QEP Resources Reports Second Quarter Adjusted EBITDA of $336.6 Million and Production of 64.7 Bcfe

DENVER, July 26, 2011 /PRNewswire/ -- QEP Resources (NYSE: QEP) reported adjusted EBITDA (a non-GAAP measure) 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.  

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QEP Resources net income from continuing operations for the second quarter was $92.8 million or $0.52 per diluted share, compared to $68.8 million or $0.39 per diluted share in the 2010 period.  Excluding changes in unrealized gains and losses on natural gas basis-only swaps, gains and losses on non-core asset sales and separation costs, QEP Resources adjusted net income from continuing operations (a non-GAAP measure) was $75.4 million or $0.42 per diluted share in the second quarter compared to $58.7 million or $0.33 per diluted share in the 2010 period.  

"The QEP Resources team continued to execute well in the second quarter," said 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," Stanley added.  

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 raises 2011 adjusted EBITDA and Production Guidance

QEP now expects 2011 adjusted EBITDA to range from $1,275 to $1,325 million, compared to a previously forecast range of $1,200 to $1,300 million.  QEP Energy expects 2011 production should range from 265 to 269 Bcfe, compared to a previously forecast range of 263 to 267 Bcfe.

The company's guidance assumes hedge positions in place on the date of this release and other assumptions summarized in the table below:    

Approximately 72% of QEP Energy's forecast natural gas production and 29% of forecast oil production for the remainder of 2011 is hedged with a combination of fixed price swaps and price collars.  On a natural gas equivalent basis, the company has 62% of its forecast production for the remainder of 2011 hedged.  A table with details of the Company's hedge positions is included at the end of this release.

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 Results

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.  

• Depreciation, depletion and amortization expense per Mcfe (the DD&A rate) increased compared to 2010 primarily as the result of an increased proportion of production coming from the Company's Haynesville/Cotton Valley properties.  The higher DD&A rate of the Haynesville/Cotton Valley properties reflects a significant component of amortizing leasehold pool costs as a result of 2008 producing property acquisitions.  
• QEP Energy cash cost of production – lease operating expense plus general and administrative expense, allocated interest, and production taxes was $1.60 per Mcfe in the second quarter, compared to $1.58 per Mcfe in the 2010 period, a 1% increase.
• Lease operating expense per Mcfe decreased in the year-to-date period compared to 2010 as the result of increased production volumes in lower cost areas.  Growing production from new high-rate, low-operating cost wells in the Haynesville/Cotton Valley area and in Pinedale coupled with declining production from higher cost areas is lowering average per Mcfe lease operating expense.
• Production taxes per Mcfe increased in the current quarter compared to 2010 as the result of increased field-level crude oil and NGL prices.

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.  Slides with maps and other supporting materials referred to in this release are posted on the Company's website www.qepres.com - please refer to slides 3 and 4 for additional information on QEP's Haynesville activities.  

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.  Slides 6 and 7 provide additional details on QEP's Pinedale activity.

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.  Slide 8 shows QEP's acreage and additional details on the Cana play.

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.  Initial results for the four recently completed wells, all long lateral horizontals, are summarized below.  

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.  Slide 10 shows QEP's acreage position and the location of recent QEP-operated wells in the play.

QEP Field Services Adjusted EBITDA Up 66%; Gathering volumes up 6%; Fee-based processing volumes up 6%; NGL sales volume up 36%

QEP Field Services (Field Services) – a QEP subsidiary that provides gas gathering and processing services – second quarter adjusted EBITDA increased 66% to $86.9 million compared to $52.3 million in the 2010 period.  The increase was the result of higher gathering and processing margins.

• Gathering margin (total gathering revenues less gathering related operating expenses) increased 36%, or $ 13.7 million, driven primarily by increased other gathering revenue related to a third party processing arrangement for certain gas volumes in the Northern Region and a 6% increase in gathering system throughput volume to 1.3 million MMBtu per day.  The increased volumes were primarily in the Southern Region (Haynesville/Cotton Valley area).
• Processing margin (total processing plant revenues less plant operating expenses and shrinkage) increased 92%, or $20.5 million, driven by 107% higher keep-whole processing margins and increased fee-based processing volumes.  The increased keep-whole processing margin was mostly the result of a 39% increase in NGL prices and a 36% increase in NGL volumes.  Fee-based processing volumes increased 6% compared to 2010 primarily as the result of the start-up of the 150 MMcf per day Iron Horse cryogenic processing plant in eastern Utah during the first quarter of 2011.
• Approximately 69% of Field Services' second quarter net operating revenue was derived from fee-based gathering and processing activities compared to 77% in the 2010 period.
• QEP Field Services gathering volumes totaled 121.1 million MMBtu for the second quarter of 2011 compared to 114.2 million MMBtu for the second quarter of 2010, a 6% increase.
• Fee-based processing volumes totaled 60.3 million MMBtu in the 2011 quarter compared to 57.1 million MMBtu in the 2010 quarter, a 6% increase.
• NGL sales volumes totaled 36.4 million gallons during the 2011 quarter compared to 26.7 million gallons during the 2010 quarter, a 36% increase.
• The 150 MMcfd Iron Horse cryogenic processing plant in eastern Utah came on line in the first quarter of 2011.  This plant predominantly provides fee-based processing services to third-parties.  
• Construction of the 420 MMcfd Blacks Forks II cryogenic gas processing plant in southwest Wyoming was mechanically completed on July 14th, well ahead of schedule.  The plant is currently being loaded with gas for testing.  When fully operational, the Blacks Fork II plant will have the capacity to extract an incremental 15,000 bbls per day of NGL net to QEP Resources.  Including the Blacks Fork II plant, QEP Field Services owns and operates processing plants in the Northern (Rocky Mountain) Region with an aggregate processing capacity of 1.37 Bcfd of natural gas.  Slides 11 to 13 show the location of QEP Field Services assets and the new Blacks Fork II plant.

Second Quarter 2011 Results Conference Call

QEP Resources management will discuss second quarter 2011 results in a conference call on Wednesday, July 27, beginning at 11:00 a.m. ET.  The call can be accessed at www.qepres.com.  A replay of the teleconference will be available on the website and from July 27 to August 11 by dialing (800) 642-1687 in the U.S. or (706) 645-9291 outside the U.S., and then entering passcode 81682070.  In addition, updated maps showing QEP's leasehold and current activity for key operating areas discussed in this release can be found on the company's website.

About QEP Resources

QEP Resources, Inc. (NYSE:QEP) is a leading independent natural gas and oil exploration and production company with operations focused in the Rocky Mountain and Midcontinent of the United States.  QEP Resources also gathers, compresses, treats, processes and stores 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.  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: forecasted adjusted EBITDA, production and capital investment for 2011 and related assumptions for such guidance; percentage of net realized production revenues attributed to oil and NGL production; number of rigs planned in operating areas; changes in lease operating expenses; the effects of restricting the flowing rate at the Haynesville Shale; and the capacity of the Blacks Fork II plant and the timing of such plant being fully operational.  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 availability of capital; changes in local, regional, national and global demand for natural gas, oil and NGL; shortages of oilfield equipment, services and personnel; operating risks such as unexpected drilling conditions; weather conditions; changes in maintenance and construction costs; the availability and cost of credit; 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, 2010.  QEP Resources 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 QEP Resources' Internet site at: www.qepres.com.

SOURCE QEP Resources, Inc.

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