67 WALL STREET, New York - January 15, 2013 - The Wall Street Transcript has just published its Oil & Gas: Refining, Independent and Major Integrated Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Capital Expenditures and Consolidation Activity - Refining Crude Price Differentials - Frontier Exploration and Development - Shale Drilling Capital Expenditures - Oil and Gas Price Divergence - Oil Price Expectations - LNG Global Pricing Differentials
Companies include: Questar Corp. (STR)
In the following excerpt from the Oil & Gas: Refining, Independent and Major Integrated Report, the CEO of Questar discusses the outlook for his company for investors:
TWST: To refresh our readers' minds, can you begin with a brief overview of your business units?
Mr. Jibson: Questar has changed since our last interview with you. At that time, we were a very robust exploration and production company, and that's where most of our growth was and where most of our investment was going. The growth of that business caused us to restructure the company in the middle of 2010. That was driven by the fact that we'd built a very large exploration and production business, but we also had three very successful regulated natural gas businesses that were continuing to function very well. But a lot of our investors didn't really understand what type of company we were and that we were fully integrated. Fewer and fewer companies in our industry were like that, so in the middle of 2010, we restructured.
We spun off the E&P side of business, and that left more of a regulated-type company. You might say we went back to our roots, since Questar, for 65 of its first 80 years, was a more regulated-type business. But we still continue to be a fully integrated business - we like to say we cover the entire value chain of natural gas. Our integrated approach includes three business units.
Wexpro is our production company. So we continue to have production, but it's a very unique story. With Wexpro, we develop and produce natural gas on a cost-of-service basis with that gas dedicated to our utility, Questar Gas. That's the part that makes us very unique: we essentially have removed the risk of commodity prices. We'll develop somewhere in the range of 52 Bcf per year, and that makes up about 60% of the natural gas that our utility needs each year. So our first business unit is Wexpro.
We follow that up in the value chain with Questar Pipeline Company, our interstate transmission company which transports gas for our utility, Questar Gas, but also for a large number of third-party shippers.
And then we follow that up with our third business unit which is Questar Gas Company. That's our distribution utility serving just over 925,000 customers in Utah, Wyoming and a small portion of Idaho.
So since the spinoff of our pure E&P subsidiary, we now have a more balanced portfolio with all three businesses contributing to the whole in a more balanced way, and I think the key message right now is the fact that we are more identified as more of a regulated-type company. Questar Gas is regulated by the states of Utah and Wyoming, and Questar Pipeline is regulated by FERC.
Wexpro is not regulated, but it's governed by an agreement that was made back in 1981 with the states of Wyoming and Utah. That agreement essentially provides that Wexpro will produce gas for our utility from a finite set of producing properties. The agreement is intact until all of the gas has been developed from those producing properties, and it includes an after-tax return of about 20% on the successful completion of those wells.
So our current business units are units that have been established for a long time. In fact, if you look, Wexpro saw a fourfold increase in net income in the 10 years prior to the restructuring. Questar Pipeline saw a threefold increase in net income over that same time period, and our utility doubled net income. So these have all been very successful businesses. We just didn't talk a great deal about them as we were growing the E&P side of the business.
TWST: On which of the above-mentioned units are you most closely focused on at the moment right now and why? Which represents the best strategic opportunities for the company?
For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.