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WPX Energy Prices Notes, Proceeds to Fund Felix Energy Buyout

Zacks Equity Research

WPX Energy WPX announced that it has priced its previously declared offering of 4.5% senior unsecured notes due 2030. The total principal amount of the offering will be $900 million. This offering will close on Jan 10, 2020.

Net proceeds from the offering will be nearly $888.75 million, after deducting underwriting discounts and commissions, and before estimated offering expenses payable by WPX Energy. The net proceeds will be initially kept in an escrow account, and then be utilized to fund the acquisition of Felix Energy Holdings II, LLC, and pay related fees and expenses.

In December 2019, the company announced its intention to acquire Felix Energy for $2.5 billion to expand operations in the Delaware basin. Felix Energy has 58,500 net acres in an over-pressured, oily portion of the basin with six productive benches. This acquisition in a way will support the company’s goal of producing more oil from organic and inorganic assets.

Low-Interest Environment Helps
 
The Federal Reserve lowered interest rates thrice during 2019 and this development actually helped companies belonging to capital-intensive industries to fund their acquisitions and long-term projects by borrowing funds from the market at a comparatively cheaper rate than before.

As of Sep 30, 2019, long-term debt of WPX Energy was $2.2 billion, lower than $2.5 billion recorded on Dec 31, 2018. Its existing debt bears an annual interest rate ranging from 5.25% to 8.25%. This clearly indicates that the new notes will allow the company to make savings in interest payments.

Companies like Black Hills Corporation BKH and Noble Energy NBL, among others, took advantage of the current low-interest environment to refinance their old high interest-bearing debts from the issuance of low-interest-bearing notes.

Debt Level Lower Than Industry
 
WPX Energy’s current debt-to-capital ratio stands at 32.16%, lower than its industry’s average of 37.45% and the Zacks S&P composite’s 42.92%. The company’s interest expenses in the first nine months of 2019 were $119 million, down 3.3% from the year-ago period.

The company has managed and restructured debts in such a manner that it has no significant debt maturity till 2023. The existing operations of WPX Energy and the addition of new assets will further increase free cash flow and cash margins. This in a way will allow the company to accommodate new debts, and service its old and new debts efficiently.

Price Performance

Shares of WPX Energy have outperformed its industry in the past six months.



Zacks Rank & Another Key Pick

WPX Energy currently has a Zacks Rank #2 (Buy). Another top-ranked stock in the same industry is CNX Resources Corporation CNX, carrying the same rank as WPX Energy. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CNX Resources delivered average positive earnings surprise of 34.8% in the last four quarters.

CNX Resources’ Zacks Consensus Estimate for 2020 earnings has moved up 127.3% to 25 cents in the past 60 days.

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Black Hills Corporation (BKH) : Free Stock Analysis Report
 
CNX Resources Corporation. (CNX) : Free Stock Analysis Report
 
WPX Energy, Inc. (WPX) : Free Stock Analysis Report
 
Noble Energy Inc. (NBL) : Free Stock Analysis Report
 
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