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 US$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%.
"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 asked 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 programme 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 programme.
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 17 November, and Wyoming regulators on 24 November: 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 programme,” 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."
Edited from press release by Angharad Lock