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QEP Talks Record Crude Production, Midstream Divestiture in 3Q

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QEP Talks Record Crude Production, Midstream Divestiture in 3Q

QEP Resources, Inc. reported third quarter 2014 financial and operating results. The Company reported third quarter 2014 net income of $171.1 million, or $0.94 per diluted share, compared with net income of $37.3 million, or $0.21 per diluted share, in the third quarter 2013.

Highlights:

  • Reported record quarterly crude oil production of 4.7 MMBbl
  • Delivered record quarterly Adjusted EBITDA
  • Increased daily crude oil production by 77% over the third quarter 2013 to 50.8 Mbod driven by year-over-year Williston Basin oil production growth of 115%
  • Increased daily production from Permian Basin properties by 18% from the second quarter 2014 to approximately 9.0 Mboed
  • Increased crude oil to 35% of total equivalent production from 20% in the third quarter 2013
  • Entered into definitive agreement to sell midstream business for $2.5 billion in cash
  • Entered into purchase and sale agreements to divest non-core properties in Southern Oklahoma for $108 million in cash

Chuck Stanley, Chairman, President and CEO of QEP Resources, commented: "We delivered exceptional crude oil production growth during the third quarter, producing a record 4.7 MMBbl, evidence of our continued success in transforming QEP into a more balanced upstream oil and gas company. As an outcome of our focus on investing in high-return, high-margin plays, we saw strong sequential growth in oil volumes. Crude oil represented 35% of total equivalent production, and greater than 63% of our field level production revenue in the third quarter. We delivered record Adjusted EBITDA in the quarter, despite the sale of our Midcontinent Cana-Woodford and Granite Wash properties, which represented over 10% of production in the second quarter, and sequential declines in crude oil and NGL prices.

"Our asset managers delivered strong operating results during the quarter. In the crude oil-rich Williston and Permian basins, average daily production increased 29% and 18%, respectively, from the second quarter 2014. Results from higher proppant volume completions in the Williston Basin are meeting our expectations and are leading to strong cumulative production improvements of 20% to 30% in the first 90 days. In the Permian Basin, wells in our horizontal drilling program are performing in line with expectations, validating our estimates from the time of the acquisition.

"In mid-October, we announced that we had entered into an agreement to sell our midstream business for $2.5 billion in cash to Tesoro Logistics LP. Completion of this transaction will allow us to maximize shareholder value by deploying proceeds from the sale through multiple avenues, including returning capital to shareholders, reducing debt, and improving our competitive position through investment in our premier E&P assets.

"After closing the midstream sale, QEP will emerge as a more competitive and financially strong independent E&P company with assets in two of North America’s most prolific crude oil provinces, the Williston and Permian basins, and low-cost, high quality natural gas properties in the Rocky Mountains and in northwest Louisiana. Overall, we continue to maintain our relentless focus on shareholder value creation through: investing in high return development properties, divesting non-core E&P assets, and working toward the completion of the sale of our midstream business."

QEP Energy

  • Crude oil and NGL production increased 77% and 35%, respectively, while natural gas production decreased 24%, in the third quarter 2014, compared with the third quarter 2013.
  • Net natural gas equivalent production increased by 2% to 79.2 Bcfe in the third quarter 2014 compared with 78.0 Bcfe in the third quarter 2013, due primarily to increased crude oil and NGL production in the Williston Basin and the addition of Permian Basin acquisition production, offset by decreased production in the Haynesville and in the Midcontinent, where we divested of assets in the second quarter 2014.
  • Adjusted EBITDA increased 9% compared with the third quarter 2013, driven by increases in crude oil and NGL production volumes. Further, continued production growth in the Williston Basin and the addition of our Permian Basin acquisition more than offset the Adjusted EBITDA from the divested Midcontinent assets. This increase in Adjusted EBITDA from higher production volumes was offset partially by decreases of 10% and 21%, respectively, in the net realized prices of crude oil and NGL, combined with increases in lease operating expense, transportation expense and production and ad-valorem taxes.
  • Crude oil and NGL revenues increased 47% compared with the third quarter 2013, and represented approximately 72% of field-level production revenues.
  • QEP Energy's capital investment (on an accrual basis) for the first three quarters of 2014 was $1,284.1 million, excluding $941.8 million related to the Permian Basin acquisition, which closed in the first quarter 2014.

QEP Resources

  • The QEP Resources Board has authorized an extension of the Company’s share repurchase program for up to $500 million of the Company’s common shares. The program, originally authorized in January 2014, will now expire onDecember 31, 2015. The timing and amount of any QEP common share purchases will depend upon a number of factors, including general market conditions, the Company’s financial position and the estimated intrinsic value of the Company’s shares.
  • The QEP Resources Board has extended the tenure of William L. Thacker beyond the term originally provided by the Cooperation Agreement entered into with JANA Partners, LLC in February 2014. That Agreement provided Mr. Thacker would remain on the Board until the completion of the separation of the Company’s midstream business. Mr. Thacker has agreed to stay on the Board until his term ends at the Company’s Annual Meeting in 2016. At that time, the Board will consider whether he, and the other incumbent directors whose terms end at that time, should be recommended for reelection.
  • In October 2014, the Company announced that its wholly owned subsidiary, QEP Field Services Company, had entered into a definitive agreement to sell substantially all of its midstream business, including the Company's partnership interests in QEP Midstream Partners, LP, to Tesoro Logistics LP in an all cash transaction valued at $2.5 billion, including $230.0 million to refinance debt at QEP Midstream. QEP will retain ownership of QEP Field Services’ Haynesville Gathering System. As a result, QEP Field Services' business, excluding the retained ownership of the Haynesville gathering system, has been classified as assets held for sale on the Condensed Balance Sheet and as discontinued operations on the Condensed Statement of Operations.
  • On October 31, 2014, QEP entered into two purchase and sale agreements to divest non-core properties in southern Oklahoma for an aggregate sale price of $108 million, subject to customary purchase price adjustments. The aggregate net book value of the properties being sold is approximately $37 million as of September 30, 2014. Any gain or loss on the sale recorded by the Company will be determined based upon the final purchase price. The Company expects to close the transactions by year end.

Operations Summary

QEP Has reported an update on its third quarter 2014 operations, which can be accessed below:

QEP Focuses on Ethane Recovery in the Pinedale, Uinta Plays

QEP to Test 'Plug and Perf' Completions in the Bakken

QEP Turns on Taps at Wolfcamp, Atokaberry Wells in 3Q

Financial Results

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 $75.4 million, or $0.41 per diluted share, for the third quarter 2014, compared with Adjusted Net Income of $63.3 million, or $0.36 per diluted share, for the comparable 2013 period. The increase in Adjusted Net Income was due primarily to higher crude oil production partially offset by lower realized crude oil and NGL prices combined with higher lease operating expenses and production taxes.

Adjusted EBITDA (a non-GAAP measure) was a record $409.3 million for the third quarter 2014, compared with $395.1 million in the third quarter 2013, a 4% increase.