Shares of QEP Resources Inc (NYSE:QEP) tumbled on Thursday, falling 12% by 10 a.m. EDT. Driving the sell-off was its second-quarter report, which contained a disappointing update on its strategic initiatives.
On the one hand, QEP Resources' financial results were quite good. Oil production surged 32% versus the first quarter to a record high, led by strong results in the Permian Basin where QEP put more wells on production than expected due to improving operational efficiencies. The company also posted strong drilling results in the Williston Basin where output rose 20% from the first quarter. Because of that, QEP Resources reported a surprising profit of $0.06 per share, which was $0.18 per share ahead of analysts' expectations.
However, the company warned that its "transition to a pure play Permian Basin company may take longer than originally anticipated," according to comments by CEO Chuck Stanley. That's because the bids received for the company's assets in the Williston Basin "did not reflect the value of the underlying quality and economics of the assets," according to Stanley. Because of that, the company chose not to accept those bids in hopes that it can to maximize the value of the company and its assets. QEP Resources has continued discussions with several potential buyers on both the sale of its entire position in the Williston as well as breaking it into portions in hopes of getting its desired valuation.
While the slow sales process in the Williston is a disappointment, it's better to see that the company is holding out for the most value rather than taking whatever it can get, especially given the strong production results it reported from the region during the quarter. Not only that, but there are some looming pipeline issues in the Permian that could impact region growth over the next year, so the company might not have been able to reinvest the proceeds to accelerate that development right away. While the uncertain timing does add some additional risks, today's sell-off might represent a good buying opportunity since the company eventually expects to buy back a significant portion of its stock as it completes its transition into a fast-growing Permian pure play.