Tuesday, a natural gas-focused energy company Questar Corp. (STR) said its second quarter earnings declined sharply from last year but came in line with Street estimates, as revenues decreased year-on-year. Looking ahead, the company tightened its full earnings outlook, raising the lower end of its prior forecast range.
Keith Rattie, Questar chairman, president and chief executive officer, said, "The steep decline in natural gas prices over the past year took a toll on our first-half financial results."
Net income attributable to Salt Lake City, Utah-based Questar fell to $77.9 million or $0.44 per share from $172.6 million or $0.98 per share for the same period a year ago. Excluding mark-to-market gains and losses on natural gas basis-only swaps, Questar earned $0.54 per share in the quarter, compared to $0.92 per share in the year-ago period. On average, eleven analysts polled by Thomson Reuters expected the company to earn $0.54 per share for the quarter. Analysts' estimates typically exclude special items.
Net mark-to-market losses on natural gas basis-only swaps decreased net income by $17.5 million in the quarter, compared to a gain of $10.1 million in the year-earlier period.
Total revenues for the quarter slipped to $613.1 million from $825.8 million a year ago, however, came in ahead of Street consensus of $524.90 million.
Questar E&P - a Market Resources subsidiary that acquires, explores for, develops and produces natural gas and oil - reported a 7% increase in production to 43.4 Bcfe in the quarter from 40.6 Bcfe a year ago. Questar E&P generated revenues of $298.3 million for the quarter, compared to $349.4 million in the prior-year period. Net income for the quarter fell 75% primarily as the result of a 20% lower realized equivalent price, a 15% increase in per unit production costs and net mark-to-market losses on natural gas basis-only swaps.
Questar E&P production costs per unit of gas-equivalent production increased 15% compared to the second quarter of 2008, due to a 63% increase in DD&A expense. The company estimates that Questar E&P 2009 production will range from 180 to 186 Bcfe, unchanged from prior guidance and up about 5% to 9% from 2008.
Average realized natural gas prices at Questar E&P decreased $1.17 per thousand cubic feet or Mcf or 15%, and average realized crude oil and NGL prices decreased by $35.04 per barrel or bbl or 44%.
Wexpro - a Market Resources subsidiary that manages, develops and produces cost-of-service reserves for gas utility affiliate Questar Gas - increased its investment base at June 30, 2009 to $411.4 million, compared to $346.4 million a year ago, a 19% increase.
Questar Gas Management (Gas Management) - Market Resources' gas-gathering and processing-services business - reported 33% lower net income in the second quarter of 2009, resulting from decreased processing margin and increased depreciation expense. Revenues recorded for the quarter was $52.9 million, compared to $72.2 million in the year ago period. Gathering margin was relatively unchanged in the quarter to quarter comparison, while processing margin decreased $7.7 million or 35%.
Questar Pipeline - which provides interstate natural gas transportation and storage services - saw net income increase 18% in the quarter to $15 million. Revenues generated for the quarter was $43.0 million, compared to $43.3 million in the prior year period. One-time items reduced second quarter 2008 net income by $2.1 million.
Questar Gas - which provides retail natural gas distribution services in Utah, Wyoming and Idaho - reported a seasonal net loss of $2.0 million in the second quarter of 2009, the same as the prior year period. Revenues declined to $138.5 million from $159.5 million last year.
Net income attributable to Questar in the first half sharply declined to $145.1 million or $0.82 per share from $358.4 million or $2.03 per share in the corresponding period.
For the first six months, Questar generated revenues of $1.532 billion, down compared to $1.826 billion in the corresponding period a year ago.
Looking ahead, Questar lifted the lower end of its earnings guidance for fiscal 2009 and now expects earnings to range between $2.35 and $2.45 per share, compared to the previous guidance of $2.30 to $2.45 per share. Analysts currently expect Questar to report earnings of $2.55 per share for the year.
STR closed Tuesday's trading at $35.20, down $0.04 or 0.11%, on a volume of about 1.57 million shares. In the 52-week period, the stock traded between $20.66 - $58.87, on a 3-month average volume of about 1.58 million shares.
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