QEP Resources Inc. (NYSE: QEP) reported a first quarter 2013 net loss of $4.3 million April 30, or $0.02 per diluted share, but is ramping up Midcontinent plays such as the Granite Wash and Cana Woodford.

Net production was up 78 billion cubic feet equivalent (Bcfe), 5% over first quarter 2012 and its crude oil production rose by 75% over the same period. However, production targets were also missed. The stock lost $1 per share from April 30 to May 3.

Like many producers, QEP has shifted to oil production because of continued low natural gas prices. In 2013, the company said its $1,675 million capital expenditure budget includes minimal spending in the dry-gas areas such as the Haynesville Shale, where drilling activity ceased in the third quarter of 2012. Instead, it will focus on higher return projects including Pinedale, Uinta Basin Red Wash Mesaverde and oil-directed horizontal drilling in the Williston Basin and Midcontinent, said David Tameron, senior analyst, Wells Fargo Securities.

QEP’s oil revenues increased $83.4 million, or 75%, due to higher volumes. The increase in production volumes was driven by QEP's 2012 acquisition in the Williston Basin, which contributed 560.5 thousand barrels during the first quarter 2013. Higher volumes in the Midcontinent were led by the Granite Wash, with a 76.4 thousand barrel increase, and a 44.3 thousand barrel increase the Woodford Cana shale play.

Peak daily production rates for QEP-operated wells completed in First Quarter:

Well

BOPD

Working Interest

Jolly 21 SL 4H

515

59%

Jolly 21 SL 5H

214

59%

Adams 20 SL 1H

306

50%

Source: QEP

In the Granite Wash, QEP completed three new wells and participated in five additional outside-operated wells that were completed during the first quarter. All horizontal wells targeted crude oil and liquids-rich gas horizons in the Granite Wash sands.

“Thanks to strong performance from the Cana and Granite Wash, Midcontinent crude oil volumes were up 43% in the first quarter of 2013 compared to the first quarter of 2012,” said Chuck Stanley, chairman, president and CEO of QEP Resources.

Average costs for Granite Shale wells were $7 million and estimated ultimate recovery ranged from 500 thousand barrels of oil equivalent (MBOE) to 1,200 MBOE. QEP holds 21,000 net acres in the Texas Panhandle’s Granite Wash.

“We continue to make good progress on our efforts to grow QEP's crude oil production,” Stanley said. “Excluding the contribution from our recent North Dakota acquisition, crude oil volumes grew 29% from last year. Crude oil represented 16% of total production, up from just 10% one year ago.”

Tameron said earnings per share were just below Wells Fargo and Wall Street targets, with QEP’s production miss largely related to liquids.

While QEP Energy's NGL sales volumes decreased 23% from the fourth quarter due to the impact of ethane rejection, NGL revenue was up slightly on a higher per-barrel NGL price resulting from a reduced volume of lower value ethane.

“Most importantly, the impact of increased crude oil volumes can be seen in QEP Energy's financial performance, with adjusted EBITDA up 21% from a year ago despite flat net realized natural gas price,” Stanley said.

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