In the coming year Denver-based QEP Resources Inc. and its QEP Energy exploration and production (E&P) unit will spend within earnings and manage production with an eye on prices, CEO Charles Stanley told financial analysts during a meeting Monday. Spending will focus on higher-return oily assets at the expense of natural gas plays.
QEP Energy should deliver 12-14% organic production growth in 2012, the company said. The 2012 capital plan assumes no asset sales or joint ventures and is based on the current forward curve for commodity prices.
“In response to current commodity prices, we are decreasing capital allocated to the Haynesville Shale and other dry gas development areas and increasing capital allocated to high-return projects including Pinedale, the Bakken [Shale], and oil-directed horizontal drilling in the Powder River Basin and Midcontinent,” said QEP CEO Chuck Stanley. “In addition, we plan to commence development of our Uinta Basin Red Wash liquids-rich gas play.”
During his presentation to analysts, Stanley credited the Haynesville Shale with helping to drive the company’s production volumes. However, the company is managing production growth there, maintaining a small choke on wells and high flowing bottom pressures, which Stanley said is important to the long-term performance of Haynesville wells and managing production in the current low-gas price environment.
“We will manage production volumes in response to prices,” Stanley said. “Do we have a specific price for a specific field? Yes, but we’re not going to tell you what that is.”
QEP expects Nymex natural gas to range $3.50-4.00/Mcf this year and $3.75-4.25/Mcf next year. Crude oil is expected to range $80-90/bbl this year and $90-100/bbl next year.
Asked by an analyst what keeps him awake at night, Stanley said he isn’t worried about the capabilities of those working at QEP but rather about the things outside the company’s control, for instance, drilling permits and tax policy.
In some areas where QEP Energy operates the company has been awaiting drilling permits for more than a year, Stanley said. “The only way that we’re able to respond to that is to have an active portfolio where we’re able to allocate capital to other places,” he said.
As for taxes, the potential for the elimination of deductibility of intangible drilling costs in the first year after wells are drilled is a worry. “It would be a job-destroying and an activity-destroying decision,” Stanley said. “Once again, there’s little that we can do to mitigate it.
“It’s the broader macro issues that cause me concern.”
QEP Field Services is projected by the company to double the size of its gathering and processing business within five years, executives said. About 70% of the unit’s 2011 revenue will come from fee-based activities with about 50% of volumes handled coming from third parties.
“In response to growing QEP Energy and third-party demand, QEP Field Services will begin construction on Iron Horse II, a new 150 MMcf/d fee-based cryogenic gas processing plant in the Uinta Basin,” Stanley said.
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