“World class rock, tons of opportunity”: WPX
In today’s conference call, WPX (ticker: WPX) discussed three main requirements for ramping up production.
Geology
First and foremost is the local geology. However, WPX believes that it has mostly solved this question. While spacing and a few other nuances will require further investigation, the geology itself is well-established.
“There is no question,” WPX COO Clay Gaspar commented, “especially where we’re at in the Delaware Basin is world-class rock and there is tons of opportunity.”
Hedging providing confidence
The second primary determining factor for development is commodity price. WPX responded to this factor with aggressive hedging to lock in economic prices. The company has about 72% of its expected 2017 oil production hedged at an average of $50.84/bbl and 76% of its gas production hedged at $3.02/MMBTU. With oil currently trading below $46/bbl, this hedge position is paying off for WPX.
Clay Gaspar remarked that this position gives the company confidence. Mentioning the recent dip in oil prices, Gaspar noted, “I imagine there are a lot of our peers that are fully exposed that are really pulling their hair out, and I can tell you it’s very reassuring to have that confidence to be able to go to the team and say, yep, we’re still doing, [and] go to our key vendors and say, guys, we’re still plowing ahead, stay with us.”
Permian needs takeaway capacity
The massive increase in Permian activity has also created a situation that is usually restricted to the Marcellus. Permian midstream capacity must be able to grow and keep up with development, or Permian producers would be stuck with large differentials like those seen by Marcellus producers.
Gaspar reported that the company has been working on several deals to deal with transportation before it becomes a problem. Most significant among these is a potential midstream joint venture. WPX is considering a JV to handle takeaway from its core Delaware Basin assets, which would ensure transport remained available. While the company declined to provide further details, an agreement is expected midyear.
Multiple Permian acquisitions in Q1
WPX has been very active in the Permian this year, with several major acquisitions. In January the company acquired Panther Energy and Carrier Energy, adding about 120,000 net acres for $775 million. More recently, the company purchased 17,900 acres in Culberson County for $38 million. This acquisition is exploratory in nature, and is farther west than the core of the Delaware Basin. With an acreage cost of about $2,000/acre, however, this is much less expensive than many Permian transactions in recent months.
The company now owns about 135,000 net acres in the Delaware basin, and is producing a total of 90 MBOEPD from its Permian, Bakken and San Juan properties. WPX will spend about $620 million over the rest of the year to grow production by about 20%.
WPX Energy reported first quarter earnings yesterday, showing net income of $88 million, or $0.22 per diluted share. This significantly exceeds the $175 million loss the company took in Q4 2016, or the $17 million loss in Q1 2016.
