QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 001-34778
QEP RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Delaware
87-0287750
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
1050 17th Street, Suite 800, Denver, Colorado80265
(Address of principal executive offices)
Registrant's telephone number, including area code (303) 672-6900
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common stock, $0.01 par value
QEP
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No ☒
At June 30, 2019, there were 237,912,768 shares of the registrant's common stock, $0.01 par value, outstanding.
Net gain (loss) from asset sales, inclusive of restructuring costs
17.8
(3.9
)
4.6
(0.4
)
OPERATING INCOME (LOSS)
72.3
(321.8
)
56.5
(300.4
)
Realized and unrealized gains (losses) on derivative contracts (Note 7)
38.5
(79.1
)
(143.2
)
(132.3
)
Interest and other income (expense)
0.9
(3.1
)
3.7
(3.8
)
Interest expense
(33.2
)
(38.2
)
(67.2
)
(73.2
)
INCOME (LOSS) BEFORE INCOME TAXES
78.5
(442.2
)
(150.2
)
(509.7
)
Income tax (provision) benefit
(29.7
)
106.2
82.3
120.1
NET INCOME (LOSS)
$
48.8
$
(336.0
)
$
(67.9
)
$
(389.6
)
Earnings (loss) per common share
Basic
$
0.20
$
(1.42
)
$
(0.29
)
$
(1.63
)
Diluted
$
0.20
$
(1.42
)
$
(0.29
)
$
(1.63
)
Weighted-average common shares outstanding
Used in basic calculation
238.0
237.0
237.5
238.9
Used in diluted calculation
238.0
237.0
237.5
238.9
Refer to Notes accompanying the Condensed Consolidated Financial Statements.
2
QEP RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2019
2018
2019
2018
(in millions)
Net income (loss)
$
48.8
$
(336.0
)
$
(67.9
)
$
(389.6
)
Other comprehensive income (loss), net of tax:
Fair value of plan assets adjustment(1)
—
—
—
0.3
Pension and other postretirement plans adjustments:
Amortization of prior service costs(2)
—
0.1
0.1
0.2
Amortization of actuarial losses(3)
—
0.2
0.1
0.4
Net curtailment(4)
0.1
—
(0.3
)
—
Other comprehensive income (loss)
0.1
0.3
(0.1
)
0.9
Comprehensive income (loss)
$
48.9
$
(335.7
)
$
(68.0
)
$
(388.7
)
____________________________
(1)
Adjustment recorded during the six months endedJune 30, 2018, related to a change in the fair value of plan assets as of December 31, 2017.
(2)
Presented net of income tax expense of $0.1 million and $0.1 million for the three and six months endedJune 30, 2018, respectively.
(3)
Presented net of income tax expense of $0.1 million and $0.2 million for the three and six months endedJune 30, 2018, respectively.
(4)
Presented net of income tax expense of $0.1 million for the six months endedJune 30, 2019, respectively.
Refer to Notes accompanying the Condensed Consolidated Financial Statements.
3
QEP RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, 2019
December 31, 2018
ASSETS
(in millions)
Current Assets
Cash and cash equivalents
$
97.1
$
—
Accounts receivable, net
93.5
104.3
Income tax receivable
70.8
75.9
Fair value of derivative contracts
2.7
87.5
Prepaid expenses
7.1
12.7
Other current assets
0.2
0.2
Total Current Assets
271.4
280.6
Property, Plant and Equipment (successful efforts method for oil and gas properties)
Proved properties
9,316.0
9,096.9
Unproved properties
706.6
705.5
Gathering and other
169.1
167.7
Materials and supplies
20.9
29.9
Total Property, Plant and Equipment
10,212.6
10,000.0
Less Accumulated Depreciation, Depletion and Amortization
Exploration and production
5,050.9
4,882.4
Gathering and other
58.4
58.1
Total Accumulated Depreciation, Depletion and Amortization
5,109.3
4,940.5
Net Property, Plant and Equipment
5,103.3
5,059.5
Fair value of derivative contracts
15.2
35.4
Operating lease right-of-use assets, net
60.2
—
Other noncurrent assets
54.2
49.6
Noncurrent assets held for sale
—
692.7
TOTAL ASSETS
$
5,504.3
$
6,117.8
LIABILITIES AND EQUITY
Current Liabilities
Checks outstanding in excess of cash balances
$
5.3
$
14.6
Accounts payable and accrued expenses
227.9
258.1
Production and property taxes
15.9
24.1
Current portion of long term debt
51.7
—
Interest payable
32.5
32.4
Fair value of derivative contracts
17.6
—
Current operating lease liabilities
18.8
—
Asset retirement obligations
6.8
5.1
Total Current Liabilities
376.5
334.3
Long-term debt
2,028.1
2,507.1
Deferred income taxes
181.4
269.2
Asset retirement obligations
94.6
96.9
Fair value of derivative contracts
0.9
0.7
Operating lease liabilities
47.9
—
Other long-term liabilities
85.6
97.4
Other long-term liabilities held for sale
—
61.3
Commitments and contingencies (Note 11)
EQUITY
Common stock – par value $0.01 per share; 500.0 million shares authorized; 242.0 million and 239.8 million shares issued, respectively
2.4
2.4
Treasury stock – 4.1 million and 3.1 million shares, respectively
(53.6
)
(45.6
)
Additional paid-in capital
1,446.3
1,431.9
Retained earnings
1,308.6
1,376.5
Accumulated other comprehensive income (loss)
(14.4
)
(14.3
)
Total Common Shareholders' Equity
2,689.3
2,750.9
TOTAL LIABILITIES AND EQUITY
$
5,504.3
$
6,117.8
Refer to Notes accompanying the Condensed Consolidated Financial Statements.
4
QEP RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
Common Stock
Treasury Stock
Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Income(Loss)
Total
Shares
Amount
Shares
Amount
(in millions)
Balance at March 31, 2019
242.0
$
2.4
(3.9
)
$
(51.8
)
$
1,440.2
$
1,259.8
$
(14.5
)
$
2,636.1
Net income (loss)
—
—
—
—
—
48.8
—
48.8
Share-based compensation
—
—
(0.2
)
(1.8
)
6.1
—
—
4.3
Change in pension and postretirement liability, net of tax
—
—
—
—
—
—
0.1
0.1
Balance at June 30, 2019
242.0
$
2.4
(4.1
)
$
(53.6
)
$
1,446.3
$
1,308.6
$
(14.4
)
$
2,689.3
Balance at December 31, 2018
239.8
$
2.4
(3.1
)
$
(45.6
)
$
1,431.9
$
1,376.5
$
(14.3
)
$
2,750.9
Net income (loss)
—
—
—
—
—
(67.9
)
—
(67.9
)
Share-based compensation
2.2
—
(1.0
)
(8.0
)
14.4
—
—
6.4
Change in pension and postretirement liability, net of tax
—
—
—
—
—
—
(0.1
)
(0.1
)
Balance at June 30, 2019
242.0
$
2.4
(4.1
)
$
(53.6
)
$
1,446.3
$
1,308.6
$
(14.4
)
$
2,689.3
Balance at March 31, 2018
240.3
$
2.4
(2.6
)
$
(39.5
)
$
1,408.0
$
2,336.3
$
(10.5
)
$
3,696.7
Net income (loss)
—
—
—
—
—
(336.0
)
—
(336.0
)
Common stock repurchased and retired
(0.6
)
—
—
—
—
(5.6
)
—
(5.6
)
Share-based compensation
—
—
(0.1
)
(1.7
)
7.7
—
—
6.0
Change in pension and postretirement liability, net of tax
—
—
—
—
—
—
0.3
0.3
Balance at June 30, 2018
239.7
$
2.4
(2.7
)
$
(41.2
)
$
1,415.7
$
1,994.7
$
(10.2
)
$
3,361.4
Balance at December 31, 2017
243.0
$
2.4
(2.0
)
$
(34.2
)
$
1,398.2
$
2,442.6
$
(11.1
)
$
3,797.9
Net income (loss)
—
—
—
—
—
(389.6
)
—
(389.6
)
Common stock repurchased and retired
(6.2
)
(0.1
)
—
—
—
(58.3
)
—
(58.4
)
Share-based compensation
2.9
0.1
(0.7
)
(7.0
)
17.5
—
—
10.6
Change in pension and postretirement liability, net of tax
—
—
—
—
—
—
0.9
0.9
Balance at June 30, 2018
239.7
$
2.4
(2.7
)
$
(41.2
)
$
1,415.7
$
1,994.7
$
(10.2
)
$
3,361.4
Refer to Notes accompanying the Condensed Consolidated Financial Statements.
5
QEP RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
2019
2018
OPERATING ACTIVITIES
(in millions)
Net income (loss)
$
(67.9
)
$
(389.6
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation, depletion and amortization
251.3
438.7
Deferred income taxes (benefit)
(87.7
)
(120.5
)
Impairment
5.0
404.4
Non-cash share-based compensation
11.2
16.3
Amortization of debt issuance costs and discounts
2.7
2.6
Net (gain) loss from asset sales, inclusive of restructuring costs
(4.6
)
0.4
Unrealized (gains) losses on marketable securities
(2.7
)
(0.4
)
Unrealized (gains) losses on derivative contracts
121.3
43.6
Changes in operating assets and liabilities
(32.9
)
(18.6
)
Net Cash Provided by (Used in) Operating Activities
195.7
376.9
INVESTING ACTIVITIES
Property acquisitions
(1.8
)
(45.1
)
Property, plant and equipment, including exploratory well expense
(316.8
)
(764.3
)
Proceeds from disposition of assets
666.7
48.8
Net Cash Provided by (Used in) Investing Activities
348.1
(760.6
)
FINANCING ACTIVITIES
Checks outstanding in excess of cash balances
(9.3
)
(35.5
)
Proceeds from credit facility
56.0
2,029.5
Repayments of credit facility
(486.0
)
(1,543.5
)
Common stock repurchased and retired
—
(58.4
)
Treasury stock repurchases
(6.3
)
(5.9
)
Other capital contributions
—
0.2
Net Cash Provided by (Used in) Financing Activities
(445.6
)
386.4
Change in cash, cash equivalents and restricted cash(1)
98.2
2.7
Beginning cash, cash equivalents and restricted cash(1)
28.1
23.4
Ending cash, cash equivalents and restricted cash(1)
$
126.3
$
26.1
Supplemental Disclosures:
Cash paid for interest, net of capitalized interest
$
63.3
$
63.5
Cash paid for income taxes, net
$
1.5
$
0.2
Cash paid for amounts included in the measurement of lease liabilities
$
13.1
$
—
Non-cash Operating Activities:
Right-of-use assets obtained in exchange for operating lease obligations
$
9.8
$
—
Non-cash Investing Activities:
Change in capital expenditure accruals and other non-cash adjustments
$
20.3
$
20.2
____________________________
(1)
Refer to Cash, Cash Equivalents and Restricted Cash in Note 1 – Basis of Presentation.
Refer to Notes accompanying the Condensed Consolidated Financial Statements.
6
QEP RESOURCES, INC.
NOTES ACCOMPANYING THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Basis of Presentation
Nature of Business
QEP Resources, Inc. (QEP or the Company) is an independent crude oil and natural gas exploration and production company with operations in two regions of the United States: the Southern Region (primarily in Texas) and the Northern Region (primarily in North Dakota). Unless otherwise specified or the context otherwise requires, all references to "QEP" or the "Company" are to QEP Resources, Inc. and its subsidiaries on a consolidated basis. QEP's corporate headquarters are located in Denver, Colorado and shares of QEP's common stock trade on the New York Stock Exchange (NYSE) under the ticker symbol "QEP".
Basis of Presentation of Interim Condensed Consolidated Financial Statements
The interim Condensed Consolidated Financial Statements contain the accounts of QEP and its majority-owned or controlled subsidiaries. The Condensed Consolidated Financial Statements were prepared in accordance with Generally Accepted Accounting Principles (GAAP) in the United States and with the instructions for Quarterly Reports on Form 10-Q and Regulation S-X. All significant intercompany accounts and transactions have been eliminated in consolidation.
The Condensed Consolidated Financial Statements reflect all normal recurring adjustments and accruals that are, in the opinion of management, necessary for a fair statement of financial position and results of operations for the interim periods presented. Interim Condensed Consolidated Financial Statements and the year-end balance sheet do not include all of the information and notes required by GAAP for audited annual consolidated financial statements. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.
The preparation of the Condensed Consolidated Financial Statements and Notes in conformity with GAAP requires that management make estimates and assumptions that affect revenues, expenses, assets and liabilities, and disclosure of contingent assets and liabilities. Actual results could differ from estimates. The results of operations for the three and six months endedJune 30, 2019, are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.
Reclassifications
Certain prior period balances on the Condensed Consolidated Statements of Cash Flows have been reclassified to conform to the current year presentation. Such reclassifications had no effect on the Company's net income (loss), earnings (loss) per share or retained earnings previously reported.
Impairment of Long-Lived Assets
During the six months endedJune 30, 2019, QEP recorded impairment charges of $5.0 million related to an office building lease.
During the six months endedJune 30, 2018, QEP recorded impairment charges of $404.4 million, of which $402.8 million of proved and unproved properties impairment was triggered due to the signing of a purchase and sale agreement for the divestiture of the Uinta Basin assets. Additionally, QEP recorded $1.6 million related to expiring leaseholds on unproved properties and impairment of proved properties for a divestiture in the Other Northern area.
Cash, Cash Equivalents and Restricted Cash
Cash equivalents consist principally of highly liquid investments in securities with original maturities of three months or less made through commercial bank accounts that result in available funds the next business day. Restricted cash are funds that are legally or contractually reserved for a specific purpose and therefore not available for immediate or general business use.
7
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets to the amounts shown in the Condensed Consolidated Statements of Cash Flows:
June 30,
2019
2018
(in millions)
Cash and cash equivalents
$
97.1
$
—
Restricted cash(1)
29.2
26.1
Total cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows
$
126.3
$
26.1
_______________________
(1) As of June 30, 2019 and 2018, the restricted cash balance is cash held in an escrow account related to a title dispute between outside parties in the Williston Basin, and the restricted cash balance is recorded within "Other noncurrent assets" on the Condensed Consolidated Balance Sheets.
New Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), which requires lessees to recognize the lease assets and lease liabilities classified as operating leases on the balance sheet and disclose key quantitative and qualitative information about leasing arrangements. The FASB subsequently issued various ASUs which provided additional implementation guidance. The Company adopted ASU 2016-02 on January 1, 2019 using the modified retrospective approach and elected to not adjust periods prior to January 1, 2019. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allowed the carry forward of the historical lease classification, including accounting treatment for land easements. This standard does not apply to QEP's leases that provide the right to explore for minerals, oil or natural gas resources. The adoption of this guidance resulted in the recognition of net operating lease right-of-use assets and operating lease liabilities on QEP's Condensed Consolidated Balance Sheets. These leases primarily relate to office buildings, compressors and generators. This guidance did not have a significant impact on the Condensed Consolidated Statement of Operations or the Condensed Consolidated Statement of Cash Flows. Refer to Note 8 – Leases for more information.
Note 2 – Revenue
Revenue Recognition
QEP recognizes revenue from the sale of oil and condensate, gas and NGL in the period that the performance obligations are satisfied. QEP's performance obligations are satisfied when the customer obtains control of product, when QEP has no further obligations to perform related to the sale, when the transaction price has been determined and when collectability is probable. The sale of oil and condensate, gas and NGL are made under contracts with customers, which typically include consideration that is based on pricing tied to local indices and volumes delivered in the current month. Reported revenues include estimates for the two most recent months using published commodity price indices and volumes supplied by field operators. Performance obligations under our contracts with customers are typically satisfied at a point in time through monthly delivery of oil and condensate, gas and/or NGL. Our contracts with customers typically require payment for oil and condensate, gas and NGL sales within 30 days following the calendar month of delivery.
QEP's oil is typically sold at specific delivery points under contract terms that are common in the industry. QEP's gas and NGL are also sold under contract types that are common in the industry; however, under these contracts, the gas and its components, including NGL, may be sold to a single purchaser or the residue gas and NGL may be sold to separate purchasers. Regardless of the contract type, the terms of these contracts compensate QEP for the value of the residue gas and NGL constituent components at market prices for each product. QEP also purchases and resells oil and gas primarily to mitigate credit risk related to third party purchasers, to fulfill volume commitments when production does not fulfill contractual commitments and to capture additional margin from subsequent sales of third party purchases. QEP recognizes revenue from these resale activities in the period that the performance obligations are satisfied.
The following tables present QEP's revenues that are disaggregated by revenue source and by geographic area. Transportation and processing costs in the following table are not all of the transportation and processing costs that QEP incurs, only the
8
expenses that are netted against revenues pursuant to ASC Topic 606.
Oil and condensate sales
Gas sales
NGL sales
Transportation and processing costs included in revenue
Oil and condensate, gas and NGL sales, as reported
