WPX Hooks $775 Million Bolt-On In Delaware Basin

[Editor's note: This developing story was updated at 2:37 p.m. CT Jan. 13.]

WPX Energy Inc. (NYSE: WPX) deepened its inventory through a bolt-on deal in the Delaware Basin Jan. 12, snagging more acreage without adding debt, the Tulsa, Okla.-based company said.

WPX said it agreed to acquire 18,100 net acres from Panther Energy Co. II LLC and Carrier Energy Partners LLC for $775 million cash. The acquired acreage includes 6,500 barrels of oil equivalent per day (boe/d) of existing production and 920 gross undeveloped locations.

The deal adds to WPX’s position but doesn’t extend its existing laterals. WPX estimates it's gaining 157 potential long laterals and 764 potential wells with mile-long laterals that are prospective across eight horizons, said Brian T. Velie, senior analyst with Capital One Securities.

Overall, the deal expands WPX’s Permian footprint by roughly 20% to 120,000 net acres from 102,000 net acres while reducing the company’s leverage, said Mike Kelly, senior analyst at Seaport Global Securities LLC.

“We can see close to $1 billion of value from the acquired assets in our model with mild acceleration starting [in] 2018,” Kelly said in a Jan. 13 report.

Kelly added the purchase price appears competitive to recent transactions in the Delaware. WPX plans to fund the transaction with cash on hand and an equity offering.

After backing out the production, the deal price implies an undeveloped acreage cost of $27,000 per acre, Velie said.

“The acreage price falls in about the middle of the range compared to recent Delaware deals,” Velie said in a report.

The acquired acreage is located in Reeves, Loving, Ward and Winkler counties in West Texas, none of which appears to be directly adjacent to WPX’s preexisting acreage, Velie said.

Velie estimated that 80% of the new acreage is in Reeves County and roughly 20% is scattered among Loving, Ward, and Winkler counties.

“We believe the Northern Reeves section will be among the very best acreage in the Delaware with offset operators including Resolute, Apache and EOG,” he said. “In the Southern Delaware section, nearby operators are Centennial and Oxy.”

WPX is also gaining 23 producing wells (17 horizontals) and two drilled but uncompleted wells when the deal closes. Existing production from the acquired assets is 55% oil.

“WPX credited just three zones in its acquisition economics and we model a total of 328 new net locations in the Wolfcamp A, X/Y and Bone Springs in our update,” Velie said.

On a pro forma basis, WPX is now targeting 30% oil growth and 25% overall production growth in 2017, the company said. Its targeted net debt/EBITDAX ratio is at the lower end of the company’s previously announced range of 2x to 2.5x by year-end 2018.

Two rigs from Panther’s program are currently drilling on the acreage, which management plans to keep active going forward, Kelly said. With the additions, WPX will now run seven rigs.

WPX entered the Delaware Basin in August 2015 with the purchase of RKI Exploration for $2.75 billion. The acquisition consisted of 92,000 net acres with 22,000 boe/d of production.

“In just 18 months, WPX has firmly established itself as a leader in the Delaware Basin,” Rick Muncrief, WPX chairman, president and CEO, said in a statement.

WPX said it plans to close the transaction within 60 days.

The company’s equity offering of about 51.7 million shares, including a 6.7 million-share greenshoe, is expected to generate roughly $690 million of proceeds. Credit Suisse Securities (USA) LLC is lead book-running manager for the offering.

Emily Patsy can be reached at epatsy@hartenergy.com.