Questar Corporation (STR)

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Questar Corp. (STR)

Q4 2009 Earnings Call

February 18, 2010 9:30 am ET


Richard Doleshek - Chief Financial Officer

Keith Rattie - Chairman, President & Chief Executive Officer

Chuck Stanley - Chief Operating Officer & President of Questar Market Resources

Alan Bradley - President of Questar Pipeline Company

Ron Jibson - President of Questar Gas Company

Sam Brothwell - Vice President, Investor Relations & Corporate Planning


Brian Singer - Goldman Sachs

Becca Followill - Tudor Pickering Holt

Robert Christensen - Buckingham Research

Tim Schneider - Citigroup



Good morning. My name is Stephanie and I will be your conference operator today. At this time, I would like to welcome everyone to the fourth quarter year end 2009 earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator Instructions)

I would now like to turn the conference over to Richard Doleshek, Chief Financial Officer; please go ahead sir.

Richard Doleshek

Thank you, Stephanie. Good morning everybody. This is Richard Doleshek, Questar’s Chief Financial Officer. We appreciate you joining us for Questar’s fourth quarter year end results 2009 conference call.

With me today are Keith Rattie, Questar’s Chairman, President and Chief Executive Officer; Chuck Stanley, Questar’s Chief Operating Officer and President of Questar Market Resources; Alan Bradley, President of Questar Pipeline Company; Ron Jibson, President of Questar Gas Company; and Sam Brothwell, Vice President of Investor Relations and Corporate Planning.

In addition, to issuing our earning release yesterday, on Tuesday we issued an operation update for Questar Exploration Production Company. We put a lot of information out there for your digest and are excited to talk to you about our financial and operating results and our year end reserves.

On Tuesday, QEP reported 2009 full year production of 189.5 Bcfe, which is a company record. We provided details about year end 2009 improved reserves which totaled 2.75 Tcfe, which is also a company record. We reported 2009 full year capital investment in QEP of $1.06 billion and affirmed 2010 production guidance in the range of 210 Bcfe to 215 Bcfe.

Yesterday we issued our earning release which we reported our results for the fourth quarter and full year 2009. We slightly lowered our 2010 EBITDA guidance to account for a lower commodity price forecast, and affirmed production and capital investment guidance for 2010. We will discuss these items today and take yours questions at the end of this call.

In today’s conference call, we will use a non-GAAP measure EBITDA which is defined in our earnings release. In addition we will be making numerous forward-looking statements and we remind everyone that our actual results could differ for a variety of reasons.

With regard to our financial performance, I would characterize our fourth quarter and full year 2009 financial results as noteworthy. Our fourth quarter EBITDA was $466 million, which was the second best quarter in the company’s history, only $200,000 lower in the high water mark set in the fourth quarter of 2008. EBITDA for 2009 was $1.64 billion, down to 7% from the record level of $1.76 billion in 2008, even though the natural gas prices in the field were less than half of what they were in 2008.

Factors driving Questar’s full year 2009 EBITDA were 11% increase in production compared to last year of 18 Bcfe. A 54% decline in C level prices on equivalent basis compared to last year, down from $7.53 per Mcfe to $3.49 per Mcfe. That price decline was offset by a $481 million increase in net proceeds from our commodity business portfolio and a 11% decline in combined operating maintenance and production tax expense compared to last year.

Consolidated net income for the fourth quarter in the year was $115 million sequentially, and $98 million from the third quarter, driven by EBITDA that was $92 million higher in the quarter, but offset by higher DD&A, income tax and interest expenses. Net income was $393 million for 2009 compared to $684 million in 2008.

Factors driving net income lower for the year, beside from significantly lower commodity prices were largely non-cash, including higher DD&A expense, a $164 million of mark-to-market losses before income tax on our basis only swaps, and $65 million of gains before income taxes on asset sales in 2008, offset by a provision for income taxes that was $156 million lower in 2009.

For 2009 we will report capital expenditures on the accrual basis of $1.4 billion down from $2.62 billion in 2008. With Questar market resources spending only $1.2 billion in 2009 compared to $2.4 billion in 2008, driven by reserve and leasehold acquisitions spending that was $548 million lower, exploration and development spend that was $317 million lower and spending in our gathering processing business that was $321 million lower than the amount spent in 2008.

Note that we set our 2010 budget at $1.58 billion. From a liquidity standpoint, Questar is in great shape. We have no long-term debt maturity until 2011 and as of the end of the year, which only typically is our peak commercial paper issuance to buy gas for the heating season at Questar Gas Company. We had $866 million available under committed credit lines.

In summary, we got through 2009 in good shape. Our commodity business, did what it was suppose to do, it inflated the company from the dramatic decline in prices. We throttled way back on capital spending to live within our cash flow and still delivered record production and proven reserves. Our balance sheet is strong and we have plenty of liquidity to execute our capital plan in 2010.

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