Questar Corporation (STR)

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Questar Corp. (STR)

Q1 2010 Earnings Call

April 28, 2010; 9:30 am ET

Executives

Richard Doleshek - EVP & CFO

Keith Rattie - Chairman, President and CEO

Chuck Stanley - EVP, COO and Director

Analysts

Brian Singer - Goldman Sachs

Carl Kirst - BMO Capital

Gil Yang - Bank of America

Rebecca Followill - Tudor, Pickering, Holt

Ray Deacon - Pritchard Capital Partners

Vivek Pal - Knight Capital

Ross Payne - Wachovia Bank

Gil Yang - Banc of America

Presentation

Operator

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 first quarter 2010 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). Thank you.

I’ll now turn today’s conference over to Mr. Richard Doleshek. Please go ahead sir.

Richard Doleshek

Thank you, Stephanie. Good morning everyone. This is Richard Doleshek, Questar’s Chief Financial Officer. Thank you for joining us for Questar’s first quarter 2010 results conference call.

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

As you know it’s been a busy seven days for us. In addition, to issuing our earnings release yesterday, we issued an operations update for Questar Exploration Production Company on Monday and last Wednesday we announced that we are considering a spin-off of our E&P and midstream field services businesses.

Although the first quarter results are important and noteworthy, we will keep our comments about those results relatively brief and after my remarks Keith will give some more color on operating results and discuss those spin-off. On Monday Questar E&P reported first quarter 2010 production at 51.5 Bcfe, 51% of which came from our Midcontinent positions. We updated development activity in our core operating areas and we raised 2010 production guidance by 2 Bcfe to a range of 210 to 217 Bcfe.

Yesterday we issued our earning releases in which we reported first quarter 2010 results and raised our 2010 EBITDA guidance by $30 million. We will discuss these items today and invite your 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 from our estimates for a variety of reasons. With regard to our first quarter results all of our business units with the exception of Questar E&P generated record financial results and in total contributed 50% of our aggregate EBITDA.

Questar E&P’s results reflect the impact of realized natural gas prices that were 25% lower than a year ago. Our first quarter EBITDA was $433 million, which was down $33 million from the fourth quarter of 2009, but down only $2 million from the first quarter of 2009.

The rest of Questar were the businesses other than Questar E&P generate $218 million in EBITDA in the quarter compared to $190 million in the fourth quarter of ‘09 and $193 million in the first quarter of ‘09.

Remember that Questar Gas which contributed $70 million of EBITDA in the period generates half about half of its annual EBITDA in the first quarter of each year. Other factors driving our EBITDA include Questar E&P’s production which averaged 572 million cubic feet equivalent per day in the quarter compared to 602 million cubic feet equivalent per day in the fourth quarter of 2009 and 521 million cubic feet equivalent per day the first quarter of ‘09.

Questar E&P field level prices averaged 534 per Mcfe in the quarter compared to 415 per Mcfe in the fourth quarter of 2009 and 352 per Mcfe in the first quarter ‘09. And our commodity business portfolio [collected] $9 million of EBITDA in the quarter compared to a $110 million in the fourth quarter of ‘09 and $141 million in the first quarter of ‘09.

The commodities portfolio added $0.17 per Mcfe to Questar E&P’s net realized price in 2010 compared to a $1.99 per Mcfe in the fourth quarter and $3.01 in the first quarter of ‘09. Finally combined operating, maintenance and production tax expenses were $141 million in the quarter compared to a $136 million in the fourth quarter of ‘09 and $129 million in the first quarter of 09.

The relatively higher first quarter 2010 expenses is primarily a result of higher production taxes at Questar E&P driven by higher field level prices. Consolidated net income to the first quarter of the year was $150 million sequentially flat with the fourth quarter of ‘09 driven by EBITDA that was $33 million [low] in the first quarter, but partially offset by lower DD&A expense.

Net income was $83 million higher than the first quarter of ‘09 on essentially flat EBITDA due to non-cash items including DD&A expense that was $25 million higher and out provision for income taxes that was $49 million higher in 2010, offset by a $169 million swing in unrealized gains and losses on basis only swaps before income tax.

We’ve had some questions about our unrealized gains and losses since we released our earnings yesterday and we’d be happy to discuss those during Q&A. For the first quarter 2010 we reported capital expenditure on an accrual basis of $325 million compared to $536 million in the fourth quarter of ‘09 and $263 million in the first quarter of ‘09.

Questar market resources $291 million in the quarter compared to $467 million in the fourth quarter of ‘09 and $242 million in the first quarter of ‘09. Questar Pipeline and Questar Gas in combination spend $34 million in the quarter compared to $69 million in the fourth quarter of ‘09 and $21 million in the first quarter of ‘09.

In summary we had a solid quarter with record financials results in four of our five business units. Net realized commodities prices at QEP were down 10% from last quarter and down 16% from a year ago and Questar E&P’s direct production was down only 5% in the fourth quarter as results of our normal practice of suspending completion activities in the Rockies in the winter, but up 10% from a year ago driven by growth from our Midcontinent divisions.

Our balance sheet remains strong and we’ve approximately $900 million available under committed credit lines, we have plenty of liquidity to execute our capital plan in 2010.

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