QEP Resources, Inc.

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SEC Filings

10-Q
QEP RESOURCES, INC. filed this Form 10-Q on 04/25/2018
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During the first quarter of 2018, lease operating expense increased $0.89 per Boe, or 17%, compared with the first quarter of 2017, due to the loss of lower LOE production in Pinedale as a result of the Pinedale Divestiture. Excluding the Pinedale Divestiture, LOE per Boe was down 2% primarily due to a decrease in our Permian Basin. The Permian Basin LOE per Boe decreased due to lower cost production from the recent horizontal well completions partially offset by higher cost production on the low volume vertical wells acquired in the 2017 Permian Basin Acquisition.

Adjusted transportation and processing costs. Adjusted transportation and processing costs decreased $23.5 million, or 33%, during the first quarter of 2018 compared to the first quarter of 2017. The decrease in expense was primarily attributable to decreases in Pinedale related to the Pinedale Divestiture. The decrease in Pinedale was partially offset by increased expenses in Haynesville/Cotton Valley and the Permian Basin due to increased production volumes in the first quarter of 2018 compared to the first quarter of 2017.

During the first quarter of 2018, adjusted transportation and processing costs decreased $1.38 per Boe, or 26%, compared to the first quarter of 2017, due to the Pinedale Divestiture, which had higher transportation and processing costs per Boe. Excluding the Pinedale Divestiture, transportation and processing costs per Boe were down 28% due to a decrease in Haynesville/Cotton Valley during the first quarter of 2018 compared to the first quarter of 2017. The rate per Boe decreased in Haynesville/Cotton Valley due to increased production that increased utilization of the Company's firm transportation commitments on interstate pipelines.

General and administrative (G&A) expense. During the first quarter of 2018, G&A expense increased $26.5 million, or 79%, compared to the first quarter of 2017. During the first quarter of 2018, QEP incurred $7.9 million in termination benefits and retention compensation comprised of $3.4 million of severance, $2.8 million of accelerated share-based compensation and $1.7 million related to the retention program associated with the implementation of our Strategic Initiatives (refer to Note 8 – Restructuring, in Item I of Part I of this Quarterly Report on Form 10-Q). In addition to these restructuring related costs, QEP recognized a $4.9 million increase in share-based compensation and changes in the mark-to-market value of the Deferred Compensation Wrap Plan, a $3.6 million increase in outside services, a $3.0 million increase in labor, benefits and employee expenses and a $0.9 million increase in legal expenses.

Production and property taxes. In most states in which QEP operates, QEP pays production taxes based on a percentage of field-level revenue, except in Louisiana, where severance taxes are volume-based. Production and property taxes decreased $0.2 million, or 1%, in the first quarter of 2018 compared to the first quarter of 2017, primarily due to the Pinedale Divestiture partially offset by increased field-level revenue in the Permian Basin and increased production in Haynesville/Cotton Valley.

During the first quarter of 2018, production and property taxes increased $0.24 per Boe, or 11%, compared to the first quarter of 2017, primarily due to an increase in average field-level equivalent prices in the Permian Basin and increased production in Haynesville/Cotton Valley as a result of a successful refracturing program and a higher tax rate in that area. These increases were partially offset by the Pinedale Divestiture.

Depreciation, depletion and amortization (DD&A). DD&A expense increased $4.7 million in the first quarter of 2018 compared to the first quarter of 2017, primarily due to increased production and a higher DD&A rate in Haynesville/Cotton Valley and increased production in the Permian Basin, partially offset by lower DD&A due to the Pinedale Divestiture in the third quarter of 2017.

Impairment expense. During the first quarter of 2018, QEP recorded impairment charges of $0.7 million, which were primarily related to the impairment of proved properties related to a divestiture in the Other Northern area and expiring leaseholds on unproved properties. During the first quarter of 2017, QEP recorded impairment charges of $0.1 million which was related to expiring leaseholds on unproved properties.

Net gain (loss) from asset sales. During the first quarter of 2018, QEP recognized a gain on the sale of assets of $3.5 million, primarily related to the divestiture of properties outside our main operating areas in the Williston Basin and Other Northern area.

Non-operating Expenses

Realized and unrealized gains (losses) on derivative contracts. Gains and losses on derivative contracts are comprised of both realized and unrealized gains and losses on QEP's commodity derivative contracts, which are marked-to-market each quarter. During the first quarter of 2018, losses on commodity derivative contracts were $53.2 million, of which $43.2 million were realized losses and $10.0 million were unrealized losses. During the first quarter of 2017, gains on commodity derivative contracts were $160.9 million, of which $177.3 million were unrealized gains and $16.4 million were realized losses.

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