Susan Klann, group managing editor

Turnarounds are crowd pleasers, and while WPX Energy Inc.’s comeback isn’t done, new president and CEO Rick Muncrief likes what he sees in his Rockies fighter.

At the Enercom Oil and Gas conference in mid-August in Denver, Muncrief said that in taking the Tulsa-based exploration and production (E&P) company’s corner man role in May, if he underestimated anything, it was its asset quality and employees’ hunger to win.

WPX (NYSE: WPX) was spun out of Williams Cos. Inc. (NYSE: WMB) in late 2011. The gas-weighted E&P’s primary positions were in the Piceance Basin and the Bakken and Marcellus shales, with secondary holdings in the Powder River Basin, San Juan Basin and the Barnett.

The start was rough. Muncrief, former senior vice president of operations at Continental Resources Inc. (NYSE: CLR), said, “Within a few months, gas prices have bottomed out, you’re predominantly a natural gas producer out here in the West, and things look pretty bleak.”

While Muncrief believes in oil long-term, he also thinks natural gas has a newly burnished future in the American West. “At the end of the day, the demand [worldwide] for crude oil trumps just about everything,” he said. Meanwhile, the outlook for Western gas production vs. Eastern molecules has flipped. “What we see is a very dramatic strengthening in the Western basis,” driven by infrastructure availability and demand potential from projects like the Jordan Cove LNG plant in Coos Bay, Ore., and power generation in Mexico, he said.

WPX is rebalancing to oil, nonetheless. More than half of its $1.47 billion capital budget this year is focused on oil properties in the Williston and San Juan basins. Its Marcellus activity is on hold, with analysts expecting a sale. Tudor, Pickering, Holt puts the total value for its Marcellus assets at $700 million to $800 million.

This spring, WPX sold a working interest in a portion of its historical Piceance Basin wells to Legacy Reserves LP (NASDAQ: LGCY) for some $355 million and a 10% ownership in a newly-created class of incentive distribution rights. In mid-August, it cashed out of its remaining coalbed methane holdings in the Powder River for $155 million.

More deals unfolded in early September. An alliance with gas-to-liquids project developer TRDC LLC, a subsidiary of Houston’s G2X Energy Inc., will jointly develop the Piceance Basin Trail Ridge project. WPX has about 1,300 remaining Trail Ridge locations.

The partners plan eight wells in 2014, 25 in 2015, 50 in 2016 and 100 per year in 2017 and beyond, with WPX operating. TRDC paid about $40 million cash for a 49% working interest in some 100 wells and $170 million for a drilling carry.

WPX is running nine rigs in the Piceance, where Muncrief said cost efficiencies have preserved returns on production of about 700 million cubic feet per day. The Piceance team thinks it can slice recent well density test costs in the Highland area to $1.8 million from a current $2.2 million, with about 8,000 unbooked incremental locations. “At $1.8 million and a $4.25 MMBtu [million British thermal units] world, we’re delivering a 35% rate of return,” Muncrief said. One rig is exploring Niobrara potential.

WPX employs five rigs in the Williston Basin, where it increased oil production by 39% in 2013.

Another “real exciting” area for the company is the southern San Juan Basin’s Gallup Sandstone play, said Muncrief, which has rich and dry gas. (The company’s Niobrara discovery well in the basin earned Investor’s Best Discovery award for 2013.)

Muncrief praised the San Juan’s “tremendous” in-place infrastructure and said the basin is yielding the best returns in the company at 60% to 70%. Stimulation innovations in the Gallup have led to a 40% increase in productivity, spudded wells have risen from 29 to 40 year-over-year with the same number of rigs, and Muncrief told the audience to look for “more [productivity increases] to come.” WPX will run three rigs in the Gallup post its recent acquisition of 26,000 net acres (it now has 75,000 net acres), which included 800 barrels of oil equivalent per day.

Overall, WPX boosted oil revenues by 60% and EBITDA by 40% year-over-year for 2014’s second-quarter results.

Investors must like what they see; since early August the stock has risen about 25%. And in early September, Muncrief bought 10,000 WPX shares on the open market at $26.42 per share.

In Denver, he was confident in his chances. “We’re going to be more aggressive, more nimble and I tell you, it’s real exciting to lead a turnaround. It’s something I’ve never done in my career.”

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