Current QEP Stock Info

QEP Resources, Inc. (NYSE:QEP) is a leading independent natural gas and crude oil exploration and production company focused in two major regions: the Northern Region (primarily the Rockies and the Williston Basin) and the Southern Region (primarily Oklahoma, the Texas Panhandle, and Louisiana) of the United States.

In a company update on January 30, 2014, QEP Resources announced the continuation of spinning off its midstream companies, the nomination of two new board members and a share repurchase program of $500 million. QEP is also pursuing...

Analyst Commentary

Barclays Note – (1.30.14)

We are cautiously optimistic that the restructuring update provided by QEP today will be received well by the market. The company previously discussed the spin of the midstream business and the sale of E&P assets. It has gone one step further with an announced share buyback and it has provided further guidance related to E&P asset sales. Our $36 target price reflects a $1.60/share discount for the midstream business as compared to a fully distributed, stand-alone value.

The company plans to implement the separation of QEP Field Services Company and to create a standalone public company. The company has retained Korn/Ferry International to assist in recruiting a management team. We have valued the stand-alone public company at an enterprise value of ~$3.4 billion (including the minority interest in QEPM and debt) – our valuation of QEP shares reflects about a 10% discount to that stand-alone $3.4 billion midstream value estimate (worth ~$1.60/QEP share). The 10% discount could be understated if there were to be significant tax leakage and/or the parent company was to retain a significant stake in the new company. We have historically observed that parent company shares frequently fail to reflect a full sum of the parts valuation.

E&P asset sales are planned. QEP has commenced the sale process of non-core Midcontinent upstream assets. The Granite Wash and “Cana” Woodford assets will be marketed beginning in mid-February and a closing is anticipated by July.

2014 guidance is expected on the Q4 call on February 25th. Guidance will reflect planned sales as well as previously announced corporate initiatives, including the recent Permian Basin acquisition.

QEP announced a $500 million share buyback. The timing and amount of the share repurchase are uncertain at this time.

E&P Asset quality remains a concern. Our $36 target price reflects a modest target multiple of 4.9x 2015E cash flow from the E&P business plus $3.1 billion for the midstream assets. A more typical multiple of ~ 6x E&P cash flow would represent an incremental ~$10 per share. While the market is impressed by returns in the South Antelope area in the Bakken, it has taken a wait and see attitude regarding the recently acquired Wolfcamp assets until we see some horizontal drilling results, and is less than enthused about the remainder of QEP's portfolio.

Baird Energy Daily Dirt – (1.30.14)

QEP announces updated on strategic initiatives and share repurchase program (Peng). QEP Resources announced update on a series of strategic initiatives this morning. Robert Heinemann, former President and CEO of Berry Petroleum, and Thomas O’Connor, former Chairman and CEO of DCP Midstream, have been appointed to the QEP board of directors, and Keith Rattie will retire from the board. The new appointments are intended to bring additional upstream and midstream management expertise to the QEP board. As expected, QEP announced that it is preparing filings for the definitive separation of QEPFS into a standalone public entity, including the company’s interest in QEPM. While preparing these filing, QEP will entertain and evaluate proposals for alternative methods to separate the midstream business. Additionally, QEP announced an update on previously announced plans to divest the first two packages of non-core MidCon assets. QEP’s Granite Wash and Cana Woodford packages will be marketed beginning in mid-February. Finally, QEP announced that the board has authorized a share repurchase plan of $500MM. We view this announcement as a positive for QEP on the share repurchase program and the midstream expertise that is being added to the board. Maintain Outperform rating driven by near-term catalysts from midstream separation, activist shareholder activities, Permian activities, and anticipated MidCont asset sales. Execution is key for QEP.

Wells Fargo Securities Note – (1.30.14)

QEP Updates Strategic Alternatives -- Positive. Thursday morning (1/30/14), QEP provided an update on its strategic alternatives which involve its midstream assets and pruning of its E&P assets. There were a few incremental items in today's release, which we took as positives and are in-line with proposals put forth by JANA Partners:

1) QEP plans to go the public-company route for the separation of Field Services and QEP's ownership in QEPM. The company is still looking into alternative transactions for separating the midstream assets, but we believe a tax-free spinoff makes the most sense and is likely expected by the Street.

2) The E&P divestiture will likely be closed by July, and will come in two separate transactions -- one for the Granite Wash, one for the Cana Woodford. Timing makes sense given the option to use a 1031 exchange in conjunction with the Permian acquisition, and the two separate packages will likely garner higher valuations than one package containing both assets.

3) Bob Heinemann and Thomas O'Connor were named to QEP's board -- both positive adds, in our view, with Mr. Heinemann bringing leadership experience from nine years as BRY's CEO while Mr. O'Connor has extensive midstream experience from his tenure as DCP's Chairman and CEO.

4) $500MM stock repurchase program equates to 9% of the current QEP market cap. The midstream separation is in part aimed at 'unlocking value', and QEP is returning some of this directly to shareholders.

So in all, QEP is making positive steps towards executing its strategic goals. In conjunction with the E&P divestiture, 2014 guidance is expected alongside Q4 results on 2/25/14.

Capital One Morning Energy Summary – (1.30.14)

QEP has appointed 2 new members to its board of directors and announced the retirement of existing board member Keith Rattie. In addition to the board membership update, this morning's release restated the company's intent to separate its midstream business from its E&P business. SEC filings are in the process of being prepared and potential methods of separating the businesses are being evaluated. We model $1.9B worth of midstream value in our QEP NAV with $1.2B going to Field Services and another $700MM in QEPM ownership. The company's Mid-Con properties had previously been announced as divestiture candidates and the process is now formally underway. The Granite Wash and Cana Woodford properties will be marketed starting at the end of February with an expected close by July. We model these two assets together at $1.1B worth of value. Combined proceeds of these two monetizations could be around $3B or more and would easily take care of the newly authorized $500MM share buyback with the excess taking debt/EBITDA below 1.0x in our model. However, we expect some portion of the proceeds to fuel development and growth on the new Permian position. The midstream separation and the Mid-Con sales are not new, and it seems that they could be completed by mid-year. Perhaps the trickiest piece of QEP's strategic plans for this year will be minimizing tax leakage. The company expects to release 2014 guidance along with its 4Q13 results on February 25th.  

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