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WPX Energy First Quarter 2020 Results

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   |    Wednesday,May 06,2020

WPX Energy reported its Q1 2020 results.

Financials

WPX reported an unaudited first-quarter loss from continuing operations attributable to common shareholders of $208 million, or a loss of $0.46 per share on a diluted basis.

Cash flow from operations, inclusive of hedge impact, was $256 million in first-quarter 2020, down just 6 percent vs. the same period a year ago despite significant decreases in average realized commodity prices.

The first-quarter loss was primarily driven by $1 billion of impairments to the book value of the company's assets in the Williston Basin which more than offset gains associated with the company's hedging positions.

Excluding the derivative gains, impairments and other items, WPX posted adjusted net income from continuing operations (a non-GAAP financial measure) in first-quarter 2020 of $30 million, or income of $0.07 per share. A reconciliation accompanies this press release.

Adjusted EBITDAX (a non-GAAP financial measure) increased 19 percent vs. a year ago to $370 million in first-quarter 2020 despite the drop in commodity prices. A reconciliation accompanies this press release.

At the end of the first quarter, WPX was producing more than 150,000 barrels per day (net) of oil following its acquisition of Felix Energy.

WPX has since curtailed production driven by the collapse in oil prices. WPX plans to shut-in approximately 30,000 bbl/d on a net basis in May, which represents about 45,000 bbl/d less in the market on a gross basis. Similar curtailments also are possible in June.

Liquidity

WPX's total liquidity at the close of business on March 31, 2020, was approximately $1.4 billion including cash, cash equivalents and its available revolver capacity.

Subsequent to the close of the first quarter, WPX's borrowing base under its credit facility that matures in April 2023 was reaffirmed. WPX's borrowing base remains at $2.1 billion, with $1.5 billion in commitments. At the end of the first quarter, WPX had $114 million drawn against its revolver.

For the remainder of 2020, WPX has 91,787 bbl/d of oil hedged with fixed price swaps at a weighted average price of $57.88 per barrel and 20,000 bbl/day with fixed price collars at a weighted average floor price of $53.33.

After deterioration in oil pricing, WPX now expects to generate approximately $150 million in free cash flow in 2020. This estimate does not include savings for potential service price deflation.

For 2021, WPX has 190,000 MMBtu/d of natural gas hedged with fixed price swaps at a weighted average price of $2.60 per MMBtu and 9,959 bbl/d of oil hedged with a weighted average price of $39.81 per barrel.

In March, WPX repurchased 10.4 million shares for $43.5 million in the week after closing its acquisition of Felix Energy. Since third-quarter 2019, WPX has now retired a total of 16.1 million shares for $100.6 million. The average price was $6.30 per share.

2020 Capital Cuts

As previously announced in March, WPX cut its original 2020 capital plan by $400 million. The company has since developed scenarios to cut another $150 million to $450 million. These cuts reduce WPX's capital spending by roughly 40 percent vs. its original plan.

WPX is suspending its detailed guidance for production and other metrics given the volatility in the market and the fluid nature of how the company is responding. Any prior guidance for 2020 should not be relied upon.

WPX had 15 rigs running after integrating the Felix acquisition and plans to exit the year with six rigs, comprised of five in the Delaware Basin and one in the Williston Basin.

WPX also has dropped all four of its completion crews. Second-quarter first sales will be limited to a few wells that were completed prior to the release of the frac crews.

WPX plans to build an inventory of one to two quarters of drilled-but-uncompleted wells.

WPX also plans to achieve $100 million in cost savings during the year through reductions to operating expenses such as LOE and GP&T, as well as lower G&A expenses.

Felix Energy Acquisition

During the first quarter, WPX completed its acquisition of Felix Energy ahead of schedule. The purchase was overwhelmingly approved by WPX shareholders at a special meeting held on March 5, 2020, where more than 99.6 percent of votes cast were in favor of the transaction.

At closing, WPX received approximately 58,000 acres of top-tier oily acreage in an over-pressured area of the Delaware Basin. As expected, Felix was producing 60 MBoe/d (70 percent oil) at the close of the transaction.

Rick Muncrief, WPX chairman and chief executive officer, said: "In these unprecedented times, we're acutely focused on keeping our employees healthy, protecting our cash flow and preserving our assets for future value creation.

"Our financial position is solid as evidenced by banks and lenders who recently reaffirmed our credit facility, along with the ratings agencies who reaffirmed our credit ratings in the last few weeks.

"Our experienced team also has taken numerous measures to reduce capital, expenses and the flow of our volumes in this dislocated market.

"We will continue to maintain the strength of our balance sheet and remain disciplined in our approach to the present challenges. Nothing is easy right now, but rebalancing supply with demand will take place over the remainder of the year.

"We remain confident in our long-term plan and I want to thank everyone across WPX for how they've adapted to today's realities, kept the business running, integrated the attractive Felix assets and found numerous ways to help others in need," Muncrief added.

Ops Update

WPX's Delaware production averaged 117.5 Mboe/d in first-quarter 2020, up 28 percent vs. 92.1 Mboe/d in the same period a year ago.

WPX's average realized oil price in the Delaware was WTI plus $0.94 for the first quarter, including Midland basis swaps.

WPX's average realized natural gas price in the Delaware was NYMEX less $0.46 for the quarter, including basis swaps which increased the average realized price by $0.25 per Mcf.

WPX completed 25 Delaware wells during the first quarter from its legacy holdings. There were no completions associated with the Felix assets post-closing in the first quarter.

The highest 24-hour rate for the first-quarter Delaware completions was 3,909 Boe/d (53 percent oil) on the CBR 33-28H-56-1-414H well in the Wolfcamp A formation, followed by 3,759 Boe/d (55 percent oil) on the Lindsay 3-10J-55-1-403H well in the Wolfcamp XY formation.

Williston Basin production averaged 79.5 Mboe/d in first-quarter 2020, which was 26 percent higher than 63.1 Mboe/d in the same period a year ago.

WPX completed 17 Williston wells during the first quarter, including 11 wells in the Three Forks formation and six wells in the Bakken formation.

The highest 24-hour rate for the first-quarter Williston completions was 3,918 Boe/d (86 percent oil) on the Blue Racer 14-11HG well, followed by 3,477 Boe/d (82 percent oil) on the Mandaree Warrior 14-11HA well.

Q1 Financial Results

Total product revenues of $502 million in first-quarter 2020 were $5 million lower than the same period a year ago, reflecting weakness in oil, natural gas and natural gas liquids prices despite the increase in production. Quarterly oil sales grew 4 percent.

Substantial net gains of $869 million on derivatives associated with the company's hedge book were offset by $1 billion of impairments to the book value of WPX's assets in the Williston Basin, driving the net loss from continuing operations attributable to common shareholders of $208 million.

WPX's overall net loss in the first quarter was $388 million, including results for both continuing operations and a $184 million charge in discontinued operations.

The accrual in discontinued operations is associated with a performance guarantee included in gathering contracts assumed by the purchaser of a former WPX asset in the San Juan Basin. Of the amount, $22 million will be paid in the second quarter. The remaining amount is an estimated potential amount over the term of the contract. Further WPX payments, if any, are dependent on the future nonperformance by the purchaser which will be driven by market conditions.

Most of WPX's primary expense categories all declined in first-quarter 2020 on a per-Boe basis vs. a year ago with the exception of gathering, processing and transportation costs.

Actual total costs in most categories rose resulting from higher production volumes from existing assets and the addition of new volumes from the Felix acquisition.

The weighted average gross sales price during first-quarter 2020 - prior to revenue deductions - was $42.13 per barrel for oil (down 20 percent vs. a year ago), $1.61 for natural gas (down 38 percent vs. a year ago) and $8.72 per barrel for NGL (down 48 percent vs. a year ago).

Q1 Production

Total production volumes of 196.9 Mboe/d in first-quarter 2020 were 26 percent higher than the same period a year ago. Liquids volumes accounted for 79 percent of first-quarter 2020 production.

Oil volumes of 122,200 bbl/d were 27 percent higher vs. the same period a year ago, led by a 35 percent increase in the Delaware Basin following the partial quarter benefit of the company's acquisition of Felix Energy.

Total capital spending in the quarter was $313 million, predominantly from $288 million in D&C activity for operated wells and $13 million for midstream infrastructure.