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Oil, gas create boost in Questar’s income

Higher sales prices contribute to 14% increase in earnings

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A boost from oil and gas exploration and production helped Questar Corp. earn 14 percent more in the second quarter than a year ago, despite $3.3 million in losses from the Questar Gas portion of the company.

Figures announced Thursday showed that Salt Lake City-based Questar Corp. had net income for the quarter totaling $26.2 million, or 33 cents per diluted share. That compares with $23.1 million, or 28 cents per diluted share, a year earlier.

Excluding gains from sales of company-owned securities, Questar earned $21.6 million, or 27 cents per share, in the current-year quarter and $17 million, or 21 cents per share, in the prior-year period.

Industry analysts had expected earnings equating to 23 cents during the quarter.

Questar's Market Resources group was up $6.8 million year-over-year in conducting oil and gas exploration and production, gas gathering, energy trading and gas development. It earned $17.2 million in the quarter. Questar Exploration and Production increased net income to $9.6 million from $5 million a year earlier.

The combination of increased production and sales prices was a main reason. The average natural gas sales price rose 28 percent to $2.48 per thousand cubic feet, while production was 15 percent higher at 17.7 billion cubic feet.

U.S. gas production was 8 percent above year-ago levels at 15.8 cubic feet, and oil-and-natural-gas-liquids prices were 45 percent higher at $19.76 per barrel in the quarter, offsetting a 4 percent production decline to 563,000 barrels.

The quarter was the highest production quarter ever recorded by Questar E&P — a per-month average of 7 billion cubic feet equivalent, of which 6 billion cubic feet was gas.

Questar E&P's earnings also benefited from a 3-cent drop, to 79 cents, in the U.S. amortization rate.

"We have positioned the company to leverage the benefit of higher energy prices with our strong gas-production growth, expanded drilling, declining full-cost amortization rates and year-to-date reserve replacement," said R.D. Cash, Questar's chairman, president and chief operating officer.

"We are increasingly optimistic about achieving our financial and operating objectives over the next couple of years, even if energy prices moderate. We are excited about the prospects for a major new drilling project in the Pinedale region of Wyoming that could significantly increase gas production and reserves and further reduce the amortization rate."

"Clearly, the exploration and production area is driving our earnings growth," said R. Curtis Burnett, vice president of public affairs. "We achieved higher production at a time when energy prices are rising and that produced a significant earnings improvement."

But utility Questar Gas experienced a loss of $3.3 million in the quarter. Last year, it lost $2.8 million in the second quarter.

The company attributed the loss to costs associated with an increasing customer base and lower per-customer usage. Questar will get word in mid-August from the Utah Public Service Commission on its request for a $17.8 million annual rate increase, which would be used in part to help cover the customer-growth costs.

"(Customer) growth is desirable but it is difficult for utilities to keep pace with it due to the regulatory lag," Burnett said. "We add 20,000 to 25,000 customers per year."

Questar's stock price closed at $19.56, up 25 cents, on Thursday. In the past year, the price has ranged from $13.56 to $20.63.

For the first six months of the year, the company's net income was $76.4 million, or 95 cents per diluted share, compared with $66.4 million, or 80 cents per diluted share, in the prior year period.

E-MAIL: bwallace@desnews.com