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QEP Resources Facing Pressures from Low Natural Gas Prices

By    |   Wednesday, 20 June 2012 11:09 AM

QEP Resources (QEP) is facing up to the same pressures as are all energy companies working shale formations around the United States, namely, historically low natural gas prices due to the rush to develop shale plays. Analysts are heartened by QEP’s access to oil and gas liquids, which offer more attractive pricing at the moment.

QEP Resources is a holding company with three major lines of business — gas and oil exploration and production, midstream field services, and energy marketing — conducted through three principal subsidiaries: QEP Energy, QEP Field Services and QEP Marketing.

The company operates in multiple locations around the United States and is headquartered in Denver, Colo. QEP Energy is actively involved in several of North America’s most important hydrocarbon resource plays. For 2012, QEP plans to allocate approximately 88 percent of its capital budget to QEP Energy.

QEP’s exploration and production activities are conducted through QEP Energy, which generated approximately 76 percent of adjusted EBITDA during 2011. QEP Energy operates in the states of Wyoming, Utah, Colorado, New Mexico, North Dakota, Oklahoma, Texas and Louisiana.

QEP Energy reported 3,614 Bcfe of estimated proved reserves as of Dec. 31, 2011. Approximately 54 percent of the proved reserves were developed. Approximately 24 percent of the total proved reserves were comprised of crude oil and natural gas liquids, up from 14 percent the year before.

“Development of QEP Energy’s resource play accumulations requires expertise in drilling large numbers of complex, highly deviated or horizontal wells to vertical depths that generally range between 10,000 and 14,000 feet and the application of advanced well completion techniques, including hydraulic fracture stimulation, to achieve economic production,” management said in a recent filing.

QEP Field Services generated approximately 23 percent of adjusted EBITDA. Field Services owns various natural gas gathering, treating and processing facilities, as well as 78 percent of a partnership that operates gas gathering facilities in western Wyoming.

QEP Resources has a market cap of $4.9 billion in a sector, oil, gas and consumable fuels, where the average company size is $45.04 billion. Its trailing 12-month P/E ratio is 14.1 and its five-year projected price-to-earnings-growth (PEG) ratio is 0.82, compared to 1.18 for the sector.

Its projected earnings per share growth for the coming year is 19.32 percent, compared to a sector average of 16.14 percent.

Production shift

Wall Street is generally positive on QEP, with buy or outperform calls from Raymond James, Standard & Poor’s Equity Research, and Jefferies.

“Reserve mix is showing a growing proportion of liquids versus gas, with oil at 24 percent of reserves, versus 14 percent in 2010.We see a further shift to liquids production in 2012 (forecast 22 percent of the total in 2012, vs. 14 percent in 2011), reflecting its position in top unconventional plays,” wrote S&P analysts in early May, setting the target price at $34.

“Risks to our recommendation and target price include a sustained decline in natural gas prices, an inability to replace reserves at a reasonable cost, and production declines.”

QEP Resources next reports on Aug. 9.

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Wednesday, 20 June 2012 11:09 AM
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