Independent oil & gas operator WPX Energy Inc. (WPX) entered into an agreement with TRDC LLC, a subsidiary of Houston-based G2X Energy, to jointly develop the latter’s Trail Ridge properties in Piceance Basin Highlands.
WPX Energy Inc. will receive nearly $40 million for giving 49% of its working interest in approximately 100 proved developed producing (PDP) Trail Ridge wells. The working interest sold to TRDC LLC represents 27 billion cubic feet of proved developed reserves and 46 billion cubic feet of proved undeveloped reserves.
The parties plan to jointly develop eight wells in 2014, 25 wells in 2015, 50 wells in 2016 and 100 wells per year in 2017 and beyond. WPX Energy has nearly 1,300 remaining Trail Ridge drilling locations.
Per the agreement, TRDC also committed a $170 million drilling carry on nearly 400 future wells and will make additional investments for its 49% working interest in Trail Ridge properties. Per the deal, WPX Energy will pay 28% of the Trail Ridge development and receive 51% of the production and reserves until TRDC has completed its $170 million funding commitment.
WPX Energy has lately decided to invest more in oil assets to expand its margins. The returns from the Trail Ridge properties are expected to match those of the oil plays during the carry period. (Read: WPX Energy Aims to Expand Margins, Focus on Oil Assets)
WPX Energy’s Piceance Basin holding is a prime asset contributing a sizable portion of the company’s natural gas and natural gas liquids production. Apart from roping in new partners to develop its existing assets, the company has also opted for an outright sale of some of its properties, as the development of this reserve-rich region is capital intensive. In Jun 2014, the company sold working interest in some of its historical Piceance Basin wells to Legacy Reserves LP for $355 million subject to customary post-closing adjustments.
We believe the strategic rebalancing of WPX’s holdings in the Piceance Basin will give the company the financial flexibility to successfully develop this prospect.
WPX Energy currently holds a Zacks Rank #3 (Hold). Investors interested in the oil and gas E&P industry may consider stocks like Cheniere Energy, Inc. (LNG), GeoPark Limited (GPRK) and Sanchez Energy Corporation (SN). All these stocks carry a Zacks Rank #1 (Strong Buy).
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