QEP Resources, Inc. (QEP)

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QEP Resources (QEP)

Q4 2010 Earnings Call

February 24, 2011 11:00 am ET

Executives

Richard Doleshek - Chief Financial Officer, Executive Vice President and Treasurer

Charles Stanley - Chief Executive Officer, President and Director

Jay Neese - Executive Vice President

Analysts

Brian Singer - Goldman Sachs Group Inc.

David Tameron - Wells Fargo Securities, LLC

David Heikkinen - Tudor, Pickering, Holt & Co. Securities, Inc.

William Butler - Stephens Inc.

Presentation

Operator

Good afternoon. My name is Michelle and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter 2010 Earning Release and Operations Update for QEP Resources Conference Call. [Operator Instructions] Thank you. Mr. Richard Doleshek, you may begin your conference.

Richard Doleshek

Thank you, Michelle. Good morning, everyone. This is Richard Doleshek, QEP Resources' Chief Financial Officer. I want to thank you for joining us today for QEP Resources' Fourth Quarter and Full Year 2010 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, Investor Relations. As you know, the fourth quarter was our second quarter as a standalone company. Having being spun off from Questar Corporation on June 30, and we feel pretty good about how the company has performed since its debut. In terms of our fourth quarter and full year 2010 results, we provided an operations update on Tuesday, and we issued our earnings release yesterday.

In our operations update, we reported fourth quarter 2010 production of 62.1 Bcfe and full year production of 229 Bcfe, a 21% increase over 2009 volumes. We reported year-end proved reserves of just over three Tcf, a 10% increase over 2009 year-end reserves. We updated operating activities in our core areas and we reiterated 2011 production guidance to be in the range of 258 to 265 Bcfe.

Yesterday, in our earnings release, we reported fourth quarter and full year 2010 results and affirmed our 2011 financial metrics guidance. Just to remind everybody, in conjunction with our spinoff from Questar, we distributed Wexpro Company to Questar. Accordingly, we have recast our historic results to treat Wexpro's results as discontinued operations. In addition, we have recast QEP Field Services results including revenues and volumes to reflect Questar Gas Company no longer being an affiliate gas company. Therefore, QEP’s reported period-to-period results are comparable to each other. We'll be happy to provide additional information about this during our Q&A session.

In today’s conference call, we're using non-GAAP measure, EBITDA, which is defined and reconciled to net income 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 financial results and comparing the third and fourth quarters of 2010, the story for the fourth quarter was flat production and a slightly higher net realized equivalent price at QEP Energy, our E&P business and better performance at QEP Field Services, our gathering and processing business.

Our fourth quarter EBITDA was $298.5 million, which is $1 million higher than the third quarter of 2010 and down 8% in the fourth quarter of 2009.

QEP Energy contributed $242 million or 81% of our aggregate fourth quarter EBITDA, and QEP Field Services contributed $52 million or about 18% of our total EBITDA with Field Services EBITDA up about 7% from the third quarter of the year.

For the full year, excluding costs associated with the spinoff, which includes separation costs and early debt retirement expenses, our EBITDA was $1,140,500,000 which is down just $25 million from a year ago in spite of net realized natural gas prices that were 26% lower in 2010.

QEP Energy's contribution was $926 million, which was $62 million or roughly 6% lower than 2009. However, QEP Field Services contributed $204 million, which was about $41 million or 25% higher than 2009.

Factors driving our full year EBITDA included QEP Energy's daily production, which averaged 627 million cubic feet equivalent a day in 2010 and was 21% higher than the 519 million cubic feet equivalent average in 2009.

QEP Energy's net realized equivalent price, which includes a settlement of all of our commodity derivatives, averaged $5.26 per Mcfe in 2010, which was 19% lower than the $6.53 per Mcfe realized in 2009.

QEP Energy's commodity derivative portfolio contributed $223 million of EBITDA in 2010, compared to $575 million in 2009. The derivatives portfolio added $0.98 per Mcfe to QEP Energy's net realized price in 2010, compared to $3.04 per Mcfe in 2009.

QEP Energy's combined operating production tax expenses were $205 million in 2010, compared to $186 million in 2009. LOE was essentially flat for the two years. Production taxes were $19 million higher in 2010, driven by higher production volumes and higher fuel level prices.

With the respective lease operating business being flat, the per unit LOE metrics declined to $0.56 per Mcfe in 2010 from $0.67 per Mcfe in 2009.

And finally, QEP Field Services EBITDA was 25% higher in 2010 than 2009. Gathering margins were up $28 million or 22% in 2010, driven by gas gathering volumes that averaged about 1.3 Bcf per day, up about 15% from 2009 levels. The increased throughput was driven by an increased production in Northwest Louisiana and Pinedale.

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