Questar Corporation A NATURAL GAS-FOCUSED ENERGY COMPANY. American Gas Association 2008 Financial Forum. Keith O. Rattie Chairman, President and CEO

Transcription

1 Questar Corporation A NATURAL GAS-FOCUSED ENERGY COMPANY American Gas Association 2008 Financial Forum Keith O. Rattie Chairman, President and CEO May 4-5, 2008 Lowes Miami Beach Hotel Miami Beach, FL

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 Our 2008 EPS forecast includes impact of recent Louisiana property acquisitions 2008 Guidance 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 $1.34 Midcon basis: $1.60-$1.35 / MMbtu $1.87 $2.54 $2.88 $ $3.40 Questar E&P production: Bcfe Average diluted shares (millions): F 3

4 We re capitalizing on Rockies fundamentals Greater Green River Basin QMR producing areas QGM G&P assets Producing basins Piceance Basin Questar Pipeline Questar Gas Uinta Basin 4

5 Our strategies reflect our focus on risk, returns, and Rockies Focus on returns on capital Grow reserves and production efficiently Hedge to protect margins and returns Build midstream hubs in our core Rockies basins Expand and extend our Rockies pipeline Build a culture of innovation and execution Maintain a strong balance sheet 5

6 We focus on returns on capital ROA drives value 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 Questar E&P is growing reserves and production with the drill bit Bcfe Proved reserves (Bcfe)* 10-year CAGR: 14.8% 1, Bcfe Bcfe 1,600 1, Production (Bcfe)* 10-year CAGR: 8.6% '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 0 *excludes Wexpro reserves and production 7

8 Questar E&P is focused on cost our cost structure is competitive 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

9 Hedging and CAPEX decisions reflect our view of long-term fundamentals LNG imports More drilling Warm winter Cool summer DEMAND DESTRUCTION Hedge $8.00 / MMBtu NYMEX $6.00 / MMBtu Equilibrium range Questar E&P drilling economics DEMAND RECOVERY LNG delays Less drilling Cold winter Hot summer Don t hedge Time 9

10 We hedge production to protect returns, cash flow, and earnings 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 10

11 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 QEP Midcontinent 1,494 Bcfe 374 Bcfe (80% of QEP reserves) QEP Rockies 89.2 Bcfe Wexpro* 642 Bcfe 2007 Production (Bcfe) QEP: Wexpro*: 37.4 (64% of QEP production) QEP Midcontinent 51.0 Bcfe Wexpro* 37.4 Bcfe * Wexpro cost-of-service reserves and production 11

12 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 12

13 Low-risk development drives long-term production and reserves growth 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 * 55 new well completions in well completions in 2008 * 12/31/07 13

14 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 14

15 Uinta Basin offers a low-risk, multi-pay resource play 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 15

16 We re evaluating deep potential on our Uinta Basin leasehold 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 16

17 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,

18 We re evaluating deep potential on our 146,000 net acres in the Vermillion Basin Targets at depths of 10,000 to 15,000 feet Dak/Fr/Baxter or Baxter only producer QMR leasehold Shallow production 1 Mile Trail Shallow Canyon Creek Shallow E&W Hiawatha/Sugarloaf Shallow Updated April 1,

19 We re developing 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 19

20 We have over 1600 Cotton Valley / Hosston locations in our Northwest 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,

21 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 21

22 Questar E&P has a large inventory of organic drilling opportunities in multiple resource plays Est. Working Drilling Locations* Area Interest PUD+PROB+POSS Resource Potential Pinedale (Lance Pool) 63% 1,600 - Vermillion Core Area 95% 680 1,390 Expanded Area 95% - 1,800 Wedge 37% Moxa 50% Wamsutter 35% Elm Grove 60% Texas Panhandle 72% 45 - Uinta Shallow Gas 66% Shallow Oil 85% Deep Gas 72% 360 1,800 Gar Mesa 56% 22 - Totals 3,887 5,920 * Gross unrisked locations based on 6/30/06 study of remaining potential EXCLUDES RECENT LA ACQUISITIONS 22

23 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 23

24 Wexpro s $1.1 billion inventory of development locations drives earnings growth for 5-10 years Net income ($ millions) Investment base ($ millions) 19% CAGR % CAGR TTM 3/ /08 24

25 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 25

26 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 26

27 Questar Pipeline is eliminating transportation bottlenecks in 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 27

28 We completed two major pipeline expansions in 2007 on-time and within budget Overthrust Pipeline Investment $259 million Revenue $36 million/yr 2008 EPS impact $0.07/share Opal Wamsutter Southern System Investment $108 million Kanda Clay Basin WY CO Revenue $17 million/yr Goshen 2008 EPS impact $0.03/share 28

29 Questar Gas provides earnings and cash flow to support our dividend and credit profile 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 29

30 With improved returns Questar Gas is now competitive with other U.S. LDCs Key Metrics Return on capital Customer growth Revenue decoupling Weather normalization Market penetration Gas cost pass-through Bad debt expense Efficiency Overall rates earned allowed return in % annually pilot program in effect in place since 1995 > 95% covered in rates covered in rates ranks 6th of 65 in O&M / customer lowest in continental U.S. 30

31 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 31

32 We re growing our dividend but declining payout reflects growth in our E&P business Dividends / payout ratio / yield Quarterly dividend $ per share 34 increases in 35 years $0.49 annualized dividend 0.8% yield on $62.00 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% 32

33 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 33

34 Our capital program reflects a large inventory of low-risk development opportunities 2008 CAPEX Forecast $2.278 Billion Wexpro $131 MM Questar E&P $1,521 MM Gas Management $390 MM Questar Pipeline $100 MM Questar Gas $136 MM 34

35 When you invest in STR you get: Questar E&P: High-quality Rockies and Midcontinent assets Large inventory of low-risk development opportunities Low cost structure, competitive organic F&D cost Wexpro: Lower-risk Rockies E&P company with high returns on capital $1.1 B identified, risked development inventory supports double-digit growth Gas Management: High-growth field services business piggybacking on E&P affiliate investment Questar Pipeline: Interstate pipeline and storage business at the center of Rockies growth Questar Gas: LDC with better than average growth, improved returns, improving regulatory climate Conservative balance sheet / solid investment-grade credit Track record of consistent dividend growth Return-focused, lower-risk play on strong fundamentals of natural gas Thank you! 35

36 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.