QEP Reports 4th Quarter & Full Year 2020 Results

Source: www.gulfoilandgas.com 2/24/2021, Location: North America

QEP Resources, Inc. reported fourth quarter and full year 2020 financial and operating results.

Full Year 2020 Highlights
- Lowered 2020 average drilling and completion costs to $411 per lateral foot in the Permian Basin
- Reduced General & Administrative expense by approximately 40% compared to 2019
- Generated $673.2 million of Net Cash Provided from Operating Activities
- Delivered $225.4 million of Free Cash Flow (a non-GAAP measure)
- Retired $430.5 million of principal outstanding debt and ended the year with a $60.4 million cash balance
- Entered into a definitive merger agreement to be acquired by Diamondback Energy in an all-stock transaction on December 20, 2020

"Our 2020 results exhibit both the strength of our core assets and the success of the financial and operational decisions we have made during the past several years," commented Tim Cutt, President and CEO of QEP. "As an organization we remain focused on delivering value over volume, achieving peer leading well costs in the Permian Basin, increasing operational efficiencies, and reducing G&A costs across the business. As a result of these efforts, in 2020 we spent less capital than forecast, we achieved oil production at the high-end of our third quarter 2020 guidance range and delivered approximately $225 million in free cash flow, a record for the Company. The outcome of our achievements enabled us to materially reduce our outstanding debt and strengthen the overall position of the company.

"These outstanding results would not have been achieved without the focus and dedication of the QEP employees who managed through a global pandemic while continuing to live our values. I want to thank all of them for their on-going commitment and their continued professionalism as we work towards a smooth integration with Diamondback Energy."

Merger Update
As previously announced, on December 20, 2020, QEP entered into a definitive merger agreement with Diamondback Energy, Inc. (Diamondback) pursuant to which Diamondback will acquire QEP in an all-stock transaction (Merger). The consideration will consist of 0.05 shares of Diamondback common stock for each share of QEP common stock, at the effective time of the Merger. The transaction was unanimously approved by the Board of Directors of each company. Completion of the Merger is expected to occur late in the first quarter of 2021, and is subject to the approval of the Company's stockholders and other customary closing conditions.

Operations Update
For the full year 2020 the Company drilled a total of 59 gross horizontal wells, including 53 in the Permian Basin and six in the Williston Basin, and turned 52 gross operated wells to production, including 50 in the Permian Basin and two in the Williston Basin. The average lateral length for the wells completed in the Permian Basin in 2020 was 10,132 feet and the average lateral length for the wells completed in the Williston Basin in 2020 was 12,258 feet. The Company also re-completed five gross wells in the Williston Basin during the full year 2020.

Production in the Permian Basin was 4.2 million barrels of oil equivalent (MMboe) in the fourth quarter 2020, a decrease of 17% over the fourth quarter 2019. The decrease was primarily a result of the suspension of completion operations in the Permian Basin beginning in March 2020 until the fourth quarter of 2020 in order to proactively manage cash flow and preserve liquidity as a result of the Coronavirus (COVID-19) pandemic. Total Company oil equivalent production was 7.4 MMboe in the fourth quarter 2020, a decrease of 13% compared with the fourth quarter 2019, primarily driven by the Company's decision to suspend completion activity until the fourth quarter of 2020. As of December 31, 2020, the Company had two operated rigs in the Permian Basin and no operated rigs in the Williston Basin.

Oil and condensate production in the Permian Basin was 2.6 million barrels (MMbbl) in the fourth quarter 2020, a decrease of 23% over the fourth quarter 2019. Total Company oil and condensate production was 4.6 MMbbl in the fourth quarter 2020, a decrease of 19% compared with the fourth quarter 2019. The decrease in production was primarily the result of the Company's decision to suspend completion activity in the Permian Basin until the fourth quarter of 2020 and reduced activity in the Williston Basin in light of market conditions.

For the full year 2020, total Company oil equivalent production was 30.3 MMboe (approximately 65% oil and condensate), a decrease of 6% compared with 2019. Permian Basin oil equivalent production for 2020 was 19.0 MMboe, a decrease of 2% compared with 2019. Total Company oil and condensate production was 19.7 MMbbl for 2020, a decrease of 9% compared with 2019. Permian Basin oil and condensate production was 12.6 MMbbl for 2020, a decrease of 7% compared with 2019. The decrease in production was primarily the result of the Company's decision to suspend completion activity in the Permian Basin until the fourth quarter of 2020 and reduced activity in the Williston Basin in order to proactively manage cash flow and preserve liquidity as a result of the COVID-19 pandemic.

Financial Update
The Company reported a net loss of $130.6 million in the fourth quarter 2020, or $0.54 per diluted share, compared with a net loss of $110.4 million, or $0.46 per diluted share, in the fourth quarter 2019. The higher net loss in the fourth quarter 2020 was primarily due to a $34.3 million increase in unrealized derivative losses.

Net income (loss) includes non-cash gains and losses associated with the change in the fair value of derivative instruments, gains and losses from asset sales, asset impairments and certain other items. Excluding these items, the Company's fourth quarter 2020 Adjusted Net Loss (a non-GAAP measure) was $10.1 million, or $0.04 per diluted share, compared with an Adjusted Net Loss of $25.9 million, or $0.10 per diluted share, in the fourth quarter 2019.

Adjusted EBITDA (a non-GAAP measure) for the fourth quarter 2020 was $158.3 million compared with $183.8 million in the fourth quarter 2019, a 14% decrease. The decrease was primarily due to a $112.9 million decrease in oil and condensate, gas and NGL sales due to a 24% decrease in average field-level oil prices and a 13% decrease in oil equivalent production volumes, partially offset by a $67.6 million increase in realized derivative gains, a $12.7 million decrease in production and property taxes and a $10.3 million decrease in lease operating expenses.

The definitions and reconciliations of Adjusted Net Income (Loss) and Adjusted EBITDA are provided under the heading Non-GAAP Measures at the end of this release.

Capital Investment
Capital investment, excluding property acquisitions, was $74.4 million (on an accrual basis) for the fourth quarter 2020, compared with $105.5 million for the fourth quarter 2019.

Total capital investment, excluding property acquisitions, was $327.9 million (on an accrual basis) for the year ended December 31, 2020, compared with $571.5 million for the year ended December 31, 2019, a reduction of $243.6 million. The decrease in capital expenditures was primarily driven by the Company's decision in March 2020 to suspend completion activity in the Permian Basin until the fourth quarter of 2020 and a decrease in the Company's drilling and completion costs in the Permian Basin.

Operating Expenses
During the fourth quarter 2020, lease operating expense (LOE) was $37.1 million, a decrease of 22% compared with the fourth quarter 2019. The decrease in LOE was primarily due to a decrease in workover expense in the Williston Basin, and a decrease in power and fuel, maintenance and repair expenses and water disposal expenses in the Williston and Permian basins as a result of continuing efforts to reduce operating expenses.

During the fourth quarter 2020, LOE was $5.04 per Boe, a decrease of 10% compared to the fourth quarter 2019. The 10% decrease per BOE was primarily due to continuing efforts to reduce operating expenses, despite decreased production in the Permian and Williston basins.

During the fourth quarter 2020, transportation and processing costs were $16.2 million, an increase of 64% compared with the fourth quarter 2019. Adjusted transportation and processing costs (a non-GAAP measure) were $33.1 million, an increase of 37% compared with the fourth quarter 2019. The increase in Adjusted transportation and processing costs was primarily due to increased gathering and processing rates in the Williston and Permian basins. During the fourth quarter 2020, transportation and processing costs were $2.20 per Boe, while Adjusted transportation and processing costs were $4.49 per Boe.

During the fourth quarter 2020, general and administrative (G&A) expense was $29.9 million, including $4.5 million of merger related costs, a decrease of 5% compared with the fourth quarter 2019. The decrease was primarily related to workforce reductions and a reduction in strategic initiative costs, partially offset by an increase in market value on the deferred compensation plan and performance share units. During the fourth quarter 2020, total G&A was $4.06 per Boe, of which $2.43 per Boe was G&A expense, excluding merger costs and share-based and deferred compensation expense.

Liquidity & Debt
Net Cash Provided by Operating Activities for the fourth quarter 2020 was $119.2 million, compared with $224.9 million for the fourth quarter 2019. Net Cash Provided by Operating Activities for the full year 2020 was $673.2 million, compared with $566.9 million for the full year 2019.

The Company generated Free Cash Flow of $63.4 million in the fourth quarter 2020, an increase of $7.2 million compared with the fourth quarter 2019. The increase was primarily due to a $31.1 million decrease in accrued property, plant and equipment capital expenditures, partially offset by a decrease in Adjusted EBITDA of $25.5 million.

For the full year 2020, the Company generated Free Cash Flow of $225.4 million, an increase of $235.2 million compared with the full year 2019. The improvement was primarily due to a $243.6 million decrease in accrued property, plant and equipment capital expenditures, primarily driven by suspending completion activity until the fourth quarter of 2020 and by reducing the Company's drilling and completion costs in the Permian Basin.

As of December 31, 2020, QEP had $60.4 million in cash and cash equivalents, no borrowings under its revolving credit facility, $14.1 million in letters of credit outstanding and was in compliance with the covenants under its credit facility. The Company estimates, that as of December 31, 2020, it could incur additional indebtedness of approximately $750.0 million and incur up to $500.0 million of junior guaranteed indebtedness and remain in compliance with its financial covenants (as defined in the credit agreement).

For the full year 2020, the Company reduced principal amount of outstanding debt by $430.5 million and ended the year with $1.6 billion of senior notes with the nearest maturity on October 1, 2022.

The Company also has $64.1 million of income tax receivables as of December 31, 2020, primarily attributable to Alternative Minimum Tax (AMT) credit refunds that were accelerated by the Coronavirus Aid, Relief, and Economic Security Act stimulus bill. The Company anticipates it will receive $30.7 million of the AMT credit refunds within the next 12 months.

Guidance
Due to the Merger, QEP has discontinued providing guidance and does not intend to update previously issued guidance. Accordingly, investors are cautioned not to rely on historical forward-looking statements regarding guidance as those forward-looking statements were the estimates of management only as of the date provided, have not and will not be updated and were subject to the specific risks and uncertainties that accompanied such forward-looking statements.


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