Tickers in this Article: QEP, STR, BBG, NFX
QEP Resources (NYSE:QEP) is projecting low double-digit organic growth in 2012, as the company looks to maintain capital discipline and develop oil and gas properties that generate higher returns. This strategy and other information on the company's operations were detailed at a recent analyst meeting. Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

QEP Resources began life as an independent company in 2010, after being spun off from Questar Corporation (NYSE:STR) as part of that company's reorganization plan. The company is free from any ownership by the former parent, and is dominated by QEP Energy, in its exploration segment. This business provided 77% of the company's $1.29 billion in pro forma EBITDA in the twelve months ending Sept. 30, 2011. (To know more about spinoff, read: Parents And Spinoffs: When To Buy And When To Sell.)

QEP Energy reported three Tcfe of proved reserves at the end of 2010, and is overwhelmingly oriented towards natural gas, with 86% of its proved reserves composed of this commodity. The company reported average production of 768 million cubic feet of natural gas equivalents per day in the third quarter of 2011. QEP Resources also operates separate Field Services and Marketing segments.

2012 Development
QEP Resources has set a $1.5 billion capital budget for 2012, up from $1.35 billion in 2011. The company's strategy is to diversify away from dependence on natural gas and plans to spend 75% of its 2012 drilling budget on areas that produce liquid hydrocarbons. This level of spending is expected to increase production by 12 to 14% in 2012. QEP expects that production of liquids will increase to 20% of the company's production in 2012, up from 11% in 2010.

The Haynesville Shale will see the largest drop in spending, with QEP Resources allocating 19% of capital here in 2012, down from 28% in 2010. The company's before tax returns from wells here are 20%, the lowest in its portfolio.

The Bakken will see a significant boost in capital in 2012, with QEP Resources increasing spending here to 19% of the total budget in 2012, up from 6% in 2010. The company will also spend another 6% on various oil plays in its portfolio.

Uinta Basin
One promising future area for QEP Resources is the Red Wash play in the Uinta Basin, which produces a high percentage of natural gas liquids and condensate, along with the natural gas stream. This play will receive 8% of the company's budget in 2012 and generate before tax returns of 42%.

Other Operators
Other operators active in the Uinta Basin include Bill Barrett (NYSE:BBG), which has 345 Bcfe of proved reserves at West Tavaputs. The company plans to drill 100 wells here, in 2011, and is also exploring various oil bearing formations on its property.

Newfield Exploration (NYSE:NFX) also has a large presence here in the Uinta Basin and has both oil and natural gas opportunities here. The company estimates that it will drill more than 330 wells in the Uinta Basin, in 2012.

The Bottom Line
QEP Resources had little choice but to begin life as a natural gas company, when it achieved independence in 2010. The transition to a more diversified exploration and production company is a sound strategy that will benefit the company in the long term. (For additional reading, check out: Fueling Futures In The Energy Market. )

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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

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