WPX Energy Inc. (ticker: WPX; WPXEnergy.com) announced on February 9, 2016, that the Company will sell its WPX Energy Rocky Mountain subsidiary business, which focuses on the Piceance Basin of Colorado. The WPX Piceance subsidiary was acquired by Terra Energy Partners LLC for $910 million in cash.
The assets consist of 200,000 net acres in the Piceance Basin with recent net production of about 500 MMcf/d, and the rights to roughly 150,000 net acres in the Mancos-Niobrara play. Terra estimates the assets contain 2 trillion cubic feet (Tcf) of proved developed producing reserves and an extensive inventory of low-risk drilling locations. The Piceance Basin is among North America’s largest natural gas plays.
Houston-based Terra is assuming about $100 million in transportation obligations extending to 2022 in exchange for more than $90 million of WPX’s natural-gas hedge value. WPX will retain more than $110 million in additional hedge gains, which will be realized throughout the year.
A breakdown of the deal value shows Terra paying $1.82 per flowing cubic foot based on the current production of 500 Mcf/d. With the proved developed producing reserves estimated at 2 trillion cubic feet, the deal would value the reserves alone at four hundredths of a cent per cubic foot of gas.
WPX: $5 Billion in Transactions in 21 Months
In the past 21 months, WPX has executed approximately $5.5 billion in transactions to re-shape the company, high grade its portfolio, add decades of drilling inventory and protect its financial position.
The deal, expected to close in the second quarter of 2016, comes after WPX bulked up in the Permian Basin, buying RKI Exploration & Production LLC in July. Following the RKI acquisition, WPX has divested nearly $1.5 billion in assets. In August 2015, WPX announced the sale of Van Hook Gathering Systems for $185 million, followed in September by the sale of $80 million of assets in the Powder River Basin. The Company announced on Dec. 31, 2015, a $309 million agreement to sell San Juan Basins Gathering System assets.
WPX said the divestiture of the Piceance Basin assets will help with liquidity, cut its overhead expenses and improve capital efficiency going forward.
On Tuesday, the company said its sale to Terra “solidifies WPX as a Permian-focused company and provides a more balanced commodity mix.” Upon closing, WPX will have a premier portfolio with acreage in the core of two prolific oil-dominant areas – the Permian’s Delaware Basin and North Dakota’s Williston Basin – along with a leading position in the San Juan Basin.
Private Equity at Work in the Piceance
The WPX Piceance subsidiary is the first acquisition for Terra Energy Partners, which was formed in summer 2015. The deal is being backed by an $800 million equity commitment from Kayne Private Energy Income Fund LP and New York-based Warburg Pincus LLC, which are equal partners in the deal.
“We are excited to announce our first acquisition since forming Terra last summer. The Piceance Basin is an area that we know well and one that we believe offers considerable upside potential through focused management,” Michael S. Land, CEO of Terra, said in a statement. “We are looking forward to working with our equity sponsors Kayne and Warburg Pincus to create value in the years to come.”
