QEP’s gain on liquidsIncrease of crude in company’s product mix driven by Williston Basin production Mike Ellerd Petroleum News Bakken
Over the past several years, we’ve been successful in executing on our strategy to transition QEP into a more balanced and focused portfolio of E&P assets, with an emphasis on growing higher margin crude oil and liquids-rich gas production while divesting of non-core assets to better focus our human and financial capital. In the second quarter of 2014, we made great progress on our strategy.” Those were among Chairman and Chief Executive Officer Chuck Stanley’s opening remarks in a second quarter results and earnings conference call on Aug. 7, and he had the data to back them up.
QEP Resources subsidiary QEP Energy’s total second quarter record production of 83.9 billion cubic feet of gas equivalent was up 8 percent over the same quarter of 2013. However, that increase was eclipsed by the company’s crude oil production increase of 67 percent in the second quarter which averaged 43,700 barrels per day.
That crude oil increase was driven primarily by the company’s Williston Basin output, which at 35,000 boepd was up 75 percent over the second quarter 2013. And QEP Energy’s second quarter Williston Basin output was 94 percent liquids. In the Permian in West Texas, where QEP took over field-level operations of its recently acquired assets on April 1, the company’s second quarter output averaged 7,700 boepd, which was 78 percent liquids. QEP Energy’s other output was natural gas from the Upper Green River Basin in southwest Wyoming and the Uinta Basin in northwest Utah.
2Q operations Back in the Williston Basin, QEP Energy put 31 gross operated wells on production in the quarter, 27 of which are in the company’s South Antelope area along the western boundary of the Fort Berthold Indian Reservation, FBIR, in far eastern McKenzie County. QEP acquired that acreage from Louisiana-based Helis Oil and Gas in August 2012. The other four wells QEP brought on production in the second quarter are in its acreage on the FBIR. Combined, QEP holds approximately 109,000 acres in the Williston Basin.
QEP Energy also had 18 gross operated Williston Basin wells awaiting completion at the end of the quarter, and had eight rigs operating in its South Antelope area. In addition, QEP Energy participated in another 41 gross non-operated wells that were being drilled and another 26 gross non-operated wells waiting on completion at the end of the quarter.
As of May, the latest month for which production data are available, QEP Energy ranked as North Dakota’s 12th largest Bakken oil producer averaging 31,116 barrels per day for operated, non-confidential wells.
In the Permian, QEP Energy brought 14 gross wells on production, including a horizontal Wolfcamp well. In addition, QEP Energy had six gross operated wells awaiting completion at the end of the quarter, one of which is a horizontal well and the other five verticals. By the end of the quarter, QEP Energy had seven rigs operating in the Permian, two drilling horizontal Woldcamp wells and the other five drilling vertical Atokaberry wells.
Shift to liquids QEP Resources began transitioning away from a natural gas focus and to a crude oil and natural gas liquids exploration and production focus in 2012, and in late 2013 it announced it was acquiring 26,519 net acres in the Permian Basin for approximately $950 million. At the time, those assets were producing approximately 6,700 barrels of oil equivalent per day consisting of 68 percent crude oil along with up to 300 million boe in total estimated net recoverable resources.
Concurrently, QEP began divesting non-core assets and decided to separate its midstream business as part of the same strategy of focusing on liquids. In the second quarter, QEP closed on the previously announced sale of non-core oil and gas properties in the western Williston Basin as well as properties in the Granite Wash and Cana-Woodford plays in the western Anadarko Basin in Texas and Oklahoma. As Petroleum News Bakken reported in May, the property in the Williston Basin was the company’s Fat Cat acreage in western Williams County. QEP said the combined non-core properties brought total proceeds of $702 million prior to post-closing adjustments.
QEP also sold a 40 percent interest in its Green River Processing affiliate in southwestern Wyoming to its QEP Midstream Partners affiliate in a drop-down sale worth $230 million that closed on July 1. Those transactions brought in a combined $932 million, which nearly balances the $942 million the company paid for the Permian Basin assets. “Combined with the proceeds from the Green River Processing drop-down, these transactions go a long way toward offsetting the $942 million purchase price of our Permian Basin acquisition,” Stanley said in the Aug. 7 conference call.
In addition, in late 2013, QEP’s board of directors decided to separate the company’s midstream business, QEP Field Services, which includes the ownership and operation of QEP Midstream Partners. Stanley said that QEP is currently considering possible alternatives for the separation including an outright sale, a straight spin-off to shareholders, and various spin-merge options. The company filed necessary documents with the Securities and Exchange Commission for possible spin-off options in the second quarter, and Stanley said QEP expects to reach a final decision “on the right path forward” in the third quarter, and hopes to complete the separation by the end of 2014. “When complete, we believe the separation will better position both our E&P and our midstream businesses to compete and thrive in their respective business environments,” Stanley said. “In the meantime, we’ll continue to maximize value for both our E&P and midstream businesses.”
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