Questar receives approval to add natural gas properties under Wexpro II agreement

“Wexpro’s ability to resume drilling in this low-gas-price environment is important in order for it to sustain and grow production…” – Jibson

Ron Jibson Chairman, President & CEO, Questar Corporation

SALT LAKE CITY – Questar has received approval from the Utah and Wyoming public service commissions to include natural gas properties under the Wexpro II Agreement. Regulators also approved changes to the Wexpro cost-of-service model established by the Wexpro agreements.

In Dec. 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-per cent working interest in the properties, and the acquisition increased Wexpro’s ownership interest to 100 per cent.

“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 Aug., 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 gas properties development-drilling program.

Gas drilling

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 — currently 7.64%.
• Wexpro’s pre-2016 investment base and associated returns will not be affected.
• 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 development-drilling costs.
• 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.”