EQT Corp (EQT) 2002 Q3 法說會逐字稿

Good morning and welcome to the Equitable Resources conference call.

All participants will be listen-only mode.

At this time, I'd like to turn the conference over to your host Mr. Phil Conti.

Sir, you may begin.

Thanks you for participating in Equitable's 2002 third quarter conference call.

With me is Murry Gerber and Dave Porges, Executive Vice President and Chief Financial Officer.

In just a moment, Murry will make brief comments concerning Equitable's third quarter profits to date.

Following Dave's remarks, we'll open the phone lines up for questions.

First, I need to remind you that today's call may contain forward-looking statements relating to such matter as 2002 and 2003 anticipated diluted earnings per share, expected 203 growth, company ongoing efforts to reduce its cost structure, anticipated pension, insurance, litigation and insurance expenses, impact of fuel tax credit expected to expire, Kentucky litigation and other financial and operational matters.

It should be noted that a variety of factors could cause the company's actual results to differ materially from the anticipated results or other expectations expressed in these forward-looking statements.

These factors are listed in today's earnings release.

The MB & A section of the form 10-k,.10-Qs as well as on our website.

I'd like to turn the call over to Murry.

Bill, thank you.

Good morning, everybody.

Undoubtedly you read the report of a jury verdict relating to an explosion that related to Mr. Johnson's water well. $50,000 in damages was awarded.

In short, and I am not parsing words here, Equitable had absolutely nothing to do with this accident.

Mr. Johnson's case, one of the gas wells leaked into his gas well is unfounded.

The gas in his water well is not to be from our well.

Comb seams that run under his property is the likely source of the gas that entered Mr. Johnson's water well.

Further, there is no scientifically reasonable theory that would let gas from our well make it to his water well.

Frankly this is an example of the tort system run amuck.

Obviously we will appeal.

We are insured fully for the damages awarded in this case.

Obviously we will appeal.

We are insured fully for the damages awarded in this case.

I'll take questions on that later, of course.

Moving away from that topic, I want to give guidance to you for this year and next.

For 2002, there is no change.

We reiterate our previous guidance at $2.35 to $2.40 per share.

We have recently completed and have reviewed our business plan for 2003 with our board.

Based on that review, we are giving guidance to you today that is our expectation the company will earn between $2.70 and $2.80 per share in 2003.

This assumes NYNEX natural gas prices of $3.50 per NMBTU and normal weather.

Operational improvements in the company are better than expected but Dave will elaborate on continuing to outrun external factors.

We do, however, remain bullish on our ability to execute against the strategy founded in operational excellence, earning a proper return on capital and growing earnings per share at a superior rate to our competitors targeting low double digits.

On one other matter, [ Inaudible ] has announced its intention to sell C & R properties.

These properties are in large measure contiguous to our Appalachian gas properties.

We will likely participate in the auction.

There are a number of issues that we would need to sort out about this property, before we're comfortable bidding on it, however, we can talk about that later if you'd like.

But in any event, as has been our practice, we will in no way overpay for this asset.

With that, I'd like to turn it over to Dave Porges, our CFO for the specifics of the financial report for the quarter.

David?

Thanks, Murry.

Equitable Resources today announced third quarter 2002 core earnings per diluted share of 42 cents.

This represents a 31% increase over the 32 cents per share reported for the same period a year ago.

Including earnings from the noncore stake in Westport Resources, Equitable reported total earnings per diluted share of 42 cents for the quarter ended September 30, 2002.

I will now make a few comments about the third quarter results about each of our three business units.

Equity utilities, this unit had earnings before interest and taxes or EBIT, of $3.3 million compared to the $2 million reported last year.

This improvement was primarily related to productivity measures about $1.7 million in one-time charges due to automation projects and other productivity steps and the recently completed quarter reflected lower ongoing expenses as a result of those and other steps.

Also of some note are two other factors, one positive, one negative.

On the positive side, commercial activities, mainly storage continued to perform well, adding about $1 million to EBIT versus the prior year.

This unit continues to work on improving the physical condition and capabilities of its storage facilities and also on the operation and utilization of those facilities.

On the negative side, increased pension and relevant costs reduced EBIT by about $1 million.

I'll return to the topic of pension shortly.

Equitable Production, the natural gas gathering and production unit had EBIT for the quarter of $41.0 million, 2.5% higher than the $40.0 million earned in the same period last year.

Volumes reflected on our income statement were up from 15.1 Bcfe to 15.7 Bcfe while total operating volume increased by 0.2 Bcfe.

Three things to keep in mind,

First, last year's third quarter included about one Bcfe in oil field volumes for properties sold at the end of last year.

Second, increased drilling is beginning to result in volume increases though there is a lag between expenditures and volumes.

Finally, and related to the drilling, the monitorization transaction undertaken two years ago do not involve new drilling.

That means that volumes associated with that transaction decline over time, whereas drilling in those fields that might be otherwise viewed as replacement drilling is resulting in equity volumes.

In other words, the difference between total operated volumes and on-income statement volumes will tend to decrease over time to the extent of the natural decline rate in the monetized wells.

Combining these last two facts, a side effect of the monitorizations is that the level of drilling required to maintain production is on the decline whereas actual drilling is on the increase.

Operating expense structure for the September 2002 quarter continued to improve.

The primary unit operating cost index for the segment consisting of lease operating expenses, gathering income (inaudible) and selling general and administrative expense tore the segment was down 7% from 69 cents to 6 -- actually from 71 cents to 64 cents.

This contributed about -- I'm sorry, down 7% from 69 cents to 64 cents.

This contributed $1 million to EBIT versus the prior quarter.

Lastly and unusually, natural gas prices had a neguiable year-over-year earnings effect.

NYNEX natural gas prices averaged a $3.33 per (inaudible) compared to $2.89 per (inaudible) last year-- the vast majority were hedged at higher prices for both periods.

NORESCO, this segment realized EBIT of $5.8 million compared to the $1.5 million posted in the third quarter last year.

Just under half of this improvement, $1.8 million was due to office consolidation and bad debt charges in last year's quarter.

The usual $0.9 million was due to goodwill amortization through last year's quarter.

It is due to a general increase in performance contracting both in construction and operations.

NORESCO's quarter-end backlog was $149 million, or 5% higher than the $142 million backlog a year earlier.

This was despite a very high construction revenue level of $42 million in the quarter.

In essence, NORESCO continues to add to backlog with the buildout and subsequently operation of these projects creating increased revenues and the opportunity for increased earnings.

As such, we continue to see positive signs in the strong performance contracting backlog even as energy infrastructure projects continue to perform at a mediocre level.

Now I'd like to move on to other topics.

Pensions, we'll start with that.

The weak stock market has affected both the value of pension assets and the return assumptions going forward.

We have begun to see this as a drag on earnings and anticipate this drag continuing.

Year-on-year comparisons may not look as negative in the future since these effects are hitting our earnings already.

We certainly do not forecast any improvement on this front either.

We will continue to look at alternatives for dealing with this situation, but recognize we are not alone in rising pension expenses and retiree medical expenses.

As is the norm, the funded status of our pension plan deteriorated in 2001 and deteriorated further in 2002.

The indirect result of this is an increase in pension expenses hitting the income statement.

As you all know, this situation was not unusual several years ago, about the robust stock market of the late 1990's led to reduction and even elimination's of the spending.

J

Just as we have begun to accept funding needs for pensions and retiree medical programs as a fact of life, we have also had to accept increased insurance and litigation costs.

The combination of insurance industry investment portfolio declines and underwriting losses stemming from terrorism and business failures has resulted in sharp increases for premiums in businesses such as ours.

Numerous new coverage exclusions reductions and limbs and increases in deductible amounts are likely to raise future operational risk management costs.

Also legal costs particularly for litigation and compliance services and reserves are on the rise.

As with insurance costs, the cost of already dampened earnings this 2002 by $700,000 in our production unit for the third quarter alone and our earnings guidance for 2003 reflects an assumption of similar level of expenses next year.

Section 29 tax credits.

As mentioned in this morning's press release, the company is benefiting by about 10 cents per share in 2002 dug to alternative tax credits, referred to as section 29 credits.

We've known that these credits were due to expire at the end of 2002 but had expected or at least hoped that new legislation would restore some of this.

As you likely all know, new legislation has appeared stalled and it is unclear whether there will be a benefit in the future.

We no longer believe it prudent to assume that a future credit will be of the same magnitude of the expiring credit.

Moving on, a topic we promised to provide earlier information on is the balance sheet.

At September 30, 2002, short-term debt totaled approximately $233 million.

That excludes current maturities of long-term debt.

Long-term debt, including the trust preferred and current maturities total about $413 million.

The prepaid forward balance was approximately $111 million.

And that includes current maturities as well as the long-term portion.

And shareholders' equity was about $789 million.

Stock buyback.

During the third quarter, Equitable repurchased approximately 1.08 million shares of eqt stock.

The total number of shares repurchased since October 1998 through the end of the third quarter is approximately 14.7 million out of 18.8 million currently authorized.

Westport -- Equitable reported a gain of $2 million during the third quarter 2002.

Equitable share of earnings from Westport are considered noncore and we do not have actual results when report our earnings.

It is a reconciliation of actual for prior periods.

We recognize there's been little movement in monetizing this stake.

We continue to look for prudent means achieving goals with respect to this investment.

Dividend, on October 17th, 2002, the board of directors declared a regular quarterly cash dividend of 17 cents per share December 1, 2002, to shareholders on record November 15, 2002.

Appalachian base partners, we promised more information on this transaction, so here it is.

The circumstances and the accounting for ABP changed near the end of 2001.

Through the end of 2001, we treated the proceeds of the deal as monetized production.

That is we recorded all of the activity from the partnership as our own and reduced deferred revenues for the cash payments made to the other partners.

Therefore, it was basically treated the same as a prepaid forward.

That we identified it separately on the balance sheet.

Certain financial targets were met by the partnership early and accordingly, our ownership share of the partnership increased dramatically at the end of last year.

With the achievement of the financial targets, the appropriate method of accounting for the majority-owned partnership became consolidation.

As you probably already know, accounting rules do not allow for partial consolidation of a legal partnership.

Therefore, 2.1 BCf of the equity gas sold in 2002 relates to the 32% minority interest in the partnership. the revenues and expenses associated with this 2.1 BC f appear in our income statement as it would for wholly owned gas.

The revenue and expenses for this minority interest and some reserves are then recorded as minority interest.

Therefore, you might think of the current year revenues and expenses as slightly overstated economic interest, but the difference showing up as a minority interest.

However, volumetric is on an apples-to-apples base is with 2001 numbers except for the 2001 revenues related to ABP were entirely noncash whereas we received cash for our 2002 ABP volumes as we would for other equity production.

We've tried to provide commentary on issues raised in previous calls.

We will be happy to try to deal with these topics in the question and answer period.

With that, I turn is back to Phil.

Vince, that concludes our comments.

We'd like to open up for the phone lines for Q & A.

The floor is open for questions and answer.

If you have a question or a comment, please press one followed by four on our touch tone telephone at this time.

Please hold while I pole for questions.

We'll take the first question from James of UBS Warburg.

Good morning, gentlemen.

On the Appalachian reserves, Murry, you gave us a teaser.

What are some of the issues beyond price that you need to consider and also, Dave, on the pension fund, I'm not at the office right now, so I don't have the numbers in front of me.

How much pension income, if any, did you realize at 2001?

What has been the run rate in 2002 and I know you guys really can't project right now, but give us a little more flavor on what kind of expense we might see if we saw no improvement in the market going forward.

We start with [ Inaudible ].

I'll talk to that and Dave will give you the pension deal.

As you know, these properties are very well positioned to fit with us strategically.

We have other views that there are a lot of properties that fit strategically with us.

We don't want to talk about that right now.

I'd love you to.

The issue is this, a couple of issues, number one, we need to -- the devil is in the details on these Appalachian Product properties.

If you're not an expert, if you're not a professional, you have a chance to get yourself led quite astray here.

This is not, as we talked over and over, this is not a typical E & P property and people that weigh in on this would need to weigh in very carefully.

There are a couple of devil in the detail issues.

Number one is lost and unaccounted for gas.

And because of the fact that a lot of gas in [ Inaudible ] move from the unregulated CNR into the regulated company, there needs to be special attention paid to how that lost and unaccounted for gas is treated.

And you think, well, that doesn't matter.

It can be a very significant issue.

We'll be paying special attention to that issue.

The other thing is that they have special purpose entities, these Mahonia transactions, we need to understand what the nature of those transactions are.

They've been very controversial, as you know.

That causes us concern on the property.

Thirdly, they have hedged forward a prepay, with some prepays.

I guess they've done some prepays with hedges, some of the gas over the next few years.

We need to understand the nature of that transaction, whether or not it will be included in the deal, will the liability come with the property or not?

We need to understand that.

There are a number of devils in the detail issues.

I think we're well equipped to evaluate those issues.

Jim Funk and his team will be able to do that.

It's not a slam dunk, go in there and make it work.

There are issues to sort through.

I'll turn it to Dave.

I'll give you rough numbers on the pensions, Jay.

As we get to the end of the year we'll give you better updates.

As I'm sure, a number of you probably know it's more at the end of a calendar year that you get together with the actuaries and get together with the auditors and agree on the assumptions that you'll use that wind up resulting in what the expense numbers -- lead to what the expense numbers will wind up being for the new year.

Our pension expenses in 2001, we did have pension expenses were about $6 million.

That's a figure can you get from our annual report.

In 2002, it's about 2 million higher and probably another 2 million higher in 2003 would be a safe assumption.

Something else you should probably bear in mind when it could comes to that, when we have severance's, Equitable has had one or two over the course of time, we have to make sure he obligations of the severed employees are basically fully funded, at least from an income statement perspective when they are severed.

So if you're at all underfunded, when you sever somebody, you wind up incurring an immediate expense from that and some of the expenses are related to that.

Whereas if you're overfunded, you don't have that issue.

Can you completely draw on the pension surplus.

Two questions.

Is the health care comparable, the increases and you mentioned something about potentially doing something to alleviate the earnings pressure.

Could you make a contribution to it?

Actually, we're looking at all of our alternatives.

On that point, we're looking at all our alternatives right now.

Frankly, I think everybody else is.

I don't think we're in any different shape than other folks are, but theoretically, you can make early contributions.

That's one way you can go about dealing with it.

There are some other ideas floating around in the marketplace, but most of you are probably closer to the financial services sector than we are, so you'd have a better idea of what some of the possibilities are.

As we do at everything around here, we are looking at all the alternatives.

There's no pride in authorship on ideas.

As far as the retiree medical, that was also a round about the same amount, 6 million in 2001 and, yes, we do see those expenses going up over time.

We are also trying to take step there's to minimize the shareholders' exposure to increases in retiree medical expenses.

There's a tradeoff where we don't think the existing shareholders should have an open-ended responsibility to departed employees, but by the same token, we want to make sure that employees recognize that the company will meet its obligations to them as part of the -- kind of the employment contract between the company and the employees.

Murray Gerber (?): May I make one strategic comment on that last point, on retiree medical.

There are a couple things we're trying to do and maybe we'll reveal more of this later.

But secondly, people generally, companies generally have to ensurethat their retirees and own employees are taking more responsibility for medical expenses, meaning not just the coverage, but making sure the dollars are spent appropriately.

And they're not overspending.

There's not a lot of discipline in the system, as you know.

Secondly, as a strategic matter, the company is continuing to automate itself.

And I think it just doesn't make sense not to do that.

Now, the short term effects on the retiree medical issue will not come from automation, but over time, our automation projects, mobile work force, all of those strategic investments will leave a legacy of lower retiree medical benefits down the road.

It's an unavoidable conclusion that you need to come to.

You need to have less people doing the work.

That's just where you end up.

We certainly don't want to get in the position of U.S.

Steel and other companies that have these huge liabilities.

That's more than you wanted to know, but I wanted to give you strategic color on that.

Last question, I'll turn the mic over.

If you were successful on this acquisition, could you think aloud of how it might be financed overall?

Murray Gerber (?): Yeah, I think we did.

We use as much cash as we could and it depends a lot on this liability.

If this prepaid forward comes with the transaction, then the desire -- the need for equity may be less.

If it doesn't, it may be more.

But, again, we are nowhere near thinking about that issue in terms of financing yet.

Dave Porges (?): But we should probably be clear on one point, though, in this environment, we do not think it's prudent to allow one's credit rating to start down the road of deteriorating too much.

We do think we are overcapitalized, even versus our current credit rating now.

We don't think it's a very good idea in this environment to let it start slipping.

Because from what we observe from other companies, once that snowball starts rolling downhill it's awful tough to control.

We would probably take whatever steps we needed in the financing up front to preclude that.

Murray Gerber (?): As you know, the key issue there is making sure whatever price we come up with is the right price.

I mean, whatever we have to fund we want to fund as few dollars as possible.

Okay.

Thank you.

The next question is from Annafel Fagen (ph) JP Morgan.

Annafel Fagen (ph): Good morning, everyone.

Just a couple quick ones.

On the balance sheet, Dave, you went through a lot of the items.

Can you give us a cash on hand number as well?

You know, I don't - my treasurer is whispering to me.

Phil, go ahead and answer it.

Hold on a second here.

I asked that question before we came in here.

We had cash on hand at 9/30/02 of just under $7 million.

Annafel Fagen (ph): Great.

Do you guys -- would you be willing to give us the return assumptions on the pensions if I understand the mechanics there correctly, you guys have the '02 numbers and should probably be close to having the '03 estimated return?

Dave Porges (?): We'll be happy to provide those '03 numbers once they've been settled.

As you know, they have to be signed off by the actuaries and the auditors.

Sure.

I think we'll be happy to say the first time we talk to everybody after we have those, we'll discuss it.

Since I know our guy is listening on this, we'll have to remember that we've made that obligation to provide that information.

As opposed to waiting for the K or something.

We'll do that.

Annafel Fagen (ph): Thanks so much, everyone.

Thank you.

The next question is perfect Carol of Prudential Securities.

Good morning.

Hi, Carol.

When you were walking through ABP --

Yes, ma'am.

You were talking about noncash income versus cash.

Could you clarify that a little bit and even maybe give us a sense of how much cash was booked as non -- how much income was bookd as noncash in '01 versus '02?

You went through that rather quickly.

Yeah.

One way to look at it, I don't have that number right in front of me, but the entire balance of the ABP, the entire balance of the ABP transaction, the Delta between the beginning of 2001 and the end of 2001, and I think it shows up as deferred revenue as opposed to prepaid forward on the balance sheet, that was noncash and it all got - that obligation got settled in the year 2001.

In 2002, the way you can look at that, it's that minority interest.

The minority interest is effectively the noncash piece.

So if you wanted to do a cash flow adjustment, if you basically treated the minority interest from ABP as a negative cash, that would be a reasonable way.

Actually what's happening, there are revenues that are showing up as noncash, but that would capture it for you.

Just so you know, on the other stuff, the prepaid forwards which we refer to as monetized volumes, those are noncash.

The prepaid -- all those prepaid forward volumes are noncash.

And to remind everyone, we entered into two $100 million deals at the end of 2000.

The one was a three-year deal over calendar years '01, '02,03, where the obligation is essentially, it shows up in the balance sheet and income statement as 33 million -- $33.3 million per year.

We're coming up on the end of the second of those three years.

The other was a five-year, $100 million deal.

So that's about $20 million a year.

Incidentally, that's how we come up with the notion that in 2002, we have about $53 million of that stuff that's rolling off.

It will be the same thing next year.

By the end of next year, the three-year deal ends.

And we have two more years of the $20 million a year deal.

Speaking of the monetized contracts rolling off, most of these were three and five-year deals, if I recall.

So the majority of them start expiring when, next year?

Yes.

The biggest one -- ABP is kind of in that mode and that really expires for all intents and purposes the end of last year.

Yes, the shorter term of that $100 million deal, the 33 per year, expires at the end of 2003.

And the other one expires at the end of 2005.

Does that have any kind of a termout provision?

No.

Actually, even though I used dollar terms, the actual requirement is our volumes.

So we provide those volumes to the counterparties and then it ends.

You always have the alternative, if you want, with those firms to try to restructure arrangements as you would with any commercial arrangement, but, frankly, at this point, that's not our intention.

Okay.

So you're going to bring those volumes back in?

Yes.

Okay.

Then one last question, kind of on the same subject.

You were talking about how your reserves are declining under the monetized contracts.

I was under the impression that you were receiving operating fees for operating those wells, which --

Yes, we are.

So that you would not suffer declines.

Oh, no.

It's the -- maybe I wasn't being clear.

A lot of these wells will typically have a natural decline rate of, you know, throw out a number, say 4% or so per annum.

What we'd normally do if we owned one of these, we would be drilling wells next to it, such that we would replace that 4% decline.

But on the monetized onces, these off-balance sheet monetized ones, we'll still drill the well, but that's going into equity volumes, not monetized Vols.

I understand.

It is true, that even as the volumes decline somewhat on those off-balance sheet transactions, that the fees for operating decline at the same rate.

They do decline at the same rate.

That's -- if that's what you're getting at, that's absolutely true.

That clarifies it.

Thank you very much, Dave.

Thank you.

The next question is coming from Mike Heim of A.G. Edwards.

I was going to ask about the financing question.

But I'll rephrase it.

Regarding Westport, do you think you have the liquidity you're looking for, that if you were making a large acquisition, you could use that as one of your proceeds or is it just a question of liquidity's not there, that it doesn't make sense?

Well, we're -- we recognize that we may have to chip away at this as opposed to having one big solution.

And it is our intent to do that.

But if you're asking, could we go out into the market and sell all those shares now?

No.

It just wouldn't -- there is not the liquidity to do that.

So we'd we view it as something we have to deal with incrementally.

All we're trying to get at is we recognize that we haven't -- that not much has happened on that front in the past year.

But it's not our intention that we sit on this position where it is indefinitely.

Now, I know you've pretty much presold or hedged most of the production, but you've always talked in the past when we start getting at these prices about 4 bucks of doing more.

Is that something under consideration.

We're always tracking this, but I remind you, the near-term prices are much higher than the out years.

We have an active -- a group that compromises, largely, Murry Jim Funk, the head of our production group and myself, as well as others who have real knowledge.

And they make -- we periodically get together and talk about what we want to increase those levels.

Okay.

All right.

Thanks.

Thank you.

The next question is coming from Jason of Wagna Asset Management.

Hello.

The guidance that you gave for 2003, that takes into account the higher insurance costs and higher pension expense, is that correct?

Jason, this is Murry.

Yes.

Okay.

So without those higher expenses then the results would be expected to be higher.

Great.

Murray Gerber (?): Well, wait, wait, wait, wait.

Jason, let me just be clear on this.

What we do -- what we've always done at Equitable is we believe that earnings are the earnings.

We don't really believe much in extraordinary items.

We think that generally extraordinary things seem to happen every single year.

So we take a judgment every year of how much of that sort of thing we should build into our guidance for the following year.

I think what we did today was to tell you that we're building a little more generally than we have in the past.

That's all that means.

I don't know exactly where bad things would happen, but it just seems like more bad things are and we're anticipating that more bad things will.

Okay.

Great.

Dave Porges (?): But we don't see that as padding.

These are real expenses.

If the stock markets are soaring obviously the pension expenses will drop again.

But the increase --

Let's hope we have that problem.

Yeah, I hope so.

Okay.

I agree with you.

On the potential Night Source acquisition, you said you would need to put in a small amount of equity if the prepays worked, however, I think you mentioned that the prepays go through Mahonia.

Anyway, I saw some things relating to Enron.

It sounds like that Mahonia thing is flawed.

If you wanted to do it in the same structure, is the market available to replace that kind of facility with a similar prepaid facility or is the entire product not kind of available today?

Those are two separate questions.

I think, first of all, let me be clear, that the intent of my comments were just to say that -- just alert you that this property is out there.

We are a likely buyer and I wanted to make sure everybody didn't guess about whether we were going to go there.

We are going to go, but the process and all the details, Jason are -- they're not known.

There is no book or nothing that's come out yet.

So I really hesitate to talk in a lot of detail about it.

We need to see exactly what they're going to sell.We don't know exactly what they're going to sell.

I was wondering whether there's a market out there for prepays if you wanted to replace that.

Dave will address that.

Our impression is that that market is still out there.

The three to five to seven-year transactions seem to be the range you can get those things done in.

Yeah, that would be one of the things we'd look at.

We aren't afraid that market is not there.

Prepaids are one good way to avoid counterparty exposure, but that's really the analysis we'd go through is figuring out, do we think that it's providing enough benefit?

But it's just that at this point having not seen the properties as Murry just said, because all we -- we've read the same announcement you folks have.

We just don't know what our capital structure needs would be in the hypothetical circumstance that we wind up acquiring more properties, whether it's C & Rs or others.

You implied that there are other properties that they had for sale that would be more attractive.

I wouldn't say more attractive, but as a number of investors and you all had talked about, there are a lot of things that interesting at Night Source.

But those aren't up for sale.

That's not our decision.

That's their decision.

There's three big gas distribution companies in southwestern Pennsylvania, ours, Columbia of Pennsylvania and Dominion People which is owned by Dominion.

We are certainly aware of the fact that there are other distribution companies that intermingle with ours in southwestern Pennsylvania.

That's just an observation.

Our point only is, there's a lot of opportunity for synergies in this business generally, but in particular, there are a lot of synergies available in southwestern Pennsylvania between Night Source and Equitable.

Good luck.

Thank you.

Thank you.

The next question comes from Gayle Gave (ph) of JP Morgan.

Gayle Gave (ph): Good morning, everybody.

I want to get a quick update on your sensitivity to NYMEX.

What is your estimate for that sensitivity through 2003?

Yeah, Gayle, for right now, just assume it's about a penny change in EPS for every dime change in the NYNEX.

For '03.

It's a little less than that, but it's about that.

Gayle Gave (ph): It hasn't changed much.

It's pretty negligible, really for '02.

Here we are nearing the end of the -- of when the November contract's going to come off, yeah, the November contract.

So there's not really ate lot of true floating price left in the calendar year 2002.

We don't have very much NYNEX exposure in 2002 though.

Gayle Gave (ph): Great.

Thanks a lot.

The floor remains open for questions and answers.

If anyone online has a question or comment, please press one followed by four on your touch tone telephones at this time.

Please hold while I pole for questions.

If there are no further questions, we'll conclude today's call.

I will remind everyone this call will be replayed for a seven-day period beginning at approximately 1:00 p.m. today.

That's eastern time. 973-341-3080 is the phone number.

The confirmation code of 3377378 is needed for the replay.

This call will also be replayed for 30 days on our website.

Thanks again to everybody for participating.

Thank you, ladies and gentlemen.

This does conclude today's conference.

You may disconnect your line at this time.