Questar Board OKs E&P Spin-Off – Analyst Blog

Natural gas-focused energy firm, Questar Corp. (STR) announced that its board of directors has unanimously approved the separation of the company’s unregulated exploration and production (E&P) business from its regulated utility business, thereby creating two independent, publicly traded companies.

The spin-off, scheduled to take effect on June 30 for Questar shareholders of record as of the close of business on June 18, will see the formation of a new E&P company (to be called QEP Resources Inc). It will include Questar subsidiaries Questar E&P Company, Questar Gas Management, and Questar Energy Trading.

The remaining business will continue as an integrated natural gas company under the ‘Questar Corp.’ name and comprise subsidiaries – Wexpro Company, Questar Pipeline, and Questar Gas Company.

The spin-off is proposed to be tax-free to shareholders of Questar, who will get equal value of shares in each company. Questar Corp. will remain based in Salt Lake City, Utah , while QEP Resources will be headquartered in Denver , Colorado .

Questar’s move to split itself in two is seen as an attempt to focus on its regulated natural gas pipelines and distribution businesses. The company also reasoned that it has become difficult to raise capital for an $8 billion company combining two different businesses – the high-growth, volatile E&P business, and the low-risk, consistent-return regulated natural gas business.

We remain positive on the outlook for new Questar post-split, as it holds the promise of unlocking significant value. Creation of two separate companies will allow both of them to pursue great opportunities in their respective market segments without the constraints of the parent company and better serve the needs of both investor groups.

Despite this, we are compelled to maintain our Zacks #3 Rank (Hold) rating on the stock over the coming 1-3 months, mainly due to weak natural gas fundamentals.