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The New Old Questar Corp.
The new Questar Corp. (NYSE: STR), post separation, will be an interesting collection of regulated businesses that will still have a significant exploration and production segment that represented nearly half the company's pro forma earnings in 2009.
IN PICTURES: Top 6 Marriage-Killing Money Issues
Background
Questar Corp. spun off its main exploration and production segment and other non-regulated businesses at the end of June into a new company called QEP Resources (NYSE: QEP-WI).
After the separation, Questar Corp. will own only the regulated businesses of the previous company. These businesses include Wexpro, Questar Gas and Questar Pipeline. On a pro forma basis, these three businesses contributed the following net income for Questar in 2009:
Wexpro: $80.7 million
Questar Gas: $41.6 million
Questar Pipeline: $58.2 million.
Wexpro
Wexpro was set up in 1981. The company develops oil and natural gas properties for Questar Gas for delivery and sale to utility customers in Utah and Wyoming. Wexpro is allowed to recover its costs of development and then receives a 19-20% unlevered after-tax rate of return under the agreement.
Wexpro's investment base in 2009 was $431.9 million, and the company earned a 19.9% rate of return. Wexpro has grown its net income for 11 consecutive years, reaching approximately $81 million in 2009, with proved reserves of just under 700 Bcfe. This business is better than a utility as the company doesn't have to ask for annual rate increases to recover costs.
Questar Pipeline
Questar Pipeline owns more than 2,500 miles of pipeline throughout the Rocky Mountain area, serving the Uinta, Greater Green River and Piceance Basins. The pipeline business is currently allowed a 10.75% return on equity by the Federal Energy Regulatory Commission (FERC).
Since there is so much oil and gas development going on in the United States, Questar Pipeline has several expansion projects under construction. The latest is the Overthrust Loop Expansion, which will consist of 43 miles of 36-inch pipeline that will be finished in early 2011.
Other companies planning pipeline expansions to accommodate production increases include Spectra Energy (NYSE: SE), which just announced the construction of a new natural gas processing plant in British Columbia.
Energy Transfer Partners (NYSE: ETP) recently announced that it is building a 63-mile pipeline to serve the Haynesville Shale in East Texas.
Questar Gas
Questar Gas is a natural gas utility that serves 900,000 customers in various states including Utah and Wyoming. The company is allowed a 10.35% return on equity on a rate base of $833 million. Questar Gas is expanding operations here and will see its rate base expand to between $1.2 billion and $1.3 billion by 2013.
Financials
Questar Corp. is estimating a 5-7% compound annual growth rate in EBITDA through 2013. After the separation, the new company will have debt of $1.2 billion. Questar Corp. also has a stated goal of accelerated dividend growth going forward.
Bottom Line
Once Questar Corp. completes the separation of its non-regulated segments, the company will still have an attractive collection of assets. These businesses may not have the growth characteristics that some energy investors crave, but it might just be good enough for the rest of us. (For additional stock analysis, refer to Peabody Energy To Benefit From Higher Demand.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
IN PICTURES: Top 6 Marriage-Killing Money Issues
Background
Questar Corp. spun off its main exploration and production segment and other non-regulated businesses at the end of June into a new company called QEP Resources (NYSE: QEP-WI).
After the separation, Questar Corp. will own only the regulated businesses of the previous company. These businesses include Wexpro, Questar Gas and Questar Pipeline. On a pro forma basis, these three businesses contributed the following net income for Questar in 2009:
Wexpro: $80.7 million
Questar Gas: $41.6 million
Questar Pipeline: $58.2 million.
Wexpro
Wexpro was set up in 1981. The company develops oil and natural gas properties for Questar Gas for delivery and sale to utility customers in Utah and Wyoming. Wexpro is allowed to recover its costs of development and then receives a 19-20% unlevered after-tax rate of return under the agreement.
Wexpro's investment base in 2009 was $431.9 million, and the company earned a 19.9% rate of return. Wexpro has grown its net income for 11 consecutive years, reaching approximately $81 million in 2009, with proved reserves of just under 700 Bcfe. This business is better than a utility as the company doesn't have to ask for annual rate increases to recover costs.
Questar Pipeline
Questar Pipeline owns more than 2,500 miles of pipeline throughout the Rocky Mountain area, serving the Uinta, Greater Green River and Piceance Basins. The pipeline business is currently allowed a 10.75% return on equity by the Federal Energy Regulatory Commission (FERC).
Other companies planning pipeline expansions to accommodate production increases include Spectra Energy (NYSE: SE), which just announced the construction of a new natural gas processing plant in British Columbia.
Energy Transfer Partners (NYSE: ETP) recently announced that it is building a 63-mile pipeline to serve the Haynesville Shale in East Texas.
Questar Gas
Questar Gas is a natural gas utility that serves 900,000 customers in various states including Utah and Wyoming. The company is allowed a 10.35% return on equity on a rate base of $833 million. Questar Gas is expanding operations here and will see its rate base expand to between $1.2 billion and $1.3 billion by 2013.
Financials
Questar Corp. is estimating a 5-7% compound annual growth rate in EBITDA through 2013. After the separation, the new company will have debt of $1.2 billion. Questar Corp. also has a stated goal of accelerated dividend growth going forward.
Bottom Line
Once Questar Corp. completes the separation of its non-regulated segments, the company will still have an attractive collection of assets. These businesses may not have the growth characteristics that some energy investors crave, but it might just be good enough for the rest of us. (For additional stock analysis, refer to Peabody Energy To Benefit From Higher Demand.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Eric Fox
Eric J. Fox, CFA, is a freelance financial writer and has previous experience working in the asset management industry as an equity analyst and portfolio manager on the buy side. His favorite area to write on is the energy sector and he keeps current on the industry by reading Haynesville Shale, Permian Oil and Gas and various other blogs.
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