QEP Resources Reports 2012 First Quarter Adjusted EBITDA of $345.7 Million and Production of 74.2 Bcfe
DENVER, April 24, 2012 /PRNewswire/ — QEP Resources, Inc. (NYSE: QEP) reported Adjusted EBITDA (a non-GAAP measure) of $345.7 million for the first quarter of 2012 compared to $305.8 million in the first quarter of 2011, a 13% increase. Factors driving QEP Resources results included 13% higher total net production, 113% higher oil and NGL production, and a 7% increase in net realized crude oil prices at QEP Energy, combined with a 75% increase in gas processing margins at QEP Field Services.
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ADJUSTED EBITDA BY SUBSIDIARY
Three Months Ended
March 31,
---------
2012 2011 Change
---- ---- ------
(in millions)
QEP Energy $260.8 $242.0 8%
QEP Field Services 84.3 61.4 37%
QEP Marketing and other 0.6 2.4 -75%
Total Adjusted EBITDA (1) $345.7 $305.8 13%
====== ====== ===
(1) See attached schedule for a reconciliation of Adjusted EBITDA to net income.
QEP Resources net income during the first quarter of 2012 was $155.2 million, or $0.87 per diluted share, compared to $73.2 million, or $0.41 per diluted share in the first quarter of 2011. Excluding changes in unrealized gains and losses on derivative contracts and gains from asset sales, QEP Resources adjusted net income (a non-GAAP measure) was $73.7 million or $0.41 per diluted share in the first quarter of 2012 compared to $53.6 million or $0.30 per diluted share in the first quarter of 2011.
NET INCOME BY SUBSIDIARY (1)
Three Months Ended
March 31,
---------
2012 2011 Change
---- ---- ------
(in millions, except per share
amounts)
QEP Energy $108.1 $43.1 151%
QEP Field
Services (2) 45.4 28.0 62%
QEP Marketing
and other 1.7 2.1 -19%
NET INCOME $155.2 $73.2 112%
====== ===== ===
Net income per
diluted share $0.87 $0.41
Weighted-
average diluted
shares 178.5 178.3
(1) Through December 31, 2011, QEP
designated most of its natural gas,
oil and NGL derivative contracts as
cash flow hedges, whose unrealized
fair value gains and losses were
recorded to accumulated other
comprehensive income on QEP's
balance sheet. Effective January 1,
2012, the Company elected to de-
designate all of its natural gas,
oil and NGL derivative contracts
that had previously been designated
as cash flow hedges, and elected to
discontinue hedge accounting
prospectively. During the first
quarter of 2012, realized and
unrealized gains and losses from the
change in market value are recorded
into earnings and are shown below
operating income on the Condensed
Consolidated Income Statement.
Conversely, during the first quarter
of 2011, the realized gains and
losses on derivative contract
settlements were included in each
respective revenue category on the
Condensed Consolidated Income
Statement and the unrealized gains
and losses on derivative contracts
that were designated as hedges were
recorded in accumulated other
comprehensive income.
(2) Net income represents amounts
attributable to QEP Resources after
deducting non-controlling interest.
“Against a backdrop of rapidly declining natural gas prices, QEP Resources continued to focus on successful execution across our diverse asset portfolio,” said Chuck Stanley, President and CEO. “In this environment, capital allocation becomes especially critical to the continued profitable growth of our company. QEP Energy production in the first quarter of 2012 was up 13% from the same period last year, driven by strong results from the Pinedale Anticline play, combined with significant contribution from new wells in western Oklahoma and the Williston Basin. With close to 90% of QEP Energy capital directed to higher-margin oil and liquids-rich gas plays, we grew oil and NGL production 113% in the first quarter of 2012 compared to the first quarter of 2011. For the full year, we expect oil and NGLs to comprise over 20% of total QEP Energy production compared to 14% in 2011. As a result of the increase in crude oil and NGL production, 50% of QEP Energy’s field-level production revenues during the first quarter of 2012 came from liquids. Our midstream business, QEP Field Services, also had an excellent first quarter, thanks to a combination of strong operating results and attractive gas processing margins. Our new Blacks Fork II plant continues to perform well, and the midstream team is now focused on new projects to drive growth for the remainder of 2012 and beyond,” Stanley added.
Financial and Operating Results
QEP Energy
- Natural gas, oil and NGL net production increased to 74.2 billion cubic feet of natural gas equivalent (Bcfe) in the first quarter of 2012 compared to 65.9 Bcfe in 2011. Crude oil and NGL comprised 20% of reported production volumes in the first quarter of 2012, up from 10% of total production in the first quarter of 2011.
- Adjusted EBITDA increased 13% compared to the first quarter of 2011, driven by a 13% increase in production and a 7% increase in net realized crude oil prices, partially offset by a 13% decrease in net realized natural gas prices and a 13% decrease in net realized NGL prices.
- Net realized natural gas prices averaged $4.15 per thousand cubic feet (Mcf), compared to $4.77 per Mcf in the first quarter of 2011. Field-level natural gas prices in the first quarter of 2012 were $2.71 per Mcf compared to $4.06 per Mcf in the first quarter of 2011. Natural gas related derivative settlements contributed $85.7 million in the first quarter of 2012 ($1.44 per Mcf) compared to $42.0 million in the 2011 first quarter ($0.71 per Mcf).
- Net crude oil and NGL revenues increased 98% compared to the first quarter of 2011 and represented approximately 50% of field-level production revenues.
- Net realized crude oil prices averaged $88.47 per barrel, up 7% compared to the first quarter of 2011. Oil related derivative settlements contributed a loss of $2.7 million in the 2012 first quarter ($2.20 per bbl).
- Net realized NGL prices averaged $41.21 per barrel, down 13% compared to the first quarter of 2011. NGL related derivative settlements contributed $0.4 million ($0.34 per bbl) in the first quarter of 2012.
- Capital investment (on an accrual basis) in the first quarter of 2012 was $293.0 million, comprised of $291.6 million in drilling and completion and other expenditures (including $0.1 million of dry hole exploration expense) and $1.4 million in property acquisition costs.
QEP Field Services
- Adjusted EBITDA increased 37% compared to the first quarter of 2011, driven by a 75% increase in processing margin. Net income was $45.4 million, up 62% compared to the first quarter of 2011.
- Capital investment (on an accrual basis) in the first quarter of 2012 to expand capacity at its gathering, processing and treating facilities totaled $47.2 million.
QEP Resources
- During the first quarter of 2012, the Company issued $500.0 million of 5.375% Senior Notes due October 2022. The proceeds from the Senior Notes were used to pay down the Company’s revolving credit facility.
QEP Resources 2012 Adjusted EBITDA and Production guidance remains unchanged
Despite the continued decline in 2012 natural gas prices, QEP expects 2012 Adjusted EBITDA to range from $1,350 million to $1,450 million and QEP Energy 2012 production to range from 305 to 310 Bcfe, unchanged from previous guidance.
The company’s guidance assumes commodity derivative positions in place on the date of this release and other assumptions summarized in the table below:
Guidance and Assumptions
2012
----
Current Forecast Previous Forecast
---------------- -----------------
QEP Resources Adjusted
EBITDA (millions) $1,350 - $1,450 $1,350 - $1,450
QEP Energy capital
investment (millions) $1,165 - $1,315 $1,116 - $1,266
QEP Field Services
capital investment
(millions) $170 $170
QEP Marketing capital
investment (millions) $1 -
Corporate capital
investment (millions) $14 $14
Total QEP Resources
capital investment
(millions) $1,350 - $1,500 $1,300 - $1,450
QEP Energy production
-Bcfe 305 - 310 305 - 310
NYMEX gas price per
MMBtu (1) $2.00 - $3.00 $2.00 - $3.00
NYMEX crude oil price
per bbl (1) $90.00 - $100.00 $90.00 - $100.00
NYMEX/Rockies basis
differential per
MMBtu (1) $0.20 - $0.15 $0.20 - $0.15
NYMEX/Midcontinent
basis differential
per MMBtu (1) $0.20 - $0.15 $0.20 - $0.15
(1) For remaining 2012 un-hedged volumes.
In response to current commodity prices, the company has decreased capital directed to its only dry gas development area, the Haynesville Shale, and plans to allocate 89% of the QEP Energy 2012 capital investment to higher return projects including Pinedale, Uinta Basin Red Wash Lower Mesaverde and Woodford “Cana” liquids-rich gas plays, and oil-directed drilling in the Bakken, Uinta Basin, Powder River Basin and Midcontinent plays. QEP Resources now forecasts 2012 total capital investment of $1,350 million – $1,500 million, a $50 million increase over prior guidance. QEP Field Services forecast capital investment is unchanged from the prior guidance. The increase in forecasted QEP Energy capital investment is due to: 1) an increase in the number of forecasted net completed Bakken wells with the addition of a 4th drilling rig to the program and an increase in average well costs due to Williston Basin inflation pressures; 2) additional horizontal oil-directed drilling in the TX Panhandle and Western OK in response to continued success; and 3) the addition of a drilling rig in the Uinta Basin to drill horizontal and vertical oil wells.
Approximately 70% of QEP Energy’s forecasted natural gas production, 56% of forecasted oil production and 17% of forecasted NGL production for 2012 is subject to commodity derivatives. On a natural gas equivalent basis, the company has approximately 66% of its forecasted remaining production for 2012 subject to commodity derivatives. A table with details of the company’s positions is included at the end of this release.
QEP Energy Results
QEP Energy’s 2012 first quarter production increased 13% to 74.2 Bcfe compared to 65.9 Bcfe in the first quarter of 2011. The Southern Region contributed 55% of the first quarter 2012 total production compared to 59% in the first quarter of 2011.
QEP Energy - Production by Major Area
Three Months Ended
March 31,
---------
2012 2011 Change
---- ---- ------
(in Bcfe)
Southern Region
---------------
Haynesville/Cotton Valley 28.0 28.3 -1%
Midcontinent 12.6 10.5 20%
Total Southern Region 40.6 38.8 5%
Northern Region
---------------
Pinedale Anticline 22.2 16.2 37%
Uinta Basin (1) 4.6 6.4 -28%
Rockies Legacy 6.8 4.5 51%
Total Northern Region 33.6 27.1 24%
---- ----
Total production 74.2 65.9 13%
==== ====
(1) Includes 1.6 Bcfe in Q1 2011 from prior periods due to a change in ownership interest in a federal unit.
QEP Energy - Commodity Prices (1)
Three Months Ended
March 31,
---------
2012(2) 2011 (3) Change
------ ------- ------
Natural gas
(per Mcf)
Average field-
level price $2.71 $4.06
Commodity
derivative
impact 1.44 0.71
Net realized
price $4.15 $4.77 -13%
===== =====
Oil (per bbl)
Average field-
level price $90.67 $82.57
Commodity
derivative
impact (2.20) -
Net realized
price $88.47 $82.57 7%
====== ======
NGL (per bbl)
Average field-
level price $40.87 $47.54
Commodity
derivative
impact 0.34 -
Net realized
price $41.21 $47.54 -13%
====== ======
(1) Recast to reflect exclusion of
natural gas, oil and NGL
transportation and other handling
costs. During the year ended
December 31, 2011, QEP revised its
reporting of transportation and
handling costs to reflect revenues
in accordance with industry
practice and GAAP. Transportation
and handling costs, previously
netted against revenues, have been
recast on the Condensed
Consolidated Income Statement from
revenues to "Natural gas, oil and
NGL transportation and other
handling costs" for the 2011
periods presented herein. The
impact of this revision had no
effect on net income or Adjusted
EBITDA.
(2) Commodity derivative impact was
reported below operating income in
"Realized and unrealized gains on
commodity derivative instruments"
beginning January 1, 2012 in the
Condensed Consolidated Income
Statement.
(3) Commodity derivative impact was
reported in "Revenues" in the
Condensed Consolidated Income
Statement.
QEP Energy - Operating Expenses
Three Months Ended
March 31,
---------
2012 2011 Change
---- ---- ------
(per Mcfe)
Depreciation,
depletion and
amortization $2.47 $2.69 -8%
Lease
operating
expense 0.55 0.51 8%
Natural gas,
oil and NGL
transportation
and other
handling
costs 0.68 0.66 3%
General and
administrative
expense 0.44 0.36 22%
Allocated
interest
expense 0.32 0.30 7%
Production
taxes 0.31 0.33 -6%
Total
Operating
Expenses $4.77 $4.85 -2%
===== =====
- Depreciation, depletion and amortization expense per Mcfe (the DD&A rate) decreased in the first quarter of 2012 compared to the first quarter of 2011 primarily as the result of booking NGL reserves associated with the fee-based processing agreement entered into between QEP Energy and QEP Field Services for QEP Energy’s Pinedale production, increased percentage of production from lower DD&A pools, and impairments taken in the fourth quarter of 2011.
- Lease operating expense per Mcfe increased in the first quarter of 2012 compared to the first quarter of 2011 as a result of increased production volumes in higher cost areas. Growing production from oil plays with higher lease operating expense increased average per Mcfe lease operating expense.
- Natural gas, oil and NGL transportation and other handling costs per Mcfe were 3% higher in the first quarter of 2012 than in the first quarter of 2011. The increase per Mcfe in the first quarter of 2012 was due to a 13% increase in production.
- General and administrative (G&A) expense per Mcfe increased in the first quarter of 2012 primarily related to $2.7 million of costs associated with consolidating Southern Region operations into the Tulsa office and higher employee compensation and benefits expenses.
- Production taxes per Mcfe decreased in the first quarter of 2012 compared to the first quarter of 2011 as the result of lower field-level natural gas and NGL prices.
QEP Energy Operations Update
QEP anticipates 110 new Pinedale completions in 2012
At the Pinedale Anticline field in western Wyoming, QEP anticipates operating 6 drilling rigs and completing 110 wells in 2012. The company suspends Pinedale completion operations during the coldest months of the winter (generally from December through mid-March). Completion operations re-commenced in early March and year-to-date, QEP has completed and turned to sales 23 new wells with an average working interest of 70%. QEP currently has 41 wells drilled and cased and waiting on completion. Drilling and completion efficiencies have allowed QEP to maintain industry-leading average gross completed well costs of $3.9 million per well. The average drill time from spud to total depth in the first quarter of 2012 was 13.9 days. During the first quarter of 2012, QEP Pinedale net production averaged 244 MMcfed. As a result of the fee-based processing agreement entered into between QEP Energy and QEP Field Services effective August 1, 2011, QEP Energy average net equivalent production for the first quarter of 2012 included a significant contribution from liquids (186 MMcf/day, 1,673 Bbl Oil/day and 7,881 Bbl NGL/day).
Slides with maps and other supporting materials referred to in this release are posted on the Company’s website www.qepres.com. Please refer to slides 5 and 6 for additional Pinedale details.
Bakken/Three Forks oil production growth continues on QEP’s 90,000 acre North Dakota leasehold
In the Williston Basin of North Dakota, QEP has completed and turned to sales 2 new Bakken Formation company-operated wells since the last operations update. QEP has a 100% working interest in both new wells. The company operates 32 producing wells in the play (26 Bakken and 6 Three Forks) and has a working interest in 106 producing wells that are operated by others. During the first quarter of 2012, QEP’s Bakken/Three Forks net production averaged 5,728 Boepd. QEP has 11 operated wells currently being drilled (including pad wells drilled to intermediate casing) and 2 operated wells waiting on completion. The company also has interests in 12 outside-operated wells currently being drilled and 9 outside-operated wells that are waiting on completion. Working interests in the drilling and waiting on completion outside operated wells range from less than 1% to 28%.
The company has 3 rigs currently working in the play. A fourth rig is expected to commence drilling on QEP leasehold by mid-June. QEP currently estimates that the average completed well cost for a typical Bakken/Three Forks well (10,000′ average lateral length) will range from $9.7 to $10.4 million in 2012. Slide 7 shows QEP’s acreage and activity in the Bakken/Three Forks play.
Strong industry activity continues in the Woodford “Cana” Shale play
The company has completed and turned to sales 2 new QEP-operated Woodford “Cana” Shale wells in western Oklahoma since the last update. The company currently operates 27 Cana producing wells and has working interests in an additional 206 producing Cana wells that are operated by others. During the first quarter of 2012, QEP net production from the play averaged 51 MMcfed.
QEP has 2 operated wells currently drilling and one operated well waiting on completion and has interests in 4 wells currently being drilled and 16 wells waiting on completion that are operated by others. Working interests in the drilling and waiting on completion outside operated wells range from less than 1% to 25%. QEP plans to operate 2 to 3 rigs for the balance of 2012 in the liquids-rich gas portion of the core of the Cana play, with the majority of the activity focused on development drilling on 80-acre density. Slide 8 depicts QEP’s acreage and additional details on the Cana play.
QEP continues development drilling in liquids-rich gas Lower Mesaverde play in Uinta Basin
In the Uinta Basin of eastern Utah, QEP has two operated rigs drilling vertical wells targeting liquids-rich gas stacked sands in the Lower Mesaverde Formation at average drill depths of 11,000 feet. The company has over 32,000 net acres which it believes are prospective for development of the emerging Red Wash Lower Mesaverde play. Most of the acreage is within the Red Wash Federal Unit in which QEP owns a 100% working interest.
The company has 33 producing wells in the play. QEP plans to complete approximately 40 Mesaverde wells in 2012. The company estimates Mesaverde gross completed well costs should average about $2.2 million with average gross per well estimated ultimate recoveries of 2.3 Bcfe. Slide 9 depicts QEP’s acreage and additional details on the Lower Mesaverde play.
A third drilling rig has been added in the Uinta Basin to pursue horizontal and vertical oil targets in multiple limestone and sandstone reservoirs within the lower Green River Formation at average drill depths of 5,500 feet. QEP plans to complete 10 Uinta Basin oil wells in 2012 with an average working interest of 70%.
Granite Wash, Tonkawa and Marmaton horizontal development in the Texas Panhandle and Western Oklahoma
In the Texas Panhandle Granite Wash play, the company has not completed any additional QEP operated horizontal wells in Wheeler County, Texas since the last operations update. QEP has a working interest in a total of 73 producing horizontal Granite Wash/Atoka Wash wells. During the first quarter of 2012, net production from this play (vertical and horizontal wells) averaged 43 MMcfed. The company participated with a working interest in 8 outside-operated Granite Wash wells in the Texas Panhandle that were completed since the last operations update with working interests ranging from less than 2% to 29%. QEP is also participating in 6 outside-operated wells that are waiting on completion with working interests ranging from 6% to 33%.
In addition, since the last update QEP has drilled and completed 2 Marmaton (average 99% working interest) and one new Tonkawa (73% working interest) horizontal oil wells in western Oklahoma and participated with a working interest in 4 outside operated wells in these plays with working interests ranging from less than 1% to 34%. QEP currently has one rig running in the combined Granite Wash/Marmaton/Tonkawa plays. See slide 10 for details on the Granite Wash play.
Reducing rig count in the Haynesville Shale of NW Louisiana
QEP has completed 18 additional company-operated Haynesville wells, since the last update. In response to low natural gas prices QEP has decreased its operated rig count in the play to one, down from 6 rigs in 2011. If natural gas prices do not significantly improve, QEP will reduce its operated rig count to zero in the third quarter of 2012 once the spacing unit currently being drilled is fully developed. QEP-operated gross completed well costs in the first quarter of 2012 averaged $9.1 million. The company operates 126 producing wells in the play and has a working interest in 125 producing wells that are operated by others. During the first quarter of 2012, the company’s Haynesville net production averaged 262 MMcfd and Cotton Valley/Hosston net production averaged 46 MMcfd. QEP net production from the Haynesville play is impacted by the Company’s decision to restrict the flowing rate of Haynesville wells to decrease near-wellbore pressure drawdown. The Company continues to restrict flow rates to minimize reservoir and propped fracture damage, which should lead to increased ultimate recoverable reserves. First quarter 2012 volumes were also impacted by a number of wells that were shut in while offset wells were completed.
QEP has one operated well drilling and 2 operated wells waiting on completion. The Company also participated in 4 outside-operated Haynesville wells that were completed and turned to sales since the last operations update with working interests ranging from less than 1% to 25%. QEP has a working interest in one outside-operated Haynesville well that is waiting on completion. Refer to slide 11 for additional information on QEP’s Haynesville activities.
QEP Field Services Results
QEP Field Services first quarter 2012 Adjusted EBITDA increased 37% to $84.3 million compared to $61.4 million in the first quarter of 2011. Adjusted EBITDA increased for the quarter ended March 31, 2012, primarily due to higher processing margins.
- In response to growing QEP Energy and third-party demand, QEP Field Services has begun construction on Iron Horse II, a new 150 MMcfd fee-based cryogenic gas processing plant in the Uinta Basin which is anticipated to be operational by early 2013. Fifty percent of the processing capacity is contracted to a third-party customer with the remaining capacity available to QEP Energy and other potential customers.
- Long-lead items have been ordered for the new Blacks Fork NGL fractionator (a 10,000 bpd expansion to the existing 5,000 bpd capacity with a mid-2013 completion) and work has also commenced on doubling the existing Blacks Fork rail loading facility. These two Blacks Fork projects will provide significant marketing options for the growing NGL volumes being produced at Blacks Fork and will enable the potential sale of NGL products into higher valued local and national markets to improve the overall Blacks Fork complex operating margins.
- Processing margin (total processing plant revenues less plant operating expenses, shrink and transportation) of $45.0 million for the first quarter of 2012 was 75% higher than the $25.7 million generated during the first quarter of 2011. This increase was primarily due to higher NGL sales volumes as well as increased fee-based processing revenues. The NGL sales volume totaled 45.2 million gallons, which is a 63% increase compared to the prior year quarter volume of 27.8 million gallons. The keep-whole processing margin rate of $0.66 per gallon was flat to the keep-whole processing margin rate generated during the first quarter of 2011. The fee-based processing revenues of $19.0 million in the first quarter of 2012 were 90% higher than the prior year quarter of $10.0 million.
- Gathering margin (total gathering revenues less gathering related operating expenses) of $43.6 million during the first quarter of 2012 decreased slightly 4%, or $1.6 million, compared to the first quarter of 2011, driven primarily by decreased other gathering revenue related to the elimination of a third-party interruptible processing agreement for certain gas volumes in the Northern Region. The short-term processing arrangement was in effect during the first quarter of 2011 before the expansion of the Blacks Fork processing plant was put into service in the third quarter of 2011.
- Approximately 72% of QEP Field Services’ 2012 first quarter net operating revenue was derived from fee-based gathering and processing activities compared to 78% in the 2011 first quarter.
First Quarter 2012 Results Conference Call
QEP Resources management will discuss first quarter 2012 results in a conference call on Wednesday, April 25, 2012 beginning at 11:00 a.m. EDT. The call can be accessed at www.qepres.com. A replay of the teleconference will be available on the website immediately after the call through May 9, 2012 by dialing (855) 859-2056 in the U.S. or Canada and (404) 537-3406 for international calls, and then entering passcode 69987602. In addition, QEP’s First Quarter Operations Update Slides, with updated maps showing QEP’s leasehold and current activity for key operating areas discussed in this release, can be found on the company’s website.
About QEP Resources
QEP Resources, Inc. (NYSE:QEP) is a leading independent natural gas and oil exploration and production company with operations focused in the Rocky Mountain and Midcontinent of the United States. QEP Resources also gathers, compresses, treats, processes and stores natural gas.
Forward-Looking Statements
This release includes forward-looking statements within the meaning of Section 27(a) of the Securities Act of 1933, as amended, and Section 21(e) of the Securities Exchange Act of 1934, as amended. Forward-looking statements can be identified by words such as “anticipates,” “believes,” “forecasts,” “plans,” “estimates,” “expects,” “should,” “will” or other similar expressions. Such statements are based on management’s current expectations, estimates and projections, which are subject to a wide range of uncertainties and business risks. These forward-looking statements include statements regarding: forecasted Adjusted EBITDA, production and capital investment for 2012 and related assumptions for such guidance; number of rigs planned in operating areas; changes in lease operating expenses; the effects of restricting the flowing rate in the Haynesville Shale; estimated gross completed well costs and average estimated ultimate recoveries per well; QEP being the lowest cost operator in its portion of the Haynesville play; and anticipated growth from new projects of QEP Field Services. Actual results may differ materially from those included in the forward-looking statements due to a number of factors, including, but not limited to: the availability of capital; changes in local, regional, national and global demand for natural gas, oil and NGL; natural gas, NGL and oil prices; potential legislative or regulatory changes regarding the use of hydraulic fracture stimulation; impact of new laws and regulations, including the implementation of the Dodd-Frank Act; drilling results; shortages of oilfield equipment, services and personnel; operating risks such as unexpected drilling conditions; weather conditions; changes in maintenance and construction costs and possible inflationary pressures; the availability and cost of credit; and the other risks discussed in the Company’s periodic filings with the Securities and Exchange Commission, including the Risk Factors section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. QEP Resources undertakes no obligation to publicly correct or update the forward-looking statements in this news release, in other documents, or on the Web site to reflect future events or circumstances. All such statements are expressly qualified by this cautionary statement.
Disclosures regarding Estimated Ultimate Recovery (EUR)
The Securities and Exchange Commission requires oil and gas companies, in their filings with the SEC, to disclose proved reserves that a company has demonstrated by actual production or through reliable technology to be economically and legally producible at specific prices and existing economic and operating conditions. The SEC permits optional disclosure of probable and possible reserves, however QEP has made no such disclosures in our filings with the SEC. QEP uses certain terms in our periodic news releases and other presentation materials such as “estimated ultimate recovery or “EUR”, “resource potential”, and “net resource potential”. These estimates are by their nature more speculative than estimates of proved, probable or possible reserves and accordingly are subject to substantially more risks of actually being realized. The SEC guidelines strictly prohibit us from including such estimates in filings with the SEC. Investors are urged to closely consider the disclosures about the Company’s reserves in its Annual Report on Form 10-K for the year ended December 31, 2011, and in other reports on file with the SEC.
For more information, visit QEP Resources’ website at: www.qepres.com.
The following table presents remaining 2012 derivative positions as of April 20, 2012:
QEP Energy Hedge Positions - April 20, 2012
Swaps Collars
----- -------
Year Type of Index Total Average Floor Ceiling
Contract Volumes price per price price
unit
--- ----
(in millions)
Natural gas sales
(MMbtu)
2012 Swap NYMEX 57.8 $4.72
2012 Swap IFPEPL 6.1 4.47
2012 Swap IFNPCR 65.4 4.69
2012 Swap IFCNPTE 7.7 2.67
2013 Swap NYMEX 29.2 3.68
2013 Swap IFNPCR 65.7 5.66
Oil sales (Bbls)
2012 Swap NYMEX WTI 1.4 $97.03
2012 Collar NYMEX WTI 1.1 $87.50 $115.36
2013 Swap NYMEX WTI 0.2 105.80
Ethane sales (Gals)
2012 Swap Mt. Belvieu Ethane 11.6 $0.64
Propane sales (Gals)
2012 Swap Mt. Belvieu Propane 17.3 $1.28
QEP Field Services Hedge Positions - April 20, 2012
Year Type of Index Total Average
Contract Volumes Swap price
per unit
--- --------
(in millions)
Ethane sales (Gals)
2012 Swap Mt. Belvieu Ethane 11.6 $0.64
Propane sales (Gals)
2012 Swap Mt. Belvieu Propane 9.6 $1.35
QEP Marketing Hedge Positions - April 20, 2012
Year Type of Index Total Average
Contract Volumes Swap price
per unit
--- --------
(in millions)
Natural gas sales
(MMbtu)
2012 Swaps IFNPCR 3.0 $3.24
2013 Swaps IFNPCR 1.2 4.57
Natural gas purchases
(MMbtu)
2012 Swaps IFNPCR 2.6 $2.37
QEP RESOURCES, INC.
CONDENSED
CONSOLIDATED
STATEMENTS OF
INCOME
(Unaudited)
Three Months Ended
March 31,
---------
2012 2011
---- ----
(in millions, except
per share amounts)
REVENUES(1) (2)
Natural gas sales $161.2 $312.6
Oil sales 110.8 63.0
NGL sales 97.4 47.9
Gathering,
processing and
other 49.8 46.6
Purchased gas and
oil sales 184.0 147.8
Total Revenues 603.2 617.9
----- -----
OPERATING EXPENSES
Purchased gas and
oil expense 188.4 146.7
Lease operating
expense 40.1 32.8
Natural gas, oil
and NGL
transportation and
other handling
costs(1) 34.5 21.7
Gathering,
processing and
other 23.7 25.2
General and
administrative 36.0 31.7
Production and
property taxes 24.7 23.7
Depreciation,
depletion and
amortization 199.2 190.8
Exploration
expenses 2.0 2.8
Abandonment and
impairment 6.6 5.4
Total Operating
Expenses 555.2 480.8
Net gain from asset
sales 1.5 -
--- ---
OPERATING INCOME 49.5 137.1
Realized and
unrealized gains
on commodity
derivative
contracts (2) 216.3 -
Interest and other
income 1.7 0.6
Income from
unconsolidated
affiliates 1.9 0.9
Interest expense (24.7) (22.1)
----- -----
INCOME BEFORE
INCOME TAXES 244.7 116.5
Income taxes (88.7) (42.7)
NET INCOME 156.0 73.8
Net income
attributable to
noncontrolling
interest (0.8) (0.6)
NET INCOME
ATTRIBUTABLE TO
QEP $155.2 $73.2
====== =====
Earnings Per Common
Share Attributable
to QEP
Basic total $0.87 $0.42
Diluted total $0.87 $0.41
Weighted-average
common shares
outstanding
Used in basic
calculation 177.4 176.2
Used in diluted
calculation 178.5 178.3
(1) During the fourth quarter of 2011,
QEP revised its reporting of
transportation and handling costs.
Transportation and handling costs,
previously netted against revenues,
have been recast on the Condensed
Consolidated Income Statement from
revenues to "Natural gas, oil and
NGL transportation and other
handling costs" for the 2011 periods
presented herein.
(2) In addition, on January 1, 2012, QEP
discontinued hedge accounting.
During the first quarter of 2012,
commodity derivative realized gains
and losses from derivative contract
settlements were included in "Gain
on commodity derivative instruments"
on the Condensed Consolidated Income
Statement. Conversely, during the
first quarter of 2011, the commodity
derivative realized gains and losses
on settlements were included in each
of the respective revenue categories
in the Condensed Consolidated Income
Statement, in conjunction with hedge
accounting and the realization of
the underlying contract.
QEP RESOURCES, INC.
CONDENSED CONSOLIDATED
BALANCE SHEETS
(Unaudited)
March 31, December 31,
2012 2011
---- ----
(in millions)
ASSETS
Current Assets
Cash and cash equivalents $ - $ -
Accounts receivable, net 303.5 397.4
Fair value of derivative
contracts 333.8 273.7
Inventories, at lower of
average cost or market - -
Gas, oil and NGL 10.9 16.2
Materials and supplies 86.6 87.6
Prepaid expenses and other 40.6 43.7
Total Current Assets 775.4 818.6
----- -----
Property, Plant and
Equipment (successful
efforts method for gas and
oil properties)
Proved properties 8,468.3 8,172.4
Unproved properties, not
being depleted 316.0 326.8
Midstream field services 1,510.8 1,463.6
Marketing and other 51.6 49.8
Total Property, Plant and
Equipment 10,346.7 10,012.6
-------- --------
Less Accumulated
Depreciation, Depletion
and Amortization
Exploration and production 3,519.9 3,339.2
Midstream field services 312.2 297.5
Marketing and other 15.5 14.6
Total Accumulated
Depreciation, Depletion
and Amortization 3,847.6 3,651.3
------- -------
Net Property, Plant and
Equipment 6,499.1 6,361.3
------- -------
Investment in
unconsolidated affiliates 42.6 42.2
Goodwill 59.5 59.5
Fair value of derivative
contracts 115.6 123.5
Other noncurrent assets 40.9 37.6
TOTAL ASSETS $7,533.1 $7,442.7
======== ========
LIABILITIES AND EQUITY
Current Liabilities
Checks outstanding in
excess of cash balances $58.6 $29.4
Accounts payable and
accrued expenses 380.7 457.3
Production and property
taxes 43.5 40.0
Interest payable 8.9 24.4
Fair value of derivative
contracts - 1.3
Deferred income taxes 57.6 85.4
Total Current Liabilities 549.3 637.8
----- -----
Long-term debt 1,673.5 1,679.4
Deferred income taxes 1,554.5 1,484.7
Asset retirement
obligations 167.7 163.9
Fair value of derivative
contracts 0.1 -
Other long-term liabilities 130.3 124.8
Commitments and
contingencies
EQUITY
Common stock 1.8 1.8
Treasury stock (23.4) (13.1)
Additional paid-in capital 442.6 431.4
Retained earnings 2,825.1 2,673.5
Accumulated other
comprehensive income 161.9 207.9
Total Common Shareholders'
Equity 3,408.0 3,301.5
Noncontrolling interest 49.7 50.6
Total Equity 3,457.7 3,352.1
TOTAL LIABILITIES AND
EQUITY $7,533.1 $7,442.7
======== ========
QEP RESOURCES, INC.
CONSOLIDATED CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
-------------------
2012 2011
---- ----
(in millions)
OPERATING ACTIVITIES
Net income $156.0 $73.8
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation, depletion
and amortization 199.2 190.8
Deferred income taxes 69.1 40.0
Abandonment and impairment 6.6 5.4
Share-based compensation 5.7 7.4
Amortization of debt
issuance costs and
discounts 1.1 0.8
Dry exploratory well
expense 0.1 0.6
Net gain from asset sales (1.5) -
Income from unconsolidated
affiliates (1.9) (0.9)
Distributions from
unconsolidated affiliates
and other 1.6 1.8
Unrealized gain on
derivative contracts (128.3) (31.2)
Changes in operating
assets and liabilities 20.8 10.9
Net Cash Provided by
Operating Activities of
Continuing Operations 328.5 299.4
----- -----
INVESTING ACTIVITIES
Property acquisitions (1.4) (22.1)
Property, plant and
equipment, including dry
exploratory well expense (336.5) (320.4)
Proceeds from disposition
of assets 3.3 0.9
Net Cash Used in Investing
Activities of Continuing
Operations (334.6) (341.6)
------ ------
FINANCING ACTIVITIES
Checks outstanding in
excess of cash balances 29.2 5.9
Long-term debt issued 500.0 -
Long-term debt issuance
costs paid (6.9) -
Current portion long-term
debt repaid - (58.5)
Proceeds from credit
facility 120.0 200.0
Repayments of credit
facility (626.0) (100.0)
Other capital
contributions (6.9) (0.8)
Dividends paid (3.6) (3.5)
Excess tax benefit from
share-based compensation 2.0 0.4
Distribution from Questar - 0.2
Distribution to
noncontrolling interest (1.7) (1.5)
Net Cash Provided by
Financing Activities of
Continuing Operations 6.1 42.2
--- ----
Change in cash and cash
equivalents - -
Beginning cash and cash
equivalents - -
Ending cash and cash
equivalents $ - $ -
=================== ===================
Supplemental Disclosures:
Cash paid for interest $39.6 $44.2
Cash paid (received) for
income taxes (10.8) (2.6)
Change in non-cash
capital expenditure
accruals (3.5) 27.7
QEP RESOURCES, INC.
OPERATIONS BY LINE OF
BUSINESS
(Unaudited)
Three Months Ended
March 31,
---------
2012 2011
---- ----
(in millions)
Revenues from unaffiliated
customers(1)(2)
QEP Energy $396.8 $396.2
QEP Field Services 93.6 73.3
QEP Marketing and other 112.8 148.4
Total $603.2 $617.9
====== ======
Revenues from affiliated
companies
QEP Field Services $26.1 $23.3
QEP Marketing and other 132.3 133.1
Total $158.4 $156.4
====== ======
Operating (loss) income (2)
QEP Energy $(12.9) $87.9
QEP Field Services 66.0 47.3
QEP Marketing and other (3.6) 1.9
Total $49.5 $137.1
===== ======
Net income attributable to
QEP
QEP Energy $108.1 $43.1
QEP Field Services 45.4 28.0
QEP Marketing and other 1.7 2.1
Total $155.2 $73.2
====== =====
(1) During the fourth quarter of 2011,
QEP revised its reporting of
transportation and handling costs.
Transportation and handling costs,
previously netted against
revenues, have been recast on the
Condensed Consolidated Income
Statement from revenues to
"Natural gas, oil and NGL
transportation and other handling
costs" for the 2011 periods
presented herein. In addition,
revenues for the three months
ended March 31, 2011, reflect the
impact of QEP's settled derivative
contracts which during the three
months ended March 31, 2012, are
reflected below operating income.
(2) Operating (loss) income in the
first quarter of 2012 excludes the
impact of realized commodity
derivative contract settlements.
During the first quarter of 2012
realized gains and losses from
realized commodity derivative
contract settlements were included
below operating income.
Conversely, under hedge
accounting, realized gains and
losses from realized commodity
derivative contract settlements
were included in operating income
during the first quarter of 2011.
Three Months Ended
March 31,
---------
2012 2011
---- ----
QEP Energy production volumes
Natural gas (Bcf) 59.5 59.1
Oil (Mbbl) 1,222.5 763.0
NGL (Mbbl) 1,221.7 386.3
Total production (Bcfe) 74.2 65.9
Average daily production (MMcfe) 815.1 732.8
QEP Energy average net realized price
Natural gas (per Mcf) $4.15 $4.77
Oil (per bbl) 88.47 82.57
NGL (per bbl) 41.21 47.54
Production by major area
------------------------
QEP Energy - Natural gas (Bcf)
Haynesville/Cotton Valley 27.9 28.2
Midcontinent 8.2 7.7
Pinedale Anticline 17.0 15.4
Uinta Basin 3.3 4.8
Rockies Legacy 3.1 3.0
Total production 59.5 59.1
==== ====
QEP Energy - Oil (Mbbl)
Haynesville/Cotton Valley 9.4 14.6
Midcontinent 285.9 163.6
Pinedale Anticline 152.3 130.6
Uinta Basin 204.1 225.3
Rockies Legacy 570.8 228.9
Total production 1,222.5 763.0
======= =====
QEP Energy - NGL (Mbbl)
Haynesville/Cotton Valley 2.4 2.0
Midcontinent 439.5 323.5
Pinedale Anticline 717.1 -
Uinta Basin 21.3 34.3
Rockies Legacy 41.4 26.5
Total production 1,221.7 386.3
======= =====
QEP Energy - Total Production (Bcfe)
Haynesville/Cotton Valley 28.0 28.3
Midcontinent 12.6 10.5
Pinedale Anticline 22.2 16.2
Uinta Basin 4.6 6.4
Rockies Legacy 6.8 4.5
Total production 74.2 65.9
==== ====
Three Months Ended
March 31,
---------
2012 2011
---- ----
QEP Field Services Gathering
Operating Statistics
Natural gas gathering volumes
(millions of MMBtu)
For unaffiliated customers 61.0 61.1
For affiliated customers 62.7 57.9
Total gathering 123.7 119.0
===== =====
Gathering revenue (per MMBtu) $0.34 $0.33
QEP Field Services Gathering Margin
Gathering $41.9 $39.4
Other Gathering 11.3 17.7
Gathering (expense) (9.6) (11.9)
Gathering Margin $43.6 $45.2
===== =====
QEP Field Services Processing Margin
NGL sales $47.5 $29.5
Realized gains from commodity
derivative contract settlements 1.1 -
Processing (fee-based) revenues 16.0 10.0
Other processing fees 3.0 -
Processing (expense) (3.7) (2.7)
Processing plant fuel and shrinkage
(expense) (10.1) (10.2)
Natural gas, oil and NGL
transportation and other handling
costs (8.8) (0.9)
Processing margin $45.0 $25.7
===== =====
Frac spread (NGL sales less
processing plant fuel and shrinkage
less natural gas, oil $29.7 $18.4
and NGL transportation and other
handling costs)
QEP Field Services Processing
Operating Statistics
Natural gas processing volumes
NGL sales (MMgal) 45.2 27.8
Average net realized NGL sales price
(per gal) $1.07 $1.06
Fee-based processing volumes (in
millions of MMBtu)
For unaffiliated customers 28.0 31.4
For affiliated customers 31.7 25.6
Total fee-based processing volumes 59.7 57.0
==== ====
Average fee-based processing
revenue (per MMBtu) $0.27 $0.17
QEP RESOURCES, INC.
NON-GAAP MEASURES
(Unaudited)
This release contains reference to a non-GAAP
measure of earnings per diluted share excluding
gains and losses from asset sales, asset
impairments, and unrealized gains and losses on
derivative contracts. Management believes earnings
per diluted share excluding gains and losses from
asset sales, asset impairments, and unrealized gains
and losses on derivative contracts is an important
measure of the Company's operational performance
relative to other gas and oil producing companies.
The following table calculates earnings per diluted
share excluding gains and losses on assets sales and
unrealized gains and losses on derivative contracts:
Three Months Ended
March 31,
2012 2011
---- ----
(in millions,
except earnings
per share)
Net income attributable to QEP
Resources $155.2 $73.2
Exclusion of net gain from assets sales, and
unrealized gain on derivative
contracts from net income
Net gain from asset sales (1.5) -
Income taxes on net gain on
asset sales 0.6 -
Unrealized gain on derivative
contracts (128.3) (31.2)
Income taxes on unrealized
gain on derivative contracts 47.7 11.6
After-tax gain from assets
sales, and unrealized gain on
derivative contracts (81.5) (19.6)
----- -----
Net income attributable to QEP Resources excluding
gain from assets sales
and unrealized gain on derivative contracts
$73.7 $53.6
===== =====
EARNINGS PER COMMON SHARE ATTRIBUTABLE TO QEP RESOURCES
Diluted $0.87 $0.41
Diluted after-tax (gain) loss
from asset sales, and
unrealized (gain) loss on (0.46) (0.11)
derivative contracts
---
Earnings (loss) per diluted
share attributable to QEP
Resources excluding $0.41 $0.30
asset sales, and unrealized (gain) loss
on derivative contracts
===
Weighted-Average Common Shares Outstanding
Diluted 178.5 178.3
This release also contains
reference to a non-GAAP measure
of Adjusted EBITDA. Management
defines Adjusted EBITDA as net
income before the following
items: unrealized gains and
losses on derivative contracts,
gains and losses from asset
sales, interest and other income,
income taxes, interest expense,
depreciation, depletion, and
amortization, abandonment and
impairment, and exploration
expense. Management uses Adjusted
EBITDA to assess the Company's
operating results. Management
believes Adjusted EBITDA is an
important measure of the
Company's cash flow and liquidity
and its ability to incur and
service debt, fund capital
expenditures and make
distributions to shareholders and
is an important measure for
comparing the Company's financial
performance to other gas and oil
producing companies. In addition,
Adjusted EBITDA is a part of the
Company's debt covenants as
defined in its revolving credit
agreement.
The following table reconciles QEP
Resources' net income to Adjusted
EBITDA:
Three Months Ended
March 31,
2012 2011
---- ----
(in millions)
Net income attributable to QEP
Resources $155.2 $73.2
Net income attributable to
noncontrolling interest 0.8 0.6
--- ---
Net income 156.0 73.8
Unrealized gain on derivative
contracts (128.3) (31.2)
Net gain from asset sales (1.5) -
Interest and other income (1.7) (0.6)
Income taxes 88.7 42.7
Interest expense 24.7 22.1
Depreciation, depletion and
amortization 199.2 190.8
Abandonment and impairment 6.6 5.4
Exploration 2.0 2.8
Adjusted EBITDA $345.7 $305.8
====== ======
SOURCE QEP Resources, Inc.
