared to a $0.38 loss in the second quarter of 2016. Adjusted operating cash flow attributable to <UNK>QT increased to $223 million as compared to $105 million for the second quarter of 2016, reflecting an increase of $118 million
As a reminder, <UNK>QT Midstream Partners and <UNK>QT GP Holdings results are consolidated in <UNK>QT Corporation's results
Moving to Production, Production sales volume of 198 Bcfe for the second quarter was 7% higher than the second quarter of 2016 and was slightly ahead of the high end of our guidance range
The realized price, including cash settled derivatives, was $2.86 per Mcfe, a 36% increase compared to $2.11 per Mcfe in the second quarter of last year
Operating revenue for the production company totaled $631 million for the second quarter of 2017, which was $554 million higher than the second quarter of 2016. Total operating expenses at <UNK>QT Production were $578 million or 10% higher quarter-over-quarter, consistent with volume growth
Transmission expenses were almost $38 million higher due to volumes transported on the Rockies <UNK>xpress Pipeline and the Ohio Valley Connector
As mentioned on our first quarter call, we were paying for some Rex capacity last year
But since we're unable to physically move our produced gas to Rex in the second quarter of 2016, we'll use that capacity for marketing
When we use pipeline capacity for marketing, we net the cost of the transportation against the recoveries realized
The cost of pipeline capacity used to move our produced gas is recognized as an operating expense
Processing expenses were $17.7 million higher, consistent with higher wet gas volumes, primarily related to our recent acreage acquisitions
Gathering expenses and DD&A were all higher, consistent with production growth
Production taxes were $1.8 million higher as a result of higher impact fees due to increased drilling activity in Pennsylvania and better pricing
Lease operating expenses, excluding production taxes, were $3.3 million lower
<UNK>xcluding the impact of prior year pension settlement and legal expenses, SG&A was slightly favorable for the quarter, as we reduced our Kentucky cost structure when we integrated the Kentucky gathering operations into production in 2016. During the quarter, our liquid story was strong, reflected by an increase in volumes and a higher pricing environment
NGL sales volume and realized price were significantly higher
Regarding pricing, the average realized price, including cash settled derivatives, was $2.86 per Mcfe, a 36% increase compared to the $2.11 per Mcfe in the second quarter of last year
The average differential for the quarter, which was a negative $0.64 per Mcfe, was within the stated guidance range for the quarter
This is a $0.51 decrease from the first quarter of 2017, but a $0.15 improvement from the second quarter of 2016. Approximately 80% of our local basis exposure for the balance of 2017 is locked in and is reflected in our differential guidance
The minimal effects of declined local pricing highlight the value of our diversified firm capacity portfolio, which provide significant takeaway capacity to premium markets
We continued to expect improvement in our realized price as incremental pipeline projects come online, including the Mountain Valley Pipeline project, which will provide access to the premium Southeast and Mid-Atlantic markets
Now moving to Midstream results, <UNK>QT Gathering operating income was $83.3 million, $10.1 million higher than the second quarter of 2016. Operating revenue was $112.1 million, a $12 million increase over the second quarter of 2016, driven by production development in the Marcellus Shale
This was slightly offset by increased operating expenses, which totaled $28.8 million for the quarter, a $1.9 million increase over the same period last year
Looking at <UNK>QT Transmission, second quarter operating income was $57.8 million, $1.9 million higher than the second quarter of 2016. Firm reservation fee revenue was $79.5 million, $19.2 million higher than the second quarter of 2016, primarily as a result of <UNK>QT contracting for additional firm capacity on the OBC
Operating revenues were $86.8 million, an $8.9 million increase over the second quarter of 2016, while operating expenses were $29 million, a $7 million increase over the second quarter of 2016, with approximately $5 million of the $7 million increase being DD&A
I'll close my remarks by providing you with our liquidity update
We closed the quarter in a great liquidity position with zero net short-term debt outstanding under <UNK>QT's $1.5 billion unsecured revolver and about $561 million of cash on the balance sheet, which excludes <UNK>QM
We're forecasting $1.2 billion of operating cash flow for 2017 at <UNK>QT, which includes approximately $200 million of distributions to <UNK>QT from <UNK>QGP
We're fully capable of funding our roughly $1.5 billion 2017 Cap<UNK>x forecast, which excludes <UNK>QM and land acquisitions, with the expected operating cash flow and the current cash that we have on hand
So, with that, I'll turn the call over to <UNK>
Hi, <UNK>
Sorry, just one clarification on that piece
That would just be for the <UNK>QT run rate
There would be additional crews because of the Rice acquisition
So we would be at a higher number than 7 in 2018.
As Steve said, we're committed to addressing the sum-of-the-parts issues in 2018. I'm not going to comment on any particular path forward
But we don't believe that taxes will be the deciding factor in whatever it is that we decide to do, or importantly, with regard to the timing of when we're able to do it
Thanks, <UNK>
Hi, <UNK>
Hi, <UNK>
It's Rob
I think that when you look around at where we overlap with Rice, that we overlap both on the upstream and the midstream side
And so it's going to require less capital to deploy the midstream solution for whatever drilling that we do
And some of that may accrue to the midstream business and some of that may accrue to the upstream business, but there clearly will be less capital required to gather the volumes that get drilled
Nothing at this point
Hi, <UNK>
So, just one clarification on that, <UNK>, that I don't think we've said today
When we're talking about the Utica, we're only talking about the Deep Utica in Pennsylvania
We're not referring to the Ohio Utica that comes with the Rice transaction
<UNK>conomically that competes much better with the Marcellus
