WPX Energy (ticker: WPX), an oil and gas company specializing in exploiting unconventional regions, presented a five-year plan on October 9, 2014. In a conference call addressing the announcement, Rick Muncrief, Chief Executive Officer of WPX, identified three company goals: upside, delivering and urgency in executing.
WPX Energy’s three core areas consist of the Piceance, San Juan and Williston Basins.
The Piceance asset, described by management as its flagship asset, consists of 220,000 net acres and 4,600 wells. It contributed 60% of the company’s overall gas production in Q2’14. WPX wants to establish similar footprints in the San Juan and Williston, and expects to commit 80% of its 2015 capital to ramping up operations in the two plays. The company goal is to establish a 30% rate of return in all plays, and the highest returns are currently in the San Juan and Williston.
The San Juan Gallup drilling program is already accelerating, and the company expects to drill 40 wells in 2014 up from the original target number of 29. A total of 48 are projected to be spud by year-end, including two 7,500 foot laterals. The company has increased its footprint to 84,000 net acres (163% more than year-end 2013) and is hopeful to add a fourth rig in Q1’15.
The Williston is separated into two areas; the Van Hook and the Mandaree. Van Hook operations targeting the Middle Bakken and Three Forks have shown type curves of 784 MBOE and 658 MBOE per well, while Mandaree operations are in the early stages. WPX believes it has a 10-year run rate for current Williston operations and will increase its rig count once its economics improve.
A total of 16,000 estimated gross drilling locations remain in WPX’s core areas on a total of 480,000 net acres. Proved reserves at year-end 2013 were 4.76 Tcfe (24% liquids).
WPX has instituted a transformational change since its spin-off two years ago. At the time of the spin-off, the company was involved in eight different plays, including a non-operated interest in South America. Its focus moving forward is only on the three plays listed above, and the remaining interests have either been sold or are in the process of being divested. That includes its Marcellus position, which management said “couldn’t compete with the position out west.”
Year to date, WPX has divested more than $1 billion of its properties as its oil production has increased to 14% in Q2’14 from 8% in 2012. Oil revenues now account for 37% of WPX’s portfolio, up from 23% in the same time period.
Many companies are implementing full scale shifts to the liquids market, but that is not entirely the goal of WPX, says Muncrief. “Here’s the fundamental question I hear: ‘Are you a gas company or are you going to be an oil company?” he said. “For WPX, it’s not either/or. We’re both.”
Management said it likes the “optionality” of its gas reserves and believes it has a premium on pricing due to access in the western markets.
WPX set lofty expectations for the year 2020: its vision is to increase oil production five-fold and increase both its margins and market cap three-fold, all within the three core plays. “This vision of tripling the size of this company does not depend on bolt-on acquisitions or mergers,” said Muncrief. “We think that we can achieve that growth with the assets we currently have under the hood.”
The recent price dives related to oil shouldn’t have an effect on WPX’s growth, as management described itself as “bullish” on spot prices. The company forecasts gas prices to be in the $3.50 to $4.50 range for the next three years while oil prices are estimated to remain in the $80 to $90 range for the same time period.
Muncrief said that by 2020, “You are going to see a five-fold increase in oil production from 16 MBOPD for domestic oil production to 81 MBOPD. And that is not BOE, that is actual oil production.”
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