Without ever speaking the name of its antagonist, QEP Resources Inc. (NYSE: QEP) announced Tuesday morning that it will pursue a separation of QEP Field Services Company and its interest in QEP Midstream Partners L.P. (NYSE: QEPM). Activist investment firm Jana Partners last month sent a letter to QEP encouraging the separation of the company’s underperforming midstream business.

Painting with a broad brush, QEP said this morning that the separation will achieve three goals:

• Allowing for the separate valuation of QEP’s midstream business. The value of QEP’s midstream business is not fully recognized in the QEP share price, and a separation is expected to unlock shareholder value.
• Allowing each business to independently deploy resources and allocate capital according to their strategic initiatives and growth strategies.
• Permitting each business to compete more effectively in their respective markets.

QEP did not say how it would affect the separation, but analysts at Sterne Agee think it will be an initial public offering (IPO) or an outright sale of the field services company and the general partner and limited partner interests in QEPM. The analyst also points out that there is a lot of room for growth in the midstream limited partnership, where incentive distribution rights kick in after a distribution of $0.2875 to limited partners. In the third quarter, the partnership distributed just $0.13, leaving a lot of room for growth.

Sterne Agee also raised its price target on QEP shares from $36 to $39, based on a sum-of-the-parts estimated value for the company as it stands now at $43.

Shares of QEP were up more than 3% in early trading Tuesday, at $33.32 in a 52-week range of $26.24 to $34.24. Shares of QEPM were up more than 2%, at $23.15 in a 52-week range of $21.51 to $23.95.

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