WPX Energy Exec Insights: NGL, Acreage

On Thursday, WPX Energy Inc (NYSE:WPX) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared with analyst and investors.

NGL Realizations

Matt Portillo – Tudor Pickering Holt: Just a couple of quick questions for me. Just trying to understand a little bit better your NGL realizations in the quarter and specifically if you could help us on the revenue deduct line which is running about $10 per barrel, if you have any color on that?

Rodney J. Sailor – SVP and CFO: Again, as we have talked about we did renegotiate those contracts in 2011. On the processing side, we run about I think it’s about $0.36, but then we also share proceeds of I think about 70% to 30%. So, we are just kind of percent of proceeds for the remainder. So, we put our plan and our guidance together, we are expecting to see a composite barrel of about $51 less about, I think, $6 deducts, $7 deducts to about $43. What we are seeing is a $43 composite barrel and a realized price of about ($33.15).

Matt Portillo – Tudor Pickering Holt: I guess, follow on to that question. Could you talk about, I guess, the impact on your Piceance economics and does this change your view, I guess, heading into the back half of the year into 2013, if realizations continue to remain at these levels?

Ralph A. Hill – CEO: This is Ralph. Our actual — with the low gas prices — well short answer is no, it doesn’t changes. We still are getting a nice uplift in the Piceance. We feel very comfortable with the five rigs we have operating there and one of those is in the Ryan Gulch area, which is getting even more of an uplift and it’s more like 58 barrels per million. So, we feel comfortable with where we are with those five rigs.

Rodney J. Sailor – SVP and CFO: Yes, I would say while we’re all realizing less on our NGLs, the uplift is – we still get a nice uplift because again the fuel and shrink pieces on the gas is so low. So, we continue to meet our hurdle requirements in the Piceance even with the lower NGL realizations.

Matt Portillo – Tudor Pickering Holt: Final question for me on the international side. In Columbia, would you be able to provide I guess have you logged that well and would you be able to provide I guess the net pay that you saw in the Mirador and then within that context thinking about Apco as you mentioned really WPX is not committing any capital to Apco, is this an asset that you could potentially spin-out over time to shareholders?

Ralph A. Hill – CEO: I’ll let Bryan answer the first part.

Bryan K. Guderian – SVP of Operations: This is Bryan. We have logged the well it is currently testing. In initial stages of flow back, we’re not prepared to release any further information at this time, but it should be forthcoming shortly.

Rodney J. Sailor – SVP and CFO: Then I would just add on the second part of your questions. We received Apco in a tax re-spend down from Williams and we do have some restrictions around tax re-dispositions. So at this point in time we’re really not talking about what any strategic options around Apco.

Ralph A. Hill – CEO: We will continue to understand our position in the Bakken more say get some good some data points this year and early next year as we mentioned. Then, we will take appropriate actions when we can to make sure we maximize the value of Apco for our shareholders.

Adding Acreage

Duane Grubert – Susquehanna Financial Group: Can you talk to us, is there any effort to add acreage outside of your three main areas in pursuing other forward-looking oil or liquids focused project?

Ralph A. Hill – CEO: We are very active looking in many areas, we always have been. Again, to do something, it’s going to have to be very compelling. One of the areas I’ve mentioned many times on the road and conferences that makes a lot of sense for us in addition to the current basin of the Bakken, if we could add there, is the wet window in the Utica Shale. We think that would be a natural fit for our Marcellus team. We wouldn’t have to add a new asset team. We could take our rigs and our dedicated completion crews interchangeably to the Utica from the Marcellus in fact. The drilling and where they join in the Utica Shale right now is actually closer to our Canonsburg office than our Susquehanna drilling. So, that’s a natural fit for us. So, we continue to look at that area. We understand it geologically. We think there are a number of players there that might have more than they can, say, grace over, that we might have an opportunity to maybe do some drill-to-earns with, and also some other producers that have not really – not built to do large-scale efficiency type drilling like we do, so we might be able to get some opportunities that way. So, that’s an area that continues to have attraction to us. Again, it would have to be compelling to do anything there. We also are, I would say, the better major oil plays that you see in the nation. Our technical team continues to scour, and our A&D and Land look at those, and we have a good understanding of that and if there was something compelling come along, we could also look at another basin.

Duane Grubert – Susquehanna Financial Group: Then, as you look to the end of the year, your focus shifting towards oil, so we’ll anticipate some oil reserve adds. How do you guys think about proved undeveloped gas reserves in the potential revisions downward because of lower prices? Is that something you’re already looking at?

Ralph A. Hill – CEO: Well, most of our portfolio has been very strong to low gas prices for many years. The one thing that we’ll have to look the most at is the five year wells and the large unconventional areas because it’s really based on what your drilling program will be going forward. So, those reserves don’t really go away, but as you know under the five year rule you can take them off for a year, then you add them back for a year. So, I would say that’s one area that we will have a strong focus on and I’m not saying anything is going to happen there, but that’s traditionally what we’ll have to look at. Neal, would you like to add anything to the reserve side?

Neal A. Buck – SVP of Business Development & Land: No, I agree, Ralph. We have to demonstrate our plan to how much of these reserves to drill in the next five years will determine what’s proved. But we also – we always published our probable and possible reserves. They can have some movement back and forth between the two and on the price case SEC encourages you to do alternate price scenarios as well. So, typically, we’ll do a case that’s representative of what current prices are or forward prices as well. So, as Ralph said, I think, (indiscernible) just the technicalities of how you calculate under SEC rules, but we’re not seeing anything that’s a revision due to such things as a poorer performance than expected or higher capital cost than expected.

Duane Grubert – Susquehanna Financial Group: Then kind of a follow-up, I know you gave some detail already on the renegotiated processing, but in passing it was mentioned that you’re getting Mont Belvieu type prices at Conway. What specific production does get Conway prices or is it that the whole thing has been improved through your good renegotiation?

Ralph A. Hill – CEO: It is all Belvieu, but I will give this to Mike Fiser.

Michael R. Fiser – SVP of Marketing: I think an important point on this is regarding our NGL position and we would like to reemphasize this is that all of our product reaches Mont Belvieu. We are not exposed to large price differentials currently being experienced at Conway, so effectively all of our products either through Overland Pass Pipeline or Mid American pipeline reaches Mont Belvieu.