Questar E&P a Market Resources subsidiary that acquires, explores for, develops and produces natural gas and oil reported production of 33.9 Bcfe in the current quarter compared to 33.8 Bcfe in the prior year period. During the third quarter of 2007, the company shut in approximately 4.4 Bcfe (net) of unhedged Rockies natural gas and associated liquid hydrocarbon production in response to low regional market prices for natural gas. Low regional market prices result from insufficient takeaway capacity on interstate pipelines that transport natural gas from Rockies producing basins to markets outside the region. Start up of the Rockies Express Pipeline-West Project, currently scheduled for January 1, 2008, may alleviate the current transportation bottleneck.
Higher realized natural gas, crude oil and NGL prices more than offset a 14% higher average production cost structure, resulting in a 16% increase in third-quarter 2007 net income to $76.4 million compared to $66.0 million a year-earlier. Natural gas basis-only swaps increased net income $5.6 million in the 2007 quarter and reduced net income $3.2 million in the 2006 period. In the prior year quarter, Questar E&P recognized $24.6 million of pretax gains on assets sales. Exploration expense in the current quarter totaled $1.6 million compared to $16.8 million in the prior period, which included $14.0 million of dry hole expense. For the first nine months of 2007, Questar E&P net income rose 14% to $220.3 million compared to $192.6 million a year earlier, driven by a 7% increase in production, higher realized natural gas, crude oil and NGL prices, a $15.6 million increase in after-tax net mark-to-market gains on natural gas basis-only swaps, and reduced exploration expense. Natural gas basis-only swaps increased net income $8.9 million through September 2007 and reduced net income $6.7 million in the 2006 period.
Questar E&P Production by Division
|
|
|
|
|
|
|
|
|
3 Months Ended
|
|
9 Months Ended
|
September 30,
|
|
September 30,
|
|
2007
|
2006
|
Change
|
|
2007
|
2006*
|
Change
|
|
(Bcfe)
|
|
|
(Bcfe)
|
|
Pinedale Anticline
|
11.4
|
10.9
|
5%
|
|
35.0
|
28.8
|
22%
|
Uinta Basin
|
6.1
|
6.5
|
(6)
|
|
18.7
|
18.9
|
(1)
|
Rockies Legacy
|
3.8
|
4.5
|
(16)
|
|
13.2
|
14.5
|
(9)
|
Subtotal
Rocky Mountains
|
21.3
|
21.9
|
(3)
|
|
66.9
|
62.2
|
8
|
Midcontinent
|
12.6
|
11.9
|
6
|
|
37.4
|
35.2
|
6
|
Total Questar E&P
|
33.9
|
33.8
|
0%
|
|
104.3
|
97.4
|
7%
|
* Includes an increase of 0.7 Bcfe related to a gas-imbalance settlement in the Rockies Legacy division.
Questar E&P Realized Prices and Hedging Impact
|
|
|
|
|
|
|
|
|
3 Months Ended
|
|
9 Months Ended
|
September 30,
|
|
September 30,
|
|
2007
|
2006
|
Change
|
|
2007
|
2006
|
Change
|
|
|
|
|
|
|
|
|
Realized natural gas price ($ per Mcf)
|
$6.44
|
$5.73
|
12%
|
|
$6.42
|
$5.99
|
7%
|
Natural gas hedging impact ($ per Mcf)
|
2.87
|
0.62
|
|
|
1.91
|
0.24
|
|
|
|
|
|
|
|
|
|
Realized oil and NGL price ($ per bbl)
|
$54.95
|
$49.81
|
10%
|
|
$51.51
|
$50.10
|
3%
|
Oil and NGL hedging impact ($ per bbl)
|
(6.91)
|
(9.20)
|
|
|
(2.78)
|
(8.68)
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net mark-to-market gains (losses) on basis-only swaps ($ millions)
|
|
|
|
|
|
|
|
Pre-tax
|
$9.0
|
($5.2)
|
|
|
$14.2
|
($10.8)
|
|
After tax
|
$5.6
|
($3.2)
|
|
|
$8.9
|
($6.7)
|
|
Questar may hedge up to 100% of forecast production from proved reserves to lock in acceptable returns on invested capital and to protect returns, cash flow and net income from a decline in commodity prices. The company uses natural gas basis-only swaps to protect cash flows and net income from widening natural gas-price basis differentials that may result from capacity constraints on regional gas pipelines.
Questar E&P production costs (the sum of depreciation, depletion and amortization expense, lease operating expense, general and administrative expense, allocated interest expense, and production taxes) per unit of gas-equivalent production increased 14% in the third quarter 2007 compared to the 2006 period.
Questar E&P Production Cost Structure
|
|
|
|
|
|
|
|
|
3 Months Ended
|
|
9 Months Ended
|
September 30,
|
|
September 30,
|
|
(per Mcfe)
|
|
|
(per Mcfe)
|
|
|
2007
|
2006
|
Change
|
|
2007
|
2006
|
Change
|
Depreciation, depletion and amortization
|
$1.75
|
$1.43
|
22%
|
|
$1.72
|
$1.37
|
26%
|
Lease operating expense
|
0.66
|
0.56
|
18
|
|
0.62
|
0.55
|
13
|
General and administrative expense
|
0.44
|
0.34
|
29
|
|
0.41
|
0.32
|
28
|
Allocated interest expense
|
0.18
|
0.19
|
(5)
|
|
0.18
|
0.21
|
(14)
|
Production taxes
|
0.35
|
0.45
|
(22)
|
|
0.41
|
0.45
|
(9)
|
Production costs
|
$3.38
|
$2.97
|
14%
|
|
$3.34
|
$2.90
|
15%
|
·
Production volume-weighted average depreciation, depletion and amortization rate increased in both periods due to higher costs for drilling, completion and related services, increased cost of steel casing, other tubulars and wellhead equipment, the ongoing depletion of older lower-cost reserves and the increasing component of Questar E&P production derived from higher-cost fields such as Elm Grove in the Midcontinent and Vermillion Basin in the Rockies.
·
Lease operating expense per Mcfe increased in both periods due to increased costs of materials and consumables, increased produced-water disposal costs and increased well-workover activity.
·
General and administrative expense per Mcfe increased due to higher labor and legal expenses in the 2007 periods.
·
Allocated interest expense per unit of production decreased in the 2007 periods due to reduced debt expense in both periods and increased current-year production for the nine-month period.
·
Production taxes were lower in the current quarter due to lower market prices for natural gas in the Rockies region. The company pays production taxes based on sales prices before the impact of hedges.
Wexpro Net Income Up 22% in Third Quarter, 20% for First Nine Months of 2007
Wexpro a Market Resources subsidiary that develops and produces cost-of-service reserves for Questar Gas reported net income of $14.8 million in the current quarter, up 22% from the third quarter of 2006. For the first nine months of 2007, Wexpro net income was $43.4 million compared to $36.1 million in the prior year period, a 20% increase. Wexpro 2007 results benefited from a higher average investment base compared to the prior-year periods. Under a long-standing agreement with the states of Utah and Wyoming, Wexpro recovers its costs and earns an unlevered after-tax return of about 19 to 20% on its investment base the investment in commercial wells and related facilities, adjusted for working capital and reduced for deferred income taxes and accumulated depreciation. Wexpro investment base at September 30, 2007, was $284.6 million compared to $224.8 million a year ago.
Gas Management Net Income Up 21% in Third Quarter, 31% for First Nine Months of 2007
Questar Gas Management (Gas Management) Market Resources gas-gathering and processing-services
4
business posted higher net income driven by higher gathering and processing margins in the third quarter and first nine months of 2007. Third party gas-gathering throughput grew 26% or 8.8 million MMBtu compared to the third quarter of 2006. Fee-based gas-processing volumes were 33.7 million MMBtu in the third quarter of 2007, a 10% increase compared to the 2006 period. Fee-based gas-processing revenues increased 13% or $0.5 million, while gross margin from keep-whole processing increased 44% or $3.4 million in the 2007 third quarter. Approximately 74% of Gas Management net operating revenue (total revenue less processing plant-shrink) was derived from fee-based contracts in the 2007 third quarter compared to 78% in the 2006 period. For the first nine months of 2007, Gas Management net income increased 31% to $40.6 million compared to $30.9 million in the 2006 period, driven by higher gathering and processing margins.
Questar Pipeline Net Income Up 11% in Third Quarter, Down 2% for First Nine Months of 2007
Questar Pipeline a subsidiary that provides interstate natural gas transportation and storage services reported higher third quarter 2007 net income primarily as a result of increased demand revenues from new transportation contracts and higher liquids-processing revenues. Operating, maintenance, general and administrative expenses increased 5% due to higher labor costs. Questar Pipeline net income was $33.2 million in the first nine months of 2007, down 2% from $33.8 million earned in the year-ago period. Increased transportation and liquids
processing revenues were more than offset by decreased liquid-sales revenues and higher operating expenses in the nine-month period.
Questar Gas Seasonal Net Loss Decreases to $8.5 Million in Third Quarter, Net Income Even for First Nine Months of 2007
Questar Gas which provides retail natural gas distribution services in Utah, Wyoming and Idaho reported a $0.7 million decrease in its seasonal net loss in the quarter over the year-ago period. Higher third quarter 2007 operating expenses were more than offset by increased new-customer and transportation revenues. Operating, maintenance, general and administrative expenses totaled $32 per customer in the third quarters of 2007 and 2006. Questar Gas net income was $19.5 million in the first nine months of 2007, the same as the year-earlier period. At September 30, 2007, Questar Gas served 861,000 customers, up 26,000 or 3% from September 30, 2006.
Third Quarter 2007 Earnings Teleconference
Questar management will discuss third quarter 2007 results, the outlook for the remainder of 2007 and for 2008 in a conference call with investors Thursday, October 25, beginning at 9:30 a.m. EDT. The call can be accessed on the company Internet site at www.questar.com.
About Questar
Questar Corp. (NYSE:STR) is a natural gas-focused energy company with an enterprise value over $10 billion. Questar finds, develops, produces, gathers, processes, transports, stores and distributes natural gas.
Forward-Looking Statements
This release includes forward-looking statements within the meaning of Section 27(a) of the Securities Act of 1933, as amended, and Section 21(e) of the Securities Exchange Act of 1934, as amended. Such statements are based on managements current expectations, estimates and projections, which are subject to a wide range of uncertainties and business risks. Factors that could cause actual results to differ from those anticipated are discussed in the companys periodic filings with the Securities and Exchange Commission, including its annual report on Form 10-K for the year ended December 31, 2006. Questar undertakes no obligation to publicly correct or update the forward-looking statements in this news release, in other documents, or on the Web site to reflect future events or circumstances. All such statements are expressly qualified by this cautionary statement.
For more information, visit Questars Internet site at:
www.questar.com
.
5
Hedge Positions October 24, 2007
|
|
|
|
|
|
|
|
|
Time Periods
|
Rocky
Mountains
|
Midcontinent
|
Total
|
|
Rocky
Mountains
|
Midcontinent
|
Total
|
|
|
|
|
|
|
Estimated
|
|
|
Gas (Bcf) Fixed-Price Swaps
|
|
Average Price Per Mcf, Net to the Well
|
2007
|
|
|
|
|
|
|
|
|
Fourth quarter
|
15.5
|
8.7
|
24.2
|
|
$6.59
|
$7.76
|
$7.01
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
First half
|
30.5
|
17.3
|
47.8
|
|
$7.00
|
$7.93
|
$7.33
|
Second half
|
31.7
|
17.4
|
49.1
|
|
6.99
|
7.93
|
7.32
|
12 months
|
62.2
|
34.7
|
96.9
|
|
6.99
|
7.93
|
7.33
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
First half
|
20.1
|
12.0
|
32.1
|
|
$7.11
|
$7.66
|
$7.31
|
Second half
|
20.5
|
12.2
|
32.7
|
|
7.11
|
7.66
|
7.31
|
12 months
|
40.6
|
24.2
|
64.8
|
|
7.11
|
7.66
|
7.31
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
|
First half
|
3.3
|
6.9
|
10.2
|
|
$6.95
|
$7.58
|
$7.37
|
Second half
|
3.4
|
6.9
|
10.3
|
|
6.95
|
7.58
|
7.37
|
12 months
|
6.7
|
13.8
|
20.5
|
|
6.95
|
7.58
|
7.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
Gas (Bcf) Basis-Only Swaps
|
|
Average Basis Per Mcf vs. NYMEX
|
2007
|
|
|
|
|
|
|
|
|
Fourth quarter
|
2.6
|
|
2.6
|
|
$2.40
|
|
$2.40
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
First half
|
6.8
|
|
6.8
|
|
$1.61
|
|
$1.61
|
Second half
|
6.8
|
|
6.8
|
|
1.61
|
|
1.61
|
12 months
|
13.6
|
|
13.6
|
|
1.61
|
|
1.61
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
First half
|
11.8
|
1.7
|
13.5
|
|
$1.21
|
$1.08
|
$1.19
|
Second half
|
12.0
|
1.7
|
13.7
|
|
1.21
|
1.08
|
1.19
|
12 months
|
23.8
|
3.4
|
27.2
|
|
1.21
|
1.08
|
1.19
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
|
First half
|
|
1.7
|
1.7
|
|
|
$0.94
|
$0.94
|
Second half
|
|
1.7
|
1.7
|
|
|
0.94
|
0.94
|
12 months
|
|
3.4
|
3.4
|
|
|
0.94
|
0.94
|
6
Hedge Positions October 24, 2007
|
|
|
|
|
|
|
|
|
Time Periods
|
Rocky
Mountains
|
Midcontinent
|
Total
|
|
Rocky
Mountains
|
Midcontinent
|
Total
|
|
|
|
|
|
|
Estimated
|
|
|
Oil (Mbbl) Fixed-Price Swaps
|
|
Average Price Per Bbl, Net to the Well
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
Fourth quarter
|
267
|
101
|
368
|
|
$52.01
|
$57.91
|
$53.63
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
First half
|
328
|
218
|
546
|
|
$64.77
|
$70.77
|
$67.17
|
Second half
|
331
|
221
|
552
|
|
64.77
|
70.77
|
67.17
|
12 months
|
659
|
439
|
1,098
|
|
64.77
|
70.77
|
67.17
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
First half
|
217
|
145
|
362
|
|
$60.55
|
$66.55
|
$62.95
|
Second half
|
221
|
147
|
368
|
|
60.55
|
66.55
|
62.65
|
12 months
|
438
|
292
|
730
|
|
60.55
|
66.55
|
62.95
|
# # #
7