WPX ENERGY (NYSE:DNR)

June 2015: Market Overreaction Despite Underlying Bottom Line Drivers

Provides Opportunity for Turnaround Story with High Margin of Safety

RESEARCH ANALYST
Jonathan Chang j.chang@queensu.ca
Queens School of Business, 2017
613-809-0329

WPX ENERGY INDUSTRY OVERVIEW

Industry Overview
EXPLORATION & PRODUCTION OVERVIEW

Industry operators explore for, develop and operate oil and gas
fields. Categorized as upstream operations. Includes the
production of crude petroleum, the mining and extraction of oil
from oil shale and oil sands, the production of natural gas, sulfur
recovery from natural gas and the recovery of hydrocarbon
liquids.

Transport, refining and marketing activities (midstream and

downstream) are excluded from this industry.

Expected to generate revenue of $4.3 trillion in 2015, up from $3.4

trillion in 2010, yielding an annualized growth rate of 5.0% over
the five years to 2015.

World Price of
Crude Oil

Industrial
production
index of OECD
Countries

KEY ECONOMIC
DRIVERS

GDP OF BRIC
Nation

World Price of
Natural Gas

Output is dominated by the Middle East, Europe and North

America.

RELATIVE PERFORMANCE - E&P VS. OVERALL MARKET WITHIN S&P 500

125%

S&P 500 O&G E&P Index

100%

S&P 500

75%
50%
25%
0%
-25%
2010

2011

2012

2013

2014

In light of recent price weakness, price levels are anticipated to slowly recover as supply diminishes.
Sources: IBIS World, Capital IQ

WPX ENERGY INDUSTRY OVERVIEW

Industry Overview
NATURAL GAS PRICING (HENRY HUB)

CRUDE OIL PRICING (LIGHT)

75
Historical Prices

70

Projections

4.5

Historical Pricing

Projections

65

3.5

60
55

50
2.5

45
40
12/1/2014

3/31/2015

7/29/2015

11/26/2015

OIL MARKET SURPLUS LIKELY TO PERSIST FOR REST OF 2015

Considerable speculation recently that the oil market surplus is

diminishing, with balance likely to return later this year.

Demand still outstrips supply although to a lesser extent

than many historical levels.

However, the oil market surplus has hardly been reduced at

all so far.

There has been some stimulus to world oil demand and a slight
downturn in US tight oil output

Developments have been more than offset by the recent

rise in total OPEC oil output to around 31 mmbl/d.

Sources: Yardeni, Facts Global Energy, Capital IQ

2
12/1/2014

3/31/2015

7/29/2015

WORLD CRUDE OIL DEMAND/SUPPLY RATIO

11/26/2015

WPX ENERGY INDUSTRY OVERVIEW

Industry Overview
WORLD CRUDE OIL DEMAND & SUPPLY (MMBL/D, 12-MON AVG)

OIL MARKET SURPLUS LIKELY TO PERSIST FOR REST OF 2015

Since March, the build in total crude/products stocks in the USA has
accelerated.

Growing indications of unsold Nigerian and Singaporean stock.

World oil demand growth this year is projected at 1.1-1.2 mmbl/d, while nonOPEC output growth is seen slightly lower at about 0.9 mmbl/d, the rise in
OPEC output since December of about 0.5 mmbl/d has largely offset these
changes.

At the current OPEC output, global stockbuild likely continuing through

second half 2015. If prices rise much further, backlog of uncompleted wells in
US tight oil tracts could be brought into play reversing the recent slight fall
in US tight oil output.

OPEC output could move even higher later, if Iranian sanctions are lifted.

Sources: Lloyds List Intelligence, Yardeni, Facts Global Energy

IRANS CRUDE OIL EXPORTS 2011 TO 2012 (AFTER SANCTIONS)

WPX ENERGY - COMPANY OVERVIEW

WPX Energy Overview

OVERVIEW

WPX Energy specializes in producing natural gas, oil and natural

gas liquids from non-conventional resources such as tight-sands
and shale formations. In some of the best resource plays in the US:
North Dakotas Williston Basin, New Mexicos San Juan Basin and
Colorados Piceance Basin.
Total 1P reserves at 2014 end, were 727 mboe. Oil reserves
increased 27% YoY to 131 mbbl. 2014 1P reserves: 72% natural gas,
18% crude oil and 10% natural gas liquids, compared with 76%
natural gas, 13% crude oil and 11% NGL at year-end 2014.
WPX is based in Tulsa, Okla. WPX CEO Rick Muncrief joined the
company last year. He is a petroleum engineer who has worked in
the Rockies for most of his career, including 27 years with
ConocoPhillips, Burlington Resources and their predecessors.

North Dakota
Williston Basin
Proved Developed
Proved Undeveloped
Total

Colorado
Piceance Basin
Proved Developed
Proved Undeveloped
Total

Bcfe
444
272
716

Bcfe
1,571
963
2,534

EBITDA PROFILE W/ CONSENSUS ESTIMATES

3,000
2,500
2,000

50.0%

50.0%
31.8%

36.5%

35.2%

1,500
1,000

70.0%

62.0%

20.3%
1,225

500

1,529

29.2%

1,512

994

900

677

687

2017E

2018E

518

0
2011A

2012A

2013A

34.3%

New Mexico
San
Juan
Basin
30.0%
Proved Developed
10.0%
Proved Undeveloped
Total
(10.0%)

Bcfe
370
227
597

(30.0%)
2014A
EBITDA

2015E

2016E

Margin %

Former exploration and production division of Williams Companies (WMB) spun off at start of 2012.
Sources: WPX Investor Relations, Imperial Capital, Capital IQ, Presentation Magazine

WPX ENERGY - COMPANY OVERVIEW

Quantitative Overview
PRICE VOLUME PERFORMANCE

30.0

CAPITALIZATION TABLE

15.0

26-Aug-14
TRDC to Joint Venture
with WPX Energy to
Develop Colorado Trail
Ridge Properties

27.5

12.5

25.0
22.5

10.0

2-Dec-15
Divestiture of 46.7k net
acres in Pennsylvania
to SWN Production

17.5
15.0

7.5

5.0

12.5
2.5
10.0

6-Apr-15
Agreement with Prometheus to supply
servicing and equipment to WPX

7.5

0.0
Jun

Aug

Oct
2014

Dec

Feb

Apr
2015

Volume (Millions)

20.0

Share Price as of Jun-12

12.92

Shares Outstanding

204.7

Market Capitalization
- Cash & Short Term Investments

2,645.3
82

+ Total Debt

2,000

+ Pref. Equity

+ Total Minority Interest

= Total Enterprise Value

4,563.3

FINANCIAL OVERVIEW

Total Revenue

2,437

Net Income

213

EV / Total Revenue

1.9 x

EV / EBITDA

3.0 x

Price / Earnings

18.2 x

Price / Tangible BV

0.6 x

Total Debt / EBITDA

1.3 x

Trading at 0.6 x to its tangible value, WPX provides interesting value opportunity for healthy net income and revenue levels.
Sources: WPX Investor Relations, Capital IQ

WPX ENERGY INVESTMENT THESIS

Investment Thesis Outline

MARKET MISJUDGEMENT

Stock performance tied closely to oil prices despite recouping

cost structure.

Investors have to focus on financial results rather than

commodity as a revenue driver.

EXPLORATION AND PRODUCTION ACCOUNTING MEASURES

Appears less financially attractive in comparison to half of peers

and many other E&P competitors.

Investors have to focus on financial results rather than

commodity as a revenue driver.

ASSET QUALITY

San Juan ranked 4th best oil basin in the United States in 2013

Bakken as WPXs crown jewel with most productive wells

and large long-term potential.

MARGIN OF SAFETY AND BOTTOM LINE

Liquidation value hinted through price / tangible book value

provides investors with margin of safety.

Less leverage and recovering net income margins

demonstrate attractive trends.

HOLT VALUATION

Expectations for economic returns to turn around in the nearfuture as implied by fade.

Sources: Various

41% upside based on last years performance using

estimator tool.

WPX ENERGY INVESTMENT THESIS

Market Mispricing: 1YR - Stock Performance Tied Too Closely to Oil Prices
JUNE 2012 JUNE 2014 STOCK PRICE PERFORMANCE (BEFORE RECENT OIL PRICE DECLINE)

80%

WPX Share Price

Crude Oil Price

60%

Correlation:

40%

0.6284

20%
0%
-20%
Jun 2012

Oct 2012

Feb 2013

Jun 2013

Oct 2013

Feb 2014

JUNE 2014 JUNE 2015 STOCK PRICE PERFORMANCE (FOLLOWING RECENT OIL PRICE DECLINE)

40%

WPX Share Price

20%

Crude Oil Price

Correlation:

0%

0.9402

-20%
-40%
-60%

-80%
Jun 2014

Aug 2014

Oct 2014

Dec 2014

Feb 2015

Apr 2015

In light of recent oil price decline, investors have allowed crude oil price movement to dictate decision about company.
Sources: WPX Investor Relations, Imperial Capital, Capital IQ, Presentation Magazine

WPX ENERGY INVESTMENT THESIS

Successful Performance During Low Oil Price Environment

DECREASING PRODUCTION LEVELS

250

222

240

220

226

210

191

200

159

150
100
50

1P Reserves (mboe)

Production (boe / d)

300

STABLE RESERVE LEVELS

1,250

1,000

2010A

2011A

Light/Medium Oil

2012A

2013A

Natural Gas

2014A

820.3

2009A

2010A

750

748.4

793.6

2012A

2013A

726.5

500
250
0

0
2009A

891.1

793.3

2015E

2011A

Light/Medium Oil

NGL

Natural Gas

2014A

NGL

Despite Decrease in Production

RECOVERING REVENUE

INCREASING MARGINS
1,000

3,500

$USD millions

3,059
3,000

2,822

3,027
2,779

2,555
2,500

20%
10%

500

0%

-10%

-500

-20%
-30%

-1,000

-40%

-1,500

-50%
2010A

2,000
2012A

2013A

2014A

2015E

2016E

2011A

2012A

Net Income

2013A

2014A

2015E

NI Margin %

Flexibility of WPX allowed it to quickly decrease production levels while focusing on still delivering sustainable results.
Sources: Equity Research, SEC Filings, Capital IQ,

WPX ENERGY INVESTMENT THESIS

Accounting Confusion: Use of SE Accounting Instead of FC

SUCCESSFUL EFFORTS (SE) ACCOUNTING

FULL COST (FC) ACCOUNTING

Expense exploration and evaluation costs for unsuccessful wells

Cannot capitalize General & Administration expense
Lower depreciation / amortization expense since dry hole costs
are expensed
Results in earnings volatility because costs that are written off in
the current period under the SE method are capitalized and
amortized against revenues of a number of future periods.
Generally smaller less integrated companies

Capitalize exploration and evaluation costs for unsuccessful

wells
Capitalize portions of General & Administration expenses
Higher depreciation / amortization expense as the dry hole
costs are capitalized
Results in smoothed earnings
Generally larger fully integrated and more mature companies

Successful efforts accounting, produces pin-point accuracy and

is of special use to internal financial analysts and astute
investors who can see beyond its sometimes somewhat more
pessimistic portrayal of a firms activities.

Full-cost, has been demonstrated to produce favorable results

for the investment community.

Successful efforts accounting highlights failures and the risks

involved in the search for oil and gas reserves by charging to
expense costs that are known not to have resulted in
identifiable future benefits.

Because it capitalizes the costs of unsuccessful property

acquisitions and unsuccessful activities as part of the costs of
successful acquisitions and activities, full costing tends to
obscure failure and risk.

HALF OF PEER GROUP USES FULL COST ACCOUNTING

E&P Natural Gas Company
Antero Resources
Cabot O&G
Cimarex Energy
Encana
QEP Resources
SM Energy
Southwestern
Ultra Petroleum

Accounting Methodology
Successful Efforts
Successful Efforts
Full Cost
Full Cost
Successful Efforts
Successful Efforts
Full Cost
Full Cost

WPX Energy uses successful efforts accounting and is often criticized for having bloated G&A costs. In fact, because of
the way it chose to reports its financials, it is being penalized for using more conservative accounting.
Sources: Transnational Research Associates, Art Madsen, FASB, SW Learning, Rational Walk, Solomon Zori Blog, Guy Fottfried

WPX ENERGY INVESTMENT THESIS

Asset Quality San Juan

SAN JUAN BASIN COMMENTS BY MANAGEMENT IN 2015 Q1 CALL

Our Williston and San Juan Gallup oil volumes jumped an impressive 60% and 376%,
respectively, versus a year ago.
As Clay mentioned, we recently signed a deal with Western, which will lower our differentials in the
San Juan, therefore increasing our ultimate net back pricing across the oil portfolio.
The San Juan team continues their impressive results with over 8,000 barrels per day of
production. This level means we were able to achieve a 376% increase over the last year.
The San Juan Gallup production is up over 500% versus first quarter of '14.
SAN JUAN AS 4TH RANKED US GAS FIELD IN TOP 100 BY EIA

Sources: EIA, Seeking Alpha Transcripts, WPX Investor Presentation

WPX ENERGY INVESTMENT THESIS

Asset Quality - Bakken

BAKKEN AS CROWN JEWEL

In 2011, Harold Hamm claimed that the recoverable share may reach 24 billion barrels; this would mean that Bakken
contains more extractable petroleum than all other known oil fields in the country, combined.
WPX has established a top tier crude oil play
in the Bakken in the Williston Basin of North
Dakota. WPX and its predecessor companies
have over three decades of experience and
expertise in exploration and production in the
U.S. Rockies Mountain region.
Imperial Capital

1-YR AND 2-YR CUMULATIVE PRODUCTION PER WELL

Average 365-day cumulative

production per well of 140.9
mbo, 64% higher than peer
average.
Average 730-day cumulative
production per well of 224.2
mbo, 62% higher than peer
average

WPX is #1 in Middle Bakken

Cumulative Production

Sources: EIA, Seeking Alpha, Richard Zeits, WPX Investor Presentation, Wikipedia, Equity Research, Imperial Capital

WPX ENERGY INVESTMENT THESIS

Margin of Safety and Bottom Line (Relative to Comparables)

WPX AND ANTERO AS ONLY TWO COMPANIES TO INCREASE NET INCOME MARGINS (%) CONSECUTIVELY FROM 2013 - 2015

Percentage Point Change

in Net Income Margin

50%

Jun 2014 - Jun 2015

Jun 2013 - Jun 2014

30%
10%
-10%
-30%
Cimarex

Encana

Cabot

Ultra
Petroleum

CHEAPEST FROM PRICE / TANGIBLE BOOK VALUE STANDPOINT

SM

Southwestern

QEP

Antero

WPX

LESS LEVERAGE IN CAPITAL STRUCTURE

100%

9.3 x

93.6%

80%

8.0 x

6.4 x
53.9%

60%
4.0 x

46.3%

40%

3.0 x
1.9 x

1.5 x

1.4 x

1.2 x

0.8 x

0.6 x

42.6% 42.3% 39.3%

35.6%

26.9%

31.3%

20%
0%

0.0 x
UPL

COG

XEC

AR

ECA

SM

SWN

QEP

WPX

UPL

SM

COG

ECA

SWN

AR

QEP

XEC

WPX has a wider margin of safety (liquidation value) and more quickly improving bottom line relative to peers.
Sources: WPX Investor Relations, Capital IQ

WPX

WPX ENERGY INVESTMENT THESIS

HOLT: Sales, Margins & Turns

Oil & Gas Exploration & Production
Market Cap: 2.632 USD

Sources: Credit Suisse HOLT

Price: 12.92 (Jun 12, 2015)

Warranted Price: 20.43 USD (+58%)

WPX ENERGY INVESTMENT THESIS

HOLT: Valuation
Oil & Gas Exploration & Production
Market Cap: 2.632 USD

HOLT Warranted Upside/Downside

Economic PE

HOLT Price to Book (Value Cost Ratio)

Sources: Credit Suisse HOLT

Price: 12.92 (Jun 12, 2015)

Warranted Price: 20.43 USD (+58%)
HOLT Warranted Price

WPX ENERGY INC

WPX ENERGY INC

Price

Oil, Gas & Consumable Fuels

Oil, Gas & Consumable Fuels

WPX ENERGY INVESTMENT THESIS

HOLT: Estimator
Oil & Gas Exploration & Production
Market Cap: 2.632 USD

Sales, Margins & Turns Inputs

2014

Price: 12.92 (Jun 12, 2015)

Warranted Price: 18.26 USD (+41%)
2015

2016

2017

Sales Growth %

10.8

10.8

10.8

10.8

EBITDA %

35.1

35.1

35.1

35.1

Asset Turns

0.23

0.23

0.23

0.23

0.6

0.6

0.6

0.6

Real Asset Growth %

-9.8

8.9

8.7

8.7

Discount Rate

5.30

5.67

CFROI %

Warranted Valuation

Amount (MM)

Per Share

7,286

35.77

-2,040

-10.01

+ Market Value Investments

1,140

5.60

Total Economic Value

6,386

31.35

- Market Value of Debt & Equivalents

2,689

13.20

94

0.46

116

0.57

3,719

18.26

+ PV Cash Flow Existing Assets

+ NPV Cash Flow Future Investments

- Market Value of Minority Interest

Partial Year Adjustment
Warranted Equity Value

27.70

Winddown Value/Share

0.47

Winddown Ratio
Shares Outstanding

204

upside

+41%
Sources: Credit Suisse HOLT

WPX ENERGY - VALUATION

Public Company Comparables

Stock Price
% of 52W
Company Name
Ticker
6/14/15
High
Texas Headquartered Natural Gas E&P
Cabot O&G
COG
33.80
94.8%
Cimarex Energy
XEC
118.21
78.4%
SM Energy
SM
46.20
51.1%
Colorado Headquartered Natural Gas E&P
Encana
ECA
12.02
55.1%
Southwestern
SWN
23.01
48.2%
QEP Resources
QEP
18.55
51.7%
Other (Oklahoma/Alberta) Headquartered Natural Gas E&P
Antero Resources AR
36.20
54.8%
Ultra Petroleum
UPL
14.25
47.2%

Company Name
Texas Mean
Colorado Median
Overall Mean
Overall Median

Ticker

WPX Energy
WPX
Discount to Overall Mean
Discount to Overall Median

Stock Price
6/14/15

% of 52W
High
74.8%
51.7%
60.2%
53.2%

12.92

48.2%
`

Market
Cap

Natural Gas /
NGL+Oil Prod.

EV / EBITDAX
LTM
CY+1

EV / FCF

EV / 1P

EV /
Daily Prod.

13,979.8
11,072.7
3,116.8

95.5%
48.9%
46.2%

23.8 x
4.0 x
1.4 x

15.7 x
4.8 x
1.8 x

16.3 x
2.2 x
5.2 x

$12.84
$23.85
$10.47

$65.25
$86.02
$37.92

10,111.6
8,848.3
3,277.1

81.9%
99.6%
55.6%

4.3 x
3.3 x
2.8 x

8.6 x
3.8 x
5.5 x

13.9 x
30.6 x
1.7 x

$12.43
$7.82
$7.62

$33.20
$39.94
$33.90

10,027.5
2,183.0

86.8%
91.8%

5.5 x
6.2 x

11.9 x
8.7 x

10.4 x
1.8 x

$7.15
$6.25

$90.64
$49.17

Market
Cap
9,389.8
7,412.3
7,827.1
9,437.9

Natural Gas /
NGL+Oil Prod.
63.5%
79.0%
75.8%
84.4%

EV / FCF
7.9 x
15.4 x
10.3 x
7.8 x

EV / 1P
$15.72
$9.29
$11.05
$9.14

EV /
Daily Prod.
$63.06
$35.68
$54.50
$44.55

2,645.3

78.3%

3.9 x
(62.2%)
(50.4%)

$6.28
(43.2%)
(31.3%)

$23.33
(57.2%)
(47.6%)

EV / EBITDAX
LTM
CY+1
9.7 x
7.5 x
3.5 x
6.0 x
6.4 x
7.6 x
4.1 x
7.0 x
1.5 x
(76.2%)
(63.0%)

1.9 x
(74.8%)
(72.8%)

Trades at a discount of approximately 50-65% to natural gas pure play E&P competitors.
Sources: Capital IQ

WPX ENERGY - VALUATION

Precedent Transaction Analysis

WPX Energy - Comparable M&A Transactions
Acquirer Name
Vanguard Natural Resources, LLC

Target Name
Eagle Rock Energy Partners, L.P.

Date
05/21/2015

Transaction
Equity
Value
551

3.3 x

2.9 x

Noble Energy, Inc.

Rosetta Resources, Inc.

(NasdaqGS:ROSE)
LRR
Energy, L.P.

05/11/2015

2,488

4,704

1,137

1,203

4.3 x

4.1 x

04/20/2015

296

650

130

193

5.2 x

3.5 x

Ares Management LLC; Oaktree Capital

Management,
Apollo
Global L.P.
Management, LLC

EXCO Resources Inc.

11/01/2010

3,791

5,262

611

567

8.6 x

11.9 x

Legacy Reserves LP

04/03/2009

538

905

238

512

3.9 x

2.7 x

EPL Oil & Gas, Inc.

Stone Energy Corp.

05/24/2006

1,588

2,212

745

522

3.1 x

4.2 x

n/a

SandRidge Energy, Inc.

05/09/2006

1,386

1,448

377

1,511

4.1 x

19.1 x

Plains Exploration & Production Company

Stone Energy Corp.

04/23/2006

1,647

2,262

745

522

3.1 x

4.2 x

Cerberus Capital; GCP Capital

EXCO Resources Inc.

05/09/2003

176

587

131

567

4.7 x

11.5 x

Mean
Median

1,385
1,386

2,084
1,448

482
377

651
522

4.5 x
4.1 x

7.1 x
4.2 x

Vanguard Natural Resources, LLC

Transaction
Enterprise
Value
721

Operating Metrics
Revenue
225

EBITDA
263

Equity Value Enterprise Value Revenue

WPX Energy

2,186

4,534

3,059

EBITDA
1,529

E&P Companies based in the United States with Transaction Value from 500M to 6B
Sources: Capital IQ

Valuation Multiples
EV /
EV /
Revenue
EBITDA

EV /

EV /

Revenue

EBITDA

1.5 x

3.0 x

WPX ENERGY - VALUATION

Net Asset Value Model

2015E

2016E

2017E

2018E

2019E

2020E

2021E

2022E

2023E

2024E

2025E

$61.44
$3.14

$63.00
$3.26

$64.59
$3.38

$66.22
$3.51

$67.90
$3.64

$69.62
$3.78

$71.38
$3.92

$73.19
$4.06

$75.04
$4.22

$76.94
$4.38

$78.89
$4.54

Realized Pricing (% of Benchmark)

Light/Medium Oil
Natural Gas
NGL ($C/bbl)

86.4%
83.2%
31.6%

86.4%
83.2%
31.6%

86.4%
83.2%
31.6%

86.4%
83.2%
31.6%

86.4%
83.2%
31.6%

86.4%
83.2%
31.6%

86.4%
83.2%
31.6%

86.4%
83.2%
31.6%

86.4%
83.2%
31.6%

86.4%
83.2%
31.6%

86.4%
83.2%
31.6%

Realized Pricing
Light/Medium Oil ($C/bbl)
Henry Hub Natural Gas ($US/mcf)
NGL ($U/bbl)

2015E
$53.08
$2.61
$19.43

2016E
$54.43
$2.71
$19.92

2017E
$55.80
$2.81
$20.43

2018E
$57.22
$2.92
$20.94

2019E
$58.66
$3.03
$21.47

2020E
$60.15
$3.14
$22.02

2021E
$61.67
$3.26
$22.57

2022E
$63.23
$3.38
$23.14

2023E
$64.83
$3.51
$23.73

2024E
$66.48
$3.64
$24.33

2025E
$68.16
$3.78
$24.95

1P Reserves - Beginning (Gross)

Light/Medium Oil ($C/bbl)
Henry Hub Natural Gas ($US/mcf)
NGL ($U/bbl)
1P Reserves - Oil Equiv. (mboe)

131
3,150
70.8
727

122
2,814
65
655

110
2,495
59
585

96
2,192
53
514

79
1,903
47
444

58
1,629
42
371

31
1,368
37
297

0
1,120
33
219

0
884
28
176

0
660
24
134

0
446
20
94

Production
Light/Medium Oil (mboe)
Natural Gas (mmcf)
NGL (mboe)
Production - Oil Equivalents (mboe)
Production - (boe / d)

9.2
335.4
6.3
71
195.6

11.4
319.0
6.0
78.6
215.4

14.0
303.3
5.7
86.6
237.1

17.3
288.5
5.4
95.3
261.1

21.3
274.3
5.2
104.9
287.4

26.3
260.9
4.9
115.5
316.5

31.3
248.1
4.7
127.2
348.4

0.0
236.0
4.4
140.0
383.6

0.0
224.4
4.2
154.2
422.4

0.0
213.4
4.0
169.7
465.0

0.0
202.9
3.8
186.9
512.0

23.4%
-4.9%
10.1%

23.4%
-4.9%
10.1%

23.4%
-4.9%
10.1%

23.4%
-4.9%
10.1%

23.4%
-4.9%
10.1%

23.4%
-4.9%
10.1%

23.4%
-4.9%
10.1%

23.4%
-4.9%
10.1%

23.4%
-4.9%
10.1%

23.4%
-4.9%
10.1%

23.4%
-4.9%
10.1%

Benchmark Pricing
WTI Crude ($US/bbl)
Henry Hub Natural Gas ($C/mcf)

Production Growth Rate

Light/Medium Oil (mboe)
Natural Gas (mmcf)
NGL (mboe)

3.0%

23.4%
-4.9%
10.1%

Pricing data excludes derivative contracts to be conservative in face of hedges taken before dip in prices.
Sources: Capital IQ

WPX ENERGY - VALUATION

Net Asset Value Model

Netback Calculation (Total)
Revenue ($C MM)
Light/Medium Oil (mboe)
Natural Gas (mmcf)
NGL (mboe)
Total Revenue

2015E

2016E

2017E

2018E

2019E

2020E

2021E

2022E

2023E

2024E

2025E

$488.4
$876.3
$122.4
$1,487.0

$617.9
$864.6
$119.4
$1,601.9

$781.8
$853.1
$116.4
$1,751.3

$989.1
$841.8
$113.5
$1,944.4

$1,251.5
$830.6
$110.6
$2,192.8

$1,583.4
$819.6
$107.9
$2,510.9

$1,929.9
$808.7
$105.2
$2,843.8

$0.0
$798.0
$102.6
$900.5

$0.0
$787.4
$100.0
$887.4

$0.0
$776.9
$97.5
$874.4

$0.0
$766.6
$95.1
$861.7

Operating Costs
Transportation Costs
Total Operating & Transportation Costs

$440.5
$139.8
$580.3

$474.5
$150.6
$625.1

$518.8
$164.6
$683.4

$576.0
$182.8
$758.7

$649.5
$206.1
$855.7

$743.8
$236.0
$979.8

$842.4
$267.3
$1,109.7

$266.8
$84.7
$351.4

$262.9
$83.4
$346.3

$259.0
$82.2
$341.2

$255.2
$81.0
$336.2

Total Royalties
Operating Netback Before Tax

$103.9
$802.8

$112.0
$864.8

$122.4
$945.5

$135.9
$1,049.7

$153.3
$1,183.8

$175.5
$1,355.6

$198.8
$1,535.3

$62.9
$486.2

$62.0
$479.1

$61.1
$472.1

$60.2
$465.2

$46.10
$71.9
$684.8
$66.90
$617.9

$144.2
$71.9
$648.7
$63.38
$585.3

$157.6
$71.9
$715.9
$69.95
$646.0

$175.0
$71.9
$802.8
$78.44
$724.4

$197.3
$71.9
$914.6
$89.4
$825.2

$226.0
$71.9
$1,057.7
$103.3
$954.3

$255.9
$71.9
$1,207.4
$118.0
$1,089.5

$81.0
$71.9
$333.2
$32.6
$300.7

$79.9
$71.9
$327.3
$32.0
$295.3

$78.7
$71.9
$321.5
$31.4
$290.1

$77.6
$71.9
$315.7
$30.8
$284.9

Operating Netback Before Tax

Tax Expense
Operating Netback After Tax

$802.8
$66.9
$735.9

$864.8
$63.4
$801.4

$945.5
$69.9
$875.5

$1,049.7
$78.4
$971.3

$1,183.8
$89.4
$1,094.5

$1,355.6
$103.3
$1,252.3

$1,535.3
$118.0
$1,417.3

$486.2
$32.6
$453.6

$479.1
$32.0
$447.1

$472.1
$31.4
$440.7

$465.2
$30.8
$434.4

Netback Per Barrel of Oil Equivalent

Revenue
Operating & Transportation Costs
Royalties
SG&A
Capital Taxes
Netback Per Barrel of Oil Equivalent
Netback % Revenue

$20.83
$7.60
$0.53
$0.24
$0.34
$12.12
58.2%

$20.38
$7.44
$0.52
$0.70
$0.29
$11.43
56.1%

$20.23
$7.39
$0.52
$0.69
$0.29
$11.34
56.1%

$20.40
$7.45
$0.52
$0.70
$0.30
$11.44
56.0%

$20.90
$7.63
$0.53
$0.72
$0.31
$11.71
56.0%

$21.74
$7.93
$0.55
$0.75
$0.33
$12.18
56.0%

$22.36
$8.16
$0.57
$0.77
$0.34
$12.52
56.0%

$6.43
$2.35
$0.16
$0.22
$0.08
$3.61
56.2%

$5.76
$2.10
$0.15
$0.20
$0.08
$3.23
56.2%

$5.15
$1.88
$0.13
$0.18
$0.07
$2.90
56.2%

$4.61
$1.68
$0.12
$0.16
$0.06
$2.59
56.2%

SG&A
Net Interest Expense
Cash Flow Netback Before Tax
Tax Expense
Cash Flow Netback After Tax

9.0%

9.8%

WPX is a producer built to be able to survive in current oil pricing environment.

Sources: Capital IQ

WPX ENERGY - VALUATION

Net Asset Value Model

2 0 15 E WT I C rude O il P ric e

Discount Rate

$ 17.76

$ 51.44

$ 56.44

$ 61.44

$ 66.44

$ 71.44

9.0%

$ 16.66

$ 17.81

$ 18.96

$ 20.11

$ 21.26

9.5%

$ 16.10

$ 17.22

$ 18.35

$ 19.48

$ 20.60

10.0%

$ 15.56

$ 16.66

$ 17 .7 6

$ 18.86

$ 19.97

10.5%

$ 15.03

$ 16.11

$ 17.19

$ 18.27

$ 19.35

11.0%

$ 14.52

$ 15.58

$ 16.64

$ 17.69

$ 18.75

2 0 15 E H e n ry H u b N a t u ra l G a s P ric e

Discount Rate

$ 17.76

$ 2.64

$ 2.89

$ 3.14

$ 3.39

$ 3.64

9.0%

$ 16.78

$ 17.87

$ 18.96

$ 20.05

$ 21.13

9.5%

$ 16.22

$ 17.29

$ 18.35

$ 19.41

$ 20.48

10.0%

$ 15.68

$ 16.72

$ 17 .7 6

$ 18.80

$ 19.84

10.5%

$ 15.16

$ 16.17

$ 17.19

$ 18.21

$ 19.22

11.0%

$ 14.65

$ 15.64

$ 16.64

$ 17.63

$ 18.62

NAV Calculation (C$ millions)

Total Realized Value NPV @ PV10
Discount Rate
Undeveloped Land @ $250/net acre
Long Term Debt
1P Net Asset Value
Fully Diluted Shares Outstanding
1P NAVPS
Current Price
Implied Return

1P floor valuation provides insight into pessimistic market perception of company.

Sources: Capital IQ

$5,489.7
10.0%
145.7
(2000.0)
$3,635.5
204.7
$17.76
$12.92
37.5%

WPX ENERGY - CONCLUSION

Price Summary
INDICATIVE VALUATION GRAPH

IMPLIED RETURN

Current Market
Price

$10
EV / EBITDAX (LTM)

$20

$30

$40

$50

$60

Entry Price:

$12.92

Target Price:

$17.76

Dividend Yield

0.0%

Implied Total Return:

37.75%

EV / EBITDAX (2015E)

EV / FCF

Price / 1P

Price / Daily Prod.

NAV

Analyst Targets

FUTURE OUTLOOK

Positives
Increasing will stimulation in Williston Basin Bakken crude oil
play through quarterly updates
New style completion in San Juan Basin Gallup sandstone crude
oil play
Exploratory Niobrara dry gas wells in Piceance Basin
Rebound in oil prices
Negatives
An economic slowdown in the United States
Heavy reliance on industrial demand within domestic regions

WPX Energy does not have tremendous growth opportunities, however its cost structure has made it a strong play to
survive the low oil price environment while being well-positioned to take advantage of any rebound.
Sources: Equity Research, Imperial Capital

WPX ENERGY - APPENDIX

APPENDIX - PROMPT
SUBMISSION TOPIC
Facing upstream - Is the crisis for oil & gas the new normal?
Given the recent fall in oil prices, oil & gas companies have come under significant pressure and some struggle to remain profitable. This didnt
leave stock price performances untouched. Some however experienced an exceptional surge more recently. Reasons for such movements in
the market include potential takeovers and a slight recovery in oil. It is unclear what OPECs long-term strategy is and how US shale gas
production will play out. Analysts continue to argue over the long-term outlook for oil and with that the implications for oil & gas companies.
Clearly some companies are better positioned to profit from the recent turmoil than others. Who will eventually come out on top?

Pick one public company from the industry (country irrelevant), which you find particularly undervalued and would suggest to invest in.

Sources: Project Firefly Website