MKM Partners Out Bullish On WPX Energy, Surveys Oil Exploration Company's Inventory

WPX Energy Inc WPX has the potential to achieve a full-cycle return of around 130 percent — significantly higher than the 115-120% industry average cash recycle ratio — since the company’s higher oil composition generates a 10-15% higher cash margin, according to MKM Partners.

The Analyst

John Gerdes initiated coverage of WPX Energy with a Buy rating and $15 price target.

The Thesis

WPX Energy’s execution in the Delaware and Williston basins has been strong and both these regions have several years of drilling inventory, Gerdes said in the initiation note. (See his track record here.) 

The company has around 126,000 net acres prospective in the Permian-age Wolfcamp/Bone Spring, the analyst said. The Stateline area is the largest, with approximately 60,000 net acres, he said.

The company’s Delaware Basin drilling program has three rigs in the Stateline area and one or two rigs in eastern Loving/northern Reeves Counties and an intermittent rig in Eddy County, Gerdes said. 

WPX Energy plans to turn-in-line 70-75 wells in 2019, the analyst said. The company has around 1,700 net Delaware Basin locations, with gives it 25-30 years of drilling inventory, he said. 

WPX has around 85,100 net acres prospective in the Fort Berthold Indian Reservation, according to MKM.

The Williston Basin drilling program includes three rigs, and the company expects to TIL 65-70 wells in 2019, Gerdes said. The company has around 300 net Bakken locations, which gives it approximately five years of drilling inventory, he said. 

Price Action

WPX Energy shares were up 1.69% at $10.84 at the time of publication Thursday. 

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Earnings Scheduled For February 20, 2019