QEP Resources, Denver, (NYSE: QEP) reported adjusted EBITDA of $336.6 million for the second quarter of 2011 compared to $276.0 million in the 2010 period, a 22% increase. Net realized natural gas prices were 17% lower than a year ago, but were more than offset by a 20% increase in production and higher net realized crude oil and NGL prices at QEP Energy, along with increased gathering and processing margins at QEP Field Services.
QEP Energy increased second quarter production 20% to 64.7 Bcfe compared to 53.7 Bcfe in the 2010 period. The Southern Region (formerly the Midcontinent region) contributed 57% of current year production compared to 51% in the 2010 period.
"The QEP Resources team continued to execute well in the second quarter," says Chuck Stanley, president and CEO. "QEP Energy production was up 20% from a year ago. Production growth was driven by strong results from ongoing development activities in our Haynesville Shale and Pinedale Anticline plays, combined with significant contributions from new wells in our Woodford "Cana" Shale and Bakken/Three Forks plays.
"Our strategy to diversify away from our traditional Rockies focus continues to bear fruit - QEP Energy grew Southern Region production 34% in the second quarter of 2011 compared to the 2010 period. With almost 40% of our 2011 capital directed to oil and liquids-rich gas plays, we grew oil and NGL production 32% in the first half of 2011 compared to the same period a year ago. Oil and NGL production accounted for 27% of QEP Energy net realized production revenues in the first half of 2011 - and that share could grow as we continue to allocate capital to our higher-margin resource plays and benefit from early start-up of our Blacks Fork II gas processing plant in late July."
Second Quarter 2011 Highlights
- QEP Energy grew natural gas, oil and NGL net production to 64.7 billion cubic feet of natural gas equivalent (Bcfe) compared to 53.7 Bcfe in the 2010 period. Crude oil and NGL comprised 12% of reported production volumes.
- QEP Energy adjusted EBITDA increased 11% compared to the 2010 period, driven by a 20% increase in production and increased net realized liquid prices – 39% for crude oil and 30% for NGL, partially offset by a 17% decrease in net realized natural gas prices.
- QEP Energy net realized natural gas prices averaged $4.04 per thousand cubic feet (Mcf), compared to $4.87 per Mcf in the 2010 period. Field-level natural gas prices in 2011 were $3.39 per Mcf compared to $3.40 per Mcf in 2010. Natural gas-related derivative settlements increased net revenues $36.8 million in 2011 ($0.65 per Mcf) compared to $70.1 million in 2010 ($1.47 per Mcf).
- QEP Energy net crude oil and NGL revenues (including the settlement of crude oil-related derivatives) increased 79% compared to the second quarter of 2010 and represented 30% of net realized production revenues.
- Net realized crude oil prices averaged $91.59 per barrel, up 39% compared to the 2010 period. Oil related derivative settlements increased net revenues $0.1 million compared to a decrease of $1.8 million in 2010.
- Net realized NGL prices at QEP Energy averaged $41.82 per barrel, up 30% compared to the 2010 period.
- QEP Field Services adjusted EBITDA increased 66% compared to the second quarter of 2010, driven by a 36% increase in gathering margin and a 92% increase in processing margin. Net income was $44.2 million, up 82% from $24.3 million in the second quarter of 2010.
- QEP Energy capital investment (on an accrual basis) year-to-date was $639.6 million comprised of $609.8 million in drilling and completion costs and other expenditures (including $0.5 million of dry hole exploration expense) and $29.8 million in property acquisition costs.
- QEP Field Services capital investments (on an accrual basis) year-to-date to expand capacity at its gathering, processing and treating facilities in western Wyoming, eastern Utah and the Haynesville/Cotton Valley area of northwest Louisiana totaled $33.2 million.
- Field Services introduced gas into the Blacks Fork II plant on July 14th, and is now in the process of testing and loading the plant. QEP should be in full NGL recovery mode by early August. QEP Energy entered into a fee-based processing agreement with QEP Field Services under which Field Services will provide cryogenic gas processing services for QEP Energy's Pinedale production volumes at Blacks Fork II.
QEP now forecasts 2011 total capital investment of $1,300 million, comprised of $1,173 million in QEP Energy, $125 million in QEP Field Services, and $2 million in QEP Marketing. The $123 million increase in forecasted capital investment in QEP Energy is due to: 1) a forecasted increase in the number of net completed Pinedale and Haynesville Shale wells by year-end due to continued drilling/completion efficiency gains; 2) QEP's assumption of additional working interests in certain Pinedale wells due to partner elections not to participate in same; 3) increased completed well costs in the Bakken and Cana Shale plays due to escalating drilling and completion costs that have not been offset by efficiency gains; and 4) the anticipated addition of two drilling rigs in each of the Bakken/Three Forks and Pinedale plays in the fourth quarter of 2011. Forecasted capital investment in QEP Field Services declined $25 million versus the prior forecast due to early completion of the Blacks Fork II gas processing plant and slight changes in timing of expenditures on certain other gathering and processing projects.
QEP Energy Operations Update
Growth continues in the Haynesville Shale of NW Louisiana
Since the last update, QEP has completed 16 additional company-operated Haynesville wells, each with strong production rates and pressures. Year-to-date in 2011, QEP drill times averaged 32 days from spud to total depth on company-operated Haynesville wells, down from 37 days in 2010. Improved drilling performance and completion efficiencies have allowed QEP to remain the lowest cost operator in its portion of the Haynesville play. QEP-operated gross completed well costs averaged $9.1 million year-to-date in 2011 compared to $9.3 million in 2010. QEP has 11 wells waiting on completion or being completed and will have 6 operated rigs working in the Haynesville play for most of the balance of the year. The Company also participated in 10 outside-operated Haynesville wells that were completed and turned to sales since the last operations update. Working interest in these wells ranged from 5% to 26%. QEP has interests in 10 outside-operated Haynesville wells that are waiting on completion and 9 outside-operated wells that are currently drilling.
During the second quarter of 2011, the company's Haynesville net production averaged approximately 226 MMcfd and Cotton Valley/Hosston net production averaged approximately 54 MMcfd. QEP net production from the Haynesville play was impacted by the company's decision to further restrict the flowing rate of Haynesville wells to decrease near-wellbore pressure drawdown. Slide 5 provides a comparison of the performance of QEP operated wells produced with restricted flow rates to two groups of outside operated nearby wells produced with unrestricted flow rates. The company believes restricted flow rates minimize reservoir and propped fracture damage which should lead to increased ultimate recoverable reserves.
QEP on track to deliver 95 to 100 new Pinedale well completions in 2011
QEP has completed and turned to sales 52 new wells at Pinedale since resuming completion operations in mid-March 2011. The company discontinues completion operations at Pinedale during the coldest months of the winter which causes a production decline in the first and second quarters of each year compared to the fourth quarter of the prior year. QEP currently has 34 operated wells drilled and cased and waiting on completion. Improved drilling performance has translated directly into lower Pinedale well costs, with second quarter 2011 drill times averaging 13.8 days from spud to total depth with resultant average gross completed well costs of approximately $3.8 million. The average drill time from spud to total depth in 2010 was 17 days. The company has 4 rigs currently working at Pinedale and plans to add 2 rigs by early 2012. During the second quarter of 2011, QEP's Pinedale net production averaged approximately 196 MMcfed.
Strong industry activity continues in the Woodford "Cana" Shale play
QEP has completed and turned to sales 4 new QEP-operated Woodford "Cana" Shale wells in western Oklahoma. QEP has 2 operated wells currently being drilled and 3 operated wells waiting on completion. The company currently operates 17 producing wells and has a non-operated working interest in 143 producing wells across the play. The company also has interests in 17 wells currently being drilled and 17 wells waiting on completion that are operated by others. During the second quarter of 2011, QEP net production from the play averaged approximately 37 MMcfed and the company anticipates operating 3 rigs in the play for most of the second half of 2011. QEP now has 77,600 net acres in the Cana play, an increase of 2,300 net acres over the first quarter of 2011.
Bakken/Three Forks production grows on company's 90,000 acre North Dakota leasehold
QEP has completed and turned to sales 4 additional operated wells in the Williston Basin of North Dakota, 3 producing from the Bakken Formation and one from the Three Forks Formation. QEP has 3 company-operated rigs drilling in the Bakken/Three Forks play and plans to add 2 QEP-operated rigs by early 2012 to accelerate development of QEP's acreage position via pad drilling.
QEP has 6 operated wells waiting on completion in the play and interests in 6 outside-operated wells currently being drilled and 8 outside-operated wells waiting on completion. The company operates 17 producing wells in the play and has a working interest in 69 producing wells that are operated by others. During the second quarter of 2011, QEP's Bakken/Three Forks net production averaged approximately 2,639 Boepd. Slide 9 shows QEP's acreage and activity in the Bakken/Three Forks play.
Granite Wash and Atoka Wash horizontal development in the Texas Panhandle
Since the last operations update, the company has completed and turned to sales 2 additional QEP operated Atoka Wash horizontal wells and one additional Caldwell zone horizontal well in Wheeler County, TX. The Moore 10W #3H and 10W #4H wells, located on the southern edge of QEP's acreage block, are currently producing gas at uneconomic rates from the Atoka Wash. The Morrison 33 #6H completed in the Caldwell zone, had first sales on July 18 and produced at a peak daily rate after processing of 2,480 Bbls of oil and NGL per day plus 5.5 MMcfd of dry gas. QEP has a 51% working interest in the well. In addition to the 3 wells completed during the quarter, continued testing of the Franklin 46 #1-H Cherokee zone horizontal well, reported in QEP's last operations update, indicates that the target zone is water-bearing.
The company is currently drilling one Cherokee zone horizontal well and one Caldwell zone horizontal well and has 2 Atoka Wash horizontal wells waiting on completion. QEP is also participating in one outside-operated well currently being drilled and has an interest in 2 outside-operated wells waiting on completion. QEP has approximately 40,300 net acres in the "Wash" plays in the western Anadarko Basin including 26,700 acres in the Texas Panhandle. QEP has a working interest in a total of 43 producing horizontal Granite Wash/Atoka Wash wells in the Texas Panhandle and anticipates decreasing its operated rig count in this play to one rig for most of the second half of 2011 to avoid drilling new wells ahead of the evaluation of offset well results. During the second quarter of 2011, net production from this play (vertical and horizontal wells) averaged approximately 43 MMcfed.
Recommended Reading
Upstream, Midstream Dividends Declared in the Week of July 8, 2024
2024-07-11 - Here is a selection of upstream and midstream dividends declared in the week of July 8.
Solaris Stock Jumps 40% On $200MM Acquisition of Distributed Power Provider
2024-07-11 - With the acquisition of distributed power provider Mobile Energy Rentals, oilfield services player Solaris sees opportunity to grow in industries outside of the oil patch—data centers, in particular.
Trio Chairman Robin Ross Named CEO Less Than a Month After Return
2024-07-15 - Robin Ross, who last month returned to Trio Petroleum as board chair, has been named CEO while predecessor Michael Peterson will remain as a consultant.
Liberty Energy Warns of ‘Softer’ E&P Activity to Finish 2024
2024-07-18 - Service company Liberty Energy Inc. upped its EBITDA 12% quarter over quarter but sees signs of slowing drilling activity and completions in the second half of the year.
Talos Ups Buybacks, Pays Down Debt Post $1.29B QuarterNorth Deal
2024-07-22 - Talos Energy said it repaid $325 million in debt since closing its $1.29 billion cash-and-stock acquisition of E&P QuarterNorth in March.