Questar Corporation (STR)

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Questar (STR)

Q3 2012 Earnings Call

October 31, 2012 9:30 am ET


Ronald W. Jibson - Chairman, Chief Executive Officer, President, Chief Executive Officer of Questar Gas Company, Chief Executive Officer of Wexpro, President of Questar Gas Company and President of Wexpro

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

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

James R. Livsey - Executive Vice President and Chief Operating Officer of Wexpro

Craig C. Wagstaff - Executive Vice President and Chief Operating Officer of Questar Gas

Carl Galbraith


Carl L. Kirst - BMO Capital Markets U.S.

Timm Schneider - Citigroup Inc, Research Division

Leon Dubov

Christopher P. Sighinolfi - UBS Investment Bank, Research Division

Daniel M. Fidell - U.S. Capital Advisors LLC, Research Division



Good morning. My name is Adam, and I will be your conference operator today. At this time, I would like to welcome everyone to the Questar Corporation Third Quarter 2012 Earnings Release Conference call. [Operator Instructions] I will now turn the call over to Chairman, President and CEO, Ron Jibson. You may begin.

Ronald W. Jibson

Thanks, Adam. Good morning, everyone, and thanks for joining us for Questar's Third Quarter 2012 Earnings Conference Call. We sincerely appreciate you joining us today given what many of you on the East Coast are dealing with. I know I represent our management team and our entire workforce when I say our thoughts and concerns are with all of those of you who are affected in the areas by this mega storm Sandy. We certainly hope you and your families, friends and coworkers are okay, and wish you the very best in -- as you recover and deal with the aftermath of this terrible storm.

I would like to turn the time now to Kevin Hadlock, our Chief Financial Officer, who will go through some of the financial summaries.

Kevin W. Hadlock

Thank you, Ron. As Ron mentioned, I'm Kevin Hadlock, Questar's Chief Financial Officer. With Ron and me today are Jim Livsey, Executive Vice President and COO of Wexpro; Allan Bradley, Executive Vice President and CEO-Questar Pipeline; and Craig Wagstaff, Executive Vice President and COO of Questar Gas.

During this call, we will be referring to our third quarter 2012 earnings presentation that can be found on our website at

Moving to Slide 2. 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 describe in our SEC filings. Also, this call may reference non-GAAP financial measures. Our slides in the appendix provide reconciliations to these measures.

Let's begin with a review of the third quarter on Slide 4. Yesterday, we reported third quarter 2012 net income of $33.8 million or $0.19 per diluted share. This compares to net income of $36.1 million or $0.20 per diluted share in the same period of 2011.

Operating cash flow was strong in the first 9 months of 2012, totaling $357.9 million, similar to the same period last year. Overall capital investment with $85.3 million, down about 24% from the third quarter of 2011. For the year-to-date period, capital spending was $276.1 million, which is up 8% compared to the same period last year. We continued our share repurchase program in the third quarter, spending about $19 million to buy back almost 927,000 shares.

Turning to Slide 5. All business units performed in line with our forecast in the third quarter 2012. Net income was down $2.3 million or $0.01 on an earnings per share basis versus the same period last year.

Moving to Slide 6. Questar Gas, our retail gas distribution utility, showed a slight increase in gross margin to $38.3 million. Adjusted EBITDA was lower by $2.5 million and the seasonal net loss was larger by $1.4 million compared to the same period last year. This was driven largely by increased employee-related and allocated corporate costs. Questar Gas' capital investment in the third quarter of 2012 was $34.9 million, an increase of $9.7 million over last year's third quarter. This was driven by the timing of infrastructure replacement spending and a higher customer growth.

Turning to Slide 7. Wexpro, our cost-of-service natural gas development company, grew adjusted EBITDA to $61.3 million, up $5.3 million or 9% compared to the third quarter of 2011. Net income was up $800,000 to $26.4 million, an increase of 3% over the same period last year. These results were driven largely by a higher 12-month average investment base, which increased $51.4 million or about 11%. Wexpro invested capital of $36.2 million in the third quarter of 2012, down $7.1 million from last year's third quarter due to Wexpro's lower working interest in wells drilled during the third quarter of 2012.

Moving to Slide 8. Questar Pipeline, our interstate natural gas pipeline and storage business, delivered solid results in the third quarter of 2012. Revenue was down slightly driven primarily by lower transportation and natural gas liquid revenues. The lower liquid revenues were partially offset by gas received from Clay Basin customers under an agreement that allows Questar Pipeline to recover any shortfall between the liquid revenues and the cost-of-service for conditioning gas at Clay Basin to meet third-party pipeline gas quality specification.

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