QEP Resources Opts To Sell Midstream Assets To Tesoro Ending Spinoff

At the beginning of the year, QEP Resources (QEP) unveiled a few strategic initiatives including the sale of its non-core assets and the spinoff of its midstream business, Entrada Midstream. The plan was concocted amidst activist pressure (Jana Partners recently exited QEP though) and the idea was to increase the company’s focus on its upstream business and deliver better ‘shareholder returns’. It sold some of its non-core E&P assets in June and continued to make progress on the spinoff with a Form 10 filing. Alas, it was not to be though as the company opted to sell Entrada to Tesoro Logistics (TLLP) for $2.5b instead. Not a bad haul. The deal also included a 58% ownership stake in QEP Midstream Partners (QEPM), but did not include QEP Midstream’s Haynesville Gathering Systems. A number of companies were reportedly interested in the assets including Williams Companies (WMB) and, somewhat ironically, QEP’s own parent company (2010 spinoff) Questar (STR). Whoops?

QEP’s Chairman, President & CEO (the trifecta!) Chuck Stanley had this to say about the deal:

This transaction allows us to maximize shareholder value by deploying proceeds from the sale through multiple avenues, including returning capital to shareholders, reducing debt, and improving our competitive position through increased capital investment in our premier E&P assets…

Post-closing, QEP will emerge as a more competitive and financially strong independent E&P company with assets in two of North America’s most prolific crude oil provinces, the Williston and Permian Basins, and low-cost, high quality natural gas properties in the Rocky Mountains and in northwest Louisiana. The sale of our midstream business is a significant milestone in the strategic repositioning of our company, as we believe QEP will be better positioned to deliver continued growth in production and Adjusted EBITDA in 2015 and beyond.

QEP’s shares jumped on the news and shareholders rewarded the company for hitting its strategic goals. A sale isn’t such a surprising outcome considering the facts that debt remains cheap and deal multiples are hitting highs. While it’s sad to see another spinoff fall by the wayside, it’s not like the pipeline is drying up anytime soon…

Disclosure: Author holds no position in any stock mentioned.