Will WPX Energy's Investments in Core Assets Boost Returns? - Analyst Blog
We initiated coverage on the independent oil and gas operator WPX Energy Inc. WPX. WPX Energy continues to invest in its core assets in the Piceance, Williston and San Juan basins to increase production and enhance reserves. However, capital intensive oil and gas exploration operations do not always result in commercial quantities leading to a degree of uncertainty.
Tulsa, OK based WPX Energy engages in the production of natural gas, oil and natural gas liquids. The company specializes in producing fossil fuel from on-conventional resources like tight-sands and shale formations.
The company reported mixed results in the first quarter of 2015, with its earnings per share surpassing the Zacks Consensus Estimate while its revenues lagging the same. Despite a significant year-over-year drop in commodity prices, operational and financial discipline has helped the company to overcome the odds.
WPX Energy is building up a strong portfolio of assets by continuously evaluating its existing properties and divesting underperforming ones. Ongoing investments in WPX Energy’s core assets in the Piceance, Williston and San Juan basins will help the company to enhance production and build its reserves. WPX Energy is now targeting 20–25% growth in oil volumes, up from its prior expectation of 15–20%.
Oil and gas operations are capital intensive. A company needs to have a stable cash flow generating capability and secure external funding to sustain exploration activity. In addition, WPX Energy uses the hydraulic fracturing method to produce commercial quantities of natural gas and oil from many of its existing reservoirs. There has been heightened debate about the usage of hydraulic fracturing and its impact on the environment. If legislations or regulations pertaining to the restricted use of hydraulic fracturing are implemented, it could result in increased costs and lower margins.
WPX Energy currently has a Zacks Rank #2 (Buy). Other better-ranked stocks in the same space are Linn Energy, LLC LINE, LRR Energy, L.P. LRE and Noble Energy, Inc. NBL, all three sporting a Zacks Rank #1(Strong Buy).
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