Add
STR to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| STR > SEC Filings for STR > Form 10-K on 27-Feb-2009 | All Recent SEC Filings |
27-Feb-2009
Annual Report
RESULTS OF OPERATION
Following are comparisons of net income by line of business:
Year Ended December 31, Change
2008 2007 2006 2008 vs. 2007 2007 vs. 2006
(in millions, except per-share amounts)
Exploration and Production
Questar E&P $408.0 $285.5 $253.9 $122.5 $31.6
Wexpro 73.9 59.2 50.0 14.7 9.2
Midstream Field Services - Gas
Management 81.5 55.3 42.6 26.2 12.7
Energy Marketing - Energy
Trading, and other 22.1 20.8 9.6 1.3 11.2
Market Resources Total 585.5 420.8 356.1 164.7 64.7
Interstate Gas Transportation -
Questar Pipeline 58.0 45.0 45.4 13.0 (0.4)
Retail Gas Distribution - Questar
Gas 40.2 37.4 37.0 2.8 0.4
Corporate 0.1 4.2 5.6 (4.1) (1.4)
Net Income $683.8 $507.4 $444.1 $176.4 $63.3
Earnings per share - diluted $ 3.88 $ 2.88 $ 2.54 $ 1.00 $0.34
Average diluted shares 176.1 175.9 175.2 0.2 0.7
|
QUESTAR 2008 FORM 10-K
EXPLORATION AND PRODUCTION
Questar E&P
Following is a summary of Questar E&P financial and operating results:
Year Ended December 31, Change
2008 2007 2006 2008 vs. 2007 2007 vs. 2006
Operating Income REVENUES Natural gas sales $1,147.7 $786.9 $681.6 $360.8 $105.3 Oil and NGL sales 237.5 164.2 128.6 73.3 35.6 Other 6.9 4.9 5.5 2.0 (0.6) Total Revenues 1,392.1 956.0 815.7 436.1 140.3 OPERATING EXPENSES Operating and maintenance 125.4 87.9 73.6 37.5 14.3 General and administrative 55.8 56.3 42.4 (0.5) 13.9 Production and other taxes 104.0 60.1 58.3 43.9 1.8 Depreciation, depletion and amortization 330.9 243.5 185.7 87.4 57.8 Exploration 29.3 22.0 34.4 7.3 (12.4) Abandonment and impairment 44.6 10.8 7.6 33.8 3.2 Natural gas purchases 0.5 2.2 2.8 (1.7) (0.6) Total Operating Expenses 690.5 482.8 404.8 207.7 78.0 Net gain (loss) from asset sales 60.4 (0.6) 24.3 61.0 (24.9) Operating Income $ 762.0 $472.6 $435.2 $289.4 $ 37.4 Operating Statistics Production Volumes Natural gas (Bcf) 151.9 121.9 113.9 30.0 8.0 Oil and NGL (MMbbl) 3.3 3.0 2.6 0.3 0.4 Total production (Bcfe) 171.4 140.2 129.6 31.2 10.6 Average daily production (MMcfe) 468.3 384.1 355.2 84.2 28.9 Average realized price, net to the well (including hedges) Natural gas (per Mcf) $ 7.56 $ 6.45 $ 5.98 $ 1.11 $ 0.47 Oil and NGL (per bbl) 72.96 53.99 49.12 18.97 4.87 |
Questar E&P reported net income of $408.0 million in 2008, up 43% from $285.5 million in 2007 and $253.9 million in 2006. Higher realized natural gas, crude oil and NGL prices and growing production more than offset a 17% increase in 2008 average production costs. Net mark-to-market losses on natural gas basis-only hedges decreased pre-tax income $79.2 million in 2008 compared to net pre-tax gains of $5.7 million a year-earlier. Net gains from sales of assets at Questar E&P increased pre-tax income $60.4 million in 2008 compared to a net pre-tax loss of $0.6 million in the year-earlier period.
Questar E&P production volumes totaled 171.4 Bcfe in 2008 compared to 140.2 Bcfe in 2007 and 129.6 Bcfe in 2006. On an energy-equivalent basis, natural gas comprised approximately 89% of Questar E&P 2008 production. A comparison of natural gas-equivalent production by major operating area is shown in the following table:
QUESTAR 2008 FORM 10-K
24
Year Ended December 31, Change
2008 2007 2006 2008 vs. 2007 2007 vs. 2006
(in Bcfe)
Pinedale Anticline 56.8 47.4 39.5 9.4 7.9
Uinta Basin 26.9 25.4 25.1 1.5 0.3
Rockies Legacy 19.9 16.4 18.3 3.5 (1.9)
Rocky Mountain total(a) 103.6 89.2 82.9 14.4 6.3
Midcontinent 67.8 51.0 46.7 16.8 4.3
Total Questar E&P 171.4 140.2 129.6 31.2 10.6
|
(a)Questar E&P temporarily shut in approximately 1.4 Bcfe of net production in 2008 and 10.3 Bcfe in 2007 in the Rocky Mountain region in response to low natural gas prices.
Questar E&P net production from the Pinedale Anticline in western Wyoming grew 20% to 56.8 Bcfe in 2008 as a result of ongoing development drilling. Historically, Pinedale seasonal access restrictions imposed by the Bureau of Land Management have limited the ability to drill and complete wells during the mid-November to early May period. In September 2008, the BLM issued a Record of Decision (ROD) on the Final Supplemental Environmental Impact Statement for long-term development of natural gas resources in the Pinedale Anticline Project Area (PAPA). Under the ROD, Questar E&P and Wexpro will be allowed to drill and complete wells year-round in one of the five Concentrated Development Areas defined in the PAPA. The ROD contains additional requirements and restrictions on development of the PAPA.
In the Uinta Basin, Questar E&P's net production grew 6% to 26.9 Bcfe in 2008. Production volumes were adversely impacted by connection of new, deep, high-pressure wells to the existing gathering infrastructure. Connection of the new deep wells resulted in high gathering-system pressure that negatively impacted production from existing shallower and lower pressure Wasatch/Mesaverde wells. Gathering infrastructure improvements are underway to address the situation, but right-of-way permitting issues could delay installation until mid 2009.
Rockies Legacy net production in 2008 grew 21% to 19.9 Bcfe, 3.5 Bcfe higher than the year-ago period. Increased production volumes were driven by new wells and the acquisition of additional interests in the Wamsutter area of the Green River Basin in Wyoming, and increased production from outside-operated oil wells in the Williston Basin in North Dakota. Questar E&P Rockies Legacy properties include all Rocky Mountain region properties except the Pinedale Anticline and the Uinta Basin.
Net production in the Midcontinent grew 33% to 67.8 Bcfe in 2008, 16.8 Bcfe higher than 2007. Midcontinent production growth was driven by the first quarter 2008 acquisition of new natural gas development properties in northwest Louisiana, ongoing infill-development drilling in the Elm Grove field in northwest Louisiana, continued development of the Granite Wash/Atoka/Morrow play in the Texas Panhandle, and production from new outside-operated Woodford Shale horizontal gas wells in the Anadarko Basin in central Oklahoma.
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 $7.56 per Mcf compared to $6.45 per Mcf in 2007, a 17% increase. Realized oil and NGL prices in 2008 averaged $72.96 per bbl, compared with $53.99 per bbl during the prior year, a 35% increase. A regional comparison of average realized prices, including hedges, is shown in the following table:
Year Ended December 31, Change
2008 2007 2006 2008 vs. 2007 2007 vs. 2006
Natural gas (per Mcf)
Rocky Mountains $6.85 $5.90 $5.70 $0.95 $0.20
Midcontinent 8.63 7.42 6.46 1.21 0.96
Volume-weighted average 7.56 6.45 5.98 1.11 0.47
Oil and NGL (per bbl)
Rocky Mountains $73.05 $53.51 $46.62 $19.54 $6.89
Midcontinent 72.82 54.85 54.93 17.97 (0.08)
Volume-weighted average 72.96 53.99 49.12 18.97 4.87
|
QUESTAR 2008 FORM 10-K
Questar E&P 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. Also, Questar E&P may use 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. Questar E&P hedged or pre-sold approximately 82% of gas production in 2008 and hedged or pre-sold 75% of gas production in 2007. Hedging increased Questar E&P gas revenues by $125.8 million in 2008 and increased revenues $245.7 million 2007. Approximately 50% of 2008 and 61% of 2007 Questar E&P oil production was hedged or pre-sold. Oil hedges reduced oil revenues by $31.9 million in 2008 and $17.2 million in 2007. The net mark-to-market effect of basis-only swaps is reported in the Consolidated Statements of Income below operating income. Derivative positions as of December 31, 2008, are summarized in Item 7A of Part II in this Annual Report on Form 10-K.
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 $3.94 per Mcfe in 2008 versus $3.38 per Mcfe in 2007. Questar E&P production costs are summarized in the following table:
Year Ended December 31, Change
2008 2007 2006 2008 vs. 2007 2007 vs. 2006
(per Mcfe)
Depreciation, depletion and
amortization $1.93 $1.74 $1.43 $0.19 $0.31
Lease operating expense 0.73 0.63 0.57 0.10 0.06
General and administrative
expense 0.33 0.40 0.33 (0.07) 0.07
Allocated-interest expense 0.34 0.18 0.21 0.16 (0.03)
Production taxes 0.61 0.43 0.45 0.18 (0.02)
Total Production Costs $3.94 $3.38 $2.99 $0.56 $0.39
|
Production volume-weighted average depreciation, depletion and amortization per Mcfe (DD&A rate) increased due to higher costs for drilling, completion and related services, increased 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 recently acquired, higher-cost fields in the Midcontinent. Lease operating expense per Mcfe increased due to higher costs of materials and consumables, increased produced-water disposal costs and increased well-workover activity. General and administrative expense per Mcfe decreased as a result of increased production. Allocated interest expense per Mcfe of production increased primarily due to financing costs related to the first quarter 2008 acquisition of natural gas development properties in northwest Louisiana. Production taxes per Mcfe increased in 2008 as the result higher natural gas and oil sales prices. The company pays production taxes based on a percentage of sales prices excluding the impact of hedges.
Questar E&P exploration expense increased $7.3 million or 33% in 2008 compared to 2007. Abandonment and impairment expense increased $33.8 million or 313% in 2008 compared to 2007. Abandonment and impairment expense increased $29.9 million in the fourth quarter of 2008 compared with the same period of 2007. Lower year-end 2008 gas and oil prices triggered impairment testing of long-lived assets. Future cash flows using estimated forward-looking commodity prices were sufficient to recover the investment of a majority of the long-lived assets. A combination of poor production performance, higher production costs and negative reserve revisions resulted in the impairment of certain gas and oil assets in 2008.
In the third quarter of 2008, Questar E&P sold certain outside-operated producing properties and leaseholds in the Gulf Coast region of south Texas and recognized a pre-tax gain of approximately $61.2 million. These properties contributed 2.8 Bcfe to Questar E&P net production in 2008. In 2006, Questar E&P sold certain proved reserves and undeveloped leasehold interests in western Colorado and recognized a pre-tax gain of $22.7 million.
Major Questar E&P Operating Areas
Pinedale Anticline
As of December 31, 2008, Market Resources (including both Questar E&P and Wexpro) operated and had working interests in 331 producing wells on the Pinedale Anticline compared to 250 at December 31, 2007. Of the 331 producing wells, Questar E&P has working interests in 309 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 107 of the 331 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 17,872-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, 2008,
QUESTAR 2008 FORM 10-K
Questar E&P had booked 400 proved undeveloped locations on a combination of 5-, 10- and 20-acre density and reported estimated net proved reserves at Pinedale of 1,164.9 Bcfe, or 53% of Questar E&P total proved reserves. The Company continues to evaluate 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 1,500 additional wells will be required to fully develop the Lance Pool on its acreage.
Uinta Basin
As of December 31, 2008, Questar E&P had an operating interest in 909 gross producing wells in the Uinta Basin of eastern Utah, compared to 857 at December 31, 2007. At December 31, 2008, Questar E&P had booked 114 proved undeveloped locations and reported estimated net proved reserves in the Uinta Basin of 258.8 Bcfe or 12% of Questar E&P total proved reserves. Uinta Basin reserves declined 14% due to lower year-end 2008 gas and oil prices and a price-related slow down in development drilling. 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 252,000 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 163.6 Bcfe or 7% of Questar E&P total proved reserves at December 31, 2008. Exploration and development activity for 2008 includes wells in 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 northwest Louisiana, the Granite Wash play in the Texas Panhandle and the emerging Woodford Shale play in western Oklahoma, Questar E&P Midcontinent leasehold interests are fragmented, with no significant concentration of property interests. In aggregate, Midcontinent properties comprised 630.8 Bcfe or 28% of Questar E&P total proved reserves at December 31, 2008.
Questar E&P has approximately 31,000 net acres of Haynesville Shale lease rights in northwest Louisiana. The depth of the top of the Haynesville Shale ranges from approximately 10,500 feet to 12,500 feet across Questar E&P's leasehold and is below the Hosston and Cotton Valley formations that Questar E&P has been developing in northwest Louisiana for over a decade. Questar E&P continues infill-development drilling in the Cotton Valley and Hosston formations in northwest Louisiana and intends to drill or participate in up to 35 horizontal Haynesville Shale wells in 2009. As of December 31, 2008, Questar E&P had 11 operated rigs drilling in the project area and operated or had working interests in 539 producing wells in northwest Louisiana compared to 463 at December 31, 2007.
Wexpro
Wexpro reported net income of $73.9 million in 2008 compared to $59.2 million in 2007, a 25% increase and $50.0 million in 2006. Wexpro 2008 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 19-20% on its investment base. Wexpro's investment base is its investment in commercial wells and related facilities adjusted for working capital and reduced for deferred income taxes and depreciation. Wexpro's investment base totaled $410.6 million at December 31, 2008, an increase of $110.2 million or 37% since December 31, 2007. Wexpro produced 46.1 Bcf of cost-of-service gas in 2008.
MIDSTREAM FIELD SERVICES - Questar Gas Management
Following is a summary of Gas Management financial and operating results:
Year Ended December 31, Change
2008 2007 2006 2008 vs. 2007 2007 vs. 2006
Operating Income REVENUES Gathering $153.2 $111.4 $ 89.2 $ 41.8 $ 22.2 Processing 137.0 94.9 94.7 42.1 0.2 Total Revenues 290.2 206.3 183.9 83.9 22.4 |
QUESTAR 2008 FORM 10-K
OPERATING EXPENSES Operating and maintenance 95.0 83.6 92.4 11.4 (8.8) General and administrative 23.7 17.2 12.2 6.5 5.0 Production and other taxes 2.6 1.4 0.6 1.2 0.8 Depreciation, depletion and amortization 28.7 19.1 15.3 9.6 3.8 Abandonment and impairments 0.8 0.4 0.4 0.4 Total Operating Expenses 150.8 121.7 120.5 29.1 1.2 Net gain from asset sales 1.0 (1.0) Operating Income $139.4 $ 84.6 $ 64.4 $ 54.8 $ 20.2 Operating Statistics Natural gas gathering volumes (in millions of MMBtu) For unaffiliated customers 224.0 162.1 124.1 61.9 38.0 For affiliated customers 168.5 128.1 150.0 40.4 (21.9) Total Gas Gathering Volumes 392.5 290.2 274.1 102.3 16.1 Gas gathering revenue (per MMBtu) $0.31 $0.32 $0.29 ($0.01) $0.03 Natural gas processing volumes NGL sales (MMgal) 89.5 76.5 88.1 13.0 (11.6) NGL sales price (per gal) $1.18 $0.98 $0.88 0.20 0.10 Fee-based processing volumes (in millions of MMBtu) For unaffiliated customers 87.4 44.1 37.5 43.3 6.6 For affiliated customers 114.1 82.5 82.9 31.6 (0.4) Total Fee Based Processing Volumes 201.5 126.6 120.4 74.9 6.2 Fee-based processing (per MMBtu) $0.14 $0.15 $0.14 ($0.01) $0.01 |
Gas Management grew net income 47% to $81.5 million in 2008 compared to $55.3 million in 2007 and $42.6 million in 2006. Net income growth was driven by higher gathering and processing margins.
Total gathering margins (revenues minus direct gathering expenses) in 2008 increased 74% to $116.9 million compared to $67.1 million in 2007. Expanding Pinedale production, new projects serving third parties in the Uinta Basin and the consolidation of Rendezvous contributed to a 38% increase in third-party volumes in 2008. Gathering volumes increased 102.3 million MMBtu, or 35% to 392.5 million MMBtu in 2008. Rendezvous, formerly an unconsolidated affiliate, was consolidated with Gas Management beginning in 2008 and accounted for 39.0 million MMBtu. Rendezvous provides gas gathering services for the Pinedale and Jonah producing areas of Wyoming.
Total processing margins (revenues minus direct plant expenses and processing plant-shrink) in 2008 increased 41% to $78.1 million compared to $55.4 million in 2007. Fee-based gas processing volumes were 201.5 million MMBtu in 2008, a 59% increase compared to 2007. In 2008, fee-based gas processing revenues increased 57% or $10.6 million, while the frac spread from keep-whole processing increased 28% or $12.4 million. Approximately 76% of Gas Management's net operating revenue (revenue minus processing plant-shrink) in 2008 was derived from fee-based contracts, up from 74% in 2007.
Gas Management may use forward sales contracts to reduce margin volatility associated with keep-whole contracts. Forward sales contracts reduced NGL revenues by $1.4 million in 2008 and $5.9 million in 2007.
ENERGY MARKETING - Questar Energy Trading
Energy Trading net income was $22.1 million in 2008, an increase of 6% compared to 2007 net income of $20.8 million and 2006 net income of $9.6 million as a result of increased revenues from liquids produced and sold from Clear Creek gas-storage facility and higher total marketing fees. Revenues from unaffiliated customers were $608.1 million in 2008 compared to $504.4 million in 2007, a 21% increase, primarily the result of higher natural gas prices. The weighted-average natural gas sales price increased 51% in 2008 to $6.34 per MMBtu, compared to $4.21 per MMBtu in 2007.
QUESTAR 2008 FORM 10-K
INTERSTATE GAS TRANSPORTATION - Questar Pipeline
Questar Pipeline reported 2008 net income of $58.0 million compared with $45.0 million in 2007 and $45.4 million in 2006. Operating income increased $21.9 million, or 24%, in 2008 compared to 2007 due primarily to transportation-system expansions that were placed in service in late 2007. Following is a summary of Questar Pipeline financial and operating results:
Year Ended December 31, Change
2008 2007 2006 2008 vs. 2007 2007 vs. 2006
Operating Income REVENUES Transportation $172.4 $127.4 $119.9 $45.0 $ 7.5 Storage 37.6 37.6 37.6 NGL sales 14.4 8.5 11.0 5.9 (2.5) Energy services 15.3 16.0 16.1 (0.7) (0.1) Gas processing 4.6 8.7 6.3 (4.1) 2.4 Other 4.3 7.7 6.6 (3.4) 1.1 Total Revenues 248.6 205.9 197.5 42.7 8.4 OPERATING EXPENSES Operating and maintenance 43.5 37.7 33.4 5.8 4.3 General and administrative 30.4 31.3 25.3 (0.9) 6.0 Depreciation and amortization 42.7 35.0 32.3 7.7 2.7 Impairment 14.0 14.0 Other taxes 7.8 7.3 7.3 0.5 Cost of goods sold 1.8 4.0 4.8 (2.2) (0.8) Total Operating Expenses 140.2 115.3 103.1 24.9 12.2 Net gain from asset sales 4.5 0.4 0.4 4.1 Operating Income $112.9 $ 91.0 $ 94.8 $21.9 ($3.8) Operating Statistics Natural gas-transportation volumes (MMdth) For unaffiliated customers 608.1 352.3 320.4 255.8 31.9 For Questar Gas 120.9 113.8 116.7 7.1 (2.9) For other affiliated customers 9.2 16.0 26.3 (6.8) (10.3) Total Transportation 738.2 482.1 463.4 256.1 18.7 Transportation revenue (per dth) $0.23 $0.26 $0.26 ($0.03) Firm daily transportation demand at December 31, (including White River Hub of 1,005 Mdth in 2008) 4,155 3,112 2,152 1,043 960 Natural gas processing NGL sales (MMgal) 8.5 7.2 9.0 1.3 (1.8) NGL sales price (per gal) $1.70 $1.19 $1.22 $0.51 ($0.03) |
Revenues
Following is a summary of major changes in Questar Pipeline revenues for 2008 compared with 2007 and 2007 compared with 2006:
QUESTAR 2008 FORM 10-K
29
Change
2008 vs. 2007 2007 vs. 2006
(in millions)
Transportation
New transportation contracts $51.0 $ 9.4
Expiration of transportation contracts (8.5) (1.7)
Other 2.5 (0.2)
NGL sales 5.9 (2.5)
Energy services (0.7) (0.1)
Gas processing (4.1) 2.4
Other (3.4) 1.1
Increase $42.7 $ 8.4
|
As of December 31, 2008, Questar Pipeline had firm-transportation contracts of 4,155 Mdth per day, including 1,005 Mdth per day from Questar Pipeline's 50% ownership of White River Hub, compared with 3,112 Mdth per day as of December 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. The southern system expansion increased Questar Pipeline's 2008 firm-transport demand by 175 Mdth per day and revenues by $13.8 million compared to 2007. In . . .
|
|