WPX Energy Long - Jonathan Chang

Jonathan Chang [email protected] School of Business, 2017613-809-0329

RESEARCH ANALYST

June 2015: Market Overreaction Despite Underlying Bottom Line Drivers

Provides Opportunity for Turnaround Story with High Margin of Safety

WPX ENERGY (NYSE:DNR)

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.

Output is dominated by the Middle East, Europe and North

America.

Sources: IBIS World, Capital IQ

Industry Overview

EXPLORATION & PRODUCTION OVERVIEW

WPX ENERGY INDUSTRY OVERVIEW

In light of recent price weakness, price levels are anticipated to slowly recover as supply diminishes.

-25%

0%

25%

50%

75%

100%

125%

2010 2011 2012 2013 2014

S&P 500 O&G E&P Index S&P 500

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

Industrial

production

index of OECD

Countries

World Price of

Crude Oil

GDP OF BRIC

Nation

World Price of

Natural Gas

KEY ECONOMIC

DRIVERS

Sources: Yardeni, Facts Global Energy, Capital IQ

Industry Overview


CRUDE OIL PRICING (LIGHT)

40

45

50

55

60

65

70

75

12/1/2014 3/31/2015 7/29/2015 11/26/2015

Historical Prices Projections

NATURAL GAS PRICING (HENRY HUB)

2

2.5

3

3.5

4

4.5

12/1/2014 3/31/2015 7/29/2015 11/26/2015

Historical Pricing Projections

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.

OIL MARKET SURPLUS LIKELY TO PERSIST FOR REST OF 2015 WORLD CRUDE OIL DEMAND/SUPPLY RATIO

Sources: Lloyds List Intelligence, Yardeni, Facts Global Energy

Industry Overview


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 non-

OPEC 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.

OIL MARKET SURPLUS LIKELY TO PERSIST FOR REST OF 2015

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

IRANS CRUDE OIL EXPORTS 2011 TO 2012 (AFTER SANCTIONS)

Sources: WPX Investor Relations, Imperial Capital, Capital IQ, Presentation Magazine

WPX Energy 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.

OVERVIEW

WPX ENERGY - COMPANY OVERVIEW

1,225 994

518

1,529 1,512

900 677 687

31.8% 35.2%

20.3%

50.0%

62.0%

36.5% 29.2%

34.3%

(30.0%)

(10.0%)

10.0%

30.0%

50.0%

70.0%

0

500

1,000

1,500

2,000

2,500

3,000

2011A 2012A 2013A 2014A 2015E 2016E 2017E 2018E

EBITDA Margin %

EBITDA PROFILE W/ CONSENSUS ESTIMATES

Former exploration and production division of Williams Companies (WMB) spun off at start of 2012.

Colorado

Piceance Basin Bcfe

Proved Developed 1,571

Proved Undeveloped 963

Total 2,534

North Dakota

Williston Basin Bcfe

Proved Developed 444


Total 716

New Mexico

San Juan Basin Bcfe

Proved Developed 370


Total 597

Sources: WPX Investor Relations, Capital IQ

Quantitative Overview

CAPITALIZATION TABLE

WPX ENERGY - COMPANY OVERVIEW

FINANCIAL OVERVIEW

Trading at 0.6 x to its tangible value, WPX provides interesting value opportunity for healthy net income and revenue levels.

0.0

2.5

5.0

7.5

10.0

12.5

15.0

7.5

10.0

12.5

15.0

17.5

20.0

22.5

25.0

27.5

30.0

Jun Aug Oct Dec Feb Apr

Vo

lum

e (M

illion

s)

2014 2015

PRICE VOLUME PERFORMANCE

6-Apr-15

Agreement with Prometheus to supply

servicing and equipment to WPX

2-Dec-15

Divestiture of 46.7k net

acres in Pennsylvania

to SWN Production

26-Aug-14

TRDC to Joint Venture

with WPX Energy to

Develop Colorado Trail

Ridge Properties

Share Price as of Jun-12 12.92

Shares Outstanding 204.7

Market Capitalization 2,645.3

- Cash & Short Term Investments 82

+ Total Debt 2,000

+ Pref. Equity -

+ Total Minority Interest -

= Total Enterprise Value 4,563.3

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

Sources: Various

Investment Thesis Outline

WPX ENERGY INVESTMENT THESIS

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

ASSET QUALITY

MARGIN OF SAFETY AND BOTTOM LINE

HOLT VALUATION

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.

San Juan ranked 4th best oil basin in the United States in 2013Bakken as WPXs crown jewel with most productive wells

and large long-term potential.

Liquidation value hinted through price / tangible book value

provides investors with margin of safety.

Less leverage and recovering net income margins

demonstrate attractive trends.

Expectations for economic returns to turn around in the near-

future as implied by fade.

41% upside based on last years performance using estimator tool.

Sources: WPX Investor Relations, Imperial Capital, Capital IQ, Presentation Magazine

Market Mispricing: 1YR - Stock Performance Tied Too Closely to Oil Prices


In light of recent oil price decline, investors have allowed crude oil price movement to dictate decision about company.

JUNE 2012 JUNE 2014 STOCK PRICE PERFORMANCE (BEFORE RECENT OIL PRICE DECLINE)

-20%

0%

20%

40%

60%

80%

Jun 2012 Oct 2012 Feb 2013 Jun 2013 Oct 2013 Feb 2014

WPX Share Price Crude Oil Price

-80%

-60%

-40%

-20%

0%

20%

40%

Jun 2014 Aug 2014 Oct 2014 Dec 2014 Feb 2015 Apr 2015

WPX Share Price Crude Oil Price

Correlation:

0.6284

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

Correlation:

0.9402

222 220240

226210

191

159

0

50

100

150

200

250

300

2009A 2010A 2011A 2012A 2013A 2014A 2015E

Pro

du

cti

on

(b

oe /

d)

Light/Medium Oil Natural Gas NGL

Sources: Equity Research, SEC Filings, Capital IQ,

Successful Performance During Low Oil Price Environment


Flexibility of WPX allowed it to quickly decrease production levels while focusing on still delivering sustainable results.

DECREASING PRODUCTION LEVELS

793.3 820.3891.1

748.4 793.6 726.5

0

250

500

750

1,000

1,250

2009A 2010A 2011A 2012A 2013A 2014A

1P

Rese

rves

(mb

oe)

Light/Medium Oil Natural Gas NGL

STABLE RESERVE LEVELS

RECOVERING REVENUE INCREASING MARGINS

2,822

2,555

3,059

2,779

3,027

2,000

2,500

3,000

3,500

2012A 2013A 2014A 2015E 2016E

$U

SD

mil

lio

ns

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

-1,500

-1,000

-500

0

500

1,000

2010A 2011A 2012A 2013A 2014A 2015E

Net Income NI Margin %

Despite Decrease in Production

Sources: Transnational Research Associates, Art Madsen, FASB, SW Learning, Rational Walk, Solomon Zori Blog, Guy Fottfried

Accounting Confusion: Use of SE Accounting Instead of FC


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.

SUCCESSFUL EFFORTS (SE) ACCOUNTING FULL COST (FC) ACCOUNTING

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.

Full-cost, has been demonstrated to produce favorable results

for the investment community.

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

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

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.

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.

E&P Natural Gas Company Accounting Methodology

Antero Resources Successful Efforts

Cabot O&G Successful Efforts

Cimarex Energy Full Cost

Encana Full Cost

QEP Resources Successful Efforts

SM Energy Successful Efforts

Southwestern Full Cost

Ultra Petroleum Full Cost

HALF OF PEER GROUP USES FULL COST ACCOUNTING

Sources: EIA, Seeking Alpha Transcripts, WPX Investor Presentation

Asset Quality San Juan

SAN JUAN BASIN COMMENTS BY MANAGEMENT IN 2015 Q1 CALL


SAN JUAN AS 4TH RANKED US GAS FIELD IN TOP 100 BY EIA

Our Williston and San Juan Gallup oil volumes jumped an impressive 60% and 376%, respectively, versus a year ago.

The San Juan Gallup production is up over 500% versus first quarter of '14.

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.

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.

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

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.

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

1-YR AND 2-YR CUMULATIVE PRODUCTION PER WELL

WPX is #1 in Middle Bakken

Cumulative Production

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

Sources: WPX Investor Relations, Capital IQ

Margin of Safety and Bottom Line (Relative to Comparables)


WPX has a wider margin of safety (liquidation value) and more quickly improving bottom line relative to peers.

CHEAPEST FROM PRICE / TANGIBLE BOOK VALUE STANDPOINT LESS LEVERAGE IN CAPITAL STRUCTURE

93.6%

53.9%46.3%

42.6% 42.3% 39.3%35.6%

26.9%31.3%

0%

20%

40%

60%

80%

100%

UPL SM COG ECA SWN AR QEP XEC WPX

9.3 x

6.4 x

3.0 x

1.9 x1.5 x 1.4 x 1.2 x

0.8 x 0.6 x

0.0 x

4.0 x

8.0 x

UPL COG XEC AR ECA SM SWN QEP WPX

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

-30%

-10%

10%

30%

50%

Cimarex Encana Cabot Ultra

Petroleum

SM Southwestern QEP Antero WPX

Perc

en

tag

e P

oin

t C

han

ge

in N

et

Inco

me M

arg

in

Jun 2014 - Jun 2015 Jun 2013 - Jun 2014

HOLT: Sales, Margins & Turns


Oil & Gas Exploration & Production Price: 12.92 (Jun 12, 2015)

Market Cap: 2.632 USD Warranted Price: 20.43 USD (+58%)

Sources: Credit Suisse HOLT

HOLT: Valuation


HOLT Warranted Upside/Downside

Economic PE

HOLT Price to Book (Value Cost Ratio)



WPX ENERGY INC Oil, Gas & Consumable Fuels

HOLT Warranted Price Price

WPX ENERGY INC Oil, Gas & Consumable Fuels



HOLT: Estimator




2014 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

CFROI % 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

Sales, Margins & Turns Inputs

Warranted Valuation Amount (MM) Per Share

+ PV Cash Flow Existing Assets 7,286 35.77

+ NPV Cash Flow Future Investments -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

- Market Value of Minority Interest 94 0.46

Partial Year Adjustment 116 0.57

Warranted Equity Value 3,719 18.26

Winddown Value/Share 27.70

Winddown Ratio 0.47

Shares Outstanding 204 upside

+41%

Sources: Capital IQ

Public Company Comparables

WPX ENERGY - VALUATION

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

Stock Price % of 52W Market Natural Gas / EV / EBITDAX EV /

Company Name Ticker 6/14/15 High Cap NGL+Oil Prod. LTM CY+1 EV / FCF EV / 1P Daily Prod.

Texas Headquartered Natural Gas E&P

Cabot O&G COG 33.80 94.8% 13,979.8 95.5% 23.8 x 15.7 x 16.3 x $12.84 $65.25

Cimarex Energy XEC 118.21 78.4% 11,072.7 48.9% 4.0 x 4.8 x 2.2 x $23.85 $86.02

SM Energy SM 46.20 51.1% 3,116.8 46.2% 1.4 x 1.8 x 5.2 x $10.47 $37.92

Colorado Headquartered Natural Gas E&P

Encana ECA 12.02 55.1% 10,111.6 81.9% 4.3 x 8.6 x 13.9 x $12.43 $33.20

Southwestern SWN 23.01 48.2% 8,848.3 99.6% 3.3 x 3.8 x 30.6 x $7.82 $39.94

QEP Resources QEP 18.55 51.7% 3,277.1 55.6% 2.8 x 5.5 x 1.7 x $7.62 $33.90

Other (Oklahoma/Alberta) Headquartered Natural Gas E&P

Antero Resources AR 36.20 54.8% 10,027.5 86.8% 5.5 x 11.9 x 10.4 x $7.15 $90.64

Ultra Petroleum UPL 14.25 47.2% 2,183.0 91.8% 6.2 x 8.7 x 1.8 x $6.25 $49.17

Stock Price % of 52W Market Natural Gas / EV / EBITDAX EV /

Company Name Ticker 6/14/15 High Cap NGL+Oil Prod. LTM CY+1 EV / FCF EV / 1P Daily Prod.

Texas Mean 74.8% 9,389.8 63.5% 9.7 x 7.5 x 7.9 x $15.72 $63.06

Colorado Median 51.7% 7,412.3 79.0% 3.5 x 6.0 x 15.4 x $9.29 $35.68

Overall Mean 60.2% 7,827.1 75.8% 6.4 x 7.6 x 10.3 x $11.05 $54.50

Overall Median 53.2% 9,437.9 84.4% 4.1 x 7.0 x 7.8 x $9.14 $44.55

WPX Energy WPX 12.92 48.2% 2,645.3 78.3% 1.5 x 1.9 x 3.9 x $6.28 $23.33

Discount to Overall Mean ` (76.2%) (74.8%) (62.2%) (43.2%) (57.2%)

Discount to Overall Median (63.0%) (72.8%) (50.4%) (31.3%) (47.6%)

Sources: Capital IQ

Precedent Transaction Analysis

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

WPX Energy - Comparable M&A Transactions Transaction Transaction Operating Metrics Valuation Multiples

Equity Enterprise EV / EV /

Acquirer Name Target Name Date Value Value Revenue EBITDA Revenue EBITDA

Vanguard Natural Resources, LLC Eagle Rock Energy Partners, L.P. 05/21/2015 551 721 225 263 3.3 x 2.9 x

Noble Energy, Inc. Rosetta Resources, Inc.

(NasdaqGS:ROSE)

05/11/2015 2,488 4,704 1,137 1,203 4.3 x 4.1 x

Vanguard Natural Resources, LLC LRR Energy, L.P. 04/20/2015 296 650 130 193 5.2 x 3.5 x

Ares Management LLC; Oaktree Capital

Management, L.P.

EXCO Resources Inc. 11/01/2010 3,791 5,262 611 567 8.6 x 11.9 x

Apollo Global Management, LLC 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 1,385 2,084 482 651 4.5 x 7.1 x

Median 1,386 1,448 377 522 4.1 x 4.2 x

Equity Value Enterprise Value Revenue EBITDA EV / EV /

Revenue EBITDA

WPX Energy 2,186 4,534 3,059 1,529 1.5 x 3.0 x


Sources: Capital IQ

Net Asset Value Model

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

2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

Benchmark Pricing

WTI Crude ($US/bbl) 3.0% $61.44 $63.00 $64.59 $66.22 $67.90 $69.62 $71.38 $73.19 $75.04 $76.94 $78.89

Henry Hub Natural Gas ($C/mcf) $3.14 $3.26 $3.38 $3.51 $3.64 $3.78 $3.92 $4.06 $4.22 $4.38 $4.54

Realized Pricing (% of Benchmark)

Light/Medium Oil 86.4% 86.4% 86.4% 86.4% 86.4% 86.4% 86.4% 86.4% 86.4% 86.4% 86.4%

Natural Gas 83.2% 83.2% 83.2% 83.2% 83.2% 83.2% 83.2% 83.2% 83.2% 83.2% 83.2%

NGL ($C/bbl) 31.6% 31.6% 31.6% 31.6% 31.6% 31.6% 31.6% 31.6% 31.6% 31.6% 31.6%

Realized Pricing 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

Light/Medium Oil ($C/bbl) $53.08 $54.43 $55.80 $57.22 $58.66 $60.15 $61.67 $63.23 $64.83 $66.48 $68.16

Henry Hub Natural Gas ($US/mcf) $2.61 $2.71 $2.81 $2.92 $3.03 $3.14 $3.26 $3.38 $3.51 $3.64 $3.78

NGL ($U/bbl) $19.43 $19.92 $20.43 $20.94 $21.47 $22.02 $22.57 $23.14 $23.73 $24.33 $24.95

1P Reserves - Beginning (Gross)

Light/Medium Oil ($C/bbl) 131 122 110 96 79 58 31 0 0 0 0

Henry Hub Natural Gas ($US/mcf) 3,150 2,814 2,495 2,192 1,903 1,629 1,368 1,120 884 660 446

NGL ($U/bbl) 70.8 65 59 53 47 42 37 33 28 24 20

1P Reserves - Oil Equiv. (mboe) 727 655 585 514 444 371 297 219 176 134 94

Production

Light/Medium Oil (mboe) 9.2 11.4 14.0 17.3 21.3 26.3 31.3 0.0 0.0 0.0 0.0

Natural Gas (mmcf) 335.4 319.0 303.3 288.5 274.3 260.9 248.1 236.0 224.4 213.4 202.9

NGL (mboe) 6.3 6.0 5.7 5.4 5.2 4.9 4.7 4.4 4.2 4.0 3.8

Production - Oil Equivalents (mboe) 71 78.6 86.6 95.3 104.9 115.5 127.2 140.0 154.2 169.7 186.9

Production - (boe / d) 195.6 215.4 237.1 261.1 287.4 316.5 348.4 383.6 422.4 465.0 512.0

Production Growth Rate

Light/Medium Oil (mboe) 23.4% 23.4% 23.4% 23.4% 23.4% 23.4% 23.4% 23.4% 23.4% 23.4% 23.4% 23.4%

Natural Gas (mmcf) -4.9% -4.9% -4.9% -4.9% -4.9% -4.9% -4.9% -4.9% -4.9% -4.9% -4.9% -4.9%

NGL (mboe) 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1% 10.1%


Sources: Capital IQ


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

Netback Calculation (Total) 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

Revenue ($C MM)

Light/Medium Oil (mboe) $488.4 $617.9 $781.8 $989.1 $1,251.5 $1,583.4 $1,929.9 $0.0 $0.0 $0.0 $0.0

Natural Gas (mmcf) $876.3 $864.6 $853.1 $841.8 $830.6 $819.6 $808.7 $798.0 $787.4 $776.9 $766.6

NGL (mboe) $122.4 $119.4 $116.4 $113.5 $110.6 $107.9 $105.2 $102.6 $100.0 $97.5 $95.1

Total Revenue $1,487.0 $1,601.9 $1,751.3 $1,944.4 $2,192.8 $2,510.9 $2,843.8 $900.5 $887.4 $874.4 $861.7

Operating Costs $440.5 $474.5 $518.8 $576.0 $649.5 $743.8 $842.4 $266.8 $262.9 $259.0 $255.2

Transportation Costs $139.8 $150.6 $164.6 $182.8 $206.1 $236.0 $267.3 $84.7 $83.4 $82.2 $81.0

Total Operating & Transportation Costs $580.3 $625.1 $683.4 $758.7 $855.7 $979.8 $1,109.7 $351.4 $346.3 $341.2 $336.2

Total Royalties $103.9 $112.0 $122.4 $135.9 $153.3 $175.5 $198.8 $62.9 $62.0 $61.1 $60.2

Operating Netback Before Tax $802.8 $864.8 $945.5 $1,049.7 $1,183.8 $1,355.6 $1,535.3 $486.2 $479.1 $472.1 $465.2

SG&A 9.0% $46.10 $144.2 $157.6 $175.0 $197.3 $226.0 $255.9 $81.0 $79.9 $78.7 $77.6

Net Interest Expense $71.9 $71.9 $71.9 $71.9 $71.9 $71.9 $71.9 $71.9 $71.9 $71.9 $71.9

Cash Flow Netback Before Tax $684.8 $648.7 $715.9 $802.8 $914.6 $1,057.7 $1,207.4 $333.2 $327.3 $321.5 $315.7

Tax Expense 9.8% $66.90 $63.38 $69.95 $78.44 $89.4 $103.3 $118.0 $32.6 $32.0 $31.4 $30.8

Cash Flow Netback After Tax $617.9 $585.3 $646.0 $724.4 $825.2 $954.3 $1,089.5 $300.7 $295.3 $290.1 $284.9

Operating Netback Before Tax $802.8 $864.8 $945.5 $1,049.7 $1,183.8 $1,355.6 $1,535.3 $486.2 $479.1 $472.1 $465.2

Tax Expense $66.9 $63.4 $69.9 $78.4 $89.4 $103.3 $118.0 $32.6 $32.0 $31.4 $30.8

Operating Netback After Tax $735.9 $801.4 $875.5 $971.3 $1,094.5 $1,252.3 $1,417.3 $453.6 $447.1 $440.7 $434.4

Netback Per Barrel of Oil Equivalent

Revenue $20.83 $20.38 $20.23 $20.40 $20.90 $21.74 $22.36 $6.43 $5.76 $5.15 $4.61

Operating & Transportation Costs $7.60 $7.44 $7.39 $7.45 $7.63 $7.93 $8.16 $2.35 $2.10 $1.88 $1.68

Royalties $0.53 $0.52 $0.52 $0.52 $0.53 $0.55 $0.57 $0.16 $0.15 $0.13 $0.12

SG&A $0.24 $0.70 $0.69 $0.70 $0.72 $0.75 $0.77 $0.22 $0.20 $0.18 $0.16

Capital Taxes $0.34 $0.29 $0.29 $0.30 $0.31 $0.33 $0.34 $0.08 $0.08 $0.07 $0.06

Netback Per Barrel of Oil Equivalent $12.12 $11.43 $11.34 $11.44 $11.71 $12.18 $12.52 $3.61 $3.23 $2.90 $2.59

Netback % Revenue 58.2% 56.1% 56.1% 56.0% 56.0% 56.0% 56.0% 56.2% 56.2% 56.2% 56.2%


Sources: Capital IQ


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

NAV Calculation (C$ millions)

Total Realized Value NPV @ PV10 $5,489.7

Discount Rate 10.0%

Undeveloped Land @ $250/net acre 145.7

Long Term Debt (2000.0)

1P Net Asset Value $3,635.5

Fully Diluted Shares Outstanding 204.7

1P NAVPS $17.76

Current Price $12.92

Implied Return 37.5%

$ 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

$ 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

2015E WT I C rude Oil P rice

2 0 15 E He nry Hub N a tura l Ga s P ric e

Dis

cou

ntR

ate

Dis

cou

ntR

ate


Sources: Equity Research, Imperial Capital

Price Summary

WPX ENERGY - CONCLUSION

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.

$10 $20 $30 $40 $50 $60

EV / EBITDAX (LTM)

EV / EBITDAX (2015E)

EV / FCF

Price / 1P

Price / Daily Prod.

NAV

Analyst Targets

Entry Price: $12.92

Target Price: $17.76

Dividend Yield 0.0%

Implied Total Return: 37.75%

INDICATIVE VALUATION GRAPH IMPLIED RETURN

Current Market

Price

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

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

APPENDIX - PROMPT

WPX ENERGY - APPENDIX

WPX Energy Long - Jonathan Chang

Documents

Transcript of WPX Energy Long - Jonathan Chang