Plan Emphasizes Capital Efficiency, Oil Growth, Scalability and
Culture Change
TULSA, Okla.--(BUSINESS WIRE)--
WPX Energy (NYSE:WPX) announced today a strategy to simplify its
geographic focus and expand returns, margins and cash flow over the next
five years.
Key to the company’s strategy are three core resource plays in North
Dakota, New Mexico and Colorado where WPX has an estimated 16,000
remaining drillable locations on a gross basis, more than 14 trillion
cubic feet of proved, probable and possible (3P) reserves at year-end
2013 and approximately 480,000 net acres.
“We’re confident we have the right building blocks in the Williston, San
Juan and Piceance basins. We have upside in all three. Our strategy
accelerates our oil development and capitalizes on what we can gain from
technical excellence, new technology and greater economies of scale,”
said President and Chief Executive Officer Rick Muncrief.
WPX already is executing on its strategy by completing its first two
7,500-foot laterals in the San Juan’s Gallup oil play and implementing 6
million pound completions in the Williston. Early results from doubling
the stimulation size showed a 14 percent production increase from three
Bakken Shale wells and a 13 percent increase from three wells in the
Three Forks formation.
Ultimately, WPX believes that its strategy gives it the opportunity to
increase oil production five-fold and triple its operating margins and
company value by the year 2020 compared to its results last year.
MORE FOCUSED
During its spinoff more than two years ago, WPX’s portfolio consisted of
assets in eight areas – seven domestic plays along with South American
interests through ownership in Apco Oil and Gas International.
After divesting its properties in Texas and Oklahoma, WPX moved forward
with assets in six areas. Now, WPX is narrowing its investment strategy
to half of its properties – the Williston, San Juan and Piceance basins.
The balance of properties is either in the process of sale or targeted
for divestiture. WPX previously announced the sale of its coalbed
methane assets in Wyoming and its international interests in Apco.
Within its three core resource plays, WPX will prioritize capital based
on the highest long-term returns. This includes advancing the company’s
oil development and shifting capital within basins from historical areas
of emphasis to new ones with greater opportunity. For example:
-
Earlier this year, WPX accelerated the development of its Gallup oil
discovery in the San Juan Basin, increasing the expected 2014 well
count from 29 to 40. Following a previously disclosed purchase in the
basin, WPX now expects to spud 48 Gallup wells by year end.
-
WPX previously concentrated capital in the Piceance Basin to its
properties in the Piceance Valley. WPX will start shifting more
capital in the basin to opportunities in the Ryan Gulch field where it
has more than 4,000 remaining drillable locations at 10-acre spacing.
WPX’s goal for its annual capital program is to have at least a 30
percent internal rate of return at reasonable commodity price
assumptions. WPX’s highest returns today are in the Gallup and Bakken
Shale oil plays.
MORE OIL
WPX expects to maximize returns and margins by increasing the amount of
oil production in the company’s historically gas-weighted portfolio.
Progress is occurring.
In 2012, oil accounted for 8 percent of WPX’s equivalent production. In
2013, oil accounted for 10 percent of WPX’s equivalent production.
During second-quarter 2014, oil comprised 14 percent of equivalent
volumes.
Over the same time frame, oil sales – as a percentage of WPX’s total
product revenues – have risen from 23 percent to 37 percent.
“Here’s the fundamental question I hear: ‘Are you a gas company or are
you going to be an oil company?’ For WPX, it’s not either or. We’re
both,” Muncrief said.
“With the depth we have in our gas reserves, we like the optionality it
gives us. We also believe that our gas is going to be advantaged on
pricing because of the access we have to premium western markets.
“At the same time, increasing our oil output brings significant value to
our stockholders. Ideally, oil will account for more than 25 percent of
our total volumes as we execute on our strategy. That’s going to require
us to achieve a five-fold increase in our oil production compared to
what we did domestically last year.”
MORE INVENTORY
WPX has an established leadership position in the Piceance Basin with
more than 220,000 net acres and more than 4,600 wells, providing a model
for innovation, efficiency and scalability that the company is working
to replicate in its core resource plays. In particular:
-
Building positions that are large enough to drive economies of scale
and enhanced returns
-
Adding acreage and inventory through logical acquisitions, bolt-on
opportunities and creative structures
Along these lines, WPX has taken its Gallup Sandstone oil exploration
project in the San Juan Basin from zero locations to more than 400 in
less than 18 months. At the same time, it reduced its average well cost
in the basin by 26 percent during the first half of 2014 compared to
2013. WPX now owns or controls approximately 84,000 net acres in the
Gallup oil window.
“Scale drives efficiency,” Muncrief added. “All three of our core
resource plays have opportunities to increase returns through cost
reductions and other operational efficiencies, especially with cycle
times, GP&T expense and D&C costs.
“By driving down development costs, we’re increasing our amount of
available capital. That can be a sizeable number considering that there
are opportunities to save anywhere from a quarter million dollars per
well to a million dollars per well,” Muncrief said.
For example, WPX plans to improve its drilling economics in the
Williston Basin before boosting its rig count there. As previously
announced, WPX also is optimizing its completion practices in the basin
with the goal of increasing initial production rates and estimated
ultimate recoveries.
Additionally, WPX expects to increase inventory through oil-focused
exploration and ongoing resource assessment. WPX plans to test potential
for inventory growth in all three of its core basins.
DRIVING CHANGE
“The value in our strategy comes down to how well we execute. Changing
how we think about our assets and how we manage our business are
critical to our success,” Muncrief added. “The greatest change at WPX
may very well come from within.”
Accountability, greater risk tolerance, a cost-conscious mindset, faster
decision-making, a spirit of tenacity and reduced complexity are an
integral part of WPX’s culture change.
WPX is taking steps to re-align its organizational structure with the
company’s multi-year strategy. These actions include creating a
leadership position for business development, embedding additional staff
within the resource plays, and consolidating some functions such as
engineering, supply chain management and exploration, similar to how WPX
streamlined its drilling team in 2013.
WPX also recently completed an early retirement program. More than 100
people accepted offers for early retirement. Upon the completion of
pending and potential asset sales, G&A costs will be further affected.
“Our mission is aggressive and measurable. By casting a vision and
setting out our strategy, we’re defining what success looks like and
providing a means to track our progress. This is part of creating a high
accountability culture at WPX and focusing on our long-term value
proposition,” Muncrief said.
STRATEGY WEBCAST
WPX management will discuss its company vision and business strategy
during a webcast starting at 10 a.m. Eastern tomorrow, Oct. 9.
Participants are encouraged to access the event at www.wpxenergy.com.
A limited number of phone lines will be available at 877-201-0168.
International callers should dial 647-788-4901. The conference
identification code is 7437634. The slides for the webcast are available
for download today at www.wpxenergy.com.
ABOUT WPX
WPX Energy develops and operates oil and gas producing properties in
North Dakota, New Mexico and Colorado. The company has a long history of
innovation and stakeholder engagement, recognized through more than 40
local, state and federal awards.
This press release includes “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995. All
statements, other than statements of historical facts, included in this
press release that address activities, events or developments that the
company expects, believes or anticipates will or may occur in the future
are forward-looking statements. Such statements are subject to a number
of assumptions, risks and uncertainties, many of which are beyond the
control of the company. Statements regarding future drilling and
production are subject to all of the risks and uncertainties normally
incident to the exploration for and development and production of oil
and gas. These risks include, but are not limited to, the
volatility of oil, natural gas and NGL prices; uncertainties inherent in
estimating oil, natural gas and NGL reserves; drilling risks;
environmental risks; and political or regulatory changes. Investors
are cautioned that any such statements are not guarantees of future
performance and that actual results or developments may differ
materially from those projected in the forward-looking statements. The
forward-looking statements in this press release are made as of the date
of this press release, even if subsequently made available by WPX Energy
on its website or otherwise. WPX Energy does not undertake and
expressly disclaims any obligation to update the forward-looking
statements as a result of new information, future events or otherwise.
Investors are urged to consider carefully the disclosure in our
filings with the Securities and Exchange Commission, available from us
at WPX Energy, Attn: Investor Relations, P.O. Box 21810, Tulsa,
Okla., 74102, or from the SEC’s website at www.sec.gov.
Additionally, the SEC requires oil and gas companies, in filings made
with the SEC, to disclose proved reserves, which are those quantities of
oil and gas, which, by analysis of geoscience and engineering data, can
be estimated with reasonable certainty to be economically producible –
from a given date forward, from known reservoirs, under existing
economic conditions, operating methods, and governmental regulations.
The SEC permits the optional disclosure of probable and possible
reserves. From time to time, we elect to use “probable” reserves and
“possible” reserves, excluding their valuation. The SEC defines
“probable” reserves as “those additional reserves that are less certain
to be recovered than proved reserves but which, together with proved
reserves, are as likely as not to be recovered.” The SEC defines
“possible” reserves as “those additional reserves that are less certain
to be recovered than probable reserves.” The Company has applied these
definitions in estimating probable and possible reserves. Statements of
reserves are only estimates and may not correspond to the ultimate
quantities of oil and gas recovered. Any reserve estimates provided in
this presentation that are not specifically designated as being
estimates of proved reserves may include estimated reserves not
necessarily calculated in accordance with, or contemplated by, the SEC‘s
reserves reporting guidelines. Investors are urged to consider closely
the disclosure in our SEC filings that may be accessed through the SEC’s
website at www.sec.gov.
The SEC’s rules prohibit us from filing resource estimates. Our
resource estimations include estimates of hydrocarbon quantities for (i)
new areas for which we do not have sufficient information to date to
classify as proved, probable or even possible reserves, (ii) other areas
to take into account the low level of certainty of recovery of the
resources and (iii) uneconomic proved, probable or possible reserves.
Resource estimates do not take into account the certainty of resource
recovery and are therefore not indicative of the expected future
recovery and should not be relied upon. Resource estimates might never
be recovered and are contingent on exploration success, technical
improvements in drilling access, commerciality and other factors.
Source: WPX Energy Inc