"All Questar business units achieved record earnings in 2010,” said Ronald W. Jibson, Questar president and CEO. “Excluding separation costs, we delivered more than $201 million of net income, an 11% increase from 2009. Our business units also generated over $523 million of EBITDA from continuing operations, a 6% increase from 2009. Wexpro grew its investment base 6%, and Questar Pipeline and Questar Gas both executed on their growth plans,” Jibson added. In addition to announcing strong earnings in 2010, the company affirmed 2011 guidance of $1.07 to $1.11 per share. On Feb.18, Questar increased its dividend by 9% to an annual rate of $0.61 per share.
Spinoff transaction completed
On June 30, 2010, Questar completed a tax-free spinoff of QEP Resources, its natural gas and oil exploration-and-production and midstream-field-services businesses. Results of operations for QEP for the first half of 2010 and prior periods are reported in the attached recast financial statements as income from discontinued operations. Following the spinoff, Questar’s subsidiaries are Wexpro Company, Questar Pipeline Company and Questar Gas Company.
Wexpro results
Wexpro grew net income to $88.1 million, an increase of 9% from 2009 and generated $199.4 million of EBITDA, driven by a higher average investment base. Wexpro grew its investment base to $456.6 million at year-end 2010, compared to $431.9 million at year-end 2009, a 6% increase. Wexpro earned a 19.8% after-tax return on average investment base in 2010. During 2010, Wexpro produced a record 50.2 billion cubic feet of cost-of-service gas for Questar Gas, comprising 51% of the utility’s gas- supply needs. Under a long-standing agreement with the states of Utah and Wyoming, Wexpro recovers its costs and earns an unlevered after-tax return on its investment base – the investment in commercial wells and related facilities, reduced for deferred income taxes and accumulated depreciation. A summary of changes in Wexpro’s investment base is provided below:
Change in Wexpro Investment Base
| | |
| 12 Months Ended December 31, |
2010 | 2009 |
| (in millions) |
Beginning investment base | $431.9 | $410.6 |
Successful development wells | 99.9 | 99.8 |
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| | |
Depreciation, depletion & amortization | (57.9) | (54.3) |
Change in deferred taxes | (17.3) | (24.2) |
Ending investment base | $456.6 | $431.9 |
Questar Pipeline results
Questar Pipeline grew net income to $67.4 million in 2010, up 16% from 2009 and generated $181.6 million of EBITDA. Questar Pipeline earned an 11.9% return on average equity in 2010. Questar Pipeline’s net income increase was largely driven by $15.5 million or 9% higher transportation revenues and $12.7 million or 113% higher natural gas liquids (NGL) sales. A summary of changes in Questar Pipeline revenues is provided below:
Change in Questar Pipeline Revenues
| | | |
| 3 Months Ended | | 12 Months Ended |
December 31, | December 31, |
2010 vs 2009 | | 2010 vs 2009 |
| (in millions) |
Transportation | $3.4 | | $15.5 |
Storage | (0.5) | | (1.8) |
NGL sales – transportation | 2.5 | | 5.3 |
NGL sales – field services | 0.4 | | 7.4 |
Energy services | 0.1 | | 0.3 |
Other | 1.2 | | (0.9) |
Increase | $7.1 | | $25.8 |
At December 31, 2010, Questar Pipeline held net firm-transportation contracts totaling 4,744 thousand decatherms (Mdth) per day, compared to 4,243 Mdth per day at December 31, 2009, a 12% increase. Transportation revenues increased due to an Overthrust Pipeline compression-expansion project completed in the fourth quarter of 2009, which added transportation contracts totaling 300 Mdth per day.
NGL sales increased due to higher prices and volumes sold in each period. The average NGL price for 2010 was $1.33 per gallon, up 45% from 2009. In the fourth quarter of 2010, the average price rose 24% from the prior-year quarter to $1.49 per gallon. NGL volumes increased 48% in 2010 over 2009 due to subsidiary Questar Transportation Services’ completion of a processing plant in Price, Utah, during the third quarter of 2009. NGL volumes increased 38% in the fourth quarter over the same 2009 period. The sum of operating, maintenance, general and administrative expense for 2010 totaled $0.11 per decatherm transported, compared to $0.10 in 2009.
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Questar Gas results
Questar Gas reported net income of $43.9 million in 2010, a 6% increase and generated $139.0 million of EBITDA. Questar Gas earned a 10.8% return on average equity in 2010. Changes in Questar Gas margin (revenues less cost of gas sold) are summarized in the following table:
Change in Questar Gas Margin
| | | |
| 3 Months Ended | | 12 Months Ended |
| December 31, | | December 31, |
| 2010 vs 2009 | | 2010 vs 2009 |
| (in millions) |
New customers | $1.0 | | $3.0 |
Change in rates | 3.6 | | 3.1 |
Demand-side-management cost recovery | (3.2) | | 12.2 |
Recovery of gas-cost portion of bad debt costs | (0.3) | | (0.7) |
Other | (1.5) | | (0.2) |
Increase (decrease) | ($0.4) | | $17.4 |
Customer growth and an increase in rates associated with the company’s conservation-enabling (revenue-decoupling) tariff contributed to higher margins in 2010. Operating, maintenance, general and administrative expenses, excluding demand-side-management (DSM) costs, were $138 per customer in 2010 compared to $136 per customer for 2009. Changes in margin from DSM cost-recovery revenues are offset by equivalent changes in the program’s expenses.
On April 8, 2010, the Public Service Commission of Utah approved a settlement in Questar Gas’s Utah general rate case. The stipulation, effective August 1, 2010, authorized an increase in the utility’s allowed return on equity from 10% to 10.35% and indefinitely extended the existing conservation-enabling tariff. The stipulation further approved an infrastructure-cost-tracking mechanism that allows the company to place into rate base and earn on capital expenditures for a multi-year high-pressure feeder-line replacement program once the new facilities are in service. At December 31, 2010, Questar Gas served 909,600 customers, up 11,000 or 1.2% from December 31, 2009.
2011 EPS guidance affirmed
Questar affirms prior guidance that 2011 net income should range between $1.07 to $1.11 per diluted share. The company’s affirmed earnings guidance considers expectations of lower NGL sales volumes at Questar Pipeline in 2011 and increased deferred taxes at Wexpro. Recent federal income tax legislation allows 100% bonus depreciation, which will result in increased deferred taxes with a
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corresponding reduction to Wexpro’s net investment base calculation under terms of the Wexpro Agreement. Affirmed guidance also recognizes the 2011 interest expense impact of $250 million of 2.75% public notes issued by Questar in December 2010.
2010 earnings teleconference
Questar management will discuss 2010 results from continuing operations and the outlook for 2011 in a conference call with investors Wednesday, February 23, beginning at 9:30 a.m. EST. The call can be accessed on the company website at www.questar.com.
About Questar Corporation
Questar is a Rockies-based integrated natural gas company with an enterprise value of about $4.4 billion, operating through three principal subsidiaries:
·
Wexprodevelops and produces natural gas on behalf of Questar Gas;
·
Questar Pipelineoperates interstate natural gas pipelines and storage facilities in the western U.S. and provides other energy services; and
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Questar Gasprovides retail natural gas distribution in Utah, Wyoming and Idaho.
Forward-Looking Statements
This document may contain or incorporate by reference information that includes or is based upon "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements give expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning in connection with a discussion of future operating or financial performance. Any or all forward-looking statements may turn out to be wrong. These statements are based on current expectations and the current economic environment. They involve a number of risks and uncertainties t hat are difficult to predict. Actual results could differ materially from those expressed or implied in the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to the following:
·
general economic conditions, including the performance of financial markets and interest rates;
·
changes in industry trends;
·
changes in laws or regulations; and
·
other factors, most of which are beyond Questar’s control.
Questar undertakes no obligation to publicly correct or update the forward-looking statements in this document, in other documents, or on the website to reflect future events or circumstances. All such statements are expressly qualified by this cautionary statement.
# # #
For more information, visit Questar’s website at www.questar.com.
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