Questar Receives Approval to Add Natural Gas Properties Under Wexpro II Agreement
Proposed changes to the Wexpro model also approved
Questar has received approval from the Utah and Wyoming public service
commissions to include natural gas-producing properties under the Wexpro
II Agreement. Regulators also approved changes to the Wexpro
cost-of-service model established by the Wexpro agreements.
In December 2014, Wexpro paid $52.7 million to acquire an additional
working interest in existing Wexpro-operated wells in the Canyon Creek
Unit of southwestern Wyoming’s Vermillion Basin. Wexpro already owned a
70-percent working interest in the properties, and the acquisition
increased Wexpro’s ownership interest to 100 percent.
"Adding the Canyon Creek acquisition to Wexpro II increases our low-cost
portfolio of Vermillion Basin assets, our most economical
cost-of-service area," said Ron Jibson, Questar chairman, president and
CEO. "We believe the addition of this competitively priced
cost-of-service production and future investment opportunities will
benefit both utility customers and shareholders.”
In August 2015, Questar Gas petitioned regulators to include the
acquired Canyon Creek interest as a cost-of-service property under the
Wexpro II Agreement. In connection with the application, Questar also
proposed changes to its cost-of-service program designed to enable
future cost-of-service gas production to be more competitive with
current market prices and to potentially allow Wexpro to resume its
In October, Questar Gas, Wexpro, the Utah Division of Public Utilities,
the Utah Office of Consumer Services and the Wyoming Office of Consumer
Advocate signed a settlement stipulation modifying the proposals
contained in the August application.
The following changes were approved by Utah regulators on Nov. 17, and
Wyoming regulators on Nov. 24:
Wexpro’s rate of return on post-2015 development-drilling expenditures
under both Wexpro agreements will be lowered to the commission-allowed
rate of return on investment as defined in the Wexpro II Agreement --
Wexpro’s pre-2016 investment base and associated returns will not be
Post-2015 dry-hole and non-commercial well costs will be shared
equally between utility customers and Wexpro, with the utility
customers’ share limited to 4.5% of Wexpro's annual
When the annual average price of cost-of-service gas from all Wexpro
properties is less than the actual average market price, annual
savings on post-2015 development will be shared equally between
utility customers and Wexpro, but utility customers’ exposure will be
limited. Wexpro will not earn a return exceeding that earned under the
1981 Wexpro Agreement.
By 2020, Wexpro will reduce the maximum combined production from its
properties from 65% to 55% of Questar Gas’s annual forecasted demand.
“We believe the proposed changes are important to facilitate a potential
resumption of Wexpro's gas-development-drilling program,” said Jibson.
“Wexpro’s ability to resume drilling in this low-gas-price environment
is important in order for it to sustain and grow production and its
investment base, which is critical for customers and shareholders. These
creative changes also provide a template for our Wexpro development team
as they continue to negotiate potential cost-of-service arrangements
with utilities in other regulatory jurisdictions."
About the Wexpro agreements:
Under the terms of the original Wexpro Agreement, Questar affiliate
Wexpro Company produces gas from certain properties at cost of service
for the benefit of Questar’s Utah and Wyoming utility customers. The
Wexpro II Agreement perpetuates that model by enabling the company to
add new properties for cost-of-service development. Wexpro II, approved
in 2013, stipulates that all Wexpro acquisitions within the footprint of
the 1981 agreement must be submitted to the public service commissions
of Utah and Wyoming for approval in order to be included as
cost-of-service properties benefiting Questar’s utility customers.
Questar (NYSE: STR) is a Rockies-based integrated natural gas company
with an enterprise value of about $5 billion and three complementary
lines of business: retail natural gas distribution, interstate natural
gas transportation and natural gas and oil development and production.
This press release includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements give expectations or forecasts of future
events. You can identify these statements by the fact that they do not
relate strictly to historical or current facts. They use words such as
"anticipate," "estimate," "expect," "project," "intend," "plan,"
"believe," and other words and terms of similar meaning in connection
with a discussion of future operating or financial performance.
Forward-looking statements in this document include, but are not limited
to, Company expectations regarding Wexpro’s ability to resume and
maintain a developmental natural gas drilling program and the potential
benefits of the modifications to the Wexpro model to customers,
shareholders and potential third-party cost-of-service arrangements. Any
or all forward-looking statements may turn out to be wrong. These
statements are based on current expectations and the current economic
environment. They involve a number of risks and uncertainties that are
difficult to predict. Actual results could differ materially from those
expressed or implied in the forward-looking statements. Factors that
could cause actual results to differ materially include, but are not
limited to the following:
the risk factors discussed in Part II, Item 1A of the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
2015, and any subsequent SEC filings;
general economic conditions, including the performance of financial
markets and interest rates;
changes in energy commodity prices;
changes in industry trends;
actions of regulators;
changes in laws or regulations; and
other factors, most of which are beyond Questar's control.
Questar undertakes no obligation to publicly correct or update the
forward-looking statements in this document, in other documents, or on
the website to reflect future events or circumstances. All such
statements are expressly qualified by this cautionary statement.
For more information, visit Questar's website at www.questar.com.
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