WPX Energy, newly spun off from Williams, is having to rethink its first full year as an exploration and production (E&P) company because of sustained low natural gas prices, the company said late Monday.
The pure-play explorer debuted as a standalone E&P at the beginning of the year and holds E&P assets in the Piceance Basin, Bakken, Barnett and Marcellus shales, as well as the Powder River and San Juan basins (see Shale Daily, Nov. 3, 2011). Before its debut, the company had set a budget for 2012 of $1.2-1.8 billion. The revised spending plan now is for "up to $1.2 billion," said the E&P.
"For 2012, we've lowered our spending in keeping with our philosophy for capital discipline," said CEO Ralph Hill. "We're primarily focusing on our Bakken oil and Piceance natural gas liquids [NGL] properties where we have the best opportunities to generate the highest revenues and returns."
Nearly all (95%) of the company's U.S. spending is to focus on core areas of the Bakken, Marcellus and the Piceance, with about 65% of the spending designated for areas with oil and NGL production.
The cutback in spending also will affect WPX's rig count. The only area getting an additional drilling rig is the Bakken, where WPX plans to add a sixth piece of equipment at mid-year. For the year an average of five rigs are to run in the Piceance and up to three are planned for the Marcellus. Originally WPX had planned to run 11 rigs in the Piceance and seven in the Marcellus.
The decision to reduce the rig count equates to a "more than 40% decrease in the company's rig count in these basins," said the company.
"This drilling program allows us to remain in a position of strength with regard to our balance sheet," Hill said. "At the same time, it provides us with the flexibility to grow the oil and NGL component of our portfolio."
Capital spending for 2012 now is expected to yield a 50-60% increase in domestic oil production and a 10-12% gain in NGL production. However, domestic gas output is forecast to be flat compared with 2011, "based on $400 million in capital spending reductions for natural gas areas in 2012 versus the projected 2012 capital budget from late 2011." Under WPX's updated capital plan, overall production for all products is expected to grow at 4% in 2012 on an Mcfe basis, with volumes for oil and NGL converted to natural gas equivalence using a 6-to-1 ratio. In 2011, WPX averaged 1,408 MMcfe/d.
"We believe that our portfolio remains one of the most flexible and higher returning in the nation. It allows us to be nimble with our drilling activity depending on commodity prices," Hill added.
WPX is forecasting 2012 full-year estimated earnings of $1.2 billion, assuming the impact of existing hedges and a $3/Mcf New York Mercantile Exchange gas price and assuming a $99/bbl oil price. A $1/bbl change in the price of oil equates to a $5 million impact to earnings. WPX has 509 billion Btu/d hedged at $5.05/Mcf. On an expected net revenue basis for 2012 WPX has hedges in place for an estimated 53% of gas production, 66% of oil and 17% of NGLs.