Questar Corporation (STR)

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Questar (STR)

Q1 2011 Earnings Call

April 27, 2011 9:30 am ET


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

James Livsey - Executive Vice President and General Manager of Wexpro Company

Ronald Jibson - Chief Executive Officer, President, Director, Chief Executive Officer of Questar Gas Company and President of Questar Gas Company

Craig Wagstaff - Senior Vice President

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


Michael Bates

Carl Kirst - BMO Capital Markets U.S.

Stephen Maresca - Morgan Stanley



Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to Questar Corporation First Quarter 2011 Earnings Release Conference Call. [Operator Instructions] I would now like to introduce Mr. Kevin Hadlock. Please go ahead, sir.

Kevin Hadlock

Thank you, Michelle. Good morning, everyone, and thank you for joining us for Questar's First Quarter 2011 Earnings Conference Call. I am Kevin Hadlock, Questar's Chief Financial Officer. With me today are Ron Jibson, President and CEO of Questar Corporation; Jim Livsey, Executive Vice President of Wexpro; Allan Bradley, CEO of Questar Pipeline; and Craig Wagstaff, Senior Vice President of Questar Gas.

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 may reference non-GAAP financial measures. Our earnings release provides reconciliations to these measures.

Yesterday, we reported first quarter earnings results and affirmed our 2011 earnings guidance range of $1.07 to $1.11 per diluted share. Questar's first quarter earnings from continuing operations totaled $69.9 million or $0.39 per diluted share compared to first quarter of 2010 results of $72.2 million or $0.41 per diluted share. Wexpro, our cost of service natural gas development company, grew net income to $22.3 million, an increase of 5% from the first quarter of 2010. Additionally, Wexpro generated about $51 million of EBITDA in the first quarter and increased its investment base to about $445 million or a year-over-year increase of more than 4%. First quarter net income attributable to Questar Pipeline, our Interstate Natural Gas Pipeline and Storage business, with $15.3 million, down from $17.2 million in the first quarter of 2010. Transportation revenues increased with the completion of the Overthrust Loop Expansion in March 2011. Pipeline's slightly higher transportation revenues were partially offset by lower revenues from natural gas liquids or NGL. Overall, Pipeline's earnings were down primarily due to higher operating and maintenance costs and increased general and administrative expenses. Questar Gas, our retail gas distribution utility, reported first quarter 2011 earnings of $33.4 million, up 1% from the first quarter of 2010 and generated over $71 million of EBITDA. Questar Gas benefited in the first quarter from an increase in new customer connection, added revenue from the infrastructure cost tracker and higher margin associated with the Utah general rate increase that went into effect in August 2010.

With regard to cost, Questar's first quarter 2011 general and administrative expense totaled $33 million compared to $26 million in the same period last year. This increase was primarily the result of increased employee transition costs and higher share base compensation expenses. Excluding Questar Gas' demand-side management cost, which are pass-through dollar-for-dollar in rates, the corporation's consolidated operating and maintenance expense totaled $35 million in the first quarter of 2011, about $1 million higher than the same period last year. Production and other taxes declined at 7% for the quarter, consistent with the decline in the taxable value of natural gas. Production taxes are recovered in Wexpro's cost of service under the Wexpro agreement.

Depreciation expense in the first quarter of 2011 rose 1% versus the same period in 2010 driven by continuing capital investments. Capital expenditures totaled $76 million in the first quarter of 2011. Of that amount, Wexpro accounted for $24 million, Questar Pipeline invested $26 million and Questar Gas also spent $26 million.

We experienced strong cash flow in the first quarter of 2011. Cash flow from continuing operations before working capital changes totaled $146 million, a 25% increase over the first quarter of last year. Cash used in continuing operations for the first quarter of 2011 was approximately $22 million, which included a reduction in short-term debt of $156 million.

Questar maintained a strong balance sheet, which supports our A- corporate credit rating from S&P and A3 senior unsecured rating for Moody's. Consolidated debt to capital finished the quarter at 52%.

The company also maintains sufficient liquidity to meet the growing needs of our businesses. At March 31, 2011, we had $86 million of commercial paper outstanding. We expect continued strong cash flow to result in paying down commercial paper balances to near 0 during the second quarter of this year, which is the seasonal low point of our working capital needs. Commercial paper balances will begin to grow again as we approach the fall gas injection and heating season. Our commercial paper program is currently supported by $600 million of committed bank credit line. At the end of the second quarter, the $250 million, 364-day credit facility will mature. Currently, we do not plan to renew this facility and believe the $350 million of facility maturing in 2013 will be sufficient to manage the liquidity needs of the company.

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