QEP Resources Is Born

By Eric Fox | June 30, 2010 AAA

Questar Corporation (NYSE:STR) will give birth to a new company at the end of June, as this diversified energy company is set to spin out its exploration and production segment and other non-regulated businesses into a new publicly traded entity.

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Questar Corporation shareholders will receive a tax-free stock dividend on June 30, 2010, and will receive one share of QEP Resources (NYSE:QEP) for every share owned of Questar Corporation. After the transaction is completed, QEP Resources will consist of a high growth exploration and production segment, and the Questar Gas Management and Questar Energy Trading businesses of Questar Corporation. These have been renamed QEP Field Services and QEP Marketing.

Questar Corporation will contain only the regulated businesses of the previous entity. These include Wexpro, Questar Pipeline and Questar Gas.

Exploration and Production
The main attraction of the new QEP Resources is the high growth exploration and production segment of the company. This business represented 85% of the new company's $1.2 billion in EBITDAX in 2009. QEP Energy as it is now called, reported proved reserves of 2.7 Tcfe at the end of 2009.

QEP Energy reserves and production are split between the Rocky Mountain area and the mid-continent. The company produced 190 Bcfe of natural gas in 2009, and expects to grow that to 285 Bcfe in 2012, a compound annual growth rate (CAGR) of 15%.

One core area for QEP Resources in exploration and production is the Pinedale field in Wyoming, where the new company will have 50% of its proved reserves. The company is operating six rigs here in 2010 and will drill and complete 100 wells in the Pinedale by the end of the year.

Other companies in the Pinedale include Ultra Petroleum (NYSE:UPL), which plans to drill 117 net wells in 2010 on its acreage here. The Canadian company Nextration Energy recently announced that they will be constructing pipelines in the region.

QEP Resources also has large positions in other unconventional resource basins in the United States. The company has 48,500 net acres in Louisiana, and is producing from the Haynesville Shale and the Cotton Valley formations. Other areas the company is involved with are the Bakken, where QEP Resources has 89,000 net acres under lease, and the Granite Wash in the Texas panhandle, where the company is waiting to complete its third well.

Another operator in the Granite Wash area is Forest Oil (NYSE:FST), which has 97,000 net acres and plans to drill as many as 30 wells in 2010.

QEP Field Services
QEP Field Services operates natural gas gathering and natural gas liquids (NGL) extraction facilities in areas where the company has production. The company is in the process of building two new plants to increase capacity. The Iron Horse facility will start up in the fourth quarter of 2010, and have capacity of 150 million cubic feet per day. Black Forks II is set for a 2011 start up and will be able to extract 15,000 barrels per day of NGL's when it is operating at full capacity.

Financials
QEP Resources will have $1.15 billion in debt after the transaction is complete, giving the company a total debt to book capital ratio of 28% on a pro forma basis. The term structure of this debt is spread out with $150 million maturing in 2011 and the balance in 2016 and beyond.

Investors have another high growth exploration and production company to choose from as QEP Resources emerges from Questar Corporation. This new company is an experienced operator with assets in the Pinedale, the Haynesville and Bakken Shale and Granite Wash areas. (Before jumping into this hot sector, learn how these companies make their money. For more information, see Oil And Gas Industry Primer.)

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