WPX Energy accelerates its deleveraging efforts through the San Juan sale and will now operate in two cores: the Delaware and Williston basins. (Image: WPX Energy/Hart Energy)
WPX Energy Inc. (NYSE: WPX) is exiting the San Juan Basin’s Gallup oil play after reaching an agreement on Feb. 5 to sell about 105,000 net acres in Rio Arriba, San Juan and Sandoval counties, N.M., for $700 million.
WPX didn’t disclose the buyer, though regulatory filings identified the company as Enduring Resources IV LLC. The Gallup oil play had previously been a part of WPX’s plans, producing 10,800 barrels of oil per day (bbl/d) in third-quarter 2017.
Enduring will assume associated transportation commitments in the Gallup and, on closing, WPX will be free of any commercial obligations in the San Juan Basin. The company is led by Barth Whitham, Enduring’s president and CEO and an A&D veteran whose previous deals include a 2014 sale of 63,000 net acres in the Permian Basin for $2.5 billion and 70,000 Eagle Ford acres for $1.3 billion.
WPX’s sale overshoots its target of up to $400 million in noncore asset sales by the end of the year. The company plans to use the proceeds to pay debt. WPX said it’s now on track to reduce its net debt/EBITDAX to a target level of 1.5x during 2019. In November, the company was on track to generate free cash flow and leverage below 2x by 2019.
“WPX is now completely focused on our outstanding assets in the top two oil-prone basins in North America—the Permian’s Delaware Basin and North Dakota’s Williston Basin,” said Rick Muncrief, WPX chairman and CEO.
In December, the company also sold about 130,000 net acres in the northern San Juan’s gassy area in New Mexico and southern Colorado for $169 million. At the time the northern area was marketed, the company maintained that the Gallup was not included in the sales process.
In the past five years, $8 billion in deals have transformed WPX, once a predominantly gas-oriented company, to an E&P that will produce about 80% liquids and 20% natural gas.
“Our bias for action has completely reshaped our story and our outlook, evidenced by the positive trends in our financial results. WPX is opportunistic, disciplined and committed to a strong balance sheet, ample liquidity and ongoing value creation,” Muncrief said.
WPX will likely lose about $150 million in 2018 cash flow after the San Juan sale closes, said Mike Kelly, an analyst at Seaport Global Securities. The deal is expected to lower unit costs for its lease operating expenses and gathering, processing and transportation and increased oil price realizations.
“Overall, we expect the reaction from investors to be positive given the San Juan’s development was not a focal point,” Kelly said, adding that investors should appreciate the balance sheet strengthening efforts.
The Gallup play included 335 gross locations and had increased its oil production by 50% in third-quarter 2017 compared to the same quarter in 2016. But the position represented less than 5% of its gross undeveloped locations and the company said in November it would run, at most, one rig in the play.
WPX completed at least 22 Gallup oil wells in 2017, including 11 in the third quarter. Five of its wells were long-laterals, including four 2-mile laterals and one 1.5-mile lateral. The 24-hour peak IP for its third-quarter wells averaged 1,340 barrels of oil equivalent per day (boe/d), 59% oil, with a 30-day cumulative production averaging 22,730 boe per well.
The company’s 2018 capex—roughly $1.2 billion—will remain unchanged. The $57 million earmarked for the Gallup will be redirected to the Delaware and Williston basins.
CIBC Griffis & Small acted as WPX’s advisers for the transaction and Holland & Hart LLP was the company’s external legal counsel. The deal is expected to close in the first quarter.
Darren Barbee can be reached at dbarbee@hartenegy.com.
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