QEP Resources (NYSE:QEP) has several promising crude oil and wet-gas areas in the company's portfolio, and it plans extensive development of these plays over the next few years. This will start to diversify the company away from a heavy dependence on natural gas in its reserve and production base.
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

QEP Resources reported total proved reserves of three Tcfe at the end of 2010, with 86% of these reserves composed of natural gas. The company's production is also in line with its proved reserves and has a liquids content of only 15%. (For related reading, see Oil: A Big Investment With Big Tax Breaks.)

QEP Resources has adopted a strategy of diversifying away from natural gas and has dedicated 75% of its 2012 capital budget towards formations that produce crude oil, natural gas liquids or condensate.

Uinta Basin
QEP Resources is active in the Uinta Basin where the company is developing the Red Wash Lower Mesaverde play. Production from this play is approximately 40% liquids and comes from multiple sandstone formations. QEP Resources is developing the play with vertical wells.

QEP Resources is planning to drill 40 wells into the Lower Mesaverde play in 2012, and will also initiate a pilot program to test 10- and 20-acre spacing. If 10-acre spacing is successful, the company will have an inventory of 3,200 hundred drilling locations in this area.

QEP Resources has also identified a potential oil bearing formation in the Uinta Basin and plans to test the Green River play, which the company must drill through to get to the Lower Mesaverde.

Williston Basin
QEP Resources is also active in the Williston Basin, and has 90,000 net acres under lease with exposure to the Bakken and Three Forks formation. The company has the majority of its acreage within the Fort Berthold Indian Reservation and has reported several successful wells with high initial production rates.

QEP Resources estimates that it has approximately 240 gross Bakken locations assuming 160-acre spacing. The company also has an additional 160 locations in the Three Forks formation.

The Bakken is one of the most active plays in the United States and has attracted some of the world's largest oil companies. In October 2011, Statoil (NYSE:STO) announced the acquisition of Brigham Exploration Company (NYSE:BEXP) in a deal valued at $4.7 billion. Brigham Exploration Company was one of the leaders in developing the Bakken play.

Another operator in the Bakken is Kodiak Oil and Gas (NYSE:KOG), which saw its stock price jump after the deal was announced. The company plans to spend $585 million in capital in 2012 on 51 net wells.

Marmaton Lime
QEP Resources is involved in the Marmaton Lime in Western Oklahoma and has 31,000 net acres under lease. This is an oil play, and a recent horizontal well drilled by the company was reported with an initial production rate of 1,063 barrels of oil per day. If this success can be replicated across the company's entire position, QEP Resources will have nearly 100 drilling locations, assuming 320-acre spacing.

Powder River Basin
QEP Resources is also testing a number of different plays in the Powder River Basin, including the Niobrara, Sussex and Shannon formations. These plays also have the potential to add to the company's future liquids production growth.

The Bottom Line
QEP Resources has jumped into a number of oil and liquid plays that offer higher returns than dry gas development. Although it will take years for the company to lose its reputation as a natural gas operator, the strategy is the correct course to follow. (For related reading, see What Determines Oil Prices?)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

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

Related Articles
  1. Economics

    Why It Is Important to Follow Crude Oil Inventories

    Discover what oil inventories are, how they are communicated and what important insights they provide into the state of the oil market.
  2. Investing

    Time to Bring Active Back into a Portfolio?

    While stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
  3. Economics

    Investing Opportunities as Central Banks Diverge

    After the Paris attacks investors are focusing on central bank policy and its potential for divergence: tightened by the Fed while the ECB pursues easing.
  4. Stock Analysis

    The Biggest Risks of Investing in Pfizer Stock

    Learn the biggest potential risks that may affect the price of Pfizer's stock, complete with a fundamental analysis and review of other external factors.
  5. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  6. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  7. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  8. Markets

    PEG Ratio Nails Down Value Stocks

    Learn how this simple calculation can help you determine a stock's earnings potential.
  9. Stock Analysis

    What Exactly Does Warren Buffett Own?

    Learn about large changes to Berkshire Hathaway's portfolio. See why Warren Buffett has invested in a commodity company even though he does not usually do so.
  10. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  3. What does low working capital say about a company's financial prospects?

    When a company has low working capital, it can mean one of two things. In most cases, low working capital means the business ... Read Full Answer >>
  4. Do nonprofit organizations have working capital?

    Nonprofit organizations continuously face debate over how much money they bring in that is kept in reserve. These financial ... Read Full Answer >>
  5. Can a company's working capital turnover ratio be negative?

    A company's working capital turnover ratio can be negative when a company's current liabilities exceed its current assets. ... Read Full Answer >>
  6. Does working capital measure liquidity?

    Working capital is a commonly used metric, not only for a company’s liquidity but also for its operational efficiency and ... Read Full Answer >>

You May Also Like

Trading Center