Questar Corporation A NATURAL GAS-FOCUSED ENERGY COMPANY. A.G. Edwards Energy Conference. Charles B. Stanley Executive Vice President

Transcription

1 Questar Corporation A NATURAL GAS-FOCUSED ENERGY COMPANY A.G. Edwards Energy Conference Charles B. Stanley Executive Vice President March 20, 2007 The Langham Hotel Boston, MA

2 Questar offers a lower-risk investment in the strong fundamentals of natural gas $8.3 billion enterprise value Exploration & Production Transmission Distribution Market Resources Questar Pipeline Questar Gas 80% 10% 8% Net income contribution

3 Questar 2007 EPS could be about double 2004 EPS Guidance effective 2/13/ assumptions: 73% of production hedged Gas: $7.25-$8.25 / MMBtu NYMEX Oil: $60-$65 / bbl NYMEX Bcfe production $2.00 Rockies basis per MMBtu $1.00 Midcontinent basis per MMBtu $2.67 Earnings per diluted share (actual and forecast) $3.74 $5.07 $ $ 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 the three Rs: returns, risk and the Rockies Improve returns on capital Grow reserves and production Hedge production to manage price risk Capture value around key production areas Expand and extend our pipeline system Maintain a strong balance sheet 5

6 We focus on returns on capital ROA drives value Return on assets* 12 months ended December % 16.4% 11.4% 7.5% Questar Questar Market Resources Questar Pipeline Questar Gas ROE 23.7% 29.4% 15.8% 11.4% * EBIT/average assets 6

7 Questar E&P is growing reserves and production with the drill bit Bcfe Proved reserves (Bcfe)* 10-year CAGR: 13% 1,480 1, Bcfe 1,600 1, Production (Bcfe)* 10-year CAGR: 10% '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07E 0 *excludes Wexpro 7

8 Our finding and development costs are among the lowest in the industry year all-sources finding and development cost vs. E&P peers $3.00 $2.00 Questar E&P $1.08/Mcfe Median $1.74/Mcfe $1.00 $0.00 Source: Company data and Credit-Suisse E&P Sector Book, April 19,

9 We re focused on cost our cost structure is competitive 2005 total cost structure vs. E&P peers DD&A + LOE + production taxes + G&A + interest $8.00 $6.00 $4.00 Questar E&P $2.83/Mcfe Median $3.92/Mcfe $2.00 $0.00 Source: Company data and Credit-Suisse E&P Sector Book, April 19,

10 Hedging and CAPEX decisions reflect our view of long-term fundamentals LNG imports More N.A. drilling Warm winter Cool summer DEMAND DESTRUCTION Hedge Acquisitions less likely $8.00 / MMbtu NYMEX $6.00 / MMbtu Equilibrium Range DEMAND RECOVERY LNG delays Less N.A. drilling Cold winter Hot summer Don t hedge Acquisitions more likely Time 10

11 We hedge production to protect returns, cash flow, and earnings Gas and oil hedges as of 2/13/07 (Volumes and net-to-well prices) 9 Bcfe oil $53.63 / bbl % unhedged 89 Bcf gas $7.13/ Mcf 2 Bcfe oil $61.85 / bbl % unhedged 63 Bcf gas $7.51 / Mcf 44.6 Bcf gas $7.26/ Mcf % unhedged Unhedged production Hedged gas Hedged oil 11

12 We re one of America s fastest growing independent E&P companies Reserves YE 2006 (Bcfe) QEP: 1,631 Wexpro*: 647 QEP Rockies QEP Midcontinent 1,322 Bcfe 309 Bcfe (81% of QEP reserves) Wexpro 647 Bcfe 2006 Production (Bcfe) QEP: Wexpro*: 41.2 QEP Rockies QEP Midcontinent 82.9 Bcfe 46.7 Bcfe (64% of QEP production) Wexpro 40.9 Bcfe * Wexpro cost-of-service reserves and production 12

13 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 13

14 10-acre well density provides a solid platform for long-term production and reserves growth QEP net proved reserves: 932 Bcfe * Additional net probable and possible reserves: 1.5 Tcfe F&D cost: < $1.00/ Mcfe Up to 932 well locations on 10-acre density on QMR s core acreage 10-acre density wells likely recover < 50% OGIP 195 producing wells at 12/31/ QEP PUDs booked on combination of 10 and 20-acre density * 51 well completions in 2006 * 12/31/06 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 Approximately 1,000,000 net acres of Rockies leasehold Pinedale Moxa Arch South Baxter WYOMING Wamsutter QMR acreage UTAH Vermillion Wedge Gas fields Oil fields COLORADO Uinta Basin 15

16 We re evaluating deep potential on our 146,000 net acres in the Vermillion Basin Potential deep play area Trail #31 Trail #30 Trail 7A-3J Targets at depths of 10,000 to 15,000 feet CC#47 CC#10C-35J CC#74 Trail#13C-15J Alkali Gulch #3 Early production testing CC#41 CC#61 Alkali Gulch #1 & 2 CC#34 CC 79H WCU #1 CC#16C-9J Hia #5 Sparks Ridge #1 Early production testing Hia #2 Hia #8 Dak/Fr/Baxter producer 2 Mi Drilling QMR acres Shallow production 16

17 New delineation wells will help further define the areal extent of our Vermillion play Canyon Creek/Trail/AGU#3 31,600 Acres above LKG Whiskey Canyon #2 AGU #3 (750ft downdip test & outside closure) AGU/Hiawatha 885 acres net above LKG Questar E&P leasehold 07 Unit obligation well Currently drilling DK/Fr/Baxter producer SRU #1 SRU #2 Hiawatha/AGU/Sparks Ridge 39,115 acres (31,800 net) above SRU #2 to LKG 6 miles Area Area of of Known Known Gas Gas Accumulation Accumulation Current: Current: 32,485 32,485 gross gross acres acres (24,700 (24,700 net) net) above above LKG LKG Additional: Additional: 39,115 39,115 gross gross acres acres (32,075 (32,075 net) net) above above LKG LKG with with successful results from current testing and SRU #2 17 successful results from current testing and SRU #2 17

18 Uinta Basin offers low-risk development with upside potential from new plays Green River Formation 600 million barrels of oil in-place (Red Wash) 14.4% recovered to date (Red Wash) horizontal well redevelopment pilot project underway Wasatch / Upper Mesaverde Formations tight gas sand play 42 operated and 42 non-operated remaining low-risk locations on 40-acre density average reserves ~ 1.0 Bcfe per well Core L. Mesaverde / Blackhawk / Mancos Play Green River Oil Play Lower Mesaverde / Blackhawk / Mancos Fms. tight gas sand and shale play significantly over-pressured first 3 Km/Kd wells completed in 2006 and fourth well in Q well WOC and 2 currently drilling Flat Rock / Gar Mesa Trend multiple targets in Jurassic and Cretaceous Gas Management gathering 5 productive wells 1 well WOC, 1 well currently drilling Flat Rock / Gar Mesa Trend Km/Kd wells Wasatch / U. Mesaverde Play (updated February 9, 2007) 18

19 T15N-R12W 22 Infill drilling at Elm Grove Field is driving Midcontinent growth Questar E&P Elm Grove Production MMcfe/d, net T16N-R12W T16N-R11W QEP Leasehold Dec-06 Jul-06 Dec-05 Jul-05 Dec-04 Jul-04 Jan Bossier Parish Caddo Paris h Questar E&P Elm Grove wells Operated 148 (avg. WI 78%) Non-operated 90 (avg. WI 21%) Total Mi T15N-R11W Remaining Elm Grove locations Operated 127 (avg. WI 78%) Non-operated 101 (avg. WI 21%) Total 228 Caddo Parish De Soto Parish As of February 9, 2007

20 Our probable and possible reserve inventory provides significant organic growth opportunities Questar E&P Reserves Estimates Proved*: 1,631 bcfe Probable**: 2,500 bcfe Possible**: 3,509 bcfe * Prepared by independent reservoir engineering consultants as of 12/31/06 ** Prepared by Questar E&P and reviewed by independent reservoir engineering consultants as of 6/30/06 20

21 Questar E&P has a portfolio of resource plays that are driving organic growth % Peak Production (Approximate) 100 Wamsutter 50 Vermillion (Kb, Kf, Kd) Uinta (Deep) Moxa Pinedale (Lance Pool) Uinta (Shallow) Elm Grove TX Panhandle Anadarko Arkoma Wedge (U. Almond) Arkoma (CBM) 0 2P/3P S. Uinta (Gar Mesa) Validate / Pilot Development Maintenance Decline 21

22 Questar E&P has a large inventory of organic drilling opportunities in multiple resource plays Approx. Avg. Gross Unrisked Drilling Locations Area Working Interest PUD+PROB+POSS Resource Potential Pinedale (Lance Pool) 63% 1,300 - 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 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 QMR acreage Gas fields Oil fields Wexpro development areas Uinta Basin 25 locations UT Pinedale 133 locations* WYOMING Moxa Arch/Labarge Platform 333 locations WY CO 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) 13% CAGR % CAGR

25 Our gathering & processing business is capitalizing on Rockies production growth Questar Gas Management Net Income ($ Millions) 42% CAGR $35.7 $42.6 $21.0 $3.7 $5.6 $4.8 $9.1 $

26 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 26

27 Questar Pipeline s role is to eliminate pipeline bottlenecks in our core Rockies basins $29.8 Net Income ($ Millions) $34.8* $32.6 $29.7 $30.2 $27.6 $42.4 Northern System Overthrust System Questar Gas QGC cities served Questar Pipeline QMR producing areas Producing basins Total system 2,503 miles Total daily capacity 3,442 Mdth Storage capacity 53.1 Bcf Rate base (12/06) $592 MM Southern Trails East S System (Central Utah) 27

28 Questar Gas provides earnings and cash flow to support our dividend and credit profile Net Income ($ Millions) $32.4 $31.5 $36.0 $37.0 Questar Gas Major cities served $24.2 $25.9 Questar Pipeline $ Cities served 277 Customers (12/06) 851,000 Annual deliveries 133 MMdth Rate base (12/06) $706 MM 28

29 Our balance sheet is strong we ll keep it strong Capitalization (includes short-term debt) ($ Millions) $3,273 $2,610 $2,333 $2,372 $2,441 $2, TOTAL DEBT % EQUITY %

30 We pay a solid dividend our payout reflects our mix of businesses Dividends / payout ratio / yield Quarterly dividend $0.235 per share 33 increases in 34 years $0.67 $0.69 $0.71 $0.73 $0.78 $0.85 $0.89 $0.93 $0.94 annualized dividend Current yield: 1.1% on $83.70 stock price $ PAYOUT RATIO 57% 37% 36% 42% 37% 32% 24% 18% YIELD 4.5% 2.3% 2.9% 2.7% 2.3% 1.7% 1.2% 1.1% 1.1% 30

31 We generate strong cash flow to fund capex, dividend and reduce debt Cash flow from operations before working-capital changes ($ Millions) 21% CAGR $583 $700 $883 82% $338 $417 $470 70% 77% 67% 59% 66% QMR QPC/QGC & Corp 31

32 Our capital program reflects our belief that we can drive value with organic growth 2007 CAPEX Budget $1.136 B Pipeline $319 MM Gas $116 MM Market Resources $700 MM 32

33 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 MLP candidate post build-out of Overthrust 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! 33

34 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.