Basis of Presentation of Interim Consolidated Financial Statements

3 Months Ended

Mar. 31, 2012

Basis of Presentation of Interim Consolidated Financial Statements [Abstract]

Basis of Presentation of Interim Consolidated Financial Statements

Note 2 – Basis of Presentation of Interim Consolidated Financial Statements

The interim condensed consolidated financial statements contain the accounts of QEP and its majority-owned or controlled subsidiaries. The condensed consolidated financial statements were prepared in accordance with United States Generally Accepted Accounting Principles (GAAP) and with the instructions for quarterly reports on Form 10-Q and Regulations S-X and S-K. All significant intercompany accounts and transactions have been eliminated in consolidation.

The condensed consolidated financial statements reflect all normal recurring adjustments and accruals that are, in the opinion of management, necessary for a fair statement of financial position and results of operations for the interim periods presented. Interim condensed consolidated financial statements do not include all of the information and notes required by GAAP for audited annual consolidated financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

The preparation of the condensed consolidated financial statements and notes in conformity with GAAP requires that management make estimates and assumptions that affect revenues, expenses, assets and liabilities, and disclosure of contingent assets and liabilities. Actual results could differ from estimates. The results of operations for the three months ended March 31, 2012, are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

De-designation of commodity derivative contracts

Effective January 1, 2012, QEP elected to discontinue hedge accounting prospectively. Accordingly, all realized and unrealized gains and losses will be recognized in earnings immediately each quarter as derivative contracts are settled and marked-to-market. For the first quarter of 2012 unrealized gains of $128.3 million were included in income that prior to January 1, 2012 would have been deferred in accumulated other comprehensive income under hedge accounting. Refer to Note 7 for additional information.

Transportation and other handling costs

In the fourth quarter of 2011, QEP revised its reporting of transportation and handling costs to reflect revenues in accordance with industry practice and GAAP. Transportation and handling costs, previously netted against revenues, have been recast on the Condensed Consolidated Income Statement from revenues to “Natural gas, oil and NGL transportation and other handling costs” for prior periods presented. The impact of this revision is immaterial to the accompanying financial statements and has no effect on income from continuing operations, net income, or earnings per share. The following table details the impact for the three months ended March 31, 2011, on the Condensed Consolidated Income Statement.

	As reported (1)		As revised		Change
	(in millions)
REVENUES
Natural gas sales	$	271.0	$	312.6	$	41.6
Oil sales		62.3		63.0		0.7
NGL sales		45.8		47.9		2.1
Gathering, processing and other		69.3		46.6		(22.7	)
OPERATING EXPENSES
Natural gas, oil and NGL transportation and other handling costs		-		21.7		21.7

(1) In addition to the revision described above, QEP Field Services NGL sales of $28.6 million in the first quarter of 2011 have been reclassified from “Gathering, processing and other” into “NGL sales” in the as reported column to be consistent with current period presentation. QEP reported NGL sales of $17.2 million and Gathering, processing and other of $97.9 million in its first quarter 2011 Form 10-Q. The reclassification is all within Revenues and has no effect on income from continuing operations, net income or earnings per share.

Oil, Natural Gas, and NGL prices

Historically, field-prices received for QEP's natural gas, NGL, and crude oil production have been volatile and unpredictable, and that volatility is expected to continue. In recent years, domestic natural gas supply has grown faster than natural gas demand, driven by advances in technology, including horizontal drilling combined with multi-stage hydraulic fracturing, which have allowed producers to extract increasing amounts of natural gas from shale, tight sand formations, and other unconventional reservoirs. Increased natural gas supply has put downward pressure on natural gas prices, while concern about the global economy and other factors has created volatility in the price of crude oil. Changes in the market prices for natural gas, crude oil, and NGL directly impact many aspects of QEP's business, including its financial condition, revenues, results of operations, planned drilling activity and related capital expenditures, liquidity, rate of growth, costs of goods and services required to drill and complete wells, and the carrying value of its oil and natural gas properties.

New accounting pronouncements

In December of 2011, the FASB issued ASU 2011-11, which enhances disclosure requirements regarding an entity's financial instruments and derivative instruments that are offset or subject to a master netting arrangement. This information about offsetting and related netting arrangements will enable users of financial statements to understand the effect of those arrangements on the entity's financial position, including the effect of rights of setoff. The amendments are required for annual reporting periods beginning after January 1, 2013, and interim periods within those annual periods. QEP is evaluating the impact of this ASU on its disclosure requirements.