Salt Lake City’s Questar Corp. last week said it may spin off its natural gas and oil exploration and production (E&P) business, which also would contain the company’s midstream and energy trading units. The news was a pleasant surprise for investors.

The new E&P company would be comprised of Questar E&P Co., Questar Gas Management and Questar Energy Trading.

The gas management unit is a midstream field services company that gathers and processes gas in the Rocky Mountain region and in the Haynesville Shale of northwest Louisiana. The trading business markets gas and oil on behalf of Questar E&P and operates a gas storage facility in western Wyoming.

“A separation of our high-growth E&P business from our regulated businesses may be a logical step in a long-term strategy that has served all Questar stakeholders well over the past decade,” said CEO Keith O. Rattie. “We’re evaluating whether now is the time to take that step. If consummated, we believe the spin-off would create two top-tier companies in their respective market segments.”

After the spin-off, which would be tax-free, Questar Corp. would continue to be an integrated gas company holding subsidiaries Wexpro Co., Questar Pipeline and Questar Gas Co. Wexpro develops and produces gas on behalf of Questar Gas Co.’s utility customers. The pipeline unit operates interstate gas pipes and storage facilities in the western United States, and the regulated gas utility serves around 900,000 homes and businesses in Utah, Wyoming and Idaho.

The corporate headquarters would not change.

Questar already has engaged financial and legal advisers to assist with the evaluation, Rattie said. If the board of directors approves, the transaction could be done in the second half of the year, he said.

Shareholders responded enthusiastically to the news. Last Monday Questar’s share price ended the day at $45.51. The stock jumped above $52/share on the day of the announcement. At midday Friday the stock continued to trade above $50/share.

It’s “what we’ve been waiting for,” said Tudor, Pickering, Holt & Co. (TPH) in reaction to the possible spin off. Questar, it said, “has shown its hand,” and it “won’t head fake.” If the split doesn’t happen, “investors will be very disappointed.”

If Questar’s shareholders respond as positively as TPH analysts expect, it may “put pressure on other integrated peers to follow suit.” The “most pressure” to spin off E&P units would be on EQT Corp., with “more modest” pressure on National Fuel Gas, Energen Corp. and El Paso Corp.

Questar is scheduled to release its 1Q2010 earnings on Tuesday (April 27), with a conference call scheduled Wednesday. More details on the possible spin off are expected to be announced at that time.

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