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Domestic energy explorer QEP Resources Inc. (QEP - Analyst Report) reported weaker-than-expected third quarter results, hamstrung by lower production.  

The company reported earnings per share – adjusted for special items – of 36 cents, underperforming the Zacks Consensus Estimate of 40 cents. Revenues – at $772.8 million – also failed to surpass the Zacks Consensus Estimate of $799.0 million.

However, QEP Resources’ performance improved considerably from the year-ago period amid a jump in commodity prices. Adjusted profit almost doubled from the third quarter 2012 level of 19 cents per share, while revenues were up 42.5%.

Volume Analysis

Overall production for QEP Resources during the quarter was 78.0 billion cubic feet equivalent (Bcfe) – 71% gas – down 4.3% from the previous-year period. Natural gas volumes deteriorated 14.4% year over year to 55.2 billion cubic feet (Bcf), while liquids volumes jumped 34.3% to 3,798.6 thousand barrels (MBbl). Weakness in natural gas production reflected lower output from the Haynesville region. On the other hand, liquids (particularly crude oil) volumes benefited from robust performance in the Williston Basin.

Realized Prices

QEP Resources’ average realized natural gas price was up 7.8% from the corresponding period of 2012 to $4.29 per thousand cubic feet (Mcf), while average oil price realization increased 8.1% to $90.19 per barrel. Overall net realized equivalent price averaged $6.71 per thousand cubic feet equivalent (Mcfe) in the quarter, which was $1.57 higher than the year-ago period.

Capital Expenditure & Balance Sheet

During the quarter, QEP Resources spent $411.8 million on capital expenditures for drilling and completion activities. As of Sep 30, 2013, the company had cash and cash equivalents of $123.0 million and long-term debt of $2,882.3 million, with a debt-to-capitalization ratio of 42.4%.


QEP Resources remain focused on raising high-margin crude oil production, with the company expected to grow crude oil volumes by 60% over 2012 levels.

Zacks Rating

QEP Resources, in its present form, came into existence following the 2010 spin-off of Salt Lake City, Utah-based Questar Corp’s (STR - Analyst Report) oil and gas exploration and production business into a separate, independent, publicly traded entity.

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 look at Matador Resources Co. (MTDR - Snapshot Report) and Northern Oil & Gas Inc. (NOG - Snapshot Report) as good buying opportunities. These U.S. upstream energy operators – sporting a Zacks Rank #1 (Strong Buy) – have solid secular growth stories with potential to rise significantly from current levels.

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