I first profiled WPX Energy (NYSE:WPX) on July 31st and I claimed the company was "worth a look". Now, coming off a very strong second quarter and other good news I believe the company is in the best position it has ever been in and is extremely attractive at current levels.
On August 5th WPX reported second quarter results that blew past expectations. The company really highlighted a fantastic increase in oil production along with better well results and less drilling time. Domestic oil production was up 57% versus last year and revenue from oil sales rose 60% from Q1. The company also increased FY oil production guidance by 10% as it rapidly expands its operations.
Following the results, on August 18th, the company announced the pending sale of its Powder River coalbed methane holdings for $155 million and a land swap. While the company continues to be the largest natural gas producer in Colorado, I am much more interested in its rapidly expanding oil operations in the San Juan and Williston Basins.
San Juan Basin
The pending sale of the Powder River holdings also includes a land swap in which WPX will receive 26,000 new acres in the San Juan Basin. This new acreage increases WPX's holdings to a total of 74,600 acres in the oil rich Gullup play. This acquired acreage is a great move by the company and also includes land that is already producing about 800 boe/d. The basin saw production increase 76% from the first quarter and drilling time was cut significantly. The company finished the second quarter 25% ahead of the original drilling plan and then increased the program. With the same number of rigs operating in the area the company now expects 40 new wells in 2014 versus the original 29 planned. Currently the company has 2 rigs running in the area, both targeting the Gullup oil play.
(Source: WPX presentation)
The 30-day IP rates for the company in the basin are also looking extremely promising. For the second quarter the 30-day IP rates for the Gallup play averaged 626 boe/d versus 474 boe/d in 2013. With good drilling efficiencies and an even better land position, the company should be able to continue to grow production at a great rate.
WPX was once again able to see fantastic production growth in the Williston Basin. Production was up 21% from the first quarter and 53% from last year to about 18,800 boe/d. The company has 5 rigs currently running on its land in the area and completed 10 new wells in the second quarter. Another promising bit of news released is that through technical analysis WPX was able to increase well inventory by 200 locations. WPX has shown great results in the area and the company continues to deliver. In fact WPX is the #1 Williston producer in both 1 year and 2 year cumulative production.
(Source: WPX presentation)
WPX still has a lot of potential in the Williston Basin going forward as well. In total the company has 10 years worth of drillable locations and that number is still increasing. In total the company has over 80,000 acres in the Basin and has seen extremely good reserve growth over the past few years.
WPX reported outstanding growth with Q2 results. It also made excellent progress toward accelerating drilling and cutting down the cost of drilling. With the potential sale of its Powder River operations, the company will be able to focus more on its relatively new oil plays. Both the San Juan and Williston Basins hold great potential for the company and will continue to take WPX's production and the company as a whole to the next level.
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The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
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