QEP RESOURCES, INC. (QEP)

2015 Climate Risk Disclosure Analysis

Industry Group: Oil & Gas

Standard Industrial Classification: Crude Petroleum & Natural Gas

Index Membership: S&P 500, Russell 3000

Financial Year End: Dec 2014

QEP Resources, Inc. (QEP or the Company) is a holding company with two subsidiaries, QEP Energy Company and QEP Marketing Company, which are engaged in two primary lines of business: (i) oil and gas exploration and production (QEP Energy) and (ii) oil and gas marketing, operation of the Haynesville Gathering System and an underground gas storage facility (QEP Marketing and Other). See Part II, Item 8 - Financial Statements and Supplementary Data, Note 14 - Operations by Line of Business, of the Notes to the Consolidated Financial Statements for financial information relating to our segments. QEP's operations are focused in two geographic regions: the Northern Region (primarily in Wyoming, North Dakota and Utah) and the Southern Region (primarily in Texas and Louisiana) of the United States. QEP's corporate headquarters are located in Denver, Colorado. Reincorporation Merger and Spin-off from Questar Effective May 18, 2010, Questar Market Resources Inc. (Market Resources), then a wholly owned, public subsidiary of Questar Corporation (Questar), merged with and into a newly formed, wholly owned subsidiary, QEP Resources, Inc., a Delaware corporation, in order to reincorporate in the State of Delaware (the Reincorporation Merger). The Reincorporation Merger was effected pursuant to an Agreement and Plan of Merger entered into between Market Resources and QEP... 10-K Filing (2015-02-24)

Disclosure Breakdown

Disclosure Rank

89th percentile in Russell 3000

Disclosure Abstract

3 Relevance:
3%
Factors that could cause actual results to differ materially include, but are not limited to the following:
 * the risk factors discussed in Part I, Item 1A of this Annual Report on Form 10-K;
 * changes in gas, oil and NGL prices;
 * general economic conditions, including the performance of financial markets and interest rates;
 * drilling results;
 * shortages of oilfield equipment, services and personnel;
 * lack of available pipeline, processing and refining capacity;
 * QEP's ability to successfully integrate acquired assets or divest of non-core assets;
 * the outcome of contingencies such as legal proceedings;
 * permitting delays;
 * operating risks such as unexpected drilling conditions;
 * weather conditions;
 * the availability and cost of debt and equity financing;
 * changes in laws or regulations;
 * legislat
ion regarding climate change and other initiatives related to drilling and completion techniques, including hydraulic fracturing;
 * derivative activities;
 * volatility in the commodity-futures market;
 * substantial liabilities from legal proceedings and environmental claims;
 * failure of internal controls and procedures;
 * failure of QEP's information technology infrastructure or applications;
 * elimination of federal income tax deductions for oil and gas exploration and development costs;
 * regulatory approvals and compliance with contractual obligations;
 * actions, or inaction, by federal, state, local or tribal governments;
 * lack of, or disruptions in, adequate and reliable transportation for QEP's production;
 * competitive conditions;
 * production levels;
 * reserve levels; and other factors, most of which are beyond the Company's control.
item 1. Business
12 Relevance:
35%
These laws and regulations include, but are not limited to, the following:
Clean Air Act. The Clean Air Act and similar state laws regulate the emission of air pollutants from equipment and facilities employed by QEP in its business, including but not limited to engines, tanks and dehydrators.
Greenhouse Gases Regulations and Climate Change Legislation. The Environmental Protection Agency (EPA) published its findings that emissions of carbon dioxide, methane, and other greenhouse gases (GHG) endanger public health and the environment because such emissions are, according to the EPA, contributing to the warming of the earth's atmosphere and other climate changes. Based on these findings, the EPA adopted regulations for the measurement and reporting of GHG emitted from certain large facilities. In November 2010, the EPA expanded its GHG Reporting Rule to include onshore oil and gas production, processing, transmission, storage, and distribution facilities. This rule requires reporting of GHG emissions from such facilities on an annual basis. In addition, both houses of Congress have considered legislation in recent years to reduce emissions of GHG, and a number of states have taken, or are considering, legal measures to reduce emissions of GHG, primarily through the development of GHG inventories, GHG permitting and/or regional GHG cap and trade programs; however, some states have required or proposed direct regulation of GHG emissions from oil and gas facilities, including, for example, methane leak detection monitoring and repair for upstream oil and gas activities and best management practices for well liquids unloading activities.
The EPA is also considering direct regulation of methane emissions from oil and gas facilities. On January 14, 2015, the White House and the U.S. Environmental Protection Agency indicated that they plan to amend 40 C.F.R Part 60, Subpart OOOO (Subpart OOOO) standards to achieve additional methane and volatile organic compound reductions from the oil and natural gas industry.
15 Relevance:
5%
Seasonality QEP's results of operations can be negatively impacted by the weather. In the Pinedale field, QEP typically ceases completion activities on newly drilled wells due to adverse weather conditions from approximately December to mid-March. In the Williston Basin, QEP drills and completes wells throughout the year, but adverse weather conditions can impact drilling and field operations.
item 1a. Risk Factors
16 Relevance:
6%
Crude oil prices are influenced by a variety of factors, including global supply and demand, currency values, geopolitical dynamics and other factors. U.S. natural gas prices in particular are significantly influenced by weather and weather forecasts as well as supply and demand. NGL prices generally move in sympathy with natural gas and crude oil prices as well as react to demand for the individual components that make up NGLs. Any significant or extended decline in commodity prices would impact the Company's future financial condition, revenue, operating results, cash flow, return on invested capital, and rate of growth. In addition, significant or extended declines in commodity prices could limit QEP's access to sources of capital or cause QEP to delay or postpone some of its capital projects.
QEP cannot predict the future price of gas, oil and NGL because of factors beyond its control, including but not limited to:
 * changes in domestic and foreign supply of gas, oil and NGL;
 * the potential long-term impact of an abundance of gas, oil and NGL from unconventional sources on the global and local energy supply;
 * changes in local, regional, national and global demand for gas, oil, NGL and related commodities;
 * the level of imports and/or exports of, and the price of, foreign gas, oil and NGL;
 * localized supply and demand fundamentals, including the proximity, cost and availability of pipelines and other transportation facilities, and other factors that result in differentials to benchmark prices from time to time;
 * the availability of refining capacity;
 * domestic and global economic conditions;
 * speculative trading in crude oil and natural gas derivative contracts;
 * the continued threat of terrorism and the impact of military and other action;
 * the activities of the Organization of Petroleum Exporting Countries (OPEC), including the ability of members of OPEC to agree to and maintain oil price and production controls;
 * political and economic conditions in the United States and in or affecting other producing countries, including conflicts in the Middle East, Africa, South America and Russia;
 * the impact of U.S. dollar exchange rates on oil, NGL and natural gas prices;
 * weather conditions, weather forecasts and natural disasters;
 * government regulations and taxes, including regulations or legislation relating to climate change or oil and gas exploration and production activities;
 * technological advances affecting energy consumption and energy supply;
 * conservation efforts;
 * the price, availability and acceptance of alternative fuels, including coal, nuclear energy and biofuels;
 * demand for electricity as well as natural gas used for fuel for electricity generation;
 * the level of global oil, gas and NGL inventories and exploration and production activity;
 * exports from the United States of oil, NGL and natural gas; and the quality of oil and gas produced.
25 Relevance:
36%
The adoption of greenhouse gas (GHG) emission or other environmental legislation could result in increased operating costs, delays in obtaining air pollution permits for new or modified facilities, and reduced demand for the gas, oil and NGL that QEP produces. Federal and state courts and administrative agencies are considering the scope and scale of climate-change regulation under various laws pertaining to the environment, energy use and development. Federal, state and local governments may also pass laws mandating the use of alternative energy sources, such as wind power and solar energy, which may reduce demand for oil and gas. QEP's ability to access and develop new oil and gas reserves may be restricted by climate-change regulation, including GHG reporting and regulation. Legislative bills have been proposed in Congress that would regulate GHG emissions through a cap-and-trade system under which emitters would be required to buy allowances for offsets of emissions of GHG. The EPA has adopted final regulations for the measurement and reporting of GHG emitted from certain large facilities and, as discussed above, is considering additional amendments to 40 C.F.R Part 60, Subpart OOOO to include additional requirements to reduce methane emissions from oil and natural gas facilities. In June 2014, the United States Supreme Court's holding in Utility Air Regulatory Group v. EPA upheld a portion of EPA's GHG stationary source permitting program, but also invalidated a portion of it. The Court held that stationary sources already subject to the Prevention of Significant Deterioration (PSD) or Title V permitting programs for non-GHG criteria pollutants remain subject to GHG Best Available Control Technology (BACT) and major source permitting requirements, but ruled that sources cannot be subject to the PSD or Title V major source permitting programs based solely on GHG emission levels. Upon remand, EPA is considering how to implement the Court's decision. The Court's holding does not prevent states from considering and adopting state-only major source permitting requirements based solely on GHG emission levels. In addition, in several of the states in which QEP operates the federal government is considering various GHG registration and reduction programs, including methane leak detection monitoring and repair requirements specific to oil and gas facilities. It is uncertain whether QEP's operations and properties, located in the Northern and Southern Regions of the United States, are exposed to possible physical risks, such as severe weather patterns, due to climate change that may or may not be the result of anthropogenic emissions of GHG.

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