Equitable Resources Announces Record Annual Earnings

PITTSBURGH, Jan. 27 /PRNewswire-FirstCall/ -- Equitable Resources, Inc. today announced record 2004 annual earnings per diluted share (EPS) of $4.44. This compares with EPS of $2.68 in 2003. Fourth quarter 2004 EPS was $0.69 as compared to fourth quarter 2003 EPS of $0.78. Several non- operational factors discussed below impacted full-year results, including a $13.4 million fourth quarter charge for the settlement of a cash balance pension plan.

In January 2005, the Company purchased the remaining 99% limited partnership interest in Eastern Seven Partners, L.P. As detailed below, this transaction added approximately 30 Bcfe of reserves.

RESULTS BY SEGMENT Equitable Utilities

Equitable Utilities had operating income of $108.1 million for 2004, compared with $109.9 million for 2003, a 2% decrease. Net operating revenues for 2004 were $242.7 million compared to $245.1 million in 2003. Heating degree-days were 5,360 for 2004, which is 6% warmer than the 5,695 degree-days recorded in 2003 and 8% warmer than the 30-year norm of 5,829 degree-days.

Total operating expenses for 2004 were $134.6 million, compared to $135.2 million in 2003. Expenses related to depreciation, depletion, and amortization expense (DD&A) and bad debt expense were lower than the prior year, but were partially offset by higher customer information system costs and state franchise taxes. The decrease in DD&A primarily reflects application of longer expected service life to pipes at Equitable Gas resulting from a Pennsylvania Public Utilities Commission mandated asset service life study, partially offset by the effect of capital investments.

Operating income for the 2004 fourth quarter was $37.5 million, 14% higher than the $32.8 million earned in the year ago quarter. Increased storage and commercial margins, partially offset by lower heating-related revenues, resulted in a 1% increase in net operating revenues for the quarter. Operating expenses in the quarter decreased 11% from $35.8 million in 2003 to $31.7 million in 2004, primarily as a result of a reduction in DD&A at Equitable Gas as noted above, retroactive to January 1, 2004, and a reduction in bad debt expense.

Equitable Supply

Equitable Supply recorded operating income of $227.4 million in 2004, 16% higher than the $195.8 million earned in 2003. Total revenues for 2004 were $390.4 million, 17% higher than the 2003 revenues of $332.4 million. The increase in total revenues was primarily the result of a 14% higher average well-head sales price, a 5% increase in sales volumes, and a 7% increase in gathering revenues.

Operating expenses increased 19% from $136.6 million in 2003 to $163.1 million in 2004 due to higher gathering and compression expense, DD&A, lease operating expense, and severance taxes. The increase in gathering and compression expense is mainly attributable to increases in compressor expense, field line and meter operations, and staffing. DD&A increased due to capital expenditures for production and gathering assets. The increase in lease operating expense is primarily related to increased cost for insurance, a charge for environmental site assessments required under the Company's Spill Prevention, Control and Countermeasure plan, and increased property tax due to increased revenues. During 2004, the Company made a strategic shift toward developing an infrastructure that will accommodate production from an accelerated drilling program. The Company plans to drill 440 wells in 2005, compared with the 314 wells drilled in 2004.

Operating income for the 2004 fourth quarter of $54.2 million compared favorably to the $51.0 million of operating income in the fourth quarter 2003. The average well-head sales price was 16% higher as compared to the fourth quarter 2003, and sales volumes were slightly higher. Operating expenses increased to $45.8 million in the fourth quarter 2004 from $37.3 million for the same period last year. Gathering and compression expense increased from $7.2 million in the 2003 fourth quarter to $12.9 million in the 2004 fourth quarter primarily due to increases in compressor expense and field line and meter operations. During the quarter, upon completion of Supply's internal evaluation of operational job functions, there was a reclassification of certain operating expenses for the first nine months of 2004 ($1.7 million) from lease operating expense to gathering and compression expense, consistent with Supply's continued efforts to separate the gathering business from production.

Supply amended its prepaid forward contract at the end of the second quarter 2004 with a portion of the proceeds from the sale of Kerr-McGee shares. The amendment required Supply to repay the net present value of the portion of the prepayment related to the undelivered quantities of natural gas in the original contract. Prospectively, through the term of the remaining contract (December 2005), Supply will deliver the required quantity of gas at an effective price of $4.79/Mcf rather than $3.99/Mcf as originally stated in the contract. The contract amendment resulted in an expense of $5.5 million, reported as other income, net.

Equitable Supply received an insurance payment in the second quarter related to a disputed insurance coverage claim of $6.1 million. This payment was reported as other income, net.

The third quarter included an increase in operating income of $2.7 million related to a change in the liquid processing contract from a make-whole arrangement to a processing fee arrangement.

NORESCO

The NORESCO segment posted 2004 operating income of $14.9 million, compared with $16.9 million earned in 2003. Net operating revenues for 2004 were $39.3 million, 4% lower than 2003 net operating revenues of $41.0 million. Total operating expenses were $24.4 million in 2004 compared with $24.1 million in 2003. The construction backlog was $83.5 million at year- end, down from $134.2 million at the end of 2003. The decreases in revenues and backlog were mainly due to the lapsing in September 2003 of the enabling legislation for the performance contracting work that NORESCO performs for the federal government. The federal government passed new enabling legislation in October 2004, providing NORESCO with the opportunity to resume contracting this work.

NORESCO posted operating income of $4.2 million in the fourth quarter of 2004, compared with $5.8 million in the same period in 2003. Net operating revenues were lower by 16% at $10.8 million in 2004, compared with $12.8 million in the fourth quarter 2003, while total operating expenses were $6.6 million in the fourth quarter 2004, $0.3 million lower than the $6.9 million in the same period 2003.

In the second quarter 2004, NORESCO recognized an impairment of $40.3 million, which represents substantially all of the international investment portfolio and the related costs of exiting these investments. In January 2005, NORESCO sold its interest in a Costa Rican electric generation plant to a third party purchaser and recorded a slight gain on the sale.

Other Business Pension

During the fourth quarter of 2004, the Company irrevocably committed to settle the cash balance portion of the defined benefit pension plan. This settlement resulted in the Company incurring a charge of $13.4 million. The cash balance portion of the pension plan provided future benefits for certain salaried employees of the Company's Utilities segment.

Supply Asset Rationalization

In January 2005, Equitable purchased the remaining 99% limited partnership interest in Eastern Seven Partners, L.P. for cash ($57.5 million) and assumed liabilities ($47.3 million). The purchase added approximately 30 Bcfe of reserves. Equitable intends to sell some non-core producing properties during the first half of 2005. The net result of the purchase and sale is expected to increase the sales volume at Supply to 73 Bcfe in 2005. The expected increase in revenues will be partially offset by lower other revenues from fees formerly paid by the partnership for marketing and operating services ($4.1 million in 2004).

2005 Earnings Guidance

The Company is reiterating 2005 earnings guidance of between $3.45 and $3.50 per diluted share. This earnings guidance assumes $5.50 per MMbtu average NYMEX natural gas price and normal weather.

Stock Buyback

During the fourth quarter, Equitable repurchased 500,000 shares of EQT stock for a total of 2,350,000 shares for the year. The number of shares repurchased since October 1998 is approximately 19.0 million out of the 21.8 million shares currently authorized for repurchase.

Hedging

The approximate volumes and prices of Equitable's hedges for 2005 through 2007 are:

2005 2006 2007 Total Volume (Bcf) 63 62 59 Average Price per Mcf (NYMEX)* $4.80 $4.73 $4.75 * The above price is based on a conversion rate of 1.05 MMbtu/Mcf Executive Performance Incentive Programs

The 2002 and 2003 executive performance incentive programs are intended to align management long-term compensation with shareholder return relative to a peer group of 30 companies. The cost of these programs was $26.2 million in 2004, compared with $15.0 million in 2003. The increase in expense related to these programs was primarily the result of the Company's continued re- evaluation of its payout assumptions under the programs, including the Company's share price payout assumptions and the estimated performance levels to be attained.

In the fourth quarter 2004, the cost of these programs was $10.2 million, compared with $1.0 million in the fourth quarter 2003.

2004 Capital Expenditures

Equitable invested $202 million in capital projects during 2004. This included $142 million for Equitable Supply, $56 million for Equitable Utilities, and $4 million for Headquarters and NORESCO.

2005 Capital Expenditures

Equitable forecasts $293 million of capital expenditures for 2005. This forecast includes $219 million for Equitable Supply, $61 million for Equitable Utilities, and $13 million for Headquarters and NORESCO.

Westport/Kerr-McGee Merger

The merger between Westport Resources Corp. and Kerr-McGee Corp. closed on June 25, 2004. As a result of the merger,

Equitable recognized a gain of $217.2 million on the exchange of Westport shares for Kerr-McGee shares.

Also in the second quarter, Equitable sold 800,000 Kerr-McGee shares after the merger was completed. The sale resulted in cash proceeds of $42.9 million, a gain of $3.0 million.

An additional 357,000 Kerr-McGee shares were committed to Equitable Resources Foundation, Inc. in the second quarter. The foundation supports development programs in the communities where the Company conducts business. The contribution resulted in an $18.2 million charge.

Equitable earned $3.1 million in 2004 ($1.5 million in the fourth quarter) in Kerr-McGee dividend income, reported as other income, net. Equitable owned approximately 7.0 million shares of Kerr-McGee at year-end.

Operating Income, Equity Earnings from Nonconsolidated Investments, and Other Income

The Company reports operating income, equity earnings from nonconsolidated investments, and other income by segment in this press release. Interest, income taxes, Kerr-McGee related matters, and similar items are controlled on a consolidated, corporate-wide basis, and are not allocated to the segments.

The following table reconciles operating income by segment as reported in this press release to the consolidated operating income reported in the Company's financial statements:

Three Months Ended Year Ended December 31, December 31, 2004 2003 2004 2003 Operating income (thousands): Equitable Utilities $37,469 $32,791 $108,149 $109,879 Equitable Supply 54,209 51,009 227,369 195,795 NORESCO 4,218 5,818 14,946 16,931 Unallocated expenses (22,456) (7,715) (45,813) (20,388) Operating Income $73,440 $81,903 $304,651 $302,217

The following table reconciles equity earnings from nonconsolidated investments by segment as reported in this press release to the consolidated equity earnings from nonconsolidated investments reported in the Company's financial statements:

Three Months Ended Year Ended December 31, December 31, 2004 2003 2004 2003 Equity earnings from nonconsolidated investments, excluding Westport (thousands): Equitable Supply $223 $30 $688 $431 NORESCO 667 (11,020) (38,438) (8,589) Unallocated 52 27 168 149 Total $942 $(10,963) $(37,582) $(8,009)

The following table reconciles other income by segment as reported in this press release to the consolidated other income reported in the Company's financial statements:

Three Months Ended Year Ended December 31, December 31, 2004 2003 2004 2003 Other income, net (thousands): Equitable Supply $ - $ - $576 $ - Unallocated 1,514 - 3,116 - Total $1,514 - $3,692 -

Other segment financial measures identified in this press release are reconciled to the most comparable financial measures calculated in accordance with GAAP on the attached operational and financial reports.

As previously announced, Equitable's teleconference with securities analysts at 10:30 a.m. Eastern Time on January 27, 2005 will be broadcast live via Equitable's website, http://www.eqt.com/ and will be available for replay for a seven day period.

Equitable Resources is an integrated energy company, with emphasis on Appalachian area natural gas supply, natural gas transmission and distribution, and leading-edge energy management services for customers throughout the United States.

Equitable Resources management speaks to investors from time to time. Slides for these discussions will be available online on Equitable's website. The slides will be updated periodically.

DISCLOSURES IN THIS PRESS RELEASE CONTAIN FORWARD-LOOKING STATEMENTS RELATED TO SUCH MATTERS AS 2005 EPS GUIDANCE OF $3.45 - $3.50, EARNINGS PER SHARE AND DIVIDEND GROWTH, THE APPROXIMATE VOLUMES AND PRICES OF HEDGES FOR 2005 THROUGH 2007, THE REPURCHASE OF ADDITIONAL COMPANY SHARES, REPAYMENT OF DEBT, THE FORECASTED CAPITAL EXPENDITURES, THE COMPANY'S APPROACH TO LONG-TERM COMPENSATION, INCLUDING DEFINED BENEFIT OBLIGATIONS, CHANGES IN OPERATING COSTS, THE ABILITY OF THE COMPANY TO COLLECT ITS ACCOUNTS RECEIVABLE, OPERATIONAL MATTERS AT THE SUPPLY SEGMENT INCLUDING THE ANTICIPATED NUMBER OF WELLS TO BE DRILLED, THE EFFECTIVENESS OF COMPRESSION, AUTOMATION, METERING AND OTHER INFRASTRUCTURE IMPROVEMENT PROJECTS, ANTICIPATED VOLUMES, STAFFING CHANGES AND THE COMPANY'S ABILITY TO SEGREGATE THE GATHERING BUSINESS FROM THE PRODUCTION BUSINESS AND TO RAISE GATHERING RATES, AND REALIZING VALUE FROM THE INVESTMENT IN KERR-MCGEE, INCLUDING THE EFFECTIVENESS OF HEDGING KERR-MCGEE SHARES. 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, GROWTH AND RESULTS OF THE COMPANY'S BUSINESS INCLUDE, BUT ARE NOT LIMITED TO, THE FOLLOWING: WEATHER CONDITIONS, COMMODITY PRICES FOR NATURAL GAS AND ASSOCIATED HEDGING ACTIVITIES, INCLUDING CHANGES IN HEDGE POSITIONS, AVAILABILITY AND COST OF FINANCING, CHANGES IN THE COMPANY'S CREDIT RATINGS, CHANGES IN INTEREST RATES, CHANGES IN TAX LAWS, UNANTICIPATED CURTAILMENTS OR DISRUPTIONS IN PRODUCTION, TIMING AND AVAILABILITY OF REGULATORY AND GOVERNMENTAL APPROVALS, INCLUDING PENDING AND ANTICIPATED RATE CASES, THE TIMING AND EXTENT OF THE COMPANY'S SUCCESS IN ACQUIRING UTILITY COMPANIES AND NATURAL GAS PROPERTIES AND DIVESTING NON-CORE PRODUCING PROPERTIES AND INTERNATIONAL ASSETS, THE ABILITY OF THE COMPANY TO DISCOVER, DEVELOP, PRODUCE, GATHER AND MARKET RESERVES, THE ABILITY OF THE COMPANY TO ACQUIRE AND APPLY TECHNOLOGY TO ITS OPERATIONS, THE IMPACT OF COMPETITIVE FACTORS ON PROFIT MARGINS IN VARIOUS MARKETS IN WHICH THE COMPANY COMPETES, THE PACE AT WHICH THE PERFORMANCE CONTRACTING BUSINESS CAN BE RESUMED, CHANGES IN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND/OR THEIR INTERPRETATION, THE ABILITY OF THE COMPANY TO NEGOTIATE LABOR CONTRACTS, THE AMOUNT OF INCENTIVE PLAN ACCRUALS INCLUDING THE IMPACT OF CHANGES IN THE RELATIVE PRICE OF EQUITABLE COMMON STOCK, THE ABILITY OF THE COMPANY TO REALIZE THE VALUE OF ITS KERR-MCGEE STOCK, AND THE LEVEL OF FUTURE SHARE REPURCHASES BY THE COMPANY. THE COMPANY UNDERTAKES NO OBLIGATION TO CORRECT OR UPDATE ANY FORWARD-LOOKING STATEMENT, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.

EQUITABLE RESOURCES, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED) (Thousands except per share amounts) Three Months Ended Year Ended December 31, December 31, 2004 2003 2004 2003 Operating revenues $344,695 $300,944 $1,191,609 $1,047,277 Cost of sales 164,724 131,221 519,140 428,706 Net operating revenues 179,971 169,723 672,469 618,571 Operating expenses: Operation and maintenance 28,034 20,015 87,988 76,319 Production 10,687 9,471 43,274 35,687 Selling, general and administrative 49,933 37,830 153,493 126,210 Depreciation, depletion and amortization 17,877 20,504 83,063 78,138 Total operating expenses 106,531 87,820 367,818 316,354 Operating income 73,440 81,903 304,651 302,217 Gain on exchange of Westport for Kerr-McGee shares - - 217,212 - Charitable foundation contribution - - (18,226) (9,279) Gain on sale of available for sale securities - 13,985 3,024 13,985 Equity (losses) earnings from nonconsolidated investments: Westport - - - 3,614 International investments, primarily impairment 661 (11,059) (39,590) (11,059) Other 281 96 2,008 3,050 942 (10,963) (37,582) (4,395) Other income, net 1,514 - 3,692 - Minority interest (142) (265) (976) (1,413) Interest expense 13,294 11,308 49,247 45,766 Income from continuing operations before income taxes and cumulative effect of accounting change 62,460 73,352 422,548 255,349 Income taxes 19,186 23,881 142,694 81,792 Income from continuing operations before cumulative effect of accounting change 43,274 49,471 279,854 173,557 Cumulative effect of accounting change, net of tax - - - (3,556) Net income $43,274 $49,471 $279,854 $170,001 Earnings per share of common stock: Basic: Weighted average common shares outstanding 60,985 62,045 61,682 62,050 Income from continuing operations before cumulative effect of accounting change $0.71 $0.80 $4.54 $2.80 Cumulative effect of accounting change, net of tax - - - (0.06) Net income $0.71 $0.80 $4.54 $2.74 Diluted: Weighted average common shares outstanding 62,483 63,310 63,101 63,358 Income from continuing operations before cumulative effect of accounting change $0.69 $0.78 $4.44 $2.74 Cumulative effect of accounting change, net of tax - - - (0.06) Net income $0.69 $0.78 $4.44 $2.68 (A) Due to the seasonal nature of the Company's natural gas distribution and energy marketing business, and the volatility of gas and oil commodity prices, the interim statements for the three month periods are not indicative of results for a full year. EQUITABLE UTILITIES OPERATIONAL AND FINANCIAL REPORT Three Months Ended Year Ended December 31, December 31, 2004 2003 2004 2003 OPERATIONAL DATA Heating degree days (30-year average: Qtr-2,070; YTD-5,829) 1,827 1,935 5,360 5,695 Residential sales and transportation volume (MMcf) 7,228 8,088 25,520 27,262 Commercial and industrial volume (MMcf) 7,467 8,233 29,597 28,784 Total throughput (MMcf) - Distribution 14,695 16,321 55,117 56,046 Total throughput (Bbtu) - Pipeline 14,545 18,327 68,929 72,988 Total throughput (Bbtu) - Marketing 14,464 13,662 52,366 40,430 Net operating revenues (thousands): Distribution Residential $28,783 $30,356 $104,612 $109,821 Commercial & industrial 12,617 14,469 48,563 50,660 Other 1,393 1,126 5,950 4,705 Pipeline 16,884 15,140 55,123 52,926 Marketing 9,454 7,535 28,457 27,011 Total net operating revenues $69,131 $68,626 $242,705 $245,123 Operating expenses as a % of net operating revenues 45.80% 52.22% 55.44% 55.17% Operating income (thousands): Distribution $19,561 $19,259 $56,877 $63,093 Pipeline 8,839 6,938 24,656 22,415 Marketing 9,069 6,594 26,616 24,371 Total operating income $37,469 $32,791 $108,149 $109,879 Capital expenditures (thousands) $12,847 $19,315 $56,274 $60,414 FINANCIAL DATA (Thousands) Utility revenues $129,083 $124,796 $431,348 $408,110 Marketing revenues 88,530 59,800 300,513 205,258 Total operating revenues 217,613 184,596 731,861 613,368 Utility purchased gas costs 69,406 63,705 217,100 189,998 Marketing purchased gas costs 79,076 52,265 272,056 178,247 Net operating revenues 69,131 68,626 242,705 245,123 Operating expenses: Operating and maintenance expense 15,116 12,835 52,481 51,208 Selling, general and administrative expense 13,184 15,725 56,446 56,453 Depreciation, depletion and amortization 3,362 7,275 25,629 27,583 Total operating expenses 31,662 35,835 134,556 135,244 Operating income $37,469 $32,791 $108,149 $109,879 EQUITABLE SUPPLY OPERATIONAL AND FINANCIAL REPORT Three Months Ended Year Ended December 31, December 31, 2004 2003 2004 2003 OPERATIONAL DATA Capital expenditures (thousands) (a) $51,276 $49,908 $141,661 $204,527 Production: Total sales volumes (MMcfe) 16,889 16,850 67,731 64,306 Average (well-head) sales price ($/Mcfe) $4.65 $4.01 $4.46 $3.91 Company usage, line loss (MMcfe) 1,477 1,446 5,090 5,501 Natural gas inventory usage, net (MMcfe) (70) 35 (61) 112 Natural gas and oil production (MMcfe) 18,296 18,331 72,760 69,919 Operated volumes-third parties (MMcfe) 5,627 5,632 21,865 22,619 Lease operating expense excluding severance tax ($/Mcfe) $0.31 $0.34 $0.36 $0.32 Severance tax ($/Mcfe) $0.27 $0.18 $0.24 $0.19 Production depletion ($/Mcfe) $0.54 $0.49 $0.54 $0.49 Gathering: Gathered volumes (MMcfe) 32,729 33,679 127,339 126,674 Average gathering fee ($/Mcfe) $0.57 $0.53 $0.58 $0.55 Gathering and compression expense ($/Mcfe) $0.39 $0.21 $0.28 $0.20 Gathering and compression depreciation ($/Mcfe) $0.10 $0.09 $0.11 $0.09 (in thousands) Production operating income $54,787 $45,526 $212,657 $172,384 Gathering operating income (578) 5,483 14,712 23,411 Total operating income $54,209 $51,009 $227,369 $195,795 Production depletion $9,861 $9,009 $39,100 $33,911 Gathering and compression depreciation 3,384 2,945 13,441 11,711 Other depreciation, depletion and amortization 868 830 3,295 3,126 Total depreciation, depletion and amortization $14,113 $12,784 $55,836 $48,748 FINANCIAL DATA (Thousands) Production revenues $81,265 $70,445 $315,986 $262,607 Gathering revenues 18,760 17,895 74,442 69,827 Total revenues 100,025 88,340 390,428 332,434 Operating expenses: Lease operating expense excluding severance taxes 5,677 6,148 26,080 22,278 Severance tax 5,010 3,323 17,194 13,409 Gathering and compression expense 12,898 7,179 35,494 25,110 Selling, general and administrative 8,118 7,897 28,455 27,094 Depreciation, depletion and amortization 14,113 12,784 55,836 48,748 Total operating expenses 45,816 37,331 163,059 136,639 Operating income $54,209 $51,009 $227,369 $195,795 Other income, net $ - $ - $576 $ - Equity earnings from nonconsolidated investments $223 $30 $688 $431 Minority interest $ - $ - $ - $(871) (a) Amount for the year ended December 31, 2003 includes the purchase of the remaining 31% limited partnership interest in Appalachian Basin Partners, LP ($44.2 million). NORESCO OPERATIONAL AND FINANCIAL REPORT Three Months Ended Year Ended December 31, December 31, 2004 2003 2004 2003 OPERATIONAL DATA Revenue backlog, end of period (thousands) $83,526 $134,195 $83,526 $134,195 Gross profit margin 27.4% 30.9% 26.9% 24.0% SG&A as a % of revenue 16.1% 16.0% 16.0% 13.3% Capital expenditures (thousands) $153 $60 $538 $307 FINANCIAL DATA (Thousands) Energy service contract revenues $39,434 $41,226 $146,426 $170,703 Energy service contract costs 28,619 28,469 107,090 129,689 Net operating revenues (gross profit margin) 10,815 12,757 39,336 41,014 Operating expenses: Selling, general and administrative expenses 6,356 6,609 23,403 22,667 Depreciation and amortization 241 330 987 1,416 Total operating expenses 6,597 6,939 24,390 24,083 Operating income $4,218 $5,818 $14,946 $16,931 Equity earnings from nonconsolidated investments $6 $39 $1,152 $2,470 International investments, primarily impairment $661 $(11,059) $(39,590) $(11,059) Minority interest $(142) $(265) $(976) $(542)