HOUSTON (Reuters) - Hedge fund Elliott Management Corp on Monday offered to buy QEP Resources Inc (QEP.N), which has a big presence in the Permian Basin near major energy producers, for $2.07 billion, or $8.75 per share, 44 percent above the stock’s closing price on Friday.
QEP Resources shares surged after the offer was made in a letter to the company’s board. The proposal could force the company to put itself up for sale, according to a person close to the Elliott camp.
The letter said QEP remained undervalued despite its efforts to focus on the Permian Basin, the largest U.S. oil field, where its operations are more lucrative than in other regions where it is selling properties.
After the offer from billionaire activist investor Paul Singer’s Elliott, shares of the Denver-based QEP jumped 41 percent to $8.55 on Monday afternoon.
The New York-based hedge fund has a 5 percent stake in QEP, according to Refinitiv data.
QEP in a statement acknowledged receiving the proposal and said it would “carefully consider it” in light of shareholder interests and the current market.
QEP’s shares traded above $13 as recently as July, when benchmark U.S. crude oil CLc1 traded above $70. Since then, crude has since fallen more than 40 percent and last traded below $49.
Elliott would run QEP as an independent private company if the deal goes through, according to the source close to the hedge fund. Elliott believes the company’s Permian acreage could attract competing bids, according to the person.
QEP’s 50,700 acres in the Permian are contiguous, making it easier to drill horizontal wells that extend up to two miles. Neighboring operators include Exxon Mobil Corp (XOM.N), Encana Corp ECA.TO and Diamondback Energy Inc (FANG.O).
“All three companies could make a case that the QEP assets would fold in” to their Permian operations, said Jeoffrey Lambujon, a equity researcher at Tudor, Pickering, Holt and Co.
Oil has plunged since October as investors worried about oversupply and fears of an economic slowdown. If crude prices remain weak, it would be harder for QEP to get a competing bid, said Williams Capital Group analyst Gabriele Sorbara.
Prices rebounded 2.5 percent on Monday on OPEC production cuts and steadying equities markets. [O/R]
“While its bid offers a healthy exit opportunity for current investors, Elliott’s letter to the board is clearly a preliminary step in the negotiation process,” Raymond James said in a research note.
Elliott specializes in buying undervalued assets. In December, Elliott and Siris Capital bid to take Travelport Worldwide TVPT.N private in an all-cash deal valuing the travel technology company at $4.4 billion.
“QEP as a public-company investment has not worked, and its stock continues to trade well below its intrinsic value,” Elliott wrote in a letter addressed to the board.
Last year, QEP decided to sell its Williston oil asset in North Dakota, Montana and the Canadian province of Saskatchewan as well as the Haynesville gas asset in Texas and Louisiana. It wanted to focus solely on the Permian basin, the oilfield that has been at the heart of the U.S. shale boom.
The Elliott offer is conditional on closing the Haynesville asset sale, but not on the closure of the Williston asset sale, the hedge fund said in its letter.
Additional reporting by Shanti S Nair in Bengaluru and David J. French in New York; Editing by David Gregorio and Jeffrey Benkoe