QEP Resources, Inc.

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SEC Filings

10-Q
QEP RESOURCES, INC. filed this Form 10-Q on 07/25/2018
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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 second quarter of 2018, losses on commodity derivative contracts were $79.1 million, of which $45.5 million were realized losses and $33.6 million were unrealized losses. During the second quarter of 2017, gains on commodity derivative contracts were $106.7 million, of which $100.3 million were unrealized gains and $6.4 million were realized gains.

During the first half of 2018, losses on commodity derivative contracts were $132.3 million of which $88.7 million were realized losses and $43.6 million were unrealized losses. During the first half of 2017, gains on commodity derivative contracts were $267.6 million, of which $277.6 million were unrealized gains and $10.0 million were realized losses.

Interest expense. Interest expense increased $3.3 million, or 9%, during the second quarter of 2018 compared to the second quarter of 2017. The increase during the second quarter of 2018 was primarily related to increased interest on the borrowings under the credit facility partially offset by lower interest rates on senior notes.

Interest expense increased $4.5 million, or 7%, during the first half of 2018 compared to the first half of 2017. The increase during the first half of 2018 was primarily related to increased interest on the borrowings under the credit facility partially offset by lower interest rates on senior notes.

Income tax (provision) benefit. Income tax benefit increased $133.5 million during the second quarter of 2018 compared to the second quarter of 2017. The increase in benefit was the result of a net loss during the second quarter of 2018 compared to net income during the second quarter of 2017 and a lower combined effective federal and state income tax rate of 24.0% during the second quarter of 2018 compared to a rate of 37.6% during the second quarter of 2017. The decrease in income tax rate was primarily the result of the Tax Cuts and Job Act (H.R. 1) signed into law in December 2017.

Income tax benefit increased $193.0 million during the first half of 2018 compared to the first half of 2017. The increase in benefit was the result of a net loss during the first half of 2018 compared to net income during the first half of 2017 and a lower combined effective federal and state income tax rate of 23.6% during the first half of 2018 compared to a rate of 37.3% during the first half of 2017. The decrease in income tax rate was primarily the result of the Tax Cuts and Job Act (H.R. 1) signed into law in December 2017.

LIQUIDITY AND CAPITAL RESOURCES

QEP strives to maintain sufficient liquidity to ensure financial flexibility, withstand commodity price volatility and fund its development projects, operations, capital expenditures and Strategic Initiatives. The Company utilizes derivative contracts to reduce the financial impact of commodity price volatility and provide a level of certainty to the Company's cash flows. QEP generally funds its operations and planned capital expenditures with cash flow from its operating activities, cash on hand and borrowings under its revolving credit facility. The Company expects that cash flows from its operating activities and borrowings under its revolving credit facility will be sufficient to fund its operations and capital expenditures during the next 12 months and the foreseeable future.

QEP also periodically accesses debt and equity markets and sells properties. In the first half of 2018, QEP engaged advisors to assist with the divestiture of its Williston Basin and Uinta Basin assets and provided data for potential buyers to evaluate. If the marketing of these assets is successful, the Company plans to use the proceeds to fund on-going operations, reduce debt, repurchase shares and for general corporate purposes.

The Company estimates, that as of June 30, 2018, it could incur additional indebtedness of approximately $675.0 million and be in compliance with the covenants contained in its revolving credit facility. To the extent actual operating results, realized commodity prices or uses of cash differ from the Company's assumptions, QEP's liquidity could be adversely affected.


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