Independent oil & gas operator, WPX Energy Inc. (WPX) has decided to form a master limited partnership (MLP) in the first half of 2014. MLP as an investment vehicle is seeing a revival among independent oil & gas operators – worth mentioning here are names like Spectra Energy Corp. (SE) and Enbridge Inc. (ENB) among others which have opted for such a structure. An MLP enables operators to unlock true value of their natural resource holdings. In addition, an MLP also generates funds needed to develop assets.
After receiving the necessary permission to form an MLP, WPX Energy plans to issue common units representing limited partner units in the MLP. These units will hold working interests in mature, producing natural gas properties located in the Piceance Basin in Colorado.
WPX Energy will initially contribute to the development of natural gas properties in the Piceance Basin and will then utilize the proceeds from the issue of the MLP units. Apart from the development of natural gas assets, the proceeds will also be used to replenish the dues under its revolving credit facilities and for general corporate purpose.
Natural gas usage is on the rise in the U.S. given the emphasis of the U.S. government to generate more environmentally friendly electricity. The new fracking technology has made natural gas extraction both cheap and bountiful.
The clean burning nature of this fossil fuel is gaining popularity as a power source across the globe. The U.S. Department of Energy (:DOE) has started to grant permission for export of natural gas. Recently, Dominion Resources Inc. (D) received a much needed nod from the DOE for natural gas exports.
WPX might also in due course, after the MLP has been formed, apply for natural gas export license. Admittedly, the U.S. natural gas market is a big one, but there are also too many players seeking to cash in on the shale boom.
We believe if the U.S natural gas producers start to look beyond their shores and make long-term natural gas export contracts with other countries, it will definitely create a new window of opportunity for earning regular revenues.
WPX Energy currently carries a Zacks Rank #3 (Hold).
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