QEP Resources Reports First Quarter 2013 Financial and Operating Results

QEP Resources Reports First Quarter 2013 Financial and Operating Results

DENVER--(BUSINESS WIRE)-- QEP Resources, Inc. (NYS: QEP) ("QEP" or the "Company") today reported first quarter 2013 financial and operating results. The Company reported a net loss during the first quarter 2013 of $4.3 million, or $0.02 per diluted share, compared to net income of $155.2 million, or $0.87 earnings per diluted share, in the first 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, and certain significant accrued litigation loss contingencies. Excluding these items, the Company's Adjusted Net Income (a non-GAAP measure) was $49.4 million, or $0.28 per diluted share, for the first quarter 2013, compared to $78.1 million, or $0.44 per diluted share, for the comparable 2012 period. The lower Adjusted Net Income was due primarily to lower midstream NGL revenue and higher depreciation, depletion and amortization and other expenses in the first quarter 2013 compared to 2012.

Adjusted EBITDA (a non-GAAP measure) for the first quarter 2013 was $375.0 million, compared to $350.7 million in the first quarter 2012. A reconciliation of Adjusted EBITDA and Adjusted Net Income to net income is provided within the financial tables of this release.

First Quarter 2013 Highlights

• QEP Energy reported net production of 78.0 Bcfe, an increase of 5% over 2012. QEP Energy's crude oil production increased 75% over the first quarter 2012.

• Crude oil and NGL comprised 25% of QEP Energy's production compared to 20% in the first quarter 2012.

• Crude oil and NGL revenue represented 55% of QEP Energy's field level revenue.

• QEP Field Services' fee-based revenue increased 12% compared to 2012.

"We continue to make good progress on our efforts to grow QEP's crude oil production," said Chuck Stanley, Chairman, President and CEO of QEP Resources. "QEP Energy's crude oil production increased 75% compared to a year ago. Excluding the contribution from our recent North Dakota acquisition, crude oil volumes grew 29% from last year. Crude oil represented 16% of total production, up from just 10% one year ago. While QEP Energy's NGL sales volumes decreased 23% from the fourth quarter due to the impact of ethane rejection, NGL revenue was up slightly on a higher per-barrel NGL price resulting from a reduced volume of lower value ethane. Most importantly, the impact of increased crude oil volumes can be seen in QEP Energy's financial performance, with Adjusted EBITDA up 21% from a year ago despite flat net realized natural gas prices.

"QEP Energy's production was up 5% from a year ago, but as expected, production volumes declined from fourth quarter levels due to our typical suspension of completion activities at Pinedale during the coldest winter months and a shift to pad drilling on our recently acquired South Antelope properties in North Dakota," continued Stanley. "With resumption of completion activity late in the first quarter and planned activity through 2013, we expect to deliver crude oil production growth of at least 70% in 2013. While the recent increase in natural gas prices is encouraging and makes our deep portfolio of natural gas assets more valuable, we do not plan to shift capital away from the strong returns of our crude oil dominant properties at this time.

QEP Energy

• Total net equivalent natural gas, crude oil and NGL production increased 5% to 78.0 Bcfe in the first quarter 2013 compared to 74.2 Bcfe in 2012. Crude oil production increased 75% while natural gas and NGL production decreased 2% and 9%, respectively, in the first quarter 2013 compared to 2012.

• Adjusted EBITDA increased 21% compared to the first quarter 2012, driven by the 5% increase in production volumes and 5% and 11% increases in the net realized price for oil and NGL, respectively.

• Crude oil and NGL revenues increased 52% compared to the first quarter 2012 and represented approximately 55% of field-level production revenues.

• Capital investment (on an accrual basis) for the first quarter 2013, was $325.4 million including $23.6 million of acquisitions.

• In April 2013, the Company entered into Purchase and Sale Agreements related to the disposition of some of its non-core properties in the Northern Region for total consideration of $145.0 million before purchase price adjustments. The Company expects to record a gain on the sale of these assets of approximately $100.0 million and anticipates closing the transactions in the second quarter 2013.

• Slides with maps and other supporting materials for the first quarter 2013 results referred to in this release are posted on the Company's website at www.qepres.com.

QEP Field Services

• QEP Field Services' Adjusted EBITDA decreased 36% in the first 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 68% decrease in NGL sales volumes primarily as a result of ethane rejection (where ethane is left in the production stream and sold as natural gas instead of being recovered as an NGL) and a 10% decrease in natural gas gathering volumes as a result of declining dry gas production volumes on our Haynesville gathering system.

• Capital investment (on an accrual basis) for the first quarter 2013 totaled $12.0 million.

At the end of the first quarter, QEP Energy had 20 operated wells drilling or at intermediate casing point (average working interest 83%) and 10 operated wells waiting on completion (average working interest 85%). The Company also had interests in 14 outside-operated wells being drilled (average working interest 6%) and 20 outside-operated wells waiting on completion (average working interest 4%) at the end of the first quarter.

QEP Energy had seven rigs operating in the Bakken/Three Forks play (four in the South Antelope Area and three within the Fort Berthold Reservation) at the end of the first quarter. QEP Energy's operated completed well costs for a typical long-lateral Bakken or Three Forks well averaged approximately $10.8 million in the first quarter.

Slides 6-8 depict QEP Energy's acreage and activity in the Bakken/Three Forks play.

Pinedale Anticline:110 new well completions expected in 2013

During the first quarter 2013, QEP Energy's Pinedale net production averaged 241 MMcfed, of which 13% was oil and NGL. In response to the decline in ethane prices, QEP Energy began rejecting ethane from Pinedale production on December 1, 2012. While ethane rejection results in 7-8% less natural gas equivalent sales volumes, it has a negligible impact on gross revenues at current ethane prices. The processing margins for Pinedale propane and heavier NGL components remain positive.

QEP Energy completed and turned to sales 22 new Pinedale wells (average working interest 68%) during the first quarter. QEP Energy suspends Pinedale completion operations during the coldest months of the winter, generally from December to mid-March. At the end of the first quarter, the Company had 51 Pinedale wells with QEP working interests drilled, cased and awaiting completion.

Drilling and completion efficiencies have allowed QEP Energy to maintain industry-leading average gross completed well costs of approximately $4.2 million per well at Pinedale. In the first quarter, drill times from spud to total depth averaged 11.9 days compared to an average of 12.8 days in 2012.

At the end of the first quarter, QEP Energy had four rigs operating at Pinedale (including one rig working in an area where QEP Energy is the operator but owns only a small overriding royalty interest). The Company currently expects to complete a total of approximately 110 wells during 2013, including 29 wells in the area in which QEP Energy is the designated operator but owns only a small overriding royalty interest.

Please refer to slides 9-10 for additional details on the Company's Pinedale operations.

Uinta Basin:Continued development drilling in the liquids-rich Lower Mesaverde Play

During the first quarter 2013, Uinta Basin net production averaged 65 MMcfed of which 30 MMcfed was from the Lower Mesaverde play. In response to the decline in ethane prices, QEP Energy commenced rejecting ethane from Uinta Basin gas production in the fourth quarter 2012. Ethane rejection results in 7-8% less natural gas equivalent sales volumes but has only a negligible impact on gross revenues at current ethane prices. Processing margins for propane and heavier NGL components remain positive.

QEP Energy commenced development drilling on "Pinedale-style" multi-well pads in the Lower Mesaverde play during the fourth quarter 2012 and initially plans to drill 20-acre density development wells. The pads and wellbore geometries will be designed to allow for possible future 10-acre density development wells. Data from a recently completed seven well pilot program is being analyzed to ascertain the reserve potential of tighter, 10-acre density development. Average measured depth for a typical Lower Mesaverde well is approximately 11,000 feet.

The Company had two operated drilling rigs working in the Lower Mesaverde play and had 61 producing wells in the play, four of which were completed and turned to sales during the first quarter (100% working interest). QEP Energy has over 3,200 potential remaining locations in this significant liquids-rich gas resource play.

In addition to Lower Mesaverde activity, at the end of the first quarter the Company had one rig drilling horizontal and vertical wells targeting multiple crude oil-bearing limestone and sandstone reservoirs in the Lower Green River Formation, at an average true vertical depth of 5,500 feet. During the first quarter, QEP Energy completed three Company-operated horizontal oil wells in the Uinta Basin (average working interest 79%).

Slides 11-12 depict QEP Energy's acreage and additional details of the Lower Mesaverde play.

Woodford "Cana":Currently drilling 80-acre density development wells in the liquids-rich core of the play

QEP Energy's net production from the Woodford "Cana" play averaged 80 MMcfed during the first quarter 2013. During the first quarter, QEP Energy completed four operated wells in the play (working interest 100%). The Company also participated in 27 outside-operated horizontal Woodford "Cana" Shale wells that were completed and turned to sales during the first quarter (working interests ranging from less than 1% to 4%).

At the end of first quarter, the Company had one operated rig drilling 80-acre horizontal infill development wells (working interest 75%) and there were seven QEP Energy-operated 80-acre infill wells in one section awaiting completion (working interest 75%). QEP Energy also has a working interest in 17 outside-operated wells awaiting completion (working interests ranging from less than 1% to 37%).

Slide 13 depicts QEP Energy's acreage and additional details of the Cana play.

Granite Wash:Horizontal development in the Texas Panhandle

QEP Energy's net production from the Texas Panhandle Granite Wash play averaged 42 MMcfed during the first quarter 2013. During the quarter, QEP Energy completed three operated wells in the play (one Cherokee Formation and two Caldwell Formation, average working interest 56%) with an average 24-hour initial gross production rate of 775 Boed. QEP Energy also participated in five outside-operated well completions in the Kansas City Formation (or Hogshooter Formation, average working interest 17%) with an average 24-hour initial gross production rate of 976 Boed. At the end of the first quarter the Company had one operated Granite Wash "A" Formation horizontal well drilling (working interest 72%).

See slide 14 for details on the Granite Wash play.

Haynesville:No operated drilling activity in the Haynesville Shale play of NW Louisiana

The Company's Haynesville/Cotton Valley net production averaged 248 MMcfed during the first quarter 2013.

In response to low natural gas prices, QEP Energy released its last operated drilling rig in the Haynesville play in July 2012 and deferred completion of the last five wells drilled. QEP Energy completed these five deferred Haynesville wells during the first quarter 2013 (working interest 48%). The Company also participated in one outside-operated horizontal Haynesville well that was completed in the first quarter (working interest 9%).

Refer to slide 15 for additional information on QEP Energy's Haynesville activities.

QEP Field Services

QEP Field Services' total revenue from fee-based processing activity increased by 12%, or $2.2 million, in the first quarter 2013 compared to the first quarter 2012. This was offset by lower first quarter 2013 NGL sales volumes, which were down 68% primarily as a result of our processing plants operating in ethane rejection, and lower gathering volumes, which were down 10% compared to the prior-year quarter. Approximately 82% of QEP Field Services' first quarter 2013 net operating revenue was derived from fee-based gathering and processing activities compared to 72% in the first quarter 2012.

Processing margin (total processing plant revenues less plant shrink, transportation, fractionation, and operating expenses) was $26.3 million in the first quarter 2013 compared to $45.0 million in the first quarter 2012, a 42% decrease. First quarter 2013 results were negatively impacted by a 69% decrease in keep-whole processing margin (NGL sales revenues less shrink, transportation and fractionation expenses), due primarily to weaker NGL component prices and higher natural gas prices. Total fee-based processing revenues were $21.3 million in the first quarter 2013, a 12% increase from the prior year period.

Gathering margin (total gathering revenues less gathering related operating expenses) was $37.5 million in the first quarter 2013 compared to $43.6 million in the first quarter 2012, a 14% decrease, due primarily to a 32% decline in our northwest Louisiana Haynesville gathering volumes between the two periods.

After commissioning and startup in the first quarter, Field Services' new Iron Horse II cryogenic processing plant is now fully operational. During the first quarter, construction continued on Field Services' 10,000 barrel per day NGL fractionation facility expansion at QEP's Blacks Fork facility in southwest Wyoming. When completed in mid-2013, NGL fractionation capacity at Blacks Fork will total 15,000 barrels per day. To support this expansion, QEP is doubling existing railcar loading capacity at Blacks Fork to facilitate access to what are often higher-value local, regional, and national NGL markets.