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Edited Transcript of WPX earnings conference call or presentation 2-May-19 2:00pm GMT

Q1 2019 WPX Energy Inc Earnings Call

Tulsa May 16, 2019 (Thomson StreetEvents) -- Edited Transcript of WPX Energy Inc earnings conference call or presentation Thursday, May 2, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Clay M. Gaspar

WPX Energy, Inc. - President & COO

* David Sullivan

WPX Energy, Inc. - Director of IR

* Greg Horne

WPX Energy, Inc. - VP of Midstream & Marketing

* J. Kevin Vann

WPX Energy, Inc. - Executive VP & CFO

* Richard E. Muncrief

WPX Energy, Inc. - CEO & Chairman of the Board

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Conference Call Participants

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* Biju Z. Perincheril

Susquehanna Financial Group, LLLP, Research Division - Analyst

* Bradley Barrett Heffern

RBC Capital Markets, LLC, Research Division - Associate

* Brian Arthur Singer

Goldman Sachs Group Inc., Research Division - MD & Senior Equity Research Analyst

* Brian Kevin Downey

Citigroup Inc, Research Division - Director

* Derrick Lee Whitfield

Stifel, Nicolaus & Company, Incorporated, Research Division - MD of E&P and Senior Analyst

* Gabriel J. Daoud

Cowen and Company, LLC, Research Division - Senior Analyst

* Jeffrey Leon Campbell

Tuohy Brothers Investment Research, Inc. - Senior Analyst of Exploration & Production and Oil Services

* Kashy Oladipo Harrison

Simmons & Company International, Research Division - VP and Senior Research Analyst of E&P

* Kevin Moreland MacCurdy

Heikkinen Energy Advisors, LLC - Partner and Exploration and Production Research Analyst

* Leo Paul Mariani

KeyBanc Capital Markets Inc., Research Division - Analyst

* Neal David Dingmann

SunTrust Robinson Humphrey, Inc., Research Division - MD

* William Seabury Thompson

Barclays Bank PLC, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the Q1 2019 WPX Energy Inc. Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to your host, Mr. David Sullivan, Director of Investor Relations. Please go ahead.

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David Sullivan, WPX Energy, Inc. - Director of IR [2]

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Thank you. Good morning, everybody. Welcome to the WPX Energy first quarter 2019 call. We appreciate your interest in WPX Energy. Rick Muncrief, our CEO; Clay M. Gaspar, our COO; and Kevin Vann, our CFO, will review the prepared slide presentation this morning. Along with Rick, Clay and Kevin, other members of the management team are available for questions after the presentation.

On our website, wpxenergy.com, you will find today's presentation and press release that was issued after the market closed yesterday. Also, the Q will be filed later today. Please review the forward-looking statement and disclaimer on oil and gas reserves at the end of the presentation. They are important and integral to our remarks. So please, do review them.

So with that, Rick, I'll turn it over to you.

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Richard E. Muncrief, WPX Energy, Inc. - CEO & Chairman of the Board [3]

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Thank you, David. And good morning to everyone who's joining us. We sincerely appreciate your interest, and of course, in hearing about our first quarter results as well as our outlook for 2019. All of us at WPX share your high expectations for our company, our results and our reputation. I'd also like to thank our employees who are listening today. Their efforts drive our success, and I'm grateful for their ongoing commitment to excellence and innovation. Getting things done is exactly what we do at WPX.

We have a rock-solid record for execution. I'm quite pleased with what we've accomplished over the past 5 years. But today, it's all about capital discipline, generating free cash flow and leveraging those resources to reward shareholders in a tangible way. We originally presented a goal of returning capital to shareholders in the year 2021. Since that time, some things are starting to line up in our favor and we believe, there's a chance we could accomplish it sooner. As we've said, this could be in the form of debt retirements, dividends and/or stock repurchases.

Now let's turn to Page 2.

We're off to a good start this year, sticking with our plan and doing what we said we're going to do. On capital, we're right on track to stay on budget. We are confident in our guidance range, and we believe our actions throughout this year will give you reasons to share our confidence. These reasons include significant cost savings we are realizing in the Delaware Basin. Now Clay will have more to say about that in a few moments.

We are also continuing to apply the lessons we are learning from our basin leading technical work, which drives efficiencies and stronger well results. Our financial strength is enhanced as well by the uptrend in commodity prices. At today's strip , we believe we can generate more than $100 million of free cash flow this year. Even with stronger commodity prices, once again, our capital plan is firm.

With regard to debt, we expect to finish the year at about 1.5x of leverage on a trailing 12-month basis.

Now on the transaction front, we've already executed a couple of midstream deals that came together ahead of schedule, and we're really pleased with the returns we received. We turned about $125 million of investments into net proceeds of more than $500 million within a 2-year timeframe. All this contributes to a rather robust value proposition for WPX shareholders.

And at this, we'll turn to Page 3 and I'll turn it over to Clay.

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Clay M. Gaspar, WPX Energy, Inc. - President & COO [4]

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Thank you, Rick, and good morning, everyone.

We've enjoyed a solid start to the year and we're very encouraged with what we see going forward. Our Delaware team continues to strive for operational excellence every day. You will see that as we've moved into a full development mode, our well performance continues to improve and our well costs have materially improved even relative to our 2018 average numbers. We've aggressively incorporated the lessons we've learned from our Pecos State test and that is immediately translating into value.

In North Dakota, we fought a prolonged subzero temperature period, including the coldest February since 1936. I'm very proud of how our field organization was safely able to keep existing wells producing, while fighting off 40 below temperatures. On the completion side, we elected to slow down a bit and make sure that we're not going to jeopardize the safety of the people on location or the environment. As proud as I am for our production performance, I'm even more proud of our safety culture. This is a great example of our team keeping our eyes on the big picture rather than just a short-term win. While our first quarter numbers rose and we are unaffected, we will have delays of some of our second quarter first sales. This will dampen our second quarter Williston production, but we have steps in place to catch this back up in the third quarter.

Williston basin experienced -- excuse me, the Delaware Basin experienced large wind storms that left a portion of the basin without power for a period of time. While our team can fight off harsh conditions, they can't operate the fields without electricity. The power outage impacted the Delaware oil production for the quarter by about 1,400 barrels per day. I get that all of that sounds like quite a bit of granular give-and-take. Here's what you need to know. As we stand today, I have full confidence in our ability to meet or even exceed our full year production capital while we hold firm on our capital plan. Also, we will accomplish all of this with a very healthy safety culture.

Our midstream strategy, which we rolled out over 3 years ago, has created an impressive downside protection and significant shareholder value. It's never been more evident than in this quarter. Rick mentioned that monetization of nearly $0.5 billion in the quarter with the sale of equity interest in both Whitewater and Oryx II. Remember, these sales do not negatively impact our flow capabilities or our rate structure. In Q1, our Delaware oil realizations averaged $0.09 below WTI when you include our basis hedges. Finally, despite a significant basis blow out in Waha late in the quarter on natural gas, our natural gas realizations were $0.76 below NYMEX, including our basis hedges.

In addition, our midstream partners, Howard Energy, are currently commissioning our 200 -- our second 200 million cubic feet a day processing train, and it'll be in service late in the second quarter.

Now let's turn to Slide 4, and we can talk specifically about the Delaware results.

This is a pretty busy slide, but that's because there's a lot going on in the basin and there's so much good stuff to talk about. A hot topic in resource plays today is the impact of parent, child, well interference. This is something that we've been focused on since our early efforts in 2016. We have been more -- we have now have more than a dozen spacing tests, investigating various horizontal and vertical spacing, completion designs, sequencing impacts. And they are planted in various parts of our development area. Of course, commodity price and well costs also significantly contribute to the calculus of seeking the most accretive solution. Today, I can humbly say that I believe we are well ahead of our peers in this important work, and I have a great deal of confidence in our development plan. That said, we embrace a learning mentality and we will always continue to evolve and improve. The plot on the top right shows exactly this and some great insight on this very topic. As you can see, we have 1 1-mile well and we have 7 2-mile wells on this recent pad. The performance of the group of the 2-mile wells at the top are exceeding what we have held out as our directional guidance for 2-mile well development. Also, there is a 1-mile well that's exceeding the 1-mile type curve. 2 questions I anticipate from this plot are, 1, why drill a 1-mile well? And 2, why is one of the 2-mile wells under performing the rest? Well, as we go back to develop these 2-mile drilling spacing units, we need to work around the existing delineation wells. In this case, the 1-mile well complements another 1-mile well that we drilled in the opposing section. In the case of the underperforming 2-mile well, we need to tuck this well closer than ideal to the parent well that is several years old. We needed to do this to get our spacing pattern back in line for the rest of the DSU. That well will still generate a solid return, but is not nearly as economic as the properly spaced wells. I like this plot because it clearly shows the importance of 2-mile development as well as getting the spacing right. I should also note that when we first presented our 1-mile well, 1 million barrel type curve, it was for parent wells. As you can see, we've been able to drive well performance to the point that we can maintain that same type curve even if we move to full child development mode, and know that that's a really big deal.

On the left side of the slide, you can see the efficiency gains we're achieving on the drilling and completions front. Our days from spud to rig release have improved from 32 days in 2018 to 23 days in Q1. As we moved to delineation to development, we have more room for improvement. Recently, we had a 2-mile well with a record spud to rig release in just under 16 days. The team is already looking for improvements beyond that impressive mark.

On the completion side, our lateral feet completed per day has improved approximately 90% over the last year. Many of the efficiency gains are directly tied to the changes we made as a result of the Pecos State project. The gains have allowed us to utilize 1 frac crew for a very efficient 5-rig program that we are now running. Last year, we would have needed almost 2 full frac crews to keep up with the 5 rigs running at a slower pace.

Now let's turn to Slide 5 and let's talk about the Delaware midstream.

Our midstream strategy continues to deliver. The objectives of our strategy are to capture physical flow assurance and have a diversified transportation portfolio to multiple markets to enhance value and minimize downside risk. The impact of this strategy is evident when looking at the first quarter realized prices. The plot in the top left shows monthly realized oil prices and how we stacked up relative to WTI. The results show that we've taken very significant risk out of the system. This is still a very dynamic market that can change quickly. In fact, the June Midland basis is back up to $5.50. Know that we are protected when the basis has blown out and just as importantly, we are not massively underwater when the basis closes back up. Although gas is not a financial driver in the same way that oil is, we also pay attention in that market and do everything we can to protect downside risk. As you can see on the top right, our realized prices are holding very well even in a very disruptive Waha market. When you include the value that we've created, marketing the open capacity we have within our contracts, we have essentially closed the gap all the way back to NYMEX prices. Once again, our focus is on physical flow assurance and diversity of markets. When that strategy is executed properly, these are the results that you get.

Now let's look forward a bit.

In the back half of 2019, approximately 75% of our Delaware barrels will receive Gulf or international pricing. This percentage increases to over 80% in 2020. I think it's important to remind everyone that many of our takeaway contracts out of Midland were signed well before the Midland basis became an industrywide concern. This was the reason our weighted average cost is so much lower than the current market spread.

As you can see in the bottom right bar chart, our transport contracts are well in the money despite the tightening of the Midland WTI spread. This bar chart shows the relative uplift to MEH pricing, with many of our barrels actually receiving international pricing, the actual spread is even higher than what's depicted here on the chart. I would like to point out that with the pipeline projects coming on late in 2019, our transport costs will actually decrease by about $1 a barrel in 2020 and our exposure to international pricing will increase. This also continues to support our work to get light barrels to the preferred international markets.

Let's turn to Slide 6 and I'll discuss our work in the Williston Basin.

The Williston delivered a strong 8% sequential growth quarter-on-quarter. This was accomplished despite severe winter temperatures. First quarter winter weather and road restrictions have impacted the timing of 2 pads coming on in the second quarter. Our badlands pad and a spotted horn pad, both been pushed out about a month from their planned timing. The chart -- this chart on the slide never gets old. We've shown this several times, but it continues to amaze me each time we update it. The plot shows the average 12-month cumulative oil production for all WPX wells drilled in Williston from 2012 to 2019. Our rock in Williston has always been top tier but this chart shows that we're continually pushing ourselves to raise the productivity bar from this incredible rock. In addition, we gained ground on well cost and we're headed back below $7 million for drill, complete and [facilities] (corrected by the company after the call) well costs, including artificial lift. As you can see, the start of 2019 is looking to be very -- even an improvement over 2018. This is driven by the results we're seeing on the Good Voice, Young Bird and Plenty Sweet Grass pads.

Now I'll turn it over to our CFO, Kevin Vann, for the financial update.

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J. Kevin Vann, WPX Energy, Inc. - Executive VP & CFO [5]

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Thank you, Clay. There's obvious compelling progress in our operations and in our financial results.

Speaking of, in my remarks last quarter, I referenced how we conquered debt. During the Q&A, the comment was rightfully challenged. At the time, we had conquered our year-end leverage goal. We did it, of course, but then we set a new target. True to our company DNA, we are still putting downward pressure on that metric. As Rick mentioned earlier, we expect to be at 1.5x by the end of this year. Many companies don't have the underlying assets to continue to improve their leverage, especially at $55 crude pricing. We do. Constantly getting better is a big deal. It generates new value, maximizes our portfolio, and most importantly, help strengthen margins. And that's part of what makes our discipline story so good. For us, staying disciplined is bigger than just sticking with the plan. We also have the discipline to know that the race we are in is never over. We compete against the market every day. And in our business, it's either fight or fall behind. You don't have to guess where we stand on that.

Now let's turn to Slide 8 and review our first quarter results.

For the quarter, at 96,100 barrels per day, our oil production is 46% higher than the same period in 2018. Our Williston Basin drove this increase. From a sequential quarter perspective, we were effectively flat to the fourth quarter. Again, as Clay mentioned, we were negatively impacted by approximately 1,400 barrels a day as a result of weather that caused unplanned downtime in Delaware. Despite these weather related issues, our full year guidance is not impacted. On an equivalent basis, we're up 51% since the first quarter of last year. For the first quarter, we are reporting adjusted EBITDAX of $312 million, which is $112 million higher than last year. This 56% growth in EBITDAX is impressive given our realized oil prices in 2019, nearly $10 a barrel lower than 2018. We did benefit from some modest hedge gain for this quarter, but more importantly, our realized margins per barrel continued to improve. We have indicated many times in the past that our asset base generates great returns even at $50 crude. With realized pricing around $52 per barrel this quarter, the results continue to confirm those statements.

With these first quarter results in the books and the remaining forecasts for the balance of 2019, again, I'm pleased to say that our leverage will be approximately 1.5x by the end of the year and we will be generating free cash flow in excess of $100 million. For the quarter, our operating costs have trended right as we expected. And nothing has changed regarding our expectations for the rest of 2019.

For the quarter, we are reporting adjusted net income of $22 million versus a net loss of $22 million in 2018. The improvement was driven by the same factors impacting adjusted EBITDAX. However, our DD&A was $58 million higher than last year. Despite this absolute increase, our DD&A rate continued its downward trajectory by nearly $2 per barrel. Same story yet different quarter here. We are drilling better wells at lower costs. Our capital expenditures incurred for the first quarter totaled $425 million. Of this amount, $102 million was for land and surface acreage acquired during the quarter, which we had guided to previously, and were funded by the sale of our WhiteWater equity investment. All other capital expenditures totaled $323 million and keep us in line with our full year guidance. As you have already heard in this call, our capital plan for this year is our capital plan. We will remain disciplined.

Turning to Slide 9. You've heard Rick discuss the additional free cash flow that we will be generating this year. You've also heard about the amazing returns on capital invested we realized from equity investments in 2 pipeline projects. The next obvious question, one for which I have been asked repeatedly over the last couple of months is what is WPX going to do with all of that additional cash flow? I've answered that question with the following. First of all, we need to see the higher commodity prices realized into cash. We are 4 months into the year and we still have a lot of ball to play this year. As far as the expected proceeds from our recently announced Oryx II monetization, if you read the 10-Q that will be filed today, you will see that we have just about the same amount pulled on the revolver as we did at year end. Those proceeds will be used to pay off the revolver. So again, our capital plan for 2019 is unchanged and unwavering. We are absolutely committed to it. As a matter of fact, we even changed the metrics that drove -- that drive our annual incentive program. This annual incentive program establishes the behaviors that we want to reward our employees. At least 50% of those metrics now incorporates some kind of capital or cost control that incentivizes behaviors of sticking to our capital plan and generating free cash flows that we have discussed this morning. The metrics are designed that if we outspend our capital plan, the result is punitive to all WPX employees. We take this seriously. In previous years, those metrics were more aligned with growing the cash flows to reduce leverage. Again, we set a leverage goal, established compensation metrics to align employees to that goal and guess what? We did it. Now we are pivoting our goals to continue to create shareholder value much like we have done over the last 3 years. As we begin to accumulate free cash flow on the balance sheet, our ability to begin returning value to shareholders comes in to clarity.

With that, I'll turn it back to Rick for some closing comments.

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Richard E. Muncrief, WPX Energy, Inc. - CEO & Chairman of the Board [6]

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Thank you, Kevin. As you and Clay discussed, our commitment to continuous improvement really shows in our results. As we said in our recent annual letter to shareholders, we will work hard to keep earning your trust by focusing on margin growth and precise capital execution. Yes, we're positioned well for 2019, but we're also well positioned for 2020 and beyond. Our plan is simple and it can be summed up in 3 words: sustained value creation. Simply put, that's our job every day.

At this time, we can now open the lines for questions, and I'll turn it back to the operator.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Gabe Daoud from Cowen.

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Gabriel J. Daoud, Cowen and Company, LLC, Research Division - Senior Analyst [2]

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Maybe just starting in the Delaware. Obviously, volumes down a bit here quarter-over-quarter and there's some weather and a sale. But can you maybe just give a little bit more color around the Delaware in 1Q and just how volumes trend over the next couple of quarters, particularly just given the number of wells you guys did turn on in 1Q. And then also, considering your -- how 2Q volumes look, not just in Delaware, but I guess also just overall considering your comments on Bakken.

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Clay M. Gaspar, WPX Energy, Inc. - President & COO [3]

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Sure. Yes, I'll take that. This is Clay. You're right. Obviously, the turn in line numbers on a quarterly basis are important, but I would argue that probably they are more important for the trailing quarter than they are in the current quarter. As an example, the 31 wells we brought on in Q1, about 8 of those were in the last couple of weeks of the quarter, really netting no material gain for the first quarter. We will continue to see steady progress in second, third and fourth in Williston -- excuse me, in Permian. On the Williston side, it is a little bit more lumpy bringing on some big pads. They tend to kind of come and go. You've seen that in our prior numbers. You can track that over time. I would suspect as we're rolling the number forward, plan on Permian being kind of that steady growth quarter-over-quarter. And in Williston, as I've mentioned in the call in our prepared remarks, second quarter is going to be a little bit light and then third and fourth quarter will be pretty strong, Williston. Hope that helps.

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Gabriel J. Daoud, Cowen and Company, LLC, Research Division - Senior Analyst [4]

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Yes. Thanks, Clay. And then maybe just a follow-up. You mentioned in the press release $100 million plus or so of free cash this year and then obviously you combine that with some of the midstream proceeds. It seems like you have enough dry powder for -- maybe to think about accelerating that capital return timeline. But any specific updated thoughts on that? Or are we still kind of waiting on corporate base declines to moderate a bit?

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Richard E. Muncrief, WPX Energy, Inc. - CEO & Chairman of the Board [5]

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Yes. We're going to watch this thing. I think, yes Kevin he will say first things first, let's get the proceeds in from the sale and let's watch this year, see how it progresses. As I said earlier, we are very confident in our plan. But I think first things first, let's go ahead and get the cash in the door, and we'll go from there.

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J. Kevin Vann, WPX Energy, Inc. - Executive VP & CFO [6]

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Yes. I think the current commodity pricing, the proceeds that we expect to be receiving this quarter from our Oryx II sale, that definitely helps accelerate kind of the foundation that we need in order to lean in to a dividend or some type of other return of value to shareholders, but -- I'll preface this the same . We need to realize this. We need to see what the balance of this year does. And then we also need to be thinking about what 2020 looks like in terms of commodity prices and then just what our base cash flows look like in that environment.

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Operator [7]

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Our next question comes from the line of Derrick Whitfield from Stifel.

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Derrick Lee Whitfield, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of E&P and Senior Analyst [8]

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Congrats on a strong ops update.

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Richard E. Muncrief, WPX Energy, Inc. - CEO & Chairman of the Board [9]

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Thanks, Derrick.

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Derrick Lee Whitfield, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of E&P and Senior Analyst [10]

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Perhaps for Rick or Kevin, over the last several weeks as the Gas egresses the kind of topical discussion for Permian producers in light of recent long-haul prices, while your gas is relatively insulated due to strategic actions taken on the midstream side. Could you share your thoughts on views on local gas macro and how long gas prices could remain depressed in the basin?

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Richard E. Muncrief, WPX Energy, Inc. - CEO & Chairman of the Board [11]

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I think there is going to be a lot of gas coming on over the next several years in the Permian. And so I think you're going to see some pressure in that pricing. There are numerous projects on the drawing board. From an industry perspective, I think it's going to help alleviate part of that. But it -- there is going to be a lot of gas coming on. I'm going to turn it over to Greg Horne, who is our VP of Midstream and Marketing and let him give you a little more detail on that.

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Greg Horne, WPX Energy, Inc. - VP of Midstream & Marketing [12]

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Sure. Thanks, Rick. And maybe the only other color I would add to this is that we've seen the situation occur in a number of basins that many folks in management team here at WPX have been involved in the past. And really, this being an oil basin, people are very focused on oil. We've got a lot folks that also have a lot of gas background at WPX as well. So from a macro situation, the way we look at what's going on out in the Permian Basin, is that we certainly need infrastructure to evacuate the gas from long haul to get it to the Gulf. And there's a number of pipelines, I think one comes on at the end of this year, Kinder's pipe and there's another one that comes on in 2020. Depending on, let's say, global demand, the health of the economy, et cetera, if we continue on the pace that we're on. You kind of even move the pipe maybe every 1 to 1.5 years. So you'll continue to see this pressure, especially in shoulder seasons, which is what we're in now. And we expect that Permian gas will continue to be pressured, so you'll have to certainly keep an eye out in the future and be synched up with what the demand is that's coming down the road.

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Richard E. Muncrief, WPX Energy, Inc. - CEO & Chairman of the Board [13]

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One thing I may add is, when -- if you look at Permian producers, I think with the strong balance sheets, you've got a lot of the majors that are -- obviously, have a big presence there. I think over time people will get it. They will sign up for firm transportation to underpin some of these projects, and I think it'll be a big plus. But at the end of the day, producers have to recognize the importance of the associated gas and be ready to handle it.

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Derrick Lee Whitfield, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of E&P and Senior Analyst [14]

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Very helpful color. And as my follow-up perhaps for Clay. Referencing Slide 4, could you speak to what's driving the relative performance of these wells? If I recall, your 1.7x rule of thumb multiplyer for long lateral development is really based on unbounded wells. These wells are clearly bounded at the point you referenced in your prepared comments.

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Clay M. Gaspar, WPX Energy, Inc. - President & COO [15]

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Yes. I think that the math holds. So the 1.7 -- for those that haven't heard me talk about this before, as we walk to the Delaware Basin, very early on that the idea -- the question was, if you're going to do all this land work with the uptick or the benefit in doing so. Not that historically speaking, you kind of see a 1.3-ish multiple on costs and a 1.7, maybe even a 1.8 multiple on EUR productivity. And obviously, that's a very accretive proposition. So what we're seeing here, that 1.7 is holding true. Your question is, hey, that was kind of parent-to-parent. The math should work on child-to-child. As you see on the 1-mile well that we have on this plot, it's a fully bounded well as well. And so as it's outperforming that 1 million barrel type curve, take the 1.7x it, we're still seeing that uptick. And that's something we're really proud of. I don't think it's kind of one of those subtleties that can kind of get lost, but we threw out that type curve as a parent well, knowing that we were quickly moving to a development mode and really trying to understand this well-to-well interference. Our well performance has caught up or I would say outpaced the degradation of the well-to-well interference and so it ends up being a wash, and when it's a wash, sometimes it's kind of lost on the casual observer, but it's a really a big deal. We're really proud of that 1 million barrel type curve for these child wells, the full development modes for 1-mile lateral. And what you can see here that 1.7 multiple holds up really well for a fully bounded 2-mile development. So really exciting, it's a very insightful plot, pretty excited to have this to talk from .

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Operator [16]

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Our next question comes from the line of Will Thompson from Barclays.

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William Seabury Thompson, Barclays Bank PLC, Research Division - Research Analyst [17]

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Sounds, that there is a clear emphasis on your plan to hold the line on '19 CapEx and you've captured some meaningful cost saving in what sounds like more structural efficiency gains. But given last quarter, there were some discussion about adding Permian rigs at some point down the line. Correct me if I'm wrong, but the belief was that you are under scaled at 5 Permian rigs , particularly with some leasehold activity. Just wanted to get your current thoughts on 2020 and beyond and maybe what could be the capital efficiency gains you could do beside to add a rig down the line?

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Richard E. Muncrief, WPX Energy, Inc. - CEO & Chairman of the Board [18]

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Well, I think one thing we need to do is continue to focus on these efficiencies and we are really, really pleased. And I think that would drive rig count, those sorts of things. But bottom line is, it comes down to CapEx and you can keep a focus on free cash, I think you'll hear us really talking a little more about this is the capital spending, and I think that will drive what your rig count actually is. I think Clay and the team are doing a nice job managing, covering our acreage, our CDC's that we may have to deal with, while at the same time, building out infrastructure. That infrastructure can be pipe, it can be redundant power systems, that sort of thing. That's one of the things we're really looking at as we tested with a lot of our growth out there, not just us, but a lot of our ops. You get out in the state-line area, and the rock is as good as there is in the world. And so a lot of focus from a lot of good companies, but what you see is you see infrastructure getting stressed and we're sitting on the power side. And so we're going to be attacking that. So I think from our Permian rig count perspective, Clay and the team will just balance all that and see what the net effect is. But just please hear us, that we're really focused on generating free cash.

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William Seabury Thompson, Barclays Bank PLC, Research Division - Research Analyst [19]

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Okay. That's helpful color. And then regarding your early work on the midstream arrangements, so you have clearly seen the benefit of closing the gap with WTI pricing even before the basis swaps. With 80% of 18 volumes -- or sorry, 20 volumes that could be linked to international Gulf pricing, what looks like under $2 of transport cost based on that slide, should we think about modeling a premium to WTI at some point? Just curious on how you think that's going to play out.

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Richard E. Muncrief, WPX Energy, Inc. - CEO & Chairman of the Board [20]

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Yes. I think it's all going to look at how the -- what the strength of brent is. I mean, that spread is going to drive a big part of that. But I do think we're well positioned with the arrangements that we've had and that's the thing that gets us really, really excited about Permian growth that we're going to see over the next several years. And you're going to see more of that exposure. And so I think it's going to really lead to some very, very nice net backs to wellhead.

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Operator [21]

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Our next question comes from the line of Brad Heffern from RBC Capital Markets.

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Bradley Barrett Heffern, RBC Capital Markets, LLC, Research Division - Associate [22]

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Rick, I was wondering if I could just get your updated thoughts on M&A. Obviously, we have at least one of the big players getting bigger. So your thoughts on the importance of scale, either through you guys doing a new acquisition or some sort of merger of equals would be interesting.

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Richard E. Muncrief, WPX Energy, Inc. - CEO & Chairman of the Board [23]

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Well, obviously, the large transaction that's underway out there with Anadarko, it's going to be really interesting to see where that -- how that really plays out. And I'm surprised actually there's not a third player in there that seems like a logical player in that role. So we'll see how that all plays out. But as far as WPX perspective, we've shown that we can operate quite well, we like our assets. And so I think we're going to just focus this year on our portfolio. And I really like the growth that we're going to see. We've talked about 20% growth over 2018, living within cash flow, generating some free cash. And I think that's going to be our focus. We always have opportunities come our way for small acreage. They're not even -- some are small enough, they're not even bolt-ons. But I think our team will continue to look at those and try to optimize the portfolio and focus on that. So that's kind of where we're at. I know that there's a lot of talk about M&A out there, but for every positive, I hear a lot of people that push back on things. And so until the market gets more receptive, a lot of talk, but I think people are going to be, by and large on the sidelines, waiting to see.

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Bradley Barrett Heffern, RBC Capital Markets, LLC, Research Division - Associate [24]

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Okay. And then there's been more talk about West Texas light, and in general, crude quality discounts in the Delaware. I'm just wondering if you can talk about a, what sort of your average API is across the production; and b, if you're seeing any issues with that in any areas?

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Greg Horne, WPX Energy, Inc. - VP of Midstream & Marketing [25]

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Sure. I'll take a stab at that. This is Greg Horne. It's a good question, appropriate concern, and here's how I'd answer it for WPX regarding kind of the light barrel and the discount. And I'll maybe let Clay opine on gravity. We've largely demonstrated a core competence at WPX around identifying constraints or opportunities in the market and then taking action to mitigate those risks or position the company to be in an advantaged position. So regarding the light barrel discount, we saw it coming and locked in physical deals with fixed discount to WTI for equity barrels. So for example, if the discount goes to $2, $3, $5, we're in good shape, we're protected well below those levels. That's kind of for the balance of '19. Beyond '19, we've got the P66 Gray Oak line coming on where WPX holds capacity. Our capacity ramps from 20 toward the end of this year when there's early in service, about Q4, quickly goes to 30 and then eventually goes up to about 50 over time. So really, as more long-haul capacity opens up later this year and into '20 where our barrels move to Corpus and down to the Gulf in general, hit the export markets, that's where the -- those markets desire the light barrel. So we see that discount just in general for the basin being alleviated a little bit when these pipes come on. But for WPX, we've taken care of it in 2019.

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Clay M. Gaspar, WPX Energy, Inc. - President & COO [26]

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Yes, I'll just add something and reiterate a point. Gravity 50 plus or just over 50 probably on a lot of our barrels, kind of 48 to 52 is the range. Remember that, that is -- on a worldwide basis, that is not a negative. Much of the world craves those barrels. And so the trick is not to be stuck in West Texas with a bunch of barrels where there's not a local market for it. So as Greg mentioned, getting this pipe, getting the barrels to the Gulf Coast really opens us up to that international kind of a premium market that we're really excited about. So we've done a great job of mitigating kind of the time between now and when those pipes come on. And then once the pipes are on, then we're freed up to market the barrels internationally.

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Operator [27]

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Our next question comes from the line of Brian Downey from Citigroup.

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Brian Kevin Downey, Citigroup Inc, Research Division - Director [28]

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On the codevelopment, you clearly have solid results out of the CBR pad there and you indicated additional wells on that same pad on the X/Y and Upper and Lower A. You also touched on some of the Lower Wolfcamp intervals and the Hattie pad as you delineate acreage there. Medium term, would you start adding any Wolfcamp Bs or other zones in your codevelopment plans and any of your areas and does that effect the calculus, as you mentioned, on codevelopment?

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Clay M. Gaspar, WPX Energy, Inc. - President & COO [29]

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Yes. I think it's a great question. We have -- we think about this a lot. We actually recently tested a B well in conjunction with a Wolfcamp A development right in the middle of Stateline. The results are telling us that where we're picking the landing zones in the A and the landing zone -- this particular landing zone in the B is that there's not hydraulic communication between the 2. So what that does, it frees us up from needing to codevelop the B at the same time as the A. Now in the right rig program, right commodity price, right environment, you certainly could do that. But right now we're trying to take right bite-sized pieces and make sure that what we leave behind is ready for a rig to come back and be in a very good productive state. Now contrast that down with the -- in the Sand Lakes area, what we're finding that B landing zone is in hydraulic communication with the Wolfcamp A. So when you see us have a rig -- a program down there, we'll actually be developing the Lower -- excuse me, the B, the Lower A, the Upper A and the X/Y all at the same time in one rig visit. So it's really a little bit unique to the area. You mentioned the Hattie, it was a little further out to the east on what we call the River Tracts. We've tested the B, we've tested the D, tested the A. Obviously, the D is clearly in a different flow horizon. But we continue with a relatively small percentage of our overall capital to continue to test these landing zones and understand the bigger picture. I'll point back to the 41 44. The other reason I like it so much is that it's right at the middle of Stateline and it's very representative of the 2-mile development that is the heart of what we're going to be doing as an organization for the next several years. That's the basis of our growth program. And so it's very encouraging, we're really excited to see these results. And again, on the back of some really good technology, we applied, we learned from, we're creating massive value when you pull all that together.

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Brian Kevin Downey, Citigroup Inc, Research Division - Director [30]

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Great. That's very helpful. Any ancillary effects there as you go toward the B? I know the gas cut and the oil cut changed a little bit. Anything on that front?

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Clay M. Gaspar, WPX Energy, Inc. - President & COO [31]

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Yes, generally speaking, as you're going down a section from the X/Y down to the D, you're lessening oil, increasing gas. We mentioned in the release one of the wells that we drilled in the Hattie, we had I think an A and a D, maybe a B as well. The D well in that particular case was 26% oil. So obviously that's significantly lower than the preponderance of our development. Right in Stateline where we're just north of 50%, call it 50%, 55% oil for the Wolfcamp A. It would be the same thing in Stateline. As you move down in section, it becomes a little bit gassier. The good news is you get a lot more energy. The EURs are going to be higher, the flow rates are higher. And so there is some interesting trade off. And in the right commodity mix, the right commodity pricing environment, these Ds will become compelling and we will queue them up and get ready to develop at some point in the foreseeable future.

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Operator [32]

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Your next question comes from the line of Neal Dingmann from SunTrust.

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Neal David Dingmann, SunTrust Robinson Humphrey, Inc., Research Division - MD [33]

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Clay, for you or Rick, you guys have done a great job of just creating value around your midstream. And my question is around sort of on a go forward, do you still see a number of other ways to create internal midstream value, whether it's with the water system or Howard JV or any of the other things you have?

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Richard E. Muncrief, WPX Energy, Inc. - CEO & Chairman of the Board [34]

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Yes, Neal, it's -- we do have the water system core, there's a lot of value there, the JV, there's a lot of value there. But the other thing I think that a lot of folks don't understand is once you have shown an established a track record for value creation and investing at the right time and monetizing at the right time, you get more opportunities coming your way. And so that's one of the things that we really focus on is just looking at opportunities and seeing how that -- if that fits with us and can live within our capital budget. And we're going to be, once again for -- don't want to sound like a broken record, but we're going to be very, very disciplined around that. But we do see, from time to time some opportunities present themselves that are very intriguing. So I think on the water and the JV, we'll continue. They're still somewhat, I think, immature. I'm really excited about the recycling capabilities that we now have and that's a growing part of our business. So I think you'll just continue to see value growth in both those arenas, with water gathering and the JV, so.

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Clay M. Gaspar, WPX Energy, Inc. - President & COO [35]

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I'll just add a quick comment. Completely agree with Rick's thoughts around water and all the other things we've talked about around the gas that we've been ahead of the market on. These light barrel business, I mean clearly, we've got that box checked as well. If I think about the announcement from last quarter, the TPLT, the surface acreage, that opens up a whole new arena of value creation for us. On the call I believe I tried to convey how important in value creating this $100 million investment is going to be to the company. I mean I tell you, as we stand today, we clearly see time and time again opportunities coming our way because of that position that we hold. Multiple times over potential value creation of what we have invested in it. So it lines up exactly with what Rick was talking about, what your question was around our culture of thinking about forward value creation in creative ways.

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Neal David Dingmann, SunTrust Robinson Humphrey, Inc., Research Division - MD [36]

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Great, no, I figured as much. And then just a follow-up. Clay, you strategically added that surface acreage around Stateline last week. Could you just maybe comment on the benefits you're seeing from that? And has anything changed or you think you'll continue to see just sort of the fruits of that labor?

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Clay M. Gaspar, WPX Energy, Inc. - President & COO [37]

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Yes, Neal, that's exactly what I was talking about. The TPLT, maybe a little bit inside speak on the surface acreage. We invested $100 million last quarter to buy 14,000 acres over the heart of our Stateline field. How that's materializing in value, I can tell you it's dealing with other surface owners, making sure that all of this value creation Rick was just talking about around the water business and the recycling, that is imperative that you have a strong land position, because otherwise the surface owners can essentially hold you hostage to a lot of the decisions you'd like to make. But it's also really showing value in our conversations peer to peer with other operators. They see the value creation opportunity that we have. And the opportunity that we're seeing for trade, working deals with some of our partners, I think those things are continuing to flow our direction, really on the back of this surface acreage acquisition.

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Operator [38]

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Our next question comes from the line of Kashy Harrison from Simmons Energy.

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Kashy Oladipo Harrison, Simmons & Company International, Research Division - VP and Senior Research Analyst of E&P [39]

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So I was just wondering if you guys could share some color on how you think about maintenance CapEx to hold year-end '19 oil rigs flat into 2020. Just given all the cost improvements that you're seeing in the Delaware here more recently.

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Clay M. Gaspar, WPX Energy, Inc. - President & COO [40]

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Okay. Yes, Kashy, this is Clay. What we talked about is fourth quarter to fourth quarter, we're reiterating the 5% to 10% growth on the oil curve. That's obviously replacing a lot of the base decline. As we continue at this pace, our base decline is significantly shallowing. And so as you march through time, that maintenance capital piece becomes smaller and smaller, compounded by the fact that well cost is going down, efficiencies are going up. So if you think of our DC&F investment for this year of $1 billion to $1.1 billion for 5% to 10% growth, now we're talking about generating free cash flow on that same investment. Obviously, it's something less than that. Without giving you the -- a stab of the specific number, I can just tell you all of the metrics are moving in the right direction in that regard from a time component and from a cost component as well.

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Kashy Oladipo Harrison, Simmons & Company International, Research Division - VP and Senior Research Analyst of E&P [41]

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No, that makes sense. And then the year-over-year improvement in Williston and the well performance, that was certainly interesting just given that last year was augmented by North Sunday Island. And so maybe a question for Clay. Is the right way to think about what you all consider to be core Williston, is -- does that well performance look like what we saw in 2018 and what we're starting to see in 2019? Should we think about that kind of well performance as your core wells moving forward?

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Clay M. Gaspar, WPX Energy, Inc. - President & COO [42]

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Let me think about how to answer that. I think yes, we are clearly testing a broader geographic area. Most of the balance of our inventory is representative of what we're drilling now, not just in the first quarter, but this year, last quarter, over this time period, you see us, you keep an eye on our rig, we're not just kind of holed up in one corner of our acreage position. We're moving quite a bit around the acreage position. Now I will say we have a significant step out to the southeast, the Badlands test. That's one of the -- it's a 2-well pad that was delayed this quarter -- excuse me, first quarter into second quarter. That's an important step out. Maybe I'll talk about it next quarter, it might even be the quarter after. But that one -- that is testing a little bit different rock. We're encouraged by what we've seen so far from a drilling and completion standpoint, but the real test is productivity and how that ultimately translates into value.

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Operator [43]

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Our next question comes from the line of Leo Mariani from KeyBanc.

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Leo Paul Mariani, KeyBanc Capital Markets Inc., Research Division - Analyst [44]

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Wanted to touch on the Permian oil pricing as you roll into 2020. Appreciate that you get some step up in terms of the pricing there. I was hoping you could take that kind of 80% of your barrels that go to either the Gulf Coast market or international markets and maybe give me some sense of what the split is between international versus Gulf Coast there.

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Clay M. Gaspar, WPX Energy, Inc. - President & COO [45]

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Yes, we haven't gone into that level of detail on that split. We just talk about it in an overall bucket. MEH and international or Gulf Coast and international, it's several contracts. We do quite a bit of work. To get into that granularity, it's probably something we're not willing to share at this point.

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Leo Paul Mariani, KeyBanc Capital Markets Inc., Research Division - Analyst [46]

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Okay. I guess just following up on your comments about some of the delays in the Bakken. It certainly sounds like you guys are expecting to see Bakken production come down a little bit in the second quarter versus first quarter here. Just wanted to get an overall sense, I know the Permian is going to grow a little bit but when you sort of add all that together, do you think you'll see some sequential oil production growth in 2Q or we more have to kind of wait until 3Q?

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Clay M. Gaspar, WPX Energy, Inc. - President & COO [47]

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Yes, I think the jury's still out on the second quarter. We would like to have the continued growth quarter-over-quarter-over-quarter. As you know, this business can be a little bit bumpy. So we don't have a precise number for you on the second quarter. But certainly, when you look at the impact of third and fourth, we're really comfortable reiterating our full year number. And so I would ask you to keep your eye on the little bit larger prize, the timing shift of 30 days for a couple of pads, especially winter weather. That's no negative indication of our geology, our inventory, the quality of what -- the work that we're doing. We made a call on the back of safety and making sure that we're doing the right thing. Stand by that every day and there'll probably be some -- obviously some negative impacts to Williston quarter-over-quarter. We'll take that, live to fight another day and look forward to the third quarter.

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Leo Paul Mariani, KeyBanc Capital Markets Inc., Research Division - Analyst [48]

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Okay, that makes perfect sense for sure. Just wanted to follow up on your comments around sort of the improved efficiencies and cycle times in the Delaware. Just trying to get a sense of whether or not you can kind of translate that into sort of what the current well costs are in Delaware versus where they may have been, say 6 months ago to try to kind of quantify some of the benefit there.

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Clay M. Gaspar, WPX Energy, Inc. - President & COO [49]

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Yes, I think we continue to make really good improvements. We had indicated our expectations for 2019. We're hoping to approach for 1-mile, 1.5, 2-mile, $7 million, $8.5 million and $10 million per well for those individual components or those individual types of wells. I'd tell you, today, we're there. We probably have additional room going forward. And so we're ahead of schedule on some of those cost improvements that we had identified from last year, material improvements. We've already achieved kind of tail end of the first quarter. We'll benefit from that really for the balance of the year and knowing my team, I know we're going to make continual improvements even beyond that. And I should note that does include drilling, completions, the facilities, artificial lift. If you're comparing apples to apples, make sure that's all included.

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Operator [50]

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Our next question comes from the line of Kevin MacCurdy from Heikkinen Energy Advisors.

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Kevin Moreland MacCurdy, Heikkinen Energy Advisors, LLC - Partner and Exploration and Production Research Analyst [51]

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My questions are already asked.

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Operator [52]

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Our next question comes from the line of Brian Singer from Goldman Sachs.

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Brian Arthur Singer, Goldman Sachs Group Inc., Research Division - MD & Senior Equity Research Analyst [53]

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A couple follow-ups. I joined a little late, so apologies if some of this was already touched on. First, on the Bakken, you highlight, and as was talked about a couple questions ago, the continued improvement you're seeing in the type curve. Can you provide a little bit more color on the drivers of this, particularly this year at the lateral length versus quality of location selection versus other drivers? And really trying to get down to the sustainability or the continued potential for improvement there.

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Clay M. Gaspar, WPX Energy, Inc. - President & COO [54]

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Yes, Brian. It's certainly not lateral length. We've been drilling right up to 10,000 feet per well pretty consistently for several years. It's not a geology difference. Obviously, we've had the same relative footprint for several years. What it comes down to is just very, what I would call minor tweaks that in a cumulative effect, they continue to improve. How we're placing the sand, how we're pumping the jobs, how we're flowing the wells back, how we're thinking about all the small inputs that come in. It's dozens and dozens of things that we continually tweak, perforation design, preparation size, perforation clustering, some of the techniques that we're using to getting the efficient work done. All those kind of -- remember, Williston is pretty far in the maturity spectrum. And so you're not going to see us have a breakthrough 180-degree turn on a lot of the work we're doing there. We're not searching for the landing zones. We're not searching for kind of incremental big pieces of gains. I think -- but this -- what we're finding is continuing to be thoughtful and smart. We're transferring knowledge not just from the Delaware Basin, but from other basins around the country and continue to just chip away and continue to make improvements.

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Brian Arthur Singer, Goldman Sachs Group Inc., Research Division - MD & Senior Equity Research Analyst [55]

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Great. And then with regard to the cost reductions that you've highlighted, what's baked into your CapEx budget for the year relative to what you've demonstrated and what you expect through the remainder of the year?

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Clay M. Gaspar, WPX Energy, Inc. - President & COO [56]

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Yes, what we have in the budget, we had planned on a reduction during the first quarter into the second quarter, and then achieving that -- I talk in terms of 1-mile laterals, on the prior question, I talked about scaling that up. But just for simplicity, 1-mile laterals, we talked about approaching a $7 million well cost by sometime midyear. We're a little ahead of schedule on that. I think with our continued improvements, I see us probably going below that at some point this year. So we're a little ahead on what we projected overall well costs. Obviously, that scales up to the 2 miles we had planned on approaching $10 million, and I would expect that we're there now and working toward going below that at some point this year.

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Brian Arthur Singer, Goldman Sachs Group Inc., Research Division - MD & Senior Equity Research Analyst [57]

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And if I could just follow up on that. If you end up below to a point where you have flexibility in your CapEx budget, would you come in under budget or would you drill more -- get more wells drilled to the same budget?

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Richard E. Muncrief, WPX Energy, Inc. - CEO & Chairman of the Board [58]

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I think you're going to come in under budget. That's the bottom line. And so we're going to be -- Brian, we've worked really, really hard to get to this point, so we're going to be very, very disciplined on managing our cash.

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Operator [59]

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Our next question comes from the line of Jeffrey Campbell from Tuohy Brothers.

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Jeffrey Leon Campbell, Tuohy Brothers Investment Research, Inc. - Senior Analyst of Exploration & Production and Oil Services [60]

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I thought that the CBR pad drilling and completion time reductions were really remarkable. First, are those reductions reflected in the 17% 2-mile lateral cost reduction that's also on the slide? Second, can you add some color on the key elements that drove this dramatic improvement and how it will influence future development?

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Clay M. Gaspar, WPX Energy, Inc. - President & COO [61]

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Yes, Jeff. I would say the part of the reductions are baked into the numbers. And we referenced obviously first quarter, it's a blended average of everything we've done during the quarter. So by end of the quarter, our current state, we're seeing those -- the costs materialize, the benefits materialize. And so it's partially in the first quarter. We'll really see this even more so at the balance of the year. I'm sorry, was there a second question as well?

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Jeffrey Leon Campbell, Tuohy Brothers Investment Research, Inc. - Senior Analyst of Exploration & Production and Oil Services [62]

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Yes. I just wondered, I mean and particularly the completions time was reduced so much, I was just wondering, was there any particular variable or variables that contributed to that improvement?

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Clay M. Gaspar, WPX Energy, Inc. - President & COO [63]

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Well, that's a little bit of our secret recipe we're not going to talk too much about. But we have definitely made some changes in how we pump the design. We partnered with a really good company out there. They are incented to basically have the pumps in gear as much as possible. And so what that allows us to do is take 1 frac crew and it keeps up with 5 very efficient drilling rigs. That makes that frac crew much more profitable for that service company, and it allows us to be much more profitable on a well to well basis. So it is pump design. It's also some efficiencies, getting the right people out there, kind of just kind of oiling all the gears and making sure everything is running really well. And as you can imagine, as we moved, prior years, we're bouncing rigs around to different geographic areas. We're trying different landing zones. We're trying different -- very significant early innings type changes to wells. It's hard for us to get up on the efficiency scale. I can tell you, we've turned the corner, especially in Stateline, you'll continue to see these improvements. I spoke of a well that we drilled a spud to rig release in under 16 days. That's certainly not the best we will ever do. I'm highly confident in saying that. The team will continue to chip away at that and make steady progress to drive that efficiency up and productivity up as well.

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Jeffrey Leon Campbell, Tuohy Brothers Investment Research, Inc. - Senior Analyst of Exploration & Production and Oil Services [64]

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And I just want to ask about the patty -- I mean the Hattie pad. I'm just wondering how large the River Tracts area is and perhaps how many acres or locations or whatever you want to talk about that you feel the results derisked.

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Clay M. Gaspar, WPX Energy, Inc. - President & COO [65]

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Yes, this is a -- it's 3 -- the River Tracts are 3, 2 -- roughly 2-mile DSUs, a little east of our Sand Lakes area right there on the river, obviously. It's an area where you needed to hit the CDC. We elected to do some additional delineation work, understand some other zones. And we'll always have that in our capital budget portfolio, but it's a relatively small percentage. We just highlighted those because they're a little bit unique, they happened to fall this quarter. Don't think of it as a new focus area for us. It's a little bit more a sweetener to kind of our core focus areas.

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Operator [66]

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Our next question comes from the line of Biju Perincheril from Susquehanna.

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Biju Z. Perincheril, Susquehanna Financial Group, LLLP, Research Division - Analyst [67]

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Clay, thanks for all the color on your spacing tests and parent-child data that you have, and you probably have more data than any of your peers there. So as I look to some of your data, it looked like the 440-foot space pilot that you have, maybe it looked like those pilot, you could go even a little tighter, but 330 looks like maybe a little too tight. I was just wondering if you can talk about, obviously in the Stateline area, how you were thinking about just pacing in the Wolfcamp A?

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Clay M. Gaspar, WPX Energy, Inc. - President & COO [68]

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Yes. I wish was just as simple as, let's find what the right spacing is and then hit duplicate, duplicate. Obviously, things like commodity price and well costs, I've touched on in my prepared remarks, are hugely important. Think about this, as we have this very efficient frac crew and our per well completion cost goes down, now I don't know, maybe we're a little more incentivized on a per well basis to add more wells. Can we afford to do that? Or we incentivize to increase the completion design, put more sand in the ground, and then we're able to kind of despace a little bit. Those are kind of things that come into play a little bit on the margins. The other very important thing, even within Stateline is very consistent, the thickness of the zone is of critical importance. And so some areas as we get into this -- the 41 44, we are about 130 feet between Upper and Lower, and I think 110 or 120 feet between the Upper and the X/Y. As that moves out, then you can afford to tighten those wells in, you just have more oil in the ground. And you can tighten those wells up a little bit and still achieve that optimal -- into achieving the optimal return there. So lot of things come into play. You're right, it's somewhere between 330 and 440. We continue to test and refine that, and we're always chasing those -- the external factors as well and trying to work those in conjunction.

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Biju Z. Perincheril, Susquehanna Financial Group, LLLP, Research Division - Analyst [69]

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That's helpful. And the -- one of the, I guess topics that had come up this morning was sort of your Delaware Basin oil mix. And it looks like it's more than anything else, it was a higher NGL. So I was wondering, one, was there any lingering impact on the sales -- NGL sales number, the selling from inventory, from the disruption you had back in the third quarter? Or is it, the new plan is more efficient in NGL recovery? Or were there any impact from some of the pilots that you're testing?

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Clay M. Gaspar, WPX Energy, Inc. - President & COO [70]

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Yes, I think it's really the latter. You may have noticed our NGL price realizations were a little low as well. What happens is, as we go deeper into ethane recovery, with our plant, we have that option. We're always looking at, if the ethane is better, of more value in the gas stream or in the liquid stream. In this case, we're pushing it toward the liquids. Now what that does is it dilutes your NGL composite analysis so you have more ethanes, which are cheaper than obviously some of the richer liquids, and that draws down your overall NGL per barrel value. Now what it does, as you pointed out, it increases your volume of barrels. So overall, it's the right value proposition. You just have to look at it a little more holistically, but it's the latter, what you're talking about. We just have a plant that's very efficient. We can dial-up that ethane recovery when it's economically beneficial to us and that's what we've done.

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Biju Z. Perincheril, Susquehanna Financial Group, LLLP, Research Division - Analyst [71]

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Got it. So is the first quarter mix more appropriate for the remainder of the year or do you expect the oil mix to come up a bit?

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Clay M. Gaspar, WPX Energy, Inc. - President & COO [72]

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It really depends. We have the ability to dial that up and back at our plant and so it depends on the NGL pricing, and that's especially ethanes.

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Operator [73]

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I'm showing no further questions at this time. I would now like to turn the conference back to Mr. Rick Muncrief.

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Richard E. Muncrief, WPX Energy, Inc. - CEO & Chairman of the Board [74]

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Well, we appreciate your time and interest today. If you have any follow-up questions, feel free to reach out to Dave Sullivan and our IR group. Otherwise, we'll see you out on the road at conferences or during some investor visits. So take care, have a great day.

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Operator [75]

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Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.