Morningstar | Despite Earnings Beat, Lowering WPX FVE on Higher Opex Outlook. See Updated Analyst Note from 31 Oct 2018
WPX Energy delivered production of 124 mboe/d in the third quarter, which was 11% higher year over year. Although this missed our 127 mboe/d forecast, we note volumes were impacted by about 4 mbbls/d due to NGL processing constraints--which have already been alleviated by the startup of the firm’s joint venture gas plant, enabling stored NGL volumes to be processed in future periods. As a result, the firm’s expectations for the full year were more or less unchanged (guidance was tightened slightly to 123-130 mboe/d, from 122-130 mboe/d). In any case, the revenue deferral resulting from the curtailment was offset by strong realized prices, particularly in the Delaware Basin. WPX’s comprehensive portfolio of derivatives and firm transport and sales contracts is enabling the firm to sidestep the severe widening of basis differentials in the region (owing to pipeline congestion). After hedges, the firm recorded a Delaware Basin price realization of just $1.59--an achievement no other Permian operator in our coverage is likely to match. As a result, the firm’s financial results were ahead of consensus estimates, with adjusted EBITDA and adjusted earnings per share coming in at $288 million and $0.07, respectively.Management also rolled out provisional guidance for 2019. The firm expects to spend $1,350-$1,450 million on drilling and completions, which is an increase of almost $200 million at the midpoint over the 2018 budget. That’s based on maintaining the current 10-rig program, and is commensurate with production growth of about 30%. While our previous growth forecast was broadly consistent with this update, our previous expectation for unit operating expenses now looks optimistic (being roughly $1 per boe lower than the midpoint of 2019 guidance). The increase relates to gathering and processing, and presumably reflects the incremental cost of NGL processing following the startup of the aforementioned plant. Accordingly, we have cut our fair value to $13.
WPX Energy is an independent oil and natural gas exploration and production company engaged in the exploitation and development of long-life unconventional properties. The company is focused on exploiting, developing and growing its oil positions in the Delaware Basin (a subset of the Permian Basin) in Texas and New Mexico and the Williston Basin in North Dakota.
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