Wexpro Company, an affiliate of the natural gas-focused energy company Questar Corporation (STR) has spent about $52.5 million on the acquisition of additional interest in a natural gas-linked acreage.
The acquired properties lie in the Canyon Creek Unit of southwestern Wyoming's Vermillion Basin, the core-region of Wexpro’s operations. With this deal, Wexpro will have 100% ownership of the acreage, up from its current 70% stake.
The deal will also increase the company’s net proved developed reserves by about 40 billion cubic feet equivalent (Bcfe). The acreage is expected to hold total reserves (proved as well as probable and possible) of about 60 Bcfe. The company has discovered 35 possible well locations in the region, in addition to the 100 producing wells already available.
Moreover, the company plans to develop the Mesaverde sands and anticipates contribution of about 2–3 Bcfe from each well to the proved reserves. Well cost is likely to range between $1.7 million and $2.1 million.
Management believes the low-risk, low-cost development locations in the properties are value accretive. The properties are expected to add nearly 4.3 Bcfe to 2015 production.
Questar Corporation is a natural gas-focused energy company with three principal subsidiaries – Wexpro Company, Questar Pipeline, and Questar Gas Company. Strong operational performances by its business units, its sole emphasis on the natural gas markets and focus on long-term contracts should generate meaningful earnings and dividend growth in the coming years.
However, we remain worried about the current volatile natural gas price environment which might restrict Questar Pipeline’s near-term growth prospects. In keeping with this view, Questar currently carries a Zacks Rank #3 (Hold).
Better-ranked players from the industry include Southwest Gas Corporation (SWX), WGL Holdings Inc. (WGL) and Atmos Energy Corporation (ATO). While Southwest Gas and WGL Holdings sport a Zacks Rank #1 (Strong Buy), Atmos Energy holds a Zacks Rank #2 (Buy).
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