Questar received approval from the Utah and Wyoming public service commissions to include Canyon Creek Unit natural gas-producing properties in the Vermillion Basin under the Wexpro II agreement, a press release said Nov. 25.
Regulators also approved changes to the Wexpro cost-of-service model established by the agreements.
In December 2014, Wexpro paid $52.7 million to acquire an additional working interest in Wexpro-operated wells in Canyon Creek unit in southwestern Wyoming. Wexpro already owned a 70% working interest in the properties, and the acquisition brought it to full ownership interest.
"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 petitioned regulators to include the acquired Canyon Creek interest as a cost-of-service property under the agreement. 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. This brought about the following changes, which 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, which is 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.
--By 2020, Wexpro will reduce the maximum combined production from its properties from 65% to 55% of Questar Gas’s annual forecast 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.
Questar is based in Salt Lake City.
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