DENVER, July 29, 2020 (GLOBE NEWSWIRE) — QEP Resources, Inc. (NYSE: QEP) (QEP or the Company) today reported second quarter 2020 financial and operating results and provided an update to its 2020 plan in response to current market conditions.
Second Quarter 2020 HighlightsAmended Credit Agreement increasing liquidity by more than $500 millionReduced capital expenditures to $36.6 million down from $178.5 million in the first quarter 2020Lowered lease operating expense by 37% compared to the second quarter of 2019Generated $72.5 million of Net Cash Provided from Operating ActivitiesDelivered $95.3 million of Free Cash Flow (a non-GAAP measure)Repurchased $57.0 million in principal amount of senior notes at a discount“Since early 2019, we have been focused on delivering value over volume and have held firm to this principle during the pandemic. We quickly took meaningful steps in response to market conditions to proactively manage cash flow and preserve liquidity by significantly reducing drilling and completion activity and by curtailing uneconomic oil production,” commented Tim Cutt, President and CEO of QEP. “We have also benefited from the actions taken over the last two years to streamline our business, which consolidated our acreage footprint and significantly reduced operating and overhead expenses. We continue to improve our outlook for full-year 2020 and now expect to spend approximately $360 million of capital and generate more than $150 million in Free Cash Flow at strip prices.“During extremely challenging conditions, we continued to lower development costs during the quarter, achieving peer leading metrics in several categories. At the same time, we have continued to deliver outstanding well results as evidenced by the performance of our most recent County Line DSUs. We reduced drilling activity and suspended completion operations in the Permian Basin in March, but with the recent improvement in commodity prices, we plan to pick up a second rig in September and resume completion operations in November. In the Williston Basin, we have completed all operated development activity for the year.“We were able to take several important steps during the quarter to further strengthen our financial position. We successfully amended the credit facility, increasing liquidity by more than $500 million, which should provide us with the necessary financial flexibility to execute our ongoing business plan. We also increased our 2021 hedge position to more than 8.6 million barrels of oil at an average price of approximately $43.50 per barrel, which is above our expected Free Cash Flow break-even price in 2021.“As we look forward, we remain focused on the health and safety of our employees, contractors and the communities in which we operate and we are committed to continuing to do our part in these challenging times,” concluded Cutt.The Company has posted to its website www.qepres.com a presentation that supplements the information provided in this release.OPERATIONS UPDATEFor the second quarter 2020, the Company drilled a total of 12 gross horizontal wells and turned 11 gross operated wells to production in the Permian Basin and drilled six gross horizontal wells in the Williston Basin. The average lateral length for the wells completed in the Permian Basin in the second quarter 2020 was 11,099 feet. The average lateral length for the wells drilled in the Williston Basin was 12,760 feet. The Company also re-completed three gross wells in the Williston Basin during the quarter.Production in the Permian Basin was 5.5 million barrels of oil equivalent (MMboe) in the second quarter 2020, an increase of 20% over the second quarter 2019. The increase was a result of putting new wells on production, coupled with improved well performance, attributable to changes in well completion design and higher gas capture rates. Total Company oil equivalent production was 8.0 MMboe in the second quarter of 2020, an increase of 6% compared with the second quarter 2019.Oil and condensate production in the Permian Basin was 3.9 million barrels (MMbbl) in the second quarter 2020, an increase of 18% over the second quarter 2019. Total Company oil and condensate production was 5.5 MMbbl in the second quarter 2020, up 6% compared with the second quarter 2019. The oil and condensate production increase was the result of an increase in volumes in the Permian Basin, partially offset by lower Williston Basin volumes due to reduced activity.FINANCIAL UPDATEThe Company reported a net loss of $184.4 million in the second quarter 2020, or $0.76 per diluted share, compared with net income of $48.8 million, or $0.20 per diluted share, in the second quarter 2019. The $233.2 million decrease was primarily due to a $273.6 million increase in unrealized derivative losses, partially offset by a $83.3 million increase in income tax benefit.Net income (loss) includes non-cash gains and losses associated with the change in the fair value of derivative instruments, gains and losses from asset sales, gains and losses from debt extinguishment, asset impairments and certain other items. Excluding these items, the Company’s second quarter 2020 Adjusted Net Loss (a non-GAAP measure) was $14.4 million, or $0.06 per diluted share, compared with an Adjusted Net Loss of $7.3 million, or $0.04 per diluted share, for the second quarter 2019.Adjusted EBITDA for the second quarter 2020 was $157.3 million compared with $166.5 million in the second quarter 2019, a 6% decrease. The decrease was primarily due to a $176.3 million decrease in oil, gas, and NGL sales, partially offset by a $136.4 million increase in realized derivative gains, a $16.9 million reduction in lease operating expenses, and a $14.0 million decrease in production and property taxes.The definitions and reconciliations of Adjusted Net Income and Adjusted EBITDA is provided under the heading Non-GAAP Measures at the end of this release.Capital InvestmentCapital investment, excluding property acquisitions, was $36.6 million (on an accrual basis) for the second quarter 2020, compared with $169.9 million for the second quarter 2019, of which $31.2 million related to the drilling, completion and equipping of wells and $4.8 million related to midstream infrastructure investment. The decrease in capital expenditures was primarily related to our decision to significantly reduce development in both the Permian and Williston basins in response to the significant reduction in oil price.Operating ExpensesDuring the second quarter 2020, lease operating expense (LOE) was $28.8 million, a decrease of 37% compared with the second quarter 2019. The decrease was primarily due to a decrease in workover activity, water disposal costs, maintenance and repair expenses, and power and fuel expenses in the Williston and Permian basins as a result of continuing efforts to reduce operating expenses. Total Company LOE was $3.62 per Boe in the second quarter 2020, including Permian Basin LOE of $2.35 per Boe, which had a 46% decrease compared with the second quarter 2019.During the second quarter 2020, Transportation and Processing Costs were $12.3 million, an increase of 24% compared with the second quarter 2019. Adjusted Transportation and Processing Costs (a non-GAAP measure) were $27.6 million, an increase of 22% compared with the second quarter 2019. The increase was primarily due to an increase in gathering and processing rates in the Permian and Williston basins and increased production in the Permian Basin. During the second quarter 2020, Transportation and Processing Costs increased by $0.24 per Boe, or 18%, compared with the second quarter 2019, while Adjusted Transportation and Processing Costs increased by $0.47 per Boe, or 16%, compared with the second quarter 2019.The definition and reconciliation of Adjusted Transportation and Processing Costs is provided under the heading Non-GAAP Measures at the end of this release.During the second quarter 2020, general and administrative (G&A) expense was $26.3 million, a decrease of 17% compared with the second quarter 2019. The decrease was primarily related to workforce reductions and a reduction in strategic initiative costs, partially offset by an increase in market value on the deferred compensation plan. For the first half of 2020 G&A expense was down 55% compared with 2019, primarily due to the work force reductions, and decreases in expenses associated with strategic initiatives in 2019 and decreased market value on the deferred compensation plan.LiquidityNet Cash Provided by Operating Activities for the second quarter 2020 was $72.5 million, compared with $117.4 million for the second quarter 2019.The Company generated Free Cash Flow of $95.3 million for the second quarter 2020 compared with an outspend of $32.0 million in the second quarter 2019, an improvement of $127.3 million. The improvement was primarily due to a $133.3 million decrease to accrued property, plant and equipment capital expenditures, partially offset by a $9.2 million decrease in Adjusted EBITDA.Net Cash Provided by Operating Activities for the six months ended June 30, 2020, was $224.4 million, compared with $195.7 million for the six months ended June 30, 2019.The Company generated Free Cash Flow of $63.7 million during the first six months of 2020, compared with an outspend of $104.1 million during the first six months of 2019, an improvement of $167.8 million. The improvement was primarily due to a $122.0 million decrease in accrued capital investment and a $44.9 million increase in Adjusted EBITDA.During the second quarter 2020, QEP repurchased, at a discount, $57.0 million in principal amount of its 6.875% Senior Notes due March 2021.In June 2020, QEP entered into the Eighth Amendment to its Credit Agreement, which, among other things, provides for:a reduction in aggregate commitments from $1.25 billion to $850 million;the requirement that the Company’s material subsidiaries guarantee the obligations under the Credit Agreement;changes to the leverage ratio and present value covenants, such that they only pertain to net priority guaranteed debt;the ability to repurchase outstanding senior notes with up to $500 million of credit facility proceeds;the ability to issue junior subsidiary guarantees of up to $500 million of unsecured debt;the revision of the applicable rate for all borrowings under the Credit Agreement; andan unchanged maturity date of September 2022.As of June 30, 2020, QEP had $3.4 million in cash and cash equivalents, no borrowings under its revolving credit facility, $10.9 million in letters of credit and was in compliance with the covenants under its credit agreement. The Company also has a $165.0 million income tax receivable as of June 30, 2020, primarily attributable to AMT credit refunds, that were accelerated by the Coronavirus Aid, Relief, and Economic Security Act stimulus bill, that it anticipates it will receive during the next twelve months.The definition and reconciliation of Free Cash Flow is provided under the heading Non-GAAP Measures at the end of this release.Updated 2020 Guidance QEP’s updated 2020 guidance assumes: (i) a WTI NYMEX an oil price of $40 per barrel and a natural gas price of $2.00 per MMBtu at Henry Hub, adjusted for applicable commodity and location differentials, (ii) that QEP will elect to reject ethane from its produced gas in the Permian Basin where processing economics support it, and (iii) no property acquisitions or divestitures, other than those already disclosed.(1) Adjusted Transportation and Processing Costs (per Boe) is a non-GAAP measure. Refer to the definitions and reconciliations of Non-GAAP Measures at the end of this release.
(2) The mid-point of general and administrative expense includes approximately $12.0 million of expenses related to cash and non-cash share-based compensation and our deferred compensation plan mark-to-market. Because our cash share-based compensation and our deferred compensation plan liabilities fluctuate with stock price changes, the amount of actual expense may vary from the forecasted amount.
(3) Drilling, Completion and Equipment includes approximately $30.0 million of non-operated well costs.
(4) Includes capital expenditures in the Permian Basin associated with (i) water sourcing, gathering, recycling and disposal and (ii) crude oil and natural gas gathering system.
(5) Original guidance as of February 26, 2020.The following tables present QEP’s volumes and average prices for its open derivative positions as of July 22, 2020:
Second Quarter 2020 Results Conference Call
QEP’s management will discuss second quarter 2020 results in a conference call tomorrow, July 30, 2020, beginning at 9:00 a.m. ET. The conference call can be accessed at www.qepres.com. You may also participate in the conference call by dialing (877) 869-3847 in the U.S. or Canada and (201) 689-8261 for international calls. A replay of the teleconference will be available on the website immediately after the call through August 30, 2020, or by dialing (877) 660-6853 in the U.S. or Canada and (201) 612-7415 for international calls, and then entering the conference ID #13707154. In addition, QEP’s slides for the second quarter 2020 can be found on the Company’s website.About QEP Resources, Inc.QEP Resources, Inc. (NYSE: QEP) is an independent crude oil and natural gas exploration and production company focused in two regions of the United States: the Southern Region (primarily in Texas) and the Northern Region (primarily in North Dakota). For more information, visit QEP’s website at: www.qepres.com.Forward-Looking StatementsThis 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. Forward-looking statements can be identified by words such as “anticipates,” “believes,” “forecasts,” “plans,” “estimates,” “expects,” “should,” “will” or other similar expressions. Such statements are based on management’s current expectations, estimates and projections, which are subject to a wide range of uncertainties and business risks. These forward-looking statements include statements regarding: expectations regarding the Company’s outlook for 2020; reductions in expected capital expenditures; generation of Free Cash Flow; anticipated receipt of AMT refunds under the Coronavirus Aid, Relief, and Economic Security Act stimulus bill; expectations regarding drilling and completion activity in the Permian Basin; our ability to execute our business plan; our 2021 break-even price; updated 2020 guidance and certain underlying assumptions related thereto; and usefulness of non-GAAP measures. Actual results may differ materially from those included in the forward-looking statements due to a number of factors, including, but not limited to: the length and severity of the recent outbreak of the COVID-19 virus and its impact on QEP’s business; changes in oil, gas and NGL prices; liquidity constraints, including those resulting from the cost or unavailability of financing due to debt and equity capital and credit market conditions, changes in QEP’s credit rating, QEP’s compliance with loan covenants, the increasing credit pressure on QEP’s industry or demands for cash collateral by counterparties to derivative and other contracts; market conditions; global geopolitical and macroeconomic factors; the activities of the Organization of Petroleum Exporting Countries and other oil producing countries such as Russia; general economic conditions, including interest rates; changes in local, regional, national and global demand for natural oil, gas and NGL; impact of new laws and regulations, including the use of hydraulic fracture stimulation; impact of U.S. dollar exchange rates on oil, gas and NGL prices; elimination of federal income tax deductions for oil and gas exploration and development; guidance for implementation of the Tax Cuts and Jobs Act; actual proceeds from asset sales; actions of activist shareholders; tariffs on products QEP uses in its operations or on the products QEP sells; drilling results; shortages of oilfield equipment, services and personnel; the availability of storage and refining capacity; operating risks such as unexpected drilling conditions; transportation constraints, including gas and crude oil pipeline takeaway capacity in the Permian Basin; weather conditions; changes in maintenance, service and construction costs; permitting delays; outcome of contingencies such as legal proceedings; inadequate supplies of water and/or lack of water disposal sources; credit worthiness of counterparties to agreements; and the other risks discussed in the Company’s periodic filings with the Securities and Exchange Commission, including the Risk Factors section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as updated by the Risk Factors section of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020. QEP Resources undertakes no obligation to publicly correct or update the forward-looking statements in this news release, in other documents, or on the website to reflect future events or circumstances. All such statements are expressly qualified by this cautionary statement.QEP RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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CONDENSED CONSOLIDATED BALANCE SHEETS
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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(1) Adjusted transportation and processing costs is a non-GAAP measure. The definition and reconciliation of adjusted transportation and processing costs to transportation and processing costs, as presented, are provided within Non-GAAP Measures at the end of this release.QEP RESOURCES, INC.
NON-GAAP MEASURES
(Unaudited)Adjusted EBITDAThis release contains references to the non-GAAP measure of Adjusted EBITDA. Management defines Adjusted EBITDA as earnings before interest, income taxes, depreciation, depletion and amortization (EBITDA), adjusted to exclude changes in fair value of derivative contracts, exploration expenses, gains and losses from asset sales, impairment, loss from early extinguishment of debt and certain other items. Management uses Adjusted EBITDA to evaluate QEP’s financial performance and trends, make operating decisions, and allocate resources. Management believes the measure is useful supplemental information for investors because it eliminates the impact of certain nonrecurring, non-cash and/or other items that management does not consider as indicative of QEP’s performance from period to period. QEP’s Adjusted EBITDA may be determined or calculated differently than similarly titled measures of other companies in our industry, which would reduce the usefulness of this non-GAAP financial measure when comparing our performance to that of other companies.Below is a reconciliation of Net Income (Loss) (a GAAP measure) to Adjusted EBITDA. This non-GAAP measure should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP.Free Cash FlowThis release contains references to non-GAAP measure of Free Cash Flow.The Company defines Free Cash Flow as Adjusted EBITDA plus non-cash share-based compensation less interest expense, excluding amortization of deferred finance costs, and accrued property, plant and equipment capital expenditures. Management believes that this measure is useful to management and investors for analysis of the Company’s ability to repay debt, fund acquisitions or repurchase stock.Below is a reconciliation of Net Cash Provided by (Used in) Operating Activities (the most comparable GAAP measure) to Free Cash Flow. This non-GAAP measure should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP.This release includes a Free Cash Flow estimate for 2020. We are unable, however, to provide a quantitative reconciliation of the forward-looking non-GAAP measure to its most directly comparable forward-looking GAAP measure because management cannot reliably quantify certain of the necessary components of such forward-looking GAAP measure. The reconciling items in future periods could be significant.
Adjusted Net Income (Loss)This release also contains references to the non-GAAP measure of Adjusted Net Income (Loss). Management defines Adjusted Net Income (Loss) as earnings excluding changes in fair value of derivative contracts, gains and losses from asset sales, impairment and certain other items. Management uses Adjusted Net Income (Loss) to evaluate QEP’s financial performance and trends, make operating decisions, and allocate resources. Management believes the measure is useful supplemental information for investors because it eliminates the impact of certain nonrecurring, non-cash and/or other items that management does not consider as indicative of QEP’s performance from period to period. QEP’s Adjusted Net Income (Loss) may be determined or calculated differently than similarly titled measures of other companies in our industry, which would reduce the usefulness of this non-GAAP financial measure when comparing our performance to that of other companies.Below is a reconciliation of Net Income (Loss) (the most comparable GAAP measure) to Adjusted Net Income (Loss). This non-GAAP measure should be considered by the reader in addition to, but not instead of, the financial measure prepared in accordance with GAAP.(1) Income tax impact of adjustments is calculated using QEP’s statutory rate of 22.4% for the three months ended June 30, 2020 and 2019, and QEP’s effective tax rate of 6.5% and 54.8% for the six months ended June 30, 2020 and 2019, respectively.Adjusted Transportation and Processing Costs
This release contains references to the non-GAAP measure of Adjusted Transportation and Processing Costs. Management defines Adjusted Transportation and Processing Costs as transportation and processing costs presented on the Condensed Consolidated Statements of Operations and transportation and processing costs that are included as part of “Oil and condensate, gas and NGL sales” on the Condensed Consolidated Statements of Operations. These costs are added together to reflect the total transportation and processing costs associated with QEP’s production. Management believes that Adjusted Transportation and Processing Costs is useful supplemental information for investors as this non-GAAP measure, collectively with the Company’s lease operating expenses and production and severance taxes, more completely reflect the Company’s total production costs required to operate the wells for the period.Below is a reconciliation of Adjusted Transportation and Processing Costs to transportation and processing costs as presented on the Condensed Consolidated Statements of Operations (the most comparable GAAP measure). This non-GAAP measure should be considered by the reader in addition to but not instead of, the financial statements prepared in accordance with GAAP.This release includes a 2020 estimate for Adjusted Transportation and processing costs. We are unable, however, to provide a quantitative reconciliation of the forward-looking non-GAAP measure to its most directly comparable forward-looking GAAP measure because management cannot reliably quantify certain of the necessary components of such forward-looking GAAP measure. The reconciling items in future periods could be significant.
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