Company Quick10K Filing
QEP Resources
Price4.36 EPS-3
Shares238 P/E-2
MCap1,037 P/FCF3
Net Debt1,907 EBIT-721
TEV2,945 TEV/EBIT-4
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-04-29
10-K 2019-12-31 Filed 2020-02-26
10-Q 2019-09-30 Filed 2019-10-23
10-Q 2019-06-30 Filed 2019-08-07
10-Q 2019-03-31 Filed 2019-04-24
10-K 2018-12-31 Filed 2019-02-20
10-Q 2018-09-30 Filed 2018-11-07
10-Q 2018-06-30 Filed 2018-07-25
10-Q 2018-03-31 Filed 2018-04-25
10-K 2017-12-31 Filed 2018-02-28
10-Q 2017-09-30 Filed 2017-10-25
10-Q 2017-06-30 Filed 2017-07-26
10-Q 2017-03-31 Filed 2017-04-26
10-K 2016-12-31 Filed 2017-02-22
10-Q 2016-09-30 Filed 2016-10-26
10-Q 2016-06-30 Filed 2016-07-27
10-Q 2016-03-31 Filed 2016-04-27
10-K 2015-12-31 Filed 2016-02-24
10-Q 2015-09-30 Filed 2015-10-28
10-Q 2015-06-30 Filed 2015-08-03
10-Q 2015-03-31 Filed 2015-04-29
10-K 2014-12-31 Filed 2015-02-24
10-Q 2014-09-30 Filed 2014-11-05
10-Q 2014-06-30 Filed 2014-08-06
10-Q 2014-03-31 Filed 2014-05-07
10-K 2013-12-31 Filed 2014-02-25
10-Q 2013-09-30 Filed 2013-11-05
10-Q 2013-06-30 Filed 2013-07-31
10-Q 2013-03-31 Filed 2013-04-30
10-K 2012-12-31 Filed 2013-02-22
10-Q 2012-06-30 Filed 2012-07-31
10-Q 2012-03-31 Filed 2012-04-26
10-K 2011-12-31 Filed 2012-02-24
10-Q 2011-09-30 Filed 2011-10-28
10-Q 2011-06-30 Filed 2011-07-29
10-Q 2011-03-31 Filed 2011-04-28
10-K 2010-12-31 Filed 2011-02-25
10-Q 2010-09-30 Filed 2010-11-02
10-Q 2010-06-30 Filed 2010-07-30
10-Q 2010-03-31 Filed 2010-05-06
10-K 2009-12-31 Filed 2010-03-08
8-K 2020-05-12 Shareholder Vote
8-K 2020-04-29 Earnings, Exhibits
8-K 2020-04-10 Regulation FD, Exhibits
8-K 2020-03-12 Officers
8-K 2020-03-03 Accountant, Exhibits
8-K 2020-02-26 Earnings, Exhibits
8-K 2019-10-21 Earnings, Accountant, Regulation FD, Exhibits
8-K 2019-10-17 Officers, Exhibits
8-K 2019-08-07 Earnings, Regulation FD, Exhibits
8-K 2019-05-14 Amend Bylaw, Shareholder Vote, Exhibits
8-K 2019-04-24 Earnings, Exhibits
8-K 2019-02-20 Leave Agreement, Earnings, Regulation FD, Exhibits
8-K 2019-01-11 Amend Bylaw, Exhibits
8-K 2019-01-10 M&A, Regulation FD, Exhibits
8-K 2018-12-05 Officers, Regulation FD, Exhibits
8-K 2018-11-17 Officers
8-K 2018-11-16 Enter Agreement, Regulation FD, Exhibits
8-K 2018-11-07 Earnings, Exhibits
8-K 2018-11-06 Enter Agreement, Regulation FD, Exhibits
8-K 2018-07-25 Earnings, Exhibits
8-K 2018-05-15 Officers, Shareholder Vote, Exhibits
8-K 2018-04-25 Earnings, Exhibits
8-K 2018-03-01 Officers
8-K 2018-02-28 Earnings, Exhibits

QEP 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Note 1 - Basis of Presentation
Note 2 - Revenue
Note 3 - Acquisitions and Divestitures
Note 4 - Earnings per Share
Note 5 - Asset Retirement Obligations
Note 6 - Fair Value Measurements
Note 7 - Derivative Contracts
Note 8 - Leases
Note 9 - Restructuring
Note 10 - Debt
Note 11 - Commitments and Contingencies
Note 12 - Share - Based and Long - Term Incentive Compensation
Note 13 - Subsequent Event
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 qep-20200331ex311.htm
EX-31.2 qep-20200331ex312.htm
EX-32.1 qep-20200331ex321.htm

QEP Resources Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
151296302012201420172020
Assets, Equity
0.40.30.20.20.10.02018201820192020
Rev, G Profit, Net Income
2.11.40.70.1-0.6-1.32012201420172020
Ops, Inv, Fin

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

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
qepresourcesstackcmykra54.jpg
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, Colorado 80265
(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 March 31, 2020, there were 242,182,385 shares of the registrant's common stock, $0.01 par value, outstanding.
 




QEP Resources, Inc.
Form 10-Q for the Quarter Ended March 31, 2020

TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 2.
 
 
 
 
 
ITEM 3.
 
 
 
 
 
ITEM 4.
 
 
 
 
 
 
 
 
 
ITEM 1.
 
 
 
 
 
ITEM 1A.
 
 
 
 
 
ITEM 2.
 
 
 
 
 
ITEM 3.
 
 
 
 
 
ITEM 4.
 
 
 
 
 
ITEM 5.
 
 
 
 
 
ITEM 6.
 
 
 
 

1



PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
QEP RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Three Months Ended
 
March 31,
 
2020
 
2019
REVENUES
(in millions, except per share amounts)
Oil and condensate, gas and NGL sales
$
221.8

 
$
275.6

Other revenues
0.4

 
3.7

Purchased oil and gas sales
3.6

 
1.3

Total Revenues
225.8

 
280.6

OPERATING EXPENSES
 
 
 
Purchased oil and gas expense
3.5

 
1.4

Lease operating expense
40.2

 
51.5

Transportation and processing costs
13.5

 
10.9

Gathering and other expense
2.7

 
3.8

General and administrative
15.9

 
63.3

Production and property taxes
18.7

 
24.0

Depreciation, depletion and amortization
142.2

 
123.3

Impairment

 
5.0

Total Operating Expenses
236.7

 
283.2

Net gain (loss) from asset sales, inclusive of restructuring costs
3.7

 
(13.2
)
OPERATING INCOME (LOSS)
(7.2
)
 
(15.8
)
Realized and unrealized gains (losses) on derivative contracts
449.9

 
(181.7
)
Interest and other income (expense)
(2.6
)
 
2.8

Gain from early extinguishment of debt
25.2

 

Interest expense
(31.6
)
 
(34.0
)
INCOME (LOSS) BEFORE INCOME TAXES
433.7

 
(228.7
)
Income tax (provision) benefit
(66.3
)
 
112.0

NET INCOME (LOSS)
$
367.4

 
$
(116.7
)
 
 
 
 
Earnings (loss) per common share
 
 
 
Basic
$
1.54

 
$
(0.49
)
Diluted
$
1.54

 
$
(0.49
)
 
 
 
 
Weighted-average common shares outstanding
 
 
 
Used in basic calculation
239.1

 
237.1

Used in diluted calculation
239.1

 
237.1


Refer to Notes accompanying the Condensed Consolidated Financial Statements.

2



QEP RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
Three Months Ended
 
March 31,
 
2020
 
2019
 
(in millions)
Net income (loss)
$
367.4

 
$
(116.7
)
Other comprehensive income (loss), net of tax:
 
 
 
Pension and other postretirement plans adjustments:
 
 
 
Amortization of prior service costs

 
0.1

Amortization of actuarial losses
0.1

 
0.1

Net curtailment(1)

 
(0.4
)
Other comprehensive income (loss)
0.1

 
(0.2
)
Comprehensive income (loss)
$
367.5

 
$
(116.9
)
____________________________
(1) 
Presented net of income tax expense of $0.1 million for the three months ended March 31, 2019.

Refer to Notes accompanying the Condensed Consolidated Financial Statements.

3



QEP RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
March 31,
2020
 
December 31,
2019
ASSETS
(in millions)
Current Assets
 
 
 
Cash and cash equivalents
$
70.3

 
$
166.3

Accounts receivable, net
81.1

 
108.4

Income tax receivable
165.4

 
37.4

Fair value of derivative contracts
370.6

 
1.5

Prepaid expenses and other current assets
9.6

 
11.6

Total Current Assets
697.0

 
325.2

Property, Plant and Equipment (successful efforts method for oil and gas properties)
 
 
 
Proved properties
9,729.5


9,574.9

Unproved properties
565.7


599.1

Gathering and other
164.9


164.2

Materials and supplies
16.5


15.6

Total Property, Plant and Equipment
10,476.6

 
10,353.8

Less Accumulated Depreciation, Depletion and Amortization
 
 
 
Exploration and production
5,339.4


5,250.5

Gathering and other
63.7


61.0

Total Accumulated Depreciation, Depletion and Amortization
5,403.1

 
5,311.5

Net Property, Plant and Equipment
5,073.5

 
5,042.3

Fair value of derivative contracts
19.1

 
0.2

Operating lease right-of-use assets, net
55.0

 
56.8

Other noncurrent assets
51.2

 
53.3

TOTAL ASSETS
$
5,895.8


$
5,477.8

LIABILITIES AND EQUITY
 
 
 

Current Liabilities
 
 
 
Checks outstanding in excess of cash balances
$
4.2

 
$
18.3

Accounts payable and accrued expenses
243.1

 
227.2

Production and property taxes
7.9

 
18.9

Current portion of long-term debt
331.6

 

Interest payable
31.1

 
31.0

Fair value of derivative contracts

 
18.7

Current operating lease liabilities
18.5

 
18.0

Asset retirement obligations
6.5

 
6.0

Total Current Liabilities
642.9

 
338.1

Long-term debt
1,587.4

 
2,015.6

Deferred income taxes
469.6

 
274.5

Asset retirement obligations
93.7

 
94.9

Fair value of derivative contracts

 
0.5

Operating lease liabilities
42.3

 
44.8

Other long-term liabilities
33.9

 
48.8

Commitments and contingencies (Note 11)


 


EQUITY
 
 
 
Common stock – par value $0.01 per share; 500.0 million shares authorized; 247.0 million and 242.1 million shares issued, respectively
2.5

 
2.4

Treasury stock – 4.8 million and 4.4 million shares, respectively
(56.2
)
 
(55.4
)
Additional paid-in capital
1,459.9

 
1,456.5

Retained earnings
1,632.2

 
1,269.6

Accumulated other comprehensive income (loss)
(12.4
)
 
(12.5
)
Total Common Shareholders' Equity
3,026.0

 
2,660.6

TOTAL LIABILITIES AND EQUITY
$
5,895.8

 
$
5,477.8

 

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 December 31, 2019
242.1

 
$
2.4

 
(4.4
)
 
$
(55.4
)
 
$
1,456.5

 
$
1,269.6

 
$
(12.5
)
 
$
2,660.6

Net income (loss)

 

 

 

 

 
367.4

 

 
367.4

Cash dividends paid, $0.02 per share

 

 

 

 

 
(4.8
)
 

 
(4.8
)
Share-based compensation
4.9

 
0.1

 
(0.4
)
 
(0.8
)
 
3.4

 

 

 
2.7

Change in pension and postretirement liability, net of tax

 

 

 

 

 

 
0.1

 
0.1

Balance at March 31, 2020
247.0

 
$
2.5

 
(4.8
)
 
$
(56.2
)
 
$
1,459.9

 
$
1,632.2

 
$
(12.4
)
 
$
3,026.0

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)

 

 

 

 

 
(116.7
)
 

 
(116.7
)
Share-based compensation
2.2

 

 
(0.8
)
 
(6.2
)
 
8.3

 

 

 
2.1

Change in pension and postretirement liability, net of tax

 

 

 

 

 

 
(0.2
)
 
(0.2
)
Balance at March 31, 2019
242.0

 
$
2.4

 
(3.9
)
 
$
(51.8
)
 
$
1,440.2

 
$
1,259.8

 
$
(14.5
)
 
$
2,636.1


Refer to Notes accompanying the Condensed Consolidated Financial Statements.

5



QEP RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Three Months Ended
 
March 31,
 
2020
 
2019
OPERATING ACTIVITIES
(in millions)
Net income (loss)
$
367.4

 
$
(116.7
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation, depletion and amortization
142.2

 
123.3

Deferred income taxes (benefit)
195.0

 
(117.9
)
Impairment

 
5.0

Non-cash share-based compensation
3.3

 
8.0

Amortization of debt issuance costs and discounts
1.3

 
1.3

Net (gain) loss from asset sales, inclusive of restructuring costs
(3.7
)
 
13.2

Gain from early extinguishment of debt
(25.2
)
 

Unrealized (gains) losses on marketable securities
3.3

 
(1.9
)
Unrealized (gains) losses on derivative contracts
(407.3
)
 
175.8

Changes in operating assets and liabilities
(124.4
)
 
(11.8
)
Net Cash Provided by (Used in) Operating Activities
151.9

 
78.3

INVESTING ACTIVITIES
 
 
 
Property acquisitions
(3.0
)
 
(0.6
)
Expenditures for property, plant and equipment, including exploratory well expense
(164.6
)
 
(164.6
)
Proceeds from disposition of assets
12.6

 
617.4

Net Cash Provided by (Used in) Investing Activities
(155.0
)

452.2

FINANCING ACTIVITIES
 
 
 
Checks outstanding in excess of cash balances
(14.1
)
 
(4.3
)
Repurchases of senior notes
(72.7
)
 

Proceeds from credit facility

 
44.5

Repayments of credit facility

 
(474.5
)
Treasury stock repurchases
(0.8
)
 
(5.8
)
Dividends paid
(4.8
)
 

Net Cash Provided by (Used in) Financing Activities
(92.4
)
 
(440.1
)
Change in cash, cash equivalents and restricted cash(1)
(95.5
)

90.4

Beginning cash, cash equivalents and restricted cash(1)
196.4

 
28.1

Ending cash, cash equivalents and restricted cash(1)
$
100.9

 
$
118.5

 
 
 
 
Supplemental Disclosures:
 
 
 
Cash paid for interest, net of capitalized interest
$
29.7

 
$
31.5

Cash paid (refund received) for income taxes, net
$
(0.7
)
 
$

Cash paid for amounts included in the measurement of lease liabilities
$
6.0

 
$
6.6

Other Non-cash Activities:
 
 
 
Right-of-use assets obtained in exchange for operating lease obligations
$
0.5

 
$
6.9

Non-cash Investing Activities:
 
 
 
Capital expenditure accruals as of March 31, 2020 and 2019
$
77.3

 
$
57.2

____________________________
(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

The interim Condensed Consolidated Financial Statements (financial statements) contain the accounts of QEP and its majority-owned or controlled subsidiaries. The 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 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 financial statements do not include all of the information and notes required by GAAP for annual consolidated financial statements. These 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, 2019.

The preparation of the 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. Further, these estimates and other factors, including those outside the Company's control, such as the impact of sustained lower commodity prices, could have a significant adverse impact to the Company's financial condition, results of operations and cash flows. The results of operations for the three months ended March 31, 2020, are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Certain prior period balances on the Condensed Consolidated Balance Sheets (balance sheets) and Condensed Consolidated Statements of Cash Flows (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.

Cash, Cash Equivalents and Restricted Cash

Cash equivalents primarily consist 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 balance sheets to the amounts shown in the statements of cash flows:

 
March 31,
 
2020
 
2019
 
(in millions)
Cash and cash equivalents
$
70.3

 
$
89.9

Restricted cash(1)
30.6

 
28.6

Total cash, cash equivalents and restricted cash shown in the statements of cash flows
$
100.9

 
$
118.5

_______________________
(1) As of March 31, 2020 and 2019, the restricted cash balance is cash held in an escrow account related to a title dispute between outside parties in the Williston Basin. The restricted cash balance is recorded within "Other noncurrent assets" on the balance sheets.

Income Tax

The tax legislation enacted in December 2017 reduced our federal corporate tax rate from 35% to 21%. In addition, the tax legislation eliminated the corporate Alternative Minimum Tax (AMT), allowing the Company to claim AMT refunds for AMT credits carried forward from prior tax years. The Company received $73.9 million of AMT credit refunds in 2019. The Coronavirus Aid Relief, and Economic Security Act (CARES Act) enacted in March 2020 permitted the Company to carry back its net operating loss (NOL) generated in 2018, creating additional AMT credits, and accelerate all of its AMT refunds into 2020. The Company now anticipates it will receive $165.6 million of AMT credit refunds, after carrybacks, in the next 12 months. The AMT credit refunds are included in "Income tax receivable" on the balance sheets as of March 31, 2020.

QEP’s effective federal and state income tax rate was 15.3% during the first quarter of 2020 compared to a rate of 49.0% during the first quarter of 2019. The decrease in the federal and state income tax rate was primarily driven by the impact of discrete items (unusual or infrequent items impacting the tax provision) recognized during the first quarter of 2019 and 2020. The primary discrete item recognized during the first quarter of 2020 relates to the remeasurement of deferred taxes related to a NOL carryback under the CARES Act to a year with a higher federal tax rate. The primary discrete item recognized during the first quarter of 2019 related to the remeasurement of deferred taxes associated with the Haynesville Divestiture.

Impairment of Long-Lived Assets

During the three months ended March 31, 2020, there were no impairment charges. During the three months ended March 31, 2019, QEP recorded impairment charges of $5.0 million related to an office building lease.

Employee Benefits

QEP provides pension and other postretirement benefits to certain employees through three retiree benefit plans: the QEP Resources, Inc. Retirement Plan (the Pension Plan), the Supplemental Executive Retirement Plan (the SERP), and a postretirement medical plan (the Medical Plan). The Pension Plan is a closed, qualified, defined-benefit pension plan that is funded and provides pension benefits to certain QEP employees. The SERP is a nonqualified retirement plan that is unfunded and provides postretirement benefits to certain QEP employees. The Medical Plan is a self-insured plan. It is unfunded and provides other postretirement benefits including certain health care and life insurance benefits for certain retired QEP employees.

During the three months ended March 31, 2020, the Company made contributions of $9.0 million to its retiree benefit plans (including $2.0 million to the Pension Plan and $7.0 million to the SERP) and expects to contribute an additional $3.7 million during the remainder of 2020 (including $2.0 million to the Pension Plan, $1.5 million to the SERP and $0.2 million to the Medical Plan). Contributions to the Pension Plan increase plan assets whereas contributions to the SERP and Medical Plan are used to fund current benefit payments.

The Company recognizes service costs related to SERP and Medical Plan benefits on the Condensed Consolidated Statements of Operations (statements of operations) within "General and administrative" expense. All other expenses related to the Pension Plan, SERP and Medical Plan are recognized on the statements of operations within "Interest and other income (expense)".

8




QEP also offers a nonqualified, unfunded deferred compensation plan (Wrap Plan) to certain individuals. The Wrap Plan provides participants with certain tax planning benefits as well as supplemental funds for retirement and allows participants to defer the receipt of various types of compensation. Participants are able to select from a variety of investment options, including mutual funds and phantom QEP shares. As of March 31, 2020 and December 31, 2019, the Wrap Plan obligations for participants' future benefits were $21.0 million and $26.8 million, respectively, and are included in "Other long-term liabilities" on the balance sheets. The Company established a trust (Rabbi Trust) to hold the investments associated with the Wrap Plan (other than phantom QEP shares) and to pay Wrap Plan obligations as they arise. As of March 31, 2020 and December 31, 2019, the marketable securities held in the Rabbi Trust were $20.6 million and $23.1 million, respectively, and are included in "Other noncurrent assets" on the balance sheets. Refer to Note 6 – Fair Value Measurements for information on the fair value measurement of the marketable securities held in the Rabbi Trust and the Wrap Plan obligations.

Recent Accounting Developments

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of credit losses on financial instruments, which requires a company immediately recognize management's current estimated credit losses ("CECL") for all financial instruments that are not accounted for at fair value through net income. Previously, credit losses on financial assets were only required to be recognized when they were incurred. The Company adopted ASU 2016-13 on January 1, 2020. The guidance did not have a significant impact on the financial statements or notes accompanying the financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair value measurement (Topic 820) - Disclosure framework - Changes to the disclosure requirements for fair value measurement, which modifies the disclosure requirements on fair value measurements in Topic 820. The Company adopted ASU 2018-13 on January 1, 2020. The guidance did not have a significant impact on the financial statements or notes accompanying the financial statements.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform, which provides temporary optional guidance to companies impacted by the transition away from the London Interbank Offered Rate (LIBOR). The amendment provides certain expedients and exceptions to applying GAAP in order to lessen the potential accounting burden when contracts, hedging relationships, and other transactions that reference LIBOR as a benchmark rate are modified. This amendment is effective upon issuance and expires on December 31, 2022. The Company is currently assessing the impact of the LIBOR transition and this ASU on the Company's financial statements.

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 and condensate 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.


9



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 expenses that are netted against revenues pursuant to ASC Topic 606, Revenue Recognition.
 
Oil and condensate sales
 
Gas sales
 
NGL sales
 
Transportation and processing costs included in revenue
 
Oil and condensate, gas and NGL sales, as reported
 
(in millions)
 
Three Months Ended March 31, 2020
Northern Region
 
Williston Basin
$
79.2

 
$
4.6

 
$
3.5

 
$
(9.3
)
 
$
78.0

Other Northern
0.1

 
0.1

 

 

 
0.2

Southern Region
 
 
 
 
 
 
 
 

Permian Basin
140.7

 
1.8

 
6.1

 
(5.0
)
 
143.6

Other Southern

 

 

 

 

Total oil and condensate, gas and NGL sales
$
220.0

 
$
6.5

 
$
9.6

 
$
(14.3
)
 
$
221.8

 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2019
Northern Region
 
Williston Basin
$
109.9

 
$
12.5

 
$
7.4

 
$
(10.1
)
 
$
119.7

Other Northern
0.4

 
0.2

 

 

 
0.6

Southern Region
 
 
 
 
 
 
 
 

Permian Basin
139.2

 
4.6

 
9.5

 
(3.7
)
 
149.6

Other Southern

 
5.7

 

 

 
5.7

Total oil and condensate, gas and NGL sales
$
249.5

 
$
23.0

 
$
16.9

 
$
(13.8
)
 
$
275.6




10



Note 3 – Acquisitions and Divestitures

Acquisitions

During the three months ended March 31, 2020 and 2019, QEP acquired various oil and gas properties, which primarily included proved leasehold acreage in the Permian Basin for an aggregate purchase price of $3.0 million and $0.6 million, respectively, subject to post-closing purchase price adjustments.

Divestitures

During the three months ended March 31, 2020, QEP received proceeds of $12.6 million and recorded a pre-tax gain on sale of $3.7 million, primarily related to the divestiture of certain properties outside its main operating areas. Gains and losses are reported on the statements of operations within "Net gain (loss) from asset sales, inclusive of restructuring costs".

Haynesville/Cotton Valley Divestiture

In January 2019, QEP sold its Haynesville/Cotton Valley assets (Haynesville Divestiture) and during the year ended December 31, 2019, reached final settlement on asserted environmental and title defects and received aggregate net cash proceeds of $633.9 million. QEP recorded a net pre-tax loss, including restructuring costs, of $4.0 million, of which $15.0 million of the pre-tax loss was recognized during the three months ended March 31, 2019, and was recorded within "Net gain (loss) from asset sales, inclusive of restructuring costs" on the statements of operations.

During the three months ended March 31, 2019, QEP accounted for revenues and expenses related to Haynesville/Cotton Valley, including the pre-tax loss on sale of $15.0 million, as income from continuing operations on the statements of operations because the Haynesville Divestiture did not cause a strategic shift for the Company and therefore did not qualify as discontinued operations. During the three months ended March 31, 2019, QEP recorded a net loss before income taxes related to the divested Haynesville/Cotton Valley properties of $11.1 million, which includes the pre-tax loss on sale of $15.0 million.

Other Divestitures

In addition to the Haynesville Divestiture, during the three months ended March 31, 2019, QEP received net cash proceeds of $2.1 million and recorded a pre-tax loss on sale of $0.4 million, primarily related to the divestiture of properties outside its main operating areas.

These gains and losses were recorded within "Net gain (loss) from asset sales, inclusive of restructuring costs" on the statements of operations.

Note 4 – Earnings Per Share

Basic earnings (loss) per share (EPS) are computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. Diluted EPS includes the potential increase in the number of outstanding shares that could result from the exercise of in-the-money stock options. QEP's unvested restricted share awards are included in weighted-average basic common shares outstanding because, once the shares are granted, the restricted share awards are considered issued and outstanding, the historical forfeiture rate is minimal and the restricted share awards are eligible to receive dividends.

Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are considered participating securities and are included in the computation of earnings (loss) per share pursuant to the two-class method. The Company's unvested restricted share awards contain non-forfeitable dividend rights and participate equally with common stock with respect to dividends issued or declared. However, the Company's unvested restricted share awards do not have a contractual obligation to share in losses of the Company. The Company's unexercised stock options do not contain rights to dividends. Under the two-class method, the earnings used to determine basic earnings (loss) per common share are reduced by an amount allocated to participating securities. When the Company records a net loss, none of the loss is allocated to the participating securities since the securities are not obligated to share in Company losses. Use of the two-class method has an insignificant impact on the calculation of basic and diluted earnings (loss) per common share. The Company was in a net loss position for the three months ended March 31, 2019; therefore, all potentially dilutive securities were anti-dilutive.


11



The following is a reconciliation of the components of basic and diluted shares used in the EPS calculation:
 
Three Months Ended
 
March 31,
 
2020
 
2019
 
(in millions)
Weighted-average basic common shares outstanding
239.1

 
237.1

Potential number of shares issuable upon exercise of in-the-money stock options under the Long-Term Stock Incentive Plan

 

Average diluted common shares outstanding
239.1

 
237.1



Note 5 – Asset Retirement Obligations

QEP records asset retirement obligations (ARO) associated with the retirement of tangible, long-lived assets. The Company's ARO liability applies primarily to abandonment costs associated with oil and gas wells and certain other properties. The fair values of such costs are estimated by Company personnel based on abandonment costs of similar assets and depreciated over the life of the related assets. Revisions to the ARO estimates result from changes in expected cash flows or material changes in estimated asset retirement costs or estimated lives. The ARO liability is adjusted to present value each period through an accretion calculation using a credit-adjusted risk-free interest rate.

The balance sheet line items of QEP's ARO liability are presented in the table below:
 
Asset Retirement Obligations
 
March 31,
 
December 31,
 
2020
 
2019
Balance Sheet line item
(in millions)
Current:
 
 
 
Asset retirement obligations, current liability
$
6.5

 
$
6.0

Long-term:
 
 
 
Asset retirement obligations
93.7

 
94.9

Total ARO Liability
$
100.2

 
$
100.9



The following is a reconciliation of the changes in the Company's ARO for the period specified below:
 
Asset Retirement Obligations
 
(in millions)
ARO liability at January 1, 2020
$
100.9

Accretion
0.9

Additions
0.6

Revisions
(0.5
)
Liabilities related to assets sold
(1.3
)
Liabilities settled
(0.4
)
ARO liability at March 31, 2020
$
100.2



Note 6 – Fair Value Measurements

QEP measures and discloses fair values in accordance with the provisions of ASC 820, Fair Value Measurements and Disclosures. This guidance defines fair value in applying GAAP, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 also establishes a fair value hierarchy. Level 1 inputs are quoted prices (unadjusted) for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability.


12



QEP has determined that its commodity derivative instruments are Level 2. The Level 2 fair value of commodity derivative contracts (refer to Note 7 – Derivative Contracts for more information) is based on market prices posted on the respective commodity exchange on the last trading day of the reporting period and industry standard discounted cash flow models. QEP primarily applies the market approach for recurring fair value measurements and maximizes its use of observable inputs and minimizes its use of unobservable inputs. QEP considers bid and ask prices for valuing the majority of its assets and liabilities measured and reported at fair value. In addition to using market data, QEP makes assumptions in valuing its assets and liabilities, including assumptions about risk and the risks inherent in the inputs to the valuation technique. The Company's policy is to recognize significant transfers between levels at the end of the reporting period.

Certain of the Company's commodity derivative instruments are valued using industry standard models that consider various inputs, including quoted forward prices for commodities, time value, volatility, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these inputs are observable in the marketplace throughout the full term of the instrument and can be derived from observable data or are supported by observable prices at which transactions are executed in the marketplace. The determination of fair value for derivative assets and liabilities also incorporates nonperformance risk for counterparties and for QEP. Derivative contract fair values are reported on a net basis to the extent a legal right of offset with the counterparty exists.

QEP has determined that the marketable securities held in the Rabbi Trust and the Wrap Plan obligations are Level 1. The fair value of the marketable securities in the Rabbi Trust is based on actively traded mutual funds. The Wrap Plan obligations, which represent the underlying liabilities to the participants in the Wrap Plan, are recorded at amounts due to participants, based on the fair value of participants' selected investments, including both actively traded mutual funds and phantom QEP shares.
 

13



The fair value of financial assets and liabilities at March 31, 2020 and December 31, 2019, is shown in the table below:
 
Fair Value Measurements
 
Gross Amounts of Assets and Liabilities
 
Netting Adjustments(1)
 
Net Amounts Presented on the Condensed Consolidated Balance Sheets
 
Level 1
 
Level 2
 
Level 3
 
 
 
(in millions)
Financial Assets
March 31, 2020
Fair value of derivative contracts – short-term
$

 
$
375.4

 
$

 
$
(4.8
)
 
$
370.6

Fair value of derivative contracts – long-term

 
21.2

 

 
(2.1
)
 
19.1

Fair value of marketable securities
20.6

 

 

 

 
20.6

Total financial assets
$
20.6

 
$
396.6

 
$

 
$
(6.9
)
 
$
410.3


 
 
 
 
 
 
 
 
 
Financial Liabilities
 
 
 
 
 
 
 
 
 
Fair value of derivative contracts – short-term
$

 
$
4.8

 
$

 
$
(4.8
)
 
$

Fair value of derivative contracts – long-term

 
2.1

 

 
(2.1
)
 

Fair value of Wrap Plan obligations
21.0

 

 

 

 
21.0

Total financial liabilities
$
21.0

 
$
6.9

 
$

 
$
(6.9
)
 
$
21.0

 
 
 
 
 
 
 
 
 
 
 
December 31, 2019
Financial Assets
 
 
 
 
 
 
 
 
 
Fair value of derivative contracts – short-term
$

 
$
1.5

 
$

 
$

 
$
1.5

Fair value of derivative contracts – long-term

 
0.2

 

 

 
0.2

Fair value of marketable securities
23.1

 

 

 

 
23.1

Total financial assets
$
23.1

 
$
1.7

 
$

 
$

 
$
24.8

 
 
 
 
 
 
 
 
 
 
Financial Liabilities
 
 
 
 
 
 
 
 
 
Fair value of derivative contracts – short-term
$

 
$
18.7

 
$

 
$

 
$
18.7

Fair value of derivative contracts – long-term

 
0.5

 

 

 
0.5

Fair value of Wrap Plan obligations
26.8

 

 

 

 
26.8

Total financial liabilities
$
26.8


$
19.2


$


$


$
46.0


_______________________
(1) 
The Company nets its derivative contract assets and liabilities outstanding with the same counterparty on the balance sheets for the contracts that contain netting provisions. Refer to Note 7 – Derivative Contracts for additional information regarding the Company's derivative contracts.

The following table discloses the fair value and related carrying amount of certain financial instruments not disclosed in other notes to the financial statements:
 
Carrying Amount
 
Level 1 Fair Value
 
Carrying Amount
 
Level 1 Fair Value
 
March 31, 2020
 
December 31, 2019
Financial Liabilities
(in millions)
Total debt outstanding
$
1,919.0

 
$
806.2

 
$
2,015.6

 
$
2,029.4



The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and checks outstanding in excess of cash balances approximate fair value. The fair value of fixed-rate long-term debt is based on the trading levels and dollar prices for the Company's debt at the end of the quarter. At times when the Company has outstanding debt under the credit

14



facility, the carrying amount of variable-rate long-term debt approximates fair value because the floating interest rate paid on such debt is set for periods of one month or less.

The initial measurement of ARO at fair value is calculated using discounted cash flow techniques and is based on internal estimates of future retirement costs associated with property, plant and equipment. Significant Level 3 inputs used in the calculation of ARO includes plugging costs and reserve lives. A reconciliation of the Company's ARO is presented in Note 5 – Asset Retirement Obligations.

Nonrecurring Fair Value Measurements

The provisions of the fair value measurement standard are also applied to the Company's nonrecurring measurements. The Company reviews its proved oil and gas properties and operating lease right-of-use assets for potential impairment at least annually and when events and changes in circumstances indicate that the carrying amount of such property may not be recoverable. If impairment is indicated, the fair value of property is measured utilizing the income approach and utilizing inputs that are primarily based upon internally developed cash flow models discounted at an appropriate weighted average cost of capital. In addition, the signing of a purchase and sale agreement could also trigger an impairment of proved properties. For assets subject to a purchase and sale agreement, the terms of the purchase and sale agreement are used as an indicator of fair value. If a range is estimated for the amount of future cash flows, the fair value of property is measured utilizing a probability-weighted approach in which the likelihood of possible outcomes is taken into consideration. Given the unobservable nature of the inputs, fair value calculations associated with long-term operating lease right-of-use assets and proved oil and gas property impairments are considered Level 3 within the fair value hierarchy. During the three months ended March 31, 2020, the Company did not have an impairment charge. During the three months ended March 31, 2019, the Company recorded impairment charges of $5.0 million related to an office building lease.

Acquisitions of proved and unproved properties are also measured at fair value on a nonrecurring basis. The Company utilizes a discounted cash flow model to estimate the fair value of acquired property as of the acquisition date, which utilizes the following inputs to estimate future net cash flows: (i) estimated quantities of oil and condensate, gas and NGL reserves; (ii) estimates of future commodity prices; and (iii) estimated production rates, and future operating and development costs, which are based on the Company's historic experience with similar properties. In some instances, market comparable information of recent transactions is used to estimate fair value of unproved acreage. Due to the unobservable characteristics of the inputs, the fair value of the acquired properties is considered Level 3 within the fair value hierarchy. Refer to Note 3 – Acquisitions and Divestitures for more information on the fair value of acquired properties.

Note 7 – Derivative Contracts

QEP has established policies and procedures for managing commodity price volatility through the use of derivative instruments. In the normal course of business, QEP uses commodity price derivative instruments to reduce the impact of potential downward movements in commodity prices on cash flow, returns on capital investment, and other financial results. However, these instruments typically limit gains from favorable price movements. The volume of production subject to commodity derivative instruments and the mix of the instruments are frequently evaluated and adjusted by management in response to changing market conditions. QEP may enter into commodity derivative contracts for up to 100% of forecasted production, but generally, QEP enters into commodity derivative contracts for approximately 50% to 75% of its forecasted annual production by the end of the first quarter of each fiscal year. QEP does not enter into commodity derivative contracts for speculative purposes.

QEP uses commodity derivative instruments known as fixed-price swaps, basis swaps or costless collars to realize a known price or price range for a specific volume of production delivered into a regional sales point. QEP's commodity derivative instruments do not require the physical delivery of oil or gas between the parties at settlement. All transactions are settled in cash with one party paying the other for the net difference in prices, multiplied by the contract volume, for the settlement period. Oil price derivative instruments are typically structured as NYMEX fixed-price swaps based at Cushing, Oklahoma. QEP has also entered into oil price derivative swaps that use Intercontinental Exchange, Inc. (ICE) Brent or regional price indices as the reference price. Gas price derivative instruments are typically structured as fixed-price swaps or collars at NYMEX Henry Hub or regional price indices. QEP also enters into oil basis swaps to achieve a fixed-price swap for a portion of its oil sales at prices that reference specific regional index prices.


15



QEP does not currently have any commodity derivative instruments that have margin requirements or collateral provisions that would require payments prior to the scheduled settlement dates. QEP's commodity derivative contract counterparties are typically financial institutions and energy trading firms with investment-grade credit ratings. QEP routinely monitors and manages its exposure to counterparty risk by requiring specific minimum credit standards for all counterparties, actively monitoring counterparties' public credit ratings and avoiding the concentration of credit exposure by transacting with multiple counterparties. The Company has master-netting agreements with some counterparties that allow the offsetting of receivables and payables in a default situation.

Derivative Contracts Production
The following table presents QEP's volumes and average prices for its commodity derivative swap contracts as of March 31, 2020:
Year
 
Index
 
Total Volumes
 
Average Swap Price per Unit
 
 
 
 
(in millions)
 
 
Oil sales
 
 
 
(bbls)

 
($/bbl)

2020
 
NYMEX WTI
 
11.0

 
$
57.75

2020
 
Argus WTI Midland
 
1.1

 
$
57.30

2020
 
Argus WTI Houston
 
0.5

 
$
60.06

2021
 
NYMEX WTI
 
1.6

 
$
55.04

Gas sales