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WPX Contemplating Piceance MLP

WPX Energy Inc., which of late has been drilling some of the most prolific natural gas wells in Colorado, said it plans to spin off some of its mature, producing properties in the Piceance Basin through a master limited partnership (MLP).

The proposed entity, WPX Energy Partners LP, expects to file a registration statement with the U.S. Securities and Exchange Commission in early 2014 for an initial public offering. Proceeds would be used to fund ongoing operations and repay debt.

WPX, the exploration and production offshoot of Williams, is one of the largest gas producers in Colorado, where it employs more than 400. The operator has about 4,100 active natural gas wells in Colorado, and in 2012 it completed more than 200.

The primary focus in Colorado is the Piceance, where WPX has an estimated 216,000 net acres in Garfield and Rio Blanco counties.

Recent discoveries by WPX in newly drilled areas of the Niobrara formation of the Piceance indicate a potential gas gusher, and rolling the mature assets into an MLP could allow more capital to be directed to it.

A discovery well in the Niobrara, whose results were announced in April, produced at an initial rate of 16 MMcf/d at 7,300 psi, with an average production of almost 10 MMcf/d in its first 90 days (see Shale Daily, April 9). A second gas well announced in October posted initial production of 11.8 MMcf/d at 5,700 psi (see Shale Daily, Oct. 28).

During a conference call earlier this month to discuss 3Q2013 performance, CEO Ralph Hill said WPX was considering the "viability of alternative financial structures, including the possibility of an MLP, joint ventures and joint ventures for some of our assets." Hill offered few details at the time, but he said WPX's assets were "uniquely situated for a potential MLP, particularly in the Piceance, the mature assets we have in the Piceance, and to a lesser extent, the San Juan Basin."

Across the Piceance Basin, "we have another, ultimately, 10,000 wells to drill, and that's without the Niobrara opportunity. So we know what we're doing there. We have a lot of wells that are on the very mature decline stage of their life, so we feel we have a unique set of assets that we would be able to put into an MLP.

"If we did that, we think it will fund our growth opportunities going forward and accelerate some capital into areas like the Niobrara, which we think can be very value enhancing for us. So that's where we are. We continue to look at it, and we think we have a -- we are uniquely situated for that."

Funding from a potential MLP, Hill said, would enable WPX to drop down assets "for a number of years versus having to use this as an acquisition vehicle," allowing more capital to be directed to new drilling areas of the Niobrara and Gallup sandstone areas.

Tudor, Pickering, Holt Inc. on Friday estimated that the MLP as designed would hold about 700 MMcfe/d, 15% weighted to liquids. Assuming a seven times multiple would imply a "$700 million value marker from which WPX likely pulls $300-400 million cash in the door."

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