January 8, 2019
Following the announcement of a $2 billion takeover offer for US oil driller QEP Resources by US hedge fund Elliott Management Corp, Rystad Energy partner Artem Abramov said:
“As Elliott outlined, this could end up as an excellent deal for both the buyer and the seller.”
“There is no doubt QEP sits on core acreage in both Martin County and Bakken Shale, and it’s worth noting that Elliott’s proposal is not conditioned on the closure of QEP’s ongoing process of selling its Bakken assets for up to $1.725 billion. From our perspective, QEP has recently demonstrated decent well results in Martin County across multiple landing zones, but in order to fully understand this level of performance, one needs to take into account their ‘tank development’ strategy with ultra-large pads. On a per-well basis, we observe that QEP’s wells in Martin County generally exhibit sub-optimal productivity across all landing zones. Recent wells drilled by Diamondback Energy, Encana and Pioneer Natural Resources on average achieved 50-60% higher initial productivity compared to QEP’s wells, despite employing a similar well design with respect to perforated length and sand intensity. On the other hand, QEP’s tank development approach leads to some cost savings on a per-well basis, so its strategy could still be viewed as an attempt to maximize recovery and NPV per acre. We do not think the market has fully accounted for this potential. Moreover, the fact that Encana follows a large pad strategy too, while still being able to maintain leading productivity per well in Martin County, suggests that there could be room for some optimization in QEP’s development approach, type-well and pad design.”
“Even under conservative assumptions – based on no further technological advancements and a flat learning curve – we see QEP’s current asset value lying in the region of $4 billion, given $50 WTI and a 10% discount rate. A lot of the potential in the Permian has yet to be delineated. In our base case, with a long-term WTI oil price at just above $60 per barrel, the value of QEP’s asset portfolio grows to $5.8 billion.”
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