Cutting an Oil and Natural Gas Path through the U.S. (NYSE:WPX)

WPX Energy Inc (NYSE:WPX) was trading at $14.75 on Jan 27 and is currently trading in the $18.87 range; a gain of 27.9% in less than a month: Some very happy shareholders here. Some big 2011 ‘reserve’ numbers and a modest, realistic 2012 outlook really attracted new buyers and aggregators in force. 

WPX produces oil in North Dakota, and natural gas in Colorado, New Mexico, Pennsylvania, Texas and Wyoming. WPX also has international investments in Argentina and Colombia.

Some 2011 numbers showed the Company’s oil reserves were up 94% in the U.S., natural gas liquids were up 40% in the U.S. and WPX had a reserves replacement ratio of 188%. 2011 oil and natural gas liquids production reached 41,000 barrels per day. 

The WPX Energy big oil play is in the famous Bakken Shale in North Dakota where the Company spent $260 million in 2011 for drilling. It used four drillings rigs through most of 2011 and added a fifth towards the end of the year. WPX expects to add a sixth well in mid-2012. WPX opened North Dakota offices in Minot and New Town in the summer of 2011.

WPX had total proved reserves as of Dec. 31, 2011 of nearly 5.3 trillion cubic feet equivalent; up approximately 9% over 2010. Approximately 77% of WPX’s 2011 total proved reserves are natural gas and 23% natural gas liquids and crude oil. 

WPX will discuss in full its 2012 outlook on Feb 23 when the company is scheduled to report its full-year 2011 financial results.

In advanced notes about 2012…

“For 2012, we’ve lowered our spending in keeping with our philosophy for capital discipline,” CEO Ralph Hill said. “We’re primarily focusing on our Bakken oil and Piceance natural gas liquids properties where we have the best opportunities to generate the highest revenues and returns.” 

Approximately 95% of the company’s 2012 domestic capital budget is focused on its core areas in the Bakken Shale, Piceance Basin and Marcellus Shale, with approximately 65% of the budget designated for areas with oil and NGL production. 

“This drilling program allows us to remain in a position of strength with regard to our balance sheet,” Hill said. “At the same time, it provides us with the flexibility to grow the oil and NGL component of our portfolio.” 

WPX is forecasting full-year EBITDAX of approximately $1.2 billion for 2012. This assumes the impact of the Company’s existing hedges and a $3 NYMEX natural gas price.  At a $3.50 natural gas price, EBITDAX would be approximately $1.3 billion for 2012. At a $4.00 natural gas price, EBITDAX would be approximately $1.4 billion. All three EBITDAX scenarios assume a $99 per barrel oil price. A $1 change in the price of oil equates to a $5 million impact to EBITDAX.  

(EBITDAX is calculated as the company's revenue less its expenses (such as overhead), but including its tax liability, interest paid on debt, depreciation, amortization, and what it spends in exploring for new oil, gas, or mineral deposits)

With natural gas prices so flat for much of 2011, and little incentive for exploration, I think that it may once again retain its status as an ‘alternative’ to oil as global tensions continue to mount. 

I haven’t, don’t, and do not intend on holding any of the companies mentioned in this article.