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.
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.
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.
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.
Stock AnalysisIf you're seeking modest appreciation, generous dividend payments and resiliency, consider these eight utility stocks.
Stock AnalysisHere's why Phillips 66 will likely remain one of the world’s largest and most profitable companies for a long time to come.
Mutual Funds & ETFsExplore detailed analysis of the top three equity energy mutual funds, and learn about the characteristics and suitability of these funds.
Stock AnalysisLearn about some possible risks for Chipotle, one of America's most popular and fastest-growing food chains and leader of the "casual dining" experience.
Stock AnalysisStuck on oil? Take a look at these six stocks—three that present risk vs. three that offer some resiliency.
EconomicsEmerging markets have been hammered lately, but these three countries (and their large and young populations) are worth monitoring.
Stock AnalysisPepsiCo has long been known as one of the most resilient stocks throughout the broader market. Is this still the case today?
Investing BasicsTrading spot gold or gold futures, equities and options isn’t hard to learn, but the activity requires skill sets unique to these markets.
EconomicsExplore the historical relationship between interest rate increases and the price of gold, and consider what effect a fed funds rate hike might have on gold.
InvestingHow do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
A company's working capital turnover ratio can be negative when a company's current liabilities exceed its current assets. ... Read Full Answer >>
Working capital is a commonly used metric, not only for a company’s liquidity but also for its operational efficiency and ... Read Full Answer >>
The income statement, also known as the profit and loss (P&L) statement, is the financial statement that depicts the ... Read Full Answer >>
A company's working capital ratio can be too high in the sense that an excessively high ratio is generally considered an ... Read Full Answer >>
Discounted cash flow (DCF) analysis can be a very helpful tool for analysts and investors in equity valuation. It provides ... Read Full Answer >>
When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>