EQT Corporation (EQT) Q3 2014 Earnings Report, Transcript and Summary

Good morning, and welcome to the EQT Corp. Third Quarter 2014 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Patrick Kane, Chief IRO. Please go ahead, sir.

Thanks, Maureen. Good morning, everyone, and thank you for participating in EQT Corporation's third quarter 2014 earnings conference call. With me today are Dave Porges, President and Chief Executive Officer; Phil Conti, Senior VP and Chief Financial Officer; Randy Crawford, Senior VP and President of Midstream and Commercial; and Steve Schlotterbeck, Executive VP and President of Exploration and Production. This call will be replayed for a 7-day period beginning at approximately 1:30 p.m. today. The telephone number for the replay is (412) 317-0088. The confirmation code is 10037715. The call will also be replayed for 7 days on our website. To remind you, the results of EQT Midstream Partners, ticker EQM, are consolidated in EQT's results. There is a separate press release issued by EQM this morning, and there is a separate conference call at 11:30 a.m. today, which creates a hard stop for this call at 11:25. If you're interested in the EQM call, the dial-in number is (412) 317-6789. In just a moment, Phil will summarize EQT's operational and financial results for the third quarter, then Dave will provide a summary of our annual strategy review with our board and revised GP cash flow projections and valuation included in our updated analyst presentation, which was posted on our website this morning. Finally, Steve will discuss our preliminary thoughts for 2015 production plans. Following their prepared remarks, Dave, Phil, Randy and Steve will all be available to answer your questions. But first, I'd like to remind you that today's call may contain forward-looking statements relating to future events and expectations. You can find factors that could cause the company's actual results to differ materially from these forward-looking statements listed in today's press release under Risk Factors and in EQT's Form 10-K for the year ended December 31, 2013, filed with the SEC, as updated by any subsequent Form 10-Qs, which are also on file at the SEC and available on our website. Today's call may also contain certain non-GAAP financial measures. Please refer to this morning's press release for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measure. I'd now like to turn the call over to Phil Conti.

Thanks, Pat, and good morning, everyone. As you read in the press release this morning, EQT announced third quarter 2014 adjusted earnings attributable to EQT of $0.51 per diluted share or 7% lower than last year's third quarter. It should be noted that this quarter's effective tax rate was 33%, significantly higher than the 25% effective tax rate in the third quarter last year. The effective tax rate in the third quarter 2013 was favorably impacted by some onetime transaction adjustments. So normalizing for tax rates, adjusted EPS would actually have been about 6% higher year-over-year. Adjusted operating cash flow attributable to EQT was $291.3 million in the quarter or 5% higher than the third quarter of '13. Our operational performance was strong again this quarter, with 25% production volume growth and 24% higher gathering volume growth, while net operating expenses increased by only 8%, resulting in a cost reduction in per-unit operating costs. EQT Midstream Partner results, as you know, are consolidated in EQT's results. EQT recorded $33.7 million of net income attributable to the noncontrolling unitholders of EQM in the quarter, which was up significantly year-over-year due primarily to the sale of the Jupiter gathering system to EQM in May 2014 and the associated equity offering at EQM, which caused EQT's ownership of EQM to decrease to a little over 36%, down from almost 45% as of September 30, 2013. EQT raised almost $1.2 billion from the sale of Jupiter, which will ultimately be reinvested in high-return projects, but this transaction does have the effect of reducing both the EPS and cash flow growth attributable to EQT in the short term. You may have noticed in this morning's release that we included tables for adjusted earnings, adjusted EPS and adjusted operating cash flow, all excluding amounts attributable to the noncontrolling unitholders. As the noncontrolling portion continues to grow, we believe this approach is more informative to investors. The other significant negative impact to earnings and cash flow was a lower realized price compared to last year. At the consolidated level, EQT received $3.88 per Mcf equivalent compared to $4.12 last year. The average NYMEX gas price for the quarter was actually higher at $4.06 per Mcf compared to $3.58 last year, but basis was a negative $1.38 in the quarter 2014 compared to a negative $0.28 last year. Our third-party gathering and transmission costs were $0.45 per unit or $0.07 lower than the third quarter last year, and we were able to recover $0.70 per unit in the third quarter 2014 primarily by transporting some of our gas to higher-priced markets and reselling our unused capacity via termed sales. That $0.70 per unit in recoveries this quarter compares to recoveries of $0.40 per unit in the third quarter of 2013. The realized price of $3.88 includes a $0.26 per unit noncash hedge gain for hedge ineffectiveness and for derivatives that were mark-to-market in the quarter. The realized price at EQT Production was $2.94 per Mcf equivalent compared to $3.07 last year or a 4% decrease. EQT Midstream realized $0.94 compared to $1.05 last year as a result of lower average gathering rate. The operational results were again pretty straightforward in the third quarter, so I'll move right into the segment results. Now starting with EQT Production. As I mentioned previously, the sales volume growth rate in the recently completed quarter was 25% over the third quarter of 2013. That growth rate continues to be driven by sales from our Marcellus and Upper Devonian plays, which contributed approximately 79% of the volumes in the quarter. Operating income at Production was $105.7 million, excluding a noncash $34.3 million gain associated with the reduced hedge ineffectiveness in the third quarter of '14 or 12% higher than last year, excluding a comparable $3.4 million gain in the quarter last year. As discussed already, realized gas prices at Production were lower in the quarter. In total, operating revenues at EQT Production, net of the ineffectiveness gain, were $328.8 million or 9% higher than the third quarter of '13. On the expense side, total operating expenses were higher as you would expect given the company's growth and totaled $223 point million (sic) [ $223.1 million ] or an 8% increase. Moving on to the midstream results in the third quarter. Operating income here was up 19%. The increase is consistent with growth of gathered volumes and increase in fixed capacity-based transmission charges. Net gathering revenues increased 12% to $102.4 million in the third quarter '14 primarily due to a 24% increase in gathered volumes. The average gathering rate paid by EQT Production continues to decline as Marcellus production continues to grow as a percentage of our total production mix. Specifically, the average revenue deduction from EQT Production to EQT Midstream for gathering in the quarter of $0.74 per Mcf equivalent was $0.08 per unit lower than last year. Net transmission revenues for the third quarter 2014 increased by $15.8 million or 40%, driven by fixed capacity charges and higher volumes associated with Equitrans expansion projects. Operating expenses at Midstream for the third quarter of '14 of $72.9 million were about $11.5 million higher than last year, consistent with our growth and increasing activity level at Midstream. Just a quick note on guidance. We are estimating our operating cash flow for 2014 to be approximately $1.4 billion, excluding operating cash flow attributable to the noncontrolling EQM unitholders. We closed the quarter with no outstanding balance on EQT's $1.5 billion credit facility and over $1.35 billion of cash on our balance sheet, excluding the cash on hand at EQM. So we remain in a great position from both a liquidity and a balance sheet standpoint for the rest of the year and as we prepare for 2015. And with that, I'll turn the call over to Dave Porges.

Thank you, Phil. Last week, we completed our annual strategic review with our Board of Directors. As is our norm during the third quarter call, I will use most of my time reviewing the main points of that discussion. As you probably imagine, there are not a lot of material changes to our strategy. We continue to drive shareholder value by economically developing our vast resource base and investing in the ever-growing Midstream opportunity in our focus areas of Southwestern Pennsylvania and Northern West Virginia. There has been some evolution in the execution of our strategy that is worth discussing. One overarching theme is the continued emphasis on reducing unit cost, unit operating cost, cost of capital, et cetera, in all aspects of our business. I'd like to focus on one aspect of this today, optimal pace of development. First, we continue to believe that it is most economical to develop our core Marcellus and Upper Devonian acreage as fast as is practicable. But there are many factors that help determine that optimal pace, and these factors and constraints have shifted over the past 7 years or so since this play's early days. Through about 2010, the primary constraint for EQT was the availability of low-cost capital. We removed that constraint by redeploying proceeds from various monetizations to allow us to invest an excess of operating cash flow. In 2011, we sold 2 midstream assets. In 2012, we created an MLP, EQT Midstream Partners, to allow the continued sale of assets without surrendering effective control of those assets. We still have about $2 billion of midstream assets at EQT, which will be dropped to the MLP over the next 2 years, assuming EQM's continued economic access to capital markets. While a strong balance sheet may not be a differentiating attribute during times of capital availability, it can be very valuable when capital is scarcer. We're seeing some signs of that amongst our peer group and therefore want to ensure that we maintain a strong balance sheet and ample liquidity. This influences our thinking regarding the timing of drops, amongst other things. Hence, our decisions to accelerate drops and also to shift more midstream CapEx to EQM. Once we resolve the capital access constraint by monetizing assets, the constraint on optimal growth was set by the pace of clearing enough land for long lateral multi-well pads as we felt that was the most economic way to develop this asset. This year has been pivotable -- pivotal in resolving this constraint as we now clear pads well ahead of our drilling pace even though our emphasis on multi-well pads and long lateral stresses even the best of land groups. This success, primarily as a result of fast-tracking acquisition of mineral rights adjacent to existing development areas, revision of drilling permits pertaining to pads under development and other measures, has come earlier than we expected. As a result, we decided to start increasing our standard lateral length earlier this year as part of ongoing efforts to further improve economic returns. To give you an example. One pad cleared for 2015 drilling has 11 Marcellus wells averaging 5,700 feet, plus 8 Upper Devonian wells averaging 6,600 feet. That equates to over 115,000 pay -- of feet of pay and 770 stages on 1 pad. Now this approach does result in longer lead times between spudding a well and turning it in-line as it takes longer to both drill and complete wells with longer laterals. And that is what caused the modest reduction in the midpoint of our 2014 volume forecast. However, from our perspective, the more important point is that this move to longer laterals results in a 6% reduction in cost per foot of pay and is consistent with that clear strategic driver to further reduce overall unit cost structure. So having resolved the capital and land constraints, the current constraint to optimal development pace is takeaway capacity. We have seen this coming and have planned our midstream construction and firm capacity commitments to accommodate mid-20% per annum growth for the next several years. Given that there is limited incremental takeaway capacity in the near term, our development plans over that time will be calibrated to allow us to fill the takeaway capacity, meaning that efficiencies that allow us to achieve the mid-20% per annum growth more economically, such as multi-well pads in long laterals, likely will result in achieving volume targets with fewer wells. Of course, we keep adding to future takeaway capacity with projects like our Ohio Valley Connector, or OVC; and Mountain Valley Pipeline, or MVP, which are staged to provide takeaway capacity that facilitates such growth for many years. Continuing on that theme, our midstream growth -- our midstream group has an ever-growing opportunity to provide gathering and transmission services in the Marcellus and Utica. Strategically, we think more and more of the midstream growth projects should be funded at EQM instead of being built at EQT and dropped. Funding organic growth projects in that manner was probably always in EQM's best interest, but EQM was too small to wear this investment in construction projects. And frankly, EQT was able to profit from selling completed projects to EQM once they were built and contracted. With EQM's growth and high coverage ratio, it can afford to warehouse larger projects. From EQT's perspective, now that the general partner, or GP, is receiving 50% of incremental cash flows, we create more EQT value by avoiding capital at the EQT level and benefiting from the GP than we do from expending that capital at the EQT level and recovering it in drop proceeds. Also, consistent with EQT's desire to maintain a strong balance sheet and liquidity, we would rather not warehouse such large midstream projects at EQT. An example of this thinking was mentioned in the press release this morning that EQM is assuming EQT's interest in MVP. MVP will require a lot of capital in the coming years, but EQM now has the size to finance this project without compromising their distribution growth. This makes the project more economical for EQM unitholders, while EQT shareholders will benefit by an increase in GP value as a result of the higher number of shares outstanding and continued visibility in distribution growth. As an example of this latter point, we updated our GP value estimate to account for both OVC and MVP. As Pat mentioned, that new slide is in the updated presentation on our website. The previous estimate for GP value, as you will recall, was $3.9 billion. Adding MVP adds over $0.5 billion in GP value, and adding OVC adds over $100 million in value. So with these 2 projects as the only changes to that prior estimate, the updated estimate is $4.6 billion. This same dynamic exists when examining the impact on GP value of other possible investments by EQM. Now does EQT stock price reflect this GP value? It is impossible to be certain, but we think it is highly unlikely that it does. This fact, along with the growing GP value estimates, reinforces our view that we must do something else to highlight that value. All year, we have been saying that we are targeting sometime around year-end to make a final decision about what that is so that we can execute against that decision next year. We are still on that schedule. We will let you know as soon as we decide, but given that we are getting close to that decision, we think it best not to discuss the options in too much detail on today's call. And I'm now going to turn it over to Steve to provide more color regarding our preliminary thinking about next year's development program.

Thank you, Dave. Building a bit on Dave's remarks, we're in the early stages in preparing our 2015 capital budget. Given the progress of our land group, we are entering 2015 in great shape from a cleared location perspective. As Dave mentioned, we're -- we've been successful at lengthening our average lateral length. For 2014, we expect our average Marcellus lateral length to be 5,820 feet versus an average lateral length of just over 5,000 feet in 2013. We expect to continue to be able to drill longer laterals in 2015. In addition to lengthening our laterals, we're also drilling more wells per pad. In length -- in 2013, we averaged 7.6 wells per pad, and this year, we expect to average 11 wells per pad. All of this will translate into a slower increase in Marcellus/Upper Devonian well count in 2015 compared to previous years while still achieving our growth targets as we are more focused on feet of pay drilled, not well count. We plan to budget a few more dry Utica wells for 2015 to further derisk the play on our acreage as pure results continue to look strong. Keep in mind that if we are successful, the Utica wells will not increase our total production sales volumes for a few years. I've been asked what the impact of our development plans would be should the Utica be profitable. It's way too early to know for sure. But if the wells are more economic than the Marcellus wells, we would shift capital from Marcellus to Utica as we are committed to drilling the most economic wells. With that, we'll open the call to questions.

Thank you, Steve. Maureen, could you please open the call for questions?

[Operator Instructions] Our first question is from Neal Dingmann from SunTrust.

Say, maybe a question for -- a general question first for Phil or Dave. Just wondered, obviously, your liquidity position, certainly, is great out there right now. So wanted your thoughts, I guess, for you or even for Steve, on just acquisitions either for acreage or companies in general given that solid liquidity position you have.

We are not letting money burn a hole on our pocket. I know I say that in every call when we get asked, but that's -- to me, that has -- the liquidity has no impact on whether an investment in acreage, say, would be attractive or not. I don't think it -- it doesn't take a financial guru to notice that the financial markets don't exactly embrace some of those acquisitions -- at least not for the acquirer. And I think that has been true over many years. Our mindset has not changed. We are not impacted by that, and I'll just -- I would just as soon leave it at that.

Okay. Does that include -- just I guess, I'm trying to think about how much acreage. Are you just still filling in acreage? Or do you see yourselves -- do you feel like you have enough acreage now, enough drilling locations that -- does that include acreage as well, I guess?

I'll let Steve answer that.

Well, Neal, I think we're always interested in acreage that fills in the holes in our core areas. So acreage that becomes available that fills those holes, is interesting. And probably more specifically, acquisitions where we have a competitive advantage in the bidding are the most attractive. So that typically happens when we have a lot of acreage that's immediately adjacent to the available acreage. So we continue to look for those opportunities, but they're not particularly common. So we'll go after them when they reveal themselves. But in the meantime, we'll just fill in holes as we can.

Okay, and 2 more. One, obviously, you continue to have huge dropdown opportunities. Do things -- I guess, when you think about how quick in the schedule of the drop-downs, do things just have to get sort of to critical mass before you decide to drop down? Or how do you all decide on sort of timing of these dropdowns sort of going through next year?

We always are preparing for the next drop, and there's work that has to be done getting the contracts in place, getting the accounting right, et cetera. Our bias has been to do at least one drop a year. So we're always sort setting a goal to have one ready within a year of the last one or even sooner if we can. So I guess, the answer is we're always trying to get ready to do the next one because we think that's the right place for those cash flows to exist and get value at the lower cost of capital.

Okay. And then maybe, Dave, for you -- Dave. Thanks, Phil. Just wondered, you made a comment about limited takeaway capacity just in the near term, so doing more multi-pads and such. Is that -- can you just maybe discuss that a bit more? I mean, how much more -- to me, when I look at that capacity, it doesn't seem limited very long. Maybe if you can maybe comment about that, how that's going to grow.

No, but that's all it -- it's just not a very good use of capital to be even a few months ahead of takeaway capacity. That's all, Neal. And then you...

Very, very good.

Right. You don't -- you just don't want to be spending that money if you don't have to. And a lot of times, you wind up with drilling rigs and frac crews that are on longer-term contracts. We think it's one of the most economic things that we've done is to make sure we have a lot of that stuff under long-term contract. And you want to make sure that you're carefully planning that so that you're not getting the one too far out in front of the other.

Okay. And then my last question just on differentials. I know just looking at your slides, such as on the Jupiter, you have a lot of firm gathering and compression agreements coming up. Your thoughts about, I know you highlighted or estimated what you thought different diffs would be for this quarter. Would you add any more hedges here? Would you add more FTE here? Just your thoughts given what's going on with basis differentials in your region.

Yes. I'm not sure if I got a great answer. Randy, you may have a comment on it. We're always looking at the hedge portfolio, I'll tell you that. And we're always looking for a better -- broadly a sales portfolio that exposes us to higher-priced markets in the most economic manner. But if you're -- you're looking for nearer-term assessments?

So Dave, would you lock in more firm transportation today or at the prices that FTE cost, not necessarily? I guess that's kind of where I was going with that.

It all depends on the market. I mean, we think a big advantage that we have in having a commercial group as well as a midstream group, as well as Production, is that we can develop our own view of what it costs to move from point A to point B, say, with a pipe. And that we can develop our own view of what we think the market is going to be, what the difference is going to be between point A and point B. And if you think it's more economical to take out capacity, then you'd be open to doing that. I certainly think that we're in a good situation now. Of course, we've got a variety of -- we've got even more capacity coming on in the fourth quarter as it is. But I don't know that we'd be looking to take on any more than what we've been planning to take on at this point. One -- the big -- a big variable, and I know Steve has alluded to this in the past, is what does happen with the Utica? And that could change some thinking. But the way we -- I think we're reasonably comfortable with where we are right now.

Our next question is Drew Venker, Morgan Stanley.

I was hoping you could provide some color on the assumptions on that dropdown figure you provided.

Basically, it's -- we have -- in round numbers, 2 assets [ph] still owned by EQT. And assuming 10x multiple, which is kind of a little bit less than what we've dropped recently, that's about $2 billion. So that's the only 2 assumptions there.

Okay, that's helpful, Pat. And just wanted to clarify what you're trying to say in terms of shifting capital to EQM for the midstream side. Is it kind of implying you would be spending more on the E&P side next year and in the next few years?

No, that actually -- all that meant to -- that was not meant to imply that we're spending more on E&P next year. That's just meant to imply that the best with -- especially with us moving up to the 50% splits for the GP, that when we've run through the numbers, we think the most economical thing for EQT and, for that matter, for EQM is to have more of those projects built at EQM. It's purely a cost of capital decision. It's not a capital availability issue. It's that -- back in the earliest days, we were able to spend X on a project at EQT and then drop it for maybe 2x X because EQM was at such a size that they really couldn't wear in construction projects or projects that haven't been contracted out. So they will -- EQT basically derisked that. And the GP wasn't taking away that much from the LP. Now that we're into the 50% splits, it means that the price that EQM can afford to pay is probably a little bit lower, but EQT makes up a lot of value on the GP, so it's really -- it winds up being win-win to have more of those projects be built at EQM. I do think you should assume that as you look out, I don't want to pick the number of years, but 2, 3 years into the future, you'll basically see all of the midstream CapEx for the consolidated group being spent at the EQM level. I mean, I guess you never want to say never to new projects. But directionally, our view will be, because of those factors I mentioned. Again, it's the size of EQM that allows them to do it, and the fact that EQT is actually picking up more value from the GP than it does from build and drop, you should see that capital -- those projects moving towards EQM as opposed to EQT. Does that -- I'll take another shot if that wasn't clear enough.

No, that helps, Dave. I just -- I think maybe just to follow up, does it -- so does your development plan for 2015 largely depend on logistics and planning and, I guess, all the things you normally take into account?

Yes, yes, that's exactly right.

Versus running as hard as you can?

That's exactly right. Incidentally, one thing we'll probably -- we can -- we'll ponder doing is if the understanding on the thought process behind the CapEx being spent at EQM versus EQT -- we've actually done internally a fair amount of analysis on that. We'll see if we can't figure out a way to capture that in a way that -- such that we can communicate it numerically to investors. But it is not a capital availability issue.

Okay, that's helpful, Dave. Assuming you could provide some clarity or some more color on how much of those third-party recoveries are attributable to selling unused capacity versus just moving gas around to higher-price markets? Like kind of how we should try to forecast that in the future because it's more...

I think for forecast, so there's 3 things, 3 main things in that recovery line. One is we do have firm capacity to get to higher-priced markets. So that's a big part of it. We also have some of that capacity that we're not using for our own volumes that we resell. That's the second part. And thirdly, in the -- say, the typical 12 months or shorter, we do have fixed -- firm sales where we set the basis at the time of the sale. So on those contracts, if basis widens after we enter the contracts, the recovery goes with it because the basis has been set. So that's what's in that line item. Just given that, that -- those tend to be shorter-term, the best way to model recovery going forward is if you look at our sales points, which we have in our analyst presentation on Slide 44, and do a weighted average of the pricing that you get compared to the local price, that should approximate your recovery line.

Our next question is Christine Cho from Barclays.

Would you be able to break down the 2 Bcf a day on MVP between producers and end users?

No, Christine, we're not providing the breakdown of customers at this point.

Okay. Then do you have any insight in what the shippers are planning to do with the gas once it gets to Transco? Just because my understanding is that I thought Transco was full, so have most of them signed up for capacity on Transco? Or is there some sort of dynamic going on with capacity releases and such that doesn't make it necessary to sign up for FTE on that pipe?

Sure, Christine. I think that MVP does provide a lot of supply diversity to Station 65 and currently supplied by Transco, as you mentioned. Certainly, that the -- generally speaking, our experience has been that when you're creating a new interconnect to existing interstate lines with a market needs -- and with any market, it needs to create capacity, such as when they had Cascade Creek, TETCO's TEMAX expansion and such. So basically, the market that is in need of that gas has the existing capacity on Transco. They'll purchase the gas at 165 or a Zone 5 pool and transport the gas on the capacity that it owns. So it's important to remember, okay, that the pipeline, which is an open-access pipeline, doesn't control what happens to the gas that's shipped on 165 as the shippers on that pipeline own the capacity. So essentially, the shippers will -- that significant amount of gas crosses that meter and takes away at 165. So those shippers that already exist and have capacity on Transco will be able to access that liquidity and that supply. So those shippers that have capacity will be able to move it at that point.

But I guess if you're adding 2 Bcf a day to that interconnect, I mean, what was the capacity at Station 65 before that? I would just think that it's like it would overwhelm a little bit. Would it not?

No, not in our judgment. I think that, significantly, right now, Transco Zone 5 [ph] Currently imports about 4 Bcf of gas per day with the majority that's flowing from the Gulf Coast. And with over 3 Bcf a day that's consumed at Zone 5 Station 165, that's significant volume flowing through the meter. So it has -- so MVP will have shippers who have access to this liquidity, and they can sell them to the existing shippers -- or new markets, which will be developed over the 4 years, that will develop their coal retirements in the Southeast and Mid-Atlantic regions and such. So essentially, our experience in the development of the Marcellus, similarly, such as the taps that have gone into Tennessee at Mawa and Algonquin, the Texas eastern taps and such. So you've got a market in need of a supply, and this will provide a reliable source of supply to a growing Southeast market. So we're -- the market has really validated that assumption with the shippers signing, and I think that's -- certainly, there'll be significant liquidity ahead for shippers on MVP.

Oh, great. Okay. And then I know in the press release, you guys talk about the size of the pipe diameter, and total capacity is yet to be determined. But kind of on that GP slide, it implies that the pipe is going to cost $1.9 billion. Is that a good number to start with for us?

Yes, but you're looking at the EQT share, just so you know.

Yes, yes, yes, I know.

Yes.

That's a good number?

That's not a bad assumption.

Okay. And then you're talking about in 2 years, you would like all of the midstream CapEx to take place at EQM. I know that the big pipeline projects that you've been contemplating, it's taking place at EQM. But they're still gathering that's taking -- gathering construction that's taking place at EQT, and I think the rough rule of thumb in the past has been 20% of E&P CapEx. Is that -- like when should we think that, that starts to transition over?

It's -- I would think you should -- you should look at that as beginning to transition over.

Right now?

And I didn't mean to make it so specific as suggesting that in 2 years there won't be any [indiscernible] At EQT. But I'd say you should assume that, that transitioning is beginning, and that, yes, we are talk about that capital also, not just the big projects like the OVCs and the MVPs.

Okay. And then your peers in the Marcellus that do infrastructure up there, a lot of those guys also -- a lot of them do processing as well. So do you think that takes away from your third-party gathering opportunities? If they can go to someone else to do gathering and processing, whereas with you, they can only do gathering. Can you kind of and talk about that?

Randy might have a view. I actually don't think so, because at least the main processor we deal with here, often has said they would prefer not to have to do as much gathering.

And I think, Christine, from a customer perspective, I think an example of that is the Mobley processing facility that MarkWest has placed on the Equitrans system. So really, providing producers a complete solution to get their gas processed and having a residue solution, moving the dry gas, which we have been very successful in doing, I think the combination of those 2 makes us very competitive in the marketplace.

And it's only -- we're more than happy to work in conjunction with other midstream companies, just as we're more than happy to work in conjunction with other producers.

Okay. And then last question for me. Can you break down the NGL volumes between Marcellus and Permian?

I will turn it to Pat.

No, with -- I don't have that with me, Christine. If you would just follow up, we'll try to get that.

Our next question is from Holly Stewart, Howard Weil.

Maybe just digging into Christine's question a little bit more on the gathering CapEx at the EQT level, I think we've backed into, call it, $240 million or so in 2014, so -- that's excluding transmissions. So just I guess bigger picture, assuming that, that starts to decline pretty significantly in 2015 and beyond?

It starts to decline in 2015. We haven't set the budget yet. And frankly, one of the things we have to figure out for '15 is to the extent that the projects have been committed to already, it may wind up being more problematical to transfer it at that -- in the middle of the project, right? There tends to be -- even on the gathering, there's a lead of at least several months in putting it in place. So I'm not at this point ready to put a number out for 2015. I was providing much more of a kind of strategic overview on that.

Strategic big picture, okay.

But you should assume that number that you're talking about starts trending towards 0.

Yes, got it. And then maybe just, Steve, as you mentioned, kind of thoughts around 2015, anything that we should think about as a shift in the development plan, whether it's within your different areas?

No, I think we haven't finalized our plan yet. So we don't even have specifics internally. But I think you'll see a continued focus on our core areas of the Marcellus will attract the bulk of our investment capital next year. There'll be no change.

Okay, okay, great. And then -- I mean, and Pat, maybe you talked about this a little bit just in terms of this third-party gathering and transmission recovery line. I mean, it looks like you blew away your 3Q guidance for that. And your 4Q guidance is a lot better than even what you've realized in the first quarter. I assume it's very seasonal with 1Q and 4Q. So can you just kind of help us better understand how you're getting to those numbers?

Yes, it's -- I think the blowing away the guidance, if you look at the basis realized in the third quarter compared to where it was when we gave the guidance, it was wider. And the biggest chunk of the improvement in the recoveries had to do with these fixed sales that we had the -- basically the recovery moved up penny for penny with the basis. And you're right, it is seasonal. So fourth quarter, the big improvement there is that we do expect winter again, and that will help.

So a big part of that then is just not being as exposed to the basis as possibly, I guess, our earlier ways of presenting it might have made it seem.

Our next question is Joe Allman, JPMorgan. Joseph D. Allman - JP Morgan Chase & Co, Research Division: Just one question on the longer laterals. Could you quantify what happens to the longevity of the drilling inventory as you move over to drilling more longer laterals?

Well, I think it probably is unchanged given the fact that we're going to drill -- we have a set amount of capital. So we'll drill less wells, but the same number of lateral feeds, so develop the same amount of acreage in either case. So there's a capital efficiency improvement, but I think it doesn't really impact our -- the length of our inventory. Joseph D. Allman - JP Morgan Chase & Co, Research Division: Okay. So how many longer laterals could you do? So for example, if you -- if any given area, you had say a 10-year inventory of drilling, do you think you could drill longer laterals in pretty much all your acreage? Or is it going to -- is it on 1/2 your acreage or 1/4 of your acreage? Then if you had a 10-year inventory of drilling, I'm assuming that inventory goes down to say 7 years, just because you have fewer wells, but they're longer wells.

No, the -- I think you -- the way to think about it is how much acreage are we developing? And that's driven by the factors that Dave mentioned. Used to be driven by capital and land. Now for the next couple of years, by capacity. So we will drill -- we'll develop the same amount of acreage. We'll just do it with less wells because they're longer laterals. But inventory is really about acreage, not well count. So I guess if you want to just think about it as well count, which is not how we think about it, the well count will go down, but the available acreage and the growth opportunity is unchanged. It's just more capital-efficient. Joseph D. Allman - JP Morgan Chase & Co, Research Division: And how widely could you drill the longer laterals? On -- what percentage of your wells could be longer laterals?

Well, that's hard to answer. One, longer than what? But it's very acreage-dependent, and it's very dependent on our ability to add acreage adjacent to our current acreage, to swap with our competitors to build blockier positions. So there's numerous factors that go into that. I would say, we expect to be able to continue to drill laterals as long as we're drilling now, on average, for the next few years. And we hope to be able to lengthen them further, but we think we can replicate what we're doing now for a while. Joseph D. Allman - JP Morgan Chase & Co, Research Division: Okay, that's helpful. And then on takeaway, when you compare yourselves to other operators in the Marcellus and the Upper Devonian, what advantages do you think EQT has versus others in terms of takeaway and price realizations?

Well, I'll -- yes, I'll just go back. I'll give my 2 cents on it, and if Randy or Steve wish to volunteer something, or Pat, that's fine as well. I come right back to thinking that the main advantage we have -- and look, I think a lot of these peers are very good companies. So I don't -- I certainly do not mean for any of this to come across as being critical. But if we just look at ourselves, we'd say we get a benefit from this factor I had mentioned on an earlier -- in answer to an earlier question, about having a better, more detailed knowledge of how much it actually costs to build the takeaway capacity to go from, say, point A to point B and to be able to compare that to what the prices are in the market. We -- as a result of a lot of these activities, we have a pretty good idea of what other projects are out there as well and a notion of how that's likely to impact that basis differential between those locations over the course of time. So we've got a sense of what projects we think make sense over time and which ones make less sense over time. Beyond that, of course, we do get a benefit from the fact that we have built a lot of the gathering here. So a lot of the gathering necessarily goes through our Equitrans system. Equitrans is feeding the MVP project, et cetera. Randy, you have any thoughts?

Yes. I would just add that -- at EQT that we've been, from a first mover standpoint, from the fact that we were in the Huron and moving the importance of FTE, that the contracts that we have entered into are economically sound. They access a broad portfolio, an excellent commercial group, and we're getting to a variety of different markets. And so the fact that we have stepped up our team [ph] '14 [ph] Capacity is coming on in November, that will access both the Gulf Coast and the Northeast market. So we have consistently at EQT been proactive in procuring firm transportation to the valued markets that David said. And I think our track record speaks for itself.

So look, none of the peers who are roughly our size have their head in the sand on this. Everybody that we're aware of is aware and has been aware that they need to be focused on takeaway capacity. I mean, I understand there's been a couple of cases where folks maybe didn't have as much for whatever reason. Actually, if you -- the -- if your credit rating isn't as good, maybe it's harder to get some of the firm transport, the terms that you would like. But generally speaking, I think our -- the peers who are more or less our size are all very and have been very focused on this issue. Joseph D. Allman - JP Morgan Chase & Co, Research Division: That's very helpful. And then lastly, in terms of options for the GP, is doing nothing -- is that still an option that you might disclose at year-end? And could you disclose what the most viable options are that you're pursuing at this point?

I guess I'd say in theory, it's an option because I don't really want to go into details. But I don't know that, that would be a -- if I were in your shoes, I'm not sure that that's the inference that I would be drawing from the comments that we've made. Joseph D. Allman - JP Morgan Chase & Co, Research Division: Got you. Could you talk about the most viable options that you are pursuing?

I've got 2 lawyers in the room staring at me. So is that an answer enough?

This does conclude our question-and-answer session. I would like to turn the conference back over to Patrick Kane for any closing remarks.

Thank you, Maureen, and thank you, all, for participating.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.