Domestic energy explorer QEP Resources Inc. (QEP) plans to separate its midstream business, QEP Field Services Company, paying heed to the spin-off suggested by activist hedge fund and the company’s largest shareholder – Jana Partners LLC. The natural gas gathering and processing business will be separated along with QEP Resources’ stake in the master-limited partnership (MLP), QEP Midstream Partners LP (QEPM).
The spin-off is in response to the pressure imposed by Jana Partners LLC. Jana Partners holds a 7.6% stake in QEP Resources and demanded this spin-off citing poor performance by the company and suggesting the need for restructuring. Jana was also unsatisfied with the way QEPM was created and asked for a more complete separation of the MLP.
The board believes that this move will result in the maximization of shareholder value and facilitate each business to thrive independently, utilizing the resources and capital as per their own strategic initiatives. This would also make each business more competitive in their respective markets. Moreover, management believes that the full potential of QEP’s midstream business is not reflected in its share price. Establishing the midstream business as a separate entity will uncover greater value for shareholders.
The board has directed management to commence work on establishing the separate entity and will employ additional senior management with experience in handling a standalone midstream business.
Management is working on ways that would maximize the value of this new business and evaluating the different separation options. An update regarding the same should be available to shareholders in the first quarter of 2014.
Shares of QEP Resources closed on $32.32 on Dec 2. After-hours trading saw perked-up activity with shares rising 5.1% to $33.97.
QEP Resources, in its present form, came into existence following the 2010 spin-off of Questar Corp’s (STR) oil and gas exploration and production business. The company currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, one can consider better-ranked stocks in the same industry like Abraxas Petroleum Corp. (AXAS) that currently sport a Zacks Rank #1 (Strong Buy).