QEP Resources’ Free Cash Flow Deteriorated in 2017

As we discussed in Part 1 of this series, QEP Resources (QEP) had a negative normalized FCF (free cash flow) of -230% in 2017—the fifth-lowest FCF among upstream producers in the US. To learn more about our normalized FCF methodology and filtering criteria, read Part 1. In this part, we’ll discuss QEP Resources’ quarterly FCF and quarterly normalized FCF trends.

For fiscal 2017, QEP Resources reported a negative FCF of -$1.4 billion, which is much higher than its negative FCF of -$544 million in 2016. In 2017, QEP Resources’ quarterly FCF remained in the negative territory and didn’t show a clear trend. In 4Q17, QEP Resources reported its lowest negative FCF ever of -$984 million. The company’s lower FCF could be due to the acreage acquisition in the Permian Basin for $721 million.

In fiscal 2017, QEP Resources’ normalized FCF fell to -230% in 2017 from -80% in 2016. The deterioration in QEP Resources’ normalized FCF in 2017 could be due to the steep increase in its capital expenditures and the decrease in its OCF (operating cash flow).

QEP Resources’ OCF decreased 10% to $598 million in 2017 from $664 million in 2016. In contrast to the OCF, QEP Resources’ capital expenditures increased 63% to $2.0 billion in 2017 from $1.2 billion in 2016.

From 1Q17 to 4Q17, QEP Resources’ quarterly normalized FCF remained in the negative territory and didn’t show a clear trend.

Year-to-date in 2018, QEP Resources stock has risen 2.9%. The Energy Select Sector SPDR Fund (XLE), which represents an index of stocks across the energy sector, decreased 6.1%. Crude oil (USO) has risen 4.9% in 2018.