Exploration & Production | Quarterly / Earnings Reports | First Quarter (1Q) Update
QEP Continues Oil-Focused Push in 1Q; Ups Production 55%
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QEP Resources, Inc. reported first quarter 2014 financial and operating results.
Highlights:
- Increased crude oil production by 55% over the first quarter 2013 to 37 Mbod driven by Williston Basin oil production growth of nearly 100%.
- Grew crude oil production to 27% of total production from 16% in the first quarter 2013.
- Delivered significant year-over-year increases in Net Income, Adjusted Net Income and Adjusted EBITDA.
- Acquired Permian Basin assets for approximately $945 million with early drilling and production results surpassing initial expectations.
- Entered into definitive agreements to sell multiple non-core E&P assets for an aggregate price of $807 million, subject to customary adjustments.
- Entered into a definitive agreement to sell a 40% equity interest in QEP's affiliate Green River Processing, LLC toQEP Midstream Partners, LP for an aggregate price of $230 million.
The Company reported net income during the first quarter 2014 of $39.7 million, or $0.22 per diluted share, compared to a net loss of $4.3 million, or $0.02 per diluted share, in the first quarter 2013.
Net income or loss includes non-cash gains and losses associated with the change in the fair value of derivative instruments, gains and losses from asset sales, and impairment charges. Excluding these items, the Company’s Adjusted Net Income (a non-GAAP measure) was $68.1 million, or $0.38 per diluted share, for the first quarter 2014, compared to $49.4 million, or $0.28 per diluted share, for the comparable 2013 period. The higher Adjusted Net Income was due primarily to higher oil and NGL production and improved realized natural gas prices partially offset by higher lease operating expenses and production taxes and a realized loss on derivative instruments in the first quarter of 2014 compared to a realized gain in the comparable 2013 period.
Adjusted EBITDA (a non-GAAP measure) for the first quarter 2014 was $386.3 million, compared to $375.0 million in the first quarter 2013, a 3% increase.
Chuck Stanley, Chairman, President and CEO of QEP Resources, commented: "During the first quarter we made substantial progress on positioning QEP to have a more focused asset portfolio with significant positions in high-return, high-margin crude oil and liquids-rich gas plays. In addition, our asset managers delivered solid execution during the quarter as Williston Basin crude oil production nearly doubled from a year ago, and the Permian Basin contributed one month of production in the quarter with initial vertical well production results exceeding our estimates at the time of the acquisition. We have already ramped up our Permian Basin rig count from two rigs in early March to five today, and we are making substantial progress on data collection to better plan the horizontal development of this newly acquired asset.
"The announced sales of non-core E&P assets, totaling approximately $807 million, a 40% interest in our Green River processing business to QEPM for $230 million, and the anticipated divestiture of additional Midcontinent E&P assets, with aggregate net production of approximately 21 MMcfed, will further strengthen our financial position and focus our upstream portfolio.
"As we continue to make progress on the previously-announced separation of our midstream business, the underlying performance of the business remains strong. In the quarter, we initiated multiple expansion projects and delivered a processing margin that was at the highest level in two years."
"We continue to maintain our relentless focus on shareholder value creation through growing crude oil production from our Williston Basin assets, integrating and accelerating development of our newly-acquired Permian Basin crude oil properties, divesting non-core E&P assets, and completing the separation of our midstream business."
QEP Energy
- Net natural gas equivalent production decreased by 6% to 73.7 Bcfe in the first quarter 2014 compared to 78.0 Bcfe in the first quarter 2013, due primarily to decreased gas production in the Haynesville, Midcontinent and Pinedale areas offset by increased crude oil and NGL production in the Williston Basin and the addition of Permian Basin Acquisition production during the month of March. Crude oil and NGL production increased 55% and 41%, respectively, while natural gas production decreased 24%, in the first quarter 2014, compared to 2013.
- Adjusted EBITDA increased 3% compared to the first quarter 2013, driven by increases in crude oil and NGL production volumes and a 10% increase in the net realized price for natural gas. This increase was partially offset by an 11% and 12% decrease in the net realized prices of crude oil and NGLs, respectively.
- Crude oil and NGL revenues increased 44% compared to the first quarter 2013, and represented approximately 61% of field-level production revenues.
- QEP Energy's capital investment (on an accrual basis) for the first three months of 2014, excluding the $945.0 million related to the Permian Basin Acquisition, was $318.2 million.
QEP Field Services
- QEP Field Services’ Adjusted EBITDA during the first quarter 2014 was equal to the prior-year period. The first quarter 2014 Adjusted EBITDA was driven primarily by an increase in processing margin of $16.5 million, offset by a 13% decrease in natural gas gathering volumes as a result of declining dry gas production volumes on the Haynesville gathering system.
- QEP Field Services' capital investment (on an accrual basis) for the first quarter of 2014 totaled $21.5 million.
QEP 2014 Guidance
QEP Resources' full year 2014 guidance is shown below. The Company’s updated guidance assumes a June 30, 2014closing of the announced E&P asset sales, ethane rejection for the remainder of 2014, operating impact of the Permian Basin Acquisition starting on March 1, 2014, and other assumptions summarized in the table below:
QEP Energy
QEP Energy has updated each of its operating segments, which can be accessed below:
QEP Cuts Pinedale Spud-to-Drill Times; Uses New Design for Uinta Wells
QEP Bolsters Bakken Production; Adds to Permian Portfolio
QEP Field Services
During the first quarter 2014 QEP Field Services' processing margin (total processing plant revenues less shrink, transportation, fractionation, and operating expenses) was $42.8 million, a 63% increase compared to the $26.3 milliongenerated in the first quarter 2013. This increase was driven by a 154% increase in the keep-whole margin (NGL sales revenue less shrink, transportation and fractionation expenses), which was $23.1 million in the first quarter of 2014 and$9.1 million a year earlier, offset by a 2% decrease in processing fee-based revenues.
Gathering margin declined 10% in the first quarter of 2014 compared to the first quarter of 2013, due to a 13% decrease in gathering system throughput. Gathering system throughput volumes decreased primarily as a result of a 42% decline at QEP Field Services' Northwest Louisiana Hub primarily due to lower QEP Energy production resulting from the ongoing suspension of drilling in the Haynesville, as well as lower gathering volumes on the Uinta gathering system and QEPM's Vermillion gathering system. Approximately 69% and 83% of QEP Field Services' total margin was derived from fee-based gathering and processing agreements in the first quarter 2014 and 2013, respectively.
As a result of the initial public offering of QEPM, QEP Field Services saw an increase in net income attributable to noncontrolling interest. For the first quarter 2014, this change resulted in negative impacts on QEP's net income and Adjusted EBITDA of $4.9 million and $8.2 million, respectively.