Questar Corporation A NATURAL GAS-FOCUSED ENERGY COMPANY. Third Annual Citi Power, Gas and Utilities Conference

Transcription

1 Questar Corporation A NATURAL GAS-FOCUSED ENERGY COMPANY Third Annual Citi Power, Gas and Utilities Conference Keith O. Rattie Chairman, President and CEO Stephen E. Parks Senior Vice President and CFO The Fairmont Washington D.C. June 5, 2008

2 Questar offers a lower-risk investment in the strong fundamentals of natural gas Net income contribution TTM March 2008 Market Resources 83% Wexpro (E&P) 11% Gas Management (Gathering & Processing) 11% Questar E&P 56% Questar Pipeline (Interstate Transportation) 9% Questar Gas (Distribution) 7% $13 billion enterprise value 2

3 We ve grown EPS at a 25% CAGR over the past five years 2008 EPS guidance Key assumptions (effective 4/28/08) Earnings per diluted share (actual and forecast) 80% of remaining 2008 production fixed prices Price and basis for unhedged production Gas: $10.00-$11.00 / MMBtu NYMEX Oil: $105-$115 / bbl NYMEX Rockies basis: $3.00-$2.50 / MMBtu Midcon basis: $1.60-$1.35 / MMbtu $0.94 $ % CAGR$2.54 $1.87 $1.34 $ $3.40 $2.88 Questar E&P production: Bcfe Average diluted shares (millions): F 3

4 Questar E&P is one of America s fastest-growing independent E&P companies Reserves YE 2007 (Bcfe) QEP: 1,868 Wexpro*: 642 QEP Rockies 1,494 Bcfe (80% of QEP reserves) Wexpro* 642 Bcfe QEP Midcontinent 374 Bcfe 2007 Production (Bcfe) QEP: Wexpro*: 37.4 QEP Rockies 89.2 Bcfe (64% of QEP production) QEP Midcontinent 51.0 Bcfe Pinedale Anticline Uinta Basin Bakken Shale Anadarko Basin NW Louisiana Wexpro* 37.4 Bcfe * Wexpro cost-of-service reserves and production 4

5 Questar E&P is growing reserves and production with the drill bit Bcfe Proved reserves (Bcfe)* 10-year CAGR: 14.8% 1,868 Bcfe 1, Production (Bcfe)* 10-year CAGR: 8.6% Bcfe 1, '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 0 *excludes Wexpro reserves and production 5

6 We focus on returns on capital E&P margins drive returns Return on assets* March 2008 (TTM) 15.8% 19.0% 10.0% 7.8% Questar Questar Market Resources Questar Pipeline Questar Gas ROE 22.5 % 26.7% 12.6% 10.4% * EBIT/average assets 6

7 We protect margins and returns by maintaining a low cost structure relative to E&P peers 4Q 2007 cost structure versus 38 E&P peers (DD&A + LOE + production taxes + G&A + interest) $10.00 $8.00 $6.00 Questar E&P $3.47/Mcfe Median $5.22/Mcfe $4.00 $2.00 $0.00 Source: Company data and Credit-Suisse E&P Stat Sort, April

8 We lock in returns by hedging to extract the margin Hedge to extract margin Currently about $7.50 / MMBtu NYMEX Margin Estimated NYMEX price required for average US E&P peers to earn cost of capital Questar E&P cost structure $3.84 / MMBTU 1Q 2008 Margin extraction works as long as we maintain Questar E&P low cost structure Time 8

9 Hedging has taken commodity price mostly out of the equation for 2008 and 2009 Gas and oil hedges as of 4/28/08 (Volumes and net-to-well prices) 98 Bcf gas $7.55/ Mcf 18% Unhedged 6 Bcfe oil $68.55 / bbl 3 Bcf Rox Basis $1.83 / Mcf 126 Bcf gas $7.66 / Mcf 30% Unhedged 2008 (Apr-Dec) 4 Bcfe oil $62.95 / bbl 9 Bcf Rox Basis $1.35 / Mcf 3 Bcf Midcon Basis $1.08 / Mcf 10 Bcf Rox Basis $2.68 / Mcf 3 Bcf Midcon Basis $0.94 / Mcf 66 Bcf gas $7.84 / Mcf 66% Unhedged 2009 Hedged gas Rox basis hedge Unhedged production 2010 Hedged oil Midcon basis hedge 9

10 Questar E&P is now active in some of the hottest E&P plays in the country Pinedale Anticline Uinta Basin Bakken shale / other Rockies legacy Cotton Valley / Hosston / Haynesville Granite Wash / other Midcontinent 10

11 Our Pinedale project drives production and earnings growth Concentrated asset Proven play Low F&D and LOE Downspacing potential Developed infrastructure Gathering and processing QMR leasehold 18,923 gross acres Pinedale Field Jonah Field 11

12 We have over 1,600 wells yet-to-drill on the Pinedale Anticline QEP net proved reserves: 1,034 Bcfe * Additional probable and possible reserves: 1.5 Tcfe net Low F&D cost Over 1600 remaining well locations on combination of 5- and 10-acre density 10-acre density wells likely recover < 50% OGIP 250 producing wells at 01/09/ QEP PUDs booked on combination of 10 and 20-acre density * well completions in 2008 SEIS ROD expected this summer * 12/31/07 12

13 We expect solid growth from our lowrisk resource plays in the Uinta Basin Wasatch / Upper Mesaverde Formations targets tight gas sands 42 operated and 31 non-operated remaining low-risk locations on 40-acre density Lower Mesaverde / Blackhawk / Mancos / Dakota Fms. tight gas sand and shale play significantly over-pressured 26 Km/Kd wells completed to date over 30 wells planned for 2008 combined deep/shallow reserves 3 to 6 Bcfe per well 3 wells completing, 5 currently drilling Flat Rock / Garmesa Trend multiple targets in Jurassic and Cretaceous Gas Management gathering 9 productive wells 2 wells drilling *Km: Mancos shale Kd: Dakota sandstone Core L. Mesaverde / Blackhawk / Mancos Play Flat Rock / Garmesa Trend Km/Kd wells* Wasatch / U. Mesaverde Play (updated April 1, 2008) 10 Mi 13

14 Our Uinta Basin deep play is working - we expect to drill over 30 wells this year Targets at depths of 5,000 to 18,000 feet T 7 S Drilling Waiting on Completion T 8 S Deep Producer (below Mancos B) Questar E&P leasehold T 9 S Proposed 3D R 20 E R 21 E R 22 E R 23 E R 24 E Updated April 1, Mi 14

15 We re finding new opportunities on our Rockies legacy properties Deep potential Downspacing potential Stratigraphic plays on flanks of old fields Hydraulic fracturing 3-D seismic Coal-bed methane Pinedale Moxa Arch WYOMING Wamsutter Approximately 1,100,000 net acres of Rockies leasehold South Baxter QMR leasehold UTAH Vermillion Wedge Gas fields Oil fields COLORADO Uinta Basin 15

16 We ve acquired 60,000+ net acres in the emerging Bakken shale oil play in North Dakota Bakken Formation oil play > 60,000 net acres horizontal laterals $5.5 - $6.0 mm well cost IP s from 500-3,000 bopd 0.5 to 0.75 MMboe/well First well before Q4 08 Sanish Field I.P s: 500-2,500 BOPD Parshall Field I.P s: 750-3,000 BOPD EUR s: 750 MBO Producing horizontal wells Drilling wells Permitted Locations Questar E&P initial test well location Questar E&P leasehold Questar E&P mineral interest Bailey Field I.P s: 500-1,000 BOPD 6 Mi Updated April 1,

17 We may have over 1,600 Cotton Valley / Hosston locations in our NW Louisiana inventory 95 Questar E&P Net Production from Map Area MMcfe/d 12 W 11 W 10 W 9 W Elm Grove 16 N 15 Jun-08 Dec-07 Jun-07 Dec-06 Jun-06 Dec-05 Jun-05 Dec-04 Approx. 35,600 net acres > 1,600 future locations (avg. WI 65%) EUR / well 0.7 to >3.25 Bcfe $1.7 - $2.5 MM well cost 15 N Existing wells Elm Grove 297 (54% avg. WI) Woodardville 69 (94% avg. WI) Thorn Lake 10 (100% WI) Cotton Valley / Hosston locations Woodardville 14 N Elm Grove 189 (54% avg. WI) Woodardville 396 (94% avg. WI) Thorn Lake Thorn Lake 483 (100% avg. WI) Other 576 (19% avg. WI) Questar E&P leasehold 6 Mi Updated April 2,

18 We re getting solid growth our Granite Wash/Atoka tight gas sand play in the Texas Panhandle Questar E&P Net Production from Granite Wash/Atoka MMcfe/d 10 0 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan new wells in rigs running (3 op, 3 non-op) > 235 remaining locations $2.2 to 4.4 MM well cost EUR 0.8 to 2 Bcfe / well 54,036 gross/ 24,870 net acres 6 Mi Granite Wash or deeper penetration Updated April 1, 2008 QEP leasehold QEP leasehold below Atoka only 18

19 Our probable and possible reserve inventory provides significant organic growth opportunities Questar E&P Reserves Estimates Proved*: 1,868 bcfe Probable**: 2,500 bcfe Possible**: 3,509 bcfe * Prepared by independent reservoir engineering consultants as of 12/31/07 ** Prepared by Questar E&P and reviewed by independent reservoir engineering consultants as of 6/30/06 and EXCLUDES RECENT LA ACQUISITIONS 19

20 Wexpro s $1.1 billion inventory of development locations drives 15+% / yr net income growth Net income ($ millions) Investment base ($ millions) % CAGR % CAGR TTM 3/ /08 20

21 Wexpro has a large inventory of future development drilling locations Over 770 identified risked locations $1.1 B identified risked net CAPEX Successful well costs added to investment base, dry holes excluded Investment base depreciated on units-ofproduction basis 19-20% after-tax return on investment base Operating costs fully reimbursed Future development provides competitive cost-of-service gas supply for Questar Gas UT Pinedale 133 locations* WYOMING Moxa Arch / Labarge Platform 333 locations WY CO QMR acreage Gas fields Oil fields Wexpro development areas Uinta Basin 25 locations Vermillion / Powder Wash 191 locations * Based on 10-acre development 21

22 Our gathering & processing business is capitalizing on Rockies production growth Questar Gas Management Net income ($ millions) $ % CAGR $42.6 $55.3 $61.4 $ TTM 3/08 22

23 Gas Management will grow with Questar E&P and Wexpro Rockies production Vermillion Basin Processing / blending: 80 MMcfd Gathering: 500 miles Operating income: 15% Interstate pipeline connections: 1 W. Green River Basin Hub Processing / blending: 540 MMcfd QGM gathering: 500 miles Rendezvous gathering: 250 miles Rendezvous transmission: 20 miles Operating income: 52% Interstate pipeline connections: 5 UT WY CO Uinta Basin Hub Processing / blending: 170 MMcfd QGM gathering: 750 miles UBFS gathering: 65 miles Operating income: 33% Interstate pipeline connections: 3 23

24 Questar Pipeline s role: eliminate pipeline bottlenecks in Questar E&P s core Rockies basins Net Income ($ Millions) $49.7 $45.4 $45.0 $34.8* Northern System Overthrust Questar Pipeline QMR producing areas Producing basins $ TTM 3/08 Southern System Total system Total daily capacity Storage capacity Rate base (1/1/08) 2,505 miles 4,006 Mdth 53.1 Bcf $878 MM Southern Trails * Before $10.4MM So Trails writedown 24

25 QPC net income up 42% Q vs. Q driven by expansion projects Overthrust (Green River Basin) Investment $259 million Revenue $36 million/yr 2008 EPS impact $0.07/share Opal Overthrust Wamsutter Southern System (Uinta Basin) Investment $108 million Revenue $17 million/yr 2008 EPS impact $0.03/share Goshen Kanda Clay Basin WY CO Southern System 25

26 Questar Gas role: pay part of our our dividend and support our credit ratings Net Income ($ Millions) $38.9 $37.0 $37.4 $36.0 Questar Gas $31.5 Major cities served Questar Pipeline TTM 3/08 Cities served 277 Customers (4/1/08) 882, deliveries 161 MMdth Rate base (1/1/08) $773 MM 26

27 Our balance sheet is strong we ll keep it strong Capitalization (includes short-term debt) ($ Millions) $3,961 $3, $4, TOTAL DEBT % $2,372 $2, $ EQUITY % /08 27

28 We ve grown our dividend 32% over the past five years Dividends / payout ratio / yield Quarterly dividend $ per share 34 increases in 35 years $0.49 annualized dividend 0.8% yield on $64.00 stock price $0.35 $0.36 $0.37 $0.39 $0.43 $0.45 $0.47 $0.49 $ YTD 2008 PAYOUT RATIO 37% 36% 42% 37% 32% 24% 18% 17% YIELD 2.3% 2.9% 2.7% 2.3% 1.7% 1.2% 1.1% 0.9% 28

29 We generate strong cash flow to fund capex, dividend and reduce debt Cash flow from operations* ($ Millions) 24% CAGR $1,107 $1,192 $470 $583 $700 77% $883 82% 84% 84% 66% 70% TTM 3/08 QMR QPC/QGC & Corp *Before working-capital changes 29

30 Our record capital program reflects our large inventory of attractive development opportunities 2008 CAPEX Forecast $2.6 Billion Wexpro $131 MM Questar E&P $1,838 MM Gas Management $400 MM Questar Pipeline $120 MM Questar Gas $136 MM 30

31 When you invest in STR you get Questar E&P: High-quality Rockies and Midcontinent assets Large inventory of development opportunities Low cost structure, competitive organic F&D cost Wexpro: Lower-risk, high return, high-growth Rockies E&P company Gas Management: High-growth field services business piggybacking on E&P affiliate investment Questar Pipeline: Interstate pipeline and storage business in the Rockies sweet spot Questar Gas: LDC with above-average growth Strong balance sheet / investment-grade credit Track record of consistent dividend growth 31

32 Caution regarding forward-looking statements This presentation contains forward-looking statements within the meaning of the federal securities laws. Such statements are based on management's current expectations, estimates and projections, which are subject to a wide range of uncertainties and business risks. Factors that could cause actual results to differ from those anticipated are discussed in the company's periodic filings with the Securities and Exchange Commission, including its annual report on Form 10-K for the year ended December 31, Questar undertakes no obligation to publicly correct or update the forward-looking statements in this presentation to reflect future events or circumstances. All such statements are expressly qualified by this cautionary statement.