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WPX Energy (NYSE:WPX)

Q2 2014 Earnings Call

August 06, 2014 10:00 am ET

Executives

David Sullivan -

Richard E. Muncrief - Chief Executive Officer, President and Board Member

J. Kevin Vann - Chief Financial Officer and Senior Vice President

Bryan K. Guderian - Senior Vice President of Operations

Analysts

Brian M. Corales - Howard Weil Incorporated, Research Division

Stephen Richardson - Deutsche Bank AG, Research Division

David Martin Heikkinen - Heikkinen Energy Advisors, LLC

Matthew Portillo - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Brian D. Gamble - Simmons & Company International, Research Division

Brian T. Velie - Capital One Securities, Inc., Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2014 WPX Energy Earnings Conference Call. My name is Kim, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. David Sullivan, Director of Investor Relations. Please proceed.

David Sullivan

Thank you, good morning, everybody. Welcome to the WPX Energy Second Quarter Earnings Call. We appreciate your interest in WPX Energy. Rick Muncrief, our CEO; and Kevin Vann, our CFO, will review the prepared slide presentation this morning. Along with Rick and Kevin, members of the senior management team, Bryan Guderian, Senior Vice President of Operations; and Mike Fiser, Senior Vice President of Marketing, will be available for questions after the presentation.

On our website, wpxenergy.com, you'll find today's presentation and the press release that was issued after the market closed yesterday. The second quarter 10-Q will be filed later today and you will be able to access that on the website as well. Please review the forward-looking statements on Slide 2 and disclaimer of oil and gas reserves on Slide #3. They are important and integral to our remarks, so please review them. Also included are various non-GAAP numbers that have been reconciled back to Generally Accepted Accounting Principles. Those schedules follow the presentation.

So with that, Rick, I'll turn it over to you.

Richard E. Muncrief

Thanks, David, and thanks to all of you for joining us on our call this morning. We're pleased to get to spend some time with you today discussing our second quarter results and provide an opportunity to update you on some of our ongoing activities. But before I do, we'd like to prepare and -- provide some color about our company and my personal decision to join WPX. First, leaving Continental Resources was not an early decision for numerous reasons but most of all, it was the people. We'd all worked extremely hard to build something special, and working alongside Harold and that team was very gratifying and rewarding.

I was honored when the WPX Board of Directors reached out and provided me the opportunity to join the company as a CEO. This board has worked tirelessly to navigate the company through some challenging times since the spin-off from Williams, and on behalf of our employees, we want to thank them.

What I found since I've joined the company is that we have an organization that was hungry for positive leadership and hungry to win. That look of determination in people's eyes is undeniable. I've seen it here in the boardroom and I've seen it out on the rig floors. I've also seen some nice assets that needed varying degrees of rationalization or focus. That work is underway. We need to diligently work to rightsize our cost structure. Once again, that work is underway.

The company that will emerge will be based on 3 pillars that we'd all talked about and that's integrity, scalability and identity. And that work is underway. Later this fall, we'll communicate our company strategy and how we intend to carry it out. We recognize that the communication from the company has been somewhat limited over the past several months as we've had a leadership team transition. We appreciate both your patience and your continued support.

I also want to thank our employees throughout the organization for their perseverance, willingness to engage in some very honest dialogue and the overall performance for this quarter. I want to thank those employees who are electing to leave the organization via our early exit program for many years of dedicated service. Best wishes on the next chapter of your lives. This company has a great deal to work on going forward, but the optimism is an absolute inspiration to the leadership team. We very much appreciate our employees.

Now I'd like to spend a few moments walking through some additional detail about our second quarter performance. The first slide depicts the strong quarter that we've just delivered. Domestic oil production was up 57% from a year ago. Adjusted EBITDA (sic) [EBITDAX] increased 40% over the last year, and that was driven primarily by the fact that we had domestic oil revenue growing 60% Q2 over Q1. We also, as you've seen in the press release, have announced that through some great technical work for -- of our Bakken team, we've added nearly 200 locations in the Williston. And I want to add that these locations are in some of the highest quality rock in the entire play. Some of our initial stimulation pilot tests have yielded some encouraging results, and as a result of that, we are going to increase our proppant size on our completions. We're real excited about what is going on in San Juan Basin and our Gallup spuds are increasing from 24 -- or excuse me, from 29 to 40 spuds. And you've seen the 30-day average IP rates were up 30% over last year's wells.

And finally, during the second quarter, we closed a very important transaction. That's the legacy transaction, by which we sold some working interest in some of our more mature Piceance Basin operations and really helped us from a cash flow deficit.

If you look at our growth, we continued to grow, and this slide depicts the growth when you contemplate the impact of the legacy transaction. Equivalent production, we anticipate as we exit the year, will be up about 9% over how we entered the year, and the big driver there will also be the oil production, which is up 60%.

Now we're going to spend some time walking around some of our assets. The Piceance, when I look at the Piceance Basin, I see what I feel may be one of the more underappreciated assets on the planet. This is an asset that had been the flagship for WPX for the last numerous years and we see a lot of opportunity here. To begin with, we're in a great part of the world. We have a lot of infrastructure, we have strong markets in our Western part of the country, and we're real pleased with this team and how they're executing.

So in the second quarter, we've spud 72 wells, that puts us on track year-to-date at 140. Volumes, we're approaching 700 million a day at 691 million. You see the breakout of those streams. We currently have 9 rigs running. We plan to maintain that rig count throughout the remainder of the year. Those 9 rigs do include the one exploration rig that we're running in the Niobrara.

We continue to see cost savings in this asset depicted by the nearly $5 million of lower lifting cost that we saw on the second quarter with some very creative work that the team's doing.

And then one of the last things we want to touch on is the fact that even though some of the initiatives that have been out in the press in Colorado, even though that's been removed, we felt it was important to show that we have less than 5% of our 12,500 global locations that could be potentially impacted. So it's something that we wanted to communicate.

As we move north up in the Williston, we're extremely excited about the assets we have there. We have 80,000 acres of leasehold, that's in the core of the play. Production has exceeded our expectations there. You can see that we were up 53% over the last year. We're really pleased with the delivery of the team. One of the big drivers has been the increased proppant that we've tried with some of our completions. And we communicated what that -- what the results of those wells were. And because of that work of our team alongside a lot of the other industry information we're getting, we have made the decision that we're going to be doubling our proppant size to 6 million pounds on our remaining 2014 wells. That is our base program. From time to time, we may try something a little different there and we'll keep you posted.

The team has done a great job, I think, of capturing some of our flare volumes. We've been as low as 10% on flare volumes and we've done some of that with some creative work. An example is on our Glenn Fox 3-well pad, where we've got a liquid capture unit out there and we're covering a lot of NGLs. And then the downspacing that we have done, that we have communicated, we've got nearly 200 additional locations. So we have 650-plus-or-minus locations left to drill. And at the current run rate, that's 10 years of drillable locations. We're really excited about our inventory and how it's grown there. Not only the number of projects, but the quality of those projects as well.

Moving south to San Juan, we're extremely excited about our Gallup play here. Production over the last year is up 500% with our crude oil there. And just sequentially, second quarter volumes, oil volume was up 76%. We're still delineating the play. It's a very competitive play and we're actively leasing, but we're really excited about how the team, once again, is performing. We've got well cost currently down to $5.2 million, and we feel we can be at $4.8 million by year end. And I think the other thing that's noted is what our average 30-day IPs have moved up over the last 12 months. We're real pleased with that. We're getting more efficient. And I think that with 2 rigs running out there plus our top-set rig that we're running, we're going to continue to drive those efficiencies, and I think we could cover a lot of ground and be very efficient as we do that.

The next slide just depicts the performance work that we're speaking to. If you look at the 2013 program compared to the 15 -- 15 wells that we've got online that have nearly 150 days or 5 months of production, you can see that this is a pretty impressive growth. We anticipate this continuing throughout the year. And once again, we're real excited about this emerging play. We've been in the San Juan for a long time. We understand the basin very well, and it's a place where, I think, we can continue to perform and be the top-tier operator.

With that, I'd like to turn the slides over to Kevin Vann, our newly named full-time CFO. We took the interim name off of his title, so I want everyone to congratulate Kevin for his hard work and efforts. And Kevin?

J. Kevin Vann

Thanks, Rick. I'm going to cover our second quarter results in comparison to the second quarter of 2013. Rick's already spent some time covering some of these results, but I'll touch further on production, adjusted EBITDAX, adjusted net income and, finally, capital expenditures. Overall, our production volumes, as Rick mentioned, were slightly down this quarter when compared to the second quarter of 2013. Specifically, natural gas production was down approximately 4%. However, the second quarter of 2014 included the impact of closing our sale of working interest in certain natural gas assets to legacy reserves, which closed on June 4. As Rick has discussed, we're extremely pleased about the continued growth in our oil productions, as volumes were 37% higher during the -- this quarter versus the second quarter of 2013.

On an equivalent basis, we are reporting production of 1.25 billion cubic feet per day compared to 1.262 billion during the same period of the prior year. Despite the decrease in production, our adjusted EBITDAX increased 40% from $210 million during the second quarter of last year to $294 million this year. This adjusted EBITDAX metric excludes the impact of noncash -- of the noncash loss on the sold properties to Legacy and the noncash impact of unrealized mark-to-market gains and losses on our economic hedges.

The overall increase was largely due to the growth in our consolidated oil revenues, which now, when combined with our NGL revenues, represent approximately 40% of our total. This growth in oil production, coupled with slightly higher realized natural gas prices in the second quarter of 2014 versus 2013 are the primary drivers of the higher adjusted EBITDAX. Also to mention, our adjusted EBITDAX for the first 6 months of 2014 is $614 million or approximately 49% higher than the same period of 2013.

Our adjusted net income of $11 million is $55 million higher than the second quarter loss that we recorded in 2013. This measure excludes the impact, again, of the unrealized mark-to-market gains and losses, the loss on several properties to Legacy and the impairments and write-downs of certain exploratory costs that are included in net income, all of which are noncash.

Capital expenditures for the quarter was $376 million, and were largely focused on the development, again, of our higher-returning oil assets.

Now I'd like to turn to the next slide and update you on our full year guidance. Production-wise, we are increasing our full year production guidance range to 1.209 billion to 1.256 billion cubic feet per day with a midpoint of 1.232 billion. Our previous range was approximately 1.203 billion to 1.217 billion per day. This increase in production guidance reflects our strong focus in execution in our building programs. The guidance also reflects the impacts of our sold properties in the Piceance Basin to legacy. As we mentioned in our first quarter results, this transaction has created strategic value, as we've already started redirecting that capital raise to our higher-margin oil development.

As a result of drilling efficiencies, lower well cost and higher production, we are adding 11 -- as Rick mentioned, 11 more wells to our 2014 San Juan Gallup drilling program, utilizing the same number of rigs. To expedite the development of the company's domestic oil properties, we are adding approximately $100 million to our 2014 capital plan. The increase will fund the additional Gallup drilling as well as larger stimulations and flaring reduction efforts in the Williston Basin.

Price -- from a price realization perspective, our commodity prices realizations for the quarter were slightly down, and we have revised our full year guidance down by 1%. The main driver of this marginal reduction is our sale of -- is the sale of 200 million -- contract to sell 200 million cubic feet per day of Rockies production that's tied to Northeast basis prices. I will emphasize that this contract expires in November of this year and will increase our overall realized prices going forward by as much as $0.40 per MBtu. Offsetting this decline in our estimated realized prices for the year is an increase in gas management results, with our Northeast transportation portfolio benefiting from the Northeast basis prices. As a result, we are projecting $25 million to $35 million of income coming through these activities for the full year, which is an increase of $35 million when compared to previous guidance.

In summary, our second quarter results reflect our continued commitment to execution and pursuing opportunities to grow our margins and reinvest in the highest returning growth areas.

Now I'd like to turn it back to Rick.

Richard E. Muncrief

Thanks, Kevin. Good job. While the long-term vision for WPX, is starting to come into focus, the strategy and development process is underway, which includes a full-scale review of the entire portfolio. We were very familiar with most of the areas in which WPX operates, but as the strategy process began, I entered it without any bias or preconceived notions regarding our portfolio. Each asset will have to demonstrate its ability to generate attractive returns and growth over the near and long term. When our strategy is unveiled later this fall, it will be a multiyear strategy, giving the investment community the ability to measure our progress. Status quo is not an option.

WPX clearly needs to transition to a pure-play E&P mindset. We need to be more nimble, have a greater tolerance for risk and look at the potential of our asset base in a different way. Most of all, we need to establish a culture that is more focused on profitability and maximizing our margins. To achieve this, the organization will be more dynamic, responsive and efficient. In my short time with the company, you can feel within the organization not only a desire to compete, but a strong desire to win.

We've now concluded our prepared remarks and are ready for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Brian Corales from Howard Weil.

Brian M. Corales - Howard Weil Incorporated, Research Division

First question on the Gallup. What did you all change from '13 to '14 on the completion or drilling side to see the improvements in the well results? And can you remind us what -- and what are you guessing those EURs are at this point for the recent drilled wells?

Richard E. Muncrief

Brian, a couple of things I would point to. Number one, I think, as we've gotten into the play a little farther, we more clearly understand exactly where we need to land. We're focused on some more stimulation designs. I think that's coming into play. And as far as the EURs, I think in the past, we had put a 4.50 number out there. But I think what we're going to be looking at is as a part of our overall strategy rollout this fall, we'll probably be updating our type curves not only in the Gallup but the Bakken as well. We anticipate that we're going to see some nice results there.

Brian M. Corales - Howard Weil Incorporated, Research Division

Okay. And Rick, in your comments, you talked about scalability. I'm assuming that -- is there goals? Or for adding acreage both in this Gallup and in the Bakken, can we assume that you're going to try to -- is your -- how big do you want to get -- or how scalable can you get these assets?

Richard E. Muncrief

Well, that's a good question. I think in -- the answer to your fundamental question, Brian, is -- the answer is yes, we would like to scale in both of those basins. Recall now that in Williston, we have 80,000-plus-or-minus acres of leasehold. We also have got about 6,000 acres of minerals that we had not talked about a lot, but -- and then in the -- so we'd like to scale more there, obviously, and we're going to be very opportunistic in how we do that. Our first priority in Williston is to understand exactly the most optimal way to completely stimulate our wells. We're blessed with some tremendous acreage, and so we're going to have a lot of focus on challenging that asset. And then also, upping our game on reconnaissance on what others are doing and comparing them in transport realtime. Down in San Juan, we've got -- if you look at the total basin, we've got, I believe it's 175,000 acres, something like -- in that range. So we've already got -- we've got some scale there. The -- specifically in the Gallup, there -- we are working aggressively to add to that 50,000 acres that we have, and we'll just see -- we'll see what we shake out.

Operator

Your next question comes from the line of Stephen Richardson from Deutsche Bank.

Stephen Richardson - Deutsche Bank AG, Research Division

Rick, I was wondering, the slides and the press release make several mentions of profitability and margins, specifically, and obviously implied the opportunity for improvement at WPX. Can you just talk broadly about the opportunities set as you see it? And particularly, address some of the legacy costs and the corporate costs that you see in the cost structure? And any quantification of broad targets that you communicate to the team would be really useful.

Richard E. Muncrief

Okay. You bet, Stephen. Well, first off, we have a slide that, I believe it was prepared by Citigroup for 2013, and what it is, it compared companies across the space for a margin per boe. And naturally, the gas-weighted companies, as we were in 2013, were down toward the bottom of that. But specifically, we were down at the bottom. And we were using that as bulletin-board material for the locker room, so to speak, to put up and rally around. And so when we look at that, we've got 4 buckets: one is CapEx; one is lease operating expense; one is our gathering and processing expense, transportation; and then the last is G&A. So specifically, as part of our strategy, what we want to do is we want to set out some clear targets for our asset teams on our CapEx. We think that we have some real opportunities to move. That's one of our biggest spend levels of cash, obviously, at $1.5 billion a year. We think that there's some true savings there. Part of that is how we procure services. Part of that is spending a lot of time diligently going through our approach on the business. And so I think we -- you'll see us lay out some goals for year-end 2015. It'll be pretty attractive. When I look at the lease operating expense, I know that first quarter, I'll use the Bakken as an example, we had some -- I think our average was about $10 per boe. We felt like -- and talking to the team, that we could, maybe even by mid-next year, early part of next year, drop that in half. And so you get down to the $5-per-boe range, and I think that's pretty attractive. One thing that helps us there is that just the quality of our resource. And -- but once again, we're focusing on that. Then the -- and another big area for cost for us, obviously, is our gathering transportation and specifically, our transportation agreements. We have 2 large agreements. One is the REX that we've talked about, this firm capacity that we'll be rolling off in November. And I think on an annualized basis, that's about $100 million a year, and that goes straight to the bottom line. And unfortunately, firm capacity is one of those things that you have to do during a rapid growth period. But down the road, sometimes, it can turn on you and that's what happened here as you've seen the resource play success, especially in the Northeast part of the country. We also got -- we also have some capacity that were -- is unused out of the Powder River Basin. That's a little bit of a drag, and so we're going to be very creative in what we need to do to try to address that over the next year or so. And then the last thing is our G&A. I think that when I looked at the G&A here, there are some things that I didn't see G&A just being totally out of range for a company our size, a company that operates 9,000 wells and is fairly sophisticated. But that being said, we have offered up, as I mentioned in the prepared remarks, an early exit program for certain employees that have levels -- years of service and then age. And I think it's a great opportunity for folks to, if they so desire, to move on. And as we finalize our strategy, we're looking at our organizational structure and we'll be making tweaks to that. Some of that may involve some headcount, some of that may involve some of our systems that we're paying for. Those sorts of things. But we see opportunity all along, but the big ticket driver at the end of the day is going to be what we can do with our well cost. I think that's our biggest opportunity along with our transportation.

Operator

Your next question comes from the line of David Heikkinen from Heikkinen Energy Advisors.

David Martin Heikkinen - Heikkinen Energy Advisors, LLC

The Niobrara -- in the Piceance, can you just give us an update? You talked, when we met last, that the Niobrara could be an area that is scalable. Obviously gassy, but wanted to just get your thoughts on the Niobrara, overall.

Richard E. Muncrief

Yes. I'll have some comments, and may have Bryan if he wants to add to that. But I think what we'll be looking at doing, Dave, is probably start the completion operations later this month on our Niobrara wells. We have -- we had a vertical well, and wells we've got the horizontal that's in a very overpressured area of the Niobrara. It has been operationally challenged, and I do know that the team has been working this hard. It reminds me, quite honestly, about 5 -- 4, 5 years ago on Scoop [ph] and some of the challenges that we were faced with there. So I -- that's the encouraging thing I see. We like the pressure, we like the rock. It's a matter of being able to efficiently execute and potentially drill some longer laterals out there. That could be something that will be -- could be a game changer for us. But fundamentally, we anticipate late August where we commence completion operations. So Bryan, you got...

Bryan K. Guderian

[indiscernible] Please go ahead.

David Martin Heikkinen - Heikkinen Energy Advisors, LLC

Just an update at your analyst day, and any thoughts on what your expectations would be?

Richard E. Muncrief

As far as when we would have an analyst day?

David Martin Heikkinen - Heikkinen Energy Advisors, LLC

No, no, no. Just the completions and expectations in the Niobrara, just kind of thinking completion in August. Any expectations as far as what you think from the well?

Richard E. Muncrief

Well, I think it's still too early. We do have the -- a handful of completions out there that we think, for one reason or the other, could possibly be suboptimized. And so we'll probably hold off on making a lot of projections on that. It's still -- in my mind, it's still somewhat in the exploration-type bucket.

David Martin Heikkinen - Heikkinen Energy Advisors, LLC

And then Rick, noticed the change of going to go to an annual guidance, very similar to Continental's, that's just the expectation from here forward?

Richard E. Muncrief

Yes, it is.

Operator

Your next question comes from the line of Matt Portillo from TPH.

Matthew Portillo - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Just a few quick questions from me. I guess, around the Bakken, I was wondering if you could talk a little bit about the early performance you're seeing on your upside's fracs. And then I guess, specifically on the 6 million-pound completion you're moving to, are you looking at changing the amount of ceramic you're using in the well in order to keep the cost structure down? Or how should we think about the use of incremental sand in potentially tighter stages on those completions?

Richard E. Muncrief

You bet. I think what I would like to say is that we shared with you the performance of the wells where we did about a 25% larger job. We've got quite a bit of production history there, and that's what gave us the encouragement to go ahead and make the move. But we are just in the process of cleaning out. We had a 3-well pad where we pumped the 6 million-pound jobs. We're cleaning those out right now. And so we're real excited about getting those wells brought down on the next month or so. And so on the -- on your question around the ceramic, right now, we're sticking with pretty much the same levels of ceramic and sand. That being said, that's -- we're still early into this, and so I would imagine that you could probably expect us to try several different approaches. The team's working that very hard and -- but we can't underestimate our excitement about what we think this means.

Matthew Portillo - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Great. And then in regards to downspacing, obviously out of the -- a number of locations, pretty significant increase based on the tests you had ongoing. As you guys look at, particularly at the Three Forks formation where you are, do you see incremental opportunity to downspace further? And then as you kind of look at your capital allocation with a 10-year-plus drilling inventory here, could we see incremental acceleration on your Bakken assets as we move forward?

Richard E. Muncrief

All of those questions are in play here internally. We've had some great dialogue around it. So you start looking at ramping up. I think we've got the ability to do that. We've been somewhat, I think, diligent and prudent in our CapEx spend. You mentioned -- you see that we've raised $100 million, that was -- that came out -- primarily driven in 3 buckets. The 11 incremental spuds down in the Gallup. There's also about $30 million of incremental CapEx for the larger stimulation in Williston, and then about $9 million, I believe, for some additional line looping, optimization flaring with the larger volumes we're dealing with and -- once again, in the Bakken. The other thing we're looking at is we're taking a new look at the geology. We may potentially have some lower Three Forks in some areas of our -- we don't think it's pervasive across all of our acreage, but we do think that there may be some wells we could drill there in the second bench of the Three Forks. The other thing I'd say is the team is evaluating. We'll see where we shake out on it, but they're evaluating potentially up in the northern part of our acreage in the Van Hook area, where you truly have some great rock, what the ultimate spacing there is. We think we have it figured out, but we may just have to take a spacing unit or 2, and just try to drill some additional wells to see what kind of performance we get.

Matthew Portillo - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Great. And last question for me, I know the Bakken has gotten a lot of the attention, I think, on the completion and downspacing side early on. But there's potentially a lot of opportunity within the San Juan. I was wondering if you could maybe provide some context around the downspacing opportunity you see, or I guess, timing on maybe some tests that you may run on the downspacing front to increase inventory. And then similarly on the completion front, maybe some of the things that you may be looking at in the San Juan to continue to improve the rates of return there.

Richard E. Muncrief

Well, as far as the downspacing, I know we have one spacing unit where we are going to be drilling. Rather than a 160-acre spacing -- or 4 wells per spacing unit, we're going to be drilling 5. And we'll just see how that turns out. There could be some opportunity there. It's still too early to say. And the reality of it is that's a very competitive play right now. It's gotten a lot of attention real quickly. It's heating up. And so we'd prefer not to say too much at this time.

Operator

[Operator Instructions] Your next question comes from the line of Brian Gamble from Simmons.

Brian D. Gamble - Simmons & Company International, Research Division

I wanted to get your opinion, Rick, just walking through the Bakken numbers, it sounded like there may be some additional upside in the location count. I know 10 years is plenty of runway ahead of you, but when you look at the CapEx potential, when you look at kind of streamlining things as you move forward, what's the emphasis on potentially drilling that a little bit faster than the current pace as we look into next year and beyond?

Richard E. Muncrief

Well, I think that's certainly a potential outcome. One of the things we'll be looking at doing, we're going to try to be real judicious with our capital spend. We have quite a bit to choose from with our asset base. And the other thing is, we really haven't talked about that much yet, we will later in the fall, is we've got some strategic things set or ideas that we have on our current asset base where we just need to challenge them. And that's going to take some capital. That being said, we -- I think we have a real opportunity in the outer years to accelerate in the Bakken, and we'll see how that plays out. And as I mentioned earlier, I'd like to have some more acreage up there if the right deal comes along.

Brian D. Gamble - Simmons & Company International, Research Division

Great. And then maybe a general comment or 2 on the Marcellus or the international assets as -- I mean, you've had some time to look at them, obviously. Not expecting a full strategic update until you're ready to give it, but any comments there that you want to make?

Richard E. Muncrief

In the Marcellus, we had made a decision to scale back our operations up there, obviously, our capital spend, because of commodity prices. And we have a couple of infrastructure issues we're dealing with. But we did have a 2-well pad that we completed. Or -- I take that back, 2 individual wells that we completed and have done some tie-in work on those. And we've once again tried a different stimulation technique. We have spaced that some over to some of the traditional jobs. So that's an asset that we'll continue to evaluate. But near term, it's a challenge to be in the Northeast part of the country, up there, being able to compete with the Bakken or Gallup or Piceance. In the international, with Apco, Apco continues to deliver some nice results. And we're going to continue to evaluate the best way for us to optimize that asset. But they are performing, it's quite well, and you've probably seen some of the press releases on some of the additional and recent activity down in Colombia. And some very nice wells.

Operator

Your next question comes from the line of Brian Velie from Capital One Securities.

Brian T. Velie - Capital One Securities, Inc., Research Division

Just one quick question on Gallup. You mentioned that 50,000 acres where you stand now. Can you give a number of well locations that are remaining on that acreage with the 160 -- 160-acre spacing that you're using now?

Richard E. Muncrief

Bryan, you have that readily available?

Bryan K. Guderian

Yes. Brian, at the end of the second quarter, I think we had around 250 to 260 locations remaining for the acreage position yet to be developed at that point in time. So you can imagine, it's a moving number given the competitive nature of the play, as Rick described.

Operator

Your next question comes from the line of Natasha Labarge [ph] from Tuohy Brothers Investment Research.

Unknown Analyst

My first question is you've hinted [ph] that lowering Ryan Gulch costs will allow this asset to increasingly gain capital from the Piceance Islands. Did the big drop in RG drilling times increase its competitiveness? Or did the other cost savings you mentioned keep highlands competitive?

Richard E. Muncrief

Well, I think what you see in Ryan Gulch, specifically, is an asset that we haven't talked a lot about, but the track record of our team that we have in the Piceance gives -- it gives me, personally, great comfort that we can bring our well cost down from -- they've done a good job getting them down to $2.3 million. I'll be surprised if we're not at $2 million by year end, or potentially a little lower than that, maybe the year next year. When you look at that kind of well cost, you start looking at the economics, the fact that it's a little richer gas than what we see down in the Valley. We have some nice economics. It's really not even dialed in to our plans that we have communicated in the years past. And so we see it as a lot of upside. And I mentioned earlier, some of my comments, I felt like the Piceance, at times, it looks like one of the more underappreciated assets in the planet. I think, if you start thinking about the legacy transaction we did, we pulled and accelerated a lot of value, pulled that value forward, we've already -- are well down the road of replacing those volumes at a very attractive rate. And so I can't help but feel very good about the Piceance in general. And when you start talking about the highlands, whether it's Ryan Gulch, Trail Ridge area or the others, we feel quite good about.

Unknown Analyst

Great. My second question. Energen is going to begin operating a rig in the San Juan, and do you have any plans to continue to partner with them on future wells, perhaps at drilling longer laterals?

Richard E. Muncrief

Well, they have participated in 4 wells that we operated, and I think that they -- I spoke to them in their press release, and they're real excited as we are about the play. And Energen's a good company, and we'll just see how that all plays out in the San -- they've been in the San Juan for quite some time as we have, so good people, and we'll just see how it goes.

Operator

Ladies and gentlemen, that concludes our question-and-answer session. I will now turn the conference back to David for closing remarks.

David Sullivan

Thanks, again, for your interest in WPX. We look forward to seeing everybody in the coming months here at intercom conference and at Barclays. And thanks, again, for your interest.

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect, and have a great day.

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Source: WPX Energy's (WPX) CEO Richard Muncrief on Q2 2014 Results - Earnings Call Transcript

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