Add
STR to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| STR > SEC Filings for STR > Form 10-Q on 5-May-2008 | All Recent SEC Filings |
5-May-2008
Quarterly Report
The following information updates the discussion of Questar's financial condition provided in its 2007 Form 10-K filing, and analyzes the changes in the results of operations between the three-month periods ended March 31, 2008 and 2007. For definitions of commonly used gas and oil terms found in this report on Form 10-Q, please refer to the "Glossary of Commonly Used Terms" provided in Questar's 2007 Form 10-K.
RESULTS OF OPERATIONS
Following are comparisons of net income by line of business:
3 Months Ended March 31,
2008 2007 Change
(in millions, except per share amounts)
Exploration and Production
Questar E&P $ 96.5 $ 77.2 $19.3
Wexpro 16.2 13.9 2.3
Midstream Field Services -- Gas Management 18.5 12.4 6.1
Energy Marketing - Energy Trading and other 8.1 6.0 2.1
Market Resources total 139.3 109.5 29.8
Interstate Gas Transportation - Questar Pipeline 15.9 11.2 4.7
Retail Gas Distribution - Questar Gas 30.6 29.1 1.5
Corporate 1.3 (1.3)
Net income $185.8 $151.1 $34.7
Earnings per diluted share $ 1.05 $ 0.86 $0.19
Average diluted shares 176.2 175.6 0.6
|
EXPLORATION AND PRODUCTION
Questar E&P
Following is a summary of Questar E&P financial and operating results:
3 Months Ended March 31,
2008 2007 Change
(in millions)
Operating Income
Revenues
Natural gas sales $239.8 $195.4 $44.4
Oil and NGL sales 58.4 33.1 25.3
Other 1.5 1.3 0.2
Total revenues 299.7 229.8 69.9
Operating expenses
Operating and maintenance 28.0 20.7 7.3
General and administrative 14.2 12.2 2.0
Production and other taxes 27.0 16.2 10.8
Depreciation, depletion and amortization 71.8 59.0 12.8
Exploration 3.5 2.0 1.5
Abandonment and impairment 2.6 2.0 0.6
Natural gas purchases 0.4 0.7 (0.3)
Total operating expenses 147.5 112.8 34.7
|
Questar 2008 Form 10-Q 13 Net gain (loss) from asset sales (0.2) 0.1 (0.3) Operating income $152.0 $117.1 $34.9 Operating Statistics Questar E&P production volumes Natural gas (Bcf) 34.8 30.9 3.9 Oil and NGL (MMbbl) 0.8 0.7 0.1 Total production (Bcfe) 39.5 34.9 4.6 Average daily production (MMcfe) 433.8 388.2 45.6 Questar E&P average realized price, net to the well (including hedges) Natural gas (per Mcf) $ 6.90 $ 6.33 $ 0.57 Oil and NGL (per bbl) 74.18 48.61 25.57 |
Questar E&P reported net income of $96.5 million in the first quarter, up 25% from $77.2 million in the 2007 quarter. Higher realized natural gas, crude oil and NGL prices and growing production more than offset a 17% increase in average production costs.
Questar E&P production volumes totaled 39.5 Bcfe in the first quarter of 2008, a 13% increase compared to the year-earlier period. Natural gas is Questar E&P's primary focus. On an energy-equivalent basis, natural gas comprised approximately 88% of Questar E&P 2008 production. A comparison of natural gas-equivalent production by major operating area is shown in the following table:
3 Months Ended March 31,
2008 2007 Change
(in Bcfe)
Pinedale Anticline 13.3 12.1 1.2
Uinta Basin 6.7 6.0 0.7
Rockies Legacy 4.9 4.5 0.4
Rocky Mountain total 24.9 22.6 2.3
Midcontinent 14.6 12.3 2.3
Total Questar E&P 39.5 34.9 4.6
|
Questar E&P production from the Pinedale Anticline in western Wyoming grew 10% to 13.3 Bcfe in the first quarter of 2008 as a result of ongoing development drilling. Pinedale production growth is negatively impacted by seasonal access restrictions imposed by the Bureau of Land Management that limit company ability to drill and complete wells during the mid-November to early May period.
In the Uinta Basin, production grew 12% to 6.7 Bcfe in 2008 as the company completed and turned 12 new wells to sales in the first quarter.
Questar E&P Rockies Legacy properties include all of the company Rocky Mountain region properties except the Pinedale Anticline and the Uinta Basin. Rockies Legacy 2008 production of 4.9 Bcfe was 0.4 Bcfe higher than a year ago, primarily as a result of increased production in the Vermillion Basin and a new well in the Williston Basin.
In the Midcontinent, production grew 19% to 14.6 Bcfe in 2008 and included 1.1 Bcfe of production in March 2008 from two natural gas development properties in northwest Louisiana acquired on February 29, 2008. Ongoing infill-development drilling in Elm Grove field in northwestern Louisiana and continued development of the company's Texas Panhandle Granite Wash play were the main contributors to the production increase.
Realized prices for natural gas, oil and NGL at Questar E&P were higher when compared to the prior year. In 2008, the weighted-average realized natural gas price for Questar E&P (including the impact of hedging) was $6.90 per Mcf compared to $6.33 per Mcf for the same period in 2007, a 9% increase. Realized oil and NGL prices in 2008 averaged $74.18 per bbl, compared with $48.61 per bbl during the prior year period, a 53% increase. A regional comparison of average realized prices, including hedges, is shown in the following table:
Questar 2008 Form 10-Q
14
3 Months Ended March 31,
2008 2007 Change
Natural gas (per Mcf)
Rocky Mountains $ 6.37 $ 5.87 $ 0.50
Midcontinent 7.84 7.17 0.67
Volume-weighted average 6.90 6.33 0.57
Oil and NGL (per bbl)
Rocky Mountains $74.47 $48.10 $26.37
Midcontinent 73.79 49.68 24.11
Volume-weighted average 74.18 48.61 25.57
|
Questar E&P hedged or pre-sold approximately 77% of gas production in the first three months of 2008 and hedged or pre-sold 67% of gas production in the comparable 2007 period. Hedging increased 2008 Questar E&P gas revenues by $6.9 million and 2007 gas revenues by $30.2 million. Approximately 53% of 2008 and 64% of 2007 Questar E&P oil production was hedged or pre-sold. Oil hedges decreased revenues $7.4 million in 2008 and increased revenues $0.9 million in 2007.
Questar may hedge up to 100% of forecasted production from proved reserves to lock in acceptable returns on invested capital and to protect cash flow and net income from a decline in commodity prices. During the first quarter of 2008, Questar E&P hedged additional production through 2010. The company uses basis-only swaps to protect cash flows and net income from widening natural gas-price basis differentials that may result from capacity constraints on regional gas pipelines. Derivative positions as of March 31, 2008, are summarized in Item 3 of Part I in this Quarterly Report on Form 10-Q.
Questar E&P production costs (the sum of depreciation, depletion and amortization expense, lease-operating expense, general and administrative expense, allocated-interest expense and production taxes) per Mcfe of production increased 17% to $3.83 per Mcfe in 2008 versus $3.28 per Mcfe in 2007. Questar E&P production costs are summarized in the following table:
3 Months Ended March 31,
2008 2007 Change
(per Mcfe)
Depreciation, depletion and amortization $1.82 $1.69 $0.13
Lease operating expense 0.71 0.59 0.12
General and administrative expense 0.36 0.35 0.01
Allocated interest expense 0.26 0.18 0.08
Production taxes 0.68 0.47 0.21
Total production costs $3.83 $3.28 $0.55
|
Production volume-weighted average depreciation, depletion and amortization (DD&A) expense per Mcf increased in 2008 due to higher costs for drilling, completion and related services, higher cost of steel casing, other tubulars and wellhead equipment. The DD&A rate also increased due to the ongoing depletion of older, lower-cost reserves and the increasing component of Questar E&P production derived from higher-cost fields such as Elm Grove in the Midcontinent, and Vermillion and Uinta Basins in the Rockies. Lease operating expense per Mcfe was higher due to increased costs of materials and consumables, increased produced-water disposal costs and increased well-workover activity. General and administrative expense per Mcfe grew due primarily to increased labor expenses. Allocated interest expense per unit of production increased in the 2008 period primarily due to financing costs related to the acquisition of properties in northwest Louisiana. Production taxes per Mcfe increased due to higher natural gas and oil sales prices in the 2008 period. The company pays production taxes based on sales prices before the impact of hedges.
Questar E&P exploration expense increased $1.5 million or 75% in the first quarter of 2008 compared to 2007. Abandonment and impairment expense increased $0.6 million, or 30% in 2008 compared to 2007.
Major Questar E&P Operating Areas
Pinedale Anticline
As of March 31, 2008, Market Resources (including both Questar E&P and Wexpro) operated and had working interests in 250 producing wells on the Pinedale Anticline compared to 195 at the end of the first quarter of 2007. Of the 250 producing wells,
Questar 2008 Form 10-Q
Questar E&P has working interests in 228 wells, overriding royalty interests in an additional 21 Wexpro-operated wells, and no interest in one well operated by Wexpro. Wexpro has working interests in 71 of the 250 producing wells.
In 2005, the Wyoming Oil and Gas Conservation Commission (WOGCC) approved 10-acre-density drilling for Lance Pool wells on about 12,700 acres of Market Resources 18,208-acre (gross) Pinedale leasehold. The area approved for increased density corresponds to the currently estimated productive limits of Market Resources core acreage in the field. At December 31, 2007, Questar E&P had booked 355 proved undeveloped locations on a combination of 10- and 20-acre density and reported estimated net proved reserves at Pinedale of 1,033.9 Bcfe, or 55% of Questar E&P total proved reserves. The company is evaluating the economic potential of development on five-acre density at Pinedale. In January 2008, the WOGCC approved five-acre-density drilling for Lance Pool wells on about 4,200 gross acres of Market Resources Pinedale leasehold. If five-acre-density development is appropriate for a majority of its leasehold, the company currently estimates up to 1,600 additional wells will be required to fully develop the Lance Pool on its acreage.
Uinta Basin
As of March 31, 2008, Questar E&P had an operating interest in 872 producing wells in the Uinta Basin of eastern Utah, compared to 828 at March 31, 2007. At December 31, 2007, Questar E&P had booked 123 proved undeveloped locations and reported estimated net proved reserves in the Uinta Basin of 301.2 Bcfe or 16% of Questar E&P total proved reserves. Uinta Basin proved reserves are found in a series of vertically stacked, laterally discontinuous reservoirs at depths of 5,000 feet to deeper than 18,000 feet. Questar E&P owns interests in over 250,000 gross leasehold acres in the Uinta Basin.
Rockies Legacy
The remainder of Questar E&P Rocky Mountain region leasehold interests, productive wells and proved reserves are distributed over a number of fields and properties managed as the company Rockies Legacy division. Most of the properties are located in the Greater Green River Basin of western Wyoming. In aggregate, Rockies Legacy properties comprised 158.6 Bcfe or 9% of Questar E&P total proved reserves at December 31, 2007. Within the division, exploration and development activity is planned for 2008 within the San Juan, Paradox, Powder River, Green River, Vermillion and Williston Basins.
Midcontinent
Questar E&P Midcontinent properties are distributed over a large area, including the Anadarko Basin of Oklahoma and the Texas Panhandle, the Arkoma Basin of Oklahoma and western Arkansas, and the Ark-La-Tex region of Arkansas, Louisiana, and Texas. With the exception of the Elm Grove field in northwest Louisiana, and the Granite Wash play in the Texas Panhandle, Questar E&P Midcontinent leasehold interests are highly fragmented, with no significant concentration of property interests. In aggregate, Midcontinent properties comprised 373.9 Bcfe or 20% of Questar E&P total proved reserves at December 31, 2007.
Questar E&P continues a three-rig infill-development project in the Elm Grove field and as of March 31, 2008, had two additional rigs drilling on the recently acquired properties in northwest Louisiana. As of March 31, 2008, Questar E&P operated or had working interests in 293 producing wells in the Elm Grove field compared to 222 at March 31, 2007. At December 31, 2007, Questar E&P had 38 proved undeveloped locations and reported estimated net proved reserves at Elm Grove of 104.6 Bcfe, or 6% of the company total proved reserves.
Questar E&P completed the purchase of two natural gas development properties in
northwest Louisiana on February 29, 2008. The acquired properties added about
1.1 Bcfe of net production in March, 2008. In addition to 74 existing producing
wells, Questar E&P has identified up to 852 future development well locations
within the properties on a combination of 20-acre and 40-acre density.
Wexpro
Wexpro reported net income of $16.2 million, in the first quarter of 2008 compared to $13.9 in the 2007 quarter, a 17% increase. Wexpro results benefited from a higher average investment base compared to the prior-year period. Pursuant to the Wexpro Agreement, Wexpro recovers its costs and receives an unlevered after-tax return of approximately 19% to 20% on its investment in commercial wells and related facilities - adjusted for working capital and reduced for deferred income taxes and depreciation (investment base). The Wexpro investment base at March 31, 2008, was $314.5 million, an increase of $51.1 million or 19% since March 31, 2007.
MIDSTREAM FIELD SERVICES - Questar Gas Management
Following is a summary of Gas Management financial and operating results:
Questar 2008 Form 10-Q
16
3 Months Ended March 31,
2008 2007 Change
(in millions)
Operating Income
Revenues
Gathering $35.2 $27.6 $ 7.6
Processing 33.7 20.7 13.0
Total revenues 68.9 48.3 20.6
Operating expenses
Operating and maintenance 24.1 21.8 2.3
General and administrative 5.1 3.1 2.0
Production and other taxes 0.3 0.3
Depreciation, depletion and amortization 6.3 4.3 2.0
Total operating expenses 35.8 29.5 6.3
Operating income $33.1 $18.8 $14.3
Operating Statistics
Natural gas processing volumes
NGL sales (MMgal) 21.4 17.8 3.6
NGL sales price (per gal) $1.21 $0.88 $0.33
Fee-based processing volumes (in millions of MMBtu)
For unaffiliated customers 24.7 8.6 16.1
For affiliated customers 25.5 22.0 3.5
Total fee-based processing volumes 50.2 30.6 19.6
Fee-based processing (per MMBtu) $0.14 $0.15 ($0.01)
Natural gas gathering volumes (in millions of MMBtu)
For unaffiliated customers 51.3 39.6 11.7
For affiliated customers 37.3 37.5 (0.2)
Total gas gathering volumes 88.6 77.1 11.5
Gas gathering revenue (per MMBtu) $0.32 $0.30 $0.02
|
Gas Management, which provides gas-gathering and processing-services, grew net income 49% to $18.5 million in the first three months of 2008 compared to $12.4 million in the same period of 2007. Net income growth was driven by higher gathering and processing margins.
Total gathering margins (revenues minus direct gathering expenses) increased 61% to $27.0 million compared to $16.8 million in 2007. Gathering volumes increased 11.5 million MMBtu, or 15% to 88.6 million MMBtu in 2008. Affiliate Rendezvous Gas Services was consolidated during the first quarter of 2008 and contributed 9.1 million MMBtu of the increased volumes. Rendezvous Gas Services provides gas gathering services for the Pinedale and Jonah producing areas. Expanding Pinedale production and new projects serving third parties in the Uinta Basin and the consolidation of Rendezvous Gas Services contributed to a 30% increase in third-party volumes.
Total processing margins (revenues minus direct plant expenses and processing plant-shrink) increased 83% to $17.8 million compared to $9.7 million in 2007. Fee-based gas processing volumes were 50.2 million MMBtu in the first quarter of 2008, a 64% increase compared to the 2007 period. Fee-based gas processing revenues increased 52%, or $2.4 million, while gross margin from keep-whole processing increased 82% or $5.5 million in the 2008 period. Approximately 78% of Gas Management net operating revenue (revenue minus processing plant-shrink) is derived from fee-based contracts, down from 83% in the 2007 period. Gas Management uses forward sales contracts to further reduce margin volatility associated with keep-whole contracts. Forward sales contracts decreased NGL revenues by $1.4 million in 2008 and increased NGL revenues by $1.3 million in 2007.
Questar 2008 Form 10-Q
ENERGY MARKETING - Questar Energy Trading
Energy Trading grew net income 35% to $8.1 million, driven primarily by increased trading and storage margins related to gas price volatility in the Rockies. Gross marketing margin (gross revenues less costs for gas and oil purchases, transportation and gas storage), totaled $12.0 million for 2008 compared to $8.9 million a year ago. Energy Trading reported unaffiliated revenues of $239.1 million in the first quarter of 2008 compared with $153.6 million in 2007, a 56% increase primarily resulting from higher regional-market prices for natural gas. The weighted-average natural gas sales price increased 27% in 2008 to $7.04 per MMBtu, compared to $5.56 per MMBtu for the 2007 period.
INTERSTATE GAS TRANSPORTATION - Questar Pipeline
Questar Pipeline, which provides interstate natural gas-transportation and storage services, reported first quarter 2008 net income of $15.9 million compared with $11.2 million in 2007, a 42% increase. Operating income increased $8.7 million, or 37%, in the first quarter 2008-to-2007 comparison due primarily to transportation-system expansions that were completed in the fourth quarter of 2007. Following is a summary of Questar Pipeline financial and operating results:
3 Months Ended March 31,
2008 2007 Change
(in millions)
Operating Income
Revenues
Transportation $44.2 $30.9 $13.3
Storage 9.6 9.6
Gas processing 1.7 2.0 (0.3)
NGL sales 4.0 2.5 1.5
Energy services 3.5 4.7 (1.2)
Other 1.2 2.6 (1.4)
Total revenues 64.2 52.3 11.9
Operating expenses
Operating and maintenance 11.0 9.3 1.7
General and administrative 7.6 7.1 0.5
Depreciation and amortization 10.8 8.6 2.2
Cost of goods sold 0.2 1.6 (1.4)
Other taxes 2.2 2.2
Operating expenses 31.8 28.8 3.0
Net gain from asset sales 0.1 0.3 (0.2)
Operating income $32.5 $23.8 $ 8.7
Operating Statistics
Natural gas-transportation volumes (MMdth)
For unaffiliated customers 129.8 76.9 52.9
For Questar Gas 43.2 42.1 1.1
For other affiliated customers 0.9 4.7 (3.8)
Total transportation 173.9 123.7 50.2
Transportation revenue (per dth) $0.25 $0.25
Firm daily transportation demand at March 31, (Mdth) 3,169 2,233 936
Natural gas processing
NGL sales (MMgal) 2.5 2.5
NGL sales price (per gal) $1.61 $0.97 $0.64
|
Questar 2008 Form 10-Q
Revenues
Following is a summary of major changes in Questar Pipeline revenues for the
first quarter of 2008 compared with 2007:
Change in Revenue
2007 to 2008
(in millions)
Transportation
New capacity lease $ 7.3
New transportation contracts 4.9
Expired transportation contracts (1.2)
Other 2.3
Gas processing (0.3)
NGL sales 1.5
Energy services (1.2)
Other (1.4)
Increase $11.9
|
As of March 31, 2008, Questar Pipeline had firm-transportation contracts of 3,169 Mdth per day compared with 2,233 Mdth per day as of March 31, 2007. Questar Pipeline has expanded its transportation system in response to growing regional natural gas production and transportation demand. In November 2007, Questar Pipeline placed an expansion of its southern system in service. This increased daily demand by 175 Mdth and first quarter 2008 revenues by $4.1 million. In December 2007, Questar Overthrust Pipeline placed its expansion from Kanda to Wamsutter in service. This increased daily demand by 625 Mdth and first quarter 2008 revenues by $7.3 million. This expansion also increased the daily demand from Kanda to Opal by 125 Mdth and first quarter 2008 revenues by $0.6 million.
Questar Gas is Questar Pipeline's largest transportation customer with contracts for 901 Mdth per day. The majority of the Questar Gas transportation contracts extend through mid 2017.
Questar Pipeline owns and operates the Clay Basin underground storage complex in eastern Utah. This facility is 100% subscribed under long-term contracts. In addition to Clay Basin, Questar Pipeline also owns and operates three smaller aquifer gas storage facilities. Questar Gas has contracted for 26% of firm-storage capacity at Clay Basin for terms extending from one to 12 years and 100% of the firm-storage capacity at the aquifer facilities for terms extending for 11 years.
Questar Pipeline charges FERC-approved transportation and storage rates that are based on straight-fixed-variable rate design. Under this rate design, all fixed costs of providing service including depreciation and return on investment are recovered through the demand charge. About 95% of Questar Pipeline costs are fixed and recovered through these demand charges. Questar Pipeline's earnings are driven primarily by demand revenues from firm shippers. Since only about 5% of operating costs are recovered through volumetric charges, changes in transportation volumes do not have a significant impact on earnings.
NGL revenues increased 60% in the first quarter of 2008 over 2007 due to 66% higher prices.
Expenses
Operating and maintenance expenses increased by 18% to $11.0 million in the first quarter of 2008 compared to $9.3 million in the first quarter of 2007. The increase was a result of system expansions and higher labor and service costs. General and administrative expenses increased by 7% to $7.6 million in the first quarter of 2008. Operating, maintenance, general and administrative expenses per dth transported declined to $0.11 in the first quarter of 2008 compared with $0.13 in the first quarter of 2007 because transportation volumes increased 41%. Operating, maintenance, general and administrative expenses include processing and storage costs.
Depreciation expense increased 26% in the first quarter of 2008 compared to the first quarter of 2007 due to investment in pipeline expansions.
Sale of processing plant and gathering lines
During the first quarter of 2008, Questar Transportation Services, a subsidiary of Questar Pipeline, reached agreement to sell its carbon dioxide processing plant and some associated gathering facilities. The investment in these facilities of $20.0 million was classified as an asset held for sale. The transaction closed in April 2008 and resulted in a pre-tax gain of about $5 million.
Questar 2008 Form 10-Q
Salt Cavern Storage Project
Questar Pipeline has an investment of $11.5 million in a potential salt cavern storage project located in southwestern Wyoming. Questar Pipeline has been working with several other parties to update a prior evaluation of technical and economic feasibility of this project. If these parties determine that the project is feasible, they would have a right to participate in the project. If they determine that the project is not feasible, Questar Pipeline may sell or abandon the project and may impair this investment.
RETAIL GAS DISTRIBUTION - Questar Gas . . . |
|
|