Questar Ahead of the Mark

Questar Corp. (STR - Analyst Report) reported better-than-expected third quarter results despite facing steep decline in natural gas prices over the past year. Earnings per share, before mark-to-market gains and losses on natural gas basis-only swaps, came in at 56 cents, easily beating the Zacks consensus estimate of 51 cents. On a year-over-year basis, Questar’s adjusted earnings per share fell 41.7%, while revenues were down 21.1% to $613 million.
 
Market Resources Segment
 
Market Resources’ sales were down 20.1% to $474.9 million, while the segment income plunged 51.4% to $171.8 million, pulled down by the E&P and Energy Trading & other sub-segment results. Questar E&P reported a 3% decline in quarterly production to 43.8 Bcfe (88% natural gas) from 45.3 Bcfe, a year ago. As a result of volume decline, this segment’s revenue and income fell by 22.7% and 66.2% to $294.6 million and $49.6 million, respectively. This was mainly due to a combination of a 20% decline in per-unit realized prices and a 17% increase in per-unit production costs.
 
Questar Pipeline Segment
 
Questar Pipeline’s revenues of $42.6 million were down 2.7% from the year-ago period. Quarterly net income of $14.1 million was also down 8.4%, driven by lower NGL prices and higher general and administrative expenses.
 
Questar Gas
 
At $82.3 million, sales declined 28.6% year over year. The segment reported $8.1 million net loss, better than the net loss of $8.8 million in the prior-year quarter.
 
Capital Expenditure & Balance Sheet
 
The company spent nearly $1.03 billion in capital expenditure during the first nine months of 2009. At the end of the reported quarter, the company had $240.6 million of cash & cash equivalents and $2,143.4 million of debt outstanding. Debt-to-capitalization ratio was 31.1%.
 
Full-Year 2009 Guidance
 
Management estimates that Questar E&P production will range from a 183-186 Bcfe, up 6% to 9% from 2008. Management now sees full-year earnings of $2.45 to $2.55 per share, compared with its prior view of $2.35 to $2.45. Questar expects full-year 2009 EBITDA to range from $1.58 to $1.63 billion and that of Questar E&P full-year 2009 EBITDA to range from $963 - $981 million.
 
Full-Year 2010 Guidance
 
Management estimates that Questar E&P production will range from a 210-215 Bcfe, up 15% to 16% from 2009. The Company has established an overall 2010 capital budget of $1.56 billion. Questar expects full-year 2009 EBITDA to range from $1.48 to $1.58 billion and that of Questar E&P full-year 2009 EBITDA to range from $840 - $890 million.