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QEP Resources Inc. (QEP)
Q3 2010 Earnings Call Transcript
October 27, 2010 11:00 am ET
Richard Doleshek – EVP, CFO & Treasurer
Chuck Stanley – President & CEO
Jay Neese – EVP
David Heikkinen – Tudor Pickering
David Tameron – Wells Fargo Securities
Duane Grubert – Susquehanna Financial Group
Brian Singer – Goldman Sachs & Co.
Andrew Coleman – Madison Williams & Co.
Josh Silverstein – Highbridge Capital Management
Mahesh Jasti – Spin-Off Advisors
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Thank you. Mr. Richard Doleshek, you may begin your conference.
Thank you, operator. Good morning, everyone. This is Richard Doleshek, QEP Resources Chief Financial Officer. I want to thank you for joining us today for the QEP Resources Third Quarter Results Conference Call.
With me today are Chuck Stanley, President and Chief Executive Officer; Jay Neese, Executive Vice President and Head of our E&P Operations; and Scott Gutberlet, Director of Investor Relations.
As you all know, the third quarter was our first quarter as a standalone company having being spun-off Questar Corporation on June 30th and I don’t think we missed a beat with regard to our operating performance.
In terms of our third quarter results, we provided an operations update for E&P and Midstream businesses on Monday and we issued our earnings release yesterday.
In our operations update, we reported third quarter 2010 production of 61.7 Bcfe, 54% of which came from our Midcontinent divisions. We updated development activities in our core areas and we raised 2010 production guidance to a range 225 to 227 Bcfe. Yesterday, in our earnings release, we reported third quarter and nine month 2010 results and updated our 2010 guidance.
To remind everyone, in conjunction with our spin-off from Questar, we distributed Wexpro Company to Questar, and accordingly, we have recasted our historical results to treat Wexpro’s results as discontinued operations. Therefore, QEP’s reported period-to-period results are comparable to each other and we will be happy to provide additional information about this during Q&A.
In today’s conference call, we will use non-GAAP measure, EBITDA, which is defined in our earnings release. In addition, we’ll be making numerous forward-looking statements and we remind everyone that our actual results could differ from our estimates for a variety of reasons many of which are beyond our control.
Turning to our third quarter results, the story was double-digit production growth offset by slightly weaker net realized prices. Excluding costs associated with the separation including early debt retirement expense, our third quarter EBITDA was $297 million, which was up 8% or $21 million from the second quarter of 2010 and up $12 million from the third quarter of 2009.
QEP Energy, our E&P business, contributed $246 million or 83% of our aggregate third quarter EBIDTA and QEP Field Services our gathering and processing business, contributed $49 million or about 16% of our total EBITDA which is slightly down from its contribution in the second quarter of this year.
For the first nine months of the year, our EBITDA was $842 million, which was up about $2 million from a year ago in spite of net realized natural gas prices that were 27% lower in 2010.
QEP Energy’s contribution was $684 million, which was $30 million or roughly 4% lower than the first nine months of 2009; however, QEP Field Services contribution was $152 million which was about $38 million or 33% higher than the first nine months of 2009.
The items driving our EBITDA included QEP Energy’s daily production, which averaged 670 million cubic feet equivalent day in the quarter and was 40% higher than the 590 million cubic feet equivalent per day average in the second quarter 2010 and 41% higher than the 476 million cubic feet equivalent day average in the third quarter of 2009, which did include some price-related curtailments.
QEP Energy’s net realized equivalent price, which includes the settlement of all of our commodity derivatives, averaged $5.10 per Mcfe in the quarter, which was 5% lower than the $5.35 per Mcfe realized in the second quarter of 2010 and 24% lower than the $6.70 per Mcfe realized in third quarter of 2009.
QEP Energy’s commodity derivatives portfolio contributed $68 million of EBITDA in the quarter, which was the same as in the second quarter of 2010 compared to $156 million in the third quarter of 2009.
The derivatives portfolio added $1.11 per Mcfe to QEP Energy’s net realized price in the third quarter compared to $1.27 per Mcfe in the second quarter of 2010 and $3.56 per Mcfe in the third quarter of 2009.
QEP Energy’s combined operating and production tax expenses were $52 million in the quarter compared to $47 million in the second quarter of 2010 and $49 million in the second quarter of 2009.
While the absolute expenses increased in the third quarter, the per unit cost declined to $0.84 per Mcfe in the quarter compared to $0.88 per Mcfe in the second quarter of 2010 and $0.91 per Mcfe in the third quarter of 2009.
Finally, QEP Field Services EBITDA were 6% lower in the third quarter compared to the second quarter of 2010, but 4% higher than the third quarter of 2009. Gathering margins were essentially flat to second quarter, but up 16% from the third quarter of 2009.
Gas gathering volumes were up 11% from the second quarter at about 1.38 Bcf per day and above 32% from the third quarter 2009 benefiting from increased volumes in Northwest Louisiana and in Pinedale. Processing margins were down 14% from both the second quarter of 2010 and third quarter of 2009 due to increased shrinkage cost and NGL prices that were $0.08 per gallon lower in the second quarter of 2010 and NGL sales volumes that were $0.06 lower than the second quarter.
Net income from continuing operations for the third quarter of the year was $71 million, up 3% from the second quarter of 2010, driven by EBITDA which was $21 million higher than the third quarter and $11 million gain on asset sales, but offset by separation in early debt retirement cost associated to spin-off and higher non-cash charges including DD&A expense.
Net income from continuing operations was flat with the third quarter of 2009 on $12 million higher EBITDA and a positive $39 million swing in unrealized gains and losses on our basis-only swaps, offset by DD&A expense that was $38 million higher.