WPX Energy Inc., with a plethora of opportunities across the U.S. onshore, is evaluating a midstream infrastructure buildout in one of its key areas, the Permian Basin, to expand crude oil gathering and natural gas processing as opportunities grow, the management team said Thursday.

The Tulsa-based independent has a three-pronged onshore campaign in the Permian, Williston and San Juan basins, but it was clearly the Permian, and specifically the Delaware sub-basin, that CEO Rick Muncrief and his executive team talked the most about during a quarterly conference call Thursday.

After navigating through another year of volatility, the plan now is to build takeaway options in West Texas and bolt on leasehold when the time is right, he said.

“We’re a company that I believe is going to continue to accomplish some pretty remarkable things,” he said. “I’ve been in this business all my life, and without a doubt, I can tell you that our industry is entering another age of discovery and a new era of opportunity.

“Are we going to have challenges? Sure. Will we work through them? Absolutely. And I can assure you, WPX is going to be right in the middle of it. Today I’m more excited about what lies ahead than I’ve ever been. The technology, the talent, the possibilities and what we’re learning are greater than ever.”

Plans this year are to run 10 rigs across the onshore and spend $870-940 million for capital projects. More than half of the budget is to target the Delaware sub-basin, with an additional $35-45 million to build out a crude oil gathering system, which began initial operations in late December..
The former natural gas heavyweight, a spinoff of Williams, for the first time has oil accounting for about half of the total output. Production in 2017 is expected to be around 103,000-113,000 boe/d, including 52,000-56,000 b/d of oil. Projected 2017 oil volumes would represent 30% growth versus 2016.

COO Clay Gaspar called 2016 a “momentous accomplishment” to transform the company across the board. In January, WPX struck a $775 millionagreement to bolt on West Texas land that added 18,500 net acres to its Permian portfolio, which now has 120,000-plus net acres. Strategic buys have been ongoing since its transformative purchase in mid-2015 of RKI Exploration & Production LLC’sPermian operations.

One basin’s well results can be used to fine-tune operations in another basin, Gaspar said.

One ingredient in the secret sauce is determining how far apart wells can be while still ensuring optimal production.

In the Permian’s Delaware sub-basin, for instance, “we drilled an important spacing test that will come online at the end of this quarter,” Gaspar said. “This test will give us a much better understanding of proper vertical and horizontal spacing for the upper and lower Wolfcamp Eddy.”

The spacing test “will disrupt the cadence that we are able to bring wells on during this period. As we’ve seen in every resource play, the transition to more significant pad drilling causes production growth to come in lumps rather than steady, single-well increments…The benefits of having this data and the value of pad drilling is incredibly important to our development plans as we ramp activity.”

WPX dedicated three rigs in the Delaware to the nine-well spacing test in the upper and lower Wolfcamp A, designed to validate 80-acre spacing in both formations, which could result in 16 wells/drilling spacing unit. Initial flowback on these wells is expected to start in late March, with anticipated first sales in April.

In the Williston, WPX completed 19 DUCs last year, with nearly all (14) in the final three months. Nine three-mile laterals on the Peterson, North Segment and Olive Mae pads had a combined average peak rate of 1,900 boe/d, while 10 two-mile laterals on the Wells, Helena Ruth Grant and Owl Comes Out pads had a combined average peak rate of nearly 2,600 boe/d.

And in the San Juan, a six-well pad in the West Lybrook unit now has cumulative 180-day production of more than 1 million boe, which represents an average of 1,000 boe/d per well.

Another priority for WP this year is to continue to control oilfield service costs.

“Two years ago we set out to create a first-class supply chain organization,” Gaspar said. “The objectives were to control costs, leverage internal service company experience, improve performance and, importantly, work alongside our operations team supporting them.

“The team brought us to the early adoption of reaching back further in the supply chain to directly contract with sand mines, chemical manufacturers and several other direct source vendors. Although this is not the easy approach, it has allowed us to become an industry leader in well costs during the downcycle and it will be equally important as we enter this inflationary market.”

Nearly 70% of WPX’s drilling and completion costs for 2017 already are under contract, he said.

“We have focused on the larger ticket items that also have the greatest exposure to inflation by stimulation services, sand and rigs. The remaining 30% are primarily products and services that have significant market capacity and should shield us from runaway inflation.”

Gaspar applauded the steps to date regarding controlling costs, but added, “these are only mitigation steps to help us avoid a massive disruption in service cost structure. We are certainly not bulletproof and we will be exposed to market forces. We will continue to work with our service company partners who can provide the best value to the project and, thus, to our shareholders.”

Nothing came easy for the Tulsa-based producer last year, which “started out just about as rocky as they come,” CFO J. Kevin Vann said. “As a matter of fact, last year much of the emphasis for WPX was around liquidity and managing through the downturn…We didn’t hunker down, just hope for the best, or wait for better commodity prices. And managing a business hope is not a viable strategy or tactic.”

To cope, WPX reduced capital spending, slashed costs and “continued to hydrate our portfolio,” Vann said.

“For 2017 and beyond, the stage is well set. We have a strong hedge book in place for 2017 and 2018 and ample liquidity to drive the value creation efforts…As Rick mentioned, we will take the stability we are seeing now over last year’s volatility any day, but at the same time, we have the flexibility and discipline to keep the ship headed in the right direction regardless if the waters are calm or rough.”

WPX reported an 4Q2016 net loss of $175 million (minus 51 cents/share), primarily because of one-time losses from the hedge book. In 4Q2015, WPX recorded a net loss of $1.539 billion, also on one-time charges. For full-year 2016, net losses narrowed year/year to $641 million (minus $2.05/share) from $1.736 billion, with revenue of $693 million.

During 4Q2016, WPX produced 44,700 boe/d, 16% higher year/year, driven by an increase in the Delaware sub-basin and finishing up drilled but uncompleted wells in the Williston.