QEP Resources: BuyBacks, Divestitures and Move to Permian Basin Will Payoff

QEP Resources (NYSE:QEP) has been working on several strategic initiatives to streamline its asset portfolio and strengthen the balance sheet; the shift is meant to move the company towards high margin oil plays. The company plans to divest its Williston and Uinta basin assets in the second of 2018, while it has also announced to use proceeds for share buyback program and investments in Permian basin.

QEP Resources has also divested its Pinedale Anticline natural gas asset in the final quarter of FY2017, which helped it in generating $718.2 million. On the other hand, it acquired almost 15,100 net acres in the core of the northern Midland Basin (2017 Permian Basin Acquisition). The recent acquisition enhanced its Permian Basin assets to 44,000 net acres in the core of the northern Midland Basin.

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Its Permian assets generated 8.2 MMboe of net production last year, and its total proved reserves were standing around 272.7 MMboe at the end of fiscal 2017.

“We expect to continue to make progress developing our Permian Basin assets in 2018 utilizing “tank-style” completions. We believe this approach maximizes the economic recovery of oil through the simultaneous development of multiple subsurface targets while improving capital efficiency through shared surface facilities.”

The company expects oil prices to average around $55 a barrel in 2018 to attain the cash flow neutrality.

The U.S. crude oil prices are currently standing around $60 a barrel, and Brent crude is trading close to $63 barrel. Oil prices are likely to remain strong, as tightening supply from OPEC producers continues to balance oil market and helps prices to trade around $60 a barrel.

Meanwhile, QEP Resources plans to invest more than $1 billion in growth opportunities this year – with 65% of total investments are directed towards Permian Basin. QEP has also announced a massive share buyback program of $1.25 billion, which not only suggest that its shares are undervalued – the share repurchase program will also support the stock price performance in the days to come. Overall, the move towards high margin oil plays and sale of non-core gas assets will help QEP Resources in expanding its profits and cash generation potential.

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