Tickers in this Article: STR, UPL, CHK, XCO
Questar Corp (NYSE:STR) is a diversified energy company with assets in exploration and production, gathering and processing, pipeline operations and distribution. The company has good upside potential from its oil and gas properties while also having a steady net income base from its less volatile midstream and pipelines segments.

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Exploration and Production
The business that interests investors the most is probably its exploration and production segment. This area is also Questar's earnings powerhouse, producing 62% of its $1.65 billion in EBITDA in the most recent trailing twelve-month period.

Questar is forecasting production growth of 7-9% in 2009 and 12-15% in 2010, and is confident despite lowering their forecast for capital expenditures to $895 million in 2010, down from $1.088 billion in 2009.

Questar's exploration and production business has solid positions in many of the prominent high growth areas in the United States.

Haynesville Shale
Questar has 43,000 net acres in the Haynesville Shale, and has been aggressive in increasing its position. Its latest well completion reported was the Sample 10H #1, which had an initial production rate of 22.6 million cubic feet equivalent. Questar is currently drilling 10 wells here, and has nine others waiting on completion.

The exploration and production industry is moving en masse into the Haynesville Shale as the potential of this area is recognized. EXCO Resources (NYSE:XCO) just announced a $471.4 million capital budget for 2010, and will spend 54% of it in the Haynesville Shale. The company plans a total of 128 wells here in 2010.

Another large acreage holder in the Haynesville Shale is Chesapeake Energy (NYSE:CHK), which has 510,000 net acres under lease, and is currently producing 330 million cubic feet equivalent of natural gas per day.

Pinedale Anticline
Questar also has a large reserve and production base in the Pinedale Basin in Wyoming. The company has 1.16 Tcfe of proved reserves here, and believes that it has 1400 drilling locations left here. Questar is gearing up for 2010 in the Pinedale and will have six rigs operating here in 2010.

The Pinedale is a prolific area, and other companies are also rapidly developing properties here. Ultra Petroleum (NYSE:UPL) had proved reserves of 3.5 Tcfe in the Pinedale at the end of 2008.

Other Areas
Questar also has large acreage positions in the Granite Wash area in the mid-continent, and the Woodford and Bakken Shales. The company will have four rigs working in these basins in 2010.

Questar's midstream business has seen steady growth in net income the last few years, moving from $21 million in 2004 to $81.5 million in 2008. The company has natural gas processing hubs in the Uinta, Vermillion and Green River Basins. The hubs have processing capacity of a little more than one billion cubic feet per day.

The pipeline business is also a steady source of income for Questar with $58 million in net income in 2008. The company has 2,500 miles of pipeline, and two expansion projects under construction that will come online in 2010 and 2011.

The Bottom Line
Questar is a well-balanced company that might appeal to more risk-averse investors as the inherent volatility of its exploration and production business is offset by its steadier pipeline and midstream business. (To learn more, see our Oil And Gas Industry Primer.)

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