Questar (NYSE: STR) 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% working interest in the properties, and the acquisition increased Wexpro’s ownership interest to 100%.
In August, 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-development-drilling program.
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 noncommercial 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.
Under the terms of the original Wexpro agreement, Questar affiliate Wexpro Co. 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 is a US Rockies-based integrated natural gas company with three complementary lines of business: retail natural gas distribution, interstate natural gas transportation, and natural gas and oil development and production.