Exhibit 99.1
QUESTAR NET INCOME UP 23% IN FIRST QUARTER 2008
Company Raises 2008 Net Income and Production Guidance
SALT LAKE CITY — Questar Corp. (NYSE:STR) net income grew 23% in the first quarter of 2008 to $185.8 million, or $1.05 per diluted share compared to $151.1 million, or $0.86 per diluted share, for the first quarter of 2007.
NET INCOME BY SUBSIDIARY
(in millions, except earnings per share)
| | | |
| 3 Months Ended |
March 31, |
| 2008 | 2007 | % Change |
Market Resources | | |
Questar E&P | $ 96.5 | $ 77.2 | 25% |
Wexpro | 16.2 | 13.9 | 17 |
Gas Management | 18.5 | 12.4 | 49 |
Energy Trading and other | 8.1 | 6.0 | 35 |
Market Resources Total | 139.3 | 109.5 | 27 |
| | |
|
Questar Pipeline | 15.9 | 11.2 | 42 |
Questar Gas | 30.6 | 29.1 | 5 |
Corporate | 0.0 | 1.3 | |
QUESTAR CORPORATION TOTAL | $185.8 | $151.1 | 23% |
| | | |
Earnings per diluted share | $ 1.05 | $ 0.86 | |
Average diluted shares | 176.2 | 175.6 | |
“We’re off to a good start in 2008,” said Keith O. Rattie, Questar Chairman, President and CEO. “Accordingly, we’re raising 2008 net income and production guidance.”
FirstQuarter 2008 Highlights
·
Questar E&P grew natural gas, oil and natural gas liquids (NGL) production 13% to 39.5 billion cubic feet of natural gas equivalent (Bcfe) compared to 34.9 Bcfe for the 2007 period. Natural gas comprised 88% of reported production volumes.
·
Questar E&P completed the purchase of two producing properties in northwest Louisiana on February 29, 2008. The properties added about 1.1 Bcfe of net production in March 2008.
·
Realized natural gas prices at Questar E&P increased $0.57 per thousand cubic feet (Mcf), or 9%, and realized crude oil and NGL prices increased $25.57 per barrel (bbl), or 53%. Natural gas hedges increased reported revenues by $6.9 million, while oil hedges decreased revenues by $7.4 million.
·
Net mark-to-market gains on natural gas basis-only hedges increased net income $8.5 million in the 2008 quarter compared to an increase of $7.4 million in the year-earlier period.
·
Wexpro grew its investment base 19% to $314.5 million at March 31, 2008. Wexpro produced 11.0 Bcf of cost-of-service gas for delivery to affiliate Questar Gas compared to 11.3 Bcf in the 2007 quarter.
·
Gas Management net income growth was driven by higher gathering and processing margins. Net processing revenues increased 70% to $20.1 million due to increased volumes and a higher frac spread. Fee-based processing volumes increased 64%.
·
Energy Trading net income rose 35% to $8.1 million, driven primarily by increased trading and storage margins related to volatile natural gas prices in the Rockies. Gross marketing margin totaled $12.0 million compared to $8.9 million in the year-ago period.
·
Questar Pipeline grew net income 42% in the first quarter of 2008, to $15.9 million compared to $11.2 million in the year-ago period, driven by higher transportation revenues from expansion projects completed in the fourth-quarter of 2007. Questar Pipeline placed the Overthrust Pipeline Wamsutter expansion in western Wyoming into service in December 2007. Questar Pipeline also placed its southern system expansion serving the Uinta Basin in eastern Utah into service in November 2007.
·
Questar Gas net income increased 5% to $30.6 million from a year ago, primarily due to a 2.4% increase in customers to 881,900 on March 31, 2008. The utility earns the majority of its annual net income in the first quarter.
·
Questar earned a 15.8% return on assets (ROA – defined as earnings before interest and income taxes divided by average total assets) for the trailing 12-month period ended March 31, 2008. Market Resources ROA was 19.0%; Questar Pipeline ROA was 10.0%; and Questar Gas ROA was 7.8%.
Questar Raises 2008 Net Income and Production Guidance
Questar now expects full-year 2008 net income to range from $3.25 to $3.40 per diluted share compared to previous guidance of $3.05 to $3.20 per diluted share. The company also expects Questar E&P 2008 production to range from 166 to 169 Bcfe compared to previous guidance of 160 to 163 Bcfe. The revised production forecast is primarily due to improved drilling performance at Pinedale and additional non-operated drilling activity in the Midcontinent region. The company’s revised guidance now assumes that the NYMEX/Rockies basis differential will range from $2.50 to $3.00per MMBtu for the remainder of 2008, compared to $1.20-$1.45 per MMBtu assumed in previous guidance. The guidance assumes the NYMEX price will range from $10.00 to $11.00 per MMBtu for currently unhedged 2008 natural gas production for the rest of the year, and the prompt-month NYMEX crude oil price will range from $105 to $115 per barrel for unh edged crude oil volumes. The company’s guidance also excludes one-time items and assumes hedges in place on the date of this release. Other assumptions are summarized in the table below:
Guidance Assumptions
| | |
| 2008 | 2008 |
| Current | Previous |
Earnings per diluted share | $3.25-$3.40 | $3.05-$3.20 |
Average diluted shares (millions) | 176.2 | 176.2 |
Questar E&P production – Bcfe | 166-169 | 160-163 |
Pinedale well completions | 70-75 | 60-65 |
NYMEX gas price per MMBtu(a) | $10.00-$11.00 | $9.00-$10.00 |
NYMEX crude oil price per bbl(a) | $105.00-$115.00 | $95.00-$100.00 |
NYMEX/Rockies basis differential per MMBtu(a) | $3.00-$2.50 | $1.45-$1.20 |
NYMEX/Midcontinent basis differential per MMBtu(a) | $1.60-$1.35 | $1.25-$1.00 |
(a) On unhedged volumes for the remainder of 2008 | | |
·
Questar E&P has hedged about 80% of forecast natural gas and oil-equivalent production for the remainder of 2008 with fixed-price swaps. Additionally, the company has hedged about 2% of its
forecast remainder of 2008 production with natural gas basis-only swaps (see table at the end of this release).
·
The company estimates that a $1.00 per MMBtu change in the average NYMEX price of natural gas for the remainder of 2008 would result in about a $0.01 change in earnings per diluted share.
·
The company also estimates that a $10.00 per barrel change in the average NYMEX price of oil for the remainder of 2008 would result in about a $0.04 change in earnings per diluted share.
Questar E&P Net Income Increases 25% in First Quarter 2008
Questar E&P – a Market Resources subsidiary that acquires, explores for, develops and produces natural gas and oil – reported production of 39.5 Bcfe in the 2008 period compared to 34.9 Bcfe in the 2007 period, a 13% increase. Higher realized natural gas, crude oil and NGL prices and growing production more than offset a 17% increase in average production costs. Net mark-to-market gains on natural gas basis-only swaps increased net income $8.5 million in the 2008 quarter compared to $7.4 million in the 2007 quarter.
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Questar E&P – Production by Region
| | | |
| 3 Months Ended |
March 31, |
| (Bcfe) | |
| 2008 | 2007 | Change |
Pinedale Anticline | 13.3 | 12.1 | 10% |
Uinta Basin | 6.7 | 6.0 | 12 |
Rockies Legacy | 4.9 | 4.5 | 9 |
Subtotal– Rocky Mountains | 24.9 | 22.6 | 10 |
Midcontinent | 14.6 | 12.3 | 19 |
Total Questar E&P | 39.5 | 34.9 | 13% |
Questar E&P – Realized Prices and Hedging Impact
| | | |
| 3 Months Ended |
March 31, |
| 2008 | 2007 | Change |
Realized natural gas price ($ per Mcf) | $6.90 | $ 6.33 | 9% |
Natural gas hedging impact ($ per Mcf) | 0.20 | 0.98 |
|
|
|
|
|
Realized oil and NGL price ($ per bbl) | $74.18 | $48.61 | 53% |
Oil and NGL hedging impact ($ per bbl) | (9.37) | 1.26 |
|
|
|
| |
Net mark-to-market gains on basis-only swaps ($ millions) |
| |
|
Pre-tax | $13.7 | $11.8 |
|
After-tax | $8.5 | $7.4 |
|
Questar may enter into derivative transactions on up to 100% of forecast production from proved reserves to lock in acceptable returns on invested capital and to protect 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 17% compared to the 2007 first quarter.
Questar E&P – Production Costs
| | | |
| 3 Months Ended |
March 31, |
| (per Mcfe) | |
| 2008 | 2007 | Change |
Depreciation, depletion and amortization | $1.82 | $1.69 | 8% |
Lease operating expense | 0.71 | 0.59 | 20 |
General and administrative expense | 0.36 | 0.35 | 3 |
Allocated interest expense | 0.26 | 0.18 | 44 |
Production taxes | 0.68 | 0.47 | 45 |
Production costs | $3.83 | $3.28 | 17% |
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·
Production volume-weighted average depreciation, depletion and amortization (DD&A) rate per Mcfe increased due to higher costs for drilling, completion and related services, increased cost of steel casing, other tubulars and wellhead equipment. The DD&A rate also increased due to 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 the Vermillion and Uinta basins in the Rockies.
·
Lease operating expense per Mcfe increased due to higher 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 expenses.
·
Allocated interest expense per unit of production increased in the 2008 period primarily due to financing costs related to the acquisition of natural gas development properties.
·
Production taxes per Mcfe were higher due to higher natural gas and oil sales prices in the 2008 period. The company pays production taxes based on sales prices, before the impact of hedges.
Wexpro Net Income Up 17% in First Quarter 2008
Wexpro – a Market Resources subsidiary that develops and produces cost-of-service reserves for affiliate Questar Gas – reported net income of $16.2 million compared to $13.9 million in the prior-year period, a 17% increase. Wexpro results benefited from a higher average investment base compared to the prior-year period. Wexpro investment base at March 31, 2008, was $314.5 million compared to $263.4 million a year ago, a 19% increase.
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.
Gas Management Net Income Up 49% in First Quarter 2008
Questar Gas Management (Gas Management) – Market Resources’ gas-gathering and processing-services business – reported net income of $18.5 million compared to $12.4 million in the prior-year period, a 49% increase, driven by higher gathering and processing margins. Net processing revenues increased 70% to $20.1 million due to increased processing volumes and higher NGL prices. Gas Management grew fee-based gas-processing volumes 64% in the first quarter to 50.2 million MMBtu from the 2007 period. Gas Management grew fee-based gas-processing revenues 52% compared to the year-ago quarter, while gross margin from keep-whole processing increased 82% or $5.5 million. Approximately 78% of Gas Management net operating revenue (total revenue less processing plant-shrink) was derived from fee-based contracts compared to 83% in the 2007 period.
Questar Pipeline Net Income Up 42% in First Quarter 2008
Questar Pipeline – which provides interstate natural gas transportation and storage services – reported net income of $15.9 million compared to $11.2 million in the prior-year period, a 42% increase, primarily from system expansions placed in service late in 2007. Total pipeline revenues increased $11.9 million or 23%, driven by higher transportation services, while operating, maintenance, general and administrative expenses increased 13% due to additional operating costs for new transportation and gas processing facilities.
Questar Gas Net Income Up 5% in First Quarter 2008
Questar Gas – which provides retail natural gas distribution services in Utah, Wyoming and Idaho – reported net income of $30.6 million compared to $29.1 million in the prior-year period, a 5% increase, primarily as a result of new-customer growth. Operating, maintenance, general and administrative expenses totaled $37 per customer in the first quarter of 2008 compared to $38 per customer in the 2007 period. At March 31, 2008, Questar Gas served 881,900 customers, up 21,000 or 2.4% from March 31, 2007.
First Quarter 2008 Earnings Teleconference
Questar management will discuss first quarter 2008 results and the outlook for the remainder of 2008 in a conference call with investors Tuesday, April 29, beginning at 9:30 a.m. EDT. The call can be accessed on the company Internet site at www.questar.com.
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About Questar
Questar Corp. (NYSE:STR) is a natural gas-focused energy company with an enterprise value of about $13 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 management’s 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 company’s periodic filings with the Securities and Exchange Commission, including its annual report on Form 10-K for the year ended December 31, 2007. 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 Questar’s Internet site at: www.questar.com.
Hedge Positions – April 28, 2008
| | | | | | | | |
Time Periods |
Rocky Mountains | Midcontinent | Total | | Rocky Mountains | Midcontinent | Total |
| | | | | | Estimated |
| | Gas (Bcf) Fixed-Price Swaps | | Average Price Per Mcf, Net to the Well |
2008 | | | | | | | | |
Second quarter | 19.2 | 12.5 | 31.7 | | $7.05 | $8.26 | $7.53 |
Second half | 40.2 | 26.3 | 66.5 | | 7.06 | 8.32 | 7.56 |
Remainder of 2008 | 59.4 | 38.8 | 98.2 | | 7.06 | 8.30 | 7.55 |
| | | | | | | | |
2009 | | | | | | | | |
First half | 32.7 | 29.5 | 62.2 | | $7.24 | $8.12 | $7.66 |
Second half | 33.3 | 30.0 | 63.3 | | 7.24 | 8.12 | 7.66 |
12 months | 66.0 | 59.5 | 125.5 | | 7.24 | 8.12 | 7.66 |
| | | | | | | | |
2010 | | | | | | | | |
First half | 6.7 | 26.2 | 32.9 | | $6.88 | $8.09 | $7.84 |
Second half | 6.8 | 26.6 | 33.4 | | 6.88 | 8.09 | 7.84 |
12 months | 13.5 | 52.8 | 66.3 | | 6.88 | 8.09 | 7.84 |
| | | | | | | | |
| | | | | | | | | | | |
| | | | | | Estimated |
| | Gas (Bcf) Basis-Only Swaps | | Average Basis Per Mcf vs. NYMEX |
2008 | | | | | | | | |
Second quarter | 0.8 | | 0.8 | | $1.83 | | $1.83 |
Second half | 1.7 | | 1.7 | | 1.83 | | 1.83 |
Remainder of 2008 | 2.5 | | 2.5 | | 1.83 | | 1.83 |
| | | | | | | | |
2009 | | | | | | | | |
First half | 4.2 | 1.7 | 5.9 | | $1.35 | $1.08 | $1.27 |
Second half | 4.3 | 1.7 | 6.0 | | 1.35 | 1.08 | 1.27 |
12 months | 8.5 | 3.4 | 11.9 | | 1.35 | 1.08 | 1.27 |
| | | | | | | | |
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| | | | | | | | | | | |
2010 | | | | | | | |
First half | 5.1 | 1.6 | 6.7 | | $2.68 | $0.94 | $2.25 |
Second half | 5.2 | 1.7 | 6.9 | | 2.68 | 0.94 | 2.25 |
12 months | 10.3 | 3.3 | 13.6 | | 2.68 | 0.94 | 2.25 |
| | | | | | | | |
2011 | | | | | | | | |
First half | 6.7 | | 6.7 | | $1.83 | | $1.83 |
Second half | 6.9 | | 6.9 | | 1.83 | | 1.83 |
12 months | 13.6 | | 13.6 | | 1.83 | | 1.83 |
Hedge Positions – April 28, 2008
| | | | | | | | |
Time Periods | Rocky Mountains | Midcontinent | Total | | Rocky Mountains | Midcontinent | Total |
| | | | | | Estimated |
| | Oil (Mbbl) Fixed-Price Swaps | | Average Price Per Bbl, Net to the Well |
| | | | | | | | |
2008 | | | | | | | |
Second quarter | 210 | 109 | 319 | | $67.39 | $70.77 | $68.55 |
Second half | 423 | 221 | 644 | | 67.39 | 70.77 | 68.55 |
Remainder of 2008 | 633 | 330 | 963 | | 67.39 | 70.77 | 68.55 |
| | | | | | | | |
2009 | | | | | | | |
First half | 217 | 145 | 362 | | $60.55 | $66.55 | $62.95 |
Second half | 221 | 147 | 368 | | 60.55 | 66.55 | 62.95 |
12 months | 438 | 292 | 730 | | 60.55 | 66.55 | 62.95 |
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