Questar Corporation (STR)

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Questar (STR)

Q3 2013 Earnings Call

October 31, 2013 9:30 am ET

Executives

Kevin W. Hadlock - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Ronald W. Jibson - Chairman, Chief Executive Officer, President, Chief Executive Officer of Questar Gas Company, Chief Executive Officer of Wexpro, President of Questar Gas Company and President of Wexpro

R. Allan Bradley - Executive Vice President, Chief Executive Officer Questar Pipeline and President of Questar Pipeline

James R. Livsey - Executive Vice President and Chief Operating Officer of Wexpro

Analysts

Danilo Juvane

Presentation

Operator

Good morning. My name is Nishay, and I will be your conference operator today. At this time I would like to welcome everyone to the Questar Third Quarter 2013 Earnings Release Conference call. [Operator Instructions]

Mr. Kevin Hadlock, you may begin your conference.

Kevin W. Hadlock

Thank you Nishay. Good morning, everyone, and thank you for joining us for Questar's Third Quarter 2013 Earnings Conference Call.

I am Kevin Hadlock, Questar's Chief Financial Officer. With me today are Ron Jibson, Chairman, President and CEO of Questar Corporation; Jim Livsey, Executive Vice President and COO of Wexpro; Allan Bradley, President and CEO of Questar Pipeline; and Craig Wagstaff, Executive Vice President and COO of Questar Gas.

During this call, we'll be referencing our third quarter earnings presentation that can be found on our website at www.questar.com.

Let's move to Slide 2. Before we begin, let me remind you that we will be making forward-looking statements during our call today and actual results could differ from our estimates for a variety of reasons that we described in our SEC filings. Also, this call references non-GAAP financial measures. Our slides in the appendix of the presentation provide reconciliations to these measures.

So let's begin our review of the third quarter on Slide 4. Yesterday, we reported third quarter 2013 adjusted earnings of $33.2 million, or $0.19 per diluted share, slightly below last year's third quarter net income of $33.8 million. Third quarter 2013 adjusted earnings excludes the impact of a $52.4 million noncash after-tax impairment for the eastern segment of Southern Trails Pipeline. Including this impairment charge, we reported a net loss of $19.2 million, or $0.11 per diluted share, for the third quarter of 2013.

Adjusted EBITDA was strong in the third quarter, totaling $112.6 million, an increase of about 3% compared to last year's third quarter. Despite inflationary cost pressures, combined OEM, and G&A expense was down $5 million or 8% compared to the third quarter of 2012. Capital investment for the first 9 months of 2013 was $394.1 million, including $106.7 million Wexpro acquisition in the Vermillion Basin.

Turning to Slide 5. All business units performed as expected in the third quarter of 2013. Consolidated adjusted earnings were down slightly, with adjusted earnings per share equal to last year's third quarter. Including the impairment for this eastern segment of Southern Trails, we reported a consolidated loss of $0.11 per diluted share compared to earnings of $0.19 per diluted share in the third quarter of 2012.

Let's go to Slide 6. Questar Gas, our local gas distribution utility, showed a $1.2 million increase in gross margin during the third quarter to $39.5 million. Adjusted EBITDA was higher by $400,000. Questar Gas recognized a seasonal net loss of $9 million, which improved by $300,000 compared to the same period last year. This improvement was due to higher recovery of infrastructure replacement investment and customer growth. Questar Gas' capital investment in the third quarter was $45.2 million, an increase of $10.3 million compared to the third quarter of 2012.

Moving to Slide 7. Wexpro, our national gas development and production company, grew adjusted EBITDA to $62.2 million, up $900,000 or about 1% compared to the same period last year. Net income was up $1.1 million to $27.5 million, an increase of 4% over the third quarter of 2012.

These results were driven largely by a higher 12-month average investment base, which increased $33.9 million, and higher oil revenues. Wexpro invested capital of $128.4 million in the third quarter, which includes Wexpro's acquisition in the Vermillion Basin.

Let's go to Slide 8. Revenue at Questar Pipeline, our interstate natural gas pipeline and storage business, was down $3.3 million in the third quarter, primarily due to lower revenues from natural gas liquids, lower transportation revenues on Southern Trails Pipeline and the impact of seasonal transportation contract revenues.

Questar Pipeline delivered adjusted earnings of $14.5 million, down $2.6 million versus the third quarter of 2012. Including the non-cash asset impairment on the eastern segment of Southern Trails Pipeline, Questar Pipeline reported a net loss of $37.9 million. Capital investment in the third quarter was $23.9 million, which was $7.6 million higher than the prior year.

Moving to Slide 9. With regard to costs, Questar's consolidated operating and maintenance costs in the third quarter were down $400,000 compared to the same period last year, due largely to lower employee-related expenses and lower demand-side management costs. General and administrative expenses were down $4.6 million, primarily due to lower employee-related costs. Production and other taxes were up $4.1 million, driven by higher gas prices at Wexpro and higher Questar Gas property taxes. Depreciation in the third quarter of 2013 was up $1.5 million, compared to the same period last year due to higher capital investment. Consolidated interest expense was down $600,000 due to the replacement of Questar Gas' debt at lower interest rates than in the third quarter of 2012.

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