QEP Resources, Inc. (QEP)

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QEP Resources (QEP)

Q4 2011 Earnings Call

February 23, 2012 11:00 am ET

Executives

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

Charles B. Stanley - Chief Executive Officer, President and Director

Jay B. Neese - Executive Vice President

Perry H. Richards - Senior Vice President of Field Services

Analysts

Brian M. Corales - Howard Weil Incorporated, Research Division

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

William B. D. Butler - Stephens Inc., Research Division

Unknown Analyst

Eli Kantor - Jefferies & Company, Inc., Research Division

Joshua I. Silverstein - Highbridge Capital Management, LLC

Andrew Coleman - Raymond James & Associates, Inc., Research Division

Presentation

Operator

Good morning. My name is Carmen, and I will be your conference operator today. At this time, I would like to welcome everyone to the QEP Resources Fourth Quarter Earnings Conference Call. [Operator Instructions] I will now turn the conference over to Richard Doleshek, Chief Financial Officer. Please go ahead, sir.

Richard J. Doleshek

Thank you, Carmen, and good morning, everyone. This is Richard Doleshek, QEP Resources's Chief Financial Officer. Thank you for joining us for our fourth quarter 2011 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 Business; Perry Richards, Senior Vice President and Head of our midstream business; and Scott Gutberlet, Director, Investor Relations.

In today's conference call, we'll use a non-GAAP measure EBITDA, which is referred to as adjusted EBITDA in our earnings release and it is reconciled to net income in the earnings release. In addition, we'll be making numerous forward-looking statements. We remind everyone that our actual results could differ from our estimates for a variety of reasons, many of which are beyond our control, and we refer everyone to our more robust forward-looking statement disclaimer and the discussion of risks facing our business in our earnings release and SEC filings.

The close of the fourth quarter marked our first fiscal year of operations as an independent company since being spun off from Questar Corporation on June 30, 2010. During the year, we had numerous important accomplishments and delivered record results in many areas. In terms of reporting our results, we issued a combined operations update and earnings release yesterday, in which we reported fourth quarter and full year 2011 results.

We reported fourth quarter 2011 production of 73.9 Bcfe and full year 2011 production of 275 Bcfe, 56% of which came from our properties in our Southern Region. Of note, crude oil and natural gas liquids made up 18% of our total liquids and oil production in the fourth quarter. We reported a 19% increase in year-end proved reserves to 3.6 Tcfe, of which 54% were classified as proved developed and 24% of which were crude oils and NGLs. The SEC pretax PV10 of those reserves was $4.8 billion, up 33% from $3.6 billion at year-end 2010.

We updated operating activities in our core areas, and we updated our guidance for 2012. We lowered our EBITDA guidance to be in the range of $1.35 billion to $1.45 billion, driven by significantly lower natural gas prices, and we decreased our CapEx guidance to be in the range of $1.3 billion to $1.5 billion, which is still in line with projected EBITDA. We also reaffirmed our production guidance to be in the range of 305 to 310 Bcfe.

As you've heard us say in the past, the current year capital program generally has more impact on the following year's production than on the current year's production.

At this point in my discussion, I would remind everyone about recasting our historical results as a result of spinning off from Questar. As we drop off 2010's results, we won't talk about that recast anymore. However, in the fourth quarter of 2011, we changed the presentation of transportation expenses. Historically, we have netted transportation expenses against revenues. We're now reporting these expenses in a separate line item on the operating expense section of the income statement and have recast historical revenue and historical product price data to reflect this change in presentation.

What you will see in our earnings release is higher total revenues, higher QEP Energy revenues, lower revenues at Field Services and higher prices for QEP Energy's production and Field Services's NGLs. We will be happy to provide additional information about this during Q&A.

Turning to our financial results. In comparing the fourth quarter of 2011 to the third quarter of the year, the story was significantly stronger performance at QEP Energy, our E&P business, and slightly stronger performance at QEP Field Services, our gathering and processing business. QEP Energy reported sequentially higher natural gas, crude oil and NGL production and reported net realized equivalent prices that were 9% higher quarter-to-quarter. Field Services' results were marginally higher than the previous quarter due to higher NGL volumes and prices.

Our fourth quarter EBITDA was $390.5 million, which was $37 million or 10% higher than in the third quarter and up $92 million or 31% from the fourth quarter of 2010.

QEP Energy contributed $300 million or 77% of our aggregate fourth quarter EBITDA, and QEP Field Services contributed $87 million or about 22%. QEP Energy's EBITDA was up about $33 million, while Field Services's EBITDA was $2 million higher than their respective third quarter levels.

For the full year, our EBITDA was $1.387 billion, which was almost $0.25 billion higher than a year ago in spite of net realized natural gas prices that were 11% lower than in 2010.

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