QEP Resources' CEO Discusses Q1 2012 Results - Earnings Call Transcript

QEP Resources (QEP)

Q1 2012 Earnings Call

April 25, 2012 11:00 am ET

Executives

Richard J. Doleshek - Chief Financial Officer, Executive Vice President and Treasurer

Charles B. Stanley - Chief Executive Officer, President and Director

Analysts

Brian Lively - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Brian M. Corales - Howard Weil Incorporated, Research Division

William B. D. Butler - Stephens Inc., Research Division

David R. Tameron - Wells Fargo Securities, LLC, Research Division

Brian Singer - Goldman Sachs Group Inc., Research Division

Hsulin Peng - Robert W. Baird & Co. Incorporated, Research Division

Unknown Analyst

Brian T. Velie - Capital One Southcoast, Inc., Research Division

Jim Spicer - Wells Fargo & Company

Presentation

Operator

Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the QEP Resources First Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Richard Doleshek.

Sir, you may begin your conference.

Richard J. Doleshek

Well, thank you, Regina, and good morning, everyone. Thank you for joining us for our first quarter 2012 results conference call. With me today are Chuck Stanley, President and Chief Executive Officer; Jay Neese, Executive Vice President and Head of our E&P Business; Perry Richards, Senior Vice President and Head of our Midstream Business; and Scott Gutberlet, Director, Investor Relations.

In today's conference call, we'll use a non-GAAP measure EBITDA, which is referred to as adjusted EBITDA in our earnings release, is reconciled to net income in the earnings release. In addition, we'll be making numerous forward-looking statements. We remind everyone that our actual results could differ from our estimates for a variety of reasons, many of which are beyond our control, and we refer everyone to our more robust forward-looking statements disclaimer and the discussion of risks facing our business in our earnings release and SEC filings.

In terms of reported results, we issued a combined operations update in earnings release yesterday, in which we reported the first quarter 2012 financial results, reported first quarter 2012 production of 74.2 Bcfe, 20% of which was composed of crude oil and natural gas liquids.

We updated operating activities in our core areas and updated our guidance for 2012. We reaffirmed our EBITDA guidance to be in the range of $1.35 billion to $1.45 billion. We reaffirmed our production guidance to be in the range of 305 to 310 Bcfe, and we modestly increased our CapEx guidance to be in the range of $1.35 billion to $1.45 billion, which is still in line with our projected EBITDA for the year.

As you've heard us say in the past, the current year capital program generally has more impact from the following year's production than on the current year's production.

From a financial reporting perspective, we continue to try to keep you on your toes. In the first quarter of 2012, we elected to discontinue hedge accounting. We believe that investors understand what is going on with the change in the mark-to-market valuations of our derivatives portfolio, and we don't believe there's any real benefit derived from the effort required to maintain hedge accounting. As a result, the entire change of the mark-to-market value of our derivatives portfolio now runs through our income statement instead of through other comprehensive income.

In addition, the impact of settled derivative contracts is no longer included in the revenue section of the income statement, but is now reported below the operating income line.

Also, recall that in the fourth quarter of 2011, we changed the presentation of transportation expenses. Historically, we netted transportation expenses against revenues. We are now reporting these expenses in a separate line item in the operating expense section of the income statement, and a recast historical revenue and historical product price dated to reflect the change of presentation.

We will be happy to provide additional information about the changes and how we report our financial results during Q&A.

Turning to our financial results. In comparing the first quarter of 2012 to the fourth quarter of 2011, the story was weaker financial performance in QEP Energy, our E&P business, and slightly weaker financial performance in QEP Field Services, our gathering and processing business.

QEP Energy reported marginally higher equipment production, which included sequentially higher crude oil and NGL production but lower natural gas production, which is typical as we suspend completion activities in the winter in our Northern Region properties.

The production increase was offset by a 10% decrease in quarter-to-quarter net realized equipment prices. Field Services' first quarter results were marginally lower than the previous quarter primarily due to lower FA prices.

Our first quarter EBITDA was $345.7 million, which was $45 million or 11% lower than the fourth quarter of 2011, but up $40 million or 13% from the first quarter of 2011. QEP Energy contributed $261 million or 75% of our aggregate first quarter EBITDA, and QEP Field Services contributed $84 million or about 24%. QEP Energy's EBITDA was down about $40 million, while Field Services EBITDA was $3 million lower than the respective fourth quarter 2011 levels.

Factors driving our first quarter EBITDA include QEP Energy's production, which was 74.2 Bcfe in the quarter, slightly higher than the 73.9 Bcfe reported in the fourth quarter of 2011. The quarter's production was 12% higher than the 65.9 Bcfe produced in the first quarter of 2011. Of note, our gas lines were down 1 Bcf. Oil volumes were 1.2 million barrels, up 3% from the fourth quarter, and NGL volumes were also 1.2 million barrels, up 17% from the fourth quarter of 2011.

Combined oil and NGL volumes were 2.4 million barrels in the quarter compared to 1.1 million barrels of combined volumes in the first quarter of 2011. QEP Energy's net realized equivalent price, which includes the settlement of all of our combined derivatives, averaged $5.47 per Mcfe in the quarter, which was 10% lower than the $6.08 per Mcfe realized in the fourth quarter of '11 and $0.03 lower than the $5.50 per Mcfe realized in the first quarter of '11.

The lower equivalent price reflects field level price -- gas prices that were 26% lower than in the fourth quarter of 2011.

QEP Energy's combined derivatives portfolio contributed $83 million of EBITDA in the quarter compared to $66 million from the fourth quarter of '11, and $42 million from the first quarter of '11. The derivatives portfolio added $1.13 per Mcfe to QEP Energy's net realized price in the first quarter compared to $0.89 per Mcfe in the fourth quarter of '11 and $0.64 in the first quarter of '11. QEP Energy's combined lease operating transportation and production tax expenses were $114 million in the quarter, down from $122 million from the fourth quarter of '11 and up from $99 million in the first quarter of '11.

Read the rest of this transcript for free on seekingalpha.com

If you liked this article you might like

Dow Snaps Two-Day Losing Streak Even as GE Logs Worst Day Since 2009

Dow Snaps Two-Day Losing Streak Even as GE Logs Worst Day Since 2009

Stocks Post Small Gains in an Uncertain Day of Trading, GE Weighs on Dow

Stocks Post Small Gains in an Uncertain Day of Trading, GE Weighs on Dow

These 16 Stocks Look Ready to Reverse

These 16 Stocks Look Ready to Reverse

Analysts' Actions -- Concho Resources, Devon Energy, Six Flags, Marathon and More

Analysts' Actions -- Concho Resources, Devon Energy, Six Flags, Marathon and More

A New Year, a New Round of U.S. Shale Play Consolidation

A New Year, a New Round of U.S. Shale Play Consolidation