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QEP Pulls in $178.4MM, Ups Crude Production 82% in Q2

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QEP Pulls in $178.4MM, Ups Crude Production 82% in Q2

QEP Resources Inc. reported second quarter 2013 financial and operating results.

The Company reported net income during the second quarter 2013 of $178.4 million, or $0.99 per diluted share, compared to a net loss of $0.7 million, or no earnings per diluted share, in the second quarter 2012. 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, non-cash price-related impairment charges, a loss from early extinguishment of debt, certain significant accrued litigation loss contingencies, and the income tax effect of each of these items. Excluding these items, the Company’s Adjusted Net Income (a non-GAAP measure) was $62.8 million, or $0.34 per diluted share, for the second quarter 2013, compared to $54.6 million, or $0.31 per diluted share, for the comparable 2012 period. The higher Adjusted Net Income was due primarily to higher oil production and improved natural gas prices offset by lower midstream NGL revenue and higher depreciation, depletion and amortization and other expenses in the second quarter 2013 compared to 2012.

Adjusted EBITDA (a non-GAAP measure) for the second quarter 2013 was $389.5 million, compared to $336.9 million in the second quarter 2012, a 16% increase. The definition of Adjusted EBITDA and reconciliations of Adjusted EBITDA and Adjusted Net Income to net income are provided within the financial tables of this release.

Second Quarter 2013 Highlights

  • QEP Energy's crude oil production increased 82% over the second quarter 2012 to a record 2.4 million barrels.
  • Crude oil and NGL comprised 27% of QEP Energy's production compared to 20% in the second quarter 2012.
  • QEP Field Services' fee-based processing revenue increased 10% compared to the second quarter 2012.
  • On May 9, 2013, QEP filed a registration statement with the U.S. Securities and Exchange Commission (SEC) in anticipation of a proposed initial public offering of limited partner interests in QEP Midstream Partners LP (QEPM), a wholly owned subsidiary of QEP Resources Inc.

Chuck Stanley, Chairman, President and CEO of QEP Resources, commented: "The second quarter was one of steady progress at QEP. We continued to increase activity in the Williston Basin and brought on 15 new operated wells in the quarter. Individual well performance has been in line with or ahead of expectations, and we continue to make progress on lowering well costs. Crude oil volumes increased 82% from the second quarter 2012 and 12% from the prior quarter to a new record level. Crude oil and NGL volumes represented 27% of total production in the quarter, up 2% from the first quarter of 2013 and 7% from the prior year quarter, and crude oil comprised over 18% of production compared to less than 10% in the second quarter of 2012. Through steady execution we remain on track to deliver crude oil volume growth of at least 70% in 2013.

"We continue to make progress on the rationalization of our upstream portfolio with two asset sales now closed and a purchase and sale agreement signed for a third group of assets. Combined gross proceeds from these three sales are expected to be over $200 million. Despite these asset sales, our production guidance for 2013 remains unchanged from last quarter.

"QEP Field Services delivered improved financial results compared to the first quarter. Gathering margin improved 10% from the prior quarter on increased revenue and lower costs. Fee-based processing revenue increased 18% from the prior quarter due primarily to the startup of the Iron Horse II cryogenic processing plant in the first quarter and a seasonal increase in volumes in Pinedale. We have commissioned the 10,000 barrel-per-day expansion of our NGL fractionator at Blacks Fork and are finishing construction of the related rail loading facility expansion."

Operations Summary

The company updated each of its E&P segments, the details of which are available below:

QEP Energy

  • Total net equivalent natural gas, crude oil and NGL production decreased 2% to 77.9 Bcfe in the second quarter 2013 compared to 79.6 Bcfe in 2012. Compared to the second quarter 2012, crude oil production increased 82% due primarily to growth in the Williston Basin while natural gas production decreased 11% due entirely to declining Haynesville production. NGL volumes decreased 14% from the second quarter 2012 as a result of ethane rejection (where ethane is not recovered from the production stream as an NGL but is instead sold as natural gas).
  • Adjusted EBITDA increased 25% compared to the second quarter 2012, driven by increases in oil production volumes and 9%, 8% and 11% increases in the net realized price for natural gas, oil and NGL, respectively.
  • Crude oil and NGL revenues increased 66% compared to the second quarter 2012 and represented approximately 54% of field-level production revenues.
  • QEP Energy's capital investment (on an accrual basis) for the first six months of 2013 was $697.1 million including $22.0 million of reserve and leasehold acquisitions.
  • As announced previously, in June 2013 QEP Energy sold its interest in several non-core oil and gas properties located in the Northern Region for total cash proceeds of $139.7 million and a pre-tax gain on sale of $102.5 million in the second quarter 2013, subject to post-closing adjustments.

QEP Field Services

  • QEP Field Services’ Adjusted EBITDA decreased 17% in the second quarter 2013 compared to the prior-year period, due primarily to lower processing margins driven by weaker NGL component prices, higher natural gas prices, a 28% decrease in NGL sales volumes as a result of ethane rejection and a 16% decrease in natural gas gathering volumes as a result of declining dry gas production volumes on its Haynesville gathering system.
  • QEP Field Services' capital investment (on an accrual basis) for the first half of 2013 totaled $30.1 million.

QEP 2013 Guidance

QEP Resources has revised its full-year 2013 guidance due to changes in commodity prices. The guidance incorporates commodity price derivative positions in place on the date of this release, assumes ethane rejection for all of 2013, and includes other assumptions summarized in the table below:

QEP Field Services

QEP Field Services' Adjusted EBITDA declined 17% from the second quarter 2012 due primarily to lower keep-whole processing margin as a result of lower NGL prices and higher natural gas prices. Compared to the prior quarter, Adjusted EBITDA increased 7% in the second quarter as a result of higher processing margin due primarily to the startup of the Iron Horse II cryogenic gas processing plant and higher gathering margin due primarily to an increase in volumes at Pinedale. Approximately 80% of QEP Field Services' second quarter 2013 net operating revenue was derived from fee-based gathering and processing activities compared to 78% in the second quarter 2012.

Processing margin (total processing plant revenues less plant shrink, transportation, fractionation, and operating expenses) was $29.8 million in the second quarter 2013 compared to $33.1 million in the second quarter 2012, a 10% decrease. Revenue from fee-based processing activity increased by 10%, or $1.8 million, in the second quarter 2013 compared to the second quarter 2012 due primarily to the startup of the Iron Horse II cryogenic gas processing plant. Second quarter 2013 results were negatively impacted by a 24% decrease in keep-whole processing margin (NGL sales revenues less shrink, transportation and fractionation expenses), due primarily to weaker NGL component prices, higher natural gas prices and lower NGL sales volumes as a result of ethane rejection.

Gathering margin (total gathering revenues less gathering related operating expenses) was $41.3 million in the second quarter 2013 compared to $46.8 million in the second quarter 2012, a 12% decrease, due primarily to a 16% decline in gathering volumes resulting from a 48% reduction in northwest Louisiana Haynesville gathering volumes between the two periods.

Commissioning and startup of QEP Field Services' 10,000 barrel per day NGL fractionation facility expansion at QEP's Blacks Fork facility in southwest Wyoming commenced during the last week of June 2013. With the new facility fully operational, NGL fractionation capacity at Blacks Fork is now 15,000 barrels per day. To support this expansion, QEP is also doubling existing railcar loading capacity at Blacks Fork to facilitate access to what are often higher-value local, regional, and national NGL markets. The new railcar loading capacity is expected to be complete during the third quarter 2013.