WPX Energy accelerates 5-year vision with $2.5 Billion purchase of Felix Energy
Felix
has approximately 1,500 gross undeveloped locations in the eastern portion of
the basin, with expected production of approximately 60 MBoe/d (70% oil) at the
time of anticipated closing.
WPX plans to implement a dividend post-closing, targeting approximately $0.10 per share on an annualized basis at initiation.
acquisition and dividend program follow other steps WPX took in 2019 to enhance
its value proposition, including reducing net debt, executing attractive
midstream monetizations, launching a share buyback program and generating free
cash flow.
The
purchase price consists of $900 million cash, subject to closing adjustments,
and $1.6 billion in WPX stock issued to the seller. WPX plans to fund the cash
portion through issuance of $900 million of senior notes on an opportunistic
basis. WPX also has obtained committed financing from Barclays in connection
with the transaction and has full access to a $1.5 billion revolving credit
facility.
The
stock consideration comprises approximately 153 million WPX shares, which is
based on the 10-day volume-weighted average price as of Dec. 13, 2019. The
transaction is subject to customary closing conditions and approval by WPX
shareholders.
The
parties anticipate closing the transaction early in the second quarter of 2020.
WPX’s board unanimously approved the transaction.
STRATEGIC
RATIONALE & TRANSACTION BENEFITS
The
acquisition is consistent with all of the tenets in WPX’s five-year vision for
shareholders that the company introduced in November during its third-quarter
report.
“Meeting
the five-year targets we communicated is the absolute standard and benchmark
for any investment we make,” said WPX Chairman and Chief Executive Officer Rick
Muncrief.
“Now
we can accomplish these objectives for shareholders more quickly and
efficiently with the irrefutable benefits of the Felix transaction.
“Delivering
on our plan ahead of schedule in a highly de-risked, leverage-neutral manner is
consistent with our opportunistic approach,” Muncrief added.
On
a pro forma basis, WPX expects to generate significant free cash flow in 2020
at $50 oil. Following the acquisition, cash flow per share, earnings per share,
free cash flow per share, return on capital employed, and cash margins are all
expected to increase.
WPX
also expects to continue its opportunistic share buybacks, to implement the
previously mentioned dividend program, and to reduce its leverage to 1.0x by
year-end 2021.
WPX
based all of its transaction economics on $50 oil, with no assumptions for
improvements in development costs or operating efficiencies. However, WPX
believes significant upside exists by capturing synergies associated with
scale.
ASSET
HIGHLIGHTS
WPX
stands to gain approximately 1,500 gross drillable locations (at predominately
2-mile lateral lengths) that compete with the returns from its existing
position in the core Stateline area of the Delaware Basin.
Felix
has 58,500 net acres in an over-pressured, oily portion of the basin with six
productive benches. Approximately 25 additional wells are required to hold
nearly all Wolfcamp and Third Bone Springs rights, with approximately half of
those wells expected to be drilled in 2020.
Felix’s
recent multi-well pads with at least 12 months of cumulative gross production
are averaging approximately 240,000 barrels of oil per well, with pad averages
ranging from 213,000 to 260,000 barrels of oil per well. Felix’s average
lateral length is 9,200 feet per well. Details are provided in an investor
presentation at www.wpxenergy.com.
ENCAP
A TRUSTED LONG-TERM PARTNER
Pending
the transaction’s close, WPX expects to add two members to its board from EnCap
Investments L.P. – the private equity company that founded Felix Energy. EnCap
has a history of creating value in the energy sector.
Doug
Swanson, Managing Partner of EnCap, stated, “This is an exciting day for both
Felix Energy and EnCap. Over the past four years, the Felix team has worked
tirelessly to build what we consider to be a world-class Delaware Basin asset.
Given the current market environment, we are strong believers in consolidation
and feel that the Felix asset base is a clear strategic fit for WPX.”
Marty Phillips, Managing Partner and Founder of EnCap, added, “EnCap is pleased to be partnering with WPX, which we believe is one of the premier public companies led by a seasoned and proven management team. We trust in WPX’s vision, operational expertise and strong leadership, and we look forward to a long and successful partnership.”