QEP Resources Reports Third Quarter 2020 Financial and Operating Results

Rhea-AI Summary

QEP Resources reported its third quarter 2020 results, highlighting a $170.7 million AMT credit refund and $329.6 million in net cash from operations. The company generated $98.3 million in free cash flow and redeemed $275.3 million in senior notes. However, QEP faced a net loss of $49.2 million, attributed to unrealized derivative losses. Production declined 16% year-over-year, with a 29% drop in oil and condensate output from the Permian Basin. Despite these challenges, the company expects to generate over $200 million in free cash flow for the year.

Positive

• Received $170.7 million AMT tax credit refund, accelerating debt redemption.
• Generated $329.6 million in net cash provided from operating activities.
• Achieved $98.3 million in free cash flow.
• Successfully redeemed $275.3 million senior notes five months early.
• Expect to generate over $200 million in free cash flow for 2020.

Negative

• Reported a net loss of $49.2 million, a significant decrease from net income of $81 million in Q3 2019.
• Production decreased by 16% year-over-year, with a 29% drop in oil and condensate production in the Permian Basin.

DENVER, Oct. 28, 2020 (GLOBE NEWSWIRE) -- QEP Resources, Inc. (NYSE: QEP) (QEP or the Company) today reported third quarter 2020 financial and operating results.

Third Quarter 2020 Highlights

• Received a $170.7 million Alternative Minimum Tax (AMT) credit refund, which included $5.6 million of interest income
• Generated $329.6 million of Net Cash Provided from Operating Activities
• Delivered $98.3 million of Free Cash Flow (a non-GAAP measure)
• Redeemed the remaining $275.3 million in principal amount of the 2021 Senior Notes
• Recorded an additional income tax receivable of $81.0 million for AMT credit refunds

"Our third quarter 2020 results exhibit both the strength of our core assets and the success of the financial and operational decisions we have made over the last two years," commented Tim Cutt, President and CEO of QEP. "Our financial outlook for full-year 2020 has continued to improve and we now expect to spend approximately $340 million of capital and generate more than $200 million in Free Cash Flow at strip prices as we continue to prioritize profitability and financial discipline over production growth.

"During the quarter we received our $170.7 million tax refund ahead of our expected timeline, which enabled us to redeem our 2021 Senior Notes five months before their due date. The redemption of the senior notes is another important step toward our corporate goal of strengthening our balance sheet and improving liquidity. Since January of 2019 we have reduced our outstanding debt by more than $900 million through a combination of free cash flow generation, tax refunds and asset divestiture proceeds.

“We currently plan to invest approximately $300 million in 2021 to maintain a relatively flat production profile and expect to deliver free cash flow down to a WTI price of $35 per barrel. We have established one of the lowest operating and development cost structures in the Permian Basin and will continue to manage costs down, while minimizing our impact on the environment, and protecting the health, safety and well-being of our employees, contractors and community partners," concluded Cutt.

The Company has posted to its website www.qepres.com a presentation that supplements the information provided in this release.

OPERATIONS UPDATE

For the third quarter 2020, the Company drilled a total of nine gross horizontal wells in the Permian Basin and completed two gross horizontal wells in the Williston Basin. The average lateral length for the wells drilled in the Permian Basin in the third quarter was 12,548 feet. The average lateral length for the wells completed in the Williston Basin in the third quarter was 12,258 feet. In addition, five non-operated wells were put on production in the Williston Basin late in the third quarter 2020.

Production in the Permian Basin was 4.4 million barrels of oil equivalent (MMboe) in the third quarter 2020, a decrease of 23% compared with the third quarter 2019. The decrease was a result of decreased drilling activity and the suspension of completion activity in the basin during the quarter. Production in the Williston Basin was 2.7 MMboe in the third quarter 2020, a decrease of 2% compared with the third quarter 2019. The decrease was a result of reduced operated drilling and completion activity in the basin, partially offset by an increase in non-operated activity. Total Company oil equivalent production was 7.1 MMboe in the third quarter of 2020, a decrease of 16% compared with the third quarter 2019. As of September 30, 2020, the Company had two operated drilling rigs in the Permian Basin and no operated activity in the Williston Basin.

Oil and condensate production in the Permian Basin was 2.8 million barrels (MMbbl) in the third quarter 2020, a decrease of 29% over the third quarter 2019. Total Company oil and condensate production was 4.4 MMbbl in the third quarter 2020, down 22% compared with the third quarter 2019. The oil and condensate production decrease was primarily the result of a decrease in volumes in the Permian Basin due to reduced drilling activity and the suspension of completion activity in response to market conditions.

FINANCIAL UPDATE

The Company reported a net loss of $49.2 million in the third quarter 2020, or $0.20 per diluted share, compared with net income of $81.0 million, or $0.34 per diluted share, in the third quarter 2019. The $130.2 million decrease was primarily due to a $196.1 million increase in unrealized derivative losses, partially offset by a $81.8 million increase in income tax benefits.

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 third quarter 2020 Adjusted Net Income (a non-GAAP measure) was $31.2 million, or $0.13 per diluted share, compared with an Adjusted Net Income of $11.0 million, or $0.05 per diluted share, for the third quarter 2019.

Adjusted EBITDA for the third quarter 2020 was $160.4 million compared with $193.5 million in the third quarter 2019, a 17% decrease. The decrease was primarily due to a $129.8 million decrease in oil, gas, and NGL sales, which was due to a 29% decrease in average field-level equivalent prices and a 16% decrease in total oil equivalent production volumes, partially offset by a $74.5 million increase in realized derivative gains, a $8.7 million reduction in general and administrative expenses, a $6.0 million decrease in production and property taxes and a $5.6 million reduction in transportation and processing costs.

The definitions and reconciliations of Adjusted Net Income and Adjusted EBITDA are provided under the heading Non-GAAP Measures at the end of this release.

Capital Investment

Capital investment, excluding property acquisitions, was $38.4 million (on an accrual basis) for the third quarter 2020, compared with $128.9 million for the third quarter 2019, of which $35.7 million related to the drilling, completion and equipping of wells. The decrease in capital expenditures was primarily related to our decision to significantly reduce development activity in response to market conditions in both the Permian and Williston basins, and by peer leading drilling and completion costs in the Permian Basin.

Operating Expenses

During the third quarter 2020, lease operating expense (LOE) was $35.5 million, a decrease of 7% compared with the third quarter 2019. The decrease was primarily due to a decrease in workover activity in the Williston Basin, a decrease in water disposal costs in the Williston and Permian basins and continuing efforts to reduce operating expenses. These decreases were partially offset by an increase in workover activity in the Permian Basin. Total Company LOE was $5.03 per Boe in the third quarter 2020, includin

FAQ

What are QEP's financial highlights for Q3 2020?

QEP reported a $170.7 million AMT tax credit refund, $329.6 million in net cash from operations, and $98.3 million in free cash flow.

How did QEP's production change in Q3 2020?

QEP's total oil equivalent production decreased by 16% year-over-year, with a 23% drop in the Permian Basin.

What was QEP's net loss for Q3 2020?

QEP reported a net loss of $49.2 million for Q3 2020, compared to a net income of $81 million in the same quarter in 2019.

What steps is QEP taking to manage debt?

QEP redeemed $275.3 million of senior notes ahead of schedule and has reduced its outstanding debt by over $900 million since January 2019.

What is QEP's outlook for free cash flow in 2020?

QEP expects to generate more than $200 million in free cash flow for the full year 2020.