Jefferies Warns Of 'The Price Of Uncertainty,' Downgrades Questar To Hold

In a report published Thursday, Jefferies analyst Christopher Sighinolfi downgraded the rating on Questar Corporation STR from Buy to Hold, while reducing the price target from $25 to $22, citing the lack of clarity around the new options for Wexpro and their impact.

Questar's management said that the low gas prices were having a negative impact on its development model.

Sighinolfi pointed out that Wexpro's costs, which were favorable to market prices for several years and generated significant savings for Questar Gas, had turned out to be high from 2008 onwards, following the rise of prolific and low cost U.S. shale gas and the subsequent decline in gas prices.

"Specifically, mgmt noted the difficulty in designing a Wexpro drilling program so that new cost-of-service production is at/below the current 5-yr Rockies-adjusted NYMEX curve," Sighinolfi wrote.

The company was now exploring new options to allow Wexpro to continue pursuing its development activities. "However, mgmt provided little clarity regarding the magnitude of any potential return change, its anticipated financial impact, or the timing of such adjustments," the report noted.

Wexpro's aggregate returns are now expected to decline from about 18 percent in 2014 to about 14 percent by 2019, the Jefferies report mentioned.

Questar's inability to secure a suitable rail facility site had resulted in an indefinite delay to its ICE project, Sighinolfi said, while adding that the company was evaluating alternatives for the "pipe, including a potential sale," and expected a decision "within 6 months."