Operating income raised 14% to $136.1 million. Operating expenses were 14% lesser at $124.3 million as higher depreciation, depletion and amortization expense (DD&A) and operating and maintenance expense (O&M) resulting from raised activity were more than equalized by a $40.1 million decline in incentive compensation expenses.

Several non-operational factors should be considered when comparing first quarter 2009 and first quarter 2008 results, including the decrease in incentive compensation expenses, a raise in the effective tax rate to 39.3% from 36.2% and a $6.2 million non-cash charge in 2009 for ineffectiveness of EQT natural gas hedges.

Quarterly Results by Business

EQT Production

EQT production’s operating income for the quarter totaled $44.4 million, $15.9 million lower than the $60.3 million earned in the previous year. Production operating revenues were $97.8 million; $7.3 million lesser than the $105.1 million reported in the previous year. Average daily sales volumes raised by 18%, driven by horizontal Huron shale drilling. The revenue and operating income impacts of the raise in volumes were more than counterbalanced by lower realized natural gas prices. The average NYMEX natural gas sales price was $4.89 per MMBtu, 39% lower than in the previous year.

Operating expenses for the quarter were $53.3 million, up 19%, compared with the operating expenses of $44.7 million year-ago quarter. DD&A was $8.3 million higher related to EQT’s ramp-up in drilling activities and higher produced volumes. Exploration expense was $2.8 million higher. Partly counterbalancing these increases were a $1.4 million decrease in commodity-based production taxes and a $1.1 million decrease in selling, general and administrative expenses.

Horizontal drilling continued to meet EQT’s expectations in the first quarter 2009. Production from the wells turned-in-line is dependable with the anticipated decline curve posted on the company’s web site. EQT drilled a total of 137 gross wells in the first quarter 2009, including 52 horizontal Huron wells. The company also drilled four horizontal and four vertical Marcellus wells in the quarter.

Two horizontal Marcellus wells concluded in the quarter cost about $5.5 million each. The Greene county, Pennsylvania well has been online for nearly 30 days and has a projected 30 day average production of 2.2 MMcf/d. The Washington county, Pennsylvania well was concluded earlier this month. EQT Production plans to drill 35 to 40 additional horizontal Marcellus wells in 2009.

EQT also concluded its first fractured, multilateral Huron well in the quarter. The well had six laterals and totaled nearly 13,000 horizontal feet of wellbore at a cost of $1.8 million. The 30-day average production was 850 Mcf/d. This well is below a horizontal unfractured multilateral well in the Cleveland zone. In total, these two wells cost $2.7 million and had an aggregate 30-day production of 1.6 MMcf/d. EQT production plans to drill 25 additional multilateral Huron wells in 2009.

EQT Midstream

EQT midstream earned $49 million of operating income in the first quarter of 2009, compared with the operating income of $60.9 million in the year-ago quarter. Net operating revenues for the first quarter were $92.6 million, slightly lower than last year’s $93.5 million. Net transmission revenues raised by $8.5 million or 75% over the first quarter 2008, driven by Big Sandy revenues. Net gathering revenues increased by $5.2 million or 16%, driven by a 14% increase in gathering volumes. Offsetting the increases in transmission and gathering revenues were lower processing and storage revenues, consistent with lower commodity prices. Processing net revenues were $6.6 million, $4.7 million lower year-over-year as a 51% decline in the average natural gas liquids sales price more than counterbalanced a 49% increase in liquids volume. Storage, marketing and other revenues were also lower by $9.9 million, 27% lower than year-ago quarter. Storage revenues declined by $16.3 million mainly on lower natural gas price spreads, but were partly counterbalanced by marketing revenues generated by utilizing Big Sandy pipeline capacity not currently being used to transport EQT production gas.

Operating expenses rose year-over-year to $43.6 million, up from $32.6 million in the first quarter 2008. The increase is mainly attributable to a $5.9 million raise in O&M costs and a $5 million increase in DD&A. The increase in O&M is mainly due to higher operational costs associated with the growth in the Midstream business including increased electric, property taxes, and labor to operate the additional infrastructure. The increase in DD&A was mainly due to the raised investment in gathering, processing and transmission infrastructure during 2008.

Distribution

Distribution’s operating income totaled $43.9 million for the first quarter of 2009 compared to $38 million in the year-ago quarter of 2008. Net operating revenues were $70.4 million for the first quarter of 2009 compared to $66.1 million for the first quarter of 2008. The $4.3 million raise in net operating revenues was mainly a result of higher residential base rates approved by the Pennsylvania Public Utility Commission (PA PUC) in late February 2009. The higher rates are anticipated to result in a revenue increase of about $38 million on an annualized basis; 73% of the amount requested in the rate case.

Operating expenses totaled $26.5 million for the first quarter of 2009 compared to $28.1 million in the year-ago quarter. The $1.6 million decline in operating expenses was mainly the result of lower labor and overhead expenses, partly counterbalanced by an increase in DD&A due to a decrease in anticipated service lives resulting from a 2008 PA PUC-mandated asset service life study.

Other Business

Executive Incentive Compensation Expense

EQT maintains executive incentive compensation programs designed to align management’s long-term incentive compensation with the absolute and relative returns earned by the company’s shareholders. The expense of these programs changes based in part on changes in EQT’s stock price. The major stock appreciation in the first quarter 2008 resulted in changes to EQT’s assumptions used to evaluate expenses under these programs. The executive incentive compensation expenses for that quarter were $44.6 million. Executive incentive compensation expenses for the first quarter 2009 totaled $4.5 million.

Hedging

The company has recognized a $13.1 million net gain from its production hedges in the first quarter 2009. EQT production sales volumes are about 65% hedged for 2009. The net gain comprises a $6.2 million non-cash loss for hedge ineffectiveness in conformity with SFAS No. 133, resulting from a decline in anticipated basis related to about 59 Bcf of NYMEX swaps with maturity dates from 2009 through 2011.