Jana Partners Boosts QEP Stake, Seeks Midstream Unit Breakup

Jana Partners LLC, the activist shareholder that has agitated for changes in three energy companies since 2012, boosted its stake in QEP Resources Inc. and called for the oil and natural gas producer to take additional steps to break up its assets.

The hedge fund has acquired 15.5 million shares, or 7.5 percent including options, and has held talks with management, according to a regulatory filing yesterday. QEP, the worst performer this year among peer energy producers, rose 5.8 percent to $32.90 at the close in New York, the biggest increase since Aug. 24, 2012.

Jana’s Barry Rosenstein has urged QEP to fully separate its newly formed midstream partnership, which gathers and processes gas. The New York-based fund is also seeking additional board members, asset sales and share repurchases to help unlock $2 billion in value, Rosenstein wrote in a letter to the QEP board dated yesterday.

“We have attempted to work constructively to help refine the company’s strategic direction and to address the company’s consistent share price underperformance,” he wrote. Company executives have failed to realize the value of the midstream business and “have spurned our numerous attempts to help them do so.”

QEP said its board and management “have maintained an ongoing and constructive dialogue with Jana” over the past year. The company has “carefully considered their suggestions and proposals” and remains focused on developing strategies that will create shareholder value, QEP said in a statement today.

Prime Targets

Shareholders from Rosenstein to Carl Icahn continue to see energy companies as prime targets as executives fail to realize the value of reserves amid stable gas prices and $100-a-barrel oil. Icahn announced Oct. 7 that he had taken a 6 percent stake in Canadian oil and gas producer Talisman Energy Inc., saying on Twitter that he may seek conversations with management regarding “strategic alternatives, board seats, etc.”

Jana this year pushed for Oil States International Inc. to separate a well-site services unit and in 2012 persuaded Marathon Petroleum Corp. to form an MLP for its pipeline assets. Since 2011, 10 companies targeted by activist investors such as Jana or Daniel Loeb have increased in total market value by a net $43 billion, rising at an average rate almost triple the returns of the Russell 3000 Energy Index, according to data compiled by Bloomberg.

Worst Performer

Even with today’s gain, QEP has had the worst performance on Standard & Poor’s 500 Oil & Gas Exploration and Production Index this year, climbing 8.7 percent.

The company earlier this year created a master-limited partnership, or MLP, that allowed it to sell some of its midstream assets to investors while maintaining control. This has failed to realize the full potential value of the assets and QEP should pursue a complete separation, Rosenstein said in the letter.

The company rejected a proposal to combine its assets with a partnership that had expressed interest in them, Rosenstein wrote. “Just this morning, Devon Energy Corp. announced a transaction exactly like the one we proposed to QEP earlier this year to combine its midstream business with Crosstex Energy Inc.,” he wrote in yesterday’s letter.

QEP should sell assets in the Granite Wash, Woodford Cana and possibly the Haynesville, to focus on production in the Rocky Mountains and Bakken and produce more oil instead of gas, Rosenstein wrote. The company should use proceeds to buy back shares and should add board members that understand the midstream industry.

“Separation and specialization, not integration, are the keys to unlocking shareholder value,” he wrote.

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